-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, SxKCAddmw4puqe21NNpR9zhYbe4sIXo2i6QaistMBr0+CXV2kwwXnOrKrnLPG6GO RNcES0fWvHXie0Q6MmgsTw== 0000072741-98-000111.txt : 19980518 0000072741-98-000111.hdr.sgml : 19980518 ACCESSION NUMBER: 0000072741-98-000111 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980515 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: NORTHEAST UTILITIES SYSTEM CENTRAL INDEX KEY: 0000072741 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 042147929 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-05324 FILM NUMBER: 98625474 BUSINESS ADDRESS: STREET 1: 174 BRUSH HILL AVE CITY: WEST SPRINGFIELD STATE: MA ZIP: 01090-0010 BUSINESS PHONE: 4137855871 MAIL ADDRESS: STREET 1: 107 SELDON ST CITY: BERLIN STATE: CT ZIP: 06037-1616 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CONNECTICUT LIGHT & POWER CO CENTRAL INDEX KEY: 0000023426 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 060303850 STATE OF INCORPORATION: CT FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-00404 FILM NUMBER: 98625475 BUSINESS ADDRESS: STREET 1: SELDEN STREET CITY: BERLIN STATE: CT ZIP: 06037-1616 BUSINESS PHONE: 8606655000 FILER: COMPANY DATA: COMPANY CONFORMED NAME: WESTERN MASSACHUSETTS ELECTRIC CO CENTRAL INDEX KEY: 0000106170 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 041961130 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 012-00091 FILM NUMBER: 98625476 BUSINESS ADDRESS: STREET 1: 174 BRUSH HILL AVE CITY: WEST SPRINGFIELD STATE: MA ZIP: 01090-0010 BUSINESS PHONE: 4137855871 MAIL ADDRESS: STREET 1: 107 SELDON ST CITY: BERLIN STATE: CT ZIP: 06037-1616 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PUBLIC SERVICE CO OF NEW HAMPSHIRE CENTRAL INDEX KEY: 0000315256 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 020181050 STATE OF INCORPORATION: NH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 012-00093 FILM NUMBER: 98625477 BUSINESS ADDRESS: STREET 1: 1000 ELM ST CITY: MANCHESTER STATE: NH ZIP: 03105 BUSINESS PHONE: 6036694000 MAIL ADDRESS: STREET 1: 107 SELDON ST CITY: BERLIN STATE: CT ZIP: 06037-1616 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NORTH ATLANTIC ENERGY CORP /NH CENTRAL INDEX KEY: 0000880416 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 061339460 STATE OF INCORPORATION: NH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 033-43508 FILM NUMBER: 98625478 BUSINESS ADDRESS: STREET 1: 1000 ELM ST CITY: MANCHESTER STATE: NH ZIP: 03105 BUSINESS PHONE: 6036694000 MAIL ADDRESS: STREET 1: 107SELDEN ST CITY: BERLIN STATE: CT ZIP: 06037-1616 10-Q 1 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 MARCH 31, 1998 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission Registrant; State of Incorporation; I.R.S. Employer File Number Address; and Telephone Number Identification No. 1-5324 NORTHEAST UTILITIES 04-2147929 (a Massachusetts voluntary association) 174 BRUSH HILL AVENUE WEST SPRINGFIELD, MASSACHUSETTS 01090-2010 Telephone: (413) 785-5871 0-11419 THE CONNECTICUT LIGHT AND POWER COMPANY 06-0303850 (a Connecticut corporation) 107 SELDEN STREET BERLIN, CONNECTICUT 06037-1616 Telephone: (860) 665-5000 1-6392 PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE 02-0181050 (a New Hampshire corporation) 1000 ELM STREET MANCHESTER, NEW HAMPSHIRE 03105-0330 Telephone: (603) 669-4000 0-7624 WESTERN MASSACHUSETTS ELECTRIC COMPANY 04-1961130 (a Massachusetts corporation) 174 BRUSH HILL AVENUE WEST SPRINGFIELD, MASSACHUSETTS 01090-2010 Telephone: (413) 785-5871 33-43508 NORTH ATLANTIC ENERGY CORPORATION 06-1339460 (a New Hampshire corporation) 1000 ELM STREET MANCHESTER, NEW HAMPSHIRE 03105-0330 Telephone: (603) 669-4000 Indicate by check mark whether the registrants (1) have 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 registrants were required to file such reports), and (2) have 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: Company - Class of Stock Outstanding at April 30, 1998 Northeast Utilities Common shares, $5.00 par value 136,857,443 shares The Connecticut Light and Power Company Common stock, $10.00 par value 12,222,930 shares Public Service Company of New Hampshire Common stock, $10.00 par value 1,000 shares Western Massachusetts Electric Company Common stock, $25.00 par value 1,072,471 shares North Atlantic Energy Corporation Common stock, $10.00 par value 1,000 shares GLOSSARY OF TERMS The following is a glossary of frequently used abbreviations or acronyms that are found throughout this report: COMPANIES NU............................... Northeast Utilities CL&P............................. The Connecticut Light and Power Company Charter Oak or COE............... Charter Oak Energy, Inc. WMECO............................ Western Massachusetts Electric Company HWP.............................. Holyoke Water Power Company NUSCO or the Service Company.................. Northeast Utilities Service Company NNECO............................ Northeast Nuclear Energy Company NAEC............................. North Atlantic Energy Corporation NAESCO or North Atlantic......... North Atlantic Energy Service Corporation PSNH............................. Public Service Company of New Hampshire RRR.............................. The Rocky River Realty Company Select Energy.................... Select Energy, Inc., formerly NUSCO Energy Partners, Inc. Mode 1........................... Mode 1 Communications, Inc. HEC.............................. HEC, Inc. Quinnehtuk....................... The Quinnehtuk Company the NU system.................... The Northeast Utilities System CYAPC............................ Connecticut Yankee Atomic Power Company MYAPC............................ Maine Yankee Atomic Power Company VYNPC............................ Vermont Yankee Nuclear Power Corporation YAEC............................. Yankee Atomic Electric Company the Yankee Companies............. CYAPC, MYAPC, VYNPC and YAEC GENERATING UNITS Millstone 1...................... Millstone Unit No. 1, a 660-MW nuclear generating unit completed in 1970 Millstone 2...................... Millstone Unit No. 2, an 870-MW nuclear electric generating unit completed in 1975 Millstone 3...................... Millstone Unit No. 3, a 1,154-MW nuclear electric generating unit completed in 1986 Seabrook or Seabrook 1........... Seabrook Unit No. 1, a 1,148-MW nuclear electric generating unit completed in 1986; Seabrook 1 went into service in 1990. REGULATORS DOE.............................. U.S. Department of Energy DTE.............................. Massachusetts Department of Telecommunications and Energy, formerly the Massachusetts Department of Public Utilities (DPU) DPUC............................. Connecticut Department of Public Utility Control FERC............................. Federal Energy Regulatory Commission NHPUC............................ New Hampshire Public Utilities Commission NRC.............................. Nuclear Regulatory Commission SEC.............................. Securities and Exchange Commission OTHER kWh.............................. Kilowatt hour MW............................... Megawatt Northeast Utilities And Subsidiaries The Connecticut Light and Power Company and Subsidiaries Public Service Company of New Hampshire Western Massachusetts Electric Company and Subsidiary North Atlantic Energy Corporation TABLE OF CONTENTS Page No. Part I. Financial Information Item 1. Financial Statements (Unaudited) and Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations For the following companies: Northeast Utilities and Subsidiaries Consolidated Balance Sheets - March 31, 1998 and December 31, 1997.............. 2 Consolidated Statements of Income - Three Months Ended March 31, 1998 and 1997.............. 4 Consolidated Statements of Cash Flows - Three Months Ended March 31, 1998 and 1997........ 5 Management's Discussion and Analysis of Financial Condition and Results of Operations..... 6 Report of Independent Public Accountants ......... 15 The Connecticut Light & Power Company and Subsidiaries Consolidated Balance Sheets - March 31, 1998 and December 31, 1997............................. 17 Consolidated Statements of Income - Three Months Ended March 31, 1998 and 1997........ 19 Consolidated Statements of Cash Flows - Three Months Ended March 31, 1998 and 1997........ 20 Management's Discussion and Analysis of Financial Condition and Results of Operations..... 21 Public Service Company of New Hampshire Balance Sheets - March 31, 1998 and December 31, 1997.............................. 30 Statements of Income - Three Months Ended March 31, 1998 and 1997............................ 32 Statements of Cash Flows - Three Months Ended March 31, 1998 and 1997............................ 33 Management's Discussion and Analysis of Financial Condition and Results of Operations...... 34 Western Massachusetts Electric Company and Subsidiary Consolidated Balance Sheets - March 31, 1998 and December 31, 1997.............................. 40 Consolidated Statements of Income - Three Months Ended March 31, 1998 and 1997............... 42 Consolidated Statements of Cash Flows - Three Months Ended March 31, 1998 and 1997............... 43 Management's Discussion and Analysis of Financial Condition and Results of Operations................ 44 North Atlantic Energy Corporation Balance Sheets - March 31, 1998 and December 31, 1997.................................. 51 Statements of Income - Three Months Ended March 31, 1998 and 1997............................ 53 Statements of Cash Flows - Three Months Ended March 31, 1998 and 1997............................ 54 Management's Discussion and Analysis of Financial Condition and Results of Operations...... 55 Notes to Financial Statements (unaudited - all companies)........................................ 59 Part II. Other Information Item 1. Legal Proceedings......................... 71 Item 5. Other Information......................... 71 Item 6. Exhibits and Reports on Form 8-K.......... 72 Signatures........................................................ 75 NORTHEAST UTILITIES AND SUBSIDIARIES PART I. FINANCIAL INFORMATION NORTHEAST UTILITIES AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
March 31, December 31, 1998 1997 (Unaudited) (Restated) ------------- ------------- (Thousands of Dollars) ASSETS - ------ Utility Plant, at cost: Electric................................................ $ 9,881,327 $ 9,869,561 Other................................................... 187,646 186,130 ------------- ------------- 10,068,973 10,055,691 Less: Accumulated provision for depreciation......... 4,429,221 4,330,599 ------------- ------------- 5,639,752 5,725,092 Unamortized PSNH acquisition costs...................... 379,929 402,285 Construction work in progress........................... 140,471 141,077 Nuclear fuel, net....................................... 192,954 194,704 ------------- ------------- Total net utility plant............................. 6,353,106 6,463,158 ------------- ------------- Other Property and Investments: Nuclear decommissioning trusts, at market............... 542,376 502,749 Investments in regional nuclear generating companies, at equity................................... 90,532 86,955 Investments in transmission companies, at equity........ 20,465 19,635 Other, at cost.......................................... 104,461 95,362 ------------- ------------- 757,834 704,701 ------------- ------------- Current Assets: Cash and cash equivalents............................... 268,663 143,403 Special deposits........................................ 2,757 - Investments in securitizable assets..................... 115,564 230,905 Receivables, net........................................ 187,215 214,914 Accrued utility revenues................................ 33,592 36,885 Fuel, materials, and supplies, at average cost.......... 208,690 212,721 Recoverable energy costs, net--current portion.......... 62,917 59,959 Investments in Charter Oak Energy, Inc. held for sale.......................................... 32,428 33,391 Prepayments and other................................... 47,804 38,495 ------------- ------------- 959,630 970,673 ------------- ------------- Deferred Charges: Regulatory assets (Note 2C): Income taxes,net...................................... 941,177 938,564 Deferred costs--nuclear plants........................ 187,147 199,753 Unrecovered contractual obligations................... 492,409 515,076 Recoverable energy costs, net......................... 296,752 324,809 Deferred demand side management costs................. 21,176 52,100 Cogeneration costs.................................... 25,491 33,505 Seabrook deferral..................................... 32,577 8,376 Other................................................. 95,120 101,095 Unamortized debt expense................................ 37,505 38,758 Other .................................................. 71,820 63,844 ------------ ------------ 2,201,174 2,275,880 ------------ ------------ Total Assets.............................................. $ 10,271,744 $ 10,414,412 ============ ============
See accompanying notes to consolidated financial statements. NORTHEAST UTILITIES AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
March 31, December 31, 1998 1997 (Unaudited) (Restated) ------------- ------------- (Thousands of Dollars) CAPITALIZATION AND LIABILITIES - ------------------------------ Capitalization: Common shareholders' equity: Common shares, $5 par value--authorized 225,000,000 shares; 136,857,443 shares issued and 130,350,789 shares outstanding in 1998 and 136,842,170 shares issued and 130,182,736 shares outstanding in 1997.................................. $ 684,287 $ 684,211 Capital surplus, paid in.............................. 934,825 932,493 Deferred benefit plan--employee stock ownership plan...................................... (150,604) (154,141) Retained earnings (Note 1)............................ 689,573 707,522 ------------- ------------- Total common shareholders' equity.............. 2,158,081 2,170,085 Preferred stock not subject to mandatory redemption..... 136,200 136,200 Preferred stock subject to mandatory redemption......... 222,072 245,750 Long-term debt.......................................... 3,462,197 3,645,659 ------------- ------------- Total capitalization........................... 5,978,550 6,197,694 ------------- ------------- Minority Interest in Consolidated Subsidiaries............ 100,000 100,000 ------------- ------------- Obligations Under Capital Leases.......................... 29,129 30,427 ------------- ------------- Current Liabilities: Notes payable to banks.................................. 35,000 50,000 Long-term debt and preferred stock--current portion................................................ 425,058 274,810 Obligations under capital leases--current portion................................................ 179,138 177,304 Accounts payable........................................ 315,199 402,870 Accrued taxes........................................... 75,328 46,016 Accrued interest........................................ 67,473 30,786 Accrued pension benefits................................ 68,722 77,186 Other................................................... 89,970 88,396 ------------- ------------ 1,255,888 1,147,368 ------------- ------------ Deferred Credits: Accumulated deferred income taxes....................... 1,976,929 1,984,513 Accumulated deferred investment tax credits............. 156,443 158,837 Deferred contractual obligations........................ 503,243 525,076 Other................................................... 271,562 270,497 ------------- ------------ 2,908,177 2,938,923 ------------- ------------ Commitments and Contingencies (Note 7) Total Capitalization and Liabilities........... $ 10,271,744 $ 10,414,412 ============= =============
See accompanying notes to consolidated financial statements. NORTHEAST UTILITIES AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
Three Months Ended March 31, ---------------------------- 1997 1998 (Restated) ------------- ------------- (Thousands of Dollars, except share information) Operating Revenues.................................... $ 958,905 $ 975,368 ------------- ------------- Operating Expenses: Operation-- Fuel, purchased and net interchange power........ 353,537 341,382 Other............................................ 243,932 261,660 Maintenance......................................... 120,955 99,197 Depreciation........................................ 87,229 89,179 Amortization of regulatory assets, net.............. 28,231 31,397 Federal and state income taxes...................... 16,761 15,207 Taxes other than income taxes....................... 67,772 67,969 ------------- ------------- Total operating expenses...................... 918,417 905,991 ------------- ------------- Operating Income...................................... 40,488 69,377 ------------- ------------- Other Income: Deferred nuclear plants return--other funds......... 1,875 1,774 Equity in earnings of regional nuclear generating and transmission companies....................... 4,124 3,441 Other, net.......................................... 9,775 4,741 Minority interest in income of subsidiary........... (2,325) (2,325) Income taxes........................................ 3,024 (469) ------------- ------------- Other income, net............................. 16,473 7,162 ------------- ------------- Income before interest charges................ 56,961 76,539 ------------- ------------- Interest Charges: Interest on long-term debt.......................... 70,226 70,206 Other interest...................................... 878 866 Deferred nuclear plants return--borrowed funds...... (3,516) (3,312) ------------- ------------- Interest charges, net......................... 67,588 67,760 ------------- ------------- (Loss)/Income after interest charges........... (10,627) 8,779 Preferred Dividends of Subsidiaries................... 7,322 7,903 ------------- ------------- Net (Loss)/Income (Note 1)............................ $ (17,949) $ 876 ============= ============= (Loss)/Earnings Per Common Share (Note 1)............. $ (0.14) $ 0.01 ============= ============= Common Shares Outstanding (average)................... 130,299,512 128,627,693 ============= =============
See accompanying notes to consolidated financial statements. NORTHEAST UTILITIES AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Three Months Ended March 31, ----------------------- 1997 1998 (Restated) ----------- ----------- (Thousands of Dollars) Operating Activities: (Loss)/Income before preferred dividends of subsidiaries.. $ (10,627) $ 8,779 Adjustments to reconcile to net cash from operating activities: Depreciation............................................ 87,229 89,179 Deferred income taxes and investment tax credits, net... (10,166) 16,243 Deferred nuclear plants return, net of amortization..... (5,391) (5,086) Amortization of demand-side-management costs, net....... 30,924 13,182 Recoverable energy costs, net of amortization........... 25,099 638 Amortization of PSNH acquisition costs, net............. 14,135 14,141 Amortization of deferred cogeneration costs, net ....... 8,014 8,176 Deferred nuclear refueling outage, net of amortization.. 1,553 (9,128) Other sources of cash................................... 65,049 31,294 Other uses of cash...................................... (17,095) (44,527) Changes in working capital: Receivables and accrued utility revenues, net........... (164,008) 71,602 Fuel, materials, and supplies........................... 4,031 (7,622) Accounts payable........................................ (87,671) (179,131) Accrued taxes........................................... 29,312 17,437 Sale of receivables and accrued utility revenues........ 195,000 - Investment in securitizable assets...................... 115,341 - Other working capital (excludes cash)................... 17,717 21,991 ----------- ----------- Net cash flows from operating activities.................... 298,446 47,168 ----------- ----------- Financing Activities: Issuance of common shares................................. 183 3 Issuance of long-term debt................................ 75 - Net (decrease) increase in short-term debt................ (15,000) 187,500 Reacquisitions and retirements of long-term debt.......... (36,452) (21,491) Reacquisitions and retirements of preferred stock......... (23,678) - Cash dividends on preferred stock......................... (7,322) (7,903) Cash dividends on common shares........................... - (32,135) ----------- ----------- Net cash flows (used for)/from financing activities......... (82,194) 125,974 ----------- ----------- Investment Activities: Investment in plant: Electric and other utility plant........................ (57,502) (53,514) Nuclear fuel............................................ (33) (4,987) ----------- ----------- Net cash flows used for investments in plant.............. (57,535) (58,501) Investments in nuclear decommissioning trusts............. (20,914) (13,669) Capital contributions to Charter Oak Energy projects...... - (28,060) Other investment activities, net.......................... (12,543) (5,700) ----------- ----------- Net cash flows used for investments......................... (90,992) (105,930) ----------- ----------- Net Increase In Cash For The Period......................... 125,260 67,212 Cash and cash equivalents - beginning of period............. 143,403 194,197 ----------- ----------- Cash and cash equivalents - end of period................... $ 268,663 $ 261,409 =========== ===========
See accompanying notes to consolidated financial statements. NORTHEAST UTILITIES AND SUBSIDIARIES Management's Discussion and Analysis of Financial Condition and Results of Operations This section contains management's assessment of Northeast Utilities, (NU) and subsidiaries' (the NU system) financial condition and the principal factors having an impact on the results of operations. This discussion should be read in conjunction with the consolidated financial statements and footnotes in this Form 10-Q, the 1997 Form 10-K, and the Current Reports on Form 8-K dated March 9, 1998, April 8, 1998, and April 15, 1998. FINANCIAL CONDITION Overview The outages at the three Millstone units (Millstone) continue to have a significant negative impact on NU's earnings. NU had a loss for the first quarter of 1998 of $0.14 cents per common share compared to a loss of $0.01 cent per common share for the first quarter of 1997. In addition to the Millstone outages, the loss was also due to retail rate reductions, mild weather and a severe January ice storm in Northern New England. The three Millstone units have been off-line for more than two years and require a vote of the Commissioners of the Nuclear Regulatory Commission (NRC) approval to restart. NU anticipates a June restart for Millstone 3 and a restart for Millstone 2 three to four months after Millstone 3. No restart work is currently being undertaken for Millstone 1. NU has reviewed with the Securities and Exchange Commission (SEC) the method by which it accounted for certain costs associated with the ongoing Millstone outages. For the past two years, NU, CL&P, PSNH, and WMECO have been reserving for the unavoidable costs they expected to incur to meet NRC requirements. The SEC has advised NU, CL&P, PSNH, and WMECO to reflect these costs as they are incurred. These first quarter statements have been prepared in accordance with the SEC's directive. The companies plan to submit amended Form 10-Ks for the years 1996 and 1997 to reflect this change. Management does not expect implementation of this accounting change to affect the ability of CL&P and WMECO to meet their loan covenants. For further information on this issue, including its financial impact on the NU system, see "Notes to Financial Statements" Note 1. Millstone Outages The NU system has a 100-percent ownership interest in Millstone 1 and 2 and a 68-percent ownership interest in Millstone 3. Millstone units 1, 2 and 3 have been out of service since November 4, 1995, February 21, 1996, and March 30, 1996, respectively. Northeast Nuclear Energy Company (NNECO), a wholly owned subsidiary of NU, acts as an agent for certain NU system companies and other New England utilities in operating Millstone. In January 1998, NNECO declared Millstone 3 physically ready for restart, which meant that almost all of the restart-required physical work had been completed at the plant. On April 7, 1998, Millstone 3 achieved Mode 4 operational status, which is a significant milestone for restart. The Independent Corrective Action Verification Program, an NRC-ordered independent inspection of Millstone's corrective action program and design and licensing basis, is expected to be completed for Millstone 3 in May 1998. On May 1, 1998, NNECO had its first of two meetings with the NRC Commissioners, preparatory to restarting Millstone 3. Selected issues were discussed relating to the proposed restart of Millstone 3 including the Employee Concerns Program (ECP), Safety Conscious Work Environment (SCWE), Deferred Items Management (Backlog Management Plan), Management Oversight (Oversight) and Quality Assurance (QA). The NRC Special Project Office reported to the Commission that Millstone's SCWE, ECP, Oversight, and QA programs are "adequate to support restart" of Millstone 3. Additionally, the NRC Special Project Office found that Millstone 3's Backlog Management Plan "provides appropriate process for (the) timely closure of deferred items." A second NRC meeting to discuss the remaining restart items for Millstone 3 has been scheduled for June 2, 1998. The NRC Commissioners' vote on restart of Millstone 3 will likely take place within the two weeks following this second meeting. For the three months ended March 31, 1998, the NU system's share of nonfuel O&M costs expensed for Millstone totaled approximately $115 million, unchanged from the three months ended March 31, 1997. Replacement power costs attributable to the Millstone outages totaled approximately $86 million in the first quarter of 1998 compared to $112 million expensed in the first quarter of 1997. For the remainder of 1998, these costs are projected to average approximately $8 million per month for Millstone 3, $10 million per month for Millstone 2 and $7 million per month for Millstone 1 while the plants are out of service. WMECO and PSNH have been expensing all of the costs to restart the units including replacement power and nonfuel O&M expenses. As a result of the recent out-of-rate base decisions in Connecticut, CL&P is permitted to recover, through its energy adjustment clause, replacement power costs for Millstone 1 effective March 1, 1998, and Millstone 2 effective May 1, 1998. See "Connecticut Rate Matters" for issues related to the recovery of Millstone 1 and Millstone 2 costs. For further information on the current Millstone outages, see the 1997 Form 10-K and the Form 8-Ks dated March 9, 1998 and April 8, 1998. Liquidity and Capital Resources Cash provided from operations increased approximately $251 million in the first quarter of 1998, from 1997, primarily due to cash available through the use of two accounts receivable facilities and a decrease in the amount needed to pay down prior year accounts payable balances. Net cash from financing activities decreased approximately $208 million, primarily due to the decrease in short- term borrowings and higher preferred stock reacquisitions and retirements partially offset by the elimination of cash dividends on NU common shares. Net cash flows used for investments decreased approximately $15 million, primarily due to a 1997 capital contribution to Charter Oak Energy projects. CL&P and WMECO established facilities under which they may sell from time to time up to $200 million and $40 million, respectively, of their accounts receivable and accrued utility revenues. As of April 30, 1998, CL&P and WMECO had sold approximately $145 million and $20 million, of accounts receivable, respectively, to third party purchasors. NU, CL&P and WMECO are parties to a three-year revolving credit agreement (the Credit Agreement), which was amended in May 1997. CL&P and WMECO had $20 million and $15 million, respectively, outstanding at March 31, 1998, under the Credit Agreement. Because of borrowing restrictions on NU in the Credit Agreement, NU entered into a separate $25 million, 364-day revolving credit facility with one bank in February 1998. At March 31, 1998, NU had no borrowings outstanding under this agreement. The NU system companies' ability to borrow under their financing arrangements is dependent on their satisfaction of contractual borrowing conditions. The financial covenants that must be satisfied to permit CL&P and WMECO to borrow under the Credit Agreement are particularly restrictive throughout 1998. Spending levels in 1998, particularly the first half of the year while the Millstone units are out of service, will be constrained to levels intended to help meet the financial covenants in CL&P's and WMECO's Credit Agreement. However, there is no assurance that these financial covenants will be met as the NU system may encounter additional unexpected costs relating to storms, reduced revenues from regulatory actions, or the effect of weather on sales levels. Each major company in the NU system finances its own needs. Neither CL&P nor WMECO has any financing agreements containing cross defaults based on financial defaults by NU, PSNH or North Atlantic Energy Corporation (NAEC). Similarly, neither PSNH nor NAEC has any financing agreements containing cross defaults based on financial defaults by NU, CL&P or WMECO. Nevertheless, it is possible that investors will take negative operating results or regulatory developments at one company in the NU system into account when evaluating other companies in the NU system. That could, as a practical matter and despite the contractual and legal separations among the NU companies, negatively affect each company's access to financial markets. If CL&P or WMECO did not meet these covenants, the bank creditors would have a number of options, including causing the acceleration of the affected indebtedness, reducing CL&P's or WMECO's access to further credit, seeking higher interest rates and fees, asking for additional collateral and additional measures which management cannot predict. On April 29, 1998, the DPUC issued a final decision with respect to the removal of Millstone 2 and potentially Millstone 3 from CL&P's rate base, which will have the effect of reducing earnings. On April 22, 1998, Moody's Investors Services (Moody's) downgraded the senior secured debt of CL&P and WMECO to Ba3 from Ba2. Moody's also downgraded CL&P's and WMECO's preferred stock and NU's unsecured amortizing notes. The ratings remain under review. Moody's indicated that the downgrade was primarily due to the DPUC's decision discussed above. In particular, Moody's stated that the decision "adds to pressure for restart at a time when existing financial strains are already significant." The downgrade of WMECO's senior secured debt brought those ratings to a level at which the sponsor of WMECO's $40 million accounts receivable program could elect to terminate the program. WMECO has initiated discussions with the sponsor concerning the effect of the downgrade on continued availability of the program. If the WMECO receivables program is terminated by the sponsor, WMECO could elect to immediately pay off the outstanding obligations or wind down the program pursuant to its terms. CL&P's $200 million accounts receivable program could be terminated if its senior secured debt is downgraded one more step. CL&P and WMECO finance their respective shares of the costs of the nuclear fuel for Millstone through the Niantic Bay Fuel Trust (NBFT). NBFT has initiated a private notes offering seeking up to $180 million of three-to-five year debt financing to refund $80 million of NBFT notes that mature on June 5, 1998. If this offering realizes more than $80 million, the proceeds would be used to pay down or terminate a $100 million NBFT bank revolving credit facility, which was renegotiated in February 1998 and expires in July 1998. $92 million was outstanding under the NBFT bank revolving credit facility on May 12, 1998. If the return to service of Millstone 2 or 3 is delayed substantially beyond the present restart estimates or if some borrowing facilities become unavailable because of difficulties in meeting borrowing conditions, renegotiating extensions or refinancing maturities, if the NU system encounters additional significant costs or any other significant deviations from management's current assumptions, the currently available borrowing facilities could be insufficient to meet all of the NU system's cash requirements. In those circumstances, management would attempt to take even more stringent actions to reduce costs and cash outflows and would attempt to take other actions to obtain additional sources of funds. The availability of these funds would be dependent upon the general market conditions and the NU system's credit and financial condition at the time. Restructuring New Hampshire On March 20, 1998, the New Hampshire Public Utilities Commission (NHPUC)issued an order stating 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 Order that mandated a regional average rate making methodology. Thus, the NHPUC stated that an order will be issued in the future using a cost-based method to allow PSNH to continue to use its current accounting treatment. Connecticut On April 29, 1998, Connecticut enacted comprehensive electric utility restructuring legislation. The legislation introduces a clear path to competition in the state, while permitting, subject to mitigation requirements, utilities to recover fully their strandable costs. In summary, the legislation provides, among other things, that retail choice will be phased in over six months beginning January 2000; rates will be capped at December 31, 1996 levels from July 1, 1998 until December 31, 1999; customers not choosing an alternate supplier can continue to receive service until January 2004 at a rate that is at least 10 percent less than 1996 rates; rates will be unbundled into several components; electric utilities will be required to auction their nonnuclear generating assets by January 2000 and their nuclear generating assets by January 2004 in order to recover strandable costs; and a certain level of securitization will be allowed. For further information on restructuring issues, see "Notes to Financial Statements" Note 7A, NU's 1997 Form 10-K and Form 8-Ks dated March 9, 1998 and April 15, 1998. Rate Matters New Hampshire On March 13, 1998, PSNH filed testimony and exhibits seeking a 3.7 percent net increase in rates in the June through December 1998 period in connection with its comprehensive fuel and purchased power adjustment clause (FPPAC) proceedings. On April 29, 1998 PSNH entered into a Stipulation and Settlement with the Office of The Consumer Advocate and the NHPUC Staff resolving most of the contested issues in the FPPAC proceeding. If this settlement is approved by the NHPUC, in conjunction with a new reduced NEPOOL capability responsibility, PSNH's revised request will produce slightly more than a 1 percent net increase in rates. This proposed rate would result in the collection of substantially all currently projected fuel and purchased power costs, but would defer for future collection a substantial portion of previously incurred costs. Hearings are scheduled for mid-May. For further information on New Hampshire rate matters, see NU's 1997 Form 10-K and Form 8-K dated March 9, 1998. Connecticut On May 1, 1998, CL&P filed a statutory notice of intent to file a rate application on June 1, 1998. The notice of intent stated that CL&P is not proposing a change in rates but will hold its rates to 1996 levels. On April 29, 1998, the DPUC issued a final decision to remove Millstone 2 from CL&P's rate base effective May 1, 1998. The decision further concluded that the DPUC would remove Millstone 3 from CL&P's rate base effective July 1, 1998 if the unit has not been operating for 100 continuous hours at 95 percent capacity by that date. Management has conservatively estimated that it may take up to six weeks for a unit to reach full power after NRC approval to restart. This duration includes several weeks of contingency shutdown which may or may not be required. The decision also provides for Millstone 3 and Millstone 2 to be automatically reinstated into rate base upon achieving the operating standard required by the decision. Removing Millstone 2 from rate base will result in an annual reduction of CL&P's current revenue requirements of $37.7 million, or about $3 million a month. This was computed by disallowing CL&P's recovery of Millstone 2's operation and maintenance costs, depreciation and a return on capital, but allowing CL&P to recover in the future the replacement power and capacity costs it has been expensing for Millstone 2 while the unit has been out of service. The net reduction of revenue requirements associated with removing Millstone 3 from rate base would be about $13 million a month. The DPUC decided in its decision to make the revenue requirement reduction "noncash" by allowing CL&P to accrue the reductions associated with the removal of Millstone 2 and Millstone 3, if applicable, from rate base and apply them against the replacement power costs associated with the early retirement of the Connecticut Yankee nuclear power plant (CY) that have been deferred by order of the DPUC, pending a final decision by the Federal Energy Regulatory Commission on the prudence of the early retirement and the costs associated therewith. CL&P has been deferring these CY replacement power costs since December 1996 and the projected deferral through June 1998 is approximately $65 million. The decision could create additional pressures on CL&P's ability to meet certain financial covenants in the Credit Agreement. The decision is expected to reduce CL&P's earnings which will make both of CL&P's key revolving credit line covenants more difficult to meet. NU and its wholly owned subsidiary, WMECO, are also parties to this credit agreement. Similar covenant requirements are included in a CL&P operating lease related to the use of four turbine generators having an installed cost of approximately $70 million. CL&P will closely review its 1998 projections in light of the decision to determine whether there are additional measures that can be implemented to assure that these covenants are met, including an evaluation of the restart schedule for Millstone 2. For further information on Connecticut rate matters, see NU's 1997 Form 10-K and Form 8-Ks dated March 9, 1998 and April 15, 1998. Year 2000 Issue The Year 2000 issue exists because many computer systems and applications currently use two-digit date fields to designate a year. As the change of the century occurs, date-sensitive systems may recognize the year 2000 as 1900, or not recognize it at all. This inability to recognize or properly treat the year 2000 may cause NU's systems to process critical financial and operational information incorrectly. The company has assessed and continues to assess the impact of the Year 2000 issue on its operating and reporting systems. This assessment is expected to be completed in the summer of 1998. The NU system will utilize both internal and external resources to reprogram or replace and test the software for Year 2000 modifications. The total estimated remaining cost of the Year 2000 project is $36 million and is being funded through operating cash flows. This estimate does not include any costs for the the replacement or repair of equipment or devices that may be identified during the assessment process. The majority of these costs will be expensed as incurred over the next two years. To date, the company has incurred and expensed approximately $5 million related to the assessment of, and preliminary efforts in connection with, its Year 2000 project. The costs of the project and the date on which the company plans to complete the Year 2000 modifications are based on management's best estimates, which were derived utilizing numerous assumptions of future events, including the continued availability of certain resources, third-party modification plans and other factors. However, there can be no guarantee that these estimates will be achieved, and actual results could differ materially from those plans. If the NU system's remediation plan is not successful, there could be a significant disruption of the NU system's operations. The company is committed to ensuring that adequate resources are available in order to implement any changes necessary for its nuclear and operating systems to be compatible with the new millennium. Risk-Management Instruments The NU system uses swaps, collars, puts, and calls to manage the market risk exposures associated with changes in fuel prices and variable interest rates. The NU system uses these instruments to reduce risk by essentially creating offsetting market exposures but does not use these risk-management instruments for speculative purposes. For more information on NU system's use of risk-management instruments, see the "Notes to Financial Statements" Note 6. CL&P employs fuel price risk-management instruments to hedge risks associated with fuel prices created by long-term, fixed-price electricity contracts with wholesale customers and the purchase or generation of replacement power related to the ongoing Millstone nuclear outages. At March 31, 1998, CL&P had outstanding agreements with a total notional value of approximately $288 million. NAEC has a hedge on its $200 million variable rate note, effectively fixing the interest on it at 7.823 percent. There have been no material changes in the reported market risks for either CL&P or NAEC since the 1997 Form 10-K. For further information on CL&P's and NAEC's respective market risk exposures, see the MD&A in the 1997 10-K. RESULTS OF OPERATIONS Income Statement Variances Increase/(Decrease) Millions of Dollars First Quarter Percent Operating revenues $(16) (2)% Fuel, purchased and net interchange power 12 4 Other operation (18) (7) Maintenance 22 22 Other income, net 5 (a) Net Income (19) (a) (a) Percentage greater than 100 Comparison of the First Quarter of 1998 to the First Quarter of 1997 Total operating revenues decreased in 1998, primarily due to lower revenues from regulatory decisions, lower wholesale revenues and lower other revenues, partially offset by higher fuel recoveries. Revenues from regulatory decisions decreased $18 million, primarily due to the retail rate decreases for PSNH, CL&P and WMECO. Wholesale revenues decreased $16 million, primarily due to lower 1998 capacity sales as a result of CL&P's Settlement of an ongoing dispute with the Connecticut Municipal Electric Energy Cooperative. Other revenues decreased $9 million, primarily due to lower recognition in 1998 of reimbursable conservation services and lower sales revenues. Fuel recoveries increased $25 million, primarily due to higher revenues under CL&P's and PSNH's fuel clauses. Retail kilowatt hour sales were 0.2 percent lower than those in the first quarter 1997. Both the first quarter of 1998 and 1997 experienced mild weather. Fuel, purchased, and net interchange power expense increased in 1998, primarily due to the timing in the recognition of costs under CL&P's and PSNH's fuel clauses, partially offset by lower replacement power costs due to lower fuel prices. Other operation and maintenance expense increased in 1998, primarily due to higher storm costs as a result of the January ice storm in New Hampshire ($16 million), higher conservation and load management amortization ($9 million), and higher recognition of nuclear refueling outage costs primarily as a result of the 1996 CL&P Rate Settlement, partially offset by lower administrative and general expenses ($19 million) and lower capacity charges from Connecticut Yankee ($8 million). Other income, net increased in 1998, primarily due to the 1998 benefit from the 1997 shareholder derivative settlement suit, partially offset by costs associated with CL&P's accounts receivable facility. REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To Northeast Utilities: We have reviewed the accompanying consolidated balance sheet of Northeast Utilities (a Massachusetts trust) and subsidiaries as of March 31, 1998, and the related consolidated statements of income for the three-month periods ended March 31, 1998 and restated March 31, 1997, and the consolidated statements of cash flows for the three-month periods ended March 31, 1998 and restated March 31, 1997. These financial statements are the responsibility of the company's management. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to the financial statements referred to above for them to be in conformity with generally accepted accounting principles. We have previously audited, in accordance with generally accepted auditing standards, the consolidated balance sheet of Northeast Utilities as of December 31, 1997, and in our report dated February 20, 1998, we expressed an unqualified opinion on that statement. As discussed in footnote 1, the December 31, 1997 balance sheet was restated to reflect an adjustment in the Company's accounting for nuclear compliance costs. In our opinion, the information set forth in the accompanying consolidated balance sheet as of December 31, 1997, is fairly stated, in all material respects, in relation to the consolidated balance sheet, as restated, from which it has been derived. /s/ Arthur Andersen LLP Arthur Andersen LLP Hartford, Connecticut May 14, 1998 THE CONNECTICUT LIGHT AND POWER COMPANY AND SUBSIDIARIES PART I. FINANCIAL INFORMATION THE CONNECTICUT LIGHT AND POWER COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
March 31, December 31, 1998 1997 (Unaudited) (Restated) ------------- ------------- (Thousands of Dollars) ASSETS - ------ Utility Plant, at original cost: Electric................................................ $ 6,426,350 $ 6,411,018 Less: Accumulated provision for depreciation......... 2,965,288 2,902,673 ------------- ------------- 3,461,062 3,508,345 Construction work in progress........................... 85,036 93,692 Nuclear fuel, net....................................... 135,601 135,076 ------------- ------------- Total net utility plant............................. 3,681,699 3,737,113 ------------- ------------- Other Property and Investments: Nuclear decommissioning trusts, at market............... 396,619 369,162 Investments in regional nuclear generating companies, at equity................................... 60,397 58,061 Other, at cost.......................................... 69,419 66,625 ------------- ------------- 526,435 493,848 ------------- ------------- Current Assets: Cash.................................................... 236 459 Investments in securitizable assets..................... 85,943 205,625 Notes receivable from affiliated companies.............. 14,300 - Receivables, net........................................ 57,901 50,671 Accounts receivable from affiliated companies........... 3,403 3,150 Taxes receivable........................................ 21,326 70,311 Fuel, materials, and supplies, at average cost.......... 77,702 81,878 Recoverable energy costs, net--current portion.......... 14,055 28,073 Prepayments and other................................... 102,547 79,632 ------------- ------------- 377,413 519,799 ------------- ------------- Deferred Charges: Regulatory assets (Note 2C): Income taxes,net...................................... 697,624 709,896 Unrecovered contractual obligations................... 323,309 338,406 Deferred demand side management costs................. 21,176 52,100 Recoverable energy costs, net......................... 87,796 104,796 Cogeneration costs.................................... 25,491 33,505 Other................................................. 52,095 54,115 Unamortized debt expense................................ 18,793 19,286 Other................................................... 22,477 18,359 ------------- ------------- 1,248,761 1,330,463 ------------- ------------- Total Assets........................................ $ 5,834,308 $ 6,081,223 ============= =============
See accompanying notes to consolidated financial statements. THE CONNECTICUT LIGHT AND POWER COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
March 31, December 31, 1998 1997 (Unaudited) (Restated) ------------- ------------- (Thousands of Dollars) CAPITALIZATION AND LIABILITIES - ------------------------------ Capitalization: Common stock--$10 par value. Authorized 24,500,000 shares; outstanding 12,222,930 shares................................................. $ 122,229 $ 122,229 Capital surplus, paid in................................ 643,729 641,333 Retained earnings (Note 1).............................. 385,078 419,972 ------------- ------------- Total common stockholder's equity.............. 1,151,036 1,183,534 Preferred stock not subject to mandatory redemption............................................. 116,200 116,200 Preferred stock subject to mandatory redemption......... 129,072 151,250 Long-term debt.......................................... 1,885,764 2,023,316 ------------- ------------- Total capitalization........................... 3,282,072 3,474,300 ------------- ------------- Minority Interest in Consolidated Subsidiary.............. 100,000 100,000 ------------- ------------- Obligations Under Capital Leases.......................... 17,915 18,042 ------------- ------------- Current Liabilities: Notes payable to banks.................................. 20,000 35,000 Notes payable to affiliated company..................... - 61,300 Long-term debt and preferred stock--current portion................................................ 143,755 23,761 Obligations under capital leases--current portion................................................ 141,526 140,076 Accounts payable........................................ 80,643 124,427 Accounts payable to affiliated companies................ 61,976 92,963 Accrued taxes........................................... 28,495 33,017 Accrued interest........................................ 31,705 14,650 Other................................................... 29,696 23,495 ------------- ------------- 537,796 548,689 ------------- ------------- Deferred Credits: Accumulated deferred income taxes....................... 1,323,546 1,348,617 Accumulated deferred investment tax credits............. 125,872 127,713 Deferred contractual obligations........................ 334,144 348,406 Other................................................... 112,963 115,456 ------------- ------------- 1,896,525 1,940,192 ------------- ------------- Commitments and Contingencies (Note 7) Total Capitalization and Liabilities........... $ 5,834,308 $ 6,081,223 ============= =============
See accompanying notes to consolidated financial statements. THE CONNECTICUT LIGHT AND POWER COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
Three Months Ended March 31, -------------------------- 1997 1998 (Restated) ----------- ----------- (Thousands of Dollars) Operating Revenues.................................... $ 608,961 $ 624,908 ----------- ----------- Operating Expenses: Operation -- Fuel, purchased and net interchange power........ 246,692 266,094 Other............................................ 177,031 164,196 Maintenance......................................... 73,372 70,621 Depreciation........................................ 57,635 59,919 Amortization of regulatory assets, net.............. 12,628 15,869 Federal and state income taxes...................... (11,268) (8,604) Taxes other than income taxes....................... 46,610 46,870 ----------- ----------- Total operating expenses...................... 602,700 614,965 ----------- ----------- Operating Income...................................... 6,261 9,943 ----------- ----------- Other Income: Equity in earnings of regional nuclear generating companies......................................... 2,168 1,817 Other, net.......................................... (6,643) 4,610 Minority interest in income of subsidiary........... (2,325) (2,325) Income taxes........................................ 3,332 (95) ----------- ----------- Other (loss)/income, net...................... (3,468) 4,007 ----------- ----------- Income before interest charges................ 2,793 13,950 ----------- ----------- Interest Charges: Interest on long-term debt.......................... 32,940 33,277 Other interest...................................... 832 309 ----------- ----------- Interest charges, net......................... 33,772 33,586 ----------- ----------- Net Loss (Note 1)..................................... $ (30,979) $ (19,636) =========== ===========
See accompanying notes to consolidated financial statements. THE CONNECTICUT LIGHT AND POWER COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Three Months Ended March 31, ----------------------- 1997 1998 (Restated) ----------- ----------- (Thousands of Dollars) Operating Activities: Net Loss ................................................... $ (30,979) $ (19,636) Adjustments to reconcile to net cash from operating activities: Depreciation.............................................. 57,635 59,919 Deferred income taxes and investment tax credits, net..... (25,023) (15,816) Amortization of deferred demand-side-management costs, net 30,924 13,182 Recoverable energy costs, net of amortization............. 31,018 20,071 Amortization of deferred cogeneration costs, net ......... 8,014 8,176 Deferred nuclear refueling outage, net of amortization.... - (11,333) Other sources of cash..................................... 25,517 20,521 Other uses of cash........................................ (7,207) (29,493) Changes in working capital: Receivables and accrued utility revenues.................. (182,483) 13,698 Fuel, materials, and supplies............................. 4,176 (5,173) Accounts payable.......................................... (74,771) (85,391) Accrued taxes............................................. (4,522) (484) Sale of receivables and accrued utility revenues.......... 175,000 - Investment in securitizable assets........................ 119,682 - Other working capital (excludes cash)..................... 49,326 4,189 ----------- ----------- Net cash flows from/(used for) operating activities........... 176,307 (27,570) ----------- ----------- Financing Activities: Net (decrease)/increase in short-term debt.................. (76,300) 200,000 Reacquisitions and retirements of long-term debt............ (20,006) (11) Reacquisitions and retirements of preferred stock........... (22,178) - Cash dividends on preferred stock........................... (3,915) (3,805) Cash dividends on common stock.............................. - (5,989) ----------- ----------- Net cash flows (used for)/from financing activities........... (122,399) 190,195 ----------- ----------- Investment Activities: Investment in plant: Electric utility plant.................................... (20,071) (32,493) Nuclear fuel.............................................. 71 (589) ----------- ----------- Net cash flows used for investments in plant................ (20,000) (33,082) NU System Money Pool........................................ (14,300) (116,250) Investments in nuclear decommissioning trusts............... (14,702) (9,885) Other investment activities, net............................ (5,129) (3,615) ----------- ----------- Net cash flows used for investments........................... (54,131) (162,832) ----------- ----------- Net Decrease In Cash For The Period........................... (223) (207) Cash - beginning of period.................................... 459 404 ----------- ----------- Cash - end of period.......................................... $ 236 $ 197 =========== ===========
See accompanying notes to consolidated financial statements. THE CONNECTICUT LIGHT AND POWER COMPANY Management's Discussion and Analysis of Financial Condition and Results of Operations This section contains management's assessment of Connecticut Light and Power Company's (CL&P's 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 consolidated financial statements and footnotes in this Form 10-Q, the 1997 Form 10-K, and the Current Reports on Form 8-Ks dated March 25, 1998 and April 15, 1998. FINANCIAL CONDITION Overview The outages at the three Millstone units (Millstone) continue to have a significant negative impact on the company's earnings. CL&P had a net loss for the first quarter of 1998 of approximately $31 million compared to a net loss of approximately $20 million for the first quarter of 1997. In addition to the Millstone outages, the loss was also due to a retail rate reduction and mild weather in 1998. The three Millstone units have been off-line for more than two years and require a vote of the Commissioners of the Nuclear Regulatory Commission (NRC) approval to restart. NU anticipates a June restart for Millstone 3 and a restart for Millstone 2 three to four months after Millstone 3. No restart work is currently being undertaken for Millstone 1. NU has reviewed with the Securities and Exchange Commission (SEC) the method by which it accounted for certain costs associated with the ongoing Millstone outages. For the past two years, CL&P has been reserving for the unavoidable costs it expected to incur to meet NRC requirements. The SEC has advised CL&P to reflect these costs as they are incurred. The first quarter statement has been prepared in accordance with the SEC's directive. The company plans to submit amended Form 10-Ks for the years 1996 and 1997 to reflect this change. Management does not expect implementation of this accounting change to affect the ability of CL&P to meet its loan covenants. For further information on this issue, including its financial impact on the company, see "Notes to Financial Statements" Note 1. Millstone Outages CL&P has an 81-percent ownership interest in Millstone 1 and 2 and a 52.93- percent ownership interest in Millstone 3. Millstone units 1, 2 and 3 have been out of service since November 4, 1995, February 21, 1996, and March 30, 1996, respectively. Northeast Nuclear Energy Company (NNECO), a wholly-owned subsidiary of NU, acts as an agent for certain NU system companies and other New England utilities in operating Millstone. In January 1998, NNECO declared Millstone 3 physically ready for restart, which meant that almost all of the restart-required physical work had been completed at the plant. On April 7, 1998, Millstone 3 achieved Mode 4 operational status, which is a significant milestone for restart. The Independent Corrective Action Verification Program, an NRC-ordered independent inspection of Millstone's corrective action program and design and licensing basis, is expected to be completed for Millstone 3 in May 1998. On May 1, 1998, NNECO had its first of two meetings with the NRC Commissioners, preparatory to restarting Millstone 3. Selected issues were discussed relating to the proposed restart of Millstone 3 including the Employee Concerns Program (ECP), Safety Conscious Work Environment (SCWE), Deferred Items Management (Backlog Management Plan) and Management Oversight (Oversight) and Quality Assurance (QA). The NRC Special Project Office reported to the Commission that Millstone's SCWE, ECP, Oversight, and QA programs are "adequate to support restart" of Millstone 3. Additionally, the NRC Special Project Office found that Millstone 3's Backlog Management Plan "provides appropriate process for (the) timely closure of deferred items." A second NRC meeting to discuss the remaining restart items for Millstone 3 has been scheduled for June 2, 1998. The NRC Commissioners' vote on restart of Millstone 3 will likely take place within the two weeks following this second meeting. For the three months ended March 31, 1998, CL&P's share of nonfuel operation and maintenance (O&M) costs expensed for Millstone totaled approximately $93 million, unchanged from the three months ended March 31, 1997. CL&P's share of replacement power costs attributable to the Millstone outages totaled approximately $74 million in the first quarter of 1998 compared to $94 million expensed in the first quarter of 1997. For the remainder of 1998, these costs are projected to average approximately $6 million per month for Millstone 3, $9 million per month for Millstone 2 and $6 million per month for Millstone 1 while the plants are out of service. As a result of the recent out-of-rate base decisions in Connecticut, CL&P is permitted to recover, through its energy adjustment clause, replacement power costs for Millstone 1 effective March 1, 1998, and Millstone 2 effective May 1, 1998. See "Rate Matters" for issues related to the recovery of Millstone 1 and Millstone 2 costs. For further information on the current Millstone outages, see the 1997 Form 10- K. Liquidity and Capital Resource Cash provided from operations increased approximately $204 million in the first quarter of 1998, from 1997, primarily due to cash available through the use of an accounts receivable facility, lower cash operating costs related to the Millstone outages, and a decrease in the amount needed to pay down prior year accounts payable balances. Net cash from financing activities decreased approximately $313 million, primarily due to the decrease in short-term borrowings and higher preferred stock retirements partially offset by lower payments of cash dividends. Net cash flows used for investments decreased approximately $109 million, primarily due to lower investments in the NU system Money Pool. CL&P established a facility under which it may sell from time to time up to $200 million of its accounts receivable and accrued utility revenues. As of April 30, 1998, CL&P had sold approximately $145 million of accounts receivable to third party purchasors. NU, CL&P's and Western Massachusetts Electric Company's (WMECO's) are parties to a three-year revolving credit agreement (the Credit Agreement), which was amended in May 1997. CL&P had $20 million outstanding at March 31, 1998, under the Credit Agreement. The NU system companies' ability to borrow under their financing arrangements is dependent on their satisfaction of contractual borrowing conditions. The financial covenants that must be satisfied to permit CL&P and WMECO to borrow under the Credit Agreement are particularly restrictive throughout 1998. Spending levels in 1998, particularly the first half of the year while the Millstone units are out of service, will be constrained to levels intended to help meet the financial covenants in CL&P's and WMECO's Credit Agreement. However, there is no assurance that these financial covenants will be met as the NU system may encounter additional unexpected costs relating to storms, reduced revenues from regulatory actions, or the effect of weather on sales levels. Each major company in the NU system finances its own needs. Neither CL&P nor WMECO has any financing agreements containing cross defaults based on financial defaults by NU, PSNH (Public Service Company of New Hampshire) or North Atlantic Energy Corporation (NAEC). Similarly, neither PSNH nor NAEC has any financing agreements containing cross defaults based on financial defaults by NU, CL&P or WMECO. Nevertheless, it is possible that investors will take negative operating results or regulatory developments for one subsidiary of NU into account when evaluating the other NU subsidiaries. That could, as a practical matter and despite the contractual and legal separations among NU and its subsidiaries, negatively affect the company's access to financial markets. If CL&P did not meet these covenants, the bank 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 management cannot predict. On April 29, 1998, the DPUC issued a final decision with respect to the removal of Millstone 2 and potentially Millstone 3 from CL&P's rate base, which will have the effect of reducing earnings. On April 22, 1998, Moody's Investors Services (Moody's) downgraded the senior secured debt of CL&P and WMECO to Ba3 from Ba2. Moody's also downgraded CL&P's and WMECO's preferred stock and NU's unsecured amortizing notes. The ratings remain under review. Moody's indicated that the downgrade was primarily due to the DPUC's decision discussed above. In particular, Moody's stated that the decision "adds to pressure for restart at a time when existing financial strains are already significant." CL&P's $200 million accounts receivable program could be terminated if its senior secured debt is downgraded one more step. CL&P and WMECO finance their respective shares of the costs of the nuclear fuel for Millstone through the Niantic Bay Fuel Trust (NBFT). NBFT has initiated a private notes offering seeking up to $180 million of three-to-five year debt financing to refund $80 million of NBFT notes that mature on June 5, 1998. If this offering realizes more than $80 million, the proceeds would be used to pay down or terminate a $100 million NBFT bank revolving credit facility, which was renegotiated in February 1998 and expires in July 1998. $92 million was outstanding under the NBFT bank revolving credit facility on May 12, 1998. If the return to service of Millstone 2 or 3 is delayed substantially beyond the present restart estimates or if some borrowing facilities become unavailable because of difficulties in meeting borrowing conditions, renegotiating extensions, or refinancing maturities, if the NU system encounters additional significant costs or any other significant deviations from management's current assumptions, the currently available borrowing facilities could be insufficient to meet all of the NU system's cash requirements. In those circumstances, management would attempt to take even more stringent actions to reduce costs and cash outflows and would attempt to take other actions to obtain additional sources of funds. The availability of these funds would be dependent upon the general market conditions and the NU system's credit and financial condition at that time. Restructuring On April 29, 1998, Connecticut enacted comprehensive electric utility restructuring legislation. The legislation introduces a clear path to competition in the state, while permitting, subject to mitigation requirements, utilities to recover fully their strandable costs. In summary, the legislation provides, among other things, that retail choice will be phased in over six months beginning January 2000; rates will be capped at December 31, 1996 levels from July 1, 1998 until December 31, 1999; customers not choosing an alternate supplier can continue to receive service until January 2004 at a rate that is at least 10 percent less than 1996 rates; rates will be unbundled into several components; electric utilities will be required to auction their nonnuclear generating assets by January 2000 and their nuclear generating assets by January 2004 in order to recover strandable costs; and a certain level of securitization will be allowed. For further information on restructuring issues, see "Notes to Financial Statements" Note 7A, CL&P's 1997 Form 10-K and Form 8-K dated April 15, 1998. Rate Matters On May 1, 1998, CL&P filed a statutory notice of intent to file a rate application on June 1, 1998. The notice of intent stated that CL&P is not proposing a change in rates but will hold its rates to 1996 levels. On April 29, 1998, the DPUC issued a final decision to remove Millstone 2 from CL&P's rate base effective May 1, 1998. The decision further concluded that the DPUC would remove Millstone 3 from CL&P's rate base effective July 1, 1998 if the unit has not been operating for 100 continuous hours at 95 percent capacity by that date. Management has conservatively estimated that it may take up to six weeks for a unit to reach full power after NRC approval to restart. This duration includes several weeks of contingency shutdown which may or may not be required. The decision also provides for Millstone 3 and Millstone 2 to be automatically reinstated into rate base upon achieving the operating standard required by the decision. Removing Millstone 2 from rate base will result in an annual reduction of CL&P's current revenue requirements of $37.7 million, or about $3 million a month. This was computed by disallowing CL&P's recovery of Millstone 2's operation and maintenance costs, depreciation and a return on capital, but allowing CL&P to recover in the future the replacement power and capacity costs it has been expensing for Millstone 2 while the unit has been out of service. The net reduction of revenue requirements associated with removing Millstone 3 from rate base would be about $13 million a month. The DPUC decided in its decision to make the revenue requirement reduction "noncash" by allowing CL&P to accrue the reductions associated with the removal of Millstone 2 and Millstone 3, if applicable, from rate base and apply them against the replacement power costs associated with the early retirement of the Connecticut Yankee nuclear power plant (CY) that have been deferred by order of the DPUC, pending a final decision by the Federal Energy Regulatory Commission on the prudence of the early retirement and the costs associated therewith. CL&P has been deferring these CY replacement power costs since December 1996 and the projected deferral through June 1998 is approximately $65 million. The decision could create additional pressures on CL&P's ability to meet certain financial covenants in the Credit Agreement. The decision is expected to reduce CL&P's earnings which will make both of CL&P's key revolving credit line covenants more difficult to meet. NU and its wholly owned subsidiary, WMECO, are also parties to this credit agreement. Similar covenant requirements are included in a CL&P operating lease related to the use of four turbine generators having an installed cost of approximately $70 million. CL&P will closely review its 1998 projections in light of the decision to determine whether there are additional measures that can be implemented to assure that these covenants are met, including an evaluation of the restart schedule for Millstone 2. For further information on rate matters, see CL&P's 1997 Form 10-K and Form 8-K dated April 15, 1998. Year 2000 Issue The Year 2000 issue exists because many computer systems and applications currently use two-digit date fields to designate a year. As the change of the century occurs, date-sensitive systems may recognize the year 2000 as 1900, or not recognize it at all. This inability to recognize or properly treat the year 2000 may cause NU's systems to process critical financial and operational information incorrectly. The company has assessed and continues to assess the impact of the Year 2000 issue on its operating and reporting systems. This assessment is expected to be completed in the summer of 1998. The NU system will utilize both internal and external resources to reprogram or replace and test the software for Year 2000 modifications. The total estimated remaining cost of the Year 2000 project is $36 million and is being funded through operating cash flows. This estimate does not include any costs for the replacement or repair of equipment or devices that may be identified during the assessment process. The majority of these costs will be expensed as incurred over the next two years. To date, the company has incurred and expensed approximately $5 million related to the assessment of, and preliminary efforts in connection with, its Year 2000 project. The costs of the project and the date on which the company plans to complete the Year 2000 modifications are based on management's best estimates, which were derived utilizing numerous assumptions of future events, including the continued availability of certain resources, third-party modification plans and other factors. However, there can be no guarantee that these estimates will be achieved, and actual results could differ materially from those plans. If the NU system's remediation plan is not successful, there could be a significant disruption of the NU system's operations. The company is committed to ensuring that adequate resources are available in order to implement any changes necessary for its nuclear and operating systems to be compatible with the new millennium. Risk-Management Instruments The company uses swaps, collars, puts, and calls to manage the market risk exposures associated with changes in fuel prices and variable interest rates. The company uses these instruments to reduce risk by essentially creating offsetting market exposures but does not use these risk-management instruments for speculative purposes. For more information on CL&P's use of risk-management instruments, see the "Notes to Financial Statements" Note 6. CL&P employs fuel price risk-management instruments to hedge risks associated with fuel prices created by long-term, fixed-price electricity contracts with wholesale customers and the purchase or generation of replacement power related to the ongoing Millstone nuclear outages. At March 31, 1998, CL&P had outstanding agreements with a total notional value of approximately $288 million. There has been no material changes in the reported market risks for CL&P since the 1997 Form 10-K. For further information on CL&P's market risk exposures, see the MD&A in the 1997 10-K. RESULTS OF OPERATIONS Income Statement Variances Increase/(Decrease) Millions of Dollars First Quarter Percent Operating revenues $(16) (3)% Fuel, purchased and net interchange power (19) (7) Other operation 13 8 Maintenance 3 4 Amortization of regulatory assets, net (3) (20) Federal and state income taxes (6) (a) Other income, net (11) (a) Net Income (11) (a) (a) Percentage greater than 100 Comparison of the First Quarter of 1998 to the First Quarter of 1997 Total operating revenues decreased in 1998, primarily due to lower wholesale revenues and lower retail sales, partially offset by higher fuel recoveries. Wholesale revenues decreased $14 million, primarily due to lower 1998 capacity sales. Retail sales decreased 1 percent ($4 million) primarily due to milder weather in 1998. Fuel recoveries increased $3 million, primarily due to higher revenues under the company's fuel clause. Fuel, purchased, and net interchange power expense decreased in 1998, primarily due to lower replacement power costs due to lower fuel prices. Other operation and maintenance expense increased in 1998, primarily due to higher capacity charges ($12 million), higher conservation and load management amortization ($9 million), higher recognition of nuclear refueling outage costs primarily as a result of the 1996 Rate Settlement ($9 million), partially offset by lower administration and general expenses ($5 million) and lower other O&M expenditures. Amortization of regulatory assets, net decreased in 1998, primarily due to lower amortizations as a result of the 1996 Rate Settlement. Federal and state income taxes decreased in 1998, primarily due to lower book taxable income. Other income, net decreased in 1998, primarily due to higher costs associated with the securitization of the accounts receivable facility. PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE PART I. FINANCIAL INFORMATION PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE BALANCE SHEETS
March 31, December 31, 1998 1997 (Unaudited) (Restated) ------------- ------------- (Thousands of Dollars) ASSETS - ------ Utility Plant, at cost: Electric................................................ $ 1,899,980 $ 1,898,319 Less: Accumulated provision for depreciation......... 598,618 590,056 ------------- ------------- 1,301,362 1,308,263 Unamortized acquisition costs........................... 379,930 402,285 Construction work in progress........................... 13,270 10,716 Nuclear fuel, net....................................... 1,307 1,308 ------------- ------------- Total net utility plant............................. 1,695,869 1,722,572 ------------- ------------- Other Property and Investments: Nuclear decommissioning trusts, at market............... 4,769 4,332 Investments in regional nuclear generating companies and subsidiary company, at equity............ 19,306 19,169 Other, at cost.......................................... 3,808 3,773 ------------- ------------- 27,883 27,274 ------------- ------------- Current Assets: Cash and cash equivalents............................... 165,237 94,459 Receivables, net........................................ 80,182 89,338 Accounts receivable from affiliated companies........... 12,868 38,520 Accrued utility revenues................................ 33,592 36,885 Fuel, materials, and supplies, at average cost.......... 39,286 40,161 Recoverable energy costs--current portion............... 48,862 31,886 Prepayments and other................................... 5,417 11,271 ------------- ------------- 385,444 342,520 ------------- ------------- Deferred Charges: Regulatory assets (Note 2C): Recoverable energy costs............................... 182,826 191,686 Income taxes, net...................................... 148,675 128,244 Deferred costs, nuclear plant.......................... 263,091 281,856 Unrecovered contractual obligations.................... 79,370 83,042 Seabrook deferral...................................... 32,577 8,376 Other.................................................. 2,228 2,214 Deferred receivable from affiliated company............. 30,036 32,472 Unamortized debt expense................................ 11,494 11,749 Other................................................... 6,893 5,154 ------------- ------------- 757,190 744,793 ------------- ------------- Total Assets........................................ $ 2,866,386 $ 2,837,159 ============= =============
See accompanying notes to financial statements. PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE BALANCE SHEETS
March 31, December 31, 1998 1997 (Unaudited) (Restated) ------------- ------------- (Thousands of Dollars) CAPITALIZATION AND LIABILITIES - ------------------------------ Capitalization: Common stock--$1 par value. Authorized and outstanding 1,000 shares................ $ 1 $ 1 Capital surplus, paid in................................ 424,097 423,713 Retained earnings (Note 1).............................. 174,642 170,501 ------------- ------------- Total common stockholder's equity.............. 598,740 594,215 Preferred stock subject to mandatory redemption......... 75,000 75,000 Long-term debt.......................................... 516,485 516,485 ------------- ------------- Total capitalization........................... 1,190,225 1,185,700 ------------- ------------- Obligations Under Seabrook Power Contracts and Other Capital Leases................................. 774,829 799,450 ------------- ------------- Current Liabilities: Long-term debt and preferred stock--current portion..... 195,000 195,000 Obligations under Seabrook Power Contracts and other capital leases--current portion........................ 127,909 122,363 Accounts payable........................................ 29,644 21,231 Accounts payable to affiliated companies................ 31,903 32,677 Accrued taxes........................................... 78,025 69,445 Accrued interest........................................ 16,014 7,197 Accrued pension benefits................................ 46,111 46,061 Other................................................... 7,791 9,417 ------------- ------------- 532,397 503,391 ------------- ------------- Deferred Credits: Accumulated deferred income taxes....................... 229,308 204,406 Accumulated deferred investment tax credits............. 3,844 3,972 Deferred contractual obligations........................ 79,370 83,042 Deferred revenue from affiliated company................ 30,036 32,472 Other................................................... 26,377 24,726 ------------- ------------- 368,935 348,618 ------------- ------------- Commitments and Contingencies (Note 7) ------------- ------------- Total Capitalization and Liabilities........... $ 2,866,386 $ 2,837,159 ============= =============
See accompanying notes to financial statements. PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE STATEMENTS OF INCOME (Unaudited)
Three Months Ended March 31, -------------------------- 1997 1998 (Restated) ----------- ----------- (Thousands of Dollars) Operating Revenues.................................... $ 261,745 $ 278,321 ----------- ----------- Operating Expenses: Operation -- Fuel, purchased and net interchange power........ 74,946 75,569 Other............................................ 87,825 86,412 Maintenance......................................... 28,616 8,111 Depreciation........................................ 11,507 11,242 Amortization of regulatory assets, net.............. 14,135 14,141 Federal and state income taxes...................... 15,392 27,617 Taxes other than income taxes....................... 10,555 10,453 ----------- ----------- Total operating expenses...................... 242,976 233,545 ----------- ----------- Operating Income...................................... 18,769 44,776 ----------- ----------- Other Income: Equity in earnings of regional nuclear generating companies and subsidiary company.................. 671 556 Other, net.......................................... 3,397 (140) Income taxes........................................ (3,226) (571) ----------- ----------- Other income/(loss), net...................... 842 (155) ----------- ----------- Income before interest charges................ 19,611 44,621 ----------- ----------- Interest Charges: Interest on long-term debt.......................... 12,694 12,625 Other interest...................................... 126 (299) ----------- ----------- Interest charges, net......................... 12,820 12,326 ----------- ----------- Net Income (Note 1)................................... $ 6,791 $ 32,295 =========== ===========
See accompanying notes to financial statements. PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE STATEMENTS OF CASH FLOWS (Unaudited)
Three Months Ended March 31, ----------------------- 1997 1998 (Restated) ----------- ----------- (Thousands of Dollars) Operating Activities: Net Income................................................ $ 6,791 $ 32,295 Adjustments to reconcile to net cash from operating activities: Depreciation............................................ 11,507 11,242 Deferred income taxes and investment tax credits, net... 18,586 28,148 Recoverable energy costs, net of amortization........... (8,116) (1,153) Amortization of acquisition costs, net.................. 14,135 14,141 Deferred Seabrook capital costs......................... (24,201) - Other sources of cash................................... 29,262 8,579 Other uses of cash...................................... (34,778) (11,535) Changes in working capital: Receivables and accrued utility revenues................ 38,101 17,910 Fuel, materials, and supplies........................... 875 985 Accounts payable........................................ 7,639 (17,291) Accrued taxes........................................... 8,580 357 Other working capital (excludes cash)................... 13,095 1,389 ----------- ----------- Net cash flows from operating activities.................... 81,476 85,067 ----------- ----------- Financing Activities: Net increase in short term debt........................... - 250 Cash dividends on preferred stock......................... (2,650) (3,312) Cash dividends on common stock............................ - (85,000) ----------- ----------- Net cash flows used for financing activities................ (2,650) (88,062) ----------- ----------- Investment Activities: Investment in plant: Electric utility plant.................................. (7,739) (8,119) Nuclear fuel............................................ 1 1 ----------- ----------- Net cash flows used for investments in plant.............. (7,738) (8,118) NU System Money Pool...................................... - 18,250 Other investment activities, net.......................... (310) (534) ----------- ----------- Net cash flows used for investments......................... (8,048) 9,598 ----------- ----------- Net Increase In Cash For The Period......................... 70,778 6,603 Cash - beginning of period.................................. 94,459 1,015 ----------- ----------- Cash - end of period........................................ $ 165,237 $ 7,618 =========== ===========
See accompanying notes to financial statements. PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE Management's Discussion and Analysis of Financial Condition and Results of Operations This section contains management's assessment of Public Service Company of New Hampshire's (PSNH 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 PSNH's financial statements and footnotes in this Form 10-Q, the 1997 Form 10-K and Current Reports on Form 8-K dated March 9, 1998 and April 8, 1998. FINANCIAL CONDITION OVERVIEW Net income was approximately $7 million for the first quarter of 1998 compared to approximately $32 million for the first quarter of 1997. The decrease in net income was primarily due to lower operating revenues and higher maintenance expenses. PSNH has reviewed, with the Securities and Exchange Commission (SEC), the method by which it accounted for certain costs associated with the ongoing Millstone outages. For the past two years, PSNH, has been reserving for the unavoidable costs they expected to incur to meet Nuclear Regulatory Commission (NRC) requirements. The SEC has advised PSNH to reflect these costs as they are incurred. These first quarter statements have been prepared in accordance with the SEC's directive. The company plans to submit amended Form 10-Ks for the years 1996 and 1997 to reflect this change. The implementation of this accounting change does not materially impact the financial condition of the company. For further information on this issue, including its financial impact, see "Notes to Financial Statements" Note 1. RESTRUCTURING On March 20, 1998, the New Hampshire Public Utilities Commission (NHPUC)issued an order stating PSNH, a wholly owned subsidiary of NU, has demonstrated that severe financial harm would be caused by the 1997 Order that mandated a regional average rate making methodology. Thus, the NHPUC stated that an order will be issued in the future using a cost-based method to allow PSNH to continue to use its current accounting treatment. See the "Notes to Financial Statements" Note 7A, for further information on restructuring. RATE MATTERS On March 13, 1998, PSNH filed testimony and exhibits seeking a 3.7 percent net increase in rates in the June through December 1998 period in connection with its comprehensive fuel and purchased power adjustment clause(FPPAC)proceedings. On April 29, 1998, PSNH entered into a Stipulation and Settlement with the Office of The Consumer Advocate and the NHPUC Staff resolving most of the contested issues in the FPPAC proceeding. If this settlement is approved by the NHPUC, in conjunction with a new reduced NEPOOL capability responsibility, PSNH's revised request will produce slightly more than a 1 percent net increase in rates. This proposed rate would result in the collection of substantially all currently projected fuel and purchased power costs, but would defer for future collection a substantial portion of previously incurred costs. Hearings are scheduled for mid-May. See the "Notes to Financial Statements" Note 2C, for further information on the FPPAC. LIQUIDITY AND CAPITAL RESOURCES Cash provided from operations decreased approximately $4 million in the first three months of 1998, from 1997, primarily due to the deferral of the PSNH Seabrook phase-in costs billed by the North Atlantic Energy Corporation (NAEC), partially offset by higher working capital. Cash used for financing activities decreased approximately $85 million in the first three months of 1998, from 1997, due primarily to the payment of cash dividends in 1997. Cash used for investments increased approximately $18 million in the first three months of 1998, from 1997, primarily due to an increase in investments in the NU system Money Pool. Each major company in the NU system finances its own needs. Neither the Connecticut Light and Power Company (CL&P) nor Western Massachusetts Electric Company (WMECO) has any financing agreements containing cross defaults based on financial defaults by NU, PSNH or NAEC. Similarly, neither PSNH nor NAEC has any financing agreements containing cross defaults based on financial defaults by NU, CL&P or WMECO. Nevertheless, it is possible that investors will take negative operating results or regulatory developments at one company in the NU system into account when evaluating other companies in the NU system. That could, as a practical matter and despite the contractual and legal separations among the NU companies, negatively affect each company's access to financial markets. MILLSTONE 3 PSNH has a 2.85-percent ownership interest in Millstone 3. Millstone 3 has been out of service since March 30, 1996 and requires a vote of the Commissioners of the NRC to restart. Northeast Nuclear Energy Company (NNECO), a wholly owned subsidiary of NU, acts as an agent for certain NU system companies and other New England utilities in operating Millstone 3. In January 1998, NNECO declared Millstone 3 physically ready for restart, which meant that almost all of the restart-required physical work had been completed at the plant. On April 7, 1998, Millstone 3 achieved Mode 4 operational status, which is a significant milestone for restart. The Independent Corrective Action Verification Program, an NRC-ordered independent inspection of Millstone's corrective action program and design and licensing basis, is expected to be completed for Millstone 3 in May 1998. On May 1, 1998, NNECO had its first of two meetings with the NRC Commissioners, preparatory to restarting Millstone 3. Selected issues were discussed relating to the proposed restart of Millstone 3 including the Employee Concerns Program (ECP), Safety Conscious Work Environment (SCWE), Deferred Items Management (Backlog Management Plan), Management Oversight (Oversight) and Quality Assurance (QA). The NRC Special Project Office reported to the Commission that Millstone's SCWE, ECP, Oversight, and QA programs are "adequate to support restart" of Millstone 3. Additionally, the NRC Special Project Office found that Millstone 3's Backlog Management Plan "provides appropriate process for (the) timely closure of deferred items." A second NRC meeting to discuss the remaining restart items for Millstone 3 has been scheduled for June 2, 1998. The NRC Commissioners' vote on restart of Millstone 3 will likely take place within the two weeks following this second meeting. To date, PSNH's costs related to the Millstone 3 outage have not had a material impact on the company's financial position or results of operations. PSNH has been expensing all of the costs to restart the unit, including replacement power and nonfuel O&M expenses. Management expects that, under its current planning assumptions, Millstone 3's outage-related costs will continue to be immaterial to the company's results of operations. For further information on the current Millstone outages, see PSNH's 1997 Form 10-K and the Form 8-Ks dated March 9, 1998 and April 8, 1998. SEABROOK PERFORMANCE PSNH is obligated to purchase NAEC's 35.98-percent share of the capacity and output generated by Seabrook 1(Seabrook) under the Seabrook Power Contract for a period equal to the length of the NRC full-power operating license for Seabrook (through 2026) whether or not Seabrook is operating and without regard to the cost of alternative sources of power. North Atlantic Energy Service Corporation is the managing agent and operates Seabrook. Seabrook operated at a capacity factor of 81.2 percent through March 1998, compared to 100.3 percent for the same period in 1997. The lower 1998 capacity factor is due primarily to an unplanned outage that began December 5, 1997 and ended on January 17, 1998. The unplanned outage was due to a small leak in a back-up cooling system. While the unit was down the company decided to work on the air circulation system, work which was originally scheduled for later in 1998. YEAR 2000 ISSUE The Year 2000 issue exists because many computer systems and applications currently use two-digit date fields to designate a year. As the change of the century occurs, date-sensitive systems may recognize the year 2000 as 1900, or not recognize it at all. This inability to recognize or properly treat the year 2000 may cause NU's systems to process critical financial and operational information incorrectly. The company has assessed and continues to assess the impact of the Year 2000 issue on its operating and reporting systems. This assessment is expected to be completed in the summer of 1998. The NU system will utilize both internal and external resources to reprogram or replace and test the software for Year 2000 modifications. The total estimated remaining cost of the Year 2000 project is $36 million and is being funded through operating cash flows. This estimate does not include any costs for the replacement or repair of equipment or devices that may be identified during the assessment process. The majority of these costs will be expensed as incurred over the next two years. To date, the company has incurred and expensed approximately $5 million related to the assessment of, and preliminary efforts in connection with, its Year 2000 project. The costs of the project and the date on which the company plans to complete the Year 2000 modifications are based on management's best estimates, which were derived utilizing numerous assumptions of future events, including the continued availability of certain resources, third-party modification plans and other factors. However, there can be no guarantee that these estimates will be achieved, and actual results could differ materially from those plans. If the NU system's remediation plan is not successful, there could be a significant disruption of the NU system's operations. The company is committed to ensuring that adequate resources are available in order to implement any changes necessary for its nuclear and operating systems to be compatible with the new millennium. RESULTS OF OPERATIONS Income Statement Variances Three Months Ended March 31, 1998 1998 Over/(Under)1997 Millions of Dollars Amount Percent Operating revenues $(17) (6)% Other operation 2 2 Maintenance 21 (a) Federal and state income taxes (10) (34) Other income, net 4 (a) Net income (26) (79) (a) Percent greater than 100 Total operating revenues decreased in the first three months of 1998 primarily due to lower retail revenues and lower fuel recoveries. Retail revenues decreased approximately $13 million, primarily due to the December 1997 retail rate decrease, partially offset by higher retail sales in the first quarter of 1998. Retail sales increased 1 percent, primarily due to modest economic growth in the first quarter of 1998. Fuel recoveries decreased approximately $6 million, primarily due to lower energy costs reflected in rates through March 1998. Other operation and maintenance expense increased in the first three months of 1998 primarily due to higher storm costs as a result of the January 1998 ice storm. Federal and state income taxes decreased in the first three months of 1998 primarily due to lower book taxable income. Other income, net increased in the first three months of 1998, primarily due to the amortization of the Seabrook deferred charges associated with the taxes on the purchased return which began in December 1997. WESTERN MASSACHUSETTS ELECTRIC COMPANY AND SUBSIDIARY PART I. FINANCIAL INFORMATION WESTERN MASSACHUSETTS ELECTRIC COMPANY AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS
March 31, December 31, 1998 1997 (Unaudited) (Restated) ------------- ------------ (Thousands of Dollars) ASSETS - ------ Utility Plant, at original cost: Electric................................................ $ 1,285,402 $ 1,284,288 Less: Accumulated provision for depreciation......... 574,314 559,119 ------------- ------------ 711,088 725,169 Construction work in progress........................... 18,472 19,038 Nuclear fuel, net....................................... 30,988 30,907 ------------- ------------ Total net utility plant............................. 760,548 775,114 ------------- ------------ Other Property and Investments: Nuclear decommissioning trusts, at market............... 112,127 102,708 Investments in regional nuclear generating companies, at equity................................... 16,381 15,741 Other, at cost.......................................... 4,933 4,900 ------------- ------------ 133,441 123,349 ------------- ------------ Current Assets: Cash.................................................... 93 105 Investments in securitizable assets..................... 29,621 25,280 Receivables, net........................................ 1,781 2,739 Accounts receivable from affiliated companies........... 2,932 3,933 Taxes receivable........................................ 4,048 10,768 Fuel, materials, and supplies, at average cost.......... 5,509 5,860 Prepayments and other................................... 18,749 14,945 ------------- ------------ 62,733 63,630 ------------- ------------ Deferred Charges: Regulatory assets (Note 2C): Income taxes, net...................................... 60,917 63,716 Unrecovered contractual obligations.................... 89,730 93,628 Recoverable energy costs............................... 24,125 26,270 Other.................................................. 26,194 27,763 Unamortized debt expense................................ 2,491 2,695 Other................................................... 3,552 2,963 ------------- ------------ 207,009 217,035 ------------- ------------ Total Assets........................................ $ 1,163,731 $ 1,179,128 ============= ============
See accompanying notes to consolidated financial statements. WESTERN MASSACHUSETTS ELECTRIC COMPANY AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS
March 31, December 31, 1998 1997 (Unaudited) (Restated) ------------- ------------ (Thousands of Dollars) CAPITALIZATION AND LIABILITIES - ------------------------------ Capitalization: Common stock--$25 par value. Authorized and outstanding 1,072,471 shares............ $ 26,812 $ 26,812 Capital surplus, paid in................................ 151,472 151,171 Retained earnings (Note 1).............................. 59,218 58,608 ------------- ------------ Total common stockholder's equity.............. 237,502 236,591 Preferred stock not subject to mandatory redemption..... 20,000 20,000 Preferred stock subject to mandatory redemption......... 18,000 19,500 Long-term debt.......................................... 347,564 386,849 ------------- ------------ Total capitalization........................... 623,066 662,940 ------------- ------------ Obligations Under Capital Leases.......................... 213 217 ------------- ------------ Current Liabilities: Notes payable to banks.................................. 15,000 15,000 Notes payable to affiliated company..................... 32,950 14,350 Long-term debt and preferred stock--current portion................................................ 41,500 11,300 Obligations under capital leases--current portion................................................ 33,007 32,670 Accounts payable........................................ 12,110 30,571 Accounts payable to affiliated companies................ 17,500 21,209 Accrued taxes........................................... 456 522 Accrued interest........................................ 5,149 3,318 Other................................................... 5,869 2,446 ------------- ------------ 163,541 131,386 ------------- ------------ Deferred Credits: Accumulated deferred income taxes....................... 242,316 246,453 Accumulated deferred investment tax credits............. 22,997 23,364 Deferred contractual obligations........................ 89,730 93,628 Other................................................... 21,868 21,140 ------------- ------------ 372,911 384,585 ------------- ------------ Commitments and Contingencies (Note 7) Total Capitalization and Liabilities........... $ 1,163,731 $ 1,179,128 ============= ============
See accompanying notes to consolidated financial statements. WESTERN MASSACHUSETTS ELECTRIC COMPANY AND SUBSIDIARY CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
Three Months Ended March 31, ------------------------ 1997 1998 (Restated) ----------- ----------- (Thousands of Dollars) Operating Revenues.................................... $ 107,189 $ 106,054 ----------- ----------- Operating Expenses: Operation -- Fuel, purchased and net interchange power........ 31,441 41,080 Other............................................ 33,374 31,827 Maintenance......................................... 15,553 16,485 Depreciation........................................ 10,339 10,182 Amortization of regulatory assets................... 1,696 1,615 Federal and state income taxes...................... 1,271 (1,267) Taxes other than income taxes....................... 5,677 5,457 ----------- ----------- Total operating expenses...................... 99,351 105,379 ----------- ----------- Operating Income...................................... 7,838 675 ----------- ----------- Other Income: Equity in earnings of regional nuclear generating companies......................................... 596 493 Other, net.......................................... 711 570 Income taxes........................................ (206) 72 ----------- ----------- Other income, net............................. 1,101 1,135 ----------- ----------- Income before interest charges................ 8,939 1,810 ----------- ----------- Interest Charges: Interest on long-term debt.......................... 6,937 5,973 Other interest...................................... 635 870 ----------- ----------- Interest charges, net......................... 7,572 6,843 ----------- ----------- Net Income/(Loss) (Note 1)............................ $ 1,367 $ (5,033) =========== ===========
See accompanying notes to consolidated financial statements. WESTERN MASSACHUSETTS ELECTRIC COMPANY AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Three Months Ended March 31, ----------------------- 1997 1998 (Restated) ----------- ----------- (Thousands of Dollars) Operating Activities: Net Income/(Loss)........................................... $ 1,367 $ (5,033) Adjustments to reconcile to net cash from operating activities: Depreciation.............................................. 10,339 10,182 Deferred income taxes and investment tax credits, net..... (3,069) (808) Recoverable energy costs, net of amortization............. 2,145 1,316 Amortization of nuclear refueling outage, net of deferrals 1,553 2,206 Other sources of cash..................................... 6,705 3,777 Other uses of cash........................................ (690) (11,332) Changes in working capital: Receivables and accrued utility revenues.................. (18,041) 3,485 Fuel, materials, and supplies............................. 351 180 Accounts payable.......................................... (22,170) (15,445) Accrued taxes............................................. (66) 6,700 Sale of receivables and accrued utility revenues.......... 20,000 - Investments in securitizable assets....................... (4,341) - Other working capital (excludes cash)..................... 8,170 683 ----------- ----------- Net cash flows from/(used for) operating activities........... 2,253 (4,089) ----------- ----------- Financing Activities: Net decrease in short-term debt............................. 18,600 43,500 Reacquisitions and retirements of long-term debt............ (9,800) (14,700) Reacquisitions and retirements of preferred stock........... (1,500) - Cash dividends on preferred stock........................... (757) (785) Cash dividends on common stock.............................. - (15,004) ----------- ----------- Net cash flows from financing activities...................... 6,543 13,011 ----------- ----------- Investment Activities: Investment in plant: Electric utility plant.................................... (3,423) (6,056) Nuclear fuel.............................................. 20 (30) ----------- ----------- Net cash flows used for investments in plant................ (3,403) (6,086) Investments in nuclear decommissioning trusts............... (4,732) (2,455) Other investment activities, net............................ (673) (401) ----------- ----------- Net cash flows used for investments........................... (8,808) (8,942) ----------- ----------- Net Decrease In Cash For The Period........................... (12) (20) Cash and cash equivalents- beginning of period................ 105 67 ----------- ----------- Cash and cash equivalents- end of period...................... $ 93 $ 47 =========== ===========
See accompanying notes to consolidated financial statements. WESTERN MASSACHUSETTS ELECTRIC COMPANY Management's Discussion and Analysis of Financial Condition and Results of Operations This section contains management's assessment of Western Massachusetts Electric Company (WMECO 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 in this Form 10-Q, the 1997 Form 10-K, and the Current Reports on Form 8-K dated March 25, 1998 and April 20, 1998. FINANCIAL CONDITION Overview WMECO had net income of $1.4 million for the first quarter of 1998 compared to a net loss of $5.0 million for the first quarter of 1997. The 1998 net income was a result of lower replacement power costs and higher retail sales, partially offset by the impact of a retail rate reduction, effective March 1, 1998. Retail kilowatt-hour sales for the quarter increased 3.8 percent from 1997, primarily due to modest economic growth. The outages at the three Millstone units (Millstone) continue to have a significant negative impact on WMECO's net income. The three Millstone units have been off-line for more than two years and require a vote of the Commissioners of the Nuclear Regulatory Commission (NRC) approval to restart. NU anticipates a June restart for Millstone 3 and a restart for Millstone 2 three to four months after Millstone 3. No restart work is currently being undertaken for Millstone 1. WMECO has reviewed with the Securities and Exchange Commission (SEC) the method by which it accounted for certain costs associated with the ongoing Millstone outages. For the past two years, WMECO has been reserving for the unavoidable costs it expected to incur to meet NRC requirements. The first quarter statement has been prepared in accordance with the SEC's directive. The company plans to submit amended Form 10-Ks for the years 1996 and 1997 to reflect this change. Management does not expect implementation of this accounting change to affect the ability of WMECO to meet its loan covenants. For further information on the this issue, including its financial impact on the company, see "Notes to Financial Statements," Note 1. Millstone Outages WMECO has a 19-percent ownership interest in Millstone 1 and 2 and a 12.24- percent ownership interest in Millstone 3. Millstone units 1, 2 and 3 have been out of service since November 4, 1995, February 21, 1996, and March 30, 1996, respectively. Northeast Nuclear Energy Company (NNECO), a wholly owned subsidiary of NU, acts as an agent for certain NU system companies and other New England utilities in operating Millstone. In January 1998, NNECO declared Millstone 3 physically ready for restart, which meant that almost all of the restart-required physical work had been completed at the plant. On April 7, 1998, Millstone 3 achieved Mode 4 operational status, which is a significant milestone for restart. The Independent Corrective Action Verification Program, an NRC-ordered independent inspection of Millstone's corrective action program and design and licensing basis, is expected to be completed for Millstone 3 in May 1998. On May 1, 1998, NNECO had its first of two meetings with the NRC Commissioners, preparatory to restarting Millstone 3. Selected issues were discussed relating to the proposed restart of Millstone 3 including the Employee Concerns Program (ECP), Safety Conscious Work Environment (SCWE), Deferred Items Management (Backlog Management Plan) and Management Oversight (Oversight) and Quality Assurance (QA). The NRC Special Project Office reported to the Commission that Millstone's SCWE, ECP, Oversight, and QA programs are "adequate to support restart" of Millstone 3. Additionally, the NRC Special Project Office found that Millstone 3's Backlog Management Plan "provides appropriate process for (the) timely closure of deferred items." A second NRC meeting to discuss the remaining restart items for Millstone 3 has been scheduled for June 2, 1998. The NRC Commissioners' vote on restart of Millstone 3 will likely take place within the two weeks following this second meeting. For the three months ended March 31, 1998, WMECO's share of nonfuel operation and maintenance (O&M) costs expensed for Millstone totaled approximately $21 million, unchanged from the three months ended March 31, 1997. WMECO's share of replacement power costs attributable to the Millstone outages totaled approximately $11 million in the first quarter of 1998 compared to $16 million expensed in the first quarter of 1997. For the remainder of 1998, these costs for 1998 are projected to average approximately $1 million per month for all three Millstone units while the plants are out of service. WMECO has been expensing all of the costs to restart the units including replacement power and nonfuel O&M expenses. For further information on the current Millstone outages, see WMECO's 1997 Form 10-K and the Form 8-Ks dated March 25, 1998, and April 20, 1998. Liquidity and Capital Resources Cash provided from operations increased approximately $6 million in the first quarter of 1998, from 1997, primarily due to cash available through the use of an accounts receivable facility, lower cash operating costs related to the Millstone outages, and a decrease in the amount needed to pay down prior year accounts payable balances. Net cash from financing activities decreased approximately $6 million, primarily due to the decrease in short-term borrowings, partially offset by lower payments of cash dividends and lower preferred stock reacquisitions and retirements WMECO established a facility under which it may sell from time to time up to $40 million of its accounts receivable and accrued utility revenues. As of April 30, 1998, WMECO had sold approximately $20 million of accounts receivable to third party purchasors. NU, Connecticut Light and Power Company (CL&P) and WMECO are parties to a three-year revolving credit agreement (the Credit Agreement), which was amended in May 1997. At March 31, 1998, WMECO had $15 million outstanding under the Credit Agreement. The NU system companies' ability to borrow under their financing arrangements is dependent on their satisfaction of contractual borrowing conditions. The financial covenants that must be satisfied to permit CL&P and WMECO to borrow under the Credit Agreement are particularly restrictive throughout 1998. Spending levels in 1998, particularly the first half of the year while the Millstone units are out of service, will be constrained to levels intended to help meet the financial covenants in CL&P's and WMECO's Credit Agreement. However, there is no assurance that these financial covenants will be met as the NU system may encounter additional unexpected costs relating to storms, reduced revenues from regulatory actions, or the effect of weather on sales levels. Each major company in the NU system finances its own needs. Neither CL&P nor WMECO has any financing agreements containing cross defaults based on financial defaults by NU, Public Service Company of New Hampshire (PSNH) or North Atlantic Energy Corporation (NAEC). Similarly, neither PSNH nor NAEC has any financing agreements containing cross defaults based on financial defaults by NU, CL&P or WMECO. Nevertheless, it is possible that investors will take negative operating results or regulatory developments at one company in the NU system into account when evaluating other companies in the NU system. That could, as a practical matter and despite the contractual and legal separations among the NU companies, negatively affect each company's access to financial markets. If CL&P or WMECO did not meet these covenants, the bank creditors would have a number of options, including causing the acceleration of the affected indebtedness, reducing CL&P's or WMECO's access to further credit, seeking higher interest rates and fees, asking for additional collateral and additional measures which management cannot predict. On April 22, 1998, Moody's Investors Services (Moody's) downgraded the senior secured debt of CL&P and WMECO to Ba3 from Ba2. Moody's also downgraded CL&P's and WMECO's preferred stock and NU's unsecured amortizing notes. The ratings remain under review. Moody's indicated that the downgrade was primarily due to the Department of Public Utility Control's (DPUC) decision which removed Millstones 1 and 2, and potentially Millstone 3 from rate base. In particular, Moody's stated that the decision "adds to pressure for restart at a time when existing financial strains are already significant." The downgrade of WMECO's senior secured debt brought those ratings to a level at which the sponsor of WMECO's $40 million accounts receivable program could elect to terminate the program. WMECO has initiated discussions with the sponsor concerning the effect of the downgrade on continued availability of the program. If the program is terminated by the sponsor, WMECO could elect to immediately pay off the outstanding obligations or wind down the program pursuant to its terms. CL&P and WMECO finance their respective shares of the costs of the nuclear fuel for Millstone through the Niantic Bay Fuel Trust (NBFT). NBFT has initiated a private notes offering seeking up to $180 million of three-to-five year debt financing to refund $80 million of NBFT notes that mature on June 5, 1998. If this offering realizes more than $80 million, the proceeds would be used to pay down or terminate a $100 million NBFT bank revolving credit facility, which was renegotiated in February 1998 and expires in July 1998. $92 million was outstanding under the NBFT bank revolving credit facility on May 12, 1998. If the return to service of Millstone 2 or 3 is delayed substantially beyond the present restart estimates or if some borrowing facilities become unavailable because of difficulties in meeting borrowing conditions, renegotiating extensions, or refinancing maturities, if the system encounters additional significant costs or any other significant deviations from management's current assumptions, the currently available borrowing facilities could be insufficient to meet all of the NU system's cash requirements. In those circumstances, management would attempt to take even more stringent actions to reduce costs and cash outflows and would attempt to take other actions to obtain additional sources of funds. The availability of these funds would be dependent upon the general market conditions and the NU system's credit and financial condition at the time. Year 2000 Issue The Year 2000 issue exists because many computer systems and applications currently use two-digit date fields to designate a year. As the change of the century occurs, date-sensitive systems may recognize the year 2000 as 1900, or not recognize it at all. This inability to recognize or properly treat the year 2000 may cause NU's systems to process critical financial and operational information incorrectly. The company has assessed and continues to assess the impact of the Year 2000 issue on its operating and reporting systems. This assessment is expected to be completed in the summer of 1998. The NU system will utilize both internal and external resources to reprogram or replace and test the software for Year 2000 modifications. The total estimated remaining cost of the Year 2000 project is $36 million and is being funded through operating cash flows. This estimate does not include any costs for the replacement or repair of equipment or devices that may be identified during the assessment process. The majority of these costs will be expensed as incurred over the next two years. To date, the company has incurred and expensed approximately $5 million related to the assessment of, and preliminary efforts in connection with, its Year 2000 project. The costs of the project and the date on which the company plans to complete the Year 2000 modifications are based on management's best estimates, which were derived utilizing numerous assumptions of future events, including the continued availability of certain resources, third-party modification plans and other factors. However, there can be no guarantee that these estimates will be achieved, and actual results could differ materially from those plans. If the NU system's remediation plan is not successful, there could be a significant disruption of the NU system's operations. The company is committed to ensuring that adequate resources are available in order to implement any changes necessary for its nuclear and operating systems to be compatible with the new millennium. RESULTS OF OPERATIONS Income Statement Variances Increase/(Decrease) Millions of Dollars First Quarter Percent Operating revenues $1 (2)% Fuel, purchased and net interchange power (10) (23) Other operation 2 5 Maintenance (1) (6) Federal and state income taxes 3 (a) Net Income $1 (a) (a) Percentage greater than 100 Comparison of the First Quarter of 1998 to the First Quarter of 1997 Total operating revenues increased in 1998, primarily due to higher retail sales, partially offset by lower revenues from regulatory decisions. Retail kilowatt-hour sales for the quarter increased 3.8 percent from 1997, primarily due to modest economic growth. Revenues from regulatory decisions decreased primarily due to a retail rate decrease, effective March 1, 1998. Fuel, purchased, and net interchange power expense decreased in 1998, primarily due to lower replacement power costs in 1998. Federal and state income taxes increased in 1998, primarily due to higher book taxable income. NORTH ATLANTIC ENERGY CORPORATION PART I. FINANCIAL INFORMATION NORTH ATLANTIC ENERGY CORPORATION BALANCE SHEETS
March 31, 1998 December 31, (Unaudited) 1997 ------------- ------------- (Thousands of Dollars) ASSETS - ------ Utility Plant, at original cost: Electric................................................ $ 773,646 $ 779,111 Less: Accumulated provision for depreciation......... 151,762 143,778 ------------- ------------- 621,884 635,333 Construction work in progress........................... 5,748 4,616 Nuclear fuel, net....................................... 25,057 27,413 ------------- ------------- Total net utility plant............................. 652,689 667,362 ------------- ------------- Other Property and Investments: Nuclear decommissioning trusts, at market............... 28,861 26,547 ------------- ------------- 28,861 26,547 ------------- ------------- Current Assets: Cash.................................................... 51 13 Special deposits........................................ 2,757 - Notes receivable from affiliated companies.............. 26,750 - Receivables from affiliated companies................... 23,247 25,695 Taxes receivable........................................ 6,695 4,613 Materials and supplies, at average cost................. 12,943 13,003 Prepayments and other................................... 2,088 4,220 ------------- ------------- 74,531 47,544 ------------- ------------- Deferred Charges: Regulatory assets: Deferred costs--Seabrook............................... 187,147 199,753 Income taxes, net...................................... 45,966 48,736 Recoverable energy costs............................... 2,005 2,057 Unamortized loss on reacquired debt.................... 17,044 18,938 Unamortized debt expense................................ 3,462 3,702 ------------- ------------- 255,624 273,186 ------------- ------------- Total Assets........................................ $ 1,011,705 $ 1,014,639 ============= =============
See accompanying notes to financial statements. NORTH ATLANTIC ENERGY CORPORATION BALANCE SHEETS
March 31, 1998 December 31, (Unaudited) 1997 ------------- ------------- (Thousands of Dollars) 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....................................... 65,612 58,702 ------------- ------------- Total common stockholder's equity.............. 226,612 219,702 Long-term debt.......................................... 475,000 475,000 ------------- ------------- Total capitalization........................... 701,612 694,702 ------------- ------------- Current Liabilities: Notes payable to affiliated company..................... - 9,950 Long-term debt--current portion......................... 20,000 20,000 Accounts payable........................................ 5,551 7,912 Accounts payable to affiliated companies................ 5,815 6,040 Accrued interest........................................ 9,794 3,025 Accrued taxes........................................... 950 - Other................................................... 325 1,055 ------------- ------------- 42,435 47,982 ------------- ------------- Deferred Credits: Accumulated deferred income taxes....................... 214,840 216,701 Deferred obligation to affiliated company............... 30,036 32,472 Other................................................... 22,782 22,782 ------------- ------------- 267,658 271,955 ------------- ------------- Commitments and Contingencies (Note 6) ------------- ------------- Total Capitalization and Liabilities........... $ 1,011,705 $ 1,014,639 ============= =============
See accompanying notes to financial statements. NORTH ATLANTIC ENERGY CORPORATION STATEMENTS OF INCOME (Unaudited)
Three Months Ended March 31, -------------------------- 1998 1997 ----------- ----------- (Thousands of Dollars) Operating Revenues.................................... $ 68,169 $ 41,976 ----------- ----------- Operating Expenses: Operation -- Fuel............................................. 3,222 3,828 Other............................................ 8,457 7,890 Maintenance......................................... 2,996 2,933 Depreciation........................................ 6,412 6,357 Amortization of regulatory assets, net.............. 21,366 - Federal and state income taxes...................... 8,970 3,245 Taxes other than income taxes....................... 3,098 3,317 ----------- ----------- Total operating expenses...................... 54,521 27,570 ----------- ----------- Operating Income...................................... 13,648 14,406 ----------- ----------- Other Income: Deferred Seabrook return--other funds............... 1,875 1,741 Other, net.......................................... (2,384) 116 Income taxes........................................ 3,175 154 ----------- ----------- Other income, net............................. 2,666 2,011 ----------- ----------- Income before interest charges................ 16,314 16,417 ----------- ----------- Interest Charges: Interest on long-term debt.......................... 12,815 12,527 Other interest...................................... (20) (75) Deferred Seabrook return--borrowed funds............ (3,390) (3,275) ----------- ----------- Interest charges, net......................... 9,405 9,177 ----------- ----------- Net Income............................................ $ 6,909 $ 7,240 =========== ===========
See accompanying notes to financial statements. NORTH ATLANTIC ENERGY CORPORATION STATEMENTS OF CASH FLOWS (Unaudited)
Three Months Ended March 31, ----------------------- 1998 1997 ----------- ----------- (Thousands of Dollars) Operating Activities: Net Income................................................ $ 6,909 $ 7,240 Adjustments to reconcile to net cash from operating activities: Depreciation............................................ 6,412 6,357 Deferred income taxes and investment tax credits, net... 909 5,888 Deferred Seabrook return, net of amortization........... 16,329 (5,016) Amortization of deferred obligation to affiliated co.... (2,436) - Other sources of cash................................... 10,746 4,985 Other uses of cash...................................... (3,723) (454) Changes in working capital: Receivables............................................. 2,448 2,052 Materials and supplies.................................. 60 (586) Accounts payable........................................ (2,586) (16,239) Accrued taxes........................................... 950 (2,121) Other working capital (excludes cash)................... 3,332 11,769 ----------- ----------- Net cash flows from operating activities.................... 39,350 13,875 ----------- ----------- Financing Activities: Net increase (decrease) in short-term debt................ (9,950) 18,250 Cash dividends on common stock............................ - (25,000) ----------- ----------- Net cash flows used for financing activities................ (9,950) (6,750) ----------- ----------- Investment Activities: Investment in plant: Electric utility plant.................................. (1,146) (1,700) Nuclear fuel............................................ (124) (4,364) ----------- ----------- Net cash flows used for investments in plant.............. (1,270) (6,064) NU System Money Pool...................................... (26,750) - Investments in nuclear decommissioning trusts............. (1,342) (1,212) ----------- ----------- Net cash flows used for investments......................... (29,362) (7,276) ----------- ----------- Net Increase/(Decrease) In Cash For The Period.............. 38 (151) Cash - beginning of period.................................. 13 299 ----------- ----------- Cash - end of period........................................ $ 51 $ 148 =========== ===========
See accompanying notes to financial statements. 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 in this Form 10-Q, the 1997 Form 10-K, and the Current Reports on Form 8-K dated March 9, 1998 and April 8, 1998. FINANCIAL CONDITION OVERVIEW Under the Seabrook Power Contract, (the Contract), Public Service Company of New Hampshire (PSNH) is unconditionally obligated to pay the company's cost of service for a period equal to the length of the Nuclear Regulatory Commission (NRC) full-power operating license for Seabrook (through 2026) whether or not Seabrook 1 is operating and without regard to the cost of alternative sources of power. In addition, PSNH will be obligated to pay decommissioning and project cancellation costs after the termination of the operating license. NAEC had net income of approximately $7 million for the three months ended March 31, 1998, unchanged from the same period in 1997. LIQUIDITY AND CAPITAL RESOURCES Cash provided from operations increased by approximately $25 million in the first three months of 1998, from 1997, as a result of the beginning of the amortization of the Seabrook deferred return in December 1997, which is billed through the Seabrook Power Contract, to PSNH. Cash used for financing activities increased by approximately $3 million in the first three months of 1998, from 1997, primarily due the payment of cash dividends in 1997, partially offset by the repayment of short-term debt related to the NU system money pool. Cash used for investments increased by approximately $22 million in the first three months of 1998, from 1997, primarily due an increase in investments in the Money Pool, partially offset by lower nuclear fuel expenditures. Each major subsidiary of NU finances its own needs. Neither The Connecticut Light and Power Company (CL&P) nor Western Massachusetts Electric Company (WMECO) has any financing agreements containing cross defaults based on financial defaults by NU, PSNH or NAEC. Similarly, neither PSNH nor NAEC has any financing agreements containing cross defaults based on financial defaults by NU, CL&P or WMECO. Nevertheless, it is possible that investors will take negative operating results or regulatory developments at one company in the NU system into account when evaluating other companies in the NU System. That could, as a practical matter and despite the contractual and legal separations among the NU companies, negatively affect each company's access to financial markets. PSNH RESTRUCTURING On March 20, 1998, the New Hampshire Public Utilities Commission (NHPUC)issued an order stating that PSNH, a wholly owned subsidiary of NU, has demonstrated that severe financial harm would be caused by the 1997 Order that mandated a regional average rate making methodology. Thus, the NHPUC stated that an order will be issued in the future using a cost-based method to allow PSNH to continue to use its current accounting treatment. See the "Notes to Financial Statements" Note 7A, for further information on restructuring. SEABROOK PERFORMANCE Seabrook operated at a capacity factor of 81.2 percent through March 1998, compared to 100.3 percent for the same period in 1997. The lower 1998 capacity factor is due primarily to an unplanned outage that began December 5, 1997 and ended on January 17, 1998. The unplanned outage was due to a small leak in a back-up cooling system. While the unit was down the company decided to work on the air circulation system, work which was originally scheduled for later in 1998. RISK-MANAGEMENT INSTRUMENTS NAEC uses swaps to manage the market risk exposures associated with variable interest rates. The company uses these instruments to reduce risk by essentially creating offsetting market exposures but does not use these risk- management instruments for speculative purposes. For further information on risk-management instruments, see the "Notes to Financial Statements" Note 6. NAEC has a hedge on its $200 million variable rate note, effectively fixing the interest on it at 7.823 percent. There have been no material changes in the reported market risk for NAEC since the 1997 Form 10-K. For further information on NAEC's market risk exposure, see the MD&A in the 1997 10-K. YEAR 2000 ISSUE The Year 2000 issue exists because many computer systems and applications currently use two-digit date fields to designate a year. As the change of the century occurs, date-sensitive systems may recognize the year 2000 as 1900, or not recognize it at all. This inability to recognize or properly treat the year 2000 may cause NU's systems to process critical financial and operational information incorrectly. The company has assessed and continues to assess the impact of the Year 2000 issue on its operating and reporting systems. This assessment is expected to be completed in the summer of 1998. The NU system will utilize both internal and external resources to reprogram or replace and test the software for Year 2000 modifications. The total estimated remaining cost of the Year 2000 project is $36 million and is being funded through operating cash flows. This estimate does not include any costs for the replacement or repair of equipment or devices that may be identified during the assessment process. The majority of these costs will be expensed as incurred over the next two years. To date, the company has incurred and expensed approximately $5 million related to the assessment of, and preliminary efforts in connection with, its Year 2000 project. The costs of the project and the date on which the company plans to complete the Year 2000 modifications are based on management's best estimates, which were derived utilizing numerous assumptions of future events, including the continued availability of certain resources, third-party modification plans and other factors. However, there can be no guarantee that these estimates will be achieved, and actual results could differ materially from those plans. If the NU system's remediation plan is not successful, there could be a significant disruption of the NU system's operations. The company is committed to ensuring that adequate resources are available in order to implement any changes necessary for its nuclear and operating systems to be compatible with the new millennium. RESULTS OF OPERATIONS Income Statement Variance Three months Ended March 31, 1998 1998 Over/(Under)1997 Millions of Dollars Amount Percent Operating revenues $26 62% Amortization of Regulatory Assets, net 21 (a) Federal and State Income Taxes 3 87 Other, net (2) (a) Net income - - (a) Percent greater than 100 OPERATING REVENUES Operating revenues represent amounts billed to PSNH under the terms of the Power Contracts and billings to PSNH for decommissioning expense. Operating revenues increased in the first three months of 1998 primarily due to increased sales to PSNH as a result of the amortization of the Seabrook deferred return which began in December 1997. AMORTIZATION OF REGULATORY ASSETS, NET Amortization of Regulatory Assets, net increased in the first three months of 1998 primarily due to the amortization of the Seabrook deferred return which began in December 1997. FEDERAL AND STATE INCOME TAXES Federal and State income taxes increased in the first three months of 1998 primarily due to higher book taxable income. OTHER, NET Other, net decreased in the first three months of 1998 primarily due to the amortization of the Seabrook deferred charges associated with the taxes on the purchased return which began in December 1997. NORTHEAST UTILITIES AND SUBSIDIARIES THE CONNECTICUT LIGHT AND POWER COMPANY AND SUBSIDIARIES PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE WESTERN MASSACHUSETTS ELECTRIC COMPANY AND SUBSIDIARY NORTH ATLANTIC ENERGY CORPORATION NOTES TO FINANCIAL STATEMENTS (Unaudited) 1. SECURITIES AND EXCHANGE COMMISSION INQUIRY AND RESTATEMENT (NU, CL&P, PSNH, WMECO) The SEC inquired into the NU system's accounting for nuclear compliance costs. These costs are the unavoidable incremental costs associated with the current nuclear outages required to be incurred prior to restart of the units in accordance with correspondence received from the NRC early in 1996. The SEC's view is that these unavoidable costs associated with nuclear outages and procedures to be implemented at nuclear power plants in response to regulatory requirements required prior to restart of the units should be expensed as incurred. For the past two years, NU, CL&P, PSNH and WMECO have been reserving for these unavoidable incremental costs they expected to incur to meet NRC standards. The SEC has advised NU, CL&P, PSNH and WMECO to reflect these costs as they are incurred. While NU and its independent auditors, Arthur Andersen LLP, believed the accounting was required by, and was in accordance with, generally accepted accounting principles, the company has agreed to adjust its accounting for nuclear compliance costs beginning with its 1998 financial statements and amend its 1996 and 1997 Form 10-K filings. The financial statements within this Form 10-Q reflect this change. The NU system's decision to recognize nuclear compliance costs as incurred will effect earnings for all quarters in 1996 and 1997. The following table discloses, by quarter and by year, the effect on earnings of this change in accounting for NU, CL&P, PSNH and WMECO. Effect on Earnings - Reporting Nuclear Compliance Costs as Incurred As Reported Adjustment Amount As Restated Net Net Net Company For the Period Income/(Loss) EPS Income/(Loss) EPS Income/(Loss) EPS (Dollars in thousands, except per share data) NU Year Ended 12/31/97 ($135,708) ($1.05) $5,746 $0.05 ($129,962) ($1.00) Quarter Ended 12/31/97 ($37,029) ($0.29) ($15,960) ($0.12) ($52,989) ($0.41) Quarter Ended 09/30/97 ($51,745) ($0.40) $20,913 $0.16 ($30,832) ($0.24) Quarter Ended 06/30/97 ($64,439) ($0.50) $17,422 $0.13 ($47,017) ($0.37) Quarter Ended 03/31/97 $17,505 $0.14 ($16,629) ($0.13) $876 $0.01 Year Ended 12/31/96 $1,831 $0.01 $37,099 $0.29 $38,930 $0.30 Quarter Ended 12/31/96 ($76,370) ($0.60) $13,620 $0.11 ($62,750) ($0.49) Quarter Ended 09/30/96 $1,033 $0.01 ($4,600) ($0.04) ($3,567) ($0.03) Quarter Ended 06/30/96 $11,666 $0.09 $5,906 $0.05 $17,572 $0.14 Quarter Ended 03/31/96 $65,502 $0.51 $22,173 $0.17 $87,675 $0.67 CL&P Year Ended 12/31/97 ($144,377) N/A $4,780 N/A ($139,597) N/A Quarter Ended 12/31/97 ($23,780) N/A ($12,860) N/A ($36,640) N/A Quarter Ended 09/30/97 ($50,077) N/A $16,917 N/A ($33,160) N/A Quarter Ended 06/30/97 ($64,089) N/A $13,928 N/A ($50,161) N/A Quarter Ended 03/31/97 ($6,431) N/A ($13,205) N/A ($19,636) N/A Year Ended 12/31/96 ($80,237) N/A $29,369 N/A ($50,868) N/A Quarter Ended 12/31/96 ($75,450) N/A $10,651 N/A ($64,799) N/A Quarter Ended 09/30/96 ($26,938) N/A ($3,644) N/A ($30,582) N/A Quarter Ended 06/30/96 ($10,700) N/A $4,698 N/A ($6,002) N/A Quarter Ended 03/31/96 $32,851 N/A $17,664 N/A $50,515 N/A PSNH Year Ended 12/31/97 $92,422 N/A ($250) N/A $92,172 N/A Quarter Ended 12/31/97 $19,676 N/A $12 N/A $19,688 N/A Quarter Ended 09/30/97 $19,056 N/A ($156) N/A $18,900 N/A Quarter Ended 06/30/97 $21,161 N/A $128 N/A $21,289 N/A Quarter Ended 03/31/97 $32,529 N/A ($234) N/A $32,295 N/A Year Ended 12/31/96 $96,902 N/A $563 N/A $97,465 N/A Quarter Ended 12/31/96 $13,725 N/A $372 N/A $14,097 N/A Quarter Ended 09/30/96 $30,646 N/A ($70) N/A $30,576 N/A Quarter Ended 06/30/96 $23,986 N/A $64 N/A $24,050 N/A Quarter Ended 03/31/96 $28,545 N/A $197 N/A $28,742 N/A WMECO Year Ended 12/31/97 ($28,676) N/A $1,216 N/A ($27,460) N/A Quarter Ended 12/31/97 ($2,520) N/A ($3,112) N/A ($5,632) N/A Quarter Ended 09/30/97 ($9,455) N/A $4,152 N/A ($5,303) N/A Quarter Ended 06/30/97 ($14,858) N/A $3,366 N/A ($11,492) N/A Quarter Ended 03/31/97 ($1,843) N/A ($3,190) N/A ($5,033) N/A Year Ended 12/31/96 $3,922 N/A $7,167 N/A $11,089 N/A Quarter Ended 12/31/96 ($7,807) N/A $2,596 N/A ($5,211) N/A Quarter Ended 09/30/96 ($396) N/A ($886) N/A ($1,282) N/A Quarter Ended 06/30/96 $4,016 N/A $1,145 N/A $5,161 N/A Quarter Ended 03/31/96 $8,109 N/A $4,312 N/A $12,421 N/A
For more information regarding the SEC inquiry, see the Form 8-Ks dated March 9, 1998 for NU and PSNH and the Form 8-Ks dated March 25, 1998 for CL&P and WMECO. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A. Presentation (All Companies) The accompanying unaudited consolidated financial statements should be read in conjunction with the MD&A in this Form 10-Q, the Annual Reports of NU, CL&P, PSNH, WMECO and NAEC, which were filed as part of a consolidated Form 10-K for the year ended December 31, 1997 (1997 Form 10-K) and the Current Reports on Form 8-K (Form 8-K) dated March 9, 1998 (NU, PSNH and NAEC), March 25, 1998 (CL&P and WMECO), April 8, 1998 (NU, PSNH and NAEC), April 15, 1998 (NU and CL&P), and April 20, 1998 (WMECO). In the opinion of the companies, the accompanying financial statements contain all adjustments necessary to present fairly the companies' financial position as of March 31, 1998, the results of operations for the three-month periods ended March 31, 1998 and 1997, and the statements of cash flows for the three-month periods ended March 31, 1998 and 1997. All adjustments are of a normal, recurring nature except those described below in Note 7B. The results of operations for the three-month periods ended March 31, 1998 and 1997 are not necessarily indicative of the results expected for a full year. NU is the parent company of the NU system. The NU system furnishes franchised retail electric service in Connecticut, New Hampshire and western Massachusetts through four wholly owned subsidiaries: CL&P, PSNH, WMECO and HWP. A fifth wholly owned subsidiary, NAEC, sells all of its entitlement to the capacity and output of the Seabrook nuclear power plant to PSNH. In addition to its franchised retail electric service, the NU system furnishes firm and other wholesale electric services to various municipalities and other utilities and participates in limited retail access programs providing off-system retail electric service. The NU system serves about 30 percent of New England's electric needs and is one of the 25 largest electric utility systems in the country as measured by revenues. Several other wholly owned subsidiaries of NU provide support services for the NU system companies and, in some cases, for other New England utilities. The consolidated financial statements of NU include the accounts of all wholly owned subsidiaries. Significant intercompany transactions have been eliminated in consolidation. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Certain reclassifications of prior period data have been made to conform with the current period presentation. B. New Accounting Standards (All Companies) In March 1998, the American Institute of Certified Public Accountants issued Statement of Position (SOP) 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use." SOP 98-1 provides guidance on accounting for the costs of computer software developed or obtained for internal use. The SOP standardizes the criteria for capitalization versus expense of these costs. SOP 98-1 becomes effective in 1999, with earlier adoption permitted. The NU system has adopted SOP 98-1 effective January 1, 1998. The adoption of the SOP has not had a material impact on the O&M expenses of the NU system for the three-month period ended March 31, 1998, and is not expected to have a material impact on O&M expenses for the year. For additional information regarding the adoption of new accounting standards, see the 1997 Form 10-K for NU, CL&P, PSNH and WMECO. C. Regulatory Accounting and Assets (All Companies) Regulatory Accounting: The accounting policies of CL&P, PSNH, WMECO and NAEC conform to generally accepted accounting principles applicable to rate-regulated enterprises and reflect the effects of the ratemaking process in accordance with SFAS 71, "Accounting for the Effects of Certain Types of Regulation." The Connecticut General Assembly has passed legislation for electric industry restructuring, to begin in the year 2000, in the state of Connecticut. Management believes that CL&P's use of regulatory accounting remains appropriate within this jurisdiction. The issue of restructuring the electric utility industry in New Hampshire is currently the focus of negotiations and proceedings within the federal and state court systems. Management believes that PSNH's use of regulatory accounting remains appropriate while this issue remains in litigation. Electric utility industry restructuring in Massachusetts became effective March 1, 1998. On February 20, 1998, the DTE issued an order approving, in all material aspects, WMECO's restructuring plan on an interim basis. WMECO's plan is subject to additional review, with hearings expected to begin in the late spring of 1998. A final decision on WMECO's restructuring plan is expected later in 1998. Once the DTE completes its review of WMECO's restructuring plan and issues a final approval, WMECO will discontinue application of SFAS 71 to the generation portion of its business. The restructuring legislation enacted by Massachusetts specifically provides for future deferrals and cost recovery of generation-related strandable assets as contemplated under the restructuring plan. As such, WMECO is not expected to write off either its generation-related strandable assets or related regulatory assets. WMECO's generation-related regulatory assets had a book value of approximately $180 million at March 31, 1998. CL&P, PSNH and WMECO each expect that their respective transmission and distribution business will continue to be rate regulated on a cost-of-service basis and, accordingly, CL&P, PSNH and WMECO will continue to apply SFAS 71 to this portion of their business. For further information on the NU system companies' respective regulatory environments and the potential impacts of restructuring, see Note 7A in this Form 10-Q. Regulatory Assets: On March 13, 1998, PSNH filed testimony and exhibits seeking a 3.7 percent net increase in rates for the June- November 1998 period in connection with its comprehensive fuel and purchased power adjustment clause (FPPAC) proceedings. On April 29, 1998, PSNH entered into a Stipulation and Settlement with the Office of the Consumer Advocate and the NHPUC staff resolving most of the contested issues in the FPPAC proceeding. If this settlement is approved by the NHPUC, in conjunction with a new reduced NEPOOL capability responsibility, PSNH's revised request will produce slightly more than a 1 percent net increase in rates. This proposed rate would result in the collection of substantially all currently projected fuel and purchased power costs, but would defer a substantial portion of previously incurred costs. Hearings are scheduled for mid-May 1998. For more information regarding FPPAC, see the Form 8-Ks dated March 9, 1998 and the 1997 Form 10-K of NU and PSNH. For additional information regarding regulatory accounting and assets, see the MD&A in this Form 10-Q and the 1997 Form 10-K of NU, CL&P, PSNH, WMECO and NAEC. 3. SHORT-TERM DEBT (NU, CL&P, PSNH, WMECO) On April 23, 1998, PSNH entered into a $75 million revolving credit agreement that will expire in April 1999. The revolving credit agreement is with a group of 16 banks. PSNH is obligated to pay a facility fee of 0.5 percent per annum on the commitment. PSNH's borrowings under this agreement are secured, per dollar of borrowing, by $75 million of first mortgage bonds and substantially all of PSNH's accounts receivable. On March 20, 1998, in connection with this transaction, the NHPUC issued an order requiring PSNH to obtain NHPUC approval before paying any dividends on its common stock and before investing any PSNH funds in the NU system Money Pool during the expected 364-day term of the facilities. For additional information on PSNH's short-term debt, see NU's and PSNH's 1997 Form 10-K and the 8-Ks dated March 9, 1998. On April 29, 1998, the DPUC issued a final decision with respect to the removal of Millstone 2, and potentially Millstone 3, from CL&P's rate base which will have the effect of reducing earnings. The decision could create additional pressure on CL&P's ability to meet certain financing covenants under the Credit Agreement and an operating lease. As a result of this decision, CL&P has initiated discussion with its lenders to review its financial performance. CL&P and WMECO have met the covenant requirements applicable in the first quarter of 1998. For additional information see Note 7B and the MD&A in this Form 10-Q, NU and PSNH's Form 8-Ks dated March 9, 1998 and the 1997 Form 10-K for NU, CL&P, PSNH and WMECO. 4. CAPITALIZATION (NU, CL&P, PSNH, WMECO) PSNH: On May 1, 1998, the $75 million principal amount of Pollution Control Refunding Revenue Bonds (PCRRB), 1992 Series D, due May 1, 2021 and $44.8 million principal amount of PCRRB, 1992 Series E, due May 1, 2021, which were previously issued by the Business Finance Authority of the state of New Hampshire (BFA) on PSNH's behalf as variable rate bonds, were converted to fixed rate bonds bearing interest at 6% per annum. These bonds are a special limited obligation of the BFA and are payable solely by PSNH under a loan and trust agreement. Downgrade Event: On April 22, 1998, Moody's Investors Services (Moody's) downgraded the senior secured debt of CL&P and WMECO to Ba3 from Ba2. Moody's also downgraded CL&P and WMECO's preferred stock and NU's unsecured amortizing notes. These ratings remain under review. Moody's indicated that the downgrade was primarily due to the DPUC's decision to remove Millstone 2 from rate base effective May 1, 1998 and the possible removal of Millstone 3 from rate base if certain milestones are not met by July 1, 1998. The downgrade of WMECO's senior secured debt brought those ratings to a level at which the sponsor of WMECO's $40 million accounts receivable program could elect to terminate the program. WMECO has initiated discussions with the sponsor concerning the effect of the downgrade on the continued availability of the program. In the event that the program is terminated by the sponsor, WMECO could elect to immediately pay off the outstanding obligations or wind down the program pursuant to the terms of the program. As of April 30, 1998, WMECO had sold approximately $20 million of receivables under the program. CL&P's $200 million accounts receivable program could be terminated if its senior secured debt is downgraded one more step. As of April 30, 1998, CL&P had sold approximately $145 million of receivables under the program. For more information regarding capitalization and the issuance of first mortgage bonds as collateral see Notes 2 and 4 and the MD&A in this Form 10-Q and the 1997 Form 10-K of NU, CL&P, PSNH and WMECO. For more information on Millstone see Note 7B and the MD&A in this Form 10-Q and the 1997 Form 10-K of NU, CL&P, PSNH and WMECO. For more information on the downgrade and the effect on CL&P's and WMECO's accounts receivable programs see the 8-Ks dated April 15, 1998 for NU and CL&P and the 8-K dated April 20, 1998 for WMECO, and the 1997 Form 10-K of NU, CL&P and WMECO. 5. LEASES (NU, CL&P, WMECO) CL&P and WMECO utilize the Niantic Bay Fuel Trust (NBFT) to finance their nuclear fuel requirements for the Millstone units. The NBFT consists of a $100 million revolving credit facility and $80 million of intermediate term notes (ITNs). On May 8, 1998, CL&P and WMECO issued $72.9 million and $17.3 million of first mortgage bonds, respectively, to secure a portion of the revolving credit facility through its maturity date in July 1998 and the ITNs. The ITNs are due in June 1998. For additional information regarding the NBFT, see the MD&A in this Form 10-Q and the 1997 Form 10-K of NU, CL&P and WMECO. 6. INTEREST RATE AND FUEL PRICE MANAGEMENT (NU, CL&P, NAEC) Fuel Price Management: As of March 31, 1998, CL&P had outstanding fuel- price management agreements with a total notional value of approximately $288 million and a negative mark-to-market position of approximately $22.8 million. The terms of CL&P's fuel-price management agreements require CL&P to post cash collateral with its counterparties in the event of negative mark-to- market positions and lowered credit ratings. The amount of collateral is to be returned to CL&P when the mark-to-market position becomes positive, when CL&P meets specified credit ratings or when an agreement ends and all open positions are properly settled. At March 31, 1998, cash collateral in the amount of $23.9 million was posted under these terms. Interest Rate Management: As of March 31, 1998, NAEC had outstanding interest-rate management agreements with a total notional value of approximately $200 million and a negative mark-to-market position of approximately $431 thousand. Credit Risk: These agreements have been made with various financial institutions, each of which is rated "A3" or better by Moody's rating agency. Each respective company is exposed to credit risk on their respective risk management instruments if the counterparties fail to perform their obligations. However, management anticipates that the counterparties will be able to fully satisfy their obligations under the agreements. For further information on fuel-price and interest-rate management instruments, see the MD&A in this Form 10-Q and the 1997 Form 10-K of NU, CL&P and NAEC. 7. COMMITMENTS AND CONTINGENCIES A. Restructuring and Rate Matters (All Companies) Connecticut: On April 29, 1998, the governor of the state of Connecticut signed into law a comprehensive electric utility restructuring bill. The bill provides, among other things, that: (i) Retail choice will be phased in over six months beginning January 2000, with up to 35 percent of customers being eligible to choose their electric supplier, and 100 percent of customers having choice by July 2000; rates will be capped at December 31, 1996 levels from July 1, 1998 until December 31, 1999; (ii) Customers who do not choose an alternate supplier could take standard offer service from the existing utility until January 2004, at a rate which must be at least 10 percent less than rates in effect on December 31, 1996; (iii) Rates will be unbundled into several components, including charges for transmission, distribution, generation, the recovery of strandable costs, public policy costs and new conservation and renewable programs; Strandable costs will be recovered through a competitive transition assessment (CTA). (iv) CL&P will be required to auction its non-nuclear generating assets by January 2000 and its nuclear generating assets by January 2004 in order to recover strandable costs; affiliates of CL&P will be allowed to bid at both auctions. If CL&P cannot sell its nuclear plants above the minimum price set by the DPUC then they must be transferred to an affiliate at a value determined by the DPUC. Nuclear strandable costs can be recovered for the amount by which their book value exceeds the minimum price set by the DPUC. (v) Securitization is allowed for generation-related regulatory assets and the costs associated with renegotiated above-market purchased power contracts. The above-market portion of purchased power contracts that have not been renegotiated can be collected through the CTA. Although CL&P is permitted under this legislation, as discussed above, to fully recover its strandable costs, CL&P's earnings prospects in a restructured environment will be affected in ways that cannot now be estimated. For additional information regarding utility restructuring in Connecticut, see NU's and CL&P's Form 8-Ks dated April 15, 1998 and the 1997 Form 10-K of NU and CL&P. New Hampshire: On March 20, 1998, the 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 stated that PSNH had demonstrated that severe financial harm would be caused by the 1997 Orders' regional average rate making 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 SFAS 71. The Rehearing Order also made other significant changes to the 1997 Orders, including opening retail markets up to energy supply affiliates of distribution companies within the distribution company's service territory and permitting transition service to be offered by distribution companies to residential customers for at least one year. PSNH and NU have obtained a stay of the 1997 Orders in a federal lawsuit on various grounds, including certain issues that are not addressed by the Rehearing Order. Compliance filings were required for other utilities operating in New Hampshire by May 1, 1998 in order to meet the statutory deadline for competition of July 1, 1998. PSNH was not required to make a compliance filing under the terms of the NHPUC's Rehearing Order. Specific changes concerning interim stranded cost levels for PSNH are not expected to be determined until after a decision is issued in a New Hampshire Supreme Court proceeding regarding 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. Based on the procedural schedule, a decision in this proceeding could be issued in June 1998. For additional information regarding these matters, see the Form 8-Ks dated March 9, 1998 and the 1997 Form 10-K of NU, PSNH and NAEC. Massachusetts: Deregulation was implemented in Massachusetts effective March 1, 1998. For information on the impacts of deregulation in Massachusetts see Note 2C in this Form 10-Q and the 1997 Form 10-K of NU and WMECO. B. Nuclear Performance (All Companies) Millstone: The three Millstone units are managed by NNECO. Millstone 1, 2 and 3 have been out of service since November 4, 1995, February 21, 1996 and March 30, 1996, respectively, and are on the NRC's watch list. Management is currently implementing comprehensive plans to restart Millstone 2 and 3. Millstone 1 continues to be in extended maintenance status. Several significant compliance filings have been made with the NRC. The NRC has already completed several important inspections related to restart. The NRC Commissioners met on May 1, 1998 and will meet a second time on June 2, 1998 to consider the readiness of Millstone 3 for restart. The NRC Commissioners' vote on restart of Millstone 3 would likely take place within the two weeks following this second meeting. NU expects to begin the restart of Millstone 3 in June 1998 following the NRC Commissioners' vote. The restart effort for Millstone 2 is approximately three to four months behind Millstone 3. As noted above, the actual date of the return to service for Millstone 3 and Millstone 2 will be dependent upon the completion of various additional inspections and reviews by the NRC and a vote by the NRC Commissioners. For the three months ended March 31, 1998, NU's share of nonfuel O&M costs expensed for Millstone totaled $115 million. On a subsidiary level, for the three-month period ended March 31, 1998, CL&P expensed $94 million of nonfuel O&M costs related to the Millstone outage. For the same three-month period, WMECO expensed $21 million of nonfuel O&M costs. For PSNH, the amounts expensed over the three- month period ended March 31, 1998, were immaterial. Nonfuel O&M costs have been, and will continue to be, absorbed by the NU system without adjustment to its subsidiaries' current rates. As discussed above, management cannot be certain as to when the NRC will allow any of the Millstone units to return to service and thus cannot estimate the total replacement power costs the companies will ultimately incur. Replacement power costs incurred by NU, CL&P and WMECO attributable to the Millstone outages were approximately $86 million, $74 million and $11 million, respectively, during the first three months of 1998. For NU, these costs for 1998 are projected to average approximately $8 million per month for its share of Millstone 3, $10 million per month for Millstone 2 and $7 million per month for Millstone 1, while the plants are out of service. For CL&P and WMECO for 1998, these costs are projected to average approximately $6 million and $1 million per month, respectively, for Millstone 3, $9 million and $1 million per month, respectively, for Millstone 2 and $6 million and $1 million per month, respectively, for Millstone 1, while the plants are out of service. For the first three months of 1998 these costs were, and are expected to continue to be, immaterial to PSNH. WMECO and PSNH will continue to expense replacement power costs attributable to the Millstone outages for the remainder of 1998. As a result of the two recent out-of-rate-base decisions in Connecticut, CL&P was permitted to recover replacement power costs, through its energy adjustment clause, for Millstone 1 effective March 1, 1998 and Millstone 2 effective May 1, 1998. Based on the current estimates of expenditures and restart dates, management continues to believe that the NU system has sufficient resources to fund the restoration of the Millstone units and related replacement power costs. If the return to service of Millstone 3 or 2 is delayed substantially beyond the present restart estimates, if some financing facilities become unavailable because of difficulties in meeting borrowing conditions or renegotiating extensions or refinancing maturities, if CL&P and WMECO encounter additional significant costs or if any other significant deviations from management's assumptions occur, CL&P and WMECO could be unable to meet their cash requirements. In those circumstances, management would attempt to take even more stringent actions to reduce costs and cash outflows and attempt to obtain additional sources of funds. The availability of these funds would be dependent upon general market conditions and CL&P's and WMECO's respective credit and financial conditions at that time. Millstone Rate Issues: During February 1998, the DPUC issued a decision that concluded that Millstone 1 was no longer "used and useful" and ordered it removed from CL&P's rate base effective March 1, 1998. On April 29, 1998, the DPUC issued a decision that removed Millstone 2 from CL&P's rate base effective May 1, 1998. The decision further concluded that the DPUC would automatically remove Millstone 3 from CL&P's rate base effective July 1, 1998 if certain operational milestones are not met. For more information regarding these matters, see the MD&A in this Form 10-Q, the Form 8-Ks dated April 15, 1998 for NU and CL&P, the Form 8-K dated April 20, 1998 for WMECO, the Form 8-K dated March 9, 1998 for NU and NU's 1997 Form 10-K. For information regarding Millstone related litigation matters, see Part II of this Form 10-Q, the Form 8-K dated March 9, 1998 for NU and the Form 8-Ks dated March 25, 1998 for CL&P and WMECO and the 1997 Form 10-K for NU, CL&P, PSNH and WMECO. C. Environmental Matters (All Companies) For information regarding environmental matters, see the 1997 Form 10- K for NU, CL&P, PSNH, WMECO and NAEC. D. Nuclear Insurance Contingencies (All Companies) For information regarding nuclear insurance contingencies, see the 1997 Form 10-K for NU, CL&P, PSNH, WMECO and NAEC. E. Construction Program (All Companies) For information regarding the NU system's construction program, see the 1997 Form 10-K for NU, CL&P, PSNH, WMECO and NAEC. F. Long-Term Contractual Arrangements (NU, CL&P, PSNH, WMECO) For information regarding long-term contractual arrangements, see the 1997 Form 10-K for NU, CL&P, PSNH and WMECO. G. Charter Oak Energy, Inc. Sale (NU) NU initiated the sale of the business and assets of its wholly owned subsidiary, COE, in 1997. On May 5, 1998, COE sold its investment in its subsidiary, COE Tejona Corp., to an outside party for $17.8 million. For additional information on COE see NU's 1997 Form 10-K. PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS 1. (NU, CL&P, WMECO) On April 3, 1998, in connection with litigation commenced against NU and certain of its current and former trustees in August 1997, Massachusetts Municipal Wholesale Electric Company (MMWEC), a joint owner of Millstone 3 filed a motion seeking a lien on NU's common ownership interest in two of its Massachusetts subsidiaries, WMECO and HWP. A hearing on this motion was held on April 28, 1998, and a decision is expected shortly. If MMWEC's request for such a lien is granted, it could, unless waived by the affected creditors, 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, which could in turn give rise to the acceleration of a substantial portion of the NU system's indebtedness. NU is opposing the motion vigorously. For more information regarding this matter, see NU's Current Report on Form 8-K dated March 9, 1998 and "Item 3. Legal Proceedings" in NU's 1997 Annual Report on Form 10-K. 2. (NU, CL&P) In mid-April 1998, the FERC issued an order accepting CL&P's filing of the settlement with the Connecticut Municipal Electric Energy Cooperative (CMEEC) over issues arising under the Millstone Units 1 and 2 life of unit contract. The filing had requested a March 3, 1998 termination date for the Millstone Units 1 and 2 contract, and a date of October 31, 1998 for the termination of several CL&P fossil/hydro contracts with CMEEC. In accordance with the settlement, CL&P will receive a lump sum payment of $24 million from CMEEC, which has been held in escrow pending FERC approval of the settlement and the completion of certain additional steps related to the court and arbitration proceedings. For additional information on the specific terms of the settlement agreement, see "Item 3 - Legal Proceedings" in NU's 1997 Annual Report on Form 10-K. 3. (NU, CL&P) On March 31, 1998, the Connecticut Supreme Court issued a decision in connection with one of three ongoing disputes involving CL&P and the Southeastern Connecticut Regional Resources Recovery Authority (SCRRRA). In its decision, the Court ruled that CL&P was obligated to pay the contract rate specified in their electricity purchase agreement for the entire net electric output of SCRRRA's trash-to-energy plant in Preston rather than for the lower output level specified in the agreement. As a result of this decision, CL&P expects to pay SCRRRA approximately $3.8 million plus accrued interest of approximately $700,000 within the next few months, which CL&P had withheld pending resolution of this dispute. Most of this payment should be recoverable through CL&P's energy adjustment clause. For additional information on this dispute, see "Item 3 - Legal Proceedings" in NU's 1997 Annual Report on Form 10-K. ITEM 5. OTHER INFORMATION 1. (All Companies) On April 23, 1998, the Citizens Regulatory Commission (CRC) filed a "petition for leave to intervene" in a license amendment application for Millstone 3 pending before the NRC staff. The amendment application at issue was filed by NNECO on March 3, 1998, and would eliminate the requirement to have the Recirculation Spray System directly inject into the reactor coolant system. NNECO does not expect the CRC's petition to have a materially adverse effect on the restart schedule for Millstone 3. 2. (NU, CL&P, WMECO) On May 13, 1998, the FERC voted to approve an order requiring certain NU system companies, primarily CL&P and WMECO, to refund disputed transmission charges (expected to amount to approximately $10 million) to MMWEC and United Illuminating within 45 days. FERC issued this decision in response to exceptions filed with respect to an initial Administrative Law Judge decision issued on February 9, 1993. The decision is not expected to have a material impact on the companies' earnings for the second quarter. The companies are currently reviewing the decision and whether to pursue additional legal actions. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Listing of Exhibits: Exhibit Number Description 15 Letter regarding unaudited financial information 27.1 NU Financial Data Schedule 27.2 CL&P Financial Data Schedule 27.3 PSNH Financial Data Schedule 27.4 WMECO Financial Data Schedule 27.5 NAEC Financial Data Schedule (b) Reports on Form 8-K: 1. NU, PSNH and NAEC filed Form 8-Ks dated March 9, 1998, and CL&P and WMECO filed Form 8-Ks dated March 25, 1998, disclosing: . On April 3, 1998, MMWEC, a joint owner of Millstone 3, filed a motion seeking a lien on NU's common ownership interest in WMECO and HWP. . On March 20, 1998, the NHPUC issued an order on rehearing of its February 28, 1997 orders on restructuring the electric industry in New Hampshire. . On March 9, 1998, the U.S. Court of Appeals for the First Circuit denied requests for rehearing of its February 3, 1998 decision, excluding certain intervenors from NU's and PSNH's lawsuit challenging the NHPUC's 1997 orders on restructuring. . On April 1, 1998, the New Hampshire Supreme Court held a pre- hearing conference regarding the NHPUC's transfer of two questions for the Supreme Court's determination. . On March 13, 1998, PSNH filed testimony and exhibits seeking a 3.7 percent net increase in rates related to FPPAC. . On March 20, 1998, 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. . The DPUC held a hearing on April 1, 1998 to review the status of the restart schedules for Millstone 3 and Millstone 2. . In a March 25, 1998 letter, the SEC questioned NU's, CL&P's, PSNH's and WMECO's policy of reserving nuclear compliance costs. 2. NU, PSNH and NAEC filed Form 8-Ks dated April 8, 1998 disclosing: . In late March 1998, PSNH received a revised unsolicited proposal from New Hampshire Electric Cooperative, Inc. (NHEC) to purchase PSNH's transmission and distribution facilities, as well as PSNH's claims for recovery of stranded costs. On April 8, 1998, after due consideration, PSNH informed NHEC that it had rejected the new proposal. 3. NU and CL&P filed Form 8-Ks dated April 15, 1998, and WMECO filed a Form 8-K dated April 20, 1998 disclosing: . On April 15, 1998, the Connecticut legislature approved a comprehensive electric utility restructuring bill. . On April 20, 1998, the DPUC issued a draft decision that would, if adopted unchanged, remove Millstone 2 from CL&P's rate base effective May 1, 1998. The draft decision further concluded that the DPUC would automatically remove Millstone 3 from CL&P's rate base effective July 1, 1998 if the unit has not been operating for a specified period of time. . On April 22, 1998, Moody's downgraded the senior secured debt of CL&P and WMECO to Ba3 from Ba2. Moody's also downgraded CL&P's and WMECO's preferred stock and NU's unsecured amortizing notes. The ratings remain under review. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. NORTHEAST UTILITIES Registrant Date: May 14, 1998 By /s/ John H. Forsgren John H. Forsgren Executive Vice President and Chief Financial Officer Date: May 14, 1998 By /s/ John J. Roman John J. Roman Vice President and Controller 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. THE CONNECTICUT LIGHT AND POWER COMPANY Registrant Date: May 14, 1998 By /s/ John H. Forsgren John H. Forsgren Executive Vice President, Chief Financial Officer and Director Date: May 14, 1998 By /s/ John J. Roman John J. Roman Vice President and Controller 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. PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE Registrant Date: May 14, 1998 By /s/ John H. Forsgren John H. Forsgren Executive Vice President, Chief Financial Officer and Director Date: May 14, 1998 By /s/ John J. Roman John J. Roman Vice President and Controller 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. WESTERN MASSACHUSETTS ELECTRIC COMPANY Registrant Date: May 14, 1998 By /s/ John H. Forsgren John H. Forsgren Executive Vice President, Chief Financial Officer and Director Date: May 14, 1998 By /s/ John J. Roman John J. Roman Vice President and Controller 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: May 14, 1998 By /s/ John H. Forsgren John H. Forsgren Executive Vice President and Chief Financial Officer and Director Date: May 14, 1998 By /s/ John J. Roman John J. Roman Vice President and Controller Exhibit 15 May 14, 1998 To Northeast Utilities: We are aware that Northeast Utilities has incorporated by reference in its Registration Statements No. 33-34622, No. 33-40156, No. 33-44814, No. 33-63023, No. 33-55279, No. 33-56537, No. 333-52413, and No. 333-52415, its Form 10-Q for the quarter ended March 31, 1998, which includes our report dated May 14, 1998 covering the unaudited interim financial information contained therein. Pursuant to Regulation C of the Securities Act of 1933, that report is not considered a part of the registration statement prepared or certified by our firm or a report prepared or certified by our firm within the meaning of Sections 7 and 11 of the Act. Very truly yours, /s/ Arthur Andersen LLP Arthur Andersen LLP EX-27.1 2 FDS FOR NU
UT 0000072741 NORTHEAST UTILITIES AND SUBSIDIARIES 1,000 3-MOS DEC-31-1997 MAR-31-1998 PER-BOOK 6,353,106 757,834 959,630 2,201,174 0 10,271,744 684,287 934,825 689,573 2,158,081 222,072 136,200 3,462,197 35,000 0 0 394,808 30,250 29,129 179,138 3,474,265 10,271,744 958,905 13,737 901,656 918,417 40,488 13,449 56,961 67,588 (10,627) 7,322 (17,949) 0 0 298,446 (0.14) 0.00
EX-27.2 3 FDS FOR CL&P
UT 0000023426 THE CONNECTICUT LIGHT AND POWER COMPANY AND SUBSIDIARIES 1,000 3-MOS DEC-31-1997 MAR-31-1998 PER-BOOK 3,681,699 526,435 377,413 1,248,761 0 5,834,308 122,229 643,728 359,492 1,125,449 129,072 116,200 1,885,764 20,000 0 0 140,005 3,750 17,915 141,526 2,254,627 5,834,308 608,961 (8,633) 599,438 594,137 14,824 (6,800) 11,356 33,772 (22,416) 3,915 (26,331) 0 0 176,307 0.00 0.00
EX-27.3 4 FDS FOR PSNH
UT 0000315256 PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE 1,000 3-MOS DEC-31-1997 MAR-31-1998 PER-BOOK 1,695,869 27,883 385,444 757,190 0 2,866,386 1 424,097 174,385 598,483 75,000 0 516,485 0 0 0 170,000 25,000 774,829 127,909 578,680 2,866,386 261,745 18,652 227,494 242,920 18,825 4,068 19,667 12,820 6,847 2,650 4,197 0 0 81,476 0.00 0.00
EX-27.4 5 FDS FOR WMECO
UT 0000106170 WESTERN MASSACHUSETTS ELECTRIC COMPANY AND SUBSIDIARY 1,000 3-MOS DEC-31-1997 MAR-31-1998 PER-BOOK 760,548 133,441 62,733 207,009 0 1,163,731 26,812 151,472 52,942 231,226 18,000 20,000 347,564 47,950 0 0 40,000 1,500 213 33,007 424,271 1,163,731 107,189 2,831 94,619 97,244 9,945 1,307 11,046 7,572 3,474 757 2,717 0 0 2,253 0.00 0.00
EX-27.5 6 FDS FOR NAEC
UT 0000880416 NORTH ATLANTIC ENERGY CORPORATION 1,000 3-MOS DEC-31-1997 MAR-31-1998 PER-BOOK 652,689 28,861 74,531 255,624 0 1,011,705 1 160,999 65,612 226,612 0 0 475,000 0 0 0 20,000 0 0 0 290,093 1,011,705 68,169 5,795 45,551 54,521 13,648 (509) 16,314 9,405 6,909 0 6,909 0 0 39,350 0.00 0.00
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