<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
____________________________
FORM 10-K
AMENDMENT NO. 1
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [Fee Required]
For fiscal year ended December 31, 1995
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [No fee Required]
Registrant; State of
Incorporation or
Commission Organization; Address; I.R.S. Employer
File Number and Telephone Number Identification No
- ------------ ---------------------- ------------------
1-3446 NEW ENGLAND ELECTRIC SYSTEM 04-1663060
(A Massachusetts voluntary
association)
25 Research Drive
Westborough, Massachusetts 01582
Telephone: 508-389-2000
1-6564 NEW ENGLAND POWER COMPANY 04-1663070
(A Massachusetts corporation)
25 Research Drive
Westborough, Massachusetts 01582
Telephone: 508-389-2000
0-5464 MASSACHUSETTS ELECTRIC COMPANY 04-1988940
(A Massachusetts corporation)
25 Research Drive
Westborough, Massachusetts 01582
Telephone: 508-389-2000
1-7471 THE NARRAGANSETT ELECTRIC COMPANY 05-0187805
(A Rhode Island corporation)
280 Melrose Street
Providence, Rhode Island 02907
Telephone: 401-784-7000
Indicate by check mark whether the registrants (1) have filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrants were required to file such reports), and (2) have been subject to
such filing requirements for the past 90 days.
(X) Yes ( ) No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. (X)
<PAGE>
The purpose of this Amendment is to file electronically with
the Commission those exhibits to the Form 10-K for the year ended
December 31, 1995, which were not previously filed due to an
error in electronic filing formatting. New exhibit indexes are
supplied for each filing company.
<PAGE>
NEW ENGLAND ELECTRIC SYSTEM
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this Amendment No. 1 to Form 10-K to be signed on its behalf, by
the undersigned thereunto duly authorized.
NEW ENGLAND ELECTRIC SYSTEM
s/John G. Cochrane
____________________________
John G. Cochrane
Attorney-in-fact
Date: April 2, 1996
The name "New England Electric System" means the trustee or
trustees for the time being (as trustee or trustees but not
personally) under an agreement and declaration of trust dated
January 2, 1926, as amended, which is hereby referred to, and a
copy of which as amended has been filed with the Secretary of the
Commonwealth of Massachusetts. Any agreement, obligation or
liability made, entered into or incurred by or on behalf of New
England Electric System binds only its trust estate, and no
shareholder, director, trustee, officer or agent thereof assumes
or shall be held to any liability therefor.
<PAGE>
NEW ENGLAND POWER COMPANY
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this Amendment No. 1 to Form 10-K to be signed on its behalf, by
the undersigned thereunto duly authorized. The signature of the
undersigned company shall be deemed to relate only to matters
having reference to such company.
NEW ENGLAND POWER COMPANY
s/John G. Cochrane
____________________________
John G. Cochrane
Attorney-in-fact
Date: April 2, 1996
<PAGE>
MASSACHUSETTS ELECTRIC COMPANY
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this Amendment No. 1 to Form 10-K to be signed on its behalf, by
the undersigned thereunto duly authorized. The signature of the
undersigned company shall be deemed to relate only to matters
having reference to such company.
MASSACHUSETTS ELECTRIC COMPANY
s/John G. Cochrane
____________________________
John G. Cochrane
Attorney-in-fact
Date: April 2, 1996
<PAGE>
THE NARRAGANSETT ELECTRIC COMPANY
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this Amendment No. 1 to Form 10-K to be signed on its behalf, by
the undersigned thereunto duly authorized. The signature of the
undersigned company shall be deemed to relate only to matters
having reference to such company.
THE NARRAGANSETT ELECTRIC COMPANY
s/John G. Cochrane
____________________________
John G. Cochrane
Attorney-in-fact
Date: April 2, 1996
<PAGE>
NEES
EXHIBIT INDEX
---------------
Exhibit No. Description Page
- ----------- ----------- ----
(3) Agreement and Declaration of Previously
Trust dated January 2, 1926, Filed
as amended through April 28,
1992
(4)(a) Massachusetts Electric Company Previously
First Mortgage Indenture and Filed
Deed of Trust, dated as of
July 1, 1949, and twenty
supplements thereto
Twenty-first Supplemental Previously
Indenture, dated as of April 1, Filed
1995
(4)(b) The Narragansett Electric Previously
Company First Mortgage Indenture Filed
and Deed of Trust, dated as of
September 1, 1944, and twenty-one
supplements thereto
Twenty-second Supplemental Previously
Indenture, dated as of June 1, Filed
1995
(4)(c) The Narragansett Electric Previously
Company Preference Provisions, Filed
as amended, dated March 23, 1993
(4)(d) New England Power Company General Previously
and Refunding Mortgage Indenture Filed
and Deed of Trust dated as of
January 1, 1977 and nineteen
supplements thereto
Twentieth Supplemental Indenture, Previously
dated as of July 1, 1994 Filed
(10)(a) Boston Edison Company et al. and Previously
New England Power Company: Filed
Amended REMVEC Agreement dated
August 12, 1977
<PAGE>
(10)(b) The Connecticut Light and Power Previously
Company et al. and New England Filed
Power Company: Sharing Agreement
for Joint Ownership, Construction
and Operation of Millstone Unit No.
3 dated as of September 1, 1973, and
Amendments thereto; Transmission
Support Agreement dated August 9,
1974; Instrument of Transfer to NEP
with respect to the 1979 Connecticut
Nuclear Unit, and Assumption of
Obligations, dated December 17, 1975
(10)(c) Connecticut Yankee Atomic Power Previously
Company et al. and New England Filed
Power Company: Stockholders
Agreement dated July 1, 1964;
Power Purchase Contract dated
July 1, 1964; Supplementary
Power Contract dated as of
April 1, 1987; Capital Funds
Agreement dated September 1,
1964; Transmission Agreement
dated October 1, 1964;
Agreement revising Transmission
Agreement dated July 1, 1979;
Guarantee Agreement dated as of
November 13, 1981; Guarantee
Agreement dated as of August 1,
1985
Amendment revising Transmission Previously
Agreement dated as of January 19, Filed
1994
(10)(d) Maine Yankee Atomic Power Company Previously
et al. and New England Power Filed
Company: Capital Funds Agreement
dated May 20, 1968 and Power
Purchase Contract dated May 20,
1968; Amendments dated as of
January 1, 1984, March 1, 1984,
October 1, 1984, and August 1,
1985; Stockholders Agreement
dated May 20, 1968; Additional
Power Contract dated as of
February 1, 1984; Guarantee
Agreement dated as of September 23,
1985
<PAGE>
(10)(e)(i) New England Energy Incorporated Previously
Capital Funds Agreement with Filed
NEES dated November 1, 1974 and
Amendments thereto
(10)(e)(ii) New England Energy Incorporated Previously
Loan Agreement with NEES dated Filed
July 19, 1978 and effective
November 1, 1974, and Amendments
thereto
(10)(e)(iii) New England Energy Incorporated Previously
Fuel Purchase Contract with Filed
New England Power Company dated
July 26, 1979, and Amendments
thereto
(10)(e)(iv) New England Energy Incorporated Previously
Partnership Agreement with Filed
Samedan Oil Corporation as
Amended and Restated on
February 5, 1985 and Amendment
thereto
(10)(e)(v) New England Energy Incorporated Previously
Credit Agreement dated as of Filed
April 13, 1995
(10)(e)(vi) New England Energy Incorporated Previously
Capital Maintenance Agreement Filed
dated November 15, 1985, and
Assignment and Security Agreement
dated November 15, 1985 and
Amendment thereto
(10)(f) New England Power Company and Previously
New England Electric Transmission Filed
Corporation et al.: Phase I
Terminal Facility Support
Agreement dated as of December 1,
1981 and Amendments thereto;
Agreement with respect to Use
of the Quebec Interconnection
dated as of December 1, 1981
and Amendments thereto; Agreement
for Reinforcement and Improvement
of New England Power Company's
Transmission System dated as of
April 1, 1983; Lease dated as of
May 16, 1983; Upper Development -
Lower Development Transmission
Line Support Agreement dated as
of May 16, 1983
<PAGE>
(10)(g) New England Electric Transmission Previously
Corporation and PruCapital Filed
Management, Inc. et al: Note
Agreement dated as of
September 1, 1986; Mortgage,
Deed of Trust and Security
Agreement dated as of
September 1, 1986; Equity
Funding Agreement with New
England Electric System dated
as of December 1, 1985
(10)(h) Vermont Electric Transmission Previously
Company, Inc. et al. and New Filed
England Power Company: Phase I
Vermont Transmission Line
Support Agreement dated as
of December 1, 1981 and
Amendments thereto
(10)(i) New England Power Pool Previously
Agreement and Amendments thereto Filed
Amendments dated as of June 1, Previously
1993, July 1, 1995, and Filed
September 1, 1995
(10)(j) Public Service Company of New Previously
Hampshire et al. and New England Filed
Power Company: Agreement for
Joint Ownership, Construction
and Operation of New Hampshire
Nuclear Units dated as of
May 1, 1973 and Amendments
thereto; Transmission Support
Agreement dated as of May 1,
1973; Instrument of Transfer
to NEP with respect to the
New Hampshire Nuclear Units
and Assumptions of Obligations
dated December 17, 1975;
Agreement Among Participants
in New Hampshire Nuclear Units,
certain Massachusetts Municipal
Systems and Massachusetts
Municipal Wholesale Electric
Company dated May 28, 1976;
Seventh Amendment To and Restated
Agreement for Seabrook Project
Disbursing Agent and Amendments
thereto; Seabrook Project
Managing Agent Operating
Agreement dated as of June 29,
1992, and Amendment to Seabrook
Project Managing Agent Agreement
dated as of June 29, 1992
<PAGE>
(10)(k) Vermont Yankee Nuclear Power Previously
Corporation et al. and New Filed
England Power Company: Capital
Funds Agreement dated
February 1, 1968, Amendment
dated March 12, 1968, and Power
Purchase Contract dated
February 1, 1968 and Amendments
thereto; Additional Power
Contract dated as of February 1,
1984; Guarantee Agreement dated
as of November 5, 1981
(10)(l) Yankee Atomic Electric Company Previously
et al. and New England Power Filed
Company: Amended and Restated
Power Contract dated April 1,
1985 and Amendments thereto
(10)(m) New England Electric Companies' Previously
Deferred Compensation Plan as Filed
amended dated January 1, 1995
(10)(n) New England Electric System Previously
Companies Retirement Supplement Filed
Plan as amended dated December 1,
1995
(10)(o) New England Electric Companies' Previously
Executive Supplemental Retirement Filed
Plan as amended dated January 1,
1995
(10)(p) New England Electric Companies' Previously
Incentive Compensation Plan as Filed
amended dated January 1, 1995
(10)(q) New England Electric Companies' Previously
Senior Incentive Compensation Filed
Plan as amended dated January 1,
1995
(10)(r) New England Electric Companies' Previously
Incentive Compensation Plan II Filed
as amended dated January 1,
1995
(10)(s) New England Electric System Previously
Directors Deferred Compensation Filed
Plan as amended dated
November 24, 1992
(10)(t) Forms of Life Insurance Program Previously
and Form of Life Insurance Filed
(Collateral Assignment)
<PAGE>
(10)(u) New England Electric Companies' Previously
Incentive Share Plan as amended Filed
dated January 1, 1994
(10)(v) New England Power Company and Previously
New England Hydro-Transmission Filed
Electric Company, Inc. et al:
Phase II Massachusetts
Transmission Facilities Support
Agreement dated as of June 1,
1985 and Amendments thereto
(10)(w) New England Power Company and Previously
New England Hydro-Transmission Filed
Corporation et al: Phase II
New Hampshire Transmission
Facilities Support Agreement
dated as of June 1, 1985 and
Amendments thereto
(10)(x) New England Power Company et Previously
al: Phase II New England Power Filed
AC Facilities Support Agreement
dated as of June 1, 1985 and
Amendments thereto
(10)(y) New England Hydro-Transmission Previously
Electric Company, Inc. and New Filed
England Electric System et al:
Equity Funding Agreement dated
as of June 1, 1985 and Amendments
thereto
(10)(z) New England Hydro-Transmission Previously
Corporation and New England Filed
Electric System et al: Equity
Funding Agreement dated as of
June 1, 1985 and Amendments
thereto
(10)(aa) Ocean State Power, et al., and Previously
Narragansett Energy Resources Filed
Company: Equity Contribution
Agreement dated as of
December 29, 1988; Amendment
dated as of September 29, 1989
Ocean State Power, et al., and Previously
New England Electric System: Filed
Equity Contribution Support
Agreement dated as of
December 29, 1988; Amendment
dated as of September 29, 1989;
<PAGE>
Ocean State Power II, et al., Previously
and Narragansett Energy Resources Filed
Company: Equity Contribution
Agreement dated as of September 29,
1989; Ocean State Power II, et al.,
and New England Electric System:
Equity Contribution Support
Agreement dated as of
September 29, 1989
(10)(bb) New England Power Service Previously
Company and Joan T. Bok: Filed
Service Credit Letter dated
October 21, 1982
(10)(cc) New England Electric System Previously
and John W. Rowe: Service Filed
Credit Letter dated
December 5, 1988
(10)(dd) New England Power Service Previously
Company and the Company: Filed
Form of Supplemental Pension
Service Credit Agreement
(10)(ee) New England Electric System Previously
and Frederic E. Greenman: Filed
Service Credit Letter dated
February 23, 1994
(10)(ff) New England Electric System Previously
and John W. Newsham: Pension Filed
Service Credit Agreement dated
February 23, 1994
(13) 1995 Annual Report to Previously
Shareholders Filed
(21) Subsidiary list Previously
Filed
(24) Power of Attorney Filed herewith
(27) Financial Data Schedule Filed herewith
<PAGE>
NEP
EXHIBIT INDEX
-------------
Exhibit No. Description Page
- ----------- ----------- ----
(3)(a) Articles of Organization as Previously
amended through June 27, 1987 Filed
(3)(b) By-laws of the Company as Filed herewith
amended May 10, 1995
(4) General and Refunding Mortgage Previously
Indenture and Deed of Trust Filed
dated as of January 1, 1977
and twenty supplements
thereto
(10)(a) Boston Edison Company et al. Previously
and the Company: Amended Filed
REMVEC Agreement dated
August 12, 1977
(10)(b) The Connecticut Light and Power Previously
Company et al. and the Company: Filed
Sharing Agreement for Joint
Ownership, Construction and
Operation of Millstone Unit No. 3
dated as of September 1, 1973,
and Amendments thereto;
Transmission Support Agreement
dated August 9, 1974; Instrument
of Transfer to the Company with
respect to the 1979 Connecticut
Nuclear Unit, and Assumption of
Obligations, dated December 17,
1975
(10)(c) Connecticut Yankee Atomic Power Previously
Company et al. and the Company: Filed
Stockholders Agreement dated
July 1, 1964; Power Purchase
Contract dated July 1, 1964;
Supplementary Power Contract
dated as of April 1, 1987;
Capital Funds Agreement dated
September 1, 1964; Transmission
Agreement dated October 1, 1964;
Agreement revising Transmission
Agreement dated July 1, 1979;
Amendment revising Transmission
Agreement dated as of January 19,
1994; Five Year Capital Contribution
<PAGE>
Agreement dated November 1, 1980;
Guarantee Agreement dated as of
November 13, 1981; Guarantee
Agreement dated as of August 1,
1985
(10)(d) Maine Yankee Atomic Power Previously
Company et al. and the Company: Filed
Capital Funds Agreement dated
May 20, 1968 and Power Purchase
Contract dated May 20, 1968;
and Amendments thereto;
Stockholders Agreement dated
May 20, 1968; Additional Power
Contract dated as of February 1,
1984; Guarantee Agreement dated
as of September 23, 1985
(10)(e) Mass. Electric and the Company: Previously
Primary Service for Resale dated Filed
February 15, 1974; and Amendments
thereto; Memorandum of Understanding
effective May 22, 1994
(10)(f) The Narragansett Electric Previously
Company and the Company: Filed
Primary Service for Resale
dated February 15, 1974
and Amendments thereto;
Memorandum of Understanding
effective May 22, 1994
Amendment of Service Agrement Filed herewith
effective January 1, 1995
(10)(g) Time Charter between Filed herewith
International Shipholding, Corp.
and New England Power Company
dated as of October 27, 1994;
Amendments dated as of September
22, 1995
(10)(h) Consent and Agreement among New Filed herewith
England Power Company, Central
Gulf Lines, Inc., Enterprise Ship
Company, Inc., and The Bank of
New York, dated as of September
28, 1995
(10)(i) New England Electric Previously
Transmission Corporation et al. Filed
and the Company: Phase I
Terminal Facility Support
Agreement dated as of
December 1, 1981; Amendments
<PAGE>
dated as of June 1, 1982 and
November 1, 1982; Agreement with
respect to Use of the Quebec
Interconnection dated as of
December 1, 1981; Amendments
dated as of May 1, 1982 and
November 1, 1982; Amendment
dated as of January 1, 1986;
Agreement for Reinforcement
and Improvement of the Company's
Transmission System dated as
of April 1, 1983; Lease dated
as of May 16, 1983; Upper
Development-Lower Development
Transmission Line Support
Agreement dated as of May 16,
1983
(10)(j) Vermont Electric Transmission Previously
Company, Inc. et al. and the Filed
Company: Phase I Vermont
Transmission Line Support
Agreement dated as of
December 1, 1981 and Amendments
thereto
(10)(k) New England Energy Incorporated Previously
and the Company: Fuel Purchase Filed
Contract dated July 26, 1979,
and Amendments thereto
(10)(l) New England Power Pool Previously
Agreement and Amendments Filed
thereto
(10)(m) New England Power Service Previously
Company and the Company: Filed
Specimen of Service Contract
(10)(n) Public Service Company of New Previously
Hampshire et al. and the Filed
Company: Agreement for Joint
Ownership, Construction and
Operation of New Hampshire
Nuclear Units dated as of
May 1, 1973 and Amendments
thereto; Seventh Amendment
as of November 1, 1990;
Transmission Support Agreement
dated as of May 1, 1973;
Instrument of Transfer to the
Company with respect to the New
Hampshire Nuclear Units and
Assumptions of Obligations
dated December 17, 1975 and
<PAGE>
Agreement Among Participants
in New Hampshire Nuclear Units,
certain Massachusetts Municipal
Systems and Massachusetts
Municipal Wholesale Electric
Company dated May 28, 1976;
Seventh Amendment To and
Restated Agreement for Seabrook
Project Disbursing Agent dated
as of November 1, 1990;
Amendments dated as of
June 29, 1992
Settlement Agreement dated as Previously
of July 19, 1990 between Filed
Northeast Utilities Service
Company and the Company
Seabrook Project Managing Previously
Agent Operating Agreement Filed
dated as of June 29, 1992;
and Amendment thereto
(10)(o) Vermont Yankee Nuclear Power Previously
Corporation et al. and the Filed
Company: Capital Funds
Agreement dated February 1,
1968, Amendment dated March 12,
1968 and Power Purchase Contract
dated February 1, 1968 and
Amendments thereto; Additional
Power Contract dated as of
February 1, 1984; Guarantee
Agreement dated as of November 5,
1981
(10)(p) Yankee Atomic Electric Company Previously
et al. and the Company: Filed
Amended and Restated Power
Contract dated April 1, 1985
and Amendments thereto
(10)(q) New England Electric Companies' Previously
Deferred Compensation Plan as Filed
amended dated January 1, 1995
(10)(r) New England Electric System Previously
Companies Retirement Supplement Filed
Plan as amended dated December 1,
1995
(10)(s) New England Electric Companies' Previously
Executive Supplemental Retirement Filed
Plan as amended dated January 1,
1995
<PAGE>
(10)(t) New England Electric Companies' Previously
Incentive Compensation Plan as Filed
amended dated January 1, 1995;
New England Electric Companies'
Senior Incentive Compensation
Plan as amended dated January 1,
1995
(10)(u) Forms of Life Insurance Program Previously
and Form of Life Insurance Filed
(Collateral Assignment)
(10)(v) New England Electric Companies' Previously
Incentive Compensation Plan II Filed
as amended dated January 1,
1995
(10)(w) New England Electric Companies' Previously
Incentive Share Plan as amended Filed
dated January 1, 1994
(10)(x) New England Hydro-Transmission Previously
Electric Company, Inc. et al. Filed
and the Company: Phase II
Massachusetts Transmission
Facilities Support Agreement
dated as of June 1, 1985
and Amendments thereto
(10)(y) New England Hydro-Transmission Previously
Corporation et al. and the Filed
Company: Phase II New Hampshire
Transmission Facilities Support
Agreement dated as of June 1,
1985 and Amendments thereto
(10)(z) Vermont Electric Power Company Previously
et al. and the Company: Phase Filed
II New England Power AC
Facilities Support Agreement
dated as of June 1, 1985 and
Amendments thereto
(10)(aa) TransCanada Pipelines Limited Previously
and the Company: Firm Service Filed
Contract for Firm Transportation
Service for natural gas dated
as of January 6, 1992 and
Amendments thereto
Temporary Assignment effective Filed herewith
as of October 26, 1995
<PAGE>
(10)(bb) Renaissance Energy Ltd. and Previously
the Company: Temporary Trans- Filed
portation Contract Assignment
(capacity swap) for Firm
Transportation Service for
natural gas dated as of October
27, 1993; Amendment dated as of
October 25, 1994
(10)(cc) Algonquin Gas Transmission Previously
Company and the Company: X-38 Filed
Service Agreement for Firm
Transportation of natural gas
dated July 3, 1992; Amendment
dated July 31, 1992; Amendment
dated as of April 15, 1994
(10)(dd) ANR Pipeline Company and the Previously
Company: Gas Transportation Filed
Agreement dated July 18, 1990
(10)(ee) Columbia Gas Transmission Previously
Corporation and the Company: Filed
Service Agreement for Service
under FTS Rate Schedule dated
June 13, 1991
(10)(ff) Iroquois Gas Transmission Previously
System, L.P. and the Company: Filed
Gas Transportation Contract for
Firm Reserved Service dated as
of June 5, 1991
(10)(gg) Tennessee Gas Pipeline Company Previously
and the Company: Firm Natural Filed
Gas Transportation Agreement
dated July 9, 1992
(13) 1995 Annual Report to Filed herewith
Stockholders
(21) Subsidiary list Filed herewith
(24) Power of Attorney Filed herewith
(27) Financial Data Schedule Filed herewith
<PAGE>
Mass. Electric
--------------
EXHIBIT INDEX
-------------
Exhibit No. Description Page
- ----------- ----------- ----
(3)(a) Articles of Organization of the Previously
Company as amended through Filed
November 15, 1993
(3)(b) By-Laws of the Company as Previously
amended through September 15, Filed
1993
(4) First Mortgage Indenture and Previously
Deed of Trust, dated as of Filed
July 1, 1949, and twenty-one
supplements thereto
(10)(a) Boston Edison Company et al. Previously
and Company: Amended REMVEC Filed
Agreement dated August 12,
1977
(10)(b) New England Power Company Previously
and the Company: Primary Filed
Service for Resale dated
February 15, 1974; Amendment
of Service Agreement dated
July 22, 1983; Amendment of
Service Agreement effective
November 1, 1993; Memorandum
of Understanding effective
May 22, 1994
(10)(c) New England Power Pool Previously
Agreement and Amendments Filed
thereto
(10)(d) New England Power Service Previously
Company and the Company: Filed
Specimen of Service Contract
(10)(e) New England Telephone and Previously
Telegraph Company and the Filed
Company: Specimen of Joint
Ownership Agreement for Wood
Poles
(10)(f) New England Electric Companies' Previously
Deferred Compensation Plan as Filed
amended dated January 1, 1995
<PAGE>
(10)(g) New England Electric System Previously
Companies Retirement Supplement Filed
Plan as amended dated December 1,
1995
(10)(h) New England Electric Companies' Previously
Executive Supplemental Retirement Filed
Plan as amended dated January 1,
1995
(10)(i) New England Electric Companies' Previously
Incentive Compensation Plan as Filed
amended dated January 1, 1995
(10)(j) New England Electric Companies' Previously
Form of Deferred Compensation Filed
Agreement for Directors
(10)(k) New England Electric Companies' Previously
Senior Incentive Compensation Filed
Plan as amended dated
January 1, 1995
(10)(l) Forms of Life Insurance Program Previously
and Form of Life Insurance Filed
(Collateral Assignment)
(10)(m) New England Electric Companies' Previously
Incentive Compensation Plan II Filed
as amended dated January 1,
1995
(10)(n) New England Electric Companies' Previously
Incentive Share Plan as amended Filed
dated January 1, 1994
(10)(o) New England Power Service Previously
Company and the Company: Filed
Form of Supplemental Pension
Service Credit Agreement
(12) Statement re computation of Filed herewith
ratios for incorporation by
reference into the Mass. Electric
registration statement on Form
S-3, Commission File No. 33-59145
(13) 1995 Annual Report to Filed herewith
Stockholders
(24) Power of Attorney Filed herewith
(27) Financial Data Schedule Filed herewith
<PAGE>
Narragansett
-------------
EXHIBIT INDEX
-------------
Exhibit No. Description Page
- ----------- ----------- ----
(3)(a) Articles of Incorporation as Previously
amended June 9, 1988 Filed
(3)(b) By-Laws of the Company Previously
Filed
(4)(a) First Mortgage Indenture and Previously
Deed of Trust, dated as of Filed
September 1, 1944, and
twenty-two supplements thereto
(4)(b) The Narragansett Electric Previously
Company Preference Provisions, Filed
as amended, dated March 23, 1993
(10)(a) Boston Edison Company et al. Previously
and the Company: Amended REMVEC Filed
Agreement dated August 12, 1977
(10)(b) New England Power Company and Previously
the Company: Primary Service for Filed
Resale dated February 15, 1974;
Amendments of Service Agreement;
Memorandum of Understanding
effective May 22, 1994
(10)(c) New England Power Pool Agreement Previously
and Amendments thereto Filed
(10)(d) New England Power Service Previously
Company and the Company: Filed
Specimen of Service Contract
(10)(e) New England Telephone and Previously
Telegraph Company and the Filed
Company: Specimen of Joint
Ownership Agreement for Wood
Poles
(10)(f) New England Electric Companies' Previously
Deferred Compensation Plan for Filed
Officers, as amended January 1,
1995
<PAGE>
(10)(g) New England Electric System Previously
Companies Retirement Supplement Filed
Plan, as amended December 1, 1995
(10)(h) New England Electric Companies' Previously
Executive Supplemental Retirement Filed
Plan, as amended dated January 1,
1995
(10)(i) New England Companies' Incentive Previously
Compensation Plan, as amended Filed
dated January 1, 1995
(10)(j) New England Electric Companies' Previously
Form of Deferred Compensation Filed
Agreement for Directors
(10)(k) New England Electric Companies' Previously
Senior Incentive Compensation Filed
Plan as amended dated January 1,
1995
(10)(l) Forms of Life Insurance Program Previously
and Form of Life Insurance Filed
(Collateral Assignment)
(10)(m) New England Electric Companies' Previously
Incentive Compensation Plan II Filed
as amended dated January 1, 1995
(10)(n) New England Electric Companies' Previously
Incentive Share Plan as amended Filed
dated January 1, 1994
(10)(o) New England Power Service Previously
Company and the Company: Filed
Form of Supplemental Pension
Service Credit Agreement
(12) Statement re computation of Filed herewith
ratios for incorporation by
reference into the Narragansett
registration statement on Form
S-3, Commission File No. 33-61131
(13) 1995 Annual Report to Filed herewith
Stockholders
(24) Power of Attorney Filed herewith
(27) Financial Data Schedule Filed herewith
<PAGE>
EXHIBIT (24)
POWER OF ATTORNEY
-----------------
Each of the undersigned directors of New England Electric System (the
"Company"), individually as a director of the Company, hereby constitutes and
appoints John G. Cochrane, Maureen L. Fountain, and Geraldine M. Zipser,
individually, as attorney-in-fact to execute on behalf of the undersigned the
Company's annual report on Form 10-K for the year ended December 31, 1995, to
be filed with the Securities and Exchange Commission, and to execute any
appropriate amendment or amendments thereto as may be required by law.
Dated this 27th day of February, 1996.
s/Joan T. Bok s/John W. Rowe
_________________________ _________________________
Joan T. Bok John W. Rowe
s/Paul L. Joskow s/George M. Sage
_________________________ _________________________
Paul L. Joskow George M. Sage
s/John M. Kucharski s/Charles E. Soule
_________________________ _________________________
John M. Kucharski Charles E. Soule
s/Edward H. Ladd s/Anne Wexler
_________________________ _________________________
Edward H. Ladd Anne Wexler
s/Joshua A. McClure s/James Q. Wilson
_________________________ _________________________
Joshua A. McClure James Q. Wilson
s/James R. Winoker
_________________________
James R. Winoker
<TABLE> <S> <C>
<PAGE>
<ARTICLE> UT
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE CONSOLIDATED BALANCE SHEET AND RELATED CONSOLIDATED
STATEMENTS OF INCOME, RETAINED EARNINGS AND CASH FLOWS OF NEW ENGLAND
ELECTRIC SYSTEM, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
<CIK> 0000071297
<NAME> New England Electric System
<MULTIPLIER> 1,000
<S> <C> <C>
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1994
<PERIOD-END> DEC-31-1995 DEC-31-1994
<PERIOD-TYPE> 12-MOS 12-MOS
<BOOK-VALUE> PER-BOOK PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 3,855,902 3,716,721
<OTHER-PROPERTY-AND-INVEST> 408,820 423,713
<TOTAL-CURRENT-ASSETS> 508,794 525,723
<TOTAL-DEFERRED-CHARGES> 417,360 <F1> 418,684 <F1>
<OTHER-ASSETS> 0 0
<TOTAL-ASSETS> 5,190,876 5,084,841
<COMMON> 64,970 64,970
<CAPITAL-SURPLUS-PAID-IN> 736,823 736,823
<RETAINED-EARNINGS> 831,529 779,045
<TOTAL-COMMON-STOCKHOLDERS-EQ> 1,631,779 <F3> 1,580,838
0 0
147,016 <F2> 147,016 <F2>
<LONG-TERM-DEBT-NET> 1,675,170 1,520,488
<SHORT-TERM-NOTES> 0 0
<LONG-TERM-NOTES-PAYABLE> 0 0
<COMMERCIAL-PAPER-OBLIGATIONS> 203,250 233,970
<LONG-TERM-DEBT-CURRENT-PORT> 23,960 65,920
0 0
<CAPITAL-LEASE-OBLIGATIONS> 0 0
<LEASES-CURRENT> 0 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 1,509,701 1,536,609
<TOT-CAPITALIZATION-AND-LIAB> 5,190,876 5,084,841
<GROSS-OPERATING-REVENUE> 2,271,712 2,243,029
<INCOME-TAX-EXPENSE> 128,340 128,257
<OTHER-OPERATING-EXPENSES> 1,819,944 1,818,276
<TOTAL-OPERATING-EXPENSES> 1,948,284 1,946,533
<OPERATING-INCOME-LOSS> 323,428 296,496
<OTHER-INCOME-NET> 12,098 16,071
<INCOME-BEFORE-INTEREST-EXPEN> 335,526 312,567
<TOTAL-INTEREST-EXPENSE> 114,175 97,005
<NET-INCOME> 204,757 199,426
8,690 <F2> 8,697 <F2>
<EARNINGS-AVAILABLE-FOR-COMM> 204,757 199,426
<COMMON-STOCK-DIVIDENDS> 152,273 148,456
<TOTAL-INTEREST-ON-BONDS> 108,365 93,500
<CASH-FLOW-OPERATIONS> 469,853 417,966
<PAGE>
<EPS-PRIMARY> $3.15 $3.07
<EPS-DILUTED> $3.15 $3.07
<FN>
<F1> Total deferred charges includes other assets and accrued Yankee Atomic costs.
<F2> Preferred stock reflects preferred stock of subsidiaries. Preferred stock dividends reflect
preferred stock dividends of subsidiaries.
<F3> Total common stockholders equity is reflected net of treasury stock at cost.
</FN>
<PAGE>
EXHIBIT (3)(b)
As Amended May 10, 1995
BY-LAWS
OF
NEW ENGLAND POWER COMPANY
ARTICLE I.
CLASSES OF CAPITAL STOCK.
The capital stock of the corporation shall consist of common
stock of the par value of $20 a share, and three classes of
preferred stock, 6% Cumulative Preferred Stock of the par value
of $100 a share, Dividend Series Preferred Stock of the par value
of $100 a share and Preferred Stock - Cumulative of the par value
of $25 a share, each having respective preferences, voting
rights, restrictions and qualifications as follows:
SECTION 1. 6% Cumulative Preferred Stock and Common Stock.
(Whenever in this Section I reference is made to "preferred" or
"preferred stock", it shall be deemed to be a reference to the 6%
Cumulative Preferred Stock unless expressly provided otherwise.)
At every meeting of the stockholders every holder of shares
of stock, whether preferred or common, shall be entitled to one
vote either in person or by proxy for every such share registered
in his name. The holders of the preferred stock shall be
entitled to receive or to have set apart, out of the surplus or
net profits of the corporation, as and when declared by the board
of directors, a dividend at the rate of, but never exceeding, six
per centum per annum, cumulative, on all such preferred stock
outstanding at the time, which dividend shall be payable yearly,
half-yearly or quarterly as the board of directors may, from time
to time, fix and determine, and before any dividend shall be set
<PAGE>
apart for or paid on the common stock. Whenever a dividend is
declared or paid on the preferred stock and all prior dividends
on the outstanding shares of such stock shall have been paid or
set apart, the board of directors may, if in its judgment, the
surplus or net profits, after deducting the amount of dividends
to accrue on the said outstanding preferred stock during the
current year, shall be sufficient for such purpose, then or
thereafter declare and pay dividends on the common stock payable
yearly, half-yearly or quarterly, and payable then or thereafter
out of any remaining surplus or net profits of the year then
current or last past and of any previous year in which full
dividends shall have been paid on the preferred stock. In case
of a liquidation or dissolution or winding up (whether voluntary
or involuntary) of the corporation, the holders of the preferred
stock shall receive cash to the amount of the par value of such
preferred stock, together with all accrued and unpaid dividends
thereon (but no more), before any payment is made to the holders
of the common stock, and the holders of the common stock shall be
solely entitled to the entire assets of the corporation or the
proceeds thereof, remaining after the payment in full, at its par
value, of the preferred stock then outstanding, together with all
dividends thereon accrued and unpaid. But dividends shall not
cumulate upon any preferred shares for any period during which
the same were not outstanding preferred shares of the
corporation. If the corporation at any time increases its
capital stock, and the new or additional shares are required by
law to be offered proportionately to its stockholders, the
holders of all classes of preferred stock only shall be entitled
to subscribe for new or additional preferred stock of any class
and the holders of common stock only shall be entitled to
subscribe for new or additional common stock and notice of such
increase as required by law need be given and the new shares need
be offered proportionately only to the stockholders who are so
<PAGE>
entitled to subscribe.
SECTION 2. Dividend Series Preferred Stock.
A. The shares of Dividend Series Preferred Stock may be
issued, as the board of directors may determine, in one or more
series designated "Cumulative Preferred Stock, % Series" or,
with respect to issues subsequent to July 1, 1975, "Cumulative
Preferred Stock, $100 Par Value, % Series" (inserting in each
case the amount of the annual dividend rate, as determined by the
board of directors for each such series) or, with respect to
issues with an adjustable dividend rate, "Cumulative Preferred
Stock, $100 Par Value, Adjustable Rate Series " (inserting in
each case an appropriate designation, as determined by the board
of directors for each such series). All shares of Dividend
Series Preferred Stock, irrespective of series, shall constitute
one and the same class of stock and shall be of equal rank as to
dividends and assets with each other and with the 6% Cumulative
Preferred Stock and the Preferred Stock - Cumulative. The shares
of Dividend Series Preferred Stock of different series, subject
to any applicable provisions of law, may vary, as the board of
directors may determine, as to the following rights and
preferences:
(1) the dividend rate, or method of calculation thereof,
and the date from which the dividends on shares issued prior to
the record date for the first dividend shall be cumulative and
the date for the first dividend;
(2) the redemption price or prices, or method of
calculation thereof, and any restriction on the exercise by the
corporation of its right to redeem such series;
<PAGE>
(3) the amount or amounts payable upon any liquidation or
dissolution or winding up;
(4) the terms and amount of any sinking fund provided for
the purchase or redemption of shares; and
(5) the conversion, participation or other special rights.
B. Before any dividends on, or any distribution of assets
(by purchase of shares or otherwise) to holders of, the Common
Stock or any other stock ranking junior to the Dividend Series
Preferred Stock as to dividends (both hereinafter called "junior
stock") shall be paid or set apart for payment or otherwise
provided, the holders of the Dividend Series Preferred Stock
shall be entitled to receive, but only when and as declared by
the board of directors, out of any funds legally available for
the declaration of dividends, cumulative dividends at the annual
dividend rate per share fixed for the particular series payable
quarterly on the first days of January, April, July and October
in each year commencing on a date specified for the first
dividend date as herein provided to stockholders of record on the
respective dates, not exceeding forty-five (45) days preceding
such dividend payment dates fixed in advance for the purpose by
the board of directors prior to the payment of each particular
dividend. No dividends shall be declared on any series of the
Dividend Series Preferred Stock or of any other class of
preferred stock ranking on a parity therewith, as to dividends,
in respect of any quarter-yearly dividend period, unless there
shall likewise be declared on all shares of all series of the
Dividend Series Preferred Stock and of any other class of such
parity preferred stock at the time outstanding, like
proportionate dividends, ratably, in proportion to the respective
annual dividend rates fixed therefor, in respect of the same
<PAGE>
quarter-yearly dividend period, to the extent that such shares
are entitled to receive dividends for such quarter-yearly
dividend period. The dividends on shares of all series of the
Dividend Series Preferred Stock shall be cumulative. In the case
of all shares of each particular series, the dividends on shares
of such series shall be cumulative:
(1) on shares issued prior to the record date for the first
dividend on the shares of such series, from the date for the
particular series fixed therefor;
(2) on shares issued after a record date for a dividend,
but prior to the dividend payment date for such dividend, from
said dividend payment date; and
(3) otherwise from the quarter-yearly dividend payment date
next preceding the date of issue of such shares;
so that dividends accrued on all outstanding shares of Dividend
Series Preferred Stock to the last preceding quarterly dividend
payment date shall have been paid in full or declared and set
apart for payment before there shall be any distribution on, or
purchase of, junior stock. The holders of the Dividend Series
Preferred Stock shall not be entitled to receive any dividends
thereon other than the dividends referred to in this subsection B
and other than distributions provided in subsection D below. As
used in this Section 2, the expression "dividends accrued" shall
mean the sum of amounts with respect to all shares of Dividend
Series Preferred Stock then outstanding, which as to each share
shall be an amount computed at the rate per annum of the par
value thereof fixed for the particular series from the date from
which dividends on such share become cumulative to the date with
reference to which the expression is used, irrespective of
<PAGE>
whether such amount shall have been declared as dividends or
there shall have existed any funds legally available for the
payment thereof, less the aggregate of all dividends paid or
declared payable on or before said last mentioned date and set
aside for such payment on such share.
C. The corporation, pursuant to action of its board of
directors or as provided in subsection A(8) of Section 4 of this
Article I, may redeem the whole or any part of any series of the
Dividend Series Preferred Stock at the time outstanding, at any
time or from time to time, by paying in cash as herein provided
the redemption price of the shares of the particular series fixed
therefor, together with dividends accrued to the date fixed for
such redemption, and by mailing, postage prepaid, at least thirty
(30) days and not more than ninety (90) days prior to the date
fixed for said redemption a notice specifying said redemption
date to the holders of record of the Dividend Series Preferred
Stock to be redeemed, at their respective addresses as the same
shall appear on the books of the corporation; provided, however,
that the exercise by the corporation of its right to redeem
shares of any particular series may be subject to such
restrictions as are determined for said series. In case of the
redemption of a part only of any series of the Dividend Series
Preferred Stock at the time outstanding, the corporation shall
select by lot in such manner as the board of directors
determines, the shares so to be redeemed. If such notice of
redemption shall have been so mailed, and if on or before the
redemption date specified in such notice all funds necessary for
such redemption shall have been set aside by the corporation, so
as to be and continue to be available therefor, then, on and
after laid redemption date, notwithstanding that any certificate
for the shares of the Dividend Series Preferred Stock so called
for redemption shall not have been surrendered for cancellation,
<PAGE>
the shares represented thereby shall no longer be deemed
outstanding, the right to receive dividends thereon shall cease
to accrue, and all rights of the holders thereof shall forthwith
cease and terminate, except only the right of the holders thereof
to receive the amount payable upon redemption thereof, but
without interest; provided, however, that if, after mailing said
notice as aforesaid and prior to the date of redemption specified
in such notice, said funds shall be set aside by deposit in
trust, for the account of the holders of the Dividend Series
Preferred Stock to be redeemed, with a bank or trust company in
good standing, organized under the laws of the United States of
America or of The Commonwealth of Massachusetts, having a
capital, undivided profits and surplus aggregating at least
$5,000,000, thereupon all shares of the Dividend Series Preferred
Stock with respect to which such deposit shall have been made
shall no longer be deemed to be outstanding, and all rights with
respect to such shares of Dividend Series Preferred Stock shall
forthwith upon such deposit in trust cease and terminate, except
only the right of the holders thereof to receive from such
deposit the amount payable upon the redemption but without
interest. In case the holders of the Dividend Series Preferred
Stock which shall have been redeemed shall not within four years
of the date of redemption thereof claim any amount so deposited
in trust for the redemption of such shares, such bank or trust
company shall, upon demand, pay over to the corporation any such
unclaimed amount so deposited with it and shall thereupon be
relieved of all responsibility in respect thereof, and the
corporation shall not be required to hold the amount so paid over
to it separate and apart from its other funds, and thereafter the
holders of such shares of Dividend Series Preferred Stock shall
look only to the corporation for payment of the redemption price
thereof, but without interest. If there are any dividends
accrued to the last preceding quarterly dividend payment date or
<PAGE>
dates on the outstanding Dividend Series Preferred Stock or any
other class of preferred stock ranking on a parity therewith as
to assets (both of which are hereinafter in this sentence
collectively referred to as "Preferred Stock"), (i) no Preferred
Stock which is redeemable shall be redeemed, unless all such
Preferred Stock shall be redeemed and unless an offer is made (a)
to purchase all Preferred Stock of any series which is not
redeemable at the time under limited restrictions then applicable
thereto at a price equal to the then redemption price for such
series if such restrictions were not applicable and (b) to
purchase all Preferred Stock which is not redeemable at the time
at a price equivalent to the highest then redemption price on any
outstanding shares of Preferred Stock, after giving effect to the
differences in par value among classes of Preferred Stock, and
(ii) no Preferred Stock shall be purchased, unless an offer is
made to purchase all Preferred Stock for which redemption prices
applicable at the time have been established (whether or not
there is then any applicable restriction on the redemption
thereof) at the same percentage (not in excess of one hundred per
centum (100%)) of the then applicable redemption price of each
series of said stock and unless an offer is made to purchase all
Preferred Stock for which redemption prices applicable at the
time have not been established at the same percentage of a price
equal to the then highest redemption price for any of said stock
for which a redemption price applicable at the time has been
established. All stock redeemed or purchased under the
provisions of this subsection C shall be retired.
D. In the event of any liquidation, dissolution or winding
up (whether voluntary or involuntary) of the affairs of the
corporation or any distribution of its capital, then before any
distribution shall be made to the holders of stock ranking junior
to the Dividend Series Preferred Stock as to assets, the holders
<PAGE>
of each series of the Dividend Series Preferred Stock at the time
outstanding shall be entitled to be paid in cash the amount for
the particular series fixed therefor, together in each case with
dividends accrued thereon to the date fixed for payment of such
distributive amounts, and no more. No payments on account of
such distributive amounts shall be made to the holders of any
series of the Dividend Series Preferred Stock or of any other
class of preferred stock ranking on a parity therewith, as to
assets, unless there shall likewise be paid at the same time to
the holders of each other series of the Dividend Series Preferred
Stock and of such parity preferred stock at the time outstanding
like proportionate distributive amounts, ratably, in proportion
to the full distributive amounts to which they are respectively
entitled. After such payment to the holders of Dividend Series
Preferred Stock, the remaining assets and funds of the cor-
poration shall be divided and distributed among the holders of
junior stock then outstanding according to the respective rights.
Neither the consolidation nor the merger of the corporation with
or into any other corporation shall be deemed to be a
liquidation, dissolution or winding up of the corporation.
E. The holders of Dividend Series Preferred Stock shall
have no right to vote except as provided by law and except as
hereafter specifically provided in Section 4 of this Article I.
F. Except as otherwise expressly provided by law, no
holder of Dividend Series Preferred Stock shall be entitled as
such as a matter of right to subscribe for or purchase any part
of any new or additional issue of stock or warrants carrying
rights to stock, or securities convertible into stock, of any
class whatever, whether now or hereafter authorized, and whether
issued for cash, property, services or otherwise. If it is
expressly required by law that such new or additional issue be
<PAGE>
offered proportionately to the stockholders, the holders of all
classes of preferred stock only shall be entitled to subscribe
for new or additional preferred stock of any class and the
holders of common stock only shall be entitled to subscribe for
new or additional common stock; and notice of such increase as
required by law need be given and the new shares need be offered
proportionately only to the stockholders who are so entitled to
subscribe.
G. Subject to the limitations, if any, contained in
Sections 4 and 5 of this Article I, the corporation may from time
to time issue additional capital stock divided into classes with
such preferences as to dividends, voting power and other
incidents as may be determined in accordance with applicable
provisions of law and terms of outstanding capital stock.
Without limiting the generality of the foregoing, any such
additional capital stock may be an additional series of Dividend
Series Preferred Stock or additional shares of the initial or any
other series of Dividend Series Preferred Stock.
H. So long as any shares of the Dividend Series Preferred
Stock of any series are outstanding, the payment of dividends on
stock of the corporation ranking junior to the Dividend Series
Preferred Stock as to dividends or assets (other than (i)
dividends payable in stock ranking junior to the Dividend Series
Preferred Stock as to dividends and assets or (ii) dividends paid
in cash if immediately there shall be paid to the corporation in
cash an amount equal to such dividends for shares of or as a
capital contribution with respect to stock ranking junior to the
Dividend Series Preferred Stock as to dividends or assets) and
the making of any distribution of assets to holders of stock
ranking junior to the Dividend Series Preferred Stock as to
dividends or assets by purchase of shares or otherwise (each of
<PAGE>
such actions being herein embraced within the term "payment of
junior stock dividends") shall be subject to the following
limitations:
(1) if and so long as the junior stock equity is
less than twenty per cent(20%) of total capitalization, the
payment of junior stock dividends, including the proposed
payment, during the twelve months ending with and including
the date on which the proposed payment is to be made shall
not exceed fifty per cent (50%) of the net income of the
corporation available for the payment of dividends on the
stock ranking junior to the Dividend Series Preferred Stock
as to dividends and assets for the twelve full calendar
months immediately preceding the calendar month in which
such dividend is declared;
(2) if and so long as the junior stock equity is
less than twenty-five per cent (25%) but is twenty per cent
(20%) or more of total capitalization, the payment of junior
stock dividends, including the proposed payment, during the
twelve months ending with and including the date on which
the proposed payment is to be made shall not exceed
seventy-five per cent (75%) of the net income of the
corporation available for the payment of dividends on the
stock ranking junior to the Dividend Series Preferred Stock
as to dividends and assets for the twelve full calendar
months immediately preceding the calendar month in which
such dividend is declared; and
(3) except to the extent permitted under subsections
(1) and 2 above, the corporation shall not make any payment
of junior stock dividends which would reduce the junior
stock equity to less than twenty-five per cent (25%) of
<PAGE>
total capitalization.
For the purposes of this subsection H "net income" shall be
determined in accordance with sound accounting practice, less the
excess, if any, of the largest minimum depreciation requirement
for the period of any mortgage indenture to which the corporation
is a party during such period over the amount charged by the
corporation on its books for depreciation during such period.
The term "junior stock equity" is defined in subsection
E(2)(i) of Section 4 of this Article I.
The term "total capitalization" as used in this subsection H
means the aggregate of (x) the junior stock equity, (y) the par
value of, or stated capital represented by, the outstanding
shares of Dividend Series Preferred Stock and any other stock
ranking prior thereto or on a parity therewith as to dividends or
assets and the premium thereon, and (z) the principal amount of
all outstanding indebtedness, of the corporation represented by
bonds, notes and other evidences of indebtedness maturing by
their terms more than one year from the date of issue thereof.
I. No stockholder, director, officer or agent of the
corporation shall be held individually responsible for any action
taken in good faith though subsequently adjudged to be in
violation of this Section 2.
J. The shares of Dividend Series Preferred Stock from time
to time duly authorized may be issued for such consideration as
may be fixed from time to time either by the board of directors
or otherwise, as provided by law. Any and all shares of Dividend
Series Preferred Stock upon receipt by the corporation of the
consideration so fixed shall be deemed fully paid stock and shall
<PAGE>
not be liable to any further call or assessment thereon.
K. Every holder of Dividend Series Preferred Stock of the
corporation by becoming such shall be held to have consented to
all of these provisions and to have agreed to be bound thereby
and to have waived to the full extent permitted by law any right
such holder may have either now or at any time in the future
contrary to these provisions.
SECTION 3. Preferred Stock - Cumulative.
A. The shares of Preferred Stock - Cumulative may be
issued, as the board of directors may determine, in one or more
series designated "Cumulative Preferred Stock, $25 Par Value, %
Series" (inserting in each case the amount of the annual dividend
rate, as determined by the board of directors for each such
series) or, with respect to issues with an adjustable dividend
rate, "Cumulative Preferred Stock, $100 Par Value, Adjustable
Rate Series " (inserting in each case an appropriate designation,
as determined by the board of directors for each such series).
All shares of Preferred Stock - Cumulative, irrespective of
series, shall constitute one and the same class of stock and
shall be of equal rank as to dividends and assets with each other
and with the 6% Cumulative Preferred Stock and the Dividend
Series Preferred Stock. The shares of Preferred Stock -
Cumulative of different series, subject to any applicable
provisions of law, may vary, as the board of directors may
determine, as to the following rights and preferences:
(1) the dividend rate, or method of calculation
thereof, and the date from which the dividends on shares
issued prior to the record date for the first dividend shall
be cumulative and the date for the first dividend;
<PAGE>
(2) the redemption price or prices, or method of
calculation thereof, and any restriction on the exercise by
the corporation of its right to redeem such series;
(3) the amount or amounts payable upon any
liquidation or dissolution or winding up;
(4) the terms and amount of any sinking fund
provided for the purchase or redemption of shares; and
(5) the conversion, participation or other special
rights.
B. Before any dividends on, or any distribution of assets
(by purchase of shares or otherwise) to holders of, the Common
Stock or any other stock ranking junior to the Preferred Stock -
Cumulative as to dividends (both hereinafter called "junior
stock") shall be paid or set apart for payment or otherwise
provided, the holders of the Preferred Stock - Cumulative shall
be entitled to receive, but only when and as declared by the
board of directors, out of any funds legally available for the
declaration of dividends, cumulative dividends at the annual
dividend rate per share fixed for the particular series payable
quarterly on the first days of January, April, July and October
in each year commencing on a date specified for the first
dividend date as herein provided to stockholders of record on the
respective dates, not exceeding forty-five (45) days preceding
such dividend payment dates fixed in advance for the purpose by
the board of directors prior to the payment of each particular
dividend. No dividends shall be declared on any series of the
Preferred Stock - Cumulative or of any other class of preferred
stock ranking on a parity therewith, as to dividends, in respect
of any quarter-yearly dividend period, unless there shall
<PAGE>
likewise be declared on all shares of all series of the Preferred
Stock - Cumulative and of any other class of such parity
preferred stock at the time outstanding, like proportionate
dividends, ratably, in proportion to the respective annual
dividend rates fixed therefor, in respect of the same
quarter-yearly dividend period, to the extent that such shares
are entitled to receive dividends for such quarter-yearly
dividend period. The dividends on shares of all series of the
Preferred Stock - Cumulative shall be cumulative. In the case of
all shares of each particular series, the dividends on shares of
such series shall be cumulative:
(l) on shares issued prior to the record date for
the first dividend on the shares of such series, from the
date for the particular series fixed therefor,
(2) on shares issued after a record date for a
dividend, but prior to the dividend payment date for such
dividend, from said dividend payment date; and
(3) otherwise from the quarter-yearly dividend
payment date next preceding the date of issue of such
shares;
so that dividends accrued on all outstanding shares of Preferred
Stock - Cumulative to the last preceding quarterly dividend
payment date shall have been paid in full or declared and set
apart for payment before there shall be any distribution on, or
purchase of, junior stock. The holders of the Preferred Stock -
Cumulative shall not be entitled to receive any dividends thereon
other than the dividends referred to in this subsection B and
other than distributions provided in subsection D below. As used
in this Section 3, the expression "dividends accrued" shall mean
<PAGE>
the sum of amounts with respect to all shares of Preferred Stock
- - Cumulative then outstanding, which as to each share shall be an
amount computed at the rate per annum of the par value thereof
fixed for the particular series from the date from which
dividends on such share become cumulative to the date with
reference to which the expression is used, irrespective of
whether such amount shall have been declared as dividends or
there shall have existed any funds legally available for the
payment thereof, less the aggregate of all dividends paid or
declared payable on or before said last mentioned date and set
aside for such payment on such share.
C. The corporation, pursuant to action of its board of
directors or as provided in subsection A(8) of Section 4 of this
Article I, may redeem the whole or any part of any series of the
Preferred Stock Cumulative at the time outstanding, at any time
or from time to time, by paying in cash as herein provided the
redemption price of the shares of the particular series fixed
therefor, together with dividends accrued to the date fixed for
such redemption, and by mailing, postage prepaid, at least thirty
(30) days and not more than ninety (90) days prior to the date
fixed for said redemption a notice specifying said redemption
date to the holders of record of the Preferred Stock - Cumulative
to be redeemed, at their respective addresses as the same shall
appear on the books of the corporation; provided, however, that
the exercise by the corporation of its right to redeem shares of
any particular series may be subject to such restrictions as are
determined for said series. In case of the redemption of a part
only of any series of the Preferred Stock - Cumulative at the
time outstanding, the corporation shall select by lot in such
manner as the board of directors determines, the shares so to be
redeemed. If such notice of redemption shall have been so
mailed, and if on or before the redemption date specified in
<PAGE>
such notice all funds necessary for such redemption shall have
been set aside by the corporation, so as to be and continue to be
available therefor, then, on and after said redemption date,
notwithstanding that any certificate for the shares of the
Preferred Stock - Cumulative so called for redemption shall not
have been surrendered for cancellation, the shares represented
thereby shall no longer be deemed outstanding, the right to
receive dividends thereon shall cease to accrue, and all rights
of the holders thereof shall forthwith cease and terminate,
except only the right of the holders thereof to receive the
amount payable upon redemption thereof, but without interest;
provided, however, that if, after mailing said notice as
aforesaid and prior to the date of redemption specified in such
notice, said funds shall be set aside by deposit in trust, for
the account of the holders of the Preferred Stock - Cumulative to
be redeemed, with a bank or trust company in good standing,
organized under the laws of the United States of America or of
The Commonwealth of Massachusetts, having a capital, undivided
profits and surplus aggregating at least $5,000,000, thereupon
all shares of the Preferred Stock - Cumulative with respect to
which such deposit shall have been made shall no longer be deemed
to be outstanding, and all rights with respect to such shares of
Preferred Stock - Cumulative shall forthwith upon such deposit in
trust cease and terminate, except only the right of the holders
thereof to receive from such deposit the amount payable upon the
redemption but without interest. In case the holders of the
Preferred Stock - Cumulative which shall have been redeemed shall
not within four years of the date of redemption thereof claim any
amount so deposited in trust for the redemption of such shares,
such bank or trust company shall, upon demand, pay over to the
corporation any such unclaimed amount so deposited with it and
shall thereupon be relieved of all responsibility in respect
thereof, and the corporation shall not be required to hold the
<PAGE>
amount so paid over to it separate and apart from its other
funds, and thereafter the holders of such shares of Preferred
Stock - Cumulative shall look only to the corporation for payment
of the redemption price thereof, but without interest. If there
are any dividends accrued to the last preceding quarterly
dividend payment date or dates on the outstanding Preferred Stock
- - Cumulative or any other class of preferred stock ranking on a
parity therewith as to assets (both of which are hereinafter in
this sentence collectively referred to as "Preferred Stock"), (i)
no Preferred Stock which is redeemable shall be redeemed, unless
all such Preferred Stock shall be redeemed and unless an offer is
made (a) to purchase all Preferred Stock of any series which is
not redeemable at the time under limited restrictions then
applicable thereto at a price equal to the then redemption price
for such series if such restrictions were not applicable and (b)
to purchase all Preferred Stock which is not redeemable at the
time at a price equivalent to the highest then redemption price
on any outstanding shares of Preferred Stock, after giving effect
to the differences in par value among classes of Preferred Stock,
and (ii) no Preferred Stock shall be purchased, unless an offer
is made to purchase all Preferred Stock for which redemption
prices applicable at the time have been established (whether or
not there is then any applicable restriction on the redemption
thereof) at the same percentage (not in excess of one hundred per
centum (100%)) of the then applicable redemption price for each
series of said stock and unless an offer is made to purchase all
Preferred Stock for which redemption prices applicable at the
time have not been established at the same percentage of a price
equal to the then highest redemption price for any of said stock
for which a redemption price applicable at the time has been
established. All stock redeemed or purchased under the
provisions of this subsection C shall be retired.
<PAGE>
D. In the event of any liquidation, dissolution or winding
up (whether voluntary or involuntary) of the affairs of the
corporation or any distribution of its capital, then before any
distribution shall be made to the holders of stock ranking junior
to the Preferred Stock - Cumulative as to assets, the holders of
each series of the Preferred Stock - Cumulative at the time
outstanding shall be entitled to be paid in cash the amount for
the particular series fixed therefor, together in each case with
- -dividends accrued thereon to the date fixed for payment of such
distributive amounts, and no more. No payments on account of
such distributive amounts shall be made to the holders of any
series of the Preferred Stock Cumulative or of any other class of
preferred stock ranking on a parity therewith, as to assets,
unless there shall likewise be paid at the same time to the
holders of each other series of the Preferred Stock - Cumulative
and of such parity preferred stock at the time outstanding like
proportionate distributive amounts, ratably, in proportion to the
full distributive amounts to which they are respectively
entitled. After such payment to the holders of Preferred Stock -
Cumulative, the remaining assets and funds of the corporation
shall be divided and distributed among the holders of junior
stock then outstanding according to the respective rights.
Neither the consolidation nor the merger of the corporation with
or into any other corporation shall be deemed to be a
liquidation, dissolution or winding up of the corporation.
E. The holders of Preferred Stock - Cumulative shall have
no right to vote except as provided by law and except as
hereafter specifically provided in Section 4 of this Article I.
F. Except as otherwise expressly provided by law, no
holder of Preferred Stock - Cumulative shall be entitled as such
as a matter of right to subscribe for or purchase any part of any
<PAGE>
new or additional issue of stock or warrants carrying rights to
stock, or securities convertible into stock, of any class
whatever, whether now or hereafter authorized, and whether issued
for cash, property, services or otherwise. If it is expressly
required by law that such new or additional issue be offered
proportionately to the stockholders, the holders of all classes
of preferred stock only shall be entitled to subscribe for new or
additional preferred stock of any class and the holders of common
stock only shall be entitled to subscribe for new or additional
common stock; and notice of such increase as required by law need
be given and the new shares need be offered proportionately only
to the stockholders who are so entitled to subscribe.
G. Subject to the limitations, if any, contained in
Sections 4 and 5 of this Article I, the corporation may from time
to time issue additional capital stock divided into classes with
such preferences as to dividends, voting power and other
incidents as may be determined in accordance with applicable
provisions of law and terms of outstanding capital stock.
Without limiting the generality of the foregoing, any such
additional capital stock may be an additional series of Preferred
Stock - Cumulative or additional shares of the initial or any
other series of Preferred Stock - Cumulative.
H. So long as any shares of the Preferred Stock -
Cumulative of any series are outstanding, the payment of
dividends on stock of the corporation ranking junior to the
Preferred Stock - Cumulative as to dividends or assets (other
than (i) dividends payable in stock ranking junior to the
Preferred Stock - Cumulative as to dividends and assets or (ii)
dividends paid in cash if immediately thereafter there shall be
paid to the corporation in cash an amount equal to such dividends
for shares of or as a capital contribution with respect to stock
ranking junior to the Preferred Stock - Cumulative as to
<PAGE>
dividends or assets) and the making of any distribution of
assets to holders of stock ranking junior to the Preferred Stock
- - Cumulative as to dividends or assets by purchase of shares or
otherwise (each of such actions being herein embraced within the
term "payment of junior stock dividends") shall be subject to the
following limitations:
(1) if and so long as the junior stock equity is
less than twenty per cent (20%) of total capitalization, the
payment of junior stock dividends, including the proposed
payment, during the twelve months ending with and including
the date on which the proposed payment is to be made shall
not exceed fifty per cent (50%) of the net income of the
corporation available for the payment of dividends on the
stock ranking junior to the Preferred Stock - Cumulative as
to dividends and assets for the twelve full calendar months
immediately preceding the calendar month in which such
dividend is declared;
(2) if and so long as the junior stock equity is
less than twenty-five per cent (25%) but is twenty per cent
(20%) or more of total capitalization, the payment of junior
stock dividends, including the proposed payment, during the
twelve months ending with and including the date on which
the proposed payment is to be made shall not exceed
seventy-five per cent (75%) of the net income of the
corporation available for the payment of dividends on the
stock ranking junior to the Preferred Stock - Cumulative as
to dividends and assets for the twelve full calendar months
immediately preceding the calendar month in which such
dividend is declared; and
(3) except to the extent permitted under subsections
(1) and (2) above, the corporation shall not make any
<PAGE>
payment of junior stock dividends which would reduce the junior
stock equity to less than twenty-five per cent (25%) of total
capitalization.
For the purposes of this subsection H "net income" shall be
determined in accordance with sound accounting practice, less the
excess, if any, of the largest minimum depreciation requirement
for the period of any mortgage indenture to which the corporation
is a party during such period over the amount charged by the
corporation on its books for depreciation during such period.
The term "junior stock equity" is defined in subsection
E(2)(i) of Section 4 of this Article I.
The term "total capitalization" as used in this subsection H
means the aggregate of (x) the junior stock equity, (y) the par
value of, or stated capital represented by, the outstanding
shares of Preferred Stock - Cumulative and any other stock
ranking prior thereto or on a parity therewith as to dividends or
assets and the premium thereon, and (z) the principal amount of
all outstanding indebtedness of the corporation represented by
bonds, notes and other evidences of indebtedness maturing by
their terms more than one year from the date of issue thereof.
I. No stockholder, director, officer or agent of the
corporation shall be held individually responsible for any action
taken in good faith though subsequently adjudged to be in
violation of this Section 3.
J. The shares of Preferred Stock - Cumulative from time to
time duly authorized may be issued for such consideration as may
be fixed from time to time either by the board of directors or
otherwise, as provided by law. Any and all shares of Preferred
<PAGE>
Stock - Cumulative upon receipt by the corporation of the
consideration so fixed shall be deemed fully paid stock and shall
not be liable to any further call or assessment thereon.
K. Every holder of Preferred Stock - Cumulative of the
corporation by becoming such shall be held to have consented to
all of these provisions and to have agreed to be bound thereby
and to have waived to the full extent permitted by law any right
such holder may have either now or at any time in the future
contrary to these provisions.
SECTION 4. Certain Rights of Dividend Series Preferred
Stock and Preferred Stock-Cumulative.
A. (1) If dividends accrued to the last preceding quarterly
dividend payment date or dates on the outstanding Dividend Series
Preferred Stock, Preferred Stock - Cumulative and any other class
of preferred stock ranking on a parity therewith, as to
dividends, shall at any time and from time to time equal or
exceed an amount equivalent to four (4) full quarterly dividends
on any shares of any series of the Dividend Series Preferred
Stock, Preferred Stock - Cumulative and such parity preferred
stock at the time outstanding, then until all dividends in
default on the Dividend Series Preferred Stock, Preferred Stock -
Cumulative and such parity preferred stock shall have been paid,
the holders of Dividend Series Preferred Stock, Preferred Stock -
Cumulative and such parity preferred stock, voting separately as
one class, shall have the right to elect the smallest number of
directors necessary to constitute a majority of the full board of
directors, and the holders of stock generally entitled to vote,
voting separately as one class, shall have the right to elect the
remaining members of the board of directors. If and when all
dividends in default on the Dividend Series Preferred Stock,
<PAGE>
Preferred Stock - Cumulative and such parity preferred stock
shall be paid (and, except when prevented from so doing by any
applicable restriction of law or contained in any agreement
relating to indebtedness of the corporation, such dividends shall
be declared and paid out of any funds legally available therefor
as soon as reasonably practicable unless, by a majority vote of
the directors elected by the holders of stock generally entitled
to vote, it is determined that such payment is not in the best
interests of the corporation), the Dividend Series Preferred
Stock, Preferred Stock - Cumulative and such parity preferred
stock shall thereupon be divested of such special right to elect
any member of the board of directors, but subject always to the
same provisions for the vesting of such special right in the
Dividend Series Preferred Stock, Preferred Stock - Cumulative and
such parity preferred stock in case of further like default or
defaults.
(2) Whenever under the provisions of this subsection A the
holders of Dividend Series Preferred Stock, Preferred Stock -
Cumulative and any other class of preferred stock ranking on
parity therewith as to dividends become entitled to elect a
majority of the board of directors, a special meeting of the
holders of Dividend Series Preferred Stock, Preferred Stock -
Cumulative and such parity preferred stock and a special meeting
of the stockholders generally entitled to vote shall be held for
the purpose of electing directors. Notices thereof shall be
given promptly by the corporation and in any case within fifteen
(15) days of the occurrence of such change in voting powers, the
meetings to be held not sooner than forty-five (45) days nor
later than sixty (60) days after the occurrence of such change in
voting powers. However, if the change occurs within ninety (90)
days prior to the date set for the annual meeting of the
stockholders generally entitled to vote, no special meetings need
<PAGE>
be called prior thereto and an annual meeting of holders of
Dividend Series Preferred Stock, Preferred Stock - Cumulative and
any other such parity preferred stock shall be called for the
same date as the date of the annual meeting of stockholders
generally entitled to vote; provided, however, that, if the
change occurs within forty-five (45) days prior to the date set
for the annual meeting of the stockholders generally entitled to
vote, special meetings in lieu of annual meetings shall be called
to be held not later than sixty (60) days after such change
occurs. If the corporation fails to call the special or annual
meetings as above provided or fails to hold such annual meetings
within three (3) days of the date provided therefor in the
by-laws, any holder or holders of Dividend Series Preferred
Stock, Preferred Stock - Cumulative, such parity preferred stock
and/or stock generally entitled to vote holding in the aggregate
one thousand (1,000) shares may call special meetings for such
purpose. Notice of each such meeting of stockholders of the
corporation setting forth the purpose or purposes of such meeting
shall be mailed by the corporation not less than thirty (30) days
prior to such meeting to all stockholders at their respective
addresses appearing upon the books of the corporation entitled to
vote thereat, unless such notice shall have been waived either
before or after the holding of such meeting by all such
stockholders.
(3) Upon reversion, pursuant to subsection A(l), of the
voting powers to their status prior to default, a special or
annual meeting of stockholders generally entitled to vote shall
be held for the purpose of electing directors. Notice thereof
shall be given promptly by the corporation and in any case within
fifteen (15) days after such reversion, such notice to be mailed
by the corporation not less than seven (7) nor more than ten (10)
days prior to such meeting to all stockholders generally entitled
<PAGE>
to vote at their respective addresses appearing upon the books of
the corporation, unless such notice shall have been waived either
before or after the holding of such meeting by all such
stockholders. If the corporation fails to call such meeting or
fails to hold such annual meeting within three (3) days of the
date provided therefor in the by-laws, any holder or holders of
stock generally entitled to vote holding in the aggregate one
thousand (1,000) shares may call a special meeting for such
purpose.
(4) Any director elected by holders of Dividend Series
Preferred Stock, Preferred Stock - Cumulative and any other class
of preferred stock ranking on a parity therewith, as to
dividends, shall hold office until the next annual meeting of the
holders of Dividend Series Preferred Stock, Preferred Stock -
Cumulative and such parity preferred stock and until his
successor is chosen and qualified, except as otherwise provided
in this subsection A. Once any directors have been elected by
holders of Dividend Series Preferred Stock, Preferred Stock -
Cumulative and such parity preferred stock, and so long as such
holders are entitled to elect such directors, annual meetings of
such holders shall be held for the purpose of electing directors,
such meetings to immediately follow the annual meetings of
stockholders generally entitled to vote. During any period in
which the holders of Dividend Series Preferred Stock, Preferred
Stock - Cumulative and such parity preferred stock have the right
to elect a majority of the board of directors, pursuant to
subsection A(l), the number of directors constituting the full
board of directors shall be the number constituting the full
board of directors immediately prior to said period unless it be
changed by a two-thirds vote at an annual meeting of such holders
and by a two-third vote at an annual meeting in the same year of
the holders of stock generally entitled to vote. In the event
<PAGE>
the number of directors is so increased or decreased, the holders
of Dividend Series Preferred Stock, Preferred Stock - Cumulative
and such parity preferred stock shall have the right at such
annual meeting to elect the smallest number of directors
necessary to constitute a majority of the new number of
directors, and the holders of stock generally entitled to vote
shall have the right to elect the remaining directors, provided,
however, that neither group of directors so elected shall be
entitled to hold office until both groups have been duly elected.
(5) At all meetings of stockholders held for the purpose of
electing directors, during such times as the holders of shares of
the Dividend Series Preferred Stock, Preferred Stock - Cumulative
and any other class of preferred stock ranking on a parity
therewith, as to dividends, shall have the right to elect a
majority of the board of directors, pursuant to the foregoing
provisions of this subsection A, the presence in person or by
proxy of the holders of a majority of the outstanding shares of
the stock generally entitled to vote, as one class, shall be
required to constitute a quorum of such class for the election of
directors and the presence in person or by proxy of the holders
of a majority of the outstanding shares of all series of the
Dividend Series Preferred Stock, Preferred Stock - Cumulative and
such parity preferred stock, voting separately as one class,
shall be required to constitute a quorum of such class for the
election of directors. The absence of a quorum of the holders of
either such class shall not prevent or invalidate the election of
directors by the other such class if the necessary quorum of the
holders of stock of such class is present in person or by proxy
at the meeting of such class or any adjournment thereof, except
that in the case of the first election following the accrual of
the special right of the holders of Dividend Series Preferred
Stock, Preferred Stock - Cumulative and any such parity preferred
<PAGE>
stock to elect a majority of the board of directors, the
directors elected by the holders of stock generally entitled to
vote shall not take office until the election of such majority.
In the absence of a quorum of the holders of stock of either such
class, the meeting shall be adjourned from time to time, which
may be without notice other than announcement at the meeting,
until such quorum shall be obtained, provided that if such quorum
shall not have been obtained within ninety (90) days from the
date of such meeting as originally called (or, in the case of any
annual meeting held during the continuance of such special right,
from the date fixed for such annual meeting) the presence in
person or by proxy of the holders of one-third, instead of said
majority, of said shares shall then be sufficient to constitute a
quorum for the election of the directors whom such stockholders
are then entitled to elect. In the calculation of any quorum of
the class composed of the holders of the Dividend Series
Preferred Stock, the Preferred Stock - Cumulative and parity
preferred stock, each share of stock bearing $100 par value shall
be counted as one and each share of stock bearing $25 par value
shall be counted as one-quarter.
(6) Forthwith upon the election of a majority of the board
of directors of the corporation by the holders of Dividend Series
Preferred Stock, Preferred Stock - Cumulative and any other class
of preferred stock ranking on a parity therewith, as to
dividends, pursuant to subsection A(l) hereof, the terms of
office of all persons who may be directors of the corporation at
the time shall terminate, whether or not the holders of stock
generally entitled to vote shall then have elected the remaining
members of the board of directors, and, if the holders of stock
generally entitled to vote shall not have elected the remaining
members of the board of directors, then the directors so elected
by the holders of Dividend Series Preferred Stock, Preferred
<PAGE>
Stock - Cumulative and such parity preferred stock shall
constitute the board of directors pending such election of the
remaining members by such holders of stock generally entitled to
vote. Upon the reversion, pursuant to subsection A(l), of the
voting powers to their status prior to default, then forthwith
upon the election of new directors by the holders of stock
generally entitled to vote, the terms of office of the directors
elected by the holders of Dividend Series Preferred Stock,
Preferred Stock Cumulative and such parity preferred stock shall
terminate.
(7) In case of any vacancy in the office of a director
elected by the holders of Dividend Series Preferred Stock,
Preferred Stock - Cumulative and any other class of preferred
stock ranking on a parity therewith, as to dividends, pursuant to
the foregoing provisions of this subsection A, the remaining
directors elected by the holders of Dividend Series Preferred
Stock, Preferred Stock - Cumulative and such parity preferred
stock, by affirmative vote of a majority of said directors, or
the remaining director so elected if there be but one, may elect
a successor or successors to hold office for the unexpired term
of the director or directors whose place or places shall be
vacant.
(8) Under all circumstances, however, the directors elected
by the holders of stock generally entitled to vote shall have the
right, and neither the holders of Dividend Series Preferred
Stock, Preferred Stock - Cumulative or any other class of
preferred stock ranking on a parity therewith, as to dividends,
nor any directors elected under these provisions by the holders
of Dividend Series Preferred Stock, Preferred Stock - Cumulative
and any other class of preferred stock ranking on a parity
therewith, as to dividends, shall have any right, to vote upon
<PAGE>
the question of calling for redemption, or of purchasing, all of
the Dividend Series Preferred Stock, the Preferred Stock -
Cumulative and such parity preferred stock at the time
outstanding.
(9) Except when some mandatory provision of law shall be
controlling or as otherwise provided in this Section 4 and, with
respect to any special rights of (i) the Dividend Series
Preferred Stock as a class, or (ii) the Preferred Stock -
Cumulative as a class, or (iii) any series of either such class
as a series, in the provisions of the by-laws or articles of
organization controlling said class or in the votes creating said
series, neither the Dividend Series Preferred Stock nor the
Preferred Stock - Cumulative shall be entitled to vote as a
separate class, and no outstanding series of either such class
shall be entitled to vote as a separate series, on any matter and
all shares of the Dividend Series Preferred Stock of all series
and all shares of the Preferred Stock - Cumulative of all series
shall be deemed to constitute but one class for any purpose for
which a vote of the stockholders of the corporation by classes
may now or hereafter be required.
(10) During the period the Dividend Series Preferred Stock
and the Preferred Stock - Cumulative have the special voting
rights provided by this subsection A, the 6% Cumulative Preferred
Stock, which is generally entitled to vote as specified in
Section 1, may vote either as stock generally entitled to vote or
as parity preferred stock or as both.
B. So long as any shares of the Dividend Series Preferred
Stock of any series are outstanding, the corporation shall not,
without the vote at a meeting called for that purpose of the
holders of at least two-thirds of the total number of shares of
<PAGE>
the Dividend Series Preferred Stock of all series then
outstanding make any change in the provisions relative to the
Dividend Series Preferred Stock, or of any series thereof, which
would change the express terms and provisions of such stock
(other than the express terms and provisions thereof set forth in
subsections A, D, and E of this Section 4) in any manner
prejudicial to the holders thereof except that if such change is
prejudicial to the holders of one or more, but not all of such
series, only to the vote of the holders of two-thirds of the
total number of shares of all series so affected and then
outstanding shall be required.
C. So long as any shares of the Preferred Stock -
Cumulative of any series are outstanding, the corporation shall
not, without the vote at a meeting called for that purpose of the
holders of at least two-thirds of the total number of shares of
the Preferred Stock - Cumulative of all series then outstanding
make any change in the provisions relative to the Preferred Stock
- - Cumulative, or of any series thereof, which would change the
express terms and provisions of such stock (other than the
express terms and provisions thereof set forth in subsections A,
D, and E of this Section 4) in any manner prejudicial to the
holders thereof except that if such change is prejudicial to the
holders of one or more, but not all, of such series, only the
vote of the holders of two-thirds of the total number of shares
of all series so affected and then outstanding shall be required.
D. So long as any shares of the Dividend Series Preferred
Stock or the Preferred Stock - Cumulative of any series are
outstanding, the corporation shall not, without the vote at a
meeting called for that purpose of at least two-thirds of the
votes entitled to be cast by the holders of the total number of
shares of the Dividend Series Preferred Stock and the Preferred
<PAGE>
Stock - Cumulative of all series then outstanding:
(1) make any change in the provisions of this
Section 4, which would change the express terms and
provisions of subsections A, D, or E of this Section 4 in
any manner prejudicial to the holders of the Dividend Series
Preferred Stock and the Preferred Stock - Cumulative except
that if such change is prejudicial to the holders of one
class, but not both, only the vote of the holders of
two-thirds of the total number of shares of the class so
affected and then outstanding shall be required; or
(2) create or authorize any class of stock which
shall be preferred as to dividends or assets over the
Dividend Series Preferred Stock or the Preferred Stock -
Cumulative.
No preferred stock so preferred as to dividends or assets over
the Dividend Series Preferred Stock or the Preferred Stock -
Cumulative shall be issued more than six months after the above
referred to vote creating or authorizing such class of stock
unless within six months prior to such issue approval thereof has
been obtained, at a meeting called for the purpose, by vote of at
least two-thirds of the total number of shares of Dividend Series
Preferred Stock and the Preferred Stock - Cumulative of all
series outstanding.
E. So long as any shares of the Dividend Series Preferred
Stock or the Preferred Stock - Cumulative of any series are
outstanding, the corporation shall not, without the vote at a
meeting called for that purpose of at least a majority of the
votes entitled to be cast by the holders of the total number of
shares of the Dividend Series Preferred Stock and the Preferred
<PAGE>
Stock - Cumulative of all series then outstanding:
(1) Issue shares of any series of Dividend Series Preferred
Stock or Preferred Stock - Cumulative if after such issue the
aggregate outstanding par value of all such series would exceed
$250,000,000.
(2) Issue additional shares of any series of Dividend
Series Preferred Stock or Preferred Stock Cumulative or of any
other stock ranking prior thereto or on a parity therewith as to
dividends or assets, except for refunding an equal par value of
Dividend Series Preferred Stock or Preferred Stock - Cumulative,
or other such prior or parity preferred stock, of the corporation
theretofore outstanding:
(i) unless the junior stock equity to be outstanding
immediately after such issue shall be at least equal to the
aggregate of the par or stated value of the Dividend Series
Preferred Stock and the Preferred Stock - Cumulative and of
any other such prior or parity stock to be outstanding
immediately after such issue; provided, however, that if for
the purpose of meeting this requirement it shall have been
necessary to take into consideration any earned surplus of
the corporation, such surplus shall not be available
thereafter for distribution on or purchase of stock ranking
junior to the Dividend Series Preferred Stock or the
Preferred Stock - Cumulative as to dividends or assets while
said additional issue is outstanding (the term "junior stock
equity" as used in this subsection E and in subsections H of
Sections 2 and 3 means the aggregate of the par value of, or
stated capital represented by, the outstanding shares of
stock ranking junior to the Dividend Series Preferred Stock
and the Preferred Stock - Cumulative as to dividends and
<PAGE>
assets, of the premium on such junior stock and of the
surplus (including Retained earnings and other paid-in
capital) of the corporation less, unless the amounts or
items are being amortized or are being provided for by
reserves, (a) any amounts recorded on the books of the
corporation for utility plant and other plant in excess of
the original cost thereof, (b) unamortized debt discount and
expense, capital stock discount and expense and any other
intangible items set forth on the asset side of the balance
sheet as a result of accounting convention, (c) the excess,
if any, of the aggregate amount payable on involuntary
liquidation, dissolution or winding up of the affairs of the
corporation upon all outstanding preferred stock of the
corporation over the aggregate par or stated value thereof
and any premiums thereon and (d) the aggregate of the
excess, if any, for each year and the final fraction of a
year, if any, during the period from January 1, 1953 to the
end of a month within ninety (90) days preceding the date as
of which junior stock equity is determined, of the largest
minimum depreciation requirement for each such year and such
final fraction of a year of any mortgage indenture to which
the corporation is a party during such year or such final
fraction of a year over the amount charged by the
corporation on its books for depreciation during such year
or such final fraction of a year);
(ii) unless the gross income of the corporation
available for interest on its indebtedness and for dividends
on the Dividend Series Preferred Stock, the Preferred Stock
- Cumulative and any other such prior or parity stock,
determined in accordance with sound accounting practice, for
a period of twelve (12) consecutive calendar months within
the fifteen (15) calendar months immediately preceding the
<PAGE>
calendar month in which such additional stock is issued, or
in which a contract for the issuance and sale thereof is
made, is at least one and one-half (1 1/2) times the
aggregate of the annual interest charges and dividend
requirements on all interest bearing indebtedness and all
series of Dividend Series Preferred Stock, Preferred Stock -
Cumulative and such prior or parity stock to be outstanding
immediately after the proposed issue; and
(iii) unless the net income of the corporation
available for dividends on the Dividend Series Preferred
Stock, the Preferred Stock - Cumulative and any other such
prior or parity stock, determined in accordance with sound
accounting practice, for the same twelve (12) months'
period, is at least two (2) times the aggregate of the
annual dividend requirements on all series of Dividend
Series Preferred Stock, Preferred Stock - Cumulative and
such prior or parity stock to be outstanding immediately
after the proposed issue.
In said computations in subsections (ii) and (iii):
(a) interest on indebtedness and dividends on stock
in each case to be retired with the proceeds of the proposed
issue are to be excluded;
(b) such gross income or net income, respectively,
similarly determined for said twelve (12) month period, from
any property acquired by purchase, merger or otherwise
during or after said period or to be acquired in connection
with the proposed issue, may be included;
(c) the amount deducted for taxes shall be the
amount charged by the corporation on its books for taxes;
<PAGE>
and
(d) the amount deducted for depreciation shall be
the higher of the amount charged by the corporation on its
books for depreciation during such period or the largest
minimum depreciation requirement for such period of any
mortgage indenture to which the corporation is a party
during such period.
(3) Merge or consolidate with or into any other corporation
or corporations or sell, lease or dispose of all or substantially
all its assets, unless such merger, consolidation or sale, lease
or disposition, or the issuance and assumption of all securities
to be issued or assumed in connection therewith, shall have been
ordered, approved or permitted by the Securities and Exchange
Commission under the provisions of the Public Utility Holding
Company Act of 1935 or by any successor commission or regulatory
authority of the United States of America having jurisdiction in
the premises under said Act or by any court of the United States
having such jurisdiction.
(4) Issue any unsecured notes, debentures or other
securities representing unsecured indebtedness, or assume any
such unsecured securities, for purposes other than the redemption
or other retirement of outstanding shares of all series of the
Dividend Series Preferred Stock and the Preferred Stock -
Cumulative, if immediately after such issue or assumption the
total principal amount of all unsecured notes, debentures or
other securities representing unsecured indebtedness issued or
assumed by the corporation and then outstanding (including
unsecured securities then to be issued or assumed but excluding
unsecured securities theretofore so voted for by holders of
Dividend Series Preferred Stock and Preferred Stock - Cumulative)
<PAGE>
(the "Unsecured Indebtedness") would exceed twenty per cent (20%)
of the aggregate of (i) the total principal amount of all bonds
and other securities representing secured indebtedness issued or
assumed by the corporation and then outstanding and (ii) the
capital, premium and retained earnings of the corporation as then
stated on the books of account of the corporation; provided,
however, that after July 1, 1976, short-term unsecured
indebtedness shall not exceed ten per cent (10%) of such
aggregate of (i) and (ii) above; and provided, further, that
after July 1, 1976, in the event unsecured securities
representing short-term unsecured indebtedness (excluding
unsecured securities theretofore so voted for by the holders of
Dividend Series Preferred Stock and Preferred Stock - Cumulative)
exceed ten per cent (10%) of such aggregate of (i) and (ii)
above, no unsecured securities representing unsecured
indebtedness shall be issued or assumed (except for the purpose
of redemption or other retirement of outstanding shares of all
series of the Dividend Series Preferred Stock and the Preferred
Stock - Cumulative) unless such ratio of short-term unsecured
indebtedness immediately after such issue or assumption is to be
not over ten per cent (10%) of such aggregate of (i) and (ii)
above. "Short-term unsecured indebtedness" as used herein means
unsecured indebtedness of an original maturity of less than ten
years and "long-term unsecured indebtedness" means unsecured
indebtedness of an original maturity of ten years or more. For
the purposes hereof, when any long-term unsecured indebtedness
becomes due within ten years, or when any long-term unsecured
indebtedness is to be retired within ten years through a sinking
fund or otherwise, such long-term unsecured indebtedness, in each
case, shall be considered short-term unsecured indebtedness;
provided, however, that any long-term unsecured indebtedness of a
single maturity (except as provided above in respect of a sinking
fund therefor), or the last maturity of any long-term unsecured
<PAGE>
indebtedness of serial maturities, shall not be considered
short-term unsecured indebtedness until due within five years.
"Premium" as used in this subsection D with reference to
capital stock shall mean such premium on capital stock as has
been paid in, or will have been paid in immediately after the
proposed issue of additional capital stock, and is not available
for distribution on, or purchase of, junior stock. If the
corporation has outstanding at any time shares without par value,
then references in subsection D(2) above to par value shall
refer, in the case of such shares without par value, to that part
of the stated capital represented by such shares.
The voting rights set forth in subsections B, C and D shall
not be effective if, in connection with any matter specified
therein, provision is made for the purchase, redemption or
retirement of all the Dividend Series Preferred Stock and the
Preferred Stock - Cumulative at the time outstanding, or it is
provided that the proposed action shall not be effective unless
such provision is made.
In the calculations in subsections D and E of "at least
two-thirds of the total number of shares of the Dividend Series
Preferred Stock and the Preferred Stock - Cumulative" or of "at
least a majority of the total number" of such shares, each share
of Dividend Series Preferred Stock bearing $100 par value shall
be counted as one and each share of Preferred Stock - Cumulative
bearing $25 par value shall be counted as one-quarter.
F. No stockholder, director, officer or agent of the
corporation shall be held individually responsible for any action
taken in good faith though subsequently adjudged to be in
violation of this Section 4.
<PAGE>
SECTION 5. Maximum Issues of Preferred Stock. The
corporation shall not, without the vote at a meeting called for
the purpose of at least a majority of the shares of stock
generally entitled to vote, issue shares of any series of
Dividend Series Preferred Stock or Preferred Stock - Cumulative
if after such issue the aggregate outstanding par value of all
such series would exceed $250 million.
ARTICLE II.
STOCK CERTIFICATES AND TRANSFERS.
SECTION 1. Certificates. Each stockholder shall be
entitled to a certificate of the capital stock of the corporation
owned by him in such form as shall, in conformity to law, be
prescribed from time to time by the board of directors. Such
certificate shall be signed by the president or a vice-president
and by the treasurer or an assistant treasurer, and shall bear
the seal of the corporation; provided, however, that when any
such certificate is signed by a transfer agent and by a registrar
and the registrar is not the same person, partnership,
association, trust or corporation as the transfer agent, the
signature of the president or a vice-president or of the
treasurer or an assistant treasurer of the corporation, or both
such signatures, or the seal of the corporation, or either or
both of such signatures and such seal, upon such certificate may
be facsimile, and such certificate shall be as valid and
effectual for all purposes as if signed by such officer or
officers, or sealed with the seal of the corporation, as the case
may be. The fact that a person signing has ceased to be an
officer shall not invalidate any such certificate.
<PAGE>
SECTION 2. Transfer Books. The Treasurer or such agent or
agents as may be employed by the treasurer with the approval of
the board of directors shall keep the stock and transfer books of
the corporation and a record of all certificates of stock issued
and of all transfers of stock and a register of all the
stockholders, their addresses and the number of shares held by
each. The board of directors may fix in advance a time, not more
than thirty days preceding the date of any meeting of
stockholders or the date for the payment of any dividend or the
making of any distribution to stockholders or the last day on
which the consent or dissent of stockholders may be effectively
expressed for any purpose, as the record date for determining the
stockholders having the right to notice of and to vote at such
meeting and any adjournment thereof or the right to receive such
dividend or distribution or the right to give such consent or
dissent, and in such case only stockholders of record on such
record date shall have such right, notwithstanding, any transfer
of stock on the books of the corporation after the record date;
or without fixing such record date the board of directors may for
any of such purposes close the transfer books for all or any part
of such thirty-day period.
SECTION 3. Transfer of Shares. Subject to the
restrictions, if any, imposed by the agreement of association,
title to a certificate of stock and to the shares represented
thereby shall be transferred only by delivery of the certificate
properly endorsed, or by delivery of the certificate accompanied
by a written assignment of the same, or a written power of
attorney to sell, assign or transfer the same or the shares
represented thereby, properly executed; but the person registered
on the books of the corporation as the owner of shares shall have
the exclusive right to receive dividends thereon and to vote
thereon as such owner and, except only as may be required by law,
<PAGE>
may in all respects be treated by the corporation as the
exclusive owner thereof.
It shall be the duty of each stockholder to notify the
corporation of his post office address.
SECTION 4. Loss of Certificates. In case of the alleged
loss or destruction, or the mutilation of a certificate of stock,
a duplicate certificate may be issued in place thereof, upon such
reasonable terms as the board of directors may prescribe.
ARTICLE III.
STOCKHOLDERS.
SECTION 1. Annual Meeting. The annual meeting of
stockholders generally entitled to vote shall be held on the
third Wednesday of April in each year, if it be not a legal
holiday, and if it be a legal holiday, then on the next
succeeding full business day not a legal holiday. Annual
meetings of stockholders shall be held at the office of the
corporation in the Town of Westborough, Massachusetts, or at such
other place in Massachusetts as the president or a majority of
the directors may designate. Purposes for which annual meetings
are to be held additional to those prescribed by law, by the
agreement of association and by these by-laws may be specified by
the board of directors or by writing signed by the president or
by a majority of the directors or by stockholders who hold at
least one-tenth of the aggregate par value of the capital stock
entitled to vote at the meeting. If any such annual meeting is
omitted on the day herein provided therefor, a special meeting
may be held in place thereof, and any business transacted or
elections held at such meeting shall have the same effect as if
<PAGE>
transacted or held at said annual meeting.
SECTION 2. Special Meetings. Special meetings of the
stockholders may be called to be held anywhere in Massachusetts
by the president or by a majority of the directors, and shall be
called by the clerk or, in case of the death, absence, incapacity
or refusal of the clerk, by any other officer of the corporation,
upon written application of stockholders who hold at least
one-tenth of the aggregate par value of the capital stock
entitled to vote at the meeting, stating the time, place and
purpose of the meeting.
SECTION 3. Notice of Meetings. Except as otherwise
provided in Section 4 of Article I, a written or printed notice
of each meeting of stockholders, stating the place, day and hour
thereof and the purpose for which the meeting is called, shall be
given by the clerk, at least seven days before such meeting, to
each stockholder entitled to vote thereat, by leaving such notice
with him or at his residence or usual place of business, or by
mailing it, postage prepaid and addressed to such stockholder at
his address as it appears upon the books of the corporation. In
the absence or disability of the clerk, such notice may be given
by a person designated either by the clerk or by the person or
persons calling the meeting or by the board of directors. No
notice of the time, place or purpose of any regular or special
meeting of the stockholders shall be required if every
stockholder entitled to notice thereof is present in person or is
represented at the meeting by proxy or if every such stockholder,
or his attorney thereunto authorized, by a writing which is filed
with the records of the meeting, waives such notice.
SECTION 4. Quorum. Except as otherwise provided in Section
4 of Article I, at any meeting of the stockholders, a majority in
<PAGE>
interest of all stock issued and outstanding and entitled to vote
upon a question to be considered at the meeting shall constitute
a quorum for the consideration of such question, but a lesser
interest may adjourn any meeting from time to time, and the
meeting may be held as adjourned without further action. When a
quorum is present at any meeting, a majority of the stock
represented thereat and entitled to vote shall, except where a
larger vote is required by law, by the agreement of association
or by these by-laws, decide any question brought before such
meeting.
SECTION 5. Proxies and Voting. Subject to the provisions
of Article I hereof and to provisions of law, stockholders who
are entitled to vote shall have one vote for each share of stock
owned by them, except that holders of shares of Preferred Stock -
Cumulative shall have one-quarter vote for each share of such
stock owned by them. Stockholders may vote either in person or
by proxy in writing dated not more than six (6) months before the
meeting named therein, which shall be filed with the clerk of the
meeting before being voted. Such proxies shall entitle the
holders thereof to vote at any adjournment of such meeting but
shall not be valid after the final adjournment of such meeting.
ARTICLE IV.
DIRECTORS.
SECTION 1. Powers. The board of directors shall have, and
may exercise, all the powers of the corporation, except such as
are conferred upon the stockholders by law, by the agreement of
association and by these by-laws.
<PAGE>
SECTION 2. Election. A board of not less than three
directors shall be chosen by ballot at the annual meeting of the
stockholders or at the special meeting held in place thereof, or
as provided in Section 4 of Article I. The number of directors
for each corporate year shall be fixed by vote at the meeting at
which they are elected but the stockholders may, at any special
meeting held for the purpose during any such year, increase or
decrease (within the limit above specified) the number of
directors as thus fixed, and elect new directors to complete the
number so fixed, or remove directors to reduce the number of
directors to the number so fixed; provided, however, that while
there are four (4) full quarterly dividends in default on the
Dividend Series Preferred Stock and the Preferred Stock -
Cumulative the number of such directors shall be fixed in
accordance with Section 4 of Article I. No director need be a
stockholder. Subject to law, to the articles of organization, to
the terms of the Dividend Series Preferred Stock and the
Preferred Stock - Cumulative and to the other provisions of these
by-laws, each director shall hold office until the next annual
meeting of the stockholders electing such director and until his
successor is chosen and qualified.
SECTION 3. Regular Meeting. Regular meetings of the board
of directors may be held at such places and at such times as the
board may by vote from time to time determine, and if so
determined, no notice thereof need be given. A regular meeting
of the board of directors may be held without notice immediately
after, and at the same place as the annual meeting of the
stockholders, or the special meeting of the stockholders held in
place of such annual meeting.
SECTION 4. Special Meetings. Special meetings of the board
of directors may be held at any time and at any place when called
<PAGE>
by the president, treasurer or two or more directors, reasonable
notice thereof being given to each director, or at any time
without call or formal notice, provided all the directors are
present or waive notice thereof by a writing which is filed with
the records of the meeting. In any case it shall be deemed
sufficient notice to a director to send notice by mail or
telegram at least forty-eight hours before the meeting addressed
to him at his usual or last known business or residence address.
SECTION 5. Quorum. A majority of the board of directors
shall constitute a quorum for the transaction of business, but a
less number may adjourn any meeting from time to time, and the
meeting may be held as adjourned without further notice. Except
as otherwise provided, when a quorum is present at any meeting, a
majority of the members in attendance thereat shall decide any
question brought before such meeting.
SECTION 6. Vacancies. If the office of any director, one
or more, elected by the stockholders generally entitled to vote,
becomes vacant by reason of death, resignation, removal,
disqualification or otherwise, the remaining directors so
elected, though less than a quorum, may, unless such vacancy
shall have been filled by the stockholders generally entitled to
vote, choose by a majority vote of their entire number, a
successor or successors, who shall hold office for the unexpired
term. Any vacancy in the office of a director elected by holders
of the Dividend Series Preferred Stock and the Preferred Stock
Cumulative shall be filled as provided in Section 4 of Article I.
<PAGE>
ARTICLE V.
OFFICERS.
SECTION 1. Election and Appointment. The officers shall be
a president, a clerk, a treasurer and such other officers and
agents as the board of directors may in their discretion appoint.
The treasurer and the clerk shall be chosen by ballot at the
annual meeting of the stockholders generally entitled to vote.
The president shall be elected annually by the board of directors
after its election by the stockholders. The president shall be a
director. The clerk shall be a resident of Massachusetts. So
far as is permitted by law, any two or more offices may be filled
by the same person. Subject to law, to the agreement of
association and to the other provisions of these by-laws, the
treasurer and clerk shall each hold office until the next annual
meeting of stockholders generally entitled to vote and until his
successor is chosen and qualified, the president shall hold
office until the first meeting of directors after the next annual
meeting of stockholders generally entitled to vote and until his
successor is chosen and qualified and the other officers and
agents shall hold office during the pleasure of the board of
directors or for such term as the board of directors shall
prescribe. Each officer shall, subject to these by-laws, have in
addition to the duties and powers herein set forth such duties
and powers as are commonly incident to his office, and such
duties and powers as the board of directors shall from time to
time designate.
SECTION 2. President. Except as otherwise determined by
the board of directors, the president shall be the chief
executive officer of the corporation and shall preside at all
meetings of the stockholders and of the board of directors at
<PAGE>
which he is present. The president shall have custody of the
treasurer's bond.
SECTION 3. Clerk. The clerk shall keep an accurate record
of the proceedings of all meetings of the stockholders in books
provided for the purpose, which books shall be kept at the
principal office of the corporation and shall be open at all
reasonable times to the inspection of any stockholder. In the
absence of the clerk at any such meeting a temporary clerk shall
be chosen, who shall record the proceedings of such meeting in
the aforesaid books. The clerk and such temporary clerk shall be
sworn.
If no secretary is appointed, the clerk shall also keep
accurate minutes of all meetings of the board of directors and in
his absence from any such meeting a temporary clerk shall be
chosen, who shall be sworn and shall record the proceedings of
such meeting.
SECTION 4. Secretary. If a secretary is appointed, he
shall keep accurate minutes of all meetings of the board of
directors, and in his absence from any such meeting a temporary
secretary shall record the proceedings thereof.
SECTION 5. Treasurer. The treasurer shall, subject to the
direction and under the supervision of the board of directors,
have general charge of the financial concerns of the corporation
and the care and custody of the funds and valuable papers of the
corporation, except his own bond, and he shall have power to
endorse for deposit or collection all notes, checks, drafts,
etc., payable to the corporation or its order, and to accept
drafts on behalf of the corporation. He shall keep, or cause to
be kept, accurate books of account, which shall be the property
<PAGE>
of the corporation. If required by the board of directors he
shall give bond for the faithful performance of his duty in such
form, in such sum, and with such sureties as the board of
directors shall require.
Any assistant treasurer shall have such power as the board
of directors shall from time to time designate.
SECTION 6. Removals. The stockholders generally entitled
to vote may, at any special meeting called for the purpose, by
vote of a majority of the capital stock issued and outstanding
and generally entitled to vote, remove from office the treasurer,
clerk or any director elected by the stockholders generally
entitled to vote, and elect his successor. The board of
directors may likewise, by vote of a majority of their entire
number, remove from office any officer or agent of the
corporation; provided, however, that the board of directors may
remove the treasurer or clerk for cause only.
SECTION 7. Vacancies. If the office of any officer or
agent, one or more, becomes vacant by reason of death,
resignation, removal, disqualification or otherwise, the
directors may unless such vacancy, if in the office of the
treasurer or clerk, shall have been filled by the stockholders
generally entitled to vote, choose by a majority vote of their
entire number, a successor or successors, who shall hold office
for the unexpired term, subject to the provisions of Section 6 of
this Article V.
<PAGE>
ARTICLE V-A.
LIABILITY AND INDEMNIFICATION.
No director of the corporation shall be personally liable to
the corporation or its stockholders for monetary damages for
breach of fiduciary duty as a director notwithstanding any
provision of law imposing such liability, except with respect to
any matter as to which such liability shall have been imposed (i)
for any breach of the director's duty of loyalty to the
corporation or its stockholders, (ii) for acts or omissions not
in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under section sixty-one or
sixty-two of chapter one hundred and fifty-six B of the General
Laws of Massachusetts, or (iv) for any transaction from which the
director derived an improper personal benefit.
The corporation shall indemnify each of its directors and
officers against any loss, liability or expense, including
amounts paid in satisfaction of judgments, in compromise or as
fines and penalties, and counsel fees, imposed upon or reasonably
incurred by him in connection with the defense or disposition of
any action, suit or other proceeding, whether civil or criminal,
including but not limited to derivative suits (to the extent
permitted by law), in which he may be involved or with which he
may be threatened, while in office or thereafter, by reason of
his being or having been a director or officer, except with
respect to any matter as to which he shall have been adjudicated
in such action, suit or proceeding not to have acted in good
faith in the reasonable belief that his action was in the best
interests of the corporation, or, to the extent that such matter
relates to service with respect to any employee benefit plan, as
in the best interests of the participants or beneficiaries of
<PAGE>
such plan. As to any matter disposed of by a compromise payment
by a director or officer, pursuant to a consent decree or
otherwise, no indemnification either for said payment or for any
other expenses shall be provided unless such compromise shall be
approved as in the best interests of the corporation, after
notice that it involves such indemnification, if no change in
control has occurred (a) by a disinterested majority of the
directors then in office, (b) by a majority of the disinterested
directors then in office, provided that there has been obtained
an opinion in writing of independent legal counsel to the effect
that such director or officer appears to have acted in good faith
in the reasonable belief that his action was in the best
interests of the corporation, or (c) by the vote, at a meeting
duly called and held, of the holders of a majority of the shares
outstanding and entitled to vote thereon, exclusive of any shares
owned by any interested director or officer or, if a change in
control shall have occurred, by an opinion in writing of
independent legal counsel to the effect that such director or
officer appears to have acted in good faith in the reasonable
belief that his action was in the best interests of the
corporation.
Expenses incurred with respect to the defense or disposition
of any action, suit or proceeding heretofore referred to in this
Article shall be advanced by the corporation prior to the final
disposition of such action, suit or proceeding, upon receipt of
an undertaking by or on behalf of the recipient to repay such
amount if it is ultimately determined that he is not entitled to
indemnification, which undertaking shall be accepted without
reference to the financial ability of the recipient to make such
repayment. If in an action, suit or proceeding brought by or in
right of the corporation, a director is held not liable, whether
because relieved of liability under the first paragraph of this
<PAGE>
Article or otherwise, he shall be deemed to have been entitled to
indemnification for expenses incurred in defense of said action,
suit or proceeding.
(i) The term "officer" includes (a) persons who serve at
the request of the corporation as directors, officers, or
trustees of another organization and (b) employees of the
corporation and its affiliates who serve in any capacity
with respect to benefit plans for the corporation's
employees.
(ii) An "interested" director or officer is one against whom
in such capacity the proceeding in question or another
proceeding on the same or similar ground is then pending.
(iii) A "change in control" occurs when: (a) any
individual, corporation, association, partnership, joint
venture, trust or other entity or association thereof acting
in concert (excluding any employee benefit plan, dividend
reinvestment plan or similar plan of the corporation, or any
trustee thereof acting in such capacity) acquires more than
20% of the outstanding stock having general voting rights or
more than 20% of the common shares of any entity owning more
than 50% of the corporation's outstanding stock having
general voting rights, whether in whole or in part, by means
of an offer made publicly to the holders of all or
substantially all of such outstanding stock or shares to
acquire stock or shares for cash, other property, or a
combination thereof or by any other means, unless the
transaction is consented to by vote of a majority of the
continuing directors; or (b) continuing directors cease to
constitute a majority of the board.
<PAGE>
(iv) The term "continuing director" shall mean any director
of the corporation who (a) was a member of the board of
directors of the corporation on the later of January 1,
1987, or the date the director or officer seeking
indemnification first became such, or (b) was recommended
for his initial term of office by a majority of continuing
directors in office at the time of such recommendation.
Nothing contained in this Article shall (i) limit the power
of the corporation to employees and agents of the corporation or
its subsidiaries other than directors and officers on any terms
it deems appropriate not prohibited by law, (ii) limit the
power of the corporation to indemnify directors and officers for
expenses incurred in suits, actions, or other proceedings
initiated by such director or officer or (iii) affect any rights
to indemnification to which corporation personnel other than
directors and officers may be entitled by contract or otherwise.
The rights provided in this Article shall not be exclusive of or
affect any other right to which any director or officer may be
entitled and such rights shall inure to the benefit of its or his
successors, heirs, executors, administrators and other legal
representatives. Such other rights shall include all powers,
immunities and rights of reimbursement allowable under the laws
of The Commonwealth of Massachusetts.
The provisions of this Article shall not apply with respect
to any act or omission to any act or omission occurring prior to
June 25, 1987. No amendment to or repeal of this Article shall
apply to or have any effect upon the liability, exoneration or
indemnification of any director or officer for or with respect to
any acts or omissions of the director or officer occurring prior
to such amendment or repeal.
<PAGE>
ARTICLE VI.
SEAL.
The seal of the corporation shall, subject to alteration by
the board of directors, consist of a flatfaced circular die with
the words "New England Power Company Massachusetts" on the
periphery, and the words "Corporate Seal Consolidated 1916"
within the circle, cut or engraved thereon.
ARTICLE VII.
EXECUTION OF PAPERS.
Except as the board of directors may generally or in
particular cases authorize the execution thereof in some other
manner, all deeds, leases, transfers, contracts, bonds, notes,
checks, drafts and other obligations made, accepted or endorsed
by the corporation, shall be signed by the president, any vice
president, the treasurer or any assistant treasurer.
ARTICLE VIII.
FISCAL YEAR.
Except as from time to time otherwise provided by the board
of directors, the fiscal year of the corporation shall be the
calendar year.
<PAGE>
ARTICLE IX.
AMENDMENTS.
Subject to the provisions of law and of the Dividend Series
Preferred Stock and the Preferred Stock - Cumulative, these
by-laws may be amended, altered or repealed by a vote of a
majority of the outstanding capital stock generally entitled to
vote at any meeting of such stockholders, provided notice of the
proposed amendment, alteration or repeal is given in the notice
of said meeting.
<PAGE>
EXHIBIT (10)(f)
NEW ENGLAND POWER COMPANY
Primary Service for Resale
--------------------------
AMENDMENT OF SERVICE AGREEMENT
-------------------------------
Dated: November 16, 1994
Parties: NEW ENGLAND POWER COMPANY
a Massachusetts corporation (the "Company")
25 Research Drive
Westboro, Massachusetts 01582
and
THE NARRAGANSETT ELECTRIC COMPANY
a Rhode Island corporation (the "Customer")
280 Melrose St.
Providence, Rhode Island 02901
The undersigned hereby agree to the following
amendment of the Service Agreement between them for Primary
Service dated February 15, 1974, such amendment to become
effective upon acceptance by the Federal Energy Regulatory
Commission:
In Appendix A forming part of said Service
Agreement, "Thirty-second Revised Page No. 4",
copy of which is attached to this agreement,
supersedes and is substituted for "Thirty-first
Revised Page No. 4".
<PAGE>
Tariff Number 1
Schedule IV
Thirty-Third Revised Page No. 4
Superseding Thirty-First Revised Page No. 4
(Narragansett)
APPENDIX A
10. Integrated Generating, Transmission One-twelfth of the annual
and Facilities Credits Payable by fixed charges for the
Company: Generating
facilities $1,682,017
(Schedule III-B - Paragraph B.4.b) One-twelfth of the annual
fixed charges for the
Transmission
facilities $1,987,399
11. Primary Service for Resale:
Delivery Metering
Pressure Pressure
Delivery KV Metering KV Metering Delivery
Points (Nominal) Points (Nominal) Adjustments Adjustment
- -------- --------- -------- --------- ----------- ----------
See detail on Original Page No. 4A, Schedule IV
12. Minimum Demand KW: None
13. Minimum Term: None
14. Transmission Service for Partial Requirements Customers:
Transmission KV Subtransmission KV
Delivery Points (Nominal) Delivery Point(s) (Nominal)
--------------- --------- ----------------- ---------
Not Applicable
--------------
15. Service for Resale to Interruptible Customers - Schedule III-C
Contract - as provided under Appendix B
<PAGE>
CERTIFICATE OF CONCURRENCE
--------------------------
This is to certify that THE NARRAGANSETT ELECTRIC COMPANY
assents to the filing of and concurs in the amendment described
below, which NEW ENGLAND POWER COMPANY has filed, insofar as it
is one of the parties providing electric service thereunder, and
hereby files this certificate of concurrence in lieu of the
filing of the amendment specified:
Amendment to Service Agreement for the Primary Service for
Resale with New England Power Company dated February 15,
1974 (The Narragansett Electric Company, FERC Electric
Tariff, Original Volume Number 1).
THE NARRAGANSETT ELECTRIC
COMPANY
s\ Robert L. McCabe
By
______________________________
President
Dated: November 16, 1994
<PAGE>
EXHIBIT (10(g)
TIME CHARTER OF
S/S ENERGY INDEPENDENCE
BETWEEN
INTERNATIONAL SHIPHOLDING CORP., OR NOMINEE
AS OWNER, AND
NEW ENGLAND POWER COMPANY, OR NOMINEE
AS CHARTERER
DATED AS OF
<PAGE>
INDEX TO TIME CHARTER
Page
1. PERIOD. . . . . . . . . . . . . . . . . . . . . . . . 1
2. DELIVERY/REDELIVERY EVENTS. . . . . . . . . . . . . . 2
3. CLASSIFICATION OF VESSEL. . . . . . . . . . . . . . . 2
4. BUNKER COAL AND FUEL OIL. . . . . . . . . . . . . . . 3
5. DESCRIPTION OF VESSEL . . . . . . . . . . . . . . . . 5
6. CONDITION OF VESSEL . . . . . . . . . . . . . . . . . 8
7. SUEZ/PANAMA CANALS. . . . . . . . . . . . . . . . . . 9
8. CARGOES . . . . . . . . . . . . . . . . . . . . . . . 9
9. TRADING LIMITS. . . . . . . . . . . . . . . . . . . . 10
10. RATE OF HIRE. . . . . . . . . . . . . . . . . . . . . 10
11. PAYMENT OF HIRE . . . . . . . . . . . . . . . . . . . 12
12. LOSS OF VESSEL. . . . . . . . . . . . . . . . . . . . 12
13. FINAL VOYAGE. . . . . . . . . . . . . . . . . . . . . 12
14. LIENS . . . . . . . . . . . . . . . . . . . . . . . . 13
15. SPACE AVAILABLE TO CHARTERER. . . . . . . . . . . . . 13
16. ANNUAL DAYS OF USE BY CHARTERER . . . . . . . . . . . 13
17. OWNER TO PROVIDE. . . . . . . . . . . . . . . . . . . 14
18. CHARTERER TO PROVIDE. . . . . . . . . . . . . . . . . 14
19. BUNKER COAL AND FUEL OIL AT DELIVERY AND REDELIVERY
EVENTS. . . . . . . . . . . . . . . . . . . . . . . . 14
20. DUTIES OF MASTER. . . . . . . . . . . . . . . . . . . 15
21. INSTRUCTIONS AND LOGS/CHARTER ADMINISTRATION. . . . . 15
22. CONDUCT OF VESSEL'S PERSONNEL . . . . . . . . . . . . 16
23. BILLS OF LADING . . . . . . . . . . . . . . . . . . . 16
<PAGE>
24. SCHEDULED OVERHAUL. . . . . . . . . . . . . . . . . . 17
25. NEGLIGENCE OF PILOTS, ETC.. . . . . . . . . . . . . . 17
26. TUGBOATS. . . . . . . . . . . . . . . . . . . . . . . 18
27. EQUIPMENT . . . . . . . . . . . . . . . . . . . . . . 18
28. SALVAGE . . . . . . . . . . . . . . . . . . . . . . . 19
29. POLLUTION FINANCIAL RESPONSIBILITY. . . . . . . . . . 19
30. EXCEPTIONS. . . . . . . . . . . . . . . . . . . . . . 20
31. WAR CLAUSE. . . . . . . . . . . . . . . . . . . . . . 20
32. ADDITIONAL COST OF HOSTILITIES. . . . . . . . . . . . 21
33. REQUISITION . . . . . . . . . . . . . . . . . . . . . 21
34. DEMISE. . . . . . . . . . . . . . . . . . . . . . . . 21
35. WAR RISKS . . . . . . . . . . . . . . . . . . . . . . 22
36. BOTH-TO-BLAME . . . . . . . . . . . . . . . . . . . . 23
37. NEW JASON CLAUSE. . . . . . . . . . . . . . . . . . . 23
38. CLAUSE PARAMOUNT. . . . . . . . . . . . . . . . . . . 24
39. LAWS. . . . . . . . . . . . . . . . . . . . . . . . . 24
40. BENEFIT OF LIMITATIONS. . . . . . . . . . . . . . . . 24
41. ARBITRATION . . . . . . . . . . . . . . . . . . . . . 25
42. BROKER'S COMMISSIONS. . . . . . . . . . . . . . . . . 25
43. INSPECTION AND SUPERCARGOES . . . . . . . . . . . . . 25
44. SUBCHARTER. . . . . . . . . . . . . . . . . . . . . . 26
45. RESTRICTIONS ON USE OF VESSEL . . . . . . . . . . . . 26
46. OPERATIONAL AND COMMERCIAL OFF-HIRE . . . . . . . . . 26
47. ATTACHMENT, ARREST, ETC.. . . . . . . . . . . . . . . 28
48. ASSIGNMENTS . . . . . . . . . . . . . . . . . . . . . 29
49. WAR RISK INSURANCE. . . . . . . . . . . . . . . . . . 29
<PAGE>
50. ICE SECTION . . . . . . . . . . . . . . . . . . . . . 29
51. BILL OF LADING SECTIONS . . . . . . . . . . . . . . . 30
52. TERMINATION . . . . . . . . . . . . . . . . . . . . . 30
53. OPTION TO SHORTEN CHARTER PERIOD. . . . . . . . . . . 30
54. INSURANCE . . . . . . . . . . . . . . . . . . . . . . 31
55. INTERIM VOYAGES BY OWNER. . . . . . . . . . . . . . . 31
56. STEVEDORE DAMAGE. . . . . . . . . . . . . . . . . . . 32
57. LIGHTERING. . . . . . . . . . . . . . . . . . . . . . 32
58. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . 33
59. NOTICES . . . . . . . . . . . . . . . . . . . . . . . 33
Appendix 1 -- Vessel Description and Performance
Appendix 2A -- Speed Warranty Calculations
Appendix 2B -- Fuel Warranty Calculations
Appendix 3 -- Unloader Test Procedures and Warranty Calculations
Appendix 4 -- Charterer's Purchase of Owner's Rights in the
Vessel
<PAGE>
TIME CHARTER
This agreement is entered into this _____ day of ________,
1994 between International Shipholding Corporation, on its own
behalf and on behalf of its Guaranteed Nominee, to be named, as
Owner (hereinafter called "Owner") of the S/S ENERGY INDEPENDENCE
(hereinafter called "Vessel") and New England Power Company
(hereinafter called "Charterer").
WHEREAS, Charterer has agreed to purchase the Vessel from
Intercoastal Bulk Carriers, Inc. ("IBC") pursuant to Charterer's
options contained in a Time Charter dated 27 December 1989, and
Owner and Charterer have entered into a simultaneous Memorandum
of Agreement ("MOA") wherein Charterer agrees to sell to and
Owner agrees to acquire the Vessel from Charterer; and
WHEREAS, Owner and Charterer desire that the Vessel continue
to be chartered by Charterer for coal deliveries to its two
Massachusetts power plants;
NOW THEREFORE, Owner and Charterer hereby mutually agree
that the Owner will let and the Charterer will hire the use and
services of the Vessel for the carriage of coal and such other
lawful merchandise as may be suitable for a Vessel of its
description, for the period and on the terms and conditions set
forth below. Hereinafter, this document, including any
extensions, shall be referred to as the "Charter".
1. PERIOD
A. Owner agrees to let and Charterer agrees to hire the
Vessel for a period of days specified herein in each of 15
successive years (a "Charter Year"), commencing from the time and
date of delivery of the Vessel. Owner and Charterer acknowledge
that pending fulfillment of the MOA and delivery of the Vessel
hereunder, this Charter is an executory contract which shall
become null and void if the MOA is not fulfilled or the Vessel is
not delivered under this Charter.
B. The number of days of hire for each Charter Year shall
be as follows:
For Charter Years One and Two: 300 total days each year;
For Charter Years Three through and including Eight: 240
total days each year;
For Charter Years Nine through and including Fifteen: 210
total days each year.
C. Charterer shall have the option to increase, but may
not under any circumstances decrease without the concurrence of
Owner, the number of total days in any Charter Year specified
<PAGE>
above, and shall exercise such option in accordance with the
provisions set forth in Clause 16.
2. DELIVERY/REDELIVERY EVENTS
At the commencement of this Charter, the Vessel will be
delivered to the Charterer upon Owner giving Notice to Charterer
that the Vessel has completed her contemplated dry docking and is
in all respects ready to perform her first voyage hereunder.
Upon termination of the Charter including extensions, if
any, the Vessel will be redelivered to the Owner at any port on
the United States East Coast at Charterer's option, free of
cargo. Charterer is to give the Owner 30 days prior notice of
the place of redelivery.
It is recognized by the parties that there will be
re-occurring delivery and redelivery events during the period of
this Charter. All such events other than delivery and redelivery
at the commencement and termination, respectively, of this
Charter, shall be guided by Clause 46 herein.
3. CLASSIFICATION OF VESSEL
A. The Owner warrants that the Vessel at the time of its
delivery to the Charterer and during the period of this Charter,
is properly documented under the laws of the United States so as
to qualify the Vessel for the United States coastwise trade. It
is the essence of this Charter that the Vessel, during the term
of service under this Charter, will remain qualified to engage in
United States coastwise trade. The Vessel will be qualified to
engage in international trade as well. The Owner agrees to pay
any annual fees and expenses in maintaining its obligations under
this paragraph.
If the Vessel, by reason of any action of the Owner or its
agent, contractor or employee during the term of the Charter,
were not to qualify for United States coastwise trade, the
Charterer shall have the right, but not the obligation, to
terminate this Charter upon written notice to the Owner (except
with respect to obligations and liabilities hereunder, actual or
contingent, which have arisen on or prior to such date of
termination), without being required to purchase the Vessel.
B. The Owner warrants that, as of the date hereof and
during the entire term of the Charter, it and any financial
institution having a direct or indirect interest in the Vessel
will be citizen(s) of the United States as defined in Section 2,
Shipping Act, 1916 as amended (46 U.S.C. App. 802). If the
Owner, or such other parties having a direct or indirect interest
in the Vessel, for any reason beyond their control during the
term of the Charter, were not to qualify as a citizen of the
United States as defined in this paragraph but the Vessel were
<PAGE>
still qualified for United States coastwise trade, Charterer
shall have the right, but not the obligation, to terminate the
Charter (except with respect to obligations and liabilities
hereunder, actual or contingent, which have arisen on or prior to
such date of termination) and to purchase the Vessel, all in
accordance with Clause 52 and Appendix 4, except that the
Charterer need not give 180-days' notice, and the sale is to be
consummated as quickly as reasonably possible. If such
disqualification as a U.S. citizen were due to any reason within
the control of Owner or such other parties having a direct or
indirect interest in the Vessel, then Charterer has the option to
terminate the Charter without being required to purchase the
Vessel. Owner will be allowed a period of up to 10 days to cure
the disqualification before Charterer can exercise the
aforementioned option.
C. The Vessel shall be classed A1, BULK CARRIER, AMS, ACC,
for ocean service, American Bureau of Shipping. On delivery the
Vessel shall have in effect all certificates of inspection and
other approvals and permits required for lawful operation. Owner
shall maintain the Vessel in class through the period of the
Charter.
4. BUNKER COAL AND FUEL OIL
A. Owner warrants that the Vessel is capable of burning,
and will be able during the term of the Charter, to burn either
coal or fuel oil, as described below, in the main boilers;
(i) Bunker Coal:
Bunker Supply
Contract Min/Max Reject
Specifications Limits
-------------- -------
Ash (As Received (A/R) Basis) 7.0% Max 8.0% Max
Moisture (A/R Basis) 7.0% Max 8.0% Max
Sulfur (A/R Basis) 1.2% Max 1.5% Max
Volatile (Dry Basis) 28.0% Min 26.0% Min
BTU/lb (A/R Basis) 13,000 Min 12,850 Min
Ash Fusion Temperature (H=W) 2,600 Min 2,450 Min
Size 1-1/4" x 0 1-1/2" x 0
Size (% less than 1/4") 10.0% 15.0%
(ii) Fuel Oil:
Bunker Supply
Contract Min/Max
Specifications
---------------
Density at 15 Deg. gms/ml 0.991 - 0.995
<PAGE>
Viscosity Kinematic at 50 o C 380 - 500
CCR Max 22
Flash Point PMCC (o F) Min 140 o
Water Content (Vol) Max 1.0%
Ash Content (Vol) Max 0.2%
Sulphur Content (Wt) Max 3.5%
Pour Point (o C) Max 30 o
Vanadium Content (PPM) Max 600
Aluminum Content (PPM) Max 30
BTU/bbl 6.05 mmbtus
B. By mutual agreement, the Owner may purchase and supply
fuel oil to the Vessel. Subject to the qualifications described
below, the Charterer agrees to reimburse the Owner for the cost
of that fuel oil and the reasonable expenses incurred in
transporting and delivering the fuel oil to the Vessel. Any fuel
oil which is to be purchased by the Owner (and for which the
Charterer has agreed to reimburse the Owner):
(i) will be at prices no higher than the prevailing
market prices at the ports in which it is furnished;
(ii) will be of a quality that is no higher than that
specified in paragraph (A) above; and
(iii) will not in any event result in a delivered cost
to Charterer which is more than the cost of bunker coal.
The cost of bunker coal ("Coal Cost") shall be determined
annually as the average cost based on records from the
preceding twelve months of (a) actual costs of coal
deliveries to the Vessel and (b) for each case where the
Vessel is bunkered with fuel oil instead of coal, the best
price quoted for contemporaneous and/or comparable
deliveries of coal to the Vessel. Estimated consumption of
coal will be based on Clause 4 A (i) above and Clause 5 A
below. Allowance for fuel oil consumed at discharge, will
be deducted from total fuel oil used for purposes of
calculating comparative cost of fuel used vis-a-vis "Coal
Cost".
The above notwithstanding, if the Owner is able to purchase
bunker fuel at a lower contract price than the prevailing market
price at the port of bunkering, the price charged to Charterer
shall be at the lower contract price.
(B) Charterer will purchase and will supply coal that is to
be burned as fuel ("bunker coal") for the Vessel at no cost to
Owner. In addition, upon request of Owner, Charterer will
arrange for the sampling and analysis of the bunker coal and the
delivery of those analyses to Owner or its agent.
(C) Prior to loading the bunker coal on board the Vessel,
Owner has the right to review analyses of "cartop" or otherwise
<PAGE>
representative samples of the bunker coal to determine whether
the bunker coal meets the reject specifications set forth in
paragraph (A)(i) above. If the "cartop" or otherwise
representative samples were not to meet those reject
specifications, Owner may reject the bunker coal. In the event
of such a rejection:
(i) Charterer may elect to supply replacement bunker
coal, or in the event Charterer fails to supply bunker coal
in a timely manner and elects to have the Vessel wait for
bunker coal, the Vessel will remain on-hire while bunker
coal that meets the specifications is supplied by Charterer;
or
(ii) Charterer may decline to supply replacement coal
in which event the Vessel may burn oil to the extent it
lacks sufficient coal bunkers and not be penalized
therefore. If, however Owner does not reject the bunker
coal, Owner will be responsible for the bunker coal as if it
purchased the bunker coal for its own account and supplied
the bunker coal to the Vessel.
(D) At the conclusion of each month, Owner will provide a
statement to the Charterer which sets forth:
(i) the amounts expended by Owner for fuel oil for the
Vessel;
(ii) third-party expenses reasonably incurred in
supplying that fuel oil to the Vessel; and
(iii) the adjustment, if any, to reduce the amount
chargeable to Charterer to applicable Coal Cost.
Copies of invoices supporting those amounts and expenses
will be annexed to the statement. Charterer will pay the amount
of each statement within 30 days of its receipt.
5. DESCRIPTION OF VESSEL
EXCEPT AS SPECIFICALLY PROVIDED IN THIS CHARTER, IT IS
AGREED THAT AS OF THE DATE HEREOF, OWNER MAKES NO WARRANTY OR
REPRESENTATION, EITHER EXPRESS OR IMPLIED, AS TO TITLE TO, AS TO
THE DESIGN, CONDITION, MERCHANTABILITY OR SEAWORTHINESS OF, AS TO
THE QUALITY OF THE MATERIAL OR WORKMANSHIP IN, OR AS TO THE
CONSUMABLE STORES ABOARD, THE VESSEL, OR AS TO THE FITNESS OF THE
VESSEL FOR ANY PARTICULAR PURPOSE OR AS TO THE ELIGIBILITY OF THE
VESSEL FOR ANY TRADE OR ANY OTHER WARRANTY OR REPRESENTATION
WHATSOEVER.
A. Owner agrees that at the date of delivery under this
Charter, the Vessel will be of the description and performance
set out in Appendix 1, and will maintain the Vessel during the
<PAGE>
period of service under this Charter. Should the Vessel during
the period of service under this Charter fail to comply in any
respect with the said description and performance, Owner shall
indemnify Charterer for such failure. Owner warrants that the
Vessel is capable of maintaining an average speed between sea
buoys of not less than 14.47 knots in Moderate Weather (defined
as periods when wind speed is up to and including Beaufort Scale
Number 5) calculated by averaging voyage legs in laden and
unladen condition with a maximum average consumption for all
purposes as follows:
(1) at sea: 119 mmbtus per hour
(2) at load port: 38 mmbtus per hour
(3) at disport 42 mmbtus per hour
B. On each anniversary date of initial delivery of the
Vessel during the period of service under this Charter (and upon
the termination of the Charter), the average speed and bunker
consumption under this Charter for each Charter Year shall be
calculated. Subject to the provisions of the speed warranty
calculation in Appendix 2A, the speed calculations will be based
on the distance made and time taken by the Vessel to complete all
non-slow steaming sea passages in Moderate Weather from sea buoy
to sea buoy but excluding time while the Vessel is off-hire. The
fuel consumption will be based:
(i) at sea, from the time the Vessel departs from its
load port sea buoy until the time that it arrives at its
discharge port sea buoy, and from the time that it departs
from its discharge port sea buoy until it arrives at its
load port sea buoy;
(ii) at the load port, from the time the Vessel arrives
at its loading berth (finished with engines) until the time
that it departs from its loading berth (standby engines);
and
(iii) at the discharge port, from the time the Vessel
arrives at its discharge berth (finished with engines) until
the time that it departs from its discharge berth (standby
engines).
C. If any of the calculations made under paragraph (B) of
this Clause show that, during any Charter Year:
(a) the average speed of the Vessel on non-slow
steaming sea passages in Moderate Weather has fallen short
of the average speed in service set out in paragraph (A) of
this Clause, and/or
<PAGE>
(b) the average daily bunker consumption in mmbtus on
non-slow steaming sea passages in Moderate Weather has
exceeded the maximum consumption per day set out in
paragraph (A) of this Clause, and/or
(c) the average daily in-port bunker consumption has
exceeded the maximum consumption per day set out in
paragraph (A) of this Clause, then Charterer shall be
compensated by Owner by no later than the time for payment
of the first payment of hire due after completion of the
claim procedure set out below. The time lost due to Owner's
failure to meet the speed warranty will be valued at the
Vessel's daily hire rate as of the time the warranty was not
met. The fuel consumed due to the Owner's failure to meet
the fuel warranty will be valued at their Cost to the
Charterer. "Cost to Charterer" shall mean the weighted
average of the cost of fuel oil or bunker coal, as the case
may be, plus the reasonable expenses incurred in supplying
the fuel oil or bunker coal to the Vessel, during the course
of the year in question. Although the calculation to
determine whether the speed and certain fuel oil and bunker
coal consumption warranties have been met is to be based on
the sea passage portions of the non-slow steaming voyages in
Moderate Weather, the calculation to determine the amount to
be deducted under this paragraph (C) and paragraph (D) below
shall be based on the sea passages from sea buoy to sea buoy
of all voyages completed during the period in question. Any
amounts payable by Owner to Charterer shall be calculated in
accordance with Appendix 2.
No later than 30 days after the end of each Charter Year,
Owner will present to Charterer all information necessary to
determine whether a breach of warranty has occurred for the prior
Charter Year. Within 90 days of receiving such information from
Owners, if the Charterer were to have a claim for breach of the
speed or fuel warranties above, it will submit its claim, with
supports, to the Owner. If the Owner were to dispute Charterer's
claim, the Owner will present the reasons for its disagreement to
the Charterer within 60 days of the receipt of Charterer's claim,
failing which the Owner will be deemed to have accepted
Charterer's claim and will be barred thereafter from contesting
Charterer's claim.
D. Payments due under this Clause for the period between
the last complete Charter Year and the termination of this
Charter or any extension thereof shall in the first instance be
settled in accordance with Charterer's estimate made two months
before the end of the Charter period as so specified. Any
necessary adjustment after the end of the Charter shall be made
by payment by Owner to Charterer or by Charterer to Owner as the
case may require.
<PAGE>
E. Owner warrants that, during the period of the Vessel's
service, the Vessel will be capable of discharging its entire
cargo of coal at the average rate of no less than 3,100 short
tons per hour.
(1) Charterer has the right twice during the calendar
year (the times of which are to be selected by Charterer in
its sole discretion) to cause a full load discharge test to
be made to determine whether the Vessel is meeting its
discharge warranty. Charterer shall give Owner seven
calendar days' notice of such test. The test shall take
place at Charterer's Brayton Point or Salem Harbor
generating stations, or at any other mutually agreeable
location. Charterer may withdraw its request at any time up
to 24 hours prior to the commencement of the test. Tonnage
discharged during the test shall be based on the bill of
lading, adjusted by coal retained on board. The test shall
be conducted in accordance with Appendix 3.
(2) If the results of such a test indicate that the
Vessel cannot meet its discharge capability warranty, Owner
agrees, at its sole risk and expense, to take such steps as
are necessary to cause the Vessel to meet its discharge
capability warranty by the time the Vessel next discharges a
cargo. Compliance with this paragraph E(2) will be
determined by a test the same as that described in paragraph
E(1) (such test or tests to be in addition to the two tests
allowed to Charterer pursuant to paragraph E(1) above).
(3) Charterer's sole remedy for Owner's breach of its
discharge rate warranty is damages if Owner fails to comply
with its obligation set forth in subparagraph E(2) above.
Damages will be based on time lost at the daily rate of
hire, and shall be calculated in accordance with Appendix 3.
F. Notwithstanding anything herein contained to the
contrary, if the Vessel's characteristics and/or performance are
modified or affected by reason of compliance with the laws,
regulations or requirements of any governmental or state agency,
as provided in Clause 29 herein, the Vessel's description and
performance or capability warranties shall be adjusted
accordingly 36 months after such modifications and/or additions
have been made to the Vessel in compliance with such
requirements.
6. CONDITION OF VESSEL
Owner shall throughout the period of service of this
Charter, exercise due diligence (i) to make the Vessel tight,
staunch, strong, seaworthy and in good order and condition, and
in every way fit for the service for which it is intended,
including but not limited to the carriage and self-unloading of
coal, with its machinery, boilers, liners and equipment in good
<PAGE>
working order, and (ii) to cause the Vessel to have a full and
efficient complement of Master, Officers and crew. Owner agrees
throughout the period of the Charter to use due diligence to
cause the Vessel and its machinery, boilers and appurtenances to
be maintained in a condition to permit the Vessel to prosecute
all voyages at speed specified in Clause 5 and to meet its other
warranties under the Charter. Owner agrees to furnish to
Charterer by January 1 and July 1 of each year a written report
of any operational or equipment problems experienced by the
Vessel, or any problems which Owner expects to experience with
the equipment of the Vessel, during the coming semi-annual
period. Owner shall supply to Charterer all American Bureau of
Shipping and U.S. Coast Guard reports concerning the Vessel and
afford Charterer access to all American Bureau of Shipping and
U.S. Coast Guard files concerning the Vessel. This provision
constitutes Owner's irrevocable permission and instruction to ABS
and the U.S. Coast Guard to comply with Charterer's requests
pursuant to this Clause.
7. SUEZ/PANAMA CANALS
Owner undertakes that throughout the period of service under
this Charter it will at its expense comply with the regulations
in force from time to time so as to enable the Vessel to pass
through the Suez and Panama Canals by day and night without
delay.
8. CARGOES
Owner and Charterer have the right to ship coal, and any
other cargoes which are not injurious to the Vessel and its
unloading equipment, and as may be suitable for a Vessel of its
description including the unloading equipment. Carriage of any
cargo is subject to meeting all Trim and Stability restrictions
and requirements, and the approval of the National Cargo Bureau,
American Bureau of Shipping and United States Coast Guard. In
particular and without limiting the generality of the foregoing,
it is the intention of the Charterer to trade the Vessel with
coal. If, however, the Charterer were to change from coal to
another cargo or thereafter from another cargo to coal, any
expenses incurred to prepare the Vessel to carry another cargo or
thereafter to carry coal, including the expenses incurred for
cleaning the Vessel's holds, but excluding any wages or overtime
of the Master, Officers or crew (except as provided in Clause 32
or as otherwise agreed by Charterer and Owner), shall be for the
Charterer's account and the Vessel shall not be off-hire provided
that the Vessel has not otherwise incurred an event of off-hire
as described in Clause 46. Upon Charterer's request, Owner will
promptly provide Charterer with its best estimate of such costs
for any such cargo.
<PAGE>
9. TRADING LIMITS
It is intended that the Vessel shall be used to trade
coastwise on the East Coast of the United States and to Venezuela
and Colombia. Under this Charter, the Vessel may be employed in
trading in any part of the world between safe ports in such
lawful trades as Charterer may direct, subject to American
Institute Trade Warranties Limits. Charterer shall be allowed to
breach institute warranties only in the event that risks
resulting from such breach are insurable, and upon payment by
Charterer of any additional insurance premiums and assumption by
Charterer of any increased deductibles, if required by
underwriters.
Charterer shall exercise due diligence to ensure that the
Vessel is only employed between and at safe ports, docks, places,
berths and anchorages where it can always lie safely afloat.
Notwithstanding anything contained in this or any other Clause of
this Charter, Charterer shall not be deemed to warrant the safety
of any port, place, berth, dock or anchorage and shall be under
no liability in respect thereof, except for loss or damage caused
by its failure to exercise due diligence as aforesaid. Subject
as above, the Vessel shall be loaded and discharged in any dock,
or at any wharf or place or anchorage, or alongside lighters or
other vessels as Charterer may direct where the Vessel can always
safely lie afloat.
10. RATE OF HIRE
A. The amount Charterer shall pay as hire to Owner monthly
in advance for use and services of the Vessel during the period
of this Charter set forth in Clause 1(B) shall be $46,015 per day
on-hire or pro rata, commencing with the date and time of the
commencement of the Charter and continuing (always assuming the
Vessel to be on-hire at the time) until the date and hour of the
termination or end (for any reason) of the Charter. Any hire
paid in advance but not earned shall be returned to Charterer
promptly upon written request. Charterer has the option
declarable within twelve (12) months after the commencement of
the Charter to pay charter hire for days on-hire pursuant to
Clause 1(B) during each of fifteen (15) consecutive years as
follows:
Years 1 thru 5* $50,000 per diem
Years 6 thru 8 $45,500 per diem
Years 9 thru 15 $41,000 per diem
(* or so much of Year 1 as shall remain after exercise of the
option), provided that should the Charter terminate or end (for
any reason), Owner will return any additional hire paid by reason
of this option over and above that which would otherwise but for
such acceleration have been paid, valued on the date of such
termination.
<PAGE>
The above rates of charter hire shall be adjusted for
Amortization of Expenses, as defined in Clause 11 of the MOA,
such expenses to be calculated at or promptly after commencement
of this Charter.
B. The amount Charterer shall pay as hire to Owner monthly
in advance for use and services of the Vessel during the period
of this Charter set forth in Clause 1(C) shall be $29,983 per day
on-hire or pro rata.
C. Any hire paid in advance but not earned shall be
returned to Charterer promptly upon written request.
D. The total charter hire described above includes an
operating cost component that shall be subject to an annual
adjustment as of each anniversary of the commencement of the
Charter and continuing through the term of the Charter in
accordance with the following:
$31,788 times the quantity A divided by B where:
"A" is comprised 50% of the Consumer Price Index for
Urban Wage Earners and Clerical Workers, unadjusted for
seasonal variations, all items, U.S. city average, as
published in the Bureau of Labor Statistics' CPI Detailed
Report (the "CPI Index") plus 50% of the Producer Price
Index for Intermediate Goods, unadjusted for seasonal
variations, as published by U.S. Department of Labor Bureau
of Labor Statistics in its monthly Producer Price Indexes,
(the "PPI Index"), in each case referring to the CPI/PPI
Index for the last preceding month for which such index is
published before the annual adjustment date; and
"B" is comprised 50% of CPI Index plus 50% of the PPI
Index, in each case referring to the CPI/PPI Index for the
last preceding month for which such index is published
before commencement of the Charter.
If publication of the CPI and/or PPI Index described above
were to be discontinued, the parties will agree to a similar
index to replace the discontinued index. If the base period of
the CPI/PPI Index is changed, the parties will make appropriate
adjustments to the above calculation. If the parties were not to
agree, the disagreement will be submitted to arbitration pursuant
to Clause 41 and the arbitrators will select the replacement
index or indices or make the appropriate adjustments, as the case
may be.
It is agreed that while the Vessel is on-hire Charterer
shall pay the cost of the following:
1) expenses and cost of extra victualling incurred by
the Master on Charterer's account, and
<PAGE>
2) cost of all telephone calls, wireless telegraph
messages and telegrams sent for Charterer's
account.
11. PAYMENT OF HIRE
Payment of charter hire shall be made monthly in advance at
the rates required under Clause 10. For each Charter Year, the
monthly payment shall be one-twelfth the amount of hire to be
paid based on the number of days of hire specified in Clause
1(B), plus any additional hire for optional days pursuant to
Clauses 1(C) and 16, subject to annual adjustment for the number
of days the Vessel was actually on-hire in such Charter Year.
Charterer shall pay hire by bank telegraphic/electronic transfer
to a bank as may, from time to time, be designated in writing by
the Owner, monthly in advance in United States dollars.
Charterer acknowledges and agrees that, except as otherwise
expressly provided in this Charter, its obligations to pay
charter hire for the number of days per year each year in which
the Vessel is on-hire, and all other sums required to be paid by
Charterer under this Charter, all in accordance with the terms
and provisions of this Charter, are absolute and unconditional
and not subject to any abatement, reduction, setoff, defense,
counterclaim or recoupment for any reason whatsoever. Nothing
contained herein shall be construed to be a waiver, modification,
alteration or release of any claim which Charterer may have at
any time for damages or equitable relief against Owner.
12. LOSS OF VESSEL
If the Vessel should be missing or lost, or become a
constructive total loss, Owner shall promptly notify Charterer in
writing. Hire shall cease at noon on the day of the Vessel's
loss or on the actual date of the casualty giving rise to the
constructive total loss and, if missing, at noon on the date when
last heard from. Any hire paid in advance and not earned shall
be returned promptly to Charterer. If the Vessel is missing at
the time when hire becomes payable, payment for said hire shall
be suspended until safety is ascertained. If the missing
Vessel's safety is ascertained within 10 days of receipt of
notice, this Charter shall continue as if no such notice had been
given, and hire shall be adjusted accordingly. If the missing
Vessel's safety is not ascertained within 10 days of receipt of
notice, this Charter shall terminate effective at noon on the
date when last heard from, except with respect to obligations and
liabilities hereunder, actual or contingent, which have arisen on
or prior to such date of termination.
13. FINAL VOYAGE
Should the Vessel be on a voyage towards the port of
redelivery at the time a payment of hire is due, payment of hire
<PAGE>
shall be made for such length of time as Owner and Charterer may
agree upon as being the estimated time necessary to complete the
voyage, less any disbursements made or expected to be made or
expenses incurred or expected to be incurred by Charterer for
Owner's account and less the cost of fuel estimated remaining at
the termination of the voyage, and when the Vessel is redelivered
any overpayment shall be refunded by Owner or under-payment paid
by Charterer. Should the Vessel be performing a voyage at the
expiry of the period of this Charter, Charterer may have the use
of the Vessel at the same rate and conditions, for such extended
time as may be necessary to complete loading and/or discharge of
the cargo as required by Charterer, and if necessary until the
Vessel's return to a port of redelivery as provided by this
Charter.
14. LIENS
Owner shall have a lien upon all cargoes, and all freights
and subfreights for any amounts due under this Charter, and
Charterer shall have a lien on the Vessel for all monies paid in
advance but not earned, and for the cost of bunker coal and oil,
and for all claims for damages arising from any breach of this
Charter by Owner.
15. SPACE AVAILABLE TO CHARTERER
The whole reach, burden and decks of the Vessel shall be at
Charterer's disposal, reserving only proper and sufficient space
for the Vessel's Master, Officers, crew, tackle, apparel,
furniture, provisions and stores, provided that the weight of
stores on board excluding spare parts shall not, unless
specifically agreed, exceed 150 tons at any one time during the
period of the Charter. The Vessel shall load and discharge cargo
as rapidly as possible by night as well as by day.
16. ANNUAL DAYS OF USE BY CHARTERER
Charterer shall have the option to increase, but not to
decrease, the number of total days of any one year of the period
of this Charter specified in Clause 1(B). Such option shall be
exercised as follows:
(i) 30 days prior to the commencement of each calendar
quarter of each year, Charterer shall declare the total
number of days in that quarter and in the next successive
three calendar quarters, in which it intends to use the
Vessel. Such number of days shall be agreed by Owner within
ten days of making such declaration, following which such
days so declared may be changed for Charterer's operational
purposes only but not otherwise except with the consent of
the Owner in its sole discretion, such consent not to be
unreasonably withheld.
<PAGE>
(ii) Under no condition may Charterer exercise an
option to reduce the number of days set forth in Clause 1(B)
without the written consent of the Owner in its sole
discretion, such consent not to be unreasonably withheld.
Charterer may assist Owner to find alternative employment
for days in which Charterer does not hire the Vessel.
Any declaration of number of days made by Charterer at any
time shall include an anticipated redelivery date and place to
Owner, and an estimated date and time for the next delivery
event. Such notice shall be updated to Owner 30/15/5 and one
days prior to redelivery.
Similarly, Owner shall provide notice to Charterer 30/15/5
and one days prior to each delivery event, such notice to specify
date and place of redelivery.
17. OWNER TO PROVIDE
Owner shall exercise due diligence to man, victual,
navigate, operate, obtain fuel oil, water, supply, maintain, and
arrange for tugs and pilotage for the Vessel, and properly and
carefully carry, keep and care for the cargo, all in accordance
with good operating practice. Owner shall provide and pay for
all provisions, deck and engine room stores, and galley and cabin
stores; maintenance and repair; insurance on the Vessel; wages
and overtime of the Master, Officers, and crew; consular and
agency fees pertaining to the Vessel, Master, Officers and crew;
all deratization exemption certificates; all fresh water used by
the Vessel. Fumigation expenses required because of cargoes
loaded and ports visited at Charterer's direction will be for
Charterer's account; and for any other reason, will be for
Owner's account.
18. CHARTERER TO PROVIDE
Except during periods when the Vessel is off-hire, Charterer
shall pay for fuel as provided in Clause 4, all port charges,
light dues, and Panama and other canal dues, pilotage, consular
and agency fees (except those agency fees which pertain to: (i)
voyages on the East Coast of the United States or (ii) the
Vessel, Master, Officers and Crew), tugs necessary for assisting
the Vessel into, within and/or out of port for the purpose of
carrying out this Charter, agencies pertaining to the cargo,
commissions, and expenses of loading and unloading cargoes. In
making any expenditures to Charterer's account, Owner shall use
its best efforts to procure all items and services at the best
terms available in the local market.
19. BUNKER COAL AND FUEL OIL AT DELIVERY AND REDELIVERY EVENTS
Except for the delivery at the commencement of this Charter,
because fuel on board is the property of Charterer, Charterer
<PAGE>
will accept and pay for all fuel oil and bunker coal on board at
the time of each delivery event, and Owner will accept and pay
for all fuel oil and bunker coal remaining on board at each
redelivery event. At all times, the then most recent invoiced
prices for such items shall serve as the basis for payment.
Any and all surveys for bunkers at each delivery and
redelivery event shall be conducted by an independent third
party, the expenses for which shall be borne equally by the Owner
and the Charterer. The Vessel shall remain on-hire in the event
such survey is conducted when the Vessel is redelivering to
Owner, and shall remain off-hire in the event such survey is
conducted when the Vessel is delivering to Charterer for further
trading under this Charter.
20. DUTIES OF MASTER
The Master shall prosecute voyages with the utmost dispatch
and shall render all reasonable assistance with the Vessel's
Officers and crew and equipment. The cargo shall be loaded,
stowed, trimmed, and discharged under the supervision of the
Master, without being an agent, servant or employee of Charterer.
The Master, in good faith and to the fullest extent reasonably
possible, shall cooperate with Charterer, Charterer's agents and
the personnel at the loading and discharging facilities so as to
effect prompt and complete loading and discharging.
21. INSTRUCTIONS AND LOGS/CHARTER ADMINISTRATION
A. Charterer shall, from time to time, furnish the Master
with all requisite instructions and sailing directions. Both the
Master and the engineers shall keep full and correct logs of the
voyages, which are to be open to, and may be copied by, Charterer
and its Agents, and abstracts of which are to be sent to
Charterer at the same time they are sent to Owner on a voyage by
voyage basis. Charterer and Owner agree that these log abstracts
shall constitute the basis of calculations for warranty or other
Charter purposes, unless Owner or Charterer, by written notice to
the other, challenges any statements contained therein with
proper explanation. Twice in each Charter Year, at regular
intervals, Owner will send to Charterer copies of any of Owner's
reports (both internal reports and those prepared by outside
professionals) relating or referring to the maintenance and
condition of the Vessel. Notwithstanding the foregoing, Owner
shall remain responsible for providing the Master with the
required charts and other data necessary for the prompt and safe
prosecution of the voyage and compliance with applicable Coast
Guard regulations.
B. Either Owner or Charterer shall be entitled to call for
a meeting of pertinent personnel, from time to time, to discuss
any matter whatsoever relating to the parties performance or the
efficient administration of this Charter. Any request for such a
<PAGE>
meeting shall specify: a proposed date, time, and location for
the meeting; a statement as to the perceived urgency of the
requested meeting; a proposed agenda; a prospective list of
attenders from the party calling for such meeting; a suggested
list of third party attenders (if applicable); any specific
proposals that the initiating party may seek to discuss at the
meeting. The party receiving the request shall use all best
efforts to accommodate the request for a meeting, in a timely
manner, and with commitment of personnel and resources that
yields a productive meeting on the proposed agenda. The
receiving party shall be entitled to submit agenda items for the
proposed meeting, consistent with the guidelines mentioned
herein.
22. CONDUCT OF VESSEL'S PERSONNEL
If Charterer shall complain of the conduct of the Master or
any of the Officers, Owner and Charterer jointly shall
immediately investigate the complaint. This right to complain
shall not in any way render the Master or Officers to be the
agents, servants or employees of the Charterer. If the complaint
proves to be well founded, Owner shall, without delay, make a
change in the appointments; provided, however, that the Owner
shall have the right to abide by grievance procedures in union
bargaining contracts to the extent applicable. When requested by
Charterer, Owner shall furnish to Charterer copies of the union
contracts referred to, including all amendments thereto.
23. BILLS OF LADING
Without being an agent, servant or employee of Charterer,
the Master (although appointed by Owner) shall, when Vessel is
on-hire to Charterer under this Charter, follow all orders and
direction of Charterer as regards employment of the Vessel,
agency or other arrangements. Bills of Lading are to be signed
at any rate of freight Charterer or its Agents may direct,
without prejudice to this Charter, the Master attending as
necessary at the offices of Charterer or its Agents to do so.
Charterer hereby indemnifies Owner against all consequences or
liabilities that may arise from the Master, Charterer or its
Agents signing Bills of Lading or other documents, or from the
Master otherwise complying with Charterer or its Agents' orders,
as well as from any irregularities in papers supplied by
Charterer or its Agents. The said indemnity shall not extend to
any consequences or liabilities or apply to any loss or damage
arising from orders to proceed to, enter, remain in or at, depart
from or shift berth in or at any port, place, berth, dock,
anchorage or submarine line, other than consequences or
liabilities or loss or damage resulting from or caused by failure
to exercise due diligence as required by Clause 9 hereof.
<PAGE>
24. SCHEDULED OVERHAUL
Owner intends to schedule overhaul periods of the Vessel
between twenty-four (24) months to sixty (60) months. Owner
shall provide Charterer a minimum of 3 months prior notice of any
anticipated overhaul period. This Clause shall not be construed
so as to prevent Owner from taking the Vessel out of service when
necessary to make essential repairs. Overhaul periods will take
place during commercial off-hire periods as defined in Clause 46.
Once the overhaul period has commenced, Owner shall provide
Charterer with updates of the Vessel's anticipated return to
service at 10/5/3/2 and one days prior to its anticipated return
to service. Any delay or waiting time in the scheduling of
Charterer's operations due to Owner's failure to provide such
notices and with reasonable accuracy, shall be for Owner's
account and calculated at the rate of hire prevailing at the time
of such delay to or wait by the Vessel. The Vessel shall be
off-hire under Clause 46 from the time the Vessel deviates to the
dry docking or overhaul port, until the time the Vessel is in a
position equivalent to the position it would have been in had
deviation for the overhaul period not occurred.
Incidental towage, pilotage, fuel, water and all other
expenses connected with the overhaul shall be for Owner's
account.
25. NEGLIGENCE OF PILOTS, ETC.
Neither Charterer, nor any one of its associated or
affiliated companies, including but not limited to New England
Electric System and all subsidiaries thereof (each of which
companies shall hereinafter be referred to as a "Related Company"
or, collectively, as "Related Companies"), nor any of the
employees, servants, representatives and agents of any of the
foregoing, shall be responsible for any losses, damages, delays
or liabilities arising from any negligence, incompetence or
incapacity of any pilot, stevedore, longshoreman or the personnel
of any tug or tugs (whether or not owned by the Charterer or a
Related Company) or arising from the terms of the contract of
employment thereof and of any tug or tugs, launches or other
crafts (whether or not owned by the Charterer or a Related
Company), which terms Owner hereby agrees to accept and be bound
by, or arising from any unseaworthiness or any insufficiency of
any tug or tugs, launches or any other craft the service for
which are arranged or owned by Charterer or a Related Company.
Owner agrees to indemnify and hold Charterer harmless against any
and all such losses, damages, delays or liabilities but such
indemnity shall not exceed the amount to which Owner would have
been entitled to limit its liability if Owner had itself arranged
for such pilots, stevedores, longshoremen, tug personnel, tug or
tugs, launches or other craft. When any licensed pilot, captain
or other officer (whether or not said person is an employee,
<PAGE>
servant or representative of Charterer or its agents or of any of
its Related Companies or of their agents) of a tug furnished to
or engaged in the service of supplying tug power or assistance to
the Vessel making use of or having available its own propelling
power goes on board the Vessel, or any other licensed pilot goes
on board the Vessel, it is understood and agreed that such person
or persons are to be considered independent contractors and
become the borrowed servant of the Owner and the Vessel for all
purposes and in every respect, and shall be subject to the
exclusive supervision and control of the Vessel and her
personnel. Neither Charterer nor its Related Companies nor those
providing the tug or tugs nor Owner, agents, or Charterer shall
be under any liability for errors of navigation, management of
the Vessel or other losses, damages, delays and liabilities
resulting therefrom. This shall include, but not be limited to
the giving of orders to any tug or tugs engaged in assisting
Vessel in respect to the handling of the Vessel and to the order
of the number and horsepower of tugs assisting or standing by the
Vessel. In respect to the foregoing, Owner hereby agrees to
indemnify and hold harmless Charterer (or any of its Related
Companies or its agents or the employees, servants or
representatives of the foregoing in the event that said licensed
pilot, captain or other officer is employed by such company) from
any and all losses, damages, delays and liabilities whatsoever
whether to third parties or otherwise, arising from the acts or
omissions of such person or persons.
26. TUGBOATS
Charterer shall have the option of using its own tugs or
those owned by a Related Company in the docking, undocking, or
assisting in other ways of the Vessel. In this event the terms
and conditions for such services prevailing in the port where
such services are rendered, and used by independent tugboat
owners, as well as pilotage provisions under Clause 25 above,
shall be applicable. Charterer and its Related Companies shall
be entitled to all the exemptions from and limitations of
liability applicable to said independent tugboat owners and their
published terms and conditions and to the aforementioned pilotage
provisions under Clause 25 above.
27. EQUIPMENT
Charterer, subject to Owner's approval which shall not be
unreasonably withheld, shall be at liberty to fit any additional
gear for loading, discharging, weighing or sampling cargo it may
require beyond what is on board at the commencement of the
Charter, and to make all the necessary connections, such work to
be done at its expense. Owner shall use its best efforts to
assist Charterer in the design, acquisition, installation,
certification, operation and maintenance of such equipment. Such
gear so fitted shall be considered Charterer's property, and
Charterer shall be at liberty to remove it at its expense and
<PAGE>
time during or at the expiration of this Charter; the Vessel to
be left in its original condition to Owner's satisfaction less
normal wear and tear.
28. SALVAGE
All salvage monies earned by the Vessel shall be divided
equally between Owner and Charterer after deduction of Master's,
Officers' and Crews' share, legal expenses, hire of Vessel during
lost time, value of fuel consumed, repairs of damage, if any, and
any other extraordinary loss or expense sustained as a result of
the services, which shall always be a first charge on such
monies.
29. POLLUTION FINANCIAL RESPONSIBILITY
A. During the period of this Charter, Owner warrants that
Owner shall comply with all financial capability, responsibility,
security or like laws, regulations and/or other requirements of
whatsoever kind with respect to oil or other pollution damage
applicable to the Vessel entering, leaving, remaining at or
passing through any ports or places or waters in the performance
of this Charter and shall make all equipment modifications and
additions as necessary to so comply, at Charterer's risk and
expense. Any such modification or addition shall be deemed to
be, and shall be treated as, "equipment" under Clause 27 herein.
Immediately upon receipt of a notice from any governmental or
state agency which would (or could) require a modification of
existing equipment or an installation of additional equipment
under this paragraph, the Owner shall notify the Charterer and
keep Charterer fully informed. If there were to be more than one
strategy for compliance, the Owner shall choose the compliance
strategy which a prudent owner bearing all costs thereof would
choose based upon a comparison of the life-cycle costs of each
alternative. Owner shall provide Charterer with all data and
assumptions used in such comparisons. Owner at its sole risk and
expense shall make all arrangements by bond, insurance or
otherwise and obtain all such certificates or other documentary
evidence and take all such other action, as may be necessary, to
satisfy such laws, regulations and/or other requirements. Copies
of all documents shall be supplied to Charterer. Owner shall
indemnify Charterer against all consequences (including lost time
to the Vessel) resulting from any failure, inability or omission
of Owner and/or the Vessel to do the foregoing.
B. If any governmental or state agency shall require the
installation of additional equipment, including pollution control
devices, such equipment will be installed on the Vessel by Owner
at Charterer's risk and expense. Owner will use its best efforts
to properly maintain and operate such equipment effectively and
assumes responsibility for its effectiveness.
<PAGE>
30. EXCEPTIONS
Neither the Vessel nor the Master or Owner shall be held
liable for any loss of or damage or delay to the cargo or for any
failure in performing hereunder arising or resulting from: any
act, neglect, default or barratry of the Masters, pilots,
mariners or other servants of Owner in the navigation or
management of the Vessel; fire, unless caused by the personal
design or neglect of Owner; collision, stranding or peril, danger
or accident of the sea or other navigable waters; saving or
attempting to save life or property; wastage in weight or bulk,
or any other loss or damage to the cargo arising from inherent
defect, quality, or vice of the cargo; any act or omission of
Charterer or the Owner, shipper or consignee of the cargo, their
agents or representatives; insufficiency of packing;
insufficiency or inadequacy of marks; explosion, bursting of
boilers, breakage of shafts, any latent defect in hull equipment
or machinery, or unseaworthiness of the Vessel, unless caused by
want of due diligence on the part of Owner to make the Vessel
seaworthy or to have it properly manned, equipped and supplied;
or from any other cause of whatsoever kind arising without the
actual fault or privity of Owner. And neither the Vessel, its
Master or Owner, nor Charterer, shall, unless this Charter
expressly provides otherwise, be responsible for any loss of or
damage or delay to or failure to discharge or deliver the cargo
or for any failure in performing hereunder arising or resulting
from: act of God, act of war, perils of the seas, act of public
enemies, pirates or assailing thieves, arrest or restraint or
restraint of princes, rulers or people, or seizure under legal
process provided bond is promptly furnished to release the Vessel
or cargo, laws or governments regulation, strike or lockout or
stoppage or restraint of labor from whatever cause whether
partial or general or riot or civil commotion or any other cause
of whatsoever kind arising without the actual fault or privity of
the party affected. The Vessel shall have liberty to sail with
or without pilots, to tow or to be towed, to go to the assistance
of vessels in distress, and to deviate for the purpose of saving
life or property or of landing any ill or injured person on
board. This Clause is not to be construed as in any way
affecting the provisions for cessation of hire as provided in
this Charter.
31. WAR CLAUSE
No contraband of war shall be shipped. Coal or other cargo
shall not be deemed contraband of war for the purpose of this
Clause unless shipped or intended to be shipped to or intended
for a country involved in war. The Vessel shall not be required
to enter any port that is in a state of blockage, or where
hostilities are in progress, or any war zone, or zone deemed a
danger zone in consequence of existence of war, or actual
hostilities, without the consent of Owner. If such consent be
given, then Charterer will pay the increased cost of insuring the
<PAGE>
Vessel against war risks in an amount mutually agreed to by Owner
and Charterer. Said valuation shall be Owner's insured value for
hull and machinery plus increased value, but shall not include
any coverage for any other reasons such as loss of hire,
anticipated profits or insurance on charter hire, etc.
32. ADDITIONAL COST OF HOSTILITIES
In the event of the existence of war, or actual hostilities
and the continuance of this Charter, the Charterer shall assume
the proved additional cost of wages and insurance properly
incurred in connection with the Master, Officers and crew as a
consequence of such war or actual hostilities.
33. REQUISITION
If the Vessel should be requisitioned for title or for use
by any government or governmental authority during the period of
this Charter, an event of commercial off-hire shall be deemed to
have occurred, and all terms and conditions of commercial
off-hire in this Charter shall apply, in addition to the
following:
A. If the Vessel should be requisitioned for title by any
government or governmental authority during the period of this
Charter, Owner shall promptly notify Charterer in writing. Hire
shall cease at noon on the day of such requisition for title.
Any hire paid in advance and not earned shall be promptly
returned to Charterer.
B. If the Vessel should be requisitioned for use by any
government or governmental authority during the period of this
Charter, Owner shall promptly notify Charterer in writing.
Charterer shall have the right to complete the voyage then in
progress, and shall remain liable to pay Charter hire and all
other sums due and payable under this Charter until the then
current voyage is completed and the Vessel redelivers to Owner
for a commercial off-hire period.
C. Any provision of this Charter to the contrary
notwithstanding, the time the Vessel is on any such requisition
shall count as part of the period provided in Clause 1 of this
Charter and as commercial off-hire even if it reduces the number
of days on-hire in one or more Charter Years below the minimum
specified in Clause 1.
34. DEMISE
Nothing herein contained shall be construed as creating a
demise of the Vessel to Charterer. The Owner shall remain
responsible for the navigation of the Vessel, insurance, crew and
all other matters same as trading for its own account.
<PAGE>
35. WAR RISKS
A. If any port of loading or of discharge named in this
Charter or to which the Vessel may properly be ordered pursuant
to the terms of the Bills of Lading be blockaded, or
B. if owing to any war, hostilities, warlike operations,
civil war, civil commotions, revolutions or the operation of
international law, the Master or Owner in his or its discretion
considers (1) entry to any such port of loading or of discharge,
or the loading or discharging of cargo at any such port dangerous
or prohibited or (2) it is dangerous or impossible for the Vessel
to reach any such port of loading or discharge then Charterer
shall have the right to order the cargo, or such part of it as
may be affected, to be loaded or discharged at any other safe
port of loading or of discharge within the range of loading or
discharging ports respectively established under the provisions
of this Charter (provided such other port is not blockaded or
that entry thereto or loading or discharge of cargo thereat is
not, in the Master's or Owner's discretion, dangerous or
prohibited). If in respect of a port of discharge no orders be
received from Charterer within 48 hours after it or its agents
have received from Owner a request for the nomination of a
substitute port, Owner shall then be at liberty to discharge the
cargo at any safe port which it or the Master may in its or his
discretion decide on (whether within the range of discharging
ports established under the provisions of this Charter Party or
not) and such discharge shall be deemed to be due fulfillment of
the contract or contracts of affreightment so far as cargo so
discharged is concerned. In the event of the cargo being loaded
or discharged at any such other port within the respective range
of loading or discharging ports established under the provisions
of this Charter, this Charter shall be read in respect of freight
and all other conditions whatsoever as if the voyage performed
were that originally designated. In the event, however, that the
Vessel discharges the cargo at a port outside the range of
discharging ports established under the provisions of this
Charter, freight shall be paid as for the voyage originally
designated and all extra expenses involved in reaching the actual
port of discharge and/or discharging the cargo thereat shall be
paid by the Charterer or cargo owner. In this latter event Owner
shall have a lien on the cargo for all such extra expenses.
C. The Vessel shall have liberty to comply with any
directions or recommendations as to departure, arrival, routes,
ports of call, stoppages, designations, zones, waters, delivery
or in any otherwise whatsoever given by the government of the
nation under whose flag the Vessel sails or any other government
or local authority including any de facto government or local
authority or by any person or body acting or purporting to act as
or with the authority of any such government or authority or by
any committee or person having under the terms of the war risks
insurance on the Vessel the right to give any such direction or
<PAGE>
recommendation. If by reason of or in compliance with any such
direction or recommendation anything is done or is not done such
shall not be deemed a deviation. If by reason of or in
compliance with any such direction or recommendation the Vessel
does not proceed to the port or ports of discharge originally
designated or to which it may have been ordered pursuant to the
terms of the Bills of Lading, the Vessel may proceed to any safe
port of discharge which the Master or Owner in his or its
discretion may decide on and there discharge the cargo. Such
discharge shall be deemed to be due fulfillment of the contract
or contracts of affreightment and Owner shall be entitled to
freight as if discharge had been affected at the port or ports
originally designated or to which the Vessel may have been
ordered pursuant to the terms of the Bills of Lading. All extra
expenses involved in reaching and discharging the cargo at any
such port of discharge shall be paid by Charterer and/or cargo
owner and Owner shall have a lien on the cargo for freight and
all such expenses.
36. BOTH-TO-BLAME
If the Vessel comes into collision with another ship as a
result of the negligence of the other ship and any act, neglect
or default of the Master, mariner, pilot or the servants of the
Owner in the navigation or in the management of the Vessel, the
owners of the cargo carried hereunder shall indemnify the Owner
against all loss or liability to the other or non-carrying ship
or its owners insofar as such loss or liability represents loss,
or damage to, or any claim whatsoever of the owners of said
cargo, paid or payable by the other or recovered by the other or
non-carrying ship or her owners as part of their claim against
the carrying ship or Owner. The foregoing provisions shall also
apply where the owners, operators or those in charge of any ships
or objects other than, or in addition to, the colliding ships or
object are at fault in respect of a collision or contact.
37. NEW JASON CLAUSE
In the event of accident, danger, damage or disaster before
or after the commencement of any voyage, resulting from any cause
whatsoever, whether or not due to negligence for which, or the
consequences of which, the Owner is not responsible by statute,
contract or otherwise, the goods, shippers, consignees or owners
of the goods shall contribute with the Owner in general average
to the payment of any sacrifices, losses or expenses of a general
average nature that may be made or incurred and shall pay salvage
and special charges incurred in respect of the goods. If salving
ship is owned or operated by the Owner salvage shall be paid for
as fully as if the said salving ship or ships belonged to
strangers. Such deposits as the Owner or his agents may deem
sufficient to cover the estimated contribution of the goods and
any salvage and special charges thereon shall, if required, be
made by the goods, shippers, consignees or owners of the goods to
<PAGE>
carrier before delivery. In lieu of said deposit, Charterer has
the option to give, and Owner will accept, written guarantee of
Charterer to cover any contribution of the goods and any salvage
and special charges thereon as may be required to be made by the
goods, shippers, consignees or owners of the goods.
38. CLAUSE PARAMOUNT
This Charter and Bills of Lading issued hereunder shall have
effect subject to the provisions of the Carriage of Goods by Sea
Act of the United States, approved April 16, 1936. The
applicable act, ordinance or legislation (hereinafter called the
"Act") shall be deemed to be incorporated in the Bills of Lading
issued hereunder. Nothing therein contained shall be deemed a
surrender by the Owner or carrier of any of their rights or
immunities or an increase of any of their responsibilities or
liabilities under the Act. If any term of this Charter or the
Bills of Lading issued hereunder should be repugnant to the Act
to any extent, such term shall be void to that extent but no
further.
39. LAWS
This Charter shall be governed by the general maritime law
of the United States (and to the extent maritime law is not
applicable, the laws of the State of New York) except in cases of
general average, which shall be adjusted, stated and settled
according to York/Antwerp Rules 1974 and, as to matters not
provided for by these rules, according to the laws and usages at
the port of New York. If a General Average statement is
required, it shall be prepared at such port or place in the
United States as directed by Owner, unless otherwise mutually
agreed by an Adjuster appointed by Owner and approved by
Charterer, who shall attend to the settlement and collection of
the General Average, subject to customary charges. General
Average Agreements and/or security shall be furnished by Owner
and/or Charterer, and/or Owner and/or consignee of cargo, if
requested. Any cash deposit being made as security to pay
General Average and/or salvage shall be remitted to the Average
Adjuster and shall be held by him at his risk in a special
account in a duly authorized and licensed bank at the place where
the General Average statement is prepared. Should the Vessel put
into a port of distress or be under average, it is to be
consigned to the Owner's agents, paying them the usual charges
and commissions.
40. BENEFIT OF LIMITATIONS
Any provision of this Charter to the contrary
notwithstanding, Owner shall have the benefit of all limitations
of, and exemptions from, liability accorded to the Owner or
chartered owner of vessels by any applicable statute of rule of
law for the time being in force.
<PAGE>
41. ARBITRATION
Any and all differences and disputes of whatsoever nature
arising out of this Charter which cannot be resolved by the
parties shall be put to arbitration in the City of New York
pursuant to the laws relating to arbitration there in force,
before a board of three persons, consisting of one arbitrator to
be appointed by the Owner, one by Charterer and one by the two so
chosen. The decision of any two of the three on any point or
points shall be final. Either party hereto may call for such
arbitration by service upon any officer of the other, wherever he
may be found, of a written notice specifying the name and address
of the arbitrator chosen by the first moving party and a brief
description of the disputes or differences which such party
desires to put to arbitration. If the other party shall not, by
notice served upon an officer of the first moving party within
two weeks of the service of such first notice, appoint its
arbitrator to arbitrate the disputes or differences specified
then the first moving party shall have the right without further
notice to appoint a second arbitrator, who shall be a
disinterested person, with precisely the same force and effect as
if said second arbitrator had been appointed by the other party.
In the event that the two arbitrators fail to appoint a third
arbitrator within twenty days of the appointment of the second
arbitrator, the appointment of a third arbitrator shall be made
by the acting president of the Society of Maritime Arbitrators,
Inc. (New York) and the appointment of such arbitrator shall have
precisely the same force and effect as if such arbitrator had
been appointed by the two arbitrators. Until such time as the
arbitrators finally close the hearings, either party shall have
the right by written notice served on the arbitrators and on an
officer of the other party to specify further disputes or
differences under this Charter for hearing and determination.
Awards made in pursuance of this Clause may include costs,
including a reasonable allowance for attorney's fees, but may not
include punitive or multiple damages. Judgment may be entered
upon any award made hereunder in any court having jurisdiction in
the premises. Should either party desire it, arbitration
proceedings hereunder will be consolidated with any arbitration
under the MOA.
42. BROKER'S COMMISSIONS
Owner warrants that there are no brokerage commissions
payable with respect to this Charter and will indemnify, hold
harmless and defend Charterer against any claim for brokerage
commission.
43. INSPECTION AND SUPERCARGOES
Charterer or its agents or designees shall have the right at
any time, and from time to time, during the term of this Charter
to, at its own expense, (a) inspect, survey and/or audiogauge
<PAGE>
and/or photograph or videotape the entire reach of the Vessel,
including its underwater parts, cargo and machinery spaces, to
the fullest possible extent, and (b) place a technical consultant
and/or supercargo on the Vessel.
44. SUBCHARTER
Charterer shall not subcharter the Vessel to any party
whatsoever unless written consent shall first be obtained from
Owner, which consent shall not be unreasonably withheld. In the
event of any subcharter, Charterer shall reimburse Owner for any
expenses incurred by Owner for the operation of the Vessel in
connection with any subcharter which exceed the expenses which
Owner would have otherwise not have incurred in the employment of
the Vessel in the U.S. East coast carriage of coal to Charterer's
Massachusetts generating stations; provided, however, that
Charterer shall not be required to reimburse Owner for any extra
wages or overtime of the Master, Officers or crew (except as
provided in Clause 32 or as otherwise agreed by Charterer and
Owner, or except where such excess expenses result from overtime
incurred at the specific request of Charterer which is in excess
of the overtime incurred in the Vessel's regular employment).
Upon Charterer's request Owner will promptly provide Charterer
with its best estimate of such costs for any proposed subcharter
specified by Charterer.
45. RESTRICTIONS ON USE OF VESSEL
Notwithstanding any other provisions of this Charter, the
Vessel shall not without the prior approval of the United States
Maritime Administration, trade to or from any country listed by
the United States Maritime Administration in its General Order
No. 59 (46 CFR 221.7), as the same may be amended from time to
time. Charterer agrees to take no action that would cause the
Vessel to cease to qualify as "Section 38 property" as defined in
Section 48 of the Internal Revenue Code.
46. OPERATIONAL AND COMMERCIAL OFF-HIRE
Under this Charter there shall be two categories of
off-hire: Operational and Commercial. They are defined as
follows:
A. Operational off-hire shall be deemed to have occurred
in the event of loss of time continuing for more than four hours
through:
(1) deficiency of personnel;
(2) deficiency of stores;
(3) breakdown (whether partial or otherwise) of
propulsion and/or cargo unloading machinery or boilers;
<PAGE>
(4) accident or damage to the Vessel including
collision or stranding;
(5) a strike of Officers or crew of the Vessel (but not
a strike of the longshoremen, miners or other facilities
notwithin the control of the Owner); or
(6) any other cause preventing the efficient working of
the Vessel.
B. Commercial off-hire shall be deemed to have occurred in
the event the Charterer provides adequate written notice to
Owner, and which has been accepted and agreed by Owner in
accordance with Clause 16.
C. In the event of an operational off-hire period that
appears to Charterer will extend longer than 35 consecutive days,
Owner shall be obligated to provide suitable coal transport
capacity in the form of other colliers or barges, at a cost per
short ton equivalent no greater than the equivalent cost of coal
transport for the voyage then underway, at the time charter rate
then payable. The first delivery of such coal shall be made
within 45 days from the date the Vessel first entered an
operational off-hire period, unless otherwise directed by
Charterer. Charterer will discuss with Owner the possible use of
non U.S. flag substitute tonnage, to the extent suitable and
provided Charterer does not use its own sources for non U.S. flag
tonnage. In any event, Charterer will be under no obligation to
accept non U.S. tonnage from Owner.
D. The commencement of an operational off-hire period
shall be four hours after the Vessel experiences an operational
off-hire event defined in this Clause 46A, as reported by the
Vessel, at which time hire shall cease to be payable.
Operational off-hire shall terminate upon the Vessel reaching an
equivalent position with respect to vessel's operations underway
at the time the operational off-hire period commenced. Any
provision of this Charter to the contrary notwithstanding, the
Charterer shall not pay hire for any period of operational
off-hire even if the period(s) of operational off-hire in any one
Charter Year reduce(s) the number of days on-hire below the
minimum specified in Clause 1.
E. The commencement of a commercial off-hire period shall
be when the Vessel passes sea buoy at the entrance to Chesapeake
Bay in ballast condition or comparable point of deviation, at
which time hire shall cease to be payable. Commercial off-hire
shall terminate, and hire shall be payable upon, the Vessel
reaching the following points:
(i) if Charterer orders the Vessel to a South America
coal load port as the first voyage after delivery of the
Vessel after termination of a commercial off-hire period,
<PAGE>
then delivery shall take place 24 hours after dropping last
outbound sea pilot at the last port where Vessel called for
the Charterer or where the Vessel called during the
commercial off-hire period, or whichever is less;
(ii) if Charterer orders the Vessel to a US East Coast
coal load port as the first voyage after delivery of the
Vessel after termination of a commercial off-hire period,
then delivery shall take place on passing the sea buoy at
the entrance to Chesapeake Bay or comparable position prior
to arrival at that next load port;
(iii) if Charterer orders the Vessel to any other port
not specified in (i) or (ii) above, after delivery of the
Vessel after termination of a commercial off-hire period,
then delivery shall take place at such time as the Vessel
would have reached an equivalent position on a round trip
voyage basis had the commercial off-hire period not taken
place.
F. Upon redelivery of the Vessel to Owner at the
commencement of pre-agreed commercial off-hire periods, or upon
delivery of the Vessel to Charterer at the end of such periods,
or as soon thereafter as practicable, surveys of bunker coal
and/or fuel oils shall be conducted. Expenses for fuel surveys
shall be borne equally by Owner and Charterer. Time required for
such surveys shall be for Owner's account when delivering to the
Charterer, and shall be for the Charterer's account when
redelivering to Owner. Surveyed quantities shall be adjusted up
or down to account for the advance periods of delivery and
redelivery specified above, in accordance with vessel records of
fuel actually consumed during these periods. With regard to
fuels actually consumed during these periods, Owner agrees to
make available to Charterer adequate records of same.
47. ATTACHMENT, ARREST, ETC.
A. If the Vessel shall be detained (otherwise than in the
normal course of her business or operations) attached, arrested
or if the Vessel shall be otherwise levied upon or taken into
custody by virtue of proceedings in any court or tribunal in the
United States or any foreign country or by any governmental or
other authority, Owner shall cause (i) the Vessel to be released
as promptly as practicable and in any event within five days
after any such attachment, arrest, levy or taking occurring in
the United States, and (ii) any lien to be discharged to the
extent that such lien is not being contested in good faith by or
on behalf of the Owner through appropriate proceedings without
risk of a sale, forfeiture or loss of the Vessel. In the event
the Vessel is detained (otherwise than in the normal course of
her business or operations), arrested, attached or levied upon or
taken into custody by any authority whatsoever, and it appears
that such will interfere with the next anticipated redelivery
<PAGE>
event, Owner will immediately notify the Charterer.
B. Subject to Section 46, in the event of loss of time of
the Vessel by virtue of a detention, attachment, arrest, levy or
other taking into custody of the Vessel (but excluding loss of
time due to action or inaction of Charterer or its agents or due
to liens or claims which predate Owner's title in the Vessel),
the Vessel will be on operational off-hire for all time so lost.
However, in all cases of such detention, attachment, arrest, levy
or other taking into custody, Owner will ensure that its P&I Club
will post the appropriate bond, letter of undertaking or other
security to promptly release the Vessel.
48. ASSIGNMENTS
A. This Charter shall not be assigned by either party
without the prior written consent of the other party. In any
such event and notwithstanding any such assignment and consent,
assignor shall continue to perform its duties and obligations
under this Charter Party and shall remain responsible as primary
obligor therefor, unless it provides acceptable assurances to the
other party covering any liabilities of the assignee.
B. Owner's rights and obligations under this Charter are
not transferable by sale without Charterer's consent. In the
event of the Vessel being sold without its consent Charterer may
(including a requisition for title pursuant to Clause 33A), at
its absolute discretion, terminate the Charter upon written
notice to the Owner (except with respect to obligations and
liabilities hereunder, actual or contingent, which have arisen on
or prior to such date of termination), without being required to
purchase the Vessel, without prejudice to any of Charterer's
other rights or remedies.
49. WAR RISK INSURANCE
Any increase in War Risk Insurance costs because of
increased rate over those in effect on date of this Charter, and
prompted by voyages to war risk zones by the Charterer shall be
for Charterer's account. The Vessel's valuation in such
insurance shall be mutually agreed to by Owner and Charterer.
50. ICE SECTION
The Vessel shall not be ordered to or bound to enter any
icebound port or place or any place where lights, lightships,
marks or buoys on Vessel's arrival are or are likely to be
withdrawn by reason of ice, or where there is a risk that
ordinarily Vessel will not be able on account of ice to enter,
reach or leave the place. Vessel shall not be obliged to force
ice nor to follow icebreakers. If on account of ice the Master
considers it dangerous to enter or remain at any loading or
discharging place for fear of the Vessel being frozen in and/or
<PAGE>
damaged, he shall have the liberty to sail to another place or
port which is free from ice and there await Charterer's further
instructions. This Clause shall be deemed incorporated in Bills
of Lading under applicable circumstances.
51. BILL OF LADING SECTIONS
All Bills of Lading issued under this Charter shall contain
the Clause Paramount, War Risks, Both-to-Blame, New Jason and Ice
Section in form and substance as set forth herein.
52. TERMINATION
This Charter may be terminated by Charterer at any time
after seven years from initial delivery hereunder for any reason
upon not less than 180 days prior written notice from Charterer
to Owner and provided that it include or be accompanied by a
Notice of Intention to Exercise Purchase Option for the Vessel,
in accordance with Appendix 4 of this Charter. Such notice shall
specify a provisional Termination Date.
If, however, a Notice of Intention to Exercise Purchase
Option is made by Charterer pursuant to this Clause, and the
purchase is not consummated on the provisional Termination Date,
or within 30 days thereof, such Notice of Intention to Exercise
Purchase Option shall be deemed to have been withdrawn. This
Charter shall thereupon continue as though no such Notice had
been given, except that Charterer agrees to reimburse Owner for
costs, if any, directly related to the planned purchase of the
Vessel, subject to a cap of $50,000.
53. OPTION TO SHORTEN CHARTER PERIOD
a. Charterer will have the option declarable the latest by
the end of the 12th Charter Year to change the charter period to
thirteen (13) consecutive years, in which case Charterer will pay
Owner in addition to the aforementioned charter hire (plus
escalation as applicable) for the days on-hire during the 13
consecutive years, a lump sum charter hire of Thirteen Million
Three Hundred Thousand Dollars ($13,300,000) on the last day of
the Charter.
b. Charterer will also have the option declarable the
latest by the end of the 13th Charter Year to change the charter
period to fourteen (14) consecutive years, in which case
Charterer will pay Owner in addition to the aforementioned
charter hire (plus escalation as applicable) for the days on-hire
during the 14 consecutive years, a lump sum charter hire of Six
Million Six Hundred Fifty Thousand Dollars ($6,650,000) on the
last day of the Charter.
c. Upon exercising either option Charterer shall have the
right to prepay the said lump sum charter hire (with adjustment
<PAGE>
for accelerated payment) in installments over the remaining term
of the Charter, at the time of each monthly payment of hire is
made, with effect from the first day of the month in which the
declaration is made. The adjustment for accelerated payment
shall be calculated by discounting for the relevant period of
acceleration the applicable lump sum, using the interpolated
United States Treasury rate corresponding to the period of time
from the date of the exercise of the option until the anticipated
end of the Charter.
54. INSURANCE
At all times during the term of this Charter, the Owner
shall cause the Vessel to be insured, through responsible and
experienced marine underwriters, for all customary risks
including but not limited to hull, increased value, protection
and indemnity, including pollution coverage, war risk, and second
seaman's war risk in amounts no less than commercially reasonable
and appropriate amounts. Owner shall also carry excess liability
insurance in such amount as Owner and Charterer shall agree. All
policies shall be with companies and under policy forms approved
by Owner and Charterer, such approvals not to be unreasonably
withheld.
All policies shall name as assureds, as interests may
appear, Owner and Charterer with a waiver of subrogation as
against the Charterer. Owner shall provide and/or afford
Charterer access to all documentation and records relating to
insurance for or relating to the Vessel.
55. INTERIM VOYAGES BY OWNER
It is recognized by the parties that there will be
reoccurring periods of commercial off-hire. Redelivery and
delivery events will therefore occur when the Charterer places
the Vessel in commercially off-hire mode in accordance with
Clause 46, and when the Charterer desires the return of the
Vessel to its customary trades, respectively.
During these periods of commercial off-hire, the Owner may
trade the Vessel in any lawful cargo and between any ports which
it chooses. Upon completion of any commercial off-hire period,
Owner shall deliver the Vessel to Charterer with holds clean and
dry, free of cargo, and ready in all respects to load steam coal.
Any provision of this Charter to the contrary
notwithstanding, Charterers shall have no responsibility or
liability whatsoever for or relating to the Vessel or her
operation during periods of commercial off-hire or any
consequences thereof.
<PAGE>
56. STEVEDORE DAMAGE
Stevedores will be appointed by and paid for by Charterer.
Should any damage be caused to the Vessel or her fittings by the
stevedores, the Master has to try to let stevedores repair such
damage and try to settle the matter directly with them. The
Master also shall endeavor to obtain written acknowledgment of
the damage and liability from the concerned stevedores
immediately at the occurrence. Charterer shall not be
responsible for any damage caused by stevedores to the Vessel
unless the Master immediately notifies Charterer or its agents of
such damage within 24 hours from the occurrence. Such notice
will specify the damage in detail and invite Charterer to appoint
a surveyor to participate in assessing the extent of such damage.
If Charterer is responsible hereunder:
A. In the case of any damage(s) affecting the Vessel's
seaworthiness and/or the safety of the crew and/or affecting the
trading capabilities of the Vessel, the Charterer will
immediately arrange for repairs of such damage(s) at its expense
and the Vessel is to remain on-hire until such repairs are
completed and, if required, passed by the Vessel's classification
society.
B. Any damage(s) not described under A above will be
repaired, at Charterer's option, before or after redelivery
concurrently with Owner's work. In such case no hire and/or
expenses will be paid to Owner except when the time and/or the
expenses required for the repairs for which Charterer is
responsible exceed the time and/or expenses necessary to carry
out Owner's work.
57. LIGHTERING
Vessel may lie safely alongside another
vessel/coasters/lighters at a safe dock, wharf or place
(including anchorages) for transshipment and/or discharge of
cargo and/or bunkering if such operation is customarily carried
out at such places. Such operation will be carried out always
subject to good weather, smooth and calm sea, slight wind and
current when Master thinks fit and safe under the supervision of
and at the discretion of the Master. The Master may at any time
order the vessel/coasters/lighters away from his Vessel, or
remove his own Vessel, at Charterer's time and expense. If the
Master considers the double banking by ship's own propelling
unsafe, the Master may include tug services at Charterer's time
and expense. Charterer will supply extra fenders and/or securing
materials, if necessary, and indemnify Owner/Vessel against all
cargo claims as a result of such operation. Charterer also will
indemnify Owner from any additional insurance premium to cover
additional risks for Vessel, loss of hire and/or shipowner
liabilities, and Charterer will give Owner due advance notice of
their intention to perform such operation advising approximate
<PAGE>
type and quantity of cargo involved, the other vessel concerned
destination of cargo and location of operation. Charterer will
always indemnify Owner for any damages to Vessel, claims from the
other alongside vessel and/or loss of hire resultantly incurred
from the unsafety of the operations and/or any omission
occasioned by crew members of both vessels.
58. MISCELLANEOUS
This Charter, including all Appendices referenced herein,
constitutes the entire understanding of the parties with respect
to the subjects referenced herein and there are no
representations, understandings, agreements, oral or written,
which are not included herein. The terms and provisions hereof
shall extend to and be binding upon the successors and assigns of
the parties hereto. Any amendment hereto shall be evidenced by a
writing signed by a duly authorized representative of each party.
Should any provision of this Agreement be held invalid, such
provision shall be considered severable and such invalidity shall
not affect the remainder of the provisions herein. The failure
of either party to insist in any one instance or more upon strict
performance of any of the terms and conditions hereof, or to
exercise any right or privilege herein conferred, shall not be
construed as waiver of such terms, conditions, rights or
privileges, but the same shall continue and remain in full force
and effect. The article headings in this Charter are for
descriptive purposes only.
59. NOTICES
Except as otherwise provided in this Charter, all notices,
demands, designations, certificates, requests, offers, consents,
approvals and other instruments given pursuant to this Charter
shall be in writing and shall be validly given when sent by
overnight courier delivery or by telefax (a) if to Owner,
addressed to International Shipholding Corporation, One Whitehall
Street, New York, New York 10004, Attention: Niels M. Johnsen,
Vice President, and (b) if to Charterer, addressed to New England
Power Company at 25 Research Drive, Westborough, Massachusetts
01582, Attention: Sheridan A. Glen, Director, Coal and Oil.
Owner and Charterer each may from time to time specify any
address in the United States as its address for purposes of this
Charter by giving 15 day's written notice to the other party.
<PAGE>
IN WITNESS WHEREOF, the parties by each of its duly
authorized representative signs in the spaces set forth below
this 1st day of November, 1994.
WITNESS International Shipholding Corp. on
its own behalf and on behalf of its
Nominee
WITNESS New England Power Company
<PAGE>
APPENDIX 2A
S.S. ENERGY INDEPENDENCE
CHARTER PARTY DATED OCTOBER 27, 1994
Speed Warranty Calculation
1. The sea passage portion of both the laden and ballast legs
of all voyages (load port to load port) shall be used,
excluding in their entirety both legs of any voyage during
which:
(a) the Vessel reduced its speed at Charterer's request or
due to fog or due to other adverse weather conditions
or as provided in paragraph 4 below; or
(b) the Vessel encountered winds in excess of Beaufort 5
for a sustained period of 2 hours or greater.
All voyages not so excluded are referred to as the
"Qualifying Speed Voyages". Owner will ensure at least
three (3) Qualifying Speed Voyages per year.
2. The log records shall be used to determine the time and
distance of the sea passages on all Qualifying Speed
Voyages. The sea passage shall begin at the load port sea
buoy (or the discharge port sea buoy, as the case may be)
and end at the discharge port sea buoy (or the load port sea
buoy, as the case may be). For ballast voyages from Salem
Harbor utilizing the Cape Cod Canal, the discharge port sea
buoy shall be the Buzzard's Bay pilot station.
3. The average speed on the Qualifying Speed Voyages shall be
calculated by dividing (a) the total nautical miles
travelled on the sea passages of all of the Qualifying Speed
Voyages by (b) the total time in hours utilized on such sea
passages. If such average speed is less than 14.47 knots,
the speed guarantee payment to be paid by Owner to Charterer
pursuant to Clauses 5B, C and D of the Charter shall be
calculated in accordance with the following example:
Assumption:
Qualifying Speed Voyages -
Total Elapsed Time Sea Buoy to Sea Buoy Legs: 1,200 hrs.
Average Speed: 14.4 knots
Total Nautical Miles: 17,280
Warranty Speed: 14.47 knots
<PAGE>
Total Time in Calendar Year (excluding time under Paragraph 4
below) Sea Buoy to Sea Buoy: 4,000 hrs.
Daily Hire for Charter Year: $45,000
Calculation:
Time Allowed on Qualifying Speed Voyages at Warranty Speed:
17,280 mi = 1,194.19 hrs.
---------
14.47 kts
Excess Time on Qualifying Speed Voyages = 1,200.00 hrs.
- 1,194.19 hrs.
-------------
5.81 hrs.
Excess Time Percentage: 5.81 = 0.484%
-----
1200
Penalty Hours: 0.484% x 4,000 hrs. =
19.36
Penalty Days: 19.36 = 0.8067
-----
24
Total Penalty: 45,000 x 0.8067 = $36,301.50
4. In the event the Vessel's maximum speed is reduced during
any sea passages from sea buoy to sea buoy by 10% or more as
a result of a breakdown of the Vessel, the entire period
during which the Vessel is required to operate at such
reduced speed ("Breakdown Speed Period") shall be eliminated
from the speed performance calculations of the calendar year
in question under paragraphs 1 through 3 above. Owner shall
notify Charterer of any Breakdown Speed Period within five
(5) days of the occurrence of the breakdown. Charterer's
claim for speed deficiency for all sea passages from sea
buoy to sea buoy during any Breakdown Speed Period shall be
made separately as against the same warranted speed and in
the same manner as provided in paragraphs 1 through 3 above
based upon voyages which would otherwise be Qualifying Speed
Voyages but for the breakdown.
5. Amounts payable under this Appendix 2A shall not be netted
against any amounts payable under Appendices 2B or 3.
<PAGE>
APPENDIX 2B
S.S. ENERGY INDEPENDENCE
CHARTER PARTY DATED OCTOBER 27, 1994
Fuel Warranty Calculation
Sea Passage Warranty
1. The sea passage portion of both the laden and ballast legs
of all voyages (load port to load port) shall be used,
excluding in their entirety both legs of any voyage during
which:
(a) the Vessel reduced its speed at Charterer's request or
due to fog or due to other adverse weather conditions
or breakdown of the Vessel; or
(b) the Vessel encountered winds in excess of Beaufort 5
for a sustained period of 2 hours or greater.
All voyages not so excluded are referred to as the
"Qualifying Fuel Voyages".
2. The log records shall be used to determine the time and
distance of the sea passages on all Qualifying Fuel Voyages.
The sea passage shall begin at the load port sea buoy (or
the discharge port sea buoy, as the case may be) and end at
the discharge port sea buoy (or the load port sea buoy, as
the case may be). For ballast voyages from Salem Harbor
utilizing the Cape Cod Canal, the discharge port sea buoy
shall be the Buzzard's Bay pilot station.
3. Fuel consumption on any sea passage shall be determined as
recorded in the ship's logs.
4. The average fuel consumption on sea passages on the
Qualifying Fuel Voyages shall be equal to (a) the total fuel
consumed on the sea passages of the Qualifying Fuel Voyages,
divided by (b) the time taken on such sea passages (in
hours).
Load Port/Discharge Port Warranty
1. The portion of all voyages during which the Vessel is at
berth in the load/discharge port shall be used. Such
voyages are referred to as the "Qualifying Ports".
2. The log records shall be used to determine the time and fuel
consumption at the load/discharge ports on all Qualifying
Ports. The time spent at berth in the load/discharge port
shall begin at FWE and end at STBY Engines.
3. The fuel consumption per day at the load/discharge berth on
the Qualifying Ports shall be equal to (a) the total fuel
consumed at the load/discharge berth on the Qualifying
<PAGE>
Ports, divided by (b) the total time in hours spent at
load/discharge berth on such voyages.
Warranty Charge Calculation Formula:
The fuel warranty charge (if any) payable by Owner to
Charterer pursuant to Clauses 5B, C and D of the Charter
shall be calculated in accordance with the following:
A. Load Port: (Warranty: 38 mmbtus per hr.)
Total time in LP = sum of (FWE - STBY) for
all Qualifying Ports
Allowed consumption in LP = (Total Time (hrs) x 38)
= a1 mmbtus
Actual consumption in LP = b1 (from log books) mmbtus
Adjustment = b1 - a1 mmbtus
$ Adjustment only if b1 - a1
is positive:
(b1-a1) x Avg. Fuel
Cost/Year in $ per mmbtus = A1$
B. Discharge Port: (Warranty: 42 mmbtus per hr.)
Total time in DP = sum of (FWE - STBY)
for all Qualifying Ports
Allowed consumption in DP = (Total Time (hrs) x 42)
= a2 mmbtus
Actual consumption in DP = b2 (from log books) mmbtus
Adjustment b2 - a2 = mmbtus
$ Adjustment only if b2 - a2
is positive:
(b2 - a2) x Avg. Fuel
Cost/Year in $ per mmbtus = A2 $
C. Sea Passage/Navigation: (Warranty: 119 mmbtus per hr.)
Total fuel consumed in Charter Year = X
Fuel consumption in all LP/DP = (b1 + b2)
Actual Sea/Navigation consumption = [X - (b1 + b2)]
= X1
Total time at sea = Hours from sea buoy to sea buoy
(from logbooks)
<PAGE>
Allowed consumption at sea = (Total Time x 119) = c1
Actual consumption at sea = d1 (from log books) mmbtus
Engine Efficiency:
(only if d1 > c1) = d1 = y1
c1
$ Adjustment Allowed only if y1
is > 1.0:
[x1 - x1] x Avg. Fuel
y1
Cost/Year in $ per mmbtus = A3 $
Payment of a fuel warranty charge is due only if A1, A2
and/or A3 are positive numbers, with no netting of one against
the other or against any payment due under Appendices 2A or 3.
Example:
The following example illustrates application of this
formula:
Assumptions:
Performance on Qualifying Fuel Voyages, Loadings and
Discharges:
at sea - 130 mmbtus/hour
at load port - 40 mmbtus/hour
at discharge port - 44 mmbtus/hour
Warranted Performance:
at sea - 119 mmbtus/hour
at load port - 38 mmbtus/hour
at discharge port - 42 mmbtus/hour
Average cost of fuel delivered to the Vessel during calendar
year:
$1.85/mmbtus
Actual usage during the calendar year:
Total: 795,000 mmbtus (from ship's log)
at load port 68,000 mmbtus (from ship's log)
<PAGE>
at discharge port 77,000 mmbtus (from ship's log)
at sea (sea buoy 520,000 mmbtus (from ship's log)
to sea buoy)
balance is:
navigation passage: 130,000 mmbtus
sum of:
sea and navigation: 650,000 mmbtus
Calculations:
A. Load Port:
Total time in LP = 72 x 24 = 1,728 hours
Allowed consumption in LP = 1,728 x 38
= 65,664 mmbtus
Actual consumption in LP = 68,000 mmbtus
Adjustment 68,000 - 65,664 = 2,336 mmbtus
$ Adjustment 2,336 x 1.85 = (A1)
= $ 14,321.60
B. Discharge Port:
Total time in DP = 74 x 24 = 1,776 hours
Allowed consumption in DP = 1,726 x 42
= 72,492 mmbtus
Actual consumption in DP = 77,000 mmbtus
Adjustment 77,000 - 72,492 = 4,508 mmbtus
$ Adjustment 4,508 x 1.85 = (A2)
= $ 8,339.80
C. Sea Passage/Navigation
Actual sea/navigation
consumption:
Total - LP/DP = 650,000 mmbtus
Total time at sea = 4,000 hours
Allowed consumption at sea = 4,000 X 119
= C1
= 476,000 mmbtus
Actual consumption at sea = d1
= 520,000 mmbtus
<PAGE>
Engine efficiency = d1/c1 = Y1
= 1.0924
Dollar adjustment:
(650,000 - 650,000) x $1.85 = A3
1.0924 = 54,980 x 1.85
= $101,713
Payment adjustment:
from Owner to Charterer:
A1 = $ 4,321.60
A2 = $ 8,339.80
A3 = $101,713.00
Total due:
from Owner to Charterer:
$ A1 + A2 + A3 = $114,374.40
<PAGE>
APPENDIX 3
S.S. ENERGY INDEPENDENCE
CHARTER PARTY DATED OCTOBER 27, 1994
Unloader Test Procedure
And Warranty Calculation
1. The time utilized for unloading the Vessel during any test
shall be measured from the time the Vessel commences
operation of her unloading equipment until she ceases such
operation upon completion of discharge without deductions
for any reason other than reduction or cessation of
unloading at the request of Charterer.
2. The tonnage unloaded shall equal (a) the coal on board prior
to loading, as reported in the Vessel's logs, plus (b) the
coal loaded as stated in the bill of lading, less (c) the
coal remaining on board after discharging, as reported in
the Vessel's logs, provided the Vessel shall not be deemed
to have effected a complete unloading until the amount of
cargo coal remaining on board is less than 200 short tons.
3. The test unloading rate shall be the tonnage unloaded, as
determined in paragraph 2 above, divided by the time
utilized for unloading the Vessel, as determined in
paragraph 1 above. If a test requested by Charterer is
completed and results in an average unloading rate of less
than 3,100 short tons per hour, the Vessel shall be
considered out of compliance with the discharge warranty
provided in Clause 5E of the Charter, until such time as the
Vessel completes a full load discharge test pursuant to
Clause 5E and this Appendix 3 at an average discharge rate
of 3,100 short tons per hour or more. In the event that the
Owner fails to make necessary repairs to the Vessel so that
it passes such unloading test at the next discharge port,
damages payable by Owner to Charterer shall be calculated in
accordance with the following example:
Assumptions:
Performance in the discharge test requested by
Charterer: 2,900 short tons/hour
Number of short tons unloaded between failing the
initial unloading test and passing a compliance test in
accordance with the above procedure (but not including the
tonnage unloaded in either test): 240,000
Hours unloading @ 3,100 ST/HR = 240,000 = 77.42 hours
3,100
Hours unloading @ 2,900 ST/HR = 240,000 = 82.76 hours
2,900
<PAGE>
Time deemed lost due to non-compliance:
82.76 - 77.42 hrs. = 5.34 hrs. = 0.2225 days
Daily rate at $45,000 per day
Damages payable by Owner:
0.2225 days x $45,000 = $10,012.50
4. Amounts payable under this Appendix 3 shall not be netted
against any amounts payable under Appendices 2A or 2B.
<PAGE>
APPENDIX 4
Charterer's Purchase of Owner's
Rights in the Vessel
1. Acknowledgment. Owner acknowledges that Clause 52 of
this Charter, as worded, entitles Charterer for any reason
whatsoever in its absolute and unfettered discretion to terminate
this Charter effective any time after seven charter years have
elapsed from the commencement of the Charter, provided such
termination is pursuant to a Notice of Intention to Exercise
Purchase Option given not less than 180 days in advance of such
termination.
2. Termination Date. As used in this Charter, the
Termination Date is the date on which Charterer consummates its
purchase of Owner's Rights in the Vessel, under Clause 3B or
Clause 52 of this Charter. Unless otherwise terminated, the
Charter shall remain in full force and effect until the
Termination Date.
3. Owner's Rights in the Vessel. As used in this Charter,
the term "Owner's Rights in the Vessel" shall mean and include
all of Owner's right, title and interest in and to the Vessel,
and all rights, claims, causes of action, benefits and other
legal or equitable interests deriving from, or accruing to Owner
as a result of constructing, owning, leasing, financing,
operating, chartering or using the Vessel including, without
limitation, all of Owner's right, title and interest in and to
the following:
(a) the Vessel, together with her engines, boilers,
machinery, masts, boats, anchors, cables, chains, tackle,
apparel, furniture, capstans, pumps, hatches, unloading
systems and all other appurtenances thereto, and also any
and all additions, improvements and replacements made in or
to the Vessel or said appurtenances and all spare parts
ashore and on board;
(b) contracts, now in existence or hereafter entered
into, relating to the construction, reconstruction and
repair of the Vessel;
(c) all agreements and commitments relating to the
financing of the Vessel, including, as the case may be, the
construction, reconstruction, repair and/or purchase of the
Vessel, to the extent such rights and benefits are
transferable, and providing Charterer opts to purchase the
Vessel subject to any mortgage lien on the Vessel;
(d) any charters and/or sub-charters with respect to
the Vessel and hire due thereunder on and after the
Termination Date;
<PAGE>
(e) all proceeds payable under insurance policies or
insuring agreements with respect to the Vessel, to the
extent such proceeds are not in reimbursement of any amounts
theretofore paid by or for the account of Owner;
(f) the proceeds of salvage and general average, to
the extent that such proceeds relate to physical damage to
or loss of the Vessel arising out of salvage or general
average, and to the extent said damage or loss has not been
repaired or replaced by Owner; and
(g) the compensation, award or proceeds arising out of
or relating to such period of requisition of use of the
Vessel, if any, which extends after the Termination Date,
providing such requisition has not previously resulted in
termination of this Charter.
4. (a) Purchase Free of Mortgage Lien. In connection
with a Notice of Intention to Exercise Purchase Option, Charterer
may elect to purchase Owner's Rights in the Vessel free and clear
of any mortgage lien on the Vessel, in consideration for which
Charterer shall pay to Owner or its designee a purchase price in
U.S. dollars (the "Purchase Value") equal to the applicable
number set forth in Column 2 of Table 1 below opposite the period
in which the date of purchase occurs (period 1 commencing with
the delivery of the Vessel under the Charter and ending on and
including _________, 1995 and each succeeding period being each
of the following semi-annual periods of this Charter occurring
thereafter). If Charterer shall purchase Owner's Rights in the
Vessel pursuant to this subparagraph (a), Owner shall on the
Termination Date convey good title to the Charterer or its
designee in and to Owner's Rights in the Vessel free of (i) all
charges, liens, security interests and encumbrances arising from
acts of Owner taken without the consent of the Charterer, other
than those arising out of current operations of the Vessel in
accordance with this Charter, and (ii) any mortgage lien on the
Vessel. Charterer or its designee will accept such interest or
title in Owner's Rights in the Vessel.
Table 1
Beginning of Eighth Year Purchase Option Effective at
in Semi-Annual Periods Beginning of Each Semi-Annual Period
- ------------------------ ------------------------------------
15 55175730
16 52259363
17 49300160
18 46780743
19 44223519
20 41631385
21 39007526
22 36355449
<PAGE>
23 33679008
24 30982444
25 28270423
26 25548076
27 22821047
28 20095548
29 17378406
30 146771343
(b) Purchase Subject to Mortgage and Debt. In the
alternative, subject to the approval of lenders, Charterer may
elect to purchase Owner's Rights in the Vessel subject to any
mortgage lien on the Vessel, in consideration for which Charterer
shall (i) assume the obligations with respect to any such
mortgage lien on the Vessel, including the debt, and cause any
person liable with respect thereto to be released from all
liability thereunder, and (ii) pay to Owner an amount equal to
the purchase price which would otherwise be payable pursuant to
subparagraph (a) of this Clause 4, less the outstanding principal
amount of the Debt and accrued and unpaid interest thereon from
the last date through which Charter hire was paid under this
Charter to the date of purchase. If Charterer shall purchase
Owner's Rights in the Vessel pursuant to this subparagraph (b),
Owner shall, on the Termination Date, convey good title to
Charterer or its designee in and to Owner's Rights in the Vessel
free of all charges, liens, security interests and encumbrances
arising from acts of Owner taken without the consent of the
Charterer, other than the assumed mortgage lien and those arising
out of current operations of the Vessel in accordance with the
provisions of this Charter. Charterer or its designee will
accept such interest or title in and to Owner's Rights in the
Vessel.
5. Payment. On the Termination Date (a) Charterer shall
pay and deliver to Owner the consideration specified by Charterer
pursuant to Clause 4(a) or Clause 4(b) of this Appendix 4 for
Charterer's purchase of Owner's Rights in the Vessel, together
with all Charter hire, if any, and other sums then due and
payable hereunder to but not including such Termination Date, and
(b) Owner shall deliver to Charterer or its designee a Bill of
Sale in recordable form together with all other instruments
necessary to convey and assign all of Owner's Rights in the
Vessel with the quality of interest or title thereto specified in
connection with such purchase in Clause 3 of this Appendix 4, and
originals or copies of all applicable construction documents,
repair records, applicable Certificates of the United States
Coast Guard and classification societies, log books and such
other records as may be reasonably requested by Charterer in
connection with the purchase and operation of the Vessel.
6. Reservation Relating to Charter. Upon purchase of the
Vessel, Charterer has agreed to accept Owner's Rights in the
Vessel in accordance with the provisions of this Charter;
<PAGE>
provided, however, that such acceptance does not relieve Owner of
any of its obligations pursuant to this Charter and does not
constitute a waiver by Charterer with respect to any breach
thereof, nor does it foreclose the exercise by Charterer of any
of Charterer's rights, powers or remedies with respect thereto.
7. Termination. Unless terminated earlier in accordance
with the provisions of this Charter or by operation of law, this
Charter shall terminate upon the completion of Charterer's
purchase, except with respect to obligations and liabilities of
the parties, actual or contingent, which have arisen under this
Charter on or prior to such date of purchase.
8. Owner's Further Assurances and Assistance. Owner shall,
at Charterer's expense, take such steps as Charterer may
reasonably require to furnish further assurances of the transfer
to Charterer of Owner's Rights in the Vessel and for the purpose
of enforcing Charterer's rights as transferee and assignee of
Owner's Rights in the Vessel.
9. Transition Clause. (a) After delivery by Charterer of
a Notice of Intention to Exercise Purchase Option and until
delivery (the "Interim Operations Period"), the Vessel shall
continue to be operated in accordance with the Charter.
(b) During the Interim Operations Period, as permitted
under the terms of the Charter, Charterer may on its own behalf
and/or on behalf of its designee purchaser cause a qualified
consultant to accompany the Vessel on her voyages in order to
ensure that the Vessel is maintained in good condition and in
American Bureau of Shipping ("ABS") Class as required under the
Charter and to keep Charterers informed of the Vessel's
condition. Charterer shall pay the expense of any such
consultant.
(c) Charterer may on its own behalf and/or on behalf of its
designee purchaser place its representative at any drydock or
overhaul events occurring within the Interim Operations Period.
Upon request, Owner will promptly give to Charterer a copy of the
requisition of work to be performed during the drydocking period.
Upon request, Owner will provide Charterer with a copy of said
requisition. Upon request, Owner will permit Charterer's
representative to make a complete survey of the Vessel at the
shipyard and in drydock. If Charterer makes such a survey,
Charterer will promptly thereafter advise Owner of any additional
work which needs to be performed in order to maintain class with
ABS so that the Vessel will leave the drydock period with a clean
American Bureau of Shipping certificate, confirming that the
Vessel is in class, free of outstanding recommendations, and with
confirmation that the Vessel is in compliance with this Charter,
in particular Clauses 3 and 6 thereof. The cost of the
aforementioned shipyard work to comply with class requirements
will be paid for by Owner.
<PAGE>
(d) In the event Charterer requests any requisition for
work items to be added for drydock or overhaul periods which are
not necessary to maintain the Vessel's classification status, or
to free the Vessel from outstanding recommendations, or return
the Vessel to seaworthy condition, Owner agrees to use its best
efforts to accommodate Charterer's request for such work to be
completed at drydock. Any such work and resulting extra time, if
any, for drydocking charges, shall be for Charterer's account.
10. Place and Time of Delivery. The Vessel shall be
delivered hereunder on the Termination Date, safely afloat, at a
safe berth in a safe port, as directed by Charterer. Owner shall
give 30/15 days approximate notice of the delivery date, followed
by 10/5 days definite notice of Vessel's expected readiness, and
shall keep Charterer advised of Vessel's itinerary. If Charterer
requires delivery to a designee, whether or not related to
Charterer, Owner's delivery obligation shall be performed and
satisfied by duly conveying Owner's Rights in the Vessel to
Charterer's designee.
11. Drydocking. (a) Prior to delivery of the Vessel, the
Charterer (or its designee) may cause the Vessel to be placed in
drydock at the port of delivery for inspection by ABS
representatives of the bottom and other underwater parts below
the Summer Load Line. If the ABS representatives find the
rudder, propeller, bottom or other underwater parts below the
Summer Load Line to be broken or defective so as to affect the
Vessel's clean certificate of class, such defects shall be made
good at Owner's expense to ABS satisfaction without
qualification.
(b) While the Vessel is in drydock, and if requested by the
Charterer (or its designee) or the ABS representative, the
tail-end shaft shall be drawn. Should same be condemned or found
defective so as to affect the Vessel's clean certificate of
class, it shall be renewed or made good at Owner's expense to ABS
satisfaction without qualification.
(c) The expenses of drawing and replacing the tail-end
shaft shall be borne by Owner. In all other cases the Charterer
(or its designee) shall pay the aforesaid expenses, dues and
fees.
(d) The expenses in connection with putting the Vessel in
and taking her out of drydock, including drydocking dues and the
ABS surveyor's fee, shall be paid by Owner if the rudder,
propeller, bottom, other underwater parts below the Summer Load
Line or the tail-end shaft be found broken, damaged or defective
so as to affect the Vessel's clean certificate of class. In all
other cases the Charterer (or its designee) shall pay the
aforesaid expenses, dues and fees.
<PAGE>
(e) During the above-mentioned inspections by ABS,
representatives of Charterer and/or its designee shall have the
right to be present in the drydock, but without interfering with
the ABS surveyors' decisions.
(f) Promptly after delivery of the Vessel, the Charterer
(or its designee) may have the manufacturer of the inclined lift
conveyor system inspect the same and issue its report to
Charterer, as designee and Owner stating whether the system is in
operating condition adequate to meet the discharge rate warranty
in the Charter, or, if not, what repairs are required to bring
the system up to such operating condition. Any repairs and/or
refurbishment, including repairs to the teflon panels in the
cargo holds/hoppers, which are necessary to place the system in
such operating condition, will be performed at Owner's expense.
Owner's representative shall have the right to be present while
such inspection is being made, but without interfering with the
manufacturer's decisions.
12. Condition On Delivery. Any other provision of this
Charter to the contrary notwithstanding, if at the time scheduled
for delivery, work remains to be done to maintain or bring the
Vessel within ABS Class free of outstanding recommendations
("Remaining Work"), Charterer (or its designee) at its own option
may (a) accept delivery of the Vessel as is, where is, under
terms of this Appendix 4 and the Remaining Work will thereafter
be done at Owner's expense or (b) reschedule the Termination Date
and the delivery of the Vessel to take place after completion of
the Remaining Work.
13. Encumbrances. Providing Owner is able to deliver and
pass title to the Vessel to Charterer, should any claims and/or
liens which have been incurred prior to the time of delivery (but
not before original delivery to Owner under MOA dated October 27,
1994) be asserted against the Vessel or interfere with the
Vessel's operation, Charterer shall take delivery and title,
provided, however, that Owner shall hold Charterer harmless from
and indemnify Charterer against Charterers' payment of any such
claims and/or liens against the Vessel, but in no event shall
Owner be liable for Charterer's incidental or consequential
damages or losses, howsoever arising, whether claimable in law,
equity or otherwise, including, without limitation, any loss of
profits.
14. Revocable Notice. Charterer at any time for any reason
shall have the unfettered right to withdraw its Notice of
Intention to Exercise Purchase, provided, however, that Charterer
shall give Owner as much notice of its intention to withdraw said
Notice as is feasible and shall pay Owner the direct operational
costs, if any, theretofore caused by or resulting from said
Notice, subject to a cap of $50,000.
<PAGE>
NEW YORK, NEW YORK
SEPTEMBER 22, 1995
ADDENDUM NUMBER ONE
TO TIME CHARTER OF S/S ENERGY INDEPENDENCE BETWEEN INTERNATIONAL
SHIPHOLDING CORPORATION OR ITS GUARANTEED NOMINEE, AS OWNER, AND
NEW ENGLAND POWER COMPANY OR ITS NOMINEE, AS CHARTERER, DATED
OCTOBER 27, 1994
It is this day mutually agreed that this Charter is amended, as
follows:-
CLAUSE 2. "DELIVERY/REDELIVERY EVENTS"
Is DELETED and substituted for by the following Clause:-
-------
"2. "DELIVERY/REDELIVERY EVENTS"
Under the terms and conditions of the MEMORANDUM OF AGREEMENT
(MOA) dated October 27, 1994 between New England Power Company
(NEP), as Seller, and International Shipholding Corporation (ISC)
and a Guaranteed Nominee of ISC to be named, as Buyers, Clause 6
thereof stipulates, in part, that "Buyers shall accept delivery
of the Vessel as is, where is, free of registered encumbrances".
Delivery under this Charter will take place simultaneously with
delivery under the aforementioned MOA at the same time and same
place. Thereupon the terms and condition of this Charter are in
full force and effect. After the simultaneous delivery under the
MOA and this Charter, the terms and conditions of both the
aforementioned MOA and this Charter are applicable to the period
and to the events that occur after said simultaneous delivery of
the Vessel. Any time used after the initial delivery under this
Charter for purposes of performing drydocking and shipyard work
will be off-hire (but NEP remains responsible for reimbursement
payments as per Clause 11 and hire payments, if any, as per
Clause 9 (f) - "Dry Docking" of the MOA). If the drydocking and
shipyard work occupy more than 65 days, Charter Year One must be
extended so that at the initial commencement of on-hire it
includes a minimum of 300 days as contemplated in Clause 1 of
this Time Charter. Upon termination of the Charter including
extensions, if any, the Vessel will be redelivered to the Owner
at any port on the United States East Coast at Charterer's
option, free of cargo. Charterer is to give the Owner 30 days
prior notice of the place of redelivery.
"It is recognized by the parties that there will be re-occurring
delivery and redelivery events during the period of this Charter.
<PAGE>
All such events other than delivery and redelivery at the
commencement and termination, respectively, of this Charter,
shall be guided by Clause 46 herein."
APPENDIX 4 - Paragraph 4 (a) - DELETE "(period 1 commencing on
May 1, 1995 and ending six months later, on November 1, 1995, and
each succeeding period being each of the following semi-annual
periods occurring thereafter)" and SUBSTITUTE "(period 1
commencing on the date on which the purchase actually occurs and
ending six months later, and each succeeding period being each of
the following semi-annual periods occurring thereafter)".
All other terms and conditions of this Charter remain unaltered
and in full force and effect.
INTERNATIONAL SHIPHOLDING
CORPORATION ON ITS OWN BEHALF
AND ON BEHALF OF ITS
GUARANTEED NOMINEE NEW ENGLAND POWER COMPANY
s/ Niels W. Johnsen s/ Jeffrey D. Tranen
BY: _______________________ By: __________________________
Name: Niels W. Johnsen Name: Jeffrey D. Tranen
Title: Chairman Title: President
<PAGE>
NEW YORK, NEW YORK
SEPTEMBER 22, 1995
ADDENDUM NUMBER TWO
TO TIME CHARTER OF S/S ENERGY INDEPENDENCE BETWEEN INTERNATIONAL
SHIPHOLDING CORPORATION OR ITS GUARANTEED NOMINEE, AS OWNER, AND
NEW ENGLAND POWER COMPANY OR ITS NOMINEE, AS CHARTERER, DATED
OCTOBER 27, 1994
It is this day mutually agreed that from and as of the date
hereof International Shipholding Corporation (ISC) and New
England Power Company (NEP) amend the Charter to provide that all
of the rights and obligations of the "Owner" under the Charter
have been assigned, set over and delegated to, and assumed and
accepted by Central Gulf Lines, Inc. (CGL) (a wholly-owned
subsidiary of ISC) in its own right as disponent owner of the
Vessel under the Bareboat Charter between Enterprise Ship
Company, Inc. (Enterprise), as Owner, and CGL, as Bareboat
Charterer, dated September 28, 1995 and not as ISC's Nominee.
All references in the Charter to "Owner" shall be deemed to be
references to CGL as disponent owner.
All other terms and conditions of this Charter remain unaltered
and in full force and effect.
INTERNATIONAL SHIPHOLDING NEW ENGLAND POWER COMPANY
CORPORATION
s/ Niels W. Johnsen s/ Jeffrey D. Tranen
By: __________________________ By: _____________________
Name: Niels W. Johnsen Name: Jeffrey D. Tranen
Title: Chairman Title: President
CENTRAL GULF LINES, INC.
s/ Niels W. Johnsen
By: __________________________
Name: Niels W. Johnsen
Title: Chairman
<PAGE>
EXHIBIT (10)(h)
CONSENT AND AGREEMENT
This Consent and Agreement dated as of September 28, 1995
is by and among New England Power Company, a Massachusetts
corporation ("Time Charterer"), Central Gulf Lines, Inc., a
Delaware corporation ("CGL"), Enterprise Ship Company, Inc., a
Delaware corporation ("Enterprise"), and The Bank of New York as
Collateral Trustee ("Collateral Trustee").
RECITAL
-------
WHEREAS, International Shipholding Corporation ("ISC") has
entered into a Memorandum of Agreement, dated October 27, 1994,
with Time Charterer and has, pursuant to such Memorandum of
Agreement, nominated Enterprise to act as purchaser of that
certain American Flag Vessel called "ENERGY INDEPENDENCE",
Official No. 657540 of 24,900.7 tons gross and 16,131 tons net
register (hereinafter called the "Vessel") an Addendum Number
One, an Addendum Number Two and a Modification to such Memorandum
of Agreement, dated September 22, 1995, September 22, 1995 and
September 20, 1995, respectively, with Time Charterer (as
amended, the "MOA") pursuant to which vessel shall be delivered
to Enterprise;
WHEREAS, by virtue of such purchase Enterprise is the owner
of the Vessel and Enterprise is willing to bareboat charter the
<PAGE>
Vessel to CGL, and CGL is willing to charter the Vessel for a
period of fifteen (15) successive years commencing from the time
and date of delivery of the Vessel, on the terms and conditions
set forth in Bareboat Charter dated as of September 28, 1995 (the
"Bareboat Charter");
WHEREAS, in accepting ISC's nomination of Enterprise as
purchaser under the MOA, Time Charterer has agreed that
Enterprise will bareboat charter the Vessel to CGL pursuant to
the Bareboat Charter in connection herewith has agreed to accept
CGL as disponent owner under that certain Time Charter of the
Vessel dated October 27, 1994, between ISC and Time Charterer, as
amended by Addendum Number One dated September 22, 1995 and
Addendum Number Two dated September 22, 1995 (as amended, the
"Time Charter");
WHEREAS, Enterprise, ISC, as Guarantor, Citibank, N.A.,
Credit Lyonnais Cayman Island Branch and First National Bank of
Commerce, as Lenders, Citibank, N.A., as Agent and Citicorp
Securities Inc., as Arranger have entered into a Credit
Agreement, dated as of August 15, 1995 (as amended from time to
time in accordance with its terms, the "Credit Agreement")
providing for a loan to Enterprise in an aggregate principal
amount not to exceed $50,000,000. Pursuant to the Credit
Agreement, Enterprise has concurrently entered into a Collateral
Trust Agreement with The
<PAGE>
Bank of New York as Collateral Trustee (the "Collateral
Trustee") pursuant to which the Collateral Trustee will hold
certain security for the benefit of the Lenders;
WHEREAS, CGL is executing an Assignment of Time Charter
(the "Assignment") pursuant to which it is assigning and
transferring to Enterprise all its right, title and interest in
and to the Time Charter with respect to the Vessel;
WHEREAS, Enterprise is executing a Re-Assignment of Time
Charter (the "Reassignment") pursuant to which it is assigning
and transferring to the Collateral Trustee all its right, title
and interest in and to the Time Charter with respect to the
Vessel;
WHEREAS, Enterprise is also executing an Assignment of
Bareboat Charter (the "Assignment of Bareboat Charter") pursuant
to which it is assigning and transferring to the Collateral
Trustee all its right, title and interest in and to the Bareboat
Charter with respect to the Vessel;
WHEREAS, the Time Charterer has been asked to consent to
such assignment and reassignment of the Time Charter and
assignment of the Bareboat Charter and to certain modifications
of the provisions of the Time Charter;
<PAGE>
NOW, THEREFORE, in consideration of the mutual undertakings
of the parties hereto, as herein set forth, it is hereby agreed
as follows:
I. Time Charterer hereby acknowledges notice of and,
on and subject to the terms hereof, consents and agrees to the
Assignment of Time Charter (the "CGL Assignment") by CGL and to
the Reassignment of Time Charter by Enterprise (the
"Reassignment") and to the Bareboat Charter Assignment by
Enterprise referred to in the Reassignment, in each case as
collateral security for the obligations of Enterprise under the
Credit Agreement, the Loan Documents, the Notes and the
Collateral Trust Agreement and to all of the respective terms
thereof and hereby confirms and agrees:
(A) that the Time Charter is in full force and effect,
the Vessel has been accepted by the Time Charterer under the Time
Charter, and the First "Charter Year" has commenced as of the
date of this Consent and Agreement;
(B) that so long as the CGL Assignment and the
Reassignment are in effect, Time Charterer will make payment of
all moneys due and to become due from it under the Time Charter
to the Retention Account maintained by the Collateral Trustee at
its office at 101 Barclay Street, New York, New York (or any
account
<PAGE>
designated in writing by the Collateral Trustee as a successor or
replacement bank account), until receipt of written notice from
the Collateral Trustee that all obligations of Enterprise secured
by the Reassignment have been paid in full;
(C) pursuant to and subject to the provisions of
Section 11 of the Time Charter, payment of charter hire and other
sums required to be paid by Time Charterer is absolute and
unconditional and shall not be subject to any abatement,
reduction, right of set-off or defense by reason of counterclaim
or recoupment for any reason whatsoever which the Time Charterer
may have against CGL as the "Owner" under the Time Charterer;
moreover, none of the undersigned will seek to recover from the
collateral trustee for any reason whatsoever any moneys paid by
any of the undersigned to the Collateral Trustee by virtue of the
Assignment or Reassignment and this Consent and Agreement and any
such payment shall be final as to the Collateral Trustee;
(D) so long as the Reassignment is in effect, and
subject to the Time Charterer's rights to terminate the Time
Charter in accordance with its terms and as modified by this
Consent and Agreement, the undersigned will not amend or
supplement the Time Charter, or agree to any decrease in the
total number of days in any Charter Year, without first obtaining
the written
<PAGE>
consent of the Collateral Trustee (which consent will not be
unreasonably
withheld); and
(E) that, subject to the rights of the Time Charterer
under the Time Charter and this Consent and Agreement, the Time
Charterer will fully cooperate with the collateral Trustee in its
exercise of the rights available to the Collateral Trustee under
the Reassignment, including, without limitation, the right to act
as "Owner" under the terms of the Time Charter or, subject to
Time Charterer's rights under Section 48A of the Time Charter,
provided the Time Charterer's consent will not be unreasonably
withheld, to nominate a third party to act as "Owner" under the
Time Charter.
II. The Time Charterer hereby agrees to deliver to the
Collateral Trustee a copy of any "Notice of Intention to Exercise
Purchase Option" given under the Time Charter and to give written
notice to the Collateral Trustee whether or not the Time
Charterer will purchase the Vessel subject to the Mortgage. In
the event the Time Charterer elects to purchase the Vessel free
and clear of the Mortgage, upon payment of the Purchase Value (as
defined in the Time Charter or in Article VII of this Consent and
Agreement as the case may be) the Collateral Trustee shall
execute (or cause to be executed) such instruments or documents,
at Enterprise's expense, so as to cause the lien of the Mortgage
<PAGE>
and the Reassignment of the Time Charter to be released so that
the Vessel can be sold and transferred to the Time Charterer free
and clear of such liens and encumbrances.
III. Enterprise and the Collateral Trustee agree that
the rights of the Time Charterer to purchase the Vessel under the
express terms of the Time Charter, as modified by this Consent
and Agreement, shall continue in full force and effect regardless
of the exercise of any rights of the Collateral Trustee under the
Mortgage or the Reassignment of Time Charter or Assignment of
Bareboat Charter (including without limitation any termination of
the Bareboat Charter) and shall only be terminated in the event
of judicial sale in admiralty of the Vessel; provided, however,
that if any such judicial sale is not confirmed, the rights of
the Time Charterer shall continue in full force and effect as if
the sale of the Vessel had not occurred and provided further that
nothing herein shall be deemed a waiver by the Collateral Trustee
of the preferred status of the Mortgage in respect of third
parties.
IV. Notwithstanding the provisions of Section 48.A of
the Time Charter to the contrary, the Time Charterer agrees that
is shall not assign, transfer or otherwise dispose of any of its
right, title or interest in, to or under the Time Charter
without the prior written consent of the Collateral Trustee, and
that any
<PAGE>
assignment, transfer or other disposition thereof without such
consent shall be void, provided, however, that the Time Charterer
may assign the Time Charter to a Related Company (as defined in
Section 25, of the Time Charter) so long as the Time Charterer
shall continue to perform its duties and obligations under the
Time Charter and shall remain responsible as the primary obligor
therefor, unless the Collateral Trustee otherwise consents.
V.(A) In connection with exercise of the Collateral
Trustee's remedies under the Collateral Trust Agreement, the
Credit Agreement or the Loan Documents, CGL, Enterprise, the Time
Charterer and the Collateral Trustee agree that any reassignment,
transfer or other disposition by the Collateral Trustee of all of
CGL's, Enterprise's, or any successor party's right, title and
interest in, to and under the Bareboat Charter and/or the Time
Charter as Owner to any person and any further reassignment,
transfer or disposition thereof and to the sale, whether public
or private or pursuant to judicial foreclosure, of the Vessel to
any person in connection with the exercise of remedies by the
Collateral Trustee or the Lenders pursuant to the Collateral
Trust Agreement, the Credit Agreement and the Loan Documents,
shall be subject to the Time Charterer's consent as provided in
Section 48.A of the Time Charter, as modified by this Consent and
Agreement, which consents shall not be unreasonably withheld,
provided that
<PAGE>
in all events any such reassignment, transfer or disposition
shall not cause the Vessel to cease to qualify for operation in
the United States' coastwise trade.
(B)(1) In the event that the Collateral Trustee proposes
to make a disposition of all of Enterprise's or CGL's right,
title and interest in, to and under the Time Charter as Owner
whether or not in connection with the sale of the Vessel in a
private or judicially-ordered sale, pursuant to the exercise of
remedies under the Collateral Trust Agreement, the Credit
Agreement and the Loan Documents, it shall notify the Time
Charterer in writing of such intention and offer the Time
Charterer the opportunity to exercise its right to purchase the
Vessel in accordance with APPENDIX 4 of the Time Charter, as
modified by the Consent and Agreement.
(2) Subject to the Time Charterer's purchase option,
in the exercise of remedies under the Collateral Trust Agreement,
the Credit Agreement and the Loan Documents, the Collateral
Trustee may assign the Time Charter Either to a Qualified
Operator pre-approved by the Time Charterer pursuant to Article
V(B)(3) or to a Qualified Operator approved the Time Charterer
pursuant to Article V(B)(4), and in either case, no other
approval or consent of the Time Charterer shall be required. To
be qualified an operator (i) must have a minimum Net Worth of $10
million and minimum Total Assets of
<PAGE>
$25 million and (ii) be qualified to operate vessels in the U.S.
coastwise trade (a "Qualified Operator).
(3) Within 20 days of the date hereof the Time
Charterer shall furnish, and Enterprise shall cause the Time
Charterer to furnish, to Enterprise and the Collateral Trustee a
written list of four Qualified Operators to whom the Owner's role
under the Time Charter may be assigned pursuant to this Article
V(B). On the basis of such list Time Charterer, Enterprise and
the Collateral Trustee shall, within 30 days of the date hereof
arrive at and Approved List (the "Approved List") of Qualified
Operators; profiled that if the Time Charterer fails to deliver
such a list, or the parties fail to arrive at an Approved List,
then the Collateral Trustee shall provide to the Time Charterer
the names of four Qualified Operators and the Time Charterer
shall select on of the operators in accordance with the last two
sentences of Article V(B)(4). The Time Charterer agrees that
annually it will either confirm that such Qualified Operators are
still acceptable, or it will designate a replacement Qualified
Operator for any operator acceptable to Time Charterer and the
Approved List, as so modified, shall be effective for the
forthcoming year. The Time Charterer's failure to confirm such
Qualified Operators or to designate a replacement as aforesaid
shall be deemed to be the Time Charterer's continued acceptance
of the Approved List of Qualified Operators as
<PAGE>
then constituted.
(4) The Collateral Trustee may elect not to exercise
its rights under Article V(B)(2) above in which case it shall so
advise the Time Charterer, and the Time Charterer shall select an
operator from the Approved List, which operator must be able to
operate the Vessel for a sum which equal to or less than the
Maximum Operating Expense Amount as defined by the Credit
Agreement (the "Expense Requirement"). The only grounds for the
Time Charterer not selecting one of the operators from the
Approved List shall be the inability of any of the listed
operators to meet the Expense Requirement. If for such reason no
operator can be selected from the Approved List, the Time
Charterer shall so inform the Collateral Trustee. The Collateral
Trustee then may either (i) approve selection of one of the
operators by waiving the Expense Requirement or (ii) within ten
(10) days provide to the Time Charterer the names of four
Qualified Operators. Subject to the Times Charterer's right of
consent under Section 48A of the Time Charter (which will not be
unreasonably withheld), the Time Charterer shall select one of
the operators so designated by the Collateral Trustee, subject to
the same Expense Requirement. Once an operator is selected
pursuant to this Article V(B)(4), such operator shall continue to
serve until a successor is appointed in accordance with the same
procedure.
<PAGE>
(5) If a suitable successor operator is not selected
in accordance with the procedures provided in Article V(B)(4),
the parties shall enter into good faith negotiations to revise
their economic assumptions in order to arrive at a basis on which
to accept any of the candidates which previously had been
dismissed for failure to meet the Expense Requirement test. If
agreement on such terms cannot be negotiated, the Time Charterer
shall have 15 days within which to exercise its purchase option,
after which time the Collateral Trustee may either (i) notify the
Time Charterer that it will forego (but without any waiver
thereof) for the time being exercise of its remedies and have CGL
continue to operate the Vessel or (ii) propose a purchaser who
will take the Vessel over subject to the Time Charter or (iii)
advise the Time Charterer that it intends to proceed with its
remedies under the Credit Agreement and the Loan Documents,
including its right to foreclose on the Vessel. The Time
Charterer shall be free to terminate the Time Charter in the
event that it does not agree with the Purchaser proposed by the
Collateral Trustee.
(C) CGL, Enterprise and the Collateral Trustee agree
that in connection with any assignment, transfer or other
disposition of the Bareboat Charter and/or the Time Charter or
any such sale of the Vessel, the Time Charterer shall have the
right to terminate the Time Charter under Section 48.B of the
Time Charter
<PAGE>
(1) if the Time Charter shall have been assigned to a substitute
operator either not currently pre-approved pursuant to Article
V(B)(3) or who shall not have been approved pursuant to Article
V(B)(4) or (2) if the Time Charterer elects to purchase the
Vessel (whether before or after the seventh anniversary of the
date of delivery of the Vessel) under the terms of the Time
Charter, as modified by this Consent and Agreement.
(D) CGL, Enterprise and the Collateral Trustee agree
that any permitted reassignment, transfer or other disposition of
the Time Charter by the Collateral Trustee pursuant to Article
V(B) or otherwise with the consent of the Time Charterer shall
provide that the assignee or transferee shall have assumed all of
the obligations of the Owner under the Time Charter arising after
the date of such assumption, and CGL, Enterprise and ISC as the
guarantor of their performance shall remain liable to the Time
Charterer for any and all obligations of the Owner under the Time
Charter arising prior to or which relate to the period prior to
the date of such assumption, and after the date of such
assignment and assumption.
VI. Enterprise and the Collateral Trustee agree that
so long as the obligations to the Lenders shall be outstanding,
in addition to the rights to terminate the Time Charter according
to
<PAGE>
its terms operator shall have been appointed with Time
Charterer's consent pursuant to Article V(B), the Time Charter
may be terminated by the Time Charterer at any time (whether
before or after the seventh anniversary of the date of delivery
of the Vessel under the terms of the Time Charter) in the event
that the Collateral Trustee proposes to sell the Vessel in a
private or judicially-ordered sale pursuant to the exercise of
remedies under the Collateral Trust Agreement, the Credit
Agreement or the Loan Documents or upon the occurrence of any
reorganization, arrangement, insolvency, readjustment,
bankruptcy, dissolution, liquidation or similar proceeding
involving Enterprise or ISC. In the event that the Collateral
Trustee proposes to sell the Vessel in a private or
judicially-ordered sale pursuant to the exercise of remedies
under the Credit Agreement, it shall notify the Time Charterer in
writing of such intention, specifying the anticipated date of
sale which shall not be less than 20 days nor more than 60 days
from the time of such notification. The Time Charterer shall
have 15 days from the date of such notice from the Collateral
Trustee to purchase the Vessel by giving its irrevocable Notice
of Intention to Exercise Purchase Option to the Owner and the
Collateral Trustee. Such purchase shall be in accordance with
the procedures and provisions set forth in Appendix 4 to the Time
Charter, except that (i) the 180 day notice of purchase shall not
be required, (ii) if such purchase occurs before the seventh
<PAGE>
anniversary of the Time Charter, Schedule A attached hereto,
(iii) if such purchase occurs on a date other than a semi- annual
anniversary as set forth in the appropriate schedule the exact
purchase price shall be determined by (x) multiplying (A) a
number equal to the difference between the next applicable
semi-annual purchase price and the last applicable semi-annual
purchase price by (B) a fraction, the numerator of which is the
number of days since the last semi-annual anniversary and the
denominator of which is 180 and (y) subtracting the product of
such calculation from the purchase figure applicable to the
amount designated for the last applicable semi-annual period.
VII. CGL and Enterprise each warrant that it is now and
for the period of the Time Charter shall remain a citizen of the
United States as defined by Section 2 of the Shipping Act of
1916, as amended. Enterprise and Collateral Trustee acknowledge
and agree that the term "Owner" as used in the Time Charter,
including without limit in Clause 3.A. thereof , shall include
Enterprise, in addition to CGL, and that upon any event of
default under the Bareboat Charter pursuant to which either
Enterprise or the Collateral Trust elect to pursue any remedy
available under the terms of the Bareboat Charter, the Credit
Agreement, the Collateral Trust Agreement or the Loan Documents,
then in such event Enterprise shall assume and perform the
obligations of Owner under the Time Charter unless and until a
substitute operator is
<PAGE>
appointed pursuant to Article V(B). In all events, CGL,
Enterprise and the Collateral Trustee agree with Time Charterer
that the Time Charter shall survive any termination of the
Bareboat Charter unless Time Charterer shall elect to terminate
the Time Charter. CGL, Enterprise and the Collateral Trustee
also agree with Time Charterer that transfer of beneficial
ownership, or a controlling interest, in the equity of either CGL
or Enterprise shall be deemed a transfer of the Time Charter
requiring the Time Charterer's consent.
VIII. Notwithstanding the provisions of Section 3.B. of
the Time Charter to the contrary, or Article VI of this Consent
and Agreement, the Time Charterer consents to a direct or
indirect interest in the Vessel by a financial institution so
long as such financial institution either is a citizen of the
United States for purposes of operating a vessel in the United
States coastwise trade as defined in Section 2 of the Shipping
Act, 1916, as amended, or holds such interest in the Vessel
through an "approved" trustee within the meaning of Section 31328
of Title 46, United States Code and is otherwise legally
qualified to hold a mortgage on a coastwise qualified vessel
under the then applicable law and regulations. So long as such
financial institution satisfies the requirements of this Article
IX, the Time Charterer shall not have the right to terminate the
Time Charter pursuant to Section 3.B. of
<PAGE>
the Time Charter on account of such financial institution not
being a citizen of the United States.
IX. Terms not defined in this Consent and Agreement or
the Credit Agreement shall be defined in the Time Charter.
X. This Consent and Agreement and the consents
referred to herein or provided pursuant hereto may be relied on
by Enterprise, CGL and the Collateral Trustee and shall be deemed
to satisfy any requirement for the Time Charterer's consent under
the Time Charter with respect to the transactions contemplated
hereby. In the event of any inconsistency or contradiction
between the provisions of the Bareboat Charter and Time Charter
as regards to the rights of the parties hereto, the provisions of
the Time Charter shall prevail.
IN WITNESS WHEREOF, the parties, intending to be legally
bound, has caused this Consent and Agreement to be duly executed
by their duly authorized officers on the day and year first above
written.
NEW ENGLAND POWER COMPANY
By: __________________________
Name: John G. Cochrane
Title: Assistant Treasurer
<PAGE>
Accepted and agreed to:
THE BANK OF NEW YORK,
as Collateral Trustee
By: __________________________
Name:
Title:
ENTERPRISE SHIP COMPANY, INC.
By: __________________________
Name: Niels W. Johnsen
Title: Chairman
CENTRAL GULF LINES, INC.
By: __________________________
Name: Niels M. Johnsen
Title: Vice President
<PAGE>
SCHEDULE A
Purchase Value
Beginning of Effective at
Semiannual Beginning of Each
Period* Semi-annual Period
_____________ __________________
1 $59,707,395
2 59,373,814
3 59,040,234
4 58,706,653
5 58,373,073
6 58,039,492
7 57,705,912
8 57,372,331
9 57,038,751
10 56,705,170
11 56,371,590
12 56,038,009
13 55,704,428
14 55,370,848
__________________
* Periods 1 through 14 as defined in Time Charter.
<PAGE>
EXHIBIT (10)(aa)
TEMPORARY TRANSPORTATION CONTRACT ASSIGNMENT
THIS TEMPORARY ASSIGNMENT made effective as of the 26th day
of October, 1995 BETWEEN:
NEW ENGLAND POWER COMPANY
("Assignor")
OF THE FIRST PART
and
ALTRESCO PITTSFIELD, L.P.
("Assignee")
OF THE SECOND PART
WITNESSES THAT:
WHEREAS TransCanada Pipelines Limited ("TransCanada") and
Assignor are parties to a contract for transportation service
made as of the 6th day of January, 1992, as amended; and
WHEREAS Assignee has requested that Assignor assign part of
Assignor's rights and obligations as Shipper under the Contract
and Assignor has agreed to do so subject to the terms and
conditions of this Assignment.
NOW THEREFORE, THIS AGREEMENT WITNESSES THAT in
consideration of the covenants and agreements herein set forth,
the parties hereto covenant and agree as follows:
1. Subject to paragraph 6 herein, during the operative term of
this Assignment, Assignor does hereby grant, transfer, assign and
set over unto Assignee, and Assignee accepts from Assignor, that
portion of Assignor's service entitlement as shipper under the
Contract equal to 283.310 3 m 3 per day (the "Assigned Volume"),
<PAGE>
together with the corresponding rights and obligations of
Assignor as shipper under the Contract.
2. Subject to paragraphs 6 and 8 herein, during operative term
of this Assignment, Assignee hereby covenants and agrees that it
shall perform and observe the covenants and obligations of
Assignor as shipper contained in the Contract insofar as they
pertain to the Assigned Volume, to the same extent as Assignee
would be obligated so to do were Assignee a party to the
Contract, as shipper, with a service entitlement thereunder equal
to the Assigned Volume.
3. This Assignment shall be in full force and effect as of and
from 08:00 hours on November 1, 1995 (the "Date of First
Delivery") (provided that, for the purposes of Assignee
nominating service for the Date of First Delivery, the Assignment
shall become effective as at 08:00 hours on the date immediately
preceding the Date of First Delivery) and, subject to paragraph
4 hereof, shall be operative for a term ending at 08:00 hours on
October 31, 1998. Notwithstanding the foregoing, the operative
term of this Assignment shall not extend beyond the term of the
Contract.
4. In the event that Assignee fails to comply with paragraph 2
hereof, Assignor shall have the right to terminate this
Assignment by following the termination procedure set forth in
<PAGE>
Section XVII of the General Terms and Conditions contained in
TransCanada's Transportation Tariff as if Assignor were
TransCanada, Assignee were Shipper and this Assignment was the
Contract for this purpose.
5. Assignor will request TransCanada to acknowledge the
assignment contained herein and to treat Assignee as shipper with
a service entitlement under the Contract equal to the Assigned
Volume during the operative term of this Assignment. Assignee
hereby consents to such request and to such treatment, and for
this purpose Assignee declares that all notices, nominations,
requests, invoices, and other written communications may be given
by TransCanada to Assignee as follows:
(i) Mailing address: One Bowdoin Square
Boston, Massachusetts
U.S.A. 02114
(ii) Delivery address: Same as above
(iii) Nominations: Manager, Fuel Services
Accounting
Telecopier: (617) 227-2690
(iv) Legal and Other: Senior Vice President, Fuel
Services
Telecopier: (617) 227-2690
<PAGE>
6. Assignee acknowledges that Assignor will not seek
TransCanada's consent to this Assignment and that Assignor
accordingly is and will remain obligated to TransCanada to
perform and observe the covenants and obligations of shipper that
are contained in the Contract in regard to the Assigned Volume
insofar as TransCanada is concerned. Without limiting the
generality of the foregoing, the Assignor and the Assignee
acknowledge that the Assignor shall remain responsible for all
gas imbalances (as such term is defined in Section XXII of the
General Terms and Conditions in TransCanada's Transportation
Tariff) and Energy-in-Transit Balances associated with the
Assigned Volume and/or the Contract. Consequently, Assignee
shall indemnify Assignor for and hold Assignor harmless from all
charges that TransCanada may be entitled to collect from the
Assignor under the Contract in regard to the Assigned Volume in
the event that Assignee fails to pay them.
7. Assignee shall be entitled to sub-assign all or part of the
Assigned Volume, together with the corresponding rights and
obligations under the Contract, to a third party by assigning all
or part of its rights and obligations under this Assignment;
provided that no such assignment shall relieve Assignee of its
obligations to Assignor hereunder without Assignor's prior
written consent, which consent shall not be unreasonably
withheld. Notwithstanding any such sub-assignment or
sub-assignments, Assignor is and will remain obligated to
TransCanada
<PAGE>
to perform and observe the covenants and obligations of shipper
that are contained in the Contract in regard to the Assigned
Volume insofar as TransCanada is concerned.
8. Notwithstanding anything to the contrary herein set forth
or implied, Assignor reserves and retains for itself exclusively
any option or right to renew or otherwise extend the operative
term of the Contract which may be contained in or granted by the
Contract.
9. Assignee acknowledges that it has (or may obtain directly
from TransCanada) a copy of the Transportation Tariff.
10. This Assignment and the rights and obligations of the
parties hereunder are subject to all valid and applicable present
and future laws, rules, regulations, and orders of any
governmental or regulatory authority having jurisdiction or
control over the parties hereto to either of them, or over the
Contract.
11. This Assignment shall be construed in accordance with and
governed by the laws of the Province of Alberta and the laws of
Canada applicable therein.
12. This Assignment shall ensure to the benefit of and be
binding upon the parties hereto and their respective successors
<PAGE>
and permitted assigns.
IN WITNESS WHEREOF of the parties hereto have duly executed
and delivered this Assignment as of the day, month and year first
above written.
NEW ENGLAND POWER COMPANY ALTRESCO PITTSFIELD, L.P.
by its General Partner,
Altresco, Inc.
s/ Jeffrey W. VanSant s/ Douglas F. Egan
By: __________________________ By: _____________________
Jeffrey W. Vansant Douglas E. Egan
Name: ________________________ Name: ___________________
(please print) (please
print)
Vice President Vice President
Title: _______________________ Title: __________________
s/ John F. Malley
By: __________________________
John F. Malley
Name: ________________________
(please print)
Vice President
Title: _______________________
cc. TansCanada Pipelines Limited
Fax: (403) 267-8620 (Ms. Sally Greenwood)
<PAGE>
Annual Report 1995
New England Power Company
A Subsidiary of
New England Electric System
[LOGO] New England Power
A NEES Company
<PAGE>
New England Power Company
25 Research Drive
Westborough, Massachusetts 01582
Directors
(As of December 31, 1995)
Joan T. Bok
Chairman of the Board of New England Electric System
Frederic E. Greenman*
Vice President, General Counsel, and Assistant Clerk of the Company and Senior
Vice President, General Counsel, and Secretary of New England Electric System
Alfred D. Houston
Executive Vice President and Chief Financial Officer of New England
Electric System
Cheryl A. LaFleur**
Vice President and General Counsel of the Company and Vice President, General
Counsel, and Secretary of New England Electric System
John W. Newsham*
Executive Vice President of the Company and Vice President of New England
Electric System
John W. Rowe
Chairman of the Company and President and Chief Executive Officer of New
England Electric System
Jeffrey D. Tranen
President of the Company and Vice President of New England Electric System
Officers
(As of December 31, 1995)
John W. Rowe
Chairman of the Company and President and Chief Executive Officer of New
England Electric System
Jeffrey D. Tranen
President of the Company and Vice President of New England Electric System
John W. Newsham*
Executive Vice President of the Company and Vice President of New England
Electric System
Frederic E. Greenman*
Vice President, General Counsel, and Assistant Clerk of the Company and Senior
Vice President, General Counsel, and Secretary of New England Electric System
Cheryl A. LaFleur**
Vice President and General Counsel of the Company and Vice President, General
Counsel, and Secretary of New England Electric System
Andrew H. Aitken
Vice President
Lawrence E. Bailey
Vice President
Jeffrey A. Donahue
Vice President
John F. Malley
Vice President
Arnold H. Turner
Vice President
<PAGE>
Jeffrey W. VanSant
Vice President
Michael E. Jesanis
Treasurer of the Company and of New England Electric System
Robert King Wulff
Clerk of the Company and of certain affiliates
John G. Cochrane
Assistant Treasurer of the Company and of certain affiliates and Vice
President of an affiliate
Kirk L. Ramsauer
Assistant Clerk of the Company and of an affiliate
Howard W. McDowell
Controller of the Company and of certain affiliates
* retired December 31, 1995
** elected effective December 31, 1995
Transfer Agent and Dividend Paying Agent of Preferred Stock
Bank of Boston, Boston, Massachusetts
Registrar of Preferred Stock
State Street Bank and Trust Company, Boston, Massachusetts
This report is not to be considered an offer to sell or buy or solicitation of
an offer to sell or buy any security.
<PAGE>
New England Power Company
New England Power Company, a wholly-owned subsidiary of New England
Electric System, is a Massachusetts corporation and is qualified to do
business in Massachusetts, New Hampshire, Rhode Island, Connecticut, Maine,
and Vermont. The Company is subject, for certain purposes, to the
jurisdiction of the regulatory commissions of these six states, the Securities
and Exchange Commission and the Federal Energy Regulatory Commission. The
Company's business is principally that of generating, purchasing,
transmitting, and selling electric energy in wholesale quantities to other
electric utilities, principally its affiliates Granite State Electric Company,
Massachusetts Electric Company, and The Narragansett Electric Company. In
1995, 95 percent of the Company's revenue from the sale of electricity was
derived from sales to affiliated companies and 5 percent from sales to
municipal and other utilities. There are a number of proposals that would
increase competition in the electric utility industry and result in customers
having a choice of power suppliers (see "Financial Review").
The Company, through its own generating units, entitlements and purchase
power contracts, has a total capability of 5,704 megawatts. In 1995, the
Company's energy mix was 38 percent coal, 22 percent gas, 14 percent nuclear,
10 percent hydro, 10 percent oil, and 6 percent renewable non-utility
generation.
The Company is a member of the New England Power Pool, which coordinates
the planning and operation of the generation and transmission facilities in
New England, and the region-wide central dispatch of generation.
Report of Independent Accountants
New England Power Company, Westborough, Massachusetts:
We have audited the accompanying balance sheets of New England Power
Company (the Company), a wholly-owned subsidiary of New England Electric
System, as of December 31, 1995 and 1994 and the related statements of income,
retained earnings, and cash flows for each of the three years in the period
ended December 31, 1995. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the Company as of December
31, 1995 and 1994, and the results of its operations and its cash flows for
each of the three years in the period ended December 31, 1995 in conformity
with generally accepted accounting principles.
Boston, Massachusetts COOPERS & LYBRAND L.L.P.
March 1, 1996
<PAGE>
New England Power Company
Financial Review
Overview
Net income increased by $2 million in 1995 compared with 1994. This
increase reflects higher sales, lower depreciation and amortization expense
and lower maintenance expense. Partially offsetting these increases to 1995
earnings were increased purchased power costs excluding fuel, increased costs
related to postretirement benefits other than pensions (PBOPs), increased
reimbursements to affiliates for service extension discounts (SEDs) to
customers and generation and transmission costs incurred for the benefit of
the Company. In addition, interest costs also increased in 1995.
Net income increased by $8 million in 1994 reflecting decreased purchased
power charges excluding fuel, lower interest expense and increased allowance
for funds used during construction. In addition, earnings in 1993 were
reduced by a one-time after-tax charge of $6 million ($10 million before-tax)
associated with an early retirement program. Partially offsetting these
increases to 1994 earnings were increased operation and maintenance expenses
and the reimbursement of certain power plant dismantlement costs through
revenue credits to The Narragansett Electric Company (Narragansett), an
affiliate.
Competitive Conditions
The electric utility business is being subjected to rapidly increasing
competitive pressures, stemming from a combination of trends, including the
presence of surplus generating capacity, a disparity in electric rates among
regions of the country, improvements in generation efficiency, increasing
demand for customer choice, and new regulations and legislation intended to
foster competition. To date, this competition has been most prominent in the
bulk power market, in which non-utility generators have significantly
increased their market share. Electric utilities have had exclusive
franchises for the retail sale of electricity in specified service
territories. As a result, competition in the retail market has been limited
to (i) competition with alternative fuel suppliers, primarily for heating and
cooling, (ii) competition with customer-owned generation, and (iii) direct
competition among electric utilities to attract major new facilities to their
service territories. These competitive pressures have led the New England
Electric System (NEES) companies and other utilities to offer, from time to
time, special discounts or service packages to certain large customers.
In states across the country, including Massachusetts, Rhode Island, and
New Hampshire, there have been an increasing number of proposals to allow
retail customers to choose their electricity supplier, with incumbent
utilities required to deliver that electricity over their transmission and
distribution systems (also known as "retail wheeling"). If electric customers
were allowed to choose their electricity supplier, utilities across the
country would face the risk that market prices may not be sufficient to
recover the costs of the commitments incurred to supply customers under a
regulated industry structure. The amount by which costs exceed market prices
is commonly referred to as "stranded costs."
The Company derives approximately 72 percent, 20 percent, and 3 percent of
its electric sales revenues from sales to Massachusetts Electric Company
(Massachusetts Electric), Narragansett, and Granite State Electric Company,
respectively. These affiliated companies purchase electricity under wholesale
all-requirements contracts with the Company and resell it to their customers.
Legislative or utility initiatives, such as Choice: New England, could
ultimately result in changes in the relationship between the Company and its
all-requirements customers.
<PAGE>
Choice: New England
In October 1995, the NEES companies announced a plan to allow all customers
of electric utilities in Massachusetts, Rhode Island, and New Hampshire to
choose their power supplier beginning in 1998. The plan, Choice: New England,
was developed in response to 1995 decisions by the Massachusetts Department of
Public Utilities (MDPU) and the Rhode Island Public Utilities Commission
(RIPUC) that approved a set of principles for industry restructuring. These
principles include allowing utilities the opportunity to recover stranded
costs. Choice: New England was formally filed by Massachusetts Electric with
the MDPU in February 1996. Narragansett plans to file a similar version of
Choice: New England with the RIPUC in April 1996 to comply with a RIPUC order
to file restructuring plans.
Under Choice: New England, the pricing of generation would be deregulated.
However, customers would have the right to receive service under a "standard
offer" from the incumbent utility or its affiliate, the pricing of which would
be approved in advance by legislators or regulators. Customers electing the
standard offer would be eligible to choose an alternative power supplier at
any time, but would not be allowed to return to the standard offer. Under
Choice: New England, transmission and distribution rates would remain
regulated. As described in the "Rate Activity" section, the Company has
recently filed a proposed tariff rate with the Federal Energy Regulatory
Commission (FERC) whereby its transmission facilities would be operated by
another NEES subsidiary pursuant to a support agreement.
Under Choice: New England, the Company's wholesale contract with its
affiliates would be terminated. In return, Choice: New England proposes that
the cost of the Company's past generation commitments be recovered through a
wires access or transition charge. Those commitments, which are currently
estimated at approximately $4 billion on a present value basis, primarily
consist of (i) generating plant commitments, (ii) regulatory assets, (iii)
purchased power contracts, and (iv) the operating cost of nuclear plants which
cannot be mitigated by shutting down the plants (otherwise referred to as
"nuclear costs independent of operation"). Sunk costs associated with utility
generating plants, such as past capital investments, and regulatory assets
would be recovered over ten years. The return on equity related to the
unrecovered capital investments and regulatory assets would be reduced to one
percentage point over the rate on long-term "BBB" rated utility bonds.
Purchased power contract costs and nuclear costs independent of operation
would be recovered as incurred over the life of those obligations, a period
expected to extend beyond ten years. The access charge would be set at three
cents per kilowatt-hour (kWh) for the first three years. Thereafter, the
access charge would vary, but is expected to decline. The provisions of
Choice: New England, including the proposed access charge, are subject to
state approval and FERC approval.
In March 1996, Massachusetts Electric filed a request with the MDPU to
allow the implementation of two pilot programs to test the plan. The first
would allow certain high technology customers in Massachusetts representing 1
percent of the NEES companies' retail sales to have direct access to
alternative power suppliers beginning in July 1996. The second would allow
residential and small business customers in Massachusetts representing 0.5
percent of the NEES companies' retail sales to have direct access beginning
September 1, 1996.
Three other utilities and the Massachusetts Division of Energy Resources
(DOER) also filed plans with the MDPU in February 1996. The DOER's plan also
calls for direct access for all customers beginning in 1998 with a pilot
program beginning in 1997. The DOER plan, however, proposes that, in exchange
for stranded cost recovery, utilities divest their generating assets, either
through sale or spinoff. The NEES companies do not support the DOER mandatory
divestiture proposal. The MDPU is expected to issue regulations on industry
restructuring in September 1996 and to issue orders on the individual utility
plans in 1997.
<PAGE>
Rhode Island Legislation
In February 1996, the Speaker and Majority Leader of the House of
Representatives of the Rhode Island Legislature announced the filing of
legislation which would allow electric consumers in Rhode Island to choose
their power supplier. Under the proposed legislation, large manufacturing
customers and new large non-manufacturing customers would gain access to
alternative power suppliers over a two-year period beginning in 1998. These
customers represent approximately 14 percent of Narragansett's retail kWh
sales. The balance of Rhode Island customers would gain access over a
two-year period beginning in the year 2000, or earlier if consumers of 50
percent of the electricity in New England gain similar rights to choose their
power supplier. The NEES companies have announced their support for the
proposed legislation.
A key provision of the legislation authorizes utilities to recover the cost
of past generation commitments through a transition access charge on utility
distribution wires. The legislation divides those past commitments in the
same manner as Choice: New England. The legislation proposes a 12-year
recovery period for utility generation commitments and regulatory assets.
Consideration by the Rhode Island Legislature of the proposed legislation is
expected to be completed by the summer of 1996.
Previously, in 1995, the Rhode Island Legislature passed legislation that
would have allowed certain industrial customers to buy power from alternative
suppliers, rather than through the local electric utility. Narragansett urged
the Governor of Rhode Island to veto the legislation because Narragansett
believed it would result in piecemeal deregulation that would not be fair to
customers or shareholders. The Governor vetoed the proposed legislation, in
part because of commitments by Narragansett to provide a two-year rate
discount to manufacturing customers and to submit a specific and detailed
proposal to the RIPUC addressing the issues associated with providing large
customers with access to Narragansett's distribution system for the purpose of
choosing an alternative power supplier.
Other Legislative and Regulatory Initiatives
In February 1996, the New Hampshire House of Representatives passed a bill
requiring utilities in that state to file plans by June 1996 with the New
Hampshire Public Utilities Commission (NHPUC) to provide customers with access
to alternative suppliers. The bill allows the NHPUC significant discretion in
determining the appropriate level of stranded cost recovery. The bill would
authorize the NHPUC to impose a plan on utilities if none is filed and
approved by July 1997. The bill is pending in the state Senate.
In January 1996, Granite State reached an agreement with the NHPUC staff to
conduct a retail access pilot for 3 percent of Granite State's customers. If
approved by the NHPUC and the FERC, participating customers in the pilot will
pay access charges that are on average over 90 percent of the charges proposed
under Choice: New England. The agreement was reached in response to 1995
legislation which directed the NHPUC to establish a pilot program for the
state's utilities. The agreement includes more favorable terms regarding
stranded cost recovery than preliminary pilot guidelines issued by the NHPUC.
In February 1996, the NHPUC indicated that further review of certain
assumptions made in the agreement was necessary. The Commission also expanded
the pilot to include new large commercial and industrial customers.
Separately, in June 1995, the NHPUC issued a decision stating that franchise
territories in New Hampshire are not exclusive as a matter of law. That
decision is under appeal.
In February 1996, the MDPU denied the recovery of stranded power generation
costs in the context of the town of Stow, Massachusetts attempting to purchase
the distribution assets in that town owned by the neighboring Hudson Municipal
Light Department. Although the MDPU reaffirmed its general position that
utilities should have a reasonable opportunity to recover net, non-mitigable,
stranded costs, it refused to allow recovery in this case stating that Hudson
<PAGE>
had not sufficiently demonstrated that stranded costs would be incurred and
made no effort to mitigate any such costs. Both parties have appealed the
MDPU decision and the MDPU has stayed its decision pending appeal.
In August 1995, the MDPU issued an order requiring a customer of another
utility who installed cogenerating equipment to pay 75 percent of that
utility's stranded costs attributable to serving the customer's load. The
MDPU indicated the decision did not set a precedent for stranded cost recovery
as part of industry restructuring. In March 1996, the FERC ruled that it
would not review the MDPU's decision. The customer is expected to appeal the
decision to the courts.
In March 1995, the FERC issued a Notice of Proposed Rulemaking (NOPR) in
which it stated that it is appropriate that legitimate and verifiable stranded
costs be recovered from departing customers as a result of wholesale
competition. The FERC also indicated that costs stranded as a result of
retail competition would be subject to state commission review if the
necessary statutory authority exists and subject to FERC review if the state
commission does not have such authority. A final decision is expected during
1996. The NOPR also addressed open access transmission and indicated that
those utilities owning transmission facilities would be required to file a
tariff to make available comparable transmission service. (See "Rate
Activity" section for further discussion.)
Risk Factors
The major risk factors affecting recovery of at-risk assets are: (i)
regulatory and legal decisions, (ii) the market price of power, and (iii) the
amount of market share retained by the Company. First, there can be no
assurance that a final restructuring plan ordered by regulatory bodies, or the
courts, or through legislation will include an access charge that would fully
recover stranded costs. If laws are enacted or regulatory decisions are made
that do not offer an opportunity to recover stranded costs, the Company
believes it has strong legal arguments to challenge such laws or decisions.
Such a challenge would be based, in part, on the assertion that subjecting
utility generating assets to competition without compensation for stranded
costs while requiring utilities to open access to their wires at historic
cost-based rates, would constitute an unconstitutional taking of property
without just compensation. Second, the access charge proposed under Choice:
New England recovers only sunk costs, such as plant expenditures and
contractual commitments. Because of a regional surplus of electric generation
capacity, current wholesale power prices in the short-term market are based on
the short-run fuel costs of generating units. Such wholesale prices are not
currently providing a significant contribution toward other marginal costs,
such as operation and maintenance expenses. The Company expects this
situation to continue in a retail market. Third, revenues will also be
affected by the Company's ability to retain existing customers and attract new
customers in a competitive environment. As a result of the pressure on market
prices and market share, it is likely that, even if Choice: New England is
implemented, the Company would experience losses in revenue for an
indeterminate period and increased revenue volatility.
Historically, electric utility rates have been based on a utility's costs.
As a result, electric utilities are subject to certain accounting standards
that are not applicable to other business enterprises in general. Financial
Accounting Standards No. 71, Accounting for the Effects of Certain Types of
Regulation (FAS 71), requires regulated entities, in appropriate
circumstances, to establish regulatory assets and liabilities, and thereby
defer the income statement impact of certain costs that are expected to be
recovered in future rates. The effects of regulatory, legislative, or utility
initiatives, such as the proposed Rhode Island legislation or Choice: New
England, could, in the near future, cause all or a portion of the Company's
operations to cease meeting the criteria of FAS 71. In that event, the
application of FAS 71 to such operations would be discontinued and a non-cash
write-off of previously established regulatory assets and liabilities related
to such operations would be required. At December 31, 1995, the Company had
<PAGE>
pre-tax regulatory assets (net of regulatory liabilities) of approximately
$300 million. In addition, the Company's affiliate, New England Energy
Incorporated (NEEI), has a regulatory asset of approximately $200 million,
which is recoverable in its entirety from the Company. If competitive or
regulatory change should cause a substantial revenue loss or lead to the
permanent shutdown of any generating facilities, a write-down of plant assets
could be required pursuant to Financial Accounting Standards No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to Be Disposed Of (FAS 121). In addition, FAS 121 requires that all
regulatory assets, which must have a high probability of recovery to be
initially established, must continue to meet that high probability standard to
avoid being written off. FAS 121, which is effective for the Company in
January 1996, is not expected to have a material adverse impact on the
financial condition or results of operations upon adoption, based on the
current regulatory environment in which the Company operates. However, the
impact in the future may change as competitive factors and potential
restructuring influence the electric utility industry. For further
discussion, see Note B.
Rate Activity
In February 1995, the FERC approved a rate agreement filed by the Company.
Under the agreement, which became effective January 1995, the Company's base
rates are frozen through 1996. Before this rate agreement, the Company's rate
structure contained two surcharges that were recovering the costs of a coal
conversion project and a portion of the Company's investment in the Seabrook 1
nuclear unit (Seabrook 1). These two surcharges fully recovered their related
costs by mid-1995. However, under the rate agreement, the revenues continue
to be collected as part of base rates. The agreement also provides for (i)
full recovery of costs associated with the Manchester Street Station
repowering project, which began commercial operation in the second half of
1995, (ii) the recovery of approximately $50 million of deferred costs
associated with terminated purchased power contracts and PBOPs over seven
years, (iii) full recovery of currently incurred PBOP costs, (iv) the recovery
over three years of $27 million of costs related to the dismantling of a
retired generating station in Rhode Island and the replacement of a turbine
rotor at one of the Company's generating units, and (v) increased recovery of
depreciation expense by approximately $8 million annually to recognize costs
that will be incurred upon the eventual dismantling of its Brayton Point and
Salem Harbor generating plants. Under the agreement, approximately $15
million of the $38 million in Seabrook 1 costs scheduled for recovery in 1995
pursuant to a 1988 settlement agreement were deferred for recovery in 1996.
Finally, the agreement provided that the Company would reimburse its wholesale
customers for discounts provided by those wholesale customers to their retail
customers under SED programs. Under these programs, retail customers are
entitled to such discounts only if they have signed an agreement not to
purchase power from another supplier or generate any additional power
themselves for a three to five year period. Reimbursements in 1995 totaled
$12 million.
The FERC's approval of this rate agreement applies to all of the Company's
customers except the Milford Power Limited Partnership (MPLP). MPLP, owner of
a gas-fired power plant in Milford, Massachusetts, has protested the rate
agreement based on issues related to the Manchester Street Station repowering
project. (See "Purchased Power Contract Dispute" section.)
In response to the FERC NOPR discussed above, the Company and NEES
Transmission Services, Inc. (NEES Trans), a proposed new subsidiary of NEES,
filed transmission tariffs in March 1996 at the FERC that will become
applicable for all wholesale transmission transactions, including those of the
NEES retail distribution affiliates. Under the proposed tariffs and
accompanying support agreements, NEES Trans will provide all wholesale
transmission services involving the NEES companies' facilities under
comparable, nondiscriminatory transmission rates. The existing NEES
companies, including the Company, would turn operational control of their
transmission facilities over to NEES Trans in exchange for support payments
<PAGE>
from NEES Trans for these facilities. The Company may, at a later date,
transfer its transmission assets to NEES Trans. The net book value of the
Company's transmission system is approximately $340 million. The Company is
requesting that its filing become effective by June 1, 1996 or upon approval
by the Securities and Exchange Commission, for the establishment of this new
company. If approved as filed, the implementation of the tariffs would not
have a significant impact on the Company's revenues.
Operating Revenue
The following table summarizes the changes in operating revenue:
Increase (Decrease) in Operating Revenue
(In Millions) 1995 1994
---- ----
Fuel recovery $27 $(6)
Accrued NEEI fuel revenues 4 (7)
Narragansett integrated facilities credit (10) (6)
SED reimbursements (12)
Sales growth 15 10
Other 6 1
---- ----
$30 $(8)
Accrued NEEI fuel revenues and accrued NEEI fuel costs (see "Operating
Expenses" section) reflect losses incurred by NEEI, an affiliate of the
Company, on its rate-regulated oil and gas operations. These revenues are
accrued in the year of the loss but are billed to the Company's customers
through its fuel adjustment clause in the following year. Changes in accrued
NEEI fuel revenues and fuel costs are principally due to fluctuations in NEEI
production (see "Fuel Supply" section).
The entire output of Narragansett's generating capacity is made available
to the Company. Narragansett receives a credit on its purchased power bill
from the Company for its fuel costs and other generation and
transmission-related costs. The increased credits in 1995 reflect costs
associated with a new transmission line that went into service in September
1994 and with Narragansett's portion of the repowered Manchester Street
generating station that went into service in the second half of 1995. In
addition, the credits increased in both 1995 and 1994 due to increased costs
associated with the dismantlement of the previously retired South Street
generating facility. However, a portion of the 1995 credits had been deferred
for recovery from ratepayers in 1996 and 1997.
See the "Rate Activity" section for a discussion of SED reimbursements.
Operating Expenses
The following table summarizes the changes in operating expenses:
Increase (Decrease) in Operating Expenses
(In Millions) 1995 1994
---- ----
Fuel costs $27 $(7)
Accrued NEEI fuel costs 4 (7)
Purchased energy excluding fuel 22 (11)
Other operation and maintenance (2) 18
Depreciation and amortization (35) 6
Taxes (1) 5
---- ----
$15 $4
Total fuel costs represent fuel for generation and the portion of purchased
electric energy permitted to be recovered through the Company's fuel
<PAGE>
adjustment clause. The increase in fuel costs in 1995 reflects decreased
nuclear generation due to overhauls and decreased hydro production resulting
from low water levels.
Purchased energy excluding fuel represents purchased electric energy costs
not recovered through the fuel clause. The increase in these costs in 1995
and the decrease in 1994 reflects costs associated with scheduled plant
overhauls and refueling shutdowns at partially-owned nuclear power facilities.
The 1995 increase includes the amortization of previously deferred purchased
power contract termination costs and costs to repair the steam generator tubes
at Maine Yankee, in which the Company has a 20 percent interest. Maine Yankee
returned to service at 90 percent capacity in January 1996.
The decrease in other operation and maintenance expenses in 1995 reflects
lower overhaul costs at wholly-owned generating units, primarily in the fourth
quarter of 1995, partially offset by the recognition of currently incurred and
previously incurred deferred PBOP costs in accordance with the Company's 1995
rate agreement, increased transmission system related costs and general and
administrative costs.
The increase in other operation and maintenance expenses in 1994 reflects
increases in generating plant maintenance costs associated with overhauls of
wholly-owned generating units in part to achieve compliance with the Clean Air
Act. The increase also reflects cost increases in computer system
development, increased demand-side management program expenses, and general
increases in other areas. These increases were partially offset by a one-time
charge in 1993 of $10 million associated with an early retirement program.
Depreciation and amortization expense decreased in 1995 due to reduced
amortization of Seabrook 1 and the completion, in the second quarter of 1995,
of the amortization of certain coal conversion facilities, partially offset by
the effects of increased depreciation rates approved in the Company's 1995
rate agreement and depreciation of new plant expenditures, including the
Manchester Street Station, which began commercial operation in the second half
of 1995. The increase in depreciation and amortization expense in 1994
primarily reflects increased amortization of Seabrook 1 as part of a 1988 rate
settlement and increased depreciation on new plant expenditures.
The increase in taxes in 1994 primarily reflects increased income taxes and
municipal property taxes.
Under the existing terms of certain purchased power contracts with other
utilities, the Company will reduce its power purchases by $19 million in 1996.
The Company is a 15 percent stockholder in Connecticut Yankee Atomic Power
Company (Connecticut Yankee) which owns a 580 megawatt (MW) nuclear generating
unit. The Company also has an approximately 12 percent ownership interest in
Millstone 3, a 1,150 MW nuclear unit. In March 1996, the Nuclear Regulatory
Commission (NRC) issued a letter requiring Millstone 3 and Connecticut Yankee
to demonstrate to the NRC within 30 days a plan and schedule to ensure that
the future operation of those units will be conducted in accordance with their
operating licenses and safety provisions or face license suspension.
Millstone 3 was also added to the NRC's problem plant list in January 1996.
It is unknown what effect the increased NRC scrutiny will have on the
operations and cost of Millstone 3 and Connecticut Yankee. Other
non-affiliated facilities which have been on the problem plant list have
incurred substantial additional capital and operating expenditures before the
NRC designation was changed.
Interest Expense
The increase in interest expense in 1995 was primarily due to an increase
in combined long-term and short-term debt balances and higher interest rates
earlier in 1995. The decrease in interest expense in 1994 is primarily due to
significant refinancings of corporate debt at lower interest rates during
1993. In addition, the decrease in 1994 also reflects reduced interest on
<PAGE>
rate refunds and taxes primarily in the fourth quarter, partially offset by
increased interest on short-term debt.
Allowance for Funds Used During Construction (AFDC)
AFDC increased in 1995 and 1994 due to increased construction work in
progress associated with the repowering of the Manchester Street Station. The
accrual of AFDC ended for this project when the units began commercial
operation in the second half of 1995. (See "Utility Plant Expenditures and
Financing" section.)
Hazardous Waste
The Federal Comprehensive Environmental Response, Compensation and
Liability Act, more commonly known as the "Superfund" law, imposes strict,
joint and several liability, regardless of fault, for remediation of property
contaminated with hazardous substances. A number of states, including
Massachusetts, have enacted similar laws.
The electric utility industry typically utilizes and/or generates a range
of potentially hazardous products and by-products in its operations. NEES
subsidiaries currently have an environmental audit program in place intended
to enhance compliance with existing federal, state, and local requirements
regarding the handling of potentially hazardous products and by-products.
The Company has been named as a potentially responsible party (PRP) by
either the U.S. Environmental Protection Agency or the Massachusetts
Department of Environmental Protection for six sites at which hazardous waste
is alleged to have been disposed. Private parties have also contacted or
initiated legal proceedings against the Company regarding hazardous waste
cleanup. The Company is currently aware of other sites, and may in the future
become aware of additional sites, that it may be held responsible for
remediating.
Predicting the potential costs to investigate and remediate hazardous waste
sites continues to be difficult. There are also significant uncertainties as
to the portion, if any, of the investigation and remediation costs of any
particular hazardous waste site that may ultimately be borne by the Company.
Where appropriate, the Company intends to seek recovery from its insurers and
from other PRPs, but it is uncertain whether, and to what extent, such efforts
will be successful. The Company believes that hazardous waste liabilities for
all sites of which it is aware are not material to its financial position.
Electric and Magnetic Fields (EMF)
Concerns have been raised about whether EMF, which occur near transmission
and distribution lines as well as near household wiring and appliances, cause
or contribute to adverse health effects. Numerous studies on the effects of
these fields, some of them sponsored by electric utilities (including NEES
companies), have been conducted and are continuing. Some of the studies have
suggested associations between certain EMF and health effects, including
various types of cancer, while other studies have not substantiated such
associations. It is impossible to predict the ultimate impact on the Company
and the electric utility industry if further investigations were to
demonstrate that the present electricity delivery system is contributing to
increased risk of cancer or other health problems.
Many utilities, including the NEES companies, have been contacted by
customers regarding a potential relationship between EMF and adverse health
effects. To date, no court in the United States has ruled that EMF from
electrical facilities cause adverse health effects and no utility has been
found liable for personal injuries alleged to have been caused by EMF. In any
event, the Company believes that it currently has adequate insurance coverage
for personal injury claims.
<PAGE>
Several state courts have recognized a cause of action for damage to
property values in transmission line condemnation cases based on the fear that
power lines cause cancer. It is difficult to predict what the impact on the
Company would be if this cause of action is recognized in the states in which
the Company operates and in contexts other than condemnation cases.
Purchased Power Contract Dispute
In October 1994, the Company was sued by MPLP, a venture of Enron
Corporation and Jones Capital that owns a 149 MW gas-fired power plant in
Milford, Massachusetts. The Company purchases 56 percent of the power output
of the facility under a long-term contract with MPLP. The suit alleges that
the Company has engaged in a scheme to cause MPLP and its power plant to fail
and has prevented MPLP from finding a long-term buyer for the remainder of the
facility's output. The complaint includes allegations that the Company has
violated the Federal Racketeer Influenced and Corrupt Organizations Act,
engaged in unfair or deceptive acts in trade or commerce, and breached
contracts. MPLP also asserts that the Company deliberately misled regulatory
bodies concerning the Manchester Street Station repowering project. MPLP
seeks compensatory damages in an unspecified amount, as well as treble
damages. The Company believes that the allegations of wrongdoing are without
merit. The Company has filed counterclaims and crossclaims against MPLP,
Enron Corporation, and Jones Capital, seeking monetary damages and termination
of the purchased power contract.
MPLP also intervened in the Company's current rate filing before the FERC,
making similar allegations to those asserted in MPLP's lawsuit. Hearings on
this claim concluded in October 1995. An Administrative Law Judge initial
decision is expected by mid-1996.
Utility Plant Expenditures and Financing
Cash expenditures for utility plant totaled $163 million for 1995,
including $85 million related to the Manchester Street Station repowering
project discussed below. The funds necessary for utility plant expenditures
during the period were provided by net cash from operating activities, after
the payment of dividends, and proceeds of long-term debt issues. Cash
expenditures for utility plant for 1996 are estimated to be $85 million.
Internally generated funds are estimated to fully cover the Company's 1996
capital expenditure requirements for utility plant.
In 1995, the Company issued $50 million of mortgage bonds at rates ranging
from 6.69 percent to 7.94 percent. In addition, the Company refinanced $10
million of variable rate mortgage bonds in 1995. The Company has issued $40
million of variable rate mortgage bonds to date in 1996 to refinance a like
amount of outstanding debt.
In the second half of 1995, the Company and Narragansett completed the 489
MW repowering of the Manchester Street Station. The Company owns a 90 percent
interest and Narragansett owns a 10 percent interest in the Manchester Street
Station. The total cost for the generating station will be approximately $450
million, including AFDC. In addition, related transmission improvements,
which were principally the responsibility of Narragansett, were placed in
service in September 1994 at a cost of approximately $60 million.
At December 31, 1995, the Company had $125 million of short-term debt
outstanding including $124 million of commercial paper borrowings and $1
million of borrowings from affiliates. At December 31, 1995, the Company had
lines of credit and bond purchase facilities with banks totaling $510 million
which are available to provide liquidity support for commercial paper
borrowings and for $342 million of the Company's outstanding variable rate
mortgage bonds in tax-exempt commercial paper mode and for other corporate
purposes. There were no borrowings under these lines of credit at December
31, 1995.
March 25, 1996
<PAGE>
New England Power Company
Statements of Income
<TABLE>
<CAPTION>
Year Ended December 31, (In Thousands) 1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Operating revenue, principally from
affiliates $1,570,539 $1,540,757 $1,549,014
---------- ---------- ----------
Operating expenses:
Fuel for generation 279,849 260,540 273,347
Purchased electric energy 547,926 513,583 525,985
Other operation 211,872 196,610 186,087
Maintenance 92,954 110,528 103,261
Depreciation and amortization 102,758 137,979 131,932
Taxes, other than income taxes 58,716 54,400 51,931
Income taxes 91,051 96,596 93,997
---------- ---------- ----------
Total operating expenses 1,385,126 1,370,236 1,366,540
---------- ---------- ----------
Operating income 185,413 170,521 182,474
Other income:
Allowance for equity funds used during
construction 7,746 9,142 3,252
Equity in income of nuclear power
companies 5,721 4,816 5,646
Other income (expense), net (1,610) (293) (566)
---------- ---------- ----------
Operating and other income 197,270 184,186 190,806
---------- ---------- ----------
Interest:
Interest on long-term debt 46,797 38,711 45,837
Other interest 10,525 1,956 5,427
Allowance for borrowed funds used
during construction credit (11,479) (5,854) (1,926)
---------- ---------- ----------
Total interest 45,843 34,813 49,338
---------- ---------- ----------
Net income $151,427 $149,373 $141,468
========== ========== ==========
Statements of Retained Earnings
Year Ended December 31, (In Thousands) 1995 1994 1993
---- ---- ----
Retained earnings at beginning of year $372,763 $346,153 $321,699
Net income 151,427 149,373 141,468
Dividends declared on cumulative
preferred stock (3,433) (3,440) (4,883)
Dividends declared on common stock,
$21.00, $18.50, and $17.25 per share,
respectively (135,448) (119,323) (111,261)
Premium on redemption of preferred stock (870)
-------- -------- --------
Retained earnings at end of year $385,309 $372,763 $346,153
======== ======== ========
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
New England Power Company
Balance Sheets
At December 31, (In Thousands) 1995 1994
Assets ---- ----
Utility plant, at original cost $2,941,469 $2,524,544
Less accumulated provisions for
depreciation and amortization 1,047,982 1,001,393
---------- ----------
1,893,487 1,523,151
Net investment in Seabrook 1 under rate
settlement (Note D-2) 15,210 38,283
Construction work in progress 41,566 314,777
---------- ----------
Net utility plant 1,950,263 1,876,211
---------- ----------
Investments:
Nuclear power companies, at equity (Note D-1) 47,055 46,349
Non-utility property and other investments 26,627 22,980
---------- ----------
Total investments 73,682 69,329
---------- ----------
Current assets:
Cash 2,607 377
Accounts receivable:
Affiliated companies 204,314 197,655
Accrued NEEI revenues (Note E-1) 43,731 39,794
Others 17,821 29,738
Fuel, materials, and supplies, at average cost 54,664 73,361
Prepaid and other current assets 27,986 33,729
---------- ----------
Total current assets 351,123 374,654
---------- ----------
Deferred charges and other assets (Note B) 273,275 292,644
---------- ----------
$2,648,343 $2,612,838
========== ==========
Capitalization and Liabilities
Capitalization:
Common stock, par value $20 per share,
authorized and outstanding 6,449,896 shares $128,998 $128,998
Premiums on capital stocks 86,829 86,829
Other paid-in capital 288,000 288,000
Retained earnings 385,309 372,763
---------- ----------
Total common equity 889,136 876,590
Cumulative preferred stock, par value $100
per share (Note H) 60,516 60,516
Long-term debt 735,440 695,466
---------- ----------
Total capitalization 1,685,092 1,632,572
---------- ----------
Current liabilities:
Long-term debt due in one year 10,000
Short-term debt (including $1,025 and
$16,575 to affiliates) 125,150 145,575
Accounts payable (including $50,760 and
$69,089 to affiliates) 163,791 179,761
Accrued liabilities:
Taxes 3,447 6,133
Interest 10,482 9,914
Other accrued expenses (Note G) 10,834 10,866
Dividends payable 32,249
---------- ----------
Total current liabilities 355,953 352,249
---------- ----------
Deferred federal and state income taxes 390,197 364,073
Unamortized investment tax credits 57,509 59,014
Other reserves and deferred credits 159,592 204,930
Commitments and contingencies (Note E)
---------- ----------
$2,648,343 $2,612,838
========== ==========
The accompanying notes are an integral part of these financial statements.
<PAGE>
New England Power Company
Statements of Cash Flows
<TABLE>
<CAPTION>
Year Ended December 31, (In Thousands) 1995 1994 1993
Operating activities: ---- ---- ----
<S> <C> <C> <C>
Net income $151,427 $149,373 $141,468
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization 108,384 142,764 135,746
Deferred income taxes and
investment tax credits, net 25,683 23,051 20,665
Allowance for funds used during
construction (19,225) (14,996) (5,178)
Early retirement program 2,967
Decrease (increase) in accounts
receivable 1,321 (6,932) 31,323
Decrease (increase) in fuel, materials,
and supplies 18,697 (17,406) 16,902
Decrease (increase) in prepaid and
other current assets 5,743 (7,275) (4,908)
Increase (decrease) in accounts payable (15,970) 35,661 (35,913)
Increase (decrease) in other current
liabilities (2,150) (30,823) 25,205
Other, net (28,244) (26,845) (46,559)
--------- --------- ---------
Net cash provided by operating
activities $245,666 $246,572 $281,718
--------- --------- ---------
Investing activities:
Plant expenditures, excluding allowance for
funds used during construction $(162,766) $(229,015) $(156,614)
Other investing activities (3,614) (3,053) (2,402)
--------- --------- ---------
Net cash used in investing activities $(166,380) $(232,068) $(159,016)
--------- --------- ---------
Financing activities:
Dividends paid on common stock $(103,198) $(133,835) $(120,936)
Dividends paid on preferred stock (3,433) (3,440) (4,883)
Changes in short-term debt (20,425) 95,050 32,200
Long-term debt issues 60,000 28,000 224,000
Long-term debt retirements (10,000) (224,000)
Preferred stock retirements (512) (25,000)
Premium on reacquisition of long-term debt (3,255)
Premium on redemption of preferred stock (870)
--------- --------- ---------
Net cash used in financing activities $(77,056) $(14,737) $(122,744)
--------- --------- ---------
Net increase (decrease) in cash and cash
equivalents $2,230 $(233) $(42)
Cash and cash equivalents at beginning of
year 377 610 652
--------- --------- ---------
Cash and cash equivalents at end of year $2,607 $377 $610
========= ========= =========
Supplementary Information:
Interest paid less amounts capitalized $41,557 $32,510 $42,390
--------- --------- ---------
Federal and state income taxes paid $57,948 $83,455 $78,300
--------- --------- ---------
Dividends received from investments
at equity $5,014 $4,809 $5,103
--------- --------- ---------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
New England Power Company
Notes to Financial Statements
Note A - Significant Accounting Policies
1. Nature of Operations:
The Company, a wholly-owned subsidiary of New England Electric System (NEES),
is a Massachusetts corporation and is qualified to do business in
Massachusetts, New Hampshire, Rhode Island, Connecticut, Maine, and Vermont.
The Company is subject, for certain purposes, to the jurisdiction of the
regulatory commissions of these six states, the Securities and Exchange
Commission and the Federal Energy Regulatory Commission. The Company's
business is principally that of generating, purchasing, transmitting, and
selling electric energy in wholesale quantities to other electric utilities,
principally its affiliates Granite State Electric Company, Massachusetts
Electric Company (Massachusetts Electric), and The Narragansett Electric
Company (Narragansett).
2. System of Accounts:
The accounts of the Company are maintained in accordance with the Uniform
System or Accounts prescribed by regulatory bodies having jurisdiction.
In preparing the financial statements, management is required to make
estimates that affect the reported amounts of assets and liabilities and
disclosures of asset recovery and contingent liabilities as of the date of the
balance sheets and revenues and expenses for the period. These estimates may
differ from actual amounts if future circumstances cause a change in the
assumptions used to calculate these estimates.
3. Allowance for Funds Used During Construction (AFDC):
The Company capitalizes AFDC as part of construction costs. AFDC represents
the composite interest and equity costs of capital funds used to finance that
portion of construction costs not eligible for inclusion in rate base. In
1995, an average of $21 million of construction work in progress was included
in rate base, all of which was attributable to the Manchester Street Station
repowering project. AFDC is capitalized in "Utility plant" with offsetting
non-cash credits to "Other income" and "Interest." This method is in accordance
with an established rate-making practice under which a utility is permitted a
return on, and the recovery of, prudently incurred capital costs through their
ultimate inclusion in rate base and in the provision for depreciation. The
composite AFDC rates were 7.5 percent, 7.8 percent, and 8.1 percent, in 1995,
1994, and 1993, respectively.
4. Depreciation and Amortization:
The depreciation and amortization expense included in the statements of income
is composed of the following:
<TABLE>
<CAPTION>
Year Ended December 31, (In Thousands) 1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Depreciation $66,309 $52,834 $53,128
Nuclear decommissioning costs (Note E-5) 2,629 1,951 1,951
Amortization:
Investment in Seabrook 1 under rate
settlement (Note D-2) 23,074 65,061 58,437
Oil Conservation Adjustment 4,467 11,854 12,137
Property losses 6,279 6,279 6,279
------- ------- -------
Total depreciation and amortization
expense $102,758 $137,979 $131,932
======= ======= =======
</TABLE>
<PAGE>
Depreciation is provided annually on a straight-line basis. The provision for
depreciation as a percentage of weighted average depreciable property was 2.7
percent in 1995, 2.4 percent in 1994, and 2.5 percent in 1993. The Oil
Conservation Adjustment was designed to recover expenditures for coal
conversion facilities at the Company's Salem Harbor Station. These costs were
fully amortized at December 31, 1995.
5. Cash:
The Company classifies short-term investments with a maturity of 90 days or
less at time of purchase as cash.
Note B - Competitive Conditions
The electric utility business is being subjected to rapidly increasing
competitive pressures and increasing demands for customer choice. Accordingly,
in February 1996, Massachusetts Electric, an affiliate, filed a plan, Choice:
New England, with Massachusetts regulators, which would allow all customers of
electric utilities in Massachusetts to choose their power supplier beginning
in 1998. Another affiliate, Narragansett, will file a similar version of
Choice: New England with the Rhode Island Public Utilities Commission in April
1996. Under Choice: New England, pricing of generation would be deregulated
while transmission and distribution rates would remain regulated, although
subject to greater rewards and penalties based on performance. Choice: New
England proposes that the cost of past commitments to serve customers be
recovered through a wires access or transition charge. Those past commitments
of the Company include generating plant commitments, regulatory assets,
purchased power contracts, and nuclear costs independent of operation.
Historically, electric utility rates have been based on a utility's costs. As
a result, electric utilities are subject to certain accounting standards that
are not applicable to other business enterprises in general. Financial
Accounting Standards No. 71, Accounting for the Effects of Certain Types of
Regulation (FAS 71), requires regulated entities, in appropriate
circumstances, to establish regulatory assets and liabilities, and thereby
defer the income statement impact of certain costs that are expected to be
recovered in future rates. The effects of regulatory, legislative, or utility
initiatives, such as proposed legislation in Rhode Island or Choice: New
England, could, in the near future, cause all or a portion of the Company's
operations to cease meeting the criteria of FAS 71. In that event, the
application of FAS 71 to such operations would be discontinued and a non-cash
write-off of previously established regulatory assets and liabilities related
to such operations would be required. In March 1995, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to Be Disposed Of (FAS 121). This standard clarifies when and how to recognize
an impairment of long-lived assets. If competitive or regulatory change should
cause a substantial revenue loss or lead to the permanent shutdown of any
generating facilities, a write-down of plant assets could be required pursuant
to FAS 121. At December 31, 1995, the Company had net plant investments
totaling approximately $2 billion, of which approximately $1.6 billion is
generation related. In addition, FAS 121 requires that all regulatory assets,
which must have a high probability of recovery to be initially established,
must continue to meet that high probability standard to avoid being written
off. However, if written off, a regulatory asset can be restored if it again
has a high probability of recovery. FAS 121, which is effective for the
Company in January 1996, is not expected to have a material adverse impact on
the financial condition or results of operations upon adoption, based on the
current regulatory environment in which the Company operates. However, the
impact in the future may change as competitive factors and potential
restructuring influence the electric utility industry.
<PAGE>
The components of regulatory assets are as follows:
At December 31, (In Thousands) 1995 1994
---- ----
Regulatory assets included in current assets and
liabilities:
Accrued NEEI losses (see Note E-1) $43,731 $39,794
Regulatory assets included in deferred charges:
Accrued Yankee Atomic costs (see Note D-1) 67,566 122,452
Unamortized losses on reacquired debt 32,571 34,862
Deferred SFAS No. 106 costs (see Note F-2) 16,416 19,149
Deferred SFAS No. 109 costs (see Note C) 30,059 34,482
Purchased power contract termination costs 23,494 29,012
Deferred gas pipeline charges (see Note E-4) 62,873 37,562
Unamortized property losses 12,044 7,373
Other 22,049 2,542
-------- --------
267,072 287,434
-------- --------
$310,803 $327,228
======== =======
In addition to the regulatory assets recorded on its books, the Company is
obligated to reimburse an affiliate, New England Energy Incorporated (NEEI),
for losses which NEEI has been incurring in connection with its fuel
exploration, development and production program (see Note E-1). The Company's
ability to pass such losses on to customers was favorably resolved in the
Company's 1988 rate settlement. NEEI has a regulatory asset of approximately
$200 million, which is recoverable in its entirety from the Company.
Approximately $300 to $350 million of total regulatory assets, including
NEEI's regulatory asset, are expected to be recovered within the next five
years. Amounts included in "Deferred charges and other assets" on the balance
sheets that do not represent regulatory assets totaled $6,203,000 and
$5,210,000 at December 31, 1995 and 1994, respectively.
Note C - Income Taxes
The Company and other subsidiaries participate with NEES in filing
consolidated federal income tax returns. The Company's income tax provision is
calculated on a separate return basis. Federal income tax returns have been
examined and reported on by the Internal Revenue Service (IRS) through 1991.
The returns for 1992 and 1993 are currently under examination by the IRS.
Total income taxes in the statements of income are as follows:
<TABLE>
<CAPTION>
Year Ended December 31, (In Thousands) 1995 1994 1993
<S> <C> <C> <C>
---- ---- ----
Income taxes charged to operations $91,051 $96,596 $93,997
Income taxes charged (credited) to
"Other income" 353 (994) 838
------- ------- -------
Total income taxes $91,404 $95,602 $94,835
======= ======= =======
Total income taxes, as shown above, consist of the following components:
Year Ended December 31, (In Thousands) 1995 1994 1993
---- ---- ----
Current income taxes $65,721 $72,551 $74,171
Deferred income taxes 27,188 26,628 23,270
Investment tax credits, net (1,505) (3,577) (2,606)
------- ------- -------
Total income taxes $91,404 $95,602 $94,835
======= ======= =======
</TABLE>
<PAGE>
Investment tax credits have been deferred and are being amortized over the
estimated lives of the property giving rise to the credits.
Total income taxes, as shown above, consist of federal and state components as
follows:
<TABLE>
<CAPTION>
Year Ended December 31, (In Thousands) 1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Federal income taxes $74,590 $78,274 $77,593
State income taxes 16,814 17,328 17,242
------- ------- -------
Total income taxes $91,404 $95,602 $94,835
======= ======= =======
With regulatory approval from the Federal Energy Regulatory Commission (FERC),
the Company has adopted comprehensive interperiod tax allocation
(normalization) for temporary book/tax differences.
Total income taxes differ from the amounts computed by applying the federal
statutory tax rates to income before taxes. The reasons for the differences
are as follows:
Year Ended December 31, (In Thousands) 1995 1994 1993
---- ---- ----
Computed tax at statutory rate $84,991 $85,741 $82,706
Increases (reductions) in tax
resulting from:
Amortization of investment tax credits (2,227) (3,045) (2,511)
State income taxes, net of federal
income tax benefit 10,929 11,263 10,770
All other differences (2,289) 1,643 3,870
------- ------- -------
Total income taxes $91,404 $95,602 $94,835
======= ======= =======
</TABLE>
The following table identifies the major components of total deferred income
taxes:
At December 31, (In Millions) 1995 1994
---- ----
Deferred tax asset:
Plant related $92 $96
Investment tax credits 24 25
All other 43 29
---- ----
159 150
---- ----
Deferred tax liability:
Plant related (397) (384)
Equity AFDC (47) (47)
All other (105) (83)
---- ----
(549) (514)
---- ----
Net deferred tax liability $(390) $(364)
===== =====
There were no valuation allowances for deferred tax assets deemed necessary.
<PAGE>
Note D - Nuclear Power Investments
1. Yankee Nuclear Power Companies (Yankees):
The Company has minority interests in four Yankee Nuclear Power Companies.
These ownership interests are accounted for on the equity method. The
Company's share of the expenses of the Yankees is accounted for in "Purchased
electric energy" on the statements of income. A summary of combined results
of operations, assets, and liabilities of the four Yankees is as follows:
<TABLE>
<CAPTION>
(In Thousands) 1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Operating revenue $695,781 $631,940 $700,148
========== ========= =========
Net income $31,657 $30,345 $30,061
========== ========= =========
Company's equity in net income $5,721 $4,816 $5,646
========== ========= =========
Net plant 443,967 537,103 591,650
Other assets 1,418,681 1,458,186 1,286,923
Liabilities and debt (1,612,843) (1,748,960) (1,633,139)
---------- ---------- ----------
Net assets $249,805 $246,329 $245,434
========== ========= =========
Company's equity in net assets $47,055 $46,349 $46,342
========== ========= =========
Company's purchased electric energy $115,647 $106,404 $118,362
========== ========= --------=
</TABLE>
At December 31, 1995, $13 million of undistributed earnings of the Yankees
were included in the Company's retained earnings.
The Company has a 30 percent ownership interest in Yankee Atomic Electric
Company (Yankee Atomic), which owns a 185 megawatt (MW) nuclear generating
station in Rowe, Massachusetts. In 1992, the Yankee Atomic board of directors
decided to permanently cease power operation of the facility and to proceed
with decommissioning. The Company has recorded an estimate of its total
future payment obligations for post operating costs to Yankee Atomic as a
liability and an offsetting regulatory asset of $68 million each at December
31, 1995, reflecting its expected future rate recovery of such costs (see Note
B).
2. Jointly-Owned Nuclear Generating Units:
The Company is also a 12 percent and 10 percent joint owner, respectively, of
the Millstone 3 and Seabrook 1 nuclear generating units, each 1,150 MW. The
Company's net investment in Millstone 3, included in "Net utility plant" is
approximately $392 million. The Company's unamortized pre-1988 investment in
Seabrook 1, is approximately $15 million and is shown separately on the
Company's balance sheet. It will be fully amortized in 1996, pursuant to a
settlement agreement. The Company's net investment in Seabrook 1 since January
1, 1988, which is approximately $54 million, is included in "Net utility
plant" on the Company's balance sheet and is being depreciated over the term
of Seabrook 1's operating license. The Company's share of expenses for these
units is included in "Operating expenses."
Note E - Commitments and Contingencies
1. Oil and Gas Operations:
NEEI, a subsidiary of NEES, is engaged in domestic oil and gas exploration,
development, and production. NEEI operates under an intercompany pricing
policy (Pricing Policy) with the Company which has been approved by the
<PAGE>
Securities and Exchange Commission (SEC). The Pricing Policy requires the
Company to purchase all fuel meeting its specifications offered to it by NEEI.
Under the Pricing Policy, NEEI's oil and gas exploration program is composed
of prospects entered into through December 31, 1983 under a rate-regulated
program. NEEI has incurred operating losses since 1986, due to low oil and gas
prices, and expects to incur substantial additional losses in the future.
These losses are passed on to the Company in the year after they are incurred
by NEEI and, in turn, are being recovered from customers through the Company's
fuel clause. The Company's ability to pass these losses on to its customers
was favorably resolved in the Company's 1988 FERC rate settlement. This
settlement covered all costs incurred by or resulting from commitments made by
NEEI through March 1, 1988. Other subsequent costs incurred by NEEI are
subject to normal regulatory review. In 1995, 1994, and 1993, the Company
recorded accrued fuel expenses and accrued revenues of $44 million, $40
million, and $46 million, respectively, representing losses incurred by NEEI
in each year.
In the absence of the Pricing Policy, the SEC's cost center "ceiling test"
rule requires non-rate-regulated companies to write down capitalized costs to
a level which approximates the present value of their proved oil and gas
reserves. Based on NEEI's 1995 average oil and gas selling prices,
application of the ceiling test would have resulted in a write-down of
approximately $112 million after tax ($178 million before tax) at December 31,
1995.
2. Plant Expenditures:
The Company's utility plant expenditures are estimated to be $85 million in
1996. At December 31, 1995, substantial commitments had been made relative to
future planned expenditures.
3. Hydro-Quebec Interconnection:
The Company is a participant in both the Hydro-Quebec Phase I and Phase II
projects. The Company's participation percentage in both projects is
approximately 18 percent. The Hydro-Quebec Phase I and Phase II projects were
established to transmit power from Hydro-Quebec to New England. Three
affiliates of the Company were created to construct and operate transmission
facilities related to these projects. The participants, including the Company,
have entered into support agreements that end in 2020, to pay monthly their
proportionate share of the total cost of constructing, owning, and operating
the transmission facilities. The Company accounts for these support agreements
as capital leases and accordingly recorded approximately $73 million in
utility plant at December 31, 1995. Under the support agreements, the Company
has agreed, in conjunction with any Hydro-Quebec Phase II project debt
financing, to guarantee its share of project debt. At December 31, 1995, the
Company had guaranteed approximately $30 million of project debt.
4. Natural Gas Pipeline Capacity:
In connection with serving the Company's gas-burning electric generation
facilities, the Company has entered into several contracts for natural gas
pipeline capacity and gas supply. These agreements require minimum fixed
payments that are currently estimated to be approximately $60 million to $65
million per year from 1996 to 2000. Remaining fixed payments from 2001 through
2014 total approximately $625 million.
As part of a rate settlement, the Company was recovering 50 percent of the
fixed pipeline capacity payments through its current fuel clause and deferring
the recovery of the remaining 50 percent until the Manchester Street
repowering project was completed. These deferrals ended in November 1995, at
which time the Company had deferred payments of approximately $63 million
which will be amortized over 25 years in accordance with rate settlements (see
Note B).
<PAGE>
In connection with managing its fuel supply, the Company uses a portion of
this pipeline capacity to sell natural gas. Proceeds from the sale of natural
gas and pipeline capacity of $71 million, $55 million, and $21 million, in
1995, 1994, and 1993, respectively, have been passed to customers through the
Company's fuel clause. These proceeds have been included in "Fuel for
generation" in the Company's statements of income as an offset to the related
fuel expense. Natural gas sales are expected to decrease as a result of the
Manchester Street Station entering commercial operation in the second half of
1995.
5. Hazardous Waste:
The Federal Comprehensive Environmental Response, Compensation and Liability
Act, more commonly known as the "Superfund" law, imposes strict, joint and
several liability, regardless of fault, for remediation of property
contaminated with hazardous substances. A number of states, including
Massachusetts, have enacted similar laws.
The electric utility industry typically utilizes and/or generates a range of
potentially hazardous products and by-products in its operations. NEES
subsidiaries currently have an environmental audit program in place intended
to enhance compliance with existing federal, state, and local requirements
regarding the handling of potentially hazardous products and by-products.
The Company has been named as a potentially responsible party (PRP) by either
the U.S. Environmental Protection Agency or the Massachusetts Department of
Environmental Protection for six sites at which hazardous waste is alleged to
have been disposed. Private parties have also contacted or initiated legal
proceedings against the Company regarding hazardous waste cleanup. The Company
is currently aware of other sites, and may in the future become aware of
additional sites, that it may be held responsible for remediating.
Predicting the potential costs to investigate and remediate hazardous waste
sites continues to be difficult. There are also significant uncertainties as
to the portion, if any, of the investigation and remediation costs of any
particular hazardous waste site that may ultimately be borne by the Company.
Where appropriate, the Company intends to seek recovery from its insurers and
from other PRPs, but it is uncertain whether, and to what extent, such efforts
will be successful. The Company believes that hazardous waste liabilities for
all sites of which it is aware are not material to its financial position.
6. Nuclear Plant Decommissioning and Nuclear Fuel Disposal:
The Company is recovering its share of projected decommissioning costs for
Millstone 3 and Seabrook 1 through depreciation expense. Projected
decommissioning costs include estimated costs to decontaminate the units as
required by the Nuclear Regulatory Commission (NRC), as well as costs to
dismantle the non-contaminated portion of the units. The Company records
decommissioning cost expense on its books consistent with its rate recovery.
In addition, the Company is paying its portion of projected decommissioning
costs for all of the Yankees through purchased power expense. Such costs
reflect estimates of total decommissioning costs approved by the FERC.
Each of the operating nuclear units in which the Company has an ownership
interest has established decommissioning trust funds or escrow funds into
which payments are being made to meet the projected costs of decommissioning
each plant. Listed below is information on each operating nuclear plant in
which the Company has an ownership interest.
<PAGE>
The Company's
share of (in millions of dollars)
---------------------------------
Estimated
Decommiss-
Ownership ioning Cost Fund License
Unit Interest (in 1995 $) Balances** Expiration
Connecticut Yankee 15% 58 27 2007
Maine Yankee *** 20% 71 28 2008
Vermont Yankee 20% 71 27 2012
Millstone 3 * 12% 58 14 2025
Seabrook 1 * 10% 43 6 2026
* Fund balances are included in "Non-utility property and other
investments" on the balance sheets and approximate market value.
** Certain additional amounts are anticipated to be available through tax
deductions.
*** A Maine statute provides that if both Maine Yankee and its
decommissioning trust fund have insufficient assets to pay for the plant
decommissioning, the owners of Maine Yankee are jointly and severally
liable for the shortfall.
There is no assurance that decommissioning costs actually incurred by the
Yankees, Millstone 3, or Seabrook 1 will not substantially exceed these
amounts. For example, decommissioning cost estimates assume the availability
of permanent repositories for both low-level and high-level nuclear waste that
do not currently exist. If any of the units were shut down prior to the end of
their operating licenses, the funds collected for decommissioning to that
point would be insufficient.
The Nuclear Waste Policy Act of 1982 establishes that the federal government
is responsible for the disposal of spent nuclear fuel. The federal government
requires the Company to pay a fee based on its share of the net generation
from Millstone 3 and Seabrook 1. The Company is recovering this fee through
its fuel clause. Similar costs are incurred by Connecticut Yankee, Maine
Yankee, and Vermont Yankee. These costs are billed to the Company and also
recovered from customers through the Company's fuel clause.
7. Nuclear Insurance:
The Price-Anderson Act limits the amount of liability claims that would have
to be paid in the event of a single incident at a nuclear plant to $8.9
billion (based upon 110 licensed reactors). The maximum amount of commercially
available insurance coverage to pay such claims is $200 million. The remaining
$8.7 billion would be provided by an assessment of up to $79.3 million per
incident levied on each of the participating nuclear units in the United
States, subject to a maximum assessment of $10 million per incident per
nuclear unit in any year. The maximum assessment, which was most recently
adjusted in 1993, is adjusted for inflation at least every five years. The
Company's current interest in the Yankees (excluding Yankee Atomic), Millstone
3, and Seabrook 1 would subject the Company to a $58 million maximum
assessment per incident. The Company's payment of any such assessment would be
limited to a maximum of $7.3 million per incident per year. As a result of the
permanent cessation of power operation of the Yankee Atomic plant, Yankee
Atomic has received from the NRC a partial exemption from obligations under
the Price-Anderson Act. However, Yankee Atomic must continue to maintain $100
million of commercially available nuclear insurance coverage.
<PAGE>
Each of the nuclear units in which the Company has an ownership interest also
carries nuclear property insurance to cover the costs of property damage,
decontamination or premature decommissioning, and workers' claims resulting
from a nuclear incident. These policies may require additional premium
assessments if losses relating to nuclear incidents at units covered by this
insurance occurring in a prior six-year period exceed the accumulated funds
available. The Company's maximum potential exposure for these assessments,
either directly, or indirectly through purchased power payments to the
Yankees, is approximately $18 million per year.
8. Long-term Contracts for the Purchase of Electricity:
The Company purchases a portion of its electricity requirements pursuant to
long-term contracts that expire in various years from 1996 to 2029, with
owners of various generating units.
Certain of these contracts require the Company to make minimum fixed payments,
even when the supplier is unable to deliver power, to cover the Company's
proportionate share of the capital and fixed operating costs of these
generating units. The fixed portion of payments under these contracts totaled
$215 million in 1995, $190 million in 1994, and $220 million in 1993. These
contracts have minimum fixed payment requirements of $190 million in 1996,
$185 million in 1997, $190 million in 1998, $180 million in 1999 and 2000, and
approximately $1.8 billion thereafter. Approximately 97 percent of the
payments under these contracts are to the Yankees (excluding Yankee Atomic -
see Note D-1) and Ocean State Power, entities in which the Company or its
affiliates hold ownership interests.
The Company's other contracts, principally with non-utility generators,
require the Company to make payments only if power supply capacity and energy
are deliverable from such suppliers. The Company's payments under these
contracts amounted to $245 million in 1995, and $210 million in 1994 and 1993,
respectively.
9. Purchased Power Contract Dispute:
In October 1994, the Company was sued by Milford Power Limited Partnership
(MPLP), a venture of Enron Corporation and Jones Capital that owns a 149 MW
gas-fired power plant in Milford, Massachusetts. The Company purchases 56
percent of the power output of the facility under a long-term contract with
MPLP. The suit alleges that the Company has engaged in a scheme to cause MPLP
and its power plant to fail and has prevented MPLP from finding a long-term
buyer for the remainder of the facility's output. The complaint includes
allegations that the Company has violated the Federal Racketeer Influenced and
Corrupt Organizations Act, engaged in unfair or deceptive acts in trade or
commerce, and breached contracts. MPLP also asserts that the Company
deliberately misled regulatory bodies concerning the Manchester Street Station
repowering project. MPLP seeks compensatory damages in an unspecified amount,
as well as treble damages. The Company believes that the allegations of
wrongdoing are without merit. The Company has filed counterclaims and
crossclaims against MPLP, Enron Corporation, and Jones Capital, seeking
monetary damages and termination of the purchased power contract.
MPLP also intervened in the Company's current rate filing before the FERC,
making similar allegations to those asserted in MPLP's lawsuit. Hearings on
this claim concluded in October 1995. An Administrative Law Judge initial
decision is expected by mid-1996.
Note F - Employee Benefits
1. Pension Plans:
The Company participates with other subsidiaries of NEES in noncontributory,
defined-benefit plans covering substantially all employees of the Company. The
plans provide pension benefits based on the employee's compensation during the
five years prior to retirement. The Company's funding policy is to contribute
each year the net periodic pension cost for that year. However, the
<PAGE>
contribution for any year will not be less than the minimum contribution
required by federal law or greater than the maximum tax deductible amount.
Net pension cost for 1995, 1994, and 1993 included the following components:
<TABLE>
<CAPTION>
Year Ended December 31, (In Thousands) 1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Service cost benefits earned during the
period $2,231 $2,202 $1,953
Plus (less):
Interest cost on projected benefit obligation 6,406 6,403 6,070
Return on plan assets at expected long-term
rate (6,488) (6,554) (5,850)
Amortization 131 557 47
------- ------- -------
Net pension cost $2,280 $2,608 $2,220
======= ======= =======
Actual return on plan assets $17,108 $608 $8,949
======= ======= =======
1996 1995 1994 1993
---- ---- ---- ----
Assumptions used to determine pension cost:
Discount rate 7.25% 8.25% 7.25% 8.25%
Average rate of increase in future
compensation levels 4.13% 4.63% 4.35% 5.35%
Expected long-term rate of return
on assets 8.50% 8.75% 8.75% 8.75%
</TABLE>
Service cost for 1993 does not reflect $10 million of costs incurred in
connection with an early retirement and special severance program offered by
the Company in that year.
The funded status of the plans cannot be presented separately for the Company
as the Company participates in the plans with other NEES subsidiaries. The
following table sets forth the funded status of the NEES companies' plans at
December 31:
<TABLE>
<CAPTION>
Retirement Plans, (In Millions) 1995 1994
---- ----
<S> <C> <C>
Union Non-Union Union Non-Union
Employee Employee Employee Employee
Plans Plans Plans Plans
-------- --------- ------- --------
Benefits earned
Actuarial present value of
accumulated benefit liability:
Vested $293 $343 $251 $308
Non-vested 8 10 8 9
---- ---- ---- ----
Total $301 $353 $259 $317
==== ==== ==== ====
Reconciliation of funded status
Actuarial present value of
projected benefit liability $346 $402 $303 $355
Unrecognized prior service costs (7) (4) (8) (4)
Unrecognized transition liability (1) (1)
Unrecognized net loss (1) (23) (13) (33)
---- ---- ---- ----
338 374 282 317
---- ---- ---- ----
Pension fund assets at fair value 349 392 293 323
Unrecognized transition asset (11) (13)
---- ---- ---- ----
338 392 280 323
---- ---- ---- ----
Accrued pension/(prepaid)
payments recorded on books $ - $(18) $ 2 $ (6)
</TABLE>
The plans' funded status at December 31, 1995 and 1994 were calculated using
the assumed rates from 1996 and 1995, respectively, and the 1983 Group Annuity
Mortality table.
Plan assets are composed primarily of corporate equity, guaranteed investment
contracts, debt securities, and cash equivalents.
<PAGE>
2. Postretirement Benefit Plans Other Than Pensions (PBOPs):
The Company provides health care and life insurance coverage to eligible
retired employees. Eligibility is based on certain age and length of service
requirements and in some cases retirees must contribute to the cost of their
coverage.
The total cost of PBOPs for 1995, 1994, and 1993 included the following
components:
<TABLE>
<CAPTION>
Year Ended December 31, (In Thousands) 1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Service cost benefits earned during
the period $1,344 $1,628 $1,632
Plus (less):
Interest cost on accumulated
benefit obligation 4,013 3,954 4,275
Return on plan assets at expected
long-term rate (1,374) (1,111) (725)
Amortization 2,079 2,591 2,558
------ ------ ------
Net postretirement benefit cost $6,062 $7,062 $7,740
====== ====== ======
Actual return on plan assets $4,137 $54 $ 746
1996 1995 1994 1993
---- ---- ---- ----
Assumptions used to determine
postretirement benefit cost:
Discount rate 7.25% 8.25% 7.25% 8.25%
Expected long-term rate of return
on assets 8.25% 8.50% 8.50% 8.50%
Health care cost rate 1994 and 1993 11.00% 12.00%
Health care cost rate 1995 to 1999 8.00% 8.50% 8.50% 9.50%
Health care cost rate 2000 to 2004 6.25% 8.50% 8.50% 9.50%
Health care cost rate 2005 and beyond 5.25% 6.25% 6.25% 7.25%
The following table sets forth benefits earned and the plans' funded status:
At December 31, (In Millions) 1995 1994
---- ----
Accumulated postretirement benefit obligation:
Retirees $30 $31
Fully eligible active plan participants 1 3
Other active plan participants 20 17
--- ---
Total benefits earned 51 51
Unrecognized transition obligation (43) (46)
Unrecognized net gain 12 6
--- ---
20 11
--- ---
Plan assets at fair value 23 15
--- ---
Prepaid postretirement benefit costs recorded on books $3 $4
=== ===
</TABLE>
The plans' funded status at December 31, 1995 and 1994 were calculated using
the assumed rates in effect for 1996 and 1995, respectively.
<PAGE>
The health care cost trend rate assumption has a significant effect on the
amounts reported. Increasing the assumed rates by 1 percent in each year would
increase the accumulated postretirement benefit obligation as of December 31,
1995 by approximately $6 million and the net periodic cost for the year 1995
by approximately $1 million.
The Company funds the annual tax deductible contributions. Plan assets are
invested in equity and debt securities and cash equivalents.
Note G - Short-term Borrowings and Other Accrued Expenses
At December 31, 1995, the Company had $125 million of short-term debt
outstanding including $124 million in commercial paper borrowings and $1
million of borrowings from affiliates. NEES and certain subsidiaries,
including the Company, with regulatory approval, operate a money pool to more
effectively utilize cash resources and to reduce outside short-term
borrowings. Short-term borrowing needs are met first by available funds of the
money pool participants. Borrowing companies pay interest at a rate designed
to approximate the cost of outside short-term borrowings. Companies which
invest in the pool share the interest earned on a basis proportionate to their
average monthly investment in the money pool. Funds may be withdrawn from or
repaid to the pool at any time without prior notice.
At December 31, 1995, the Company had lines of credit and standby bond
purchase facilities with banks totaling $510 million which are available to
provide liquidity support for commercial paper borrowings and for $342 million
of the Company's outstanding variable rate mortgage bonds in tax-exempt
commercial paper mode (see Note I) and for other corporate purposes. There
were no borrowings under these lines of credit at December 31, 1995. Fees are
paid on the lines and facilities in lieu of compensating balances.
The weighted average rate on outstanding short-term borrowings was 5.9 percent
at December 31, 1995. The fair value of the Company's short-term debt equals
carrying value.
The components of other accrued expenses are as follows:
At December 31, (In Thousands) 1995 1994
---- ----
Accrued wages and benefits $6,258 $6,397
Capital lease obligations due within one year 4,323 4,324
Other 253 145
------ ------
$10,834 $10,866
====== ======
<PAGE>
Note H - Cumulative Preferred Stock
<TABLE>
<CAPTION>
A summary of cumulative preferred stock at December 31, 1995 and 1994 is as follows (in
thousands of dollars except for share data):
Shares
Authorized Dividends Call
and Outstanding Amount Declared Price
--------------- ------ ------------ -----
1995 1994 1995 1994 1995 1994
---- ---- ---- ---- ---- ---- -----
<S> <C> <C> <C> <C> <C> <C> <C>
$100 Par value
6.00% Series 75,020 75,020 $7,502 $7,502 $451 $458 (a)
4.56% Series 100,000 100,000 10,000 10,000 456 456$104.08
4.60% Series 80,140 80,140 8,014 8,014 368 368 101.00
4.64% Series 100,000 100,000 10,000 10,000 464 464 102.56
6.08% Series 100,000 100,000 10,000 10,000 608 608 102.34
7.24% Series 150,000 150,000 15,000 15,000 1,086 1,086 103.06
------- ------- ------ ------ ----- -----
Total 605,160 605,160$60,516 $60,516 $3,433 $3,440
(a) Noncallable.
The annual dividend requirement for total cumulative preferred stock was $3,433,000 for
1995 and 1994.
</TABLE>
<PAGE>
Note I - Long-term Debt
A summary of long-term debt is as follows:
At December 31, (In Thousands)
Series Rate % Maturity 1995 1994
- -----------------------------------------------------------------------------
General and Refunding Mortgage Bonds:
W(93-3) 5.12 February 2, 1996 $5,000 $5,000
W(93-8) 5.06 February 5, 1996 5,000 5,000
Y(94-3) 8.10 December 22, 1997 3,000 3,000
W(93-2) 6.17 February 2, 1998 4,300 4,300
W(93-4) 6.14 February 2, 1998 1,300 1,300
W(93-5) 6.17 February 3, 1998 5,000 5,000
W(93-7) 6.10 February 4, 1998 10,000 10,000
W(93-9) 6.04 February 4, 1998 29,400 29,400
Y(94-4) 8.28 December 21, 1999 10,000 10,000
W(93-6) 6.58 February 10, 2000 5,000 5,000
Y(95-1) 7.94 February 14, 2000 5,000
Y(95-2) 7.93 February 14, 2000 10,000
Y(95-3) 7.40 March 21, 2000 10,000
Y(95-4) 6.69 June 5, 2000 25,000
W(93-1) 7.00 February 3, 2003 25,000 25,000
Y(94-2) 8.33 November 8, 2004 10,000 10,000
K 7.25 October 15, 2015 38,500 38,500
L 7.80 April 1, 2016 29,850 29,850
X variable March 1, 2018 79,250 79,250
R variable November 1, 2020 117,850 107,850
S variable November 1, 2020 20,750 20,750
T variable November 1, 2020 18,000 28,000
U 8.00 August 1, 2022 170,000 170,000
V variable October 1, 2022 106,150 106,150
Y(94-1) 8.53 September 20, 2024 5,000 5,000
Unamortized discounts (2,910) (2,884)
-------- --------
Total long-term debt 745,440 695,466
======== ========
Long-term debt due in one year (10,000)
-------- --------
$735,440 $695,466
======== ========
Substantially all of the properties and franchises of the Company are subject
to the lien of the mortgage indentures under which the general and refunding
mortgage bonds have been issued.
The Company will make cash payments of $10 million in 1996, $3 million in
1997, $50 million in 1998, $10 million in 1999, and $55 million in 2000 to
retire maturing mortgage bonds.
The terms of $342 million of variable rate pollution control revenue bonds
(PCRBs) collateralized by the Company's mortgage bonds require the Company to
reacquire the bonds under certain limited circumstances. At December 31, 1995,
interest rates on the Company's variable rate bonds ranged from 3.35 percent
to 6.00 percent. To date in 1996, the Company has issued $40 million of
additional variable rate PCRBs to refinance $10 million of Series T bonds and
$30 million of Series L bonds.
<PAGE>
At December 31, 1995, the Company's long-term debt had a carrying value of
$745,000,000 and had a fair value of approximately $785,000,000. The fair
value of debt that reprices frequently at market rates approximates carrying
value. For all other debt, the fair market value of the Company's long-term
debt was estimated based on the quoted prices for similar issues or on the
current rates offered to the Company for debt of the same remaining maturity.
Note J - Restrictions on Retained Earnings Available for Dividends on Common
Stock
Pursuant to the provisions of the Articles of Organization and the By-Laws
relating to the Dividend Series Preferred Stock, certain restrictions on
payment of dividends on common stock would come into effect if the "junior
stock equity" was, or by reason of payment of such dividends became, less than
25 percent of "Total capitalization." However, the junior stock equity at
December 31, 1995 was 52 percent of total capitalization, including long-term
debt due in one year, and, accordingly, none of the Company's retained
earnings at December 31, 1995 were restricted as to dividends on common stock
under the foregoing provisions.
Under restrictions contained in the indentures relating to general and
refunding mortgage bonds (Series K), none of the Company's retained earnings
at December 31, 1995 were restricted as to dividends on common stock.
However, a portion of the Company's retained earnings (less than $20 million)
may be restricted due to regulatory requirements related to hydroelectric
licensed projects.
Note K - Supplementary Income Statement Information
Advertising expenses, expenditures for research and development, and rents
were not material and there were no royalties paid in 1995, 1994, or 1993.
Taxes, other than income taxes, charged to operating expenses are set forth by
classes as follows:
<TABLE>
<CAPTION>
Year Ended December 31, (In Thousands) 1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Municipal property taxes $49,807 $46,506 $44,124
Federal and state payroll and other taxes 8,909 7,894 7,807
------- ------- -------
$58,716 $54,400 $51,931
New England Power Service Company, an affiliated service company operating
pursuant to the provisions of Section 13 of the Public Utility Holding Company
Act of 1935, furnished services to the Company at the cost of such services.
These costs amounted to $103,529,000, $103,961,000, and $94,366,000, including
capitalized construction costs of $24,671,000, $22,396,000, and $20,335,000,
for each of the years 1995, 1994, and 1993, respectively.
</TABLE>
<PAGE>
New England Power Company
Operating Statistics (Unaudited)
<TABLE>
<CAPTION>
Year Ended December 31, 1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Sources of Energy (Thousands of kWh)
Net generation thermal 11,547,85610,971,31911,621,03812,087,77513,569,122
Net generation conventional
hydro 1,257,533 1,352,600 1,253,925 1,212,155 1,507,656
Generation pumped storage 519,931 525,653 548,358 530,796 498,895
Net generation nuclear 1,812,468 1,767,959 1,696,677 1,592,340 1,033,332
Nuclear entitlements 1,278,598 2,535,534 2,196,998 2,214,976 2,713,947
Purchased energy from
non-affiliates (B) 8,857,842 8,674,191 7,800,975 7,287,856 6,323,144
Energy for pumping (716,279) (723,352) (750,784) (738,364) (685,659)
--------------------------------------------------
Total generated and
purchased 24,557,94925,103,90424,367,18724,187,53424,960,437
Losses, company use, etc. (690,626) (635,695) (548,228) (632,850) (589,001)
--------------------------------------------------
Total sources of energy 23,867,32324,468,20923,818,95923,554,68424,371,436
Sales of Energy (Thousands of kWh)
Resale:
Affiliated companies 22,338,30122,182,76121,858,49121,497,99321,496,098
Less generation by
affiliated Company (A) (64,035) (5,781) (4,506) (83,753) (162,844)
--------------------------------------------------
Net sales to affiliated
companies 22,274,26622,176,98021,853,98521,414,24021,333,254
Other utilities (B) 947,537 1,731,225 1,528,686 1,705,591 2,613,034
Municipals 633,970 551,866 426,525 415,659 411,171
--------------------------------------------------
Total sales for resale 23,855,77324,460,07123,809,196 23,535,490 24,357,459
Ultimate customers 11,550 8,138 9,763 19,194 13,977
--------------------------------------------------
Total sales of energy 23,867,32324,468,20923,818,95923,554,68424,371,436
Operating Revenue (In Thousands)
Revenue from electric sales
Resale:
Affiliated companies $1,498,848$1,448,503$1,459,619$1,450,831$1,384,222
Less G and T
credits (A) (43,532) (32,346) (26,001) (38,697) (50,961)
Net sales to affiliated
companies 1,455,316 1,416,157 1,433,618 1,412,134 1,333,261
Other utilities (B) 41,193 56,306 52,695 55,156 76,162
Municipals 37,036 32,055 27,574 26,980 25,755
--------------------------------------------------
Total revenue from
sales for resale 1,533,545 1,504,518 1,513,887 1,494,270 1,435,178
Ultimate customers 945 606 752 1,399 1,097
---------------------------------------- ---------
Total revenue from
electric sales 1,534,490 1,505,1241,514,639 1,495,669 1,436,275
Other operating revenue 36,049 35,633 34,375 35,206 36,016
--------------------------------------------------
Total operating revenue $1,570,539$1,540,757$1,549,014$1,530,875$1,472,291
Annual Maximum Demand
(kW one hour peak) 4,381,000 4,385,000 4,081,0003,964,000 4,250,000
<FN>
(A) The generation and transmission facilities of affiliates are operated as an
integrated part of the Company's power supply and the affiliates receive generation and
transmission (G and T) credits against their power bills for costs of facilities so
integrated.
(B)Includes transactions with the New England Power Pool.
</FN>
</TABLE>
<PAGE>
New England Power Company
Selected Financial Information
<TABLE>
<CAPTION>
Year Ended December 31, (In Millions) 1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Operating revenue:
Electric sales
(excluding fuel cost recovery) $941 $942 $939 $907 $861
Fuel cost recovery 594 563 576 589 575
Other 36 36 34 35 36
------ ------ ------ ------ ------
Total operating revenue $1,571 $1,541 $1,549 $1,531 $1,472
Net income $151 $149 $141 $134 $135
Total assets $2,648 $2,613 $2,441 $2,387 $2,277
Capitalization:
Common equity $889 $877 $850 $825 $797
Cumulative preferred stock 61 61 61 86 86
Long-term debt 735 695 667 666 730
------ ------ ------ ------ ------
Total capitalization $1,685 $1,633 $1,578 $1,577 $1,613
Preferred dividends declared $3 $3 $5 $6 $6
Common dividends declared $135 $119 $111 $100 $116
</TABLE>
Selected Quarterly Financial Information (Unaudited)
<TABLE>
<CAPTION>
First Second Third Fourth
(In Thousands) Quarter Quarter Quarter Quarter
------- ------- ------- -------
<S> <C> <C> <C> <C>
1995
Operating revenue $391,118 $378,177 $421,935 $379,309
Operating income $40,089 $33,454 $69,669 $42,201
Net income $30,982 $27,689 $61,684 $31,072
1994
Operating revenue $399,574 $356,488 $419,555 $365,140
Operating income $56,873 $32,192 $55,217 $26,239
Net income $49,189 $26,182 $49,818 $24,184
Per share data is not relevant because the Company's common stock is wholly-owned by New
England Electric System.
A copy of New England Power Company's Annual Report on Form 10-K to the Securities and
Exchange Commission for the year ended December 31, 1995 will be available on or about
April 1, 1996, without charge, upon written request to New England Power Company,
Shareholder Services Department, 25 Research Drive, Westborough, Massachusetts 01582.
</TABLE>
<PAGE>
EXHIBIT (21)
<TABLE>
Subsidiaries of New England Power Company
<CAPTION>
State of Incorporation or
Name of Company Organization
- --------------- -------------------------
<S> <C>
Connecticut Yankee Atomic Connecticut
Power Company
Maine Yankee Atomic Maine
Power Company
Vermont Yankee Nuclear Vermont
Power Corporatio
Yankee Atomic Electric Company Massachusetts
</TABLE>
<PAGE>
EXHIBIT (24)
POWER OF ATTORNEY
-----------------
Each of the undersigned directors of New England Power Company (the
"Company"), individually as a director of the Company, hereby constitutes and
appoints John G. Cochrane, Maureen L. Fountain, and Geraldine M. Zipser,
individually, as attorney-in-fact to execute on behalf of the undersigned the
Company's annual report on Form 10-K for the year ended December 31, 1995, to
be filed with the Securities and Exchange Commission, and to execute any
appropriate amendment or amendments thereto as may be required by law.
Dated this 12th day of March, 1996.
s/Joan T. Bok s/Alfred D. Houston
_________________________ _________________________
Joan T. Bok Alfred D. Houston
s/Cheryl A. LaFleur
_________________________ _________________________
Cheryl A. LaFleur John W. Rowe
_________________________
Jeffrey D. Tranen
<TABLE> <S> <C>
<PAGE>
<ARTICLE> UT
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE BALANCE SHEET AND RELATED STATEMENTS OF INCOME, RETAINED
EARNINGS AND CASH FLOWS OF NEW ENGLAND POWER COMPANY, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
<CIK> 0000071337
<NAME> New England Power Company
<MULTIPLIER> 1,000
<S> <C> <C>
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1994
<PERIOD-END> DEC-31-1995 DEC-31-1994
<PERIOD-TYPE> 12-MOS 12-MOS
<BOOK-VALUE> PER-BOOK PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 1,950,263 1,876,211
<OTHER-PROPERTY-AND-INVEST> 73,682 69,329
<TOTAL-CURRENT-ASSETS> 351,123 374,654
<TOTAL-DEFERRED-CHARGES> 273,275 <F1> 292,644 <F1>
<OTHER-ASSETS> 0 0
<TOTAL-ASSETS> 2,648,343 2,612,838
<COMMON> 128,998 128,998
<CAPITAL-SURPLUS-PAID-IN> 374,829 374,829
<RETAINED-EARNINGS> 385,309 372,763
<TOTAL-COMMON-STOCKHOLDERS-EQ> 889,136 876,590
0 0
60,516 60,516
<LONG-TERM-DEBT-NET> 735,440 695,466
<SHORT-TERM-NOTES> 1,025 16,575
<LONG-TERM-NOTES-PAYABLE> 0 0
<COMMERCIAL-PAPER-OBLIGATIONS> 124,125 129,000
<LONG-TERM-DEBT-CURRENT-PORT> 10,000 0
0 0
<CAPITAL-LEASE-OBLIGATIONS> 0 0
<LEASES-CURRENT> 0 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 828,101 834,691
<TOT-CAPITALIZATION-AND-LIAB> 2,648,343 2,612,838
<GROSS-OPERATING-REVENUE> 1,570,539 1,540,757
<INCOME-TAX-EXPENSE> 91,051 96,596
<OTHER-OPERATING-EXPENSES> 1,294,075 1,273,640
<TOTAL-OPERATING-EXPENSES> 1,385,126 1,370,236
<OPERATING-INCOME-LOSS> 185,413 170,521
<OTHER-INCOME-NET> 11,857 13,665
<INCOME-BEFORE-INTEREST-EXPEN> 197,270 184,186
<TOTAL-INTEREST-EXPENSE> 45,843 34,813
<NET-INCOME> 151,427 149,373
3,433 3,440
<EARNINGS-AVAILABLE-FOR-COMM> 147,994 145,933
<COMMON-STOCK-DIVIDENDS> 135,448 119,323
<TOTAL-INTEREST-ON-BONDS> 46,797 38,711
<CASH-FLOW-OPERATIONS> 245,666 246,572
<PAGE>
<EPS-PRIMARY> 0 <F2> 0 <F2>
<EPS-DILUTED> 0 <F2> 0 <F2>
<FN>
<F1> Total deferred charges includes other assets and accrued Yankee Atomic costs.
<F2> Per share data is not relevant because the Company's common stock is wholly-owned by New England Electric System.
</FN>
<PAGE>
<TABLE>
MASSACHUSETTS ELECTRIC COMPANY
Computation of Ratio of Earnings to Fixed Charges
(SEC Coverage)
(Unaudited)
<CAPTION>
Years Ended December 31,
-------------------------------------------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
(In Thousands)
<S> <C> <C> <C> <C> <C>
Net Income $29,101 $34,726 $23,779 $34,905 $25,243
- ----------
Add income taxes and fixed charges
- ----------------------------------
Current federal income taxes 9,437 (6,762) 5,606 3,977 8,568
Deferred federal income taxes 6,156 24,932 3,430 13,451 3,889
Investment tax credits - net (1,132) (1,228) (1,228) (1,228) (1,194)
Massachusetts franchise tax 3,935 4,681 3,348 3,858 2,920
Interest on long-term debt 25,901 20,967 23,403 21,910 20,157
Interest on short-term debt and other 6,784 6,366 3,638 3,657 3,643
------- ------- ------- ------- -------
Net earnings available for fixed charges $80,182 $83,682 $61,976 $80,530 $63,226
------- ------- ------- ------- -------
Fixed charges:
Interest on long-term debt $25,901 $20,967 $23,403 $21,910 $20,157
Interest on short-term debt and other 6,784 6,366 3,638 3,657 3,643
------- ------- ------- ------- -------
Total fixed charges $32,685 $27,333 $27,041 $25,567 $23,800
======= ======= ======= ======= =======
Ratio of earnings to fixed charges 2.45 3.06 2.29 3.15 2.66
- ----------------------------------
</TABLE>
<PAGE>
Annual Report 1995
Massachusetts Electric Company
A Subsidiary of
New England Electric System
[LOGO] Massachusetts Electric
A NEES Company
<PAGE>
Massachusetts Electric Company
25 Research Drive,
Westborough, Massachusetts 01582
Directors
(As of December 31, 1995)
Urville J. Beaumont
Treasurer and Director, Beaumont and Campbell, P.A. (Attorneys), Salem, New
Hampshire
Joan T. Bok
Chairman of the Board of New England Electric System
Sally L. Collins
Director, Workplace Health Services, Greenfield, Massachusetts
John H. Dickson
President and Chief Executive Officer of the Company
Dr. Kalyan K. Ghosh
President, Worcester State College
Charles B. Housen
Chairman and President, Erving Industries, Erving, Massachusetts
Patricia McGovern
Of Counsel, Goulston and Storrs, P.C., Boston, Massachusetts
John F. Reilly
President and Chief Executive Officer of Fred C. Church, Inc., Lowell,
Massachusetts
John W. Rowe
President and Chief Executive Officer of New England Electric System
Richard P. Sergel
Chairman of the Company and Vice President of New England Electric System
Richard M. Shribman
Treasurer, Norick Realty Corporation, Salem, Massachusetts
Roslyn M. Watson
President, Watson Ventures, Boston, Massachusetts
Officers
(As of December 31, 1995)
Richard P. Sergel
Chairman of the Company and Vice President of New England Electric System
John H. Dickson
President and Chief Executive Officer
John C. Amoroso
Vice President
Eric P. Cody
Vice President
Peter H. Gibson
Vice President
Gregory A. Hale
Vice President
Cheryl A. LaFleur***
Vice President
<PAGE>
Charles H. Moser
Vice President
Lydia M. Pastuszek
Vice President of the Company and President of an affiliate
Anthony C. Pini
Vice President
Thomas E. Rogers**
Vice President
Christopher E. Root
Vice President
Nancy H. Sala
Vice President
Dennis E. Snay
Vice President
Michael E. Jesanis
Treasurer of the Company and of New England Electric System
Robert King Wulff
Clerk of the Company and of certain
affiliates
Howard W. McDowell
Controller and Assistant Treasurer of
the Company and Controller of certain affiliates
Frederic E. Greenman*
Assistant Clerk and General Counsel of the Company and Senior Vice President,
General Counsel, and Secretary of New England Electric System
Thomas G. Robinson**
Assistant Clerk and General Counsel of the Company
* retired December 31, 1995
** elected effective December 31, 1995
*** resigned effective December 31, 1995
Transfer Agent, Dividend Paying Agent, and Registrar of Preferred Stock
State Street Bank and Trust Company, Boston, Massachusetts
This report is not to be considered an offer to sell or buy or solicitation of
an offer to sell or buy any security.
<PAGE>
Massachusetts Electric Company
Massachusetts Electric Company is a wholly-owned subsidiary of New England
Electric System operating in Massachusetts. The Company's business is the
distribution and sale of electricity at retail. Electric service is provided
to approximately 950,000 customers in 146 cities and towns having a population
of approximately 2,160,000 (1990 Census). The Company's service area covers
approximately 43 percent of Massachusetts. The cities and towns served by the
Company include the highly diversified commercial and industrial cities of
Worcester, Lowell, and Quincy, the Interstate 495 high technology belt,
suburban communities, and many rural towns. The principal industries served
include computer manufacturing and related businesses, electrical and
industrial machinery, plastic goods, fabricated metals and paper, and chemical
products. In addition, a broad range of professional, banking, medical, and
educational institutions is served. There are a number of proposals that
would increase competition in the electric utility industry and result in
customers having a choice of power suppliers (see "Financial Review").
The properties of the Company consist principally of substations and
distribution lines interconnected with transmission and other facilities of
New England Power Company (NEP), an affiliate. The Company buys its electric
energy requirements from NEP under a contract which obligates NEP to furnish
such requirements at its standard resale rate. The Company participates
through NEP in the New England Power Pool, which provides for the coordination
of the planning and operation of the generation and transmission facilities in
New England, and the region-wide central dispatch of generation.
Report of Independent Accountants
Massachusetts Electric Company, Westborough, Massachusetts:
We have audited the accompanying balance sheets of Massachusetts Electric
Company (the Company), a wholly-owned subsidiary of New England Electric
System, as of December 31, 1995 and 1994 and the related statements of income,
retained earnings, and cash flows for each of the three years in the period
ended December 31, 1995. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the Company as of December
31, 1995 and 1994, and the results of its operations and its cash flows for
each of the three years in the period ended December 31, 1995 in conformity
with generally accepted accounting principles.
Boston, Massachusetts COOPERS & LYBRAND L.L.P.
March 1, 1996
<PAGE>
Massachusetts Electric Company
Financial Review
Overview
Net income for 1995 decreased $6 million. Although the Company experienced
growth in sales and reduced operation and maintenance costs, such increases in
income were more than offset by increased purchased power costs, increased
interest expense and a decrease in revenue due to the operation of the
Company's purchased power adjustment (PPCA) mechanism.
Net income for 1994 increased by $11 million compared with 1993. The
increase was primarily due to the inclusion in 1993 of one-time charges
associated with an early retirement program and the establishment of
additional gas waste reserves. In addition, the increase in 1994 earnings
reflects increased kilowatt-hour (kWh) sales. These factors were partially
offset by increased operation and maintenance expenses excluding the effect of
the one-time charges discussed above.
Competitive Conditions
The electric utility business is being subjected to rapidly increasing
competitive pressures, stemming from a combination of trends, including the
presence of surplus generating capacity, a disparity in electric rates among
regions of the country, improvements in generation efficiency, increasing
demand for customer choice, and new regulations and legislation intended to
foster competition. To date, this competition has been most prominent in the
bulk power market, in which non-utility generators have significantly
increased their market share. Electric utilities have had exclusive
franchises for the retail sale of electricity in specified service
territories. As a result, competition in the retail market has been limited
to (i) competition with alternative fuel suppliers, primarily for heating and
cooling, (ii) competition with customer-owned generation, and (iii) direct
competition among electric utilities to attract major new facilities to their
service territories. These competitive pressures have led the Company and
other utilities to offer, from time to time, special discounts or service
packages to certain large customers.
In states across the country, including Massachusetts, there have been an
increasing number of proposals to allow retail customers to choose their
electricity supplier, with incumbent utilities required to deliver that
electricity over their transmission and distribution systems (also known as
"retail wheeling"). If electric customers were allowed to choose their
electricity supplier, the Company's role would change and it would provide
only distribution services. Power would be provided by power generators and
marketers, which could be either affiliated or non-affiliated companies. In
these competitive circumstances, utilities across the country that operate
generation plants, such as the Company's affiliate, New England Power Company
(NEP), would face the risk that market prices may not be sufficient to recover
the costs of the commitments incurred to supply customers under a regulated
industry structure. The amount by which costs exceed market prices is
commonly referred to as "stranded costs."
The Company purchases electricity on behalf of its customers under a
wholesale all-requirements contract with NEP. NEP derives approximately 72
percent of its electric sales revenues from sales to the Company.
Choice: New England
In October 1995, the New England Electric System (NEES) companies announced
a plan to allow all customers of electric utilities in Massachusetts, Rhode
Island, and New Hampshire to choose their power supplier beginning in 1998.
The plan, Choice: New England, was developed in response to 1995 decisions by
the Massachusetts Department of Public Utilities (MDPU) and the Rhode Island
<PAGE>
Public Utilities Commission that approved a set of principles for industry
restructuring. These principles include allowing utilities the opportunity to
recover stranded costs. Choice: New England was formally filed with the MDPU
in February 1996.
Under Choice: New England, the Company would no longer sell electricity to
its customers. Instead, customers would purchase electricity from a supplier
of their choice, with the Company remaining responsible for providing
distribution services to customers under regulated rates. Transmission
services would be provided by a new affiliate of the Company, which would be
formed by NEES to provide comparable service across the NEES companies'
transmission system.
Under Choice: New England, the pricing of generation would be deregulated.
However, customers would have the right to receive service under a "standard
offer" from the incumbent utility or its affiliate, the pricing of which would
be approved in advance by legislators or regulators. Customers electing the
standard offer would be eligible to choose an alternative power supplier at
any time, but would not be allowed to return to the standard offer.
Under Choice: New England, the Company's wholesale contract with NEP would
be terminated. In return, Choice: New England proposes that the cost of NEP's
past generation commitments be recovered from the Company and its retail
affiliates through a contract termination charge. The Company would, in turn,
seek to recover the payments to NEP through a wires access or transition
charge to retail customers. Those commitments primarily consist of (i)
generating plant commitments, (ii) regulatory assets, (iii) purchased power
contracts, and (iv) the operating cost of nuclear plants which cannot be
mitigated by shutting down the plants (otherwise referred to as "nuclear costs
independent of operation"). The portion of these commitments incurred by NEP
to serve the Company's customers is currently estimated at approximately $3
billion on a present value basis. Sunk costs associated with utility
generating plants, such as past capital investments, and regulatory assets
would be recovered over ten years. Purchased power contract costs and nuclear
costs independent of operation would be recovered as incurred over the life of
those obligations, a period expected to extend beyond ten years. The access
charge would be set at three cents per kWh for the first three years.
Thereafter, the access charge would vary, but is expected to decline. The
provisions of Choice: New England, including the proposed access charge, are
subject to state approval and Federal Energy Regulatory Commission (FERC)
approval.
In March 1996, the Company filed a request with the MDPU to allow the
implementation of two pilot programs to test the plan. The first would allow
certain high technology customers in Massachusetts representing 1 percent of
the NEES companies' retail sales to have direct access to alternative power
suppliers beginning in July 1996. The second would allow residential and
small business customers in Massachusetts representing 0.5 percent of the NEES
companies' retail sales to have direct access beginning September 1, 1996.
Three other utilities and the Massachusetts Division of Energy Resources
(DOER) also filed plans with the MDPU in February 1996. The DOER's plan also
calls for direct access for all customers beginning in 1998 with a pilot
program beginning in 1997. The DOER plan, however, proposes that, in exchange
for stranded cost recovery, utilities divest their generating assets, either
through sale or spinoff. The NEES companies do not support the DOER mandatory
divestiture proposal. The MDPU is expected to issue regulations on industry
restructuring in September 1996 and to issue orders on the individual utility
plans in 1997.
<PAGE>
Other Legislative and Regulatory Initiatives
In February 1996, the MDPU denied the recovery of stranded power generation
costs in the context of the town of Stow, Massachusetts attempting to purchase
the distribution assets in that town owned by the neighboring Hudson Municipal
Light Department. Although the MDPU reaffirmed its general position that
utilities should have a reasonable opportunity to recover net, non-mitigable,
stranded costs, it refused to allow recovery in this case stating that Hudson
had not sufficiently demonstrated that stranded costs would be incurred and
made no effort to mitigate any such costs. Both parties have appealed the
MDPU decision and the MDPU has stayed its decision pending appeal.
In August 1995, the MDPU issued an order requiring a customer of another
utility who installed cogenerating equipment to pay 75 percent of that
utility's stranded costs attributable to serving the customer's load. The
MDPU indicated the decision did not set a precedent for stranded cost recovery
as part of industry restructuring. In March 1996, the FERC ruled that it
would not review the MDPU's decision. The customer is expected to appeal the
decision to the courts.
In March 1995, the FERC issued a Notice of Proposed Rulemaking in which it
stated that it is appropriate that legitimate and verifiable stranded costs be
recovered from departing customers as a result of wholesale competition. The
FERC also indicated that costs stranded as a result of retail competition
would be subject to state commission review if the necessary statutory
authority exists and subject to FERC review if the state commission does not
have such authority. A final decision is expected during 1996.
Risk Factors
The major risk factors affecting the Company relate to the possibility of
adverse regulatory decisions or legislation which limit the level of revenues
the Company is allowed to charge for its services. The Company's
all-requirements purchased power contract with NEP requires either party to
give seven years notice prior to terminating the contract. Termination of the
contract would create stranded costs at NEP that NEP would seek to recover
from the Company pursuant to the contract. In that event, the Company would
seek recovery of such stranded costs from its customers. However, there is no
assurance that the final restructuring plans ordered by state regulatory
bodies or state legislatures will include provisions that allow the Company to
fully recover any stranded costs passed on to the Company by NEP. In such an
event, the Company could be faced with a significant amount of costs being
billed to it by NEP that the Company could not fully recover from retail
customers, for which the Company would seek a remedy in the courts. In
addition, there is no assurance that any performance incentive system, which
regulators might ultimately adopt with respect to the Company's distribution
activities, would allow the Company to fully recover prudently incurred costs
and earn a reasonable return on investment.
Historically, electric utility rates have been based on a utility's costs.
As a result, electric utilities are subject to certain accounting standards
that are not applicable to other business enterprises in general. Financial
Accounting Standards No. 71, Accounting for the Effects of Certain Types of
Regulation (FAS 71), requires regulated entities, in appropriate
circumstances, to establish regulatory assets and liabilities, and thereby
defer the income statement impact of certain costs that are expected to be
recovered in future rates. The effects of regulatory, legislative, or utility
initiatives could, in the near future, cause all or a portion of the Company's
operations to cease meeting the criteria of FAS 71. In that event, the
application of FAS 71 to such operations would be discontinued and a non-cash
write-off of previously established regulatory assets and liabilities related
to such operations would be required. At December 31, 1995, the Company had
pre-tax regulatory assets (net of regulatory liabilities) of approximately $54
million. If competitive or regulatory change should cause a substantial
revenue loss, a write-down of plant assets could be required pursuant to
<PAGE>
Financial Accounting Standards No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of (FAS 121). In
addition, FAS 121 requires that all regulatory assets, which must have a high
probability of recovery to be initially established, must continue to meet
that high probability standard to avoid being written off. FAS 121, which is
effective for the Company in January 1996, is not expected to have a material
adverse impact on the financial condition or results of operations upon
adoption, based on the current regulatory environment in which the Company
operates. However, the impact in the future may change as competitive factors
and potential restructuring influence the electric utility industry. For
further discussion, see Note B.
Rate Activity
The MDPU approved a $31 million increase to base rates for the Company
effective October 1, 1995.
In 1993, the MDPU approved a rate agreement filed by the Company, the
Massachusetts Attorney General, and two groups of large commercial and
industrial customers. Under the agreement, effective December 1, 1993, the
Company implemented an 11 month general rate decrease of $26 million (annual
basis). This rate reduction continued in effect through October 31, 1994, at
which time rates increased to the previously approved levels. The agreement
also provided for the recognition of electricity delivered but not yet billed
(unbilled revenues) for accounting purposes. Unbilled revenues at September
30, 1993 of approximately $35 million were amortized to income over 13 months
ending December 1994. The agreement further provided for rate discounts for
large commercial and industrial customers who signed agreements to give a
five-year notice to the Company before they purchase power from another
supplier or generate any additional power themselves. In addition, commencing
in 1995, the cost of these discounts is being passed on to NEP as a result of
a NEP rate settlement that was approved by the FERC in early 1995.
The 1993 agreement also resolved all rate recovery issues associated with
environmental remediation costs of Massachusetts manufactured gas waste sites
formerly owned by the Company and its affiliates, as well as certain other
environmental cleanup costs (see "Hazardous Waste" section).
Demand-Side Management (DSM)
The Company has received approval from the MDPU to recover DSM program
expenditures in rates on a current basis. These expenditures were $53
million, $59 million, and $47 million in 1995, 1994, and 1993, respectively.
Since 1990, the Company has been allowed to earn incentives based on the
results of its DSM programs. The Company recorded before-tax incentives of
$5.1 million, $7.1 million, and $6.7 million in 1995, 1994, and 1993,
respectively.
Operating Revenue
The following table summarizes the changes in operating revenue:
Increase (Decrease) in Operating Revenue
- ------------------------------------------------------------------------------
(In Millions) 1995 1994
- ------------------------------------------------------------------------------
Sales growth $11 $12
Fuel recovery 38 (16)
PPCA mechanism (11) 7
Rate changes/service extension discount (SEDs) 26 (22)
Unbilled revenues recognized under rate agreement (32) 21
DSM recovery (8) 12
--- ---
$24 $14
<PAGE>
In 1995, kWh sales increased by 0.9 percent compared with a 1.8 percent
increase in 1994. Peak demand billing levels to commercial and industrial
customers increased by 2.0 percent in 1995 while remaining flat between 1994
and 1993. The increase in kWh sales in 1995 reflects a warmer summer and a
return to more normal weather conditions in the fourth quarter of 1995,
partially offset by mild weather in the first quarter of 1995.
The Company's rates contain a fuel clause and a PPCA provision. These
mechanisms are designed to allow the Company to pass on to its customers
changes in purchased energy costs resulting from rate increases or decreases
by NEP. The PPCA mechanism is also designed to pass on to customers the
effects of NEP's seasonal rates. Although the Company experienced an increase
in purchased power costs in 1995, NEP's seasonal rates reduced the impact of
this increase. The passback to customers of this benefit is reflected as a
reduction in revenues under the PPCA mechanism.
Rate changes in 1995 reflect the November 1994 expiration of a temporary
rate decrease, as well as a general rate increase, that went into effect on
October 1, 1995.
Unbilled revenues recognized under the Company's rate agreement reflect the
Company's completion of the recognition of $35 million of unbilled revenues
over a 13 month period that ended in December 1994 in accordance with an
October 1993 rate agreement.
Operating Expenses
The following table summarizes the changes in operating expenses:
Increase (Decrease) in Operating Expenses
- ------------------------------------------------------------------------------
(In Millions) 1995 1994
- ------------------------------------------------------------------------------
Purchased electric energy:
Fuel costs $38 $(16)
SED reimbursements (9)
Purchases and demand charges from NEP 10 4
NEP refunds 4
Other operation and maintenance:
DSM (6) 11
Other (9) (17)
Depreciation 2 2
Taxes (1) 13
--- ---
$25 $1
The 1995 increase in fuel costs from NEP reflects decreased nuclear
generation due to overhauls and decreased hydro production resulting from low
water levels. The decrease in the fuel cost component of purchased power in
1994 includes a decrease in the amount of New England Energy Incorporated's
(NEEI) costs passed through by NEP. NEEI is an affiliated company involved in
oil and gas exploration and development.
The reduction in other operation and maintenance expenses in 1995 reflects
decreased distribution line-related expenses. This decrease was partially
offset by increased postretirement benefit expenses commensurate with
additional amounts being recovered from customers.
The decrease in other operation and maintenance expenses in 1994 was
primarily the result of one-time charges in 1993 of $26 million for the
establishment of additional gas waste reserves and $13 million associated with
an early retirement program, partially offset by the effects, in 1993, of the
Company's rate agreement which allowed recovery of amounts previously charged
to expense (see "Rate Activity" section). Other operation and maintenance
<PAGE>
expenses in 1994 also included increased computer system development costs,
increased postretirement benefit expenses, and general increases in other
areas.
The decrease in taxes in 1995 was primarily due to decreased income,
partially offset by increased municipal property taxes. The increase in taxes
in 1994 reflects increased income and increased municipal property taxes.
Hazardous Waste
The Federal Comprehensive Environmental Response, Compensation and
Liability Act, more commonly known as the "Superfund" law, imposes strict,
joint and several liability, regardless of fault, for remediation of property
contaminated with hazardous substances. A number of states, including
Massachusetts, have enacted similar laws.
The electric utility industry typically utilizes and/or generates a range
of potentially hazardous products and by-products in its operations. NEES
subsidiaries currently have an environmental audit program in place intended
to enhance compliance with existing federal, state, and local requirements
regarding the handling of potentially hazardous products and by-products.
The Company has been named as a potentially responsible party (PRP) by
either the U.S. Environmental Protection Agency or the Massachusetts
Department of Environmental Protection for 18 sites at which hazardous waste
is alleged to have been disposed. Private parties have also contacted or
initiated legal proceedings against the Company regarding hazardous waste
cleanup. The most prevalent types of hazardous waste sites with which the
Company has been associated are manufactured gas locations. The Company is
aware of approximately 35 such locations in Massachusetts (including seven of
the 18 locations for which the Company is a PRP). The Company is currently
aware of other sites, and may in the future become aware of additional sites,
that it may be held responsible for remediating.
In 1993, the MDPU approved a rate agreement filed by the Company (see "Rate
Activity" section) that allows for remediation costs of former manufactured
gas sites and certain other hazardous waste sites located in Massachusetts to
be met from a non-rate-recoverable, interest-bearing fund of $30 million
established on the Company's books in 1993. Rate-recoverable contributions of
$3 million, adjusted for inflation, are added to the fund annually in
accordance with the agreement. Any shortfalls in the fund would be paid by
the Company and be recovered through rates over seven years.
Predicting the potential costs to investigate and remediate hazardous waste
sites continues to be difficult. There are also significant uncertainties as
to the portion, if any, of the investigation and remediation costs of any
particular hazardous waste site that may ultimately be borne by the Company.
Where appropriate, the Company intends to seek recovery from its insurers and
from other PRPs, but it is uncertain whether, and to what extent, such efforts
will be successful. At December 31, 1995, the Company had total reserves for
environmental response costs of $39 million and a related regulatory asset of
$16 million. The Company believes that hazardous waste liabilities for all
sites of which it is aware, and which are not covered by a rate agreement, are
not material to its financial position.
<PAGE>
Electric and Magnetic Fields (EMF)
Concerns have been raised about whether EMF, which occur near transmission
and distribution lines as well as near household wiring and appliances, cause
or contribute to adverse health effects. Numerous studies on the effects of
these fields, some of them sponsored by electric utilities (including NEES
companies), have been conducted and are continuing. Some of the studies have
suggested associations between certain EMF and health effects, including
various types of cancer, while other studies have not substantiated such
associations. It is impossible to predict the ultimate impact on the Company
and the electric utility industry if further investigations were to
demonstrate that the present electricity delivery system is contributing to
increased risk of cancer or other health problems.
Many utilities, including the NEES companies, have been contacted by
customers regarding a potential relationship between EMF and adverse health
effects. To date, no court in the United States has ruled that EMF from
electrical facilities cause adverse health effects and no utility has been
found liable for personal injuries alleged to have been caused by EMF. In any
event, the Company believes that it currently has adequate insurance coverage
for personal injury claims.
Several state courts have recognized a cause of action for damage to
property values in transmission line condemnation cases based on the fear that
power lines cause cancer. It is difficult to predict what the impact on the
Company would be if this cause of action is recognized in Massachusetts and in
contexts other than condemnation cases.
Utility Plant Expenditures and Financing
Cash expenditures for utility plant totaled $90 million in 1995. The funds
necessary for utility plant expenditures during 1995 were primarily provided
by net cash from operating activities, after the payment of dividends,
long-term debt issues, and capital contributions from NEES. Cash expenditures
for utility plant for 1996 are estimated to be approximately $105 million.
Internally generated funds are expected to meet approximately 70 percent of
capital expenditure requirements in 1996.
In 1995, the Company issued $88 million of first mortgage bonds, bearing
interest rates ranging from 6.72 percent to 8.46 percent. The Company plans
to issue $20 million of long-term debt in 1996 to fund capital expenditures.
At December 31, 1995, the Company had $55 million of short-term debt
outstanding including $54 million of commercial paper borrowings and $1
million of borrowings from affiliates. As of December 31, 1995, the Company
had lines of credit with banks totaling $90 million which are available to
provide liquidity support for commercial paper borrowings and other corporate
purposes. There were no borrowings under these lines of credit at December
31,1995.
March 25, 1996
<PAGE>
Massachusetts Electric Company
Statements of Income
<TABLE>
<CAPTION>
Year Ended December 31, (In Thousands) 1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Operating revenue $1,505,676 $1,482,070 $1,468,540
---------- ---------- ----------
Operating expenses:
Purchased electric energy, principally
from New England Power Company,
an affiliate 1,113,673 1,074,402 1,081,918
Other operation 206,660 215,794 229,438
Maintenance 29,525 35,502 28,168
Depreciation 44,829 42,775 40,848
Taxes, other than income taxes 30,022 28,664 26,527
Income taxes 19,297 22,265 11,055
---------- ---------- ----------
Total operating expenses 1,444,006 1,419,402 1,417,954
---------- ---------- ----------
Operating income 61,670 62,668 50,586
Other income (expense), net (541) (995) (64)
---------- ---------- ----------
Operating and other income 61,129 61,673 50,522
---------- ---------- ----------
Interest:
Interest on long-term debt 25,901 20,967 23,403
Other interest 6,784 6,366 3,638
Allowance for borrowed funds used during
construction credit (657) (386) (298)
---------- ---------- ----------
Total interest 32,028 26,947 26,743
---------- ---------- ----------
Net income $29,101 $34,726 $23,779
========== ========== ==========
Statements of Retained Earnings
Year Ended December 31, (In Thousands) 1995 1994 1993
---- ---- ----
Retained earnings at beginning of year $136,911 $135,276 $134,670
Net income 29,101 34,726 23,779
Dividends declared on cumulative
preferred stock (3,114) (3,114) (3,772)
Dividends declared on common
stock, $5.25, $12.50, and $7.75
per share, respectively (12,590) (29,977) (18,585)
Premium on redemption of preferred stock (816)
-------- -------- --------
Retained earnings at end of year $150,308 $136,911 $135,276
======== ======== ========
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
Massachusetts Electric Company
Balance Sheets
At December 31, (In Thousands) 1995 1994
Assets ---------- ----------
Utility plant, at original cost $1,420,069 $1,346,824
Less accumulated provisions for depreciation 399,711 373,501
---------- ----------
1,020,358 973,323
Construction work in progress 21,118 22,672
---------- ----------
Net utility plant 1,041,476 995,995
---------- ----------
Current assets:
Cash 1,840 1,225
Accounts receivable:
From sales of electric energy 160,795 137,431
Other (including $1,776 and $6,609
from affiliates) 3,527 36,022
Less reserves for doubtful accounts 12,544 10,394
---------- ----------
151,778 163,059
Unbilled revenues (Note A-3) 49,800 42,800
Materials and supplies, at average cost 10,602 11,524
Prepaid and other current assets 22,514 21,583
---------- ----------
Total current assets 236,534 240,191
---------- ----------
Deferred charges and other assets (Note B) 65,090 59,536
---------- ----------
$1,343,100 $1,295,722
========== ==========
Capitalization and Liabilities
Capitalization:
Common stock, par value $25 per share,
authorized and outstanding 2,398,111 shares $59,953 $59,953
Premiums on capital stocks 45,862 45,862
Other paid-in capital 155,310 141,310
Retained earnings 150,308 136,911
---------- ----------
Total common equity 411,433 384,036
Cumulative preferred stock (Note G) 50,000 50,000
Long-term debt 353,267 265,631
---------- ----------
Total capitalization 814,700 699,667
---------- ----------
Current liabilities:
Long-term debt due in one year 35,000
Short-term debt (including $1,000 and $8,650
to affiliates) 55,450 81,820
Accounts payable (including $165,515 and
$157,076 to affiliates) 181,943 182,102
Accrued liabilities:
Taxes 7,371 906
Interest 9,502 7,945
Other accrued expenses (Note F) 17,136 27,132
Customer deposits 4,633 4,985
Dividends payable 1,977 13,968
---------- ----------
Total current liabilities 278,012 353,858
---------- ----------
Deferred federal and state income taxes 184,575 176,913
Unamortized investment tax credits 17,684 18,816
Other reserves and deferred credits 48,129 46,468
Commitments and contingencies (Note D)
---------- ----------
$1,343,100 $1,295,722
========== ==========
The accompanying notes are an integral part of these financial statements.
<PAGE>
Massachusetts Electric Company
Statements of Cash Flows
<TABLE>
<CAPTION>
Year Ended December 31, (In Thousands) 1995 1994 1993
Operating activities: ---- ---- ----
<S> <C> <C> <C>
Net income $29,101 $ 34,726 $ 23,779
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation 44,829 42,775 40,848
Deferred income taxes and
investment tax credits, net 6,666 28,909 3,126
Allowance for borrowed funds
used during construction (657) (386) (298)
Amortization of unbilled revenues (32,300) (2,700)
Early retirement program 7,665
Decrease (increase) in accounts
receivable, net and unbilled revenues 4,281 (7,580) (46,434)
Decrease (increase) in materials and
supplies 922 (923) (682)
Decrease (increase) in prepaid and
other current assets (931) (1,593) 6,229
Increase (decrease) in accounts payable (159) 3,985 (9,112)
Increase (decrease) in other current
liabilities (2,326) (10,379) 32,507
Other, net (2,340) (12,982) 14,723
------- ------- -------
Net cash provided by operating
activities $79,386 $44,252 $69,651
------- ------- -------
Investing activities:
Plant expenditures, excluding allowance
for funds used during construction $(89,735) $(94,105) $(80,473)
Other investing activities (1,972) (4,892)
------- ------- -------
Net cash used in investing
activities $(91,707) $(98,997) $(80,473)
------- ------- -------
Financing activities:
Capital contributions from parent $14,000 $50,572
Dividends paid on common stock (24,580) $(21,584) (19,185)
Dividends paid on preferred stock (3,114) (3,114) (3,850)
Changes in short-term debt (26,370) 43,895 (7,775)
Long-term debt issues 88,000 36,000 116,000
Long-term debt retirements (35,000) (117,000)
Preferred stock issues 35,000
Preferred stock retirements (35,000)
Premium on reacquisition of long-term debt (7,089)
Premium on redemption of preferred stock (816)
------- ------- -------
Net cash provided by financing
activities $12,936 $55,197 $10,857
------- ------- -------
Net increase in cash and cash equivalents $615 $452 $35
Cash and cash equivalents at beginning
of year 1,225 773 738
------- ------- -------
Cash and cash equivalents at end of year $1,840 $1,225 $773
======= ======= =======
Supplementary information:
Interest paid less amounts capitalized $29,130 $24,562 $25,220
------- ------- -------
Federal and state income taxes paid
(refunded) $(8,026) $1,645 $12,090
------- ------- -------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
Massachusetts Electric Company
Notes to Financial Statements
Note A - Significant Accounting Policies
1. Nature of Operations:
The Company is a wholly-owned subsidiary of New England Electric System (NEES)
operating in Massachusetts. The Company's business is the distribution and
sale of electricity at retail. Electric service is provided to approximately
950,000 customers in 146 cities and towns having a population of approximately
2,160,000 (1990 Census). The Company's service area covers approximately 43
percent of Massachusetts. The properties of the Company consist principally of
substations and distribution lines interconnected with transmission and other
facilities of New England Power Company (NEP), an affiliate. The Company
purchases all of its electric energy requirements from NEP under a contract
which obligates NEP to furnish such requirements at its standard resale rate.
This contract requires either party to give seven years notice prior to
terminating the contract.
2. System of Accounts:
The accounts of the Company are maintained in accordance with the Uniform
System of Accounts prescribed by regulatory bodies having jurisdiction.
In preparing the financial statements, management is required to make
estimates that affect the reported amounts of assets and liabilities and
disclosures of asset recovery and contingent liabilities as of the date of the
balance sheets and revenues and expenses for the period. These estimates may
differ from actual amounts if future circumstances cause a change in the
assumptions used to calculate these estimates.
3. Electric Sales Revenue:
The Company, pursuant to a 1993 rate agreement, began accruing revenues for
electricity delivered but not yet billed (unbilled revenues). Unbilled
revenues at December 31, 1995, 1994, and 1993 were $50 million, $43 million,
and $43 million, respectively of which $7 million, $32 million, and $11
million were recognized in income in the respective years. Included in these
income amounts are $32 million in 1994 and $3 million in 1993 which represent
amortization of the initial effect of recording unbilled revenues in
accordance with the rate agreement. Accrued revenues are also recorded in
accordance with rate adjustment mechanisms.
4. Allowance for Funds Used During Construction (AFDC):
The Company capitalizes AFDC as part of construction costs. AFDC represents an
allowance for the cost of funds used to finance construction. AFDC is
capitalized in "Utility plant" with offsetting non-cash credits to "Interest."
This method is in accordance with an established rate-making practice under
which a utility is permitted a return on, and the recovery of, prudently
incurred capital costs through their ultimate inclusion in rate base and in
the provision for depreciation. The composite AFDC rates were 6.0 percent, 4.8
percent, and 3.5 percent, in 1995, 1994, and 1993, respectively.
<PAGE>
5. Depreciation:
Depreciation is provided annually on a straight-line basis. The provision for
depreciation as a percentage of weighted average depreciable property was 3.3
percent in each of the years 1995, 1994, and 1993.
6. Cash:
The Company classifies short-term investments with a maturity of 90 days or
less at time of purchase as cash.
Note B - Competitive Conditions
The electric utility business is being subjected to rapidly increasing
competitive pressures and increasing demands for customer choice. Accordingly,
in February 1996, the Company filed a plan, Choice: New England, with
Massachusetts regulators, which would allow all customers of electric
utilities in Massachusetts to choose their power supplier beginning in 1998.
Under Choice: New England, pricing of generation would be deregulated while
transmission and distribution rates would remain regulated, although subject
to greater rewards and penalties based on performance. Choice: New England
proposes that the cost of past commitments to serve customers be recovered
through a wires access or transition charge. Those past commitments include
generating plant commitments, regulatory assets, purchased power contracts,
and nuclear costs independent of operation.
Historically, electric utility rates have been based on a utility's costs. As
a result, electric utilities are subject to certain accounting standards that
are not applicable to other business enterprises in general. Financial
Accounting Standards No. 71, Accounting for the Effects of Certain Types of
Regulation (FAS 71), requires regulated entities, in appropriate
circumstances, to establish regulatory assets and liabilities, and thereby
defer the income statement impact of certain costs that are expected to be
recovered in future rates. The effects of regulatory, legislative, or utility
initiatives could, in the near future, cause all or a portion of the Company's
operations to cease meeting the criteria of FAS 71. In that event, the
application of FAS 71 to such operations would be discontinued and a non-cash
write-off of previously established regulatory assets and liabilities related
to such operations would be required. In March 1995, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to Be Disposed Of (FAS 121). This standard clarifies when and how to recognize
an impairment of long-lived assets. If competitive or regulatory change
should cause a substantial revenue loss, a write-down of plant assets could be
required pursuant to FAS 121. In addition, FAS 121 requires that all
regulatory assets, which must have a high probability of recovery to be
initially established, must continue to meet that high probability standard to
avoid being written off. However, if written off, a regulatory asset can be
restored if it again has a high probability of recovery. FAS 121, which is
effective for the Company in January 1996, is not expected to have a material
adverse impact on the financial condition or results of operations upon
adoption, based on the current regulatory environment in which the Company
operates. However, the impact in the future may change as competitive factors
and potential restucturing influence the electric utility industry.
<PAGE>
The components of regulatory assets are as follows:
At December 31, (In Thousands) 1995 1994
---- ----
Regulatory assets (liabilities) included in current
assets and liabilities:
Rate adjustment mechanisms (See Note F) $(792) $(2,059)
------- -------
Regulatory assets included in deferred charges:
Unamortized losses on reacquired debt 8,034 8,848
Deferred SFAS No. 106 costs (See Note E-2) 17,185 16,079
Deferred SFAS No. 109 costs (See Note C) 8,308 8,445
Environmental response costs (See Note D-2) 15,526 9,417
Deferred storm costs 4,433 6,545
Other 1,312 1,764
------- -------
54,798 51,098
------- -------
$54,006 $49,039
======= =======
Amounts included in "Deferred charges and other assets" on the Company's
balance sheets that do not represent regulatory assets totaled $10,292,000 and
$8,438,000 at December 31, 1995 and 1994, respectively.
Note C - Income Taxes
The Company and other subsidiaries participate with NEES in filing
consolidated federal income tax returns. The Company's income tax provision is
calculated on a separate return basis. Federal income tax returns have been
examined and reported on by the Internal Revenue Service (IRS) through 1991.
The returns for 1992 and 1993 are currently under examination by the IRS.
Total income taxes in the statements of income are as follows:
<TABLE>
<CAPITON>
Year Ended December 31, (In Thousands) 1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Income taxes charged to operations $19,297 $22,265 $11,055
Income taxes charged (credited) to
"Other income" (901) (642) 101
------- ------- -------
Total income taxes $18,396 $21,623 $11,156
======= ======= =======
Total income taxes, as shown above, consist of the following components:
Year Ended December 31, (In Thousands) 1995 1994 1993
---- ---- ----
Current income taxes $11,730 $(7,286) $8,030
Deferred income taxes 7,798 30,137 4,354
Investment tax credits, net (1,132) (1,228) (1,228)
------- ------- -------
Total income taxes $18,396 $21,623 $11,156
======= ======= =======
Investment tax credits have been deferred and are being amortized over the
estimated lives of the property giving rise to the credits.
Total income taxes, as shown above, consist of federal and state components as
follows:
Year Ended December 31, (In Thousands) 1995 1994 1993
---- ---- ----
Federal income taxes $14,461 $16,942 $7,808
State income taxes 3,935 4,681 3,348
------- ------- -------
Total income taxes $18,396 $21,623 $11,156
======= ======= =======
</TABLE>
<PAGE>
Consistent with rate-making policies of the Massachusetts Department of Public
Utilities (MDPU), the Company has adopted comprehensive interperiod tax
allocation (normalization) for temporary book/tax differences.
Total income taxes differ from the amounts computed by applying the federal
statutory tax rates to income before taxes. The reasons for the differences
are as follows:
<TABLE>
<CAPTION>
Year Ended December 31, (In Thousands) 1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Computed tax at statutory rate $16,624 $19,722 $12,227
Increases (reductions) in tax resulting from:
Amortization of investment tax credits (1,132) (1,228) (1,228)
Adjustment of prior year tax accruals (155) (110) (2,528)
State income taxes, net of federal income
tax benefit 2,558 3,043 2,459
All other differences 501 196 226
------- ------- -------
Total income taxes $18,396 $21,623 $11,156
======= ======= =======
The following table identifies the major components of total deferred income
taxes:
At December 31, (In Millions) 1995 1994
---- ----
Deferred tax asset:
Plant related $9 $8
Investment tax credits 7 8
All other 42 45
---- ----
58 61
---- ----
Deferred tax liability:
Plant related (209) (201)
All other (34) (37)
---- ----
(243) (238)
---- ----
Net deferred tax liability $(185) $(177)
==== ====
There were no valuation allowances for deferred tax assets deemed necessary.
</TABLE>
Note D - Commitments and Contingencies
1. Plant Expenditures:
The Company's utility plant expenditures are estimated to be approximately
$105 million in 1996. At December 31, 1995, substantial commitments had been
made relative to future planned expenditures.
2. Hazardous Waste:
The Federal Comprehensive Environmental Response, Compensation and Liability
Act, more commonly known as the "Superfund" law, imposes strict, joint and
several liability, regardless of fault, for remediation of property
contaminated with hazardous substances. A number of states, including
Massachusetts, have enacted similar laws.
The electric utility industry typically utilizes and/or generates a range of
potentially hazardous products and by-products in its operations. NEES
subsidiaries currently have an environmental audit program in place intended
to enhance compliance with existing federal, state, and local requirements
regarding the handling of potentially hazardous products and by-products.
<PAGE>
The Company has been named as a potentially responsible party (PRP) by either
the U.S. Environmental Protection Agency or the Massachusetts Department of
Environmental Protection for 18 sites at which hazardous waste is alleged to
have been disposed. Private parties have also contacted or initiated legal
proceedings against the Company regarding hazardous waste cleanup. The most
prevalent types of hazardous waste sites with which the Company has been
associated are manufactured gas locations. The Company is aware of
approximately 35 such locations in Massachusetts (including seven of the 18
locations for which the Company is a PRP). The Company is currently aware of
other sites, and may in the future become aware of additional sites, that it
may be held responsible for remediating.
In 1993, the MDPU approved a rate agreement filed by the Company that allows
for remediation costs of former manufactured gas sites and certain other
hazardous waste sites located in Massachusetts to be met from a
non-rate-recoverable, interest-bearing fund of $30 million established on the
Company's books composed of previously recorded reserves of $21 million plus
$9 million of additional reserves recorded in the fourth quarter of 1993.
Rate-recoverable contributions of $3 million, adjusted for inflation, are
added to the fund annually in accordance with the agreement. Any shortfalls in
the fund would be paid by the Company and be recovered through rates over
seven years.
Predicting the potential costs to investigate and remediate hazardous waste
sites continues to be difficult. There are also significant uncertainties as
to the portion, if any, of the investigation and remediation costs of any
particular hazardous waste site that may ultimately be borne by the Company.
Where appropriate, the Company intends to seek recovery from its insurers and
from other PRPs, but it is uncertain whether, and to what extent, such efforts
will be successful. At December 31, 1995, the Company had total reserves for
environmental response costs of $39 million and a related regulatory asset of
$16 million. The Company believes that hazardous waste liabilities for all
sites of which it is aware, and which are not covered by a rate agreement, are
not material to its financial position.
Note E - Employee Benefits
1. Pension Plans:
The Company participates with other subsidiaries of NEES in noncontributory,
defined-benefit plans covering substantially all employees of the Company. The
plans provide pension benefits based on the employee's compensation during the
five years prior to retirement. The Company's funding policy is to contribute
each year the net periodic pension cost for that year. However, the
contribution for any year will not be less than the minimum contribution
required by federal law or greater than the maximum tax deductible amount.
Net pension cost for 1995, 1994, and 1993 included the following components:
<TABLE>
<CAPTION>
Year Ended December 31, (In Thousands) 1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Service cost benefits earned during the period $3,992 $4,134 $3,348
Plus (less):
Interest cost on projected benefit obligation 17,576 16,435 16,905
Return on plan assets at expected
long-term rate (18,122) (17,223) (16,683)
Amortization 99 1,060 (208)
------ ------ ------
Net pension cost $3,545 $4,406 $3,362
====== ====== ======
Actual return on plan assets $47,717 $1,541 $25,785
======= ======= =======
<PAGE>
1996 1995 1994 1993
---- ---- ---- ----
Assumptions used to determine pension cost:
Discount rate 7.25% 8.25% 7.25% 8.25%
Average rate of increase in
future compensation levels 4.13% 4.63% 4.35% 5.35%
Expected long-term rate of
return on assets 8.50% 8.75% 8.75% 8.75%
</TABLE>
Service cost for 1993 does not reflect $13 million of costs incurred in
connection with an early retirement and special severance program offered by
the Company in that year.
The funded status of the plans cannot be presented separately for the Company
as the Company participates in the plans with other NEES subsidiaries. The
following table sets forth the funded status of the NEES companies' plans at
December 31:
<TABLE>
<CAPTION>
Retirement Plans, (In Millions) 1995 1994
---- ----
<S> <C> <C>
Union Non-Union Union Non-Union
Employee Employee Employee Employee
Plans Plans Plans Plans
-------- -------- -------- ---------
Benefits earned
Actuarial present value of
accumulated benefit liability:
Vested $293 $343 $251 $308
Non-vested 8 10 8 9
---- ---- ---- ----
Total $301 $353 $259 $317
==== ==== ==== ====
Reconciliation of funded status
Actuarial present value of
projected benefit liability $346 $402 $303 $355
Unrecognized prior service costs (7) (4) (8) (4)
Unrecognized transition liability - (1) - (1)
Unrecognized net loss (1) (23) (13) (33)
---- ---- ---- ----
338 374 282 317
---- ---- ---- ----
Pension fund assets at fair
value 349 392 293 323
Unrecognized transition asset (11) - (13) -
---- ---- ---- ----
338 392 280 323
---- ---- ---- ----
Accrued pension/(prepaid)
payments recorded on books $ - $(18) $2 $(6)
</TABLE>
The plans' funded status at December 31, 1995 and 1994 were calculated using
the assumed rates from 1996 and 1995, respectively, and the 1983 Group Annuity
Mortality table.
Plan assets are composed primarily of corporate equity, guaranteed investment
contracts, debt securities, and cash equivalents.
2. Postretirement Benefit Plans Other Than Pensions (PBOPs):
The Company provides health care and life insurance coverage to eligible
retired employees. Eligibility is based on certain age and length of service
requirements and in some cases retirees must contribute to the cost of their
coverage.
<PAGE>
The total cost of PBOPs for 1995, 1994, and 1993 included the following
components:
<TABLE>
<CAPTION>
Year Ended December 31, (In Thousands) 1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Service cost benefits earned during
the period $2,368 $2,840 $2,613
Plus (less):
Interest cost on accumulated benefit
obligation 11,699 11,050 12,007
Return on plan assets at expected
long-term rate (4,165) (3,306) (2,095)
Amortization 6,628 7,287 7,302
------ ------ ------
Net postretirement benefit cost $16,530 $17,871 $19,827
====== ====== ======
Actual return on plan assets $12,209 $ 265 $ 2,125
====== ====== ======
1996 1995 1994 1993
---- ---- ---- ----
Assumptions used to determine postretirement
benefit cost:
Discount rate 7.25% 8.25% 7.25% 8.25%
Expected long-term rate of return
on assets 8.25% 8.50% 8.50% 8.50%
Health care cost rate 1994 and 1993 11.00% 12.00%
Health care cost rate 1995 to 1999 8.00% 8.50% 8.50% 9.50%
Health care cost rate 2000 to 2004 6.25% 8.50% 8.50% 9.50%
Health care cost rate 2005 and beyond 5.25% 6.25% 6.25% 7.25%
The following table sets forth benefits earned and the plans' funded status:
At December 31, (In Millions) 1995 1994
---- ----
Accumulated postretirement benefit obligation:
Retirees $93 $92
Fully eligible active plan participants 12 19
Other active plan participants 44 33
--- ---
Total benefits earned 149 144
Unrecognized prior service costs (1) -
Unrecognized transition obligation (124) (131)
Unrecognized net gain 26 15
--- ---
50 28
Plan assets at fair value 65 44
--- ---
Prepaid postretirement benefit costs recorded on books $15 $16
=== ===
</TABLE>
The plans' funded status at December 31, 1995 and 1994 were calculated using
the assumed rates in effect for 1996 and 1995, respectively.
The health care cost trend rate assumption has a significant effect on the
amounts reported. Increasing the assumed rates by 1 percent in each year would
increase the accumulated postretirement benefit obligation as of December 31,
1995 by approximately $18 million and the net periodic cost for the year 1995
by approximately $2 million.
The Company funds the annual tax deductible contributions. Plan assets are
invested in equity and debt securities and cash equivalents.
<PAGE>
Note F - Short-term Borrowings and Other Accrued Expenses
At December 31, 1995, the Company had $55 million of short-term debt
outstanding including $54 million in commercial paper borrowings and $1
million of borrowings from affiliates. NEES and certain subsidiaries,
including the Company, with regulatory approval, operate a money pool to more
effectively utilize cash resources and to reduce outside short-term
borrowings. Short-term borrowing needs are met first by available funds of the
money pool participants. Borrowing companies pay interest at a rate designed
to approximate the cost of outside short-term borrowings. Companies which
invest in the pool share the interest earned on a basis proportionate to their
average monthly investment in the money pool. Funds may be withdrawn from or
repaid to the pool at any time without prior notice.
At December 31, 1995, the Company had lines of credit with banks totaling $90
million which are available to provide liquidity support for commercial paper
borrowings and other corporate purposes. There were no borrowings under these
lines of credit at December 31, 1995. Fees are paid in lieu of compensating
balances on most lines of credit.
The weighted average rate on outstanding short-term borrowings was 5.9 percent
at December 31, 1995. The fair value of the Company's short-term debt equals
carrying value.
The components of other accrued expenses are as follows:
At December 31, (In Thousands) 1995 1994
---- ----
Rate adjustment mechanisms $3,908 $15,087
Accrued wages and benefits 11,066 9,969
Other 2,162 2,076
------ ------
$17,136 $27,132
====== ======
<PAGE>
Note G - Cumulative Preferred Stock
<TABLE>
<CAPTION>
A summary of cumulative preferred stock at December 31, 1995 and 1994 is as follows
(in thousands of dollars except for share data):
A summary of cumulative preferred stock at December 31, 1995 and 1994 is as follows
(in thousands of dollars except for share data):
Shares
Authorized Dividends Call
and Outstanding Amount Declared Price
--------------- ------ ------------ -----
1995 1994 1995 1994 1995 1994
---- ---- ---- ---- ---- ---- -----
<S> <C> <C> <C> <C> <C> <C> <C>
$25 Par value
6.84% Series 600,000 600,000$15,000 $15,000 $1,026 $1,026 (a)
$100 Par value
4.44% Series 75,000 75,000 7,500 7,500 333 333$104.068
4.76% Series 75,000 75,000 7,500 7,500 357 357 103.730
6.99% Series 200,000 200,000 20,000 20,000 1,398 1,398 (b)
------- -------------- -------------- -------
Total 950,000 950,000$50,000 $50,000 $3,114 $3,114
======= ============== ============== =======
(a) Callable on or after October 1, 1998 at $25.80.
(b) Callable on or after August 1, 2003 at $103.50.
The annual dividend requirement for total cumulative preferred stock was $3,114,000 for
1995 and 1994.
There are no mandatory redemption provisions on the Company's cumulative preferred stock.
</TABLE>
<PAGE>
Note H - Long-term Debt
A summary of long-term debt is as follows:
At December 31, (In Thousands)
<TABLE>
<CAPTION>
Series Rate % Maturity 1995 1994
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
First Mortgage Bonds:
R(92-2) 5.875 February 6, 1995 $10,000
S(92-1) 5.860 June 26, 1995 15,000
S(92-8) 4.730 September 18, 1995 10,000
R(92-4) 7.230 June 3, 1997 $10,000 10,000
R(92-5) 7.210 June 3, 1997 5,000 5,000
S(92-6) 6.120 August 15, 1997 12,000 12,000
S(92-7) 6.010 August 15, 1997 3,000 3,000
U(95-3) 7.800 February 13, 1998 5,000
U(95-4) 7.790 February 16, 1998 5,000
R(92-1) 7.240 December 30, 1998 10,000 10,000
S(92-3) 6.630 August 12, 1999 7,500 7,500
S(92-4) 6.600 August 12, 1999 7,500 7,500
U(95-5) 7.930 February 14, 2000 6,000
S(92-2) 6.980 July 17, 2000 5,000 5,000
S(92-9) 6.310 September 15, 2000 10,000 10,000
R(92-6) 7.710 July 1, 2002 10,000 10,000
S(92-11) 7.250 October 28, 2002 5,000 5,000
S(92-12) 7.340 November 25, 2002 10,000 10,000
T(93-2) 7.090 January 27, 2003 20,000 20,000
T(93-5) 6.400 June 24, 2003 10,000 10,000
U(93-1) 6.240 November 17, 2003 5,000 5,000
U(94-6) 8.520 November 30, 2004 10,000 10,000
U(95-1) 8.450 January 10, 2005 10,000
U(95-2) 8.220 January 24, 2005 10,000
U(95-7) 7.920 March 3, 2005 9,000
V(95-1) 6.720 June 23, 2005 10,000
T(93-7) 6.660 June 23, 2008 5,000 5,000
T(93-8) 6.660 June 30, 2008 5,000 5,000
T(93-10) 6.110 September 8, 2008 10,000 10,000
T(93-11) 6.375 November 17, 2008 10,000 10,000
R(92-3) 8.550 February 7, 2022 5,000 5,000
S(92-5) 8.180 August 1, 2022 10,000 10,000
S(92-10) 8.400 October 26, 2022 5,000 5,000
T(93-1) 8.150 January 20, 2023 10,000 10,000
T(93-3) 7.980 January 27, 2023 10,000 10,000
T(93-4) 7.690 February 24, 2023 10,000 10,000
T(93-6) 7.500 June 23, 2023 3,000 3,000
T(93-9) 7.500 June 29, 2023 7,000 7,000
U(93-2) 7.200 November 15, 2023 10,000 10,000
U(93-3) 7.150 November 24, 2023 1,000 1,000
U(94-1) 7.050 February 2, 2024 10,000 10,000
U(94-2) 8.080 May 2, 2024 5,000 5,000
U(94-3) 8.030 June 14, 2024 5,000 5,000
U(94-4) 8.160 August 9, 2024 5,000 5,000
U(94-5) 8.850 November 7, 2024 1,000 1,000
U(95-6) 8.460 February 28, 2025 3,000
V(95-2) 7.630 June 27, 2025 10,000
V(95-3) 7.600 September 12, 2025 10,000
V(95-4) 7.630 September 12, 2025 10,000
Unamortized discounts (1,733) (1,369)
-------- --------
Total long-term debt 353,267 300,631
======== ========
Long-term debt due in one year (35,000)
-------- --------
$353,267 $265,631
======== ========
</TABLE>
<PAGE>
Substantially all of the properties and franchises of the Company are subject
to the lien of mortgage indentures under which the first mortgage bonds have
been issued.
The Company will make cash payments of $30,000,000 in 1997, $20,000,000 in
1998, $15,000,000 in 1999, and $21,000,000 in 2000 to retire maturing mortgage
bonds. There are no cash payments required in 1996.
At December 31, 1995, the Company's long-term debt had a carrying value of
approximately $353,000,000 and had a fair value of approximately $380,000,000.
The fair market value of the Company's long-term debt was estimated based on
the quoted prices for similar issues or on the current rates offered to the
Company for debt of the same remaining maturity.
Note I - Restrictions on Retained Earnings Available for Dividends on Common
Stock
As long as any preferred stock is outstanding, certain restrictions on payment
of dividends on common stock would come into effect if the "junior stock
equity" was, or by reason of payment of such dividends became, less than 25
percent of "Total capitalization." However, the junior stock equity at
December 31, 1995 was 50 percent of total capitalization, and accordingly,
none of the Company's retained earnings at December 31, 1995 were restricted
as to dividends on common stock under the foregoing provisions.
Under restrictions contained in the indentures relating to first mortgage
bonds, $20,113,000 of the Company's retained earnings at December 31, 1995
were restricted as to dividends on common stock.
Note J - Supplementary Income Statement Information
Advertising expenses, expenditures for research and development, and rents
were not material and there were no royalties paid in 1995, 1994, or 1993.
Taxes, other than income taxes, charged to operating expenses are set forth by
classes as follows:
<TABLE>
<CAPTION>
Year Ended December 31, (In Thousands) 1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Municipal property taxes $23,119 $21,186 $19,620
Federal and state payroll and other taxes 6,903 7,478 6,907
------- ------- -------
$30,022 $28,664 $26,527
</TABLE>
New England Power Service Company, an affiliated service company operating
pursuant to the provisions of Section 13 of the Public Utility Holding Company
Act of 1935, furnished services to the Company at the cost of such services.
These costs amounted to $66,195,000, $71,107,000, and $61,515,000, including
capitalized construction costs of $7,660,000, $8,977,000, and $9,038,000, for
each of the years 1995, 1994, and 1993, respectively.
<PAGE>
Massachusetts Electric Company
Operating Statistics (Unaudited)
<TABLE>
<CAPTION>
Year Ended December 31, 1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Sources of Energy (Thousands of kWh)
Purchased energy:
From New England Power
Company, an affiliate 16,594,81216,455,77416,179,20416,005,08715,971,746
From others 2,887 3,364 12,676 13,916 12,865
--------------------------------------------------
Total purchased 16,597,69916,459,13816,191,88016,019,00315,984,611
Losses, company use, etc. (730,608) (733,804) (740,390) (711,157) (730,694)
--------------------------------------------------
Total sources of energy 15,867,09115,725,33415,451,49015,307,84615,253,917
==================================================
Sales of Energy
(Thousands of kWh)
Residential 5,768,635 5,798,806 5,694,539 5,645,350 5,568,452
Commercial 5,999,555 5,936,170 5,743,924 5,645,867 5,585,604
Industrial 3,998,506 3,885,391 3,850,075 3,907,040 3,979,418
Other 89,759 95,382 99,991 105,842 113,444
Total sales to --------------------------------------------------
ultimate customers 15,856,45515,715,74915,388,52915,304,09915,246,918
Sales for resale 10,636 9,585 62,961 3,747 6,999
--------------------------------------------------
Total sales of energy 15,867,09115,725,33415,451,49015,307,84615,253,917
==================================================
Maximum Demand
(kW one hour peak) 3,029,000 3,016,000 2,819,000 2,791,000 2,888,000
Average Annual Use per
Residential Customer (kWh) 6,844 6,948 6,888 6,886 6,832
Number of Customers at
December 31
Residential 847,437 839,443 831,223 824,072 817,270
Commercial 97,211 95,430 93,414 92,281 81,355
Industrial 4,503 4,551 4,637 4,624 4,650
Other 854 880 906 952 986
--------------------------------------------------
Total ultimate customers 950,005 940,304 930,180 921,929 904,261
Other (for resale) 179 178 278 22 21
--------------------------------------------------
Total customers 950,184 940,482 930,458 921,951 904,282
==================================================
Operating Revenue (In Thousands)
Residential $610,856 $588,518 $593,336 $549,884 $521,140
Commercial 543,715 523,826 518,965 510,638 490,078
Industrial 312,057 301,502 316,140 319,905 318,502
Other 17,991 17,147 17,416 17,489 18,304
--------------------------------------------------
Total revenue from
ultimate customers 1,484,619 1,430,993 1,445,857 1,397,916 1,348,024
Amortization of unbilled revenues 32,300 2,700
Sales for resale 1,013 924 5,399 278 518
--------------------------------------------------
Total revenue from
electric sales 1,485,632 1,464,217 1,453,956 1,398,194 1,348,542
Other operating revenue 20,044 17,853 14,584 14,754 15,346
--------------------------------------------------
Total operating revenue $1,505,676$1,482,070$1,468,540$1,412,948$1,363,888
==================================================
</TABLE>
<PAGE>
Massachusetts Electric Company
Selected Financial Information
<TABLE>
<CAPTION>
Year Ended December 31, (In Millions) 1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Operating revenue:
Electric sales
(excluding fuel cost recovery) $1,072 $1,088 $1,062 $1,012 $984
Fuel cost recovery 414 376 392 386 365
Other 20 18 15 15 15
------ ------ ------ ------ ------
Total operating revenue $1,506 $1,482 $1,469 $1,413 $1,364
Net income $29 $35 $24 $35 $25
Total assets $1,343 $1,296 $1,232 $1,015 $1,017
Capitalization:
Common equity $412 $384 $382 $331 $313
Cumulative preferred stock 50 50 50 50 50
Long-term debt 353 266 265 266 194
------ ------ ------ ------ ------
Total capitalization $815 $700 $697 $647 $557
Preferred dividends declared $3 $3 $4 $3 $3
Common dividends declared $13 $30 $19 $23 $5
</TABLE>
Selected Quarterly Financial Information (Unaudited)
<TABLE>
<CAPTION>
First Second Third Fourth
(In Thousands) Quarter Quarter Quarter Quarter*
------- ------- ------- -------
<S> <C> <C> <C> <C>
1995
Operating revenue $373,092 $355,431 $392,575 $384,578
Operating income $13,349 $11,173 $11,799 $25,349
Net income $5,126 $2,567 $3,653 $17,755
1994
Operating revenue $381,712 $339,886 $376,582 $383,890
Operating income $17,124 $15,054 $10,120 $20,370
Net income $9,572 $8,215 $1,431 $15,508
*See "Rate Activity" section of Financial Review
Per share data is not relevant because the Company's common stock is wholly-owned by New
England Electric System.
A copy of Massachusetts Electric Company's Annual Report on Form 10-K to the Securities
and Exchange Commission for the year ended December 31, 1995 will be available on or about
April 1, 1996, without charge, upon written request to Massachusetts Electric Company,
Shareholder Services Department, 25 Research Drive, Westborough, Massachusetts 01582.
</TABLE>
<PAGE>
EXHIBIT (24)
POWER OF ATTORNEY
-----------------
Each of the undersigned directors of Massachusetts Electric Company (the
"Company"), individually as a director of the Company, hereby constitutes and
appoints John G. Cochrane, Maureen L. Fountain, and Geraldine M. Zipser,
individually, as attorney-in-fact to execute on behalf of the undersigned the
Company's annual report on Form 10-K for the year ended December 31, 1995, to
be filed with the Securities and Exchange Commission, and to execute any
appropriate amendment or amendments thereto as may be required by law.
Dated this 20th day of March, 1996.
s/Urville J. Beaumont s/Patricia McGovern
_________________________ _________________________
Urville J. Beaumont Patricia McGovern
s/John F. Reilly, Jr.
_________________________ _________________________
Joan T. Bok John F. Reilly, Jr.
s/Sally L. Collins
_________________________ _________________________
Sally L. Collins John W. Rowe
s/John H. Dickson
_________________________ _________________________
John H. Dickson Richard P. Sergel
s/Kalyan K. Ghosh s/Richard M. Shribman
_________________________ _________________________
Kalyan K. Ghosh Richard M. Shribman
s/Charles B. Housen s/Roslyn M. Watson
_________________________ _________________________
Charles B. Housen Roslyn M. Watson
<TABLE> <S> <C>
<PAGE>
<ARTICLE> UT
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE BALANCE SHEET AND RELATED STATEMENTS OF INCOME, RETAINED
EARNINGS AND CASH FLOWS OF MASSACHUSETTS ELECTRIC COMPANY, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
<CIK> 0000063073
<NAME> Massachusetts Electric Company
<MULTIPLIER> 1,000
<S> <C> <C>
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1994
<PERIOD-END> DEC-31-1995 DEC-31-1994
<PERIOD-TYPE> 12-MOS 12-MOS
<BOOK-VALUE> PER-BOOK PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 1,041,476 995,995
<OTHER-PROPERTY-AND-INVEST> 0 0
<TOTAL-CURRENT-ASSETS> 236,534 240,191
<TOTAL-DEFERRED-CHARGES> 65,090 <F1> 59,536 <F1>
<OTHER-ASSETS> 0 0
<TOTAL-ASSETS> 1,343,100 1,295,722
<COMMON> 59,953 59,953
<CAPITAL-SURPLUS-PAID-IN> 201,172 187,172
<RETAINED-EARNINGS> 150,308 136,911
<TOTAL-COMMON-STOCKHOLDERS-EQ> 411,433 384,036
0 0
50,000 50,000
<LONG-TERM-DEBT-NET> 353,267 265,631
<SHORT-TERM-NOTES> 1,000 8,650
<LONG-TERM-NOTES-PAYABLE> 0 0
<COMMERCIAL-PAPER-OBLIGATIONS> 54,450 73,170
<LONG-TERM-DEBT-CURRENT-PORT> 0 35,000
0 0
<CAPITAL-LEASE-OBLIGATIONS> 0 0
<LEASES-CURRENT> 0 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 472,950 479,235
<TOT-CAPITALIZATION-AND-LIAB> 1,343,100 1,295,722
<GROSS-OPERATING-REVENUE> 1,505,676 1,482,070
<INCOME-TAX-EXPENSE> 19,297 22,265
<OTHER-OPERATING-EXPENSES> 1,424,709 1,397,137
<TOTAL-OPERATING-EXPENSES> 1,444,006 1,419,402
<OPERATING-INCOME-LOSS> 61,670 62,668
<OTHER-INCOME-NET> (541) (995)
<INCOME-BEFORE-INTEREST-EXPEN> 61,129 61,673
<TOTAL-INTEREST-EXPENSE> 32,028 26,947
<NET-INCOME> 29,101 34,726
3,114 3,114
<EARNINGS-AVAILABLE-FOR-COMM> 25,987 31,612
<COMMON-STOCK-DIVIDENDS> 12,590 29,977
<TOTAL-INTEREST-ON-BONDS> 25,901 20,967
<CASH-FLOW-OPERATIONS> 79,386 44,252
<EPS-PRIMARY> 0 <F2> 0 <F2>
<EPS-DILUTED> 0 <F2> 0 <F2>
<FN>
<F1> Total deferred charges includes other assets.
<F2> Per share data is not relevant because the Company's common stock is wholly-owned by New England Electric System.
</FN>
<PAGE>
<TABLE>
THE NARRAGANSETT ELECTRIC COMPANY
Computation of Ratio of Earnings to Fixed Charges
(SEC Coverage)
(Unaudited)
<CAPTION> Years Ended December 31,
------------------------------------------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
(In Thousands)
Net Income $23,910 $14,589 $14,274 $21,052 $16,820
- ----------
Add income taxes and fixed charges
- ----------------------------------
Current federal income taxes 7,212 1,020 2,183 4,608 1,558
Deferred federal income taxes 3,512 3,930 2,199 4,560 5,528
Investment tax credits - net (503) (508) (508) (507) (500)
Interest on long-term debt 16,627 14,334 12,715 13,290 12,581
Interest on short-term debt and other 3,663 2,897 2,074 1,277 2,500
------- ------- ------- ------- -------
Net earnings available for fixed charges $54,421 $36,262 $32,937 $44,280 $38,487
------- ------- ------- ------- -------
Fixed charges:
Interest on long-term debt $16,627 $14,334 $12,715 $13,290 $12,581
Interest on short-term debt and other 3,663 2,897 2,074 1,277 2,500
------- ------- ------- ------- -------
Total fixed charges $20,290 $17,231 $14,789 $14,567 $15,081
======= ======= ======= ======= =======
Ratio of earnings to fixed charges 2.68 2.10 2.23 3.04 2.55
- ----------------------------------
</TABLE>
<PAGE>
Annual Report 1995
The Narragansett Electric Company
A Subsidiary of
New England Electric System
{LOGO} Narragansett Electric
A NEES Company
<PAGE>
The Narragansett Electric Company
280 Melrose Street
Providence, Rhode Island 02901
Directors
(As of December 31, 1995)
Joan T. Bok
Chairman of the Board of New England Electric System
Stephen A. Cardi
Treasurer, Cardi Corporation (Construction), Warwick, Rhode Island
Frances H. Gammell
Senior Vice President, Treasurer, and Secretary, Original Bradford Soap Works,
Inc., West Warwick, Rhode Island
Joseph J. Kirby
President, Washington Trust Bancorp, Inc., Westerly, Rhode Island
Robert L. McCabe
President and Chief Executive Officer of the Company
John W. Rowe
President and Chief Executive Officer of New England Electric System
Richard P. Sergel
Chairman of the Company and Vice President of New England Electric System
William E. Trueheart
President of Bryant College, Smithfield, Rhode Island
John A. Wilson, Jr.
Consultant to and former President of Wanskuck Company (Cable reel
manufacturer), Providence, Rhode Island and Consultant to Hinkley, Allen,
Tobin and Silverstein
Officers
(As of December 31, 1995)
Richard P. Sergel
Chairman of the Company and Vice President of New England Electric System
Robert L. McCabe
President and Chief Executive Officer
William Watkins, Jr.
Executive Vice President
Francis X. Beirne
Vice President
Richard W. Frost
Vice President
Alfred D. Houston
Vice President and Treasurer of the Company and Executive Vice President and
Chief Financial Officer of New England Electric System
Richard Nadeau
Vice President
Marcy L. Reed
Vice President
Michael F. Ryan
Vice President
Thomas G. Robinson
Secretary of the Company and General Counsel of an affiliate
<PAGE>
John G. Cochrane
Assistant Treasurer of the Company and of certain affiliates and Vice
President of an affiliate
Craig L. Eaton
Assistant Secretary
Howard W. McDowell
Controller of the Company and of certain affiliates
Transfer Agent, Dividend Paying Agent, and Registrar of Preferred Stock
Fleet National Bank, Providence, Rhode Island
This report is not to be considered an offer to sell or buy or solicitation of
an offer to sell or buy any security.
<PAGE>
The Narragansett Electric Company
The Narragansett Electric Company is a wholly-owned subsidiary of New
England Electric System (NEES) operating in Rhode Island. The Company's
business is the distribution and sale of electricity at retail. Electric
service is provided to approximately 328,000 customers in 27 cities and towns
having a population of approximately 725,000 (1990 Census). The Company's
service area, which includes urban, suburban, and rural areas, covers
approximately 80 percent of Rhode Island, and includes the cities of
Providence, East Providence, Cranston, and Warwick. The diversified economy of
the Company's service area produces fabricated metal products, electrical and
industrial machinery, transportation equipment, textiles, jewelry, silverware,
and chemical products. In addition, a broad range of professional, banking,
medical, and educational institutions is served. There are a number of
proposals that would increase competition in the electric utility industry and
result in customers having a choice of power suppliers (see "Financial
Review").
The properties of the Company include an integrated system of transmission
and distribution lines and substations. In addition, the Company owns a 10
percent share of a recently repowered 489 megawatt steam-electric generating
station. The entire output of this plant is made available to New England
Power Company (NEP), an affiliate, as part of the integrated NEES system.
Under a contract with NEP, the Company purchases its electric energy
requirements from NEP. The contract provides for the integration of the
Company's generating and transmission facilities with NEP's facilities in
order to achieve maximum economy and reliability. The contract also provides
for the application of credits against the Company's power bills from NEP for
costs associated with the Company's facilities so integrated. The Company and
NEP are members of the New England Power Pool, which provides for the
coordination of the planning and operation of the generation and transmission
facilities in New England, and the region-wide central dispatch of generation.
Report of Independent Accountants
The Narragansett Electric Company, Providence, Rhode Island:
We have audited the accompanying balance sheets of The Narragansett
Electric Company (the Company), a wholly-owned subsidiary of New England
Electric System, as of December 31, 1995 and 1994 and the related statements
of income, retained earnings, and cash flows for each of the three years in
the period ended December 31, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the Company as of December
31, 1995 and 1994, and the results of its operations and its cash flows for
each of the three years in the period ended December 31, 1995 in conformity
with generally accepted accounting principles.
Boston, Massachusetts COOPERS & LYBRAND L.L.P.
March 1, 1996
<PAGE>
The Narragansett Electric Company
Financial Review
Overview
Net income for 1995 increased $9 million compared with 1994. This increase
reflects the 1995 commencement of the recovery of the Company's investment in
the Manchester Street Station, which went into service in the second half of
1995, and related transmission facilities that went into service in 1994. The
increase in earnings in 1995 also reflects the recognition of unbilled
revenues over a 21 month period that ended December 31, 1995. These increases
were partially offset by increased depreciation expense and increased interest
expense.
Net income increased by $300,000 in 1994. The increase was primarily due
to the inclusion of a one-time charge in 1993 associated with an early
retirement program. The increase also reflects kilowatt-hour (kWh) sales
growth in 1994, the commencement of recognition of unbilled revenues and
increased allowance for funds used during construction. These increases were
largely offset by rate discounts to large commercial and industrial customers,
increases in other operation expenses, and increased interest expense.
Competitive Conditions
The electric utility business is being subjected to rapidly increasing
competitive pressures, stemming from a combination of trends, including the
presence of surplus generating capacity, a disparity in electric rates among
regions of the country, improvements in generation efficiency, increasing
demand for customer choice, and new regulations and legislation intended to
foster competition. To date, this competition has been most prominent in the
bulk power market, in which non-utility generators have significantly
increased their market share. Electric utilities have had exclusive
franchises for the retail sale of electricity in specified service
territories. As a result, competition in the retail market has been limited
to (i) competition with alternative fuel suppliers, primarily for heating and
cooling, (ii) competition with customer-owned generation, and (iii) direct
competition among electric utilities to attract major new facilities to their
service territories. These competitive pressures have led the Company and
other utilities to offer, from time to time, special discounts or service
packages to certain large customers.
In states across the country, including Rhode Island, there have been an
increasing number of proposals to allow retail customers to choose their
electricity supplier, with incumbent utilities required to deliver that
electricity over their transmission and distribution systems (also known as
"retail wheeling"). If electric customers were allowed to choose their
electricity supplier, the Company's role would change and it would provide
only distribution services. Power would be provided by power generators and
marketers, which could be either affiliated or non-affiliated companies. In
these competitive circumstances, utilities across the country that operate
generation plants, such as the Company's affiliate, New England Power Company
(NEP), would face the risk that market prices may not be sufficient to recover
the costs of the commitments incurred to supply customers under a regulated
industry structure. The amount by which costs exceed market prices is
commonly referred to as "stranded costs."
The Company purchases electricity on behalf of its customers under a
wholesale all-requirements contract with NEP. NEP derives approximately 20
percent of its electric sales revenues from sales to the Company.
Choice: New England
In October 1995, the New England Electric System (NEES) companies announced
a plan to allow all customers of electric utilities in Massachusetts, Rhode
Island, and New Hampshire to choose their power supplier beginning in 1998.
The plan, Choice: New England, was developed in response to 1995 decisions by
the Rhode Island Public Utilities Commission (RIPUC) and the Massachusetts
<PAGE>
Department of Public Utilities that approved a set of principles for industry
restructuring. These principles include allowing utilities the opportunity to
recover stranded costs. In March 1995, the RIPUC ordered all utilities in
Rhode Island to file restructuring plans by April 12, 1996. In response to a
RIPUC order, the Company plans to file a similar version of Choice: New
England with the RIPUC in April 1996.
Under Choice: New England, the Company would no longer sell electricity to
its customers. Instead, customers would purchase electricity from a supplier
of their choice, with the Company remaining responsible for providing
distribution services to customers under regulated rates. Transmission
services would be provided by a new affiliate of the Company, which would be
formed by NEES to provide comparable service across the NEES companies'
transmission system. Initially, the new affiliate would have operational
control of the Company's transmission facilities, but may, at a later date,
acquire those facilities from the Company. The net book value of the
Company's transmission system is approximately $80 million.
Under Choice: New England, the pricing of generation would be deregulated.
However, customers would have the right to receive service under a "standard
offer" from the incumbent utility or its affiliate, the pricing of which would
be approved in advance by legislators or regulators. Customers electing the
standard offer would be eligible to choose an alternative power supplier at
any time, but would not be allowed to return to the standard offer.
Under Choice: New England, the Company's wholesale contract with NEP would
be terminated. In return, Choice: New England proposes that the cost of NEP's
past generation commitments be recovered from the Company and its retail
affiliates through a contract termination charge. The Company would, in turn,
seek to recover the payments to NEP through a wires access or transition
charge to retail customers. Those commitments primarily consist of (i)
generating plant commitments, (ii) regulatory assets, (iii) purchased power
contracts, and (iv) the operating cost of nuclear plants which cannot be
mitigated by shutting down the plants (otherwise referred to as "nuclear costs
independent of operation"). The portion of these commitments incurred by NEP
to serve the Company's customers is currently estimated at approximately $1
billion on a present value basis. Sunk costs associated with utility
generating plants, such as past capital investments, and regulatory assets
would be recovered over ten years. Purchased power contract costs and nuclear
costs independent of operation would be recovered as incurred over the life of
those obligations, a period expected to extend beyond ten years. The access
charge would be set at three cents per kWh for the first three years.
Thereafter, the access charge would vary, but is expected to decline. The
provisions of Choice: New England, including the proposed access charge, are
subject to state approval and Federal Energy Regulatory Commission (FERC)
approval.
Rhode Island Legislation
In February 1996, the Speaker and Majority Leader of the House of
Representatives of the Rhode Island Legislature announced the filing of
legislation which would allow electric consumers in Rhode Island to choose
their power supplier. Under the proposed legislation, large manufacturing
customers and new large non-manufacturing customers would gain access to
alternative power suppliers over a two-year period beginning in 1998. These
customers represent approximately 14 percent of the Company's retail kWh
sales. The balance of Rhode Island customers would gain access over a
two-year period beginning in the year 2000, or earlier if consumers of 50
percent of the electricity in New England gain similar rights to choose their
power supplier. The NEES companies have announced their support for the
proposed legislation.
A key provision of the legislation authorizes utilities to recover the cost
of past generation commitments through a transition access charge on utility
distribution wires. The legislation divides those past commitments in the
same manner as Choice: New England. The legislation proposes a 12-year
recovery period for utility generation commitments and
<PAGE>
regulatory assets. The legislation would require the Company to transfer its
10 percent share of the Manchester Street Station and its transmission
facilities to separate affiliates at net book value. (See "Repowering of
Manchester Street Station" section.)
The legislation also establishes performance-based rates for distribution
utilities, such as the Company. Under the legislation, the Company would be
entitled to increase its distribution rates by approximately $10 million
annually, for the period 1997 through 1999, less any increases in wholesale
base rates from NEP passed on by the Company to customers. For those three
years, the Company's return on equity would be subject to a floor of 6 percent
and a ceiling of 11 percent. Earnings over the ceiling would be shared
equally between customers and shareholders up to an absolute cap on return on
equity of 12.5 percent. To the extent that earnings fall below the floor, the
Company would be authorized to surcharge customers for the shortfall.
Consideration by the Rhode Island Legislature of the proposed legislation is
expected to be completed by the summer of 1996.
Previously, in 1995, the Rhode Island Legislature passed legislation that
would have allowed certain industrial customers to buy power from alternative
suppliers, rather than through the local electric utility. The Company urged
the Governor of Rhode Island to veto the legislation because the Company
believed it would result in piecemeal deregulation that would not be fair to
customers or shareholders. The Governor vetoed the proposed legislation, in
part because of commitments by the Company to provide a two-year rate discount
to manufacturing customers (see "Rate Activity" section) and to submit a
specific and detailed proposal to the RIPUC addressing the issues associated
with providing large customers with access to the Company's distribution
system for the purpose of choosing an alternative power supplier.
Other Regulatory Initiatives
In March 1995, the FERC issued a Notice of Proposed Rulemaking in which it
stated that it is appropriate that legitimate and verifiable stranded costs be
recovered from departing customers as a result of wholesale competition. The
FERC also indicated that costs stranded as a result of retail competition
would be subject to state commission review if the necessary statutory
authority exists and subject to FERC review if the state commission does not
have such authority. A final decision is expected during 1996.
Risk Factors
The major risk factors affecting the Company relate to the possibility of
adverse regulatory decisions or legislation which limit the level of revenues
the Company is allowed to charge for its services. The Company's
all-requirements purchased power contract with NEP requires either party to
give seven years notice prior to terminating the contract. Termination of the
contract would create stranded costs at NEP that NEP would seek to recover
from the Company pursuant to the contract. In that event, the Company would
seek recovery of such stranded costs from its customers. However, there is no
assurance that the final restructuring plans ordered by state regulatory
bodies or state legislatures will include provisions that allow the Company to
fully recover any stranded costs passed on to the Company by NEP. In such an
event, the Company could be faced with a significant amount of costs being
billed to it by NEP that the Company could not fully recover from retail
customers, for which the Company would seek a remedy in the courts.
Historically, electric utility rates have been based on a utility's costs.
As a result, electric utilities are subject to certain accounting standards
that are not applicable to other business enterprises in general. Financial
Accounting Standards No. 71, Accounting for the Effects of Certain Types of
Regulation (FAS 71), requires regulated entities, in appropriate
circumstances, to establish regulatory assets and liabilities, and thereby
<PAGE>
defer the income statement impact of certain costs that are expected to be
recovered in future rates. The effects of regulatory, legislative, or utility
initiatives could, in the near future, cause all or a portion of the Company's
operations to cease meeting the criteria of FAS 71. In that event, the
application of FAS 71 to such operations would be discontinued and a non-cash
write-off of previously established regulatory assets and liabilities related
to such operations would be required. At December 31, 1995, the Company had
pre-tax regulatory assets (net of regulatory liabilities) of approximately $48
million. If competitive or regulatory change should cause a substantial
revenue loss or lead to the permanent shutdown of any generating facilities, a
write-down of plant assets could be required pursuant to Financial Accounting
Standards No. 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of (FAS 121). In addition, FAS 121 requires
that all regulatory assets, which must have a high probability of recovery to
be initially established, must continue to meet that high probability standard
to avoid being written off. FAS 121, which is effective for the Company in
January 1996, is not expected to have a material adverse impact on the
financial condition or results of operations upon adoption, based on the
current regulatory environment in which the Company operates. However, the
impact in the future may change as competitive factors and potential
restructuring influence the electric utility industry. For a further
discussion, see Note B.
Rate Activity
The RIPUC approved a settlement agreement that provides for a $15 million
increase to base rates for the Company effective December 1, 1995. The RIPUC
also approved $3 million of new discounts for manufacturing customers, the
costs of which are not being recovered from other customers.
In February 1995, the FERC approved a rate agreement, effective in January
1995, for NEP. This rate agreement, among other things, increased the credits
the Company receives from NEP for the costs of owning and operating its
generation and transmission facilities by $14 million on an annual basis. The
Company supplies all of the output of its generating facilities to NEP. The
increase in the credits reflects the Company's 10 percent investment in the
Manchester Street Station, which entered commercial operation in the second
half of 1995, and the transmission facilities associated with the station,
which were placed in service in September 1994. An additional increase in
these credits of approximately $2 million took effect in January 1996.
In 1994, the RIPUC approved a rate agreement between the Company and the
Rhode Island Division of Public Utilities and Carriers that provided for the
Company to recognize, for accounting purposes, $14 million of unbilled
revenues over a 21 month period which ended in December 1995. The agreement
further provided for rate discounts for large commercial and industrial
customers who signed agreements to give a five-year notice to the Company
before they purchase power from another supplier or generate any additional
power themselves. In addition, commencing in 1995 the cost of these discounts
is being passed on to NEP as a result of the NEP rate settlement referred to
above.
Effective January 1993, the RIPUC approved a $1.5 million increase in rates
for the Company, representing the first step of a three-year phase-in of the
Company's recovery of costs associated with postretirement benefits other than
pensions. The second and third $1.5 million increases took effect in January
1994 and 1995, respectively.
A 1986 Rhode Island Supreme Court decision held that the RIPUC's
rate-making power includes the authority to order refunds of amounts earned in
excess of an allowed return. As a result, the RIPUC monitors the Company's
earnings on a regular basis.
<PAGE>
Demand-Side Management (DSM)
The Company has received approval from the RIPUC to recover DSM program
expenditures in rates on a current basis. These expenditures were $9 million,
$10 million, and $12 million in 1995, 1994, and 1993, respectively. Since
1990, the Company has been allowed to earn incentives based on the results of
its DSM programs. The Company recorded before-tax incentives of $0.5 million,
$0.6 million, and $0.5 million in 1995, 1994, and 1993, respectively.
Operating Revenue
The following table summarizes the changes in operating revenue:
Increase (Decrease) in Operating Revenue
(In Millions) 1995 1994
---- ----
Sales growth $2 $5
Fuel recovery 11 (7)
Rate changes/service extension discounts (SEDs) 1
Unbilled revenues recognized under rate agreements 2 5
Purchased power cost adjustment (PPCA) mechanism 1 (2)
DSM recovery (1) (2)
Other 1
---- ----
$17 $(1)
==== ====
In 1995, kWh sales to ultimate customers increased 0.3 percent over 1994.
A warmer summer in 1995 and a return to more normal weather in the fourth
quarter of 1995 was largely offset by unusually mild weather in the first
quarter of 1995.
In 1994, kWh sales to ultimate customers increased by 0.6 percent over 1993
reflecting an improved regional economy, partially offset by a loss of sales
attributable to the May 1994 plant closing of one of the Company's largest
customers.
In the third quarter of 1994, the Company began recognizing electricity
delivered but not yet billed (unbilled revenues) according to its rate
agreement filed in July 1994 with the RIPUC. For a further discussion of
unbilled revenues, see "Rate Activity" section.
The Company's rates contain a fuel clause and a PPCA provision. These
mechanisms are designed to allow the Company to pass on to its customers
changes in purchased energy costs from NEP.
Operating Expenses
The following table summarizes the changes in operating expenses:
Increase (Decrease) in Operating Expenses
(In Millions) 1995 1994
---- ----
Purchased electric energy:
Fuel costs $11 $(7)
Integrated facilities credit from NEP (19) (6)
SED reimbursements (2)
Purchases and demand charges and other 2 3
Other operation and maintenance (1) (1)
Depreciation 7 7
Taxes 7 1
---- ----
$5 $(3)
==== ====
<PAGE>
The 1995 increase in fuel costs from NEP reflects decreased nuclear
generation due to overhauls and decreased hydro production resulting from low
water levels. The decrease in the fuel cost component of purchased power in
1994 includes a decrease in the amount of New England Energy Incorporated's
(NEEI) costs passed through by NEP. NEEI is an affiliated company involved in
oil and gas exploration and development.
The Company owns a 10 percent share of the Manchester Street Station and
also owns the seven mile underground transmission line associated with this
facility as well as other transmission facilities in Rhode Island. The
Company's share of the electricity generated by this plant is made available
to NEP which owns the remaining 90 percent of the station. The Company
receives a credit on its purchased power bill from NEP reflecting rate
recovery of its investment in the station and the transmission line, and for
its fuel costs and other generation and transmission costs. The increase in
the integrated facilities credits from NEP is primarily due to the recovery of
the Company's investment in the repowered Manchester Street Station that went
into service in the second half of 1995 and the related transmission line
which was placed in service in September 1994. The increased credits in both
1995 and 1994 also reflect the reimbursement of increased dismantlement costs
being incurred on the Company's previously retired South Street generating
station. These increased costs for dismantlement are reflected in the
increases in depreciation in the above table.
The reduction in other operation and maintenance expenses in 1995 reflects
decreased distribution related expenses, partially offset by increased
postretirement benefit expenses.
The increase in operation and maintenance expenses in 1994 reflects
increased computer system development costs, postretirement benefit expenses
and general increases in other areas, partially offset by a one-time charge of
$5 million in 1993 associated with an early retirement program.
The increase in taxes in 1995 is primarily due to increased income.
Allowance for Funds Used During Construction (AFDC)
AFDC decreased in 1995 due to the completion in 1994 of transmission
facilities related to the Manchester Street Station repowering project,
partially offset by additional spending in 1995 on the generating station
itself. AFDC increased in 1994 due to increased construction work in progress
associated with the Manchester Street Station and related transmission
facilities (see "Repowering of Manchester Street Station" section).
Hazardous Waste
The Federal Comprehensive Environmental Response, Compensation and
Liability Act, more commonly known as the "Superfund" law, imposes strict,
joint and several liability, regardless of fault, for remediation of property
contaminated with hazardous substances.
The electric utility industry typically utilizes and/or generates a range
of potentially hazardous products and by-products in its operations. NEES
subsidiaries currently have an environmental audit program in place intended
to enhance compliance with existing federal, state, and local requirements
regarding the handling of potentially hazardous products and by-products.
The Company has been named as a potentially responsible party (PRP) by
either the U.S. Environmental Protection Agency or the Massachusetts
Department of Environmental Protection for three sites (two of which are
located in Massachusetts) at which hazardous waste is alleged to have been
disposed. The Company is currently aware of other sites, and may in the
future become aware of additional sites, that it may be held responsible for
remediating.
<PAGE>
Gas was manufactured from coal in Rhode Island in the past. The Company is
aware of five sites on which gas was manufactured or manufactured gas was
stored that were owned either by the Company or by its predecessor companies.
It is not known to what extent the Company would be held liable for hazardous
wastes, if any, left at these manufactured gas locations.
Predicting the potential costs to investigate and remediate hazardous waste
sites continues to be difficult. There are also significant uncertainties as
to the portion, if any, of the investigation and remediation costs of any
particular hazardous waste site that may ultimately be borne by the Company.
A preliminary review by a consultant hired by the NEES companies of the
potential cost of investigating and, if necessary, remediating Rhode Island
manufactured gas sites resulted in costs per site ranging from less than $1
million to $11 million. An informal survey of other utilities conducted on
behalf of NEES and its subsidiaries indicated costs in a similar range. Where
appropriate, the Company intends to seek recovery from its insurers and from
other PRPs, but it is uncertain whether, and to what extent, such efforts will
be successful. The Company believes that hazardous waste liabilities for all
sites of which it is aware are not material to its financial position.
Electric and Magnetic Fields (EMF)
Concerns have been raised about whether EMF, which occur near transmission
and distribution lines as well as near household wiring and appliances, cause
or contribute to adverse health effects. Numerous studies on the effects of
these fields, some of them sponsored by electric utilities (including NEES
companies), have been conducted and are continuing. Some of the studies have
suggested associations between certain EMF and health effects, including
various types of cancer, while other studies have not substantiated such
associations. It is impossible to predict the ultimate impact on the Company
and the electric utility industry if further investigations were to
demonstrate that the present electricity delivery system is contributing to
increased risk of cancer or other health problems.
Many utilities, including the NEES companies, have been contacted by
customers regarding a potential relationship between EMF and adverse health
effects. To date, no court in the United States has ruled that EMF from
electrical facilities cause adverse health effects and no utility has been
found liable for personal injuries alleged to have been caused by EMF. In any
event, the Company believes that it currently has adequate insurance coverage
for personal injury claims.
Several state courts have recognized a cause of action for damage to
property values in transmission line condemnation cases based on the fear that
power lines cause cancer. It is difficult to predict what the impact on the
Company would be if this cause of action is recognized in Rhode Island and in
contexts other than condemnation cases.
Utility Plant Expenditures and Financings
Cash expenditures for utility plant totaled $73 million in 1995, including
$13 million related to the Manchester Street Station repowering project
discussed below. The funds necessary for utility plant expenditures during
1995 were primarily provided by net cash from operating activities, after the
payment of dividends, long-term debt issues, and capital contributions from
NEES. Cash expenditures for utility plant for 1996 are estimated to be
approximately $50 million. Internally generated funds are estimated to
provide 95 percent of these needs in 1996. Cash expenditures for utility
plant are also expected to be funded through the issuance of long-term debt.
In 1995, the Company issued $38 million of first mortgage bonds bearing
interest rates ranging from 7.30 percent to 7.81 percent. In November 1995,
the Company retired $16 million of first mortgage bonds prior to maturity and
incurred premiums of $1.9 million. The Company has refinanced $2 million of
long-term debt to date in 1996 at an interest rate of 7.24 percent and plans
to issue an additional $10 million of long-term debt later in 1996.
<PAGE>
At December 31, 1995, the Company had $23 million of short-term debt
outstanding including $22 million of commercial paper borrowings and $1
million of borrowings from affiliates. As of December 31, 1995, the Company
had lines of credit with banks totaling $41 million. There were no borrowings
under these lines of credit at December 31, 1995.
Repowering of Manchester Street Station
In the second half of 1995, NEP and the Company completed the 489 megawatt
repowering of the Manchester Street Station. NEP owns a 90 percent interest
and the Company owns a 10 percent interest in the Manchester Street Station.
The total cost for the generating station will be approximately $450 million
including AFDC, of which the Company's share will be approximately $40
million. In addition, related transmission improvements were placed in
service in September 1994 at a cost of approximately $60 million, of which the
Company's share was $45 million.
March 25, 1996
<PAGE>
The Narragansett Electric Company
Statements of Income
<TABLE>
<CAPTION>
Year Ended December 31, (In Thousands) 1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Operating revenue $499,113 $481,669 $483,028
-------- -------- --------
Operating expenses:
Purchased electric energy, principally
from New England Power Company,
an affiliate 293,272 300,678 310,895
Other operation 73,194 73,082 73,723
Maintenance 11,174 12,281 12,179
Depreciation 31,533 24,813 17,645
Taxes, other than federal income taxes 36,627 35,818 35,846
Federal income taxes 10,888 4,883 4,175
-------- -------- --------
Total operating expenses 456,688 451,555 454,463
-------- -------- --------
Operating income 42,425 30,114 28,565
-------- -------- --------
Other income:
Allowance for equity funds used
during construction 106 1,028 543
Other income (expense), net (192) (856) (634)
-------- -------- --------
Operating and other income 42,339 30,286 28,474
-------- -------- --------
Interest:
Interest on long-term debt 16,627 14,334 12,715
Other interest 3,663 2,897 2,074
Allowance for borrowed funds used during
construction credit (1,861) (1,534) (589)
-------- -------- --------
Total interest 18,429 15,697 14,200
-------- -------- --------
Net income $23,910 $14,589 $14,274
======== ======== ========
Statements of Retained Earnings
Year Ended December 31, (In Thousands) 1995 1994 1993
---- ---- ----
Retained earnings at beginning of year $91,556 $81,659 $74,207
Net income 23,910 14,589 14,274
Dividends declared on cumulative
preferred stock (2,143) (2,143) (1,931)
Dividends declared on common stock,
$4.50, $2.25, and $4.00 per share,
respectively (5,096) (2,549) (4,530)
Premium on redemption of preferred stock (361)
-------- -------- --------
Retained earnings at end of year $108,227 $91,556 $81,659
======== ======== ========
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
The Narragansett Electric Company
Balance Sheets
<TABLE>
<CAPTION>
At December 31, (In Thousands) 1995 1994
---- ----
Assets
<S> <C> <C>
Utility plant, at original cost $699,906 $617,498
Less accumulated provisions for depreciation 173,391 161,557
-------- --------
526,515 455,941
Construction work in progress 8,733 35,974
-------- --------
Net utility plant 535,248 491,915
-------- --------
Current assets:
Cash 1,999 713
Accounts receivable:
From sales of electric energy 59,760 51,278
Other (including $1,464 and $9,306 from affiliates) 9,330 17,953
Less reserves for doubtful accounts 5,516 4,472
-------- --------
63,574 64,759
Unbilled revenues (Note A-3) 16,500 13,100
Fuel, materials, and supplies, at average cost 6,245 5,170
Prepaid and other current assets 15,887 13,993
-------- --------
Total current assets 104,205 97,735
-------- --------
Deferred charges and other assets (Note B) 60,168 57,727
-------- --------
$699,621 $647,377
======== ========
Capitalization and Liabilities
Capitalization:
Common stock, par value $50 per share,
authorized and outstanding 1,132,487 shares $56,624 $56,624
Premiums on preferred stocks 170 170
Other paid-in capital 80,000 60,000
Retained earnings 108,227 91,556
-------- --------
Total common equity 245,021 208,350
Cumulative preferred stock, par value $50 per share 36,500 36,500
Long-term debt 210,892 188,862
-------- --------
Total capitalization 492,413 433,712
-------- --------
Current liabilities:
Short-term debt (including $1,000 to
affiliates in 1995) 22,675 29,800
Accounts payable (including $38,510 and
$47,900 to affiliates) 46,247 56,139
Accrued liabilities:
Taxes 6,380 143
Interest 5,847 5,615
Other accrued expenses (Note F) 19,558 25,346
Customer deposits 5,691 5,261
Dividends payable 1,102 819
-------- --------
Total current liabilities 107,500 123,123
-------- --------
Deferred federal income taxes 76,017 70,253
Unamortized investment tax credits 8,016 8,518
Other reserves and deferred credits 15,675 11,771
Commitments and contingencies (Note D)
-------- --------
$699,621 $647,377
======== ========
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
The Narragansett Electric Company
Statements of Cash Flows
<TABLE>
<CAPTION>
Year Ended December 31, (In Thousands) 1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Operating activities:
Net income $23,910 $14,589 $14,274
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 31,533 24,813 17,645
Deferred federal income taxes and
investment tax credits, net 3,009 3,422 1,690
Allowance for funds used during
construction (1,967) (2,562) (1,132)
Amortization of unbilled revenues (8,209) (6,158)
Early retirement program 2,705
Decrease (increase) in accounts receivable,
net and unbilled revenues (2,215) (14,163) (2,183)
Decrease (increase) in fuel, materials,
and supplies (1,075) (598) 429
Decrease (increase) in prepaid and
other current assets (1,894) (2,478) 2,359
Increase (decrease) in accounts payable (9,892) 5,134 (3,180)
Increase (decrease) in other
current liabilities 9,320 12,312 2,287
Other, net 5,931 5,877 (2,180)
--------- --------- ---------
Net cash provided by operating
activities $48,451 $40,188 $32,714
--------- --------- ---------
Investing activities:
Plant expenditures, excluding allowance for
funds used during construction $(72,897) $(92,503) $(62,897)
Other investing activities (251) (911)
--------- --------- ---------
Net cash used in investing activities $(73,148) $(93,414) $(62,897)
--------- --------- ---------
Financing activities:
Capital contributions from NEES $20,000 $15,000
Dividends paid on common stock (4,813) (2,831) $(5,663)
Dividends paid on preferred stock (2,143) (2,143) (1,783)
Changes in short-term debt (7,125) 10,075 16,050
Long-term debt issues 38,000 33,000 27,500
Long-term debt retirements (16,000) (14,900)
Preferred stock issues 20,000
Preferred stock retirements (10,000)
Premium on reacquisition of long-term debt (1,936) (652)
Premium on redemption of preferred stock (361)
--------- --------- ---------
Net cash provided by
financing activities $25,983 $53,101 $30,191
--------- --------- ---------
Net increase (decrease) in cash and
cash equivalents $1,286 $(125) $8
Cash and cash equivalents at
beginning of year 713 838 830
--------- --------- ---------
Cash and cash equivalents at end of year $1,999 $713 $838
========= ========= =========
Supplementary Information:
Interest paid less amounts capitalized $17,050 $14,015 $12,623
--------- --------- ---------
Federal income taxes paid $1,084 $2,982 $2,352
--------- --------- ---------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
The Narragansett Electric Company
Notes to Financial Statements
Note A - Significant Accounting Policies
1. Nature of Operations:
The Company is a wholly-owned subsidiary of New England Electric System (NEES)
operating in Rhode Island. The Company's business is the distribution and sale
of electricity at retail. Electric service is provided to approximately
328,000 customers in 27 cities and towns having a population of approximately
725,000 (1990 Census). The Company's service area, which includes urban,
suburban, and rural areas, covers approximately 80 percent of Rhode Island.
The properties of the Company include an integrated system of transmission and
distribution lines and substations. In addition, the Company owns a 10 percent
share of a recently repowered 489 megawatt steam-electric generating station.
The entire output of this plant is made available to New England Power Company
(NEP), an affiliate, as part of the integrated NEES system. Under a contract
with NEP, the Company purchases all of its electric energy requirements from
NEP. The contract provides for the integration of the Company's generating
and transmission facilities with NEP's facilities in order to achieve maximum
economy and reliability. The contract also provides for the application of
credits against the Company's power bills from NEP for costs associated with
the Company's facilities so integrated. This contract requires either party
to give seven years notice prior to terminating the contract.
2. System of Accounts:
The accounts of the Company are maintained in accordance with the Uniform
System of Accounts prescribed by regulatory bodies having jurisdiction.
In preparing the financial statements, management is required to make
estimates that affect the reported amounts of assets and liabilities and
disclosures of asset recovery and contingent liabilities as of the date of the
balance sheets and revenues and expenses for the period. These estimates may
differ from actual amounts if future circumstances cause a change in the
assumptions used to calculate these estimates.
3. Electric Sales Revenue:
The Company, pursuant to its 1994 rate agreement, began accruing revenues for
electricity delivered but not yet billed (unbilled revenues). Unbilled
revenues at December 31, 1995 and 1994 were $17 million and $13 million,
respectively, of which $12 million and $5 million were recognized in income in
the respective years. Included in these income amounts are $8 million in 1995
and $6 million in 1994 which represent amortization of the initial effect of
recording unbilled revenues in accordance with the rate agreement. Other
accrued revenues are recorded in accordance with rate adjustment mechanisms.
4. Allowance for Funds Used During Construction (AFDC):
The Company capitalizes AFDC as part of construction costs. AFDC represents
the composite interest and equity costs of capital funds used to finance that
portion of construction costs not eligible for inclusion in rate base. In
1995, an average of $4 million of construction work in progress was included
in rate base, all of which was attributable to the Manchester Street Station
repowering project. AFDC is capitalized in "Utility plant" with offsetting
non-cash credits to "Other income" and "Interest." This method is in accordance
with an established rate-making practice under which a utility is permitted a
return on, and the recovery of, prudently incurred capital costs through their
ultimate inclusion in rate base and in the provision for depreciation. The
composite AFDC rates were 6.2 percent, 6.8 percent, and 6.9 percent in 1995,
1994, and 1993, respectively.
<PAGE>
5. Depreciation:
Depreciation is provided annually on a straight-line basis. The provision for
depreciation as a percentage of weighted average depreciable property was 5.0
percent, 4.5 percent, and 3.5 percent in 1995, 1994, and 1993, respectively.
The increase in the depreciation rates in 1995 and 1994 is primarily due to
the recognition through depreciation expense of dismantlement costs for a
retired generating facility.
6. Cash:
The Company classifies short-term investments with a maturity of 90 days or
less at time of purchase as cash.
Note B - Competitive Conditions
The electric utility business is being subjected to rapidly increasing
competitive pressures and increasing demands for customer choice. Accordingly,
the companies within the NEES system have developed a plan, Choice: New
England, which would allow all customers of electric utilities in the states
the NEES companies serve to choose their power supplier beginning in 1998. The
Company plans to file a similar version of Choice: New England with the Rhode
Island Public Utilities Commission (RIPUC) in April 1996. Under Choice: New
England, pricing of generation would be deregulated while transmission and
distribution rates would remain regulated. Choice: New England proposes that
the cost of past commitments to serve customers be recovered through a wires
access or transition charge. Those past commitments include generating plant
commitments, regulatory assets, purchased power contracts, and nuclear costs
independent of operation.
In addition, legislation has been introduced in the Rhode Island House of
Representatives by the House leadership that would allow customers to choose
their power supplier on a phased-in basis beginning in 1998. It also provides
that past commitments be recovered through a wires access or transition
charge.
Historically, electric utility rates have been based on a utility's costs. As
a result, electric utilities are subject to certain accounting standards that
are not applicable to other business enterprises in general. Financial
Accounting Standards No. 71, Accounting for the Effects of Certain Types of
Regulation (FAS 71), requires regulated entities, in appropriate
circumstances, to establish regulatory assets and liabilities, and thereby
defer the income statement impact of certain costs that are expected to be
recovered in future rates. The effects of regulatory, legislative, or utility
initiatives could, in the near future, cause all or a portion of the Company's
operations to cease meeting the criteria of FAS 71. In that event, the
application of FAS 71 to such operations would be discontinued and a non-cash
write-off of previously established regulatory assets and liabilities related
to such operations would be required. In March 1995, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to Be Disposed Of (FAS 121). This standard clarifies when and how to recognize
an impairment of long-lived assets. If competitive or regulatory change should
cause a substantial revenue loss or lead to the permanent shutdown of any
generating facilities, a write-down of plant assets could be required pursuant
to FAS 121. In addition, FAS 121 requires that all regulatory assets, which
must have a high probability of recovery to be initially established, must
continue to meet that high probability standard to avoid being written off.
However, if written off, a regulatory asset can be restored if it again has a
high probability of recovery. FAS 121, which is effective for the Company in
January 1996, is not expected to have a material adverse impact on the
<PAGE>
financial condition or results of operations upon adoption, based on the
current regulatory environment in which the Company operates. However, the
impact in the future may change as competitive factors and potential
restructuring influence the electric utility industry.
The components of regulatory assets are as follows:
<TABLE>
<CAPTION>
At December 31, (In Thousands) 1995 1994
---- ----
<S> <C> <C>
Regulatory assets (liabilities) included in current assets
and liabilities:
Rate adjustment mechanisms $(7,661) $(8,382)
Unamortized unbilled revenues (see Note A-3) (8,209)
-------- --------
(7,661) (16,591)
-------- --------
Regulatory assets included in deferred charges:
Deferred SFAS No. 109 costs (see Note C) 29,251 26,999
Unamortized losses on reacquired debt 13,918 12,538
Deferred SFAS No. 106 costs (see Note E 2) 4,894 5,539
Deferred storm costs 3,676 4,277
Other 3,900 3,751
-------- --------
55,639 53,104
-------- --------
$47,978 $36,513
======== ========
Amounts included in "Deferred charges and other assets" on the Company's
balance sheets that do not represent regulatory assets totaled $4,529,000 and
$4,623,000 at December 31, 1995 and 1994, respectively.
</TABLE>
Note C - Federal Income Taxes
The Company and other subsidiaries participate with NEES in filing
consolidated federal income tax returns. The Company's income tax provision is
calculated on a separate return basis. Federal income tax returns have been
examined and reported on by the Internal Revenue Service (IRS) through 1991.
The returns for 1992 and 1993 are currently under examination by the IRS.
Total federal income taxes consist of the following components:
<TABLE>
<CAPTION>
Year Ended December 31, (In Thousands) 1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Income taxes charged to operations:
Current income taxes $7,560 $1,511 $2,537
Deferred income taxes 3,831 3,880 2,146
Investment tax credits, net (503) (508) (508)
------- ------- -------
Total income taxes charged to operations 10,888 4,883 4,175
------- ------- -------
Income taxes charged (credited) to "Other income":
Current income taxes (348) (491) (354)
Deferred income taxes (319) 50 53
------- ------- -------
Total income taxes charged (credited) to
"Other income" (667) (441) (301)
------- ------- -------
Total federal income taxes $10,221 $4,442 $3,874
======= ======= =======
Investment tax credits have been deferred and are being amortized over the
estimated lives of the property giving rise to the credits.
</TABLE>
<PAGE>
Consistent with rate-making policies of the RIPUC, the Company has adopted
comprehensive interperiod tax allocation (normalization) for most temporary
book/tax differences.
Total federal income taxes differ from the amounts computed by applying the
federal statutory tax rates to income before taxes. The reasons for the
differences are as follows:
<TABLE>
<CAPTION>
Year Ended December 31, (In Thousands) 1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Computed tax at statutory rate $11,946 $6,661 $6,352
Increases (reductions) in
tax resulting from:
Book versus tax depreciation not normalized 529 653 496
Costs associated with utility
plant retirements deducted
for tax purposes (1,768) (1,872) (1,756)
Allowance for equity funds used
during construction (37) (360) (190)
Amortization of investment tax credits (503) (508) (508)
Adjustment of prior year tax accruals (47) (150) (473)
All other differences 101 18 (47)
------- ------- -------
Total federal income taxes $10,221 $4,442 $3,874
======= ======= =======
The following table identifies the major components of total deferred income
taxes:
At December 31, (In Millions) 1995 1994
---- ----
Deferred tax asset:
Plant related $2 $2
Investment tax credits 3 3
All other 13 13
----- -----
18 18
===== =====
Deferred tax liability:
Plant related (62) (57)
All other (32) (31)
----- -----
(94) (88)
----- -----
Net deferred tax liability $(76) $(70)
===== =====
There were no valuation allowances for deferred tax assets deemed necessary.
</TABLE>
Note D - Commitments and Contingencies
1. Plant Expenditures:
The Company's utility plant expenditures are estimated to be approximately $50
million in 1996. At December 31, 1995, substantial commitments had been made
relative to future planned expenditures.
2. Hazardous Waste:
The Federal Comprehensive Environmental Response, Compensation and Liability
Act, more commonly known as the "Superfund" law, imposes strict, joint and
several liability, regardless of fault, for remediation of property
contaminated with hazardous substances.
<PAGE>
The electric utility industry typically utilizes and/or generates a range of
potentially hazardous products and by-products in its operations. NEES
subsidiaries currently have an environmental audit program in place intended
to enhance compliance with existing federal, state, and local requirements
regarding the handling of potentially hazardous products and by-products.
The Company has been named as a potentially responsible party (PRP) by either
the U.S. Environmental Protection Agency or the Massachusetts Department of
Environmental Protection for three sites (two of which are located in
Massachusetts) at which hazardous waste is alleged to have been disposed. The
Company is currently aware of other sites, and may in the future become aware
of additional sites, that it may be held responsible for remediating.
Gas was manufactured from coal in Rhode Island in the past. The Company is
aware of five sites on which gas was manufactured or manufactured gas was
stored that were owned either by the Company or by its predecessor companies.
It is not known to what extent the Company would be held liable for hazardous
wastes, if any, left at these manufactured gas locations.
Predicting the potential costs to investigate and remediate hazardous waste
sites continues to be difficult. There are also significant uncertainties as
to the portion, if any, of the investigation and remediation costs of any
particular hazardous waste site that may ultimately be borne by the Company.
A preliminary review by a consultant hired by the NEES companies of the
potential cost of investigating and, if necessary, remediating Rhode Island
manufactured gas sites resulted in costs per site ranging from less than $1
million to $11 million. An informal survey of other utilities conducted on
behalf of NEES and its subsidiaries indicated costs in a similar range. Where
appropriate, the Company intends to seek recovery from its insurers and from
other PRPs, but it is uncertain whether, and to what extent, such efforts will
be successful. The Company believes that hazardous waste liabilities for all
sites of which it is aware are not material to its financial position.
Note E - Employee Benefits
1. Pension Plans:
The Company participates with other subsidiaries of NEES in noncontributory,
defined-benefit plans covering substantially all employees of the Company. The
plans provide pension benefits based on the employee's compensation during the
five years prior to retirement. The Company's funding policy is to contribute
each year the net periodic pension cost for that year. However, the
contribution for any year will not be less than the minimum contribution
required by federal law or greater than the maximum tax deductible amount.
Net pension cost for 1995, 1994, and 1993 included the following components:
<TABLE>
<CAPTION>
Year Ended December 31, (In Thousands) 1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Service cost benefits earned
during the period $1,963 $1,877 $1,557
Plus (less):
Interest cost on projected
benefit obligation 9,327 8,629 8,737
Return on plan assets at expected
long-term rate (9,567) (9,024) (8,739)
Amortization 67 567 (101)
------- ------- -------
Net pension cost $1,790 $2,049 $1,454
------- ------- -------
Actual return on plan assets $25,192 $809 $13,545
======= ======= =======
1996 1995 1994 1993
---- ---- ---- ----
Assumptions used to determine
pension cost:
Discount rate 7.25% 8.25% 7.25% 8.25%
Average rate of increase in
future compensation levels 4.13% 4.63% 4.35% 5.35%
Expected long-term rate of
return on assets 8.50% 8.75% 8.75% 8.75%
Service cost for 1993 does not reflect $5 million of costs incurred in
connection with an early retirement and special severance program offered by
the Company in that year.
</TABLE>
<PAGE>
The funded status of the plans cannot be presented separately for the Company
as the Company participates in the plans with other NEES subsidiaries. The
following table sets forth the funded status of the NEES companies' plans at
December 31:
<TABLE>
<CAPTION>
Retirement Plans, (In Millions) 1995 1994
---- ----
<S> <C> <C>
Union Non-Union Union Non-Union
Employee Employee Employee Employee
Plans Plans Plans Plans
------ ------ ------ ------
Benefits earned
Actuarial present value of
accumulated benefit liability:
Vested $293 $343 $251 $308
Non-vested 8 10 8 9
---- ---- ---- ----
Total $301 $353 $259 $317
==== ==== ==== ====
Reconciliation of funded status
Actuarial present value of
projected benefit liability $346 $402 $303 $355
Unrecognized prior service costs (7) (4) (8) (4)
Unrecognized transition liability (1) (1)
Unrecognized net loss (1) (23) (13) (33)
---- ---- ---- ----
338 374 282 317
---- ---- ---- ----
Pension fund assets at fair value 349 392 293 323
Unrecognized transition asset (11) (13)
---- ---- ---- ----
338 392 280 323
---- ---- ---- ----
Accrued pension/(prepaid)
payments recorded on books $ - $(18) $ 2 $ (6)
</TABLE>
The plans' funded status at December 31, 1995 and 1994 were calculated using
the assumed rates from 1996 and 1995, respectively, and the 1983 Group Annuity
Mortality table.
Plan assets are composed primarily of corporate equity, guaranteed investment
contracts, debt securities, and cash equivalents.
2. Postretirement Benefit Plans Other Than Pensions (PBOPs)
The Company provides health care and life insurance coverage to eligible
retired employees. Eligibility is based on certain age and length of service
requirements and in some cases retirees must contribute to the cost of their
coverage.
<PAGE>
The total cost of PBOPs for 1995, 1994, and 1993 included the following
components:
<TABLE>
<CAPTION>
Year Ended December 31, (In Thousands) 1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Service cost - benefits earned during
the period $1,072 $1,252 $1,161
Plus (less):
Interest cost on accumulated
benefit obligation 6,006 5,630 6,330
Return on plan assets at expected
long-term rate (2,080) (1,640) (1,031)
Amortization 3,539 3,716 3,864
------- ------- -------
Net postretirement benefit cost $8,537 $8,958 $10,324
======= ======= =======
Actual return (loss) on plan assets $6,161 $(23) $1,047
======= ======= =======
1996 1995 1994 1993
---- ---- ---- ----
Assumptions used to determine
postretirement benefit cost:
Discount rate 7.25% 8.25% 7.25% 8.25%
Expected long-term rate of return
on assets 8.25% 8.50% 8.50% 8.50%
Health care cost rate 1994 and 1993 11.00% 12.00%
Health care cost rate 1995 to 1999 8.00% 8.50% 8.50% 9.50%
Health care cost rate 2000 to 2004 6.25% 8.50% 8.50% 9.50%
Health care cost rate 2005 and beyond 5.25% 6.25% 6.25% 7.25%
The following table sets forth benefits earned and the plans' funded status:
At December 31, (In Millions) 1995 1994
---- ----
Accumulated postretirement benefit obligation:
Retirees $50 $50
Fully eligible active plan participants 6 10
Other active plan participants 20 14
---- ----
Total benefits earned 76 74
Unrecognized transition obligation (66) (70)
Unrecognized net gain 16 10
---- ----
26 14
Plan assets at fair value 34 22
---- ----
Prepaid postretirement benefit costs recorded on books $8 $8
==== ====
</TABLE>
The plans' funded status at December 31, 1995 and 1994 were calculated using
the assumed rates in effect for 1996 and 1995, respectively.
The health care cost trend rate assumption has a significant effect on the
amounts reported.
Increasing the assumed rates by 1 percent in each year would increase the
accumulated postretirement benefit obligation as of December 31, 1995 by
approximately $10 million and the net periodic cost for the year 1995 by
approximately $1 million.
The Company funds the annual tax deductible contributions. Plan assets are
invested in equity and debt securities and cash equivalents.
<PAGE>
Note F - Short-term Borrowings and Other Accrued Expenses
At December 31, 1995, the Company had $23 million of short-term debt
outstanding including $22 million in commercial paper borrowings and $1
million of borrowings from affiliates. NEES and certain subsidiaries,
including the Company, with regulatory approval, operate a money pool to more
effectively utilize cash resources and to reduce outside short-term
borrowings. Short-term borrowing needs are met first by available funds of the
money pool participants. Borrowing companies pay interest at a rate designed
to approximate the cost of outside short-term borrowings. Companies which
invest in the pool share the interest earned on a basis proportionate to their
average monthly investment in the money pool. Funds may be withdrawn from or
repaid to the pool at any time without prior notice.
At December 31, 1995, the Company had lines of credit with banks totaling $41
million. There were no borrowings under these lines of credit at December 31,
1995. Fees are paid in lieu of compensating balances on most lines of credit.
The weighted average rate on outstanding short-term borrowings was 6.0 percent
at December 31, 1995. The fair value of the Company's short-term debt equals
carrying value.
<TABLE>
<CAPTION>
The components of other accrued expenses are as follows:
At December 31, (In Thousands) 1995 1994
---- ----
<S> <C> <C>
Rate adjustment mechanisms $14,075 $12,102
Deferred unbilled revenues 8,209
Accrued wages and benefits 5,483 4,999
Other 36
------- -------
$19,558 $25,346
======= =======
</TABLE>
<PAGE>
Note G - Cumulative Preferred Stock
<TABLE>
<CAPTION>
A summary of cumulative preferred stock at December 31, 1995 and 1994 is as follows (in
thousands of dollars except for share data):
Shares
Authorized Dividends Call
and Outstanding Amount Declared Price
--------------- ------ ------------ -----
1995 1994 1995 1994 1995 1994
---- ---- ---- ---- ---- ---- -----
<S> <C> <C> <C> <C> <C> <C> <C>
$50 Par value
4.50% Series 180,000 180,000 $9,000 $9,000 $405 $405
4.64% Series 150,000 150,000 7,500 7,500 348 348
6.95% Series 400,000 400,000 20,000 20,000 1,390 1,390 (a)
------- -------------- ------- ------ ------
Total 730,000 730,000$36,500 $36,500 $2,143 $2,143
======= ============== ======= ====== ======
(a)Callable on or after August 1, 2003 at $51.74.
The annual dividend requirement for total cumulative preferred stock was $2,143,000 for
1995 and 1994.
</TABLE>
<PAGE>
Note H - Long-term Debt
<TABLE>
<CAPTION>
A summary of long-term debt is as follows:
At December 31, (In Thousands)
Series Rate % Maturity 1995 1994
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
First Mortgage Bonds:
U(92-1) 7.230 June 3, 1997 $10,000 $10,000
U(92-2) 7.210 June 3, 1997 5,000 5,000
U(92-3) 7.000 June 16, 1997 10,000 10,000
U(92-7) 5.700 September 16, 1997 7,500 7,500
V(95-1) 7.810 February 16, 1998 5,000
V(94-2) 6.960 May 3, 1999 2,000 2,000
V(94-3) 6.910 May 4, 1999 1,000 1,000
U(92-6) 6.630 August 12, 1999 5,000 5,000
U(92-5) 6.980 July 17, 2000 5,000 5,000
U(92-8) 6.340 September 18, 2000 10,000 10,000
U(92-4) 7.830 June 17, 2002 15,000 15,000
U(93-1) 7.080 January 13, 2003 7,500 7,500
U(93-2) 6.560 April 15, 2003 5,000 5,000
U(93-4) 6.350 July 1, 2003 5,000 5,000
V(94-4) 7.420 June 15, 2004 5,000 5,000
V(94-6) 8.330 November 8, 2004 10,000 10,000
U(93-3) 6.650 June 30, 2008 5,000 5,000
S 9.125 May 1, 2021 22,200 22,200
T 8.875 August 1, 2021 24,000 40,000
U(93-5) 7.050 September 1, 2023 5,000 5,000
U(94-1) 7.050 February 2, 2024 5,000 5,000
V(94-1) 8.080 May 2, 2024 5,000 5,000
V(94-5) 8.160 August 9, 2024 5,000 5,000
V(95-2) 7.750 June 2, 2025 10,000
V(95-3) 7.500 October 10, 2025 7,000
W(95-1) 7.300 November 13, 2025 16,000
Unamortized discounts and premiums (1,308) (1,338)
-------- --------
Total long-term debt $210,892 $188,862
======== ========
</TABLE>
Substantially all of the properties and franchises of the Company are subject
to the lien of mortgage indentures under which the first mortgage bonds have
been issued.
The Company will make cash payments of $32,500,000 in 1997, $5,000,000 in
1998, $8,000,000 in 1999, and $15,000,000 in 2000 to retire maturing mortgage
bonds. There are no cash payments required in 1996.
To date in 1996, the Company has refinanced $2 million of long-term debt at
7.24 percent.
At December 31, 1995, the Company's long-term debt had a carrying value of
approximately $211,000,000 and had a fair value of approximately $229,000,000.
The fair market value of the Company's long-term debt was estimated based on
the quoted prices for similar issues or on the current rates offered to the
Company for debt of the same remaining maturity.
<PAGE>
Note I - Restrictions on Retained Earnings Available for Dividends on Common
Stock
As long as any preferred stock is outstanding, certain restrictions on payment
of dividends on common stock would come into effect if the "junior stock
equity" was, or by reason of payment of such dividends became, less than 25
percent of "Total capitalization." However, the junior stock equity at
December 31, 1995 was 50 percent of total capitalization and, accordingly,
none of the Company's retained earnings at December 31, 1995 were restricted
as to dividends on common stock under the foregoing provisions.
Note J - Regulatory Matters
A 1986 Rhode Island Supreme Court decision held that the RIPUC's rate-making
powers include the authority to order refunds of amounts earned in excess of
an allowed return. As a result, the RIPUC monitors the Company's earnings on
a regular basis.
Note K - Supplementary Income Statement Information
Advertising expenses, expenditures for research and development, and rents
were not material and there were no royalties paid in 1995, 1994, or 1993.
Taxes, other than federal income taxes, charged to operating expenses are set
forth by classes as follows:
<TABLE>
<CAPTION>
Year Ended December 31, (In Thousands) 1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Municipal property taxes $15,172 $13,944 $13,798
State gross earnings tax 18,617 19,270 19,281
Federal and state payroll and other taxes 2,838 2,604 2,767
------- ------- -------
$36,627 $35,818 $35,846
======= ======= =======
</TABLE>
New England Power Service Company, an affiliated service company operating
pursuant to the provisions of Section 13 of the Public Utility Holding Company
Act of 1935, furnished services to the Company at the cost of such services.
These costs amounted to $28,502,000, $32,445,000, and $30,133,000, including
capitalized construction costs of $6,268,000, $7,756,000, and $6,602,000, for
each of the years 1995, 1994, and 1993, respectively.
<PAGE>
The Narragansett Electric Company
Operating Statistics (Unaudited)
<TABLE>
<CAPTION>
Year Ended December 31, 1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Sources of Energy (Thousands of kWh)
Net generation for New England
Power Company 64,035 5,781 4,506 83,753 162,844
Purchased energy:
From New England Power
Company, an affiliate
(net of generation) 4,955,575 5,001,843 4,982,254 4,729,733 4,699,509
From others 2,080 2,909 2,343 2,249 2,243
--------------------------------------------------
Total generated and
purchased 5,021,690 5,010,533 4,989,103 4,815,735 4,864,596
Losses, company use, etc. (260,960) (263,234) (270,373) (229,106) (277,383)
--------------------------------------------------
Total sources of energy 4,760,730 4,747,299 4,718,730 4,586,629 4,587,213
==================================================
Sales of Energy (Thousands of kWh)
Residential 1,835,085 1,843,970 1,817,675 1,783,754 1,784,156
Commercial 2,031,541 1,983,508 1,931,377 1,877,738 1,867,225
Industrial 843,635 868,092 917,305 869,062 878,142
Other 49,881 51,138 51,821 55,476 57,106
--------------------------------------------------
Total sales to
ultimate customers 4,760,142 4,746,708 4,718,178 4,586,030 4,586,629
Sales for resale 588 591 552 599 584
--------------------------------------------------
Total sales of energy 4,760,730 4,747,299 4,718,730 4,586,629 4,587,213
==================================================
Annual Maximum Demand
(kW one hour peak) 1,031,000 1,005,000 939,000 919,000 961,000
Average Annual Use per
Residential Customer (kWh) 6,305 6,397 6,337 6,265 6,308
Number of Customers at December 31
Residential 292,659 289,317 287,876 286,228 284,275
Commercial 32,412 32,195 31,948 31,534 31,417
Industrial 1,792 1,825 1,869 1,914 1,944
Other 873 875 878 941 934
--------------------------------------------------
Total ultimate customers 327,736 324,212 322,571 320,617 318,570
Other electric companies
(for resale) 2 2 1 3 4
--------------------------------------------------
Total customers 327,738 324,214 322,572 320,620 318,574
==================================================
Operating Revenue (In Thousands)
Residential $205,649 $200,778 $202,522 $196,983 $192,688
Commercial 198,429 189,059 190,185 183,702 178,616
Industrial 72,071 72,136 78,088 76,275 76,299
Other 7,236 6,883 6,778 6,587 6,197
--------------------------------------------------
Total revenue from
ultimate customers 483,385 468,856 477,573 463,547 453,800
Amortization of unbilled
revenues 8,209 6,158
Sales for resale 70 68 64 68 65
--------------------------------------------------
Total revenue from
electric sales 491,664 475,082 477,637 463,615 453,865
Other operating revenue 7,449 6,587 5,391 4,637 3,645
--------------------------------------------------
Total operating revenue $499,113 $481,669 $483,028 $468,252 $457,510
==================================================
</TABLE>
<PAGE>
The Narragansett Electric Company
Selected Financial Information
<TABLE>
<CAPTION>
Year Ended December 31, (In Millions) 1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Operating revenue:
Electric sales
(excluding fuel cost recovery) $361 $356 $351 $342 $340
Fuel cost recovery 131 120 127 121 114
Other 7 6 5 5 4
------ ------ ------ ------ ------
Total operating revenue $499 $482 $483 $468 $458
Net income $24 $15 $14 $21 $17
Total assets $700 $647 $556 $479 $445
Capitalization:
Common equity $245 $208 $183 $176 $151
Cumulative preferred stock 36 37 37 27 27
Long-term debt 211 189 156 143 118
------ ------ ------ ------ ------
Total capitalization $492 $434 $376 $346 $296
Preferred dividends declared $2 $2 $2 $2 $2
Common dividends declared $5 $3 $5 $5 $5
</TABLE>
Selected Quarterly Financial Information (Unaudited)
<TABLE>
<CAPTION>
First Second Third Fourth
(In Thousands) Quarter Quarter Quarter Quarter
------- ------- ------- -------
<S> <C> <C> <C> <C>
1995
Operating revenue $125,020 $116,426 $139,217 $118,450
Operating income $12,645 $7,301 $12,699 $9,780
Net income $7,766 $3,058 $7,939 $5,147
1994
Operating revenue $125,461 $103,800 $137,014 $115,394
Operating income $10,407 $2,714 $10,937 $6,056
Net income (loss) $6,314 $(1,013) $7,230 $2,058
Per share data is not relevant because the Company's common stock is
wholly-owned by New England Electric System.
A copy of The Narragansett Electric Company's Annual Report on Form 10-K to
the Securities and Exchange Commission for the year ended December 31, 1995
will be available on or about April 1, 1996, without charge, upon written
request to The Narragansett Electric Company, Shareholder Services Department,
280 Melrose Street, Providence, Rhode Island 02901.
</TABLE>
<PAGE>
EXHIBIT (24)
POWER OF ATTORNEY
-----------------
Each of the undersigned directors of The Narragansett Electric Company
(the "Company"), individually as a director of the Company, hereby constitutes
and appoints John G. Cochrane, Maureen L. Fountain, and Geraldine M. Zipser,
individually, as attorney-in-fact to execute on behalf of the undersigned the
Company's annual report on Form 10-K for the year ended December 31, 1995, to
be filed with the Securities and Exchange Commission, and to execute any
appropriate amendment or amendments thereto as may be required by law.
Dated this 26th day of March, 1996.
s/Joan T. Bok s/Robert L. McCabe
_________________________ _________________________
Joan T. Bok Robert L. McCabe
s/Stephen A. Cardi s/John W. Rowe
_________________________ _________________________
Stephen A. Cardi John W. Rowe
_________________________ _________________________
Frances H. Gammell Richard P. Sergel
s/John J. Kirby s/William E. Trueheart
_________________________ _________________________
John J. Kirby William E. Trueheart
_________________________
John A. Wilson, Jr.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> UT
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE BALANCE SHEET AND RELATED STATEMENTS OF INCOME, RETAINED
EARNINGS AND CASH FLOWS OF THE NARRAGANSETT ELECTRIC COMPANY, AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
<CIK> 0000069659
<NAME> The Narragansett Electric Company
<MULTIPLIER> 1,000
<S> <C> <C>
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1994
<PERIOD-END> DEC-31-1995 DEC-31-1994
<PERIOD-TYPE> 12-MOS 12-MOS
<BOOK-VALUE> PER-BOOK PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 535,248 491,915
<OTHER-PROPERTY-AND-INVEST> 0 0
<TOTAL-CURRENT-ASSETS> 104,205 97,735
<TOTAL-DEFERRED-CHARGES> 60,168 <F1> 57,727 <F1>
<OTHER-ASSETS> 0 0
<TOTAL-ASSETS> 699,621 647,377
<COMMON> 56,624 56,624
<CAPITAL-SURPLUS-PAID-IN> 80,170 60,170
<RETAINED-EARNINGS> 108,227 91,556
<TOTAL-COMMON-STOCKHOLDERS-EQ> 245,021 208,350
0 0
36,500 36,500
<LONG-TERM-DEBT-NET> 210,892 188,862
<SHORT-TERM-NOTES> 1,000 0
<LONG-TERM-NOTES-PAYABLE> 0 0
<COMMERCIAL-PAPER-OBLIGATIONS> 21,675 29,800
<LONG-TERM-DEBT-CURRENT-PORT> 0 0
0 0
<CAPITAL-LEASE-OBLIGATIONS> 0 0
<LEASES-CURRENT> 0 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 184,533 183,865
<TOT-CAPITALIZATION-AND-LIAB> 699,621 647,377
<GROSS-OPERATING-REVENUE> 499,113 481,669
<INCOME-TAX-EXPENSE> 10,888 4,883
<OTHER-OPERATING-EXPENSES> 445,800 446,672
<TOTAL-OPERATING-EXPENSES> 456,688 451,555
<OPERATING-INCOME-LOSS> 42,425 30,114
<OTHER-INCOME-NET> (86) 172
<INCOME-BEFORE-INTEREST-EXPEN> 42,339 30,286
<TOTAL-INTEREST-EXPENSE> 18,429 15,697
<NET-INCOME> 23,910 14,589
2,143 2,143
<EARNINGS-AVAILABLE-FOR-COMM> 21,767 12,446
<COMMON-STOCK-DIVIDENDS> 5,096 2,549
<TOTAL-INTEREST-ON-BONDS> 16,627 14,334
<CASH-FLOW-OPERATIONS> 48,451 40,188
<EPS-PRIMARY> 0 <F2> 0 <F2>
<EPS-DILUTED> 0 <F2> 0 <F2>
<FN>
<F1> Total deferred charges includes other assets.
<F2> Per share data is not relevant because the Company's common stock is wholly-owned by New England Electric System.
</FN>
