EASTERN UTILITIES ASSOCIATES
1994 Annual Report on Form 10-K
Table of Contents
PART I
Page
Table of Contents. . . . . . . . . . . . . . . . . . . . . . . . . . . . (i)
Glossary of Defined Terms. . . . . . . . . . . . . . . . . . . . . . . . (iv)
Item 1. BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
EUA Cogenex . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Fuel for Generation . . . . . . . . . . . . . . . . . . . . . . . . 7
Nuclear Power Issues. . . . . . . . . . . . . . . . . . . . . . . . 9
General. . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Decommissioning. . . . . . . . . . . . . . . . . . . . . . . . 10
Maine Yankee . . . . . . . . . . . . . . . . . . . . . . . . . 11
Yankee Atomic. . . . . . . . . . . . . . . . . . . . . . . . . 11
Seabrook Unit 2. . . . . . . . . . . . . . . . . . . . . . . . 11
Public Utility Regulation . . . . . . . . . . . . . . . . . . . . . 12
Rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
FERC Proceedings . . . . . . . . . . . . . . . . . . . . . . . 15
Massachusetts Proceedings. . . . . . . . . . . . . . . . . . . 15
Rhode Island Proceedings . . . . . . . . . . . . . . . . . . . 16
Environmental Regulation. . . . . . . . . . . . . . . . . . . . . . 18
General. . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Electric and Magnetic Fields . . . . . . . . . . . . . . . . . 19
Water Regulation . . . . . . . . . . . . . . . . . . . . . . . 19
Air Regulation . . . . . . . . . . . . . . . . . . . . . . . . 20
Environmental Regulation of Nuclear Power . . . . . . . . . . . . . 22
Energy Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
(i)
PART I (continued)
Page
Item 2. PROPERTIES . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Power Supply . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Generating Units in Service. . . . . . . . . . . . . . . . . . . . 25
Other Property . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Item 3. LEGAL PROCEEDINGS. . . . . . . . . . . . . . . . . . . . . . . 26
Rate Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . 26
Environmental Proceedings. . . . . . . . . . . . . . . . . . . . . 26
Shareholder Proceeding . . . . . . . . . . . . . . . . . . . . . . 30
Other Proceedings. . . . . . . . . . . . . . . . . . . . . . . . . 30
Item 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY-HOLDERS . . . . . . . . . . . . . . . . . . . . . 31
Executive Officers of the Registrant . . . . . . . . . . . . . 31
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON STOCK AND
RELATED SHAREHOLDER MATTERS. . . . . . . . . . . . . . . . 33
Item 6. SELECTED FINANCIAL DATA . . . . . . . . . . . . . . . . . . . 34
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS. . . . . . . 34
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY
DATA . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE . . . . . . . . . . 34
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE
REGISTRANT . . . . . . . . . . . . . . . . . . . . . . . . 34
Item 11. EXECUTIVE COMPENSATION . . . . . . . . . . . . . . . . . . . . 35
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT. . . . . . . . . . . . . . . . . . . 35
Item 13. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS . . . . . . . . . . . . . . . . . . . . . . . 35
(ii)
PART IV
Page
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, and
REPORTS ON FORM 8-K. . . . . . . . . . . . . . . . . . . . 35
(a)(1) Financial Statements . . . . . . . . . . . . . . . . . . . 35
(a)(2) Financial Statement Schedules. . . . . . . . . . . . . . . 35
(a)(3) Exhibits . . . . . . . . . . . . . . . . . . . . . . . . . 35
(b) Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . 51
Signatures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Report of Independent Accountants . . . . . . . . . . . . . . . . . . . 56
(iii)
GLOSSARY OF DEFINED TERMS
The following is a glossary of frequently used abbreviations and/or
acronyms found throughout this report:
The EUA System Companies
Blackstone Blackstone Valley Electric Company
Eastern Edison Eastern Edison Company
EUA Eastern Utilities Associates
EUA Cogenex EUA Cogenex Corporation
EUA Day EUA Day Company, a subsidiary of EUA Cogenex
EUA Nova EUA Nova, a division of EUA Cogenex
NEM Northeast Energy Management, Inc., a
subsidiary of EUA Cogenex
EUA Energy EUA Energy Investment Corporation
EUA Ocean State EUA Ocean State Corporation
EUA Service EUA Service Corporation
Montaup Montaup Electric Company
Newport Newport Electric Corporation
Registrant EUA
Retail Subsidiaries Blackstone, Eastern Edison
and Newport
Non-Affiliated_Companies
Aquidneck Aquidneck Power Limited Partnership
Great Bay Power Great Bay Power Corporation (formerly EUA
Power Corporation)
Maine Yankee Maine Yankee Atomic Power Company
OSP Ocean State Power Project Units 1 and 2
Yankee Atomic Yankee Atomic Electric Company
Regulators/Regulations
1935 Act Public Utility Holding Company Act of 1935
Bankruptcy Court United States Bankruptcy Court for the
District of New Hampshire
CERCLA Federal Comprehensive Environmental
Response, Compensation and Liability
Act of 1980
Chapter 21E Massachusetts Oil and Hazardous Material
Release Prevention and Response Act
Clean Air Act Amendments Clean Air Act Amendments of 1990
CRMC Rhode Island Coastal Resources Management
Council
DEP Massachusetts Department of Environmental
Protection
DEQE Massachusetts Department of Environmental
Quality Engineering
DOE Department of Energy
Energy Policy Act Energy Policy Act of 1992
EPA Federal Environmental Protection Agency
(iv)
GLOSSARY OF DEFINED TERMS (Cont'd)
Regulators/Regulations (continued)
FASB Financial Accounting Standards Board
FAS87 Statement No. 87 Employers' Accounting for
Pensions
FAS96 Statement No. 96 "Accounting for Income
Taxes"
FAS106 Statement No. 106 "Accounting for
Post-Retirement Benefits Other Than
Pensions"
FAS107 Statement No. 107 "Disclosures about
Fair Value of Financial Instruments"
FAS109 Statement No. 109 "Accounting for Income
Taxes"
FAS112 Statement No. 112 "Employers' Accounting
for Post-Employment Benefits"
FERC Federal Energy Regulatory Commission
IRS Internal Revenue Service
MCP Massachusetts Contingency Plan
MDPU Massachusetts Department of Public
Utilities
NESCAUM Northeast States for Coordinated Air Use
Management
NHPUC New Hampshire Public Utilities
Commission
NRC Nuclear Regulatory Commission
NWPA Nuclear Waste Policy Act
OPA-90 Oil Pollution Act of 1990
Price-Anderson Act The Price-Anderson Act, as amended by the
Price-Anderson Amendments of 1988
PURPA Public Utility Regulatory Policies Act
of 1978
RACT Reasonably Available Control Technology
RCRA Resource Conservation and Recovery Act of
1976
RIDEM Rhode Island Department of Environmental
Management
RIDPUC Rhode Island Division of Public Utilities
and Carriers
RIPUC Rhode Island Public Utilities Commission
SEC Securities and Exchange Commission
TEC-RI The Energy Counsel of Rhode Island
TSCA Toxic Substances Control Act
Other
AFUDC Allowance for Funds Used During
Construction
BTU British Thermal Unit
C&LM Conservation and Load Management
DSM Demand Side Management
EMF Electric and Magnetic Fields
(v)
GLOSSARY OF DEFINED TERMS (Cont'd)
Other (continued)
EMS Energy Management Services
EWG Exempt Wholesale Generator
IPP Independent Power Producer
kWh Kilowatthour
MBTU Millions of British Thermal Units
MOU Memorandum of Understanding
MW Megawatt
NEPOOL New England Power Pool
NOx Nitrogen Oxides
PCB Polychlorinated Biphenyls
PRP Potentially Responsible Party
QF Qualifying cogeneration and small power
production facilities pursuant to PURPA
Seabrook Project Seabrook Nuclear Power Project located in
Seabrook, New Hampshire
(vi)
PART I
Item 1. BUSINESS
System Overview
The Registrant, Eastern Utilities Associates, is a Massachusetts voluntary
association organized and existing under a Declaration of Trust dated April 2,
1928, as amended, and is a registered holding company under the 1935 Act. EUA
owns directly all of the shares of common stock of three operating retail
electric utility companies: Blackstone, Eastern Edison and Newport. Blackstone
operates in northern Rhode Island, Eastern Edison operates in southeastern
Massachusetts, and Newport operates in south coastal Rhode Island. These
subsidiaries are collectively referred to as the Retail Subsidiaries. Eastern
Edison owns all of the permanent securities of Montaup, a generation and
transmission company, which supplies electricity to Eastern Edison, to
Blackstone, to Newport and to two unaffiliated utilities for resale. EUA also
owns directly all of the shares of common stock of EUA Cogenex, EUA Energy, EUA
Ocean State and EUA Service. EUA Service provides various accounting,
financial, engineering, planning, data processing and other services to all EUA
System companies. EUA Cogenex is an energy services and cogeneration company.
EUA Energy invests in energy-related projects. EUA Ocean State owns a 29.9%
interest in OSP's two gas-fired generating units. (See Item 2. PROPERTIES --
Power Supply.) The holding company system of EUA, the Retail Subsidiaries,
Montaup, EUA Service, EUA Cogenex, EUA Energy and EUA Ocean State is referred
to as the EUA System. The EUA System is organized into a business unit
structure. The Core Electric Business consists of the Retail Subsidiaries and
Montaup. The Energy Related Business includes EUA Cogenex, EUA Energy and EUA
Ocean State. The Corporate Business is made up of the Registrant and EUA
Service.
General - Core Electric Business
The Core Electric Business supplies retail electric service in 33 cities
and towns in southeastern Massachusetts and Rhode Island. The largest
communities served are the cities of Brockton and Fall River, Massachusetts.
The retail electric service territory covers approximately 595 square miles and
has an estimated population of approximately 723,000. At December 31, 1994,
Core Electric Business served approximately 294,000 retail customers.
For 1994, 1993 and 1992, electric utility operations accounted for
approximately 87%, 88%, and 92%, respectively, of total operating revenues.
The remaining balance of operating revenues during these periods were
attributable to EUA Cogenex.
Montaup supplies the Retail Companies with nearly 100% of each company's
electric requirements. About 48% of the net generating capacity of the EUA
System comes from a combination of the following sources: (i) wholly owned EUA
System generating plants, primarily Montaup's 152 MW Somerset facility located
in Somerset, Massachusetts; (ii) Montaup's net entitlement of 207 MW from the
584 MW Canal No. 2 unit, which is located in Sandwich, Massachusetts and is 50%
owned by Montaup; and, (iii) entitlements from units in which Montaup has
partial ownership interests (by joint ownership through tenancy-in-common or by
stock ownership) that are 4.5% or less. The remaining 52% of the net
generating capacity of the EUA System comes from units in which Montaup has
long-term or short-term power contracts for shares ranging from 0.81% to 41.67%
of the unit's capacity, including 28% of the OSP Units 1 and 2 in which EUA
Ocean State has a 29.9% partnership interest, or entitlements from the
Hydro-Quebec Project through NEPOOL. On January 25, 1994, Somerset's Unit No.
5 was placed in deactivated reserve, resulting in a reduction of approximately
69 MW of the EUA System's total net generating capacity. Newport became an all
requirements customer of Montaup with the implementation of reduced wholesale
rates by Montaup on May 21, 1994. Montaup has assumed all of Newport's
purchased power contracts and is leasing all of Newport's generation and a
share of Newport's transmission facilities. (See Item 2. PROPERTIES -- Power
Supply for further details of the EUA System's sources of power supply).
The Retail Subsidiaries and Montaup hold valid franchises, permits and
other rights which are necessary to allow these companies to conduct electric
business within the territories which they serve. Such franchises, permits and
other rights contain no unduly burdensome restrictions or limitations upon
duration.
The EUA System's electric sales are seasonal to some extent due to
electricity usage for heating and lighting in the winter and air conditioning
in the summer.
The EUA System is not dependent on a single customer or a few customers
for its electric sales.
There is no competition from other electric utilities within the retail
territories served by the Retail Subsidiaries at this time. Federal law
permits, however, certain federal facilities to by-pass the local utility and
purchase power directly from another utility. It is possible that in the
future retail competition could be imposed by legislative or regulatory action
at the federal or state level.
At the wholesale level, Montaup faces new sources of competition primarily
as a result of PURPA, the Energy Policy Act and other policies being
implemented by the MDPU and considered by the RIPUC relating to the
solicitation of competitive proposals for new generation sources. Non-utility
wholesale generators, generally known as independent power producers or IPPs,
are subject to FERC regulations under the Federal Power Act as well as various
other federal, state, and local regulations. However, PURPA was intended,
among other things, to promote national energy independence and diversification
of energy supply and to improve the overall efficiency of energy usage. PURPA
created a class of non-utility power generation facilities called QFs. PURPA
allows QFs to sell power generated by the QFs to local utilities at specified
rates based on each utility's avoided cost. In order to further promote
competition in energy supply, the Energy Policy Act established another class
of non-utility generators, generally referred to as EWGs, which are exempt from
the 1935 Act and increased FERC's power to order transmission access, resulting
in FERC's Regional Transmission Group Policy. As a complement to the federal
initiatives, the MDPU and the RIPUC have implemented regulations which require
utilities to integrate least-cost planning with competitive proposals to meet
requirements for new generation. Both states have also approved a Memorandum
of Understanding among Montaup and the Retail Subsidiaries that establishes a
framework which makes possible a coordinated, regional review of the resource
planning and procurement process of the EUA System Companies. Montaup will
face increased competition in the wholesale generating market, primarily based
on price, from QFs and EWGs and in the future could be affected by such
competition supplying generation to its customers.
Across the country, including the states serviced by EUA's Retail
Subsidiaries, there has been an increasing focus on competitive issues.
Regulators, in Massachusetts and Rhode Island are currently examining, among
other things, issues related to incentive regulation and potential electric
industry restructuring including retail wheeling (the transmission of power
from one utility for sale by that system to retail customers of a different
system). The timing and impact of these examinations on the financial
condition of the utility industry in general and EUA's utility operations in
particular is uncertain at this time. EUA will continue to monitor and
participate in all regulatory investigations into the many issues surrounding
this move to a competitive marketplace. The MDPU is also requiring electric
utilities to begin the transition to incentive regulation.
As a regulated industry, utilities are subject to certain accounting rules
that are not applicable to other industries. These accounting rules allow
regulated companies, in appropriate circumstances, to establish regulatory
assets and liabilities, which defer the current financial impact of certain
costs that are expected to be recovered in future rates. The effects of
competition or change in regulation could ultimately cause EUA's Retail
Subsidiaries and Montaup to no longer follow these accounting rules. In such
an event, any regulatory assets and liabilities would have to be fully expensed
at that time. EUA does not expect this situation to occur in the near future.
All of the transmission facilities within the EUA System are inter
connected with the NEPOOL transmission grid. Montaup and the Retail
Subsidiaries are members of NEPOOL, which is open to all investor-owned,
municipal and cooperative electric utilities and other entities that are
engaged in the electric utility business in New England that are connected to
the New England power grid. NEPOOL provides for coordinated planning of future
facilities as well as operation of nearly 100% of the existing generating
capacity in New England and of related transmission facilities essentially as
if they were one system. The NEPOOL agreement imposes obligations concerning
generating capacity reserve and the right to use major transmission lines, and
provides for central dispatch of the generating capacity of NEPOOL's members
with the objective of achieving economical use of the region's facilities.
Pursuant to the NEPOOL agreement, interchange sales to NEPOOL are made at a
price approximately equal to the fuel cost for generation without contribution
to the support of fixed charges. The capacity responsibilities of Montaup and
the Retail Subsidiaries under the NEPOOL agreement are based on an allocated
share of a New England capacity requirement which is determined for each period
on the basis of certain regional reliability criteria. Because of its
participation in NEPOOL, the EUA System's operating revenues and costs are
affected to some extent by the operations of other members. A comprehensive
review of the NEPOOL Agreement was initiated in 1994 to look at its current
structure and determine what may be done as the electric utility environment
becomes increasingly competitive.
As of December 31, 1994, the number of regular employees in the core
electric and corporate business units was 1,157. Relations with employees are
considered to be satisfactory. Labor bargaining unit contracts covering
approximately 267 employees of Eastern Edison in the Fall River area, of
Newport and of Montaup expire in June 1995, September 1996 and March 1996,
respectively.
On March 15, 1995, EUA announced a corporate reorganization which, among
other things, will consolidate management of Eastern Edison, Blackstone and
Newport. As part of the reorganization, a voluntary retirement incentive,
effective June 1, 1995, was offered to approximately sixty employees. At this
time management is unable to predict how many employees will accept the offer.
General - EUA Cogenex
EUA Cogenex is a wholly owned subsidiary of EUA. EUA Cogenex operates in
the following three segments of the energy management industry:
Energy Management Services (EMS)
EMS encompasses EUA Cogenex's original business activities, in which EUA
Cogenex provides EMS directly to institutional, commercial/industrial and
governmental customers to reduce their energy costs and consumption. In its
EMS programs, EUA Cogenex employs energy efficiency technology and equipment
through building automation, lighting modifications, boiler replacement, and
other heat recovery methods. EUA Cogenex is compensated for these services
primarily through "shared savings" or energy services agreements in which EUA
Cogenex and the customer who occupies or owns a facility agree upon a
prescribed base year and a set of savings calculations. EUA Cogenex then
receives a portion of the savings that result from the installation and
maintenance of the energy efficient equipment in the facility. EUA Cogenex
revenues under these agreements are dependent upon the actual achievement of
energy savings; therefore EUA Cogenex assesses the financial and technical risk
of each customer and project. EUA Cogenex finances the project and acts as the
contractor for each project by engaging the necessary professionals to install
and/or modify equipment.
Demand Side Management (DSM)
EUA Cogenex participates in demand side management programs sponsored by
electric utilities as a means to decrease both base load and peak demand on the
utilities' systems. In utility DSM programs, EUA Cogenex contracts with the
utility and its commercial and industrial customers in order to decrease the
overall demand on the utility system or to reduce peak demand, curtailing the
need for costly capacity additions. EUA Cogenex is paid by the utility based
on the reduction in the demand on the utility's system and may also receive a
portion of the customers' savings by entering into shared savings agreements of
the type described above with those customers. EUA Cogenex contracts for
utility DSM programs through a bidding process or participates in the utility's
"Standard Offer Program". EUA Cogenex also may, from time to time, acquire
existing DSM contracts or the benefits from those contracts from other DSM
contractors.
Self-Generation
EUA Cogenex participates in various self-generation projects in which it
installs electric and heat generating facilities for a particular building or
group of buildings. Typically, electricity and heat can be generated by a
cogeneration facility at a lower cost to the building owners or occupants than
the retail cost of heating fuel and electricity sold by the local utility.
When combined with other energy management services provided by EUA Cogenex,
cogeneration projects can result in savings to the owners or occupants, a
portion of which is paid to EUA Cogenex. In a self-generation project, a
cogeneration facility (i) is sized to a minimum base load thermal requirement
for the customer and (ii) produces electricity which displaces a portion of the
customer's retail electric consumption -- a so-called "inside the fence"
application. EUA Cogenex's strategy has been to keep its cogeneration projects
below a five-megawatt level, sized to a minimum base load thermal requirement
for the particular facility, to avoid competition from larger independent power
project developers.
EUA Cogenex also operates a lighting services division (EUA Nova) and a
controls division (EUA Day). EUA Nova provides lighting services and products
designed to achieve an efficiency gain through the integration of various lamp,
ballast and light reflector products. EUA Day, acquired in December 1993, is
primarily engaged in the business of customization, installation and servicing
of building temperature control systems, monitoring and verification systems
and process control systems for the purpose of energy conservation. These
systems are primarily designed for regulating lighting and heating, ventilation
and air-conditioning, but can also simultaneously be used for security
surveillance, building entry and exit, equipment monitoring, and air quality
monitoring.
EUA Cogenex also provides consulting services to its customers in the form
of training in the proper use and maintenance of the energy equipment. This
service includes instruction in the use of existing equipment as well as newly
installed equipment so that further energy savings can be realized. In
addition, EUA Cogenex monitors installed projects on a 24-hour basis and
dispatches third party contractors to make repairs and/or adjustments.
In 1994, EUA Cogenex organized a wholly-owned Canadian subsidiary to
engage in the energy services business in the Canadian marketplace.
There are no seasonal factors that impact normal business operations of
EUA Cogenex.
There is no single customer, small group of customers, or outside supplier
the loss of which would have a materially adverse effect on the operations of
the business of EUA Cogenex.
As a result of its ownership by EUA, a registered holding company under
the 1935 Act, EUA Cogenex is regulated by the SEC in matters related to
financing and asset acquisitions. On February 15, 1995, the SEC issued an
order lifting its previous requirement that EUA Cogenex earn more than 50% of
its revenues in the New England/New York area. There are no current geographic
restrictions on EUA Cogenex operations.
At December 31, 1994, EUA Cogenex employed 240 persons in its operations.
EUA Cogenex's competition in the EMS market is comprised primarily of the
manufacturers and distributors of the energy efficiency equipment which it
installs and other energy services companies. Competition within the DSM
markets is primarily from other energy services companies and engineering
consulting firms. Competition in the self-generation industry is limited given
EUA Cogenex's focus on the small cogeneration units and its strategy of
limiting development of new cogeneration projects.
EUA Cogenex plans to continue its controlled growth. In March 1995, EUA
Cogenex acquired certain energy services assets of Citizens Conservation
Corporation of Boston in exchange for preferred stock of a newly formed
subsidiary of EUA Cogenex, Citizens Conservation Services, which will utilize
those assets. EUA Cogenex has also applied for authorization from the SEC to
acquire the Highland Energy Group, and energy services company in Boulder,
Colorado in exchange for common shares of EUA. Highland manages conservation
and energy management programs in Colorado, Texas, Ohio and North Carolina.
The largest assets EUA Cogenex obtains with the Citizens Conservation
acquisition are contracts with various public and private housing authorities.
These contracts will allow EUA Cogenex to apply the same sort of shared-savings
programs that have brought EUA Cogenex to the forefront in the private sector
to the low income public housing market.
As of December 31, 1994, EUA Cogenex participated in seven partnerships.
It is the managing general partner in all of the partnerships and has limited
partnership interest in certain of the partnerships. EUA Cogenex has provided
virtually all of the capital to the partnerships and is generally entitled to a
return of, and on, this capital before any significant partnership distribution
is made to the other general partners. All partnerships and their customers
are subject to the same selection and screening process to establish acceptable
credit quality.
The rates charged by EUA Cogenex to its EMS and DSM customers are not
subject to the jurisdiction of any regulatory agency. In addition, the prices
charged by EUA Cogenex to its self-generation customers have not been regulated
by any federal or state authority. In some states where EUA Cogenex has a QF
facility, it is possible that a state public utility commission may seek to
assert jurisdiction over the terms of EUA Cogenex's cogeneration contract.
The following table sets forth the amounts of revenues, pre-tax income,
net earnings and identifiable assets attributable to the consolidated
operations of EUA Cogenex:
Year Ended December 31,
1994 1993 1992
(Thousands)
Operating Revenues $ 74,480 $ 66,912 $ 44,154
Pre-tax Income $ 7,266 $ 5,864 $ 4,798
Net Earnings $ 4,171 $ 3,536 $ 2,839
Total Assets $211,310 $ 191,432 $ 150,658
See Note I of Consolidated Financial Statements contained in the
Registrant's Annual Report to Shareholders for the year ended December 31, 1994
(Exhibit 13-1.03 filed herewith).
Construction
The EUA System's cash construction expenditures for the year ended
December 31, 1994 were approximately $50.5 million.
Planned cash construction expenditures for 1995, 1996 and 1997, as set
forth below, are estimated to total $240.4 million.
EUA SYSTEM CONSTRUCTION PROGRAM
(Dollars in Thousands)
1995 1996 1997 3-Yr.Total
Generation $ 18,323 $ 13,948 $13,753 $ 46,024
Transmission 1,408 2,981 3,212 7,601
Distribution 16,911 14,162 15,202 46,275
General 751 1,673 1,753 4,177
Total Utility 37,393 32,764 33,920 104,077
EUA Cogenex 48,305 44,000 44,000 136,305
Total $ 85,698 $ 76,764 $77,920 $240,382
========= ========= ======== =========
Fuel_for_Generation
For 1994, the EUA System's sources of energy, by fuel type, were as
follows: 34% nuclear, 28% gas, 20% oil, 12% coal and 6% other. During 1994,
Montaup had an average inventory of 61,773 tons of coal for its steam
generating unit at the Somerset Station, the equivalent of 75 days' supply
(based on average daily output at 80% capacity factor for the unit (see Item
2. PROPERTIES -- Power Supply)). The cost of coal averaged about $48.52 per
ton in 1994 which is equivalent to oil at $11.85 per barrel. This was slightly
more expensive than 1993 because 1994 included short-term commitments of lower
sulfur coal for Massachusetts Clean Air Act compliance testing. Montaup also
maintained an average inventory of Nos. 2 and 6 oil of 4,537 barrels and 58,663
barrels, respectively. These fuels are used for start-up and flame
stabilization for Montaup's steam generating unit. The cost of Nos. 2 and 6
oil averaged $24.35 per barrel and $15.03 per barrel in 1994, respectively.
Montaup also maintained an average inventory of jet oil of 3,880 barrels at an
average cost per barrel of $25.15 during 1994 for its two peaking units at the
Somerset Station.
Montaup has a one year purchase order effective through December, 1995
with a coal producer. Barge and rail agreements for coal transportation are
also in place through 1995. The 1994 year-end coal inventory of approximately
84,500 tons is all 0.6% to 0.7% sulfur coal which is compliant with Clean Air
Act requirements.
Canal Electric Company (Canal), on behalf of itself, Montaup and others
has contracts with a supplier for up to 100% of the fuel-oil requirements of
Canal Unit Nos. 1 and 2 for the period ending April 30, 1995. The current
contracts permit up to 20% of fuel oil purchases in the spot market. It is
currently planned that Canal will reach an agreement with a supplier for the
following three month period. These three months will be used to examine the
practicality of further delaying a long-term oil contract. For 1994, the cost
of oil per barrel at Canal averaged $13.25.
Canal and Montaup have entered into agreements with Algonquin Gas
Transmission Company (Algonquin) for Algonquin to provide gas transmission
facilities and services to the Canal facilities. The agreements are subject to
(i) Algonquin obtaining the appropriate permits and authorization to construct
and operate the transmission facilities and (ii) Canal and Montaup receiving
the necessary permits and authorizations to construct natural gas fired
electric generation equipment and the facilities to receive natural gas. It is
anticipated that Canal Unit No. 2 will have the ability to burn either No. 6
oil, natural gas, or a blend of both fuels beginning the second quarter of
1996. The timing of Canal Unit No. 2's ability to burn natural gas will
determine the necessary terms of a long-term oil contract.
Montaup's costs of fossil and nuclear fuels for the years 1992 through
1994, together with the weighted average cost of all fuels, are set forth below:
__________Mills*_per_kWh__________
1994 1993 1992
Nuclear . . . . . . . . . 6.1 7.5 7.7
Gas . . . . . . . . . 14.1 15.1 13.0
Coal . . . . . . . . . 20.9 24.1 21.2
Oil . . . . . . . . . 27.1 25.5 26.0
All fuels . . . . . . . . . 14.5 15.5 14.8
*One Mill is 1/10 of one cent
The rate schedules of Montaup and the Retail Subsidiaries are designed to
pass on to customers the increases and decreases in fuel costs and the cost of
purchased power, subject to review and approval by appropriate regulatory
authorities (see Rates below).
OSP has two gas supply contracts which expire December 14, 2009 and
September 29, 2010, respectively for its two 250 MW generators. The cost of
gas for 1994 averaged $1.13 per MBTU or approximately 9.5 mills per kWh
generated.
The owners (or lead participants) of the nuclear units in which Montaup
has an interest have made, or expect to make, various arrangements for the
acquisition of uranium concentrate, the conversion, enrichment, fabrication and
utilization of nuclear fuel and the disposition of that fuel after use. The
owners (or lead participants) of United States nuclear units have entered into
contracts with the DOE for disposal of spent nuclear fuel in accordance with
the NWPA. The NWPA requires (subject to various contingencies) that the
federal government design, license, construct and operate a permanent
repository for high level radioactive wastes and spent nuclear fuel and
establish prescribed fees for the disposal of such wastes and fuel. The NWPA
specifies that the DOE provide for the disposal of such waste and spent nuclear
fuel starting in 1998. Objections on environmental and other grounds have been
asserted against proposals for storage as well as disposal of spent nuclear
fuel. The DOE anticipates that a permanent disposal site for spent fuel will
be ready to accept fuel for storage or disposal by the year 2010. Montaup owns
a 4.01% interest in Millstone Unit 3 and a 2.9% interest in Seabrook Unit 1.
Northeast Utilities, the operator of the units, indicates that Millstone Unit 3
has sufficient on-site storage facilities to accommodate its spent fuel for the
projected life of the unit. Expenditures for additional rack storage
facilities are projected to be made by 1999. At the Seabrook Project, there is
on-site storage capacity which, with rack additions, should be sufficient to at
least the year 2010.
The Energy Policy Act requires that a fund be created for the
decommissioning and decontamination of the DOE uranium enrichment facilities.
The fund will be financed in part by special assessments on nuclear power
plants in which Montaup has an interest. These assessments are calculated
based on the utilities' prior use of the government facilities and have been
levied by the DOE since starting in September 1993 and will continue over 15
years. This cost is passed on to the joint owners or power buyers as an
additional fuel charge on a monthly basis and is currently being recovered by
Montaup through rates.
Nuclear_Power_Issues
General:
Nuclear generating facilities, including those in service in which Montaup
participates, as shown in the table under Item 2. PROPERTIES -- Power Supply,
are subject to extensive regulation by the NRC. The NRC is empowered to
authorize the siting, construction and operation of nuclear reactors after
consideration of public health, safety, environmental and anti-trust matters
The NRC has promulgated numerous requirements affecting safety systems,
fire protection, emergency response planning and notification systems, and
other aspects of nuclear plant construction, equipment and operation. These
requirements have caused modifications to be made at some of the nuclear units
in which Montaup has an interest. Montaup has been affected, to the extent of
its proportionate share, by the costs of such modifications.
Nuclear units in the United States have been subject to widespread
criticism and opposition. Some nuclear projects have been cancelled following
substantial construction delays and cost overruns as the result of licensing
problems, unanticipated construction defects and other difficulties. Various
groups have by litigation, legislation and participation in administrative
proceedings sought to prohibit the completion and operation of nuclear units
and the disposal of nuclear waste. In the event of cancellation or shutdown of
any unit, NRC regulations require that it be completely decontaminated of any
residual radioactivity. The cost of such decommissioning, depending on the
circumstances, could substantially exceed the owners' investment at the time of
cancellation.
The continuing public controversy concerning nuclear power could affect
the operating units in which Montaup has an interest. While management cannot
predict the ultimate effect of such controversy, it is possible that it could
result in the premature shutdown of one or more of the units (see Yankee
Atomic, below).
The Price-Anderson Act provides, among other things, that the liability
for damages resulting from a nuclear incident would not exceed an amount which
at present is about $8.7 billion. Under the Price-Anderson Act, prior to
operation of a nuclear reactor, the licensee is required to insure against this
exposure by purchasing the maximum amount of liability insurance available from
private sources (currently $200 million) and to maintain the insurance
available under a mandatory industry-wide retrospective rating program. Should
an individual licensee's liability for an incident exceed $200 million, the
difference between such liability and the overall maximum liability, currently
about $8.7 billion, will be made up by the retrospective rating program. Under
such a program, each owner of an operating nuclear facility may be assessed a
retrospective premium of up to a limit of $79.3 million (which shall be
adjusted for inflation at least every five years) for each reactor owned in the
event of any one nuclear incident occurring at any reactor in the United
States, with provision for payment of such assessment to be made over time as
necessary to limit the payment in any one year to no more than $10 million per
reactor owned. With respect to operating nuclear facilities of which it is a
part owner or from which it contracts (on terms reflecting such liability) to
purchase power, Montaup would be obligated to pay its proportionate share of
any such assessment.
Joint owners of nuclear projects are also subject to the risk that one of
their number may be unable or unwilling to finance its share of the project's
costs, thus jeopardizing continuation of the project. On February 28, 1991,
EUA Power (now know as Great Bay Power Corporation), a 12.1% owner of the
Seabrook Project and a former subsidiary of the Registrant, filed for
protection under Chapter 11 of the Federal Bankruptcy Code. It conducted its
business as a Debtor-in-Possession until November 23, 1994, at which time its
Plan of Reorganization became effective and Great Bay Power emerged from
Chapter 11.
Decommissioning:
Each of the three operating nuclear generating companies in which Montaup
has an equity ownership interest (see Item 2. PROPERTIES -- Power Supply) has
developed its estimate of the cost of decommissioning its unit and has received
the approval of FERC to include charges for the estimated costs of
decommissioning its unit in the cost of energy which it sells. From time to
time, these companies re-estimate the cost of decommissioning and apply to FERC
for increased rates in response to increased decommissioning costs. Maine
Yankee has filed a decommissioning financing plan under a Maine statute which
requires the establishment of a decommissioning trust fund. That statute also
provides that if the trust has insufficient funds to decommission the plant,
the licensee (Maine Yankee) is responsible for the deficiency and, if the
licensee is unable to provide the entire amount, the "owners" of the licensee
are jointly and severally responsible for the remainder. The definition of
"owner" under the statute includes Montaup and may include companies affiliated
with Montaup. The applicability and effect of this statute cannot be
determined at this time. Montaup would seek to recover through its rates any
payments that might be required (see Yankee Atomic, below).
Montaup is recovering through rates its share of estimated decommissioning
costs for Millstone Unit 3 and Seabrook Unit 1. Montaup's share of the current
estimate of total costs to decommission Millstone Unit 3 is $11.5 million in
1994 dollars, and Seabrook Unit 1 is $18.0 million in 1994 dollars. These
figures are based on studies performed for the lead owner of the plants. In
addition, pursuant to contractual arrangements with other nuclear generating
facilities in which Montaup has an equity ownership interest or life of the
unit entitlement, Montaup pays into decommissioning reserves. Such expenses
are currently recoverable through rates.
Yankee Atomic:
On February 26, 1992, Yankee Atomic announced that it would permanently
cease power operation of Yankee Rowe and began preparing for an orderly
decommissioning of the facility. Montaup has a 4.5% equity ownership in Yankee
Atomic with a book value of approximately $1.2 million at December 31, 1994.
Under the terms of its purchased power contract with the facility, Montaup must
pay its proportionate share of unrecovered costs and expenses incurred after
the plant is retired. In December 1992, Yankee Atomic received FERC
authorization to recover essentially all unrecovered assets and all costs
incurred after the February 26, 1992 shutdown decision until the plant is
decommissioned. Montaup's share of all unrecovered assets and the total
estimated costs to decommission the unit aggregated approximately $18.4 million
at December 31, 1994.
Maine Yankee:
The Maine Yankee unit, like other pressurized water reactors, has been
experiencing degradation of its steam generator tubes, principally in the form
of circumferential cracking, which, until early 1995, was believed to be
limited to a relatively small number of steam generator tubes. In the past the
detection of defects has resulted in the plugging of those tubes to prevent
their subsequent use. During the refueling-and-maintenance shutdown that
commenced in early February of 1995 Maine Yankee has detected an increased
degradation of the Plant's steam generator tubes, in excess of the number
expected, and is currently evaluating several courses of action to address the
matter. The detection of a significantly larger number of degraded tubes is
likely to adversely affect the operation of the Plant and may result in
substantial cost to Maine Yankee. Maine Yankee cannot now predict what course
of action it will choose, or to what extent the operation of the Plant will be
affected. Montaup has a 3.59% stock ownership interest in Maine Yankee.
Seabrook Unit 2:
Montaup has a 2.9% ownership interest in Seabrook Unit 2. On November 6,
1986, the joint owners of the Seabrook Project, recognizing that Seabrook Unit
2 had been cancelled in 1984, voted to dispose of Seabrook Unit 2. Plans
regarding disposition of Seabrook Unit 2 are now under consideration, but have
not been finalized and approved. Montaup is unable, therefore, to estimate the
costs for which it would be responsible in connection with the disposition of
Seabrook Unit 2. Monthly charges are required to be paid by Montaup with
respect to Seabrook Unit 2 in order to preserve and protect its components and
various warranties. Montaup recovered its investment in Seabrook Unit 2 under
a FERC approved rate case settlement. As of December 31, 1994, Montaup had
fully recovered its investment in Seabrook Unit 2.
Public_Utility_Regulation
Eastern Edison and Montaup are subject to regulation by the MDPU with
respect to the issuance of securities, the form of accounts, and in the case of
Eastern Edison, rates to be charged, services to be provided and other
matters. Blackstone and Newport are subject to regulation in numerous respects
by the RIPUC and the RIDPUC, including matters pertaining to financing, sales
and transfers of utility properties, accounting, rates and service. In
addition, by reason of its ownership of fractional interests in certain
facilities located in other states, Montaup is subject to limited regulation in
those states.
QFs, including those in which EUA Cogenex may have an interest, must
satisfy the regulatory requirements of PURPA and are exempt from most state and
federal laws regulating power generation. IPPs, including OSP in which EUA
Ocean State has a 29.9% ownership interest, do not benefit from the PURPA
exemptions and are subject to FERC regulation under the Federal Power Act as
well as various other federal, state and local regulations.
The EUA System is subject to the jurisdiction of the SEC under the 1935
Act by virtue of which the SEC has certain powers of regulation, including
jurisdiction over the issuance of securities, changes in the terms of
outstanding securities, acquisition or sale of securities or utility assets or
other interests in any business, intercompany loans and other intercompany
transactions, payment of dividends under certain circumstances, and related
matters. Eastern Edison is a holding company under the 1935 Act by reason of
its ownership of securities of Montaup. As a subsidiary of EUA, a registered
holding Company, Eastern Edison is exempted from registering as a holding
company by complying with the applicable rules thereunder.
The Retail Subsidiaries and Montaup are also subject to the jurisdiction
of FERC under Parts II and III of the Federal Power Act. That jurisdiction
includes, among other things, rates for sales for resale, interconnection of
certain facilities, accounts, service, and property records.
The MDPU and RIPUC have approved a Memorandum of Understanding (MOU) with
Eastern Edison, Blackstone, Newport and Montaup. The MOU establishes a
framework for a coordinated, regional review of the resource planning and
procurement process of those companies. It is based on the assumption that
resource planning and procurement by a regional electric company may be
implemented more effectively under a coordinated, consensual review process
involving the EUA retail companies and the state public utility commissions to
which the EUA retail companies are subject. Pursuant to the terms of the MOU,
at least every two years Montaup and Eastern Edison will file with the MDPU and
Blackstone will file with the RIPUC an integrated resource plan concurrently.
The MOU outlines a mechanism and a timetable by which the reviews by the two
commissions will be coordinated and any inconsistencies among the decisions by
the state commissions will be resolved.
In conjunction with its approval of the MOU, the MDPU granted Eastern
Edison and Montaup an exemption from the MDPU's Integrated Resource Management
regulations, but required them to plan, solicit and procure additional
resources according to newly promulgated regional Integrated Regional Planning
procedures consistent with the MOU. The Integrated Resource Management Plan of
Blackstone and Newport meet the criteria of the RIPUC.
Implementation of the MOU is not expected to have a material effect on the
EUA System.
See Rates with respect to regulation of rates charged to customers. See
Environmental Regulation. See Fuel for Generation with respect to the disposal
of spent nuclear fuel. See Environmental Regulation of Nuclear Power and see
Nuclear Power Issues with respect to regulation of nuclear facilities by the
NRC. See also Energy Policy.
Rates
Rates charged by Montaup (which sells power only for resale) are subject
to the jurisdiction of FERC. The rates for services rendered by the Retail
Subsidiaries for the most part are subject to approval by and are on file with
the MDPU in the case of Eastern Edison and with the RIPUC in the case of
Blackstone and Newport. For the 12 months ended December 31, 1994, 61% of
EUA's consolidated revenues were subject to the jurisdiction of FERC, 13% to
that of the MDPU and 13% to that of the RIPUC. The remaining 13% of
consolidated revenues are not subject to jurisdiction of the respective utility
commissions. Additionally, rates charged by OSP are subject to the
jurisdiction of FERC. All OSP (Unit 1 and Unit 2) power contracts have been
approved by FERC. However, pursuant to the OSP unit power agreements, rate
supplements are required to be filed annually subject to FERC approval. This
process may result in rate increases or decreases to OSP power purchasers.
Recent general rate increases (reduction) for Montaup and the Retail
Subsidiaries are as follows (thousands of dollars):
<TABLE>
<CAPTION>
___Applied_For__ _Implemented_<F1> ________Effective_<F2>________
Return on
Annual Annual Annual Common
Revenue Date Revenue Date Revenue Date Equity %
<S> <C> <C> <C> <C> <C> <C> <C>
Federal
- Montaup
M-14 (10,133) 3/21/94 (10,133) 5/21/94 Decision pending <F3>
Massachusetts
- Eastern Edison
MDPU - 92-148 14,927<F4> 6/15/92 8,100 1/12/93 11.50<F5><F6>
Rhode Island
- Blackstone
RIPUC - 2045
- Phase I 2,724 6/26/92<F7> 353 1/1/93
- Phase II 353 11/1/93<F7> 353 1/1/94
- Phase III 353 11/1/94<F7> 353 1/1/95
- Newport
RIPUC - 2045
- Phase I 1,250 6/26/92<F7> 417 1/1/93
- Phase II 417 11/1/93<F7> 417 1/1/94
- Phase III 417 11/1/94<F7> 417 1/1/95
<FN>
_____________________
Notes:
<F1> Montaup's rate changes were implemented on a subject to refund basis.
<F2> Per final FERC order or settlement agreement.
<F3> Settlement Agreement with all parties with an annual reduction of
$13,992,000 awaits FERC certification.
<F4> Reduced from $16,401,000 as originally filed.
<F5> Rate used for AFUDC calculation purposes. Settlement contains no
specific finding on allowed common equity return.
<F6> Rates approved for consumption of electricity on and after January 1,
1993.
<F7> RIPUC Docket No. 2045 was a generic docket for all Rhode Island
Utilities reviewing FAS106 expenses. The effective amount represents
the revenue requirement for one-third of the tax deductible amount of
the FAS106 expense (see Rhode Island Proceedings below). As this was
a single issue proceeding, the RIPUC made no revisions to the allowed
return on common equity.
</FN>
</TABLE>
FERC Proceedings:
On December 17, 1992, FERC issued a Statement of Policy regarding the
recovery through rates of the cost of post-employment benefits other than
pensions (PBOP), as a result of FAS106 issued to address accounting procedures
for these costs. The FERC's policy recognizes allowances for prudently
incurred costs of such benefits of company employees when determined on an
accrual basis that is consistent with the accounting principles set forth in
FAS106. Furthermore, companies must agree to make cash deposits to an
irrevocable external trust fund equal to the annual test period allowance for
the cost of such benefits and they must maximize the use of income tax
deductions for contributions to the trust fund. If tax deductions are not
available for some portion of currently funded amounts, deferred income tax
accounting must be followed for the tax effects of such transactions.
Within three years of their adoption of FAS106, FERC regulated companies
must also file a general rate change and seek inclusion of these costs in their
rates. Companies may defer the jurisdictional portion of the difference
between the costs determined pursuant to accounting principles previously
followed and FAS106 accruals from the time they adopt FAS106 until they file
the general rate case described above. Montaup deferred its incremental FAS106
expenses of approximately $400,000 and $1.4 million for 1994 and 1993,
respectively.
On May 21, 1994 Montaup filed a rate application with the FERC to reduce
annual revenues by $10.1 million. This request is intended to match more
closely Montaup's revenues with its decreasing cost of doing business resulting
from, among other things, a reduced rate base, lower capital costs and
successful cost control efforts. The application also included a request for
recovery of all of Montaup's FAS106 expenses as provided in FERC's generic
order of December 1992, including a five-year amortization of previously
deferred FAS106 costs. Also incorporated in this filing was a request to make
Newport an all requirements customer of Montaup. Settlement agreements with
all intervenors with an annual base rate reduction of approximately $14 million
annually, (inclusive of the filed $10.1 million reduction) effective as of
August 1994, await certification by the Commission.
Massachusetts Proceedings:
In December 1994 the Massachusetts Department of Public Utilities approved
a request made by Eastern Edison to recover through a reconciling adjustment
factor a portion of "lost base revenues." Lost base revenue represents amounts
the company would have collected if it had not offered demand-side management
and conservation and load management programs to its customers.
On December 31, 1992, the MDPU issued its order in response to a $14.9
million (reduced from the originally filed $16.4 million) rate increase request
of Eastern Edison. The $8.1 million rate relief granted represented 49% of
Eastern Edison's original rate request filed on June 15, 1992 based on a 1991
test year. The new rates filed in compliance with the order became effective
for sales subsequent to January 1, 1993.
In authorizing the increase, the MDPU accepted a settlement proposal
offered jointly by Eastern Edison and the Massachusetts Attorney General, the
sole intervenor. The settlement stipulated the total revenue requirement which
included an amortization of Hurricane Bob costs over a five-year period without
a return on the unamortized amount. The settlement also reflected the recovery
of the full tax deductible amount of post-retirement benefits other than
pensions (FAS106 expenses), without any phasing-in of the increase over the
previous ("pay-as-you-go") level. All FAS106 amounts recovered were placed in
trusts permitted by the IRS to maximize tax deductibility and provide tax-free
benefits to retirees. The depreciation rate and the common equity component of
AFUDC were also specified. The composite rate for the depreciation calculation
was set at 4.13%, up slightly from the 4.07% previously authorized. Solely for
the purpose of calculating AFUDC, the common equity return component was set at
11.5%.
The MDPU has put all companies on notice that it expects them..."to
consider mergers or acquisitions in order to further optimize least-cost
planning efforts and better fulfill their obligations to serve." Thereafter,
the MDPU instituted an investigation, which is now underway, for the purpose of
establishing, among other things, guidelines and standards for acquisitions and
mergers of utilities and evaluating proposals regarding the recovery of costs
associated with such activities. It is not possible to predict what effects,
if any, the MDPU proceeding will have on the EUA System.
On September 20, 1994, the MDPU issued a notice of inquiry and order
seeking comments on incentive regulation. The inquiry was to focus on
incentive regulation, sometimes referred to as performanced-based regulation,
to replace in whole or in part its existing cost-of-service/rate-of-return
regulatory framework. Comments were filed by Eastern Edison and other
interested persons. On February 24, 1995, the MDPU issued an order relating to
implementation of incentive regulation. In the order, the MDPU strongly
encouraged all jurisdictional electric utilities to devise and propose
incentive plans. The objective of incentive regulation is to "provide
market-place benefits to consumers through (1) more efficient utility
operations, (2) stronger utility incentives for better cost control, and (3)
enhanced opportunities for lower rates." While no timetable is specified, the
MDPU stated the largest utilities should commence the incentive plan design
process as soon as possible. It is not possible to predict what effect, if any
the MDPU's order will have on the EUA System.
On February 10, 1995, the MDPU issued a notice of inquiry and order
seeking comments on electric industry restructuring. After initial and
second-round comments are received, the MDPU will determine whether to hold
further discussions or hearings, or issue an order on the results of its
investigation. It is not possible to predict what effect, if any, the MDPU
proceeding will have on the EUA System.
Rhode Island Proceedings:
On April 7, 1992, the RIPUC initiated generic Docket No. 2045 pertaining
to the FAS106 issue for all Rhode Island utility companies. On June 26, 1992
Newport and Blackstone filed proposed rate increases to reflect the impact of
FAS106 of approximately $1.3 million and $2.7 million respectively. An order
was issued on December 11, 1992 granting recovery of a tax deductible amount of
FAS106 phased into rates over a three-year period with the initial one-third to
be recovered no earlier than the first fiscal year beginning after December 15,
1992, and the deferrals of the first two years recovered in rates over the
seven-year period following the three-year phase-in. On December 21, 1992,
Newport and Blackstone filed compliance rates representing phase one of the
three-year phase-in. The Phase I revenue requirement, representing one third
of the incremental FAS106 tax deductible amount for Blackstone and Newport was
calculated to be $353,000 and $417,000 respectively. Phase II compliance was
filed November 1, 1993. The revenue requirement representing two thirds of the
incremental FAS106 tax deductible expense for Blackstone and Newport was
calculated to be $706,000 and $834,000 respectively. Phase III compliance was
filed November 1, 1994. The revenue requirement representing the full phase-
in of the incremental FAS106 tax deductible expense for Blackstone and Newport
were calculated to be $1,059,000 and $1,251,000 respectively. The RIPUC also
ordered that all amounts recovered be placed in trusts permitted by the IRS
which will maximize tax deductibility. In 1994, total FAS106 expenses for
Blackstone and Newport, net of capitalized amounts, were approximately $1.9
million and $1.0 million respectively.
Also, on January 14, 1994, the RIPUC issued a written order establishing
Docket No. 2167 for a Comprehensive Review of Newport's rate design. A
prehearing conference was held on February 8, 1994 at which time a schedule for
pre-filing testimony was established.
On May 20, 1994, Newport filed its Cost of Service Study (COSS) analysis
of the rates of return by customer class and an alternative rate design
proposal. The Division filed its recommendations with regard to cost
allocation and rate design on June 23, 1994. The United States Navy filed its
recommendations on June 24, 1994. On July 29, 1994 the Company filed a
Stipulation and Settlement Agreement (SSA) which had been executed by the
RIDPUC and TEC-RI. The parties signing the SSA agreed on certain rate class
revenue changes. While the settling parties did not agree with the COSS
techniques utilized by Newport, they agreed to accept the SSA rather than
litigating with respect to what might be deemed appropriate study allocators
and techniques. The rate class revenue changes generally reduce, although they
do not eliminate inequities in the class rate of return. Newport agreed to
perform a new COSS to be submitted no later than July 1, 1996. At an open
meeting on October 28, 1994, the RIPUC found that the SSA is reasonable and in
the best interests of the ratepayers. Rates established in compliance with the
RIPUC's October 28, 1994, were effective January 1, 1995.
On or about December 8, 1994, the United States Navy, Newport's largest
customer, filed a petition for a writ of certiorari with the Rhode Island
Supreme Court to review the RIPUC's decision. Briefs have not yet been filed
and a decision is expected from the Court sometime in 1995. It is not possible
to predict what effect, if any, the Court's decision will have in the EUA
system.
On June 27, 1994 TEC-RI petitioned the RIDPUC to investigate the propriety
of "the current bundled electric rates," and what might be required to
transition "... from a fully regulated to a more competitive retail electric
industry". Blackstone and Newport are participants in an informal
collaborative process established by the RIDPUC to address TEC-RI's petition.
It is not possible to predict what effect, if any, this proceeding will have on
the EUA System.
Environmental_Regulation
General:
The Retail Subsidiaries and Montaup and other companies owning generating
units from which power is obtained are subject, like other electric utilities,
to environmental and land use regulations at the federal, state and local
levels. The EPA, and certain state and local authorities, have jurisdiction
over releases of pollutants, contaminants and hazardous substances into the
environment and have broad authority in connection therewith, including the
ability to require installation of pollution control devices and remedial
actions. In 1994 an environmental audit program designed to ensure compliance
with environmental laws and regulations and to identify and reduce liability
was instituted for Montaup and the Retail Subsidiaries.
Federal, Massachusetts and Rhode Island legislation requires consideration
of reports evaluating environmental impact as a prerequisite to the granting of
various permits and licenses with a view of limiting such impact. Federal,
Massachusetts and Rhode Island air quality regulations also require that plans
(including procedures for operation and maintenance) for construction or
modification of fossil fuel generating facilities receive prior approval from
the DEP or RIDEM. In addition, in Massachusetts, certain electric generation
and transmission facilities will be permitted to be built only if they are
consistent with a long-range forecast filed by the utility concerned and
approved by the Massachusetts Energy Facilities Siting Board. In Rhode Island,
siting, construction and modification of major electric generating and
transmission facilities must be approved by the Rhode Island Energy Facility
Siting Board and the Rhode Island Coastal Resource Management Council.
Generating facilities in which Montaup and Newport have an interest, and
are required to pay a share of the costs, are also subject, like other electric
utilities, to regulation with regard to zoning, land use, and similar controls
by various state and local authorities.
The EPA and state and local authorities may, after appropriate
proceedings, require modification of generating facilities for which
construction permits or operating licenses have already been issued, or impose
new conditions on such permits or licenses, and may require that the operation
of a generating unit cease or that its level of operation be temporarily or
permanently reduced. Such action may result in increases in capital costs and
operating costs which may be substantial, in delays or cancellation of
construction of planned facilities, or in modification or termination of
operations of existing facilities.
Other activities of the EUA System from time to time are subject to the
jurisdiction of various other local, state and federal regulatory agencies. It
is not possible to predict with certainty what effects the above described
statutes and regulations will have on the EUA System.
The EPA has issued regulations relating to the generation, transportation,
storage and disposal of certain wastes under RCRA; in Massachusetts, the
requirements are implemented and enforced by the DEP, whereas in Rhode Island,
RIDEM implements and enforces its own regulations under a state statute
comparable to RCRA as well as pursuant to EPA authorization.
There is an extensive body of federal and state statutes governing
environmental matters, including CERCLA, as amended by the Superfund Amendments
and Reauthorization Act of 1986 and, in Massachusetts, Chapter 21E, which
permit, among other things, federal and state authorities to initiate legal
action providing for liability, compensation, cleanup, and emergency response
to the release or threatened release of hazardous substances into the
environment and for the cleanup of inactive hazardous waste disposal sites
which constitute substantial hazards. Under CERCLA and Chapter 21E, joint and
several liability for cleanup costs may be imposed on, among others, the owners
or operators of a facility where hazardous substances were disposed, the party
who generated the substances, or any party who arranged for the disposition or
transport of the substances. Due to the nature of the business of EUA's
utility subsidiaries, certain materials are generated that may be classified as
hazardous under CERCLA and Chapter 21E. As a rule, the subsidiaries employ
licensed contractors to dispose of such materials. See Item 3. LEGAL
PROCEEDINGS -- Environmental Proceedings.
The EPA, pursuant to TSCA, regulates the use, storage, and disposal of
PCBs and other dielectric fluids. Because the EUA System had owned and used
some electrical transformers containing PCBs, it is subject to EPA regulation
under TSCA. These transformers have been either declassified or disposed of in
accordance with TSCA requirements.
Electric and Magnetic Fields:
A number of scientific studies in the past several years have examined the
possibility of health effects from EMF that are found wherever there is
electricity. While some of the studies have indicated some association between
exposure to EMF and health effects, many others have indicated no direct
association. The research to date has not conclusively established a direct
causal relationship between EMF exposure and human health. Additional studies,
which are intended to provide a better understanding of EMF, are continuing.
Some states have enacted regulations to limit the strength of EMF at the
edge of transmission line rights-of-way. Rhode Island has enacted a statute
which authorizes and directs the Rhode Island Energy Facility Siting Board to
establish rules and/or regulations governing construction of high voltage
transmission lines of 69 KV or more. There is a bill pending in the
Massachusetts legislature that would authorize the MDPU to examine the
potential health effects of EMF. Management cannot predict the ultimate
outcome of the EMF issue.
Water Regulation:
The objective of the Federal Water Pollution Control Act is to restore and
maintain the chemical, physical, and biological integrity of the nation's
navigable waters. The elimination of pollutant discharges (including heat)
into navigable waters is one goal aimed at achieving this objective. Another
step mandated by the Federal Water Pollution Control Act was the creation of a
rigorous permit program. All water discharge permits for plants in
Massachusetts, including those for the Somerset and Canal plants, are issued
jointly by the EPA and DEP. These same agencies also regulate certain
industrial stormwater discharges.
Standards have been established to control the dredging and filling of
wetlands under the Federal Water Pollution Control Act, the Massachusetts
Wetland Protection Act, and the Rhode Island Wetland Act. The EPA, the Army
Corps of Engineers, RIDEM, CRMC and the DEP are pursuing a non-degradation (no
loss) policy for wetlands.
Under the Massachusetts Water Management Act, the DEP is responsible for
promulgating regulations relating to water usage and conservation.
Most of the generating units from which Montaup obtains power operate
under permits which limit their effluent discharges into water and which
require monitoring and, in some instances, biological studies and toxicity
testing of the impact of the discharges. Such permits are issued for a period
of not more than five years, at the expiration of which renewal must be
sought. The permit for the Somerset plant was renewed on September 30, 1994
and expires on September 30, 1998.
The Oil Pollution Act of 1990 (OPA-90) was passed after several major oil
spills occurred in waters of the United States. The primary intent of this
legislation is to mandate strong contingency plans to prevent releases of oil
and to require that sufficient resources are in place and ready to respond to
any release. EPA, United States Coast Guard, RIDEM, and DEP have a number of
other rules in place, such as EPA's Spill Prevention, Countermeasures and
Control Plan regulations, which are designed to minimize the release of oil and
other substances into navigable waters and the environment.
Air Regulation:
All fossil fuel plants from which Montaup obtains power operate under
permits which limit their emissions into the air and require monitoring of the
emissions. Air quality requirements adopted by state authorities in
Massachusetts pursuant to the Clean Air Act impose limitations with respect to
pollutants such as sulfur dioxide, oxides of nitrogen and particulate matter.
Montaup's Somerset Station was permitted to burn coal which resulted in sulfur
dioxide emissions not in excess of 2.42 pounds per million BTU heat release
potential (approximately 1.5% sulfur content coal). The Canal Station Unit 2
is permitted to burn fuel oil which results in sulfur dioxide emissions not in
excess of 2.42 pounds per million BTU heat release potential (approximately
2.2% sulfur content fuel oil) when operating at 450 MW or above and 1% sulfur
content fuel oil when operating at less than 450 MW.
The EPA has established clean air standards for certain pollutants,
including standards limiting emissions from coal-fired and oil-fired
generators. Congress passed amendments to the Clean Air Act in 1990 which
created additional regulatory programs and generally updated and strengthened
air pollution control laws. These amendments will expand the regulatory role
of the EPA regarding emissions from electric generating facilities. Title IV
of the Clean Air Act Amendments addresses acid deposition abatement and
establishes a 2-phase utility power plant pollution control program to reduce
emissions of sulfur dioxide and oxides of nitrogen. The first phase begins in
1995 and affects approximately 261 large units in 21 eastern and midwestern
states. Phase II, which begins in the year 2000, tightens the emission limits
imposed on these larger plants and also sets restrictions on smaller, cleaner
plants fired by coal, oil and gas. Montaup's Somerset Station is classified as
a Phase II facility with a compliance deadline by the end of 1999. The control
program establishes a national cap of 8.90 million tons per year for sulfur
dioxide emissions. Beginning in the year 2000, the EPA will issue 8.90 million
sulfur dioxide allowances to utilities annually. The sulfur allowance program
will not affect Montaup's Somerset Station until January 1, 2000.
Massachusetts DEP regulations establish a statewide cap on sulfur dioxide
emissions and require Montaup's facilities to meet an average emission rate of
1.2 pounds of sulfur dioxide per million BTU of fuel input by the end of 1994.
Under federal standards, Montaup would not be required to meet this sulfur
dioxide emission level until the year 2000 as a result of Title IV of the Clean
Air Act. However, Massachusetts DEP regulations require compliance five years
earlier. As required by state regulations, Montaup submitted and received
approval of a plan detailing how it would meet the 1995 sulfur dioxide
standard. Montaup is achieving compliance by substituting lower sulfur content
fuels. Tests at Montaup's Somerset Station indicated that Unit #6 would be
able to utilize lower sulfur content coal than had been burned to meet the 1995
air standards with only a minimal capital investment. Montaup determined that
it would not be economical to repair Unit #5 of the Somerset Station and has
placed it in deactivated reserve (see Item 2. PROPERTIES).
Other provisions of the Clean Air Act Amendments will likely impact
Montaup by 1995. Title I of the Act sets a strategy for states to move toward
attaining national air quality standards, with the emphasis on meeting the
ozone standard. Ozone relates directly to the nation's smog problem. Oxides
of nitrogen are one of the precursors of ozone formation. Title I requires
additional controls on industrial sources of oxides of nitrogen including
utility power plants. The Act creates the Northeast Ozone Transport Region,
covering the area from Virginia to Maine, including Massachusetts and Rhode
Island. Areas within the transport region will become subject to enhanced
controls on oxides of nitrogen emissions.
In April 1992, NESCAUM, an environmental advisory group for eight
Northeast states including Massachusetts and Rhode Island issued
recommendations for oxides of nitrogen controls for existing utility boilers
required to meet the ozone non-attainment requirements of the Clean Air Act
Amendments. The NESCAUM recommendations are more restrictive than EPA's
requirements. The DEP has amended its regulations to require that Reasonably
Available Control Technology (RACT) be implemented at all stationary sources
potentially emitting 50 tons per year or more of oxides of nitrogen. Rhode
Island has also issued similar regulations requiring that RACT be implemented
at all stationary sources potentially emitting 50 tons or more per year of
nitrogen oxides. Montaup has initiated compliance through, among other things,
selective, noncatalytic reduction processes.
Title V of the Clean Air Act Amendments provides EPA with broad new
permitting authority, with the goal of having states begin to issue federally
enforceable operating permits by 1995 which will outline limits and conditions
necessary to comply with all applicable air requirements. The Clear Air Act
Amendments' permitting program will be phased in over a couple of years.
Although individual sources will be required to pay fees to the various states
which will administer the program, the impact of these requirements is not
expected to have a material financial impact on EUA.
Environmental Regulation of Nuclear Power
The NRC has promulgated a variety of standards to protect the public from
radiological pollution caused by the normal operation of nuclear generating
facilities. For example, the NRC requires licensed facilities to develop plans
to respond to unexpected developments.
In some environmental areas the NRC and the EPA have overlapping
jurisdiction. Thus, NRC regulations are subject to all conditions imposed by
the EPA and a variety of federal environmental statutes, including obtaining
permits for the discharge of pollutants (including heat) into the nation's
navigable waters. In addition, the EPA has established standards, and is in
the process of reviewing existing standards, for certain toxic air pollutants,
including radionuclides, under the Clean Air Act Amendments which apply to
NRC-licensed facilities. The effective date for the new radionuclide standards
has been stayed as to nuclear generating units. The EPA has also promulgated
environmental radiation protection standards for nuclear power plants. These
standards regulate the doses of radiation received by the general public.
The NWPA provides for development by the federal government of facilities
for the disposal or permanent storage of civilian nuclear waste. For further
details about NWPA see Item 1. BUSINESS -- Fuel for Generation. The NRC has
also promulgated regulations regarding the disposal of nuclear waste materials
designed to protect the public from radiological dangers.
Environmental regulation of nuclear facilities in which the EUA System has
an interest or from which they purchase power may result in significant
increases in capital and operating costs, in delays or cancellation of
construction of planned improvements, or in modification or termination of
existing facilities.
Energy Policy
The Energy Policy Act deals with many aspects of national energy policy
and includes important changes for electric utilities and registered holding
companies. It is not possible to predict the impact that the Energy Act and
the rules and regulations which will be promulgated by various regulatory
agencies pursuant to the Energy Act will have on the EUA System. Certain
provisions of the Energy Act will increase competition in the generation of
electricity, while other provisions will open up new investment opportunities
for registered holding companies. Certain provisions of the Energy Act are
intended to encourage conservation of electricity while other provisions may
create additional demand for electricity.
The Energy Policy Act encourages investments in certain types of energy
conversion and energy efficient equipment and requires the federal government
to undertake major new conservation projects. On the other hand, by
encouraging the development of electric motor vehicles, the Energy Act may
create additional demand for electricity.
One of the more significant provisions of the Energy Act creates a new
class of generation companies exempt from the 1935 Act, which sell exclusively
at wholesale, called exempt wholesale generators or EWGs. The Energy Act also
grants FERC new authority to mandate transmission access for QFs, EWGs and
traditional utilities. The Energy Act reduces the restrictions on certain
types of investments by registered holding companies including investments in
EWGs, investments in foreign utilities which do not operate in the United
States and investments in certain types of QFs which were previously limited to
the holding company's service territories or areas closely interconnected with
those service territories. Pursuant to certain provisions of the Energy Act,
the SEC has promulgated regulations to minimize the risks of investments in
EWG's by registered holding companies and their utility subsidiaries.
Regulations regarding investments in foreign utilities are also required under
the Energy Act but have not yet been promulgated by the SEC.
The Energy Act prevents an EWG directly or indirectly owned by a
registered holding company from entering into a power contract with a utility
affiliate of the holding company without the approval of each state commission
having jurisdiction over the rates of the utility affiliate.
It is not possible to predict the timing or content of future energy
policy legislation and the significance of such legislation to the EUA System.
Various issues not addressed by the 1992 Energy Act, including regional
planning and transmission arrangements, could be addressed in future
legislation.
Item 2. PROPERTIES
Power_Supply
Montaup supplies the EUA System with nearly 100% of its electric
requirements. Newport became an all-requirements customer of Montaup on May
21, 1994, the implementation date of Montaup's wholesale rate reduction. At
the same time, Montaup assumed all of Newport's power contracts and began
leasing all of Newport's generation facilities and a portion of Newport's
transmission facilities. In 1994, the EUA System's wholly owned generating
units referred to in the following table consisted of Montaup's was jet-fueled
peaking units (Somerset Jet 1 and Jet 2) and Somerset 6 which was converted
from oil to coal in 1983, Blackstone's Pawtucket Hydro, which was repowered in
1985 and Newport's diesel peaking units (Jepson in Jamestown and Eldred in
Portsmouth) which supply the EUA System with 8 MW and 8.25 MW, respectively.
With the exception of Somerset's Jet 1 and Jet 2, Montaup has not significantly
increased its wholly owned generating units since 1959. The EUA System has
found it more economically beneficial to join with other utilities in the joint
ownership of large generating units and in long-term purchase contracts, and to
supplement these sources with short-term purchases as required. EUA believes
that spreading the EUA System's sources of electricity among a number of plants
should improve the reliability of its power supply and limit the financial
exposure relating to construction and potentially prolonged outages of a
generating unit.
In January 1994 Montaup determined that it would not be economically
feasible to bring 42-year old, coal-fired, Somerset Station Unit 5 generating
unit into compliance with the Clean Air Act Amendments. The unit was placed in
cold storage and its net investment, $5.4 million, was transferred to electric
plant held for future use pending final determination by Montaup of its
usefulness. Under terms of the settlement agreement entered into by Montaup
and the intervenors in Montaup's 1994 rate decrease application and filed with
FERC, Montaup continues to earn a return on the net investment of the unit.
Current forecasts indicate that the combination of company owned generation,
current long-term purchased power contracts, expected short-term power
opportunities, and the System's C&LM programs, should meet EUA System capacity
requirements through the year 1999.
Montaup recovered approximately $14.2 million through rates in 1994 for
C&LM programs. C&LM is designed to (i) decrease existing energy demand and
(ii) offset future load growth through conservation incentives, thereby
minimizing future need for large capital investment in generating facilities.
The all-time peak EUA System demand was approximately 921 MW experienced
on July 21, 1994.
<TABLE>
EUA SYSTEM CAPABILITY
GENERATING UNITS IN SERVICE AS OF DECEMBER 31, 1994
<CAPTION>
GROSS WINTER GROSS NET
IN SYSTEM CLAIMED SYSTEM UNIT SYSTEM
SERVICE SHARE CAPAB SHARE SALES SHARE
DATE UNIT NAME FUEL TYPE OWNER/OPERATOR % MW MW MW MW
<S> <C> <C> <C> <C> <C> <C> <C> <C>
100% OWNERSHIP:
1959 SOMERSET 6 COAL MONTAUP ELECTRIC CO. 100.00 105.50 105.50 0.00 105.50
1970 SOMERSET J1 JET OIL MONTAUP ELECTRIC CO. 100.00 23.50 23.50 0.00 23.50
1971 SOMERSET J2 JET OIL MONTAUP ELECTRIC CO. 100.00 23.00 23.00 0.00 23.00
1985 PAWTUCKET HYDRO HYDRO BLACKSTONE VALLEY ELEC. 100.00 1.24 1.24 0.00 1.24
1961 JEPSON DIESEL NEWPORT ELECTRIC CORP. 100.00 8.00 8.00 0.00 8.00
1978 ELDRED DIESEL NEWPORT ELECTRIC CORP. 100.00 8.25 8.25 0.00 8.25
SUBTOTAL: 169.49 0.00 169.49
JOINT OWNERSHIP:
1976 CANAL 2 NO. 6 OIL CANAL ELECTRIC COMPANY 50.00 584.00 292.00 85.00 207.00
1978 WYMAN 4 (YAR 4) NO. 6 OIL CENTRAL MAINE POWER CO. 2.63 <F1> 619.25 16.28 0.00 16.28
1986 MILLSTONE 3 NUCLEAR NORTHEAST UTILITIES 4.01 1145.70 45.93 0.00 45.93
1990 SEABROOK NUCLEAR NORTH ATLANTIC ENERGY CORP 2.90 1150.00 33.35 0.00 33.35
SUBTOTAL: 387.56 85.00 302.56
EQUITY OWNERSHIP:
1968 CONN. YANKEE NUCLEAR CONN. YANKEE ATOMIC POWER 4.50 583.20 26.24 0.00 26.24
1972 MAINE YANKEE NUCLEAR MAINE YANKEE ATOMIC POWER 3.59 880.00 31.61 0.00 31.61
1972 VERMONT YANKEE NUCLEAR VT. YANKEE NUCLEAR POWER 2.25 521.83 11.74 0.00 11.74
SUBTOTAL: 69.60 0.00 69.60
PURCHASED POWER:
1968 CANAL1 NO. 6 OIL CANAL ELECTRIC COMPANY 25.00 <F2> 560.00 140.00 0.00 140.00
1972 PILGRIM 1 NUCLEAR BOSTON EDISON COMPANY 11.00 <F2> 668.97 73.59 0.00 73.59
1977 POTTER 2 GAS/OIL BRAINTREE ELEC. LIGHT DEPT 41.67 <F2> 96.00 40.00 0.00 40.00
1975 CLEARY 9 GAS/OIL TAUNTON MUNIC. LIGHTING 13.64 <F2> 110.00 15.00 0.00 15.00
1982 STONY BROOK 2A NO.2 OIL MASS. MUNIC. WHOLESALE CO. 32.35 <F3> 85.00 27.50 0.00 27.50
1986 STONY BROOK 2B NO.2 OIL MASS. MUNIC. WHOLESALE CO. 32.35 <F3> 85.00 27.50 0.00 27.50
1984 MCNEIL WOOD VERMONT ELECTRIC POWER 15.24 <F4> 53.00 8.08 0.00 8.08
1978 WYMAN 4 NO. 6 OIL CENTRAL MAINE POWER 0.81 <F3><F4> 619.25 5.00 0.00 5.00
1972 SALEM HBR 4 NO. 6 OIL NEW ENGLAND POWER 1.16 <F3><F4> 430.00 5.00 0.00 5.00
1974 BRAYTON 4 NO. 6 OIL NEW ENGLAND POWER 1.13 <F3><F4> 441.00 5.00 0.00 5.00
1990 OSP 1 GAS OCEAN STATE POWER 28.00 <F5> 287.00 80.36 0.00 80.36
1991 OSP 2 GAS OCEAN STATE POWER 28.00 <F5> 287.00 80.36 0.00 80.36
1991 NEA GAS NORTHEAST ENERGY ASSOC. 8.62 334.38 28.83 0.00 28.83
SUBTOTAL: 536.21 0.00 536.21
1991 HYDRO QUEBEC I&II HYDRO HQ / NEPOOL 4.06 <F6> 1215.00 49.31 0.00 49.31
SUBTOTAL: 49.31 0.00 49.31
TOTAL GROSS SYSTEM CAPABILITY (MW) --------------------------1,217.17
LESS: UNIT CONTRACT SALES (MW) ------------------------------85.00
TOTAL NET SYSTEM CAPABILITY (MW) --------------------------------1,127.17
<FN>
<F1> REPRESENTS MONTAUP JOINT OWNERSHIP SHARE OF 1.9618% AND NEWPORT JOINT OWNERSHIP OF .6666%.
<F2> "LIFE OF UNIT" PURCHASE CONTRACT.
<F3> CONTRACT EXPIRES 10/31/95.
<F4> PURCHASED POWER CONTRACTS OF NEWPORT ASSUMED BY MONTAUP AS OF MAY 21, 1994.
<F5> FOR EACH UNIT, MONTAUP IS A POWER PURCHASER WITH 22% ENTITLEMENT AND NEWPORT IS A POWER
PURCHASER WITH 6% ENTITLEMENT. MONTAUP ASSUMED NEWPORT'S ENTITLEMENT AS OF MAY 21, 1994
(EUA OCEAN STATE HOLDS A 29.9% EQUITY INTEREST IN OCEAN STATE POWER PARTNERSHIP.)
<F6> ENTITLEMENT % IS WEIGHTED AVERAGE OF PHASE I & II SHARES (40% PHASE I (4.01987%); 60% PHASE II (4.0842%)).
</FN>
</TABLE>
Montaup's participation in generating units of which it is not the sole
owner takes various forms including stock (equity) ownership, joint ownership
and purchase contracts. In most cases (other than short-term purchased power
contracts) the purchaser is required to pay its share (i.e., the same
percentage as the percentage of its entitlement to the output) of all of the
costs of the generating unit (whether or not the unit is operating) including
fixed costs, operating costs, costs of additional construction or modification,
costs associated with condemnation, shutdown, retirement, or decommissioning of
the unit, and certain transmission charges. Under its contracts with Maine
Yankee, Connecticut Yankee Atomic Power Company, Vermont Yankee Nuclear Power
Corporation and Yankee Atomic and, under its agreements relating to Phase II of
the interconnection with Hydro-Quebec, Montaup may be called upon to provide
additional capital and/or other types of direct or indirect financial support.
(See Item 1. BUSINESS -- Yankee Atomic.)
Other_Property
The EUA System owns approximately 4,700 miles of transmission and
distribution lines and approximately 104 substations located in the cities and
towns served.
In addition to the above, the Retail Subsidiaries, Montaup, and EUA
Service also own several buildings which house distribution, maintenance or
general office personnel. See Note E of Notes to Consolidated Financial
Statements contained in the Registrant's Annual Report to Shareholders for the
year ended December 31, 1994, (Exhibit 13-1.03 filed herewith) regarding
encumbrances.
Item 3. LEGAL PROCEEDINGS
Rate_Proceeding
See descriptions of proceedings under Item 1, BUSINESS -- Rates.
Environmental_Proceedings
1. In March 1985, Blackstone was notified by the DEQE, which is now the
DEP, that it had been identified, along with other parties, as a potentially
responsible party under Massachusetts law for a condition of soil and ground
water contamination in Lowell, Massachusetts. The site in question was
occupied by a scrap metal reclamation facility which received transformers and
other electrical equipment from utility companies and others from the early
1960s until 1984. Among the contaminants apparently released at the site were
PCBs. The potentially responsible parties (PRPs), including Blackstone,
performed site studies and proposed a remedial action plan, which was approved
by the DEQE several years ago. Since that time, the PRPs have negotiated over
access, taxes and similar issues with the site owner and other parties. The
remedial option selected but not yet completed is a process of solidification;
however, a risk assessment that may now be required could lead the PRPs to
choose capping as the remedial option. The cost of implementing either remedy
could vary from $250,000 for capping to $600,000 for solidification.
Blackstone is alleged to be the fifth ranked generator out of approximately
twenty potentially responsible parties. However, Blackstone's estimated 2%
share allocation is considerably less than the shares of the four largest
contributors at the site. As a result, Blackstone expects to be offered a de
minimis party buyout settlement from the major members of the site PRPs in the
near future.
2. On July 14, 1987, the Commonwealth of Massachusetts (the Commonwealth)
on behalf of the DEP filed a cost recovery action pursuant to CERCLA and Mass.
Gen. Laws Chapter 21E against Blackstone in the United States District Court of
Boston. The Complaint seeks $2.2 million in costs incurred by DEP in the
cleanup of an alleged coal gasification waste site at Mendon Road in Attleboro,
Massachusetts. In October 1987, without admitting liability, Blackstone
entered into an administrative Consent Order with DEP regarding the Mendon Road
site and another alleged coal gasification site discovered by the DEP
approximately 1/4 mile away known as the Lawn/Knoll site in Attleboro.
Blackstone agreed to perform preliminary assessments at both sites in order to
determine what remediation, if any, was necessary at the site. In 1988,
Blackstone submitted Phase II testing results for the Lawn/Knoll site to the
DEP for review and approval, but Blackstone has not received a response or DEP
authorization to proceed with further studies or remedial action. On May 26,
1993, the DEP requested Blackstone to submit additional Phase I testing for the
Mendon Road site which was completed and sent to the DEP on December 20, 1993.
Phase II was initiated in November 1994 and field-work should begin in the
Spring of 1995. Meanwhile, Blackstone has contested the DEP's cost recovery
action, arguing, inter alia, that the waste removed from the Mendon Road site
was not "hazardous" within the meaning of CERCLA or Mass. Gen. Laws Chapter 21E
and the DEP's cleanup actions were inconsistent with the National Contingency
Plan (NCP). On November 25, 1991 the Court held that the waste was "hazardous"
within the meaning of both statutes and on December 20, 1992, the Court held
Blackstone and a co-defendant, the Courtois Sand & Gravel Co. (Courtois) liable
for an undetermined amount of cleanup costs. The Court remanded the case to
the DEP to supplement the administrative record with Blackstone's oral and
written comments concerning the cleanup. On March 19, 1993, Blackstone made an
oral presentation to the DEP and on April 19, 1993, Blackstone submitted
written comments. On December 13, 1994, the United States District Court for
the District of Massachusetts issued a judgment against Blackstone finding
Blackstone liable to the Commonwealth for the full amount of response costs
incurred by the Commonwealth in the cleanup of the Mendon Road site. The
judgment also found Blackstone liable for interest and litigation expenses
calculated to the date of judgment. The total liability at December 31, 1994
is approximately $5.9 million, including approximately $3.6 million in interest
which has accumulated since 1985.
Blackstone filed a Notice of Appeal of the court's judgment and filed its
brief with the First Circuit Court of Appeals on February 24, 1995.
On January 20, 1995, Blackstone entered into an escrow agreement with the
Commonwealth whereby Blackstone deposited $5.9 million with an escrow agent who
transferred the funds into an interest bearing money market account. The
distribution of the proceeds of the escrow account will be determined upon the
final resolution of the judgment. No additional interest expense will accrue
on the judgment amount.
On January 28, 1994, Blackstone filed a Complaint in the United States
District Court in Boston seeking, among other relief, contribution and
reimbursement from Stone & Webster Inc., of New York City and several of its
affiliated companies (Stone & Webster), and Valley Gas Company of Cumberland,
Rhode Island (Valley) for any damages incurred by Blackstone regarding the
Mendon Road site. In addition, Blackstone has notified certain liability
insurers and has filed claims with respect to the Mendon Road site.
Blackstone's Complaint also seeks a declaratory judgment that Stone & Webster
and Valley owned and/or operated a coal gasification plant on Tidewater Street
in Pawtucket (the Tidewater Plant) where the coal gasification waste allegedly
was generated, and that they individually or collectively arranged for the
disposal of such waste. The United States District Court has denied motions to
dismiss the complaint filed by Stone & Webster and Valley in 1994.
3. On October 28, 1986, RIDEM notified Blackstone that there may have been
a release of hazardous material at the Tidewater Plant site in Pawtucket, Rhode
Island. The site was placed on EPA's CERCLA list in 1987. The site includes
the Tidewater Plant owned by Valley Gas Company (approximately 10 acres), the
No. 1 Station owned by Blackstone (approximately 10 acres), and land formerly
owned by Blackstone that was sold in 1968 to the City of Pawtucket
(approximately 10 acres). RIDEM told Blackstone that the site contained
cyanide-contaminated wastes and petroleum-contaminated soils due to tanks
formerly located at the site. In December, 1990, after obtaining approval from
RIDEM, Blackstone removed approximately 1,000 tons of soil from the site. On
September 3, 1991, RIDEM initiated a site investigation which constitutes the
second step in a site screening and assessment process established by the EPA
to determine whether the site should be listed as a Superfund site. On
February 3, 1993, RIDEM notified Blackstone that it required further assessment
and evaluation of site conditions to determine if the site qualifies for review
pursuant to the Hazardous Ranking System. The EPA is planning to review the
site to determine whether a further investigation and a hazard ranking should
be performed. As previously discussed in item 2 above, on January 28, 1994,
Blackstone filed a Complaint (previously mentioned in paragraph 2) in the
United States District Court for the District of Massachusetts seeking, inter
alia, a declaratory judgment that Stone & Webster and Valley are responsible
for owning and/or operating the Tidewater Plant and disposing and/or arranging
for the disposal of coal gasification wastes at the Tidewater Plant site.
4. Montaup and EUA Service received a Notice of Responsibility on July 27,
1987, from the DEP for suspected hazardous material at a site owned by Montaup
on Hortonville Road in Swansea, Massachusetts. EUA Service has contracted for
and received an environmental site assessment for the property identifying the
previous property owner as the party likely responsible for the deposit of
suspected hazardous waste materials on the site. This assessment has been
submitted to the DEP, identifying the previous property owner. Under new MCP
regulations, Montaup must take the initiative to complete investigative and
remedial actions by August 1997.
5. Blackstone received a notice from the EPA dated July 29, 1988, stating
that Blackstone is potentially liable for the alleged disposal of hazardous
waste on a hazardous waste site in North Smithfield, Rhode Island. The EPA has
conducted a remedial investigation and a feasibility study for this site and is
seeking participation in clean-up activities. Individually and as a member of
a group of approximately 80 PRPs, Blackstone has conducted negotiations with
the EPA concerning settlement and concerning the need to grant access and use
rights over land owned by Blackstone that is adjacent to the waste site. In
September 1990, however, the EPA served a number of parties (not including
Blackstone) with unilateral administrative orders to compel such parties to
carry out remedial activities at the site. Separate settlement negotiations
among Blackstone, the EPA and the parties that are subject to the
administrative orders resulted in a settlement agreement between Blackstone and
certain major generators of materials at the site, effective as of March 1,
1991. The parties (not including the EPA) have indemnified Blackstone against
liabilities and actions associated with the site in return for a settlement
payment and Blackstone's agreement to convey to the parties an easement and
access agreement over land adjacent to the site to facilitate site
remediation. Negotiations between Blackstone and those parties over certain
terms of the easement and access agreement were conducted in June 1994 at which
time Blackstone and representatives of those parties executed an "Easement,
Access Agreement, Covenants and Restrictions." Construction work necessary to
carry out the site remediation plan, both at the site and on the site adjacent
to the Blackstone property began in 1994 and is ongoing in 1995. Insurance
recovery of any funds paid by Blackstone appears unlikely without legal
proceedings to determine insurance coverage issues.
6. During March-April 1990, Eastern Edison conducted a limited
environmental investigation (Phase I study) of a portion of its Dupont
Substation in Brockton, Massachusetts. During the investigation, Eastern
Edison notified the DEP that it had encountered oils and PCBs. On May 3, 1990,
the DEP notified Eastern Edison of its liability for releases of oil and/or
hazardous materials at the site, and requested a copy of the Phase I study.
Following its review of the Phase I study on January 23, 1991, the DEP issued a
Notice of Responsibility to Eastern Edison requiring a Phase II - Comprehensive
Site Investigation. A scope of work for the Phase II study was submitted on
April 12, 1991. Eastern Edison will proceed once the DEP approves the scope of
the work. The DEP has classified this site under the new MCP. Eastern Edison
is proceeding with a Phase II study and a site ranking may be required by July
1995.
Blackstone, Eastern Edison, Montaup and EUA Service are unable to predict
the outcome of any of the foregoing environmental matters or to estimate the
potential costs which may ultimately result. It is the policy of these
companies in such cases to provide notice to liability insurers and to make
claims. However, it is not possible at this time to predict whether liability,
if any, will be assumed by, or can be enforced against, the insurance carrier
in these matters. Under CERCLA, each responsible party can be held "jointly
and severally" liable for clean-up costs. EUA or a subsidiary could thus be
held fully liable for environmental damages for which they were only partially
responsible. However, EUA might then be entitled to recover costs from other
PRPs.
As of December 31, 1994, the EUA System has incurred costs of approxi
mately $3.5 million (excluding the Mendon Road judgment) in connection with the
foregoing environmental matters, substantially all of which relate to
Blackstone. EUA estimates that additional expenditures (excluding the Mendon
Road judgment) may be incurred through 1996 up to $5.6 million of which
approximately $4.8 million relate to Blackstone.
As a general matter, the EUA System will seek to recover costs relating to
environmental proceedings in their rates. Blackstone applied for, and received
authority to recover in rates certain of its incurred costs over a five-year
period. Montaup is currently recovering certain of its incurred costs in its
rates. Estimated amounts after 1996 are not now determinable since site
studies which are the basis of these estimates have not been completed. As a
result of the recoverability in current rates and the uncertainty regarding
both its estimated liability, as well as potential contributions from insurance
carriers and other responsible parties, EUA does not believe that the ultimate
impact of the environmental costs will be material to the financial position of
the EUA System or to any individual subsidiary and thus, no loss provision is
required at this time.
Shareholder Proceeding
On January 20, 1995, EUA and a former shareholder of EUA, which on
February 11, 1992 had filed suit against EUA and three officers of EUA in the
Federal District Court of Massachusetts, filed a voluntary dismissal of the
suit with the court following the fulfillment of the terms of a settlement
agreement among EUA, the one officer remaining as a defendant in the action and
the former shareholder. The dismissal prevents the former shareholder from
suing EUA again on any claim asserted in the suit.
EUA and the officer continue to deny any and all allegations of wrongdoing
asserted by the former shareholder but determined it to be in their best
interests to settle the suit. Under the provisions of the Settlement
Agreement, the settlement terms are to remain confidential. The Settlement
Agreement will not have an adverse impact on EUA's current earnings due to
reserves that EUA had previously established. In the suit the former
shareholder alleged fraudulent and negligent misrepresentations and violations
of Rule 10b-5 under the Securities Exchange Act of 1934 in connection with
statements made regarding the business and prospects of EUA's former
subsidiary, EUA Power and the portion of EUA's earnings attributable to
allowance for funds used during construction (AFUDC) from EUA Power.
Other_Proceedings:
In December 1992, Montaup commenced a declaratory judgment action in which
it sought to have the Massachusetts Superior Court determine its rights under
the Power Purchase Agreement between it and Aquidneck Power Limited Partnership
(Aquidneck). Montaup sought a declaration that the Power Purchase Agreement
was binding on the parties according to its terms. Aquidneck asserted that
Montaup had either an expressed or implied obligation to negotiate new terms
and conditions to the Power Purchase Agreement.
In January 1994, a counterclaim by Aquidneck claimed certain breaches of
the Power Purchase Agreement, including an alleged failure on the part of
Montaup to renegotiate the terms and conditions of the Power Purchase Agreement
relating to the first milestone event. Also in January 1994, Aquidneck sought
to join EUA and EUA Service as parties to the suit.
The Court has scheduled a hearing in April, 1995 on Montaup's motion for
default judgment. In addition, Montaup intends to file a motion for summary
judgment.
Montaup, EUA and EUA Service intend to defend the counterclaim vigorously
and believe that Aquidneck's claims have no basis in law.
On June 30, 1987, the MDPU commenced a proceeding for the purpose of inves
tigating Eastern Edison's power planning process after rejecting a proposed
Purchased Capacity Adjustment Clause. One of the purposes of this proceeding
is to investigate the prudency of Eastern Edison's all-requirements contract
with Montaup. No procedural dates have been set nor has any other activity
occurred in this docket. EUA cannot predict the outcome of this matter at this
time.
On January 8, 1992, the Massachusetts Municipal Wholesale Electric
Cooperative and its member municipalities, all of which are members of NEPOOL,
filed a suit in Massachusetts Superior Court against the investor-owned
utilities that are also members of NEPOOL. The suit alleges damages by
NEPOOL's establishment of minimum size requirements for generating units
designated as pool-planned generating units. The suit names as defendants
members of NEPOOL, including Blackstone, Eastern Edison, Montaup and Newport
(NEPOOL members of the EUA System). The FERC initiated an action when the EUA
subsidiaries and other participants filed an amendment to the NEPOOL Agreement
with the FERC that concerns many of the issues raised in the Massachusetts
litigation. The plaintiffs in the Massachusetts litigation, and one other
participant have objected to the amendment, and have sought to prevent or delay
its effectiveness. Extended settlement discussions have resulted in a
settlement signed by substantially all of the parties and intervenors in both
actions. The settlement, if fully implemented, will result in (i) a withdrawal
of the amendment to the NEPOOL Agreement, (ii) a termination and of the FERC
proceeding, and (iii) after the FERC action is terminated and no longer subject
to appeal, the withdrawal by the settling plaintiffs of their Superior Court
complaint. The necessary papers were filed to withdraw the NEPOOL amendment
and terminate the FERC proceeding. That withdrawal and termination was
contested by three intervenors in the FERC proceeding. On February 10, 1995,
FERC issued an order accepting a notice of cancellation of the NEPOOL
amendment, effective September 12, 1994. If the settlement agreement is fully
implemented, the Superior Court action will be required to be dismissed as to
all but one non-settling plaintiff. Management cannot predict the ultimate
outcome of this proceeding at this time.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
None.
EXECUTIVE OFFICERS OF THE REGISTRANT
The names, ages and positions of all of the executive officers of EUA as
of March 17, 1995, are listed below along with their business experience during
the past five years. Officers are elected annually by the Trustees at the
meeting of Trustees next following the annual meeting of shareholders. The
1995 Annual Meeting of Shareholders is scheduled to be held on May 15, 1995.
There are no family relationships among these officers, nor any arrangement or
understanding between any officer and any other person pursuant to which the
officer was selected.
Name,_Age_and_Position Business_Experience_During_Past_5_Years
Richard M. Burns, 57 Comptroller since 1976, Assistant Secretary
Comptroller (1) since 1978, and Assistant Treasurer since
April 1986. Chief Accounting Officer of
EUA.
Arthur A. Hatch, 64 Executive Vice President since January 1990;
Executive Vice President (2) responsible for power supply, purchasing
management, engineering and operations of
the transmission and distribution facili
ties of the EUA System.
Clifford J. Hebert, Jr., 47 Treasurer since April 1986. Responsible for
Treasurer (3) financial and treasury activities of the
EUA System.
William F. O'Connor, 55 Secretary since 1971; responsible for corpo-
Secretary (4) rate affairs and human resources activi
ties of the EUA System.
Donald G. Pardus, 54 Chairman since July 1990; Chief Executive
Chairman of the Board, Officer since April 1989; President from
Chief Executive Officer December 1985 through June 1990; responsi-
Trustee (5) ble for the overall management of the EUA
System.
Robert G. Powderly, 47 Executive Vice President since April 1992;
Executive Vice President (6) President of Newport Electric Corporation
from March 1990 to April 1992; prior to
that, he had been a Vice President of EUA
Service since April 1986; responsible for
corporate communications, customer ser
vice, information systems and rate activi
ties of the EUA System.
John R. Stevens, 54 President since July 1990; Chief Operating
President, Chief Operating Officer since January 1990; Senior Execu-
Officer and Trustee (7) tive Vice President from January 1990 to
July 1990; responsible for retail opera
tions and new ventures of the EUA System.
________________
(1) Vice President, Comptroller, Assistant Treasurer, Assistant Clerk/Secretary
and Director of EUA Service; Vice President, Assistant Treasurer and
Assistant Clerk/Secretary of Eastern Edison and Blackstone; Comptroller,
Assistant Treasurer and Director of EUA Cogenex; Vice President, Assistant
Treasurer, Assistant Clerk and Director of Montaup and EUA Energy;
Assistant Treasurer of EUA Ocean State; Vice President and Assistant
Treasurer of Newport; Director and Assistant Treasurer, EUA Transcapacity
Vice President and Comptroller NEM and EUA Cogenex Cogenex - Canada.
(2) Executive Vice President and Director of Blackstone, Eastern Edison, EUA
Cogenex, EUA Energy, EUA Ocean State, EUA Transcapacity, EUA Service,
Montaup and Newport.
(3) Treasurer of Blackstone, Eastern Edison, EUA Transcapacity, Inc., EUA
Energy, EUA Ocean State, Montaup, EUA Service, EUA Transcapacity Newport
and NEM; Treasurer and Assistant Clerk/Secretary of EUA Cogenex and EUA
Cogenex - Canada.
(4) Vice President, Clerk, Secretary and Director of EUA Service;
Secretary/Clerk of Blackstone, Eastern Edison, EUA Ocean State, EUA
Transcapacity, NEM, EUA Cogenex - Canada and Newport; Clerk and Director
of EUA Cogenex, EUA Energy and Montaup.
(5) Chairman and Director of Blackstone, Eastern Edison, EUA Cogenex, EUA
Energy, EUA Ocean State, EUA Transcapacity, EUA Service, Montaup, NEM, and
Newport; Chairman of EUA Cogenex-Canada.
(6) Executive Vice President and Director of Blackstone, Eastern Edison, EUA
Cogenex-Canada, EUA Energy, EUA Ocean State, EUA Service, EUA
Transcapacity, Montaup and Newport.
(7) Vice Chairman and Director of Blackstone, Eastern Edison, EUA Cogenex, EUA
Cogenex-Canada, NEM and Newport; President and Director of EUA Energy, EUA
Ocean State, Montaup, EUA Transcapacity and EUA Service.
Except as described below, there have been no events under any bankruptcy
act, no criminal proceedings and no judgments or injunctions material to the
evaluation of the ability and integrity of any director or executive officer
during the past five years.
On February 28, 1991, EUA Power (now Great Bay Power), filed a voluntary
petition with the federal Bankruptcy Court for protection under Chapter 11 of
the federal Bankruptcy Code. EUA Power, a wholly owned subsidiary of EUA prior
to February 5, 1993, the date it redeemed all of its equity securities held by
EUA, was organized solely for the purpose of acquiring an interest in the
Seabrook Project and selling in the wholesale market its share of electricity
generated by the project. EUA has no ownership interest in Great Bay Power.
Messrs. Burns, Hatch, Hebert, O'Connor, Pardus and Stevens, were officers
or directors of EUA Power since its formation in 1986, resigned their positions
effective December 30, 1992, with the exception of Mr. Stevens who resigned as
the sole officer and director of Great Bay Power on November 22, 1994.
PART_II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The information set forth under the caption Quarterly Financial and Common
Share Information included in the Registrant's Annual Report to Shareholders
for the year ended December 31, 1994, (Exhibit 13-1.03 filed herewith) is
incorporated herein by reference.
The closing price of the Registrant's Common Shares as reported by the
Wall Street Journal on March 20, 1995, was $23.625.
Item 6. SELECTED FINANCIAL DATA
The information set forth under the caption Selected Consolidated
Financial Data included in the Registrant's Annual Report to Shareholders for
the year ended December 31, 1994, (Exhibit 13-1.03 filed herewith) is
incorporated herein by reference.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The statements and information set forth under the caption Management's
Discussion and Analysis of Financial Condition and Results of Operations
included in the Registrant's Annual Report to Shareholders for the year ended
December 31, 1994, (Exhibit 13-1.03 filed herewith) are incorporated herein by
reference.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following consolidated financial statements of the Registrant and its
subsidiaries, included in the Registrant's Annual Report To Shareholders for
the year ended December 31, 1994, (Exhibit 13-1.03 filed herewith) are
incorporated herein by reference:
Consolidated Statement of Income for the three years in the period ended
December 31, 1994.
Consolidated Statement of Retained Earnings for the three years in the
period ended December 31, 1994.
Consolidated Statement of Cash Flows for the three years in the period
ended December 31, 1994.
Consolidated Balance Sheet at December 31, 1994 and 1993.
Consolidated Statement of Equity Capital and Preferred Stock at December
31, 1994 and 1993.
Consolidated Statement of Indebtedness at December 31, 1994 and 1993.
Notes to Consolidated Financial Statements at December 31, 1994, 1993, and
1992.
Report of Independent Accountants, dated March 2, 1995.
The statements and information set forth under the captions Quarterly
Financial and Common Share Information included in the Registrant's Annual
Report to Shareholders for the year ended December 31, 1994 (Exhibit 13-1.03
filed herewith) are incorporated herein by reference.
Item 9. CHANGES IN AND DISAGREEMENTS ON WITH ACCOUNTANT ACCOUNTING AND
FINANCIAL DISCLOSURES
None.
PART_III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information concerning trustees and executive officers set forth under
the caption "ELECTION OF TRUSTEES AND OWNERSHIP OF COMMON SHARES" in the
Registrant's definitive Proxy Statement to be mailed to shareholders in
connection with the shareholders' annual meeting to be held on May 15, 1995,
and filed with the SEC is incorporated herein by reference. See also
"Executive Officers Of The Registrant" following Item 4 herein.
Item 11. EXECUTIVE COMPENSATION
The information concerning executive compensation set forth under the
caption "COMPENSATION AND OTHER COMPENSATION" in the Registrant's definitive
Proxy Statement to be mailed to shareholders in connection with the
shareholders' annual meeting to be held on May 15, 1995 and filed with the SEC
is incorporated herein by reference with the exception of the Report of the
Compensation and Nominating Committee on Compensation of Executive Officers and
accompanying Corporate Performance Graph that appears therein and which are
specifically not incorporated herein by reference.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The statements concerning security ownership of certain beneficial owners
and management set forth under the caption "ELECTION OF TRUSTEES AND OWNERSHIP
OF COMMON SHARES" in the Registrant's definitive Proxy Statement to be mailed
to shareholders in connection with the shareholders' annual meeting to be held
on May 15, 1995 and filed with the SEC are incorporated herein by reference.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
PART_IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1) Financial Statements
The response to this portion of Item 14 is set forth under Item 8.
(a)(2) Financial Statement Schedules
The following additional consolidated financial statement schedules filed
herewith should be considered in conjunction with the financial statements
in the Registrant's Annual Report to Shareholders for the year ended
December 31, 1994 (Exhibit 13-1.03 filed herewith):
1. Financial Statement Schedules:
Schedule II - Valuation and Qualifying Accounts for the three years
ended December 31, 1994.
2. Report of Independent Accountants (Coopers & Lybrand, L.L.P.) for
1994, 1993, and 1992 included in the Registrant's Annual Report to
Shareholders for the year ended December 31, 1994 (Exhibit 13-1.03
filed herewith).
(a)(3) Exhibits (*denotes filed herewith).
Articles of Incorporation and By-Laws:
-EUA-
3-1.03 - Declaration of Trust of EUA, dated April 2, 1928, as amended
(Exhibit A-3, File No. 70-3188; Exhibit 1 to EUA's 8-K Reports
for April in each of the years 1957, 1962, 1966, 1968, 1972,
and 1973, File No. 1-5366; Exhibit A-1 (a), Amendment No. 2 to
Form U-1, File No. 70-5997; Exhibit 4-3, Registration No.
2-72589; Exhibit 1 to Certificate of Notification, File No.
70-6713; Exhibit 1 to Certificate of Notification, File No.
70-7084; Exhibit 3-2, Form 10-K of EUA or 1987, File No.
1-5366).
- Eastern Edison -
3-1.08 - Form of Restated and Amended Articles of Organization (filed as
Exhibit B-1 to Form U5S of EUA for 1993).
Instruments Defining the Rights of Shareholders, Including Indentures:
- Eastern Edison -
4-1.08 - Indenture of First Mortgage and Deed of Trust dated as of
September 1, 1948 of Eastern Edison (Exhibit 4-1, Registration
No. 2-77468).
4-2.08 - First Supplemental Indenture dated as of February 1, 1953 of
Eastern Edison (Exhibit A, File No. 70-3015).
4-3.08 - Second Supplemental Indenture dated as of May 1, 1954 of
Eastern Edison (Exhibit A-3, File No. 70-3371).
4-4.08 - Third Supplemental Indenture dated as of June 1, 1955 of
Eastern Edison (Exhibit C to Certificate of Notification, File
No. 70-3371).
4-5.08 - Fourth Supplemental Indenture dated as of September 1, 1957 of
Eastern Edison (Exhibit D to Certificate of Notification, File
No. 70-3619).
4-6.08 - Fifth Supplemental Indenture dated as of April 1, 1959 of
Eastern Edison (Exhibit D to Certificate of Notification, File
No. 70-3798).
4-7.08 - Sixth Supplemental Indenture dated as of October 1, 1963 of
Eastern Edison (Exhibit F to Certificate of Notification, File
No. 70-4164).
4-8.08 - Seventh Supplemental Indenture dated as of June 1, 1969 of
Eastern Edison (Exhibit D to Certificate of Notification, File
No. 70-4748).
4-9.08 - Eighth Supplemental Indenture dated as of July 1, 1972 of
Eastern Edison (Exhibit C to Certificate of Notification, File
No. 70-5195).
4-10.08 - Ninth Supplemental Indenture dated as of September 1, 1973 of
Eastern Edison (Exhibit F to Certificate of Notification, File
No. 70-5379).
4-11.08 - Tenth Supplemental Indenture dated as of October 1, 1975 of
Eastern Edison (Exhibit C to Certificate of Notification, File
No. 70-5719).
4-12.08 - Eleventh Supplemental Indenture dated as of January 1, 1979 of
Eastern Edison (Exhibit 5-24, Registration No. 2-65785).
4-13.08 - Twelfth Supplemental Indenture dated as of October 1, 1980 of
Eastern Edison (Exhibit F to Certificate of Notification, File
No. 70-6463).
4-14.08 - Thirteenth Supplemental Indenture dated as of July 1, 1981 of
Eastern Edison (Exhibit C to Certificate of Notification, File
No. 70-6608).
4-15.08 - Fourteenth Supplemental Indenture dated as of June 1, 1982 of
Eastern Edison (Exhibit C to Certificate of Notification, File
No. 70-6737).
4-16.08 - Fifteenth Supplemental Indenture dated as of August 1, 1983 of
Eastern Edison (Exhibit F to Certificate of Notification, File
No. 70-6851).
4-17.08 - Sixteenth Supplemental Indenture dated as of September 1, 1984
of Eastern Edison (Exhibit 4-31, Form 10-K of EUA for 1984,
File No. 1-5366).
4-18.08 - Seventeenth Supplemental Indenture dated as of July 1, 1986 of
Eastern Edison (Exhibit F to Certificate of Notification, File
No. 70-7254).
4-19.08 - Eighteenth Supplemental Indenture dated as of June 1, 1987 of
Eastern Edison (Exhibit C to Certificate of Notification, File
No. 70-7373).
4-20.08 - Nineteenth Supplemental Indenture dated as of November 1, 1987
of Eastern Edison (Exhibit C to Certificate of Notification,
File No. 70-7373).
4-21.08 - Twentieth Supplemental Indenture dated as of May 1, 1988 of
Eastern Edison (Exhibit C to Certificate of Notification, File
No. 70-7373).
4-22.08 - Twenty-first Supplemental Indenture dated as of September 1,
1988 of Eastern Edison (Exhibit F to Certificate of
Notification, File No. 20-7511).
4-23.08 - Twenty-second Supplemental Indenture dated as of December 1,
1990 of Eastern Edison (Exhibit 4-34, Form 10-K of Eastern
Edison for 1990, File No. 0-8480).
4-24.08 - Twenty-third Supplemental Indenture dated as of July 1, 1992 of
Eastern Edison (Exhibit 4-24, Form 10-K of Eastern Edison for
1992, File No. 0-8480).
4-25.08 - Indenture dated as of December 1, 1990 of Eastern Edison with
Citibank, N.A., as Trustee (Exhibit 4-35, Form 10-K of Eastern
Edison for 1990, File No. 0-8480).
4-26.08 - Form of Eastern Edison Medium Term Note (Exhibit 4-36, Form
10-K of Eastern Edison for 1990, File No. 0-8480).
4-27.08 - Twenty-Fourth Supplemental Indenture dated as of May 1, 1993
(filed as Exhibit C-33 to Form U5S of EUA for 1993).
4-28.08 - Twenty-Fifth Supplemental Indenture of Eastern Edison dated as
of July 1, 1993 (filed as Exhibit C-34 to Form U5S of EUA for
1993).
4-29.08 - Twenty-Sixth Supplemental Indenture of Eastern Edison dated as
of September 1, 1993 (Exhibit 4-29.08, Form 10-K of Eastern
Edison for 1994, File No. 0-8480.)
- Montaup -
4-1.05 - Form of 8% Debenture Bonds due 2000 of Montaup (Exhibit 4-10,
Registration No. 2-41488).
4-2.05 - Form of 8-1/4% Debenture Bonds due 2003 of Montaup (Exhibit
B-3, Form U5S of EUA for year 1973).
4-3.05 - Form of 14% Debenture Bonds due 2005 of Montaup (Exhibit 4-11,
Registration No. 2-55990).
4-4.05 - Form of 10% Debenture Bonds due 2008 of Montaup (Exhibit 5-3,
Registration No. 2-65785).
4-5.05 - Form of 16-1/2% Debenture Bonds due 2010 of Montaup (Exhibit
4-11, Form 10-K of EUA for 1980, File No. 1-5366).
4-6.05 - Form of 12-3/8% Debenture Bonds due 2013 of Montaup (Exhibit
4-13, Form 10-K of EUA for 1983, File No. 1-5366).
4-7.05 - Form of 10-1/8% Debentures due 2008 of Montaup (Exhibit 4, Form
10-Q of Eastern Edison for quarter ended September 30, 1983,
File No. 0-8480).
4-8.05 - Form of 9% Debenture Bonds due 2020 of Montaup (Exhibit 4-10,
Form 10-K of Eastern Edison for 1990, File No. 0-8480).
4-9.05 - Form of 9 3/8% Debenture Bonds due 2020 of Montaup (Exhibit
4-11, Form 10-K of Eastern Edison for 1990, File No. 0-8480).
- Blackstone -
4-1.01 - First Mortgage Indenture and Deed of Trust dated as of December
1, 1980 of Blackstone (Exhibit A, Form 8-K of EUA dated January
14, 1981, File No. 1-5366).
4-2.01 - First Supplemental Indenture dated as of August 1, 1989 of
Blackstone (Exhibit 4-33, Form 10-K of EUA for 1989, File No.
1-5366).
4-3.01 - Second Supplemental Indenture dated as of November 26, 1990 of
Blackstone (Exhibit 4-3, Form 10-K of BVE for 1990, File No.
0-2602).
4-4.01 - Loan Agreement between Rhode Island Industrial Facilities
Corporation and Blackstone dated as of December 1, 1984
(Exhibit 10-72, Form 10-K of EUA for 1984, File No. 1-5366).
- EUA Service -
4-1.07 - Note Purchase Agreement dated as of January 13, 1988 of Service
(Exhibit 4-38, Form 10-K of EUA for 1987, File No. 1-5366).
- EUA Cogenex -
4-1.10 - Note Agreement dated as of June 28, 1990 of EUA Cogenex with
the Prudential Insurance Company of America (Exhibit 4-46, Form
10-K of EUA for 1990, File No. 1-5366).
4-2.10 - Note Agreement dated as of October 29, 1991 between EUA Cogenex
and Prudential Insurance Company of America (Exhibit 4-55,
Form 10-K of EUA for 1991, File No. 1-5366).
4-3.10 - Note Purchase Agreement dated as of September 29, 1992 of EUA
Cogenex and the Prudential Life Insurance Company of America
(Exhibit 4-44, Form 10-K of EUA for 1992, File No. 1-5366).
4-4.10 - Indenture dated September 1, 1993 between EUA Cogenex and the
Bank of New York as Trustee (Exhibit 4-4.10, Form 10-K of EUA
for 1993, File No. 1-5366).
- Newport -
4-1.14 - Indenture of First Mortgage dated as of June 1, 1954 of
Newport, as supplemented on August 1, 1959, April 1, 1962,
October 1, 1964, April 1, 1967, September 1, 1969, September 1,
1970, June 1, 1978, October 1, 1978, May 1, 1986, December 1,
1987 and November 1, 1989 (Exhibit 4-49, Form 10-K of EUA for
1990, File No. 1-5366).
4-2.14 - United States Government Small Business Administration Loan to
Newport entitled, "Base Closing Economic Injury Loan", signed
May 30, 1975 and amended on October 6, 1983 (Exhibit 4-50, Form
10-K of EUA for 1990, File No. 1-5366).
4-3.14 - Indenture of Second Mortgage dated as of September 1, 1982 of
Newport, as supplemented on December 1, 1988 (Exhibit 4-51,
Form 10-K of EUA for 1990, File No. 1-5366).
4-4.14 - Loan Agreement between the Rhode Island Port Authority and
Economic Development Corporation and Newport Electric
Corporation dated as of January 6, 1994 (Exhibit 4-4.14, Form
10-K of EUA for 1993, File No. 1-5366).
4-5.14 - Trust Indenture between the Rhode Island Authority and Economic
Development Corporation and Newport Electric Corporation dated
as of January 1, 1994 (Exhibit 4-5.14, Form 10-K of EUA for
1993, File No. 1-5366).
4-6.14 - Letter of Credit and Reimbursement Agreement dated January 6,
1994 (Exhibit 4-6.14, Form 10-K of EUA for 1993, File No.
1-5366).
- EUA Ocean State -
4-1.12 - Note Purchase Agreement dated as of January 16, 1992 between
EUA Ocean State Corporation and John Hancock Mutual Life
Insurance Company (Exhibit 4-56, Form 10-K of EUA for 1991,
File No. 1-5366).
Material Contracts:
- EUA -
10-1.03 - Employees' Retirement Plan of Eastern Utilities Associates and
its Subsidiary Companies Trust Agreement as amended and
restated, effective July 1, 1981 (Exhibit 10-1, Registration
No. 2-80205).
10-2.03 - Employees' Retirement Plan of Eastern Utilities Associates and
its Subsidiary Companies Plan as amended and restated,
effective January 1, 1985 as amended as of January 1, 1985,
July 1, 1987, January 1, 1989, December 30, 1990, July 1, 1991,
September 2, 1991, March 1, 1992 and July 1, 1992 (Exhibit
10-2, Form 10-K of EUA for 1985, File No. 1-5366; Exhibit
10-77, Form 10-K of EUA for 1986, File No. 1-5366; Exhibit
10-118, Form 10-K of EUA for 1987, File No. 1-5366; Exhibit
10-95, Form 10-K of EUA for 1988, File No. 1-5366; Exhibit
10-79, Form 10-K of Eastern Edison for 1990, File No. 0-8480;
Exhibit 10-121, Form 10-K of EUA for 1991, File No. 1-5366;
Exhibit 10-122, Form 10-K of EUA for 1991, File No. 1-5366;
Exhibit 10-123, Form 10-K of EUA for 1991, File No. 1-5366;
Exhibit 10-70, Form 10-K of EUA for 1992, File No. 1-5366).
10-3.03 - Eastern Utilities Associates Employees' Savings Plan Trust
Agreement (Exhibit 10-3, Form 10-K of EUA for 1992, File No.
1-5366).
10-4.03 - Eastern Utilities Associates Employees' Savings Plan as amended
and restated effective January 1, 1989 (Exhibit 10-4, Form 10-K
of EUA for 1992, File No. 1-5366).
10-5.03 - Stock Purchase Agreement dated as of December 10, 1986, among
Eastern Utilities Associates, Citizens Corporation and Citizens
Energy Corporation (Exhibit 10-104, Form 10-K of EUA for 1986,
File No. 1-5366).
10-6.03 - Precedent Agreement dated as of November 29, 1989 between EUA
and NECO Enterprises, Inc. (Exhibit B-4, Form U-1, File No.
70-7677).
10-7.03 - Amendment to and Restatement of Stock Purchase Agreement dated
as of February 1, 1990 between EUA, NECO Enterprises, Inc.,
Newport Electric Corporation and a special-purpose subsidiary
of EUA for the acquisition by EUA of the stock of Newport
Electric Corporation (Exhibit B-3, Form U-1, File No. 70-7677).
10-8.03 - Letter of Assurance in connection with the Credit Agreement
between Vermont Electric Transmission Company, Inc. and Bank of
America National Trust and Savings Association dated July 19,
1983 (Exhibit 10-111, Form 10-K of EUA for 1990, File No.
1-5366).
10-9.03 - Amended and Restated Equity Maintenance Agreement dated as of
September 29, 1992 among EUA and The Prudential Insurance
Company of America and Pruco Life Insurance Company (Exhibit
10-9, EUA 10-K for 1992, File No. 1-5366).
10-10.03 - Guaranty, dated June 28, 1990 made by EUA in favor of The
Prudential Life Insurance Company of America (Exhibit 10-10,
EUA 10-K for 1992, File No. 1-5366).
10-11.03 - Guaranty, dated January 16, 1992 made by EUA in favor of John
Hancock Mutual Life Insurance Company (Exhibit 4-125, Form 10-K
of EUA for 1991, File No. 1-5366).
10-12.03 - Form of Service Contract between EUA Service Corporation and
each of the other companies (including EUA) in the EUA System
(Exhibit 13-1.03, Registration No. 2-55990).
10-13.03 - Form of EUA Restricted Stock Plan effective July 17, 1989
(Exhibit 10-13, EUA Form 10-K for 1992, File No. 1-5366).
- Eastern Edison -
10-1.08 - Trust Agreement dated as of July 1, 1993 between Massachusetts
Industrial Finance Agency and Shawmut Bank, N.A. (filed as
Exhibit 10-1.08 to Eastern Edison's Form 10-K for 1993, File
No. 0-8480).
10-2.08 - Loan Agreement dated as of July 1, 1993 between Massachusetts
Industrial Finance Agency and Eastern Edison (filed as Exhibit
10-2.08 to Eastern Edison's Form 10-K for 1993, File No.
0-8480).
10-3.08 - Power Purchase Agreement entered into as of September 20, 1993
by and between Meridian Middleboro Limited Partnership and
Eastern Edison Company (filed as Exhibit 10-3.08 to Eastern
Edison's Form 10-K for 1993, File No. 0-8480).
10-4.08 - Inducement Letter dated July 14, 1993 from Eastern Edison to
the Massachusetts Industrial Finance Agency and Goldman, Sachs
& Company and Citicorp Securities Markets, Inc. (filed as
Exhibit 10-4.08 to Eastern Edison's Form 10-K for 1993, File
No. 0-8480).
- Montaup -
10-1.05 - Montaup Contract, as amended (Exhibit 4-B, Registration No.
2-14119; Exhibit 13-A1, Registration No. 2-14718; Exhibit
4-B-2, Registration No. 2-26509; Exhibit 4-B-3, Registration
No. 2-33061; Exhibits 13-3 and 13-4, Registration No. 2-48966;
Exhibit B-2, Form U5S of EUA for year 1974 and Exhibit 5-40,
Registration No. 2-62862).
10-2.05 - Power Contract (composite copy) between Yankee Atomic Electric
Company and Montaup dated June 30, 1959 as Revised April 1,
1975, as further amended October 1, 1980, April 1, 1985, May 6,
1988, June 26, 1989 and July 1, 1989, (Exhibit 10-6,
Registration No. 2-72655; Exhibit 10-73, Form 10-K of EUA for
1985, File No. 1-5366; Exhibits 10-96, Form 10-K of EUA for
1988, File No. 1-5366; Exhibits 10-93 and 10-94, Form 10-K of
EUA for 1989, File No. 1-5366).
10-3.05 - Power Contract (composite copy) between Connecticut Yankee
Atomic Power Company and Montaup dated July 1, 1964 (Exhibit
B-1, File No. 70-4245).
10-4.05 - Capital Funds Agreement (composite copy) between Connecticut
Yankee Atomic Power Company and Montaup dated September 1, 1964
(Exhibit B-2, File No. 70-4245).
10-5.05 - Stockholder Agreement (composite copy) among Connecticut Yankee
Atomic Power Company's Sponsors, including Montaup, dated July
1, 1964 (Exhibit B-4, File No. 70-4245).
10-6.05 - Contract for sale of power to Montaup by Canal Electric Company
dated December 1, 1965 (Exhibit 2D, File No. 0-688).
10-7.05 - Capital Funds Agreement (composite copy) between Vermont Yankee
Nuclear Power Corporation and Montaup dated as of February 1,
1968, and Amendment thereto dated as at March 12, 1968 (Exhibit
B-2, File No. 70-4611; Exhibit B-3, File No. 70-4611).
10-8.05 - Form of Power Contract between Vermont Yankee Nuclear Power
Corporation and Montaup dated as of February 1, 1968, as
amended June 1, 1972, April 15, 1983, April 24, 1985, June 1,
1985, May 6, 1988 (2), June 15, 1989 and December 1, 1989
(Exhibit B-4, File No. 70-4591; Exhibit 13-21, Registration No.
2-46612; Exhibit 10-63, Form 10-K of EUA for 1983, File No.
1-5366; Exhibit 10-74, Form 10-K of EUA for 1985, File No.
1-5366; Exhibit 10-78, Form 10-K of EUA for 1986, File No.
1-5366; Exhibits 10-97 and 10-98, Form 10-K of EUA for 1988,
File No. 1-5366; Exhibit 10-95, Form 10-K of EUA for 1989, File
No. 1-5366; Exhibit 10-80, Form 10-K of Eastern Edison for
1990, File No. 0-8480).
10-9.05 - Sponsor Agreement (composite copy) among Vermont Yankee Nuclear
Power Corporation's Sponsors, including Montaup, dated as of
August 1, 1968 (Exhibit 4-0, Registration No. 2-33061).
10-10.05 - Capital Funds Agreement (composite copy) between Maine Yankee
and Montaup dated May 20, 1968 and as amended August 1, 1985
(Exhibit B-2, File No. 70-4658; Exhibit 10-78, Form 10-K of EUA
for 1985, File No. 1-5366).
10-11.05 - Power Contract (composite copy) between Maine Yankee Atomic and
Montaup dated May 20, 1968, as amended December 19, 1983 and
January 1, 1984 (Exhibit B-3, File No. 70-4658; Exhibit 10-64,
Form 10-K of EUA for 1983, File No. 1-5366; Exhibit 10-66, Form
10-K of EUA for 1984, File No. 1-5366).
10-12.05 - Stockholder Agreement (composite copy) among Maine Yankee
Sponsors, including Montaup, dated May 20, 1968 (Exhibit B-4,
File 70-4658).
10-13.05 - Agreement (composite copy) among Vermont Yankee Nuclear Power
Corporation's Sponsors, including Montaup, dated as of April
30, 1969 (Exhibit B-7, File No. 70-4435).
10-14.05 - Form of Agreement among Maine Yankee Atomic Power Company's
Sponsors dated as of May 20, 1969 (Exhibit B-5, File No.
70-4658).
10-15.05 - Form of New England Power Pool Agreement dated as of September
1, 1971, as amended as of July 1, 1972, March 1, 1973, April 2,
1973, March 15, 1974, June 1, 1975, September 1, 1975, December
31, 1976, January 18, 1977, July 1, 1977, August 1, 1977,
August 15, 1978, January 31, 1980, February 1, 1980, September
1, 1981, December 1, 1981, June 1, 1982, June 15, 1983, October
1, 1983, August 1, 1985, August 15, 1985, January 1, 1986,
September 1, 1986, March 1, 1988, May 1, 1988, March 15, 1989
and October 1, 1990, (Exhibit 13-45, Registration No. 2-41488;
Exhibit 13-38, Registration No. 2-46612; Exhibits 13-39 and
13-40, Registration No. 2-48966; Exhibit B-3, Form U5S of EUA
for year 1974; Exhibit 13-35(a), Registration No. 2-54449;
Exhibit 13-35, Registration No. 2-55990, Exhibits 5-69 and
5-70, Registration Exhibit 13-35(a), Registration No. 2-54449;
Exhibit 13-35, Registration No. 2-55990, Exhibits 5-69 and
5-70, Registration No. 2-58625; Exhibit 6, Form 10-K of EUA for
1977, File No. 1-5366; Exhibit 1, Form 10-K of EUA for 1979,
File No. 1-5366; Exhibit No. 10-67, Registration No. 2-80205;
Exhibit 10-65, Form 10-K of EUA for 1983, File No. 1-5366;
Exhibit 10-66, Form 10-K of EUA for 1983, File No. 1-5366;
Exhibits 10-75, 10-76, and 10-77, Form 10-K of EUA for 1985,
File No. 1-5366; Exhibit 10-79, Form 10-K of EUA for 1986, File
No. 1-5366; Exhibits 10-99 and 10-100, Form 10-K of EUA for
1988, File No. 1-5366; Exhibit 10-96, Form 10-K of EUA for
1989, File No. 1-5366; Exhibit 10-81, Form 10-K of Eastern
Edison for 1990, File No. 0-8480).
10-16.05 - Unit Participation Agreement between Maine Electric Power
Company, Inc. and New Brunswick Electric Power Commission dated
November 15, 1971 (Exhibit 13-43.1, Registration No. 2-44377).
10-17.05 - Assignment Agreement dated March 20, 1972 between Maine
Electric Power Company, Inc. and New Brunswick Electric Power
Commission (Exhibit 13-43.3, Registration No. 2-44377).
10-18.05 - Agreement between Montaup and Boston Edison Company dated
August 1, 1972 and as amended January 1, 1985 for purchase of
power from Pilgrim No. 1 nuclear unit at Plymouth,
Massachusetts (Exhibit 13-41, Registration No. 2-46612; Exhibit
10-67, Form 10-K of EUA for 1984, File No. 1-5366).
10-19.05 - Agreement dated as of May 1, 1973 for Joint Ownership,
Construction and Operation of New Hampshire Nuclear Units among
Public Service Company of New Hampshire and other utilities
including Montaup, as amended as of May 24, 1974, June 21,
1974, September 25, 1974, October 25, 1974, January 31, 1975,
as supplemented by Letter Agreement dated April 27, 1978 and
amended as of April 18, 1979 (two amendments), April 25, 1979,
June 8, 1979, October 11, 1979, December 15, 1979, June 16,
1980, December 31, 1980, June 1, 1982, April 27, 1984, June 15,
1984, March 8, 1985, March 14, 1986, May 1, 1986, September 19,
1986, November 1987, January 13, 1989 and November 1, 1990.
(Exhibit 13-57, Registration No. 2-48966; Exhibit B-6, Form U5S
of EUA for year 1974; Exhibit 5-130, Registration No. 2-62862;
Exhibit 5-70, Registration No. 2-65785; Exhibit 2, Form 10-K of
EUA for 1979, File No. 1-5366; Exhibit 5-34, Registration No.
2-69052; Exhibit 20-1, Form 10-K of EUA for 1980, File No.
1-5366; Exhibit 10-69, Registration No. 2-80205; Exhibit 2,
Form 10-Q of EUA for the Quarter Ended March 31, 1984, File No.
1-5366; Exhibit 3, Form 10-Q of EUA for the Quarter Ended June
30, 1984, File No. 1-5366; Exhibit 10-70, Form 10-K of EUA for
1985, File No. 1-5366; Exhibits 10-80 and 10-81, Form 10-K of
EUA for 1986, File No. 1-5366; Exhibits 10-95 and 10-96, Form
10-K of EUA for 1987, File No. 1-5366; Exhibit 10-101, Form
10-K of EUA for 1988, File No. 1-5366; Exhibit 10-82, Form 10-K
of Eastern Edison for 1990, File No. 0-8480).
10-20.05 - Sharing Agreement dated as of September 1, 1973 among The
Connecticut Light and Power Company and other utilities,
including Montaup, concerning participation in a nuclear
generating unit located in Connecticut (Millstone Unit No. 3),
as amended and supplemented by Amendatory Agreement dated May
11, 1984 as amended as of April 1, 1986 (Exhibit B-17, Form U5S
of EUA for year 1973; Exhibit B-8, as amended as of April 11,
1986, Form U5S of EUA for year 1974; Exhibit B-30, Form U5S of
EUA for year 1976; Exhibit 10-68, Form 10-K of EUA for 1984,
File No. 1-5366; Exhibit 10-82, Form 10-K of EUA for 1986, File
No. 1-5366).
10-21.05 - Agreement for Joint Ownership, Construction and Operation of
William F. Wyman Unit No. 4 dated November 1, 1974 as amended
June 30, 1975, August 16, 1976 and December 31, 1978 among
Central Maine Power Company and other utilities including
Montaup (Exhibit B-9, Form U5S of EUA for year 1974; Exhibit
13-58, Registration No. 2-55990; Exhibit 5-95, Registration No.
2-58625; Exhibit 5-40, Registration No. 2-69052).
10-22.05 - Agreement for Joint Ownership dated as of October 27, 1970
between Canal Electric Company and Montaup (Exhibit 13-71,
Registration No. 2-55990).
10-23.05 - Agreement for use of Common Facilities by Canal Units I and II
and for Allocation of Related Costs dated as of October 27,
1970 between Canal Electric Company and Montaup (Exhibit 13-72,
Registration No. 2-55990).
10-24.05 - Supplementary Power Contract dated as of March 1, 1978, and
Agreement amending said contract dated August 22, 1980 by and
between Connecticut Yankee Atomic Power Company and Montaup, as
amended October 15, 1982 (Exhibit 20, Form 10-K of EUA for
1977, File No. 1-5366; Exhibit 10-52, Form 10-K for EUA for
1981, File No. 1-5366; Exhibit 10-67, Form 10-K for EUA for
1983, File No. 1-5366).
10-25.05 - Eastern Utilities Associates Employees' Share Ownership Plan
Trust Agreement (Exhibit 5, Form 10-K of EUA for 1977, File No.
1-5366).
10-26.05 - Guarantee Agreement (composite copy) dated as of November 13,
1981 between The Connecticut Bank and Trust Company, as
Trustee, and Montaup relating to debentures of Connecticut
Yankee Atomic Power Company (Exhibit 10-61, Form 10-K of EUA
for 1981, File No. 1-5366).
10-27.05 - Guarantee Agreement dated as of November 5, 1981 between
Bankers Trust Company, as Trustee of the Vernon Energy Trust,
and Montaup relating to a nuclear fuel sales agreement and
related transactions entered into by Vermont Yankee Nuclear
Power Corporation (Exhibit 10-63, Form 10-K of EUA for 1981,
File No. 1-5366).
10-28.05 - Agreement for Seabrook Project Disbursing Agent, dated as of
May 23, 1984, as amended March 8, 1985, May 20, 1985, June 18,
1985, January 1, 1986, November, 1987, August 1, 1989, and
restated as of November 1, 1990, among the participants in the
Seabrook nuclear generating project, including Montaup and
Yankee Atomic Electric Company (Exhibit 2, Form 10-Q of EUA for
the Quarter Ended June 30, 1984, File No. 1-5366; Exhibit
10-69, Form 10-K of EUA for 1985, File No. 1-5366; Exhibits
10-86, 10-87 and 10-88, Form 10-K of EUA for 1986, File No.
1-5366; Exhibit 10-97, Form 10-K of EUA for 1987, File No.
1-5366; Exhibit 10-105, Form 10-K of EUA for 1989, File No.
1-5366; Exhibit 10-84, Form 10-K of Eastern Edison for 1990,
File No. 0-8480).
10-29.05 - Guarantee Agreement dated as of August 1, 1985 among The
Connecticut Bank and Trust Company, Connecticut Yankee Atomic
Power Company and Montaup Electric Company relating to
Revolving Credit Loans of Connecticut Yankee (Exhibit 10-85,
Form 10-K of EUA for 1985, File No. 1-5366).
10-30.05 - Equity Funding Agreement for New England Hydro-Transmission
Corporation dated as of June 1, 1985, between New England
Hydro-Transmission Corporation and several New England electric
utilities, including Montaup as amended as of May 1, 1986 and
September 1, 1987 (Exhibits 10-96 and 10-97, Form 10-K of EUA
for 1986, File No. 1-5366; Exhibit 10-116, Form 10-K of EUA for
1987, File No. 1-5366).
10-31.05 - Equity Funding Agreement for New England Hydro-Transmission
Electric Company, Inc. dated as of June 1, 1985, between New
England Hydro-Transmission Electric Company, Inc. and several
New England electric utilities, including Montaup as amended as
of May 1, 1986 and September 1, 1987 (Exhibits 10-98 and 10-99,
Form 10-K of EUA for 1986, File No. 1-5366; Exhibit 10-117,
Form 10-K of EUA for 1987, File No. 1-5366).
10-32.05 - Unit Power Agreement for the Sale of Unit Capacity and Energy
from Ocean State Power Project to Montaup Electric Company
dated as of May 14, 1986 as amended as of August 27, 1986,
September 27, 1988, October 21, 1988, July 21, 1989, February
7, 1990 and December 21, 1990 (Exhibits 10-101 and 10-102, Form
10-K of EUA for 1986, File No. 1-5366; Exhibits 10-106 and
10-107, Form 10-K of EUA for 1988, File No. 1-5366; Exhibit
10-106, Form 10-K of EUA for 1989, File No. 1-5366; Exhibits
10-86 and 10-87, Form 10-K of Eastern Edison for 1990, File No.
0-8480).
10-33.05 - Power Purchase Agreement dated as of October 17, 1986, between
Northeast Energy Associates and Montaup as amended as of June
28, 1989 (Exhibit 10-103, Form 10-K of EUA for 1986, File No.
1-5366; Exhibit 10-103, Form 10-K of EUA for 1989, File No.
1-5366).
10-34.05 - Unit Sales Agreement between Montaup Electric Company and
Massachusetts Municipal Wholesale Electric Company for Purchase
of Capacity and Energy from Canal No. 2 dated as of November 1,
1986 (Exhibit 10-105, Form 10-K of EUA for 1986, File No.
1-5366).
10-35.05 - Settlement Agreement dated as of January 13, 1989 among
Montaup, EUA Power, certain past and present owners of the
Seabrook Project and Yankee Atomic Electric Company (Exhibit
10-110, Form 10-K of EUA for 1988, File No. 1-5366).
10-36.05 - Unit Power Agreement for the Sale of Second Unit Capacity and
Energy from Ocean State Power Project to Montaup Electric
Company dated as of September 28, 1988 as amended by an
amendment dated July 21, 1989, and February 7, 1990 and a
Supplemental Agreement dated July 21, 1989 (Exhibit 10-104,
Form 10-K of EUA for 1989, File No. 1-5366; Exhibit No. 10-88,
Form 10-K of Eastern Edison for 1990, File No. 0-8480).
10-37.05 - Purchase Power Contract between Newport and Montaup dated July
23, 1963, as revised on March 23, 1983 (Exhibit 10-108, Form
10-K of EUA for 1990, File No. 1-5366).
10-38.05 - Purchase Power Contract between Newport and Montaup for
Contract Demand Service effective May 1, 1983, as amended on
July 1, 1983, December 28, 1983 and November 1, 1984 (Exhibit
10-89, Form 10-K of Eastern Edison for 1990, File No. 0-8480
and Exhibit 10-109, Form 10-K of EUA for 1990, File No. 1-5366).
10-39.05 - Power Contract (composite copy) between Yankee Atomic Electric
Company and Montaup dated June 30, 1959 as revised April 1,
1975, as further amended October 1, 1980, April 1, 1985, May 6,
1988, June 26, 1989, July 1, 1989 and February 1, 1992 (Exhibit
10-6, Registration No. 2-72655; Exhibit 10-73, Form 10-K of EUA
for 1985, File No. 1.5366; Exhibit 10-96, Form 10-K of EUA for
1988, File No. 1-5366; Exhibits 10-93 and 10-94, Form 10-K of
EUA for 1989, File No. 1-5366; Exhibit 10-46 Form 10-K of
Eastern Edison for 1992, File No. 0-8480).
10-40.05 - Memorandum of understanding by and between Canal Electric
Company and Montaup Electric Company dated September 23, 1993
(Exhibit 10-39.05, Eastern Edison 10-K for 1993, File No.
0-8480).
10-41.05 - Ancillary Agreement by and between Algonquin Gas Transmission
Company, Canal Electric Company and Montaup Electric Company
dated October 8, 1993. (Exhibit 10-40.05 of Eastern Edison 10-K
for 1993, File No. 0-8480).
- Blackstone -
10-1.01 - Trust Indenture between Rhode Island Industrial Facilities
Corporation and the Rhode Island Hospital Trust Company dated
as of December 1, 1984 (Exhibit 10-73, Form 10-K of EUA for
1984, File No. 1-5366).
10-2.01 - Remarketing Agreement between Rhode Island Hospital Trust
Company, Citibank and Blackstone dated as of December 19, 1984
(Exhibit 10-74, Form 10-K of EUA for 1984, File No. 1-5366).
10-3.01 - Letter of Credit and Reimbursement Agreement between Blackstone
Valley Electric Company and The Bank of New York dated as of
January 21, 1993 (Exhibit 10-10, Form 10-K of Blackstone for
1992, File No. 0-2602).
10-4.01 - Interconnection Agreement by and between Blackstone and Ocean
State Power dated November 1, 1988, as amended and restated
effective August 16, 1989 by and among Blackstone, Ocean State
Power I and Ocean State Power II (Exhibit 10-100, Form 10-K of
EUA for 1989, File No. 1-5366).
10-5.01 - Power Purchase Agreement between Blackstone and Blackstone
Hydro, Inc. dated as of January 8, 1989 and assignment to
Montaup (Exhibits 10-101 and 10-102, Form 10-K of EUA for 1989,
File No. 1-5366).
- Newport -
10-1.14 - Phase I Vermont Transmission Line Support Agreement dated as of
December 1, 1981 and as amended as of June 1, 1982, November
1, 1982 and January 1, 1986 between Vermont Electric
Transmission Company, Inc. and several New England utilities,
including Montaup (Exhibit 10-65, Form 10-K of EUA for 1981,
File No. 1-5366; Exhibit 10-72, Registration No. 2-80205;
Exhibit 10-64, Form 10-K of EUA for 1982, File No. 1-5366;
Exhibit 10-84. Form 10-K of EUA for 1986, File No. 1-5366).
10-2.14 - Letter amendment dated August 4, 1983 reallocating the
participating shares originally assigned to the Chicopee
Municipal Lighting Plant and the Taunton Municipal Lighting
Plant under the Phase I Vermont Transmission Line Support
Agreement between Vermont Electric Transmission Company, Inc.
and several New England electric utilities, including Newport,
dated December 1, 1981, as amended on June 1, 1982 and November
1, 1982 (Exhibit 10-110, Form 10-K of EUA for 1990, File No.
1-5366).
10-3.14 - Phase I Terminal Facility Support Agreement dated December 1,
1981 and as amended as of June 1, 1982, November 1, 1982 and
January 1, 1986 between New England Electric Transmission
Corporation and several New England utilities, including
Montaup (Exhibit 10-68, Form 10-K of EUA for 1981, File No.
1-5366; Exhibit 10-74, Registration No. 1-5366; Exhibit 10-68.
Form 10-K of EUA for 1986, File No. 1-5366).
10-4.14 - Letter amendment dated July 29, 1983 reallocating the
participating shares originally assigned to the Chicopee
Municipal Lighting Plant and the Taunton Municipal Lighting
Plant under the Phase I Terminal Facility Support Agreement
between New England Transmission Corporation and several New
England electric utilities, including Newport, dated December
1, 1981, as amended on June 1, 1982 and November 1, 1982
(Exhibit 10-112, Form 10-K of EUA for 1990, File No. 1-5366).
10-5.14 - Unit Power Contract between Newport and New England Power for
purchase of 15 MW of power for a ten year period starting
November 1, 1985 and ending October 31, 1995, dated August 14,
1985; amended October 1, 1991. (Exhibit 10-114, Form 10-K of
EUA for 1990, File No. 1-5366).
10-6.14 - Purchase Power Contract between Newport and City of Burlington
Electric Department (life of the unit contract) for purchase of
15.24% MW of net capability of station output from Joseph C.
McNeil Electric Generating Station located in Burlington,
Vermont dated December 19, 1984 (Exhibit 10-115, Form 10-K of
EUA for 1990, File No. 1-5366).
10-7.14 - Firm Energy Contract between Hydro-Quebec and several New
England electric utilities, including Newport, dated as of
October 14, 1985 (Exhibit 10-116, Form 10-K of EUA for 1990,
File No. 1-5366).
10-8.14 - Unit Power Agreement for the Sale of Unit Capacity and Energy
from Ocean State Power Project to Newport Electric Corporation
dated May 14, 1986, as amended on August 20, 1986, July 12,
1988, September 23, 1988, October 21, 1988, July 21, 1989,
February 7, 1990 and December 21, 1990 (Exhibit 10-117, Form
10-K for 1990, File No. 1-5366).
10-9.14 - Unit Power Agreement for the Sale of Second Unit Capacity and
Energy from Ocean State Power Project to Newport Electric
Corporation dated July 12, 1988 as amended September 23, 1988,
July 21, 1989 and February 7, 1990 (Exhibit 10-118, Form 10-K
for 1990, File No. 1-5366).
10-10.14 - Agreement for Joint Ownership, Construction and Operation of
William F. Wyman Unit No. 4 dated November 1, 1974 as amended
June 30, 1975, August 16, 1976 and December 31, 1978 among
Central Maine Power Company and other utilities including
Newport (Exhibit B-9, Form U5S of EUA for year 1974; Exhibit
13-58, Registration No. 2-55990; Exhibit 5-95, Registration No.
2-58625; Exhibit 5-40, Registration No. 2-69052).
- EUA Ocean State -
10-1.12 - Ocean State Power Amended and Restated General Partnership
Agreement among EUA Ocean State, Ocean State Power Company,
TCPL Power Ltd., Narragansett Energy Resources Company and NECO
Power, Inc. (collectively, the "OSP Partners") dated as of
December 2, 1988, and First Amendment thereto dated as of March
27, 1989 (Exhibit 10-107, Form 10-K of EUA for 1989, File No.
1-5366).
10-2.12 - Ocean State Power II Amended and Restated General Partnership
Agreement among EUA Ocean State, JMC Ocean State Corporation,
Makowski Power, Inc., TCPL Power Ltd., Narragansett Energy
Resources Company and Newport Electric Power Corporation
(collectively, the "OSP II Partners") dated as of September 29,
1989 (Exhibit 10-110, Form 10-K of EUA for 1989, File No.
1-5366).
Amendments to Exhibits Previously Filed:
*10-3.12 - Second Amendment to 10-1.12 dated December 31, 1990.
*10-4.12 - Third Amendment to 10-1.12 dated November 12, 1992.
*10-5.12 - Fourth Amendment to 10-1.12 dated February 23, 1993.
Annual Report to Shareholders:
*13-1.03 - Annual Report to Shareholders of EUA for 1994, portions of
which are incorporated by reference in this Annual Report on
Form 10-K. Only the portions expressly so incorporated under
PART II, Items 5, 6, 7 and 8 are to be deemed filed herewith.
Subsidiaries of the Registrant:
21-1.03 - Direct subsidiaries of Eastern Utilities Associates and the
state of organization of each are: Blackstone Valley Electric
Company (Rhode Island), Eastern Edison Company (Massachusetts),
EUA Cogenex Corporation (Massachusetts), EUA Service
Corporation (Massachusetts), EUA Ocean State Corporation (Rhode
Island), EUA Energy Investment Corporation (Massachusetts) and
Newport Electric Corporation (Rhode Island). Montaup Electric
Company (Massachusetts) is a subsidiary of Eastern Edison
Company. Each of the above subsidiaries does business under
its indicated corporate name.
Consent of Experts and Counsel:
*23-1.03- Consent of Independent Accountants.
(b) Reports on Form 8-K.
- On January 26, 1995, the Registrant filed a current report on
Form 8-K with respect to Item 5. (Other Events).
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Signature Title Date
EASTERN UTILITIES ASSOCIATES
By /s/Richard_M._Burns__________ Comptroller March 20, 1995
Richard M. Burns (Principal Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
/s/Donald_G._Pardus_____________ Chairman and Chief Executive Officer
Donald G. Pardus (Principal Executive Officer)
and Trustee
/s/John_R._Stevens______________ President and Chief Operating Officer
John R. Stevens (Principal Financial Officer) and Trustee
/s/Richard_M._Burns_____________ Comptroller
Richard M. Burns (Principal Accounting Officer)
/s/Russell_A._Boss______________ Trustee
Russell A. Boss
/s/Paul_J._Choquette, Jr._______ Trustee
Paul J. Choquette, Jr.
March 20, 1995
/s/Peter_S._Damon______________ Trustee
Peter S. Damon
/s/John_F._G._Eichorn,_Jr.______ Trustee
John F. G. Eichorn, Jr.
/s/_Peter_B._Freeman____________ Trustee
Peter B. Freeman
/s/Lawrence_A._Liebenow_________ Trustee
Lawrence A. Liebenow
/s/Wesley_W._Marple,_Jr.________ Trustee
Wesley W. Marple, Jr.
/s/Margaret_M._Stapleton________ Trustee
Margaret M. Stapleton
________________________________ Trustee
W. Nicholas Thorndike
EASTERN UTILITIES ASSOCIATES AND
SUBSIDIARY COMPANIES
Item 14(a)(2). Financial Statement Schedules
<TABLE>
Schedule II
Eastern Utilities Associates and Subsidiary Companies
Valuation and Qualifying Accounts
(In Thousands)
<CAPTION>
Column A Column B Column C Column D Column E
Additions
(1) (2)
Balance at Charged to Charged Balance at
Beginning Costs and to Other Deductions- End of
Description of Period Expenses Accounts Describe Period
<S> <C> <C> <C> <C> <C> <C>
For the Year Ended December 31, 1994:
Allowance for Doubtful Accounts $613 $1,141 $277 <F1> $1,402 <F2> $629
For the Year Ended December 31, 1993:
Allowance for Doubtful Accounts $603 $1,029 $255 <F1> $1,274 <F2> $613
For the Year Ended December 31, 1992:
Allowance for Doubtful Accounts $737 $1,322 $228 <F1> $1,684 <F2> $603
<FN>
<F1> Recoveries of accounts previously written off.
<F2> Principally Accounts Receivable written off.
</FN>
</TABLE>
Report of Independent Accountants
To the Directors and Shareholders of
Eastern Utilities Associates:
Our report on the consolidated financial statements of Eastern Utilities
Associates and subsidiaries has been incorporated by reference in this Form 10-K
from page 38 of the 1994 Annual Report to Shareholders of Eastern Utilities
Associates. In connection with our audits of such consolidated financial
statements, we have also audited the related consolidated financial statement
schedule listed in Item 14 (a)(2) of this Form 10-K.
In our opinion, the consolidated financial statement schedule referred to above,
when considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included therein.
/s/ Coopers & Lybrand, L.L.P.
Boston, Massachusetts
March 2, 1995
OSP
AMENDMENT NO. 2 TO
AMENDED AND RESTATED GENERAL PARTNERSHIP I AGREEMENT
DATED AS OF DECEMBER 2, 1988
This AMENDMENT NO . 2 TO AMENDED AND RESTATED GENERAL
PARTNERSHIP AGREEMENT dated as of December 2, 1988 (this
"Amendment"), dated as of the 31 day of December, 1990, by
and among the undersigned parties
W I T N E S S E T H:
WHEREAS, Ocean State Power ("OSP"), a general partnership,
was originally organized under the laws of The Commonwealth of
Massachusetts pursuant to a General Partnership Agreement,
dated as of December 30, 1985 (the "Original Agreement"), and
was continued and reorganized under the laws of the State of
Rhode Island pursuant to an Amended and Restated General
Partnership Agreement, dated as of December 2, 1988;
WHEREAS, Ocean State Power Company and JMAI Power
Corporation, the original partners in OSP, amended and restated
in full the Original Agreement in order to set out the rights.
obligations and duties of the general partners of OSP;
WHEREAS, Ocean State Power Company and JMAI Power
Corporation admitted, among others, EUA Ocean State Corporation
("EUA-OSC") and Newport Electric Power Corporation (formerly
NECO Power, Inc.) ("Newport Power") as partners of OSP pursuant
to the above-mentioned OSP Amended and Restated General
Partnership Agreement dated as of December 2, 1988;
WHEREAS, Newport Power is a wholly-owned subsidiary of
Newport Electric Corporation, a Rhode Island corporation
("Newport"), and EUA-OSC is a wholly-owned subsidiary of
Eastern Utilities Associates, a Massachusetts voluntary
association ("EUA");
WHEREAS, EUA has acquired all of the outstanding common
stock of Newport;
WHEREAS, EUA, to manage the partnership interests of its
subsidiaries more efficiently, proposes to merge Newport Power
into EUA-OSC pursuant to a certain Plan of Merger dated as of
even date herewith; and
WHEREAS, Section 10.2.1 of the Partnership Agreement
(defined hereinafter) permits the transfer by a partner of all
or any part of its right, title and interest in OSP to another
corporation upon the terms and conditions set forth therein;
NOW, THEREFORE, in consideration of the foregoing, the
mutual covenants, agreements and promises hereinafter set forth
and for other good and valuable consideration the receipt and
sufficiency of which hereby is acknowledged, and of the mutual
covenants herein contained, the parties hereto, intending to be
legally bound mutually covenant and agree as follows:
1. Definitions. "Partnership Agreement" shall mean the
Ocean State Power Amended and Restated General Partnership
Agreement dated as of December 2, 1988, as amended, prior to
giving effect to the amendments made herein, unless otherwise
provided. Unless otherwise defined herein, all other
capitalized terms used herein shall have the meaning set forth
in the Partnership Agreement.
2. Amendments to the Partnership Agreement.
(a) Section 1 of the Partnership Agreement hereby is
amended to read in its entirety as follows:
1. Parties.
The parties to this Agreement shall be the
following:
1.1 EUA Ocean State Corporation. a corporation
organized under the laws of the State of Rhode Island,
with its principal offices and addresses at c/o
Blackstone Valley Electric Co., Washington Highway,
Lincoln, Rhode Island 02865.
1.2 JMAI Power Corporation, a corporation
organized under the laws of the State of Delaware,
with its principal offices at One Bowdoin Square,
Boston, Massachusetts 02114.
1.3 Narragansett Energy Resources Company, a
corporation organized under the laws of the State of
Rhode Island, with its principal offices and address
at 280 Melrose Street, Providence, Rhode Island 02901.
1.4 Ocean State Power Company, a corporation
organized under the laws of Delaware, with its
principal offices and address at One Bowdoin Square,
Boston, Massachusetts 02114.
1.5 TCPL Power Ltd., a corporation organized
under the laws of the State of Rhode Island, with its
principal offices and address at 123 Dyer Street,
"Providence, Rhode Island 02903."
(b) Schedule A to the Partnership Agreement hereby is
amended to read in its entirety as set forth on Appendix A
attached hereto.
(c) Schedule B to the Partnership Agreement hereby is
amended to read in its entirety as set forth in Appendix B
attached hereto.
3. Amendment Effective Date. This Amendment No. 2 shall
be effective upon the issuance of a Certificate of Merger by
the Secretary of State of Rhode Island with respect to the
merger of EUA-OSC and Newport Power.
4. Further Assurances. Each of the Partners agree to
execute and deliver all such other and additional instruments
and documents and to do such other acts and things as may be
reasonably necessary to more fully effectuate this Amendment
and carry on the Partnership business in accordance with the
Partnership Agreement as amended by this Amendment.
5. Counterparts. This Amendment may be executed in
counterparts, each of which shall be deemed an original but
all of which together shall constitute one and the same
instrument.
6. Headings. The headings contained in this Amendment
are for reference purposes only and shall not affect the
meaning or interpretation of this Amendment or the Partnership
Agreement.
IN WITNESS WHEREOF, the undersigned have caused this
Amendment to be executed by their duly authorized officers as
of the date first written above.
ATTEST: JMAI POWER CORPORATION
By
Title: Vice President
TCPL POWER LTD.
By
Title: Senior Vice President
By
Title: Vice President
EUA OCEAN STATE CORPORATION
By
Title:
NARRAGANSETT ENERGY RESOURCES COMPANY
By
Title: Vice President
Newport Electric Power Corporation
(formerly NECO Power, Inc.) [as withdrawing partner]
By
Title: Vice President
OCEAN STATE POWER COMPANY
By
Title: President
Appendix A
OCEAN STATE POWER
AMENDED AND RESTATED GENERAL PARTNERSHIP AGREEMENT
SCHEDULE A
The Equity Interests of the respective Partners in Ocean State Power
be as follows:
Equity Interest
Partner of Partners
TCPL Power Ltd. 40.00%
EUA Ocean State Corporation 29.90%
Narragansett Energy Resources Company 20.00%
JMAI Power Corporation 5.05%
Ocean State Power Company 5.05%
Total 100.00%
Appendix B
OCEAN STATE POWER
AMENDED AND RESTATED GENERAL PARTNERSHIP AGREEMENT
SCHEDULE B
The Voting Interests of the respective Partners in Ocean
State Power from and after the Holding Company Act
Applicability Date (as defined in Section 8.11.1) shall be as
follows:
Voting Interest
Partner of Partners
TCPL Power Ltd. 9.90%
EUA Ocean State Corporation 49.51%
Narragansett Energy Resources Company 35.69%
JMAI Power Corporation 2.45%
Ocean State Power Company 2.45%
TOTAL 100.00%
OCEAN STATE POWER
AMENDMENT NO. 3 TO
AMENDED AND RESTATED GENERAL PARTNERSHIP AGREEMENT
DATED AS OF DECEMBER 2, 1988
This AMENDMENT NO. 3 TO AMENDED AND RESTATED GENERAL
PARTNERSHIP AGREEMENT dated as of December 2, 1988 (this "Amend-
ment"), is dated as of the 12th day of November, 1992, by and
among the undersigned parties.
W I T N E S S E T H:
WHEREAS, Ocean State Power ("OSP"), a general partnership,
was originally organized under the laws of The Commonwealth of
Massachusetts pursuant to a General Partnership Agreement, dated
as of December 30, 1985 (the "Original Agreement"), and was
continued and reorganized under the laws of the State of Rhode
Island pursuant to an Amended and Restated General Partnership
Agreement, dated as of December 2, 1988;
WHEREAS, Ocean State Power Company and JMAI Power Corpora-
tion, the original partners in OSP, amended and restated in full
the Original Agreement in order to set out the rights, obligations
and duties of the general partners of OSP;
WHEREAS, Ocean State Power Company and JMAI Power Corpora-
tion admitted additional partners pursuant to the above-mentioned
OSP Amended and Restated General Partnership Agreement, dated as
of December 2, 1988;
WHEREAS, the Amended and Restated General Partnership Agreement was
Amended by the First Amendment to Amended and Restated General Partnership
Agreement, dated as of March 27, 1989, and Amendment No. 2 to Amended and
Restated General Partnership Agreement, dated as of December 31, 1990;
WHEREAS, Ocean State Power Company and JMAI Power Corpora-
tion are wholly-owned subsidiaries of J. Makowski Company, Inc., a
Delaware corporation;
WHEREAS, J. Makowski Company, Inc., proposes to merge JMAI
Power Corporation and Ocean State Power Company into JMC Ocean
State Corporation, a Rhode Island corporation, pursuant to a
certain Agreement and Plan of Merger dated as of November 5, 1992;
and
WHEREAS, Section 10.2.1 of the Partnership Agreement
(defined hereinafter) permits the transfer by a partner of all or
any part of its right, title and interest in OSP to another
corporation upon the terms and conditions set forth therein;
NOW, THEREFORE, in consideration of the foregoing, the
mutual covenants, agreements and promises hereinafter set forth
and for other good and valuable consideration the receipt and suf-
ficiency of which hereby is acknowledged, and of the mutual
covenants herein contained, the parties hereto, intending to be
legally bound mutually covenant and agree as follows:
1. Definitions. "Partnership Agreement" shall mean the
Ocean State Power Amended and Restated General Partnership Agree-
ment dated as of December 2, 1988, as amended, prior to giving
effect to the amendments made herein, unless otherwise provided.
Unless otherwise defined herein, all other capitalized terms used
herein shall have the meaning set forth in the Partnership Agree-
ment.
2. Amendments to the Partnership Agreement.
(a) Section 1 of the Partnership Agreement hereby is
amended to read in its entirety as follows:
"1. Parties.
The parties to this Agreement shall be the following:
1.1 EUA Ocean State Corporation, a Corporation
organized under the laws of the State of Rhode Island
with its principal offices and addresses at c/o Blackstone
Valley Electric Co., Washington Highway, Lincoln, Rhode
Island 02865.
1.2 Narragansett Energy Resources Company, a
corporation organized under the laws of the State of Rhode
Island, with its principal offices and address at 280
Melrose Street, Providence, Rhode Island 02901.
1.3 TCPL Power Ltd., a corporation organized under
the laws of the State of Rhode Island, with its principal
offices and address at 123 Dyer Street, Providence, Rhode
Island 02903.
1.4 JMC Ocean State Corporation, a corporation
organized under the laws of Rhode Island, with its
principal offices and address at 1575 Sherman Farm Road,
Rt. 98, Harrisville, Rhode Island 02830."
(b) Schedule A to the Partnership Agreement hereby is
amended to read in its entirety as set forth on Appendix A
attached hereto.
(c) Schedule B to the Partnership Agreement hereby is
amended to read in its entirety as set forth in Appendix B at-
tached hereto.
3. Amendment Effective Date. This Amendment No. 3 shall
be effective upon the filing and acceptance of an appropriate
Certificate of Merger with and by the Secretary of State of
Delaware and appropriate Articles of Merger with and by the
Secretary of State of Rhode Island with respect to the merger of
JMAI Power Corporation and Ocean State Power Company with and into
JMC Ocean State Corporation.
4. Further Assurances. Each of the Partners agree to
execute and deliver all such other and additional instruments and
documents and to do such other acts and things as may be reason-
ably necessary to more fully effectuate this Amendment and carry
on the Partnership business in accordance with the Partnership
Agreement as amended by this Amendment.
5. Counterparts. This Amendment may be executed in
counterparts, each of which shall be deemed an original, but all
of which together shall constitute one and the same instrument.
6. Headings. The headings contained in this Amendment
are for reference purposes only and shall not affect the meaning
or interpretation of this Amendment or the Partnership Agreement.
IN WITNESS WHEREOF, the undersigned have caused this
Amendment to be executed by their duly authorized officers as of
the date first written above.
ATTEST:
TCPL POWER LTD.
By
Title:
By
Title:
EUA OCEAN STATE CORPORATION
By
Title:
JMC OCEAN STATE CORPORATION
By
Title:
OCEAN STATE POWER COMPANY
(as merging partner)
By
Title:
JMAI POWER CORPORATION
(as merging partner)
By
Title:
Appendix A
OCEAN STATE POWER
AMENDED AND RESTATED GENERAL PARTNERSHIP AGREEMENT
SCHEDULE A
The Equity-Interests of the respective Partners in Ocean
State Power shall be as follows:
Equity Interests
Partner of Partners
TCPL Power Ltd. 40.00%
EUA Ocean State Corporation 29.90%
Narragansett Energy Resources Company 20.00%
JMC Ocean State Corporation 10.10%
TOTAL 100.00%
Appendix B
OCEAN STATE POWER
AMENDED AND RESTATED GENERAL PARTNERSHIP AGREEMENT
SCHEDULE B
The Voting Interests of the respective Partners in Ocean
State Power from and after the Holding Company Act Applicability
Date (as defined in Section 8.11.1) shall be as follows:
Voting Interests
Partner of Partners
TCPL Power Ltd. 9.9%
EUA Ocean State Corporation 49.51%
Narragansett Energy Resources Company 35.69%
JMC Ocean State Corporation 4.90%
TOTAL 100.00%
AMENDMENT NO. 4 TO
AMENDED AND RESTATED GENERAL PARTNERSHIP AGREEMENT
OF OCEAN STATE POWER
THIS AMENDMENT NO. 4 TO AMENDED AND RESTATED GENERAL
PARTNERSHIP AGREEMENT OF OCEAN STATE POWER (this "Amendment") dated as of
February 23, 1993, by and among the undersigned parties (the "Partners").
W I T N E S S E T H
WHEREAS, the Partners are party to the Amended and
Restated General Partnership Agreement dated as of December 2, 1988, as
amended to the date hereof (the "Partnership Agreement");
WHEREAS, the Partners propose to amend the Partnership
Agreement upon the terms and conditions set forth in this Amendment (the
Partnership Agreement as amended by this Amendment is referred to herein as
the "Amended Partnership Agreement");
NOW, THEREFORE, in consideration of the foregoing the
mutual covenants, agreements and promises hereinafter set forth and other
good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the Partners hereto, intending to be legally bound,
mutually covenant and agree as follows:
1. Definitions. Unless otherwise defined herein, all
capitalized terms used herein shall have the meaning set forth in the
Partnership Agreement.
2. Amendment of the Partnership Agreement - Section
8.2.9. Section 8.2.9 of the Partnership Agreement, entitled "Interested
Representatives," is hereby deleted in its entirety and the following is
substituted therefor:
8.2.9 Interested Representatives. No Representative
shall be entitled to vote in any decision of the
Management Committee concerning (i) the entry into,
renewal, amendment or termination of, (ii) any alleged
breach or failure to perform under, or (iii) any dispute which
becomes subject to an arbitration, judicial, or
administrative proceeding between the parties to, any
contract between the Partnership and any Partner
represented by such Representative, or between the
Partnership and any Affiliate of such Partner; provided,
however, that for purposes of this Section 8.2.9; no
Partner shall be deemed to be an Affiliate of Ocean State
Power II. A Representative which is not entitled to vote
in accordance with this Section 8.2.9 is referred to
hereinafter as an "Interested Representative." Where an issue and
the proposed resolution presented for vote are
substantially similar for two or more contracts, a
Representative which is an Interested Representative with
respect to one such contract shall be deemed to be an
Interested Representative with respect to such other
contract(s) (notwithstanding the fact that neither the
Partner represented by such Representative nor any
Affiliate of such a Partner is a party to such other
contract(s)).
3. Amendment of the Partnership Agreement -Sections
8.2.10 and 8.2.11. The following Sections 8.2.10 and 8.2.11
hereby added to the Partnership Agreement:
8.2.10 Arbitrable Votes. A vote taken by the
Management Committee may be submitted to arbitration
in accordance with Section 8.2.11 (an "Arbitrable Vote")
if the conditions of either paragraph (a) or (b) below are
met. Any Arbitrable Vote which is submitted to
arbitration shall not be effective except upon and in
accordance with the decision of the arbitrator.
(a)(i) A matter voted on by the Management
Committee which requires a Fifty-five Percent Vote for
approval did not receive a Fifty-five Percent Vote
or a matter voted on by the Management Committee which requires
an Eighty-six Percent Vote for approval did not receive an Eighty-
six Percent Vote and (ii) the Partnership is
required by law (including by order of any federal, state
or local regulatory authority) or by contract to take action on such
matter or the resolution of such matter is necessary to maintain the
continuous operation of the Facilities. An Arbitrable Vote which meets
the conditions of this paragraph (a) is referred to as a "Deadlock
Vote."
(b)(i) A Partner contends that a Representative is
an Interested Representative with respect to the subject
matter of a vote of the Management Committee and
(ii) had the vote of that Representative been reallocated in
accordance with Section 8.11.5, either (A) such a matter
which received a Fifty-five Percent Vote, or an Eighty-six Percent
Vote, as required, would not have received such a
vote or (B) such a matter which did not receive a Fifty-
five Percent Vote or an Eighty-six Percent Vote, as
required, would have received such a vote. An Arbitrable
Vote which meets the conditions of this paragraph (b) is
referred to as a "Contested Vote."
8.2.11 Arbitration.
(a) Any Partner may submit an Arbitrable Vote to
arbitration at the meeting at which the vote took place or
by written notice to each of the Partners within five business days
thereafter. The Partners shall attempt expeditiously to agree on a
single arbitrator, who shall be an individual whose profession,
expertise and experience renders him or her qualified to consider
the matter in issue. If the Partners are unable to agree on a single
arbitrator within five business days after submission of an
Arbitrable Vote to arbitration, the Partners on either side of the
vote shall, not later than ten business days after submission of an
Arbitrable Vote to arbitration, select one arbitrator and the two
arbitrators so selected shall promptly select a third arbitrator. Each
arbitrator so selected shall be an individual whose profession,
expertise and experience renders him or her qualified to consider
the matter in issue. If the two arbitrators are unable to agree on the
selection of a third arbitrator, then such third arbitrator shall be
appointed in accordance with the Commercial Arbitration Rules of the
American Arbitration Association ("AAA"). The term "arbitrator" shall
be used hereinafter to refer to a single arbitrator if the Partners
agree on a single arbitrator or, if the-Partners are unable to agree
to a single arbitrator, to the panel of three arbitrators.
(b) The arbitrator shall establish a schedule for
the arbitration. It is the intent of the Partners that
any arbitration under this Section 8.2.11 be completed on
an expedited basis and on a schedule which will permit the
Partnership to comply with any requirements under
applicable law or contract, to maintain continuous
operation of the Facilities, or otherwise to avoid
mootness of the arbitrator's decision. The arbitrator
shall be empowered to order such discovery as he or she
deems appropriate under the circumstances only to the
extent that discovery shall not interfere with the
considerations referred to in the previous sentence. The Partners
agree that they will act, and hereby authorize
the arbitrator to act, in compliance with the intent of
this Section 8.2.11. The Partners shall not have the
right to conduct discovery, but shall each be afforded a reasonable
opportunity to present their views to the
arbitrator in writing. The arbitrator may invoke the
provisions of the Commercial Arbitration Rules of the AAA
to the extent that a procedural matter relating to the
arbitration is not specifically provided for in this
Section 8.2.11, and such provisions are not
inconsistent with the purpose and intent of this Section 8.2.11.
(c)(i) In the case of an Arbitrable Vote which is
a Deadlock Vote, the decision of the arbitrator shall not
be limited to one of the two opposing positions presented
by the Partners with respect to the Arbitrable Vote, but
in every case shall be a determination of the course that
is in the best interest of the Partnership. Effective
immediately on its issuance, the decision of the
arbitrator with respect to a Deadlock Vote shall be
substituted for the Arbitrable Vote and the Partnership
shall act in accordance with the decision.
(ii) In the case of an Arbitrable Vote which is a
Contested Vote, the arbitrator's decision shall determine
whether an Interested Representative participated in the
vote. If the arbitrator determines the question in the
negative, the Arbitrable Vote shall stand as taken. If
the arbitrator determines the question in the affirmative,
the Arbitrable Vote as taken shall be recalculated without
taking into account the vote of the Interested
Representative (with Excess Votes allocated in accordance
with Section 8.11.5). The vote as so recalculated shall
be substituted for the Arbitrable Vote and the Partnership
shall act in accordance with such vote. A vote which was arbitrated
as a Contested Vote may thereafter be submitted
to arbitration as a Deadlock Vote if it then meets the requirements
for consideration as a Deadlock Vote. Upon
the request of any Partner, an Arbitrable Vote shall be
arbitrated sequentially in the same proceeding, first as a Contested
Vote and then, if necessary, as a Deadlock Vote.
The arbitrator may cause an arbitration proceeding to
address concurrently a Contested Vote and a Deadlock Vote
if an expedited decision is required consistent with the
intent and purpose of this Section 8.2.11; provided,
however, that the decision of the arbitrator as to the
Deadlock Vote will only be rendered if necessary as a
result of its decision as to the Contested Vote.
(d) The decision of the arbitrator shall be final
and shall be binding upon the Partnership and each of the Partners.
The decision of the arbitrator shall be
rendered in writing and one copy of the decision shall be
given to each Partner. The decision may be rendered
without supporting reasons, although the arbitrator may
provide the reasons for its decision by separate written instrument.
In no event may the arbitrator's reasons for
its decision be a basis for appeal. Any Partner may apply
in any court having jurisdiction for judicial acceptance
of the decision and an order of enforcement. The expense
of arbitration shall be borne by the Partnership.
(e) The Partners agree that the sole method of
resolving any dispute as to an Arbitrable Vote shall be by
arbitration pursuant to this Section 8.2.11 and no Partner
shall seek to have this Section 8.2.11 rendered
unenforceable or to have such dispute decided in any other
way; provided, however, that nothing herein shall prevent
the Partners from agreeing to settle any issue at any
time.
(f) The Partners expressly agree that the forbearance from a right
to submit an Arbitrable Vote to arbitration shall not constitute a
waiver of the right of any Partner to submit a subsequent Arbitrable
Vote, on a related or an unrelated matter, to arbitration.
4. Amendment of the Partnership Agreement - Section
8.11.2. Section 8.11.2 of the Partnership Agreement is hereby amended by
renumbering the existing text thereof as Section 8.11.2(a) and adding the
following subsection (b) thereto:
(b) A Reduced Voting Interest Partner which has
increased its Voting Interest as provided in Section
8.11.2(a) is hereinafter referred to as a "Reinstated
Voting Interest Partner." A Reinstated Voting Interest
Partner may elect to reduce its Voting Interest to a
Voting Interest designated by such Reinstated Voting
Interest Partner which is less than the product obtained
by multiplying 100 times the percentage represented by
such Reinstated Voting Interest Partner's Equity Interest
upon written notice to all other Partners. Upon delivery
of such notice, the Reinstated Voting Interest Partner
shall once again be deemed to be a Reduced Voting Interest
Partner for all purposes of this Agreement.
5. Amendment of the Partnership Agreement - Section
8.11.4(i). Section 8.11.4(i) of the Partnership Agreement is hereby amended
by adding the following sentence to the end of subsection (i):
If a Reinstated Voting Interest Partner shall give the
notice described in Section 8.11.2, Schedule B shall be
amended effective as of the date of such notice so as to
decrease the Voting Interest of such Partner as designated
in such notice.
6. Amendment of the Partnership Agreement - Sections
8.11.4(iii) and (iv). Sections 8.11.4(iii) and (iv) are hereby amended by
adding thereto the text designated by underscoring [i.e., underscoring
indicates new language]:
(iii) If as a result of any amendment to be made to
Schedule B pursuant to clause (i) or (ii) above the total
number of votes represented by the Voting Interests set
forth on Schedule B would otherwise exceed one hundred,
then the Voting Interest of each Partner which then is the
subject of an effective registration under the Holding
Company Act (a "Registered Holding Company Partner") or
which is then a Reinstated Voting Interest Partner shall
automatically be decreased on Schedule B by an amount that
equals its pro rata share of the number of votes in excess
of one hundred (determined on the basis of the ratio which
the Voting Interest of such Registered Holding Company
Partner or Reinstated Voting Interest Partner bears to the aggregate
Voting Interests of all Registered Holding
Company Partners and Reinstated Voting Interest Partners
before such adjustment); provided, however, that in no
event shall the Voting Interest of any Registered Holding
Company Partner or Reinstated Voting Interest Partner be
decreased below the number of votes equal to the product
of 100 and the percentage represented by its Equity
Interest unless agreed to in writing by such Partner.
(iv) If as a result of any amendment to be made to
Schedule B pursuant to clause (i) or (ii) above the total
number of votes represented by the Voting Interests set
forth on Schedule 8 would otherwise be less than one
hundred, then the voting interest of each Registered
Holding Company Partner and each Reinstated Voting
Interest Partner shall automatically be increased on
Schedule B by an amount that equals its pro rata share of
the number of votes less than one hundred (determined on
the basis specified in clause (iii) above).
7. Amendment of the Partnership Agreement - Section
8.11.5. Section 8.11.5 of the Partnership Agreement is hereby amended by
adding the following subsection (iii):
(iii) If such vote is taken after the Holding Company
Act Applicability Date and any Partner is then a
Reinstated Voting Interest Partner, the Excess Votes shall
be allocated pro rata among the Registered Holding Company Partners
then eligible to vote and Reinstated Voting
Interest Partners then eligible to vote (determined on the
basis of the ratio which the Voting Interest of each such Registered
Holding Company Partner and Reinstated Voting
Interest Partner shown on Schedule B bears to the
aggregate Voting Interests of all Registered Holding
Company Partners then eligible to vote and Reinstated
Voting Interest Partners then eligible to vote as shown on Schedule
B).
8. Amendment of the Partnership Agreement - Section
8.11.6. The following Section 8.11.6 is hereby added to the Partnership
Agreement:
8.11.6. Return on Equity Vote. The rate of return
on equity to be filed by the Partnership in accordance
with the Unit Power Agreements shall require a Fifty-five
Percent Vote; provided, however, that so long as any
Partner is a Reduced Voting Interest Partner, such vote on
the rate to be filed shall require an Eighty-six Percent
Vote.
9. Amendment Effective Date. This Amendment shall be
effective as of the date first written above.
10. Further Assurances. Each of the Partners agrees to
execute and deliver all such other and additional instruments and documents
and to do such other acts and things as may be reasonably necessary to more
fully effectuate this Amendment and carry on the Partnership business in
accordance with the Amended Partnership Agreement.
11. Counterparts. This Amendment may be executed in
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
12. Headings. The headings contained in this Amendment
are for reference purposes only and shall not affect the meaning or
interpretation of this Amendment or the Amended Partnership Agreement.
IN WITNESS WHEREOF, the undersigned have caused this
Amendment No. 4 to Amended and Restated Partnership Agreement of Ocean
State Power to be executed by their duly authorized officers as of the date
first written above.
JMC OCEAN STATE CORPORATION
By: /s/ Carlos A. Riva
Name: Carlos A. Riva
Title: President
TCPL POWER LTD.
By: /s/ David Russell
Name: David Russell
Title: Vice President
By: /s/ George Watson
Name: George Watson
Title: President
EUA OCEAN STATE CORPORATION
By: /s/ Robert F. Wolff
Name: Robert F. Wolff
Title: Vice President
NARRAGANSETT ENERGY RESOURCES COMPANY
By: /s/ Joseph Harrington
Name: Joseph Harrington
Title: President
1994 Annual Report
diversified
ENERGY CONSERVATION AND COGENERATION ENERGY MANAGEMENT
EUA COGENEX EUA NOVA NEM EUA OCEAN STATE EUA DAY
energy
RETAIL ELECTRIC SERVICE ELECTRIC GENERATION & TRANSMISSION
BLACKSTONE VALLEY ELECTRIC EASTERN EDISON NEWPORT ELECTRIC
MONTAUP ELECTRIC
services
TEMPERATURE CONTROLS GAS PIPELINE CAPACITY INFORMATION
QUALITY POWER SYSTEMS TRANSCAPACITY L.P. EUA ENERGY INVESTMENT
EUA SYSTEM PROFILE
Eastern Utilities Associates is a diversified energy services company whose
shares are traded on the New York and Pacific Stock Exchanges under the ticker
symbol EUA. Its subsidiaries are engaged in the generation, transmission,
distribution and sale of electricity; energy related services such as
energy management and cogeneration; and promoting the conservation and
efficient use of energy.
To better reflect the competitive business environment in which it operates,
EUA is organized in four distinct business units.
Core Electric Business
EUA's core electric business comprises two business units.
The retail business unit provides electric service to approximately 294,000
customers in southeastern Massachusetts, and northern and coastal Rhode Island.
Retail electric subsidiaries are Blackstone Valley Electric Company, Eastern
Edison Company and Newport Electric Corporation. The wholesale business unit
is Montaup Electric Company, EUA's generation and transmission subsidiary,
which provides electricity at wholesale to the retail electric subsidiaries and
two other non-affiliated municipal electric utilities.
Energy Related Business
EUA's energy related business unit includes EUA Cogenex Corporation, EUA Ocean
State Corporation and EUA Energy Investment Corporation. EUA Cogenex is the
most active of our energy related companies with energy services contracts in
34 states, the District of Columbia and Canada (map). EUA Ocean State owns a
29.9% partnership interest in the Ocean State Power Project in northern Rhode
Island. EUA Energy makes investments in energy related businesses.
Corporate
The corporate business unit is made up of Eastern Utilities Associates - the
System's parent company - and EUA Service Corporation which provides
professional and technical services to all EUA System companies.
"Map of southern New England depicting:"
Montaup Electric Wholesale Territory
Blackstone Valley Electric Service Area
Eastern Edison Service Area
Newport Electric Service Area
"Map of continental United States and southern portion of Canada depicting:"
Areas of EUA Cogenex Business Activity
<TABLE>
Highlights
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
FINANCIAL DATA ($ in thousands)
Operating Revenues $ 564,278 $ 566,477 $ 541,964
Consolidated Net Earnings 47,370 44,931 34,111
Return on Average Common Equity 13.6% 15.0% 13.2%
Common Shareholder Equity-
% of Capitalization (Year-End) 42.8% 38.7% 34.5%
Total Assets 1,234,049 1,203,137 1,203,320
Cash Construction Expenditures<F1> 50,519 76,391 71,365
COMMON SHARE DATA
Consolidated Earnings per Share $ 2.41 $ 2.44 $ 2.00
Dividends Paid per Share $ 1.515 $ 1.42 $ 1.36
Annual Dividend Rate $ 1.54 $ 1.44 $ 1.36
Total Common Shares Outstanding 19,936,980 19,032,598 17,237,788
Average Common Shares Traded Daily 35,359 42,854 30,511
Book Value per Share (Year-End) $ 18.33 $ 17.50 $ 15.48
Market Price -High 27 3/8 29 7/8 25 1/4
-Low 21 3/8 23 7/8 20 3/8
-Year End 22 28 24 3/4
OPERATING DATA
Total Primary Sales (mwh) 4,410,000 4,352,000 4,279,000
System Requirements (mwh) 4,643,000 4,599,000 4,520,000
System Peak Demand (mw) 921 854 849
System Reserve Margin (At Peak) 22.4% 37.1% 46.1%
System Load Factor 57.5% 61.5% 57.5%
Customers (Year-End) 293,707 291,799 291,123
Employees (Year-End)-Core Electric 720 766 806
-Energy Related 240 238 150
-Corporate 437 440 443
<FN>
<F1> 1993 and 1992 amounts restated to conform with current year presentation.
</FN>
</TABLE>
"Earnings and Dividends per share bar graph depicting the following:"
Earnings & Dividends Per Share
1992 1993 1994
Earnings per share $2.00 $2.44 $2.41
Dividends per share $1.36 $1.42 $1.515
"Dividend payout ratio line graph depicting the following:"
Dividend Payout Ratio
1992 1993 1994
EUA 68.0% 58.2% 62.91%
Industry Average 84.0% 80.0% 77.01%
"Return on Equity line graph depicting the following:"
Return On Equity
1992 1993 1994
EUA 13.2% 15.0% 136.%
Industry Average 11.2% 11.7% 11.8%
To Our Shareholders
"Picture of"
Donald G. Pardus
Chairman and Chief Executive Officer
1994 was the year we more clearly defined Eastern Utilities Associates as a
diversified energy services company. This was part of management's continuing
commitment to enhance the long-term value of your investment.
We want you to know why EUA is evolving from the electric utility of the
past to the diversified energy services company of the future.
Certainly, our Core Electric Business continues to provide a stable
earnings foundation. However, growth prospects for the utility industry in the
Northeast are limited. Our continued emphasis on cost control and strategic
planning strengthened our position as competition continues to develop within
the electric utility industry.
The contribution of our non-utility energy related businesses, on the other
hand, grew to almost 24% of consolidated net earnings in 1994. Just five years
ago the energy related contribution to earnings was less than 1/2 of 1%.
EUA's 1994 consolidated net earnings of $47.4 million represented a 5.4%
increase over 1993 earnings. Despite this increase, EUA's share price declined
during 1994, as did those of most electric utilities. The primary reasons for
the industry-wide downturn in stock price were uncertainties regarding
competition and the rising interest rate environment that existed throughout
1994. Historically, utility stocks trade inversely to interest rates - as
interest rates rise, utility stock prices typically decline. We were painted
with the same broad negative brush as more typical utility companies. However,
we believe this view of EUA is changing. Recent analyst recommendations
provide evidence for our belief that the investment community is beginning to
appreciate that EUA differs significantly from other electric utilities.
Analysts are beginning to recognize that we are a diversified energy services
company. Standard & Poor's, for example, gave EUA four STARS in its
Stock Appreciation Ranking System and included us on a list of eight
"attractive" utility stocks in a recent publication. PaineWebber has upgraded
its recommendation on EUA shares to "accumulate."
"Call out"
EUA recognized as different
from other utilities
In 1994, the average dividend increase for the utility industry was only
2.4%. The dividend on your EUA shares, on the other hand, was increased 6.9%
to an annual rate of $1.54 - consistent with our goal of providing annual
dividend increases above the utility industry average, while maintaining
a conservative dividend payout ratio.
In 1994, our Core Electric and Corporate Business units contributed 76% to
consolidated earnings. We see signs in the growth of electricity use that
economic recovery has finally taken hold in our region: 1994 marked the third
consecutive year of improved primary sales of electricity, sparked by a 4.2%
increase in sales to our industrial customers and increased use by residential
customers.
The summer of 1994 marked the first increase in peak demand in three years,
surpassing the previous all-time high set in 1991.
In May, our Montaup Electric subsidiary was authorized by the Federal
Energy Regulatory Commission (FERC) to implement a $10.1 million reduction in
the wholesale rates it charges other utilities, including our Retail Business
unit companies. This decrease was passed through to the customers of our
retail utilities. We have filed settlement agreements with all wholesale
customers to increase that rate reduction to approximately $14 million. We
await FERC certification of the settlements, which will enable our retail
utilities to further reduce the amount they charge end-users.
"Call out"
Core business
marketing activity escalates
Reducing electric rates is one step we can take in promoting economic
growth in our service territories. By helping our customers control their
energy costs, we contribute directly to their ability to remain competitive and
continue their important contributions to the economic health of our service
area.
To succeed in the competitive environment, we must provide a competitively
priced product, and we must respond efficiently to the changing needs of our
customers. Accordingly, effective in April 1995, we are reorganizing and
consolidating our core electric utility business - the Retail, Wholesale
and Corporate business units - under a centralized management structure. This
consolidation will not only reduce costs, but will also allow us to continue
our high level of service to our customers.
The new marketing plan being implemented in 1995 by our Retail Business
unit companies will enable us to work even more closely with our largest
customers. We can contribute to their business success by helping them manage
their electric use in the most efficient way possible.
Energy related diversification continues to play a role of increasing
importance to EUA. Companies within our Energy Related Business unit made
significant progress toward meeting their long-term goals of: (i) providing an
increasing percentage of earnings; (ii) maintaining EUA Cogenex's leadership
position in the energy services industry; and (iii) investigating new energy
related business opportunities.
EUA Cogenex remains the most active of our diversified businesses, with
energy service contracts in 34 states and the District of Columbia. EUA
Cogenex has begun to expand its operations into Canada, and we recently
received an order from the Securities and Exchange Commission which
removed the prohibition on EUA Cogenex conducting more than 50% of its business
outside the New England/New York area. EUA Cogenex's record of success,
quality service and the financial stability of being part of the EUA System
have combined to make it one of the top three companies in its field
nationwide!
Acquisition of Citizens Conservation Corporation of Boston enables EUA
Cogenex to apply to government subsidized public housing the same sort of
shared-savings programs it applies to commercial, industrial and other
projects. Acquisition of the Highland Energy Group in Boulder,
Colorado, will bring under the EUA Cogenex umbrella conservation and energy
management programs in Colorado, Texas, Ohio and North Carolina.
EUA Ocean State continued its significant contribution to the Energy
Related Business unit through its equity investment in the Ocean State Power
project - the first true independent power producer in New England.
TransCapacity L. P., the gas industry software developer in which we
invested through our EUA Energy Investment subsidiary in 1993, introduced its
Capacity ScoutTM system to potential customers nationwide in late 1994.
Capacity ScoutTM enables local gas companies and other gas users to find the
most economic source of supply and delivery, quickly and efficiently, via an
electronic interface with a single source.
"Call out"
Quest for
opportunities
continues
The quest for niche-type investment opportunities for our Energy Related
Business unit is another strategy designed to enhance the value of your
investment. Our medium size is a plus in this search, which we will continue.
An investment that contributes as little as $1 million to earnings equates to
5 cents per share for EUA. At a larger company, that contribution could get
lost in the rounding.
"Picture of"
John R. Stevens
President and Chief Operating Officer
We vary the investment opportunities we consider. But, they have a common
thread: They're all energy related. We don't put our available investment
funds into one company or one industry. Our key is that we diversify our
diversification. But we do so without making any overly large
investments up front. We plan to continue our program of relatively
conservative investments in niche-type companies. Our diversification plans
are discussed in more detail in the Business and Strategies section beginning
on Page 5.
We appreciate the contribution of all EUA System employees to our successes
to date. And we appreciate your loyalty as shareholders. We want you to know
that EUA is committed to success in the changing utility world. Our strengths
are based on the firm foundation of our core electric utility business, the
success of our energy related diversification efforts to date, and our ability
to continue those successes. Our Strategic Plan sets goals and strategies
designed to integrate the success of each of EUA's business units - Retail,
Wholesale, Energy Related and Corporate - into enhanced value of your
investment as a shareholder.
Donald G. Pardus
Chairman and Chief Executive Officer
John R. Stevens
President and Chief Operating Officer
March 15, 1995
"Caption for picture depicting:"
Operator adjusts bulb forming machine at the Osram Sylvania glass-making
facility in Central Falls, Rhode Island. Expansion will make the plant one
of the largest manufacturers of the glass globes for energy efficient lamps
used for exterior lighting (inset).
Businesses And Strategies
Overview
At EUA, we believe it's important that you know not only how we did last year,
but also, where we're headed and how we are positioning our System for the
competitive challenges of the future.
The role of competition has increased steadily in recent years. Today it
is the single biggest challenge faced by electric utilities nationwide. We
recognized early that in order to survive in the competitive environment, we
would have to re-think the way we do business. As the industry retools
to deal in a competitive marketplace, we're making adjustments, both in our
Core Electric Business and as we pursue a controlled diversification program
into energy related businesses.
At EUA, we are not complacently waiting to see what the future brings.
We're taking a measured approach during the transition from the age of monopoly
to the era of competition. Our strategic plan provides the framework which led
to our current business unit structure and which will guide our future success.
Our Core Electric Business includes two business units: Retail and
Wholesale. These continue to be the foundation on which we build. The Energy
Related Business unit combines our energy related diversification efforts. It
provides us the vehicle to invest in opportunities that have the potential to
enhance shareholder value. The Corporate Business unit provides professional
and technical services to all EUA System companies.
The following business review shows the strategic direction EUA is taking
to succeed in today's increasingly competitive environment.
Core Electric Business
The Retail and Wholesale business units of EUA's Core Electric Business
continue to be the base of EUA's financial strength; in 1994 these business
units combined to contribute $1.88 of EUA's consolidated earnings per share.
Overall, the economic condition of the territories served by our Retail
Business unit continued a steady, albeit slow, recovery. The number of
requests for new and upgraded electric services continues to increase. The
4.2% increase in kilowatthour sales to our industrial customer class is an
indicator of the economic revival.
When companies such as Hood Enterprises announce the move of its luxury
yacht-building facility from the Far East to our Newport Electric territory;
when Molten Metal Technology, Inc. doubles the size of its technologically
advanced operation in Fall River; when Osram Sylvania plans a
significant expansion of its manufacture of glass bulbs for energy-efficient
lighting at a plant served by Blackstone Valley Electric in northern Rhode
Island; when companies in the textile industry increase their use of
electricity by nearly 10%, we see definite signs that the economy is improving.
Through our intensified marketing efforts and our continued involvement with
local and state economic development agencies, we play an important role in
ensuring this upward trend continues.
"Call out"
A carefully crafted strategic plan provides
the framework which led to our current
business unit structure and which will
guide our future success.
Historically, electric rates in the northeastern United States have been
higher than those in most other sections of the country. Some reasons for this
are the lack of indigenous fuel and the high cost of transporting fuel needed
to generate electricity. One of the primary goals of our Core Electric
Business is to reduce our costs relative to other utilities in the Northeast
and to position ourselves competitively as the utility of choice by offering
our customers added value. How do you achieve this goal in an increasingly
competitive business environment? Here are some of the steps EUA has
taken:
In May 1994, we decreased the rates charged by our Wholesale Business unit.
This decrease was passed through to all customers of our Retail Business unit
companies. By reducing electric rates we are helping our customers control
their costs, contributing directly to their ability to be competitive and
continue their contributions to the economic viability of our service area.
A new marketing plan being implemented by the Retail Business unit will help
us to learn even more about how we can best meet our customers' needs, and will
enable us to work more closely with our largest customers to contribute to
their business success by helping them manage electric use in the most
efficient way possible.
Cost control continues to play an important role in the success of our Retail
Business unit. In 1994, this business unit's controllable operation and
maintenance expenses were essentially flat compared to 1993 - despite a near 3%
increase in the Consumer Price Index. This was accomplished by reducing our
Retail Business unit workforce by an additional 3%, bringing the total
reductions since 1990 to over 14%, and by keeping an ever tighter rein on how
our operations and maintenance expense dollars are spent.
During 1994, the Wholesale Business unit determined that it would not be
economically feasible to bring a 42-year-old generating unit into compliance
with 1995 requirements of the Clean Air Act Amendments; we shut down the unit
and transferred it to cold storage while we explore available generation
options for the future.
Our Wholesale Business unit saw a reduction of more than 13% in controllable
operation and maintenance costs and its workforce was reduced an additional 21%
in 1994, bringing the total workforce reductions since 1990 to almost 31%.
We will continue our cost control efforts at our Core Electric Business, to
seek additional workforce reductions, to continue to lower our wholesale power
cost relative to other suppliers and to look for ways to work with all of our
customers so we will remain their "utility of choice."
The outlook for our Core Electric Business is a stable one: stable
investment, stable rate base, and stable annual income potential. Also, we
expect to have sufficient generating capacity available to meet the needs of
customers through the latter part of this decade. Each company within this
business unit is expected to earn at or near its allowed rate of return and to
cover all its cash construction requirements with internally generated funds.
While we expect the Core Electric Business to be stable, it will provide only
limited financial growth potential over the next few years.
"Call out"
Our Core Electric Business
provides a solid base on which to build
Energy Related Business
Energy related diversification plays a significant role in EUA's financial
success, although we believe many in the investment community do not yet fully
recognize how important a factor it is. The goals of our Energy Related
Business unit are to provide an increasing percentage of EUA System earnings,
maintain EUA Cogenex's leadership in the energy services industry, and
investigate and develop new energy related business opportunities that will
enhance shareholder value.
The earnings contributions of our energy related diversification efforts
grew from less than 1/2 of 1% just five years ago to almost 24% at year-end
1994. From a modest start with the acquisition of EUA Cogenex we have spread
our diversification to other fields. Today, our Energy Related Business unit
includes an independent power producer and companies involved in energy
conservation and demand side management, the natural gas industry, power
reliability, home environment and biomass technology. In essence, we've
diversified our diversification.
EUA Cogenex, the most active member of this business unit, continues to be
a national leader in the field of energy conservation and demand side
management. Its record of success and quality service, coupled with financial
stability, make EUA Cogenex one of the top three companies in its field
nationwide. It has projects under contract in 34 states and the District of
Columbia. Expansion of its services into Canada is underway. And, a recent
decision from the Securities and Exchange Commission removed that agency's rule
restricting Cogenex from conducting more than 50% of its business outside the
New England/New York area.
EUA Cogenex plans to continue its controlled growth with its March 1995
acquisition of the principal energy services operations of Citizens
Conservation Corporation of Boston and the proposed acquisition of Highland
Energy Group, Inc., of Boulder, Colorado. Highland manages conservation and
energy management programs in Colorado, Texas, Ohio and North Carolina. The
largest assets we obtained with the Citizens Conservation acquisition are
contracts with various public and private housing authorities.
Our EUA Ocean State subsidiary continued to provide a significant earnings
contribution to this business unit during 1994 through its investment in the
Ocean State Power (OSP) project. Over time, the earnings contribution of this
investment is expected to decline gradually as the asset base on which
we earn is depreciated.
An investment of our EUA Energy Investment subsidiary in 1993 was
TransCapacity L.P., a gas industry software developer. In late 1994,
TransCapacity introduced its Capacity Scout program for the computerized
tracking of natural gas pipeline capacity pricing and availability to potential
customers in major gas hubs nationwide. Capacity Scout gathers, sorts and
stores data from pipelines and other suppliers, enabling users to find the most
economic source of gas supply and delivery, quickly and efficiently, without
the need to check numerous individual pipeline electronic bulletin boards.
"Pie charts depicting the following:"
Earnings Contribution Comparison
Amounts in %
1989 1994
Core Electric/Corporate 99.5 72.2
Energy Related 0.5 23.8
The first systems were installed at customer locations in mid-October 1994
and by year-end, TransCapacity had seven customers operating in five states.
During 1995, TransCapacity expects to enhance its system to provide
automated ordering and scheduling of pipeline capacity through Electronic Data
Interchange (EDI). This enhancement will enable customers to actually order,
buy, sell and use their interstate gas pipeline capacity electronically.
TransCapacity is not expected to provide any significant earnings
contributions to EUA in 1995. However, we believe TransCapacity has the
potential to be a significant source of earnings for EUA by the 1996-1997 time
period assuming that its EDI services and information enhancements are
successful.
Another of EUA Energy's investments is a 9.9% interest in Quality Power
Systems (QPS). This small investment provides potential earnings
contributions, as well as a product we can market to our Core Electric Business
and EUA Cogenex customers. QPS is designing an uninterruptible power
supply system designed to protect sensitive electronic equipment from power
surges. The QPS product is in the final development and testing stages, and
sales are expected to begin in mid-1995. We do not expect our small investment
will produce significant contributions to EUA earnings at first,
but we do expect small positive contributions by the 1997-1998 time period.
"Call out"
We continue to seek new energy
related investment opportunities
EUA Energy's quest for niche-type energy related investments continued in
1994. Initial research and development investments were made in two new energy
related opportunities and additional investments may be made if certain
milestones are reached in 1995.
The first of these new investments is a potential 70% interest in the Home
& Family L.P. Home & Family develops, markets and sells home environmental
audit services and recommends remediation of home environmental problems. Phase
II of a research and development pilot program will be completed in June 1995.
At that time, EUA Energy will evaluate the results to determine whether to
proceed with this business opportunity on a regional, and ultimately, a
national level. If we decide to move forward, we would expect a minimal
positive earnings contribution in 1995. However, because of the preliminary
nature of the pilot program, it is difficult to assess long-term earnings
expectations at this time.
The second of EUA Energy's investments in 1994 is a potential 45% ownership
in the BIOTEN partnership with the RBS/Wood Group. BIOTEN is developing the
commercialization of a biomass-fired combustion turbine electric generation
system. Research and development of system design and engineering, including a
prototype plant, are expected to be complete by January 1996. Additional
investments beyond 1996 by EUA Energy are dependent on the success of this R&D
effort. Again, because of the preliminary nature of this undertaking,
assessing long-term earnings expectations is premature.
EUA Energy will continue to seek energy-related niche-type investments
that are designed to enhance shareholder value over the long term.
"Call out"
EUA has emerged as
a diversified energy
services company
We continue to believe it is in the best interests of our shareholders to
pursue a controlled diversification program. We look forward to increased
earnings contributions of EUA Cogenex as it capitalizes on its solid reputation
in the energy services industry. EUA Cogenex will continue to be a major
contributor to the Energy Related Business unit for the foreseeable future.
Summary
There is no blueprint to direct the change occurring in the electric
industry. However, the transition from the age of monopolistic utilities to
the era of competition provides us with a window of opportunity to continue
EUA's carefully constructed plan to build a new kind of company. EUA's
ability to diversify successfully will continue to be one of its primary
strategic goals. As we stand on the brink of change, EUA can no longer be
described as an electric utility holding company.' We've emerged as a
diversified energy services company, poised for competition and the
opportunities it provides.
<TABLE>
Selected Consolidated Financial Data<F1>
<CAPTION>
Years Ended December 31,
(In Thousands Except Common Share Data) 1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Operating Revenues $ 564,278 $ 566,477 $ 541,964 $ 522,583 $ 465,685
Operating Income 73,130 5,406 64,347 66,336 55,385
Consolidated Net Earnings (Loss) 47,370 44,931 34,111 26,260 (130,182)
BALANCE SHEET DATA:
Plant in Service 1,020,859 1,016,453 1,002,717 990,726 985,138
Construction Work in Progress 8,389 8,728 4,943 6,881 6,809
Gross Utility Plant 1,029,248 1,025,181 1,007,660 997,607 991,947
Accumulated Depreciation and
Amortization 304,034 296,995 274,725 251,503 241,128
Net Utility Plant 725,214 728,186 732,935 746,104 750,819
Total Assets 1,234,049 1,203,137 1,203,320 1,163,776 1,094,740
CAPITALIZATION:
Long-Term Debt - Net 455,412 496,816 462,958 488,452 443,595
Redeemable Preferred Stock - Net 25,390 25,053 28,496 29,980 34,530
Non-Redeemable Preferred Stock - Net 6,900 6,900 15,850 15,850 15,850
Common Equity 365,443 333,165 266,855 248,598 237,393
Total Capitalization 853,145 861,934 774,159 782,880 731,368
Short-Term Debt 31,678 37,168 109,936 72,449 43,071
COMMON SHARE DATA:
Consolidated Earnings (Loss) per Average
Common Share $ 2.41 $ 2.44 $ 2.00 $ 1.58 $ (8.18)
Average Number of Shares Outstanding 19,671,970 18,391,147 17,039,224 16,608,090 15,917,255
Return on Average Common Equity 13.6% 15.0% 13.2% 10.8% (42.5%)
Market Price -High 27 3/8 29 7/8 25 1/4 25 41 1/2
-Low 21 3/8 23 7/8 20 3/8 15 3/4 20 3/4
-Year-End 22 28 24 3/4 20 5/8 23 7/8
Dividends Paid per Share $ 1.515 $ 1.42 $ 1.36 $ 1.45 $ 2.575
<FN>
<F1> Includes financial and operating statistics for Newport Electric Corporation from April 1, 1990
and EUA Power Corporation through December 31, 1990 at which time EUA Power was
deconsolidated for financial reporting purposes.
</FN>
</TABLE>
Management's Discussion And Analysis Of Financial Condition And Review Of
Operations
Overview
Consolidated net earnings for the year ended December 31, 1994 were $47.4
million on revenues of $564.3 million, a 5.4% increase over 1993 consolidated
net earnings of $44.9 million, or $2.44 per share, on revenues of $566.5
million. Per share earnings for 1994 were $2.41 and reflected the
dilutive impact of a 7.0% increase in the average number of common shares
outstanding in 1994 resulting from: (i) a full-year's impact of the April 1993
issuance of 1.3 million common shares, (ii) shares issued under the Dividend
Reinvestment and Common Share Purchase Plan, and (iii) shares issued in
connection with the December 1993 and January 1994 acquisitions by EUA's energy
services subsidiary, EUA Cogenex Corporation (EUA Cogenex).
Net Earnings and Earnings Per Share by business unit:
1994 1993
Net
Earnings Earnings Net
(Loss) (Loss) Earnings Earnings
(000's) Per Share (000's) Per Share
Core Electric Business $ 36,897 $ 1.88 $ 33,461 $ 1.82
Energy Related Business 11,290 0.57 7,243 0.39
Corporate (817) (0.04) 4,227 0.23
Consolidated $ 47,370 $ 2.41 $ 44,931 $ 2.44
Major impacts on 1994 earnings by business unit are
described in the following paragraphs.
Operating Revenues
The table below sets forth estimates of the factors which contributed to the
change in Operating Revenues from 1992 through 1994:
Increase (Decrease)
From Prior Years
($ in millions) 1994 1993
Operating Revenue change attributable to:
Core Electric Business:
Purchased Power Recovery $ (8.0) $ 7.0
Recovery of Fuel Costs (1.4) (2.3)
Effect of Rate Changes (6.4) 8.6
Unit Contracts and Sales to NEPOOL 1.8 (13.1)
Kilowatthour (kWh) Sales and Other 4.2 1.5
Energy Related Business:
EUA Cogenex 7.6 22.8
Total $ (2.2) $ 24.5
Core Electric Business: The revenues attributable to Purchased Power Recovery
reflect our retail companies' recovery of purchased power capacity costs.
Revenues attributable to Recovery of Fuel Costs result from the operation
of fuel adjustment clauses. The change in such revenues reflects corresponding
underlying changes in fuel costs.
The Effect of Rate Changes reflects base rate increases for: (i) Blackstone
Valley Electric Company (Blackstone) effective in April 1992; (ii) Newport
Electric Corporation (Newport) effective October 1992; (iii) Eastern Edison
Company (Eastern Edison) effective January 1993; and (iv) a wholesale rate
decrease for Montaup Electric Company (Montaup) implemented on May 21, 1994.
(see Rate Activity-Core Electric Business) Revenues attributable to Unit
Contracts and sales to the New England Power Pool (NEPOOL) reflect revenues
from such short-term contracts and Montaup's and Newport's interchange sales to
NEPOOL.
The change in revenues associated with kWh Sales and Other reflects the
effect of kWh sales on base revenues and changes in other operating revenues.
Energy Related Business: Revenues of this Business unit are generated
entirely by EUA Cogenex. The 1994 increase of $7.6 million was due primarily
to increased revenues of James L. Day Co. Inc., renamed EUA Day and Northeast
Energy Management, Inc. (NEM) aggregating approximately $8.5 million. EUA
Cogenex acquired EUA Day and NEM in December 1993 and January 1994,
respectively. Partnership revenues and paid from savings contract revenues
also increased in 1994. These increases were offset somewhat by a decline in
project sales revenues recognized in 1994. The 1993 increase was due primarily
to revenues from its EUA Nova division which was acquired in December 1992 and
increased revenues related to project sales recognized in 1993.
Core Electric Business kWh Sales
Total primary sales of electricity increased 1.3% in 1994, despite the fourth
quarter's mild weather, causing an 18.7% decrease in heating degree days
compared to those of the fourth quarter 1993. An on-going review of our
customer classes resulted in the reclassification of certain customers from the
commercial class to the residential and industrial classes in 1994. The impact
of these reclassifications is reflected in the table below. Removing the
impacts of these reclassifications results in sales increases of 1.1%, 0.6% and
3.0% to our residential, commercial and industrial customers, respectively,
signaling continued economic recovery in our service territories. Economic
indicators suggest that this moderate trend will continue for the foreseeable
future. The 1994 peak demand for electricity surpassed the previous all-time
high set in July 1991. The July 1994 peak of 921 megawatts was 4.8% higher
than the previous high of 879 megawatts.
"Call out"
Primary kWh sales grew again in 1994,
paced by a strong industrial sector.
"Caption for picture depicting:"
A sign that the economic recovery is continuing
was 1994's 4.2% increase in electricity sales
(inset) to industrial customers. Shown here,
an engineer demonstrates Molten Metal Technology's
patented Catalytic Extraction Processing (CEP) on a
bench-scale system at the environmental technology
company's Fall River, Massachusetts, facility. Molten
Metal Technology is commercializing CEP, a technology
for recycling hazardous waste into valuable products
using a molten metal bath.
"Historical industrial sales (in millions of kWh) bar graph depicting the
following:"
1985 833
1986 855
1987 863
1988 869
1989 832
1990 834
1991 777
1992 785
1993 816
1994 850
Total primary sales for 1993 increased by 1.7% over those of 1992 paced by
improvements of 3.9% and 3.1% in sales to our industrial and residential
classes, respectively. Contributing to these gains was the hotter than normal
summer of 1993 and the slow but steady economic recovery taking place in our
retail service territories. Total Energy Sales decreased in 1993 from 1992 due
to a significant decrease in short-term unit contract sales, which include
sales to NEPOOL. Short-term unit contract and NEPOOL sales recover the
underlying cost of fuel only and therefore have no impact on earnings.
Percentage Changes in kWh Sales by Class of Customer for the past two years were
as follows:
Percent
Increase (Decrease)
From Prior Year
1994* 1993
Residential 3.3 3.1
Commercial (1.9) 0.0
Industrial 4.2 3.9
Other Electric Utilities 20.4 (9.9)
Other (7.0) (0.3)
Total Primary Sales 1.3 1.7
Losses and Company Use (5.3) 2.4
Total System Requirements 1.0 1.7
Unit Contracts 20.2 (54.2)
Total Energy Sales 4.2 (15.5)
*Reclassification of certain commercial customers to the residential and
industrial classes are reflected in 1994 data only.
Expenses 1994 vs. 1993
Fuel And Purchased Power: The EUA System's most significant expense items
continue to be fuel and purchased power expenses of our Core Electric Business
which together comprised about 44.3% of total operating expenses for 1994.
Fuel expense for 1994 increased $2.4 million from 1993. As part of
Montaup's wholesale rate reduction implemented in May 1994, Newport became an
all-requirements customer of Montaup and Montaup assumed all of Newport's
purchased power contracts. Consequently approximately $2.1 million of this
year's increase relates to fuel expense previously recorded as purchased power-
demand expense by Newport. A 4.8% decrease in the average cost of fuel in 1994
essentially offset the 4.2% increase in total energy sales.
Purchased Power expense decreased from 1993 by $9.4 million or 6.8%. This
decrease was due primarily to expiring contracts totaling approximately 41
megawatts (mw) and lower billings by Montaup's suppliers aggregating
approximately $8.6 million. Also, $2.1 million of the decrease is due
to Montaup's recognition of purchased power-energy as fuel expense (see above).
These decreases were offset somewhat by a $1.0 million increase in conservation
and load management (C&LM) expenses recorded as purchased power expense.
Other Operation And Maintenance: Other Operation and Maintenance (O&M)
expenses for 1994 totaled $184.5 million, an increase of $2.4 million over
1993.
Total O&M expenses are comprised of three components: Direct Controllable,
Indirect and Energy Related. Changes in these components for 1994 were as
follows:
Increase
($ in millions) 1994 1993 (Decrease)
Direct Controllable $ 84.4 $ 82.7 $ 1.7
Indirect 50.2 50.6 (0.4)
Energy Related 49.9 48.8 1.1
Total O&M $ 184.5 $ 182.1 $ 2.4
"Call out"
Cost control continues to
be a primary focus of EUA
Direct Controllable expenses of our Core Electric and Corporate Business
units represent 45.7% of total 1994 O&M and include expense items such as:
salaries, fringe benefits, insurance, maintenance, etc. Indirect expenses
include items over which we have limited short-term control. Indirects include
such expense items as: O&M expenses related to Montaup's ownership interests
in jointly owned generating facilities such as Seabrook Unit 1 and Millstone
Unit 3 (see Note H of Notes to Consolidated Financial Statements for other
jointly owned units), power contracts where transmission rental fees are fixed,
C&LM expenses that are fully recovered in revenues and expenses related to
accounting standards such as FAS106.
The Energy Related component relates to O&M expenses of our Energy Related
Business unit where increases are tied to new and expanded business activity.
EUA Cogenex continues to be the fastest growing of our Energy Related
Businesses and incurred 96% of the total O&M expenses of this business unit.
The changes in 1994 O&M expenses were due primarily to the following:
Core Electric Business: We remain committed in our efforts to control costs
wherever possible. In 1994 Direct Controllable expenses of this business unit
decreased by approximately $1.1 million. We were able to do this, in part, by
reducing our Core Electric workforce by an additional 6.0% in 1994.
Indirect expenses of this business unit increased by approximately $900,000 due
primarily to increased FAS106 expenses and Montaup C&LM and power contract
expenses aggregating $3.2 million. Partially offsetting these increases was a
$2.3 million decrease in jointly owned generating unit expenses.
"Call out"
EUA Cogenex's contribution to
Consolidated Net Earnings grew 18% in 1994
Energy Related Business: EUA Cogenex's O&M expenses for 1994 increased by $1.7
million. This increase was due primarily to the operations of EUA Day and NEM
offset by a reduction in expenses related to lower project sales recognized in
1994. Research and Development expenses of EUA Energy Investment Corporation
(EUA Energy) decreased $700,000 in 1994.
Corporate: Direct Controllable expenses of this business unit increased by
$2.8 million due largely to our decision to expense one-time computer software
development and hardware buy-out costs aggregating $1.9 million in 1994.
Indirect expenses were down by $1.5 million due primarily to a decrease in
pension expense.
Interest Charges: Interest on long-term debt for 1994 decreased approximately
$2.5 million or 6.1%, compared to 1993. This decrease was due primarily to the
full year impact of Eastern Edison's 1993 refinancing of $195 million of long-
term debt at lower rates and Newport's January 1994 issuance of $7.9 million of
variable rate Electric Energy Facilities Revenue Refunding Bonds due 2011.
Offsetting these declines somewhat was the issuance by EUA Cogenex of $50
million of 7% Unsecured Notes in October 1993.
Income Taxes: EUA files a consolidated federal income tax return for the EUA
System. EUA's 1994 composite federal and state effective tax rate was
approximately 29% compared to approximately 27.3% in 1993. This increase is
primarily attributable to the net decrease in the income recognition of
Investment Tax Credits (ITC) in 1994 versus 1993. In 1993 EUA recognized
income of approximately $4.9 million, representing a portion of the expected
utilization of EUA Power Corporation's (EUA Power, now known as Great Bay Power
Corporation) ITC, to reduce EUA's 1993 consolidated tax liability. In 1994 EUA
Ocean State Corporation (EUA Ocean State) recognized $3.9 million of ITC
related to its investment in the Ocean State Power Project (OSP).
These credits, for both years, are included in Other Income and Deduction-Net
on the Consolidated Statement of Income. The System has no remaining ITC
carryforwards available.
Other Items: Depreciation and Amortization expense increased by $1.7 million
or 3.9% in 1994. Increased EUA Cogenex depreciation and amortization expense
of $2.4 million was offset somewhat by a decrease in amortization expense of
Montaup related to its Seabrook Unit II loss amortization which was completed
in 1993. The EUA Cogenex increase was due primarily to the operations of
EUA Day and NEM.
Equity in Earnings of Jointly Owned Companies decreased in 1994 by
approximately $1.7 million due primarily to lower earnings on EUA Ocean State's
investment in OSP.
Other Income (Deductions)-Net increased by $3.6 million in 1994 due to: (i) a
decrease in tax expense recorded as other deductions of approximately $2.0
million; (ii) increased EUA Cogenex interest income and management fee income
aggregating approximately $900,000; (iii) a settlement of $900,000 received in
1994 from the Vermont Electric Generation and Transmission Cooperative,
Inc. related to Seabrook Nuclear Project payments previously withheld; and (iv)
the 1994 income recognition of $900,000 of capitalized costs related to nuclear
fuel buyouts which were previously deferred. These impacts were partially
offset by a net decrease of $1.0 million in ITC utilized in 1994 versus 1993,
as previously discussed.
The Preferred Dividend requirement of the retail subsidiaries decreased by
approximately $1.0 million or 29.6% in 1994 due to a full-year impact of
Eastern Edison's 1993 Preferred Stock financing activity.
Expenses 1993 vs. 1992
Fuel And Purchased Power: Fuel expense decreased approximately $11.5 million
or 11.9%, from 1992, due largely to a decrease in total System generation
resulting from outages experienced by company-owned units. Canal Unit 2, which
is 50% owned by Montaup, began a scheduled outage on February 13, 1993, and
returned to service on April 5, 1993 while Somerset Unit No. 6, a wholly-owned
unit of Montaup, was out of service for most of 1993 due to unanticipated
waterwall restoration. Also, Somerset Unit 5 was out of service for five
months prior to being placed in deactivated reserve on January 25, 1994.
Offsetting these decreases in fuel expense somewhat was a 3.7% increase in
Montaup's average cost of fuel for the period.
Purchased Power expense decreased $2.3 million or 1.6% from 1992 primarily
due to a $2.9 million decrease in C&LM expense recorded as purchased power and
a $1 million decrease attributable to Newport purchases from sources other than
Montaup. Offsetting these decreases somewhat were the increased costs of $1.6
million billed by Montaup's suppliers.
Other Operation And Maintenance: O&M expenses for 1993 totaled $182.1
million, an increase of $29.2 million over 1992. Changes by O&M component for
1993 were as follows:
Increase
($ in millions) 1993 1992 (Decrease)
Direct Controllable $ 82.7 $ 88.5 $ (5.8)
Indirect 50.6 36.6 14.0
Energy Related 48.8 27.8 21.0
Total O&M $ 182.1 $ 152.9 $ 29.2
The reduction in Direct Controllable expenses in 1993 of our Core Electric
and Corporate Business units reflects our continued commitment to cost control.
Our core electric workforce was reduced by 5% in 1993 and through the diligent
efforts of our employees we were able to reduce direct controllable expenses in
spite of an increase in the Consumer Price Index of approximately 3%. The
increase of $29.2 million in 1993 was due primarily to the following:
Core Electric Business: (i) increased C&LM expenses of $4.1 million; (ii)
additional expenses of approximately $3.5 million relating to EUA's adoption of
FAS106; (iii) increases of approximately $1.5 million relating to pension
expense accruals; and (iv) increased expenses of approximately $3.9
million relating to Montaup's jointly owned units.
Energy Related Business: Increased EUA Cogenex expenses of approximately $19.3
million, relating primarily to the operations of its EUA Nova division and
increased expenses of $2.2 million related to EUA Energy's expensing of its
initial investment in TransCapacity L.P.
Corporate: The fourth quarter 1992 settlement of legal proceedings related to
EUA Power resulted in decreases of approximately $3.7 million in corporate
legal expenses in 1993.
Interest Charges: Interest on long-term debt for 1993 decreased approximately
$4.1 million or 9%, compared to 1992. This decrease was due primarily to
Eastern Edison's 1993 refinancing of $195 million of long-term debt at lower
interest rates and the redemptions of $30 million of 9-1/4% First Mortgage and
Collateral Trust Bonds (FMBs) in May 1992 and $15 million of 8-1/2% FMBs in
June 1992. The redemptions were made primarily with cash proceeds from the
early redemption of Montaup securities, which were owned by Eastern Edison.
Eastern Edison also refinanced $35 million of 10% FMBs with $35 million of
7.78% Medium Term Notes in July 1992.
Offsetting these declines somewhat were the issuances by EUA Cogenex of $15
million of 7.22% Unsecured Notes in September 1992 and $50 million of 7%
Unsecured Notes in October 1993.
Income Taxes: EUA's 1993 composite federal and state effective tax rate was
approximately 27.3%, compared to approximately 32.4% in 1992. This decrease
was primarily attributable to the income recognition of a portion of the
expected utilization of EUA Power's ITC, as previously discussed,
which more than offset the 1% increase in the federal tax rate to 35% in 1993.
Other Items: Depreciation and Amortization increased by $1.9 million or 4.4%
due primarily to an increase in EUA Cogenex depreciation expense of $1.3
million.
Equity in Earnings of Jointly Owned Companies decreased in 1993 by
approximately $2.7 million due primarily to lower earnings on EUA Ocean State's
investment in OSP.
Other Income (Deductions)-Net decreased $2.3 million in 1993 due primarily
to the 1992 reversal of certain previously established reserves relating to
matters in litigation, the favorable resolution of
which was reached in 1992. Partially offsetting this decrease was a reduction
in federal income tax expense of $4.9 million as discussed above.
The Preferred Dividend requirement of the retail subsidiaries decreased by
approximately $700,000 or 18% in 1993 due to Eastern Edison's 1993 Preferred
Stock financing activity. In 1993 Eastern Edison used available cash to redeem
all of its outstanding 4.64%, 8.32% and 9.00% series of Preferred Stock
aggregating $21.6 million. Eastern Edison also issued $30 million of 6 5/8%
Preferred Stock in August 1993, the proceeds of which were used to redeem $20
million of its 9.80% Preferred Stock and for other corporate purposes.
Rate Activity-Core Electric Business
"Call out"
Our wholesale rate reduction which
is passed through to end-users by our
Retail Business subsidiaries can help
our customers stay competitive and continue
their contributions to the region's economy
Montaup, our wholesale electric subsidiary, supplies electricity to our retail
electric subsidiaries, Blackstone, Newport, and Eastern Edison, and to two
non-System municipal utilities. The Federal Energy Regulatory Commission
allowed Montaup to reduce its wholesale rates by $10.1 million (3%)
annually effective May 21, 1994, pending final adjudication. Settlement
agreements with all intervenors with an annual base rate reduction of
approximately $14 million (inclusive of the filed $10.1 million reduction)
effective as of August 1994, awaits certification by the Commission.
"Caption for Picture Depicting:"
TransCapacity's Capacity ScoutTM system
enables purchasers of natural gas in bulk quantities
to use a single computerized interface to find the
most economical source of fuel and the best value in
interstate gas pipeline capacity to transport that fuel
to their location. As shown here, natural gas enters
large interstate pipelines from processing plants via
smaller "feeder" lines.
The wholesale rate reduction will have a dampening result on System
revenues; however, we expect offsetting factors to prevent it from impacting
significantly on earnings. While rate reductions are welcomed by all
customers, they are particularly significant to industrial customers, where any
reduction in the cost of doing business can help them remain competitive. Our
Rhode Island industrial customers will also benefit from newly enacted
legislation which phases out Rhode Island's 4% gross receipts tax on
electricity used for manufacturing over a four year period commencing July
1, 1994. This action should make Rhode Island manufacturers more competitive
by reducing their cost of doing business and contribute to the economic
recovery in our Rhode Island service territories.
In December 1994 the Massachusetts Department of Public Utilities (MDPU)
approved a request made by Eastern Edison to recover through a reconciling
adjustment factor a portion of "lost base revenues." Lost base revenue
represents amounts the company would have collected if it had not
offered demand-side management and conservation and load management programs to
its customers.
On February 24, 1995, the MDPU issued an order relating to implementation of
incentive regulation. In the order, the MDPU strongly encouraged all
jurisdictional electric utilities to devise and propose incentive plans. The
objective of the incentive regulation is to "provide marketplace benefits to
consumers through (1) more efficient utility operations, (2) stronger utility
incentives for better cost control, and (3) enhanced opportunities for lower
rates." While no timetable is specified, the MDPU stated that the largest
utilities should commence the incentive plan design process as soon as
possible.
"Cash Construction Expenditures/Internally
Generated Funds bar graph depicting the following (in millions):"
1990(A) 1991 1992 1993 1994
Cash Construction Expenditures 59,929 57,570 71,365 76,391 50,519
Internally Generated funds 35,024 63,681 48,933 79,691 79,274
(A) excludes EUA Power cash interest payments
1994 System Financing Activity
Core Electric Business: On January 6, 1994, Newport issued $7.9 million of
variable rate Electric Energy Facilities Revenue Refunding Bonds due 2011. The
proceeds were used to redeem $6.0 million of 12% and $1.9 million of 8.5%
Second Mortgage Bonds.
Corporate: EUA received proceeds of approximately $9.5 million in 1994 from
the issuance and sale of 424,942 common shares primarily through its Dividend
Reinvestment and Common Share Purchase Plans.
In January 1994 EUA issued 464,579 common shares in connection with the
acquisition of NEM by EUA Cogenex. See "Energy Related Businesses" below for
more details.
Financial Condition And Liquidity: The EUA System's need for permanent capital
is primarily related to investments in facilities required to meet the needs of
its existing and future customers.
Core Electric Business: For 1994, 1993 and 1992, the Core Electric Business
cash construction expenditures were $33.0 million, $32.4 million and $22.5
million, respectively.
In 1994, internally generated funds available after the payment of
dividends of our Core Electric Business amounted to $49.4 million, or 149.9% of
its cash construction requirements.
In 1993, internally generated funds amounted to $51.8 million or 159.9% of
the cash construction requirements of our Core Electric Business. Various
laws, regulations and contract provisions limit the use of EUA's internally
generated funds such that the funds generated by one subsidiary are not
generally available to fund the operations of another subsidiary.
"Call out"
Internally generated funds are expected
to provide over 100% of Core Electric Business
construction activity for the foreseeable future
Cash construction expenditures for 1995, 1996 and 1997 are estimated to
be approximately $36.8 million, $32.2 million and $33.3 million, respectively
and are expected to be financed with internally generated funds.
In addition to construction expenditures, projected requirements for
scheduled cash sinking fund payments and mandatory redemption of securities in
1995, 1996, 1997, 1998 and 1999 are $37.3 million, $9.3 million, $2.3 million,
$62.3 million and $11.6 million, respectively.
Energy Related Business: Construction expenditures of our Energy Related
Business amounted to $17.2 million, $43.6 million and $47.2 million in 1994,
1993 and 1992, respectively. Internally generated funds supplied approximately
111.9% and 29.6% of cash construction requirements in 1994 and 1993,
respectively.
Estimated construction expenditures of the Energy Related Business are
$48.3 million, $44.0 million and $44.0 million 1995, 1996 and 1997
respectively.
Internally generated funds are expected to supply approximately 53% of 1995
estimated cash construction requirements. Continued growth at EUA Cogenex may
require some external financing in the 1995-1996 time frame.
In addition to construction expenditures and energy related investments,
projected requirements for scheduled cash sinking fund payments and mandatory
redemption of securities in 1995, 1996, 1997, 1998 and 1999 are $3.3 million,
$9.2 million, $24.2 million, $9.2 million and $9.2 million, respectively.
Corporate: Construction activity of the Corporate Business unit is minimal.
Projected requirements for scheduled cash sinking fund payments for the
corporate operations for each of the five years following 1994 are $1.1
million.
Short-Term Lines of Credit: At December 31, 1994, EUA System companies
maintained short-term lines of credit with various banks aggregating
approximately $150 million. Short-term debt outstanding at year's end was
$31.7 million, a decrease of $5.5 million from year-end 1993 balances.
Year-End Short-Term Debt Outstanding by business unit:
($ in thousands) 1994 1993
Core Electric Business $ 0 $ 0
Energy Related Business 23,476 8,588
Corporate 8,202 28,580
Total $ 31,678 $ 37,168
EUA expects to repay the outstanding balances of short-term indebtedness
through internally generated funds, the issuance of additional common shares
through its Dividend Reinvestment and Common Share Purchase Plan, and the
possible issuance of additional EUA Cogenex debt securities.
Energy Related Businesses
Net Earnings and Earnings Per Share contributions of EUA's Energy Related
Businesses for 1994 and 1993 were as follows:
1994 1993
Net Net
Earnings Earnings Earnings Earnings
(Loss) (Loss) (Loss) (Loss)
(000's) Per Share (000's) Per Share
EUA Cogenex $ 4,171 $ 0.21 $ 3,536 $ 0.19
EUA Ocean State 8,356 0.42 5,258 0.29
EUA Energy Investment (1,237) (0.06) (1,551) (0.09)
Energy Related Business $ 11,290 $ 0.57 $ 7,243 $ 0.39
EUA Cogenex: EUA Cogenex participates in energy conservation and cogeneration
projects in 34 states and the District of Columbia. EUA Cogenex's earnings
increased by 18% in 1994 due primarily to its January 1994 acquisition of NEM,
an energy services company which is now a wholly-owned subsidiary of EUA
Cogenex. In February 1995, EUA Cogenex acquired certain energy services assets
of Citizens Conservation Corporation of Boston in exchange for preferred stock
of a newly formed subsidiary of EUA Cogenex, Citizens Conservation Services,
which will utilize those assets. EUA Cogenex has also applied for
authorization from the Securities and Exchange Commission (SEC) to acquire the
Highland Energy Group, an energy services company in Boulder, Colorado in
exchange for common shares of EUA. (See the Business and Strategies section
for a further discussion of EUA Cogenex's activities).
"Call out"
In early 1995 the SEC removed
the last geographic barrier to EUA
Cogenex's growth potential
Until recently EUA Cogenex was subject to a SEC requirement that it
generate more than 50% of its revenues in the New England/New York area. In
response to a request filed by EUA Cogenex in December 1994, the SEC removed
this restriction. This action removes a barrier for EUA Cogenex expansion
beyond its base New England/New York territory.
EUA Ocean State: EUA Ocean State owns 29.9% of each of the partnerships which
developed and operate Units I and II of OSP, twin 250-megawatt gas-fired
generating units located in northern Rhode Island. Both units have provided a
premium return since their respective in-service dates of December 31, 1990 and
October 1, 1991. The 1994 increase in EUA Ocean State's earnings contribution
was due primarily to the utilization of $3.9 million of ITC in 1994 offset
somewhat by a decrease in the allowed rate of return on equity billed by the
project and a decrease in the rate base and investment base from which the
project's rates are determined.
EUA Energy Investment: EUA Energy was organized to seek out investments in
energy related businesses. Prior to 1993 the company had been a relatively
inactive subsidiary of EUA. 1994 results reflect a net decrease in research
and development expenses versus 1993.
In late 1994, TransCapacity L.P., a limited partnership entered into by EUA
Energy in 1993, unveiled its Capacity ScoutTM program for the computerized
tracking of natural gas pipeline capacity pricing and availability.
Another of EUA Energy's investments was a 9.9% interest in Quality Power
Systems (QPS). The QPS product is an uninterruptible power supply system
designed to protect sensitive equipment from power surges and is in the final
development and testing stages.
In 1994, EUA Energy made initial research and development investments in
two new energy related opportunities relating to home environmental audit
services and biomass-fired combustion turbine systems. (see the Business and
Strategies section for a further discussion of EUA Energy's investment
activities).
Energy Sources
As shown in the accompanying pie chart the EUA System's fuel mix continues to
be diverse. The 1994 decrease in oil was due mainly to the unanticipated
outage at Canal Unit No. 2 at the end of 1994. Coal supplied 12% of our energy
needs in 1994, up from 6% when Somerset Unit No. 6 was unavailable for most of
1993.
"Fuel Mix Pie charts depicting the following:"
(Amounts in %)
1993 1994 Estimated 1999
Oil 28 20 18
Gas 26 28 35
Coal 6 12 13
Nuclear 34 34 29
Other - principally Hydro 6 6 5
Conservation And Load Management
The EUA System offers customers a comprehensive group of C&LM programs. These
programs provide EUA with a flexible, cost-effective resource option, while
serving customers with valued cost control opportunities to develop and
maintain a competitive advantage. The programs also offer opportunities to EUA
and its customers to comply with environmental standards and reduce air
emissions.
During 1994, more than 44,000 customers participated in one or more of the
EUA System C&LM programs, resulting in 37,478 megawatthours of annual energy
savings, nearly 1% of total system requirements. In addition, the programs
reduced customers' demand by 7,294 kilowatts in 1994 and provided the long-term
benefits of reducing the need to invest in costly new generating facilities.
Competition
The electric industry is in a period of transition from a traditional rate
regulated environment to a competitive marketplace. While competition in the
wholesale electric market is not new, electric utilities may also face
increased competition in the retail electric market. This increased
competition will place added challenges on EUA's Core Electric Business. At
EUA we are not complacently waiting to see what the future brings. We have
already taken decisive steps to respond to the increasing competitive
environment. As described in more detail in the "Business and Strategies
"section we have reorganized into strategic business units, voluntarily
implemented a wholesale rate reduction, continued our focus on controlling
costs, shut down an uneconomical generating unit and implemented a new
marketing plan.
"Call out"
Competition is the single
biggest challenge facing
the electric utility industry today
Across the country there has been an increasing focus on competitive
issues. Regulators in Massachusetts and Rhode Island are currently examining,
among other things, issues related to incentive regulation and potential
electric industry restructuring. The timing and impact of these examinations
on the financial condition of the utility industry in general and EUA's Core
Electric Business in particular is uncertain at this time. EUA will continue
to monitor and participate in all regulatory investigations into the many
issues surrounding this move to a competitive marketplace.
As a regulated industry, utilities are subject to certain accounting rules
that are not applicable to other industries. These accounting rules allow
regulated companies, in appropriate circumstances, to establish regulatory
assets and liabilities, which defer the current financial impact of certain
costs that are expected to be recovered in future rates. The effects of
competition or change in regulation could ultimately cause EUA's core electric
companies to no longer follow these accounting rules.
In such an event, any regulatory assets and liabilities would have to be fully
expensed at that time. We do not expect this situation to occur in the near
future.
"Caption for Picture Depicting:"
Sophisticated computerized design enables
EUA Nova to produce light fixtures that direct
the output from energy efficient fluorescent lamps
to the specific area where it is needed. A lighting
retrofit program by EUA Cogenex enabled the
Department of Energy to reduce energy use by 60%,
for annual savings of about $400,000 at its Washington
headquarters building (inset).
Environmental Matters
The federal Environmental Protection Agency (EPA), as well as state and local
authorities, has jurisdiction over releases of pollutants into the environment.
They have broad authority to set rules and regulations, including the required
installation of pollution control devices and remedial actions. The EPA has
updated its clean air standards regulating the emissions from utility power
plants into the air, to take effect in 1995. Tests at Montaup's Somerset
Station indicated that Unit #6 would be able to utilize lower sulfur coal than
had burned to meet the 1995 air standards with only a minimal capital
investment. Montaup determined that it would not be economical to repair Unit #
5 of the Somerset Station and has placed it in deactivated reserve.
In April 1992, the Northeast States for Coordinated Air Use Management
(NESCAUM), an environmental advisory group for eight Northeast states including
Massachusetts and Rhode Island, issued recommendations for nitrogen oxide (NOx)
controls for existing utility boilers required to meet the ozone non-attainment
requirements of the Clean Air Act Amendments of 1990 (Clean Air Act).
The NESCAUM recommendations are more restrictive than the Clean Air Act
requirements. The Massachusetts Department of Environmental Management has
amended its regulations to require that Reasonably Available Control Technology
(RACT) be implemented at all stationary sources potentially emitting 50 tons or
more per year of NOx. Rhode Island issued similar regulations. Montaup has
initiated compliance through, among other things, selective noncatalytic
reduction processes.
Because of the nature of the EUA System's business, various by-products and
substances are produced or handled which are classified as hazardous under the
rules and regulations promulgated by the EPA as well as state and local
authorities. The EUA System generally provides for the disposal of such
substances through licensed contractors, but these statutory provisions
generally impose potential joint and several responsibility on the generators
of the wastes for cleanup costs. Subsidiaries of EUA have been notified with
respect to a number of sites where they may be responsible for such costs,
including sites where they may have joint and several liability with other
responsible parties. It is the policy of the EUA System companies to notify
liability insurers and to initiate claims however, EUA is unable to predict
whether liability, if any, will be assumed by, or can be enforced against, the
insurance carrier in these matters.
On December 13, 1994, the United States District Court for the District of
Massachusetts (District Court) found Blackstone liable to the Commonwealth of
Massachusetts (the Commonwealth) for the full amount of response costs incurred
by the Commonwealth in the cleanup of a coal gasification waste site at Mendon
Road in Attleboro, Massachusetts. The total judgment is approximately $5.9
million, including approximately $3.6 million in interest which has accumulated
since 1985.
Blackstone has filed a Notice of Appeal and filed its brief with the First
Circuit Court of Appeals in February 1995.
Due to the uncertainty of the ultimate outcome of this proceeding and
anticipated recoverability, a deferred debit of $5.9 million was recorded and
is included with Other Assets.
On January 20, 1995, Blackstone entered into an escrow agreement with the
Commonwealth and deposited $5.9 million with an escrow agent who transferred
the funds into an interest bearing money market account. The distribution of
the proceeds of the escrow account will be determined upon the final resolution
of the judgment. No additional interest expense will accrue on the judgment
amount.
On January 28, 1994, Blackstone filed a complaint in the District Court
seeking, among other relief, contribution and reimbursement from several other
parties connected to the site. The court denied motions to dismiss the
complaint which were filed by those parties in 1994.
In addition, Blackstone notified certain liability insurers and has filed
claims with respect to the Mendon Road site, as well as other sites.
As of December 31, 1994, the EUA System had incurred costs of approximately
$3.5 million (excluding the $5.9 million Mendon Road judgment) in connection
with these sites, substantially all of which relate to Blackstone. These
amounts have been financed primarily by internally generated cash. Blackstone
is currently amortizing substantially all of its incurred costs over a five-
year period and is recovering certain of those costs in rates.
EUA estimates that additional costs ranging from $2.6 million to $5.6
million (excluding the $5.9 million Mendon Road judgment) may be incurred at
these sites through 1996 by its subsidiaries and the other responsible parties.
Of this amount, approximately $4.8 million relates to sites at which Blackstone
is a potentially responsible party. Estimates beyond 1996 cannot be made since
site studies, which are the basis of these estimates, have not been completed.
As a result of the recoverability of cleanup costs in rates and the
uncertainty regarding both its estimated liability, as well as its potential
contributions from insurance carriers and other responsible parties, EUA does
not believe that the ultimate impact of the environmental costs will be
material to the financial position of the EUA System or to any individual
subsidiary and thus no loss provision is required at this time.
A number of scientific studies in the past several years have examined the
possibility of health effects from electric and magnetic fields (EMF) that are
found everywhere there is electricity.
Research to date has not conclusively established a direct causal relationship
between EMF exposure and human health. Additional studies, which are intended
to provide a better understanding of the subject, are continuing.
Some states have enacted regulations to limit the strength of magnetic fields
at the edge of transmission line rights-of-way. Rhode Island has enacted a
statute which authorizes and directs the Energy Facility Siting Board to
establish rules and regulations governing construction of high voltage
transmission lines of 69kv or more. There is a bill pending in the
Massachusetts Legislature that would authorize the MDPU to examine the
potential health effects of EMF. Management cannot predict the ultimate
outcome of the EMF issue.
Changes In Accounting Standards
In November 1992, FASB issued Statement No. 112, "Employers' Accounting for
Post-employment Benefits, "for fiscal years beginning after December 15, 1993.
The estimated impact of this standard on EUA System is immaterial to EUA's
results of operations and therefore no liability has been recorded.
Other
Montaup is recovering through rates its share of estimated decommissioning
costs for the Millstone Unit 3 and Seabrook Unit 1 nuclear generating units.
Montaup's share of the currently allowed estimated total costs to decommission
Millstone Unit 3 is approximately $18.0 million in 1994 dollars and Seabrook
Unit 1 is approximately $11.5 million in 1994 dollars. These figures are based
on studies performed for the lead owners of the units. Montaup also pays into
decommissioning reserves, pursuant to contractual arrangements, at other
nuclear generating facilities in which it has an equity ownership interest or
life-of-unit entitlement. Such expenses are currently recovered
through rates.
In December 1992, Montaup commenced a declaratory judgment action in which
it sought to have the Massachusetts Superior Court determine that the Power
Purchase Agreement between it and Aquidneck Power Limited Partnership
(Aquidneck) was binding on the parties according to its terms.
In January 1994, a counterclaim by Aquidneck claimed certain breaches of
the Power Purchase Agreement. Also in January 1994, Aquidneck sought to join
EUA and EUA Service Corporation (EUA Service) as parties to the suit.
The Court has scheduled a hearing in April 1995 on Montaup's motion for
default judgment. Montaup intends to file a motion for summary judgment.
Montaup, EUA and EUA Service intend to defend the counterclaim vigorously.
On January 20, 1995, EUA and a former shareholder of EUA, which on February
11, 1992 had filed suit against EUA and three officers of EUA in the District
Court, filed a voluntary dismissal of the suit following the fulfillment of the
terms of a confidential settlement agreement. The dismissal prevents the
former shareholder from suing EUA again on any claim asserted in the suit.
EUA and the officer continue to deny any and all allegations of wrongdoing
asserted by the former shareholder but determined it to be in their best
interests to settle the suit. The Settlement Agreement will not have an
adverse impact on EUA's current earnings due to reserves that EUA had
previously established.
Financial Table Of Contents
Consolidated Statement of Income 22
Consolidated Statement of Cash Flows 23
Consolidated Balance Sheet 24
Consolidated Statement of Retained Earnings 25
Consolidated Statement of Equity Capital and Preferred Stock 25
Consolidated Statement of Indebtedness 26
Notes to Consolidated Financial Statements 27
Report of Independent Accountants 38
Report of Management 38
Quarterly Financial and Common Share Information 39
Consolidated Operating and Financial Statistics 40
Shareholder Information 42
Trustees and Officers Inside Back Cover
Consolidated Statement Of Income
Years Ended December 31,
<TABLE>
<CAPTION>
(In Thousands Except Common Shares and per Share Amounts) 1994 1993 1992
<S> <C> <C> <C>
OPERATING REVENUES $ 564,278 $ 566,477 $ 541,964
OPERATING EXPENSES:
Fuel 87,573 85,218 96,767
Purchased Power-Demand 130,080 139,524 141,829
Other Operation 160,985 156,972 131,348
Maintenance 23,510 25,148 21,589
Depreciation and Amortization 46,455 44,722 42,824
Taxes - Other Than Income 24,337 24,468 23,785
Income Taxes 18,208 15,019 19,475
Total Operating Expenses 491,148 491,071 477,617
Operating Income 73,130 75,406 64,347
Equity in Earnings of Jointly Owned Companies 12,485 14,140 16,790
Allowance for Other Funds Used
During Construction 351 379 549
Other Income (Deductions) - Net 7,512 3,898 6,184
Income Before Interest Charges 93,478 93,823 87,870
INTEREST CHARGES:
Interest on Long-Term Debt 38,987 41,530 45,646
Amortization of Debt Expense and Premium - Net 2,729 1,904 1,184
Other Interest Expense 3,849 4,137 4,703
Allowance for Borrowed Funds Used During
Construction (Credit) (1,788) (1,989) (1,813)
Net Interest Charges 43,777 45,582 49,720
Net Income 49,701 48,241 38,150
Preferred Dividends of Subsidiaries 2,331 3,310 4,039
Consolidated Net Earnings $ 47,370 $ 44,931 $ 34,111
Average Common Shares Outstanding 19,671,970 18,391,147 17,039,224
Consolidated Earnings per Share $ 2.41 $ 2.44 $ 2.00
Dividends Paid per Share $ 1.515 $ 1.42 $ 1.36
The accompanying notes are an integral part of the financial statements.
</TABLE>
Consolidated Statement Of Cash Flows
<TABLE>
<CAPTION>
Years Ended December 31,
(In Thousands) 1994 1993 1992
<S> <C> <C> <C>
Net Income $ 49,701 $ 48,241 $ 38,150
Adjustments to Reconcile Net Income
to Net Cash Provided from Operating Activities:
Depreciation and Amortization 54,091 50,492 47,492
Amortization of Nuclear Fuel 3,310 5,136 5,054
Deferred Taxes 8,017 11,099 (3,645)
Gains on Sales of Investments in Energy Savings
Projects Paid for with Notes Receivable (5,474) (5,415) (5,907)
Investment Tax Credit, Net (181) (1,279) (1,452)
Allowance for Other Funds Used During
Construction (351) (379) (549)
Other - Net (4,504) 6,742 22,571
Changes in Operating Assets and Liabilities:
Accounts Receivable (4,509) (9,609) 6,572
Materials and Supplies (2,035) 452 (629)
Accounts Payable (2,668) (1,885) 5,138
Taxes Accrued (5,834) 3,382 1,610
Other - Net 9,641 (8,405) (3,169)
Net Cash Provided from Operating Activities 99,204 98,572 111,236
CASH FLOW FROM INVESTING ACTIVITIES:
Construction Expenditures (50,519) (76,391) (71,365)
Collections on Notes and Lease
Receivables of EUA Cogenex 12,750 4,722 8,190
Increase in Other Investments (11,329) (5,311)
EUA Power Settlement (20,000)
Net Cash (Used in) Investing Activities (49,098) (71,669) (88,486)
CASH FLOW FROM FINANCING ACTIVITIES:
Issuances:
Common Shares 9,538 46,313 8,738
Long-Term Debt 7,925 245,000 50,000
Preferred Stock 30,000
Redemptions:
Long-Term Debt (13,233) (214,809) (86,203)
Preferred Stock (100) (41,700) (1,300)
Premium on Reacquisition and
Financing Expenses (689) (14,956) (3,783)
EUA Common Share Dividends Paid (29,795) (26,101) (23,114)
Subsidiary Preferred Dividends Paid (2,333) (3,316) (4,039)
Net (Decrease) Increase in Short-Term Debt (5,490) (72,768) 37,487
Net Cash (Used in) Financing Activities (34,177) (52,337) (22,214)
NET INCREASE IN CASH AND
TEMPORARY CASH INVESTMENTS: 15,929 (25,434) 536
Cash and Temporary Cash Investments
at Beginning of Year 4,180 29,614 29,078
Cash and Temporary Cash Investments
at End of Year $ 20,109 $ 4,180 $ 29,614
Cash Paid during the year for:
Interest (Net of Amounts Capitalized) $ 39,650 $ 45,057 $ 47,132
Income Taxes $ 15,233 $ 12,919 $ 897
Conversion of Investments in Energy Savings Projects
to Notes and Leases Receivable $ 10,914 $ 16,591 $ 10,801
The accompanying notes are an integral part of the financial statements.
</TABLE>
Consolidated Balance Sheet
<TABLE>
<CAPTION>
December 31,
(In Thousands) 1994 1993
<S> <C> <C>
ASSETS
Utility Plant and Other Investments:
Utility Plant in Service $ 1,020,859 $ 1,016,453
Less Accumulated Provisions for Depreciation and Amortization 304,034 296,995
Net Utility Plant in Service 716,825 719,458
Construction Work in Progress 8,389 8,728
Net Utility Plant 725,214 728,186
Non-utility Property - Net 107,803 99,791
Investments in Jointly Owned Companies 70,675 73,632
Other 55,416 51,282
Total Utility Plant and Other Investments 959,108 952,891
Current Assets:
Cash and Temporary Cash Investments 20,109 4,180
Accounts Receivable:
Customers, Net 63,709 57,473
Accrued Unbilled Revenues 10,178 10,481
Other 15,461 16,885
Notes Receivable 13,906 16,407
Materials and Supplies (at average cost):
Fuel 6,413 6,411
Plant Materials and Operating Supplies 8,755 6,722
Other Current Assets 8,517 7,798
Total Current Assets 147,048 126,357
Other Assets 127,893 123,889
Total Assets $ 1,234,049 $ 1,203,137
LIABILITIES AND CAPITALIZATION
Capitalization:
Common Equity $ 365,443 $ 333,165
Non-Redeemable Preferred Stock of Subsidiaries - Net 6,900 6,900
Redeemable Preferred Stock of Subsidiaries - Net 25,390 25,053
Long-Term Debt - Net 455,412 496,816
Total Capitalization 853,145 861,934
Current Liabilities:
Notes Payable - Banks 31,678 37,168
Long-Term Debt Due Within One Year 41,601 5,415
Accounts Payable 33,442 36,111
Redeemable Preferred Stock Sinking Fund Requirement 50 50
Taxes Accrued 6,465 12,299
Interest Accrued 10,889 10,688
Other Current Liabilities 29,566 19,285
Total Current Liabilities 153,691 121,016
Other Liabilities 89,313 82,747
Accumulated Deferred Taxes 137,900 137,440
Commitments and Contingencies (Note J)
Total Liabilities and Capitalization $ 1,234,049 $ 1,203,137
</TABLE>
<TABLE>
Consolidated Statement Of Retained Earnings
<CAPTION>
Years Ended December 31,
(In Thousands) 1994 1993 1992
<S> <C> <C> <C>
Retained Earnings - Beginning of Year $ 39,642 $ 21,434 $ 11,053
Consolidated Net Earnings 47,370 44,931 34,111
Total 87,012 66,365 45,164
Dividends Paid - EUA Common Shares 29,795 26,101 23,114
Other 600 622 616
Retained Earnings -
Accumulated since June 1991 Accounting Reorganization
in which a deficit of $80,034,506 was eliminated. $ 56,617 $ 39,642 $ 21,434
</TABLE>
<TABLE>
Consolidated Statement Of Equity Capital & Preferred Stock
<CAPTION>
December 31,
(Dollar Amounts In Thousands) 1994 1993
<S> <C> <C>
EASTERN UTILITIES ASSOCIATES:
Common Shares:
$5 par value 36,000,000 shares authorized, 19,936,980 shares
outstanding in 1994 and 19,032,598 shares in 1993. $ 99,685 $ 95,163
Other Paid-In Capital 212,990 202,182
Common Share Expense (3,849) (3,822)
Retained Earnings Accumulated since June 1991 Accounting
Reorganization in which a deficit of $80,034,506 was eliminated. 56,617 39,642
Total Common Equity 365,443 333,165
CUMULATIVE PREFERRED STOCK OF SUBSIDIARIES:
Non-Redeemable Preferred:
Blackstone Valley Electric Company:
4.25% $100 par value 35,000 shares <F1> 3,500 3,500
5.60% $100 par value 25,000 shares <F1> 2,500 2,500
Premium 129 129
Newport Electric Corporation:
3.75% $100 par value 7,689 shares <F1> 769 769
Premium 2 2
Total Non-Redeemable Preferred Stock 6,900 6,900
Redeemable Preferred:
Eastern Edison Company:
6 5/8% $100 par value 300,000 shares <F2> 30,000 30,000
Expense, Net of Premium (335) (330)
Preferred Stock Redemption Costs (4,408) (4,846)
Newport Electric Corporation:
9.75% $100 par value 1,900 shares <F1> 190 290
Expense (7) (11)
Sinking Fund Requirement Due Within One Year (50) (50)
Total Redeemable Preferred Stock 25,390 25,053
Total Preferred Stock of Subsidiaries $ 32,290 $ 31,953
<FN>
<F1> Authorized and Outstanding.
<F2> Authorized 400,000 shares. Outstanding 300,000 at December 31, 1994.
</FN>
</TABLE>
The accompanying notes are an integral part of the financial statements.
<TABLE>
<CAPTION>
Consolidated Statement Of Indebtedness
<S> <C> <C> <C>
December 31,
(In Thousands) 1994 1993
EUA Service Corporation:
10.2% Secured Notes due 2008 $ 14,500 $ 15,600
EUA Cogenex Corporation:
7.22% Unsecured Notes due 1997 15,000 15,000
7.0% Unsecured Notes due 2000 50,000 50,000
9.6% Unsecured Notes due 2001 20,000 20,000
10.56% Unsecured Notes due 2005 35,000 35,000
EUA Ocean State Corporation:
9.59% Unsecured Notes due 2011 36,020 38,497
Blackstone Valley Electric Company:
First Mortgage Bonds:
9 1/2% due 2004 (Series B) 15,000 15,000
10.35% due 2010 (Series C) 18,000 18,000
Variable Rate Demand Bonds due 2014<F1> 6,500 6,500
Eastern Edison Company
First Mortgage and Collateral Trust Bonds:
8.9% Secured Medium Term Notes due 1995 10,000 10,000
4 7/8% due 1996 7,000 7,000
5 7/8% due 1998 20,000 20,000
5 3/4% due 1998 40,000 40,000
7.78% Secured Medium Term Notes due 2002 35,000 35,000
6 7/8% due 2003 40,000 40,000
6.35% due 2003 8,000 8,000
8.0% due 2023 40,000 40,000
Pollution Control Revenue Bonds:
5 7/8% due 2008 40,000 40,000
Unsecured Medium Term Notes:
9-9 1/4% due 1995 (Series A) 25,000 25,000
Newport Electric Corporation:
First Mortgage Bonds:
4 3/4% due 1994 1,000
9.0% due 1999 1,400 1,400
9.8% due 1999 8,000 8,000
8.95% due 2001 4,550 5,200
Second Mortgage Bonds:
8.5% due 1998 1,880
12.0% due 2011 6,045
Small Business Administration Loan:
6.5% due 2005 894 975
Variable Rate Revenue Refunding Bonds due 2011<F2> 7,925
Unamortized (Discount) - Net (776) (866)
497,013 502,231
Less Portion Due Within One Year 41,601 5,415
Total Long-Term Debt - Net $ 455,412 $ 496,816
<FN>
<F1> Weighted average interest rate was 2.9% for 1994 and 2.5% for 1993.
<F2> Weighted average interest rate was 2.6% for 1994.
</FN>
</TABLE>
The accompanying notes are an integral part of the financial statements.
Notes To Consolidated Financial Statements
December 31, 1994, 1993 and 1992
(A) Summary Of Significant Accounting Policies:
Basis of Consolidation: The consolidated financial statements include the
accounts of Eastern Utilities Associates (EUA) and all subsidiaries. All
material intercompany transactions between the consolidated subsidiaries have
been eliminated.
System of Accounts: The accounts of EUA and its consolidated subsidiaries
are maintained in accordance with the uniform system of accounts prescribed by
the regulatory bodies having jurisdiction.
Jointly Owned Companies: Montaup Electric Company (Montaup) follows the
equity method of accounting for its stock ownership investments in jointly
owned companies including four regional nuclear generating companies.
Montaup's investments in these nuclear generating companies range
from 2.25% to 4.50%. Montaup is entitled to electricity produced from these
facilities based on its ownership interests and is billed for its entitlement
pursuant to contractual agreements which are approved by the Federal Energy
Regulatory Commission (FERC). One of the four facilities is being
decommissioned, but Montaup is required to pay, and has received FERC
authorization to recover, its proportionate share of any unrecovered costs and
costs incurred after the plant's retirement.
Montaup's share of all unrecovered assets and the total estimated costs to
decommission the unit aggregated approximately $18.4 million at December 31,
1994 and is included with Other Liabilities on the Consolidated Balance Sheet.
Also, due to recoverability, a regulatory asset has been recorded for the same
amount and is included with Other Assets.
Montaup also has a stock ownership investment of 3.27% in each of two
companies which own and operate certain transmission facilities between the
Hydro Quebec electric system and New England.
EUA Ocean State Corporation (EUA Ocean State) follows the equity method of
accounting for its 29.9% partnership interest in the Ocean State Power Project
(OSP). EUA Ocean State's investment in OSP and Montaup's stock ownership
investments are included in "Investments in Jointly Owned Companies" on the
Consolidated Balance Sheet.
Plant and Depreciation: Utility plant is stated at original cost. The cost of
additions to utility plant includes contracted work, direct labor and material,
allocable overhead, allowance for funds used during construction and indirect
charges for engineering and supervision. For financial statement purposes,
depreciation is computed on the straight-line method based on estimated useful
lives of the various classes of property. On a consolidated basis, provisions
for depreciation on utility plant were equivalent to a composite rate of
approximately 3.3% in 1994, 3.4% in 1993 and 3.3% in 1992 based on the average
depreciable property balances at the beginning and end of each year.
Non-utility property and equipment of EUA Cogenex Corporation ( EUA Cogenex)
is stated at original cost. For financial statement purposes, depreciation on
office furniture and equipment and computer equipment is computed on the
straight-line method based on estimated useful lives ranging from five to
fifteen years. Project equipment is depreciated over the term of the
applicable contracts or based on the estimated useful lives, whichever is
shorter, ranging from five to fifteen years.
Electric Plant Held for Future Use: In January 1994 Montaup determined that
it would not be economically feasible to bring its 42-year-old, coal-fired,
Somerset Station Unit 5 generating unit into compliance with the Clean Air Act
Amendments of 1990 (Clean Air Act). The unit was placed in cold storage and
its net investment, $5.4 million, was transferred to electric plant held for
future use pending final determination by Montaup of its usefulness. Under
terms of the settlement agreement entered into by Montaup and the intervenors
in Montaup's 1994 rate decrease application and filed with FERC, Montaup
continues to earn a return on the net investment in the unit.
Other Assets: The components of Other Assets at December 31, 1994 and 1993
are detailed as follows:
(In Thousands) 1994 1993
Regulatory Assets:
Unamortized losses on reacquired debt $ 17,709 $ 19,106
Unrecovered plant and
decommissioning costs 18,400 16,908
Deferred SFAS 109 costs (Note B) 43,535 46,698
Deferred SFAS 106 costs (Note J) 4,941 2,843
Mendon Road judgment (Note J) 5,857
Other regulatory assets 9,505 9,438
Total regulatory assets 99,947 94,993
Other deferred charges and assets:
Unamortized debt expenses 6,197 6,642
Goodwill 7,260 7,466
Other 14,489 14,788
Total Other Assets $ 127,893 $123,889
Allowance for Funds Used During Construction (AFUDC) and Capitalized
Interest: AFUDC represents the estimated cost of borrowed and equity funds
used to finance the EUA System's construction program. In accordance with
regulatory accounting, AFUDC is capitalized as a cost of utility plant in the
same manner as certain general and administrative costs. AFUDC is not an item
of current cash income but is recovered over the service life of utility plant
in the form of increased revenues collected as a result of higher depreciation
expense. The combined rate used in calculating AFUDC was 9.7% in 1994, 9.5% in
1993, and 10.8% in 1992. The caption Allowance for Borrowed Funds Used During
Construction also includes interest capitalized for non-regulated entities in
accordance with Financial Accounting Standards Board (FASB) Statement No. 34.
Operating Revenues: Utility revenues are based on billing rates authorized
by applicable federal and state regulatory commissions. Eastern Edison Company
(Eastern Edison), Blackstone Valley Electric Company (Blackstone) and Newport
Electric Corporation (Newport) (collectively, the Retail Subsidiaries) accrue
the estimated amount of unbilled base rate revenues at the end of each month
to match costs and revenues more closely. In addition they also record the
difference between fuel costs incurred and fuel costs billed. Montaup
recognizes revenues when billed. Montaup, Blackstone, and Newport also record
revenues related to rate adjustment mechanisms.
EUA Cogenex's revenues are recognized based on financial arrangements
established by each individual contract. Under paid from savings contracts,
revenues are recognized as energy savings are realized by customers. Revenue
from the sale of energy equipment is recognized when the sale is complete.
Revenue from sales-type lease contracts is recognized when savings to be
realized by customers are verified. Energy sales contracts revenue is
recognized as energy is provided to the customer. In circumstances in which
material uncertainties exist as to contract profitability, cost recovery
accounting is followed and revenues received under such contracts are first
accounted for as recovery of costs to the extent incurred.
Federal Income Taxes: EUA and its subsidiaries generally reflect in income
the estimated amount of taxes currently payable, and provide for deferred taxes
on certain items subject to temporary timing differences to the extent
permitted by the various regulatory agencies. EUA's rate-regulated
subsidiaries generally defer recognition of annual investment tax credits (ITC)
and amortize these credits over the productive lives of the related assets.
Reclassifications: Certain prior period amounts on the financial statements
have been reclassified to conform with current presentation.
Cash and Temporary Cash Investments: EUA considers all highly liquid
investments and temporary cash investments with a maturity of three months or
less when acquired to be cash equivalents.
(B) Income Taxes:
EUA adopted FASB statement No. 109, "Accounting for Income Taxes" (FAS109)
which required recognition of deferred income taxes for temporary differences
that are reported in different years for financial reporting and tax purposes
using the liability method. Under the liability method, deferred
tax liabilities or assets are computed using the tax rates that will be in
effect when temporary differences reverse. Generally, for regulated companies,
the change in tax rates may not be immediately recognized in operating results
because of rate making treatment and provisions in the Tax Reform Act of 1986.
At December 31, 1994 and 1993 no valuation allowance was deemed necessary for
total deferred tax assets. Total deferred tax assets and liabilities for 1994
and 1993 are comprised as follows:
Deferred Tax Deferred Tax
($ in thousands) Assets ($ in thousands) Liabilities
1994 1993 1994 1993
Plant Related Plant Related
Differences $19,072 $19,574 Differences $164,130 $159,370
Alternative Refinancing
Minimum Tax 9,446 9,220 Costs 2,196 2,666
Litigation 902 1,218 Pensions 1,769 1,981
Bad Debts 234 2,274
Pensions 1,907 1,497
Acquisitions 4,575
Other 5,127 7,776 Other 10,627 14,690
Total $41,263 $41,559 Total $178,722 $178,707
As of December 31, 1994 and 1993, EUA has recorded on its Consolidated
Balance Sheet a regulatory liability to ratepayers of approximately $29.2
million and $28.8 million, respectively. These amounts primarily represent
excess deferred income taxes resulting from the reduction in the federal income
tax rate and also include deferred taxes provided on investment tax credits.
Also at December 31, 1994 and 1993, a regulatory asset of approximately $43.5
million and $46.7 million, respectively, has been recorded, representing the
cumulative amount of federal income taxes on temporary depreciation differences
which were previously flowed through to ratepayers.
EUA has $9.4 million of alternative minimum tax credits which can be utilized
to reduce the consolidated regular tax liability and have no expiration.
Under the terms of the December 1992 settlement agreement with EUA Power
Corporation (EUA Power, now known as Great Bay Power Corporation), EUA was
entitled to utilize EUA Power's tax credits to reduce the 1993 Consolidated Tax
Liability without compensation to EUA Power. Approximately $6.9 million of
such credits were utilized in 1993 of which $4.9 million was charged against
1993 federal income tax expense.
In 1994, EUA Ocean State utilized $3.9 million of investment tax credits
related to its investment in OSP, which were charged against 1994 federal
income tax expense and reduced the consolidated regular tax liability. EUA has
no remaining ITC carryforwards available.
<TABLE>
Components of income tax expense for the year 1994, 1993, and 1992 are as follows:
<CAPTION>
($ in thousands) 1994 1993 1992
<S> <C> <C> <C>
Federal:
Current $ 6,651 $ 9,390 $ 7,761
Deferred 9,199 4,204 9,977
Investment Tax Credit, Net (99) (1,197) (1,371)
15,751 12,397 16,367
State:
Current 1,154 2,289 1,900
Deferred 1,303 333 1,208
2,457 2,622 3,108
Charged to Operations 18,208 15,019 19,475
Charged to Other Income:
Current 8,578 1,583 13,709
Deferred (2,486) 6,562 (14,830)
Investment Tax Credit, Net (3,972) (5,049) (82)
2,120 3,096 (1,203)
Total $ 20,328 $ 18,115 $ 18,272
</TABLE>
Total income tax expense was different from the amounts computed by
applying federal income tax statutory rates to book income subject to tax for
the following reasons:
<TABLE>
<CAPTION>
($ in thousands) 1994 1993 1992
<S> <C> <C> <C>
Federal Income Tax Computed at Statutory Rates $ 24,510 $ 23,224 $ 19,184
(Decrease) Increase in Tax From:
Equity Component of AFUDC (123) (133) (171)
Depreciation Differences 50 1,230 745
Amortization and Utilization of ITC (5,115) (6,295) (1,338)
State taxes, net of federal income tax benefit 2,285 2,237 2,307
Tax impact of EUA's write-off of its investment in
EUA Power (1,999)
Cost of Removal (404) (583) (8)
Other (875) (1,565) (448)
Total Income Tax Expense $ 20,328 $ 18,115 $ 18,272
</TABLE>
C) Capital Stock:
The changes in the number of common shares outstanding and related increases in
Other Paid-In Capital during the years ended December 31, 1994, 1993, and 1992
were as follows:
<TABLE>
Number of Common Shares Issued
<CAPTION>
Dividend Northeast Common Other
Reinvestment Energy Shares Paid-In
Public and Employee J.L. Day Co. Management At Par Capital
Offering Savings Plans Acquisition Acquisition (000) (000)
<S> <C> <C> <C> <C> <C> <C>
1994 427,304 12,499 464,579 $ 4,522 $ 10,209
1993 1,300,000 385,825 108,985 8,974 40,339
1992 406,726 2,034 6,704
</TABLE>
In the event of involuntary liquidation, the holders of non-redeemable
preferred stock of the Retail Subsidiaries are entitled to $100 per share plus
accrued dividends. In the event of voluntary liquidation, or if redeemed at
the option of these companies, each share of the non-redeemable preferred stock
is entitled to accrued dividends plus the following:
Company Issue Amount
Blackstone: 4.25% issue $104.40
5.60% issue 103.82
Newport: 3.75% issue 103.50
The preferred stock provisions of the Retail Subsidiaries place certain
restrictions upon the payment of dividends on common stock by each company. At
December 31, 1994 and 1993, each company was in excess of the minimum
requirements which would make these restrictions effective.
(D) Redeemable Preferred Stock:
Eastern Edison's 6 5/8% Preferred Stock issue is entitled to mandatory sinking
funds sufficient to redeem 15,000 shares during each twelve-month period
commencing September 1, 2003. The redemption price is $100 per share plus
accrued dividends. All outstanding shares of the 6 5/8% issue are subject to
mandatory redemption on September 1, 2008 at a price of $100 per share plus
accrued dividends.
Newport's 9.75% Preferred Stock issue is entitled to a mandatory sinking fund
sufficient to redeem 500 shares during each twelve-month period until the year
1999. The balance of any shares outstanding must be redeemed in the year
2000. The redemption price is $100 per share plus accrued dividends.
In the event of liquidation, the holders of Eastern Edison's 6 5/8% Preferred
Stock are entitled to $100 per share plus accrued dividends.
In the event of involuntary liquidation, the holders of Newport's redeemable
preferred stock are entitled to $100 per share plus accrued dividends. In the
event of voluntary liquidation, or if redeemed at the option of Newport, the
holders of the 9.75% issue are entitled to $102.44 per share plus accrued
dividends prior to October 1, 1998, thereafter no premium is payable upon such
redemption.
The aggregate amount of redeemable preferred stock sinking fund requirements
for each of the five years following 1994 are $50,000 per year for 1995, 1996
and 1997, $40,000 for 1998 and zero for 1999.
(E) Long-Term Debt:
The various mortgage bond issues of Blackstone, Eastern Edison, and Newport are
collateralized by substantially all of their utility plant. In addition,
Eastern Edison's bonds are collateralized by securities of Montaup, which are
wholly-owned by Eastern Edison, in the principal amount of approximately $246
million.
Blackstone's Variable Rate Demand Bonds are collateralized by an irrevocable
letter of credit which expires on January 21, 1996. The letter of credit
permits an extension of one year upon mutual agreement of the bank and
Blackstone.
EUA Service Corporation's (EUA Service) 10.2% Secured Notes due 2008 are
collateralized by certain real estate and property of the company.
On January 6, 1994, Newport issued $7.9 million of variable rate Electric
Energy Facilities Revenue Refunding Bonds due 2011. The proceeds were used to
redeem Second Mortgage Bonds of Newport in amounts of $6.0 million at 12% and
$1.9 million at 8.5%. These bonds are collateralized by an irrevocable letter
of credit which expires on January 6, 1997. The letter of credit permits an
extension of one year upon mutual agreement of the bank and Newport.
The EUA System's aggregate amount of current cash sinking fund requirements
and maturities of long-term debt, (excluding amounts that may be satisfied by
available property additions) for each of the five years following 1994 are:
$41.6 million in 1995, $19.5 million in 1996, $27.5 million in 1997, $72.5
million in 1998 and $21.9 million in 1999.
(F) Fair Value Of Financial Instruments:
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments for which it is practicable to estimate:
Cash and Temporary Cash Investments: The carrying amount approximates fair
value because of the short-term maturity of these instruments.
Long Term Notes Receivable and Net Investment in Sales-Type Leases: The
carrying amounts approximate fair value due to the nature of the asset.
Preferred Stock and Long-Term Debt of Subsidiaries: The fair value of the
System's redeemable preferred stock and long-term debt were based on quoted
market prices for such securities at December 31, 1994.
The estimated fair values of the System's financial instruments at December
31, 1994 are as follows:
Carrying Fair
($ in thousands) Amount Value
Cash and Temporary Cash Investments $20,109 $20,109
Long-Term Notes Receivable 38,269 38,269
Net Investment in Sales-Type Leases 911 911
Redeemable Preferred Stock 30,190 27,190
Long-Term Debt 497,789 477,306
(G) Lines Of Credit:
EUA System companies maintain short-term lines of credit with various banks
aggregating approximately $150 million. At December 31, 1994, unused short-
term lines of credit were approximately $118 million. In accordance with
informal agreements with the various banks, commitment fees are required to
maintain certain lines of credit. During 1994 the weighted average
interest rate for short-term borrowings was 4.6%.
(H) Jointly Owned Facilities:
At December 31, 1994, in addition to the stock ownership interests discussed in
Note A, Summary of Significant Accounting Policies - Jointly Owned Companies,
Montaup and Newport had direct ownership interests in the following electric
generating facilities:
<TABLE>
<CAPTION>
Accumulated
Provision For Net Construc-
Utility Depreciation Utility tion
Percent Plant in and Plant in Work in
($ in thousands) Owned Service Amortization Service Progress
<S> <C> <C> <C> <C> <C>
Montaup:
Canal Unit 2 50.00% $ 67,031 $41,400 $25,631 $1,658
Wyman Unit 4 1.96% 4,017 1,908 2,109 22
Seabrook Unit 1 2.90% 203,772 19,458 184,314 664
Millstone Unit 3 4.01% 183,532 37,154 146,378 462
Newport:
Wyman Unit 4 0.67% 1,313 643 670 -
</TABLE>
The foregoing amounts represent Montaup's and Newport's interest in each
facility, including nuclear fuel where appropriate, and are included on the
like-captioned lines on the Consolidated Balance Sheet. At December 31, 1994,
Montaup's total net investment in nuclear fuel of the Seabrook and Millstone
Units amounted to $4.0 million and $1.9 million, respectively. Montaup's and
Newport's shares of related operating and maintenance expenses with respect to
units reflected in the table above are included in the corresponding operating
expenses.
(I) Financial Information By Business Segments:
The Core Electric Business includes results of the System's electric utility
operations of Blackstone, Eastern Edison, Newport and Montaup.
Energy Related Business includes results of our diversified energy related
subsidiaries, EUA Cogenex, EUA Ocean State and EUA Energy Investment Corporation
(EUA Energy). Corporate results include the operations of EUA Service and EUA
Parent.
<TABLE>
<CAPTION>
Pre-Tax Depreciation Cash Equity in
Operating Operating Income and Construction Subsidiary
($ in thousands) Revenues Income Taxes Amortization Expenditures Earnings
<S> <C> <C> <C> <C> <C> <C>
Year Ended
December 31, 1994
Core Electric $ 489,798 $ 83,966 $ 18,879 $ 33,409 $ 32,978 $ 1,700
Energy Related 74,480 9,905 (484) 12,491 17,231 10,785
Corporate - (2,533) (187) 555 310 -
Total $ 564,278 $ 91,338 $ 18,208 $ 46,455 $ 50,519 $ 12,485
Year Ended
December 31, 1993
Core Electric $ 499,565 $ 84,654 $ 18,443 $ 34,035 $ 32,407 $ 1,750
Energy Related 66,912 6,690 (3,523) 10,031 43,604 12,390
Corporate - (919) 99 656 380 -
Total $ 566,477 $ 90,425 $ 15,019 $ 44,722 $ 76,391 $ 14,140
Year Ended
December 31, 1992
Core Electric $ 497,810 $ 80,324 $ 17,869 $ 33,003 $ 22,497 $ 1,953
Energy Related 44,154 6,792 2,096 8,712 47,223 14,837
Corporate - (3,294) (490) 1,109 1,645 -
Total $ 541,964 $ 83,822 $ 19,475 $ 42,824 $ 71,365 $ 16,790
</TABLE>
December 31,
($ in thousands) 1994 1993
Total Plant and Other Investments
Core Electric $ 721,840 $ 723,664
Energy Related 217,584 208,457
Corporate 19,684 20,770
Total Plant and Other Investments 959,108 952,891
Other Assets
Core Electric 204,982 188,611
Energy Related 55,554 43,842
Corporate 14,405 17,793
Total Other Assets 274,941 250,246
Total Assets $1,234,049 $1,203,137
(J) Commitments And Contingencies:
Nuclear Power Issues: Joint owners of nuclear projects are subject to the risk
that one of their number may be unable or unwilling to finance its share of the
project's costs, thus jeopardizing continuation of the project. On February
28, 1991, EUA Power (now known as Great Bay Power Corporation), a 12.13% owner
of the Seabrook nuclear project, filed for protection under Chapter 11 of the
Federal Bankruptcy Code. It conducted its business as a debtor-in-possession
until November 23, 1994, at which time its plan of reorganization became
effective and the company emerged from Chapter 11.
In addition to its 2.9% ownership interest in Seabrook Unit 1, Montaup also
has a 2.9% ownership interest in Seabrook Unit 2. On November 6, 1986, the
joint owners of Seabrook, recognizing that Seabrook Unit 2 had been cancelled,
voted to dispose of the Unit. Plans regarding disposition of Seabrook Unit 2
are still under consideration, but have not been finalized and approved.
Montaup is unable, therefore, to estimate the costs for which it would be
responsible in connection with the disposition of Seabrook Unit 2. Montaup must
pay monthly charges with respect to Seabrook Unit 2 in order to preserve and
protect its components and various warranties. These costs are currently being
recovered in rates.
Nuclear Fuel Disposal and Nuclear Plant Decommissioning Costs: The Nuclear
Waste Policy Act of 1982 (NWPA) establishes that the federal government is
responsible for the disposal of spent nuclear fuel and obligates the Department
of Energy (DOE) to design, license, build and operate a permanent repository
for high level radioactive wastes and spent nuclear fuel. NWPA specifies that
DOE provide for the disposal of the waste and spent fuel starting in 1998. DOE
does not expect to achieve this date. As an interim strategy, DOE is
considering making available other federal government sites to temporarily
accommodate those firms that have depleted their own on-site spent nuclear fuel
storage capacity. The DOE anticipates that a permanent disposal site for spent
fuel will be ready to accept fuel for storage or disposal on or before 2010.
However, the NRC, which must license the site, has stated only that a permanent
repository will become available by the year 2025. Millstone Unit 3 management
has indicated it has sufficient on-site storage facilities to accommodate high
level wastes and spent fuel for the projected life of the unit. No significant
expenditures are projected for the foreseeable future. At Seabrook there is
on-site storage capacity which, with minimal capital expenditures, should be
sufficient for twenty years, or to the year 2010. No near-term capital
expenditures are anticipated to accommodate an increase in storage requirements
after 2010. Montaup is required to pay a fee based on its share of the
generation from Millstone Unit 3 and Seabrook Unit 1. Montaup is recovering
these fees through its fuel adjustment clause.
Also, Montaup is recovering through rates its share of estimated
decommissioning costs for Millstone Unit 3 and Seabrook Unit 1. Montaup's
share of the current estimate of total costs to decommission Millstone Unit 3
is $18.0 million in 1994 dollars, and Seabrook Unit 1 is $11.5 million
in 1994 dollars. These figures are based on studies performed for the lead
owners of the plants. Montaup also pays into decommissioning reserves pursuant
to contractual arrangements with other nuclear generating facilities in which
it has an equity ownership interest or life of the unit entitlement.
Such expenses are currently recoverable through rates.
Shareholder Proceeding: On January 20, 1995, EUA and a former shareholder of
EUA, which on February 11, 1992 had filed suit against EUA and three officers
of EUA in the Federal District Court of Massachusetts, filed a voluntary
dismissal of the suit with the court following the fulfillment of the terms of
a settlement agreement among EUA, the one officer remaining as a defendant in
the action and the former shareholder. The dismissal prevents the former
shareholder from suing EUA again on any claim asserted in the suit.
EUA and the officer continue to deny any and all allegations of wrongdoing
asserted by the former shareholder but determined it to be in their best
interests to settle the suit. Under the provisions of the Settlement
Agreement, its terms are to remain confidential. The Settlement
Agreement will not have an adverse impact on EUA's current earnings due to
reserves that EUA had previously established. In the suit the former
shareholder alleged fraudulent and negligent misrepresentations and violations
of Rule 10b-5 under the Securities Exchange Act of 1934 in connection with
statements made regarding the business and prospects of EUA's former
subsidiary, EUA Power, and the portion of EUA's earnings attributable to
allowance for funds used during construction (AFUDC) from EUA Power.
Pensions: The EUA System companies' retirement plans are non-contributory
defined benefit pension plans covering substantially all of their employees.
Regular plan benefits are based on years of service and average compensation
over the four years prior to retirement or in the case of the supplemental
retirement plan for certain officers of the EUA System, benefits are based on
compensation at retirement date. It is the EUA System's policy to fund the
regular plan on a current basis in amounts determined to meet the funding
standards established by the Employee Retirement Income Security Act of 1974.
Net pension expense (income) for the regular plan for 1994, 1993 and 1992
included the following components:
<TABLE>
<CAPTION>
($ in thousands) 1994 1993 1992
<S> <C> <C> <C>
Service cost-benefits earned
during the period $ 3,281 $ 2,567 $ 2,395
Interest cost on projected
benefit obligations 8,848 8,761 8,050
Actual loss (return) on assets 1,523 (18,005) (7,971)
Net amortization and
deferrals (12,494) 6,795 (2,683)
Net periodic pension
expense (income) $ 1,158 $ 118 $ (209)
Assumptions used to determine pension costs:
Discount Rate 7.25% 8.75% 8.75%
Compensation
Increase Rate 4.75% 6.00% 6.00%
Long-Term
Return on Assets 9.50% 10.00% 10.00%
</TABLE>
The following table sets forth the actuarial present value of benefit
obligations and funded status at December 31, 1994, 1993 and 1992:
<TABLE>
<CAPTION>
($ in thousands) 1994 1993 1992
<S> <C> <C> <C>
Accumulated benefit obligations
Vested $ 96,045 $ 101,279 $ 81,466
Non-vested 315 358 291
Total $ 96,360 $ 101,637 $ 81,757
Projected benefit obligations $(112,483) $(121,082) $(99,862)
Plan assets at fair value,
primarily stocks and bonds 122,816 130,040 117,373
Less: Unrecognized net gain
on assets (13,643) (11,689) (20,562)
Unamortized net
assets at January 1 5,365 5,944 6,383
Net pension assets $ 2,055 $ 3,213 $ 3,332
</TABLE>
The discount rate used to determine pension costs changed effective January
1, 1995 to 8.25% and was used to calculate the plans funded status at December
31, 1994.
All benefits provided under the supplemental plan are unfunded and any
payments to plan participants are made by EUA. As of December 31, 1994
approximately $2.3 million was included in accrued expenses and other
liabilities for this plan. For the years ended December 31, 1994, 1993 and
1992 expenses related to the supplemental plan were $516,000, $2.3 million and
$278,000, respectively.
Post-Retirement Benefits: Retired employees are entitled to participate in
health care and life insurance benefit plans. Health care benefits are subject
to deductibles and other limitations. Health care and life insurance benefits
are partially funded by EUA System companies for all qualified employees.
The EUA System adopted FAS106,"Accounting for Post-Retirement Benefits Other
Than Pensions,"as of January 1, 1993. This standard establishes accounting and
reporting standards for such post-retirement benefits as health care and life
insurance. FAS106 further requires the accrual of the cost of such benefits
during an employee's years of service and the recognition of the actuarially
determined total post-retirement benefit obligations (Transition Obligation)
earned by existing employees and retirees. EUA elected to recognize the
Transition Obligation over a period of 20 years, as permitted by FAS106. The
resultant annual expense, including amortization of the Transition Obligation
and net of capitalized amounts, was approximately $7.9 million and $8.1 million
in 1994 and 1993, respectively. As a result of December 1992 regulatory
decisions, EUA's retail subsidiaries established regulatory assets of
approximately $1.6 million and $1.5 million in 1994 and 1993, respectively, due
to the future recoverability of such amounts. Montaup was allowed to defer
FAS106-related expenses through 1995 or until it filed for recovery of such
amounts prior to that time. Accordingly approximately $400,000 and $1.4
million of FAS106-related expenses were deferred by Montaup in 1994 and 1993,
respectively. Montaup requested and received authority to recover all of its
FAS106 expenses including a five-year amortization of deferred amounts in its
1994 rate decrease application.
The total cost of post-retirement benefits other than pensions for 1994 and
1993 includes the following components:
($ in thousands) 1994 1993
Service cost $ 1,537 $ 1,337
Interest cost 5,381 5,983
Actual return on plan assets (126) (68)
Amortization of transition obligation 3,429 3,429
Other amortizations & deferrals - net (85) (60)
Total post-retirement benefit cost $10,136 $10,621
Assumptions:
Discount rate 7.25% 8.75%
Health care cost trend rate - near-term 13.00% 13.00%
- long-term 5.00% 6.25%
Salary increase rate 4.75% 6.00%
Rate of return on plan assets - union 8.50% 8.50%
- non-union 5.50% 5.50%
Reconciliation of funded status:
($ in thousands) 1994 1993
Accumulated post-retirement benefit obligation (APBO):
Retirees $(35,386) $(38,008)
Active employees fully eligible
for benefits (9,778) (15,324)
Other active employees (23,306) (25,357)
Total $(68,470) $(78,689)
Fair value of assets, primarily notes
and bonds 7,722 3,522
Unrecognized transition obligation 61,718 65,147
Unrecognized net loss (gain) (9,098) 5,368
(Accrued)/prepaid post-retirement
benefit cost $ (8,128) $(4,652)
The discount rate used to determine post-retirement
benefit costs was changed effective January 1, 1995 to 8.25% and was used to
calculate the funded status of Post-Retirement benefits at December 31, 1994.
Increasing the assumed health care cost trend rate by 1% each year would
increase the total post-retirement benefit cost for 1994 by $1.1 million and
increase the total accumulated post-retirement benefit obligation by $9.0
million.
Prior to 1993 the EUA System followed the "pay-as-you-go" methodology for
accounting for post retirement benefits other than pensions. The costs of the
benefits, which amounted to $2,367,000 in 1992, were charged to expense. The
EUA System, has also established an irrevocable external Voluntary Employee
Benefit Association Trust Fund as required by the aforementioned regulatory
decisions. Contributions to the fund commenced in March 1993 and totaled
approximately $6.7 million during 1994 and $6.0 million in 1993.
Post-Employment Benefits: In November 1992, FASB issued Statement No. 112,
"Employers' Accounting for Post-employment Benefits" for fiscal years beginning
after December 15, 1993. The impact of this standard on the EUA System is
immaterial to EUA's results of operations and therefore no liability was
recorded.
Long-Term Purchased Power Contracts: The EUA System is committed under long-
term purchased power contracts, expiring on various dates through September
2021, to pay demand charges whether or not energy is received. Under terms in
effect at December 31, 1994, the aggregate annual minimum commitments for such
contracts are approximately $129 million in 1995 and 1996, $128 million in
1997, $132 million in 1998, $133 million in 1999 and will aggregate $1.6
billion for the ensuing years. In addition, the EUA System is required to pay
additional amounts depending on the actual amount of energy received under such
contracts. The demand costs associated with these contracts are reflected as
Purchased Power-Demand on the Consolidated Statement of Income. Such costs are
recoverable through rates.
Environmental Matters: The Comprehensive Environmental Response,
Compensation Liability Act of 1980, as amended by the Superfund Amendments and
Reauthorization Act of 1986, and certain similar state statutes authorize
various governmental authorities to seek court orders compelling responsible
parties to take cleanup action at disposal sites which have been determined
by such governmental authorities to present an imminent and substantial danger
to the public and to the environment because of an actual or threatened release
of hazardous substances. Because of the nature of the EUA System's business,
various by-products and substances are produced or handled which are classified
as hazardous under the rules and regulations promulgated by the EPA as well as
state and local authorities. The EUA System generally provides for the
disposal of such substances through licensed contractors, but these statutory
provisions generally impose potential joint and several responsibility on the
generators of the wastes for cleanup costs. Subsidiaries of EUA have
been notified with respect to a number of sites where they may be responsible
for such costs, including sites where they may have joint and several liability
with other responsible parties. It is the policy of the EUA System companies
to notify liability insurers and to initiate claims. EUA is unable
to predict whether liability, if any, will be assumed by, or can be enforced
against, the insurance carrier in these matters.
On December 13, 1994, the United States District Court for the District of
Massachusetts issued a judgment against Blackstone Valley Electric Company,
finding Blackstone liable to the Commonwealth of Massachusetts (the
Commonwealth) for the full amount of response costs incurred by the
Commonwealth in the cleanup of a coal gasification waste site at Mendon Road in
Attleboro, Massachusetts. The judgment also found Blackstone liable for
interest and litigation expenses calculated to the date of judgment. The total
liability is approximately $5.9 million, including approximately $3.6 million
in interest which has accumulated since 1985.
Blackstone has filed a Notice of Appeal of the court's judgment and filed its
brief with the First Circuit Court of Appeals in February 1995.
Due to the uncertainty of the ultimate outcome of this proceeding and
anticipated recoverability, a deferred debit of $5.9 million was recorded and
is included with Other Assets.
On January 20, 1995, Blackstone entered into an escrow agreement with the
Commonwealth whereby Blackstone deposited $5.9 million with an escrow agent who
transferred the funds into an interest bearing money market account. The
distribution of the proceeds of the escrow account will be determined upon the
final resolution of the judgment. No additional interest expense will accrue
on the judgment amount.
On January 28, 1994, Blackstone filed a complaint in the United States
District Court for the District of Massachusetts, seeking, among other relief,
contribution and reimbursement from Stone & Webster, Inc. of New York, and
several of its affiliated companies (Stone & Webster) and Valley Gas Company of
Cumberland, Rhode Island (Valley) for any damages incurred by Blackstone
regarding the Mendon Road site. The court denied motions to dismiss the
complaint which were filed by Stone & Webster and Valley in 1994.
In addition, Blackstone notified certain liability insurers and has filed
claims with respect to the Mendon Road site, as well as other sites.
As of December 31, 1994, the EUA System had incurred costs of approximately
$3.5 million (excluding the $5.9 million Mendon Road judgment) in connection
with these sites, substantially all of which relate to Blackstone. These
amounts have been financed primarily by internally generated cash. Blackstone
is currently amortizing substantially all of its incurred costs over a five-
year period and is recovering certain of those costs in rates.
EUA estimates that additional costs ranging from $2.6 million to $5.6 million
(excluding the $5.9 million Mendon Road judgment) may be incurred at these
sites through 1996 by its subsidiaries and the other responsible parties. Of
this amount, approximately $4.8 million relates to sites at which Blackstone is
a potentially responsible party. Estimates beyond 1996 cannot be made since
site studies, which are the basis of these estimates, have not been completed.
As a result of the recoverability of cleanup costs in rates and the
uncertainty regarding both its estimated liability, as well as its potential
contributions from insurance carriers and other responsible parties, EUA does
not believe that the ultimate impact of the environmental costs will be
material to the financial position of the EUA System or to any individual
subsidiary and thus no loss provision is required at this time.
The Clean Air Act created new regulatory programs and generally updated and
strengthened air pollution control laws. These amendments will expand the
regulatory role of the United States Environmental Protection Agency (EPA)
regarding emissions from electric generating facilities and a host of other
sources. EUA System generating facilities will most probably be first affected
in 1995, when EPA regulations will take effect for facilities owned by the EUA
System. Tests at Montaup's coal-fired Somerset Unit #6 indicated it would be
able to utilize lower sulfur coal than had been burned to meet the 1995 air
standards with only a minimal capital investment. Montaup determined
that it would not be economical to repair Unit #5 of the Somerset Station and
therefore has placed it in deactivated reserve. EUA does not anticipate the
impact from the Amendments to be material to the financial position of the EUA
System.
In April 1992, the Northeast States for Coordinated Air Use Management
(NESCAUM), an environmental advisory group for eight Northeast states including
Massachusetts and Rhode Island, issued recommendations for nitrogen oxide (NOx)
controls for existing utility boilers required to meet the ozone non-attainment
requirements of the Clean Air Act. The NESCAUM recommendations are more
restrictive than the Clean Air Act requirements. The Massachusetts Department
of Environmental Management has amended its regulations to require that
Reasonably Available Control Technology (RACT) be implemented at all stationary
sources potentially emitting 50 tons or more per year of NOx. Rhode Island has
issued similar regulations also requiring that RACT be implemented at all
stationary sources potentially emitting 50 tons or more per year of NOx.
Montaup has initiated compliance, through, among other things, selective
noncatalytic reduction processes.
A number of scientific studies in the past several years have examined the
possibility of health effects from electric and magnetic fields (EMF) that are
found everywhere there is electricity. While some of the studies have
indicated there may be some association between exposure to EMF and health
effects, other studies have indicated no direct association. In addition, the
research to date has not conclusively established a direct causal relationship
between EMF exposure and human health. Additional studies, which are intended
to provide a better understanding of the subject, are continuing.
Some states have enacted regulations to limit the strength of magnetic fields
at the edge of transmission line rights-of-way. Rhode Island has enacted a
statute which authorizes and directs the Energy Facility Siting Board to
establish rules and regulations governing construction of high voltage
transmission lines of 69kv or more. There is a bill pending in the
Massachusetts Legislature that would authorize the Massachusetts Department of
Public Utilities to examine the potential health effects of EMF. Management
cannot predict the ultimate outcome of the EMF issue.
Guarantee of Financial Obligations: EUA has guaranteed or entered into
equity maintenance agreements in connection with certain obligations of its
subsidiaries. EUA has guaranteed the repayment of EUA Cogenex's $35 million
10.56% unsecured long-term notes due 2005 and EUA Ocean State's $36 million
9.59% unsecured long-term notes due 2011. In addition, EUA has entered
into equity maintenance agreements in connection with the issuance of EUA
Service's 10.2% Secured Notes and EUA Cogenex's 7.22 % and 9.6% Unsecured
Notes.
Under the December 1992 settlement agreement with EUA Power, EUA reaffirmed
its guarantee of up to $10 million of EUA Power's share of the decommissioning
costs of Seabrook Unit 1 and any costs of cancellation of Unit 1 or Unit 2. EUA
guaranteed this obligation in 1990 in order to secure the release to EUA Power
of a $10 million fund established by EUA Power at the time EUA Power
acquired its Seabrook interest. EUA has not provided a reserve for this
guarantee because management believes that it is unlikely that EUA will ever be
required to honor the guarantee.
Montaup is a 3.27% equity participant in two companies which own and operate
transmission facilities interconnecting New England and the Hydro Quebec system
in Canada. Montaup has guaranteed approximately $5.6 million of the
outstanding debt of these two companies. In addition, Montaup and Newport have
minimum rental commitments which total approximately $14.2 million and $1.8
million, respectively under a noncancelable transmission facilities support
agreement for years subsequent to 1994.
Other: In December 1992, Montaup commenced a declaratory judgment action in
which it sought to have the Massachusetts Superior Court determine its rights
under the Power Purchase Agreement between it and Aquidneck Power Limited
Partnership (Aquidneck). Montaup sought a declaration that the Power Purchase
Agreement was binding on the parties according to its terms. Aquidneck
asserted that Montaup had either an express or implied obligation to negotiate
new terms and conditions to the Power Purchase Agreement. Specifically, the
defendants sought to amend, through negotiations, certain milestone events to
which they were bound in the Power Purchase Agreement as written. Aquidneck
failed to meet the first milestone of January 1, 1993. Accordingly, on January
5, 1993, Montaup exercised its rights to terminate the Power Purchase Agreement
effective immediately.
In January 1994 a counterclaim by Aquidneck claimed certain breaches of the
Power Purchase Agreement, including an alleged failure on the part of Montaup
to renegotiate the terms and conditions of the Power Purchase Agreement
relating to the first milestone event. Also in January 1994, Aquidneck sought
to join EUA and EUA Service as parties to the suit.
Aquidneck apparently claims $11 million of damages on the theory that EUA can
"avoid an approximately $11 million obligation to purchase capacity and power
which it does not currently need." Aquidneck seeks treble damages claiming
Montaup, EUA and EUA Service violated state laws willfully and knowingly.
The Court has scheduled a hearing in April 1995 on Montaup's motion for
default judgment based on Aquidneck's failure to meet its discovery
obligations. In addition, Montaup intends to file a motion for summary
judgment.
Montaup, EUA and EUA Service intend to defend the counterclaim vigorously and
believe that Aquidneck's claims have no basis in law.
Report Of Independent Accountants
To the Trustees and Shareholders of
Eastern Utilities Associates
We have audited the accompanying consolidated balance sheets and consolidated
statements of equity capital and preferred stock and indebtedness of Eastern
Utilities Associates and subsidiaries (the Company) as of December 31, 1994 and
1993, and the related consolidated statements of income, retained earnings and
cash flows for each of the three years in the period ended December 31, 1994.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of the Company as of December 31, 1994 and 1993, and the consolidated results
of its operations and its cash flows for each of the three years in
the period ended December 31, 1994 in conformity with generally accepted
accounting principles.
/s/ Coopers & Lybrand L.L.P.
Boston, Massachusetts
March 2, 1995
Report Of Management
The management of Eastern Utilities Associates is responsible for the
consolidated financial statements and related information included in this
annual report. The financial statements are prepared in accordance with
generally accepted accounting principles and include amounts based on
the best estimates and judgments of management, giving appropriate
consideration to materiality. Financial information included elsewhere in this
annual report is consistent with the financial statements.
The EUA System maintains an accounting system and related internal controls
which are designed to provide reasonable assurances as to the reliability of
financial records and the protection of assets. The System's staff of internal
auditors conducts reviews to maintain the effectiveness of internal control
procedures.
Coopers & Lybrand L.L.P., an independent accounting firm, is engaged by EUA
to audit and express an opinion on our financial statements. Their audit
includes a review of internal controls to the extent required by generally
accepted auditing standards for such audit.
The Audit Committee of the Board of Trustees, which consists solely of
outside Trustees, meets with management, internal auditors and Coopers &
Lybrand L.L.P. to discuss auditing, internal controls and financial reporting
matters. The internal auditors and Coopers & Lybrand L.L.P. have free access
to the Audit Committee without management present.
Quarterly Financial And Common Share Information
(Unaudited)
(Thousands of Dollars, Except Per Share and Share Price Amounts)
<TABLE>
<CAPTION>
Earnings
per Dividends Common Share
Consolidated Average Paid Per Market Price
Operating Operating Net Net Common Common
Revenues Income Income Earnings Share <F1> Share High Low
FOR THE QUARTERS
ENDED 1994:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
December 31 $ 132,953 $ 15,104 $ 8,858 $ 8,277 $ 0.42 $ 0.385 23 1/8 21 3/8
September 30 143,859 18,210 13,900 13,316 0.67 0.385 25 1/8 22
June 30 137,269 18,247 10,770 10,187 0.52 0.385 25 5/8 22
March 31 150,197 21,569 16,173 15,590 0.80 0.36 27 3/8 24 5/8
FOR THE QUARTERS
ENDED 1993:
December 31 $ 147,036 $ 21,208 $ 10,282 $ 9,652 $ 0.51 $ 0.36 29 3/4 26 1/2
September 30 146,496 18,186 14,719 13,913 0.74 0.36 29 7/8 28 1/4
June 30 135,262 16,331 9,999 9,119 0.49 0.36 28 1/4 25 7/8
March 31 137,683 19,681 13,241 12,247 0.71 0.34 27 7/8 23 7/8
<FN>
<F1> The sum of the quarterly amounts may not equal annual earnings per average common share due
to change in shares outstanding.
</FN>
</TABLE>
<TABLE>
Consolidated Operating and Financial Statistics<F1>
<CAPTION>
Years Ended December 31, 1994 1993 1992 1991 1990 1989 1984
ENERGY GENERATED
AND PURCHASED (millions of kwh):
Generated
<S> <C> <C> <C> <C> <C> <C> <C>
- by Somerset Station 658 319 936 957 985 1,296 1,180
- by Nuclear Units 1,008 1,033 1,050 1,109 1,635 956 458
- by Jointly-Owned Units 1,615 1,809 2,105 2,053 1,793 2,075 1,507
- by Life of the Unit Contracts 648 602 793 863 753 836 814
- by Newport 1 1 1 7
Interchange with NEPOOL 295 360 157 191 298 262 (136)
Purchased Power - Unit Power 1,526 1,396 1,489 1,006 380 410 480
Total Generated and Purchased 5,750 5,520 6,531 6,180 5,851 5,835 4,303
OPERATING REVENUES
($ in thousands):
Residential $ 190,662 $ 189,470 $ 176,538 $ 178,812 $ 156,883 $ 141,254 $ 121,623
Commercial 169,241 179,145 170,034 171,732 149,514 131,306 105,310
Industrial 81,500 81,445 76,946 78,273 69,885 70,852 75,850
Other Electric Utilities 4,900 5,098 5,103 4,828 4,317 19,625 23,909
Other 17,282 21,790 21,314 17,984 22,748 11,642 9,396
Total Primary Sales Revenues 463,585 476,948 449,935 451,629 403,347 374,679 336,088
Unit Contracts 26,213 22,617 47,875 41,225 43,670 46,373 25,237
Non-Electric 74,480 66,912 44,154 29,729 18,668 8,370
Total Operating Revenues $ 564,278 $ 566,477 $ 541,964 $ 522,583 $ 465,685 $ 429,422 $ 361,325
ENERGY SALES (millions of kwh):
Residential 1,678 1,624 1,575 1,579 1,531 1,416 1,205
Commercial 1,671 1,704 1,704 1,689 1,623 1,497 1,113
Industrial 850 816 785 777 834 832 856
Other Electric Utilities 74 61 68 66 130 389 396
Other 137 147 147 154 121 28 30
Total Primary Sales 4,410 4,352 4,279 4,265 4,239 4,162 3,600
Losses and Company Use 233 247 241 280 249 234 215
Total System Requirements 4,643 4,599 4,520 4,545 4,488 4,396 3,815
Unit Contracts 1,107 921 2,011 1,635 1,363 1,439 488
Total Energy Sales 5,750 5,520 6,531 6,180 5,851 5,835 4,303
NUMBER OF CUSTOMERS:
Residential 263,054 259,654 257,026 255,620 254,928 227,440 211,622
Commercial 29,004 30,805 32,851 32,745 32,836 27,890 22,177
Industrial 1,603 1,294 1,197 1,172 1,175 1,222 1,209
Other Electric Utilities 12 12 15 15 12 14 16
Other 34 34 34 34 34 29 29
Total Customers 293,707 291,799 291,123 289,586 288,985 256,595 235,053
Average Annual Revenue
per Residential Customer ($) 725 730 687 699 636 621 575
Average Annual Use per Residential
Customer (kwh) 6,379 6,254 6,128 6,177 6,221 6,226 5,694
AVERAGE REVENUE
PER KWH (cents):
Residential 11.36 11.67 11.21 11.32 10.25 9.98 10.09
Commercial 10.13 10.51 9.98 10.17 9.21 8.77 9.46
Industrial 9.59 9.98 9.80 10.07 8.38 8.52 8.86
<FN>
<F1>Includes financial and operating statistics for Newport Electric Corporation from April 1, 1990 and EUA Power
Corporation through December 31, 1990 at which time EUA Power Corporation was deconsolidated for financial reporting
purposes.
</FN>
</TABLE>
<TABLE>
Consolidated Operating and Financial Statistics<F1>
<CAPTION>
Years Ended December 31, 1994 1993 1992 1991 1990 1989 1984
CAPITALIZATION ($ in thousands):
<S> <C> <C> <C> <C> <C> <C> <C>
Bonds - Net $ 288,449 $ 300,389 $ 306,898 $ 346,146 $ 363,566 $ 306,500 $ 266,500
Other Long-Term Debt - Net 66,963 196,427 156,060 142,306 80,029 299,579 22,376
Total Long-Term Debt - Net 455,412 496,816 462,958 488,452 443,595 606,079 288,876
Preferred Stock - Net 32,290 31,953 44,346 45,830 50,380 49,691 48,319
Common Equity 365,443 333,165 266,855 248,598 237,393 375,016 191,619
Total Capitalization $ 853,145 $ 861,934 $ 774,159 $ 782,880 $ 731,368 $ 1,030,786 $ 528,814
CAPITALIZATION RATIOS (%)
Long-Term Debt 53 57 60 62 61 59 55
Preferred Stock 4 4 6 6 7 5 9
Common Equity 43 39 34 32 32 36 36
COMMON SHARE DATA:
Earnings (Loss) per Average
Common Share ($) 2.41 2.44 2.00 1.58 (8.18)<F2> 2.95 2.85
Dividends per Share ($) 1.515 1.42 1.36 1.45 2.575 2.475 1.90
Payout (%) 62.9 58.2 68.0 91.8 (31.5) 83.9 67.0
Average Common
Shares Outstanding 19,671,970 18,391,147 17,039,224 16,608,090 15,917,255 13,877,091 10,562,324
Total Common Shares
Outstanding 19,936,980 19,032,598 17,237,788 16,831,062 16,352,708 15,262,237 10,892,886
Book Value per Share ($) 18.33 17.50 15.48 14.77 14.52 24.57 17.59
Percent Earned On Average
Common Equity 13.6 15.0 13.2 10.8 (42.5) 12.1 16.5
Market Price ($):
High 27 3/8 29 7/8 25 1/4 25 41 1/2 41 3/4 18
Low 21 3/8 23 7/8 20 3/8 15 3/4 20 3/4 30 3/8 12 1/2
Year End 22 28 24 3/4 20 5/8 23 7/8 41 3/4 18
Miscellaneous ($ in thousands):
Total Construction Expenditures ($)<F3> 50,870 76,770 71,914 60,174 133,629 188,599 95,211
Cash Construction Expenditures ($)<F3> 50,519 76,391 71,365 57,570 59,929 75,861 73,159
Internally Generated Funds ($)<F3> 79,274 79,691 48,933 63,681 35,024<F4> 32,734 40,858
Internally Generated Funds as
a % of Cash Construction (%) 156.9 104.3 68.6 110.6 58.4<F4> 43.2 55.8
Installed Capability - MW 1,212 1,256<F5> 1,325 1,349 1,359 1,169 931
Less: Unit Contract Sales - MW 85 85 85 216 86 116 75
System Capability - MW 1,127 1,171 1,240 1,133 1,273 1,053 856
System Peak Demand - MW 921 854 849 879 850 831 716
Reserve Margin (%) 22.4 37.1 46.1 28.9 49.8 26.7 19.5
System Load Factor (%) 57.5 61.5 57.5 59.0 60.3 60.4 60.6
Sources of Energy (%):
Nuclear 33.8 34.0 34.1 31.3 37.8 26.8 10.9
Coal 11.7 5.4 18.6 21.0 22.6 28.9 29.3
Oil 20.0 28.3 12.7 26.9 37.9 44.3 59.8
Gas 28.4 26.0 29.3 17.2 1.7
Other 6.1 6.3 5.3 3.6
Cost of Fuel (Mills per kwh):
Nuclear 6.1 7.5 7.7 8.7 8.3 7.6 8.9
Coal 20.9 24.1 21.2 21.4 21.2 20.1 27.8
Oil 27.1 25.5 26.0 18.9 26.3 24.7 43.6
Gas 14.1 15.1 13.0 16.2 30.6
All Fuels Combined 14.5 15.5 14.8 15.7 18.4 18.8 36.1
<FN>
<F1> Includes financial and operating statistics for Newport Electric Corporation from April 1, 1990 and EUA
Power Corporation through December 31, 1990 at which time EUA Power Corporation was deconsolidated
for financial reporting purposes.
<F2> After additional charges to 1990 earnings.
<F3> 1993 and 1992 amounts restated to conform with current year presentation.
<F4> Excludes EUA Power Corporation's cash interest payments.
<F5> Excludes the 69 MW Somerset Station Unit #5 which was placed in deactivated reserve on January 25,
1994.
</FN>
</TABLE>
Shareholder Information
Shares of Eastern Utilities Associates are listed on the New York and Pacific
Stock Exchanges, under the ticker symbol EUA. As of February 1, 1995, there
were 12,727 common shareholders of record.
Form 10-K
A copy of EUA's 1994 Annual Report on Form 10-K filed with the Securities and
Exchange Commission is available to shareholders without charge by writing to
us.
Annual Meeting
The 1995 Annual Meeting of Shareholders will be held on
Monday, May 15, 1995, at 9:30 a.m., in the
Enterprise Room, 5th Floor
State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts
Registrar, Transfer Agent And Dividend Disbursing Agent For Common And
Preferred Shares
Shareholder Services - Investor Relations
Mail Stop 450209
The First National Bank of Boston
Post Office Box 644
Boston, MA 02102-0644
1-800-736-3001 (Toll-Free)
Lost Or Stolen Stock Certificates
If your stock certificate is lost, destroyed or stolen, you should notify the
transfer agent immediately so a "stop transfer" order can be placed on the
missing certificate. The transfer agent then will send you the required
documents to obtain a replacement certificate.
Dividends
Schedule of anticipated record and payment dates for 1995 dividends on EUA
Common Shares:
Record Payment
February 1 February 15
May 1 May 15
August 1 August 15
November 1 November 15
Replacement Of Dividend Checks
If you do not receive your dividend check within ten business days after the
dividend payment date, or if your check is lost, destroyed or stolen, you
should notify the disbursing agent in writing for a replacement.
Dividend Reinvestment And Common Share Purchase Plan
A Dividend Reinvestment and Common Share Purchase Plan is available to all
registered shareholders and EUA System company employees. It is a simple and
convenient method of purchasing additional shares of EUA common stock.
Participants also may make cash payments to purchase additional shares. You
may obtain complete details by writing to:
William F. O'Connor, Secretary
Eastern Utilities Associates
Post Office Box 2333
Boston, MA 02107
Duplicate Mailings
Duplicate mailings are costly. Shareholders may be receiving duplicate copies
of annual and quarterly reports due to multiple stock accounts in the same
household. To eliminate additional mailings of these reports,
please write to us and enclose label(s) or label information from the duplicate
reports. Dividend checks and proxy material will continue to be sent for each
account on record.
EUA is required by law to create a separate account for each name when stock
is held in similar but different names (e.g.: John A. Smith, J. A. Smith, John
A. and Mary K. Smith, etc.). Please contact the Company for instructions if
you wish to consolidate multiple accounts.
Financial Community Inquiries
Institutional investors and securities analysts should direct inquiries to:
Clifford J. Hebert, Jr., Treasurer
Eastern Utilities Associates
Post Office Box 2333
Boston, MA 02107
(617) 357-9590
The name Eastern Utilities Associates is the designation of the Trustees for
the time being under a Declaration of Trust dated April 2, 1928, as amended.
All persons dealing with Eastern Utilities Associates must look solely to the
trust property for the enforcement of any claims against Eastern Utilities
Associates, as neither the Trustees, Officers nor Shareholders assume any
personal liability for obligations entered into on behalf of Eastern Utilities
Associates.
Trustees
Russell A. Boss (A, P)
President and Chief Executive Officer, A. T. Cross Company
Lincoln, Rhode Island
Paul J. Choquette, Jr. (A, P)
President, Gilbane Building Company
Providence, Rhode Island
Peter S. Damon (F, P)
President and Chief Executive Officer, Bank of Newport
Newport, Rhode Island
John F. G. Eichorn, Jr. (F, P)
Retired Chairman of the Board of Trustees of the Association
Peter B. Freeman (A, C)
Corporate Director and Trustee
Providence, Rhode Island
Larry A. Liebenow (A,F)
President and Chief Executive Officer, Quaker Fabric Corporation
Fall River, Massachusetts
Wesley W. Marple, Jr. (C, P)
Professor of Business Administration, Northeastern University
Boston, Massachusetts
Donald G. Pardus
Chairman of the Board of Trustees and
Chief Executive Officer of the Association
Margaret M. Stapleton (C, F)
Vice President, John Hancock Mutual Life Insurance Company
Boston, Massachusetts
John R. Stevens
President and Chief Operating Officer of the Association
W. Nicholas Thorndike (C, F)
Corporate Director and Trustee
Brookline, Massachusetts
A- Indicates member of Audit Committee
C- Indicates member of Compensation and Nominating Committee
F- Indicates member of Finance Committee
P- Indicates member of Pension Trust Committee
"PICTURE OF EUA Officers"
Left to Right (seated):
Robert G. Powderly, Executive Vice President Donald G. Pardus, Chairman and
Chief Executive Officer
John R. Stevens, President and Chief Operating Officer Arthur A. Hatch,
Executive Vice President
Left to Right (standing):
Clifford J. Hebert, Jr., Treasurer William F. O'Connor, Secretary
Richard M. Burns, Comptroller
EUA Officers
Donald G. Pardus
Chairman of the Board of Trustees
and Chief Executive Officer
John R. Stevens
President and Chief Operating Officer
Arthur A. Hatch
Executive Vice President
Robert G. Powderly
Executive Vice President
Richard M. Burns
Comptroller
Clifford J. Hebert, Jr.
Treasurer
William F. O'Connor
Secretary
Exhibit 23-1.03
Consent of Independent Accountants
To the Trustees and Shareholders of
Eastern Utilities Associates:
We consent to the incorporation by reference in the registration statements of
Eastern Utilities Associates on Forms S-4 and S-8 (File No. 33-50099 and
33-49897, respectively) of our reports dated March 2, 1995, on our audits of
the consolidated financial statements and financial statement schedule of
Eastern Utilities Associates and subsidiaries as of December 31, 1994 and 1993,
and for the years ended December 31, 1994, 1993 and 1992, which reports are
incorporated by reference or included in this Annual Report on Form 10-K.
/s/ Coopers & Lybrand, L.L.P.
Boston, Massachusetts
March 20, 1995
<TABLE> <S> <C>
<ARTICLE> OPUR1
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 725,214
<OTHER-PROPERTY-AND-INVEST> 233,894
<TOTAL-CURRENT-ASSETS> 147,048
<TOTAL-DEFERRED-CHARGES> 118,302
<OTHER-ASSETS> 9,591
<TOTAL-ASSETS> 1,234,049
<COMMON> 99,685
<CAPITAL-SURPLUS-PAID-IN> 209,141
<RETAINED-EARNINGS> 56,617
<TOTAL-COMMON-STOCKHOLDERS-EQ> 365,443
0
32,290
<LONG-TERM-DEBT-NET> 455,412
<SHORT-TERM-NOTES> 31,678
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 41,601
50
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 307,575
<TOT-CAPITALIZATION-AND-LIAB> 1,234,049
<GROSS-OPERATING-REVENUE> 564,278
<INCOME-TAX-EXPENSE> 18,208
<OTHER-OPERATING-EXPENSES> 472,940
<TOTAL-OPERATING-EXPENSES> 491,148
<OPERATING-INCOME-LOSS> 73,130
<OTHER-INCOME-NET> 20,348
<INCOME-BEFORE-INTEREST-EXPEN> 93,478
<TOTAL-INTEREST-EXPENSE> 43,777
<NET-INCOME> 49,701
2,331
<EARNINGS-AVAILABLE-FOR-COMM> 47,370
<COMMON-STOCK-DIVIDENDS> 29,795
<TOTAL-INTEREST-ON-BONDS> 0
<CASH-FLOW-OPERATIONS> 99,204
<EPS-PRIMARY> 2.41
<EPS-DILUTED> 0
</TABLE>
