FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549-1004
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1994
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 33-43508
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NORTH ATLANTIC ENERGY CORPORATION
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(Exact name of registrant as specified in its charter)
NEW HAMPSHIRE 06-1339460
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
1000 ELM STREET, MANCHESTER, NEW HAMPSHIRE 03105
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(Address of principal executive offices) (Zip Code)
(603) 669-4000
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(Registrant's telephone number, including area code)
Not Applicable
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(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
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Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Class Outstanding at July 29, 1994
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Common Shares, $1.00 par value 1,000 shares
NORTH ATLANTIC ENERGY CORPORATION
TABLE OF CONTENTS
Page No.
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Part I. Financial Information
Item 1. Financial Statements
Balance Sheets - June 30, 1994
and December 31, 1993 2
Statements of Income - Three and Six
Months Ended June 30, 1994 and 1993 4
Statements of Cash Flows -
Six Months Ended June 30, 1994 and 1993 5
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 7
Part II. Other Information
Item 1. Legal Proceedings 11
Item 4. Submission of Matters to a Vote of
Security Holders 12
Item 5. Other Information 12
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 14
<PAGE>
PART I. FINANCIAL INFORMATION
NORTH ATLANTIC ENERGY CORPORATION
BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
1994 1993
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(Thousands of Dollars)
<S> <C> <C>
ASSETS
- ------
Utility Plant, at original cost:
Electric......................................... $ 767,002 $ 758,170
Less: Accumulated provision for depreciation.. 67,575 56,649
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699,427 701,521
Construction work in progress.................... 9,053 7,618
Nuclear fuel, net................................ 23,076 23,339
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Total net utility plant...................... 731,556 732,478
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Other Property and Investments:
Nuclear decommissioning trust, at market
in 1994 and at cost in 1993 (Note 2)<F2>........ 9,294 7,881
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Current Assets:
Cash............................................. 2,065 8,404
Notes receivable from affiliated companies....... 11,500 -
Receivables...................................... 2,453 2,453
Receivables from affiliated companies............ 21,350 20,304
Taxes receivable................................. - 1,224
Materials and supplies, at average cost.......... 9,242 7,353
Prepayments and other............................ 3,945 4,183
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50,555 43,921
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Deferred Charges:
Deferred costs--Seabrook......................... 109,314 85,428
Regulatory asset--income taxes................... 25,804 19,432
Unamortized debt expense......................... 5,170 5,507
Deferred DOE assessment.......................... 4,784 4,905
Other deferred debits............................ 974 1,269
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146,046 116,541
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Total Assets................................. $ 937,451 $ 900,821
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</TABLE>
See accompanying notes to financial statements.
NORTH ATLANTIC ENERGY CORPORATION
BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
1994 1993
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(Thousands of Dollars)
<S> <C> <C>
CAPITALIZATION AND LIABILITIES
- ------------------------------
Capitalization:
Common stock, $1 par value. Authorized
and outstanding 1,000 shares.................... $ 1 $ 1
Capital surplus, paid in......................... 160,999 160,999
Retained earnings................................ 52,070 38,701
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Total common stockholder's equity....... 213,070 199,701
Long-term debt................................... 560,000 560,000
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Total capitalization.................... 773,070 759,701
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Current Liabilities:
Accounts payable................................. 3,713 3,999
Accounts payable to affiliated companies......... 901 2,389
Accrued interest................................. 18,288 18,288
Accrued taxes.................................... 2,381 127
Deferred DOE obligation--current portion......... 845 845
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26,128 25,648
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Deferred Credits:
Accumulated deferred income taxes................ 98,974 74,772
Deferred obligation to affiliated company........ 33,284 33,284
Deferred DOE obligation.......................... 3,941 3,941
Deferred Seabrook tax settlement obligation...... 2,054 3,475
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138,253 115,472
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Commitments and Contingencies (Note 3)<F3>
Total Capitalization and Liabilities......... $ 937,451 $ 900,821
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</TABLE>
See accompanying notes to financial statements.
NORTH ATLANTIC ENERGY CORPORATION
STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
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1994 1993 1994 1993
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(Thousands of Dollars)
<S> <C> <C> <C> <C>
Operating Revenues........................... $ 40,011 $ 29,952 $ 72,222 $ 59,105
----------- ----------- ----------- -----------
Operating Expenses:
Operation--
Fuel..................................... 227 1,889 1,676 3,647
Other.................................... 11,240 8,471 20,059 16,487
Maintenance................................ 7,274 1,850 10,169 3,513
Depreciation............................... 5,496 5,627 11,306 11,331
Federal and state income taxes............. 2,011 1,388 3,628 2,439
Taxes other than income taxes.............. 3,045 2,763 6,072 7,183
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Total operating expenses............. 29,293 21,988 52,910 44,600
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Operating Income............................. 10,718 7,964 19,312 14,505
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Other Income:
Deferred Seabrook return--other funds...... 2,817 3,287 6,060 6,972
Other, net................................. 31 278 387 384
Income taxes--credit....................... 860 848 1,716 1,007
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Other income, net.................... 3,708 4,413 8,163 8,363
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Income before interest charges....... 14,426 12,377 27,475 22,868
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Interest Charges:
Interest on long-term debt................. 16,006 16,005 32,011 32,011
Other interest............................. (18) 62 (79) 206
Deferred Seabrook return--borrowed funds... (8,287) (9,675) (17,825) (20,519)
----------- ----------- ----------- -----------
Interest charges, net................ 7,701 6,392 14,107 11,698
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Net Income .................................. $ 6,725 $ 5,985 $ 13,368 $ 11,170
=========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
NORTH ATLANTIC ENERGY CORPORATION
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
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1994 1993
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(Thousands of Dollars)
<S> <C> <C>
Cash Flows From Operations:
Net Income .............................................. $ 13,368 $ 11,170
Adjusted for the following:
Depreciation ......................................... 11,306 11,331
Deferred income taxes and investment tax credits, net. 18,376 18,683
Deferred return - Seabrook............................ (23,885) (27,491)
Other sources of cash................................. 1,622 7,531
Other uses of cash.................................... (1,967) -
Changes in working capital:
Receivables ....................................... 178 (5,848)
Materials and supplies............................. (1,889) (884)
Accounts payable................................... (1,774) (336)
Other working capital (excludes cash).............. 2,492 401
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Net cash flows from operations............................. 17,827 14,557
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Cash Flows Used for Financing Activities:
Net decrease in short-term debt....................... - (2,500)
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Net cash flows used for financing activities............... - (2,500)
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Investment Activities:
Investments in plant:
Electric utility plant............................. (10,643) (2,772)
Nuclear fuel....................................... (610) (5,640)
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Net cash flows used for investments in plant.......... (11,253) (8,412)
NU System Money Pool, net............................. (11,500) -
Investment in nuclear decommissioning trust........... (1,413) (1,397)
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Net cash flows used for investments........................ (24,166) (9,809)
Net Increase (Decrease) In Cash for the Period............. (6,339) 2,248
Cash-beginning of period................................... 8,404 6,264
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Cash-end of period......................................... $ 2,065 $ 8,512
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</TABLE>
See accompanying notes to financial statements.
NORTH ATLANTIC ENERGY CORPORATION
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
<F1>1. General
The accompanying unaudited financial statements should be read in conjunction
with the Annual Report of North Atlantic Energy Corporation (the company or
NAEC) on Form 10-K for the year ended December 31, 1993 (1993 Form 10-K). In
the opinion of the company, the accompanying financial statements contain all
adjustments necessary to present fairly the financial position as of June 30,
1994, the results of operations for the three and six months ended June 30,
1994 and 1993, and the statements of cash flows for the six months ended June
30, 1994, and 1993. The results of operations for the three and six months
ended June 30, 1994 and 1993 are not necessarily indicative of the results
expected for a full year.
Certain amounts in the accompanying financial statements of the company for
the period ended June 30, 1993 have been reclassified to conform with the
June 30, 1994 presentation.
<F2>2. Changes in Accounting Principles
Statement of Financial Accounting Standards No. 115 (SFAS 115): In May 1993,
the Financial Accounting Standards Board issued SFAS 115, "Accounting for
Certain Investments in Debt and Equity Securities." SFAS 115 addresses the
accounting and reporting for certain investments in debt and equity
securities, and expands the use of fair value accounting for these
securities. SFAS 115 is applicable to NAEC with respect to its investments
in nuclear decommissioning trusts.
SFAS 115 requires investments in decommissioning trusts to be presented at
fair value and was adopted by NAEC on a prospective basis in the first
quarter of 1994.
<F3>3. Commitments and Contingencies
Seabrook 1 Construction Program: For information regarding the Seabrook 1
construction program, see the Notes to Financial Statements in NAEC's 1993
Form 10-K.
Environmental Matters: For information regarding Environmental Matters, see
the Notes to Financial Statements in NAEC's 1993 Form 10-K.
Nuclear Insurance Contingencies: For information regarding Nuclear Insurance
Contingencies, see the Notes to Financial Statements in NAEC's 1993 Form 10-
K.
NORTH ATLANTIC ENERGY CORPORATION
Management's Discussion and Analysis of Financial
Condition and Results of Operations
This section contains management's assessment of North Atlantic Energy
Corporation's (NAEC or the company) financial condition and the principal
factors having an impact on the results of operations. The company is a
wholly-owned subsidiary of Northeast Utilities (NU). This discussion should
be read in conjunction with the company's financial statements and footnotes
and the 1993 Form 10-K and the First Quarter 1994 Form 10-Q.
FINANCIAL CONDITION
Overview
NAEC sells all of the capacity and output of its 36 percent share of the
Seabrook 1 nuclear power plant (Seabrook) to Public Service Company of New
Hampshire (PSNH) under Power Contracts, which are effective for a period
equal to the length of the Nuclear Regulatory Commission (NRC) full-power
operating license for Seabrook (through 2026).
NAEC's net income increased to $13.4 million for the six months ended June
30, 1994, from $11.2 million for the same period in 1993.
Regulatory Matters
PSNH's rates are determined under a rate agreement executed by the Governor
and the Attorney General of New Hampshire in 1989 and subsequently approved
by the New Hampshire Public Utilities Commission (NHPUC) (the Rate
Agreement). The Rate Agreement sets out a comprehensive plan of rates for
PSNH, providing for seven base rate increases of 5.5 percent per year and a
comprehensive fuel and purchased power adjustment clause (FPPAC). The base
rate increases are effective annually on each June 1. The fifth base rate
increase went into effect on June 1, 1994.
As prescribed by the Rate Agreement, NAEC is phasing in its $700 million
investment in Seabrook 1. As of June 30, 1994, NAEC has included in rates
$490 million of its Seabrook investment. The remaining investment ($210
million) will be phased into rates over the next two years beginning in May
1995. The deferred return associated with the amount of investment that has
not been included in rates was approximately $162 million through June 30,
1994, including approximately $51 million which is recorded as utility plant.
This amount and the additional deferred amounts associated with the remaining
phase-in will be recovered under NAEC's purchase agreement with PSNH over the
period December 1997 through May 2001.
Seabrook Performance
In the first six months of 1994, Seabrook operated at a capacity factor of
40.5 percent as compared to 93.8 percent for the same period in 1993. The
unit was taken out of service on January 25, 1994 for an unplanned outage and
returned to service on February 18, 1994. The unit began its scheduled 57-
day refueling and maintenance outage on April 9, 1994. The outage was
substantially extended and the unit returned to service on August 1, 1994.
Liquidity and Capital Resources
Cash provided from operations increased approximately $3 million for the
first six months of 1994, as compared with the same period in 1993, primarily
due to the increased return associated with the phase-in of additional
Seabrook plant. Cash used for financing activities was approximately $3
million lower in 1994, as compared with 1993, primarily due to the repayment
of short-term debt in 1993. Cash used for investments was approximately $14
million higher in 1994, as compared with 1993, primarily due to higher
lending to other NU system companies under the NU system Money Pool and
higher investment in plant, partially offset by lower nuclear fuel
expenditures in 1994.
The company's construction program expenditures amounted to approximately $11
million for the first six months of 1994, as compared to approximately $3
million during the same period in 1993. The 1994 construction program
expenditure increase is due to higher expenditures for Seabrook as a result
of the unplanned outage and the extended refueling and maintenance outage in
1994.
The company has ongoing cash requirements for Seabrook-related capital
expenditures, nuclear fuel expenditures, interest and operating expenses.
Such cash requirements are expected to be met from payments under the
Seabrook Power Contract and the Tax Allocation Agreement, except that to the
extent some or all of the capital expenditures and nuclear fuel expenditures
may have to be financed, the company expects to borrow under the NU system
Money Pool. At June 30, 1994, there were no borrowings outstanding under the
Money Pool.
A substantial portion of the company's cash flow for the first few years is
expected to consist of payments made by NU to the company under a Tax
Allocation Agreement that the company entered into with NU at the time of the
acquisition. The amount of such payments will decrease over time but is
expected to remain substantial during the first few years when the company is
expected to incur losses for tax purposes due to accelerated tax depreciation
of Seabrook. The company has received approximately $8 million for the first
six months of 1994 under this agreement. No assurance can be given, however,
as to the extent of the future benefits, if any, that will actually accrue to
the company under the Tax Allocation Agreement.
RESULTS OF OPERATIONS
Comparison of the Second Quarter of 1994 with the Second Quarter of
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1993
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Operating revenues represent amounts billed to PSNH under the terms of the
Seabrook Power Contract and billings to PSNH for decommissioning expense.
Operating revenues increased approximately $10 million in the second quarter
of 1994, as compared with 1993, primarily due to the higher operation and
maintenance expenses attributable to the extended Seabrook refueling and
maintenance outage in 1994 and the increased return associated with the
phase-in of additional Seabrook plant in May 1994.
Fuel expense decreased approximately $2 million in the second quarter of
1994, as compared with 1993, primarily because of lower Seabrook generation
due to the extended refueling outage.
Operation and maintenance expenses increased approximately $8 million in the
second quarter of 1994, as compared with 1993, primarily due to the extended
Seabrook refueling and maintenance outage in 1994.
Deferred Seabrook return - other funds decreased approximately $2 million in
the second quarter of 1994, as compared with 1993, primarily because
additional Seabrook investment was phased into rates in May 1994.
Comparison of the First Six Months of 1994 with the First Six Months
- --------------------------------------------------------------------
of 1993
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Operating revenues increased approximately $13 million in the first six
months of 1994, as compared with 1993, primarily due to the higher operation
and maintenance expenses attributable to the unplanned and extended Seabrook
refueling and maintenance outages in 1994 and the increased return associated
with the phase-in of additional Seabrook plant in May 1993 and May 1994.
Fuel expense decreased approximately $2 million in the first six months of
1994, as compared with 1993, primarily because of lower Seabrook generation
due to the outages in 1994.
Operation and maintenance expenses increased approximately $10 million in the
first six months of 1994, as compared with 1993, primarily due to the
unplanned and the extended Seabrook outages in 1994.
Taxes other than income taxes decreased approximately $1 million in the first
six months of 1994, as compared with 1993, primarily because of the repeal of
the Seabrook nuclear property tax in 1993.
Deferred Seabrook return - other funds decreased approximately $4 million in
the first six months of 1994, as compared with 1993, primarily because
additional Seabrook investment was phased into rates in May 1993 and May
1994.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
1. NAEC's 1993 Form 10-K incorrectly reported that Northeast Nuclear Energy
Company (NNECO), a wholly owned subsidiary of NU that acts as agent for the
NU System and other utilities in operating the Millstone generating units,
had been informed by the Nuclear Regulatory Commission (NRC) that the agency
did not plan to take enforcement action against NNECO with respect to
apparent violations of NRC requirements arising from 1989 events involving
the operability of a safety related system at Millstone Unit 1. This
information, contained in correspondence from the NRC dated March 17, 1994,
pertained to another matter involving two employees who raised safety
concerns and was incorrectly reported in the 1993 Form 10-K as relating to
the 1989 Millstone Unit 1 operability event. On July 13, 1994, NNECO was
notified that the NRC had issued a Notice of Violation (NOV) and proposed to
assess civil penalties in the amount of $220,000 for this matter. The first
violation, for which a civil penalty of $120,000 was assessed, concerned the
apparent untimeliness of the operability assessment. The second violation,
and its associated civil penalty of $100,000, concerned discriminatory
treatment of an employee involved in the operability determination by a
manager at the plant. In addition, the NRC also requested that NNECO provide
information which will be used to determine whether the manager should be
involved in NRC licensed activities. Unless the response time is extended by
the NRC, NNECO has 30 days to respond to the NOV and information request.
2. On September 30, 1993, 29 participants in the New England Power Pool
(NEPOOL) (including the NU system operating companies) filed the 30th
Amendment to the NEPOOL Agreement (Amendment) at the Federal Energy
Regulatory Commission (FERC). Massachusetts Municipal Wholesale Electric
Company and several other municipal electric utilities moved to intervene and
protest the Amendment, claiming that it discriminates against transmission
dependent utilities.
On April 11, 1994, the FERC issued an order setting the Amendment for a
"paper hearing" in May 1994, which date was subsequently extended to August
9, 1994. The order stated that FERC intends to address whether the Amendment
eliminates transmission access and the discounted rates for pool-planned
units. FERC also broadened the proceeding to consider whether NEPOOL's
activities in this are consistent with the standards of the Federal Power
Act. On July 25, 1994 the sponsors of the Amendment and the protesting
municipal utilities jointly filed a motion requesting that FERC suspend the
procedural schedule because they had reached an understanding on the terms of
the settlement that would resolve the FERC proceeding, including the
withdrawal of the Amendment. On August 3, 1994, FERC granted this motion and
suspended the procedural schedule for a period of 45 days.
For additional information on this matter, see NAEC's Quarterly Report on
Form 10-Q for the quarter ended March 31, 1994 under the caption "Part II.
Other Information - "Item 1 - Legal Proceedings."
3. Great Bay Power Corporation (GBPC), a joint owner of Seabrook along with
The Connecticut Light and Power Company (CL&P), a wholly owned subsidiary of
NU, NAEC, and various other, non-System entities, had expected to consummate
its reorganization plan, emerge from bankruptcy and repay CL&P for all
advances by June 30, 1994. As of July 29, 1994, $6.9 million of advances
were outstanding from CL&P. A financing agreement was entered into on April
7, 1994, under which various investors would invest $35 million in the
reorganized GBPC in exchange for 60% of GBPC's common stock. Closing of the
financing agreement was scheduled to occur on June 15, 1994; however, delays
in the completion of Seabrook's refueling outage postponed the closing date,
and the investors engaged a consultant to determine if the events that
extended the outage discharged the investors from their commitment. The NRC
has extended to August 31, 1994 the deadline for the transfer of control of
GBPC's ownership share of Seabrook. The prospective investors and GBPC are
currently negotiating a modification of the April 7, 1994 financing agreement
which will require further Bankruptcy Court and regulatory approvals, if
agreed upon by the investors and GBPC. If the Bankruptcy Court approves the
modifications and the necessary regulatory approvals are obtained, the
company believes that the financing can be completed by October 31, 1994, if
other events do not adversely affect GBPC's financial condition prior to
closing.
For additional information on this matter, see the 1993 Form 10-K under the
caption "Item 1. Business - Electric Operations - Nuclear Generation -
Seabrook."
Item 4. Submission of Matters to a Vote of Security Holders
At the Annual Matters of Stockholders of NAEC held on June 13, 1994,
stockholders voted to fix the number of directors for the ensuing year at
ten. The vote fixing the number of directors at ten was 1,000 shares in
favor, representing 100 percent of the issued and outstanding shares of
common stock of NAEC.
At the Annual Meeting, the following ten directors were elected, each by a
vote of 1,000 shares in favor, to serve on the Board of Directors for the
ensuing year: Robert E. Busch, John P. Cagnetta, William B. Ellis, Ted C.
Feigenbaum, Bernard M. Fox, William T. Frain, Jr., Cheryl W. Grise, John B.
Keane, Hugh C. MacKenzie, and John F. Opeka.
Item 5. Other Information
1. In 1992, FERC's approval of the NU acquisition of PSNH was appealed to
the United States Court of Appeals for the First Circuit, which affirmed the
decision approving the merger but ordered FERC to address whether, if FERC
had applied a more stringent "public interest standard" to the Seabrook power
contract, any modifications would have been necessary. Purporting to apply
this standard, FERC reaffirmed certain modifications to the contract,
interpreting the standard liberally to allow it to intervene in contracts on
behalf of non-parties to the contract. NU requested rehearing, arguing that
FERC had not applied the appropriate standard, which request was denied by
FERC on July 8, 1994. NU is considering an appeal from this denial.
For additional information on this matter, see the 1993 Form 10-K, under the
caption "Item 3 - Legal Proceedings."
Item 6. Exhibits and Reports on Form 8-K
(b) Reports on Form 8-K:
No reports on Form 8-K have been filed during this reporting period.
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.
NORTH ATLANTIC ENERGY CORPORATION
---------------------------------
Registrant
Date August 10, 1994 By /s/ Bernard M. Fox
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Bernard M. Fox
Vice Chairman and Chief
Executive Officer, and
Director
Date August 10, 1994 By /s/ John W. Noyes
-------------------- -----------------------------
John W. Noyes
Vice President and
Controller
