MODIFIED
FORM U-13-60
ANNUAL REPORT
FOR THE PERIOD
BEGINNING JANUARY 1, 1997 AND ENDING DECEMBER 31, 1997
TO THE
U.S. SECURITIES AND EXCHANGE COMMISSION
OF
HEC INC.
A SUBSIDIARY SERVICE COMPANY
DATE OF INCORPORATION: JUNE 19, 1990
STATE UNDER WHICH INCORPORATED:
THE COMMONWEALTH OF MASSACHUSETTS
LOCATION OF PRINCIPAL EXECUTIVE OFFICES OF REPORTING COMPANY
24 PRIME PARKWAY
NATICK, MA 01760
REPORT FILED PURSUANT TO ORDER DATED JULY 27, 1990
IN FILE NUMBER 70-7698
NAME, TITLE, AND ADDRESS OF OFFICER TO WHOM CORRESPONDENCE CONCERNING THIS
REPORT SHOULD BE ADDRESSED:
LINDA A. JENSEN, TREASURER
HEC INC.
24 PRIME PARKWAY
NATICK, MA 01760
NAME OF PRINCIPAL HOLDING COMPANY UNDER WHICH REPORTING
COMPANY IS ORGANIZED:
NORTHEAST UTILITIES
INSTRUCTIONS FOR THE USE OF MODIFIED FORM U-13-60
1. NUMBER OF COPIES - EACH ANNUAL REPORT SHALL BE FILED IN DUPLICATE.
THE COMPANY SHOULD PREPARE AND RETAIN AT LEAST ONE EXTRA COPY FOR ITSELF IN CASE
CORRESPONDENCE WITH REFERENCE TO THE REPORT BECOMES NECESSARY.
2. DEFINITIONS - DEFINITIONS CONTAINED IN INSTRUCTION 01-8 TO THE UNIFORM
SYSTEM OF ACCOUNTS FOR MUTUAL SERVICE COMPANIES AND SUBSIDIARY SERVICE
COMPANIES, PUBLIC UTILITY HOLDING COMPANY ACT OF 1935, AS AMENDED FEBRUARY 2,
1979 SHALL BE APPLICABLE TO WORDS OR TERMS USED SPECIFICALLY WITHIN THIS FORM
U-13-60.
3. ORGANIZATION CHART - THE COMPANY SHALL SUBMIT WITH EACH ANNUAL REPORT
A COPY OF ITS CURRENT ORGANIZATION CHART.
LISTING OF SCHEDULES AND ANALYSIS OF ACCOUNTS
SCHEDULE OR PAGE
DESCRIPTION OF SCHEDULES AND ACCOUNTS ACCT. NO. NO.
DESCRIPTION OF SYSTEM OF ACCOUNTING 3
COMPARATIVE BALANCE SHEET SCHEDULE I 4-5
COMPANY PROPERTY SCHEDULE II 6
ACCUMULATED PROVISION FOR DEPRECIATION AND
AMORTIZATION OF COMPANY PROPERTY SCHEDULE III 7
ACCOUNTS RECEIVABLE AND ACCOUNTS
RECEIVABLE FROM ASSOCIATE COMPANIES SCHEDULE V 8
MISCELLANEOUS DEFERRED DEBITS SCHEDULE IX 9
PROPRIETARY CAPITAL SCHEDULE XI 10
LONG-TERM DEBT SCHEDULE XII 11
CURRENT AND ACCRUED LIABILITIES SCHEDULE XIII 12
NOTES TO FINANCIAL STATEMENTS SCHEDULE XIV 13-14
COMPARATIVE INCOME STATEMENT SCHEDULE XV 15
ANALYSIS OF BILLING - NON-ASSOCIATE COMPANIES ACCOUNT 458 16
DEPARTMENTAL ANALYSIS OF SALARIES ACCOUNT 920 17
OUTSIDE SERVICES EMPLOYED ACCOUNT 923 18-19
MISCELLANEOUS GENERAL EXPENSES ACCOUNT 930.2 20
RENTS ACCOUNT 931 21
TAXES OTHER THAN INCOME TAXES ACCOUNT 408 22
NOTES TO STATEMENT OF INCOME SCHEDULE XVIII 23
(INCLUDED ABOVE)
ORGANIZATION CHART 24
ANNUAL REPORT OF: HEC INC.
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1997
DESCRIPTION OF THE SYSTEM OF ACCOUNTING EMPLOYED BY HEC INC.:
HEC INC. MAINTAINS ITS ACCOUNTING BOOKS AND RECORDS ON A COMPUTER NETWORK USING
A GENERAL LEDGER SOFTWARE PACKAGE DEVELOPED BY BST CONSULTANTS. THE CHART OF
ACCOUNTS IS A STANDARD SET DEVELOPED FOR ARCHITECTURAL AND ENGINEERING FIRMS.
REVENUES AND EXPENSES ARE RECORDED ON AN ACCRUAL BASIS. A MORE DETAILED
DESCRIPTION OF HEC'S ACCOUNTING POLICIES CAN BE FOUND IN THE NOTES TO THE
FINANCIAL STATEMENTS.
<TABLE>
<CAPTION>
ANNUAL REPORT OF HEC INC.
AND SUBSIDIARIES
SCHEDULE I - COMPARATIVE BALANCE SHEET
Give balance sheet of the Company as of December 31, 1997 and 1996
- ------------------------------------------------------------- ------------ ------------
ACCOUNT ASSETS AND OTHER DEBITS AS OF DECEMBER 31
- ------------------------------------------------------------- ------------ ------------
1997 1996
<S> <C> <C>
COMPANY PROPERTY
101 Company property (Schedule II) $ 4,148,484 $ 3,947,718
107 Construction work in progress (Schedule II) 0 0
------------ ------------
Total Property 4,148,484 3,947,718
------------ ------------
108 Less accumulated provision for depreciation and
amortization of company property (Schedule III) 2,569,422 2,129,027
------------ ------------
Net Company Property 1,579,062 1,818,691
------------ ------------
INVESTMENTS
123 Investments in associate companies (Schedule IV) 0 0
124 Other Investments (Schedule IV) 0 0
------------ ------------
Total Investments 0 0
------------ ------------
CURRENT AND ACCRUED ASSETS
131 Cash 509,552 1,057,329
134 Special deposits
135 Working funds 1,800 1,800
136 Temporary cash investments (Schedule IV)
141 Notes receivable
143 Accounts receivable (Schedule V) 3,189,831 4,936,550
144 Accumulated provision of uncollectible accounts
145 Notes receivable from associate companies
146 Accounts receivable for associate companies (Schedule V) 617,924 388,930
152 Fuel stock expenses undistributed
154 Materials and supplies 25,888 62,734
163 Stores expense undistributed
165 Prepayments 124,486 101,368
174 Miscellaneous current and accrued assets
------------ ------------
Total Current and Accrued Assets 4,469,481 6,548,711
------------ ------------
DEFERRED DEBITS
181 Unamortized debt expense
184 Clearing Accounts
186 Miscellaneous deferred debits (Schedule IX) 2,174,417 2,808,452
188 Research, development, or demonstration expenditures 0 0
190 Accumulated deferred income taxes 79,703 0
------------ ------------
Total Deferred Debits 2,254,120 2,808,452
------------ ------------
TOTAL ASSETS AND OTHER DEBITS $ 8,302,663 $11,175,854
============ ============
</TABLE>
<TABLE>
<CAPTION>
ANNUAL REPORT OF HEC INC.
AND SUBSIDIARIES
SCHEDULE I - COMPARATIVE BALANCE SHEET
Give balance sheet of the Company as of December 31, 1997 and 1996
- ------------------------------------------------------------- ------------ ------------
ACCOUNT LIABILITIES AND PROPRIETARY CAPITAL AS OF DECEMBER 31
- ------------------------------------------------------------- ------------ ------------
1997 1996
<S> <C> <C>
PROPRIETARY CAPITAL
201 Common stock issued (Schedule XI) $ 100 $ 100
211 Miscellaneous paid-in capital (Schedule XI) 3,999,180 3,999,915
215 Appropriated Retained Earnings (Schedule XI) 0 0
216 Unappropriated Retained Earnings (Schedule XI) 112,557 (195,727)
------------ ------------
Total Proprietary Capital 4,111,837 3,804,288
------------ ------------
LONG-TERM DEBT
223 Advances from associate companies (Schedule XII) 0 0
224 Other long-term debt (Schedule XII) 250,000 250,000
225 Unamortized premium on long-term debt 0 0
226 Unamortized discount on long-term debt 0 0
------------ ------------
Total Long Term Debt 250,000 250,000
------------ ------------
CURRENT AND ACCRUED LIABILITIES
231 Notes Payable
232 Accounts Payable 1,996,286 4,785,171
233 Notes payable to associate co's (Schedule XIII) 600,000 475,000
234 Accounts payable to associate co's (Schedule XIII) 27,188 35,699
236 Taxes accrued 381,522 73,263
237 Interest Accrued
238 Dividends declared
241 Tax collections payable (Schedule XIII) 9,227 34,860
242 Misc. current and accrued liabilities (Schedule XIII) 538,669 1,302,112
------------ ------------
Total Current and Accrued Liabilities 3,552,892 6,706,105
------------ ------------
DEFERRED CREDITS
253 Other deferred credits
255 Accumulated deferred investment tax credits
------------ ------------
Total Deferred Credits 0 0
------------ ------------
283 Accumulated Deferred Income Taxes 387,934 415,461
------------ ------------
TOTAL LIABILITIES AND PROPRIETARY CAPITAL $ 8,302,663 $11,175,854
============ ============
</TABLE>
<TABLE>
<CAPTION>
ANNUAL REPORT OF HEC INC.
AND SUBSIDIARIES
For the Year Ended December 31, 1997
SCHEDULE II - COMPANY PROPERTY
BALANCE AT BALANCE AT
BEGINNING OTHER 1/ CLOSE
DESCRIPTION OF YEAR ADDITIONS SALES CHANGES OF YEAR
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
COMPANY PROPERTY
Account
- ------
301 ORGANIZATION 15,654 0 (491) 15,163
303 MISCELLANEOUS INTANGIBLE PLANT 0 0
304 LAND AND LAND RIGHTS 0 0
305 STRUCTURES AND IMPROVEMENTS 0 0
306 LEASEHOLD IMPROVEMENTS 11,366 3,032 14,398
307 EQUIPMENT 2/ 0 0
308 OFFICE FURNITURE & EQUIPMENT 1,068,080 179,862 0 1,247,942
309 AUTOMOBILES, OTHER VEHICLES 18,250 18,363 0 36,613
AND RELATED GARAGE EQUIPMENT
310 AIRCRAFT AND AIRPORT EQUIPMENT 0 0
311 OTHER COMPANY PROPERTY 3/ 2,834,368 2,834,368
-------------------------------------------------------
SUBTOTAL 3,947,718 201,257 0 (491) 4,148,484
-------------------------------------------------------
107 CONSTRUCTION WORK IN 0
PROGRESS 4/
-------------------------------------------------------
TOTAL 3,947,718 201,257 0 (491) 4,148,484
=======================================================
1/ PROVIDE AN EXPLANATION OF THOSE CHANGES CONSIDERED MATERIAL:
Not applicable
2/ SUB-ACCOUNTS ARE REQUIRED FOR EACH CLASS OF EQUIPMENT OWNED. THE COMPANY
SHALL PROVIDE A LISTING BY SUB-ACCOUNT OF EQUIPMENT ADDITIONS DURING THE
YEAR AND THE BALANCE AT THE CLOSE OF THE YEAR.
Not applicable
3/ DESCRIBE OTHER COMPANY PROPERTY:
ENCORE Inservice Property consists of energy efficient fixtures and metering
equipment installed in end-user facilities under a program sponsored by a New
England utility company. HEC Inc. is paid based on the savings generated by the
fixtures over a specified period of time. The equipment remains the property of
HEC Inc. until the end of the contract and is amortized over the life of the
contract.
4/ DESCRIBE CONSTRUCTION WORK IN PROGRESS
None
</TABLE>
<TABLE>
<CAPTION>
ANNUAL REPORT OF HEC INC.
AND SUBSIDIARIES
For the Twelve Months Ended December 31, 1997
SCHEDULE III
ACCUMULATED PROVISION FOR DEPRECIATION AND
AMORTIZATION OF COMPANY PROPERTY
BALANCE AT ADDITIONS OTHER 1/ BALANCE
BEGINNING CHARGED TO CHANGES AT CLOSE
DESCRIPTION OF YEAR ACCT 403/404 SALES ADD/(DEDUCT) OF YEAR
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
COMPANY PROPERTY
Account
- ------
301 ORGANIZATION 6,731 3,110 (291) 9,550
303 MISCELLANEOUS INTANGIBLE PLANT 0 0
304 LAND AND LAND RIGHTS 0 0
305 STRUCTURES AND IMPROVEMENTS 0 0
306 LEASEHOLD IMPROVEMENTS 5,566 1,803 7,369
307 EQUIPMENT 0 0
308 OFFICE FURNITURE & EQUIPMENT 693,414 148,365 0 841,779
309 AUTOMOBILES, OTHER VEHICLES 14,050 4,736 0 18,786
AND RELATED GARAGE EQUIPMENT
310 AIRCRAFT AND AIRPORT EQUIPMENT 0 0
311 OTHER COMPANY PROPERTY 2/ 1,409,266 282,672 1,691,938
-------------------------------------------------------------
TOTAL 2,129,027 440,686 0 (291) 2,569,422
=============================================================
1/ PROVIDE AN EXPLANATION OF THOSE CHANGES CONSIDERED MATERIAL:
Not applicable
2/ AMORTIZATION OF ENCORE PROPERTY
</TABLE>
<TABLE>
<CAPTION>
ANNUAL REPORT OF HEC INC.
AND SUBSIDIAIRES
For the Twelve Months Ended December 31, 1997
SCHEDULE V - ACCOUNTS RECEIVABLE AND
ACCOUNTS RECEIVABLE FROM ASSOCIATE COMPANIES
INSTRUCTIONS: Complete the following schedule listing accounts receivable and
accounts receivable from each associate company. Where the
service company has provided accomodation or convenience
payments for associate companies, a separate listing of total
payments for each associate company by sub-account should be
provided.
BALANCE AT BALANCE AT
BEGINNING CLOSE
DESCRIPTION OF YEAR OF YEAR
- -------------------------------------------------- ----------- ----------
<S> <C> <C>
Account
143 Accounts Receivable from clients $4,936,550 $3,189,831
----------- -----------
TOTAL $4,936,550 $3,189,831
=========== ===========
146 Accounts Receivable from Associate Companies
Northeast Utilities Service Company $ 0 $ 14,046
The Connecticut Light & Power Company 246,141 113,412
Western Massachusetts Electric Company 121,550 490,466
Public Service Company of New Hampshire 21,239 0
----------- -----------
TOTAL $ 388,930 $ 617,924
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
ANNUAL REPORT OF HEC INC.
AND SUBSIDIARIES
For the Twelve Months Ended December 31, 1997
SCHEDULE IX - MISCELLANEOUS DEFERRED DEBITS
INSTRUCTIONS: Provide detail of items in this account. Items less than
$10,000 may be grouped, showing the number of items in each group.
BALANCE AT BALANCE AT
BEGINNING CLOSE
DESCRIPTION OF YEAR OF YEAR
- ---------------------------------------------------- --------------------------
<S> <C> <C>
Account
- -------
186 Miscellaneous Deferred Debits
Receivables from energy systems & design
contracts, net $2,793,452 $2,161,917
West Virginia Legal Receivable 15,000 12,500
----------- -----------
TOTAL $2,808,452 $2,174,417
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
ANNUAL REPORT OF HEC INC.
AND SUBSIDIARIES
For the Twelve Months Ended December 31, 1997
SCHEDULE XI - PROPRIETARY CAPITAL
NUMBER OF PAR OR STATED OUTSTANDING CLOSE OF
SHARES VALUE NUMBER OF PERIOD
ACCT. CLASS OF STOCK AUTHORIZED PER SHARE SHARES TOTAL AMOUNT
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
201 COMMON STOCK 100 1 100 100
- --------------------------------------------------------------------------------------------------
INSTRUCTIONS: Classify amounts in each account with brief explanations, disclosing
the general nature of transactions which give rise to the
reported amounts.
DESCRIPTION AMOUNT
- --------------------------------------------------------------------------------------------------
211 Miscellaneous paid-in-capital 4,000,000
211.84 Currency Translation Adjustment (820)
215 Appropriated Retained Earnings 0
------------
TOTAL 3,999,180
============
INSTRUCTIONS: Give particulars concerning net income or (loss) during the year,
distinguishing between compensation for the use of capital owed or
net loss remaining for servicing nonassociates per the General
Instructions of the Uniforn Systems of Accounts. For dividends paid
during the year in cash or otherwise, provide rate percentage,
amount of dividend, date declared and date paid.
BALANCE AT NET INCOME BALANCE AT
BEGINNING OR DIVIDENDS CLOSE
DESCRIPTION OF YEAR LOSS PAID OF YEAR
- --------------------------------------------------------------------------------------------------
216 Unappropriated Retained Earnings (195,727) 308,284 0 112,557
----------------------------------------------------------
TOTAL (195,727) 308,284 0 112,557
==========================================================
</TABLE>
<TABLE>
<CAPTION>
ANNUAL REPORT OF HEC INC. AND SUBSIDIARIES
For the Year Ended December 31, 1997
SCHEDULE XII
LONG-TERM DEBT
INSTRUCTIONS Advances from associate companies should be reported separately for advances in
notes, and advances on open account. Names of associate companies from which
advances were received shall be shown under the class and series of obligation
column. for Account 224 - - Other long-term debt provide the name of creditor
company or organization, terms of obligation, date of maturity, interest rate, and
the amount authorized and outstanding.
- -------------------------------------------------- ---------- ---------- --------- ---------- ----------
BALANCE BALANCE
TERMS OF OBLIG. DATE AT AT
NAME OF CLASS & SERIES OF INTEREST AMOUNT BEGINNING DEDUCTIONS CLOSE
CREDITOR OF OBLIGATION MATURITY RATE AUTHORIZED OF YEAR ADDITIONS (1) OF YEAR
- -------------------------------------------------- ---------- ---------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C>
ACCOUNT 223 - $ $ $ $ $
ADVANCES FROM
ASSOCIATE
COMPANIES:
ACCOUNT 224 -
OTHER LONG-
TERM DEBT:
Arizona Public 1996 Secured
Service Notes 12/31/2000 7.03% 250,000 250,000 0 0 250,000
---------- ---------- --------- ---------- ----------
$ 250,000 $ 250,000 $ 0 $ 0 $ 250,000
========== ========== ========= ========== ==========
(1) GIVE AN EXPLANATION OF DEDUCTIONS:
</TABLE>
<TABLE>
<CAPTION>
ANNUAL REPORT OF HEC INC.
AND SUBSIDIARIES
For the Twelve Months Ended December 31, 1997
SCHEDULE XIII - CURRENT ACCRUED LIABILITIES
INSTRUCTIONS: Provide balance of notes and accounts payable to each
associate company. Give descriptions and amount of
miscellaneous current and accrued liabilities. Items
less than $10,000 may be grouped, showing the number
of items in each group.
BALANCE AT BALANCE AT
BEGINNING CLOSE
DESCRIPTION OF YEAR OF YEAR
- --------------------------------------------- ------------------- ----------
<S> <C> <C>
Account
- -------
233 NOTES PAYABLE TO ASSOCIATE COS. $ 475,000 $ 600,000
----------- ----------
TOTAL $ 475,000 $ 600,000
=========== ==========
234 ACCOUNTS PAYABLE TO ASSOCIATE COS.
Northeast Utilities Service Company $ 35,699 $ 27,188
----------- ----------
TOTAL $ 35,699 $ 27,188
=========== ==========
241 TAX COLLECTIONS PAYABLE $ 34,860 $ 9,227
----------- ----------
TOTAL $ 34,860 $ 9,227
=========== ==========
242 MISCELLANEOUS CURRENT AND
ACCRUED VENDOR LIABILITIES
Accrued Audit Fee $ 32,820 $ 43,119
Accrued Commissions 10,639 0
Accrued Incentive Expense 234,326 172,726
Accrued Accounts Payable 15,020 0
Accrued Lighting Maintenance 28,068 32,832
Reserve for energy savings guarantee 104,000 104,000
Deferred Compensation 97,205 149,105
Accrued West Virginia Legal Credit 15,000 12,500
Subcontractors Advances 744,356 0
Miscellaneous (5 Items) 20,678 24,387
----------- ----------
TOTAL $ 1,302,112 $ 538,669
=========== ==========
</TABLE>
ANNUAL REPORT OF HEC INC.
AND SUBSIDIARIES
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1997
SCHEDULE XIV
NOTES TO FINANCIAL STATEMENTS
INSTRUCTIONS: THE SPACE BELOW IS PROVIDED FOR IMPORTANT NOTES REGARDING THE
FINANCIAL STATEMENTS OR ANY ACCOUNT THEREOF. FURNISH
PARTICULARS AS TO ANY SIGNIFICANT CONTINGENT ASSETS OR
LIABILITIES EXISTING AT THE END OF THE YEAR. NOTES RELATING
TO FINANCIAL STATEMENTS SHOWN ELSEWHERE IN THIS REPORT MAY BE
INDICATED HERE BY REFERENCE.
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) GENERAL
HEC INC. (THE "COMPANY"), A WHOLLY-OWNED SUBSIDIARY OF NORTHEAST UTILITIES
("NU"), PROVIDES DESIGN AND ENERGY SERVICES FOR ENGINEERING AND
INSTALLATION OF ENERGY EFFICIENT EQUIPMENT. THE CONSOLIDATED STATEMENTS OF
THE COMPANY INCLUDE THE ACCOUNTS OF SOUTHWEST HEC ENERGY SERVICES L.L.C.,
OWNED 99% BY HEC AND TWO WHOLLY-OWNED SUBSIDIARIES, HEC ENERGY CONSULTING
CANADA INC. AND HEC INTERNATIONAL CORPORATION. SIGNIFICANT INTERCOMPANY
TRANSACTIONS HAVE BEEN ELIMINATED IN CONSOLIDATION.
(B) REVENUE RECOGNITION
REVENUES INCLUDE AMOUNTS EARNED UNDER CONTRACTS FOR THE DESIGN AND
INSTALLATION OF ENERGY SYSTEMS AND THE REALIZATION OF ENERGY SAVINGS.
CERTAIN REVENUES ARE RECOGNIZED BY THE PERCENTAGE-OF-COMPLETION METHOD AS
WORK PROGRESSES FOR CONTRACTS IN PROCESS. OTHER REVENUES ARE RECOGNIZED AS
SAVINGS ARE REALIZED BY CUSTOMERS. LOSSES ON CONTRACTS ARE FULLY
RECOGNIZED IN THE PERIOD THEY BECOME ESTIMABLE. PARTICIPATION IN ENERGY
SAVINGS FOR CERTAIN FIXED PERIODS SUBSEQUENT TO RECOVERY OF INSTALLED COST
OF ENERGY SYSTEMS ARE RECOGNIZED IN THE PERIODS SUCH SAVINGS ARE ACHIEVED.
(C) DEPRECIATION
DEPRECIATION AND AMORTIZATION ARE PROVIDED USING STRAIGHT-LINE METHODS OVER
THE ESTIMATED USEFUL LIVES OF THE ASSETS.
(D) ORGANIZATION COSTS
COSTS INCURRED TO ORGANIZE THE COMPANY AND ITS SUBSIDIARIES ARE CAPITALIZED
AND AMORTIZED USING THE STRAIGHT LINE METHOD OVER A FIVE YEAR PERIOD. THE
AMORTIZATION PERIODS BEGAN ON JULY 1, 1990 FOR THE COMPANY AND ON NOVEMBER
1, 1994 FOR HEC INTERNATIONAL CORPORATION AND HEC ENERGY CONSULTING CANADA,
INC. AND ON JANUARY 1, 1996 FOR SOUTHWEST HEC ENERGY SERVICES LLC.
(2) SHORT-TERM DEBT
THE COMPANY IS A PARTICIPANT IN THE NORTHEAST UTILITIES SYSTEM MONEY POOL
(POOL). AS A LIMITED PARTICIPANT, HEC IS LIMITED TO BORROWING FUNDS
PROVIDED BY NU PARENT. THE POOL PROVIDES A MORE EFFICIENT USE OF THE CASH
RESOURCES OF THE SYSTEM, AND REDUCES OUTSIDE SHORT-TERM BORROWINGS.
NORTHEAST UTILITIES SERVICE COMPANY (A WHOLLY-OWNED SUBSIDIARY OF NU)
ADMINISTERS THE POOL AS AGENT FOR THE MEMBER COMPANIES. BORROWING BASED ON
LOANS FROM NU PARENT BEAR INTEREST AT NU PARENT'S COST AND MUST BE REPAID
BASED UPON THE TERMS OF NU PARENT'S ORIGINAL BORROWING. AT DECEMBER 31,
1997 AND 1996, HEC HAD APPROXIMATELY $600,000 AND $475,000 IN BORROWINGS AT
5.5 AND 6.3 PERCENT RESPECTIVELY, FROM THE POOL.
(3) LONG-TERM DEBT
SOUTHWEST HEC ENTERED INTO A VARIABLE DEBT AGREEMENT WITH ARIZONA PUBLIC
SERVICE ("APS") ON DECEMBER 7, 1995. THE NOTE REQUIRES AN INITIAL LOAN OF
$100,000 WITH ADDITIONAL ADVANCES TO SOUTHWEST HEC OF $50,000 QUARTERLY,
BEGINNING APRIL 1, 1996, UNTIL A MAXIMUM BALANCE OF $250,000 IS REACHED.
ON OCTOBER 1, 1996, THE MAXIMUM WAS REACHED. THE INTEREST RATE IS SET
ANNUALLY BASED ON THE LONG-TERM INTEREST RATE APS REPORTS ON ITS FERC FORM
1. THE 1997 INTEREST FOR THE NOTES WAS 7.03%. APS HAS A TEN YEAR OPTION
TO CONVERT THE NOTE INTO A 50% OWNERSHIP INTEREST IN SOUTHWEST HEC.
(4) DEFINED CONTRIBUTION PLAN
THE COMPANY PARTICIPATES IN NU'S 401(K) PLAN WHICH COVERS SUBSTANTIALLY ALL
EMPLOYEES. ELIGIBLE EMPLOYEES MAY CONTRIBUTE UP TO 16% OF THEIR
COMPENSATION TO THE PLAN, AND THE COMPANY WILL CONTRIBUTE UP TO 3% OF EACH
EMPLOYEE'S COMPENSATION. EMPLOYEES BECOME VESTED IN CONTRIBUTIONS BY
SPECIFIED PERCENTAGES OVER A FIVE YEAR PERIOD.
(5) LEASES
THE COMPANY HAS CERTAIN OPERATING LEASES FOR OFFICES AND EQUIPMENT EXPIRING
AT VARIOUS DATES THROUGH 1999. DURING 1997 AND 1996, HEC CHARGED
APPROXIMATELY $307,000 AND $274,000, RESPECTIVELY, IN OPERATING LEASE
RENTAL PAYMENTS TO OPERATING EXPENSE. FUTURE MINIMUM RENTALS PAYABLE FOR
OPERATING LEASES ARE AS FOLLOWS:
1998 320,488
1999 228,388
TOTAL $548,876
<TABLE>
<CAPTION>
ANNUAL REPORT OF HEC INC
AND SUBSIDIARIES
For the Twelve Months Ended December 31, 1997 and 1996
SCHEDULE XV - STATEMENT OF INCOME
YEAR ENDED YEAR ENDED
DECEMBER 31 DECEMBER 31
ACCOUNT DESCRIPTION 1997 1996
- ------------------------------------------------------- ------------------------
<S> <C> <C>
INCOME
457 Services rendered to Associate Companies $ 2,969,691 $ 1,904,520
458 Services rendered to Nonassociate Companies 34,822,403 42,111,293
421 Miscellaneous Income/(Loss) 149,192 240,312
----------- -----------
TOTAL INCOME 37,941,286 44,256,125
=========== ===========
EXPENSE
904 Reserve for Uncollectible Accounts 13,000 38,500
920 Salaries and Wages 3,815,597 3,540,767
921 Office Supplies and Expense 3,697,628 6,465,966
922 Administrative Expense transferred-credit 0 0
923 Outside Services Employed 28,196,373 31,887,030
924 Property Insurance 28,247 35,113
925 Injuries and Damages 117,832 116,684
926 Employee Pensions and Benefits 290,377 341,054
928 Regulatory Commission Expense
930.1 General Advertising Expense 6,177 2,985
930.2 Miscellaneous General Expense 79,335 52,516
931 Rents 345,845 298,111
935 Maintenance of Structures and Equipment 39,825 31,067
403 Depreciation and Amortization Expense 437,576 415,530
404 Amortization - Organization Costs 3,110 3,142
408 Taxes other than Income Taxes 327,317 282,417
409 Income Taxes 188,865 245,039
410 Provision for Deferred Income Taxes 10,973 11,590
411 Provision for Deferred Income Taxes-Credit 0 2,389
411.5 Investment Tax Credit 0 0
426.1 Donations 0 0
426.5 Other Deductions 0 0
427 Interest on Long-term Debt 0 0
428 Amortize Debt Expenses 0 0
430 Interest on Debt to Associate Companies 17,105 55,022
431 Other Interest Expense 17,820 13,634
----------- -----------
TOTAL EXPENSE 37,633,002 43,838,556
----------- -----------
NET INCOME/(LOSS) $ 308,284 $ 417,569
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
ANNUAL REPORT OF HEC INC
AND SUBSIDIARIES
For the Twelve Months Ended December 31, 1997
ANALYSIS OF BILLING
NONASSOCIATE COMPANIES
ACCOUNT 458
EXCESS
OR TOTAL
DEFICIENCY AMOUNT
DESCRIPTION TOTAL COST 458-4 BILLED
- ---------------------------------------------------- -----------
<S> <C>
ENERGY MANAGEMENT SERVICES $32,663,414
DEMAND SIDE MANAGEMENT SERVICES 69,645
CONSULTING SERVICES 2,089,344
-----------
TOTAL $34,822,403
===========
INSTRUCTIONS: Provide a brief description of the services
rendered to each nonassociate company.
Energy Management Services:
Engineering and installation of energy conservation measures.
Demand Side Management Services:
Engineering and consulting services in the design,
implementation, and evaluation of demand side management
programs.
Consulting Services:
Other engineering and design services.
</TABLE>
<TABLE>
<CAPTION>
ANNUAL REPORT OF HEC INC
AND SUBSIDIARIES
For the Twelve Months Ended December 31, 1997
DEPARTMENTAL ANALYSIS OF SALARIES
ACCOUNT 920
NAME OF DEPARTEMENT OR SALARY NUMBER OF
SERVICE FUNCTION EXPENSE PERSONNEL
- ------------------------------------------ ---------------------------
<S> <C> <C>
ADMINISTRATION $ 954,155 11
ENGINEERING 2,104,147 50
MARKETING 757,295 8
------------ ------------
TOTAL $ 3,815,597 69
============ ============
</TABLE>
<TABLE>
<CAPTION>
ANNUAL REPORT OF HEC INC.
AND SUBSIDIARIES
For Twelve Months Ended December 31, 1997
OUTSIDE SERVICES EMPLOYED
ACCOUNT 923
From Whom "A"-Associate Description
Purchased "NA"-Nonassociate Amount of Services
- ---------------------------------------- -----------------------------
<S> <C>
SUBCONTRACTOR SERVICES
Ahlstrom Schaeffer NA 164,336 Electrical Contractor
Adams Plumbing & Heating NA 628,237 Mechancial Contractor
Bain Heating & Piping NA 183,584 Boiler Replacement Work
CDE Air Conditioning NA 299,037 Electrical Contractor
B&G NA 1,028,938 Electrical/Lighting Contractor
Candela Systems NA 143,287 Electrical Contractor
Carrier Corp NA 102,697 Mechancial Contractor
CVM Electric NA 1,339,277 Electrical Contractor
Delphi Mechancial NA 2,013,950 Mechanical Contractor
Cedar Lake Electrical NA 148,750 Electrical Contractor
Certified Asbestos NA 101,257 EMS Contractor
CRK Contracting NA 445,121 Mechanical Contractor
Energy Design Corp NA 220,252 EMS Contractor
Fresh Meadow Mechanical NA 1,147,852 Mechanical Contractor
Hi-Amp NA 190,642 Electrical Contractor
Honeywell Incorporated NA 870,143 EMS Contractor
Johnson Controls NA 1,135,589 EMS Contractor
Landis &Staefa, Inc NA 1,157,769 EMS Contractor
Longo Industries NA 1,091,518 Mechanical Construction
Lowe Electric NA 104,647 Electrical Contractor
Morales Electric NA 469,306 Electrical Contractor
O'Connell Electric NA 320,382 Electrical Contractor
Modern Tech Electric NA 368,545 Electrical/Lighting
Mytech Corporation NA 170,345 EMS Contractor
Rolands NA 1,290,879 Electrical Contractor
Temperature System NA 110,631 Supply and Install Motors
T.M Bier and Associates NA 685,572 Mechanical Contractor
Vanderlinde Electric NA 102,937 Lighting Installations
Watson Electric NA 102,092 Lighting Installations
Windsor Electric NA 350,324 Lighting Retrofit Installations
Western Allied Corp NA 327,304 Mechanical Contractor
York International NA 1,069,741 Mechanical Contractor
Fifty Vendors NA 671,638
-----------
TOTAL SUBCONTRACTORS $18,556,579
-----------
SUBCONTRACTOR SUPPLIERS
Advance Energy & Lightin NA 124,893 Building Fixture Supplier
Baldwin-Hall NA 258,510 Lighting Supplier
Ligon Electrical NA 278,878 Lighting Supplier
Graybar Electric NA 318,183 Electrical Supplier
Kovalsky & Carr Electric NA 152,048 Electrical Supplier
Kelly & Hayes NA 2,891,244 Electrical/Lighting Supplier
Bulb Man NA 2,313,994 Lighting Supplier
Sensorswitch NA 634,459 Lighting Supplier
TOTAL SUBCONTRACTOR SUPPLIERS $ 6,972,209
CONSULTING SERVICES
EEM NA 2,233,686 Engineering/Construction Mgment
Eighty Five Vendors NA 347,115
-----------
TOTAL CONSULTING SERVICES $ 2,580,801
-----------
LEGAL SERVICES
Three Vendors NA $ 24,521
-----------
AUDITING SERVICES
Arthur Andersen NA $ 26,889
-----------
MARKETING AGENTS & CONSULTANTS
Six Vendors NA $ 13,563
-----------
OTHER PROFESSIONAL SERVICES
Three Vendors NA $ 21,811
-----------
TOTAL $28,196,373
===========
</TABLE>
<TABLE>
<CAPTION>
ANNUAL REPORT OF HEC INC
AND SUBSIDIARIES
For the Twelve Months Ended December 31, 1997
MISCELLANEOUS GENERAL EXPENSE
ACCOUNT 930.2
INSTRUCTIONS: Provide a listing of the amount included in Account 930,
"Miscellaneous General Expense," classifying such expenses
according to their nature. Payments and expenses permitted
by Section 321(b)(2) of the Federal Election Campaign Act,
as amended by Public Law 94-283 in 1976 (2 U.S.C Section
441(b)(2) shall be separately classified.
DESCRIPTION AMOUNT
- ----------------------------------------------------------- --------------
<S> <C>
Utilities $ 12,573
Miscellaneous 41,005
Recruiting 25,757
--------------
TOTAL $ 79,335
==============
</TABLE>
<TABLE>
<CAPTION>
ANNUAL REPORT OF HEC INC
AND SUBSIDIARIES
For the Twelve Months Ended December 31, 1997
RENTS
ACCOUNT 931
INSTRUCTIONS: Provide a listing of the amount included in Account 931
"Rents," classifying such expenses by major groupings of
property, as defined in the account definition of the
Uniform System of Accounts.
DESCRIPTION AMOUNT
- ----------------------------------------------------- --------------
<S> <C>
Office Space $ 307,265
Equipment Rental 38,580
--------------
TOTAL $ 345,845
==============
</TABLE>
<TABLE>
<CAPTION>
ANNUAL REPORT OF HEC INC
AND SUBSIDIARIES
For the Twelve Months Ended December 31, 1997
TAXES OTHER THAN INCOME TAXES
ACCOUNT 408
INSTRUCTIONS: Provide an analysis of Account 408, "Taxes Other than Income
Taxes. Separate the analysis into two groups: (1) other than
U.S. Government taxes, and (2) U.S. Government taxes. Specify
each of the various kinds of taxes and show the amounts thereof.
Provide a subtotal for each class of tax.
KIND OF TAX AMOUNT
----------
<S>
1) Other than U.S. Government taxes <C>
City & County Taxes $ 6,295
State Franchise Taxes 2,309
State Unemployment Taxes 44,962
----------
Subtotal $ 53,566
----------
2)U.S. Government taxes
Employer's FICA Tax $ 268,670
Federal Unemployment Taxes 5,081
----------
Subtotal $ 273,751
----------
TOTAL $ 327,317
==========
</TABLE>
ANNUAL REPORT OF HEC INC AND SUBSIDIARIES
For the Year Ended December 31, 1997
SCHEDULE XVIII
NOTES TO STATEMENTS OF INCOME
INSTRUCTIONS: The space below is provided for important notes regarding the
statement of income or any account thereof. Furnish
particulars as to any significant increases in services rendered
or expenses incurred during the year. Notes relating to
financial statements shown elsewhere in this report may be
indicated here by reference.
See Notes to Financial Statements on pages 13 through 14.
ANNUAL REPORT OF HEC INC. AND SUBSIDIARIES
ORGANIZATION CHART (AS OF DECEMBER 31, 1997)
President - Thomas W. Philbin, Ph.D.
- Vice President - Operations - James B. Redden, P.E.
- Vice President - Customer Service - H. Donald Burbank, P.E.
- Vice President - David S. Dayton
- Vice President - Finance, Treasurer, and Clerk - Linda A. Jensen
ANNUAL REPORT OF HEC INC. AND SUBSIDIARIES
SIGNATURE CLAUSE
Pursuant to the requirements of the Public Utility Holding
Company Act of 1935 and in accordance with release numbers
22719, and order numbers File No. 70-7698, the undersigned
company has duly caused this report to be signed on its behalf
by the undersigned officer thereunto duly authorized.
HEC INC. AND SUBSIDIARIES
-----------------------------
(Name of Reporting Company)
By: /s/ Linda Jensen
-----------------------------
(Signature of Signing Officer)
Linda Jensen, Vice President-
Finance, Treasurer and Clerk
-----------------------------
(Printed Name and Title of
Signing Officer)
Date: April 23, 1998
-----------------------------
<TABLE> <S> <C>
<ARTICLE>OPUR2
<CIK>0000875017
<NAME>HEC INC. AND SUBSIDIARIES
<MULTIPLIER>1
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1996
<PERIOD-END> DEC-31-1997 DEC-31-1996
<BOOK-VALUE> PER-BOOK PER-BOOK
<NET-SERVICE-COMPANY-PROPERTY> 1,579,062 1,818,691
<TOTAL-INVESTMENTS> 0 0
<TOTAL-CURRENT-ASSETS> 4,469,481 6,548,711
<TOTAL-DEFERRED-DEBITS> 2,254,120 2,808,452
<OTHER-ASSETS-AND-DEBITS> 0 0
<TOTAL-ASSETS-AND-DEBITS> 8,302,663 11,175,854
<TOTAL-PROPRIETARY-CAPITAL> 4,111,837 3,804,288
<TOTAL-LONG-TERM-DEBT> 250,000 250,000
<NOTES-PAYABLE> 0 0
<NOTES-PAYABLE-ASSOCIATE-COMP> 600,000 475,000
<OTHER-CURR-AND-ACCRUED-LIAB> 2,952,892 6,231,105
<TOTAL-DEFERRED-CREDITS> 0 0
<DEFERRED-INCOME-TAX> 387,934 415,461
<TOT-LIABIL-AND-PROPRIET-CAP> 8,302,663 11,175,854
<SERVICES-ASSOCIATE-COMPANIES> 2,969,691 1,904,520
<SERVICES-NON-ASSOCIATE-COMP> 34,822,403 42,111,293
<MISC-INCOME-OR-LOSS> 149,192 240,312
<TOTAL-INCOME> 37,941,286 44,256,125
<SALARIES-AND-WAGES> 3,815,597 3,540,767
<EMPLOYEE-PENSION-AND-BENEFIT> 290,377 341,054
<OTHER-EXPENSES> 33,527,028 39,956,735
<TOTAL-EXPENSES> 37,633,002 43,838,556
<NET-INCOME> 308,284 417,569
<TOTAL-EXPENSES-DIRECT-COST> 37,633,002 43,838,556
<TOTAL-EXPENSES-INDIRECT-COST> 0 0
<TOT-EXP-DIRECT-AND-INDIRECT> 37,633,002 43,838,556
<PERSONNEL-END-OF-YEAR> 69 69
</TABLE>
