<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 June 30, 1998
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: 62,847,197 shares at June 30, 1998.
<PAGE>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
- ----------------------------
<TABLE>
NEW ENGLAND ELECTRIC SYSTEM AND SUBSIDIARIES
Statements of Consolidated Income
Periods Ended June 30
(Unaudited)
<CAPTION>
Quarter Six Months
------- ----------
1998 1997 1998 1997
---- ---- ---- ----
(In Thousands)
<S> <C> <C> <C> <C>
Operating revenue $572,008 $577,625$1,191,571 $1,215,771
-------- ------------------ ----------
Operating expenses:
Fuel for generation 77,429 85,836 163,213 185,062
Purchased electric energy 122,393 127,183 245,068 271,713
Other operation 148,474 141,121 303,068 264,995
Maintenance 39,009 39,483 77,022 70,539
Depreciation and amortization 56,611 59,140 111,858 125,145
Taxes, other than income taxes 37,138 36,223 77,357 75,951
Income taxes 23,804 22,056 59,689 60,821
-------- ------------------ ----------
Total operating expenses 504,858 511,042 1,037,275 1,054,226
-------- ------------------ ----------
Operating income 67,150 66,583 154,296 161,545
Other income:
Equity in income of generating companies 2,698 2,431 5,044 5,131
Other income (expense), net (28) (3,094) (8) (4,760)
-------- ------------------ ----------
Operating and other income 69,820 65,920 159,332 161,916
-------- ------------------ ----------
Interest:
Interest on long-term debt 24,424 26,753 49,463 54,281
Other interest 9,223 3,817 15,170 7,608
Allowance for borrowed funds used during
construction (459) (397) (915) (1,040)
-------- ------------------ ----------
Total interest 33,188 30,173 63,718 60,849
-------- ------------------ ----------
Income after interest 36,632 35,747 95,614 101,067
Preferred dividends of subsidiaries 571 1,833 1,142 3,666
Minority interests 1,652 1,682 3,185 3,349
-------- ------------------ ----------
Net income $ 34,409 $ 32,232$ 91,287 $ 94,052
======== ================== ==========
Average common shares - Basic 63,524,22264,969,65264,025,756 64,969,652
Average common shares - Diluted 63,584,78064,997,26464,097,824 65,011,570
Per share data:
Net income - Basic $.55 $.50 $1.43 $1.45
Net income - Diluted $.54 $.50 $1.42 $1.45
Dividends declared $.59 $.59 $1.18 $1.18
Statements of Consolidated Retained Earnings
Retained earnings at beginning of period $973,521 $910,841 $954,518 $887,292
Net income 34,409 32,232 91,287 94,052
Dividends delcared on common shares (37,097) (38,248) (74,972) (76,519)
-------- -------- -------- --------
Retained earnings at end of period $970,833 $904,825 $970,833 $904,825
======== ======== ======== ========
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
NEW ENGLAND ELECTRIC SYSTEM AND SUBSIDIARIES
Statements of Consolidated Income
Twelve Months Ended June 30
(Unaudited)
<CAPTION>
1998 1997
---- ----
(In Thousands)
<S> <C> <C>
Operating revenue $2,478,391 $2,429,139
---------- ----------
Operating expenses:
Fuel for generation 350,612 373,324
Purchased electric energy 501,584 530,530
Other operation 594,731 524,489
Maintenance 149,855 131,403
Depreciation and amortization 223,205 240,618
Taxes, other than income taxes 147,900 145,063
Income taxes 150,892 138,137
---------- ----------
Total operating expenses 2,118,779 2,083,564
---------- ----------
Operating income 359,612 345,575
Other income:
Equity in income of generating companies 10,153 9,978
Other income (expense), net (11,003) (12,435)
---------- ----------
Operating and other income 358,762 343,118
---------- ----------
Interest:
Interest on long-term debt 102,493 109,638
Other interest 24,502 16,562
Allowance for borrowed funds used during construction (1,783) (2,328)
---------- ----------
Total interest 125,212 123,872
---------- ----------
Income after interest 233,550 219,246
Preferred dividends and net gain on reacquisition
of preferred stock 9,794 5,964
Minority interests 6,483 6,791
---------- ----------
Net income $ 217,273 $ 206,491
========== ==========
Average common shares - Basic 64,431,253 64,969,652
Average common shares - Diluted 64,499,067 65,010,804
Per share data:
Net income - Basic and Diluted $3.37 $3.18
Dividends declared $2.36 $2.36
Statements of Consolidated Retained Earnings
Retained earnings at beginning of period $ 904,825 $ 850,939
Net income 217,273 206,491
Dividends declared on common shares (151,265) (153,055)
Premium on redemption of preferred stock - 450
--------- ---------
Retained earnings at end of period $ 970,833 $ 904,825
========= =========
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>
June 30, December 31,
ASSETS 1998 1997
------ ---- ----
(In Thousands)
<S> <C> <C>
Utility plant, at original cost $5,926,625$5,860,101
Less accumulated provisions for depreciation and amortization 2,068,995 1,995,017
--------------------
3,857,630 3,865,084
Construction work in progress 50,194 48,708
--------------------
Net utility plant 3,907,824 3,913,792
--------------------
Oil and gas properties, at full cost - 1,299,817
Less accumulated provision for amortization - 1,128,659
--------------------
Net oil and gas properties - 171,158
--------------------
Investments:
Nuclear power companies, at equity 47,443 49,825
Other subsidiaries, at equity 36,725 37,418
Other investments 132,769 117,645
--------------------
Total investments 216,937 204,888
--------------------
Current assets:
Cash 23,040 14,264
Accounts receivable, less reserves of $19,877,000 and
$17,834,000 255,522 257,185
Unbilled revenues 76,138 71,260
Fuel, materials, and supplies, at average cost 81,810 66,509
Prepaid and other current assets 104,224 64,265
--------------------
Total current assets 540,734 473,483
--------------------
Accrued Yankee nuclear plant costs 272,939 299,564
Deferred charges and other assets 560,932 248,762
--------------------
$5,499,366$5,311,647
====================
CAPITALIZATION AND LIABILITIES
------------------------------
Capitalization:
Common share equity:
Common shares, par value $1 per share:
Authorized - 150,000,000 shares
Issued - 64,969,652 shares
Outstanding - 62,847,197 shares and 64,537,777 shares $ 64,970 $ 64,970
Paid-in capital 736,699 736,605
Retained earnings 970,833 954,518
Treasury stock - 2,122,455 shares and 431,875 shares (89,045) (16,415)
Unrealized gain on securities, net 7,688 4,764
--------------------
Total common share equity 1,691,145 1,744,442
Minority interests in consolidated subsidiaries 42,637 43,062
Cumulative preferred stock of subsidiaries 39,087 39,113
Long-term debt 1,365,848 1,487,481
--------------------
Total capitalization 3,138,717 3,314,098
--------------------
Current liabilities:
Long-term debt due within one year 27,920 89,910
Short-term debt 656,950 251,950
Accounts payable 161,567 136,218
Accrued taxes 19,065 14,831
Accrued interest 21,980 24,969
Dividends payable 35,457 36,162
Other current liabilities 121,869 120,002
--------------------
Total current liabilities 1,044,808 674,042
--------------------
Deferred federal and state income taxes 713,527 720,375
Unamortized investment tax credits 88,994 90,018
Accrued Yankee nuclear plant costs 272,939 299,564
Other reserves and deferred credits 240,381 213,550
--------------------
$5,499,366$5,311,647
====================
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
Six Months Ended June 30
(Unaudited)
<CAPTION>
1998 1997
---- ----
(In Thousands)
<S> <C> <C>
Operating Activities:
Net income $ 91,287 $ 94,052
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 113,330 126,453
Deferred income taxes and investment tax credits, net (9,486) (28,052)
Allowance for funds used during construction (915) (1,040)
Minority interests 3,185 3,349
Prepayment for amended purchased power agreement (191,676) -
Decrease (increase) in accounts receivable, net
and unbilled revenues (3,104) 28,508
Decrease (increase) in fuel, materials, and supplies (15,268) (6,251)
Decrease (increase) in prepaid and other current assets(34,849) 6,887
Increase (decrease) in accounts payable 25,319 (20,799)
Increase (decrease) in other current liabilities 3,011 30,436
Other, net 7,872 36,936
--------- ---------
Net cash provided by operating activities $ (11,294) $ 270,479
--------- ---------
Investing Activities:
Plant expenditures, excluding allowance for
funds used during construction $ (88,285) $(103,280)
Oil and gas exploration and development - (4,627)
Proceeds from sale of New England Energy Incorporated
oil and gas properties 50,000 -
Other investing activities (11,033) (6,125)
--------- ---------
Net cash used in investing activities $ (49,318) $(114,032)
--------- ---------
Financing Activities:
Dividends paid to minority interests $ (3,391) $ (3,566)
Dividends paid on NEES common shares (75,895) (76,327)
Long-term debt - issues 30,000 -
Long-term debt - retirements (213,790) (105,284)
Changes in short-term debt 405,000 25,775
Repurchase of common shares (72,536) (1,567)
--------- ---------
Net cash used in financing activities $ 69,388 $(160,969)
--------- ---------
Net increase (decrease) in cash and cash equivalents $ 8,776 $ (4,522)
Cash and cash equivalents at beginning of period 14,264 8,477
--------- ---------
Cash and cash equivalents at end of period $ 23,040 $ 3,955
========= =========
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 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.
NEES and/or its subsidiaries have been named as potentially
responsible parties (PRPs) by either the United States
Environmental Protection Agency or the Massachusetts Department of
Environmental Protection for 20 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 1970s, NEES was a combined electric and gas holding company
system.) NEES is aware of approximately 40 such manufactured gas
locations, mostly located in Massachusetts. The NEES companies
have been identified as PRPs at 10 of these manufactured gas
locations, which are included in the 20 PRP sites discussed above.
NEES is engaged in various phases of investigation and remediation
work at approximately 20 of the manufactured gas locations. NEES
and its subsidiaries are 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.
In 1993, the Massachusetts Department of Public Utilities
approved a settlement agreement regarding the rate recovery of
remediation costs of former manufactured gas sites and certain
other hazardous waste sites located in Massachusetts. Under that
agreement, qualified remedial costs related to these sites are paid
<PAGE>
out of a special fund established on Massachusetts Electric
Company's (Massachusetts Electric) books. Massachusetts Electric
made an initial $30 million contribution to the fund. Rate-
recoverable contributions of $3 million, adjusted since 1993 for
inflation, are added annually to the fund along with interest and
any recoveries from insurance carriers and other third parties. At
June 30, 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 NEES or its
subsidiaries. The NEES companies have recovered amounts from
certain insurers and other third parties, 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. At June 30, 1998, NEES had total reserves for
environmental response costs of $57 million. This represents an
increase from the $44 million balance at the end of 1997. Since
most of the sites for which increased reserves were recognized are
covered by rate agreements, this increase in the reserves did not
have an adverse effect on net income. NEES believes that hazardous
waste liabilities for all sites of which it is aware, and which are
not covered by a rate agreement, are not material to its financial
position.
Note B - Nuclear Units
- ----------------------
Nuclear Units Permanently Shut Down
Three regional nuclear generating companies in which New
England Power Company (NEP) has a minority interest own nuclear
generating units which have been permanently shut down. These
three units are as follows:
NEP's Investment Future Estimated
Unit Percent Amount($) Date Retired Billings to NEP($)
- -----------------------------------------------------------------------------
Yankee Atomic 30 5 million Feb 1992 37 million
Connecticut Yankee 15 15 million Dec 1996 86 million
Maine Yankee 20 16 million Aug 1997 150 million
- -----------------------------------------------------------------------------
<PAGE>
In the case of each of these units, NEP has recorded an
estimate of the total future payment obligation as a liability and
an offsetting regulatory asset, reflecting estimated future
billings from the companies. In a 1993 decision, the Federal
Energy Regulatory Commission (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. NEP's industry restructuring
settlements allow it to recover all costs that the FERC allows the
Yankee companies to bill to NEP.
The Citizen's Awareness Network and Nuclear Information and
Resource Service have indicated their intention to file a request
with the Nuclear Regulatory Commission (NRC) designed to overturn
a current NRC rule on decommissioning. NEP cannot predict what
impact, if any, these activities, if successful, would have on the
cost of decommissioning the plants.
At Maine Yankee, the NRC has identified numerous apparent
violations of its regulations, which may result in the assessment
of substantial civil penalties.
In the 1970s, NEP and several other shareholders (Sponsors) of
Maine Yankee entered into 27 contracts (Secondary Purchase
Agreements) under which they sold portions of their entitlement 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
and have demanded arbitration, claiming that such agreements excuse
further payments upon plant shutdown. The motion of the Secondary
Purchasers to compel arbitration was denied by the Maine Superior
Court on the grounds that the FERC has jurisdiction. The Secondary
Purchasers are appealing this decision to the Maine Supreme
Judicial Court. NEP has asked the FERC to enforce NEP's rights
under the agreements. In the event that no further payments are
forthcoming from Secondary Purchasers, NEP, as a primary obligor to
Maine Yankee, would be required to pay an additional $8 million of
future shutdown costs. These costs are not included in the $150
million estimate disclosed in the table above. Shutdown costs are
recoverable from customers under the industry restructuring
settlements.
<PAGE>
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
NEP 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. NEP performs
periodic economic viability reviews of operating nuclear units in
which it holds ownership interests.
Millstone 3
In April 1996, the NRC ordered Millstone 3, which had
experienced numerous technical and nontechnical problems, to shut
down pending verification that the unit's operations are in
accordance with NRC regulations and the unit's operating license.
In July 1998 Millstone 3 returned to full operation. 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 Northeast Utilities (NU). NEP 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.
During the Millstone 3 outage, NEP incurred an estimated $45
million in incremental replacement power costs. Through February
1998, when most of NEP's power sales were subject to a fuel clause,
NEP recovered its incremental replacement power costs from
customers through its fuel clause. Starting in March 1998, most of
NEP's power sales are at a stated rate which is not subject to a
fuel clause. However, certain true-up mechanisms exist in lieu of
the fuel clause, which cover most of these costs.
Several criminal investigations related to Millstone 3 are
ongoing. In December 1997, the NRC assessed civil penalties
totaling $2.1 million for numerous violations at the three
Millstone units. NEP's share of this fine was less than $100,000.
<PAGE>
The Connecticut Department of Environmental Protection and
Connecticut Attorney General have filed suit against NU for alleged
wastewater discharge violations at the Millstone units, which may
result in the assessment of substantial civil penalties.
In August 1997, NEP sued 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 and costs necessary to return
Millstone 3 to safe operation. 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. NU moved to dismiss NEP's suit, or, in
the alternative, stay the suit pending arbitration of NEP's claims
against Connecticut Light & Power Company and Western Massachusetts
Electric Company. NU also moved to consolidate NEP's suit with
suits filed by other joint owners in Massachusetts Superior Court.
On July 3, 1998, the court denied NU's motion to dismiss and its
motion to stay pending arbitration. On July 21, 1998, NEP amended
its complaint by, among other things, adding NU's Trustees as
defendants. No ruling has been made on NU's motion to consolidate.
Nuclear Decommissioning
In New Hampshire, legislation was recently enacted which makes
owners of Seabrook 1, of which NEP 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 is covered under this
legislation. For more information on nuclear decommissioning,
refer to the NEES Form 10-K for 1997.
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 NEP to pay a fee based on its share of the net
generation from the Millstone 3 and Seabrook 1 nuclear units.
Through February 1998, NEP recovered this fee through its fuel
clause. Subsequently, most of these costs are recovered through
certain other true-up mechanisms in lieu of the fuel clause.
Similar costs are incurred by the Vermont Yankee nuclear generating
<PAGE>
unit. These costs are billed to NEP and also recovered from
customers through similar mechanisms. In November 1997, ruling on
a lawsuit brought against the DOE by numerous utilities and state
regulatory commissions, the Court of Appeals for the District of
Columbia (the 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 scheduled to have
a temporary or permanent repository for spent nuclear fuel for
several years. In February 1998, Maine Yankee petitioned the Court
to compel the DOE to remove Maine Yankee's spent fuel from the
site. In May 1998, the Court rejected the petitions of Maine
Yankee and the other utilities and state regulatory commissions.
The utilities, including the operators of the units in which NEP
has an obligation, are assessing their future options.
Note C - Town of Norwood
- ------------------------
In April 1997, the Town of Norwood, Massachusetts filed a
lawsuit against NEP in the United States District Court for the
District of Massachusetts. NEP has been a wholesale power supplier
for Norwood pursuant to rates approved by the FERC. Norwood
alleges that NEP's proposed divestiture of its power generation
assets would violate the terms of a 1983 power contract which
settled an antitrust lawsuit brought by Norwood against NEP.
Norwood also alleges that NEP's proposed divestiture plan and
recovery of stranded investment costs contravene federal antitrust
laws. Norwood sought an injunction enjoining the divestiture and
an unspecified amount of treble damages (a specific claim for $450
million was withdrawn). In September 1997, Norwood's motion for a
preliminary injunction of the divestiture was denied. Norwood then
filed an amended complaint making new allegations relating to the
sale of NEP's generating assets and naming as additional
defendants, NEES, USGen New England, Inc. (USGen) and USGen's
affiliate, PG&E Corporation. Norwood later dropped USGen as a
party to the complaint. On January 9, 1998, the defendants filed
a motion to dismiss the lawsuit.
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 on April 1, 1998. NEP filed with the FERC for
permission to assess a contract termination charge to its
unaffiliated customers who choose to terminate their wholesale
power contracts early. On May 15, 1998, the FERC ruled that NEP
<PAGE>
could assess such a contract termination charge to Norwood for its
share of NEP's stranded costs. Norwood claimed that the contract
termination charge 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.
On August 3, 1998, Norwood appealed the FERC's orders approving
the Massachusetts and Rhode Island industry restructuring
settlement agreements (including modification of NEP's contracts
with Massachusetts Electric and The Narragansett Electric Company)
to the First Circuit Court of Appeals (the Court). NEP intends to
seek leave to intervene and will advise the Court of FERC's
determination that the challenged orders do not apply to Norwood.
Note D - Hydro-Quebec Arbitration
- ---------------------------------
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. In June 1997, Hydro-Quebec presented a damage
claim of approximately $37 million for past damages, of which NEP's
share would have been approximately $6 million to $9 million. The
claims involved a dispute over the components of a pricing formula
and additional costs under the contract. With respect to ongoing
claims, NEP has been paying Hydro-Quebec the higher amount
(additional costs of approximately $3 million per year) since July
1996 under protest and subject to refund. In October 1997, an
arbitrator ruled in favor of the New England utilities in all
respects. Hydro-Quebec has not yet refunded any monies and has
appealed the decision. On June 15, 1998, the United States
District Court issued an order affirming the 1997 arbitration
decision in favor of NEP and the other utilities. Hydro-Quebec is
appealing this order to the First Circuit Court of Appeals. On
July 31, 1998 in a separate proceeding, an arbitrator denied the
request of NEP and the other utilities that they be allowed to
withhold payment of disputed amounts from Hydro-Quebec during the
pendency of Hydro-Quebec's appeal. NEP and the other utilities
intend to appeal this decision.
Note E - Average Common Shares
- ------------------------------
The following table summarizes the reconciling amounts between
basic and diluted earnings per share (EPS) computations, in
compliance with Statement of Financial Accounting Standards No.
128, Earnings per Share, which became effective during 1997, and
requires restatement for all prior-period EPS data presented.
<PAGE>
<TABLE>
<CAPTION>
Quarter Ended Six Months Ended Twelve Months Ended
- -------------------------------------------------------------------------------------------
Period ended June 30, 1998 1997 1998 1997 1998 1997
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Income after interest
and minority
interest (000's) $34,980 $34,065 $92,429 $97,718 $227,067 $212,455
Less: preferred stock
dividends and net
gain/loss on
reacquisition of
preferred stock of
subsidiaries (000's) $ 571 $ 1,833 $ 1,142 $ 3,666 $ 9,794 $ 5,964
Income available to
common shareholders
(000's) $34,409 $32,232 $91,287 $94,052 $217,273 $206,491
Basic EPS $ .55 $ .50 $ 1.43 $ 1.45 $ 3.37 $ 3.18
Diluted EPS $ .54 $ .50 $ 1.42 $ 1.45 $ 3.37 $ 3.18
- -------------------------------------------------------------------------------------------
Average common
shares outstanding
for Basic EPS 63,524,222 64,969,652 64,025,75664,969,65264,431,25364,969,652
Effect of Dilutive
Securities
Average potential
common shares related
to share-based compen-
sation plans 60,558 27,612 72,068 41,918 67,814 41,152
- -------------------------------------------------------------------------------------------
Average common shares
outstanding for
Diluted EPS 63,584,780 64,997,264 64,097,82465,011,57064,499,06765,010,804
- -------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Note F - Comprehensive Income
- -----------------------------
In the first quarter of 1998, NEES adopted Statement of
Financial Accounting Standards No. 130, Reporting Comprehensive
Income (FAS 130). 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 NEES, consists of the change in unrealized
holding gains on available-for-sale securities during the period.
Total comprehensive income is calculated for all applicable periods
in the table below:
<TABLE>
<CAPTION> Periods ended June 30
-------------------------------------
Three Months Six Months
------------ ----------
1998 1997 1998 1997
---- ---- ---- ----
(In Thousands)
<S> <C> <C> <C> <C>
Net income $34,409 $32,232 $91,287 $94,052
Other comprehensive income,
net of tax:
Unrealized holding gains 734 2,684 2,924 2,684
------- ------- ------- -------
Total comprehensive income $35,143 $34,916 $94,211 $96,736
======= ======= ======= =======
</TABLE>
Note G - New Accounting Standards
- ---------------------------------
In 1997, the Financial Accounting Standards Board (FASB)
released Statement of Financial Accounting Standards No. 131,
Disclosure about Segments of an Enterprise and Related Information
(FAS 131), which goes into effect in 1998. FAS 131 requires the
reporting in financial statements of certain new additional
information about operating segments of a business. Application of
FAS 131 is not required for interim reporting in the initial year
of application. NEES is currently evaluating the impact that FAS
131 will have on its future reporting requirements.
In February 1998, the FASB issued Statement of Financial
Accounting Standards No. 132, Employers' Disclosures about Pensions
<PAGE>
and Other Postretirement Benefits (FAS 132), which revises
disclosure requirements for pension and other postretirement
benefits. NEES will adopt FAS 132 in its financial statements for
the year ending December 31, 1998.
The adoption of FAS 131 and FAS 132 will have no impact on NEES'
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. NEES, through its wholly
owned indirect subsidiary, AllEnergy Marketing Company, L.L.C.,
(AllEnergy) uses derivative instruments to manage exposure from
fluctuations in commodity prices. At this time, AllEnergy has only
held exchange-traded futures contracts to manage risks associated
with natural gas, propane, and oil price risks. FAS 133 requires
recognition of all derivatives as either assets or liabilities on
the balance sheet and measurement of those instruments at fair
value. If certain conditions are met, derivatives may be treated
as hedges under FAS 133 for income statement purposes. Gains or
losses on a derivative which qualifies as a hedge are deferred
until recognized in the income statement in the same period as the
hedged item is recognized in the income statement. To the extent
the derivative is not effective in offsetting changes in fair value
of the hedged item, that portion of the gain or loss is reported in
earnings immediately. As of June 30, 1998, all of AllEnergy's
existing futures contracts qualified as hedges under Statement of
Financial Accounting Standards No. 80, Accounting for Futures
Contracts, which will be superseded by FAS 133 upon its
implementation. FAS 133 is effective for fiscal years beginning
after June 15, 1999.
Note H
- ------
In the opinion of NEES, 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 consolidated financial statements in NEES' 1997 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 1997 Annual Report on
Form 10-K.
Earnings
- --------
Earnings for the second quarter of 1998 were $.54 per diluted
share, compared with $.50 per diluted share for the second quarter
of 1997. For the six months ended June 30, 1998, earnings were
$1.42 per diluted share compared to $1.45 per diluted share for the
same period in 1997.
Earnings decreased by approximately $.17 per share and $.30 per
share for the second quarter and first six months of 1998,
respectively, due to the effects of the restructuring of the
electric utility business in Massachusetts and Rhode Island. These
negative effects on earnings were offset by reduced operation and
maintenance costs, primarily nuclear plant-related, and lower
purchased power costs. Also, as described more fully in the
"Operating Revenue" section below, earnings in 1997 had been
reduced by refund provisions of $.04 per share and $.10 per share
in the second quarter and first six months, respectively, which
were reversed later in 1997.
With the introduction of industry restructuring and consumer
choice, settlement agreements related to the recovery of stranded
costs limit the return on equity earned on the NEES companies'
generating business to approximately 9.4 percent, before mitigation
incentives, which is significantly lower than earned by the
generating business in recent years. (The settlement agreements
also cap earnings for the majority of NEES' electricity delivery
business at 11.75 percent.) Following completion of the sale of
the NEES companies' nonnuclear generating business, NEES earnings
will be further affected by the return on the reinvestment of the
sale proceeds, whether through retirement of debt, the repurchase
of NEES shares, investments in new ventures, or otherwise. This
reinvestment return is expected, at least in the near term, to be
considerably less than the return historically earned by the
<PAGE>
generating business.
This report contains statements that may be considered forward
looking under the securities laws. Actual results may differ
materially for reasons discussed in the "Industry Restructuring"
section of the NEES Form 10-K for 1997.
Industry Restructuring
- ----------------------
For a full discussion of industry restructuring activities in
Massachusetts, Rhode Island, and New Hampshire, stranded cost
recovery, the NEES companies' proposed divestiture of its
nonnuclear generating business, accounting implications of industry
restructuring and divestiture, workforce reductions, and impact of
industry restructuring on the distribution business, see the
"Industry Restructuring" section of the NEES Form 10-K for 1997 and
the NEES 1997 Annual Report.
Industry Restructuring Update
New Hampshire
On July 13, 1998, the New Hampshire Public Utility Commission
(NHPUC), approved the comprehensive settlement agreement reached
between Granite State Electric Company (Granite State Electric),
New England Power Company (NEP), the Governor's office of the State
of New Hampshire, and a number of other parties. The Federal
Energy Regulatory Commission (FERC) had previously approved a
wholesale settlement in April, 1998. On July 27, 1998, NEP filed
with the FERC to amend the wholesale settlement to conform to the
settlement approved by the NHPUC. The settlement provides choice
of power supplier to Granite State Electric's customers as of July
1, 1998. The principal terms of the settlement are substantially
similar to the settlements reached in Massachusetts and Rhode
Island.
Divestiture of Generating Business
NEES has received all state and federal regulatory approvals
required for the sale of its nonnuclear generating business to
USGen New England, Inc. (USGen). USGen is awaiting final FERC
approval for exempt wholesale generator status for the facilities
it is purchasing. The proposed sale is more fully described in the
NEES Form 10-K for 1997 and the 1997 NEES Annual Report. Closing
of the sale is expected in the third quarter of 1998.
<PAGE>
Risk Factors
While the NEES companies believe that the industry
restructuring settlements and the sale agreement with USGen and
other developments constitute substantial progress in reducing the
impacts associated with industry restructuring, significant risks
remain. These include, but are not limited to: (i) the potential
that ultimately the settlements will not be implemented in the
manner anticipated by NEES, (ii) the possibility that a voter
referendum in November 1998 could overturn the Massachusetts
legislation, followed by materially adverse legislative or
regulatory actions, (iii) the possibility of federal legislation
that would increase the risk to shareholders above those contained
in the settlements and the Massachusetts and Rhode Island statutes,
(iv) the potential for adverse regulatory or judicial stranded cost
recovery decisions involving wholesale customers with whom
settlements have not yet been reached, and (v) the failure to
complete the sale of the nonnuclear generating business to USGen.
Year 2000 Computer Issues
- -------------------------
For a full discussion of Year 2000 computer issues at NEES,
including a description of the modification process, timeline, and
estimated total costs, refer to the "Financial Review" section of
the 1997 NEES Annual Report filed in conjunction with the NEES Form
10-K for 1997.
AllEnergy Acquisition
- ---------------------
On July 9, 1998, NEES and AllEnergy Marketing Company, L.L.C.
(AllEnergy), a wholly owned indirect subsidiary of NEES, acquired
PAL Energy Corporation's (PAL) business and substantially all of
PAL's assets. PAL is a full service distributor of petroleum and
related products, and provides repair services and installation of
heating and cooling equipment and related services. PAL also
operates convenience stores and gas stations located primarily in
western New York. For the twelve-month period ended August 31,
1997, PAL had revenues of approximately $125 million.
<PAGE>
Operating Revenue
- -----------------
The following table summarizes the changes in operating
revenue:
Increase (Decrease) in Operating Revenue
Second Quarter Six Months
-------------- ------------
1998 vs 1997 1998 vs 1997
-------------- ------------
(In Millions)
Industry restructuring-related
rate changes:
Generation-related $(29) $(47)
Distribution-related 13 19
Fuel cost-related (4) (31)
Massachusetts Electric and Nantucket
Electric Purchased Power Cost
Adjustment (PPCA) mechanism 4 11
Oil and gas-related revenue (16) (36)
AllEnergy revenue 22 58
Other 4 2
---- ----
$ (6) $(24)
==== ====
Generation-related rate reductions reflect rate reductions to
customers as part of industry restructuring and the implementation
of customer choice of power supplier in Rhode Island on January 1,
1998 and in Massachusetts on March 1, 1998. These rate reductions
also include the effect of various true-up mechanisms. These true-
up mechanisms cover a number of items including stranded cost
recovery billings, fuel expense, nuclear operating costs and
decommissioning costs and the non-fuel component of purchased power
expense.
The increase in distribution revenues reflects a $45 million
rate increase at Massachusetts Electric Company (Massachusetts
Electric) in accordance with the provisions of the industry
restructuring settlement in Massachusetts, which became effective
March 1, 1998. The revenue increase also reflects a $7 million
<PAGE>
increase in distribution rates for The Narragansett Electric
Company (Narragansett Electric) that became effective January 1,
1998 pursuant to Rhode Island's Utility Restructuring Act of 1996.
For a discussion of the decrease in fuel recovery during 1998,
see the fuel costs discussion in the "Operating Expenses" section.
The increase in revenues related to Massachusetts Electric's
and Nantucket Electric Company's (Nantucket Electric) PPCA
mechanism during 1998 reflects the end of this mechanism in
accordance with the Massachusetts industry restructuring
settlement. PPCA refund provisions of approximately $4 million and
$11 million had been accrued during the second quarter and first
six months of 1997, respectively, and reversed into revenue in the
fourth quarter of 1997.
The decrease in oil and gas-related revenues reflects the sale
of NEEI's oil and gas properties effective January 1, 1998.
The inclusion of the AllEnergy revenue figure in the above
table is due to AllEnergy becoming a wholly owned and fully
consolidated subsidiary of NEES in the fourth quarter of 1997.
NEES had previously accounted for its 50 percent ownership interest
under the equity method of accounting, as a component of other
income. For the second quarter and first six months of 1997, total
AllEnergy revenues were $9 million and $31 million, respectively.
The increase in other revenues during the second quarter is
primarily due to the impact of a 0.6 percent increase in
kilowatthour (kWh) deliveries to ultimate customers and increased
transmission billings by NEP to the New England Power Pool
(NEPOOL). A similar increase in NEPOOL transmission billings is
included in operation and maintenance expense. KWh deliveries for
the first six months of 1998 were essentially flat, as the second
quarter increase was offset by a similar decrease in the first
quarter, due to milder weather.
<PAGE>
Operating Expenses
- ------------------
The following table summarizes the changes in operating
expenses:
Increase (Decrease) in Operating Expenses
Second Quarter Six Months
-------------- ------------
1998 vs 1997 1998 vs 1997
-------------- ------------
(In Millions)
Fuel costs $ (5) $(31)
Purchased energy, excluding fuel (8) (17)
Operation and maintenance:
AllEnergy 25 68
NEP PBOP amortization (6) (12)
Other (12) (12)
Depreciation and amortization:
Utility plant 13 22
Oil and gas properties (15) (35)
Taxes 2 -
---- ----
$ (6) $(17)
==== ====
The decrease in fuel costs for the second quarter and year-to-
date periods primarily represents reduced wholesale sales to other
utilities and lower coal and oil prices.
The decrease in purchased power costs, excluding fuel, is
primarily due to reduced charges from the Maine Yankee nuclear
power plant, which was closed in mid-1997, as well as reduced
charges from the Ocean State Power II plant, which underwent a
scheduled overhaul during the first and second quarters of 1997.
Partially offsetting these lower costs were increased refueling and
maintenance charges from the Vermont Yankee nuclear power plant.
As previously described, the inclusion of AllEnergy costs in
the above table is due to the consolidation of AllEnergy in 1998
due to the company becoming a wholly owned subsidiary of NEES. For
<PAGE>
the second quarter and the first six months of 1997, total
AllEnergy expenses were $14 million and $37 million, respectively.
The decrease in operation and maintenance expense associated
with postretirement benefits other than pensions (PBOP)
amortization reflects the completion of the accelerated PBOP
amortization in 1997 under the terms of a 1995 rate agreement.
This decrease in expense is offset by a corresponding increase in
the accelerated amortization of Millstone 3 which is described in
the depreciation and amortization expense section below.
The decrease in other operation and maintenance expense
reflects reduced maintenance costs from the partially owned
Millstone 3 and Seabrook 1 nuclear generating facilities, lower
charges related to ongoing PBOP costs, and reduced general and
administrative costs related to industry restructuring and the
proposed sale of NEES' nonnuclear generating business. This
decrease was partially offset by the costs of a scheduled overhaul
at the Manchester Street generating plant. The second quarter
decrease also reflects 1997 charges for NEP's share of the costs of
the restoration to service of previously idled generating
facilities in response to a tightened regional power supply.
The decrease in oil and gas property depreciation and
amortization expense during 1998 reflects the end of the
amortization of oil and gas costs as a result of the sale of NEEI's
oil and gas properties effective January 1, 1998. The increase in
utility plant depreciation and amortization expense is primarily
due to the $11 million increase in annual depreciation expense
provided for in the Massachusetts industry restructuring
settlement, depreciation related to new utility plant expenditures,
and the accelerated amortization of NEP's investment in the
Millstone 3 nuclear unit, a portion of which was attributable to
the completion of the PBOP amortization discussed above. This
accelerated amortization is recorded as a regulatory liability.
Liquidity and Capital Resources
- -------------------------------
Plant expenditures for the first six months of 1998 amounted to
$88 million. The funds necessary for utility plant expenditures
during the period were primarily provided by increased short-term
debt.
<PAGE>
The financing activities of NEES subsidiaries for the first six
months of 1998 are summarized as follows:
Issues Retirements
------ -----------
(In Millions)
Long-term debt
- --------------
NEP $ - $ 50
Massachusetts Electric 25 30
Narragansett Electric - 5
Granite State Electric 5 -
NEEI - 122
Hydro-Transmission Companies - 6
Narragansett Energy Resources Company - 1
--- ----
$30 $214
=== ====
In August 1997, the NEES Board of Directors authorized the
repurchase of up to five million NEES common shares through open
market purchases. Through June 30, 1998, NEES purchased
approximately 2 million shares under the repurchase program.
Massachusetts Electric and Narragansett Electric plan to issue
an additional $30 million and $15 million of long-term debt,
respectively, by the end of 1998. Massachusetts Electric and
Narragansett Electric each plan to use the proceeds to refinance
maturing bonds and fund capital expenditures.
At June 30, 1998, NEES and its consolidated subsidiaries had
lines of credit and standby bond purchase facilities with banks
totaling $1.2 billion. These lines and facilities were used for
liquidity support for $657 million of commercial paper borrowings
and for $372 million of NEP mortgage bonds in tax-exempt commercial
paper mode.
As part of NEES' plan to divest its generating business, NEEI
sold its oil and gas properties effective January 1, 1998 , for
approximately $50 million. NEEI's loss on the sale of
approximately $120 million, before tax, has been reimbursed by NEP.
This loss has been recorded as a regulatory asset, which is
<PAGE>
recoverable under the terms of the restructuring settlements
reached in Massachusetts, Rhode Island, and New Hampshire.
In May 1998, NEP prepaid approximately $190 million in
conjunction with the amendment of a long-term purchased power
contract. A small portion of the prepayment is recoverable from
USGen at divestiture while the balance is recoverable under the
industry restructuring settlements reached in Massachusetts, Rhode
Island, and New Hampshire. This latter balance is recorded in
deferred charges and other assets on the balance sheet.
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
- --------------------------
Information concerning a lawsuit brought by the Company's
subsidiary, New England Power Company (NEP) against Northeast
Utilities on August 7, 1997 in Massachusetts Superior Court,
Worcester County concerning the Millstone 3 nuclear unit, discussed
in this report in Note B of Notes to Unaudited Financial
Statements, is incorporated herein and made a part hereof.
Information concerning an arbitration between NEP and
Connecticut Light & Power Company and Western Massachusetts
Electric Company concerning the Millstone 3 nuclear unit, discussed
in this report in Note B of Notes to Unaudited Financial
Statements, is incorporated herein and made a part hereof.
Information concerning a lawsuit brought against NEP by the
Town of Norwood, Massachusetts and a related Federal Energy
Regulatory Commission proceeding, discussed in this report in Note
C of Notes to the Unaudited Financial Statements, is incorporated
herein and made a part hereof.
Information concerning two arbitration decisions and related
appeals regarding NEP's purchased power contract with Hydro-
Quebec, discussed in this report in Note D of Notes to Unaudited
Financial Statements, is incorporated herein and made a part
hereof.
Item 4. Submission of Matters to a Vote of Security-Holders
- ------------------------------------------------------------
On April 28, 1998, the Annual Meeting of Shareholders was
held.
The shareholders, by a vote of 53,731,535 in favor, 583,374
against, and 556,677 abstaining, approved a Company proposal
setting the number of directors at thirteen.
Directors were elected and received the following votes:
Director Votes For Votes Withheld
-------- --------- --------------
Joan T. Bok 53,751,129 1,119,760
William M. Bulger 53,734,624 1,136,265
Alfred D. Houston 54,199,323 681,566
Paul T. Joskow 53,964,849 906,040
John M. Kucharski 54,207,904 662,985
Edward H. Ladd 54,213,682 657,207
Joshua A. McClure 54,156,294 714,595
George M. Sage 54,132,579 738,310
Richard P. Sergel 54,181,395 689,494
Charles E. Soule 54,204,155 666,734
Anne Wexler 54,108,368 762,521
James Q. Wilson 54,133,960 736,929
James R. Winoker 54,127,525 743,364
<PAGE>
The shareholders, by a vote of 4,823,893 in favor, 40,552,277
against, and 1,531,096 abstaining, rejected a shareholder proposal
regarding the splitting of shares.
Item 6. Exhibits and Reports on Form 8-K
- -----------------------------------------
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 June 30, 1998 to be signed on its behalf by the
undersigned thereunto duly authorized.
NEW ENGLAND ELECTRIC SYSTEM
s/John G. Cochrane
John G. Cochrane
Treasurer, Authorized Officer,
and Chief Accounting Officer
Date: August 7, 1998
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.
<MULTIPLIER> 1,000
<S> <C>
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<PERIOD-TYPE> 6-MOS
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 3,907,824
<OTHER-PROPERTY-AND-INVEST> 216,937
<TOTAL-CURRENT-ASSETS> 540,734
<TOTAL-DEFERRED-CHARGES> 833,871 <F1>
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 5,499,366
<COMMON> 64,970
<CAPITAL-SURPLUS-PAID-IN> 736,699
<RETAINED-EARNINGS> 970,833
<TOTAL-COMMON-STOCKHOLDERS-EQ> 1,691,145 <F3>
0
39,087 <F2>
<LONG-TERM-DEBT-NET> 1,365,848
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 656,950
<LONG-TERM-DEBT-CURRENT-PORT> 27,920
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 1,718,416
<TOT-CAPITALIZATION-AND-LIAB> 5,499,366
<GROSS-OPERATING-REVENUE> 1,191,571
<INCOME-TAX-EXPENSE> 59,689
<OTHER-OPERATING-EXPENSES> 977,586
<TOTAL-OPERATING-EXPENSES> 1,037,275
<OPERATING-INCOME-LOSS> 154,296
<OTHER-INCOME-NET> 5,036
<INCOME-BEFORE-INTEREST-EXPEN> 159,332
<TOTAL-INTEREST-EXPENSE> 63,718
<NET-INCOME> 91,287
1,142 <F2>
<EARNINGS-AVAILABLE-FOR-COMM> 91,287
<COMMON-STOCK-DIVIDENDS> 74,972
<TOTAL-INTEREST-ON-BONDS> 49,463
<CASH-FLOW-OPERATIONS> (11,294)
<EPS-PRIMARY> $1.43
<EPS-DILUTED> $1.42
<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>
