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 June 30, 1996
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 July 31, 1996
Common Shares, $5.00 par value 136,051,913 shares
NORTHEAST UTILITIES AND SUBSIDIARIES
TABLE OF CONTENTS
Page No.
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets - June 30, 1996
and December 31, 1995 2
Consolidated Statements of Income - Three
Months and Six Months Ended June 30, 1996 and 1995 4
Consolidated Statements of Cash Flows -
Six Months Ended June 30, 1996 and 1995 5
Notes to Consolidated Financial Statements 6
Report of Independent Public Accountants 12
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 13
Part II. Other Information
Item 1. Legal Proceedings 21
Item 4. Submission of Matters to a Vote of
Security Holders 22
Item 5. Other Information 22
Item 6. Exhibits and Reports on Form 8-K 23
Signatures 25
PART I. FINANCIAL INFORMATION
NORTHEAST UTILITIES AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
------------- -------------
(Thousands of Dollars)
<S> <C> <C>
ASSETS
- ------
Utility Plant, at cost:
Electric................................................ $ 9,583,957 $ 9,490,142
Other................................................... 189,478 187,389
------------- -------------
9,773,435 9,677,531
Less: Accumulated provision for depreciation......... 3,792,602 3,629,559
------------- -------------
5,980,833 6,047,972
Unamortized PSNH acquisition costs...................... 536,421 588,910
Construction work in progress........................... 143,557 165,111
Nuclear fuel, net....................................... 185,612 198,844
------------- -------------
Total net utility plant............................. 6,846,423 7,000,837
------------- -------------
Other Property and Investments:
Nuclear decommissioning trusts, at market............... 345,464 325,674
Investments in regional nuclear generating
companies, at equity................................... 82,752 81,996
Investments in transmission companies, at equity........ 22,753 23,558
Investments in Charter Oak Energy, Inc. projects........ 41,965 41,221
Other, at cost.......................................... 38,750 35,318
------------- -------------
531,684 507,767
------------- -------------
Current Assets:
Cash and cash equivalents (Note 1B)<F1B>................ 275,808 29,038
Receivables, net........................................ 396,680 435,931
Accrued utility revenues................................ 123,170 136,260
Fuel, materials, and supplies, at average cost.......... 210,645 200,580
Recoverable energy costs, net--current portion.......... - 79,300
Prepayments and other................................... 59,170 34,430
------------- -------------
1,065,473 915,539
------------- -------------
Deferred Charges:
Regulatory assets:
Income taxes,net...................................... 1,109,926 1,176,356
Deferred costs--nuclear plants........................ 177,257 168,600
Unrecovered contractual obligation.................... 77,039 103,475
Recoverable energy costs, net (Note 3)<F3>............ 407,151 260,678
Deferred demand-side management costs................. 93,764 117,070
Cogeneration costs-CL&P............................... 85,969 92,162
Other................................................. 43,802 116,010
Unamortized debt expense................................ 37,296 37,645
Other .................................................. 67,713 48,827
------------ ------------
2,099,917 2,120,823
------------ ------------
Total Assets.............................................. $ 10,543,497 $ 10,544,966
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
NORTHEAST UTILITIES AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
------------- -------------
(Thousands of Dollars)
<S> <C> <C>
CAPITALIZATION AND LIABILITIES
- ------------------------------
Capitalization:
Common shareholders' equity:
Common shares, $5 par value--authorized
225,000,000 shares; 136,051,911 shares issued and
127,942,639 shares outstanding in 1996 and
135,611,166 shares issued and 127,050,647 shares
outstanding in 1995.................................. $ 680,260 $ 678,056
Capital surplus, paid in.............................. 943,266 936,308
Deferred benefit plan--employee stock
ownership plan...................................... (187,706) (198,152)
Retained earnings..................................... 972,293 1,007,340
------------- -------------
Total common shareholders' equity.............. 2,408,113 2,423,552
Preferred stock not subject to mandatory redemption..... 169,700 169,700
Preferred stock subject to mandatory redemption......... 276,000 302,500
Long-term debt (Note 6)<F6>............................. 3,686,267 3,705,215
------------- -------------
Total capitalization........................... 6,540,080 6,600,967
------------- -------------
Minority Interest in Consolidated Subsidiaries............ 99,926 99,935
------------- -------------
Obligations Under Capital Leases.......................... 138,101 147,372
------------- -------------
Current Liabilities:
Notes payable to banks.................................. 90,000 99,000
Long-term debt and preferred stock--current
portion................................................ 280,948 219,657
Obligations under capital leases--current
portion................................................ 68,878 83,110
Accounts payable........................................ 321,118 319,038
Accrued taxes........................................... 66,513 75,218
Accrued interest........................................ 51,424 53,699
Accrued pension benefits................................ 91,279 90,630
Refundable energy costs (Note 3)<F3>.................... 42,752 -
Other................................................... 133,492 105,821
------------- ------------
1,146,404 1,046,173
------------- ------------
Deferred Credits:
Accumulated deferred income taxes....................... 2,115,943 2,135,852
Accumulated deferred investment tax credits............. 173,251 178,060
Deferred contractual obligation......................... 77,039 103,475
Other................................................... 252,753 233,132
------------- ------------
2,618,986 2,650,519
------------- ------------
Commitments and Contingencies (Note 9)<F9>
Total Capitalization and Liabilities........... $ 10,543,497 $ 10,544,966
============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
NORTHEAST UTILITIES AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
--------------------------- ---------------------------
1996 1995 1996 1995
------------- ------------- ------------- -------------
(Thousands of Dollars, except share information)
<S> <C> <C> <C> <C>
Operating Revenues............................. $ 871,904 $ 840,333 $ 1,900,106 $ 1,785,038
------------- ------------- ------------- -------------
Operating Expenses:
Operation --
Fuel, purchased and net interchange power.... 199,720 200,293 511,459 437,937
Other........................................ 280,829 223,187 559,204 449,740
Maintenance................................... 109,557 67,736 178,020 127,878
Depreciation.................................. 89,460 85,749 180,404 173,502
Amortization of regulatory assets, net........ 24,916 30,269 39,257 60,170
Federal and state income taxes................ 24,199 55,657 83,955 125,269
Taxes other than income taxes................. 61,404 59,031 132,727 124,804
------------- ------------- ------------- -------------
Total operating expenses............... 790,085 721,922 1,685,026 1,499,300
------------- ------------- ------------- -------------
Operating Income............................... 81,819 118,411 215,080 285,738
------------- ------------- ------------- -------------
Other Income:
Deferred nuclear plants return--other
funds...................................... 2,387 2,640 5,413 7,296
Equity in earnings of regional nuclear
generating and transmission companies...... 3,654 3,880 7,311 6,217
Other, net................................... 8,721 2,005 10,648 (2,637)
Income taxes................................. (2,306) 2,074 (1,792) 6,205
------------- ------------- ------------- -------------
Other income, net...................... 12,456 10,599 21,580 17,081
------------- ------------- ------------- -------------
Income before interest charges......... 94,275 129,010 236,660 302,819
------------- ------------- ------------- -------------
Interest Charges:
Interest on long-term debt................... 70,649 80,375 143,073 160,579
Other interest............................... 7,452 1,173 8,594 2,772
Deferred nuclear plants return--borrowed
funds..................................... (3,782) (3,304) (8,835) (11,649)
------------- ------------- ------------- -------------
Interest charges, net.................. 74,319 78,244 142,832 151,702
------------- ------------- ------------- -------------
Income after interest charges........... 19,956 50,766 93,828 151,117
Preferred Dividends of Subsidiaries............ 8,290 8,368 16,660 22,435
------------- ------------- ------------- -------------
Net Income..................................... $ 11,666 $ 42,398 $ 77,168 $ 128,682
============= ============= ============= =============
Earnings Per Common Share...................... $ 0.09 $ 0.34 $ 0.60 $ 1.03
============= ============= ============= =============
Common Shares Outstanding (average)............ 127,808,845 125,776,304 127,705,612 125,448,064
============= ============= ============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
NORTHEAST UTILITIES AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
-----------------------
1996 1995
----------- -----------
(Thousands of Dollars)
<S> <C> <C>
Operating Activities:
Income before preferred dividends of subsidiaries......... $ 93,828 $ 151,117
Adjustments to reconcile to net cash
from operating activities:
Depreciation............................................ 180,404 173,502
Deferred income taxes and investment tax credits, net... 8,443 85,173
Deferred nuclear plants return, net of amortization..... (6,982) 42,737
Recoverable energy costs, net of amortization........... (24,421) (57,207)
Amortization of PSNH acquisition costs.................. 28,602 28,111
Deferred cogeneration costs--CL&P, net.................. 6,193 (38,533)
Deferred demand-side-management
costs, net of amortization............................ 23,306 6,792
Deferred nuclear refueling outage, net of amortization.. 28,348 (24,768)
Nuclear compliance reserves............................. 47,839 -
Other sources of cash................................... 154,831 110,172
Other uses of cash...................................... (25,553) (13,875)
Changes in working capital:
Receivables and accrued utility revenues................ 52,341 47,128
Fuel, materials, and supplies........................... (10,065) (11,989)
Accounts payable........................................ 2,080 (45,850)
Accrued taxes........................................... (8,705) (12,924)
Other working capital (excludes cash)................... (46,534) (8,972)
----------- -----------
Net cash flows from operating activities.................... 503,955 430,614
----------- -----------
Financing Activities:
Issuance of common shares................................. 10,621 10,867
Issuance of long-term debt (Note 6)<F6>................... 222,000 -
Issuance of Monthly Income
Preferred Securities..................................... - 100,000
Net decrease in short-term debt........................... (9,000) (32,500)
Reacquisitions and retirements of long-term debt.......... (209,424) (81,048)
Reacquisitions and retirements of preferred stock......... (1,500) (133,175)
Cash dividends on preferred stock......................... (16,660) (22,435)
Cash dividends on common shares........................... (112,215) (110,313)
----------- -----------
Net cash flows used for financing activities................ (116,178) (268,604)
----------- -----------
Investment Activities:
Investment in plant:
Electric and other utility plant........................ (108,556) (110,387)
Nuclear fuel............................................ 1,518 (11,766)
----------- -----------
Net cash flows used for investments in plant.............. (107,038) (122,153)
Investments in nuclear decommissioning trusts............. (29,842) (32,585)
Other investment activities, net.......................... (4,127) (11,477)
----------- -----------
Net cash flows used for investments......................... (141,007) (166,215)
----------- -----------
Net Increase (Decrease) In Cash For The Period.............. 246,770 (4,205)
Cash and cash equivalents - beginning of period............. 29,038 27,127
----------- -----------
Cash and cash equivalents - end of period................... $ 275,808 $ 22,922
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
NORTHEAST UTILITIES AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. Presentation
The accompanying unaudited consolidated financial statements should be
read in conjunction with Management's Discussion and Analysis of
Financial Condition and Results of Operations (MD&A) in this Form 10-
Q, the Annual Report of Northeast Utilities (the company or NU) on
Form 10-K for the year ended December 31, 1995 (1995 Form 10-K), the
First Quarter 1996 Form 10-Q, and the company's Form 8-Ks dated
January 31, 1996, March 30, 1996, April 15, 1996, June 3, 1996, June
18, 1996, June 28, 1996, and July 22, 1996. In the opinion of the
company, the accompanying financial statements contain all adjustments
necessary to present fairly the financial position as of June 30,
1996, the results of operations for the three-month and six-month
periods ended June 30, 1996 and 1995, and the statements of cash flows
for the six-month periods ended June 30, 1996 and 1995. All
adjustments are of a normal, recurring, nature except those described
below in Notes 3 and 9B. The results of operations for the three-
month and six-month periods ended June 30, 1996 and 1995 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.
NU is the parent company of the Northeast Utilities system (the
system). The system furnishes retail electric service in Connecticut,
New Hampshire, and western Massachusetts through four wholly owned
subsidiaries, The Connecticut Light and Power Company (CL&P), Public
Service Company of New Hampshire (PSNH), Western Massachusetts
Electric Company (WMECO), and Holyoke Water Power Company (HWP). A
fifth wholly owned subsidiary, North Atlantic Energy Corporation
(NAEC), sells all of its capacity and output of the Seabrook nuclear
power plant to PSNH. In addition to its retail electric service, the
system furnishes firm and other wholesale electric services to various
municipalities and other utilities. The system serves about 30
percent of New England's electric needs and is one of the 20 largest
electric utility systems in the country as measured by revenues.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent liabilities at the date of
the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ
from those estimates.
B. Cash and Cash Equivalents
Cash and cash equivalents includes cash on hand and short-term
cash investments which are highly liquid in nature and have original
maturities of three months or less.
2. NEW ACCOUNTING STANDARD
The Financial Accounting Standards Board (FASB) has issued Statement of
Financial Accounting Standards (SFAS) 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,"
which established accounting standards for evaluating and recording asset
impairment. The company adopted SFAS 121 as of January 1, 1996. SFAS 121
requires the evaluation of long-lived assets for impairment when certain
events occur or when conditions exist that indicate the carrying amounts of
assets may not be recoverable.
Based on the current regulatory environment in the system's service areas,
as of June 30, 1996, SFAS 121 did not 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. For further information, see NU's
1995 Form 10-K and NU's First Quarter 1996 Form 10-Q.
3. REGULATORY ASSETS
CL&P -- Settlement Agreement: On July 1, 1996, the Connecticut Department
of Public Utility Control approved a modified settlement agreement
(Modified Settlement). As a result of the Modified Settlement CL&P wrote
off approximately $6 million associated with its deferred 1995-1996
generation utilization adjustment clause (GUAC) balance as of March 31,
1996. The Modified Settlement also provides for the accelerated recovery of
CL&P's other regulatory assets of approximately $127-$175 million during
1996 and 1997. For further information on the CL&P Modified Settlement and
the original settlement proposal, see Note 9B in this Form 10-Q and the
company's Form 8-Ks dated April 15, 1996, June 18, 1996, and June 28, 1996.
CL&P -- Recoverable Energy Costs: The Modified Settlement resolved all
outage-related fuel recovery issues through March 31, 1996. For periods
subsequent to March 31, 1996 the Modified Settlement has provided for an
interim regulatory deferred fuel accounting mechanism. The net effect of
this mechanism, combined with the GUAC and the fossil-fuel adjustment
clause, operates as though CL&P has a fully tracking fuel clause. As of
June 30, 1996, CL&P had a net GUAC balance of approximately $83 million.
For further information on CL&P's recoverable energy costs, see Note 9B
and the MD&A in this Form 10-Q, NU's First Quarter 1996 Form 10-Q, and
NU's 1995 Form 10-K.
PSNH: The company's Form 8-K dated June 3, 1996 discusses the New Hampshire
Public Utilities Commission's (NHPUC) order requiring PSNH to refund $41.5
million of small power producer costs. These refunds began in June 1996.
Management believes that the $41.5 million will be recoverable through
future rates, in accordance with the PSNH Rate Agreement, and has
recognized a regulatory asset for this amount. As of June 30, 1996, PSNH
had net recoverable energy costs of approximately $262 million. For further
information on PSNH Recoverable Energy Costs, see NU's 1995 Form 10-K and
the company's Form 8-K dated June 3, 1996.
4. LEASE AGREEMENT
On June 21, 1996, CL&P entered into an operating lease agreement for CL&P
to acquire the use of four turbine generators having an installed cost of
approximately $70 million. The initial lease term is for a five-year
period. The lease agreement provides for a renewal option under which CL&P
may lease the turbines, at their fair market value, for five additional
consecutive twelve-month renewal terms. The rental payments are based on a
five-year floating interest rate. The initial interest rate was 6.44
percent. Upon termination of the lease agreement, ownership of the
turbines will remain with the lessor. For further information on leases,
see NU's 1995 Form 10-K.
5. ACCOUNTS RECEIVABLE SECURITIZATION PROGRAM
On July 11, 1996, CL&P entered into an agreement for the sale of up to
$200 million of eligible accounts receivable with limited recourse. The
agreement provides for a loss reserve pursuant to which additional customer
receivables are allocated to the purchaser on an interim basis, to protect
against bad debt. To the extent actual loss experience of the pool
receivables exceeds the loss reserve, the purchaser absorbs the excess.
For receivables sold, CL&P has retained collection and servicing
responsibilities as agent for the purchaser. As collections reduce
previously sold undivided interests, new receivables would customarily be
sold. As of August 13, 1996, no receivables had been sold under this
program.
The FASB has issued SFAS 125, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities" which establishes, in
part, accounting standards for the accounting and recognition of transfers
of financial assets. SFAS 125 will be effective for transfers and
servicing of financial assets occurring after December 31, 1996 and will be
applied prospectively. Management is currently evaluating the effects of
this accounting standard on future transactions related to the accounts
receivable securitization program.
6. CAPITALIZATION
On May 21, 1996, the Connecticut Development Authority issued $62 million
of tax-exempt pollution control revenue bonds. Concurrent with such
issuance, the proceeds of the bonds were loaned to CL&P for the
reimbursement of a portion of CL&P's share of the previously incurred costs
of financing, acquiring, constructing, and installing pollution control,
sewage, and solid waste disposal facilities at Millstone 3. The bonds will
mature on May 1, 2031 and bear, at CL&P's discretion, a variable or fixed
interest rate. Variable interest rates may reach a maximum rate of 12
percent. The bonds were issued with an initial interest rate of 3.7
percent per annum. The bonds are backed by a five-year letter of credit and
are secured by a second mortgage on CL&P's interest in Millstone 1.
On June 25, 1996, CL&P issued $160 million of First and Refunding Mortgage
Bonds, 1996 Series A. The 1996 Series A Bonds bear interest at an annual
rate of 7.875%, and will mature on June 1, 2001. The net proceeds from the
issuance and sale of the 1996 Series A Bonds, plus funds from other
sources, will be used to repay approximately $193.3 million in principal
amount of CL&P's Series UU bonds, due April 1, 1997. Prior to maturity of
the Series UU bonds, CL&P may utilize a portion of the net proceeds to
reduce short-term borrowing requirements.
For further information on capitalization, see NU's 1995 Form 10-K.
7. DERIVATIVE FINANCIAL INSTRUMENTS
Fuel Swaps: CL&P uses fuel-swap agreements with financial institutions to
hedge against some of the fuel-price risk created by the sale of long-term
negotiated energy contracts. These fuel swaps reduce exposure associated
with rising fuel prices and effectively fix most of CL&P's cost of fuel and
the profitability for these negotiated energy contracts. Under the swap
contracts, CL&P exchanges monthly payments based on the differential
between a fixed and variable price for the associated fuel. As of June 30,
1996, CL&P had outstanding contracts with a total notional value of
approximately $234.9 million, and a negative mark-to-market position of
approximately $8.7 million.
Interest-Rate Swaps: NAEC uses interest-rate swap agreements with
financial institutions to hedge against interest-rate risk associated with
its $225 million variable-rate bank note. The interest-rate swaps reduce
exposure associated with rising interest rates, and effectively fix the
interest rate for this borrowing arrangement. Under the swap
agreements, NAEC exchanges quarterly payments based on a differential
between a fixed contractual interest rate and the three-month LIBOR rate at
a given time. As of June 30, 1996, NAEC had outstanding agreements with a
total notional value of approximately $225 million and a positive mark-to-
market position of approximately $4.2 million.
These swap agreements have been made with various financial institutions,
each of which is rated "BBB+" or better by Standard & Poor's rating group.
CL&P and NAEC are exposed to credit risk on fuel swaps and interest-rate
swaps if the counterparties fail to perform their obligations. However,
CL&P and NAEC anticipate that the counterparties will be able to fully
satisfy their obligations under the contracts. For further information on
derivative financial instruments see the MD&A in this Form 10-Q, NU's 1995
Form 10-K and NU's First Quarter 1996 Form 10-Q.
8. NUCLEAR DECOMMISSIONING
For information regarding nuclear decommissioning, see NU's First Quarter
1996 Form 10-Q and NU's 1995 Form 10-K.
9. COMMITMENTS AND CONTINGENCIES
A. Construction Program: For information regarding NU's construction
program, see NU's 1995 Form 10-K.
B. Nuclear Performance:
Modified Settlement: NU had previously reported in its 1995 Form 10-K
that nuclear outages which occurred at Millstone station over the
period October 1990 through August 1995 were the subject of prudence
reviews in Connecticut. The Modified Settlement previously discussed
in Note 3 terminated these proceedings, and such termination did not
have a material adverse impact on NU's financial position or results
of operations. For additional information regarding the prudence
reviews, see NU's 1995 Form 10-K. For additional information
regarding the Modified Settlement, see Note 3 and the MD&A in this
Form 10-Q and the company's Form 8-Ks dated April 15, 1996, June 18,
1996, and June 28, 1996.
Millstone: NU has disclosed in its 1995 Form 10-K, its First Quarter
1996 Form 10-Q and its Form 8-Ks dated January 31, 1996, March 30,
1996, April 15, 1996, June 3, 1996, June 18, 1996, June 28, 1996, and
July 22, 1996 that, among other things, the Millstone power station
has been placed on the NRC's watch list, the three Millstone units are
currently out of service, the company is currently responding to NRC
requests for information and the company is currently incurring costs,
including replacement power costs, while the three Millstone units are
down.
Management cannot predict when the NRC will allow any of the Millstone
units to return to service and thus cannot estimate the total
replacement power costs the companies will ultimately incur.
Management now estimates NU will expense about $120 million of
incremental nuclear operation and maintenance costs in 1996.
Approximately $85 million of the $120 million was expensed in the
first and second quarters of 1996; $68 million for CL&P, $16 million
for WMECO, and $1 million for PSNH. It is likely this estimate will
rise as NU and the NRC identify additional issues that need to be
resolved.
The recovery of fuel, purchased power, and other outage-related costs
is subject to prudence reviews in Connecticut, Massachusetts, and New
Hampshire. While it is too early to estimate the total amount of such
costs or the results of any prudence reviews, management believes that
there is significant exposure to non-recovery of a material amount of
such costs.
For further information, see the SEC filings referenced above and the
MD&A in this Form 10-Q.
Connecticut Yankee (CY): For information regarding CY, see the MD&A
in this Form 10-Q, NU's First Quarter 1996 Form 10-Q, and NU's Form
8-Ks dated June 3, 1996 and July 22, 1996.
C. Environmental Matters: For information regarding environmental
matters, see NU's 1995 Form 10-K.
D. Nuclear Insurance Contingencies: For information regarding nuclear
insurance contingencies, see NU's 1995 Form 10-K.
E. Long-Term Contractual Arrangements: For information regarding long-
term contractual arrangements, see NU's 1995 Form 10-K.
F. Class Action Suit: For information regarding the class action suit
that was filed against NU on July 3, 1996, see Part II, Item 1. Legal
Proceedings, in this Form 10-Q.
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 June 30, 1996, and the
related consolidated statements of income for the three and six-month periods
ended June 30, 1996 and 1995, and the consolidated statements of cash flows for
the six-month periods ended June 30, 1996 and 1995. 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
August 13, 1996
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
system) financial condition and the principal factors having an impact on the
results of operations. This discussion should be read in conjunction with NU's
consolidated financial statements and footnotes in this Form 10-Q, the 1995 Form
10-K, the First Quarter 1996 Form 10-Q, and the Form 8-Ks dated January 31,
1996, March 30, 1996, April 15, 1996, June 3, 1996, June 18, 1996, June 28,
1996, and July 22, 1996.
FINANCIAL CONDITION
Overview
Earnings per common share were $0.09 for the three months ended June 30, 1996, a
decrease of $0.25 from the same period in 1995, and $0.60 for the six months
ended June 30, 1996, a decrease of $0.43 from the same period in 1995. The
earnings for the three- and six-month periods were lower primarily due to higher
operating costs and reserves related to the outages at the Millstone units, the
impact of The Connecticut Light and Power Company's (CL&P) approved rate
settlement agreement, and costs associated with meeting summer capacity
requirements. These decreases were partially offset by higher retail sales and
lower amortization of regulatory assets in 1996. In addition, six-month earnings
decreased due to a one-time tax benefit from a favorable tax ruling, recognized
in the first quarter of 1995.
NU expects to continue incurring substantial costs during the remainder of 1996
as a result of the Millstone outages, which could result in a loss for the third
quarter. Management expects that earnings per share for 1996 will be well below
1995 earnings. A key factor affecting 1996 earnings will be the level of costs
expended to address Nuclear Regulatory Commission (NRC) concerns and the
replacement-power costs incurred to serve the system's customers in the absence
of energy from the Millstone units. Management currently estimates that it will
expense about $120 million of incremental operation and maintenance costs in
1996, approximately $85 million of which were expensed during the first six
months of 1996, including a reserve for future costs of $48 million. It is
likely that these costs will rise as NU and the NRC identify additional issues
that need to be resolved. Monthly replacement-power costs for NU system
companies attributable to the three Millstone outages are expected to be
approximately $21 to $30 million.
The NU Board of Trustees (the Board) evaluates the dividend on NU's common
shares quarterly. At its July 23, 1996 meeting, the Board declared a $0.25 per
quarter common dividend, payable on September 30, 1996, to holders of record on
September 1, 1996. The new level represents a 43-percent reduction from the
$0.44 per share level NU has paid quarterly since March 1987.
For further information on the dividend reduction see NU's Form 8-K dated July
22, 1996.
Nuclear Performance
Millstone
NU has a 100-percent ownership interest in Millstone 1 and 2 and a 68-percent
ownership interest in Millstone 3.
Millstone units 1, 2, and 3 (Millstone) have been out-of-service since November
4, 1995, February 21, 1996, and March 30, 1996, respectively. For further
17
information on the current Millstone outages see NU's 1995 Form 10-K, Form 8-Ks
dated January 31, 1996, March 30, 1996, June 3, 1996, June 18, 1996, June 28,
1996, and July 22, 1996, and the First Quarter 1996 Form 10-Q.
The NRC has recently informed NU that it will require the creation of an
independent, third-party corrective action verification team to verify that
corrective actions have been taken at Millstone to address design and
configuration management issues. The NRC has indicated that it will issue an
order confirming the requirement for such a team and reconfirming its
requirement that NU seek formal approval by the NRC commissioners for restart of
the Millstone units. Management cannot presently estimate the effect these
efforts will have on the timing of restart or what additional costs, if any,
this may cause.
Connecticut Yankee
NU has a 49-percent ownership interest in the Connecticut Yankee Atomic Power
Company (CYAPC) which operates the Connecticut Yankee nuclear power plant (CY).
On July 22, 1996, CY was taken out of service as a precautionary measure to
address a hypothetical accident scenario involving the plant's service water
system. On August 8, 1996, after evaluating certain other pending technical and
regulatory issues, CY's management decided to delay the restart of the unit and
to begin a scheduled September refueling outage. The refueling outage was
accelerated in order to allow time to resolve the pending issues.
On August 9, 1996, the NRC requested that CYAPC submit, within thirty days,
additional information that would reconfirm the basis for continued operation of
CY and address the implications of certain issues related to CY's design basis.
NU cannot estimate at this time whether compliance with this request will impact
the restart date for CY.
CYAPC cannot presently estimate whether the outage will extend beyond the 60
days planned for the refueling outage. Although a vote by the NRC Commissioners
is not required prior to restart of the unit at this time, CYAPC will work
closely with the NRC staff to evaluate and implement the corrective actions
necessary to address the pending issues. Management cannot presently estimate
the additional costs associated with the outage.
For further information on CY see NU's Form 8-Ks dated June 3, 1996, and July
22, 1996, and the First Quarter 1996 Form 10-Q.
Rate Matters
Connecticut
On July 1, 1996, the Connecticut Department of Public Utility Control (DPUC)
approved a modified rate settlement agreement (the Modified Settlement). The
Modified Settlement is expected to reduce estimated year-end 1996 earnings by
approximately $35 million, or $0.17 per share, of which $0.06 per share was
recognized during the second quarter.
Although the Modified Settlement will decrease 1996 earnings, management
believes it will better position CL&P for the restructuring of the electric-
power industry. The 18-month base-rate freeze and accelerated recovery of
regulatory assets provided for in the Modified Settlement will preserve current
cash flow while reducing potentially strandable investments. In addition, the
termination of certain pending litigation and the elimination of the need to
file a rate case during 1996 will allow CL&P to focus its efforts on preparing
itself for a more competitive environment.
For further information on the Modified Settlement see Note 3 of the Notes to
Consolidated Financial Statements in this Form 10-Q, NU's Form 8-Ks dated April
15, 1996, June 18, 1996, and June 28, 1996, and the First Quarter 1996
Form 10-Q.
New Hampshire
In 1995, the New Hampshire Legislature created a committee to review the
electric-power industry's structure and called for the New Hampshire Public
Utilities Commission (NHPUC) to initiate a two-year retail-wheeling pilot
program. Public Service Company of New Hampshire (PSNH) and CL&P are currently
participating in the pilot program.
In response to legislation passed by the New Hampshire Legislature calling for
customer choice no later than July 1, 1998, the NHPUC established a procedural
schedule for a generic proceeding to develop a statewide restructuring plan and
to provide guidance on setting an interim stranded cost recovery charge. The
schedule calls for the NHPUC to issue its preliminary restructuring plan and
hold preliminary technical sessions in August 1996. Written comments will be
due in September and will be followed by additional technical sessions and
hearings. In January 1997, a final order is expected that will implement retail
choice for all customers by January 1, 1998. Utilities must submit compliance
filings no later than June 30, 1997.
For further information on New Hampshire rate and restructuring issues, see NU's
1995 Form 10-K and Form 8-K dated June 3, 1996.
Massachusetts
On May 1, 1996, the Massachusetts Department of Public Utilities (DPU) issued
draft rules and an explanatory statement in its continuing efforts on electric-
power industry restructuring. The proposed rules and explanatory statement
address complex and interrelated topics concerning the generation, transmission,
distribution, and sales of electricity, as well as corporate structure and
asset ownership, that could have far-reaching effects on utilities. Western
Massachusetts Electric Company (WMECO) has taken several steps to affect the
final disposition of these DPU actions, including: filing initial and
supplemental comments on May 24 and May 31, 1996; participation in most of the
15 days of hearings; and submittal of final written comments on August 2, 1996.
On August 9, 1996, the DPU stated in a scheduling order that it would endeavor
to issue final restructuring regulations by the end of 1996. The DPU also
indicated that it would issue a schedule at a later date for the filing by WMECO
and other electric companies of unbundled rate tariffs; the DPU previously
stated that such unbundled tariffs would be ordered into effect in 1997. In its
August 9 order, the DPU also stated that it remains committed to bringing full
retail choice to all Massachusetts electricity customers by January 1, 1998.
While the DPU's proposed rules indicate that utilities will have a reasonable
opportunity to recover stranded costs resulting from industry restructuring, the
criteria to be used in this process is not clearly defined at this time and will
likely be subject to review in a rate proceeding. However, if either the final
rules or a rate proceeding indicate that WMECO's financial results will be
adversely impacted, WMECO will pursue actions deemed necessary by management to
prevent such outcomes, including pursuit of litigation.
Liquidity And Capital Resources
Cash provided from operations increased approximately $73 million in the first
six months of 1996, from 1995, primarily due to higher revenues from recoveries
of fuel costs paid in prior periods and higher retail sales, partially offset by
higher cash operating expenses and lower funds from working capital. Cash used
for operating expenses was lower than the amount recognized in income due
primarily to the reserves for future costs associated with the nuclear outages
and higher accounts payable balances in 1996. Cash used for financing
activities decreased approximately $153 million primarily due to higher
issuances of long-term debt. Cash used for investments decreased approximately
$25 million primarily due to lower nuclear fuel expenditures and lower
investments in nonutility generation projects.
In May 1996, Standard & Poor's Rating Group (S&P) and Moody's Investors Service
downgraded a number of securities of the NU system companies, including all debt
and preferred stock of CL&P and WMECO, unsecured debt of NU parent, and bonds of
CYAPC. All NU system company securities remain on S&P's CreditWatch. These
rating actions could adversely affect the future availability and cost of funds.
The system companies have taken various actions to ensure that they will have
access to adequate cash resources, at reasonable cost, even if the nuclear
outages extend significantly longer, or the associated costs are significantly
greater, than management currently foresees. These actions have resulted in a
net increase in cash of approximately $250 million.
CL&P completed a $62 million tax-exempt debt issue in May 1996 and issued $160
million of first-mortgage bonds in June 1996. Additionally, CL&P established a
facility under which it may sell, from time to time, up to $200 million of
fractional interests in its billed and unbilled accounts receivable, with
recourse. This facility has not been used to date. Additionally, NU, CL&P, and
WMECO have applied to the Securities and Exchange Commission for an aggregate
increase of $107 million in the agreements under which they effect revolving
credit borrowings. This increase would raise the aggregate short-term debt
level for these entities up to $450 million. The reduction of NU's common
dividend to $0.25 per share quarterly will reduce cash outflows at the rate of
approximately $100 million annually, if continued at that level. Management
considers the new dividend level to be sustainable in a range of scenarios.
WMECO is also evaluating the issuance of additional first-mortgage bonds and
sale of its accounts receivable.
CL&P has entered into fuel-swap agreements to reduce a portion of the fuel-price
risk associated with its long-term negotiated energy contracts. North
Atlantic Energy Company (NAEC) has entered into interest-rate swap agreements to
reduce interest-rate risk associated with its $225 million variable-rate bank
note. These swaps are not used for trading purposes. The differential paid or
received as fuel prices or interest rates change is recognized in income when
realized. As of June 30, 1996, CL&P and NAEC had outstanding swap agreements
with a total notional value of approximately $234.9 and $225 million,
respectively. The settlement amounts associated with the swaps increased
earnings by approximately $2.5 million for CL&P and increased interest expense
by approximately $.6 million for NAEC during the first six months of 1996.
CL&P's fuel swaps seek to minimize exposure associated with rising fuel prices
and effectively fix the cost of fuel and profitability of certain of its long-
term negotiated contract sales. NAEC's interest-rate swaps effectively fix its
variable-rate bank note at 7.05 percent.
RESULTS OF OPERATIONS
Comparison of the Second Quarter of 1996 with the Second Quarter of 1995
Changes in Operating Revenues Increase/(Decrease)
(Millions of Dollars)
Regulatory decisions $ 9
Fuel, purchased-power, and FPPAC cost recoveries (16)
Retail sales 23
Other revenues 16
----
Total revenue change $32
Revenues related to regulatory decisions increased primarily due to the mid-1995
retail-rate increase for CL&P and the June 1, 1995 and 1996 retail-rate
increases for PSNH. Fuel, purchased-power, and Fuel and Purchased Power
Adjustment Clause (FPPAC) cost recoveries decreased primarily due to lower
average fossil fuel prices and lower revenues from sales to other outside
utilities. Retail sales increased 4.4 percent primarily due to modest economic
growth in 1996. Other revenues increased primarily due to higher recognition in
the second quarter of 1996 of reimbursable conservation services.
Fuel, purchased, and net interchange power expense decreased $0.6 million
primarily due to lower fossil and nuclear generation, partially offset by higher
energy costs in 1996 due to the nuclear outages.
Other operation and maintenance expense increased approximately $99 million
primarily due to higher costs associated with the nuclear outages ($52 million,
including $35 million of reserves for future costs) and higher costs associated
with meeting summer capacity requirements ($21 million).
Amortization of regulatory assets, net decreased approximately $5 million
primarily due to the completion of CL&P and WMECO's amortization of Millstone 3
phase-in costs, partially offset by lower 1996 CL&P cogeneration deferrals and
higher 1996 amortization of previously deferred cogeneration costs.
Federal and state income taxes decreased approximately $27 million primarily due
to lower book taxable income.
Other, net increased approximately $7 million primarily due to the deferral of
the PSNH interest expense associated with an FPPAC refund.
Interest expense decreased approximately $3 million primarily due to lower
average interest rates as a result of refinancing activities and lower average
1996 debt levels, partially offset by the PSNH interest expense associated with
an FPPAC refund.
Comparison of the First Six Months of 1996 with the First Six Months of 1995
Changes in Operating Revenues Increase/(Decrease)
(Millions of Dollars)
Regulatory decisions $ 13
Fuel, purchased-power, and FPPAC cost recoveries 39
Retail sales 53
Wholesale revenues (6)
Other revenues 16
-----
Total revenue change $115
Revenues related to regulatory decisions increased primarily due to the mid-1995
retail-rate increase for CL&P and the June 1, 1995 and 1996 retail-rate
increases for PSNH, partially offset by 1996 reserves for CL&P over-recoveries
of demand-side-management costs. Fuel, purchased-power, and FPPAC cost
recoveries increased primarily due to higher 1996 outside energy costs and the
recovery of Generation Utilization Adjustment Clause (GUAC) costs for CL&P.
Retail sales increased 4.3 percent primarily due to modest economic growth in
1996 and mild weather in the first quarter of 1995. Wholesale revenues decreased
primarily due to higher recognition in 1995 of lump-sum payments for termination
of a long-term contract with CL&P. Other revenues increased primarily due to
higher recognition in 1996 of reimbursable conservation services.
Fuel, purchased, and net interchange power expense increased approximately $74
million primarily due to higher energy costs in 1996 due to the nuclear outages
and the 1996 write-off of unamortized GUAC balances as agreed to as part of
CL&P's 1996 Modified Settlement, partially offset by lower fossil and nuclear
generation.
Other operation and maintenance expense increased approximately $160 million
primarily due to higher costs associated with the nuclear outages ($100 million,
including $48 million of reserves for future costs) and 1996 costs associated
with meeting summer capacity requirements ($21 million). In addition, these
costs reflect higher recognition of postretirement benefit costs, higher office
equipment expenses, higher recognition of reimbursable conservation expenses,
and higher outside services related to the nuclear outages, partially offset by
lower 1996 charges from the regional nuclear generating units.
Amortization of regulatory assets, net decreased approximately $21 million
primarily due to the completion of CL&P and WMECO's amortization of Millstone 3
phase-in costs, partially offset by lower 1996 CL&P cogeneration deferrals and
higher 1996 amortization of previously deferred cogeneration costs.
Federal and state income taxes decreased approximately $33 million primarily due
to lower book taxable income, partially offset by tax benefits from a favorable
tax ruling recognized during the first quarter of 1995.
Taxes other than income taxes increased approximately $8 million primarily due
to higher 1996 Connecticut gross earnings tax expense and higher 1996
Connecticut and New Hampshire property tax expense.
Deferred nuclear plants return decreased approximately $5 million primarily due
to additional Seabrook 1 investments being phased into rates, partially offset
by a one-time adjustment to NAEC's Seabrook deferred return of $5 million in
June 1995.
Other, net increased approximately $13 million primarily due to the deferral of
the PSNH interest expense associated with an FPPAC refund, the 1995 write-down
of CL&P's wholesale investment in Millstone 3, and a 1995 adjustment to the
environmental reserve.
Interest expense decreased approximately $12 million primarily due to lower
average interest rates as a result of refinancing activities and lower average
1996 debt levels, partially offset by the PSNH interest expense associated with
an FPPAC refund.
Preferred dividends decreased approximately $6 million primarily due to a 1995
charge to earnings for premiums on redeemed preferred stock and a reduction in
preferred stock levels.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
1. On July 3, 1996, a class action suit was filed against NU in Connecticut
Superior Court. The suit alleges violations of Connecticut securities law in
connection with sales of NU shares to participants in the NU Dividend
Reinvestment Plan between April 4, 1994 and March 4, 1996. In that period
approximately $90 million of shares were sold. The suit alleges that NU made
misrepresentations and omissions related to nuclear plant performance at NU's
Millstone Station in SEC filings during that period. NU will defend the
complaint vigorously.
2. NU has been served with three additional civil complaints brought as
shareholder derivative actions in Connecticut Superior Court and one in the
United States District Court in Connecticut seeking to recover from
certain current and former NU Trustees and officers unspecified damages for
alleged losses purportedly arising out of NU's operation of Millstone Station,
bringing the total number of such complaints to seven.
For additional information on the other civil complaints brought in connection
with operations at Millstone Station, see NU's Form 10-Q for the quarter ended
March 31, 1996.
3. NU has learned that the Office of the U. S. Attorney for Connecticut,
together with the U. S. Environmental Protection Agency, is investigating
possible criminal violations of federal environmental laws at the Millstone
facilities. This investigation may have arisen out of allegations made by a
former employee in a Connecticut state lawsuit alleging he was wrongfully
terminated in the January 1996 nuclear workforce reduction. NU has been informed
by the government that it is a target of the investigation, but that no one in
senior management is either a target or a subject of this investigation.
4. On May 13, 1996, the New Hampshire Supreme Court (Court) ruled in PSNH's
appeal of the NHPUC's June 1995 decision that state law does not require
electric utility franchises in New Hampshire to be exclusive. The Court ruled
that the NHPUC can alter existing exclusive franchise orders if it is determined
to be in the public good to do so. The Court expressly indicated, however, that
its decision does not discuss whether such an alteration of the franchise would
require compensation to the utility. The decision arose from a NHPUC proceeding
initiated to address Freedom Energy Company, LLC's (Freedom) petition seeking
permission from the NHPUC to operate as an electric utility in New Hampshire.
The remaining issues related to Freedom's petition are still pending at the
NHPUC.
For additional information on this proceeding, see "Item 1. Business - Rates -
New Hampshire Retail Rates - Electric Industry Restructuring in New Hampshire"
in NU's 1995 Form 10-K.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Annual Meeting of Shareholders of NU held on May 21, 1996
shareholders voted to fix the number of Trustees for the ensuing year at eleven.
The vote fixing the number of Trustees was 112,011,643 votes in favor and
3,827,525 votes against, with 2,606,787 abstentions and broker nonvotes.
At the Annual Meeting, the following eleven nominees were elected to serve on
the Board of Trustees by the votes set forth below:
For Against Abstain
--- ------- -------
1. Alfred F. Boschulte 111,619,215 3,078,870 3,747,871
2. Cotton M. Cleveland 111,694,848 3,003,237 3,747,871
3. E. Gail DePlanque 111,550,703 3,147,382 3,747,871
4. Bernard M. Fox 109,048,939 5,649,146 3,747,871
5. Gaynor N. Kelley 111,935,429 2,762,656 3,747,871
6. Elizabeth T. Kennan 111,582,437 3,115,648 3,747,871
7. William J. Pape 111,454,367 3,243,718 3,747,871
8. Robert E. Patricelli 111,579,829 3,118,256 3,747,871
9. Norman C. Rasmussen 111,649,950 3,048,135 3,747,871
10. John F. Swope 111,226,467 3,471,618 3,747,871
11. John F. Turner 111,828,632 2,869,453 3,747,871
NU's shareholders also ratified the Board of Trustees' selection of Arthur
Anderson LLP to serve as independent auditors of NU and its subsidiaries for
1996. The vote ratifying such selection was 113,187,830 votes in favor and
3,315,750 votes against, with 1,941,325 abstentions and broker nonvotes.
ITEM 5. OTHER INFORMATION
1. On May 11, 1996, the NHPUC denied PSNH's Motion for Rehearing requesting
that the NHPUC reconsider its decision to review whether PSNH had used its "best
efforts" to negotiate settlements with thirteen nonutility generators (NUGs)
listed in the Rate Agreement. The NHPUC has scheduled hearings in this matter
to begin in October 1996.
For additional information on this proceeding, see "Item 1. Business - Rates -
New Hampshire Retail Rates - NUGs" in NU's 1995 Form 10-K and NU's Form 10-Q for
the quarter ended March 31, 1996.
2. On July 23, 1996, the United States Court of Appeals for the District of
Columbia held that the United States Department of Energy (DOE) is obligated
under the Nuclear Waste Policy Act (NWPA) of 1982 to start disposing spent
nuclear fuel (SNF) no later than January 31, 1998. This decision followed a
request by numerous utilities, including certain NU subsidiaries, and state
utility commissions to review the DOE's final interpretation declaring that it
had no obligation under the NWPA or its contracts with utilities to accept SNF
absent an operational repository. The decision of the DOE was vacated, and the
case was remanded for further proceedings consistent with the appellate court's
opinion.
For additional information on this proceeding, see "Item 1. Business - Electric
Operations - Nuclear Generation - High-Level Radioactive Waste" in NU's 1995
Form 10-K.
3. On July 24, 1996, NU submitted the report of the Fundamental Cause
Assessment Team (FCAT) to the NRC. The FCAT was created by the nuclear
committee of the NU Board of Trustees to assist it in identifying fundamental
causes of the decline in performance of the Millstone Units. The FCAT
identified the following fundamental causes: (1) the top levels of NU
management did not consistently exercise effective leadership and articulate and
implement appropriate vision and direction, (2) the nuclear organization did not
establish and maintain high standards and expectations, and (3) the nuclear
organization's leadership, management and interpersonal skills were weak. The
FCAT's findings will be factored into the recovery plan that is being developed
for the Millstone units.
For additional information regarding actions taken by the Board of Trustees with
respect nuclear performance, NU's Form 10-Q for the quarter ended March 31,
1996.
4. In light of substantial activities of the Board associated with the current
nuclear situation, the Board elected Elizabeth T. Kennan on July 23, 1996 as
outside lead trustee with the aim of facilitating the extensive, on-going
communications and activities of the Board and management.
For additional information regarding actions taken by the Board with respect
nuclear performance, see NU's Form 10-Q for the quarter ended March 31, 1996.
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:
1. NU filed a Form 8-K dated June 3, 1996 disclosing:
- The NRC had issued a report critical to the operations at Millstone.
In addition, the NRC is requiring NU to perform inspections at the
three Millstone plants and to submit a response to the NRC prior to
the restart of the three Millstone units.
- CY filed documents with the NRC expressing its view that the specific
issues identified at Millstone are not present to the same degree.
- The NHPUC ordered PSNH to refund $41.5 million of small power producer
costs. PSNH expects to recover these costs in the future.
2. NU filed a Form 8-K dated June 18, 1996 regarding the DPUC's draft decision
which requested that the parties involved renegotiate portions of the
proposed CL&P settlement.
3. NU filed a Form 8-K dated June 28, 1996 disclosing:
- On July 2, 1996, Northeast Utilities Service Company, acting as agent
for the system companies, filed a response to the NRC outlining design
and configuration discrepancies at Millstone 3 and the costs estimated
to repair them.
- On July 1, 1996, the DPUC approved a modified CL&P settlement
agreement.
4. NU filed a Form 8-K dated July 22, 1996 disclosing:
- NU's Board of Trustees declared a quarterly dividend on NU's common
shares of $0.25 per share, payable September 30, 1996. The new
dividend level is 43 percent below the previous dividend of $0.44
per share.
- Revised estimates for replacement power and the incremental costs
associated with getting the nuclear unit back on-line.
- CY was shutdown voluntarily by its operator, Connecticut Yankee Atomic
Power Company, to analyze CY's service water system.
- NU's operational actions in the event of long periods of hot weather.
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 August 13, 1996 By: /s/ Bernard M. Fox
Bernard M. Fox
Chairman, President, and
Chief Executive Officer
Date August 13, 1996 By: /s/ John J. Roman
John J. Roman
Vice President and
Controller
<TABLE> <S> <C>
<ARTICLE> UT
<CIK> 0000072741
<NAME> NORTHEAST UTILITIES AND SUBSIDIARIES
<MULTIPLIER>1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1996
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 6,846,423
<OTHER-PROPERTY-AND-INVEST> 531,684
<TOTAL-CURRENT-ASSETS> 1,065,473
<TOTAL-DEFERRED-CHARGES> 2,099,917
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 10,543,497
<COMMON> 680,260
<CAPITAL-SURPLUS-PAID-IN> 943,266
<RETAINED-EARNINGS> 972,293
<TOTAL-COMMON-STOCKHOLDERS-EQ> 2,408,113
276,000
169,700
<LONG-TERM-DEBT-NET> 3,686,267
<SHORT-TERM-NOTES> 90,000
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 254,448
26,500
<CAPITAL-LEASE-OBLIGATIONS> 138,101
<LEASES-CURRENT> 68,878
<OTHER-ITEMS-CAPITAL-AND-LIAB> 3,237,784
<TOT-CAPITALIZATION-AND-LIAB> 10,543,497
<GROSS-OPERATING-REVENUE> 1,900,106
<INCOME-TAX-EXPENSE> 85,747
<OTHER-OPERATING-EXPENSES> 1,601,071
<TOTAL-OPERATING-EXPENSES> 1,685,026
<OPERATING-INCOME-LOSS> 215,080
<OTHER-INCOME-NET> 23,372
<INCOME-BEFORE-INTEREST-EXPEN> 236,660
<TOTAL-INTEREST-EXPENSE> 142,832
<NET-INCOME> 93,828
16,660
<EARNINGS-AVAILABLE-FOR-COMM> 77,168
<COMMON-STOCK-DIVIDENDS> 112,215
<TOTAL-INTEREST-ON-BONDS> 0
<CASH-FLOW-OPERATIONS> 503,955
<EPS-PRIMARY> 0.60
<EPS-DILUTED> 0.00
</TABLE>
Exhibit 15
August 13, 1996
To Northeast Utilities:
We are aware that Northeast Utilities has incorporated by reference in its
Registration Statement No. 33-34622, No. 33-40156, No. 33-44814, and No. 33-
63023 its Form 10-Q for the quarter ended June 30, 1996, which includes our
report dated August 13, 1996 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 or a report 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
