<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1995
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number 1-3446
(LOGO) NEW ENGLAND ELECTRIC SYSTEM
(Exact name of registrant as specified in charter)
MASSACHUSETTS 04-1663060
(State or other (I.R.S. Employer
jurisdiction of Identification No.)
incorporation or
organization)
25 Research Drive, Westborough, Massachusetts 01582
(Address of principal executive offices)
Registrant's telephone number, including area code
(508-389-2000)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes (X) No ( )
Common Shares, par value $1 per share, authorized and outstanding:
64,969,652 shares at March 31, 1995.
<PAGE>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
- ----------------------------
<TABLE>
NEW ENGLAND ELECTRIC SYSTEM AND SUBSIDIARIES
Statements of Consolidated Income
Periods Ended March 31
(Unaudited)
<CAPTION>
Three Months Twelve Months
------------ -------------
1995 1994 1995 1994
---- ---- ---- ----
(In Thousands)
<S> <C> <C> <C> <C>
Operating revenue $558,316 $576,906 $2,224,439 $2,231,395
-------- -------- ---------- ----------
Operating expenses:
Fuel for generation 48,959 62,464 207,451 226,928
Purchased electric energy 145,495 120,999 538,639 521,739
Other operation 112,077 109,729 497,089 473,235
Maintenance 41,129 32,691 169,911 143,921
Depreciation and amortization 71,993 78,669 294,447 296,051
Taxes, other than income taxes 35,315 35,315 125,840 122,620
Income taxes 29,963 45,177 113,043 132,808
-------- -------- ---------- ----------
Total operating expenses 484,931 485,044 1,946,420 1,917,302
-------- -------- ---------- ----------
Operating income 73,385 91,862 278,019 314,093
Other income:
Allowance for equity funds used during
construction 2,610 2,054 10,725 5,092
Equity in income of generating companies 2,552 2,628 9,682 10,556
Other income (expense) - net 552 (369) (2,935) (2,362)
-------- -------- ---------- ----------
Operating and other income 79,099 96,175 295,491 327,379
-------- -------- ---------- ----------
Interest:
Interest on long-term debt 26,079 22,358 97,221 97,059
Other interest 4,586 1,645 14,239 9,819
Allowance for borrowed funds used during
construction (3,324) (1,185) (9,932) (3,490)
-------- -------- ---------- ----------
Total interest 27,341 22,818 101,528 103,388
-------- -------- ---------- ----------
Income after interest 51,758 73,357 193,963 223,991
Preferred dividends of subsidiaries 2,172 2,180 8,690 10,122
Minority interests 1,924 1,904 7,458 7,959
-------- -------- ---------- ----------
Net income $ 47,662 $ 69,273 $ 177,815 $ 205,910
======== ======== ========== ==========
Common shares 64,69,652 64,969,652 64,969,652 64,969,652
Net income per common share $.73 $1.07 $2.74 $3.17
Dividends declared per share $.575 $.56 $2.30 $2.24
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
NEW ENGLAND ELECTRIC SYSTEM AND SUBSIDIARIES
Consolidated Balance Sheets
(Unaudited)
<CAPTION>
March 31, December 31,
ASSETS 1995 1994
------ ---- ----
(In Thousands)
<S> <C> <C>
Utility plant, at original cost $4,976,825 $4,914,807
Less accumulated provisions for depreciation and amortization 1,644,639 1,610,378
---------- ----------
3,332,186 3,304,429
Net investment in Seabrook 1 under rate settlement 30,549 38,283
Construction work in progress 386,790 374,009
---------- ----------
Net utility plant 3,749,525 3,716,721
---------- ----------
Oil and gas properties, at full cost 1,252,921 1,248,343
Less accumulated provision for amortization 982,918 964,069
---------- ----------
Net oil and gas properties 270,003 284,274
---------- ----------
Investments:
Nuclear power companies, at equity 46,459 46,349
Other subsidiaries, at equity 41,679 42,195
Other investments, at cost 51,689 50,895
---------- ----------
Total investments 139,827 139,439
---------- ----------
Current assets:
Cash 4,732 3,047
Accounts receivable, less reserves of $16,794,000 and
$15,095,000 268,667 295,627
Unbilled revenues 43,600 55,900
Fuel, materials, and supplies, at average cost 97,296 94,431
Prepaid and other current assets 72,836 76,718
---------- ----------
Total current assets 487,131 525,723
---------- ----------
Accrued Yankee Atomic costs 110,661 122,452
Deferred charges and other assets 311,355 296,232
---------- ----------
$5,068,502 $5,084,841
========== ==========
CAPITALIZATION AND LIABILITIES
------------------------------
Capitalization:
Common share equity:
Common shares, par value $1 per share:
Authorized - 150,000,000 shares
Outstanding - 64,969,652 shares $ 64,970 $ 64,970
Paid-in capital 736,823 736,823
Retained earnings 789,350 779,045
---------- ----------
Total common share equity 1,591,143 1,580,838
Minority interests in consolidated subsidiaries 53,029 55,066
Cumulative preferred stock of subsidiaries 147,016 147,016
Long-term debt 1,600,325 1,520,488
---------- ----------
Total capitalization 3,391,513 3,303,408
---------- ----------
Current liabilities:
Long-term debt due within one year 37,520 65,920
Short-term debt 163,375 233,970
Accounts payable 134,241 168,937
Accrued taxes 41,173 11,002
Accrued interest 20,770 25,193
Dividends payable 38,631 37,154
Other current liabilities 99,178 93,251
---------- ----------
Total current liabilities 534,888 635,427
---------- ----------
Deferred federal and state income taxes 749,465 751,855
Unamortized investment tax credits 94,256 94,930
Accrued Yankee Atomic costs 110,661 122,452
Other reserves and deferred credits 187,719 176,769
---------- ----------
$5,068,502 $5,084,841
========== ==========
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
NEW ENGLAND ELECTRIC SYSTEM AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Quarters Ended March 31
(Unaudited)
<CAPTION>
1995 1994
---- ----
(In Thousands)
<S> <C> <C>
Operating activities:
Net income $ 47,662 $ 69,273
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 73,721 79,814
Deferred income taxes and investment tax credits - net (2,434) (6,053)
Allowance for funds used during construction (5,934) (3,239)
Amortization of unbilled revenues (2,052) (8,000)
Minority interests 1,924 1,904
Decrease (increase) in accounts receivable,
net and unbilled revenues 39,260 7,539
Decrease (increase) in fuel, materials, and supplies (2,865) (14,652)
Decrease (increase) in prepaid and other current assets 3,882 4,513
Increase (decrease) in accounts payable (34,696) (5,452)
Increase (decrease) in other current liabilities 33,727 37,550
Other, net (7,687) (7,338)
--------- ---------
Net cash provided by operating activities $ 144,508 $ 155,859
--------- ---------
Investing activities:
Plant expenditures, excluding allowance for
funds used during construction $ (79,556) $(100,141)
Oil and gas exploration and development (4,578) (4,739)
Other investing activities 28 (5,267)
--------- ---------
Net cash used in investing activities $ (84,106) $(110,147)
--------- ---------
Financing activities:
Dividends paid to minority interests $ (1,983) $ (2,171)
Dividends paid on NEES common shares (37,859) (38,285)
Short-term debt (70,595) (11,405)
Long-term debt - issues 88,000 15,000
Long-term debt - retirements (36,280) (7,280)
--------- ---------
Net cash used in financing activities $ (58,717) $ (44,141)
--------- ---------
Net increase in cash and cash equivalents $ 1,685 $ 1,571
Cash and cash equivalents at beginning of period 3,047 2,876
--------- ---------
Cash and cash equivalents at end of period $ 4,732 $ 4,447
========= =========
Supplementary information:
Interest paid less amounts capitalized $ 31,308 $ 25,703
--------- ---------
Federal and state income taxes paid $ (20,622) $ 22,358
--------- ---------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
NEW ENGLAND ELECTRIC SYSTEM AND SUBSIDIARIES
Statements of Consolidated Retained Earnings
Periods Ended March 31
(Unaudited)
<CAPTION>
Three Months Twelve Months
------------ -------------
1995 1994 1995 1994
---- ---- ---- ----
(In Thousands)
<S> <C> <C> <C> <C>
Retained earnings at beginning of period $779,045 $728,075 $ 760,965 $ 702,635
Net income 47,662 69,273 177,815 205,910
Dividends declared on common shares (37,357) (36,383) (149,430) (145,533)
Premium on redemption of preferred
stock of subsidiaries (2,047)
-------- -------- --------- ---------
Retained earnings at end of period $789,350 $760,965 $ 789,350 $ 760,965
======== ======== ========= =========
Consolidated Electric Operating Statistics
Periods Ended March 31
Three Months Twelve Months
------------ -------------
1995 1994 1995 1994
---- ---- ---- ----
(In Thousands of KWH)
Generated at nuclear power plants 549,566 476,725 1,840,800 1,670,047
Generated at system thermal plants 2,403,608 3,270,716 10,109,993 11,635,355
Generated at system hydro plants 466,667 301,764 1,517,503 1,266,256
Generated at pumped storage plant 127,697 119,970 533,380 533,413
Less energy for pumping 176,964 166,068 734,248 731,619
--------- --------- ---------- ----------
Total generated 3,370,574 4,003,107 13,267,428 14,373,452
Nuclear entitlements 254,010 559,391 2,230,153 2,060,964
Purchased electric energy 2,552,064 2,055,210 9,178,214 8,017,925
--------- --------- ---------- ----------
Total generated and purchased 6,176,648 6,617,708 24,675,795 24,452,341
Less losses, company use, etc. 232,009 344,652 1,560,257 1,694,351
--------- --------- ---------- ----------
Total sales 5,944,639 6,273,056 23,115,538 22,757,990
========= ========= ========== ==========
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
Note A - 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. New England Electric System (NEES)
subsidiaries currently have in place an environmental audit program
intended to enhance compliance with existing federal, state, and
local requirements regarding the handling of potentially hazardous
products and by-products.
NEES and/or its subsidiaries have been named as a potentially
responsible party (PRP) by either the U.S. Environmental Protection
Agency (EPA) or the Massachusetts Department of Environmental
Protection for 22 sites at which hazardous waste is alleged to have
been disposed. Private parties have also contacted or initiated
legal proceedings against NEES and certain subsidiaries regarding
hazardous waste cleanup. The most prevalent types of hazardous
waste sites with which NEES and its subsidiaries have been
associated are manufactured gas locations. (Until the early
1970's, NEES was a combined electric and gas holding company
system.) NEES is aware of approximately 40 such locations
(including eight of the 22 locations for which NEES companies are
PRPs) mostly located in Massachusetts. NEES and its subsidiaries
are currently aware of other sites, and may in the future become
aware of additional sites, that they may be held responsible for
remediating.
NEES has been notified by the EPA that it is one of several
PRPs for cleanup of the Pine Street Canal Superfund site in
Burlington, Vermont, at which coal tar and other materials were
deposited. Between 1931 and 1951, NEES and its predecessor owned
all of the common stock of Green Mountain Power Corporation (GMP).
Prior to, during, and after that time, gas was manufactured at the
Pine Street Canal site by GMP. In 1989, NEES was one of 14 parties
required to pay the EPA's past response costs related to this site.
NEES remains a PRP for ongoing and future response costs. In
November 1992, the EPA proposed a cleanup plan estimated by the EPA
to cost $50 million. In June 1993, the EPA withdrew this cleanup
plan in response to public concern about the plan and its cost. It
<PAGE>
Note A - Hazardous Waste - Continued
- ------------------------
is uncertain at this time what the cost of any ultimate cleanup
plan will be or what NEES's share of such cost will be.
In 1993, the Massachusetts Department of Public Utilities
approved a rate agreement filed by Massachusetts Electric Company
(Massachusetts Electric) that allows for remediation costs of
former manufactured gas sites and certain other hazardous waste
sites located in Massachusetts to be met from a non-rate
recoverable interest-bearing fund of $30 million established on
Massachusetts Electric's books. Rate recoverable contributions of
$3 million, adjusted for inflation, are added to the fund annually
in accordance with the agreement. Any shortfalls in the fund would
be paid by Massachusetts Electric and be recovered through rates
over seven years.
Predicting the potential costs to investigate and remediate
hazardous waste sites continues to be difficult. There are also
significant uncertainties as to the portion, if any, of the
investigation and remediation costs of any particular hazardous
waste site that may ultimately be borne by NEES or its
subsidiaries. Where appropriate, the NEES companies intend to seek
recovery from their insurers and from other PRPs, but it is
uncertain whether and to what extent such efforts would be
successful. At March 31, 1995, NEES had total reserves for
environmental response costs of $45 million and a related
regulatory asset of $14 million. NEES believes that hazardous
waste liabilities for all sites of which it is aware, and which are
not covered by a rate agreement, will not be material to its
financial position.
Note B - Purchased Power Contract Dispute
- -----------------------------------------
In October 1994, New England Power Company (NEP) was sued by
Milford Power Limited Partnership (MPLP), a venture of Enron
Corporation and Jones Capital that owns a 149 megawatt (MW) gas-
fired power plant in Milford, Massachusetts. NEP purchases 56
percent of the power output of the facility under a long-term
contract with MPLP. The suit alleges that NEP has engaged in a
scheme to cause MPLP and its power plant to fail and has prevented
MPLP from finding a long-term buyer for the remainder of the
facility's output. The complaint includes allegations that NEP has
violated the Federal Racketeer Influenced and Corrupt Organizations
<PAGE>
Note B - Purchased Power Contract Dispute - Continued
- -----------------------------------------
Act, engaged in unfair or deceptive acts in trade or commerce, and
breached contracts. MPLP also asserts that NEP deliberately misled
regulatory bodies concerning the Manchester Street repowering
project. MPLP seeks compensatory damages in an unspecified amount,
as well as treble damages. NEP believes that the allegations of
wrongdoing are without merit. NEP has filed counterclaims and
crossclaims against MPLP, Enron Corporation, and Jones Capital,
seeking monetary damages and termination of the purchased power
contract.
MPLP also intervened in a recent NEP rate filing making
similar allegations to those asserted in MPLP's lawsuit. MPLP also
intervened in a recent Massachusetts Electric rate filing.
Note C - Maine Yankee Atomic Power Company
- ------------------------------------------
NEP has a 20 percent ownership interest in the Maine Yankee
Atomic Power Company (Maine Yankee) which owns an 880 MW nuclear
generating station in Wiscasset, Maine. Since January 1995, the
station has been shut down for refueling and inspection. During
the inspection, Maine Yankee detected substantial deterioration of
its steam generator tubes. To correct the situation, Maine Yankee
is considering the installation of welded sleeves (involving the
insertion of a partial new tube inside the existing tube) on all of
the steam generator tubes. Assuming Maine Yankee proceeds with
sleeving, the station would be expected to return to service by
approximately the end of 1995. Similar repairs have been
undertaken at other nuclear plants in the United States and abroad,
but not on the scale proposed at Maine Yankee. The cost of
sleeving could total approximately $40 million (NEP's share of
approximately $8 million would be charged to purchased power
expense). A final decision regarding sleeving is not expected
until late May 1995.
Note D - New Accounting Standard
- --------------------------------
In March 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 121, Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of (FAS 121), effective for fiscal year 1996. This
<PAGE>
Note D - New Accounting Standard - Continued
- --------------------------------
standard clarifies when and how to recognize an impairment of long-
lived assets. In addition, FAS 121 requires that all regulatory
assets be written off unless they continue to meet the criteria for
initially recording such regulatory assets. In order to be
initially recorded, a regulatory asset must have a high probability
of future recovery. However, once written off, a regulatory asset
can be restored if it again becomes probable of recovery. The
impact of this standard will be driven by the facts and
circumstances that exist when the standard is adopted and
thereafter.
Note E
- ------
In the opinion of the Company, these statements reflect all
adjustments (which include normal recurring adjustments) necessary
for a fair statement of the results of its operations for the
periods presented and should be considered in conjunction with the
notes to the financial statements in NEES' 1994 Annual Report.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
---------------------------------------------------------
Condition and Results of Operations
-----------------------------------
This section contains management's assessment of New England
Electric System's (NEES) financial condition and the principal
factors having an impact on the results of operations. This
discussion should be read in conjunction with the consolidated
financial statements and footnotes and the 1994 Annual Report on
Form 10-K.
Earnings
- --------
Earnings for the first quarter of 1995 were $.73 per share
compared with $1.07 per share earned in the first quarter of 1994.
The table below details the principal reasons for the decline in
consolidated earnings.
Quarter ending March 31,
------------------------
1994 earnings $1.07
Decreased sales to ultimate customers (.15)
Increased purchased power costs
excluding fuel (.10)
Increased cost of overhauls of wholly-owned
generating units (.08)
Other impacts on earnings (.01)
-----
1995 earnings $ .73
=====
<PAGE>
Kilowatthour (KWH) sales to ultimate customers decreased 3.0
percent in the first quarter of 1995 compared with the same period
last year, reflecting unusually mild weather conditions in the
first quarter of 1995 (heating degree days were approximately 9
percent below normal). The increase in purchased power costs was
primarily due to overhauls and refueling shutdowns of partially-
owned nuclear power suppliers in the first quarter of 1995.
Maine Yankee Atomic Power Company
- ---------------------------------
New England Power Company (NEP) has a 20 percent ownership
interest in the Maine Yankee Atomic Power Company (Maine Yankee)
which owns an 880 megawatt nuclear generating station in Wiscasset,
Maine. Since January 1995, the station has been shut down for
refueling and inspection. During the inspection, Maine Yankee
detected substantial deterioration of its steam generator tubes.
To correct the situation, Maine Yankee is considering the
installation of welded sleeves (involving the insertion of a
partial new tube inside the existing tube) on all of the steam
generator tubes. Assuming Maine Yankee proceeds with sleeving, the
station would be expected to return to service by approximately the
end of 1995. Similar repairs have been undertaken at other nuclear
plants in the United States and abroad, but not on the scale
proposed at Maine Yankee. The cost of sleeving could total
approximately $40 million (NEP's share of approximately $8 million
<PAGE>
would be charged to purchased power expense). A final decision
regarding sleeving is not expected until late May 1995.
Wholesale Rate Activity
- -----------------------
In February 1995, the Federal Energy Regulatory Commission
(FERC) approved a rate agreement filed by New England Power Company
(NEP). Under the agreement, which became effective January 1995,
NEP's base rates are frozen until 1997. Before this rate
agreement, NEP's rate structure contained two surcharges which were
recovering the costs of a coal conversion project and a portion of
NEP's investment in the Seabrook 1 nuclear unit (Seabrook 1).
Under the rate agreement, these two surcharges, which were due to
expire in mid-1995, have been rolled into base rates. The
agreement also allows for full recovery of costs associated with
the Manchester Street Station repowering project, which is
scheduled for completion later this year. In addition, the
agreement allows NEP to recover approximately $50 million of
deferred costs associated with terminated purchased power contracts
and postretirement benefits other than pensions (PBOPs) over seven
years. The agreement also provides for full recovery of currently
incurred PBOP costs commencing in 1995. The agreement further
provides for the recovery over three years of $27 million of costs
related to the dismantling of a retired generating station and the
replacement of a turbine rotor at one of NEP's generating units.
<PAGE>
The agreement also increases NEP's recovery of depreciation
expenseby approximately $8 million annually to recognize costs that
will be incurred upon the eventual dismantling of its Brayton Point
and Salem Harbor generating plants. Under the agreement,
approximately $15 million of the $38 million in Seabrook 1 costs
due to be recovered in 1995 pursuant to a 1988 settlement agreement
will be deferred and recovered in 1996.
The FERC's approval of this rate agreement applies to all of
NEP's customers except the Town of Norwood, Massachusetts and the
Milford Power Limited Partnership, who intervened in the rate case.
A separate hearing will be conducted to determine the appropriate
rate to charge these two parties, who together represent less than
2 percent of NEP's sales.
Retail Rate Activity
- --------------------
On March 15, 1995, Massachusetts Electric Company
(Massachusetts Electric) filed a request with the Massachusetts
Department of Public Utilities (MDPU) to increase its base rates by
$62 million, effective October 1, 1995. As an alternative to this
proposed increase, Massachusetts Electric filed an incentive rate
plan, which would increase rates by about $30 million, effective
October 1, 1995. Under the proposed incentive rate plan,
subsequent base rate adjustments could occur annually on May 1 and
would be based on a comparison of Massachusetts Electric's rates to
rates of all electric utilities in Massachusetts.
<PAGE>
Massachusetts Electric also proposed a new discount program for
large industrial customers in the manufacturing, computing, and
biotech sectors that are willing to make a minimum annual usage
commitment for a period of five years. The discounts, which
Massachusetts Electric proposed to be recovered from all customers,
would range from 5 percent to 12.5 percent of base rates depending
on a customer's level of commitment. These discounts are in
addition to the 5 percent service extension discounts (SEDs) that
are currently available to large commercial and industrial
customers that agree to provide three to five years notice before
they purchase power from another supplier or generate any
additional power themselves. Massachusetts Electric has proposed
lowering the minimum average load threshold for the SED program
from 500 kilowatts to 200 kilowatts. Massachusetts Electric
expects an MDPU decision on its filing in late September 1995.
On March 1, 1995, The Narragansett Electric Company
(Narragansett) filed a request with the Rhode Island Public
Utilities Commission (RIPUC) to increase its base rates by $30.5
million to be effective December 1995. As part of its filing,
Narragansett proposed a special rate discount of 8 percent of base
rates, for manufacturing customers that agree to give Narragansett
three to five years notice before they purchase power from another
supplier or generate any additional power themselves. These
<PAGE>
discounts, which Narragansett proposed to be recovered from all
customers, are in addition to the 5 percent base rate SEDs that
became available to large commercial and industrial customers in
May 1994. As an alternative to the December 1995 effective date,
Narragansett had proposed to phase its requested rate increase in
two steps--the first step in June 1995 ($13 million) and the second
step in June 1996. In an open meeting on March 28, 1995, the RIPUC
rejected the alternative phased proposal.
Operating Revenue
- -----------------
The following table summarizes the changes in operating
revenue:
Increase (Decrease) in Operating Revenue
First Quarter
-------------
1995 vs 1994
-------------
(In Millions)
Sales decline to ultimate customers $(16)
General rate change/service
extension discounts 5
Unbilled revenues recognized under
rate agreements (6)
Oil and gas sales (5)
Other 3
----
$(19)
====
<PAGE>
KWH sales to ultimate customers decreased 3.0 percent in the
first quarter of 1995 compared with the same period last year,
reflecting unusually mild weather conditions in the first quarter
of 1995. In view of the recent mild weather, the NEES companies
forecast essentially flat KWH sales in 1995.
General rate change/service extension discounts includes $7
million resulting from the November 1994 expiration of
Massachusetts Electric's temporary rate decrease partially offset
by $2 million of increased discounts under the retail companies SED
programs.
The amount shown for unbilled revenues recognized reflects
Massachusetts Electric's completion of the amortization of $35
million over a 13 month period that ended December 31, 1994
partially offset by Narragansett's amortization of $14 million over
a 21 month period ending December 31, 1995. Both of these
amortizations were in accordance with rate agreements.
The reduction in oil and gas sales is primarily due to
decreased gas production and prices.
<PAGE>
Operating Expenses
- ------------------
The following table summarizes the changes in operating
expenses during the period:
Increase (Decrease) in Total Operating Expenses
First Quarter
-------------
1995 vs 1994
-------------
(In Millions)
Purchased energy excluding fuel $ 11
Operation and maintenance expenses 11
Depreciation and amortization (7)
Taxes (15)
----
$ -
====
The increase in purchased energy excluding fuel primarily
results from increased costs associated with scheduled plant
overhauls and refueling outages by partially-owned nuclear power
suppliers. The increase also reflects amortization of previously
deferred purchase power termination costs.
The increase in operation and maintenance expenses is primarily
due to increased maintenance costs associated with overhauls of
wholly-owned generating plants, in part to achieve compliance with
the Clean Air Act, and recognition of currently incurred and
previously deferred PBOP costs in accordance with NEP's 1995 rate
agreement.
<PAGE>
The decrease in depreciation and amortization expense is due to
decreased amortization of the Seabrook 1 nuclear power plant in
accordance with NEP's 1995 rate agreement and decreased oil and gas
amortization due to decreased production. These decreases were
partially offset by the effects of increased depreciation rates
approved in NEP's 1995 rate agreement, increased charges associated
with the dismantlement of a retired generating facility, and
depreciation of new plant expenditures.
The decrease in taxes is primarily due to decreased income.
Collective bargaining agreements with the Brotherhood of
Utility Workers of New England, Inc., the International Brotherhood
of Electric Workers, and the Utility Workers Union of America, AFL-
CIO expire in May 1995. Negotiation of new contracts with these
unions is in progress.
Allowance For Funds Used During Construction (AFDC)
- --------------------------------------------------
AFDC increased for the first quarter of 1995 due to increased
construction work in progress, principally associated with the
repowering of the Manchester Street Station, scheduled to commence
operation in late 1995 (see "Liquidity and Capital Resources"
section).
<PAGE>
Interest Expense
- ----------------
The increase in interest expense is primarily due to increased
long-term and short-term debt balances and higher interest rates in
the first quarter of 1995.
Competitive Conditions
- ----------------------
The electric utility business is being subjected to increasing
competitive pressures, stemming from a combination of trends,
including increasing electric rates, improved technologies, and new
regulations and legislation intended to foster competition. See
the Annual Report on Form 10-K for the year ended December 31,
1994.
On March 29, 1995, the FERC issued a notice of proposed rule-
making in which it stated that recovery in rates of legitimate and
verifiable stranded costs should be allowed and that direct
assignment of stranded costs to departing customers is the
appropriate method for recovery of costs stranded as the result of
wholesale competition. Under the FERC policy proposal, costs
stranded as a result of retail competition would be subject to
state commission review if the state commission has the necessary
statutory authority, and subject to FERC review if the state
commission does not have such authority. A final decision is
expected in late 1995 or early 1996.
<PAGE>
In February 1995, the MDPU initiated a proceeding regarding the
structure and regulation of the electric utility industry.
Massachusetts Electric, along with a coalition of environmental and
independent power producer groups, filed a set of principles which
the coalition proposes to be the basis for restructuring. The
proposed principles included provisions to allow gradually
increased customer choice while allowing utilities to recover the
cost of their past commitments, as well as provisions for
protecting residential customers, encouraging renewable resources
and energy conservation, and honoring contracts with independent
power producers. Hearings are underway. Massachusetts Electric
cannot predict what action the MDPU may take in this proceeding or
when such action would take place. The RIPUC and the New Hampshire
Public Utilities Commission have also begun considering industry
restructuring issues, including the recovery of stranded costs.
New Accounting Standard
- -----------------------
In March 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 121, Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of (FAS 121), effective for fiscal year 1996. This
standard clarifies when and how to recognize an impairment of long-
lived assets. In addition, FAS 121 requires that all regulatory
<PAGE>
assets be written off unless they continue to meet the criteria for
initially recording such regulatory assets. In order to be
initially recorded, a regulatory asset must have a high probability
of future recovery. However, once written off, a regulatory asset
can be restored if it again becomes probable of recovery. The
impact of this standard will be driven by the facts and
circumstances that exist when the standard is adopted and
thereafter.
Liquidity and Capital Resources
- -------------------------------
Plant expenditures in the first three months of 1995 amounted
to $79 million for the utility subsidiaries, including $22 million
related to the Manchester Street Station repowering project. The
necessary funds were primarily provided by net cash from operating
activities after the payment of dividends, and the proceeds of
long-term debt issues.
The financing activities of NEES subsidiaries for the first
three months of 1995 are summarized as follows:
<PAGE>
Issues Retirements
------ -----------
(In Millions)
Long-term debt
- --------------
Massachusetts Electric $48 $10
Narragansett 5
New England Power 35 10
Granite State 2
Hydro-Transmission Companies 3
NEEI 11
--- ---
$88 $36
=== ===
NEP refinanced $10 million of variable rate mortgage bonds in
the first quarter of 1995. Interest rates on the other new long-
term debt issues shown above ranged from 7.40 to 8.46 percent. NEP
and the retail subsidiaries plan to issue $90 million of additional
long-term debt by the end of 1995.
Net cash from operating activities provided all of the funds
necessary for oil and gas expenditures for the first three months
of 1995. New England Energy Incorporated's (NEEI) capitalized oil
and gas exploration and development costs amounted to $5 million,
including $3 million of capitalized interest costs. In April 1995,
NEEI refinanced its previous credit agreement with a group of
banks. The new agreement provides for borrowings of up to $225
million. The amount available will decrease annually through 2002.
Collateral for the borrowings was unchanged.
<PAGE>
At March 31, 1995, NEES and its consolidated subsidiaries had
lines of credit and standby bond purchase facilities with banks
totaling $663 million. These lines and facilities were used for
liquidity support for $163 million of commercial paper borrowings
and for $342 million of NEP mortgage bonds in tax-exempt commercial
paper mode. Fees are paid on the lines and facilities in lieu of
compensating balances.
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
- --------------------------
Information concerning Federal Energy Regulatory Commission
approval of a rate agreement filed by New England Power Company
(NEP), discussed in Part I of this report in Management's
Discussion and Analysis of Financial Condition and Results of
Operations, is incorporated herein by reference and made a part
hereof.
Information concerning requests to increase rates filed by
Massachusetts Electric Company with the Massachusetts Department of
Public Utilities and The Narragansett Electric Company with the
Rhode Island Public Utilities Commission, discussed in Part I of
this report in Management's Discussion and Analysis of Financial
Condition and Results of Operations, is incorporated herein by
reference and made a part hereof.
Information concerning a lawsuit filed against NEP by Milford
Power Limited Partnership on October 28, 1994, discussed in Note B
of Notes to Unaudited Financial Statements, is incorporated herein
by reference and made a part hereof.
Item 6. Exhibits and Reports on Form 8-K
- -----------------------------------------
The Company filed reports on Form 8-K dated January 2, 1995,
February 8, 1995, March 1, 1995, and March 15, 1995, all containing
Item 5, Other Events.
The Company is filing Financial Data Schedules.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report on Form 10-Q for
the quarter ended March 31, 1995 to be signed on its behalf by the
undersigned thereunto duly authorized.
NEW ENGLAND ELECTRIC SYSTEM
s/ Alfred D. Houston
Alfred D. Houston
Executive Vice President and
Chief Financial Officer
Date: May 10, 1995
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>
Exhibit Index
-------------
Exhibit Description Page
- ------- ----------- ----
27 Financial Data Schedule Filed herewith
<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>
<MULTIPLIER> 1,000
<S> <C> <C>
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1994
<PERIOD-END> MAR-31-1995 MAR-31-1994
<PERIOD-TYPE> 3-MOS 3-MOS
<BOOK-VALUE> PER-BOOK PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 3,749,525 0
<OTHER-PROPERTY-AND-INVEST> 409,830 0
<TOTAL-CURRENT-ASSETS> 487,131 0
<TOTAL-DEFERRED-CHARGES> 422,016 <F1> 0
<OTHER-ASSETS> 0 0
<TOTAL-ASSETS> 5,068,502 0
<COMMON> 64,970 0
<CAPITAL-SURPLUS-PAID-IN> 736,823 0
<RETAINED-EARNINGS> 789,350 0
<TOTAL-COMMON-STOCKHOLDERS-EQ> 1,591,143 0
0 0
147,016 <F2> 0
<LONG-TERM-DEBT-NET> 1,600,325 0
<SHORT-TERM-NOTES> 163,375 <F3> 0
<LONG-TERM-NOTES-PAYABLE> 0 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0 0
<LONG-TERM-DEBT-CURRENT-PORT> 37,520 0
0 0
<CAPITAL-LEASE-OBLIGATIONS> 0 0
<LEASES-CURRENT> 0 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 1,529,123 0
<TOT-CAPITALIZATION-AND-LIAB> 5,068,502 0
<GROSS-OPERATING-REVENUE> 558,316 576,906
<INCOME-TAX-EXPENSE> 29,963 45,177
<OTHER-OPERATING-EXPENSES> 454,968 439,867
<TOTAL-OPERATING-EXPENSES> 484,931 485,044
<OPERATING-INCOME-LOSS> 73,385 91,862
<OTHER-INCOME-NET> 5,714 4,313
<INCOME-BEFORE-INTEREST-EXPEN> 79,099 96,175
<TOTAL-INTEREST-EXPENSE> 27,341 22,818
<NET-INCOME> 47,662 69,273
2,172 <F2> 2,180 <F2>
<EARNINGS-AVAILABLE-FOR-COMM> 47,662 69,273
<COMMON-STOCK-DIVIDENDS> 37,357 36,383
<TOTAL-INTEREST-ON-BONDS> 26,079 22,358
<CASH-FLOW-OPERATIONS> 144,508 155,859
<EPS-PRIMARY> $.73 $1.07
<EPS-DILUTED> $.73 $1.07
<FN>
<F1> Total deferred charges includes other assets and accrued Yankee Atomic
costs.
<PAGE>
<F2> Preferred stock reflects preferred stock of subsidiaries. Preferred
stock dividends reflect preferred stock dividends of subsidiaries.
<F3> Short-term notes includes commercial paper obligations.
</FN>
