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, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 1-5324
NORTHEAST UTILITIES
(Exact name of registrant as specified in its charter)
MASSACHUSETTS 04-2147929
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
174 BRUSH HILL AVENUE, WEST SPRINGFIELD, MASSACHUSETTS 01090-0010
(Address of principal executive offices) (Zip Code)
(413) 785-5871
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Class Outstanding at October 31, 1997
Common Shares, $5.00 par value 136,813,919 shares
NORTHEAST UTILITIES AND SUBSIDIARIES
TABLE OF CONTENTS
Page No.
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets - September 30, 1997
and December 31, 1996 2
Consolidated Statements of Income - Three
Months and Nine Months Ended September 30,
1997 and 1996 4
Consolidated Statements of Cash Flows -
Nine Months Ended September 30, 1997 and 1996 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 14
Part II. Other Information
Item 1. Legal Proceedings 23
Item 5. Other Information 23
Item 6. Exhibits and Reports on Form 8-K 24
Signatures 26
PART I. FINANCIAL INFORMATION
NORTHEAST UTILITIES AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30,
1997 December 31,
(Unaudited) 1996
------------- -------------
(Thousands of Dollars)
<S> <C> <C>
ASSETS
- ------
Utility Plant, at cost:
Electric................................................ $ 9,802,205 $ 9,685,155
Other................................................... 189,561 192,303
------------- -------------
9,991,766 9,877,458
Less: Accumulated provision for depreciation......... 4,243,306 3,979,864
------------- -------------
5,748,460 5,897,594
Unamortized PSNH acquisition costs...................... 424,641 491,709
Construction work in progress........................... 168,381 146,438
Nuclear fuel, net....................................... 195,796 196,424
------------- -------------
Total net utility plant............................. 6,537,278 6,732,165
------------- -------------
Other Property and Investments:
Nuclear decommissioning trusts, at market............... 470,424 403,544
Investments in regional nuclear generating
companies, at equity................................... 90,804 85,340
Investments in transmission companies, at equity........ 21,191 21,186
Investments in Charter Oak Energy, Inc. projects........ 78,417 57,188
Other, at cost.......................................... 84,183 43,372
------------- -------------
745,019 610,630
------------- -------------
Current Assets:
Cash and cash equivalents............................... 213,084 194,197
Special deposits........................................ 669 7,039
Receivables, net (Note 4)............................... 365,409 477,021
Accrued utility revenues (Note 4)....................... 106,882 127,162
Fuel, materials, and supplies, at average cost.......... 213,557 211,414
Recoverable energy costs, net--current portion.......... 41,460 1,804
Prepayments and other................................... 64,804 48,279
------------- -------------
1,005,865 1,066,916
------------- -------------
Deferred Charges:
Regulatory assets:
Income taxes,net...................................... 948,594 1,012,343
Deferred costs--nuclear plants........................ 200,438 185,078
Unrecovered contractual obligations (Note 6B)......... 555,380 435,495
Recoverable energy costs, net......................... 322,853 328,863
Deferred demand side management costs................. 45,652 90,129
Cogeneration costs.................................... 42,269 66,205
Other................................................. 96,279 103,726
Unamortized debt expense................................ 39,912 38,146
Other .................................................. 72,478 72,052
------------ ------------
2,323,855 2,332,037
------------ ------------
Total Assets.............................................. $ 10,612,017 $ 10,741,748
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
NORTHEAST UTILITIES AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30,
1997 December 31,
(Unaudited) 1996
------------- -------------
(Thousands of Dollars)
<S> <C> <C>
CAPITALIZATION AND LIABILITIES
- ------------------------------
Capitalization:
Common shareholders' equity:
Common shares, $5 par value--authorized
225,000,000 shares; 136,800,549 shares issued and
129,995,771 shares outstanding in 1997 and
136,051,938 shares issued and 128,444,373 shares
outstanding in 1996.................................. $ 684,003 $ 680,260
Capital surplus, paid in.............................. 933,080 940,446
Deferred benefit plan--employee stock
ownership plan...................................... (157,506) (176,091)
Retained earnings..................................... 701,707 832,520
------------- -------------
Total common shareholders' equity.............. 2,161,284 2,277,135
Preferred stock not subject to mandatory redemption..... 136,200 136,200
Preferred stock subject to mandatory redemption......... 245,750 276,000
Long-term debt.......................................... 3,653,646 3,613,681
------------- -------------
Total capitalization........................... 6,196,880 6,303,016
------------- -------------
Minority Interest in Consolidated Subsidiaries............ 99,855 99,972
------------- -------------
Obligations Under Capital Leases.......................... 172,202 186,860
------------- -------------
Current Liabilities:
Notes payable to banks.................................. 150,000 38,750
Long-term debt and preferred stock--current
portion................................................ 279,396 319,503
Obligations under capital leases--current
portion................................................ 35,928 19,305
Accounts payable........................................ 322,207 507,139
Accrued taxes........................................... 41,656 7,050
Accrued interest........................................ 63,162 51,386
Accrued pension benefits................................ 88,099 99,699
Nuclear compliance...................................... 100,160 63,200
Other................................................... 99,242 98,570
------------- ------------
1,179,850 1,204,602
------------- ------------
Deferred Credits:
Accumulated deferred income taxes....................... 1,958,684 2,044,123
Accumulated deferred investment tax credits............. 161,238 168,444
Deferred contractual obligations (Note 6B).............. 564,129 440,495
Other................................................... 279,179 294,236
------------- ------------
2,963,230 2,947,298
------------- ------------
Commitments and Contingencies (Note 6)
Total Capitalization and Liabilities........... $ 10,612,017 $ 10,741,748
============= =============
</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,
--------------------------- ---------------------------
1997 1996 1997 1996
------------- ------------- ------------- -------------
(Thousands of Dollars, except share information)
<S> <C> <C> <C> <C>
Operating Revenues............................. $ 977,127 $ 955,518 $ 2,855,818 $ 2,855,624
------------- ------------- ------------- -------------
Operating Expenses:
Operation --
Fuel, purchased and net interchange power.... 332,265 308,209 954,789 819,668
Other........................................ 315,115 266,297 862,190 825,501
Maintenance................................... 131,245 104,998 373,967 283,018
Depreciation.................................. 89,682 88,300 266,276 268,704
Amortization of regulatory assets, net........ 30,079 42,212 92,491 81,469
Federal and state income taxes................ (10,153) 12,696 (2,553) 96,651
Taxes other than income taxes................. 63,446 64,774 191,084 197,501
------------- ------------- ------------- -------------
Total operating expenses............... 951,679 887,486 2,738,244 2,572,512
------------- ------------- ------------- -------------
Operating Income............................... 25,448 68,032 117,574 283,112
------------- ------------- ------------- -------------
Other Income:
Deferred nuclear plants return--other
funds...................................... 1,818 1,919 5,420 7,332
Equity in earnings of regional nuclear
generating and transmission companies...... 3,108 3,326 9,285 10,637
Other, net................................... (6,173) 8,451 309 23,749
Minority interest in income of subsidiary.... (2,325) (2,325) (6,975) (6,975)
Income taxes................................. 3,588 (1,762) 4,795 (3,554)
------------- ------------- ------------- -------------
Other income, net...................... 16 9,609 12,834 31,189
------------- ------------- ------------- -------------
Income before interest charges......... 25,464 77,641 130,408 314,301
------------- ------------- ------------- -------------
Interest Charges:
Interest on long-term debt................... 70,612 71,156 209,037 214,229
Other interest............................... 2,791 (55) 7,166 8,539
Deferred nuclear plants return--borrowed
funds..................................... (3,434) (3,141) (10,162) (11,976)
------------- ------------- ------------- -------------
Interest charges, net.................. 69,969 67,960 206,041 210,792
------------- ------------- ------------- -------------
(Loss)/Income after interest charges.... (44,505) 9,681 (75,633) 103,509
Preferred Dividends of Subsidiaries............ 7,240 8,648 23,046 25,308
------------- ------------- ------------- -------------
Net (Loss)/Income.............................. $ (51,745) $ 1,033 $ (98,679) $ 78,201
============= ============= ============= =============
(Loss)/Earnings Per Common Share............... $ (0.40) $ 0.01 $ (0.76) $ 0.61
============= ============= ============= =============
Common Shares Outstanding (average)............ 129,913,835 128,086,873 129,381,841 127,832,699
============= ============= ============= =============
</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,
-----------------------
1997 1996
----------- -----------
(Thousands of Dollars)
<S> <C> <C>
Operating Activities:
(Loss) Income before preferred dividends of subsidiaries.. $ (75,633) $ 103,509
Adjustments to reconcile to net cash
from operating activities:
Depreciation............................................ 266,276 268,704
Deferred income taxes and investment tax credits, net... (4,448) 27,443
Deferred nuclear plants return, net of amortization..... (15,582) (10,148)
Recoverable energy costs, net of amortization........... (33,646) (8,230)
Amortization of PSNH acquisition costs.................. 42,423 42,743
Amortization of cogeneration costs, net ................ 23,936 15,483
Amortization of demand-side-management
costs, net ........................................... 44,477 33,845
Deferred nuclear refueling outage, net of amortization.. (29,589) 40,954
Nuclear compliance, net................................. 36,960 40,006
Other sources of cash................................... 88,663 140,276
Other uses of cash...................................... (24,772) (15,643)
Changes in working capital:
Receivables and accrued utility revenues, net (Note 4). 131,892 49,234
Fuel, materials, and supplies........................... (2,143) (2,461)
Accounts payable........................................ (184,932) (29,382)
Accrued taxes........................................... 34,606 (8,468)
Other working capital (excludes cash)................... (9,307) (19,177)
----------- -----------
Net cash flows from operating activities.................... 289,181 668,688
----------- -----------
Financing Activities:
Issuance of common shares................................. 3,743 10,622
Issuance of long-term debt................................ 260,000 222,100
Net increase (decrease) in short-term debt................ 111,250 (84,000)
Reacquisitions and retirements of long-term debt.......... (273,228) (209,914)
Reacquisitions and retirements of preferred stock......... (25,000) (1,500)
Cash dividends on preferred stock......................... (23,046) (25,308)
Cash dividends on common shares........................... (32,134) (144,200)
----------- -----------
Net cash flows from (used for) financing activities......... 21,585 (232,200)
----------- -----------
Investment Activities:
Investment in plant:
Electric and other utility plant........................ (174,088) (161,704)
Nuclear fuel............................................ (6,285) (1,453)
----------- -----------
Net cash flows used for investments in plant.............. (180,373) (163,157)
Investments in nuclear decommissioning trusts............. (44,343) (47,211)
Capital contributions to Charter Oak Energy projects...... (21,229) (3,482)
Other investment activities, net.......................... (45,934) (12,733)
----------- -----------
Net cash flows used for investments......................... (291,879) (226,583)
----------- -----------
Net Increase In Cash For The Period......................... 18,887 209,905
Cash and cash equivalents - beginning of period............. 194,197 29,038
----------- -----------
Cash and cash equivalents - end of period................... $ 213,084 $ 238,943
=========== ===========
/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, 1996 (1996 Form 10-K), the
company's Form 10-Q for the quarters ended March 31, 1997 and June 30,
1997, and the company's Form 8-Ks dated August 19, 1997, September 2,
1997, and October 13, 1997. In the opinion of the company, the
accompanying financial statements contain all adjustments necessary to
present fairly the financial position as of September 30, 1997, the
results of operations for the three-month and nine-month periods ended
September 30, 1997 and 1996, and the statements of cash flows for the
nine-month periods ended September 30, 1997 and 1996. All adjustments
are of a normal, recurring, nature except those described below in
Note 6B. The results of operations for the three-month and nine-month
periods ended September 30, 1997 and 1996 are not necessarily
indicative of the results expected for a full year.
NU is the parent company of the Northeast Utilities system (the
system). The system furnishes franchised 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. A fifth wholly owned subsidiary, North Atlantic Energy
Corporation (NAEC), sells all of its entitlement to the capacity and
output of the Seabrook nuclear power plant to PSNH. In addition to
its franchised retail electric service, the system furnishes firm and
other wholesale electric services to various municipalities and other
utilities and, on a pilot basis pursuant to state regulatory
experiments, provides off-system retail electric service. 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.
Select Energy, Inc., another NU subsidiary, which was formed in 1996
to develop and invest in energy related activities, formerly did
business as NUSCO Energy Partners, Inc.
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.
Certain reclassifications of prior period data have been made to
conform with the current period presentation.
B. New Accounting Standards
For information regarding the adoption of new accounting
standards, see Note 4, "Sale of Customer Receivables and Accrued
Utility Revenues" in this Form 10-Q, NU's Form 10-Q for the quarters
ended June 30, 1997 and March 31, 1997, and NU's 1996 Form 10-K.
C. Regulatory Accounting and Assets
For information regarding regulatory accounting and assets, see the
MD&A in this Form 10-Q, NU's Form 10-Q for the quarters ended June 30,
1997 and March 31, 1997 and NU's 1996 Form 10-K.
2. SHORT-TERM DEBT
For information regarding short-term debt, see the MD&A in this Form 10-Q,
NU's Form 10-Q for the quarters ended June 30, 1997 and March 31, 1997, and
NU's 1996 Form 10-K.
3. CAPITALIZATION
CL&P: On October 9, 1997, CL&P issued $200 million of First and Refunding
Mortgage Bonds, 1997 Series C (CL&P 1997 Series C Bonds) in an exchange
offer for $200 million of its First and Refunding Mortgage Bonds, 1997
Series B. The CL&P 1997 Series C Bonds bear interest at an annual rate of
7.75% and will mature on June 1, 2002.
Rocky River Realty Company (RRR): In April 1997, the holders of
approximately $38 million of RRR notes elected to have RRR repurchase the
notes at par. Of this $38 million, RRR has reacquired and retired $26
million of the notes and, sold the remaining $12 million of the notes to
alternate purchasers during the second and third quarters of 1997.
For additional information on these and other matters related to NU's
capitalization, see the MD&A in this Form 10-Q, NU's Form 10-Q for the
quarters ended June 30, 1997 and March 31, 1997, and NU's 1996 Form 10-K.
4. SALE OF CUSTOMER RECEIVABLES AND ACCRUED UTILITY REVENUES
During 1996, CL&P and WMECO entered into agreements to sell up to $200
million and $40 million, respectively, of undivided ownership interests in
eligible customer receivables and accrued utility revenues (receivables) to
third party purchasers. As of September 30, 1997, CL&P and WMECO had sold
approximately $100 million and $28 million, respectively, of undivided
ownership interests in receivables under their respective sales agreements.
The Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standards (SFAS) No. 125, "Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities," in
June 1996. SFAS 125 became effective on January 1, 1997, and establishes,
in part, criteria for concluding whether a transfer of financial assets in
exchange for consideration should be accounted for as a sale or as a
secured borrowing. By October 31, 1997, both CL&P and WMECO had
restructured their respective sales agreements to comply with the
conditions of SFAS 125 and account for transactions occurring under these
programs as sales of assets. At October 31, 1997, approximately $50
million and $28 million of undivided ownership interests in receivables had
been sold to third party purchasers by CL&P and WMECO, respectively,
through the use of each company's special purpose, wholly-owned
subsidiary: CL&P Receivables Corporation (CRC, a CL&P special purpose
subsidiary) and WMECO Receivables Corporation (WRC, a WMECO special purpose
subsidiary).
Both CRC's and WRC's respective sales agreements provide for a formula
based loss reserve in which additional receivables may be assigned to the
third party purchasers for bad debt. The third party purchasers absorb
the excess amount in the event that actual loss experience exceeds the loss
reserve. At September 30, 1997, approximately $7.4 million and $4.3
million of assets had been designated as collateral to the third party
purchasers by CRC and WRC, respectively.
For additional information regarding CL&P's and WMECO's sale of
receivables, see the MD&A in this Form 10-Q, NU's Form 10-Q for the
quarters ended June 30, 1997 and March 31, 1997 and NU's 1996 Form 10-K.
5. INTEREST RATE AND FUEL PRICE MANAGEMENT
Fuel Price Management: As of September 30, 1997, CL&P had outstanding fuel-
price management agreements with a total notional value of approximately
$336 million, and a positive mark-to-market position of approximately $5.2
million.
Under the terms of CL&P's fuel-price management agreements, CL&P can be
required to post cash collateral with its counterparties approximately
equivalent to the amount of a negative mark-to-market position. In
general, the amount of collateral is to be returned to CL&P when the mark-
to-market position becomes positive, when CL&P meets specified credit
ratings, or when an agreement ends and all open positions are properly
settled.
Interest Rate Management: As of September 30, 1997, NAEC had outstanding
interest-rate management agreements with a total notional value of
approximately $200 million and a positive mark-to-market position of
approximately $800 thousand.
Credit Risk: Both types of the management agreements listed above 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-price management instruments and
interest-rate management instruments if the counterparties fail to perform
their obligations. However, management anticipates that the counterparties
will be able to fully satisfy their obligations under the agreements.
For further information on interest-rate and fuel-price management
instruments, see the MD&A in this Form 10-Q, NU's Form 10-Q for the
quarters ended June 30, 1997 and March 31, 1997 and NU's 1996 Form 10-K.
6. COMMITMENTS AND CONTINGENCIES
A. Restructuring
New Hampshire: On May 13, 1997, the United States District Court for
New Hampshire (Court) appointed a mediator to the pending case
involving PSNH's and affiliates' challenge to the New Hampshire Public
Utilities Commission (NHPUC) Final Plan on restructuring the electric
industry issued on February 28, 1997. All court proceedings in the
case were suspended during the mediation process. On September 2,
1997, PSNH announced that the mediation involving its court challenge
to the February 28, 1997 restructuring orders of the NHPUC had ended
without a resolution. The Court has suspended the procedural schedule
associated with this court proceeding pending the resolution of
appeals of certain preliminary rulings by the United States Circuit
Court of Appeals for the First Circuit. The temporary restraining
order issued by the Court in March 1997 will remain in effect until
further order of either court. The NHPUC also reopened its proceeding
to reconsider certain matters in its restructuring orders.
For further information on restructuring of the electric utility
industry within the NU system companies' respective jurisdictions and
on the CL&P and PSNH rate proceedings, see the MD&A in this
Form 10-Q, NU's Form 8-Ks dated October 13, 1997 and September 2,
1997, NU's Form 10-Q for the quarters ended June 30, 1997 and March
31, 1997 and NU's 1996 Form 10-K.
B. Nuclear Performance
Millstone: The three Millstone units are managed by Northeast
Nuclear Energy Company (NNECO). Millstone 1, 2, and 3 have been out
of service since November 4, 1995, February 21, 1996 and March 30,
1996, respectively, and are on the Nuclear Regulatory Commission's
(NRC) watch list. Management has restructured its nuclear
organization and is currently implementing comprehensive plans to
restart the units.
NU hopes to return Millstone 3 to service late in the first quarter
of 1998; Millstone 2 two to three months after Millstone 3; and
Millstone 1 in the second half of 1998. The pace of the recovery
effort at Millstone 1 will continue to be reduced so that resources
can be focused on Millstone units 3 and 2 in the first half of 1998.
Full funding for the recovery of Millstone 1 can be restored after
Millstone 3 is back in service. The actual date of the return to
service is dependent upon the completion of independent inspections
and reviews, inspections and reviews by the NRC and a vote by the NRC
Commissioners, and in the case of Millstone 1, the cost and schedule
of returning the first two units to service.
For the nine months ended September 30, 1997, NU's share of nonfuel
O&M costs expensed for Millstone totaled $444 million. These
expenses include $35 million reserved for future 1997 restart costs
and $65 million reserved for 1998 restart costs, and is net of $63
million of spending against the reserve established in 1996. The
reserve balance at September 30, 1997 was approximately $100 million.
NU's share of nonfuel O&M costs for Millstone to be expensed in 1997
is now projected to be approximately $540 million compared to $440
million previously estimated. Nonfuel O&M costs have been and will
continue to be absorbed by NU without adjustment to its subsidiaries'
current rates.
Although 1998 nuclear operating budgets have not been established at
this time, management believes that the nuclear spending levels at
Millstone will be reduced from 1997 levels, although they will be
considerably higher than before the station was placed on the NRC's
watch list. The actual level of 1998 spending will depend on when
the units return to operation and the cost of restoring them to
service. The total cost to restart the units cannot be estimated at
this time. Management will continue to evaluate the costs to be
incurred in 1998 to determine whether adjustments to the existing
reserves are required.
As discussed above, 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. Replacement power costs incurred by NU attributable
to the Millstone outages averaged approximately $28 million per month
during the first nine months of 1997, and are projected to average
approximately $24 million per month for the remainder of 1997. Based
on the current estimates of expenditures and restart dates,
management believes the system has sufficient resources to fund the
restoration of the Millstone units and related replacement power
costs. NU will continue to expense its replacement power costs in
1997.
Litigation: For information regarding litigation initiated by
the non-NU owners of Millstone 3, see NU's Form 10-Q for the quarter
ended June 30, 1997, and NU's 1996 Form 10-K.
Maine Yankee Atomic Power Company (MYAPC): The NU system companies
have a twenty percent ownership interest in the Maine Yankee nuclear
generating facility (MY). At September 30, 1997, NU's equity
investment in MYAPC was approximately $15.3 million. The NU system
companies had relied on MY for approximately two percent of their
capacity.
On August 6, 1997, the board of directors of MYAPC voted unanimously
to cease permanently the production of power at MY. During November
1997, MYAPC filed an amendment to its power contracts clarifying the
obligations of its purchasing utilities following the decision to
cease power production. At September 30, 1997, the estimated
obligation, including decommissioning, amounted to approximately $930
million, of which the NU system's share was approximately $186
million. Under the terms of the contracts with MYAPC, the
shareholders-sponsor companies, including CL&P, PSNH, and WMECO, are
responsible for their proportionate share of the costs of the unit,
including decommissioning. Management expects that CL&P, PSNH, and
WMECO will be allowed to recover these costs from their customers.
Accordingly, NU has recognized these costs as a regulatory asset, with
a corresponding obligation, on its consolidated balance sheets.
For additional information regarding this and other nuclear
performance matters, see Part II and the MD&A in this Form 10-Q, NU's
Form 8-K dated October 13, 1997, NU's Form 10-Q for the quarters ended
June 30, 1997 and March 31, 1997 and NU's 1996 Form 10-K.
C. Environmental Matters
At September 30, 1997, the NU system's net liability for its estimated
remediation costs, excluding recoveries from insurance companies and
other third parties, was approximately $17 million, which management
has determined to be the most probable amount within a range of $17
million to $37 million.
For additional information regarding environmental matters, see the
MD&A in this Form 10-Q, NU's Form 10-Q for the quarters ended June 30,
1997 and March 31, 1997 and NU's 1996 Form 10-K.
D. Nuclear Insurance Contingencies
For information regarding nuclear insurance contingencies, see NU's
Form 10-Q for the quarter ended March 31, 1997 and NU's 1996 Form
10-K.
E. Construction Program
For information regarding NU's construction program, see NU's Form
10-Q for the quarter ended March 31, 1997 and NU's 1996 Form 10-K.
F. Long-Term Contractual Arrangements
For information regarding long-term contractual arrangements, see NU's
1996 Form 10-K. For information related to the closure of MY, see the
MD&A and Note 6B in this Form 10-Q and NU's Form 10-Q for the quarter
ended June 30, 1997.
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, 1997, and
the related consolidated statements of income for the three-month and nine-month
periods ended September 30, 1997 and 1996, and the consolidated statements of
cash flows for the nine-month periods ended September 30, 1997 and 1996. 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.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of Northeast Utilities as of December
31, 1996 and in our report dated February 21, 1997, we expressed an unqualified
opinion on that statement. In our opinion, the information set forth
in the accompanying consolidated balance sheet as of December 31, 1996, is
fairly stated, in all material respects, in relation to the consolidated balance
sheet from which it has been derived.
/s/ Arthur Andersen LLP
Arthur Andersen LLP
Hartford, Connecticut
November 12, 1997
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 and
subsidiaries' (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 First and Second Quarter 1997 Form 10-Qs, the 1996 Form 10-K, and
the Form 8-Ks dated August 19, 1997, September 2, 1997 and October 13, 1997.
FINANCIAL CONDITION
Overview
The outages at the three Millstone units (Millstone) continue to have a
substantial negative impact on NU's earnings. NU had a net loss for the third
quarter of 1997 of $0.40 per common share compared to earnings of $0.01 per
common share for the third quarter of 1996, and a net loss of approximately
$0.76 per common share for the nine months ended September 30, 1997, compared to
earnings of approximately $0.61 per common share for the same period in 1996.
The losses for the three- and nine-month periods were attributable to
replacement power and nuclear operation and maintenance (O&M) expenses for the
Millstone units in 1997, including amounts reserved for future spending in 1997
and 1998.
The loss for the first nine months of 1997 was also attributable to lower retail
sales. Higher retail sales in the quarter reduced the third quarter loss. Retail
kilowatt-hour sales for the quarter were one percent higher than the third
quarter of 1996 primarily due to modest economic growth. Retail kilowatt-
hour sales for the nine months ended September 30, 1997 were 1.2 percent below
the same period in 1996 primarily due to mild weather in the first quarter of
1997.
Millstone-related costs have risen over the past several months as the company
completes the engineering, physical and programmatic efforts needed to return
the units to service. As a result, NU now expects a loss from results of
operations in 1997.
Millstone Outages
NU has a 100 percent ownership interest in Millstone 1 and 2 and a 68 percent
joint 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.
NU hopes to return Millstone 3 to service late in the first quarter of 1998;
Millstone 2 two to three months after Millstone 3; and Millstone 1 in the second
half of 1998. The pace of the recovery effort at Millstone 1 will continue to be
reduced so that resources can be focused on Millstone units 3 and 2 in the first
half of 1998. Full funding for the recovery of Millstone 1 can be restored
after Millstone 3 is back in service. The actual date of the return to service
for each of the units is dependent upon the completion of independent
inspections and reviews, inspections and reviews by the Nuclear Regulatory
Commission (NRC) and a vote by the NRC Commissioners and, in the case of
Millstone 1, the cost and schedule of returning the first two units to service.
For the nine months ended September 30, 1997, NU's share of nonfuel O&M costs
expensed for Millstone totaled $444 million. These expenses include $35 million
reserved for future 1997 restart costs and $65 million reserved for 1998 restart
costs, and is net of $63 million of spending against the reserve established in
1996. The reserve balance at September 30, 1997 was approximately $100
million. NU's share of nonfuel O&M costs for Millstone to be expensed in 1997 is
now projected to be approximately $540 million compared to $440 million
previously estimated. Nonfuel O&M costs have been and will continue to be
absorbed by NU without adjustment to its subsidiaries' current rates.
Although 1998 nuclear operating budgets have not been established at this time,
management believes that the 1998 nuclear spending levels at Millstone will be
reduced from 1997 levels, although they will be considerably higher than before
the station was placed on the NRC's watch list. The actual level of 1998
nuclear spending at Millstone will depend on when the units return to operation
and the cost of restoring them to service. The total cost to restart the units
cannot be estimated at this time. Management will continue to evaluate the costs
to be incurred in 1998 to determine whether adjustments to the existing reserves
are required.
Replacement power costs attributable to the Millstone outages averaged
approximately $28 million a month during the first nine months of 1997, and are
projected to average approximately $24 million a month for the remainder of
1997. NU will continue to expense its replacement power costs in 1997.
For further information on the current Millstone outages, see the "Notes to
Consolidated Financial Statements," Note 6B in this Form 10-Q, NU's First and
Second Quarter 1997 Form 10-Qs and 1996 Form 10-K.
Capacity
During 1996 and continuing into 1997, the NU system companies have taken
measures to improve their capacity position due to the current Millstone
outages. NU anticipates that its 1997 spending for additional capacity-related
costs will be approximately $70 million, of which $50 million is expected to be
expensed. NU spent approximately $49 million of the $70 million through the
first nine months of 1997, of which $29 million was expensed.
NU has a 20 percent ownership interest in the Maine Yankee nuclear generating
facility (MY). On August 6, 1997, the board of directors of Maine Yankee
Atomic Power Company (MYAPC) voted unanimously to cease permanently the
production of power at MY. During November 1997, MYAPC filed an amendment to
its power contracts clarifying the obligations of its purchasing utilities
following the decision to cease power production. As of September 30, 1997, the
estimated obligation, including decommissioning, amounted to approximately $930
million, of which the NU system's share was approximately $186 million. Under
the terms of the contracts with MYAPC, the shareholders-sponsor companies,
including The Connecticut Light and Power Company (CL&P), Public Service
Company of New Hampshire (PSNH), and Western Massachusetts Electric Company
(WMECO), are responsible for their proportionate share of the costs of the
unit, including decommissioning. Management expects that CL&P, PSNH, and WMECO
will be allowed to recover these costs from their customers as they are
included in the Federal Energy Regulatory Commission approved wholesale
contract. Accordingly, NU has recognized these costs as a regulatory asset,
with a corresponding obligation on its balance sheet.
For further information on capacity-related issues and MYAPC, see the "Notes to
Consolidated Financial Statements," Note 6B and Part II - Item 2 in this Form
10-Q and NU's 1996 Form 10-K.
Liquidity and Capital Resources
Cash provided from operations decreased approximately $380 million in the first
nine months of 1997, compared to the same period in 1996, primarily due to
higher 1997 cash expenditures related to the Millstone outages, and the pay down
in 1997 of the 1996 year end accounts payable balance. The 1996 year end
accounts payable balance was relatively high due to costs related to a severe
December storm and costs associated with the Millstone outages that had been
incurred but not yet paid by the end of 1996. Net cash used for financing
activities decreased approximately $254 million, primarily due to an increase in
short-term borrowings through the use of $100 million of the CL&P accounts
receivable facility established in 1996. Net cash used for financing activities
was also impacted by lower cash dividends on NU common shares, partially offset
by higher long-term debt and preferred stock retirements in 1997. Cash used for
investments increased approximately $65 million, primarily due to an increase in
special deposits and higher capital contributions to Charter Oak Energy (COE)
projects in 1997.
CL&P and WMECO established facilities in 1996 under which they may sell from
time to time up to $200 million and $40 million, respectively, of their accounts
receivable and accrued utility revenues. As of September 30, 1997, CL&P and
WMECO had sold approximately $100 million and $28 million, respectively.
During October 1997, CL&P completed the process of restructuring its sales
agreement to comply with the requirements of Statement of Financial Accounting
Standards (SFAS) 125, "Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities," so that the transactions occurring
under the agreement are accounted for as sales and not secured borrowings. As
part of meeting the requirements, CL&P established a single-purpose, wholly
owned subsidiary, CL&P Receivables Corporation (CRC). CRC's sole purpose is to
purchase receivables from CL&P and periodically resell undivided ownership
interests in those receivables to a third party purchaser. As collections reduce
previously sold undivided interests, new receivables may be sold. All
receivables transferred to CRC become assets owned by CRC.
WMECO previously restructured its accounts receivable sales agreement to permit
it to treat transactions occurring under the agreement as a sale. Like CL&P,
WMECO established a single-purpose, wholly owned subsidiary, WMECO Receivables
Corporation (WRC). WRC operates in substantially the same manner as does CRC.
As of October 31, 1997, approximately $50 million and $28 million of receivables
had been sold by CRC and WRC, respectively, to third party purchasers.
NU, CL&P and WMECO entered into a new three-year revolving credit agreement (the
New Credit Agreement) in November 1996, which was amended in May 1997. At
September 30, 1997, CL&P and WMECO had $35 million and $15 million,
respectively, outstanding under the New Credit Agreement.
Each major company in the NU system finances its own needs. Neither CL&P nor
WMECO has any financing agreements containing cross defaults based on financial
defaults by NU, PSNH or North Atlantic Energy Corporation (NAEC). Similarly,
neither PSNH nor NAEC has any financing agreements containing cross defaults
based on financial defaults by NU, CL&P or WMECO. Nevertheless, it is possible
that investors will take negative operating results or regulatory developments
at one company in the NU system into account when evaluating other companies in
the NU system. That could, as a practical matter and despite the contractual and
legal separations among the NU companies, negatively affect each company's
access to financial markets.
The system companies' ability to borrow under their financing arrangements is
dependent on their satisfaction of contractual borrowing conditions. The
financial covenants that must be satisfied to permit CL&P and WMECO to borrow
under the New Credit Agreement are particularly restrictive. Also, WMECO'S
accounts receivable facilities could become unavailable if its respective senior
securities were to be downgraded by more than one step or CL&P's by more than
two steps. Management has instructed all non-nuclear groups to constrain their
spending for the remainder of 1997 and the first half of 1998, while the
Millstone units are expected to be out of service, to levels intended to assure
that the financial covenants in CL&P's and WMECO's New Credit Agreement are
satisfied. In addition, management has announced that there will be a delay in
the resumption of full recovery funding for Millstone 1, as necessary, to ensure
that commitments to the companies' lenders are met. However, there is
no assurance that these financial covenants will be met as the system may
encounter additional unexpected costs such as from storms; or reduced revenues
from regulatory actions or the effect of weather on sales levels.
If the return to service of one or more of the Millstone units is delayed
substantially, beyond the present revised restart estimates or if some borrowing
facilities become unavailable because of difficulties in meeting borrowing
conditions, or if the system encounters additional significant costs or any
other significant deviations from management's current assumptions, the
currently available borrowing facilities could be insufficient to meet all of
the system's cash requirements. In those circumstances, management would take
even more stringent actions to reduce costs and cash outflows and would attempt
to take other actions to obtain additional sources of funds. The availability of
these funds would be dependent upon the general market conditions and the NU
system's credit and financial condition at the time.
Restructuring
New Hampshire
On May 13, 1997, the United States District Court (Court) of New Hampshire,
appointed a mediator to the pending case involving PSNH's and affiliates'
challenge to the New Hampshire Public Utilities Commission (NHPUC) decision on
February 28, 1997 regarding electric utility restructuring. All court
proceedings on the case were suspended during the mediation process.
On September 2, 1997, PSNH announced that the mediation had ended without a
resolution. The Court has suspended the procedural schedule associated with
this court proceeding pending the resolution of appeals of certain preliminary
rulings by the U.S. Circuit Court of Appeals for the First Circuit. The
temporary restraining order issued by the Court in March 1997 will remain in
effect until further orders by either court.
The NHPUC also reopened its proceeding to reconsider certain limited matters in
its restructuring orders. The NHPUC established a schedule to conduct rehearings
on two PSNH-specific issues - whether the Final Plan would require write-offs
under SFAS 71 and whether the Final Plan repudiates the Rate Agreement; and one
generic issue - whether energy efficiency mandates for regulated distribution
companies should be continued. On October 22, 1997, the NHPUC changed the scope
of the PSNH-specific re-hearing proceedings to encompass the alternative rate-
setting methodologies proposed by the intervenors; to decide the appropriate
methodology to be used to determine PSNH's interim stranded costs; and to set
PSNH's interim stranded cost charges utilizing the determined methodology. In
testimony filed with the NHPUC on November 7, 1997, PSNH proposed a new
methodology to quantify its stranded costs. Under this proposal, PSNH would
divest all owned generation and purchased-power obligations via auction. To the
extent that the auction fails to produce sufficient revenues to cover the net
book value of owned generation and contractual payment obligations of purchased-
power, the difference would be recovered from customers through a non-bypassable
distribution charge. The new proposal also relies upon securitization of certain
assets to further reduce rates. Hearings are scheduled to begin on November 20,
1997.
Rate Matters
Connecticut
The Connecticut Department of Public Utility Control (DPUC) is required to
review a utility's rates every four years if there has not been a rate
proceeding during such period. The DPUC has been conducting such a review of
CL&P's rates including an analysis of the possibility of removing one or more of
the Millstone nuclear units from CL&P's rate base.
On August 29, 1997, the DPUC issued a procedural order limiting the scope of
CL&P's four-year financial and operations review proceeding. The procedural
order noted that, while this proceeding cannot adjust rates, it could lead to
findings of fact that could form the basis for an interim rate adjustment in
early 1998.
A decision in this proceeding is scheduled to be issued by the end of 1997.
NU cannot predict the outcome of this proceeding; however, an adverse
decision relating to the issue of the removal of the Millstone units from rate
base or the other issues being considered in this proceeding could have
significant negative impacts on CL&P's earnings and cash position in 1998.
At the October 23, 1997 hearing in this proceeding, CL&P announced that it would
not seek replacement power costs from customers incurred due to the Millstone
outages. Earlier this year, the DPUC had denied CL&P's right to request
recovery of such costs, and CL&P appealed that decision. CL&P has been, and
will continue to, expense such replacement power costs until the Millstone units
return to service.
For further information regarding this matter, see NU's First and Second Quarter
1997 Form 10-Qs, 1996 Form 10-K and Form 8-K dated October 13, 1997.
New Hampshire
On September 16, 1997, PSNH filed testimony and exhibits supporting an increase
of just under 10 percent on an annual basis in the Fuel and Purchased Power
Adjustment Clause (FPPAC) rate effective on December 1, 1997. In order to
request as moderate an FPPAC rate as possible, PSNH's filing defers certain
costs for future recovery. A decision is pending.
By Order dated November 6, 1997, the NHPUC ordered a temporary rate reduction
for PSNH at a revenue level 6.87 percent lower than current rates. The temporary
rates will be effective December 1, 1997. The NHPUC also set an interim return
on equity of 11 percent. A final decision in PSNH's permanent rate proceeding,
which will be reconciled to July 1, 1997, is not expected to be issued until
mid-1998.
All or a portion of this reduction may be offset or eliminated by an increase to
rates through the FPPAC referred to above.
For further information regarding this matter, see NU's First Quarter 1997 Form
10-Q, 1996 Form 10-K and Form 8-Ks dated September 2, 1997 and October 13, 1997.
Risk Management Instruments
CL&P uses fuel price management instruments to reduce a portion of the fuel
price risk associated with certain of its long-term negotiated energy contracts
and replacement power expense during the Millstone outages. CL&P's fuel price
management instruments seek to minimize exposure associated with rising fuel
prices and effectively fix the cost of fuel and maintain the profitability of
certain of its long-term negotiated contract sales.
NAEC uses interest rate management instruments to reduce interest rate risk
associated with its $200 million variable rate bank notes. NAEC's interest rate
management instruments effectively fix its variable rate bank notes at 7.82
percent.
Neither CL&P nor NAEC uses the risk management instruments for trading purposes.
The differential paid or received as fuel prices or interest rates change is
recognized in income when realized.
As of September 30, 1997, CL&P and NAEC had outstanding fuel price and interest
rate management instruments with a total notional value of approximately $336
million and $200 million, respectively. The settlement amounts for the third
quarter associated with these instruments decreased fuel expense by
approximately $2 million for CL&P and increased interest expense by
approximately $ 140,000 for NAEC. For further information on risk management
instruments, see the "Notes to Consolidated Financial Statements," Note 5, in
this Form 10-Q.
Environmental Matters
NU is potentially liable for environmental cleanup costs at a number of sites
inside and outside its service territories. To date, the future estimated
environmental remediation liability has not been material with respect to the
earnings or financial position of the company. For the nine months ended
September 30, 1997, NU increased the environmental reserve by approximately
$2 million to a total of approximately $17 million, the most probable amount
as required by SFAS No.5, "Accounting for Contingencies."
RESULTS OF OPERATIONS
Income Statement Variances
Increase/(Decrease)
Millions of Dollars
Third Year-
Quarter Percent to-Date Percent
Operating revenues $22 2% $0 0%
Fuel, purchased and net
interchange power 24 8 135 16
Other operation 49 18 37 4
Maintenance 26 25 91 32
Amortization of
regulatory assets, net (12) (29) 11 14
Federal and state income taxes (28) (a) (108) (a)
Other income, net (15) (a) (23) (99)
Interest charges 2 3 (7) (3)
Net income (53) (a) (177) (a)
(a) Percentage greater than 100
Comparison of the Third Quarter of 1997 to the Third Quarter of 1996
Total operating revenues increased in the third quarter of 1997, primarily due
to higher fuel recoveries ($15 million), higher retail sales ($10 million) and
higher revenues from regulatory decisions ($5 million), partially offset by
lower wholesale and other revenues ($8 million). Retail sales increased 1.2
percent as a result of modest economic growth.
Fuel, purchased and net interchange power expense increased in 1997, primarily
due to higher replacement power costs expensed in 1997 due to the nuclear
outages.
Other operation and maintenance expenses increased $75 million in 1997. The
major factors were the higher costs associated with the Millstone outages ($108
million), including a $45 million net increase over 1996 in the reserve for
future restart costs and higher costs associated with the recognition of
estimated losses on the sale of various Charter Oak Energy projects ($7
million). These increases were partially offset by the lower recognition of
nuclear refueling outage costs primarily as a result of the 1996 CL&P Rate
Settlement ($18 million); lower capacity charges from Connecticut Yankee as a
result of a property tax refund ($16 million) and lower administrative and
general expenses primarily due to lower pensions and benefit costs ($6 million).
Amortization of regulatory assets, net decreased in 1997, primarily due to lower
regulatory amortizations for CL&P in 1997 as a result of the 1996 CL&P Rate
Settlement.
Federal and state income taxes decreased in 1997, primarily due to lower book
taxable income.
Other income, net decreased in 1997, primarily due to the recognition of an
accumulated equity loss on a Charter Oak Energy project and lower deferred
returns on PSNH and CL&P regulatory assets.
Comparison of the First Nine Months of 1997 to the First Nine Months of 1996
Total operating revenues were essentially unchanged. Lower sales for the first
nine months of 1997, lower fuel recoveries and lower wholesale revenues were
offset by rate increases for PSNH and higher other revenues.
Fuel, purchased and net interchange power expense increased in 1997, primarily
due to higher replacement power costs expensed in 1997 due to the nuclear
outages.
Other operation and maintenance expense increased $128 million in 1997. The
major factors were the higher costs associated with the Millstone outages ($183
million); higher costs associated with the Seabrook outage ($19 million); higher
capacity charges from Maine Yankee ($15 million) and higher costs
associated with the recognition of estimated losses on the sale of various
Charter Oak Energy projects ($8 million). These increases were partially offset
by the lower recognition of nuclear refueling outage costs primarily as a result
of the 1996 CL&P Rate Settlement ($52 million); lower capacity charges from
Connecticut Yankee as a result of a property tax refund ($22 million) and lower
administrative and general expenses primarily due to lower pensions and benefit
costs ($14 million).
Amortization of regulatory assets, net increased in 1997, primarily due to the
completion of CL&P cogeneration deferrals in 1996 and increased amortization in
1997 ($15 million) and higher amortizations as a result of the 1996 CL&P Rate
Settlement effective in July 1996 ($9 million). These were partially offset by
the completion of the amortization of phase-in costs for CL&P's share of
Seabrook and WMECO's share of Millstone 3 in 1996 ($13 million).
Federal and state income taxes decreased in 1997, primarily due to lower book
taxable income.
Other income, net decreased in 1997, primarily due to the recognition of an
accumulated equity loss on a Charter Oak Energy project, lower deferred returns
on PSNH and CL&P regulatory assets and lower income from temporary cash
investments.
Interest charges decreased in 1997, primarily due to lower interest on long-term
debt.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
1. The settlement concerning (i) seven derivative lawsuits against certain
former and present NU officers and trustees and (ii) one demand letter filed by
NU shareholders was formally filed for approval with the United States District
Court for the District of Connecticut on September 15, 1997. The court issued
an order setting a hearing date of December 18, 1997 for determination of
whether the settlement should be approved. It is anticipated that the approval
process will be completed by the end of the year.
For additional information regarding this settlement agreement, the
derivative lawsuits and the demand letter, see NU's Current Report on Form 8-K
dated July 22, 1997 and "Item 3 - Legal Proceedings" in NU's 1996 Form 10-K.
2. CL&P has been sued in the U. S. Bankruptcy Court for the Southern District
of Texas - Houston Division by Triple C Power, Inc., the successor of the now
bankrupt Texas-Ohio Power, Inc. (TOP). This suit arises out of CL&P's
administrative and judicial efforts to prevent TOP, a non-utility generator,
from selling electricity to two of CL&P's retail customers in Manchester,
Connecticut. CL&P currently has pending before the Connecticut Supreme Court an
appeal of a DPUC decision which, among other things, concluded that TOP did not
require specific legislative authorization to make retail sales of electricity.
The plaintiff seeks $20 million in actual damages, plus attorneys fees and court
costs, $40 million in exemplary damages, and a trebling of the actual damages,
for a total of about $100 million. CL&P believes this action is without merit
and intends to vigorously defend itself.
For additional information on the related Connecticut court proceedings,
see "Item 3 - Legal Proceedings" in NU's 1996 Form 10-K.
ITEM 5. OTHER INFORMATION
1. The Citizens Awareness Network (CAN) filed a petition with the NRC under
Section 2.206 of the NRC's regulations in November 1996 requesting that the NRC
suspend or revoke the operating licenses for Millstone 1, 2, and 3 and
Connecticut Yankee Atomic Power Company's nuclear generating facility (CY). The
petition also requested that the NRC take enforcement actions and make
investigations based on numerous allegations. On September 12, 1997, the
Director of Nuclear Reactor Regulation (Director) issued a partial decision
granting certain aspects of the petition, denying other aspects and deferring
other aspects of the petition pertaining to possible wrongdoing. The NRC
responded to these requests by relying upon actions that have already been taken
or actions that are currently under way. The NRC also denied petitioners'
request that the Millstone restart decision be postponed until completion of
pending investigations into alleged wrongdoings. However, the NRC decision
indicated that the results of these investigations will be considered by the NRC
Commissioners at the time of restart.
On September 3, 1997, the Director issued a partial decision deferring in
part and denying in part another Section 2.206 petition that had been filed by
CAN and the Nuclear Information Resource Service seeking NRC enforcement action
and placement of certain restrictions on decommissioning activities at CY. The
decision deferred that aspect of the petition requesting that the NRC take
enforcement action with respect to the radiological controls program at the
plant. The petitioners' requests that CY be placed on the NRC's watch list and
that a six-month moratorium be placed on decommissioning activities at CY were
denied.
For additional information relating to this matter, see "Item 3. Legal
Proceedings," in NU's 1996 Form 10-K and "Item 5 - Other Information" in NU's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1997.
2. A number of municipalities and cooperatives (Secondary Purchasers) have
notified the sponsors of MY, including CL&P, WMECO and PSNH, that they consider
their purchase and payment obligations under their purchase agreements to have
been terminated as a result of the decision by the MYAPC Board of Directors (MY
Board) to retire the facility. Accordingly, these Secondary Purchasers have
informed the sponsors that they will be making no further payments under the
contracts for the period following the MY Board's decision. Through such
contracts, the sponsors agreed to deliver a portion of the capacity and
electrical output from the facility until the year 2003 in exchange for payment
by the Secondary Purchasers of a pro rata share of the plant's costs and
expenses. NU's subsidiaries' estimated exposure under these contracts is
approximately $15 million to $20 million over the remaining term of these
agreements. The MY sponsors are reviewing their options on how to proceed
against the Secondary Purchasers in this matter.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Listing of Exhibits:
Exhibit Number Description
10 Description of Certain Management
Compensation Arrangements (Exhibit 10.50, File No. 333-
30911)
15 Letter regarding unaudited financial
information
27 Financial Data Schedule
(b) Reports on Form 8-K:
1. NU filed a Form 8-K dated August 19, 1997 disclosing that Michael G.
Morris has been appointed Chairman, President and Chief Executive
Officer of NU.
2. NU filed a Form 8-K dated September 2, 1997 disclosing:
. The NHPUC/PSNH mediation proceedings had ended without resolution.
. In connection with PSNH's temporary rate proceeding, testimony was
filed with the NHPUC disclosing the significant negative
consequences to PSNH if the NHPUC implements a one-year rate
reduction of 11.41 percent.
3. NU filed a Form 8-K dated October 13, 1997 disclosing:
. NU's earnings for the quarter ending September 30, 1997 and
information on the Millstone nuclear units restart schedule.
. The DPUC has been conducting a review of the rates of CL&P,
including an analysis of the possibility of removing one or more of
the Millstone nuclear units from CL&P's rate base.
. On October 13, 1997, the NHPUC orally ordered a temporary rate
reduction for PSNH at a revenue level 6.43 percent lower than
current rates, to be effective December 1, 1997.
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 12, 1997 By /s/ John H. Forsgren
John H. Forsgren
Executive Vice President
and Chief Financial Officer
Date: November 12, 1997 By /s/ John J. Roman
John J. Roman
Vice President and Controller
36
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<TOTAL-INTEREST-ON-BONDS> 0
<CASH-FLOW-OPERATIONS> 289,181
<EPS-PRIMARY> (0.76)
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</TABLE>
