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, 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
---------------------------------
(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
___ ___
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, 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 - September 30, 1994
and December 31, 1993 2
Statements of Income - Three and Nine
Months Ended September 30, 1994 and 1993 4
Statements of Cash Flows -
Nine Months Ended September 30, 1994 and 1993 5
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 8
Part II. Other Information
Item 1. Legal Proceedings 12
Item 5. Other Information 12
Item 6. Exhibits and Reports on Form 8-K 12
Signatures 14
PART I. FINANCIAL INFORMATION
NORTH ATLANTIC ENERGY CORPORATION
BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1994 1993
------------- -------------
(Thousands of Dollars)
<S> <C> <C>
ASSETS
- ------
Utility Plant, at original cost:
Electric......................................... $ 769,289 $ 758,170
Less: Accumulated provision for depreciation.. 70,184 56,649
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699,105 701,521
Construction work in progress.................... 4,586 7,618
Nuclear fuel, net................................ 21,686 23,339
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Total net utility plant...................... 725,377 732,478
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Other Property and Investments:
Nuclear decommissioning trust, at market
in 1994 and at cost in 1993 (Note 2)<F2>........ 10,128 7,881
Other, at cost................................... 222 -
------------- -------------
10,350 7,881
------------- -------------
Current Assets:
Cash and special deposits........................ 3,550 8,404
Notes receivable from affiliated companies....... 36,750 -
Receivables...................................... 2,447 2,453
Receivables from affiliated companies............ 11,784 20,304
Taxes receivable................................. - 1,224
Materials and supplies, at average cost.......... 9,699 7,353
Prepayments and other............................ 2,185 4,183
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66,415 43,921
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Deferred Charges:
Deferred costs--Seabrook......................... 120,512 85,428
Regulatory asset--income taxes................... 25,803 19,432
Unamortized debt expense......................... 5,002 5,507
Deferred DOE assessment.......................... 4,705 4,905
Other deferred debits............................ 878 1,269
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156,900 116,541
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Total Assets................................. $ 959,042 $ 900,821
============= =============
</TABLE>
See accompanying notes to financial statements.
NORTH ATLANTIC ENERGY CORPORATION
BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1994 1993
------------- -------------
(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................................ 55,231 38,701
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Total common stockholder's equity....... 216,231 199,701
Long-term debt................................... 540,000 560,000
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Total capitalization.................... 756,231 759,701
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Current Liabilities:
Long-term debt--current portion.................. 20,000 -
Accounts payable................................. 11,197 3,999
Accounts payable to affiliated companies......... 1,003 2,389
Accrued interest................................. 18,515 18,288
Accrued taxes.................................... 4,888 127
Deferred DOE obligation--current portion......... 845 845
Other current liabilities........................ 30 -
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56,478 25,648
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Deferred Credits:
Accumulated deferred income taxes................ 107,445 74,772
Deferred obligation to affiliated company........ 33,284 33,284
Deferred DOE obligation.......................... 3,941 3,941
Deferred Seabrook tax settlement obligation...... 1,663 3,475
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146,333 115,472
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Commitments and Contingencies (Note 3)<F3>
Total Capitalization and Liabilities......... $ 959,042 $ 900,821
============= =============
</TABLE>
See accompanying notes to financial statements.
NORTH ATLANTIC ENERGY CORPORATION
STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------ ------------------------
1994 1993 1994 1993
----------- ----------- ----------- -----------
(Thousands of Dollars)
<S> <C> <C> <C> <C>
Operating Revenues........................... $ 37,603 $ 31,845 $ 109,825 $ 90,950
----------- ----------- ----------- -----------
Operating Expenses:
Operation--
Fuel..................................... 2,152 1,720 3,828 5,367
Other.................................... 8,643 8,421 28,702 24,908
Maintenance................................ 4,019 2,039 14,188 5,552
Depreciation............................... 5,743 5,665 17,049 16,996
Federal and state income taxes............. 2,201 1,595 5,829 4,034
Taxes other than income taxes.............. 2,994 2,748 9,066 9,931
----------- ----------- ----------- -----------
Total operating expenses............. 25,752 22,188 78,662 66,788
----------- ----------- ----------- -----------
Operating Income............................. 11,851 9,657 31,163 24,162
----------- ----------- ----------- -----------
Other Income:
Deferred Seabrook return--other funds...... 3,799 3,180 9,859 10,152
Other, net................................. 104 1,272 491 1,656
Income taxes--credit....................... 903 96 2,619 1,103
----------- ----------- ----------- -----------
Other income, net.................... 4,806 4,548 12,969 12,911
----------- ----------- ----------- -----------
Income before interest charges....... 16,657 14,205 44,132 37,073
----------- ----------- ----------- -----------
Interest Charges:
Interest on long-term debt................. 16,006 16,005 48,017 48,016
Other interest............................. (110) 51 (189) 257
Deferred Seabrook return--borrowed funds... (7,400) (9,342) (25,225) (29,861)
----------- ----------- ----------- -----------
Interest charges, net................ 8,496 6,714 22,603 18,412
----------- ----------- ----------- -----------
Net Income .................................. $ 8,161 $ 7,491 $ 21,529 $ 18,661
=========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
NORTH ATLANTIC ENERGY CORPORATION
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE> Nine Months Ended
<CAPTION> September 30,
----------------------
1994 1993
----------------------
(Thousands of Dollars)
<S> <C> <C>
Cash Flows From Operations:
Net Income ................................................. $ 21,529 $ 18,661
Adjusted for the following:
Depreciation ............................................. 17,049 16,996
Deferred income taxes and investment tax credits, net..... 26,301 26,760
Deferred return - Seabrook................................ (35,084) (35,924)
Other sources of cash..................................... 3,791 4,316
Other uses of cash........................................ (1,811) (165)
Changes in working capital:
Receivables ........................................... 9,750 (83)
Materials and supplies................................. (2,346) (1,421)
Accounts payable....................................... 5,812 1,678
Accrued taxes.......................................... 4,761 1,122
Other working capital (excludes cash).................. 2,255 2,062
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Net cash flows from operations................................ 52,007 34,002
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Cash Flows Used For Financing Activities:
Net decrease in short-term debt........................... - (500)
Cash dividends on common stock............................ (5,000) -
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Net cash flows used for financing activities.................. (5,000) (500)
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Investment Activities:
Investments in plant:
Electric utility plant................................. (11,672) (4,525)
Nuclear fuel........................................... (742) (12,578)
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Net cash flows used for investments in plant.............. (12,414) (17,103)
NU System Money Pool, net................................. (36,750) -
Other investment activities, net.......................... (2,697) (2,155)
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Net cash flows used for investments........................... (51,861) (19,258)
Net Increase (Decrease) In Cash for the Period................ (4,854) 14,244
Cash and special deposits - beginning of period............... 8,404 6,264
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Cash and special deposits - end of period..................... $ 3,550 $ 20,508
========== ==========
</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), a wholly-owned subsidiary of
Northeast Utilities (NU), 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 September 30, 1994, the
results of operations for the three and nine months ended September
30, 1994 and 1993, and the statements of cash flows for the nine
months ended September 30, 1994 and 1993. The results of operations
for the three and nine months ended September 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 September 30, 1993 have been reclassified
to conform with the September 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 (FASB) 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
Construction Program: For information regarding NAEC's 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: The Price-Anderson Act currently
limits public liability from a single incident at a nuclear power
plant to $8.8 billion. The first $200 million of liability would be
provided by purchasing the maximum amount of commercially available
insurance. Additional coverage of up to a total of $8.4 billion would
be provided by an assessment of $75.5 million per incident, levied on
each of the 111 nuclear units that are currently subject to the
Secondary Financial Protection Program in the United States, subject
to a maximum assessment of $10 million per incident per nuclear unit
in any year. In addition, if the sum of all public liability claims
and legal costs arising from any nuclear incident exceeds the maximum
amount of financial protection, each reactor operator can be assessed
an additional five percent, up to $3.8 million, or $419.0 million in
total, for all 111 nuclear units. The maximum assessment is to be
adjusted at least every five years to reflect inflationary changes.
Based on its ownership interest in Seabrook 1, NAEC's maximum
liability would be $28.5 million per incident. Payments for NAEC's
ownership interest in nuclear generating facilities would be limited
to a maximum of $3.6 million per incident per year.
For additional 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 and Second Quarter 1994 Form 10-Qs.
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 approximately $22 million for the nine
months ended September 30, 1994, from approximately $19 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 initial investment in Seabrook 1. As of September 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 $172 million through September 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 nine months of 1994, Seabrook operated at a capacity
factor of 48.5 percent as compared to 91.4 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 when an
automatic trip from 100 percent power occurred for Seabrook when a
main steam isolation valve closed during quarterly surveillance
testing. 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 July, 31, 1994.
On November 4, 1994, the plan of reorganization of Great Bay Power
Corporation (GBPC)(formerly known as EUA Power Corporation), a joint
owner of Seabrook Station along with The Connecticut Light and Power
Company (CL&P) and NAEC, both wholly owned subsidiaries of NU, and
other non-System entities, was confirmed by the United States
Bankruptcy Court. The confirmation order will become final on
November 11, 1994. The closing of the plan of reorganization
financing, which consists of the purchase of 60 percent of the common
stock of GBPC by Omega Advisors and Elliott Associates is expected to
close on November 15, 1994, if all of the conditions precedent to
closing have been satisfied. The conditions include the absence of
any material adverse change and a requirement that Seabrook be
operating at full reactor power on the morning of the closing date.
At the time of closing, CL&P will be repaid by GBPC for the
outstanding principal and accrued interest on the debtor-in-possession
loans made by CL&P during the bankruptcy proceeding. At present, the
outstanding principal amount of these loans by CL&P total
approximately $7.3 million.
Liquidity and Capital Resources
Cash provided from operations increased approximately $18 million for
the first nine months of 1994, as compared with the same period in
1993, primarily due to increases in working capital in 1994. Cash
used for financing activities was approximately $5 million higher in
1994, as compared with 1993, primarily due to payment of cash
dividends on common stock in 1994. Cash used for investments was
approximately $33 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 $12 million for the first nine months of 1994, as
compared to approximately $5 million during the same period in 1993.
The 1994 construction program expenditure increase is due to
expenditures incurred as a result of NAEC s purchase of Vermont
Electric Generation and Transmission Company s share of Seabrook ($6.4
million).
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 September 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 $12 million for the first nine 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 Third Quarter of 1994 with the Third Quarter of
- -------------------------------------------------------------------
1993
- ----
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 $6 million in the
third 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.
Operation and maintenance expenses increased approximately $2 million
in the third 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 $1
million in the third quarter of 1994, as compared with 1993, primarily
because additional Seabrook investment was phased into rates in May
1994.
Comparison of the First Nine Months of 1994 with the First Nine Months
- --------------------------------------------------------------------
of 1993
- -------
Operating revenues increased approximately $19 million in the first
nine 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 nine
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 $12 million
in the first nine months of 1994, as compared with 1993, primarily due
to the unplanned and the extended Seabrook outages in 1994.
Deferred Seabrook return - other funds decreased approximately $5
million in the first nine 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. On October 18, 1994, the NRC responded to Northeast Nuclear
Energy Company's (NNEC0) response in the Millstone Unit 1 Feedwater
Coolant Injection System (FWCI) matter, stating that, upon
reconsideration by the NRC, the violation's severity level and
calculation of the civil penalty would not change. The NRC also
decided that further action against the NNECO manager was not
warranted. NNECO is a wholly-owned subsidiary of NU.
For additional information on this matter, see "Part II. Other
Information - Item 1. Legal Proceedings" in NAEC s June 1994 Form
10-Q.
2. With respect to proceedings at the FERC on the 30th Amendment
to the New England Power Pool Agreement and related issues concerning
transmission access and discounted rates for pool-planned units, on
August 3, 1994 FERC granted a motion filed by certain of the parties
seeking to suspend the procedural schedule pending the filing of terms
of a settlement reached by the parties. The parties have agreed to
file joint status reports of their progress.
For additional information on this matter, see "Part II. Other
Information - Item 1. Legal Proceedings" in NAEC s March 1994 and June
1994 Form 10-Qs.
Item 5. Other Information
1. On September 6, 1994, NU filed a Petition for Rehearing
with the First Circuit Court of Appeals from FERC s application of a
stringent public interest standard to the Seabrook Power Contract,
which Petition is pending.
For additional information on this matter, see Part II. Other
Information - Item 5. Other Information, in NAEC s June 1994
Form 10-Q and Item 3. Legal Proceedings, in NAEC s 1993 Form 10-K.
Item 6. Exhibits and Reports on Form 8-K
(a) Listing of Exhibits:
Exhibit
Number Description
------- -----------
27 Financial Data Schedule
(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 November 9, 1994 By /s/ Bernard M. Fox
-------------------- -----------------------------
Bernard M. Fox
Vice Chairman and Chief
Executive Officer, and
Director
Date November 9, 1994 By /s/ John W. Noyes
-------------------- -----------------------------
John W. Noyes
Vice President and
Controller
<TABLE> <S> <C>
<ARTICLE> UT
<CIK> 0000880416
<NAME> NORTH ATLANTIC ENERGY CORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> QTR-3
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> SEP-30-1994
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 725,377
<OTHER-PROPERTY-AND-INVEST> 10,350
<TOTAL-CURRENT-ASSETS> 66,415
<TOTAL-DEFERRED-CHARGES> 156,990
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 959,042
<COMMON> 1
<CAPITAL-SURPLUS-PAID-IN> 160,999
<RETAINED-EARNINGS> 55,231
<TOTAL-COMMON-STOCKHOLDERS-EQ> 216,231
0
0
<LONG-TERM-DEBT-NET> 540,000
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 20,000
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 182,811
<TOT-CAPITALIZATION-AND-LIAB> 959,042
<GROSS-OPERATING-REVENUE> 109,825
<INCOME-TAX-EXPENSE> 3,210
<OTHER-OPERATING-EXPENSES> 72,833
<TOTAL-OPERATING-EXPENSES> 78,662
<OPERATING-INCOME-LOSS> 31,163
<OTHER-INCOME-NET> 10,350
<INCOME-BEFORE-INTEREST-EXPEN> 44,132
<TOTAL-INTEREST-EXPENSE> 22,603
<NET-INCOME> 21,529
0
<EARNINGS-AVAILABLE-FOR-COMM> 21,529
<COMMON-STOCK-DIVIDENDS> 5,000
<TOTAL-INTEREST-ON-BONDS> 0
<CASH-FLOW-OPERATIONS> 52,007
<EPS-PRIMARY> 0.00
<EPS-DILUTED> 0.00
</TABLE>
