<PAGE>
NEW ENGLAND ELECTRIC SYSTEM
25 RESEARCH DRIVE
WESTBOROUGH, MASSACHUSETTS 01582
March 9, 1995
Re: NEES Companies Incentive Thrift Plan
NEES Companies Incentive Thrift Plan II
Yankee Thrift Plan
Yankee Thrift Plan II
Dear NEES Shareholder:
- ---------------------
Under the thrift plans, NEES common shares are held by the
trustee. As beneficial owner of NEES common shares through one or
more of the plans, you have a right to direct the trustee how to
vote at the 1995 New England Electric System Annual Meeting of
shareholders. Shareholders who own NEES common shares directly
vote through a proxy. Plan participants have a somewhat different
procedure. Included in this package is a voting instruction card
on which you instruct the trustee how to vote. Your share balance
in each of the plans in which you participate appears at the top
of the enclosed voting instruction card. Please note that all of
the shares in the plans must be voted. Therefore, the trustee
will vote shares for which it does not receive instructions in the
same proportion as those for which it does.
We would appreciate your voting on the election of directors
and other matters as set forth in the accompanying proxy
statement. Please take the time to review the proxy material,
complete your voting instruction card, and mail the card in the
enclosed envelope. Your voting instruction will be kept
confidential.
Sincerely,
(Facsimile Signature) (Facsimile Signature)
JOAN T. BOK JOHN W. ROWE
Chairman President and
of the Board Chief Executive Officer
<PAGE>
NEW ENGLAND ELECTRIC SYSTEM
25 RESEARCH DRIVE
WESTBOROUGH, MASSACHUSETTS 01582
March 9, 1995
Dear Shareholders:
The directors and officers of New England Electric System
invite you to attend the Annual Meeting of shareholders to be held
on Tuesday, April 25, 1995, at 10:30 A.M. at Lowell Memorial
Auditorium at 50 East Merrimack Street in Lowell, Massachusetts.
The Lowell Memorial Auditorium is located along the Concord River
in Lowell's historic district. The Auditorium is accessible to
all shareholders and is equipped with a hearing aid system for the
hearing impaired.
The business part of the meeting is fully described in the
accompanying Notice of Annual Meeting and Proxy Statement. At the
conclusion of the formal portion of the meeting, there will be a
discussion of the Company's operations, followed by a question and
answer period.
We would appreciate your voting, signing and dating the
proxy, and mailing it promptly in the enclosed postage-paid
envelope, even if you plan to attend the meeting in person.
Please enclose a note if you would like to receive directions to
the meeting.
Highlights of the meeting and the results of the balloting
will be included in the next quarterly report to shareholders.
Sincerely,
(Facsimile Signature) (Facsimile Signature)
JOAN T. BOK JOHN W. ROWE
Chairman President and
of the Board Chief Executive Officer
<PAGE>
NEW ENGLAND ELECTRIC SYSTEM
25 RESEARCH DRIVE
WESTBOROUGH, MASSACHUSETTS 01582
NOTICE OF ANNUAL MEETING
________________________
The 1995 Annual Meeting of the shareholders of New England
Electric System will be held at Lowell Memorial Auditorium at 50
Merrimack Street in Lowell, Massachusetts, on Tuesday, April 25,
1995, at 10:30 A.M., E.D.S.T., for the following purposes, all as
set forth in the accompanying proxy statement:
1. To fix the number of directors;
2. To elect directors; and
3. To transact such other business as may properly
come before the meeting or any adjournment
thereof.
Shareholders of record at the close of business on
March 10, 1995, will be entitled to vote at the meeting.
By order of the Board of Directors,
(Facsimile Signature)
Frederic E. Greenman,
Secretary
March 9, 1995
<PAGE>
PROXY STATEMENT
NEW ENGLAND ELECTRIC SYSTEM
25 RESEARCH DRIVE
WESTBOROUGH, MASSACHUSETTS 01582
ANNUAL MEETING OF SHAREHOLDERS, APRIL 25, 1995
_______________________________________________
The Board of Directors of New England Electric System is
soliciting proxies in the accompanying form. Proxies may be
revoked at any time prior to being used by completing a new proxy,
by notifying the Company in writing of such revocation, or by
voting in person at the Annual Meeting. All shares represented by
properly executed proxies will be voted at the Annual Meeting or
any adjournment thereof as specified in such proxies.
The Company's annual report for 1994, which includes
financial statements and a summary of important developments
during 1994, was mailed to shareholders on or about March 9, 1995.
The approximate date on which the proxy statement and form of
proxy are first being sent is March 16, 1995.
Holders of common shares of record at the close of business
on March 10, 1995, are entitled to vote at the Annual Meeting. At
that date there are 64,969,652 common shares outstanding and each
share is entitled to one vote.
An affirmative vote of a majority of the shares present in
person or represented by proxy at the meeting and entitled to
vote is required for approval of each of the items being submitted
to the shareholders for their consideration. Votes for directors
will be counted by the Company as (i) For and (ii) Withhold
Authority; abstentions have the same effect as "Withhold
Authority" votes. Votes concerning other matters will be counted
by the Company as (i) For, (ii) Against, or (iii) Abstain;
abstentions are counted separately, but have the same effect as
"Against" votes. Broker non-votes (shares held by brokers or
nominees as to which instructions have not been received from the
beneficial owners and the broker or nominee does not have
discretionary voting power on a particular matter) are counted as
not represented at the meeting for all matters.
1. FIXING THE NUMBER OF DIRECTORS
The Board of Directors recommends a vote IN FAVOR of this
proposal.
The persons named on the accompanying proxy will vote,
unless otherwise directed, to fix the number of directors at
eleven. The Company's Agreement and Declaration of Trust provides
that the Board may fix the number of directors at a number between
eleven and sixteen until the next annual meeting of shareholders.
2. ELECTION OF DIRECTORS
The persons named on the accompanying proxy will vote,
unless otherwise directed, for the election of the eleven nominees
listed below as directors of the Company. All of the elected
directors will hold office until the next annual meeting of
shareholders or the special meeting held in lieu thereof and until
their respective successors are chosen and qualified.
<PAGE>
Mr. Malcolm McLane, a director of the Company since 1978,
and Mr. Felix A. Mirando, Jr., a director of the Company since
1979, are retiring and are not standing for re-election.
The Company knows of no reason why any of the nominees would
be unable to act as a director, but, if any of them should become
unavailable to serve, the persons named on the accompanying proxy
have the authority to vote for any other person nominated and
recommended by the Executive Committee. If an alternative nominee
is not recommended by the Executive Committee, the number of
directors will be reduced.
Certain information regarding each nominee for director is
given below. This information has been furnished to the Company by
the respective nominees.
Joan T. Bok Director since 1979
Chairman of the Board of the Company. Mrs. Bok, 65 years of
age, was elected Chairman in 1984 and held that position
through 1993. From July 26, 1988 until February 13, 1989,
she also served as President and Chief Executive Officer.
Mrs. Bok is a director of each of the Company's
subsidiaries, including Massachusetts Electric Company, The
Narragansett Electric Company, and New England Power
Company. She is also a director of Avery Dennison
Corporation, John Hancock Mutual Life Insurance Company,
Monsanto Company, and the Federal Reserve Bank of Boston,
and is a Trustee of the Boston Athenaeum.
Paul L. Joskow Director since 1987
Professor of Economics and Management and Chairman,
Department of Economics, Massachusetts Institute of
Technology, Cambridge, Massachusetts. Professor Joskow, 47
years of age, teaches and conducts research in the fields of
industrial organization, government regulation, antitrust
law and economics, and energy economics. He was named
Chairman of the Economics Department in 1994. Professor
Joskow is a director of State Farm Indemnity Company and the
Whitehead Institute for Biomedical Research. He is also
President of the Yale University Council and a Special
Consultant to National Economic Research Associates, Inc.
John M. Kucharski Director since 1989
Chairman, President, and Chief Executive Officer of EG&G,
Inc., Wellesley, Massachusetts. Mr. Kucharski, 59 years of
age, is a director of State Street Boston Corporation,
Nashua Corporation, and Eagle Industry Co., Ltd. He also
serves as Trustee of the National Security Industrial
Association, George Washington University, and Marquette
University.
Edward H. Ladd Director since 1974
Chairman of Standish, Ayer & Wood, Inc. (investment
counselors), Boston, Massachusetts. Mr. Ladd, 57 years of
age, is a director of Harvard Management Company and
Greylock Management Company. He is also Chairman of the
Board of Trustees of Wheelock College.
<PAGE>
Joshua A. McClure Director since 1978
Former President of American Custom Kitchens, Inc.,
Providence, Rhode Island. Mr. McClure, 63 years of age, is
a member of the Westerly Substance Abuse Task Force, the
State Planning Council, the Westerly Housing Authority Task
Force, and the Washington County Housing Authority.
John W. Rowe Director since 1989
President and Chief Executive Officer of the Company. Mr.
Rowe, 49 years of age, served as President and Chief
Executive Officer of Central Maine Power Company from 1984
until joining the Company as Chief Executive Officer in
February, 1989. He is a director of a number of the
Company's subsidiaries, including Massachusetts Electric
Company, The Narragansett Electric Company, and New England
Power Company. Mr. Rowe is also a director of Bank of
Boston Corporation and UNUM Corporation. He is Chairman of
the Massachusetts Business Roundtable and serves as a
director of Jobs for Massachusetts, Inc., the Alliance to
Save Energy, the Edison Electric Institute, and the Electric
Power Research Institute. Mr. Rowe is also a Trustee of
Bryant College.
George M. Sage Director since 1975
President and Treasurer of Bonanza Bus Lines, Inc.,
Providence, Rhode Island. Mr. Sage, 63 years of age, is a
director of Collette Travel Inc. and Business Development of
Rhode Island. Mr. Sage also serves as a director of United
Way International and United Way of Southeastern New
England.
Charles E. Soule Director since 1994
President and Chief Executive Officer of Paul Revere
Insurance Group, Worcester, Massachusetts. The Paul Revere
Insurance Group is a subsidiary of Textron Inc. Mr. Soule,
60 years of age, serves as a director of the Paul Revere
Investment Management Company. He was a member of the
Massachusetts Electric Company Board of Directors from 1991
to 1993.
Anne Wexler Director since 1981
Chairman of The Wexler Group (management consultants),
Washington, D.C. The Wexler Group is a subsidiary of Hill
and Knowlton. Ms. Wexler, 65 years of age, served as
Assistant to the President of the United States from 1978 to
1981 with responsibility for liaison with the business
community and other major interest groups. She is a
director of Alumax, Inc., Comcast Corporation, Continental
Corporation, Dreyfus Index Funds, Dreyfus Mutual Funds, and
NOVA Corporation.
<PAGE>
James Q. Wilson Director since 1982
Professor of Management at The University of California at
Los Angeles, Los Angeles, California. Professor Wilson is
63 years of age. He is a Trustee of the American Enterprise
Institute, the RAND Corporation, and the Randolph Foundation
and a Governor of the Smith Richardson Foundation.
James R. Winoker Director since 1991
Chief Executive Officer of Belvoir Properties, Inc. (real
estate investment), Providence, Rhode Island. Mr. Winoker,
63 years of age, has served as Chief Executive Officer of
Belvoir Properties, Inc. since 1994. He was Treasurer of
Belvoir Properties, Inc. from 1980 to 1994 and President of
B.B. Greenberg Co. (jewelry manufacturers) from 1970 to
1994. A receiver was appointed for B.B. Greenberg Co. in
1994. Mr. Winoker served as a director of The Narragansett
Electric Company from 1990 to 1991. He is also a director
of Original Bradford Soap Works Inc.
BOARD STRUCTURE AND COMPENSATION
The Company has an Executive Committee, an Audit Committee,
a Compensation Committee, and a Corporate Responsibility
Committee. The Executive Committee acts as a nominating
committee. The committee memberships listed below are as of
January 1, 1995.
The members of the Executive Committee are Mrs. Bok, Mr.
Ladd, Mr. Rowe, Mr. Sage, and Ms. Wexler. Mrs. Bok serves as the
Chairman of this Committee. During the intervals between meetings
of the Board of Directors, the Executive Committee has all the
powers of the Board that may be delegated. This Committee also
considers written recommendations from shareholders for nominees
to the Board.
The members of the Audit Committee are Messrs. Joskow,
McLane, Soule, and Winoker. Mr. Joskow serves as the Chairman of
this Committee. The Audit Committee reviews with the independent
public accountants the scope of their audit and management's
financial stewardship for the current and prior years. This
Committee also selects and recommends, subject to the Board of
Directors' approval, the independent public accountants to be
engaged for the coming year.
The members of the Compensation Committee are Messrs.
Kucharski, Mirando, Sage, and Winoker. Mr. Sage serves as the
Chairman of this Committee. The Compensation Committee is
responsible for executive compensation, including the
administration of certain of the Company's incentive compensation
plans.
The members of the Corporate Responsibility Committee are
Mrs. Bok, Mr. McClure, Mr. Rowe, Ms. Wexler, and Mr. Wilson. Mr.
Wilson serves as the Chairman of this Committee. The Corporate
Responsibility Committee is responsible for reviewing compliance
with laws and regulations, offering guidance in considering public
policy issues, and helping to assure ethical conduct.
<PAGE>
The Chairman of the Executive Committee receives an annual
retainer of $7,000. Other members of the Executive Committee,
except Mr. Rowe, receive an annual retainer of $5,000. The
Chairmen of the Audit, Compensation, and Corporate Responsibility
Committees each receive an annual retainer of $6,000. Other
members of these Committees, except Mr. Rowe, receive annual
retainers of $4,000. All directors participating in a Committee
meeting, except Mr. Rowe, receive a meeting fee of $850 plus
expenses.
Members of the Board of Directors, except Mr. Rowe, receive
annually a retainer of $14,000 and 200 common shares of the
Company, and a meeting fee of $850 plus expenses.
The Company permits directors to defer all or a portion of
any retainers and meeting fees under a deferred compensation plan.
Under the plan, at retirement directors may elect to receive lump
sum payments of all amounts deferred with interest, or either
lifetime annuities or ten year annuities, depending upon the
specific deferral arrangement. A special account is maintained on
the Company's books showing the amounts deferred and the interest
accrued thereon. This plan also provides certain death and
disability benefits. Group life insurance of $72,000 is provided
to each member of the Board of Directors. Director contributions
to qualified charities are matched by the Company under a matching
gift program.
Pursuant to a director retirement plan, non-employee
directors who have served on the Board of the Company for 5 years
or more will receive a retirement benefit upon the later of the
director's retirement from the Board or age 60. The benefit level
is 100% of the annual retainer for directors who served on the
Board for 10 or more years and 75% of the annual retainer for
directors who served between 5 and 10 years. There are no death
benefits under the plan.
The Board of Directors held 8 meetings in 1994. The
Executive, Audit, Compensation, and Corporate Responsibility
Committees held 1, 3, 5, and 2 meeting(s), respectively, in 1994.
With the exception of Messrs. Kucharski, McLane, and Soule, all
directors attended at least 75% of the aggregate number of
meetings of the Board of Directors and the committees of which
they were members.
During 1994, Mr. Joskow did consulting work for the Company
or subsidiaries of the Company under a separate consulting
contract for which he was paid $30,000. These consulting services
were not related to his duties as a Board member. The Company and
its subsidiaries retain from time to time National Economic
Research Associates, Inc. (NERA). During 1994, subsidiaries of
the Company paid NERA approximately $61,500 to prepare testimony
and reports on regulatory matters. Mr. Joskow is a special
consultant to NERA.
Mrs. Bok serves as a consultant to the Company. Under the
terms of her contract, she receives an annual retainer of
$100,000. Mrs. Bok also serves as a director for each of the
Company's subsidiaries. She has agreed to waive the normal fees
and annual retainers otherwise payable for services by non-
employees on these boards and receives in lieu thereof a single
annual stipend of $60,000.
<PAGE>
TOTAL COMMON EQUITY BASED HOLDINGS
The following table lists the holdings of Company common
shares and deferred incentive shares by the Company's directors,
the executive officers named in the Summary Compensation Table,
and for directors and all executive officers as a group. The
information as to common share ownership includes all whole shares
beneficially owned, directly or indirectly, as of March 9, 1995.
Name Shares Deferred
Beneficially Incentive
Owned (a) Shares (b)
_________ _____________ ___________
Joan T. Bok 26,053
Frederic E. Greenman 11,284 1,619
Alfred D. Houston 11,653 1,880
Paul L. Joskow 1,941
John M. Kucharski 2,000
Edward H. Ladd 4,506
Joshua A. McClure 1,268
John W. Newsham 11,084 1,168
John W. Rowe 19,598 4,878
George M. Sage 1,900
Charles E. Soule 618
Jeffrey D. Tranen 7,053 1,388
Anne Wexler 1,404
James Q. Wilson 2,113
James R. Winoker 1,000
All of the above and
other executive 113,962 (c) 13,204
officers, as a group
(17 persons)
(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 of the Company, allocated shares in the
Incentive Thrift Plan described below.
<PAGE>
(b) Deferred incentive shares represent the award of shares
under the Incentive Share Plan, described in the
Compensation Committee report below, which have been
deferred for receipt until March 15, 2000, or, in some
cases, the later of March 15, 2000, or termination of
employment. At the end of the deferred period, the award
may be paid out in shares or 50% in shares and 50% in cash.
While deferred, the shares do not have voting rights or
other rights associated with ownership. The rights of the
executives to payment are those of general, unsecured
creditors. As cash dividends are declared, the number of
deferred incentive shares will be increased as if the
dividends were reinvested in shares.
(c) Amount is less than 1% of the total number of shares of the
Company outstanding.
Listed below is the only person or group known to the
Company as of March 9, 1995 to beneficially own 5% or more of the
Company's common shares. However, T. Rowe Price Trust Company
disclaims beneficial ownership of all such shares. The quantity
of shares listed below is as of December 31, 1994.
Amount and Nature
Name and Address of of Beneficial Percent of
Beneficial Owner Ownership Common Shares
________________ _______________ ___________
T. Rowe Price Trust 5,215,252 shares 8.0%
Company as trustee for
100 East Pratt Street Company employee
Baltimore, MD 21202 benefits plans,
including those
discussed herein.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Company's total compensation package is designed to
attract and retain an array of superior managers who can
successfully lead the Company as the industry becomes increasingly
competitive and whose experience is not necessarily limited to our
Company or industry. This package consists of Base Salary,
Incentive Compensation (performance based, at risk compensation),
and Benefits. The Committee periodically reviews each component
of the Company's executive compensation program to ensure that pay
levels and incentive opportunities are competitive and that
incentive opportunities are linked to Company performance. The
Company's general compensation philosophy is that the Base Salary
ranges should be competitive. A significant portion of
management compensation should be tied to achievement of corporate
goals in order to maintain a sharp focus on performance and to
consistently align the interest of management and the Company's
shareholders and customers. An ever higher percentage of total
compensation should be at risk as one moves upward through
management. The critical feature of the Company's executive
compensation program is that a system has been employed in which
the amount of such compensation is driven by the Company's
performance relative to that of other utilities. The compensation
of Mr. Rowe, the Chief Executive Officer, is based on the same
<PAGE>
considerations and structure as that of the other executive
officers. (Since the compensation for each of the Company's
executive officers is still below the $1 million threshold at
which tax deductions are limited under the recent revisions to the
Internal Revenue Code, the Committee has not had to address issues
related thereto but continues to monitor them.)
The Board of Directors votes the compensation of Mr. Rowe,
acting upon recommendations of the Compensation Committee. The
Compensation Committee is described on page 5. The Board of
Directors unanimously accepted each of the recommendations made by
the Compensation Committee in 1994. The Compensation Committee
votes the compensation of all other Company executive officers.
Although Company management may be present during Committee
discussions of officers' compensation, Committee decisions with
respect to the compensation of Mr. Rowe are reached in private
session without the presence of any member of Company management.
At several meetings during the year, the Committee discussed
the change in the nature and structure of the electric utility
industry. Like most companies operating in an environment where
merger and acquisition activity may take place, the Committee
wished to encourage and enforce the continued attention of senior
management to their assigned duties without distraction in the
face of the possibility of a change in control or merger.
Therefore, the Compensation Committee recommended adoption of
severance arrangements (described on page 17) for the Company's
officers. The Board of Directors unanimously accepted this
recommendation.
Base Salary
___________
Base Salary levels are established after consideration of
the appropriate market to determine the average salary for a
position. Extensive salary survey analyses are compiled annually
and presented to the Committee for review. Salary ranges are then
defined on the basis of those market surveys. These surveys may
include some of the same companies included in incentive
compensation plan comparisons or in the corporate performance
chart.
In February 1994, the Compensation Committee reviewed
executive compensation surveys for public utilities and industry
in general prepared by an industry group and by benefit
consultants. The Committee also discussed the increased scope of
Mr. Rowe's position following the retirement of Joan T. Bok as an
employee. The Committee also considered the Company's superior
returns on equity, coupled with low rates, and the focus on asset
quality and cost control. The Committee recommended a base 1994
salary for Mr. Rowe of $512,000.
In November 1994, the Committee reviewed multiple surveys
prepared by various consulting organizations and industry groups.
The Committee compared Mr. Rowe's salary with that paid for
positions in similarly sized utilities and non-manufacturing
companies. The Committee noted the Company's performance under
Mr. Rowe's leadership compared to the objective, key financial
goals, such as return on equity, used for several years to judge
System corporate performance. The Committee recommended the base
salary for Mr. Rowe be set at $537,600 for 1995.
<PAGE>
Over several meetings in 1994, the Committee considered the
nature of the Company's compensation program and its ability to
properly reward individuals in the increasingly competitive world
that electric utilities are entering. At the November meeting,
the Committee considered data from multiple national and regional
executive compensation surveys on expected structure movement in
1995. The Committee determined to adopt a 3% general increase in
the executive compensation structure, and to collapse the existing
14-grade system for executive compensation to a five-level system.
This will provide greater discretion than in the past within each
of the salary levels, enabling the Committee to more closely
recognize individual responsibilities and achievement. This
change also eliminated an existing mid-point restriction in the
incentive compensation plans.
The Committee then reviewed the performance of each
individual in the compensation group below Mr. Rowe, the relative
position of these individuals compared to the market surveys
discussed above, and the Committee's subjective analysis of the
performance of those individuals. The Committee adopted salary
recommendations and, after considering the particular services of
Messrs. Greenman and Newsham, voted special bonuses for those
individuals. These bonuses are reflected in the Summary
Compensation Table, but were not used in calculating the incentive
share awards described below.
Performance Based Incentive Compensation
________________________________________
Performance Based Incentive Compensation (at risk
compensation or bonus) is designed to deliver rewards above base
salary, if the Company and the individual executives perform well.
The incentive components of the compensation plans are based
on formulae with difficult threshold targets. Under the formulae
in the incentive compensation plans, in order for any plan bonuses
to be awarded, the Company must achieve a return on equity that
places the Company in the top 50% of the approximately 90 electric
utilities listed in the Duff & Phelps Utility Group (the National
Grouping) or in the top 50% of the New England/New York regional
utilities (the Regional Grouping). See the Return on Equity
graph, below. The Board of Directors, in response to
extraordinary events, may enhance or curtail the actual return on
equity used to determine whether the Company met the targets.
They did not do so for 1994. In February 1995, the Committee
voted the bonuses under these plans.
For the maximum incentive to be awarded, the Company must
achieve a return on equity in the top 25% of both the National and
Regional Groupings and the Company's cost per kilowatthour must be
the lowest or next to lowest of a selected New England electric
utility group. In 1994, if only one of the return on equity
targets had been met, Mr. Rowe would have received a bonus (cash
and incentive shares as described below) of 19.2% of base pay.
Since the maximum targets were achieved, his formula bonus (cash
and shares) was 80% of base pay.
No bonus awards are made if minimum return on equity targets
are not met or if earnings after bonuses are not sufficient to
cover dividends, even if the return on equity targets are met.
<PAGE>
Mr. Rowe's bonus under the plan is directly related to
achievement of the above described corporate targets. The
incentive compensation plan bonuses of the other executives are
additionally dependent upon the achievement of individual goals.
Based upon information available at the time of determining
bonus amounts, in 1994 the Company placed in the 76th and the 75th
percentiles in return on shareholder equity of the National and
Regional Groupings, respectively. The Company placed next to the
lowest in the Regional Grouping with respect to customer cost per
kilowatthour in 1994.
The cash portions of the incentive compensation formulae are
driven by annual measurements of the shareholder return on equity
and customer cost of electricity. As mentioned above, the Board
has the discretion to base bonuses on an adjusted shareholder
return on equity. The Board made no such adjustment for 1994. In
order to provide a long-term component which is reflective of the
shareholder total return, the participants in the incentive
compensation plans are awarded common shares of the Company under
an incentive share plan, approved by the shareholders in 1990.
The shares are restricted against sale for five years, except in
the event of death, disability, or hardship. Shares are only
awarded against incentive compensation plan cash awards generated
by the formulae. No discretion is exercised by the Committee in
the awarding of these restricted shares. An individual's award of
shares under the incentive share plan is a fixed percentage of her
or his cash award for that year from the incentive compensation
plan in which she or he participates. For Mr. Rowe, the
percentage was 60% for 1994. If no cash award is made, no shares
are distributed. Further, total awards of shares in any calendar
year cannot exceed one-half of one percent (0.5%) of the number of
outstanding shares at the end of the previous calendar year. (The
incentive shares awarded for 1994 were 0.08% of the number of
outstanding shares.) For 1994 awards, participants were given the
option of deferring receipt of the shares, and dividends thereon,
for five years, or until the later of five years or termination of
employment. The deferred share account will be distributable in
either shares or a 50/50 combination of shares and cash. The
account may also be made available in the event of death,
disability, or hardship. The Committee voted to approve the
bonuses upon which the share awards are based on February 27,
1995.
Benefits
________
The executive benefits are designed both to provide a
competitive package and to retain Company flexibility in staffing
management to meet changing conditions. See Plan Summaries and
Retirement Plans, below.
New England Electric System Compensation Committee
John M. Kucharski Felix A. Mirando, Jr.
George M. Sage James R. Winoker
<PAGE>
CORPORATE PERFORMANCE
Total Return
The following graph shows total shareholder return for the
Company (capital appreciation plus reinvested dividends) for the
years 1989 through 1994 as compared to the Standard & Poor's 500
Index and the Edison Electric Institute (EEI) Index of 100
investor-owned electric companies assuming the investment of $100
on December 31, 1989.
NEES S & P 500 EEI Index
_____ ________ __________
1989 100.00 100.00 100.00
1990 93.46 96.90 101.37
1991 129.90 126.42 130.64
1992 166.06 136.04 140.59
1993 178.11 149.76 156.22
1994 156.20 151.74 138.14
Note: The share price performance shown on the graph above is not
necessarily indicative of future price performance.
<PAGE>
Return on Equity
The following graph shows the return on equity of Company
common shares for the years 1990 through 1994 compared to a
national grouping of approximately 90 electric utilities (those
utilities listed in the Duff & Phelps Utility Group) and a
regional grouping of utilities in the New York and New England
area. As discussed in the report of the Compensation Committee,
return on equity is a key driver of the Company's incentive
compensation program.
NEES National Regional
Grouping Grouping
____ _______ ________
1990 20.52% 12.04% 11.82%
1991 12.64% 12.13% 11.30%
1992 12.58% 11.32% 11.84%
1993 12.64% 11.90% 11.41%
1994 12.73% 11.42% 11.40%
Note: The return on equity shown for each grouping is the median
at the date of incentive compensation determination.
<PAGE>
EXECUTIVE COMPENSATION
The following table gives information with respect to all
compensation for services in all capacities for the Company and
its subsidiaries for the years 1992 through 1994 to or for the
benefit of the Chief Executive Officer and the four other most
highly compensated executive officers of the Company.
SUMMARY COMPENSATION TABLE
Long Term
Compen-
Annual Compensation (b) sation
_______________________ __________
Other Restricted
Name and Annual Share All Other
Principal Salary Bonus Compensa- Awards Compensa-
Position (a) Year ($) ($)(c) tion ($)(d) ($)(e) tion ($)(f)
- ------------ ---- ------ ------ ----------- ---------- -----------
John W. Rowe, 1994 501,156 284,540 9,517 160,974 4,526 (g)
President 1993 433,908 268,323 5,548 129,873 5,711
and Chief 1992 433,908 162,728 5,451 132,804 5,503
Executive
Officer
Alfred D. 1994 244,860 132,370 5,501 62,040 4,027 (h)
Houston, 1993 212,904 152,939 3,522 44,465 5,082
Executive 1992 212,904 82,816 3,494 44,607 5,029
Vice
President
Frederic E. 1994 219,288 139,475 5,671 53,427 4,238 (i)
Greenman, 1993 212,904 129,239 3,670 39,276 5,355
Senior Vice 1992 203,112 76,624 3,599 41,103 5,028
President
and
Secretary
Jeffrey D. 1994 187,356 98,357 5,049 45,804 3,466 (j)
Tranen, 1993 175,330 122,896 3,260 35,906 3,906
Vice 1992 157,890 68,316 2,684 31,007 3,818
President
John W. 1994 182,484 107,432 5,629 38,544 4,293 (k)
Newsham, 1993 173,520 120,494 3,116 29,808 4,283
Vice 1992 163,170 67,063 2,657 29,952 3,932
President
(a) Officers of the Company also hold various positions with
subsidiary companies. Compensation for these positions is
included in this table.
<PAGE>
(b) Includes deferred compensation in category and year earned.
(c) The bonus figure represents cash bonuses under an incentive
compensation plan, special bonuses, the goals program
award, and the variable portion of the incentive thrift
plan match by the Company. See description under Plan
Summaries.
(d) Includes amounts reimbursed by the Company for the payment
of taxes.
(e) Prior to the awards made for 1994, shares were awarded that
became unrestricted after five years. Those shares receive
the same dividends as the other common shares of the
Company. The awards made for 1994 were in the form of
deferred incentive shares, which have been deferred for
receipt for at least five years or, in some cases, until
the later of five years or termination of employment. At
the end of the deferred period, the award may be paid out
in shares or 50% in shares and 50% in cash. As cash
dividends are declared, the number of deferred incentive
shares will be increased as if the dividends were
reinvested in shares. See also Payments Upon a Change in
Control below. As of December 31, 1994, the following
executive officers held the amount of restricted shares
with the value indicated: Mr. Rowe 15,236 shares, $489,457
value; Mr. Houston 4,425 shares, $142,153 value; Mr.
Greenman 4,257 shares, $136,756 value; Mr. Tranen 3,121
shares, $100,262 value; and Mr. Newsham 2,888 shares,
$92,777 value. The value was calculated by multiplying the
closing market price on December 30, 1994, by the number of
shares.
(f) Includes Company contributions to life insurance and the
incentive thrift plan that are not bonus contributions.
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
the Company.
(g) For Mr. Rowe, the type and amount of compensation in 1994
is as follows: $3,000 for contributions to the thrift plan
and $1,526 for life insurance.
(h) For Mr. Houston, the type and amount of compensation in
1994 is as follows: $3,000 for contributions to the thrift
plan and $1,027 for life insurance.
(i) For Mr. Greenman, the type and amount of compensation in
1994 is as follows: $3,000 for contributions to the thrift
plan and $1,238 for life insurance.
(j) For Mr. Tranen, the type and amount of compensation in 1994
is as follows: $3,000 for contributions to the thrift plan
and $466 for life insurance.
(k) For Mr. Newsham, the type and amount of compensation in
1994 is as follows: $3,000 for contributions to the thrift
plan and $1,293 for life insurance.
<PAGE>
PAYMENTS UPON A CHANGE OF CONTROL
The Company has agreements with certain of its executives,
including those named in the compensation table, which provide
severance benefits in the event of certain terminations of
employment following a Change in Control of the Company (as
defined below). If, following a Change of Control, the
executive's employment is terminated other than for cause (as
defined) or if the executive terminates employment for good reason
(as defined), the Company 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 or her bonus amounts for the prior three
years. If Mr. Rowe receives payments under his severance
agreement that would subject him to any federal excise tax due
under section 280G of the Internal Revenue Code, he will receive
a cash "gross-up" payment so he would be in the same net after-tax
position he would have been in had such excise tax not been
applied. In addition, the Company 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
or three additional years of pension credit. Mr. Rowe would
become eligible for benefits under the Retirement Supplement Plan
described below.
Change in Control, including potential change of control,
occurs (1) when any person becomes the beneficial owner of 20% of
the voting securities of the Company, (2) when the prior members
of the Board no longer constitute a 2/3 majority of the Board, or
(3) the Company enters into an agreement that could result in a
Change in Control.
The terms of the agreements are for three years with
automatic annual extensions, unless terminated by the Company.
The Company's bonus plans, including the incentive
compensation plans described in the Compensation Committee report,
the Incentive Thrift Plan I, and the Goals Program, are being
amended to provide for payments equal to the average of the
bonuses for the three prior years in the event of a Change of
Control. This payment would be made in lieu of the regular
bonuses for the year in which the Change in Control occurs. The
Company's Retirees Health and Life Insurance Plan I 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 the other plans), restrictions on all shares and
account balances would cease.
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 general provisions of the incentive compensation plans are
described in the report of the Compensation Committee. The
amounts of compensation and benefits provided to the named
executive officers under the plans described below are presented
in the Summary Compensation Table.
<PAGE>
Goals Program
The goals program covers all employees who have completed
one year of service with the Company's subsidiaries. Goals are
established annually. For 1994, these goals related to earnings
per share, customer costs, safety, absenteeism, conservation,
generating station availability, transmission reliability,
environmental and OSHA compliance, and customer favorability
attitudes. 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% to 4-1/2% of their
compensation.
Incentive Thrift Plan
The incentive thrift plan (a 401(k) program) provides for
a match of one-half of up to the first 5% of base compensation
contributed to the Company's incentive thrift plan (shown under
All Other Compensation in the Summary Compensation Table) and,
based on an incentive formula tied to earnings per share, may
fully match the first 5% of base compensation contributed (the
additional amount, if any, is shown under Bonus in the Summary
Compensation Table). Under Federal law, contributions to these
plans are limited. In 1994, the contribution amount was limited
to $9,240.
Life Insurance
The Company 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.
After termination of employment, participants in one of the
insurance plans may elect, commencing at age 55 or later, to
receive an annuity income equal to 40% of annual salary. In that
event, the life insurance is reduced over fifteen years to an
amount equal to the participant's final annual salary. Due to
changes in the tax law, this plan was closed to new participants,
and an alternative was established with only a life insurance
benefit. The individuals listed in the summary table are in one
or the other of these plans. These plans are structured so that,
over time, the Company should recover the cost of the insurance
premiums.
Financial Counselling
The Company pays for personal financial counselling for
senior executives. As required by the IRS, a portion of the
amount paid is reported as taxable income for the executive.
Financial counselling is also offered to other employees through
a limited number of seminars conducted at various locations each
year.
Other
The Company does not have any share option plans.
<PAGE>
RETIREMENT PLANS
The following chart shows estimated annual benefits payable
to executive officers under the qualified pension plan and the
supplemental retirement plan, assuming retirement at age 65 in
1995.
PENSION TABLE
FIVE-YEAR 15 YEARS 20 YEARS 25 YEARS 30 YEARS 35 YEARS 40 YEARS
AVERAGE SERVICE SERVICE SERVICE SERVICE SERVICE SERVICE
COMPENSATION
____________ _______ ______ ______ _______ ______ ________
$300,000 87,900 115,200 141,800 168,400 185,200 194,200
$400,000 118,000 154,600 190,300 226,000 248,600 260,600
$500,000 148,000 194,000 238,800 283,600 312,100 327,100
$600,000 178,100 233,400 287,300 341,200 375,500 393,500
$700,000 208,100 272,800 335,800 398,800 439,000 460,000
$800,000 238,200 312,400 384,500 456,600 502,800 526,800
$900,000 268,200 351,600 432,800 514,000 565,900 592,900
$1,000,000 298,300 391,000 481,300 571,600 629,300 659,300
$1,100,000 328,300 430,400 529,800 629,200 692,800 725,800
For purposes of the retirement plans, Messrs. Rowe,
Houston, Greenman, Tranen, and Newsham, currently have 17,
32, 30, 25, and 44 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 restricted share awards. The benefits listed in
the pension table are not subject to deduction for Social
Security and are shown without any joint and survivor
benefits.
The Pension Table above does not include annuity
payments to be received in lieu of life insurance for
Messrs. Rowe, Houston, and Greenman. The policies are
described above under Plan Summaries.
In the year in which Mr. Newsham retires, he will
receive a one-time supplemental cash payment. The amount
of the payment would be $120,000 if he were to retire in
1995, and would be reduced by $30,000 per year thereafter.
Under the Retirement Supplement Plan, participants
receive a limited cost of living (consumer price index)
adjustment to their pension benefits. There are no active
employees currently in the plan.
The Company contributes the full amount toward post-
retirement health benefits for senior executives.
<PAGE>
OTHER MATTERS
The Company is not aware of any matter that may properly be
presented for action at the meeting other than the matters set
forth herein. If any other matter should be presented at the
meeting upon which a vote properly may be taken, the proxies in
the accompanying form confer upon the persons named therein, or
their substitutes, discretionary authority to vote in respect of
any such matter in accordance with their judgment.
The firm of Coopers & Lybrand is the independent certified
public accountant selected by the Board of Directors for the
Company for the current calendar year. Representatives of Coopers
& Lybrand are expected to be present at the Annual Meeting and
available to respond to appropriate questions on the financial
statements of the Company and may make a statement if they so
desire.
The expense of preparing and mailing this proxy statement
and other incidental expenses of solicitation will be paid by the
Company. Arrangements will be made with brokerage houses and
other custodians, nominees, and fiduciaries to send proxies and
proxy material to their principals, and the Company will reimburse
them for the expense of doing so. Officers and regular employees
of a subsidiary of the Company may solicit proxies through the use
of the mails or by telephone, telegraph, or facsimile. Georgeson
& Company Inc., New York, New York has been retained to assist the
Company in the solicitation of proxies, primarily from brokers,
banks, and other nominees, at an estimated initial cost of $11,000
plus reimbursement of reasonable out-of-pocket expenses.
<PAGE>
By completing the enclosed proxy you are voting the shares
of the Company held in your name and, in the event you are
participating therein, those held by you under the dividend
reinvestment and common share purchase plan and restricted shares
under the incentive share plan. In the event common shares are
held in trust for you as a participant in one or more thrift
plans, you will receive a separate form for instructing the
trustee how to vote those shares.
<PAGE>
SHAREHOLDER PROPOSALS
From time to time shareholders present proposals which may
be proper subjects for inclusion in the proxy statement and for
consideration at the annual meeting. In order for a shareholder
proposal to be considered for inclusion in the proxy statement for
the Company's next regularly scheduled annual meeting of
shareholders, it must be received by the Company on or before
November 10, 1995. Please forward any proposal to the Secretary
of the Company.
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.
By order of the Board of Directors
(Facsimile Signature)
Frederic E. Greenman,
Secretary
March 9, 1995
<PAGE>
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
NEW ENGLAND ELECTRIC SYSTEM
PROXY FOR THE ANNUAL MEETING OF SHAREHOLDERS ON APRIL 25, 1995
The Shareholder(s) listed on the reverse side appoints JOAN T. BOK,
FREDERIC E. GREENMAN, and JOHN W. ROWE, and each of them, Proxies, with full
power of substitution, to represent the Shareholder(s) at the above annual
meeting, and at any and all adjournments thereof, and to vote thereat the
number of shares which the Shareholder(s) would be entitled to vote if then
personally present, with all the powers the Shareholder(s) would then
possess, but especially, without limiting the foregoing, to vote as specified
herein on the proposals set forth in the proxy statement:
Election of Directors--The eleven nominees are J. T. Bok, P. L. Joskow,
J. M. Kucharski, E. H. Ladd, J. A. McClure, J. W. Rowe, G. M. Sage, C. E.
Soule, A. Wexler, J. Q. Wilson, and J. R. Winoker.
To withhold authority to vote for any nominee, print that nominee's
name in the space provided below:
______________________________________________________________________
(PLEASE SIGN and DATE ON REVERSE SIDE)
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ITEMS 1 AND 2
1. Fix the number of Directors at 11.
FOR AGAINST ABSTAIN
/ / / / / /
2. Election of the Nominees (except those I have listed on the
reverse side).
FOR WITHHOLD AUTHORITY
/ / / /
THIS PROXY WILL BE VOTED AS SPECIFIED. IF NOT SPECIFIED ABOVE, THE
PROXIES WILL VOTE "FOR" ITEMS 1 AND 2.
<PAGE>
A majority of the Proxies present and acting at the meeting in
person or by substitute (or, if only one shall be so present,
then that one) shall have and may exercise all of the powers of
said Proxies hereunder.
Dated: ___________, 1995
__________________________
__________________________
(Sign exactly as name
appears to the left.)
When signing as attorney, executor, administrator, trustee, or guardian,
please give full title as such. If more than one name is shown, including
the case of joint tenants, each party should sign.
IMPORTANT: WE URGE YOU TO VOTE, SIGN, DATE AND MAIL THIS PROXY PROMPTLY TO
ASSURE YOUR REPRESENTATION AT THE MEETING.
