<PAGE>
File No. 30-33
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
FORM U-5-S
ANNUAL REPORT
FOR THE YEAR ENDED DECEMBER 31, 1997
Filed pursuant to the
Public Utility Holding Company Act of 1935 by
LOGO NEW ENGLAND ELECTRIC SYSTEM
25 Research Drive, Westborough, Massachusetts 01582
<PAGE>
<TABLE>
Item 1. SYSTEM COMPANIES AND INVESTMENT THEREIN AS OF DECEMBER 31, 1997 (1)
<CAPTION> Value Per
Books of
Percent of Issuer and
Number of Voting Power Carrying
Name of Company Common Shares (100% unless Value
(and abbreviation used herein) Owned Specified) to Owner
- ------------------------------ ------------- ------------ ---------
(000's)
<S> <C> <C> <C>
New England Electric System
(Voluntary Association) (NEES) None
Granite State Electric Company (Granite) 60,400 $ 20,867
Granite State Energy, Inc.
(Granite State Energy) 1,000 (283)
Unsecured Debt - 445
Massachusetts Electric
Company (Mass Electric) 2,398,111 500,300
Nantucket Electric Company (Nantucket) 1 4,669
The Narragansett Electric
Company (Narragansett) 1,132,487 291,691
Narragansett Energy Resources
Company (NERC) 25 2,846
Unsecured Debt - 750
NEES Energy, Inc. (NEES Energy) 1,000 (9,455)
Unsecured Debt - 22,717
NEES Global Transmission, (2)
Inc. (NEES Global) 1,000 (9,159)
Unsecured Debt - 14,074
New England Hydro-Transmission
Electric Company, Inc. (NEHTEC) 1,866,050 53.97 26,499
New England Hydro-Transmission
Corporation (NEHTC) 9,254 53.97 17,317
New England Electric Transmission
Corporation (NEET) 100 2,661
New England Energy
Incorporated (NEEI) (3) 2,500 (25,766)
Unsecured debt - 23,092
New England Power Service Company (NEPSCO) 3 18,189
New England Power Company (NEP) 6,449,896 99.71 913,019
Investment in NEP Preferred Stock 29,274
NEES Communications, Inc. (NEESCom) (4) 1,000 (633)
Unsecured debt - 925
----------
$1,844,039
==========
New England Hydro Finance Company
(NEHFC) (5) 504 53.97 $ 5
NERC
Ocean State Power (6) - 20.04 $ 19,529
Ocean State Power II (6) - 20.04 $ 15,206
NEES Energy
AllEnergy Marketing Company, LLC
(AllEnergy) (7) - 99
Texas Liquids Ltd, Inc.
NEES Global
AllEnergy Marketing Company, LLC
(AllEnergy) (7) 1
Texas Liquids Ltd, Inc.
NEP
Connecticut Yankee Atomic
Power Company 52,500 15 $ 16,585
Maine Yankee Atomic
Power Company 100,000 20 $ 15,627
Vermont Yankee Nuclear Power
Corporation 80,002 20 $ 10,526
Yankee Atomic Electric Company 46,020 30 $ 7,087
New England Wholesale Electric Company (8)*
NEERI International (9) *
<FN>
- --------------------
*Inactive.
</FN>
</TABLE>
<PAGE>
(1) Attached as Exhibit E.1. hereto is a schedule showing investments
during the year ended December 31, 1997 in the NEES Money Pool,
through which certain System companies lend to or borrow from
other System companies (Commission File Nos. 70-8679, 70-8901,
and 70-9089).
(2) At the board meeting held June 16, 1997, New England Electric
Resources, Inc. was renamed NEES Global Transmission, Inc. NEES
Global is a wholly-owned, nonutility subsidiary of NEES which
provides consulting and independent project development services
domestically and internationally to nonaffiliates.
(3) Samedan/NEEI Exploration Company was a partnership engaged in
oil and gas exploration and development. NEEI owns a 50% interest
in the partnership and had invested 738,024,794 in the
partnership as of December 31, 1997. NEEI sold it's oil and gas
properties in February 1998.
(4) NEESCom is a wholly-owned, nonutility subsidiary of NEES which
provides telecommunications and information-related products and
services, and was formed under the laws of Massachusetts on August
2, 1996.
(5) NEHFC has two shareholders, NEHTEC and NEHTC, which each have a
50% interest. The tabulation shown above reflects NEES' indirect
ownership in NEHFC.
(6) Both Ocean State Power and Ocean State Power II are general
partnerships; NERC owns a 20% equity interest in each.
(7) AllEnergy, a Massachusetts Limited Liability Corporation, was
formed on September 18, 1996 as an energy marketing joint venture
between NEES Energy and a wholly-owned subsidiary of Eastern
Enterprises, a regional gas holding company. On December 3, 1997,
NEES purchased Eastern Enterprises 50% interest. With this
purchase, ALLEnergy became a wholly-owned indirect subsidiary of
NEES. NEES Energy owns a 99% interest and NEES Global owns a 1%
interest. In December, 1996, AllEnergy acquired Texas Liquids
LTD, Inc. of New Jersey.
(8) Incorporated in 1972; not yet capitalized.
(9) In July 1996, NEERI International, a wholly-owned subsidiary of
NEES Global, was formed under the laws of the Cayman Islands.
NEES Global owned two shares of NEERI International until December
22, 1997, at which time NEES Global sold its two shares to a non-
affiliated third party.
Item 2. ACQUISITION OR SALES OF UTILITY ASSETS
(See attached Exhibit F, FERC Form 1 pages.)
Item 3. ISSUE, SALE, PLEDGE, GUARANTEE OR ASSUMPTION OF SYSTEM SECURITIES
(None to be reported.)
<PAGE>
<TABLE>
Item 4. ACQUISITION, REDEMPTION OR RETIREMENT OF SYSTEM SECURITIES
<CAPTION>
Calendar Year 1997
------------------
Name of Company
Acquiring,
Redeeming Number of Shares
or Retiring or Principal Amount Commission
Securities -------------------------- Authorization
(Issuer unless Redeemed or (Release No.
Name of Issuer otherwise noted) Acquired Retired (1) Consideration or Other)
-------------- ---------------- ----------- ------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
GRANITE STATE ENERGY
Sub. Promissory Note NEES $90,000 $90,000 26520
NEEI
Sub. Promissory Note NEES $2,595,360 $2,595,360 (A)
Sub. Promissory Note $500,000 $500,000 (A)
NEHFC
Secured Notes $11,520,000 $11,520,000 25304 & (B)
NEES ENERGY
Sub. Promissory Note NEES $21,062,500 $21,062,500 26520 & 26633
Sub. Promissory Note $2,850,000 $2,850,000
NEET
Common Stock 20 shares $559,011 24162
Secured Note $4,624,000 $4,624,000 24162
NEP
Bonds $38,500,000 $40,663,150 (B)
Preferred Stock NEES $29,091,500 $28,675,667 (B)
NARRAGANSETT
Bonds $32,500,000 $32,500,000 (B)
Preferred Stock NEES $23,700,150 $25,022,801 (B)
MASSACHUSETTS ELECTRIC
Bonds $30,000,000 $30,000,000 (B)
Preferred Stock NEES $34,261,475 $37,261,260 (B)
NEES GLOBAL
Sub. Promissory Note NEES $7,925,000 $7,925,000 (C)
Sub. Promissory Note $2,300,000 $2,300,000 (C)
NERC
Secured Notes $1,920,000 $1,920,000 26397 & (B)
<PAGE>
Item 4. ACQUISITION, REDEMPTION OR RETIREMENT OF SYSTEM SECURITIES (Cont.)
Calendar Year 1997
------------------
Name of Company
Acquiring,
Redeeming Number of Shares
or Retiring or Principal Amount Commission
Securities ------------------------ Authorization
(Issuer unless Redeemed or (Release No.
Name of Issuer otherwise noted) Acquired Retired (1) Consideration or Other)
-------------- ---------------- ----------- ------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
NEES COMMUNICATIONS, INC.
Sub. Promissory Note NEES $1,025,000 $1,025,000 (D)
Sub. Promissory Note $100,000 $100,000 (D)
NEES
Common Stock 283,000 shares $10,929,371 (B)
NANTUCKET
Bonds $765,000 $765,000 (B)
<FN>
- --------------------
(1) Securities were extinguished.
(A) SEC Release No. 24847 and Rule 45(b)(3).
(B) Rule 42.
(C) SEC Release No. 25261, 26017, 26057, 26235, 26277, 26291, & 26681.
(D) NEESCom is an Exempt Telecommunications Company pursuant to Section 34 of the Act.
</FN>
</TABLE>
<PAGE>
<TABLE>
Item 5. INVESTMENTS IN SECURITIES OF NONSYSTEM COMPANIES
As of December 31, 1997.
<CAPTION> Number of
Shares or General
Principal Percent Nature Carrying
Amount Voting of Issuer's Value
Name of Owner Name of Issuer Security Owned Owned Power Business to Owner
- ------------- -------------- -------------- --------- ------- ----------- -----------
(in thous.)
<S> <C> <C> <C> <C> <C> <C>
NEES UNITIL Corporation Capital Stock 34,400 shs. 0.8 Public $303
no par value Utility
Three Two business Stocks $ 74
Subsidiaries development
(A) corporations
<FN>
- --------------------
(A) Mass. Electric, Narragansett, and NEP.
</TABLE>
<PAGE>
<TABLE>
Item 6. OFFICERS AND DIRECTORS
Part I. As of December 31, 1997.
(Note A)
<CAPTION> Mass NEES
NEES Granite Elec Narra NEEI Global NEET NEP NEPSCO NEHTC NEHTEC NERC NEHFC
---- ------- ---- ----- ---- ----- ---- --- ------ ----- ------ ---- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Andrew H. Aitken VP s VP
- ---------------------------------------------------------------------------------------------------------------------------------
John Amoroso
245 S. Main Street, Hopedale, MA VP s
- ---------------------------------------------------------------------------------------------------------------------------------
Cynthia A. Arcate
9 Lowell Road, Salem, NH E-VP s
- ---------------------------------------------------------------------------------------------------------------------------------
Lawrence E. Bailey P D s
- ---------------------------------------------------------------------------------------------------------------------------------
Thomas J. Bascetta
9 Laurel St., Etna, NH D f
- ---------------------------------------------------------------------------------------------------------------------------------
Urville J. Beaumont
8 Samoset Dr., Salem, NH D f
- ---------------------------------------------------------------------------------------------------------------------------------
Francis X. Beirne
95 Sawyer Road, Waltham, MA s
- ---------------------------------------------------------------------------------------------------------------------------------
Timothy M. Bigler
95 Sawyer Road, Waltham, MA
- ---------------------------------------------------------------------------------------------------------------------------------
Joan T. Bok
22 Beacon St., Boston, MA D ChB D D D D D D D D f D D D D
- ---------------------------------------------------------------------------------------------------------------------------------
William M. Bulger
1 Beacon St., Boston, MA D f
- ---------------------------------------------------------------------------------------------------------------------------------
Marilyn R. Campbell
79 Brady Avenue, Salem, NH D f
- ---------------------------------------------------------------------------------------------------------------------------------
<PAGE>
Item 6. OFFICERS AND DIRECTORS
Part I. As of December 31, 1997.
(Note A)
Granite
State Nantucket NEES NEES Texas HydroServe
Energy Electric Comm. Energy AllEnergy Liquids Group
------ --------- ---- ------ --------- ------- ------
Andrew H. Aitken
- -------------------------------------------------------------------------------------------------------------
John Amoroso
245 S. Main Street, Hopedale, MA VP
- -------------------------------------------------------------------------------------------------------------
Cynthia A. Arcate
9 Lowell Road, Salem, NH
- -------------------------------------------------------------------------------------------------------------
Lawrence E. Bailey
- -------------------------------------------------------------------------------------------------------------
Thomas J. Bascetta
9 Laurel St., Etna, NH
- -------------------------------------------------------------------------------------------------------------
Urville J. Beaumont
8 Samoset Dr., Salem, NH
- -------------------------------------------------------------------------------------------------------------
Francis X. Beirne
95 Sawyer Road, Waltham, MA VP
- -------------------------------------------------------------------------------------------------------------
Timothy M. Bigler
95 Sawyer Road, Waltham, MA VP
- -------------------------------------------------------------------------------------------------------------
Joan T. Bok
22 Beacon St., Boston, MA D D D D
- -------------------------------------------------------------------------------------------------------------
William M. Bulger
1 Beacon St., Boston, MA
- -------------------------------------------------------------------------------------------------------------
Marilyn R. Campbell
79 Brady Avenue, Salem, NH
- -------------------------------------------------------------------------------------------------------------
<PAGE>
Item 6. OFFICERS AND DIRECTORS
Part I. As of December 31, 1997 (continued).
(Note A)
Mass NEES
NEES Granite Elec Narra NEEI Global NEET NEP NEPSCO NEHTC NEHTEC NERC NEHFC
---- ------- ---- ----- ---- ----- ---- --- ------ ----- ------ ---- -----
Stephen A. Cardi
400 Lincoln Ave., Warwick, RI D f
- ---------------------------------------------------------------------------------------------------------------------------------
John G. Cochrane T T T VP s T T T T
- ---------------------------------------------------------------------------------------------------------------------------------
Eric P. Cody VP s
- ---------------------------------------------------------------------------------------------------------------------------------
Sally L. Collins
23 Ridgewood Terrace,
Northampton, MA D f
- ---------------------------------------------------------------------------------------------------------------------------------
William R. Connallon
476 Union Ave., Middlesex, NJ
- ---------------------------------------------------------------------------------------------------------------------------------
Thomas Churbuck
- ---------------------------------------------------------------------------------------------------------------------------------
Debra M. Crowell s
- ---------------------------------------------------------------------------------------------------------------------------------
Dan C. Delurey VP s
- ---------------------------------------------------------------------------------------------------------------------------------
John H. Dickson
95 Sawyer Rd., Waltham, MA s
- ---------------------------------------------------------------------------------------------------------------------------------
Jeffrey A. Donahue P D VP s VP VP
- ---------------------------------------------------------------------------------------------------------------------------------
William J. Flaherty
1101 Turnpike St., No. Andover, MA VP s
- ---------------------------------------------------------------------------------------------------------------------------------
Peter G. Flynn VP s
- ---------------------------------------------------------------------------------------------------------------------------------
Andrea Foley-Stapleford VP s
- ---------------------------------------------------------------------------------------------------------------------------------
David Fredericks
2 Fairgrounds Rd., Nant., MA
- ---------------------------------------------------------------------------------------------------------------------------------
Richard W. Frost
55 Bearfoot Rd., Northboro, MA VP VP D VP VP s
- ---------------------------------------------------------------------------------------------------------------------------------
<PAGE>
Item 6. OFFICERS AND DIRECTORS
Part I. As of December 31, 1997 (continued).
(Note A)
Granite
State Nantucket NEES NEES Texas HydroServe
Energy Electric Comm. Energy AllEnergy Liquids Group
------ --------- ---- ------ --------- ------- -------
Stephen A. Cardi
400 Lincoln Ave., Warwick, RI
- -------------------------------------------------------------------------------------------------------------
John G. Cochrane T T
- -------------------------------------------------------------------------------------------------------------
Eric P. Cody
- -------------------------------------------------------------------------------------------------------------
Sally L. Collins
23 Ridgewood Terrace,
Northampton, MA
- -------------------------------------------------------------------------------------------------------------
William R. Connallon
476 Union Ave., Middlesex, NJ P s
- -------------------------------------------------------------------------------------------------------------
Thomas Churbuck P S s
- -------------------------------------------------------------------------------------------------------------
Debra M. Crowell T s
- -------------------------------------------------------------------------------------------------------------
Dan C. Delurey
- -------------------------------------------------------------------------------------------------------------
John H. Dickson
95 Sawyer Rd., Waltham, MA P D P
- -------------------------------------------------------------------------------------------------------------
Jeffrey A. Donahue
- -------------------------------------------------------------------------------------------------------------
William J. Flaherty
1101 Turnpike St., No. Andover, MA
- -------------------------------------------------------------------------------------------------------------
Peter G. Flynn
- -------------------------------------------------------------------------------------------------------------
Andrea Foley-Stapleford
- -------------------------------------------------------------------------------------------------------------
David Fredericks
2 Fairgrounds Rd., Nant., MA VP s
- -------------------------------------------------------------------------------------------------------------
Richard W. Frost
55 Bearfoot Rd., Northboro, MA
- -------------------------------------------------------------------------------------------------------------
<PAGE>
Item 6. OFFICERS AND DIRECTORS
Part I. As of December 31, 1997 (continued).
(Note A)
Mass NEES
NEES Granite Elec Narra NEEI Global NEET NEP NEPSCO NEHTC NEHTEC NERC NEHFC
---- ------- ---- ----- ---- ----- ---- --- ------ ----- ------ ---- -----
Frances H. Gammell
200 Providence Street, P.O. Box 1007
W. Warwick, RI D f
- ---------------------------------------------------------------------------------------------------------------------------------
Ronald T. Gerwatowski
280 Melrose St., Providence, RI S s
- ---------------------------------------------------------------------------------------------------------------------------------
Dr. Kalyan K. Ghosh
486 Chandler St., Worcester, MA D f
- ---------------------------------------------------------------------------------------------------------------------------------
Peter H. Gibson
95 Sawyer Road, Waltham, MA
- ---------------------------------------------------------------------------------------------------------------------------------
Don F. Goodwin VP s
- ---------------------------------------------------------------------------------------------------------------------------------
Christopher G. Gulick
95 Sawyer Road, Waltham, MA
- ---------------------------------------------------------------------------------------------------------------------------------
Michael E. Hachey VP s
- ---------------------------------------------------------------------------------------------------------------------------------
Gregory A. Hale s
- ---------------------------------------------------------------------------------------------------------------------------------
George W. Harris
Ledge Road, Pelham, NH D f
- ---------------------------------------------------------------------------------------------------------------------------------
Nicholas D. N. Harvey, Jr.
41 S. Park Street, Hanover, NH D f
- ---------------------------------------------------------------------------------------------------------------------------------
William H. Heil
95 Sawyer Road, Waltham, MA
- ---------------------------------------------------------------------------------------------------------------------------------
David L. Holt E-VP s
- ---------------------------------------------------------------------------------------------------------------------------------
Charles B. Housen
120 E. Main Street, Erving, MA D f
- ---------------------------------------------------------------------------------------------------------------------------------
<PAGE>
Item 6. OFFICERS AND DIRECTORS
Part I. As of December 31, 1997 (continued).
(Note A)
Granite
State Nantucket NEES NEES Texas HydroServe
Energy Electric Comm. Energy AllEnergy Liquids Group
------ --------- ---- ------ --------- ------- ----------
Frances H. Gammell
200 Providence Street, P.O. Box 1007
W. Warwick, RI
- -------------------------------------------------------------------------------------------------------------
Ronald T. Gerwatowski
280 Melrose St., Providence, RI
- -------------------------------------------------------------------------------------------------------------
Dr. Kalyan K. Ghosh
486 Chandler St., Worcester, MA
- -------------------------------------------------------------------------------------------------------------
Peter H. Gibson
95 Sawyer Road, Waltham, MA VP
- -------------------------------------------------------------------------------------------------------------
Don F. Goodwin
- -------------------------------------------------------------------------------------------------------------
Christopher G. Gulick
95 Sawyer Road, Waltham, MA VP
- -------------------------------------------------------------------------------------------------------------
Michael E. Hachey
- -------------------------------------------------------------------------------------------------------------
Gregory A. Hale S C
- -------------------------------------------------------------------------------------------------------------
George W. Harris
Ledge Road, Pelham, NH
- -------------------------------------------------------------------------------------------------------------
Nicholas D. N. Harvey, Jr.
41 S. Park Street, Hanover, NH
- -------------------------------------------------------------------------------------------------------------
William H. Heil
95 Sawyer Road, Waltham, MA Ch Ch
- -------------------------------------------------------------------------------------------------------------
David L. Holt
- -------------------------------------------------------------------------------------------------------------
Charles B. Housen
120 E. Main Street, Erving, MA
- -------------------------------------------------------------------------------------------------------------
<PAGE>
Item 6. OFFICERS AND DIRECTORS
Part I. As of December 31, 1997 (continued).
(Note A)
Mass NEES
NEES Granite Elec Narra NEEI Global NEET NEP NEPSCO NEHTC NEHTEC NERC NEHFC
---- ------- ---- ----- ---- ----- ---- --- ------ ----- ------ ---- -----
Alfred D. Houston E-VP VP T D P D D D D P s D D D D
- ---------------------------------------------------------------------------------------------------------------------------------
Michael E. Jesanis VP T T T T s
- ---------------------------------------------------------------------------------------------------------------------------------
Paul L. Joskow
7 Chilton Street, Brookline, MA D f
- ---------------------------------------------------------------------------------------------------------------------------------
David C. Kennedy VP s
- ---------------------------------------------------------------------------------------------------------------------------------
Joseph J. Kirby
38 Elm Street, Westerly, RI D f
- ---------------------------------------------------------------------------------------------------------------------------------
John M. Kucharski
45 William Street, Wellesley, MA D f
- ---------------------------------------------------------------------------------------------------------------------------------
Edward H. Ladd
125 Claybrook Rd., Dover, MA D f
- ---------------------------------------------------------------------------------------------------------------------------------
Cheryl A. LaFleur VP S D D D VP D VP Ds D D D D
- ---------------------------------------------------------------------------------------------------------------------------------
Shannon M. Larson
280 Melrose St., Providence, RI VP s
- ---------------------------------------------------------------------------------------------------------------------------------
Ralph E. Loomis
633 Penn. Ave., NW 6th floor
Washington, DC VP s
- ---------------------------------------------------------------------------------------------------------------------------------
John F. Malley VP s P D
- ---------------------------------------------------------------------------------------------------------------------------------
Paul R. Marshall
55 Bearfoot Rd., Northboro, MA S s S S
- ---------------------------------------------------------------------------------------------------------------------------------
<PAGE>
Item 6. OFFICERS AND DIRECTORS
Part I. As of December 31, 1997 (continued).
(Note A)
Granite
State Nantucket NEES NEES Texas HydroServe
Energy Electric Comm. Energy AllEnergy Liquids Group
------ --------- ---- ------ --------- ------- -------
Alfred D. Houston D D D VP D
- -------------------------------------------------------------------------------------------------------------
Michael E. Jesanis
- -------------------------------------------------------------------------------------------------------------
Paul L. Joskow
7 Chilton Street, Brookline, MA
- -------------------------------------------------------------------------------------------------------------
David C. Kennedy D
- -------------------------------------------------------------------------------------------------------------
Joseph J. Kirby
38 Elm Street, Westerly, RI
- -------------------------------------------------------------------------------------------------------------
John M. Kucharski
45 William Street, Wellesley, MA
- -------------------------------------------------------------------------------------------------------------
Edward H. Ladd
125 Claybrook Rd., Dover, MA
- -------------------------------------------------------------------------------------------------------------
Cheryl A. LaFleur D D D
- -------------------------------------------------------------------------------------------------------------
Shannon M. Larson
280 Melrose St., Providence, RI
- -------------------------------------------------------------------------------------------------------------
Ralph E. Loomis
633 Penn. Ave., NW 6th floor
Washington, DC
- -------------------------------------------------------------------------------------------------------------
John F. Malley
- -------------------------------------------------------------------------------------------------------------
Paul R. Marshall
55 Bearfoot Rd., Northboro, MA
- -------------------------------------------------------------------------------------------------------------
<PAGE>
Item 6. OFFICERS AND DIRECTORS
Part I. As of December 31, 1997 (continued).
(Note A)
Mass NEES
NEES Granite Elec Narra NEEI Global NEET NEP NEPSCO NEHTC NEHTEC NERC NEHFC
---- ------- ---- ----- ---- ----- ---- --- ------ ----- ------ ---- -----
Robert L. McCabe
280 Melrose St., Providence, RI Ch D Ch D Ch Ds
- ---------------------------------------------------------------------------------------------------------------------------------
Joshua A. McClure
P.O. Box 1119, Westerly, RI D f
- ---------------------------------------------------------------------------------------------------------------------------------
Howard W. McDowell D T Co Co Co Co Co s Co Co Co Co
- ---------------------------------------------------------------------------------------------------------------------------------
Patricia McGovern
400 Atlantic Avenue, Boston, MA D f
- ---------------------------------------------------------------------------------------------------------------------------------
Robert H. McLaren VP s
- ---------------------------------------------------------------------------------------------------------------------------------
James P. Meehan s
- ---------------------------------------------------------------------------------------------------------------------------------
Howard R. Mortenson
P.O. Box 885, Charlestown, NH D f
- ---------------------------------------------------------------------------------------------------------------------------------
Charles H. Moser
55 Bearfoot Rd., Northboro, MA VP s
- ---------------------------------------------------------------------------------------------------------------------------------
Richard Nadeau
280 Melrose St., Providence, RI VP s
- ---------------------------------------------------------------------------------------------------------------------------------
James A. Newmann
476 Union Ave., Middlesex, NJ
- ---------------------------------------------------------------------------------------------------------------------------------
Kwong O. Nuey
55 Bearfoot Rd., Northboro, MA VP s
- ---------------------------------------------------------------------------------------------------------------------------------
Rosemarie O'Donahue
476 Union Ave., Middlesex, NJ
- ---------------------------------------------------------------------------------------------------------------------------------
Richard J. Oldach
95 Sawyer Road, Waltham, MA
- ---------------------------------------------------------------------------------------------------------------------------------
Chester O. Paradise VP s
- ---------------------------------------------------------------------------------------------------------------------------------
<PAGE>
Item 6. OFFICERS AND DIRECTORS
Part I. As of December 31, 1997 (continued).
(Note A)
Granite
State Nantucket NEES NEES Texas HydroServe
Energy Electric Comm. Energy AllEnergy Liquids Group
------ --------- ---- ------ --------- ------- -------
Robert L. McCabe
280 Melrose St., Providence, RI Ch D
- -------------------------------------------------------------------------------------------------------------
Joshua A. McClure
P.O. Box 1119, Westerly, RI
- -------------------------------------------------------------------------------------------------------------
Howard W. McDowell T Co
- -------------------------------------------------------------------------------------------------------------
Patricia McGovern
400 Atlantic Avenue, Boston, MA
- -------------------------------------------------------------------------------------------------------------
Robert H. McLaren T
- -------------------------------------------------------------------------------------------------------------
James P. Meehan C
- -------------------------------------------------------------------------------------------------------------
Howard R. Mortenson
P.O. Box 885, Charlestown, NH
- -------------------------------------------------------------------------------------------------------------
Charles H. Moser
55 Bearfoot Rd., Northboro, MA
- -------------------------------------------------------------------------------------------------------------
Richard Nadeau
280 Melrose St., Providence, RI
- -------------------------------------------------------------------------------------------------------------
James A. Neumann
476 Union Ave., Middlesex, NJ VP
- -------------------------------------------------------------------------------------------------------------
Kwong O. Nuey
55 Bearfoot Rd., Northboro, MA
- -------------------------------------------------------------------------------------------------------------
Rosemarie O'Donahue
476 Union Ave., Middlesex, NJ VP
- -------------------------------------------------------------------------------------------------------------
Richard J. Oldach
95 Sawyer Road, Waltham, MA VP VP
- -------------------------------------------------------------------------------------------------------------
Chester O. Paradise
- -------------------------------------------------------------------------------------------------------------
<PAGE>
Item 6. OFFICERS AND DIRECTORS
Part I. As of December 31, 1997 (continued).
(Note A)
Mass NEES
NEES Granite Elec Narra NEEI Global NEET NEP NEPSCO NEHTC NEHTEC NERC NEHFC
---- ------- ---- ----- ---- ----- ---- --- ------ ----- ------ ---- -----
Lydia M. Pastuszek
55 Bearfoot Rd., Northboro, MA Sr-VP Sr-VP Sr-VP s
- ---------------------------------------------------------------------------------------------------------------------------------
Frank L. Peraino
95 Sawyer Road, Waltham, MA
- ---------------------------------------------------------------------------------------------------------------------------------
Anthony C. Pini VP VP s
- ---------------------------------------------------------------------------------------------------------------------------------
Kirk L. Ramsauer C s C C
- ---------------------------------------------------------------------------------------------------------------------------------
Marcy L. Reed
95 Sawyer Road, Waltham, MA
- ---------------------------------------------------------------------------------------------------------------------------------
John F. Reilly
1 Merrimack Plaza, Lowell, MA D f
- ---------------------------------------------------------------------------------------------------------------------------------
Lawrence J. Reilly
55 Bearfoot Rd., Northboro, MA P D P D P D s
- ---------------------------------------------------------------------------------------------------------------------------------
Thomas E. Rogers VP s
- ---------------------------------------------------------------------------------------------------------------------------------
Christopher E. Root
55 Bearfoot Rd., Northboro, MA Sr-VP Sr-VP Sr-VP s
- ---------------------------------------------------------------------------------------------------------------------------------
John W. Rowe P D D D Ch D D D Ch D Ch D s D D D D
- ---------------------------------------------------------------------------------------------------------------------------------
Michael F. Ryan
280 Melrose St., Providence, RI D VPs
- ---------------------------------------------------------------------------------------------------------------------------------
George M. Sage
P.O. Box 9527, Providence, RI D f
- ---------------------------------------------------------------------------------------------------------------------------------
Nancy H. Sala
939 Southbridge St.,
Worcester, MA VP s
- ---------------------------------------------------------------------------------------------------------------------------------
Richard P. Sergel Sr-VP D D D D P D D s P D P D P D
- ---------------------------------------------------------------------------------------------------------------------------------
<PAGE>
Item 6. OFFICERS AND DIRECTORS
Part I. As of December 31, 1997 (continued).
(Note A)
Granite
State Nantucket NEES NEES Texas HydroServe
Energy Electric Comm. Energy AllEnergy Liquids Group
------ --------- ---- ------ --------- ------- --------
Lydia M. Pastuszek
55 Bearfoot Rd., Northboro, MA
- -------------------------------------------------------------------------------------------------------------
Frank L. Peraino
95 Sawyer Road, Waltham, MA VP
- -------------------------------------------------------------------------------------------------------------
Anthony C. Pini P D
- -------------------------------------------------------------------------------------------------------------
Kirk L. Ramsauer C S S
- -------------------------------------------------------------------------------------------------------------
Marcy L. Reed
95 Sawyer Road, Waltham, MA VP T VP T
- -------------------------------------------------------------------------------------------------------------
John F. Reilly
1 Merrimack Plaza, Lowell, MA
- -------------------------------------------------------------------------------------------------------------
Lawrence J. Reilly
55 Bearfoot Rd., Northboro, MA P D
- -------------------------------------------------------------------------------------------------------------
Thomas E. Rogers
- -------------------------------------------------------------------------------------------------------------
Christopher E. Root
55 Bearfoot Rd., Northboro, MA
- -------------------------------------------------------------------------------------------------------------
John W. Rowe D D P D
- -------------------------------------------------------------------------------------------------------------
Michael F. Ryan
280 Melrose St., Providence, RI
- -------------------------------------------------------------------------------------------------------------
George M. Sage
P.O. Box 9527, Providence, RI
- -------------------------------------------------------------------------------------------------------------
Nancy H. Sala
939 Southbridge St.,
Worcester, MA
- -------------------------------------------------------------------------------------------------------------
Richard P. Sergel D
- -------------------------------------------------------------------------------------------------------------
<PAGE>
Item 6. OFFICERS AND DIRECTORS
Part I. As of December 31, 1997 (continued).
(Note A)
Mass NEES
NEES Granite Elec Narra NEEI Global NEET NEP NEPSCO NEHTC NEHTEC NERC NEHFC
---- ------- ---- ----- ---- ----- ---- --- ------ ----- ------ ---- -----
Dennis E. Snay
55 Bearfoot Rd., Northboro, MA Sr-VP s
- ---------------------------------------------------------------------------------------------------------------------------------
Charles E. Soule
50 O'Neill Drive,
Westboro, MA D f
- ---------------------------------------------------------------------------------------------------------------------------------
William E. Trueheart
2804 Chesterfield Pl. N.W.
Washington, DC D f
- ---------------------------------------------------------------------------------------------------------------------------------
Arnold H. Turner VP VP s VP VP VP
- ---------------------------------------------------------------------------------------------------------------------------------
John G. Upham II
170 Medford St., Malden, MA VP s
- ---------------------------------------------------------------------------------------------------------------------------------
Jeffrey W. VanSant VP VP s
- ---------------------------------------------------------------------------------------------------------------------------------
William Watkins, Jr.
280 Melrose Street,
Providence, RI E-VP s
- ---------------------------------------------------------------------------------------------------------------------------------
Roslyn M. Watson
25 Braddock Park, Boston, MA D f
- ---------------------------------------------------------------------------------------------------------------------------------
Anne Wexler
1317 F Street, N.W., Suite 600
Washington, DC D f
- ---------------------------------------------------------------------------------------------------------------------------------
James Q. Wilson
32910 Camino de Buena Ventura,
Malibu, CA D f
- ---------------------------------------------------------------------------------------------------------------------------------
<PAGE>
Item 6. OFFICERS AND DIRECTORS
Part I. As of December 31, 1997 (continued).
(Note A)
Granite
State Nantucket NEES NEES Texas HydroServe
Energy Electric Comm. Energy AllEnergy Liquids Group
------ --------- ---- ------ --------- ------- --------
Dennis E. Snay
55 Bearfoot Rd., Northboro, MA
- -------------------------------------------------------------------------------------------------------------
Charles E. Soule
50 O'Neill Drive,
Westboro, MA
- -------------------------------------------------------------------------------------------------------------
William E. Trueheart
2804 Chesterfield Pl., N.W.
Washington, DC
- -------------------------------------------------------------------------------------------------------------
Arnold H. Turner
- -------------------------------------------------------------------------------------------------------------
John G. Upham II
170 Medford St., Malden, MA
- -------------------------------------------------------------------------------------------------------------
Jeffrey W. VanSant
- -------------------------------------------------------------------------------------------------------------
William Watkins, Jr.
280 Melrose Street,
Providence, RI
- -------------------------------------------------------------------------------------------------------------
Roslyn M. Watson
25 Braddock Park, Boston, MA
- -------------------------------------------------------------------------------------------------------------
Anne Wexler
1317 F Street, N.W., Suite 600
Washington, DC
- -------------------------------------------------------------------------------------------------------------
James Q. Wilson
32910 Camino de Buena Ventura,
Malibu, CA
- -------------------------------------------------------------------------------------------------------------
<PAGE>
Item 6. OFFICERS AND DIRECTORS
Part I. As of December 31, 1997 (continued).
(Note A)
Mass NEES
NEES Granite Elec Narra NEEI Global NEET NEP NEPSCO NEHTC NEHTEC NERC NEHFC
---- ------- ---- ----- ---- ----- ---- --- ------ ----- ------ ---- -----
James R. Winoker
222 Richmond Street
Providence, RI D f
- ---------------------------------------------------------------------------------------------------------------------------------
Robert King Wulff C C S C s S
- ---------------------------------------------------------------------------------------------------------------------------------
Geraldine M. Zipser C s
- ---------------------------------------------------------------------------------------------------------------------------------
<PAGE>
Item 6. OFFICERS AND DIRECTORS
Part I. As of December 31, 1997 (continued).
(Note A)
Granite
State Nantucket NEES NEES Texas HydroServe
Energy Electric Comm. Energy AllEnergy Liquids Group
------ --------- ---- ------ --------- ------- --------
James R. Winoker
222 Richmond Street
Providence, RI
- -------------------------------------------------------------------------------------------------------------
Robert King Wulff S
- -------------------------------------------------------------------------------------------------------------
Geraldine M. Zipser
- -------------------------------------------------------------------------------------------------------------
Key: Ch-Chairman; ChB-Chairman of the Board; VCh-Vice Chairman; D-Director; P-President; E-VP-Executive Vice President;
Sr-VP-Senior Vice President; VP-F-Vice President--Finance; VP-Vice President; T-Treasurer; Co-Controller; C-Clerk;
S-Secretary; s-Salary; f-Fee.
Note A: Address is 25 Research Drive, Westborough, Massachusetts 01582 unless otherwise indicated.
</TABLE>
<PAGE>
<TABLE>
Item 6. OFFICERS AND DIRECTORS
Part II. Financial Connections as of December 31, 1997.
<CAPTION>
Position
Name and Held in
Name of Location of Financial Applicable
Officer or Financial Institution Exemption
Director Institution (g) Rule
---------- ----------- ----------- ----------
<S> <C> <C> <C>
William M. Bulger Citizens Bank of Massachusetts D a
Boston, MA
Joseph J. Kirby The Washington Trust Co., C c
Westerly, RI
John M. Kucharski State Street Boston Corp., D a
Boston, MA
Robert L. McCabe Citizen Savings Bank, D c,f
Providence, RI
John F. Reilly Family Bank, D c
Haverhill, MA
John W. Rowe First National Bank of Boston, D a,c,d,e,f
Boston, MA
Bank of Boston Corporation, D a,c,d,e,f
Boston, MA
Charles E. Soule Westboro Savings Bank T a
Westboro, MA
William Watkins, Jr. Rhode Island Hospital Trust D f
National Bank,
Providence, RI
Roslyn M. Watson The Dreyfus Laurel Funds, T d
New York, NY
American Express Centurion D d
Bank, Wilmington, DE
<FN>
- --------------------
a - Rule 70(a)
b - Rule 70(b)
c - Rule 70(c)
d - Rule 70(d)
e - Rule 70(e)
f - Rule 70(f)
g - C-Chairman & CEO; D-Director; T-Trustee
</FN>
</TABLE>
Item 6. OFFICERS AND DIRECTORS
Part III.
Disclosures made in proxy statements and annual reports on Form 10-K,
filed in 1998, follow:
<PAGE>
<TABLE>
NEES
SUMMARY COMPENSATION TABLE
<CAPTION>
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)
- ------------ ---- ------ ------ ----------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Richard P. 1997 244,893 242,020 8,764 51,043 781
Sergel, 1996 212,700 110,724 5,366 138,376 3,535
President and 1995 184,956 139,373 4,877 0 3,424
Chief Executive
Officer
(elected 2/6/98)
John W. Rowe, 1997 597,600 285,692 12,599 152,206 2,544
Former President 1996 537,600 287,896 9,093 370,288 4,891
and Chief 1995 537,600 427,213 9,568 0 4,750
Executive
Officer
Alfred D. 1997 345,072 314,028 9,616 88,573 1,836
Houston, 1996 335,016 167,306 6,265 182,267 4,649
Executive Vice 1995 262,800 177,663 5,753 0 4,180
President
Cheryl A. LaFleur 1997 176,388 192,437 6,827 37,768 335
Senior 1996 165,624 89,477 4,059 106,020 3,251
Vice President, 1995 125,616 107,617 116 0 2,721
General Counsel
and Secretary
Michael E. 1997 164,736 188,213 7,399 31,866 320
Jesanis, Senior 1996 153,995 80,070 4,007 101,376 3,218
Vice President 1995 140,784 85,703 275 27,718 3,012
and Chief
Financial Officer
</TABLE>
(a) Officers of NEES also hold various positions with subsidiary companies.
Compensation for these positions is included in this table.
(b) Includes deferred compensation in category and year earned.
(c) The bonus figures represent: cash bonuses under an incentive
compensation plan; the all-employee goals program; the variable match
of the Incentive Thrift Plan including related deferred compensation
plan matches; special cash bonuses; and unrestricted shares under the
Incentive Share Plan. See descriptions under Plan Summaries.
In 1996 and 1997, the bonus amounts were all cash or contributions to
the Incentive Thrift Plan, including related deferred compensation plan
matches. In 1995, Mr. Sergel's bonus was $96,649 in cash and
contributions and $42,724 in shares; Mr. Rowe's bonus was $276,728 in
cash and contributions and $150,485 in shares; Mr. Houston's bonus was
$123,160 in cash and contributions and $54,503 in shares; Ms. LaFleur's
bonus was $84,370 in cash and contributions and $23,247 in shares; and
Mr. Jesanis's bonus was $85,703 in cash and contributions and $27,718
in shares.
<PAGE>
(d) Includes amounts reimbursed by NEES for the payment of taxes on certain
noncash benefits and System contributions to the Incentive Thrift Plan
that are not bonus contributions including related deferred
compensation plan match. See description under Plan Summaries.
(e) The incentive share awards for the named executives made for 1996 and
1997 were in the form of restricted shares (with a five-year
restriction) or deferred share equivalents, deferred for receipt for at
least five years, at the executive's option. As cash dividends are
declared, the number of deferred share equivalents will be increased as
if the dividends were reinvested in shares. See also Payments Upon a
Change in Control below. The shares awarded for 1995 were not
restricted and the value of the awards is included in the bonus column.
As of December 31, 1997, the following executive officers held the
amount of restricted and deferred share equivalents with the value
indicated: Mr. Sergel 8,698 shares, $371,840 value; Mr. Rowe 28,380
shares, $1,213,245 value; Mr. Houston 11,689 shares, $499,705 value;
Ms. LaFleur 5,890 shares, $251,798 value; and Mr. Jesanis 6,233 shares,
$266,461 value. The value was calculated by multiplying the closing
market price on December 31, 1997, by the number of shares.
No awards vested during 1997 under NEES' Long- Term Performance Share
Award Plan. See Long Term Incentive Plan - Awards in Last Fiscal Year.
(f) Includes Company contributions to life insurance. See description under
Plan Summaries. The life insurance contribution is calculated based on
the value of term life insurance for the named individuals. The
premium costs for most of these policies have been or will be recovered
by the Company. Prior to 1997, this column also included Company
contributions to the Incentive Thrift Plan that are not bonus
contributions. These figures are now included in the Other Annual
Compensation column.
<PAGE>
<TABLE>
NEP
SUMMARY COMPENSATION TABLE
<CAPTION>
Long-Term
Compensa-
Annual Compensation (b) tion
-------------------------- ---------
Other Restricted
Name and Annual & Deferred All Other
Principal Compensa- Share Compensa-
Position Year Salary Bonus tion Awards tion
(a) ($) ($)(c) ($)(d) ($)(e) ($)(f)
- ---------- ---- ------- ------ --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Lawrence E. 1997 156,516 188,214 3,316 0 600
Bailey 1996 151,956 101,667 116 0 3,776
President 1995 144,720 92,328 116 0 3,598
John W. 1997 217,987 104,212 4,596 55,520 928
Rowe(g) 1996 180,096 96,445 3,046 124,047 1,638
Former 1995 157,070 124,818 2,795 0 1,387
Chairman
Jeffrey D. 1997 154,433 133,560 8,274 0 1,077,143(h)
Tranen 1996 200,684 100,548 5,002 125,836 3,358
Former 1995 188,884 135,224 4,972 0 3,377
President
Andrew H. 1997 122,580 78,193 2,231 0 416
Aitken 1996 119,004 75,370 116 0 2,568
Vice 1995 107,081 66,683 108 0 2,243
President
John F. 1997 140,280 96,072 2,922 0 375
Malley 1996 133,394 104,885 116 0 3,141
Vice 1995 127,236 96,261 116 0 2,907
President
Arnold H. 1997 132,012 81,953 2,228 0 628
Turner 1996 128,172 89,185 116 0 2,849
Vice 1995 128,172 65,439 116 0 2,276
President
</TABLE>
(a) Certain officers of NEP are also officers of NEES and various other
System companies.
(b) Includes deferred compensation in category and year earned.
(c) The bonus figure represents: cash bonuses under an incentive
compensation plan, the all-employee goals program, the variable match of
the incentive thrift plan, including related deferred compensation plan
matches, special cash bonuses, and unrestricted shares under the
incentive share plan. See descriptions under Plan Summaries.
(d) Includes amounts reimbursed by NEP for the payment of taxes on certain
noncash benefits and contributions to the incentive thrift plan by NEP
that are not bonus contributions including related deferred compensation
plan match. See description under Plan Summaries.
<PAGE>
(e) The incentive share awards for the named executives who are also NEES
executives made for 1996 and 1997 were in the form of restricted shares
(with a five-year restriction) or deferred share equivalents, deferred
for receipt for at least five years, at the executive's option. As cash
dividends are declared, the number of deferred share equivalents will be
increased as if the dividends were reinvested in shares. The shares
awarded for the other named executives and for all executives for 1995
were not restricted and the value of the awards is included in the bonus
column.
As of December 31, 1997, the following executive officers held the
amount of restricted and deferred shares with the value indicated: Mr.
Bailey 3,892 shares, $166,383 value; Mr. Rowe 28,380 shares, $1,213,245
value; Mr. Aitken 3,044 shares, $130,131 value; Mr. Malley 3,759 shares,
$160,697 value; and Mr. Turner 2,625 shares, $112,218 value. The value
was calculated by multiplying the closing market price on December 31,
1997 by the number of shares.
No awards vested during 1997 under the Long-Term Performance Share Award
Plan.
(f) Includes NEP contributions to life insurance. See description under
Plan Summaries. The life insurance contribution is calculated based on
the value of term life insurance for the named individuals. The premium
costs for most of these policies have been or will be recovered by NEP.
Prior to 1997, this column also included contributions by NEP to the
incentive thrift plan that are not bonus contributions. These figures
are now included in the Other Annual Compensation column.
(g) Mr. Rowe resigned effective February 6, 1998.
(h) Mr. Tranen resigned effective September 12, 1997. All Other
Compensation includes: $830 for contributions to life insurance as
described in footnote (f) above, $28,452 as accrued vacation pay,
$621,081 as a severance payment, and $426,780 in pension related
benefits.
<PAGE>
<TABLE>
MASS. ELECTRIC
SUMMARY COMPENSATION TABLE
<CAPTION>
Long-Term
Compensa-
Annual Compensation (b) tion
-------------------------- ---------
Other Restricted
Name and Annual & Deferred All Other
Principal Compen- Share Compensa-
Position Year Salary Bonus sation Awards tion
(a) ($) ($)(c) ($)(d) ($)(e) ($)(f)
- ---------- ---- ------- ------ -------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Lawrence J. 1997 160,515 168,637 6,910 0 448
Reilly 1996 96,163 70,177 2,467 46,082 2,250
President 1995 38,561 34,985 37 0 986
Richard P. 1997 149,549 147,794 5,352 31,170 477
Sergel 1996 135,213 70,388 3,411 87,965 2,247
Former 1995 123,480 93,047 3,256 0 2,285
Chairman
Lydia M. 1997 125,481 81,944 2,544 0 241
Pastuszek 1996 86,068 52,017 69 22,115 1,893
Senior Vice 1995 86,597 53,204 72 0 2,403
President
Christopher E. 1997 98,421 103,890 2,067 0 147
Root 1996 92,055 67,050 99 0 2,032
Senior Vice 1995 84,173 37,158 89 0 1,537
President
Nancy H. 1997 124,344 60,661 2,603 0 283
Sala 1996 118,251 65,493 116 0 2,730
Vice 1995 115,524 59,932 116 0 2,498
President
</TABLE>
(a) Certain officers of Mass. Electric are also officers of NEES and various
other System companies.
(b) Includes deferred compensation in category and year earned.
(c) The bonus figure represents: cash bonuses under an incentive
compensation plan, the all-employee goals program, the variable match of
the incentive thrift plan, and unrestricted shares under the incentive
share plan or special share bonuses. See descriptions under Plan
Summaries.
(d) Includes amounts reimbursed by Mass. Electric for the payment of taxes
on certain noncash benefits and contributions to the incentive thrift
plan by Mass. Electric that are not bonus contributions including
related deferred compensation plan match. See description under Plan
Summaries.
(e) The incentive share awards for the named executives who are also NEES
executives made for 1996 and 1997 were in the form of restricted shares
(with a five-year restriction) or deferred share equivalents, deferred
for receipt for at least five years, at the executive's option. As cash
dividends are declared, the number of deferred share equivalents will be
increased as if the dividends were reinvested in shares. In 1996,
certain named officers also received special share awards in the form of
deferred share equivalents. The shares awarded for the other named
officers and for all executives for 1995 were not restricted and the
value of the awards is included in the bonus column.
<PAGE>
As of December 31, 1997, the following executive officers held the
amount of restricted and deferred shares with the value indicated: Mr.
Reilly 6,320 shares, $270,180 value; Mr. Sergel 8,698 shares, $371,840
value; Ms. Pastuszek 2,886 shares, $123,377 value; Mr. Root 2,632
shares, $112,518 value; and Ms. Sala 1,989 shares, $85,030 value. The
value was calculated by multiplying the closing market price on December
31, 1997 by the number of shares.
No awards vested during 1997 under the Long-Term Performance Share Award
Plan.
(f) Includes Mass. Electric contributions to life insurance. See
description under Plan Summaries. The life insurance contribution is
calculated based on the value of term life insurance for the named
individuals. The premium costs for most of these policies have been or
will be recovered by Mass. Electric. Prior to 1997, this column also
included contributions by Mass. Electric to the incentive thrift plan
that are not bonus contributions. These figures are now included in the
Other Annual Compensation column.
<PAGE>
NARRAGANSETT
<TABLE>
SUMMARY COMPENSATION TABLE
<CAPTION>
Long-Term
Compensa-
Annual Compensation (b) tion
-------------------------- ---------
Other Restricted
Name and Annual & Deferred All Other
Principal Compensa- Share Compensa-
Position Year Salary Bonus tion Awards tion
(a) ($) ($)(c) ($)(d) ($)(e) ($)(f)
- ---------- ---- ------- ------ --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Robert L. 1997 179,460 148,868 9,881 0 1,528
McCabe 1996 127,388 88,905 4,819 50,308 3,424
Chairman 1995 152,407 111,785 4,206 0 4,851
and Former
President
Lawrence J. 1997 679 452 29 0 1
Reilly 1996 16,329 11,916 419 7,825 382
President(g) 1995 30,322 26,625 29 0 622
William 1997 135,972 84,924 2,839 0 88,885(h)
Watkins, 1996 132,012 84,081 119 0 4,509
Jr. 1995 128,172 77,967 119 0 4,054
Executive
Vice
President
Richard W. 1997 113,856 52,347 2,396 0 596
Frost 1996 108,432 57,680 119 0 2,888
Vice 1995 103,272 48,972 119 0 2,787
President
Shannon M. 1997 105,012 51,259 2,220 0 330
Larson 1996 81,293 21,879 116 0 1,808
Vice 1995 68,432 2,908 132 0 1,809
President
Michael F. 1997 103,983 52,060 2,197 0 220
Ryan 1996 64,555 18,397 77 0 1,473
Vice 1995 74,917 14,499 94 0 231
President
</TABLE>
(a) Certain officers of Narragansett are also officers of NEES and various
other System companies.
(b) Includes deferred compensation in category and year earned.
(c) The bonus figure represents: cash bonuses under an incentive
compensation plan, the all-employee goals program, the variable match of
the incentive thrift plan, and unrestricted shares under the incentive
share plan or special share bonuses. See descriptions under Plan
Summaries.
(d) Includes amounts reimbursed by Narragansett for the payment of taxes on
certain noncash benefits and contributions to the incentive thrift plan
by Narragansett that are not bonus contributions including related
deferred compensation plan match. See description under Plan Summaries.
<PAGE>
(e) The incentive share awards for the named executives made for 1996 and
1997 were in the form of restricted shares (with a five-year
restriction) or deferred share equivalents, deferred for receipt for at
least five years, at the executive's option. As cash dividends are
declared, the number of deferred share equivalents will be increased as
if the dividends were reinvested in shares. The shares awarded for 1995
were not restricted and the value of the awards is included in the bonus
column.
As of December 31, 1997, the following executive officers held the
amount of restricted and deferred shares with the value indicated: Mr.
McCabe 6,725 shares, $287,493 value; Mr. Reilly 6,320 shares, $270,180
value; Mr. Watkins 353 shares, $15,091 value; Mr. Frost 798 shares,
$34,115 value; Ms. Larson 6,320 shares, $270,180 value; and Mr. Ryan 10
shares, $428 value. The value was calculated by multiplying the closing
market price on December 31, 1997 by the number of shares. Mr. Reilly
and Ms. Larson are married and both of their restricted shares are
included in the others total.
No awards vested during 1997 under the Long-Term Performance Share Award
Plan.
(f) Includes Narragansett contributions to life insurance. See description
under Plan Summaries. The life insurance contribution is calculated
based on the value of term life insurance for the named individuals.
The premium costs for most of these policies have been or will be
recovered by Narragansett. Prior to 1997, this column also included
contributions by Narragansett to the incentive thrift plan that are not
bonus contributions. These figures are now included in the Other Annual
Compensation column.
(g) Elected President effective October 1, 1997.
(h) Retired effective January 1, 1998. All Other Compensation includes
$1,528 contributions to life insurance as described in footnote (f) and
a payment of $87,357 as a special retirement payment.
Security Ownership
------------------
The following table lists the holdings of NEES common shares as of March
2, 1998 by NEES, NEP, Mass. Electric, and Narragansett directors, the
executive officers named in the Summary Compensation Tables, and all directors
and executive officers, as a group.
<PAGE>
Shares Deferred
Beneficially Share
Name Owned (a) Equivalents (b)
- ---- ----------- ---------------
Joan T. Bok 13,605
William M. Bulger 100 1,272
Alfred D. Houston 13,688 11,558
Michael E. Jesanis 4,000 5,847
Paul L. Joskow 2,829 313
John M. Kucharski 2,800
Edward H. Ladd 6,475
Cheryl A. LaFleur 3,191 5,787
Joshua A. McClure 2,461 307
John W. Rowe (c) 14,823 25,355
George M. Sage 4,000
Richard P. Sergel 8,086 8,313
Charles E. Soule 1,270 5,201
Anne Wexler 2,629
James Q. Wilson 3,508
James R. Winoker 2,300
Robert L. McCabe 10,156 6,054
Lydia M. Pastuszek 7,185 2,446
Lawrence J. Reilly 3,656 5,959
Christopher E. Root 2,036 2,304
Nancy H. Sala 4,153 (d) 1,636
Dennis E. Snay 4,608 535
Richard W. Frost 7,677 502
Shannon M. Larson 3,656 5,959
Michael F. Ryan 829 10
Ronald L. Thomas 1,405
William Watkins, Jr. 1,113
Andrew H. Aitken 6,606 2,572
Lawrence E. Bailey 5,153 3,330
John F. Malley 2,506 3,364
Jeffrey D. Tranen 107
Arnold H. Turner 4,914 2,112
All directors and
executive officers,
as a group (43 persons) 201,90 (e) 111,005 (e)
(a) Number of shares beneficially owned includes: (i) shares directly
owned by certain relatives with whom directors or officers share
voting or investment power; (ii) shares held of record individually
by a director or officer or jointly with others or held in the name
of a bank, broker, or nominee for such individual's account; (iii)
shares in which certain directors or officers maintain exclusive or
shared investment or voting power whether or not the securities are
held for their benefit; and (iv) with respect to the executive
officers, allocated shares in the Incentive Thrift Plan described
below.
(b) Deferred share equivalents are held under the Deferred Compensation
plan or pursuant to individual deferral agreements. Under the Plan
or deferral agreements, executives may elect to defer cash
compensation and share awards. There are various deferral periods
available under the plans. At the end of the deferral period, the
compensation is paid out in the same form, cash or NEES shares, as
was deferred. The rights of the executives to payment are those of
general, unsecured creditors. While deferred, the shares do not have
voting rights or other rights associated with ownership. As cash
dividends are declared, the number of deferred share equivalents will
be increased as if the dividends were reinvested in NEES common
shares. Deferred share equivalents for directors are held under the
<PAGE>
Directors Deferred Compensation Plan. See Board Structure and
Compensation for a description of that plan.
Potential share awards under the Long-Term Performance Share Award
Plan are not included in this table.
(c) Mr. Rowe, former President and Chief Executive Officer, resigned
effective February 6, 1998.
(d) Ms. Sala disclaims a beneficial ownership interest in 281 shares held
in custodial accounts.
(e) Amount is less than 1% of the total number of shares of the Company
outstanding.
Share Ownership Guidelines
--------------------------
The System has long recognized the importance of consistent alignment
of executive interests with those of shareholders. In 1995, the
Compensation Committee of the Board voted that it is expected that
executives will own shares or share equivalents to certain minimum levels
within five years of being subject to the requirement. For Mr. Sergel, the
level is 40,000 shares. For Mr. Houston, the level is 25,000 shares. For
the other executives listed in the Executive Compensation Summary Table,
the level is 7,000 to 15,000 shares. Other executives are expected to hold
from 2,000 to 7,000 shares depending on their compensation levels and bonus
plans. In 1996, the Board of Directors voted that members of the Board
were expected to own 2,500 shares within five years of being subject to
that requirement.
To further reinforce the importance of executive share ownership, all
shares awarded to System officers under the Incentive Share and the Long-
Term Performance Share Award Plans, described below, are restricted for
five years, unless deferred, at the officer's option, until termination of
service or ten years.
Share Ownership of Certain Beneficial Owners
--------------------------------------------
Listed below is the only person or group known to the System as of
March 9, 1998 to beneficially own 5% or more of NEES 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,
1997.
Amount and Nature
Name and Address of of Beneficial Percent of
Beneficial Owner Ownership Common Shares
------------------- ------------------ --------------
T. Rowe Price Trust Company 5,377,414 shares as 8.3%
100 East Pratt Street trustee for
Baltimore, MD 21202 System employee
benefits plans,
including those
discussed herein.
Contracts and Transactions with System Companies
------------------------------------------------
During 1997, Mr. Joskow did consulting work for NEES or subsidiaries of
NEES under a separate consulting contract for which he was paid
approximately $30,000. These consulting services were not related to his
duties as a Board member.
<PAGE>
During 1997, Mrs. Bok served as a consultant to NEES. Under the terms
of her contract, she received a retainer of $100,000. Mrs. Bok also served
as a director for each of NEES' direct subsidiaries during 1997. She
agreed to waive the normal fees and annual retainers otherwise payable for
services by nonemployees on these boards and received in lieu thereof a
single annual stipend of $60,000.
Compensation Committee Interlocks and Insider Participation
-----------------------------------------------------------
Mr. Winoker served as a member of NEES' Compensation Committee for a
portion of 1997. Mr. Winoker is Chief Executive Officer of Belvoir
Properties, Inc. (Belvoir). A subsidiary of NEES entered into a three-year
lease for office space in 1996 with Belvoir with an annual rent of $34,000.
Belvoir also leases two parcels of land in Providence, Rhode Island from a
subsidiary of NEES under a twenty-year lease with an initial annual rent of
approximately $60,000.
Plan Summaries
--------------
A brief description of the various plans through which compensation and
benefits are provided to the named executive officers is presented below to
better enable shareholders to understand the information presented in the
tables shown earlier. The amounts of compensation and benefits provided to
the named executive officers under the plans described below (and charged
to the System Companies listed in the above tables) are presented in the
Summary Compensation Tables.
Goals Program
- -------------
The Goals Program establishes goals annually. For 1997, these goals
related to earnings per share, customer costs, safety, absenteeism, demand-
side management results, generating station availability, transmission
reliability, environmental and OSHA compliance, and customer satisfaction.
Some goals apply to all employees, while others apply to particular
functional groups. Depending upon the number of goals met, and provided
the minimum earnings goal is met, employees may earn a cash bonus of 1% to
4-1/2% of their compensation.
Incentive Thrift Plan
- ---------------------
The Incentive Thrift Plan (a 401(k) program) provides for a match of
40% of up to the first 5% of base compensation contributed to the System's
Incentive Thrift Plan (shown under Other Annual Compensation in the Summary
Compensation Tables) and, based on an incentive formula tied, in 1997, 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 Tables). Under Federal law, contributions to these
plans are limited. In 1997, the contribution amount was limited to
$9,500.
Deferred Compensation Plan
- --------------------------
The Deferred Compensation Plan offers executives the opportunity to
defer base pay and bonuses. The plan offers the option of investing at the
prime rate or in NEES Shares; however, share bonuses may only be deferred
in a share account. Under Federal law, the Incentive Thrift Plan,
described above, is required to limit participant base compensation to
$160,000 in calculating the NEES match. Under the Deferred Compensation
Plan, NEES will make a contribution to an executive's share account
equivalent to the resultant reduction in his match under the Incentive
Thrift Plan.
<PAGE>
Life Insurance
- --------------
NEES has established for certain senior executives life insurance plans
funded by individual policies. The combined death benefit under these
insurance plans is three times the participant's annual salary. These
plans are structured so that, over time, NEES should recover the cost of
the insurance premiums.
After termination of employment, Messrs. Rowe and Houston may elect,
commencing at age 55 or later, to receive an annuity income equal to 40% of
final annual salary for Mr. Rowe and 22.5% of 1998 annual salary plus 40%
of final annual salary for Mr. Houston. 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 NEES Summary Compensation Table and
Messrs. McCabe and Reilly are in one or the other of these plans.
Financial Counseling
- --------------------
NEES pays for personal financial counseling for senior executives. As
required by the IRS, a portion of the amount paid is reported as taxable
income for the executive. Financial counseling is also offered to other
employees through seminars conducted at various locations each year.
Other
- -----
NEES does not have any share option plans.
Long Term Incentive Plan - Awards in Last Fiscal Year
-----------------------------------------------------
The following tables show the potential awards, for those executive
officers named in the Summary Compensation Tables who participate in the
plan, under the Long-Term Performance Share Award Plan (more fully
described in the Compensation Committee Report on page 42) for the
performance cycle commencing January 1, 1997. The System's performance
will be measured over the three-year period ending December 31, 1999.
NEES
----
Estimated Future Payouts under Non-Stock Price-Based Plans
-----------------------------------------------------------
<TABLE>
<CAPTION>
Number of
Common
Share Performance
Name Equivalents(a) Period Threshold(b) Target(c)
- ---- ----------- --------- --------- ------
<S> <C> <C> <C> <C>
Richard P. Sergel 3,266 3 years 20 3,266
John W. Rowe (d) 8,617 3 years 0 0
Alfred D. Houston 4,976 3 years 30 4,976
Cheryl A. LaFleur 2,543 3 years 15 2,543
Michael E. Jesanis 1,188 3 years 7 1,188
<PAGE>
NEP
---
Estimated Future Payouts under Non-stock Price-based Plans
------------------------------------------------
Number of
Common Share Performance
Name Equivalents(a) Period Threshold(b) Target(c)
---- -------------- ----------- ------------ ---------
<S> <C> <C> <C> <C>
Lawrence E. Bailey 1,128 3 years 7 1,128
John W. Rowe(d) 8,617 3 years 0 0
Jeffrey D. Tranen(d) 3,333 3 years 0 0
Andrew H. Aitken 884 3 years 5 884
John F. Malley 1,011 3 years 6 1,011
Arnold H. Turner 952 3 years 6 952
Mass Electric
---------------
Estimated Future Payouts under Non-stock Price-based Plans
------------------------------------------------
Number of
Common Share Performance
Name Equivalents(a) Period Threshold(b) Target(c)
---- -------------- ----------- ------------ ---------
<S> <C> <C> <C> <C>
Lawrence J. Reilly 1,179 3 years 7 1,179
Richard P. Sergel 3,266 3 years 20 3,266
Lydia M. Pastuszek 1,019 3 years 6 1,019
Christopher E. Root 832 3 years 5 832
Nancy H. Sala 538 3 years 3 538
Narragansett
------------
Estimated Future Payouts under Non-stock Price-based Plans
------------------------------------------------
Number of
Common Share Performance
Name Equivalents(a) Period Threshold(b) Target(c)
---- -------------- ----------- ------------ ---------
<S> <C> <C> <C> <C>
Robert L. McCabe 1,311 3 years 8 1,311
Lawrence J. Reilly 1,179 3 years 7 1,179
William Watkins, Jr. 980 3 years 6 980
Richard W. Frost 493 3 years 3 493
Shannon M. Larson 454 3 years 3 454
Michael F. Ryan 459 3 years 3 459
</TABLE>
(a) Amounts are denominated in common share units. No dividends are
attributable to share units. At the end of the cycle, awards are
paid either in shares or in cash (valued at the five-day average
price prior to the January 15 following the close of the performance
cycle).
(b) The awards in this column represent the threshold number of shares
that could be earned if the minimum attainment level is reached for
one factor. The minimum payout upon failure to achieve any of the
goals would be 0.
<PAGE>
(c) The awards in this column represent the target (and maximum) number
of shares that could be earned if the maximum performance is achieved
for all factors.
(d) Upon Mr. Tranen's resignation in September 1997 and Mr. Rowe's
resignation in February 1998, they became ineligible to receive any
award under the Long-Term Performance Share Award Plan.
The Long-Term Performance Share Award Plan provides awards based on
various measures of System performance over a three-year period. Each
award factor functions independently. The performance targets for each
cycle are set by the Compensation Committee. The measures of performance
for the cycle commencing January 1, 1997 are as follows: total shareholder
return compared to the national group (60th-75th percentile); total
shareholder return compared to the regional group (50th-75th percentile);
maintenance or improvement of bond ratings; new business development;
growth of transmission and distribution business; and system service
levels, measured by system reliability and regulatory compliance. The
national grouping is composed of approximately 80 electric utilities. The
regional grouping is composed of New England/New York regional utilities.
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 1998.
<TABLE>
PENSION PLAN TABLE
------------------
<CAPTION>
FIVE-YEAR 10 YEARS 15 YEARS 20 YEARS 25 YEARS 30 YEARS 35 YEARS
AVERAGE SERVICE SERVICE SERVICE SERVICE SERVICE SERVICE
COMPENSATION
- ------------ ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
$ 300,000 60,300 87,500 114,700 141,100 167,500 184,100
$ 400,000 81,000 117,500 154,000 189,600 225,100 241,600
$ 500,000 101,700 147,600 193,500 238,100 282,700 311,000
$ 600,000 122,400 177,600 232,900 286,600 340,300 374,500
$ 700,000 143,100 207,700 272,300 335,100 397,900 437,900
$ 800,000 163,800 237,700 311,700 383,600 455,500 501,400
$ 900,000 184,500 267,800 351,100 432,100 513,100 564,800
$1,000,000 205,200 297,800 390,500 480,600 570,700 628,300
$1,100,000 225,900 327,900 429,900 529,100 628,300 691,700
$1,200,000 246,600 357,900 469,300 577,600 685,900 755,200
$1,300,000 267,300 388,000 508,700 626,100 743,500 818,700
$1,400,000 288,000 418,000 548,100 674,600 801,100 882,100
</TABLE>
For purposes of the retirement plans, Mr. Sergel, Mr. Rowe, Mr. Houston,
Ms. LaFleur, and Mr. Jesanis currently have 19, 20, 35, 12, and 15 credited
years of service, respectively. Messrs. Bailey, Rowe, Tranen, Aitken,
Malley, and Turner currently have 29, 20, 28, 25, 26, and 32 credited years of
service, respectively. Mr. Reilly, Mr. Sergel, Ms. Pastuszek, Mr. Root, and
Ms. Sala currently have 16, 19, 17, 15, and 28 credited years of service,
respectively. Mr. McCabe, Mr. Reilly, Mr. Watkins, Mr. Frost, Ms. Larson, and
Mr. Ryan currently have 29, 16, 25, 35, 18, and 3 credited years of service,
respectively.
Benefits under the pension plans are computed using formulae based on
percentages of highest average compensation computed over five consecutive
years. The compensation covered by the pension plan includes salary, bonus,
and incentive share awards. Long-Term Performance Share Awards will not be
<PAGE>
included. The benefits listed in the pension table are not subject to
deduction for Social Security and are shown without any joint and survivor
benefits. If the participant elected at age 65 a 100 percent joint and
survivor benefit with a spouse of the same age, the benefit shown would be
reduced by approximately 16 percent.
The pension plan table above does not include annuity payments to be
received in lieu of life insurance for Messrs. Rowe and Houston. Those
payments are described above under Plan Summaries.
In December 1997, the NEES companies announced a voluntary early
retirement program available to all nonunion employees over age 55 with ten or
more years of service. Messrs. Amoroso, Frost, McCabe, Nadeau, Snay, and
Turner were all eligible for the offer. The program offered either an annuity
or a lump sum equal to the greater of either one week's base pay times the
number of years of service or an additional five years service and five years
of age toward their pension. The offer also included certain health care and
bridging of social security benefits. The program is conditioned upon
consummation of the divestiture of the nonnuclear generating business to
USGen. Mr. McCabe also has an employment agreement which provides that if he
remains in the employ of the NEES companies until December 31, 1998, or the
retirement effective date under the offer, he will receive an annuity or a
lump sum equal to an additional five years of service and five years of age
toward his pension plus $225,000, subject to an offset for any benefits under
the general offer. The value of Messrs. Amoroso, Frost, McCabe, Nadeau, Snay,
and Turner's benefits under the offer and the contract cannot be determined
until their retirement following the divestiture.
The System covers the full cost of post-retirement health benefits for
the senior executives listed in the Summary Compensation Table.
Payments Upon a Change of Control or Termination of Employment
- --------------------------------------------------------------
NEES has agreements with certain of its executives, including those
named in the Summary Compensation Table, which provide severance benefits in
the event of certain terminations of employment following a Change in Control
of NEES (as defined below). The terms of the agreements are for three years
with automatic annual extensions, unless terminated by the System. 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), NEES will pay to the executive a lump sum cash payment
equal to three times (two times for some executives) the sum of the
executive's most recent annual base compensation and the average of his or her
bonus amounts for the prior three years. If Mr. Sergel 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, NEES will
provide disability and health benefits to the executive for two to three
years, provide such post-retirement health and welfare benefits as the
executive would have earned within such two to three years, and grant two or
three additional years of pension credit.
Change in Control, including potential change of control, occurs (1)
when any person becomes the beneficial owner of 20% of the voting securities
of NEES, (2) when the prior members of the Board no longer constitute a 2/3
majority of the Board, or (3) NEES enters into an agreement that could result
in a Change in Control.
Upon a change in control a participant in the deferred compensation plan
has the option of receiving a full distribution of the participant's cash and
share accounts and the actuarial value of future benefits from the insurance
related benefits under a prior plan, all less 10%.
The System's bonus plans, including the incentive compensation plans
described in the Compensation Committee report, the Incentive Thrift Plan, and
the Goals Program, provide for payments equal to the average of the bonuses
<PAGE>
for the three prior years in the event of a Change of Control. These
payments would be made in lieu of the regular bonuses for the year in which
the Change in Control occurs. The Long-Term Performance Share Award Plan
provides for a cash payment equal to the value of the performance shares in
the participant's account times the average achievement percentage for the
Incentive Thrift Plan for the three prior years. The System's Retirees Health
and Life Insurance Plan has provisions preventing changes in benefits adverse
to the participants for three years following a Change in Control. The
Incentive Share Plan and related Incentive Share Deferral Agreements provide
that, upon the occurrence of a change in control (defined more narrowly than
in the other plans), any restrictions on shares and account balances would
cease.
Under a retention agreement between Mr. Aitken and NEP, he has agreed to
remain in NEP's employ, at the sole option of NEP, until the earlier of
February 1999 or the closing date of the sale of the generation assets to
USGen in return for a lump sum payment of $47,345. In August 1998, NEP will
pay an additional amount equal to 4-1/2 months' base salary if it has not
released Mr. Aitken from this obligation by July 6, 1998.
In light of the changes in the utility industry, NEES has determined
that executive officers (including those listed in the Summary Compensation
Table, but excluding Messrs. Houston and Sergel) would receive a benefit equal
to one and one-half times annual compensation, for a severance other than one
for cause or following a change in control.
New England Electric System Compensation
Committee Report on Executive Compensation
- ------------------------------------------
As members of the Compensation Committee (the Committee) of the Board of
Directors (the Board), we have the responsibility for executive compensation,
including the administration of certain of the Company's incentive
compensation plans.
The System's total compensation package is designed to attract, retain,
and reward superior managers who are committed to solid financial performance
and who successfully can lead the System as our industry becomes increasingly
competitive. The compensation package reflects the fact that these managers'
backgrounds are not necessarily limited to our System or industry. Total
compensation consists of Base Salary, Incentive Compensation (performance
based, at risk compensation), and Benefits. The Committee periodically
reviews each component of the System's executive compensation program to
ensure that pay levels and incentive opportunities are competitive and that
incentive opportunities are linked to System performance. The System's
general compensation philosophy is that (1) the Base Salary ranges should be
competitive, with individual salaries reflecting performance and experience;
(2) a significant portion of management compensation should be tied to
achievement of corporate goals in order to maintain a sharp focus on corporate
performance; (3) substantial portions of incentive compensation should be in
shares so as to consistently align the interest of management and the System's
shareholders and customers; and (4) an ever higher percentage of total
compensation should be at risk and share-based as one moves upward through
management. The compensation of the Chief Executive Officer, Mr. Rowe in 1997
and Mr. Sergel in 1998, is based on these considerations.
As discussed below, the incentive compensation plans are being
restructured to reflect the new focus of the System during and following
divestiture.
<PAGE>
Compensation Decisions
- ----------------------
The NEES Board votes the compensation of the Chief Executive Officer and
Mr. Houston, acting upon recommendations of the Committee. The Committee
reports its decisions to the Board. After meeting in executive session
without any System officers present and discussing the reports made by the
Committee, the Board unanimously has accepted each of the recommendations
described below made in 1997 and to date in 1998. The Committee also votes
the compensation of all other System executive officers listed in the Summary
Compensation Table, as well as other senior employees. The Board has ratified
the compensation decisions for these executive officers. Although System
management may be present during Committee discussions of officers'
compensation, Committee decisions with respect to the compensation of Mr. Rowe
were reached in executive session.
Under Section 162(m) of the Internal Revenue Code, tax deductions are
limited for compensation above $1 million, not including amounts deferred.
Mr. Rowe's total compensation of $898,435 in cash and $152,206 in deferred
shares for 1997 exceeded $1 million. Given the mandatory deferral of his plan
share bonuses, the Internal Revenue Code provisions do not currently impact
the System. Total compensation for each of the other executive officers is
below the $1 million threshold. The Committee has not, therefore, had to
address issues related to Section 162(m) and does not expect to in the near
future, but will continue to monitor these issues.
Base Salary
- -----------
Base Salary levels are established after consideration of the
appropriate market to determine the salary range 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 November 1997, after consideration of multiple surveys prepared by
various consulting organizations and industry groups, and taking into account
the continued outstanding performance of the System and Mr. Rowe's leadership
in the restructuring of the electric utility industry, the Committee
recommended the base salary for Mr. Rowe be set at $625,200 for 1998. This
would have placed Mr. Rowe somewhat above the 50th percentile in the
compensation surveys. The Board adopted this recommendation.
On February 10, 1998, upon Mr. Rowe's resignation as President and Chief
Executive Officer of the System, the Committee considered the appropriate
compensation for Messrs. Sergel and Houston in view of their new
responsibilities. The Committee reviewed information developed from multiple
compensation surveys for the 50th percentile for corporations in the same
revenue range as the System. This data was further stratified between the
utility industry and general industry. The Committee considered the relative
experience and past performance of, and our future expectations for, Messrs.
Houston and Sergel, the historical compensation levels in the System for their
new positions, and comparative salary data presented to us. We further
reviewed the System's compensation philosophy as to the relative values for
base salary, incentive compensation, and benefits. We then recommended the
base salaries for Mr. Houston and for Mr. Sergel be set at $450,000 per year,
effective February 1, 1998. As described below, we determined an appropriate
change in control agreement for Mr. Sergel and supplemental insurance annuity
benefits for Mr. Houston. The Board adopted our recommendations.
In November 1997, the Committee reviewed the performance of each
individual in the compensation group below the Chief Executive Officer, and,
after the Committee's subjective analysis of their performance and discussion
with the Chief Executive Officer, we set the salaries for these individuals.
<PAGE>
Performance Based Incentive Compensation
- ----------------------------------------
Performance Based Incentive Compensation (at risk compensation or bonus)
is designed to deliver rewards above base salary, if the System and the
individual executives perform well.
Annual Target Plans
-------------------
For 1997, the incentive components of the annual target compensation
plans were based on formulae with defined threshold targets. Under the
formulae, in order for any plan bonuses to be awarded, the System must achieve
a return on equity that places the System in the top 50% of the approximately
80 electric utilities in the national 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 table, below. The Board, in response to
extraordinary events, may enhance or curtail the actual return on equity used
to determine whether the System met the targets. The Board did not do so for
1997. On February 24, 1998, the Committee voted the bonuses under these
plans.
For the maximum incentive to be awarded, the System had to achieve a
return on equity in the top 25% of both the national and regional groupings
and the System's cost per kilowatt-hour must be the lowest or next lowest of a
selected group of New England electric utilities. In 1997, if only one of the
return on equity targets had been met, Mr. Rowe and Mr. Houston would have
received a formula bonus of 12% of base pay in cash and 7.2% in shares. The
maximum would have been 50% of base pay in cash and 30% in shares. Based on
the performance described below, their formula bonus (cash and shares) was
42.5% of base pay in cash and 25.5% in shares.
For purposes of determining the bonus amount for 1997, the System placed
in the 79th percentile in return on shareholder equity of the national
grouping and first in the regional grouping. The System placed third in the
regional grouping with respect to lowest customer cost per kilowatt-hour in
1997.
No bonus awards would have been made under the plans if earnings were
not sufficient to cover dividends, even if the return on equity targets had
been met.
Mr. Rowe's and Mr. Houston's bonuses under the plan were directly
related to achievement of the above described corporate targets. For 1997,
the incentive compensation plan bonuses of the other executives were
additionally dependent upon the achievement of individual goals.
The participants in the incentive compensation plans are awarded NEES
common shares under the Incentive Share Plan, approved by the shareholders in
1990. No discretion is exercised by the Committee in the awarding of shares
generated by the formulae. 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 and Mr. Houston, the percentage was 60%. If no cash award is
made, no shares are distributed under the formulae. Further, total plan
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 plan shares awarded, including those restricted or
deferred, for 1997 were approximately .06% of the number of outstanding
shares.) As noted above under Share Ownership Guidelines, the share awards of
System officers were restricted.
<PAGE>
New Annual Target Plans
-----------------------
Over several meetings in 1997, the Committee considered the appropriate
structure of the annual bonus plans. We decided to replace the existing plans
because: the System is shifting from a vertically integrated utility to being
primarily a transmission and distribution company; the System's strategic plan
calls for new business development in competitive new areas; and comparative
return on equity and cost per kilowatt-hour measurements will become
increasingly less representative as the prime measures of success as different
utilities proceed through competitive transitions at different times and at
different rates.
The incentive compensation plans therefore were revised to reflect the
achievement of core business operating income and strategic objectives.
Annual income targets will be established by the Board of Directors prior to
or early in the plan year. In addition, strategic objectives will be
established for each year. For 1998 those objectives are: achieving recovery
of stranded investments; maximizing the return on the sale of the generation
business; running the best wires business in the Northeast; increasing the
size of the energy delivery business; and profiting from growth in unregulated
ventures.
Participants in the senior plan and other principal System officers will
share all five of these objectives. Other participants may have some but not
all of these objectives depending upon their responsibilities within the
System. Benchmarks have been established for each of the strategic
objectives. The Committee retains the discretion to adjust the benchmarks as
it deems necessary in response to unanticipated events during the year. For
Messrs. Sergel and Houston, achievement of the operating income target would
provide a formula bonus of 15% to 25% of base pay. Achievement above that
target and achievement of all strategic objectives in full would produce an
award of 50% of base pay in cash and 30% in shares.
Special Bonus Awards
--------------------
In its review of System performance in 1997 as part of its evaluation of
the annual target plans, the Committee noted the strong earnings of the System
in a very difficult year, the success achieved to date in meeting the
strategic objectives, particularly those relating to the recovery of stranded
investment and maximizing the return from the sale of the generation business,
and recommended to the Board special cash bonuses of $147,000 to Mr. Houston
and $126,000 to Mr. Sergel. We also voted the special bonuses to other
officers which are reflected in the compensation table.
Three-Year Target Plan
----------------------
In order to increase executive focus on multi-year performance, in 1995
the System established the Long-Term Performance Share Award Plan described
below. No payout was made in 1997 nor will be made under this plan until the
Spring of 1999.
Under this plan, awards are based upon various measures of System
performance over a three-year period. Each award factor or measurement
functions independently. The factors change from year to year and include
financial and operating performance. The factors may be related to those in
the incentive plans. The factors are established by the Committee at the
beginning of each cycle. All participants share the same factors and factor
weights. Performance is rated on rolling three-year periods, with a new cycle
beginning each year. An individual's potential award under the plan is a
fixed percentage of her or his base pay on January 1 of the first year of the
plan measurement period. For Mr. Rowe, that percentage was 50%. Under the
terms of this plan, Mr. Rowe forfeited his allocated shares as a result of his
<PAGE>
resignation. Percentages for other executives range from 15% to 50%. No
dividends accrue on the allocated shares until awarded. At the end of the
three-year cycle, the participant receives actual shares based upon the
performance against the various factors. For example, for the first cycle,
20% of the shares are dependent upon total shareholder return compared to
other regional utilities. See Estimated Future Payouts under Non-Stock Price-
Based Plans, above.
Benefits
- --------
The executive benefits are designed both to provide a competitive
package and to retain System flexibility in staffing management to meet
changing conditions.
New England Electric System Compensation Committee
John M. Kucharski
George M. Sage
Anne Wexler
Corporate Performance
---------------------
Total Return
- ------------
The following table shows total shareholder return for NEES (capital
appreciation plus reinvested dividends) for the years 1992 through 1997, 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, 1992.
<TABLE>
<CAPTION>
NEES S & P 500 EEI Index
---- --------- ---------
<S> <C> <C> <C>
1992 100.00 100.00 100.00
1993 107.25 110.08 111.15
1994 94.06 111.53 98.29
1995 124.27 153.44 128.78
1996 116.71 188.67 130.32
1997 152.60 251.61 166.00
</TABLE>
Note: The share price performance shown on the table above is not necessarily
indicative of future price performance.
Return on Equity
- ----------------
The following table shows the return on equity of NEES common shares for
the years 1993 through 1997 compared to a national grouping of approximately
80 electric utilities 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 System's incentive compensation
program.
<PAGE>
<TABLE>
<CAPTION>
NEES National Regional
Grouping Grouping
---- -------- --------
<S> <C> <C> <C>
1993 12.6% 11.9% 11.4%
1994 12.7% 11.4% 11.4%
1995 12.8% 11.7% 10.4%
1996 12.6% 11.4% 11.1%
1997 12.8% 10.9% 10.6%
</TABLE>
Note: The earnings performance shown on the graph above is not necessarily
indicative of future performance.
NEES Board Structure and Compensation
-------------------------------------
NEES has an Executive Committee, an Audit Committee, a Compensation
Committee, a Corporate Responsibility Committee, and a Nominating Committee.
The committee memberships listed below are as of March 1, 1998.
The members of the Executive Committee are Mrs. Bok, Mr. Houston, Mr.
Joskow, Mr. Ladd, Mr. Sage, Mr. Sergel, 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.
The members of the Audit Committee are Messrs. Bulger, Joskow, 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 recommends to the NEES Board of Directors and to the
boards of the subsidiaries of NEES the independent public accountants to be
engaged for the coming year.
The members of the Compensation Committee are Mr. Kucharski, Mr. Sage, and
Ms. Wexler. Mr. Sage serves as the Chairman of this Committee. The
Compensation Committee is responsible for executive compensation, including
the administration of certain of the System's incentive compensation plans.
The members of the Corporate Responsibility Committee are Mrs. Bok, Mr.
McClure, Mr. Sergel, Mr. Wilson, and Mr. Winoker. Mr. Wilson serves as the
Chairman of this Committee. The Corporate Responsibility Committee reviews
compliance with laws and regulations, offers guidance in considering public
policy issues, and helps to assure ethical conduct.
The members of the Nominating Committee are Mr. Joskow, Mr. Ladd, Mr.
Sage, and Ms. Wexler. Mr. Ladd serves as Chairman of this Committee. The
Nominating Committee functions as a Corporate Governance Committee and also
considers and evaluates director candidates, determines criteria and
procedures for selecting nonmanagement directors, and conducts periodic
reviews of director performance. This Committee also considers written
recommendations from shareholders for nominees to the Board.
The Chairman of the Executive Committee receives an annual retainer of
$12,000. Other members of the Executive Committee, except Messrs. Houston and
Sergel, receive an annual retainer of $5,000. The Chairmen of the Audit,
Compensation, Corporate Responsibility, and Nominating Committees each receive
an annual retainer of $6,000. Other members of the Audit, Compensation, and
Corporate Responsibility Committees, except Mr. Sergel, receive annual
retainers of $4,000. There is no retainer for the other members of the
Nominating Committee. All directors participating in a Committee meeting,
<PAGE>
except Messrs. Houston and Sergel, receive a meeting fee of $1,000 plus
expenses.
Members of the Board of Directors, except Messrs. Houston and Sergel,
receive annually a retainer of $20,000 and 300 NEES common shares, and receive
a meeting fee of $1,000 plus expenses for each meeting attended.
NEES permits directors to defer all or a portion of any cash retainers,
meeting fees, and retainer shares under a deferred compensation plan. At the
end of the deferral period, the compensation is paid out in the same form,
cash or shares, as was deferred. Deferred shares do not have voting rights or
other rights associated with ownership while deferred. A special account is
maintained on NEES' books showing the amounts deferred and the interest
accrued thereon. Group life insurance of $80,000 is provided to each member
of the Board of Directors. Director contributions to qualified charities are
matched by NEES under a matching gift program, which has a maximum limit of
$3,500.
Pursuant to a director retirement plan, nonemployee directors who have
served on the Board of NEES 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 cash retainer for directors who served
on the Board for 10 or more years and 75% of the annual cash retainer for
directors who served between 5 and 10 years. There are no death benefits
under the plan.
The Board of Directors held 9 meetings in 1997. The Executive, Audit,
Compensation, Corporate Responsibility, and Nominating Committees held 2, 3,
3, 3, and 2 meetings, respectively, in 1997. 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.
Mass. Electric, Narragansett, and NEP Directors' Compensation
- -------------------------------------------------------------
Members of the Mass. Electric and Narragansett Boards of Directors, except
employees of NEES System companies, received a quarterly retainer of $1,500, a
meeting fee of $600 plus expenses, and 50 NEES common shares each year. Since
all members of the NEP Board are employees of NEES System companies, no fees
are paid for service on the Board except as previously noted for Mrs. Bok.
Effective December 31, 1997, the composition of all three boards was changed
to include only employees of NEES System companies.
Item 7. CONTRIBUTIONS AND PUBLIC RELATIONS
(1) None. Payments are made to certain employees and other persons, who
may act in the capacities enumerated in Item 7 for services rendered or
materials purchased, but such payments are not contributions.
(2) Year Ended December 31, 1997.
<PAGE>
<TABLE>
<CAPTION>
Accounts Charged,
if any, per Books
Purpose of Disbursing
Name of Recipient or Beneficiary (A) Company Amount
- ------------------------------- ------- ----------------- ------
<S> <C> <C> <C>
Name of Company
---------------
Mass. Electric
--------------
Nashua River Watershed Council 426.10 $ 100.00
Connecticut River Watershed Council 426.10 $ 225.00
Joyce & Joyce (B) 426.10 $136,612.50
Edison Electric Institute 426.40 $ 82,874.00
The Lowell Plan 426.10 $ 7,500.00
Massachusetts Taxpayers Foundation 426.10 $ 8,682.00
Business for Social Responsibility 426.10 $ 5,500.00
The Alliance to Save Energy 426.10 $ 8,250.00
Pioneer Institute for Public Policy 426.10 $ 2,500.00
Financial Accounting Foundation 426.10 $ 790.00
EDP Economic Development 426.10 $ 500.00
Haley and Aldrich Inc. (B) 426.40 $ 1,241.25
Concord Coalition for Economic Development 426.10 $ 5,000.00
Department of Economic Development 426.10 $ 5,000,00
Massachusetts Audubon Society 426.10 $ 5,395.00
NEP
---
Gallagher Callahan and Gartrell (B) 426.40 $267,705.00
Joyce & Joyce (B) 426.40 $114,938.00
Sullivan & Leshane, Inc. (B) 426.40 $107,609.00
Edison Electric Institute 426.40 $ 36,164.00
Alliance for Competitive Energy 426.40 $ 35,027.00
Halloran & Sage (B) 426.40 $ 24,472.00
McGovern, Noel & Benik, Inc. 426.40 $ 15,000.00
Save the Bay 426.10 $ 27,025.00
American Enterprise Institute 426.10 $ 20,000.00
The Alliance to Save Energy 426.10 $ 11,250.00
Black Contractor's Association of RI 426.10 $ 10,000.00
Mass Taxpayers Foundation 426.10 $ 8,682.00
The Nature Conservancy 426.10 $ 5,050.00
Society for the Protection of NH Forest 426.10 $ 5,036.00
Resources for the Future 426.10 $ 5,000.00
Audubon Society of NH 426.10 $ 4,050.00
Business for Social Responsibility 426.10 $ 2,500.00
Pioneer Institute for Public Policy Research 426.10 $ 2,500.00
Connecticut River Watershed Council 426.10 $ 2,500.00
Deerfield River Watershed Association 426.10 $ 2,500.00
C.R.W.C. - River Fest 426.10 $ 2,500.00
Connecticut River Joint Commissions 426.10 $ 2,200.00
Business & Industry Association of NH 426.10 $ 1,875.00
Waste Cap of Massachusetts 426.10 $ 1,500.00
The Rhode Island Black Heritage Society 426.10 $ 600.00
Trout Unlimited, Inc. 426.10 $ 500.00
Nashua River Watershed Association 426.10 $ 500.00
The Green Mountain Club, Inc. 426.10 $ 300.00
Massachusetts Audubon Society 426.10 $ 291.00
Westport River Watershed Alliance 426.10 $ 250.00
American Forests 426.10 $ 100.00
<PAGE>
NEP (Cont.)
---
The Archaeological Conservancy 426.10 $ 50.00
Natural Resources Defense Council Inc. 426.10 $ 45.00
Mass. Forestry Association 426.10 $ 35.00
National Wildlife Federation 426.10 $ 30.00
Southern Povert Law Center 426.10 $ 25.00
The Wilderness Society 426.10 $ 25.00
Union of Concerned Scientists 426.10 $ 25.00
Narragansett
------------
John G. Coffey, Esq. (B) 426.40 $ 40,000.00
McGovern, Noel & Benik, Inc. (B) 426.40 $ 15,000.00
Edison Electric Institute 426.40 $ 28,629.50
Winsor Association Co. (B) 426.40 $ 24,000.00
Rhode Island Urban Project 426.10 $ 7,500.00
National Conference of Christians & Jews 426.10 $ 3,000.00
Urban League of Rhode Island 426.10 $ 1,000.00
Providence Foundation 426.10 $ 9,000.00
Rhode Island Public Expenditure Council 426.10 $ 23,386.00
The Alliance to Save Energy 426.10 $ 2,700.00
Nature Conservancy 426.10 $ 1,000.00
Save the Bay 426.10 $ 1,210.00
Financial Accounting Foundation 426.10 $ 360.00
Granite State
-------------
Gallagher Callahan and Gartrell (B) 426.40 $ 20,703.75
Edison Electric Institute 426.40 $ 3,014.00
Business and Industry Association of NH 426.10 $ 750.00
The Alliance to Save Energy 426.10 $ 300.00
Financial Accounting Foundation 426.10 $ 30.00
Audubon Society of New Hampshire 426.10 $ 495.00
NEES
----
Massachusetts Business Roundtable 426.40 $ 700.00
Nantucket Electric Company
- --------------------------
Nantucket Green Fund 426.1 $ 1,000.00
<FN>
- --------------------
(A) All such payments, unless otherwise noted, were subscriptions, dues,
and/or contributions.
(B) Payments for legislative services.
</FN>
</TABLE>
<PAGE>
Item 8. SERVICE, SALES AND CONSTRUCTION CONTRACTS
Part I.
<TABLE>
<CAPTION>
Serving Receiving Compensation
Transaction Company Company (1997)
- ----------- ------- --------- ------------
<S> <C> <C> <C>
Fuel Purchase Contract (1) NEEI NEP $34,604,642
Phase I Terminal Facility
Support Agreement (2) NEET NEP $ 1,639,587
Phase II Massachusetts Transmission NEHTEC NEP $ 7,612,155
Facilities Support Agreement (3)
Phase II New Hampshire Transmission NEHTC NEP $ 6,004,821
Facilities Support Agreement (4)
<FN>
- --------------------
(1) Contract dated 7/26/79 as amended was in effect at 12/31/97.
(2) Agreement dated 12/1/81 as amended was in effect at 12/31/97.
(3) Agreement dated 6/1/85 as amended was in effect at 12/31/97.
(4) Agreement dated 6/1/85 as amended was in effect at 12/31/97.
</FN>
</TABLE>
Part II.
See Item 6, Part III.
Part III.
None.
Item 9. WHOLESALE GENERATORS AND FOREIGN UTILITY COMPANIES
None.
Item 10. FINANCIAL STATEMENTS AND EXHIBITS
Financial Statements
- --------------------
NEES Consolidating Financial Statements (Supplement A-1) and Financial
Statements and Supporting Schedules of NEES and NEES subsidiaries consolidated
contained in the NEES 1997 Form 10-K (Supplement A-2).
Exhibits
- --------
Unless otherwise indicated, the exhibits listed below are incorporated by
reference to the appropriate exhibit numbers and the commission file numbers
indicated in parenthesis.
A. Annual Reports:
1. a. Connecticut Yankee Atomic Power Company 1997 Annual Report to
Shareholders (Exhibit A.2.1 to Northeast Utilities' Form U-5-S,
File No. 30-246).
b. Connecticut Yankee Atomic Power Company 1997 FERC Form 1 (Exhibit
A.2.2 to Northeast Utilities' Form U-5-S, File No. 30-246).
<PAGE>
2. a. Maine Yankee Atomic Power Company 1997 Annual Report (filed
herewith).
b. Maine Yankee Atomic Power Company 1997 FERC Form 1 (filed
herewith).
3. Massachusetts Electric Company, Form 10-K for the year ended
December 31, 1997 (File No. 0-5464).
4. The Narragansett Electric Company, Form 10-K for the year ended
December 31, 1997 (File No. 1-7471).
5. New England Electric System, Form 10-K for the year ended December 31,
1997 (File No. 1-3446).
6. New England Power Company, Form 10-K for the year ended December 31,
1997 (File No. 1-6564).
7. a. Vermont Yankee Nuclear Power Corporation 1997 Annual Report to
Stockholders (filed herewith).
b. Vermont Yankee Nuclear Power Corporation 1997 FERC Form 1 (filed
herewith).
8. a. Yankee Atomic Electric Company 1997 Annual Report to Stockholders
(filed herewith).
b. Yankee Atomic Electric Company 1997 FERC Form 1 (filed herewith).
9. New England Electric Transmission Corporation 1997 Annual Report
(filed herewith).
B. Corporate Documents:
1. AllEnergy Marketing Company, L.L.C.:
a. Limited Liability Company Agreement (Exhibit B-1 to Amendment No.
1 to Form U-1, File No. 70-8921).
b. Amendment No. 1 to Limited Liability Company Agreement (Exhibit
10(jj) to 1997 NEES Form 10-K, File No. 1-3446).
2. Texas Liquids, L.L.C.:
a. Limited Liability Company Agreement (filed herewith).
3. Granite State Electric Company:
a. Articles of Organization (Exhibit B.1.a to NEES 1983 Form U-5-S).
b. By-laws (Exhibit B.1.b to NEES 1983 Form U-5-S).
4. Granite State Energy, Inc.:
a. Certificate of Incorporation (Exhibit No. 3(i) to Certificate of
Notification, File No. 70-8803).
b. By-laws (Exhibit No. 3(ii) to Certificate of Notification, File
No. 70-8803).
5. HydroServ Group, L.L.C.:
a. Certificate of Organization (schedules omitted) (filed herewith).
6. Massachusetts Electric Company:
a. Articles of Organization (Exhibit B.2.a to NEES 1983 Form U-5- S);
Articles of Amendment dated March 5, 1993, August 11, 1993,
September 20, 1993, and November 1, 1993 (Exhibit 3(a) to 1993
Form 10-K, File No. 0-5464).
<PAGE>
b. By-laws (Exhibit 3(b) to 1997 Mass. Electric Form 10-K, File No.
0-5464).
7. Nantucket Electric Company:
a. Articles of Organization (Exhibit A-6 filed under cover of Form
SE, File No. 70-8675).
b. By-laws (Exhibit A-7 filed under cover of Form SE, File No. 70-
8675).
8. The Narragansett Electric Company:
a. Charter (Exhibit B.3.a to NEES 1983 Form U-5-S); Amendment to
Charter dated June 9, 1988 (Exhibit B.3.a to NEES 1988
Form U-5-S).
b. By-laws (Exhibit 3 to 1980 Form 10-K, File No. 0-898).
c. Preference Provisions as amended dated December 15, 1997 (Exhibit
4(c) to NEES 1997 Form 10-K, File No. 1-3446).
9. Narragansett Energy Resources Company:
a. Articles of Incorporation (Exhibit B.4.a to NEES 1987 Form
U-5-S).
b. By-laws (Exhibit B.4.b to NEES 1995 Form U-5-S).
10. NEERI International:
a. Articles of Association (Exhibit B.8.a to NEES 1996 Form U-5-S).
b. Memorandum of Association (Exhibit B.8.b to NEES 1996 Form U-5-S).
11. NEES Communications, Inc.:
a. Articles of Organization (Exhibit B.9.a to NEES 1996 Form U-5-S).
b. By-laws (Exhibit B.9.b to NEES 1996 Form U-5-S).
12. NEES Energy, Inc.:
a. Certificate of Incorporation (Exhibit 3(i) to Certificate of
Notification, File No. 70-8803).
b. By-laws (Exhibit 3(ii) to Certificate of Notification, File No.
70-8803).
13. NEES Global Transmission, Inc.:
a. Articles of Organization (Exhibit B.5.a to NEES 1993 Form U-5- S).
b. By-Laws (Exhibit B.5.b to NEES 1993 Form U-5-S).
14. New England Electric System:
a. Agreement and Declaration of Trust (Exhibit 3 to NEES 1994 Form
10-K, File No. 1-3446).
15. New England Electric Transmission Corporation:
a. Restated Articles of Incorporation (Exhibit B.6.a to NEES 1983
Form U-5-S).
b. By-laws (Exhibit B.6.b to NEES 1983 Form U-5-S).
16. New England Energy Incorporated:
a. Articles of Organization (Exhibit B.7.a to NEES 1983 Form U-5- S);
Articles of Amendment dated April 8, 1988 (Exhibit B.8.a to NEES
1988 Form U-5-S).
b. By-laws (Exhibit B.8.b to NEES 1995 Form U-5-S).
<PAGE>
17. New England Hydro Finance Company, Inc.
a. Articles of Organization (Exhibit B.9.a to NEES 1988 Form
U-5-S).
b. By-laws (Exhibit B.9.b to NEES 1995 Form U-5-S).
18. New England Hydro-Transmission Corporation
a. Articles of Incorporation (Exhibit B.8.a to NEES 1986 Form
U-5-S); Articles of Amendment dated January 18, 1989 (Exhibit
B.10.a to NEES 1988 Form U-5-S).
b. By-laws (Exhibit B.10.b to NEES 1988 Form U-5-S).
19. New England Hydro-Transmission Electric Company
a. Restated Articles of Organization dated January 13, 1989 (Exhibit
B.11.a to NEES 1988 Form U-5-S).
b. By-laws (Exhibit B.11.b to NEES 1988 Form U-5-S).
20. New England Power Company:
a. Articles of Organization (Exhibit B.8.a to NEES 1983 Form U-5- S);
Articles of Amendment dated June 25, 1987 (Exhibit B.12.a to NEES
1988 Form U-5-S).
b. By-laws (Exhibit 3(b) to 1997 Form 10-K, File No. 0-1229).
21. New England Power Service Company:
a. Articles of Organization (Exhibit B.9.a to NEES 1983 Form U-5- S).
b. By-laws (Exhibit B.13.b to NEES 1988 Form 10-K, File No. 0-1229).
C. Funded Debt:
1. Granite State Electric Company:
Note Agreement with John Hancock dated March 15, 1985 (Exhibit A
to Granite Certificate of Notification, File No. 70-6998).
Note Agreement with Teachers Insurance dated as of February 1,
1987 (Exhibit A to Granite Certificate of Notification, File No.
70-7288).
Note Agreement with Aid Association for Lutherans dated as of
October 1, 1991 (Exhibit C-1 to NEES 1991 Form U-5-S).
Note Agreement with First Colony Life Insurance Company dated as
of November 1, 1993 (Exhibit C-1 to NEES 1993 Form U-5-S).
Note Agreement with First Colony Life Insurance Company dated as
of July 1, 1995 (Exhibit A to Granite Certificate of Notification,
File No. 70-8625).
2. Massachusetts Electric Company:
First Mortgage Indenture and Deed of Trust, dated as of July 1,
1949, and twenty-one supplements thereto (Exhibit 7-A, File
No. 1-8019; Exhibit 7-B, File No. 2-8836; Exhibit 4-C, File No.
2-9593; Exhibit 4 to 1980 Form 10-K, File No. 2-8019; Exhibit 4 to
1982 Form 10-K, File No. 0-5464; Exhibit 4 to 1986 Form 10-K, File
No. 0-5464; Exhibit 4(a) to 1988 Form 10-K, File No. 1-3446;
Exhibit 4(a) to 1989 Form 10-K, File No. 1-3446; Exhibit 4(a) to
1992 Form 10-K, File No. 1-3446; Exhibit 4(a) to 1993 Form 10-K,
File No. 1-3446; Exhibit 4(a) to 1995 NEES Form 10-K, File No. 1-3446).
<PAGE>
3. The Narragansett Electric Company:
First Mortgage Indenture and Deed of Trust, dated as of September
1, 1944, and twenty-two supplements thereto (Exhibit 7-1, File
No. 2-7042; Exhibit 7-B, File No. 2-7490; Exhibit 4-C, File No.
2-9423; Exhibit 4-D, File No. 2-10056; Exhibit 4 to 1980 Form
10-K, File No. 0-898; Exhibit 4 to 1982 Form 10-K, File No. 0-898;
Exhibit 4 to 1983 Form 10-K, File No. 0-898; Exhibit 4 to 1985
Form 10-K, File No. 0-898; Exhibit 4 to 1986 Form 10-K, File No.
0-898; Exhibit 4 to 1987 Form 10-K, File No. 0-898; Exhibit C-3 to
NEES 1991 Form U-5-S; Exhibit 4(b) to 1992 Form 10-K, File No. 1-
3446; Exhibit 4(b) to 1993 Form 10-K, File No. 1-3446; Exhibit
4(b) to 1995 NEES Form 10-K, File No. 1- 3446).
4. New England Electric Transmission Corporation:
Note Agreement with PruCapital Management, Inc. et al. dated as of
September 1, 1986; Mortgage, Deed of Trust and Security Agreement
dated as of September 1, 1986 (Exhibit 10(g) to 1986 Form 10-K,
File No. 1-3446).
5. New England Energy Incorporated:
Credit Agreement dated as of April 13, 1995 (Exhibit 10(e)(v) to
1995 NEES Form 10-K, File No. 1-3446).
6. New England Power Company:
a. General and Refunding Mortgage Indenture and Deed of Trust dated
as of January 1, 1977 and twenty supplements thereto (Exhibit 4(b)
to 1980 Form 10-K, File No. 0-1229; Exhibit 4(b) to 1982 Form
10-K, File No. 0-1229; Exhibit 4(b) to 1983 Form 10-K, File No.
0-1229; Exhibit 4(b) to 1985 Form 10-K, File No. 0-1229; Exhibit
4(b) to 1986 Form 10-K, File No. 0-1229; Exhibit 4(b) to 1988 Form
10-K, File No. 0-1229; Exhibit 4(c)(ii) to 1989 Form 10-K, File
No. 1-3446; Exhibit 4(c)(ii) to 1990 Form 10-K, File No. 1-3446;
Exhibit C.6.b to NEES 1991 Form U-5-S; Exhibit 4(c)(ii) to NEES
1992 Form 10-K, File No. 1- 3446; Exhibit 4(d) to NEES 1993 Form
10-K, File No. 1-3446; Exhibit 4(d) to 1995 NEES Form 10-K, File
No. 1-3446).
b. Loan Agreement with Massachusetts Industrial Finance Agency dated
as of March 15, 1980 and two supplements thereto (Exhibit C.8.c
to NEES 1983 Form U-5-S); Supplements dated as of October 1, 1992
and September 1, 1993 (Exhibit C-6b to NEES 1993 Form U-5-S).
c. Loan Agreement with Business Finance Authority of the State of New
Hampshire (formerly the Industrial Development Authority of the
State of New Hampshire) dated as of November 15, 1983 (Exhibit
C.8.d to NEES 1983 Form U-5-S); First Supplement dated as of April
1, 1986 (Exhibit C.7.d to NEES 1986 Form U-5-S); Second Supplement
dated as of August 1, 1988 (Exhibit C.7.d to NEES 1988 Form U-5-
S); Third Supplement dated as of February 1, 1989; Fourth
Supplement dated as of November 1, 1990 (Exhibit C.6.d to NEES
1990 Form U-5-S); Fifth Supplement dated as of June 15, 1991
(Exhibit C.6.d to NEES 1991 Form U-5-S); Sixth Supplement dated as
of January 1, 1993 (Exhibit C.6.d to NEES 1992 Form U-5-S);
Seventh Supplement dated as of October 1, 1993 and Eighth
Supplement dated as of December 1, 1993 (Exhibit C.6.c to NEES
1993 Form U-5-S); Ninth Supplement dated as of February 1, 1995
(Exhibit 6.c to NEES 1995 Form U-5-S), Tenth Supplement dated as
of January 15, 1996, Eleventh Supplement dated as of January 15,
1996, and Twelfth Supplement dated as of December 1, 1996 (Exhibit
6.c to NEES 1996 Form U-5-S).
d. Loan Agreement with the Connecticut Development Authority dated as
of October 15, 1985 (Exhibit C-8(h) to NEES 1985 Form
U-5-S).
<PAGE>
7. Narragansett Energy Resources Company:
Note Agreements with Connecticut General Life Insurance Company,
CIGNA Property and Casualty Insurance Company, Insurance Company
of North America, and Life Insurance Company of North America,
dated November 30, 1995 (Exhibit A to NERC Certificate of
Notification, File No. 70-8671).
D. New England Electric System and Subsidiary Companies, Federal and State
Income Tax Allocation Agreement (Exhibit D to NEES 1996 Form U-5-S).
E. 1. Schedule showing Money Pool investments for 1997 (filed herewith).
2. NEERI annual report on Modified Form U-13-60 (filed herewith).
3. Ocean State Power Financial Statements as of December 31, 1997 (filed
herewith).
4. Ocean State Power II Financial Statements as of December 31, 1997
(filed herewith).
5. OSP Finance Company Financial Statements as of December 31, 1997
(filed herewith).
6. Financial Statements of the New England Electric System Companies
Incentive Thrift Plan (Thrift Plan) (filed herewith).
7. Financial Statements of the New England Electric System Companies
Incentive Thrift Plan II (Thrift Plan II) (filed herewith).
8. Financial Statements of the Yankee Atomic Electric Company Thrift
Plan (filed herewith).
F. Schedules (filed herewith).
G. Financial Data Schedules (filed herewith).
H. None.
I. None.
<PAGE>
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.
SIGNATURE
New England Electric System, a registered holding company, has duly caused
this Annual Report, Form U-5-S, for the year ended December 31, 1997,
Commission's File No. 30-33 to be signed on its behalf, by the undersigned
thereunto duly authorized, pursuant to the requirements of the Public Utility
Holding Company Act of 1935.
NEW ENGLAND ELECTRIC SYSTEM
s/John G. Cochrane
By:
John G. Cochrane, Treasurer
Date: May 1, 1998
<PAGE>
EXHIBIT INDEX
-------------
Exhibit No. Description Page
- ----------- ----------- ----
Supplement NEES Consolidating Balance Sheet, Filed
A-1 Consolidating Income and Retained Earnings herewith
Statements and Consolidating Statement of
Changes in Financial Position for the
year ended December 31, 1997
Supplement NEES Form 10-K for the year ended Filed under
A-2 December 31, 1997 cover of
Form SE
A.1.a Connecticut Yankee Atomic Power Company Incorporated
1997 Annual Report to Shareholders by reference
A.1.b Connecticut Yankee Atomic Power Company Incorporated
1997 FERC Form 1 by reference
A.2.a Maine Yankee Atomic Power Company Filed under
1997 Annual Report cover of
Form SE
A.2.b Maine Yankee Atomic Power Company Filed under
1997 FERC Form 1 cover of
Form SE
A.3 Massachusetts Electric Company Incorporated
Form 10-K for the year ended December 31, 1997 by reference
A.4 The Narragansett Electric Company Incorporated
Form 10-K for the year ended December 31, 1997 by reference
A.5 New England Electric System Incorporated
Form 10-K for the year ended December 31, 1997 by reference
A.6 New England Power Company Incorporated
Form 10-K for the year ended December 31, 1997 by reference
A.7.a Vermont Yankee Nuclear Power Corporation Filed under
1997 Annual Report to Stockholders cover of
Form SE
A.7.b Vermont Yankee Nuclear Power Corporation Filed under
1997 FERC Form 1 cover of
Form SE
A.8.a Yankee Atomic Electric Company Filed under
1997 Annual Report to Stockholders cover of
Form SE
A.8.b Yankee Atomic Electric Company Filed under
1997 FERC Form 1 cover of
Form SE
A.9 New England Electric Transmission Filed under
Corporation 1997 Annual Report cover of
Form SE
B.1.a AllEnergy Marketing Company, L.L.C. Incorporated
Limited Liability Company Agreement by reference
B.1.b Amendmment No. 1 to AllEnergy Marketing Incorporated
Company, L.L.C. Limited Liability by reference
Company Agreement
B.2.a. Texas Liquids, L.L.C. Limited Liability Filed herewith
Company Agreement
<PAGE>
EXHIBIT INDEX
-------------
Exhibit No. Description Page
- ----------- ----------- ----
B.3.a Granite State Electric Company Incorporated
Articles of Organization by reference
B.3.b Granite State Electric Company Incorporated
By-laws by reference
B.4.a Granite State Energy, Inc. Incorporated
Certificate of Incorporation by reference
B.4.b Granite State Energy, Inc. Incorporated
By-laws by reference
B.5.a HydroServ Group, L.L.C. Certificate Filed herewith
of Organization (schedules omitted)
B.6.a Massachusetts Electric Company Incorporated
Articles of Organization and Articles by reference
of Amendment
B.6.b Massachusetts Electric Company Incorporated
By-laws by reference
B.7.a Nantucket Electric Company Incorporated
Articles of Organization by reference
B.7.b Nantucket Electric Company Incorporated
By-laws by reference
B.8.a The Narragansett Electric Company Incorporated
Charter and Amendment thereto by reference
B.8.b The Narragansett Electric Company Incorporated
By-laws by reference
B.8.c The Narragansett Electric Company Incorporated
Preference Provisions as amended by reference
B.9.a Narragansett Energy Resources Company Incorporated
Articles of Incorporation by reference
B.9.b Narragansett Energy Resources Company Incorporated
By-laws by reference
B.10.a NEERI International Incorporated
Articles of Association by reference
B.10.b NEERI International Incorporated
Memorandum of Association by reference
B.11.a NEES Communications, Inc. Incorporated
Articles of Organization by reference
B.11.b NEES Communications, Inc. Incorporated
By-laws by reference
B.12.a NEES Energy, Inc. Incorporated
Certificate of Incorporation by reference
B.12.b NEES Energy, Inc. Incorporated
By-laws by reference
B.13.a NEES Global Transmission, Inc. Incorporated
Articles of Organization by reference
B.13.b NEES Global Transmission, Inc. Incorporated
By-laws by reference
<PAGE>
EXHIBIT INDEX
-------------
Exhibit No. Description Page
- ----------- ----------- ----
B.14.a New England Electric System Incorporated
Agreement and Declaration of Trust by reference
B.15.a New England Electric Transmission Corporation Incorporated
Restated Articles of Incorporation by reference
B.15.b New England Electric Transmission Corporation Incorporated
By-laws by reference
B.16.a New England Energy Incorporated Incorporated
Articles of Organization and Articles of by reference
Amendment
B.16.b New England Energy Incorporated Incorporated
By-laws by reference
B.17.a New England Hydro Finance Company, Inc. Incorporated
Articles of Organization by reference
B.17.b New England Hydro Finance Company, Inc. Incorporated
By-Laws by reference
B.18.a New England Hydro-Transmission Corporation Incorporated
Articles of Incorporation and Articles of by reference
Amendment
B.18.b New England Hydro-Transmission Corporation Incorporated
By-laws by reference
B.19.a New England Hydro-Transmission Electric Company Incorporated
Restated Articles of Organization by reference
B.19.b New England Hydro-Transmission Electric Company Incorporated
By-laws by reference
B.20.a New England Power Company Incorporated
Articles of Organization and Articles of by reference
Amendment
B.20.b New England Power Company Incorporated
By-laws by reference
B.21.a New England Power Service Company Incorporated
Articles of Organization by reference
B.21.b New England Power Service Company Incorporated
By-laws by reference
C.1 Granite State Electric Company Incorporated
Note Agreement with John Hancock by reference
Granite State Electric Company Incorporated
Note Agreement with Teachers Insurance by reference
Granite State Electric Company Incorporated
Note Agreement with Aid Association for by reference
Lutherans
Granite State Electric Company Incorporated
Note Agreement with First Colony Life by reference
Insurance Company
Granite State Electric Company Incorporated
Note Agreement with First Colony Life by reference
Insurance Company
<PAGE>
EXHIBIT INDEX
-------------
Exhibit No. Description Page
- ----------- ----------- ----
C.2 Massachusetts Electric Company Incorporated
First Mortgage Indenture and Deed of Trust by reference
and twenty-one supplements thereto
C.3 The Narragansett Electric Company Incorporated
First Mortgage Indenture and Deed of Trust by reference
and twenty-two supplements thereto
C.4 New England Electric Transmission Corporation Incorporated
Note Agreement with PruCapital Management, Inc. by reference
et al. and Mortgage, Deed of Trust and
Security Agreement
C.5 New England Energy Incorporated Incorporated
Credit Agreement by reference
C.6.a New England Power Company General and Incorporated
Refunding Mortgage Indenture and Deed of Trust by reference
and twenty supplements thereto
C.6.b New England Power Company Incorporated
Loan Agreement with Massachusetts Industrial by reference
Finance Agency and supplements thereto
C.6.c New England Power Company Incorporated
Loan Agreement with Business Finance Authority by reference
of the State of New Hampshire (formerly the
Industrial Development Authority of the State
of New Hampshire) and twelve supplements thereto
C.6.d Loan Agreement with Connecticut Development Incorporated
Authority by reference
C.7 Narragansett Energy Resources Company Incorporated
Note Agreements by reference
D New England Electric System and Subsidiary Incorporated
Companies, Federal and State Income Tax by reference
Allocation Agreement
E.1 Money Pool investments for 1997 Filed
herewith
E.2 NEERI annual report on Modified Form U-13-60 Filed
herewith
E.3 Ocean State Power Financial Statements as of Filed
December 31, 1997 herewith
E.4 Ocean State Power II Financial Statements Filed
as of December 31, 1997 herewith
E.5 OSP Finance Company Financial Statements Filed
as of December 31, 1997 herewith
E.6 New England Electric System Companies Filed under
Incentive Thrift Plan Financial Statements cover of
Form SE
E.7 New England Electric System Companies Filed under
Incentive Thrift Plan II Financial Statements cover of
Form SE
E.8 Yankee Atomic Electric Company Filed under
Thrift Plan Financial Statements cover of
Form SE
<PAGE>
EXHIBIT INDEX
-------------
Exhibit No. Description Page
- ----------- ----------- ----
F Schedules Filed under
cover of
Form SE
G Financial Data Schedules Filed
herewith
<PAGE>
SUPPLEMENT A-1
NEW ENGLAND ELECTRIC SYSTEM AND SUBSIDIARIES
CONSOLIDATING BALANCE SHEET
AT DECEMBER 31, 1997
CONSOLIDATING INCOME AND RETAINED EARNINGS STATEMENTS
FOR YEAR ENDED DECEMBER 31, 1997
CONSLIDATING STATEMENT OF CASH FLOWS
FOR YEAR ENDED DECEMBER 31, 1997
<PAGE>
<TABLE>
NEW ENGLAND ELECTRIC SYSTEM AND SUBSIDIARIES CONSOLIDATED
INDEX OF CONSOLIDATED WORKSHEETS
YEAR ENDED DECEMBER 31, 1997
<CAPTION>
Pages
-----
<S> <C>
Consolidating Balance Sheet, Adjustments and Eliminations............................. 1 - 2
Consolidating Statement of Income, Adjustments and Eliminations....................... 3 - 4
Consolidating Statement of Retained Earnings, Adjustments and Eliminations............ 5 - 6
Consolidating Statement of Cash Flows, Adjustments and Eliminations................... 7 - 8
INDEX OF INDIVIDUAL COMPANY STATEMENTS
Balance Statement Retained Statement of
Sheet of Income Earnings Cash Flows
------- --------- -------- ------------
<S> <C> <C> <C> <C>
NEW ENGLAND ELECTRIC SYSTEM (PARENT) 1 3 5 7
GRANITE STATE ELECTRIC COMPANY (GRANITE STATE) 1 3 5 7
MASSACHUSETTS ELECTRIC COMPANY (MASS. ELECTRIC) 1 3 5 7
THE NARRAGANSETT ELECTRIC COMPANY (NARRA. ELECTRIC) 1 3 5 7
NEW ENGLAND POWER COMPANY (NEP) 1 3 5 7
NEW ENGLAND ENERGY INCORPORATED (NEEI) 1 3 5 7
NEW ENGLAND POWER SERVICE COMPANY (NEPSCO) 1 3 5 7
NEW ENGLAND HYDRO-TRANSMISSION ELECTRIC COMPANY,
INC. (NEHTECI) 1 3 5 7
NEW ENGLAND HYDRO-TRANSMISSION CORPORATION (NEHTC) 1 3 5 7
NARRAGANSETT ENERGY RESOURCES COMPANY (NERC) 1 3 5 7
NEES GLOBAL TRANSMISSION, INC. (NEES GLOBAL) 1 3 5 7
NEES COMMUNICATIONS, INC. (NEESCOM) 1 3 5 7
NANTUCKET ELECTRIC COMPANY (NANTUCKET) 1 3 5 7
GRANITE STATE ENERGY (GSEN) 1 3 5 7
NEES ENERGY (NEESEN) 1 3 5 7
</TABLE>
<PAGE>
<TABLE>
Page 1A
NEW ENGLAND ELECTRIC SYSTEM AND SUBSIDIARIES CONSOLIDATED
BALANCE SHEET
DECEMBER 31, 1997 (IN THOUSANDS)
<CAPTION>
GRANITE MASS. NARRA.
STATE ELECTRIC ELECTRIC NEP NEEI NEPSCO NEHTECI NEHTC
------- -------- -------- --- ---- ------ ------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Assets
Utility plant,
at original cost $69,792$1,579,309 $760,923 $3,057,749 $5,877 $220,637 $173,246
Less accumulated
depreciation and
amortization 20,788 465,796 198,551 1,196,972 61,679 40,812
------------------ -------- ---------- ---------- ------- -------- --------
49,004 1,113,513 562,372 1,860,777 5,877 158,958 132,434
Construction work in
progress 187 13,363 5,739 29,015
------------------ -------- ---------- ---------- ------- -------- --------
Net utility plant 49,191 1,126,876 568,111 1,889,792 5,877 158,958 132,434
------------------ -------- ---------- ---------- ------- -------- --------
Oil and gas properties $1,299,817
Less accumulated
amortization 1,128,659
Work in progress
----------
Net oil and gas
properties 171,158
----------
Investments in
nuclear power
companies, at equity 49,825
Investments in other
subsidiaries, at
equity
Other investments
at cost 1,043 10,925 4,758 34,723 61,132 5 5
Current assets 7,025 236,041 89,459 338,337 14,260 23,764 5,524 1,569
Deferred charges and
other assets 1,011 34,525 50,527 450,415 342 589 4,473 5,156
------------------ -------- ---------- ---------- ------- -------- --------
$58,270$1,408,367 $712,855 $2,763,092 $185,760 $91,362 $168,960 $139,164
================== ======== ========== ========== ======= ======== ========
<PAGE>
Page 1B
NEW ENGLAND ELECTRIC SYSTEM AND SUBSIDIARIES CONSOLIDATED
BALANCE SHEET
DECEMBER 31, 1997 (IN THOUSANDS)
(Continued)
NEES
NERC GLOBAL NEESCOM NANTUCKET GS EN NEES EN PARENT
---- ------ -------- ---------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Assets
Utility plant,
at original cost $46,888
Less accumulated
depreciation and
amortization 10,418
-------- ------ ---------- ---------- ---------- ---------- ---------
36,470
Construction work in
progress 404
-------- ------ ---------- ---------- ---------- --------- ---------
Net utility plant 36,874
-------- ------ ---------- ---------- ---------- --------- ---------
Oil and gas properties
Less accumulated
amortization
Work in progress
Net oil and gas
properties
Investments in
nuclear power
companies, at equity
Investments in other
subsidiaries, at
equity 34,735 $185 1,814,765
Other investments
at cost 3,875 106 1,984 33,666
Current assets 2,122 1,133 403 3,910 232 21,139 49,278
Deferred charges and
other assets 730 1,175 4,918
-------- ------ -------------------- ---------- ----------- ----------
$37,587 $5,193 $403 $42,065 $232 $28,041 $1,897,709
======== ====== ==================== ========== =========== ==========
<PAGE>
Page 1C
NEW ENGLAND ELECTRIC SYSTEM AND SUBSIDIARIES CONSOLIDATED
BALANCE SHEET
DECEMBER 31, 1997 (IN THOUSANDS)
(Continued)
TOTAL
ADJUSTMENTS NEES
& ELMINATIONS CONSOLIDATED
------------- ------------
<S> <C> <C>
Assets
Utility plant,
at original cost $54,320 $5,860,101
Less accumulated
depreciation and
amortization (1) 1,995,017
--------- ---------
54,321 3,865,084
Construction work in
progress 48,708
------ ----------
Net utility plant 54,321 3,913,792
------ ----------
Oil and gas properties 1,299,817
Less accumulated
amortization 1,128,659
Work in progress
------- ---------
Net oil and gas
properties 171,158
------- ---------
Investments in
nuclear power
companies, at equity 49,825
Investments in other
subsidiaries, at
equity 1,812,267 37,418
Other investments
at cost 34,577 117,645
Current assets 320,713 473,483
Deferred charges and
other assets 5,535 548,326
---------- ----------
$2,227,413 $5,311,647
========== ==========
</TABLE>
<PAGE>
Page 1D
<TABLE>
NEW ENGLAND ELECTRIC SYSTEM AND SUBSIDIARIES CONSOLIDATED
BALANCE SHEET
DECEMBER 31, 1997 (IN THOUSANDS)
(Continued)
<CAPTION>
GRANITE MASS. NARRA.
STATE ELECTRIC ELECTRIC NEP NEEI NEPSCO NEHTECI NEHTC
------- -------- --------- --- ---- ------ ------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Capitalization and
liabilities
Common share equity $20,936 $500,407$291,839 $913,259 ($2,674) $22,252 $52,542 $34,336
Minority interests in
consolidated
subsidiaries
Cumulative preferred
stock 15,739 12,800 39,666
Long-term debt 15,000 338,387 183,545 647,720 122,000 77,610 47,360
------------------------------------ ---------- ------- -------- --------
Total capitalization 35,936 854,533 488,184 1,600,645 119,326 22,252 130,152 81,696
------------------------------------ ---------- ------- -------- --------
Current liabilities
Long-term debt due
within 1 year 20,000 5,000 50,000 6,960 4,560
Short-term debt 4,075 34,700 16,350 111,250
Other current
liabilities 11,353 244,085 96,260 177,093 6,158 29,543 3,649 4,543
------------------------------------ ---------- ------- -------- --------
Total current
liabilities 15,428 298,785 117,610 338,343 6,158 29,543 10,609 9,103
------------------------------------ ---------- ------- -------- --------
Deferred federal and
state income taxes 4,383 179,474 82,871 369,757 58,741 (12,784) 20,870 17,822
Unamortized investment
tax credits 899 15,463 7,023 53,463 7,329 3,984
Other reserves and
deferred credits 1,624 60,112 17,167 400,884 1,535 52,351 26,559
------------------------------------ ---------- ------- -------- --------
$58,270$1,408,367$712,855$2,763,092 $185,760 $91,362 $168,960 $139,164
==================================== ========== ======= ======== ========
<PAGE>
Page 1E
NEW ENGLAND ELECTRIC SYSTEM AND SUBSIDIARIES CONSOLIDATED
BALANCE SHEET
DECEMBER 31, 1997 (IN THOUSANDS)
(Continued)
NEES
NERC GLOBAL NEESCOM NANTUCKET GS EN NEES EN PARENT
---- ------ -------- ----- ------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Capitalization and
liabilities
Common share equity $3,277 $4,915 292 $4,669 $162 $13,234 $1,745,288
Minority interests in
consolidated
subsidiaries 191
Cumulative preferred
stock
Long-term debt 26,719 29,140
-------- ------- ---------- ---------- --------------------- ----------
Total capitalization 29,996 4,915 292 33,809 162 13,425 1,745,288
-------- ------- ---------- ---------- --------------------- ----------
Current liabilities
Long-term debt due
within 1 year 1,920 1,470
Short-term debt 25 102,000
Other current
liabilities 1,006 278 111 4,683 60 14,922 46,310
-------- ------- ---------- ---------- --------------------- ---------
Total current
liabilities 2,926 278 111 6,178 60 14,922 148,310
-------- ------- ---------- ---------- --------------------- ---------
Deferred federal and
state income taxes 2,973 602 10 (725) (3,619)
Unamortized investment
tax credits 1,692 165
Other reserves and
deferred credits 1,311 419 7,730
-------- ------- ---------- ---------- ---------- ---------- ----------
$37,587 $5,193 $403 $42,065 $232 $28,041 $1,897,709
======== ======= ========== ========== ========== ========== ==========
<PAGE>
Page 1F
NEW ENGLAND ELECTRIC SYSTEM AND SUBSIDIARIES CONSOLIDATED
BALANCE SHEET
DECEMBER 31, 1997 (IN THOUSANDS)
(Continued)
TOTAL
ADJUSTMENTS NEES
& ELIMINATIONS CONSOLIDATED
-------------- ------------
<S> <C> <C>
Capitalization and
liabilities
Common share equity $1,860,292 $1,744,442
Minority interests in
consolidated
subsidiaries (42,871) 43,062
Cumulative preferred
stock 29,092 39,113
Long-term debt 1,487,481
---------- ----------
Total capitalization 1,846,513 3,314,098
---------- ----------
Current liabilities
Long-term debt due
within 1 year 89,910
Short-term debt 16,450 251,950
Other current
liabilities 307,872 332,182
---------- ----------
Total current
liabilities 324,322 674,042
---------- ----------
Deferred federal and
state income taxes 720,375
Unamortized investment
tax credits 90,018
Other reserves and
deferred credits 56,578 513,114
---------- ----------
$2,227,413 $5,311,647
========== ==========
</TABLE>
<PAGE>
<TABLE>
Page 2A
NEW ENGLAND ELECTRIC SYSTEM AND SUBSIDIARIES CONSOLIDATED
BALANCE SHEET - ADJUSTMENTS AND ELIMINATIONS
DECEMBER 31, 1997 (IN THOUSANDS)
<CAPTION>
GRANITE MASS. NARRA.
STATE ELECTRIC ELECTRIC NEP NEEI NEPSCO NEHTECI NEHTC
------- -------- -------- --- ---- ------ ------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Debit
Common share equity 20,867 500,278 291,727 913,225 (2,674) 18,189 52,506 34,315
Short-term debt 4,075 4,800 4,425 3,125
Other current
liabilities 8,396 183,980 54,223 52,961 10 666 1,587 1,639
Other reserves and
deferred credits 6,817 50,971 1,535
Cumulative preferred
stock 29,092
Oil and Gas Properties
------- -------- -------- ---------- -------- ------- ------- -------
Total $33,338 $689,058 $357,192 $1,049,374 ($1,129) $18,855 $54,093 $35,954
======= ======== ======== ========== ======== ======= ======= =======
Credit
Minority interests in
consolidated
subsidiaries 26,042 17,020
Deferred charges and
other assets 6,817 1,877
Utility plant, at
original cost 53,999
Investments in other
subsidiaries, at
equity
Other investments at
cost 124 481 428 350 3,879 5 5
Accumulated depreciation
and amortization
Current assets 404 1,322 1,112 233,146 13,870 13,497 2,965 1,379
Accumulated
Amortization -
Oil and Gas Properties
------- -------- -------- ---------- -------- ------- ------- -------
Total $528 $1,803 $8,357 $287,495 $15,747 $17,376 $29,012 $18,404
======= ======== ======== ========== ======== ======= ======= =======
<PAGE>
Page 2B
NEW ENGLAND ELECTRIC SYSTEM AND SUBSIDIARIES CONSOLIDATED
BALANCE SHEET - ADJUSTMENTS AND ELIMINATIONS
DECEMBER 31, 1997 (IN THOUSANDS)
(Continued)
NEES
NERC GLOBAL NEESCOM NANTUCKET GS EN NEES EN PARENT
---- ------ -------- --------- ------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Debit
Common share equity 3,278 4,915 292 4,669 162 13,234 5,309
Short-term debt 25
Other current
liabilities 1,565 54 377 1,297 126 1,007 (16)
Other reserves and
deferred credits 904 (3,649)
Cumulative preferred
stock
Oil and Gas Properties
------ ------ ---------- -------- -------- -------- -------
Total $4,843 $4,969 $669 $6,895 $288 $14,241 $1,644
====== ====== ========== ======== ======== ======== =======
Credit
Minority interests in
consolidated
subsidiaries (191)
Deferred charges and
other assets (319) 811 (3,651)
Utility plant, at
original cost 321
Investments in other
subsidiaries, at
equity 163 1,812,104
Other investments at
cost 29,305
Accumulated depreciation
and amortization 1
Current assets 2,100 92 347 1,416 994 48,069
Accumulated
Amortization -
Oil and Gas Properties
------ ------ ---------- -------- ------------------ ----------
Total $1,781 $255 $347 $2,548 $803 $1,885,828
====== ====== ========== ======== ================== ==========
<PAGE>
Page 2C
NEW ENGLAND ELECTRIC SYSTEM AND SUBSIDIARIES CONSOLIDATED
BALANCE SHEET - ADJUSTMENTS AND ELIMINATIONS
DECEMBER 31, 1997 (IN THOUSANDS)
(Continued)
TOTAL
ADJUSTMENTS
& ELIMINATIONS
--------------
<S> <C>
Debit
Common share equity $1,860,292
Short-term debt $16,450
Other current
liabilities $307,872
Other reserves and
deferred credits $56,578
Cumulative preferred
stock $29,092
Oil and Gas Properties
----------
Total $2,270,284
==========
Credit
Minority interests in
consolidated
subsidiaries $42,871
Deferred charges and
other assets $5,535
Utility plant, at
original cost $54,320
Investments in other
subsidiaries, at
equity $1,812,267
Other investments at
cost $34,577
Accumulated depreciation
and amortization $1
Current assets $320,713
Accumulated
Amortization -
Oil and Gas Properties
----------
Total $2,270,284
==========
</TABLE>
<PAGE>
<TABLE>
Page 3A
NEW ENGLAND ELECTRIC SYSTEM AND SUBSIDIARIES CONSOLIDATED
INCOME STATEMENT
YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS)
<CAPTION>
GRANITE MASS. NARRA.
STATE ELECTRIC ELECTRIC NEP NEEI NEPSCO NEHTECI NEHTC
------- -------- -------- --- ---- ------ ------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Operating revenue $68,780 $1,624,085 $520,038 $1,677,903 $41,078 $32,415
-------- ---------- -------- ---------- -------- ---------------- --------
Operating expenses:
Fuel for generation 10,934 372,734
Purchased electric energy 47,845 1,145,047 298,496 527,647
Other operation 9,490 217,150 74,375 241,506 4,128 5,760 10,059
Maintenance 1,813 36,906 12,447 89,820 1,323 218
Depreciation and amortization 2,483 49,694 22,957 98,024 49,620 8,896 5,866
Taxes, other than income
taxes 1,971 31,143 39,366 67,311 301 3,081 3,073
Income taxes 1,243 42,454 14,247 90,009 (2,404) 5,834 3,022
-------- ---------- -------- ---------- -------- ---------------- --------
Total operating expenses 64,845 1,522,394 472,822 1,487,051 51,645 24,894 22,238
-------- ---------- -------- ---------- -------- ---------------- --------
Operating income 3,935 101,691 47,216 190,852 (51,645) 16,184 10,177
Other income:
Allowance for equity funds
used during construction
Equity in income of
generating companies 5,189
Other income (expense), net (51) (1,536) (750) (3,404) 52,625 1,839 167 59
-------- ---------- -------- ---------- -------- ---------------- --------
Operating and other income 3,884 100,155 46,466 192,637 980 1,839 16,351 10,236
-------- ---------- -------- ---------- -------- ---------------- --------
Interest:
Interest on long-term debt 1,260 27,612 16,179 42,277 2,289 8,123 4,997
Other interest 428 7,214 2,475 7,055 7 49
Allowance for borrowed funds
used during construction (13) (429) (120) (1,238)
-------- ---------- -------- ---------- -------- ---------------- --------
Total interest 1,675 34,397 18,534 48,094 2,289 8,130 5,046
-------- ---------- -------- ---------- -------- ---------------- --------
Income after interest 2,209 65,758 27,932 144,543 (1,309) 1,839 8,221 5,190
Preferred dividends of
subsidiaries 2,821 1,955 2,075
Minority interests
-------- ---------- -------- ---------- -------- ---------------- --------
Net income $2,209 $62,937 $25,977 $142,468 ($1,309) $1,839 $8,221 $5,190
======== ========== ======== ========== ======== ================ ========
<PAGE>
Page 3B
NEW ENGLAND ELECTRIC SYSTEM AND SUBSIDIARIES CONSOLIDATED
INCOME STATEMENT
YEAR ENDED DECEMBER 31, 1997(IN THOUSANDS)
(Continued)
NEES
NERC GLOBAL NANTUCKET NEESCOM GS EN NEES EN PARENT
---- ------ --------- ------- ------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Operating revenue $14,552 $590 $10,909
-------- ---------- -------- ------- -------- -------- --------
Operating expenses
Fuel for generation 212
Purchased electric energy 5,215 650
Other operation 55 3,339 131 13,813 4,593
Maintenance 845
Depreciation and amortization 1 1,807 46
Taxes, other than income
taxes 509 5 4 31
Income taxes 318 262 (68) (1,179) (27)
-------- ---------- -------- ------- -------- -------- -------
Total operating expenses 374 12,189 718 12,684 4,597
-------- ---------- -------- ------- -------- -------- -------
Operating income (374) 2,363 (128) (1,775) (4,597)
Other income:
Allowance for equity funds
used during construction
Equity in income of
generating companies 5,051 (7,357) 41,536
Other income (expense), net 70 (3,839) 37 (643) 1,157 184,397
-------- ---------- -------- ------- -------- -------- -------
Operating and other income 4,747 (3,839) 2,400 (643) (128) (7,975) 221,336
-------- ---------- -------- ------- -------- -------- -------
Interest:
Interest on long-term debt 2,209 1,939 426
Other interest (2) 67 552
Allowance for borrowed funds
used during construction (109)
-------- ---------- -------- ------- -------- -------- -------
Total interest 2,207 1,897 978
-------- ---------- -------- ------- -------- -------- -------
Income after interest 2,540 (3,839) 503 (643) (128) (7,975) 220,358
Preferred dividends of
subsidiaries
Minority interests
-------- ---------- -------- ------- -------- -------- --------
Net income $2,540 ($3,839) $503 ($643) ($128) ($7,975)$220,358
======== ========== ======== ======= ======== ======== ========
<PAGE>
Page 3C
NEW ENGLAND ELECTRIC SYSTEM AND SUBSIDIARIES CONSOLIDATED
INCOME STATEMENT
YEAR ENDED DECEMBER 31, 1997(IN THOUSANDS)
(Continued)
TOTAL
ADJUSTMENTS NEES
& ELIMINATIONS CONSOLIDATED
-------------- ------------
<S> <C> <C>
Operating revenue $1,487,759 $2,502,591
---------- ----------
Operating expenses
Fuel for generation 11,419 372,461
Purchased electric energy 1,496,671 528,229
Other operation 27,741 556,658
Maintenance 143,372
Depreciation and amortization 2,902 236,492
Taxes, other than income
taxes 301 146,494
Income taxes 1,687 152,024
---------- ---------
Total operating expenses 1,540,721 2,135,730
---------- ----------
Operating income (52,962) 366,861
Other income:
Allowance for equity funds
used during construction
Equity in income of
generating companies 34,179 10,240
Other income (expense), net 245,883 (15,755)
---------- ----------
Operating and other income 227,100 361,346
---------- ----------
Interest:
Interest on long-term debt 107,311
Other interest 906 16,939
Allowance for borrowed funds
used during construction (1) (1,908)
---------- ----------
Total interest 905 122,342
---------- ----------
Income after interest 226,195 239,004
Preferred dividends of
subsidiaries (5,468) 12,319
Minority interests (6,647) 6,647
---------- ----------
Net income $238,310 $220,038
========== ==========
</TABLE>
<PAGE>
<TABLE>
Page 4A
NEW ENGLAND ELECTRIC SYSTEM AND SUBSIDIARIES CONSOLIDATED
INCOME STATEMENT - ADJUSTMENTS AND ELIMINATIONS
YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS)
<CAPTION>
GRANITE MASS. NARRA.
STATE ELECTRIC ELECTRIC NEP NEEI NEPSCO NEHTECI NEHTC
------- -------- -------- --- ---- ------ ------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Income:
Operating revenue $219 $5,394 $1,070 $1,503,248($36,845) $7,612 $6,005
Allowance for equity funds
used during construction
Equity in income of
generating companies
Other income (expense), net 3 27 49 16 52,645 239 232 78
Minority interests 4,075 2,572
------- ---------- -------- ---------- ------- ------ ------- ------
Total $222 $5,421 $1,119 $1,503,264 $15,800 $239 $11,919 $8,655
======= ========== ======== ========== ======= ===== ======= ======
Expenses:
Fuel for generation 11,419
Purchased electric energy 47,815 1,144,557 298,280 154
Other operation 83 2,501 112 21,065 (191) 678 3,457
Depreciation and
amotization 2,902
Taxes, other than income taxes 301
Income taxes (1) 1,369
Interest on long-term debt
Other interest 137 260 199 298
Allowance for borrowed
funds used during
construction (1)
Preferred dividends of
subsidiaries (3,736) (1,666)
------- ---------- -------- ---------- ------- ------ ------- ------
Total $48,035 $1,143,580 $296,925 $32,936 $4,381 $678 $3,457
======= ========== ======== ========== ======= ====== ======= ======
Net ($47,813) ($1,138,159) ($295,806) $1,470,328 $11,419 $239$11,241 $5,198
<PAGE>
Page 4B
NEW ENGLAND ELECTRIC SYSTEM AND SUBSIDIARIES CONSOLIDATED
INCOME STATEMENT - ADJUSTMENTS AND ELIMINATIONS
YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS)
(Continued)
NEES
NERC GLOBAL NANTUCKET GS EN NEES EN PARENT
---- ------ --------- ----- ------- ------
<S> <C> <C> <C> <C> <C> <C>
Income:
Operating revenue $1,056
Allowance for equity
funds used during
construction
Equity in income of
generating companies (7,357) 41,536
Other income (expense), net 40 23 7,329 185,202
Minority interests
------ -------- ---------- ------- ------ --------
Total $40 $1,079 ($28) $226,738
====== ======== ========== ====== ====== ========
Expenses:
Fuel for generation
Purchased electric energy 5,215 650
Other operation 36
Depreciation and
amortization
Taxes, other than income taxes
Income taxes 319
Interest on long-term debt
Other interest 12
Allowance for borrowed
funds used during
construction
Preferred dividends of
subsidiaries (66)
------- -------- ---------- ------- ------ --------
Total $319 $5,227 $686 ($66)
======= ======== ========== ======= ====== =======
Total ($279) ($4,148) ($686) ($28) $226,804
<PAGE>
Page 4C
NEW ENGLAND ELECTRIC SYSTEM AND SUBSIDIARIES CONSOLIDATED
INCOME STATEMENT - ADJUSTMENTS AND ELIMINATIONS
YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS)
(Continued)
TOTAL
ADJUSTMENTS
& ELIMINATIONS
--------------
<S> <C>
Income:
Operating revenue $1,487,759
Allowance for equity funds
used during construction
Equity in income of
generating companies 34,179
Other income (expense), net 245,883
Minority interests 6,647
----------
Total $1,774,468
==========
Expenses:
Fuel for generation 11,419
Purchased electric energy 1,496,671
Other operation 27,741
Depreciation and
amortization 2,902
Taxes, other than income taxes 301
Income taxes 1,687
Interest on long-term debt
Other interest 906
Allowance for borrowed funds
used during construction (1)
Preferred dividends of
subsidiaries (5,468)
----------
Total $1,536,158
==========
Net $238,310
</TABLE>
<PAGE>
<TABLE>
Page 5A
NEW ENGLAND ELECTRIC SYSTEM AND SUBSIDIARIES CONSOLIDATED
STATEMENT OF RETAINED EARNINGS
YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS)
<CAPTION>
GRANITE MASS. NARRA.
STATE ELECTRIC ELECTRIC NEP NEEI NEPSCO NEHTECI NEHTC
------- -------- -------- --- ---- ------ ------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Retained earnings at
beginning of year $9,645 $165,936 $119,978 $400,610 ($24,707) $1,839 $232 $848
Additions:
Net income after preferred
dividends of subsidiaries 2,209 62,937 25,977 142,468 (1,309) 1,839 8,221 5,190
Deductions:
Common dividends 1,027 23,981 14,722 135,448 1,839 8,035 5,139
Premium on redemption of
preferred stock 3,736 1,666 32 32
------- -------- -------- ----------------- ------ ------- -------
Retained earnings at end
of year $10,827 $201,156 $129,567 $407,630 ($26,016) $1,839 $386 $867
======= ======== ======== ================= ====== ======= =======
<PAGE>
Page 5B
NEW ENGLAND ELECTRIC SYSTEM AND SUBSIDIARIES CONSOLIDATED
STATEMENT OF RETAINED EARNINGS
YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS)
(Continued)
NEES
NERC GLOBAL NANTUCKET NEESCOM GS EN NEES EN PARENT
---- ------ --------- ------- ------- ------- ------
<S> <C> <C> <C> <C> <C> <C>
Retained earnings at
beginning of year $937 ($5,321) $356 $0 ($155) ($1,507) $889,340
Additions:
Net income after preferred
dividends of subsidiaries 2,540 (3,839) 503 (643) (128) (7,975) 220,358
Deductions:
Common dividends 1,000 153,132
Premium on redemption of
preferred stock
------- -------- -------- --------- -------- -------- ---------
Retained earnings at end
of year $2,477 ($9,160) $859 ($643) ($283) ($9,482) $956,566
======= ======== ======== ========= ======== ======== =========
<PAGE>
Page 5C
NEW ENGLAND ELECTRIC SYSTEM AND SUBSIDIARIES CONSOLIDATED
STATEMENT OF RETAINED EARNINGS
YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS)
(Continued)
TOTAL
ADJUSTMENTS NEES
& ELIMINATIONS CONSOLIDATED
-------------- ------------
<S> <C> <C>
Retained earnings at
beginning of year $670,739 $887,292
Additions:
Net income after preferred
dividends of subsidiaries 238,310 220,038
Deductions:
Common dividends 191,511 152,812
Premium on redemption of
preferred stock 5,466
-------- ---------
Retained earnings at end
of year $712,072 $954,518
========= ========
</TABLE>
<PAGE>
<TABLE>
Page 6A
NEW ENGLAND ELECTRIC SYSTEM AND SUBSIDIARIES CONSOLIDATED
STATEMENT OF RETAINED EARNINGS - ADJUSTMENTS AND ELIMINATIONS
YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS)
<CAPTION>
GRANITE MASS. NARRA.
STATE ELECTRIC ELECTRIC NEP NEEI NEPSCO NEHTECI NEHTC
------- -------- -------- --- ---- ------ ------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Retained earnings at
beginning of year $9,645 $166,752 $120,339 $401,481 ($24,707) $1,839 $232 $848
Additions:
Net income after preferred
dividends of subsidiaries 2,209 62,937 25,977 142,468 (1,309) 1,839 8,221 5,190
Deductions:
Common dividends 1,027 23,981 14,722 135,448 1,839 8,035 5,139
Premium on redemption of
preferred stock 3,736 1,666 32 32
------- -------- -------- ----------------- ------ ------- -------
Retained earnings at end
of year $10,827 $201,972 $129,928 $408,501 ($26,016) $1,839 $386 $867
======= ======== ======== ================= ====== ======= =======
<PAGE>
Page 6B
NEW ENGLAND ELECTRIC SYSTEM AND SUBSIDIARIES CONSOLIDATED
STATEMENT OF RETAINED EARNINGS - ADJUSTMENTS AND ELIMINATIONS
YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS)
(Continued)
NEES
NERC GLOBAL NANTUCKET NEESCOM GS EN NEES EN PARENT
---- ------ --------- ------- ------- ------- ------
<S> <C> <C> <C> <C> <C> <C>
Retained earnings at
beginning of year $937 ($5,321) $356 ($155) ($1,507)
Additions:
Net income after preferred
dividends of subsidiaries 2,540 (3,839) 503 (643) (128) (7,975) 320
Deductions:
Common dividends 1,000 320
Premium on redemption of
preferred stock
------- -------- -------- ------ -------- -------- ------
Retained earnings at end
of year $2,477 ($9,160) $859 ($643) ($283) ($9,482)
======= ======== ======== ====== ======== ======== ======
<PAGE>
Page 6C
NEW ENGLAND ELECTRIC SYSTEM AND SUBSIDIARIES CONSOLIDATED
STATEMENT OF RETAINED EARNINGS - ADJUSTMENTS AND ELIMINATIONS
YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS)
(Continued)
TOTAL
ADJUSTMENTS
& ELIMINATIONS
--------------
<S> <C>
Retained earnings at
beginning of year $670,739
Additions:
Net income after preferred
dividends of subsidiaries 238,310
Deductions:
Common dividends 191,511
Premium on redemption of
preferred stock 5,466
--------
Retained earnings at end
of year $712,072
========
</TABLE>
<PAGE>
<TABLE>
Page 7A
NEW ENGLAND ELECTRIC SYSTEM AND SUBSIDIARIES CONSOLIDATED
STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS)
<CAPTION>
GRANITE MASS. NARRA.
STATE ELECTRIC ELECTRIC NEP NEEI NEPSCO NEHTECI NEHTC
------- -------- -------- --- ---- ------ ------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Operating Activities:
Net Income $2,209 $65,758 $27,932 $144,543 ($1,309) $1,839 $8,221 $5,190
Adjustments to reconcile net
income to net cash provided
by (used in) operating
activities:
Undistributed earnings of
subsidiaries
Depreciation and
amortization 2,483 49,694 22,957 101,186 49,621 8,896 5,866
Deferred income taxes and
investment tax credits-net (150) 478 (415) (12,728) (14,698) (4,814) 3,010 1,392
Allowance for funds used
during construction (13) (429) (120) (1,238)
Amortization of unbilled
revenues
Minority interests
Decrease (increase) in other
current assets 476 4,155 1,874 (6,698) 7,338 (293) (900) 991
Increase (decrease) in
payables and other current
liabilities 483 (8,951) 20,311 (20,010) (271) 4,551 (1,046) 990
Other, net 280 36,902 1,181 19,919 2,258 19 545
-------- --------- ------------------- ------------------ ----------------
Net cash provided by (used
in) operating activities $5,768 $147,607 $73,720 $224,974 $40,681 $3,541 $18,200 $14,974
-------- --------- ------------------- ------------------ ----------------
Investing Activities:
Plant expenditures,
excluding allowance for
funds used during
construction (3,046) (87,998) (30,965) (69,863) (440) (52)
Oil and gas exploration
and development (13,204)
Decrease (increase) in
other investments (53) (1,408) (294) (4,040) (2,607)
-------- --------- ------------------- ------------------ ----------------
Net cash provided by (used
in) investing activities ($3,099) ($89,406) ($31,259) ($73,903) ($13,204) ($2,607) ($440) ($52)
-------- --------- ------------------- ------------------ ----------------
<PAGE>
Page 7B
NEW ENGLAND ELECTRIC SYSTEM AND SUBSIDIARIES CONSOLIDATED
STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS)
(Continued)
NEES
NERC GLOBAL NEESCOM NANTUCKET GS EN NEES EN PARENT
---- ------ ------- --------- ------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Operating Activities:
Net Income $2,540 ($3,839) ($643) $503 ($128) ($7,975) $220,358
Adjustments to reconcile net
income to net cash provided
by (used in) operating
activities:
Undistributed earnings of
subsidiaries 7,357 (41,444)
Depreciation and
amortization 1,807 47
Deferred income taxes and
investment tax credits-net (324) (52) 190 10 (725) (914)
Allowance for funds used
during construction (109)
Amortization of unbilled
revenues
Minority interests
Decrease (increase) in other
current assets (268) 1,406 (398) 9,933 89 (84) (8,852)
Increase (decrease) in
payables and other current
liabilities (1) (438) 110 169 50 1,022 3,608
Other, net 720 1 942 (1,653) 341
-------- --------- --------- ---------- ---------- -------- --------
Net cash provided by (used
in) operating activities $2,667 ($2,923) ($930) $13,435 $21 ($2,011) $173,097
-------- --------- --------- ---------- ---------- -------- --------
Investing Activities:
Plant expenditures,
excluding allowance for
funds used during
construction (11,699) (176)
Oil and gas exploration
and development
Decrease (increase) in
other investments (2,585) (13,708) (115,789)
-------- --------- --------- ---------- ---------- -------- ---------
Net cash provided by (used
in) investing activities ($2,585) ($11,699) ($13,884) ($115,789)
-------- --------- --------- ---------- ---------- -------- ---------
<PAGE>
Page 7C
NEW ENGLAND ELECTRIC SYSTEM AND SUBSIDIARIES CONSOLIDATED
STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS)
(Continued)
TOTAL
ADJUSTMENTS NEES
& ELIMINATIONS CONSOLIDATED
-------------- ------------
<S> <C> <C>
Operating Activities:
Net Income $245,161 $220,038
Adjustments to reconcile net
income to net cash provided
by (used in) operating
activities:
Undistributed earnings of
subsidiaries (34,087)
Depreciation and
amortization 2,903 239,654
Deferred income taxes and
investment tax credits-net 1,438 (31,178)
Allowance for funds used
during construction (1) (1,908)
Amortization of unbilled
revenues
Minority interests (6,647) 6,647
Decrease (increase) in other
current assets (30,841) 39,610
Increase (decrease) in
payables and other current
liabilities 19,005 (18,428)
Other, net (5,223) 66,678
---------- ----------
Net cash provided by (used
in) operating activities $191,708 $521,113
---------- ----------
Investing Activities:
Plant expenditures,
excluding allowance for
funds used during
construction (1,144) ($203,095)
Oil and gas exploration
and development (48) ($13,156)
Decrease (increase) in
other investments (117,815) ($22,669)
-------- ---------
Net cash provided by (used
in) investing activities ($119,007) ($238,920)
-------- ---------
</TABLE>
<PAGE>
<TABLE>
Page 7D
NEW ENGLAND ELECTRIC SYSTEM AND SUBSIDIARIES CONSOLIDATED
STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS)
(Continued)
<CAPTION>
GRANITE MASS. NARRA.
STATE ELECTRIC ELECTRIC NEP NEEI NEPSCO NEHTECI NEHTC
------- -------- -------- --- ---- ------ ------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Financing Activities:
Dividends paid to minority
interests
Dividends paid on common
shares (1,027) (26,380) (13,590) (127,386) (1,839) (8,653) (5,026)
Dividends paid on preferred
stock (3,359) (2,301) (2,075)
Preferred stock - retirements (34,178) (23,834)
Long-term debt - issues 15,000 10,000
Long-term debt - retirements (30,000) (32,500) (38,500) (27,000) (6,960) (4,560)
Premium on reacquisition of
long-term debt (2,163)
Capital contribution from
parent 37,914 25,500
Subordinated notes payable
to parent (net) 2,095
Changes in short-term debt (1,400) (9,075) (2,675) 17,650 (3,000)
Gain on redemption of
preferred stock (3,736) (1,666)
Return of capital to minority
interests and related
premium (4,260) (2,494)
Repurchase of common shares
------- --------- -------- --------- ---------- -------------------------
Net cash provided by (used
in) financing activities ($2,427) ($53,814) ($41,066)($152,474) ($24,905)($1,839)($19,873)($15,080)
------- --------- -------- --------- ---------- -------------------------
Net increase (decrease) in
cash and cash equivalents $242 $4,387 $1,395 ($1,403) $2,572 ($905) ($2,113) ($158)
Cash and cash equivalents at
beginning of year 95 2,356 1,727 3,046 199 8,023 4,883 1,556
------- --------- -------- --------- ---------- -------------------------
Cash and cash equivalents at
end of year $337 $6,743 $3,122 $1,643 $2,771 $7,118 $2,770 $1,398
======= ========= ======== ========= ========== =========================
<PAGE>
Page 7E
NEW ENGLAND ELECTRIC SYSTEM AND SUBSIDIARIES CONSOLIDATED
STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS)
(Continued)
NEES
NERC GLOBAL NEESCOM NANTUCKET GS EN NEES EN PARENT
---- ------ ------- --------- ------ ------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Financing Activities:
Dividends paid to minority
interests
Dividends paid on common
shares (153,083)
Dividends paid on preferred
stock
Preferred stock - retirements
Long-term debt - issues
Long-term debt - retirements (1,920) (765)
Premium on reacquisition of
long-term debt
Capital contribution from
parent 5,625 935 90
Subordinated notes payable
to parent (net) 18,212
Changes in short-term debt (1,475) (1,000) 102,000
Gain on edemption of
preferred stock
Return of capital to minority
interests and related
premium
Repurchase of common shares (11,123)
-------- --------- ---------- ------- ------- ------- --------
Net cash provided by (used
in) financing activities ($1,920) $5,625 $935 ($2,240) $90 $17,212 ($62,206)
-------- --------- ---------- ------- ------- ------- --------
Net increase (decrease) in
cash and cash equivalents $747 $117 $5 ($504) $111 $1,317 ($4,898)
Cash and cash equivalents at
beginning of year 817 181 632 23 291 5,963
-------- --------- ---------- ------- ------- ------- --------
Cash and cash equivalents at
end of year $1,564 $298 $5 $128 $134 $1,608 $1,065
======== ========= ========== ======= ======= ======= ========
<PAGE>
Page 7F
NEW ENGLAND ELECTRIC SYSTEM AND SUBSIDIARIES CONSOLIDATED
STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS)
(Continued)
TOTAL
ADJUSTMENTS NEES
& ELIMINATIONS CONSOLIDATED
-------------- ------------
<S> <C> <C>
Financing Activities:
Dividends paid to minority
interests 6,809 (6,809)
Dividends paid on common
shares (184,221) (152,763)
Dividends paid on preferred
stock (7,735)
Preferred stock - retirements 29,209 (87,221)
Long-term debt - issues 25,000
Long-term debt - retirements (142,205)
Premium on reacquisition of
long-term debt (2,163)
Capital contribution from
parent 70,064
Subordinated notes payable
to parent (net) 20,307
Changes in short-term debt (4,875) 105,900
Gain on redemption of
Preferred stock (5,402)
Return of capital to minority
interests and related
premium (3,406) (3,348)
Repurchase of common shares 1,674 (12,797)
---------- ----------
Net cash provided by (used
in) financing activities ($77,576) ($276,406)
---------- ----------
Net increase (decrease) in
cash and cash equivalents ($4,875) $5,787
Cash and cash equivalents at
beginning of year 21,315 8,477
---------- ----------
Cash and cash equivalents at
end of year $16,440 $14,264
========== ==========
</TABLE>
<PAGE>
<TABLE>
Page 8A
NEW ENGLAND ELECTRIC SYSTEM AND SUBSIDIARIES CONSOLIDATED
STATEMENT OF CASH FLOWS - ADJUSTMENTS AND ELIMINATIONS
YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS)
<CAPTION>
GRANITE MASS. NARRA.
STATE ELECTRIC ELECTRIC NEP NEEI NEPSCO NEHTECI NEHTC
------- -------- -------- --- ---- ------ ------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Operating Activities:
Net income (loss) $2,209 $65,758 $27,932 $144,543 ($1,309) $1,839 $8,221 $5,190
Undistributed earnings
of subsidiaries
Depreciation and amortization 2,903
Minority interests (4,075) (2,572)
Deferred income taxes and
investment tax credits-net 80 (31) (852) 1,722 325 1,229 287
Allowance for funds used
during construction
Decrease (increase) in other
current assets 321 2,817 138 (33,343) 7,501 (1,676) (116) 856
Increase (decrease) in
payables and other current
liabilities 594 19,041 10,310 (10,877) (310) 213 (451) 763
Other, net 539 346 (2) (24) (24)
------- --------- -------- ---------- -------- -------- -------- --------
Net cash provided by (used
in) operating activities $3,204 $88,124 $37,875 $102,043 $9,110 $376 $4,784 $4,501
------- --------- -------- ---------- -------- -------- -------- --------
Investing Activities:
Plant expenditures,
excluding allowance for
funds used during
construction
Oil and gas exploration
and development (48)
Decrease (increase) in
other investments (30) (179) (156) (161) (1,241)
------- --------- -------- ---------- -------- -------- -------- --------
Net cash provided by (used
in) investing activities ($30) ($179) ($156) ($161) ($48) ($1,241)
------- --------- -------- ---------- -------- -------- -------- --------
<PAGE>
Page 8B
NEW ENGLAND ELECTRIC SYSTEM AND SUBSIDIARIES CONSOLIDATED
STATEMENT OF CASH FLOWS - ADJUSTMENTS AND ELIMINATIONS
YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS)
(Continued)
NEES
NERC GLOBAL NEESCOM NANTUCKET GS EN NEES EN PARENT
---- ------ ------- --------- ------ ------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Operating Activities:
Net income (loss) $2,540 ($3,839) ($643) $503 ($128) ($7,975) $320
Undistributed earnings
of subsidiaries 7,357 (41,444)
Depreciation and
amortization
Minority interests
Deferred income taxes and
investment tax credits-net (1,401) 79
Allowance for funds used
During construction (1)
Decrease (increase) in other
current assets (265) 788 (347) 309 25 (7,850)
Increase (decrease) in
payables and other current
liabilities 286 (1,289) 377 450 46 (21) (127)
Other, net 319 921 (7,226) (72)
------- --------- --------- ------- ------ ------- --------
Net cash provided by (used
in) operating activities $1,478 ($4,340) ($613) $2,262 ($82) ($7,840) ($49,174)
------- --------- --------- ------- ------- ------- --------
Investing Activities:
Plant expenditures,
excluding allowance for
funds used during
construction (968) (176)
Oil and gas exploration
and development
Decrease (increase) in
other investments (163) 129 (116,014)
------- --------- --------- ------- ------- ------- ---------
Net cash provided by (used
in) investing activities ($163) ($968) ($47)($116,014)
------- --------- --------- ------- ------- ------- ---------
<PAGE>
Page 8C
NEW ENGLAND ELECTRIC SYSTEM AND SUBSIDIARIES CONSOLIDATED
STATEMENT OF CASH FLOWS - ADJUSTMENTS AND ELIMINATIONS
YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS)
(Continued)
TOTAL
ADJUSTMENTS
& ELIMINATIONS
--------------
<S> <C>
Operating Activities:
Net income (loss) $245,161
Undistributed earnings
of subsidiaries (34,087)
Depreciation and
amortization 2,903
Minority interests (6,647)
Deferred income taxes and
investment tax credits-net 1,438
Allowance for funds used
during construction (1)
Decrease (increase) in other
current assets (30,841)
Increase (decrease) in
payables and other current
liabilities 19,005
Other, net (5,223)
---------
Net cash provided by (used
in) operating activities $191,708
---------
Investing Activities:
Plant expenditures,
excluding allowance for
funds used during
construction (1,144)
Oil and gas exploration
and development (48)
Decrease (increase) in
other investments (117,815)
---------
Net cash provided by (used
in) investing activities ($119,007)
---------
</TABLE>
<PAGE>
<TABLE>
Page 8D
NEW ENGLAND ELECTRIC SYSTEM AND SUBSIDIARIES CONSOLIDATED
STATEMENT OF CASH FLOWS - ADJUSTMENTS AND ELIMINATIONS
YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS)
(Continued)
<CAPTION>
GRANITE MASS. NARRA.
STATE ELECTRIC ELECTRIC NEP NEEI NEPSCO NEHTECI NEHTC
------- -------- -------- --- ---- ------ ------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Financing Activities:
Dividends paid to
minority interest 4,316 2,493
Dividends paid on common
shares (1,027) (26,380) (13,590) (127,386) (1,839) (8,653) (5,026)
Dividends paid on preferred
stock (3,359) (2,301) (2,075)
Preferred stock - retirements
Capital contribution from
parent 37,914 25,500
Subordinated notes payable
to parent (net) 2,095
Changes in short-term debt (1,400) (475) (875) (2,150)
Gain on redemption of
preferred stock (3,736) (1,666)
Return of capital to
minority interests and
related premium (36) (21)
Repurchase of common shares 30 179 156 161 1,241
------- --------- -------- ------------------ ---------------- --------
Net cash provided by (used
in) financing activities ($2,397) $4,143 $7,224 ($131,450) $2,095 ($598)($4,373) ($2,554)
------- --------- -------- ------------------ ---------------- --------
Net increase (decrease) in
cash and cash equivalents $777 $92,088 $44,943 ($29,568)$11,157 ($1,463) $411 $1,947
------- --------- -------- ------------------ ---------------- --------
Cash and cash equivalents
at beginning of year $175 $7,975 $4,845 $1,445
Cash and cash equivalents
at end of year $2,750 $7,100 $2,745 $1,370
======= ========= ======== ================== ================ ========
<PAGE>
Page 8E
NEW ENGLAND ELECTRIC SYSTEM AND SUBSIDIARIES CONSOLIDATED
STATEMENT OF CASH FLOWS - ADJUSTMENTS AND ELIMINATIONS
YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS)
(Continued)
NEES
NERC GLOBAL NEESCOM NANTUCKET GS EN NEES EN PARENT
---- ------ ------- --------- ------ ------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Financing Activities:
Dividends paid to
minority interest
Dividends paid on common
shares (320)
Dividends paid on preferred
stock
Preferred stock - retirements 29,209
Capital contribution from
parent 5,625 935 90
Subordinated notes payable
to parent (net) 18,212
Changes in short-term debt 25
Gain on redemption of
preferred stock
Return of capital to
minority interests and
related premium (3,349)
Repurchase of common shares (93)
------------------ --------- ------- ------- ------- --------
Net cash provided by (used
in) financing activities $5,625 $935 $25 $90 $18,212 $25,447
------------------ --------- ------- ------- ------- --------
Net increase (decrease) in
cash and cash equivalents $1,478 $1,122 $322 $1,319 $8 $10,325 ($139,741)
------------------ --------- ------- ------- ------- ---------
Cash and cash equivalents
at beginning of year $800 $150 $5,925
Cash and cash equivalents
at end of year $1,550 $925
================== ========= ======= ======= ======= ========
<PAGE>
Page 8F
NEW ENGLAND ELECTRIC SYSTEM AND SUBSIDIARIES CONSOLIDATED
STATEMENT OF CASH FLOWS - ADJUSTMENTS AND ELIMINATIONS
YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS)
(Continued)
TOTAL
ADJUSTMENTS
& ELIMINATIONS
--------------
<S> <C>
Financing Activities:
Dividends paid to
minority interest 6,809
Dividends paid on common
shares (184,221)
Dividends paid on preferred
stock (7,735)
Preferred stock - retirements 29,209
Capital contribution from
parent 70,064
Subordinated notes payable
to parent (net) 20,307
Changes in short-term debt (4,875)
Gain on redemption of preferred
stock (5,402)
Return of capital to
minority interests and
related premium (3,406)
Repurchase of common shares 1,674
----------
Net cash provided by (used
in) financing activities ($77,576)
----------
Net increase (decrease) in
cash and cash equivalents ($4,875)
----------
Cash and cash equivalents
at beginning of year $21,315
Cash and cash equivalents
at end of year $16,440
=========
</TABLE>
<PAGE>
TEXAS LIQUIDS, L.L.C.
LIMITED LIABILITY COMPANY AGREEMENT
Dated as of December 18, 1996
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE 1
DEFINITIONS.......................................... 1
ARTICLE 2
FORMATION AND PURPOSE................................ 1
2.1 Formation, etc.................................. 1
2.2 Name............................................ 2
2.3 Registered Office/Agent......................... 2
2.4 Term............................................ 2
2.5 Purpose......................................... 2
2.6 Powers.......................................... 2
2.7 Filing of Certificate........................... 4
2.8 Foreign Qualification .......................... 4
ARTICLE 3
MEMBERSHIP AND CAPITAL .............................. 4
3.1 Members; Initial Capital Contributions.......... 4
3.2 Maintenance of Capital Accounts................. 5
3.3 Percentage Interests............................ 5
3.4 Return of Capital Contributions................. 5
ARTICLE 4
STATUS AND RIGHTS OF MEMBERS......................... 6
4.1 Limited Liability................................ 6
4.2 No Make Up....................................... 6
4.3 Return of Distributions.......................... 6
ARTICLE 5
DESIGNATION, RIGHTS, AUTHORITIES, POWERS,
RESPONSIBILITIES, AND DUTIES OF THE MANAGER.......... 6
5.1 Manager.......................................... 6
5.2 Officers; Agents................................. 7
ARTICLE 6
DISTRIBUTIONS AND ALLOCATIONS OF PROFIT AND LOSS..... 8
6.1 Distributions................................... 8
6.2 Allocations of Net Profits...................... 9
6.3 Changes in Members' Interests................... 9
6.4 Tax Credits..................................... 9
ARTICLE 7
TAX MATTERS MEMBER ................................... 10
7.1 Tax Matters Member ............................... 10
ARTICLE 8
TRANSFER OF INTERESTS................................. 10
8.1 Transfer of Interests............................. 10
8.2 Requirements Applicable to Transfers.............. 10
ARTICLE 9
BOOKS, RECORDS, ACCOUNTING, AND REPORTS............... 12
9.1 Books and Records................................. 12
9.2 Delivery to Member................................ 12
9.3 Financial Statements ............................. 13
9.4 Filings .......................................... 13
-i-
<PAGE>
PAGE
ARTICLE 10
AMENDMENTS TO AGREEMENT .............................. 13
ARTICLE 11
DISSOLUTION OF COMPANY................................ 14
11.1 Termination of Membership........................ 14
11.2 Events of Dissolution or Liquidation............. 14
11.3 Liquidation...................................... 14
11.4 Distributions to Members......................... 14
11.5 No Action for Dissolution........................ 15
11.6 No Further Claim................................. 15
ARTICLE 12
INDEMNIFICATION....................................... 15
12.1 General.......................................... 15
12.2 Persons Entitled to Indemnity.................... 16
12.3 Procedure Agreements............................. 16
12.4 Extent of Duties................................. 16
12.5 Fiduciary and Other Duties....................... 16
ARTICLE 13
MISCELLANEOUS......................................... 17
13.1 Additional Documents............................. 17
13.2 General.......................................... 17
13.3 Notices, Etc..................................... 17
13.4 Gender and Number................................. 18
13.5 Severability...................................... 18
13.6 Headings.......................................... 18
13.7 No Third Party Rights............................. 18
EXHIBIT 1
Defined Terms.......................................... 20
EXHIBIT 5.2
OFFICERS .............................................. 24
-ii-
<PAGE>
TEXAS LIQUIDS, L.L.C.
LIMITED LIABILITY COMPANY AGREEMENT
THIS LIMITED LIABILITY COMPANY AGREEMENT of TEXAS LIQUIDS,
L.L.C. is dated as of December 18, 1996, by and between AllEnergy
Marketing Company, L.L.C., a Massachusetts limited liability
company ("AllEnergy") and AllEnergy Marketing Company, Inc., a
Massachusetts corporation ("AMCI") (each individually a "Member"
and collectively, the "Members").
WHEREAS, the Members wish to form a limited liability
company pursuant to and in accordance with the Massachusetts
Limited Liability Company Act in order to conduct the business
described herein; and
WHEREAS, the Members wish to enter into this Agreement to
provide for, among other things, the management of the business
and affairs of the Company, the allocation of profits and losses
among the Members, the respective rights and obligations of the
Members to each other and to the Company, and certain other
matters.
NOW, THEREFORE, the Members hereby agree as follows:
ARTICLE 1
DEFINITIONS
Certain capitalized terms used in this Agreement have
specifically defined meanings which are either set forth or
referred to in Exhibit 1, which is attached hereto and
incorporated herein by reference.
ARTICLE 2
FORMATION AND PURPOSE
2.1 Formation, etc. The Members hereby form a limited
liability company pursuant to and in accordance with the Act
effective upon the filing of the Certificate with the Secretary
of State of The Commonwealth of Massachusetts. The rights, duties
and liabilities of the Members shall be determined pursuant to
the Act and this Agreement. To the extent that such rights,
duties or obligations are different by reason of any provision of
this Agreement than they would be in the absence of such
provision, this Agreement shall, to the extent permitted by the
Act, control.
2.2 Name. The name of the Company shall be Texas Liquids,
L.L.C. The business of the Company may be conducted under that
name or, upon compliance with applicable laws, any other name
that the Manager deems appropriate or advisable. The Manager
shall file, or shall cause to be filed, any fictitious name
certificates and similar filings, and any amendments thereto,
that the Manager considers necessary, appropriate or advisable.
<PAGE>
2.3 Registered Office/Agent. The registered office required
to be maintained by the Company in The Commonwealth of
Massachusetts pursuant to the Act shall initially be c/o
AllEnergy Marketing Company, LLC, 3 University Office Park, 95
Sawyer Road, Waltham, Massachusetts, 02154. The name of the
registered agent of the Company pursuant to the Act shall
initially be William H. Heil, whose address shall be that of the
registered office of the Company. The Company may, upon
compliance with the applicable provisions of the Act, change its
registered office or registered agent from time to time in the
discretion of the Manager.
2.4 Term. The term of the Company (the "Term") shall
continue until such date as shall be designated by the Manager,
unless sooner terminated as hereinafter provided.
2.5 Purpose. The Company is formed for the object and
purpose of, and the nature of the business to be conducted and
promoted by the Company is, engaging in any lawful act or
activity for which limited liability companies may be formed
under the Act and engaging in any and all activities necessary,
advisable, convenient or incidental thereto. Such object and
purpose shall include, without limitation, purchasing, marketing,
selling and distributing energy commodities (including but not
limited to propane and natural gas, electricity and other energy
sources) and related products, providing related services, and
engaging in any and all other activities necessary, advisable,
convenient or incidental to such activities.
2.6 Powers. Without limiting the generality of Section 2.5,
the Company shall have the power and authority to take any and
all actions necessary, appropriate, proper, advisable, incidental
or convenient to or for the furtherance of the purpose set forth
in Section 2.5, including, but not limited to, the power:
2.6.1 to conduct its business, carry on its operations
and have and exercise the powers granted to a limited
liability company by the Act in any state, territory,
district or possession of the United States or in any
foreign country as may be necessary, convenient or
incidental to the accomplishment of the purpose of the
Company;
2.6.2 to enter into, perform and carry out contracts of
any kind necessary to, in connection with, in furtherance
of, convenient to, or incidental to the accomplishment of
the purpose of the Company, including without limitation,
contracts to purchase, market, sell or distribute propane,
natural gas, electricity or any other energy commodity or
related products or to provide related services, which
contracts may be with a third party, a Member or an
Affiliate of a Member;
<PAGE>
2.6.3 to purchase or otherwise acquire, enter into,
establish, own, invest in, trade, close out, use, employ,
market, sell, mortgage, lend or otherwise dispose of
positions under options, future contracts, forward
contracts, spot contracts, swap contracts and other
financial products, whether for hedging purposes or
otherwise;
2.6.4 to purchase, take, receive, subscribe for or
otherwise acquire, own, hold, enter into, invest in, trade,
vote, use, employ, sell, mortgage, lend, pledge, or
otherwise dispose of, and otherwise use and deal in and
with, shares and other equity interests in, obligations of,
and other financial instruments with or in respect of,
domestic and foreign corporations, associations, general,
limited and limited liability partnerships, trusts, limited
liability companies and other entities (including without
limitation corporations, associations, partnerships, trusts,
limited liability companies and other entities that engage
or propose to engage in one or more businesses similar or
related to the business of the Company, including
specifically but not by way of limitation energy services
companies), individuals, international agencies, and the
United States government and any other national, state,
regional, territorial, local or municipal government and any
agency or instrumentality of any such government;
2.6.5 to acquire by purchase, exchange, lease,
contribution of property or otherwise, own, hold, operate,
maintain, finance, improve, market, lease, sell, distribute,
convey, mortgage, encumber, transfer, demolish or dispose of
any real or personal property, including but not limited to
propane, natural gas, electricity or any other energy
commodity that may be necessary, convenient or incidental to
the accomplishment of the purpose of the Company;
2.6.6 to lend money, to invest and reinvest its funds
and to take and hold real and personal property for the
payment of funds so loaned or invested;
2.6.7 to negotiate, enter into, renegotiate, extend,
renew, terminate, modify, amend, waive, execute, acknowledge
or take any other action with respect to any lease, contract
or security agreement in respect of any assets of or the
business of the Company;
2.6.8 to borrow and issue evidences of indebtedness and
to secure the same by a mortgage, pledge or other lien on
the assets of the Company; provided, however, that without
the prior written consent of the Member in question, the
Company shall not incur any indebtedness that provides for
the liability of any Member;
<PAGE>
2.6.9 to open, close, and to make deposits to and
withdrawals from bank and other deposit accounts;
2.6.10 to give or terminate guarantees and indemnities;
2.6.11 to hire, employ and dismiss employees, agents
and representatives, attorneys, accountants, brokers,
investment bankers, appraisers and any other advisors or
consultants of the Company or service providers to the
Company, and define their duties and fix their compensation
and benefits;
2.6.12 to indemnify any Person in accordance with this
Agreement;
2.6.13 to cease its activities and cancel its
Certificate;
2.6.14 to sue and be sued, complain and defend, and
participate in administrative or other proceedings, in its
name;
2.6.15 to pay, collect, compromise, litigate, arbitrate
or otherwise adjust or settle any and all other claims or
demands of or against the Company or to hold such proceeds
against the payment of contingent liabilities; and
2.6.16 to make, execute, acknowledge and file any and
all documents or instruments necessary, convenient or
incidental to the accomplishment of the purpose of the
Company.
2.7 Filing of Certificate. Lisa Monique Fairfax is
designated as an authorized person within the meaning of the Act
to execute, deliver and file the Certificate, and said named
individual and any such Persons as the Manager shall designate
from time to time are each hereby designated as an authorized
person, within the meaning of the Act, to execute, deliver and
file any amendments or restatements of the Certificate and any
other certificates necessary for the Company to qualify to do
business in a jurisdiction in which the Company may wish to
conduct business.
2.8 Foreign Qualification. The Manager shall take all
necessary actions to cause the Company to be authorized to
conduct business legally in Massachusetts and any other
jurisdictions which the Manager shall determine.
ARTICLE 3
MEMBERSHIP AND CAPITAL
3.1 Members; Initial Capital Contributions. The Members of
the Company are AllEnergy and AMCI, each of which is admitted to
the Company as a Member effective upon its execution of this
<PAGE>
Agreement. The Manager shall determine the aggregate initial
Capital Contribution to be made by the Members. AMCI shall
contribute an amount equal to 1% of such aggregate initial
Capital Contribution and AllEnergy shall contribute an amount
equal to 99% of such aggregate initial Capital Contribution.
3.2 Maintenance of Capital Accounts. A separate account
(each a "Capital Account") shall be established and maintained
for each Member and shall be credited with (a) such Member's
Capital Contributions and (b) such Member's share of the Net
Profit of the Company, and shall be charged with (c)
Distributions to such Member and (d) such Member's share of the
Net Losses of the Company. It is the intention of the Members
that the Capital Accounts be maintained in accordance with the
provisions of Section 704(b) of the Code and the Regulations
thereunder, that any liabilities be taken into account in
accordance with the provisions of Section 752 of the Code and the
Regulations thereunder, and that this Agreement be interpreted
consistently therewith.
3.3 Percentage Interests. The percentage interest of each
Member in the profits of the Company (each a "Percentage
Interest") shall initially be as follows:
AllEnergy 99%
AMCI 1%
The Percentage Interests of the Members shall be subject to
adjustment from time to time pursuant to the terms of this
Agreement.
3.4 Return of Capital Contributions. No Member shall have
the right to demand a return of all or any part of its Capital
Contributions, and any return of the Capital Contributions of any
Member shall be made solely from the assets of the Company and
only in accordance with the terms of this Agreement. No interest
shall be paid to any Member with respect to its Capital
Contributions.
3.5 Additional Capital Contributions. From time to time,
the Manager may determine that additional funds are required by
the Company. In such a case, the Manager may (but is not required
to) request that the Members (including the Manager) make Capital
Contributions ratably in accordance with the Members' Percentage
Interests, in an aggregate amount equal to all or a portion of
the funds required. The Members shall then discuss and
unanimously determine the aggregate amount of the Capital
Contributions, if any, that they are willing to make, which
Capital Contributions must be made ratably by the Members and may
not, in the aggregate, exceed the amount requested by the
Manager. If the aggregate amount of the Capital Contributions
agreed upon by the Members is acceptable to the Manager, the
Members shall make such Capital Contributions within ten (10)
<PAGE>
business days of the date on which they are informed of the
Manager's acceptance.
ARTICLE 4
STATUS AND RIGHTS OF MEMBERS
4.1 Limited Liability. Except as otherwise provided by the
Act, the debts, obligations and liabilities of the Company,
whether arising in contract, tort or otherwise, shall be solely
the debts, obligations and liabilities of the Company, and no
Member nor any other Indemnified Person shall be obligated
personally for any such debt, obligation or liability of the
Company. All Persons dealing with the Company shall look solely
to the assets of the Company for the payment of the debts,
obligations or liabilities of the Company.
4.2 No Make Up. In no event shall any Member be required to
pay to the Company, to any other Member or its Affiliate or to
any third party, any deficit balance that may exist from time to
time in such Member's Capital Account.
4.3 Return of Distributions. Except as otherwise expressly
required by law, a Member, in its capacity as such, shall have no
liability either to the Company or any of its creditors in excess
of (a) the amount of its Capital Contributions actually made, (b)
its share of any assets and undistributed profits of the Company,
(c) its obligation to make Capital Contributions and any other
payments expressly provided for in this Agreement, and (d) to the
extent required by law, the amount of any Distributions
wrongfully distributed to it. Except as required by law or a
court of competent jurisdiction, no Member shall be obligated by
this Agreement to return any Distribution to the Company or pay
the amount of any Distribution for the account of the Company or
to any creditor of the Company. However, if any court of
competent jurisdiction holds that, notwithstanding the provisions
of this Agreement, any Member is obligated to return or pay any
part of any Distribution, the obligation shall be that of such
Member alone, and not of any other Member unless the court so
provides. The amount of any Distribution returned to the Company
by or on behalf of a Member or paid by or on behalf of a Member
for the account of the Company or to a creditor of the Company
shall be added to the account or accounts from which it was
subtracted when it was distributed to the Member.
ARTICLE 5
DESIGNATION, RIGHTS, AUTHORITIES, POWERS,
RESPONSIBILITIES, AND DUTIES OF THE MANAGER
5.1 Manager. The Manager of the Company shall be AllEnergy.
The Manager shall have the exclusive power and authority to
manage the business and affairs of the Company and to make all
decisions with respect thereto. The Manager, to the extent of its
powers set forth in this Section 5.1, is an agent of the Company
for the purpose of the Company's business, and the actions of the
<PAGE>
Manager taken in accordance with such powers shall bind the
Company. Except as otherwise expressly provided in this
Agreement, the Manager, acting on behalf of the Company, or
Persons designated by the Manager, including officers and agents
appointed by the Manager, shall be the only Persons authorized to
execute documents which shall be binding on the Company. To the
fullest extent permitted by Massachusetts law, but subject to any
specific provisions hereof granting rights to Members, the
Manager shall have the power to do any and all acts, statutory or
otherwise, with respect to the Company or this Agreement, which
would otherwise be possessed by the Members under the laws of The
Commonwealth of Massachusetts, and the Members, other than a
Member who is also the Manager, shall have no power whatsoever
with respect to the management of the business and affairs of the
Company or to bind the Company. Subject to the provisions of this
Agreement which require the consent or approval of one or more
Members, the powers and authority granted to the Manager
hereunder shall include all those necessary or convenient for the
furtherance of the purposes and powers of the Company and shall
include the power to make all decisions with regard to the
management, operations, assets, financing and capitalization of
the Company, including without limitation, the power and
authority to undertake and make decisions concerning: (a) hiring
and firing of employees, attorneys, accountants, brokers,
investment bankers and other advisors and consultants, (b) the
entering into of contracts or agreements, (c) opening of bank and
other deposit accounts and operations thereunder, (d) purchasing,
constructing, improving, developing and maintaining of real
property, (e) purchasing of insurance, goods, supplies,
equipment, materials and other personal property, (f) the
borrowing of money, the obtaining of credit, the issuance of
notes, debentures, securities, equity or other interests of or in
the Company and the securing of the obligations undertaken in
connection therewith with mortgages on and security interests in
all or any portion of the real or personal property of the
Company, in each case whether with a Member or another Person,
(g) the making of investments in or the acquisition of securities
of any person or entity, (h) the giving of guarantees and
indemnities, (i) entering into of leases for real or personal
property, (j) mergers with or acquisitions of other entities, (k)
dissolution, (1) the sale or lease of all or any portion of the
assets of the Company, (m) forming subsidiaries or joint
ventures, (n) compromising, arbitrating, adjusting and litigating
claims in favor of or against the Company, and (o) all other acts
or activities necessary or desirable for the carrying out of the
purpose of the Company.
5.2 Officers; Agents. The Manager by written instrument
signed by the Manager shall have the power to appoint agents (who
may be referred to as officers) to act for the Company with such
titles, if any, as the Manager deems appropriate and to delegate
to such officers or agents such of the powers to manage and
control the business and affairs of the Company as are granted to
the Manager hereunder, and as Manager may in its sole discretion
<PAGE>
determine, including the power to execute documents on behalf of
the Company; provided, however, that no such delegation by the
Manager shall cause the Manager to cease to be the "manager" of
the Company within the meaning of the Act. The officers or agents
so appointed may include persons holding titles such as Chief
Executive Officer, President, Vice President, Chief Operating
Officer, Chief Financial Officer, Secretary, Treasurer or
Controller. Unless the authority of the agent designated as the
officer in question is limited or expanded in the document
appointing such officer or is otherwise specified by the Manager,
any officer so appointed shall have the same authority to act for
the Company as a corresponding officer of a Massachusetts
corporation would have to act for a Massachusetts corporation in
the absence of a specific delegation of authority and as more
specifically set forth in Exhibit 5.2 hereto; provided, however,
that unless such power is specifically delegated to the officer
in question either for a specific transaction or generally, no
such officer shall have the power to lease or acquire real
property, to borrow money, to issue notes, debentures,
securities, equity or other interests of or in the Company, to
make investments in (other than the temporary investment of
surplus cash in the ordinary course of business), or to acquire
securities of any Person, to give guarantees or indemnities, to
merge, consolidate, liquidate or dissolve the Company or to sell
or lease all or any substantial portion of the assets of the
Company. The Manager, in its sole discretion, may by written
instrument signed by the Manager ratify any act previously taken
by an officer or agent acting on behalf of the Company.
By its signature to this Agreement, the Manager hereby
designates the following Persons as the initial officers of the
Company:
Chairman, Chief Executive
Officer and President: William H. Heil
Vice President and Treasurer
(Chief Financial Officer): Marcy L. Reed
Secretary: L. William Law, Jr.
Assistant Secretary: James P. Meehan
ARTICLE 6
DISTRIBUTIONS AND ALLOCATIONS OF PROFIT AND LOSS
6.1 Distributions.
6.1.1 In General. The Manager shall have, subject to
Article 11, the sole authority to determine the timing and
the aggregate amount of any Distributions to the Members.
Subject to the foregoing and to Section 11.4, Distributions
shall be made to the Members pro rata in accordance with the
Members' then prevailing Percentage Interests.
<PAGE>
6.1.2 Withholding. All amounts withheld pursuant to
the Code or any provision of any federal, state, local or
foreign tax law with respect to any payment, distribution,
or allocation to the Company or the Members shall be treated
as amounts distributed to the Members pursuant to Section
6.1 for all purposes under this Agreement. The Manager
shall withhold from Distributions to, and with respect to
allocations to, the Members shall pay over to the
appropriate federal, state, local or foreign government any
amounts required to be so withheld, and shall allocate any
such amounts to the Members in respect of whose Distribution
or allocation the tax was withheld.
6.1.3 Property Distributions and Installment Sales. The
Manager may from time to time including upon liquidation
determine to distribute property other than cash to the
Members. In such a case, such in-kind Distribution shall be
made to the Members entitled thereto in the same proportions
as the Members would have been entitled to cash
distributions. The amount by which the fair market value of
any property to be distributed in kind to the Members
exceeds or is less than the tax basis of such property
shall, to the extent not otherwise recognized by the
Company, be taken into account in determining Net Profit and
Net Loss and determining the Capital Accounts of the Members
as if such property had been sold at its fair market value
immediately prior to its distribution. If any assets are
sold in transactions in which, by reason of the provisions
of section 453 of the Code or any successor thereto, gain is
realized but not recognized, such gain shall be taken into
account when realized in computing gain or loss of the
Company for purposes of allocation of Net Profit or Net Loss
under this Article 6, and, if such sales shall involve
substantially all the assets of the Company, the Company
shall be deemed to have been dissolved and terminated
notwithstanding any election by the Members to continue the
Company for purposes of collecting the proceeds of such
sales.
6.2 Allocations of Net Profits and Net Loss. Subject to
Sections 6.3 and 6.5, the Net Profit and the Net Loss of the
Company shall be allocated among the Members ratably in
accordance with their Percentage Interests.
6.3 Changes in Members' Interests. If during any Fiscal
Year of the Company there is a change in any Member's Interest in
the Company, the Manager shall confer with the tax advisors to
the Company and, in conformity with such advice allocate the Net
Profit or Net Loss to the Members so as to take into account the
varying Interests of the Members in the Company in a manner that
complies with the provisions of Section 706 of the Code and the
Regulations thereunder.
<PAGE>
6.4 Tax Credits. All foreign tax credits of the Company for
a Fiscal Year (or portion thereof, if appropriate) shall be
allocated among the Members in the same proportion as the net
income and gains of the Company that were subject to the foreign
taxes that gave rise to such credits. All other items of federal
income tax credit shall be allocated among the Members in
accordance with their Percentage Interests.
6.5 Compliance with Capital Account Maintenance Provisions.
It is the intent of the Members that the Company be treated as a
partnership for federal income tax purposes and that the
provisions hereof relating to each Member's distributive share of
income, gain, loss, deduction, and credit (and items thereof)
comply with the provisions of Sections 704(b), 704(c), and other
relevant provisions of the Code and the applicable Regulations.
In particular, there are hereby included in the Agreement such
provisions governing the allocation of income, gain, loss,
deduction and credit (and items thereof) as may be necessary to
provide that the Company's allocation provisions contain a so-
called "Qualified Income Offset" provision and comply with all
provisions relating to the allocation of so-called "Nonrecourse
Deductions" and "Member Nonrecourse Deductions" and the
chargeback thereof as set forth in the Regulations under Section
704(b) of the Code. Allocations of Nonrecourse Deductions shall
be made ratably among the Members in accordance with their
Percentage Interests. In allocating Net Profits pursuant to
Section 6.2, the Manager shall take into account (and, if
necessary, modify the allocations to reflect) anticipated future
allocations under the minimum gain chargeback rules of
Regulations Section 1.704-2.
6.6 Tax Allocations. Except as otherwise required by Code
Section 704(c) or the Regulations thereunder, each item of
income, gain, loss and deduction, as determined for federal
income tax purposes, shall be allocated among the Members in the
same manner as its correlative item of "book" income, gain, loss
or deduction is allocated pursuant to Sections 6.2 through 6.5.
ARTICLE 7
TAX MATTERS MEMBER
7.1 Tax Matters Member. The Manager shall be the "tax
matters partner" of the Company as provided in the Regulations
under Code Section 6231 and analogous provisions of state law
(the "Tax Matters Member"). The Tax Matters Member shall
represent the Company, at the Company's expense, in connection
with all examinations of the Company's affairs by tax authorities
including any resulting administrative or judicial proceedings.
ARTICLE 8
TRANSFER OF INTERESTS
8.1 Transfer of Interests. No Member shall sell, assign,
exchange, convey, gift, pledge, mortgage, encumber, dispose of or
<PAGE>
otherwise transfer (each, whether used as a noun or a verb, a
"Transfer") all or any part of its Interest unless such transfer
is first approved by the other Member acting in its sole
discretion.
8.2 Requirements Applicable to Transfers.
8.2.1 No Transfer of all or any part of a Member's
Interest may be made pursuant to Section 8.1 unless and
until the Manager shall have received such of the following
(to the extent applicable to the proposed Transfer) as it
may have requested:
(i) the agreement in writing of the transferee to comply
with all of the terms and provisions of this Agreement;
(ii) a duly executed and acknowledged written instrument of
Transfer, specifying the Interests being transferred
and setting forth the intention of the Member effecting
the Transfer that the transferee succeed to a portion
or all of such Member's Interest; and
(iii) an opinion of counsel (who may be counsel for the
Company), satisfactory in form and substance to the
Manager to the effect that:
(A) such proposed transferee has obtained such regulatory
and other governmental approvals as may be required to
permit it to be a Member of the Company, and the
Transfer is otherwise in compliance with all applicable
laws;
(B) such Transfer would not violate the Securities Act of
1933, as amended, or any state securities or blue sky
laws applicable to the Company or the Interest to be
transferred;
(C) such Transfer would not cause the Company to be
considered a publicly traded partnership under Section
7704(b) of the Code;
(D) such Transfer would not cause the Company to lose its
status as a partnership for federal income purposes;
and
(E) such Transfer would not cause termination of the
company for federal income tax purposes.
8.2.2 The transferring Member and its transferee shall
pay, or reimburse the Company for, all reasonable costs and
expenses incurred by the Company in connection with the
Transfer and admission of the transferee as a Member,
including any legal fees incurred in connection with the
legal opinions referred to in Section 8.2.1, on or before
<PAGE>
the tenth business day after the receipt by such Persons of
the Company's invoice for the amount due. If payment is not
made by the date due, the Person owing that amount shall pay
interest on the unpaid amount from the date due until paid
at a rate per annum equal to the prime rate, as announced
from time to time in the Wall Street Journal, plus one
percentage point.
8.2.3 Each Member hereby severally agrees that it will
not Transfer all or any part of its Interest in the Company
except as permitted by this Agreement.
8.2.4 The transferee of an Interest shall be admitted
as a Member of the Company provided that the Transfer is
effected in compliance with this Article 8. Each transferee
shall succeed to the same portion of the balance of the
Capital Account of the transferor, as of the effective date
of the Transfer, as the transferred Interest bears to the
entire Interest of the transferor immediately prior to such
Transfer, and shall otherwise become subject to and be bound
by all of the provisions of this Agreement as a Member of
the Company.
8.2.5 If a Member Transfers its entire Interest, such
Transfer shall be treated as a withdrawal of such Member,
but the Company shall not dissolve if the business of the
Company is continued without dissolution in accordance with
clause (b) of Section 11.2 hereof.
8.2.6 No Transfer of an Interest shall effect a release
of the transferring Member from any liabilities to the
Company or the other Members arising from events occurring
prior to the Transfer.
ARTICLE 9
BOOKS. RECORDS, ACCOUNTING, AND REPORTS
9.1 Books and Records. The Company shall maintain at its
principal office all of the following:
9.1.1 A current list of the full name and last known
business address of each Member together with true and full
information regarding the amount of cash and a description
and statement of the agreed value of any other property or
services contributed by each Member and which each Member
has agreed to contribute in the future, and the date on
which each Member became a member of the Company;
9.1.2 A copy of the Certificate, this Agreement,
including any and all amendments to either thereof, together
with executed copies of any powers of attorney pursuant to
which the Certificate, this Agreement or any amendment has
been executed;
<PAGE>
9.1.3 Copies of the Company's federal, state, and local
income tax or information returns and reports, if any, for
the six most recent taxable years;
9.1.4 The audited financial statements of the Company
for the six most recent Fiscal Years; and
9.1.5 The Company's books and records for at least the
current and past five Fiscal Years.
9.2 Delivery to Members; Inspection. Upon the request of
any Member for any purpose reasonably related to such Member's
Interest as a Member of the Company:
9.2.1 The Company shall promptly deliver to the
requesting Member, at the expense of the Company, a copy of
the information required to be maintained by Sections 9.1.1.
through 9.1.4.
9.2.2 The Members may review, at the Company's office
during normal business hours, the Company's federal, state
and local income tax or information returns prior to the
filing thereof and the Company's books and records referred
to in Section 9.1.5.
9.2.3 The Company will provide any Member at such
Member's expense such other information regarding the
business affairs of the Company as the Member shall
reasonably request.
9.3 Financial Statements. The Manager shall maintain or
cause to be maintained books of account reflecting the operations
of the Company on an annual basis and shall prepare or cause to
be prepared for the Members at least annually, at the Company's
expense, financial statements of the Company prepared in
accordance with generally accepted accounting principles.
9.4 Filings. At the Company's expense the Manager shall
cause the income tax and information returns for the Company to
be prepared and timely filed with the appropriate authorities and
to have prepared and to furnish to each Member such information
with respect to the Company as is necessary to enable the Members
to prepare and timely file their federal and state income tax
returns. The Manager, at the Company's expense, shall also cause
to be prepared and timely filed, with appropriate federal and
state regulatory and administrative bodies, all reports required
to be filed by the Company with those entities under then current
applicable laws, rules, and regulations. The reports shall be
prepared on the accounting or reporting basis required by the
regulatory bodies.
<PAGE>
ARTICLE 10
AMENDMENTS TO AGREEMENT
This Agreement may be amended or modified with the prior
written consent of the Manager; provided, that, the Members
expressly agree that in the event of a Transfer of all or a
portion of a Member's Interest or the admission of a new Member,
this Agreement shall be revised to reflect such Transfer or such
admission, as the case may be, and to amend such provisions of
this Agreement as the Members shall determine to be appropriate,
it being contemplated that in the event that either Member
Transfers all of its Interest to another Person and such Person
is admitted as a Member, such Person shall be subject to all of
the provisions of this Agreement to which the transferor Member
was previously subject. The Manager shall cause to be prepared
and filed any amendment to the Certificate that may be required
to be filed under the Act as a consequence of any amendment to
this Agreement. Any modification or amendment to this Agreement
pursuant to this Article 10 shall be binding on all Members.
ARTICLE 11
DISSOLUTION OF COMPANY
11.1 Termination of Membership. No Member shall resign or
withdraw from the Company except that, subject to the
restrictions set forth in Article 8, any Member may Transfer its
Interest in the Company and the transferee may become a Member in
place of the Member which transferred its Interest. If any Member
ceases to be a Member for any reason, the business of the Company
may be continued by the remaining Members (so long as there are
two such remaining Members) as provided in clause (b) of Section
11.2.
11.2 Events of Dissolution or Liquidation. The Company shall
be dissolved upon the happening of any of the following events:
(a) the written determination of the Manager, (b) the withdrawal,
bankruptcy or dissolution of any Member, unless there are at
least two remaining Members and the business of the Company is
continued (and if the Manager is no longer a Member, a new
manager is selected) by the consent of the remaining Members
holding Interests that together represent more than a 50%
Percentage Interest within 90 days following the occurrence of
any such event, or (c) the entry of a decree of judicial
dissolution under Section 44 of the Act.
11.3 Liquidation. If the Company is dissolved and not
continued, the Company shall immediately commence to wind up its
affairs. A reasonable period of time shall be allowed for the
orderly termination of the Company's business, discharge of its
liabilities, and distribution or liquidation of the remaining
assets so as to enable the Company to minimize the normal losses
attendant to the liquidation process. The Company's property and
assets or the proceeds from the liquidation thereof shall,
subject to the requirements of the Act, be distributed in
accordance with Section 11.4. A full accounting of the assets and
liabilities of the Company shall be taken and a statement thereof
shall be furnished to each Member within 30 days after the
<PAGE>
distribution of all of the assets of the Company. Such accounting
and statements shall be prepared under the direction of the
Manager. Upon such final accounting, the Company shall terminate
and an authorized person, appointed pursuant to Section 2.7,
shall cancel the Certificate in accordance with the Act.
11.4 Distributions to Members. Distributions to Members upon
liquidation shall be made in accordance with the Members' Capital
Account balances (after adjustment pursuant to Section 6.2).
Notwithstanding Section 11.3 or the first sentence of this
Section 11.4, the Company shall not make any Distribution
pursuant to this Section 11.4 unless the Manager shall have
determined that the Company has sufficient assets to pay all
accrued and contingent liabilities of which the Manager is aware
after making reasonable inquiry.
11.5 No Action for Dissolution. The Members acknowledge that
irreparable damage would be done to the goodwill and reputation
of the Company if any Member should bring an action in court to
dissolve the Company under circumstances where dissolution is not
required by Section 11.2. This Agreement has been drawn carefully
to provide fair treatment of all parties and equitable payment in
liquidation of the Interests of all Members. Accordingly, except
where the Manager has failed to liquidate the Company as required
by Section 11.2 and except as specifically provided in Section 44
of the Act, each Member hereby waives and renounces its right to
initiate legal action to seek dissolution or to seek the
appointment of a receiver or trustee to liquidate the Company.
11.6 No Further Claim. Upon dissolution, each Member shall
look solely to the assets of the Company for the return of its
Capital Contributions, and if the Company's property remaining
after payment or discharge of the debts and liabilities of the
Company, including debts and liabilities owed to one or more of
the Members, is insufficient to return the aggregate Capital
Contributions of each Member, a Member shall have no recourse
against the Company or any other Member except to the extent that
the other Member has received Distributions in excess of those to
which such Member was entitled to under the terms of this
Agreement.
ARTICLE 12
INDEMNIFICATION
12.1 General. To the maximum extent permitted by law, the
Company shall indemnify, defend, and hold harmless, each Manager
and each Member, including the Tax Matters Member, and each
Member's officers, trustees, directors, partners, members,
shareholders, and employees (and each such Person's officers,
trustees, directors, partners, members, shareholders, and
employees), and the employees and officers of the Company (all
indemnified persons being referred to as "Indemnified Persons"),
from any liability, loss, or damage incurred by the Indemnified
Person by reason of any act performed or omitted to be performed
<PAGE>
by the Indemnified Person in connection with the business of the
Company and from liabilities or obligations of the Company
imposed on such Person by virtue of such Person's position with
the Company, including attorneys' fees and costs and any amounts
expended in the settlement of any such claims of liability, loss,
or damage; provided, however, that, if the liability, loss,
damage, or claim arises out of any action or inaction of an
Indemnified Person, indemnification under this Section 12.1 shall
be available only if (a) either (i) the Indemnified Person, at
the time of such action or inaction, determined, in good faith,
that its or his course of conduct was in, or not opposed to, the
best interests of the Company, or (ii) in the case of inaction by
the Indemnified Person, the Indemnified Person did not intend its
or his inaction to be harmful or opposed to the best interests of
the Company, and (b) the action or inaction did not constitute
fraud or a Violation of the Business Judgment Rule by the
Indemnified Person, and provided, further, that indemnification
under this Section 12.1 shall be recoverable only from the assets
of the Company and not from any assets of the Members. The
Company may pay or reimburse attorneys' fees of an Indemnified
Person as incurred, if such Indemnified Person executes an
undertaking to repay the amount so paid or reimbursed if there is
a final determination by a court of competent jurisdiction that
such Indemnified Person is not entitled to indemnification under
this Article 12. The Company may pay for insurance covering
liability of the Indemnified Persons for negligence in operation
of the Company's affairs.
12.2 Persons Entitled to Indemnity. Any Person who is within
the definition of "Indemnified Person" at the time of any action
or inaction in connection with the business of the Company shall
be entitled to the benefits of this Article 12 as an "Indemnified
Person" with respect thereto, regardless whether such Person
continues to be within the definition of "Indemnified Person" at
the time of such Person's claim for indemnification or
exculpation hereunder.
12.3 Procedure Agreements. The Company may enter into an
agreement with any of its officers and employees setting forth
procedures consistent with applicable law for implementing the
indemnities provided in this Article 12.
12.4 Extent of Duties. No Indemnified Person shall be
liable, in damages or otherwise, to the Company or to any Member
for any loss that arises out of any act performed or omitted to
be performed by it or him pursuant to the authority granted by
this Agreement if (a) either (i) the Indemnified Person, at the
time of such action or inaction, determined, in good faith, that
such Person's course of conduct was in, or not opposed to, the
best interests of the Company, or (ii) in the case of inaction by
the Indemnified Person, the Indemnified Person did not intend
such Person's inaction to be harmful or opposed to the best
interests of the Company, and (b) the conduct of the Indemnified
Person did not constitute fraud or a Violation of the Business
Judgment Rule by such Indemnified Person.
<PAGE>
12.5 Fiduciary and Other Duties.
12.5.1 To the extent that, at law or in equity, an
Indemnified Person has duties (including fiduciary duties)
and liabilities relating thereto to the Company or to any
other Indemnified Person, an Indemnified Person acting under
this Agreement shall not be liable to the Company or to any
other Indemnified Person for its good faith reliance on the
provisions of this Agreement. The provisions of this
Agreement, to the extent that they restrict the duties
(including fiduciary duties) of an Indemnified Person
otherwise existing at law or in equity, are agreed by the
parties hereto to replace such other duties of such
Indemnified Person. The provisions of this Section 12.5.1
shall not be construed to relieve any Indemnified Person
from liability for such Person's fraud or a Violation of the
Business Judgment Rule.
12.5.2 Whenever in this Agreement an Indemnified Person
is permitted or required to make a decision (a) in its
"discretion" (without qualification as to how the discretion
is to be exercised) or under a grant of similar authority or
latitude, the Indemnified Person shall act reasonably and in
good faith based on facts known to the Person at the time,
(b) in its "sole discretion" or under a grant of similar
authority or latitude, the Indemnified Person shall be
entitled to consider only such interests and factors as it
desires, including its own interests, and shall have no duty
or obligation to give any consideration to any interest of
or factors affecting the Company or any other Person, and
(c) under any other express standard, the Indemnified Person
shall act under such express standard and shall not be
subject to any other general standard imposed by this
Agreement or applicable law.
ARTICLE 13
MISCELLANEOUS
13.1 Additional Documents. At any time and from time to time
after the date of this Agreement, upon the request of the
Manager, each Member shall do and perform, or cause to be done
and performed, all such additional acts and deeds, and shall
execute, acknowledge, and deliver, or cause to be executed,
acknowledged, and delivered, all such additional instruments and
documents, as may be required to effectuate the purposes and
intent of this Agreement.
13.2 General. This Agreement: (a) shall be binding upon the
executors, administrators, estates, heirs, and legal successors
of the Members; (b) shall be governed by and construed in
accordance with the laws of The Commonwealth of Massachusetts;
(c) may be executed in more than one counterpart as of the day
and year first above written; and (d) contains the entire
contract among the Members as to the subject matter hereof. The
<PAGE>
waiver of any of the provisions, terms, or conditions contained
in this Agreement shall not be considered as a waiver of any of
the other provisions, terms, or conditions hereof.
13.3 Notices. Etc. Any notice, demand or other communication
given to a Manager or Member under this Agreement shall be deemed
to be given if given in writing (including telex, telecopy or
similar teletransmission) addressed as provided below (or to the
addressee at such other address as the addressee shall have
specified by notice actually received by the addressor), and if
either (a) actually delivered in fully legible form to such
address (evidenced, in the case of a telex, by receipt of the
correct answer back and, in the case of delivery by overnight
courier, by confirmation of delivery from the overnight courier
service making such delivery) or (b) in the case of a letter,
five days shall have elapsed after the same shall have been
deposited in the United States mails, with first-class postage
prepaid and registered or certified.
If to AllEnergy, to it at 3 University Office Park, 95
Sawyer Road, Waltham, Massachusetts 02154
If to AMCI, to it at 9 Riverside Road, Weston, Massachusetts
02193.
13.4 Gender and Number. Whenever required by the context, as
used in this Agreement, the singular number shall include the
plural, the plural shall include the singular, and all words
herein in any gender shall be deemed to include the masculine,
feminine and neuter genders.
13.5 Severability. If any provision of this Agreement is
determined by a court to be invalid or unenforceable, that
determination shall not affect the other provisions hereof, each
of which shall be construed and enforced as if the invalid or
unenforceable portion were not contained herein. That invalidity
or unenforceability shall not affect any valid and enforceable
application thereof, and each said provision shall be deemed to
be effective, operative, made, entered into or taken in the
manner and to the full extent permitted by law.
13.6 Headings. The headings used in this Agreement are used
for administrative convenience only and do not constitute
substantive matter to be considered in construing the terms of
this Agreement.
13.7 No Third Party Rights. The provisions of this Agreement
are for the benefit of the Company, the Manager and the Members
and no other Person, including creditors of the Company shall
have any right or claim against the Company, the Manager or any
Member by reason of this Agreement or any provision hereof or be
entitled to enforce any provision of this Agreement.
[The remainder of this page has deliberately been left blank.]
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the day and year first set forth above.
ALLENERGY MARKETING COMPANY, L.L.C.
By: /s/ W. H. Heil
Name: William H. Heil
Title: Chairman and
Chief Executive Officer
ALLENERGY MARKETING COMPANY, INC.
By: /s/ L. William Law, Jr.
Name: L. William Law, Jr.
Title: Vice President & Clerk
<PAGE>
EXHIBIT 1
Defined Terms
"Act" shall mean the Massachusetts Limited Liability Company
Act (MGL c. 156C), as amended and in effect from time to time.
"Affiliate" shall mean, with respect to any specified
Person, any Person that directly or through one or more
intermediaries controls or is controlled by or is under common
control with the specified Person. As used in this definition,
the term "control" means the possession, directly or indirectly,
of the power or authority to direct or cause the direction of the
management and policies of a Person, whether through ownership of
voting securities, by contract or otherwise.
"Agreement" shall mean the Limited Liability Company
Agreement of the Company dated as of December 18, 1996, as
amended from time to time.
"AllEnergy" is defined in the preamble of the Agreement.
"AMCI" is defined in the preamble of the Agreement.
"Business Day" shall mean a day when national banks are open
for business in Boston, Massachusetts.
"Capital Account" is defined in Section 3.2.
"Capital Contribution" shall mean with respect to any
Member, the amount of cash and the fair market value of any other
property contributed to the Company with respect to the Interest
held by such Member (net of liabilities secured by such
contributed property or that the Company is considered to assume
or take the property subject to pursuant to Code section 752).
"Certificate" shall mean the Certificate of Organization of
the Company and any and all amendments thereto and restatements
thereof filed on behalf of the Company as permitted hereunder
with the office of the Secretary of State of The Commonwealth of
Massachusetts.
"Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time, and the corresponding provisions of
any future federal tax law.
"Company" shall mean the limited liability company formed
under and pursuant to the Act and this Agreement.
"Distribution" shall mean the amount of cash and the fair
market value of any other property distributed to a Member in
respect of the Member's Interest in the Company (net of
liabilities secured by such distributed property or that the
<PAGE>
Member is considered to assume or take the property subject to
pursuant to Code section 752).
"Effective Date" shall mean December 18, 1996.
"Energy Commodity" shall mean propane, natural gas,
electricity, oil and any other energy source, as well as all
options, futures contracts, forward contracts, collars, spot
contracts or swap contracts related to the choice, purchase or
consumption of any energy commodity and any other financial
products marketed or used in connection therewith.
"Energy Related Products and Services" shall mean products
and services related to the choice, purchase or consumption of
any Energy Commodity, whether or not sold or provided on a
bundled basis with such natural gas, electricity, oil or other
energy source.
"Fair Value" as applied to all or any portion of the
Interest of any Member or to the non-cash consideration proposed
to be paid as all or a portion of the Offered Price for an
Interest by a third-party offeror, shall mean the fair market
value of the relevant portion of the Interest or of such
consideration as agreed upon by the Members or as shown by an
appraisal performed by an independent appraiser satisfactory to
all Members. In the event that the Members do not agree on such
fair market value or on the selection of an independent appraiser
within 10 days after the event which gives rise to the need to
determine Fair Value, each Member shall select an appraiser
within 20 days of such event and those two appraisers shall
select within 30 days of such event another independent appraiser
to perform the appraisal. The three appraisers so selected shall
then have 15 days from the date of the selection of the third
appraiser to determine the fair market value of the relevant
portion of the Interest or consideration in question. When
determining the fair market value of an Interest, the appraisers
shall consider, among other factors, book value, liquidation
value, replacement value and the value of future cash flows of
the Company as a going concern and shall make no deduction,
discount or other subtraction whatsoever for the possible
minority status or limited voting rights of any Member. If the
single appraiser has been appointed, such appraiser's
determination of value shall be final and binding. If three
appraisers shall have been appointed as hereinabove set forth,
the values determined by the three appraisers shall be averaged,
the determination which shall differ most from such average shall
be disregarded, the remaining two determinations shall be
averaged, and such average shall be final and binding. If one
independent appraiser is selected, the Members shall each bear
one-half of the expenses of the independent appraiser. If the
Members have each selected an appraiser, each Member shall bear
the expenses of its own appraiser and one-half the expenses of
the independent appraiser selected by the two appraisers.
<PAGE>
"Fiscal Year" shall mean the fiscal year of the Company
which shall end on December 31 in each year or on such other date
in each year as the Manager shall otherwise elect.
"Indemnified Persons" is defined in Section 12.1.
"Interest" shall mean the entire interest of a Member in the
capital and profits of the Company, including the right of such
Member to any and all benefits to which a Member may be entitled
as provided in this Agreement, together with the obligations of
such Member to comply with all the terms and provisions of this
Agreement.
"Manager" shall mean AllEnergy. The Manager shall be the
manager of the Company under the Act.
"Member Nonrecourse Deductions" shall mean "partner non-
recourse deductions" as defined in Regulations Section 1.704-
2(i)(1).
"Members" shall mean the Persons listed as members on the
signature page to the Agreement and any other Person that both
acquires an Interest in the Company and is admitted to the
Company as a Member pursuant to the Agreement.
"Net Profit" and "Net Loss" shall mean, for each Fiscal Year
or other period, an amount equal to the Company's taxable income
or loss, respectively, for such year or period, determined in
accordance with Section 703(a) of the Code (taking into account
all items of income, gain, loss, or deduction required to be
stated separately pursuant to Section 703(a)(1) of the Code),
with the following adjustments:
(a) any income of the Company that is exempt from
federal income tax and not otherwise taken into account in
computing Net Profit or Net Loss pursuant to this provision
shall be added to such taxable income or reduce such taxable
loss; and
(b) any expenditures of the Company described in
Section 705(a)(2)(B) of the Code (relating to expenditures
which are neither deductible nor properly chargeable to
capital) or treated as Code Section 705(a)(2)(B)
expenditures pursuant to Section 1.704-l(b)(2)(iv)(i) of the
Regulations, and not otherwise taken into account in
computing Net Profit or Net Loss pursuant to this provision,
shall be subtracted from such taxable income or increase
such taxable loss.
"Nonrecourse Deduction" shall have the meaning set forth in
Regulations Section 1.704-2(b)(1).
"Percentage Interests" is defined in Section 3.3.
<PAGE>
"Person" shall mean an individual, partnership, joint
venture, association, corporation, trust, estate, limited
liability company, limited liability partnership, or any other
legal entity.
"Qualified Income Offset" shall have the meaning set forth
in Regulations Section 1.704-l(b)(2)(ii)(d).
"Regulations" shall mean the Treasury regulations, including
temporary regulations, promulgated under the Code, as such
regulations may be amended from time to time (including the
corresponding provisions of any future regulations).
"Securities Act" shall mean the Securities Act of 1933, as
amended.
"Tax Matters Member" is defined in Section 7.1.
"Term" is defined in Section 2.4.
"Transfer" is defined in Section 7.1.1.
"Violation of the Business Judgment Rule" means conduct
which is materially inconsistent with the obligation to be
reasonably informed and to act in good faith or which is
reckless, grossly negligent, willful misconduct or constitutes a
knowing violation of law.
<PAGE>
EXHIBIT 5.2
OFFICERS
5.2.1. Officers. Officers and agents of the Company, if any,
shall be appointed by the Manager from time to time in its sole
discretion. An officer may be but none need be a Member. Any two
or more offices may be held by the same person. Any officer may
be required by the Manager to secure the faithful performance of
the officer's duties to the Company by giving bond in such amount
and with sureties or otherwise as the Manager may determine.
5.2.2. Powers. Subject to the limitations set forth in
Section 5.2 of the Agreement, each officer shall have, in
addition to the duties and powers herein set forth, the duties
and powers set forth in Section 5.2 of the Agreement or delegated
to such officer as provided in said Section 5.2.
5.2.3. Election. Officers may be appointed by the Manager at
any time. At any time or from time to time the Manager may
delegate to any officer its power to appoint any other officer or
any agents.
5.2.4. Tenure. Each officer shall hold office until such
officer's respective successor is chosen and qualified unless a
shorter period shall have been specified by the terms of such
officer's appointment, or in each case until such officer sooner
dies, resigns, is removed or becomes disqualified. Each agent
shall retain its authority at the pleasure of the Manager, or the
officer by whom such agent was appointed or by the officer who
then holds agent appointive power.
5.2.5. Resignation: Removal; Vacancies. Any officer or agent
may resign by delivering a written letter of resignation to the
Manager, which resignation shall not require acceptance and,
unless otherwise specified in the letter of resignation, shall be
effective upon receipt. The Manager or the officer appointing the
officer or agent may remove any officer or agent at any time
without giving any reason for such removal and no officer or
agent or shall be entitled to any damages by virtue of such
officer's removal from office or such position as agent. If any
office becomes vacant, the position may be filled by the Manager
or in such other manner as the officer in question was appointed.
5.2.6. President and Vice President. Unless the Manager
otherwise specifies, the President shall be the chief executive
officer and shall have direct charge of all business operations
of the Company and, subject to the control of the Manager, shall
have general charge and supervision of the business of the
Company.
Any vice presidents shall have duties as shall be designated
from time to time by the Manager or the President.
<PAGE>
5.2.7. Treasurer and Assistant Treasurers. Unless the
Manager otherwise specifies, the Treasurer shall be the chief
financial officer of the Company and shall be in charge of its
funds and valuable papers, and shall have such other duties and
powers as may be designated from time to time by the Manager or
the President. If no Controller is elected, the Treasurer shall,
unless the Manager otherwise specifies, also have the duties and
powers of the Controller.
Any Assistant Treasurers shall have such duties and powers
as shall be designated from time to time by the Manager, the
President or the Treasurer.
5.2.8. Controller and Assistant Controllers. If a Controller
is elected, the Controller shall, unless the Manager otherwise
specifies, be the chief accounting officer of the Company and be
in charge of its books of account and accounting records, and of
its accounting procedures. The Controller shall have such other
duties and powers as may be designated from time to time by the
Manager, the President or the Treasurer.
Any Assistant Controller shall have such duties and powers
as shall be designed from time to time by the Manager, the
President, the Treasurer or the Controller.
5.2.9. Secretary and Assistant Secretaries. The Secretary
shall record all proceedings of the Members in a book or series
of books to be kept therefor and shall file therein all actions
by written consent of the Members. In the absence of the
Secretary from any meeting, an Assistant Secretary, or if there
be one or no Assistant Secretary is present, a temporary
secretary chosen at the meeting, shall record the proceedings
thereof. The Secretary shall keep or cause to be kept records,
which shall contain the names and record addresses of all
Members. The Secretary shall have such other duties and powers as
may from time to time be designated by the Manager or the
President.
Any Assistant Secretaries shall have such duties and powers
as shall be designated from time to time by the Manager, the
President or the Secretary.
5.2.10. Execution of Papers. Except as the Manager may
generally or in particular cases authorize the execution thereof
in some other manner, and subject to the limitations set forth in
Sections 5.2 of the Agreement, all deeds, leases, transfers,
contracts, bonds, notes, checks, drafts or other obligations
made, accepted or endorsed by the corporation shall be signed by
the President, a Vice President or the Treasurer.
<PAGE>
HYDROSERV GROUP, L.L.C.
LIMITED LIABILITY COMPANY AGREEMENT
Dated as of July 25, 1997
<PAGE>
HYDROSERV GROUP, L.L.C.
LIMITED LIABILITY COMPANY AGREEMENT
THIS LIMITED LIABILITY COMPANY AGREEMENT of HydroServ Group,
L.L.C. is dated as of July 25, 1997, by and between Underwater
Unlimited Diving Services, Inc. (UUDSI), a New Hampshire
corporation, and NEES Global Transmission, Inc. (NGT), a
Massachusetts corporation.
WHEREAS, the Members wish to form a limited liability
company pursuant to and in accordance with the Massachusetts
Limited Liability Company Act in order to conduct the business
described herein; and
WHEREAS, the Members wish to enter into this Agreement to
provide for, among other things, the management of the business
and affairs of the Company, the allocation of profits and losses
among the Members, the respective rights and obligations of the
Members to each other and to the Company, and certain other
matters.
NOW, THEREFORE, the Members hereby agree as follows:
ARTICLE I
DEFINITIONS
Certain capitalized terms used in this Agreement have
specifically defined meanings which are either set forth or
referred to in Exhibit 1, which is attached hereto and
incorporated herein by reference.
ARTICLE 2
FORMATION AND PURPOSE
2.1 Formation, etc. The Members hereby form a limited
liability company pursuant to and in accordance with the Act
effective upon the filing of the Certificate with the Secretary
of State of The Commonwealth of Massachusetts. The rights,
duties and liabilities of the Members shall be determined
pursuant to the Act and this Agreement. To the extent that such
rights, duties or obligations are different by reason of any
provision of this Agreement than they would be in the absence of
such provision, this Agreement shall, to the extent permitted by
the Act, control.
2.2 Name. The name of the Company shall be HydroServ
Group, L.L.C. The business of the Company may be conducted under
that name or, upon compliance with applicable laws, any other
name that the Members deem appropriate or advisable. The Members
shall file any fictitious name certificates and similar filings,
and any amendments thereto, that shall be necessary to permit the
Company to carry on its business under the desired name.
<PAGE>
2.3 Registered Office/Agent. The registered office
required to be maintained by the Company in The Commonwealth of
Massachusetts pursuant to the Act shall initially be 25 Research
Drive, Westborough, MA. The name and address of the registered
agent of the Company pursuant to the Act shall initially be Kirk
L. Ramsauer, 25 Research Drive, Westborough, MA. The Company
may, upon compliance with the applicable provisions of the Act,
change its registered office or registered agent from time to
time in the discretion of the Members.
2.4 Term. The term of the Company (the "Term") shall
continue until December 31, 2006 or such later date as shall be
designated by the Members, unless sooner terminated as
hereinafter provided.
2.5 Purpose. The Company is formed for the object and
purpose of marketing and selling the capabilities and services of
UUDSI and New England Power Company (an affiliate of NGT,
hereinafter referred to as NEP), which are operation and
maintenance, field and construction, as outlined in Attachments 2
and 3 of the business plan contained in Schedule 2. These
capabilities and services will be marketed and sold to
hydroelectric facilities and other similar facilities nationwide.
The Company will also market and sell goods and services for
nonmember, noncompeting companies that service the same market.
The Company will also engage in any and all other activities
necessary, advisable, convenient, or incidental to such
activities.
2.5.1 Exclusive Agent. The Company is the Exclusive Agent
for marketing and selling the capabilities and services of UUDSI
and NEP, as defined in Attachments 2 and 3 of the business plan
in Schedule 2, to customers in the hydro industry in the United
States and Canada.
2.5.2 HydroServ Customers. All present hydro customers of
each Member and all future customers sourced by HydroServ Group,
LLC will be considered to be "HydroServ Customers". Schedule 5
lists present hydro customers of UUDSI, and Schedule 6 lists
those of NEP. The transfer of those customers listed on
Schedules 5 and 6 to HydroServ Customers shall be at no cost,
fee, commission, or other charge.
2.6 Powers. Without limiting the generality of Section
2.5, the Company shall have the power and authority to take any
and all actions necessary, appropriate, proper, advisable,
incidental or convenient to or for the furtherance of the purpose
set forth in Section 2.5, including, but not limited to, the
power:
2.6.1 to conduct its business, carry on its operations
and have and exercise the powers granted to a limited liability
company by the Act in any state, territory, district or
possession of the United States or in any foreign country as may
<PAGE>
be necessary, convenient or incidental to the accomplishment of
the purpose of the Company;
2.6.2 to enter into, perform and carry out contracts of
any kind necessary to, in connection with, in furtherance of,
convenient to, or incidental to the accomplishment of the purpose
of the Company;
2.6.3 to purchase, take, receive, subscribe for or
otherwise acquire, own, hold, enter into, invest in, trade, vote,
use, employ, sell, mortgage, lend, pledge, or otherwise dispose
of, and otherwise use and deal in and with, shares and other
equity interests in, obligations of, and other financial
instruments with or in respect of, domestic and foreign
corporations, associations, general, limited and limited
liability partnerships, trusts, limited liability companies,
individuals, international agencies, and the United States
government, and any other national, state, regional, territorial,
local or municipal government and any agency or instrumentality
of any such government;
2.6.4 to acquire by purchase, exchange, lease,
contribution of property or otherwise, own, hold, operate,
maintain, finance, improve, market, lease, sell, distribute,
convey, mortgage, encumber, transfer, demolish or dispose of any
real or personal property;
2.6.5 to lend money, to invest and reinvest its funds
and to take and hold real and personal property for the payment
of funds so loaned or invested;
2.6.6 to negotiate, enter into, renegotiate, extend,
renew, terminate, modify, amend, waive, execute, acknowledge or
take any other action with respect to any lease, contract or
security agreement in respect of any assets or the business of
the Company;
2.6.7 to borrow and issue evidences of indebtedness and
to secure the same by a mortgage, pledge or other lien on the
assets of the Company; provided, however, that without the prior
written consent of the Member in question, the Company shall not
incur any indebtedness that provides for the liability of any
Member;
2.6.8 to open, close, and to make deposits to and
withdrawals from bank and other deposit accounts;
2.6.9 to give or terminate guarantees and indemnities;
2.6.10 to hire, employ and dismiss employees, agents and
representatives, attorneys, accountants, brokers, investment
bankers, appraisers and any other advisors or consultants of the
Company, and define their duties and fix their compensation;
<PAGE>
2.6.11 to indemnify any Person in accordance with this
Agreement;
2.6.12 to cease its activities and cancel its
Certificate;
2.6.13 to sue and be sued, complain and defend, and
participate in administrative or other proceedings, in its name;
2.6.14 to pay, collect, compromise, litigate, arbitrate
or otherwise adjust or settle any and all other claims or demands
of or against the Company or to hold such proceeds against the
payment of contingent liabilities; and
2.6.15 to make, execute, acknowledge and file any and all
documents or instruments necessary, convenient or incidental to
the accomplishment of the purpose of the Company.
2.7 Filing of Certificate. Ernest Griggs is designated as
an authorized person within the meaning of the Act to execute,
deliver and file the Certificate, and any such other Persons as
the Members shall specify are hereby designated as authorized
persons, within the meaning of the Act, to execute, deliver and
file any amendments or restatements of the Certificate and any
other certificates necessary for the Company to qualify to do
business in a jurisdiction in which the Company may wish to
conduct business.
2.8 Foreign Qualification. The Members shall take all
necessary actions to cause the Company to be authorized to
conduct business legally in Massachusetts and any other
jurisdictions which the Members shall determine.
2.9 Responsibilities. The Company in addition to any and
all activities associated with running the Company is responsible
for the following partial list of activities:
(a) management of all hydro marketing and sales
personnel activities;
(b) assisting each Member with the development and
marketing of any and all specific products and
services relating to the specific delivery of that
Member's hydro services to a HydroServ Customer;
(c) assisting UUDSI and NEP in preparation of
proposals; and
(d) interfacing with HydroServ Customers as required.
<PAGE>
ARTICLE 3
MEMBERSHIP AND CAPITAL
3.1 Members: Initial Capital Contributions. The Members of
the Company are UUDSI and NGT, each of which is admitted to the
Company as a Member effective upon its execution of this
Agreement. Each Member shall make an initial capital
contribution of $250,000 net of its marketing and sale expenses
for the benefit of the Company incurred since the date this
Agreement is signed; such initial capital contribution shall be
made in accordance with Schedule 7 attached hereto. The initial
capital contribution shall be made promptly after receipt by NGT
of corporate approvals required by NGT in order to make its
contributions, and to make an equity investment in UUDSI of $1
million, such approvals to be in form and substance acceptable to
NGT.
3.2 Maintenance of Capital Accounts. A separate account
(each a "Capital Account") shall be established and maintained
for each Member which shall be increased by (a) such Member's
Capital Contributions and (b) such Member's share of the Net
Profit of the Company, and shall be charged with (c)
Distributions to such Member and (d) such Member's share of the
Net Losses of the Company. It is the intention of the Members
that the Capital Accounts be maintained in accordance with the
provisions of Section 704(b) of the Code and the Regulations
thereunder, that any liabilities be taken into account in
accordance with the provisions of Section 752 of the Code and the
Regulations thereunder, and that this Agreement be interpreted
consistently therewith.
3.3 Percentage Interests. The percentage interest of each
Member in the capital and profits of the Company (each a
"Percentage Interest") shall initially be as follows:
UUDSI 50%
NGT 50%
The Percentage Interests shall be subject to adjustment as
provided in Sections 3.6 and 3.7.4.
3.4 Additional Capital Contributions.
3.4.1 Required Contributions. The Members may from time
to time determine that additional Capital Contributions are
required by the Company (Total Additional Capital Contribution).
In such a case, each Member agrees that upon not less than ten
Business Days following the determination by the Members, such
Member will contribute to the Company as an Additional Capital
Contribution a percentage of the Total Additional Capital
Contribution that is equal to its Percentage Interest adjusted in
accordance with Section 3.4.1.1.
3.4.1.1 Each Member's Additional Capital Contribution will
be adjusted to reflect the relative benefit it or its affiliates
derived from contracts resulting from the marketing and sales
<PAGE>
efforts of the Company. Each Member's Additional Capital
Contribution shall be 6% of gross revenue received under such
contract(s) for the past twelve months. To the extent that the
aggregate of all Members' contributions result in more than the
Total Additional Capital Contribution, such contributions will be
proportionally reduced to the Total Additional Capital
Contribution, such reduction calculated based on relative
contributions by each Member. To the extent that the aggregate
of all Members' contributions result in less than the Total
Additional Contribution, the shortfall will be contributed by
each Member on the basis of its Percentage Interest at such time.
3.4.2 Funds Transfers. Capital Contributions required
by this Section 3.4 shall be made by wire transfer of immediately
available funds to the Company's account at such bank as the
Company may from time to time designate in writing.
3.4.3 Voluntary Contributions. Following the Effective
Date, no Member shall be required or permitted to make any
Capital Contributions to the Company except pursuant to this
Section 3.4.
3.5 Return of Capital Contributions. No Member shall have
the right to demand a return of all or any part of its Capital
Contributions, and any return of the Capital Contributions of any
Member shall be made solely from the assets of the Company. No
interest shall be paid to any Member with respect to its Capital
Contributions.
3.6 Additional Members; New Issuances; Classes of Members.
Except as contemplated by Article 9, no new Members shall be
admitted to the Company without the consent of the Members. Upon
the written consent of the Members, the Company may issue
Interests, which may represent interests in both the capital and
the profits of the Company or which may be interests in only the
future profits of the Company ("Profits Interests") to Persons
who are not yet Members, or may increase the Interest of an
existing Member, for such consideration (including but not
limited to cash, other property or the provision of services) and
on such terms as the Members shall unanimously determine. Upon
the issuance of a new Interest, or an increase in the Percentage
Interest represented by an existing Interest, the Percentage
Interests of all existing Members shall be diluted ratably. Each
Person that is to be issued an Interest shall deliver to the
Company, as a condition of its admission to the Company as a
Member, such documents of the type specified in Section 9.4. l(i)
and (ii) as the Members shall request. The Members shall
constitute a single class of Members for all purposes under the
Act and this Agreement unless and to the extent that this
Agreement specifically provides for different classes or groups
of Members of the Company.
3.7 Defaults in Making Capital Contributions. If any
Member shall default in making any Capital Contribution required
<PAGE>
to be made pursuant to Section 3.4.1 (each such Capital
Contribution which is not made, a "Defaulted Capital
Contribution"), and such default shall continue for more than
twenty Business Days after notice from the Company, the following
provisions shall apply:
3.7.1 Member Default Loan. The Member who has not
failed to make the required Capital Contribution shall be
entitled (but not required) to advance to the Company on behalf
of the Member who has failed to make the required Capital
Contribution (the "Defaulting Member") an amount equal to all or
a portion of the Defaulted Capital Contribution. Any amount so
advanced by the non-Defaulting Member shall be considered a
Member Default Loan by the non-Defaulting Member to the
Defaulting Member.
3.7.2 Repayment of Member Default Loan. A Member
Default Loan shall be the obligation of the Defaulting Member,
shall be governed by the internal laws of The Commonwealth of
Massachusetts, shall bear interest at a rate of 12% per annum
which shall be compounded annually., and shall be payable on or
before twenty Business Days after written demand first out of
Distributions which would otherwise be made to the Defaulting
Member and to the extent not sufficient, then out of the general
assets of the Defaulting Member. Payments on Member Default
Loans shall be applied first to accrued interest and then to
principal. The Company shall pay to the Member making the Member
Default Loan instead of to the Defaulting Member any and all
Distributions which would otherwise have been paid to the
Defaulting Member until the Member Default Loan and all interest
thereon has been paid in full; provided, however, that all such
Distributions shall be deemed to have been made first to the
Defaulting Member and subsequently paid by the Defaulting Member
to the non-Defaulting Member as a payment against the Member
Default Loan and interest thereon. No Distributions of any kind
shall be made directly to the Defaulting Member until such time
as the Member Default Loan and all interest thereon has been paid
by or for the account of the Defaulting Member.
3.7.3 Survival of Obligation to Make Capital
Contribution. Notwithstanding the foregoing provisions of this
Section 3.7, the Defaulting Member shall continue to be obligated
to make the required Capital Contribution, except to the extent
that (a) such required Capital Contribution has been made by
repayment of the principal of any Member Default Loan that has
been made to fund such required Capital Contribution or has
otherwise been made by the Defaulting Member or (b) such
Defaulting Member has been relieved of such obligation pursuant
to Section 3.7.4, and the Company may by appropriate action
enforce such obligation of the Defaulting Member. If the non-
Defaulting Member has made a Member Default Loan, any Capital
Contributions made as a result of such enforcement proceedings or
otherwise shall be paid to the Member making the Member Default
Loan until the Member Default Loan and all interest thereon are
<PAGE>
paid in full. If the non-Defaulting Member has not made a Member
Default Loan, then the Defaulting Member's obligation to make the
Defaulted Capital Contribution to the Company shall bear interest
until paid at a rate of 12% per annum, which shall be compounded
annually, and shall be payable on demand first out of
Distributions which would otherwise be made to the Defaulting
Member and to the extent not sufficient then out of the general
assets of the Defaulting Member.
3.7.4 Dilution Provisions. (i) If the non-Defaulting
Member has made a Member Default Loan and such Member Default
Loan remains outstanding, then such Member shall have the option,
at any time after the (sixtieth day) following the date on which
the Capital Contribution was originally due, to convert all or a
portion of the principal amount of such loan into an additional
Capital Contribution of the non-Defaulting Member. In the event
of such a conversion by the non-Defaulting Member, the Percentage
Interests of the Members shall be adjusted by decreasing the
Percentage Interest of the Defaulting Member, and increasing the
Percentage Interest of the non-Defaulting Member, by 5 percentage
points for each $100,000 of principal so converted. The
Defaulting Member shall be relieved of its obligation to pay that
portion of the principal amount of the Member Default Loan so
converted, but the Defaulting Member shall continue to be
obligated to pay (i) any interest which had accrued on that
portion of the principal of the Member Default Loan prior to such
conversion and (ii) the principal of, and interest on, that
portion of the Member Default Loan not so converted.
(ii) If the non-Defaulting Member does not make a Member
Default Loan and if the full amount of the required Capital
Contribution of the Defaulting Member is not made within 60 days
after the date on which the Capital Contribution was originally
due, then as of the close of business on such sixtieth day, the
Percentage Interests of the Members shall be adjusted by
decreasing the Percentage Interest of the Defaulting Member, and
increasing the Percentage Interest of the non-Defaulting Member,
by 10 percentage points for each $100,000 not contributed by the
Defaulting Member. The Defaulting Member shall be relieved of
such Member's obligation to make the required Capital
Contribution in question (but not, of such Member's obligation to
pay the interest accrued thereon) to the extent that such
Member's Percentage Interest and is adjusted pursuant to this
Section 3.7.4(ii).
ARTICLE 4
STATUS AND RIGHTS OF MEMBERS
4.1 Limited Liability. Except as otherwise provided by the
Act, the debts, obligations and liabilities of the Company,
whether arising in contract, tort or otherwise, shall be solely
the debts, obligations and liabilities of the Company, and no
Member nor any other Indemnified Person shall be obligated
<PAGE>
personally for any such debt, obligation or liability of the
Company. All Persons dealing with the Company shall look solely
to the assets of the Company for the payment of the debts,
obligations or liabilities of the Company.
4.2 No Make Up. In no event shall any Member be required to
pay to the Company, to any other Member or its Affiliate or to
any third party, any deficit balance that may exist from time to
time in such Member's Capital Account.
4.3 Return of Distributions. Except as otherwise expressly
required by law, a Member, in its capacity as such, shall have no
liability either to the Company or any of its creditors in excess
of (a) the amount of its Capital Contributions actually made, (b)
its share of any assets and undistributed profits of the Company,
(c) its obligation to make Capital Contributions and any other
payments expressly provided for in this Agreement, and (d) to the
extent required by law, the amount of any Distributions
wrongfully distributed to it; provided, however, that, to the
maximum extent permitted by applicable law, the obligations of
the Members under Section 3.4 shall be solely for the benefit of
the Company and not the creditors of the Company. Except as
required by law or a court of competent jurisdiction, a Member
shall not be obligated by this Agreement to return any
Distribution to the Company or pay the amount of any Distribution
for the account of the Company or to any creditor of the Company.
However, if any court of competent jurisdiction holds that,
notwithstanding the provisions of this Agreement, any Member is
obligated to return or pay any part of any Distribution, the
obligation shall be that of such Member alone, and not of any
other Member unless the court so provides. The amount of any
Distribution returned to the Company by or on behalf of a Member
or paid by or on behalf of a Member for the account of the
Company or to a creditor of the Company shall be added to the
account or accounts from which it was subtracted when it was
distributed to the Member.
4.4 Specific Limitations. No Member shall have the right
or power to: (a) withdraw or reduce its Capital Contribution
except as a result of the dissolution of the Company or as
otherwise provided by law or in this Agreement, (b) other than
upon the Effective Date or with the approval of the Members, make
voluntary Capital Contributions or to contribute any property to
the Company other than cash, (c) bring an action for partition
against the Company or any Company assets, (d) cause the
termination and dissolution of the Company, except as set forth
in this Agreement, or (e) upon the distribution of its Capital
Contribution require that property other than cash be distributed
in return for its Capital Contribution. Each Member hereby
irrevocably waives any and all rights that it may have to
maintain an action for partition of any of the Company's
property. Except as otherwise set forth in this Agreement, no
Member shall have priority over any other Member either as to the
return of its Capital Contribution or as to Net Profit, Net Loss,
<PAGE>
or Distributions; provided, that this provision shall not apply
to the repayment by the Company of loans (as distinguished from
Capital Contributions) which a Member has made to the Company.
Other than upon the termination and dissolution of the Company as
provided by this Agreement, there has been no time agreed upon
when the Capital Contribution of any Member will be returned.
4.5 [Intentionally left blank]
4.6 Confidential Information.
4.6.1 Non-Disclosure. Each Member agrees that, except
as otherwise consented to by the Members, all non-public
information furnished to it pursuant to this Agreement or
otherwise in connection with the Company's operation of its
business, including without limitation, any and all information
concerning the Company's suppliers and customers and the
Company's business dealings with such Persons, will be kept
confidential and will not be disclosed or utilized by such
Member, or by any of its agents, representatives, employees or
Affiliates (or any employee, agent or representative thereof), in
any manner or for any purpose whatsoever, in whole or in part,
except that (a) each Member shall be permitted to disclose such
information to those of its agents, attorneys, accountants,
financial and business consultants, other representatives, and
employees who need to be familiar with such information in
connection with such Member's investment in the Company and who
are charged with an obligation of confidentiality, (b) each
Member shall be permitted to disclose such information to
financial institutions and bona fide prospective purchasers and
capital investors when such Persons have agreed in writing to
maintain confidentiality, (c) each Member shall be permitted to
disclose such information to its members, partners and
stockholders and their members, partners and stockholders so long
as they agree not to utilize such information in their own
business or that of any Affiliate in any way and to keep such
information confidential (including from any Affiliate) on the
terms set forth herein, (d) each Member shall be permitted to
disclose information to the extent required by law, so long as
such Member shall have first afforded the Company with a
reasonable opportunity to contest the necessity of disclosing
such information, (e) each Member shall be permitted to disclose
information to the extent necessary for the enforcement of any
right of such Member arising under this Agreement and (f) each
Member shall be permitted to disclose that information expressly
permitted by the Members to be disclosed. No Member, nor any
officer, agent, representative or Affiliate of a Member, nor any
officer, agent or representative of the Company shall disclose
the terms of this Agreement to any Person except (i) to the
extent required by law or (ii) for legitimate business purposes
approved by the Members.
4.6.2 Precautionary Measures. Each Member shall take
such precautionary measures as may be required to ensure (and
<PAGE>
such Member shall be responsible for) compliance with this
Section 4.6 by any of its Affiliates, and its and their
directors, officers, employees and agents and other Persons to
which it may disclose confidential information in accordance with
this Section 4.6.
4.6.3 Destruction or Return of Confidential Information.
In the event a Member shall cease to be a Member, it shall
promptly destroy (and provide a certificate of destruction to the
Company with respect to), or return to the Company, all
confidential information of the Company in its possession.
Notwithstanding the immediately-preceding sentence, a Member that
ceases to be a Member may retain for a stated period, but not
disclose to any other Person, confidential information for the
exclusive purposes of (A) explaining such Member's corporate
decisions with respect to the Company or (B) preparing such
Member's tax returns and defending audits, investigations and
proceedings relating thereto; provided, however, that the Member
must notify the Company in advance of such retention and specify
in such notice the stated period of such retention.
4.6.4 Survival of Provisions Beyond Term. The
obligations of each Member under this Section 4.6 shall survive
both termination of such Member's membership in the Company and
the dissolution and termination of the Company until the earlier
of the second anniversary of such termination or the second
anniversary of the end of the Term.
4.6.5 Remedies. The Members agree that no adequate
remedy at law exists for a breach or threatened breach of any of
the provisions of this Section 4.6, the continuation of which
unremedied will cause the Company and the other Members to suffer
irreparable harm. Accordingly, the Members agree that the
Company and the other Members shall be entitled, in addition to
other remedies that may be available to them, to immediate
injunctive relief from any breach of any of the provisions of
this Section 4.6 and to specific performance of their rights
hereunder, as well as to any other remedies available at law or
in equity.
4.7 Use of Member's Names and Trademarks. Except as
specifically permitted by a license agreement, the Company, the
Members and their Affiliates shall not use the name or trademark
of any Member or its Affiliates in whole or in part as or in its
name or in connection with public announcements regarding the
Company or marketing or financing activities of the Company,
without the prior consent of such Member or Affiliate, which
shall not be unreasonably withheld.
ARTICLE 5
MANAGEMENT
5.1 Management by the Members. The management of the
Company is fully vested in the Members, acting exclusively in
<PAGE>
their membership capacities. Each Member shall designate by
notice to the Company, one or more representatives of such Member
(each, a "Representative") who shall be authorized to speak on
behalf of and take actions on behalf of such Member. A Member's
designation may be changed at any time by notice to the Company.
The Members expressly intend that the Company will not have
"managers," as that term is used in the Act or in Rev. Proc. 95-
10, 1995-3 I.R.B. 20, it being understood that the
Representatives do not constitute "managers," but that each
Representative acts solely as the agent of the Member that
appointed it. Any controversy or dispute arising out of this
Agreement is subject to the dispute resolution provisions of
Section 16.5.
5.2 Meetings of Members; Consents. Deliberations and
actions of the Members (including deliberations and actions by
the Members) shall occur at meetings of the Members or by written
consents executed by the Members in accordance with Section 5.10.
Meetings of the Members, for any purpose or purposes, may be
called by any Member or Members holding Interests representing at
least fifty (50) percent of the aggregate Percentage Interests.
5.3 Place of Meetings. The Members may designate any
place, either within or outside The Commonwealth of
Massachusetts, as the place of meeting for any meeting of the
Members. If no designation is made, the place of meeting shall
be the principal place of business of the Company.
5.4 Notice of Meetings. Except as provided in Section 5.5,
notice stating the place, day and hour of a meeting of Members
shall be delivered in accordance with Section 16.4 not less than
forty-eight (48) hours before the time of the meeting, by or at
the direction of the Member or Members calling the meeting, to
each other Member. The purpose or purposes of such meeting shall
be specified in such notice.
5.5 Meeting of All Members. If the Members consent to the
holding of a meeting of Members at any time and place and attend
such meeting, such meeting shall be valid without call or notice,
and at such meeting any lawful action may be taken.
5.6 Quorum. The Members, represented in person or by
proxy, shall constitute a quorum at any meeting of Members.
5.7 Voting.
(i) Voting by Percentage Interests; Voting Thresholds.
Except as provided otherwise in this Agreement, voting
shall be according to the Members' respective
Percentage Interests; provided, however, that unless
otherwise expressly provided in this Agreement, all
decisions by the Members or by their Representatives
shall require the affirmative vote of each of the
Members. At such time as one or more additional,
<PAGE>
nonaffiliated Members are added, the voting
requirements will be reviewed to provide less than
unanimous votes for matters not affecting the limited
liability, nature, or purpose of the Company.
(ii) Disclaimer of Duties. With respect to any vote,
consent or approval at any meeting of the Members or
otherwise under this agreement, each Member may grant
or withhold such vote, consent or approval (a) in its
sole and absolute discretion, (b) with or without
cause, (c) subject to such conditions as it shall deem
appropriate, and (d) without taking into account the
interests of, and without incurring liability to, the
Company, any other Member, or any officer or employee
of the Company. The provisions of this Section 5.7(ii)
shall apply notwithstanding the negligence, gross
negligence, willful misconduct, strict liability or
other fault or responsibility of a Member.
5.8 Representatives and Proxies. At any meeting of
Members, a Member shall be deemed in attendance if at least one
of its Representatives is in attendance. At any meeting of
Members, a Member may instead vote by proxy executed in writing
by the Member or by a duly authorized attorney-in-fact. Such
proxy shall be filed with the Company before or at the time of
the meeting. No proxy shall be valid after eleven (11) months
from the date of its execution, unless otherwise provided in the
proxy.
5.9 Conference Telephone. Any Member may participate in a
meeting of the Members by means of conference telephone or
similar communications equipment which permits all persons
participating in the meeting to hear each other, and
participation in the meeting by means of such equipment shall
constitute presence in person at such meeting.
5.10 Action by Members Without a Meeting. Action required
or permitted to be taken at a meeting of Members may be taken
without a meeting if the action is evidenced by one or more
written consents describing the action taken, signed by the
Members and delivered to the Company for inclusion in the minutes
or for filing with the Company records. Action taken under this
Section 5.10 is effective when the Members have signed the
consent, unless the consent specifies a different effective date.
5.11 Waiver of Notice. When any notice is required to be
given to any Member, a waiver thereof in writing signed by or on
behalf of the Member entitled to such notice, whether before, at
or after the time stated therein, shall be equivalent to the
giving of such notice.
5.12 Duties and Authority of the Members. Each Member shall
have the full power and authority to take any and all actions on
behalf of or with respect to the Company that are permitted under
<PAGE>
Massachusetts law to be taken by members of a limited liability
company; provided, however that each Member agrees not to take
any action in the name of or on behalf of the Company unless such
action, and the taking thereof by such Member, shall have been
authorized by the Members or is expressly authorized by this
Agreement. The Members may ratify previously unauthorized
actions taken by a Member in the name of and on behalf of the
Company, which ratification shall cure any breach by such Member
of the prior sentence arising from such actions. Subject to the
two immediately preceding sentences, the powers and authority
granted to the Members hereunder shall include all those
necessary or convenient for the furtherance of the purpose and
powers of the Company and shall include the power and authority
to make all decisions and take all actions with regard to the
management, operations, assets, financing and capitalization of
the Company, including without limitation, the power and
authority to make decisions concerning, and take all actions in
respect of, all those matters specified in Section 2.6.
5.13 Officers. The Members may designate one or more
Persons to be officers of the Company. Any officers so
designated shall have such titles and, subject to the other
provisions of this Agreement, have such authority and perform
such duties as the Members may delegate to them, including the
power to execute documents, and shall serve at the pleasure of
the Members. Unless the authority of the agent designated as the
officer in question is limited or expanded in the document
appointing such officer or is otherwise specified by the Members,
any officer so appointed shall have the same authority to act for
the Company as a corresponding officer of a Massachusetts
corporation would have to act for a Massachusetts corporation in
the absence of a specific delegation of authority; provided,
however, that unless such power is specifically delegated to the
officer in question either for a specific transaction or
generally, no such officer shall have the power to act in a
manner that is not consistent with the Business Plan and Annual
Budget then in effect, to lease or acquire real property, to
borrow an amount of money in excess of $20,000, to issue notes,
debentures, securities, equity or other interests of or in the
Company, to make investments in (other than the temporary
investment of surplus cash), or to acquire securities of any
Person, to give guarantees or indemnities, to merge, consolidate,
liquidate or dissolve the Company or to sell or lease all or any
substantial portion of the assets of the Company. The Members,
in their discretion, may by written instrument signed by such
Members ratify any act previously taken by an officer or agent
acting on behalf of the Company.
5.14 Transactions with Affiliates. Except as otherwise
provided under this Agreement, the Company will not engage in any
transaction with an Affiliate of any Member without the prior
written consent of the other Members.
<PAGE>
5.15 Transactions with HydroServ Customers. UUDSI and/or
NEP, as the case may be, shall be solely responsible for
negotiating and closing such transactions in such manner and
pursuant to procedures acceptable to the party involved in the
transaction including without limitation selection of legal
counsel for such purposes and shall be solely responsible for
management of its own operating personnel, transaction pricing,
credit and risk analysis, receivable collections, contract
generation and negotiation, documentation filing and support, tax
and finance accounting and management of all legal and financial
accounting personnel and activities including tax advisory
requirements and analysis. All proposals and letters of proposal
shall include disclaimers clearly setting forth that such
documents do not create or evidence any obligation or commitment
by the Company and by NEP, NGT, and/or UUDSI if not involved in
the transaction.
5.15.1 Bid Proposal Review Team. The success of the
Company and ultimately UUDSI and NEP who depend on the successful
efforts of HydroServ, will depend on well prepared bids and
proposals, that ensure both likelihood of securing the work and
the profitability of that work. Therefore, UUDSI and NEP agree
to each designate a representative, to act in concert with the
President of the Company, as a final review team for all bids and
proposals being submitted to HydroServ Customers.
5.15.2 Transaction Review Team. All transactions,
agreements, contracts, etc. involving the Company, except those
covered by Section 5.15.1 and Schedule No. 1, will be reviewed by
the review team established under Section 5.15.1 and approved by
the designated representatives.
5.16 Income. The Company derives income from other
nonmember, noncompeting companies, who service the same hydro
industry clients, in the form of Marketing Fees. Schedule No. 1
outlines the fee structure.
ARTICLE 6
BUSINESS PLAN, BUDGET
6.1 Business Plan. The initial business plan for the
Company (the "Business Plan") as agreed upon by the Members, is
attached as Schedule 2. At least 60 days prior to the beginning
of the second and each subsequent Fiscal Year, the Members shall
discuss and revise the Business Plan of the Company so that the
Business Plan shall at all times reflect the strategic plan for
the Company for the then current Fiscal Year and the subsequent
four Fiscal Years.
6.2 Annual Budget. The budget for the first Fiscal Year of
the Company, as agreed upon by the Members, is attached as
Schedule 3. The Members shall, at least 45 days before the
beginning of each subsequent Fiscal Year, determine a budget for
the Company for the next Fiscal Year (the budget for the
<PAGE>
Company's first Fiscal Year and each subsequent budget, each an
"Annual Budget"); provided that if an Annual Budget is not agreed
upon for any Fiscal Year, the Annual Budget for the preceding
Fiscal Year shall remain in effect. Each Annual Budget shall
include a projected profit and loss statement, cash flow
statement and balance sheet for the next Fiscal Year, and shall
specify and quantify capital expenditures, if any.
ARTICLE 7
DISTRIBUTIONS AND ALLOCATIONS
7.1 Distributions.
7.1.1 In General. Subject to Section 3.7.2, the Company
shall make Distributions at the end of the calendar year in such
amounts as the Members shall unanimously determine; provided,
that all Distributions (other than Distributions in liquidation
of the Company) shall be made ratably to Members in accordance
with their Percentage Interests, and all Distributions in
liquidation of the Company shall be made in proportion to the
Members' Capital Account balances so as to reduce each Member's
Capital Account balance to zero.
7.1.1.1 The Company will receive revenue from marketing
fees paid by nonmember(s). This revenue will be used to cover
operating expenses, as projected in the Business Plan, Schedule
No. 2.
7.1.2 Statutory Bar on Distributions. Notwithstanding
any provision to the contrary contained in this Agreement, the
Company shall not make a Distribution to any Member on account of
its interest in the Company if such Distribution would violate
Section 18-607 of the Act or other applicable law.
7.1.3 Withholding. All amounts withheld pursuant to the
Code or any provision of any federal, state, local or foreign tax
law with respect to any payment, distribution, or allocation to
the Company or the Members shall be treated as amounts
distributed to the Members pursuant to Section 7.1 for all
purposes under this Agreement. The Company shall withhold from
Distributions to, and with respect to allocations to, the Members
and to pay over to the appropriate federal, state, local or
foreign government any amounts required to be so withheld, and
shall allocate any such amounts to the Members in respect of
whose Distribution or allocation the tax was withheld.
7.1.4 Property Distributions and Installment Sales. The
Members may from time to time determine to distribute property
other than cash to the Members. In such a case, such in-kind
Distribution shall be made to the Members entitled thereto in the
same proportions as the Members would have been entitled to cash
distributions. The amount by which the fair market value of any
property to be distributed in kind to the Members exceeds or is
less than the Book Value of such property shall, to the extent
<PAGE>
not otherwise recognized by the Company, be taken into account in
determining Net Profit and Net Loss and determining the Capital
Accounts of the Members as if such property had been sold at its
fair market value immediately prior to its distribution. If any
assets are sold in transactions in which, by reason of the
provisions of section 453 of the Code or any successor thereto,
gain is realized but not recognized, such gain shall be taken
into account when realized in computing gain or loss of the
Company for purposes of allocation of Net Profit or Net Loss
under this Article 7, and, if such sales shall involve
substantially all the assets of the Company, the Company shall be
deemed to have been dissolved and terminated notwithstanding any
election by the Members to continue the Company for purposes of
collecting the proceeds of such sales.
7.2 Allocations of Net Profits. Subject to Section 7.4,
the Net Profit of the Company shall be allocated among the
Members ratably in accordance with their Percentage Interests.
7.3 Allocation of Net Losses. Subject to Section 7.4, the
Net Loss of the Company shall be allocated among the Members
ratably in accordance with their Percentage Interests.
7.4 Other Allocation Provisions. Prior to making the
allocations of Net Profit or Net Loss for the Fiscal Year in
accordance with Sections 7.2 and 7.3, income, gain, loss,
deduction and credit (and items thereof) shall be allocated in
accordance with the provisions of this Section 7.4 to the extent
required by the Code and applicable Regulations. Any amounts
allocated pursuant to this Section 7.4 shall not again be
allocated under Section 7.2 or 7.3.
7.4.1 Qualified Income Offset; Nonrecourse and Member
Nonrecourse Deductions. There is hereby included in the
Agreement such provisions governing the allocation of income,
gain, loss, deduction and credit (and items thereof) as may be
necessary to provide that the Company's allocation provisions
contain a so-called "Qualified Income Offset" and comply with all
provisions relating to the allocation of so-called "Nonrecourse
Deductions" and "Members Nonrecourse Deductions" and the charge
back thereof as set forth in the Regulations under Section 704(b)
of the Code; provided, however, that the incorporation of such
provisions shall affect only the allocation of income, gain,
losses and deductions as between Members and shall not otherwise
affect the amount or timing of any Distribution of cash or
property to any Member provided for in this Agreement.
Allocations of Nonrecourse Deductions shall be made ratably among
the Members in accordance with their Percentage Interests. In
allocating Net Profits pursuant to Section 7.4.2 hereof, the
Members shall take into account (and, if necessary, modify the
allocations to reflect) anticipated future allocations under the
minimum gain chargeback rules of Regulation Section 1.704-2.
<PAGE>
7.4.2 Special Adjustments. To the extent that an
adjustment to the adjusted tax basis of any Company asset is
required pursuant to Section 734(b) or Section 743(b) of the Code
and is required, pursuant to Regulation Section 1.704-
1(b)(2)(iv)(m), to be taken into account in determining Capital
Accounts, the amount of such adjustment to the Capital Accounts
shall be treated as an item of gain (if the adjustment increases
the basis of the asset) or loss (if the adjustment decreases such
basis), and such gain or loss shall be specially allocated to the
Members in a manner consistent with the manner in which their
Capital Accounts are required to be adjusted pursuant to such
Section of the Regulations.
7.4.3 Recourse Indebtedness. In the event that
indebtedness of the Company is recourse to one or more, but not
all, of the Members, the Members, with the advice of independent
accountants, shall make such modifications to the allocation
provisions of Sections 7.2 and 7.3 as it shall determine to be
appropriate.
7.4.4 Limitation on Net Losses. Notwithstanding any
other provision of this Agreement to the contrary, Net Loss shall
not be allocated to any Member if such allocation would cause
such Member to have an Adjusted Capital Account Deficit or
increase such Member's Adjusted Capital Account Deficit. To the
extent an allocation of Net Loss would cause or increase an
Adjusted Capital Account Deficit as to any Member, the limitation
set forth in this Section 7.4.4 shall be applied on a Member by
Member basis in accordance with the Members' respective
Percentage Interests so as to allocate the maximum permissible
Net Loss to each Member without causing any Member to have an
Adjusted Capital Account Deficit.
7.5 Changes in Members' Interests. If during any Fiscal
Year of the Company there is a change in any Member's Interest in
the Company, the Members shall confer with the tax advisors to
the Company and, in conformity with such advice allocate the Net
Profit or Net Loss to the Members so as to take into account the
varying Interests of the Members in the Company in a manner that
complies with the provisions of Section 706 of the Code and the
Regulations thereunder.
7.6 Tax Allocations.
7.6.1 In General. Subject to Section 7.6.2, each item
of income, gain, loss and deduction, as determined for federal
income tax purposes, shall be allocated among the Members in the
same manner as its correlative item of "book" income, gain, loss
or deduction is allocated pursuant to Sections 7.2 through 7.5.
7.6.2 Section 704(c) Allocations. In the event there is
a difference between the Book Value at which any property is
accepted as a contribution to the capital of the Company (or
deemed accepted pursuant to Regulation Section 1.704-
1(b)(2)(iv)(g)) and the adjusted tax basis of such property to
<PAGE>
the Company, the Company shall, solely for federal income tax
purposes, specially allocate the income, gain, loss and deduction
attributable to such property as and to the extent required by
Section 704(c) of the Code and any applicable Regulations under
Section 704(b) or Section 704(c) of the Code.
7.7 Tax Credits. All items of federal income tax credit
shall be allocated among the Members in accordance with their
Percentage Interests.
7.8 Adjustment of Capital Accounts. Unless the Members
shall determine otherwise, the Book Values of all the Company's
assets shall be adjusted to equal their respective gross fair
market values, as determined by the Members (and the Capital
Accounts of the Members shall be adjusted accordingly by treating
any increase in Book Value as an item of Book Gain and any
decrease in Book Value as an item of Book Loss), as of the
following times: (a) the acquisition of an additional Interest in
the Company by any new or existing Member in exchange for more
than a de minimis additional Capital Contribution; (b) the
distribution by the Company to a Member of more than a de minimis
amount of assets of the Company as consideration for an Interest;
and (c) the liquidation of the Company; provided, however, that
adjustments pursuant to clauses (a) and (b) above shall be made
only if the Members reasonably determine that such adjustments
are necessary or appropriate to reflect the relative economic
interests of the Members in the Company.
7.9 Interpretation. It is the intent of the Members that
the Company be treated as a partnership for federal tax purposes
and that the provisions hereof relating to each Member's
distributive share of income, gain, loss, deduction, and credit
(and items thereof) comply with the provisions of Sections
704(b), 704(c), 706 and other relevant provisions of the Code and
the applicable Regulations. In furtherance of the foregoing, the
Members hereby agree that they will seek to resolve any ambiguity
in the provisions of this Agreement in a manner that will
preserve and protect the tax allocations provided for in this
Article 7 for federal income tax purposes and, subject to the
last sentence hereof, to adopt such curative provisions to offset
the effect of the allocations required by Section 7.4 as they may
deem necessary. Notwithstanding the foregoing, no Member shall
have the right to require or compel any distribution of cash or
property not authorized or provided for by the provisions of this
Agreement or to alter any distribution of cash or property
provided for by the provisions of this Agreement on the ground
that such action is necessary to cause the provisions hereof to
conform to the provisions of the Regulations.
7.10 Loans to Company. Nothing in this Agreement shall
prevent any Member from making secured or unsecured loans to the
Company by agreement with the Company.
<PAGE>
ARTICLE 8
TAX MATTERS MEMBER
8.1 Tax Matters Member. Unless and until another Member is
designated as the Tax Matters Member by the Members, NGT shall be
the tax matters partner of the Company as provided in the
Regulations under Code Section 6231 and analogous provisions of
state law ("Tax Matters Member"). The Tax Matters Member shall
represent the Company, at the Company's expense, in connection
with all examinations of the Company's affairs by tax authorities
including any resulting administrative or judicial proceedings.
8.2 Indemnity of Tax Matters Member. The Company shall
indemnify and reimburse the Tax Matters Member for all reasonable
expenses (including legal and accounting fees) incurred as Tax
Matters Member pursuant to this Article 8 in connection with any
administrative or judicial proceeding with respect to the tax
liability of the Members as long as the Tax Matters Member has
determined in good faith that its course of conduct was in, or
not opposed to, the best interest of the Company. The payment of
all such expenses shall be made before any Distributions are made
to the Members. The taking of any action and the incurring of
any expense by the Tax Matters Member in connection with any such
proceeding, except to the extent provided herein or required by
law, is a matter in the sole discretion of the Tax Matters Member
and the provisions on limitations of liability of the Tax Matters
Member and indemnification set forth in Article 13 shall be fully
applicable to the Tax Matters Member in its capacity as such.
8.3 Information Furnished. To the extent and in the manner
provided by applicable law and the Regulations, the Tax Matters
Member shall furnish the name, address, profits interest, and
taxpayer identification number of each Member to the Internal
Revenue Service.
8.4 Notice of Proceedings, etc. The Tax Matters Member
shall use its best efforts to keep each Member informed of any
administrative and judicial proceedings for the adjustment at the
Company level of any item required to be taken into account by a
Member for income tax purposes or any extension of the period of
limitations for making assessments of any tax against a Member
with respect to any Company item, or of any agreement with the
Internal Revenue Service that would result in any material change
either in income or loss as previously reported.
8.5 Notices to Tax Matters Member. Any Member that
receives a notice of an administrative proceeding under Code
Section 6233 relating to the Company shall promptly notify the
Tax Matters Member of the treatment of any Company item on such
Member's federal income tax return that is or may be inconsistent
with the treatment of that item on the Company's return. Any
Member that enters into a settlement agreement with the Internal
Revenue Service or any other government agency or official with
respect to any Company item shall notify the Tax Matters Member
of such agreement and its terms within sixty days after its date.
<PAGE>
ARTICLE 9
TRANSFER OF INTERESTS
9.1 Transfer of Interests. No Member shall sell, assign,
exchange, convey, gift, pledge, mortgage, encumber, dispose of or
otherwise transfer (herein, whether used as a noun or a verb,
collectively called a 'Transfer') all or any part of its Interest
except in strict accordance with this Article 9. Any attempted
Transfer of all or any part of an Interest, other than in strict
accordance with this Article 9, shall be, and is hereby declared,
null and void ab initio. The Members agree that a breach of the
provisions of this Article 9 may cause irreparable injury to the
Company and to the other Members for which monetary damages (or
other remedy at law) are inadequate in view of (i) the
complexities and uncertainties in measuring the actual damages
that would be sustained by reason of the failure of a Member to
comply with such provision and (ii) the uniqueness of the Company
business and the relationship among the Members. Accordingly,
the Members agree that the provisions of this Article 9 may be
enforced by specific performance.
9.2 Restrictions on Transfer. No Member shall at any time
Transfer to another Person, other than in a Required Regulatory
Transfer, less than all of its Interest. Prior to the second
anniversary of the Effective Date, no Member shall Transfer its
Interest in the Company, unless such Transfer is first approved
by the other Member(s), which approval may be granted or withheld
in the sole and absolute discretion of such other Member;
provided, however, that (i) NGT may at any time prior to such
date, Transfer, without consent of the other Member(s) all of its
Interest to a non-affiliated, new owner of substantially all of
the hydroelectric facilities currently owned by its Affiliate,
New England Power Company; (ii) any Member may, at any time prior
to such date, Transfer, without the consent of the other
Member(s), all of its Interest to an Affiliate and (iii) any
Member may, without the consent of the other Member(s), make a
Required Regulatory Transfer of the Required Portion of its
Interest at any time prior to such date, but only after it has
complied with the terms of Section 9.3; and provided, further,
however that any such Transfer is made in accordance with the
Securities Act of 1933, as amended, to the extent applicable
thereto.
9.3 Right of First Refusal.
9.3.1 Offer.
(i) (A) If any Member received a bona fide offer
(an "Offer") from any Person (other than an Affiliate)
to purchase on or after the second anniversary of the
Effective Date all of its Interest or (B) if a Member
either is notified by a United States federal or
Massachusetts governmental agency that it must make a
Required Regulatory Transfer, or determines and
<PAGE>
demonstrates to the satisfaction of the other Member
that it must make a Required Regulatory Transfer of all
or any portion of its Interest prior to the third
anniversary of the Effective Date, and the Transfer
proposed to be effected by the Member is approved by
the requisite governmental agency; and
(ii) if such Member (for purposes of this Section
9.3, the "Selling Member") desires to Transfer all of
its Interest pursuant to such Offer, or the Required
Portion of such Interest in such Required Regulatory
Transfer,
it shall give written notice (the "Notice of Sale") to the other
Members of (i) that portion of its Interest subject to such
Offer, or proposed to be transferred in the Required Regulatory
Transfer (which in the case of a Required Regulatory Transfer
shall not be more than the Required Portion of its Interest and
otherwise shall not be less than all of its Interest) (the
"Offered Interest"), (ii) in the case of an Offer, the price
offered (the "Offered Price"), (iii) the specific terms of the
proposed transfer and (iv) the name of the proposed transferee,
or in the case of a Proposed Regulatory Transfer in which there
is to be more than one transferee, the proposed transferees).
The receipt of the Notice of Sale by the other Member shall
constitute an offer by the Selling Member to sell (i) in the case
of an Offer, the Offered Interest and (iii) in the case of a
Required Regulatory Transfer, either the Offered Interest or the
entire Interest of the Selling Member (the "Entire Interest"), at
the election of the other Member, to the other Member at the
Right of First Refusal Price, which offer shall remain
outstanding for a period of 30 days after receipt of the Notice
of Sale by the other Member. In the case of an Offer, the term
"Right of First Refusal Price" shall mean the Offered Price,
provided, that, if all of a portion of the Offered Price is to be
paid other than in cash, the term "Right of First Refusal Price"
shall mean the sums of (i) the dollar amount of that portion of
the Offered Price payable in cash and (ii) the Fair Value of that
portion of the Offered Price payable in non-cash consideration,
and provided, further, that if the Offer giving rise to the
application of this Section 9.3.1 is an Offer not only for the
Offered Interest, but also for additional property of the Selling
Member (or one or more Affiliates of the Selling Member, in which
case the additional property may include stock of an Affiliate of
such Affiliate), the term "Right of First Refusal Price" shall
mean the Fair Value of the Offered Interest. In the case of a
Required Regulatory Transfer, the term "Right of First Refusal
Price" shall mean the Fair Value of the Required Portion of the
Interest or the entire Interest, as appropriate.
9.3.2 Acceptance. During the 30-day period following
receipt of the Notice of Sale by the non-Selling Member, such
other Member may accept such offer by giving written notice (a
"Notice of Purchase") of its intention to purchase all of the
<PAGE>
Offered Interest or the Entire Interest, at such Member's
election, at the Right of First Refusal Price and otherwise on
the terms specified in the Notice of Sale.
9.3.3 Closing. If the non-Selling Member gives a Notice
of Purchase for the Offered Interest or the Entire Interest, as
the case may be, pursuant to this Section 9.3, the purchase of
the Offered Interest or the Entire Interest, as the case may be,
pursuant to this Section 9.3 shall be made within 30 days after
the date of such Notice of Purchase at the Right of First Refusal
Price otherwise on terms identical in all material respects to
the terms specified in the Notice of Sale.
9.3.4 Transfer to Original Offeror. If the other Member
does not give a Notice of Purchase for at least all of the
Offered Interest, or if payment therefor is not made within 30
days after receipt of the Notice of Purchase by the Selling
Member, the Selling Member shall have 75 days from the giving of
the Notice of Sale (or such longer period of time as may be
required for any regulatory approvals) in which to Transfer the
Offered Interest to the purchaser specified in the Notice of Sale
at a price not lower than the Offered Price, and on terms and
conditions not more favorable to said purchaser than the terms
specified in the Notice of Sale.
9.4 Requirements Applicable to All Transfers.
9.4.1 No Transfer of all or any part of a Member's
Interest may be made pursuant to Section 9.2 or 9.3 unless such
Transfer would not cause a termination of the Company for federal
income tax purposes under Section 708 of the Code; and until each
of the Members shall have received such of the following (to the
extent applicable to the proposed Transfer) as it may have
requested:
(i) a copy of the instrument pursuant to which the
Transfer is to be effected, which shall specify the
name and business address of the transferor and the
transferee, the portion of the transferor's Interest
that is being transferred and the Percentage Interest
represented thereby, and which shall contain (A)
representations and warranties by the transferor and
the transferee that the Transfer and admission of the
transferee as a Member are being made in accordance
with applicable laws and (B) representations and
warranties by the transferee to the same effect as
those contained in Article 14 hereof;
(ii) the agreement in writing of the transferee to
comply with all of the terms and provisions of this
Agreement;
(iii) an opinion of responsible counsel (who may be
counsel for the Company), satisfactory in form and
substance to the Members to the effect that:
<PAGE>
(A) such Transfer would not violate the
Securities Act of 1933, as amended, or any
state securities or blue sky laws applicable
to the Company or the Interest to be
transferred;
(B) such Transfer would not cause the Company to
be considered a publicly traded partnership
under section 7704(b) of the Code;
(C) such Transfer would not cause the Company to
lose its status as a partnership for federal
income tax purposes;
(D) such Transfer would not cause a termination
of the Company for federal income tax
purposes; and
9.4.2 The transferring Member and its transferee
shall pay, or reimburse the Company for, all reasonable costs and
expenses incurred by the Company in connection with the Transfer
and admission of the transferee as a Member, including any legal
fees incurred in connection with the legal opinions referred to
in Section 9.4.1, on or before the tenth business day after the
receipt by such Persons of the Company's invoice for the amount
due. If payment is not made by the date due, the Person owing
that amount shall pay interest on the unpaid amount from the date
due until paid at a rate per annum equal to the prime rate, as
announced from time to time in the Wall Street Journal, plus two
percentage points.
9.4.3 Each Member hereby severally agrees that it
will not transfer all or any part of its Interest in the Company
except as permitted by this Agreement.
9.4.4 The transferee of an Interest shall be admitted
as a Member of the Company provided that the Transfer is effected
in strict compliance with this Article 9. Each transferee shall
succeed to the same portion of the balance of the Capital Account
of the transferor, as of the effective date of the Transfer, as
the transferred Interest bears to the entire Interest of the
transferor immediately prior to such Transfer.
9.4.5 If a Member transfers its entire Interest, the
Company shall not dissolve if the business of the Company is
continued without dissolution in accordance with clause (c) of
Section 12.2 hereof.
9.4.6 No Transfer of an Interest shall effect a
release of the transferring Member from any liabilities to the
Company or the other Members arising from events occurring prior
to the Transfer.
<PAGE>
9.5 Buy-Sell Right.
9.5.1 Each Member (the "Buy-Sell Offeror") shall have
the right at any time (including at any time following the
receipt of a Notice of Sale from the other Member but prior to
the delivery of a Notice of Purchase , but not including after a
dissolution of the Company pursuant to any event specified in
Section 12.2 hereof, except that after a dissolution of the
Company pursuant to an event specified in Section 12.2 (d) (other
than a withdrawal) the remaining Member shall have such right) to
withdraw from the Company (notwithstanding the pendency of any
arbitration proceeding or request for arbitration, or of the
enforcement of any claim against a Member for breach of or for
default under the terms of this Agreement) by giving to the other
Member (the Buy-Sell Offeree") a notice of intention to withdraw,
which notice shall contain an offer (the "Buy-Sell Offer")
stating the cash price (the "Buy-Sell Offer Price") at which the
Buy-Sell Offeror is willing to purchase or sell an undivided 100%
interest in the Company, including all of the business,
properties, assets, name and goodwill owned by the Company (the
"Company Property").
9.5.2 Upon its receipt of the notice and Buy-Sell
Offer given and delivered pursuant to Section 9.5.1, the Buy-Sell
Offeree shall be obligated, in accordance with the procedures set
forth in this Section 9.5, either to:
(i) purchase the Buy-Sell Offeror's Interest for cash
at a purchase price equal to the Buy-Sell Offer
price specified in the Buy-Sell Offer, multiplied
by the Buy-Sell Offeror's Percentage Interest at
the time such offer to buy is accepted; or
(ii) sell to the Buy-Sell Offeror the Buy-Sell
Offeree's Interest for cash at a purchase price
equal to such Buy-Sell Offer Price multiplied by
the Buy-Sell Offeree's Percentage Interest at the
time such offer to sell is accepted.
9.5.3 The Buy-Sell Offeree shall give written notice
of its election to the Buy-Sell Offeror within 60 days after the
Buy-Sell Offeree's receipt of the Buy-Sell Offer. Failure of the
Buy-Sell Offeree to give the Buy-Sell Offeror notice within such
60-day period that the Buy-Sell Offeree has elected under Section
9.5.2(i) shall be conclusively deemed to be an election under
Section 9.5.2(ii) above.
9.5.4 If the Buy-Sell Offeree elects to proceed under
Section 9.5.2(i) above, the Buy-Sell Offeree shall purchase the
Buy-Sell Offeror's Interest as provided in this Section 9.5. If
the Buy-Sell Offeree elects to proceed under Section 9.5.2(ii)
above, the Buy-Sell Offeror shall purchase the Buy-Sell Offeree's
Interest as provided in this Section 9.5.
<PAGE>
9.5.5 If, following an election by the Buy-Sell
Offeree to purchase or sell under this Section 9.5, the party
which is then obligated to purchase is not ready, willing or able
to consummate the purchase in accordance with Sections 9.5.6 and
9.5.7 below, such party shall be deemed to be in breach of and
default under the terms of this Agreement (hereinafter, the "Buy-
Sell Defaulting Member"). The non-defaulting Member, in addition
to all other rights and remedies available to it against the Buy-
Sell Defaulting Member, shall have the right (but not the
obligation) to purchase the Interest of the Buy-Sell Defaulting
Member as if the Buy-Sell Defaulting Member had made an election
under Section 9.5.2(ii) hereof. If the non-defaulting Member
exercises such right to purchase the Interest of the Buy-Sell
Defaulting Member, it shall give notice of such exercise not
later than 30 days after the date on which the Closing would
otherwise have occurred under Section 9.5.6(i) hereof, and the
Closing of such purchase by the non-defaulting Member shall take
place not later than 30 days after such notice of exercise.
9.5.6 (i) The closing ("Buy-Sell Closing") of any
sale pursuant to this Section 9.5 shall be held at a mutually
acceptable place, on a mutually acceptable date not more than 30
days after receipt by the Buy-Sell Offeror of the written notice
of election, or the expiration of the time of the Buy-Sell
Offeree to so elect, as provided in Section 9.5.3.
(ii) At the Buy-Sell Closing, the selling party shall
execute and deliver to the purchasing party all bills
of sale and other instruments of transfer and
conveyance, in form and substance satisfactory to the
purchasing party, as may be necessary to convey,
transfer, assign and deliver to the purchasing party
ownership of all of the selling party's Interest. It
is the intention of the parties that such transfer of
the selling party's Interest shall result in vesting
ownership of all of the Company Property in the
purchasing party, free and clear of all liens and
encumbrances other than those of the Company incurred
in accordance with this Agreement. The selling party
agrees, from time to time at the request of the
purchasing party, at or after the date of Buy-Sell
Closing to execute and deliver such instruments of
conveyance, assignment, transfer and consent as may be
required or advisable for the effective conveyance,
assignment, transfer and consent as may be required or
advisable for the effective conveyance and transfer of
the business, properties, assets, name, goodwill, and
rights included in the selling party's Interest in the
Company or otherwise to vest ownership of all of the
Company Property in the purchasing party.
<PAGE>
(iii) At the Buy-Sell Closing, the purchasing party
shall pay to the selling party the purchase price
determined as of the date of the Buy-Sell Closing
pursuant to this Section 9.5 in cash or by a
cashier's or certified check from a bank
acceptable to the selling party.
9.5.7 At the Buy-Sell Closing, the purchasing party
shall by a legally enforceable agreement, effective upon the
effectiveness of the sale of the selling party's Interest
pursuant to this Section 9.5:
(i) assume and become obligated to pay or discharge any
indebtedness, lien, mortgage or encumbrance on the
Company Property incurred in accordance with this
Agreement to the extent that the selling party has
personal liability with respect thereto;
(ii) assume and become obligated to pay, or perform or
discharge the obligations and liabilities that the
selling party may have incurred in accordance with this
Agreement to third parties as a Member in the Company
(other than liabilities for which the purchasing party
may have a claim against the selling party due to the
selling party's breach of, or default under, the terms
of this Agreement);
(iii) assume or become obligated to pay or perform or
discharge the obligations and liabilities that the
selling party or any Affiliate of the selling party may
have incurred to third parties as a guarantor of
obligations of the Company or to support financing
arrangements of the Company in some other manner
contemplated by this Agreement or agreed to by all
Members, such as an agreement to maintain the working
capital of the Company;
(iv) release and discharge the selling party of all
obligations and liabilities (except those on account of
or arising our of any material breach of or default
under the terms of this Agreement) to the purchasing
party or the Company incurred hereunder or otherwise in
connection with the operation of the business of the
Company in accordance with this Agreement; and
(v) save, defend and indemnify the selling party and its
Affiliates against and hold them harmless from any and
all liabilities specified in subsections (i) through
(iv) of this Section 9.5.7.
9.6 Enforcement of Buy-Sell. If either Member shall
default in the performance of its obligations under Section 9.5
of this Agreement, the other Member shall have the right to bring
any proceedings or action at law, in equity (including for
<PAGE>
specific performance), or otherwise to enforce the performance of
such obligations or any claim arising out of such default,
notwithstanding any of the provisions of Section 16.5 hereof. It
is understood and agreed by the parties hereto that the remedies
available hereunder to enforce the performance of a Member's
duties and obligations under Section 9.5 hereof shall include
(but not be limited to) the right of specific performance, and
the party seeking specific performance shall not be required to
post any bond.
9.7 Termination of Marketing Relationship. Upon the sale
of a Member's Interest pursuant to Section 9.5, the Company will
terminate its marketing relationship with such selling Member.
ARTICLE 10
BOOKS, RECORDS, ACCOUNTING, AND REPORTS
10. 1 Books and Records. The Company shall maintain at
its principal office all of the following:
10.1.1 A current list of the full name and last known
business address of each Member together with true and full
information regarding the amount of cash and a description and
statement of the agreed value of any other property or services
contributed by each Member and which each Member has agreed to
contribute in the future, and the date on which each Member
became a member of the Company;
10.1.2 A copy of the Certificate, this Agreement,
including any and all amendments to either thereof, together with
executed copies of any powers of attorney pursuant to which the
Certificate, this Agreement or any amendment has been executed;
10.1.3 Copies of the Company's federal, state, and
local income tax or information returns and reports, if any, for
the six most recent taxable years;
10.1.4 The audited financial statements of the Company
for the six most recent Fiscal Years; and
10.1.5 The Company's books and records for at least the
current and past five Fiscal Years.
10.2 Delivery to Members; Inspection. Upon the request of
any Member for any purpose reasonably related to such Member's
Interest as a Member of the Company:
10.2.1 The Company shall promptly deliver to the
requesting Member, at the expense of the Company, a copy of the
information required to be maintained by Sections 10.1.1 -
through 10.1.4.
<PAGE>
10.2.2 The Members may review, at the Company's office
during normal business hours, the Company's federal, state and
local income tax or information returns prior to the filing
thereof and the Company's books and records referred to in
Section 10.1.5.
10.2.3 The Company will provide any Member at such
Member's expense such other information regarding the business
affairs of the Company as the Member shall reasonably request.
10.3 Financial Statements. The Members shall maintain or
cause to be maintained books of account reflecting the operations
of the Company and shall cause to be prepared for the Members (i)
monthly and quarterly financial statements which financial
statements shall show variances from the Annual Budget, and (ii)
audited annual financial statements of the Company prepared in
accordance with generally accepted accounting principles. Until
the Members determine otherwise, an Affiliate of NGT will provide
services to the Company as required by this Article 10.
10.4 Filings. At the Company's expense the Members shall
cause the income tax returns for the Company to be prepared and
timely filed with the appropriate authorities and to have
prepared and to furnish to each Member such information with
respect to the Company as is necessary to enable the Members to
prepare and timely file their federal and state income tax
returns. The Members, at the Company's expense, shall also cause
to be prepared and timely filed, with appropriate federal and
state regulatory and administrative bodies, all reports required
to be filed by the Company with those entities under then current
applicable laws, rules, and regulations. The reports shall be
prepared on the accounting or reporting basis required by the
regulatory bodies.
ARTICLE 11
AMENDMENTS TO AGREEMENT
11.1 Amendments. This Agreement may be amended or modified
with the prior written consent of the Members.
11.2 Filings. The Members shall cause to be prepared and
filed any amendment to the Certificate that may be required to be
filed under the Act as a consequence of any amendment to this
Agreement.
11.3 Binding Effect. Any modification or amendment to this
Agreement pursuant to Section 11.1 shall be binding on all
Members.
ARTICLE 12
DISSOLUTION OF COMPANY
12.1 Termination of Membership. No Member shall resign or
withdraw from the Company during the first 24 months following
its initial capital contribution except as provided below and
<PAGE>
except that, subject to the restrictions set forth in Article 9,
any Member may Transfer its Interest in the Company and the
transferee may become a Member in place of the Member which
transferred its Interest. If any Member ceases to be a Member
for any reason, the business of the Company may be continued by
the remaining Members (so long as there are two such remaining
Members) as provided in clause (c) of Section 12.2.
(a) After that 24 month time period, a Member may terminate
its membership in the Company upon giving at least ninety (90)
days prior written notice to the other Member(s) if the Company
has not met the performance standards set forth in Schedule No. 4
and a mutually agreed upon remedial action plan has not corrected
the performance problem within a reasonable time;
(b) Without regard to that 24 month time period, a Member
may terminate its membership in the Company upon written notice
to the other Member(s) for the following reasons:
(i) if the other Member(s) shall fail to perform
or observe, within 30 days after written
notice of such failure, any material respect
any of the covenants, conditions or
agreements to be performed or observed under
this Agreement; or
(ii) any representation or warranty made by
another Member in any other agreement or in
any other document or certificate furnished
to the other party in connection herewith or
therewith or pursuant hereto or thereto shall
prove to have been incorrect in any material
respect when made; or
(iii) another Member sells or merges substantially
all of its assets with a third party
(excluding a transfer under Article 9) and/or
voluntarily suspends substantially all of its
operations or the franchises, concessions,
permits, rights or privileges required for
the conduct of the business and operations of
it are revoked, canceled or otherwise
terminated; or
(iv) if the purchaser of the hydro facilities of
NGT's affiliate, New England Power Company,
elects not take NGT's interest in the
Company, then within one year after such
election; or
<PAGE>
(v) another Member shall (i) commence any case,
proceeding or other action (A) under any
existing or future applicable law of any
jurisdiction, domestic or foreign, relating
to bankruptcy, insolvency, reorganization or
relief of debtors, seeking to have an order
for relief entered with respect to it, or
seeking to adjudicate it a bankrupt or
insolvent, or seeking reorganization,
arrangement, adjustment, winding-up,
liquidation, dissolution, composition or
other relief with respect to it or its debts,
or (B) seeking appointment of a receiver,
trustee, custodian or other similar official
for it or for all or any substantial part of
its assets, or shall make a general
assignment for the benefit of its creditors;
or (ii) there shall be commenced against it
any case, proceeding or other action of a
nature referred to in clause (i) above which
(A) results in the entry of an order for
relief or any such adjudication or
appointment or (B) remains undismissed,
undischarged or unbounded for a period of
sixty (60) days; or (iii) there shall be
commenced against it any case, proceeding or
other action seeking issuance of a warrant of
attachment, execution, distraint or similar
process against all or any substantial part
of its assets which results in the entry of
an order for any such relief which shall not
have been vacated, discharged, or stayed or
bonded pending appeal within 60 days from the
entry thereof; or (iv) it shall take any
action in furtherance of, or indicating its
consent to, approval of, or acquiescence in,
any of the acts set forth in clause (i),
(ii), or (iii) above; or (v) it shall
generally not, or shall be unable to, or
shall admit in writing its inability to, pay
its debts as they become due.
(c) Without regard to that 24-month time period, in the
event a member terminates its membership, the terminating
Member's capital account shall be returned as though there had
been a liquidation as provided in Section 12.4. The terminating
Member shall pay a residual fee of 2.5% of gross project revenue
from a HydroServ customer for a period of two years, such fee to
be paid to the Company or if the Company has been liquidated, to
the other Members.
12.2 Events of Dissolution or Liquidation. The Company shall
be dissolved upon the happening of any of the following events:
(a) December 31, 2006 unless such date is extended pursuant to
<PAGE>
Section 2.4, (b) the unanimous written determination of the
Members, (c) the resignation, withdrawal, expulsion, bankruptcy
or dissolution of any Member, unless there are at least two
remaining Members and the business of the Company is continued by
the consent of a Majority in Interest of the Members remaining
within 90 days following the occurrence of any such event, or (d)
the entry of a decree of judicial dissolution under Section 18-
802 of the Act.
12.3 Liquidation. If the Company is dissolved and not
continued, the Company shall immediately commence to wind up its
affairs. A reasonable period of time shall be allowed for the
orderly termination of the Company's business, discharge of its
liabilities, and distribution or liquidation of the remaining
assets so as to enable the Company to minimize the normal losses
attendant to the liquidation process. The Company's property and
assets or the proceeds from the liquidation thereof shall,
subject to the requirements of the Act, be distributed in
accordance with Section 12.4. A full accounting of the assets and
liabilities of the Company shall be taken and a statement thereof
shall be furnished to each Member within 30 days after the
distribution of all of the assets of the Company. Such
accounting and statements shall be prepared under the direction
of the Members. Upon such final accounting, the Company shall
terminate and an authorized person, appointed pursuant to Section
2.7, shall cancel the Certificate in accordance with the Act.
12.4 Distributions to Members. Distributions to Members
upon liquidation shall be madein accordance with the Members'
Capital Account balances. Notwithstanding Section 12.3 or the
first sentence of this Section 12.4, the Company shall not make
any Distribution pursuant to this Section 12.4 unless the Members
shall have determined that the Company has sufficient assets to
pay all accrued and contingent liabilities of which the Members
are aware after making reasonable inquiry.
12.5 No Action for Dissolution. The Members acknowledge
that irreparable damage would be done to the goodwill and
reputation of the Company if any Member should bring an action in
court to dissolve the Company under circumstances where
dissolution is not required by Section 12.2. This Agreement has
been drawn carefully to provide fair treatment of all parties and
equitable payment in liquidation of the Interests of all Members.
Accordingly, except where the Members have failed to liquidate
the Company as required by Section 12.2 and except as
specifically provided in Section 18-802(a) of the Act, each
Member hereby waives and renounces its right to initiate legal
action to seek dissolution or to seek the appointment of a
receiver or trustee to liquidate the Company.
12.6 No Further Claim. Upon dissolution, each Member shall
look solely to the assets of the Company for the return of its
Capital Contributions, and if the Company's property remaining
after payment or discharge of the debts and liabilities of the
<PAGE>
Company, including debts and liabilities owed to one or more of
the Members, is insufficient to return the aggregate Capital
Contributions of each Member, a Member shall have no recourse
against the Company or any other Member except to the extent that
the other Member has received Distributions in excess of those to
which such Member was entitled to under the terms of this
Agreement.
ARTICLE 13
INDEMNIFICATION
13.1 General. To the maximum extent permitted by law, the
Company shall indemnify, defend, and hold harmless each Member,
including the Tax Matters Member, and each Member's officers,
trustees, directors, partners, members, shareholders, employees,
and agents [(and each such Person's officers, trustees,
directors, partners, members, shareholders, employees and
agents)], and the employees, officers, and agents of the Company
(all indemnified persons being referred to as "Indemnified
Persons"), from any liability, loss, or damage incurred by the
Indemnified Person by reason of any act performed or omitted to
be performed by the Indemnified Person in connection with the
business of the Company and from liabilities or obligations of
the Company imposed on such Person by virtue of such Person's
position with the Company, including attorneys' fees and costs
and any amounts expended in the settlement of any such claims of
liability, loss, or damage; provided, however, that, if the
liability, loss, damage, or claim arises out of any action or
inaction of an Indemnified Person, indemnification under this
Section 13.1 shall be available only if (a) either (i) the
Indemnified Person, at the time of such action or inaction,
determined, in good faith, that its or his course of conduct was
in, or not opposed to, the best interests of the Company, or (ii)
in the case of inaction by the Indemnified Person, the
Indemnified Person did not intend its or his inaction to be
harmful or opposed to the best interests of the Company, and (b)
the action or inaction did not constitute fraud by the
Indemnified Person, and provided, further, that indemnification
under this Section 13.1 shall be recoverable only from the assets
of the Company and not from any assets of the Members. The
Company may pay or reimburse attorneys' fees of an Indemnified
Person as incurred, if such Indemnified Person executes an
undertaking to repay the amount so paid or reimbursed if there is
a final determination by a court of competent jurisdiction that
such Indemnified Person is not entitled to indemnification under
this Article 13. The Company may pay for insurance covering
liability of the Indemnified Persons for negligence in operation
of the Company's affairs.
13.2 Persons Entitled to Indemnity. Any Person who is
within the definition of "Indemnified Person" at the time of any
action or inaction in connection with the business of the Company
shall be entitled to the benefits of this Article 13 as an
<PAGE>
"Indemnified Person" with respect thereto, regardless whether
such Person continues to be within the definition of "Indemnified
Person" at the time of such Person's claim for indemnification or
exculpation hereunder.
13.3 Procedure Agreements. The Company may enter into an
agreement with any of its officers, employees and agents setting
forth procedures consistent with applicable law for implementing
the indemnities provided in this Article 13.
13.4 Extent of Duties. No Indemnified Person shall be
liable, in damages or otherwise, to the Company or to any Member
for any loss that arises out of any act performed or omitted to
be performed by it or him pursuant to the authority granted by
this Agreement if (a) either (i) the Indemnified Person, at the
time of such action or inaction, determined, in good faith, that
such Person's course of conduct was in, or not opposed to, the
best interests of the Company, or (ii) in the case of inaction by
the Indemnified Person, the Indemnified Person did not intend
such Person's inaction to be harmful or opposed to the best
interests of the Company, and (b) the conduct of the Indemnified
Person did not constitute fraud [or a Violation of the Business
Judgment Rule] by such Indemnified Person.
13.5 Fiduciary and Other Duties.
13.5.1 To the extent that, at law or in equity, an
Indemnified Person has duties (including fiduciary duties) and
liabilities relating thereto to the Company or to any other
Indemnified Person, an Indemnified Person acting under this
Agreement shall not be liable to the Company or to any other
Indemnified Person for its good faith reliance on the provisions
of this Agreement. The provisions of this Agreement, to the
extent that they restrict the duties (including fiduciary duties)
of an Indemnified Person otherwise existing at law or in equity,
are agreed by the parties hereto to replace such other duties of
such Indemnified Person. The provisions of this Section 13.5.1
shall not be construed to relieve any Indemnified Person from
liability for such Person's fraud or a Violation of the Business
Judgment Rule.
13.5.2 Whenever in this Agreement an Indemnified
Person is permitted or required to make a decision (a) in its
"discretion" (without qualification as to how the discretion is
to be exercised) or under a grant of similar authority or
latitude, the Indemnified Person shall act reasonably and in good
faith based on facts known to the Person at the time, (b) in its
"sole discretion" or under a grant of similar authority or
latitude, the Indemnified Person shall be entitled to consider
only such interests and factors as it desires, including its own
interests, and shall have no duty or obligation to give any
consideration to any interest of or factors affecting the Company
or any other Person, and (c) under an express standard, the
Indemnified Person shall act under such express standard and
<PAGE>
shall not be subject to any other general standard imposed by
this Agreement or applicable law.
ARTICLE 14
REPRESENTATIONS AND COVENANTS BY THE MEMBERS
Each Member hereby represents, warrants and covenants to the
Company and each other Member that the following statements are
true and correct as of the Effective Date and shall be true and
correct at all times thereafter that such Member is a Member:
14.1 Organization, Corporate Authority. It is duly
incorporated, organized or formed (as applicable), validly
existing, and (if applicable) in good standing under the laws of
the jurisdiction of its incorporation, organization or formation;
if required by applicable law, it is duly qualified and in good
standing in the jurisdiction of its principal place of business,
if different from its jurisdiction of incorporation, organization
or formation; and it has full power and authority to execute and
deliver this Agreement and to perform its obligations hereunder
and has obtained any regulatory approvals that may be required,
and if such approvals are subject to any conditions, has
disclosed such conditions to the other Members; and all necessary
actions by the board of directors, shareholders, managers,
members, partners, trustees, beneficiaries, or other applicable
Persons necessary for the due authorization, execution, delivery,
performance of this Agreement by it have been duly taken.
14.2 Legal, Valid and Binding Obligation. It has duly
executed and delivered this Agreement and the other documents
contemplated herein, and they constitute the legal, valid and
binding obligation of such Member enforceable against it in
accordance with their terms (except as may be limited by
bankruptcy, insolvency or similar laws of general application and
by the effect of general principles of equity, regardless of
whether considered at law or in equity), its authorization,
execution, delivery, and performance of this Agreement does not
and will not (i) conflict with, or result in a breach, default or
violation of (A) the organizational documents of such Member, (B)
any contract or agreement to which such Member is a party or is
otherwise subject, or (C) any law, order, judgment, decree, writ,
injunction or arbitral award to which that Member is subject; or
(ii) require any consent, approval or authorization from, filing
or registration with, or notice to, any governmental authority or
other Person, unless such requirement has already been satisfied.
14.3 Investment Intent. It is acquiring its Interest with
the intent of holding the same for investment for its own account
and without the intent or a view of participating directly or
indirectly in any distribution of such Interests within the
meaning of the Securities Act or any applicable state securities
laws.
<PAGE>
14.4 Securities Regulation. It acknowledges and agrees that
its Interest is being issued and sold in reliance on the
exemption from registration contained in Section 4(2) of the
Securities Act and exemptions contained in applicable state
securities laws, and that its Interest cannot and will not be
sold or transferred except in a transaction that is exempt under
the Securities Act and those state acts or pursuant to an
effective registration statement under the Securities Act and
those state acts or in a transaction that is otherwise in
compliance with the Securities Act and those state acts. It
understands that it has no contractual right for the registration
under the Securities Act of its Interest for public sale and
that, unless its Interest is registered or an exemption from
registration is available, its Interests may be required to be
held indefinitely.
14.5 Information. It has received all documents, books, and
records pertaining to an investment in the Company requested by
it. It has had a reasonable opportunity to ask questions of and
receive answers from the other Members concerning the Company,
and all such questions have been answered to its satisfaction.
14.6 Tax Position. Unless it provides prior written notice
to the Company, it will not take a position on its federal income
tax return, in any claim for refund, or in any administrative or
legal proceedings that is inconsistent with any information
return filed by the Company or with the provisions of this
Agreement.
ARTICLE 15
COMPANY REPRESENTATIONS
In order to induce the Members to enter into this Agreement
and to make the Capital Contributions contemplated hereby, the
Company hereby represents and warrants to each Member as follows:
15.1 Legal Existence. The Company is a duly formed and
validly existing limited liability company under the Act and the
Certificate has been duly filed as required by the Act. The
Company has all necessary power and authority under the Act to
issue the Interests to be issued to the Members hereunder.
15.2 Valid Issuance. When the Interest is issued to the
Member as contemplated by this Agreement and the Capital
Contributions required to be made by such Member are made, the
Interest issued to the Member will be duly and validly issued and
except as specifically provided in the Agreement, no liability
for any additional capital contributions or for any obligations
of the Company will attach thereto.
15.3 Options, etc. Except as set forth in this Agreement,
the Company does not have outstanding any rights or options to
subscribe for or purchase any warrants or other agreements
providing for or requiring the issuance of Interests in the
<PAGE>
Company to any Person or any obligation to purchase or otherwise
acquire any Interests in the Company.
ARTICLE 16
MISCELLANEOUS
16.1 Additional Documents. At any time and from time to
time after the date of this Agreement, upon the request of the
Members, each Member shall do and perform, or cause to be done
and performed, all such additional acts and deeds, and shall
execute, acknowledge, and deliver, or cause to be executed,
acknowledged, and delivered, all such additional instruments and
documents, as may be required to effectuate the purposes and
intent of this Agreement.
16.2 Execution of Papers. The Members agree to execute such
instruments, documents and papers as the Members deem necessary
or appropriate to carry out the intent of this Agreement.
16.3 General. This Agreement: (a) shall be binding upon the
executors, administrators, estates, heirs, and legal successors
of the Members; (b) shall be governed by and construed in
accordance with the laws of The Commonwealth of Massachusetts;
(c) may be executed in more than one counterpart as of the day
and year first above written; and (d) contains the entire
contract among the Members as to the subject matter hereof. The
waiver of any of the provisions, terms, or conditions contained
in this Agreement shall not be considered as a waiver of any of
the other provisions, terms, or conditions hereof.
16.4 Notices, Etc. All notices and other communications
required or permitted hereunder shall be in writing and shall be
deemed effectively given upon personal delivery or receipt (which
may be evidenced by a return receipt if sent by registered mail
or by signature if delivered by courier or delivery service),
addressed as set forth below, or at such other address as such
Person shall have furnished to the Company in writing as the
address to which notices are to be sent hereunder and if to any
Member at the address of such Member in the records of the
Company.
16.5 Disputed Matters. Any controversy or dispute arising
out of this Agreement, the interpretation of any of the
provisions hereof, or the action or inaction of any Member
hereunder shall first be discussed in good faith among the
Members. If such good faith discussions do not lead to a
resolution of the controversy or dispute then the Members shall
meet with a mutually acceptable mediator to further attempt to
resolve such controversy or dispute. If the Members are still
unable to resolve such controversy or dispute after consulting
with a mediator, the matter shall be submitted to arbitration in
Boston, Massachusetts before the American Arbitration Association
under the commercial arbitration rules then obtaining of said
Association. Any award or decision obtained from any such
<PAGE>
arbitration proceeding shall be final and binding on the parties,
and judgment upon any award thus obtained may be entered in any
court having jurisdiction thereof. To the fullest extent
permitted by law, no action at law or in equity based upon any
claim arising out of or related to this Agreement shall be
instituted in any court by any Member except (a) an action to
compel arbitration pursuant to this Section 16.5 or (b) an action
to enforce an award obtained in an arbitration proceeding in
accordance with this Section 16.5. The responsibility for paying
the costs and expenses of the arbitration, including compensation
to the arbitrator and any experts retained by the arbitrator,
shall be allocated among the Members who are parties to the
arbitration in a manner determined by the arbitrator to be fair
and reasonable under the circumstances. Each such Member shall
be responsible for the fees and expenses of its respective
counsel, consultants and witnesses, unless the arbitrator
determines that compelling reasons exist for allocating all or a
portion of such costs and expenses to one or more of the other
Members who are parties to the arbitration.
16.6 Gender and Number. Whenever required by the context,
as used in this Agreement, the singular number shall include the
plural, the plural shall include the singular, and all words
herein in any gender shall be deemed to include the masculine,
feminine and neuter genders.
16.7 Severability. If any provision of this Agreement is
determined by a court to be invalid or unenforceable, that
determination shall not affect the other provisions hereof, each
of which shall be construed and enforced as if the invalid or
unenforceable portion were not contained herein. That invalidity
or unenforceability shall not affect any valid and enforceable
application thereof, and each said provision shall be deemed to
be effective, operative, made, entered into or taken in the
manner and to the full extent permitted by law.
16.8 Headings. The headings used in this Agreement are used
for administrative convenience only and do not constitute
substantive matter to be considered in construing the terms of
this Agreement.
16.9 No Third Party Rights. The provisions of this
Agreement are for the benefit of the Company and the Members and
no other Person, including creditors of the Company shall have
any right or claim against the Company or any Member by reason of
this Agreement or any provision hereof or be entitled, to enforce
any provision of this Agreement.
16.10 Rights to Trademark HydroServ Group. In
consideration hereof, UUDSI shall transfer all of its rights in
and to the trademark "HydroServ Group," registered by UUDSI in
order to market and sell Hydro Services on behalf of both parties
prior to the completion of this Agreement, to the Company.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the day and year first set forth above.
UNDERWATER UNLIMITED DIVING
SERVICES, INC.
s/ David Rowe
By:
Name: David Rowe
Title: President
NEES GLOBAL TRANSMISSION, INC.
s/ John G. Cochrane
By:
Name: John G. Cochrane
Title: Treasurer
<PAGE>
EXHIBIT I
DEFINED TERMS
"Act" shall mean the Massachusetts Limited Liability Company
Act (MGL c. 156C), as amended and in effect from time to time.
"Adjusted Capital Account Deficit" means, with respect to
any Member, the deficit balance, if any, in such Member's Capital
Account as of the end of the relevant Fiscal Year, after giving
effect to the following adjustments:
(a) credit to such Capital Account any amounts which
such Member is obligated to restore pursuant to any provision of
this Agreement or is deemed to be obligated to restore pursuant
to the next to the last sentences of the Regulations Sections
1.704-2(g)(1) and 1.704-2(i)(5) after taking into account any
changes during such year in Company minimum gain and Member
minimum gain (as determined under such Regulations); and
(b) debit to such Capital Account the items described
in Section 1.704-1 (b)(2)(ii)(d)(4), (5) and (6) of the
Regulations.
"Affiliate" shall mean, with respect to any specified
Person, any Person that directly or through one or more
intermediaries controls or is controlled by or is under common
control with the specified Person. As used in this definition,
the term "control" means the possession, directly or indirectly,
of the power or authority to direct or cause the direction of the
management and policies of a Person, whether through ownership of
voting securities, by contract or otherwise.
"Alternative Representative" is defined in Section 5.2.1.
"Annual Budget" is defined in Section 6.2.
"Agreement" shall mean the Limited Liability Company
Agreement of the Company dated as of July , 1997, as amended
from time to time.
"Book Gain" or "Book Loss" shall mean the gain or loss
recognized by the Company for Code Section 704(b) book purposes
in any Fiscal Year or other period by reason of the sale,
exchange or other disposition of any asset of the Company. Such
Book Gain or Book Loss shall be computed by reference to the Book
Value of such asset as of the date of such sale, exchange or
other disposition, rather than by reference to the tax basis of
such asset as of such date, and each and every reference herein
to "gain" or "loss" shall be deemed to refer to Book Gain or Book
Loss, rather than to tax gain or tax loss, unless otherwise
expressly provided herein.
<PAGE>
"Book Value" of an asset shall mean, as of any particular
date, the value at which the asset is properly reflected on the
books and records of the Company as of such date. The initial
Book Value of each asset shall be its cost, unless such asset was
contributed to the Company by a Member, in which case the initial
Book Value shall be the fair market value, as agreed to by the
Members, and such Book Value shall thereafter be adjusted for
Depreciation with respect to such asset rather than for the cost
recovery deductions to which the Company is entitled for income
tax purposes with respect thereto and shall be adjusted as
appropriate pursuant to Section 7.9.
"Business Day" shall mean a day when national banks are open
for business in Boston, Massachusetts.
"Business Plan" is defined in Section 6.1.
"Capital Account" is defined in Section 3.2.
"Capital Contribution" shall mean with respect to any
Member, the amount of cash and the Book Value of any other
property contributed to the Company with respect to the Interest
held by such Member (net of liabilities secured by such
contributed property or that the Company is considered to assume
or take the property subject to pursuant to Code section 752).
"Certificate" shall mean the Certificate of Formation of the
Company filed July ___, 1997 and any and all amendments thereto
and restatements thereof filed on behalf of the Company as
permitted hereunder with the office of the Secretary of State of
The Commonwealth of Massachusetts.
"Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time, and the corresponding provisions of
any future federal tax law.
"Company" shall mean the limited liability company formed
under and pursuant to the Act and this Agreement.
"Defaulted Capital Contribution" is defined in Section 3.7.
"Defaulting Member" is defined in Section 3.7.1.
"Depreciation" shall mean for each Fiscal Year or other
period, an amount equal to the depreciation, amortization or
other cost recovery deduction allowable with respect to an asset
for such year or other period, except if the Book Value of an
asset differs from its adjusted basis for federal income tax
purposes at the beginning of any such year or other period,
Depreciation shall be an amount that bears the same relationship
to the Book Value of such asset as the depreciation,
amortization, or other cost recovery deduction computed for tax
purposes with respect to such asset for the applicable period
bears to the adjusted tax basis of such asset at the beginning of
<PAGE>
such period, or if such asset has a zero adjusted tax basis,
Depreciation shall be an amount determined under any reasonable
method selected by the Members, with the advice of its
independent accountants.
"Distribution" shall mean the amount of cash and the Book
Value of any other property distributed to a Member in respect of
the Member's Interest in the Company (net of liabilities secured
by such distributed property or that the Member is considered to
assume or take the property subject to pursuant to Code section
752).
"Effective Date" shall mean July 25, 1997.
"Exclusive Agent" is defined in Section 2.5.1.
"Fiscal Year" shall mean the fiscal year of the Company
which shall end on December 31 in each year or on such other date
in each year as the Members shall otherwise elect.
"HydroServ Customer" is defined in Section 2.5.2.
"Indemnified Persons" is defined in Section 13.1.
"Interest" shall mean the entire interest of a Member in the
capital and profits of the Company, including the right of such
Member to any and all benefits to which a Member may be entitled
as provided in this Agreement, together with the obligations of
such Member to comply with all the terms and provisions of this
Agreement.
"Majority in Interest" shall mean, as applied to all the
Members, or a specified group of Members, Members who in the
aggregate hold more than a 50 % interest in each of the profits
and capital of the Company owned by all Members or by the
specified group of Members, as the case may be.
"Marketing Fee" is defined in Section 5.16 and Schedule No.
1.
"Member Default Loan" shall mean any loan made to a
Defaulting Member as contemplated by Section 3.7.1.
"Member Nonrecourse Deductions" shall mean "partner non-
recourse deductions" as defined in Regulations Section 1.704-
2(i)(1).
"Members" shall mean the Persons listed as members on the
signature page to the Agreement and any other Person that both
acquires an Interest in the Company and is admitted to the
Company as a Member pursuant to the Agreement.
"Net Profit" and "Net Loss" shall mean, for each Fiscal Year
or other period, an amount equal to the Company's taxable income
or loss, respectively, for such year or period, determined in
<PAGE>
accordance with Section 703(a) of the Code (taking into account
all items of income, gain, loss, or deduction required to be
stated separately pursuant to Section 703(a)(1) of the Code),
with the following adjustments:
(a) any income of the Company that is exempt from federal
income tax and not otherwise taken into account in computing Net
Profit or Net Loss pursuant to this provision shall be added to
such taxable income or reduce such taxable loss;
(b) any expenditures of the Company described in Section
705(a)(2)(B) of the Code (relating to expenditures which are
neither deductible nor properly chargeable to capital) or treated
as Code Section 705(a)(2)(B) expenditures pursuant to Section
1.704-1(b)(2)(iv)(i) of the Regulations, and not otherwise taken
into account in computing Net Profit or Net Loss pursuant to this
provision, shall be subtracted from such taxable income or
increase such taxable loss;
(c) Book Gain or Book Loss from the sale or other
disposition of any asset of the Company shall be taken into
account in lieu of any federal income tax gain or loss recognized
by the Company by reason of such sale or other disposition; and
(d) in lieu of the depreciation, amortization and other
cost recovery deductions taken into account in computing such
taxable income or loss, there shall be taken into account
Depreciation for such fiscal year or other period, computed as
provided in this Agreement.
"Nonrecourse Deduction" shall have the meaning set forth in
Regulations Section 1.704-2(b)(1).
"Notice of Purchase" is defined in Section 9.3.1.
"Notice of Sale" is defined in Section 9.3.1.
"Offered Interest" is defined in Section 9.3.1.
"Percentage Interest" is defined in Section 3.3.
"Permitted Percentage" is defined in Section 9.3.1.
"Person" shall mean an individual, partnership, joint
venture, association, corporation, trust, estate, limited
liability company, limited liability partnership, or any other
legal entity.
"Profits Interest" is defined in Section 3.6.
"PUHCA" shall mean the Public Utility Holding Company Act of
1935.
"Qualified Income Offset" shall have the meaning set forth
in Regulations Section 1.704-1 (b)(2)(ii)(d).
<PAGE>
"Regulations" shall mean the Treasury regulations, including
temporary regulations, promulgated under the Code, as such
regulations may be amended from time to time (including the
corresponding provisions of any future regulations).
"Representative" is defined in Section 5.1.
"Required Portion" shall mean in respect of any Interest all
or a portion of which is required to be transferred in a Required
Regulatory Transfer, the smallest portion of such Interest that
must be transferred in order to satisfy the requirements of such
Required Regulatory Transfer.
"Required Regulatory Transfer" shall mean any Transfer by a
Member of all or a portion of its Interest which is required to
be effected by any regulation, rule, administrative order or
other administrative pronouncement of binding legal effect of any
state public utility commission (or other similar agency).
"Members" shall mean NGT and UUDSI and, if such Members
together do not constitute a Majority in Interest of the Members,
such other Members as shall be necessary to cause the Members to
constitute a Majority in Interest of the Members.
"Securities Act" shall mean the Securities Act of 1933, as
amended.
"Selling Member" is defined in Section 9.3.
"Tax Matters Member" is defined in Section 8.1.
"Term" is defined in Section 2.4.
"Transaction" is defined in Section 5.15.
"Transfer" is defined in Section 9.1.1.
"Violation of the Business Judgment Rule" means conduct
which is materially inconsistent with the obligation to be
reasonably informed and to act in good faith or which is
reckless, grossly negligent, willful misconduct or constitutes a
knowing violation of law.
<PAGE>
Exhibit E.1.
<TABLE>
1997
Report on NEES Money Pool
($000's)
<CAPTION>
Avg. Max. Min. Investment
Company Invest. Invest. Invest. at 12/31/97
- ------- ------- ------- ------- -----------
<S> <C> <C> <C> <C>
NEES (Trust) $10,166 $2,565 $ 325 $ 925
Massachusetts Electric Co. 30 3,475 -0- -0-
New England Power Co. -0- -0- -0- -0-
The Narragansett Electric Co. 451 7,750 -0- -0-
Granite State Electric Co. -0- -0- -0- -0-
Nantucket Electric Co. 455 7,775 -0- -0-
New England Power Service Co. 6,779 16,500 -0- 9,500
New England Electric Transmission -0- -0- -0- -0-
Corporation
New England Energy Incorporated 3,957 11,950 175 2,750
New England Hydro-Transmission 4,697 8,400 1,625 2,750
Electric Company (NEHTEC)
New England Hydro-Transmission 1,573 4,700 300 1,375
Corporation (NEHTC)
Narragansett Energy Resources 837 1,700 375 1,550
Company (NERC)
</TABLE>
<PAGE>
Exhibit E.2.
Modified
FORM U-13-60
ANNUAL REPORT
For the Period
Beginning January 1, 1997 and Ending December 31, 1997
To The
U.S. SECURITIES AND EXCHANGE COMMISSION
Of
NEES Global Transmission, Inc.
A Subsidiary Service Company
Date of Incorporation: January 13, 1992
State or Sovereign Power under which Incorporated or Organized:
The Commonwealth of Massachusetts
Location of Principal Executive Offices of Reporting Company:
25 Research Drive
Westborough, MA 01582
Report filed pursuant to Order dated September 4, 1992
in file number 70-7950
Name, title, and address of officer to whom correspondence concerning this
report should be addressed:
J.G. Cochrane, Treasurer
25 Research Drive
Westborough, MA 01582
Name of Principal Holding Company Under Which Reporting
Company is Organized:
New England Electric System
SEC 1926 (6-82)
<PAGE>
PAGE 2
INSTRUCTIONS FOR USE OF MODIFIED FORM U-13-60
1. Time of Filing Annual Report essentially in the form of U-13-60 shall
be filed appended to Form U5S, Annual Report of the Parent and Associate
Companies Pursuant to the Public Utility Holding Company Act of 1935. Form
U5S is required to be filed by May 1.
2. Number of Copies Each annual report shall be filed in duplicate.
The company should prepare and retain at least one extra copy for itself
in case correspondence with reference to the report becomes necessary.
3. Definitions - Definitions contained in Instruction 01-8 to the Uniform
System of Accounts for Mutual Service Companies and Subsidiary Service
Companies, Public Utility Holding Company Act of 1935, as amended February
2, 1979 shall be applicable to words or terms used specifically within this
Form U-13-60.
4. Organization Chart - The company shall submit with each annual
report a copy of its current organization chart.
<PAGE>
PAGE 3
<TABLE>
ANNUAL REPORT OF NEES GLOBAL TRANSMISSION, INC.
LISTING OF SCHEDULES AND ANALYSIS OF ACCOUNTS
<CAPTION>
Schedule or Page
Description of Schedules and Accounts Account No. Number
<S> <C> <C>
COMPARATIVE BALANCE SHEET Schedule I 4-5
Company property Schedule II 6-7
Accumulated provision for depreciation
and amortization of company property Schedule III 8
Investments Schedule IV 9
Accounts receivable Schedule V 10
Miscellaneous deferred debits Schedule IX 11
Proprietary capital Schedule XI 12
Long-term debt Schedule XII 13
Current and accrued liabilities Schedule XIII 14
Notes to financial statements Schedule XIV 15
COMPARATIVE INCOME STATEMENT Schedule XV 16
Analysis of billing - nonassociate companies Account 458 17-18
Departmental analysis of salaries Account 920 19
Outside services employed Account 923 20-21
Miscellaneous general expenses Account 930.2 22
Taxes other than income taxes Account 408 23
Donations Account 426.1 24
Other deductions Account 426.5 25
Notes to statement of income Schedule XVIII 26
ORGANIZATION CHART 27
</TABLE>
<PAGE>
PAGE 4
<TABLE>
ANNUAL REPORT OF NEES GLOBAL TRANSMISSION, INC.
For the Year Ended December 31, 1997
SCHEDULE I
COMPARATIVE BALANCE SHEET
Give balance sheet of Company as of December 31 of the current and prior year
<CAPTION>
Account Assets and Other Debits As of December 31
Current Prior
<S> <C> <C> <C>
COMPANY PROPERTY
101 Company property (Schedule II) $ $
107 Construction work in progress (Schedule II)
--------- ---------
Total Property
--------- ---------
108 Less accumulated provision for depreciation
and amortization of company property
(Schedule III)
--------- ---------
Net Company Property
--------- ---------
INVESTMENTS
123 Investments in associate companies (Sch. IV) 162,500
124 Other Investments (Schedule IV) 3,897,495 1,475,000
--------- ---------
Total Investments 4,059,995 1,475,000
--------- ---------
CURRENT AND ACCRUED ASSETS
131 Cash 297,938 180,836
134 Special deposits
135 Working funds
136 Temporary cash investments (Schedule IV)
141 Notes receivable
143 Accounts receivable (Schedule V) 742,844 1,234,582
144 Accumulated provision of uncollectible accounts
146 Accounts receivable from associate companies 56,469 128,096
152 Fuel stock expenses undistributed
154 Materials and supplies
163 Stores expense undistributed
165 Prepayments 866,287
174 Miscellaneous current and accrued assets
--------- ---------
Total Current and Accrued Assets 1,097,251 2,409,801
--------- ---------
DEFERRED DEBITS
181 Unamortized debt expense
184 Clearing accounts
186 Miscellaneous deferred debits (Schedule IX)
188 Research, development, or demonstration
expenditures
190 Accumulated deferred income taxes
--------- ----------
Total Deferred Debits --------- ----------
TOTAL ASSETS AND OTHER DEBITS $5,157,246 $3,884,801
========= ==========
</TABLE>
<PAGE>
PAGE 5
<TABLE>
ANNUAL REPORT OF NEES GLOBAL TRANSMISSION, INC.
For the Year Ended December 31, 1997
SCHEDULE I
COMPARATIVE BALANCE SHEET
<CAPTION>
Account Liabilities and Proprietary Capital As of December 31
Current Prior
<S> <C> <C> <C>
PROPRIETARY CAPITAL
201 Common stock issued (Schedule XI) $ 1,000 $ 1,000
211 Miscellaneous paid-in-capital (Schedule XI) 14,073,999 8,448,999
215 Appropriated retained earnings (Schedule XI)
216 Unappropriated retained earnings (Schedule XI) (9,160,030) (5,321,413)
----------- -----------
Total Proprietary Capital 4,914,969 3,128,586
----------- -----------
LONG-TERM DEBT
223 Advances from associate companies (Schedule XII)
224 Other long-term debt (Schedule XII)
225 Unamortized premium on long-term debt
226 Unamortized discount on long-term debt - debit
--------- -----------
Total Long-Term Debt
--------- -----------
CURRENT AND ACCRUED LIABILITIES
231 Notes payable
232 Accounts payable 144,860 238,342
233 Notes payable to associate companies
(Schedule XIII)
234 Accounts payable to associate companies
(Schedule XIII) 18,824 465,891
236 Taxes accrued 76,340
237 Interest accrued
238 Dividends declared
241 Tax collections payable 2,253 382
242 Miscellaneous current and accrued
liabilities (Schedule XIII)
--------- ----------
Total Current and Accrued Liabilities 242,277 704,615
--------- ----------
DEFERRED CREDITS
253 Other deferred credits
255 Accumulated deferred investment tax credits
--------- ----------
Total Deferred Credits
--------- ----------
283 ACCUMULATED DEFERRED INCOME TAXES 51,600
--------- ----------
TOTAL LIABILITIES AND PROPRIETARY CAPITAL $5,157,246 $3,884,801
========== ==========
</TABLE>
<PAGE>
PAGE 6
<TABLE>
ANNUAL REPORT OF NEES GLOBAL TRANSMISSION, INC.
For the Year Ended December 31, 1997
SCHEDULE II
COMPANY PROPERTY
(Not Applicable)
<CAPTION>
BALANCE AT RETIREMENTS BALANCE
BEGINNING OR OTHER (1) AT CLOSE
DESCRIPTION OF YEAR ADDITIONS SALES CHANGES OF YEAR
<S> <C> <C> <C> <C> <C>
Account
301 Organization
303 Miscellaneous
Intangible
Plant
304 Land and Land
Rights
305 Structures and
Improvements
306 Leasehold
Improvements
307 Equipment (2)
308 Office
Furniture and
Equipment
309 Automobiles,
Other Vehicles
and Related
Garage
Equipment
310 Aircraft and
Airport
Equipment
311 Other Company
Property (3)
---- ------- --- ---- ----
SUB-TOTAL None None
---- ------- --- ---- ----
107 Construction
Work in
Progress (4)
---- ------- --- ---- ----
TOTAL None None
==== ======= === ==== ====
<FN>
(1) PROVIDE AN EXPLANATION OF THOSE CHANGES CONSIDERED MATERIAL:
</FN>
</TABLE>
<PAGE>
PAGE 7
ANNUAL REPORT OF NEES GLOBAL TRANSMISSION, INC.
For the Year Ended December 31, 1997
SCHEDULE II - CONTINUED
(Not Applicable)
<TABLE>
(2) Subaccounts are required for each class of equipment owned. The company
shall provide a listing by subaccount of equipment additions during the
year and the balance at the close of the year:
<CAPTION>
BALANCE
AT CLOSE
SUBACCOUNT DESCRIPTION ADDITIONS OF YEAR
<S> <C> <C>
---- ----
TOTAL None None
==== ====
(3) DESCRIBE OTHER COMPANY PROPERTY:
None
(4) DESCRIBE CONSTRUCTION WORK IN PROGRESS:
None
</TABLE>
<PAGE>
PAGE 8
<TABLE>
ANNUAL REPORT OF NEES GLOBAL TRANSMISSION, INC.
For the Year Ended December 31, 1997
SCHEDULE III
ACCUMULATED PROVISION FOR DEPRECIATION AND
AMORTIZATION OF COMPANY PROPERTY
(Not Applicable)
<CAPTION>
ADDITIONS OTHER
BALANCE AT CHARGED CHANGES BALANCE
BEGINNING TO RETIRE- ADD AT CLOSE
DESCRIPTION OF YEAR ACCT 403 MENTS (DEDUCT)(1) OF YEAR
<S> <C> <C> <C> <C> <C>
Account
301 Organization
303 Miscellaneous
Intangible
Plant
304 Land and Land
Rights
305 Structures and
Improvements
306 Leasehold
Improvements
307 Equipment
308 Office
Furniture and
Equipment
309 Automobiles,
Other Vehicles
and Related
Garage
Equipment
310 Aircraft and
Airport
Equipment
311 Other Company
Property
---- --- --- --- ----
TOTAL None None
==== === === === ====
22) PROVIDE AN EXPLANATION OF THOSE CHANGES CONSIDERED MATERIAL:
None
</TABLE>
<PAGE>
PAGE 9
ANNUAL REPORT OF NEES GLOBAL TRANSMISSION, INC.
For the Year Ended December 31, 1997
SCHEDULE IV
INVESTMENTS
<TABLE>
INSTRUCTIONS: Complete the following schedule concerning investments.
Under Account 124 "Other Investments," state each investment
separately, with description, including, the name of issuing
company, number of shares or principal amount, etc.
<CAPTION>
BALANCE AT BALANCE AT
BEGINNING CLOSE
DESCRIPTION OF YEAR OF YEAR
<S> <C> <C>
ACCOUNT 123 - INVESTMENT IN ASSOCIATE COMPANIES 162,500
------- -------
TOTAL None 162,500
======= =======
ACCOUNT 124 - OTHER INVESTMENTS
Separations Technologies, Inc. $999,999 $ 999,999
Monitoring Technologies, Inc. 475,001 475,001
Underwater Unlimited Diving
Services, Inc. 1,000,000
Nexus Energy Software, Inc. 1,400,000
HydroServ Group, LLC 22,495
---------- ---------
TOTAL (1) $1,475,000 $3,897,495
========== =========
ACCOUNT 136 - TEMPORARY CASH INVESTMENTS
------- ---------
TOTAL None None
======= =========
(1) See page 15 "Notes to Financial Statements" footnote (2), (3), (5),
(6), (7).
</TABLE>
<PAGE>
PAGE 10
ANNUAL REPORT OF NEES GLOBAL TRANSMISSION, INC.
For the Year Ended December 31, 1997
<TABLE>
SCHEDULE V
ACCOUNTS RECEIVABLE
INSTRUCTIONS: Complete the following schedule listing accounts receivable.
<CAPTION>
BALANCE AT BALANCE AT
BEGINNING CLOSE
OF YEAR OF YEAR
<S> <C> <C>
DESCRIPTION
ACCOUNT 143 - Accounts Receivable (Non-
Associated Companies) 1,234,582 742,844
---------- --------
TOTAL $1,234,582 $742,844
========== ========
</TABLE>
<PAGE>
PAGE 11
ANNUAL REPORT OF NEES GLOBAL TRANSMISSION, INC.
For the Year Ended December 31, 1997
<TABLE>
SCHEDULE IX
MISCELLANEOUS DEFERRED DEBITS
INSTRUCTIONS: Provide detail of items in this account. Items less than
$10,000 may be grouped by class, showing the number of items
in each class.
<CAPTION>
BALANCE AT BALANCE AT
BEGINNING CLOSE
DESCRIPTION OF YEAR OF YEAR
<S> <C> <C>
ACCOUNT 186 - DEFERRED DEBITS
---- ----
TOTAL None None
==== ====
</TABLE>
<PAGE>
PAGE 12
ANNUAL REPORT OF NEES GLOBAL TRANSMISSION, INC.
For the Year Ended December 31, 1997
<TABLE>
SCHEDULE XI
PROPRIETARY CAPITAL
<CAPTION>
OUTSTANDING
NUMBER OF PAR OR STATED CLOSE OF PERIOD
ACCOUNT SHARES VALUE NO. OF TOTAL
NUMBER CLASS OF STOCK AUTHORIZED PER SHARE SHARES AMOUNT
<S> <C> <C> <C> <C> <C>
201 COMMON STOCK ISSUED 10,000 $1 1,000 $1,000
INSTRUCTIONS: Classify amounts in each account with a brief explanation,
disclosing the general nature of transactions which give rise
to the reported amounts.
DESCRIPTION
AMOUNT
ACCOUNT 223 - MISCELLANEOUS PAID-IN CAPITAL (1) 14,073,999
ACCOUNT 215 - APPROPRIATED RETAINED EARNINGS
----------
TOTAL 14,073,999
==========
INSTRUCTIONS: Give particulars concerning net income or (loss) during the
year, distinguishing between compensation for the use of
capital owed or net loss remaining from servicing
non-associates per the General Instructions of the Uniform
Systems of Accounts. For dividends paid during the year in
cash or otherwise, provide rate percentage, amount of
dividend, date declared and date paid.
BALANCE AT NET INCOME BALANCE AT
BEGINNING OR DIVIDENDS CLOSE
DESCRIPTION OF YEAR (LOSS) PAID OF YEAR
ACCOUNT 216 -
UNAPPROPRIATED
RETAINED EARNINGS $(5,321,413) $(3,838,617) None $(9,160,030)
---------------------- ---- -----------
TOTAL $(5,321,413) $(3,838,617) None $(9,160,030)
====================== ==== ===========
<FN>
(1) Amount represents contributions in the form of non-interest bearing
subordinated notes issued from New England Electric System (NEES).
As of December 31, 1997, NEES was authorized to invest up to $19.0
million dollars in the Company in the form of either subordinated
noninterest bearing notes, capital contributions or common stock.
</FN>
</TABLE>
<PAGE>
PAGE 13
<TABLE>
ANNUAL REPORT OF NEES GLOBAL TRANSMISSION, INC.
For the Year Ended December 31, 1997
SCHEDULE XII
LONG-TERM DEBT
(Not Applicable)
INSTRUCTIONS: Advances from associate companies should be reported separately for advances on notes, and
advances on open account. Names of associate companies from which advances were received
shall be shown under the class and series of obligation column. For Account 224 - Other
long-term debt provide the name of creditor company or organization, terms of the obligation,
date of maturity, interest rate, and the amount authorized and outstanding.
<CAPTION>
TERMS OF OBLIG DATE BALANCE AT BALANCE AT
CLASS & SERIES OF INTEREST AMOUNT BEGINNING DEDUCTIONS CLOSE
NAME OF CREDITOR OF OBLIGATION MATURITY RATE AUTHORIZED OF YEAR ADDITIONS (1) OF YEAR
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ACCOUNT 223 -
ADVANCES FROM
ASSOCIATE
COMPANIES:
ACCOUNT 224 -
OTHER LONG-TERM
DEBT:
-----
TOTAL None
=====
<FN>
(1) Give an explanation of deductions:
None
</FN>
</TABLE>
<PAGE>
PAGE 14
ANNUAL REPORT OF NEES GLOBAL TRANSMISSION, INC.
For the Year Ended December 31, 1997
<TABLE>
SCHEDULE XIII
CURRENT AND ACCRUED LIABILITIES
INSTRUCTIONS: Provide balance of notes and accounts payable to each
associate company. Give description and amount of
miscellaneous current and accrued liabilities. Items less
than $10,000 may be grouped, showing the number of items in
each group.
<CAPTION>
BALANCE AT BALANCE AT
BEGINNING CLOSE
DESCRIPTION OF YEAR OF YEAR
<S> <C> <C>
ACCOUNT 233 - NOTES PAYABLE TO ASSOCIATE
COMPANIES
---- ----
TOTAL None None
==== ====
ACCOUNT 234 - ACCOUNTS PAYABLE TO ASSOCIATE
COMPANIES
New England Power Service Company $(15,980)
New England Hydro Transmission Electric Co. 39
New England Electric Transmission Corp. 59
NEES Energy, Inc. 2,024
Narragansett Electric Company 2,843
Massachusetts Electric Company 8,298 9,970
New England Power Company 468,608 8,177
Nantucket Electric Company 677
------- -------
TOTAL $465,891 $18,824
======= =======
ACCOUNT 242 - MISCELLANEOUS CURRENT AND
ACCRUED LIABILITIES
---- ----
TOTAL None None
==== ====
</TABLE>
<PAGE>
PAGE 15
ANNUAL REPORT OF NEES GLOBAL TRANSMISSION, INC.
For the Year Ended December 31, 1997
SCHEDULE XIV
NOTES TO FINANCIAL STATEMENTS
INSTRUCTIONS: The space below is provided for important notes regarding
the financial statements or any account thereof. Furnish
particulars as to any significant contingent assets or
liabilities existing at the end of the year. Notes relating
to financial statements shown elsewhere in this report may
be indicated here by reference.
(1) To assist Nantucket Electric Company (NEC) in meeting
its short-term needs for reliable energy, NGT provided materials, delivery,
installation, interconnection and start-up testing services for a fully
automated two unit diesel driven electric generating plant at the existing
NEC Airport Generating Station. The work took place at NEC and New England
Electric facilities pursuant to a letter agreement and has been completed.
The total compensation under the agreement was recognized during the third
quarter of 1994. The agreement provides for billing over a three year
period at $25,070 per month effective the month immediately following the
notice to proceed by NEC. As of May 31, 1997 the balance was paid in full.
(2) On May 23, 1995, NGT invested $999,999 in Separations
Technologies, Inc. (STI). This investment is in the form of 153,846 shares
of 6% cumulative convertible preferred stock.
(3) On July 12, 1996 NGT invested $475,001 in Monitoring
Technologies, Inc. This investment is in the form of 271,429 shares of
Series E convertible preferred stock.
(4) In July, 1996 NEERI International, a wholly-owned
subsidiary of NEERI, was formed under the laws of the Cayman Islands. NGT
owned two shares of NEERI International, until December 22, 1997, at which
time NGT sold the two shares to a non-affiliated third party.
(5) Effective July 1, 1997, NEERI changed its name to NEES
Global Transmission, Inc. (NGT). NGT is a Massachusetts Corporation which
was formed in January 1992. NGT was not capitalized until October 13, 1992
when one thousand shares of NGT common stock were issued to New England
Electric System (NEES).
(6) In July, 1997 NGT invested $1,000,000 in Underwater
Unlimited Diving Services, Inc. in the form of 200,000 shares of
convertible non-voting preferred stock.
(7) In August, 1997 NGT invested $1,400,000 in Nexus Energy
Software, Inc. in the form of 1,000,000 shares of Series A preferred stock.
(8) In 1997, NGT contributed initial capital of $130,000 to
HydroServ Group, LLC for 50% company ownership. Losses of $107,505 were
recognized during the year.
(9) In July, 1997 NGT entered into an agreement with ABB
Power Systems, a Swedish corporation, which provides for reimbursement of
50% of project development costs. Such reimbursements were recorded as a
lump sum reduction in expenses, shown in account 923 "Outside services
employed."
(10) In the fourth quarter of 1997, NGT invested $162,500 to
purchase a 10% interest in AllEnergy Marketing Co., LLC.
<PAGE>
PAGE 16
<TABLE>
ANNUAL REPORT OF NEES GLOBAL TRANSMISSION, INC.
For the Year Ended December 31, 1997
SCHEDULE XV
COMPARATIVE INCOME STATEMENT
<CAPTION>
ACCOUNT DESCRIPTION CURRENT PRIOR
YEAR YEAR
<S> <C> <C> <C>
INCOME
458 Services rendered to nonassociate companies $ 574,490 $1,379,230
421 Miscellaneous income or loss (107,505)
---------- ----------
TOTAL INCOME $ 466,985 $1,379,230
--------- ----------
EXPENSE
920 Salaries and wages
921 Office supplies and expenses 361,806 437,161
922 Administrative expense transferred - credit
923 Outside services employed 5,523,587 6,902,369
924 Property insurance
925 Injuries and damages
926 Employee pensions and benefits
930.1 General advertising expenses
930.2 Miscellaneous general expenses
931 Rents
932 Maintenance of structures and equipment
403 Depreciation and amortization expense
408 Taxes other than income taxes
409 Income taxes (1,528,191) (2,228,500)
410 Provision for deferred income taxes
411 Provision for deferred income taxes - credit (51,600) (123,900)
411.5 Investment tax credit
426.1 Donations
426.5 Other deductions
427 Interest on long-term debt
430 Interest on debt to associate companies
431 Other interest expense
------------ ------------
TOTAL EXPENSE $ 4,305,602 $ 4,987,130
------------ ------------
NET INCOME OR (LOSS) $(3,838,617) $(3,607,900)
============ ============
</TABLE>
<PAGE>
PAGE 17
<TABLE>
ANNUAL REPORT OF NEES GLOBAL TRANSMISSION, INC.
For the Year Ended December 31, 1997
ANALYSIS OF BILLING
NONASSOCIATE COMPANIES
ACCOUNT 458
<CAPTION>
DIRECT INDIRECT COMPENSATION EXCESS TOTAL
COST COST FOR USE TOTAL OR AMOUNT
NAME OF NONASSOCIATE COMPANY CHARGED CHARGED OF CAPITAL COST DEFICIENCY BILLED
458-1 458-2 458-3 458-4
<S> <C> <C> <C> <C> <C> <C>
AVCOM, Inc. (1) 15 15
Mr. Raymond LeBlanc (2) 25 25
Town of Wellesley (3) 50 50
Energy Connections (4) 99 99
Hudson Light & Power (5) 4,800 4,800
Montana Power Company (6) 6,904 6,904
Hanover Improvement Society (7) 9,376 9,376
University of Massachusetts (8) 17,500 17,500
Separation Technologies, Inc. (9) 47,949 47,949
United States Dept. of
Agriculture (10) 52,391 52,391
MCM Enterprise, LTD (11) 68,188 68,188
Si3 (12) 108,273 108,273
U.S. Army Corps. of Engineers (13) 258,920 258,920
------- -------
Total 574,490 574,490
======= =======
</TABLE>
<PAGE>
PAGE 18
INSTRUCTION: Provide a brief description of the services rendered to each
nonassociated company:
(1) Consulting services for meter testing.
(2) Consulting services for meter testing.
(3) Consulting services for meter testing.
(4) Consulting services for meter testing.
(5) Consulting and electrical services for installation of interrupters.
(6) Consulting services for presentation of retail access processes.
(7) Consulting engineering services at earthen dam site.
(8) Consulting services for installation of radio tower.
(9) Consulting and electrical services for installation of transformers.
(10) Consulting and construction services for subwatershed dam repairs.
(11) Consulting services for installation of rotor-mounted scanners.
(12) Consulting services for retrofit and calibration of electric meters.
(13) Construction services for dam gate machinery refurbishment.
<PAGE>
PAGE 19
<TABLE>
ANNUAL REPORT OF NEES GLOBAL TRANSMISSION, INC.
For the Year Ended December 31, 1997
DEPARTMENTAL ANALYSIS OF SALARIES
ACCOUNT 920
<CAPTION>
NAME OF DEPARTMENT NUMBER
PERSONNEL
Indicate each dept. or SALARY END OF
service function EXPENSE YEAR
<S> <C> <C>
None None
---- ----
TOTAL None None
==== ====
</TABLE>
<PAGE>
PAGE 20
<TABLE>
ANNUAL REPORT OF NEES GLOBAL TRANSMISSION, INC.
For the Year Ended December 31, 1997
OUTSIDE SERVICES EMPLOYED
ACCOUNT 923
INSTRUCTIONS: Provide a breakdown by subaccount of outside services
employed. If the aggregate amounts paid to any one payee
and included within one subaccount is less than $100,000,
only the aggregate number and amount of all such payments
included within the subaccount need be shown. Provide a
subtotal for each type of service.
<CAPTION>
RELATIONSHIP
"A"- ASSOCIATE
FROM WHOM PURCHASED TYPE OF SERVICE "NA"- NON ASSOCIATE AMOUNT
<S> <C> <C> <C>
LEGAL SERVICES
Skadden, Arps, Slate Legal Services NA $441,336
Meagher & Flom
Tozzini, Freire, Legal Services NA 203,171
Teixeira, E. Silva
11 Vendors
(each under $100,000) 352,007
-------
SUBTOTAL $996,514
</TABLE>
<PAGE>
PAGE 21
<TABLE>
ANNUAL REPORT OF NEES GLOBAL TRANSMISSION, INC.
For the Year Ended December 31, 1997
OUTSIDE SERVICES EMPLOYED
ACCOUNT 923
<CAPTION>
RELATIONSHIP
"A"- ASSOCIATE
FROM WHOM PURCHASED TYPE OF SERVICE "NA"- NON ASSOCIATE AMOUNT
<S> <C> <C> <C>
OTHER SERVICES
New England Power Construction, Engineering, A $2,925,213
Service Company & Administrative Svcs.
New England Power Intercompany Consulting A 375,313
Company Services
Sigla, S.A. Consulting Services NA 360,956
A. Gilberto Carvalho Consulting Services NA 215,538
Bank Boston Financial Consulting NA 153,996
Services
Underwater Unlimited Consulting & Inspection NA 115,147
Diving Services Services
American Continental Consulting Services NA 102,109
Group
ABB Power Systems Reimbursement Agreement NA ($546,000)
34 Vendors* 824,801
(each under $100,000) ----------
SUBTOTAL $4,527,073
----------
TOTAL SERVICES $5,523,587
==========
*includes $19,974 from associated companies
</TABLE>
<PAGE>
PAGE 22
ANNUAL REPORT OF NEES GLOBAL TRANSMISSION, INC.
For the Year Ended December 31, 1997
MISCELLANEOUS GENERAL EXPENSES
ACCOUNT 930.2
INSTRUCTIONS: Provide a listing of the amount included in Account 930.2,
"Miscellaneous General Expenses", classifying such expenses
according to their nature. Payments and expenses permitted
by Sections 321(b)(2) of the Federal Election Campaign Act,
as amended by Public Law 94-283 in 1976 (2 U.S.C. Section
441(b)(2)) shall be separately classified.
DESCRIPTION AMOUNT
----
TOTAL None
====
<PAGE>
PAGE 23
ANNUAL REPORT OF NEES GLOBAL TRANSMISSION, INC.
For the Year Ended December 31, 1997
TAXES OTHER THAN INCOME TAXES
ACCOUNT 408
INSTRUCTIONS: Provide an analysis of Account 408, "Taxes Other Than Income
Taxes". Separate the analysis into two groups: (1) other
than U.S. Government taxes, and (2) U.S. Government taxes.
Specify each of the various kinds of taxes and show the
amounts thereof. Provide a subtotal for each class of tax.
KIND OF TAX AMOUNT
1) OTHER THAN U.S. GOVERNMENT TAXES
Massachusetts State Tax
-----
SUBTOTAL
-----
2) U.S. GOVERNMENT TAXES
-----
SUBTOTAL
-----
TOTAL None
=====
<PAGE>
PAGE 24
ANNUAL REPORT OF NEES GLOBAL TRANSMISSION, INC.
For the Year Ended December 31, 1997
DONATIONS
ACCOUNT 426.1
INSTRUCTIONS: Provide a listing of the amount included in Account 426.1,
"Donations", classifying such expenses by its purpose. The
aggregate number and amount of all items of less than $3,000
may be shown in lieu of details.
NAME OF RECIPIENT PURPOSE OF DONATION
----
TOTAL None
====
<PAGE>
PAGE 25
ANNUAL REPORT OF NEES GLOBAL TRANSMISSION, INC.
For the Year Ended December 31, 1997
OTHER DEDUCTIONS
ACCOUNT 426.5
INSTRUCTIONS: Provide a listing of the amount included in Account 426.5,
"Other Deductions", classifying such expenses according to
their nature.
DESCRIPTION NAME OF PAYEE
----
TOTAL None
====
<PAGE>
PAGE 26
ANNUAL REPORT OF NEES GLOBAL TRANSMISSION, INC.
For the Year Ended December 31, 1997
SCHEDULE XVIII
NOTES TO STATEMENT OF INCOME
INSTRUCTIONS: The space below is provided for important notes regarding
the statement of income or any account thereof. Furnish
particulars as to any significant increase in services
rendered or expenses incurred during the year. Notes
relating to financial statements shown elsewhere in this
report may be indicated here by reference.
<PAGE>
PAGE 27
ANNUAL REPORT OF NEES GLOBAL TRANSMISSION, INC.
ORGANIZATION CHART
For the Year Ended December 31, 1997
Board of Directors
!
!
!
President
!
!
!
------------------------------
! !
! !
! !
Treasurer Clerk
<PAGE>
PAGE 28
ANNUAL REPORT OF NEES GLOBAL TRANSMISSION, INC.
For the Year Ended December 31, 1997
SIGNATURE CLAUSE
Pursuant to the requirements of the Public Utility Holding Company
Act of 1935 and the rules and regulations of the Securities and Exchange
Commission issued thereunder, the undersigned company has duly caused this
report to be signed on its behalf by the undersigned officer thereunto duly
authorized.
NEES GLOBAL TRANSMISSION, INC.
---------------------------------
(Name of Reporting Company)
By: s/John G. Cochrane
-------------------------------
(Signature of Signing Officer)
J.G. Cochrane Treasurer
-------------------------------------------
(Printed Name and Title of Signing Officer)
Date: April 30, 1998
---------------
<PAGE>
Exhibit E.3
ARTHUR ANDERSEN LLP
OCEAN STATE POWER
FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1997 AND 1996
TOGETHER WITH AUDITORS' REPORT
<PAGE>
ARTHUR ANDERSEN LLP
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Management Committee of
Ocean State Power:
We have audited the accompanying balance sheets of Ocean State Power (a
Rhode Island partnership) as of December 31, 1997 and 1996, and the
related statements of income, changes in partners' capital and cash flows
for the years then ended. These financial statements are the
responsibility of the Partnership's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
As described in Note 2, these financial statements were prepared in
accordance with the accounting requirements of the Federal Energy
Regulatory Commission as set forth in its applicable Uniform System of
Accounts and published accounting releases, which is a comprehensive basis
of accounting other than generally accepted accounting principles.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Ocean State Power as
of December 31, 1997 and 1996, and the results of its operations and its
cash flows for the years then ended, in accordance with the accounting
requirements of the Federal Energy Regulatory Commission as set forth in
its applicable Uniform System of Accounts and published accounting
releases.
s/Arthur Anderson LLP
Boston, Massachusetts
March 12, 1998
<PAGE>
<TABLE>
OCEAN STATE POWER
BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
(DOLLARS IN THOUSANDS)
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
ASSETS
ELECTRIC PLANT, AT ORIGINAL COST $240,598 $241,139
Less accumulated depreciation and amortization (Note 2) 80,595 68,636
------------------------
Net electric plant 160,003 172,503
CURRENT ASSETS:
Cash and cash equivalents 1,914 4,532
Accounts receivable:
Affiliated companies (Notes 1, 3 and 6) 12,227 12,576
Other 3,989 4,786
Inventories:
Fuel 609 597
Materials and supplies 5,443 6,023
Prepayments 243 297
------------ -----------
Total current assets 24,425 28,811
DEFERRED CHARGES AND OTHER ASSETS:
Unamortized debt expense (Note 2) 1,157 1,256
Site restoration fund (Note 2) 7,443 6,018
Other 258 273
------------ -----------
Total deferred charges and other assets 8,858 7,547
Total assets $193,286 208,861
============ ===========
PARTNERS' CAPITAL AND LIABILITIES
CAPITALIZATION:
Partners' capital (see accompanying statement) $ 77,540 $ 79,738
Long-term debt, net of current maturities (Note 4) 74,011 84,509
------------------------
Total capitalization 151,551 164,247
------------------------
CURRENT LIABILITIES:
Current maturities of long-term debt (Note 4) 5,998 5,998
Accounts payable and accrued expenses:
Affiliated companies 848 927
Other 5,732 9,240
Accrued interest on debt - affiliates 257 281
------------------------
Total current liabilities 12,835 16,446
COMMITMENTS AND CONTINGENCIES (Note 5)
RESERVES AND DEFERRED CREDITS:
Deferred federal income taxes payable
by partners (Notes 2 and 7) 10,383 10,257
Unamortized investment tax credits (Notes 2 and 7) 10,034 10,777
Site restoration reserve (Note 2) 7,443 6,018
Deferred rent revenue (Note 6) 1,040 1,116
------------------------
Total reserves and deferred credits 28,900 28,168
Total partners' capital and liabilities $193,286 $208,861
========================
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
OCEAN STATE POWER
STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1997 AND 1996
(DOLLARS IN THOUSANDS)
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
ELECTRIC OPERATING REVENUES (Notes 1 and 2) $93,810 100,657
OPERATING EXPENSES:
Fuel costs 43,981 43,947
Operating expense 8,412 7,972
Maintenance expense 3,688 10,275
Depreciation and site restoration (Note 2) 13,224 13,145
Income taxes payable by partners (Notes 2 and 7) 5,221 5,506
Property taxes and payments in lieu of taxes (Note 5) 1,758 1,719
----------- -----------
76,284 82,564
----------- -----------
Operating income 17,526 18,093
OTHER INCOME (EXPENSE):
Allowance for other funds used during construction (Note 2) - 232
Interest income 251 211
Other, net (43) (38)
----------- -----------
208 405
Income before interest charges 17,734 18,498
INTEREST CHARGES:
Long-term debt (Note 4) 6,570 7,219
Allowance for borrowed funds used during construction (Note 2) - (113)
----------- -----------
6,570 7,106
Net income $11,164 $11,392
=========== ===========
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
OCEAN STATE POWER
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
YEARS ENDED DECEMBER 31, 1997 AND 1996
(DOLLARS IN THOUSANDS)
<CAPTION>
EUA Narragansett
TCPL Ocean State Energy JMC Ocean
Power Ltd. Corp. Resources Co. State Corp. Total
---------- ----------- ------------- ----------- ----------
<S> <C> <C> <C> <C> <C>
PARTNERSHIP INTEREST 40.0% 29.9% 20.0% 10.1% 100.0%
BALANCE AT DECEMBER 31, 1995 $32,886 24,582 16,443 8,303 82,214
Net income 4,556 3,407 2,279 1,150 11,392
Current federal income
taxes payable by partners
(Notes 2 and 7) 1,893 1,414 946 479 4,732
Distributions (7,440) (5,561) (3,720) (1,879) (18,600)
----------- ---------- ---------- ---------- -----------
BALANCE AT DECEMBER 31, 1996 $31,895 23,842 15,948 8,053 79,738
Net income 4,466 3,338 2,232 1,128 11,164
Current federal income
taxes payable by
partners (Notes 2 and 7) 2,335 1,746 1,168 589 5,838
Distributions (7,680) (5,741) (3,840) (1,939) (19,200)
----------- ---------- ---------- ---------- -----------
BALANCE AT DECEMBER 31, 1997 $31,016 23,185 15,508 7,831 77,540
=========== ========== ========== ========= ==========
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
OCEAN STATE POWER
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997 AND 1996
(DOLLARS IN THOUSANDS)
<CAPTION>
1997 1996
----------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $11,164 11,392
Adjustments to reconcile net income
to net cash provided by operating
activities:
Income taxes payable by partners 5,221 5,506
Depreciation 12,102 12,023
Provision for site restoration 1,122 1,122
Site restoration interest 303 272
Amortization of debt expense 99 98
Amortization of rent revenue (76) (75)
Allowance for other funds used
during construction - (232)
Salvage 589 626
Changes in assets and liabilities:
Accounts receivable 1,146 (606)
Inventories 568 (2,798)
Prepayments 54 (50)
Accounts payable and accrued expenses (3,587) 2,980
Accrued interest (24) (15)
Other assets and liabilities 15 19
----------- ----------
Net cash provided by operating
activities 28,696 30,262
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (191) (999)
Site restoration fund (1,425) (1,394)
----------- ----------
Net cash used for investing activities (1,616) (2,393)
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions to partners (19,200) (18,600)
Repayment of long-term debt
Senior notes (5,998) (5,998)
Revolver (4,500) (200)
----------- -----------
Net cash used for financing activities (29,698) (24,798)
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (2,618) 3,071
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 4,532 1,461
----------- -----------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 1,914 4,532
=========== ===========
CASH PAID FOR INTEREST $6,496 7,135
=========== ===========
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
OCEAN STATE POWER
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
(1) ORGANIZATION AND BUSINESS
Organization and Management
Ocean State Power (OSP) is a Rhode Island general
partnership with four general partners (see Note 3). OSP is
managed by a committee of representatives from each of the
partners and has no employees. Plant operations and project
administration are performed under various contractual
arrangements as described below.
Business
OSP was formed to construct, own and operate a combined
cycle electric generating plant located in Burrillville,
Rhode Island, adjacent to a second generating plant that is
operated by an affiliate, Ocean State Power II (OSP II).
The plant's average net capacity is approximately 250
megawatts, and it is fired by natural gas purchased under a
firm 20-year gas purchase contract. The plant commenced
commercial operations on December 31, 1990. The plant's
capacity and energy output are being sold under 20-year
take-or-pay unit power agreements to three investor-owned
utilities located in Massachusetts and Rhode Island. These
utilities are obligated to pay their portion of OSP's total
costs, including amounts for income taxes payable by
partners, and a return on invested capital. The price of
the energy sold is determined based on a Federal Energy
Regulatory Commission (FERC) filed cost of service contract
with an adjustment factor for unit availability. The
following utilities have agreed to purchase electricity
generated in the following proportions:
Power
Purchase
Power Purchaser Affiliate of Percentage
--------------- ------------ -----------
Boston Edison Company - 23.5%
New England Power Company Narragansett Energy
Resources Company 48.5
Montaup Electric Company EUA Ocean State Corporation 28.0
------
100.0%
======
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Regulation
OSP's rates, operations, accounting and other matters are
subject to the regulatory authority of the FERC and other
federal and state agencies. Certain gas transportation
agreements are also subject to regulation by Canadian
authorities.
<PAGE>
OCEAN STATE POWER
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
(Continued)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Regulation (Continued)
OSP is subject to the provisions of Statement of Financial
Accounting Standards (SFAS) No. 71, Accounting for the
Effects of Certain Types of Regulation, and, therefore,
certain of the accounting principles followed may differ
from enterprises in general to reflect the economic effect
of rate actions of the FERC. See Note 5 for a discussion of
industry restructuring and the related uncertainties
associated with accounting for regulated businesses.
Allowance for Funds Used During Construction
OSP capitalizes an allowance for funds used during
construction (AFUDC), which represents the net cost of
borrowed funds used for construction purposes and a
reasonable rate of return on OSP's equity when used. These
costs will be recovered over the service life of the plant
in the form of revenue collected to recover depreciation
expense.
Electric Operating Revenues
OSP bills its customers monthly based on estimates in
accordance with the agreements described in Note 1, with a
subsequent true-up to reflect actual costs. Amounts due
from customers at year-end but not yet reflected in
customers' bills totaled $192,000 in 1997 and $324,000 in
1996 and are included in accounts receivable.
The unit power agreements contain incentive provisions
related to the performance of the facility. These
incentives provide for bonuses payable to OSP based on the
extent to which the electrical capability of the plant
exceeds target performance levels. Alternatively, these
incentives provide for decreases in capacity charges payable
by power purchasers based on the extent to which the
electrical capability of the plant falls below target
levels. OSP has billed and recorded revenues related to
these performance incentives of $3.5 million in 1997 and
$3.9 million in 1996.
Unamortized Debt Expense
Unamortized debt expense represents the costs incurred
related to project financing and are amortized using the
effective interest rate method over the original life of the
debt.
<PAGE>
OCEAN STATE POWER
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
(Continued)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Depreciation and Site Restoration
Depreciation is provided to allocate the cost of OSP's
electric plant on a straight-line basis over the following
estimated useful lives:
Plant and equipment Remaining life of unit power
agreement (expires 2010)
Furniture and fixtures 5 years
Following termination of operations, OSP is obligated to
restore the site to its original preconstruction condition.
Based on a study conducted in 1991, the estimated cost, in
future dollars, for OSP and OSP II is approximately
$65 million. OSP accrues for one half of the estimated site
restoration costs over the life of the plant; OSP II is
responsible for the remaining half of the estimated costs.
The estimate of site restoration is based on a number of
assumptions. The future dollars estimate was determined by
inflating individual costs from mid-1993 to the anticipated
date of expenditure, expressed at six-month periods, at an
annual 4.5% inflation rate. The 1994 FERC Settlement
Agreement assumes an after-tax rate of return on amounts
collected for site restoration of 5.5%, with collections
beginning in November 1991 and continuing through October
2011. Changes in assumptions for such things as labor and
material costs, technology, inflation and the timing of site
restoration could cause this estimate to change in the near
term. OSP recognizes the relative uncertainties associated
with site restoration, including its changing technology and
the possibility of new requirements of law, and therefore
recognizes the need to monitor and adjust site restoration
collections through supplemental rate filings with the FERC.
Funds are deposited into a trust pending their ultimate use.
In accordance with SFAS No. 115, Accounting for Certain
Investments in Debt and Equity Securities, OSP and OSP II
have classified their site restoration funds as available-
for-sale securities and reflected them at fair market value
in the accompanying balance sheets. The investment income
is retained within the trust account. The cost and fair
market value of the site restoration funds at December 31,
1997 were $6,581,000 and $7,443,000, respectively, and at
December 31, 1996 were $5,459,000 and $6,018,000,
respectively.
The staff of the Securities and Exchange Commission has
questioned certain current accounting practices of the
electric utility industry regarding the recognition,
measurement and classification of decommissioning costs for
nuclear generating stations in financial statements of
electric utilities. In response to those questions, the
Financial Accounting Standards Board (FASB) has initiated a
review of the accounting for such costs. The FASB has
considered several approaches, including recording the
<PAGE>
OCEAN STATE POWER
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
(Continued)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Depreciation and Site Restoration (Continued)
entire estimated liability for decommissioning costs
initially, rather than accruing the costs over the operating
life of the generating unit. OSP believes that such an
accounting change, if adopted by the FASB, would not
adversely affect OSP's results of operations due to its
ability to recover decommissioning costs through rates.
Cash and Cash Equivalents
OSP considers all highly liquid investments with a maturity
of three months or less to be cash equivalents.
Income Taxes
Income taxes are the responsibility of the partners and are
not normally reflected in the financial statements of
partnerships under generally accepted accounting principles.
However, the billing calculation includes an allowance for
income taxes, and the FERC requires that OSP record this
provision on its records to reflect the income taxes
calculated as if OSP were a taxable corporation. The
provisions for current and deferred income taxes payable by
partners are recorded without regard to whether each partner
could utilize its share of OSP tax deductions and investment
tax credits. Partners' capital and the net investment base
are reduced by the amount equivalent to accumulated deferred
federal income taxes payable by partners and unamortized
investment tax credit in calculating the allowed return.
Investment tax credits are deferred to the extent they would
be utilized on a separate-company basis and are amortized
over the lives of the related property. At December 31,
1996, OSP has fully utilized its investment tax credits for
tax purposes.
OSP recognizes, in accordance with SFAS No. 109, Accounting
for Income Taxes, tax assets and liabilities for the
cumulative effect of all temporary differences between
financial statement carrying amounts and the tax bases of
assets and liabilities, including the impact of deferred
investment tax credits. The standard also requires the
adjustment of deferred tax liabilities or assets for an
enacted change in tax laws or rates, among other things.
Planned Major Overhauls
Periodic major overhauls of the gas and stream turbines will
be necessary to maintain the facility's operating capacity.
The Partnership follows the direct expensing method for
these overhaul costs.
<PAGE>
OCEAN STATE POWER
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
(Continued)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Use of Estimates
The preparation of financial statements requires management
to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results
could differ from those estimates.
(3) PARTNERS' CAPITAL
The general partners, along with their respective equity
interests, at December 31, 1997 are as follows:
<TABLE>
<CAPTION> Equity
Partner Affiliate of Interest
<S> <C> <C>
TCPL Power Ltd. TransCanada PipeLines Limited 40.0%
EUA Ocean State Corporation Eastern Utilities Associates 29.9
Narragansett Energy
Resources Company New England Electric System 20.0
JMC Ocean State Corporation J. Makowski Company, Inc. 10.1
-----
100.0%
=====
</TABLE>
(4) LONG-TERM DEBT
OSP Finance Company is a finance affiliate of OSP and OSP II
(the Partnerships), and each Partnership owns 50% of its
common stock. OSP Finance Company's single purpose is to
provide long-term financing for the Partnerships. In
October 1992, OSP Finance Company issued senior notes to
various institutional investors in three tranches with fixed
interest rates and varying maturity dates. Upon receipt of
the senior note proceeds, OSP Finance Company extended loans
to Partnerships, with terms the same as the senior notes.
On July 20, 1994, the Partnerships entered into a revolving
secured credit agreement (the Revolver) with a commercial
bank for $15,000,000. The Partnerships must pay an annual
commitment fee of .15% on the unused portion of the
Revolver. Principal borrowings under the Revolver are
payable in full at maturity. The Revolver expires on
July 20, 2001 and bears interest at varying rates. The
interest rate at December 31, 1997 and 1996 was 6.344% and
6.031%, respectively. The weighted average amount
outstanding on this revolver at December 31, 1997 and 1996
was $1,192,000 and $5,317,000 for OSP, respectively.
<PAGE>
OCEAN STATE POWER
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
(Continued)
(4) LONG-TERM DEBT (Continued)
Debt outstanding at December 31, 1997 is as follows (dollars
in thousands):
<TABLE>
<CAPTION>
OSP OSP II Total
<S> <C> <C> <C>
6.96% Series A senior notes due
June 15, 2002 $26,701 $22,887 $49,588
7.92% Series B senior notes due
February 15, 2006 22,077 18,923 41,000
8.21% Series C senior notes due
September 15, 2011 31,231 26,769 58,000
Revolving line of credit - 3,300 3,300
------- ------- -------
Total long-term debt 80,009 71,879 151,888
Less Current maturities 5,998 5,141 11,139
------- ------- -------
Long-term debt,
excluding current maturities $74,011 $66,738 $140,749
======= ======= =======
</TABLE>
Debt outstanding at December 31, 1996 is as follows (dollars
in thousands):
<TABLE>
<CAPTION>
OSP OSP II Total
<S> <C> <C> <C>
6.96% Series A senior notes due
June 15, 2002 $32,699 $28,028 $60,727
7.92% Series B senior notes due
February 15, 2006 22,077 18,923 41,000
8.21% Series C senior notes due
September 15, 2011 31,231 26,769 58,000
Revolving line of credit 4,500 2,000 6,500
------- ------- -------
Total long-term debt 90,507 75,720 166,227
Less Current maturities 5,998 5,141 11,139
------- ------- -------
Long-term debt,
excluding current maturities $84,509 $70,579 $155,088
======= ======= =======
</TABLE>
The Partnerships are guarantors of the senior note agreement
and the Revolver on a joint and several basis. The senior
notes and amounts outstanding under the Revolver are
collateralized by assignment of the rights and interest in
all of the Partnerships' unit power agreements and all
resulting proceeds, with the exception, however, of revenues
under the unit power agreements that are attributable to
domestic gas transportation, on which the domestic gas
transporter has a first lien.
<PAGE>
OCEAN STATE POWER
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
(Continued)
(4) LONG-TERM DEBT (Continued)
The senior note agreement and the Revolver contain certain
covenants, including restrictions on the creation of liens,
sale of assets, amendment of agreements and the incurrence
of additional indebtedness.
OSP's share of the senior notes matures at $5,998,000 per
year over the life of the senior notes.
(5) COMMITMENTS AND CONTINGENCIES
OSP has entered into various agreements in connection with
the operation of the power plant. OSP is obligated under
the following agreements/commitments.
Gas Supply and Transportation
OSP has a firm, 20-year gas purchase contract with a
Canadian supplier for the purchase of 50,000 Mcf per day or
a minimum of 12,318,750 Mcf per year, to be delivered to the
U.S./Canadian border. OSP may also purchase additional
quantities of gas as available. The contract price is based
on an initial base price, subject to monthly adjustments
based on changes in the New England Power Pool's (NEPOOL)
Fossil Fuel Index price. This contract provides OSP with
its primary fuel supply while maintaining other gas supply
options and oil as backups.
OSP has a firm, 20-year fuel transportation agreement with
Tennessee Gas Pipeline Company for delivery of natural gas
from the U.S./Canadian border to the plant. The agreement
may be extended beyond 20 years on a year-by-year basis.
Tax Treaty
The Partnerships entered into a tax treaty with the Town of
Burrillville, Rhode Island, providing for annual payments to
the town in lieu of any taxes that would normally be
assessed. Payments are to be made quarterly over the
20-year period through 2011 and are to be shared equally by
the Partnerships. The total payments for OSP in 1997 and
for each of the five years subsequent to December 31, 1997
are as follows (dollars in thousands):
1997 $1,546
1998 1,671
1999 1,774
2000 1,774
2001 1,774
2002 1,924
Other Commitments
As part of the costs incurred to obtain the site on which
the power unit is constructed, OSP has entered into certain
agreements that provide for payments in lieu of taxes in
<PAGE>
OCEAN STATE POWER
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
(Continued)
(5) COMMITMENTS AND CONTINGENCIES (Continued)
Other Commitments (Continued)
addition to the tax treaty above. OSP agreed to make annual
payments to the scholarship and community service
foundations in Burrillville, Rhode Island, and Uxbridge,
Massachusetts, as well as to the Harrisville, Rhode Island,
fire district in anticipation of any services to be
rendered. Payments are to be made annually over the 20-year
life and are to be shared equally by the Partnerships.
Deferred Revenues
OSP filed its 1995 supplement to its rate schedules with the
FERC on February 1, 1995, setting forth its proposed Return
on Equity (ROE) of 12.90% for 1995. Three parties
challenged OSP's determination of the ROE and requested a
hearing to determine the appropriate ROE for 1995. After a
hearing was set, OSP submitted an offer to settle the
proceedings at an ROE of 12.33%, which the presiding
administrative law judge certified to the FERC. The parties
are currently waiting for the FERC's decision on whether to
approve the settlement offer. At December 31, 1997, OSP has
deferred revenue recognition of $1,021,000 for the
difference between 12.90% and 12.33%, OSP's estimated result
of the proceedings.
Industry Restructuring
The states in which OSP's partners and power purchasers are
based have utility restructuring plans in different stages
of development or implementation. Some states, such as
Massachusetts, call for an earlier initiation of retail
competition and divestiture of generation assets, as well as
providing for other arrangements for recovery of stranded
costs.
OSP believes that there are many uncertainties associated
with any major restructuring of the electric utility
industry. Among them are: the positions that will ultimately
be taken by the various New England states and their
regulatory agencies and their applicability to OSP; the role
of the FERC in any restructuring involving OSP, and the
ultimate positions it will take on relevant issues within
its jurisdiction; to what extent the United States Congress
will take legislative action and, if it does, with what
results; whether the necessary political consensus can be
reached on the significant and complex issues involved in
changing the long-standing structure of the electric utility
industry; and to what extent electric utilities will be
permitted to recover their strandable costs. OSP cannot
predict what form the restructuring of the electric utility
industry will take, and therefore, what effect any resulting
restructuring will have on OSP's business operations or
financial results.
<PAGE>
OCEAN STATE POWER
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
(Continued)
(6) RELATED PARTIES
Ownership Sales
In November 1997, agreements were reached whereby an
affiliate of TCPL Power Ltd. will acquire all of the issued
and outstanding capital stock of JMC Ocean State Corporation
and Narragansett Energy Resources Company. As part of the
agreements, a separate affiliate of TCPL Power Ltd. will
acquire all of the rights and obligations under the OSP and
OSP II unit power agreements currently held by New England
Power Company. These transactions are expected to close
following approvals by federal and state regulators.
Ground Lease
OSP entered into an agreement to lease certain property on
which OSP II was constructed to OSP II. The original lease
term expires on December 31, 2011 and is renewable in
five-year periods through September 2088. The lease may be
terminated by OSP II with the appropriate written notice to
OSP during the initial term. OSP may terminate the lease
only upon its purchase of OSP II's power unit.
Under the provisions of the lease, OSP II paid approximately
$1.1 million of initial rent upon receipt of its
construction financing. OSP has classified amounts under
this provision as deferred rent revenue to be amortized over
the life of the lease.
OSP has an option to acquire OSP II's unit at any time at a
price equal to the greater of its fair value or any amounts
due under any mortgage on the unit.
Common Facilities Lease
OSP entered into an agreement to lease to OSP II an
undivided interest in certain common facilities. The basic
term expired on September 30, 1997. The Partnerships are
currently in the process of renewing this lease, which may
be extended in five-year increments through September 2088.
Rent is payable in an amount equal to OSP II's share of the
monthly investment cost of the common facilities for the
basic term of the lease and an amount equal to a fair market
rental value of the leased property thereafter. OSP II is
obligated to share in the costs of maintaining the facility
and has an option to purchase its undivided interest in the
common facilities for its appraised fair market value. The
lease may be terminated by OSP II upon written notice and
payment of certain rents based on the fair market value
during the canceled term.
Project Administration Agent
Effective October 1, 1996, TransCanada Power (TCP), a
division of TransCanada Energy Ltd., an affiliate of TCPL
Power Ltd., was appointed project administration agent to
manage the day-to-day affairs of OSP. TCP is compensated at
agreed-upon billing rates that are adjusted annually. TCP
was paid approximately $597,000 and $137,000 for services
<PAGE>
OCEAN STATE POWER
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
(Continued)
(6) RELATED PARTIES (Continued)
Project Administration Agent (Continued)
provided in 1997 and 1996, respectively. The prior project
administration agent, J. Makowski Management Corp., was paid
approximately $727,000 in 1996 for services rendered.
Interconnection Facility
The Partnerships entered into an agreement to lease the
interconnection facility from Blackstone Valley Electric
Company (BVE), an affiliate of Eastern Utilities Associates.
Rent payments are to be paid monthly over the 20-year period
through 2011 and are to be shared equally by the
Partnerships. OSP paid BVE approximately $604,000 in 1997
and $637,000 in 1996 for use of the interconnection
facility.
Gas Layoff Sales
During the years ended December 31, 1997 and 1996, OSP made
the following sales of available gas at market prices to the
following affiliate entities (dollars in thousands):
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Selkirk Cogen Partners (an affiliate
of JMC Ocean State Corporation) $141 $16
US Generating Corp. (an affiliate of
JMC Ocean State Corporation) - 78
New England Power Company - 17
</TABLE>
(7) PROVISION FOR INCOME TAXES PAYABLE BY PARTNERS
OSP provides an amount equal to income tax expense as if it
were a separate corporation, and this amount is a component
of cost of service. The partners are exempt from state
income tax in Rhode Island. Computed federal income taxes
payable by partners are as follows (dollars in thousands):
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Current $5,838 $ 4,732
Deferred 126 271
Investment tax credits, net (743) 503
------- -------
$5,221 $ 5,506
======= =======
</TABLE>
<PAGE>
OCEAN STATE POWER
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
(Continued)
(7) PROVISION FOR INCOME TAXES PAYABLE BY PARTNERS (Continued)
The tax effects of the temporary differences and tax
carryforwards that give rise to significant portions of the
deferred tax assets and deferred tax liabilities at December
31, 1997 and 1996 are presented below (dollars in
thousands):
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Deferred tax assets
Site restoration reserve $2,603 $ 2,104
Deferred rent revenue 364 390
------- -------
Total deferred tax assets 2,967 2,494
------- -------
Deferred tax liabilities
Property, plant and equipment 13,172 12,618
Regulatory asset 178 133
------- -------
Total deferred tax liabilities 13,350 12,751
------- -------
Net deferred tax liability $10,383 $10,257
======= =======
</TABLE>
A valuation allowance has not been recorded at December 31,
1997 and 1996, since OSP expects that all deferred income
tax assets will be utilized in the future.
(8) DISCLOSURE OF FAIR MARKET VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash and cash equivalents
approximate fair value because of the short maturity of
these investments. The fair value of the site restoration
fund is based on the quoted market prices of the investments
of the fund. The fair value of long-term debt is estimated
based on currently quoted market prices for similar types of
borrowing arrangements.
The estimated fair value of OSP's financial instruments as
of December 31, 1997 are as follows (dollars in thousands):
<TABLE>
<CAPTION>
Carrying Value Fair Value
<S> <C> <C>
Cash and cash equivalents $ 1,914 $ 1,914
Site restoration fund 7,443 7,443
Long-term debt 80,009 72,871
</TABLE>
The estimated fair value of OSP's financial instruments as
of December 31, 1996 are as follows (dollars in thousands):
<TABLE>
<CAPTION>
Carrying Value Fair Value
<S> <C> <C>
Cash and cash equivalents $ 4,532 $ 4,532
Site restoration fund 6,018 6,018
Long-term debt 90,507 96,190
</TABLE>
<PAGE>
Exhibit E.4
ARTHUR ANDERSEN LLP
OCEAN STATE POWER II
FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1997 AND 1996
TOGETHER WITH AUDITORS' REPORT
<PAGE>
ARTHUR ANDERSEN LLP
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Management Committee of
Ocean State Power II:
We have audited the accompanying balance sheets of Ocean State Power II (a
Rhode Island partnership) as of December 31, 1997 and 1996, and the related
statements of income, changes in partners' capital and cash flows for the
years then ended. These financial statements are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
As described in Note 2, these financial statements were prepared in
accordance with the accounting requirements of the Federal Energy Regulatory
Commission as set forth in its applicable Uniform System of Accounts and
published accounting releases, which is a comprehensive basis of accounting
other than generally accepted accounting principles.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Ocean State Power II as of
December 31, 1997 and 1996, and the results of its operations and its cash
flows for the years then ended, in accordance with the accounting
requirements of the Federal Energy Regulatory Commission as set forth in its
applicable Uniform System of Accounts and published accounting releases.
s/Arthur Andersen LLP
Boston, Massachusetts
March 12, 1998
<PAGE>
<TABLE>
OCEAN STATE POWER II
BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
(DOLLARS IN THOUSANDS)
<CAPTION>
ASSETS
1997 1996
------------- -----------
<S> <C> <C>
ELECTRIC PLANT, AT ORIGINAL COST $180,197 $176,525
Less-Accumulated depreciation and amortization (Note 2) 51,728 45,142
------------ ------------
128,469 131,383
CONSTRUCTION WORK IN PROGRESS - 2,866
------------ ------------
Net electric plant 128,469 134,249
CURRENT ASSETS:
Cash and cash equivalents 1,690 516
Accounts receivable:
Affiliated companies (Notes 1, 3 and 6) 13,509 12,899
Other 4,210 4,202
Inventories:
Fuel 609 597
Materials and supplies 5,454 6,031
Prepayments 243 297
------------ -----------
Total current assets 25,715 24,542
DEFERRED CHARGES AND OTHER ASSETS:
Prepaid rent (Note 6) 1,040 1,116
Unamortized debt expense (Note 2) 1,001 1,089
Site restoration fund (Note 2) 6,816 5,383
Other 190 201
------------ -----------
Total deferred charges and other assets 9,047 7,789
Total assets $163,231 166,580
============ ===========
PARTNERS' CAPITAL AND LIABILITIES
CAPITALIZATION:
Partners' capital (see accompanying statement) $73,353 72,713
Long-term debt, net of current maturities (Note 4) 66,738 70,579
------------ ------------
Total capitalization 140,091 143,292
CURRENT LIABILITIES:
Current maturities of long-term debt (Note 4) 5,141 5,141
Accounts payable and accrued expenses:
Affiliated companies 2,989 2,552
Other 5,072 6,778
Accrued interest on debt - affiliates 226 238
------------ ------------
Total current liabilities 13,428 14,709
COMMITMENTS AND CONTINGENCIES (Note 5)
RESERVES AND DEFERRED CREDITS:
Deferred federal income taxes payable
by partners (Notes 2 and 7) 2,896 3,196
Site restoration reserve (Note 2) 6,816 5,383
------------ ------------
Total reserves and deferred credits 9,712 8,579
Total partners' capital and liabilities $163,221 $166,580
============ ============
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
OCEAN STATE POWER II
STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1997 AND 1996
(DOLLARS IN THOUSANDS)
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
ELECTRIC OPERATING REVENUES (Notes 1 and 2) $100,131 $101,508
OPERATING EXPENSES:
Fuel costs 45,989 54,051
Operating expense 11,134 11,098
Maintenance expense 10,633 2,960
Depreciation and site restoration (Note 2) 10,115 9,886
Income taxes payable by partners (Notes 2 and 7) 5,207 5,395
Property taxes and payments in lieu of taxes (Note 5) 1,777 1,711
------------ ------------
84,855 85,101
Operating income 15,276 16,407
OTHER INCOME (EXPENSE):
Allowance for other funds used during
construction (Note 2) 96 69
Interest income 328 219
Other, net (67) (35)
------------ ------------
357 253
Income before interest charges 15,633 16,660
INTEREST CHARGES:
Long-term debt (Note 4) 5,754 6,596
Allowance for borrowed funds used
during construction (Note 2) (54) (34)
------------ ------------
5,700 6,562
Net income $ 9,933 $ 10,098
============ ============
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
OCEAN STATE POWER II
STATEMENTS OF PARTNERS' CAPITAL
YEARS ENDED DECEMBER 31, 1997 AND 1996
(DOLLARS IN THOUSANDS)
<CAPTION>
EUA Narragansett
TCPL Ocean State Energy JMC Ocean
Power Ltd. Corp. Resources Co. State Corp. Total
---------- ----------- ------------- ----------- ----------
<S> <C> <C> <C> <C> <C>
PARTNERSHIP INTEREST 40.0% 29.9% 20.0% 10.1% 100.0%
BALANCE AT DECEMBER 31, 1995 $ 30,601 22,874 15,300 7,727 76,502
Net income 4,039 3,019 2,020 1,020 10,098
Current federal income
taxes payable by
partners (Notes 2 and 7) 2,285 1,709 1,142 577 5,713
Distributions (7,840) (5,860) (3,920) (1,980) (19,600)
------------ ----------- ----------- ----------- ------------
BALANCE AT DECEMBER 31, 1996 29,085 21,742 14,542 7,344 72,713
Net income 3,973 2,970 1,987 1,003 9,933
Current federal income taxes
payable by partners
(Notes 2 and 7) 2,203 1,647 1,101 556 5,507
Distributions (5,920) (4,425) (2,960) (1,495) (14,800)
------------ ----------- ----------- ----------- ------------
BALANCE AT DECEMBER 31, 1997 $29,341 21,934 14,670 7,408 73,353
============ =========== =========== =========== ============
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
OCEAN STATE POWER II
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997 AND 1996
(DOLLARS IN THOUSANDS)
<CAPTION>
1997 1996
----------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $9,933 10,098
Adjustments to reconcile net income to net cash
provided by operating activities:
Income taxes payable by partners 5,207 5,395
Depreciation 8,993 8,764
Provision for site restoration 1,122 1,122
Site restoration interest 311 218
Amortization of debt expense 88 678
Allowance for other funds used
during construction (96) (69)
Salvage 226 108
Changes in assets and liabilities:
Accounts receivable (618) 973
Inventories 565 (2,813)
Prepayments 54 (88)
Prepaid rent 76 75
Accounts payable and accrued expenses (1,269) 2,605
Accrued interest (12) (13)
Other assets and liabilities 11 80
----------- -----------
Net cash provided by operating
activities 24,591 27,133
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (3,343) (2,939)
Site restoration fund (1,433) (1,340)
----------- -----------
Net cash used for investing
activities (4,776) (4,279)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt 1,300 1,300
Distributions to partners (14,800) (19,600)
Repayment of long-term debt (5,141) (5,141)
------------ ------------
Net cash used for financing
activities (18,641) (23,441)
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 1,174 (587)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 516 1,103
------------ ------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 1,690 $ 516
============ ============
CASH PAID FOR INTEREST $ 5,678 5,930
============ ============
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
OCEAN STATE POWER II
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
(1) ORGANIZATION AND BUSINESS
Organization and Management
Ocean State Power II (OSP II) is a Rhode Island general
partnership with four general partners (see Note 3). OSP II
is managed by a committee of representatives from each of
the partners and has no employees. Plant operations and
project administration are performed under various
contractual arrangements, as described below.
Business
OSP II was formed to construct, own and operate a combined
cycle electric generating plant located in Burrillville,
Rhode Island, adjacent to a second generating plant that is
operated by an affiliate, Ocean State Power (OSP). The
plant's average net capacity is approximately 250 megawatts,
and it is fired by natural gas purchased under a firm 20-
year gas purchase contract. The plant commenced commercial
operations on October 1, 1991. The plant's capacity and
energy output is being sold under 20-year take-or-pay unit
power agreements to three investor-owned utilities located
in Massachusetts and Rhode Island. These utilities are
obligated to pay their portion of OSP II's total costs,
including amounts for income taxes payable by partners, and
a return on invested capital. The price of the energy sold
is determined based on a Federal Energy Regulatory
Commission (FERC) filed cost of service contract with an
adjustment factor for unit availability. The following
utilities have agreed to purchase electricity generated in
the following proportions:
Power
Purchase
Power Purchaser Affiliate of Percentage
--------------- ------------ -----------
Boston Edison Company - 23.5%
New England Power Company Narragansett Energy
Resources Company 48.5
Montaup Electric Company EUA Ocean State Corporation 28.0
------
100.0%
======
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Regulation
OSP II's rates, operations, accounting and other matters are
subject to the regulatory authority of the FERC and other
federal and state agencies. Certain gas transportation
agreements are also subject to regulation by Canadian
authorities.
<PAGE>
OCEAN STATE POWER II
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
(Continued)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Regulation (Continued)
OSP II is subject to the provisions of Statement of
Financial Accounting Standards (SFAS) No. 71, Accounting for
the Effects of Certain Types of Regulation, and, therefore,
certain of the accounting principles followed may differ
from enterprises in general to reflect the economic effect
of rate actions of the FERC. See Note 5 for a discussion of
industry restructuring and the related uncertainties
associated with accounting for regulated businesses.
Allowance for Funds Used During Construction
OSP II capitalizes an allowance for funds used during
construction (AFUDC), which represents the net cost of
borrowed funds used for construction purposes and a
reasonable rate of return on OSP II's equity when used.
These costs will be recovered over the service life of the
plant in the form of revenue collected to recover
depreciation expense.
Electric Operating Revenues
OSP II bills its customers monthly based on estimates in
accordance with the agreements described in Note 1, with a
subsequent true-up to reflect actual costs. Amounts due
from customers at year-end but not yet reflected in
customers' bills totaled approximately $496,000 in 1997 and
$618,000 in 1996 and are included in accounts receivable.
The unit power agreements contain incentive provisions
related to the performance of the facility. These
incentives provide for bonuses payable to OSP II based on
the extent to which the electrical capability of the plant
exceeds target performance levels. Alternatively, these
incentives provide for decreases in capacity charges payable
by power purchasers based on the extent to which the
electrical capability of the plant falls below target
levels. OSP II has billed and recorded revenues related to
these performance incentives of $3.3 million in 1997 and
$3.2 million in 1996.
Unamortized Debt Expense
Unamortized debt expense represents the costs incurred
related to project financing and are amortized using the
effective interest rate method over the original life of the
debt.
<PAGE>
OCEAN STATE POWER II
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
(Continued)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Depreciation and Site Restoration
Depreciation is provided to allocate the cost of OSP II's
electric plant on a straight-line basis over the following
estimated useful lives:
Plant and equipment Remaining life of unit power
agreement (expires 2011)
Following termination of operations, OSP II is obligated to
restore the site to its original preconstruction condition.
Based on a study conducted in 1991, the estimated cost, in
future dollars, for OSP and OSP II is approximately
$65 million. OSP II accrues for one half of the estimated
site restoration costs over the life of the plant; OSP is
responsible for the remaining half of the estimated costs.
The estimate of site restoration is based on a number of
assumptions. The future dollars estimate was determined by
inflating individual costs from mid-1993 to the anticipated
date of expenditure, expressed at six-month periods, at an
annual 4.5% inflation rate. The 1994 FERC Settlement
Agreement assumes an after-tax rate of return on amounts
collected for site restoration of 5.5%, with collections
beginning in November 1991 and continuing through October
2011. Changes in assumptions for such things as labor and
material costs, technology, inflation and the timing of site
restoration could cause this estimate to change in the near
term. OSP II recognizes the relative uncertainties
associated with site restoration, including its changing
technology and the possibility of new requirements of law,
and therefore recognizes the need to monitor and adjust site
restoration collections through supplemental rate filings
with the FERC.
Funds are deposited into a trust pending their ultimate use.
In accordance with SFAS No. 115, Accounting for Certain
Investments in Debt and Equity Securities, OSP and OSP II
have classified their site restoration funds as available-
for-sale securities and reflected them at fair market value
in the accompanying balance sheets. The investment income
is retained within the trust account. The cost and fair
market value of the site restoration fund at December 31,
1997 was $6,042,000 and $6,816,000, respectively, and at
December 31, 1996 were $4,920,000 and $5,383,000,
respectively.
The staff of the Securities and Exchange Commission has
questioned certain current accounting practices of the
electric utility industry regarding the recognition,
measurement and classification of decommissioning costs for
nuclear generating stations in financial statements of
electric utilities. In response to those questions, the
Financial Accounting Standards Board (FASB) has initiated a
review of the accounting for such costs. The FASB has
<PAGE>
OCEAN STATE POWER II
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
(Continued)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Depreciation and Site Restoration (Continued)
considered several approaches, including recording the
entire estimated liability for decommissioning costs
initially, rather than accruing the costs over the operating
life of the generating unit. OSP II believes that such an
accounting change, if adopted by the FASB, would not
adversely affect OSP II's results of operations due to its
ability to recover decommissioning costs through rates.
Cash and Cash Equivalents
OSP II considers all highly liquid investments with a
maturity of three months or less to be cash equivalents.
Income Taxes
Income taxes are the responsibility of the partners and are
not normally reflected in the financial statements of
partnerships under generally accepted accounting principles.
However, the billing calculation includes an allowance for
income taxes, and the FERC requires that OSP II record this
provision on its records to reflect the income taxes
calculated as if OSP II were a taxable corporation. The
provisions for current and deferred income taxes payable by
partners are recorded without regard to whether each partner
could utilize its share of OSP II tax deductions. Partners'
capital and the net investment base are reduced by the
amount equivalent to accumulated deferred federal income
taxes payable by partners in calculating the allowed return.
OSP II recognizes, in accordance with SFAS No. 109,
Accounting for Income Taxes, tax assets and liabilities for
the cumulative effect of all temporary differences between
financial statement carrying amounts and the tax bases of
assets and liabilities. The standard also requires the
adjustment of deferred tax liabilities or assets for an
enacted change in tax laws or rates, among other things.
Planned Major Overhauls
Periodic major overhauls of the gas and stream turbines will
be necessary to maintain the facility's operating capacity.
The Partnership follows the direct expensing method for
these overhaul costs.
Use of Estimates
The preparation of financial statements requires management
to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results
could differ from those estimates.
<PAGE>
OCEAN STATE POWER II
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
(Continued)
(3) PARTNERS' CAPITAL
The general partners, along with their respective equity
interests, at December 31, 1997 are as follows:
<TABLE>
<CAPTION> Equity
Partner Affiliate of Interest
<S> <C> <C>
TCPL Power Ltd. TransCanada PipeLines Limited 40.0%
EUA Ocean State Corporation Eastern Utilities Associates 29.9
Narragansett Energy
Resources Company New England Electric System 20.0
JMC Ocean State Corporation J. Makowski Company, Inc. 10.1
-----
100.0%
=====
</TABLE>
(4) LONG-TERM DEBT
OSP Finance Company is a finance affiliate of OSP and OSP II
(the Partnerships), and each Partnership owns 50% of its
common stock. OSP Finance Company's single purpose is to
provide long- term financing for the Partnerships. In
October 1992, OSP Finance Company issued senior notes to
various institutional investors in three tranches with fixed
interest rates and varying maturity dates. Upon receipt of
the senior note proceeds, OSP Finance Company extended loans
to Partnerships, with terms the same as the senior notes.
On July 20, 1994, the Partnerships entered into a revolving
secured credit agreement (the Revolver) with a commercial
bank for $15,000,000. The Partnerships must pay an annual
commitment fee of .15% on the unused portion of the
Revolver. Principal borrowings under the Revolver are
payable in full at maturity. The Revolver expires on
July 20, 2001 and bears interest at varying rates. The
interest rate at December 31, 1997 and 1996 was 6.344% and
6.013%, respectively. The weighted average amount
outstanding on this revolver at December 31, 1997 and 1996
was $3,367,000 and $1,342,000 for OSP II, respectively.
Debt outstanding at December 31, 1997 is as follows (dollars
in thousands):
<PAGE>
OCEAN STATE POWER II
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
(Continued)
(4) LONG-TERM DEBT (Continued)
<TABLE>
<CAPTION>
OSP OSP II Total
<S> <C> <C> <C>
6.96% Series A senior notes due
June 15, 2002 $26,701 $22,887 $49,588
7.92% Series B senior notes due
February 15, 2006 22,077 18,923 41,000
8.21% Series C senior notes due
September 15, 2011 31,231 26,769 58,000
Revolving line of credit - 3,300 3,300
------- ------- -------
Total long-term debt 80,009 71,879 151,888
Less Current maturities 5,998 5,141 11,139
------- ------- -------
Long-term debt,
excluding current maturities $74,011 $66,738 $140,749
======= ======= =======
</TABLE>
Debt outstanding at December 31, 1996 is as follows (dollars
in thousands):
<TABLE>
<CAPTION>
OSP OSP II Total
<S> <C> <C> <C>
6.96% Series A senior notes due
June 15, 2002 $32,699 $28,028 $60,727
7.92% Series B senior notes due
February 15, 2006 22,077 18,923 41,000
8.21% Series C senior notes due
September 15, 2011 31,231 26,769 58,000
Revolving line of credit 4,500 2,000 6,500
------- ------- -------
Total long-term debt 90,507 75,720 166,227
Less Current maturities 5,998 5,141 11,139
------- ------- -------
Long-term debt,
excluding current maturities $84,509 $70,579 $155,088
======= ======= =======
</TABLE>
The Partnerships are guarantors of the senior note agreement
and the Revolver on a joint and several basis. The senior
notes and amounts outstanding under the Revolver are
collateralized by assignment of the rights and interest in
all of the Partnerships' unit power agreements and all
resulting proceeds, with the exception, however, of revenues
under the unit power agreements that are attributable to
domestic gas transportation, on which the domestic gas
transporter has a first lien.
The senior note agreement and the Revolver contain certain
covenants, including restrictions on the creation of liens,
sale of assets, amendment of agreements and the incurrence
of additional indebtedness.
<PAGE>
OCEAN STATE POWER II
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
(Continued)
(4) LONG-TERM DEBT (Continued)
OSP II's share of the senior notes matures at $5,141,000 per
year over the life of the senior notes.
(5) COMMITMENTS AND CONTINGENCIES
OSP II has entered into various agreements in connection
with the operation of the power plant. OSP II is obligated
under the following agreements/commitments.
Gas Supply and Transportation
OSP II has a firm, 20-year gas purchase contract with two
Canadian suppliers for the purchase of 25,000 Mcf from each
supplier per day or a total minimum of 12,318,750 Mcf per
year, to be delivered to the U.S./Canadian border. One of
the gas purchase contracts was entered into with an
affiliate of TCPL Power Ltd., a general partner. OSP II may
also purchase additional quantities of gas as available.
The contract prices are based on an initial base price,
subject to monthly adjustments based on changes in the New
England Power Pool's (NEPOOL) Fossil Fuel Index price.
These contracts provide OSP II with its primary fuel supply
while maintaining other gas supply options and oil as
backups.
OSP II has a firm, 20-year fuel transportation agreement
with Tennessee Gas Pipeline Company for delivery of natural
gas from the U.S./Canadian border to the plant. The
agreement may be extended beyond 20 years on a year-by-year
basis.
Tax Treaty
The Partnerships entered into a tax treaty with the Town of
Burrillville, Rhode Island, providing for annual payments to
the town in lieu of any taxes that would normally be
assessed. Payments are to be made quarterly over the 20-
year period through 2011 and are to be shared equally by the
Partnerships. The total payments for OSP II in 1997 and for
each of the five years subsequent to December 31, 1997 are
as follows (dollars in thousands):
1997 $1,546
1998 1,671
1999 1,774
2000 1,774
2001 1,774
2002 1,924
Other Commitments
As part of the costs incurred to obtain the site on which
the power unit is constructed, OSP II has entered into
certain agreements that provide for payments in lieu of
taxes in addition to the tax treaty above. OSP II agreed to
<PAGE>
OCEAN STATE POWER
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
(Continued)
(5) COMMITMENTS AND CONTINGENCIES (Continued)
Other Commitments (Continued)
make annual payments to the scholarship and community
service foundations in Burrillville, Rhode Island, and
Uxbridge, Massachusetts, as well as to the Harrisville,
Rhode Island, fire district in anticipation of any services
to be rendered. Payments are to be made annually over the
20-year life and are to be shared equally by the
Partnerships.
Deferred Revenues
OSP II filed its 1995 supplement to its rate schedules with
the FERC on February 1, 1995, setting forth its proposed
Return on Equity (ROE) of 12.90% for 1995. Three parties
challenged OSP II's determination of the ROE and requested a
hearing to determine the appropriate ROE for 1995. After a
hearing was set, OSP II submitted an offer to settle the
proceedings at an ROE of 12.33%, which the presiding
administrative law judge certified to the FERC. The parties
are currently waiting for the FERC's decision on whether to
approve the settlement offer. At December 31, 1997, OSP II
has deferred revenue recognition of $958,000 for the
difference between 12.90% and 12.33%, OSP II's estimated
result of the proceedings.
Industry Restructuring
The states in which OSP II's partners and power purchasers
are based have utility restructuring plans in different
stages of development or implementation. Some states, such
as Massachusetts, call for an earlier initiation of retail
competition and divestiture of generation assets, as well as
providing for other arrangements for recovery of stranded
costs.
OSP II believes that there are many uncertainties associated
with any major restructuring of the electric utility
industry. Among them are: the positions that will ultimately
be taken by the various New England states and their
regulatory agencies and their applicability to OSP II; the
role of the FERC in any restructuring involving OSP II, and
the ultimate positions it will take on relevant issues
within its jurisdiction; to what extent the United States
Congress will take legislative action and, if it does, with
what results; whether the necessary political consensus can
be reached on the significant and complex issues involved in
changing the long-standing structure of the electric utility
industry; and to what extent electric utilities will be
permitted to recover their strandable costs. OSP II cannot
predict what form the restructuring of the electric utility
industry will take, and therefore, what effect any resulting
restructuring will have on OSP II's business operations or
financial results.
<PAGE>
OCEAN STATE POWER
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
(Continued)
(6) RELATED PARTIES
Ownership Sales
In November 1997, agreements were reached whereby an
affiliate of TCPL Power Ltd. will acquire all of the issued
and outstanding capital stock of JMC Ocean State Corporation
and Narragansett Energy Resources Company. As part of the
agreements, a separate affiliate of TCPL Power Ltd. will
acquire all of the rights and obligations under the OSP and
OSP II unit power agreements currently held by New England
Power Company. These transactions are expected to close
following approvals by federal and state regulators.
Ground Lease
OSP II entered into an agreement to lease certain property
on which OSP II was constructed from OSP. The original
lease term expires on December 31, 2011 and is renewable in
five-year periods through September 2088. The lease may be
terminated by OSP II with the appropriate written notice to
OSP during the initial term. OSP may terminate the lease
only upon its purchase of OSP II's power unit.
Under the provisions of the lease, OSP II paid approximately
$1.1 million of initial rent upon receipt of its
construction financing. OSP II has classified amounts under
this provision as prepaid rent to be amortized over the life
of the lease.
OSP has an option to acquire OSP II's power unit at any time
at a price equal to the greater of its fair value or any
amounts due under any mortgage on the unit.
Common Facilities Lease
OSP II entered into an agreement to lease from OSP an
undivided interest in certain common facilities. The basic
term expired on September 30, 1997. OSP I and OSP II are
currently in the process of renewing this lease, which may
be extended in five- year increments through September 2088.
Rent is payable in an amount equal to OSP II's share of the
monthly investment cost of the common facilities for the
basic term of the lease and an amount equal to a fair market
rental value of the leased property thereafter. OSP II is
obligated to share in the costs of maintaining the facility
and has an option to purchase its undivided interest in the
common facilities for its appraised fair market values. The
lease may be terminated by OSP II upon written notice and
payment of certain rents based on the fair market value
during the canceled term.
Project Administration Agent
Effective October 1, 1996, TransCanada Power (TCP), a
division of TransCanada Energy Ltd., an affiliate of TCPL
Power Ltd., was appointed project administration agent to
manage the day-to-day affairs of OSP II. TCP is compensated
at agreed-upon billing rates that are adjusted annually.
<PAGE>
OCEAN STATE POWER
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
(Continued)
(6) RELATED PARTIES (Continued)
Project Administration Agent (Continued)
TCP was paid approximately $597,000 and $137,000 for
services provided in 1997 and 1996, respectively. The prior
project administration agent, J. Makowski Management Corp.,
was paid approximately $586,000 in 1996 for services
rendered.
Interconnection Facility
OSP and OSP II entered into an agreement to lease the
interconnection facility from Blackstone Valley Electric
Company (BVE), an affiliate of Eastern Utilities Associates.
Rent payments are to be paid monthly over the 20-year period
through 2011 and are to be shared equally by the OSP and OSP
II. OSP II paid BVE approximately $604,000 in 1997 and
$637,000 in 1996 for use of the interconnection facility.
Gas Layoff Sales
During the years ended December 31, 1997 and 1996, OSP II
made the following sales of available gas at market prices
to the following affiliate entities (dollars in thousands):
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Selkirk Cogen Partners (an affiliate
of JMC Ocean State Corporation) $165 $-
US Generating Corp. (an affiliate of
JMC Ocean State Corporation) - 27
</TABLE>
(7) PROVISION FOR INCOME TAXES PAYABLE BY PARTNERS
OSP II provides an amount equal to income tax expense as if
it were a separate corporation, and this amount is a
component of cost of service. The partners are exempt from
state income tax in Rhode Island. Computed federal income
taxes payable by partners are as follows (dollars in
thousands):
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Current $5,507 $ 5,713
Deferred (300) (318)
------- -------
$5,207 $ 5,395
======= =======
</TABLE>
The tax effects of the temporary differences and tax
carryforwards that give rise to significant portions of the
deferred tax assets and deferred tax liabilities at December
31, 1997 and 1996 are presented below (dollars in thousands):
<PAGE>
OCEAN STATE POWER
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
(Continued)
(7) PROVISION FOR INCOME TAXES PAYABLE BY PARTNERS (Continued)
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Deferred tax assets
Site restoration reserve $2,374 $ 1,872
Other 241 215
------- -------
Total deferred tax assets 2,615 2,087
------- -------
Deferred tax liabilities
Property, plant and equipment 5,469 5,244
Regulatory asset 42 39
------- -------
Total deferred tax liabilities 5,511 5,283
------- -------
Net deferred tax liability $2,896 $3,196
======= =======
</TABLE>
A valuation allowance has not been recorded at December 31,
1997 and 1996, since OSP II expects that all deferred income
tax assets will be utilized in the future.
(8) DISCLOSURE OF FAIR MARKET VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash and cash equivalents
approximate fair value because of the short maturity of
these investments. The fair value of the site restoration
fund is based on the quoted market prices of the investments
of the fund. The fair value of long-term debt is estimated
based on currently quoted market prices for similar types of
borrowing arrangements.
The estimated fair value of OSP II's financial instruments
as of December 31, 1997 are as follows (dollars in
thousands):
<TABLE>
<CAPTION>
Carrying Value Fair Value
<S> <C> <C>
Cash and cash equivalents $ 1,690 $ 1,690
Site restoration fund 6,816 6,816
Long-term debt 71,879 65,761
</TABLE>
The estimated fair value of OSP II's financial instruments
as of December 31, 1996 are as follows (dollars in
thousands):
<TABLE>
<CAPTION>
Carrying Value Fair Value
<S> <C> <C>
Cash and cash equivalents $ 516 $ 516
Site restoration fund 5,383 5,383
Long-term debt 75,720 80,591
</TABLE>
<PAGE>
Exhibit E.5
ARTHUR ANDERSEN LLP
OSP FINANCE COMPANY
FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1997 AND 1996
TOGETHER WITH AUDITORS' REPORT
<PAGE>
ARTHUR ANDERSEN LLP
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and the Board of Directors of
OSP Finance Company:
We have audited the accompanying balance sheets of OSP Finance Company (a
Delaware corporation) as of December 31, 1997 and 1996, and the related
statements of operations, stockholders' equity and cash flows for the years
then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit also includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of OSP Finance Company as of
December 31, 1997 and 1996, and the results of its operations and its cash
flows for the years then ended, in conformity with generally accepted
accounting principles.
s/Arthur Andersen LLP
Boston, Massachusetts
March 12, 1998
<PAGE>
<TABLE>
OSP FINANCE COMPANY
BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
(DOLLARS IN THOUSANDS)
<CAPTION>
ASSETS
1997 1996
----------- ---------
<S> <C> <C>
CURRENT ASSETS:
Loans receivable from stockholders:
Ocean State Power $ 5,998 $ 5,998
Ocean State Power II 5,141 5,141
Interest receivable from stockholders:
Ocean State Power 257 275
Ocean State Power II 220 235
------------ ------------
Total current assets 11,616 11,649
------------ ------------
LOANS RECEIVABLE FROM STOCKHOLDERS-NONCURRENT (Note 2):
Ocean State Power 74,011 80,009
Ocean State Power II 63,438 68,579
------------ ------------
Total loans receivable-noncurrent 137,449 148,588
------------ ------------
$149,065 160,237
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of senior notes (Note 2) $ 11,139 11,139
Accrued interest 477 510
------------ ------------
Total current liabilities 11,616 11,649
SENIOR NOTES, EXCLUDING CURRENT MATURITIES (Note 2) 137,449 148,588
------------ ------------
Total liabilities 149,065 160,237
------------ ------------
STOCKHOLDERS' EQUITY:
Common stock, $1.00 par value:
Authorized 1,000 shares
Issued and outstanding 20 shares - -
Additional paid-in capital 1 1
Accumulated deficit (1) (1)
------------ ------------
Total stockholders' equity - -
------------ ------------
$149,065 160,237
============ ============
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
OSP FINANCE COMPANY
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1997 AND 1996
(DOLLARS IN THOUSANDS)
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
INCOME:
Interest from Ocean State Power $ 6,380 $ 6,797
Interest from Ocean State Power II 5,468 5,826
----------- -----------
Total income 11,848 12,623
INTEREST EXPENSE:
Senior notes due 2002 3,839 4,614
Senior notes due 2006 3,247 3,247
Senior notes due 2011 4,762 4,762
----------- -----------
Total interest expense 11,848 12,623
----------- -----------
Net income $ - $ -
=========== ===========
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
OSP FINANCE COMPANY
STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1997 AND 1996
(DOLLARS IN THOUSANDS)
<CAPTION>
Additional Total
Common Paid-in Accumulated Stockholders'
Stock Capital Deficit Equity
-------- ---------- ------------ -------------
<S> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1995 $ - $ 1 $ (1) $ -
Net income - - - -
-------- -------- ------- ---------
BALANCE AT DECEMBER 31, 1996 $ - 1 (1) -
Net income - - - -
-------- ------- ------- --------
BALANCE AT DECEMBER 31, 1997
$ - $ 1 $ (1) $ -
======== ======= ======= ========
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
OSP FINANCE COMPANY
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997 AND 1996
(DOLLARS IN THOUSANDS)
<CAPTION>
1997 1996
----------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ - $ -
Adjustments to reconcile net income
to net cash provided by operating
activities:
Changes in operating assets and
liabilities:
Interest receivable 33 32
Accrued interest (33) (32)
----------- ----------
Net cash provided by operating
activities - -
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Repayment of loans by stockholders 11,139 11,139
----------- -----------
Net cash provided by investing activities 11,139 11,139
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of senior notes (11,139) (11,139)
----------- -----------
Net cash used for financing activities (11,139) (11,139)
----------- -----------
NET INCREASE IN CASH - -
CASH, BEGINNING OF PERIOD - -
----------- -----------
CASH, END OF PERIOD $ - $ -
=========== ===========
CASH PAID FOR INTEREST $11,880 $12,655
=========== ===========
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
OSP FINANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
(1) ORGANIZATION AND BUSINESS
-------------------------
OSP Finance Company (the Company) was incorporated in July
1992 as a finance affiliate of Ocean State Power (OSP) and
Ocean State Power II (OSP II). OSP and OSP II (the
Partnerships) each own 50% of the Company's common stock.
The Company's single purpose is to provide long-term debt
financing for the Partnerships. Upon receipt of the senior
note proceeds, as discussed in Note 2, the Company loaned
the proceeds to the Partnerships. The costs associated with
the refinancing were paid by the Partnerships. The interest
and repayment terms of the loans receivable are the same as
the senior notes. The Company does not expect to recognize
any income(loss) for financial reporting or income tax
purposes.
The Partnerships were formed to construct, own and operate
two combined-cycle electric generating plants located in
Burrillville, Rhode Island. Each plant's average net
capacity is approximately 250 megawatts, and each is fired
by natural gas purchased under firm 20-year gas purchase
contracts. OSP commenced commercial operations on December
31, 1990, and OSP II commenced commercial operations on
October 1, 1991. Each plant's capacity and energy output is
being sold under 20-year take-or-pay unit power agreements
to three investor-owned utilities located in Massachusetts
and Rhode Island.
(2) SENIOR NOTES
On October 19, 1992, the Company issued senior notes in
three tranches with fixed interest rates and varying
maturity dates. The senior notes were purchased by various
institutional investors. A detail of the senior notes
outstanding at December 31, 1997 is as follows:
<TABLE>
<CAPTION>
OSP OSP II Total
<S> <C> <C> <C>
6.96% Series A senior notes due
June 15, 2002 $26,701 $22,887 $49,588
7.92% Series B senior notes due
February 15, 2006 22,077 18,923 41,000
8.21% Series C senior notes due
September 15, 2011 31,231 26,769 58,000
------- ------- -------
Total senior notes payable 80,009 68,579 148,588
Less Current maturities 5,998 5,141 11,139
------- ------- -------
Senior notes payable, excluding
current maturities $74,011 $63,438 $137,449
======= ======= =======
</TABLE>
<PAGE>
OSP FINANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
(Continued)
(2) SENIOR NOTES (Continued)
Senior notes outstanding at December 31, 1996 is as follows:
<TABLE>
<CAPTION>
OSP OSP II Total
<S> <C> <C> <C>
6.96% Series A senior notes due
June 15, 2002 $32,699 $28,028 $60,727
7.92% Series B senior notes due
February 15, 2006 22,077 18,923 41,000
8.21% Series C senior notes due
September 15, 2011 31,231 26,769 58,000
------- ------- -------
Total senior notes payable 86,007 73,720 159,727
Less Current maturities 5,998 5,141 11,139
------- ------- -------
Senior notes payable, excluding
current maturities $80,009 $68,579 $148,588
======= ======= =======
</TABLE>
The fair value of the Company's senior notes at December 31,
1997, estimated based on currently quoted market prices for
similar types of borrowing arrangements, is approximately
$135,332,000 in 1997 and $170,281,000 in 1996.
The Partnerships are guarantors of the senior note agreement
on a joint and several basis. The senior notes are
collateralized by assignment of the rights and interest in all
OSP and OSP II's unit power agreements and all resulting
proceeds, with the exception, however, of revenues under the
unit power agreements that are attributable to domestic gas
transportation, on which the domestic gas transporter has a
first lien.
The senior note agreement contains certain covenants,
including restrictions on the creation of liens, sale of
assets, amendment of agreements and the incurrence of
additional indebtedness.
The senior notes mature at $11,139,000 per year, $5,998,000
for OSP and $5,141,000 for OSP II, over the life of the senior
notes.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> OPUR1
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE CONSOLIDATED BALANCE SHEET AND RELATED CONSOLIDATED
STATEMENTS OF INCOME, RETAINED EARNINGS AND CASH FLOWS OF NEW
ENGLAND ELECTRIC SYSTEM, AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<PERIOD-TYPE> 12-MOS
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 3,913,792
<OTHER-PROPERTY-AND-INVEST> 376,046
<TOTAL-CURRENT-ASSETS> 473,483
<TOTAL-DEFERRED-CHARGES> 548,326 <F1>
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 5,311,647
<COMMON> 64,970
<CAPITAL-SURPLUS-PAID-IN> 736,605
<RETAINED-EARNINGS> 954,518
<TOTAL-COMMON-STOCKHOLDERS-EQ> 1,744,442 <F3>
0
39,113 <F2>
<LONG-TERM-DEBT-NET> 1,487,481
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 251,950
<LONG-TERM-DEBT-CURRENT-PORT> 89,910
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 1,698,751
<TOT-CAPITALIZATION-AND-LIAB> 5,311,647
<GROSS-OPERATING-REVENUE> 2,502,591
<INCOME-TAX-EXPENSE> 152,024
<OTHER-OPERATING-EXPENSES> 1,983,706
<TOTAL-OPERATING-EXPENSES> 2,135,730
<OPERATING-INCOME-LOSS> 366,861
<OTHER-INCOME-NET> (5,515)
<INCOME-BEFORE-INTEREST-EXPEN> 361,346
<TOTAL-INTEREST-EXPENSE> 122,342
<NET-INCOME> 220,038
6,851 <F2>
<EARNINGS-AVAILABLE-FOR-COMM> 220,038
<COMMON-STOCK-DIVIDENDS> 152,812
<TOTAL-INTEREST-ON-BONDS> 107,311
<CASH-FLOW-OPERATIONS> 521,113
<EPS-PRIMARY> $3.39
<EPS-DILUTED> $3.39
<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>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> OPUR1
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE BALANCE SHEET AND RELATED STATEMENTS OF INCOME,
RETAINED EARNINGS AND CASH FLOWS OF MASSACHUSETTS ELECTRIC
COMPANY, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<SUBSIDIARY>
<NUMBER> 1
<NAME> MASSACHUSETTS ELECTRIC COMPANY
<MULTIPLIER> 1,000
<S> <C>
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<PERIOD-TYPE> 12-MOS
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 1,126,876
<OTHER-PROPERTY-AND-INVEST> 0
<TOTAL-CURRENT-ASSETS> 236,041
<TOTAL-DEFERRED-CHARGES> 45,450 <F1>
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 1,408,367
<COMMON> 59,953
<CAPITAL-SURPLUS-PAID-IN> 239,169
<RETAINED-EARNINGS> 201,156
<TOTAL-COMMON-STOCKHOLDERS-EQ> 500,407 <F3>
0
15,739
<LONG-TERM-DEBT-NET> 338,387
<SHORT-TERM-NOTES> 4,800
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 29,900
<LONG-TERM-DEBT-CURRENT-PORT> 20,000
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 499,134
<TOT-CAPITALIZATION-AND-LIAB> 1,408,367
<GROSS-OPERATING-REVENUE> 1,624,085
<INCOME-TAX-EXPENSE> 42,454
<OTHER-OPERATING-EXPENSES> 1,479,940
<TOTAL-OPERATING-EXPENSES> 1,522,394
<OPERATING-INCOME-LOSS> 101,691
<OTHER-INCOME-NET> (1,536)
<INCOME-BEFORE-INTEREST-EXPEN> 100,155
<TOTAL-INTEREST-EXPENSE> 34,397
<NET-INCOME> 65,758
2,821
<EARNINGS-AVAILABLE-FOR-COMM> 62,937
<COMMON-STOCK-DIVIDENDS> 23,981
<TOTAL-INTEREST-ON-BONDS> 27,612
<CASH-FLOW-OPERATIONS> 147,607
<EPS-PRIMARY> 0 <F2>
<EPS-DILUTED> 0 <F2>
<FN>
<F1> Total deferred charges includes other assets.
<F2> Per share data is not relevant because the Company's common stock is
wholly-owned by New England Electric System.
<F3> Total common stockholders equity includes the unrealized gain on
securities.
</FN>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> OPUR1
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE BALANCE SHEET AND RELATED STATEMENTS OF INCOME,
RETAINED EARNINGS AND CASH FLOWS OF THE NARRAGANSETT ELECTRIC
COMPANY, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<SUBSIDIARY>
<NUMBER> 2
<NAME> THE NARRAGANSETT ELECTRIC COMPANY
<MULTIPLIER> 1,000
<S> <C>
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<PERIOD-TYPE> 12-MOS
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 568,111
<OTHER-PROPERTY-AND-INVEST> 0
<TOTAL-CURRENT-ASSETS> 89,459
<TOTAL-DEFERRED-CHARGES> 55,285 <F1>
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 712,855
<COMMON> 56,624
<CAPITAL-SURPLUS-PAID-IN> 105,536
<RETAINED-EARNINGS> 129,567
<TOTAL-COMMON-STOCKHOLDERS-EQ> 291,839 <F3>
0
12,800
<LONG-TERM-DEBT-NET> 183,545
<SHORT-TERM-NOTES> 4,425
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 11,925
<LONG-TERM-DEBT-CURRENT-PORT> 5,000
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 203,321
<TOT-CAPITALIZATION-AND-LIAB> 712,855
<GROSS-OPERATING-REVENUE> 520,038
<INCOME-TAX-EXPENSE> 14,247
<OTHER-OPERATING-EXPENSES> 458,575
<TOTAL-OPERATING-EXPENSES> 472,822
<OPERATING-INCOME-LOSS> 47,216
<OTHER-INCOME-NET> (750)
<INCOME-BEFORE-INTEREST-EXPEN> 46,466
<TOTAL-INTEREST-EXPENSE> 18,534
<NET-INCOME> 27,932
1,955
<EARNINGS-AVAILABLE-FOR-COMM> 25,977
<COMMON-STOCK-DIVIDENDS> 14,722
<TOTAL-INTEREST-ON-BONDS> 16,179
<CASH-FLOW-OPERATIONS> 73,720
<EPS-PRIMARY> 0 <F2>
<EPS-DILUTED> 0 <F2>
<FN>
<F1> Total deferred charges includes other assets.
<F2> Per share data is not relevant because the Company's common stock is
wholly-owned by New England Electric System.
<F3> Total common stockholders equity includes the unrealized gain on
securities.
</FN>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> OPUR1
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE BALANCE SHEET AND RELATED STATEMENTS OF INCOME,
RETAINED EARNINGS AND CASH FLOWS OF NEW ENGLAND POWER COMPANY,
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<SUBSIDIARY>
<NUMBER> 3
<NAME> NEW ENGLAND POWER COMPANY
<MULTIPLIER> 1,000
<S> <C>
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<PERIOD-TYPE> 12-MOS
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 1,889,792
<OTHER-PROPERTY-AND-INVEST> 84,548
<TOTAL-CURRENT-ASSETS> 338,337
<TOTAL-DEFERRED-CHARGES> 450,415 <F1>
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 2,763,092
<COMMON> 128,998
<CAPITAL-SURPLUS-PAID-IN> 376,597
<RETAINED-EARNINGS> 407,630
<TOTAL-COMMON-STOCKHOLDERS-EQ> 913,259 <F3>
0
39,666
<LONG-TERM-DEBT-NET> 647,720
<SHORT-TERM-NOTES> 3,125
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 108,125
<LONG-TERM-DEBT-CURRENT-PORT> 50,000
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 1,001,197
<TOT-CAPITALIZATION-AND-LIAB> 2,763,092
<GROSS-OPERATING-REVENUE> 1,677,903
<INCOME-TAX-EXPENSE> 90,009
<OTHER-OPERATING-EXPENSES> 1,397,042
<TOTAL-OPERATING-EXPENSES> 1,487,051
<OPERATING-INCOME-LOSS> 190,852
<OTHER-INCOME-NET> 1,785
<INCOME-BEFORE-INTEREST-EXPEN> 192,637
<TOTAL-INTEREST-EXPENSE> 48,094
<NET-INCOME> 144,543
2,075
<EARNINGS-AVAILABLE-FOR-COMM> 142,468
<COMMON-STOCK-DIVIDENDS> 135,448
<TOTAL-INTEREST-ON-BONDS> 42,277
<CASH-FLOW-OPERATIONS> 224,974
<EPS-PRIMARY> 0 <F2>
<EPS-DILUTED> 0 <F2>
<FN>
<F1> Total deferred charges includes other assets.
<F2> Per share data is not relevant because the Company's common stock is
wholly-owned by New England Electric System.
<F3> Total common stockholders equity includes the unrealized gain on
securities.
</FN>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> OPUR1
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE BALANCE SHEET AND RELATED STATEMENTS OF INCOME,
RETAINED EARNINGS AND CASH FLOWS OF GRANITE STATE ELECTRIC
COMPANY, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<SUBSIDIARY>
<NUMBER> 4
<NAME> GRANITE STATE ELECTRIC COMPANY
<MULTIPLIER> 1,000
<S> <C>
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<PERIOD-TYPE> 12-MOS
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 49,191
<OTHER-PROPERTY-AND-INVEST> 0
<TOTAL-CURRENT-ASSETS> 7,025
<TOTAL-DEFERRED-CHARGES> 2,054 <F1>
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 58,270
<COMMON> 6,040
<CAPITAL-SURPLUS-PAID-IN> 4,000
<RETAINED-EARNINGS> 10,827
<TOTAL-COMMON-STOCKHOLDERS-EQ> 20,936 <F2>
0
0
<LONG-TERM-DEBT-NET> 15,000
<SHORT-TERM-NOTES> 4,075
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 0
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 18,259
<TOT-CAPITALIZATION-AND-LIAB> 58,270
<GROSS-OPERATING-REVENUE> 68,780
<INCOME-TAX-EXPENSE> 1,243
<OTHER-OPERATING-EXPENSES> 63,602
<TOTAL-OPERATING-EXPENSES> 64,845
<OPERATING-INCOME-LOSS> 3,935
<OTHER-INCOME-NET> (51)
<INCOME-BEFORE-INTEREST-EXPEN> 3,884
<TOTAL-INTEREST-EXPENSE> 1,675
<NET-INCOME> 2,209
0
<EARNINGS-AVAILABLE-FOR-COMM> 2,209
<COMMON-STOCK-DIVIDENDS> 1,027
<TOTAL-INTEREST-ON-BONDS> 1,260
<CASH-FLOW-OPERATIONS> 5,768
<EPS-PRIMARY> 0 <F3>
<EPS-DILUTED> 0 <F3>
<FN>
<F1> Total deferred charges includes other assets and other property and
investments.
<F2> Total common stockholders equity includes net unrealized gains on
securities.
<F3> Per share data is not relevant because the Company's common stock is
wholly-owned by New England Electric System.
</FN>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> OPUR1
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE BALANCE SHEET AND RELATED STATEMENTS OF INCOME,
RETAINED EARNINGS AND CASH FLOWS OF NEW ENGLAND HYDRO-
TRANSMISSION ELECTRIC COMPANY, INC., AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SUBSIDIARY>
<NUMBER> 5
<NAME> NEW ENGLAND HYDRO-TRANSMISSION ELECTRIC COMPANY, INC.
<MULTIPLIER> 1,000
<S> <C>
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<PERIOD-TYPE> 12-MOS
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 158,958
<OTHER-PROPERTY-AND-INVEST> 5
<TOTAL-CURRENT-ASSETS> 5,524
<TOTAL-DEFERRED-CHARGES> 4,473
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 168,960
<COMMON> 37,000
<CAPITAL-SURPLUS-PAID-IN> 15,156
<RETAINED-EARNINGS> 386
<TOTAL-COMMON-STOCKHOLDERS-EQ> 52,542
0
0
<LONG-TERM-DEBT-NET> 77,610
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 6,960
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 31,848
<TOT-CAPITALIZATION-AND-LIAB> 168,960
<GROSS-OPERATING-REVENUE> 41,078
<INCOME-TAX-EXPENSE> 5,834
<OTHER-OPERATING-EXPENSES> 19,060
<TOTAL-OPERATING-EXPENSES> 24,894
<OPERATING-INCOME-LOSS> 16,184
<OTHER-INCOME-NET> 167
<INCOME-BEFORE-INTEREST-EXPEN> 16,351
<TOTAL-INTEREST-EXPENSE> 8,130
<NET-INCOME> 8,221
0
<EARNINGS-AVAILABLE-FOR-COMM> 8,221
<COMMON-STOCK-DIVIDENDS> 8,035
<TOTAL-INTEREST-ON-BONDS> 8,123
<CASH-FLOW-OPERATIONS> 18,200
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<TABLE> <S> <C>
<PAGE>
<ARTICLE> OPUR1
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE BALANCE SHEET AND RELATED STATEMENTS OF
INCOME, RETAINED EARNINGS AND CASH FLOWS OF NEW ENGLAND
HYDRO-TRANSMISSION CORPORATION, AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SUBSIDIARY>
<NUMBER> 6
<NAME> NEW ENGLAND HYDRO-TRANSMISSION CORPORATION
<MULTIPLIER> 1,000
<S> <C>
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<PERIOD-TYPE> 12-MOS
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 132,434
<OTHER-PROPERTY-AND-INVEST> 5
<TOTAL-CURRENT-ASSETS> 1,569
<TOTAL-DEFERRED-CHARGES> 5,156
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 139,164
<COMMON> 18,350
<CAPITAL-SURPLUS-PAID-IN> 15,118
<RETAINED-EARNINGS> 868
<TOTAL-COMMON-STOCKHOLDERS-EQ> 34,336
0
0
<LONG-TERM-DEBT-NET> 47,360
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 4,560
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 52,908
<TOT-CAPITALIZATION-AND-LIAB> 139,164
<GROSS-OPERATING-REVENUE> 32,415
<INCOME-TAX-EXPENSE> 3,022
<OTHER-OPERATING-EXPENSES> 19,216
<TOTAL-OPERATING-EXPENSES> 22,238
<OPERATING-INCOME-LOSS> 10,177
<OTHER-INCOME-NET> 59
<INCOME-BEFORE-INTEREST-EXPEN> 10,236
<TOTAL-INTEREST-EXPENSE> 5,046
<NET-INCOME> 5,190
0
<EARNINGS-AVAILABLE-FOR-COMM> 5,190
<COMMON-STOCK-DIVIDENDS> 5,139
<TOTAL-INTEREST-ON-BONDS> 4,997
<CASH-FLOW-OPERATIONS> 14,974
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<TABLE> <S> <C>
<PAGE>
<ARTICLE> OPUR1
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE BALANCE SHEET AND RELATED STATEMENTS OF
INCOME, RETAINED EARNINGS AND CASH FLOWS OF NEW ENGLAND
ELECTRIC TRANSMISSION CORPORATION, AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SUBSIDIARY>
<NUMBER> 7
<NAME> NEW ENGLAND ELECTRIC TRANSMISSION CORPORATION
<MULTIPLIER> 1,000
<S> <C>
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<PERIOD-TYPE> 12-MOS
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 39,070
<OTHER-PROPERTY-AND-INVEST> 0
<TOTAL-CURRENT-ASSETS> 165
<TOTAL-DEFERRED-CHARGES> 341 <F1>
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 39,576
<COMMON> 100
<CAPITAL-SURPLUS-PAID-IN> 2,400
<RETAINED-EARNINGS> 310
<TOTAL-COMMON-STOCKHOLDERS-EQ> 2,810
0
0
<LONG-TERM-DEBT-NET> 16,240
<SHORT-TERM-NOTES> 2,400
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 4,624
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 13,502
<TOT-CAPITALIZATION-AND-LIAB> 39,576
<GROSS-OPERATING-REVENUE> 9,680
<INCOME-TAX-EXPENSE> (20)
<OTHER-OPERATING-EXPENSES> 6,631
<TOTAL-OPERATING-EXPENSES> 6,611
<OPERATING-INCOME-LOSS> 3,069
<OTHER-INCOME-NET> 0
<INCOME-BEFORE-INTEREST-EXPEN> 3,069
<TOTAL-INTEREST-EXPENSE> 2,209
<NET-INCOME> 860
0
<EARNINGS-AVAILABLE-FOR-COMM> 860
<COMMON-STOCK-DIVIDENDS> 735
<TOTAL-INTEREST-ON-BONDS> 2,080
<CASH-FLOW-OPERATIONS> 4,720
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1> Total deferred charges includes other assets.
</FN>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> OPUR1
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE BALANCE SHEET AND RELATED STATEMENTS OF
INCOME, RETAINED EARNINGS AND CASH FLOWS OF NANTUCKET
ELECTRIC COMPANY, AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SUBSIDIARY>
<NUMBER> 8
<NAME> NANTUCKET ELECTRIC COMPANY
<MULTIPLIER> 1,000
<S> <C>
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<PERIOD-TYPE> 12-MOS
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 36,874
<OTHER-PROPERTY-AND-INVEST> 0
<TOTAL-CURRENT-ASSETS> 3,910
<TOTAL-DEFERRED-CHARGES> 1,281 <F1>
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 42,065
<COMMON> 0
<CAPITAL-SURPLUS-PAID-IN> 3,810
<RETAINED-EARNINGS> 859
<TOTAL-COMMON-STOCKHOLDERS-EQ> 4,669
0
0
<LONG-TERM-DEBT-NET> 29,140
<SHORT-TERM-NOTES> 25
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 1,470
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 6,761
<TOT-CAPITALIZATION-AND-LIAB> 42,065
<GROSS-OPERATING-REVENUE> 14,552
<INCOME-TAX-EXPENSE> 262
<OTHER-OPERATING-EXPENSES> 11,927
<TOTAL-OPERATING-EXPENSES> 12,189
<OPERATING-INCOME-LOSS> 2,363
<OTHER-INCOME-NET> 37
<INCOME-BEFORE-INTEREST-EXPEN> 2,400
<TOTAL-INTEREST-EXPENSE> 1,897
<NET-INCOME> 503
0
<EARNINGS-AVAILABLE-FOR-COMM> 503
<COMMON-STOCK-DIVIDENDS> 0
<TOTAL-INTEREST-ON-BONDS> 1,939
<CASH-FLOW-OPERATIONS> 13,435
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1> Total deferred charges includes other assets and other property and
investments.
</FN>
