<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For fiscal year ended December 31, 1998
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
<TABLE>
<CAPTION>
Registrant; State of
Incorporation or I.R.S. Employer
Commission Organization; Address; Identification
File Number and Telephone Number Number
- ------------ ---------------------- ---------------
<S> <C> <C>
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)
</TABLE>
<PAGE>
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
Outstanding at Name of each exchange
Registrant Title of each class March 17, 1999 on which registered
- ---------- ------------------- -------------- ---------------------
<S> <C> <C> <C>
New England Common Shares 59,111,433 New York Stock Exchange
Electric Boston Stock Exchange
System
Securities registered pursuant to Section 12(g) of the Act:
Registrant Title of each class
- ---------- -------------------
Massachusetts Cumulative Preferred Stock
Electric Company Preferred Stock - Cumulative
The Narragansett Cumulative Preferred Stock
Electric Company
Aggregate market value
of the voting stock Number of shares of
held by nonaffiliates common stock outstanding
of the registrants at of the registrants at
March 17, 1999 March 17, 1999
---------------------- ------------------------
New England $2,892,765,752 59,111,433 ($1 par value)
Electric System
New England $1,551,528 3,619,896 ($20 par value)
Power Company
Massachusetts None 2,398,111 ($25 par value)
Electric Company
The Narragansett None 1,132,487 ($50 par value)
Electric Company
</TABLE>
<PAGE>
<TABLE>
Documents Incorporated by Reference
<CAPTION>
Part of Form 10-K into which
Description document is incorporated
- ---------------------------------- ----------------------------
<S> <C>
Portions of Annual Reports to Parts I and II
Shareholders for the year ended
December 31, 1998 of the following
companies, as set forth in Parts I
and II
New England Electric System
New England Power Company
Massachusetts Electric Company
The Narragansett Electric Company
Portions of Proxy Statement of Part III
New England Electric System
filed in connection with its
annual meeting of shareholders to
be held on May 3, 1999, as set
forth in Part III
This combined Form 10-K is separately filed by New England Electric
System, New England Power Company, Massachusetts Electric Company, and The
Narragansett Electric Company. Information contained herein relating to
any individual company is filed by such company on its own behalf. Each
company makes no representation as to information relating to the other
companies.
</TABLE>
<PAGE>
TABLE OF CONTENTS
PAGE
GLOSSARY OF TERMS.......................................... iv
FORWARD LOOKING INFORMATION................................ vi
PART I
ITEM 1. BUSINESS........................................... 1
THE SYSTEM.................................................. 1
System Organization.................................... 1
Employees.............................................. 3
ELECTRIC UTILITY OPERATIONS................................. 3
Introduction........................................... 3
Merger Agreement with National Grid.................... 4
Merger Agreement with Eastern Utilities Associates..... 4
Industry Restructuring................................. 5
Accounting Implications............................. 7
Impact of Restructuring on Distribution Business.... 8
Overview of Financial Results and Outlook........... 9
Other............................................... 10
Year 2000 Readiness Disclosure......................... 10
Merger Activity........................................ 13
National Grid Merger................................ 13
Eastern Utilities Associates Merger................. 17
Regulatory Merger Outlook.............................. 20
NEES/National Grid.................................. 21
NEES/EUA............................................ 21
Electricity Delivery Companies......................... 22
Mass. Electric
Description of Business........................... 22
Rates............................................. 23
Narragansett
Description of Business........................... 24
Rates............................................. 24
Granite State
Description of Business........................... 25
Rates............................................. 26
Nantucket
Description of Business........................... 26
Standard Offer Service.............................. 27
Recovery of Demand-Side Management Expenditures..... 27
Performance-Based Ratemaking........................ 28
Transmission and Nuclear Generation Business........... 28
NEP
Description of Business........................... 28
Rates............................................. 28
Unregulated Business................................... 29
Operating Revenues..................................... 30
<PAGE>
PAGE
Electric Utility Properties............................ 32
Transmission, Distribution, and Nuclear Generation
Properties........................................ 32
Map - Electric Utility Properties................... 35
Nuclear Units....................................... 36
Divestiture of Nonnuclear Generating Business....... 42
Natural Gas Contracts............................... 42
Oil and Gas Operations.............................. 42
Purchased Power Transfer Agreement.................. 42
Regulatory and Environmental Matters................... 42
Regulation.......................................... 42
Environmental Requirements.......................... 43
Construction and Financing............................. 44
EXECUTIVE OFFICERS.......................................... 48
ITEM 2. PROPERTIES.......................................... 52
ITEM 3. LEGAL PROCEEDINGS................................... 52
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS................................................ 54
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND
RELATED SECURITY HOLDER MATTERS........................ 54
ITEM 6. SELECTED FINANCIAL DATA............................. 54
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.................... 55
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK............................................ 55
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA......... 56
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.................... 56
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE
REGISTRANT............................................. 57
ITEM 11. EXECUTIVE COMPENSATION............................ 60
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT......................................... 73
<PAGE>
PAGE
PART IV
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.... 75
ITEM 14. EXHIBITS AND REPORTS ON FORM 8-K.................. 75
INDEX TO FINANCIAL STATEMENTS............................... 103
<PAGE>
GLOSSARY OF TERMS
Term Meaning
---- -------
AFDC allowance for funds used during
construction
AllEnergy AllEnergy Marketing Company, LLC
Connecticut Yankee Connecticut Yankee Atomic Power Company
CTC contract termination charges
DOE U.S. Department of Energy
DSM demand-side management
EPA U.S. Environmental Protection Agency
EUA Eastern Utilities Associates
Electricity Delivery Mass. Electric, Narragansett, Granite
Companies State, and Nantucket
FERC Federal Energy Regulatory Commission
FAS 71 Accounting for the Effects of Certain
Types of Regulation
Firm Energy agreement between NEPOOL members and
Contract Hydro-Quebec
Granite State Granite State Electric Company
Granite State Granite State Energy, Inc.
Energy
Interconnection transmission interconnection between
participating New England utilities
and Hydro-Quebec
ISO Independent System Operator
Holdings NGG Holdings LLC
kWh kilowatthour
Maine Yankee Maine Yankee Atomic Power Company
Mass. Electric Massachusetts Electric Company
Mass. Hydro New England Hydro-Transmission Electric
Company, Inc.
Massachusetts settlement agreement previously reached
Settlement among the NEES companies' Massachusetts
subsidiaries
MDTE Massachusetts Department of
Telecommunications and Energy
MW megawatts
Nantucket Nantucket Electric Company
Narragansett The Narragansett Electric Company
National Grid The National Grid Group plc
N.E. Hydro Finance New England Hydro Finance Company, Inc.
NEEI New England Energy Incorporated
NEES New England Electric System
NEESCom NEES Communications, Inc.
NEES companies the subsidiaries of NEES
NEES Energy NEES Energy, Inc.
NEES Global NEES Global, Inc.
NEET New England Electric Transmission
Corporation
NEP New England Power Company
NEPOOL New England Power Pool
NEUs New England Utilities
<PAGE>
GLOSSARY OF TERMS
Term Meaning
---- -------
N.H. Hydro New England Hydro-Transmission
Corporation
NHPUC New Hampshire Public Utilities
Commission
NOATT NEPOOL Open Access Transmission
Tariff
NRC Nuclear Regulatory Commission
PG&E PG&E Corporation
PBOPs postretirement benefits other than
pensions
PPCA purchased power cost adjustment
Research Drive Research Drive LLC
Resources Narragansett Energy Resources
Company
retail choice retail customers are allowed to
choose their electricity supplier
Rhode Island Settlement settlement agreement among NEP,
Narragansett, the RIPUC and the
Rhode Island Division of Public
Utilities and Carriers to
implement the stranded cost
recovery provisions of the Rhode
Island statute
RIPUC Rhode Island Public Utilities
Commission
ROE Return on Equity
Seabrook 1 Seabrook Nuclear Generating Station
Unit 1
SEC Securities and Exchange Commission
Sellers NEP and Narragansett
Service Company New England Power Service Company
spent nuclear fuel high level radioactive waste
stranded costs the amounts by which prudently
incurred costs incurred to supply
customers electricity under a
regulated industry structure
exceed market prices under an
unregulated industry structure
System the subsidiaries of NEES
collectively
USGen USGen New England, Inc.
Vermont Yankee Vermont Yankee Nuclear Power
Corporation
Yankee Atomic Yankee Atomic Electric Company
Yankee Companies Yankee Atomic, Vermont Yankee,
Maine Yankee, and Connecticut
Yankee
Y2K year 2000
1935 Act Public Utility Holding Company Act
of 1935, as amended
<PAGE>
FORWARD LOOKING INFORMATION
This report and other presentations made by NEES and its
subsidiaries contain forward looking statements within the meaning
of Section 21E of the Securities Exchange Act of 1934, as amended.
Throughout this report, forward looking statements can be
identified by the words or phrases "will likely result", "are
expected to", "will continue", "is anticipated", "estimated",
"projected", "believe", "hopes", or similar expressions. Although
NEES and each of its subsidiaries believe that, in making any such
statements, its expectations are based on reasonable assumptions,
any such statements may be influenced by factors that could cause
actual outcomes and results to be materially different from those
projected. Important factors that could cause actual results to
differ materially from those in the forward looking statements
include, but are not limited to:
(a) the impact of general economic changes in New England;
(b) the impact of industry restructuring, customer choice of
power suppliers, increased competition in the electric utility
industry, and timing and nature of federal and state regulatory
actions on the mergers with Eastern Utilities Associates (EUA) and
The National Grid Group plc (National Grid), including
- significant opposition in regulatory proceedings,
- delay at one or more regulatory agencies,
- unanticipated changes in circumstances requiring
amendments be made to filings, and
- the imposition of unacceptable conditions to approval
by one or more regulatory agencies,
as more fully set out below under ELECTRIC UTILITY OPERATIONS, page
3, and INDUSTRY RESTRUCTURING, page 5;
(c) federal and state regulatory developments and changes in
law which may have a substantial adverse impact on the value of
NEES and the NEES companies' assets;
(d) changes in accounting rules and interpretations which may
have an adverse impact on the NEES companies' statements of
financial position and reported earnings;
(e) timing and adequacy of rate relief;
(f) adverse changes in electric load and customer growth;
(g) climatic changes or unexpected changes in weather
patterns;
(h) distribution facility performance, as more fully set out
below under Transmission, Distribution, and Nuclear Generation
Properties, page 32; and
(i) operation and decommissioning costs associated with
nuclear generating facilities, as set out under Nuclear Units
below, page 36.
<PAGE>
PART I
ITEM 1. BUSINESS
THE SYSTEM
<TABLE>
SYSTEM ORGANIZATION
<CAPTION>
New England Electric System (NEES) is a voluntary association created under
Massachusetts law on January 2, 1926, and is a registered holding company under
the Public Utility Holding Company Act of 1935, as amended (the 1935 Act). NEES
owns voting stock in the amounts indicated of the following companies, which
together constitute the System.
% Voting
Securities
State of Type of Owned by
Name of Company Organization Business NEES
--------------- ------------ -------- ---------
<S> <C> <C> <C>
AllEnergy Marketing Company, Delaware Marketing *
L.L.C. (AllEnergy)
Granite State Electric Company N.H. Retail 100
(Granite State) Electric
Granite State Energy, Inc. N.H. Marketing 100
(Granite State Energy)
Massachusetts Electric Company Mass. Retail 100
(Mass. Electric) Electric
Metrowest Realty, LLC (Metrowest Delaware Property 100
Realty) Ownership
Nantucket Electric Company Mass. Retail 100
(Nantucket) Electric
The Narragansett Electric Company R.I. Retail 100
(Narragansett) Electric
NEES Communications, Inc. Mass. Telecommunications 100
(NEESCom)
NEES Energy, Inc. (NEES Energy) Mass. Marketing 100
NEES Global, Inc. Mass. Consulting 100
(NEES Global) (formerly
NEES Global Transmission, Inc.)
New England Electric Transmission N.H. Electric 100
Corporation (NEET) Transmission
New England Energy Incorporated Mass. Formerly Oil
(NEEI) and Gas 100
New England Hydro Finance Company, Mass. Debt Financing **
Inc. (N.E. Hydro Finance)
New England Hydro-Transmission N.H. Electric 53.97(a)
Corporation (N.H. Hydro) Transmission
New England Hydro-Transmission Mass. Electric 53.97(a)
Electric Company, Inc. Transmission
(Mass. Hydro)
New England Power Company (NEP) Mass. Transmission (c) 99.97(b)
</TABLE>
<PAGE>
% Voting
Securities
State of Type of Owned by
Name of Company Organization Business NEES
--------------- ------------ -------- ---------
New England Power Service Company Mass. Service 100
(Service Company) Company
New England Water Heater Co., Inc. Mass. Water Heater ***
(NEWH) Rentals
Research Drive LLC (Research Mass. Acquisition 99
Drive) Vehicle ****
* NEES Energy owns 100 percent of the voting securities.
** Mass. Hydro and N.H. Hydro each own 50 percent of the voting securities.
*** NEES Global owns 100 percent of the voting securities.
**** NEES Global owns 1 percent of the voting securities.
(a) The common stock of these subsidiaries is owned by NEES and
certain participants (or their parent companies) in the second
phase of the Hydro-Quebec project. See Interconnection with
Quebec, page 33.
(b) Holders of common stock and 6% Cumulative Preferred Stock of
NEP have general voting rights. The 6% Cumulative Preferred
Stock held by nonaffiliates represents 0.03 percent of the
total voting power.
(c) For information on NEP's ownership interest in nuclear
generating units, see Nuclear Units, page 36.
The facilities of NEES' four electricity delivery companies,
Mass. Electric, Narragansett, Granite State, and Nantucket
(collectively referred to as the Electricity Delivery Companies),
and of its principal transmission subsidiary, NEP, constitute an
electrical transmission and distribution system that is directly
interconnected with other utilities in New England and New York
State, and indirectly interconnected with utilities in Canada. See
ELECTRIC UTILITY OPERATIONS, page 3.
Granite State Energy is a wholly-owned, nonutility subsidiary
of NEES which provides a range of energy and related services,
including but not limited to sales of electric energy, audits,
power quality, fuel supply, repair, maintenance, construction,
design, engineering, and consulting. To date, Granite State
Energy's activities have been limited to participation in the New
Hampshire retail choice pilot program.
NEES Energy is a wholly-owned, nonutility marketing subsidiary
of NEES. NEES Energy owns AllEnergy, an energy marketing company.
NEESCom is a wholly-owned, nonutility subsidiary of NEES which
provides telecommunications infrastructure to the telecommunication
industry.
<PAGE>
NEET owns and operates a portion of an international
transmission interconnection between the electric systems of
Hydro-Quebec and New England. Mass. Hydro and N.H. Hydro own and
operate facilities in connection with an expanded second phase of
this interconnection. N.E. Hydro Finance provides the debt
financing to Mass. Hydro and N.H. Hydro for the capital costs of
the interconnection. For more information, see Interconnection
with Quebec, page 33.
NEEI primarily participated (principally through a partnership
with a nonaffiliated oil company) in domestic oil and gas
exploration, development, and production and the sale to NEP of
fuel purchased in the open market. As part of the NEES companies'
divestiture of their generating business, NEEI sold its oil and gas
properties in February 1998. For more information, see INDUSTRY
RESTRUCTURING, page 5, and Oil and Gas Operations, page 42.
The Service Company has contracted with NEES and its
subsidiaries to provide, at cost, such administrative, engineering,
construction, legal and financial services as the companies
request.
NEES Global is a wholly-owned, nonutility subsidiary of NEES
which provides consulting services. NEWH is a subsidiary of NEES
Global which provides water heater rentals.
Metrowest Realty owns the System's headquarters complex in
Westborough, Mass., and the North Andover, Mass., service center
occupied by Mass. Electric.
EMPLOYEES
At December 31, 1998, NEES subsidiaries had approximately 3,540
employees. At that date, the total number of employees was
approximately 87 at NEP, 1,505 at Mass. Electric, 522 at
Narragansett, 54 at Granite State, 21 at Nantucket, 1,045 at the
Service Company, and 306 at AllEnergy. Of the 3,540 employees,
approximately 1,944 are members of labor organizations. Collective
bargaining agreements with the Brotherhood of Utility Workers of
New England, Inc., the International Brotherhood of Electrical
Workers, and the Utility Workers Union of America, AFL-CIO expire
in May, 1999. Negotiation of new contracts with these unions is in
progress.
ELECTRIC UTILITY OPERATIONS
INTRODUCTION
1998 was a year of unprecedented change for the electric
utility industry and for NEES. Prior to 1998, the NEES companies
provided their customers bundled electric service (i.e. production
and delivery) within exclusive franchise service territories. By
mid-1998, all NEES customers were provided the right to purchase
electricity from the power supplier of their choice. NEES remains
<PAGE>
obligated to deliver that electricity over its transmission and
distribution systems. In September 1998, NEES completed the
divestiture of substantially all of its nonnuclear generating
business. In December 1998, NEES agreed to a merger with National
Grid, whereby NEES would become a wholly-owned subsidiary of
National Grid. National Grid's principal subsidiary operates the
transmission system in England and Wales.
On February 1, 1999, NEES entered into an agreement to acquire
EUA, a utility holding company serving approximately 300,000
customers in Massachusetts and Rhode Island.
MERGER AGREEMENT WITH NATIONAL GRID
On December 11, 1998, NEES, National Grid, and NGG Holdings LLC
(Holdings), a directly and indirectly wholly-owned subsidiary of
National Grid, entered into an Agreement and Plan of Merger (Merger
Agreement). Pursuant to the Merger Agreement, Holdings will merge
with and into NEES (the Merger), with NEES becoming a wholly-owned
subsidiary of National Grid. NEES shareholders will receive $53.75
per share in cash, which will be increased at a rate of $.003288
each day beginning six months after shareholder approval of the
Merger until the Merger is completed, up to a maximum price of
$54.35 per share.
The Merger is subject to approval by a majority vote of NEES
shareholders as well as National Grid shareholder approval. In
addition, the Merger is subject to a number of regulatory and other
approvals and consents, including approvals by the Securities and
Exchange Commission (SEC) under the Public Utility Holding Company
Act of 1935 (the 1935 Act), Federal Energy Regulatory Commission
(FERC), and Nuclear Regulatory Commission (NRC), support or
approval from the states in which NEES operates, and clearance
under both the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended, and the Exon-Florio Provisions of the Omnibus
Trade and Competitiveness Act of 1988. National Grid has obtained
governmental clearance in the United Kingdom for the Merger. The
Merger is expected to be completed by early 2000. For more
information, see National Grid Merger, page 13.
MERGER AGREEMENT WITH EASTERN UTILITIES ASSOCIATES
On February 1, 1999, NEES, EUA, and Research Drive, a directly
and indirectly wholly-owned subsidiary of NEES, entered into an
Agreement and Plan of Merger (EUA Agreement). Pursuant to the EUA
Agreement, Research Drive will merge with and into EUA, with EUA
becoming a wholly-owned subsidiary of NEES. EUA shareholders will
receive $31.00 per share in cash, which will be increased at a rate
of $.003 each day beginning six months after EUA shareholder
approval of the EUA acquisition until the acquisition is completed
or until April 30, 2000, whichever is earlier.
The acquisition of EUA is subject to approval by a two-thirds
vote of EUA shareholders. In addition, the acquisition is subject
to a number of regulatory and other approvals and consents,
<PAGE>
including approvals by the SEC under the 1935 Act, FERC, and NRC,
support or approval from the states in which EUA subsidiaries
operate, and clearance under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended. The EUA acquisition is
expected to be completed by early 2000. Following the acquisition
of EUA, the subsidiaries of NEES and EUA whose operations are
similar are expected to be consolidated. For more information, see
Eastern Utilities Associates Merger, page 17.
INDUSTRY RESTRUCTURING
During 1998, pursuant to legislation enacted in Massachusetts,
Rhode Island, and New Hampshire, and settlement agreements approved
by state and federal regulators (the Settlement Agreements), all
NEES customers were provided the right to purchase electricity from
the power supplier of their choice. The NEES companies remain
obligated to deliver that electricity over its transmission and
distribution systems, with such delivery services provided under
regulated rates approved by state and federal regulators. As
described below, those delivery rates include a non-bypassable
charge for the costs of NEES' former generating business which were
not recovered through the sale of that business ("stranded costs"),
which was substantially completed in 1998. As a result of the
Settlement Agreements, customers choice of power supplier has no
impact on NEES' transmission and distribution business or on its
ability to recover stranded costs.
Customers who do not choose a power supplier are able, for a
period of time, to continue to purchase their electricity from the
NEES companies at a transition rate ("standard offer generation
service") which, when combined with delivery charges, results in
total rate reductions ranging from 8 to 24 percent compared with
the rates that had been in effect prior to the introduction of
customer choice. The NEES companies bear little risk associated
with the provision of standard offer generation service as
substantially all of the obligations of the NEES companies to
provide such service are backed by contracts with USGen New
England, Inc. (USGen), an indirect wholly-owned subsidiary of PG&E
Corporation, and other power suppliers.
Pursuant to the Settlement Agreements, the NEES companies had
agreed to sell their nonnuclear generating business. On September
1, 1998, NEES subsidiaries NEP and Narragansett (collectively, the
Sellers) completed the sale of substantially all of their
nonnuclear generating business to USGen. The assets sold include
three fossil-fueled and 15 hydroelectric generating stations,
totaling approximately 4,000 megawatts (MW) of capacity, as well as
NEES' 100 percent interest in Narragansett Energy Resources Company
(NERC), a 20 percent general partner in the Ocean State Power
project, all of which had a book value of approximately $1.1
billion. The NEES companies received $1.59 billion for the sale.
In addition, the NEES companies were reimbursed approximately $140
million for costs associated with early retirements and special
<PAGE>
severance programs for employees affected by industry
restructuring, and the value of inventories. USGen assumed
responsibility for environmental conditions at the Sellers'
nonnuclear generating stations. USGen also assumed the Sellers'
obligations under long-term fuel and fuel transportation contracts,
and certain collective bargaining agreements.
As part of the sale, NEP also signed a purchased power transfer
agreement through which USGen purchased NEP's entitlement to
approximately 1,100 MW of power procured under long-term contracts
in exchange for monthly fixed payments by NEP averaging $9.5
million per month through January 2008 (having a net present value
of $833 million) toward the above market cost of those contracts.
In some cases, these transfers involved formal assignment of the
contracts to USGen and a release of NEP from further obligations to
the power supplier, while others did not. For those that involved
formal assignment, NEP was required to make a lump sum payment
equivalent to the present value of the monthly fixed payment
obligations of those contracts. On or prior to the closing date,
NEP made lump sum payments totaling approximately $340 million and
was released from further obligations relating to two of the
contracts. These lump sum payments are separate from the $833
million figure referred to above.
As part of the divestiture plan, in February 1998, NEEI, a
wholly-owned subsidiary of NEES, whose costs had been supported by
the generating business, sold its oil and gas properties for
approximately $50 million. NEEI's loss on the sale of
approximately $120 million, before tax, has been reimbursed by NEP.
NEP agreed under the Settlement Agreements to endeavor to sell
its minority interest in three nuclear power plants and a 60 MW
interest in a fossil-fueled generating station in Maine. In
February 1999, Vermont Yankee Nuclear Power Corporation entered
into a letter of intent to sell its assets (for more information,
see Nuclear Units, page 36).
The Settlement Agreements provide that stranded costs are to
be recovered from NEP's wholesale customers through contract
termination charges (CTC). The affiliated wholesale customers, in
turn, are recovering those costs through their delivery charges to
distribution customers. Under the Settlement Agreements, the
recovery of NEP's stranded costs is divided into several
categories. Unrecovered costs associated with generating plants
(nuclear and nonnuclear) and most regulatory assets will be fully
recovered through the CTC by the end of 2000 and earn a return on
equity averaging 9.7 percent. NEP's obligation relating to the
above-market cost of purchased power contracts and nuclear
decommissioning costs are recovered through the CTC over a longer
period of time, as such costs are actually incurred. The CTC rate
was originally set at 2.8 cents per kilowatthour (kWh), and
subsequently reduced to approximately 1.5 cents or less per kWh
upon completion of the sale of NEP's nonnuclear generating
<PAGE>
business. As the CTC rate declines, NEP, under certain of the
Settlement Agreements, earns incentives based on successful
mitigation of its stranded costs. These incentives supplement NEP's
return on equity. Finally, the Settlement Agreements provide that
until such time as NEP divests its operating nuclear interests, NEP
will share with customers, through the CTC, 80 percent of the
revenues and operating costs related to the units, with
shareholders retaining the balance.
Accounting Implications
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. Statement of 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 thereby defer
the income statement impact of these charges because they are
expected to be included in future customer charges. In 1997, the
Emerging Issues Task Force (EITF) of the Financial Accounting
Standards Board (FASB) concluded in Issue 97-4 that a utility that
had received approval to recover stranded costs through regulated
transmission and distribution rates would be permitted to continue
to apply FAS 71 to the recovery of stranded costs.
NEP has received authorization from the FERC to recover through
the CTC substantially all of the costs associated with its former
generating business not recovered through the sale of that
business. Additionally, FERC Order No. 888 enables transmission
companies to recover their specific costs of providing transmission
service. Therefore, substantially all of NEP's business, including
the recovery of its stranded costs, remains under cost-based rate
regulation. Under existing ratemaking practices, NEES' distribution
companies will have the ability to recover through rates their
specific costs of providing ongoing distribution services. NEES
believes these factors and the EITF conclusion allow its principal
utility subsidiaries to continue to apply FAS 71. Because of the
nuclear cost-sharing provisions related to NEP's CTC, NEP ceased
applying FAS 71 in 1997 to 20 percent of its ongoing nuclear
operations, the impact of which is immaterial.
Currently, there is much regulatory and other movement toward
establishing performance-based rates. It is possible that the
adoption of performance-based rates, future regulatory rules, or
other circumstances could cause the application of FAS 71 to be
discontinued. This discontinuation would result in a noncash
write-off of previously established regulatory assets, including
those being recovered through NEP's CTC. In addition, reserves for
depreciation may also have to be increased to comply with
unregulated accounting practices.
<PAGE>
As a result of applying FAS 71, NEES has recorded a regulatory
asset for the costs that are recoverable from customers through the
CTC. The regulatory asset reflects the loss on the sale of NEES'
oil and gas business and the unrecovered plant costs in operating
nuclear plants (assuming no market value), the costs associated
with permanently closed nuclear power plants, and the present value
of the payments associated with the above-market costs of purchased
power contracts, reduced by the gain from the sale of NEP's
nonnuclear generating business. At December 31, 1998, the
regulatory asset related to the CTC was approximately $1.5 billion,
of which $1.2 billion related to the above-market costs of
purchased power contracts.
As described above, the CTC regulatory asset includes the
unrecovered plant costs associated with NEP's interest in operating
nuclear plants. This balance sheet treatment is due to NEP's
conclusion that its interests in the Millstone 3 and Seabrook 1
nuclear generating units have little, if any, market value. Three
proposed sales of nuclear units by other utilities have required
the seller to set aside amounts for decommissioning in excess of
the proceeds from the sale of the units. Two of these proposed
sales were agreed upon prior to the end of the third quarter of
1998. As a result, at the end of the third quarter of 1998, NEP
recorded an impairment writedown in its reserve for depreciation of
approximately $390 million, which represents the net book value at
December 31, 1995, less applicable depreciation subsequent to that
date, of Millstone 3 and Seabrook 1. Because the Settlement
Agreements permit NEP to recover its pre-1996 investment as well as
decommissioning expenses through the CTC, NEP established a
regulatory asset in an amount equal to the impairment writedown.
Should NEP's efforts to sell its nuclear interests result in a gain
over the amounts remaining in the plant account, such gain will be
credited to customers through the CTC.
Impact of Restructuring on Distribution Business
The Settlement Agreement applying to Massachusetts (The
Massachusetts Settlement) also establishes distribution rates for
NEES' Massachusetts subsidiaries Mass. Electric and Nantucket. On
March 1, 1998, Mass. Electric's distribution rates were set at a
level approximately $45 million above the level embedded in its
previously bundled rates, with such rates then frozen through the
year 2000. This increase reflects changes to the distribution cost
of service, including an $11 million increase in annual
depreciation expense, a $3 million annual contribution to a storm
fund, and increased annual amortization of unfunded deferred
income taxes of approximately $1 million over six years. Through
the year 2000, Mass. Electric's return on equity is subject to a
floor of 6 percent and a ceiling of 11 percent. Earnings over the
ceiling will be shared equally between customers and shareholders
up to a maximum of 12.5 percent. This sharing results in an
effective cap on Mass. Electric's return on equity of 11.75
percent, excluding certain limited incentive opportunities. To the
<PAGE>
extent that earnings fall below the floor, Mass. Electric will be
authorized to surcharge customers for the shortfall.
Under the Rhode Island statute, Narragansett increased
distribution rates by approximately $7 million and $11 million in
1998 and 1997, respectively. The statute does not limit
Narragansett's ability to seek approval from state regulators to
increase rates in the future.
Overview of Financial Results and Outlook
Earnings were $3.04 per diluted share in 1998 compared with
$3.39 and $3.22 per diluted share in 1997 and 1996, respectively.
The return on common equity was 11.4 percent in 1998, 12.8 percent
in 1997, and 12.6 percent in 1996. The market price of NEES common
shares was 48 1/8 per share at the end of 1998 compared with 42 3/4
per share and 34 7/8 per share at the end of 1997 and 1996,
respectively.
The decrease in 1998 earnings reflects significant revenue
reductions due to the restructuring of the utility business in
Massachusetts, Rhode Island, and New Hampshire, the effect of the
divestiture of NEES' nonnuclear generating business (the combined
effects of these items reduced revenues by approximately $1.60 per
share and operating expenses by approximately $.60 per share),
increased investments in unregulated ventures (reducing earnings by
approximately $.05 per share), and costs incurred in connection
with the development of the Merger Agreement between NEES and
National Grid (reducing earnings by approximately $.05 per share).
The decrease in earnings was partially offset by increased kWh
deliveries to ultimate customers (approximately $.05 per share), a
reduction in costs associated with nuclear operations
(approximately $.35 per share), a reduction in core business
operation and maintenance expense (approximately $.20 per share) in
part as a result of workforce reductions. 1998 earnings per share
were also positively affected by a share repurchase program
(approximately $.07 per share).
The earnings decrease related to investments in unregulated
ventures is primarily attributable to losses incurred at AllEnergy.
AllEnergy is an energy marketing company which offers energy
commodities (natural gas, propane, and oil) and related value-added
services to customers in the emerging competitive energy markets in
the northeast. As AllEnergy develops market share in competitive
energy markets which have yet to mature, low profit margins
realized have been insufficient to cover overhead expenses.
NEES believes its 1999 earnings will be reduced by a full
year's effect of industry restructuring. NEES earnings will be
negatively affected by the return on the reinvestment of the sale
proceeds, which is expected, at least in the near term, to be
considerably less than the return historically earned in the
generating business. Further, the Settlement Agreements related to
<PAGE>
recovery of stranded costs limit the return on equity earned on the
unrecovered investment in NEES' generating business to 9.7 percent,
before mitigation incentives, which is significantly lower than
that earned by the generating business in recent years. Finally,
through the year 2000, the return on equity for NEES' principal
distribution subsidiary is capped at 11.75 percent, plus certain
incentives.
Other
For more information on new accounting standards, see page 18
of the 1998 NEES Annual Report.
YEAR 2000 READINESS DISCLOSURE
Over the next year, most companies will face a potentially
serious information systems (computer) problem because many
software applications and operational programs written in the past
may not properly recognize calendar dates associated with the year
2000 (Y2K). This could cause computers to either shut down or lead
to incorrect calculations.
During 1996, the NEES companies began the process of
identifying the changes required to their computer software and
hardware to mitigate Y2K issues. The NEES companies established a
Y2K Project team to manage these issues, which has consisted of as
many as 70 full-time equivalent staff at some points in time,
primarily external consultants being overseen by an internal Y2K
management team. To facilitate the Y2K Project, NEES entered into
contracts with Keane, Inc. and International Business Machines
Corp. to provide personnel support to the Y2K Project. Through
December 31, 1998, the NEES companies have spent approximately $14
million with these vendors, which is included in the cost figures
disclosed below. The Y2K Project team reports project progress to
a Y2K Executive Oversight Committee each month. The team also makes
regular reports to NEES' Board of Directors and its Audit
Committee. The NEES companies have separated their Y2K Project into
four parts as shown below, along with the estimated completion
dates for each part.
<PAGE>
<TABLE>
<CAPTION>
Substantial Contingency Testing
Completion Documentation,
of Critical and Clean
Category Specific Example Systems Management
- -------- ---------------- ----------- -------------------
<S> <C> <C> <C>
Mainframe/Midrange Accounting/Customer Completed Throughout 1999
systems service integrated
systems
Desktop systems Personal computers/ June 30, 1999 Throughout 1999
Department software/
Networks
Operational/ Dispatching systems/ June 30, 1999 Throughout 1999
Embedded Transmission and
systems Distribution systems/
Telephone systems
External issues Electronic Data June 30, 1999 Throughout 1999
Interchange/Vendor
communications
</TABLE>
The NEES companies are using a three-phase approach in
coordinating their Y2K Project for system-related issues: (I)
Assessment and Inventory, (II) Pilot Testing, and (III) Renovation,
Conversion, or Replacement of Application and Operating Software
Packages and Testing. Phase I, which was an initial assessment of
all systems and devices for potential Y2K defects, was completed in
mid-1997. These assessments included, but were not limited to, the
review of program code for mainframe and midrange systems, analysis
of personal computer hardware and network equipment for desktop
systems, reaching consensus with key "data exchange" partners
regarding the approach and execution of plans to address Y2K-
related issues, and coordination with other New England Power Pool
(NEPOOL) member utilities related to operational systems, such as
transmission systems. Phase II, which consisted of renovation
pilots for a cross-section of systems in order to facilitate the
establishment of templates for Phase III work, was completed in
late 1997. Phase III, which is currently ongoing, requires the
renovation, conversion, or replacement of the remaining
applications and operating software packages.
Critical systems include major operational and informational
systems such as the NEES companies financial-related and customer
information systems. These mission critical systems were first
addressed at an individual component level, and then, upon
satisfactory completion of that testing, reviewed at an integrated
level, during which the Y2K Project team tested for Y2K problems
which could be caused by various system interfaces. Additionally,
contingency plans are being formulated for mission critical
systems, as described below.
The overall Y2K Project has also been designed such that Y2K-
related work performed by external consultants is reviewed by NEES
employees, and vice-versa. The Y2K Project team management
periodically benchmarks its progress against the recommended
progress schedule documented by the North American Electric
<PAGE>
Reliability Council, and is currently ahead of the recommended
schedule.
The NEES companies have also implemented a formalized
communication process with third parties to give and receive
information related to their progress in remediating their own Y2K
issues, and to communicate the NEES companies' progress in
addressing the Y2K issue. These third parties include major
customers, suppliers, and significant businesses with which the
NEES companies have data links (such as banks). The NEES companies
have identified standard offer generation service providers,
telecommunications companies, and the Independent System Operator-
New England (ISO New England) as critical to business operations.
The NEES companies have been in contact with all of these parties
regarding the progress of their Y2K remediation efforts, and will
continue to monitor their ongoing remediation efforts through
continued communications. The NEES companies cannot predict the
outcome of other companies' remediation efforts. Therefore,
contingency plans are being developed, as described below.
The NEES companies believe total costs associated with making
the necessary modifications to all centralized and noncentralized
systems will be approximately $28 million. These costs include the
replacement of approximately one thousand desktop computers. In
addition, the NEES companies are spending $4 million related to the
replacement of the human resources and payroll system, in part due
to the Y2K issue. To date, total Y2K-related costs of $25 million
have been incurred, of which $3 million has been capitalized. The
NEES companies continually review their cost estimates based upon
the overall Y2K Project status, and update these estimates as
warranted.
The NEES companies are in the process of developing Y2K
contingency plans to allow for critical information and operating
systems to function from January 1, 2000 forward. If required,
these plans are intended to address both internal risks as well as
potential external risks related to suppliers and customers. Part
of the contingency planning for accounting and desktop systems will
include taking extensive data back-ups prior to year-end closing.
For operational systems, the NEES companies have in place an
overall disaster recovery program, which already includes periodic
disaster simulation training (for outages due to severe weather,
for instance). As part of Y2K contingency planning, the NEES
companies will review their disaster recovery plans, modifying them
for Y2K-specific issues, such as a potential loss of
telecommunication services. The NEES companies expect that these
contingency plans will be in place by the third quarter of 1999.
Interregional and regional contingency plans are being
formulated that address emergency scenarios due to the
interconnection of utility systems throughout the United States. At
a regional level, the NEES companies are participating and
cooperating with NEPOOL and ISO New England. Overall regional
activities, including those of NEPOOL and ISO New England, will be
coordinated by the Northeast Power Coordinating Council, whose
activities will be incorporated into the interregional coordinating
effort by North American Electric Reliability Council. The target
<PAGE>
for the completion of this planning process is mid-1999. The NEES
companies have noted that the Y2K coordination efforts by ISO New
England began in May 1998, resulting in a demanding and difficult
schedule to attain regional and interregional target dates.
The NEES companies believe the worst case scenario with a
reasonable chance of occurring is temporary disruptions of electric
service. This scenario could result from a failure to adequately
remediate Y2K problems at NEES company facilities or could be
caused by the inability of entities, such as ISO New England, to
maintain the short-term reliability of various generators and/or
transmission lines on a regional or interregional basis. The NEES
companies believe that the contingency plans being developed both
internally and on a regional level, as described above, should
substantially mitigate the risks of this potential scenario. In the
event that a short-term disruption in service occurs, NEES does not
expect that it would have a material impact on its financial
position and results of operations.
While the NEES companies believe that their overall Y2K program
will satisfactorily address all critical operational and
system-related issues, significant risks remain. These risks
include, but are not limited to, the Y2K readiness of third
parties, including other utilities and power suppliers, cost and
timeline estimates of remaining Y2K mitigation efforts, and the
overall accuracy of assumptions made related to future events in
the development of the Y2K mitigation effort.
MERGER ACTIVITY
National Grid Merger
On December 11, 1998, NEES, National Grid, and Holdings entered
into the Merger Agreement. Pursuant to the Merger Agreement,
Holdings will merge with and into NEES, with NEES being the
surviving entity (the Surviving Entity) and becoming a wholly-owned
subsidiary of National Grid. The Merger, which was unanimously
approved by the boards of directors of each of NEES, National Grid
and Holdings, is expected to occur shortly after all of the
conditions to the consummation of the Merger, including the receipt
of certain regulatory approvals, are met or waived. NEES
anticipates that the Merger will be consummated by early 2000.
Under the terms of the Merger Agreement, each outstanding NEES
common share, $1.00 par value per share (NEES Common Shares), other
than shares, if any, owned by NEES as treasury shares (except
those treasury shares which are held pursuant to NEES' Rabbi
Trust), National Grid, Holdings or any other wholly-owned
subsidiary of National Grid, will be converted into the right to
receive $53.75 in cash, as may be adjusted (the Merger
Consideration). Such adjustment will occur if the Closing Date
does not occur on or prior to the date that is the six-month
anniversary of the date on which NEES Shareholders' Approval is
attained (the Adjustment Date) then the per share amount shall be
<PAGE>
increased by $.003288 each day up to a maximum adjustment of $0.60
per share, for a total of $54.35 per share.
The Board of Directors of NEES has received an opinion from its
investment banker, Merrill Lynch, Pierce, Fenner & Smith
Incorporated, to the effect that, as of the date of the Merger
Agreement, the Merger Consideration to be received by the holders
of NEES Common Shares in the Merger is fair from a financial point
of view to holders of NEES Common Shares.
The Merger is subject to certain customary closing conditions,
including, without limitation, the receipt of the required approval
of NEES' shareholders, the receipt of the required approval of
National Grid's shareholders, and the receipt of all necessary
governmental approvals and the making of all necessary governmental
filings, including the consent or approval of certain state utility
regulators, the approval of the FERC, the approval of the SEC under
the 1935 Act, the approval of the NRC, the filing of the requisite
notification with the Federal Trade Commission and the Department
of Justice under the Hart-Scott-Rodino Antitrust Improvements Act
of 1976, as amended, and the expiration of the applicable waiting
period thereunder, and the filing of the requisite notification
under the Exon-Florio Provisions of the Omnibus Trade and
Competitiveness Act of 1988, and the termination of the review and
investigation with no action taken by the President thereunder.
The Merger is not dependent upon the EUA Merger.
The Merger Agreement contains certain covenants of the parties
pending the consummation of the Merger. Generally, except as
required by the terms of NEES' Settlement Agreements with FERC and
certain state utility regulators, NEES must carry on its business
in the ordinary course consistent with past practice, comply with
all laws and preserve intact its goodwill. NEES is permitted to
declare and pay its regular quarterly dividends. The Merger
Agreement contains certain restrictions on NEES including
limitations on, or procedures for: issuance of securities,
termination or failure to renew material contracts, amendments to
NEES' Declaration of Trust or similar governing documents of NEES'
Subsidiaries, capital expenditures, acquisitions, dispositions,
incurrence of indebtedness, modification of employee compensation
and benefits, rate matters, changes in accounting policies and
discharge of liabilities. (See Article VI of the Merger Agreement.)
The Merger Agreement prevents NEES and its subsidiaries from
knowingly initiating, soliciting or encouraging, directly or
indirectly, any inquiry or proposal or offer, or engaging in
negotiations with, or providing confidential information to any
third party relating to a business combination proposal, and
requires NEES to terminate immediately any existing discussions or
negotiations and notify National Grid of any such inquiries
relating to a business combination proposal, unless prior to NEES
shareholder approval: (i) NEES' Board determines, in good faith
based upon the advice of its outside legal counsel with respect to
the Board's fiduciary duties, that taking such action is necessary
for the Board to act in a manner consistent with its fiduciary
duties under applicable law; (ii) NEES' Board reasonably concludes,
<PAGE>
in good faith after consultation with its financial advisors, that
(A) the party making such proposal has adequate financing sources
and (B) such proposal is likely to be more favorable to
stockholders of NEES than the Merger (a Superior Proposal); (iii)
prior to furnishing nonpublic information or entering into
negotiations, NEES notifies National Grid in writing of such
furnishing of information or negotiations (identifying the party
making the proposal and the material terms of such proposal) and
enters into a confidentiality agreement with such third party; and
(iv) NEES keeps National Grid promptly informed of the status and
all material information with respect to such discussions or
negotiations. NEES may terminate the Merger Agreement to accept a
Superior Proposal (in which case, the termination fee provision
described below would be applicable). However, before so
terminating, NEES must negotiate with National Grid to adjust the
Merger Agreement so as to enable the parties to proceed with the
adjusted Merger Agreement, and NEES' Board must determine that,
based on advice of counsel with respect to the Board's fiduciary
duties and notwithstanding a binding commitment to consummate the
Merger Agreement and notwithstanding all concessions that may be
offered by National Grid in further negotiations with NEES, the
Superior Proposal is more favorable to NEES' shareholders than the
Merger. (See Section 7.08 and Article IX of the Merger Agreement.)
NEES' CEO and one outside director of NEES' Board of Directors,
mutually determined by National Grid and NEES, will be appointed to
the Board of Directors of National Grid. In addition, the
Surviving Entity will have an advisory board, with eleven members
from NEES' Board immediately prior to the Closing, that will advise
the Surviving Entity with respect to general business, among other
things. The Merger Agreement provides that, after the
effectiveness of the Merger (the Effective Time), the headquarters
of the Surviving Entity will be in Massachusetts, and utility
operations offices will remain in Massachusetts, New Hampshire and
Rhode Island. (See Section 7.07 of the Merger Agreement.)
The Merger Agreement may be terminated under certain
circumstances, including: (i) by mutual written agreement of the
boards of directors of the parties; (ii) by either party if the
Merger has not been effected by the date nine months from the
receipt of NEES shareholder approval (the Initial Termination
Date), provided that if the parties are otherwise ready to close,
but certain statutory approvals are not yet obtained, the Initial
Termination date will be extended to the date fifteen months from
the receipt of NEES shareholder approval (the Extended Termination
Date), and provided further that if on the Initial or Extended
Termination Date, a Financial Disruption exists, then NEES will
have the right, but not the obligation, to extend such Termination
Date six months beyond such Termination Date (a Financial
Disruption means any significant disruption in the financial or
capital markets which makes it impracticable for a company having
financial characteristics similar to those of National Grid as of
the date of the Merger Agreement to finance a transaction of the
size and nature as that contemplated under the Merger Agreement on
commercially reasonable financing terms that are available as of
the date of such financing); and (iii) by either party if: (A) NEES
shareholder approval or the National Grid shareholder approval has
<PAGE>
not been obtained; or (B) any law, rule or regulation is adopted
which makes the Merger illegal or any final order or injunction
permanently prohibits the Merger. In addition, NEES may terminate
the Merger Agreement: (i) under certain circumstances, in order to
accept a Superior Proposal (subject to the limitations and
procedures described above and to payment of the termination fee
described below); (ii) if there has been a material breach of
certain of National Grid's representations and warranties or a
failure by National Grid to perform and comply with its covenants
under the Merger Agreement and such breach or failure has not been
cured; (iii) if National Grid fails to deliver the merger
consideration at a time when all conditions to National Grid's
obligation to close have been satisfied or waived, and such failure
is as a result of Financial Disruption; and (iv) if the Board of
National Grid withdraws or modifies its approval of the merger or
its recommendation to its shareholders. National Grid may
terminate the Merger Agreement if: (i) the Board of NEES approves,
recommends or takes no position with respect to an alternative
business combination proposal; (ii) twelve months after NEES
Shareholders' Approval is obtained, the order of the SEC approving
the Merger under the 1935 Act has not been issued, and National
Grid certifies to NEES that it reasonably believes that the SEC
will not issue an order that would comply with the requirements of
the regulatory condition; (iii) the Board of NEES withdraws or
modifies its approval of the merger or its recommendation to its
shareholders; and (iv) there has been a material breach of NEES's
representations and warranties or a failure by NEES to perform and
comply with its covenants under the Merger Agreement and such
breach or failure has not been cured. (See Articles VIII and IX of
the Merger Agreement.)
National Grid will pay NEES a termination fee of: (i) $100
million if NEES terminates the Merger Agreement because National
Grid was unable to pay the merger consideration, at a time when all
of the National Grid's closing conditions were met or waived,
because of a Financial Disruption; (ii) $75 million plus up to $10
million for documented out-of-pocket expenses if National Grid
terminates after the twelve month anniversary of NEES' shareholder
approval because an order from the SEC approving the Merger has not
been issued, and National Grid certifies to NEES that it reasonably
believes that the SEC will not issue an order that would comply
with the requirements of the regulatory condition; and (iii)
documented out-of-pocket expenses up to $10 million if NEES
terminates because of National Grid's (A) material breach of its
representations and warranties, (B) failure to perform and comply
with its covenants under the Merger Agreement or (C) failure to
obtain its shareholder vote. (See Articles VIII and IX of the
Merger Agreement.)
NEES will pay National Grid a termination fee of (i) $100
million plus up to $10 million for documented out-of-pocket
expenses if NEES terminates the Merger Agreement because NEES
became the target of a third party alternative proposal, and NEES'
Board determined in good faith based upon the advice of outside
counsel with respect to the Board's fiduciary duties, that
termination was necessary for the Board to act consistently with
its fiduciary duties under applicable law; (ii) $100 million plus
<PAGE>
up to $10 million for documented out-of-pocket expenses if, at a
time when an alternative business proposal is pending, (A) National
Grid terminates the Merger Agreement because: (1) NEES has
materially breached its representations and warranties or has
failed to materially perform and comply with its covenants under
the Merger Agreement, or (2) NEES shareholder approval was not
obtained, or (B) NEES terminates the Merger Agreement because the
Closing has not occurred by the termination date, provided, that in
the case of (A) or (B), NEES enters into a merger or acquisition
agreement with the party offering such alternative proposal within
two years of such termination; and (iii) documented out-of-pocket
expenses up to $10 million if National Grid terminates at a time
when no alternative business proposal was outstanding because of
NEES' (A) material breach of its representations and warranties,
(B) failure to perform and comply with its covenants under the
Merger Agreement or (C) failure to obtain its shareholder vote.
(See Article IX of the Merger Agreement.)
If the Merger Agreement is terminated because either party's
Board has withdrawn or changed its recommendation with respect to
the Merger prior to such party's shareholder meeting, then the
other party must pay a $100 million termination fee plus documented
out-of-pocket expenses up to $10 million. (See Article IX of the
Merger Agreement.)
Eastern Utilities Associates Merger
On February 1, 1999, NEES, Research Drive, and EUA entered into
the EUA Agreement. Pursuant to the EUA Agreement, Research Drive
will merge with and into EUA, with EUA being the surviving entity
and becoming a wholly-owned subsidiary of NEES (the EUA Surviving
Entity). The EUA Merger, which was approved by the NEES Board of
Directors, the EUA Board of Trustees and the Members of Research
Drive, is expected to occur shortly after all of the conditions to
the consummation of the EUA Merger, including the receipt of
certain regulatory approvals, are met or waived. NEES anticipates
that the EUA Merger will be consummated by early 2000.
Under the terms of the EUA Agreement, each outstanding share
of EUA's common stock (the EUA Common Stock), other than shares, if
any, owned by EUA as treasury shares, NEES, Research Drive or any
other wholly-owned subsidiary of NEES, will be converted into the
right to receive $31.00 in cash, as may be adjusted (the EUA Merger
Consideration). Such adjustment will occur as follows: if the EUA
Closing Date does not occur on or prior to the date that is the
six-month anniversary of the date on which EUA shareholders approve
the EUA Merger (the Adjustment Date), then the per share amount
shall be increased for each day after the Adjustment Date up to and
including the day which is one day prior to the earlier of the EUA
Closing Date and May 1, 2000 by an amount equal to $.003.
The Board of Directors of NEES has received an opinion from its
investment banker, Merrill Lynch, Pierce, Fenner & Smith
Incorporated, to the effect that, as of January 30, 1999, the EUA
Merger Consideration to be paid by NEES pursuant to the EUA Merger
is fair from a financial point of view to NEES.
<PAGE>
The EUA Merger is subject to certain customary closing
conditions, including, without limitation, the receipt of the
required approval of EUA's shareholders by an affirmative vote of
two-thirds of the outstanding EUA shares and the receipt of all
necessary governmental approvals and the making of all necessary
governmental filings, including the consent or approval of certain
state utility regulators, the approval of the FERC, the approval of
the SEC under the 1935 Act, the approval of the NRC and the filing
of the requisite notification with the Federal Trade Commission and
the Department of Justice under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended. The EUA Merger is not
dependent upon the National Grid merger.
The EUA Agreement contains certain covenants of the parties
pending the consummation of the EUA Merger. Generally, EUA must
carry on its business in the ordinary course consistent with past
practice, comply with all laws and preserve intact its goodwill.
The EUA Agreement contains certain restrictions on EUA including
limitations on, or procedures for: payment of dividends on EUA
common shares and preferred shares of certain EUA subsidiaries,
issuance of securities, amendment of the EUA's Declaration of
Trust, or similar governing documents of EUA's subsidiaries,
acquisitions, dispositions, incurrence of indebtedness, capital
expenditures, modification of employee compensation and benefits,
changes in accounting policies, amendment, termination or failure
to renew material contracts, discharge of liabilities, rate
matters, equity investments, loans to affiliates or other persons,
and assessing the adequacy of EUA's Year 2000 Program. (See
Article VI of the EUA Agreement.)
Pursuant to the EUA Agreement, EUA agrees that neither it nor
any of its subsidiaries shall knowingly initiate, solicit or
encourage, directly or indirectly, any inquiry or proposal or offer
relating to a business combination proposal or similar transaction
including EUA or any of its significant subsidiaries other than EUA
Cogenex Corporation, or engage in negotiations with, or provide
confidential information to any third party, and requires EUA to
terminate immediately any existing discussions or negotiations and
notify NEES of any such inquiries relating to a business
combination proposal, unless prior to EUA shareholder approval: (i)
EUA's Board determines, in good faith based upon the advice of its
outside legal counsel with respect to the Board's fiduciary duties,
that taking such action is necessary for the Board to act in a
manner consistent with its fiduciary duties under applicable law;
(ii) EUA's Board reasonably concludes, in good faith after
consultation with its financial advisors, that (A) the party making
such proposal has adequate financing sources and (B) such proposal
is likely to be more favorable to shareholders of EUA than the EUA
Merger (a Superior Proposal); (iii) prior to furnishing nonpublic
information or entering into negotiations, EUA notifies NEES in
writing of such furnishing of information or negotiations
(identifying the party making the proposal and the material terms
of such proposal) and enters into a confidentiality agreement in
customary form with such third party; and (iv) EUA keeps NEES
promptly informed of the status and all material information with
respect to such discussions or negotiations. EUA may terminate the
EUA Agreement to accept a Superior Proposal (in which case, the
<PAGE>
termination fee provision described below would be applicable).
However, before so terminating, EUA must negotiate with NEES to
adjust the EUA Agreement so as to enable the parties to proceed
with the adjusted EUA Agreement, and EUA's Board must determine
that, based on advice of counsel with respect to the Board's
fiduciary duties and notwithstanding a binding commitment to
consummate the EUA Agreement and notwithstanding all concessions
that may be offered by NEES in further negotiations with EUA, the
Superior Proposal is more favorable to EUA's shareholders than the
EUA Merger. (See Section 7.08 and Article IX of the EUA
Agreement.)
If the EUA Merger is consummated, then promptly following the
merger contemplated by the merger agreement between NEES, National
Grid and Holdings dated as of December 11, 1998 (the National Grid
Merger Agreement), NEES shall take the necessary action to cause
all of the members of the Board of Trustees of EUA to be appointed
to serve on the advisory board to be formed pursuant to the
National Grid Merger Agreement. (See Section 7.07 of the EUA
Agreement.)
The EUA Agreement may be terminated under certain
circumstances, including: (i) by mutual written agreement of the
Board of Directors of NEES and the Board of Trustees of EUA, (ii)
by either party if the EUA Merger has not been effected by December
31, 1999 (the Initial Termination Date), provided, that if the
parties are otherwise ready to close, but certain statutory
approvals are not yet obtained, the Initial Termination Date will
be extended for four months (the Extended Termination Date) and
(iii) by either party if any law, rule or regulation is adopted
which makes the EUA Merger illegal or any final order or injunction
permanently prohibits the EUA Merger. NEES may terminate the EUA
Agreement: (i) if EUA shareholder approval has not been obtained at
a duly held meeting of such shareholders, including any
adjournments thereof, (ii) if there has been a material breach of
EUA's representations and warranties or a failure to perform and
comply with its covenants under the Agreement and such breach or
failure has not been cured, (iii) if EUA's Board withdraws or
modifies its approval of the merger or its recommendation to its
shareholders or resolves to take such action or (iv) if EUA's Board
approves, recommends or takes no position with respect to an
alternative proposal or resolves to take such action. In addition,
EUA may terminate the EUA Agreement: (i) in order to accept a
Superior Proposal if EUA's Board determines that such termination
is necessary to act in a manner consistent with its fiduciary
duties after following the applicable procedures, as described
above, provided, that EUA's ability to terminate in accordance with
this provision of the Agreement is conditioned upon concurrent
payment by EUA to NEES of any applicable termination fees under the
Agreement, (ii) if there has been a material breach of NEES's
representations and warranties or a failure to perform and comply
with its covenants under the Agreement and such breach or failure
has not been cured or (iii) if NEES fails to deliver the EUA Merger
Consideration at a time when all conditions to NEES's obligation to
close have been satisfied or waived. (See Articles VIII and IX of
the EUA Agreement.)
<PAGE>
EUA will pay NEES a termination fee of $20 million plus up to
$5 million for documented out-of-pocket expenses: (i) if EUA
terminates the EUA Agreement because EUA became the target of a
third party alternative proposal, and EUA's Board determined in
good faith based upon the advice of outside counsel with respect to
the Board's fiduciary duties, that termination was necessary for
the Board to act consistently with its fiduciary duties under
applicable law or (ii) if, at a time when an alternative business
proposal is pending, (A) NEES terminates the EUA Agreement because:
(1) EUA shareholder approval was not obtained, (2) EUA has
materially breached its representations and warranties or has
failed to materially perform and comply with its covenants under
the EUA Agreement, or (iii) the Board of EUA withdraws or modifies
its approval of the EUA Merger or its recommendation to its
shareholders, or approves, recommends, or takes no position with
respect to a third party alternative proposal, or (B) EUA
terminates the EUA Merger Agreement because the Closing has not
occurred by the termination date, provided, that in the case of (A)
or (B), EUA enters into a merger or acquisition agreement with the
party offering such alternative proposal within two years of such
termination. (See Article IX of the EUA Agreement.)
NEES will pay EUA a termination fee of $10 million plus up to
$5 million for documented out-of-pocket expenses if either NEES or
EUA terminates because the Closing Date has not occurred on or
before the Initial Termination Date, or if the Initial Termination
Date is extended, the Extended Termination Date, and on the date of
such termination: (i) all conditions to closing other than the
condition requiring that certain statutory consents and approvals
be obtained has not been fulfilled, provided, that such Closing
Date has not failed to occur due to a failure on the part of the
terminating party to fulfill any obligation under the EUA
Agreement, (ii) if the date of termination is any date other than
the Extended Termination Date or a date thereafter, all conditions
of each party other than the conditions concerning (A) statutory
consents and approvals and (B) the certification of performance of
obligations on the part of NEES and Research Drive have been
fulfilled or are capable of being fulfilled and (iii) the merger
contemplated by the National Grid Merger Agreement has not been
consummated. (See Articles VIII and IX of the EUA Agreement.)
REGULATORY MERGER OUTLOOK
The following are management's projections as to when
shareholder votes will be taken and various regulatory filings will
be made to secure approval for the NEES/National Grid and NEES/EUA
proposed mergers. Actual timing and results could differ
materially from those discussed here (see FORWARD LOOKING
INFORMATION, page vi). NEES does not assume the obligation to
update these projections.
<PAGE>
NEES/National Grid
SEC
- An SEC order under the 1935 Act allowing NEES to solicit
its shareholders was issued on March 25, 1999. The NEES
shareholder meeting is scheduled to take place on May 3,
1999.
- The National Grid filing for approval of the Merger under
the 1935 Act was made on March 26, 1999.
NRC
- A filing was submitted on March 16, 1999.
FERC
- NEES filed for approval on March 10, 1999.
Hart-Scott-Rodino
- A filing is expected to be made on March 31, 1999.
Exon-Florio
- The parties made a filing on March 29, 1999.
State Public Utility Commissions
- No formal approvals are required in Massachusetts and Rhode
Island. However, written support from each of these state
public utility commissions is necessary to obtain the SEC
merger approval listed above. An informational filing was
made with the MDTE on March 9, 1999, a courtesy copy of
which was supplied to Rhode Island.
- The New Hampshire Public Utilities Commission (NHPUC)
approval is not required if NEES' subsidiaries which
operate in New Hampshire represent to the NHPUC that the
Merger will not adversely affect their rates, terms,
service, or operations. On March 18, 1999, these NEES
subsidiaries submitted the requisite representations.
- Filings are expected to be made in March 1999 with the
Connecticut Public Utility Commission and the Vermont
Public Service Board.
NEES/EUA
SEC
- EUA made a filing in March 1999 under the 1935 Act to
secure permission to solicit EUA shareholders. The date of
shareholder meeting for approval of the EUA Merger is
dependent upon timing of receipt of an order. Management
<PAGE>
is hopeful that an SEC order will be issued in April 1999.
The EUA shareholder meeting could then take place in May
1999.
- A joint NEES/EUA filing for approval of the EUA Merger
under the 1935 Act is expected to be made in May 1999.
NRC
- A filing is expected to be made in April 1999.
FERC
- NEES expects to file for approval of the EUA Merger and
transmission rates in April 1999.
Hart-Scott-Rodino
- A filing is expected to be made in April 1999.
State Public Utility Commissions
- NEES expects to file for approval of the EUA Merger and
rate plans in Massachusetts and Rhode Island in April 1999.
- NHPUC approval is not required if EUA's subsidiary which
operates in New Hampshire represents to the NHPUC that the
EUA Merger will not adversely affect its rates, terms,
service, or operations. It is expected that EUA's
subsidiary will make the requisite representation.
- A filing for approval from the Connecticut Public Utility
Commission is expected to be made in April 1999.
ELECTRICITY DELIVERY COMPANIES
The combined service area of the Electricity Delivery Companies
constitutes the electric delivery service area of the System and
covers more than 4,500 square miles with a population of about
3,000,000 (1990 census). See Map - Electric Utility Properties,
page 35. The largest cities served are Worcester, Mass.
(population 170,000) and Providence, Rhode Island (population
161,000).
Mass. Electric
Description of Business
Mass. Electric provides approximately 980,000 customers with
electric delivery service in an area comprising approximately 43
percent of The Commonwealth of Massachusetts. The population of
the service area is about 2,160,000 or 36 percent of the total
population of the Commonwealth (1990 Census). Mass. Electric's
service area consists of 146 cities and towns including the highly
diversified commercial and industrial cities of Worcester, Lowell,
and Quincy, the Interstate 495 high technology belt, and many
<PAGE>
suburban communities and rural towns. The economy of the area is
diversified. Principal industries served by Mass. Electric 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. During
1998, 39 percent of Mass. Electric's revenue from the sale and
delivery of electricity was derived from residential customers, 39
percent from commercial customers, 21 percent from industrial
customers, and 1 percent from others. In 1998, the 20 largest
customers of Mass. Electric accounted for approximately 7 percent
of its electric revenue. Effective March 1, 1998, Mass. Electric's
customers gained the right to choose their power supplier under
Massachusetts legislation. (see INDUSTRY RESTRUCTURING, page 5).
Rates
Rate schedules applicable to electric services rendered by
Mass. Electric are on file with the MDTE.
The Massachusetts Settlement establishes distribution rates for
Mass. Electric. On March 1, 1998, Mass. Electric's distribution
rates were set at a level approximately $45 million above the level
embedded in its previously bundled rates, with such rates then
frozen through the year 2000. This increase reflects changes to the
distribution cost of service that include an $11 million increase
in annual depreciation expense, a $3 million annual contribution to
a storm fund, and increased amortization of unfunded deferred
income taxes of approximately $1 million per year over six years.
The Massachusetts restructuring legislation also expanded the
eligibility for certain rate discount programs, the cost of which
is uncertain at this time. From 1998 through 2000, Mass. Electric's
return on equity will be subject to a floor of 6 percent and a
ceiling of 11 percent. Earnings over the ceiling will be shared
equally between customers and shareholders up to a maximum of 12.5
percent. This sharing results in an effective cap on Mass.
Electric's return on equity of 11.75 percent, excluding certain
limited incentive opportunities. To the extent that earnings fall
below the floor, Mass. Electric will be authorized to surcharge
customers for the shortfall. The statute also imposes an inflation
cap through March 1, 2005 on the total rates for customers who have
not chosen a power supplier. If this inflation cap is triggered,
under the Massachusetts Settlement, the recovery of stranded
investment costs would be deferred. This inflation cap does not
apply to any surcharge triggered by the rate of return floor.
The Massachusetts Settlement also eliminated Mass. Electric's
purchased power cost adjustment (PPCA) mechanism as of July 31,
1996. This mechanism allowed Mass. Electric to recover purchased
power rate changes from NEP and the effects of NEP's seasonal
rates. The Massachusetts Settlement required that Mass. Electric's
net $18 million PPCA refund liability balance at July 31, 1996 be
transferred on its books to establish a storm contingency fund
account of $3 million initially, with the remainder applied to
reduce regulatory assets for hazardous waste costs.
<PAGE>
The rates of Mass. Electric in 1997 contained fuel adjustment
clauses that allowed the rates to be adjusted to reflect changes in
the cost of fuel. Mass. Electric's fuel clause was terminated
effective March 31, 1998, with a final reconciliation of
approximately $20.8 million in overcollection pending at the MDTE.
With the implementation of retail choice on March 1, 1998,
Mass. Electric also implemented various adjustment provisions which
allow recovery, on a fully reconciling basis, of the costs of
providing transmission service, standard offer service, and default
service, to its customers as well as the cost of terminating its
all-requirements service contract with NEP. These adjustment
provisions are (1) the transmission service cost adjustment
provision, (2) the standard service cost adjustment provision, (3)
the default service adjustment provision, and (4) the transition
cost adjustment provision.
The rates of Mass. Electric after March 1, 1998, the effective
date of retail choice, were, on average, ten percent less than the
rates in effect on August 1, 1997, in accordance with the
Massachusetts restructuring legislation. Following the divestiture
by NEP of essentially all of its nonnuclear generating assets on
September 1, 1998, Mass. Electric's rates to customers who did not
select a competitive power supplier were, on average, 19 percent
less than the August 1, 1997 rates.
Narragansett
Description of Business
Narragansett provides approximately 335,000 customers with
electric delivery service. Its service territory, which includes
urban, suburban, and rural areas, covers about 839 square miles or
80 percent of the area of Rhode Island, and encompasses 27 cities
and towns including the cities of Providence, East Providence,
Cranston, and Warwick. The population of the area is about 725,000
(1990 Census) which represents about 72 percent of the total
population of the state. The economy of the territory is
diversified. Principal industries served by Narragansett produce
fabricated metal products, electrical and industrial machinery,
transportation equipment, textiles, silverware, and chemical
products. In addition, a broad range of professional, banking,
medical, and educational institutions is served. During 1998, 44
percent of Narragansett's revenue from the sale and delivery of
electricity was derived from residential customers, 40 percent from
commercial customers, 14 percent from industrial customers, and 2
percent from others. In 1998, the 20 largest customers of
Narragansett accounted for approximately 10 percent of its electric
revenue. Effective January 1, 1998, Narragansett's customers
gained the right to choose their power supplier under Rhode Island
legislation (see INDUSTRY RESTRUCTURING, page 5).
Rates
Rate schedules applicable to electric services rendered by
Narragansett are on file with the RIPUC and the Rhode Island
Division of Public Utilities and Carriers.
<PAGE>
Under the Rhode Island statute, Narragansett increased
distribution rates by approximately $11 million in January 1997 and
another $7 million in January 1998. The statute also provides that
Narragansett may request increased distribution rates which would
take effect no earlier than January 1999.
Effective January 1998, the RIPUC approved a $3.1 million
decrease in rates for Narragansett, reflecting a corresponding
decrease in expense associated with postretirement benefits other
than pensions (PBOPs). The RIPUC also approved a refund of
approximately $800,000 resulting from a past overcollection of PBOP
costs. This refund obligation was reflected on Narragansett's
books at December 31, 1997.
The rates of Narragansett in 1997 contained fuel adjustment
clauses that allowed the rates to be adjusted to reflect changes in
the cost of fuel. Narragansett's fuel clause was terminated at the
end of 1997, and all overcollections were refunded back to
customers during 1998.
With the implementation of retail choice on January 1, 1998,
Narragansett also implemented various adjustment provisions which
allow recovery, on a fully reconciling basis, of the costs of
providing transmission service, standard offer service, and last
resort service to its customers as well as the cost of terminating
its all-requirements service contract with NEP. These adjustment
provisions are (1) the transmission service cost adjustment
provision, (2) the standard offer service adjustment provision,
(3) the last resort service adjustment provision, and (4) the non-
bypassable transition adjustment provision. The transmission
service cost adjustment provision was not effective until
January 1, 1999.
The rates of Narragansett after January 1, 1998, the effective
date of retail choice, and throughout 1998, were, on average, eight
percent less than the rates in existence prior to retail choice.
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 of
the decision, the RIPUC monitors Narragansett's earnings on a
regular basis.
Granite State
Description of Business
Granite State provides approximately 37,000 customers in 21 New
Hampshire communities with electric delivery service in the State
of New Hampshire in an area having a population of about 73,000
(1990 Census), including the Salem area of Southern New Hampshire
as well as several communities located along the Connecticut River,
primarily in the Lebanon and Walpole areas. During 1998, 49
percent of Granite State's revenue from the sale and delivery of
electricity was derived from commercial customers, 36 percent from
residential customers, 14 percent from industrial customers, and 1
percent from others. In 1998, the 10 largest customers of Granite
<PAGE>
State accounted for about 18 percent of its electric revenue.
Granite State is not subject to the reporting requirements of the
Securities Exchange Act of 1934, and its financial impact on the
System is small. Information on Granite State is provided herein
solely for the purpose of furnishing a more complete description of
System operations. In July 1998, the New Hampshire Public
Utilities Commission approved a restructuring settlement agreement
proposed by Granite State and its transmission affiliate, NEP, the
Governor's office of the State of New Hampshire and a number of
other interested parties. This settlement agreement enables
customers to select their choice of competitive power suppliers and
was the only such settlement approved in New Hampshire as of
December 31, 1998. The settlement also provides for a distribution
rate surcharge for storm costs and pilot program costs (see
INDUSTRY RESTRUCTURING, page 5).
Rates
With the implementation of Granite State's Settlement Agreement
and retail choice on July 1, 1998, Granite State also implemented
various adjustment provisions which allow recovery, on a fully
reconciling basis, of the costs of providing transmission service,
transition service, and other system benefits, to its customers as
well as the cost of terminating its all-requirements service
contract with NEP. These adjustment provisions are (1) the
transmission service cost adjustment provision, (2) the transition
service cost adjustment provision and the electric service
adjustment provision, (3) the system benefits charge provision and
the interim low income energy assistance program provision, and (4)
the stranded cost adjustment provision.
The rates of Granite State in the second half 1998, following
the effective date of the settlement agreement were, on average,
ten percent less than the pre-settlement rates. Following the
divestiture by NEP of essentially all of its nonnuclear generating
assets on September 1, 1998, Granite State's rates to customers who
did not select a competitive power supplier were, on average, 17
percent less than the pre-settlement rates.
Nantucket
Description of Business
In March 1996, NEES acquired Nantucket for $3.5 million.
Nantucket provides electric delivery service to approximately
10,000 customers on Nantucket Island which has a year-round
population of approximately 6,000 (1990 Census) and a seasonal
tourist population which peaks at approximately 40,000 during the
summer. Nantucket's service area covers the entire island.
Effective March 1, 1998, Nantucket's customers gained the right to
choose their power supplier under Massachusetts legislation (see
INDUSTRY RESTRUCTURING, page 5). During 1998, 62 percent of
Nantucket's revenue from the sale and delivery of electricity was
derived from residential customers, 37 percent from commercial
customers, and 1 percent from others. During 1996, a 26-mile
undersea electric cable connecting Nantucket Island with the
transmission system on the mainland was constructed. Nantucket is
<PAGE>
not subject to the reporting requirements of the Securities
Exchange Act of 1934, and its financial impact on the System is
small. Information on Nantucket is provided herein solely for the
purpose of furnishing a more complete description of System
operations.
Standard Offer Service
In September 1998, NEP completed the divestiture of
substantially all of its nonnuclear generating business. Prior to
that date, NEP was the wholesale supplier of the electric energy
requirements of the Electricity Delivery Companies under contracts
that required seven years' notice of termination. NEP's contracts
with Mass. Electric, Nantucket, and Narragansett have been amended.
Mass. Electric and Nantucket conducted a competitive solicitation
among power suppliers in February 1998. No other supplier bid to
supply power to these companies. Narragansett conducted a similar
competitive solicitation in April 1998. No other supplier bid to
supply power to Narragansett. USGen and TransCanada Power
Marketing, Ltd. retain the backstop obligation to supply the
electric energy requirements of Mass. Electric, Nantucket, and
Narragansett for retail customers eligible to continue to buy
standard offer generation service from their electricity delivery
company at regulated prices. NEP retains the obligation to
provide standard offer generation service for a portion of
Narragansett's retail customers. Granite conducted a competitive
solicitation in December 1998. Constellation Power Source, Inc.
was the winning bidder in the solicitation and has the obligation
to provide 100 percent of Granite's standard offer generation
service requirements. For a discussion of electric utility
operations in a more competitive environment and the sale of NEP's
nonnuclear generating business, see INDUSTRY RESTRUCTURING, page 5.
Recovery of Demand-Side Management Expenditures
The Electricity Delivery Companies offer conservation and load
management programs, usually referred to in the industry as Demand-
Side Management (DSM) programs, which are designed to help
customers use electricity efficiently, as a part of meeting the
NEES companies' regulatory requirements and customers' needs for
energy services.
The Electricity Delivery Companies regularly file their DSM
programs with their respective regulatory agencies and have
received approval to recover DSM program expenditures in rates on
a current basis through 1998. Mass. Electric's expenditures were
$48 million, $51 million, and $46 million in 1996, 1997, and 1998,
respectively. Narragansett's expenditures were $10 million, $10
million, and $11 million in 1996, 1997, and 1998, respectively.
Narragansett and Granite State have received approvals from their
respective state regulatory agencies to recover their 1999 DSM
program expenditures. The Massachusetts Settlement and statute
provide for recovery of DSM-related costs. The Massachusetts
Department of Telecommunications and Energy approved Mass.
Electric's and Nantucket's DSM program expenditure recovery plans
through 2002. Since 1990, the Electricity Delivery Companies have
been allowed to earn incentives based on the results of their DSM
<PAGE>
programs. The Electricity Delivery Companies must be able to
demonstrate the electricity savings produced by their DSM programs
to their respective state regulatory agencies before full
incentives are recorded. Mass. Electric recorded $5.7 million,
$7.0 million, and $6.6 million of before-tax incentives in 1996,
1997, and 1998, respectively. Narragansett recorded $0.2 million,
$0.3 million, and $0.4 million of before-tax incentives in 1996,
1997, and 1998, respectively.
Performance-Based Ratemaking
Currently, there is much regulatory and other movement toward
establishing performance-based rates (for more information, see
Accounting Implications, Page 7).
TRANSMISSION AND NUCLEAR GENERATION BUSINESS
NEP
Description of Business
On September 1, 1998, NEP completed the sale of substantially
all of its nonnuclear generating business to USGen. NEP's business
had been principally generating, purchasing, transmitting, and
selling electric energy in wholesale quantities. In 1998, 98
percent of NEP's all-requirement revenue from the sale of
electricity was derived from sales for resale to affiliated
companies and 2 percent from sales for resale to municipal and
other utilities.
NEP's primary business is now the transmission of electric
energy in wholesale quantities to other electric utilities,
principally its distribution affiliates, the Electricity Delivery
Companies. NEP is also the owner of a system of transmission lines
and substations (see Map - Electric Utility Properties, page 35).
NEP continues to own minority interests in two joint owned nuclear
generating units as well as minority equity interests in four
nuclear generating companies (see Nuclear Units, page 36). For a
discussion of electric utility operations in a more competitive
environment and the sale of NEP's nonnuclear generating business,
see INDUSTRY RESTRUCTURING, page 5.
Rates
From January 1995 to March 1998, NEP collected the majority of
its generation and transmission revenues pursuant to the rates
under Tariff No. 1 established in the FERC approved W-95 settlement
agreement, including the revenues from the Electricity Delivery
Companies. Under Tariff No. 1, NEP was obligated to sell to its
customers, and its customers were obligated to purchase from NEP,
the requirements of its retail service territory, and they could
only terminate those mutual obligations upon seven years' notice.
In addition, NEP established an open access transmission Tariff No.
9 applicable to non-Tariff No. 1 customers in July 1996.
<PAGE>
The settlement agreements between NEP and the Electricity
Delivery Companies included an amendment to the Tariff No. 1
service agreement which reformed the contractual relationship to
allow for the early termination of the Electricity Delivery
Companies' obligation to purchase wholesale all-requirements
service from NEP, in consideration for the payment of the contract
termination charge. The Electricity Delivery Companies are
recovering the contract termination charge through a transition
access charge (see INDUSTRY RESTRUCTURING, page 5). NEP has also
reached similar agreements with three unaffiliated wholesale
customers. In addition, one unaffiliated wholesale customer has
terminated service under Tariff No. 1. NEP has obtained FERC
approval to collect the associated stranded costs. These
agreements amend the provisions of Tariff No. 1 and allow for the
provision of unbundled service by NEP.
NEP's unbundled rates going forward consist of the contract
termination charge, transmission charges, standard offer charges
where applicable, and market revenues where applicable. The CTC
rate was originally set at 2.8 cents per kilowatthour (kWh), and
subsequently reduced to approximately 1.5 cents or less per kWh
upon completion of the sale of NEP's nonnuclear generating business
(see INDUSTRY RESTRUCTURING, page 5). The transmission rate
pursuant to the open access Tariff No. 9 is a formula rate which
recovers NEP's actual costs plus a return on actual capital
investment and equals approximately 0.5 cents per kWh. The
standard offer revenues equaled 3.2 cents per kWh in 1998 and, with
respect to NEP's continuing obligation to supply standard offer
service to Narragansett, the rate will escalate in the years
thereafter. Revenues from sale in the marketplace will vary. The
Settlement Agreements also provide for recovery of lost revenue due
to differences between what NEP would have collected under Tariff
No. 1 and what it actually collected under the unbundled tariffs
for the time period between the time customers could choose their
electricity supplier and divestiture of NEP's nonnuclear generating
business.
The electric utility business of NEP and the Electricity
Delivery Companies (except Nantucket) is not highly seasonal. For
NEP and the Electricity Delivery Companies, industrial customers
are broadly distributed among standardized industrial
classifications. No single industrial classification exceeds 3
percent of operating revenue, and no single customer of the System
contributes more than 1 percent of operating revenue.
UNREGULATED BUSINESS
AllEnergy's principal purpose is to sell energy and provide a
range of energy-related services, including but not limited to,
marketing, brokering and sales of energy, audits, fuel supply,
repair, maintenance, construction, operation, design, engineering,
and consulting, to customers in the competitive market in the
northeast. In December 1997, AllEnergy became a wholly-owned
indirect subsidiary of NEES when Eastern Enterprises' 50 percent
interest in the joint venture was purchased by NEES. On February
12, 1999, NEES and AllEnergy acquired Griffith Consumers Company
<PAGE>
(Griffith Consumers), a full-service distributor of residential and
commercial heating oil in Washington, D.C., and in parts of
Maryland, Delaware, Virginia, and West Virginia.
NEESCom was established in August 1996 to allow the NEES
companies to participate in the growing telecommunications
industry. This subsidiary (an exempt telecommunications company)
is not regulated under the Public Utility Holding Company Act of
1935 and has a license from the Federal Communications Commission.
Its focus is providing telecommunications infrastructure
principally leasing fiber optic cable to the telecommunications
industry.
NEES Global is a wholly-owned nonutility subsidiary of NEES.
Its principal purpose is to provide consulting services and product
licenses to unaffiliated utilities in the areas of electric
industry restructuring and customer choice. NEES Global also
leases water heaters through its subsidiary NEWH.
OPERATING REVENUES
The following is the detail of consolidated kWh sales and
deliveries, revenue from sales and deliveries of electricity by the
System, and System operating income for the last three years.
<PAGE>
<TABLE>
<CAPTION>
Sales and Deliveries of Electricity
(in thousands of kWh)
------------------------------------
Classification 1998 1997 1996
- -------------- ---- ---- ----
<S> <C> <C> <C>
Residential 8,058,262 8,034,001 8,027,352
Commercial 9,115,396 8,829,266 8,595,814
Industrial 5,112,337 5,100,907 4,913,644
Other 136,202 133,184 137,378
---------- ---------- ----------
Total Deliveries
to Ultimate
Customers 22,422,197 22,097,358 21,674,188
Sales for Resale 2,991,261 4,034,345 3,611,643
---------- ---------- ----------
Total Sales
and Deliveries 25,413,458 26,131,703 25,285,831
========== ========== ==========
Operating Revenues
(in thousands of dollars)
------------------------------------
Classification 1998 1997 1996
- -------------- ---- ---- ----
Residential $ 805,105 $ 877,447 $ 849,070
Commercial 789,194 840,671 792,380
Industrial 382,267 403,868 383,659
Other 26,280 28,040 26,902
---------- ---------- ----------
Total Deliveries
to Ultimate
Customers 2,002,846 2,150,026 2,052,011
Sales for Resale 84,565 149,339 140,110
---------- ---------- ----------
Total 2,087,411 2,299,365 2,192,121
Other Operating
Revenue 333,122 203,226 158,577
---------- ---------- ----------
Total Operating
Revenue $2,420,533 $2,502,591 $2,350,698
========== ========== ==========
Operating Income $ 308,839 $ 366,861 $ 348,118
========== ========== ==========
</TABLE>
<PAGE>
Operating revenue decreased $82 million in 1998 and reflects
a reduction in generation-related revenues, decreased oil and gas-
related revenues, and the reversal in 1997 of certain refund
revenues related to rate adjustment mechanisms.
In 1998, kWh deliveries to ultimate customers increased 1.5
percent, reflecting a strong economy. For the year as a whole,
weather had a negative impact on 1998 deliveries when compared
with 1997.
ELECTRIC UTILITY PROPERTIES
Transmission, Distribution, and Nuclear Generation Properties
On September 1, 1998, NEES' subsidiaries, NEP and Narragansett,
completed the sale of substantially all of their nonnuclear
generating business to USGen. NEP also plans to seek offers to
sell its nuclear generating business. For more information, see
INDUSTRY RESTRUCTURING, page 5 and Nuclear Units, page 36. The
properties of the System also include the ownership interests of
NEET, Mass. Hydro, and N.H. Hydro in the Hydro-Quebec
Interconnection, and an integrated system of transmission lines,
substations, and distribution facilities. See Map - Electric
Utility Properties, page 35.
NEP's integrated system consists of 2,233 circuit miles of
transmission lines, 110 substations with an aggregate capacity of
12,535,789 kVA, and 7 pole or conduit miles of distribution lines.
The properties of Mass. Electric and Narragansett include
substations and distribution and transmission lines, which are
interconnected with transmission and other facilities of NEP. At
December 31, 1998, Mass. Electric owned 247 substations, which had
an aggregate capacity of 2,951,270 kVA, 147,571 line transformers
with the capacity of 8,318,059 kVA, and 17,204 pole or conduit
miles of distribution lines. Mass. Electric also owns 83 circuit
miles of transmission lines. At December 31, 1998, Narragansett
owned 224 substations, which had an aggregate capacity of 4,003,695
kVA, 49,475 line transformers with the capacity of 2,133,156 kVA,
and 4,644 pole or conduit miles of distribution lines.
Narragansett, in addition, owns 327 circuit miles of transmission
lines.
Substantially all of the properties and franchises of Mass.
Electric and Narragansett are subject to the liens of indentures
under which mortgage bonds have been issued. For details of the
mortgage liens on these properties, see the long-term debt note in
Notes to Financial Statements in each of these companies'
respective 1998 annual reports. The properties of NEET are subject
to a mortgage under its financing arrangements.
NEP, Narragansett, and AllEnergy are members of the New England
Power Pool (NEPOOL). Mass. Electric, Nantucket, and Granite State
participate in NEPOOL through NEP. The NEPOOL Agreement provides
for coordination of the planning and operation of the generation
and transmission facilities of its members. The NEPOOL Agreement
incorporates generating capacity reserve obligations, provisions
<PAGE>
regarding the use of major transmission lines, and provisions for
payment for facilities usage. The NEPOOL Agreement further
provides for New England-wide central dispatch of generation by the
Independent System Operator (ISO). Through NEPOOL, operating and
capital economies are achieved and reserves are established on a
region-wide rather than an individual company basis.
At the end of 1996, NEPOOL filed with the FERC a comprehensive
proposal to restructure NEPOOL. The main elements of the proposal
included: (1) the establishment of a regional transmission tariff
that ensures open, nondiscriminatory access to the regional
transmission network; (2) the development of wholesale competitive
markets and a power exchange for capacity, energy and several
ancillary services with market-based pricing for these products and
services; (3) a revised governance structure; and (4) the creation
of the ISO to operate the bulk power system and administer the
regional tariff and power exchange.
FERC has accepted most of NEPOOL's proposals. In June 1997,
FERC ordered the creation of the ISO-New England. ISO-New England
was activated on July 1, 1997 and has been operating the control
area since that time. It operates under contract with NEPOOL and
is governed by an independent Board of Directors. NEPOOL's Open
Access Transmission Tariff (NOATT), which covers service across
pool transmission facilities, went into effect, subject to refund,
in March 1997. Parts of the NOATT have been disputed, and the cost
of service methodology is currently being litigated at FERC. The
two most contested issues are the allowed ROE and the existence of
Excepted Transactions. Excepted Transactions are transactions
which were in effect prior to November 1996. The NOATT states that
these transactions are not superseded by the NOATT and therefore
the parties must continue to pay the transmission provider for
service until the transaction ends.
FERC issued an order in December 1998 accepting the basic
structure of the NEPOOL markets. It is currently anticipated that
these markets will become active on May 1, 1999. As ordered by
FERC, NEPOOL is currently working to develop a Congestion
Management System and a Multi-Settlement System, which will be
incorporated into the market at some later date.
FERC rejected NEPOOL's governance proposal. On December 31,
1998, NEPOOL filed a newly revised governance proposal which
increased the committee representation and voting shares of smaller
players beyond that which was contemplated in the original filing.
FERC rejected NEPOOL's revised governance proposal on March 10,
1999 finding that the revised voting share formula continued to
allow a select group of utilities to control all the actions of the
Management Committee. FERC ordered NEPOOL to file within 60 days
a new proposal concerning governance that eliminates the control of
vertically integrated utilities.
Interconnection with Quebec
NEET, Mass. Hydro, and N.H. Hydro own and operate, on behalf
of NEPOOL participants in the project, a 450 kV direct current
transmission line and related terminals to interconnect the New
<PAGE>
England and Quebec transmission systems (the Interconnection). The
transfer capability of the Interconnection is currently rated at
1,800 MW. Operating limits implemented by adjacent Power Pools
covering New York, New Jersey, Pennsylvania, and Maryland often
restrict the effective transfer capability to levels of 1,200 MW to
1,400 MW.
The Interconnection has two phases. NEP's participation in
both is approximately 18 percent. NEP and the other participants
have entered into support agreements that end in 2020. Under the
support agreements, NEP has agreed to guarantee its share of debt
financing for the second phase. At December 31, 1998, NEP had
guaranteed approximately $23 million of project debt. NEP's rights
and obligations under its support agreements were transferred to
USGen upon completion of the sale of NEP's nonnuclear generating
business, but NEP remains an obligor in the event of USGen
nonperformance (see INDUSTRY RESTRUCTURING, page 5).
<PAGE>
Map - Electric Utility Properties
(Displays electric utility properties of NEES subsidiaries)
<PAGE>
Nuclear Units
General
NEP has interests in six nuclear units. Three of the units
have been permanently shut down. The remaining three are currently
operating.
NEP is a stockholder of Yankee Atomic Electric Company (Yankee
Atomic), Vermont Yankee Nuclear Power Corporation (Vermont Yankee),
Maine Yankee Atomic Power Company (Maine Yankee), and Connecticut
Yankee Atomic Power Company (Connecticut Yankee). Each of these
companies (collectively referred to as the Yankee Companies) owns
a single nuclear generating unit. The stockholders of three Yankee
Companies (Vermont Yankee, Maine Yankee, and Connecticut Yankee)
have agreed, subject to regulatory approval, to provide capital
requirements in the same proportion as their ownership percentages
of the particular Yankee Company. NEP also has power contracts with
each Yankee Company that require NEP to pay an amount equal to its
share of total fixed and operating costs (including decommissioning
costs) of the plant plus a return on equity. Yankee Atomic,
Connecticut Yankee, and Maine Yankee have permanently ceased
operations. NEP purchases the output of the Vermont Yankee plant
in the same percentage as its stock ownership, less small
entitlements taken by municipal utilities.
In addition, NEP is a joint owner of the Millstone 3 nuclear
generating unit in Connecticut and the Seabrook 1 nuclear
generating unit in New Hampshire. Millstone 3 and Seabrook 1 are
operated by subsidiaries of Northeast Utilities. NEP pays its
proportionate share of costs and receives its proportionate share
of output from Millstone 3 and Seabrook 1. Listed below is certain
information on each nuclear plant in which NEP has an ownership
interest.
Under restructuring settlement agreements approved by
regulators in Massachusetts, New Hampshire and Rhode Island, NEP
has agreed to attempt to divest its nuclear holdings (for more
information, see INDUSTRY RESTRUCTURING, page 5).
On February 25, 1999, the Board of Directors of Vermont Yankee
granted an exclusive right to AmerGen Energy Company (AmerGen), a
joint venture by PECO Energy and British Energy to conduct due
diligence review over the next 120 days and negotiate a possible
agreement to purchase the assets of Vermont Yankee, Vermont's sole
nuclear generating plant. Provided the due diligence review leads
to successful completion of negotiations for a sale, consummation
of such a sale would be contingent on regulatory approvals by the
NRC, the SEC, under the 1935 Act, and the Vermont Public Service
Board, among others. The sale process could take eight to twelve
months or longer. In past negotiations for the sale of nuclear
plants, due diligence review has not guaranteed that a sale will
occur. NEP has a 20 percent ownership interest in Vermont Yankee
and an investment of approximately $11 million at December 31,
1998.
<PAGE>
Operating Nuclear Units
<TABLE>
<CAPTION>
NEP's Share of
NEP's Net Plant
Ownership Assets
Unit Interest (%) ($ in millions)
---- ------------ ---------------
<S> <C> <C>
Vermont Yankee 20 34
Millstone 3 12 9*
Seabrook 1 10 15*
*See Note C of the 1998 NEES annual report for a discussion of an
impairment writedown and establishment of an offsetting regulatory
asset.
</TABLE>
Decommissioning Estimates
<TABLE>
<CAPTION>
NEP's share of
($ in millions)
--------------------------------
Estimated Decommissioning
Decommissioning Fund
Costs Balances (1) License
Unit (in 1998 $) (12/31/98) Expiration
---- --------------- --------------- ----------
<S> <C> <C> <C>
Vermont Yankee $105 $38 2012
Millstone 3 $ 67 $21 2025
Seabrook 1 $ 50 $10 2026
(1) Certain additional amounts are anticipated to be available
through tax deductions.
</TABLE>
<PAGE>
Nuclear Units Permanently Shut Down
<TABLE>
<CAPTION>
NEP's Investment Future Estimated
------------------- Date Billings to NEP
Unit % $(millions) Retired $(millions)
---- --- ----------- ------------ ----------------
<S> <C> <C> <C> <C>
Yankee Atomic 30 6 February 1992 24
Connecticut Yankee 15 16 December 1996 75
Maine Yankee 20 16 August 1997 143
</TABLE>
For a discussion of NEP's investment in both operating and
retired nuclear units, the Millstone 3 unit, nuclear
decommissioning costs and nuclear insurance issues, see pages 33 to
36 of the 1998 NEES Annual Report. For information on legal
proceedings related to Millstone 3 and Maine Yankee, see LEGAL
PROCEEDINGS, page 52.
High-Level Waste Disposal
The Nuclear Waste Policy Act of 1982 provides a framework and
timetable for selection of sites for repositories of high-level
radioactive waste (spent nuclear fuel) from United States nuclear
plants. The U.S. Department of Energy (DOE) has entered into
contracts with the Yankee Companies, the Millstone 3 joint owners,
and the Seabrook 1 joint owners for acceptance of title to, and
transportation and storage of, this waste. Under these contracts,
each operating unit will pay fees to the DOE to cover the
development and creation of waste repositories. Fees for fuel
burned since April 1983 have been collected by the DOE on an
ongoing basis at the rate of one tenth of a cent per kWh of net
generation. Fees for generation up through April 1983 were
determined by the DOE as follows: $13.2 million for Yankee Atomic,
$48.7 million for Connecticut Yankee, $50.4 million for Maine
Yankee, and $39.3 million for Vermont Yankee. Neither Millstone 3
nor Seabrook 1 has been assessed any fees for fuel burned through
April 1983 because they did not enter commercial operation until
1986 and 1990, respectively.
The Yankee Companies had several options to pay these fees.
Yankee Atomic paid its fee to the DOE for the period through April
1983. The other three Yankee Companies elected to defer payment
until a future date, thereby incurring interest expense. However,
payment to the DOE must occur prior to the first delivery of spent
fuel. Connecticut, Maine, and Vermont Yankee have segregated a
portion of their respective DOE obligations in external accounts.
The remainder of the funds have been used to support general
capital requirements. All expect to separately fund in full in
external accounts their DOE obligation (including accrued interest)
prior to payment to the DOE. To the extent that any of the three
Yankee Companies is unable to fully meet its DOE obligation at the
prescribed time, NEP might be required to provide additional funds.
<PAGE>
Prior to such time that the DOE takes delivery of a plant's
spent nuclear fuel, it is stored on site in spent fuel pools.
Millstone 3, Seabrook 1, and Vermont Yankee are in the process of
reconfiguring their spent fuel pools to allow for additional
storage capability. Upon successful completion of the
reconfiguring, Millstone 3 will have sufficient spent fuel pool
capacity to support plant operation through the expiration of its
current Nuclear Regulatory Commission (NRC) license. Seabrook 1's
licensed storage capacity will allow a full core discharge until
2011. Vermont Yankee will be able to maintain a full core
discharge capability until 2004. Yankee Atomic, Connecticut Yankee
and Maine Yankee all have adequate on-site storage capacity for all
their spent fuel.
Federal legislation enacted in 1987 directed the DOE to proceed
with the studies necessary to develop and operate a permanent
high-level waste disposal site at Yucca Mountain, Nevada. There is
local opposition to development of this site. Although originally
scheduled to open in 1998, the DOE currently estimates that the
permanent disposal site is not expected to open before 2015.
Currently there is legislation before Congress that would create an
interim spent fuel storage site to be used until the Yucca Mountain
permanent storage site becomes available. Although separate bills
passed the Senate and House in 1997, legislation was not enacted.
Similar legislation providing authorization for DOE to build the
central storage facility has been introduced in the House of
Representatives. A companion bill is expected to be introduced in
the Senate.
In July 1996, the U.S. Court of Appeals for the District of
Columbia Circuit issued its decision in a lawsuit petitioning the
Court to declare the 1998 contract date a binding legal obligation.
The Court stated that the DOE is obligated "to start disposing
Spent Nuclear Fuel no later than January 31, 1998." The Court's
decision did not specify a plan for ensuring that the DOE meets its
obligations, but rather noted that it was premature to determine
the appropriate remedy since the DOE had not yet defaulted upon
either its statutory or contractual obligation.
In January 1997, numerous utilities and states filed lawsuits
against the DOE in the U.S. Court of Appeals for the District of
Columbia Circuit. The plaintiffs sought to suspend payments to the
Nuclear Waste Fund until DOE begins taking spent fuel. The payment
would instead be made to special escrow accounts.
The petitioners in the lawsuits requested that the court review
the above decision in which the same court ruled that the January
31, 1998 contract date was binding and order DOE to prepare a plan
to begin taking spent fuel by that date.
In November 1997, the U.S. Court of Appeals for the District
of Columbia (the Appeals Court) held that the DOE was obligated to
begin disposing of utilities' spent nuclear fuel by January 31,
1998. The DOE failed to meet this deadline, and is not expected to
have a temporary or permanent repository for spent nuclear fuel for
many years.
<PAGE>
In February and March 1998, Yankee Atomic and Connecticut
Yankee, respectively, filed separate suits in the United States
Court of Federal Claims against the DOE for monetary damages for
breach of contract arising from the DOE's refusal to accept nuclear
fuel from the plants. Vermont Yankee, Maine Yankee, Millstone 3
and Seabrook 1 have joined with others in separate legal actions
against the DOE. In 1998, Maine Yankee petitioned the Appeals
Court to compel the DOE to remove Maine Yankee's spent fuel from
the site. The Appeals Court rejected the petitions of Maine Yankee
and the other utilities and state regulatory commissions, stating
that the issue of damages was a contractual matter. The operators
of the units in which NEP has an obligation, including Maine
Yankee, Connecticut Yankee, and Yankee Atomic, pursued damage
claims against the DOE in the Federal Court of Claims (Claims
Court). In October 1998, the Claims Court ruled that the DOE
violated a commitment to remove spent fuel from Yankee Atomic. The
Claims Court issued similar rulings in November 1998 related to
cases brought by Connecticut Yankee and Maine Yankee. Further
proceedings will be scheduled by the Claims Court to decide the
amount of damages.
In February 1999, the U.S. Energy Secretary announced a plan
by which the DOE would become temporary owner of the spent nuclear
fuel at each nuclear sites around the nation. The DOE would own
the spent fuel until a permanent central storage site is found.
The nuclear industry does not support this plan, as it would be
seen as further delaying the shipment of spent fuel from existing
sites.
Federal authorities have deferred indefinitely the commercial
reprocessing of spent nuclear fuel.
Low-Level Waste Disposal
Federal law allows the states in which the three existing low-
level waste disposal sites were located to deny access to
nonregional waste generators after 1992. Under the statute,
individual states are responsible for finding local sites for
disposal or forming regional disposal compacts by defined milestone
dates.
None of the states in which NEP holds an interest in a nuclear
facility has met the statutory milestones toward developing
disposal sites. Currently, two low-level waste disposal sites in
the U.S. are accepting nonregional waste, Chem-Nuclear Systems,
Inc.'s site in Barnwell, South Carolina and Envirocare of Utah,
Inc's site in Clive, Utah. Following a closure in the early 1990s,
the Barnwell facility reopened its services to most nonregional
generators on July 1, 1995 and is authorized to remain open until
July 1, 2005. In 1996, the South Carolina Supreme Court upheld the
constitutionality of the legislative action that reopened Barnwell
to nonregional generators. Envirocare began accepting Class A low-
level waste in 1995. Class A waste is the least contaminated of
the three categories defining low-level waste. The Barnwell
facility accepts all three categories of waste. All the units in
which NEP has an interest are currently shipping low-level waste to
these sites. Chem-Nuclear Systems, as operator of the Barnwell
<PAGE>
facility, is obligated to make certain payments to the State of
South Carolina. Chem-Nuclear has indicated that projected revenues
from its disposal activities at Barnwell are not likely to be
sufficient to reimburse it for these payments, and is exploring
alternatives to increase revenues from utilities disposing waste at
Barnwell. NEP cannot predict what impact, if any, this situation
will have on the continued availability of the Barnwell site.
Recently, the State of South Carolina has begun contemplating the
closure of the Barnwell site. Should the Barnwell facility become
unavailable, the cost of decommissioning the Yankee Atomic,
Connecticut Yankee, and Maine Yankee plants could increase.
The States of Maine and Vermont have established a compact with
Texas for the disposal of low-level waste at a yet to be determined
location in Texas. The compact agreement has been approved in all
three states, ratified by the U.S. Congress and signed into law by
the President. NEP cannot predict when a disposal facility will be
selected, licensed and become operational in Texas. The compact
relieves Maine and Vermont from having to site an in-state disposal
facility. Connecticut, Massachusetts, and New Hampshire are still
required to pursue local or regional low-level waste disposal
facilities. However, Massachusetts suspended its search for a
local disposal facility in 1996.
Nuclear Fuel Supply
The utilities responsible for the fuel supply for these
operating nuclear units are not experiencing any difficulty in
obtaining commitments for the supply of each element of the nuclear
fuel cycle.
Other Items
Federal legislation requires emergency response plans, approved
by federal authorities, for nuclear generating units. The Yankee
Companies, Seabrook 1, and Millstone 3 are not currently
experiencing difficulty in maintaining approval of their emergency
response plans.
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. The definition of owner under
the statute covers NEP and may cover companies affiliated with it.
NEP and the Electricity Delivery Companies cannot determine, at
this time, the constitutionality, applicability, or effect of this
statute. If NEP or the Electricity Delivery Companies were
required to make payments under this statute, they would assess
their legal remedies at that time. In any event, NEP and the
Electricity Delivery Companies would attempt to recover through
rates any payments required. If any claim in excess of NEP's
ownership share were enforced against a NEES company, that company
would seek reimbursement from any other Maine Yankee stockholder
which failed to pay its share of such costs.
<PAGE>
Divestiture of Nonnuclear Generating Business
On September 1, 1998, NEES' subsidiaries NEP and Narragansett
completed the sale of substantially all of their nonnuclear
generating business to USGen. For more information, see INDUSTRY
RESTRUCTURING, page 5.
Natural Gas Contracts
Upon completion of the sale of the NEES companies' nonnuclear
generating business to USGen, NEP's rights under its natural gas
contracts were effectively transferred to USGen through an agency
agreement, pursuant to which USGen receives the benefits of those
contracts and pays the ongoing costs and charges incurred. NEP and
USGen have agreed to use reasonable efforts to have NEP's rights
and obligations under those contracts permanently assigned to
USGen. (For information on the sale of NEP's nonnuclear generating
assets, see INDUSTRY RESTRUCTURING, page 5.)
Oil and Gas Operations
In February 1998, after a competitive bidding process, NEEI
sold all of its remaining oil and gas properties held as of
December 31, 1997 to Samedan Oil Corporation for $50 million. The
loss on such disposition, approximately $120 million, before tax,
has been charged to NEP. The settlements provide for the recovery
of the NEEI loss as part of NEP's stranded costs. See INDUSTRY
RESTRUCTURING, page 5.
Purchased Power Transfer Agreement
As part of the sale of NEP's nonnuclear generating business to
USGen on September 1, 1998, NEP signed a purchased power transfer
agreement through which USGen purchased NEP's entitlement to
approximately 1,100 MW of power procured under long-term contracts.
For more information, see INDUSTRY RESTRUCTURING, page 5.
REGULATORY AND ENVIRONMENTAL MATTERS
Regulation
Numerous activities of NEES and its subsidiaries are subject
to regulation by various federal agencies. Under the 1935 Act,
many transactions of NEES and its subsidiaries are subject to the
jurisdiction of the SEC. With the intensifying competitive
pressures within the electric utility industry, there has been
increasing debate about modifying or repealing the 1935 Act.
Under the Federal Power Act, certain electric subsidiaries of NEES
are subject to the jurisdiction of the FERC with respect to rates
and accounting. In addition, the NRC has broad jurisdiction over
nuclear units and federal environmental agencies have broad
jurisdiction over environmental matters. The electric utility
subsidiaries of NEES are also subject to the jurisdiction of
regulatory bodies of the states and municipalities in which they
operate.
<PAGE>
For more information, see INDUSTRY RESTRUCTURING, page 5;
Mass. Electric, Narragansett, Granite State, and NEP Rates, pages
23 through 28; Nuclear Units, page 36; and Environmental
Requirements, page 43.
Environmental Requirements
Existing Operations
The NEES subsidiaries are subject to federal, state, and local
environmental regulation of, among other things, wetlands and flood
plains; air and water quality; storage, transportation, and
disposal of hazardous wastes and substances; underground storage
tanks; and land-use. Upon completion of the sale of substantially
all of NEES' nonnuclear generating business to USGen, USGen assumed
responsibility for environmental conditions at the Sellers'
nonnuclear generating stations (see INDUSTRY RESTRUCTURING, page
5).
Siting and Construction Activities for
New Transmission Facilities
All New England states require, in certain circumstances,
regulatory approval for site selection or construction of major
transmission facilities. Connecticut, Maine, Massachusetts, New
Hampshire, and Rhode Island also have programs of coastal zone
management that might restrict construction of electrical
facilities in, or potentially affecting, coastal areas. The New
England states have environmental laws which require project
proponents to prepare reports of the environmental impact of
certain proposed actions for review by various agencies.
Environmental Expenditures
Total System capital expenditures for environmental protection
facilities have been substantial. However, due to the divestiture
of its nonnuclear generating business, the System estimates that
capital expenditures for environmental protection facilities in
1999 and 2000 will not be material to the System. System capital
expenditures for such facilities amounted to approximately
$9 million in 1996, $7 million in 1997, and $2 million in 1998,
including expenditures by NEP of approximately $3 million,
$5 million, and $.3 million, respectively, for those years.
Hazardous Substances
The electric utility industry typically utilizes and/or
generates in its operations a range of potentially hazardous
products and by-products. For more information regarding sites for
which NEES and/or its subsidiaries have been named as potentially
responsible parties, other sites, a settlement agreement covering
rate recovery of certain remediation costs, and reserves, see pages
16 and 32 of the NEES 1998 Annual Report, Note E of the Notes to
the Financial Statements of the NEP 1998 Annual Report, and
Financial Review and Note D of the Notes to the Financial
Statements of both the Mass. Electric 1998 Annual Report and the
Narragansett 1998 Annual Report.
<PAGE>
Nuclear
The NRC, along with other federal and state agencies, has
extensive regulations pertaining to environmental aspects of
nuclear reactors. Safety aspects of nuclear reactors, including
design controls and inspection programs to mitigate any possibility
of nuclear accidents and to reduce any damages therefrom, are also
subject to NRC regulation. See Nuclear Units, page 36.
Water
The Federal Clean Water Act prohibits the discharge of any
pollutant, except in compliance with a discharge permit issued by
the states or the EPA for a term of no more than five years. NEET
has received the required surface water discharge permits for all
of its current operations. NEES subsidiaries Narragansett, Mass.
Electric and Nantucket have received sewer discharge permits where
necessary.
CONSTRUCTION AND FINANCING
Estimated construction expenditures (including nuclear fuel)
for the System's electric utility companies are shown below for
1999 through 2001.
The System conducts a continuing review of its construction and
financing programs. These programs and the estimates shown below
are subject to revision based upon changes in assumptions as to
System load growth, rates of inflation, receipt of adequate and
timely rate relief, the availability and timing of regulatory
approvals, new environmental and legal or regulatory requirements,
total costs of major projects, technological changes, and the
availability and costs of external sources of capital.
<PAGE>
<TABLE>
<CAPTION>
Estimated Construction Expenditures
-----------------------------------
1999 2000 2001 Total
---- ---- ---- -----
<S> <C> <C> <C> <C>
($ in Millions - excluding AFDC)
NEP
- ---
Generation (1)(2)
Nuclear 10 10 10 30
Transmission 55 35 35 125
---- ---- ---- ----
Total NEP 65 45 45 155
---- ---- ---- ----
Mass. Electric
- --------------
Distribution 75 75 75 225
---- ---- ---- ----
Narragansett
- ------------
Transmission 2 2 2 6
Distribution 23 23 23 69
---- ---- ---- ----
Total Narragansett 25 25 25 75
---- ---- ---- ----
Granite State
- -------------
Distribution 4 3 3 10
---- ---- ---- ----
Nantucket
- ---------
Distribution 2 1 1 4
---- ---- ---- ----
Combined Total
- --------------
Generation (1)(2) 10 10 10 30
Transmission 57 37 37 131
Distribution 104 102 102 308
---- ---- ---- ----
Grand Total 171 149 149 469
---- ---- ---- ----
<FN>
(1) Includes nuclear fuel.
(2) For more information, see INDUSTRY RESTRUCTURING, page 5.
</FN>
</TABLE>
<PAGE>
Financing
All of NEP's and the Electricity Delivery Companies'
construction expenditures during the period beginning in 1999 to
2001 are expected to be financed by internally generated funds.
The general practice of the operating subsidiaries of NEES has
been to finance construction expenditures in excess of internally
generated funds initially by issuing unsecured short-term debt.
This short-term debt is subsequently reduced through sales by such
subsidiaries of long-term debt securities and through capital
contributions from NEES to the subsidiaries. NEES, in turn,
generally has financed capital contributions to the operating
subsidiaries through retained earnings and the sale of additional
NEES shares. Since April 1991, NEES has been meeting all of the
requirements of its dividend reinvestment and common share purchase
plan and employee share plans through open market purchases.
NEES purchased approximately 5.7 million common shares in 1998
under a repurchase program authorized by the NEES Board of
Directors in 1997 and 1998. It is unlikely that NEES will
repurchase additional shares in 1999.
The ability of NEP and the Electricity Delivery Companies to
issue short-term debt is limited by the need to obtain regulatory
approval from the SEC under the 1935 Act (and in the case of NEP
and Granite State to also obtain approval from the New Hampshire
Public Utilities Commission). The following table summarizes the
short-term debt amounts for which regulatory approval has been
granted at December 31, 1998, and the amount of outstanding
short-term debt and lines of credit and standby bond facilities at
such date.
<TABLE>
<CAPTION>
($ millions)
Lines of Credit/
Regulatory Standby Bond
Limit Outstanding Facilities
---------- ----------- ----------------
<S> <C> <C> <C>
NEP 375 0 455
Mass. Electric 150 81 55
Narragansett 100 27 41
Granite State 10 0 7
Nantucket 5 3 3
</TABLE>
NEES and certain subsidiaries, 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
<PAGE>
any time without prior notice. At December 31, 1998, NEP, Mass.
Electric, Narragansett, and Granite State each had money pool
borrowings of approximately $0 million, $81 million, $27 million,
and $0 million, respectively.
In order to issue additional long-term debt, the Electricity
Delivery Companies, excluding Nantucket, must comply with earnings
coverage requirements contained in their respective mortgages and
note agreements. The most restrictive of these provisions in each
instance generally requires that for the issuance of additional
mortgage bonds by Mass. Electric and Narragansett, for purposes
other than the refunding of certain outstanding mortgage bonds, a
minimum earnings coverage (before income tax) of twice the pro
forma annual interest charges on mortgage bonds for a period of
twelve consecutive calendar months within the fifteen calendar
months immediately preceding the proposed new issue.
The respective long-term debt coverages of the Electricity
Delivery Companies, excluding Nantucket, under their respective
mortgage indentures and note agreements, are stated in the
following table for the past three years:
<TABLE>
<CAPTION>
Coverage
-----------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Mass. Electric
- --------------
First Mortgage Bonds 4.24 5.09 3.25
Narragansett
- ------------
First Mortgage Bonds 4.64 3.98 3.22
Granite State
- -------------
Notes 4.17 3.39 2.82
</TABLE>
<PAGE>
EXECUTIVE OFFICERS
NEES
- ----
All executive officers are elected to continue in office
subject to Article 19 of the Agreement and Declaration of Trust
until the first meeting of the Board of Directors following the
next annual meeting of shareholders, or the special meeting of
shareholders held in lieu of such annual meeting, and until their
successors are chosen and qualified. The executive officers also
serve as officers and/or directors of various subsidiary companies.
Alfred D. Houston - Age: 58 - Elected Chairman in 1998 -
Executive Vice President from 1994 to 1998 - Senior Vice
President from 1987 to 1994 - Chief Financial Officer from 1984
to 1998 - Elected Chairman of NEP in 1998 - Vice President of
NEP from 1987 to 1994 - Vice President of Narragansett from
1976 to 1998 - Treasurer of Narragansett from 1977 to 1998.
Richard P. Sergel - Age: 49 - Elected President and Chief
Executive Officer in 1998 - Senior Vice President from 1996 to
1998 - Vice President from 1992 to 1995 - Chairman of Mass.
Electric and Narragansett from 1993 to 1997.
Michael E. Jesanis - Age: 42 - Elected Senior Vice President
and Chief Financial Officer in 1998 - Vice President from 1997
to 1998 - Treasurer from 1992 to 1998 - Elected Vice President
of Mass. Electric and NEP in 1998 - Treasurer of Mass. Electric
and NEP from 1992 to 1998.
Cheryl A. LaFleur - Age: 44 - Elected Senior Vice President in
1998 - Vice President from 1995 to 1998 - Secretary and General
Counsel since 1995 - Vice President of Mass. Electric from 1993
to 1995 - Vice President of the Service Company during 1992-
1993 and since 1995 - Vice President of NEP since 1995.
John G. Cochrane - Age: 40 - Elected Vice President in 1999 -
Elected Treasurer in 1998 - Treasurer of Mass. Electric, NEP,
and the Service Company since 1998 - Vice President of the
Service Company and Treasurer of Narragansett since 1993.
David C. Kennedy - Age: 50 - Elected Vice President in 1998 -
Vice President of the Service Company since 1985.
NEP
- ---
The Treasurer is elected by the stockholders to hold office
until the next annual meeting of stockholders and until the
successor is duly chosen and qualified. The other executive
officers are elected by the Board of Directors to hold office
subject to the pleasure of the directors and until the first
meeting of directors after the next annual meeting of stockholders
and until their successors are duly chosen and qualified. Certain
officers of NEP are, or at various times in the past have been,
<PAGE>
officers and/or directors of the System companies with which NEP
has entered into contracts and had other business relations.
Alfred D. Houston* - Elected Chairman in 1998.
Peter G. Flynn - Age: 45 - Elected President in 1999 - Vice
President and Director of Rates for the Service Company from
1996 to 1999 - Assistant General Counsel for the Service
Company during 1996 - Senior Counsel for the Service Company
from 1992 to 1996.
Michael E. Jesanis* - Elected Vice President in 1998 -
Treasurer from 1992 to 1998.
Cheryl A. LaFleur* - Vice President since 1995.
John F. Malley - Age: 50 - Vice President since 1992.
James S. Robinson - Age: 45 - Elected Vice President in 1998 -
Director of Nuclear Investments from 1997 to 1998 - Manager,
Wholesale Business Administration from 1993 to 1997.
Masheed H. Rosenqvist - Age: 44 - Elected Vice President in
1998 - Manager, Transmission Tariffs and Contracts for NEP or
Service Company since 1997 - Consulting Engineer for the
Service Company from 1995 to 1997. Principal Engineer for the
Service Company from 1993 to 1995.
John G. Cochrane* - Elected Treasurer in 1998.
Howard W. McDowell - Age: 55 - Elected Assistant Treasurer in
1998 - Controller since 1987 - Controller of Mass. Electric and
Narragansett since 1987 - Treasurer of Granite State since
1984.
*Please refer to the material supplied under the caption
EXECUTIVE OFFICERS - NEES for other information regarding this
officer.
Mass. Electric
- --------------
The Treasurer is elected by the stockholders to hold office
until the next annual meeting of stockholders and until the
successor is duly chosen and qualified. The other executive
officers are elected by the board of directors to hold office
subject to the pleasure of the directors and until the first
meeting of the directors after the next annual meeting of
stockholders. Certain officers of Mass. Electric are, or at
various times in the past have been, officers and directors of
System companies with which Mass. Electric has entered into
contracts and had other business relations.
Robert L. McCabe - Age: 57 - Chairman since 1997 - President of
Narragansett from 1986 to 1997.
<PAGE>
Lawrence J. Reilly - Age: 43 - President since 1996 - Vice
President for the Service Company from 1993 to 1996 - Director
of Rates for the Service Company from 1990 to 1996.
Lydia M. Pastuszek - Age: 45 - Senior Vice President since 1997
- Vice President from 1993 to 1997 - Vice President of NEP from
1990 to 1993 - President of Granite State from 1990 to 1996.
Christopher E. Root - Age: 40 - Senior Vice President since
1997 - Vice President from 1995 to 1997 - Director, Retail
Distribution Services for the Service Company from 1993 to 1995
- Chief of Division Engineering for the Service Company from
1992 to 1993.
Nancy H. Sala - Age: 47 - Elected Senior Vice President in 1998
- Vice President from 1992 to 1998.
William J. Flaherty - Age: 41 - Vice President since 1997 -
Account Manager from 1993 to 1997.
Andrea Foley-Stapleford - Age: 53 - Vice President since 1997 -
Director of Human Resources for the Service Company from 1996
to 1997 - Director of Labor Relations for the Service Company
from 1993 to 1996 - Division Personnel Manager from 1990 to
1993.
Richard W. Frost - Age: 59 - Vice President since 1997 - Vice
President of Narragansett since 1993.
Rita A. Moran - Age: 35 - Elected Vice President in 1998 -
Account Manager from 1993 to 1998.
Joseph P. Newman - Age: 43 - Elected Vice President in 1998 -
Director of Government Affairs for the Service Company from
1996 to 1998.
Kwong O. Nuey, Jr. - Age: 50 - Vice President since 1997 -
Director of Retail Information Services for the Service Company
from 1993 to 1997.
Timothy R. Roughan - Age: 38 - Elected Vice President in 1998 -
Account Manager for the Service Company from 1995 to 1998 -
Account Manager from 1993 to 1995.
William T. Sherry - Age: 38 - Elected Vice President in 1998 -
Account Manager for Granite State Electric Company from 1995 to
1998 - Account Manager from 1993 to 1995.
John G. Upham II - Age: 41 - Vice President since 1997 -
Municipal Account Manager from 1993 to 1997.
John G. Cochrane* - Elected Treasurer in 1998.
Howard W. McDowell - Controller since 1987 and Assistant
Treasurer since 1977 - Reference is made to the material
supplied under the caption EXECUTIVE OFFICERS - NEP for other
information regarding Mr. McDowell.
<PAGE>
*Please refer to the material supplied under the caption EXECUTIVE
OFFICERS - NEES for other information regarding this officer.
Narragansett
- ------------
Officers are elected by the board of directors or appointed, as
appropriate, to serve until the meeting of directors following the
annual meeting of stockholders, and until their successors are
chosen and qualified. Officers other than the President,
Treasurer, and Secretary, serve also at the pleasure of the
directors. Certain officers of Narragansett are, or at various
times in the past have been, officers and directors of System
companies with which Narragansett has entered into contracts and
had other business relations.
Robert L. McCabe* - Chairman since 1997 - President from 1986
to 1997.
Lawrence J. Reilly* - President since 1997.
Lydia M. Pastuszek* - Senior Vice President since 1997.
Christopher E. Root* - Senior Vice President since 1997.
Richard W. Frost* - Vice President since 1993 - District
Manager - Southern District from 1990 to 1993.
Michael E. Jesanis** - Elected Vice President in 1998.
Richard Nadeau - Age: 63 - Vice President since 1994 - Director
of Customer Service since 1993 - Assistant to the President
from 1990 to 1993.
Michael F. Ryan - Age: 47 - Vice President since 1994 - Rhode
Island Director for U.S. Senator John H. Chafee from 1986 to
1994.
Peter T. Zschokke - Age: 41 - Elected Vice President in 1998 -
Manager of Retail Rates for the Service Company from 1992 to
1998.
John G. Cochrane** - Elected Treasurer in 1998.
Howard W. McDowell - Controller since 1987 - Reference is made
to the material supplied under the caption EXECUTIVE OFFICERS
- NEP for other information regarding Mr. McDowell.
*Please refer to the material supplied under the caption EXECUTIVE
OFFICERS - Mass. Electric for other information regarding these
officers.
**Please refer to the material supplied under the caption EXECUTIVE
OFFICERS - NEES for other information regarding these officers.
<PAGE>
ITEM 2. PROPERTIES
See ITEM 1. Business - Transmission, Distribution, and Nuclear
Generation Properties, page 32.
ITEM 3. LEGAL PROCEEDINGS
See Item 1. BUSINESS - Nuclear Units, page 36.
In August 1997, NEP sued Northeast Utilities (NU) in
Massachusetts Superior Court for damages resulting from the
tortious conduct of NU that caused the shutdown of Millstone 3.
NEP's damages include the costs of replacement power during the
outage, costs necessary to return Millstone 3 to safe operation,
and other additional costs. Most of NEP's incremental replacement
power costs have been recovered from customers, either through fuel
adjustment clauses or through provisions in the Settlement
Agreements. NEP also seeks punitive damages. NEP also sent a
demand for arbitration to Connecticut Light & Power Company and
Western Massachusetts Electric Company, both subsidiaries of NU,
seeking damages resulting from their breach of obligations under an
agreement with NEP and others regarding the operation and ownership
of Millstone 3. The arbitration is scheduled for October 1999. In
July 1998, the court denied NU's motion to dismiss and its motion
to stay pending arbitration. NEP subsequently amended its
complaint by, among other things, adding NU's Trustees as
defendants. In December 1998, NU moved for summary judgment.
NEP's suit has been consolidated with suits filed by other joint
owners. The court is in the process of scheduling a trial date.
Some or all of the damages awarded from the lawsuit would be
refunded to customers.
NEP and several other shareholders (Sponsors) of Maine Yankee
are parties to 27 contracts (Secondary Purchase Agreements) under
which they sold portions of their entitlements to Maine Yankee
power output through 2002 to various entities, primarily municipal
and cooperative systems in New England (Secondary Purchasers).
Virtually all of the Secondary Purchasers have ceased making
payments under the Secondary Purchase Agreements, claiming that
such agreements excuse further payments upon plant shutdown. In
February 1999, a settlement agreement which fully resolves the
dispute between the Sponsors and Secondary Purchasers was filed
with the FERC, under which the Secondary Purchasers would be
required to make certain payments to Maine Yankee, and in turn to
NEP, related to both past and future obligations under the
Secondary Purchase Agreements. This settlement agreement requires
FERC approval. Shutdown costs are recoverable from customers under
the Settlement Agreements.
In September 1998, the United States District Court (District
Court) for the District of Massachusetts dismissed the lawsuit
filed in April 1997 by the Town of Norwood, Massachusetts against
NEES and NEP. NEP had been a wholesale power supplier for Norwood
pursuant to rates approved by the FERC. In the lawsuit, Norwood
had alleged that NEP's divestiture of its power generating assets
<PAGE>
would violate the terms of a 1983 power contract. Norwood also
alleged that the divestiture and recovery of stranded investment
costs contravened federal antitrust laws. The District Court judge
granted NEES' and NEP's motion for dismissal on the grounds that
the contract did not require NEP to retain its generating units,
that the FERC-approved filed rates govern these matters, and that
Norwood had adequate opportunity at the FERC to litigate these
matters. Norwood filed a motion to alter or amend the order of
dismissal, which was denied. In December 1998, Norwood filed a
second motion to amend judgment and also filed an appeal with the
First Circuit Court of Appeals (First Circuit). In March 1999, the
District Court denied Norwood's second motion to amend judgment.
In March 1998, Norwood gave notice of its intent to terminate
its contract with NEP, without accepting responsibility for its
share of NEP's stranded costs, and began taking power from another
supplier commencing in April 1998. In May 1998, the FERC ruled
that NEP could assess a CTC to any of NEP's unaffiliated customers
that choose to terminate their wholesale power contracts early.
Norwood claimed that the CTC approved by the FERC did not apply to
Norwood; however, in denying Norwood's motion for rehearing, the
FERC ruled that the charge did apply to Norwood. Norwood has
appealed this decision to the First Circuit. NEP's billings to
Norwood for this charge through December 1998 have been
approximately $6 million, which remain unpaid. NEP filed a
collection action with the Massachusetts Superior Court in December
1998 to recover these amount. Norwood filed a motion to dismiss or
stay in January 1999.
Norwood also appealed the FERC's orders approving the
divestiture and the Massachusetts and Rhode Island industry
restructuring settlement agreements (including modification of
NEP's contracts with Mass. Electric and Narragansett) to the First
Circuit, despite the FERC's finding that those settlement
agreements do not apply to Norwood.
The First Circuit has consolidated all three of Norwood's
appeals from the FERC's orders with two other appeals filed by the
Northeast Center for Social Issue Studies, which challenge the
FERC's approval of NEP's sale of its hydroelectric facilities. The
case is to be fully briefed by May 1999.
In 1996, various New England utilities which are members of the
New England Power Pool, including NEP, submitted a dispute to
arbitration regarding their Firm Energy Purchased Power Contract
with Hydro-Quebec. The dispute concerned the components of a
pricing formula and additional costs under the contract. In March
1999, the New England utilities and Hydro-Quebec signed a
settlement agreement. Under the settlement agreement, NEP will
receive approximately $7.5 million, a portion of which NEP had
previously paid into escrow. In addition, NEP will receive a
payment of approximately $90,000 as NEP's share of a compromise of
a metering dispute. In exchange, NEP will make a payment to Hydro-
Quebec of $258,000. The refunded amounts will be returned to
customers.
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of Security holders during
the last quarter of 1998.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
SECURITY HOLDER MATTERS
NEES information in response to the disclosure requirements
specified by this ITEM 5. appears under the captions in the 1998
NEES Annual Report indicated below:
Required Information Annual Report Caption
-------------------- ---------------------
(a) Market Information Shareholder Information
(b) Holders Shareholder Information
(c) Dividends Financial Results
The information referred to above is incorporated by reference
in this ITEM 5.
The approximate number of beneficial holders of NEES common
shares at March 1, 1999 was 87,552.
NEP, Mass. Electric, and Narragansett - The information
required by this item is not applicable as the common stock of all
these companies is held solely by NEES. Information pertaining to
payment of dividends and restrictions on payment of dividends is
incorporated herein by reference to each company's 1998 Annual
Report.
ITEM 6. SELECTED FINANCIAL DATA
The information required by this item is incorporated herein
by reference to page 20 of the NEES 1998 Annual Report.
NEP
---
The information required by this item is incorporated herein
by reference to Selected Financial Information, Note L of the NEP
1998 Annual Report.
Mass. Electric
--------------
The information required by this item is incorporated herein
by reference to Selected Financial Information, Note K of the Mass.
Electric 1998 Annual Report.
<PAGE>
Narragansett
------------
The information required by this item is incorporated herein
by reference to Selected Financial Information, Note L of the
Narragansett 1998 Annual Report.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
NEES
----
The information required by this item is incorporated herein
by reference to pages 10 through 19 of the NEES 1998 Annual Report.
NEP
---
The information required by this item is incorporated herein
by reference to the Financial Review section of the NEP 1998 Annual
Report.
Mass. Electric
--------------
The information required by this item is incorporated herein
by reference to the Financial Review section of the Mass. Electric
1998 Annual Report.
Narragansett
------------
The information required by this item is incorporated herein
by reference to the Financial Review section of the Narragansett
1998 Annual Report.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
NEES
----
The information required by this item is incorporated herein
by reference to the Risk Management section of the NEES 1998 Annual
Report on page 18.
NEP
---
The information required by this item is incorporated herein
by reference to the Risk Management section of the NEP 1998 Annual
Report.
<PAGE>
Mass. Electric
--------------
The information required by this item is incorporated herein
by reference to the Risk Management section of the MEC 1998 Annual
Report.
Narragansett
------------
The information required by this item is incorporated herein
by reference to the Risk Management section of the NEC 1998 Annual
Report.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
NEES
----
The information required by this item is incorporated herein
by reference to pages 20 through 44 of the NEES 1998 Annual Report.
NEP
---
The information required by this item is incorporated herein
by reference to the financial statements and Notes to Financial
Statements in the NEP 1998 Annual Report.
Mass. Electric
--------------
The information required by this item is incorporated herein
by reference to the financial statements and Notes to Financial
Statements in the Mass. Electric 1998 Annual Report.
Narragansett
------------
The information required by this item is incorporated herein
by reference to the financial statements and Notes to Financial
Statements in the Narragansett 1998 Annual Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
NEES, NEP, Mass. Electric, and Narragansett - None.
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
NEES
----
The information required by this item is incorporated herein
by reference to the material under the caption ELECTION OF
DIRECTORS in the definitive proxy statement of NEES, dated
March 26, 1999, for the 1999 Annual Meeting of Shareholders,
provided that the information under the headings "Report of the
Compensation Committee on Executive Compensation" and "Corporate
Performance" are not so incorporated. Reference is also made to
the information under the caption EXECUTIVE OFFICERS - NEES in Part
I of this report.
NEP
---
The names of the directors of NEP, their ages, and a brief
account of their business experience during the past five years
appear below. Information required by this item for Executive
Officers is provided under the caption EXECUTIVE OFFICERS - NEP in
Part I of this report.
Directors are elected to hold office until the next annual
meeting of stockholders or special meeting held in lieu thereof and
until their respective successors are chosen and qualified.
Peter G. Flynn* - Elected Director in 1999.
Alfred D. Houston* - Director since 1984. Directorships of
NEES System companies: Granite State Energy, Inc., NEES
Communications, Inc., NEES Energy, Inc., NEES Global, Inc.,
New England Electric System, New England Electric Transmission
Corporation, New England Energy Incorporated, New England Hydro
Finance Company, Inc., New England Hydro-Transmission
Corporation, New England Hydro-Transmission Electric Company,
Inc., New England Power Service Company, and New England Water
Heater Co., Inc.
Cheryl A. LaFleur* - Director since 1995. Directorships of
NEES System companies: Granite State Electric Company, Granite
State Energy, Inc., Massachusetts Electric Company, Nantucket
Electric Company, The Narragansett Electric Company, NEES
Communications, Inc., NEES Energy, Inc., NEES Global, Inc., New
England Electric Transmission Corporation, New England Energy
Incorporated, New England Hydro Finance Company, Inc., New
England Hydro-Transmission Corporation, New England Hydro-
Transmission Electric Company, Inc., New England Power Service
Company, and New England Water Heater Co., Inc.
Richard P. Sergel* - Elected a Director in 1998. Directorships
of NEES System companies: Granite State Electric Company,
Massachusetts Electric Company, Nantucket Electric Company, The
Narragansett Electric Company, NEES Communications, Inc., NEES
<PAGE>
Energy, Inc., NEES Global, Inc., New England Electric System,
New England Energy Incorporated, New England Electric
Transmission Corporation, New England Hydro Finance Company,
Inc., New England Hydro-Transmission Corporation, New England
Hydro-Transmission Electric Company, Inc., New England Power
Service Company, and New England Water Heater Co., Inc.
*Please refer to the material supplied under the caption
EXECUTIVE OFFICERS - NEES and/or EXECUTIVE OFFICERS - NEP in
Part I of this report for other information regarding these
directors.
Mass. Electric
--------------
The names of the directors of Mass. Electric, their ages, and
a brief account of their business experience during the past five
years appear below. Information required by this item for
Executive Officers is provided under the caption EXECUTIVE OFFICERS
- - Mass. Electric in Part I of this report.
Directors are elected to hold office until the next annual
meeting of stockholders or special meeting held in lieu thereof and
until their respective successors are chosen and qualified.
Cheryl A. LaFleur* - Director since 1997.
Robert L. McCabe* - Director since 1997. Directorships of NEES
System affiliates: Granite State Electric Company, Nantucket
Electric Company, and The Narragansett Electric Company. Other
directorship: Citizens Savings Bank.
Lydia M. Pastuszek* - Director since 1997. Directorships of
NEES System affiliates: Granite State Electric Company and
Nantucket Electric Company.
Lawrence J. Reilly* - Director since 1996 - Directorships of
NEES System affiliates: Granite State Electric Company,
Nantucket Electric Company, and The Narragansett Electric
Company.
Christopher E. Root* - Director since 1997. Directorships of
NEES System affiliates: Granite State Electric Company and
Nantucket Electric Company.
Nancy H. Sala* - Elected Director in 1998. Directorships of
NEES System affiliates: Nantucket Electric Company.
Richard P. Sergel* - Director since 1993.
*Please refer to the material supplied under the caption
EXECUTIVE OFFICERS - NEES and/or Mass. Electric in Part I of
this report and/or the material supplied under the caption
DIRECTORS AND OFFICERS OF THE REGISTRANT - NEP in this Item for
other information regarding this director.
<PAGE>
Narragansett
------------
The names of the directors of Narragansett, their ages, and a
brief account of their business experience during the past five
years appear below. Information required by this item for
Executive Officers is provided under the caption EXECUTIVE OFFICERS
- - Narragansett in Part I of this report.
Directors are elected to hold office until the next annual
meeting of stockholders or special meeting held in lieu thereof and
until their respective successors are chosen and qualified.
Richard W. Frost* - Director since 1997.
Cheryl A. LaFleur* - Director since 1997.
Robert L. McCabe* - Director since 1986.
Lawrence J. Reilly* - Director since 1997.
Michael F. Ryan* - Director since 1997.
Richard P. Sergel* - Director since 1993.
Ronald L. Thomas - Age: 62 - Director since 1997 - Manager of
Labor Relations since 1997 - Human Resources Manager from 1979
to 1997.
*Please refer to the material supplied under the caption
DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT - NEP and/or
Mass. Electric in this Item for other information regarding
this director.
Section 16(a) Beneficial Ownership Reporting Compliance
-------------------------------------------------------
Section 16(a) of the Securities Exchange Act of 1934 requires
the System's officers and directors, and persons who own more than
10 percent of a registered class of the System's equity securities,
to file reports on Forms 3, 4, and 5 of share ownership and changes
in share ownership with the SEC and the New York Stock Exchange and
to furnish the System with copies of all Section 16(a) forms they
file.
Based solely on NEP's, Mass. Electric's, and Narragansett's
review of the copies of such forms received by them, or written
representations from certain reporting persons that such forms were
not required for those persons, NEP, Mass. Electric, and
Narragansett believe that, during 1998, all filing requirements
applicable to its officers, directors, and 10 percent beneficial
owners were complied with.
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
NEES
----
The information required by this item is incorporated herein
by reference to the material under the captions BOARD STRUCTURE AND
COMPENSATION, EXECUTIVE COMPENSATION, PAYMENTS UPON A CHANGE OF
CONTROL OR TERMINATION OF EMPLOYMENT, PLAN SUMMARIES, LONG TERM
INCENTIVE PLAN - AWARDS IN LAST FISCAL YEAR, and RETIREMENT PLANS
in the definitive proxy statement of NEES, dated March 26, 1999,
for the 1999 Annual Meeting of Shareholders, provided that the
information under the headings "Report of the Compensation
Committee on Executive Compensation" and "Corporate Performance"
are not so incorporated.
NEP, Mass. Electric, and Narragansett
-------------------------------------
EXECUTIVE COMPENSATION
The following tables give information with respect to all
compensation (whether paid directly by NEP, Mass. Electric, or
Narragansett or billed to it as hourly charges) for services in all
capacities for NEP, Mass. Electric, or Narragansett for the years
1996 through 1998 to or for the benefit of the Chief Executive
Officer and the four other most highly compensated executive
officers for each company.
<PAGE>
NEP
<TABLE>
SUMMARY COMPENSATION TABLE
<CAPTION>
Long-Term
Annual Compensation (b) Compensation
-------------------------- -------------------
Other Restricted
Name and Annual & Deferred All Other
Principal Compensa- Share LTIP Compensa-
Position Year Salary Bonus tion Awards Payouts tion
(a) ($) ($)(c) ($)(d) ($)(e) ($) ($)(f)
- ---------- ---- ------- ------ --------- ---------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Lawrence E. 1998 164,340 85,287 14,155 35,369 14,469 408,571 (h)
Bailey 1997 156,516 188,214 3,316 0 0 600
Former 1996 151,956 101,667 116 0 0 3,776
President (g)
Alfred D. 1998 49,236 32,804 1,137 18,677 17,545 288
Houston
Chairman
Peter G. 1998 57,838 29,383 1,151 12,176 6,864 75
Flynn
President (i)
John F. 1998 144,492 71,636 7,292 29,328 31,472 183
Malley 1997 140,280 96,072 2,922 0 0 375
Vice 1996 133,394 104,885 116 0 0 3,141
President
Masheed H. 1998 113,697 44,654 2,285 17,618 0 366
Rosenqvist
Vice
President
</TABLE>
(a) Certain officers of NEP are also officers of NEES and various
other System companies.
(b) Includes deferred compensation in category and year earned.
(c) The bonus figure represents: cash bonuses under an incentive
compensation plan, the all-employee goals program, the
variable match of the incentive thrift plan, including related
deferred compensation plan matches, special cash bonuses, and
unrestricted shares under the incentive share plan. In 1996
and 1997, the bonus amounts were all cash or contributions to
the incentive thrift plan, including related deferred
compensation plan matches. See descriptions under Plan
Summaries.
(d) Includes amounts reimbursed by NEP for the payment of taxes on
certain noncash benefits and NEP contributions to the
incentive thrift plan that are not bonus contributions
including related deferred compensation plan match. See
description under Plan Summaries.
(e) The incentive share awards for the named executives who are
also NEES executives (1996 - 1998) and the other named
executives (in 1998 only) were in the form of restricted
<PAGE>
shares (with a five-year restriction) or deferred share
equivalents, deferred for receipt for at least five years, at
the executive's option. As cash dividends are declared, the
number of deferred share equivalents will be increased as if
the dividends were reinvested in shares. The shares awarded
for the other named executives in 1996 and 1997 were not
restricted and the value of the awards is included in the
bonus column.
As of December 31, 1998, the following executive officers held
the amount of restricted and deferred shares with the value
indicated: Mr. Bailey 4,031 shares, $193,991 value; Mr.
Houston 13,216 shares, $636,020 value; Mr. Flynn 2,838 shares,
$136,578 value; and Mr. Malley 3,901 shares, $187,735 value.
The value was calculated by multiplying the closing market
price on December 31, 1998 by the number of shares.
(f) Includes NEP contributions to life insurance. See description
under Plan Summaries. The life insurance contribution is
calculated based on the value of term life insurance for the
named individuals. The premium costs for most of these
policies have been or will be recovered by NEP. Prior to
1997, this column also included NEP contributions to the
incentive thrift plan that are not bonus contributions. These
figures are now included in the Other Annual Compensation
column.
(g) Mr. Bailey retired effective December 31, 1998.
(h) Under the terms of the severance plan described on page 69,
Mr. Bailey received a lump sum payment of $408,131 upon his
retirement on December 31, 1998.
(i) Mr. Flynn was elected President effective January 1, 1999.
<PAGE>
MASS. ELECTRIC
<TABLE>
SUMMARY COMPENSATION TABLE
<CAPTION>
Long-Term
Annual Compensation (b) Compensation
-------------------------- -------------------
Other Restricted
Name and Annual & Deferred All Other
Principal Compensa- Share LTIP Compensa-
Position Year Salary Bonus tion Awards Payouts tion
(a) ($) ($)(c) ($)(d) ($)(e) ($) ($)(f)
- ---------- ---- ------- ------ --------- ---------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Lawrence J. 1998 113,414 59,341 5,413 24,421 19,632 215
Reilly 1997 160,515 168,637 6,910 0 0 448
President 1996 96,163 70,177 2,467 46,082 0 2,250
Robert L. 1998 140,682 59,448 6,753 24,226 31,075 830
McCabe
Chairman
Nancy H. 1998 128,592 53,247 1,392 21,763 15,975 195
Sala 1997 124,344 60,661 2,603 0 0 283
Senior Vice 1996 118,251 65,493 116 0 0 2,730
President
Lydia M. 1998 104,345 51,761 2,228 21,134 22,531 140
Pastuszek 1997 125,481 81,944 2,544 0 0 241
Senior Vice 1996 86,068 52,017 69 22,115 0 1,893
President
Kwong O. 1998 96,311 37,716 2,115 15,135 11,542 186
Nuey
Vice
President
</TABLE>
(a) Certain officers of Mass. Electric are also officers of NEES
and various other System companies.
(b) Includes deferred compensation in category and year earned.
(c) The bonus figure represents: cash bonuses under an incentive
compensation plan, the all-employee goals program, the
variable match of the incentive thrift plan, and unrestricted
shares under the incentive share plan or special share
bonuses. In 1996 and 1997, the bonus amounts were all cash or
contributions to the incentive thrift plan, including related
deferred compensation plan matches. See descriptions under
Plan Summaries.
(d) Includes amounts reimbursed by Mass. Electric for the payment
of taxes on certain noncash benefits and Mass. Electric
contributions to the incentive thrift plan that are not bonus
contributions including related deferred compensation plan
match. See description under Plan Summaries.
(e) In 1998, the incentive share awards for the named executives
were in the form of restricted shares (with a five-year
restriction) or deferred share equivalents, deferred for
receipt for at least five years, at the executive's option.
<PAGE>
As cash dividends are declared, the number of deferred share
equivalents will be increased as if the dividends were
reinvested in shares. In 1996, certain named officers also
received special share awards in the form of deferred share
equivalents. The shares awarded for the named officers in
1996 and 1997 were not restricted and the value of the awards
is included in the bonus column.
As of December 31, 1998, the following executive officers held
the amount of restricted and deferred shares with the value
indicated: Mr. Reilly 6,064 shares, $291,830 value; Mr. McCabe
6,979 shares, $335,864 value; Ms. Sala 2,058 shares, $99,041
value; Ms. Pastuszek 3,117 shares, $150,005 value; and Mr.
Nuey 2,033 shares, $97,838 value. The value was calculated by
multiplying the closing market price on December 31, 1998 by
the number of shares.
(f) Includes Mass. Electric contributions to life insurance. See
description under Plan Summaries. The life insurance
contribution is calculated based on the value of term life
insurance for the named individuals. The premium costs for
most of these policies have been or will be recovered by Mass.
Electric. Prior to 1997, this column also included Mass.
Electric contributions to the incentive thrift plan that are
not bonus contributions. These figures are now included in
the Other Annual Compensation column.
<PAGE>
NARRAGANSETT
<TABLE>
SUMMARY COMPENSATION TABLE
<CAPTION>
Long-Term
Annual Compensation (b) Compensation
-------------------------- -------------------
Other Restricted
Name and Annual & Deferred All Other
Principal Compensa- Share LTIP Compensa-
Position Year Salary Bonus tion Awards Payouts tion
(a) ($) ($)(c) ($)(d) ($)(e) ($) ($)(f)
- ---------- ---- ------- ------ --------- ---------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Lawrence J. 1998 52,729 27,589 2,517 11,354 9,127 99
Reilly 1997 679 452 29 0 0 1
President 1996 16,329 11,916 419 7,825 0 382
Robert L. 1998 40,283 17,022 1,933 6,937 8,898 237
McCabe 1997 179,460 148,868 9,881 0 0 1,528
Chairman 1996 127,388 88,905 4,819 50,308 0 3,424
Richard W. 1998 119,544 41,969 2,746 16,320 15,346 438
Frost 1997 113,856 52,347 2,396 0 0 596
Vice 1996 108,432 57,680 119 0 0 2,888
President
Michael F. 1998 112,368 42,237 2,393 16,856 0 108
Ryan 1997 103,983 52,060 2,197 0 0 220
Vice 1996 64,555 18,397 77 0 0 1,473
President
Richard 1998 102,912 18,655 2,681 4,433 0 160
Nadeau
Vice
President
</TABLE>
(a) Certain officers of Narragansett are also officers of NEES and
various other System companies.
(b) Includes deferred compensation in category and year earned.
(c) The bonus figure represents: cash bonuses under an incentive
compensation plan, the all-employee goals program, the
variable match of the incentive thrift plan, and unrestricted
shares under the incentive share plan or special share
bonuses. In 1996 and 1997, the bonus amounts were all cash or
contributions to the incentive thrift plan, including related
deferred compensation plan matches. See descriptions under
Plan Summaries.
(d) Includes amounts reimbursed by Narragansett for the payment of
taxes on certain noncash benefits and Narragansett
contributions to the incentive thrift plan that are not bonus
contributions including related deferred compensation plan
match. See description under Plan Summaries.
(e) In 1998, the incentive share awards for the named executives
were in the form of restricted shares (with a five-year
restriction) or deferred share equivalents, deferred for
receipt for at least five years, at the executive's option.
<PAGE>
As cash dividends are declared, the number of deferred share
equivalents will be increased as if the dividends were
reinvested in shares. The shares awarded in 1996 and 1997
were not restricted and the value of the awards is included in
the bonus column.
As of December 31, 1998, the following executive officers held
the amount of restricted and deferred shares with the value
indicated: Mr. Reilly 6,064 shares, $291,830 value; Mr.
McCabe 6,979 shares, $335,864 value; Mr. Frost 819 shares,
$39,414 value; Mr. Ryan 11 shares, $529 value; Mr. Nadeau 65
shares, $3,128 value. The value was calculated by multiplying
the closing market price on December 31, 1998 by the number of
shares.
(f) Includes Narragansett contributions to life insurance. See
description under Plan Summaries. The life insurance
contribution is calculated based on the value of term life
insurance for the named individuals. The premium costs for
most of these policies have been or will be recovered by
Narragansett. Prior to 1997, this column also included
Narragansett contributions to the incentive thrift plan that
are not bonus contributions. These figures are now included
in the Other Annual Compensation column.
<PAGE>
Directors' Compensation
Since all members of the NEP, Mass. Electric, and Narragansett
Boards are employees of NEES System companies, no fees are paid for
service on the Boards.
Other
The NEES Compensation Committee administers certain of the
incentive compensation plans, and the Management Committee
administers the others (including the incentive share plan).
Retirement Plans
The following table shows estimated annual benefits payable to
executive officers under the qualified pension plan and the
supplemental retirement plan, assuming retirement at age 65 in
1999.
<TABLE>
PENSION TABLE
<CAPTION>
Five-Year
Average 10 Years 15 Years 20 Years 25 Years 30 Years 35 Years
Compensa- of of of of of of
tion Service Service Service Service Service Service
- --------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
$100,000 18,926 29,276 39,626 49,976 60,326 70,676
$150,000 29,276 42,414 57,439 72,464 87,489 102,514
$200,000 39,626 57,439 75,251 94,951 114,651 134,351
$250,000 49,976 72,464 94,951 116,814 141,064 165,314
$300,000 60,326 87,489 114,651 141,064 167,477 184,123
$350,000 70,676 102,514 134,351 165,314 196,277 215,865
$400,000 81,026 117,539 154,051 189,564 225,077 241,590
$450,000 91,376 132,564 173,751 213,814 253,877 279,315
$500,000 101,726 147,589 193,451 238,064 282,677 311,040
</TABLE>
For purposes of the retirement plans, Messrs. Bailey, Houston,
Flynn, and Malley and Ms. Rosenqvist currently have 30, 20, 17, 27,
and 17 credited years of service, respectively. Mr. Reilly, Mr.
McCabe, Ms. Sala, Ms. Pastuszek, and Mr. Nuey currently have 17,
30, 29, 18, and 8 credited years of service, respectively. Mr.
Reilly, Mr. McCabe, Mr. Frost, Mr. Ryan, and Mr. Nadeau currently
have 17, 30, 36, 4, and 43 credited years of service, respectively.
Benefits under the pension plans are computed using formulae
based on percentages of highest average compensation computed over
five consecutive years. The compensation covered by the pension
plan includes salary, bonus, and incentive share awards. Long-Term
Performance Share awards will not be included. The benefits listed
in the pension table are not subject to deduction for Social
Security and are shown without any joint and survivor benefits. If
the participant elected at age 65 a 100 percent joint and survivor
benefit with a spouse of the same age, the benefit shown would be
reduced by approximately 16 percent.
<PAGE>
The Pension Plan Table above does not include annuity payments
to be received in lieu of life insurance for Mr. Houston. The
payments are described below under Plan Summaries.
In December 1997, the NEES companies announced a voluntary
early retirement program available to all nonunion employees over
age 55 with ten or more years of service. Messrs. Frost, McCabe,
and Nadeau were all eligible for, and accepted, the offer. The
program offered either an annuity or a lump sum equal to the
greater of either one week's base pay times the number of years of
service or an additional five years service and five years of age
toward their pension. The offer also included certain health care
and bridging of social security benefits. The program is
conditioned upon consummation of the divestiture of the nonnuclear
generating business to USGen. Mr. McCabe also has an employment
agreement which provides that if he remains in the employ of the
NEES companies until December 31, 1998, or the retirement effective
date under the offer, he will receive an annuity or a lump sum
equal to an additional five years of service and five years of age
toward his pension plus $225,000, subject to an offset for any
benefits under the general offer. The value of Messrs. Frost,
McCabe, and Nadeau's, benefits under the offer and the contract
cannot be determined until their retirement.
The System contributes the full cost of post-retirement health
benefits for senior executives.
NEP, MASS. ELECTRIC, AND NARRAGANSETT PAYMENTS UPON A CHANGE OF
CONTROL OR TERMINATION OF EMPLOYMENT
NEES is a party to agreements with each of Mr. Flynn, Mr.
Houston, Mr. McCabe, and Mr. Reilly (each, an Executive), which
agreements remain in effect for the three-year period following a
change in control (as defined below) or a major transaction (as
defined in the agreements). The term of the agreements are for
three years with automatic annual extensions, unless terminated by
NEES. If, following the described event, the Executive's
employment is terminated other than for cause (as defined in the
agreements) or if the Executive terminates employment for good
reason (as defined in the agreements), NEES will pay to the
Executive a lump sum cash payment equal to three times (two times
for some Executives) the sum of the Executive's most recent annual
base compensation and the average of his bonus amounts for the
prior three years. Payments and benefits to the Executive will be
reduced to the extent necessary to avoid imposition of any federal
excise tax due under Section 280G of the Internal Revenue Code;
however, such payments and benefits will be reduced only if such
reduction would yield a greater result to the Executive than actual
payment by the Executive of the excise tax. In addition, NEES will
provide disability and health benefits to the Executive for two to
three years, provide such post-retirement health and welfare
benefits as the Executive would have earned within such two to
three years, and grant two to three additional years of pension
credit.
Change in Control, including potential change of control,
occurs (1) when any person becomes the beneficial owner of 20
<PAGE>
percent of the voting securities of NEES, (2) when the prior
members of the Board of NEES no longer constitute a 2/3 majority of
the Board, or (3) NEES enters into an agreement that could result
in a Change in Control.
Upon a change in control a participant in the deferred
compensation plan has the option of receiving a full distribution
of the participant's cash and share accounts and the actuarial
value of future benefits from the insurance related benefits under
a prior plan, all less 10 percent.
The System's bonus plans, including the incentive compensation
plans, the Incentive Thrift Plan, and the Goals Program, provide
for payments equal to the average of the bonuses for the three
prior years in the event of a Change of Control. These payments
would be made in lieu of the regular bonuses for the year in which
the Change in Control occurs. The Long-Term Performance Share
Award Plan provides for a cash payment equal to the value of the
performance shares in the participants' account times the average
target achievement percentage for the Incentive Thrift Plan for the
three prior years. The System's Retirees Health and Life Insurance
Plan has provisions preventing changes in benefits adverse to the
participants for three years following a Change in Control. The
Incentive Share Plan and the related Incentive Share Deferral
Agreements provide that, upon the occurrence of a change in control
(defined more narrowly than in other plans), any restrictions on
shares and account balances would cease.
Executive officers (including those listed in the summary
compensation table, but excluding Mr. Houston) would receive a
benefit equal to one and one-half times (one times in certain
cases) annual compensation, for a severance other than one for
cause or following a change in control.
NEP, MASS. ELECTRIC, AND NARRAGANSETT PLAN SUMMARIES
A brief description of the various plans through which
compensation and benefits are provided to the named executive
officers is presented below to better enable shareholders to
understand the information presented in the tables shown earlier.
The amounts of compensation and benefits provided to the named
executive officers under the plans described below (and charged to
NEP, Mass. Electric, or Narragansett) are presented in the Summary
Compensation Tables.
Goals Program
The Goals Program establishes goals annually. For 1998, these
goals related to core operating income, costs for customers for
electricity delivery, safety, absenteeism, demand-side management
results, transmission and distribution reliability, environmental
and OSHA compliance, and customer satisfaction. Some goals apply
to all employees, while others apply to particular functional
groups. Depending upon the number of goals met, and provided the
minimum earnings goal is met, employees may earn a cash bonus of 1
percent to 4-1/2 percent of their compensation.
<PAGE>
Incentive Thrift Plan
The incentive thrift plan (a 401(k) program) provides for a
match of 40 percent of up to the first 5 percent of base
compensation contributed to the System's incentive thrift plan
(shown under Other Annual Compensation in the Summary Compensation
Tables) and, based on an incentive formula tied to core operating
income, may fully match the first 5 percent of base compensation
contributed (the additional amount, if any, is shown under Bonus in
the Summary Compensation Tables). Under Federal law, contributions
to these plans are limited. In 1998, the salary reduction amount
was limited to $10,000.
Deferred Compensation Plan
The Deferred Compensation Plan offers executives the
opportunity to defer base pay and bonuses. The plan offers the
option of investing at the prime rate or in NEES common shares;
however, share bonuses may only be deferred in a share account.
Under Federal law, the Incentive Thrift Plan, described above, is
required to limit participant base compensation to $160,000 in
calculating the NEES match. Under the Deferred Compensation Plan,
NEES will make a contribution to an executive's share account
equivalent to the resultant reduction in his or her match under the
Incentive Thrift Plan.
Life Insurance
NEES has established for certain senior executives life
insurance plans funded by individual policies. The combined death
benefit under these insurance plans is three times the
participant's annual salary. These plans are structured so that,
over time, NEES should recover the cost of the insurance premiums.
Messrs. McCabe, Reilly, and Sergel are participants in these plans.
After termination of employment, Mr. Houston may elect,
commencing at age 55 or later, to receive an annuity income equal
to 22.5 percent of 1998 annual salary plus 40 percent of final
annual salary. In that event, the life insurance is reduced over
15 years to an amount equal to his final annual salary.
Incentive Compensation Plan
Under the System bonus plan for certain senior employees,
bonuses are tied to achievement of core business operating income
and strategic objectives. Annual income targets and strategic
objectives are established for each year. For 1998, those
objectives were: achieving recovery of stranded investments;
maximizing the return on the sale of the generation business;
running the best wires business in the Northeast; increasing the
size of the energy delivery business; and profiting from growth in
unregulated ventures. Bonuses are also dependent upon the
achievement of individual goals. In order to provide a long-term
component to the incentive compensation plan, participants may also
be awarded NEES common shares. An individual's award of shares
under the incentive share plan is a fixed percentage of her or his
<PAGE>
cash bonus for that year. If no cash award is made, no shares are
distributed.
Financial Counseling
NEP, Mass. Electric, and Narragansett pay for personal
financial counseling for certain executives. As required by the
IRS, a portion of the amount paid is reported as taxable income for
the executive. Financial counseling is also offered to other
employees through seminars conducted at various locations each
year.
Other
The NEES companies do not have any share option plans.
LONG-TERM INCENTIVE PLAN - AWARDS IN LAST FISCAL YEAR
-----------------------------------------------------
The Long-Term Performance Share Award Plan provides awards
based on various measures of NEES performance over a three-year
period. Each award factor functions independently. The
performance targets for each cycle are set by the Compensation
Committee of the NEES Board. Performance is rated on rolling
three-year periods, with a new cycle beginning each year. An
individual's potential award under the plan is a fixed percentage
(ranging from 15 percent to 50 percent) of base pay. At the end of
the three-year cycle, the participant receives NEES shares based
upon the performance against the various factors.
The measures of performance for the cycle commencing January
1, 1998 are as follows: total shareholder return; maintenance or
improvement of bond ratings; redeployment of the generation sale
proceeds; and System service levels, including customer
satisfaction, reliability, safety, and compliance.
The following tables show the potential awards, for those
executive officers named in the Summary Compensation Tables, under
the Long-Term Performance Share Award Plan for the performance
cycle commencing January 1, 1998. The NEES System's performance
will be measured over the three-year period ending December 31,
2000. However, upon the completion of the merger with National
Grid, the executives will receive awards based upon an average of
incentive compensation target achievement for the prior three years
and not upon the measures specified below.
<PAGE>
NEP
---
ESTIMATED FUTURE PAYOUTS UNDER NON-STOCK PRICE-BASED PLANS
------------------------------------------------
<TABLE>
<CAPTION>
Number of
Common Share Performance
Name Equivalents(a) Period Threshold(b) Target(c)
---- -------------- ----------- ------------ ---------
<S> <C> <C> <C> <C>
Lawrence E. Bailey 977 3 years 8 977
Alfred D. Houston 4,310 3 years 34 4,310
Peter G. Flynn 853 3 years 7 853
John F. Malley 859 3 years 7 859
Masheed H. Rosenqvist (d) - - - -
</TABLE>
Mass. Electric
--------------
ESTIMATED FUTURE PAYOUTS UNDER NON-STOCK PRICE-BASED PLANS
------------------------------------------------
<TABLE>
<CAPTION>
Number of
Common Share Performance
Name Equivalents(a) Period Threshold(b) Target(c)
---- -------------- ----------- ------------ ---------
<S> <C> <C> <C> <C>
Lawrence J. Reilly 1,036 3 years 9 1,036
Robert L. McCabe 1,119 3 years 9 1,119
Nancy H. Sala 464 3 years 4 464
Lydia M. Pastuszek 866 3 years 7 866
Kwong O. Nuey 461 3 years 4 461
</TABLE>
Narragansett
------------
ESTIMATED FUTURE PAYOUTS UNDER NON-STOCK PRICE-BASED PLANS
------------------------------------------------
<TABLE>
<CAPTION>
Number of
Common Share Performance
Name Equivalents(a) Period Threshold(b) Target(c)
---- -------------- ----------- ------------ ---------
<S> <C> <C> <C> <C>
Lawrence J. Reilly 1,036 3 years 9 1,036
Robert L. McCabe 1,119 3 years 9 1,119
Richard W. Frost 427 3 years 4 427
Michael F. Ryan 401 3 years 4 401
Richard Nadeau (d) - - - -
</TABLE>
(a) Amounts are denominated in common share units. No dividends
are attributable to share units. At the end of the cycle,
awards are paid either in shares or in cash (valued at the
five-day average price prior to the January 15 following the
close of the performance cycle).
(b) The awards in this column represent the threshold number of
shares that could be earned if the minimum attainment level is
<PAGE>
reached for one factor. The minimum payout upon failure to
achieve any of the goals would be zero.
(c) The awards in this column represent the target (and maximum)
number of shares that could be earned if the maximum
performance is achieved for all factors.
(d) Did not participate in this plan for 1998.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
NEES
----
The information required by this item is incorporated herein
by reference to the material under the caption SHARE OWNERSHIP in
the definitive proxy statement of NEES, dated March 26, 1999, for
the 1999 Annual Meeting of Shareholders, provided that the
information under the headings "Report of the Compensation
Committee on Executive Compensation" and "Corporate Performance"
are not so incorporated.
NEP, Mass. Electric, and Narragansett
-------------------------------------
NEES owns 100 percent of the voting securities of Mass.
Electric and Narragansett. NEES owns 99.97 percent of the voting
securities of NEP.
SECURITY OWNERSHIP
The following tables list the holdings of NEES common shares
as of March 10, 1999 by NEP, Mass. Electric, and Narragansett
directors, the executive officers named in the Summary Compensation
Tables, and all directors and executive officers, as a group.
<TABLE>
NEP
---
<CAPTION>
Shares Deferred
Beneficially Share
Name Owned (a) Equivalents (b) Total (c)
---- ------------ --------------- ---------
<S> <C> <C> <C>
Lawrence E. Bailey 5,490 4,973 10,463
Peter G. Flynn 6,671 3,564 10,235
Alfred D. Houston 14,359 15,489 29,848
Cheryl A. LaFleur 3,595 7,147 10,742
John F. Malley 3,952 3,549 7,501
Masheed H. Rosenqvist 1,802 364 2,166
Richard P. Sergel 8,574 12,069 20,643
All directors and
executive officers,
as a group (11 persons) 62,372 (d) 58,664 121,036
</TABLE>
<PAGE>
Mass. Electric
--------------
<TABLE>
<CAPTION>
Shares Deferred
Beneficially Share
Name Owned (a) Equivalents (b) Total (c)
---- ------------ --------------- ---------
<S> <C> <C> <C>
Cheryl A. LaFleur 3,595 7,147 10,742
Robert L. McCabe 10,691 7,944 18,635
Kwong O. Nuey 1,667 1,874 3,541
Lydia M. Pastuszek 8,242 2,712 10,954
Lawrence J. Reilly 4,010 7,161 11,171
Christopher E. Root 2,256 3,519 5,775
Nancy H. Sala 6,348 (e) 2,541 8,889
Richard P. Sergel 8,574 12,069 20,643
All directors and
executive officers,
as a group (18 persons) 75,786 (d) 50,973 126,759
</TABLE>
Narragansett
------------
<TABLE>
<CAPTION>
Shares Deferred
Beneficially Share
Name Owned (a) Equivalents (b) Total (c)
---- ------------ --------------- ---------
<S> <C> <C> <C>
Richard W. Frost 7,035 530 7,565
Cheryl A. LaFleur 3,595 7,147 10,742
Robert L. McCabe 10,691 7,944 18,635
Richard Nadeau 5,029 0 5,029
Lawrence J. Reilly 4,010 7,161 11,171
Michael F. Ryan 1,316 11 1,327
Richard P. Sergel 8,574 12,069 20,643
Ronald L. Thomas 1,614 0 1,614
All directors and
executive officers,
as a group (14 persons) 68,891 (d) 53,000 121,891
</TABLE>
(a) Number of shares beneficially owned includes: (i) shares
directly owned by certain relatives with whom directors or
officers share voting or investment power; (ii) shares held of
record individually by a director or officer or jointly with
others or held in the name of a bank, broker, or nominee for
such individual's account; (iii) shares in which certain
directors or officers maintain exclusive or shared investment
or voting power whether or not the securities are held for
their benefit; and (iv) with respect to the executive officers,
allocated shares in the Incentive Thrift Plan described above.
<PAGE>
(b) Deferred share equivalents are held under the Deferred
Compensation Plan or pursuant to individual deferral
agreements. Under the Plan or deferral agreements, executives
may elect to defer cash compensation and share awards. There
are various deferral periods available under the plans. At the
end of the deferral period, the compensation is paid out in the
same form, cash or NEES shares, as was deferred. The rights
of the executives to payment are those of general, unsecured
creditors. While deferred, the shares do not have voting
rights or other rights associated with ownership. As cash
dividends are declared, the number of deferred share
equivalents will be increased as if the dividends were
reinvested in NEES common shares.
(c) Potential share awards under the Long-Term Performance Share
Award Plan are not included in this table.
(d) Amount is less than 1 percent of the total number of shares of
NEES outstanding.
(e) Ms. Sala disclaims a beneficial ownership interest in 283
shares held in a custodial account.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Reference is made to ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
OF THE REGISTRANT and ITEM 11. EXECUTIVE COMPENSATION.
PART IV
ITEM 14. EXHIBITS AND REPORTS ON FORM 8-K
List of Exhibits
Unless otherwise indicated, the exhibits listed below are
incorporated by reference to the appropriate exhibit numbers and
the Commission file numbers indicated in parentheses.
NEES
----
(3) Agreement and Declaration of Trust dated January 2, 1926,
as amended through April 28, 1992 (Exhibit 3 to 1994 NEES
Form 10-K, File No. 1-3446).
(4) Instruments Defining the Rights of Security Holders
(a) Massachusetts Electric Company First Mortgage
Indenture and Deed of Trust, dated as of July 1,
1949, and twenty-one supplements thereto (Exhibit
7-A, File No. 1-8019; Exhibit 7-B, File No. 2-8836;
Exhibit 4-C, File No. 2-9593; Exhibit 4 to 1980
Form 10-K, File No. 2-8019; Exhibit 4 to 1982 Form
10-K, File No. 0-5464; Exhibit 4 to 1986 Form 10-K,
File No. 0-5464; Exhibit 4(a) to 1988 Form 10-K,
<PAGE>
File No. 1-3446; Exhibit 4(a) to 1989 Form 10-K,
File No. 1-3446; Exhibit 4(a) to 1992 Form 10-K,
File No. 1-3446; Exhibit 4(a) to 1993 Form 10-K,
File No. 1-3446; Exhibit 4(a) to 1995 Form 10-K,
File No. 1-3446).
(b) The Narragansett Electric Company First Mortgage
Indenture and Deed of Trust, dated as of September
1, 1944, and twenty-three supplements thereto
(Exhibit 7-1, File No. 2-7042; Exhibit 7-B, File
No. 2-7490; Exhibit 4-C, File No. 2-9423; Exhibit
4-D, File No. 2-10056; Exhibit 4 to 1980 Form 10-K,
File No. 0-898; Exhibit 4 to 1982 Form 10-K, File
No. 0-898; Exhibit 4 to 1983 Form 10-K, File No.
0-898; Exhibit 4 to 1985 Form 10-K, File No. 0-898;
Exhibit 4 to 1986 Form 10-K, File No. 0-898;
Exhibit 4 to 1987 Form 10-K, File No. 0-898;
Exhibit 4 to 1991 Form 10-K, File No. 0-898;
Exhibit 4(b) to 1992 Form 10-K, File No. 1-3446;
Exhibit 4(b) to 1993 Form 10-K, File No. 1-3446;
Exhibit 4(b) to 1995 Form 10-K, File No. 1-3446);
Twenty-third Supplemental Indenture (filed
herewith).
(c) The Narragansett Electric Company Preference
Provisions, as amended, dated December 15, 1997
(Exhibit 4(c) to 1997 NEES Form 10-K, File No. 1-
3446).
(10) Material Contracts
(a) Boston Edison Company et al. and New England Power
Company: Amended REMVEC Agreement dated August 12,
1977 (Exhibit 5-4(d), File No. 2-61881).
(i) Boston Edison Company et al. and New England
Power Company: REMVEC II Agreement dated on
or about July 1, 1994 (Exhibit 10(a)(i) to
1997 Form 10-K, File No. 1-3446).
(ii) Boston Edison Company et al. and New England
Power Company: Security Analysis Service
Agreement dated on or about July 1, 1994
(Exhibit 10(a)(ii) to 1997 Form 10-K, File No.
1-3446).
(b) The Connecticut Light and Power Company et al. and
New England Power Company: Sharing Agreement for
Joint Ownership, Construction and Operation of
Millstone Unit No. 3 dated as of September 1, 1973,
and Amendment dated as of August 1, 1974 (Exhibit
10-5, File No. 2-52820); Amendments dated as of
December 15, 1975 and April 1, 1986; (Exhibit
10(b), to 1990 Form 10-K, File No. 1-3446).
Transmission Support Agreement dated August 9,
1974; Instrument of Transfer to NEP with respect to
the 1979 Connecticut Nuclear Unit, and Assumption
<PAGE>
of Obligations, dated December 17, 1975 (Exhibit
10-6(b), File No. 2-57831).
(c) Connecticut Yankee Atomic Power Company et al. and
New England Power Company: Stockholders Agreement
dated July 1, 1964 (Exhibit 13-9-A, File No.
2-23006); Power Purchase Contract dated July 1,
1964 (Exhibit 13-9-B, File No. 2-23006); Additional
Power Contract dated as of April 30, 1984 and 1996
Amendatory Agreement dated as of December 4, 1996
(Exhibit 10(c) to 1996 Form 10-K, File No. 1-3446);
Supplementary Power Contract dated as of April 1,
1987 (Exhibit 10(c) to 1987 Form 10-K, File No.
1-3446); Capital Funds Agreement dated September 1,
1964 (Exhibit 13-9-C, File No. 2-23006);
Transmission Agreement dated October 1, 1964
(Exhibit 13-9-D, File No. 2-23006); Agreement
revising Transmission Agreement dated July 1, 1979
(Exhibit to 1979 Form 10-K, File No. 1-3446);
Amendment revising Transmission Agreement dated as
of January 19, 1994 (Exhibit 10(c) to 1995 Form 10-
K, File No. 1-3446); Five Year Capital Contribution
Agreement dated November 1, 1980, (Exhibit to 10(e)
to 1980 Form 10-K, File No. 1-3446).
(d) Maine Yankee Atomic Power Company et al. and New
England Power Company: Capital Funds Agreement
dated May 20, 1968 and Power Purchase Contract
dated May 20, 1968 (Exhibit 4-5, File No. 2-29145);
Amendments dated as of January 1, 1984, March 1,
1984 (Exhibit 10(d) to 1983 Form 10-K, File No.
1-3446), October 1, 1984, and August 1, 1985
(Exhibit 10(d) to 1985 Form 10-K, File No. 1-3446);
Stockholders Agreement dated May 20, 1968 (Exhibit
10-20, File No. 2-34267); Additional Power Contract
dated as of February 1, 1984 (Exhibit 10(d) to 1985
Form 10-K, File No. 1-3446); 1997 Amendatory
Agreement dated as of August 6, 1997 (Exhibit 10(d)
to 1997 Form 10-K, File No. 1-3446).
(e) New England Power Company and New England Electric
Transmission Corporation et al.: Phase I Terminal
Facility Support Agreement dated as of December 1,
1981 (Exhibit 10(g) to 1981 Form 10-K, File No.
1-3446); Amendments dated as of June 1, 1982, and
November 1, 1982 (Exhibit 10(f) to 1982 Form 10-K,
File No. 1-3446); Agreement with respect to Use of
the Quebec Interconnection dated as of December 1,
1981 (Exhibit 10(g) to 1981 Form 10-K, File No.
1-3446); Amendments dated as of May 1, 1982, and
November 1, 1982 (Exhibit 10(f) to 1982 Form 10-K,
File No. 1-3446); Amendment dated as of January 1,
1986 (Exhibit (10)(f) 1986 Form 10-K, File No.
1-3446); Agreement for Reinforcement and
Improvement of New England Power Company's
Transmission System dated as of April 1, 1983
(Exhibit 10(f) to 1983 Form 10-K, File No. 1-3446);
<PAGE>
Lease dated as of May 16, 1983 (Exhibit 10(f) to
1983 Form 10-K, File No. 1-3446); Upper Development
- Lower Development Transmission Line Support
Agreement dated as of May 16, 1983 (Exhibit 10(f)
to 1983 Form 10-K, File No. 1-3446).
(f) New England Electric Transmission Corporation and
PruCapital Management, Inc. et al: Note Agreement
dated as of September 1, 1986 (Exhibit 10(g) to
1986 Form 10-K, File No. 1-3446); Mortgage, Deed of
Trust and Security Agreement dated as of September
1, 1986 (Exhibit 10(g) to 1986 Form 10-K, File No.
1-3446); Equity Funding Agreement with New England
Electric System dated as of December 1, 1985
(Exhibit 10(g) to 1991 Form 10-K, File No. 1-3446).
(g) Vermont Electric Transmission Company, Inc. et al.
and New England Power Company: Phase I Vermont
Transmission Line Support Agreement dated as of
December 1, 1981; Amendments dated as of June 1,
1982, and November 1, 1982 (Exhibit 10(g) to 1982
Form 10-K, File No. 1-3446); Amendment dated as of
January 1, 1986 (Exhibit 10(h) to 1986 Form 10-K,
File No. 1-3446).
(h) New England Power Pool Agreement: (Exhibit 4(e),
File No. 2-43025); Amendments dated July 1, 1972,
and March 1, 1973 (Exhibit 10-15, File No.
2-48543); Amendment dated March 15, 1974 (Exhibit
10-5, File No. 2-52775); Amendment dated June 1,
1975 (Exhibit 10-14, File No. 2-57831); Amendment
dated September 1, 1975 (Exhibit 10-13, File No.
2-59182); Amendments dated December 31, 1976,
January 31, 1977, July 1, 1977, and August 1, 1977
(Exhibit 10-16, File No. 2-61881); Amendments dated
August 15, 1978, January 3, 1980, and February 1980
(Exhibit 10-3, File No. 2-68283); Amendment dated
September 1, 1981 (Exhibit 10(h) to 1981 Form 10-K,
File No. 1-3446); Amendment dated as of December 1,
1981 (Exhibit 10(h) to 1982 Form 10-K, File No.
1-3446); Amendments dated June 1, 1982, June 15,
1983, and October 1, 1983 (Exhibit 10(i) to 1983
Form 10-K, File No. 1-3446); Amendments dated
August 1, 1985, August 15, 1985, September 1, 1985,
and January 1, 1986 (Exhibit 10(i) to 1985 Form
10-K, File No. 1-3446); Amendment dated
September 1, 1986 (Exhibit 10(i) to 1986 Form 10-K,
File No. 1-3446); Amendment dated April 30, 1987
(Exhibit 10(i) to 1987 Form 10-K, File No. 1-3446);
Amendments dated March 1, 1988 and May 1, 1988
(Exhibit 10(i) to 1988 Form 10-K, File No. 1-3446);
Amendment dated March 15, 1989 (Exhibit 10(i) to
1989 Form 10-K, File No. 1-3446); Amendment dated
October 1, 1990 (Exhibit 10(i) to 1990 Form 10-K,
File No. 1-3446); Amendment dated as of September
15, 1992 (Exhibit 10(i) to 1992 Form 10-K, File No.
1-3446); Amendments dated as of June 1, 1993, July
<PAGE>
1, 1995, and September 1, 1995 (Exhibit 10(i) to
1995 Form 10-K, File No. 1-3446); Amendment dated
as of December 1, 1996 (Exhibit 10(i) to 1996 Form
10-K, File No. 1-3446); Amendment dated as of
September 1, 1997 and; Amendment dated as of
November 15, 1997 (Exhibits 10(i) to 1997 Form 10-
K, File No. 1-3446).
(i) Public Service Company of New Hampshire et al. and
New England Power Company: Agreement for Joint
Ownership, Construction and Operation of New
Hampshire Nuclear Units dated as of May 1, 1973;
Amendments dated May 24, 1974, June 21, 1974,
September 25, 1974 and October 25, 1974 (Exhibit
10-18(b), File No. 2-52820); Amendment dated
January 31, 1975 (Exhibit 10-16(b), File No.
2-57831); Amendments dated April 18, 1979,
April 25, 1979, June 8, 1979, October 11, 1979,
December 15, 1979, June 16, 1980, December 31, 1980
(Exhibit 10(i) to 1980 Form 10-K, File No. 1-3446);
Amendments dated June 1, 1982, April 27, 1984,
June 15, 1984 (Exhibit 10(j) to 1984 Form 10-K,
File No. 1-3446); Amendments dated March 8, 1985,
March 14, 1986, May 1, 1986 and September 19, 1986
(Exhibit 10(j) to 1986 Form 10-K, File No. 1-3446);
Amendment dated November 12, 1987 (Exhibit 10(j) to
1987 Form 10-K, File No. 1-3446); Amendment dated
January 13, 1989 (Exhibit 10(j) to 1989 Form 10-K,
File No. 1-3446); Amendment dated as of November 1,
1990 (Exhibit 10(j) to 1991 Form 10-K, File No. 1-
3446). Transmission Support Agreement dated as of
May 1, 1973 (Exhibit 10-23, File No. 2-49184);
Instrument of Transfer to NEP with respect to the
New Hampshire Nuclear Units and Assumptions of
Obligations dated December 17, 1975 and Agreement
Among Participants in New Hampshire Nuclear Units,
certain Massachusetts Municipal Systems and
Massachusetts Municipal Wholesale Electric Company
dated May 28, 1976 (Exhibit 10-16(c), File No.
2-57831); Seventh Amendment To and Restated
Agreement for Seabrook Project Disbursing Agent
(Exhibit 10(j) to 1991 Form 10-K, File No. 1-
3446); Amendments dated as of June 29, 1992
(Exhibit 10(j) to 1992 Form 10-K, File No. 1-
3446); 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 (Exhibit 10(j) to 1992 Form 10-
K, File No. 1-3446).
(j) Vermont Yankee Nuclear Power Corporation et al. and
New England Power Company: Capital Funds Agreement
dated February 1, 1968, Amendment dated March 12,
1968, and Power Purchase Contract dated February 1,
1968 (Exhibit 4-6, File No. 2-29145); Amendments
dated as of June 1, 1972 and April 15, 1983
(Exhibit 10(k) to 1983 Form 10-K, File No. 1-3446)
<PAGE>
and April 24, 1985 (Exhibit 10(k) to 1985 Form
10-K, File No. 1-3446); Amendment dated as of June
1, 1985 (Exhibit 10(k) to 1987 Form 10-K, File No.
1-3446); Amendments dated as of May 6, 1988
(Exhibit 10(k) to 1988 Form 10-K, File No. 1-3446);
Amendment dated as of June 15, 1989 (Exhibit 10(k)
to 1989 Form 10-K, File No. 1-3446); Additional
Power Contract dated as of February 1, 1984
(Exhibit 10(k) to 1983 Form 10-K, File No. 1-3446);
Guarantee Agreement dated as of November 5, 1981
(Exhibit 10(j) to 1981 Form 10-K, File No. 1-3446).
(k) Yankee Atomic Electric Company et al. and New
England Power Company: Amended and Restated Power
Contract dated April 1, 1985 (Exhibit 10(l) to 1985
Form 10-K, File No. 1-3446); Amendment dated May 6,
1988 (Exhibit 10(l) to 1988 Form 10-K, File No.
1-3446); Amendments dated as of June 26, 1989 and
July 1, 1989 (Exhibit 10(l) to 1989 Form 10-K, File
No. 1-3446); Amendment dated as of February 1, 1992
(Exhibit 10(l) to 1992 Form 10-K, File No. 1-3446).
*(l) New England Electric Companies' Deferred
Compensation Plan as amended through February 28,
1998 (filed herewith).
*(m) New England Electric System Companies Retirement
Supplement Plan as amended through June 1, 1996
(Exhibit 10(n) to 1996 Form 10-K, File No. 1-3446).
*(n) New England Electric Companies' Executive
Supplemental Retirement Plan as amended through
December 11, 1998 (filed herewith).
*(o) New England Electric Companies' Executive Retirees
Health and Life Insurance Plan as Amended and
Restated January 1, 1996 (filed herewith).
*(p) New England Electric Companies' Incentive
Compensation Plan I as amended through January 1,
1998 (filed herewith).
*(q) New England Electric Companies' Incentive
Compensation Plan II as amended through January 1,
1998 (filed herewith).
*(r) New England Electric Companies' Incentive
Compensation Plan III as amended through January
1, 1998 (filed herewith).
*(s) New England Electric Companies' Senior Incentive
Compensation Plan as amended through January 1,
1998 (filed herewith).
*(t) New England Electric System Directors Deferred
Compensation Plan as amended through February 28,
1998 (filed herewith).
<PAGE>
*(u) Forms of Life Insurance Program (Exhibit 10(s) to
1986 Form 10-K, File No. 1-3446); and Form of Life
Insurance (Collateral Assignment) (Exhibit 10(t) to
1991 Form 10-K, File No. 1-3446).
*(v) New England Electric Companies' Incentive Share
Plan as amended through February 24, 1997 (Exhibit
10(w) to 1996 Form 10-K, File No. 1-3446).
*(w) New England Electric Companies' Long-Term
Performance Share Award Plan amended through August
25, 1998 (filed herewith).
*(x) New England Electric System Directors' Retirement
Plan amended through December 11, 1998 (filed
herewith).
*(y) Forms of Severance Protection Agreement (Exhibit
10(z) to 1996 Form 10-K, File No. 1-3446). Forms
of Severance Protection Agreements (filed
herewith).
*(z) New England Power Service Company and Joan T. Bok:
Service Credit Letter dated October 21, 1982
(Exhibit 10(cc) to 1992 Form 10-K, File No.
1-3446).
*(aa) New England Power Service Company and Robert L.
McCabe: Employment Agreement entered into as of
March 11, 1998 (Exhibit 10(ll) to NEES' 1997 Form
10-K, File No. 1-3446).
*(bb) New England Electric System and Richard P. Sergel
Agreement dated March 1, 1998 (filed herewith).
*(cc) New England Power Service Company and the Company:
Form of Supplemental Pension Service Credit
Agreement (Exhibit 10(ee) to 1992 Form 10-K, File
No. 1-3446).
(dd) New England Power Company and New England
Hydro-Transmission Electric Company, Inc. et al:
Phase II Massachusetts Transmission Facilities
Support Agreement dated as of June 1, 1985 (Exhibit
10(t) to 1986 Form 10-K, File No. 1-3446);
Amendment dated as of May 1, 1986 (Exhibit 10(t) to
1986 Form 10-K, File No. 1-3446); Amendments dated
as of February 1, 1987, June 1, 1987, September 1,
1987, and October 1, 1987 (Exhibit 10(u) to 1987
Form 10-K, File No. 1-3446); Amendment dated as of
August 1, 1988 (Exhibit 10(u) to 1988 Form 10-K,
File No. 1-3446); Amendment dated January 1, 1989
(Exhibit 10(u) to 1990 Form 10-K, File No. 1-3446).
(ee) New England Power Company and New England
Hydro-Transmission Corporation et al: Phase II New
Hampshire Transmission Facilities Support Agreement
<PAGE>
dated as of June 1, 1985 (Exhibit 10(u) to 1986
Form 10-K, File No. 1-3446); Amendment dated as of
May 1, 1986 (Exhibit 10(u) to 1986 Form 10-K, File
No. 1-3446); Amendments dated as of February 1,
1987, June 1, 1987, September 1, 1987, and
October 1, 1987 (Exhibit 10(v) to 1987 Form 10-K,
File No. 1-3446); Amendment dated as of August
1,1988 (Exhibit 10(v) to 1988 Form 10-K, File No.
1-3446); Amendments dated January 1, 1989 and
January 1, 1990 (Exhibit 10(v) to 1990 Form 10-K,
File No. 1-3446).
(ff) New England Power Company et al: Phase II New
England Power AC Facilities Support Agreement dated
as of June 1, 1985 (Exhibit 10(v) to 1986 Form
10-K, File No. 1-3446); Amendment dated as of May
1, 1986 (Exhibit 10(v) to 1986 Form 10-K, File No.
1-3446); Amendments dated as of February 1, 1987,
June 1, 1987, and September 1, 1987 (Exhibit 10(w)
to 1987 Form 10-K, File No. 1-3446); Amendment
dated as of August 1, 1988 (Exhibit 10(w) to 1988
Form 10-K, File No. 1-3446).
(gg) New England Hydro-Transmission Electric Company,
Inc. and New England Electric System et al: Equity
Funding Agreement dated as of June 1, 1985 (Exhibit
10(w) to 1986 Form 10-K, File No. 1-3446);
Amendment dated as of May 1, 1986 (Exhibit 10(w) to
1986 Form 10-K, File No. 1-3446); Amendment dated
as of September 1, 1987 (Exhibit 10(x) to 1987
Form 10-K, File No. 1-3446); Amendment dated as of
August 1, 1988 (Exhibit 10(x) to 1988 Form 10-K,
File No. 1-3446).
(hh) New England Hydro-Transmission Corporation and New
England Electric System et al: Equity Funding
Agreement dated as of June 1, 1985 (Exhibit 10(x)
to 1986 Form 10-K, File No. 1-3446); Amendment
dated as of May 1, 1986 (Exhibit 10(x) to 1986 Form
10-K, File No. 1-3446); Amendment dated as of
September 1, 1987 (Exhibit 10(y) to 1987 Form 10-K,
File No. 1-3446); Amendment dated as of August 1,
1988 (Exhibit 10(y) to 1988 Form 10-K, File No.
1-3446).
(ii) NEES Energy, Inc./AllEnergy Marketing Company,
L.L.C.: Agreement and Plan of Merger dated
December 31, 1998 (filed herewith).
(jj) USGen, New England, Inc. and New England Power
Company and The Narragansett Electric Company:
Asset Purchase Agreement dated as of August 5, 1997
(Exhibit 2 to Form 10-Q for period ended September
30, 1997, File No. 1-3446).
(kk) The National Grid Group plc, Iosta LLC: Agreement
and Plan of Merger, dated as of December 11, 1998
<PAGE>
(Exhibit 10(mm) to Form 8-K dated December 11,
1998, File No. 1-3446).
* Compensation related plan, contract, or arrangement.
(13) 1998 Annual Report to Shareholders (Exhibit 13 to Form
8-K dated March 25, 1999, File No. 1-3446).
(21) Subsidiary list appears in Part I of this document.
(24) Power of Attorney (filed herewith).
(27) Financial Data Schedule (filed herewith).
NEP
---
(3) (a) Articles of Organization as amended through June
25, 1987 (Exhibit 3(a) to 1988 Form 10-K, File No.
0-1229).
(b) By-laws of the Company as amended December 12, 1997
(Exhibit 3(b) to 1997 Form 10-K, File No. 0-1229).
(10) Material Contracts
(a) Boston Edison Company et al. and the Company:
Amended REMVEC Agreement dated August 12, 1977
(Exhibit 5-4(d), File No. 2-61881).
(i) Boston Edison Company et al. and the Company:
REMVEC II Agreement dated on or about July 1,
1997 (Exhibit 10(a)(i) to NEES' 1997 Form 10-
K, File No. 1-3446).
(ii) Boston Edison Company et al. and the Company:
Security Analysis Services Agreement dated on
or about July 1, 1997 (Exhibit 10(a)(ii) to
NEES' 1997 Form 10-K, File No. 1-3446).
(b) The Connecticut Light and Power Company et al. and
the Company: Sharing Agreement for Joint
Ownership, Construction and Operation of Millstone
Unit No. 3 dated as of September 1, 1973, and
Amendment dated as of August 1, 1974 (Exhibit 10-5,
File No. 2-52820); Amendments dated as of December
15, 1975 and April 1, 1986 (Exhibit 10(b) to NEES'
1990 Form 10-K File No. 1-3446). 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 (Exhibit
10-6(b), File No. 2-57831).
(c) Connecticut Yankee Atomic Power Company et al. and
the Company: Stockholders Agreement dated July 1,
<PAGE>
1964 (Exhibit 13-9-A, File No. 2-2006); Power
Purchase Contract dated July 1, 1964 (Exhibit
13-9-B, File No. 2-23006); Additional Power
Contract dated as of April 30, 1984 and 1996;
Amendatory Agreement dated as of December 4, 1996
(Exhibit 10(c) to 1996 Form 10-K, File No. 1-3446);
Supplementary Power Contract dated as of April 1,
1987 (Exhibit 10(c) to 1987 Form 10-K, File No.
0-1229); Capital Funds Agreement dated September 1,
1964 (Exhibit 13-9-C, File No. 2-23006);
Transmission Agreement dated October 1, 1964
(Exhibit 13-9-D, File No. 2-23006); Agreement
revising Transmission Agreement dated July 1, 1979
(Exhibit to NEES' 1979 Form 10-K, File No. 1-3446);
Amendment revising Transmission Agreement dated as
of January 19, 1994 (Exhibit 10(c) to NEES' 1995
Form 10-K, File No. 1-3446); Five Year Capital
Contribution Agreement dated November 1, 1980
(Exhibit 10(e) to NEES' 1980 Form 10-K, File No.
1-3446).
(d) Maine Yankee Atomic Power Company et al. and the
Company: Capital Funds Agreement dated May 20,
1968 and Power Purchase Contract dated May 20, 1968
(Exhibit 4-5, File No. 2-29145); Amendments dated
as of January 1, 1984, March 1, 1984 (Exhibit 10(d)
to NEES' 1983 Form 10-K, File No. 1-3446); October
1, 1984, and August 1, 1985 (Exhibit 10(d) to NEES'
1985 Form 10-K, File No. 1-3446); Stockholders
Agreement dated May 20, 1968 (Exhibit 10-20; File
No. 2-34267); Additional Power Contract dated as of
February 1, 1984 (Exhibit 10(d) to NEES' 1985 Form
10-K, File No. 1-3446); 1997 Amendatory Agreement
dated as of August 6, 1997 (Exhibit 10(d) to NEES'
1997 Form 10-K, File No. 1-3446).
(e) Mass. Electric and the Company: Primary Service
for Resale dated February 15, 1974 (Exhibit
5-17(a), File No. 2-52969); Amendment of Service
Agreement dated June 22, 1983 (Exhibit 10(b) to
Mass. Electric's 1986 Form 10-K, File No. 0-5464);
Amendment of Service Agreement effective
November 1, 1993 (Exhibit 10(e) to 1993 Form 10-K,
File No. 0-1229); Memorandum of Understanding
effective May 22, 1994 (Exhibit 10(e) to 1994 Form
10-K, File No. 0-1229); Amendment of Service
Agreement effective July 1, 1996 and, Amendment to
Service Agreement dated as of February 1, 1997
(Exhibit 10(e) to 1997 Form 10-K, File No. 1-3446);
Supplement to Amendment to Service Agreement dated
as of March 1, 1998 (filed herewith).
(f) The Narragansett Electric Company and the Company:
Primary Service for Resale dated February 15, 1974
(Exhibit 4-1(b), File No. 2-51292); Amendment of
Service Agreement dated July 26, 1990 (Exhibit 4(f)
to New England Power Company's 1990 Form 10-K, File
<PAGE>
No. 0-1229). Amendment of Service Agreement dated
July 24, 1991 (Exhibit 10(f) to 1991 Form 10-K,
File No. 0-1229); Amendment of Service Agreement
effective November 1, 1993 (Exhibit 10(f) to 1993
Form 10-K, File No. 0- 1229); Memorandum of
Understanding effective May 22, 1994 (Exhibit 10(e)
to 1994 Form 10-K, File No. 0-1229); Amendment of
Service Agreement effective January 1, 1995
(Exhibit 10(f) to 1995 Form 10-K, File No. 0-1229);
Amendment of Service Agreement effective October
30, 1995 and, Amendment to Service Agreement dated
as of February 1, 1997 (Exhibit 10(f) to 1997 Form
10-K, File No. 1-3446); Supplement to Amendment to
Service Agreement dated as of December 31, 1998
(filed herewith).
(g) New England Electric Transmission Corporation et
al. and the Company: Phase I Terminal Facility
Support Agreement dated as of December 1, 1981
(Exhibit 10(g) to NEES' 1981 Form 10-K, File No.
1-3446); Amendments dated as of June 1, 1982 and
November 1, 1982 (Exhibit 10(f) to NEES' 1982 Form
10-K, File No. 1-3446); Agreement with respect to
Use of the Quebec Interconnection dated as of
December 1, 1981 (Exhibit 10(g) to NEES' 1981 Form
10-K, File No. 1-3446); Amendments dated as of May
1, 1982 and November 1, 1982 (Exhibit 10(f) to
NEES' 1982 Form 10-K, File No. 1-3446); Amendment
dated as of January 1, 1986 (Exhibit 10(f) to NEES'
1986 Form 10-K, File No. 1-3446); Agreement for
Reinforcement and Improvement of the Company's
Transmission System dated as of April 1, 1983
(Exhibit 10(f) to NEES' 1983 Form 10-K, File No.
1-3446); Lease dated as of May 16, 1983 (Exhibit
10(f) to NEES' 1983 Form 10-K, File No. 1-3446);
Upper Development-Lower Development Transmission
Line Support Agreement dated as of May 16, 1983
(Exhibit 10(f) to NEES' 1983 Form 10-K, File No.
1-3446).
(h) Vermont Electric Transmission Company, Inc. et al.
and the Company: Phase I Vermont Transmission Line
Support Agreement dated as of December 1, 1981;
Amendments dated as of June 1, 1982 and November 1,
1982 (Exhibit 10(g) to NEES' 1982 Form 10-K, File
No. 1-3446); Amendment dated as of January 1, 1986
(Exhibit 10(h) to NEES' 1986 Form 10-K, File No.
1-3446).
(i) New England Power Pool Agreement: (Exhibit 4(e),
File No. 2-43025); Amendments dated July 1, 1972,
March 1, 1973 (Exhibit 10-15, File No. 2-48543);
Amendment dated March 15, 1974 (Exhibit 10-5, File
No. 2-52775); Amendment dated June 1, 1975 (Exhibit
10-14, File No. 2-57831); Amendment dated September
1, 1975 (Exhibit 10-13, File No. 2-59182);
Amendments dated December 31, 1976, January 31,
<PAGE>
1977, July 1, 1977, and August 1, 1977 (Exhibit
10-16, File No. 2-61881); Amendments dated
August 15, 1978, January 3, 1980, and February 1980
(Exhibit 10-3, File No. 2-68283); Amendment dated
September 1, 1981 (Exhibit 10(h) to NEES' 1981 Form
10-K, File No. 1-3446); Amendment dated December 1,
1981 (Exhibit 10(h) to NEES' 1982 Form 10-K, File
No. 1-3446); Amendments dated June 1, 1982,
June 15, 1983, and October 1, 1983 (Exhibit 10(i)
to NEES' 1983 Form 10-K, File 1-3446); Amendments
dated August 1, 1985, August 15, 1985, September 1,
1985, and January 1, 1986 (Exhibit 10(i) to NEES'
1985 Form 10-K, File No. 1-3446); Amendment dated
September 1, 1986 (Exhibit 10(i) to NEES' 1986 Form
10-K, File No. 1-3446); Amendment dated April 30,
1987 (Exhibit 10(i) to NEES' 1987 Form 10-K, File
No. 1-3446); Amendments dated March 1, 1988 and May
1, 1988 (Exhibit 10(i) to NEES' 1988 Form 10-K,
File No. 1-3446); Amendment dated March 15, 1989
(Exhibit 10(i) to 1989 NEES Form 10-K, File No.
1-3446); Amendment dated October 1, 1990 (Exhibit
10(i) to 1990 NEES Form 10-K, File No. 1-3446);
Amendment dated October 1, 1990 Exhibit 10(i) to
1990 NEES Form 10-K, File No. 1-3446); Amendment
dated as of September 15, 1992 (Exhibit 10(i) to
1992 NEES Form 10-K, File No. 1-3446); Amendments
dated as of June 1, 1993, July 1, 1995, and
September 1, 1995 (Exhibit 10(i) to 1995 NEES Form
10-K, File No. 1-3446); Amendment dated as of
December 1, 1996 (Exhibit 10(i) to 1996 NEES Form
10-K, File No. 1-3446). Amendment dated as of
September 1, 1997 and Amendment dated as of
November 15, 1997 (Exhibit 10(i) to 1997 NEES Form
10-K, File No. 1-3446).
(j) New England Power Service Company and the Company:
Specimen of Service Contract (Exhibit 10(l) to 1994
Form 10-K, File No. 0-1229).
(k) Massachusetts Electric Company, et al. and the
Company: Form of Mutual Assistance Agreement
(Exhibit 10(n) to 1996 Form 10-K, File No. 0-1229).
(l) Massachusetts Electric Company, et al. and the
Company: Restructuring Settlement Agreement
approved by the Massachusetts Department of Public
Utilities (Exhibit 10(o) to 1996 Form 10-K, File
No. 0-1229).
(m) Public Service Company of New Hampshire et al. and
the Company: Agreement for Joint Ownership,
Construction and Operation of New Hampshire Nuclear
Units dated as of May 1, 1973; Amendments dated May
24, 1974, June 21, 1974, September 25, 1974 and
October 25, 1974 (Exhibit 10-18(b), File No.
2-52820); Amendment dated January 31, 1975 (Exhibit
10-16(b), File No. 2-57831); Amendments dated April
<PAGE>
18, 1979, April 25, 1979, June 8, 1979, October 11,
1979, December 15, 1979, June 16, 1980, and
December 31, 1980 (Exhibit 10(i) to NEES' 1980 Form
10-K, File No. 1-3446); Amendments dated June 1,
1982, April 27, 1984, and June 15, 1984 (Exhibit
10(j) to NEES' 1984 Form 10-K, File No. 1-3446);
Amendments dated March 8, 1985, March 14, 1986,
May 1, 1986, and September 19, 1986 (Exhibit 10(j)
to NEES' 1986 Form 10-K, File No. 1-3446);
Amendment dated November 12, 1987 (Exhibit 10(j) to
NEES' 1987 Form 10-K, File No. 1-3446); Amendment
dated January 13, 1989 (Exhibit 10(j) to NEES' 1990
Form 10-K, File No. 1-3446); Seventh Amendment as
of November 1, 1990 (Exhibit 10(m) to NEES' 1991
Form 10-K, File No. 1-3446). Transmission Support
Agreement dated as of May 1, 1973 (Exhibit 10-23,
File No. 2-49184); Instrument of Transfer to the
Company with respect to the New Hampshire Nuclear
Units and Assumptions of Obligations dated December
17, 1975 and Agreement Among Participants in New
Hampshire Nuclear Units, certain Massachusetts
Municipal Systems and Massachusetts Municipal
Wholesale Electric Company dated May 28, 1976
(Exhibit 16(c), File No. 2-57831); Seventh
Amendment To and Restated Agreement for Seabrook
Project Disbursing Agent dated as of November 1,
1990 (Exhibit 10(m) to NEES' 1991 Form 10-K, File
No. 1-3446); Amendments dated as of June 29, 1992
(Exhibit 10(j) to NEES' 1992 Form 10-K, File No. 1-
3446). Settlement Agreement dated as of July 19,
1990 between Northeast Utilities Service Company
and the Company (Exhibit 10(m) to NEES' 1991 Form
10-K, File No. 1-3446). Seabrook Project Managing
Agent Operating Agreement dated as of June 29,
1992, Amendment to Seabrook Project Managing Agent
Operating Agreement dated as of June 29, 1992
(Exhibit 10(j) to NEES' 1992 Form 10-K, File No. 1-
3446).
(n) Vermont Yankee Nuclear Power Corporation et al. and
the Company: Capital Funds Agreement dated
February 1, 1968, Amendment dated March 12, 1968
and Power Purchase Contract dated February 1, 1968
(Exhibit 4-6, File No. 2-29145); Amendments dated
as of June 1, 1972, April 15, 1983 (Exhibit 10(k)
to NEES' 1983 Form 10-K, File No. 0-1229) and
April 24, 1985 (Exhibit 10(n) to NEES' 1985 Form
10-K, File No. 1-3446); Amendment dated as of
June 1, 1985 (Exhibit 10(n) to 1988 Form 10-K, File
No. 0-1229); Amendments dated May 6, 1988 (Exhibit
10(n) to 1988 Form 10-K, File No. 0-1229);
Amendment dated as of June 15, 1989 (Exhibit 10(k)
to 1989 NEES Form 10-K, File No. 1-3446);
Additional Power Contract dated as of February 1,
1984 (Exhibit 10(k) to NEES' 1983 Form 10-K, File
No. 1-3446); Guarantee Agreement dated as of
<PAGE>
November 5, 1981 (Exhibit 10(j) to NEES' 1981 Form
10-K, File No. 1-3446).
(o) Yankee Atomic Electric Company et al. and the
Company: Amended and Restated Power Contract dated
April 1, 1985 (Exhibit 10(l) to NEES' 1985 Form
10-K, File No. 1-3446); Amendment dated May 6, 1988
(Exhibit 10(l) to NEES' 1988 Form 10-K, File No.
1-3446); Amendments dated as of June 26, 1989 and
July 1, 1989 (Exhibit 10(l) to 1989 NEES Form 10-K,
File No. 1-3446); Amendment dated as of February 1,
1992 (Exhibit 10(l) to 1992 NEES Form 10-K, File
No. 1-3446).
*(p) New England Electric Companies' Deferred
Compensation Plan as amended through February 28,
1998 (Exhibit 10(l) to NEES' 1998 Form 10-K, File
No. 1-3446).
*(q) New England Electric System Companies Retirement
Supplement Plan as amended through June 1, 1996
(Exhibit 10(n) to NEES' 1996 Form 10-K, File No.
1-3446).
*(r) New England Electric Companies' Executive
Supplemental Retirement Plan I as amended through
December 11, 1998 (Exhibit 10(n) to NEES' 1998 Form
10-K, File No. 1-3446).
*(s) New England Electric Companies Executive Retirees
Health and Life Insurance Plan as Amended and
Restated January 1, 1996 (Exhibit 10(o) to NEES'
1998 Form 10-K, File No. 1-3446).
*(t) New England Electric Companies' Incentive
Compensation Plan I as amended through January 1,
1998 (Exhibit 10(p) to NEES' 1998 Form 10-K, File
No. 1-3446).
*(u) New England Electric Companies' Incentive
Compensation Plan II as amended through January 1,
1998 (Exhibit 10(q) to NEES' 1998 Form 10-K, File
No. 1-3446).
*(v) New England Electric Companies' Incentive
Compensation Plan III as amended through January 1,
1998 (Exhibit 10(r) to NEES' 1998 Form 10-K, File
No. 1-3446).
*(w) New England Electric Companies' Senior Incentive
Compensation Plan as amended through January 1,
1998 (Exhibit 10(s) to NEES' 1998 Form 10-K, File
No. 1-3446).
*(x) Forms of Life Insurance Program (Exhibit 10(s) to
NEES' 1986 Form 10-K, File No. 1-3446); and Form of
<PAGE>
Life Insurance (Collateral Assignment) (Exhibit
10(t) to NEES' 1991 Form 10-K, File No. 1-3446).
*(y) New England Electric Companies' Incentive Share
Plan as amended through February 24, 1997 (Exhibit
10(w) to NEES' 1996 Form 10-K, File No. 1-3446).
*(z) New England Electric System Directors' Retirement
Plan amended through December 11, 1998 (Exhibit
10(x) to NEES' 1998 Form 10-K, File No. 1-3446).
*(aa) Forms of Severance Protection Agreement (Exhibit
10(z) to NEES' 1996 Form 10-K, File No. 1-3446).
Forms of Severance Protection Agreements (Exhibit
10(y) to NEES' 1998 Form 10-K, File No. 1-3446).
*(bb) New England Electric Companies' Long-Term
Performance Share Award Plan amended through August
25, 1998 (Exhibit 10(w) to NEES' 1998 Form 10-K,
File No. 1-3446).
(cc) New England Hydro-Transmission Electric Company,
Inc. et al. and the Company: Phase II
Massachusetts Transmission Facilities Support
Agreement dated as of June 1, 1985 (Exhibit 10(t)
to NEES' 1986 Form 10-K, File No. 1-3446);
Amendment dated as of May 1, 1986 (Exhibit 10(t) to
NEES' 1986 Form 10-K, File No. 1-3446); Amendments
dated as of February 1, 1987, June 1, 1987,
September 1, 1987, and October 1, 1987 (Exhibit
10(u) to NEES' 1987 Form 10-K, File No. 1-3446);
Amendment dated as of August 1, 1988 (Exhibit 10(u)
to NEES' 1988 Form 10-K, File No. 1-3446);
Amendment dated January 1, 1989 (Exhibit 10(u) to
NEES' 1990 Form 10-K, File No. 1-3446).
(dd) New England Hydro-Transmission Corporation et al.
and the Company: Phase II New Hampshire
Transmission Facilities Support Agreement dated as
of June 1, 1985 (Exhibit 10(u) to NEES' 1986 Form
10-K, File No. 1-3446); Amendment dated as of
May 1, 1986 (Exhibit 10(u) to NEES' 1986 Form 10-K,
File No. 1-3446); Amendments dated as of February
1, 1987, June 1, 1987, September 1, 1987, and
October 1, 1987 (Exhibit 10(v) to NEES' 1987 Form
10-K, File No. 1-3446). Amendment dated as of
August 1, 1988 (Exhibit 10(v) to NEES' 1988 Form
10-K, File No. 1-3446); Amendments dated January 1,
1989 and January 1, 1990 (Exhibit 10 (v) to NEES'
1990 Form 10-K, File No. 1-3446).
(ee) Vermont Electric Power Company et al. and the
Company: Phase II New England Power AC Facilities
Support Agreement dated as of June 1, 1985 (Exhibit
10(v) to NEES' 1986 Form 10-K, File No. 1-3446);
Amendment dated as of May 1, 1986 (Exhibit 10(v) to
NEES' 1986 Form 10-K, File No. 1-3446). Amendments
<PAGE>
dated as of February 1, 1987, June 1, 1987, and
September 1, 1987 (Exhibit 10(w) to NEES' 1987 Form
10-K, File No. 1-3446); Amendment dated as of
August 1, 1988 (Exhibit 10(w) to NEES' 1988 Form
10-K, File No. 1-3446).
(ff) USGen New England Contracts
(i) Asset Purchase Agreement between the Company
and The Narragansett Electric Company dated
as of August 5, 1997 (Exhibit 2 to NEES' Form
10-Q for period ended September 30, 1997,
File No. 1-3446).
(ii) Wholesale Sales Agreement between the Company
and USGen New England, Inc. dated as of
August 5, 1997 (Exhibit 10(gg)(ii) to 1997
Form 10-K, File No. 1-6564).
(iii) PPA Transfer Agreement between the Company
and USGen New England, Inc. dated as of
August 5, 1997 (Exhibit 10(gg)(iii) to 1997
Form 10-K, File No. 1-6564).
(iv) Form of PSA Performance Support Agreement
between the Company, USGen New England, Inc.,
and each of the following; North Attleboro
Electric Department, Groton Electric Light
Department, Middleton Municipal Electric
Department, Hingham Municipal Lighting Plant,
Town of Holden Municipal Light Department,
Unitil Power Corp. (Salem Harbor), Unitil
Power Corp. (Ocean State), Bangor Hydro-
Electric Company, Montaup Electric Company,
Central Vermont Public Service Corporation,
Braintree Electric Light Department,
Littleton Electric Light Department,
Massachusetts Government Land Bank, Reading
(MA) Municipal Light Department, Shrewsbury
Electric Light Plant, Taunton Municipal Light
Plant, and Vermont Electric Company, dated as
of August 5, 1997 (Exhibit 10(gg)(iv) to 1997
Form 10-K, File No. 1-6564).
(v) Quebec Interconnection Transfer Agreement
between the Company, The Narragansett
Electric Company, and USGen New England, Inc.
dated as of September 1, 1998 (filed
herewith).
* Compensation related plan, contract, or arrangement.
(13) 1998 Annual Report to Stockholders (filed herewith).
(21) Subsidiary list (filed herewith).
(24) Power of Attorney (filed herewith).
<PAGE>
(27) Financial Data Schedule (filed herewith).
Mass. Electric
--------------
(3) (a) Articles of Organization of the Company as amended
March 5, 1993, August 11, 1993, September 20, 1993,
and November 11, 1993 (Exhibit 3(a) to 1993 Form
10-K, File No. 0-5464).
(b) By-Laws of the Company as amended December 12, 1997
(Exhibit 3(b) to 1997 Form 10-K, File No. 0-5464).
(4) First Mortgage Indenture and Deed of Trust, dated as of
July 1, 1949, and twenty-one supplements thereto (Exhibit
7-A, File No. 1-8019; Exhibit 7-B, File No. 2-8836;
Exhibit 4-C, File No. 2-9593; Exhibit 4 to 1980 Form 10-K,
File No. 2-8019; Exhibit 4 to 1982 Form 10-K, File No.
0-5464; Exhibit 4 to 1986 Form 10-K, File No. 0-5464);
Exhibit 4 to 1988 Form 10-K, File No. 0-5464; Exhibit 4(a)
to 1989 NEES Form 10-K, File No. 1-3446; Exhibit 4(a) to
1992 NEES Form 10-K, File No. 1-3446; Exhibit 4(a) to 1993
NEES Form 10-K, File No. 1-3446; Exhibit 4(a) to 1995 NEES
Form 10-K, File No. 1-3446).
(10) Material Contracts
(a) Boston Edison Company et al. and Company: Amended
REMVEC Agreement dated August 12, 1977 (Exhibit
5-4(d), File No. 2-61881).
(i) Boston Edison Company et al. and Company:
REMVEC II Agreement dated on or about July 1,
1997 (Exhibit 10(a)(i) to NEES' 1997 Form 10-
K, File No. 1-3446).
(ii) Boston Edison Company et al. and Company:
Security Analysis Services Agreement dated on
or about July 1, 1997 (Exhibit 10(a)(ii) to
NEES' 1997 Form 10-K, File No. 1-3446).
(b) New England Power Company and the Company: Primary
Service for Resale dated February 15, 1974 (Exhibit
5-17(a), File No. 2-52969); Amendment of Service
Agreement dated July 22, 1983 (Exhibit 10(b) to
1986 Form 10-K, File No. 0-5464); Amendment of
Service Agreement effective November 1, 1993
(Exhibit 10(e) to 1993 NEP Form 10-K, File No. 0-
1229); Memorandum of Understanding effective May
22, 1994 (Exhibit 10(e) to 1994 NEP Form 10-K, File
No. 0-1229); Amendment of Service Agreement
effective July 1, 1996 (Exhibit 10(e) to 1997 NEP
Form 10-K, File No. 0-1229); Amendment to Service
Agreement dated as of February 1, 1997 (Exhibit
10(e) to 1997 NEP Form 10-K, File No. 0-1229);
Supplement to Amendment to Service Agreement dated
<PAGE>
as of March 1, 1998 (Exhibit 10(e) to 1998 NEP Form
10-K, File No. 0-1229).
(c) New England Power Pool Agreement: (Exhibit 4(e),
File No. 2-43025); Amendments dated July 1, 1972,
and March 1, 1973 (Exhibit 10-15, File No.
2-48543); Amendment dated March 15, 1974 (Exhibit
10-5, File No. 2-52775); Amendment dated June 1,
1975 (Exhibit 10-14, File No. 2-57831); Amendment
dated September 1, 1975 (Exhibit 10-13, File No.
2-59182); Amendments dated December 31, 1976,
January 31, 1977, July 1, 1977, and August 1, 1977
(Exhibit 10-16, File No. 2-61881); Amendments dated
August 15, 1978, January 3, 1980, and February 1980
(Exhibit 10-3, File No. 2-68283); Amendment dated
September 1, 1981 (Exhibit 10(h) to NEES' 1981 Form
10-K, File No. 1-3446); Amendment dated as of
December 1, 1981 (Exhibit 10(h) to NEES' 1982 Form
10-K, File No. 1-3446); Amendments dated June 1,
1982, June 15, 1983, and October 1, 1983 (Exhibit
10(i) to NEES' 1983 Form 10-K, File No. 1-3446);
Amendments dated August 1, 1985, August 15, 1985,
September 1, 1985, and January 1, 1986 (Exhibit
10(i) to NEES' 1985 Form 10-K, File No. 1-3446);
Amendment dated September 1, 1986 (Exhibit 10(i) to
NEES' 1986 Form 10-K, File No. 1-3446); Amendments
dated April 30, 1987 (Exhibit 10(i) to NEES' 1987
Form 10-K, File No. 1-3446); Amendments dated
March 1, 1988 and May 1, 1988 (Exhibit 10(i) to
NEES' 1988 Form 10-K, File No. 1-3446); Amendment
dated March 15, 1989 (Exhibit 10(i) to 1989 NEES
Form 10-K, File No. 1-3446). Amendment dated
October 1, 1990 (Exhibit 10(i) to 1990 NEES Form
10-K, File No. 1-3446); Amendment dated as of
September 15, 1992 (Exhibit 10(i) to 1992 NEES Form
10-K, File No. 1-3446). Amendments dated as of
June 1, 1993, July 1, 1995, and September 1, 1995
(Exhibit 10(i) to 1995 NEES Form 10-K, File No. 1-
3446); Amendment dated as of December 1, 1996
(Exhibit 10(i) to 1996 NEES Form 10-K, File No. 1-
3446); Amendment dated as of November 28, 1997
(Exhibit 10(i) to 1997 NEES Form 10-K, File No. 1-
3446); Amendment dated as of September 1, 1997 and
Amendment dated as of November 15, 1997 (Exhibit
10(i) to 1997 NEES Form 10-K, File No. 1-3446).
(d) New England Power Service Company and the Company:
Specimen of Service Contract (Exhibit 10(l) to 1994
NEP Form 10-K, File No. 0-1229).
(e) New England Power Company et al. and the Company:
Form of Mutual Assistance Agreement (Exhibit 10(n)
to 1996 NEP Form 10-K, File No. 0-1229).
(f) New England Power Company et al. and the Company:
Restructuring Settlement Agreement approved by the
Massachusetts Department of Public Utilities
<PAGE>
February 26, 1997 (Exhibit 10(o) to 1996 Form 10-K,
File No. 0-1229).
(g) New England Telephone and Telegraph Company and the
Company: Specimen of Joint Ownership Agreement for
Wood Poles (Exhibit 4(e), File No. 2-24458).
*(h) New England Electric Companies' Deferred
Compensation Plan as amended through February 28,
1998 (Exhibit 10(l) to NEES' 1998 Form 10-K, File
No. 1-3446).
*(i) New England Electric System Companies Retirement
Supplement Plan as amended through June 1, 1996
(Exhibit 10(n) to NEES' 1996 Form 10-K, File No.
1-3446).
*(j) New England Electric Companies' Executive
Supplemental Retirement Plan I as amended through
December 11, 1998 (Exhibit 10(n) to NEES' 1998 Form
10-K, File No. 1-3446).
*(k) New England Electric Companies' Executive Retirees
Health and Life Insurance Plan as Amended and
Restated January 1, 1996 (Exhibit 10(o) to NEES'
1998 Form 10-K, File No. 1-3446).
*(l) New England Electric Companies' Incentive
Compensation Plan I as amended through January 1,
1998 (Exhibit 10(p) to NEES' 1998 Form 10-K, File
No. 1-3446).
*(m) New England Electric Companies' Incentive
Compensation Plan II as amended through January 1,
1998 (Exhibit 10(q) to NEES' 1998 Form 10-K, File
No. 1-3446).
*(n) New England Electric Companies' Incentive
Compensation Plan III as amended through January 1,
1998 (Exhibit 10(r) to NEES' 1998 Form 10-K, File
No. 1-3446).
*(o) New England Electric Companies' Form of Deferred
Compensation Agreement for Directors (Exhibit 10(p)
to NEES' 1980 Form 10-K, File No. 1-3446).
*(p) New England Electric Companies' Senior Incentive
Compensation Plan as amended through January 1,
1998 (Exhibit 10(s) to NEES' 1998 Form 10-K, File
No. 1-3446).
*(q) Forms of Life Insurance Program: (Exhibit 10(s) to
NEES' 1986 Form 10-K, File No. 1-3446); and Form of
Life Insurance (Collateral Assignment) (Exhibit
10(t) to NEES' 1991 Form 10-K, File No. 1-3446).
<PAGE>
*(r) New England Electric Companies' Incentive Share
Plan as amended through February 24, 1997 (Exhibit
10(w) to NEES' 1996 Form 10-K, File No. 1-3446).
*(s) New England Electric Companies' Long-Term
Performance Share Award Plan amended through August
25, 1998 (Exhibit 10(w) to NEES' 1998 Form 10-K,
File No. 1-3446).
*(t) New England Electric System Directors' Retirement
Plan as amended through December 11, 1998 (Exhibit
10(x) to NEES' 1998 Form 10-K, File No. 1-3446.
*(u) Forms of Severance Protection Agreement (Exhibit
10(z) to NEES' 1996 Form 10-K, File No. 1-3446).
Forms of Severance Protection Agreements (Exhibit
10(y) to NEES' 1998 Form 10-K, File No. 1-3446).
*(v) New England Power Service Company and the Company:
Form of Supplemental Pension Service Credit
Agreement (Exhibit 10(ee) to 1992 NEES Form 10-K,
File No. 1-3446).
(w) Amended and Restated Wholesale Standard Offer
Service Agreement among the Company, Nantucket
Electric Company, and USGen New England, Inc. dated
as of October 29, 1997 (Exhibit 10(w) to 1997 Form
10-K, File No. D-5464).
* Compensation related plan, contract, or arrangement.
(12) Statement re computation of ratios for incorporation by
reference into the Mass. Electric registration statement
on Form S-3, Commission File No. 333-46431 (filed
herewith).
(13) 1998 Annual Report to Stockholders (filed herewith).
(24) Power of Attorney (filed herewith).
(27) Financial Data Schedule (filed herewith).
Narragansett
------------
(3) (a) Articles of Incorporation as amended June 9, 1988
(Exhibit 3(a) to 1988 Form 10-K, File No. 0-898).
(b) By-Laws of the Company (Exhibit 3 to 1980 Form
10-K, File No. 0-898).
(4) (a) First Mortgage Indenture and Deed of Trust, dated
as of September 1, 1944, and twenty-three
supplements thereto (Exhibit 7-1, File No. 2-7042;
Exhibit 7-B, File No. 2-7490; Exhibit 4-C, File No.
2-9423; Exhibit 4-D, File No. 2-10056; Exhibit 4 to
<PAGE>
1980 Form 10-K, File No. 0-898; Exhibit 4 to 1982
Form 10-K, File No. 0-898; Exhibit 4 to 1983 Form
10-K, File No. 0-898; Exhibit 4 to 1985 Form 10-K,
File No. 0-898; Exhibit 4 to 1986 Form 10-K, File
No. 0-898; Exhibit 4 to 1987 Form 10-K, File No.
0-898; Exhibit 4(b) to 1991 NEES Form 10-K, File
No. 1-3446; Exhibit 4(b) to 1992 NEES Form 10-K,
File No. 1-3446; Exhibit 4(b) to 1993 NEES Form 10-
K, File No. 1-3446; Exhibit 4(b) to 1995 NEES Form
10- K, File No. 1-3446; Exhibit 4(b) to 1998 NEES
Form 10-K, File No. 1-3446).
(b) The Narragansett Electric Company Preference
Provisions, as amended, dated December 15, 1997
(Exhibit 4(c) to 1997 NEES Form 10-K, File No. 1-
3446).
(10) Material Contracts
(a) Boston Edison Company et al. and the Company:
Amended REMVEC Agreement dated August 12, 1977
(Exhibit 5-4(d), File No. 2-61881).
(i) Boston Edison Company et al. and the Company:
REMVEC II Agreement dated on or about July 1,
1997 (Exhibit 10(a)(i) to NEES' 1997 Form 10-
K, File No. 1-3446).
(ii) Boston Edison Company et al. and the Company:
Security Analysis Services Agreement dated on
or about July 1, 1997 (Exhibit 10(a)(ii) to
NEES' 1997 Form 10-K, File No. 1-3446).
(b) New England Power Company and the Company: Primary
Service for Resale dated February 15, 1974 (Exhibit
4-1(b), File No. 2-51292); Amendment of Service
Agreement dated July 26, 1990 (Exhibit 10(f) to
1990 NEP Form 10-K, File No. 0-1229); Amendment of
Service Agreement dated July 24, 1991 (Exhibit 4(f)
to 1991 NEP Form 10-K, File No. 0-1229); Amendment
of Service Agreement effective November 1, 1993
(Exhibit 10(f) to 1993 NEP Form 10-K, File No. 0-
1229); Memorandum of Understanding effective May
22, 1994 (Exhibit 10(f) to 1994 NEP Form 10-K, File
No. 0-1229); Amendment of Service Agreement
effective January 1, 1995 (Exhibit 10(f) to 1995
NEP Form 10-K, File No. 0-1229); Amendment of
Service Agreement effective October 30, 1995,
Amendment of Service Agreement dated as of February
1, 1997 (Exhibit 10(f) to 1997 NEP Form 10-K, File
No. 0-1229). Supplement to Amendment to Service
Agreement dated as of December 31, 1998 (Exhibit
10(f) to 1998 NEP Form 10-K, File No. 0-1229).
(c) New England Power Pool Agreement: (Exhibit 4(e),
File No. 2-43025); Amendments dated July 1, 1972,
and March 1, 1973 (Exhibit 10-15, File No.
<PAGE>
2-48543); Amendment dated March 15, 1974 (Exhibit
10-5, File No. 2-52775); Amendment dated June 1,
1975 (Exhibit 10-14, File No. 2-57831); Amendment
dated September 1, 1975 (Exhibit 10-13, File No.
2-59182); Amendments dated December 31, 1976,
January 31, 1977, July 1, 1977, and August 1, 1977
(Exhibit 10-16, File No. 2-61881); Amendments dated
August 15, 1978, January 3, 1980, and February 1980
(Exhibit 10-3, File No. 2-68283); Amendment dated
September 1, 1981 (Exhibit 10(h) to NEES' 1981 Form
10-K, File No. 1-3446); Amendment dated December 1,
1981 (Exhibit 10(h) to NEES' 1982 Form 10-K, File
No. 1-3446); Amendments dated June 1, 1982,
June 15, 1983, and October 1, 1983 (Exhibit 10(i)
to NEES' 1983 Form 10-K, File No. 1-3446);
Amendments dated August 1, 1985, August 15, 1985,
September 1, 1985, and January 1, 1986 (Exhibit 10
(i) to NEES' 1985 Form 10-K, File No. 1-3446);
Amendment dated September 1, 1986 (Exhibit 10(i) to
NEES' 1986 Form 10-K, File No. 1-3446); Amendment
dated April 30, 1987 (Exhibit 10(i) to NEES' 1987
Form 10-K, File No. 1-3446); Amendments dated March
1, 1988 and May 1, 1988 (Exhibit 10(i) to NEES'
1988 Form 10-K, File No. 1-3446); Amendment dated
March 15, 1989 (Exhibit 10(i) to 1989 NEES Form
10-K, File No. 1-3446). Amendment dated October 1,
1990 (Exhibit 10(i) to 1990 NEES' Form 10-K, File
No. 1-3446); Amendment dated as of September 15,
1992 (Exhibit 10(i) to NEES' 1992 Form 10-K, File
No. 1-3446); Amendments dated as of June 1, 1993,
July 1, 1995, and September 1, 1995 (Exhibit 10(i)
to NEES' 1995 Form 10-K, File No. 1-3446);
Amendment dated as of December 1, 1996 (Exhibit
10(i) to 1996 NEES Form 10-K, File No. 1-3446);
Amendment dated as of September 1, 1997 and
Amendment dated as of November 15, 1997 (Exhibit
10(i) to 1997 NEES Form 10-K, File No. 1-3446).
(d) New England Power Service Company and the Company:
Specimen of Service Contract (Exhibit 4(l) to 1994
NEP Form 10-K, File No. 0-1229).
(e) New England Power Company et al. and the Company:
Form of Mutual Assistance Agreement (Exhibit 10 (n)
to 1996 Form 10-K, File No. 0-1229).
(f) New England Telephone and Telegraph Company and the
Company: Specimen of Joint Ownership Agreement for
Wood Poles (Exhibit 3(d), File No. 2-24458).
*(g) New England Electric Companies' Deferred
Compensation Plan, as amended through February 28,
1998 (Exhibit 10(l) to NEES' 1998 Form 10-K, File
No. 1-3446).
*(h) New England Electric System Companies Retirement
Supplement Plan, as amended through June 1, 1996
<PAGE>
(Exhibit 10(n) to NEES' 1996 Form 10-K, File No.
1-3446).
*(i) New England Electric Companies' Executive
Supplemental Retirement Plan I, as amended through
December 11, 1998 (Exhibit 10(n) to NEES' 1998
Form 10-K, File No. 1-3446).
*(j) New England Electric Companies' Executive Retirees
Health and Life Insurance Plan as Amended and
Restated January 1, 1996 (Exhibit 10(o) to NEES'
1998 Form 10-K, File No. 1-3446).
*(k) New England Electric Companies' Incentive
Compensation Plan I, as amended through January 1,
1998 (Exhibit 10(p) to NEES' 1998 Form 10-K, File
No. 1-3446).
*(l) New England Electric Companies' Incentive
Compensation Plan II as amended through January 1,
1998 (Exhibit 10(q) to NEES' 1998 Form 10-K, File
No. 1-3446).
*(m) New England Electric Companies' Incentive
Compensation Plan III as amended through January 1,
1998 (Exhibit 10(r) to NEES' 1998 Form 10-K, File
No. 1-3446).
*(n) New England Electric Companies' Form of Deferred
Compensation Agreement for Directors (Exhibit 10(p)
to NEES' 1980 Form 10-K, File No. 1-3446).
*(o) New England Electric Companies' Senior Incentive
Compensation Plan as amended through January 1,
1998 (Exhibit 10(s) to NEES' 1998 Form 10-K, File
No. 1-3446).
*(p) Forms of Life Insurance Program (Exhibit 10(s) to
NEES' 1986 Form 10-K, File No. 1-3446); and Form of
Life Insurance (Collateral Assignment) (Exhibit
10(t) to NEES' 1991 Form 10-K, File No. 1-3446).
*(q) New England Electric Companies' Incentive Share
Plan as amended through February 24, 1997 (Exhibit
10(u) to NEES' 1995 Form 10-K, File No. 1-3446).
*(r) New England Power Service Company and the Company:
Form of Supplemental Pension Service Credit
Agreement (Exhibit 10(ee) to 1992 NEES Form 10-K,
File No. 1-3446).
*(s) New England Electric Companies' Long-Term
Performance Share Award Plan amended through August
25, 1998 (Exhibit 10(w) to NEES' 1998 Form 10-K,
File No. 1-3446).
<PAGE>
*(t) New England Electric System Directors' Retirement
Plan amended through December 11, 1998 (Exhibit
10(x) to NEES 1998 Form 10-K, File No. 1-3446).
*(u) Forms of Severance Protection Agreement (Exhibit
10(z) to NEES' 1996 Form 10-K, File No. 1-3446).
Forms of Severance Protection Agreements (Exhibit
10(y) to NEES' 1998 Form 10-K, File No. 1-3446).
(v) USGen New England, Inc. Contracts
(i) Asset Purchase Agreement between the Company
and New England Power Company dated as of
August 5, 1997 (Exhibit 2 to NEES' Form 10-Q
for the period ended September 30, 1997, File
No. 1-3446).
(ii) Amended and Restated Wholesale Standard Offer
Service Agreement between the Company and
USGen New England, Inc. dated as of October
29, 1997 (Exhibit 10(w) to 1997 Form 10-K,
File No. 0-5464).
* Compensation related plan, contract, or arrangement.
(12) Statement re computation of ratios for incorporation by
reference into the Narragansett registration statement on
Form S-3, Commission File No. 33-61131 (filed herewith).
(13) 1998 Annual Report to Stockholders (filed herewith).
(24) Power of Attorney (filed herewith).
(27) Financial Data Schedule (filed herewith).
Reports on Form 8-K
NEES
----
NEES filed a report on Form 8-K dated December 11, 1998 which
contained ITEM 5.
NEP
---
NEP filed a report on Form 8-K dated December 11, 1998 which
contained ITEM 5.
Mass. Electric
--------------
Mass. Electric filed a report on Form 8-K dated December 11,
1998 which contained ITEM 5.
Narragansett
------------
Narragansett filed a report on Form 8-K dated December 11, 1998
which contained ITEM 5.
<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 report to be signed
on its behalf, by the undersigned thereunto duly authorized.
NEW ENGLAND ELECTRIC SYSTEM*
s/Richard P. Sergel
Richard P. Sergel
President and
Chief Executive Officer
March 31, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated.
(Signature and Title)
Principal Executive Officer
s/Richard P. Sergel
Richard P. Sergel
President and
Chief Executive Officer
Principal Financial Officer
s/Michael E. Jesanis
Michael E. Jesanis
Senior Vice President and
Chief Financial Officer
Principal Accounting Officer
s/John G. Cochrane
John G. Cochrane
Vice President and
Treasurer
Directors (a majority)
Joan T. Bok
William M. Bulger
Alfred D. Houston
Paul L. Joskow
John M. Kucharski
Edward H. Ladd
Joshua A. McClure
George M. Sage s/John G. Cochrane
Richard P. Sergel All by:
Charles E. Soule John G. Cochrane
Anne Wexler Attorney-in-fact
James Q. Wilson
James R. Winoker
Date (as to all signatures on this page)
March 31, 1999
*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 report 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/Peter G. Flynn
Peter G. Flynn
President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated. The signature of
each of the undersigned shall be deemed to relate only to matters having
reference to the above-named company.
(Signature and Title)
Principal Executive Officer
s/Peter G. Flynn
Peter G. Flynn
President
Principal Financial Officer
s/John G. Cochrane
John G. Cochrane
Treasurer
Principal Accounting Officer
s/Howard W. McDowell
Howard W. McDowell
Controller
Directors (a majority)
Peter G. Flynn
Alfred D. Houston
Cheryl A. LaFleur s/John G. Cochrane
Richard P. Sergel All by:
John G. Cochrane
Attorney-in-fact
Date (as to all signatures on this page)
March 31, 1999
<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 report 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/Lawrence J. Reilly
Lawrence J. Reilly
President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated. The signature of
each of the undersigned shall be deemed to relate only to matters having
reference to the above-named company.
(Signature and Title)
Principal Executive Officer
s/Lawrence J. Reilly
Lawrence J. Reilly
President
Principal Financial Officer
s/John G. Cochrane
John G. Cochrane
Treasurer
Principal Accounting Officer
s/Howard W. McDowell
Howard W. McDowell
Controller
Directors (a majority)
Cheryl A. LaFleur
Robert L. McCabe
Lydia M. Pastuszek
Lawrence J. Reilly
Christopher E. Root s/John G. Cochrane
Nancy H. Sala All by:
Richard P. Sergel John G. Cochrane
Attorney-in-fact
Date (as to all signatures on this page)
March 31, 1999
<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 report 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/Lawrence J. Reilly
Lawrence J. Reilly
President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated. The signature of
each of the undersigned shall be deemed to relate only to matters having
reference to the above-named company.
(Signature and Title)
Principal Executive Officer
s/Lawrence J. Reilly
Lawrence J. Reilly
President
Principal Financial Officer
s/John G. Cochrane
John G. Cochrane
Treasurer
Principal Accounting Officer
s/Howard W. McDowell
Howard W. McDowell
Controller
Directors (a majority)
s/John G. Cochrane
Cheryl A. LaFleur All by:
Robert L. McCabe John G. Cochrane
Lawrence J. Reilly Attorney-in-fact
Michael F. Ryan
Richard P. Sergel
Ronald L. Thomas
Date (as to all signatures on this page)
March 31, 1999
<PAGE>
<TABLE>
NEW ENGLAND ELECTRIC SYSTEM AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
<CAPTION>
References (Page)
-----------------------
1998 Annual
Form Report to
10-K Shareholders*
---- -------------
<S> <C> <C>
Report of Independent Accountants........................... 45
Statements of Consolidated Income,
Year Ended December 31, 1998, 1997 and 1996............. 21
Statements of Consolidated Retained Earnings,
Year Ended December 31, 1998, 1997 and 1996............. 21
Consolidated Balance Sheets, December 31, 1998 and 1997... 22
Consolidated Statements of Cash Flows,
Year Ended December 31, 1998, 1997 and 1996............. 23
Consolidated Statements of Capitalization,
December 31, 1998 and 1997.............................. 24
Notes to Financial Statements............................... 26-44
For the Year Ended December 31, 1998, 1997 and 1996:
Consent of Independent Accountants........................ 104
* Incorporated by Reference
</TABLE>
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
----------------------------------
We consent to the incorporation by reference in the registration
statements of New England Electric System (the "System") on Form S-3 of
the Dividend Reinvestment and Common Share Purchase Plan (File No.
33-12313), on Forms S-4 (File Nos. 333-47383 and 333-60315) and on Forms
S-8 of the New England Electric System Companies Incentive Thrift Plan
(File No. 33-26066), the New England Electric System Companies Incentive
Thrift Plan II (File No. 33-35470) and the Yankee Atomic Electric Company
Thrift Plan (File No. 2-67531) of our report dated February 23, 1999 on
our audits of the consolidated financial statements of New England
Electric System and subsidiaries as of December 31, 1998 and 1997 and for
each of the three years in the period ended December 31, 1998 which report
is incorporated by reference in this Annual Report on Form 10-K from the
System's filing on Form 8-K, dated March 25, 1999.
We also consent to the incorporation by reference in the registration
statements of Massachusetts Electric Company on Form S-3 (File No. 333-
46431) and The Narragansett Electric Company on Form S-3 (File No.
33-61131) of our reports dated February 23, 1999 on our audits of the
financial statements of Massachusetts Electric Company and The
Narragansett Electric Company, respectively, as of December 31, 1998 and
1997 and for each of the three years in the period ended December 31,
1998, which reports are incorporated by reference in this Annual Report on
Form 10-K.
s/ PricewaterhouseCoopers LLP
Boston, Massachusetts
March 31, 1999
<PAGE>
<TABLE>
NEW ENGLAND POWER COMPANY
INDEX TO FINANCIAL STATEMENTS
<CAPTION>
References (Page)
----------------------
1998 Annual
Form Report to
10-K Shareholders*
---- -------------
<S> <C> <C>
Report of Independent Accountants........................... 1
Statements of Income,
Year Ended December 31, 1998, 1997 and 1996............... 12
Statements of Retained Earnings,
Year Ended December 31, 1998, 1997 and 1996............... 12
Balance Sheets, December 31, 1998 and 1997.................. 13
Statements of Cash Flows,
Year Ended December 31, 1998, 1997 and 1996............... 14
Notes to Financial Statements............................... 15-34
For the Year Ended December 31, 1998, 1997 and 1996:
Consent of Independent Accountants........................ 104
* Incorporated by Reference.
</TABLE>
<PAGE>
<TABLE>
MASSACHUSETTS ELECTRIC COMPANY
INDEX TO FINANCIAL STATEMENTS
<CAPTION>
References (Page)
----------------------
1998 Annual
Form Report to
10-K Shareholders*
---- -------------
<S> <C> <C>
Report of Independent Accountants........................... 1
Statements of Income,
Year Ended December 31, 1998, 1997 and 1996............... 10
Statements of Retained Earnings,
Year Ended December 31, 1998, 1997 and 1996............... 10
Balance Sheets, December 31, 1998 and 1997.................. 11
Statements of Cash Flows,
Year Ended December 31, 1998, 1997 and 1996............... 12
Notes to Financial Statements............................... 13-26
For the Year Ended December 31, 1998, 1997 and 1996:
Consent of Independent Accountants........................ 104
* Incorporated by Reference.
</TABLE>
<PAGE>
<TABLE>
THE NARRAGANSETT ELECTRIC COMPANY
INDEX TO FINANCIAL STATEMENTS
<CAPTION>
References (Page)
----------------------
1998 Annual
Form Report to
10-K Shareholders*
---- -------------
<S> <C> <C>
Report of Independent Accountants........................... 1
Statements of Income,
Year Ended December 31, 1998, 1997 and 1996............... 10
Statements of Retained Earnings,
Year Ended December 31, 1998, 1997 and 1996............... 10
Balance Sheets, December 31, 1998 and 1997.................. 11
Statements of Cash Flows,
Year Ended December 31, 1998, 1997 and 1996............... 12
Notes to Financial Statements............................... 13-26
For the Year Ended December 31, 1998, 1997 and 1996:
Consent of Independent Accountants........................ 104
* Incorporated by Reference.
</TABLE>
<PAGE>
NEES
EXHIBIT INDEX
---------------
Exhibit No. Description Page
- ----------- ----------- ----
(3) Agreement and Declaration of Incorporated
Trust dated January 2, 1926, by Reference
as amended through April 28,
1992
(4)(a) Massachusetts Electric Company Incorporated
First Mortgage Indenture and by Reference
Deed of Trust, dated as of
July 1, 1949, and twenty-one
supplements thereto
(4)(b) The Narragansett Electric Filed herewith
Company First Mortgage Indenture
and Deed of Trust, dated as of
September 1, 1944, and twenty-three
supplements thereto
(4)(c) The Narragansett Electric Incorporated
Company Preference Provisions, by Reference
as amended, dated December 15,
1997
(10)(a) Boston Edison Company et al. and Incorporated
New England Power Company: by Reference
Amended REMVEC Agreement dated
August 12, 1977
(10)(a)(i) Boston Edison Company et al. and Incorporated
New England Power Company: REMVEC by Reference
II Agreement dated on or about
July 1, 1994
(10)(a)(ii) Boston Edison Company et al. and Incorporated
New England Power Company: by Reference
Security Analysis Service
Agreement dated on or about
July 1, 1994
(10)(b) The Connecticut Light and Power Incorporated
Company et al. and New England by Reference
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
<PAGE>
(10)(c) Connecticut Yankee Atomic Power Incorporated
Company et al. and New England by Reference
Power Company: Stockholders
Agreement dated July 1, 1964;
Power Purchase Contract dated
July 1, 1964; Additional
Power Contract dated as of
April 30, 1984 and 1996 Amendatory
Agreement dated as of December 4,
1996; 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 and
Amendment thereto dated
January 19, 1994; Five Year
Capital Contribution Agreement
dated November 1, 1980
(10)(d) Maine Yankee Atomic Power Company Incorporated
et al. and New England Power by Reference
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; 1997 Amendatory
Agreement dated as of August 6,
1997
(10)(e) New England Power Company and Incorporated
New England Electric Transmission by Reference
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)(f) New England Electric Transmission Incorporated
Corporation and PruCapital by Reference
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)(g) Vermont Electric Transmission Incorporated
Company, Inc. et al. and New by Reference
England Power Company: Phase I
Vermont Transmission Line
Support Agreement dated as
of December 1, 1981 and
Amendments thereto
(10)(h) New England Power Pool Incorporated
Agreement and Amendments thereto by Reference
(10)(i) Public Service Company of New Incorporated
Hampshire et al. and New England by Reference
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)(j) Vermont Yankee Nuclear Power Incorporated
Corporation et al. and New by Reference
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)(k) Yankee Atomic Electric Company Incorporated
et al. and New England Power by Reference
Company: Amended and Restated
Power Contract dated April 1,
1985 and Amendments thereto
(10)(l) New England Electric Companies' Filed herewith
Deferred Compensation Plan as
amended through February 28, 1998
(10)(m) New England Electric System Incorporated
Companies Retirement Supplement by Reference
Plan as amended through June 1,
1996
(10)(n) New England Electric Companies' Filed herewith
Executive Supplemental Retirement
Plan as amended through
December 11, 1998
(10)(o) New England Electric Companies' Filed herewith
Executive Retirees Health and Life
Insurance Plan as Amended and
Restated January 1, 1996
(10)(p) New England Electric Companies' Filed herewith
Incentive Compensation Plan I
as amended through January 1,
1998
(10)(q) New England Electric Companies' Filed herewith
Incentive Compensation Plan II
as amended through January 1,
1998
(10)(r) New England Electric Companies' Filed herewith
Incentive Compensation Plan III
as amended through January 1,
1998
(10)(s) New England Electric Companies' Filed herewith
Senior Incentive Compensation
Plan as amended through
January 1, 1998
<PAGE>
(10)(t) New England Electric System Filed herewith
Directors Deferred Compensation
Plan as amended through
February 28, 1998
(10)(u) Forms of Life Insurance Program Incorporated
and Form of Life Insurance by Reference
(Collateral Assignment)
(10)(v) New England Electric Companies' Incorporated
Incentive Share Plan as amended by Reference
through February 24, 1997
(10)(w) New England Electric Companies' Filed herewith
Long-Term Performance Share
Award Plan amended through
August 25, 1998
(10)(x) New England Electric System Filed herewith
Directors' Retirement Plan
amended through December 11, 1998
(10)(y) Forms of Severance Protection Filed herewith
Agreements
(10)(z) New England Power Service Incorporated
Company and Joan T. Bok: by Reference
Service Credit Letter dated
October 21, 1982
(10)(aa) New England Power Service Company Incorporated
and Robert L. McCabe: Employment by Reference
Agreement entered into as of
March 11, 1998
(10)(bb) New England Electric System Filed herewith
and Richard P. Sergel Agreement
dated March 1, 1998
(10)(cc) New England Power Service Incorporated
Company and the Company: by Reference
Form of Supplemental Pension
Service Credit Agreement
(10)(dd) New England Power Company and Incorporated
New England Hydro-Transmission by Reference
Electric Company, Inc. et al:
Phase II Massachusetts
Transmission Facilities Support
Agreement dated as of June 1,
1985 and Amendments thereto
(10)(ee) New England Power Company and Incorporated
New England Hydro-Transmission by Reference
Corporation et al: Phase II
New Hampshire Transmission
Facilities Support Agreement
dated as of June 1, 1985 and
Amendments thereto
<PAGE>
(10)(ff) New England Power Company et Incorporated
al: Phase II New England Power by Reference
AC Facilities Support Agreement
dated as of June 1, 1985 and
Amendments thereto
(10)(gg) New England Hydro-Transmission Incorporated
Electric Company, Inc. and New by Reference
England Electric System et al:
Equity Funding Agreement dated
as of June 1, 1985 and Amendments
thereto
(10)(hh) New England Hydro-Transmission Incorporated
Corporation and New England by Reference
Electric System et al:
Equity Funding Agreement dated
as of June 1, 1985 and Amendments
thereto
(10)(ii) NEES Energy, Inc./AllEnergy Filed herewith
Marketing Company, L.L.C.:
Agreement and Plan of Merger
dated December 31, 1998
(10)(jj) USGen, New England, Inc. and Incorporated
New England Power Company by Reference
and The Narragansett Electric
Company: Asset Purchase Agreement
dated as of August 5, 1997
(10)(kk) The National Grid Group plc, Incorporated
Iosta LLC: Agreement and Plan of by Reference
Merger, dated as of December 11,
1998
(13) 1998 Annual Report to Incorporated
Shareholders by Reference
(21) Subsidiary list Incorporated
by Reference
(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 Incorporated
amended through June 25, 1987 by Reference
(3)(b) By-laws of the Company as Incorporated
amended December 12, 1997 by Reference
(10)(a) Boston Edison Company et al. Incorporated
and the Company: Amended by Reference
REMVEC Agreement dated
August 12, 1977
(10)(a)(i) Boston Edison Company et al. Incorporated
and the Company: REMVEC II by Reference
Agreement dated on or about
July 1, 1997
(10)(a)(ii) Boston Edison Company et al. Incorporated
and the Company: Security by Reference
Analysis Services Agreement
dated on or about July 1, 1997
(10)(b) The Connecticut Light and Power Incorporated
Company et al. and the Company: by Reference
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 Incorporated
Company et al. and the Company: by Reference
Stockholders Agreement dated
July 1, 1964; Power Purchase
Contract dated July 1, 1964;
Additional Power Contract dated
as of April 30, 1984 and 1996;
Amendatory Agreement dated as
of December 4, 1996;
Supplementary Power Contract
dated as of April 1, 1987;
<PAGE>
(10)(c) Capital Funds Agreement dated
(cont.) 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
Agreement dated November 1, 1980
(10)(d) Maine Yankee Atomic Power Incorporated
Company et al. and the Company: by Reference
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; 1997 Amendatory Agreement
dated as of August 6, 1997
(10)(e) Mass. Electric and the Company: Incorporated
Primary Service for Resale dated by Reference
February 15, 1974; and Amendments
thereto; Memorandum of Understanding
effective May 22, 1994;
Amendment of Service Agreement
effective July 1, 1996;
Amendment to Service Agreement
dated as of February 1, 1997
Supplement to Amendment to Filed herewith
Service Agreement dated as of
March 1, 1998
(10)(f) The Narragansett Electric Incorporated
Company and the Company: by Reference
Primary Service for Resale
dated February 15, 1974
and Amendments thereto;
Memorandum of Understanding
effective May 22, 1994 and
Amendment thereto;
Amendment of Service Agreement
effective October 30, 1995;
Amendment to Service Agreement
dated as of February 1, 1997
Supplement to Amendment to Filed herewith
Service Agreement dated as of
December 31, 1998
<PAGE>
(10)(g) New England Electric Incorporated
Transmission Corporation et al. by Reference
and the Company: Phase I
Terminal Facility Support
Agreement dated as of
December 1, 1981; Amendments
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)(h) Vermont Electric Transmission Incorporated
Company, Inc. et al. and the by Reference
Company: Phase I Vermont
Transmission Line Support
Agreement dated as of
December 1, 1981 and Amendments
thereto
(10)(i) New England Power Pool Incorporated
Agreement and Amendments by Reference
thereto
(10)(j) New England Power Service Incorporated
Company and the Company: by Reference
Specimen of Service Contract
(10)(k) Massachusetts Electric Incorporated
Company, et al. and the by Reference
Company: Form of Mutual
Assistance Agreement
(10)(l) Massachusetts Electric Incorporated
Company, et al. and the by Reference
Company: Restructuring
Settlement Agreement
approved by the Massachusetts
Department of Public Utilities
<PAGE>
(10)(m) Public Service Company of New Incorporated
Hampshire et al. and the by Reference
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
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
of July 19, 1990 between
Northeast Utilities Service
Company and the Company;
Seabrook Project Managing
Agent Operating Agreement
dated as of June 29, 1992;
and Amendment thereto
(10)(n) Vermont Yankee Nuclear Power Incorporated
Corporation et al. and the by Reference
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)(o) Yankee Atomic Electric Company Incorporated
et al. and the Company: by Reference
Amended and Restated Power
Contract dated April 1, 1985
and Amendments thereto
<PAGE>
(10)(p) New England Electric Companies' Incorporated
Deferred Compensation Plan as by Reference
amended through February 28, 1998
(10)(q) New England Electric System Incorporated
Companies Retirement Supplement by Reference
Plan as amended through June 1,
1996
(10)(r) New England Electric Companies' Incorporated
Executive Supplemental Retirement by Reference
Plan I as amended through
December 11, 1998
(10)(s) New England Electric Companies' Incorporated
Executive Retirees Health and Life by Reference
Insurance Plan as Amended and
Restated January 1, 1996
(10)(t) New England Electric Companies' Incorporated
Incentive Compensation Plan I as by Reference
amended through January 1, 1998
(10)(u) New England Electric Companies' Incorporated
Incentive Compensation Plan II as by Reference
amended through January 1, 1998
(10)(v) New England Electric Companies' Incorporated
Incentive Compensation Plan III as by Reference
amended through January 1, 1998
(10)(w) New England Electric Companies' Incorporated
Senior Incentive Compensation by Reference
Plan as amended through
January 1, 1998
(10)(x) Forms of Life Insurance Program Incorporated
and Form of Life Insurance by Reference
(Collateral Assignment)
(10)(y) New England Electric Companies' Incorporated
Incentive Share Plan as amended by Reference
through February 24, 1997
(10)(z) New England Electric System Incorporated
Directors' Retirement Plan by Reference
amended through December 11, 1998
(10)(aa) Forms of Severance Protection Incorporated
Agreements by Reference
(10)(bb) New England Electric Companies' Incorporated
Long-Term Performance Share by Reference
Award Plan amended through
August 25, 1998
<PAGE>
(10)(cc) New England Hydro-Transmission Incorporated
Electric Company, Inc. et al. by Reference
and the Company: Phase II
Massachusetts Transmission
Facilities Support Agreement
dated as of June 1, 1985
and Amendments thereto
(10)(dd) New England Hydro-Transmission Incorporated
Corporation et al. and the by Reference
Company: Phase II New Hampshire
Transmission Facilities Support
Agreement dated as of June 1,
1985 and Amendments thereto
(10)(ee) Vermont Electric Power Company Incorporated
et al. and the Company: Phase by Reference
II New England Power AC
Facilities Support Agreement
dated as of June 1, 1985 and
Amendments thereto
(10)(ff)(i) Asset Purchase Agreement between Incorporated
USGen New England and the Company by Reference
and The Narragansett Electric
Company dated as of August 5, 1997
(10)(ff)(ii) Wholesale Sales Agreement between Incorporated
the Company and USGen New England, by Reference
Inc. dated as of August 5, 1997
(10)(ff)(iii) PPA Transfer Agreement between Incorporated
the Company and USGen New England, by Reference
Inc. dated as of August 5, 1997
(10)(ff)(iv) Form of PSA Performance Support Incorporated
Agreement between the Company, by Reference
USGen New England, Inc., and
various Wholesale Customers
dated as of August 5, 1997
(10)(ff)(v) Quebec Interconnection Transfer Filed herewith
Agreement between the Company,
The Narragansett Electric Company,
and USGen New England, Inc.,
dated as of September 1, 1998
(13) 1998 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 Incorporated
Company as amended through by Reference
November 11, 1993
(3)(b) By-Laws of the Company as Incorporated
amended December 12, 1997 by Reference
(4) First Mortgage Indenture and Incorporated
Deed of Trust, dated as of by Reference
July 1, 1949, and twenty-one
supplements thereto
(10)(a) Boston Edison Company et al. Incorporated
and Company: Amended REMVEC by Reference
Agreement dated August 12,
1977
(10)(a)(i) Boston Edison Company et al. Incorporated
and Company: REMVEC II Agreement by Reference
dated on or about July 1, 1997
(10)(a)(ii) Boston Edison Company et al. Incorporated
and Company: Security Analysis by Reference
Services Agreement dated on
or about July 1, 1997
(10)(b) New England Power Company Incorporated
and the Company: Primary by Reference
Service for Resale dated
February 15, 1974, and
Amendments thereto; Memorandum
of Understanding effective
May 22, 1994; Supplement to
Amendment to Service Agreement
dated as of March 1, 1998
(10)(c) New England Power Pool Incorporated
Agreement and Amendments by Reference
thereto
(10)(d) New England Power Service Incorporated
Company and the Company: by Reference
Specimen of Service Contract
(10)(e) New England Power Company Incorporated
et al. and the Company: by Reference
Form of Mutual Assistance
Agreement
<PAGE>
(10)(f) New England Power Company Incorporated
et al. and the Company: by Reference
Restructuring Settlement
Agreement approved by the
Massachusetts Department of
Public Utilities February
26, 1997
(10)(g) New England Telephone and Incorporated
Telegraph Company and the by Reference
Company: Specimen of Joint
Ownership Agreement for Wood
Poles
(10)(h) New England Electric Companies' Incorporated
Deferred Compensation Plan as by Reference
amended through February 28, 1998
(10)(i) New England Electric System Incorporated
Companies Retirement Supplement by Reference
Plan as amended through June 1,
1996
(10)(j) New England Electric Companies' Incorporated
Executive Supplemental Retirement by Reference
Plan I as amended through
December 11, 1998
(10)(k) New England Electric Companies' Incorporated
Executive Retirees Health and Life by Reference
Insurance Plan as Amended and
Restated January 1, 1996
(10)(l) New England Electric Companies' Incorporated
Incentive Compensation Plan I by Reference
as amended through January 1,
1998
(10)(m) New England Electric Companies' Incorporated
Incentive Compensation Plan II by Reference
as amended through January 1,
1998
(10)(n) New England Electric Companies' Incorporated
Incentive Compensation Plan III by Reference
as amended through January 1,
1998
(10)(o) New England Electric Companies' Incorporated
Form of Deferred Compensation by Reference
Agreement for Directors
(10)(p) New England Electric Companies' Incorporated
Senior Incentive Compensation by Reference
Plan as amended through
January 1, 1998
<PAGE>
(10)(q) Forms of Life Insurance Program Incorporated
and Form of Life Insurance by Reference
(Collateral Assignment)
(10)(r) New England Electric Companies' Incorporated
Incentive Share Plan as amended by Reference
through February 24, 1997
(10)(s) New England Electric Companies' Incorporated
Long-Term Performance Share by Reference
Award Plan amended through
August 25, 1998
(10)(t) New England Electric System Incorporated
Directors' Retirement Plan by Reference
as amended through December 11,
1998
(10)(u) Forms of Severance Protection Incorporated
Agreements by Reference
(10)(v) New England Power Service Incorporated
Company and the Company: by Reference
Form of Supplemental Pension
Service Credit Agreement
(10)(w) Amended and Restated Wholesale Incorporated
Standard Offer Service Agreement by Reference
among the Company, Nantucket
Electric Company, and USGen New
England, Inc. dated as of
October 29, 1997
(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. 333-46431
(13) 1998 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 Incorporated
amended June 9, 1988 by Reference
(3)(b) By-Laws of the Company Incorporated
by Reference
(4)(a) First Mortgage Indenture and Incorporated
Deed of Trust, dated as of by Reference
September 1, 1944, and
twenty-three supplements thereto
(4)(b) The Narragansett Electric Incorporated
Company Preference Provisions, by Reference
as amended, dated December 15,
1997
(10)(a) Boston Edison Company et al. Incorporated
and the Company: Amended REMVEC by Reference
Agreement dated August 12, 1977
(10)(a)(i) Boston Edison Company et al. and Incorporated
the Company: REMVEC II Agreement by Reference
dated on or about July 1, 1997
(10)(a)(ii) Boston Edison Company et al. and Incorporated
the Company: Security Analysis by Reference
Services Agreement dated on or
about July 1, 1997
(10)(b) New England Power Company and Incorporated
the Company: Primary Service for by Reference
Resale dated February 15, 1974
and Amendments thereto; Memorandum
of Understanding effective May 22,
1994; Supplement to Amendment to
Service Agreement dated as of
December 31, 1998
(10)(c) New England Power Pool Agreement Incorporated
and Amendments thereto by Reference
(10)(d) New England Power Service Incorporated
Company and the Company: by Reference
Specimen of Service Contract
(10)(e) New England Power Company Incorporated
et al. and the Company: by Reference
Form of Mutual Assistance
Agreement
<PAGE>
(10)(f) New England Telephone and Incorporated
Telegraph Company and the by Reference
Company: Specimen of Joint
Ownership Agreement for Wood
Poles
(10)(g) New England Electric Companies' Incorporated
Deferred Compensation Plan by Reference
as amended through February 28,
1998
(10)(h) New England Electric System Incorporated
Companies Retirement Supplement by Reference
Plan, as amended through June
1, 1996
(10)(i) New England Electric Companies' Incorporated
Executive Supplemental Retirement by Reference
Plan I, as amended through
December 11, 1998
(10)(j) New England Electric Companies' Incorporated
Executive Retirees Health and Life by Reference
Insurance Plan as Amended and
Restated January 1, 1996
(10)(k) New England Electric Companies' Incorporated
Incentive Compensation Plan I, by Reference
as amended through January 1,
1998
(10)(l) New England Electric Companies' Incorporated
Incentive Compensation Plan II, by Reference
as amended through January 1,
1998
(10)(m) New England Electric Companies' Incorporated
Incentive Compensation Plan III, by Reference
as amended through January 1,
1998
(10)(n) New England Electric Companies' Incorporated
Form of Deferred Compensation by Reference
Agreement for Directors
(10)(o) New England Electric Companies' Incorporated
Senior Incentive Compensation by Reference
Plan as amended through January 1,
1998
(10)(p) Forms of Life Insurance Program Incorporated
and Form of Life Insurance by Reference
(Collateral Assignment)
(10)(q) New England Electric Companies' Incorporated
Incentive Share Plan as amended by Reference
through February 24, 1997
<PAGE>
(10)(r) New England Power Service Incorporated
Company and the Company: by Reference
Form of Supplemental Pension
Service Credit Agreement
(10)(s) New England Electric Companies' Incorporated
Long-Term Performance Share by Reference
Award Plan as amended through
August 25, 1998
(10)(t) New England Electric System Incorporated
Directors' Retirement Plan by Reference
amended through December 11,
1998
(10)(u) Forms of Severance Protection Incorporated
Agreements by Reference
(10)(v)(i) Asset Purchase Agreement between Incorporated
USGen New England, Inc., the by Reference
Company and New England Power
Company dated as of August 5, 1997
(10)(v)(ii) Amended and Restated Wholesale Incorporated
Standard Offer Service by Reference
Agreement between the Company and
USGen New England, Inc. dated
as of October 29, 1997
(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) 1998 Annual Report to Filed herewith
Stockholders
(24) Power of Attorney Filed herewith
(27) Financial Data Schedule Filed herewith
<PAGE>
THE NARRAGANSETT ELECTRIC
COMPANY
TO
BANKBOSTON N.A., TRUSTEE
(successor to RHODE ISLAND HOSPITAL TRUST
NATIONAL BANK and to
RHODE ISLAND HOSPITAL TRUST COMPANY)
TWENTY-THIRD
SUPPLEMENTAL INDENTURE
DATED AS OF JUNE 1, 1998
SUPPLEMENTAL TO
FIRST MORTGAGE INDENTURE
AND
DEED OF TRUST
DATED AS OF SEPTEMBER 1, 1944
AS AMENDED AND SUPPLEMENTED BY PRIOR SUPPLEMENTAL INDENTURES
TO SECURE FIRST MORTGAGE BONDS
<PAGE>
THE NARRAGANSETT ELECTRIC COMPANY
TWENTY-THIRD SUPPLEMENTAL INDENTURE
DATED AS OF JUNE 1, 1998
TABLE OF CONTENTS
(NOT PART OF THE INDENTURE)
PAGE
PARTIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
RECITALS
Preamble . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Recital of Validity. . . . . . . . . . . . . . . . . . . . . . . . . 3
GRANTING CLAUSES
Recital of Consideration.. . . . . . . . . . . . . . . . . . . . . . 3
Grant. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Description of Mortgaged Property. . . . . . . . . . . . . . . . . . 4
Reservations and Exceptions. . . . . . . . . . . . . . . . . . . . . 6
Habendum.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Declaration of Trust . . . . . . . . . . . . . . . . . . . . . . . . 7
ARTICLE I.
PARTICULAR COVENANTS OF THE COMPANY REGARDING
THE MORTGAGED PROPERTY
Section 1. Covenant against Encumbrances . . . . . . . . . . . . . . . 7
Section 2. Covenant of Seizin. . . . . . . . . . . . . . . . . . . . . 8
ARTICLE II.
COVENANTS OF THE COMPANY
Section 1. Warranty as to Default. . . . . . . . . . . . . . . . . . . 8
Section 2. Existence and Authority . . . . . . . . . . . . . . . . . . 8
ARTICLE III.
Amendment to the Indenture . . . . . . . . . . . . . . . . . . . . . . 9
ARTICLE IV
CONCERNING THE TRUSTEE
Acceptance of Trusts and Conditions Thereof. . . . . . . . . . . . . . 10
(a) Identity of Trustee . . . . . . . . . . . . . . . . . . . . . 10
(b) Recitals by Company, not Trustee. . . . . . . . . . . . . . . 10
(c) Limit of Responsibility . . . . . . . . . . . . . . . . . . . 10
ARTICLE V.
Defeasance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
<PAGE>
ARTICLE VI.
MISCELLANEOUS
Section 1. Supplemental to Original Indenture. . . . . . . . . . . . . . 11
Section 2. For Benefit of Parties and Bondholders Only . . . . . . . . . 11
Section 3. Date of Supplemental Indenture. . . . . . . . . . . . . . . . 11
Section 4. Original Counterparts . . . . . . . . . . . . . . . . . . . . 11
Section 5. Cover, Headings, etc. . . . . . . . . . . . . . . . . . . . . 12
TESTIMONIUM CLAUSE . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
SCHEDULE I . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
ACKNOWLEDGMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
RECORDING NOTE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
<PAGE>
THIS TWENTY-THIRD SUPPLEMENTAL INDENTURE, dated as of the 1st day of
June, in the year one thousand nine hundred and ninety-eight, between THE
NARRAGANSETT ELECTRIC COMPANY (hereinafter generally called the Company), a
corporation duly organized and existing under the laws of the State of Rhode
Island and having its principal place of business in Providence, Rhode Island,
and a mailing address of 280 Melrose Street, Providence, Rhode Island 02907,
and BANKBOSTON N.A. (successor by merger to Rhode Island Hospital Trust
National Bank and to Rhode Island Hospital Trust Company, and hereinafter
generally called the Trustee), a national banking association duly
incorporated and existing under the laws of the United States of America,
having its principal place of business and address at 225 Franklin Street,
Boston, Massachusetts 02110, and duly authorized to execute the trusts hereof.
WITNESSETH THAT:
WHEREAS, the Company heretofore executed and delivered to the Trustee a
First Mortgage Indenture and Deed of Trust (hereinafter singly generally
called the Original Indenture, and with this and all other indentures
supplemental thereto collectively called the Indenture), dated as of September
1, 1944, and recorded among other places in the records of land-evidence of
the City of Providence, R.I., Book 781, Page 1, to which this instrument is
supplemental pursuant to the terms thereof, whereby the Company has mortgaged,
conveyed, pledged, assigned and transferred to the Trustee all and singular
the property therein specified, whether owned at the time of the execution or
thereafter acquired by the Company, to secure its First Mortgage Bonds
(hereinafter generally called the Bonds) of an unlimited (except as therein
provided) permitted aggregate principal amount, to be issued in one or more
series as provided in the Original Indenture; and
WHEREAS, the Company has heretofore executed and delivered to the
Trustee
Twenty-two Supplemental Indentures, viz.:
Supplemental Indenture Dated As Of
First Supplemental Indenture May 1, 1948
Second Supplemental Indenture March 1, 1952
Third Supplemental Indenture March 1, 1953
Fourth Supplemental Indenture March 1, 1956
Fifth Supplemental Indenture January 1, 1964
Sixth Supplemental Indenture February 1, 1968
Seventh Supplemental Indenture April 1, 1970
Eighth Supplemental Indenture March 1, 1972
Ninth Supplemental Indenture March 1, 1974
Tenth Supplemental Indenture August 1, 1974
Eleventh Supplemental Indenture March 1, 1975
Twelfth Supplemental Indenture August 1, 1980
Thirteenth Supplemental Indenture February 1, 1982
Fourteenth Supplemental Indenture January 1, 1984
Fifteenth Supplemental Indenture January 1, 1986
Sixteenth Supplemental Indenture June 1, 1986
Seventeenth Supplemental Indenture November 1, 1987
Eighteenth Supplemental Indenture May 1, 1991
Nineteenth Supplemental Indenture August 1, 1991
Twentieth Supplemental Indenture May 1, 1992
Twenty-First Supplemental Indenture October 1, 1993
Twenty-Second Supplemental Indenture June 1, 1995
(hereinafter referred to as the Prior Supplemental Indentures)
<PAGE>
each of which is supplemental to the Original Indenture, whereby the Company
has mortgaged, conveyed, pledged, assigned and transferred to the Trustee all
and singular the property therein specified, whether owned at the time of the
execution of each of said Supplemental Indentures or thereafter acquired by
the Company, to secure its Bonds issued or to be issued in one or more series
as provided in the Original Indenture; and
WHEREAS, the Company under the Indenture has heretofore issued and has
outstanding as of the date hereof the following aggregate principal amounts of
its First Mortgage Bonds:
SERIES PERCENT DUE AMOUNT
S 9 1/8% 2021 $ 22,200,000
T 8 7/8% 2021 $ 22,000,000
U Various Various $ 67,500,000
V Various Various $ 45,000,000
W Various Various $ 28,000,000
(hereinafter referred to as the Outstanding Bonds); and
WHEREAS, Sections 4.07 and 4.17 of the Original Indenture and Articles
I, Sections 2 of the Prior Supplemental Indentures provide that the Company
will from time to time give further assurances to the Trustee, and will from
time to time subject to the lien of the Indenture all after-acquired property
included in the granting clauses of the Indenture, and Section 12.01 of the
Original Indenture provides, among other things, that the Company and the
Trustee from time to time may enter into indentures supplemental to the
Original Indenture for, among other things, the purpose of conveying,
mortgaging, pledging, assigning or transferring to the Trustee any other
property or properties to be held subject to the lien of the Indenture with
the same force and effect as if included in the granting clauses thereof; and
of making such provisions, for the purpose of curing any ambiguity or in
regard to matters or questions arising under the Indenture, as may be
necessary or desirable and not inconsistent with the security and protection
intended to be conferred upon the Trustee and the Bondholders; and
WHEREAS, the parties hereto desire to amend the Indenture in order to
remove provisions made obsolete by the passage of time and neither necessary
nor desirable and no longer necessary for the security and protection intended
to be conferred upon bondholders; and
WHEREAS, the Company desires pursuant to said provisions and as
hereinafter provided to convey, mortgage, pledge, assign and transfer to the
Trustee certain other properties hereinafter specified, to be held subject to
the lien of the Indenture; to add certain covenants and agreements; to make
such provision in regard to the Indenture as may be necessary or desirable and
not inconsistent with the security and protection intended to be conferred
upon the Trustee and the Bondholders; and
AND WHEREAS, all things necessary to make this Twenty-Third
Supplemental Indenture a valid, legal and binding instrument supplemental to
and confirmatory of the Original Indenture enforceable in accordance with its
terms for the uses and purposes herein set forth, have been in all respects
duly authorized:
NOW, THEREFORE, in consideration of the premises and of the sum of $10
duly paid to the Company by the Trustee, and of other good and valuable
considerations, receipt whereof upon the ensealing and delivery of this
<PAGE>
Twenty-Third Supplemental Indenture the Company hereby acknowledges, and for
the purpose of confirming the Original Indenture and the Prior Supplemental
Indentures, and as an indenture hereby expressly stated to be supplemental to
the Original Indenture, and, except as herein otherwise provided, in order to
secure equally the pro rata payment of both the principal of and the interest
on all of the Bonds at any time certified, issued and outstanding under the
Indenture, according to their tenor, purport and effect and the provisions of
the Indenture, and to secure the faithful performance and observance of all
the covenants, obligations, conditions and provisions therein and in the
Indenture contained, all as hereinafter provided,
THE COMPANY does hereby confirm the pledge, mortgage, conveyance,
assignment and transfer of the property set forth and described in the
Original Indenture and the Prior Supplemental Indentures, except such
properties or interests therein as may have been released by the Trustee or
sold or disposed of in whole or in part as permitted by the provisions of the
Original Indenture and the Prior Supplemental Indentures, or as were
specifically reserved, excepted and excluded by the Original Indenture and the
Prior Supplemental Indentures; and has given, granted, bargained, sold,
warranted, pledged, assigned, transferred, mortgaged and conveyed, and by
these presents does give, grant, bargain, sell, warrant, pledge, assign,
transfer, mortgage and convey, unto the Trustee, and its successors in the
trusts of the Indenture, and its and their assigns, upon and for the trusts
thereby and hereby established and confirmed, all and singular the following
described land and personal properties, franchises, rights and privileges
acquired by the Company since the execution and delivery of the Twenty-second
Supplemental Indenture or to be acquired by the Company hereafter as by the
terms of the Original Indenture and the Prior Supplemental Indentures or by
reason of being affixed to the freehold described in the Original Indenture
and the Prior Supplemental Indentures, or for any other reason whatsoever are
subject to or to be subjected to the lien of the Original Indenture and the
Prior Supplemental Indentures, including, but without in any way limiting the
generality of the foregoing, all the right, title and interest of the Company
in and to the property and interests in property, with the buildings thereon
and the appurtenances thereto particularly described in Schedule I hereto
attached and hereby made a part hereof as fully as if repeated herein at
length (all of the foregoing, with all other property, and rights and
interests in property, intended to be hereby or by the Original Indenture and
the Prior Supplemental Indentures conveyed, mortgaged, pledged, assigned and
transferred, or at any time conveyed, mortgaged, pledged, assigned,
transferred or delivered, and all proceeds of any of the foregoing at any time
conveyed, mortgaged, pledged, assigned, transferred, and/or delivered, to and
from time to time held by the Trustee upon the trusts hereof and of the
Original Indenture and the Prior Supplemental Indentures, being herein
generally called, collectively, the Mortgaged Property):
FIRST.
REAL ESTATE AND RIGHTS AND INTERESTS IN REAL ESTATE.
Subject to the exceptions and reservations hereinafter set forth all
the real estate, rights and interests in real estate, lands, buildings,
structures, rights and interests in lands, easements, leases of land and every
right appurtenant thereto, franchises, rights of way, rights to construct,
maintain and operate overhead and underground systems for the generation,
distribution and transmission of electric current or other agencies for the
supplying of light, heat and power, transmission, service and distribution
lines and systems, and all releases of damages, water, flowage and riparian
and shore rights, now owned by the Company, including, without limitation, all
property particularly described in Schedule I hereto attached and hereby made
a part hereof as fully as if repeated herein at length.
<PAGE>
SECOND.
PROPERTY HEREAFTER CONVEYED, ETC.
Any and all cash, stocks, shares, bonds, notes, securities or other
property which at any time hereafter, by delivery or writing of any kind for
the purposes hereof, may, at the option of the Company, be expressly conveyed,
mortgaged, pledged, delivered, assigned or transferred to or deposited with
the Trustee hereunder by the Company or by a successor corporation, or with
its consent by any one on its behalf, as and for any additional security for
the Bonds issued and to be issued hereunder, the Trustee being authorized at
any and all times to receive such conveyance, mortgage, pledge, delivery,
assignment, transfer or deposit and to hold and apply any and all such cash,
stock, shares, bonds, notes, securities or other property subject to all the
provisions hereof and/or of such writing.
THIRD.
MISCELLANEOUS PROPERTY.
All other, if any, lands, easements, leases of land and every right
appurtenant thereto, rights of way, rights to construct, maintain and operate
overhead and underground systems for the distribution and transmission of
electric current or other agencies for the supplying of light, heat and power,
all releases of damages, water, flowage and riparian and shore rights, dams,
wharves, tracks, switches, terminal facilities and other interests in lands,
including (without in any wise limiting or impairing by the enumeration of the
same the generality, scope and intent of the foregoing or of any general
description contained in this Twenty-third Supplemental Indenture) buildings,
electric generating, light, heat and power, and gas, ice and refrigerating,
plants and systems, transmission, service and distribution lines and systems
and steam heating plants and systems, water and/or water works, plants and
systems, manufactories, power houses, stations, substations, pipe lines,
pipes, mains, conduits, towers, tunnels, subways, bridges, poles, wires,
cables, fittings, connections and all other structures, machinery, engines,
boilers, pumps, valves, pipings, connections, dynamos, meters, transformers,
generators, motors, storage batteries, electrical and mechanical machinery,
appliances, equipment and appurtenances of every description and character,
tools, implements, wagons, fixtures, appliances, appurtenances, accessories,
and all other physical assets and all rights, grants, privileges, leases and
leasehold interests, licenses, permits, locations, consents, franchises,
grants and immunities, and all rights to compensation upon the termination in
any manner of any of the same, and any and all interest in property of the
character included in this Division Third, whether now owned by the Company or
at any time hereafter acquired.
TOGETHER WITH all the Company's now-existing or hereafter-acquired
right, title and interest in and to any and all physical property of the
Company, now or hereafter subject to any prior mortgage, pledge, charge and/or
other encumbrance or lien, and the cash and/or other proceeds therefrom, to
the extent that such property, cash and/or proceeds shall not be otherwise
held and/or applied pursuant to the requirements of any such mortgage, pledge,
charge and/or other encumbrance or lien.
AND TOGETHER WITH all and singular the now-existing and
hereafter-acquired rights, privileges, tenements, hereditaments and
appurtenances belonging or in any wise appertaining in and to the aforesaid
property or any part thereof, and the reversion and reversions, remainder and
remainders and, subject to the provisions of Section 6.01 of the Original
Indenture, all tolls, rents, revenues, earnings, interest, dividends,
<PAGE>
royalties, issues, income and profits thereof, and all the estate, right,
title, interest and claim whatsoever, at law as well as in equity, which the
Company now has or may hereafter acquire, in and to all and every part and
parcel of the foregoing, it being the intention to include herein and to
subject to the lien hereof all land, interest in land, real estate, physical
assets and franchises whether now owned by the Company or which it may
hereafter acquire and wherever situated, as if the same were now owned by the
Company and were specifically described and conveyed hereby except as
hereinafter specified.
RESERVATIONS AND EXCEPTIONS.
SUBJECT, HOWEVER, as to all property, and rights and interests in and
to property, of any character hereinbefore described, in so far as affected
thereby, to any mortgages or other encumbrances or liens on such property
constituting permitted liens as in the Original Indenture defined;
AND SUBJECT FURTHER as to the property in Divisions First and Third
above described, insofar as affected thereby, to the liens, encumbrances,
reservations, restrictions, conditions, limitations, covenants, interests and
exceptions, if any, set forth or referred to in the descriptions thereof
hereinbefore and in said Schedule I contained, none of which substantially
interferes with the free use and enjoyment by the Company of the property and
rights hereinbefore described for the general purposes and uses of the
Company's business;
AND SPECIFICALLY RESERVING, EXCEPTING AND EXCLUDING from this
instrument, and from the grant, conveyance, mortgage, transfer and assignment
herein contained,
(a) all property expressly excepted in the Original Indenture, the
Prior Supplemental Indentures and herein and in schedules of property thereto
and hereto;
(b) all property, permits, licenses, franchises and rights, whether
now owned or hereafter acquired by the Company, which are intended to be
hereby granted, conveyed, mortgaged, assigned and transferred, but which can
not be so granted, conveyed, mortgaged, assigned or transferred without the
consent of other parties whose consent is not secured, or without subjecting
the Trustee to a liability not otherwise contemplated by the provisions of the
Indenture, or which otherwise may not be, or are not, hereby lawfully and/or
effectively granted, conveyed, mortgaged, assigned and transferred by the
Company;
(c) the last day of the term of each leasehold estate (oral or
written, and/or any agreement therefor) now or hereafter enjoyed by the
Company, and whether falling within a general or particular description of
property herein; and
(d) all the Company's present and future fuel, automobiles, automotive
equipment, merchandise held for sale, cash on hand or in bank, furniture,
office equipment, books, choses in action, contracts, shares of stock, bonds
and other securities, documents and accounts and bills receivable (except
proceeds of the Mortgaged Property, and insurance and other monies, and
purchase money obligations, required by the provisions of the Original
Indenture and hereof to be paid to or deposited with the Trustee), and
materials, stores, supplies and other personal property which are consumable
(otherwise than by ordinary wear and tear) in their use in the operation of
the plants or systems of the Company.
<PAGE>
TO HAVE AND TO HOLD the Mortgaged Property, with all of the privileges
and appurtenances thereunto belonging (but subject to the foregoing specified
exceptions and reservations) unto the Trustee, its successors in the trusts of
the Indenture, and its and their assigns, to its and their own use, forever;
BUT IN TRUST NEVERTHELESS for the equal pro rata benefit, security and
protection (except as provided in the Indenture, and except insofar as a
sinking or analogous fund or funds, established in accordance with the
provisions of the Indenture, may afford particular security for Bonds of one
or more series, and except independent security as provided in Section 2.02 of
the Original Indenture) of the bearers and the registered owners of the Bonds
from time to time certified, issued and outstanding under the Indenture, and
the bearers of the coupons thereunto belonging, without (except as aforesaid)
any preference, priority or distinction whatever of any one Bond over any
other Bond by reason of priority in the issue, sale or negotiation thereof, or
otherwise.
The Company hereby declares that it holds and will hold and apply all
property described in the foregoing clauses (b) and (c) as specifically
reserved and excepted, upon the trusts in the Indenture set forth and as the
Trustee (or any purchaser thereof upon any sale thereof under the Indenture)
shall for such purpose direct from time to time, to the fullest extent
permitted by law or in equity, as fully as if the same could be and had been
hereby granted, conveyed, mortgaged, assigned and transferred to and vested in
the Trustee.
In addition to and in confirmation and performance of the covenants,
declarations, agreements, conditions and provisions of the Original Indenture
and the Prior Supplemental Indentures, it is hereby further covenanted,
declared and agreed, upon the trusts and for the purposes aforesaid, that the
trusts, terms and conditions, upon which the Mortgaged Property hereby
granted, mortgaged, conveyed, assigned and transferred or intended so to be is
to be held and disposed of, are as set forth in the Original Indenture and the
Prior Supplemental Indentures and in the following covenants, agreements,
conditions and provisions, viz.:
ARTICLE I.
PARTICULAR COVENANTS OF THE COMPANY REGARDING THE
MORTGAGED PROPERTY.
The Company covenants and agrees, in particular, but without limiting
other covenants and provisions hereof, or of the Original Indenture and the
Prior Supplemental Indentures, as hereinafter in this Article set forth,
namely:
SECTION 1. The Mortgaged Property specifically described in the
granting clauses of this Twenty-third Supplemental Indenture, including
Schedule I hereof, is now wholly free from and unencumbered by any defect,
mortgage, pledge, charge or other encumbrance or lien, of any kind, superior
to or on a parity with the lien of the Indenture, except only taxes for the
current year not yet due, permitted liens and those encumbrances, if any,
referred to in said granting clauses and Schedule I hereof; and the Company
will duly and punctually remove, perform, pay and discharge, or if it
contests, will stay (and indemnify the Trustee from time to time to the
satisfaction of the Trustee against) the enforcement of, all obligations and
claims arising or to arise out of or in connection with each and all thereof.
The Company will not create or suffer any other mortgage, pledge, charge or
material encumbrance or lien, of any kind, superior to or on a parity with the
<PAGE>
lien of the Indenture, upon the Mortgaged Property, or any part thereof, now
owned or hereafter acquired, except only such as are permitted under the
provisions of Section 4.16 of the Original Indenture.
SECTION 2. The Company is lawfully seized in fee simple of the real
estate, and owns outright and is lawfully possessed in its own right,
absolutely and unconditionally, of the property and rights, constituting the
Mortgaged Property specifically described in the granting clauses of this
Twenty-third Supplemental Indenture, including Schedule I hereof, and has good
title to, and full power and authority to sell, transfer, assign, mortgage,
pledge and convey the property, rights and interests hereby presently sold,
transferred, assigned, mortgaged, pledged and conveyed or purported or
intended so to be, all subject only to taxes not yet due, to those liens,
encumbrances and defects, if any, referred to in the granting clauses and said
Schedule I hereof; and the Company will warrant and defend the title to the
Mortgaged Property, and every part thereof (subject as aforesaid), to the
Trustee, against all claims and demands whatsoever of any person and all
persons claiming or to claim the same or any interest therein, subject only as
aforesaid and to mortgages, encumbrances and liens on after-acquired property
to the extent permitted by Section 4.16 of the Original Indenture. The
Company will keep this Twenty-third Supplemental Indenture at all times
properly filed and recorded, and refiled and rerecorded, in such manner and in
such places, and will do such other acts, as may be necessary or desirable to
establish and maintain the superior lien of the Indenture upon the Mortgaged
Property, and for the proper protection of the Trustee and the Bondholders.
The Company will also from time to time subject to the lien of the Indenture
all of its hereafter-acquired property which is included in the granting
clauses hereof or which the Company is required by any of the provisions of
the Indenture to subject to the lien thereof.
ARTICLE II.
COVENANTS OF THE COMPANY.
SECTION 1. The Company warrants that at the date of the execution and
delivery of this Twenty-third Supplemental Indenture the Company is not in
default in any respect under any of the provisions of the Original Indenture,
of the Prior Supplemental Indentures or of the Outstanding Bonds, and
covenants that it will perform and fulfill all the terms, covenants and
conditions of the Indenture to be performed and fulfilled by the Company.
SECTION 2. The Company is duly organized and existing under the laws
of the State of Rhode Island, and is duly authorized under all applicable
provisions of law and all corporate action on its part to execute this Twenty-
third Supplemental Indenture, and for the execution and delivery of this
Twenty-third Supplemental Indenture, has been duly and effectively taken.
This Twenty-third Supplemental Indenture is and will be a valid and
enforceable obligation of the Company in accordance with the provisions
hereof.
ARTICLE III.
AMENDMENTS TO THE INDENTURE
The Original Indenture, as previously amended, is hereby further
amended as set forth below.
Section 4.02 of the Original Indenture is amended to read as follows:
4.02. The Company covenants and agrees that whenever
necessary to avoid or fill a vacancy in the office of Trustee, the
<PAGE>
Company will in the manner provided in section 10.19 appoint a
Trustee so that there shall at all times be a Trustee hereunder
which shall at all times be a bank or trust company which shall at
all times be a corporation organized and doing business under the
laws of the United States or of any state or territory or of the
District of Columbia with a capital and surplus of at least One
Million Dollars ($1,000,000) and authorized under such laws to
exercise corporate trust powers and subject to supervision or
examination by federal, state, territorial or District of Columbia
authority.
Section 10.22 of the Original Indenture is amended to read as follows:
10.22. Any corporation into which the Trustee may be merged
or with which it may be consolidated or any corporation resulting
from any merger or consolidation to which the Trustee shall be a
party or any corporation to which substantially all the business
and assets of the Trustee may be transferred or any corporation
succeeding to all or substantially all of the corporate trust
business of the Trustee including, without limitation, State
Street Bank and Trust Company as successor in September 1995 to
substantially all of the corporate trust business of Rhode Island
Hospital Trust National Bank, provided such corporation shall be
eligible under the provisions of sections 4.02 and 10.01 and
qualified under section 10.15 shall be the successor trustee under
this Indenture, without the execution or filing of any paper or
the performance of any further act on the part of any other
parties hereto, anything herein to the contrary notwithstanding.
In case any of the Bonds contemplated to be issued hereunder shall
have been authenticated but not delivered, any such successor to
the Trustee may, subject to the same terms and conditions as
though such successor had itself authenticated such Bonds, adopt
the certificate of authentication of the original Trustee or of
any successor to it as trustee hereunder, and deliver the said
Bonds so authenticated; and in case any of said Bonds shall not
have been authenticated, any successor to the Trustee may
authenticate such Bonds either in the name of any predecessor
hereunder or in the name of the successor trustee, and in all such
cases such certificate shall have the full force which it is
anywhere in said Bonds or in this Indenture provided that the
certificate of the Trustee shall have; provided, however, that the
right to authenticate Bonds in the name of the Trustee shall apply
only to its successor or successors by merger or consolidation or
sale as aforesaid.
ARTICLE IV.
CONCERNING THE TRUSTEE.
The Trustee accepts and agrees to execute the trusts, powers, rights
and duties of the Trustee under this Twenty-third Supplemental Indenture upon
and only upon and subject to the terms and conditions of this Twenty-third
Supplemental Indenture and the terms and conditions of the Original Indenture
relating to the Trustee thereunder, all of which the Company agrees are
applicable to the Trustee hereunder, expressly including, but without limiting
the foregoing, or other provisions of the Indenture and hereof protecting the
Trustee, and without limiting or affecting any right, power or discretion of
the Trustee thereunder or hereunder, or otherwise existing, the following:
<PAGE>
(a) The Trustee for the time being under the Original Indenture
shall ex officio be the Trustee under this Twenty-third Supplemental
Indenture. The word "Trustee" wherever used herein shall be taken to
apply to the Trustee for the time being under the Original Indenture
and hereunder.
(b) The recitals of fact contained herein shall be taken as the
statements of the Company and the Trustee assumes no responsibility for
the correctness of the same. The Trustee makes no representations as
to the value of the mortgaged and pledged property or any part thereof,
or as to the title of the Company thereto, or as to the validity or
adequacy of the security afforded thereby and hereby, or as to the
validity of this Twenty-third Supplemental Indenture.
(c) The Trustee in respect of all provisions hereof, of all moneys
held by it hereunder, of all property herein embraced and of all action
or omission to act hereunder (i) shall be held to no responsibility or
liability hereunder in any way greater than the responsibility or
liability to which the Trustee under the Original Indenture is held
thereunder and (ii) shall be entitled to, may exercise and shall be
protected by (to the full extent that the same are applicable) all
estate, rights, powers, conditions, duties, privileges, immunities,
exemptions, authorities, protection and provisions set forth in Article
10 of the Original Indenture as applying to the Trustee thereunder, all
of which mutatis mutandis are hereby adopted and made applicable in
respect of such provisions hereof, moneys held hereunder, property
herein embraced and action or omission to act hereunder as fully as if
the provisions concerning the same were set forth herein at length.
ARTICLE V.
DEFEASANCE.
All the property hereby mortgaged and pledged or intended so to be
shall revert to the Company and the estate, right, title and interest of the
Trustee in respect thereof shall cease, determine and become void and the
Trustee shall execute to the Company or its order proper instruments
acknowledging satisfaction of this Twenty-third Supplemental Indenture and
surrendering to the Company or its order all cash and deposited securities, if
any, which shall then be held hereunder in the manner and with the effect
provided in Article 15 of the Original Indenture, but only upon the discharge
of the Original Indenture by the Trustee thereunder pursuant to the provisions
thereof.
ARTICLE VI.
MISCELLANEOUS.
SECTION 1. This Twenty-third Supplemental Indenture is executed and
shall be construed as an indenture supplemental to the Original Indenture and
as provided in the Original Indenture this Twenty-third Supplemental Indenture
forms a part thereof and, except as herein expressly otherwise defined, the
use of terms and expressions herein is in accordance with the definitions,
uses and constructions contained in the Original Indenture. Pursuant to
Section 12.01 of the Original Indenture, it is hereby stipulated that the
Trustee shall not be taken impliedly to waive hereby any right it would
otherwise have.
SECTION 2. All the covenants and provisions of this Twenty-third
Supplemental Indenture are for the sole and exclusive benefit of the parties
<PAGE>
hereto and the holders of the Bonds, and no others shall have any legal,
equitable or other right, remedy or claim under or by reason of this Twenty-
third Supplemental Indenture.
SECTION 3. This Twenty-third Supplemental Indenture is stated to be
dated as of June 1, 1998. This is intended as and for a date for reference
and for identification, the actual time of the execution hereof being the date
set forth in the testimonium clause hereof.
SECTION 4. This Twenty-third Supplemental Indenture may be executed in
any number of counterparts, each of which shall be deemed an original; and
such counterparts shall constitute but one and the same instrument, which
shall for all purposes be sufficiently evidenced by any such original
counterpart.
SECTION 5. The cover of this Twenty-third Supplemental Indenture and
all article headings, and the table of contents and marginal notes, if any,
are inserted for convenience only, and shall not affect any construction or
interpretation hereof.
IN WITNESS WHEREOF, The Narragansett Electric Company has caused this
Twenty-third Supplemental Indenture to be executed, and its corporate seal to
be hereto affixed, by its officers thereunto duly authorized, and BankBoston
N.A. has caused this Twenty-third Supplemental Indenture to be executed, and
its corporate seal to be hereto affixed, by its officers thereunto duly
authorized, all as of the day and year first above written, but actually
executed on July 28, 1998.
THE NARRAGANSETT ELECTRIC COMPANY
By /s/ R. Nadeau
_____________________________________________
R. Nadeau, Vice President
ATTEST:
[Corporate Seal]
/s/ Robert King Wulff
_______________________________________
Robert King Wulff, Assistant Secretary
BANKBOSTON N.A.
By /s/ Paul M. Lenahan
____________________________________________
Paul M. Lenahan, Vice President
ATTEST:
[Corporate Seal]
/s/ Robert N. Gaumont
_______________________________________
Robert N. Gaumont, Vice President
<PAGE>
SCHEDULE I
The property and interests in property situated in the Towns of
Barrington, Bristol, Burrillville, Charlestown, Coventry, East Greenwich,
Exeter, Foster, Glocester, Hopkinton, Johnston, Lincoln, Little Compton,
Narragansett, North Kingstown, North Providence, Richmond, Scituate,
Smithfield, South Kingstown, Tiverton, Warren, Westerly, West Greenwich and
West Warwick, Rhode Island, and in the Cities of Cranston, East Providence,
Providence and Warwick, Rhode Island, by the following instruments:
BARRINGTON
Recorded in Barrington
Land Records
Grantors Date Book Page Prop. No.
Connor Lane, LLC. July 17, 1995 294 169 Gen. 7562
GHG Fowler, Inc. Nov. 25, 1996 334 26 Gen. 7563
United States of America Jan. 18, 1997 337 36 Gen. 7564
Town of Barrington May 6, 1997 345 311 Gen. 7565
BRISTOL
Recorded in Bristol
Land Records
Grantors Date Book Page Prop. No.
Edward J. Mack July 6, 1995 548 63 Gen. 11,730
Mildred Balzano Dec. 8, 1995 562 54 Gen. 11,731
Goetz Realty, Inc. April 4, 1996 573 3 Gen. 11,732
Shannon Yachts Limited
Partnership May 7, 1996 581 241 Gen. 11,733
Ursula M. Beauregard, Tr. Feb. 12, 1997 600 8 Gen. 11,734
The Rhode Island Five Jan. 27, 1997 598 85 Gen. 11,735
57 Assoc. Jan. 27, 1997 598 83 Gen. 11,736
Ursula M. Beauregard, Tr. Apr. 18, 1997 606 102 Gen. 11,737
The Rhode Island Five Apr. 18, 1997 606 100 Gen. 11,738
57 Assoc. Apr. 18, 1997 606 98 Gen. 11,739
Joseph M Casalino IV et al Aug. 4, 1997 618 237 Gen. 11,740
CML Development Corp. Sept. 30, 1997 625 20 Gen. 11,741
Elder Care Two, Inc. Jan. 8, 1997 596 308 Gen. 11,742
Francesca Development
Corporation Feb. 8, 1998 638 90 Gen. 11,743
BURRILLVILLE
Recorded in Burrillville
Land Records
Grantors Date Book Page Prop. No.
Kevin R. Paine et als (Fee) May 28, 1998 204 239 KC-S 218
<PAGE>
CHARLESTOWN
Recorded in Charlestown
Land Records
Grantors Date Book Page Prop. No.
J.F. Smith Builders, Inc. Mar. 30, 1995 144 515 Gen. 4711
Michael Vickers Jan. 15, 1995 144 158 Gen. 4712
H. Grant Kettelle et al May 27, 1995 145 1080 Gen. 4714
David M. Howard, Jr. et al June 6, 1995 145 1082 Gen. 4715
MTS Builders of Rhode
Island, Inc. June 7, 1995 145 1084 Gen. 4716
Carol A. Cox Sept. 13, 1995 147 799 Gen. 4717
Margaret G. Mathews Sept. 25, 1995 147 801 Gen. 4718
Brian R. Bootay Jan. 20, 1996 150 995 Gen. 4719
Michael Clemons et al Mar. 21, 1996 151 287 Gen. 4720
Sheelagh M. Brockmyre June 27, 1996 153 595 Gen. 4721
William F. Arnold, Jr. et al June 20, 1996 153 592 Gen. 4722
Peter W. Arnold et ali June 11, 1996 153 589 Gen. 4723
David A. Greene et al Dec. 11, 1996 156 159 Gen. 4724
George W. Greene, Jr. et ali Dec. 12, 1996 156 162 Gen. 4725
The Charlestown Land
Group, LLC Nov. 18, 1996 156 725 Gen. 4726
Walter B. Brown Nov. 26, 1996 156 157 Gen. 4727
William E. Follett, Sr. Jan. 3, 1997 156 722 Gen. 4728
Paul E. Kaplan et al Mar. 21, 1997 158 71 Gen. 4729
Richard S. Allison et al May 8, 1997 159 251 Gen. 4730
Albert J. Scott Apr. 30, 1997 158 568 Gen. 4731
Ellen M. Thweatt June 4, 1997 159 254 Gen. 4732
Scot V. Hallberg June 11, 1997 159 463 Gen. 4733
John F. Smith et al Sept. 5, 1997 161 720 Gen. 4734
Kevin J. O'Leary et al Oct. 1, 1997 162 665 Gen. 4735
Harold L. Hopkins July 29, 1997 161 237 Gen. 4736
Catherine V. Schoeninger July 26, 1997 161 255 Gen. 4737
Henry Langdon Heminway et al Apr. 19, 1996 152 135 Gen. 4738
Arthur H. Henyon et als Jan. 12, 1998 164 623 Gen. 4739
Everett J. Hopkins Dec. 19, 1997 164 900 Gen. 4740
Steven A. Persson et al Apr. 24, 1998 167 376 Gen. 4741
Gudny Persson Apr. 27, 1998 167 373 Gen. 4742
Anne M. Nelson et al Apr. 27, 1998 167 378 Gen. 4743
COVENTRY
Recorded in Coventry
Land Records
Grantors Date Book Page Prop. No.
James Steitz et al May 12, 1995 502 27 Gen. 6251
Putnam Associates Mar. 15, 1995 500 53 Gen. 6263
Howard E. Wahl, Jr. et al Mar. 29, 1995 500 55 Gen. 6264
A & R Properties, Inc. Apr. 6, 1995 500 57 Gen. 6265
<PAGE>
COVENTRY
Recorded in Coventry
Land Records
Grantors Date Book Page Prop. No.
Major Realty, LLC Apr. 24, 1995 500 59 Gen. 6266
Pettine Associates, Inc. Apr. 24, 1995 500 61 Gen. 6267
A & R Properties, Inc. Apr. 27, 1995 500 63 Gen. 6268
W.F.D. Associates, L.P. July 6, 1995 510 262 Gen. 6269
W.F.D. Associates, L.P. July 17, 1995 510 265 Gen. 6270
Alpine Realty, L.L.C. June 22, 1995 510 259 Gen. 6271
Donald F. Fisher et al June 12, 1995 505 175 Gen. 6272
Capital Modular Development
Corporation May 25, 1995 505 177 Gen. 6273
John Joly Enterprises Inc. Aug. 16, 1995 518 3 Gen. 6274
Midwestern Homes, Inc. Aug. 7, 1995 518 5 Gen. 6275
David m. Bedard Sept. 21, 1995 520 75 Gen. 6276
Walter Arcand Sept. 28, 1995 520 301 Gen. 6277
A & R Properties, Inc. Oct. 4, 1995 522 18 Gen. 6278
David W. Krahn et al Sept. 30, 1995 522 22 Gen. 6279
Wal-Mart Stores, Inc. Oct. 2, 1995 524 188 Gen. 6280
Deborah Gail Guthrie et al Oct. 5, 1995 524 186 Gen. 6281
Linda Gay Oct. 5, 1995 524 184 Gen. 6282
John J. Perrotti et al Oct. 19, 1995 524 182 Gen. 6283
Walter Arcand Nov. 17 1995 529 255 Gen. 6284
Todd P. Langlais et al Oct. 25, 1995 528 277 Gen. 6285
Michelle C. Ricci et al Jan. 29, 1996 539 45 Gen. 6286
Padula Builders, Inc. Feb. 27, 1996 541 245 Gen. 6287
Paul Andrukiewicz Mar. 25, 1996 546 125 Gen. 6288
Frontier Properties, Inc. Mar. 26, 1996 547 284 Gen. 6289
Scott Rose Feb. 12, 1996 547 286 Gen. 6290
Alice St. Jean July 15, 1996 565 219 Gen. 6291
Walter W. Arcand June 26, 1996 562 128 Gen. 6292
William C. Eccleston et al June 26, 1996 562 125 Gen. 6293
Waterford Homes, Inc. Apr. 18, 1996 562 110 Gen. 6294
Joseph L. Peltier, Jr.et ali Jan. 20, 1996 563 89 Gen. 6295
Scott Pellett Apr. 17, 1996 562 104 Gen. 6296
Bruce J. Johnson et al Apr. 16, 1996 562 106 Gen. 6297
Michael P. Chabot Apr. 2, 1996 562 108 Gen. 6298
COVENTRY
Recorded in Coventry
Land Recorrds
Grantors Date Book Page Prop. No.
Raymond J. Stewart et al Sept. 19, 1996 578 282 Gen. 6299
J & R Contractors, Inc. Sept. 13, 1996 578 284 Gen. 6300
Edward W. Cerio et al Sept. 17, 1996 578 111 Gen. 6301
James Dionne et al Sept. 16, 1996 578 108 Gen. 6302
Weaver Hill Estates, Inc. July 24, 1996 570 192 Gen. 6303
J & R Contractors, Inc. Aug. 29, 1996 575 238 Gen. 6306
Highwood Associates, LLC Aug. 26, 1996 575 235 Gen. 6304
Resource Construction, Inc. Aug. 26, 1996 575 242 Gen. 6305
The Town of Coventry Sept. 30, 1996 580 279 Gen. 6307
Michael R. Durand et al Oct. 7, 1996 583 136 Gen. 6308
Padula Builders, Inc. Oct. 1, 1996 583 139 Gen. 6309
<PAGE>
Harry J. Masiello Oct. 9, 1996 585 120 Gen. 6310
Kevin M. Magnone Sept. 2, 1996 589 56 Gen. 6311
Norman Marsocci Oct. 31, 1996 591 150 Gen. 6312
Northstar Development
Corporation Dec. 13, 1996 595 209 Gen. 6313
Carmine DeCesare, Jr. et al Dec. 15, 1996 595 207 Gen. 6314
Donald Edward Gomes et al Dec. 15, 1996 595 205 Gen. 6315
Thomas E. Pimentel Dec. 11, 1996 595 202 Gen. 6316
Eugene Walter Dec. 16, 1996 595 211 Gen. 6317
Riverview Nursing Home, Inc. Dec. 4, 1996 598 182 Gen. 6318
Alfonso DiGiacomo et al Jan. 6, 1997 598 180 Gen. 6319
Walter Arcand Jan. 3, 1997 597 257 Gen. 6320
W.F.D. Associates, LP Jan. 13, 1997 599 278 Gen. 6321
J&R Contractors, Inc. Jan. 17, 1997 599 284 Gen. 6322
Matteson Estates Homeowners
Association Jan. 17, 1997 599 282 Gen. 6323
Ingrid L. Fratantuono Jan. 17, 1997 599 276 Gen. 6324
James J. Jordan et al Dec. 17, 1996 601 105 Gen. 6325
David P. Cayouette Jan. 20, 1997 600 181 Gen. 6326
Patricia L. Rendine et al Jan. 24, 1997 601 298 Gen. 6327
Elaine Enterprises, Inc. Feb. 20, 1997 611 100 Gen. 6328
Padula Builders, Inc. Mar. 31, 1997 611 97 Gen. 6329
Holly Tattrie Apr. 14, 1997 613 229 Gen. 6330
Quidnick Reservoir Company Feb. 13, 1997 617 4 Gen. 6331
Steven L. Cayouette et al May 12, 1997 618 302 Gen. 6332
W.F.D. Associates, L.P. June 17, 1997 624 280 Gen. 6333
Niagra Pool Filling Co., Inc June 10, 1997 624 276 Gen. 6334
Enea M. DeSimone et al July 14, 1997 630 184 Gen. 6335
Wood Estates, Inc. Aug. 19, 1997 638 157 Gen. 6336
John Joly et al Sept. 2, 1997 639 292 Gen. 6337
Brian Andrea et al July 1, 1997 651 274 Gen. 6338
Town of Coventry Oct. 20, 1997 651 272 Gen. 6339
Maple Root Corporation July 30, 1996 585 123 Gen. 6340
Noel Daigneault et al Dec. 3, 1997 666 182 Gen. 6341
Henry F. DiPietro et al Dec. 1, 1997 666 180 Gen. 6342
Rachel G. Fontaine Dec. 30, 1997 668 188 Gen. 6343
COVENTRY
Recorded in Coventry
Land Records
Grantors Date Book Page Prop. No.
Adam W. Schmitt et al Oct. 22, 1997 666 205 Gen. 6344
Town of Coventry Jan. 7, 1998 670 59 Gen. 6345
Stephen A. DiMuccio et al Jan. 6, 1998 670 61 Gen. 6346
Johnston Corporation Dec. 31, 1997 668 190 Gen. 6347
Ronald R.S. Picerne, Tr. Feb. 2, 1998 674 206 Gen. 6348
J & R Contractors, Inc. Feb. 5, 1998 675 132 Gen. 6349
Putnam Associates Feb. 13, 1998 676 277 Gen. 6350
The Greene Company Jan. 13, 1998 676 275 Gen. 6351
Brookfield Development, Inc. Mar. 13, 1998 684 14 Gen. 6352
Anthony S. Buglio et al Mar. 6, 1998 685 77 Gen. 6353
Centerville Builders, Inc. Mar. 26, 1998 687 108 Gen. 6354
Capital Modular Development
Corporation Apr. 6, 1998 690 163 Gen. 6355
Nucore Development Company,
Inc. Mar. 17, 1998 689 139 Gen. 6356
Coventry Lake CVS, Inc. Apr. 3, 1998 689 137 Gen. 6357
<PAGE>
Andre B. Leblanc et al Apr. 6, 1998 690 161 Gen. 6358
Town of Coventry Apr. 14, 1998 696 23 Gen. 6359
J & R Contractors, Inc. Apr. 22, 1998 693 212 Gen. 6360
Ronald P. Mailloux et al Apr. 30, 1998 696 29 Gen. 6361
Sally A. Ruzanski Apr. 29, 1998 696 27 Gen. 6362
John A. Ruzanski et al Apr. 30, 1998 696 25 Gen. 6363
Jon L. Jarvis et al Apr. 28, 1998 693 210 Gen. 6364
CRANSTON
Recorded in Cranston
Land Records
Grantors Date Book Page Prop. No.
F. Paolino Homes, Inc. Dec. 5, 1994 884 103 Gen. 10,061
Dalo Associates, Inc. Dec. 8, 1994 884 328 Gen. 10,062
Ralph Shippee Jan. 17, 1995 887 776 Gen. 10,063
Broadwal Associates Apr. 17, 1995 894 746 Gen. 10,064
Fleet National Bank,
Executor May 23, 1995 898 63 Gen. 10,065
D.W. Daniel Contracting and
Estimating, Inc. Aug. 7, 1995 908 132 Gen. 10,066
Sanrose Realty Associates Aug. 2, 1995 908 130 Gen. 10,067
Geigy Chemical Corporation Aug. 16, 1995 908 134 Gen. 10,068
F. Paolino Homes, Inc. Sept. 20, 1995 913 215 Gen. 10,069
Meadowbrook Estates, LLC Dec. 21, 1995 919 594 Gen. 10,070
The Emeline Company Dec. 13, 1995 918 464 Gen. 10,071
Capuano Associates Dec. 13, 1995 918 467 Gen. 10,072
Santurri Realty Inc. Aug. 16, 1996 946 727 Gen. 10,073
Doe Family Trust II Aug. 5, 1996 946 729 Gen. 10,074
F & J Realty June 27, 1996 940 737 Gen. 10,075
CRANSTON
Recorded in Cranston
Land Records
Grantors Date Book Page Prop. No.
Pauline R. Savicki June 21, 1996 939 947 Gen. 10,076
Malco Saw Co., Inc. Mar. 26, 1996 929 38 Gen. 10,077
Gusty Paliotta July 10, 1996 947 381 Gen. 10,078
575 Realty Associates Sept. 24, 1996 951 985 Gen. 10,079
City of Cranston Oct. 27, 1996 952 920 Gen. 10,080
Paul E. Mastrobuono June 21, 1996 939 945 Gen. 10,081
Clara Cardi, Tr. Oct. 26, 1996 953 666 Gen. 10,082
W.F.D. Associates L.P. Oct. 15, 1996 953 664 Gen. 10,083
Benjamin J. Scaralia et ali Nov. 4, 1996 954 404 Gen. 10,084
Jorgen W. Rasmussen Sept. 26, 1996 954 401 Gen. 10,085
City of Cranston Jan. 29, 1997 965 113 Gen. 10,086
Zarrella Development Corp. Jan. 31, 1997 963 974 Gen. 10,087
David J. Sasso et al Feb. 12, 1997 965 116 Gen. 10,088
Rodio Contractors, Inc. Dec. 17, 1996 959 539 Gen. 10,089
R.C. Investments, Inc. Nov. 21, 1996 956 588 Gen. 10,090
Anthony Barile et al Dec. 4, 1996 958 134 Gen. 10,091
Vincent J. Confreda Feb. 14, 1997 966 691 Gen. 10,092
Rosel, Inc. Mar. 10, 1997 967 807 Gen. 10,093
Marandola Development, Inc. Mar. 24, 1997 969 927 Gen. 10,094
<PAGE>
The Rossini & Smith
Companies, Inc. Mar. 25, 1997 969 925 Gen. 10,095
Joseph A. Turchetta et al July 28, 1997 984 578 Gen. 10,096
Sandy Delfino, Jr. May 2, 1997 986 231 Gen. 10,097
Frank P. Fede et al June 11, 1997 986 233 Gen. 10,098
Theodore H.Lichtenfels d/b/a July 10, 1997 982 804 Gen. 10,099
Edward L. Rodi et al July 22, 1997 983 558 Gen. 11,000
Thomas J. Flatley d/b/a Aug. 6, 1997 986 904 Gen. 12,900
Fleet Construction Co., Inc. Sept. 15, 1997 989 990 Gen. 12,901
Russell H. Wilbur et al Sept. 15, 1997 989 987 Gen. 12,902
Dennis H. Psilopoulos, LLC July 24, 1997 992 12 Gen. 12,903
City of Cranston June 30, 1997 992 15 Gen. 12,904
John W. Mastrobuono et al Oct. 17, 1997 994 416 Gen. 12,905
Ross-Simons of Warwick, Inc. Oct. 29, 1997 997 496 Gen. 12,906
George P. Pelletier, Jr.
et al Aug. 4, 1997 986 906 Gen. 12,907
Lavigne Realty Company, Inc. Nov. 14, 1997 999 956 Gen. 12,908
United Home Construction
Co., Inc. Nov. 13, 1997 999 954 Gen. 12,909
Michael A. Caparrelli et al Nov. 18, 1997 999 952 Gen. 12,910
W.F.D. Associates L.P. Nov. 24, 1997 1000 762 Gen. 12,911
J. Gannon Realty Co. Dec. 23, 1997 1005 787 Gen. 12,912
Cranwar LLC Feb. 23, 1998 1011 589 Gen. 12,913
Raymond Charlonne et al Feb. 9, 1998 1010 918 Gen. 12,914
Anthony A. DiFazio Jan. 17, 1998 1011 592 Gen. 12,915
EAST GREENWICH
Recorded in East Greenwich
Land Records
Grantors Date Book Page Prop. No.
John T. Hannah, Sr. et
al (Fee) Jan. 2, 1995 197 517 RPT 74
George W. McKeen, III June 30, 1995 201 753 Gen. 11,141
P & W Building Components June 28, 1995 201 755 Gen. 11,142
The Stanley Works June 2, 1995 200 384 Gen. 11,143
Wings Financial Marketing,
Inc. Aug. 2, 1995 202 787 Gen. 11,144
DDJJBK Co. Inc. Sept. 25, 1995 203 618 Gen. 11,145
United States of America Sept. 9, 1995 203 616 Gen. 11,146
David B. Munroe et al Oct. 3, 1995 203 707 Gen. 11,147
James Malm et al Sept. 29, 1995 203 986 Gen. 11,148
Jeffrey R. Cammans et al Oct. 27, 1995 205 49 Gen. 11,149
Jeffrey R. Cammans et al Oct. 27, 1995 204 889 Gen. 11,149
Stephen Andruchow, Inc. July 9, 1996 211 147 Gen. 11,150
Gerald P. Zarrella et al June 5, 1996 209 768 Gen. 11,151
David P. Weindel May 29, 1996 209 766 Gen. 11,152
Deblois Building Company July 25, 1996 211 781 Gen. 11,153
Levesque Construction, Inc. June 27, 1996 211 762 Gen. 11,154
Regal Court Associates, L.P. Dec. 27, 1996 215 915 Gen. 11,155
Milton Holdings, Inc. Jan. 31, 1997 216 979 Gen. 11,156
Pine Glen Condominium
Association Apr. 14, 1997 218 185 Gen. 11,157
C & M Realty, Inc. May 14, 1997 219 116 Gen. 11,158
Fonnie C. Soderstrom Sept. 4, 1997 105 40 Gen. 11,159
Frenchtown Mini-Storage,Inc. Nov. 10, 1997 225 172 Gen. 11,160
Thomas Graul et al Nov. 26, 1997 225 645 Gen. 11,161
Richard D. Graham et al Nov. 24, 1997 225 647 Gen. 11,162
<PAGE>
Independence Center, Inc. Mar. 6, 1997 217 349 Gen. 11,163
EAST PROVIDENCE
Recorded in East Providence
Land Records
Grantors Date Book Page Prop. No.
Woodstone, Inc. Apr. 5, 1995 1151 61 Gen. 1187
Kenneth E. Knox et al Dec. 12, 1995 1187 315 Gen. 1188
Roger N. Cournoyer Feb. 21, 1996 1195 211 Gen. 1189
Beverly Corrente Feb. 19, 1996 1195 209 Gen. 1190
Harborside Park, LLC Aug. 13, 1996 1233 226 Gen. 1191
Providence Country Day
School Dec. 12, 1996 1252 295 Gen. 1192
Stephen Gentile et al Feb. 27, 1997 1261 340 Gen. 1193
Industrial Heights
Condominiums Association Feb. 27, 1997 1261 342 Gen. 1194
New England Telephone and
Telegraph Company May 6, 1997 1273 21 Gen. 1195
SFX Broadcasting of Rhode
Island, Inc. Aug. 25, 1997 1296 59 Gen. 1196
EAST PROVIDENCE
Recorded in East Providence
Land Records
Grantors Date Book Page Prop. No.
City of East Providence Dec. 9, 1997 1316 301 Gen. 1197
Donald H. McGlory et al Jan. 22, 1998 1319 47 Gen. 1198
Newell Realty Corporation Jan. 30, 1998 1321 80 Gen. 1199
Metacomet Executive Park
Condominium Association Feb. 6, 1998 1323 308 Gen. 12,951
Lehigh Realty Associates Feb. 12, 1998 1323 312 Gen. 12,952
Marshall Verona LLC Feb. 5, 1998 1325 145 Gen. 12,953
Industrial Heights
Condominium Association Mar. 26, 1998 1336 22 Gen. 12,954
State of Rhode Island July 2, 1996 1226 263 Gen. 12,955
State of Rhode Island July 2, 1996 1226 271 Gen. 12,956
EXETER
Recorded in Exeter
Land Records
Grantors Date Book Page Prop. No.
State of Rhode Island and
Providence Plantations Oct. 3, 1995 95 236 RP-WK 29
Michael B. Dessler et al July 17, 1995 94 261 Gen. 4947
Yawgoo Valley Estates
Incorporated Nov. 30, 1995 96 265 Gen. 4948
Barry C. Vaill Aug. 5, 1996 99 546 Gen. 4949
State of Rhode Island and
Providence Plantations,
Dept. of Environmental
Management Feb. 13, 1996 97 242 Gen. 4950
<PAGE>
Wood Estates, Inc. Sept. 24, 1996 100 19 Gen. 4951
Scott Douglas et al Oct. 28, 1996 100 537 Gen. 4952
William A. Almeida et ux Apr. 16, 1997 102 468 Gen. 4953
Exeter - West Greenwich
Regional School District June 25, 1997 103 592 Gen. 4954
Brookridge Estates Aug. 18, 1997 104 391 Gen. 4955
Fonnie C. Soderstrom Sept. 4, 1997 223 400 Gen. 4956
Slocum Real Estate Corp. Jan. 12, 1998 107 115 Gen. 4957
Slocum Real Estate Corp. Dec. 2, 1997 106 786 Gen. 4958
H. Winfield Tucker et al Dec. 2, 1997 106 784 Gen. 4959
Lewis E. Peck, jr. et al Aug. 22, 1997 104 611 Gen. 4960
Cobblepoint Realty Group,LLC Nov. 10, 1997 106 1 Gen. 4961
Gary W. Garabian Jan. 16, 1998 107 137 Gen. 4962
John Pamula et al March 30, 1998 109 101 Gen. 4963
FOSTER
Recorded in Foster
Land Records
Grantors Date Book Page Prop. No.
Kenneth A. Schadegg June 23, 1995 68 301 Gen. 2163
Leonard J. DePasquale et al Sept. 26, 1995 69 257 Gen. 2164
Samuel A. Mizer et al Oct. 5, 1995 69 259 Gen. 2165
Charles E. Greenwood et al Nov. 3, 1995 69 766 Gen. 2166
Rene E. Giroux et al Sept. 29, 1995 69 768 Gen. 2167
Newell W. Wright et ali May 23, 1997 74 396 Gen. 2168
Mark Gervasio et al Apr. 28, 1997 74 204 Gen. 2169
James Alan Egan et al Apr. 22, 1997 74 202 Gen. 2170
Bradley C. Hearn et ux June 9, 1997 74 596 Gen. 2171
Louis G. Saccoccio, II et al June 5, 1997 74 528 Gen. 2172
Derek M. Cerjanec et al Aug. 28, 1997 75 443 Gen. 2173
Robert J. Fallon Sept. 9, 1997 75 707 Gen. 2174
Gerald Caparco Sept. 22, 1997 76 124 Gen. 2175
GLOCESTER
Recorded in Glocester
Land Records
Grantors Date Book Page Prop. No.
Howard F. Tucker, Jr. et al Jan. 19, 1995 213 563 Gen. 12,103
Town of Glocester May 15, 1995 214 679 Gen. 12,104
Shawn Maynard et ux July 13, 1995 215 692 Gen. 12,105
Glocester Housing Authority May 4, 1995 215 595 Gen. 12,106
Marjorie A. Peterson Oct. 17, 1995 217 322 Gen. 12,107
Kojack, LLC Nov. 6, 1995 218 287 Gen. 12,108
Robert W. Hawksley et ux Jan. 23, 1996 219 50 Gen. 12,109
Michael P. Tocci et al June 10, 1996 221 756 Gen. 12,110
Valentine Realty, Inc. Aug. 13, 1996 222 290 Gen. 12,111
Walter M.O. Steere, Jr.
et ali Aug. 14, 1996 222 287 Gen. 12,112
Yorkshire Properties, Inc. Feb. 3, 1997 225 218 Gen. 12,113
Robert W. Knight et al July 2, 1997 227 756 Gen. 12,114
Rhode Island Episcopal
Convention July 23, 1997 228 68 Gen. 12,115
Richard A. Coulombe et al Oct. 6, 1997 229 718 Gen. 12,116
Bonnie L. Clark Sept. 18, 1997 229 107 Gen. 12,117
<PAGE>
Joseph A. Notarantonio III
et al Dec. 15, 1997 231 322 Gen. 12,118
Donald A. Pease et al Feb. 20, 1998 232 252 Gen. 12,119
Brian T. Powers et al Apr. 20, 1998 233 935 Gen. 12,120
HOPKINTON
Recorded in Hopkinton
Land Records
Grantors Date Book Page Prop. No.
AMS Building Associates Feb. 9, 1995 247 486 Gen. 1981
Classic Acres, Inc. Feb. 8, 1995 247 488 Gen. 1982
Bruce Brayman Builders, Inc. July 25, 1995 253 11 Gen. 1983
Peter K. Wiechers Dec. 20, 1995 256 44 Gen. 1984
Richard S. Stockman et al Nov. 27, 1995 254 392 Gen. 1985
Barbara Scattergood et al Nov. 20, 1995 254 390 Gen. 1986
Michael A. Rosso Feb. 26, 1996 257 127 Gen. 1987
Gabriel Lengyel Nov. 22, 1996 264 157 Gen. 1988
A. Gardner Young, Jr. Jan. 16, 1997 265 165 Gen. 1989
James M. Van Dyke et al Nov. 19, 1996 264 159 Gen. 1990
Richard A. Mitchell et al Jan. 28, 1997 265 269 Gen. 1991
Scott L. DeLotto Nov. 19, 1996 266 108 Gen. 1992
William Bowyer et al May 12, 1997 267 498 Gen. 1993
Bernice E. Tefft et al July 18, 1997 270 178 Gen. 1994
United Builders Supply Co.,
Incorporated July 22, 1997 270 180 Gen. 1995
Dean J. Saglio Oct. 3, 1997 273 45 Gen. 1996
Smith Farms Homeowners'
Association Oct. 2, 1997 273 43 Gen. 1997
Charles B. Smith, Jr. Oct. 2, 1997 273 40 Gen. 1998
Frank DiRico Oct. 27, 1997 273 455 Gen. 1999
JOHNSTON
Recorded in Johnston
Land Records
Grantors Date Book Page Prop. No.
Richard R. Pezzuco et al July 15, 1995 542 205 Gen. 12,020
Sunnyland, Inc. May 8, 1995 537 250 Gen. 23,021
Michael A. Grieco June 21, 1995 541 220 Gen. 12,022
Emilio Manzi et ali June 17, 1995 541 218 Gen. 12,023
Dennis F. Conte June 16, 1995 540 301 Gen. 12,024
Michael A. Grieco July 12, 1995 550 300 Gen. 12,025
Coastal Materials
Corporation Aug. 22, 1995 549 34 Gen. 12,026
Izzo Realty Company Oct. 3, 1995 555 197 Gen. 12,027
City of Providence Dec. 6, 1995 564 18 Gen. 12,028
Deborah Mitchell Oct. 6, 1995 558 248 Gen. 12,029
F. Paolino Homes,
Incorporated Oct. 26, 1995 558 246 Gen. 12,030
Putnam Pike West, LLC Aug. 29, 1996 598 57 Gen. 12,031
R.C. Builders, Incorporated May 4, 1996 583 292 Gen. 12,032
Anco Builders, Inc. July 19, 1996 592 338 Gen. 12,033
The Town of Johnston Sept. 23, 1996 602 196 Gen. 12,034
<PAGE>
JOHNSTON
Recorded in Johnston
Land Records
Grantors Date Book Page Prop. No.
Anthony Boscia et al Oct. 15, 1996 604 195 Gen. 12,035
Joseph L. Kilduff III Oct. 1, 1996 604 15 Gen. 12,036
Stephen M. Sajkowski Oct. 6, 1996 604 13 Gen. 12,037
Allied Associates, Inc. Dec. 5, 1996 614 323 Gen. 12,038
Shaw's Supermarkets, Inc. Nov. 14, 1996 614 326 Gen. 12,039
Stephen T. Hassett Jan. 7, 1997 615 92 Gen. 12,040
Ronald S. Nugeness Jan. 8, 1997 615 268 Gen. 12,041
The Worcester Company
(Incorporated) Jan. 30, 1997 619 342 Gen. 12,042
Greystone Incorporated Oct. 31, 1996 613 63 Gen. 12,043
Linda J. Cortellesso July 7, 1997 642 125 Gen. 12,044
Constantino Bros. Realty
Company Sept. 12, 1997 651 29 Gen. 12,045
Town of Johnston Sept. 18, 1997 652 219 Gen. 12,046
Joseph B. McGrath et al Dec. 17, 1997 666 114 Gen. 12,047
Ralph Macera et al Dec. 11, 1997 666 112 Gen. 12,048
Atfield Realty Associates,
L.P. Sept. 19, 1997 670 97 Gen. 12,049
Rhode Island Solid Waste
Management Corporation Dec. 29, 1997 669 91 Gen. 12,050
Cynthia m. Tedeschi et al,
Admrs. Jan. 23, 1998 672 171 Gen. 12,051
Ramot Realty Associates Feb. 26, 1998 677 93 Gen. 12,052
Town of Johnston April 20, 1998 689 53 Gen. 12,053
LINCOLN
Recorded in Lincoln
Land Records
Grantors Date Book Page Prop. No.
Paul Taylor et al April 12, 1995 445 338 Gen. 6405
LITTLE COMPTON
Recorded in Little Compton
Land Records
Grantors Date Book Page Prop. No.
Coll MacLean Walker July 6, 1995 99 593 Gen. 11,929
Cameron W. Church et al Dec. 11, 1995 101 653 Gen. 11,930
Alexandre H. Goulart, Jr.
et ux April 8, 1996 102 279 Gen. 11,931
LITTLE COMPTON
Recorded in Little Compton
Land Records
Grantors Date Book Page Prop. No.
<PAGE>
Curtis J. Greene, Jr. et al July 9, 1996 103 613 Gen. 11,932
Karen F. Carroll July 10, 1996 103 611 Gen. 11,933
Alfred A. Helger et al Aug. 7, 1996 103 709 Gen. 11,934
John H. Chase et al June 11, 1996 103 673 Gen. 11,935
Paul R. Luz et al Oct. 9, 1996 104 723 Gen. 11,936
John L. Huppee III et al Oct. 4, 1996 104 729 Gen. 11,937
City of Newport Aug. 27, 1996 104 726 Gen. 11,938
Wilfred R. Caron et al July 5, 1996 103 676 Gen. 11,939
Irving J. Orton et al Nov. 6, 1996 106 39 Gen. 11,940
Joseph Dabek et ux Feb. 1, 1997 106 167 Gen. 11,941
Helen P. Pereira Apr. 14, 1997 107 23 Gen. 11,942
Donald P. Willis et al Sept. 29, 1997 109 118 Gen. 11,943
Kevin F. McKinnon et al Aug. 19, 1997 108 687 Gen. 11,944
Alexander H. MacLeod et ux Sept. 29, 1997 109 175 Gen. 11,945
Mark J. Wrobleski et al Oct. 1, 1997 109 173 Gen. 11,946
Charles F. Adams et al Oct. 28, 1997 109 358 Gen. 11,947
John W. Lint et ux Aug. 20, 1997 108 685 Gen. 11,948
Gedas A. Paskauskas et al Dec. 12, 1997 110 345 Gen. 11,949
Wilma Bruining Jan. 2, 1998 110 347 Gen. 11,950
John G. Faria Apr. 3, 1998 111 609 Gen. 11,951
NARRAGANSETT
Recorded in Narragansett
Land Records
Grantors Date Book Page Prop. No.
Richard H. Volk et al Jan. 27, 1995 326 843 Gen. 5249
M. Diane Manning Feb. 3, 1995 326 845 Gen. 5250
Point Judith Country Club May 3, 1995 328 371 Gen. 5251
DeWal Realty, Inc. Sept. 6, 1995 333 764 Gen. 5252
A&R Properties, Inc. Aug. 21, 1995 333 766 Gen. 5253
A&R Properties, Inc. Aug. 4, 1995 333 768 Gen. 5254
Kendall Green, LLC Nov. 13, 1995 337 26 Gen. 5255
Kendall Green, LLC Jan. 18, 1996 340 44 Gen. 5256
NORTH KINGSTOWN
Recorded in North Kingstown
Land Records
Grantors Date Book Page Prop. No.
John O. Fronce et ux Feb. 10, 1995 918 194 Gen. 4338
Elaine Enterprises, Inc. Mar. 31, 1995 926 309 Gen. 4339
Michael L. Baker June 21, 1995 935 120 Gen. 4340
John G. Slattery May 12, 1995 935 115 Gen. 4341
Fenwick G. Gardiner, Jr.
et al July 10, 1995 938 296 Gen. 4342
Advantage Development, LLC. July 5, 1995 935 244 Gen. 4343
Kurt Challberg et ux June 17, 1995 935 118 Gen. 4344
Advantage Development, LLC. June 21, 1995 935 111 Gen. 4345
Advantage Development, LLC. June 21, 1995 935 113 Gen. 4346
A&R Properties, Inc. Oct. 18, 1995 952 202 Gen. 4347
OCG Microelectronic Materials,
Inc. Nov. 8, 1995 957 1 Gen. 4348
Deer Run Estates, Inc. Dec. 12, 1995 961 140 Gen. 4349
Hamilton Village Inn,
Incorporated Oct. 31, 1995 957 3 Gen. 4350
<PAGE>
Michael A. Kearney et ux Dec. 2, 1995 960 213 Gen. 4351
Kathy E. Starr et ali, Trs. Dec. 2, 1995 960 211 Gen. 4352
DDJJBK Co. Inc. Feb. 26, 1996 971 159 Gen. 4353
GMB Realty Partners, L.L.C. June 13, 1996 990 327 Gen. 4354
Antonio V. Santilli et al July 15, 1996 993 133 Gen. 4355
Dennis D. Levesque June 27, 1996 990 286 Gen. 4356
FFCA Acquisition Corporation Dec. 12, 1995 958 345 Gen. 4357
Tiago M. Tiburcio et al June 17, 1996 990 284 Gen. 4358
Diane Venticinque June 14, 1996 990 290 Gen. 4359
Ronald B. Levesque et al June 27, 1996 990 288 Gen. 4360
T.J. Homebuilders, Inc. Sept. 10, 1996 1009 256 Gen. 4361
A&M Bragger, Inc. Sept. 18, 1996 1009 260 Gen. 4362
Donalee Fronce, Tr. Oct. 7, 1996 1007 292 Gen. 4363
The Washington Trust Company Oct. 31, 1996 1013 33 Gen. 4364
L&R Mancini Development,Inc. Nov. 14, 1996 1013 35 Gen. 4365
Carol O'Donnell Nov. 14, 1996 1013 39 Gen. 4366
Rescorp, LLC Dec. 3, 1996 1017 334 Gen. 4367
Lester Cole et al Oct. 30, 1996 1018 152 Gen. 4368
Wal-Mart Stores, Inc. Feb. 20, 1997 1025 260 Gen. 4369
Wickford Junction
Associates, LLC Jan. 17, 1997 1022 258 Gen. 4370
Wickford Junction Condominium
Association, Inc. Jan. 17, 1997 1022 262 Gen. 4371
Wood Hollow Development Co. Mar. 7, 1997 1028 241 Gen. 4372
John O. Fronce et al Aug. 7, 1996 997 68 Gen. 4373
Rescorp, LLC Mar. 13, 1997 1032 1 Gen. 4374
Stick Enterprises Ap. l 21, 1997 1037 104 Gen. 4375
Joanne M. Hogan et al June 16, 1997 1044 185 Gen. 4376
James R. Briggs July 22, 1997 1049 161 Gen. 4377
Thomas J. Grennan, III et al July 22, 1997 1049 164 Gen. 4378
NORTH KINGSTOWN
Recorded in North Kingstown
Land Records
Grantors Date Book Page Prop. No.
Erika Hawkins July 22, 1997 1049 167 Gen. 4379
Ignatius C. Pechulis et al July 22, 1997 1049 169 Gen. 4380
David P. Feeney et al July 22, 1997 1049 172 Gen. 4381
Joanne M. Hogan et al Oct. 1, 1997 1064 52 Gen. 4382
The Rhode Island Economic
Development Corporation Oct. 3, 1997 1063 256 Gen. 4383
OCG Microelectronic Materials,
Inc. Sept. 17, 1997 1060 255 Gen. 4384
Reisert Realty Corporation Oct. 17, 1997 1065 335 Gen. 4385
Town of North Kingstown Oct. 27, 1997 1066 255 Gen. 4386
Ropamiri, Inc. Nov. 5, 1997 1068 174 Gen. 4387
Town of North Kingstown Dec. 1, 1997 1073 308 Gen. 4388
Advantage Land Company, LLC Dec. 18, 1997 1077 276 Gen. 4389
Jean M. Brackenbury Sept. 19, 1997 1062 106 Gen. 4390
Circuit Real Estate, Inc. Jan. 8, 1998 1078 324 Gen. 4391
Pasco J. DePetrillo et al Oct. 27, 1997 1067 32 Gen. 4392
Supfina Machine Company,Inc. Jan. 30, 1998 1080 340 Gen. 4393
Town of North Kingstown Mar. 12, 1998 1089 51 Gen. 4394
Jennifer Rudd Feb. 12, 1998 1088 232 Gen. 4395
Bruce R. Caldwell Mar. 30, 1998 1095 258 Gen. 4396
<PAGE>
NORTH PROVIDENCE
Recorded in North Providence
Land Records
Grantors Date Book Page Prop. No.
Douglas Avenue Associates,
Inc. Jan. 11, 1995 281 197 Gen. 2382
Spring Plaza Associates Apr. 20, 1995 283 1134 Gen. 2383
Meshanticut Properties, Inc. Sept. 6, 1996 303 231 Gen. 2384
Mineral Spring Associates,
L.P. Nov. 20, 1996 306 655 Gen. 2385
Elmhurst House, Incorporated Mar. 17, 1997 309 649 Gen. 2386
Saint Lawrence Church of
Centredale Nov. 5, 1997 320 335 Gen. 2387
Joseph P. Iaciofano et al Apr. 23, 1998 329 7 Gen. 2388
North Providence Mall
Associates Apr. 21, 1998 329 9 Gen. 2389
PROVIDENCE
Recorded in Providence
Land Records
Grantors Date Book Page Prop. No.
Federal Housing Association May 22, 1995 3148 264 Gen. 11,080
Vineyard Housing Associates,
Inc. May 22, 1995 3148 258 Gen. 11,081
Acorn Realty, Inc. May 30, 1995 3148 260 Gen. 11,082
Ellen M. Gower May 11, 1995 3148 262 Gen. 11,083
Alak Associates Aug. 15, 1995 3196 269 Gen. 11,084
Coca Cola Bottling Company
of New England Aug. 18, 1995 3196 271 Gen. 11,085
Peter Stevens et al Dec. 28, 1995 3258 212 Gen. 11,087
City of Providence Dec. 6, 1995 3258 209 Gen. 11,088
Bradley D. Heermann et al Sept. 15, 1995 3234 17 Gen. 11,089
St. Martin's Parish June 27, 1996 3359 189 Gen. 11,090
The General Electric Company May 7, 1996 3355 190 Gen. 11,091
Omni-Governor, Inc. May 6, 1996 3355 187 Gen. 11,092
The Housing Authority of
the City of Providence
Rhode Island Apr. 4, 1996 3312 161 Gen. 11,094
The Armory Revival Company June 3, 1996 3365 298 Gen. 11,095
The Village at Elmhurst LLC July 30, 1996 3394 242 Gen. 11,096
Rhode Island School of
Design July 24, 1996 3394 245 Gen. 11,097
The Board of Governors for
Higher Education,
Rhode Island College Aug. 19, 1996 3405 158 Gen. 11,098
James Maron et al Sept. 25, 1996 3416 260 Gen. 11,099
Park Side Site and Utilities
Construction Co., Inc. Oct. 3, 1996 3419 153 Gen. 11,100
Robert Rodio Sept. 16, 1996 3416 258 Gen. 12,700
Providence Chain Co. Oct. 30, 1996 3437 344 Gen. 12,701
Mortgage Acquisition
Associates, LLC Nov. 22, 1996 3456 155 Gen. 12,702
Elmwal Associates, LLC Nov. 22, 1996 3456 158 Gen. 12,703
Botvin Realty Company Feb. 3, 1997 3490 1 Gen. 12,704
<PAGE>
JCAC Associates, Inc. Feb. 14, 1997 3512 116 Gen. 12,705
The Providence Redevelopment
Agency Mar. 21, 1997 3526 307 Gen. 12,706
Cuatro Amigos Holding Corp. Feb. 6, 1997 3545 211 Gen. 12,707
Spur Track Properties, LLC Feb. 6, 1997 3545 213 Gen. 12,708
Twin Realty Company June 19, 1997 3577 169 Gen. 12,709
Whitmarsh Development Limited
Partnership Sept. 3, 1997 3628 48 Gen. 12,710
Congregation of the Sons of
Israel and David Oct. 15, 1997 3660 314 Gen. 12,711
The Salvation Army Sept. 24, 1997 3660 296 Gen. 12,712
Butler Hospital Oct. 23, 1997 3660 304 Gen. 12,713
Harvey D. Michaels et al,
Trs. June 30, 1997 3660 299 Gen. 12,714
The Children's Museum of
Rhode Island Apr. 12, 1997 3573 318 Gen. 12,715
Contenti Supply, Inc. Nov. 6, 1997 3679 348 Gen. 12,716
PROVIDENCE
Recorded in Providence
Land Records
Grantors Date Book Page Prop. No.
The Providence Public Buildings
Authority Jan. 21, 1998 3720 121 Gen. 12,717
Venda Ravioli, Inc. Dec. 3, 1997 3719 99 Gen. 12,718
Rhode Island Industrial
Facilities Corporation Dec. 22, 1997 3719 94 Gen. 12,719
86 Point Street, LLC Feb. 9, 1998 3752 84 Gen. 12,720
Mohican Limited Partnership Mar. 1, 1998 3756 42 Gen. 12,721
Foundry Parcel Six Associates,
LLC Feb. 2, 1998 3776 137 Gen. 12,722
Jeffrey A. Flood Apr. 9, 1998 3776 135 Gen. 12,723
RICHMOND
Recorded in Richmond
Land Records
Grantors Date Book Page Prop. No.
Neil F. Quinn et al May 24, 1995 100 227 Gen. 2957
United Builders Supply
Co., Inc. Mar. 13, 1995 99 577 Gen. 2960
Alan-Brian Realty, Co. Apr. 3, 1995 99 579 Gen. 2961
Midwestern Homes, Inc. June 27, 1995 100 361 Gen. 2962
Marjory K. Fortier Sept. 1, 1995 101 702 Gen. 2963
Boulder Hills Country Club,
LLC Sept. 25, 1995 101 695 Gen. 2964
Steven D. Markhart et al Aug. 8, 1995 101 698 Gen. 2965
Edward A. Caswell, Jr. Aug. 24, 1995 101 700 Gen. 2966
Dean C. Josephson et al Jan. 9, 1996 103 374 Gen. 2967
Drena M. Sampson Jan. 2, 1996 103 386 Gen. 2968
Midwestern Homes, Inc. Dec. 14, 1995 102 843 Gen. 2969
Thomas A. Parenti, Jr. et al Jan. 29, 1996 103 604 Gen. 2970
Karlin Corporation Aug. 19, 1996 106 915 Gen. 2971
Joseph A. Ruggieri et al July 24, 1996 106 985 Gen. 2972
Darrell H. Bouchard Sept. 13, 1996 106 988 Gen. 2973
<PAGE>
Tami L. Neill et al Oct. 22, 1996 107 633 Gen. 2974
New Hope Chapel of the
Assembly of God Nov. 25, 1996 108 331 Gen. 2975
Leeward Realty Holding Corp. Feb. 24, 1997 109 223 Gen. 2976
Meredith H. Westner et al Apr. 16, 1997 110 610 Gen. 2977
Ann C. Suter Declaration
of Trust Oct. 27, 1996 113 630 Gen. 2978
Ronald J. Richard et al Oct. 23, 1997 113 628 Gen. 2979
Louis A. Gencarelli, Sr.
et ali Dec. 2, 1997 114 840 Gen. 2980
Richmond Properties, LLC Sept. 30, 1997 114 440 Gen. 2981
Ocean State Golf Investors,
LLC Feb. 26, 1998 116 28 Gen. 2982
SCITUATE
Recorded in Scituate
Land Records
Grantors Date Book Page Prop. No.
Jamie E. Hicks et al Dec. 30, 1994 158 393 Gen. 8031
Kimarie E. Banes Dec. 27, 1994 158 397 Gen. 8032
Jesse L. Hicks Dec. 28, 1994 158 395 Gen. 8033
Stephen R. Salone et al Dec. 22, 1994 158 391 Gen. 8034
Richard G. Spicuzza et al Feb. 15, 1995 159 653 Gen. 8035
Grace L. Andrews Mar. 29, 1995 159 655 Gen. 8036
Robert V. Whittaker et al June 19, 1995 161 163 Gen. 8037
W.F.D. Associates, L.P. Sept. 11, 1995 161 848 Gen. 8038
Robert E. Hazard Nov. 29, 1995 162 999 Gen. 8039
Kenneth J. Vinacco et al Oct. 11, 1995 162 157 Gen. 8040
Joseph V. Mega et al Oct. 11, 1995 162 159 Gen. 8041
Peter A. Cavanagh et al Apr. 25, 1996 165 1054 Gen. 8042
Thomas G. Casale Aug. 6, 1996 166 939 Gen. 8043
S. Gerald Marsocci et al Sept. 9, 1996 167 307 Gen. 8044
David Marsocci et al Sept. 9, 1996 167 305 Gen. 8045
Paul Toher Oct. 25, 1996 167 734 Gen. 8046
Richard P. Harrington et al Nov. 1, 1996 167 912 Gen. 8047
W.C. McCann Construction,
Inc. Oct. 28, 1996 167 914 Gen. 8048
Dennis M. DelVecchio et al Nov. 14, 1996 168 281 Gen. 8049
Thomas Samson, Jr. et al Dec. 15, 1996 168 643 Gen. 8050
David A. Narcisi et al Jan. 21, 1997 169 351 Gen. 8051
Todd S. Torres et al Jan. 31, 1997 169 354 Gen. 8052
Kevin F. McKenna et al Jan. 6, 1997 168 885 Gen. 8053
Jason R. Allen et al Dec. 24, 1996 168 910 Gen. 8054
Robert A. Schnaible et al Feb. 28, 1997 169 831 Gen. 8055
Brown Construction, Inc. Mar. 6, 1997 169 941 Gen. 8056
William J. Lang et al Apr. 29, 1997 170 620 Gen. 8057
Vincent A. Rossi III et al July 8, 1997 171 749 Gen. 8058
Joseph A. Franco July 17, 1997 171 893 Gen. 8059
David C. Leo Oct. 1, 1997 173 22 Gen. 8060
Robert C. Branch, Jr. et al Sept. 4, 1997 172 753 Gen. 8061
Robert C. Branch et al Sept. 4, 1997 172 751 Gen. 8062
Donald A. Guadagnoli et al Oct. 8, 1997 173 19 Gen. 8063
City of Providence Nov. 7, 1997 H-SD 4
Gerard P. Bruneau et al Oct. 23, 1997 173 377 Gen. 8064
Kevin M. Kennedy et al July 15, 1997 171 747 Gen. 8065
Hope Associates July 10, 1997 171 745 Gen. 8066
Padula Builders, inc. Nov. 26, 1997 174 65 Gen. 8067
<PAGE>
John Williams et al Dec. 18, 1997 174 831 Gen. 8068
William J. Garcia et al Dec. 3, 1997 174 984 Gen. 8069
Rick Cabral et al Mar. 23, 1998 176 317 Gen. 8070
SMITHFIELD
Recorded in Smithfield
Land Records
Grantors Date Book Page Prop. No.
Hunters Knoll Development
Corp. Sept. 7, 1995 192 313 Gen. 9084
Orchard Meadows, Inc. Aug. 28, 1995 192 316 Gen. 9085
Angelo Calcagni et al Sept. 30, 1996 206 172 Gen. 9086
Westbourne Associates Oct. 24, 1996 206 707 Gen. 9087
New Life Worship Center Oct. 1, 1996 206 510 Gen. 9088
Drew Realty Company, Inc. Oct. 18, 1996 206 711 Gen. 9089
Waterman Heights Nursing
Home, Ltd. Oct. 16, 1996 215 131 Gen. 9090
Rhode Island Airport
Corporation June 9, 1997 215 127 Gen. 9091
Mafalda M. Mura et al June 23, 1997 216 238 Gen. 9092
Town of Smithfield July 10, 1997 216 517 Gen. 9093
John J. Carlton June 24, 1997 216 593 Gen. 9094
Kenneth B. Clark et al July 11, 1997 218 609 Gen. 9095
Dennis H. Parente et al Oct. 27, 1997 221 521 Gen. 9096
Mobil Oil Corporation Nov. 20, 1997 222 482 Gen. 9097
Rhode Island Economic
Development Corporation Nov. 26, 1997 224 164 Gen. 9098
Joseph DeAngelis, Jr. et al Oct. 26, 1997 221 303 Gen. 9099
Scope Realty, Inc. Oct. 26, 1997 221 305 Gen. 9100
SOUTH KINGSTOWN
Recorded in South Kingstown
Land Records
Grantors Date Book Page Prop. No.
Beach Plum Realty, Inc. Apr. 22, 1994 579 51 Gen. 11,295
B.P. Realty Apr. 22, 1994 579 49 Gen. 11,296
David Oliver Feb. 27, 1995 583 447 Gen. 12,222
Raymond P. Robinson May 1, 1995 588 39 Gen. 12,223
Elaine P. Carpenter Apr. 3, 1995 588 35 Gen. 12,224
James J. Noon et al Mar. 14, 1995 588 37 Gen. 12,225
Town of South Kingstown May 10, 1995 593 158 Gen. 12,226
Town of South Kingstown May 10, 1995 593 156 Gen. 12,227
Joseph J. Young, Jr. et al May 22, 1995 593 160 Gen. 12,228
Robert J. McCauley et al May 24, 1995 593 163 Gen. 12,229
Laurence W. O'Rourke et al May 27, 1995 593 170 Gen. 12,230
Faith C. Martin May 3, 1995 593 165 Gen. 12,231
Dennis J. Martel et al June 24, 1995 593 168 Gen. 12,232
Ernest D. George, Jr. May 12, 1995 593 172 Gen. 12,233
Bernard H. Singleton et al Aug. 9, 1995 597 469 Gen. 12,234
LeBlanc Homes, LLC. July 17, 1995 600 491 Gen. 12,235
Gerald F. Dillon et al Aug. 1, 1994 600 495 Gen. 12,236
Kambiz Karbassi Aug. 11, 1995 600 498 Gen. 12,237
<PAGE>
SOUTH KINGSTOWN
Recorded in South Kingstown
Land Records
Grantors Date Book Page Prop. No.
Gary M. Stefano et ux Aug. 18, 1995 601 5 Gen. 12,238
Peter F. Kenyon et ux Aug. 21, 1995 601 1 Gen. 12,239
Frederick Kenyon, Jr. et ux Aug. 25, 1995 601 3 Gen. 12,240
Denison Associates Sept. 28, 1995 603 177 Gen. 12,241
Martha M. Culp June 20, 1995 603 172 Gen. 12,242
Judith Whitford Adams et al Aug. 22, 1995 603 165 Gen. 12,243
Grace Hawkins et al June 27, 1995 603 158 Gen. 12,244
Bryan F. Bliven Sept. 15, 1995 603 152 Gen. 12,245
Kenneth L. Bliven Sept. 18, 1995 603 147 Gen. 12,246
Barbara E. Keszyinki et al July 31, 1995 603 141 Gen. 12,247
Louis D'Abrosca Sept. 29, 1995 603 135 Gen. 12,248
Donald W. Jackson et ali Oct. 20, 1995 605 230 Gen. 12,249
Reinaldo Vilardo et al Oct. 18, 1995 605 232 Gen. 12,250
Paul Drumm, Jr. et al Oct. 19, 1995 605 234 Gen. 12,251
Arthur W. Dexter et al Sept. 27, 1995 605 236 Gen. 12,252
Pearl F. Frisella Dec. 21, 1995 611 397 Gen. 12,253
Thomas S. Filiberto et al Mar. 6, 1996 619 403 Gen. 12,254
N & G Land Co. Inc. June 27, 1996 632 321 Gen. 12,255
CRT, Inc. July 1, 1996 632 324 Gen. 12,256
George E. Sherman et al June 27, 1996 632 318 Gen. 12,257
Wakefield Mill Properties Apr. 29, 1996 632 315 Gen. 12,258
Pascack Homes of South
Kingstown, LLC May 3, 1996 632 308 Gen. 12,259
Wakefield Mill Properties Apr. 29, 1996 632 312 Gen. 12,260
Michael D. O'Brien et al July 16, 1996 634 199 Gen. 12,261
National Railroad Passenger
Corporation Aug. 23, 1996 637 242 Gen. 12,262
Stephen Garnett Sept. 12, 1996 638 295 Gen. 12,263
Roxane E. Chase Nov. 1, 1996 644 301 Gen. 12,264
Union Fire District of
South Kingstown Sept. 16, 1996 644 298 Gen. 12,265
Housing Authority of the Town
of South Kingstown Jan. 6, 1997 651 87 Gen. 12,266
Theodore J Truslow III et al Nov. 1, 1996 644 304 Gen. 12,267
Shirley A. Lovesky et al Dec. 16, 1996 651 89 Gen. 12,268
Louis R. Fusco et al Apr. 17, 1997 661 108 Gen. 12,269
Thomas Bryant et al Jan. 15, 1997 652 310 Gen. 12,270
Christopher A. Louzon et al Jan. 8, 1997 652 306 Gen. 12,271
John Spirito et al Jan. 21, 1997 652 313 Gen. 12,272
Peter D. Anderson et al Jan. 16, 1997 657 99 Gen. 12,273
Green Hill Builders, Inc. June 2, 1997 665 446 Gen. 12,274
Patrick D. Masson et al June 4, 1997 667 377 Gen. 12,275
Property Shop, Inc. June 26, 1997 669 360 Gen. 12,276
David C. Perchman June 26, 1997 669 356 Gen. 12,277
Theatre Inn, Inc. June 25, 1997 669 358 Gen. 12,278
Town of South Kingstown July 17, 1997 672 449 Gen. 12,279
SOUTH KINGSTOWN
Recorded in South Kingstown
Land Records
Grantors Date Book Page Prop. No.
<PAGE>
Wakefield Mall Associates Sept. 4, 1997 678 320 Gen. 12,280
Warner R. Sweet, Sr. et al Nov. 5, 1997 684 447 Gen. 12,281
Scott M. Wallace et al Nov. 23, 1997 688 170 Gen. 12,282
James S. Dufficy et al Dec. 7, 1997 688 445 Gen. 12,283
Philip J. Rosch et al Dec. 7, 1997 688 443 Gen. 12,284
West Bay Builders, Inc. Oct. 15, 1997 682 362 Gen. 12,285
John P. Dana Oct. 15, 1997 682 359 Gen. 12,286
Pleasant Hill Development,
Ltd. Aug. 20, 1997 682 355 Gen. 12,287
O'Donnell Development Company,
LLC Aug. 8, 1997 682 350 Gen. 12,288
Joseph Miller Aug. 13, 1997 682 347 Gen. 12,289
Lynne Miller Aug. 14, 1997 682 344 Gen. 12,290
Robert Prosser Oct. 15, 1997 682 341 Gen. 12,291
John T. Whitford et al Dec. 18, 1997 691 467 Gen. 12,292
Oliver W. Greene III et al Nov. 12, 1997 684 450 Gen. 12,293
Wesley Grant III Dec. 10, 1997 691 462 Gen. 12,294
Green Hill Builders, Inc. Dec. 19, 1997 691 470 Gen. 12,295
New England Telephone and
Telegraph Company Dec. 29, 1997 693 242 Gen. 12,296
Tuckertown Village Park,
L.L.C. Jan. 26, 1998 699 258 Gen. 12,297
Landev Associates, Inc et al May 14, 1997 663 477 Gen. 12,298
John Spirito et al Feb. 26, 1998 702 175 Gen. 12,299
John M. Ferry et al Mar. 6, 1998 702 173 Gen. 12,300
Jane P. Moffett Mar. 2, 1998 702 171 Gen. 12,976
Frank M. Carrano et al Apr. 24, 1998 707 133 Gen. 12,977
TIVERTON
Recorded in Tiverton
Land Records
Grantors Date Book Page Prop. No.
Stone Church Properties, Inc Nov. 15, 1995 455 333 Gen. 5498
Field Stone Farm, Inc. Nov. 15, 1995 455 330 Gen. 5499
Lillian Medeiros Nov. 10, 1995 455 352 Gen. 12,500
Kingfisher Housing Asociation
Limited Partnership Nov. 13, 1995 455 350 Gen. 12,501
Nicholaos Realty Co. Aug. 8, 1996 478 221 Gen. 12,509
Julie M. Lannan Aug. 20, 1996 478 148 Gen. 12,510
William B. Sanford et al Feb. 26, 1996 466 341 Gen. 12,502
Richard Leblanc Apr. 26, 1996 467 336 Gen. 12,503
Peter A. Rowley et al Apr. 27, 1996 467 334 Gen. 12,504
Mark D. Brodeur et al Apr. 3, 1996 467 115 Gen. 12,505
Julie M. Lannan June 13, 1996 473 351 Gen. 12,506
TIVERTON
Recorded in Tiverton
Land Records
Grantors Date Book Page Prop. No.
Julie M. Lannan July 15, 1996 475 135 Gen. 12,507
Leon J. Sylvia July 16, 1996 475 133 Gen. 12,508
Countryside Acres Development
Corporation Sept. 23, 1996 480 53 Gen. 12,511
John M. Lannan et ali Sept. 30, 1996 480 55 Gen. 12,512
<PAGE>
Michael P. Aprea et al Feb. 15, 1997 488 72 Gen. 12,513
Arthur F. Smith, Sr. et ux Feb. 12, 1997 488 70 Gen. 12,514
Michael P. Lydon et al Dec. 27, 1996 489 212 Gen. 12,515
Julie M. Lannan Feb. 21, 1997 488 320 Gen. 12,516
Julie M. Lannan Mar. 3, 1997 489 125 Gen. 12,517
Ronald K. Moniz Apr. 9, 1997 491 284 Gen. 12,518
Robert G. Faria et al Mar. 20, 1997 491 282 Gen. 12,519
Linda M. Phipps Mar. 24, 1997 491 280 Gen. 12,520
P.D. Humphrey Co., Inc. May 5, 1997 494 316 Gen. 12,521
Richard D. LeBlanc Apr. 30, 1997 494 256 Gen. 12,522
Donald T. Hudson et al June 2, 1997 495 352 Gen. 12,523
Manuel M. Isidore June 19, 1997 496 355 Gen. 12,524
Town of Tiverton Sept. 18, 1997 504 115 Gen. 12,525
Mary T. Briere Sept. 20, 1997 504 96 Gen. 12,526
Aquidneck Fasteners, Inc. Sept. 29, 1997 504 309 Gen. 12,527
Alfred J. Arruda et al June 16, 1997 449 225 Gen. 12,528
Gary R. Pelletier et al Oct. 7, 1997 505 317 Gen. 12,529
Julie M. Lannan Sept. 12, 1997 503 280 Gen. 12,530
Roy A. Ferrell et al Aug. 12, 1997 501 41 Gen. 12,531
James W. Maling et al Aug. 11, 1997 501 43 Gen. 12,532
Alvin D. Simpson July 10, 1997 499 227 Gen. 12,533
Mark B. Gousie Aug. 28, 1997 502 303 Gen. 12,534
John F. Viveiros et al Jan. 14, 1998 514 36 Gen. 12,535
Paul L. Duclos Oct. 10, 1997 505 174 Gen. 12,536
William Mello et al Feb. 24, 1998 517 328 Gen. 12,537
Alvin D. Simpson Mar. 20, 1998 520 124 Gen. 12,538
Ravenswood, Inc. Apr. 3, 1998 521 233 Gen. 12,539
Roy A. Ferrell et al Apr. 3, 1998 521 231 Gen. 12,540
Gorton-Harvey, Inc. Apr. 30, 1998 524 51 Gen. 12,541
WARREN
Recorded in Warren
Land Records
Grantors Date Book Page Prop. No.
Brito Associates Feb. 14, 1995 233 135 Gen. 179
William C. Rodrigues et al July 28, 1997 274 146 Gen. 180
WARWICK
Recorded in Warwick
Land Records
Grantors Date Book Page Prop. No.
Johnston Corporation Mar. 2, 1995 2346 54 Gen. 7286
Amalia Shevlin Fund, LLC. Mar. 10, 1995 2346 56 Gen. 7287
Ryder Truck Rental Mar. 8, 1995 2346 58 Gen. 7288
Sundown Corporation Apr. 6, 1995 2355 281 Gen. 7289
Scott W. Ramsay et al, Trs. Mar. 31, 1995 2364 199 Gen. 7290
Cowesett Partners, L.P. Apr. 13, 1995 2364 203 Gen. 7291
C.H.I.L.D, Inc. June 15, 1995 2421 141 Gen. 7293
A. Middleton Gammell Aug. 21, 1995 2421 145 Gen. 7294
A. Middleton Gammell et ali Aug. 21, 1995 2421 143 Gen. 7295
James M. Jaques III et al Aug. 21, 1995 2421 147 Gen. 7296
Jewish Home for the Aged of
Rhode Island Aug. 21, 1995 2422 51 Gen. 7297
Shalom II Housing, Inc. Aug. 9, 1995 2422 48 Gen. 7298
<PAGE>
Centerville Builders, Inc. Sept. 18, 1995 2439 193 Gen. 7299
Johnston Corporation of
Warwick, Rhode Island Oct. 10, 1995 2443 19 Gen. 7300
Raymond J. Jezak et al Sept. 25, 1995 2443 15 Gen. 12,301
Morris Levy, Tr. Sept. 28, 1995 2443 17 Gen. 12,302
Bertha R. Taft (Fee) Sept. 14, 1995 2424 159 Gen. 402
Log Cabin Realty Dec. 6, 1995 2477 129 Gen. 12,303
BHL Limited Partnership Dec. 13, 1995 2473 111 Gen. 12,304
Wal-Mart Stores, Inc. Dec. 7, 1995 2467 335 Gen. 12,305
Foster Parents Plan, Inc. Nov. 28, 1995 2460 47 Gen. 12,306
Warwick Credit Union Nov. 1, 1995 2455 117 Gen. 12,307
John J. Cooney Oct. 25, 1995 2455 115 Gen. 12,308
Donna Drew Sherman et al,
Trs. Apr. 4, 1996 2523 187 Gen. 12,309
State of Rhode Island and
Providence Plantations Feb. 8, 1996 2497 205 Gen. 12,310
Kelly & Picerne, Inc. June 20, 1996 2560 145 Gen. 12,311
AKM, Inc. June 26, 1996 2560 147 Gen. 12,312
E.M. Greco and Son Aug. 2, 1996 2576 269 Gen. 12,313
Centerville Builders, Inc. July 26, 1996 2576 271 Gen. 12,314
Donald C. Mitchell June 27, 1996 2566 170 Gen. 12,315
Rhode Island Economic
Development Corporation Oct. 3, 1996 2607 234 Gen. 12,316
Warwick Four LLC Sept. 28, 1996 2605 68 Gen. 12,317
Warren A. Rowlett, Jr. Nov. 6, 1996 2630 38 Gen. 12,318
Warren B. Finn, Jr. Dec. 27, 1996 2641 30 Gen. 12,319
The Summit at Warwick Executive
Park Condominium
Association Jan. 2, 1997 2645 36 Gen. 12,320
R & M Properties, L.L.C. Mar. 13, 1997 2671 87 Gen. 12,321
G.W. Realty, Inc. Mar. 27, 1997 2679 184 Gen. 12,322
WARWICK
Recorded in Warwick
Land Records
Grantors Date Book Page Prop. No.
John A. Wright et al April 11, 1997 2684 173 Gen. 12,323
Russell Investments, Inc. June 3, 1997 2711 137 Gen. 12,324
Paolino/Watson Associates,
L.L.C. Mar. 12, 1997 2674 123 Gen. 12,325
Cornell Properties L.L.C. May 14, 1997 2701 37 Gen. 12,326
Pulte Home Corporation of
Massachusetts June 18, 1997 2715 193 Gen. 12,327
Municipal Auto Sales, inc. June 14, 1997 2714 196 Gen. 12,328
Boulevard Motel Corp. June 9, 1997 2712 188 Gen. 12,329
Ram Realty L.L.C. June 10, 1997 2712 186 Gen. 12,330
Warren C. Willett et al June 10, 1997 2718 129 Gen. 12,331
Sundown Corporation May 22, 1997 2706 297 Gen. 12,332
Blier & Blier, Inc. July 1, 1997 2723 287 Gen. 12,333
Arvind N. Patel Oct. 18, 1997 2779 199 Gen. 12,334
Val-Jan, Inc. Oct. 16, 1997 2779 197 Gen. 12,335
F. Paolino Homes, Inc. Oct. 23, 1997 2783 102 Gen. 12,336
City of Warwick Oct. 23, 1997 2783 105 Gen. 12,337
John Perri & Sons, Inc. Oct. 27, 1997 2783 100 Gen. 12,338
National Velous Corporation Nov. 4, 1997 2792 93 Gen. 12,339
Harvey Industries, Inc. Nov. 4, 1997 2792 90 Gen. 12,340
Schroff, Inc. Nov. 24, 1997 2800 207 Gen. 12,341
<PAGE>
One Seventeen Realty, LLC Dec. 15, 1997 2818 342 Gen. 12,342
The Whitney Group, Inc. Jan. 3, 1998 2821 127 Gen. 12,343
Fermac Realty, Inc. Jan. 9, 1998 2823 314 Gen. 12,344
Pontiac Enterprises Aug. 19, 1997 2754 221 Gen. 12,345
The Providence Mutual Fire
Insurance Company Jan. 19, 1998 2826 252 Gen. 12,346
Village at Hillsgrove LP Jan. 21, 1998 2828 292 Gen. 12,347
City of Warwick Jan. 29, 1998 2832 191 Gen. 12,348
Everett I. Rogers III Jan. 28, 1998 2832 189 Gen. 12,349
The Aldrich Estate L.L.C. Jan. 15, 1998 2840 181 Gen. 12,350
John Blackmar et al Jan. 8, 1998 2826 250 Gen. 12,351
Zarrella Development Corp. Feb. 13, 1998 2840 185 Gen. 12,352
City of Warwick Feb. 19, 1998 2842 256 Gen. 12,353
P & W Realty Feb. 25, 1998 2852 99 Gen. 12,354
Johnston Corporation Feb. 25, 1998 2852 101 Gen. 12,355
Centerville Builders, Inc. Mar. 26, 1998 2868 127 Gen. 12,356
Electro-Films, Inc. Mar. 23, 1998 2885 7 Gen. 12,357
Pawtuxet Realty, Inc. Apr. 30, 1998 2893 224 Gen. 12,358
Paul T. Driscoll, Tr. Apr. 24, 1998 2893 226 Gen. 12,359
Paul T. Driscoll, Tr. Apr. 24, 1998 2893 229 Gen. 12,360
Paul T. Driscoll, Tr. Apr. 24, 1998 2893 232 Gen. 12,361
WESTERLY
Recorded in Westerly
Land Records
Grantors Date Book Page Prop. No.
Anthony P. Manfredi et al June 20, 1995 561 341 Gen. 11,854
Brian J. Foley May 18, 1995 561 331 Gen. 11,855
Princess Pines Estates, Inc. May 22, 1995 561 335 Gen. 11,856
Red Brook Realty Corporation May 22, 1995 561 337 Gen. 11,857
Grace Panciera May 24, 1995 561 339 Gen. 11,858
Louis R. Zanella et al May 22, 1995 561 333 Gen. 11,859
Park Washington Realty Dec. 5, 1995 580 151 Gen. 11,860
Town of Westerly Sept. 27, 1995 571 245 Gen. 11,861
Town of Westerly Sept. 27, 1995 571 251 Gen. 11,862
Town of Westerly Sept. 27, 1995 571 249 Gen. 11,863
Town of Westerly Sept. 27, 1995 571 247 Gen. 11,864
The Washington Trust Company Nov. 20, 1995 578 56 Gen. 11,865
Town of Westerly, Beach Street
Administration Building Nov. 15, 1995 577 184 Gen. 11,866
Town of Westerly Jan. 16, 1996 586 211 Gen. 11,867
Princess Pines Estates, Inc. Mar. 22, 1996 591 304 Gen. 11,868
B. Anne Cardin et al June 22, 1996 607 136 Gen. 11,869
Salvatore J. Saporita et al Sept. 3, 1996 613 163 Gen. 11,870
James Joseph Laudone Sept. 3, 1996 613 174 Gen. 11,871
Sorensen and McCuin Sept. 3, 1996 613 171 Gen. 11,872
George Delicato et al Sept. 3, 1996 613 169 Gen. 11,873
Michael J. Laudone et al Sept. 3, 1996 613 167 Gen. 11,874
James J. Laudone, Jr. Sept. 3, 1996 613 165 Gen. 11,875
RFC Partnership Aug. 26, 1996 613 161 Gen. 11,876
Golden Arch Limited
Partnership Sept. 26, 1996 619 272 Gen. 11,877
Daniel S. Schilke et al Sept. 6, 1996 619 270 Gen. 11,878
Andrew R. Schilke et al Sept. 6, 1996 621 75 Gen. 11,879
Champion Physicians, L.L.C. Feb. 27, 1997 637 235 Gen. 11,880
Young Men's Christian Association
of Westerly-Pawcatuck Mar. 17, 1997 637 233 Gen. 11,881
<PAGE>
James Romanella & Sons, Inc. June 9, 1997 648 176 Gen. 11,882
Nancy S. Taylor et al Aug. 23, 1996 645 284 Gen. 11,883
Robert W. Kapfer et al July 9, 1997 654 37 Gen. 11,884
Linda M. Sacco Oct. 10, 1997 668 97 Gen. 11,885
Mary L. Lucey Nov. 20, 1997 674 40 Gen. 11,886
Westmed Properties, LLC Jan. 8, 1998 681 44 Gen. 11,887
Rhode Island Industrial
Facilities Corporation March 6, 1998 691 248 Gen. 11,888
WEST GREENWICH
Recorded in West Greenwich
Land Records
Grantors Date Book Page Prop. No.
Waterford Homes, Inc. Oct. 10, 1995 71 646 Gen. 1589
James D. McMahon, Jr. et al Sept. 9, 1995 71 648 Gen. 1590
Bradford H. Kenyon et ali Nov. 6, 1995 72 357 Gen. 1591
Best New England, Inc. Aug. 19, 1996 75 362 Gen. 1592
Robert H. Turner et ux Mar. 22, 1996 73 606 Gen. 1593
Superior Properties, Inc. Aug. 7, 1996 75 161 Gen. 1594
Wickaboxet Hills, Inc. Nov. 12, 1996 76 121 Gen. 1595
Philip B. Spadola et ali Apr. 22, 1997 77 935 Gen. 1596
Smiley Development Apr. 30, 1997 77 937 Gen. 1597
GTECH Corporation July 7, 1997 78 660 Gen. 1598
David P. Andrews, Jr. July 3, 1997 78 826 Gen. 1599
West Greenwich Volunteer Fire
Company No. 1 Dec. 15, 1997 85 187 Gen. 1600
Specific Properties, LLC June 17, 1997 78 452 Gen. 1601
Linden Lane Land Company,LLC June 12, 1997 78 450 Gen. 1602
Greenbridge Development
Corporation, Inc. June 4, 1997 78 304 Gen. 1603
WEST WARWICK
Recorded in West Warwick
Land Records
Grantors Date Book Page Prop. No.
Soluol Chemical Co. Inc. Aug. 1, 1995 610 145 Gen. 8558
Padula Builders, Inc. Sept. 27, 1995 613 260 Gen. 8559
Richard M. Winokur, Tr. Oct. 10, 1995 615 87 Gen. 8560
J & G Realty Corporation June 20, 1995 615 84 Gen. 8561
Sanrose Realty Associates Dec. 11, 1995 624 107A Gen. 8562
Amtrol Inc. Jan. 9, 1996 628 116 Gen. 8563
Gil Realty, LLC Apr. 7, 1997 684 294 Gen. 8564
Town of West Warwick Mar. 5, 1997 679 243 Gen. 8565
Jericho Associates, LLC Mar. 3, 1997 681 37 Gen. 8566
DBH Broadcasting, Inc. Apr. 1, 1997 689 196 Gen. 8567
Kent Hotel Associates, L.P. June 30, 1997 697 255 Gen. 8568
Cox Communications Rhode
Island, Inc. Aug. 8, 1997 704 285 Gen. 8569
Town of West Warwick Sept. 9, 1997 708 27 Gen. 8570
MRN Realty, LLC Aug. 22, 1997 707 161 Gen. 8571
Precision Development, Inc. July 25, 1997 701 247 Gen. 8572
Anthony J. Vessella et al Dec. 17, 1997 728 152 Gen. 8573
Eagle Quest Golf & Leisure
Dome, Inc. Nov. 18, 1997 721 227 Gen. 8574
<PAGE>
WEST WARWICK
Recorded in West Warwick
Land Records
Grantors Date Book Page Prop. No.
Original Bradford Soap
Works, Inc. Jan. 27, 1998 732 44 Gen. 8575
Cumberland Farms, Inc. Feb. 25, 1998 738 211 Gen. 8576
ALL OF THE LAND AND RIGHTS IN LAND HEREINABOVE REFERRED TO IN THIS
SCHEDULE OF PROPERTY ARE CONVEYED SUBJECT TO ALL RESTRICTIONS, RESERVATIONS,
EXCEPTIONS, CONDITIONS AND AGREEMENTS SET FORTH OR REFERRED TO IN THE DEEDS
HEREINABOVE MENTIONED AND THE DEEDS THEREIN REFERRED TO INSOFAR AS THE SAME
ARE NOW IN FORCE AND APPLICABLE; AND THERE IS EXCEPTED FROM CERTAIN OF SAID
RIGHTS SO MUCH THEREOF AS HAS BEEN TAKEN BY THE STATE OF RHODE ISLAND OR
MUNICIPAL AUTHORITIES FOR HIGHWAY PURPOSES AND CERTAIN OF SAID RIGHTS ARE
SUBJECT TO SUCH OTHER RIGHTS AND EASEMENTS AS WERE TAKEN BY GOVERNMENTAL
AUTHORITIES; AND CERTAIN OF SAID RIGHTS AND EASEMENTS HEREINABOVE REFERRED TO
ARE SUBJECT TO PRIOR LIENS, HOWEVER, SAID PRIOR LIENS WILL NOT INTERFERE WITH
THE PROPER OPERATION OF THE COMPANY'S BUSINESS, AND THEIR EFFECT, IF ANY, UPON
THE SECURITY OF THE INDENTURE MAY PROPERLY BE IGNORED; AND CERTAIN OF SAID
RIGHTS HEREINABOVE REFERRED TO WERE CONVEYED TO THE NARRAGANSETT ELECTRIC
COMPANY AND TO THE NEW ENGLAND TELEPHONE AND TELEGRAPH COMPANY JOINTLY.
CERTAIN OF THE LANDS AND RIGHTS IN LANDS HEREINABOVE REFERRED TO IN THIS
SCHEDULE OF PROPERTY AND CERTAIN OF THE LANDS AND RIGHTS IN LANDS INCLUDED AS
MORTGAGED PROPERTY IN THE GRANTING CLAUSES OF THE ORIGINAL INDENTURE AND PRIOR
SUPPLEMENTAL INDENTURES, INCLUDING SCHEDULES I THERETO, MAY BE SUBJECT TO THE
RIGHTS OF THE PUBLIC AND THE STATE OF RHODE ISLAND UNDER THE PUBLIC TRUST
DOCTRINE.
<PAGE>
STATE OF RHODE ISLAND )
) SC.
COUNTY OF PROVIDENCE )
At Providence in said County on this 28th day of July, 1998, before me
personally appeared the above named R. Nadeau to me known and known by me to
be the party executing in his capacity as Vice President for and on behalf of
The Narragansett Electric Company, a corporation, the foregoing instrument and
acknowledged said instrument by him so executed to be his free and voluntary
act and deed and the free and voluntary act and deed of The Narragansett
Electric Company, a corporation, and that the seal affixed to the foregoing
instrument is the corporate seal of said corporation.
IN WITNESS WHEREOF I have hereunto set my hand and affixed my official
seal this 28th day of July, 1998.
[Notarial Seal] By /s/ Michael D. DiNezza
_____________________________________
Michael D. DiNezza, Notary Public
My commission expires: June 29,
2001
STATE OF RHODE ISLAND )
) SC.
COUNTY OF PROVIDENCE )
At Providence in said County on this 28th day of July, 1998, before me
personally appeared the above named Paul M. Lenahan, to me known and known by
me to be the party executing in his capacity as Vice President for and on
behalf of BankBoston N.A., a national banking association, the foregoing
instrument and acknowledged said instrument by him so executed to be his free
and voluntary act and deed and the free and voluntary act and deed of
BankBoston N.A., a national banking association, and that the seal affixed to
the foregoing instrument is the corporate seal of said corporation.
IN WITNESS WHEREOF I have hereunto set my hand and affixed my official
seal this 28th day of July, 1998.
[Notarial Seal]
By /s/ Laurie C. Wilkins
______________________________________
Laurie C. Wilkins, Notary Public
My commission expires: June 26, 2001
<PAGE>
I, Robert King Wulff, Assistant Secretary of The Narragansett Electric
Company, a corporation duly organized under the laws of the State of Rhode
Island and having its principal place of business in Providence, Rhode Island,
HEREBY CERTIFY that at a special meeting of the stockholders of said
corporation, duly called and held at 280 Melrose Street, Providence, Rhode
Island, on July 22, 1998, by the affirmative action of the holders of all of
the outstanding common stock of said corporation, being the only class of
stock outstanding the holders of which were entitled to vote at said meeting,
the following vote was duly adopted:
VOTED: That the form, terms, and provisions of the Supplemental Indenture
to be dated as of June 1, 1998, from the Company, to Rhode Island
Hospital Trust National Bank as Trustee, or any successor Trustee
(hereinafter in these votes called the Twenty-third Supplemental
Indenture), supplementing and amending the Company's First Mortgage
Indenture and Deed of Trust dated as of September 1, 1944, as
supplemented and amended, and mortgaging, pledging, conveying,
assigning, and transferring to said Bank, as Trustee, the property
and rights and interests in property therein described for the
security of the First Mortgage Bonds of the Company, and making
certain amendments to the Indenture, substantially in the form
presented to this meeting, are hereby approved; and the President
and each Vice President are severally authorized in the name and on
behalf of the Company to execute, under the corporate seal attested
by the Secretary or Assistant Secretary, to acknowledge and to
deliver, in as many counterparts as the officer so acting may deem
advisable, an instrument in substantially the form of said
supplemental indenture, the execution and delivery of such an
instrument by any of said officers to be conclusive evidence that
the same is authorized by this vote.
I FURTHER CERTIFY that by the affirmative action of all the directors
present, upon a motion duly made and recorded, at a regular meeting of the
Board of Directors of said Company, duly called and held at 25 Research Drive,
Westborough, Massachusetts, on June 17, 1998, at which meeting a quorum was
present and acting throughout, the following vote was duly adopted:
VOTED: That the form, terms, and provisions of a Supplemental Indenture
from this Company to Rhode Island Hospital Trust National Bank, as
Trustee (the Supplemental Indenture), supplementing and amending the
First Mortgage Indenture and Deed of Trust between The Narragansett
Electric Company and Rhode Island Hospital Trust Company dated
September 1, 1944, and mortgaging, pledging, conveying, assigning
and transferring to said Bank, as Trustee, the property and rights
and interests in property therein described for the security of the
First Mortgage Bonds of the Company and making certain amendments to
the terms of the Indenture, substantially in the form presented to
this meeting, are hereby approved; and the President and each Vice
President are severally authorized in the name and on behalf of the
Company to execute, under the corporate seal attested by the
Secretary or any Assistant Secretary, to acknowledge and to deliver,
in as many counterparts as the officer so acting may deem advisable,
an instrument in substantially said form, the execution and delivery
of such an instrument by any of said officers to be conclusive
evidence that the same is authorized by this vote.
AND I FURTHER CERTIFY that as appears from the records of said
corporation R. Nadeau is Vice President of said corporation and duly
authorized to execute in its name and on its behalf the foregoing Twenty-third
Supplemental Indenture, dated as of June 1, 1998, that the foregoing Twenty-
third Supplemental Indenture to which this certificate is attached is
<PAGE>
substantially in the form presented to and approved at said meetings; that the
foregoing is a true and correct copy of the votes passed at said meetings
respectively as recorded in the records of said corporation and that said
votes remain in full force and effect without alteration.
IN WITNESS WHEREOF I have hereunto subscribed my name as Assistant
Secretary as aforesaid and have caused the corporate seal of said corporation
to be hereto affixed this 28th day of July, 1998.
/s/ Robert King Wulff
____________________________________
Robert King Wulff, Assistant
Secretary
of THE NARRAGANSETT ELECTRIC COMPANY
[Corporate Seal]
<PAGE>
RECORDING NOTE
Schedule of cities and towns in Rhode Island
in which the Twenty-Third Supplemental Indenture of
The Narragansett Electric Company
dated as of June 1, 1998 has been recorded
as a mortgage of real estate and financing statements
have been filed as a security interest in fixtures
Barrington, RI Town Clerk's Office
Bristol, RI Town Clerk's Office
Burrillville, RI Town Clerk's Office
Charlestown, RI Town Clerk's Office
Coventry, RI Town Clerk's Office
Cranston, RI City Clerk's Office
East Greenwich, RI Town Clerk's Office
East Providence, RI City Clerk's Office
Exeter, RI Town Clerk's Office
Foster, RI Town Clerk's Office
Glocester, RI Town Clerk's Office
Hopkinton, RI Town Clerk's Office
Johnston, RI Town Clerk's Office
Lincoln, RI Town Clerk's Office
Little Compton, RI Town Clerk's Office
Narragansett, RI Town Clerk's Office
North Kingstown, RI Town Clerk's Office
North Providence, RI Town Clerk's Office
Providence, RI City Clerk's Office
Richmond, RI Town Clerk's Office
Scituate, RI Town Clerk's Office
Smithfield, RI Town Clerk's Office
South Kingstown, RI Town Clerk's Office
Tiverton, RI Town Clerk's Office
Warren, RI Town Clerk's Office
Warwick, RI City Clerk's Office
Westerly, RI Town Clerk's Office
West Greenwich, RI Town Clerk's Office
West Warwick, RI Town Clerk's Office
A financing statement was filed, as a security interest in personal
property and fixtures, in the office of the Secretary of State of Rhode Island
on July 28, 1998.
<PAGE>
AMENDMENT TO
NEW ENGLAND ELECTRIC SYSTEM COMPANIES
DEFERRED COMPENSATION PLAN
Pursuant to the provisions of Article V of the New England Electric
System Companies' Deferred Compensation Plan, said Plan is hereby amended
effective as of December 1, 1997, by inserting a new Section 4.04(K) to read
as follows:
"K. Annuity Payments. Notwithstanding any provision of the Plan
to the contrary, any Participant who has a Spouse (as defined in the
Qualified Plan) who is receiving payment (or who has the right to
receive payment) in the form of a single life annuity, may elect with
the consent of the Benefits Committee, and in accordance with the
procedures specified in this paragraph, to change his or her form of
payment to a contingent annuitant option of actuarial equivalent value,
with his or her Spouse as a contingent annuitant with an option of 50%,
66 2/3%, or 100% of the amounts previously payable to the Participant.
The amount of benefit payment to the Participant and the Spouse under
this option will be determined in accordance with the applicable
provisions of the Qualified Plan for converting a single life annuity to
such a contingent annuitant option. In the case of such a Participant
who is currently receiving payment in the form of a single life annuity,
the election and consent described in this paragraph shall be
irrevocable and must occur, in accordance with procedures prescribed by
the Committee by an established date, to be effective with respect to
annuity payments commencing on and after January 1, 1998. In the case of
such a Participant who has the right to receive payment in the form of a
single life annuity but who has not commenced to receive such payment,
such irrevocable election and consent must occur in accordance with such
procedures at least 30 days prior to his or her benefit commencement
date. The Participant must waive all death benefits provided
hereunder."
/s/ George M. Sage
__________________________________________
Chairman
Pursuant to Vote of November 24, 1997, of
the Compensation Committee
<PAGE>
AMENDMENT TO
NEW ENGLAND ELECTRIC SYSTEM COMPANIES
DEFERRED COMPENSATION PLAN
Pursuant to the provisions of Article V of the New England Electric
System Companies' Deferred Compensation Plan, said Plan is hereby amended
effective as of December 1, 1997, as follows:
Section 4.04(A) is amended to read:
"4.04 Payment of Balances.
(A) Election of Time of Payment.
(i) At the time of electing to defer Compensation, in
accordance with subsection 4.01(A), the Participant
shall also elect whether to receive payment after ten
years or upon Termination of Service on or after the
date when the Participant could first commence
receiving benefits under the Qualified Plan.
(ii) Six months or more prior to the scheduled commencement
of payment(s) (or later if Termination of Service is
unplanned but not after commencement of payments), a
Participant, who has previously elected to receive
payment on the date when he or she could first
commence receiving benefits under the Qualified Plan,
may request the Benefits Committee, at its sole
discretion, to approve a change in the payout schedule
to either a lump sum, or three, five, or ten annual
payments commencing with the first payment of benefits
under the Qualified Plan."
Section 4.04(C) is amended to read:
"(C) Payments at Retirement. If the Participant has elected
payment on the date when he or she could first commence receiving
benefits under the Qualified Plan, the Participant's full Cash and
Share Account Balances shall be paid in ten annual payments (or if
the Participant has elected at the time of electing the deferral,
in a lump sum or in three, five, or ten annual payments)
commencing at such date."
/s/ George M. Sage
________________________________________
Chairman
Pursuant to Vote of November 24, 1997, of
the Compensation Committee
<PAGE>
AMENDMENT TO
NEW ENGLAND ELECTRIC SYSTEM COMPANIES'
DEFERRED COMPENSATION PLAN
Pursuant to the provisions of Article V of the New England Electric
System Companies' Deferred Compensation Plan, Section 4.03(H) of said Plan is
hereby amended effective as of February 28, 1998, to read as follows:
(H) Form of Payments. Except as provided herein, any
distribution from a Cash Account will be in cash. Any distribution from
a Share Account will be in the form of Shares. Transaction costs
associated with the sale of Shares at the time of distribution will be
reimbursed by the Company.
/s/ George M. Sage
_________________________________________
Chairman
Pursuant to Vote of February 24, 1998, of
the Compensation Committee
<PAGE>
NEW ENGLAND ELECTRIC COMPANIES'
EXECUTIVE SUPPLEMENTAL RETIREMENT PLAN
[REVISED]
Executed December 4, 1978
Amended November 5, 1979
October 12, 1982
March 14, 1983
June 21, 1984
July 31, 1984
July 23, 1986
April 1, 1991
January 1, 1995
October 25, 1995
May 20, 1996
December 11, 1998
<PAGE>
TABLE OF CONTENTS
Page
Plan Purposes and Objectives.. . . . . . . . . . . . . . . . . . . . . . . 1
Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1. Actuarial Value.. . . . . . . . . . . . . . . . . . . . . . 1
2. Beneficial Owner. . . . . . . . . . . . . . . . . . . . . . 1
3. Benefits Committee. . . . . . . . . . . . . . . . . . . . . 2
4. Board.. . . . . . . . . . . . . . . . . . . . . . . . . . . 2
5. Change in Control.. . . . . . . . . . . . . . . . . . . . . 2
6. Code. . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
7. Committee.. . . . . . . . . . . . . . . . . . . . . . . . . 3
8. Company.. . . . . . . . . . . . . . . . . . . . . . . . . . 3
9. Early Retirement Date.. . . . . . . . . . . . . . . . . . . 3
10. Final Average Total Compensation. . . . . . . . . . . . . . 3
11. Incentive Compensation. . . . . . . . . . . . . . . . . . . 3
12. Incentive Plan. . . . . . . . . . . . . . . . . . . . . . . 4
13. Incentive Share Awards. . . . . . . . . . . . . . . . . . . 4
14 Level A Participant.. . . . . . . . . . . . . . . . . . . . 4
15. Level B Participant.. . . . . . . . . . . . . . . . . . . . 4
16. A Major Transaction.. . . . . . . . . . . . . . . . . . . . 4
17. New England Electric System.. . . . . . . . . . . . . . . . 5
18. Participant.. . . . . . . . . . . . . . . . . . . . . . . . 6
19. Person. . . . . . . . . . . . . . . . . . . . . . . . . . . 6
20. Qualified Compensation. . . . . . . . . . . . . . . . . . . 7
21. Qualified Plan. . . . . . . . . . . . . . . . . . . . . . . 7
22. Qualified Plan Benefit. . . . . . . . . . . . . . . . . . . 7
23. Retirement. . . . . . . . . . . . . . . . . . . . . . . . . 7
24. Retirement Income.. . . . . . . . . . . . . . . . . . . . . 7
25. Spouse. . . . . . . . . . . . . . . . . . . . . . . . . . . 7
26. Termination of Employment.. . . . . . . . . . . . . . . . . 7
27. Total Compensation. . . . . . . . . . . . . . . . . . . . . 7
28. Years of Service. . . . . . . . . . . . . . . . . . . . . . 8
Plan Benefits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
1. Retirement Benefit. . . . . . . . . . . . . . . . . . . . . 8
2. Form of Payment.. . . . . . . . . . . . . . . . . . . . . . 9
3. Spouse's Death Benefit. . . . . . . . . . . . . . . . . . . 10
Timing of Payments.. . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Lump Sum Payments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Vesting and Forfeiture of Benefits.. . . . . . . . . . . . . . . . . . . . 12
Administration and Claims. . . . . . . . . . . . . . . . . . . . . . . . . 13
Effectuation of Interest.. . . . . . . . . . . . . . . . . . . . . . . . . 14
Government Regulations.. . . . . . . . . . . . . . . . . . . . . . . . . . 14
Nonassignment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Provisions of Benefits.. . . . . . . . . . . . . . . . . . . . . . . . . . 14
Amendment or Discontinuance. . . . . . . . . . . . . . . . . . . . . . . . 15
Signature. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
<PAGE>
NEW ENGLAND ELECTRIC COMPANIES'
Executive Supplemental Retirement Plan
Plan Purposes and Objectives
The Supplemental Plan is maintained by the Companies primarily for the
purpose of providing deferred compensation for a select group of management or
highly compensated employees within the meaning of Title I of the Employee
Retirement Income Security Act.
The objectives of the Executive Supplemental Retirement Plan I (the
Supplemental Plan) are as follows:
1. to increase the overall effectiveness of the executive
compensation program so as to attract, retain, and motivate
qualified management personnel; and
2. to provide retirement benefits related to Total Compensation.
This revision and restatement is designed to provide benefits for
additional executives and to facilitate future corporate restructuring.
Definitions
When used in the Supplemental Plan, the following words will have the
meanings indicated below:
1. Actuarial Value will be established using the most recent
assumptions established by the Benefits Committee for the
Qualified Plan.
2. Beneficial Owner shall have the meaning defined in Rule 13d-3
under the Securities Exchange Act of 1934.
3. Benefits Committee means the Benefits Committee established in
accordance with the New England Electric System Companies Final
Average Pay Pension Plan I.
4. Board means the Board of Directors of New England Electric
System.
5. Change in Control occurs when the conditions set forth in either
of the following paragraphs shall have been satisfied:
(a) any Person is or becomes the Beneficial Owner, directly or
indirectly, of securities of New England Electric System
(not including in the securities beneficially owned by such
Person any securities acquired directly from New England
Electric System or its affiliates) representing 20% or more
of the combined voting power of New England Electric
System's then outstanding securities; or
(b) during any period of not more than two consecutive years
after January 1, 1995, individuals who at the beginning of
such period constitute the Board and any new director
(other than a director designated by a Person who has
entered into an agreement with New England Electric System
to effect a transaction described in clause (a) of this
paragraph) whose election by the Board or nomination for
election by New England Electric System's shareholders was
<PAGE>
approved or recommended by a vote of at least two-thirds of
the directors then still in office who either were
directors at the beginning of the period or whose election
or nomination for election was previously so approved or
recommended, cease for any reason to constitute a majority
of the Board.
6. Code means the Internal Revenue Code of 1986, as amended from
time to time.
7. Committee means the Compensation Committee of the Board.
8. Company means the subsidiary of New England Electric System by
which the Participant is employed on the date on which he or she
has a Termination of Employment.
9. Early Retirement Date shall have the meaning provided in the
Qualified Plan.
10. Final Average Total Compensation means the highest average of the
Participant's twelve-month Total Compensation during any
consecutive sixty-month period of employment (or during total
employment if less than sixty months) within the last 120 months
of employment ending with the last day of the month next
preceding a given date of determination.
11. Incentive Compensation shall have the meaning provided in the
Incentive Plan.
12. Incentive Plan means the New England Electric Companies' Senior
Incentive Compensation Plan, New England Electric Companies'
Incentive Compensation Plan I, New England Electric Companies'
Incentive Compensation Plan II, and New England Electric
Companies' Incentive Compensation Plan III.
13. Incentive Share Awards shall mean annual incentive share awards
under the New England Electric Companies' Incentive Share Plan.
14 Level A Participant means
a. A Participant in the New England Electric Companies' Senior
Incentive Compensation Plan,
b. Any person participating in this Supplemental Plan as of
October 25, 1995, and
c. Any other person participating in the New England Electric
Companies' Incentive Compensation Plan I designated by the
Committee.
15. Level B Participant means a Participant in the New England
Electric Companies' Incentive Compensation Plan I who is not a
Level A Participant.
16. A Major Transaction shall be deemed to have occurred if the
conditions set forth in any one of the following paragraphs shall
have been satisfied:
<PAGE>
(a) the shareholders of New England Electric System approve a
merger or consolidation with any corporation or business
trust, other than (i) a merger or consolidation which would
result in the individuals who prior to such merger or
consolidation constitute the Board constituting at least
two-thirds of the board of directors of New England
Electric System or the surviving or succeeding entity
immediately after such merger or consolidation, or (ii) a
merger or consolidation effected to implement a
recapitalization (or similar transaction) in which no
Person acquires more than 20% of the combined voting power
of New England Electric System's then outstanding
securities;
(b) the shareholders of New England Electric System approve a
plan of complete liquidation thereof; or
(c) the shareholder of New England Electric System approve an
agreement for the sale or disposition of all or
substantially all of New England Electric System's assets,
other than a sale or disposition which would result in the
individuals who prior to such sale or disposition
constitute the Board constituting at least two-thirds of
the board of directors of the Person purchasing such assets
immediately after such sale or disposition.
17. 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.
18. Participant means a Level A Participant or a Level B Participant.
19. Person shall have the meaning given in Section 3(a)(9) of the
Securities Exchange Act of 1934, as modified and used in Sections
13(d) and 14(d) thereof; however, a Person shall not include (i)
New England Electric System or any subsidiary thereof, (ii) a
trustee or other fiduciary holding securities under an employee
benefit plan of New England Electric System or any subsidiary
thereof, (iii) an underwriter temporarily holding securities
pursuant to an offering of such securities, or (iv) a corporation
owned, directly or indirectly, by the shareholders of New England
Electric System in substantially the same proportions as their
ownership of shares of New England Electric System.
20. Qualified Compensation means compensation as defined in the
Qualified Plan without regard to any reduction required by
Section 4.01(a)(17) of the code.
21. Qualified Plan means New England Electric System Companies' Final
Average Pay Pension Plan I.
<PAGE>
22. Qualified Plan Benefit means the annual benefit payable at
Retirement on a straight life annuity basis under the terms of
the Qualified Plan without regard to any qualified domestic
relations order that would otherwise affect the amount of said
benefit.
23. Retirement means the date on which retirement benefits under the
Qualified Plan commence.
24. Retirement Income means the monthly benefit for which a
Participant is eligible under the Supplemental Plan.
25. Spouse shall have the meaning provided in the Qualified Plan.
26. Termination of Employment shall occur when the Participant is no
longer employed by a company participating in the Supplemental
Plan.
27. Total Compensation means Qualified Compensation, except that
Incentive Compensation and Incentive Share Awards shall be
included in the same twelve-month period for which they are
awarded, plus any compensation or share awards deferred during
the same twelve-month period under the terms of the New England
Electric System Companies Revised Deferred Compensation Plan (or
its predecessors) during the same twelve-month period to the
extent not included in Qualified Compensation.
28. Years of Service shall have the meaning provided in the Qualified
Plan.
Plan Benefits
1. Retirement Benefit
A Participant shall be entitled to receive from the Company for
retirements on or after April 1, 1991, an annual retirement benefit equal to
(a) plus (b) plus (c) plus (d) plus (e) less (f) less (g) below:
(a) 1.5% of Final Average Total Compensation for each Year of Service
up to 10 years;
(b) 1.3% of Final Average Total Compensation for each Year of Service
from 11 to 20 years;
(c) 1.25% of Final Average Total Compensation for each Year of
Service from 21 to 30 years;
(d) .6% of Final Average Total Compensation for each Year of Service
over 30 years;
(e) .57% of Final Average Total Compensation in excess of the Average
Social Security Wage Base for each Year of Service, up to 35
years;
(f) any benefit payable on a straight life annuity basis which was
accrued, under a plan maintained by an employer other than a New
England Electric System company, for service granted pursuant to
the additional service credits provision of the Qualified Plan;
and
(g) the Qualified Plan Benefit.
<PAGE>
All of the above amounts are to be determined as at the Participant's
Termination of Employment.
2. Form of Payment
Retirement Income shall be payable in the normal form as follows:
(a) If a Participant has a Spouse, the normal form of payment shall
be a contingent annuitant option with the Spouse, as contingent
annuitant, entitled to receive 50% of the Participant's reduced
amount of Retirement Income.
(b) If a Participant does not have a Spouse, the normal form of
payment shall be a straight life annuity with no amount of
Retirement Income payable after the Former Participant's death.
If a Participant elects an optional form of payment under the Qualified
Plan, the same option and actuarial equivalent factors shall apply to
Retirement Income payable under the Supplemental Plan; provided, however, to
the extent the form of benefit was dictated by the terms of a qualified
domestic relations order, the form may be that which would have applied (or
any form that could have been elected) in the absence of said order. In
calculating the benefit payable under any option, the same actuarial
equivalent factors in the Qualified Plan shall be used in the Supplemental
Plan, except that, for Level A Participants, no reduction factors for
retirement prior to age 65 shall be applied against the Participant's
Retirement Income.
3. Spouse's Death Benefit
The Spouse of a Participant vested under the Qualified Plan who has not
had a Termination of Employment is entitled to a pre-retirement spouse
benefit, if the Participant dies before payment of benefits commence.
The Spouse will be entitled to receive an annual benefit determined as
follows:
(a) as if the Participant had retired and elected Retirement Income
payments to begin on the first day of the month next following
the later of the date of death or Participant's fifty-fifth
birthday, and
(b) the Retirement Income was payable in the form of a contingent
annuitant option with the Spouse, as contingent annuitant,
entitled to receive 50% (100% if the Participant died after his
or her 55th birthday and while an active employee) of the
Participant's amount of Retirement Income subject to reduction
for benefits payable hereunder under a domestic relations order.
Timing of Payments
A Participant shall be eligible for benefits under the Supplemental Plan
when and if he or she is eligible for benefits under the Qualified Plan,
except as provided herein. Benefits shall commence on the date on which the
Participant or the Spouse first receives benefits under the Qualified Plan.
Lump Sum Payments
In the event of the dissolution, liquidation, or winding up of the
business of the Company or the New England Electric System, whether voluntary
or involuntary, the Participant shall receive, at the time of such event, a
<PAGE>
lump sum payment equal to the full amount of the current Actuarial Value of
the Participant's benefits under this Supplemental Plan, unless the New
England Electric System, or its successor, has assumed all the rights, duties,
and obligations of the Company or New England Electric System hereunder.
Any provision of the Supplemental Plan to the contrary notwithstanding,
if (i) any company shall fail to make any payment to any Participant when due
under the Supplemental Plan or (ii) the employer or company shall fail to make
any payment to any participant due under any of the New England Electric
Companies' Senior Incentive Compensation Plan, the New England Electric
Companies' Incentive Compensation Plan I, the New England Electric Companies
Deferred Compensation Plan, or the New England Electric System Companies
Retirement Supplement Plan, the full amount of the current Actuarial Value of
a Participant's benefits under the Supplemental Plan shall be payable
immediately as a lump sum. If any employer or company shall fail to make a
payment as provided in (i) or (ii) due to inadvertence or a good faith delay
to permit processing and shall immediately upon discovery of such failure or
delay make such payment in full, the original failure to make the payment or
payments shall not, for the purposes of this paragraph, be a failure to make a
payment. If any employer or company shall, in good faith, contest a claim by
a participant under this Supplemental Plan or any of the other above-listed
plans, the failure to make the contested payment or payments shall not, for
the purpose of this paragraph, be a failure to make a payment.
At any time following a Change in Control or Major Transaction, any
Participant who has had a Termination of Employment, whether before or after
the Change in Control or Major Transaction, may elect to receive, in lieu of
any future benefits hereunder, a lump sum payment equal to the Actuarial Value
of the maximum value of said future benefits, less 10%.
If the Company does not make the aforesaid lump sum payments, the New
England Electric System will make the payment for the account of the Company.
Vesting and Forfeiture of Benefits
Except as provided in the following paragraph, a Participant's accrued
benefit shall be 100% vested after five Years of Service.
A Participant will forfeit his or her benefits under the Supplemental
Plan if before the earlier of age 65 or five years following Termination of
Employment he or she, without the prior consent of the New England Electric
System's Chief Executive Officer (the "CEO") [or prior consent of the
Committee in the case of the CEO], enters into or in any manner takes part in,
as an employee, agent, officer, owner, or otherwise, any business or authority
which in the opinion of the CEO is in competition with, in the same field as,
or regulating the business of New England Electric System or any of its
subsidiaries, or which in the opinion of the CEO provides services peculiarly
essential to utility operation. Violation of this provision will result in
termination of payments, and any obligations to make future payments to the
Participant and the Participant's Spouse.
A Participant may request to have the Committee review any decision made
by the CEO under this provision that adversely affects the Participant. The
Committee's decision shall be final.
Upon the occurrence of a Change in Control or a Major Transaction, the
second paragraph of this section shall no longer have any effect.
<PAGE>
Administration and Claims
The Benefits Committee shall have for the Supplemental Plan the same
duties as for the Qualified Plan, except as specifically provided herein. The
Benefits Appeal Committee for the Qualified Plan shall have for the
Supplemental Plan the same duties relative to denied claims as for the
Qualified Plan, except as may be specifically provided herein.
Effectuation of Interest
In the event it should become impossible for the Company, the Benefits
Committee, or other committee to perform any act required by the Plan, the
Company, the Benefits Committee, or other committee may perform such other act
as it in good faith determines will most nearly carry out the intent and
purpose of the Plan.
Government Regulations
It is intended that the Supplemental Plan will comply with all
applicable laws and governmental regulations, and the Company shall not be
obligated to perform an obligation hereunder in any case where, in the opinion
of the Company's counsel, such performance would result in violation of any
law or regulation.
Nonassignment
To the fullest extent permitted by law, no benefit under the Plan, nor
any other interest hereunder of any Participant, Spouse, or contingent
annuitant, shall be assignable, transferable, or subject to sale, mortgage,
pledge, hypothecation, commutation, anticipation, garnishment, attachment,
execution, or levy of any kind.
Provisions of Benefits
The Supplemental Plan will be unfunded. Benefits will be paid from the
operating revenues of the Company. A Participant's rights to benefits under
the Supplemental Plan shall be those of an unsecured, general creditor of the
Company.
Amendment or Discontinuance
The Committee may amend or discontinue the Supplemental Plan at any
time; provided, no modification shall reduce a benefit which a Participant was
eligible to receive under the Supplemental Plan at the time of such amendment
or discontinuance; and provided further, no amendment or discontinuance in any
manner adverse to a Participant with respect to benefit formula or optional
form of payment may be made for three years following a Change in Control or a
Major Transaction.
/s/ George M. Sage
_______________________________________________
Chairman of the Compensation Committee
<PAGE>
NEW ENGLAND ELECTRIC COMPANIES
EXECUTIVE RETIREES HEALTH AND LIFE INSURANCE PLAN
Established January 1, 1990
Amended and Restated January 1, 1996
<PAGE>
NEW ENGLAND ELECTRIC SYSTEM
EXECUTIVE RETIREES HEALTH AND LIFE INSURANCE PLAN
TABLE OF CONTENTS
ARTICLE PAGE
ARTICLE I - INTRODUCTION
1.01. Purpose of Plan. . . . . . . . . . . . . . . . . . . . . . . 1
1.02. Plan Status. . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE II - DEFINITIONS
2.01. Executive Employee.. . . . . . . . . . . . . . . . . . . . . 2
2.02. Eligible Employee. . . . . . . . . . . . . . . . . . . . . . 2
2.03. NEES Companies Retirees Health and Life Insurance Plan.. . . 2
2.04. Participant. . . . . . . . . . . . . . . . . . . . . . . . . 2
2.05. Plan. . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.06. Plan Date. . . . . . . . . . . . . . . . . . . . . . . . . . 2
ARTICLE III - PARTICIPATION
3.01. Eligibility. . . . . . . . . . . . . . . . . . . . . . . . . 2
3.02. Commencement of Participation. . . . . . . . . . . . . . . . 3
3.03. Cessation of Participation.. . . . . . . . . . . . . . . . . 3
3.04. Reinstatement of Former Participant. . . . . . . . . . . . . 3
ARTICLE IV - HEALTHCARE COVERAGE AND CONTRIBUTION
4.01. Coverage.. . . . . . . . . . . . . . . . . . . . . . . . . . 3
4.02. Description of Benefits. . . . . . . . . . . . . . . . . . . 4
4.03. Participant Contribution.. . . . . . . . . . . . . . . . . . 5
4.04. Employer Contribution. . . . . . . . . . . . . . . . . . . . 5
ARTICLE V - LIFE INSURANCE COVERAGE
5.01. Coverage.. . . . . . . . . . . . . . . . . . . . . . . . . . 5
ARTICLE VI - FUNDING
6.01. Funding. . . . . . . . . . . . . . . . . . . . . . . . . . . 6
6.02 Limitation of Employer Liability.. . . . . . . . . . . . . . 6
ARTICLE VII - AMENDMENT AND TERMINATION OF PLAN
7.01. Amendment and Termination of Plan. . . . . . . . . . . . . . 6
ARTICLE VIII - MISCELLANEOUS
8.01. Incorporation of Provisions by Reference.. . . . . . . . . . 7
8.02. Forfeiture of Benefits.. . . . . . . . . . . . . . . . . . . 7
<PAGE>
EXECUTIVE RETIREES HEALTH AND LIFE INSURANCE PLAN
ARTICLE I - INTRODUCTION
1.01. Purpose of Plan. The purpose of this amended and restated Plan
is to (1) provide postretirement health care benefits under the Medical
Contracts and Medigap Contracts maintained by the Employers for certain
retired Executive Employees and their Eligible Dependents (2) to provide
reimbursement of Medicare Part B premiums to eligible Executive Employees and
their Spouses, and (3) to provide life insurance coverage to eligible
Executive Employees, as more fully described herein.
1.02. Plan Status. This written Plan document is intended to comply
with all relevant provisions of the Code and ERISA and is to be interrupted in
a manner consistent with the requirements of such laws including, but not
limited to, Sections 601 through 609 of ERISA and Section 4980B of the Code.
The Plan shall consist of this document, the Medical Contracts, the Medigap
Contracts, the Insurance Contracts, and the plan document for the NEES
Companies Retirees Health and Life Insurance Plan. The provisions of the
Medical Contracts that are applicable to retired Employees, the provisions of
the Medigap Contracts, the provisions of the Life Insurance Contracts, and
applicable provision of the NEES Companies Retiree Health and Life Insurance
Plan, are incorporated by reference into this Plan document.
ARTICLE II - DEFINITIONS
The definitions contained in the NEES Companies Retirees Health and Life
Insurance Plan I, as amended from time to time, are hereby incorporated by
reference into this Plan. In addition, the following terms have the meanings
set forth below unless otherwise required by the context. In the event of a
conflict between a definition found in the NEES Companies Retirees Health and
Life Insurance Plan and one contained in this Plan, the definition found in
this Plan shall control.
2.01. Executive Employee means any person, in the employ of an
Employer, who qualified for participation in the New England Electric
Companies Executive Supplemental Retirement Plan I on December 31, 1995, and
who on the date of his or her termination of employment is qualified for
participation in the New England Electric Companies Executive Supplemental
Retirement Plan I.
2.02. Eligible Employee means an Executive Employee who meets the
eligibility criteria set forth under Section 3.01(a) or (b).
2.03. NEES Companies Retirees Health and Life Insurance Plan means the
New England Electric System Companies Retirees Health and Life Insurance Plan
I, as amended from time to time.
2.04. Participant means any individual who participates in the Plan in
accordance with Article III.
2.05. Plan means the New England Electric Companies Executive Retirees
Health and Life Insurance Plan as set forth herein, together with any and all
amendments hereto.
2.06. Plan Date means January 1, 1994.
ARTICLE III - PARTICIPATION
3.01. Eligibility.
<PAGE>
(a) A retired Executive Employee who, as of the Plan Date, was
receiving benefits under the Plan shall continue to participate in the
Plan, for purposes of receiving postretirement health care and life
insurance benefits, beginning on the Plan Date.
(b) An Executive Employee who, on or after the Plan Date, has a
termination of employment, and, at the time is at least age 50 shall be
eligible to participate in the Plan, for purposes of receiving
postretirement health care and life insurance benefits, commencing at
Retirement.
(c) An Eligible Dependent will be eligible to participate in this
Plan, for purposes of receiving health care benefits, upon the Eligible
Employee's death.
3.02. Commencement of Participation. An individual will become a
Participant on the later of: (a) the Plan Date or (b) the first day of the
month following the date he or she becomes an Eligible Employee.
3.03. Cessation of Participation. A Participant will cease to be a
Participant as of the earlier of:
(a) the date on which the Plan terminates; or
(b) the date on which the Participant ceases to be eligible to
participate under Section 3.01.
3.04. Reinstatement of Former Participant. A former Participant who
is rehired by an Employer will become a Participant again if and when he or
she meets the eligibility requirements of Section 3.01 and shall receive
postretirement medical benefits in an amount no less than those the
Participant was receiving immediately prior to discontinuing participation in
the Plan.
ARTICLE IV - HEALTHCARE COVERAGE AND CONTRIBUTION
4.01. Coverage. A Participant's postretirement health care coverage
under this Plan shall be as follows:
(a) If a Participant is under age 65, such Participant will be
covered by the Medical Contract coverage he or she was enrolled in
immediately before his or her termination of employment (or if the
Participant becomes eligible under Section 3.01(c), such Participant will
be covered by the Medical Contract coverage the Participant was enrolled
in before such Eligible Employee's death) or such other Medical Contract
coverage as may be elected by the Participant pursuant to the annual open
enrollment procedure for active Employees.
(b) If a Participant is age 65 or older, in addition to Medicare
coverage to which he or she is entitled, the Participant will also be
covered by the Medigap Contract coverage elected by such Participant and
will receive such Medicare Part B premium reimbursement as described in
Section 4.03 hereof.
To the extent permitted under the provisions of the Medical Contracts and
the Medigap Contracts, a Participant may also elect coverage under such
contracts for Eligible Dependents. Notwithstanding the foregoing, with
respect to an Eligible Employee and/or Eligible Dependent, no postretirement
medical benefits will be provided under this Plan prior to the earlier of (i)
the Eligible Employee's Retirement or (ii) the Eligible Employee's death.
<PAGE>
4.02. Description of Benefits. The Medicare Part B premium
reimbursement benefit is described in Section 4.03 hereof. The types and
amounts of postretirement benefits available under each Medical Contract and
Medigap Contract, the requirements for participating in such contracts, and
the other terms and conditions of coverage and benefits under such contracts
are as set forth in the respective contracts and in any documents that
constitute (or are incorporated by reference) in such contracts. The
postretirement benefit descriptions in such contracts, as in effect from time
to time, are hereby incorporated by reference into this Plan.
4.03. Participant Contribution. The Participant shall not make any
monthly contribution and shall receive full reimbursement of the monthly
Medicare Part B premiums for such Participant and, if applicable, Spouse.
If a Participant became eligible under Section 3.01(c), the Eligible
Dependent Participant shall not make any monthly contribution and shall
receive full reimbursement of the monthly Medicare Part B premium.
4.04. Employer Contribution. The respective Employers shall pay, on a
monthly basis, the full cost of postretirement medical coverage provided under
the Medical Contracts and the Medigap Contracts, and (ii) the applicable
Medicare Part B premium reimbursement.
ARTICLE V - LIFE INSURANCE COVERAGE
5.01. Coverage. If the Participant is not provided life insurance
pursuant to an agreement with his or her Employer, the Participant will, upon
Retirement, receive basic life insurance coverage in the amount provided by
the Employer (exclusive of any individual life insurance program provided
under contract with an Employer) immediately prior to his or her termination
of employment, which amount shall be reduced 2% a month until it reaches the
greater of:
(i) $7,500; or
(ii) 25% of the amount of coverage provided by the Participant's
Employer to the Participant upon the earlier to occur of the Participant
attaining age 65 or the Participant's last day of employment prior to
Retirement.
ARTICLE VI - FUNDING
6.01. Funding. The Employers may, in their sole discretion, establish
any form of funding method(s) for the Plan including, but not limited to, the
payment of postretirement benefits from an Employer's general assets or
purchasing one or more group insurance contracts or HMO contracts to provide
for all or a portion of the postretirement benefits provided under the Plan
(excluding reimbursement of Medicare Part B premiums).
6.02 Limitation of Employer Liability. With respect to any prepaid
or any insured portion of the Plan, liability for providing postretirement
benefits under such portion of the Plan and the applicable prepaid or insured
Medical Contracts, Medigap Contracts, or Life Insurance Contracts shall be
solely that of the insurance company, Blue Cross - Blue Shield organization,
or health maintenance organization issuing the applicable prepaid or insured
Medical Contracts, Medigap Contracts, or Life Insurance Contracts. The
respective Employers shall have no liability for any postretirement benefits
due, or alleged to be due, under any such applicable prepaid or insured
Medical Contract, Medigap Contract, or Life Insurance Contract.
<PAGE>
ARTICLE VII - AMENDMENT AND TERMINATION OF PLAN
7.01. Amendment and Termination of Plan. The power to amend the terms
of this Plan document, in whole or in part, or to terminate the Plan shall be
vested in the Compensation Committee of the Board, which shall have the sole
discretion to make all amendments to the terms of this Plan document
(including, but not limited to, the time for and amounts of Participant
contributions), or to terminate the Plan; provided, however, no amendment or
discontinuance in any manner adverse to a Participant or an Executive Employee
with respect to benefits offered under the Plan may be made for three years
following a Change in Control or a Major Transaction.
ARTICLE VIII - MISCELLANEOUS
8.01. Incorporation of Provisions by Reference. All of the
provisions contained in Article VI, Administration of Plan, and Article IX,
Miscellaneous Provisions, of the NEES Companies Retirees Health and Life
Insurance Plan, as amended from time to time, are hereby incorporated into
this Plan by reference.
8.02. Forfeiture of Benefits. A Participant will forfeit his or her
future benefits under the Plan at the time that a forfeiture of benefits under
the New England Electric Companies Executive Supplemental Retirement Plan I
occurs.
/s/ George M. Sage
______________________________________
Chairman of the Compensation Committee
<PAGE>
NEW ENGLAND ELECTRIC COMPANIES'
INCENTIVE COMPENSATION PLAN I
Adopted - August 24, 1977
Amended - December 5, 1978
Amended - May 17, 1982
Amended - July 31, 1984
Amended - July 30, 1985
Amended - February 9, 1987
Amended - May 23, 1990
Amended - December 1, 1991
Amended - January 1, 1992
Amended - January 1, 1994
Amended - February 21, 1994
Amended - January 1, 1995
Amended - October 24, 1995
Amended - January 1, 1998
<PAGE>
TABLE OF CONTENTS
Page
I. PURPOSE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
II. DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2.01 Base Compensation. . . . . . . . . . . . . . . . . . . . . . . .1
2.02 Beneficial Owner. . . . . . . . . . . . . . . . . . . . . . . . 1
2.03 Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
2.04 Bonus Award. . . . . . . . . . . . . . . . . . . . . . . . . . .2
2.05 Category A Participant. . . . . . . . . . . . . . . . . . . . . 2
2.06 Category B Participant. . . . . . . . . . . . . . . . . . . . . 2
2.07 Category C Participants. . . . . . . . . . . . . . . . . . . . .2
2.08 Change in Control. . . . . . . . . . . . . . . . . . . . . . . .2
2.09 Committee. . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.10 Exchange Act. . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.11 Financial Objective. . . . . . . . . . . . . . . . . . . . . . .3
2.12 A Major Transaction. . . . . . . . . . . . . . . . . . . . . . .3
2.13 Management Committee. . . . . . . . . . . . . . . . . . . . . . 4
2.14 New England Electric System. . . . . . . . . . . . . . . . . . .4
2.15 Participant. . . . . . . . . . . . . . . . . . . . . . . . . . .5
2.16 Performance Benchmarks. . . . . . . . . . . . . . . . . . . . . 5
2.17 Person. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.18 Plan Year. . . . . . . . . . . . . . . . . . . . . . . . . . . .5
2.19 Senior Incentive Compensation Plan. . . . . . . . . . . . . . . 5
2.20 Strategic Objectives. . . . . . . . . . . . . . . . . . . . . . 6
2.21 System. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
III. ADMINISTRATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
3.01 Administration and Interpretation. . . . . . . . . . . . . . . .6
3.02 Amendment and Termination. . . . . . . . . . . . . . . . . . . .6
3.03 Salary Approvals. . . . . . . . . . . . . . . . . . . . . . . . 6
3.04 No Segregation of Assets; No Assignment. . . . . . . . . . . . .7
3.05 Effectuation of Interest. . . . . . . . . . . . . . . . . . . . 7
3.06 Accounting. . . . . . . . . . . . . . . . . . . . . . . . . . . 7
IV. PARTICIPATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
4.01 Selection. . . . . . . . . . . . . . . . . . . . . . . . . . . .7
4.02 Notification. . . . . . . . . . . . . . . . . . . . . . . . . . 7
4.03 Objectives. . . . . . . . . . . . . . . . . . . . . . . . . . . 8
V. PARTICIPANTS' COMPENSATION. . . . . . . . . . . . . . . . . . . . . . 8
5.01 Base Compensation and Incentive Compensation. . . . . . . . . . 8
VI. BASE COMPENSATION. . . . . . . . . . . . . . . . . . . . . . . . . . . 8
6.01 Determination. . . . . . . . . . . . . . . . . . . . . . . . . .8
VII. INCENTIVE COMPENSATION. . . . . . . . . . . . . . . . . . . . . . . . .8
7.01 Incentive Compensation Amounts. . . . . . . . . . . . . . . . . 8
7.02 Use of Benchmarks. . . . . . . . . . . . . . . . . . . . . . . .9
7.03 Components. . . . . . . . . . . . . . . . . . . . . . . . . . . 9
7.04 Financial Objective Award. . . . . . . . . . . . . . . . . . . .9
7.05 Strategic Objectives Award. . . . . . . . . . . . . . . . . . . 9
7.06 Exercise of Discretion. . . . . . . . . . . . . . . . . . . . .10
7.07 Notification of Award. . . . . . . . . . . . . . . . . . . . . 10
VIII. PAYMENT UPON CHANGE OF CONTROL. . . . . . . . . . . . . . . . . . . 10
8.01 Change in Control. . . . . . . . . . . . . . . . . . . . . . . 10
<PAGE>
IX. GENERAL PROVISIONS. . . . . . . . . . . . . . . . . . . . . . . . . . 11
9.01 Other Benefit Plans. . . . . . . . . . . . . . . . . . . . . . 11
9.02 Termination of Participation; Interplan Transfer. . . . . . . .11
9.03 Future Employment. . . . . . . . . . . . . . . . . . . . . . . 11
9.04 Headings. . . . . . . . . . . . . . . . . . . . . . . . . . . .12
9.05 Gender and Number. . . . . . . . . . . . . . . . . . . . . . . 12
9.06 Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . 12
9.07 Effective Date. . . . . . . . . . . . . . . . . . . . . . . . .12
SIGNATURE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12
ii
<PAGE>
NEW ENGLAND ELECTRIC COMPANIES'
INCENTIVE COMPENSATION PLAN I
I. PURPOSE
The purpose of the Incentive Compensation Plan I (the Plan) is to
achieve and maintain a high level of corporate performance by making it
possible for those selected executives whose efforts and responsibilities have
direct and major influence on corporate earnings to earn significant
compensation rewards in proportion to (i) corporate achievement of financial
and strategic objectives and (ii) the executive's contribution thereto. This
amendment, effective January 1, 1998, is designed to focus on the post-
divestiture growth and profitability of the System.
II. DEFINITIONS
2.01 Base Compensation means the compensation referred to in Section
6.01 and includes all salary, whether received or deferred.
2.02 Beneficial Owner shall have the meaning defined in Rule 13d-3
under the Exchange Act.
2.03 Board means the Board of Directors of New England Electric System.
2.04 Bonus Award means the compensation referred to in Article VII.
2.05 Category A Participant means those Participants so designated by
the Committee.
2.06 Category B Participant means those Participants so designated by
the Committee.
2.07 Category C Participants means all Participants not designated
either Category A or Category B Participants.
2.08 Change in Control occurs when the conditions set forth in either
of the following paragraphs shall have been satisfied:
(a) any Person is or becomes the Beneficial Owner, directly or
indirectly, of securities of New England Electric System (not
including in the securities beneficially owned by such Person any
securities acquired directly from New England Electric System or
its affiliates) representing 20% or more of the combined voting
power of New England Electric System's then outstanding
securities; or
(b) during any period of not more than two consecutive years
individuals who at the beginning of such period constitute the
Board and any new director (other than a director designated by a
Person who has entered into an agreement with New England Electric
System to effect a transaction described in clause (a) of this
paragraph) whose election by the Board or nomination for election
by New England Electric System's shareholders was approved or
recommended by a vote of at least two-thirds of the directors then
still in office who either were directors at the beginning of the
period or whose election or nomination for election was previously
so approved or recommended, cease for any reason to constitute a
majority of the Board.
2.09 Committee means the Compensation Committee of the Board.
2.10 Exchange Act means the Securities Exchange Act of 1934.
2.11 Financial Objective means the same annual financial target
established under Article IV of the Senior Incentive Compensation Plan for the
Plan Year.
<PAGE>
2.12 A Major Transaction shall be deemed to have occurred if the
conditions set forth in any one of the following paragraphs shall have been
satisfied:
(a) the shareholders of New England Electric System approve a merger
or consolidation with any corporation or business trust, other
than (i) a merger or consolidation which would result in the
individuals who prior to such merger or consolidation constitute
the Board constituting at least two-thirds of the board of
directors of New England Electric System or the surviving or
succeeding entity immediately after such merger or consolidation,
or (ii) a merger or consolidation effected to implement a
recapitalization (or similar transaction) in which no Person
acquires more than 20% of the combined voting power of New England
Electric System's then outstanding securities;
(b) the shareholders of New England Electric System approve a plan of
complete liquidation thereof; or
(c) the shareholders of New England Electric System approve an
agreement for the sale or disposition of all or substantially all
of New England Electric System's assets, other than a sale or
disposition which would result in the individuals who prior to
such sale or disposition constitute the Board constituting at
least two-thirds of the board of directors of the Person
purchasing such assets immediately after such sale or disposition.
2.13 Management Committee means the Chief Executive Officer of New
England Electric System and the Chairman of New England Electric System.
2.14 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.
2.15 Participant means an individual who has been selected, in
accordance with Section 4.01, or an equivalent prior provision, to be a
participant in the Plan.
2.16 Performance Benchmarks means those standards established by the
Management Committee and the Committee to judge progress toward achievement of
the Financial Objective and each Strategic Objective. Individual objective or
subjective performance measures may also be developed for each Participant to
assist in the evaluation of his or her contribution toward the corporate
achievement of the Strategic Objectives assigned to the individual.
2.17 Person shall have the meaning given in Section 3(a)(9) of the
Exchange Act, as modified and used in Sections 13(d) and 14(d) thereof;
however, a Person shall not include (i) New England Electric System or any
subsidiary thereof, (ii) a trustee or other fiduciary holding securities under
an employee benefit plan of New England Electric System or any subsidiary
thereof, (iii) an underwriter temporarily holding securities pursuant to an
offering of such securities, or (iv) a corporation owned, directly or
indirectly, by the shareholders of New England Electric System in
substantially the same proportions as their ownership of shares of New England
Electric System.
2.18 Plan Year means a calendar year.
<PAGE>
2.19 Senior Incentive Compensation Plan means New England Electric
Companies' Senior Incentive Compensation Plan, as amended from time to time.
2.20 Strategic Objectives means the same Strategic Objectives
established under Article IV of the Senior Incentive Compensation Plan for the
Plan Year.
2.21 System means the New England Electric System holding company
system.
III. ADMINISTRATION
3.01 Administration and Interpretation. The Plan shall be administered
by the Committee, and interpretations of the Plan by the Committee shall be
final and binding on all parties.
3.02 Amendment and Termination. The Committee may amend or terminate
the Plan at any time, provided that:
(a) no such action shall affect any right or obligation with respect
to any Bonus Award previously granted;
(b) provisions of Article VIII and Sections 2.08 and 2.12 may not be
amended without the written consent of any Participant affected;
and
(c) no amendment or termination of the Plan may be made after a Major
Transaction unless the shareholders have rescinded their approval.
3.03 Salary Approvals. The Committee will approve all salary changes
for individual Participants.
3.04 No Segregation of Assets; No Assignment. The New England Electric
System is not required to set aside or segregate any assets of any kind to
meet obligations under this Plan. A Participant has no rights under this Plan
to any specific assets of the System. A Participant may not commute, sell,
assign, transfer, or otherwise convey the right to receive any payments under
this Plan, which payments and the right thereto shall be, to the fullest
extent permitted by law, nonassignable and nontransferable, whether
voluntarily or involuntarily.
3.05 Effectuation of Interest. In the event it should become
impossible for the System, the Committee, or the Management Committee to
perform any act required by the Plan, the System, the Committee, or the
Management Committee may perform such other act as it in good faith determines
will most nearly carry out the intent and purpose of the Plan.
3.06 Accounting. The Manager of Internal Audits and the Controller
will be responsible to the Committee for accounting matters directly affecting
the Plan.
IV. PARTICIPATION
4.01 Selection. It is anticipated (but not binding) that the Committee
shall select, by December 1 of each year, the Participants for the following
year.
4.02 Notification. The Management Committee shall notify those
Participants who have been included in the Plan for the following year and
those who have been dropped from the Plan.
4.03 Objectives. All Participants will have the Financial Objective.
Individual Participants may participate in different Strategic Objectives.
Further, their Strategic Objectives may be differently weighted. The
Management Committee shall determine such objectives and weighting.
<PAGE>
V. PARTICIPANTS' COMPENSATION
5.01 Base Compensation and Incentive Compensation. The compensation
for each Participant will consist of two parts: Base Compensation and
Incentive Compensation.
VI. BASE COMPENSATION
6.01 Determination. A Participant's performance will be evaluated and
his or her compensation, including any merit or promotional increase, will be
set in accordance with the New England Electric Salary Management Program.
VII. INCENTIVE COMPENSATION
7.01 Incentive Compensation Amounts. When the books are closed at the
end of a Plan Year, the Management Committee will make recommendations to the
Committee for Bonus Awards to each Participant. The Committee will act on the
recommendations and the money will be distributed to the Participants based
upon the Committee's determination by the March 15 following the Plan Year.
7.02 Use of Benchmarks. The Management Committee and the Committee
will use the Performance Benchmarks and individual performance measures as
guides to evaluate each Participant's achievement in each area.
7.03 Components. The Bonus Award has two components: a Financial
Objective Award and a Strategic Objectives Award. The targeted Strategic
Objectives Award is 22.5% of Base Compensation. The targeted Financial
Objective Award is 13.5% of Base Compensation and the maximum Financial
Objective Award is 22.5%.
7.04 Financial Objective Award. The calculation of the Financial
Objective Award will parallel the calculation under the New England Electric
Companies' Senior Incentive Compensation Plan. If the Financial Objective
Benchmark is achieved, full target credit will be given for this target. The
Financial Objective Bonus Award will be adjusted up or down to reflect income
greater than, or less than, the Benchmark.
7.05 Strategic Objectives Award. Each Participant's award shall be
governed by the contribution of the Participant toward meeting his or her
Strategic Objectives. The Strategic Objectives Bonus Award will be adjusted
downward to reflect shortfalls in Performance Benchmark achievement.
7.06 Exercise of Discretion. The Committee is expected to use its
judgment in evaluating performance, with the Objectives and Benchmarks as
standards, not cliffs. The Committee may reduce bonuses from those
calculated by the formula if circumstances warrant. The Committee may also
award bonuses outside those calculated by the formula. Further, the Committee
retains the discretion, from time to time, to add or delete Strategic
Objectives and to adjust Benchmarks as it deems appropriate.
7.07 Notification of Award. The Management Committee shall be
responsible for seeing that each Participant is told the basis for the amount
of his or her Bonus Award.
VIII. PAYMENT UPON CHANGE OF CONTROL
8.01 Change in Control. In the event of a Change in Control or Major
Transaction, each Participant will receive, within 30 days of the consummation
of the Change in Control or of the transaction approved by the Major
Transaction, a cash payment equal to the average of the bonus percentages for
this Plan for the last three years prior to the Change in Control or Major
Transaction times the Participant's annualized Base Compensation. Further, if
the consummation of the Change in Control or of the transaction approved by
the Major Transaction occurs prior to the determination and payment of the
<PAGE>
Bonus Award for the prior Plan Year, the Participant will also receive within
30 days a cash payment equal to said percentage times the Participant's Base
Compensation received in the prior Plan Year. No further benefits will be
payable from this Plan.
IX. GENERAL PROVISIONS
9.01 Other Benefit Plans. Bonus Awards will not be used in determining
the Participant's benefits under any group insurance plan or any incentive
program other than New England Electric Companies' Incentive Share Plan.
Bonus Awards will be included in pension plan calculations to the extent
otherwise provided in these plans.
9.02 Termination of Participation; Interplan Transfer. If, for any
reason, a Participant should cease to be actively employed by a subsidiary of
the New England Electric System prior to July 1 of a Plan Year, that person
will not be deemed a Participant for that year, unless the Committee
determines there are extraordinary circumstances which justify inclusion. A
Participant who ceases to be so actively employed during the last six months
of a Plan Year will be deemed a Participant for that year on a proportional
basis. The Committee will also determine the extent, if any, of participation
by the person replacing a Participant. If a Participant becomes a participant
in another incentive compensation plan during the Plan Year, the Participant
will be deemed to be a Participant for that year on a proportional basis in
each of the Plans, respectively.
9.03 Future Employment. Neither the Plan nor the making of awards
hereunder shall be construed to create any obligation to continue the Plan or
to give any present or future employee any right to continued employment.
9.04 Headings. The headings of articles and sections of the Plan are
for convenience of reference only.
9.05 Gender and Number. Unless the context requires otherwise, the
singular shall include the plural; the masculine gender shall include the
feminine; and such words as "herein", "hereinafter", "hereof", and "hereunder"
shall refer to this instrument as a whole and not merely to the subdivisions
in which such words appear.
9.06 Governing Law. Except as otherwise required by law, the Plan and
all matters arising thereunder shall be governed by the laws of The
Commonwealth of Massachusetts.
9.07 Effective Date. This Amendment shall be effective January 1,
1998.
/s/ George M. Sage
__________________________________________
Chairman, Compensation Committee
Pursuant to Votes dated November 24, 1997
and August 25, 1998 of the Compensation
Committee
<PAGE>
NEW ENGLAND ELECTRIC COMPANIES'
INCENTIVE COMPENSATION PLAN II
Adopted - July 12, 1982
Amended - December 18, 1984
Amended - November 20, 1985
Amended - December 1, 1986
Amended - May 23, 1990
Amended - December 1, 1991
Amended - September 1, 1992
Amended - January 1, 1994
Amended - March 1, 1994
Amended - January 1, 1995
Amended - January 1, 1998
<PAGE>
TABLE OF CONTENTS
Page
I. PURPOSE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
II. DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2.01 Base Compensation. . . . . . . . . . . . . . . . . . . . . . . . 1
2.02 Beneficial Owner. . . . . . . . . . . . . . . . . . . . . . . . 1
2.03 Board. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2.04 Bonus Award. . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2.05 Change in Control. . . . . . . . . . . . . . . . . . . . . . . . 2
2.06 Exchange Act. . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.07 Financial Objective. . . . . . . . . . . . . . . . . . . . . . . 3
2.08 A Major Transaction. . . . . . . . . . . . . . . . . . . . . . . 3
2.09 Management Committee. . . . . . . . . . . . . . . . . . . . . . 4
2.10 New England Electric System. . . . . . . . . . . . . . . . . . . 4
2.11 Participant. . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.12 Performance Benchmark. . . . . . . . . . . . . . . . . . . . . . 4
2.13 Person. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.14 Plan Year. . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.15 Senior Incentive Compensation Plan. . . . . . . . . . . . . . . 5
2.16 Strategic Objectives. . . . . . . . . . . . . . . . . . . . . . 5
2.17 System. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
III. ADMINISTRATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.01 Administration and Interpretation. . . . . . . . . . . . . . . . 6
3.02 Amendment and Termination. . . . . . . . . . . . . . . . . . . . 6
3.03 No Segregation of Assets; No Assignment. . . . . . . . . . . . . 6
3.04 Participant List. . . . . . . . . . . . . . . . . . . . . . . . 7
3.05 Effectuation of Interest. . . . . . . . . . . . . . . . . . . . 7
3.06 Accounting. . . . . . . . . . . . . . . . . . . . . . . . . . . 7
IV. PARTICIPATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
4.01 Selection. . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
4.02 Notification. . . . . . . . . . . . . . . . . . . . . . . . . . 7
4.03 Objectives. . . . . . . . . . . . . . . . . . . . . . . . . . . 7
V. PARTICIPANTS' COMPENSATION. . . . . . . . . . . . . . . . . . . . . . 8
5.01 Base Compensation and Incentive Compensation. . . . . . . . . . 8
VI. BASE COMPENSATION. . . . . . . . . . . . . . . . . . . . . . . . . . . 8
6.01 Determination. . . . . . . . . . . . . . . . . . . . . . . . . . 8
VII. INCENTIVE COMPENSATION. . . . . . . . . . . . . . . . . . . . . . . . .8
7.01 Incentive Compensation Amounts. . . . . . . . . . . . . . . . . .8
7.02 Use of Benchmarks. . . . . . . . . . . . . . . . . . . . . . . . 9
7.03 Components. . . . . . . . . . . . . . . . . . . . . . . . . . . 9
7.04 Financial Objective Award. . . . . . . . . . . . . . . . . . . . 9
7.05 Strategic Objective Award. . . . . . . . . . . . . . . . . . . . 9
7.06 Exercise of Discretion. . . . . . . . . . . . . . . . . . . . . .9
7.07 Notification of Award. . . . . . . . . . . . . . . . . . . . . .10
<PAGE>
VIII. PAYMENT UPON CHANGE OF CONTROL. . . . . . . . . . . . . . . . . . . 10
8.01 Change of Control. . . . . . . . . . . . . . . . . . . . . . .10
IX. GENERAL PROVISIONS. . . . . . . . . . . . . . . . . . . . . . . . . 11
9.01 Other Benefit Plans. . . . . . . . . . . . . . . . . . . . . .11
9.02 Termination of Participation; Interplan Transfer. . . . . . . 11
9.03 Future Employment. . . . . . . . . . . . . . . . . . . . . . .11
9.04 Headings. . . . . . . . . . . . . . . . . . . . . . . . . . . 12
9.05 Gender and Number. . . . . . . . . . . . . . . . . . . . . . .12
9.06 Governing Law. . . . . . . . . . . . . . . . . . . . . . . . .12
9.07 Effective Date. . . . . . . . . . . . . . . . . . . . . . . . 12
SIGNATURE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12
ii
<PAGE>
NEW ENGLAND ELECTRIC COMPANIES'
INCENTIVE COMPENSATION PLAN II
I. PURPOSE
The purpose of this Incentive Compensation Plan II (the Plan) is to
achieve and maintain a high level of corporate performance by making it
possible for those selected executives whose efforts and responsibilities have
direct influence on corporate earnings to earn significant compensation
rewards in proportion to (i) corporate achievement of financial and strategic
objectives and (ii) the executive's contribution thereto. This amendment,
effective January 1, 1998, is designed to focus on the post-divestiture growth
and profitability of the System.
II. DEFINITIONS
2.01 Base Compensation means the compensation referred to in
Section 6.01.
2.02 Beneficial Owner shall have the meaning defined in Rule 13d-3
under the Exchange Act.
2.03 Board means the Board of Directors of New England Electric
System.
2.04 Bonus Award means the compensation referred to in Article
VII.
2.05 Change in Control occurs when the conditions set forth in
either of the following paragraphs shall have been satisfied:
(a) any Person is or becomes the Beneficial Owner, directly or
indirectly, of securities of New England Electric System (not
including in the securities beneficially owned by such Person any
securities acquired directly from New England Electric System or
its affiliates) representing 20% or more of the combined voting
power of New England Electric System's then outstanding
securities; or
(b) during any period of not more than two consecutive years
individuals who at the beginning of such period constitute the
Board and any new director (other than a director designated by a
Person who has entered into an agreement with New England Electric
System to effect a transaction described in clause (a) of this
paragraph) whose election by the Board or nomination for election
by New England Electric System's shareholders was approved or
recommended by a vote of at least two-thirds of the directors then
still in office who either were directors at the beginning of the
period or whose election or nomination for election was previously
so approved or recommended, cease for any reason to constitute a
majority of the Board.
2.06 Exchange Act means the Securities Exchange Act of 1934.
2.07 Financial Objective means the same annual financial target
established under Article IV of the New England Electric Companies' Senior
Incentive Compensation Plan for the Plan Year.
2.08 A Major Transaction shall be deemed to have occurred if the
conditions set forth in any one of the following paragraphs shall have been
satisfied:
<PAGE>
(a) the shareholders of New England Electric System approve a merger
or consolidation with any corporation or business trust, other
than (i) a merger or consolidation which would result in the
individuals who prior to such merger or consolidation constitute
the Board constituting at least two-thirds of the board of
directors of New England Electric System or the surviving or
succeeding entity immediately after such merger or consolidation,
or (ii) a merger or consolidation effected to implement a
recapitalization (or similar transaction) in which no Person
acquires more than 20% of the combined voting power of New England
Electric System's then outstanding securities;
(b) the shareholders of New England Electric System approve a plan of
complete liquidation thereof; or
(c) the shareholder of New England Electric System approve an
agreement for the sale or disposition of all or substantially all
of New England Electric System's assets, other than a sale or
disposition which would result in the individuals who prior to
such sale or disposition constitute the Board constituting at
least two-thirds of the board of directors of the Person
purchasing such assets immediately after such sale or disposition.
2.09 Management Committee means the Chief Executive Officer of New
England Electric System and the Chairman of New England Electric System.
2.10 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.
2.11 Participant means an individual who has been selected, in
accordance with Section 4.01, or an equivalent prior provision, to be a
participant in the Plan.
2.12 Performance Benchmark means those standards established by
the Management Committee to judge progress toward achievement of the
Financial Objective and each specific Strategic Objective. Individual
objective or subjective performance measures may also be developed for each
Participant to assist in the evaluation of his or her contribution toward the
corporate achievement of the Strategic Objectives assigned to the individual.
2.13 Person shall have the meaning given in Section 3(a)(9) of the
Exchange Act, as modified and used in Sections 13(d) and 14(d) thereof;
however, a Person shall not include (i) New England Electric System or any
subsidiary thereof, (ii) a trustee or other fiduciary holding securities under
an employee benefit plan of New England Electric System or any subsidiary
thereof, (iii) an underwriter temporarily holding securities pursuant to an
offering of such securities, or (iv) a corporation owned, directly or
indirectly, by the shareholders of New England Electric System in
substantially the same proportions as their ownership of shares of New England
Electric System.
2.14 Plan Year means a calendar year.
<PAGE>
2.15 Senior Incentive Compensation Plan means New England Electric
Companies' Senior Incentive Compensation Plan, as amended from time to time.
2.16 Strategic Objectives means the same Strategic Objectives
established under Article IV of the Senior Incentive Compensation Plan for the
Plan Year.
2.17 System means the New England Electric System holding company
system.
III. ADMINISTRATION
3.01 Administration and Interpretation. The Plan shall be
administered by the Management Committee, and interpretations of the Plan by
the Management Committee shall be final and binding by all parties.
3.02 Amendment and Termination. The Management Committee may
amend or terminate the Plan at any time, provided that:
(a) no such action shall affect any right or obligation with respect
to any Bonus Award previously granted;
(b) the provisions of Article VII and Sections 2.05 and 2.08 may not
be amended without the written consent of any Participant
affected; and
(c) no amendment or termination of the Plan may be made after a Major
Transaction unless the shareholders have rescinded their approval.
3.03 No Segregation of Assets; No Assignment. The New England
Electric System is not required to set aside or segregate any assets of any
kind to meet obligations under this Plan. A Participant has no rights under
this Plan to any specific assets of the System. A Participant may not
commute, sell, assign, transfer, or otherwise convey the right to receive any
payments under this Plan, which payments and the right thereto shall be, to
the fullest extent permitted by law, nonassignable and nontransferable,
whether voluntarily or involuntarily.
3.04 Participant List. The Management Committee shall be
responsible for maintaining an up-to-date list of the Participants in the
Plan.
3.05 Effectuation of Interest. In the event it should become
impossible for the System, the Committee, or the Management Committee to
perform any act required by the Plan, the System, the Committee, or the
Management Committee may perform such other act as it in good faith determines
will most nearly carry out the intent and purpose of the Plan.
3.06 Accounting. The Manager of Internal Audits and the
Controller will be responsible to the Management Committee for accounting
matters directly affecting the Plan.
IV. PARTICIPATION
4.01 Selection. The Participants in the Plan will be selected by
the Senior Management.
<PAGE>
4.02 Notification. The Management Committee shall notify those
Participants who have been included in the Plan for the following year and
those who have been dropped from the Plan.
4.03 Objectives. All Participants will have the Financial
Objective. Individual Participants may participate in different Strategic
Objectives. Further, their Strategic Objectives may be differently weighted.
The Management Committee shall determine such objectives and weighting.
Participants will be advised of their Strategic Objectives prior to the Plan
Year for which they apply.
V. PARTICIPANTS' COMPENSATION
5.01 Base Compensation and Incentive Compensation. The
compensation for each Participant will consist of two parts: Base
Compensation and Incentive Compensation.
VI. BASE COMPENSATION
6.01 Determination. A Participant's performance will be evaluated
and his or her compensation, including any merit or promotional increase, will
be set in accordance with the New England Electric Salary Management Program.
VII. INCENTIVE COMPENSATION
7.01 Incentive Compensation Amounts. When the books are closed at
the end of a Plan Year, the Management Committee will determine the
appropriate amount to be awarded each Participant, and this money will be
distributed to the Participants by the March 15 following the Plan Year.
7.02 Use of Benchmarks. The Management Committee will use the
Performance Benchmarks and individual performance measures as guides to
evaluate each Participant's achievement in each area.
7.03 Components. The Bonus Award has two components: a Financial
Objective Award and a Strategic Objectives Award. The targeted Strategic
Objective Award is 16.5% of Base Compensation. The targeted Financial
Objective Award is 9.9% of Base Compensation and the maximum Financial
Objective Award is 16.5%.
7.04 Financial Objective Award. The calculation of the Financial
Objective Award will parallel the calculation under the New England Electric
Companies' Senior Incentive Compensation Plan. If the Financial Objective
Benchmark is achieved, full target credit will be given for this target. The
Financial Objective Bonus Award will be adjusted up or down to reflect income
greater than, or less than, the Benchmark.
7.05 Strategic Objective Award. Each Participant's award shall be
governed by the contribution of the Participant toward meeting his or her
Strategic Objectives. The Strategic Objective Bonus Award will be adjusted
downward to reflect shortfalls in Performance Benchmark achievement.
7.06 Exercise of Discretion. The Management Committee is expected
to use its judgment in evaluating performance with the Objectives and
Benchmarks as standards, not cliffs. The Management Committee may reduce
bonuses from those calculated by the formula if circumstances warrant. The
Management Committee may also award bonuses outside those calculated by the
formula. Further, the Management Committee retains the discretion, from time
<PAGE>
to time, to add or delete Strategic Objectives and adjust Benchmarks as it
deems appropriate.
7.07 Notification of Award. The Management Committee shall be
responsible for seeing that each Participant is told the basis for the size of
his or her Bonus Award.
VIII. PAYMENT UPON CHANGE OF CONTROL
8.01 Change of Control. In the event of a Change in Control or
Major Transaction, each Participant will receive, within 30 days of the
consummation of the Change in Control or of the transaction approved by the
Major Transaction, a cash payment equal to the average of the bonus
percentages for this Plan for the last three years prior to the Change in
Control or Major Transaction times the Participant's annualized Base
Compensation. Further, if the consummation of the Change in Control or of the
transaction approved by the Major Transaction occurs prior to the
determination and payment of the Bonus Award for the prior Plan Year, the
Participant will also receive within 30 days a cash payment equal to said
percentage times the Participant's Base Compensation received in the prior
Plan Year. No further benefits will be payable from this Plan.
IX. GENERAL PROVISIONS
9.01 Other Benefit Plans. Bonus Awards will not be used in
determining benefits under any group insurance plan or any other incentive
program other than New England Electric Companies' Incentive Share Plan.
Bonus Awards will be included in pension plan calculations to the extent
otherwise provided in these plans.
9.02 Termination of Participation; Interplan Transfer. If, for
any reason, a Participant should cease to be actively employed by a subsidiary
of the New England Electric System prior to July 1 of a Plan Year, that person
will not be deemed a Participant for that year, unless the Management
Committee determines there are extraordinary circumstances which justify
inclusion. A Participant who ceases to be so actively employed during the
last six months of a Plan Year will be deemed a Participant for that year on a
proportional basis. The Management Committee will also determine the extent,
if any, of participation by the person replacing a Participant. If a
Participant becomes a participant in another incentive compensation plan
during the Plan Year, the Participant will be deemed to be a Participant for
that year on a proportional basis in each of the Plans, respectively.
9.03 Future Employment. Neither the Plan nor the making of awards
hereunder shall be construed to create any obligation to continue the Plan or
to give any present or future employee any right to continued employment.
9.04 Headings. The headings of articles and sections of the Plan
are for convenience of reference only.
9.05 Gender and Number. Unless the context requires otherwise,
the singular shall include the plural; the masculine gender shall include the
feminine; and such words as "herein," "hereinafter," "hereof," and "hereunder"
shall refer to this instrument as a whole and not merely to the subdivisions
in which such words appear.
9.06 Governing Law. Except as otherwise required by law, the Plan
and all matters arising thereunder shall be governed by the laws of The
Commonwealth of Massachusetts.
<PAGE>
9.07 Effective Date. This Amendment shall be effective January 1,
1998.
/s/ Alfred D. Houston
/s/ Richard P. Sergel
The Management Committee
In accordance with Votes dated November
24, 1997 and August 25, 1998 of the New
England Electric System Compensation
Committee
<PAGE>
NEW ENGLAND ELECTRIC COMPANIES'
INCENTIVE COMPENSATION PLAN III
Adopted - November 29, 1988
Amended - May 23, 1990
Amended - December 1, 1991
Amended - January 1, 1994
Amended - March 1, 1994
Amended - January 1, 1995
Amended - January 1, 1996
Amended - January 1, 1998
<PAGE>
TABLE OF CONTENTS
Page
I. PURPOSE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
II. DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2.01 Base Compensation. . . . . . . . . . . . . . . . . . 1
2.02 Beneficial Owner. . . . . . . . . . . . . . . . . . 1
2.03 Board. . . . . . . . . . . . . . . . . . . . . . . . 1
2.04 Bonus Award. . . . . . . . . . . . . . . . . . . . . 1
2.05 Change in Control. . . . . . . . . . . . . . . . . . 2
2.06 Exchange Act. . . . . . . . . . . . . . . . . . . . 2
2.07 Financial Objective. . . . . . . . . . . . . . . . . 3
2.08 A Major Transaction. . . . . . . . . . . . . . . . . 3
2.09 Management Committee.. . . . . . . . . . . . . . . . 4
2.10 New England Electric System. . . . . . . . . . . . . 4
2.11 Participant. . . . . . . . . . . . . . . . . . . . . 4
2.12 Performance Benchmarks.. . . . . . . . . . . . . . . 4
2.13 Person.. . . . . . . . . . . . . . . . . . . . . . . 5
2.14 Plan Year. . . . . . . . . . . . . . . . . . . . . . 5
2.15 Senior Incentive Compensation Plan.. . . . . . . . . 5
2.16 Strategic Objectives.. . . . . . . . . . . . . . . . 5
2.17 System.. . . . . . . . . . . . . . . . . . . . . . . 5
III. ADMINISTRATION.. . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.01 Administration and Interpretation. . . . . . . . . . 6
3.02 Amendment or Termination.. . . . . . . . . . . . . . 6
3.03 No Segregation of Assets; No Assignment. . . . . . . 6
3.04 Participant List.. . . . . . . . . . . . . . . . . . 7
3.05 Effectuation of Interest.. . . . . . . . . . . . . . 7
3.06 Accounting.. . . . . . . . . . . . . . . . . . . . . 7
IV. PARTICIPATION. . . . . . . . . . . . . . . . . . . . . . . . . . . 7
4.01 Selection. . . . . . . . . . . . . . . . . . . . . . 7
4.02 Notification.. . . . . . . . . . . . . . . . . . . . 7
4.03 Objectives.. . . . . . . . . . . . . . . . . . . . . 7
V. PARTICIPANTS' COMPENSATION.. . . . . . . . . . . . . . . . . . . . 8
5.01 Base Compensation and Incentive Compensation.. . . . 8
VI. BASE COMPENSATION. . . . . . . . . . . . . . . . . . . . . . . . . 8
6.01 Performance Evaluation.. . . . . . . . . . . . . . . 8
VII. INCENTIVE COMPENSATION. . . . . . . . . . . . . . . . . . . . . . . 8
7.01 Incentive Compensation Amounts. . . . . . . . . . . . 8
7.02 Use of Benchmarks.. . . . . . . . . . . . . . . . . . 9
7.03 Components. . . . . . . . . . . . . . . . . . . . . . 9
7.04 Financial Objective Award.. . . . . . . . . . . . . . 9
7.05 Strategic Objective Award.. . . . . . . . . . . . . . 9
7.06 Exercise of Discretion. . . . . . . . . . . . . . . . 9
7.07 Notification of Award.. . . . . . . . . . . . . . . . 10
VIII. PAYMENT UPON CHANGE OF CONTROL. . . . . . . . . . . . . . . . . . . 10
8.01 Change of Control.. . . . . . . . . . . . . . . . . . 10
<PAGE>
IX. GENERAL PROVISIONS. . . . . . . . . . . . . . . . . . . . . . . . . 11
9.01 Other Benefit Plans.. . . . . . . . . . . . . . . . . 11
9.02 Termination of Participation; Interplan Transfer. . . 11
9.03 Future Employment.. . . . . . . . . . . . . . . . . . 11
9.04 Headings. . . . . . . . . . . . . . . . . . . . . . . 12
9.05 Gender and Number.. . . . . . . . . . . . . . . . . . 12
9.06 Governing Law.. . . . . . . . . . . . . . . . . . . . 12
9.07 Effective Date. . . . . . . . . . . . . . . . . . . . 12
SIGNATURE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
II
<PAGE>
NEW ENGLAND ELECTRIC COMPANIES'
INCENTIVE COMPENSATION PLAN III
I. PURPOSE
The purpose of this Incentive Compensation Plan III (the Plan) is to
achieve and maintain a high level of corporate performance by making it
possible for executives whose efforts and responsibilities have an influence
on corporate earnings to earn compensation rewards in proportion to (i)
corporate achievement of financial and strategic objectives and (ii) the
executive's contribution thereto. This amendment, effective January 1, 1998,
is designed to focus on the post-divestiture growth and profitability of the
System.
II. DEFINITIONS
2.01 Base Compensation means the compensation referred to in Section
6.01.
2.02 Beneficial Owner shall have the meaning defined in Rule 13d-3
under the Exchange Act.
2.03 Board means the Board of Directors of New England Electric
System.
2.04 Bonus Award means the compensation referred to in Article VII.
2.05 Change in Control occurs when the conditions set forth in either
of the following paragraphs shall have been satisfied:
(a) any Person is or becomes the Beneficial Owner, directly or
indirectly, of securities of New England Electric System (not
including in the securities beneficially owned by such Person
any securities acquired directly from New England Electric
System or its affiliates) representing 20% or more of the
combined voting power of New England Electric System's then
outstanding securities; or
(b) during any period of not more than two consecutive years
individuals who at the beginning of such period constitute the
Board and any new director (other than a director designated by
a Person who has entered into an agreement with New England
Electric System to effect a transaction described in clause (a)
of this paragraph) whose election by the Board or nomination for
election by New England Electric System's shareholders was
approved or recommended by a vote of at least two-thirds of the
directors then still in office who either were directors at the
beginning of the period or whose election or nomination for
election was previously so approved or recommended cease for any
reason to constitute a majority of the Board.
2.06 Exchange Act means the Securities Exchange Act of 1934.
2.07 Financial Objective means the same annual financial target
established under Article IV of the Senior Incentive Compensation Plan for the
Plan Year.
2.08 A Major Transaction shall be deemed to have occurred if the
conditions set forth in any one of the following paragraphs shall have been
satisfied:
<PAGE>
(a) the shareholders of New England Electric System approve a
merger or consolidation with any corporation or business
trust, other than (i) a merger or consolidation which
would result in the individuals who prior to such merger
or consolidation constitute the Board constituting at
least two-thirds of the board of directors of New England
Electric System or the surviving or succeeding entity
immediately after such merger or consolidation, or (ii) a
merger or consolidation effected to implement a
recapitalization (or similar transaction) in which no
Person acquires more than 20% of the combined voting
power of New England Electric System's then outstanding
securities;
(b) the shareholders of New England Electric System approve a
plan of complete liquidation thereof; or
(c) the shareholder of New England Electric System approve an
agreement for the sale or disposition of all or
substantially all of New England Electric System's
assets, other than a sale or disposition which would
result in the individuals who prior to such sale or
disposition constitute the Board constituting at least
two-thirds of the board of directors of the Person
purchasing such assets immediately after such sale or
disposition.
2.09 Management Committee means the Chief Executive Officer of New
England Electric System and the Chairman of New England Electric System.
2.10 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.
2.11 Participant means an individual who has been selected, in
accordance with Section 4.01, or an equivalent prior provision, to be a
participant in the Plan.
2.12 Performance Benchmarks means those standards established by the
Management Committee to judge progress toward achievement of the Financial
Objective and each Strategic Objective. Individual objective or subjective
performance measures may also be developed for each Participant to assist in
the evaluation of his or her contribution toward the corporate achievement of
the Strategic Objectives assigned to the individual.
2.13 Person shall have the meaning given in Section 3(a)(9) of the
Exchange Act, as modified and used in Sections 13(d) and 14(d) thereof;
however, a Person shall not include (i) New England Electric System or any
subsidiary thereof, (ii) a trustee or other fiduciary holding securities under
an employee benefit plan of New England Electric System or any subsidiary
thereof, (iii) an underwriter temporarily holding securities pursuant to an
offering of such securities, or (iv) a corporation owned, directly or
indirectly, by the shareholders of New England Electric System in
substantially the same proportions as their ownership of shares of New England
Electric System.
<PAGE>
2.14 Plan Year means a calendar year.
2.15 Senior Incentive Compensation Plan means New England Electric
Companies' Senior Incentive Compensation Plan, as amended from time to time.
2.16 Strategic Objectives means the same Strategic Objectives
established under Article IV of the Senior Incentive Compensation Plan for the
Plan Year.
2.17 System means the New England Electric System holding company
system.
III. ADMINISTRATION
3.01 Administration and Interpretation. The Plan shall be
administered by the Management Committee, and interpretations of the Plan by
the Management Committee shall be final and binding by all parties.
3.02 Amendment or Termination. The Management Committee may amend
or terminate the Plan at any time, provided that:
(a) no such action shall affect any right or obligation with respect
to any Bonus Award previously granted;
(b) the provisions of Article VII and Sections 2.05 and 2.08 may not
be amended without the written consent of any Participant
affected; and
(c) no amendment or termination of the Plan may be made after a
Major Transaction unless the shareholders have rescinded their
approval.
3.03 No Segregation of Assets; No Assignment. The New England
Electric System is not required to set aside or segregate any assets of any
kind to meet obligations under this Plan. A Participant has no rights under
this Plan to any specific assets of the New England Electric System. A
Participant may not commute, sell, assign, transfer, or otherwise convey the
right to receive any payments under this Plan, which payments and the right
thereto shall be, to the fullest extent permited by law, nonassignable and
nontransferable, whether voluntarily or involuntarily.
3.04 Participant List. The Management Committee shall be responsible
for maintaining an up-to-date list of the Participants in the Plan.
3.05 Effectuation of Interest. In the event it should become
impossible for the System or the Management Committee to perform any act
required by the Plan, the System or the Management Committee may perform such
other act as it in good faith determines will most nearly carry out the intent
and purpose of the Plan.
3.06 Accounting. The Manager of Internal Audits and the Controller
will be responsible to the Management Committee for accounting matters
directly affecting the Plan.
IV. PARTICIPATION
4.01 Selection. The Participants in the Plan will be selected by the
Senior Management.
<PAGE>
4.02 Notification. The member of senior management to whom the
Participant reports shall notify him or her of their inclusion in the Plan for
the following year.
4.03 Objectives. All Participants will have the Financial Objective.
Individual Participants may participate in different Strategic Objectives.
Further, their Strategic Objectives may be differently weighted. The member
of senior management to whom the Participant reports shall determine such
objectives and weighting. Participants will be advised of their Strategic
Objectives prior to the Plan Year for which they apply.
V. PARTICIPANTS' COMPENSATION
5.01 Base Compensation and Incentive Compensation. The compensation
for each Participant will consist of two parts: Base Compensation and
Incentive Compensation.
VI. BASE COMPENSATION
6.01 Performance Evaluation. A Participant's performance will be
evaluated and his or her compensation, including any merit or promotional
increase, will be set in accordance with the New England Electric Salary
Management Program
VII. INCENTIVE COMPENSATION
7.01 Incentive Compensation Amounts. When the books are closed at
the end of a Plan Year, the member of senior management to whom the
Participant reports will recommend to the Management Committee and the
Management Committee will determine the appropriate amount to be awarded each
Participant, and this money will be distributed to the Participants by the
March 15 following the Plan Year.
7.02 Use of Benchmarks. Senior management and the Management
Committee will use the Performance Benchmarks and individual performance
measures as guides to evaluate each Participant's achievement in each area.
7.03 Components. The Bonus Award has two components: a Financial
Objective Award and a Strategic Objectives Award. The targeted Strategic
Objective Award is 7.5% of Base Compensation. The targeted Financial
Objective Award is 4.5% of Base Compensation and the maximum Financial
Objective Award is 7.5%.
7.04 Financial Objective Award. The calculation of the Financial
Objective Award will parallel the calculation under the New England Electric
Companies' Senior Incentive Compensation Plan. If the Financial Objective
Benchmark is achieved, full targeted credit will be given for this target.
The Financial Objective Bonus Award will be adjusted up or down to reflect
income greater than, or less than, the Benchmark.
7.05 Strategic Objective Award. Each Participant's award shall be
governed by the contribution of the Participant toward meeting his or her
Strategic Objectives. The Strategic Objective Bonus Award will be adjusted
downward to reflect shortfalls in Performance Benchmark achievement.
7.06 Exercise of Discretion. Senior management and the Management
Committee are expected to use their judgment in evaluating performance with
the Objectives and Benchmarks as standards, not cliffs. The Management
Committee may reduce bonuses from those calculated by the formula if
circumstances warrant. The Management Committee may also award bonuses
<PAGE>
outside those calculated by the formula. Further, the Management Committee
retains the discretion, from time to time, to add or delete Strategic
Objectives and adjust Benchmarks as it deems appropriate.
7.07 Notification of Award. The member of Senior Management to whom
the Participant reports shall be responsible for seeing that he or she is told
the basis for the size of his or her Bonus Award.
VIII. PAYMENT UPON CHANGE OF CONTROL
8.01 Change of Control. In the event of a Change in Control or Major
Transaction, each Participant will receive, within 30 days of the consummation
of the Change in Control or of the transaction approved by the Major
Transaction, a cash payment equal to the average of the bonus percentages for
this Plan for the last three years for this Plan prior to the Change in
Control or Major Transaction times the Participant's annualized Base
Compensation. Further, if the consummation of the Change in Control or of the
transaction approved by the Major Transaction occurs prior to the
determination and payment of the Bonus Award for the prior Plan Year, the
Participant will also receive within 30 days a cash payment equal to said
percentage times the Participant's Base Compensation received in the prior
Plan Year. No further benefits will be payable from this Plan.
IX. GENERAL PROVISIONS
9.01 Other Benefit Plans. Bonus Awards will not be used in
determining a Participant's benefits under any group insurance plan or any
incentive program other than New England Electric Companies' Incentive Share
Plan. Bonus Awards will be included in pension plan calculations to the
extent otherwise provided in these plans.
9.02 Termination of Participation; Interplan Transfer. If, for any
reason, a Participant should cease to be actively employed by a subsidiary of
the New England Electric System prior to July 1 of a Plan Year, that person
will not be deemed a Participant for that year, unless the member of the
Management Committee determines there are extraordinary circumstances which
justify inclusion. A Participant who ceases to be so actively employed during
the last six months of a Plan year will be deemed a Participant for that year
on a proportional basis. The Management Committee will also determine the
extent, if any, of participation by the person replacing a Participant. If a
Participant becomes a participant in another incentive compensation plan
during the Plan Year, the Participant will be deemed to be a Participant for
that year on a proportional basis in each of the Plans, respectively.
9.03 Future Employment. Neither the Plan nor the making of awards
hereunder shall be construed to create any obligation to continue the Plan or
to give any present or future employee any right to continued employment.
9.04 Headings. The headings of articles and sections of the Plan are
for convenience of reference only.
9.05 Gender and Number. Unless the context requires otherwise, the
singular shall include the plural; the masculine gender shall include the
feminine; and such words as "herein," "hereinafter," "hereof," and "hereunder"
shall refer to this instrument as a whole and not merely to the subdivisions
in which such words appear.
9.06 Governing Law. Except as otherwise required by law, the Plan
and all matters arising thereunder shall be governed by the laws of The
Commonwealth of Massachusetts.
<PAGE>
9.07 Effective Date. This Amendment shall be effective January 1,
1998.
/s/ Alfred D. Houston
___________________________________
/s/ Richard P. Sergel
___________________________________
The Management Committee
In accordance with votes dated
November 24, 1997 and August 25,
1998 of the New England Electric
System Compensation Committee
<PAGE>
NEW ENGLAND ELECTRIC COMPANIES'
SENIOR INCENTIVE COMPENSATION PLAN
Adopted - March 14, 1988
Amended - May 23, 1990
Amended - November 26, 1991
Amended - January 1, 1993
Amended - January 1, 1994
Amended - January 1, 1995
Amended - January 1, 1998
<PAGE>
TABLE OF CONTENTS
Page
I. PURPOSE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
II. DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2.01 Base Compensation. . . . . . . . . . . . . . . . . . . 1
2.02 Beneficial Owner.. . . . . . . . . . . . . . . . . . . 1
2.03 Board. . . . . . . . . . . . . . . . . . . . . . . . . 1
2.04 Bonus Award. . . . . . . . . . . . . . . . . . . . . . 1
2.05 Change in Control. . . . . . . . . . . . . . . . . . . 2
2.06 Committee. . . . . . . . . . . . . . . . . . . . . . . 2
2.07 Exchange Act.. . . . . . . . . . . . . . . . . . . . . 2
2.08 Financial Objective. . . . . . . . . . . . . . . . . . 3
2.09 A Major Transaction. . . . . . . . . . . . . . . . . . 3
2.10 New England Electric System. . . . . . . . . . . . . . 4
2.11 Participant. . . . . . . . . . . . . . . . . . . . . . 4
2.12 Performance Benchmarks.. . . . . . . . . . . . . . . . 4
2.13 Person.. . . . . . . . . . . . . . . . . . . . . . . . 4
2.14 Plan Year. . . . . . . . . . . . . . . . . . . . . . . 5
2.15 Strategic Objectives.. . . . . . . . . . . . . . . . . 5
2.16 System.. . . . . . . . . . . . . . . . . . . . . . . . 5
III. ADMINISTRATION.. . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.01 Administration and Interpretation. . . . . . . . . . . 5
3.02 Amendment or Termination.. . . . . . . . . . . . . . . 5
3.03 No Segregation of Assets; No Assignment. . . . . . . . 6
3.04 Effectuation of Interes. . . . . . . . . . . . . . . . 6
IV. CORPORATE TARGETS. . . . . . . . . . . . . . . . . . . . . . . . . 6
4.01 Financial Target.. . . . . . . . . . . . . . . . . . . 6
4.02 Strategic Objectives.. . . . . . . . . . . . . . . . . 7
4.03 Use of Benchmarks. . . . . . . . . . . . . . . . . . . 7
V. BONUS AWARD. . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
5.01 Components.. . . . . . . . . . . . . . . . . . . . . . 7
5.02 Financial Objective Award. . . . . . . . . . . . . . . 7
5.03 Strategic Objective Award. . . . . . . . . . . . . . . 7
5.04 Exercise of Discretion.. . . . . . . . . . . . . . . . 8
5.05 Distribution Date. . . . . . . . . . . . . . . . . . . 8
VI. BASE COMPENSATION.. . . . . . . . . . . . . . . . . . . . . . . . 8
6.01 Performance Evaluation. . . . . . . . . . . . . . . . 8
VII. PAYMENT UPON CHANGE OF CONTROL. . . . . . . . . . . . . . . . . . 8
7.01 Change in Control.. . . . . . . . . . . . . . . . . . 8
VIII. GENERAL PROVISIONS. . . . . . . . . . . . . . . . . . . . . . . . 9
8.01 Other Benefit Plans.. . . . . . . . . . . . . . . . . 9
8.02 Rate Making.. . . . . . . . . . . . . . . . . . . . . 9
8.03 Future Employment. . . . . . . . . . . . . . . .. . . 9
8.04 Headings. . . . . . . . . . . . . . . . . . . . . . . 9
8.05 Gender and Number.. . . . . . . . . . . . . . . . . . 10
8.06 Governing Law.. . . . . . . . . . . . . . . . . . . . 10
8.07 Effective Date. . . . . . . . . . . . . . . . . . . . 10
SIGNATURE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
ii
<PAGE>
NEW ENGLAND ELECTRIC COMPANIES'
SENIOR INCENTIVE COMPENSATION PLAN
I. PURPOSE
The Senior Incentive Compensation Plan (the Plan) is intended to achieve
and maintain a high level of corporate performance by linking a significant
component of compensation to meeting financial and strategic objectives. This
amendment, effective January 1, 1998, is designed to focus efforts on the
post-divestiture growth and profitability of the New England Electric System.
II. DEFINITIONS
2.01 Base Compensation means the compensation referred to in Section
6.01 and includes all base salary, whether received or deferred.
2.02 Beneficial Owner shall have the meaning defined in Rule 13d-3
under the Exchange Act.
2.03 Board means the Board of Directors of New England Electric
System.
2.04 Bonus Award means the compensation referred to in Article V.
2.05 Change in Control occurs when the conditions set forth in either
of the following paragraphs shall have been satisfied:
(a) any Person is or becomes the Beneficial Owner, directly or
indirectly, of securities of New England Electric System (not
including in the securities beneficially owned by such Person any
securities acquired directly from New England Electric System or
its affiliates) representing 20% or more of the combined voting
power of New England Electric System's then outstanding
securities; or
(b) during any period of not more than two consecutive years
individuals who at the beginning of such period constitute the
Board and any new director (other than a director designated by a
Person who has entered into an agreement with New England
Electric System to effect a transaction described in clause (a)
of this paragraph) whose election by the Board or nomination for
election by New England Electric System's shareholders was
approved or recommended by a vote of at least two-thirds of the
directors then still in office who either were directors at the
beginning of the period or whose election or nomination for
election was previously so approved or recommended cease for any
reason to constitute a majority of the Board.
2.06 Committee means the Compensation Committee of the Board.
2.07 Exchange Act means the Securities Exchange Act of 1934.
2.08 Financial Objective means the annual financial target set by the
Board in accordance with Section 4.01.
2.09 A Major Transaction shall be deemed to have occurred if the
conditions set forth in any one of the following paragraphs shall have been
satisfied:
<PAGE>
(a) the shareholders of New England Electric System approve a merger
or consolidation with any corporation or business trust, other
than (i) a merger or consolidation which would result in the
individuals who prior to such merger or consolidation constitute
the Board constituting at least two-thirds of the board of
directors of New England Electric System or the surviving or
succeeding entity immediately after such merger or consolidation,
or (ii) a merger or consolidation effected to implement a
recapitalization (or similar transaction) in which no Person
acquires more than 20% of the combined voting power of New
England Electric System's then outstanding securities;
(b) the shareholders of New England Electric System approve a plan of
complete liquidation thereof; or
(c) the shareholder of New England Electric System approve an
agreement for the sale or disposition of all or substantially all
of New England Electric System's assets, other than a sale or
disposition which would result in the individuals who prior to
such sale or disposition constitute the Board constituting at
least two-thirds of the board of directors of the Person
purchasing such assets immediately after such sale or
disposition.
2.10 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.
2.11 Participant means the Chairman and the President of New England
Electric System, if they are employees of a System company, and such other
individuals as the Board may select.
2.12 Performance Benchmarks means those standards established by the
Committee in accordance with Sections 4.01 and 4.02 to judge progress toward
achievement of the Financial Objective and each specific Strategic Objective.
2.13 Person shall have the meaning given in Section 3(a)(9) of the
Exchange Act, as modified and used in Sections 13(d) and 14(d) thereof;
however, a Person shall not include (i) New England Electric System or any
subsidiary thereof, (ii) a trustee or other fiduciary holding securities under
an employee benefit plan of New England Electric System or any subsidiary
thereof, (iii) an underwriter temporarily holding securities pursuant to an
offering of such securities, or (iv) a corporation owned, directly or
indirectly, by the shareholders of New England Electric System in
substantially the same proportions as their ownership of shares of New England
Electric System.
2.14 Plan Year means a calendar year.
2.15 Strategic Objectives means the goals established by the Committee
in accordance with Section 4.02 to reflect the long-term goals for the
continued viability and financial health of the Company.
2.16 System means the New England Electric System holding company
system.
<PAGE>
III. ADMINISTRATION
3.01 Administration and Interpretation. The Plan shall be
administered by the Committee, and interpretations of the Plan by the
Committee shall be final and binding on all parties.
3.02 Amendment or Termination. The Board may amend or terminate the
Plan at any time, provided that:
(a) no such action shall affect any right or obligation with respect
to any Bonus Award previously granted;
(b) the provisions of Article VII and Sections 2.05 and 2.08 may not
be amended without the written consent of any Participant
affected; and
(c) no amendment or termination of the Plan may be made after a Major
Transaction unless the shareholders have rescinded their
approval.
3.03 No Segregation of Assets; No Assignment. The New England
Electric System is not required to set aside or segregate any assets of any
kind to meet obligations under this Plan. A Participant has no rights under
this Plan to any specific assets of the System. A Participant may not
commute, sell, assign, transfer, or otherwise convey the right to receive any
payments under this Plan, which payments and the right thereto shall be, to
the fullest extent permitted by law, nonassignable and nontransferable,
whether voluntarily or involuntarily.
3.04 Effectuation of Interest. In the event it should become
impossible for the System, the Board, or the Compensation Committee to perform
any act required by the Plan, the System, the Board, or the Compensation
Committee may perform such other act as it in good faith determines will most
nearly carry out the intent and purpose of the Plan.
IV. CORPORATE TARGETS
4.01 Financial Target. The Board will establish a financial target
for each Plan Year. This will serve as the Benchmark for the Financial
Objective.
4.02 Strategic Objectives. The Compensation Committee will establish
Strategic Objectives for each Plan Year and the Performance Benchmarks for
each of these objectives. For Participants in this Plan, each Strategic
Objective will be equally weighted.
4.03 Use of Benchmarks. The Board will use these Performance
Benchmarks as guides to measure the achievement in each area.
V. BONUS AWARD
5.01 Components. The Bonus Award has two components: a Financial
Objective Award and a Strategic Objective Award. The targeted Strategic
Objective Award is 25% of Base Compensation. The targeted Financial Objective
Award is 15% of Base Compensation, and the maximum Financial Objective Award
is 25%.
5.02 Financial Objective Award. If the Financial Objective Benchmark
is achieved, the target credit will be given. The Financial Objective Bonus
Award will be adjusted up or down to reflect results greater than, or less
than, the Benchmark.
<PAGE>
5.03 Strategic Objective Award. If each Benchmark is fully met, the
maximum Strategic Objective Bonus Award will be granted. The Strategic
Objective Bonus Award will be adjusted downward to reflect shortfalls in
Performance Benchmark achievement.
5.04 Exercise of Discretion. The Board is expected to use its
judgment in evaluating performance, with the Objectives and Benchmarks as
standards, not cliffs. The Board may reduce bonuses from those calculated by
the formula if circumstances warrant. The Board may also award bonuses
outside those calculated by the formula. Further, the Committee retains the
discretion, from time to time, to add or delete Strategic Objectives and to
adjust Benchmarks as it deems appropriate.
5.05 Distribution Date. The Bonus Award shall be distributed to the
Participants by the March 15 following the Plan Year.
VI. BASE COMPENSATION
6.01 Performance Evaluation. A Participant's performance will be
evaluated and his or her compensation, including any merit or promotional
increase, will be set by the Board in accordance with the New England Electric
Salary Management Program.
VII. PAYMENT UPON CHANGE OF CONTROL
7.01 Change in Control. In the event of a Change in Control or a
Major Transaction, each Participant will receive, within 30 days of the
consummation of the Change in Control or of the transaction approved by the
Major Transaction, a cash payment equal to the average of the bonus
percentages for this Plan for the last three years for this Plan prior to the
Change in Control or Major Transaction times the Participant's annualized Base
Compensation. Further, if the consummation of the Change in Control or of
the transaction approved by the Major Transaction occurs prior to the
determination and payment of the Bonus Award for the prior Plan Year, the
Participant will also receive within 30 days a cash payment equal to said
percentage times the Participant's Base Compensation received in the prior
Plan Year. No further benefits will be payable from this Plan.
VIII. GENERAL PROVISIONS
8.01 Other Benefit Plans. Bonus Awards will not be used in
determining a Participant's benefit under any group insurance plan or any
other incentive program, other than New England Electric Companies' Incentive
Share Plan. Bonus Awards will be included in pension plan calculations to the
extent otherwise provided in those plans.
8.02 Rate Making. Bonus Awards shall not be included for rate-making
purposes.
8.03 Future Employment. Neither the Plan nor the making of awards
hereunder shall be construed to create any obligation to continue the Plan or
to give any present or future employee any right to continued employment.
8.04 Headings. The headings of articles and sections of the Plan are
for convenience of reference only.
8.05 Gender and Number. Unless the context requires otherwise, the
singular shall include the plural; the masculine gender shall include the
feminine; and such words as "herein," "hereinafter," "hereof," and "hereunder"
shall refer to this instrument as a whole and not merely to the subdivisions
in which such words appear.
<PAGE>
8.06 Governing Law. Except as otherwise required by law, the Plan and
all matters arising thereunder shall be governed by the laws of The
Commonwealth of Massachusetts.
8.07 Effective Date. This Amendment shall be effective January 1,
1998.
/s/ George M. Sage
________________________________________
Chairman, Compensation Committee
Pursuant to Votes of November 25, 1997
AND September 22, 1998 of the Board of
Directors
<PAGE>
AMENDMENT TO
NEW ENGLAND ELECTRIC SYSTEM
DIRECTORS DEFERRED COMPENSATION PLAN
Pursuant to the provisions of Article V of the New England Electric
System Directors Deferred Compensation Plan, said Plan is hereby amended
effective as of December 1, 1997, as follows:
Section 4.04(A) is amended to read:
"4.04 Payment of Balances.
(A) Election of Time of Payment.
(i) At the time of electing to defer Compensation, in
accordance with subsection 4.01, the Participant shall
also elect whether to receive payment after ten years
or upon Retirement.
(ii) Six months or more prior to the scheduled commencement
of payment(s) (or later if Retirement is unplanned but
not after commencement of payments), a Participant,
who has previously elected to receive payment upon
Retirement, may request the Compensation Committee, at
its sole discretion, to approve a change in the payout
schedule to either a lump sum, or three, five, or ten
annual payments commencing upon Retirement."
Section 4.04(C) is amended to read:
"(C) Payments at Retirement. If the Participant has elected
payment at Retirement, the Participant's full Cash and Share
Account Balances shall be paid in ten annual payments (or if the
Participant has elected at the time of electing the deferral, in a
lump sum or in three, five, or ten annual payments) commencing at
such date."
/s/ George M. Sage
________________________________________
Chairman
Pursuant to Vote of November 24, 1997, of
the Compensation Committee
<PAGE>
AMENDMENT TO
NEW ENGLAND ELECTRIC SYSTEM
DIRECTORS DEFERRED COMPENSATION PLAN
Pursuant to the provisions of Article V of the New England Electric
System Directors Deferred Compensation Plan, Section 4.04(G) of said Plan is
hereby amended effective as of February 28, 1998, to read as follows:
(G) Form of Payments. Except as provided herein, any
distribution from a Cash Account will be in cash. Any distribution from
a Share Account will be in the form of Shares. Transaction costs
associated with the sale of Shares at the time of distribution will be
reimbursed by the Company.
/s/ George M. Sage
__________________________________________
Chairman
Pursuant to Vote of February 24, 1998, of
the Compensation Committee
<PAGE>
Amendment to
New England Electric Companies'
Long-Term Performance Share Award Plan
Section 3.02 is amended to read:
3.02 Amendment and Termination. The Committee may amend or
terminate the Plan at any time, provided that:
(a) no such action shall affect any right or obligation with
respect to any Performance Shares allocated to a
Participant's account;
(b) the provisions of Sections 2.05, 2.10, and 5.01 may not be
amended without the written consent of any Participant
affected; and
(c) no amendment or termination of the Plan may be made after a
Major Transaction unless the shareholders have rescinded
their approval.
The second paragraph of Section 4.05 is amended to read:
Any award will be distributed in the form of Shares. Transaction costs
associated with the sale of Shares at the time of such award will be
reimbursed by the Employer.
Section 5.01 is amended to read:
5.01 Change in Control. In the event of a Change in Control or a
Major Transaction, each Participant will receive, within 30 days of the
consummation of the Change in Control or of the transaction approved by
the Major Transaction, shares equal to the product of "a" times "b",
where:
"a" is the number of Performance Shares in the Participant's
account, and
"b" is
(i) for performance cycles through December 31, 2000: the
average of the target achievement percentages for the
Incentive Compensation Plan I for the last three years
prior to the consummation of the Change in Control or
of the transaction approved by the Major Transaction
and
(ii) for performance cycles ending after December 31, 2000:
the average of the goal achievements for this Plan for
the last three years prior to the consummation of the
Change in Control or of the transaction approved by
the Major Transaction.
/s/ George M. Sage
___________________________________
Chairman
Pursuant to Vote of February 24,
1998 and August 25, 1998 of the
Compensation Committee
<PAGE>
NEW ENGLAND ELECTRIC SYSTEM
DIRECTORS RETIREMENT PLAN
May 1, 1994
Amended December 11, 1998
<PAGE>
New England Electric System
Directors Retirement Plan
TABLE OF CONTENTS
Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1. Beneficial Owner. . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. Board. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
3. Change in Control. . . . . . . . . . . . . . . . . . . . . . . . . . 1
4. Committee.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
5. New England Electric System. . . . . . . . . . . . . . . . . . . . . 2
6. A Major Transaction. . . . . . . . . . . . . . . . . . . . . . . . . 2
7. Participant. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
8. Person.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
9. Retainer.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
10. Qualified Plan.. . . . . . . . . . . . . . . . . . . . . . . . . . . 4
11. Quarter of Service.. . . . . . . . . . . . . . . . . . . . . . . . . 4
Plan Benefits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1. Retirement Benefit. . . . . . . . . . . . . . . . . . . . . . . . . 5
2. Form of Payment. . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3. Termination of Benefits. . . . . . . . . . . . . . . . . . . . . . . 5
4. No Death Benefits. . . . . . . . . . . . . . . . . . . . . . . . . . 5
Administration and Claims. . . . . . . . . . . . . . . . . . . . . . . . . 5
Government Regulations. . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Nonassignment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Provisions of Benefits. . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Vesting. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Change in Control. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Amendment or Discontinuance. . . . . . . . . . . . . . . . . . . . . . . . 7
Effective Date. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
<PAGE>
NEW ENGLAND ELECTRIC SYSTEM
DIRECTORS RETIREMENT PLAN
Definitions
When used in this Plan, the following words will have the meaning given below:
1. Beneficial Owner shall have the meaning defined in Rule 13d-3 under the
Exchange Act.
2. Board means the Board of Directors of New England Electric System.
3. Change in Control occurs when the conditions set forth in either of the
following paragraphs shall have been satisfied:
(a) any Person is or becomes the Beneficial Owner, directly or
indirectly, of securities of New England Electric System (not
including in the securities beneficially owned by such Person any
securities acquired directly from New England Electric System or
its affiliates) representing 20% or more of the combined voting
power of New England Electric System's then outstanding
securities; or
(b) during any period of not more than two consecutive years after
January 1, 1995, individuals who at the beginning of such period
constitute the Board and any new director (other than a director
designated by a Person who has entered into an agreement with New
England Electric System to effect a transaction described in
clause (a) of this paragraph) whose election by the Board or
nomination for election by New England Electric System's
shareholders was approved or recommended by a vote of at least
two-thirds of the directors then still in office who either were
directors at the beginning of the period or whose election or
nomination for election was previously so approved or recommended,
cease for any reason to constitute a majority of the Board.
4. Committee means the Compensation Committee of the Board.
5. 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.
6. A Major Transaction shall be deemed to have occurred if the conditions
set forth in any one of the following paragraphs shall have been
satisfied:
(a) the shareholders of New England Electric System approve a merger
or consolidation with any corporation or business trust, other
than (i) a merger or consolidation which would result in the
individuals who prior to such merger or consolidation constitute
the Board constituting at least two-thirds of the board of
directors of New England Electric System or the surviving or
succeeding entity or any parent thereof immediately after such
<PAGE>
merger or consolidation, or (ii) a merger or consolidation
effected to implement a recapitalization of the Company (or
similar transaction) in which no Person acquires more than 20% of
the combined voting power of New England Electric System's then
outstanding securities;
(b) the shareholders of New England Electric System approve a plan of
complete liquidation thereof; or
(c) the shareholder of New England Electric System approve an
agreement for the sale or disposition of all or substantially all
of New England Electric System's assets, other than a sale or
disposition which would result in the individuals who prior to
such sale or disposition constitute the Board constituting at
least two-thirds of the board of directors of the Person
purchasing such assets immediately after such sale or disposition.
7. Participant means any non-employee director of the New England Electric
System.
8. Person shall have the meaning given in Section 3(a)(9) of the Exchange
Act, as modified and used in Sections 13(d) and 14(d) thereof; however,
a Person shall not include (i) New England Electric System or any
subsidiary thereof, (ii) a trustee or other fiduciary holding securities
under an employee benefit plan of New England Electric System or any
subsidiary thereof, (iii) an underwriter temporarily holding securities
pursuant to an offering of such securities, or (iv) a corporation owned,
directly or indirectly, by the shareholders of New England Electric
System in substantially the same proportions as their ownership of
shares of New England Electric System.
9. Retainer means the annualized cash retainer paid for service on the
Board (excluding retainers for service on committees, retainers for
service as an officer of a Committee or the Board, any meeting fees or
expenses, and the value of shares granted under the New England Electric
System Director Share Plan) determined as of the quarter immediately
preceding the Participant's termination of service.
10. Qualified Plan means the New England Electric System Companies' Final
Average Pay Pension Plan I.
11. Quarter of Service means a calendar quarter for all or any portion of
which the Participant served as a member of the Board, excluding any
quarter during which the Participant was an employee of the New England
Electric System or any of its subsidiaries.
Plan Benefits
1. Retirement Benefit
A Participant shall be entitled to receive under this plan an annual
retirement benefit (payable on a quarterly basis) equal to (a) times
(b), where:
(a) is the Retainer and
(b) is: (i) 100%, if the Participant has 40 or more
Quarters of Service, or
<PAGE>
(ii) 75%, if the Participant has 20 or more but less
than 40 Quarters of Service.
No retirement benefit shall be payable if the Participant has less than
20 Quarters of Service.
2. Form of Payment
Retirement benefits shall be paid in cash on the first business day of
each calendar quarter following the later of the Participant's
termination of service or age 60.
3. Termination of Benefits
Benefits shall cease at the Participant's death.
4. No Death Benefits
There are no death benefits hereunder nor any retirement benefits
payable to anyone other than the Participant.
Administration and Claims
The Committee shall have for this Plan the same powers, indemnities, and
duties, including, but not limited to, the procedures for denied claims, as
the benefits committee and the benefits appeal committee have for the
Qualified Plan.
Government Regulations
It is intended that this Plan will comply with all applicable laws and
governmental regulations, and the Company shall not be obligated to perform an
obligation hereunder in any case where, in the opinion of the Company's
counsel, such performance would result in violation of any law or regulation.
Nonassignment
To the fullest extent permitted by law, no benefit under the Plan, nor any
other interest hereunder of any Participant, may be assigned or alienated.
Provisions of Benefits
This Plan will be unfunded. Benefits will be paid from the operating revenues
of the Company. A Participant's rights to benefits under this Plan shall be
those of an unsecured, general creditor of the Company.
Vesting
A Participant's accrued benefits shall be 100% vested after twenty Quarters of
Service.
Change in Control
If a Participant's service on the Board is terminated following a Change in
Control or a Major Transaction, if he or she has less than 40 quarters, he or
she will receive enough additional quarters to equal 40.
<PAGE>
Amendment or Discontinuance
The Committee may amend or discontinue the Plan at any time; provided that no
modification shall reduce a benefit which a Participant was eligible to
receive under the Plan if he or she had terminated service at the time of such
amendment or discontinuance.
Effective Date
This Amendment shall be effective December 11, 1998.
/s/ George M. Sage
_________________________________________
Chairman of the Compensation Committee
<PAGE>
AGREEMENT
BETWEEN
NEW ENGLAND ELECTRIC SYSTEM
AND
___________________________
Dated November 1, 1998
<PAGE>
TABLE OF CONTENTS
Page
1. Defined Terms. . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. Term of Agreement. . . . . . . . . . . . . . . . . . . . . . . . . 1
3. Company's Covenants Summarized.. . . . . . . . . . . . . . . . . . 2
4. The Executive's Covenants. . . . . . . . . . . . . . . . . . . . . 2
5. Compensation Other Than Severance Payments.. . . . . . . . . . . . 3
6. Severance Payments.. . . . . . . . . . . . . . . . . . . . . . . . 4
7. Termination Procedures and Compensation During Dispute.. . . . . . 10
8. No Mitigation. . . . . . . . . . . . . . . . . . . . . . . . . . . 12
9. Successors; Binding Agreement. . . . . . . . . . . . . . . . . . . 12
10. Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
11. Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . . . 14
12. Validity.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
13. Counterparts.. . . . . . . . . . . . . . . . . . . . . . . . . . . 14
14. Settlement of Disputes; Arbitration. . . . . . . . . . . . . . . . 15
15. Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
<PAGE>
AGREEMENT
THIS AGREEMENT dated November 1, 1998, is made by and between New
England Electric System, a Massachusetts business trust (the Company), and
_________________ (the Executive).
WHEREAS the Company considers it essential to the best interests
of its shareholders to foster the continuous employment of key management
personnel; and
WHEREAS the Board of Directors of the Company (the Board)
recognizes that, as is the case with many publicly-held companies, the
possibility of a Change in Control or a Major Transaction (as defined in the
last Section hereof) exists and that such possibility, and the uncertainty and
questions which it may raise among management, may result in the departure or
distraction of management personnel to the detriment of the Company and its
shareholders; and
WHEREAS the Board has determined that appropriate steps should be
taken to reinforce and encourage the continued attention and dedication of
members of the management of the Company and its subsidiaries (collectively,
the System), including the Executive, to their assigned duties without
distraction in the face of potentially disruptive circumstances arising from
the possibility of a Change in Control or a Major Transaction;
NOW THEREFORE, in consideration of the premises and the mutual
covenants herein contained, the Company and the Executive hereby agree as
follows:
1. Defined Terms. The definitions of capitalized terms used in this
Agreement are provided in the last Section hereof.
2. Term of Agreement. This Agreement shall commence on the date
hereof and shall continue in effect through December 31, 2000; provided,
however, that commencing on January 1, 1999 and each January 1 thereafter, the
term of this Agreement shall automatically be extended for one additional year
unless, not later than September 30 of the preceding year, the Company or the
Executive shall have given notice not to extend this Agreement or a Change in
Control or a Major Transaction shall have occurred prior to such January 1;
provided, however, if a Change in Control or a Major Transaction shall have
occurred during the term of this Agreement, this Agreement shall continue in
effect for a period of thirty-six months beyond the month in which such Change
in Control or Major Transaction occurred.
3. Company's Covenants Summarized. In order to induce the Executive
to remain in the employ of the NEES Companies and in consideration of the
Executive's covenants set forth in Section 4 hereof, the Company agrees, under
the conditions described herein, to pay the Executive the Severance Payments
described in Section 6.1 hereof and the other payments and benefits described
herein in the event the Executive's employment with the NEES Companies is
terminated following a Change in Control or a Major Transaction and during the
term of this Agreement. The obligations of the Company hereunder shall be
deemed satisfied to the extent payments are made by any NEES Company. No
amount or benefit shall be payable under this Agreement unless there shall
have been (or, under the terms hereof, there shall be deemed to have been) a
termination of the Executive's employment with the NEES Companies following a
Change in Control or a Major Transaction. This Agreement shall not be
construed as creating an express or implied contract of employment and, except
as otherwise agreed in writing between the Executive and the Company, the
Executive shall not have any right to be retained in the employ of the NEES
Companies.
<PAGE>
4. The Executive's Covenants. The Executive agrees that, subject to
the terms and conditions of this Agreement, in the event of a Potential Change
in Control or a Potential Major Transaction during the term of this Agreement,
the Executive will remain in the employ of the NEES Companies until the
earliest of (i) a date which is twelve months from the date of such Potential
Change of Control or Potential Major Transaction, (ii) the date of a Change in
Control or a Major Transaction, (iii) the date of termination by the Executive
of the Executive's employment for Good Reason (determined by treating the
Potential Change in Control or Potential Major Transaction as a Change in
Control or a Major Transaction, as applicable, in applying the definition of
Good Reason), by reason of death or Disability or Retirement, or (iv) the
termination by the NEES Companies of the Executive's employment for any
reason.
5. Compensation Other Than Severance Payments.
5.1 Following a Change in Control or a Major Transaction and
during the term of this Agreement, during any period that the Executive fails
to perform the Executive's full-time duties with the NEES Companies as a
result of incapacity due to physical or mental illness, the Company shall
provide the Executive with disability benefits equivalent to those under the
Disability Insurance Plan (without regard to any amendment to such plan made
subsequent to the Change in Control or Major Transaction which amendment
adversely affect the Executive's rights thereunder) until the Executive's
employment is terminated by the Employer for Disability.
5.2 If the Executive's employment shall be terminated for any
reason following a Change in Control or a Major Transaction and during the
term of this Agreement, the Company shall pay the Executive's full salary to
the Executive through the Date of Termination at the rate in effect at the
time the Notice of Termination is given, together with all compensation and
benefits payable to the Executive through the Date of Termination under the
terms of any compensation or benefit plan, program or arrangement maintained
by the Employer during such period; except to the extent that the Executive is
receiving payments with respect to such period, or a portion thereof, in
accordance with Section 5.1.
5.3 If the Executive's employment shall be terminated for any
reason following a Change in Control or a Major Transaction and during the
term of this Agreement, the Company shall pay to the Executive the normal
post-termination compensation and benefits due the Executive as such payments
become due. Such post-termination compensation and benefits shall be
determined under, and paid in accordance with, the System's applicable
retirement, insurance and other compensation or benefit plans, programs and
arrangements. Provided that the benefits payable to the Executive pursuant to
the Standard Severance Plan for Non-Union Employees (the Severance Plan) or
its successor do not exceed benefits payable to the Executive under this
Agreement, the Executive hereby waives all rights to benefits pursuant to the
Severance Plan.
6. Severance Payments.
6.1 Subject to Section 6.2 hereof, the Company shall pay the
Executive the payments described in this Section 6.1 (the Severance Payments)
upon the termination of the Executive's employment following a Change in
Control or a Major Transaction and during the term of this Agreement, in
addition to the payments and benefits described in Section 5 hereof, unless
such termination is (i) by the Employer for Cause, (ii) by reason of death,
Disability or Retirement, or (iii) by the Executive without Good Reason. The
Executive's employment shall be deemed to have been terminated following a
Change in Control or a Major Transaction by the Employer without cause or by
the Executive with Good Reason if the Executive's employment is terminated
prior to a Change in Control or a Major Transaction without cause at the
direction of a Person who has entered into an agreement with the Company the
<PAGE>
consummation of which will constitute a Change in Control or a Major
Transaction, or if the Executive terminates his employment with Good Reason
prior to a Change in Control or a Major Transaction (determined by treating a
Potential Change in Control or Potential Major Transaction as a Change in
Control or a Major Transaction, as applicable, in applying the definition of
Good Reason) if the circumstance or event which constitutes Good Reason occurs
at the direction of such Person.
(A) In lieu of any further salary payments to the
Executive for periods subsequent to the Date of Termination, the Company shall
pay to the Executive a lump sum severance payment, in cash, equal to two times
the sum of (i) the higher of the Executive's annual base salary in effect as
of the Date of Termination or in effect immediately prior to the Change in
Control or Major Transaction, and (ii) the higher of the average amount paid
to the Executive pursuant to the New England Electric Companies' Senior
Incentive Compensation Plan, New England Electric Companies' Incentive
Compensation Plan I, II, or III, and the New England Electric Companies'
Incentive Share Plan or successors of any such plans, with respect to the
three years preceding the year in which the Date of Termination occurs or the
average amount paid with respect to the three years preceding the year in
which the Change in Control or Major Transaction occurs.
(B) In addition to the retirement benefits to which the
Executive is entitled under each Pension Plan or any successor plan thereto,
the Company shall pay the Executive a lump sum amount, in cash, equal to the
excess of (x) the actuarial equivalent of the retirement pension (taking into
account any early retirement subsidies associated therewith and determined as
a straight life annuity commencing at the later of age 55 or the second
anniversary of the Date of Termination) which the Executive would have accrued
under the terms of each such Pension Plan (without regard to any amendment to
such Pension Plan made subsequent to a Change in Control or a Major
Transaction, which amendment adversely affects in any manner the computation
of retirement benefits thereunder), determined as if the Executive were fully
vested thereunder and had accumulated (after the Date of Termination) twenty-
four additional months of service credit thereunder and had been credited
under each such Pension Plan during such period with compensation at the
higher of (a) Executive's compensation (as defined in such Pension Plan)
during the twelve months immediately preceding the Date of Termination or (b)
Executive's compensation (as defined in such Pension Plan) during the twelve
months immediately preceding the Change in Control or Major Transaction, over
(y) the actuarial equivalent of the retirement pension (taking into account
any early retirement subsidies associated therewith and determined as a
straight life annuity commencing at the later of age 55 or the Date of
Termination) which the Executive had accrued pursuant to the provisions of
each such Pension Plan as of the Date of Termination. For purposes of this
Section 6.1(B), "actuarial equivalent" shall be determined using the same
methods and assumptions utilized under the New England Electric Companies'
Final Average Pay Plan I (or a successor thereto) immediately prior to the
Date of Termination (without regard to any amendment of such methods and
assumptions made subsequent to a Change in Control or a Major Transaction,
which amendment results in a lower actuarial equivalent value). The discount
rate used for the calculation of benefits hereunder shall be that used by the
System for valuing the liabilities of the New England Electric Companies'
Final Average Pay Plan I (or a successor thereto) immediately prior to the
Date of Termination.
(C) If the Executive would have become entitled to
benefits under the System's post-retirement health care or life insurance
plans had his employment terminated at any time during the period of twenty-
four months after the Date of Termination, the Company shall arrange to
provide such benefits to the Executive commencing on the later of (a) the date
that such coverage would have first become available and (b) the date the
benefits described in (D) below terminate.
<PAGE>
(D) For the twenty-four month period immediately following
the Date of Termination, the Company shall arrange to provide the Executive
with life, disability, accident and health insurance benefits substantially
similar to those which the Executive is receiving immediately prior to the
Notice of Termination (without giving effect to any reduction in such benefits
subsequent to a Change in Control or a Major Transaction which reduction
constitutes Good Reason). Benefits otherwise receivable by the Executive
pursuant to this Section 6.1(D) shall be reduced to the extent comparable
benefits are actually received by or made available to the Executive without
cost during the twenty-four month period following the Executive's termination
of employment (and any such benefits actually received by the Executive shall
be reported to the Company by the Executive). If the benefits provided to the
Executive under this Section 6.1(D) shall result in a decrease, pursuant to
Section 6.2, in the Severance Payments and these Section 6.1(D) benefits are
thereafter reduced pursuant to the immediately preceding sentence because of
the receipt of comparable benefits, the Company shall, at the time of such
reduction, pay to the Executive the lesser of (a) the amount of the decrease
made in the Severance Payments pursuant to Section 6.2, or (b) the maximum
amount which can be paid to the Executive without being, or causing any other
payment to be, nondeductible by reason of section 280G of the Code.
6.2 Notwithstanding any other provisions of this Agreement, in
the event that any payment or benefit received or to be received by the
Executive in connection with a Change in Control or a Major Transaction, or
the termination of the Executive's employment (whether pursuant to the terms
of this Agreement or any other plan, arrangement or agreement with the System,
any Person whose actions result in a Change in Control or a Major Transaction
or any Person affiliated with the System or such Person) (all such payments
and benefits, including the Severance Payments, being hereinafter called Total
Payments) would be subject (in whole or part), to the Excise Tax, then the
Severance Payments shall be reduced to the extent necessary so that no portion
of the Total Payments is subject to the Excise Tax (after taking into account
any reduction in the Total Payments provided by reason of section 280G of the
Code in such other plan, arrangement or agreement) if (A) the net amount of
such Total Payments, as so reduced, (and after deduction of the net amount of
federal, state and local income tax on such reduced Total Payments) is greater
than (B) the excess of (i) the net amount of such Total Payments, without
reduction (but after deduction of the net amount of federal, state and local
income tax on such Total Payments), over (ii) the amount of Excise Tax to
which the Executive would be subject in respect of such Total Payments. For
purposes of determining whether and the extent to which the Total Payments
will be subject to the Excise Tax, (i) no portion of the Total Payments the
receipt or enjoyment of which the Executive shall have effectively waived in
writing prior to the Date of Termination shall be taken into account, (ii) no
portion of the Total Payments shall be taken into account which in the opinion
of tax counsel selected by the Company does not constitute a "parachute
payment" within the meaning of section 280G(b)(2) of the Code, (including by
reason of section 280G(b)(4)(A) of the Code) and, in calculating the Excise
Tax, no portion of such Total Payments shall be taken into account which
constitutes reasonable compensation for services actually rendered, within the
meaning of section 280G(b)(4)(B) of the Code, in excess of the Base Amount
allocable to such reasonable compensation, and (iii) the value of any noncash
benefit or any deferred payment or benefit included in the Total Payments
shall be determined by the Company in accordance with the principles of
sections 280G(d)(3) and (4) of the Code. Prior to the payment date set forth
in Section 6.3 hereof, the Company shall provide the Executive with its
calculation of the amounts referred to in this Section and such supporting
materials as are reasonably necessary for the Executive to evaluate the
Company's calculations. If the Executive objects to the Company's
calculations, the Company shall pay to the Executive such portion of the
Severance Payments (up to 100% thereof) as the Executive determines is
necessary to result in the Executive receiving the greater of clauses (A) and
(B) of this Section.
<PAGE>
6.3 The payments provided for in Section 6.1 (other than Section
6.1(D)) hereof shall be made not later than the fifth day following the Date
of Termination, provided, however, that if the amounts of such payments, and
the limitation on such payments set forth in Section 6.2 hereof, cannot be
finally determined on or before such day, the Company shall pay to the
Executive on such day an estimate, as determined in good faith by the Company,
of the minimum amount of such payments to which the Executive is clearly
entitled and shall pay the remainder of such payments (together with interest
at the rate provided in section 1274(b)(2)(B) of the Code) as soon as the
amount thereof can be determined but in no event later than the thirtieth day
after the Date of Termination. In the event that the amount of the estimated
payments exceeds the amount subsequently determined to have been due, such
excess shall constitute a loan by the Company to the Executive, payable on the
fifth business day after demand by the Company (together with interest at the
rate provided in section 1274(b)(2)(B) of the Code). At the time that
payments are made under this Section, the Company shall provide the Executive
with a written statement setting forth the manner in which such payments were
calculated and the basis for such calculations including, without limitation,
any opinions or other advice the Company has received from counsel, auditors
or consultants (and any such opinions or advice which are in writing shall be
attached to the statement).
6.4 The Company also shall pay to the Executive all legal fees
and expenses incurred by the Executive in disputing in good faith any
termination of his employment hereunder or in seeking in good faith to obtain
or enforce any benefit or right provided by this Agreement or in connection
with any tax audit or proceeding to the extent attributable to the application
of section 4999 of the Code to any payment or benefit provided hereunder.
Such payments shall be made within five business days after delivery of the
Executive's written requests for payment accompanied with such evidence of
fees and expenses incurred as the Company reasonably may require.
7. Termination Procedures and Compensation During Dispute.
7.1 Notice of Termination. After a Change in Control or a Major
Transaction and during the term of this Agreement, any purported termination
of the Executive's employment (other than by reason of death) shall be
communicated by written Notice of Termination from one party hereto to the
other party hereto in accordance with Section 10 hereof. For purposes of this
Agreement, a "Notice of Termination" shall mean a notice which shall indicate
the specific termination provision in this Agreement relied upon and shall set
forth in reasonable detail the facts and circumstances claimed to provide a
basis for termination of the Executive's employment under the provision so
indicated. Further, a Notice of Termination for Cause is required to include
a copy of a resolution duly adopted by the affirmative vote of not less than
three-quarters of the entire membership of the Board at a meeting of the Board
which was called and held for the purpose of considering such termination
(after reasonable notice to the Executive and an opportunity for the
Executive, together with the Executive's counsel, to be heard before the
Board) finding that, in the good faith opinion of the Board, the Executive was
guilty of conduct set forth in clause (i) or (ii) of the definition of Cause
herein, and specifying the particulars thereof in detail.
7.2 Date of Termination. "Date of Termination", with respect to
any purported termination of the Executive's employment after a Change in
Control or a Major Transaction and during the term of this Agreement, shall
mean (i) if the Executive's employment is terminated for Disability, thirty
days after Notice of Termination is given (provided that the Executive shall
not have returned to the full-time performance of the Executive's duties
during such thirty-day period), and (ii) if the Executive's employment is
terminated for any other reason, the date specified in the Notice of
Termination (which, in the case of a termination by the Employer, shall not be
less than thirty days (except in the case of a termination for Cause) and, in
the case of a termination by the Executive, shall not be less than fifteen
<PAGE>
days nor more than sixty days, respectively, from the date such Notice of
Termination is given).
7.3 Dispute Concerning Termination. If within fifteen days
after any Notice of Termination is given, or, if later, prior to the Date of
Termination (as determined without regard to this Section 7.3), the party
receiving such Notice of Termination notifies the other party that a dispute
exists concerning the termination, the Date of Termination shall be the date
on which the dispute is finally resolved, either by mutual written agreement
of the parties or by a final judgment, order or decree of a court of competent
jurisdiction (which is not appealable or with respect to which the time for
appeal therefrom has expired and no appeal has been perfected); provided
further that the Date of Termination shall be extended by a notice of dispute
only if such notice is given in good faith and the party giving such notice
pursues the resolution of such dispute with reasonable diligence.
7.4 Compensation During Dispute. If a purported termination
occurs following a Change in Control or a Major Transaction and during the
term of this Agreement, and such termination is disputed in accordance with
Section 7.3 hereof, the Company shall pay the Executive the full compensation
in effect when the notice giving rise to the dispute was given (including, but
not limited to, salary) and continue the Executive as a participant in all
compensation, benefit and insurance plans in which the Executive was
participating when the notice giving rise to the dispute was given, until the
dispute is finally resolved in accordance with Section 7.3 hereof. Amounts
paid under this Section 7.4 are in addition to all other amounts due under
this Agreement (other than those due under Section 5.2 hereof) and shall not
be offset against or reduce any other amounts due under this Agreement.
8. No Mitigation. The Company agrees that, if the Executive's
employment with the NEES Companies terminates during the term of this
Agreement, the Executive is not required to seek other employment or to
attempt in any way to reduce any amounts payable to the Executive by the
Company pursuant to this Agreement. Further, the amount of any payment or
benefit provided for in this Agreement (other than in Section 6.1(D) hereof)
shall not be reduced by any compensation earned by the Executive as the result
of employment by another employer, by retirement benefits, by offset against
any amount claimed to be owed by the Executive to the System, or otherwise.
9. Successors; Binding Agreement.
9.1 In addition to any obligations imposed by law upon any
successor to the Company, the Company will require any successor (whether
direct or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to expressly
assume and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place. Failure of the Company to obtain such assumption and
agreement prior to the effectiveness of any such succession shall be a breach
of this Agreement and shall entitle the Executive to compensation from the
Company in the same amount and on the same terms as the Executive would be
entitled to hereunder if the Executive were to terminate the Executive's
employment for Good Reason after a Change in Control or a Major Transaction,
except that, for purposes of implementing the foregoing, the date on which any
such succession becomes effective shall be deemed the Date of Termination.
9.2 This Agreement shall inure to the benefit of and be
enforceable by the Executive's personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees. If
the Executive shall die while any amount would still be payable to the
Executive hereunder (other than amounts which, by their terms, terminate upon
the death of the Executive) if the Executive had continued to live, all such
amounts, unless otherwise provided herein, shall be paid in accordance with
the terms of this Agreement to the executors, personal representatives or
administrators of the Executive's estate.
<PAGE>
10. Notices. For the purpose of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid, addressed to the
respective addresses set forth below, or to such other address as either party
may have furnished to the other in writing in accordance herewith, except that
notice of change of address shall be effective only upon actual receipt:
To the Company:
New England Power Service Company
25 Research Drive
Westborough, MA 01582-0099
Attention: Director of Human Resources
To the Executive:
______________________
______________________
______________________
11. Miscellaneous. No provision of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed
to in writing and signed by the Executive and such officer as may be
specifically designated by the Board. No waiver by either party hereto at any
time of any breach by the other party hereto of, or compliance with, any
condition or provision of this Agreement to be performed by such other party
shall be deemed a waiver of similar or dissimilar provisions or conditions at
the same or at any prior or subsequent time. This Agreement supersedes any
other agreements or representations, oral or otherwise, express or implied,
with respect to the subject matter hereof. The validity, interpretation,
construction and performance of this Agreement shall be governed by the laws
of The Commonwealth of Massachusetts. All references to sections of the
Exchange Act or the Code shall be deemed also to refer to any successor
provisions to such sections. Any payments provided for hereunder shall be
paid net of any applicable withholding required under federal, state or local
law and any additional withholding to which the Executive has agreed. The
obligations of the Company and the Executive under Sections 6 and 7 shall
survive the expiration of the term of this Agreement.
12. Validity. The invalidity or unenforceability or any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
13. Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
14. Settlement of Disputes; Arbitration. All claims by the Executive
for benefits under this Agreement shall be directed to and determined by the
Board and shall be in writing. Any denial by the Board of a claim for
benefits under this Agreement shall be delivered to the Executive in writing
and shall set forth the specific reasons for the denial and the specific
provisions of this Agreement relied upon. The Board shall afford a reasonable
opportunity to the Executive for a review of the decision denying a claim and
shall further allow the Executive to appeal to the Board a decision of the
Board within sixty days after notification by the Board that the Executive's
claim has been denied. Any further dispute or controversy arising under or in
connection with this Agreement shall be settled exclusively by arbitration in
Boston, Massachusetts, in accordance with the rules of the American
Arbitration Association then in effect. Judgment may be entered on the
arbitrator's award in any court having jurisdiction; provided, however, that
the Executive shall be entitled to seek specific performance of the
<PAGE>
Executive's right to be paid until the Date of Termination during the pendency
of any dispute or controversy arising under or in connection with this
Agreement.
15. Definitions. For purposes of this Agreement, the following terms
shall have the meanings indicated below:
(A) "Beneficial Owner" shall have the meaning defined in Rule
13d-3 under the Exchange Act.
(B) "Board" shall mean the Board of Directors of the Company.
(C) "Cause" for termination by the Employer of the Executive's
employment, after any Change in Control or Major Transaction, shall mean (i)
the willful and continued failure by the Executive to substantially perform
the Executive's duties with the System (other than any such failure resulting
from the Executive's incapacity due to physical or mental illness or any such
actual or anticipated failure after the issuance of a Notice of Termination
for Good Reason by the Executive pursuant to Section 7.1) after a written
demand for substantial performance is delivered to the Executive by the Board,
which demand specifically identifies the manner in which the Board believes
that the Executive has not substantially performed the Executive's duties, or
(ii) the willful engaging by the Executive in conduct which is demonstrably
and materially injurious to the System, monetarily or otherwise. For purposes
of clauses (i) and (ii) of this definition, no act, or failure to act, on the
Executive's part shall be deemed "willful" unless done, or omitted to be done,
by the Executive not in good faith and without reasonable belief that the
Executive's act, or failure to act, was in the best interest of the System.
(D) A "Change in Control" shall be deemed to have occurred if the
conditions set forth in any one of the following paragraphs shall have been
satisfied:
(I) any Person is or becomes the Beneficial Owner, directly
or indirectly, of securities of the Company (not including in the securities
beneficially owned by such Person any securities acquired directly from the
Company or its affiliates) representing 20% or more of the combined voting
power of the Company's then outstanding securities; or
(II) during any period of not more than two consecutive
years (not including any period prior to the execution of this Agreement),
individuals who at the beginning of such period constitute the Board and any
new director (other than a director designated by a Person who has entered
into an agreement with the Company to effect a transaction described in clause
(I) of this paragraph) whose election by the Board or nomination for election
by the Company's shareholders was approved or recommended by a vote of at
least two-thirds of the directors then still in office who either were
directors at the beginning of the period or whose election or nomination for
election was previously so approved or recommended, cease for any reason to
constitute a majority thereof.
(E) "Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time.
(F) "Company" shall mean New England Electric System and any
successor to its business and/or assets which assumes and agrees to perform
this Agreement by operation of law, or otherwise (except in determining, under
Section 15(E) hereof, whether or not any Change in Control or Major
Transaction has occurred in connection with such succession).
(G) "Date of Termination" shall have the meaning stated in
Section 7.2 hereof.
<PAGE>
(H) "Disability" shall be deemed the reason for the termination
by the Employer of the Executive's employment, if, as a result of the
Executive's incapacity due to physical or mental illness, the Executive shall
have been absent from the full-time performance of the Executive's duties with
the System for a period of six consecutive months, the Company shall have
given the Executive a Notice of Termination for Disability, and, within thirty
days after such Notice of Termination is given, the Executive shall not have
returned to the full-time performance of the Executive's duties.
(I) "Disability Insurance Plan" shall mean the Company Disability
Insurance Plan or any successor thereto.
(J) "Employer" shall mean the NEES Company by which the Executive
is employed at the time of determination.
(K) "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended from time to time.
(L) "Executive" shall mean the individual named in the first
paragraph of this Agreement.
(M) "Good Reason" for termination by the Executive of the
Executive's employment shall mean the occurrence (without the Executive's
express written consent) of any one of the following acts by the System, or
failures by the System to act, unless, in the case of any act or failure to
act described in paragraph (I), (V), (VI), (VII), or (VIII) below, such act or
failure to act is corrected prior to the Date of Termination specified in the
Notice of Termination given in respect thereof:
(I) the assignment to the Executive of duties substantially
inconsistent with the Executive's status as an executive officer of the
System;
(II) a reduction in the Executive's annual base salary as
in effect on the date hereof or as the same may be increased from time to
time;
(III) requiring the Executive to be based at a location
more than 100 miles from the town of Westborough, Massachusetts, except for
required travel on the System's business to an extent substantially consistent
with the Executive's present business travel obligations;
(IV) the failure by the Employer, to pay to the Executive
any portion of the Executive's compensation within seven days of the date such
compensation is due;
(V) the failure by the System to continue in effect any
compensation plan in which the Executive participates immediately prior to the
Change in Control or the Major Transaction which is material to the
Executive's total compensation, including but not limited to the New England
Electric Companies' Incentive Compensation Plan I, New England Electric
Companies' Incentive Compensation Plan II, New England Electric Companies'
Senior Incentive Compensation Plan, New England Electric Companies' Incentive
Share Plan, New England Electric Systems Companies' Deferred Compensation Plan
and the New England Electric Companies' Executive Supplemental Retirement Plan
or any substitute plans adopted prior to the Change in Control or Major
Transaction, unless an equitable arrangement (embodied in an ongoing
substitute or alternative plan) has been made with respect to such plan, or
the failure by the System to continue the Executive's participation therein
(or in such substitute or alternative plan) on a basis not substantially less
favorable, both in terms of the amount of benefits provided and the level of
the Executive's participation relative to other participants, as existed at
the time of the Change in Control or Major Transaction;
<PAGE>
(VI) the failure by the System to continue to provide the
Executive with benefits substantially similar to those enjoyed by the
Executive under any of the System's pension, life insurance, medical, health
and accident, or disability plans in which the Executive was participating at
the time of the Change in Control or the Major Transaction, the taking of any
action by the System which would directly or indirectly materially reduce any
of such benefits or deprive the Executive of any material fringe benefit
enjoyed by the Executive at the time of the Change in Control or Major
Transaction, or the failure by the Employer to provide the Executive with the
number of paid vacation days to which the Executive is entitled on the basis
of years of service with the NEES Companies in accordance with the Employer's
normal vacation policy in effect at the time of the Change in Control or Major
Transaction; or
(VII) any purported termination of the Executive's
employment which is not effected pursuant to a Notice of Termination
satisfying the requirements of Section 7.1; for purposes of this Agreement, no
such purported termination shall be effective.
The Executive's right to terminate the Executive's employment for
Good Reason shall not be affected by the Executive's incapacity due to
physical or mental illness. The Executive's continued employment shall not
constitute consent to, or a waiver of rights with respect to, any act or
failure to act constituting Good Reason hereunder.
(N) A "Major Transaction" shall be deemed to have occurred if the
conditions set forth in any one of the following paragraphs shall have been
satisfied:
(I) the shareholders of the Company approve a merger or
consolidation of the Company with any corporation or business trust, other
than (i) a merger or consolidation which would result in the individuals who
prior to such merger or consolidation constitute the Board constituting at
least two-thirds (2/3) of the board of directors of the Company or the
surviving or succeeding entity immediately after such merger or consolidation,
or (ii) a merger or consolidation effected to implement a recapitalization of
the Company (or similar transaction) in which no Person acquires more than 20%
of the combined voting power of the Company's then outstanding securities; or
(II) the shareholders of the Company approve a plan of
complete liquidation of the Company; or
(III) the shareholders of the Company approve an agreement
for the sale or disposition by the Company of all or substantially all the
Company's assets, other than a sale or disposition which would result in the
individuals who prior to such sale or disposition constitute the Board
constituting at least two-thirds of the board of directors of the Person
purchasing such assets immediately after such sale or disposition.
(O) "NEES Companies" shall mean all NEES Companies, collectively.
(P) "NEES Company" shall mean a subsidiary of the Company.
(Q) "Notice of Termination" shall have the meaning stated in
Section 7.1 hereof.
(R) "Pension Plan" shall mean each of the plans and agreements
listed in Attachment A.
(S) "Person" shall have the meaning given in Section 3(a)(9) of
the Exchange Act, as modified and used in Sections 13(d) and 14(d) thereof;
however, a Person shall not include (i) the Company or any NEES Company, (ii)
a trustee or other fiduciary holding securities under an employee benefit plan
of the Company or any NEES Company, (iii) an underwriter temporarily holding
securities pursuant to an offering of such securities, or (iv) a corporation
<PAGE>
owned, directly or indirectly, by the shareholders of the Company in
substantially the same proportions as their ownership of shares of the
Company.
(T) "Potential Change in Control" shall be deemed to have
occurred if the conditions set forth in any one of the following paragraphs
shall have been satisfied:
(I) the Company enters into an agreement, the consummation
of which would result in the occurrence of a Change in Control;
(II) the Company or any Person publicly announces an
intention to take or to consider taking actions which, if consummated, would
constitute a Change in Control;
(III) any Person who is or becomes the Beneficial Owner,
directly or indirectly, of securities of the Company representing 10% or more
of the combined voting power of the Company's then outstanding securities,
increases such Person's beneficial ownership of such securities by 5% or more
over the percentage so owned by such Person on the date hereof unless such
Person has reported or is required to report such ownership (but less than
25%) on Schedule 13G under the Exchange Act (or any comparable or successor
report) or on Schedule 13D under the Exchange Act (or any comparable or
successor report) which Schedule 13D does not state any intention to or
reserve the right to control or influence the management or policies of the
Company or engage in any of the actions specified in Item 4 of such Schedule
(other than the disposition of the common shares) and, within 10 business days
of being requested by the Company to advise it regarding the same, certifies
to the Company that such Person acquired such securities of the Company in
excess of 14.9% inadvertently and who, together with its affiliates,
thereafter does not acquire additional securities while the Beneficial Owner
of 15% or more of the securities then outstanding; provided, however, that if
the Person requested to so certify fails to do so within 10 business days,
then such occurrence shall become a Potential Change in Control immediately
after such 10 business day period; or
(IV) the Board adopts a resolution to the effect that, for
purposes of this Agreement, a Potential Change in Control has occurred.
(U) "Potential Major Transaction" shall be deemed to have
occurred if the conditions set forth in any one of the following paragraphs
shall have been satisfied:
(I) the Company enters into an agreement, the consummation
of which would result in the occurrence of a Major Transaction;
(II) the Company or any Person publicly announces an
intention to take or to consider taking actions which, if consummated, would
constitute a Major Transaction; or
(III) the Board adopts a resolution to the effect that, for
purposes of this Agreement, a Potential Major Transaction has occurred.
(V) "Retirement" shall be deemed the reason for the termination
by the Employer or the Executive of the Executive's employment if such
employment is terminated in accordance with the Employer's written mandatory
retirement policy, if any, as in effect immediately prior to the Change in
Control or Major Transaction, or in accordance with any retirement arrangement
established with the Executive's written consent with respect to the
Executive.
(W) "Severance Payments" shall mean those payments described in
Section 6.1 hereof.
<PAGE>
(X) "System" shall mean the Company and the NEES Companies,
collectively.
(Y) "Total Payments" shall mean those payments described in
Section 6.2 hereof.
New England Electric System
By /s/ George M. Sage
______________________________________
Chairman of the Compensation Committee
/s/
______________________________________
<PAGE>
ATTACHMENT A
New England Electric System Companies' Final Average Pay Pension Plan I
New England Electric Companies' Executive Supplemental Retirement Plan I
<PAGE>
AGREEMENT
BETWEEN
NEW ENGLAND ELECTRIC SYSTEM
AND
______________________
Dated March 1, 1998
<PAGE>
TABLE OF CONTENTS
Page
1. Defined Terms. . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. Term of Agreement. . . . . . . . . . . . . . . . . . . . . . . . . 1
3. Company's Covenants Summarized . . . . . . . . . . . . . . . . . . 2
4. The Executive's Covenants; Previous Agreement. . . . . . . . . . . 2
5. Compensation Other Than Severance Payments . . . . . . . . . . . . 3
6. Severance Payments . . . . . . . . . . . . . . . . . . . . . . . . 4
7. Termination Procedures and Compensation During Dispute . . . . . . 9
8. No Mitigation. . . . . . . . . . . . . . . . . . . . . . . . . . . 11
9. Successors; Binding Agreement. . . . . . . . . . . . . . . . . . . 12
10. Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
11. Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . . . 13
12. Validity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
13. Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
14. Settlement of Disputes; Arbitration. . . . . . . . . . . . . . . . 14
15. Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
<PAGE>
AGREEMENT
THIS AGREEMENT dated March 1, 1998, is made by and between New
England Electric System, a Massachusetts business trust (the Company), and
____________________________ (the Executive).
WHEREAS the Company considers it essential to the best interests
of its shareholders to foster the continuous employment of key management
personnel; and
WHEREAS the Board of Directors of the Company (the Board)
recognizes that, as is the case with many publicly-held companies, the
possibility of a Change in Control or a Major Transaction (as defined in the
last Section hereof) exists and that such possibility, and the uncertainty and
questions which it may raise among management, may result in the departure or
distraction of management personnel to the detriment of the Company and its
shareholders; and
WHEREAS the Board has determined that appropriate steps should be taken
to reinforce and encourage the continued attention and dedication of members
of the management of the Company and its subsidiaries (collectively, the
System), including the Executive, to their assigned duties without distraction
in the face of potentially disruptive circumstances arising from the
possibility of a Change in Control or a Major Transaction;
NOW THEREFORE, in consideration of the premises and the mutual covenants
herein contained, the Company and the Executive hereby agree as follows:
1. Defined Terms. The definitions of capitalized terms used in this
Agreement are provided in the last Section hereof.
2. Term of Agreement. This Agreement shall commence on the date
hereof and shall continue in effect through December 31, 2000; provided,
however, that commencing on January 1, 1999 and each January 1 thereafter, the
term of this Agreement shall automatically be extended for one additional year
unless, not later than September 30 of the preceding year, the Company or the
Executive shall have given notice not to extend this Agreement or a Change in
Control or a Major Transaction shall have occurred prior to such January 1;
provided, however, if a Change in Control or a Major Transaction shall have
occurred during the term of this Agreement, this Agreement shall continue in
effect for a period of thirty-six months beyond the month in which such Change
in Control or Major Transaction occurred.
3. Company's Covenants Summarized. In order to induce the Executive
to remain in the employ of the NEES Companies and in consideration of the
Executive's covenants set forth in Section 4 hereof, the Company agrees, under
the conditions described herein, to pay the Executive the Severance Payments
described in Section 6.1 hereof and the other payments and benefits described
herein in the event the Executive's employment with the NEES Companies is
terminated following a Change in Control or a Major Transaction and during the
term of this Agreement. The obligations of the Company hereunder shall be
deemed satisfied to the extent payments are made by any NEES Company. No
amount or benefit shall be payable under this Agreement unless there shall
have been (or, under the terms hereof, there shall be deemed to have been) a
termination of the Executive's employment with the NEES Companies following a
Change in Control or a Major Transaction. This Agreement shall not be
construed as creating an express or implied contract of employment and, except
as otherwise agreed in writing between the Executive and the Company, the
Executive shall not have any right to be retained in the employ of the NEES
Companies.
<PAGE>
4. The Executive's Covenants; Previous Agreement. The Executive
agrees that, subject to the terms and conditions of this Agreement, in the
event of a Potential Change in Control or a Potential Major Transaction during
the term of this Agreement, the Executive will remain in the employ of the
NEES Companies until the earliest of (i) a date which is twelve months from
the date of such Potential Change of Control or Potential Major Transaction,
(ii) the date of a Change in Control or a Major Transaction, (iii) the date of
termination by the Executive of the Executive's employment for Good Reason
(determined by treating the Potential Change in Control or Potential Major
Transaction as a Change in Control or a Major Transaction, as applicable, in
applying the definition of Good Reason), by reason of death or Disability or
Retirement, or (iv) the termination by the NEES Companies of the Executive's
employment for any reason.
The Executive and the Company agree that their prior agreement dated
February 28, 1995, is terminated effective as of the date hereof.
5. Compensation Other Than Severance Payments.
5.1 Following a Change in Control or a Major Transaction and
during the term of this Agreement, during any period that the Executive fails
to perform the Executive's full-time duties with the NEES Companies as a
result of incapacity due to physical or mental illness, the Company shall
provide the Executive with disability benefits equivalent to those under the
Disability Insurance Plan (without regard to any amendment to such plan made
subsequent to the Change in Control or Major Transaction which amendment
adversely affect the Executive's rights thereunder) until the Executive's
employment is terminated by the Employer for Disability.
5.2 If the Executive's employment shall be terminated for any
reason following a Change in Control or a Major Transaction and during the
term of this Agreement, the Company shall pay the Executive's full salary to
the Executive through the Date of Termination at the rate in effect at the
time the Notice of Termination is given, together with all compensation and
benefits payable to the Executive through the Date of Termination under the
terms of any compensation or benefit plan, program or arrangement maintained
by the Employer during such period; except to the extent that the Executive is
receiving payments with respect to such period, or a portion thereof, in
accordance with Section 5.1.
5.3 If the Executive's employment shall be terminated for any
reason following a Change in Control or a Major Transaction and during the
term of this Agreement, the Company shall pay to the Executive the normal
post-termination compensation and benefits due the Executive as such payments
become due. Such post-termination compensation and benefits shall be
determined under, and paid in accordance with, the System's applicable
retirement, insurance and other compensation or benefit plans, programs and
arrangements. Provided that the benefits payable to the Executive pursuant to
the Standard Severance Plan for Non-Union Employees (the Severance Plan) or
its successor do not exceed benefits payable to the Executive under this
Agreement, the Executive hereby waives all rights to benefits pursuant to the
Severance Plan.
6. Severance Payments.
6.1 Subject to Section 6.2 hereof, the Company shall pay the
Executive the payments described in this Section 6.1 (the Severance Payments)
upon the termination of the Executive's employment following a Change in
Control or a Major Transaction and during the term of this Agreement, in
addition to the payments and benefits described in Section 5 hereof, unless
such termination is (i) by the Employer for Cause, (ii) by reason of death,
Disability or Retirement, or (iii) by the Executive without Good Reason. The
<PAGE>
Executive's employment shall be deemed to have been terminated following a
Change in Control or a Major Transaction by the Employer without cause or by
the Executive with Good Reason if the Executive's employment is terminated
prior to a Change in Control or a Major Transaction without cause at the
direction of a Person who has entered into an agreement with the Company the
consummation of which will constitute a Change in Control or a Major
Transaction, or if the Executive terminates his employment with Good Reason
prior to a Change in Control or a Major Transaction (determined by treating a
Potential Change in Control or Potential Major Transaction as a Change in
Control or a Major Transaction, as applicable, in applying the definition of
Good Reason) if the circumstance or event which constitutes Good Reason occurs
at the direction of such Person.
(A) In lieu of any further salary payments to the
Executive for periods subsequent to the Date of Termination, the Company shall
pay to the Executive a lump sum severance payment, in cash, equal to three
times the sum of (i) the higher of the Executive's annual base salary in
effect as of the Date of Termination or in effect immediately prior to the
Change in Control or Major Transaction, and (ii) the higher of the average
amount paid to the Executive pursuant to the New England Electric Companies'
Senior Incentive Compensation Plan, New England Electric Companies' Incentive
Compensation Plan I, II, or III, and New England Electric Companies' Incentive
Share Plan or successors of any such plans, with respect to the three years
preceding the year in which the Date of Termination occurs or the average
amount paid with respect to the three years preceding the year in which the
Change in Control or Major Transaction occurs.
(B) In addition to the retirement benefits to which the
Executive is entitled under each Pension Plan or any successor plan thereto,
the Company shall pay the Executive a lump sum amount, in cash, equal to the
excess of (x) the actuarial equivalent of the retirement pension (taking into
account any early retirement subsidies associated therewith and determined as
a straight life annuity commencing at the later of age 55 or the third
anniversary of the Date of Termination) which the Executive would have accrued
under the terms of each such Pension Plan (without regard to any amendment to
such Pension Plan made subsequent to a Change in Control or a Major
Transaction, which amendment adversely affects in any manner the computation
of retirement benefits thereunder), determined as if the Executive were fully
vested thereunder and had accumulated (after the Date of Termination) thirty-
six additional months of service credit thereunder and had been credited under
each such Pension Plan during such period with compensation at the higher of
(a) Executive's compensation (as defined in such Pension Plan) during the
twelve months immediately preceding the Date of Termination or (b) Executive's
compensation (as defined in such Pension Plan) during the twelve months
immediately preceding the Change in Control or Major Transaction, over (y) the
actuarial equivalent of the retirement pension (taking into account any early
retirement subsidies associated therewith and determined as a straight life
annuity commencing at the later of age 55 or the Date of Termination) which
the Executive had accrued pursuant to the provisions of each such Pension Plan
as of the Date of Termination. For purposes of this Section 6.1(B),
"actuarial equivalent" shall be determined using the same methods and
assumptions utilized under the New England Electric Companies' Final Average
Pay Plan I (or a successor thereto) immediately prior to the Date of
Termination (without regard to any amendment of such methods and assumptions
made subsequent to a Change in Control or a Major Transaction, which amendment
results in a lower actuarial equivalent value). The discount rate used for
the calculation of benefits hereunder shall be that used by the System for
valuing the liabilities of the New England Electric Companies' Final Average
Pay Plan I (or a successor thereto) immediately prior to the Date of
Termination.
<PAGE>
(C) If the Executive would have become entitled to
benefits under the System's post-retirement health care or life insurance
plans had his employment terminated at any time during the period of thirty-
six months after the Date of Termination, the Company shall arrange to provide
such benefits to the Executive commencing on the later of (a) the date that
such coverage would have first become available and (b) the date the benefits
described in (D) below terminate.
(D) For the thirty-six month period immediately following
the Date of Termination, the Company shall arrange to provide the Executive
with life, disability, accident and health insurance benefits substantially
similar to those which the Executive is receiving immediately prior to the
Notice of Termination (without giving effect to any reduction in such benefits
subsequent to a Change in Control or a Major Transaction which reduction
constitutes Good Reason). Benefits otherwise receivable by the Executive
pursuant to this Section 6.1(D) shall be reduced to the extent comparable
benefits are actually received by or made available to the Executive without
cost during the thirty-six month period following the Executive's termination
of employment (and any such benefits actually received by the Executive shall
be reported to the Company by the Executive). If the benefits provided to the
Executive under this Section 6.1(D) shall result in a decrease, pursuant to
Section 6.2, in the Severance Payments and these Section 6.1(D) benefits are
thereafter reduced pursuant to the immediately preceding sentence because of
the receipt of comparable benefits, the Company shall, at the time of such
reduction, pay to the Executive the lesser of (a) the amount of the decrease
made in the Severance Payments pursuant to Section 6.2, or (b) the maximum
amount which can be paid to the Executive without being, or causing any other
payment to be, nondeductible by reason of section 280G of the Code.
6.2 Notwithstanding any other provisions of this Agreement, in
the event that any payment or benefit received or to be received by the
Executive in connection with a Change in Control or a Major Transaction, or
the termination of the Executive's employment (whether pursuant to the terms
of this Agreement or any other plan, arrangement or agreement with the System,
any Person whose actions result in a Change in Control or a Major Transaction
or any Person affiliated with the System or such Person) (all such payments
and benefits, including the Severance Payments, being hereinafter called Total
Payments) would be subject (in whole or part), to the Excise Tax, then the
Severance Payments shall be reduced to the extent necessary so that no portion
of the Total Payments is subject to the Excise Tax (after taking into account
any reduction in the Total Payments provided by reason of section 280G of the
Code in such other plan, arrangement or agreement) if (A) the net amount of
such Total Payments, as so reduced, (and after deduction of the net amount of
federal, state and local income tax on such reduced Total Payments) is greater
than (B) the excess of (i) the net amount of such Total Payments, without
reduction (but after deduction of the net amount of federal, state and local
income tax on such Total Payments), over (ii) the amount of Excise Tax to
which the Executive would be subject in respect of such Total Payments. For
purposes of determining whether and the extent to which the Total Payments
will be subject to the Excise Tax, (i) no portion of the Total Payments the
receipt or enjoyment of which the Executive shall have effectively waived in
writing prior to the Date of Termination shall be taken into account, (ii) no
portion of the Total Payments shall be taken into account which in the opinion
of tax counsel selected by the Company does not constitute a "parachute
payment" within the meaning of section 280G(b)(2) of the Code, (including by
reason of section 280G(b)(4)(A) of the Code) and, in calculating the Excise
Tax, no portion of such Total Payments shall be taken into account which
constitutes reasonable compensation for services actually rendered, within the
meaning of section 280G(b)(4)(B) of the Code, in excess of the Base Amount
allocable to such reasonable compensation, and (iii) the value of any noncash
benefit or any deferred payment or benefit included in the Total Payments
shall be determined by the Company in accordance with the principles of
sections 280G(d)(3) and (4) of the Code. Prior to the payment date set forth
<PAGE>
in Section 6.3 hereof, the Company shall provide the Executive with its
calculation of the amounts referred to in this Section and such supporting
materials as are reasonably necessary for the Executive to evaluate the
Company's calculations. If the Executive objects to the Company's
calculations, the Company shall pay to the Executive such portion of the
Severance Payments (up to 100% thereof) as the Executive determines is
necessary to result in the Executive receiving the greater of clauses (A) and
(B) of this Section.
6.3 The payments provided for in Section 6.1 (other than Section
6.1(D)) hereof shall be made not later than the fifth day following the Date
of Termination, provided, however, that if the amounts of such payments, and
the limitation on such payments set forth in Section 6.2 hereof, cannot be
finally determined on or before such day, the Company shall pay to the
Executive on such day an estimate, as determined in good faith by the Company,
of the minimum amount of such payments to which the Executive is clearly
entitled and shall pay the remainder of such payments (together with interest
at the rate provided in section 1274(b)(2)(B) of the Code) as soon as the
amount thereof can be determined but in no event later than the thirtieth day
after the Date of Termination. In the event that the amount of the estimated
payments exceeds the amount subsequently determined to have been due, such
excess shall constitute a loan by the Company to the Executive, payable on the
fifth business day after demand by the Company (together with interest at the
rate provided in section 1274(b)(2)(B) of the Code). At the time that
payments are made under this Section, the Company shall provide the Executive
with a written statement setting forth the manner in which such payments were
calculated and the basis for such calculations including, without limitation,
any opinions or other advice the Company has received from counsel, auditors
or consultants (and any such opinions or advice which are in writing shall be
attached to the statement).
6.4 The Company also shall pay to the Executive all legal fees
and expenses incurred by the Executive in disputing in good faith any
termination of his employment hereunder or in seeking in good faith to obtain
or enforce any benefit or right provided by this Agreement or in connection
with any tax audit or proceeding to the extent attributable to the application
of section 4999 of the Code to any payment or benefit provided hereunder.
Such payments shall be made within five business days after delivery of the
Executive's written requests for payment accompanied with such evidence of
fees and expenses incurred as the Company reasonably may require.
7. Termination Procedures and Compensation During Dispute.
7.1 Notice of Termination. After a Change in Control or a Major
Transaction and during the term of this Agreement, any purported termination
of the Executive's employment (other than by reason of death) shall be
communicated by written Notice of Termination from one party hereto to the
other party hereto in accordance with Section 10 hereof. For purposes of this
Agreement, a "Notice of Termination" shall mean a notice which shall indicate
the specific termination provision in this Agreement relied upon and shall set
forth in reasonable detail the facts and circumstances claimed to provide a
basis for termination of the Executive's employment under the provision so
indicated. Further, a Notice of Termination for Cause is required to include
a copy of a resolution duly adopted by the affirmative vote of not less than
three-quarters of the entire membership of the Board at a meeting of the Board
which was called and held for the purpose of considering such termination
(after reasonable notice to the Executive and an opportunity for the
Executive, together with the Executive's counsel, to be heard before the
Board) finding that, in the good faith opinion of the Board, the Executive was
guilty of conduct set forth in clause (i) or (ii) of the definition of Cause
herein, and specifying the particulars thereof in detail.
<PAGE>
7.2 Date of Termination. "Date of Termination", with respect to
any purported termination of the Executive's employment after a Change in
Control or a Major Transaction and during the term of this Agreement, shall
mean (i) if the Executive's employment is terminated for Disability, thirty
days after Notice of Termination is given (provided that the Executive shall
not have returned to the full-time performance of the Executive's duties
during such thirty-day period), and (ii) if the Executive's employment is
terminated for any other reason, the date specified in the Notice of
Termination (which, in the case of a termination by the Employer, shall not be
less than thirty days (except in the case of a termination for Cause) and, in
the case of a termination by the Executive, shall not be less than fifteen
days nor more than sixty days, respectively, from the date such Notice of
Termination is given).
7.3 Dispute Concerning Termination. If within fifteen days
after any Notice of Termination is given, or, if later, prior to the Date of
Termination (as determined without regard to this Section 7.3), the party
receiving such Notice of Termination notifies the other party that a dispute
exists concerning the termination, the Date of Termination shall be the date
on which the dispute is finally resolved, either by mutual written agreement
of the parties or by a final judgment, order or decree of a court of competent
jurisdiction (which is not appealable or with respect to which the time for
appeal therefrom has expired and no appeal has been perfected); provided
further that the Date of Termination shall be extended by a notice of dispute
only if such notice is given in good faith and the party giving such notice
pursues the resolution of such dispute with reasonable diligence.
7.4 Compensation During Dispute. If a purported termination
occurs following a Change in Control or a Major Transaction and during the
term of this Agreement, and such termination is disputed in accordance with
Section 7.3 hereof, the Company shall pay the Executive the full compensation
in effect when the notice giving rise to the dispute was given (including, but
not limited to, salary) and continue the Executive as a participant in all
compensation, benefit and insurance plans in which the Executive was
participating when the notice giving rise to the dispute was given, until the
dispute is finally resolved in accordance with Section 7.3 hereof. Amounts
paid under this Section 7.4 are in addition to all other amounts due under
this Agreement (other than those due under Section 5.2 hereof) and shall not
be offset against or reduce any other amounts due under this Agreement.
8. No Mitigation. The Company agrees that, if the Executive's
employment with the NEES Companies terminates during the term of this
Agreement, the Executive is not required to seek other employment or to
attempt in any way to reduce any amounts payable to the Executive by the
Company pursuant to this Agreement. Further, the amount of any payment or
benefit provided for in this Agreement (other than in Section 6.1(D) hereof)
shall not be reduced by any compensation earned by the Executive as the result
of employment by another employer, by retirement benefits, by offset against
any amount claimed to be owed by the Executive to the System, or otherwise.
9. Successors; Binding Agreement.
9.1 In addition to any obligations imposed by law upon any
successor to the Company, the Company will require any successor (whether
direct or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to expressly
assume and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place. Failure of the Company to obtain such assumption and
agreement prior to the effectiveness of any such succession shall be a breach
of this Agreement and shall entitle the Executive to compensation from the
Company in the same amount and on the same terms as the Executive would be
entitled to hereunder if the Executive were to terminate the Executive's
<PAGE>
employment for Good Reason after a Change in Control or a Major Transaction,
except that, for purposes of implementing the foregoing, the date on which any
such succession becomes effective shall be deemed the Date of Termination.
9.2 This Agreement shall inure to the benefit of and be
enforceable by the Executive's personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees. If
the Executive shall die while any amount would still be payable to the
Executive hereunder (other than amounts which, by their terms, terminate upon
the death of the Executive) if the Executive had continued to live, all such
amounts, unless otherwise provided herein, shall be paid in accordance with
the terms of this Agreement to the executors, personal representatives or
administrators of the Executive's estate.
10. Notices. For the purpose of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid, addressed to the
respective addresses set forth below, or to such other address as either party
may have furnished to the other in writing in accordance herewith, except that
notice of change of address shall be effective only upon actual receipt:
To the Company:
New England Power Service Company
25 Research Drive
Westborough, MA 01582-0099
Attention: Director of Human Resources
To the Executive:
___________________________
___________________________
___________________________
11. Miscellaneous. No provision of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed
to in writing and signed by the Executive and such officer as may be
specifically designated by the Board. No waiver by either party hereto at any
time of any breach by the other party hereto of, or compliance with, any
condition or provision of this Agreement to be performed by such other party
shall be deemed a waiver of similar or dissimilar provisions or conditions at
the same or at any prior or subsequent time. This Agreement supersedes any
other agreements or representations, oral or otherwise, express or implied,
with respect to the subject matter hereof. The validity, interpretation,
construction and performance of this Agreement shall be governed by the laws
of The Commonwealth of Massachusetts. All references to sections of the
Exchange Act or the Code shall be deemed also to refer to any successor
provisions to such sections. Any payments provided for hereunder shall be
paid net of any applicable withholding required under federal, state or local
law and any additional withholding to which the Executive has agreed. The
obligations of the Company and the Executive under Sections 6 and 7 shall
survive the expiration of the term of this Agreement.
12. Validity. The invalidity or unenforceability or any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
13. Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
<PAGE>
14. Settlement of Disputes; Arbitration. All claims by the Executive
for benefits under this Agreement shall be directed to and determined by the
Board and shall be in writing. Any denial by the Board of a claim for
benefits under this Agreement shall be delivered to the Executive in writing
and shall set forth the specific reasons for the denial and the specific
provisions of this Agreement relied upon. The Board shall afford a reasonable
opportunity to the Executive for a review of the decision denying a claim and
shall further allow the Executive to appeal to the Board a decision of the
Board within sixty days after notification by the Board that the Executive's
claim has been denied. Any further dispute or controversy arising under or in
connection with this Agreement shall be settled exclusively by arbitration in
Boston, Massachusetts, in accordance with the rules of the American
Arbitration Association then in effect. Judgment may be entered on the
arbitrator's award in any court having jurisdiction; provided, however, that
the Executive shall be entitled to seek specific performance of the
Executive's right to be paid until the Date of Termination during the pendency
of any dispute or controversy arising under or in connection with this
Agreement.
15. Definitions. For purposes of this Agreement, the following terms
shall have the meanings indicated below:
(A) "Base Amount" shall have the meaning defined in section
280G(b)(3) of the Code.
(B) "Beneficial Owner" shall have the meaning defined in Rule
13d-3 under the Exchange Act.
(C) "Board" shall mean the Board of Directors of the Company.
(D) "Cause" for termination by the Employer of the Executive's
employment, after any Change in Control or Major Transaction, shall mean (i)
the willful and continued failure by the Executive to substantially perform
the Executive's duties with the System (other than any such failure resulting
from the Executive's incapacity due to physical or mental illness or any such
actual or anticipated failure after the issuance of a Notice of Termination
for Good Reason by the Executive pursuant to Section 7.1) after a written
demand for substantial performance is delivered to the Executive by the Board,
which demand specifically identifies the manner in which the Board believes
that the Executive has not substantially performed the Executive's duties, or
(ii) the willful engaging by the Executive in conduct which is demonstrably
and materially injurious to the System, monetarily or otherwise. For purposes
of clauses (i) and (ii) of this definition, no act, or failure to act, on the
Executive's part shall be deemed "willful" unless done, or omitted to be done,
by the Executive not in good faith and without reasonable belief that the
Executive's act, or failure to act, was in the best interest of the System.
(E) A "Change in Control" shall be deemed to have occurred if
the conditions set forth in any one of the following paragraphs shall have
been satisfied:
(I) any Person is or becomes the Beneficial Owner,
directly or indirectly, of securities of the Company (not including in the
securities beneficially owned by such Person any securities acquired directly
from the Company or its affiliates) representing 20% or more of the combined
voting power of the Company's then outstanding securities; or
(II) during any period of not more than two consecutive
years (not including any period prior to the execution of this Agreement),
individuals who at the beginning of such period constitute the Board and any
new director (other than a director designated by a Person who has entered
into an agreement with the Company to effect a transaction described in clause
(I) of this paragraph) whose election by the Board or nomination for election
<PAGE>
by the Company's shareholders was approved or recommended by a vote of at
least two-thirds of the directors then still in office who either were
directors at the beginning of the period or whose election or nomination for
election was previously so approved or recommended, cease for any reason to
constitute a majority thereof.
(F) "Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time.
(G) "Company" shall mean New England Electric System and any
successor to its business and/or assets which assumes and agrees to perform
this Agreement by operation of law, or otherwise (except in determining, under
Section 15(E) hereof, whether or not any Change in Control or Major
Transaction has occurred in connection with such succession).
(H) "Date of Termination" shall have the meaning stated in
Section 7.2 hereof.
(I) "Disability" shall be deemed the reason for the termination
by the Employer of the Executive's employment, if, as a result of the
Executive's incapacity due to physical or mental illness, the Executive shall
have been absent from the full-time performance of the Executive's duties with
the System for a period of six consecutive months, the Company shall have
given the Executive a Notice of Termination for Disability, and, within thirty
days after such Notice of Termination is given, the Executive shall not have
returned to the full-time performance of the Executive's duties.
(J) "Disability Insurance Plan" shall mean the Company
Disability Insurance Plan or any successor thereto.
(K) "Employer" shall mean the NEES Company by which the
Executive is employed at the time of determination.
(L) "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended from time to time.
(M) "Excise Tax" shall mean any excise tax imposed under section
4999 of the Code.
(N) "Executive" shall mean the individual named in the first
paragraph of this Agreement.
(O) "Good Reason" for termination by the Executive of the
Executive's employment shall mean the occurrence (without the Executive's
express written consent) of any one of the following acts by the System, or
failures by the System to act, unless, in the case of any act or failure to
act described in paragraph (I), (V), (VI), (VII), or (VIII) below, such act or
failure to act is corrected prior to the Date of Termination specified in the
Notice of Termination given in respect thereof:
(I) the assignment to the Executive of duties
substantially inconsistent with the Executive's status as an
executive officer of the System;
(II) a reduction in the Executive's annual base salary as
in effect on the date hereof or as the same may be increased from
time to time;
(III) requiring the Executive to be based at a location more
than 100 miles from the town of Westborough, Massachusetts, except
for required travel on the System's business to an extent
substantially consistent with the Executive's present business
travel obligations;
<PAGE>
(IV) the failure by the Employer, to pay to the Executive
any portion of the Executive's compensation within seven days of
the date such compensation is due;
(V) the failure by the System to continue in effect any
compensation plan in which the Executive participates immediately
prior to the Change in Control or the Major Transaction which is
material to the Executive's total compensation, including but not
limited to the New England Electric Companies' Incentive
Compensation Plan I, New England Electric Companies' Incentive
Compensation Plan II, New England Electric Companies' Senior
Incentive Compensation Plan, New England Electric Companies'
Incentive Share Plan, New England Electric Systems Companies'
Deferred Compensation Plan and the New England Electric Companies'
Executive Supplemental Retirement Plan or any substitute plans
adopted prior to the Change in Control or Major Transaction,
unless an equitable arrangement (embodied in an ongoing substitute
or alternative plan) has been made with respect to such plan, or
the failure by the System to continue the Executive's
participation therein (or in such substitute or alternative plan)
on a basis not substantially less favorable, both in terms of the
amount of benefits provided and the level of the Executive's
participation relative to other participants, as existed at the
time of the Change in Control or Major Transaction;
(VI) the failure by the System to continue to provide the
Executive with benefits substantially similar to those enjoyed by
the Executive under any of the System's pension, life insurance,
medical, health and accident, or disability plans in which the
Executive was participating at the time of the Change in Control
or the Major Transaction, the taking of any action by the System
which would directly or indirectly materially reduce any of such
benefits or deprive the Executive of any material fringe benefit
enjoyed by the Executive at the time of the Change in Control or
Major Transaction, or the failure by the Employer to provide the
Executive with the number of paid vacation days to which the
Executive is entitled on the basis of years of service with the
NEES Companies in accordance with the Employer's normal vacation
policy in effect at the time of the Change in Control or Major
Transaction; or
(VII) any purported termination of the Executive's
employment which is not effected pursuant to a Notice of
Termination satisfying the requirements of Section 7.1; for
purposes of this Agreement, no such purported termination shall be
effective.
The Executive's right to terminate the Executive's employment for
Good Reason shall not be affected by the Executive's incapacity due to
physical or mental illness. The Executive's continued employment shall not
constitute consent to, or a waiver of rights with respect to, any act or
failure to act constituting Good Reason hereunder.
(P) A "Major Transaction" shall be deemed to have occurred if
the conditions set forth in any one of the following paragraphs shall have
been satisfied:
(I) the shareholders of the Company approve a merger or
consolidation of the Company with any corporation or business
trust, other than (i) a merger or consolidation which would result
in the individuals who prior to such merger or consolidation
constitute the Board constituting at least two-thirds (2/3) of the
board of directors of the Company or the surviving or succeeding
<PAGE>
entity immediately after such merger or consolidation, or (ii) a
merger or consolidation effected to implement a recapitalization
of the Company (or similar transaction) in which no Person
acquires more than 20% of the combined voting power of the
Company's then outstanding securities; or
(II) the shareholders of the Company approve a plan of
complete liquidation of the Company; or
(III) the shareholders of the Company approve an agreement
for the sale or disposition by the Company of all or substantially
all the Company's assets, other than a sale or disposition which
would result in the individuals who prior to such sale or
disposition constitute the Board constituting at least two-thirds
of the board of directors of the Person purchasing such assets
immediately after such sale or disposition.
(Q) "NEES Companies" shall mean all NEES Companies,
collectively.
(R) "NEES Company" shall mean a subsidiary of the Company.
(S) "Notice of Termination" shall have the meaning stated in
Section 7.1 hereof.
(T) "Pension Plan" shall mean each of the plans and agreements
listed in Attachment A.
(U) "Person" shall have the meaning given in Section 3(a)(9) of
the Exchange Act, as modified and used in Sections 13(d) and 14(d) thereof;
however, a Person shall not include (i) the Company or any NEES Company, (ii)
a trustee or other fiduciary holding securities under an employee benefit plan
of the Company or any NEES Company, (iii) an underwriter temporarily holding
securities pursuant to an offering of such securities, or (iv) a corporation
owned, directly or indirectly, by the shareholders of the Company in
substantially the same proportions as their ownership of shares of the
Company.
(V) "Potential Change in Control" shall be deemed to have
occurred if the conditions set forth in any one of the following paragraphs
shall have been satisfied:
(I) the Company enters into an agreement, the consummation
of which would result in the occurrence of a Change in Control;
(II) the Company or any Person publicly announces an
intention to take or to consider taking actions which, if
consummated, would constitute a Change in Control;
(III) any Person who is or becomes the Beneficial Owner,
directly or indirectly, of securities of the Company representing
10% or more of the combined voting power of the Company's then
outstanding securities, increases such Person's beneficial
ownership of such securities by 5% or more over the percentage so
owned by such Person on the date hereof unless such Person has
reported or is required to report such ownership (but less than
25%) on Schedule 13G under the Exchange Act (or any comparable or
successor report) or on Schedule 13D under the Exchange Act (or
any comparable or successor report) which Schedule 13D does not
state any intention to or reserve the right to control or
influence the management or policies of the Company or engage in
any of the actions specified in Item 4 of such Schedule (other
than the disposition of the common shares) and, within 10 business
<PAGE>
days of being requested by the Company to advise it regarding the
same, certifies to the Company that such Person acquired such
securities of the Company in excess of 14.9% inadvertently and
who, together with its affiliates, thereafter does not acquire
additional securities while the Beneficial Owner of 15% or more of
the securities then outstanding; provided, however, that if the
Person requested to so certify fails to do so within 10 business
days, then such occurrence shall become a Potential Change in
Control immediately after such 10 business day period; or
(IV) the Board adopts a resolution to the effect that, for
purposes of this Agreement, a Potential Change in Control has
occurred.
(W) "Potential Major Transaction" shall be deemed to have
occurred if the conditions set forth in any one of the following paragraphs
shall have been satisfied:
(I) the Company enters into an agreement, the consummation
of which would result in the occurrence of a Major Transaction;
(II) the Company or any Person publicly announces an
intention to take or to consider taking actions which, if
consummated, would constitute a Major Transaction; or
(III) the Board adopts a resolution to the effect that, for
purposes of this Agreement, a Potential Major Transaction has
occurred.
(X) "Retirement" shall be deemed the reason for the termination
by the Employer or the Executive of the Executive's employment if such
employment is terminated in accordance with the Employer's written mandatory
retirement policy, if any, as in effect immediately prior to the Change in
Control or Major Transaction, or in accordance with any retirement arrangement
established with the Executive's written consent with respect to the
Executive.
(Y) "Severance Payments" shall mean those payments described in
Section 6.1 hereof.
(Z) "System" shall mean the Company and the NEES Companies,
collectively.
(AA) "Total Payments" shall mean those payments described in
Section 6.2 hereof.
New England Electric System
By
Chairman of the Compensation Committee
/s/ _____________________________________
<PAGE>
ATTACHMENT A
New England Electric System Companies' Final Average Pay Pension Plan I
New England Electric Companies' Executive Supplemental Retirement Plan I
<PAGE>
AGREEMENT
BETWEEN
NEW ENGLAND ELECTRIC SYSTEM
AND
RICHARD P. SERGEL
Dated March 1, 1998
<PAGE>
TABLE OF CONTENTS
Page
1. Defined Terms. . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. Term of Agreement. . . . . . . . . . . . . . . . . . . . . . . . . 1
3. Company's Covenants Summarized . . . . . . . . . . . . . . . . . . 2
4. The Executive's Covenants; Previous Agreement. . . . . . . . . . . 2
5. Compensation Other Than Severance Payments . . . . . . . . . . . . 3
6. Severance Payments . . . . . . . . . . . . . . . . . . . . . . . . 4
7. Termination Procedures and Compensation During Dispute . . . . . . 11
8. No Mitigation. . . . . . . . . . . . . . . . . . . . . . . . . . . 13
9. Successors; Binding Agreement. . . . . . . . . . . . . . . . . . . 14
10. Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
11. Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . . . 15
12. Validity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
13. Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
14. Settlement of Disputes; Arbitration. . . . . . . . . . . . . . . . 16
15. Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
<PAGE>
AGREEMENT
THIS AGREEMENT dated March 1, 1998, is made by and between New
England Electric System, a Massachusetts business trust (the Company), and
Richard P. Sergel (the Executive).
WHEREAS the Company considers it essential to the best interests
of its shareholders to foster the continuous employment of key management
personnel; and
WHEREAS the Board of Directors of the Company (the Board)
recognizes that, as is the case with many publicly-held companies, the
possibility of a Change in Control or a Major Transaction (as defined in the
last Section hereof) exists and that such possibility, and the uncertainty and
questions which it may raise among management, may result in the departure or
distraction of management personnel to the detriment of the Company and its
shareholders; and
WHEREAS the Board has determined that appropriate steps should be
taken to reinforce and encourage the continued attention and dedication of
members of the management of the Company and its subsidiaries (collectively,
the System), including the Executive, to their assigned duties without
distraction in the face of potentially disruptive circumstances arising from
the possibility of a Change in Control or a Major Transaction;
NOW THEREFORE, in consideration of the premises and the mutual
covenants herein contained, the Company and the Executive hereby agree as
follows:
1. Defined Terms. The definitions of capitalized terms used in this
Agreement are provided in the last Section hereof.
2. Term of Agreement. This Agreement shall commence on the date
hereof and shall continue in effect through December 31, 2000; provided,
however, that commencing on January 1, 1999 and each January 1 thereafter, the
term of this Agreement shall automatically be extended for one additional year
unless, not later than September 30 of the preceding year, the Company or the
Executive shall have given notice not to extend this Agreement or a Change in
Control or a Major Transaction shall have occurred prior to such January 1;
provided, however, if a Change in Control or a Major Transaction shall have
occurred during the term of this Agreement, this Agreement shall continue in
effect for a period of thirty-six months beyond the month in which such Change
in Control or Major Transaction occurred.
3. Company's Covenants Summarized. In order to induce the Executive
to remain in the employ of the NEES Companies and in consideration of the
Executive's covenants set forth in Section 4 hereof, the Company agrees, under
the conditions described herein, to pay the Executive the Severance Payments
described in Section 6.1 hereof and the other payments and benefits described
herein in the event the Executive's employment with the NEES Companies is
terminated following a Change in Control or a Major Transaction and during the
term of this Agreement. The obligations of the Company hereunder shall be
deemed satisfied to the extent payments are made by any NEES Company. No
amount or benefit shall be payable under this Agreement unless there shall
have been (or, under the terms hereof, there shall be deemed to have been) a
termination of the Executive's employment with the NEES Companies following a
Change in Control or a Major Transaction. This Agreement shall not be
construed as creating an express or implied contract of employment and, except
as otherwise agreed in writing between the Executive and the Company, the
Executive shall not have any right to be retained in the employ of the NEES
Companies.
<PAGE>
4. The Executive's Covenants; Previous Agreement. The Executive
agrees that, subject to the terms and conditions of this Agreement, in the
event of a Potential Change in Control or a Potential Major Transaction during
the term of this Agreement, the Executive will remain in the employ of the
NEES Companies until the earliest of (i) a date which is twelve months from
the date of such Potential Change of Control or Potential Major Transaction,
(ii) the date of a Change in Control or a Major Transaction, (iii) the date of
termination by the Executive of the Executive's employment for Good Reason
(determined by treating the Potential Change in Control or Potential Major
Transaction as a Change in Control or a Major Transaction, as applicable, in
applying the definition of Good Reason), by reason of death or Disability or
Retirement, or (iv) the termination by NEES Companies of the Executive's
employment for any reason.
The Executive and the Company agree that their prior agreement dated
February 28, 1995, is terminated effective as of the date hereof.
5. Compensation Other Than Severance Payments.
5.1 Following a Change in Control or a Major Transaction and
during the term of this Agreement, during any period that the Executive fails
to perform the Executive's full-time duties with the NEES Companies as a
result of incapacity due to physical or mental illness, the Company shall
provide the Executive with disability benefits equivalent to those under the
Disability Insurance Plan (without regard to any amendment to such plan made
subsequent to the Change in Control or Major Transaction which amendment
adversely affect the Executive's rights thereunder) until the Executive's
employment is terminated by the Employer for Disability.
5.2 If the Executive's employment shall be terminated for any
reason following a Change in Control or a Major Transaction and during the
term of this Agreement, the Company shall pay the Executive's full salary to
the Executive through the Date of Termination at the rate in effect at the
time the Notice of Termination is given, together with all compensation and
benefits payable to the Executive through the Date of Termination under the
terms of any compensation or benefit plan, program or arrangement maintained
by the Employer during such period; except to the extent that the Executive is
receiving payments with respect to such period, or a portion thereof, in
accordance with Section 5.1.
5.3 If the Executive's employment shall be terminated for any
reason following a Change in Control or a Major Transaction and during the
term of this Agreement, the Company shall pay to the Executive the normal
post-termination compensation and benefits due the Executive as such payments
become due. Such post-termination compensation and benefits shall be
determined under, and paid in accordance with, the System's applicable
retirement, insurance and other compensation or benefit plans, programs and
arrangements. Provided that the benefits payable to the Executive pursuant to
the Standard Severance Plan for Non-Union Employees (the Severance Plan) or
its successor do not exceed benefits payable to the Executive under this
Agreement, the Executive hereby waives all rights to benefits pursuant to the
Severance Plan.
6. Severance Payments.
6.1 Subject to Section 6.2(b), the Company shall pay the
Executive the payments described in this Section 6.1 (the Severance Payments)
upon the termination of the Executive's employment following a Change in
Control or a Major Transaction and during the term of this Agreement, in
addition to the payments and benefits described in Section 5 hereof, unless
such termination is (i) by the Employer for Cause, (ii) by reason of death,
Disability or Retirement, or (iii) by the Executive without Good Reason. The
Executive's employment shall be deemed to have been terminated following a
<PAGE>
Change in Control or a Major Transaction by the Employer without cause or by
the Executive with Good Reason if the Executive's employment is terminated
prior to a Change in Control or a Major Transaction without cause at the
direction of a Person who has entered into an agreement with the Company the
consummation of which will constitute a Change in Control or a Major
Transaction, or if the Executive terminates his employment with Good Reason
prior to a Change in Control or a Major Transaction (determined by treating a
Potential Change in Control or Potential Major Transaction as a Change in
Control or a Major Transaction, as applicable, in applying the definition of
Good Reason) if the circumstance or event which constitutes Good Reason occurs
at the direction of such Person.
(A) In lieu of any further salary payments to the
Executive for periods subsequent to the Date of Termination, the Company
shall pay to the Executive a lump sum severance payment, in cash, equal
to three times the sum of (i) the higher of the Executive's annual base
salary in effect as of the Date of Termination or in effect immediately
prior to the Change in Control or Major Transaction, and (ii) the higher
of the average amount paid to the Executive pursuant to the New England
Electric Companies' Senior Incentive Compensation Plan, New England
Electric Companies' Incentive Compensation Plan I, II, or III, and New
England Electric Companies Incentive Share Plan or successors of any
such plans, with respect to the three years preceding the year in which
the Date of Termination occurs or the average amount paid with respect
to the three years preceding the year in which the Change in Control or
Major Transaction occurs.
(B) In addition to the retirement benefits to which the
Executive is entitled under each Pension Plan or any successor plan
thereto, the Company shall pay the Executive a lump sum amount, in cash,
equal to the excess of (x) the actuarial equivalent of the retirement
pension (taking into account any early retirement subsidies associated
therewith and determined as a straight life annuity commencing at the
later of age 55 or the third anniversary of the Date of Termination)
which the Executive would have accrued under the terms of each such
Pension Plan (without regard to any amendment to such Pension Plan made
subsequent to a Change in Control or a Major Transaction, which
amendment adversely affects in any manner the computation of retirement
benefits thereunder), determined as if the Executive were fully vested
thereunder and had accumulated (after the Date of Termination) thirty-
six additional months of service credit thereunder and had been credited
under each such Pension Plan during such period with compensation at the
higher of (a) Executive's compensation (as defined in such Pension Plan)
during the twelve months immediately preceding the Date of Termination
or (b) Executive's compensation (as defined in such Pension Plan) during
the twelve months immediately preceding the Change in Control or Major
Transaction, over (y) the actuarial equivalent of the retirement pension
(taking into account any early retirement subsidies associated therewith
and determined as a straight life annuity commencing at the later of age
55 or the Date of Termination) which the Executive had accrued pursuant
to the provisions of each such Pension Plan as of the Date of
Termination. For purposes of this Section 6.1(B), "actuarial
equivalent" shall be determined using the same methods and assumptions
utilized under the New England Electric Companies' Final Average Pay
Plan I (or a successor thereto) immediately prior to the Date of
Termination (without regard to any amendment of such methods and
assumptions made subsequent to a Change in Control or a Major
Transaction, which amendment results in a lower actuarial equivalent
value). The discount rate used for the calculation of benefits
hereunder shall be that used by the System for valuing the liabilities
of the New England Electric Companies' Final Average Pay Plan I (or a
successor thereto) immediately prior to the Date of Termination.
<PAGE>
(C) If the Executive would have become entitled to
benefits under the System's post-retirement health care or life
insurance plans had his employment terminated at any time during the
period of thirty-six months after the Date of Termination, the Company
shall pay such benefits to the Executive commencing on the later of (a)
the date that such coverage would have first become available and (b)
the date the benefits described in (D) below terminate.
(D) For the thirty-six month period immediately following
the Date of Termination, the Company shall arrange to provide the
Executive with life, disability, accident and health insurance benefits
substantially similar to those which the Executive is receiving
immediately prior to the Notice of Termination (without giving effect to
any reduction in such benefits subsequent to a Change in Control or a
Major Transaction which reduction constitutes Good Reason). Benefits
otherwise receivable by the Executive pursuant to this Section 6.1(D)
shall be reduced to the extent comparable benefits are actually received
by or made available to the Executive without cost during the thirty-six
month period following the Executive's termination of employment (and
any such benefits actually received by the Executive shall be reported
to the Company by the Executive). If the benefits provided to the
Executive under this Section 6.1(D) shall result in a decrease, pursuant
to Section 6.2(b), in the Severance Payments and these Section 6.1(D)
benefits are thereafter reduced pursuant to the immediately preceding
sentence because of the receipt of comparable benefits, the Company
shall, at the time of such reduction, pay to the Executive the lesser of
(a) the amount of the decrease made in the Severance Payments pursuant
to Section 6.2, or (b) the maximum amount which can be paid to the
Executive without being, or causing any other payment to be,
nondeductible by reason of section 280G of the Code.
6.2 (a) In the event that the Executive becomes entitled to
the Severance Payments prior to February 1, 2001, if any of the Severance
Payments will be subject to the Excise Tax, the Company shall pay to the
Executive an additional amount (the Gross-Up Payment) such that the net amount
retained by the Executive, after deduction of any Excise Tax on the Severance
Payments and any Federal, state and local income tax and Excise Tax upon the
payment provided for by this Section 6.2(a), shall be equal to the Severance
Payments. For purposes of determining whether any of the Severance Payments
will be subject to the Excise Tax and the amount of such Excise Tax, (i) any
other payments or benefits received or to be received by the Executive in
connection with a Change in Control or a Major Transaction, or the Executive's
termination of employment (whether pursuant to the terms of this Agreement or
any other plan, arrangement or agreement with the System, any Person whose
actions result in a Change in Control or a Major Transaction or any Person
affiliated with the System or such Person) shall be treated as "parachute
payments" within the meaning of section 280G(b)(2) of the Code, and all
"excess parachute payments" within the meaning of section 280G(b)(l) of the
Code shall be treated as subject to the Excise Tax, unless in the opinion of
tax counsel selected by the Company's independent auditors and reasonably
acceptable to the Executive such other payments or benefits (in whole or in
part) do not constitute parachute payments, including by reason of Section
280G(b)(4)(A) of the Code, or such excess parachute payments (in whole or in
part) represent reasonable compensation for services actually rendered, within
the meaning of section 280G(b)(4)(B) of the Code, in excess of the Base Amount
allocable to such reasonable compensation, or are otherwise not subject to the
Excise Tax, (ii) the amount of the Severance Payments which shall be treated
as subject to the Excise Tax shall be equal to the lesser of (A) the total
amount of the Severance Payments or (B) the amount of excess parachute
payments within the meaning of section 280G(b)(l) of the Code (after applying
clause (i), above), and (iii) the value of any noncash benefits or any
deferred payment or benefit shall be determined by the Company's independent
auditors in accordance with the principles of sections 280G(d)(3) and (4) of
<PAGE>
the Code. For purposes of determining the amount of the Gross-Up Payment, the
Executive shall be deemed to pay Federal income taxes at the highest marginal
rate of Federal income taxation in the calendar year in which the Gross-Up
Payment is to be made and state and local income taxes at the highest marginal
rate of taxation in the state and locality of the Executive's residence on the
Date of Termination, net of the maximum reduction in Federal income taxes
which could be obtained from deduction of such state and local taxes. In the
event that the Excise Tax is subsequently determined to be less than the
amount taken into account hereunder at the time of termination of the
Executive's employment, the Executive shall repay to the Company, at the time
that the amount of such reduction in Excise Tax is finally determined, the
portion of the Gross-Up Payment attributable to such reduction (plus that
portion of the Gross-Up Payment attributable to the Excise Tax and Federal,
state and local income tax imposed on the Gross-Up Payment being repaid by the
Executive to the extent that such repayment results in a reduction in Excise
Tax and/or a Federal, state or local income tax deduction) plus interest on
the amount of such repayment at the rate provided in section 1274(b)(2)(B) of
the Code. In the event that the Excise Tax is determined to exceed the amount
taken into account hereunder at the time of the termination of the Executive's
employment (including by reason of any payment the existence or amount of
which cannot be determined at the time of the Gross-Up Payment), the Company
shall make an additional Gross-Up Payment in respect of such excess (plus any
interest, penalties or additions payable by the Executive with respect to such
excess) at the time that the amount of such excess is finally determined. The
Executive and the Company shall each reasonably cooperate with the other in
connection with any administrative or judicial proceedings concerning the
existence or amount of liability for Excise Tax with respect to the Severance
Payments.
(b) In the event the Executive becomes entitled to the
Severance Payments on February 1, 2001, or thereafter, and in the event that
any payment or benefit received or to be received by the Executive in
connection with a Change in Control or a Major Transaction, or the termination
of the Executive's employment (whether pursuant to the terms of this Agreement
or any other plan, arrangement or agreement with the System, any Person whose
actions result in a Change in Control or a Major Transaction or any Person
affiliated with the System or such Person) (all such payments and benefits,
including the Severance Payments, being hereinafter called Total Payments)
would be subject (in whole or part), to the Excise Tax, then the Severance
Payments shall be reduced to the extent necessary so that no portion of the
Total Payments is subject to the Excise Tax (after taking into account any
reduction in the Total Payments provided by reason of section 280G of the Code
in such other plan, arrangement or agreement) if (A) the net amount of such
Total Payments, as so reduced, (and after deduction of the net amount of
Federal, state and local income tax on such reduced Total Payments) is greater
than (B) the excess of (i) the net amount of such Total Payments, without
reduction (but after deduction of the net amount of Federal, state and local
income tax on such Total Payments), over (ii) the amount of Excise Tax to
which the Executive would be subject in respect of such Total Payments. For
purposes of determining whether and the extent to which the Total Payments
will be subject to the Excise Tax, (i) no portion of the Total Payments the
receipt or enjoyment of which the Executive shall have effectively waived in
writing prior to the Date of Termination shall be taken into account, (ii) no
portion of the Total Payments shall be taken into account which in the opinion
of tax counsel selected by the Company does not constitute a "parachute
payment" within the meaning of section 280G(b)(2) of the Code, (including by
reason of section 280G(b)(4)(A) of the Code) and, in calculating the Excise
Tax, no portion of such Total Payments shall be taken into account which
constitutes reasonable compensation for services actually rendered, within the
meaning of section 280G(b)(4)(B) of the Code, in excess of the Base Amount
allocable to such reasonable compensation, and (iii) the value of any noncash
benefit or any deferred payment or benefit included in the Total Payments
shall be determined by the Company in accordance with the principles of
<PAGE>
sections 280G(d)(3) and (4) of the Code. Prior to the payment date set forth
in Section 6.3 hereof, the Company shall provide the Executive with its
calculation of the amounts referred to in this Section and such supporting
materials as are reasonably necessary for the Executive to evaluate the
Company's calculations. If the Executive objects to the Company's
calculations, the Company shall pay to the Executive such portion of the
Severance Payments (up to 100% thereof) as the Executive determines is
necessary to result in the Executive receiving the greater of clauses (A) and
(B) of this Section.
6.3 The payments provided for in Section 6.1 (other than
Sections 6.1(D) and 6.2(a)) hereof shall be made not later than the fifth day
following the Date of Termination, provided, however, that if the amounts of
such payments, or any limitation on such payments set forth in Section 6.2(b)
hereof, cannot be finally determined on or before such day, the Company shall
pay to the Executive on such day an estimate, as determined in good faith by
the Company, of the minimum amount of such payments to which the Executive is
clearly entitled and shall pay the remainder of such payments (together with
interest at the rate provided in section 1274(b)(2)(B) of the Code) as soon as
the amount thereof can be determined but in no event later than the thirtieth
day after the Date of Termination. In the event that the amount of the
estimated payments exceeds the amount subsequently determined to have been
due, such excess shall constitute a loan by the Company to the Executive,
payable on the fifth business day after demand by the Company (together with
interest at the rate provided in section 1274(b)(2)(B) of the Code). At the
time that payments are made under this Section, the Company shall provide the
Executive with a written statement setting forth the manner in which such
payments were calculated and the basis for such calculations including,
without limitation, any opinions or other advice the Company has received from
counsel, auditors or consultants (and any such opinions or advice which are in
writing shall be attached to the statement).
6.4 The Company also shall pay to the Executive all legal fees
and expenses incurred by the Executive in disputing in good faith any
termination of his employment hereunder or in seeking in good faith to obtain
or enforce any benefit or right provided by this Agreement or in connection
with any tax audit or proceeding to the extent attributable to the application
of section 4999 of the Code to any payment or benefit provided hereunder.
Such payments shall be made within five business days after delivery of the
Executive's written requests for payment accompanied with such evidence of
fees and expenses incurred as the Company reasonably may require.
7. Termination Procedures and Compensation During Dispute.
7.1 Notice of Termination. After a Change in Control or a Major
Transaction and during the term of this Agreement, any purported termination
of the Executive's employment (other than by reason of death) shall be
communicated by written Notice of Termination from one party hereto to the
other party hereto in accordance with Section 10 hereof. For purposes of this
Agreement, a "Notice of Termination" shall mean a notice which shall indicate
the specific termination provision in this Agreement relied upon and shall set
forth in reasonable detail the facts and circumstances claimed to provide a
basis for termination of the Executive's employment under the provision so
indicated. Further, a Notice of Termination for Cause is required to include
a copy of a resolution duly adopted by the affirmative vote of not less than
three-quarters of the entire membership of the Board at a meeting of the Board
which was called and held for the purpose of considering such termination
(after reasonable notice to the Executive and an opportunity for the
Executive, together with the Executive's counsel, to be heard before the
Board) finding that, in the good faith opinion of the Board, the Executive was
guilty of conduct set forth in clause (i) or (ii) of the definition of Cause
herein, and specifying the particulars thereof in detail.
<PAGE>
7.2 Date of Termination. "Date of Termination", with respect to
any purported termination of the Executive's employment after a Change in
Control or a Major Transaction and during the term of this Agreement, shall
mean (i) if the Executive's employment is terminated for Disability, thirty
days after Notice of Termination is given (provided that the Executive shall
not have returned to the full-time performance of the Executive's duties
during such thirty-day period), and (ii) if the Executive's employment is
terminated for any other reason, the date specified in the Notice of
Termination (which, in the case of a termination by the Employer, shall not be
less than thirty days (except in the case of a termination for Cause) and, in
the case of a termination by the Executive, shall not be less than fifteen
days nor more than sixty days, respectively, from the date such Notice of
Termination is given).
7.3 Dispute Concerning Termination. If within fifteen days
after any Notice of Termination is given, or, if later, prior to the Date of
Termination (as determined without regard to this Section 7.3), the party
receiving such Notice of Termination notifies the other party that a dispute
exists concerning the termination, the Date of Termination shall be the date
on which the dispute is finally resolved, either by mutual written agreement
of the parties or by a final judgment, order or decree of a court of competent
jurisdiction (which is not appealable or with respect to which the time for
appeal therefrom has expired and no appeal has been perfected); provided
further that the Date of Termination shall be extended by a notice of dispute
only if such notice is given in good faith and the party giving such notice
pursues the resolution of such dispute with reasonable diligence.
7.4 Compensation During Dispute. If a purported termination
occurs following a Change in Control or a Major Transaction and during the
term of this Agreement, and such termination is disputed in accordance with
Section 7.3 hereof, the Company shall pay the Executive the full compensation
in effect when the notice giving rise to the dispute was given (including, but
not limited to, salary) and continue the Executive as a participant in all
compensation, benefit and insurance plans in which the Executive was
participating when the notice giving rise to the dispute was given, until the
dispute is finally resolved in accordance with Section 7.3 hereof. Amounts
paid under this Section 7.4 are in addition to all other amounts due under
this Agreement (other than those due under Section 5.2 hereof) and shall not
be offset against or reduce any other amounts due under this Agreement.
8. No Mitigation. The Company agrees that, if the Executive's
employment with the NEES Companies terminates during the term of this
Agreement, the Executive is not required to seek other employment or to
attempt in any way to reduce any amounts payable to the Executive by the
Company pursuant to this Agreement. Further, the amount of any payment or
benefit provided for in this Agreement (other than in Section 6.1(D) hereof)
shall not be reduced by any compensation earned by the Executive as the result
of employment by another employer, by retirement benefits, by offset against
any amount claimed to be owed by the Executive to the System, or otherwise.
9. Successors; Binding Agreement.
9.1 In addition to any obligations imposed by law upon any
successor to the Company, the Company will require any successor (whether
direct or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to expressly
assume and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place. Failure of the Company to obtain such assumption and
agreement prior to the effectiveness of any such succession shall be a breach
of this Agreement and shall entitle the Executive to compensation from the
Company in the same amount and on the same terms as the Executive would be
entitled to hereunder if the Executive were to terminate the Executive's
<PAGE>
employment for Good Reason after a Change in Control or a Major Transaction,
except that, for purposes of implementing the foregoing, the date on which any
such succession becomes effective shall be deemed the Date of Termination.
9.2 This Agreement shall inure to the benefit of and be
enforceable by the Executive's personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees. If
the Executive shall die while any amount would still be payable to the
Executive hereunder (other than amounts which, by their terms, terminate upon
the death of the Executive) if the Executive had continued to live, all such
amounts, unless otherwise provided herein, shall be paid in accordance with
the terms of this Agreement to the executors, personal representatives or
administrators of the Executive's estate.
10. Notices. For the purpose of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid, addressed to the
respective addresses set forth below, or to such other address as either party
may have furnished to the other in writing in accordance herewith, except that
notice of change of address shall be effective only upon actual receipt:
To the Company:
New England Power Service Company
25 Research Drive
Westborough, MA 01582-0099
Attention: Director of Human Resources
To the Executive:
Richard P. Sergel
34 Brook Street
Wellesley, MA 02181
11. Miscellaneous. No provision of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed
to in writing and signed by the Executive and such officer as may be
specifically designated by the Board. No waiver by either party hereto at any
time of any breach by the other party hereto of, or compliance with, any
condition or provision of this Agreement to be performed by such other party
shall be deemed a waiver of similar or dissimilar provisions or conditions at
the same or at any prior or subsequent time. This Agreement supersedes any
other agreements or representations, oral or otherwise, express or implied,
with respect to the subject matter hereof. The validity, interpretation,
construction and performance of this Agreement shall be governed by the laws
of The Commonwealth of Massachusetts. All references to sections of the
Exchange Act or the Code shall be deemed also to refer to any successor
provisions to such sections. Any payments provided for hereunder shall be
paid net of any applicable withholding required under Federal, state or local
law and any additional withholding to which the Executive has agreed. The
obligations of the Company and the Executive under Sections 6 and 7 shall
survive the expiration of the term of this Agreement.
12. Validity. The invalidity or unenforceability or any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
13. Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
<PAGE>
14. Settlement of Disputes; Arbitration. All claims by the Executive
for benefits under this Agreement shall be directed to and determined by the
Board and shall be in writing. Any denial by the Board of a claim for
benefits under this Agreement shall be delivered to the Executive in writing
and shall set forth the specific reasons for the denial and the specific
provisions of this Agreement relied upon. The Board shall afford a reasonable
opportunity to the Executive for a review of the decision denying a claim and
shall further allow the Executive to appeal to the Board a decision of the
Board within sixty days after notification by the Board that the Executive's
claim has been denied. Any further dispute or controversy arising under or in
connection with this Agreement shall be settled exclusively by arbitration in
Boston, Massachusetts, in accordance with the rules of the American
Arbitration Association then in effect. Judgment may be entered on the
arbitrator's award in any court having jurisdiction; provided, however, that
the Executive shall be entitled to seek specific performance of the
Executive's right to be paid until the Date of Termination during the pendency
of any dispute or controversy arising under or in connection with this
Agreement.
15. Definitions. For purposes of this Agreement, the following terms
shall have the meanings indicated below:
(A) "Base Amount" shall have the meaning defined in section
280G(b)(3) of the Code.
(B) "Beneficial Owner" shall have the meaning defined in Rule
13d-3 under the Exchange Act.
(C) "Board" shall mean the Board of Directors of the Company.
(D) "Cause" for termination by the Employer of the Executive's
employment, after any Change in Control or Major Transaction, shall mean (i)
the willful and continued failure by the Executive to substantially perform
the Executive's duties with the System (other than any such failure resulting
from the Executive's incapacity due to physical or mental illness or any such
actual or anticipated failure after the issuance of a Notice of Termination
for Good Reason by the Executive pursuant to Section 7.1) after a written
demand for substantial performance is delivered to the Executive by the Board,
which demand specifically identifies the manner in which the Board believes
that the Executive has not substantially performed the Executive's duties, or
(ii) the willful engaging by the Executive in conduct which is demonstrably
and materially injurious to the System, monetarily or otherwise. For purposes
of clauses (i) and (ii) of this definition, no act, or failure to act, on the
Executive's part shall be deemed "willful" unless done, or omitted to be done,
by the Executive not in good faith and without reasonable belief that the
Executive's act, or failure to act, was in the best interest of the System.
(E) A "Change in Control" shall be deemed to have occurred if
the conditions set forth in any one of the following paragraphs shall have
been satisfied:
(I) any Person is or becomes the Beneficial Owner,
directly or indirectly, of securities of the Company (not
including in the securities beneficially owned by such Person any
securities acquired directly from the Company or its affiliates)
representing 20% or more of the combined voting power of the
Company's then outstanding securities; or
(II) during any period of not more than two consecutive
years (not including any period prior to the execution of this
Agreement), individuals who at the beginning of such period
constitute the Board and any new director (other than a director
designated by a Person who has entered into an agreement with the
<PAGE>
Company to effect a transaction described in clause (I) of this
paragraph) whose election by the Board or nomination for election
by the Company's shareholders was approved or recommended by a
vote of at least two-thirds of the directors then still in office
who either were directors at the beginning of the period or whose
election or nomination for election was previously so approved or
recommended, cease for any reason to constitute a majority
thereof.
(F) "Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time.
(G) "Company" shall mean New England Electric System and any
successor to its business and/or assets which assumes and agrees to perform
this Agreement by operation of law, or otherwise (except in determining, under
Section 15(E) hereof, whether or not any Change in Control or Major
Transaction has occurred in connection with such succession).
(H) "Date of Termination" shall have the meaning stated in
Section 7.2 hereof.
(I) "Disability" shall be deemed the reason for the termination
by the Employer of the Executive's employment, if, as a result of the
Executive's incapacity due to physical or mental illness, the Executive shall
have been absent from the full-time performance of the Executive's duties with
the System for a period of six consecutive months, the Company shall have
given the Executive a Notice of Termination for Disability, and, within thirty
days after such Notice of Termination is given, the Executive shall not have
returned to the full-time performance of the Executive's duties.
(J) "Disability Insurance Plan" shall mean the Company
Disability Insurance Plan or any successor thereto.
(K) "Employer" shall mean the NEES Company by which the
Executive is employed at the time of determination.
(L) "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended from time to time.
(M) "Excise Tax" shall mean any excise tax imposed under section
4999 of the Code.
(N) "Executive" shall mean the individual named in the first
paragraph of this Agreement.
(O) "Good Reason" for termination by the Executive of the
Executive's employment shall mean the occurrence (without the Executive's
express written consent) of any one of the following acts by the System, or
failures by the System to act, unless, in the case of any act or failure to
act described in paragraph (I), (V), (VI), (VII), or (VIII) below, such act or
failure to act is corrected prior to the Date of Termination specified in the
Notice of Termination given in respect thereof:
(I) the assignment to the Executive of duties substantially
inconsistent with the Executive's status as an executive officer
of the System;
(II) a reduction in the Executive's annual base salary as
in effect on the date hereof or as the same may be increased from
time to time;
<PAGE>
(III) requiring the Executive to be based at a location
more than 100 miles from the town of Westborough, Massachusetts,
except for required travel on the System's business to an extent
substantially consistent with the Executive's present business
travel obligations;
(IV) the failure by the Employer, to pay to the Executive
any portion of the Executive's compensation within seven days of
the date such compensation is due;
(V) the failure by the System to continue in effect any
compensation plan in which the Executive participates immediately
prior to the Change in Control or the Major Transaction which is
material to the Executive's total compensation, including but not
limited to the New England Electric Companies' Incentive
Compensation Plan I, New England Electric Companies' Incentive
Compensation Plan II, New England Electric Companies' Senior
Incentive Compensation Plan, New England Electric Companies'
Incentive Share Plan, New England Electric Systems Companies'
Deferred Compensation Plan and the New England Electric Companies'
Executive Supplemental Retirement Plan or any substitute plans
adopted prior to the Change in Control or Major Transaction,
unless an equitable arrangement (embodied in an ongoing substitute
or alternative plan) has been made with respect to such plan, or
the failure by the System to continue the Executive's
participation therein (or in such substitute or alternative plan)
on a basis not substantially less favorable, both in terms of the
amount of benefits provided and the level of the Executive's
participation relative to other participants, as existed at the
time of the Change in Control or Major Transaction;
(VI) the failure by the System to continue to provide the
Executive with benefits substantially similar to those enjoyed by
the Executive under any of the System's pension, life insurance,
medical, health and accident, or disability plans in which the
Executive was participating at the time of the Change in Control
or the Major Transaction, the taking of any action by the System
which would directly or indirectly materially reduce any of such
benefits or deprive the Executive of any material fringe benefit
enjoyed by the Executive at the time of the Change in Control or
Major Transaction, or the failure by the Employer to provide the
Executive with the number of paid vacation days to which the
Executive is entitled on the basis of years of service with the
NEES Companies in accordance with the Employer's normal vacation
policy in effect at the time of the Change in Control or Major
Transaction; or
(VII) any purported termination of the Executive's
employment which is not effected pursuant to a Notice of
Termination satisfying the requirements of Section 7.1; for
purposes of this Agreement, no such purported termination shall be
effective.
The Executive's right to terminate the Executive's employment for
Good Reason shall not be affected by the Executive's incapacity due to
physical or mental illness. The Executive's continued employment shall not
constitute consent to, or a waiver of rights with respect to, any act or
failure to act constituting Good Reason hereunder.
(P) "Gross-Up Payment" shall have the meaning given in Section
6.2(a) hereof.
<PAGE>
(Q) A "Major Transaction" shall be deemed to have occurred if
the conditions set forth in any one of the following paragraphs shall have
been satisfied:
(I) the shareholders of the Company approve a merger or
consolidation of the Company with any corporation or business
trust, other than (i) a merger or consolidation which would result
in the individuals who prior to such merger or consolidation
constitute the Board constituting at least two-thirds of the board
of directors of the Company or the surviving or succeeding entity
immediately after such merger or consolidation, or (ii) a merger
or consolidation effected to implement a recapitalization of the
Company (or similar transaction) in which no Person acquires more
than 20% of the combined voting power of the Company's then
outstanding securities; or
(II) the shareholders of the Company approve a plan of
complete liquidation of the Company; or
(III) the shareholders of the Company approve an agreement
for the sale or disposition by the Company of all or substantially
all the Company's assets, other than a sale or disposition which
would result in the individuals who prior to such sale or
disposition constitute the Board constituting at least two-thirds
of the board of directors of the Person purchasing such assets
immediately after such sale or disposition.
(R) "NEES Companies" shall mean all NEES Companies,
collectively.
(S) "NEES Company" shall mean a subsidiary of the Company.
(T) "Notice of Termination" shall have the meaning stated in
Section 7.1 hereof.
(U) "Pension Plan" shall mean each of the plans and agreements
listed in Attachment A.
(V) "Person" shall have the meaning given in Section 3(a)(9) of
the Exchange Act, as modified and used in Sections 13(d) and 14(d) thereof;
however, a Person shall not include (i) the Company or any NEES Company, (ii)
a trustee or other fiduciary holding securities under an employee benefit plan
of the Company or any NEES Company, (iii) an underwriter temporarily holding
securities pursuant to an offering of such securities, or (iv) a corporation
owned, directly or indirectly, by the shareholders of the Company in
substantially the same proportions as their ownership of shares of the
Company.
(W) "Potential Change in Control" shall be deemed to have
occurred if the conditions set forth in any one of the following paragraphs
shall have been satisfied:
(I) the Company enters into an agreement, the consummation
of which would result in the occurrence of a Change in Control;
(II) the Company or any Person publicly announces an
intention to take or to consider taking actions which, if
consummated, would constitute a Change in Control;
(III) any Person who is or becomes the Beneficial Owner,
directly or indirectly, of securities of the Company representing
10% or more of the combined voting power of the Company's then
outstanding securities, increases such Person's beneficial
<PAGE>
ownership of such securities by 5% or more over the percentage so
owned by such Person on the date hereof unless such Person has
reported or is required to report such ownership (but less than
25%) on Schedule 13G under the Exchange Act (or any comparable or
successor report) or on Schedule 13D under the Exchange Act (or
any comparable or successor report) which Schedule 13D does not
state any intention to or reserve the right to control or
influence the management or policies of the Company or engage in
any of the actions specified in Item 4 of such Schedule (other
than the disposition of the common shares) and, within 10 business
days of being requested by the Company to advise it regarding the
same, certifies to the Company that such Person acquired such
securities of the Company in excess of 14.9% inadvertently and
who, together with its affiliates, thereafter does not acquire
additional securities while the Beneficial Owner of 15% or more of
the securities then outstanding; provided, however, that if the
Person requested to so certify fails to do so within 10 business
days, then such occurrence shall become a Potential Change in
Control immediately after such 10 business day period; or
(IV) the Board adopts a resolution to the effect that, for
purposes of this Agreement, a Potential Change in Control has
occurred.
(X) "Potential Major Transaction" shall be deemed to have
occurred if the conditions set forth in any one of the following paragraphs
shall have been satisfied:
(I) the Company enters into an agreement, the consummation
of which would result in the occurrence of a Major Transaction;
(II) the Company or any Person publicly announces an
intention to take or to consider taking actions which, if
consummated, would constitute a Major Transaction; or
(III) the Board adopts a resolution to the effect that, for
purposes of this Agreement, a Potential Major Transaction has
occurred.
(Y) "Retirement" shall be deemed the reason for the termination
by the Employer or the Executive of the Executive's employment if such
employment is terminated in accordance with the Employer's written mandatory
retirement policy, if any, as in effect immediately prior to the Change in
Control or Major Transaction, or in accordance with any retirement arrangement
established with the Executive's written consent with respect to the
Executive.
(Z) "Severance Payments" shall mean those payments described in
Section 6.1 hereof.
(AA) "System" shall mean the Company and the NEES Companies,
collectively.
(BB) "Total Payments" shall mean those payments described in
Section 6.2 hereof.
New England Electric System
By /s/ George M. Sage
_______________________________________
Chairman of the Compensation Committee
/s/ Richard P. Sergel
_________________________________________
<PAGE>
ATTACHMENT A
New England Electric System Companies' Final Average Pay Pension Plan I
New England Electric Companies' Executive Supplemental Retirement Plan
<PAGE>
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated this 31st day of December, 1998,
pursuant to Section 18-209 of the Delaware Limited Liability Company Act and
Section 59 of the Massachusetts Limited Liability Company Act, between
AllEnergy Marketing Company, L.L.C., a Massachusetts limited liability company
having its principal place of business at 3 University Office Park, 95 Sawyer
Road, Waltham, Massachusetts 02154 (the "Company"), and AllEnergy Marketing
Company, L.L.C., a Delaware limited liability company having its principal
place of business at 3 University Office Park, 95 Sawyer Road, Waltham,
Massachusetts 02154 (the "Surviving Company").
WITNESSETH:
WHEREAS, the Company is a limited liability company duly organized and
existing under the laws of the Commonwealth of Massachusetts;
WHEREAS, the Surviving Company is a limited liability company duly
organized and existing under the laws of the State of Delaware;
WHEREAS, the Company desires to merge itself into the Surviving Company;
WHEREAS, the Surviving Company desires that the Company be merged into
the Surviving Company; and
WHEREAS, the Members of the Company and the Surviving Company have
adopted a resolution approving this Agreement and Plan of Merger;
NOW THEREFORE, in consideration of the foregoing premises and the
undertakings herein contained and for other good and valuable consideration,
the receipt and sufficiency of which is hereby acknowledged, the parties
hereto agree as follows:
1. Merger. The Company shall be merged into the Surviving Company
pursuant to Section 18-209 of the Delaware Limited Liability Company Act and
Section 59 of the Massachusetts Limited Liability Company Act. The Surviving
Company shall survive the merger herein contemplated and shall continue to be
governed by the laws of the State of Delaware. The separate existence of the
Company shall cease forthwith upon the Effective Date (as defined below). The
merger of the Company into the Surviving Company shall herein be referred to
as the "Merger."
2. Member Approval. Concurrently with the execution of this
Agreement and Plan of Merger, this Agreement and Plan of Merger has been
approved (i) by the members of the Company in accordance with the Limited
Liability Company Agreement of the Company and Section 60 of the Massachusetts
Limited Liability Company Act, and (ii) by the members of the Surviving
Company in accordance with Section 18-209(b) of the Delaware Limited Liability
Company Act.
3. Effective Date. The Merger shall be effective at 11:59 p.m. on
the date specified in a Certificate of Merger to be filed with the Secretary
of State of the State of Delaware and a Certificate of Merger to be filed with
the Secretary of State of Massachusetts, which filings shall be made as soon
as practicable after all required stockholder approvals and other consents and
approvals have been obtained. The time of such effectiveness shall herein be
referred to as the "Effective Date."
<PAGE>
4. Membership Interests in the Company. On the Effective Date, by
virtue of the Merger and without any action on the part of the holders
thereof, (i) all of the membership interests in the Company held by NEES
Energy, Inc. shall be exchanged for 100% of the outstanding membership
interest in the Surviving Company, and (ii) all of the membership interests in
the Company held by NEES Global, Inc. shall be converted into the right to
receive $160,016 in cash, to be paid by the Surviving Company promptly
following the Effective Date. NEES Energy, Inc. and NEES Global, Inc.
together constitute the holders of all of the membership interests in the
Company.
5. Membership Interests in the Surviving Company. On the Effective
Date, by virtue of the Merger and without any action on the part of the holder
thereof, each membership interest in the Surviving Company existing
immediately prior thereto shall be cancelled.
6. Succession. On the Effective Date, the Surviving Company shall
succeed to all of the rights, privileges, debts, liabilities, powers and
property of the Company in the manner of and as more fully set forth in
Section 18-209 of the Delaware Limited Liability Company Act and Section 62 of
the Massachusetts Limited Liability Company Act. Without limiting the
foregoing, upon the Effective Date, all property, rights, privileges,
franchises, patents, trademarks, licenses, registrations, and other assets of
every kind and description of the Company shall be transferred to, vested in
and devolved upon the Surviving Company without further act or deed and all
property, rights, and every other interest of the Company and the Surviving
Company shall be as effectively the property of the Surviving Company as they
were of the Company and the Surviving Company, respectively. All rights of
creditors of the Company and all liens upon any property of the Company shall
be preserved unimpaired, and all debts, liabilities and duties of the Company
shall attach to the Surviving Company and may be enforced against it to the
same extent as if said debts, liabilities and duties had been incurred or
contracted by it.
7. Limited Liability Company Agreement. On the Effective Date, (i)
the Limited Liability Company Agreement of the Company, dated as of December
3, 1997 and as amended to date, shall be terminated and shall be of no further
force or effect and (ii) the Limited Liability Company Agreement attached
hereto as Exhibit A shall become the Limited Liability Company Agreement of
the Surviving Company, and such Limited Liability Company Agreement is hereby
adopted effective as of the Effective Date.
8. Officers. The officers of the Company on the Effective Date shall
become the officers of the Surviving Company on the Effective Date and shall
continue in office until the expiration of their respective terms of office
and until their successors have been elected and qualified.
9. Further Assurances. From time to time, as and when required by
the Surviving Company or by its successors and assigns, there shall be
executed and delivered on behalf of the Company such deeds and other
instruments, and there shall be taken or caused to be taken by it such further
and other action, as shall be appropriate or necessary in order to vest or
perfect in or to confirm of record or otherwise in the Surviving Company the
title to and possession of all the property, interests, assets, rights,
privileges, immunities, powers, franchises and authority of the Company, and
otherwise to carry out the purposes of this Agreement and Plan of Merger, and
the officers and directors of the Company are fully authorized in the name and
on behalf of the Company or otherwise to take any and all such action and to
execute and deliver any and all such deeds and other instruments.
<PAGE>
10. Abandonment. At any time prior to the Effective Date, this
Agreement and Plan of Merger may be terminated and the Merger may be abandoned
by the Members of either the Company or the Surviving Company or both,
notwithstanding their prior approval of this Agreement and Plan of Merger.
11. Amendment. This Agreement and Plan of Merger may be amended by
the members of the Company and the Surviving Company at any time prior to the
Effective Date.
12. Governing Law. This Agreement and Plan of Merger and the legal
relations between the parties shall be governed by and construed in accordance
with the laws of the State of Delaware.
13. Counterparts. In order to facilitate the filing and recording of
this Agreement and Plan of Merger, the same may be executed in any number of
counterparts, each of which shall be deemed to be an original.
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement
and Plan of Merger to be executed and attested on its behalf by its officers
thereunto duly authorized, as of the date first above written.
THE COMPANY:
ALLENERGY MARKETING COMPANY, L.L.C.
(a Massachusetts limited liability
company)
By:_________________________________
Marcy L. Reed
Vice President and Treasurer
THE SURVIVING COMPANY:
ALLENERGY MARKETING COMPANY, L.L.C.
(a Delaware limited liability company)
By:________________________________
Marcy L. Reed
Vice President and Treasurer
<PAGE>
EXHIBIT A
LIMITED LIABILITY COMPANY AGREEMENT
<PAGE>
ALLENERGY MARKETING COMPANY, L.L.C.
LIMITED LIABILITY COMPANY AGREEMENT
Dated as of ____________ __, 1998
<PAGE>
TABLE OF CONTENTS
ARTICLE 1 DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE 2 FORMATION AND PURPOSE. . . . . . . . . . . . . . . . . . . . 1
2.1 Rights, Duties, etc.. . . . . . . . . . . . . . . . . 1
2.2 Name. . . . . . . . . . . . . . . . . . . . . . . . . 1
2.3 Registered Office/Agent . . . . . . . . . . . . . . . 2
2.4 Term. . . . . . . . . . . . . . . . . . . . . . . . . 2
2.5 Purpose . . . . . . . . . . . . . . . . . . . . . . . 2
2.6 Powers. . . . . . . . . . . . . . . . . . . . . . . . 2
2.7 Filing of Certificate . . . . . . . . . . . . . . . . 4
2.8 Foreign Qualification . . . . . . . . . . . . . . . . 4
ARTICLE 3 MEMBERSHIP AND CAPITAL4
3.1 Members Initial Capital Contributions . . . . . . . . 4
3.2 Maintenance of Capital Accounts . . . . . . . . . . . 5
3.3 Percentage Interests. . . . . . . . . . . . . . . . . 5
3.4 Additional Capital Contributions. . . . . . . . . . . 5
3.5 Return of Capital Contributions . . . . . . . . . . . 6
3.6 Additional Members; New Issuances; Classes of Members 6
ARTICLE 4 STATUS AND RIGHTS OF MEMBERS . . . . . . . . . . . . . . . . 6
4.1 Limited Liability . . . . . . . . . . . . . . . . . . 6
4.2 No Make Up. . . . . . . . . . . . . . . . . . . . . . 7
4.3 Return of Distributions . . . . . . . . . . . . . . . 7
4.4 Specific Limitations. . . . . . . . . . . . . . . . . 7
4.5 Hiring of Company Employees . . . . . . . . . . . . . 8
4.6 Confidential Information. . . . . . . . . . . . . . . 8
4.7 Remedies. . . . . . . . . . . . . . . . . . . . . . . 10
ARTICLE 5 MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . 10
5.1 Management by the Members . . . . . . . . . . . . . . 10
5.2 Meetings of Members; Consents . . . . . . . . . . . . 11
5.3 Place of Meetings . . . . . . . . . . . . . . . . . . 11
5.4 Notice of Meetings. . . . . . . . . . . . . . . . . . 11
5.5 Meeting of All Members. . . . . . . . . . . . . . . . 11
5.6 Quorum. . . . . . . . . . . . . . . . . . . . . . . . 11
5.7 Voting by Percentage Interests; Voting Thresholds . . 11
5.8 Representatives and Proxies . . . . . . . . . . . . . 11
5.9 Conference Telephone. . . . . . . . . . . . . . . . . 12
5.10 Action by Members Without a Meeting . . . . . . . . . 12
5.11 Waiver of Notice. . . . . . . . . . . . . . . . . . . 12
5.12 Advisory Board. . . . . . . . . . . . . . . . . . . . 12
5.13 Duties and Authority of the Members . . . . . . . . . 12
5.14 Officers: Authority . . . . . . . . . . . . . . . . . 13
5.15 Transactions with Affiliates;
Exclusive Supply Arrangements . . . . . . . . . . . . 14
ARTICLE 6 BUSINESS PLAN: BUDGET. . . . . . . . . . . . . . . . . . . . 14
6.1 Business Plan . . . . . . . . . . . . . . . . . . . . 14
6.2 Annual Budget . . . . . . . . . . . . . . . . . . . . 14
ARTICLE 7 DISTRIBUTIONS AND ALLOCATIONS OF PROFIT AND LOSS . . . . . . 15
7.1 Distributions . . . . . . . . . . . . . . . . . . . . 15
7.2 Allocations of Net Profits. . . . . . . . . . . . . . 16
7.3 Allocation of Net Losses. . . . . . . . . . . . . . . 16
7.4 Other Allocation Provisions . . . . . . . . . . . . . 16
7.5 Changes in Members' Interests . . . . . . . . . . . . 17
7.6 Tax Allocations . . . . . . . . . . . . . . . . . . . 17
7.7 Tax Credits . . . . . . . . . . . . . . . . . . . . . 18
7.8 Adjustment of Capital Accounts. . . . . . . . . . . . 18
<PAGE>
7.9 Interpretation. . . . . . . . . . . . . . . . . . . . 18
7.10 Loans to Company. . . . . . . . . . . . . . . . . . . 19
ARTICLE 8 TAX MATTERS MEMBER . . . . . . . . . . . . . . . . . . . . . 19
8.1 Tax Matters Member. . . . . . . . . . . . . . . . . . 19
8.2 Indemnity of Tax Matters Member . . . . . . . . . . . 19
8.3 Information Furnished . . . . . . . . . . . . . . . . 19
8.4 Notice of Proceedings. etc. . . . . . . . . . . . . . 19
8.5 Notices to Tax Matters Member . . . . . . . . . . . . 20
ARTICLE 9 BOOKS, RECORDS, ACCOUNTING, AND REPORTS. . . . . . . . . . . 20
9.1 Books and Records . . . . . . . . . . . . . . . . . . 20
9.2 Delivery to Members; Inspection . . . . . . . . . . . 20
9.3 Financial Statements. . . . . . . . . . . . . . . . . 21
9.4 Filings . . . . . . . . . . . . . . . . . . . . . . . 21
ARTICLE 10 AMENDMENTS TO AGREEMENT . . . . . . . . . . . . . . . . . . 21
10.1 Amendments. . . . . . . . . . . . . . . . . . . . . . 21
10.2 Filings . . . . . . . . . . . . . . . . . . . . . . . 22
10.3 Binding Effect. . . . . . . . . . . . . . . . . . . . 22
ARTICLE 11 DISSOLUTION OF COMPANY. . . . . . . . . . . . . . . . . . . 22
11.1 Termination of Membership . . . . . . . . . . . . . . 22
11.2 Events of Dissolution or Liquidation. . . . . . . . . 22
11.3 Liquidation . . . . . . . . . . . . . . . . . . . . . 23
11.4 Distributions to Members. . . . . . . . . . . . . . . 23
11.5 No Action for Dissolution . . . . . . . . . . . . . . 23
11.6 No Further Claim. . . . . . . . . . . . . . . . . . . 23
ARTICLE 12 INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . 24
12.1 General . . . . . . . . . . . . . . . . . . . . . . . 24
12.2 Persons Entitled to Indemnity . . . . . . . . . . . . 24
12.3 Procedure Agreements. . . . . . . . . . . . . . . . . 25
12.4 Extent of Duties. . . . . . . . . . . . . . . . . . . 25
12.5 Fiduciary and Other Duties. . . . . . . . . . . . . . 25
ARTICLE 13 REPRESENTATIONS AND COVENANTS BY THE MEMBERS. . . . . . . . 26
13.1 Organization; Corporate Authority . . . . . . . . . . 26
13.2 Legal, Valid and Binding Obligation . . . . . . . . . 26
13.3 Investment Intent . . . . . . . . . . . . . . . . . . 27
13.4 Securities Regulation . . . . . . . . . . . . . . . . 27
13.5 Information . . . . . . . . . . . . . . . . . . . . . 27
13.6 Tax Position. . . . . . . . . . . . . . . . . . . . . 27
ARTICLE 14 COMPANY REPRESENTATIONS . . . . . . . . . . . . . . . . . . 27
14.1 Legal Existence . . . . . . . . . . . . . . . . . . . 27
14.2 Valid Issuance. . . . . . . . . . . . . . . . . . . . 28
14.3 Options. etc. . . . . . . . . . . . . . . . . . . . . 28
ARTICLE 15 MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . 28
15.1 Additional Documents. . . . . . . . . . . . . . . . . 28
15.2 Execution of Papers . . . . . . . . . . . . . . . . . 28
15.3 General . . . . . . . . . . . . . . . . . . . . . . . 28
15.4 Notices. Etc. . . . . . . . . . . . . . . . . . . . . 28
15.5 Expenses in Event of Breach . . . . . . . . . . . . . 29
15.6 Gender and Number . . . . . . . . . . . . . . . . . . 29
15.7 Severability. . . . . . . . . . . . . . . . . . . . . 29
15.8 Headings. . . . . . . . . . . . . . . . . . . . . . . 29
15.9 No Third Party Rights . . . . . . . . . . . . . . . . 29
<PAGE>
ALLENERGY MARKETING COMPANY, L.L.C.
LIMITED LIABILITY COMPANY AGREEMENT
THIS LIMITED LIABILITY COMPANY AGREEMENT of ALLENERGY MARKETING COMPANY,
L.L.C. is dated as of ________ __, 1998, by and between AllEnergy Marketing
Company, L.L.C., a Delaware limited liability company (the "Company") and NEES
Energy, Inc., a Massachusetts corporation ("NEI" and, together with such
future parties as may be added as members of the Company, the "Members").
WHEREAS, the Members have formed a limited liability company pursuant to
and in accordance with the Delaware Limited Liability Company Act (the "Act")
in order to conduct the business described herein; and
WHEREAS, the Company and the Members wish to enter into this Agreement
to provide for, among other things, the management of the business and affairs
of the Company, the allocation of profits and losses among the Members, the
respective rights and obligations of the Members to each other and to the
Company, and certain other matters.
NOW, THEREFORE, the Company and the Members hereby agree as follows:
ARTICLE 1
DEFINITIONS
Certain capitalized terms used in this Agreement have specifically
defined meanings which are either set forth or referred to in Exhibit 1, which
is attached hereto and incorporated herein by reference.
ARTICLE 2
FORMATION AND PURPOSE
2.1 Rights, Duties, etc. The rights, duties and liabilities of the
Members shall be determined pursuant to the Act and this Agreement. To the
extent that such rights, duties or obligations are different by reason of any
provision of this Agreement than they would be in the absence of such
provision, this Agreement shall, to the extent permitted by the Act, control.
2.2 Name. The name of the Company shall be AllEnergy Marketing
Company, L.L.C. The business of the Company may be conducted under that name
or, upon compliance with applicable laws, any other name that the Required
Members deem appropriate or advisable. The Members shall file any fictitious
name certificates and similar filings, and any amendments thereto, that shall
be necessary to permit the Company to carry on its business under the desired
name.
2.3 Registered Office/Agent. The registered office required to be
maintained by the Company in The Commonwealth of Massachusetts pursuant to the
Act shall initially be 3 University Office Park, 95 Sawyer Road, Waltham,
Massachusetts, 02154. The registered agent of the Company pursuant to the Act
shall initially be William H. Heil, whose address shall be that of the
registered office of the Company. The Company may, upon compliance with the
applicable provisions of the Act, change its registered office or registered
agent from time to time in the discretion of the Required Members.
2.4 Term. The term of the Company (the "Term") shall continue in
perpetuity unless sooner terminated as provided in Article 12.
<PAGE>
2.5 Purpose. The Company is formed for the object and purpose of, and
the nature of the business to be conducted and promoted by the Company is,
engaging in any lawful act or activity for which limited liability companies
may be formed under the Act and engaging in any and all activities necessary,
advisable, convenient or incidental thereto. Such object and purpose shall
include, without limitation, purchasing, marketing, selling and distributing
energy commodities (including but not limited to natural gas, electricity and
other energy sources) and related products, providing related services, and
engaging in any and all other activities necessary, advisable, convenient or
incidental to such activities.
2.6 Powers. Without limiting the generality of Section 2.5, the
Company shall have the power and authority to take any and all actions
necessary, appropriate, proper, advisable, incidental or convenient to or for
the furtherance of the purpose set forth in Section 2.5, including, but not
limited to, the power:
2.6.1 to conduct its business, carry on its operations and have
and exercise the powers granted to a limited liability company by the
Act in any state, territory, district or possession of the United States
or in any foreign country as may be necessary, convenient or incidental
to the accomplishment of the purposes of the Company;
2.6.2 to enter into, perform and carry out contracts of any kind
necessary to, in connection with, in furtherance of, convenient to, or
incidental to the accomplishment of the purpose of the Company,
including without limitation, contracts to purchase, market, sell or
distribute gas, electricity or any other energy commodity or related
products or to provide related services, which contracts may be with a
third party, a Member or an Affiliate of a Member, subject to Section
5.15;
2.6.3 to purchase or otherwise acquire, enter into, establish,
own, invest in, trade, close out, use, employ, market, sell, mortgage,
lend or otherwise dispose of positions under options, future contracts,
forward contracts, spot contracts, swap contracts and other financial
products, whether for hedging purposes or otherwise;
2.6.4 to purchase, take, receive, subscribe for or otherwise
acquire, own, hold, enter into, invest in, trade, vote, use, employ,
sell, mortgage, lend, pledge, or otherwise dispose of, and otherwise use
and deal in and with, shares and other equity interests in, obligations
of, and other financial instruments with or in respect of, domestic and
foreign corporations, associations, general, limited and limited
liability partnerships, trusts, limited liability companies and other
entities (including without limitation corporations, associations,
partnerships, trusts, limited liability companies and other entities
that engage or propose to engage in one or more businesses similar or
related to the business of the Company, including specifically but not
by way of limitation energy services companies), individuals,
international agencies, and the United States government and any other
national, state, regional, territorial, local or municipal government
and any agency or instrumentality of any such government;
2.6.5 to acquire by purchase, exchange, lease, contribution of
property or otherwise, own, hold, operate, maintain, finance, improve,
market, lease, sell, distribute, convey, mortgage, encumber, transfer,
demolish or dispose of any real or personal property, including but not
limited to natural gas, electricity or any other energy commodity that
may be necessary, convenient or incidental to the accomplishment of the
purpose of the Company;
<PAGE>
2.6.6 to lend money, to invest and reinvest its funds and to
take and hold real and personal property for the payment of funds so
loaned or invested;
2.6.7 to negotiate, enter into, renegotiate, extend, renew,
terminate, modify, amend, waive, execute, acknowledge or take any other
action with respect to any lease, contract or security agreement in
respect of any assets of or the business of the Company;
2.6.8 to borrow and issue evidences of indebtedness and to
secure the same by a mortgage, pledge or other lien on the assets of the
Company; provided, however, that without the prior written consent of
the Member in question, the Company shall not incur any indebtedness
that provides for the liability of any Member;
2.6.9 to open, close, and to make deposits to and withdrawals
from bank and other deposit accounts;
2.6.10 to give or terminate guarantees and indemnities;
2.6.11 to hire, employ and dismiss employees, agents and
representatives, attorneys, accountants, brokers, investment bankers,
appraisers and any other advisors or consultants of the Company or
service providers to the Company, and define their duties and fix their
compensation and benefits;
2.6.12 to indemnify any Person in accordance with this Agreement;
2.6.13 to cease its activities and cancel its Certificate;
2.6.14 to sue and be sued, complain and defend, and participate
in administrative or other proceedings, in its name;
2.6.15 to pay, collect, compromise, litigate, arbitrate or
otherwise adjust or settle any and all other claims or demands of or
against the Company or to hold such proceeds against the payment of
contingent liabilities; and
2.6.16 to make, execute, acknowledge and file any and all
documents or instruments necessary, convenient or incidental to the
accomplishment of the purpose of the Company.
2.7 Filing of Certificate. Each of the officers set forth in Section
5.14 is designated as an authorized person within the meaning of the Act to
execute, deliver and file any certificates under the Act and any other
certificates necessary for the Company to qualify to do business in a
jurisdiction in which the Company may wish to conduct business.
2.8 Foreign Qualification. The Members shall take all necessary
actions to cause the Company to be authorized to conduct business legally in
Massachusetts, Maine, New Hampshire, Vermont, Rhode Island, Connecticut, New
York and any other jurisdictions which the Required Members shall determine.
ARTICLE 3
MEMBERSHIP AND CAPITAL
3.1 Members Initial Capital Contributions. The sole initial Member of
the Company is NEI, which is admitted to the Company as a Member effective
upon its execution of this Agreement. The Capital Contribution of NEI has been
made by virtue of the conversion of its membership interest in AllEnergy
Marketing Company, L.L.C., a Massachusetts limited liability company merged
with and into the Company on the date hereof.
<PAGE>
3.2 Maintenance of Capital Accounts. A separate account (each a
"Capital Account") shall be established and maintained for each Member which
shall be increased by (a) such Member's Capital Contributions and (b) such
Member's share of the Net Profit of the Company, and shall be charged with (c)
Distributions to such Member and (d) such Member's share of the Net Losses of
the Company. It is the intention of the Members that the Capital Accounts be
maintained in accordance with the provisions of Section 704(b) of the Code and
the Regulations thereunder, that any liabilities be taken into account in
accordance with the provisions of Section 752 of the Code and the Regulations
thereunder, and that this Agreement be interpreted consistently therewith.
3.3 Percentage Interests. The percentage interest of each Member in
the profits of the Company (each a "Percentage Interest") shall initially be
as follows:
NEI 100%
The Percentage Interests of the Members shall be subject to adjustment as
provided in Sections 3.6 and 3.7.4.
3.4 Additional Capital Contributions.
3.4.1 Required Contributions. The Required Members may from
time to time determine that additional Capital Contributions are
required by the Company. In such a case, each Member agrees that within
not more than ten Business Days (or such longer period of time as the
Required Members may determine) following the determination by the
Required Members that additional Capital Contributions are necessary,
which period may be extended by agreement of the Required Members, such
Member will contribute to the Company (in cash unless otherwise
determined (and agreed as to the nature and valuation) by the Required
Members) as an additional Capital Contribution that percentage of the
aggregate additional Capital Contributions required of all Members that
is equal to its Percentage Interest.
3.4.2 Funds Transfers. Capital Contributions required by this
Section 3.4 shall be made by wire transfer of immediately available
funds to the Company' s account at such bank as the Company may from
time to time designate in writing (or if property other than cash is to
be contributed, in the manner specified by the Required Members).
3.4.3 Voluntary Contributions. Following the Effective Date, no
Member shall be required or permitted to make any Capital Contributions
to the Company except pursuant to this Section 3.4.
3.5 Return of Capital Contributions. No Member shall have the right
to demand a return of all or any part of its Capital Contributions, and any
return of the Capital Contributions of any Member shall be made solely from
the assets of the Company and only in accordance with the terms of this
Agreement. No interest shall be paid to any Member with respect to its Capital
Contributions.
3.6 Additional Members; New Issuances; Classes of Members. Except as
contemplated by Article 9, no new Members shall be admitted to the Company
without the consent of the Required Members. Upon the written consent of the
Required Members, the Company may issue Interests, which may represent
interests in both the capital and the profits of the Company or which may be
interests in only the future profits of the Company ("Profits Interests") to
Persons who are not yet Members, or may increase the Interest of an existing
Member, for such consideration (including but not limited to cash, other
property or the provision of services, whether future, current or past) and on
such terms as the Required Members shall determine. Upon the issuance of a new
Interest, or an increase in the Percentage Interest represented by an existing
Interest, the Percentage Interests of all existing Members shall be diluted
<PAGE>
ratably. Each Person that is to be issued an Interest shall deliver to the
Company, as a condition of its admission to the Company as a Member, such
documents of the type specified in Section 9.5.1(i) and (ii) as the Required
Members shall request. The Members shall constitute a single class of Members
for all purposes under the Act and this Agreement unless and to the extent
that this Agreement specifically provides for different classes or groups of
Members of the Company.
ARTICLE 4
STATUS AND RIGHTS OF MEMBERS
4.1 Limited Liability. Except as otherwise provided by the Act, the
debts, obligations and liabilities of the Company, whether arising in
contract, tort or otherwise, shall be solely the debts, obligations and
liabilities of the Company, and no Member nor any other Indemnified Person
shall be obligated personally for any such debt, obligation or liability of
the Company. All Persons dealing with the Company shall look solely to the
assets of the Company for the payment of the debts, obligations or liabilities
of the Company.
4.2 No Make Up. In no event shall any Member be required to pay to
the Company, to any other Member or its Affiliate or to any third party, any
deficit balance that may exist from time to time in such Member's Capital
Account.
4.3 Return of Distributions. Except as otherwise expressly required
by law, a Member, in its capacity as such, shall have no liability either to
the Company or any of its creditors in excess of (a) the amount of its Capital
Contributions actually made, (b) its share of any assets and undistributed
profits of the Company, (c) its obligation to make Capital Contributions and
any other payments expressly provided for in this Agreement, and (d) to the
extent required by law, the amount of any Distributions wrongfully distributed
to it; provided, however, that, to the maximum extent permitted by applicable
law, the obligations of the Members under Section 3.4 shall be solely for the
benefit of the Company and not the creditors of the Company. Except as
required by law or a court of competent jurisdiction, no Member shall be
obligated by this Agreement to return any Distribution to the Company or pay
the amount of any Distribution for the account of the Company or to any
creditor of the Company. However, if any court of competent jurisdiction holds
that, notwithstanding the provisions of this Agreement, any Member is
obligated to return or pay any part of any Distribution, the obligation shall
be that of such Member alone, and not of any other Member unless the court so
provides. The amount of any Distribution returned to the Company by or on
behalf of a Member or paid by or on behalf of a Member for the account of the
Company or to a creditor of the Company shall be added to the account or
accounts from which it was subtracted when it was distributed to the Member.
4.4 Specific Limitations. No Member shall have the right or power to:
(a) withdraw or reduce its Capital Contribution except as a result of the
dissolution of the Company or as otherwise provided by law or in this
Agreement, (b) other than upon the Effective Date or with the approval of the
Required Members, make voluntary Capital Contributions or to contribute any
property to the Company other than cash, (c) bring an action for partition
against the Company or any Company assets, (d) cause the termination and
dissolution of the Company, except as set forth in this Agreement, or (e) upon
the distribution of its Capital Contribution require that property other than
cash be distributed in return for its Capital Contribution. Each Member
hereby irrevocably waives any and all rights that it may have to maintain an
action for partition of any of the Company's property. Except as otherwise
set forth in this Agreement, no Member shall have priority over any other
Member either as to the return of its Capital Contribution or as to Net
Profit, Net Loss, or Distributions; provided, that this provision shall not
apply to the repayment by the Company of loans (as distinguished from Capital
<PAGE>
Contributions) which a Member has made to the Company. Other than upon the
termination and dissolution of the Company as provided by this Agreement,
there has been no time agreed upon when the Capital Contribution of any Member
will be returned.
4.5 Hiring of Company Employees.
4.5.1 Hiring of Company Employees. During the Term, no Member
nor any Affiliate of a Member shall hire, employ or otherwise retain the
services of, including as an independent contractor, any person who is
then serving, or who within the last year served, as either the chief
executive officer or the chief operating officer of the Company, without
the prior written consent of the other Members, which consent will not
unreasonably be withheld. In the event that any employee or former
employee of the Company (including, with the consent of the other
Members, the chief executive officer or chief operating officer of the
Company, but not including any secretarial or clerical employee) is at
any time hired, employed or otherwise retained to provide services by a
Member or an Affiliate of a Member, such employee shall not (and the
hiring Member or Affiliate shall not permit such employee to) for the
one-year period commencing on the date on which he or she begins
providing services to such Member or Affiliate of a Member, perform,
engage in, participate in, direct, or otherwise consult or provide
advice or information with respect to, any business activity that
competes directly with any business activity engaged in by the Company.
4.5.2 Severability. If any of the restrictions set forth in
this Section 4.5 should, for any reason whatsoever, be declared invalid
by a court of competent jurisdiction, the validity or enforcement of the
remainder of such restrictions and covenants shall not thereby be
adversely affected. Each Member agrees that, if any provision of this
Section 4.5 should be adjudicated to be invalid or unenforceable, such
provision shall be deemed deleted therefrom with respect, and only with
respect, to the operation of such provision in the particular
jurisdiction in which such adjudication was made; provided, however,
that to the extent any such provision may be made valid and enforceable
in such jurisdiction by limitations on the scope of the activities,
geographical area or time period covered, the Members agree that such
provision instead shall be deemed limited to the extent, and only to the
extent, necessary to make such provision enforceable to the fullest
extent permissible under the laws and public policies applied in such
jurisdiction.
4.6 Confidential Information.
4.6.1 Non-Disclosure: Non-Utilization. Each Member agrees that,
from the commencement of the Term until the end of the period specified
in Section 4.6.4 and regardless of whether the Member is still a Member
or has ceased to be a Member, except as otherwise consented to by the
Required Members, all non-public confidential or proprietary information
furnished to it pursuant to this Agreement or otherwise in connection
with the Company's operation of its business, including without
limitation, any and all information concerning the Company's suppliers
and customers and the Company's business dealings with such Persons
("Confidential Information), will be kept confidential and will not be
disclosed or utilized by such Member, or by any of its agents,
representatives, employees or Affiliates (or any employee, agent or
representative thereof), in any manner or for any purpose whatsoever, in
whole or in part, except that (a) each Member shall be permitted to
disclose such Confidential Information to those of its agents,
attorneys, accountants, financial and business consultants, other
representatives, and employees who need to be familiar with such
Confidential Information in connection with such Member's investment in
the Company and who are charged with an obligation of confidentiality,
<PAGE>
(b) each Member shall be permitted to disclose such Confidential
Information to financial institutions and bona fide prospective
purchasers and capital investors when such Persons are charged with an
obligation of confidentiality, (c) each Member shall be permitted to
disclose such Confidential Information to its members, partners and
stockholders so long as they agree not to utilize such Confidential
Information in their own business or that of any Affiliate in any way
and to keep such Confidential Information confidential (including from
any Affiliate) on the terms set forth herein, (d) each Member shall be
permitted to disclose Confidential Information to the extent required by
law, so long as such Member shall have first afforded the Company with a
reasonable opportunity to contest the necessity of disclosing such
Confidential Information, (e) each Member shall be permitted to disclose
Confidential Information to the extent necessary for the enforcement of
any right of such Member arising under this Agreement and (f) each
Member shall be permitted to disclose that Confidential Information
expressly permitted by the Required Members to be disclosed. No Member,
nor any officer, agent, representative or Affiliate of a Member, nor any
officer, agent or representative of the Company shall disclose the terms
of this Agreement to any Person except (i) to the extent required by law
or (ii) for legitimate business purposes approved by the Required
Members. For purposes of this Agreement, Confidential Information shall
not include any information (other than proprietary compilations of
information that is non-confidential or is in the public domain) which
(a) is within the public domain prior to the time it is furnished or
thereafter comes within the public domain other than as a result of any
disclosure by a Member in violation of the terms of this Agreement, (b)
was in the possession of a Member on a non-confidential basis prior t
the execution of this Agreement or (c) is obtained by a Member from a
third party not known by the Member to be under any confidentiality
obligation to the Member, whether by contractual, legal or fiduciary
obligation or otherwise.
4.6.2 Precautionary Measures. Each Member shall take such
precautionary measures as may be required to ensure (and such Member
shall be responsible for) compliance with this Section 4.6 by any of its
Affiliates, and its and their directors, officers, employees, agents,
representatives and other Persons to which it may disclose Confidential
Information in accordance with this Section 4.6.
4.6.3 Destruction or Return of Confidential Information. In the
event a Member shall cease to be a Member, it shall promptly destroy
(and provide a certificate of destruction to the Company with respect
to), or return to the Company, all Confidential Information of the
Company in its possession. Notwithstanding the immediately preceding
sentence, a Member that ceases to be a Member may retain for a stated
period, but not disclose to any other Person, Confidential Information
for the exclusive purposes of (A) explaining such Member's corporate
decisions with respect to the Company or (B) preparing such Member's tax
returns and defending audits, investigations and proceedings relating
thereto; provided, however, that the Member must notify the Company in
advance of such retention and specify in such notice the stated period
of such retention.
4.6.4 Survival of Provision Beyond Term. The obligations of
each Member under this Section 4.6 shall survive both the termination of
such Member's membership in the Company and the dissolution and
termination of the Company until, unless extended pursuant to Section
9.9, the earlier of the fifth anniversary of the termination of such
Member's membership or the third anniversary of the end of the Term.
4.7 Remedies. The Members agree that no adequate remedy at law exists
for a breach or threatened breach of any of the provisions of Section 4.5 or
Section 4.6 hereof, the continuation of which unremedied will cause the
<PAGE>
Company and the other Members to suffer irreparable harm. Accordingly,
notwithstanding Section 16.5, the Members agree that the Company and the other
Members shall be entitled, in addition to other remedies that may be available
to them, to immediate injunctive relief from any breach of any of the
provisions of Section 4.5 or 4.6 and to specific performance of their rights
hereunder, as well as to any other remedies available at law or in equity.
ARTICLE 5
MANAGEMENT
5.1 Management by the Members. The management of the Company is fully
vested in the Members, acting exclusively in their membership capacities. Each
Member may designate by written notice to the Company and the other Member,
one or more representatives of such Member (each, a "Representative") who
shall be authorized to speak on behalf of and take actions on behalf of such
Member and, if such authorization is subject to any limits, conditions or
qualifications, shall specify the precise nature of such limits, conditions or
qualifications. A Member's designation may be changed at any time by notice
to the Company. In the absence of a designated Representative, the chief
executive officer of such Member shall be such Member's Representative. The
Members expressly intend that the Company will not have "managers," as that
term is used in the Act or in Rev. Proc. 95-10, 1995-3 I.R.B. 20, it being
understood that the Representatives do not constitute "managers," but that
each Representative acts solely as the agent of the Member that appointed it.
5.2 Meetings of Members; Consents. Deliberations and actions of the
Members (including deliberations and actions by the Required Members) shall
occur at meetings of the Members or by written consents executed by the
Members in accordance with Section 5.10. Meetings of the Members, for any
purpose or purposes, may be called by any Member or Members holding Interests
representing, in the aggregate, at least a 50% Percentage Interest.
5.3 Place of Meetings. The Required Members may designate any place,
either within or outside The Commonwealth of Massachusetts, as the place of
meeting for any meeting of the Members. If no designation is made, the place
of meeting shall be the principal place of business of the Company.
5.4 Notice of Meetings. Except as provided in Section 5.5, notice
stating the place, day and hour of a meeting of Members shall be delivered in
accordance with Section 16.4 not less than forty-eight (48) hours before the
time of the meeting, by or at the direction of the Member or Members calling
the meeting, to each other Member. The purpose or purposes of such meeting
shall be specified in such notice.
5.5 Meeting of All Members. If the Required Members consent to the
holding of a meeting of Members at any time and place and attend such meeting,
such meeting shall be valid without call or notice, and at such meeting any
lawful action may be taken.
5.6 Quorum. The Required Members, represented in person or by proxy,
shall constitute a quorum at any meeting of Members.
5.7 Voting by Percentage Interests; Voting Thresholds. Except as
provided otherwise in this Agreement, voting shall be according to the
Members' respective Percentage Interests; provided, however, that unless
otherwise expressly provided in this Agreement, all decisions by the Members
shall require the affirmative vote of each of the Required Members.
5.8 Representatives and Proxies. At any meeting of Members, a Member
shall be deemed in attendance if at least one of its Representatives is in
attendance. The vote of a Member at a meeting of Members shall be determined
by the Representatives in attendance after such consultation with the Member's
other executive officers and directors as may be required. At any meeting of
<PAGE>
Members, a Member may instead vote by proxy executed in writing by the Member
or by a duly authorized attorney-in-fact. Such proxy shall be filed with the
Company before or at the time of the meeting. No proxy shall be valid after
eleven (11) months from the date of its execution, unless otherwise provided
in the proxy.
5.9 Conference Telephone. Any Member may participate in a meeting of
the Members by means of conference telephone or similar communications
equipment which permits all persons participating in the meeting to hear each
other, and participation in the meeting by means of such equipment shall
constitute presence in person at such meeting.
5.10 Action by Members Without a Meeting. Action required or permitted
to be taken at a meeting of Members may be taken without a meeting if the
action is evidenced by one or more written consents describing the action
taken, signed by the Required Members and delivered to the Company for
inclusion in the minutes or for filing with the Company records. Action taken
under this Section 5.10 is effective when the Required Members have signed the
consent, unless the consent specifies a different effective date.
5.11 Waiver of Notice. When any notice is required to be given to any
Member, a waiver thereof in writing signed by or on behalf of the Member
entitled to such notice, whether before, at or after the time stated therein,
shall be equivalent to the giving of such notice.
5.12 Advisory Board. The Members hereby establish, for the purposes of
providing advice and counsel and making recommendations to the Members in
respect of their management of the Company, an advisory board (the "Advisory
Board"). Each Member shall designate three Persons to serve on the Advisory
Board. In addition, each of the chief executive officer and chief operating
officer of the Company will serve on such board. The Advisory Board shall
have no authority to bind or otherwise act on behalf of the Company, nor may
the Members delegate any portion of their authority as Members to the Advisory
Board; however, the Members may take into account the advice of such Board in
exercising their rights and fulfilling their obligations as Members. The
Advisory Board may adopt such procedures and rules as to its conduct and
proceedings as its members may from time to time determine.
5.13 Duties and Authority of the Members. Each Member shall have the
full power and authority to take any and all actions on behalf of or with
respect to the Company that are permitted under Massachusetts law to be taken
by members of a limited liability company; provided, however, that each Member
agrees not to take any action in the name of or on behalf of the Company
unless such action, and the taking thereof by such Member, shall have been
authorized by the Required Members or is expressly authorized by this
Agreement. The Required Members may ratify previously unauthorized actions
taken by a Member in the name of and on behalf of the Company, which
ratification shall cure any breach by such Member of the prior sentence
arising from such actions. Subject to the two immediately preceding
sentences, the powers and authority granted to the Members hereunder shall
include all those necessary or convenient for the furtherance of the purpose
and powers of the Company and shall include the power and authority to make
all decisions and take all actions with regard to the management, operations,
assets, financing and capitalization of the Company, including without
limitation, the power and authority to make decisions concerning, and take all
actions in respect of, all those matters specified in Section 2.6.
5.14 Officers: Authority. The Required Members may designate one or
more Persons to be officers of the Company and may remove any such Person as
an officer of the Company. Any officers so designated shall have such titles
and, subject to the other provisions of this Agreement, have such authority
and perform such duties as the Required Members may delegate to them,
including the power to execute documents, and shall serve at the pleasure of
the Required Members. Unless the authority of the Person designated as the
<PAGE>
officer in question is limited or expanded in the document appointing such
officer or is otherwise specified by the Required Members, any officer so
appointed shall have the same authority to act for the Company as a
corresponding officer of a Delaware corporation would have to act for a
Delaware corporation in the absence of a specific delegation of authority;
provided, however, that unless such power is specifically delegated to the
officer in question either for a specific transaction or generally, no such
officer shall have the power to act in a manner that is not consistent with
the Business Plan and Annual Budget then in effect, to lease or acquire real
property, to borrow an amount of money in excess of $1,000,000, to issue
notes, debentures, securities, equity or other interests of or in the Company,
to make investments in (other than the temporary investment of surplus cash),
or to acquire securities of any Person, to give guarantees or indemnities, to
merge, consolidate, liquidate or dissolve the Company or to sell or lease all
or any substantial portion of the assets of the Company, and; provided,
however, that no such officer shall have the power to enter into, purchase,
acquire or otherwise invest in options, futures contracts, forward contracts,
collars, spot contracts or swap contracts related to the choice, purchase or
consumption of any Energy Commodity or any other financial products marketed
or used in connection therewith, unless such transaction is consistent with a
code of standards and controls for such transactions which has been approved
by the Required Members, or has otherwise specifically been approved by the
Required Members. The Required Members, in their discretion, may by written
instrument signed by such Members ratify any act previously taken by an
officer acting on behalf of the Company. By their signatures to this
Agreement, the Required Members hereby designate the following Persons as the
initial officers of the Company:
Chairman and Chief Executive Officer: William H. Heil
President and Chief Operating Officer: John H. Dickson
Vice President and Treasurer
(Chief Financial Officer): Marcy L. Reed
Vice Presidents: Christopher G. Gulick
Frank L. Peraino, Sr.
Frank X. Beirne
William R. Connallon
David L. Williamson
Secretary: Kirk Ramsauer
5.15 Transactions with Affiliates; Exclusive Supply Arrangements. The
Company will comply with all legal requirements applicable with respect to
transactions between it and any Member or Affiliate of a Member and will not
engage in any transaction with a Member or an Affiliate of any Member without
the prior written consent of the other Members, other than any transaction
entered into in the ordinary course of the Company s business on terms,
including price, at least as favorable to the Company as the Company might
obtain in an arm s-length transaction with an unaffiliated counterparty. In
the event of such a transaction, the Company will give notice immediately to
both Members of the occurrence of such transaction and the terms on which it
was effected, unless the transaction and the terms on which it was effected
were previously approved by the Required Members. The Company shall not enter
into any exclusive supply contract or other similar arrangement with any
supplier of Energy Commodities or Energy Related Products and Services without
the prior written approval of the Required Members.
ARTICLE 6
BUSINESS PLAN: BUDGET
6.1 Business Plan. At least 45 days prior to the-beginning of the
second and each subsequent Fiscal Year, the Required Members shall discuss and
revise the business plan of the Company then in effect (the "Business Plan")
of the Company so that the Business Plan at all times reflects the strategic
<PAGE>
plan for the Company for the then current Fiscal Year and the subsequent four
Fiscal Years.
6.2 Annual Budget. The Required Members shall, at least 45 days
before the beginning of each subsequent Fiscal Year, determine a budget for
the Company
for the next Fiscal Year (the budget for the Company's first Fiscal Year and
each subsequent budget, each an "Annual Budget"); provided that if an Annual
Budget is not agreed upon for any Fiscal Year, the Annual Budget for the
preceding Fiscal Year shall remain in effect. Notwithstanding the proviso to
the immediately preceding sentence, the Members agree that if they cannot
agree on an Annual Budget, they will implement the dispute resolution
provisions of Section 16.5, provided, however, that, no arbitration shall be
required. Each Annual Budget shall include a projected profit and loss
statement, cash flow statement and balance sheet for the next Fiscal Year, and
shall specify and quantify capital expenditures.
ARTICLE 7
DISTRIBUTIONS AND ALLOCATIONS OF PROFIT AND LOSS
7.1 Distributions.
7.1.1 In General. Subject to Section 3.7.2, the Company shall
make Distributions at such times and in such amounts as the Required
Members shall determine; provided, that, all Distributions (other than
Distributions in liquidation of the Company) shall be made ratably in
accordance with the Members' Percentage Interests and all Distributions
in liquidation of the Company shall be made in proportion to the
Members' Capital Account balances so as to reduce each Member' 5 Capital
Account balance to zero.
7.1.2 Statutory Bar on Distributions. Notwithstanding any
provision to the contrary contained in this Agreement, the Company shall
not make a Distribution to any Member on account of its interest in the
Company if such Distribution would violate Section 18-607 of the Act or
other applicable law.
7.1.3 Withholding. All amounts withheld pursuant to the Code or
any provision of any federal, state, local or foreign tax law with
respect to any payment, distribution, or allocation to the Company or
the Members shall be treated as amounts distributed to the Members
pursuant to Section 7.1 for all purposes under this Agreement. The
Company shall withhold from Distributions to, and with respect to
allocations to, the Members and to pay over to the appropriate federal,
state, local or foreign government any amounts required to be so
withheld, and shall allocate any such amounts to the Members in respect
of whose Distribution or allocation the tax was withheld.
7.1.4 Property Distributions and Installment Sales. The
Required Members may from time to time determine to distribute property
other than cash to the Members. In such a case, such in-kind
Distribution shall be made to the Members entitled thereto in the same
proportions as the Members would have been entitled to cash
distributions. The amount by which the fair market value of any
property to be distributed in kind to the Members exceeds or is less
than the Book Value of such property shall, to the extent not otherwise
recognized by the Company, be taken into account in determining Net
Profit and Net Loss and determining the Capital Accounts of the Members
as if such property had been sold at its fair market value immediately
prior to its distribution. If any assets are sold in transactions in
which, by reason of the provisions of section 453 of the Code or any
successor thereto, gain is realized but not recognized, such gain shall
<PAGE>
be taken into account when realized in computing gain or loss of the
Company for purposes of allocation of Net Profit or Net Loss under this
Article 7, and, if such sales shall involve substantially all the assets
of the Company, the Company shall be deemed to have been dissolved and
terminated notwithstanding any election by the Members to continue the
Company for purposes of collecting the proceeds of such sales.
7.2 Allocations of Net Profits. Subject to Section 7.4, the Net
Profit of the Company shall be allocated among the Members ratably in
accordance with their Percentage Interests.
7.3 Allocation of Net Losses. Subject to Section 7.4, the Net Loss of
the Company shall be allocated among the Members ratably in accordance with
their Percentage Interests.
7.4 Other Allocation Provisions. Prior to making the allocations of
Net Profit or Net Loss for the Fiscal Year in accordance with Sections 7.2 and
7.3, income, gain, loss, deduction and credit (and items thereof) shall be
allocated in accordance with the provisions of this Section 7.4 to the extent
required by the Code and applicable Regulations. Any amounts allocated
pursuant to this Section 7.4 shall not again be allocated under Section 7.2 or
7.3.
7.4.1 Qualified Income Offset: Nonrecourse and Member
Nonrecourse Deductions. There is hereby included in the Agreement such
provisions governing the allocation of income, gain, loss, deduction and
credit (and items thereof) as may be necessary to provide that the
Company's allocation provisions contain a so-called "Qualified Income
Offset provision and comply with all provisions relating to the
allocation of so-called Nonrecourse Deductions" and "Member Nonrecourse
Deductions" and the chargeback thereof as set forth in the Regulations
under Section 704(b) of the Code. Allocations of Nonrecourse Deductions
shall be made ratably among the Members in accordance with their
Percentage Interests. In allocating Net Profits pursuant to Section 7.2
hereof, the Required Members shall take into account (and, if necessary,
modify the allocations to reflect) anticipated future allocations under
the minimum gain chargeback rules of Regulation sec. 1.704-2.
7.4.2 Special Adjustments. To the extent that an adjustment to
the adjusted tax of any Company asset is required pursuant to Section
734(b) or Section 743(b) of the Code and is required, pursuant to
Regulation Section 1.704-1(b)(2)(iv)(m), to be taken into account in
determining Capital Accounts, the amount of such adjustment to the
Capital Accounts shall be treated as an item of gain (if the adjustment
increases the basis of the asset) or loss (if the adjustment decreases
such basis), and such gain or loss shall be specially allocated to the
Members in a manner consistent with the manner in which their Capital
Accounts are required to be adjusted pursuant to such Section of the
Regulations.
7.4.3 Recourse Indebtedness. In the event that indebtedness of
the Company is recourse to one or more, but not all, of the Members, the
Required Members, with the advice of independent accountants, shall make
such modifications to the allocation provisions of Sections 7.2 and 7.3
as it shall determine to be appropriate.
7.4.4 Limitation on Net Losses. Notwithstanding any other
provision of this Agreement to the contrary, Net Loss shall not be
allocated to any Member if such allocation would cause such Member to
have an Adjusted Capital Account Deficit or increase such Member's
Adjusted Capital Account Deficit. To the extent an allocation of Net
Loss would cause or increase an Adjusted Capital Account Deficit as to
any Member, the limitation set forth in this Section 7.4.4 shall be
applied on a Member by Member basis in accordance with the Members'
<PAGE>
respective Percentage Interests so as to allocate the maximum
permissible Net Loss to each Member without causing any Member to have
an Adjusted Capital Account Deficit.
7.5 Changes in Members' Interests. If during any Fiscal Year of the
Company there is a change in any Member's Interest in the Company, the
Required Members shall confer with the tax advisors to the Company and, in
conformity with such advice allocate the Net Profit or Net Loss to the Members
so as to take into account the varying Interests of the Members in the Company
in a manner that complies with the provisions of Section 706 of the Code and
the Regulations thereunder.
7.6 Tax Allocations.
7.6.1 In General. Subject to Section 7.6.2, each item of
income, gain, loss and deduction, as determined for federal income tax
purposes, shall be allocated among the Members in the same manner as its
correlative item of "book" income, gain, loss or deduction is allocated
pursuant to Sections 7.2 through 7.5.
7.6.2 Section 704(c) Allocations. In the event there is a
difference between the Book Value at which any property is accepted as a
contribution to the capital of the Company (or deemed accepted pursuant
to Regulation Section 1 .704-1(b)(2)(iv)(g)) and the adjusted tax basis
of such property to the Company, the Company shall, solely for federal
income tax purposes, specially allocate the income, gain, loss and
deduction attributable to such property as and to the extent required by
Section 704(c) of the Code and any applicable Regulations under Section
704(b) or Section 704(c) of the Code.
7.7 Tax Credits. All foreign tax credits of the Company for a Fiscal
Year (or portion thereof, if appropriate) shall be allocated among the Members
in the same proportion as the net income and gains of the Company that were
subject to the foreign taxes that gave rise to such credits. All other items
of federal income tax credit shall be allocated among the Members in
accordance with their Percentage Interests.
7.8 Adjustment of Capital Accounts. Unless the Members shall
determine otherwise, the Book Values of all the Company's assets shall be
adjusted to equal their respective gross fair market values, as determined by
the Required Members (and the Capital Accounts of the Members shall be
adjusted accordingly by treating any increase in Book Value as an item of Book
Gain and any decrease in Book Value as an item of Book Loss), as of the
following times: (a) the acquisition of an additional Interest in the Company
by any new or existing Member in exchange for more than a de minimis
additional Capital Contribution; (b) the distribution by the Company to a
Member of more than a de minimis amount of assets of the Company as
consideration for an Interest; and (c) the liquidation of the Company;
provided, however, that adjustments pursuant to clauses (a) and (b) above
shall be made only if the Required Members reasonably determine that such
adjustments are necessary or appropriate to reflect the relative economic
interests of the Members in the Company.
7.9 Interpretation. It is the intent of the Members that the Company
be treated as a partnership for federal tax purposes and that the provisions
hereof relating to each Member's distributive share of income, gain, loss,
deduction, and credit (and items thereof) comply with the provisions of
Sections 704(b), 704(c), 706 and other relevant provisions of the Code and the
applicable Regulations. In furtherance of the foregoing, the Members hereby
agree that they will seek to resolve any ambiguity in the provisions of this
Agreement in a manner that will preserve and protect the tax allocations
provided for in this Article 7 for federal income tax purposes and, subject to
the last sentence hereof, to adopt such curative provisions to offset the
effect of the allocations required by Section 7.4 as they may deem necessary.
<PAGE>
Notwithstanding the foregoing, no Member shall have the right to require or
compel any distribution of cash or property not authorized or provided for by
the provisions of this Agreement or to alter any distribution of cash or
property provided for by the provisions of this Agreement on the ground that
such action is necessary to cause the provisions hereof to conform to the
provisions of the Regulations.
7.10 Loans to Company. Nothing in this Agreement shall prevent any
Member from making secured or unsecured loans to the Company by agreement with
the Company.
ARTICLE 8
TAX MATTERS MEMBER
8.1 Tax Matters Member. Unless and until another Member is designated
as the Tax Matters Member by the Required Members, NEI shall be the tax
matters partner of the Company as provided in the Regulations under Code
Section 6231 and analogous provisions of state law (the "Tax Matters Member").
The Tax Matters Member shall represent the Company, at the Company's expense,
in connection with all examinations of the Company's affairs by tax
authorities including any resulting administrative or judicial proceedings.
8.2 Indemnity of Tax Matters Member. The Company shall indemnify and
reimburse the Tax Matters Member for all expenses (including legal and
accounting fees) incurred as Tax Matters Member pursuant to this Article 8 in
connection with any administrative or judicial proceeding with respect to the
tax liability of the Members as long as the Tax Matters Member has determined
in good faith that its course of conduct was in, or not opposed to, the best
interest of the Company. The payment of all such expenses shall be made
before any Distributions are made to the Members. The taking of any action
and the incurring of any expense by the Tax Matters Member in connection with
any such proceeding, except to the extent provided herein or required by law,
is a matter in the sole discretion of the Tax Matters Member and the
provisions on limitations of liability of the Tax Matters Member and
indemnification set forth in Article 13 shall be fully applicable to the Tax
Matters Member in its capacity as such.
8.3 Information Furnished. To the extent and in the manner provided
by applicable law and the Regulations, the Tax Matters Member shall furnish
the name, address, profits interest, and taxpayer identification number of
each Member to the Internal Revenue Service.
8.4 Notice of Proceedings. etc. The Tax Matters Member shall use its
best efforts to keep each Member informed of any administrative and judicial
proceedings for the adjustment at the Company level of any item required to be
taken into account by a Member for income tax purposes or any extension of the
period of limitations for making assessments of any tax against a Member with
respect to any Company item, or of any agreement with the Internal Revenue
Service that would result in any material change either in income or loss as
previously reported.
8.5 Notices to Tax Matters Member. Any Member that receives a notice
of an administrative proceeding under Code Section 6233 relating to the
Company shall promptly notify the Tax Matters Member of the treatment of any
Company item on such Member's federal income tax return that is or may be
inconsistent with the treatment of that item on the Company's return. Any
Member that enters into a settlement agreement with the Internal Revenue
Service or any other government agency or official with respect to any Company
item shall notify the Tax Matters Member of such agreement and its terms
within sixty days after its date.
<PAGE>
ARTICLE 9
BOOKS, RECORDS, ACCOUNTING, AND REPORTS
9.1 Books and Records. The Company shall maintain at its principal
office all of the following:
9.1.1 A current list of the full name and last known business
address of each Member together with true and full information regarding
the amount of cash and a description and statement of the agreed value
of any other property or services contributed by each Member and which
each Member has agreed to contribute in the future, and the date on
which each Member became a member of the Company;
9.1.2 A copy of the Certificate, this Agreement, including any
and all amendments to either thereof, together with executed copies of
any powers of attorney pursuant to which the Certificate, this Agreement
or any amendment has been executed;
9.1.3 Copies of the Company's federal, state, and local income
tax or information returns and reports, if any, for the six most recent
taxable years;
9.1.4 The audited financial statements of the Company for the
six most recent Fiscal Years; and
9.1.5 The Company's books and records for at least the current
and past five Fiscal Years.
9.2 Delivery to Members; Inspection. Upon the request of any Member
for any purpose reasonably related to such Member's Interest as a Member of
the Company:
9.2.1 The Company shall promptly deliver to the requesting
Member, at the expense of the Company, a copy of the information
required to be maintained by Sections 10.1.1. through 10.1.4.
9.2.2 The Members may review, at the Company's office during
normal business hours, the Company's federal, state and local income tax
or information returns prior to the filing thereof and the Company' 5
books and records referred to in Section 10.1.5.
9.2.3 The Company will provide any Member at such Member's
expense such other information regarding the business affairs of the
Company as the Member shall reasonably request.
9.3 Financial Statements. The Members shall maintain or cause to be
maintained books of account reflecting the operations of the Company and shall
cause to be prepared for the Members (i) monthly and quarterly financial
statements in the form customarily prepared by NEES for similar operations,
which financial statements shall show variances from the Annual Budget, and
(ii) audited annual financial statements of the Company prepared in accordance
with generally accepted accounting principles.
9.4 Filings. At the Company's expense the Members shall cause the
income tax returns for the Company to be prepared and timely filed with the
appropriate authorities and to have prepared and to furnish to each Member
such information with respect to the Company as is necessary to enable the
Members to prepare and timely file their federal and state income tax returns.
The Members, at the Company's expense, shall also cause to be prepared and
timely filed, with appropriate federal and state regulatory and administrative
bodies, all reports required to be filed by the Company with those entities
under then current applicable laws, rules, and regulations. The reports shall
<PAGE>
be prepared on the accounting or reporting basis required by the regulatory
bodies.
ARTICLE 10
AMENDMENTS TO AGREEMENT
10.1 Amendments. This Agreement may be amended or modified with the
prior written consent of the Required Members; provided, that, the Members
expressly agree that in the event of a Transfer of all or a portion of a
Member's Interest or the admission of a new Member, this Agreement shall be
revised to reflect such Transfer or such admission, as the case may be, and to
amend such provisions of this Agreement as the Members shall determine to be
appropriate, it being contemplated that in the event that either Member
Transfers all of its Interest to another Person and such Person is admitted as
a Member, such Person shall be subject to all of the provisions of this
Agreement to which the transferor Member was previously subject.
10.2 Filings. The Members shall cause to be prepared and filed any
amendment to the Certificate that may be required to be filed under the Act as
a consequence of any amendment to this Agreement.
10.3 Binding Effect. Any modification or amendment to this Agreement
pursuant to Section 11.1 shall be binding on all Members.
ARTICLE 11
DISSOLUTION OF COMPANY
11.1 Termination of Membership. No Member shall resign or withdraw
from the Company and any attempted resignation or withdrawal shall be, and is
hereby declared, null and void ab initio, except that, (i) subject to the
restrictions set forth in Article 9, any Member may Transfer its Interest in
the Company and the transferee may become a Member in place of the Member
which transferred its Interest and (ii) subject to the provisions of Section
9.6, any Member may withdraw from the Company in connection with its making of
a Buy-Sell Offer. If any Member ceases to be a Member for any reason, the
business of the Company may be continued by the remaining Members (so long as
there are two such remaining Members) as provided in clause (d) of Section
12.2. The Members agree that the unauthorized resignation or withdrawal of a
Member may cause irreparable injury to the Company and other Member for which
monetary damages (or other remedies at law) are inadequate in view of (i) the
complexities and uncertainties in measuring the actual damages that would be
sustained by reason of such unauthorized resignation or withdrawal and (ii)
the uniqueness of the Company's business and the relationship between the
Members. Accordingly, the Members agree that the provisions of this Section
12.1 may be enforced by specific performance.
11.2 Events of Dissolution or Liquidation. The Company shall be
dissolved upon the happening of any of the following events: (a) a Regulatory
Dissolution Election unless the Special Purchase Right is exercised,
(b)December 31, 2096 unless such date is extended pursuant to Section 2.4, (c)
the unanimous written determination of the Members, (d) the withdrawal,
bankruptcy or dissolution of any Member, unless there are at least two
remaining Members and the business of the Company is continued by the consent
of remaining Members holding Interests that together represent more than a 50%
Percentage Interest within 90 days following the occurrence of any such event,
or (e) the entry of a decree of judicial dissolution under Section 18-802 of
the Act.
11.3 Liquidation. If the Company is dissolved and not continued, the
Company shall immediately commence to wind up its affairs. A reasonable
period of time shall be allowed for the orderly termination of the Company's
business, discharge of its liabilities, and distribution or liquidation of the
<PAGE>
remaining assets so as to enable the Company to minimize the normal losses
attendant to the liquidation process. The Company's property and assets or the
proceeds from the liquidation thereof shall, subject to the requirements of
the Act, be distributed in accordance with Section 12.4, after the Members'
Capital Accounts have been adjusted to reflect all Net Profits and Net Losses
of the Company through the date of distribution (including Net Profits and Net
Losses arising from the revaluation of the Company's assets pursuant to
Section 7.8; provided, however, that in the event of a liquidating
distribution resulting from a Regulatory Dissolution Election, the gross fair
market values of the Company' s assets shall not be adjusted pursuant to
Section 7.8 and shall be deemed to equal their Book Values). A full
accounting of the assets and liabilities of the Company shall be taken and a
statement thereof shall be furnished to each Member within 30 days after the
distribution of all of the assets of the Company. Such accounting and
statements shall be prepared under the direction of the Required Members.
Upon such final accounting, the Company shall terminate and an authorized
person, appointed pursuant to Section 2.7, shall cancel the Certificate in
accordance with the Act.
11.4 Distributions to Members. Distributions to Members upon
liquidation shall be made in accordance with the Members' Capital Account
balances. Notwithstanding Section 12.3 or the first sentence of this Section
12.4, the Company shall not make any Distribution pursuant to this Section
12.4 unless the Required Members shall have determined that the Company has
sufficient assets to pay all accrued and contingent liabilities of which the
Required Members are aware after making reasonable inquiry.
11.5 No Action for Dissolution. The Members acknowledge that
irreparable damage would be done to the goodwill and reputation of the Company
if any Member should bring an action in court to dissolve the Company under
circumstances where dissolution is not required by Section 12.2. This
Agreement has been drawn carefully to provide fair treatment of all parties
and equitable payment in liquidation of the Interests of all Members.
Accordingly, except where the Members have failed to liquidate the Company as
required by Section 12.2 and except as specifically provided in Section
18-802(a) of the Act, each Member hereby waives and renounces its right to
initiate legal action to seek dissolution or to seek the appointment of a
receiver or trustee to liquidate the Company.
11.6 No Further Claim. Upon dissolution, each Member shall look solely
to the assets of the Company for the return of its Capital Contributions, and
if the Company's property remaining after payment or discharge of the debts
and liabilities of the Company, including debts and liabilities owed to one or
more of the Members, is insufficient to return the aggregate Capital
Contributions of each Member, a Member shall have no recourse against the
Company or any other Member except to the extent that the other Member has
received Distributions in excess of those to which such Member was entitled to
under the terms of this Agreement.
ARTICLE 12
INDEMNIFICATION
12.1 General. To the maximum extent permitted by law, the Company
shall indemnify, defend, and hold harmless each Member, including the Tax
Matters Member, and each Member's officers, trustees, directors, partners,
members, shareholders, and employees (and each such Person's officers,
trustees, directors, partners, members, shareholders, and employees), and the
employees and officers of the Company (all indemnified persons being referred
to as "Indemnified Persons"), from any liability, loss, or damage incurred by
the Indemnified Person by reason of any act performed or omitted to be
performed by the Indemnified Person in connection with the business of the
Company and from liabilities or obligations of the Company imposed on such
Person by virtue of such Person's position with the Company, including
<PAGE>
attorneys' fees and costs and any amounts expended in the settlement of any
such claims of liability, loss, or damage; provided however, that, if the
liability, loss, damage, or claim arises out of any action or inaction of an
Indemnified Person, indemnification under this Section 13.1 shall be available
only if (a) either (i) the Indemnified Person, at the time of such action or
inaction, determined, in good faith, that its or his course of conduct was in,
or not opposed to, the best interests of the Company, or (ii) in the case of
inaction by the Indemnified Person, the Indemnified Person did not intend its
or his inaction to be harmful or opposed to the best interests of the Company,
and (b) the action or inaction did not constitute fraud or a Violation of the
Business Judgment Rule by the Indemnified Person, and provided, further, that
indemnification under this Section 13.1 shall be recoverable only from the
assets of the Company and not from any assets of the Members. The Company may
pay or reimburse attorneys' fees of an Indemnified Person as incurred, if such
Indemnified Person executes an undertaking to repay the amount so paid or
reimbursed if there is a final determination by a court of competent
jurisdiction that such Indemnified Person is not entitled to indemnification
under this Article 13. The Company may pay for insurance covering liability
of the Indemnified Persons for negligence in operation of the Company s
affairs.
12.2 Persons Entitled to Indemnity. Any Person who is within the
definition of "Indemnified Person" at the time of any action or inaction in
connection with the business of the Company shall be entitled to the benefits
of this Article 13 as an "Indemnified Person" with respect thereto, regardless
whether such Person continues to be within the definition of "Indemnified
Person" at the time of such Person's claim for indemnification or exculpation
hereunder.
12.3 Procedure Agreements. The Company may enter into an agreement
with any of its officers and employees setting forth procedures consistent
with applicable law for implementing the indemnities provided in this Article
13.
12.4 Extent of Duties. No Indemnified Person shall be liable, in
damages or otherwise, to the Company or to any Member for any loss that arises
out of any act performed or omitted to be performed by it or him pursuant to
the authority granted by this Agreement if (a) either (i) the Indemnified
Person, at the time of such action or inaction, determined, in good faith,
that such Person's course of conduct was in, or not opposed to, the best
interests of the Company, or (ii) in the case of inaction by the Indemnified
Person, the Indemnified Person did not intend such Person's inaction to be
harmful or opposed to the best interests of the Company, and (b) the conduct
of the Indemnified Person did not constitute fraud or a Violation of the
Business Judgment Rule by such Indemnified Person.
12.5 Fiduciary and Other Duties.
12.5.1 To the extent that, at law or in equity, an Indemnified
Person has duties (including fiduciary duties) and liabilities relating
thereto to the Company or to any other Indemnified Person, an
Indemnified Person acting under this Agreement shall not be liable to
the Company or to any other Indemnified Person for its good faith
reliance on the provisions of this Agreement. The provisions of this
Agreement, to the extent that they restrict the duties (including
fiduciary duties) of an Indemnified Person otherwise existing at law or
in equity, are agreed by the parties hereto to replace such other duties
of such Indemnified Person. The provisions of this Section 13.5.1 shall
not be construed to relieve any Indemnified Person from liability for
such Person's fraud or a Violation of the Business Judgment Rule.
12.5.2 Whenever in this Agreement an Indemnified Person is
permitted or required to make a decision (a) in its "discretion"
(without qualification as to how the discretion is to be exercised) or
<PAGE>
under a grant of similar authority or latitude, the Indemnified Person
shall act reasonably and in good faith based on facts known to the
Person at the time, (b) in its "sole discretion" or under a grant of
similar authority or latitude, the Indemnified Person shall be entitled
to consider only such interests and factors as it desires, including its
own interests, and shall have no duty or obligation to give any
consideration to any interest of or factors affecting the Company or any
other Person, and (c) under any other express standard, the Indemnified
Person shall act under such express standard and shall not be subject to
any other general standard imposed by this Agreement or applicable law.
ARTICLE 13
REPRESENTATIONS AND COVENANTS BY THE MEMBERS
Each Member hereby represents, warrants and covenants to the Company and
each other Member that the following statements are true and correct as of the
Effective Date and shall be true and correct at all times thereafter that such
Member is a Member:
13.1 Organization; Corporate Authority. It is duly incorporated,
organized or formed (as applicable), validly existing, and (if applicable) in
good standing under the laws of the jurisdiction of its incorporation,
organization or formation; if required by applicable law, it is duly qualified
and in good standing in the jurisdiction of its principal place of business,
if different from its jurisdiction of incorporation, organization or
formation, and is duly qualified to transact business and is in good standing
in each other jurisdiction where such qualification is required; and it has
full power and authority to execute and deliver this Agreement, to perform its
obligations hereunder and to engage in the types of activities proposed to be
engaged in by the Company and has obtained any regulatory and other
governmental approvals that may be required (or, with respect to NEI and the
required regulatory approval under the PUHCA, it will, as soon as practicable
but in no event more than 10 Business Days after the date of this Agreement,
apply for such approval), and if such approvals are subject to any conditions,
has disclosed such conditions to the other Members; and all necessary actions
by the board of directors, shareholders, managers, members, partners,
trustees, beneficiaries, or other applicable Persons necessary for the due
authorization, execution, delivery, performance of this Agreement by it have
been duly taken.
13.2 Legal, Valid and Binding Obligation. It has duly authorized,
executed, and delivered this Agreement and the other documents contemplated
herein, and, subject to the receipt of those regulatory and other governmental
approvals, authorizations, or permits specified on the attached Schedule 1,
this Agreement and such other documents constitute the legal, valid and
binding obligation of such Member enforceable against it in accordance with
their terms (except as may be limited by bankruptcy, insolvency or similar
laws of general application and by the effect of general principles of equity,
regardless of whether considered at law or in equity), its authorization,
execution, delivery, and performance of this Agreement does not and will not
(i) conflict with, or result in a breach, default or violation of (A) the
organizational documents of such Member, (B) any contract or agreement to
which such Member is a party or is otherwise subject, or (C) any law, order,
judgment, decree, writ, injunction or arbitral award to which that Member is
subject; or (ii) require any consent, approval or authorization from, filing
or registration with, or notice to, any governmental authority or other
Person, unless such requirement has already been satisfied or is listed on
Schedule 1.
13.3 Investment Intent. It has acquired its Interest with the intent
of holding the same for investment for its own account and without the intent
or a view of participating directly or indirectly in any distribution of such
<PAGE>
Interests within the meaning of the Securities Act or any applicable state
securities laws.
13.4 Securities Regulation. It acknowledges and agrees that its
Interest is being issued and sold in reliance on the exemption from
registration contained in Section 4(2) of the Securities Act and exemptions
contained in applicable state securities laws, and that its Interest cannot
and will not be sold or transferred except in a transaction that is exempt
under the Securities Act and those state acts or pursuant to an effective
registration statement under the Securities Act and those state acts or in a
transaction that is otherwise in compliance with the Securities Act and those
state acts. It understands that it has no contractual right for the
registration under the Securities Act of its Interest for public sale and
that, unless its Interest is registered or an exemption from registration is
available, its Interests may be required to be held indefinitely.
13.5 Information. It has received all documents, books, and records
pertaining to an investment in the Company requested by it. It has had a
reasonable opportunity to ask questions of and receive answers from the other
Members concerning the Company, and all such questions have been answered to
its satisfaction.
13.6 Tax Position. Unless it provides prior written notice to the
Company, it will not take a position on its federal income tax return, in any
claim for refund, or in any administrative or legal proceedings that is
inconsistent with any information return filed by the Company or with the
provisions of this Agreement.
ARTICLE 14
COMPANY REPRESENTATIONS
In order to induce the Members to enter into this Agreement and to make
the Capital Contributions contemplated hereby, the Company hereby represents
and warrants to each Member as follows:
14.1 Legal Existence. The Company is a duly formed and validly
existing limited liability company under the Act and the Certificate has been
duly filed or will be filed on the date hereof as required by the Act. The
Company has all necessary power and authority under the Act to issue the
Interests to be issued to the Members hereunder.
14.2 Valid Issuance. When the Interest is issued to the Member as
contemplated by this Agreement and the Capital Contributions required to be
made by such Member are made, the Interest issued to the Member will be duly
and validly issued and except as specifically provided in the Agreement, no
liability for any additional capital contributions or for any obligations of
the Company will attach thereto.
14.3 Options. etc. Except as set forth in this Agreement, the Company
does not have outstanding any rights or options to subscribe for or purchase
any warrants or other agreements providing for or requiring the issuance of
Interests in the Company to any Person or any obligation to purchase or
otherwise acquire any Interests in the Company.
ARTICLE 15
MISCELLANEOUS
15.1 Additional Documents. At any time and from time to time after the
date of this Agreement, upon the request of the Required Members, each Member
shall do and perform, or cause to be done and performed, all such additional
acts and deeds, and shall execute, acknowledge, and deliver, or cause to be
<PAGE>
executed, acknowledged, and delivered, all such additional instruments and
documents, as may be required to effectuate the purposes and intent of this
Agreement.
15.2 Execution of Papers. The Members agree to execute such
instruments, documents and papers as the Required Members deem necessary or
appropriate to carry out the intent of this Agreement.
15.3 General. This Agreement: (a) shall be binding upon the executors,
administrators, estates, heirs, and legal successors of the Members; (b) shall
be governed by and construed in accordance with the laws of the State of
Delaware; (c) may be executed in more than one counterpart as of the day and
year first above written; and (d) contains the entire contract among the
Members as to the subject matter hereof. Without limiting the foregoing, the
Limited Liability Company Agreement, dated as of September 18, 1996 is
terminated and of no further force or effect. The waiver of any of the
provisions, terms, or conditions contained in this Agreement shall not be
considered as a waiver of any of the other provisions, terms, or conditions
hereof.
15.4 Notices. Etc. All notices and other communications required or
permitted hereunder shall be in writing and shall be deemed effectively given
upon personal delivery or receipt (which may be evidenced by a return receipt
if sent by registered mail or by signature if delivered by courier or delivery
service), addressed as set forth below, or at such other address as such
Person shall have furnished to the Company in writing as the address to which
notices are to be sent hereunder: if to NEI, at 25 Research Drive,
Westborough, Massachusetts 01582.
15.5 Expenses in Event of Breach. In the event that a Member is
determined to have breached any provision of this Agreement, such Member
shall, subject to the terms of Section 16.5.1 regarding the sharing of costs
where applicable, be liable for all costs and expenses incurred by the Company
or the other Member in enforcing such provision.
15.6 Gender and Number. Whenever required by the context, as used in
this Agreement, the singular number shall include the plural, the plural shall
include the singular, and all words herein in any gender shall be deemed to
include the masculine, feminine and neuter genders.
15.7 Severability. If any provision of this Agreement is determined by
a court to be invalid or unenforceable, that determination shall not affect
the other provisions hereof, each of which shall be construed and enforced as
if the invalid or unenforceable portion were not contained herein. That
invalidity or unenforceability shall not affect any valid and enforceable
application thereof, and each said provision shall be deemed to be effective,
operative, made, entered into or taken in the manner and to the full extent
permitted by law.
15.8 Headings. The headings used in this Agreement are used for
administrative convenience only and do not constitute substantive matter to be
considered in construing the terms of this Agreement.
15.9 No Third Party Rights. The provisions of this Agreement are for
the benefit of the Company and the Members and no other Person, including
creditors of the Company shall have any right or claim against the Company or
any Member by reason of this Agreement or any provision hereof or be entitled
to enforce any provision of this Agreement.
[THE REMAINDER OF THIS PAGE HAS DELIBERATELY BEEN LEFT BLANK.]
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first set forth above.
ALLENERGY MARKETING COMPANY, L.L.C.
By: ______________________________________
Name:
Title:
NEES ENERGY, INC.
By: ______________________________________
Name:
Title:
<PAGE>
EXHIBIT 1
Defined Terms
"Act" shall mean the Massachusetts Limited Liability Company Act (MGL c.
156C), as amended and in effect from time to time.
"Adjusted Capital Account Deficit" means, with respect to any Member,
the deficit balance, if any, in such Member's Capital Account as of the end of
the relevant Fiscal Year, after giving effect to the following adjustments:
(a) credit to such Capital Account any amounts which such Member
is obligated to restore pursuant to any provision of this Agreement or
is deemed to be obligated to restore pursuant to the next to the last
sentences of the Regulations Sections 1.704-2(g)(1) and 1.704-2(i)(5)
after taking into account any changes during such year in Company
minimum gain and Member minimum gain (as determined under such
Regulations); and
(b) debit to such Capital Account the items described in
Section 1.704-1(b)(2)(ii)(d)(4), (5) and (6) of the Regulations.
"Advisory Board" is defined in Section 5.12.
"Affiliate" shall mean, with respect to any specified Person, any Person
that directly or through one or more intermediaries controls or is controlled
by or is under common control with the specified Person. As used in this
definition, the term "control" means the possession, directly or indirectly,
of the power or authority to direct or cause the direction of the management
and policies of a Person, whether through ownership of voting securities, by
contract or otherwise.
"Agreement" shall mean the Limited Liability Company Agreement of the
Company dated as of September 18, 1996, as amended from time to time.
"Annual Budget" is defined in Section 6.2.
"Book Gain" or "Book Loss" or shall mean the gain or loss recognized by
the Company for Code Section 704(b) book purposes in any Fiscal Year or other
period by reason of the sale, exchange or other disposition of any asset of
the Company or by reason of the reevaluation of such asset pursuant to Section
7.1.4 or Section 7.8. Such Book Gain or Book Loss shall be computed by
reference to the Book Value of such asset as of the date of such sale,
exchange or other disposition, or reevaluation, rather than by reference to
the tax basis of such asset as of such date, and each and every reference
herein to "gain" or "loss" shall be deemed to refer to Book Gain or Book Loss,
rather than to tax gain or tax loss, unless otherwise expressly provided
herein.
"Book Value" of an asset shall mean, as of any particular date, the
value at which the asset is properly reflected on the books and records of the
Company as of such date. The initial Book Value of each asset shall be its
cost, unless such asset was contributed to the Company by a Member, in which
case the initial Book Value shall be the fair market value, as agreed to by
the Members, and such Book Value shall thereafter be adjusted for Depreciation
with respect to such asset rather than for the cost recovery deductions to
which the Company is entitled for income tax purposes with respect thereto and
shall be adjusted as appropriate pursuant to Section 7.8.
"Business Day " shall mean a day when national banks are open for
business in Boston, Massachusetts.
"Business Plan" is defined in Section 6.1.
<PAGE>
"Capital Account" is defined in Section 3.2.
"Capital Contribution" shall mean with respect to any Member, the amount
of cash and the Book Value of any other property contributed to the Company
with respect to the Interest held by such Member (net of liabilities secured
by such contributed property or that the Company is considered to assume or
take the property subject to pursuant to Code section 752).
"Certificate" shall mean the Certificate of Formation of the Company
filed as of September 18, 1996 and any and all amendments thereto and
restatements thereof filed on behalf of the Company as permitted hereunder
with the office of the Secretary of State of The Commonwealth of
Massachusetts.
"Change of Control" shall mean, as to any Member or any Parent Entity of
a Member (other than NEES), any event as a result of which NEES, ceases to
own, directly or indirectly on a fully diluted basis, stock (or if such Person
is not a corporation, equity interests) which represent at least 50% of the
voting power or value of the outstanding capital stock (of, if such Person is
not a corporation, outstanding equity interests) of such Person.
"Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time, and the corresponding provisions of any future federal tax law.
"Company" shall mean the limited liability company formed under and
pursuant to the Act and this Agreement.
"Confidential Information" is defined in Section 4.6.1.
"Depreciation" shall mean for each Fiscal Year or other period, an
amount equal to the depreciation, amortization or other cost recovery
deduction allowable with respect to an asset for such year or other period,
except if the Book Value of an asset differs from its adjusted basis for
federal income tax purposes at the beginning of any such year or other period,
Depreciation shall be an amount that bears the same relationship to the Book
Value of such asset as the depreciation, amortization, or other cost recovery
deduction computed for tax purposes with respect to such asset for the
applicable period bears to the adjusted tax basis of such asset at the
beginning of such period, or if such asset has a zero adjusted tax basis,
Depreciation shall be an amount determined under any reasonable method
selected by the Required Members, with the advice of its independent
accountants.
"Distribution" shall mean the amount of cash and the Book Value of any
other property distributed to a Member in respect of the Member's Interest in
the Company (net of liabilities secured by such distributed property or that
the Member is considered to assume or take the property subject to pursuant to
Code section 752).
"Effective Date" shall mean September 18, 1996.
"Energy Commodity" shall mean natural gas, electricity, oil and any
other energy source, as well as all options, futures contracts, forward
contracts, collars, spot contracts or swap contracts related to the choice,
purchase or consumption of any energy commodity and any other financial
products marketed or used in connection therewith.
"Energy Related Products and Services" shall mean products and services
related to the choice, purchase or consumption of any Energy Commodity,
whether or not sold or provided on a bundled basis with such natural gas,
electricity, oil or other energy source.
<PAGE>
"Fair Value" as applied to all or any portion of the Interest of any
Member or to the non-cash consideration proposed to be paid as all or a
portion of the Offered Price for an Interest by a third-party offeror, shall
mean the fair market value of the relevant portion of the Interest or of such
consideration as agreed upon by the Members or as shown by an appraisal
performed by an independent appraiser satisfactory to all Members. In the
event that the Members do not agree on such fair market value or on the
selection of an independent appraiser within 10 days after the event which
gives rise to the need to determine Fair Value, each Member shall select an
appraiser within 20 days of such event and those two appraisers shall select
within 30 days of such event another independent appraiser to perform the
appraisal. The three appraisers so selected shall then have 15 days from the
date of the selection of the third appraiser to determine the fair market
value of the relevant portion of the Interest or consideration in question.
When determining the fair market value of an Interest, the appraisers shall
consider, among other factors, book value, liquidation value, replacement
value and the value of future cash flows of the Company as a going concern and
shall make no deduction, discount or other subtraction whatsoever for the
possible minority status or limited voting rights of any Member. If the
single appraiser has been appointed, such appraiser's determination of value
shall be final and binding. If three appraisers shall have been appointed as
hereinabove set forth, the values determined by the three appraisers shall be
averaged, the determination which shall differ most from such average shall be
disregarded, the remaining two determinations shall be averaged, and such
average shall be final and binding. If one independent appraiser is selected,
the Members shall each bear one-half of the expenses of the independent
appraiser. If the Members have each selected an appraiser, each Member shall
bear the expenses of its own appraiser and one-half the expenses of the
independent appraiser selected by the two appraisers.
"Fiscal Year" shall mean the fiscal year of the Company which shall end
on December 31 in each year or on such other date in each year as the Required
Members shall otherwise elect.
"Indemnified Persons " is defined in Section 13.1.
"Interest" shall mean the entire interest of a Member in the capital and
profits of the Company, including the right of such Member to any and all
benefits to which a Member may be entitled as provided in this Agreement,
together with the obligations of such Member to comply with all the terms and
provisions of this Agreement.
"Member Nonrecourse Deductions" shall mean "partner non-recourse
deductions" as defined in Regulations Section 1 .704-2(i)(1).
"Members" shall mean the Persons listed as members on the signature page
to the Agreement and any other Person that both acquires an Interest in the
Company and is admitted to the Company as a Member pursuant to the Agreement.
"NEES" shall mean New England Electric System, a Massachusetts voluntary
business association.
"NEI" is defined in the preamble of the Agreement.
"Net Profit" and "Net Loss" shall mean, for each Fiscal Year or other
period, an amount equal to the Company's taxable income or loss, respectively,
for such year or period, determined in accordance with Section 703(a) of the
Code (taking into account all items of income, gain, loss, or deduction
required to be stated separately pursuant to Section 703(a)(1) of the Code),
with the following adjustments:
<PAGE>
(a) any income of the Company that is exempt from federal income
tax and not otherwise taken into account in computing Net Profit or Net
Loss pursuant to this provision shall be added to such taxable income or
reduce such taxable loss;
(b) any expenditures of the Company described in
Section 705(a)(2)(B) of the Code (relating to expenditures which are
neither deductible nor properly chargeable to capital) or treated as
Code Section 705(a)(2)(B) expenditures pursuant to Section 1
.704-1(b)(2)(iv)(i) of the Regulations, and not otherwise taken into
account in computing Net Profit or Net Loss pursuant to this provision,
shall be subtracted from such taxable income or increase such taxable
loss;
(c) Book Gain or Book Loss from the sale or other disposition of
any asset of the Company shall be taken into account in lieu of any
federal income tax gain or loss recognized by the Company by reason of
such sale or other disposition, and Book Gain and Book Loss from any
revaluation of the Company's assets pursuant to Section 7.8 shall be
taken into account; and
(d) in lieu of the depreciation, amortization and other cost
recovery deductions taken into account in computing such taxable income or
loss, there shall be taken into account Depreciation for such fiscal year or
other period, computed as provided in this Agreement.
"Nonrecourse Deduction" shall have the meaning set forth in Regulations
Section 1.704-2(b)(1).
"Parent Entity" shall mean, in respect of any Member, any entity that
owns, directly or indirectly through one or more other entities, on a fully
diluted basis, stock which represents more than 50% of the voting power or
value of the outstanding capital stock of the Member.
"Percentage Interest" is defined in Section 3.3.
"Person" shall mean an individual, partnership, joint venture,
association, corporation, trust, estate, limited liability company, limited
liability partnership, or any other legal entity.
"Profits Interest" is defined in Section 3.6.
"PUHCA" shall mean the Public Utility Holding Company Act of 1935, as
amended.
"Qualified Income Offset" shall have the meaning set forth in
Regulations Section 1.704-1(b)(2)(ii)(d).
"Regulations" shall mean the Treasury regulations, including temporary
regulations, promulgated under the Code, as such regulations may be amended
from time to time (including the corresponding provisions of any future
regulations).
"Regulatory Dissolution Election" shall mean an election made by any
Member to dissolve the Company; provided, that, such election may be made by a
Member only if (i) any governmental body or agency, or any other regulatory
entity having jurisdiction over the Company or any Member or any Affiliate of
a Member, has not, before the Regulatory Deadline, granted all approvals,
permits, and other authorizations of any kind which in the reasonable opinion
of the Member making such election is or may be necessary or appropriate to
the operation of the Company or the participation of any Member in the Company
as a Member, (ii) any such governmental body or agency or regulatory entity
has granted one or more approvals, permits or other authorizations on terms or
subject to conditions that are or may be, in the reasonable opinion of the
<PAGE>
Member making the election, materially adverse to the interests of the Company
or such Member, or (iii) any such body, agency, or entity has taken any
action, or has threatened to take any action, which in the reasonable opinion
of the Member making such election is or may t)e materially adverse to the
interests of the Company or such Member; provided, further, that any such
Regulatory Dissolution Election must be made no later than the fifth Business
Day following the Regulatory Deadline.
"Representative" is defined in Section 5.1.
"Required Members" shall mean NEI.
"Required Portion" shall mean in respect of any Interest all or a
portion of which is required to be transferred in a Required Regulatory
Transfer, the smallest portion of such Interest that must be transferred in
order to satisfy the requirements of such Required Regulatory Transfer, and in
respect of the shares of stock of a Parent Entity (or if such entity is not a
corporation, equity interests in such entity) all or a portion of which are
required to be transferred in a Required Regulatory Transfer that will result
in a Change of Control, the smallest number of shares of stock (or units of
equity interest) that must be transferred in order to satisfy the requirements
of such Required Regulatory Transfer.
"Required Regulatory Transfer" shall mean any Transfer by a Member of
all or a portion of its Interest or any Change of Control of a Parent Entity
(other than NEES) which is required to be effected by any regulation, rule,
administrative order or other administrative pronouncement of binding legal
effect of any state public utility commission (or other similar agency).
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Tax Matters Member" is defined in Section 8.1.
"Term" is defined in Section 2.4.
"Violation of the Business Judgment Rule" means conduct which is
materially inconsistent with the obligation to be reasonably informed and to
act in good faith or which is reckless, grossly negligent, willful misconduct
or constitutes a knowing violation of law.
<PAGE>
SCHEDULE 1
Required Regulatory and Governmental Approvals
NONE
<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, Gregory A. Hale, 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, 1998, 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 23rd day of February, 1999.
s/Joan T. Bok s/William M. Bulger
________________________ _________________________
Joan T. Bok William M. Bulger
s/Alfred D. Houston s/Paul L. Joskow
_________________________ _________________________
Alfred D. Houston Paul L. Joskow
s/John M. Kucharski s/Edward H. Ladd
_________________________ _________________________
John M. Kucharski Edward H. Ladd
s/Joshua A. McClure s/George M. Sage
_________________________ _________________________
Joshua A. McClure George M. Sage
s/Richard P. Sergel s/Charles E. Soule
_________________________ _________________________
Richard P. Sergel Charles E. Soule
s/Anne Wexler s/James Q. Wilson
_________________________ _________________________
Anne Wexler 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.
</LEGEND>
<CIK> 0000071297
<NAME> NEW ENGLAND ELECTRIC SYSTEM
<MULTIPLIER> 1,000
<S> <C>
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<PERIOD-TYPE> 12-MOS
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 2,488,426
<OTHER-PROPERTY-AND-INVEST> 220,108
<TOTAL-CURRENT-ASSETS> 723,418
<TOTAL-DEFERRED-CHARGES> 1,638,583 <F1>
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 5,070,535
<COMMON> 64,970
<CAPITAL-SURPLUS-PAID-IN> 736,744
<RETAINED-EARNINGS> 998,912
<TOTAL-COMMON-STOCKHOLDERS-EQ> 1,570,003 <F3>
0
19,480 <F2>
<LONG-TERM-DEBT-NET> 1,055,740
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 36,307
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 2,389,005
<TOT-CAPITALIZATION-AND-LIAB> 5,070,535
<GROSS-OPERATING-REVENUE> 2,420,533
<INCOME-TAX-EXPENSE> 122,354
<OTHER-OPERATING-EXPENSES> 1,989,340
<TOTAL-OPERATING-EXPENSES> 2,111,694
<OPERATING-INCOME-LOSS> 308,839
<OTHER-INCOME-NET> 6,808
<INCOME-BEFORE-INTEREST-EXPEN> 315,647
<TOTAL-INTEREST-EXPENSE> 115,873
<NET-INCOME> 190,042
1,915 <F2>
<EARNINGS-AVAILABLE-FOR-COMM> 190,042
<COMMON-STOCK-DIVIDENDS> 145,648
<TOTAL-INTEREST-ON-BONDS> 89,805
<CASH-FLOW-OPERATIONS> (157,197)
<EPS-PRIMARY> $3.05
<EPS-DILUTED> $3.04
<FN>
<F1> Total deferred charges includes other assets.
<F2> Preferred stock reflects preferred stock of subsidiaries. Preferred stock
dividends reflect preferred stock dividends of subsidiaries.
<F3> Total common stockholders equity includes treasury stock at cost and
unrealized gain on securities.
</FN>
<PAGE>
NEW ENGLAND POWER COMPANY
Primary Service for Resale
SUPPLEMENT TO AMENDMENT TO SERVICE AGREEMENT
Dated as of: March 1, 1998
Parties: NEW ENGLAND POWER COMPANY,
a Massachusetts corporation (the "Company" or "NEP"),
and
MASSACHUSETTS ELECTRIC COMPANY and
NANTUCKET ELECTRIC COMPANY,
both Massachusetts corporations (collectively, the
"Customer" or "Mass. Electric").
WHEREAS, the Company and the Customer entered into an Amendment to
Service Agreement dated as of February 1, 1997 (the "Amendment"), setting
forth the conditions governing the termination of the sale by the Company and
the purchase by the Customer of all-requirements electric service under the
Company's FERC Tariff, Original Volume No. 1 (the "Tariff");
WHEREAS, on November 26, 1997, the Federal Energy Regulatory Commission
("Commission") accepted that Amendment in Docket No. ER97-678-000;
WHEREAS, pursuant to chapter 164 of the Massachusetts General Laws, the
Contract Termination Date under the Amendment will be March 1, 1998, the date
that the Customer will commence providing retail access to its ultimate
customers;
WHEREAS, the terms of the Amendment included the Company's provision of
wholesale Standard Offer Service to the Customer for a defined period
following the Contract Termination Date, all as defined in the Amendment, to
enable the Customer to meet its obligation to provide retail standard offer
service to certain customers;
WHEREAS, the Customer desires to arrange for a "Default Power Supply"
for retail customers who are not eligible for retail standard offer service
and who do not have another power supplier;
WHEREAS, the Customer has requested the Company to provide a Default
Power Supply to enable the Customer to provide retail default service during
an interim period commencing on March 1, 1998;
<PAGE>
WHEREAS, the Company is willing to supply electric capacity and energy
to the Customer for a Default Power Supply, in accordance with the terms and
conditions of this Supplement to Amendment to Service Agreement
("Supplement");
WHEREAS, the Amendment to Service Agreement anticipated the sale of
certain oil and gas properties owned by New England Energy, Inc. ("NEEI"), and
provided that the estimated costs and sales proceeds included in the Contract
Termination Charge formula would be adjusted upon the sale of the NEEI
properties to reflect differences between the estimated and actual amounts;
WHEREAS, the sale of the NEEI properties occurred on February 5, 1998;
WHEREAS, a preliminary reconciliation of estimated to actual amounts
associated with NEEI included in the Contract Termination Charge results in a
reduction in the Customer's Contract Termination Charge obligation of
approximately $15 million;
WHEREAS, the Customer wishes to receive the net benefits from the sale
of the NEEI properties on an accelerated basis commencing on March 1, 1998 and
continuing over the twelve months thereafter;
WHEREAS, pursuant to chapter 164 of the Massachusetts General Laws,
retail customers eligible for service under the Customer's low-income rate R-2
have the right to return to Standard Offer Service from Mass. Electric at any
time, and retail customers have the option to return to Standard Offer Service
within 180 days after they commence service from a municipal aggregator;
WHEREAS, the Amendment presently limits the Company's obligation to
supply Standard Offer Service to the Customer on behalf of retail customers
that elect to return to retail standard offer service to those residential and
Rate G-1 customers who, during the first year after the Retail Access Date,
elect to return to Standard Offer Service within 120 days of taking service
from an alternative supplier; and
WHEREAS, during the period prior to the divestiture of substantially all
of NEP's non-nuclear generation facilities, the Company is willing to supply
electric capacity and energy to the Customer for the requirements of all
<PAGE>
retail customers who can return to Standard Offer Service under the
Massachusetts statute.
NOW, THEREFORE, the Company and the Customer, in consideration of the
mutual agreements set forth herein, agree as follows:
1. All capitalized terms that are used this Supplement and are not
defined herein, but are defined in the Amendment or in the Tariff, shall have
the meaning there stated.
2. For the period commencing on March 1, 1998 and extending through
the first to occur of: (a) the date thirty (30) days after the Customer
notifies the Company that the Customer seeks to terminate its purchase
pursuant to this Supplement, said notification to occur upon the successful
completion of a competitive solicitation for a default service supplier or the
implementation of the New England Power Pool ("NEPOOL") Power Exchange; or (b)
the closing of the sale of substantially all of the Company's non-nuclear
generation to USGen New England, Inc. ("USGenNE"), such period to be referred
to as the "Interim Period," the Company shall provide a Default Power Supply
to the Customer in accordance with this section:
(a) The Default Power Supply shall be made available at the
Standard Offer Service prices stipulated in paragraph 7(a) of the
Amendment per kilowatt-hour delivered to the meters of the
Customer's ultimate customers receiving retail default service.
(b) Default Service shall be made available by the Company to
the Customer for resale to those ultimate customers in the
Customer's service territory who purchase retail default service
from the Customer during the Interim Period.
3. The Customer shall have no obligation to purchase its Default
Power Supply from the Company after the end of the Interim Period and the
Company shall have no obligation to sell or supply Default Power Supply to the
Customer after the end of the Interim Period. In the event the Company bids
to sell a Default Power Supply to the Customer beyond the end of the Interim
<PAGE>
Period, the Company shall have no obligation to offer to supply such power at
the Standard Offer Service prices set forth in section 2 of this Supplement.
4. The Company further agrees to accelerate the return of net
benefits associated with the sale of the NEEI properties to the twelve months
from March 1998 through February 1999 by implementing a Reconciliation Factor
of a credit of $0.00093 per kilowatthour during that twelve month period.
5. The calculation of the Reconciliation Factor is shown on the
attached pages from the Amendment to Service Agreement, Appendix 1, First
Revised Page 7 of 25, and Schedule 3, First Revised Page 2 of 2. The costs
and revenues are preliminary and will be subject to a further reconciliation,
and any changes shall be reflected in the Reconciliation Account at the time
the adjustment or reconciliation is made.
6. For the period prior to the Divestiture Date, the Company shall
provide Standard Offer Service to the Customer for: (1) all retail customers
eligible for service under the Customer's residential rate R-2 who request
such service; and (2) any retail customer of the Customer exercising its right
to opt out of service from a municipal aggregator within 180 days of the date
from which the retail customer began receiving service from such municipal
aggregator.
7. This Supplement shall take effect as of March 1, 1998, or such
other date as permitted by the Commission.
8. The provisions of this Supplement shall override any inconsistent
provisions of the Amendment, but all provisions of the Tariff and the
Amendment (specifically including the recovery of NEEI amortization and return
as set forth in Sections 1.1.1(b)(iv) and 1.1.2.(b) and (c) of the Amendment
and Schedule 1, page 6, column 2) that are not inconsistent with this
Supplement, as well as the Service Agreement between the Company and the
Customer, shall remain in full force and effect.
9. The rights conferred and obligations imposed on the Customer and
the Company under this Supplement shall be binding on or inure to the benefit
of their successors in interest or assignees as if each such successor or
assignee was itself a signatory hereto.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Supplement to
Amendment to Service Agreement as of the date first above written.
NEW ENGLAND POWER COMPANY
By_________________________________
Its_________________________________
MASSACHUSETTS ELECTRIC COMPANY and
NANTUCKET ELECTRIC COMPANY
By_________________________________
Their_______________________________
<PAGE>
NEW ENGLAND POWER COMPANY
Primary Service for Resale
SUPPLEMENT TO AMENDMENT TO SERVICE AGREEMENT
Dated as of: December 31, 1998
Parties: NEW ENGLAND POWER COMPANY,
a Massachusetts corporation (the "Company" or "NEP"),
and
THE NARRAGANSETT ELECTRIC COMPANY,
a Rhode Island corporation (the "Customer" or
"Narragansett").
WHEREAS, the Company and the Customer are parties to an Amendment to
Service Agreement dated as of February 1, 1997 approved by the Commission in
Docket ER97-680-000 and amended by an October 1, 1997 filing approved by the
Commission in Docket ER98-6-000 (the Amendment to Service Agreement, as
amended on October 1, 1997 is hereinafter referred to as the "Amendment");
WHEREAS, the Customer expects to have available $21,400,000 as a result
of the accrual of an over-collection in retail rates authorized by the Rhode
Island Public Utilities Commission;
WHEREAS, the Customer now desires to use those funds to make a
prepayment of a portion of the Customer's Contract Termination Charge
obligation to the Company as set forth in the Amendment;
WHEREAS, the Company is willing to accept such prepayment; and
WHEREAS, the Company and the Customer agree that such prepayment of
Contract Termination Charges shall be made in accordance with the terms and
conditions of this Supplement to Amendment to Service Agreement
("Supplement").
NOW, THEREFORE, the Company and the Customer, in consideration of the
mutual agreements set forth herein, agree as follows:
1. All capitalized terms that are used in this Supplement and are not
defined herein, but are defined in the Amendment or in the Tariff, shall have
the meaning there stated.
2. On January 1, 1999, the Customer shall make a payment to the
Company of $21,400,000, to be treated as a prepayment with a pre-tax return of
<PAGE>
12.16 percent on the unreturned balances towards the Customer's Contract
Termination Charge obligation to NEP. Such prepayment shall be used to reduce
the Fixed Component of the Contract Termination Charge over two years.
Specifically, the Company will reduce its Base Contract Termination Charge to
Narragansett in 1999 and 2000 by a Prepayment Factor of $0.0023 (0.23 cent or
2.3 mills) per kilowatt-hour to reflect the Customer's prepayment. The
attached Schedule 1 provides the derivation of the Prepayment Factor for 1999
and 2000 after accounting for the Customer's prepayment in the manner
described in this paragraph. The difference between the estimated revenue
reduction in Schedule 1 and the actual revenue reduction produced by the
implementation of the $0.0023 Prepayment Factor as applied to actual kilowatt-
hour deliveries shall be reflected in the Reconciliation Account.
3. This Supplement shall take effect as of January 1, 1999, or such
other date as permitted by the Commission.
4. Except as expressly modified by this Supplement, all terms of the
Amendment shall remain in full force and effect.
5. The rights conferred and obligations imposed on the Customer and
the Company under this Supplement shall be binding on or inure to the benefit
of their successors in interest or assignees as if each such successor or
assignee was itself a signatory hereto.
IN WITNESS WHEREOF, the parties have executed this Supplement to
Amendment to Service Agreement as of the date first above written.
NEW ENGLAND POWER COMPANY
By_________________________________
Its_________________________________
THE NARRAGANSETT ELECTRIC COMPANY
By_________________________________
Its_________________________________
<PAGE>
QUEBEC INTERCONNECTION TRANSFER AGREEMENT
WHEREAS, NEW ENGLAND POWER COMPANY, a Massachusetts corporation ("NEP"),
and USGEN NEW ENGLAND, INC., a Delaware corporation ("Asset Purchaser"), along
with The Narragansett Electric Company, are parties to an Asset Purchase
Agreement, dated August 5, 1997; and
WHEREAS, under section 2.3(a)(i) of the Asset Purchase Agreement, Asset
Purchaser has agreed to assume NEP's rights and obligations under certain
contracts associated with the purchase of energy from Hydro-Quebec, a Canadian
utility, and the support and use of the HVDC interconnection
("Interconnection") between Hydro-Quebec, a Canadian utility, and the New
England Power Pool ("NEPOOL"); and
WHEREAS the respective rights and obligations of Hydro-Quebec and
certain members of NEPOOL collectively regarding the Interconnection are set
forth in the Interconnection Agreement between Hydro-Quebec and NEPOOL, dated
March 21, 1983, and the Energy Banking Agreement between Hydro-Quebec, NEPOOL,
New England Electric Transmission Company, and Vermont Electric Transmission
Company, dated March 21, 1983; and
WHEREAS Asset Purchaser intends to become a member of NEPOOL, and as
such will enjoy the rights and undertake the obligations of NEPOOL members
under the Interconnection Agreement, pursuant to section 15.3 thereof, and
under the Energy Banking Agreement, under section 12.3 thereof; and
WHEREAS, under the PPA Transfer Agreement (an agreement between NEP and
Asset Purchaser transferring to Asset Purchaser NEP's rights and obligations
under specified power purchase agreements) dated August 5, 1997, NEP has
transferred to Asset Purchaser NEP's rights and obligations under the Energy
Contract, an agreement between Hydro Quebec and NEPOOL dated March 21, 1983,
and the Firm Energy Contract, an agreement between Hydro Quebec and 37 NEPOOL
participants dated October 14, 1985; and
WHEREAS the respective rights and obligations of NEPOOL members among
themselves and of NEP with respect to Hydro-Quebec with respect to the
Interconnection are set forth in, inter alia, the following agreements (each,
as amended, supplemented, or restated, a "Commitment"):
Agreement with Respect to Use of the Quebec Interconnection, dated
December 1, 1981, as amended and restated as of September 1, 1985, and
as further amended and restated as of November 19, 1997, and as further
amended as of April 8, 1998 ("Use Agreement");
Phase I Vermont Transmission Line Support Agreement, dated December 1,
1981, as amended on June 1, 1982, November 1, 1982, and January 1, 1986;
Phase I Terminal Facility Support Agreement, dated December 1, 1981, as
amended June 1, 1982, November 1, 1982 and January 1, 1986.
Phase II Boston Edison AC Facilities Support Agreement, dated June 1,
1985, as amended May 1, 1986, February 1, 1987, June 1, 1987, September
1, 1987, and August 1, 1988;
Phase II New England Power AC Facilities Support Agreement, dated June
1, 1985, as amended May 1, 1986, February 1, 1987, June 1, 1987,
September 1, 1987, and August 1, 1988 ("NEP Facilities Support
Agreement");
Phase II Massachusetts Transmission Facilities Support Agreement, dated
June 1, 1985, as amended May 1, 1986, February 1, 1987, June 1, 1987,
September 1, 1987, October 1, 1987, August 1, 1988, and January 1, 1989;
and
<PAGE>
Phase II New Hampshire Transmission Facilities Support Agreement, dated
June 1, 1985, as amended May 1, 1986, February 1, 1987, June 1, 1987,
September 1, 1987, October 1, 1987, August 1, 1988, January 1, 1989, and
January 1, 1990; and
NEP/Hydro-Quebec Interconnection Agreement dated as of December 19,
1996.
WHEREAS, it is the intention of NEP and Asset Purchaser hereby to enter
into an agreement to fulfil the commitment of section 2.3(a)(i) of the Asset
Purchase Agreement;
NOW THEREFORE, this QUEBEC INTERCONNECTION TRANSFER AGREEMENT
("Agreement") is dated as of September 1, 1998, and is made by and between NEP
and Asset Purchaser. This Agreement sets forth the terms and conditions under
which NEP will transfer to Asset Purchaser the benefits, rights, and
privileges associated with the Commitments and Asset Purchaser will undertake
the payment obligations associated with the Commitments, except for NEP's
rights and obligations under the NEP Facilities Support Agreement and except
that regarding NEP's right to designate a representative to serve on the
Advisory Committee provided for in Section 6 of the Massachusetts Facilities
Support Agreement and Section 6 of the New Hampshire Facilities Support
Agreement (hereinafter "the Section 6 Right"), the Asset Purchaser shall have
an option to exercise the Section 6 Right. With regard to the NEP Facilities
Support Agreement NEP will transfer to Asset Purchaser such benefits, rights,
and privileges, and only such benefits, rights, and privileges, as NEP enjoys
as a Supporter under said Commitment, and Asset Purchaser will undertake such
obligations, and only such obligations, as NEP has undertaken as a Supporter
under said Commitment. NEP will retain all of its rights and obligations
under the NEP Facilities Support Agreement as owner and operator of the
facilities that are the subject of said agreement. NEP and Asset Purchaser
desire said transfer and undertaking to occur concurrently with the sale of
NEP's generation business to Asset Purchaser pursuant to the Asset Purchase
Agreement.
1. The Commitments are incorporated into this Agreement by reference. A
Commitment shall be automatically deleted from the Commitments
incorporated in this Agreement without further action by the parties
(I) on the effective date of any Novation (defined in Section as 7,
below), (ii) upon the expiration of a Commitment pursuant to its terms,
or (iii) upon the termination of a Commitment pursuant to the written
agreement of the parties thereto.
2. This Agreement shall become effective on the Effective Date (as defined
in Section 12) and shall remain in effect until Asset Purchaser has made
payment to NEP of amounts owed pursuant to Section 4 of this Agreement
and NEP has made payment to Asset Purchaser of any amounts owed pursuant
to Section 3 or 4 of this Agreement for the last month in which a
Commitment remains incorporated in this Agreement.
(a) Commencing as of the Effective Date, and terminating upon the
termination of the Use Agreement, pursuant to section 6 of said
Agreement, NEP transfers to Asset Purchaser the right to use all
of NEP's Percentage Interest in the Transfer Capability of the
Interconnection. Such transfer shall be subject to the conditions
set forth in section 6 of said Agreement.
(b) Asset Purchaser agrees that, to the extent it elects not to use a
portion of the Transfer Capability transferred under subsection
(a) of this section, Asset Purchase shall so notify NEP in
writing, and NEP may make such Transfer Capability available under
NEP's open access transmission tariff on file with the Federal
Energy Regulatory Commission, and Asset Purchaser agrees to
provide NEP with all information that NEP reasonably requests for
the purpose of calculating the Annual Opportunity Cost Charge in
Attachment Q, Exhibit 2 of the tariff to each Customer that uses a
portion of the Transfer Capability.
<PAGE>
(c) Commencing as of the Effective Date, NEP agrees that it will
provide to Asset Purchaser all benefits accruing to NEP under each
of the Commitments, except for the NEP Facilities Support
Agreement, and that Asset Purchaser may exercise all rights and
privileges of NEP under each of the Commitments; provided,
however, that NEP shall retain the Section 6 Right subject to
Asset Purchaser's option, exercisable in Asset Purchaser's sole
discretion, to direct NEP to transfer to it the Section 6 Right.
Commencing as of the Effective Date, NEP agrees that, if and to
the extent Asset Purchaser does not enjoy the rights of NEPOOL
members under the Interconnection Agreement, NEP will provide to
Asset Purchaser all benefits accruing to NEP under the
Interconnection Agreement, and that Asset Purchaser may exercise
all rights and privileges of NEP under the Interconnection
Agreement, and that Asset Purchaser may exercise all rights and
privileges of NEP under the Interconnection Agreement and the
Interconnection Agreement shall be deemed to be a "Commitment"
under this Agreement. Commencing as of the Effective Date, NEP
agrees that, if and to the extent Asset Purchaser does not enjoy
the rights of NEPOOL members under the Energy Banking Agreement,
NEP will provide to Asset Purchaser all benefits accruing to NEP
under the Energy Banking Agreement, and that Asset Purchaser may
exercise all rights and privileges of NEP under the Energy Banking
Agreement and the Energy Banking Agreement shall be deemed to be a
"Commitment" under this Agreement.
(d) Commencing as of the Effective Date, NEP agrees that it will
provide Asset Purchaser such benefits accruing to NEP under the
NEP Facilities Support Agreement, and only such benefits, as NEP
enjoys jointly with the other Supporters of the NEP Facilities
Support Agreement and that Asset Purchaser may exercise such
rights and privileges of NEP under the NEP Facilities Support
Agreement, and only such rights and privileges, as NEP enjoys
jointly with the other Supporters of the NEP Facilities Support
Agreement.
(e) Commencing as of the Effective Date, Asset Purchaser agrees to
maintain a billing settlement account at NEPOOL. The benefits and
obligations relating to the NEPOOL settlement process that are
being transferred under this Agreement, including but not limited
to capability responsibility, shall be reflected in the Asset
Purchaser's settlement account.
4. Commencing as of the month following the Effective Date, Asset Purchaser
agrees to pay to NEP (unless mutually agreeable arrangements are in
place for Asset Purchaser to make direct payments under a Commitment)
each month all amounts properly due for the preceding month, under each
Commitment that remained incorporated in the Agreement during the
previous month, from NEP to any party to such Commitment, including such
amounts for which NEP is responsible solely as a Supporter, and not as
owner and/or operator, under the NEP Facilities Support Agreement,
except that during the first month following the Effective Date, Asset
Purchaser shall pay to NEP the amount described in subsection (b) of
this section. The amounts properly due for the preceding month shall
include any charges to NEP associated with goods or services provided
pursuant to the Commitments in months prior to the preceding month but
subsequent to the Effective Date, including billing adjustments and
true-ups, any charges or costs resulting from regulatory or court
orders, and any associated interest, but specifically excluding any
general and administrative costs incurred by NEP in administering
Attachment Q of NEP's open access transmission tariff, and shall be
increased by any costs incurred by NEP or reduced by any revenues
received by NEP, both associated with the sale of Transfer Capability
under section 3(b). Asset Purchaser's rights to audit NEP's bills shall
be governed by NEP's open access transmission tariff. Asset Purchaser
shall make payment under this section by wire transfer of immediately
available funds at least one business day before such payment is due by
<PAGE>
NEP under each Commitment as to allow NEP to make timely payment under
such Commitment. In turn, each month NEP agrees to timely pay all
amounts due under each Commitment, which includes the amount NEP
receives from Asset Purchaser in connection with such Commitment.
(a) During the first month following the Effective Date, Asset
Purchaser agrees to pay to NEP a portion of all amounts properly
due for the preceding month, under each Commitment that remained
incorporated in the Agreement during the previous month, from NEP
to any party to such Commitment, including such amounts for which
NEP is responsible as a Supporter under the NEP Facilities Support
Agreement. Such portion shall be determined according to the
ratio of the number of days in the month for which Asset Purchaser
has a payment obligation under this Agreement to the total number
of days in the month.
(b) Upon and after the Effective Date, NEP shall notify Asset
Purchaser within a reasonable time of any and all amounts which
are then or thereafter received, under each Commitment, by NEP
from any other party to such Commitments, except for payments
received by NEP as owner and operator of the facilities that are
the subject of the NEP Facilities Support Agreement. Such amounts
shall include, without limitation, any aggregate differential
balances under any Commitment and the benefit of and proceeds from
any security deposits, letters of credit or other similar
instruments or accounts established for the benefit of NEP by such
other party. At Asset Purchaser's direction, NEP shall pay such
amount to Asset Purchaser or irrevocably and unconditionally
assign and thereafter hold for the benefit of and/or credit to
Asset Purchaser against payments due from it to NEP under Section
4 hereof or at the termination of this Agreement. Such amount
shall exclude any credits or refunds received by NEP after the
Effective Date which relate to billing errors or reconciliations
of pre-Effective Date bills, and any amounts paid by such other
party to NEP with respect to disputes arising before the Effective
Date that are attributable to a period prior to the Effective
Date.
5. Effective as of the Effective Date, NEP hereby irrevocably and
unconditionally appoints Asset Purchaser as its representative and agent
for all purposes under each Commitment except for the NEP Facilities
Support Agreement and except for NEP's Section 6 Right, subject to the
Asset Purchaser's exercise of the option described in Section 3(c).
Effective as of the Effective Date, NEP hereby further irrevocably and
unconditionally appoints Asset Purchaser as its representative and agent
for any actions, and only such actions, that might be taken by NEP as a
Supporter under the NEP Facilities Support Agreement. Asset Purchaser
is hereby authorized under such appointments to take all actions that
NEP may lawfully take under such Commitments without further approval by
NEP, including, without limitation, the following: with respect to all
matters arising under such Commitments, deal directly with the other
parties to such Commitment, the New England Power Pool (NEPOOL), the
Independent System Operator (as designated under the Restated NEPOOL
Agreement as filed with the Federal Energy Regulatory Commission on
December 31, 1996, and as amended from time to time), other transporters
of electric energy, federal, state and local governmental authorities,
and any other persons; act on NEP's behalf in the prosecution or
defense, as the case may be, of any rights or liabilities arising under
such Commitments; monitor the parties' performance under the
Commitments; review and audit all bills and related documentation
rendered pursuant to the Commitments; and on NEP's behalf enter into
amendments to such Commitments of any nature; provided, however Asset
Purchaser shall not (i) amend any Commitment in a manner that affects
NEP's rights or obligations under such Commitment prior to the Effective
Date; (ii) amend any Commitment to extend the term thereof or increase
NEP's obligations thereunder without NEP's consent, which shall not be
unreasonably withheld and provided, further, that Asset Purchaser need
<PAGE>
not seek NEP's consent for amendments, extensions, or increases in NEP
obligations if (i) the net present value of any increase on NEP
obligations created thereby is less than five million dollars
($5,000,000) and (ii) Asset Purchaser shall have attained and maintained
(A) "net worth," or "consolidated net worth," if applicable, as
determined in accordance with U.S. generally accepted accounting
principles and reflected in an audited balance sheet (or consolidated
balance sheet, if applicable) ("Net Worth") at least equal to
$500,000,000, and (B) an Investment Grade Rating, as defined below. For
purposes hereof, "Investment Grade Rating" means either (i) and S&P
Credit Rating (as defined below) of BBB or above or (ii) a Moody's
Credit Rating (as defined below) of Baa2 or above. "S&P Credit Rating"
shall mean the rating assigned by Standard & Poor's Ratings Group
("S&P") to the senior unsecured long-term debt of the Asset Purchaser
(or, in the event that none of the Asset Purchaser's senior unsecured
debt is rated by S&P, the Asset Purchaser's implied senior unsecured
debt rating), and "Moody's Credit Rating" shall mean the rating level
assigned by Moody's Investor Service, Inc. ("Moody's") to the senior
unsecured long-term debt of the Asset Purchaser (or, in the event that
none of the Asset Purchaser's senior unsecured debt is rated by Moody's,
the Asset Purchaser's implied senior unsecured debt rating). Asset
Purchaser shall have the right to delegate to its affiliates or third
parties any of its responsibilities under this Section 5. NEP hereby
agrees to provide and deliver to Asset Purchaser all information which
NEP now has or hereafter acquires or to which it is entitled with
respect to each Commitment and Asset Purchaser hereby agrees with
respect to such information to be subject to any confidentiality
provisions of such Commitment and any restrictions on the dissemination
of such information as are required by the Federal Energy Regulatory
Commission. NEP also agrees to participate at Asset Purchaser's request
and under Asset Purchaser's direction in any governmental proceeding
with respect to the Commitments or this Agreement. Notwithstanding any
provision to the contrary in this section, NEP shall have the right, and
nothing in this Agreement shall limit NEP's right, to take a position on
its own behalf and to submit testimony, make filings, and otherwise
assert and defend such position in connection with any matter or
proceeding concerning the recovery of costs associated with any
Commitment in NEP's transmission rates. Neither of the parties shall
institute proceedings concerning this Agreement under sections 205 or
206 of the Federal Power Act without the consent of the other party,
which consent shall not be unreasonably withheld.
(a) NEP agrees not to agree to any amendment to, termination of, or
waiver of rights under a Commitment other than the NEP Facilities
Support Agreement without Asset Purchaser's consent, which Asset
Purchaser may grant or withhold in its sole discretion. NEP will
not take any actions inconsistent with the provisions of Section
5.
6. NEP will indemnify, defend and hold harmless the Asset Purchaser from
and against any and all claims, demands or suits (by any person),
losses, liabilities, damages (excluding consequential or special
damages), obligations, payments, costs and expenses (including, without
limitation, the costs and expenses of any and all actions, suits,
proceedings, assessments, judgments, settlements, and compromises
relating thereto and reasonable attorneys' fees and reasonable
disbursements in connection therewith) to the extent the foregoing are
not covered by insurance (each, an "Indemnifiable Loss"), asserted
against or suffered by Asset Purchaser relating to, resulting from or
arising out of any payment obligation of NEP resulting from or contained
in this Agreement or any obligation of NEP for any acts or omissions
under the Commitments incurred prior to the Effective Date. For purpose
hereof NEP's and Asset Purchaser's administrative costs incurred in
administering the Commitments and performing their obligations under
this Agreement shall not be an Indemnifiable Loss. For purposes hereof,
any failure of NEP to perform any act required to be performed by it
under a Commitment (other than as owner/operator under the NEP
<PAGE>
Facilities Support Agreement) which increases the amounts payable by
Asset Purchaser under Section 4(a) hereof shall be entitled to
indemnification hereunder.
(a) Asset Purchaser will indemnify, defend and hold harmless NEP from
and against any and all Indemnifiable Losses asserted against or
suffered by NEP relating to, resulting from or arising out of any
payment obligation of, or exercise of rights as NEP's agent by,
Asset Purchaser resulting from or contained in this Agreement.
(b) Any person entitled to receive indemnification under this
Agreement (an "Indemnitee") having a claim under these
indemnification provisions shall make a good faith effort to
recover all losses, damages, costs and expenses from insurers of
such Indemnitee under applicable insurance policies so as to
reduce the amount of any Indemnifiable Loss hereunder. The amount
of any Indemnifiable Loss shall be reduced (i) to the extent that
Indemnitee receives any insurance proceeds with respect to an
Indemnifiable Loss and (ii) to take into account any net Tax
benefit recognized by the Indemnitee arising from the recognition
of the Indemnifiable Loss and any payment actually received with
respect to an Indemnifiable Loss.
(c) The expiration, termination or extinguishment of any covenant or
agreement shall not affect the parties' obligations under this
Section 6 if the Indemnitee provided to the person who is required
to provide indemnification under this Agreement (the "Indemnifying
Party") with proper notice of the claim or event for which
indemnification is sought prior to such expiration, termination or
extinguishment.
(d) The rights and remedies of NEP and Asset Purchaser under this
Section 6 are exclusive and in lieu of any and all other rights
and remedies which NEP and Asset Purchaser may have under this
Agreement or otherwise for monetary relief with respect to any
payment obligation resulting from this Agreement.
(e) NEP and Asset Purchaser each agree that, notwithstanding any
provisions in this Agreement to the contrary, all parties to this
Agreement retain their remedies at law or in equity with respect
to willful or intentional breaches of this Agreement.
(f) If any Indemnitee receives notice of the assertion of any claim or
of the commencement of any claim, action, or proceeding made or
brought by any person who is not a party to this Agreement or any
affiliate of a party to this Agreement (a "Third Party Claim")
with respect to which indemnification is to be sought from an
Indemnifying Party, the Indemnitee will give such Indemnifying
Party reasonably prompt written notice thereof, but in any event
not later than ten (10) calendar days after the Indemnitee's
receipt of notice of such Third Party Claim. Such notice shall
describe the nature of the Third Party Claim in reasonable detail
and will indicate the estimated amount, if practicable, of the
Indemnifiable Loss that has been or may be sustained by the
Indemnitee. The Indemnifying Party will have the right to
participate in or, by giving written notice to the Indemnitee, to
elect to assume the defense of any Third Party Claim at such
Indemnifying Party's own expense and by such Indemnifying Party's
own counsel, and the Indemnitee will cooperate in good faith in
such defense at such Indemnitee's own expense.
(g) If within ten (10) calendar days after an Indemnitee provides
written notice to the Indemnifying Party of any Third Party Claim
the Indemnitee receives written notice from the Indemnifying Party
that such Indemnifying Party has elected to assume the defense of
such Third Party Claim as provided in the last sentence of clause
(g), the Indemnifying Party will not be liable for any legal
<PAGE>
expenses subsequently incurred by the Indemnitee in connection
with the defense thereof; provided, however, that if the
Indemnifying Party fails to take reasonable steps necessary to
defend diligently such Third Party Claim within twenty (20)
calendar days after receiving notice from the Indemnitee that the
Indemnitee believes the Indemnifying Party has failed to take such
steps, the Indemnitee may assume its own defense, and the
Indemnifying Party will be liable for all reasonable expenses
thereof. Without the prior written consent of the Indemnitee, the
Indemnifying Party will not enter into any settlement of any Third
Party Claim which would lead to liability or create any financial
or other obligation on the part of the Indemnitee for which the
Indemnitee is not entitled to indemnification hereunder. If a
firm offer is made to settle a Third Party Claim without leading
to liability or the creation of a financial or other obligation on
the part of the Indemnitee for which the Indemnitee is not
entitled to indemnification hereunder and the Indemnifying Party
desires to accept and agree to such offer, the Indemnifying Party
will give written notice to the Indemnitee to that effect. If the
Indemnitee fails to consent to such firm offer within ten (10)
calendar days after its receipt of such notice, the Indemnitee may
continue to contest or defend such Third Party Claim and, in such
event, the maximum liability of the Indemnifying Party as to such
Third Party Claim will be the amount of such settlement offer,
plus reasonable costs and expenses paid or incurred by the
Indemnitee up to the date of such notice.
(h) Any claim by an Indemnitee on account of an Indemnifiable Loss
which does not result from a Third Party Claim (a "Direct Claim")
will be asserted by giving the Indemnifying Party reasonably
prompt written notice thereof, stating the nature of such claim in
reasonable detail and indicating the estimated amount, if
practicable, but in any event not later than ten (10) calendar
days after the Indemnitee becomes aware of such Direct Claim, and
the Indemnifying Party will have a period of thirty (30) calendar
days within which to respond to such Direct Claim. If the
Indemnifying Party does not respond within such thirty (30)
calendar day period, the Indemnifying Party will be deemed to have
accepted such claim. If the Indemnifying Party rejects such
claim, the Indemnitee will be free to seek enforcement of its
rights to indemnification under this Agreement.
(i) If the amount of any Indemnifiable Loss, at any time subsequent to
the making of an indemnity payment in respect thereof, is reduced
by recovery, settlement or otherwise under or pursuant to any
insurance coverage, or pursuant to any claim, recovery, settlement
or payment by or against any other entity, the amount of such
reduction, less any costs, expenses or premiums incurred in
connection therewith (together with interest thereon from the date
of payment thereof at the prime rate then in effect of the Bank of
Boston), will promptly be repaid by the Indemnitee to the
Indemnifying Party. Upon making any indemnity payment, the
Indemnifying Party will, to the extent of such indemnity payment,
be subrogated to all rights of the Indemnitee against any third
party in respect of the Indemnifiable Loss to which the indemnity
payment relates; provided, however, that (i) the Indemnifying
Party will then be in compliance with its obligations under this
Agreement in respect of such Indemnifiable Lose and (ii) until the
Indemnitee recovers full payment of its Indemnifiable Loss, any
and all claims of the Indemnifying Party against any such third
party on account of said indemnity payment is hereby made
expressly subordinated and subjected in right of payment to the
Indemnitee's rights against such third party. Without limiting
the generality or effect of any other provision hereof, each such
Indemnitee and Indemnifying Party will duly execute upon request
all instruments reasonably necessary to evidence and perfect the
above-described subrogation and subordination rights, and
<PAGE>
otherwise cooperate in the prosecution of such claims at the
direction of the Indemnifying Party. Nothing in this clause (j)
shall be construed to require any party hereto to obtain or
maintain any insurance coverage.
(j) A failure to give timely notice as provided herein will not affect
the rights or obligations of any party hereunder except if, and
only to the extent that, as a result of such failure, the party
which was entitled to receive such notice was actually prejudiced
as a result of such failure.
7. NEP and Asset Purchaser agree to work cooperatively and use all
reasonable efforts to amend each Commitment and assign each such amended
Commitment to Asset Purchaser so that NEP will be released of all
further liabilities and obligations under the Commitment and Asset
Purchaser will be directly in contract with the other parties to the
Commitment (a "Novation"), except that, with regard to the NEP
Facilities Support Agreement, such assignment will be limited to the
rights and obligations of NEP as a Supporter under the NEP Facilities
Support Agreement and except that NEP shall retain its Section 6 Right,
subject to Asset Purchaser's option, exercisable in Asset Purchaser's
sole discretion, to direct NEP to assign its Section 6 Right, in which
event there shall be a Novation of the Section 6 Right. Any such
Novation shall include all modifications necessary to reflect the
substitution of Asset Purchaser for NEP as the party under the
Commitment and to properly describe interconnection, delivery point and
transmission system references and obligations in the Commitment. It is
intended by the parties that all such Novations preserve the economic
benefit and other rights of the Commitment to the Asset Purchaser
without increasing the Asset Purchaser's obligations under the
Commitment while continuing to afford to NEP the protections for its
transmission system embodied in the Commitment. NEP and Asset Purchaser
agree to execute all agreements and documents reasonably required by the
other in connection with all such Novations.
8. This Agreement and all rights, obligations, and performances of the
parties hereunder, are subject to all applicable Federal and state laws,
and to all duly promulgated orders and other duly authorized action of
governmental authority having jurisdiction.
9. Except as otherwise set forth in Section 5 hereof, this Agreement and
all of the provisions hereof shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and
permitted assigns, but neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any party
hereto, including by operation of law without the prior written consent
of the other party, not to be unreasonably withheld, nor is this
Agreement intended to confer upon any other person except the parties
hereto any rights or remedies hereunder. Notwithstanding the foregoing,
(i) the Asset Purchaser may assign all of its rights and obligations
hereunder to any wholly owned Subsidiary (direct or indirect) of PG&E
Corporation and upon NEP's receipt of notice from Asset Purchaser of any
such assignment, the Asset Purchaser will be released from all
liabilities and obligations hereunder, accrued and unaccrued, such
assignee will be deemed to have assumed, ratified, agreed to be bound by
and perform all such liabilities and obligations, and all references
herein to Asset Purchaser shall thereafter be deemed references to such
assignee, in each case without the necessity for further act or evidence
by the parties hereto or such assignee; provided, however, that no such
assignment and assumption shall release the Asset Purchaser from its
liabilities and obligations hereunder unless the assignee shall have
acquired all or substantially all of the Asset Purchaser's assets;
provided, further, however, that no such assignment and assumption shall
relieve or in any way discharge PG&E Corporation from the performance of
its duties and obligations under the Guaranty dated August 5, 1997,
executed by PG&E Corporation for the purpose of financing or refinancing
the Purchased Assets (as defined in the Asset Purchase Agreement); and
<PAGE>
(ii) the Asset Purchaser or its permitted assignee may assign, transfer,
pledge or otherwise dispose of its rights and interests hereunder to a
trustee or lending institution(s) for the purpose of financing or
refinancing the Purchased Assets (as defined in the Asset Purchase
Agreement), including upon or pursuant to the exercise of remedies under
a financing or refinancing, or by way of assignments, transfers,
conveyances or dispositions in lieu thereof; provided, however, that no
such assignment or disposition shall relieve or in any way discharge the
Asset Purchaser or such assignee from the performance of its duties and
obligations under this Agreement. NEP agrees to execute and deliver
such documents as may be reasonably necessary to accomplish any such
assignment, transfer, conveyance, pledge or disposition of rights
hereunder so long as NEP's rights under this Agreement are not thereby
altered, amended, diminished or otherwise impaired.
10. This Agreement, the Asset Purchase Agreement and any other agreement
entered into by the parties pursuant to the Asset Purchase Agreement
constitute the entire agreement between the parties and supersede all
previous offers, negotiations, discussions, communications and
correspondence. This Agreement may be amended only by a written
agreement signed by the parties. This Agreement is not intended to
confer upon any other person except the parties hereto any rights or
remedies. The interpretation and performance of this Agreement shall be
according to and controlled by the Federal Power Act and the laws of The
Commonwealth of Massachusetts (regardless of the laws that might
otherwise govern under applicable Massachusetts principles of conflicts
of laws).
11. All payments required under this Agreement shall be paid in cash by
federal or other wire transfer of immediately available funds to an
account designated by the party to receive such payment.
12. This Agreement shall be of no force and effect until the Effective Date.
If the Asset Purchase Agreement shall have been terminated before the
occurrence of the Closing Date (as defined in the Asset Purchase
Agreement), this Agreement shall, without any action of the parties
hereto, terminate as of the time of the termination of the Asset
Purchase Agreement. As used in this Agreement, "Effective Date" shall
mean the Closing Date (as defined in the Asset Purchase Agreement).
IN WITNESS WHEREOF, the parties have caused their duly authorized
representatives to execute this Agreement on their behalf as of the date first
above written.
NEW ENGLAND POWER COMPANY
By: /s/ Michael E. Jesanis
Name: Michael E. Jesanis
Title: Vice President
USGEN NEW ENGLAND, INC.
By: /s/ James V. Mahoney
Name: James V. Mahoney
Title: Senior Vice President
<PAGE>
Annual Report 1998
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 January 1, 1999)
Peter G. Flynn
President of the Company
Alfred D. Houston
Chairman of the Company and Chairman of New England Electric
System
Cheryl A. LaFleur
Vice President and General Counsel of the Company and Senior Vice
President, General Counsel, and Secretary of New England Electric
System
Richard P. Sergel
President and Chief Executive Officer of New England Electric
System
Officers
(As of January 1, 1999)
Alfred D. Houston
Chairman of the Company and Chairman of New England Electric
System
Peter G. Flynn
President of the Company
Michael E. Jesanis
Vice President of the Company and Senior Vice President and Chief
Financial Officer of New England Electric System
Cheryl A. LaFleur
Vice President and General Counsel of the Company and Senior Vice
President, General Counsel, and Secretary of New England Electric
System
John F. Malley
Vice President of the Company
Masheed H. Rosenqvist
Vice President of the Company and of certain affiliates
James S. Robinson
Vice President of the Company
Robert King Wulff
Clerk of the Company and of certain affiliates, Secretary or
Assistant Clerk of certain affiliates and Assistant Secretary of
an affiliate
<PAGE>
John G. Cochrane
Treasurer of the Company and of certain affiliates, Vice
President of an affiliate, Assistant Treasurer of an affiliate
and Treasurer of New England Electric System
Kirk L. Ramsauer
Assistant Clerk of the Company and of certain affiliates, and
Secretary, Assistant Secretary or Clerk of certain affiliates
Howard W. McDowell
Assistant Treasurer and Controller of the Company and of certain
affiliates, Senior Vice President of an affiliate, Treasurer or
Controller of certain affiliates and Assistant Secretary of an
affiliate
Transfer Agent, Dividend Paying Agent, and Registrar of Preferred
Stock, BankBoston, N.A., 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, (the Company) a wholly owned
subsidiary of New England Electric System (NEES), is a
Massachusetts corporation 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, under the Public
Utility Holding Company Act of 1935, the Federal Energy
Regulatory Commission and the Nuclear Regulatory Commission. The
Company's business is primarily the transmission of electric
energy in wholesale quantities to other electric utilities,
principally its distribution affiliates Granite State Electric
Company, Massachusetts Electric Company, Nantucket Electric
Company, and The Narragansett Electric Company (Narragansett
Electric). In September 1998, the Company and Narragansett
Electric completed the divestiture of substantially all of their
nonnuclear generating business. However, the Company continues
to own minority interests in two joint owned nuclear generating
units as well as minority equity interests in 4 nuclear
generating companies. For further information on industry
restructuring and the divestiture of NEES' nonnuclear generating
business, refer to the "Industry Restructuring" section of
Financial Review.
In December 1998, NEES agreed to a merger with The National
Grid Group plc, whose principal subsidiary operates the
transmission system in England and Wales.
In February 1999, NEES entered into an agreement to acquire
Eastern Utilities Associates, a utility holding company serving
approximately 300,000 customers in Massachusetts and Rhode
Island. For further information on these proposed mergers, refer
to the "Merger Agreements" sections of Financial Review.
<PAGE>
Report of Independent Accountants
New England Power Company, Westborough, Massachusetts:
In our opinion, the accompanying balance sheets and the
related statements of income, of retained earnings, and of cash
flows present fairly, in all material respects, the financial
position of New England Power Company (the Company), a wholly
owned subsidiary of New England Electric System, at December 31,
1998 and 1997, and the results of its operations and its cash
flows for each of the three years in the period ended December
31, 1998 in conformity with generally accepted accounting
principles. 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 of these statements in accordance with
generally accepted auditing standards which 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, assessing the accounting principles used and
significant estimates made by management, and evaluating the
overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed
above.
Boston, Massachusetts PricewaterhouseCoopers LLP
February 23, 1999
<PAGE>
New England Power Company
Financial Review
Merger Agreement with The National Grid Group plc
On December 11, 1998, New England Electric System (NEES), The
National Grid Group plc (National Grid), and NGG Holdings LLC
(Holdings), a directly and indirectly wholly owned subsidiary of
National Grid, entered into an Agreement and Plan of Merger
(Merger Agreement). Pursuant to the Merger Agreement, Holdings
will merge with and into NEES (the Merger), with NEES becoming a
wholly owned subsidiary of National Grid. New England Power
Company (the Company) will remain a wholly owned subsidiary of
NEES.
The Merger is subject to approval by a majority vote of NEES
shareholders as well as National Grid shareholder approval. In
addition, the Merger is subject to a number of regulatory and
other approvals and consents, including approvals by the
Securities and Exchange Commission (SEC), under the Public
Utility Holding Company Act of 1935 (1935 Act), Federal Energy
Regulatory Commission (FERC), and Nuclear Regulatory Commission
(NRC), support or approval from the states in which NEES
subsidiaries operate, and clearance under both the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended,
and the Exon-Florio Provisions of the Omnibus Trade and
Competitiveness Act of 1988. National Grid has obtained
governmental clearance in the United Kingdom for the Merger. The
Merger is expected to be completed by early 2000.
Merger Agreement with Eastern Utilities Associates
On February 1, 1999, NEES, Eastern Utilities Associates
(EUA), and Research Drive LLC (Research Drive), a directly and
indirectly wholly owned subsidiary of NEES, entered into an
Agreement and Plan of Merger (EUA Agreement). Pursuant to the EUA
Agreement, Research Drive will merge with and into EUA, with EUA
becoming a wholly owned subsidiary of NEES.
The acquisition of EUA is subject to approval by a two-thirds
vote of EUA shareholders. In addition, the acquisition is subject
to a number of regulatory and other approvals and consents,
including approvals by the SEC, under the 1935 Act, FERC, and
NRC, support or approval from the states in which EUA
subsidiaries operate, and clearance under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended. The EUA
acquisition is expected to be completed by early 2000. Following
the acquisition of EUA, the subsidiaries of NEES and EUA whose
operations are similar are expected to be consolidated.
<PAGE>
Industry Restructuring
During 1998, pursuant to legislation enacted in
Massachusetts, Rhode Island, and New Hampshire, and settlement
agreements approved by state and federal regulators (the
Settlement Agreements), all customers were provided the right to
purchase electricity from the power supplier of their choice. The
NEES companies remain obligated to deliver that electricity over
its transmission and distribution systems, with such delivery
services provided under regulated rates approved by state and
federal regulators. As described below, those delivery rates
include a non-bypassable charge for the costs of NEES' former
generating business which were not recovered through the sale of
that business ("stranded costs"), which was substantially
completed in 1998. As a result of the Settlement Agreements,
customers' choice of power supplier has no impact on NEES'
transmission and distribution business or on its ability to
recover stranded costs. In order to facilitate the implementation
of customer choice, the Settlement Agreements provided for the
termination of the Company's requirements contracts with its
affiliated distribution customers. The Company's requirements
contracts with unaffiliated customers have also generally been
terminated pursuant to settlement agreements or tariff
provisions. However, the Company remains obligated to provide
transition power supply service to new customer load in Rhode
Island.
On September 1, 1998, the Company and The Narragansett
Electric Company (Narragansett Electric) (collectively, the
Sellers) completed the sale of substantially all of their
nonnuclear generating business, all of which had a book value of
approximately $1.1 billion, to USGen New England, Inc. (USGen),
an indirect wholly owned subsidiary of PG&E Corporation. The
Sellers received $1.59 billion for the sale. In addition, the
Company was reimbursed approximately $140 million for costs
associated with early retirements and special severance programs
for employees affected by industry restructuring, and the value
of inventories. USGen assumed responsibility for environmental
conditions at the Sellers' nonnuclear generating stations. USGen
also assumed the Sellers' obligations under long-term fuel and
fuel transportation contracts, and certain collective bargaining
agreements.
As part of the sale, the Company also signed a purchased
power transfer agreement through which USGen purchased the
Company's entitlement to approximately 1,100 megawatts (MW) of
power procured under long-term contracts in exchange for monthly
fixed payments by the Company averaging $9.5 million per month
through January 2008 (having a net present value of $833 million)
toward the above-market cost of those contracts. In some cases,
these transfers involved formal assignment of the contracts to
USGen and a release of the Company from further obligations to
the power supplier, while others did not. For those that involved
formal assignment, the Company was required to make a lump sum
payment equivalent to the present value of the monthly fixed
payment obligations of those contracts. On or prior to the
<PAGE>
closing date, the Company made lump sum payments totaling
approximately $340 million and was released from further
obligations relating to two of the contracts. These lump sum
payments are separate from the $833 million figure referred to
above.
As part of the divestiture plan, in February 1998, New
England Energy Incorporated (NEEI), a wholly owned subsidiary of
NEES, whose costs had been supported by the Company, sold its oil
and gas properties for approximately $50 million. NEEI's loss on
the sale of approximately $120 million, before tax, has been
reimbursed by the Company.
In addition, the Company agreed under the Settlement
Agreements to endeavor to sell its minority interest in three
nuclear power plants and a 60 MW interest in a fossil-fueled
generating station in Maine. In February 1999, Vermont Yankee
Nuclear Power Corporation entered into a letter of intent to sell
its assets. For further information, refer to the "Nuclear
Units" section of this Financial Review.
The Settlement Agreements provide that the Company's stranded
costs are to be recovered from its wholesale customers through
contract termination charges (CTC). The affiliated wholesale
customers, in turn, are recovering those costs through their
delivery charges to distribution customers. Under the Settlement
Agreements, the recovery of the Company's stranded costs is
divided into several categories. Unrecovered costs associated
with generating plants (nuclear and nonnuclear) and most
regulatory assets will be fully recovered through the CTC by the
end of 2000 and earn a return on equity averaging 9.7 percent.
The Company's obligation relating to the above-market cost of
purchased power contracts and nuclear decommissioning costs are
recovered through the CTC over a longer period of time, as such
costs are actually incurred. The CTC rate was originally set at
2.8 cents per kilowatthour (kWh), and subsequently reduced to
approximately 1.5 cents or less per kWh upon completion of the
sale of the Company's nonnuclear generating business. As the CTC
rate declines, the Company, under certain of the Settlement
Agreements, earns incentives based on successful mitigation of
its stranded costs. These incentives supplement the Company's
return on equity. Finally, the Settlement Agreements provide that
until such time as the Company divests its operating nuclear
interests, the Company will share with customers, through the
CTC, 80 percent of the revenues and operating costs related to
the units, with shareholders retaining the balance.
Accounting Implications
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. Statement of 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
<PAGE>
assets, and thereby defer the income statement impact of these
charges because they are expected to be included in future
customer charges. In 1997, the Emerging Issues Task Force (EITF)
of the Financial Accounting Standards Board (FASB) concluded that
a utility that had received approval to recover stranded costs
through regulated transmission and distribution rates would be
permitted to continue to apply FAS 71 to the recovery of stranded
costs.
The Company has received authorization from the FERC to
recover through the CTC substantially all of the costs associated
with its former generating business not recovered through the
sale of that business. Additionally, FERC Order No. 888 enables
transmission companies to recover their specific costs of
providing transmission service. Therefore, substantially all of
the Company's business, including the recovery of its stranded
costs, remains under cost-based rate regulation. The Company
believes these factors and the EITF conclusion allow it to
continue to apply FAS 71. Because of the nuclear cost-sharing
provisions related to the Company's CTC, the Company ceased
applying FAS 71 in 1997 to 20 percent of its ongoing nuclear
operations, the impact of which is immaterial.
Currently, there is much regulatory and other movement toward
establishing performance-based rates. It is possible that the
adoption of performance-based rates for the Company or its
affiliates, future regulatory rules, or other circumstances could
cause the application of FAS 71 to be discontinued. This
discontinuation would result in a noncash write-off of previously
established regulatory assets, including those being recovered
through the Company's CTC.
As a result of applying FAS 71, the Company has recorded a
regulatory asset for the costs that are recoverable from
customers through the CTC. The regulatory asset reflects the loss
on the sale of NEES' oil and gas business and the unrecovered
plant costs in operating nuclear plants (assuming no market
value), the costs associated with permanently closed nuclear
power plants, and the present value of the payments associated
with the above-market costs of purchased power contracts, reduced
by the gain from the sale of the nonnuclear generating business.
At December 31, 1998, the regulatory asset related to the CTC was
approximately $1.5 billion, of which $1.2 billion related to the
above-market costs of purchased power contracts.
As described above, the CTC regulatory asset includes the
unrecovered plant costs associated with the Company's interest in
operating nuclear plants. This balance sheet treatment is due to
the Company's conclusion that its interests in the Millstone 3
and Seabrook 1 nuclear generating units have little, if any,
market value. Three proposed sales of nuclear units by other
utilities have required the seller to set aside amounts for
decommissioning in excess of the proceeds from the sale of the
units. Two of these proposed sales were agreed upon prior to the
end of the third quarter of 1998. As a result, at the end of the
third quarter of 1998, the Company recorded an impairment
<PAGE>
writedown in its reserve for depreciation of approximately $390
million, which represents the net book value at December 31,
1995, less applicable depreciation subsequent to that date, of
Millstone 3 and Seabrook 1. Because the Settlement Agreements
permit the Company to recover its pre-1996 investment as well as
decommissioning expenses through the CTC, the Company established
a regulatory asset in an amount equal to the impairment
writedown. Should the Company's efforts to sell its nuclear
interests result in a gain over the amounts remaining in the
plant account, such gain will be credited to customers through
the CTC.
Overview of Financial Results
Net income for 1998 decreased $22 million compared with 1997
primarily due to the sale of the Company's non-nuclear generating
business on September 1, 1998. The decrease is also attributable
to reduced revenues as a result of the termination of its
all-requirements contracts with its primary customers. For
further information on the termination of these contracts, see
the "Operating Revenue" section.
Net income for 1997 decreased $8 million compared with 1996.
The decrease was primarily due to increased operation and
maintenance costs, partially offset by a transmission rate
increase, decreased purchased electric energy costs, excluding
fuel, and decreased depreciation and amortization.
Operating Revenue
Operating revenue for 1998 decreased $460 million compared
with 1997.
Under the provisions of all-requirements contracts, the
Company historically furnished all electrical requirements to its
affiliated wholesale customers, obligating the Company to supply
such requirements at its standard resale rates. As a result of
the Settlement Agreements, the all-requirements provisions of the
contracts with the Company's primary customers in Rhode Island,
Massachusetts, and New Hampshire were terminated effective
January 1, 1998, March 1, 1998, and July 1, 1998, respectively.
As of those dates, the Company continued to supply power to the
affiliates to meet their standard offer generation service
obligations, but at lower rates. On September 1, 1998, the
Company sold its nonnuclear generating business, and USGen and
TransCanada Power Marketing, Ltd. became the principal wholesale
suppliers for the affiliated companies.
Partially offsetting this revenue decrease is billings of
CTCs and an increase in transmission billings.
Operating revenue for 1997 increased $78 million compared
with 1996 primarily due to increased fuel recovery, the effect of
a transmission rate increase that went into effect in mid-1996,
and stranded investment recovery related to amounts recovered in
connection with retail wheeling pilot programs and the first
<PAGE>
phase of customer choice in Rhode Island. These increases were
offset by decreased sales due to a decrease in peak demand
billing as a result of milder weather in the first quarter of
1997 and reduced load due to retail wheeling pilot programs. For
a discussion of fuel recovery revenues, see the discussion of the
1997 increase in fuel costs in the "Operating Expenses" section.
Operating Expenses
Operating expenses for 1998 decreased $426 million compared
with 1997. The September 1, 1998 sale of the Company's nonnuclear
generating business had the impact of decreasing all categories
of operating expenses. The decrease in operating expenses also
reflects reduced charges of $22 million from the Maine Yankee
nuclear power plant, which was closed in mid-1997 and reduced
charges of $3 million and $12 million from the partially owned
Seabrook 1 and Millstone 3 nuclear generating facilities,
respectively. Operating expenses were also lower due to lower
charges related to postretirement benefits other than pensions
(PBOPs), reflecting the completion of the accelerated
amortization of NEP's deferred PBOP costs in 1997 under the terms
of a 1995 rate agreement.
The decrease in depreciation and amortization expense related
to the sale of the nonnuclear generating business was more than
offset by CTC amortization and the accelerated amortization of
Millstone 3, a portion of which was attributable to the
completion of the PBOP amortization discussed above.
Operating expenses for 1997 increased $91 million compared
with 1996 primarily due to increased fuel costs, increased
charges from the Maine Yankee nuclear power plant, and increased
other operation and maintenance expenses.
Fuel costs represented fuel for generation and the portion of
purchased electric energy permitted in the past to be recovered
through the Company's fuel adjustment clause. The increase in
fuel costs reflected increased power supply to other utilities,
increased replacement power costs due to the reduced generation
from partially owned nuclear units, and an increase in the cost
of short-term purchased power.
The increase in other operation and maintenance expenses in
1997 was due to an increase in transmission wheeling costs,
increased maintenance costs at the partially owned Seabrook 1 and
Millstone 3 nuclear facilities, an increase in deferred PBOP
amortization, an overall increase in general and administrative
costs, start-up costs associated with the new regional
transmission control organization, and the Company's share of
costs associated with the restoration to service of previously
idled facilities throughout New England in response to a
tightening regional power supply.
The increase in operating expenses in 1997 was partially
offset by a decrease in purchased power charges from the
<PAGE>
Connecticut Yankee nuclear power plant, which was permanently
closed in December 1996. This decrease was partially offset by
increased charges from the Maine Yankee nuclear power plant,
which was permanently closed in mid-1997.
Nuclear Units
Nuclear Units Permanently Shut Down
Three regional nuclear generating companies in which the
Company has a minority interest own nuclear generating units that
have been permanently shut down. These three units are as
follows:
<TABLE>
<CAPTION>
Future
Estimated
NEP's Billings
Investment Date to NEP
Unit % $ (millions) Retired $ (millions)
- ----------------------------------------------------- ------------
<S> <C> <C> <C> <C>
Yankee Atomic 30 6 Feb 1992 24
Connecticut Yankee 15 16 Dec 1996 75
Maine Yankee 20 16 Aug 1997 143
</TABLE>
In the case of each of these units, the Company has recorded a
liability and an offsetting regulatory asset reflecting the
estimated future billings from the companies. In a 1993 decision,
the FERC allowed Yankee Atomic to recover its undepreciated
investment in the plant as well as unfunded nuclear
decommissioning costs and other costs. Connecticut Yankee and
Maine Yankee have both filed similar requests with the FERC.
Several parties have intervened in opposition to both filings. In
August 1998, a FERC Administrative Law Judge (ALJ) issued an
initial decision which would allow for full recovery of
Connecticut Yankee's unrecovered investment, but precluded a
return on that investment. Connecticut Yankee, the Company, and
other parties have filed with the FERC exceptions to the ALJ's
decision. Should the FERC uphold the ALJ's initial decision in
its current form, the Company's share of the loss of the return
component would total approximately $12 million to $15 million
before taxes. In January 1999, parties in the Maine Yankee
proceeding filed a comprehensive settlement agreement with the
FERC, under which Maine Yankee would recover all unamortized
investment in the plant, including a return on its equity
investment of 6.5 percent, as well as decommissioning costs and
other costs. This settlement agreement requires FERC approval.
The Company's industry restructuring settlements allow it to
recover all costs that the FERC allows these Yankee companies to
bill to the Company.
The Company and several other shareholders (Sponsors) of Maine
Yankee are parties to 27 contracts (Secondary Purchase
Agreements) under which they sold portions of their entitlements
to Maine Yankee power output through 2002 to various entities,
<PAGE>
primarily municipal and cooperative systems in New England
(Secondary Purchasers). Virtually all of the Secondary Purchasers
had ceased making payments under the Secondary Purchase
Agreements, claiming that such agreements excuse further payments
upon plant shutdown. In February 1999, a settlement agreement
which fully resolves the dispute between the Sponsors and
Secondary Purchasers was filed with the FERC, under which the
Secondary Purchasers would be required to make certain payments
to Maine Yankee, and, in turn, to the Company, related to both
past and future obligations under the Secondary Purchase
Agreements. This settlement agreement requires FERC approval.
Shutdown costs are recoverable from customers under the
Settlement Agreements.
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.
Operating Nuclear Units
The Company has minority interests in three other nuclear
generating units: Vermont Yankee, Millstone 3, and Seabrook 1.
Uncertainties regarding the future of nuclear generating
stations, particularly older units, such as Vermont Yankee, are
increasing rapidly and could adversely affect their service
lives, availability, and costs. These uncertainties stem from a
combination of factors, including the acceleration of competitive
pressures in the power generation industry and increased NRC
scrutiny. The Company performs periodic economic viability
reviews of operating nuclear units in which it holds ownership
interests.
Vermont Yankee
On February 25, 1999, the Board of Directors of Vermont Yankee
Nuclear Power Corporation granted an exclusive right to AmerGen
Energy Company (AmerGen), a joint venture by PECO Energy and
British Energy to conduct a due diligence review over the next
120 days and negotiate a possible agreement to purchase the
assets of Vermont Yankee, Vermont's sole nuclear generating
plant. Provided the due diligence review leads to successful
completion of negotiations for a sale, consummation of such a
sale would be contingent on regulatory approvals by the NRC, the
SEC, under the 1935 Act, and the Vermont Public Service Board,
among others. The sale process could take eight to twelve months
or longer. In past negotiations for the sale of nuclear plants,
due diligence review has not guaranteed that a sale will occur.
The Company has a 20 percent ownership interest in Vermont Yankee
and an investment of approximately $11 million at December 31,
1998.
Millstone 3
In July 1998, Millstone 3 returned to full operation after
being shut down since April 1996. Millstone 3 remains on the NRC
<PAGE>
"Watch List," signifying that it continues to warrant increased
NRC attention. Millstone 3 is operated by a subsidiary of
Northeast Utilities (NU). The Company is not an owner of the
Millstone 2 nuclear generating unit, which is temporarily shut
down under NRC orders, or the Millstone 1 nuclear generating
unit, which has been permanently shut down. A criminal
investigation related to Millstone 3 is ongoing.
In August 1997, the Company sued NU in Massachusetts Superior
Court for damages resulting from the tortious conduct of NU that
caused the shutdown of Millstone 3. The Company's damages include
the costs of replacement power during the outage, costs necessary
to return Millstone 3 to safe operation, and other additional
costs. Most of the Company's incremental replacement power costs
have been recovered from customers, either through fuel
adjustment clauses or through provisions in the Settlement
Agreements. The Company also seeks punitive damages. The Company
also sent a demand for arbitration to Connecticut Light & Power
Company and Western Massachusetts Electric Company, both
subsidiaries of NU, seeking damages resulting from their breach
of obligations under an agreement with the Company and others
regarding the operation and ownership of Millstone 3. The
arbitration is scheduled for October 1999. In July 1998, the
court denied NU's motion to dismiss and its motion to stay
pending arbitration. The Company subsequently amended its
complaint by, among other things, adding NU's Trustees as
defendants. In December 1998, NU moved for summary judgement. The
Company's suit has been consolidated with suits filed by other
joint owners. The court is in the process of scheduling a trial
date. Some or all of the damages awarded from the lawsuit would
be refunded to customers.
Year 2000 Readiness Disclosure
Over the next year, most companies will face a potentially
serious information systems (computer) problem because many
software applications and operational programs written in the
past may not properly recognize calendar dates associated with
the year 2000 (Y2K). This could cause computers to either shut
down or lead to incorrect calculations.
During 1996, the NEES companies began the process of
identifying the changes required to their computer software and
hardware to mitigate Y2K issues. The NEES companies established a
Y2K Project team to manage these issues, which has consisted of
as many as 70 full-time equivalent staff at some points in time,
primarily external consultants being overseen by an internal Y2K
management team. To facilitate the Y2K Project, NEES entered
into contracts with Keane, Inc. and International Business
Machines Corporation to provide personnel support to the Y2K
Project. Through December 31, 1998, the NEES companies have
spent approximately $14 million with these vendors, which is
included in the cost figures disclosed below. The Y2K Project
team reports project progress to a Y2K Executive Oversight
Committee each month. The team also makes regular reports to
NEES' Board of Directors and its Audit Committee. The NEES
<PAGE>
companies have separated their Y2K Project into four parts as
shown below, along with the estimated completion dates for each
part.
<TABLE>
<CAPTION>
Substantial Contingency Testing
Completion Documentation,
of Critical and Clean
Category Specific Example Systems Management
- -------- ---------------- ----------- -------------------
<S> <C> <C> <C>
Mainframe/Midrange Accounting/Customer Completed Throughout 1999
systems service integrated
systems
Desktop systems Personal computers/ June 30, 1999 Throughout 1999
Department software/
Networks
Operational/ Dispatching systems/ June 30, 1999 Throughout 1999
Embedded Transmission and
systems Distribution systems/
Telephone systems
External issues Electronic Data June 30, 1999 Throughout 1999
Interchange/Vendor
communications
</TABLE>
The NEES companies are using a three-phase approach in
coordinating their Y2K Project for system-related issues: (I)
Assessment and Inventory, (II) Pilot Testing, and (III)
Renovation, Conversion, or Replacement of Application and
Operating Software Packages and Testing. Phase I, which was an
initial assessment of all systems and devices for potential Y2K
defects, was completed in mid-1997. These assessments included,
but were not limited to, the review of program code for mainframe
and midrange systems, analysis of personal computer hardware and
network equipment for desktop systems, reaching consensus with
key "data exchange" partners regarding the approach and execution
of plans to address Y2K-related issues, and coordination with
other New England Power Pool (NEPOOL) member utilities related to
operational systems, such as transmission systems. Phase II,
which consisted of renovation pilots for a cross-section of
systems in order to facilitate the establishment of templates for
Phase III work, was completed in late 1997. Phase III, which is
currently ongoing, requires the renovation, conversion, or
replacement of the remaining applications and operating software
packages.
Critical systems include major operational and informational
systems such as the NEES companies' financial-related and
customer information systems. These mission critical systems
were first addressed at an individual component level, and then,
upon satisfactory completion of that testing, reviewed at an
integrated level, during which the Y2K Project team tested for
Y2K problems which could be caused by various system interfaces.
Additionally, contingency plans are being formulated for mission
critical systems, as described below.
<PAGE>
The overall Y2K Project has also been designed such that Y2K-
related work performed by external consultants is reviewed by
NEES employees, and vice-versa. The Y2K Project team management
periodically benchmarks its progress against the recommended
progress schedule documented by the North American Electric
Reliability Council (NERC), and is currently ahead of the
recommended schedule.
The NEES companies have also implemented a formalized
communication process with third parties to give and receive
information related to their progress in remediating their own
Y2K issues, and to communicate the NEES companies' progress in
addressing the Y2K issue. These third parties include major
customers, suppliers, and significant businesses with which the
NEES companies have data links (such as banks). The NEES
companies have identified standard offer generation service
providers, telecommunications companies, and the Independent
System Operator-New England (ISO New England) as critical to
business operations. The NEES companies have been in contact
with all of these parties regarding the progress of their Y2K
remediation efforts, and will continue to monitor their ongoing
remediation efforts through continued communications. The NEES
companies cannot predict the outcome of other companies'
remediation efforts. Therefore, contingency plans are being
developed, as described below.
The NEES companies believe total costs associated with making
the necessary modifications to all centralized and noncentralized
systems will be approximately $28 million. These costs include
the replacement of approximately one thousand desktop computers.
In addition, the NEES companies are spending $4 million related
to the replacement of the human resources and payroll system, in
part due to the Y2K issue. To date, total Y2K-related costs of
$25 million have been incurred, of which $3 million has been
capitalized. The NEES companies continually review their cost
estimates based upon the overall Y2K Project status, and update
these estimates as warranted.
The NEES companies are in the process of developing Y2K
contingency plans to allow for critical information and operating
systems to function from January 1, 2000 forward. If required,
these plans are intended to address both internal risks as well
as potential external risks related to suppliers and customers.
Part of the contingency planning for accounting and desktop
systems will include taking extensive data back-ups prior to
year-end closing. For operational systems, the NEES companies
have in place an overall disaster recovery program, which already
includes periodic disaster simulation training (for outages due
to severe weather, for instance). As part of Y2K contingency
planning, the NEES companies will review their disaster recovery
plans, modifying them for Y2K-specific issues, such as a
potential loss of telecommunication services. The NEES companies
expect that these contingency plans will be in place by the third
quarter of 1999.
<PAGE>
Interregional and regional contingency plans are being
formulated that address emergency scenarios due to the
interconnection of utility systems throughout the United States.
At a regional level, the NEES companies are participating and
cooperating with NEPOOL and ISO New England. Overall regional
activities, including those of NEPOOL and ISO New England, will
be coordinated by the Northeast Power Coordinating Council, whose
activities will be incorporated into the interregional
coordinating effort by NERC. The target for the completion of
this planning process is mid-1999. The NEES companies have noted
that the Y2K coordination efforts by ISO New England began in May
1998, resulting in a demanding and difficult schedule to attain
regional and interregional target dates.
The NEES companies believe the worst case scenario with a
reasonable chance of occurring is temporary disruptions of
electric service. This scenario could result from a failure to
adequately remediate Y2K problems at NEES company facilities or
could be caused by the inability of entities, such as ISO New
England, to maintain the short-term reliability of various
generators and/or transmission lines on a regional or
interregional basis. The NEES companies believe that the
contingency plans being developed both internally and on a
regional level, as described above, should substantially mitigate
the risks of this potential scenario. In the event that a
short-term disruption in service occurs, NEES does not expect
that it would have a material impact on its financial position
and results of operations.
While the NEES companies believe that their overall Y2K
program will satisfactorily address all critical operational and
system-related issues, significant risks remain. These risks
include, but are not limited to, the Y2K readiness of third
parties, including other utilities and power suppliers, cost and
timeline estimates of remaining Y2K mitigation efforts, and the
overall accuracy of assumptions made related to future events in
the development of the Y2K mitigation effort.
New Accounting Standards
In 1997, the FASB released Statement of Financial Accounting
Standards No. 130, Reporting of Comprehensive Income (FAS 130),
which was adopted by the Company in the first quarter of 1998.
FAS 130 establishes standards for reporting comprehensive income
and its components. Comprehensive income for the period is equal
to net income plus "other comprehensive income," which for the
Company, consists of the change in unrealized holding gains on
available-for-sale securities during the period. Other
comprehensive income was immaterial for the Company for the year
ended December 31, 1998.
Also in 1997, the FASB released Statement of Financial
Accounting Standards No. 131, Disclosure about Segments of an
Enterprise and Related Information (FAS 131), which went into
effect in 1998. FAS 131 requires the reporting in financial
statements of certain new additional information about operating
<PAGE>
segments of a business. FAS 131 does not currently impact the
Company's reporting requirements.
In February 1998, the FASB issued Statement of Financial
Accounting Standards No. 132, Employers' Disclosures about
Pensions and Other Postretirement Benefits (FAS 132), which
revises disclosure requirements for pension and other
postretirement benefits. The Company has adopted FAS 132 in its
financial statements for the year ended December 31, 1998.
The adoption of FAS 130, FAS 131, and FAS 132 had no impact on
the Company's operating results, financial position, or cash
flows.
In June 1998, the FASB issued Statement of Financial
Accounting Standards No. 133, Accounting for Derivative
Instruments and Hedging Activities (FAS 133), which establishes
accounting and reporting standards for such instruments. FAS 133
is effective for fiscal years beginning after June 15, 1999.
Currently, the Company has no such derivative holdings.
Risk Management
The Company's major financial market risk exposure is changing
interest rates. Changing interest rates will affect interest paid
on variable rate debt. At December 31, 1998, the Company's
variable rate debt had a fair value of $372 million, a weighted
average interest rate of 3.28 percent, and maturity dates of
greater than five years.
See the "Industry Restructuring" section above for a
discussion of the Company's purchased power transfer agreement
with USGen. The Company retained one purchased power contract,
with Vermont Yankee, which carries fixed payment requirements of
approximately $35 million in 1999, $30 million in 2000, $35
million in 2001 and 2002, $30 million in 2003, and approximately
$300 million thereafter.
Utility Plant Expenditures and Financing
Cash expenditures for utility plant totaled $64 million in
1998. These expenditures were primarily transmission-related.
The funds necessary for utility plant expenditures during 1998
were primarily provided by internally generated funds and the
proceeds from the sale of the nonnuclear generating business.
Cash expenditures for 1999 are estimated to be $65 million,
principally related to transmission functions. Internally
generated funds are expected to fully cover the Company's capital
expenditures in 1999.
In 1998, the Company defeased or retired all of its mortgage
bonds. The Company also paid down all of its short-term debt
outstanding.
In 1998, the Company repurchased or redeemed preferred stock
with an aggregate par value of $38 million.
<PAGE>
In 1998, the Company repurchased 2.7 million shares of its
common stock from NEES for $418 million. Approximately $194
million in connection with the repurchase was charged to retained
earnings.
At December 31, 1998, the Company had lines of credit and
standby bond purchase facilities with banks totaling $455
million. These lines and facilities were available at December
31, 1998 for liquidity support for $372 million of the Company's
bonds in tax-exempt commercial paper mode and for other corporate
purposes. There were no borrowings under these lines of credit
at December 31, 1998.
<PAGE>
New England Power Company
Statements of Income
<TABLE>
<CAPTION>
Year ended December 31, (In thousands) 1998 1997 1996
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Operating revenue, principally
from affiliates $1,218,340 $1,677,903 $1,600,309
Operating expenses:
Fuel for generation 223,828 372,734 342,545
Purchased electric energy 399,836 527,647 508,910
Other operation 155,065 241,506 203,456
Maintenance 60,239 89,820 79,118
Depreciation and amortization 99,924 98,024 104,209
Taxes, other than income taxes 48,492 67,311 66,416
Income taxes 73,594 90,009 91,894
---------- ---------- ----------
Total operating expenses 1,060,978 1,487,051 1,396,548
---------- ---------- ----------
Operating income 157,362 190,852 203,761
Other income:
Allowance for equity funds
used during construction 633 - -
Equity in income of nuclear
power companies 5,284 5,189 5,159
Other income (expense), net 118 (3,404) (1,851)
---------- ---------- ----------
Operating and other income 163,397 192,637 207,069
---------- ---------- ----------
Interest:
Interest on long-term debt 30,775 42,277 45,111
Other interest 10,688 7,055 10,066
Allowance for borrowed funds used
during construction - credit (961) (1,238) (591)
---------- ---------- ----------
Total interest 40,502 48,094 54,586
---------- ---------- ----------
Net income $ 122,895 $ 144,543 $ 152,483
========== ========== ==========
Statements of Retained Earnings
Year ended December 31, (In thousands) 1998 1997 1996
- -----------------------------------------------------------------------------
Retained earnings at beginning
of year $ 407,630 $ 400,610 $ 385,309
Net income 122,895 144,543 152,483
Dividends declared on cumulative
preferred stock (1,230) (2,075) (2,574)
Dividends declared on common stock,
$20.25, $21.00, and $20.80
per share, respectively (130,610) (135,448) (134,158)
Premium on redemption of
preferred stock (264) - (450)
Repurchase of common stock (193,818) - -
--------- --------- ---------
Retained earnings at end of year $ 204,603 $ 407,630 $ 400,610
========= ========= =========
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
New England Power Company
Balance Sheets
<TABLE>
<CAPTION>
At December 31, (In thousands) 1998 1997
- -----------------------------------------------------------------------------
<S> <C> <C>
Assets
Utility plant, at original cost $1,262,461 $3,057,749
Less accumulated provisions
for depreciation and amortization 837,637 1,196,972
---------- ----------
424,824 1,860,777
Construction work in progress 33,289 29,015
---------- ----------
Net utility plant 458,113 1,889,792
---------- ----------
Investments:
Nuclear power companies, at equity (Note E-1) 48,538 49,825
Nonutility property and other investments 39,583 34,723
---------- ----------
Total investments 88,121 84,548
---------- ----------
Current assets:
Cash and temporary cash investments (including
$109,911 and $-0- with affiliates) 179,413 1,643
Accounts receivable:
Affiliated companies 107,878 233,308
Accrued NEEI revenues - 11,419
Others 32,573 26,638
Fuel, materials, and supplies, at average cost 9,220 47,492
Prepaid and other current assets 21,569 17,837
---------- ----------
Total current assets 350,653 338,337
---------- ----------
Regulatory assets (Note B) 1,512,562 441,038
Deferred charges and other assets 5,339 9,377
---------- ----------
$2,414,788 $2,763,092
========== ==========
Capitalization and Liabilities
Capitalization:
Common stock, par value $20 per share,
Authorized - 6,449,896 shares
Outstanding - 3,749,896 and 6,449,896 shares $ 74,998 $ 128,998
Premium on capital stock 50,371 86,779
Other paid-in capital 190,852 289,818
Retained earnings 204,603 407,630
Unrealized gain on securities, net 72 34
---------- ----------
Total common equity 520,896 913,259
Cumulative preferred stock, par value
$100 per share (Note I) 1,567 39,666
Long-term debt 371,765 647,720
---------- ----------
Total capitalization 894,228 1,600,645
---------- ----------
Current liabilities:
Long-term debt due in one year - 50,000
Short-term debt, including $-0- and $3,125
to affiliates - 111,250
Accounts payable (including $119,657
and $14,373 to affiliates) 162,360 109,121
Accrued liabilities:
Taxes 15,009 39
Interest 2,440 8,905
Other accrued expenses (Note H) 20,086 23,554
Dividends payable 24 35,474
---------- ----------
Total current liabilities 199,919 338,343
---------- ----------
Deferred federal and state income taxes 165,115 369,757
Unamortized investment tax credits 30,870 53,463
Accrued Yankee nuclear plant costs (Note E-2) 242,138 299,564
Purchased power obligations 832,668 -
Other reserves and deferred credits 49,850 101,320
Commitments and contingencies (Note E)
---------- ----------
$2,414,788 $2,763,092
========== ==========
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
New England Power Company
Statements of Cash Flows
<TABLE>
<CAPTION>
Year ended December 31, (In thousands) 1998 1997 1996
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Operating activities:
Net income $ 122,895 $ 144,543 $ 152,483
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 104,331 101,186 108,338
Deferred income taxes and
investment tax credits, net (226,722) (12,728) (7,458)
Allowance for funds used
during construction (1,594) (1,238) (591)
Reimbursement to New England Energy
Incorporated of loss on sale of oil
and gas properties (120,900) - -
Buyout of purchased power contracts (326,590) - -
Decrease (increase) in
accounts receivable 130,914 (25,128) 19,629
Decrease (increase) in fuel,
materials, and supplies (10,270) 11,217 (4,045)
Decrease (increase) in prepaid
and other current assets (8,778) 7,213 2,936
Increase (decrease) in accounts payable (31,761) (18,105) (36,565)
Increase (decrease) in other
current liabilities 5,037 (1,905) 9,640
Other, net (49,611) 19,919 28,582
----------- --------- ---------
Net cash provided by (used in)
operating activities $ (413,049) $ 224,974 $ 272,949
=========== ========= =========
Investing activities:
Proceeds from sale of generating assets $ 1,688,863 $ - $ -
Plant expenditures, excluding allowance
for funds used during construction (64,446) (69,863) (65,981)
Other investing activities (5,474) (4,040) (3,878)
----------- --------- ---------
Net cash provided by (used in)
investing activities $ 1,618,943 $ (73,903) $ (69,859)
----------- --------- ---------
Financing activities:
Capital contribution from parent $ 34,881 $ - $ -
Dividends paid on common stock (166,084) (127,386) (138,995)
Dividends paid on preferred stock (1,206) (2,075) (2,574)
Changes in short-term debt (111,250) 17,650 (31,550)
Long-term debt - issues - - 47,850
Long-term debt - retirements (328,000) (38,500) (57,850)
Repurchase of common shares (417,960) - -
Preferred stock - retirements (38,505) - (19,532)
Premium on reacquisition of long-term debt - (2,163) -
----------- --------- ---------
Net cash used in
financing activities $(1,028,124) $(152,474) $(202,651)
----------- --------- ---------
Net increase (decrease) in
cash and cash equivalents $ 177,770 $ (1,403) $ 439
Cash and cash equivalents
at beginning of year 1,643 3,046 2,607
----------- --------- ---------
Cash and cash equivalents at end of year $ 179,413 $ 1,643 $ 3,046
=========== ========= =========
Supplementary Information:
Interest paid less amounts capitalized $ 43,419 $ 46,033 $ 51,212
----------- --------- ---------
Federal and state income taxes paid $ 282,076 $ 109,109 $ 96,006
----------- --------- ---------
Dividends received from
investments at equity $ 6,571 $ 3,267 $ 4,313
----------- --------- ---------
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:
New England Power Company (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 (SEC), under the Public
Utility Holding Company Act of 1935 (1935 Act), the Federal
Energy Regulatory Commission (FERC) and the Nuclear Regulatory
Commission (NRC). The Company's business is primarily the
transmission of electric energy in wholesale quantities to other
electric utilities, principally its distribution affiliates
Granite State Electric Company, Massachusetts Electric Company
(Massachusetts Electric), Nantucket Electric Company, and The
Narragansett Electric Company (Narragansett Electric). See Note C
for a discussion of industry restructuring and Note D for a
discussion of the Company's divestiture of its nonnuclear
generating business. The Company also owns minority interests in
two joint owned nuclear generating units as well as minority
equity interests in 4 nuclear generating companies. The output
from these generating facilities is sold to third parties.
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. 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 yet eligible for inclusion in rate base. AFDC is capitalized
in "Utility plant" with offsetting noncash 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.
<PAGE>
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) 1998 1997 1996
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Depreciation - transmission related $12,553 $11,828 $ 10,931
Depreciation - all other 46,256 68,432 67,256
Nuclear decommissioning costs (Note E-2) 2,719 2,638 2,629
Amortization:
Investment in Seabrook 1
pursuant to rate settlement - - 15,210
Seabrook 2 property losses - 113 6,279
Millstone 3 additional amortization,
pursuant to 1995 rate settlement 22,040 15,013 1,904
Regulatory assets covered by
CTC (See Note C) 16,356 - -
------- -------- --------
Total depreciation and
amortization expense $99,924 $98,024 $104,209
======= ======== ========
</TABLE>
Depreciation is provided annually on a straight-line basis.
The provision for depreciation as a percentage of weighted
average depreciable transmission property was 2.3 percent in
1998, 1997, and 1996. Amortization of Seabrook and Millstone 3
investments above normal depreciation accruals was in accordance
with rate settlement agreements.
5. Cash:
The Company classifies short-term investments with a maturity
of 90 days or less as cash.
6. New Accounting Standards:
In 1997, the Financial Accounting Standards Board (FASB)
released Statement of Financial Accounting Standards No. 130,
Reporting of Comprehensive Income (FAS 130), which was adopted by
the Company in the first quarter of 1998. FAS 130 establishes
standards for reporting comprehensive income and its components.
Comprehensive income for the period is equal to net income plus
"other comprehensive income," which for the Company, consists of
the change in unrealized holding gains on available-for-sale
securities during the period. Other comprehensive income was
immaterial for the Company for the year ended December 31, 1998.
Also in 1997, the FASB released Statement of Financial
Accounting Standards No. 131, Disclosure about Segments of an
Enterprise and Related Information (FAS 131), which went into
effect in 1998. FAS 131 requires the reporting in financial
statements of certain new additional information about operating
segments of a business. FAS 131 does not currently impact the
Company's reporting requirements.
<PAGE>
In February 1998, the FASB issued Statement of Financial
Accounting Standards No. 132, Employers' Disclosures about
Pensions and Other Postretirement Benefits (FAS 132), which
revises disclosure requirements for pension and other
postretirement benefits. The Company has adopted FAS 132 in its
financial statements for the year ending December 31, 1998.
The adoption of FAS 130, FAS 131, and FAS 132 had no impact on
the Company's operating results, financial position, or cash
flows.
In June 1998, the FASB issued Statement of Financial
Accounting Standards No. 133, Accounting for Derivative
Instruments and Hedging Activities (FAS 133), which establishes
accounting and reporting standards for such instruments. FAS 133
is effective for fiscal years beginning after June 15, 1999.
Currently, the Company has no such derivative holdings.
Note B - Merger Agreements
Merger Agreement with The National Grid Group plc
On December 11, 1998, NEES, The National Grid Group plc
(National Grid), and NGG Holdings LLC (Holdings), a directly and
indirectly wholly owned subsidiary of National Grid, entered into
an Agreement and Plan of Merger (Merger Agreement). Pursuant to
the Merger Agreement, Holdings will merge with and into NEES (the
Merger), with NEES becoming a wholly owned subsidiary of National
Grid. The Company will remain a wholly owned subsidiary of NEES.
The Merger is subject to approval by a majority vote of NEES
shareholders as well as National Grid shareholder approval. In
addition, the Merger is subject to a number of regulatory and
other approvals and consents, including approvals by the SEC,
under the 1935 Act, FERC and NRC, support or approval from the
states in which NEES subsidiaries operate, and clearance under
both the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended, and the Exon-Florio Provisions of the Omnibus Trade and
Competitiveness Act of 1988. National Grid has obtained
governmental clearance in the United Kingdom for the Merger. The
Merger is expected to be completed by early 2000.
Merger Agreement with Eastern Utilities Associates
On February 1, 1999, NEES, Eastern Utilities Associates (EUA),
and Research Drive LLC (Research Drive), a directly and
indirectly wholly owned subsidiary of NEES, entered into an
Agreement and Plan of Merger (EUA Agreement). Pursuant to the EUA
Agreement, Research Drive will merge with and into EUA, with EUA
becoming a wholly owned subsidiary of NEES.
The acquisition of EUA is subject to approval by a two-thirds
vote of EUA shareholders. In addition, the acquisition is subject
to a number of regulatory and other approvals and consents,
including approvals by the SEC, under the 1935 Act, FERC, and
NRC, support or approval from the states in which EUA
<PAGE>
subsidiaries operate, and clearance under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended. The EUA
acquisition is expected to be completed by early 2000. Following
the acquisition of EUA, the subsidiaries of NEES and EUA whose
operations are similar are expected to be consolidated.
Note C - Industry Restructuring
During 1998, pursuant to legislation enacted in Massachusetts,
Rhode Island, and New Hampshire, and settlement agreements
approved by state and federal regulators (the Settlement
Agreements), all customers were provided the right to purchase
electricity from the power supplier of their choice. The NEES
companies remain obligated to deliver that electricity over its
transmission and distribution systems, with such delivery
services provided under regulated rates approved by State and
federal regulators. As described below, those delivery rates
include a non-bypassable charge for the costs of NEES' former
generating business which were not recovered through the sale of
that business ("stranded costs"), which was substantially
completed in 1998. As a result of the Settlement Agreements,
customers' choice of power supplier has no impact on NEES'
transmission and distribution business or on its ability to
recover stranded costs. In order to facilitate the
implementation of customer choice, the Settlement Agreements
provided for the termination of the Company's requirements
contracts with its affiliated distribution customers. The
Company's requirements contracts with unaffiliated customers have
also generally been terminated pursuant to settlement agreements
or tariff provisions. However, the Company remains obligated to
provide transition power supply service to new customer load in
Rhode Island.
The Settlement Agreements provide that the Company's stranded
costs are to be recovered from its wholesale customers through
contract termination charges (CTC). The affiliated wholesale
customers, in turn, are recovering those costs through their
delivery charges to distribution customers. Under the Settlement
Agreements, the recovery of the Company's stranded costs is
divided into several categories. Unrecovered costs associated
with generating plants (nuclear and nonnuclear) and most
regulatory assets will be fully recovered through the CTC by the
end of 2000 and earn a return on equity averaging 9.7 percent.
The Company's obligation relating to the above-market cost of
purchased power contracts and nuclear decommissioning costs are
recovered through the CTC over a longer period of time, as such
costs are actually incurred. The CTC rate was originally set at
2.8 cents per kilowatthour (kWh), and subsequently reduced to
approximately 1.5 cents or less per kWh upon completion of the
sale of the Company's nonnuclear generating business. As the CTC
rate declines, the Company, under certain of the Settlement
Agreements, earns incentives based on successful mitigation of
its stranded costs. These incentives supplement the Company's
return on equity. Finally, the Settlement Agreements provide that
until such time as the Company divests its operating nuclear
interests, the Company will share with customers, through the
<PAGE>
CTC, 80 percent of the revenues and operating costs related to
the units, with shareholders retaining the balance.
Accounting Implications
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. Statement of 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 thereby defer the income statement impact of these
charges because they are expected to be included in future
customer charges. In 1997, the Emerging Issues Task Force (EITF)
of the FASB concluded that a utility that had received approval
to recover stranded costs through regulated transmission and
distribution rates would be permitted to continue to apply FAS 71
to the recovery of stranded costs.
The Company has received authorization from the FERC to
recover through the CTC substantially all of the costs associated
with its former generating business not recovered through the
sale of that business. Additionally, FERC Order No. 888 enables
transmission companies to recover their specific costs of
providing transmission service. Therefore, substantially all of
the Company's business, including the recovery of its stranded
costs, remains under cost-based rate regulation. The Company
believes these factors and the EITF conclusion allow it to
continue to apply FAS 71. Because of the nuclear cost-sharing
provisions related to the Company's CTC, the Company ceased
applying FAS 71 in 1997 to 20 percent of its ongoing nuclear
operations, the impact of which is immaterial.
Currently, there is much regulatory and other movement toward
establishing performance-based rates. It is possible that the
adoption of performance-based rates for the Company or its
affiliates, future regulatory rules, or other circumstances could
cause the application of FAS 71 to be discontinued. This
discontinuation would result in a noncash write-off of previously
established regulatory assets, including those being recovered
through the Company's CTC.
As a result of applying FAS 71, the Company has recorded a
regulatory asset for the costs that are recoverable from
customers through the CTC. The regulatory asset reflects the loss
on the sale of NEES' oil and gas business and the unrecovered
plant costs in operating nuclear plants (assuming no market
value), the costs associated with permanently closed nuclear
power plants, and the present value of the payments associated
with the above-market cost of purchased power contracts, reduced
by the gain from the sale of the nonnuclear generating business.
At December 31, 1998, the regulatory asset related to the CTC was
approximately $1.5 billion, of which $1.2 billion related to the
above-market costs of purchased power contracts.
<PAGE>
As described above, the CTC regulatory asset includes the
unrecovered plant costs associated with the Company's interest in
operating nuclear plants. This balance sheet treatment is due to
the Company's conclusion that its interests in the Millstone 3
and Seabrook 1 nuclear generating units have little, if any,
market value. Three proposed sales of nuclear units by other
utilities have required the seller to set aside amounts for
decommissioning in excess of the proceeds from the sale of the
units. Two of these proposed sales were agreed upon prior to the
end of the third quarter of 1998. As a result, at the end of the
third quarter of 1998, the Company recorded an impairment
writedown in its reserve for depreciation of approximately $390
million, which represents the net book value at December 31,
1995, less applicable depreciation subsequent to that date, of
Millstone 3 and Seabrook 1. Because the Settlement Agreements
permit the Company to recover its pre-1996 investment as well as
decommissioning expenses through the CTC, the Company established
a regulatory asset in an amount equal to the impairment
writedown. Should the Company's efforts to sell its nuclear
interests result in a gain over the amounts remaining in the
plant account, such gain will be credited to customers through
the CTC.
Note D - Divestiture of Generating Business
On September 1, 1998, the Company and Narragansett Electric
(collectively, the Sellers) completed the sale of substantially
all of their nonnuclear generating business, all of which had a
book value of approximately $1.1 billion, to USGen New England,
Inc. (USGen), an indirect wholly owned subsidiary of PG&E
Corporation. The Sellers received $1.59 billion for the sale. In
addition, the Company was reimbursed approximately $140 million
for costs associated with early retirements and special severance
programs for employees affected by industry restructuring, and
the value of inventories. USGen assumed responsibility for
environmental conditions at the Sellers' nonnuclear generating
stations. USGen also assumed the Sellers' obligations under
long-term fuel and fuel transportation contracts, and certain
collective bargaining agreements.
As part of the sale, the Company also signed a purchased power
transfer agreement through which USGen purchased the Company's
entitlement to approximately 1,100 megawatts (MW) of power
procured under long-term contracts in exchange for monthly fixed
payments by the Company averaging $9.5 million per month through
January 2008 (having a net present value of $833 million) toward
the above-market cost of those contracts. In some cases, these
transfers involved formal assignment of the contracts to USGen
and a release of the Company from further obligations to the
power supplier, while others did not. For those that involved
formal assignment, the Company was required to make a lump sum
payment equivalent to the present value of the monthly fixed
payment obligations of those contracts. On or prior to the
closing date, the Company made lump sum payments totaling
approximately $340 million and was released from further
obligations relating to two of the contracts. These lump sum
<PAGE>
payments are separate from the $833 million figure referred to
above. USGen is responsible for the balance of the costs under
the purchased power contracts. The present value of the future
monthly fixed payments is recorded as a liability on the balance
sheet. This liability, as well as the lump sum payments
previously made, net of amortization, are also recorded as a
regulatory asset on the balance sheet.
As part of the divestiture plan, in February 1998, New England
Energy Incorporated (NEEI), a wholly owned subsidiary of NEES,
whose costs had been supported by the Company, sold its oil and
gas properties for approximately $50 million. NEEI's loss on the
sale of approximately $120 million, before tax, has been
reimbursed by the Company.
In addition, the Company agreed under the Settlement
Agreements to endeavor to sell its minority interest in three
nuclear power plants and a 60 MW interest in a fossil-fueled
generating station in Maine. In February 1999, Vermont Yankee
Nuclear Power Corporation entered into a letter of intent to sell
its assets. For further information refer to the "Nuclear Units"
section of Financial Review.
Note E - Commitments and Contingencies
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) 1998 1997 1996
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
Operating revenue $ 439,046$ 660,742$ 697,054
=================================
Net income $ 23,218$ 29,959$ 27,567
=================================
Company's equity in net income $ 5,284$ 5,189$ 5,159
=================================
Net plant 171,582 204,689 401,049
Other assets 2,810,613 3,100,589 2,031,336
Liabilities and debt (2,723,454) (3,036,845) (2,177,068)
---------------------------------
Net assets $ 258,741$ 268,433$ 255,317
=================================
Company's equity in net assets $ 48,538$ 49,825$ 47,902
=================================
Company's purchased electric energy:
Vermont Yankee $ 35,108$ 31,240$ 32,676
All other Yankees $ 48,543$ 75,900$ 78,102
=================================
</TABLE>
<PAGE>
At December 31, 1998, $15 million of undistributed earnings of
the Yankees were included in the Company's retained earnings.
2. Nuclear Units
Nuclear Units Permanently Shut Down
Three regional nuclear generating companies in which the
Company has a minority interest own nuclear generating units that
have been permanently shut down. These three units are as
follows:
<TABLE>
<CAPTION>
Future
Estimated
NEP's Billings
Investment Date to NEP
Unit % $ (millions) Retired $(millions)
- -----------------------------------------------------------------
<S> <C> <C> <C> <C>
Yankee Atomic 30 6 Feb 1992 24
Connecticut Yankee 15 16 Dec 1996 75
Maine Yankee 20 16 Aug 1997 143
</TABLE>
In the case of each of these units, the Company has recorded a
liability and an offsetting regulatory asset reflecting the
estimated future billings from the companies. In a 1993 decision,
the FERC allowed Yankee Atomic to recover its undepreciated
investment in the plant as well as unfunded nuclear
decommissioning costs and other costs. Connecticut Yankee and
Maine Yankee have both filed similar requests with the FERC.
Several parties have intervened in opposition to both filings. In
August 1998, a FERC Administrative Law Judge (ALJ) issued an
initial decision which would allow for full recovery of
Connecticut Yankee's unrecovered investment, but precluded a
return on that investment. Connecticut Yankee, the Company, and
other parties have filed with the FERC exceptions to the ALJ's
decision. Should the FERC uphold the ALJ's initial decision in
its current form, the Company's share of the loss of the return
component would total approximately $12 million to $15 million
before taxes. In January 1999, parties in the Maine Yankee
proceeding filed a comprehensive settlement agreement with the
FERC, under which Maine Yankee would recover all unamortized
investment in the plant, including a return on its equity
investment of 6.5 percent, as well as decommissioning costs and
other costs. This settlement agreement requires FERC approval.
The Company's industry restructuring settlements allow it to
recover all costs that the FERC allows these Yankee companies to
bill to the Company.
The Company and several other shareholders (Sponsors) of Maine
Yankee are parties to 27 contracts (Secondary Purchase
Agreements) under which they sold portions of their entitlements
to Maine Yankee power output through 2002 to various entities,
primarily municipal and cooperative systems in New England
(Secondary Purchasers). Virtually all of the Secondary Purchasers
<PAGE>
had ceased making payments under the Secondary Purchase
Agreements, claiming that such agreements excuse further payments
upon plant shutdown. In February 1999, a settlement agreement
which fully resolves the dispute between the Sponsors and
Secondary Purchasers was filed with the FERC, under which the
Secondary Purchasers would be required to make certain payments
to Maine Yankee, and, in turn, to the Company, related to both
past and future obligations under the Secondary Purchase
Agreements. This settlement agreement requires FERC approval.
Shutdown costs are recoverable from customers under the
Settlement Agreements.
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.
Operating Nuclear Units
The Company has minority interests in three other nuclear
generating units: Vermont Yankee, Millstone 3, and Seabrook 1.
Uncertainties regarding the future of nuclear generating
stations, particularly older units, such as Vermont Yankee, are
increasing rapidly and could adversely affect their service
lives, availability, and costs. These uncertainties stem from a
combination of factors, including the acceleration of competitive
pressures in the power generation industry and increased NRC
scrutiny. The Company performs periodic economic viability
reviews of operating nuclear units in which it holds ownership
interests.
Vermont Yankee
On February 25, 1999, the Board of Directors of Vermont Yankee
Nuclear Power Corporation granted an exclusive right to AmerGen
Energy Company (AmerGen), a joint venture by PECO Energy and
British Energy to conduct a due diligence review over the next
120 days and negotiate a possible agreement to purchase the
assets of Vermont Yankee, Vermont's sole nuclear generating
plant. Provided the due diligence review leads to successful
completion of negotiations for a sale, consummation of such a
sale would be contingent on regulatory approvals by the NRC, the
SEC, under the 1935 Act, and the Vermont Public Service Board,
among others. The sale process could take eight to twelve months
or longer. In past negotiations for the sale of nuclear plants,
due diligence review has not guaranteed that a sale will occur.
The Company has a 20 percent ownership interest in Vermont Yankee
and an investment of approximately $11 million at December 31,
1998.
Millstone 3
In July 1998, Millstone 3 returned to full operation after
being shut down since April 1996. Millstone 3 remains on the NRC
"Watch List," signifying that it continues to warrant increased
NRC attention. Millstone 3 is operated by a subsidiary of
<PAGE>
Northeast Utilities (NU). The Company is not an owner of the
Millstone 2 nuclear generating unit, which is temporarily shut
down under NRC orders, or the Millstone 1 nuclear generating
unit, which has been permanently shut down. A criminal
investigation related to Millstone 3 is ongoing.
In August 1997, the Company sued NU in Massachusetts Superior
Court for damages resulting from the tortious conduct of NU that
caused the shutdown of Millstone 3. The Company's damages include
the costs of replacement power during the outage, costs necessary
to return Millstone 3 to safe operation, and other additional
costs. Most of the Company's incremental replacement power costs
have been recovered from customers, either through fuel
adjustment clauses or through provisions in the Settlement
Agreements. The Company also seeks punitive damages. The Company
also sent a demand for arbitration to Connecticut Light & Power
Company and Western Massachusetts Electric Company, both
subsidiaries of NU, seeking damages resulting from their breach
of obligations under an agreement with the Company and others
regarding the operation and ownership of Millstone 3. The
arbitration is scheduled for October 1999. In July 1998, the
court denied NU's motion to dismiss and its motion to stay
pending arbitration. The Company subsequently amended its
complaint by, among other things, adding NU's Trustees as
defendants. In December 1998, NU moved for summary judgement. The
Company's suit has been consolidated with suits filed by other
joint owners. The court is in the process of scheduling a trial
date. Some or all of the damages awarded from the lawsuit would
be refunded to customers.
Nuclear Decommissioning
The Company is liable for its share of decommissioning costs
for Millstone 3, Seabrook 1, and all of the Yankees.
Decommissioning costs include not only estimated costs to
decontaminate the units as required by the NRC, but also costs to
dismantle the uncontaminated portion of the units. The Company
records decommissioning costs on its books consistent with its
rate recovery. The Company is recovering its share of projected
decommissioning costs for Millstone 3 and Seabrook 1 through
depreciation expense. 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.
In New Hampshire, legislation was recently enacted which makes
owners of Seabrook 1, in which the Company owns a 10 percent
interest, proportional guarantors for decommissioning costs in
the event that an owner without a franchise service territory
fails to fund its share of decommissioning costs. Currently, a
single owner of an approximate 12 percent share of Seabrook 1 has
no franchise service territory.
The New Hampshire Nuclear Decommissioning Finance Committee is
reviewing Seabrook Station's decommissioning estimate and
associated annual funding levels. Among the items being
<PAGE>
considered is the imposition of joint and several liability among
the Seabrook joint owners for decommissioning funding. The
Company cannot predict what additional liability, if any, may be
imposed on it.
The Nuclear Waste Policy Act of 1982 establishes that the
federal government (through the Department of Energy (DOE)) 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 the Millstone 3 and Seabrook 1 nuclear
generating units. Prior to 1998, the Company recovered this fee
through its fuel clause. Under the Settlement Agreements,
substantially all of these costs are recovered through CTCs.
Similar costs are billed to the Company by Vermont Yankee and
also recovered from customers through the same mechanism. In
November 1997, ruling on a lawsuit brought against the DOE by
numerous utilities and state regulatory commissions, the U.S.
Court of Appeals for the District of Columbia (the Appeals Court)
held that the DOE was obligated to begin disposing of utilities'
spent nuclear fuel by January 31, 1998. The DOE failed to meet
this deadline, and is not expected to have a temporary or
permanent repository for spent nuclear fuel for many years. In
February 1998, Maine Yankee petitioned the Appeals Court to
compel the DOE to remove Maine Yankee's spent fuel from the site.
In May 1998, the Appeals Court rejected the petitions of Maine
Yankee and the other utilities and state regulatory commissions,
stating that the issue of damages was a contractual matter. The
operators of the units in which the Company has an obligation,
including Maine Yankee, Connecticut Yankee, and Yankee Atomic,
continue to pursue damage claims against the DOE in the Federal
Court of Claims (Claims Court). In October 1998, the Claims Court
ruled that the DOE violated a commitment to remove spent fuel
from Yankee Atomic. The Claims Court issued similar rulings in
November 1998 related to cases brought by Connecticut Yankee and
Maine Yankee. Further proceedings will be scheduled by the Claims
Court to decide the amount of damages.
Decommissioning Trust Funds
Each nuclear unit in which the Company has an ownership
interest has established a decommissioning trust fund or escrow
fund into which payments are being made to meet the projected
costs of decommissioning. The table below lists information on
each operating nuclear plant in which the Company has an
ownership interest.
<TABLE>
<CAPTION>
NEP's share of (millions of dollars)
-------------------------------------------
Nep's Estimated Decommissioning
Ownership Net Decommissioning Fund License
Unit Interest (%) Plant Assets Cost (in 1998 $) Balances* Expiration
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Vermont Yankee 20 34 105 38 2012
Millstone 3 12 9** 67 21 2025
Seabrook 1 10 15** 50 10 2026
<FN>
* Certain additional amounts are anticipated to be available through tax deductions.
** Represents post-December 1995 spending including nuclear fuel. See Note C for a
discussion of an impairment writedown and establishment of an offsetting regulatory asset.
</FN>
</TABLE>
There is no assurance that decommissioning costs actually
incurred by Vermont Yankee, 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; those
repositories do not currently exist. The temporary low-level
repository located in Barnwell, South Carolina may become
unavailable, which could increase the cost of decommissioning the
Yankee Atomic, Connecticut Yankee, and Maine Yankee plants. If
any of the operating units were shut down prior to the end of
their operating licenses, which the Company believes is likely,
the funds collected for decommissioning to that point would be
insufficient. Under the Settlement Agreements discussed in Note
C, the Company will recover decommissioning costs through CTCs.
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 $9.7 billion (based upon 108 licensed reactors).
The maximum amount of commercially available insurance coverage
to pay such claims is $200 million. The remaining $9.5 billion
would be provided by an assessment of up to $88.1 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 1998, is adjusted for
inflation at least every five years. The Company's current
interest in Vermont Yankee, Millstone 3, and Seabrook 1 would
subject the Company to a $35.4 million maximum assessment per
incident. The Company's payment of any such assessment would be
limited to a maximum of $4.0 million per year. As a result of the
permanent cessation of power operation of the Yankee Atomic,
Connecticut Yankee, and Maine Yankee plants, these units have
received from the NRC an exemption from participating in the
secondary financial protection system under the Price-Anderson
Act. However, these plants must continue to maintain $100 million
of commercially available nuclear liability insurance coverage.
Each of the nuclear units in which the Company has either an
ownership or purchased power interest also carries nuclear
property insurance to cover the costs of property damage,
decontamination, and premature decommissioning resulting from a
nuclear incident. These policies may require additional premium
assessments if losses relating to nuclear incidents at units
covered by this insurance occur in a prior six-year period. The
Company's maximum potential exposure for these assessments,
either directly or indirectly, is approximately $4.6 million with
respect to the current policy period.
<PAGE>
3. Plant expenditures
The Company's utility plant expenditures are estimated to be
approximately $65 million in 1999. At December 31, 1998,
substantial commitments had been made relative to future planned
expenditures.
4. Hydro-Quebec Interconnection
Three affiliates of the Company were created to construct and
operate transmission facilities to transmit power from Hydro-
Quebec to New England. Under support agreements entered into at
the time these facilities were constructed, the Company agreed to
guarantee a portion of the project debt. That portion at
December 31, 1998 amounted to $23 million.
5. Long-term contracts for the purchase of electricity
Historically, the Company purchased a portion of its
electricity requirements pursuant to long-term contracts with
owners of various generating units. These contracts expire in
various years from 1998 to 2029. See Note D for a discussion of
USGen's purchase of the Company's entitlement to approximately
1,100 MW of power procured under long-term contracts.
The Company retained one purchased power contract, with
Vermont Yankee, which requires minimum fixed payments, even when
the supplier is unable to deliver power, to cover a proportionate
share of the capital and fixed operating costs of the unit. This
contract has fixed payment requirements of approximately $35
million in 1999, $30 million in 2000, $35 million in 2001 and
2002, $30 million in 2003, and approximately $300 million
thereafter. The Company holds an ownership interest in Vermont
Yankee.
6. 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 in its operations a range of potentially hazardous
products and by-products. The Company currently has in place an
internal environmental audit program and an external waste
disposal vendor audit and qualification program 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 United States Environmental Protection Agency
or the Massachusetts Department of Environmental Protection for
<PAGE>
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 possible
hazardous waste sites, and may in the future become aware of
additional sites, that they 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. The NEES
companies have recovered amounts from certain insurers, and,
where appropriate, intend to seek recovery from other 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.
7. Town of Norwood dispute
In September 1998, the United States District Court (District
Court) for the District of Massachusetts dismissed the lawsuit
filed in April 1997 by the Town of Norwood, Massachusetts against
NEES and the Company. The Company had been a wholesale power
supplier for Norwood pursuant to rates approved by the FERC. In
the lawsuit, Norwood had alleged that the Company's divestiture
of its power generating assets would violate the terms of a 1983
power contract. Norwood also alleged that the divestiture and
recovery of stranded investment costs contravened federal
antitrust laws. The District Court judge granted NEES' and the
Company's motion for dismissal on the grounds that the contract
did not require the Company to retain its generating units, that
the FERC-approved filed rates govern these matters, and that
Norwood had adequate opportunity at the FERC to litigate these
matters. Norwood filed a motion to alter or amend the order of
dismissal, which was denied. In December 1998, Norwood filed a
second motion to amend judgement and also filed an appeal with
the First Circuit Court of Appeals (First Circuit). In March
1999, the District Court denied Norwood's second motion to amend
judgement.
In March 1998, Norwood gave notice of its intent to terminate
its contract with the Company, without accepting responsibility
for its share of the Company's stranded costs, and began taking
power from another supplier commencing in April 1998. In May
1998, the FERC ruled that the Company could assess a CTC to any
of the Company's unaffiliated customers that choose to terminate
their wholesale power contracts early. Norwood claimed that the
CTC approved by the FERC did not apply to Norwood; however, in
denying Norwood's motion for rehearing, the FERC ruled that the
charge did apply to Norwood. Norwood has appealed this decision
to the First Circuit. The Company's billings to Norwood for this
charge through December 1998 have been approximately $6 million,
which remain unpaid. The Company filed a collection action with
<PAGE>
the Massachusetts Superior Court in December 1998 to recover
these amounts. Norwood filed a motion to dismiss or stay in
January 1999.
Norwood also appealed the FERC's orders approving the
divestiture and the Massachusetts and Rhode Island industry
restructuring settlement agreements (including modification of
the Company's contracts with Massachusetts Electric and
Narragansett Electric) to the First Circuit, despite the FERC's
finding that those settlement agreements do not apply to Norwood.
The First Circuit has consolidated all three of Norwood's
appeals from the FERC's orders with two other appeals filed by
the Northeast Center for Social Issue Studies, which challenge
the FERC's approval of the Company's sale of its hydroelectric
facilities. The case is to be fully briefed by May 1999.
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. Absent unusual circumstances, 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.
<TABLE>
<CAPTION>
Net pension cost for 1998, 1997, and 1996 included the following components:
- -----------------------------------------------------------------------------------------
Year ended December 31 (thousands of dollars) 1998 1997 1996
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost - benefits earned during the period $ 2,430$ 2,887 $ 2,769
Plus (less):
Interest cost on projected benefit obligation 7,435 7,003 6,669
Return on plan assets at expected long-term rate (8,675) (7,842) (7,204)
Amortization of transition obligation (184) (175) (171)
Amortization of prior service cost 161 171 168
Amortization of net (gain)/loss 159 65 273
Curtailment (gain)/loss (5,680) - -
- -----------------------------------------------------------------------------------------
Benefit cost $ (4,354)$ 2,109 $ 2,504
- -----------------------------------------------------------------------------------------
Special termination benefits not included above $ 10,911$ - $ -
- -----------------------------------------------------------------------------------------
</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>
- ---------------------------------------------------------------------------
(millions of dollars) 1998 1997
- ---------------------------------------------------------------------------
<S> <C> <C>
Benefit obligation $843 $819
Unrecognized prior service costs (6) (8)
Transition liability not yet recognized (amortized) (2) (4)
Additional minimum liability 7 4
- ---------------------------------------------------------------------------
842 811
- ---------------------------------------------------------------------------
Plan assets at fair value 837 834
Transition asset not yet recognized (amortized) (6) (8)
Net (gain)/loss not yet recognized (amortized) (92) (52)
- ---------------------------------------------------------------------------
739 774
- ---------------------------------------------------------------------------
Accrued pension/(prepaid) payments
recorded on books $103 $ 37
- ---------------------------------------------------------------------------
</TABLE>
The following provides a reconciliation of benefit obligations
and plan assets:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------
(millions of dollars) 1998 1997
- ---------------------------------------------------------------------------
<S> <C> <C>
Changes in benefit obligation:
Benefit obligation at January 1 $819 $807
Service cost 14 15
Interest cost 55 53
Actuarial (gain)/loss (5) 59
Benefits paid from plan assets (94) (47)
Special termination benefits 64 -
Curtailment (11) -
Plan amendments 1 -
Dispositions (Yankee Atomic) - (68)
- ---------------------------------------------------------------------------
Benefit obligation at December 31 $843 $819
- ---------------------------------------------------------------------------
Reconciliation of change in plan assets:
Fair value of plan assets at January 1 $834 $812
Actual return on plan assets during year 93 130
Company contributions 4 8
Benefits paid from plan assets (94) (47)
Dispositions (Yankee Atomic) - (69)
- ---------------------------------------------------------------------------
Fair value of plan assets at December 31 $837 $834
- ---------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Year ended December 31 1999 1998 1997 1996
- ----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Assumptions used to determine pension cost:
Discount rate 6.75% 6.75% 7.25% 7.25%
Average rate of increase in
future compensation level 4.13% 4.13% 4.13% 4.13%
Expected long-term rate of
return on assets 8.50% 8.50% 8.50% 8.50%
</TABLE>
The plans' funded status at December 31, 1998 and 1997 were
calculated using the assumed rates from 1999 and 1998,
respectively, and the 1983 Group Annuity Mortality table.
Plan assets are composed primarily of corporate equity, 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.
The Company's total cost of PBOPs for 1998, 1997, and 1996
included the following components:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
Year ended December 31 (thousands of dollars) 1998 1997 1996
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost - benefits earned during the period $ 1,109 $ 1,363 $ 1,407
Plus (less):
Interest cost on projected benefit obligation 3,244 3,545 3,580
Return on plan assets at expected long-term rate (2,656) (2,343) (1,832)
Amortization of transition obligation 1,732 2,556 2,556
Amortization of prior service cost 5 8 8
Amortization of net (gain)/loss (1,138) (983) (697)
Curtailment (gain)/loss 27,149 - -
- -----------------------------------------------------------------------------------------
Benefit cost $29,445 $ 4,146 $ 5,022
- -----------------------------------------------------------------------------------------
Special termination benefits not included above $ 439 $ - $ -
- -----------------------------------------------------------------------------------------
</TABLE>
<PAGE>
The following table sets forth the Company's benefits earned
and the plans' funded status:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
At December 31 (millions of dollars) 1998 1997
- -----------------------------------------------------------------------------
<S> <C> <C>
Benefit obligation $ 41 $ 51
Unrecognized prior service costs - -
Transition liability not yet recognized (amortized) (1) (38)
- -----------------------------------------------------------------------------
40 13
- -----------------------------------------------------------------------------
Plan assets at fair value 36 34
Net (gain)/loss not yet recognized (amortized) (26) (21)
- -----------------------------------------------------------------------------
10 13
- -----------------------------------------------------------------------------
Accrued pension/(prepaid) payments recorded on books $ 30 $ -
- -----------------------------------------------------------------------------
</TABLE>
The following provides a reconciliation of benefit obligations
and plan assets:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
(millions of dollars) 1998 1997
- -----------------------------------------------------------------------------
<S> <C> <C>
Changes in benefit obligation:
Benefit obligation at January 1 $ 51 $ 54
Service cost 1 1
Interest cost 3 4
Actuarial (gain)/loss 2 (6)
Benefits paid from plan assets (2) (2)
Special termination benefits - -
Curtailment (14) -
- -----------------------------------------------------------------------------
Benefit obligation at December 31 $ 41 $ 51
- -----------------------------------------------------------------------------
Reconciliation of change in plan assets:
Fair value of plan assets at January 1 $ 34 $ 29
Actual return on plan assets during year 4 6
Company contributions - 1
Benefits paid from plan assets (2) (2)
- -----------------------------------------------------------------------------
Fair value of plan assets at December 31 $ 36 $ 34
- -----------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Year ended December 31 1999 1998 1997 1996
- ----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Assumptions used to determine postretirement benefit cost:
Discount rate 6.75% 6.75% 7.25% 7.25%
Expected long-term rate of
return on assets 8.25% 8.25% 8.25% 8.25%
Health care cost rate -
1996 to 1999 5.25% 5.25% 8.00% 8.00%
Health care cost rate -
2000 to 2004 5.25% 5.25% 6.25% 6.25%
Health care cost rate -
2005 and beyond 5.25% 5.25% 5.25% 5.25%
</TABLE>
<PAGE>
The plans' funded status at December 31, 1998 and 1997 were
calculated using the assumed rates in effect for 1999 and 1998,
respectively.
The assumptions used in the health care cost trends have a
significant effect on the amounts reported. A one percentage
point change in the assumed rates would increase the accumulated
postretirement benefit obligation (APBO) as of December 31, 1998
by approximately $5 million or decrease the APBO by approximately
$4 million, and change the net periodic cost for 1998 by
approximately $1 million.
The Company generally funds the annual tax-deductible
contributions. Plan assets are invested in equity and debt
securities and cash equivalents.
3. Early Retirement and Special Severance Programs:
In 1998, the Company offered a voluntary early retirement
program to all employees who were at least 55 years old with 10
years of service. This program was part of an organizational
review with the goal of streamlining operations and reducing the
work force to reflect the sale of the nonnuclear generating
business. The early retirement offer was accepted by 104
employees. A special severance program was also utilized in 1998
for employees affected by the organizational restructuring, but
who were not eligible for, or did not accept, the early
retirement offer. The cost of these programs was in part
reimbursed by USGen at the closing of the sale of the nonnuclear
generating business and will be recovered in part from customers
as a component of stranded cost recovery.
Note G - 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 through 1993.
Total income taxes in the statements of income are as follows:
<TABLE>
<CAPTION>
Year ended December 31, (In thousands) 1998 1997 1996
- ----------------------------------------------------------------
<S> <C> <C> <C>
Income taxes charged to operations $ 73,594 $90,009 $91,894
Income taxes charged (credited) to
"Other income" (19,582) (373) 555
-------- ------- -------
Total income taxes $ 54,012 $89,636 $92,449
======== ======= =======
</TABLE>
<PAGE>
Total income taxes, as shown above, consist of the following
components:
<TABLE>
<CAPTION>
Year ended December 31, (In thousands) 1998 1997 1996
- ----------------------------------------------------------------
<S> <C> <C> <C>
Current income taxes $ 280,734 $102,364 $99,907
Deferred income taxes (204,129) (10,705) (5,435)
Investment tax credits, net (22,593) (2,023) (2,023)
--------- -------- -------
Total income taxes $ 54,012 $ 89,636 $92,449
========= ======== =======
</TABLE>
Investment tax credits (ITC) have been deferred and amortized
over the estimated lives of the property giving rise to the
credits. The increase in amortization of ITC in 1998 results
from the recognition in income of unamortized ITC relating to the
generating assets divested during 1998.
Total income taxes, as shown above, consist of federal and
state components as follows:
<TABLE>
<CAPTION>
Year ended December 31, (In thousands) 1998 1997 1996
- ----------------------------------------------------------------
<S> <C> <C> <C>
Federal income taxes $41,255 $73,077 $76,656
State income taxes 12,757 16,559 15,793
------- ------- -------
Total income taxes $54,012 $89,636 $92,449
======= ======= =======
</TABLE>
With regulatory approval from the 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:
<TABLE>
<CAPTION>
Year ended December 31, (In thousands) 1998 1997 1996
- ----------------------------------------------------------------
<S> <C> <C> <C>
Computed tax at statutory rate $ 61,917 $81,963 $85,726
Increases (reductions) in tax
resulting from:
Amortization of investment
tax credits (15,157) (2,023) (2,023)
State income taxes, net of
federal income tax benefit 8,292 10,763 10,265
All other differences (1,040) (1,067) (1,519)
-------- ------- -------
Total income taxes $ 54,012 $89,636 $92,449
======== ======= =======
</TABLE>
<PAGE>
The following table identifies the major components of total
deferred income taxes:
<TABLE>
<CAPTION>
At December 31, (In millions) 1998 1997
- ----------------------------------------------------------------
<S> <C> <C>
Deferred tax asset:
Plant related $ 76 $ 87
Investment tax credits 13 22
All other 24 44
----- -----
113 153
----- -----
Deferred tax liability:
Plant related (22) (418)
Equity AFDC (31) (43)
All other (225) (62)
----- -----
(278) (523)
----- -----
Net deferred tax liability $(165) $(370)
===== =====
</TABLE>
Note H - Short-term Borrowings and Other Accrued Expenses
At December 31, 1998, the Company had no short-term debt
outstanding. 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, 1998, the Company had lines of credit and
standby bond purchase facilities with banks totaling $455
million. These lines and facilities were used at December 31,
1998 for liquidity support for $372 million of the Company's
bonds in tax-exempt commercial paper mode (see Note J) and for
other corporate purposes. There were no borrowings under these
lines of credit at December 31, 1998. Fees are paid on the lines
and facilities in lieu of compensating balances.
<PAGE>
The components of other accrued expenses are as follows:
<TABLE>
<CAPTION>
At December 31, (In thousands) 1998 1997
- ----------------------------------------------------------------
<S> <C> <C>
Accrued wages and benefits $3,059 $ 9,838
Capital lease obligations due within one year - 4,333
Rate adjustment mechanisms 16,781 6,957
Other 246 2,426
------- -------
$20,086 $23,554
------- -------
</TABLE>
Note I - Cumulative Preferred Stock
A summary of cumulative preferred stock at December 31, 1998
and 1997 is as follows (in thousands of dollars except for share
data):
<TABLE>
<CAPTION>
Shares Dividends Call
Outstanding Amount Declared Price
- ------------------------------------------------------------------------------
1998 1997 1998 1997 1998 1997
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$100 par value
6.00% Series 15,672 75,020 $1,567 $ 7,502 $ 277 $ 451 (a)
4.56% Series - 100,000 - 10,000 247 456
4.60% Series - 80,140 - 8,014 236 368
4.64% Series - 41,500 - 4,150 98 192
6.08% Series - 100,000 - 10,000 372 608
- ------------------------------------------------------------------------------
Total 15,672 396,660 $1,567 $39,666 $1,230 $2,075
<FN>
(a) Noncallable.
</FN>
</TABLE>
The annual dividend requirement for total cumulative preferred
stock was $94,000 and $2,075,000 at the end of 1998 and 1997,
respectively. In 1998, the Company repurchased or redeemed
preferred stock with an aggregate par value of $38 million.
<PAGE>
Note J - Long-term Debt
A summary of long-term debt is as follows:
<TABLE>
<CAPTION>
At December 31, (In thousands)
Series Rate % Maturity 1998 1997
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
General and Refunding (G&R) Mortgage Bonds:
W(93-2) 6.17 February 2, 1998 $ - 4,300
W(93-4) 6.14 February 2, 1998 - 1,300
W(93-5) 6.17 February 3, 1998 - 5,000
W(93-7) 6.10 February 4, 1998 - 10,000
W(93-9) 6.04 February 4, 1998 - 29,400
Y(94-4) 8.28 December 21, 1999 - 10,000
W(93-6) 6.58 February 10, 2000 - 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
Y(94-2) 8.33 November 8, 2004 - 10,000
U 8.00 August 1, 2022 - 134,500
Y(94-1) 8.53 September 20, 2024 - 5,000
Pollution Control Revenue Bonds (a):
K 7.25 October 15, 2015 - 38,500
MIFA 1 (b) variable March 1, 2018 79,250 79,250
BFA 1 (c) variable November 1, 2020 135,850 135,850
BFA 2 (c) variable November 1, 2020 50,600 50,600
MIFA 2 (b) variable October 1, 2022 106,150 106,150
Unamortized discounts (85) (2,130)
-------- --------
Total long-term debt 371,765 697,720
======== ========
Long-term debt due in one year - (50,000)
-------- --------
$371,765 $647,720
======== ========
<FN>
(a) Prior to September 1, 1998, the following debt was secured by G&R
mortgage bonds.
(b) MIFA = Massachusetts Industrial Finance Authority
(c) BFA = Business Finance Authority of the State of New Hampshire
</FN>
</TABLE>
At December 31, 1998, interest rates on the Company's variable
rate bonds ranged from 3.05 percent to 3.45 percent.
At December 31, 1998, the Company's long-term debt had a
carrying value and fair value of $372,000,000. The fair value of
debt that reprices frequently at market rates approximates
carrying value.
In order to satisfy certain terms of its mortgage indenture,
the Company defeased or retired all $641 million of its mortgage
bonds outstanding at the time of the sale of its nonnuclear
generating business. The Company retired $372 million of
mortgage bonds securing the issuance of a like amount of
pollution control revenue bonds (PCRBs), leaving the underlying
<PAGE>
PCRBs outstanding as unsecured obligations of the Company.
Pursuant to a tender offer, the Company purchased $183 million of
bonds. Provisions for the payment of the remaining mortgage
bonds were made by depositing with trustees approximately $97
million of U.S. treasury obligations sufficient to pay principal,
interest, and premium, as applicable, to the maturity date, or to
the first date on which the bonds could be redeemed. Both the
U.S. treasury obligations and defeased bonds were removed from
the balance sheet effective September 30, 1998.
Note K - Common Stock
The Company repurchased shares of its common stock in 1998 as
follows (dollar amounts expressed in thousands):
<TABLE>
<CAPTION>
Reductions to :
-----------------------------------------
Common stock
Number of Cash and related Other paid- Retained
Year Shares Paid premium in capital earnings
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1998 2,700,000 $417,960 $90,266 $133,876 $193,818
</TABLE>
Note L - Supplementary Income Statement Information
Advertising expenses, expenditures for research and
development, and rents were not material and there were no
royalties paid in 1998, 1997, or 1996. Taxes, other than income
taxes, charged to operating expenses are set forth by classes as
follows:
<TABLE>
<CAPTION>
Year ended December 31, (In thousands) 1998 1997 1996
- ----------------------------------------------------------------
<S> <C> <C> <C>
Municipal property taxes $42,080 $59,102 $58,942
Federal and state payroll
and other taxes 6,412 8,209 7,474
------- ------- -------
$48,492 $67,311 $66,416
======= ======= =======
</TABLE>
New England Power Service Company, an affiliated service
company operating pursuant to the provisions of Section 13 of the
1935 Act, furnished services to the Company at the cost of such
services. These costs amounted to $74,203,000, $91,985,000, and
$85,124,000, including capitalized construction costs of
$21,281,000, $24,347,000, and $19,412,000, for each of the years
1998, 1997, and 1996, respectively.
<PAGE>
<TABLE>
<CAPTION>
New England Power Company
Selected Financial Information
Year ended December 31,
(In millions) 1998 1997 1996 1995 1994
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operating revenue $1,218 $1,678 $1,600 $1,571 $1,541
Net income $ 123 $ 145 $ 152 $ 151 $ 149
Total assets $2,415 $2,763 $2,648 $2,648 $2,613
Capitalization:
Common equity $ 521 $ 913 $ 906 $ 889 $ 877
Cumulative preferred stock 1 40 40 61 61
Long-term debt 372 648 733 735 695
------ ------ ------ ------ ------
Total capitalization $ 894 $1,601 $1,679 $1,685 $1,633
Preferred dividends declared $ 1 $ 2 $ 3 $ 3 $ 3
Common dividends declared $ 131 $ 135 $ 134 $ 135 $ 119
------ ------ ------ ------ ------
</TABLE>
Selected Quarterly Financial Information (Unaudited)
<TABLE>
<CAPTION>
First Second Third Fourth
(In thousands) Quarter Quarter Quarter Quarter
------- ------- ------- -------
<S> <C> <C> <C> <C>
1998
Operating revenue $401,147 $358,320 $321,569 $137,304
Operating income $ 48,740 $ 32,523 $ 54,647 $ 21,452
Net income $ 35,950 $ 20,425 $ 47,956 $ 18,564
1997
Operating revenue $438,048 $396,049 $443,774 $400,032
Operating income $ 50,652 $ 30,028 $ 64,535 $ 45,637
Net income $ 37,945 $ 19,515 $ 52,019 $ 35,064
</TABLE>
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, 1998 will be available on or about April 1, 1999,
upon request at no charge by contacting: Merrill IR Edge, 33
Boston Post Road, Suite 270, Marlborough, MA 01752, Telephone:
508-786-1907, Fax: 508-786-1915,
E-mail: [email protected].
<PAGE>
<TABLE> EXHIBIT (21)
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 Corporation
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, Robert K. Wulff, 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, 1998 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 16th day of March, 1999.
s/Peter G. Flynn s/Cheryl A. LaFleur
_________________________ _________________________
Peter G. Flynn Cheryl A. LaFleur
s/Alfred D. Houston s/Richard P. Sergel
_________________________ _________________________
Alfred D. Houston Richard P. Sergel
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<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.
</LEGEND>
<SUBSIDIARY>
<NUMBER> 1
<CIK> 0000071337
<NAME> NEW ENGLAND POWER COMPANY
<MULTIPLIER> 1,000
<S> <C>
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<PERIOD-TYPE> 12-MOS
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 458,113
<OTHER-PROPERTY-AND-INVEST> 88,121
<TOTAL-CURRENT-ASSETS> 350,653
<TOTAL-DEFERRED-CHARGES> 1,517,901 <F1>
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 2,414,788
<COMMON> 74,998
<CAPITAL-SURPLUS-PAID-IN> 241,223
<RETAINED-EARNINGS> 204,603
<TOTAL-COMMON-STOCKHOLDERS-EQ> 520,896 <F3>
0
1,567
<LONG-TERM-DEBT-NET> 371,765
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 0
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 1,520,560
<TOT-CAPITALIZATION-AND-LIAB> 2,414,788
<GROSS-OPERATING-REVENUE> 1,218,340
<INCOME-TAX-EXPENSE> 73,594
<OTHER-OPERATING-EXPENSES> 987,384
<TOTAL-OPERATING-EXPENSES> 1,060,978
<OPERATING-INCOME-LOSS> 157,362
<OTHER-INCOME-NET> 6,035
<INCOME-BEFORE-INTEREST-EXPEN> 163,397
<TOTAL-INTEREST-EXPENSE> 40,502
<NET-INCOME> 122,895
1,230
<EARNINGS-AVAILABLE-FOR-COMM> 121,665
<COMMON-STOCK-DIVIDENDS> 130,610
<TOTAL-INTEREST-ON-BONDS> 30,775
<CASH-FLOW-OPERATIONS> (413,049)
<EPS-PRIMARY> 0 <F2>
<EPS-DILUTED> 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.
<F3> Total common stockholders equity includes the unrealized gain on
securities.
</FN>
<PAGE>
<TABLE>
<CAPTION>
MASSACHUSETTS ELECTRIC COMPANY
Computation of Ratio of Earnings to Fixed Charges
(SEC Coverage)
(Unaudited)
Years Ended December 31,
-------------------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
(In Thousands)
<S> <C> <C> <C> <C> <C>
Net Income $ 50,386 $ 65,758 $37,926 $29,101 $34,726
- ----------
Add income taxes and fixed charges
- ----------------------------------
Current federal income taxes 10,978 34,244 25,867 9,437 (6,762)
Deferred federal income taxes 18,558 912 (6,052) 6,156 24,932
Investment tax credits - net (1,086) (1,103) (1,118) (1,132) (1,228)
Massachusetts franchise tax 6,999 7,514 4,479 3,935 4,681
Interest on long-term debt 27,073 27,612 27,089 25,901 20,967
Interest on short-term debt and other 7,368 7,214 6,473 6,784 6,366
-------- -------- ------- ------- -------
Net earnings available for fixed charges $120,276 $142,151 $94,664 $80,182 $83,682
-------- -------- ------- ------- -------
Fixed charges:
Interest on long-term debt $ 27,073 $ 27,612 $27,089 $25,901 $20,967
Interest on short-term debt and other 7,368 7,214 6,473 6,784 6,366
-------- -------- ------- ------- -------
Total fixed charges $ 34,441 $ 34,826 $33,562 $32,685 $27,333
======== ======== ======= ======= =======
Ratio of earnings to fixed charges 3.49 4.08 2.82 2.45 3.06
- ----------------------------------
</TABLE>
<PAGE>
Annual Report 1998
Massachusetts Electric Company
A Subsidiary of
New England Electric System
[LOGO] Massachusetts Electric
A NEES Company
<PAGE>
Massachusetts Electric Company
55 Bearfoot Road,
Northborough, Massachusetts 01532
Directors
(As of January 1, 1999)
Cheryl A. LaFleur
Senior Vice President, General Counsel, and Secretary of New
England Electric System
Robert L. McCabe
Chairman of the Company and of certain affiliates
Lydia M. Pastuszek
Senior Vice President of the Company
and of certain affiliates
Lawrence J. Reilly
President and Chief Executive Officer of the Company and of
certain affiliates
Christopher E. Root
Senior Vice President of the Company
and of certain affiliates
Richard P. Sergel
President and Chief Executive Officer of New England Electric
System
Nancy H. Sala
Senior Vice President of the Company and of an affiliate
Officers
(As of January 1, 1999)
Robert L. McCabe
Chairman of the Company and of certain affiliates
Lawrence J. Reilly
President and Chief Executive Officer of the Company and of
certain affiliates
Lydia M. Pastuszek
Senior Vice President of the
Company and of certain affiliates
Christopher E. Root
Senior Vice President of the Company and of certain affiliates
Nancy H. Sala
Senior Vice President of the Company
and of an affiliate
William J. Flaherty
Vice President of the Company
<PAGE>
Andrea Foley-Stapleford
Vice President of the Company
Richard W. Frost
Vice President of the Company and of certain affiliates
Rita A. Moran
Vice President of the Company
Joseph D. Newman
Vice President of the Company
Kwong O. Nuey
Vice President of the Company
Timothy R. Roughan
Vice President of the Company
William T. Sherry
Vice President of the Company
John G. Upham II
Vice President of the Company
John G. Cochrane
Treasurer of the Company and of certain affiliates, Assistant
Treasurer of an affiliate, Vice President of an affiliate and
Treasurer of New England Electric System
Thomas G. Robinson
Assistant Clerk and General Counsel of the Company
Robert King Wulff
Clerk of the Company and of certain affiliates, Secretary or
Assistant Clerk of certain affiliates and Assistant Secretary of
an affiliate
Howard W. McDowell
Assistant Treasurer and Controller of the Company and of certain
affiliates, Senior Vice President of an affiliate, Treasurer or
Controller of certain affiliates and Assistant Secretary of an
affiliate
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 (the Company) is a wholly owned
subsidiary of New England Electric System (NEES) operating in
Massachusetts. The Company's business is the distribution of
electricity at retail. Electric service is provided to
approximately 980,000 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, and many suburban communities and 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. As described in
the "Industry Restructuring" section of Financial Review, all
customers gained the right to choose their power supplier
effective March 1, 1998.
The properties of the Company consist principally of
substations and distribution lines interconnected with
transmission and other facilities of New England Power Company,
the Company's transmission affiliate. In September 1998, NEES
completed the divestiture of substantially all of its nonnuclear
generating business. For further information on industry
restructuring and the divestiture of NEES' nonnuclear generating
business, refer to the "Industry Restructuring" section of
Financial Review.
In December 1998, NEES agreed to a merger with The National
Grid Group plc, whose principal subsidiary operates the
transmission system in England and Wales.
In February 1999, NEES entered into an agreement to acquire
Eastern Utilities Associates, a utility holding company serving
approximately 300,000 customers in Massachusetts and Rhode
Island. For further information on these proposed mergers, refer
to the "Merger Agreements" sections of Financial Review.
<PAGE>
Report of Independent Accountants
Massachusetts Electric Company, Westborough, Massachusetts:
In our opinion, the accompanying balance sheets and the
related statements of income, of retained earnings, and of cash
flows present fairly, in all material respects, the financial
position of Massachusetts Electric Company (the Company), a
wholly owned subsidiary of New England Electric System, at
December 31, 1998 and 1997, and the results of its operations and
its cash flows for each of the three years in the period ended
December 31, 1998 in conformity with generally accepted
accounting principles. 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 of these statements in accordance
with generally accepted auditing standards which 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, assessing the accounting principles used and
significant estimates made by management, and evaluating the
overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed
above.
Boston, Massachusetts PricewaterhouseCoopers LLP
February 23, 1999
<PAGE>
Massachusetts Electric Company
Financial Review
Merger Agreement with The National Grid Group plc
On December 11, 1998, New England Electric System (NEES), The
National Grid Group plc (National Grid), and NGG Holdings LLC
(Holdings), a directly and indirectly wholly owned subsidiary of
National Grid, entered into an Agreement and Plan of Merger
(Merger Agreement). Pursuant to the Merger Agreement, Holdings
will merge with and into NEES (the Merger), with NEES becoming a
wholly owned subsidiary of National Grid. Massachusetts Electric
Company (the Company) will remain a wholly owned subsidiary of
NEES.
The Merger is subject to approval by a majority vote of NEES
shareholders as well as National Grid shareholder approval. In
addition, the Merger is subject to a number of regulatory and
other approvals and consents, including approvals by the
Securities and Exchange Commission (SEC), under the Public
Utility Holding Company Act of 1935 (1935 Act), Federal Energy
Regulatory Commission (FERC), and Nuclear Regulatory Commission
(NRC), support or approval from the states in which NEES
subsidiaries operate, and clearance under both the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended,
and the Exon-Florio Provisions of the Omnibus Trade and
Competitiveness Act of 1988. National Grid has obtained
governmental clearance in the United Kingdom for the Merger. The
Merger is expected to be completed by early 2000.
Merger Agreement with Eastern Utilities Associates
On February 1, 1999, NEES, Eastern Utilities Associates (EUA),
and Research Drive LLC (Research Drive), a directly and
indirectly wholly owned subsidiary of NEES, entered into an
Agreement and Plan of Merger (EUA Agreement). Pursuant to the EUA
Agreement, Research Drive will merge with and into EUA, with EUA
becoming a wholly owned subsidiary of NEES.
The acquisition of EUA is subject to approval by a two-thirds
vote of EUA shareholders. In addition, the acquisition is subject
to a number of regulatory and other approvals and consents,
including approvals by the SEC, under the 1935 Act, FERC, and
NRC, support or approval from the states in which EUA
subsidiaries operate, and clearance under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended. The EUA
acquisition is expected to be completed by early 2000. Following
the acquisition of EUA, the subsidiaries of NEES and EUA whose
operations are similar are expected to be consolidated.
Industry Restructuring
Pursuant to legislation enacted in Massachusetts and
settlement agreements approved by state and federal regulators
(Massachusetts Settlement), all customers were provided the right
to purchase electricity from the power supplier of their choice
<PAGE>
effective March 1, 1998. Customers who do not choose a power
supplier are able, for a period of time, to continue to purchase
their electricity from the Company at a transition rate
("standard offer generation service") which, when combined with
delivery charges, results in a total rate reduction of 19 percent
compared with the rates that had been in effect in August 1997.
In addition to addressing customer choice, the Massachusetts
Settlement also required the NEES companies to divest their
nonnuclear generating business. On September 1, 1998, NEES
subsidiaries New England Power Company (NEP) and The Narragansett
Electric Company completed the sale of substantially all of their
nonnuclear generating business, all of which had a book value of
approximately $1.1 billion, to USGen New England, Inc. (USGen),
an indirect wholly owned subsidiary of PG&E Corporation. The NEES
companies received $1.59 billion for the sale. Effective
September 1, 1998, USGen and TransCanada Power Marketing, Ltd.
(TCPM) became the Company's principal suppliers for meeting
standard offer generation service obligations.
The Massachusetts Settlement also provides that the costs of
NEP's generating investments and related contractual commitments
that were not recovered from the divestiture of those investments
("stranded costs") (the Company's share is 73 percent) are to be
recovered from distribution customers through contract
termination charges (CTC), which will be collected by the
Company. Under the Massachusetts Settlement, the recovery of
NEP's stranded costs is divided into several categories.
Unrecovered costs associated with generating plants (nuclear and
nonnuclear) and most regulatory assets will be fully recovered
through the CTC by the end of 2000 and would earn a return on
equity of 9.4 percent. NEP's obligation relating to the
above-market cost of purchased power contracts and nuclear
decommissioning costs are recovered through the CTC over a longer
period of time, as such costs are actually incurred. NEP's CTC
rate was originally set at 2.8 cents per kilowatthour (kWh), and
subsequently reduced to approximately 1.5 cents or less per kWh
upon completion of the sale of NEP's nonnuclear generating
business as described above.
Accounting Implications
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. Statement of 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 thereby defer the income statement impact of these
charges because they are expected to be included in future
customer charges. At December 31, 1998, the Company had
approximately $38 million in net regulatory assets.
Under existing ratemaking practices and provisions of the
Massachusetts Settlement, the Company will have the ability to
<PAGE>
recover through rates its specific costs of providing ongoing
distribution services and stranded costs billed to it by NEP.
The Company believes these factors will allow it to continue to
apply FAS 71.
Currently, there is much regulatory and other movement toward
establishing performance-based rates. It is possible that the
adoption of performance-based rates, future regulatory rules, or
other circumstances could cause the application of FAS 71 to be
discontinued. This discontinuation would result in a noncash
write-off of previously established regulatory assets. In
addition, reserves for depreciation may also have to be increased
to comply with unregulated accounting practices.
Impact of Restructuring on Distribution Business
The Massachusetts Settlement also establishes distribution
rates for the Company. On March 1, 1998, the Company's
distribution rates were set at a level approximately $45 million
above the level embedded in its previously bundled rates, with
such rates then frozen through the year 2000. This increase
reflects changes to the distribution cost of service, including
an $11 million increase in annual depreciation expense, a $3
million annual contribution to a storm fund, and increased annual
amortization of unfunded deferred income taxes of approximately
$1 million over six years. Through the year 2000, the Company's
return on equity is subject to a floor of 6 percent and a ceiling
of 11 percent. Earnings over the ceiling will be shared equally
between customers and shareholders up to a maximum of 12.5
percent. This sharing results in an effective cap on the
Company's return on equity of 11.75 percent, excluding certain
limited incentive opportunities. To the extent that earnings fall
below the floor, the Company will be authorized to surcharge
customers for the shortfall.
Overview of Financial Results
Net income for 1998 decreased $15 million compared with 1997.
The decrease was primarily due to the decreases in revenues
related to the recovery of purchased power and transmission costs
being greater than the decreases in the related expenses. This
amounted to approximately $35 million, before tax, and was in
part due to the reversal in 1997 of prior period refund accruals
related to the Company's purchased power cost adjustment
mechanism (PPCA). It was also in part due to 1998 being a
transition year to new fully reconciling rate mechanisms for
purchased power and transmission costs as well as CTC costs
billed by NEP. Increases in depreciation and property tax
expenses of $12 million and $7 million, respectively, also
contributed to the decrease. These decreases in income were
partially offset by the effects of a distribution rate increase
that went into effect in March 1998.
Net income for 1997 increased $28 million compared with 1996.
The increase was primarily due to the reversal of prior period
refund accruals and a 2.0 percent increase in kWh deliveries.
<PAGE>
Partially offsetting the higher earnings were increased operation
and maintenance costs, increased depreciation, and increased
income taxes.
Operating Revenue
Operating revenue decreased $134 million in 1998 compared with
1997 reflecting lower purchased power related rates pursuant to
the Massachusetts Settlement and a change in true-up mechanisms.
Rates were reduced by 10 percent in March 1998, and an additional
9 percent in September 1998 in conjunction with the sale of NEES'
nonnuclear generating assets, compared with rates that had been
in effect in August 1997. Commencing in March 1998, the revenues
that the Company is billing related to purchased power costs,
transmission wheeling costs and CTC charges from NEP, are all
subject to fully reconciling true-up mechanisms based on actual
billings. Prior to March, only the fuel component of purchased
power expense was subject to a similar fully reconciling true-up
mechanism. The decrease in 1998 operating revenue was partially
offset by a 1.0 percent increase in kWh deliveries. The increase
in kWh deliveries reflects a strong economy. For the year as a
whole, weather had a negative impact on 1998 deliveries when
compared with 1997.
Operating revenue increased $86 million in 1997 compared with
1996, and reflected the reversal of the prior period refund
accruals related to rate mechanisms referred to above, and
increased kWh deliveries due to an improved economy. The
Massachusetts Settlement provided for the end of the Company's
PPCA mechanism effective July 31, 1996. Prior to FERC approval,
the Company had accrued additional potential refund provisions of
$9 million for the last five months of 1996 and $7 million for
the first nine months of 1997. Upon approval of the settlement,
these refund provisions were all reversed in the fourth quarter
of 1997, thereby increasing revenues. The Company had accrued
refund provisions of $17 million during the first seven months of
1996, which were part of a net $18 million PPCA balance at July
31, 1996.
The Company received approval from the Massachusetts
Department of Telecommunications and Energy (MDTE) to recover
demand-side management (DSM) program expenditures in rates on a
current basis through 1998. These expenditures were $46 million,
$51 million, and $48 million in 1998, 1997, and 1996,
respectively. The Massachusetts Settlement and statute provide
for recovery of DSM-related costs. The MDTE approved the
Company's DSM program expenditure recovery plans through 2002.
Since 1990, the Company has been allowed to earn incentives based
on the results of its DSM programs and has recorded before-tax
incentives of $6.6 million, $7.0 million, and $5.7 million in
1998, 1997, and 1996, respectively.
Operating Expenses
Operating expenses for 1998 decreased $120 million compared
with 1997 primarily due to reduced purchased electric energy
<PAGE>
expenses, partially offset by CTC billings, increased operation
and maintenance costs, increased depreciation expense, and
increased property tax expense. The decrease in purchased
electric energy is principally due to reduced rates billed to the
Company by suppliers. Historically, the Company purchased all of
its electrical requirements from NEP under the provisions of an
all-requirements contract at NEP's standard resale rate.
Effective March 1, 1998, the contract was amended, terminating
the all-requirements provision of the contract. The Company's
customers also gained the right to choose their power supplier.
NEP continued to supply power to the Company, at lower rates, for
customers that continued to take power from the Company, until
September 1, 1998, when USGen and TCPM became the Company's
principal wholesale power suppliers. The increase in other
operation and maintenance expenses is primarily due to increased
transmission costs of approximately $76 million which, as of
March 1, 1998 are billed separately and recorded as operation and
maintenance expense instead of as a component of purchased power
expense. The increase in operation and maintenance expenses is
also due to costs associated with year 2000 (Y2K) computer
readiness. These increases were offset by decreased DSM spending
and the effects of workforce reductions. The increase in
depreciation expense in 1998 primarily reflects a portion of the
$11 million increase in annual depreciation expense provided for
in the Massachusetts Settlement, and depreciation expense on new
utility plant expenditures. The increase in taxes, other than
income taxes reflects one-time property tax adjustments paid in
the third quarter of 1998 to certain municipalities.
Operating expenses for 1997 increased $56 million compared
with 1996 primarily due to increased purchased power expenses,
increased other operation and maintenance expenses and increased
income taxes. The increase in purchased electric energy expenses
was due to increased replacement power fuel purchases by NEP due
to the reduced generation from partially owned nuclear units.
These costs were passed on to the Company through NEP's fuel
clause. The increase in other operation and maintenance expenses
was primarily due to increased distribution-system related costs,
including increased tree-trimming expenses, as well as increased
transmission wheeling charges from NEP related to the use of
NEP's transmission network for the Company's 1997 retail wheeling
pilot programs.
Hazardous Waste
The electric utility industry typically utilizes and/or
generates in its operations a range of potentially hazardous
products and by-products. The most prevalent types of hazardous
waste sites with which the Company has been associated are
manufactured gas locations. (Until the early 1970s, NEES was a
combined electric and gas holding company system.) The Company is
aware of approximately 35 such manufactured gas locations,
including eight for which the Company has been identified by
either federal or state regulatory agencies as a potentially
responsible party, located in Massachusetts. The Company has
reported the existence of all manufactured gas locations of which
<PAGE>
it is aware to state environmental regulatory agencies. The
Company is engaged in various phases of investigation and
remediation work at approximately 20 of the manufactured gas
locations. The Company is currently aware of other possible
hazardous waste sites, and may in the future become aware of
additional sites, that it may be held responsible for
remediating.
In 1993, the Massachusetts Department of Public Utilities
approved a settlement agreement that provides for rate recovery
of remediation costs of former manufactured gas sites and certain
other hazardous waste sites located in Massachusetts. A more
detailed discussion of this settlement agreement and of potential
hazardous waste liabilities is contained in Note D-2 of the Notes
to the Financial Statements. Predicting the potential costs to
investigate and remediate hazardous waste sites continues to be
difficult. At December 31, 1998, the Company had total reserves
for environmental response costs of $44 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.
Year 2000 Readiness Disclosure
Over the next year, most companies will face a potentially
serious information systems (computer) problem because many
software applications and operational programs written in the
past may not properly recognize calendar dates associated with
Y2K. This could cause computers to either shut down or lead to
incorrect calculations.
During 1996, the NEES companies began the process of
identifying the changes required to their computer software and
hardware to mitigate Y2K issues. The NEES companies established a
Y2K Project team to manage these issues, which has consisted of
as many as 70 full-time equivalent staff at some points in time,
primarily external consultants being overseen by an internal Y2K
management team. To facilitate the Y2K Project, NEES entered
into contracts with Keane, Inc. and International Business
Machines Corporation to provide personnel support to the Y2K
Project. Through December 31, 1998, the NEES companies have
spent approximately $14 million with these vendors, which is
included in the cost figures disclosed below. The Y2K Project
team reports project progress to a Y2K Executive Oversight
Committee each month. The team also makes regular reports to
NEES' Board of Directors and its Audit Committee. The NEES
companies have separated their Y2K Project into four parts as
shown below, along with the estimated completion dates for each
part.
<PAGE>
<TABLE>
<CAPTION>
Substantial Contingency Testing
Completion Documentation,
of Critical and Clean
Category Specific Example Systems Management
- -------- ---------------- ----------- -------------------
<S> <C> <C> <C>
Mainframe/Midrange Accounting/Customer Completed Throughout 1999
systems service integrated
systems
Desktop systems Personal computers/ June 30, 1999 Throughout 1999
Department software/
Networks
Operational/ Dispatching systems/ June 30, 1999 Throughout 1999
Embedded Transmission and
systems Distribution systems/
Telephone systems
External issues Electronic Data June 30, 1999 Throughout 1999
Interchange/Vendor
communications
</TABLE>
The NEES companies are using a three-phase approach in
coordinating their Y2K Project for system-related issues: (I)
Assessment and Inventory, (II) Pilot Testing, and (III)
Renovation, Conversion, or Replacement of Application and
Operating Software Packages and Testing. Phase I, which was an
initial assessment of all systems and devices for potential Y2K
defects, was completed in mid-1997. These assessments included,
but were not limited to, the review of program code for mainframe
and midrange systems, analysis of personal computer hardware and
network equipment for desktop systems, reaching consensus with
key "data exchange" partners regarding the approach and execution
of plans to address Y2K-related issues, and coordination with
other New England Power Pool (NEPOOL) member utilities related to
operational systems, such as transmission systems. Phase II,
which consisted of renovation pilots for a cross-section of
systems in order to facilitate the establishment of templates for
Phase III work, was completed in late 1997. Phase III, which is
currently ongoing, requires the renovation, conversion, or
replacement of the remaining applications and operating software
packages.
Critical systems include major operational and informational
systems such as the NEES companies' financial-related and
customer information systems. These mission critical systems
were first addressed at an individual component level, and then,
upon satisfactory completion of that testing, reviewed at an
integrated level, during which the Y2K Project team tested for
Y2K problems which could be caused by various system interfaces.
Additionally, contingency plans are being formulated for mission
critical systems, as described below.
The overall Y2K Project has also been designed such that Y2K-
related work performed by external consultants is reviewed by
NEES employees, and vice-versa. The Y2K Project team management
<PAGE>
periodically benchmarks its progress against the recommended
progress schedule documented by the North American Electric
Reliability Council (NERC), and is currently ahead of the
recommended schedule.
The NEES companies have also implemented a formalized
communication process with third parties to give and receive
information related to their progress in remediating their own
Y2K issues, and to communicate the NEES companies' progress in
addressing the Y2K issue. These third parties include major
customers, suppliers, and significant businesses with which the
NEES companies have data links (such as banks). The NEES
companies have identified standard offer generation service
providers, telecommunications companies, and the Independent
System Operator-New England (ISO New England) as critical to
business operations. The NEES companies have been in contact
with all of these parties regarding the progress of their Y2K
remediation efforts, and will continue to monitor their ongoing
remediation efforts through continued communications. The NEES
companies cannot predict the outcome of other companies'
remediation efforts. Therefore, contingency plans are being
developed, as described below.
The NEES companies believe total costs associated with making
the necessary modifications to all centralized and noncentralized
systems will be approximately $28 million. These costs include
the replacement of approximately one thousand desktop computers.
In addition, the NEES companies are spending $4 million related
to the replacement of the human resources and payroll system, in
part due to the Y2K issue. To date, total Y2K-related costs of
$25 million have been incurred, of which $3 million has been
capitalized. The NEES companies continually review their cost
estimates based upon the overall Y2K Project status, and update
these estimates as warranted.
The NEES companies are in the process of developing Y2K
contingency plans to allow for critical information and operating
systems to function from January 1, 2000 forward. If required,
these plans are intended to address both internal risks as well
as potential external risks related to suppliers and customers.
Part of the contingency planning for accounting and desktop
systems will include taking extensive data back-ups prior to
year-end closing. For operational systems, the NEES companies
have in place an overall disaster recovery program, which already
includes periodic disaster simulation training (for outages due
to severe weather, for instance). As part of Y2K contingency
planning, the NEES companies will review their disaster recovery
plans, modifying them for Y2K-specific issues, such as a
potential loss of telecommunication services. The NEES companies
expect that these contingency plans will be in place by the third
quarter of 1999.
Interregional and regional contingency plans are being
formulated that address emergency scenarios due to the
interconnection of utility systems throughout the United States.
At a regional level, the NEES companies are participating and
<PAGE>
cooperating with NEPOOL and ISO New England. Overall regional
activities, including those of NEPOOL and ISO New England, will
be coordinated by the Northeast Power Coordinating Council, whose
activities will be incorporated into the interregional
coordinating effort by NERC. The target for the completion of
this planning process is mid-1999. The NEES companies have noted
that the Y2K coordination efforts by ISO New England began in May
1998, resulting in a demanding and difficult schedule to attain
regional and interregional target dates.
The NEES companies believe the worst case scenario with a
reasonable chance of occurring is temporary disruptions of
electric service. This scenario could result from a failure to
adequately remediate Y2K problems at NEES company facilities or
could be caused by the inability of entities, such as ISO New
England, to maintain the short-term reliability of various
generators and/or transmission lines on a regional or
interregional basis. The NEES companies believe that the
contingency plans being developed both internally and on a
regional level, as described above, should substantially mitigate
the risks of this potential scenario. In the event that a
short-term disruption in service occurs, NEES does not expect
that it would have a material impact on its financial position
and results of operations.
While the NEES companies believe that their overall Y2K
program will satisfactorily address all critical operational and
system-related issues, significant risks remain. These risks
include, but are not limited to, the Y2K readiness of third
parties, including other utilities and power suppliers, cost and
timeline estimates of remaining Y2K mitigation efforts, and the
overall accuracy of assumptions made related to future events in
the development of the Y2K mitigation effort.
New Accounting Standards
In 1997, the Financial Accounting Standards Board (FASB)
released Statement of Financial Accounting Standards No. 130,
Reporting of Comprehensive Income (FAS 130), which was adopted by
the Company in the first quarter of 1998. FAS 130 establishes
standards for reporting comprehensive income and its components.
Comprehensive income for the period is equal to net income plus
"other comprehensive income," which for the Company, consists of
the change in unrealized holding gains on available-for-sale
securities during the period. Other comprehensive income was
immaterial for the Company for the year ended December 31, 1998.
Also in 1997, the FASB released Statement of Financial
Accounting Standards No. 131, Disclosure about Segments of an
Enterprise and Related Information (FAS 131), which went into
effect in 1998. FAS 131 requires the reporting in financial
statements of certain new additional information about operating
segments of a business. FAS 131 does not currently impact the
Company's reporting requirements.
<PAGE>
In February 1998, the FASB issued Statement of Financial
Accounting Standards No. 132, Employers' Disclosures about
Pensions and Other Postretirement Benefits (FAS 132), which
revises disclosure requirements for pension and other
postretirement benefits. The Company has adopted FAS 132 in its
financial statements for the year ended December 31, 1998.
The adoption of FAS 130, FAS 131, and FAS 132 had no impact on
the Company's operating results, financial position, or cash
flows.
In June 1998, the FASB issued Statement of Financial
Accounting Standards No. 133, Accounting for Derivative
Instruments and Hedging Activities (FAS 133), which establishes
accounting and reporting standards for such instruments. FAS 133
is effective for fiscal years beginning after June 15, 1999.
Currently, the Company has no such derivative holdings.
Risk Management
The Company's major financial market risk exposure is changing
interest rates. Changing interest rates will affect the fair
value of fixed rate debt. The table below presents the average
rate on the Company's long-term debt at December 31, 1998, the
amounts maturing during each of the next five years, and the fair
value of the Company's debt at December 31, 1998.
<TABLE>
<CAPTION>
Fixed
Long-Term
---------
<S> <C>
Weighted
Average Rate 7.20%
Maturities (millions of dollars)
1999 $ 15
2000 21
2001 -
2002 25
2003 35
Cumulative
thereafter 274
----
Total $370
----
Fair Value $403
----
</TABLE>
Utility Plant Expenditures and Financing
Cash expenditures for utility plant totaled $78 million in
1998. The funds necessary for utility plant expenditures during
1998 were primarily provided by net cash from operating
activities, after the payment of dividends, and increased short-
<PAGE>
term debt. Cash expenditures for utility plant for 1999 are
estimated to be approximately $75 million. Internally generated
funds are expected to fully meet capital expenditure requirements
in 1999.
In 1998, the Company issued $50 million of long-term debt,
retired $40 million of mortgage bonds and increased its short-
term debt outstanding by $46 million.
In 1998, the Company repurchased or redeemed preferred stock
with an aggregate par value of $5.1 million. Total premiums paid
of $0.2 million in connection with the preferred stock repurchase
and redemption were charged to retained earnings.
At December 31, 1998, the Company had $81 million of short-
term debt outstanding representing borrowings from affiliates.
The Company's ability to issue short-term debt is limited by the
need to obtain regulatory approval from the SEC under the 1935
Act. Approval has been granted for up to $150 million. As of
December 31, 1998, the Company had lines of credit with banks
totaling $55 million which are available to provide liquidity
support for commercial paper borrowings and other commercial
purposes. There were no borrowings under these lines of credit
at December 31, 1998.
<PAGE>
<TABLE>
<CAPTION>
Massachusetts Electric Company
Statements of Income
Year ended December 31, (In thousands) 1998 1997 1996
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating revenue $1,490,417 $1,624,085 $1,538,537
---------- ---------- ----------
Operating expenses:
Purchased electric energy (Note A):
Contract termination charges from New
England Power Company, an affiliate 300,630 - -
Other 640,110 1,145,047 1,120,709
Other operation 292,509 217,150 211,663
Maintenance 33,522 36,906 31,102
Depreciation 61,700 49,694 47,357
Taxes, other than income taxes 37,983 31,143 30,559
Income taxes 36,319 42,454 25,186
---------- ---------- ----------
Total operating expenses 1,402,773 1,522,394 1,466,576
---------- ---------- ----------
Operating income 87,644 101,691 71,961
Other income (expense), net (3,510) (1,536) (1,213)
---------- ---------- ----------
Operating and other income 84,134 100,155 70,748
---------- ---------- ----------
Interest:
Interest on long-term debt 27,073 27,612 27,089
Other interest 7,368 7,214 6,473
Allowance for borrowed funds used during
construction - credit (693) (429) (740)
---------- ---------- ----------
Total interest 33,748 34,397 32,822
---------- ---------- ----------
Net income $ 50,386 $ 65,758 $ 37,926
========== ========== ==========
Statements of Retained Earnings
Year ended December 31, (In thousands) 1998 1997 1996
- -----------------------------------------------------------------------------------
Retained earnings at beginning of year $201,156 $165,936 $150,308
Net income 50,386 65,758 37,926
Dividends declared on cumulative
preferred stock (873) (2,821) (3,114)
Dividends declared on common stock,
$17.50, $10.00, and $8.00 per
share, respectively (41,967) (23,981) (19,184)
Premium on redemption of preferred stock (165) (3,736) -
-------- -------- --------
Retained earnings at end of year $208,537 $201,156 $165,936
======== ======== ========
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Massachusetts Electric Company
Balance Sheets
At December 31, (In thousands) 1998 1997
- ------------------------------------------------------------------------------
<S> <C> <C>
Assets
Utility plant, at original cost $1,626,569 $1,579,309
Less accumulated provisions for depreciation 499,975 465,796
---------- ----------
1,126,594 1,113,513
Construction work in progress 16,575 13,363
---------- ----------
Net utility plant 1,143,169 1,126,876
---------- ----------
Current assets:
Cash 6,994 6,743
Accounts receivable:
From electric energy services 188,956 158,627
Other (including $6,629 and $1,321 from affiliates) 7,358 2,112
Less reserves for doubtful accounts 12,450 12,808
---------- ----------
183,864 147,931
Unbilled revenues (Note A-3) 56,133 49,513
Materials and supplies, at average cost 9,281 9,599
Prepaid and other current assets 13,886 22,255
---------- ----------
Total current assets 270,158 236,041
---------- ----------
Deferred charges and other assets (Note C) 41,235 45,450
---------- ----------
$1,454,562 $1,408,367
========== ==========
Capitalization and Liabilities
Capitalization:
Common stock, par value $25 per share,
authorized and outstanding 2,398,111 shares $ 59,953 $ 59,953
Premium on capital stock 45,942 45,945
Other paid-in capital 193,498 193,224
Retained earnings 208,537 201,156
Unrealized gain on securities, net 273 129
---------- ----------
Total common equity 508,203 500,407
Cumulative preferred stock (Note H) 10,674 15,739
Long-term debt 353,329 338,387
---------- ----------
Total capitalization 872,206 854,533
---------- ----------
Current liabilities:
Long-term debt due in one year 15,000 20,000
Short-term debt (including $80,725 and $4,800
to affiliates) 80,725 34,700
Accounts payable (including $34,506 and $179,211
to affiliates) 127,621 195,023
Accrued liabilities:
Taxes - 8,275
Interest 8,509 9,183
Other accrued expenses (Note G) 40,626 22,081
Customer deposits 4,456 4,487
Dividends payable 4,951 5,036
---------- ----------
Total current liabilities 281,888 298,785
---------- ----------
Deferred federal and state income taxes 200,965 179,474
Unamortized investment tax credits 14,377 15,463
Other reserves and deferred credits 85,126 60,112
Commitments and contingencies (Note D)
---------- ----------
$1,454,562 $1,408,367
========== ==========
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
Massachusetts Electric Company
Statements of Cash Flows
<TABLE>
<CAPTION>
Year ended December 31, (In thousands) 1998 1997 1996
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Operating activities:
Net income $ 50,386 $ 65,758 $ 37,926
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 61,700 49,694 47,357
Deferred income taxes and investment
tax credits, net 22,280 478 (7,850)
Allowance for borrowed funds
used during construction (693) (429) (740)
Amortization of unbilled revenues
Decrease (increase) in accounts
receivable, net and unbilled revenues (42,553) 1,266 2,868
Decrease (increase) in materials
and supplies 318 (779) 1,782
Decrease (increase) in prepaid
and other current assets 8,369 3,668 (3,409)
Increase (decrease) in accounts payable (67,402) 16,760 (3,680)
Increase (decrease) in other
current liabilities 9,565 (25,711) 31,095
Other, net 31,281 36,902 (2,430)
-------- -------- --------
Net cash provided by
operating activities $ 73,251 $147,607 $102,919
-------- -------- -------
Investing activities:
Plant expenditures, excluding allowance
for funds used during construction $(77,588) $(87,998) $(93,828)
Other investing activities (3,557) (1,408) (598)
-------- -------- --------
Net cash used in investing activities $(81,145) $(89,406) $(94,426)
-------- -------- --------
Financing activities:
Capital contributions from parent $ 274 $ 37,914 $ -
Dividends paid on common stock (41,967) (26,380) (13,188)
Dividends paid on preferred stock (958) (3,359) (3,114)
Long-term debt - issues 50,000 15,000 20,000
Long-term debt - retirements (40,000) (30,000) -
Preferred stock - retirements (5,064) (34,178) -
Premium on redemption of preferred stock (165) (3,736) -
Changes in short-term debt 46,025 (9,075) (11,675)
-------- -------- --------
Net cash provided by(used in)
financing activities $ 8,145 $(53,814) $ (7,977)
-------- -------- --------
Net increase in cash and cash equivalents $ 251 $ 4,387 $ 516
Cash and cash equivalents at
beginning of year 6,743 2,356 1,840
-------- -------- --------
Cash and cash equivalents at end of year $ 6,994 $ 6,743 $ 2,356
======== ======== ========
Supplementary information:
Interest paid less amounts capitalized $ 30,364 $ 31,251 $ 30,569
-------- -------- --------
Federal and state income taxes paid $ 34,111 $ 31,711 $ 39,174
-------- -------- --------
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:
Massachusetts Electric Company (the Company) is a wholly
owned subsidiary of New England Electric System (NEES) operating
in Massachusetts. The Company's business is the distribution of
electricity at retail. Electric service is provided to
approximately 980,000 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), the Company's transmission affiliate. Under an all-
requirements contract with NEP, the Company had previously
purchased all of its electric energy requirements from NEP under
a contract which obligated NEP to furnish such requirements at
its standard resale rate. This contract has been amended to
terminate the all-requirements provision of the contract and
allow NEP to recover its above-market generation commitments
through a contract termination charge (CTC), which the Company
collects from its customers. See Note C for a discussion of
industry restructuring and NEES' divestiture of its nonnuclear
generating business.
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 Utility Revenue:
The Company accrues revenues for electricity delivered but
not yet billed (unbilled revenues). Accrued revenues are also
recorded in accordance with rate adjustment mechanisms, which, in
1997, included the Company's purchased power cost adjustment
(PPCA) mechanism. Upon approval of the Massachusetts Settlement
in November 1997, the PPCA mechanism was eliminated as of July
31, 1996. Pending final approval of the settlement, the Company
had accrued refund reserves of $9 million for the last five
months of 1996 and an additional $7 million in the first nine
months of 1997. Upon final approval of the settlement, these
refund reserves were reversed in the fourth quarter of 1997.
<PAGE>
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 noncash 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.
5. Depreciation:
Depreciation is provided annually on a straight-line basis.
The provision for depreciation as a percentage of weighted
average depreciable property was 3.9 percent in 1998 and 3.3
percent in 1997 and 1996.
6. Cash:
The Company classifies short-term investments with a maturity
of 90 days or less at time of purchase as cash.
7. New Accounting Standards:
In 1997, the Financial Accounting Standards Board (FASB)
released Statement of Financial Accounting Standards No. 130,
Reporting of Comprehensive Income (FAS 130), which was adopted by
the Company in the first quarter of 1998. FAS 130 establishes
standards for reporting comprehensive income and its components.
Comprehensive income for the period is equal to net income plus
"other comprehensive income," which for the Company, consists of
the change in unrealized holding gains on available-for-sale
securities during the period. Other comprehensive income was
immaterial for the Company for the year ended December 31, 1998.
Also in 1997, the FASB released Statement of Financial
Accounting Standards No. 131, Disclosure about Segments of an
Enterprise and Related Information (FAS 131), which went into
effect in 1998. FAS 131 requires the reporting in financial
statements of certain new additional information about operating
segments of a business. FAS 131 does not currently impact the
Company's reporting requirements.
In February 1998, the FASB issued Statement of Financial
Accounting Standards No. 132, Employers' Disclosures about
Pensions and Other Postretirement Benefits (FAS 132), which
revises disclosure requirements for pension and other
postretirement benefits. The Company has adopted FAS 132 in its
financial statements for the year ended December 31, 1998.
The adoption of FAS 130, FAS 131, and FAS 132 had no impact
on the Company's operating results, financial position, or cash
flows.
<PAGE>
In June 1998, the FASB issued Statement of Financial
Accounting Standards No. 133, Accounting for Derivative
Instruments and Hedging Activities (FAS 133), which establishes
accounting and reporting standards for such instruments. FAS 133
is effective for fiscal years beginning after June 15, 1999.
Currently, the Company has no such derivative holdings.
Note B - Merger Agreements
Merger Agreement with The National Grid Group plc
On December 11, 1998, NEES, The National Grid Group plc
(National Grid), and NGG Holdings LLC (Holdings), a directly and
indirectly wholly owned subsidiary of National Grid, entered into
an Agreement and Plan of Merger (Merger Agreement). Pursuant to
the Merger Agreement, Holdings will merge with and into NEES (the
Merger), with NEES becoming a wholly owned subsidiary of National
Grid. The Company will remain a wholly owned subsidiary of NEES.
The Merger is subject to approval by a majority vote of NEES
shareholders as well as National Grid shareholder approval. In
addition, the Merger is subject to a number of regulatory and
other approvals and consents, including approvals by the
Securities and Exchange Commission (SEC), under the Public
Utility Holding Company Act of 1935 (1935 Act), Federal Energy
Regulatory Commission (FERC), and Nuclear Regulatory Commission
(NRC), support or approval from the states in which NEES
subsidiaries operate, and clearance under both the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended,
and the Exon-Florio Provisions of the Omnibus Trade and
Competitiveness Act of 1988. National Grid has obtained
governmental clearance in the United Kingdom for the Merger. The
Merger is expected to be completed by early 2000.
Merger Agreement with Eastern Utilities Associates
On February 1, 1999, NEES, Eastern Utilities Associates
(EUA), and Research Drive LLC (Research Drive), a directly and
indirectly wholly owned subsidiary of NEES, entered into an
Agreement and Plan of Merger (EUA Agreement). Pursuant to the EUA
Agreement, Research Drive will merge with and into EUA, with EUA
becoming a wholly owned subsidiary of NEES.
The acquisition of EUA is subject to approval by a two-thirds
vote of EUA shareholders. In addition, the acquisition is subject
to a number of regulatory and other approvals and consents,
including approvals by the SEC, under the 1935 Act, FERC, and
NRC, support or approval from the states in which EUA
subsidiaries operate, and clearance under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended. The EUA
acquisition is expected to be completed by early 2000. Following
the acquisition of EUA, the subsidiaries of NEES and EUA whose
operations are similar are expected to be consolidated.
<PAGE>
Note C - Industry Restructuring
Pursuant to legislation enacted in Massachusetts and
settlement agreements approved by state and federal regulators
(Massachusetts Settlement), all customers were provided the right
to purchase electricity from the power supplier of their choice
effective March 1, 1998. Customers who do not choose a power
supplier are able, for a period of time, to continue to purchase
their electricity from the Company at a transition rate
("standard offer generation service") which, when combined with
delivery charges, results in a total rate reduction of 19 percent
compared with the rates that had been in effect in August 1997.
In addition to addressing customer choice, the Massachusetts
Settlement also required the NEES companies to divest their
nonnuclear generating business. On September 1, 1998, NEES
subsidiaries NEP and The Narragansett Electric Company completed
the sale of substantially all of their nonnuclear generating
business, all of which had a book value of approximately $1.1
billion, to USGen New England, Inc. (USGen), an indirect wholly
owned subsidiary of PG&E Corporation. The NEES companies received
$1.59 billion for the sale. Effective September 1, 1998, USGen
and TransCanada Power Marketing, Ltd. became the Company's
principal suppliers for meeting standard offer generation service
obligations.
The Massachusetts Settlement also provides that the costs of
NEP's generating investments and related contractual commitments
that were not recovered from the divestiture of those investments
("stranded costs") (the Company's share is 73 percent) are to be
recovered from distribution customers through CTCs, which will be
collected by the Company. Under the Massachusetts Settlement, the
recovery of NEP's stranded costs is divided into several
categories. Unrecovered costs associated with generating plants
(nuclear and nonnuclear) and most regulatory assets will be fully
recovered through the CTC by the end of 2000 and would earn a
return on equity of 9.4 percent. NEP's obligation relating to the
above-market cost of purchased power contracts and nuclear
decommissioning costs are recovered through the CTC over a longer
period of time, as such costs are actually incurred. NEP's CTC
rate was originally set at 2.8 cents per kilowatthour (kWh), and
subsequently reduced to approximately 1.5 cents or less per kWh
upon completion of the sale of NEP's nonnuclear generating
business as described above.
Accounting Implications
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. Statement of 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 thereby defer the income statement impact of these
<PAGE>
charges because they are expected to be included in future
customer charges.
Under existing ratemaking practices and provisions of the
Massachusetts Settlement, the Company will have the ability to
recover through rates its specific costs of providing ongoing
distribution services and stranded costs billed to it by NEP.
The Company believes these factors will allow it to continue to
apply FAS 71.
Currently, there is much regulatory and other movement toward
establishing performance-based rates. It is possible that the
adoption of performance-based rates, future regulatory rules, or
other circumstances could cause the application of FAS 71 to be
discontinued. This discontinuation would result in a noncash
write-off of previously established regulatory assets. In
addition, reserves for depreciation may also have to be increased
to comply with unregulated accounting practices.
The components of regulatory assets are as follows:
<TABLE>
<CAPTION>
At December 31, (In thousands) 1998 1997
- ------------------------------------------------------------------------------
<S> <C> <C>
Regulatory assets (liabilities) included
in current assets and liabilities:
Rate adjustment mechanisms $ 24,913 $ 2,960
-------- --------
Regulatory assets (liabilities) included
in deferred charges and other reserves
and deferred credits:
Unamortized losses on reacquired debt 6,424 6,939
Deferred FAS No. 106 costs 6,332 9,950
Deferred FAS No. 109 costs 6,307 8,275
Environmental response costs (12,874) (18,294)
Deferred storm costs 6,447 8,108
Other - 412
-------- --------
12,636 15,390
-------- --------
$ 37,549 $ 18,350
======== ========
</TABLE>
Note D - Commitments and Contingencies
1. Plant Expenditures:
The Company's utility plant expenditures are estimated to be
approximately $75 million in 1999. At December 31, 1998,
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
<PAGE>
with hazardous substances. A number of states, including
Massachusetts, have enacted similar laws.
The electric utility industry typically utilizes and/or
generates in its operations a range of potentially hazardous
products and by-products. NEES subsidiaries currently have in
place an internal environmental audit program and an external
waste disposal vendor audit and qualification program 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 United States Environmental Protection Agency
or the Massachusetts Department of Environmental Protection for
16 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. (Until the early 1970s, NEES was a combined electric
and gas holding company system.) The Company is aware of
approximately 35 such manufactured gas locations in
Massachusetts. The Company has been identified as a PRP at eight
of these manufactured gas locations, which are included in the 16
PRP sites discussed above. The Company has reported the
existence of all manufactured gas locations of which it is aware
to state environmental regulatory agencies. The Company is
engaged in various phases of investigation and remediation work
at 17 of the manufactured gas locations. The Company is
currently aware of other possible hazardous waste sites, and may
in the future become aware of additional sites, that it may be
held responsible for remediating.
In 1993, the Massachusetts Department of Public Utilities
approved a settlement agreement that provides for rate recovery
of remediation costs of former manufactured gas sites and certain
other hazardous waste sites located in Massachusetts. Under that
agreement, qualified costs related to these sites are paid out of
a special fund established on the Company's books. Rate-
recoverable contributions of $3 million, adjusted since 1993 for
inflation, are added annually to the fund along with interest,
lease payments, and any recoveries from insurance carriers and
other third parties. At December 31, 1998, the fund had a
balance of $47 million.
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. The NEES
Companies have recovered amounts from certain insurers, and,
where appropriate, the Company intends to seek recovery from
other insurers and from other PRPs, but it is uncertain whether,
and to what extent, such efforts will be successful. At December
31, 1998, the Company had total reserves for environmental
<PAGE>
response costs of $44 million which includes reserves established
in connection with the Company's hazardous waste fund referred to
above. 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. Absent unusual circumstances, 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 1998, 1997, and 1996 included the following
components:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
Year ended December 31 (thousands of dollars) 1998 1997 1996
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost - benefits earned during the period $ 4,760$ 4,474 $ 4,429
Plus (less):
Interest cost on projected benefit obligation 18,176 17,413 16,935
Return on plan assets at expected long-term rate (21,379)(19,961) (18,562)
Amortization of transition obligation (658) (660) (656)
Amortization of prior service cost 417 465 462
Amortization of net (gain)/loss 246 100 510
Curtailment (gain)/loss (465) - -
- -----------------------------------------------------------------------------------------
Benefit cost $ 1,097 $ 1,831$ 3,118
- -----------------------------------------------------------------------------------------
Special termination benefits not included above $21,670$ - $ -
- -----------------------------------------------------------------------------------------
</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>
- ---------------------------------------------------------------------------
(millions of dollars) 1998 1997
- ---------------------------------------------------------------------------
<S> <C> <C>
Benefit obligation $843 $819
Unrecognized prior service costs (6) (8)
Transition liability not yet recognized (amortized) (2) (4)
Additional minimum liability 7 4
- ---------------------------------------------------------------------------
842 811
- ---------------------------------------------------------------------------
Plan assets at fair value 837 834
Transition asset not yet recognized (amortized) (6) (8)
Net (gain)/loss not yet recognized (amortized) (92) (52)
- ---------------------------------------------------------------------------
739 774
- ---------------------------------------------------------------------------
Accrued pension/(prepaid) payments
recorded on books $103 $ 37
- ---------------------------------------------------------------------------
</TABLE>
The following provides a reconciliation of benefit obligations
and plan assets:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
(millions of dollars) 1998 1997
- -----------------------------------------------------------------------------
<S> <C> <C>
Changes in benefit obligation:
Benefit obligation at January 1 $819 $807
Service cost 14 15
Interest cost 55 53
Actuarial (gain)/loss (5) 59
Benefits paid from plan assets (94) (47)
Special termination benefits 64 -
Curtailment (11) -
Plan Amendments 1 -
Dispositions (Yankee Atomic) - (68)
- -----------------------------------------------------------------------------
Benefit obligation at December 31 $843 $819
- -----------------------------------------------------------------------------
Reconciliation of change in plan assets:
Fair value of plan assets at January 1 $834 $812
Actual return on plan assets during year 93 130
Company contributions 4 8
Benefits paid from plan assets (94) (47)
Dispositions (Yankee Atomic) - (69)
- -----------------------------------------------------------------------------
Fair value of plan assets at December 31 $837 $834
- -----------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Year ended December 31 1999 1998 1997 1996
- ----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Assumptions used to determine pension cost:
Discount rate 6.75% 6.75% 7.25% 7.25%
Average rate of increase in
future compensation level 4.13% 4.13% 4.13% 4.13%
Expected long-term rate of
return on assets 8.50% 8.50% 8.50% 8.50%
</TABLE>
The plans' funded status at December 31, 1998 and 1997 were
calculated using the assumed rates from 1999 and 1998,
respectively, and the 1983 Group Annuity Mortality table.
Plan assets are composed primarily of corporate equity, 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.
The Company's total cost of PBOPs for 1998, 1997, and 1996
included the following components:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
Year ended December 31 (thousands of dollars) 1998 1997 1996
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost - benefits earned during the period $ 2,202$ 2,164 $ 2,232
Plus (less):
Interest cost on projected benefit obligation 9,258 9,486 9,661
Return on plan assets at expected long-term rate (7,963) (6,871) (5,455)
Amortization of transition obligation 7,186 7,300 7,300
Amortization of prior service cost 30 30 30
Amortization of net (gain)/loss (3,103) (2,865) (2,063)
Curtailment (gain)/loss 4,909 - -
- -----------------------------------------------------------------------------------------
Benefit cost $ 12,519 $ 9,244$ 11,705
- -----------------------------------------------------------------------------------------
Special termination benefits not included above $ 1,982$ - $ -
- -----------------------------------------------------------------------------------------
</TABLE>
<PAGE>
The following table sets forth the Company's benefits earned
and the plans' funded status:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
At December 31 (millions of dollars) 1998 1997
- -----------------------------------------------------------------------------
<S> <C> <C>
Benefit obligation $149 $ 136
Unrecognized prior service costs - -
Transition liability not yet recognized (amortized) (98) (109)
- -----------------------------------------------------------------------------
51 27
- -----------------------------------------------------------------------------
Plan assets at fair value 106 98
Net (gain)/loss not yet recognized (amortized) (58) (60)
- -----------------------------------------------------------------------------
48 38
- -----------------------------------------------------------------------------
Accrued pension/(prepaid) payments recorded on books $ 3 $ (11)
- -----------------------------------------------------------------------------
</TABLE>
The following provides a reconciliation of benefit obligations
and plan assets:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
(millions of dollars) 1998 1997
- -----------------------------------------------------------------------------
<S> <C> <C>
Changes in benefit obligation:
Benefit obligation at January 1 $136 $144
Service cost 2 2
Interest cost 9 9
Actuarial (gain)/loss 2 (14)
Benefits paid from plan assets (6) (5)
Special termination benefits 2 -
Curtailment 4 -
- -----------------------------------------------------------------------------
Benefit obligation at December 31 $149 $136
- -----------------------------------------------------------------------------
Reconciliation of change in plan assets:
Fair value of plan assets at January 1 $ 98 $ 82
Actual return on plan assets during year 14 16
Company contributions - 5
Benefits paid from plan assets (6) (5)
- -----------------------------------------------------------------------------
Fair value of plan assets at December 31 $106 $ 98
- -----------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Year ended December 31 1999 1998 1997 1996
- ----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Assumptions used to determine postretirement benefit cost:
Discount rate 6.75% 6.75% 7.25% 7.25%
Expected long-term rate of
return on assets 8.25% 8.25% 8.25% 8.25%
Health care cost rate -
1996 to 1999 5.25% 5.25% 8.00% 8.00%
Health care cost rate -
2000 to 2004 5.25% 5.25% 6.25% 6.25%
Health care cost rate -
2005 and beyond 5.25% 5.25% 5.25% 5.25%
</TABLE>
<PAGE>
The plans' funded status at December 31, 1998 and 1997 were
calculated using the assumed rates in effect for 1999 and 1998,
respectively.
The assumptions used in the health care cost trends have a
significant effect on the amounts reported. A one percentage
point change in the assumed rates would increase the accumulated
postretirement benefit obligation (APBO) as of December 31, 1998
by approximately $18 million or decrease the APBO by
approximately $16 million, and change the net periodic cost for
1998 by approximately $2 million.
The Company generally funds the annual tax-deductible
contributions. Plan assets are invested in equity and debt
securities and cash equivalents.
3. Early Retirement and Special Severance Programs:
In 1998, the Company offered a voluntary early retirement
program to all employees who were at least 55 years old with 10
years of service. This program was part of an organizational
review with the goal of streamlining operations and reducing the
work force to reflect the sale of the nonnuclear generating
business. The early retirement offer was accepted by 292
employees. A special severance program was also utilized in 1998
for employees affected by the organizational restructuring, but
who were not eligible for, or did not accept, the early
retirement offer. The cost of these programs is being reimbursed
by NEP.
Note F - 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 through 1993.
Total income taxes in the statements of income are as follows:
<TABLE>
<CAPTION>
Year ended December 31, (In thousands) 1998 1997 1996
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Income taxes charged to operations $36,319 $42,454 $25,186
Income taxes charged (credited)
to "Other income" (870) (887) (2,010)
------- ------- -------
Total income taxes $35,449 $41,567 $23,176
======= ======= =======
</TABLE>
<PAGE>
Total income taxes, as shown above, consist of the following
components:
<TABLE>
<CAPTION>
Year ended December 31, (In thousands) 1998 1997 1996
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Current income taxes $13,169 $41,089 $31,026
Deferred income taxes 23,366 1,581 (6,732)
Investment tax credits, net (1,086) (1,103) (1,118)
------- ------- -------
Total income taxes $35,449 $41,567 $23,176
======= ======= =======
</TABLE>
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) 1998 1997 1996
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Federal income taxes $28,450 $34,053 $18,697
State income taxes 6,999 7,514 4,479
------- ------- -------
Total income taxes $35,449 $41,567 $23,176
======= ======= =======
</TABLE>
Consistent with rate-making policies of the Massachusetts
Department of Telecommunications and Energy, 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) 1998 1997 1996
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Computed tax at statutory rate $30,042 $37,564 $21,386
Increases (reductions) in tax resulting from:
Amortization of investment tax credits (1,086) (1,103) (1,118)
State income taxes, net of federal
income tax benefit 4,549 4,884 2,911
All other differences 1,944 222 (3)
------- ------- -------
Total income taxes $35,449 $41,567 $23,176
======= ======= =======
</TABLE>
The following table identifies the major components of total
deferred income taxes:
<PAGE>
<TABLE>
<CAPTION>
At December 31, (In millions) 1998 1997
- -----------------------------------------------------------------
<S> <C> <C>
Deferred tax asset:
Plant related $ 9 $ 9
Investment tax credits 6 6
All other 35 57
----- -----
50 72
----- -----
Deferred tax liability:
Plant related (231) (223)
All other (20) (28)
----- -----
(251) (251)
----- -----
Net deferred tax liability $(201) $(179)
===== =====
</TABLE>
Note G - Short-term Borrowings and Other Accrued Expenses
At December 31, 1998, the Company had $81 million of
short-term debt outstanding representing 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, 1998, the Company had lines of credit with
banks totaling $55 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, 1998. Fees are paid in lieu of
compensating balances on most lines of credit.
The components of other accrued expenses are as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------
At December 31, (In thousands) 1998 1997
- ---------------------------------------------------------------------------
<S> <C> <C>
Rate adjustment mechanisms $28,333 $ 4,227
Accrued wages and benefits 9,972 15,244
Other 2,321 2,610
------- -------
$40,626 $22,081
======= =======
</TABLE>
<PAGE>
Note H - Cumulative Preferred Stock
A summary of cumulative preferred stock at December 31, 1998
and 1997 is as follows (in thousands except for share data):
<TABLE>
<CAPTION>
Shares Dividends Call
Outstanding Amount Declared Price
- -----------------------------------------------------------------------------------
1998 1997 1998 1997 1998 1997
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$25 par value -
6.84% Series - 192,161 $ - $ 4,804 $246 $ 931
$100 par value -
4.44% Series 27,615 27,815 2,761 2,782 124 305 $104.068
4.76% Series 25,130 27,530 2,513 2,753 125 326 $103.730
6.99% Series 54,000 54,000 5,400 5,400 378 1,259 (a)
- -----------------------------------------------------------------------------------
Total 106,745 301,506 $10,674$15,739 $873 $2,821
===================================================================================
<FN>
(a) Callable on or after August 1, 2003 at $103.50.
</FN>
</TABLE>
The annual dividend requirement for total cumulative
preferred stock was $620,000 and $961,000 at the end of the 1998
and 1997, respectively.
There are no mandatory redemption provisions on the Company's
cumulative preferred stock.
In 1998, the Company repurchased or redeemed preferred stock
with an aggregate par value of $5.1 million. Total premiums paid
of $0.2 million in connection with the preferred stock repurchase
and redemption were charged to retained earnings.
<PAGE>
Note I - Long-term Debt
A summary of long-term debt is as follows:
<TABLE>
<CAPTION>
At December 31, (In thousands)
- ---------------------------------------------------------------------------
Series Rate % Maturity 1998 1997
===========================================================================
<S> <C> <C> <C> <C>
First Mortgage Bonds:
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
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 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 10,000
U(95-2) 8.220 January 24, 2005 10,000 10,000
U(95-7) 7.920 March 3, 2005 9,000 9,000
V(95-1) 6.720 June 23, 2005 10,000 10,000
V(96-1) 6.780 November 20, 2006 20,000 20,000
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
V(98-3) 5.720 November 24, 2008 25,000 -
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
T(93-3) 7.980 January 27, 2023 - 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 3,000
V(95-2) 7.630 June 27, 2025 10,000 10,000
V(95-3) 7.600 September 12, 2025 10,000 10,000
V(95-4) 7.630 September 12, 2025 10,000 10,000
V(97-1) 7.390 October 1, 2027 15,000 15,000
V(98-1) 6.910 January 12, 2028 20,000 -
V(98-2) 6.940 January 12, 2028 5,000 -
Unamortized discounts (1,671) (1,613)
-------- --------
Total long-term debt $368,329 $358,387
======== ========
Long-term debt due in one year 15,000 20,000
-------- --------
$353,329 $338,387
======== ========
</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.
<PAGE>
The Company will make cash payments of $15,000,000 in 1999,
$21,000,000 in 2000, $25,000,000 in 2002, $35,000,000 in 2003 and
$274,000,000 thereafter, to retire maturing mortgage bonds.
At December 31, 1998, the Company's long-term debt had a
carrying value of approximately $370,000,000 and had a fair value
of approximately $403,000,000. 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 J - 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, 1998 was 57 percent of total capitalization, and accordingly,
none of the Company's retained earnings at December 31, 1998 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, 1998 were restricted as to dividends on
common stock.
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 1998, 1997, or 1996. Taxes, other than income
taxes, charged to operating expenses are set forth by classes as
follows:
<TABLE>
<CAPTION>
Year ended December 31, (In thousands) 1998 1997 1996
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
Municipal property taxes $30,561 $23,796 $23,304
Federal and state payroll
and other taxes 7,422 7,347 7,255
------- ------- -------
$37,983 $31,143 $30,559
======= ======= =======
</TABLE>
<PAGE>
New England Power Service Company, an affiliated service
company operating pursuant to the provisions of Section 13 of the
1935 Act, furnished services to the Company at the cost of such
services. These costs amounted to $88,630,000, $73,145,000, and
$67,756,000, including capitalized construction costs of
$8,909,000, $7,907,000, and $9,330,000 for each of the years
1998, 1997, and 1996, respectively.
<TABLE>
<CAPTION>
Selected Financial Information
Year ended December 31, (In millions) 1998 1997 1996 1995 1994
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operating revenue $1,490 $1,624 $1,539 $1,506 $1,482
Net income $ 50 $ 66 $ 38 $ 29 $ 35
Total assets $1,455 $1,408 $1,390 $1,343 $1,296
Capitalization:
Common equity $ 508 $ 500 $ 427 $ 412 $ 384
Cumulative preferred stock 11 16 50 50 50
Long-term debt 353 339 343 353 266
------ ------ ------ ------ ------
Total capitalization $ 872 $ 855 $ 820 $ 815 $ 700
Preferred dividends declared $ 1 $ 3 $ 3 $ 3 $ 3
Common dividends declared $ 42 $ 24 $ 19 $ 13 $ 30
</TABLE>
<TABLE>
<CAPTION>
Selected Quarterly Financial Information (Unaudited)
- ---------------------------------------------------------------------------
First Second Third Fourth
(In thousands) Quarter Quarter Quarter Quarter
===========================================================================
<S> <C> <C> <C> <C>
1998
Operating revenue $396,714 $361,889 $380,409 $351,405
Operating income $ 22,843 $ 18,488 $ 20,350 $ 25,963
Net income $ 11,811 $ 9,612 $ 11,920 $ 17,043
1997
Operating revenue $405,518 $369,542 $404,990 $444,035
Operating income $ 24,241 $ 19,697 $ 17,621 $ 40,132
Net income $ 13,636 $ 10,353 $ 8,041 $ 33,728 *
<FN>
* See "Overview of Financial Results" and "Operating Revenue" sections of
Financial Review for a discussion of factors contributing to the fourth
quarter increase in net income.
</FN>
</TABLE>
Per share data is not relevant because the Company's common
stock is wholly owned by New England Electric System.
<PAGE>
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, 1998 will be available on or about April 1,
1999, upon request at no charge by contacting: Merrill IR Edge,
33 Boston Post Road, Suite 270, Marlborough, MA 01752,
Telephone: 508-786-1907, Fax: 508-786-1915, E-mail:
[email protected].
<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, Robert K. Wulff, 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, 1998, 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 17th day of March, 1999.
s/Cheryl A. LaFleur s/Christopher E. Root
_________________________ _________________________
Cheryl A. LaFleur Christopher E. Root
s/Robert L. McCabe s/Nancy H. Sala
_________________________ _________________________
Robert L. McCabe Nancy H. Sala
s/Lydia M. Pastuszek s/Richard P. Sergel
_________________________ _________________________
Lydia M. Pastuszek Richard P. Sergel
s/Lawrence J. Reilly
_________________________
Lawrence J. Reilly
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<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.
</LEGEND>
<SUBSIDIARY>
<NUMBER> 2
<CIK> 0000063073
<NAME> MASSACHUSETTS ELECTRIC COMPANY
<MULTIPLIER> 1,000
<S> <C>
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<PERIOD-TYPE> 12-MOS
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 1,143,169
<OTHER-PROPERTY-AND-INVEST> 0
<TOTAL-CURRENT-ASSETS> 270,158
<TOTAL-DEFERRED-CHARGES> 41,235 <F1>
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 1,454,562
<COMMON> 59,953
<CAPITAL-SURPLUS-PAID-IN> 239,440
<RETAINED-EARNINGS> 208,537
<TOTAL-COMMON-STOCKHOLDERS-EQ> 508,203 <F3>
0
10,674
<LONG-TERM-DEBT-NET> 353,329
<SHORT-TERM-NOTES> 80,725
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 15,000
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 486,631
<TOT-CAPITALIZATION-AND-LIAB> 1,454,562
<GROSS-OPERATING-REVENUE> 1,490,417
<INCOME-TAX-EXPENSE> 36,319
<OTHER-OPERATING-EXPENSES> 1,366,454
<TOTAL-OPERATING-EXPENSES> 1,402,773
<OPERATING-INCOME-LOSS> 87,644
<OTHER-INCOME-NET> (3,510)
<INCOME-BEFORE-INTEREST-EXPEN> 84,134
<TOTAL-INTEREST-EXPENSE> 33,748
<NET-INCOME> 50,386
873
<EARNINGS-AVAILABLE-FOR-COMM> 49,513
<COMMON-STOCK-DIVIDENDS> 41,967
<TOTAL-INTEREST-ON-BONDS> 27,073
<CASH-FLOW-OPERATIONS> 73,251
<EPS-PRIMARY> 0 <F2>
<EPS-DILUTED> 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.
<F3> Total common stockholders equity includes the unrealized gain on
securities.
</FN>
<PAGE>
<TABLE>
<CAPTION>
THE NARRAGANSETT ELECTRIC COMPANY
Computation of Ratio of Earnings to Fixed Charges
(SEC Coverage)
(Unaudited)
Years Ended December 31,
------------------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
(In Thousands)
<S> <C> <C> <C> <C> <C>
Net Income $32,253 $27,932 $22,954 $23,910 $14,589
- ----------
Add income taxes and fixed charges
- ----------------------------------
Current federal income taxes 19,312 14,185 6,918 7,212 1,020
Deferred federal income taxes (2,212) 79 4,675 3,512 3,930
Investment tax credits - net (489) (495) (498) (503) (508)
Interest on long-term debt 14,925 16,179 17,205 16,627 14,334
Interest on short-term debt and other 3,615 2,475 2,883 3,663 2,897
------- ------- ------- ------- -------
Net earnings available for fixed charges $67,404 $60,355 $54,137 $54,421 $36,262
------- ------- ------- ------- -------
Fixed charges:
Interest on long-term debt $14,925 $16,179 $17,205 $16,627 $14,334
Interest on short-term debt and other 3,615 2,475 2,883 3,663 2,897
------- ------- ------- ------- -------
Total fixed charges $18,540 $18,654 $20,088 $20,290 $17,231
======= ======= ======= ======= =======
Ratio of earnings to fixed charges 3.64 3.24 2.69 2.68 2.10
- ----------------------------------
</TABLE>
<PAGE>
Annual Report 1998
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 January 1, 1999)
Richard W. Frost
Vice President of the Company and of certain affiliates
Cheryl A. LaFleur
Senior Vice President, General Counsel, and Secretary of New
England Electric System
Robert L. McCabe
Chairman of the Company and of certain affiliates
Lawrence J. Reilly
President and Chief Executive Officer of the Company and of
certain affiliates
Michael F. Ryan
Vice President of the Company
Richard P. Sergel
President and Chief Executive Officer of New England Electric
System
Ronald L. Thomas
Manager of Labor Relations of the Company and of certain
affiliates
Officers
(As of January 1, 1999)
Robert L. McCabe
Chairman of the Company and of certain affiliates
Lawrence J. Reilly
President and Chief Executive Officer of the Company and of
certain affiliates
Lydia M. Pastuszek
Senior Vice President of the Company and of certain affiliates
Christopher E. Root
Senior Vice President of the Company and of certain affiliates
Richard W. Frost
Vice President of the Company and of certain affiliates
<PAGE>
Michael E. Jesanis
Vice President of the Company and of certain affiliates, and
Senior Vice President and Chief Financial Officer of New England
Electric System
Richard Nadeau
Vice President of the Company
Michael F. Ryan
Vice President of the Company
Peter T. Zschokke
Vice President of the Company
Ronald T. Gerwatowski
Secretary and General Counsel of the Company
John G. Cochrane
Treasurer of the Company and of certain affiliates, Vice
President of an affiliate, Assistant Treasurer of an affiliate
and Treasurer of New England Electric System
Robert King Wulff
Assistant Secretary of the Company and Clerk, Assistant Clerk or
Secretary of certain affiliates
Howard W. McDowell
Assistant Treasurer and Controller of the Company and of certain
affiliates, Senior Vice President of an affiliate, Treasurer or
Controller of certain affiliates and Assistant Secretary of an
affiliate
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>
The Narragansett Electric Company
The Narragansett Electric Company (the Company) is a wholly
owned subsidiary of New England Electric System (NEES) operating
in Rhode Island. The Company's business is the distribution of
electricity at retail. Electric service is provided to
approximately 335,000 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, silverware, and chemical
products. In addition, a broad range of professional, banking,
medical, and educational institutions is served. As described in
the "Industry Restructuring" section of Financial Review, all
customers gained the right to choose their power supplier
effective January 1, 1998.
The properties of the Company include an integrated system of
transmission and distribution lines and substations.
In September 1998, NEES completed the divestiture of
substantially all of its nonnuclear generating business,
including the Company's 10 percent share of the Manchester Street
generating station. For further information on industry
restructuring and the divestiture of NEES' nonnuclear generating
business, refer to the "Industry Restructuring" section of
Financial Review.
In December 1998, NEES agreed to a merger with The National
Grid Group plc, whose principal subsidiary operates the
transmission system in England and Wales.
In February 1999, NEES entered into an agreement to acquire
Eastern Utilities Associates, a utility holding company serving
approximately 300,000 customers in Massachusetts and Rhode
Island. For further information on these proposed mergers, refer
to the "Merger Agreements" sections of Financial Review.
<PAGE>
Report of Independent Accountants
The Narragansett Electric Company, Providence, Rhode Island:
In our opinion, the accompanying balance sheets and the
related statements of income, of retained earnings, and of cash
flows present fairly, in all material respects, the financial
position of The Narragansett Electric Company (the Company), a
wholly owned subsidiary of New England Electric System, at
December 31, 1998 and 1997, and the results of its operations and
its cash flows for each of the three years in the period ended
December 31, 1998 in conformity with generally accepted
accounting principles. 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 of these statements in accordance
with generally accepted auditing standards which 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, assessing the accounting principles used and
significant estimates made by management, and evaluating the
overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed
above.
Boston, Massachusetts PricewaterhouseCoopers LLP
February 23, 1999
<PAGE>
The Narragansett Electric Company
Financial Review
Merger Agreement with The National Grid Group plc
On December 11, 1998, New England Electric System (NEES), The
National Grid Group plc (National Grid), and NGG Holdings LLC
(Holdings), a directly and indirectly wholly owned subsidiary of
National Grid, entered into an Agreement and Plan of Merger
(Merger Agreement). Pursuant to the Merger Agreement, Holdings
will merge with and into NEES (the Merger), with NEES becoming a
wholly owned subsidiary of National Grid. The Narragansett
Electric Company (the Company) will remain a wholly owned
subsidiary of NEES.
The Merger is subject to approval by a majority vote of NEES
shareholders as well as National Grid shareholder approval. In
addition, the Merger is subject to a number of regulatory and
other approvals and consents, including approvals by the
Securities and Exchange Commission (SEC), under the Public
Utility Holding Company Act of 1935 (1935 Act), Federal Energy
Regulatory Commission (FERC), and Nuclear Regulatory Commission
(NRC), support or approval from the states in which NEES
subsidiaries operate, and clearance under both the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended,
and the Exon-Florio Provisions of the Omnibus Trade and
Competitiveness Act of 1988. National Grid has obtained
governmental clearance in the United Kingdom for the Merger. The
Merger is expected to be completed by early 2000.
Merger Agreement with Eastern Utilities Associates
On February 1, 1999, NEES, Eastern Utilities Associates (EUA),
and Research Drive LLC (Research Drive), a directly and
indirectly wholly owned subsidiary of NEES, entered into an
Agreement and Plan of Merger (EUA Agreement). Pursuant to the EUA
Agreement, Research Drive will merge with and into EUA, with EUA
becoming a wholly owned subsidiary of NEES.
The acquisition of EUA is subject to approval by a two-thirds
vote of EUA shareholders. In addition, the acquisition is subject
to a number of regulatory and other approvals and consents,
including approvals by the SEC, under the 1935 Act, FERC, and
NRC, support or approval from the states in which EUA
subsidiaries operate, and clearance under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended. The EUA
acquisition is expected to be completed by early 2000. Following
the acquisition of EUA, the subsidiaries of NEES and EUA whose
operations are similar are expected to be consolidated.
<PAGE>
Industry Restructuring
Pursuant to legislation enacted in Rhode Island and settlement
agreements approved by state and federal regulators, all
customers were provided the right to purchase electricity from
the power supplier of their choice effective January 1, 1998.
Customers who do not choose a power supplier are able, for a
period of time, to continue to purchase their electricity from
the Company at a transition rate ("standard offer generation
service") which, when combined with delivery charges, results in
a total rate reduction of 8 percent compared with the rates that
had been in effect prior to the introduction of customer choice.
Pursuant to the Rhode Island statute, the total rate for
customers who do not choose a power supplier is capped through
2009 at a level equal to the 1996 rate adjusted upward for 80
percent of inflation and for other factors beyond the control of
the Company.
On September 1, 1998, the Company and New England Power
Company (NEP) (collectively, the Sellers) completed the sale of
substantially all of their nonnuclear generating business, all of
which had a book value of approximately $1.1 billion, to USGen
New England Inc. (USGen), an indirect wholly owned subsidiary of
PG&E Corporation. Included in the sale was the Company's 10
percent share of Manchester Street Station. The Sellers received
$1.59 billion for the sale, of which the Company received
approximately $40 million equal to the net book value of its
assets included in the sale. Effective September 1, 1998, USGen
and TransCanada Power Marketing, Ltd. (TCPM) became the Company's
principal suppliers for meeting standard offer generation service
obligations. However, NEP remained obligated for standard offer
service for new customer load in Rhode Island.
The Rhode Island Settlement also provides that the costs of
NEP's generating investments and related contractual commitments
that were not recovered from the divestiture of those investments
("stranded costs") (the Company's share is 22 percent) are to be
recovered from distribution customers through contract
termination charges (CTC), which will be collected by the
Company. Under the Rhode Island Settlement, the recovery of NEP's
stranded costs is divided into several categories. Unrecovered
costs associated with generating plants (nuclear and nonnuclear)
and most regulatory assets will be fully recovered through the
CTC by the end of 2000 and would earn a return on equity of 11
percent. NEP's obligation relating to the above-market cost of
purchased power contracts and nuclear decommissioning costs are
recovered through the CTC over a longer period of time, as such
costs are actually incurred. NEP's CTC rate was originally set at
2.8 cents per kilowatthour (kWh), and subsequently reduced to
approximately 1.5 cents or less per kWh upon completion of the
sale of NEP's nonnuclear generating business as described above.
<PAGE>
Accounting Implications
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. Statement of 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 thereby defer the income statement impact of these
charges because they are expected to be included in future
customer charges. At December 31, 1998, the Company had
approximately $16 million in net regulatory assets.
The Company believes the Rhode Island Settlement and statute
will enable the Company to recover through rates its specific
costs of providing ongoing distribution services and stranded
costs billed to it by NEP. The Company believes these factors
will allow it to continue to apply FAS 71.
Currently, there is much regulatory and other movement toward
establishing performance-based rates. It is possible that the
adoption of performance-based rates, future regulatory rules, or
other circumstances could cause the application of FAS 71 to be
discontinued. This discontinuation would result in a noncash
write-off of previously established regulatory assets. In
addition, reserves for depreciation may also have to be increased
to comply with unregulated accounting practices.
Impact of Restructuring on Distribution Business
Under the Rhode Island statute, the Company increased
distribution rates by approximately $7 million and $11 million in
1998 and 1997, respectively. The statute does not limit
Narragansett Electric's ability to seek approval from state
regulators to increase rates in the future.
Overview of Financial Results
Net income in 1998 and 1997 increased $4 million and $5
million, respectively, from the prior year. Both increases were
primarily due to the previously mentioned distribution rate
increases which went into effect in January of each year and
increases in kWh deliveries. The increase in 1998 earnings was
partially offset by an underrecovery of transmission wheeling
costs of approximately $4 million.
Operating Revenue
Operating revenue decreased $44 million in 1998 compared with
1997, reflecting lower purchased power related rates pursuant to
Rhode Island legislation, a change in true-up mechanisms and a
<PAGE>
decrease in postretirement benefits other than pensions (PBOPs).
Rates were reduced by 8 percent effective January 1998. The
revenues that the Company is billing related to purchased power
costs both prior to and subsequent to the September 1 sale are
subject to fully reconciling true-up mechanisms, as are CTC
charges from NEP. However, transmission wheeling costs are not
subject to a true-up mechanism until 1999, and the Company
incurred an underrecovery of such costs in 1998. The decrease in
PBOPs is due to lower costs being incurred as well as refunds
made by the Company in January 1998 of past overrecoveries of
PBOP costs, for which reserves had previously been established.
The decrease in 1998 operating revenue was partially offset by
the $7 million distribution rate increase mentioned above and a
2.9 percent increase in kWh deliveries. The increase in kWh
deliveries reflects a strong economy. For the year as a whole,
weather had a negative impact on 1998 deliveries when compared to
1997.
Operating revenue increased $17 million in 1997 compared with
1996, reflecting an $11 million increase in base rates effective
January 1, 1997, increased fuel recovery (see 1997 fuel costs
discussion in the "Operating Expenses" section), and a 1.3
percent increase in kWh deliveries.
The Company received approval from the Rhode Island Public
Utilities Commission (RIPUC) to recover demand-side management
(DSM) program expenditures in rates on a current basis through
1998. These expenditures were $11 million, $10 million, and $10
million in 1998, 1997, and 1996, respectively. The Company has
also received approval from the RIPUC to recover its 1999 DSM
program expenditures. Since 1990, the Company has been allowed to
earn incentives based on the results of its DSM programs and has
recorded before-tax incentives of $0.3 million, $0.3 million, and
$0.2 million in 1998, 1997, and 1996, respectively.
Operating Expenses
Operating expenses for 1998 decreased $47 million compared
with 1997 primarily due to reduced purchased electric energy
expenses, partially offset by increased operation and maintenance
costs. The decrease in purchased electric energy is principally
due to reduced rates billed to the Company by suppliers.
Historically, the Company purchased all of its electrical
requirements from NEP under the provisions of an all-requirements
contract at NEP's standard resale rate. Effective January 1,
1998, the contract was amended, terminating the all-requirements
provision of the contract. The Company's customers also gained
the right to choose their power supplier. NEP continued to
supply power to the Company, at lower rates, for customers that
continued to take power from the Company, until September 1,
1998, when USGen and TCPM became the Company's principal
wholesale power suppliers. This decrease in purchased electric
<PAGE>
energy was partially offset by a reduction in the level of
reimbursements received from NEP for costs associated with the
Company's 10 percent ownership of the Manchester Street
generating station as a result of the sale of this facility in
September 1998. All of the output of this generating unit had
been previously supplied to NEP.
The increase in other operation and maintenance expenses in
1998 is primarily due to increased transmission costs of
approximately $23 million which, as of January 1, 1998 are billed
separately and recorded as operation and maintenance expense
instead of as a component of purchased power expense. The
Company also experienced increased costs associated with year
2000 (Y2K) computer readiness. The increases were partially
offset by decreased charges related to postretirement benefits
other than pensions and the effect of workforce reductions during
the year.
Operating expenses for 1997 increased $13 million compared
with 1996 primarily due to increased purchased electric energy
expenses and increased other operation and maintenance expenses.
The increase in purchased electric energy expenses was due to
increased replacement power fuel costs due to reduced generation
from NEP's partially owned nuclear units and reduced
reimbursements received from NEP for dismantlement costs
associated with the previously retired South Street generating
facility. These replacement power costs were passed on to the
Company through NEP's fuel clause. The increase in other
operation and maintenance expenses was primarily due to increased
customer accounts expenses, transmission and distribution system
related expenses, and increased general and administrative
expenses.
Hazardous Waste
The electric utility industry typically utilizes and/or
generates in its operations a range of potentially hazardous
products and by-products. The Company has been named as a
potentially responsible party by either federal or state
environmental regulatory agencies for three sites 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. The Company is aware of approximately five sites on
which gas was manufactured or manufactured gas was stored that
were owned either by the Company or by its predecessor companies.
A more detailed discussion of potential hazardous waste
liabilities is contained in Note D-2 of the Notes to the
Financial Statements. Predicting the potential costs to
investigate and remediate hazardous waste sites continues to be
difficult. The Company believes that hazardous waste liabilities
<PAGE>
for all sites of which it is aware are not material to its
financial position.
Year 2000 Readiness Disclosure
Over the next year, most companies will face a potentially
serious information systems (computer) problem because many
software applications and operational programs written in the
past may not properly recognize calendar dates associated with
Y2K. This could cause computers to either shut down or lead to
incorrect calculations.
During 1996, the NEES companies began the process of
identifying the changes required to their computer software and
hardware to mitigate Y2K issues. The NEES companies established a
Y2K Project team to manage these issues, which has consisted of
as many as 70 full-time equivalent staff at some points in time,
primarily external consultants being overseen by an internal Y2K
management team. To facilitate the Y2K Project, NEES entered
into contracts with Keane, Inc. and International Business
Machines Corporation to provide personnel support to the Y2K
Project. Through December 31, 1998, the NEES companies have
spent approximately $14 million with these vendors, which is
included in the cost figures disclosed below. The Y2K Project
team reports project progress to a Y2K Executive Oversight
Committee each month. The team also makes regular reports to
NEES' Board of Directors and its Audit Committee. The NEES
companies have separated their Y2K Project into four parts as
shown below, along with the estimated completion dates for each
part.
<TABLE>
<CAPTION>
Substantial Contingency Testing
Completion Documentation,
of Critical and Clean
Category Specific Example Systems Management
- -------- ---------------- ----------- -------------------
<S> <C> <C> <C>
Mainframe/Midrange Accounting/Customer Completed Throughout 1999
systems service integrated
systems
Desktop systems Personal computers/ June 30, 1999 Throughout 1999
Department software/
Networks
Operational/ Dispatching systems/ June 30, 1999 Throughout 1999
Embedded Transmission and
systems Distribution systems/
Telephone systems
External issues Electronic Data June 30, 1999 Throughout 1999
Interchange/Vendor
communications
</TABLE>
<PAGE>
The NEES companies are using a three-phase approach in
coordinating their Y2K Project for system-related issues: (I)
Assessment and Inventory, (II) Pilot Testing, and (III)
Renovation, Conversion, or Replacement of Application and
Operating Software Packages and Testing. Phase I, which was an
initial assessment of all systems and devices for potential Y2K
defects, was completed in mid-1997. These assessments included,
but were not limited to, the review of program code for mainframe
and midrange systems, analysis of personal computer hardware and
network equipment for desktop systems, reaching consensus with
key "data exchange" partners regarding the approach and execution
of plans to address Y2K-related issues, and coordination with
other New England Power Pool (NEPOOL) member utilities related to
operational systems, such as transmission systems. Phase II,
which consisted of renovation pilots for a cross-section of
systems in order to facilitate the establishment of templates for
Phase III work, was completed in late 1997. Phase III, which is
currently ongoing, requires the renovation, conversion, or
replacement of the remaining applications and operating software
packages.
Critical systems include major operational and informational
systems such as the NEES companies' financial-related and
customer information systems. These mission critical systems
were first addressed at an individual component level, and then,
upon satisfactory completion of that testing, reviewed at an
integrated level, during which the Y2K Project team tested for
Y2K problems which could be caused by various system interfaces.
Additionally, contingency plans are being formulated for mission
critical systems, as described below.
The overall Y2K Project has also been designed such that Y2K-
related work performed by external consultants is reviewed by
NEES employees, and vice-versa. The Y2K Project team management
periodically benchmarks its progress against the recommended
progress schedule documented by the North American Electric
Reliability Council (NERC), and is currently ahead of the
recommended schedule.
The NEES companies have also implemented a formalized
communication process with third parties to give and receive
information related to their progress in remediating their own
Y2K issues, and to communicate the NEES companies' progress in
addressing the Y2K issue. These third parties include major
customers, suppliers, and significant businesses with which the
NEES companies have data links (such as banks). The NEES
companies have identified standard offer generation service
providers, telecommunications companies, and the Independent
System Operator-New England (ISO New England) as critical to
business operations. The NEES companies have been in contact
with all of these parties regarding the progress of their Y2K
remediation efforts, and will continue to monitor their ongoing
<PAGE>
remediation efforts through continued communications. The NEES
companies cannot predict the outcome of other companies'
remediation efforts. Therefore, contingency plans are being
developed, as described below.
The NEES companies believe total costs associated with making
the necessary modifications to all centralized and noncentralized
systems will be approximately $28 million. These costs include
the replacement of approximately one thousand desktop computers.
In addition, the NEES companies are spending $4 million related
to the replacement of the human resources and payroll system, in
part due to the Y2K issue. To date, total Y2K-related costs of
$25 million have been incurred, of which $3 million has been
capitalized. The NEES companies continually review their cost
estimates based upon the overall Y2K Project status, and update
these estimates as warranted.
The NEES companies are in the process of developing Y2K
contingency plans to allow for critical information and operating
systems to function from January 1, 2000 forward. If required,
these plans are intended to address both internal risks as well
as potential external risks related to suppliers and customers.
Part of the contingency planning for accounting and desktop
systems will include taking extensive data back-ups prior to
year-end closing. For operational systems, the NEES companies
have in place an overall disaster recovery program, which already
includes periodic disaster simulation training (for outages due
to severe weather, for instance). As part of Y2K contingency
planning, the NEES companies will review their disaster recovery
plans, modifying them for Y2K-specific issues, such as a
potential loss of telecommunication services. The NEES companies
expect that these contingency plans will be in place by the third
quarter of 1999.
Interregional and regional contingency plans are being
formulated that address emergency scenarios due to the
interconnection of utility systems throughout the United States.
At a regional level, the NEES companies are participating and
cooperating with NEPOOL and the Independent System Operator of
the NEPOOL area (ISO New England). Overall regional activities,
including those of NEPOOL and ISO New England, will be
coordinated by the Northeast Power Coordinating Council, whose
activities will be incorporated into the interregional
coordinating effort by NERC. The target for the completion of
this planning process is mid-1999. The NEES companies have noted
that the Y2K coordination efforts by ISO New England began in May
1998, resulting in a demanding and difficult schedule to attain
regional and interregional target dates.
The NEES companies believe the worst case scenario with a
reasonable chance of occurring is temporary disruptions of
electric service. This scenario could result from a failure to
<PAGE>
adequately remediate Y2K problems at NEES company facilities or
could be caused by the inability of entities, such as ISO New
England, to maintain the short-term reliability of various
generators and/or transmission lines on a regional or
interregional basis. The NEES companies believe that the
contingency plans being developed both internally and on a
regional level, as described above, should substantially mitigate
the risks of this potential scenario. In the event that a
short-term disruption in service occurs, NEES does not expect
that it would have a material impact on its financial position
and results of operations.
While the NEES companies believe that their overall Y2K
program will satisfactorily address all critical operational and
system-related issues, significant risks remain. These risks
include, but are not limited to, the Y2K readiness of third
parties, including other utilities and power suppliers, cost and
timeline estimates of remaining Y2K mitigation efforts, and the
overall accuracy of assumptions made related to future events in
the development of the Y2K mitigation effort.
New Accounting Standards
In 1997, the Financial Accounting Standards Board (FASB)
released Statement of Financial Accounting Standards No. 130,
Reporting of Comprehensive Income (FAS 130), which was adopted by
the Company in the first quarter of 1998. FAS 130 establishes
standards for reporting comprehensive income and its components.
Comprehensive income for the period is equal to net income plus
"other comprehensive income," which for the Company, consists of
the change in unrealized holding gains on available-for-sale
securities during the period. Other comprehensive income was
immaterial for the Company for the year ended December 31, 1998.
Also in 1997, the FASB released Statement of Financial
Accounting Standards No. 131, Disclosure about Segments of an
Enterprise and Related Information (FAS 131), which went into
effect in 1998. FAS 131 requires the reporting in financial
statements of certain new additional information about operating
segments of a business. FAS 131 does not currently impact the
Company's reporting requirements.
In February 1998, the FASB issued Statement of Financial
Accounting Standards No. 132, Employers' Disclosures about
Pensions and Other Postretirement Benefits (FAS 132), which
revises disclosure requirements for pension and other
postretirement benefits. The Company has adopted FAS 132 in its
financial statements for the year ended December 31, 1998.
The adoption of FAS 130, FAS 131, and FAS 132 had no impact on
the Company's operating results, financial position, or cash
flows.
<PAGE>
In June 1998, the FASB issued Statement of Financial
Accounting Standards No. 133, Accounting for Derivative
Instruments and Hedging Activities (FAS 133), which establishes
accounting and reporting standards for such instruments. FAS 133
is effective for fiscal years beginning after June 15, 1999.
Currently, the Company has no such derivative holdings.
Risk Management
The Company's major financial market risk exposure is changing
interest rates. Changing interest rates will affect the fair
value of fixed rate debt. The table below presents the average
rate on the Company's long-term debt at December 31, 1998, the
amounts maturing during each of the next five years, and the fair
value of the Company's debt at December 31, 1998.
<TABLE>
<CAPTION>
Fixed Long-Term
---------------
<S> <C>
Weighted Average Rates 7.67%
Maturities (millions of dollars)
1999 $ 8
2000 15
2001 -
2002 15
2003 18
Cumulative thereafter 122
----
Total $178
----
Fair Value $195
----
</TABLE>
Utility Plant Expenditures and Financing
Cash expenditures for utility plant totaled $22 million in
1998. The funds necessary for utility plant expenditures during
1998 were primarily provided by increased short-term debt and
proceeds from the sale of the nonnuclear generating business.
Cash expenditures for utility plant for 1999 are estimated to
be approximately $25 million. Internally generated funds are
expected to fully meet capital expenditure requirements in 1999.
In 1998, the Company retired $12 million of long-term debt.
<PAGE>
In 1998, the Company repurchased preferred stock with an
aggregate par value of $5.6 million. Total premiums paid of $1.2
million in connection with the preferred stock redemption were
charged to retained earnings.
At December 31, 1998, the Company had $27 million of short-
term debt outstanding representing borrowings from affiliates.
The Company's ability to issue short-term debt is limited by the
need to obtain regulatory approval from the SEC under the 1935
Act. Approval has been granted for up to $100 million. As of
December 31, 1998, the Company had lines of credit with banks
totaling $41 million. There were no borrowings under these lines
of credit at December 31, 1998.
<PAGE>
The Narragansett Electric Company
Statements of Income
<TABLE>
<CAPTION>
Year ended December 31, (In thousands) 1998 1997 1996
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Operating revenue $475,654 $520,038 $503,585
-------- -------- --------
Operating expenses:
Fuel for generation and purchased
electric energy (Note A):
Contract termination charges from New
England Power Company, an affiliate 117,756 - -
Other 122,351 309,430 297,060
Other operation 95,792 74,375 71,625
Maintenance 11,997 12,447 13,009
Depreciation 22,759 22,957 27,899
Taxes, other than federal income taxes 38,915 39,366 38,530
Federal income taxes 16,177 14,247 11,951
-------- -------- --------
Total operating expenses 425,747 472,822 460,074
-------- -------- --------
Operating income 49,907 47,216 43,511
-------- -------- --------
Other income:
Other income (expense), net 801 (750) (732)
-------- -------- --------
Operating and other income 50,708 46,466 42,779
-------- -------- --------
Interest:
Interest on long-term debt 14,925 16,179 17,205
Other interest 3,615 2,475 2,883
Allowance for borrowed funds used
during construction credit (85) (120) (263)
-------- -------- --------
Total interest 18,455 18,534 19,825
-------- -------- --------
Net income $ 32,253 $ 27,932 $ 22,954
======== ======== ========
Statements of Retained Earnings
Year ended December 31, (In thousands) 1998 1997 1996
- -----------------------------------------------------------------------------
Retained earnings at beginning of year $129,567 $119,978 $108,227
Net income 32,253 27,932 22,954
Dividends declared on cumulative
preferred stock (567) (1,955) (2,143)
Dividends declared on common stock,
$65.00, $13.00, and $8.00 per share,
respectively (73,612) (14,722) (9,060)
Premium on redemption of preferred stock (1,176) (1,666) -
-------- -------- --------
Retained earnings at end of year $ 86,465 $129,567 $119,978
======== ======== ========
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) 1998 1997
- -----------------------------------------------------------------------------
<S> <C> <C>
Assets
Utility plant, at original cost $732,077 $760,923
Less accumulated provisions for depreciation 209,155 198,551
-------- --------
522,922 562,372
Construction work in progress 2,566 5,739
-------- --------
Net utility plant 525,488 568,111
-------- --------
Current assets:
Cash 2,957 3,122
Accounts receivable:
From electric energy services 53,727 54,109
Other (including $4,444 and $1,112
from affiliates) 5,575 2,571
Less reserves for doubtful accounts 4,240 4,707
-------- --------
55,062 51,973
Unbilled revenues (Note A-3) 20,752 15,997
Fuel, materials, and supplies, at average cost 3,494 4,165
Prepaid and other current assets 739 14,202
-------- --------
Total current assets 83,004 89,459
-------- --------
Deferred charges and other assets (Note C) 55,628 55,285
-------- --------
$664,120 $712,855
======== ========
Capitalization and Liabilities
Capitalization:
Common stock, par value $50 per share, authorized
and outstanding 1,132,487 shares $ 56,624 $ 56,624
Premium on preferred stock 81 36
Other paid-in capital 105,713 105,500
Retained earnings 86,465 129,567
Unrealized gain on securities, net 237 112
-------- --------
Total common equity 249,120 291,839
Cumulative preferred stock,
par value $50 per share (Note H) 7,238 12,800
Long-term debt 168,702 183,545
-------- --------
Total capitalization 425,060 488,184
-------- --------
Current liabilities:
Long-term debt due in one year 8,000 5,000
Short-term debt - (including $26,675 and
$4,425 to affiliates) 26,675 16,350
Accounts payable (including $1,929 and
$50,751 to affiliates) 28,260 56,048
Accrued liabilities:
Taxes 10,031 4,314
Interest 4,553 4,810
Other accrued expenses (Note G) 34,734 21,519
Customer deposits 6,116 5,982
Dividends payable 4,058 3,587
-------- --------
Total current liabilities 122,427 117,610
-------- --------
Deferred federal income taxes 81,045 82,871
Unamortized investment tax credits 6,533 7,023
Other reserves and deferred credits 29,055 17,167
Commitments and contingencies (Note D)
-------- --------
$664,120 $712,855
======== ========
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) 1998 1997 1996
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Operating activities:
Net income $ 32,253 $ 27,932 $ 22,954
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 22,759 22,957 27,899
Deferred federal income taxes and
investment tax credits, net (2,701) (415) 4,177
Allowance for funds used during construction (85) (120) (263)
Decrease (increase) in accounts receivable,
net and unbilled revenues (7,844) 22 12,082
Decrease (increase) in fuel, materials, and
supplies 671 135 1,945
Decrease (increase) in prepaid and other
current assets 13,463 1,717 (32)
Increase (decrease) in accounts payable (27,788) 10,827 (1,026)
Increase (decrease) in other current
liabilities 18,809 9,484 (10,335)
Other, net 14,666 1,181 8,236
-------- -------- --------
Net cash provided by
operating activities $ 64,203 $ 73,720 $ 65,637
-------- -------- --------
Investing activities:
Plant expenditures, excluding allowance for
funds used during construction $(22,196) $(30,965) $(52,574)
Other investing activities (35) (294) (181)
Proceeds from sale of generating assets 39,724 - -
-------- -------- --------
Net cash provided by (used in)
investing activities $ 17,493 $(31,259) $(52,755)
-------- -------- --------
Financing activities:
Capital contributions from parent $ 214 $ 25,500 $ -
Dividends paid on common stock (73,045) (13,590) (7,361)
Dividends paid on preferred stock (662) (2,301) (2,143)
Changes in short-term debt 10,325 (2,675) (3,650)
Long-term debt issues - 10,000 2,000
Long-term debt retirements (12,000) (32,500) (2,000)
Preferred stock - retirements (5,517) (23,834) -
Premium on reacquisition of preferred stock (1,176) (1,666) -
-------- -------- --------
Net cash used in financing activities $(81,861) $(41,066) $(13,154)
-------- -------- --------
Net increase (decrease) in cash and
cash equivalents $ (165) $ 1,395 $ (272)
Cash and cash equivalents at
beginning of year 3,122 1,727 1,999
-------- -------- --------
Cash and cash equivalents at end of year $ 2,957 $ 3,122 $ 1,727
======== ======== ========
Supplementary Information:
Interest paid less amounts capitalized $ 17,079 $ 17,911 $ 18,620
-------- -------- --------
Federal income taxes paid $ 13,180 $ 13,825 $ 8,873
======== ======== ========
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 Narragansett Electric Company (the Company) is a wholly
owned subsidiary of New England Electric System (NEES) operating
in Rhode Island. The Company's business is the distribution of
electricity at retail. Electric service is provided to
approximately 335,000 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. Under an all-requirements
contract with its transmission affiliate, New England Power
Company (NEP), the Company had previously purchased its electric
energy requirements from NEP. The contract with NEP has been
amended to terminate the all-requirements provision of the
contract and allow NEP to recover its above-market generation
commitments through a contract termination charge (CTC), which
the Company collects from its customers. See Note C for a
discussion of industry restructuring and the Company's and NEP's
divestiture of their nonnuclear generating business.
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 Utility Revenue:
The Company accrues revenues for electricity delivered but not
yet billed (unbilled revenues). 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 the composite interest costs of capital funds
used to finance that portion of construction costs not yet
<PAGE>
eligible for inclusion in rate base. AFDC is capitalized in
"Utility plant" with offsetting noncash 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.
5. Depreciation:
Depreciation is provided annually on a straight-line basis.
The provision for depreciation as a percentage of weighted
average transmission and distribution depreciable property was
3.1 percent in each of the years 1998, 1997, and 1996.
6. Cash:
The Company classifies short-term investments with a maturity
of 90 days or less at time of purchase as cash.
7. New Accounting Standards:
In 1997, the Financial Accounting Standards Board (FASB)
released Statement of Financial Accounting Standards No. 130,
Reporting of Comprehensive Income (FAS 130), which was adopted by
the Company in the first quarter of 1998. FAS 130 establishes
standards for reporting comprehensive income and its components.
Comprehensive income for the period is equal to net income plus
"other comprehensive income," which for the Company, consists of
the change in unrealized holding gains on available-for-sale
securities during the period. Other comprehensive income was
immaterial for the Company for the year ended December 31, 1998.
Also in 1997, the FASB released Statement of Financial
Accounting Standards No. 131, Disclosure about Segments of an
Enterprise and Related Information (FAS 131), which went into
effect in 1998. FAS 131 requires the reporting in financial
statements of certain new additional information about operating
segments of a business. FAS 131 does not currently impact the
Company's reporting requirements.
In February 1998, the FASB issued Statement of Financial
Accounting Standards No. 132, Employers' Disclosures about
Pensions and Other Postretirement Benefits (FAS 132), which
revises disclosure requirements for pension and other
postretirement benefits. The Company has adopted FAS 132 in its
financial statements for the year ended December 31, 1998.
The adoption of FAS 130, FAS 131, and FAS 132 had no impact on
the Company's operating results, financial position, or cash
flows.
<PAGE>
In June 1998, the FASB issued Statement of Financial
Accounting Standards No. 133, Accounting for Derivative
Instruments and Hedging Activities (FAS 133), which establishes
accounting and reporting standards for such instruments. FAS 133
is effective for fiscal years beginning after June 15, 1999.
Currently, the Company has no such derivative holdings.
Note B - Merger Agreements
Merger Agreement with The National Grid Group plc
On December 11, 1998, NEES, The National Grid Group plc
(National Grid), and NGG Holdings LLC (Holdings), a directly and
indirectly wholly owned subsidiary of National Grid, entered into
an Agreement and Plan of Merger (Merger Agreement). Pursuant to
the Merger Agreement, Holdings will merge with and into NEES (the
Merger), with NEES becoming a wholly owned subsidiary of National
Grid. The Company will remain a wholly owned subsidiary of NEES.
The Merger is subject to approval by a majority vote of NEES
shareholders as well as National Grid shareholder approval. In
addition, the Merger is subject to a number of regulatory and
other approvals and consents, including approvals by the
Securities and Exchange Commission (SEC), under the Public
Utility Holding Company Act of 1935 (1935 Act), Federal Energy
Regulatory Commission (FERC), and Nuclear Regulatory Commission
(NRC), support or approval from the states in which NEES
subsidiaries operate, and clearance under both the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended,
and the Exon-Florio Provisions of the Omnibus Trade and
Competitiveness Act of 1988. National Grid has obtained
governmental clearance in the United Kingdom for the Merger. The
Merger is expected to be completed by early 2000.
Merger Agreement with Eastern Utilities Associates
On February 1, 1999, NEES, Eastern Utilities Associates (EUA),
and Research Drive LLC (Research Drive), a directly and
indirectly wholly owned subsidiary of NEES, entered into an
Agreement and Plan of Merger (EUA Agreement). Pursuant to the EUA
Agreement, Research Drive will merge with and into EUA, with EUA
becoming a wholly owned subsidiary of NEES.
The acquisition of EUA is subject to approval by a two-thirds
vote of EUA shareholders. In addition, the acquisition is subject
to a number of regulatory and other approvals and consents,
including approvals by the SEC, under the 1935 Act, FERC, and
NRC, support or approval from the states in which EUA
subsidiaries operate, and clearance under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended. The EUA
acquisition is expected to be completed by early 2000. Following
<PAGE>
the acquisition of EUA, the subsidiaries of NEES and EUA whose
operations are similar are expected to be consolidated.
Note C - Industry Restructuring
Pursuant to legislation enacted in Rhode Island and settlement
agreements approved by state and federal regulators, all
customers were provided the right to purchase electricity from
the power supplier of their choice effective January 1, 1998.
Customers who do not choose a power supplier are able, for a
period of time, to continue to purchase their electricity from
the Company at a transition rate ("standard offer generation
service") which, when combined with delivery charges, results in
a total rate reduction of 8 percent compared with the rates that
had been in effect prior to the introduction of customer choice.
Pursuant to the Rhode Island statute, the total rate for
customers who do not choose a power supplier is capped through
2009 at a level equal to the 1996 rate adjusted upward for 80
percent of inflation and for other factors beyond the control of
the Company.
On September 1, 1998, the Company and NEP, (collectively, the
Sellers) completed the sale of substantially all of their
nonnuclear generating business, all of which had a book value of
approximately $1.1 billion, to USGen New England, Inc. (USGen),
an indirect wholly owned subsidiary of PG&E Corporation. Included
in the sale was the Company's 10 percent share of Manchester
Street Station. The Sellers received $1.59 billion for the sale,
of which the Company received approximately $40 million equal to
the net book value of its assets included in the sale. Effective
September 1, 1998, USGen and TransCanada Power Marketing, Ltd.
became the Company's principal suppliers for meeting standard
offer generation service obligations. However, NEP remained
obligated for standard offer service for new customer load in
Rhode Island.
The Rhode Island Settlement also provides that the costs of
NEP's generating investments and related contractual commitments
that were not recovered from the divestiture of those investments
("stranded costs") (the Company's share is 22 percent) are to be
recovered from distribution customers through CTCs, which will be
collected by the Company. Under the Rhode Island Settlement, the
recovery of NEP's stranded costs is divided into several
categories. Unrecovered costs associated with generating plants
(nuclear and nonnuclear) and most regulatory assets will be fully
recovered through the CTC by the end of 2000 and would earn a
return on equity of 11 percent. NEP's obligation relating to the
above-market cost of purchased power contracts and nuclear
decommissioning costs are recovered through the CTC over a longer
period of time, as such costs are actually incurred. NEP's CTC
rate was originally set at 2.8 cents per kilowatthour (kWh), and
subsequently reduced to approximately 1.5 cents or less per kWh
<PAGE>
upon completion of the sale of NEP's nonnuclear generating
business as described above.
Accounting Implications
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. Statement of 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 thereby defer the income statement impact of these
charges because they are expected to be included in future
customer charges.
The Company believes the Rhode Island Settlement and statute
will enable the Company to recover through rates its specific
costs of providing ongoing distribution services and stranded
costs billed to it by NEP. The Company believes these factors
will allow it to continue to apply FAS 71.
Currently, there is much regulatory and other movement toward
establishing performance-based rates. It is possible that the
adoption of performance-based rates, future regulatory rules, or
other circumstances could cause the application of FAS 71 to be
discontinued. This discontinuation would result in a noncash
write-off of previously established regulatory assets. In
addition, reserves for depreciation may also have to be increased
to comply with unregulated accounting practices.
The components of regulatory assets are as follows:
<TABLE>
<CAPTION>
At December 31, (In thousands) 1998 1997
- ------------------------------------------------------------------------------
<S> <C> <C>
Regulatory assets (liabilities) included
in current assets and liabilities:
Rate adjustment mechanisms $(29,144) $ (9,794)
-------- --------
Regulatory assets (liabilities) included
in deferred charges and other reserves
and deferred credits:
Deferred FAS No. 109 costs 31,430 31,291
Unamortized losses on reacquired debt 10,963 12,438
Storm fund (4,477) (3,586)
Other 7,331 5,225
-------- --------
45,247 45,368
-------- --------
$ 16,103 $ 35,574
======== ========
</TABLE>
<PAGE>
Note D - Commitments and Contingencies
1. Plant expenditures:
The Company's utility plant expenditures are estimated to be
$25 million in 1999. At December 31, 1998, 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 in its operations a range of potentially hazardous
products and by-products. NEES subsidiaries currently have in
place an internal environmental audit program and an external
waste disposal vendor audit and qualification program 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 United States 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
<PAGE>
informal survey of other utilities conducted on behalf of NEES
and its subsidiaries indicated costs in a similar range. The
NEES companies have recovered amounts from certain insurers, and,
where appropriate, the Company intends to seek recovery from
other 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. Absent unusual circumstances, 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.
<TABLE>
<CAPTION>
Net pension cost for 1998, 1997, and 1996 included the following components:
- -----------------------------------------------------------------------------------------
Year ended December 31 (thousands of dollars) 1998 1997 1996
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost - benefits earned during the period $ 2,020$ 2,092 $ 2,007
Plus (less):
Interest cost on projected benefit obligation 9,135 9,027 8,954
Return on plan assets at expected long-term rate (10,688)(10,311) (9,787)
Amortization of transition obligation (345) (351) (355)
Amortization of prior service cost 217 245 249
Amortization of net (gain)/loss 124 56 271
Curtailment (gain)/loss (860) - -
- -----------------------------------------------------------------------------------------
Benefit cost $ (397)$ 758 $ 1,339
- -----------------------------------------------------------------------------------------
Special termination benefits not included above $ 10,146$ - $ -
- -----------------------------------------------------------------------------------------
</TABLE>
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:
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------
(millions of dollars) 1998 1997
- ---------------------------------------------------------------------------
<S> <C> <C>
Benefit obligation $843 $819
Unrecognized prior service costs (6) (8)
Transition liability not yet recognized (amortized) (2) (4)
Additional minimum liability 7 4
- ---------------------------------------------------------------------------
842 811
- ---------------------------------------------------------------------------
Plan assets at fair value 837 834
Transition asset not yet recognized (amortized) (6) (8)
Net (gain)/loss not yet recognized (amortized) (92) (52)
- ---------------------------------------------------------------------------
739 774
- ---------------------------------------------------------------------------
Accrued pension/(prepaid) payments
recorded on books $103 $ 37
- ---------------------------------------------------------------------------
</TABLE>
The following provides a reconciliation of benefit obligations
and plan assets:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------
(millions of dollars) 1998 1997
- ---------------------------------------------------------------------------
<S> <C> <C>
Changes in benefit obligation:
Benefit obligation at January 1 $819 $807
Service cost 14 15
Interest cost 55 53
Actuarial (gain)/loss (5) 59
Benefits paid from plan assets (94) (47)
Special termination benefits 64 -
Curtailment (11) -
Plan Amendments 1 -
Dispositions (Yankee Atomic) - (68)
- ---------------------------------------------------------------------------
Benefit obligation at December 31 $843 $819
- ---------------------------------------------------------------------------
Reconciliation of change in plan assets:
Fair value of plan assets at January 1 $834 $812
Actual return on plan assets during year 93 130
Company contributions 4 8
Benefits paid from plan assets (94) (47)
Dispositions (Yankee Atomic) - (69)
- ---------------------------------------------------------------------------
Fair value of plan assets at December 31 $837 $834
- ---------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Year ended December 31 1999 1998 1997 1996
- ----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Assumptions used to determine pension cost:
Discount rate 6.75% 6.75% 7.25% 7.25%
Average rate of increase in
future compensation level 4.13% 4.13% 4.13% 4.13%
Expected long-term rate of
return on assets 8.50% 8.50% 8.50% 8.50%
</TABLE>
The plans' funded status at December 31, 1998 and 1997 were
calculated using the assumed rates from 1999 and 1998,
respectively, and the 1983 Group Annuity Mortality table.
Plan assets are composed primarily of corporate equity, 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.
The Company's total cost of PBOPs for 1998, 1997, and 1996
included the following components:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
Year ended December 31 (thousands of dollars) 1998 1997 1996
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost - benefits earned during the period $ 962 $ 990 $ 1,030
Plus (less):
Interest cost on projected benefit obligation 4,701 4,843 5,034
Return on plan assets at expected long-term rate (4,013) (3,513) (2,803)
Amortization of transition obligation 3,696 3,862 3,862
Amortization of prior service cost 12 12 12
Amortization of net (gain)/loss (1,697) (1,617) (1,135)
Curtailment (gain)/loss 7,075 - -
- -----------------------------------------------------------------------------------------
Benefit cost $10,736 $ 4,577 $ 6,000
- -----------------------------------------------------------------------------------------
Special termination benefits not included above $ 784 $ - $ -
- -----------------------------------------------------------------------------------------
</TABLE>
<PAGE>
The following table sets forth the Company's benefits earned
and the plans' funded status:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
At December 31 (millions of dollars) 1998 1997
- -----------------------------------------------------------------------------
<S> <C> <C>
Benefit obligation $ 74 $ 69
Unrecognized prior service costs - -
Transition liability not yet recognized (amortized) (47) (58)
- -----------------------------------------------------------------------------
27 11
- -----------------------------------------------------------------------------
Plan assets at fair value 53 50
Net (gain)/loss not yet recognized (amortized) (32) (33)
- -----------------------------------------------------------------------------
21 17
- -----------------------------------------------------------------------------
Accrued pension/(prepaid) payments recorded on books $ 6 $ (6)
- -----------------------------------------------------------------------------
</TABLE>
The following provides a reconciliation of benefit obligations
and plan assets:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
(millions of dollars) 1998 1997
- -----------------------------------------------------------------------------
<S> <C> <C>
Changes in benefit obligation:
Benefit obligation at January 1 $ 69 $ 75
Service cost 1 1
Interest cost 5 5
Actuarial (gain)/loss 2 (9)
Benefits paid from plan assets (4) (3)
Special termination benefits 1 -
Curtailment - -
- -----------------------------------------------------------------------------
Benefit obligation at December 31 $ 74 $ 69
- -----------------------------------------------------------------------------
Reconciliation of change in plan assets:
Fair value of plan assets at January 1 $ 50 $ 42
Actual return on plan assets during year 7 8
Company contributions - 3
Benefits paid from plan assets (4) (3)
- -----------------------------------------------------------------------------
Fair value of plan assets at December 31 $ 53 $ 50
- -----------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Year ended December 31 1999 1998 1997 1996
- ----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Assumptions used to determine postretirement benefit cost:
Discount rate 6.75% 6.75% 7.25% 7.25%
Expected long-term rate of
return on assets 8.25% 8.25% 8.25% 8.25%
Health care cost rate -
1996 to 1999 5.25% 5.25% 8.00% 8.00%
Health care cost rate -
2000 to 2004 5.25% 5.25% 6.25% 6.25%
Health care cost rate -
2005 and beyond 5.25% 5.25% 5.25% 5.25%
</TABLE>
The plans' funded status at December 31, 1998 and 1997 were
calculated using the assumed rates in effect for 1999 and 1998,
respectively.
The assumptions used in the health care cost trends have a
significant effect on the amounts reported. A one percentage
point change in the assumed rates would increase the accumulated
postretirement benefit obligation (APBO) as of December 31, 1998
by approximately $9 million or decrease the APBO by approximately
$8 million, and change the net periodic cost for 1998 by
approximately $1 million.
The Company generally funds the annual tax-deductible
contributions. Plan assets are invested in equity and debt
securities and cash equivalents.
3. Early Retirement and Special Severance Programs:
In 1998, the Company offered a voluntary early retirement
program to all employees who were at least 55 years old with 10
years of service. This program was part of an organizational
review with the goal of streamlining operations and reducing the
work force to reflect the sale of the nonnuclear generating
business. The early retirement offer was accepted by 141
employees. A special severance program was also utilized in 1998
for employees affected by the organizational restructuring, but
who were not eligible for, or did not accept, the early
retirement offer. The cost of these programs is being reimbursed
by NEP.
Note F - 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 through 1993.
<PAGE>
Total federal income taxes consist of the following
components:
<TABLE>
<CAPTION>
Year ended December 31, (In thousands) 1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Income taxes charged (credited)
to operations:
Current income taxes $19,530 $14,648 $ 7,499
Deferred income taxes (2,863) 93 4,950
Investment tax credits, net (490) (494) (498)
------- ------- -------
Total income taxes charged
to operations 16,177 14,247 11,951
------- ------- -------
Income taxes charged (credited)
to "Other income":
Current income taxes (218) (464) (581)
Deferred income taxes 652 (14) (275)
------- ------- -------
Total income taxes charged
(credited) to "Other income" 434 (478) (856)
------- ------- -------
Total federal income taxes $16,611 $13,769 $11,095
======= ======= =======
</TABLE>
Investment tax credits have been deferred and are being
amortized over the estimated lives of the property giving rise to
the credits.
Consistent with rate-making policies of the Rhode Island
Public Utilities Commission (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:
<PAGE>
<TABLE>
<CAPTION>
Year ended December 31, (In thousands) 1998 1997 1996
- ----------------------------------------------------------------
<S> <C> <C> <C>
Computed tax at statutory rate $17,102 $14,595 $11,917
Increases (reductions) in tax resulting from:
Book versus tax depreciation
not normalized 707 741 778
Costs associated with utility
plant retirements deducted
for tax purposes (769) (1,046) (1,341)
Amortization of investment
tax credits (490) (494) (498)
All other differences 61 (27) 239
------- ------- -------
Total federal income taxes $16,611 $13,769 $11,095
======= ======= =======
</TABLE>
The following table identifies the major components of total
deferred income taxes:
<TABLE>
<CAPTION>
At December 31, (In millions) 1998 1997
---- ----
<S> <C> <C>
Deferred tax asset:
Plant related $ 2 $ 2
Investment tax credits 3 3
All other 17 13
----- -----
22 18
----- -----
Deferred tax liability:
Plant related (75) (72)
All other (28) (29)
----- -----
(103) (101)
----- -----
Net deferred tax liability $ (81) $ (83)
===== =====
</TABLE>
Note G - Short-Term Borrowings and Other Current Liabilities
At December 31, 1998, the Company had $27 million of
short-term debt outstanding representing borrowings from
affiliates. NEES and certain subsidiaries, including the Company,
with regulatory approval, operate a money pool to more
<PAGE>
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, 1998, the Company had lines of credit with
banks totaling $41 million. There were no borrowings under these
lines of credit at December 31, 1998. Fees are paid in lieu of
compensating balances on most lines of credit.
The components of other accrued expenses are as follows:
<TABLE>
<CAPTION>
At December 31, (In thousands) 1998 1997
- ----------------------------------------------------------------
<S> <C> <C>
Rate adjustment mechanisms $30,680 $12,970
Accrued wages and benefits 3,776 8,050
Other 278 499
------- -------
$34,734 $21,519
======= =======
</TABLE>
Note H - Cumulative Preferred Stock
A summary of cumulative preferred stock at December 31, 1998
and 1997 is as follows (in thousands of dollars except for share
data):
<TABLE>
<CAPTION>
Shares Dividends Call
Outstanding Amount Declared Price
- ------------------------------------------------------------------------------
1998 1997 1998 1997 1998 1997
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$50 Par value
4.50% Series 49,209 49,730 $2,460 $ 2,487 $111 $ 365 $55.000
4.64% Series 57,057 61,217 2,853 3,061 137 320 $52.125
6.95% Series 38,500 145,050 1,925 7,252 319 1,270 (a)
- ------------------------------------------------------------------------------
Total 144,766 255,997 $7,238 $12,800 $567 $1,955
- ------------------------------------------------------------------------------
<FN>
(a) Callable on or after August 1, 2003 at $51.74.
</FN>
</TABLE>
<PAGE>
The annual dividend requirement for total cumulative
preferred stock was $377,000 and $758,000 at the end of 1998 and
1997, respectively.
In 1998, the Company redeemed preferred stock with an
aggregate par value of $5.6 million. Total premiums of $1.2
million in connection with the preferred stock redemption were
charged to retained earnings.
Note I - Long-term Debt
A summary of long-term debt is as follows:
<TABLE>
<CAPTION>
At December 31, (In thousands)
Series Rate % Maturity 1998 1997
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
First Mortgage Bonds:
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 20,200 22,200
T 8.875 August 1, 2021 17,000 22,000
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 10,000
V(95-3) 7.500 October 10, 2025 7,000 7,000
W(95-1) 7.300 November 13, 2025 16,000 16,000
W(96-1) 7.240 January 19, 2026 2,000 2,000
W(97-1) 7.390 September 30, 2027 3,000 3,000
W(97-2) 7.390 October 1, 2027 7,000 7,000
Unamortized discounts and premiums (998) (1,155)
-------- --------
Total long-term debt $176,702 $188,545
======== ========
Long-term debt due in one year 8,000 5,000
-------- --------
$168,702 $183,545
======== ========
</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 $8,000,000 in 1999,
$15,000,000 in 2000, $15,000,000 in 2002, $17,500,000 in 2003,
and $121,500,000 thereafter, to retire maturing mortgage bonds.
At December 31, 1998, the Company's long-term debt had a
carrying value of approximately $178,000,000 and had a fair value
of approximately $195,000,000. 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 J - 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,
1998 was 58 percent of total capitalization, and accordingly,
none of the Company's retained earnings at December 31, 1998 were
restricted as to dividends on common stock under the foregoing
provisions.
Note K - 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 L - Supplementary Income Statement Information
Advertising expenses, expenditures for research and
development, and rents were not material and there were no
royalties paid in 1998, 1997, or 1996. Taxes, other than federal
income taxes, charged to operating expenses are set forth by
class as follows:
<PAGE>
<TABLE>
<CAPTION>
Year ended December 31,
(In thousands) 1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Municipal property taxes $19,325 $18,061 $16,546
State gross earnings tax 16,646 18,676 18,764
Federal and state payroll
and other taxes 2,944 2,629 3,220
------- ------- -------
$38,915 $39,366 $38,530
======= ======= =======
</TABLE>
New England Power Service Company, an affiliated service
company operating pursuant to the provisions of Section 13 of the
1935 Act, furnished services to the Company at the cost of such
services. These costs amounted to $27,968,000, $23,341,000, and
$27,336,000, including capitalized construction costs of
$1,667,000, $1,946,000, and $6,426,000 for each of the years
1998, 1997, and 1996, respectively.
<PAGE>
The Narragansett Electric Company
Selected Financial Information
<TABLE>
<CAPTION>
Year ended December 31,
(In millions) 1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operating revenue $476 $520 $504 $499 $482
Net income $ 32 $ 28 $ 23 $ 24 $ 15
Total assets $664 $713 $707 $700 $647
Capitalization:
Common equity $249 $292 $257 $245 $208
Cumulative preferred stock 7 13 36 36 37
Long-term debt 169 183 179 211 189
- ------------------------------------------------------------------------------
Total capitalization $425 $488 $472 $492 $434
Preferred dividends declared $ 1 $ 2 $ 2 $ 2 $ 2
Common dividends declared $ 74 $ 15 $ 9 $ 5 $ 3
</TABLE>
Selected Quarterly Financial Information (Unaudited)
<TABLE>
<CAPTION>
First Second Third Fourth
(In thousands) Quarter Quarter Quarter Quarter
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1998
Operating revenue $119,976 $117,295 $128,787 $109,596
Operating income $ 14,805 $ 8,765 $ 14,101 $ 12,236
Net income $ 9,399 $ 4,335 $ 11,510 $ 7,009
1997
Operating revenue $131,466 $119,894 $141,980 $126,698
Operating income $ 13,403 $ 9,819 $ 14,238 $ 9,756
Net income $ 7,693 $ 5,085 $ 9,862 $ 5,292
</TABLE>
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, 1998 will be available on or about April
1, 1999, at no charge by contacting: Merrill IR Edge, 33 Boston
Post Road, Suite 270, Marlborough, MA 01752, Telephone: 508-786-
1907, Fax: 508-786-1915, E-mail: [email protected].
<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, Robert K. Wulff, 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, 1998, 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 17th day of March, 1999.
s/Michael F. Ryan
_________________________ _________________________
Richard W. Frost Michael F. Ryan
s/Cheryl A. LaFleur s/Richard P. Sergel
_________________________ _________________________
Cheryl A. LaFleur Richard P. Sergel
s/Robert L. McCabe s/Ronald L. Thomas
_________________________ _________________________
Robert L. McCabe Ronald L. Thomas
s/Lawrence J. Reilly
_________________________
Lawrence J. Reilly
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<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.
</LEGEND>
<SUBSIDIARY>
<NUMBER> 3
<CIK> 0000069659
<NAME> THE NARRAGANSETT ELECTRIC COMPANY
<MULTIPLIER> 1,000
<S> <C>
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<PERIOD-TYPE> 12-MOS
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 525,488
<OTHER-PROPERTY-AND-INVEST> 0
<TOTAL-CURRENT-ASSETS> 83,004
<TOTAL-DEFERRED-CHARGES> 55,628 <F1>
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 664,120
<COMMON> 56,624
<CAPITAL-SURPLUS-PAID-IN> 105,794
<RETAINED-EARNINGS> 86,465
<TOTAL-COMMON-STOCKHOLDERS-EQ> 249,120 <F3>
0
7,238
<LONG-TERM-DEBT-NET> 168,702
<SHORT-TERM-NOTES> 26,675
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 8,000
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 204,385
<TOT-CAPITALIZATION-AND-LIAB> 664,120
<GROSS-OPERATING-REVENUE> 475,654
<INCOME-TAX-EXPENSE> 16,177
<OTHER-OPERATING-EXPENSES> 409,570
<TOTAL-OPERATING-EXPENSES> 425,747
<OPERATING-INCOME-LOSS> 49,907
<OTHER-INCOME-NET> 801
<INCOME-BEFORE-INTEREST-EXPEN> 50,708
<TOTAL-INTEREST-EXPENSE> 18,455
<NET-INCOME> 32,253
567
<EARNINGS-AVAILABLE-FOR-COMM> 31,686
<COMMON-STOCK-DIVIDENDS> 73,612
<TOTAL-INTEREST-ON-BONDS> 14,925
<CASH-FLOW-OPERATIONS> 64,203
<EPS-PRIMARY> 0 <F2>
<EPS-DILUTED> 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.
<F3> Total common stockholders equity includes the unrealized gain on
securities.
</FN>