SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549-1004
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) January 17,
1997
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Commission File Number 1-5324
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NORTHEAST UTILITIES
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(Exact name of registrant as specified in its charter)
MASSACHUSETTS 04-2147929
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
174 BRUSH HILL AVENUE, WEST SPRINGFIELD, MASSACHUSETTS
01090-0010
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(Address of principal executive offices) (Zip
Code)
(413) 785-5871
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(Registrant's telephone number, including area code)
Not Applicable
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(Former name or former address, if changed since last
report)
Item 5. Other Events
New Hampshire Restructuring Matter
On January 17, 1997, John H. Forsgren, Executive Vice
President and
Chief Financial Officer of Northeast Utilities (NU) and its
principal
subsidiaries, including Public Service Company of New Hampshire
(PSNH) and
North Atlantic Energy Corporation (NAEC), and a representative of
Arthur
Andersen LLP, the outside auditors of the NU system companies,
testified in
a proceeding before the New Hampshire Public Utilities Commission
(NHPUC).
The proceeding is being conducted by the NHPUC to set interim
stranded cost
charges pursuant to 1996 legislation calling for the NHPUC to
approve a plan
for restructuring the New Hampshire electric utility industry.
The NHPUC
has issued a preliminary restructuring plan and is scheduled to
issue its
decision on February 28, 1997.
This testimony addressed the accounting and financial
implications for
PSNH if the NHPUC were to adopt the stranded cost methodology for
PSNH that
was recommended by the NHPUC s consultants, LaCapra Associates,
in testimony
that firm had filed with the NHPUC on January 3, 1997.
The LaCapra approach is not a cost-based approach but rather
a market-
priced approach to rate-setting. Therefore, if it were adopted,
Mr.
Forsgren and the Arthur Andersen representative testified that
PSNH would
have no accounting discretion and would no longer be able to rely
on
Financial Accounting Standard No. 71, Accounting for the Effects
of Certain
Types of Regulation, (FAS 71). FAS 71 is an accounting standard
utilized by
regulated utilities whose rates are set on the traditional basis
of a
regulated cost of service. The consequence to PSNH of becoming
ineligible
for FAS 71 would be to remove from PSNH s balance sheet, in the
financial
statements for the quarter in which the NHPUC s restructuring
plan is
issued, substantially all of PSNH s regulatory assets. The
amount of that
potential write-off is currently estimated at approximately $450
million,
after taxes.
In addition, PSNH s preliminary analysis indicates that it
would also
be required to recognize an impairment of its long-lived assets
if the
LaCapra recommendation were adopted. Those assets are the
Seabrook Power
Contract between PSNH and NAEC, generation plant, acquisition
premium, and
other non-transmission and distribution assets. Under FAS 121,
Accounting
for the Impairment of Long-Lived Assets and Long-Lived Assets to
be Disposed
of, PSNH s estimate of the after-tax impairment is in the range
of
approximately $270 million to $450 million, which PSNH would also
be
required to remove from its balance sheet.
By virtue of financial covenants in the current financing
agreements of
NU, PSNH and NAEC, PSNH write-offs of this magnitude (in excess
of $700
million) would, if not waived or renegotiated, give rise to
rights of
investors and lenders to accelerate the repayment of
approximately $686
million of PSNH indebtedness and $515 million of NAEC
indebtedness. It
would also give rise to acceleration rights with respect to
indebtedness of
NU itself in amounts that are variable, but currently approach
$300 million.
PSNH s current total common stock equity is less than $600
million.
The 1996 restructuring legislation that the NHPUC is charged
with
implementing provides that the NHPUC may not adopt a
restructuring plan that
imposes a severe financial hardship on a utility. Mr. Forsgren
testified
that PSNH is already in what he characterized as a very weak
financial
position. He also testified that if the NHPUC adopted the
LaCapra
methodology, if any single significant creditor demanded payment
because of
the triggering of acceleration rights, all other major creditors
would
immediately follow and PSNH and NAEC bankruptcy filings would be
unavoidable.
Because the LaCapra report is from an NHPUC consultant, and
has not
been adopted by the NHPUC at this point, PSNH does not know if
the LaCapra
approach would be followed. The objective of PSNH s testimony
was to call
the NHPUC s attention clearly and unambiguously to the
seriousness of the
adverse consequences if the LaCapra approach were followed. If
the NHPUC
were to adopt a final plan that management deems adverse to PSNH
s interests
and financial condition, such as stranded cost charges with the
consequences
described in today s testimony, PSNH would vigorously pursue all
of its
legal remedies, including the seeking of a stay of the
enforcement of such a
plan.
Management believes that PSNH is entitled to full recovery of
its
prudently incurred costs, including regulatory assets and
so-called stranded
costs. It bases this belief both on the general nature of public
utility
industry cost of service regulation and the specific
circumstances of the
resolution of PSNH s previous bankruptcy proceeding and its
acquisition by
NU, including the recoveries provided by the Rate Agreement and
related
agreements.
Today s witnesses urged the NHPUC to utilize an alternative
methodology
to the setting of stranded cost charges, which would not result
in the
accounting write-offs and the fundamental problems they
described.
For further information on New Hampshire restructuring
issues, see NU's
Form 8-K dated August 19, 1996, Forms 10-Q for the quarters ended
September
30, 1996, June 30, 1996 and March 31, 1996, and Item 1. Business
- - Rates -
New Hampshire Retail Rates - Electric Industry Restructuring in
New
Hampshire in NU s 1995 Form 10-K.
SIGNATURE
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
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Registrant
Date January 17, 1997 By /s/John B. Keane
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John B. Keane
Vice President and Treasurer
