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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 of the
Securities Exchange Act of 1934
Date of Earliest Event Reported: August 6, 1997
NEW ENGLAND POWER COMPANY
(exact name of registrant as specified in charter)
Massachusetts 1-6564 04-1663070
(state or other (Commission (I.R.S. Employer
jurisdiction of File No.) Identification No.)
incorporation)
25 Research Drive, Westborough, Massachusetts 01582
(Address of principal executive offices)
(508) 389-2000
(Registrant's telephone number, including area code)
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Item 5. Other Events
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Industry Restructuring and Sale Agreement
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On August 6, 1997, New England Electric System (NEES)
announced that its subsidiaries, New England Power Company (the
Company) and The Narragansett Electric Company, have reached an
agreement to sell their non-nuclear generating business to U.S.
Generating Company (US Gen), an affiliate of PG & E Corporation,
for $1.59 billion in cash.
The sale is subject to approval by various state and federal
regulatory agencies, which may take at least six to twelve months.
One of the contingencies to the sale is that all regulatory
approvals must be obtained within eighteen months. The principal
terms of the sale are:
(a) US Gen will pay the NEES companies a purchase price of $1.59
billion. There is a holdback of $225 million. If retail choice is
in place by January 1, 1999 (defined as retail choice for
customers representing 89 percent of kilowatt-hour (kWh) sales of
investor owned utilities in Massachusetts or 50 percent of kWh
sales in New England), the NEES companies will be paid the
holdback upon the later of closing or choice date. If retail
choice is delayed beyond January 1, 1999, then US Gen will retain
part of the holdback at the rate of $75 million for the first year
of delay and $50 million per year of delay thereafter. The portion
of any holdback to be retained will be pro rated for any partial
year;
(b) US Gen will reimburse the NEES companies for $85 million of
costs associated with early retirement and special severance
programs for employees impacted by industry restructuring;
(c) US Gen will assume the Company's entitlements to approximately
1,100 megawatts (MW) of capacity procured under power contracts
with other utilities and independent power producers. The Company
will make payments of approximately $150 million to $170 million
per year through 2007 toward the above market portion of power
contracts. These payments have a net present value of
approximately $1.1 billion; and
(d) US Gen will assume certain existing collective bargaining
agreements through their expiration.
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The after-tax cash proceeds will be used to retire the
Company's generation related debt and for other uses.
Under Rhode Island's Utility Restructuring Act of 1996 and
the Consumers First plan approved by the Massachusetts Department
of Public Utilities earlier this year, the proceeds from the sale
will be used to offset the stranded costs which the NEES companies
have been authorized to recover from customers. Settlement
agreements that would implement the Rhode Island statute and the
Consumers First plan are pending before the Federal Energy
Regulatory Commission (FERC). The NEES companies estimate that,
upon completion of the sale, prices for their customers will drop
on average by approximately 15 percent below today's prices.
The NEES companies non-nuclear generating business includes
three fossil-fuel generating stations and 15 hydroelectric
stations, totaling approximately 4,000 MW of capacity, with a book
value of $1.1 billion.
This Form 8-K contains statements that may be considered
forward looking statements as defined under the securities laws.
Actual results may differ materially. As disclosed in the
Company's Form 10-K for the year ended 1996, there are several
risk factors which could affect actual results. While the NEES
companies believe that this sale agreement and other developments
constitute substantial progress in resolving the uncertainty
regarding the impact on shareholders from industry restructuring,
significant risks remain. These include, but are not limited to:
(i) the potential that ultimately the Massachusetts and Rhode
Island settlements and the Rhode Island statute will not be
implemented in the manner anticipated by NEES, (ii) the
possibility of state or federal legislation that would increase
the risks to shareholders above those contained in the settlements
and Rhode Island statute, and (iii) the potential for adverse
stranded cost recovery decisions involving its subsidiary, Granite
State Electric Company, and the Company's unaffiliated customers.
Even if these risks do not materialize, the implementation of
the sale agreement and the Massachusetts and Rhode Island
settlements and the Rhode Island statute regarding restructuring
will negatively impact financial results for the Company starting
in 1998. The return on equity permitted on the unrecovered
commitments in the generating business is generally 9.4% before
mitigation incentives. To the extent that retail choice is not in
place by January 1, 1998 in Massachusetts, approximately 73
percent of the amount of the Company's earnings in excess of 11.75
percent return on equity must be refunded to Massachusetts
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Electric Company until its earnings cap is met, and then to reduce
stranded costs. In addition, costs associated with the transition
will also be incurred after the sale is completed.
Maine Yankee
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The Company has a 20 percent equity ownership interest in
Maine Yankee Atomic Power Company (Maine Yankee) which owns an 880
MW nuclear generating station. On August 6, 1997, the Maine
Yankee board of directors announced it will permanently shut down
and decommission the station.
As reported earlier, the board had announced in May that it
was reviewing the economic viability of the station and that the
station would likely be permanently shut down unless a buyer could
be found. PECO Energy Co. had expressed an interest in purchasing
the station. But on August 1, 1997, the Maine Yankee board
announced that although considerable progress was made during the
negotiations, the parties could not arrive at a mutually
beneficial agreement.
At June 30, 1997, the Company's net investment in Maine
Yankee was $14.9 million. The Company estimates that Maine
Yankee's future billings to the Company, including decommissioning
of the plant, will be at least $140 million and will be subject to
FERC approval. These estimated costs will be recorded as an
accrued liability with an offsetting regulatory asset in the
expectation that the costs would be recoverable from customers.
Maine Yankee is conducting a decommissioning study and the
decommissioning figures included in the estimated billing amount
shown above may increase substantially.
There is also an on-going review by the Department of Justice
of a Nuclear Regulatory Commission (NRC) investigatory report for
possible criminal violations related to the Maine Yankee station.
Civil fines might also be assessed by the NRC based upon several
inspections, including its independent safety assessment.
Millstone 3 Litigation
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On August 7, 1997, the Company filed suit against Northeast
Utilities (NU) in Massachusetts Superior Court, Worcester County
for damages resulting from the tortious conduct of NU relating to
the Millstone 3 nuclear generating unit (Millstone 3). The
Company is a 12 percent joint owner of Millstone 3, which is
operated by Northeast Nuclear Energy Company, a subsidiary of NU.
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As previously reported and detailed in the press, Millstone 3 has
experienced numerous technical and nontechnical problems. By
order of the NRC, Millstone 3 has remained shut down since April
1996, pending verification that the unit's operations are in
accordance with NRC regulations and the unit's operating license.
The Company is seeking compensation for the losses it has
suffered, including the costs of the lost power and costs
necessary to assure that Millstone 3 can safely return to
operation. The Company also seeks punitive damages.
The Company, on August 7, 1997, also sent a demand for
arbitration to Connecticut Light & Power Company and Western
Massachusetts Electric Company, both subsidiaries of NU, seeking
damages resulting from their breach of obligations under an
agreement with the Company and others regarding the operation and
ownership of Millstone 3.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this Current Report on
Form 8-K to be signed on its behalf by the undersigned thereunto
duly authorized.
NEW ENGLAND POWER COMPANY
s/Michael E. Jesanis
By
Michael E. Jesanis
Treasurer
Date: August 7, 1997
