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) March 9, 1998
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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 3. Legal Proceeding
On April 3, 1998, in connection with litigation commenced against
Northeast Utilities (NU) and certain of its officers and trustees in August
1997, Massachusetts Municipal Wholesale Electric Company (MMWEC), a joint
owner of the Millstone 3 nuclear unit in Waterford, Connecticut, filed a
motion seeking a lien on NU's common ownership interest in two of its
Massachusetts subsidiaries, Western Massachusetts Electric Company (WMECO)
and Holyoke Water and Power Company. A hearing on this motion is scheduled
for April 28, 1998, and a final decision could be issued by April 30, 1998.
If MMWEC's request for such a lien is granted, it could give rise to defaults
and/or cross defaults under the "negative pledge" clauses in numerous
financing agreements to which NU and certain of its subsidiaries are parties.
NU intends to oppose the motion vigorously.
For more information regarding this matter, see "Item 3. Legal
Proceedings" in NU's 1997 Form 10-K.
Item 5. Other Events
1. Electric Utility Restructuring - New Hampshire
a. Regulatory Proceedings
On March 20, 1998, the New Hampshire Public Utilities Commission (NHPUC)
issued an order on rehearing (Rehearing Order) of its February 28, 1997
orders on restructuring the electric industry in New Hampshire (1997 Orders).
The Rehearing Order states that Public Service Company of New Hampshire
(PSNH), a wholly owned subsidiary of NU, has demonstrated that severe
financial harm would be caused by the 1997 Orders' regional average
ratemaking methodology. Thus, the NHPUC stated that PSNH's interim stranded
cost distribution charges will be determined in an order to be issued in the
future using a cost-based method to allow PSNH to continue to use accounting
treatment under Statement of Financial Accounting Standards No. 71.
The Rehearing Order also made the following significant changes to the
1997 Orders:
(i) it removed the prohibition on energy supply affiliates of
distribution companies doing business within the distribution company's
service territory, and provided that such affiliates may now use corporate
tradenames, logos and trademarks; and, affiliated energy suppliers and
distribution companies will be subject to standards of conduct that will
initially be based upon California's standards;
(ii) it permits transition service to be offered by the distribution
company to residential customers for at least one year; this service will be
obtained via a bidding process; and, standard offer service priced below
market that may restrict competition is disfavored;
(iii) conservation and load management programs will continue to be
provided by distribution companies for the near term; and
(iv) transmission owning utilities will not be ordered to file retail
transmission tariffs involuntarily with the Federal Energy Regulatory
Commission (FERC); instead, the pro forma open access tariffs on file with
FERC will be the basis of retail transmission service, and the NHPUC will
seek waivers from FERC of any terms and conditions deemed inapplicable to
retail users.
PSNH and NU obtained a stay of the 1997 Orders in a federal lawsuit
discussed more fully below on various grounds, including certain issues that
are not addressed by the Rehearing Order.
Compliance filings are required for all franchised utilities operating
in New Hampshire except PSNH by May 1, 1998 in order to meet the statutory
deadline for competition of July 1, 1998. PSNH will not be required to make
a compliance filing on May 1 under the terms of the temporary restraining
order issued by the federal court referred to above. Parties have 30 days
from the date of the Rehearing Order to file an appeal petition with the New
Hampshire Supreme Court. Specific changes concerning interim stranded cost
levels for PSNH are not expected to be determined until after a decision is
issued in the New Hampshire Supreme Court proceeding, discussed below.
b. Court Proceedings
On March 9, 1998, the U.S. Court of Appeals for the First Circuit denied
requests for rehearing of its February 3, 1998 decision, which upheld the
U.S. District Court's earlier ruling excluding certain intervenors from NU's
and PSNH's lawsuit challenging the NHPUC's 1997 Orders. The case has been
remanded to the District Court for further proceedings.
On April 1, 1998, the New Hampshire Supreme Court held a pre-hearing
conference and issued an order discussing the NHPUC's transfer of two
questions for the Supreme Court's determination. The two questions concern
the rate agreement between NU, PSNH and the state of New Hampshire entered
into in 1989 in connection with NU's reorganization plan to resolve PSNH's
bankruptcy (Rate Agreement). During the course of the pre-hearing conference,
the parties, including PSNH, agreed that the questions that had previously
been presented would be amended to read as follows: (1) does PSNH have any
rights under the Rate Agreement and/or New Hampshire RSA chapter 362, which
must be recognized by the NHPUC in establishing stranded cost charges under
New Hampshire RSA chapter 374-F, and (2) if the answer to question #1 is
"yes," may the NHPUC establish stranded cost charges providing for less than
full recovery of the assets referred to in the Rate Agreement? Based on the
procedural schedule, a decision in this proceeding could be issued in June
1998.
For more information regarding these matters, see "Item 1.
Business--Electric Utility Restructuring" and "--Rates" in NU's 1997 Form
10-K.
2. New Hampshire Retail Rates
On March 13, 1998, PSNH filed testimony and exhibits seeking a 3.7
percent net increase in rates in the June-December 1998 period in connection
with its comprehensive fuel and purchased power adjustment clause
proceedings. Hearings are scheduled for mid-May.
For more information regarding this matter, see "Item 1.
Business--Rates--New Hampshire Retail Rates" in NU's 1997 Form 10-K.
3. PSNH Financing Matters
On March 20, 1998, in connection with a bank-related financing
application, the NHPUC issued an order requiring PSNH to obtain NHPUC
approval before paying any dividend on its common stock to NU and before
investing any PSNH funds in the NU System Money Pool during the expected 364
day term of the facilities, which were approved. The financing agreements
that were the subject of the proceeding before the NHPUC contain similar
restrictions in favor of the banks. In 1997, PSNH paid NU $85 million in
dividends. No dividends have been paid to NU by PSNH in 1998 to date.
For more information regarding this matter, see "Item 1.
Business--Financing Program" in NU's 1997 Form 10-K.
4. Connecticut Rate Matters - Millstone Restart Schedules
The Connecticut Department of Public Utility Control (DPUC) held a
hearing on April 1, 1998 to review the status of the restart schedules for
the Millstone 3 and Millstone 2 nuclear units. The hearing was held in
connection with the DPUC's ongoing proceeding to determine whether to remove
one or both of the units from the rate base of The Connecticut Light and
Power Company (CL&P) and the impact this would have on CL&P's financial
condition. Both of the units have been out of service since the first
quarter of 1996.
CL&P indicated at the hearing that several significant compliance
filings had recently been made with the Nuclear Regulatory Commission (NRC)
and that it anticipates that the NRC will begin an Operational Safety Team
Inspection of Millstone 3 in mid-April. CL&P also indicated that the NRC
Commissioners will meet in May to consider the readiness of Millstone 3 for
restart and that the NRC Commissioners' vote on restart of Millstone 3 would
likely take place within two weeks following the meeting. The restart effort
for Millstone 2 is approximately three to four months behind Millstone 3. The
hearing is scheduled to resume on April 9, 1998 and the DPUC is scheduled to
issue its draft decision and final decision on April 20, 1998 and April 29,
1998, respectively.
5. CL&P's Financial Condition
During the hearings in the DPUC proceeding discussed above, CL&P also
indicated that the removal of Millstone 2 and Millstone 3 from rate base
could result in a reduction of CL&P's revenues of approximately $4 million
and $14 million, respectively, per month and would create additional
pressures on CL&P's ability to meet certain financial covenants in its
existing credit agreements. CL&P indicated that, based on preliminary
results, CL&P was expected to meet such covenants for the first quarter of
1998 and was projected to meet them in the second quarter as well, assuming
normal weather conditions, forecasted maintenance expenditures and Millstone
3 and Millstone 2 remaining in rate base. If CL&P breached these covenants,
the creditors would have a number of options, including causing the
acceleration of the affected indebtedness, reducing CL&P's access to further
credit, seeking higher interest rates and fees, asking for additional
collateral and additional measures which CL&P cannot predict.
For more information regarding these matters, see "Item 1.
Business--Nuclear Plant Outages and Liquidity" and "--Rates," and "--Nuclear
Plant Performance and Regulatory Oversight" in NU's 1997 Form 10-K.
6. SEC Review of Financial Statements
In a March 25, 1998 letter, the Securities and Exchange Commission's
Division of Corporation Finance (SEC) questioned amounts recorded on NU's
balance sheets listed as "Nuclear compliance." These amounts are $63.2
million and $73.0 million in 1996 and 1997, respectively, and represent costs
associated with the current nuclear outages. The SEC's view is that
operating and personnel costs associated with nuclear outages and procedures
to be implemented at nuclear power facilities in response to regulatory
requirements should be expensed as incurred.
NU is responding to a request for information from the SEC to
demonstrate that the costs accrued do not represent these types of costs. NU
and its independent auditors, Arthur Andersen LLP, believe its present
accounting is required by and is in accordance with generally accepted
accounting principles.
Should the SEC disagree and require NU to eliminate the nuclear
compliance liability, NU would be required to restate its 1996 and 1997
financial statements. This would result in an increase to its consolidated
pre-tax net income in those years by approximately $63.2 million and $9.8
million, respectively.
At the subsidiary level:
CL&P reserved $50.5 million and $58.7 million in 1996 and 1997,
respectively, and the reversal of the reserve would increase its consolidated
pre-tax net income in those years by approximately $50.5 million and $8.2
million, respectively.
WMECO reserved $11.8 million and $13.8 million in 1996 and 1997,
respectively, and the reversal of the reserve would increase its consolidated
pre-tax net income in those years by approximately $11.8 million and $2.0
million, respectively.
As to NU, CL&P and WMECO, the amount of such reserves would not be
available to offset nuclear costs expected to be expended in 1998 and 1999.
Because certain covenants in their financing agreements are based
directly or indirectly on the amount of such companies' 1998 earnings,
restating financial statements in accordance with the SEC's letter would have
a negative effect on their respective abilities to meet these financial
covenants.
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 April 6, 1998 By /s/John B. Keane
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John B. Keane
Vice President and Treasurer
