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, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES AND 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, 1995
Common Shares, $5.00 par value 135,562,456 shares
NORTHEAST UTILITIES AND SUBSIDIARIES
TABLE OF CONTENTS
Page No.
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets -
September 30, 1995 and December 31, 1994 2
Consolidated Statements of Income -
Three and Nine Months Ended September 30,
1995 and 1994 4
Consolidated Statements of Cash Flows -
Nine Months Ended September 30, 1995 and 1994 5
Notes to Consolidated Financial Statements 6
Report of Independent Public Accountants 9
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 10
Part II. Other Information
Item 1. Legal Proceedings 16
Item 5. Other Information 16
Item 6. Exhibits and Reports on Form 8-K 19
Signatures 20
PART I. FINANCIAL INFORMATION
NORTHEAST UTILITIES AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1995 1994
------------- -------------
(Thousands of Dollars)
<S> <C> <C>
ASSETS
- ------
Utility Plant, at original cost:
Electric................................................ $ 9,434,003 $ 9,334,912
Other................................................... 153,969 157,632
------------- -------------
9,587,972 9,492,544
Less: Accumulated provision for depreciation......... 3,541,919 3,293,660
------------- -------------
6,046,053 6,198,884
Construction work in progress........................... 206,931 179,724
Nuclear fuel, net....................................... 200,784 224,839
------------- -------------
Total net utility plant............................. 6,453,768 6,603,447
------------- -------------
Other Property and Investments:
Nuclear decommissioning trusts, at market............... 304,811 240,229
Investments in regional nuclear generating
companies, at equity................................... 82,311 82,464
Investments in transmission companies, at equity........ 24,277 26,106
Other, at cost.......................................... 56,663 40,896
------------- -------------
468,062 389,695
------------- -------------
Current Assets:
Cash and special deposits............................... 51,206 34,579
Receivables, net........................................ 365,157 357,322
Accrued utility revenues................................ 121,027 142,788
Fuel, materials, and supplies, at average cost.......... 207,499 190,062
Recoverable energy costs, net--current portion.......... 83,419 19,522
Prepayments and other................................... 60,612 35,364
------------- -------------
888,920 779,637
------------- -------------
Deferred Charges:
Regulatory assets:
Income taxes,net...................................... 1,125,630 1,124,119
Unamortized PSNH acquisition costs.................... 611,426 678,974
Deferred costs--nuclear plants........................ 179,076 233,145
Unrecovered contract obligation--Yankee Atomic
Electric Company..................................... 145,155 157,147
Recoverable energy costs, net......................... 251,677 268,982
Deferred demand-side-management costs................. 108,253 116,133
Cogeneration costs-CL&P............................... 85,889 36,821
Other................................................. 104,339 109,043
Unamortized debt expense................................ 37,563 33,517
Other .................................................. 47,983 54,220
------------ ------------
2,696,991 2,812,101
------------ ------------
Total Assets.............................................. $ 10,507,741 $ 10,584,880
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
NORTHEAST UTILITIES AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1995 1994
------------- -------------
(Thousands of Dollars)
<S> <C> <C>
CAPITALIZATION AND LIABILITIES
- ------------------------------
Capitalization:
Common shareholders' equity:
Common shares, $5 par value--authorized
225,000,000 shares; 135,180,057 shares issued and
126,465,580 shares outstanding in 1995 and
134,210,226 shares issued and 124,962,981 shares
outstanding in 1994..................................... $ 675,900 $ 671,051
Capital surplus, paid in................................. 927,099 904,371
Deferred benefit plan--employee stock
ownership plan......................................... (201,716) (213,324)
Retained earnings........................................ 999,065 946,988
------------- -------------
Total common shareholders' equity................. 2,400,348 2,309,086
Preferred stock not subject to mandatory redemption........ 169,700 234,700
Preferred stock subject to mandatory redemption............ 302,500 375,250
Long-term debt............................................. 3,695,807 3,942,005
------------- -------------
Total capitalization.............................. 6,568,355 6,861,041
------------- -------------
Minority Interest in Consolidated Subsidiaries............... 100,010 -
------------- -------------
Obligations Under Capital Leases............................. 148,598 166,018
------------- -------------
Current Liabilities:
Notes payable to banks..................................... 67,500 180,000
Commercial paper........................................... - 10,000
Long-term debt and preferred stock--current
portion................................................... 294,972 174,948
Obligations under capital leases--current
portion................................................... 85,637 73,103
Accounts payable........................................... 227,143 280,942
Accrued taxes.............................................. 123,921 57,532
Accrued interest........................................... 83,426 70,639
Accrued pension benefits................................... 92,246 90,194
Other...................................................... 95,315 98,296
------------- ------------
1,070,160 1,035,654
------------- ------------
Deferred Credits:
Accumulated deferred income taxes.......................... 2,028,594 1,968,230
Accumulated deferred investment tax credits................ 180,404 188,005
Deferred contract obligation--Yankee Atomic
Electric Company......................................... 145,155 157,147
Other...................................................... 266,465 208,785
------------- ------------
2,620,618 2,522,167
------------- ------------
Commitments and Contingencies (Note 5)<F5>
Total Capitalization and Liabilities.............. $ 10,507,741 $ 10,584,880
============= =============
</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,
---------------------------- ---------------------------
1995 1994 1995 1994
-------------- ------------- ------------- -------------
(Thousands of Dollars, except share information)
<S> <C> <C> <C> <C>
Operating Revenues............................. $ 985,092 $ 923,708 $ 2,770,130 $ 2,744,509
-------------- ------------- ------------- -------------
Operating Expenses:
Operation --
Fuel, purchased and net interchange power.... 242,923 220,694 680,860 628,462
Other........................................ 244,351 237,505 694,091 677,700
Maintenance................................... 70,048 76,259 197,926 221,850
Depreciation.................................. 89,514 84,933 263,016 248,715
Amortization of regulatory assets, net........ 36,727 29,244 96,897 131,082
Federal and state income taxes................ 76,954 75,558 205,469 226,923
Taxes other than income taxes................. 63,416 63,633 188,220 190,648
-------------- ------------- ------------- -------------
Total operating expenses............... 823,933 787,826 2,326,479 2,325,380
-------------- ------------- ------------- -------------
Operating Income............................... 161,159 135,882 443,651 419,129
-------------- ------------- ------------- -------------
Other Income:
Deferred nuclear plants return--other
funds...................................... 3,431 6,777 10,727 20,771
Equity in earnings of regional nuclear
generating and transmission companies...... 3,637 3,687 9,854 10,794
Other, net................................... 3,270 (4,125) 633 2,559
Income taxes--credit......................... 1,444 6,482 10,895 9,963
-------------- ------------- ------------- -------------
Other income, net...................... 11,782 12,821 32,109 44,087
-------------- ------------- ------------- -------------
Income before interest charges......... 172,941 148,703 475,760 463,216
-------------- ------------- ------------- -------------
Interest Charges:
Interest on long-term debt................... 78,692 77,903 239,271 234,736
Other interest............................... 1,981 2,554 4,753 5,622
Deferred nuclear plants return--borrowed
funds..................................... (5,827) (7,717) (17,476) (31,533)
-------------- ------------- ------------- -------------
Interest charges, net.................. 74,846 72,740 226,548 208,825
-------------- ------------- ------------- -------------
Income after interest charges........... 98,095 75,963 249,212 254,391
Preferred Dividends of Subsidiaries............ 8,569 10,934 31,004 32,329
-------------- ------------- ------------- -------------
Net Income..................................... $ 89,526 $ 65,029 $ 218,208 $ 222,062
============== ============= ============= =============
Earnings Per Common Share...................... $ 0.71 $ 0.52 $ 1.74 $ 1.78
============== ============= ============= =============
Common Shares Outstanding (average)............ 126,412,303 124,790,381 125,769,477 124,583,613
============== ============= ============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
NORTHEAST UTILITIES and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-----------------------
1995 1994
----------- -----------
(Thousands of Dollars)
<S> <C> <C>
Operating Activities:
Income before preferred dividends of subsidiaries......... $ 249,212 $ 254,391
Adjustments to reconcile to net cash
from operating activities:
Depreciation............................................ 263,016 248,715
Deferred income taxes and investment tax credits, net... 103,961 83,521
Deferred nuclear plants return, net of amortization..... 61,084 36,412
Recoverable energy costs, net of amortization........... (46,592) (40,295)
Amortization of PSNH acquisition costs.................. 41,323 41,503
Deferred cogeneration costs............................. (49,068) (18,202)
Other sources of cash................................... 135,685 40,326
Other uses of cash...................................... (37,800) (15,553)
Changes in working capital:
Receivables and accrued utility revenues................ 13,926 34,850
Fuel, materials, and supplies........................... (17,437) (6,240)
Accounts payable........................................ (53,799) (30,920)
Accrued taxes........................................... 66,389 51,251
Other working capital (excludes cash)................... (13,390) (5,638)
----------- -----------
Net cash flows from operating activities.................... 716,510 674,121
----------- -----------
Financing Activities:
Issuance of common shares................................. 32,968 11,049
Issuance of long-term debt................................ - 485,000
Issuance of Monthly Income
Preferred Securities..................................... 100,000 -
Net (decrease) increase in short-term debt................ (122,500) 11,500
Reacquisitions and retirements of long-term debt.......... (139,227) (781,859)
Reacquisitions and retirements of preferred stock......... (133,175) (1,500)
Cash dividends on preferred stock......................... (31,004) (32,329)
Cash dividends on common shares........................... (165,876) (164,382)
----------- -----------
Net cash flows used for financing activities................ (458,814) (472,521)
----------- -----------
Investment Activities:
Investment in plant:
Electric and other utility plant........................ (168,772) (176,685)
Nuclear fuel............................................ (11,681) (5,651)
----------- -----------
Net cash flows used for investments in plant.............. (180,453) (182,336)
Other investment activities, net.......................... (60,616) (29,605)
----------- -----------
Net cash flows used for investments......................... (241,069) (211,941)
----------- -----------
Net Increase (Decrease) In Cash For The Period.............. 16,627 (10,341)
Cash and special deposits - beginning of period............. 34,579 32,008
----------- -----------
Cash and special deposits - end of period................... $ 51,206 $ 21,667
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
NORTHEAST UTILITIES AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
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, 1994 (1994 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, 1995, the results of operations for the three and nine months
ended September 30, 1995 and 1994, and the statements of cash flows for the nine
months ended September 30, 1995 and 1994. The results of operations for the
three and nine months ended September 30, 1995 and 1994 are not necessarily
indicative of the results expected for a full year.
Certain reclassifications of prior period data have been made to conform with
the current period presentation.
2. Accounting for Long-Lived Assets
The company's accounting policies and the accompanying consolidated financial
statements conform to generally accepted accounting principles applicable to
rate-regulated enterprises and reflect the effects of the ratemaking process in
accordance with Statement of Financial Accounting Standards No. 71, "Accounting
for Certain Types of Regulation" (SFAS 71). If any portion of the company's
operations was no longer subject to the provisions of SFAS 71, as a result of a
change in the cost-of-service based regulatory structure or the effects of
competition, the company would be required to write off related regulatory
assets and liabilities. The company would also be required to determine any
impairment to other assets and write down these assets to their fair value.
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of" (SFAS
121), issued in March 1995 and effective January 1, 1996, establishes accounting
standards for the impairment of long-lived assets. SFAS 121 requires that
regulatory assets that are no longer probable of recovery through future
revenues be charged to earnings. Based upon the current regulatory environment
in the company's service area, it is not expected that the adoption of SFAS 121
would have a material impact on the company's financial position or results of
operations. This conclusion may change in the future as competitive factors
influence wholesale and retail pricing in the electric utility industry, or if
the cost-of-service based regulatory structure were to change.
3. Derivative Financial Instruments
The Connecticut Light and Power Company (CL&P), a wholly owned subsidiary of NU,
uses fuel price swaps to hedge against well-defined fuel price risk created by
negotiated energy contracts. CL&P does not use these agreements for trading
purposes. Those fuel swap agreements minimize exposure associated with rising
fuel prices and effectively fix CL&P's cost of fuel for these negotiated energy
contracts. Under the swap agreements, CL&P exchanges monthly payments based on
the differential between fixed and variable prices for the associated fuel.
These swap agreements have been made with various financial institutions, each
of which is currently rated "A" or better by Standard & Poors rating group.
CL&P is exposed to credit risk on its fuel swaps if the counterparties fail to
perform their obligations. However, based on the high credit quality of CL&P's
counterparties, management anticipates that all the obligations under the swap
contracts will be fully satisfied.
As of September 30, 1995, CL&P had outstanding fuel-swap agreements with a total
notional value of approximately $252 million. As of October 31, 1995, the fuel
swaps outstanding had a negative mark-to-market position of approximately $11
million.
For further information on Derivative Financial Instruments, see the Notes to
Consolidated Financial Statements in NU's March 31, 1995 and June 30, 1995 Form
10-Qs and in its 1994 Form 10-K.
4. Capitalization
In December 1995, North Atlantic Energy Corporation (NAEC) plans to complete a
$225 million variable rate note facility with a group of banks. NAEC has
called the entire $205 million principal amount of its 15.23 percent notes, due
2000, in early November, with funding in early December from the proceeds of the
variable rate note facility. An interest rate swap is also planned to reduce
the variability in the interest rate on the new notes. The refinancing is
expected to save approximately $3 million annually over the next five years.
5. Commitments and Contingencies
Construction Program: For information regarding the construction program, see
the Notes to Consolidated Financial Statements in NU's 1994 Form 10-K.
Nuclear Performance: For information regarding the performance of the NU
system's nuclear units, see "Management's Discussion and Analysis of Financial
Condition and Results of Operations" in this Form 10-Q and in NU's March 31,
1995 and June 30, 1995 Form 10-Qs, and NU's 1994 Form 10-K.
PSNH Rate Agreement: For information regarding the PSNH Rate Agreement, see the
Notes to Consolidated Financial Statements in NU's June 30, 1995 Form 10-Q and
1994 Form 10-K.
Environmental Matters: For information regarding environmental matters, see
"Part II. Item 5. Other Information" in this Form 10-Q, and the Notes to
Consolidated Financial Statements in NU's March 31, 1995 Form 10-Q and 1994 Form
10-K.
Nuclear Insurance Contingencies: For information regarding nuclear insurance
contingencies, see the Notes to Consolidated Financial Statements in NU's 1994
Form 10-K.
Purchased Power Arrangements: For information regarding purchased power
arrangements, see the Notes to Consolidated Financial Statements in NU's 1994
Form 10-K.
Hydro-Quebec: For information regarding Hydro-Quebec, see the Notes to
Consolidated Financial Statements in NU's 1994 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, 1995, and
the related consolidated statements of income for the three-month and nine-month
periods ended September 30, 1995 and 1994, and the consolidated statement of
cash flows for the nine-month periods ended September 30, 1995 and 1994. 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.
/s/ Arthur Andersen LLP
Arthur Andersen LLP
Hartford, Connecticut
October 27, 1995
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, footnotes and Part II, Other
Information, of this report and Management's Discussion and Analysis in the 1994
Form 10-K and the First and Second Quarter 1995 Form 10-Qs.
FINANCIAL CONDITION
Overview
The company's earnings per common share decreased to $1.74 for the nine months
ended September 30, 1995, from $1.78 for the same period in 1994. The decrease
in earnings from 1994 for the nine-month period is primarily attributable to
lower retail kilowatt-hour sales as a result of mild weather in the first
quarter of 1995, lower wholesale revenues and higher fuel and purchased-power
costs, partially offset by higher revenues related to regulatory decisions, a
favorable tax ruling in the first quarter of 1995 and a reduction in maintenance
costs. NU's retail kilowatt-hour sales through September 1995 were down by 1.0
percent from 1994, which had colder than normal weather in the first quarter.
Earnings per share increased to $0.71 for the three months ended September 30,
1995, from $0.52 for the same period in 1994. The increase in earnings for the
three-month period is primarily attributable to higher kilowatt-hour sales due
to hotter summer weather, higher revenues from regulatory decisions and a lower
level of non-recurring charges. Retail kilowatt-hour sales for the quarter were
up 2.6 percent from 1994.
Workforce Reductions
In July, 1995, NU announced a program aimed at reducing the nuclear
organization's total workforce by approximately 250 employees. The estimated
pre-tax cost of the early retirement that was charged to expense in the third
quarter was approximately $7 million. This estimate was based on 121 eligible
employees accepting the early retirement. The balance of the workforce
reduction will be achieved through attrition and layoffs. The estimated cost of
layoffs could be in the range of $2 to $3 million.
Regulatory Matters
Connecticut
In September 1995, the Department of Public Utility Control (DPUC) issued a
draft decision denying The Connecticut Light and Power Company's (CL&P) request
to exclude market based contracts from the fossil fuel adjustment clause, on the
ground that such treatment creates cost shifting among customers. The impact of
this decision, if finalized, would be a reduction in fuel revenues of about $13
million a year based on contracts currently in place.
New Hampshire
On September 15, 1995, Public Service Company of New Hampshire (PSNH) filed with
the New Hampshire Public Utilities Commission (NHPUC), a request for a reduced
Fuel and Purchased Power Adjustment Clause(FPPAC) rate to take effect on
December 1, 1995 and continue through May 31, 1996. If approved, the effective
rate would reduce PSNH's overall rate level by about one percent. A final
decision is expected by the end of November.
The costs associated with purchases by PSNH from certain nonutility generators
(NUGs) over the level assumed in rates are deferred and recovered over ten-year
periods through the FPPAC. At September 30, 1995, the unrecovered deferrals
were approximately $189 million. PSNH has reached tentative agreements with the
six remaining wood-fired NUGs. These agreements call for substantial upfront
and continuing payments, and are subject to the approval of the NHPUC. If the
NHPUC's proposal for a retail wheeling pilot is not revised to provide for full
recovery of stranded investments, management will need to reevaluate whether to
proceed with the NUG buy-out agreements.
Nuclear Performance
The composite capacity factor of the five nuclear generating units that the NU
system operates - including the Connecticut Yankee nuclear unit (CY) - was 68.6
percent for the nine months ended September 30, 1995, as compared with 64.3
percent for the same period in 1994. An extended refueling and maintenance
outage for Millstone Unit 2, which ended on August 4, 1995, had an adverse
impact on the 1995 nuclear capacity factor. In early November, Seabrook and
Millstone 1 began planned 50-day refueling and maintenance outages.
Total replacement power costs attributable to the extension of the Millstone
Unit 2 outage for CL&P and Western Massachusetts Electric Company (WMECO) are
approximately $80 million. In addition, operation and maintenance (O&M) costs
incurred during the outage are approximately $70 million, an increase of $37
million as a result of the outage extension. O&M costs associated with the
refueling outage are deferred and amortized through rates for CL&P and WMECO.
The recovery of the replacement power and O&M costs is subject to prudence
reviews in both Connecticut and Massachusetts.
CL&P has a mechanism that has been in operation since 1979 designed to recover
or refund certain nonnuclear fuel costs if the nuclear units do not operate at a
predetermined capacity factor (the Generation Utilization Adjustment Clause or
GUAC).
In early August 1995, CL&P filed its annual GUAC filing with the DPUC. As part
of that filing, CL&P proposed to recover its 1994-1995 GUAC costs over an 18
month period (instead of the usual 12 months) to mitigate the impact of the GUAC
rate increase. On August 31, 1995, the DPUC issued an interim decision that
allowed CL&P to begin recovering $80 million of the GUAC costs over an 18 month
period beginning in September 1995. The $80 million is net of certain fuel
"overrecoveries" during the GUAC period (approximately $19 million). In its
decision, the DPUC also stated that it would examine the GUAC rate in detail in
the November quarterly fuel proceeding and issue a final decision at that time.
The DPUC's decision is also subject to the results of a prudence review of the
Millstone 2 outage. CL&P has reserved $19 million for the "overrecoveries"
during the GUAC period.
While the company is unable to predict the outcome of possible prudence reviews
of its nuclear operations or the GUAC "overrecoveries" issues, management
believes that the ultimate resolution of these matters will not have a material
adverse impact on the company's financial position or the results of its
operations.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided from operations increased approximately $42 million for the first
nine months of 1995, as compared to 1994, primarily due to payments received
under a new wholesale power contract in 1995. Cash used for financing
activities decreased approximately $14 million primarily due to lower
reacquisition and retirements of long-term debt and preferred stock, net of
issuances, and the issuance of additional common shares in 1995 as a result of
the company's Dividend Reinvestment Plan and the allocation of shares through
the company's Employee Stock Ownership Plans, partially offset by higher
repayment of short-term debt. Cash used for investments increased approximately
$29 million primarily due to higher investments in the nuclear decommissioning
trusts in 1995.
On October 18, 1995, Moody's Investors Service lowered its ratings of PSNH and
North Atlantic Energy Corporation (NAEC) securities, bringing the rating for
PSNH's First Mortgage Bonds below investment grade. Standard and Poor's had
previously downgraded PSNH and NAEC securities below investment grade. With both
of the major nationally recognized securities rating organizations that rate
PSNH and NAEC securities rating them below investment grade, PSNH's and NAEC's
borrowing costs have been adversely affected and the future availability and
cost of funds for those companies could be adversely affected.
RESULTS OF OPERATIONS
Comparison of the Third Quarter of 1995 with the Third Quarter
- --------------------------------------------------------------
of 1994
- -------
The components of the change in operating revenues are as follows:
Changes in Operating Revenues Increase/(Decrease)
- ----------------------------- -------------------
(Millions of Dollars)
Regulatory decisions $ 21
Fuel, purchased power, and
FPPAC cost recoveries 28
Retail sales volume 17
Wholesale revenues (4)
Other (1)
----
Total revenue change $ 61
====
Revenues related to regulatory decisions increased primarily because of retail
rate increases for PSNH and CL&P in June and July 1995. Fuel, purchased-power,
and FPPAC cost recoveries increased primarily due to higher sales and the
recovery of GUAC costs for CL&P. Retail kilowatt-hour sales increased 2.6
percent for the quarter from 1994 levels as a result of hotter summer weather.
Wholesale revenues decreased primarily due to capacity sales contracts that
expired at the end of 1994.
Fuel, purchased, and net interchange power expense increased approximately $22
million in the third quarter of 1995 primarily because of higher deferred FPPAC
expenses and the impact of a DPUC draft decision on market based contracts.
Other operation expense increased approximately $7 million and maintenance
expense decreased approximately $6 million. The increase in operation expense
is due primarily to higher amortization of demand-side-management costs and
higher outside services employed, partially offset by a nuclear inventory write-
off in 1994. The decrease in maintenance expense is due primarily to lower
maintenance costs at the fossil units.
Depreciation expense increased approximately $5 million in the third quarter of
1995 primarily because of higher plant balances and higher decommissioning
levels in 1995.
Amortization of regulatory assets, net increased approximately $7 million in the
third quarter of 1995 primarily because of the reduction in the deferral of CL&P
cogeneration expenses from approximately $6 million a month to approximately $3
million a month beginning July 1995, partially offset by the completion of
WMECO's amortization of Millstone 3 phase-in costs in June 1995.
Federal and state income taxes increased approximately $6 million in the third
quarter of 1995 primarily because of higher book taxable income, partially
offset by a $5 million adjustment in 1995 to reduce the income tax accrual as a
result of the expiration of a tax year subject to audit.
Deferred nuclear plants return decreased approximately $5 million in the third
quarter of 1995 primarily because the last 5 percent of CL&P's Millstone 3
investment was phased into rates on January 1, 1995 and an additional 15 percent
of NAEC's Seabrook 1 investment was phased into rates on May 1, 1995.
Other income increased approximately $7 million in the third quarter of 1995
primarily because of an adjustment in September 1994 to the environmental
reserve.
Comparison of the First Nine Months of 1995 with the First Nine
- ---------------------------------------------------------------
Months of 1994
- --------------
The components of the change in operating revenues are as follows:
Changes in Operating Revenues Increase/(Decrease)
- ----------------------------- -------------------
(Millions of Dollars)
Regulatory decisions $ 59
Retail Sales volume (22)
Wholesale revenues (17)
Fuel, purchased power, and
FPPAC cost recoveries 12
Other (6)
----
Total revenue change $26
====
Revenues related to regulatory decisions increased primarily because of the
retail rate increases for PSNH and CL&P in June and July 1994 and 1995,
partially offset by the June 1994 retail rate reduction for WMECO. Retail sales
volume decreased 1.0 percent for the first nine months of 1995 from 1994 sales
levels primarily due to mild weather in the first quarter of 1995, partially
offset by hotter summer weather. Wholesale revenues decreased primarily due to
capacity sales contracts that expired at the end of 1994. Fuel, purchased-
power, and FPPAC cost recoveries increased primarily due to the recovery of GUAC
costs for CL&P. Other includes lower revenues as a result of new negotiated rate
reductions for retail customers.
Fuel, purchased, and net interchange power expense increased approximately $52
million in the first nine months of 1995 primarily because of higher deferred
FPPAC expenses, a higher level of energy purchases from other utilities as a
result of the extended Millstone 2 outage, a reserve for fuel overrecoveries and
the impact of the DPUC draft decision on market based contracts. These
increases were partially offset by higher deferred GUAC expenses, net of GUAC
amortization.
Other operation expense increased approximately $16 million and maintenance
expense decreased approximately $24 million. The increase in operation expense
is due primarily to higher capacity charges from the regional nuclear units
primarily due to Maine Yankee which is in an extended refueling outage and
Vermont Yankee which had an outage in March 1995, higher 1995 demand-side-
management amortization costs and higher outside services employed, partially
offset by a nuclear inventory write-off in 1994. The decrease in maintenance
expense is due primarily to lower maintenance costs at the nuclear and fossil
units.
Depreciation expense increased approximately $14 million in the first nine
months of 1995 primarily because of higher plant balances and higher
decommissioning levels in 1995.
Amortization of regulatory assets, net decreased approximately $34 million in
the first nine months of 1995 primarily because of the deferral of CL&P
cogeneration expenses which began in July 1994 and the 1994 amortization of the
CL&P cogeneration buyout.
Federal and state income taxes decreased approximately $22 million in the first
nine months of 1995 primarily because of lower book taxable income and 1995
adjustments to the income tax accrual as a result a favorable tax ruling and the
expiration of a tax year subject to audit.
Deferred nuclear plants return decreased approximately $24 million in the first
nine months of 1995 primarily because the last 5 percent of CL&P's Millstone 3
investment was phased into rates on January 1, 1995, an additional 15 percent of
NAEC's Seabrook 1 investment was phased into rates on May 1, 1995, and because
of a one-time adjustment to NAEC's Seabrook 1 deferred return of $5 million in
June 1995
PART II. Other Information
Item 1. Legal Proceedings
1. On November 7, 1995, the DPUC issued a draft decision in the Texas-Ohio
Power Company (Texas-Ohio) proceeding that was filed by CL&P in mid-August. The
DPUC found that a private power producer (PPP) can sell electricity to retail
customers in Connecticut as long as the PPP does not use public rights of way.
The draft decision specifically states that the ruling is "narrow in scope" and
that a PPP that seeks to utilize public rights of way to sell at retail to end
users in Connecticut would require a franchise. A final decision in this DPUC
proceeding is expected at the end of November.
For additional information on this proceeding, see "Legal Proceedings" in NU's
1995 Form 10-Q for the quarter ended June 30, 1995.
2. On or about November 1, 1995, the New Hampshire Office of Consumer Advocate
(OCA) and the Campaign for Ratepayers Rights filed suit in Superior Court
against the NHPUC seeking a declaratory ruling that special contracts entered
into by and between PSNH and certain retail customers are prohibited by the 1989
rate agreement between PSNH and the State of New Hampshire (Rate Agreement).
The petition is based on an alleged inconsistency between the New Hampshire
statute that allows special contracts agreed to by a utility and a customer when
deemed appropriate by the NHPUC and the legislation accepting the Rate Agreement
wherein PSNH received protection against NHPUC actions fixing rates other than
in the manner agreed upon in the Rate Agreement. The court petition alleges
that the special contracts also constitute a breach of the Rate Agreement by
PSNH, thereby stopping PSNH from claiming benefits under the Rate Agreement.
The New Hampshire Attorney General will represent the NHPUC in this action.
While PSNH believes this proceeding should be dismissed on procedural grounds,
it cannot predict the outcome of this proceeding or its ultimate effect on PSNH
or NAEC at this time.
Item 5. Other Information
1. On October 9, 1995, the NHPUC issued preliminary guidelines for an Electric
Retail Competition Pilot Program (Program). The Program is proposed to be a
three-year retail wheeling experiment under which a randomly selected group of
retail users will be free to purchase up to 60 MW of power from other suppliers
besides their franchised local utility, of which 44 MW of the prospective loss
is allocated to PSNH. This amount of power equals three percent of PSNH's peak
load. If the program were implemented as proposed, participants would be
responsible for arranging their own electricity supply and would be free to
negotiate the terms for such supply with any potential supplier. Under the
proposed guidelines, utilities would not be allowed to charge exit or re-entry
fees to customers who go off and on their systems, but recovery of stranded
costs resulting from the Program would be split equally between utility
investors and participating customers. Finalization of the guidelines is
expected in December 1995, subject to further comments and hearings.
For additional information on this matter, see "Other Information" in NU's 1995
Form 10-Q for the quarter ended June 30, 1995.
2. On September 1, 1995, PSNH filed a petition with the New Hampshire Supreme
Court, which was accepted on November 2, 1995, appealing the NHPUC's decision in
the proceeding involving Freedom Electric Power Company, now known as Freedom
Energy Company, LLC (Freedom), that PSNH's franchise was not exclusive as a
matter of law.
For additional information on this matter, see "Other Information" in NU's 1995
Form 10-Q for the quarter ended June 30, 1995.
3. New Hampshire's Limited Electrical Energy Producers Act (LEEPA) purportedly
allows a qualifying generator of not greater than 5 MW capacity to sell its
output to up to three retail customers. LEEPA also provides that the local
franchised utility could be ordered to wheel the energy to these retail
customers. On October 3, 1995, the NHPUC issued an order stating that the LEEPA
retail wheeling provision was not pre-empted by federal law and that it had
authority to order such retail wheeling service if it was found to be in the
public good. PSNH and Connecticut Valley Electric Company filed motions for
rehearing of this order with the NHPUC on November 2, 1995.
4. On August 16, 1995, the Massachusetts Department of Public Utilities (DPU)
issued an order in its investigation, which began in February 1995, into
electric utility industry restructuring in Massachusetts. The order found that
recovery of net, non-mitigatable stranded costs during a transition to full
competition, which is to be no longer than 10 years, is in the public interest.
Stranded costs are to be recovered by a non-bypassable charge. The DPU also
set forth 12 principles for the transition to a restructured industry and
ordered WMECO and other Massachusetts utilities to submit, by February 16, 1996,
plans for moving to a competitive generation market and for incentive regulation
for transmission and distribution.
For additional information on this proceeding, see "Other Information" in NU's
1995 Form 10-Q for the quarter ended March 31, 1995.
5. On August 24, 1995, the DPU issued a decision limiting WMECO's recovery of
lost base revenues in calendar year 1996 to those revenues "lost" due to
implementation of conservation-related costs in the most recent three-year
period. The DPU decision does not affect 1995 revenues, but the three-year
limit on recovery could reduce 1996 revenues by approximately $8 million. WMECO
requested clarification of the decision on September 13, 1995.
For additional information on this proceeding, see "Item 1. Business - Rates" in
NU's 1994 Form 10-K.
6. On October 4, 1995, the U.S. Court of Appeals for the District of Columbia
Circuit granted a motion to intervene filed by Northeast Utilities Service
Company, Connecticut Yankee Atomic Power Company and North Atlantic Energy
Service Company as party petitioners in the lawsuit brought by other nuclear
utilities seeking a judicial declaration that the Nuclear Waste Policy Act of
1982, as amended, unconditionally binds the U.S. Department of Energy to begin
acceptance of spent nuclear fuel and high-level radioactive waste beginning on
January 31, 1998.
For additional information on this matter, see "Item 1. Business - Electric
Operations - Nuclear Generation - High-Level Radioactive Waste" in NU's 1994
Form 10-K.
7. On October 12, 1995, the NRC issued an order halting major dismantling or
decommissioning activities at the Yankee Rowe Nuclear Plant (Yankee Rowe) until
after completion of an adjudicatory hearing process. The NRC intends to issue a
Notice of Opportunity for a hearing on the NRC staff-approved Yankee Rowe
decommissioning plan and, if a hearing is requested, order an expedited hearing.
The NRC's action was taken in response to a recent federal appeals court
decision finding that the NRC should have offered a hearing opportunity prior to
authorizing Yankee's Component Removal Program in 1993.
For additional information on this matter, see "Other Information" in NU's 1995
Form 10-Q for the quarter ended June 30, 1995.
8. On October 13, 1995, the Connecticut Department of Environmental Protection
(DEP) issued a consent order to CL&P and NUSCO requiring those companies to
address leaks from the Long Island cable, which is jointly owned by CL&P and the
Long Island Lighting Company (LILCO). The order will obligate CL&P and NUSCO to
study and propose alternatives for prevention, detection and mitigation of oil
leaks and to evaluate the ecological effects of leaks on the environment.
Alternatives to be studied include removal and replacement of the cable. The
System will incur additional costs to complete the requirements of the order and
to meet any subsequent DEP requirements resulting from the studies under the
consent order, which costs cannot be estimated at this time.
9. The United States Attorney's Office in New Haven, Connecticut has commenced
an investigation and has issued subpoenas to CL&P, NU and NUSCO, seeking
documents relating to operation and maintenance of and recent leaks from the
Long Island cable. Since the investigation is in its preliminary stages and the
government has not revealed the scope of its investigation, management cannot
evaluate the likelihood of a criminal proceeding being initiated at this time.
However, management is aware of nothing that would suggest that any System
company, officer or employee has engaged in conduct that would warrant such a
proceeding.
10. New three year labor contracts covering approximately 370 union employees
of WMECO and Holyoke Water Power Company were signed on August 28, 1995. The
employees covered by these contracts returned to work on September 1, 1995,
which ended a strike that began on May 25, 1995.
For additional information on this matter, see "Other Information" in NU's 1995
Form 10-Q for the quarter ended June 30, 1995.
11. Effective October 1, 1995, E. Gail de Planque was elected to the Northeast
Utilities Board of Trustees to fill the vacancy created with the retirement of
Chairman of the Board William B. Ellis. She was a commissioner with the NRC
until earlier this year when she stepped down from that position. Ms. De
Planque has a doctorate degree in environmental health sciences from New York
University and has been an adjunct professor in the university's Medical Center.
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 13, 1995 By /s/ Bernard M. Fox
------------------ ----------------------------------
Bernard M. Fox
Chairman, President, and
Chief Executive Officer
Date November 13, 1995 By /s/ John W. Noyes
------------------ ----------------------------------
John W. Noyes
Vice President and Controller
<TABLE> <S> <C>
<ARTICLE> UT
<CIK> 0000072741
<NAME> NORTHEAST UTILITIES AND SUBSIDIARIES
<MULTIPLIER>1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 6,453,768
<OTHER-PROPERTY-AND-INVEST> 468,062
<TOTAL-CURRENT-ASSETS> 888,920
<TOTAL-DEFERRED-CHARGES> 2,696,991
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 10,507,741
<COMMON> 675,900
<CAPITAL-SURPLUS-PAID-IN> 927,099
<RETAINED-EARNINGS> 999,065
<TOTAL-COMMON-STOCKHOLDERS-EQ> 2,400,348
302,500
169,700
<LONG-TERM-DEBT-NET> 3,695,807
<SHORT-TERM-NOTES> 67,500
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 285,972
9,000
<CAPITAL-LEASE-OBLIGATIONS> 148,598
<LEASES-CURRENT> 85,637
<OTHER-ITEMS-CAPITAL-AND-LIAB> 3,140,963
<TOT-CAPITALIZATION-AND-LIAB> 10,507,741
<GROSS-OPERATING-REVENUE> 2,770,130
<INCOME-TAX-EXPENSE> 194,574
<OTHER-OPERATING-EXPENSES> 2,121,010
<TOTAL-OPERATING-EXPENSES> 2,326,479
<OPERATING-INCOME-LOSS> 443,651
<OTHER-INCOME-NET> 21,214
<INCOME-BEFORE-INTEREST-EXPEN> 475,760
<TOTAL-INTEREST-EXPENSE> 226,548
<NET-INCOME> 249,212
31,004
<EARNINGS-AVAILABLE-FOR-COMM> 218,208
<COMMON-STOCK-DIVIDENDS> 165,876
<TOTAL-INTEREST-ON-BONDS> 0
<CASH-FLOW-OPERATIONS> 716,510
<EPS-PRIMARY> 1.74
<EPS-DILUTED> 0.00
</TABLE>
Exhibit 15
October 27, 1995
To Northeast Utilities:
We are aware that Northeast Utilities has incorporated by reference in its
Registration Statement No. 33-34622, No. 33-40156, No. 33-63023, and No. 33-
44814 its Form 10-Q for the quarter ended September 30, 1995 which includes our
report dated October 27, 1995 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,
/s/ Arthur Andersen LLP
Arthur Andersen LLP
