FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549-1004
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 1-6392
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PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE
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(Exact name of registrant as specified in its charter)
NEW HAMPSHIRE 02-018150
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
1000 ELM STREET, MANCHESTER, NEW HAMPSHIRE 03105
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Address of principal executive offices) (Zip Code)
(603) 669-4000
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(Registrant's telephone number, including area code)
Not Applicable
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(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
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Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Class Outstanding at April 30, 1996
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Common Shares, $10.00 par value 1,000 shares
PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE
TABLE OF CONTENTS
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Page No.
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Part I. Financial Information
Item 1. Financial Statements
Balance Sheets - March 31, 1996 and December 31, 1995 2
Statements of Income - Three Months Ended
March 31, 1996 and 1995 4
Statements of Cash Flows - Three Months Ended
March 31, 1996 and 1995 5
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
Part II. Other Information
Item 1. Legal Proceedings 12
Item 5. Other Information 12
Item 6.Exhibits and Reports on Form 8-K 13
Signatures 14
PART I. FINANCIAL INFORMATION
PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE
BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
------------- -------------
(Thousands of Dollars)
<S> <C> <C>
ASSETS
- ------
Utility Plant, at cost:
Electric................................................ $ 2,117,510 $ 2,109,590
Less: Accumulated provision for depreciation......... 524,128 513,244
------------- -------------
1,593,382 1,596,346
Unamortized acquisition costs........................... 566,394 588,910
Construction work in progress........................... 15,189 15,975
Nuclear fuel, net....................................... 1,352 1,585
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Total net utility plant............................. 2,176,317 2,202,816
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Other Property and Investments:
Nuclear decommissioning trusts, at market............... 2,584 2,436
Investments in regional nuclear generating
companies and subsidiary company, at equity............ 19,200 19,300
Other, at cost.......................................... 1,112 1,103
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22,896 22,839
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Current Assets:
Cash.................................................... 222 117
Notes receivable from affiliated companies.............. 86,850 19,100
Receivables, net........................................ 93,649 91,535
Accounts receivable from affiliated companies........... 1,214 1,486
Accrued utility revenues................................ 29,443 33,984
Fuel, materials, and supplies, at average cost.......... 43,553 41,717
Prepayments and other................................... 5,275 11,196
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260,206 199,135
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Deferred Charges:
Regulatory assets:
Income taxes, net...................................... 200,905 192,690
Unrecovered contractual obligation (Note 4)<F4>........ 14,908 18,814
Recoverable energy costs............................... 226,133 220,093
Other.................................................. 2,380 2,404
Unamortized debt expense................................ 13,308 14,165
Deferred receivable from affiliated company............. 33,284 33,284
Other................................................... 4,591 3,396
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495,509 484,846
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Total Assets........................................ $ 2,954,928 $ 2,909,636
============= =============
</TABLE>
See accompanying notes to financial statements.
PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE
BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
------------- -------------
(Thousands of Dollars)
<S> <C> <C>
CAPITALIZATION AND LIABILITIES
- ------------------------------
Capitalization:
Common stock--$1 par value.
Authorized and outstanding 1,000 shares................ $ 1 $ 1
Capital surplus, paid in................................ 422,549 422,385
Retained earnings....................................... 168,272 143,039
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Total common stockholder's equity.............. 590,822 565,425
Preferred stock subject to mandatory redemption......... 125,000 125,000
Long-term debt.......................................... 686,485 686,485
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Total capitalization........................... 1,402,307 1,376,910
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Obligations Under Seabrook Power Contracts
and Other Capital Leases................................. 873,361 874,292
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Current Liabilities:
Long-term debt--current portion......................... 172,500 172,500
Obligations under Seabrook Power Contracts and other
capital leases--current portion........................ 40,557 40,996
Accounts payable........................................ 24,381 39,012
Accounts payable to affiliated companies................ 18,855 26,656
Accrued taxes........................................... 2,567 798
Accrued interest........................................ 23,737 9,648
Accrued pension benefits................................ 39,506 38,606
Other................................................... 23,754 19,077
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345,857 347,293
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Deferred Credits:
Accumulated deferred income taxes....................... 255,461 229,057
Accumulated deferred investment tax credits............. 4,923 5,060
Deferred contractual obligation (Note 4)<F4>............ 14,908 18,814
Deferred revenue from affiliated company................ 33,284 33,284
Other................................................... 24,827 24,926
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333,403 311,141
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Commitments and Contingencies (Note 6)<F6>
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Total Capitalization and Liabilities........... $ 2,954,928 $ 2,909,636
============= =============
</TABLE>
See accompanying notes to financial statements.
PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE
STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------------
1996 1995
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(Thousands of Dollars)
<S> <C> <C>
Operating Revenues.................................... $ 269,540 $ 252,337
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Operating Expenses:
Operation --
Fuel, purchased and net interchange power........ 80,227 74,130
Other............................................ 75,457 71,702
Maintenance......................................... 7,469 7,877
Depreciation........................................ 10,946 10,185
Amortization of regulatory assets, net.............. 14,301 14,136
Federal and state income taxes...................... 24,117 21,670
Taxes other than income taxes....................... 12,355 10,779
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Total operating expenses...................... 224,872 210,479
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Operating Income...................................... 44,668 41,858
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Other Income:
Equity in earnings of regional nuclear generating
companies and subsidiary company.................. 516 265
Other, net.......................................... 485 (1,516)
Income taxes........................................ 138 978
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Other income, net............................. 1,139 (273)
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Income before interest charges................ 45,807 41,585
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Interest Charges:
Interest on long-term debt.......................... 17,129 19,818
Other interest...................................... 133 (56)
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Interest charges, net......................... 17,262 19,762
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Net Income............................................ $ 28,545 $ 21,823
=========== ===========
</TABLE>
See accompanying notes to financial statements.
PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-----------------------
1996 1995
----------- -----------
(Thousands of Dollars)
<S> <C> <C>
Operating Activities:
Net Income................................................ $ 28,545 $ 21,823
Adjustments to reconcile to net cash
from operating activities:
Depreciation............................................ 10,946 10,185
Deferred income taxes and investment tax credits, net... 23,735 18,941
Amortization of acquisition costs....................... 14,301 14,136
Other sources of cash................................... 4,982 11,684
Other uses of cash...................................... (1,302) -
Changes in working capital:
Receivables and accrued utility revenues................ 2,699 1,145
Fuel, materials, and supplies........................... (1,836) (5,985)
Accounts payable........................................ (22,432) (18,769)
Accrued taxes........................................... 1,769 451
Other working capital (excludes cash)................... 18,549 21,960
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Net cash flows from operating activities.................... 79,956 75,571
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Financing Activities:
Reacquisitions and retirements of long-term debt.......... - (23,500)
Cash dividends on preferred stock......................... (3,312) (3,313)
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Net cash flows used for financing activities................ (3,312) (26,813)
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Investment Activities:
Investment in plant:
Electric utility plant.................................. (8,741) (13,279)
Nuclear fuel............................................ 1 (197)
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Net cash flows used for investments in plant.............. (8,740) (13,476)
NU System Money Pool...................................... (67,750) (35,500)
Other investment activities, net.......................... (49) 113
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Net cash flows used for investments......................... (76,539) (48,863)
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Net Increase (Decrease) in Cash For The Period.............. 105 (105)
Cash - beginning of period.................................. 117 296
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Cash - end of period........................................ $ 222 $ 191
=========== ===========
</TABLE>
See accompanying notes to financial statements.
PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
1. PRESENTATION
The accompanying unaudited financial statements should be read in
conjunction with the Annual Report of Public Service Company of New
Hampshire (the company or PSNH) on Form 10-K for the year ended
December 31, 1995 (1995 Form 10-K). In the opinion of the company, the
accompanying financial statements contain all adjustments necessary to
present fairly the financial position as of March 31, 1996, the results of
operations for the three months ended March 31, 1996 and 1995, and the
statements of cash flows for the three months ended March 31, 1996 and
1995. All adjustments are of a normal, recurring, nature. The results of
operations for the three months ended March 31, 1996 and 1995 are not
necessarily indicative of the results expected for a full year.
Northeast Utilities (NU) is the parent company of the Northeast Utilities
system (the system). The system furnishes retail electric service in
Connecticut, New Hampshire, and western Massachusetts through four wholly
owned subsidiaries, The Connecticut Light and Power Company (CL&P), PSNH,
Western Massachusetts Electric Company (WMECO), and Holyoke Water Power
Company. A fifth wholly owned subsidiary, North Atlantic Energy
Corporation (NAEC), sells all of its capacity to PSNH. In addition to its
retail service, the system furnishes firm and other wholesale electric
services to various municipalities and other utilities. The system serves
about 30 percent of New England's electric needs and is one of the 20
largest electric utility systems in the country as measured by revenues.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Certain reclassifications of prior period data have been made to conform
with the current period presentation.
2. NEW ACCOUNTING STANDARD
The Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standards (SFAS) 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, in March
1995. SFAS 121 establishes accounting standards for evaluating and
recording asset impairment. The company adopted SFAS 121 as of January 1,
1996. SFAS 121 requires the evaluation of long-lived assets for impairment
when certain events occur or when conditions exist that indicate the
carrying amounts of assets may not be recoverable.
SFAS 121 requires that any assets, including regulatory assets, that are no
longer probable of recovery through future revenues be revalued based on
estimated future cash flows. If the revaluation is less than the book
value of the asset, an impairment loss would be charged to earnings. Based
on the current regulatory environment in the system's service areas, as of
March 31, 1996, SFAS 121 did not have a material impact on the company's
financial position or results of operations. This conclusion may change in
the future as competitive factors influence wholesale and retail pricing in
the electric utility industry or if the cost-of-service based regulatory
structure were to change. For further information on the company's
regulatory environment, refer to Management's Discussion and Analysis of
Financial Condition and Results of Operations (MD&A), and Part II, Item 5,
"Other Information," in this Form 10-Q and the Notes to Financial
Statements in PSNH's 1995 Form 10-K.
3. NUCLEAR DECOMMISSIONING
The staff of the Securities and Exchange Commission has questioned certain
of the current accounting practices of the electric utility industry,
including the company, regarding the recognition, measurement, and
classification of decommissioning costs for nuclear generating stations in
the financial statements of electric utilities. In response to these
questions, the FASB has agreed to review the accounting for removal costs,
including decommissioning, and has issued a proposed statement "Accounting
for Liabilities Related to Closure or Removal of Long-Lived Assets" in
February 1996. If current electric utility industry accounting practices
for such decommissioning are changed: (1) annual provisions for
decommissioning could increase, (2) the estimated cost for decommissioning
could be recorded as a liability rather than as accumulated depreciation,
and (3) trust fund income from the external decommissioning trusts could be
reported as investment income rather than as a reduction to decommissioning
expense.
4. YANKEE ATOMIC ELECTRIC COMPANY (YAEC)
PSNH holds a 7.0 percent ownership interest in YAEC. YAEC's nuclear power
plant was shut down permanently on February 26, 1992. YAEC is in the
process of dismantling its nuclear facility. Effective January 1996, YAEC
began billing its sponsors, including CL&P, WMECO, and PSNH, amounts based
on a revised estimate approved by the Federal Energy Regulatory Commission
that assumes decommissioning by the year 2000. This revised estimate was
based on continued access to the Barnwell, South Carolina, low-level
radioactive waste facility, changes in assumptions about earnings on
decommissioning trust investments, and changes in other decommissioning
cost assumptions. As of January 1996, the estimated remaining costs,
including decommissioning based on YAEC's revised estimate amounted to
$225.2 million, of which PSNH's share was approximately $15.8 million.
For further information on YAEC, refer to the Notes to Financial Statements
in PSNH's 1995 Form 10-K.
5. SHORT-TERM DEBT
On April 30, 1996, PSNH increased its $125 million revolving-credit
agreement to $225 million with approval from the New Hampshire Public
Utilities Commission (NHPUC). In addition, the agreement, which was
scheduled to expire in May 1996, has been extended, so that $100 million of
the agreement will expire April 1997 and the remaining $125 million will
expire April 1999. PSNH will use the facility in part to finance the
repayment at maturity of PSNH's $172.5 million of Series A first mortgage
bonds on May 16, 1996. For further information on Short-Term Debt, see the
Notes to Financial Statements in PSNH's 1995 Form 10-K.
6. COMMITMENTS AND CONTINGENCIES
A. Construction Program: For information regarding PSNH's construction
program, see the Notes to Financial Statements in PSNH's 1995
Form 10-K.
B. Nuclear Performance: On January 31, 1996, the Nuclear Regulatory
Commission (NRC) announced that the three Millstone nuclear power
plants had been placed on its "watch list" because of long-standing
performance concerns. The NRC cited a number of operational problems,
that have arisen since 1990 at the Millstone plants.
On March 30, 1996, Millstone 3, a 1154-MW pressurized-water reactor
that is jointly owned by CL&P (52.93 percent), WMECO (12.24 percent),
PSNH (2.85 percent), and other New England utilities, was shut down
following an engineering evaluation which determined that four safety-
related valves would not be able to perform their design function
during certain postulated events. On April 4, 1996, the NRC issued NU
a letter requesting it to submit, no later than seven days prior to
restart of the unit, information describing the actions taken to
ensure the future operation of the unit will be conducted in
accordance with the terms and conditions of its operating license, NRC
regulations, and the plant's updated Final Safety Analysis Report
(collectively, "NRC requirements"). The letter also requires that
certain specific technical issues be resolved to the NRC's
satisfaction prior to restarting the unit.
On March 7, 1996, the NRC issued a letter to Northeast Utilities
Service Company (NUSCO), requesting operational assurances related to
the Connecticut Yankee nuclear unit (CY), a 575-MW pressurized water
reactor that is jointly owned by CL&P (34.5 percent), WMECO (9.5
percent), PSNH (5.0 percent), and other New England utilities, in
which NUSCO serves as agent for CY. The NRC's letter also requested
CY's plans and schedules for performing comprehensive compliance
checks. Operations at CY were not restricted by the NRC's request.
NUSCO filed a response to the NRC's request on April 8, 1996. A two-
week NRC review of the plant followed the submission of CY's response.
Based on that review, CY will update its April 8, 1996 letter to
address the NRC inspection findings by May 30, 1996. Management
believes that the outcome of the NRC's inspection at CY will not have
a material adverse impact on PSNH's financial position and results of
operations. NRC activities are continuing and management cannot
predict at this time what additional actions, if any, the NRC will
take with respect to CY.
As of May 6, 1996, Millstone 3 was out of service, as the engineering
analysis needed to respond to the NRC requirements is still being
performed. PSNH's share of monthly replacement power costs are not
expected to be significant. Management estimates that the work
required to comply with the NRC requirements will be completed by
early July 1996 for Millstone 3. Management cannot predict at this
time how long the NRC's review will take or what additional actions,
if any, will be required before the unit is allowed to restart.
Recovery of replacement power costs for Millstone 3 will be subject to
prudence reviews by the NHPUC for PSNH.
In addition to the replacement power costs, PSNH expects to incur
operation and maintenance costs (O&M) related to the NRC's actions at
Millstone 3, which are not expected to be significant. Management
cannot estimate at this time when Millstone 3 will return to service,
nor can management predict the possible loss or range of loss the
company may incur as a result of NRC actions related to the operations
of Millstone 3 or CY.
For further information on the company's nuclear performance, refer to
the company's Form 8-K dated March 30, 1996, the MD&A and Part II,
Item 5, "Other Information" in this Form 10-Q and PSNH's 1995 Form 10-
K.
C. Environmental Matters: For information regarding environmental
matters, see the Notes to Financial Statements in PSNH's 1995 Form
10-K.
D. Nuclear Insurance Contingencies: For information regarding nuclear
insurance contingencies, see the Notes to Financial Statements in
PSNH's 1995 Form 10-K.
E. Long-Term Contractual Arrangements: For information regarding long-
term contractual arrangements, see Part II, Item 5 - "Other
Information" in this Form 10-Q and the Notes to Financial Statements
in PSNH's 1995 Form 10-K.
PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
This section contains management's assessment of PSNH's (the company) financial
condition and the principal factors having an impact on the results of
operations. The company is a wholly-owned subsidiary of Northeast Utilities
(NU). This discussion should be read in conjunction with PSNH's consolidated
financial statements and footnotes in this Form 10-Q, the 1995 Form 10-K, and
the Form 8-Ks dated January 31, 1996 and March 30, 1996.
FINANCIAL CONDITION
OVERVIEW
Net income was approximately $29 million for the three months ended March 31,
1996, an increase of approximately $7 million from approximately $22 million for
the same period in 1995. The 1996 net income was higher primarily due to higher
revenues from higher retail kilowatt-hour sales and lower interest charges.
RATE MATTERS
In 1995, the New Hampshire Legislature created a committee to review the
industry's structure and called for the New Hampshire Public Utilities
Commission (NHPUC) to initiate a two year retail-wheeling pilot program. The
program, which is expected to begin by the end of May 1996, will initially
impact 3 percent of PSNH's peak retail electric load (approximately 12,000
customers). The NHPUC has approved PSNH's plan for participation in the retail-
wheeling pilot program. Under this plan, PSNH would recover all of its costs
above an assumed market price of power and provide a 10-percent incentive credit
off its traditional rates to customers who participate in the program to
encourage customer participation in the two year experiment. If actual market
prices differ from the assumed level, the NHPUC has stated that utilities may
seek recovery of the difference. The NHPUC has required that PSNH participate
in the competitive energy sales portion of the pilot program through a separate
affiliated company. An application seeking authority for a PSNH affiliate to
participate in the pilot program is currently pending before the Securities and
Exchange Commission.
The New Hampshire Legislature has passed legislation calling for the
restructuring of the electric-power industry to provide competition and customer
choice no later than July 1, 1998. The legislation, which is awaiting signature
by the Governor, seeks to maintain universal service, environmental protections,
and benefits for all consumers, while creating near-term rate relief. The
legislation specifically limits stranded cost recovery to that which is legally
required under applicable regulation or law. The NHPUC is required to issue an
Order establishing a statewide restructuring plan no later than February 28,
1997. Utilities must submit compliance filings no later than June 30, 1997.
In April 1996, PSNH publicly announced a proposal to begin negotiations with the
state on rates and other matters. PSNH indicated that, with state support, PSNH
may be able to lower its allowed rates by as much as 10 percent and cap them
through 2000. Such an agreement would be effective subsequent to the final 5.5-
percent rate increase effective June 1, 1996, which is allowed under the current
rate agreement. The outcome of the proposal, which would require the adoption
of a series of creative financial and regulatory measures, cannot be predicted
at this time.
NUCLEAR PERFORMANCE
PSNH has a 2.85-percent ownership interest in Millstone 3 and a 5 percent
ownership interest in the Connecticut Yankee Atomic Power Company (CYAPC). In
addition, PSNH is obligated to purchase North Atlantic Energy Corporation's
35.98 percent share of the capacity and output generated by Seabrook 1.
On January 31, 1996, the NRC placed Millstone units 1, 2, and 3 (Millstone) on
its watch list, which calls for increased NRC inspection attention. The NRC's
action referred to a number of performance concerns that have arisen since 1990,
including the inability to resolve employee safety concerns.
On March 7, 1996, the NRC requested operational assurances from Millstone 3 and
the CYAPC, with respect to the Connecticut Yankee Nuclear Power Plant (CY), as
well as plans and schedules for performing comprehensive compliance checks.
Operation of the units was not restricted by the NRC's March 7th request.
On March 30, 1996, NU took Millstone 3 out of service as a result of an
engineering evaluation that determined certain system-isolation valves would not
perform properly under certain situations. On April 4, 1996, the NRC issued a
letter requesting information no later than 7 days prior to the restart of the
unit assessing the plant's readiness in ensure that the future operation of the
plant will be conducted in accordance with the terms and conditions of its
operating license, Updated Final Safety Analysis Reports, and the NRC's
regulations.
On April 8, 1996, CYAPC submitted its response to the NRC's March 7th letter.
Subsequent to NU's submission, the NRC conducted a two-week inspection at CY,
focused on engineering and licensing documentation and practices. The NRC
provided its preliminary inspection findings at a meeting with plant management
on April 26, 1996. The NRC's conclusions, which will be more fully described in
a written inspection report to be issued within the next several weeks, included
findings that in certain instances CY's plant design is not conservative and
that the technical bases for design or operations decisions are not well
documented. Even with these findings, the NRC indicated that it did not believe
that CY was unsafe to operate. The NRC has requested that CYAPC supplement its
April 8th letter to address these inspection findings and explain why CY remains
safe to operate while the inspection findings are addressed. CYAPC's
supplemental letter is to be submitted by May 30, 1996. The NRC's activities
are continuing and management cannot predict at this time what additional
activities, if any, the NRC will take with respect to CY.
On April 22, 1996, the NRC announced the results of a recent inspection at
Seabrook 1. The NRC indicated that it found Seabrook 1 to be a well-operated
facility and found no major safety issues or weaknesses. The NRC noted that it
would reduce inspections in a number of areas at Seabrook 1 as a result of its
findings.
The work necessary to respond to the NRC's letter regarding Millstone 3 is
expected to be completed by July 2, 1996. The NRC has required that this
information be submitted no later than 7 days before the unit returns to
operation. Since the NRC will carefully review the response before permitting
the unit to return to operation, management cannot predict at this time how long
the NRC's review will take or what additional actions, if any, will be required
before the unit is allowed to restart. This estimate could be affected by the
discovery of additional issues and necessary corrective work.
Based on PSNH's 2.85-percent ownership interest in Millstone 3, monthly
replacement-power costs attributable to the Millstone 3 outage are not expected
to be significant for PSNH.
In addition to the costs of replacement power, there are, and will be,
incremental operation and maintenance (O&M) costs associated with the Millstone
3 outage and the NRC review. Because it cannot be known with any certainty how
long the unit will remain out of service, management can only provide general
estimates of the amount of direct costs that will be incurred. PSNH's portion
of these costs is not estimated to be significant. It is likely that these
costs will increase as additional projects are identified by NU or the NRC.
The recovery of fuel and outage costs are subject to prudence reviews. While it
is too early to estimate the total amount of replacement-power and other costs
that will result from the NRC's review of Millstone 3, or what the results of
any prudence reviews will be. Management does not expect the impact to be
material to PSNH.
In April 1996, the NU Board of Trustees (the Board) announced the formation of a
special committee of the Board to provide high-level oversight of the safety and
effectiveness of NU's nuclear operations, progress toward resolving open NRC
issues, and progress in resolving employee, community, and customer concerns.
The new committee will consist exclusively of outside trustees and will be
chaired by E. Gail de Planque, a Board member who is a former NRC commissioner.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided from operations increased approximately $4 million for the first
three months of 1996, from 1995, primarily due to higher revenues from
recoveries of fuel costs paid in prior periods, partially offset by higher cash
operating expenses. Cash used for financing activities decreased approximately
$24 million for the first three months of 1996, from 1995, primarily due to the
repayment in 1995 of the variable rate Term Loan. Cash used for investments
increased approximately $28 million for the first three months of 1996, from
1995, primarily due to an increase in loans to the NU system Money Pool.
In April 1996, Standard & Poor's Ratings Group placed the ratings of PSNH and
NAEC on CreditWatch with negative implications. These rating actions could
adversely affect the future availability and cost of funds.
Also, in April 1996, PSNH increased the limit, and extended the expiration date
of, its revolving-credit agreement limit. PSNH will draw funds under this new
facility in addition to using available cash to fund the maturity of its $172.5
million first mortgage bond in May 1996.
RESULTS OF OPERATIONS
Comparison of the First Quarter of 1996 with the First Quarter of 1995
- ----------------------------------------------------------------------
Operating revenues increased approximately $17 million in the first quarter of
1996, from 1995. The components of the change in operating revenues are as
follows:
Changes in Operating Revenues Increase/(Decrease)
- ----------------------------- -------------------
(Millions of Dollars)
Regulatory decisions $ 2
Fuel, purchased power,
and FPPAC cost recoveries 10
Sales volume 5
----
Total revenue change $17
===
Revenues related to regulatory decisions increased primarily because of the June
1995 retail rate increase. Fuel, purchased-power, and Fuel and Purchased Power
Adjustment Clause (FPPAC) cost recoveries increased primarily due to higher
energy and purchased power costs. Retail kilowatt-hour sales increased
approximately 3 percent for the first quarter of 1996 from 1995 sales levels
primarily due to milder weather in the first three months of 1995.
Fuel, purchased and net interchange power expense increased approximately $6
million in the first quarter of 1996, from 1995, primarily due to an increase in
energy costs due to higher retail sales and higher purchases from outside
utilities.
Other Operation and Maintenance expense increased approximately $3 million in
the first quarter of 1996, from 1995, partially due to higher pension and
benefits costs.
Other, net increased approximately $2 million in the first quarter of 1996, from
1995, primarily due to the 1995 increase to the environmental reserve
established for the Laconia, New Hampshire coal tar site.
Interest on long-term debt decreased approximately $3 million in the first
quarter of 1996, from 1995, primarily due to the 1995 repayment of the variable
rate Term Loan.
Federal and State Income taxes increased approximately $2 million in the first
quarter of 1996, from 1995, primarily due to higher taxable income.
Taxes other than income taxes increased approximately $2 million in the first
quarter of 1996, from 1995, primarily due to higher 1996 New Hampshire property
taxes.
PART II. OTHER INFORMATION
ITEM 1.LEGAL PROCEEDINGS
1. On April 10, 1996, NU received a letter from a representative of a
shareholder demanding that it commence legal action against Bernard M.
Fox and certain unnamed officers and directors with regard to operations
at Millstone Station. On April 23, 1996, NU's Board of Trustees created
a special committee that would, among other responsibilities, conduct an
independent review and investigation of the allegations contained in the
letter and make recommendations as to how the Board of Trustees should
respond to the letter.
In addition, on April 19, 1996, NU was served with a civil complaint
naming as defendants certain current and former trustees and officers.
The complaint was brought as a shareholder derivative action in the
Massachusetts Superior Court for the Hampden Division seeking to recover
unspecified damages for alleged losses purportedly arising out of NU's
operation of Millstone Station. NU is presently evaluating this matter.
NU has also been served in two similar proceedings in Connecticut
Supreme Court.
ITEM 5. OTHER INFORMATION
1. On April 9, 1996, Northeast Nuclear Energy Company ("NNECO") and the
Nuclear Regulatory Commission ("NRC") staff filed a joint motion to
terminate the NRC proceeding which began in 1995 when several New
England based public interest groups requested a hearing on the
Millstone 1 license amendment which explicitly authorized the practice
of offloading the full reactor core during refueling outages. The joint
motion was based on representations by counsel for the petitioners that
the matter would no longer be pursued. On April 15, 1995, the NRC's
Atomic Safety and Licensing Board granted the joint motion to terminate
the proceeding.
For additional information on this proceeding, see "Item 1. Business -
Electric Operations - Nuclear Generation - Millstone Units" in PSNH's
1995 Form 10-K.
2. On May 3, 1996, NU was advised by the Office of the U.S. Attorney for
the District of Connecticut (U.S. Attorney) that it had received a
report by the NRC Office of Investigations (OI) relating to full core
off-load procedures and certain related matters at Millstone Station.
The OI referred the report to the U.S. Attorney for review for possible
criminal prosecution and NU has been informed that the U.S. Attorney is
in the early stages of reviewing its conduct. NU does not have the OI's
report and therefore cannot evaluate either whether the report is
accurate or what any civil or criminal consequences may be. Despite the
possibility that some form of prosecutorial action might be initiated,
management does not believe that any System company or officer has
engaged in conduct that would warrant a federal criminal prosecution and
intends to fully cooperate with the U.S. Attorney in the investigation.
3. In early 1996, the New Hampshire Public Utilities Commission ("NHPUC")
began a proceeding to decide whether to approve the settlement
agreements which Public Service Company of New Hampshire ("PSNH") had
reached with certain wood-fired nonutility generators ("NUGs"). On
March 11, 1996, the NHPUC decided, although the settlement agreements
contain a waiver of all claims by every party for past purchases of the
NUGs' output, to review whether PSNH had used its best efforts to
negotiate the settlements. On April 11, 1996, PSNH filed a Motion for
Rehearing with the NHPUC.
For additional information on this matter, see "Item 1. Business - Rates
- New Hampshire Retail Rates - NUGs" in PSNH's 1995 Form 10-K.
4. On March 27, 1996, the New Hampshire Electric Cooperative ("NHEC") filed
a Complaint, Request for Initiation of Proceedings and Motion for
Deferral requesting that FERC initiate proceedings to determine whether
PSNH is improperly billing NHEC costs associated with installation and
maintenance of selective non-catalytic reduction ("SNCR") technology at
PSNH's fossil-generating station Merrimack Unit 2. These costs result
from the installation of pollution control measures necessary to comply
with the Federal Clean Air Act Amendments of 1990. On March 25, 1996,
the NHPUC had indicated that PSNH would be allowed to recover only those
costs associated with the installation of SNCR technology through the
FPPAC. The NHPUC agreed that recovery of all amounts was appropriate
once the $20 million capital or the $2 million expense thresholds had
been reached and allowed PSNH to combine total costs for all units to
determine the threshold amount. The NHPUC has yet to issue a written
order in this proceeding.
For additional information on this proceeding, see "Item 1. Business -
Rates - New Hampshire Retail Rates - FPPAC" in PSNH's 1995 Form 10-K.
5. On April 24, 1996, FERC issued its final open access rule (the ``Rule'')
to promote competition in the electric industry. The Rule will require,
among other things, all public utilities that own, control or operate
facilities used for transmitting electric energy in interstate commerce
to file an open-access, non-discriminatory transmission tariff and to
take transmission service for their own new wholesale sales and
purchases under the open-access tariffs. The Rule also requires public
utilities to develop and maintain a same-time information system that
will give existing and potential transmission users the same access to
transmission information that the public utility enjoys, and requires
public utilities to separate transmission from generation marketing
functions and communications. The Rule also supports full recovery of
legitimate, prudent and verifiable stranded costs associated with
providing open access transmission services.
On March 29, 1996, FERC approved NU's transmission tariffs, where were
revised to meet the comparability standards articulated in the Notice of
Proposed Rulemaking that preceded the Rule and conditioned acceptance of
NU's market-based power sales tariff, where it permits NU to sell power
to wholesale customers outside of New England, on the removal of certain
language. NU submitted the required compliance filing to FERC on April
12, 1996. As a result of the Rule, NU will refile its transmission
tariffs to conform with the minimum terms and conditions set forth in
the Rule. Management is continuing to review what other steps, if any,
must be taken to comply with the Rule.
For additional information on this matter, see "Item 1. Business -
Competition and Marketing - Wholesale Marketing" in PSNH's 1995 Form 10-
K.
ITEM 6.EXHIBITS AND REPORTS ON FORM 8-K
(a) Listing of Exhibits:
Exhibit Number Description
-------------- -----------
27 Financial Data Schedule
(b) Reports on Form 8-K:
1. PSNH filed a Form 8-K dated January 31, 1996 disclosing that the NRC had
placed Millstone station on its "watch list."
2. PSNH filed a Form 8-K dated March 30, 1996 updating the status of
Millstone station as related to the NRC's actions to date.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE
---------------------------------------
Registrant
Date May 8, 1996 By /s/ Bernard M. Fox
----------- -----------------------------------
Bernard M. Fox
Chairman, Chief Executive Officer
and Director
Date May 8, 1996 By /s/ John J. Roman
----------- ------------------------------------
John J. Roman
Vice President and Controller
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