FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549-1004
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1994
------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
------ ------
Commission File Number 1-5324
------
NORTHEAST UTILITIES
-------------------
(Exact name of registrant as specified in its charter)
MASSACHUSETTS 04-2147929
------------- ----------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
174 BRUSH HILL AVENUE, WEST SPRINGFIELD, MASSACHUSETTS (01090-0010)
- -------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(413) 785-5871
--------------
(Registrant's telephone number, including area code)
Not Applicable
--------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90
days.
Yes X No
___ ___
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Class Outstanding at October 31, 1994
----- -------------------------------
Common Shares, $5.00 par value 124,826,517 shares
NORTHEAST UTILITIES AND SUBSIDIARIES
TABLE OF CONTENTS
Page No.
--------
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets -
September 30, 1994 and December 31, 1993 2
Consolidated Statements of Income - Three
and Nine Months Ended September 30, 1994 and 1993 4
Consolidated Statements of Cash Flows -
Nine Months Ended September 30, 1994 and 1993 5
Notes to Consolidated Financial Statements 6
Report of Independent Public Accountants 10
Item 2. Management's Discussion and Analysis 11
of Financial Condition and Results
of Operations
Part II. Other Information
Item 1. Legal Proceedings 20
Item 5. Other Information 21
Item 6. Exhibits and Reports on Form 8-K 22
Signatures 23
PART I. FINANCIAL INFORMATION
NORTHEAST UTILITIES AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1994 1993
------------- -------------
(Thousands of Dollars)
<S> <C> <C>
ASSETS
- ------
Utility Plant, at original cost:
Electric................................................ $ 9,278,023 $ 9,119,285
Other................................................... 144,377 146,228
------------- -------------
9,422,400 9,265,513
Less: Accumulated provision for depreciation......... 3,234,160 3,021,987
------------- -------------
6,188,240 6,243,526
Construction work in progress........................... 187,687 208,084
Nuclear fuel, net....................................... 214,897 218,051
------------- -------------
Total net utility plant............................. 6,590,824 6,669,661
------------- -------------
Other Property and Investments:
Nuclear decommissioning trusts, at market in 1994
and at cost in 1993 (Note 2)<F2>...................... 238,764 206,179
Investments in regional nuclear generating
companies, at equity................................... 82,383 81,029
Investments in transmission companies, at equity........ 25,650 26,536
Other, at cost.......................................... 36,076 36,882
------------- -------------
382,873 350,626
------------- -------------
Current Assets:
Cash and special deposits............................... 21,667 32,008
Receivables, net........................................ 362,515 357,449
Accrued utility revenues................................ 110,878 150,794
Fuel, materials, and supplies, at average cost.......... 201,208 194,968
Recoverable energy costs, net--current portion.......... 18,875 667
Prepayments and other................................... 54,334 34,611
------------- -------------
769,477 770,497
------------- -------------
Deferred Charges:
Regulatory asset--income taxes, net..................... 1,169,025 1,183,716
Regulatory asset--PSNH.................................. 701,930 769,498
Deferred costs--nuclear plants.......................... 255,094 294,004
Unrecovered contract obligation--YAEC (Note 4)<F4>...... 117,133 132,826
Recoverable energy costs, net........................... 170,876 148,789
Deferred conservation and load-management costs......... 106,453 111,442
Deferred DOE assessment................................. 50,538 53,476
Amortizable property investments........................ 23,960 34,229
Unamortized debt expense................................ 34,233 37,444
Other................................................... 142,076 111,956
------------- -------------
2,771,318 2,877,380
------------- -------------
Total Assets........................................ $ 10,514,492 $ 10,668,164
============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
NORTHEAST UTILITIES AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1994 1993
------------- -------------
(Thousands of Dollars)
<S> <C> <C>
CAPITALIZATION AND LIABILITIES
- ------------------------------
Capitalization:
Common shareholders' equity:
Common shares, $5 par value--authorized
225,000,000 shares; 134,210,090 shares issued and
124,826,585 shares outstanding in 1994 and
134,207,025 shares issued and 124,326,836 shares
outstanding in 1993.................................. $ 671,051 $ 671,035
Capital surplus, paid in.............................. 903,788 901,740
Deferred benefit plan - employee stock
ownership plan...................................... (217,204) (228,205)
Retained earnings..................................... 937,198 879,518
------------- -------------
Total common shareholders' equity.............. 2,294,833 2,224,088
Preferred stock not subject to mandatory redemption..... 239,700 239,700
Preferred stock subject to mandatory redemption......... 379,000 380,500
Long-term debt.......................................... 3,833,878 4,045,468
------------- -------------
Total capitalization........................... 6,747,411 6,889,756
------------- -------------
Obligations Under Capital Leases.......................... 164,289 171,004
------------- -------------
Current Liabilities:
Notes payable to banks.................................. 146,000 173,500
Commercial paper........................................ 39,000 -
Long-term debt and preferred stock--current
portion................................................ 338,809 420,142
Obligations under capital leases--current
portion................................................ 77,285 72,756
Accounts payable........................................ 198,198 229,118
Accrued taxes........................................... 91,752 40,501
Accrued interest........................................ 82,265 69,682
Accrued pension benefits................................ 89,196 82,513
Other................................................... 78,672 83,853
------------- ------------
1,141,177 1,172,065
------------- ------------
Deferred Credits:
Accumulated deferred income taxes....................... 1,956,173 1,911,981
Accumulated deferred investment tax credits............. 194,641 201,635
Deferred contract obligation--YAEC (Note 4)<F4>......... 117,133 132,826
Deferred DOE obligation................................. 39,530 43,034
Other................................................... 154,138 145,863
------------- ------------
2,461,615 2,435,339
------------- ------------
Commitments and Contingencies (Note 5)<F5>
Total Capitalization and Liabilities........... $ 10,514,492 $ 10,668,164
============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
NORTHEAST UTILITIES AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------------- ---------------------------
1994 1993 1994 1993
------------- ------------- ------------- -------------
(Thousands of Dollars, except share information)
<S> <C> <C> <C> <C>
Operating Revenues.......................... $ 923,708 $ 915,239 $ 2,744,509 $ 2,727,200
------------- ------------- ------------- -------------
Operating Expenses:
Operation --
Fuel, purchased and net interchange power. 220,694 215,651 628,462 713,695
Other..................................... 237,505 266,919 677,700 727,435
Maintenance................................ 76,259 69,049 221,850 197,938
Depreciation............................... 84,933 80,313 248,715 240,945
Amortization of regulatory assets, net..... 29,244 59,192 131,082 173,098
Federal and state income taxes............. 75,558 63,353 226,923 171,904
Taxes other than income taxes.............. 63,633 58,037 190,648 184,871
------------- ------------- ------------- -------------
Total operating expenses............ 787,826 812,514 2,325,380 2,409,886
------------- ------------- ------------- -------------
Operating Income............................ 135,882 102,725 419,129 317,314
------------- ------------- ------------- -------------
Other Income:
Deferred nuclear plants return--other
funds................................... 6,777 8,955 20,771 29,928
Equity in earnings of regional nuclear
generating and transmission companies... 3,687 3,504 10,794 9,586
Other, net................................ (4,125) 8,558 2,559 1,012
Income taxes--credit...................... 6,482 8,418 9,963 22,221
------------- ------------- ------------- -------------
Other income, net................... 12,821 29,435 44,087 62,747
------------- ------------- ------------- -------------
Income before interest charges...... 148,703 132,160 463,216 380,061
------------- ------------- ------------- -------------
Interest Charges:
Interest on long-term debt................ 77,903 82,572 234,736 251,501
Other interest............................ 2,554 4,254 5,622 12,217
Deferred nuclear plants return--borrowed
funds.................................. (7,717) (13,007) (31,533) (41,692)
------------- ------------- ------------- -------------
Interest charges, net............... 72,740 73,819 208,825 222,026
------------- ------------- ------------- -------------
Income before cumulative effect of
accounting change................. 75,963 58,341 254,391 158,035
Cumulative effect of accounting change...... - - - 51,681
------------- ------------- ------------- -------------
Income before Preferred Dividends
of Subsidiaries................. 75,963 58,341 254,391 209,716
Preferred Dividends of Subsidiaries......... 10,934 11,920 32,329 36,089
------------- ------------- ------------- -------------
Earnings For Common Shares.................. $ 65,029 $ 46,421 $ 222,062 $ 173,627
============= ============= ============= =============
Earnings Per Common Share:
Before cumulative effect of accounting
change................................... $ 0.52 $ 0.37 $ 1.78 $ 0.98
Cumulative effect of accounting change..... - - - 0.42
------------- ------------- ------------- -------------
Total Earnings Per Common Share............. $ 0.52 $ 0.37 $ 1.78 $ 1.40
============= ============= ============= =============
Common Shares Outstanding (average)......... 124,790,381 124,068,513 124,583,613 123,833,747
============= ============= ============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
NORTHEAST UTILITIES and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE> Nine Months Ended
<CAPTION> September 30,
----------------------
1994 1993
---------- ----------
(Thousands of Dollars)
<S> <C> <C>
Cash Flows From Operations:
Income before preferred dividends.............................. $ 254,391 $ 209,716
Adjusted for the following:
Depreciation ................................................ 248,715 240,945
Deferred income taxes and investment tax credits, net........ 83,521 17,377
Deferred nuclear plants return, net of amortization.......... 36,412 11,572
Deferred energy costs, net of amortization................... (40,295) 91,789
Amortization of regulatory asset-PSNH........................ 41,503 67,941
Deferred conservation and load-management costs,
net of amortization........................................ 4,989 (5,774)
Other sources of cash........................................ 35,337 93,609
Other uses of cash........................................... (33,755) (15,496)
Changes in working capital:
Receivables and accrued utility revenues..................... 34,850 6,958
Fuel, materials, and supplies................................ (6,240) 15,488
Accounts payable............................................. (30,920) 75,689
Accrued taxes................................................ 51,251 (35,834)
Other working capital (excludes cash)........................ (5,638) 25,044
---------- ----------
Net cash flows from operations................................... 674,121 799,024
---------- ----------
Cash Flows Used For Financing Activities:
Issuance of common shares...................................... 11,049 17,907
Issuance of long-term debt..................................... 485,000 729,850
Net increase (decrease) in short-term debt..................... 11,500 (95,740)
Reacquisitions and retirements of long-term debt
and preferred stock.......................................... (783,359) (615,946)
Cash dividends on preferred stock.............................. (32,329) (36,089)
Cash dividends on common shares................................ (164,382) (163,441)
---------- ----------
Net cash flows used for financing activities..................... (472,521) (163,459)
---------- ----------
Investment Activities:
Investments in plant:
Electric utility plant....................................... (176,685) (167,610)
Nuclear fuel................................................. (5,651) (17,306)
---------- ----------
Net cash flows used for investments in plant................... (182,336) (184,916)
Other investment activities, net .............................. (29,605) (24,038)
---------- ----------
Net cash flows used for investments.............................. (211,941) (208,954)
---------- ----------
Net Increase (Decrease) In Cash for the Period................... (10,341) 426,611
Cash and special deposits - beginning of period.................. 32,008 45,646
---------- ----------
Cash and special deposits - end of period........................ $ 21,667 $ 472,257
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
NORTHEAST UTILITIES AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
<F1>1. General
The accompanying unaudited consolidated financial statements should be
read in conjunction with the Annual Report of Northeast Utilities (the
company or NU) on Form 10-K for the year ended December 31, 1993 (1993
Form 10-K). In the opinion of the company, the accompanying financial
statements contain all adjustments necessary to present fairly the
financial position as of September 30, 1994, the results of operations
for the three and nine months ended September 30, 1994 and 1993, and
the statements of cash flows for the nine months ended September 30,
1994 and 1993. The results of operations for the three and nine
months ended September 30, 1994 and 1993 are not necessarily
indicative of the results expected for a full year.
Certain amounts in the accompanying consolidated financial statements
of the company for the period ended September 30, 1993 have been
reclassified to conform with the September 30, 1994 presentation.
<F2>2. Changes in Accounting Principles
Statement of Financial Accounting Standards No. 115 (SFAS 115): In
May 1993, the Financial Accounting Standards Board (FASB) issued
SFAS 115, "Accounting for Certain Investments in Debt and Equity
Securities." SFAS 115 addresses the accounting and reporting for
certain investments in debt and equity securities, and expands the use
of fair value accounting for these securities. SFAS 115 is applicable
to NU with respect to its investments in nuclear decommissioning
trusts.
SFAS 115 requires investments in decommissioning trusts to be
presented at fair value and was adopted by NU on a prospective basis
in the first quarter of 1994.
As a result of the adoption of SFAS 115, NU's investment in nuclear
decommissioning trusts increased by approximately $2.7 million as of
September 30, 1994, with a corresponding offset to the accumulated
provision for depreciation. The $2.7 million increase represents
cumulative gross unrealized holding gains of $6.3 million, offset by
cumulative gross unrealized holding losses of $3.6 million. There was
no change in funding requirements of the trusts nor any impact on
earnings as a result of the adoption of SFAS 115.
Statement of Financial Accounting Standards No. 119 (SFAS 119): In
October 1994, FASB issued SFAS 119, "Disclosure about Derivative
Financial Instruments and Fair Value of Financial Instruments." SFAS
119 requires disclosures about derivative financial instruments -
futures, forward, swap, and option contracts, and other financial
instruments with similar characteristics.
The Connecticut Light and Power Company (CL&P), a wholly-owned
subsidiary of NU, has entered into fossil fuel hedging contracts to
minimize its exposure under certain fixed rate contracts. Currently,
the differential between the market value of fossil fuel and the
fossil fuel prices included in these contracts is not considered to be
material.
<F3>3. Capitalization
On October 12, 1994, CL&P issued $140 million of First and Refunding
Mortgage Bonds, 1994 Series D (the Bonds). The Bonds bear interest at
an annual rate of 7.875 percent, and will mature on October 1, 2024.
The Bonds have a one-time put feature which allows bondholders to put
the Bonds back to CL&P for repayment at par on October 1, 2001.
The net proceeds from the issue and sale of the Bonds were used to
repay a portion of the short-term debt which was incurred to repay the
CL&P 4.25 percent Series WW Bonds ($170 million) on their maturity
date of October 1, 1994.
<F4>4. Yankee Atomic Electric Company (YAEC)
YAEC owns a 185-MW nuclear power plant in Rowe, Massachusetts. The NU
system has a 38.5 percent equity investment approximating $9.9 million
in YAEC. The NU system had relied on YAEC for less than 1 percent of
its capacity. YAEC's owners voted to permanently shut down the YAEC
unit in February 1992. Under the terms of the contracts with YAEC,
the shareholders-sponsors are responsible for their proportionate
share of the operating costs of the unit, including decommissioning.
The nuclear decommissioning costs of YAEC are included as part of the
cost of power by CL&P, Public Service Company of New Hampshire (PSNH),
and Western Massachusetts Electric Company (WMECO), all wholly-owned
subsidiaries of NU.
YAEC has begun decommissioning its nuclear facility. On June 1, 1992,
YAEC filed a rate filing to obtain Federal Energy Regulatory
Commission (FERC) authorization to collect the closing and
decommissioning costs and to recover the remaining investments in the
YAEC nuclear power plant over the remaining period of the plant's
Nuclear Regulatory Commission (NRC) operating license. The bulk of
these costs has been agreed to by the YAEC joint owners and approved,
as a settlement, by the FERC. At September 30, 1994, the NU system's
share of the estimated remaining costs is approximately
$117.1 million. Management expects that CL&P, PSNH, and WMECO will
continue to be allowed to recover such FERC-approved costs from their
customers. Accordingly, NU has recognized these costs as regulatory
assets, with corresponding obligations, on its Consolidated Balance
Sheets.
On October 26, 1994, YAEC submitted a revised decommissioning cost
estimate as part of its decommissioning plan with the NRC. Following
the receipt of NRC approval, this estimate will be filed with the
FERC. This revised cost estimate is expected to increase the NU
system's share of estimated remaining costs by $51.7 million over the
$117.1 million that is currently recorded.
For additional information regarding YAEC, see the Notes to
Consolidated Financial Statements in NU's 1993 Form 10-K.
<F5>5. Commitments and Contingencies
Construction Program: For information regarding the construction
program, see the Notes to Consolidated Financial Statements in NU's
1993 Form 10-K.
Nuclear Performance: For information regarding the termination of the
Connecticut Department of Public Utility Control's (DPUC) prudence
review of the 1992 Millstone 2 steam generator replacement project,
see Management's Discussion and Analysis of Financial Condition and
Results of Operations (MD&A) in NU's June 1994 and March 1994 Form
10-Qs.
For information regarding the termination of the Massachusetts
Department of Public Utilities' (DPU) performance review proceedings
related to outages at the Millstone nuclear units, see the MD&A and
Part II. Other Information - Item 1. Legal Proceedings in NU's
June 1994 and March 1994 Form 10-Qs.
For further information regarding the performance of the NU system's
nuclear units, see the Notes to Consolidated Financial Statements in
NU's 1993 Form 10-K.
PSNH Rate Agreement: For information regarding the PSNH Rate
Agreement, see the MD&A in NU's June 1994 Form 10-Q and the Notes to
Consolidated Financial Statements in NU's 1993 Form 10-K.
Environmental Matters: On a periodic basis, the NU system reviews
known waste disposal sites, and related reserves, for which the
system's subsidiaries expect to bear legal liability. As a result of
its latest review, the NU system increased the liability recorded for
its estimated environmental remediation costs, excluding any insurance
recoveries or recoveries from third parties, from $4.0 million to
$11.0 million. In the event that it becomes necessary to effect
remedies that are not currently probable, it is reasonably possible
that the upper limit of the NU system's environmental liability range
could be approximately $16.3 million.
For additional information regarding environmental matters, see
Part II. Other Information - Item 5. Other Information in NU's
June 1994 Form 10-Q and the Notes to Consolidated Financial Statements
in NU's 1993 Form 10-K.
Nuclear Insurance Contingencies: The Price-Anderson Act currently
limits public liability from a single incident at a nuclear power
plant to $8.8 billion. The first $200 million of liability would be
provided by purchasing the maximum amount of commercially available
insurance. Additional coverage of up to a total of $8.4 billion would
be provided by an assessment of $75.5 million per incident, levied on
each of the 111 nuclear units that are currently subject to the
Secondary Financial Protection Program in the United States, subject
to a maximum assessment of $10 million per incident per nuclear unit
in any year. In addition, if the sum of all public liability claims
and legal costs arising from any nuclear incident exceeds the maximum
amount of financial protection, each reactor operator can be assessed
an additional five percent, up to $3.8 million, or $419.0 million in
total, for all 111 nuclear units. The maximum assessment is to be
adjusted at least every five years to reflect inflationary changes.
Based on the ownership interests in Millstone 1, 2, and 3 and in
Seabrook 1, the NU system's maximum liability would be $244.2 million
per incident. In addition, through contracts with the three Yankee
regional nuclear generating companies with operating plants, the NU
system would be responsible for up to an additional $67.4 million per
incident. Payments for the NU system's ownership interest in nuclear
generating facilities would be limited to a maximum of $39.3 million
per incident per year.
For additional information regarding nuclear insurance contingencies,
see the Notes to Consolidated Financial Statements in NU's 1993 Form
10-K.
Financing Arrangements for the Regional Nuclear Generating Companies:
For information regarding financing arrangements for the regional
nuclear generating companies, see the Notes to Consolidated Financial
Statements in NU's 1993 Form 10-K.
Purchased Power Arrangements: For information regarding purchased
power arrangements, see the MD&A in this Form 10-Q, the MD&A in NU's
June 1994 Form 10-Q, the MD&A and Part II. Other Information - Item
1. Legal Proceedings, in NU's March 1994 Form 10-Q and the Notes to
Consolidated Financial Statements in NU's 1993 Form 10-K.
Hydro-Quebec: For information regarding Hydro-Quebec, see the Notes
to Consolidated Financial Statements in NU's 1993 Form 10-K.
Great Bay Power Corporation (GBPC): For information regarding GBPC's
bankruptcy proceedings, see the MD&A in this Form 10-Q, Part II.
Other Information - Item 1. Legal Proceedings in NU's June 1994 Form
10-Q and the Notes to Consolidated Financial Statements in NU's 1993
Form 10-K.
Property Taxes: For information on property taxes, see Part II.
Other Information - Item 1. Legal Proceedings in this Form 10-Q and
the Notes to Consolidated Financial Statements in NU's 1993 Form 10-K.
Report of Independent Public Accountants
----------------------------------------
To Northeast Utilities:
We have reviewed the accompanying consolidated balance sheet of
Northeast Utilities (a Massachusetts trust) and subsidiaries as of
September 30, 1994, and the related consolidated statements of income
for the three and nine-month periods ended September 30, 1994 and
1993, and the consolidated statements of cash flows for the nine-month
periods ended September 30, 1994 and 1993. These financial statements
are the responsibility of the company's management.
We conducted our review in accordance with standards established by
the American Institute of Certified Public Accountants. A review of
interim financial information consists principally of applying
analytical procedures to financial data and making inquiries of
persons responsible for financial and accounting matters. It is
substantially less in scope than an audit conducted in accordance with
generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications
that should be made to the financial statements referred to above for
them to be in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Arthur Andersen LLP
Hartford, Connecticut
November 9, 1994
NORTHEAST UTILITIES AND SUBSIDIARIES
Management's Discussion and Analysis of Financial
Condition and Results of Operations
This section contains management's assessment of Northeast Utilities'
(NU or the company) financial condition and the principal factors
having an impact on the results of operations. This discussion should
be read in conjunction with the company's consolidated financial
statements and footnotes and the 1993 Form 10-K and the First and
Second Quarter 1994 Form 10-Qs.
FINANCIAL CONDITION
Overview
The company's earnings increased to $1.78 per common share for the
nine months ended September 30, 1994, from $1.40 for the same period
in 1993. The 1993 earnings reflect the cumulative effect of a change
in the method of accounting for Connecticut municipal property tax
expense adopted by certain subsidiaries of NU in the first quarter of
1993. This change resulted in a one-time contribution to 1993 earnings
of approximately $52 million or $0.42 per common share. Earnings per
share increased to $0.52 for three months ended September 30, 1994,
from $0.37 for the same period in 1993.
The increases in earnings from 1993 for the three- and nine-month
periods, before the effect of the one-time accounting change, are
primarily attributable to the costs of a work force reduction program
in the third quarter of 1993 which reduced 1993 earnings by $0.14 per
share. In addition, earnings for the three- and nine-month periods
were impacted by higher retail sales resulting from a colder winter
and an unusually hot June in 1994 and an improvement in the regional
economy, increased revenues from mid-1993 rate increases in NU
subsidiaries' retail jurisdictions, lower operation expenses, lower
interest costs, the impacts of a Public Service Company of New
Hampshire (PSNH) global settlement at the end of 1993 and the deferral
of cogeneration expenses in Connecticut. These increases were
partially offset by lower 1994 revenues from sales to other utilities,
higher maintenance expenses and additional amounts reserved for
environmental exposures. The nine-month earnings in 1993 were also
reduced by disallowances in 1993 resulting from The Connecticut Light
and Power Company s (CL&P) rate decision.
Retail Wheeling and Utility Restructuring
See Part II. Other Information - Item 5. Legal Proceedings. for
information concerning retail wheeling and utility restructuring.
Regulatory Matters
Connecticut
CL&P has a mechanism that has been in operation since 1979 designed to
recover or refund certain non-nuclear fuel costs if the nuclear units
do not operate at a predetermined capacity factor (the Generation
Utilization Adjustment Clause or GUAC).
On August 31, 1994, the DPUC delayed inclusion of CL&P s GUAC recovery
for the 1993-1994 period, amounting to $23.7 million, until CL&P had
revised the calculation to true up for actual booked fuel expense
for the same period. The true up, which reduces the GUAC recovery
by $7.9 million, was filed on September 13, 1994. A final decision
ordering the true-up is expected in late November 1994. If the DPUC
orders this offset, CL&P plans to appeal.
For additional information on this matter, see CL&P s 1993 Form 10-K,
under the caption Item 1. Business - CL&P Adjustment Clauses and
NU s Quarterly Report on Form 10-Q for the quarter ended June 30,
1994.
Unrecovered conservation and load management (C&LM) costs at September
30, 1994, were approximately $106 million. These costs are being
recovered over periods ranging from 3.85 to 8 years.
On October 31, 1994, CL&P filed its recovery mechanism (CAM) for 1995
C&LM costs and programs. The filing proposes 1995 C&LM expenditures
of $36.7 million to be recovered over 3.93 years and a zero CAM rate.
New Hampshire
On September 15, 1994, PSNH filed testimony and exhibits supporting a
request for a revised rate under its Fuel and Purchased Power
Adjustment Clause (FPPAC) to be effective on December 1, 1994. PSNH
estimates that it will underrecover its fuel and purchased power costs
for the period ending November 30, 1994 due to outages at the Seabrook
nuclear unit. PSNH requested recovery of these undercollections over
two six month FPPAC periods in order to maintain the FPPAC rate at its
current level.
The costs associated with purchases from certain independent power
producers (IPPs) over the level assumed in the rate agreement executed
by the Governor and the Attorney General of New Hampshire in 1989 and
subsequently approved by the New Hampshire Public Utilities Commission
(NHPUC) (the Rate Agreement) are deferred and recovered over ten-year
periods through the FPPAC. At September 30, 1994, IPP deferrals which
are included in recoverable energy costs, net on the balance sheet
were approximately $128 million. Most of these purchases are under
long-term rate orders (20-30 years) at prices significantly higher
than PSNH's current or projected avoided costs. PSNH has been
attempting to renegotiate these rate orders as required under the Rate
Agreement.
On September 23, 1994, the NHPUC approved settlement agreements and,
in turn, a fifth amendment to the Rate Agreement allowing the
settlement agreements to be implemented, with two wood-fired IPPs
covering approximately 19.8 MW of capacity. Under the Rate Agreement,
PSNH was required to make its best efforts to renegotiate rate orders
with eight woodburner IPPs, including these two. The six remaining
woodburners account for approximately 87 MW of capacity. The two
settling IPPs will give up their rights to sell their output to PSNH
in exchange for lump sum cash payments totaling approximately $40
million. The buyout payments will be added to the deferred balance of
IPP costs. PSNH will retain 100 percent of the savings resulting from
these arrangements during the remainder of the fixed rate period, and
they will be used to reduce the IPP deferred balance. Thereafter,
PSNH will retain 50 percent of the savings until the deferred balance
is amortized entirely. The balance of the savings will be flowed back
to customers through the FPPAC. The period during which appeals of
the NHPUC decision could be filed has lapsed. PSNH closed these
transactions on October 27, 1994 and November 8, 1994. PSNH is
involved in mediation with the owners of the other six facilities.
PSNH must report to the NHPUC and a New Hampshire legislative
committee on the results of the negotiations by November 14, 1994.
For additional information on this matter, see NU s 1993 Form 10-K,
under the caption Item 1. Business - New Hampshire Retail Rates and
NU s Quarterly Report on Form 10-Q for the quarter ended June 30, 1994
under the caption Part II. Other Information - Item 1. Legal
Proceedings.
The deferred return associated with the amount of North Atlantic
Energy Corporation s (NAEC) Seabrook investment that has not been
included in rates was approximately $172 million through September 30,
1994, including approximately $51 million which is recorded as utility
plant. This amount and the additional deferred amounts associated
with the remaining phase-in will be recovered under NAEC's purchase
agreement with PSNH over the period December 1997 through May 2001.
PSNH will recover these deferred amounts from customers over the
period of June 1998 through May 2001.
Nuclear Matters
The composite capacity factor of the five nuclear generating units
that the NU system operates (including the Connecticut Yankee nuclear
unit (CY)) was 64.3 percent for the nine months ended September 30,
1994, as compared with 81.0 percent for the same period in 1993. The
lower 1994 capacity factor was primarily the result of extended
refueling and maintenance outages for Millstone 1 and Seabrook. CY,
Seabrook and Millstone 2 were also out of service for varying lengths
of time in the first nine months of 1994 because of some unexpected
technical and operating difficulties. These difficulties included a
manual shutdown of CY when both service water headers were declared
inoperable, an automatic trip from 100 percent power for Seabrook when
a main steam isolation valve closed during quarterly surveillance
testing and a Millstone Unit 2 shutdown to replace a degraded lower
seal on a reactor coolant pump.
On October 1, 1994, Millstone Unit 2 was shut down for a planned
refueling and maintenance outage that was originally scheduled for 63
days. The outage has encountered several unexpected difficulties
which will lengthen the duration of the outage. The magnitude of the
schedule impact is currently under review.
On November 4, 1994, the plan of reorganization of Great Bay Power
Corporation (GBPC)(formerly known as EUA Power Corporation), a joint
owner of Seabrook Station along with CL&P and NAEC, both wholly owned
subsidiaries of NU, and other non-System entities, was confirmed by
the United States Bankruptcy Court. The confirmation order will
become final on November 11, 1994. The closing of the plan of
reorganization financing, which consists of the purchase of 60 percent
of the common stock of GBPC by Omega Advisors and Elliott Associates
is expected to close on November 15, 1994, if all of the conditions
precedent to closing have been satisfied. The conditions include the
absence of any material adverse change and a requirement that Seabrook
be operating at full reactor power on the morning of the closing date.
At the time of closing, CL&P will be repaid by GBPC for the
outstanding principal and accrued interest on the debtor-in-possession
loans made by CL&P during the bankruptcy proceeding. At present, the
outstanding principal amount of these loans by CL&P total
approximately $7.3 million.
For additional information on this matter, see NU s Quarterly Report
on Form 10-Q for the quarter ended June 30, 1994 under the caption
Part II. Other Information - Item 1. Legal Proceedings.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided from operations decreased approximately $125 million for
the first nine months of 1994, as compared with the same period in
1993, primarily due to decreased revenues from replacement power costs
under the GUAC. Cash used for financing activities was approximately
$309 million higher in 1994, as compared with 1993, primarily due to
higher reacquisitions and retirements of long-term debt, partially
offset by an increase in short-term debt. The NU system has an
ongoing program to use excess cash to reduce long-term debt levels.
The NU system s construction program expenditures amounted to
approximately $177 million for the first nine months of 1994, as
compared to approximately $168 million during the same period in 1993.
The system companies have entered into interest-rate cap contracts to
reduce the potential impact of upward changes in interest rates on
certain variable-rate tax-exempt pollution control revenue bonds held
by CL&P, PSNH, and Western Massachusetts Electric Company, as well as
a portion of the PSNH variable-rate term loan. A total of $567
million of outstanding long-term variable-rate debt is hedged by these
interest-rate caps. The fair market value of outstanding interest-rate
cap contracts as of September 30, 1994, is approximately $2.3 million.
RESULTS OF OPERATIONS
Comparison of the Third Quarter of 1994 with the Third Quarter of
- -----------------------------------------------------------------
1993
- ----
Operating revenues increased approximately $8 million in the third
quarter of 1994, as compared with 1993. The components of the change
in operating revenues are as follows:
Changes in Operating Revenues Increase/(Decrease)
- ----------------------------- -------------------
(Millions of Dollars)
Regulatory decisions $ 11
Fuel, purchased power, and FPPAC cost recoveries 20
Retail Sales volume 6
Sales to Other Utilities (22)
Other revenues (7)
----
Total revenue change $ 8
====
Revenues related to regulatory decisions increased primarily because
of the retail rate increase for CL&P in July 1994 and the June 1994
retail rate increase for PSNH, partially offset by the June 1994
retail rate reduction for WMECO. Fuel, purchased power and FPPAC cost
recoveries increased primarily due to higher fuel expenses and higher
interchange revenues. Sales to other utilities decreased primarily
because of the expiration of some capacity sales contracts.
Fuel, purchased, and net interchange power expense increased
approximately $5 million in the third quarter of 1994, as compared
with 1993, primarily because of a higher level of energy purchases
from other utilities.
Other operation and maintenance expenses decreased approximately $22
million in the third quarter of 1994, as compared with 1993, primarily
due to the one-time charge associated with the work force reduction
program in 1993, lower 1994 payroll and benefits costs and lower
capacity charges from the regional nuclear generating units, partially
offset by higher 1994 costs associated with the operation and
maintenance activities of the nuclear units, the establishment of a
reserve for excess/obsolete inventory in 1994, and 1994 charges
associated with a targeted early retirement program.
Amortization of regulatory assets, net decreased approximately $30
million in the third quarter of 1994, as compared with 1993, primarily
because of the deferral of CL&P cogeneration expenses beginning in
July 1994, the amortization in 1994 of PSNH's regulatory liability as
allowed under the 1993 Global Settlement, which reduces amortization
expense and the amortization in 1993 of costs paid by CL&P to the
developers of two wood-to-energy plants.
Taxes other than income taxes increased approximately $6 million in
the third quarter of 1994, as compared with 1993, primarily due to an
adjustment in 1993 as a result of a favorable settlement with the
State of Connecticut over disputed sales taxes.
Federal and state income taxes increased approximately $14 million in
the third quarter of 1994, as compared with 1993, primarily because of
higher book taxable income.
Deferred nuclear plants return decreased approximately $7 million in
the third quarter of 1994, as compared with 1993, primarily because
additional Millstone 3 investment was phased into rates on January 1,
1994.
Other income decreased approximately $13 million in the third quarter
of 1994, as compared with 1993, primarily because of an increase to
the environmental reserve in 1994, and a 1993 gain on the sale of
property by CL&P.
Interest charges decreased approximately $6 million in the third
quarter of 1994, as compared with 1993, primarily because of lower
average interest rates as a result of the company's refinancing
activities, lower 1994 debt levels and interest accrued in 1993
associated with a potential Connecticut sales tax assessment.
Comparison of the First Nine Months of 1994 with the First Nine Months
- ----------------------------------------------------------------------
of 1993
- -------
Operating revenues increased approximately $17 million in the first
nine months of 1994, as compared with 1993. The components of the
change in operating revenues are as follows:
Changes in Operating Revenues Increase/(Decrease)
- ----------------------------- -------------------
(Millions of Dollars)
Regulatory decisions $ 36
Fuel, purchased power, and FPPAC cost recoveries (6)
Retail sales volume 55
Sales to other utilities (55)
Other revenues (13)
----
Total revenue change $ 17
====
Revenues related to regulatory decisions increased primarily because
of retail rate increases for CL&P in July 1993 and 1994, the June 1993
and 1994 retail rate increases for PSNH and the July 1993 retail rate
increase for WMECO, partially offset by the June 1994 retail rate
reduction for WMECO. Retail sales volume increased primarily as a
result of higher retail sales from a colder winter and an unusually
hot June in 1994 and an improvement in the regional economy. Retail
sales increased 3.8 percent for the first nine months of 1994, as
compared with 1993 of which approximately 3 percent is attributed to
improvement in the regional economy. Sales to other utilities
decreased primarily because of the expiration of some capacity sales
contracts.
Fuel, purchased, and net interchange power expense decreased
approximately $85 million in the first nine months of 1994, as
compared with 1993, primarily because of the timing in the recognition
of fuel expenses under the provisions of CL&P s GUAC mechanism and
previously deferred replacement power costs that were determined not
to be recoverable in 1993 as a result of nuclear outage prudence
regulatory reviews in Connecticut, partially offset by a higher level
of energy purchases from other utilities.
Other operation and maintenance expenses decreased approximately $26
million in the first nine months of 1994, as compared with 1993,
primarily due to the one-time charge associated with a work force
reduction program in 1993, lower 1994 payroll and benefit costs, lower
fossil unit costs and lower capacity charges from the regional nuclear
generating units, partially offset by higher 1994 costs associated
with the operation and maintenance activities of the nuclear units, a
higher reserve for excess/obsolete inventory in 1994 and 1994 charges
associated with a targeted early retirement program.
Amortization of regulatory assets, net decreased approximately $42
million in the first nine months of 1994, as compared with 1993,
primarily because of the amortization in 1994 of PSNH's regulatory
liability as allowed under the 1993 Global Settlement, the deferral of
CL&P cogeneration expenses beginning in July 1994, and lower 1994
expenses associated with the recovery of Hydro-Quebec support
payments, partially offset by the amortization through June 1994 of
costs paid by CL&P to the developers of two wood-to-energy plants and
higher 1994 amortization of Millstone 3 and Seabrook 1 phase-in costs.
Taxes other than income taxes increased approximately $6 million in
the first nine months of 1994, as compared with 1993, primarily due to
an adjustment in 1993 as a result of a favorable settlement with the
State of Connecticut over disputed sales taxes.
Federal and state income taxes increased approximately $67 million in
the first nine months of 1994, as compared with 1993, primarily
because of higher book taxable income.
Deferred nuclear plants return decreased approximately $19 million in
the first nine months of 1994, as compared with 1993, primarily
because additional Millstone 3 investment was phased into rates on
January 1, 1994.
Interest charges decreased approximately $23 million in the first nine
months of 1994, as compared with 1993, primarily because of lower
average interest rates as a result of the company's refinancing
activities, lower 1994 debt levels and interest accrued in 1993
associated with a potential Connecticut sales tax assessment.
The cumulative effect of the accounting change of approximately $52
million in 1993 represents the one-time change in the method of
accounting for Connecticut municipal property tax expense recognized
in the first quarter of 1993.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
1. On October 15, 1993, the Merrimack County, New Hampshire,
Superior Court issued a decision dismissing PSNH's appeals of the
property taxes assessed against it by the Town of Bow, New Hampshire
for the years 1988, 1989, 1990 and 1991. The decision rejected the
"unit method" of valuation (essentially book cost) and approved the
"reproduction cost" method of valuation, resulting in property tax
valuations approximately three times greater than net book cost, with
a commensurate rise in property taxes in Bow. PSNH's 495-MW, coal-
fired Merrimack Station and 12.1-MW, hydroelectric Garvins Falls
Station are located in Bow. On November 2, 1994, PSNH's appeal to the
New Hampshire Supreme Court was rejected and the holding of the trial
court was affirmed. This decision will not impact PSNH's net income,
assets or liabilities because the taxes in question had previously
been paid and substantially all such amounts were included in base
rates. However, other towns in New Hampshire are employing the same
methodology to assess taxes against PSNH's property, and the long-term
effect of the decision could be adverse to PSNH's financial condition
in an amount not presently determinable.
For additional information on this matter, see Item 3 - Legal
Proceedings in NU s 1993 Form 10-K.
2. On October 18, 1994, the NRC responded to Northeast Nuclear
Energy Company s (NNECO) response in the Millstone Unit 1 Feedwater
Coolant Injection System (FWCI) matter, stating that, upon
reconsideration by the NRC, the violation's severity level and
calculation of the civil penalty would not change. The NRC also
decided that further action against the NNECO manager was not
warranted. NNECO is a wholly-owned subsidiary of NU.
For additional information on this matter, see "Part II. Other
Information - Item 1. Legal Proceedings" in NU s June 1994 Form 10-Q.
3. With respect to proceedings at FERC on the 30th Amendment to
the New England Power Pool Agreement and related issues concerning
transmission access and discounted rates for pool-planned units, on
August 3, 1994 FERC granted a motion filed by certain of the parties
seeking to suspend the procedural schedule pending the filing of terms
of a settlement reached by the parties. The parties have agreed to
file joint status reports of their progress.
For additional information on this matter, see "Part II. Other
Information - Item 1. Legal Proceedings in NU s March 1994 and June
1994 Form 10-Qs.
Item 5. Other Information
1. On September 9, 1994, the DPUC issued its final retail
wheeling decision. This concluded a proceeding initiated in October
1993 to investigate whether retail wheeling should be permitted in
Connecticut. The proceeding was intended as a follow-up and an update
to a 1987 report of the DPUC to the legislature concluding that retail
wheeling would be inadvisable for Connecticut. The September 1994
decision noted the potential for retail wheeling or other forms of
more intense competition in the future. However, it concluded that
because of the need to first deal with issues associated with a
transition to more intense competition for retail sales such as the
need to reallocate public policy and stranded costs, if retail
wheeling is authorized, it should not be introduced prior to
Connecticut's utilities' year of need, which for CL&P is 2007. The
DPUC also recommended that utilities continue to contain costs and
work with customers to keep Connecticut's electric rates competitive
in order to attract and retain business in the state.
There have been several bills introduced and regulatory proceedings
initiated in Massachusetts and New Hampshire that involve the
potential for retail wheeling, electric utility industry
restructuring, and regulatory reform. To date, none of these bills
have been enacted and none of the regulatory proceedings have
progressed to a point to which management can assess the likelihood
that any of them might have an effect on any system company.
For additional information on this matter, see "Item 1. Business -
Retail Wheeling" in NU s 1993 Form 10-K and the MD&As in NU s March
1994 and June 1994 Form 10-Qs.
2. On September 6, 1994, NU filed a Petition for Rehearing with
the First Circuit Court of Appeals from FERC's application of a
stringent "public interest standard" to the Seabrook Power Contract,
which Petition is pending.
For additional information on this matter, see "Item 3 - Legal
Proceedings" in NU s 1993 Form 10-K and "Part II. Other Information -
Item 5. Other Information" in NU s June 1994 Form 10-Q.
Item 6. Exhibits and Reports on Form 8-K
(a) Listing of Exhibits:
Exhibit
Number Description
------- -----------
15 Letter regarding unaudited financial information
27 Financial Data Schedule
(b) Reports on Form 8-K:
No reports on Form 8-K have been filed during this reporting period.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf
by the undersigned hereunto duly authorized.
NORTHEAST UTILITIES
-------------------
Registrant
Date November 9, 1994 By /s/ Bernard M. Fox
-------------------- -----------------------------
Bernard M. Fox
President and Chief
Executive Officer
Date November 9, 1994 By /s/ John W. Noyes
-------------------- -----------------------------
John W. Noyes
Vice President and
Controller
<TABLE> <S> <C>
<ARTICLE> UT
<CIK> 0000072741
<NAME> NORTHEAST UTILITIES
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> QTR-3
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> SEP-30-1994
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 6,590,824
<OTHER-PROPERTY-AND-INVEST> 382,873
<TOTAL-CURRENT-ASSETS> 769,477
<TOTAL-DEFERRED-CHARGES> 2,771,318
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 10,514,492
<COMMON> 671,051
<CAPITAL-SURPLUS-PAID-IN> 903,788
<RETAINED-EARNINGS> 937,198
<TOTAL-COMMON-STOCKHOLDERS-EQ> 2,294,833
379,000
239,700
<LONG-TERM-DEBT-NET> 3,833,878
<SHORT-TERM-NOTES> 146,000
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 39,000
<LONG-TERM-DEBT-CURRENT-PORT> 337,309
1,500
<CAPITAL-LEASE-OBLIGATIONS> 164,289
<LEASES-CURRENT> 77,285
<OTHER-ITEMS-CAPITAL-AND-LIAB> 2,784,494
<TOT-CAPITALIZATION-AND-LIAB> 10,514,492
<GROSS-OPERATING-REVENUE> 2,744,509
<INCOME-TAX-EXPENSE> 216,960
<OTHER-OPERATING-EXPENSES> 2,098,457
<TOTAL-OPERATING-EXPENSES> 2,325,380
<OPERATING-INCOME-LOSS> 419,129
<OTHER-INCOME-NET> 34,124
<INCOME-BEFORE-INTEREST-EXPEN> 463,216
<TOTAL-INTEREST-EXPENSE> 208,825
<NET-INCOME> 254,391
32,329
<EARNINGS-AVAILABLE-FOR-COMM> 222,062
<COMMON-STOCK-DIVIDENDS> 164,382
<TOTAL-INTEREST-ON-BONDS> 0
<CASH-FLOW-OPERATIONS> 674,121
<EPS-PRIMARY> 1.78
<EPS-DILUTED> 0.00
</TABLE>
Exhibit 15
November 9, 1994
To Northeast Utilities:
We are aware that Northeast Utilities has incorporated by reference
in its Registration Statement No. 33-34622 and No. 33-40156 its
Form 10-Q for the quarter ended September 30, 1994, which includes
our report dated November 9, 1994 covering the unaudited interim
financial information contained therein. Pursuant to Regulation C
of the Securities Act of 1933, that report is not considered a part
of the registration statement prepared or certified by our firm
within the meaning of Sections 7 and 11 of the Act.
Very truly yours,
ARTHUR ANDERSEN LLP
Arthur Andersen LLP
