-----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, OcFeZMpMRILp/QXZRd1g+Xwfx0/bZNj52Lsw9jZjtsYVMXqdSGy3ICV1UmJXbtKb Di7e87qrXVkt6hGeuMRefA== 0000072741-98-000143.txt : 19980817 0000072741-98-000143.hdr.sgml : 19980817 ACCESSION NUMBER: 0000072741-98-000143 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980814 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: 98689530 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: 98689531 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: 98689532 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: 98689533 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: 98689534 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 JUNE 30, 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 July 31, 1998 Northeast Utilities Common shares, $5.00 par value 136,900,684 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 companies, including NU and its wholly-owned operating subsidiaries: CL&P, PSNH, WMECO and NAEC 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 NU 1997 Form 10-K................ The NU system combined 1997 Form 10-K as filed with the SEC and as amended on Form 10-K/A for NU, CL&P, PSNH and WMECO, collectively the NU 1997 Form 10-K. NU 1996 Form 10-K................ The NU system combined 1996 Form 10-K as filed with the SEC and as amended on Form 10-K/A for NU, CL&P, PSNH and WMECO, collectively the NU 1996 Form 10-K. 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 - June 30, 1998 and December 31, 1997.................. 2 Consolidated Statements of Income - Three Months and Six Months Ended June 30, 1998 and 1997.......... 4 Consolidated Statements of Cash Flows - Six Months Ended June 30, 1998 and 1997.............. 5 Management's Discussion and Analysis of Financial Condition and Results of Operations........ 6 Report of Independent Public Accountants ............ The Connecticut Light & Power Company and Subsidiaries Consolidated Balance Sheets - June 30, 1998 and December 31, 1997................................ Consolidated Statements of Income - Three Months and Six Months Ended June 30, 1998 and 1997.......... Consolidated Statements of Cash Flows - Six Months Ended June 30, 1998 and 1997.............. Management's Discussion and Analysis of Financial Condition and Results of Operations........ Public Service Company of New Hampshire Balance Sheets - June 30, 1998 and December 31, 1997................................ Statements of Income - Three Months and Six Months Ended June 30, 1998 and 1997.................. Statements of Cash Flows - Six Months Ended June 30, 1998 and 1997............................... Management's Discussion and Analysis of Financial Condition and Results of Operations........ Western Massachusetts Electric Company and Subsidiary Consolidated Balance Sheets - June 30, 1998 and December 31, 1997................................ Consolidated Statements of Income - Three Months and Six Months Ended June 30, 1998 and 1997.......... Consolidated Statements of Cash Flows - Six Months Ended June 30, 1998 and 1997.................. Management's Discussion and Analysis of Financial Condition and Results of Operations.................. North Atlantic Energy Corporation Balance Sheets - June 30, 1998 and December 31, 1997.................................... Statements of Income - Three Months and Six Months Ended June 30, 1998 and 1997.................. Statements of Cash Flows - Six Months Ended June 30, 1998 and 1997............................... Management's Discussion and Analysis of Financial Condition and Results of Operations........ Notes to Financial Statements (unaudited - all companies).......................................... Part II. Other Information Item 1. Legal Proceedings........................... Item 4. Submission of Matters to a Vote of Security Holders............................ Item 5. Other Information........................... Item 6. Exhibits and Reports on Form 8-K............ Signatures ............................................ NORTHEAST UTILITIES AND SUBSIDIARIES PART I. FINANCIAL INFORMATION NORTHEAST UTILITIES AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
June 30, December 31, 1998 1997 (Unaudited) (Restated) ------------- ------------- (Thousands of Dollars) ASSETS - ------ Utility Plant, at cost: Electric................................................ $ 9,913,197 $ 9,869,561 Other................................................... 187,675 186,130 ------------- ------------- 10,100,872 10,055,691 Less: Accumulated provision for depreciation......... 4,520,022 4,330,599 ------------- ------------- 5,580,850 5,725,092 Unamortized PSNH acquisition costs...................... 367,063 402,285 Construction work in progress........................... 148,151 141,077 Nuclear fuel, net....................................... 194,084 194,704 ------------- ------------- Total net utility plant............................. 6,290,148 6,463,158 ------------- ------------- Other Property and Investments: Nuclear decommissioning trusts, at market............... 565,860 502,749 Investments in regional nuclear generating companies, at equity................................... 85,247 86,955 Investments in transmission companies, at equity........ 20,210 19,635 Other, at cost.......................................... 104,153 95,362 ------------- ------------- 775,470 704,701 ------------- ------------- Current Assets: Cash and cash equivalents............................... 131,085 143,403 Special deposits........................................ 2,970 - Investments in securitizable assets..................... 75,932 230,905 Receivables, net........................................ 165,847 214,914 Accrued utility revenues................................ 34,439 36,885 Fuel, materials, and supplies, at average cost.......... 210,686 212,721 Recoverable energy costs, net--current portion.......... 67,159 59,959 Investments in Charter Oak Energy, Inc. held for sale.......................................... 15,050 33,391 Prepayments and other................................... 81,223 38,495 ------------- ------------- 784,391 970,673 ------------- ------------- Deferred Charges: Regulatory assets (Note 2C): Income taxes,net...................................... 880,704 938,564 Deferred costs--nuclear plants........................ 174,188 199,753 Unrecovered contractual obligations................... 478,050 515,076 Recoverable energy costs, net......................... 294,541 324,809 Deferred demand side management costs................. 13,807 52,100 Cogeneration costs.................................... 18,688 33,505 Seabrook deferral..................................... 48,309 8,376 Other................................................. 91,168 101,095 Unamortized debt expense................................ 40,070 38,758 Other .................................................. 68,886 63,844 ------------ ------------ 2,108,411 2,275,880 ------------ ------------ Total Assets.............................................. $ 9,958,420 $ 10,414,412 ============ ============
See accompanying notes to consolidated financial statements. NORTHEAST UTILITIES AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
June 30, 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; 136,900,684 shares issued and 130,540,854 shares outstanding in 1998 and 136,842,170 shares issued and 130,182,736 shares outstanding in 1997.................................. $ 684,503 $ 684,211 Capital surplus, paid in.............................. 934,316 932,493 Deferred contribution plan--employee stock ownership plan...................................... (147,205) (154,141) Retained earnings (Note 1)............................ 695,846 707,522 ------------- ------------- Total common shareholders' equity.............. 2,167,460 2,170,085 Preferred stock not subject to mandatory redemption..... 136,200 136,200 Preferred stock subject to mandatory redemption......... 197,072 245,750 Long-term debt.......................................... 3,364,622 3,645,659 ------------- ------------- Total capitalization........................... 5,865,354 6,197,694 ------------- ------------- Minority Interest in Consolidated Subsidiaries............ 100,000 100,000 ------------- ------------- Obligations Under Capital Leases.......................... 159,886 30,427 ------------- ------------- Current Liabilities: Notes payable to banks.................................. 80,000 50,000 Long-term debt and preferred stock--current portion................................................ 305,077 274,810 Obligations under capital leases--current portion................................................ 51,373 177,304 Accounts payable........................................ 272,639 402,870 Accrued taxes........................................... 74,735 46,016 Accrued interest........................................ 46,770 30,786 Accrued pension benefits................................ 55,103 77,186 Other................................................... 99,294 88,396 ------------- ------------ 984,991 1,147,368 ------------- ------------ Deferred Credits: Accumulated deferred income taxes....................... 1,942,972 1,984,513 Accumulated deferred investment tax credits............. 153,067 158,837 Deferred contractual obligations........................ 488,885 525,076 Other................................................... 263,265 270,497 ------------- ------------ 2,848,189 2,938,923 ------------- ------------ Commitments and Contingencies (Note 9) Total Capitalization and Liabilities........... $ 9,958,420 $ 10,414,412 ============= =============
See accompanying notes to consolidated financial statements. NORTHEAST UTILITIES AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
Three Months Ended Six Months Ended June 30, June 30, --------------------------- --------------------------- 1998 1997 1998 1997 (Restated) (Restated) ------------- ------------- ------------- ------------- (Thousands of Dollars, except share information) Operating Revenues............................. $ 874,809 $ 903,323 $ 1,833,714 $ 1,878,691 ------------- ------------- ------------- ------------- Operating Expenses: Operation -- Fuel, purchased and net interchange power.... 306,117 281,142 659,654 622,524 Other........................................ 212,115 284,055 456,047 545,715 Maintenance................................... 76,041 143,525 196,996 242,722 Depreciation.................................. 86,556 87,415 173,785 176,594 Amortization of regulatory assets, net........ 38,797 31,015 67,028 62,412 Federal and state income taxes................ 17,627 (7,040) 34,388 8,167 Taxes other than income taxes................. 61,260 59,669 129,032 127,638 ------------- ------------- ------------- ------------- Total operating expenses............... 798,513 879,781 1,716,930 1,785,772 ------------- ------------- ------------- ------------- Operating Income............................... 76,296 23,542 116,784 92,919 ------------- ------------- ------------- ------------- Other Income: Deferred nuclear plants return--other funds...................................... 1,781 1,828 3,656 3,602 Equity in earnings of regional nuclear generating and transmission companies...... 2,967 2,736 7,091 6,177 Other, net................................... (4,913) 1,741 4,862 6,482 Minority interest in income of subsidiary.... (2,325) (2,325) (4,650) (4,650) Income taxes................................. 7,304 1,676 10,328 1,207 ------------- ------------- ------------- ------------- Other income, net...................... 4,814 5,656 21,287 12,818 ------------- ------------- ------------- ------------- Income before interest charges......... 81,110 29,198 138,071 105,737 ------------- ------------- ------------- ------------- Interest Charges: Interest on long-term debt................... 69,247 68,219 139,473 138,425 Other interest............................... 2,041 3,509 2,919 4,375 Deferred nuclear plants return--borrowed funds..................................... (3,262) (3,416) (6,778) (6,728) ------------- ------------- ------------- ------------- Interest charges, net.................. 68,026 68,312 135,614 136,072 ------------- ------------- ------------- ------------- Income/(Loss) after interest charges.... 13,084 (39,114) 2,457 (30,335) Preferred Dividends of Subsidiaries............ 6,811 7,903 14,133 15,806 ------------- ------------- ------------- ------------- Net Income/(Loss).............................. $ 6,273 $ (47,017) $ (11,676) $ (46,141) ============= ============= ============= ============= Earnings/(Loss) Per Common Share............... $ 0.05 $ (0.37) $ (0.09) $ (0.36) ============= ============= ============= ============= Common Shares Outstanding (average)............ 130,459,076 129,603,995 130,379,294 129,115,844 ============= ============= ============= =============
See accompanying notes to consolidated financial statements. NORTHEAST UTILITIES AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Six Months Ended June 30, ----------------------- 1998 1997 (Restated) ----------- ----------- (Thousands of Dollars) Operating Activities: Income/(Loss) before preferred dividends of subsidiaries.. $ 2,457 $ (30,335) Adjustments to reconcile to net cash from operating activities: Depreciation............................................ 173,785 176,594 Deferred income taxes and investment tax credits, net... 7,709 16,183 Deferred nuclear plants return.......................... (10,434) (10,330) Amortization of demand-side-management costs, net....... 38,293 37,329 Recoverable energy costs, net of amortization........... 23,068 (32,393) Amortization of PSNH acquisition costs, net............. 20,238 28,282 Amortization of deferred cogeneration costs, net ....... 14,817 16,388 Deferred nuclear refueling outage, net of amortization.. 1,806 (18,255) Other sources of cash................................... 84,363 35,541 Other uses of cash...................................... (19,741) (92,232) Changes in working capital: Receivables and accrued utility revenues, net........... (153,487) 96,868 Fuel, materials, and supplies........................... 2,035 (11,982) Accounts payable........................................ (130,231) (147,716) Accrued taxes........................................... 28,719 24,849 Sale of receivables and accrued utility revenues........ 205,000 28,000 Investment in securitizable assets...................... 154,973 (17,360) Other working capital (excludes cash)................... (40,899) 35,683 ----------- ----------- Net cash flows from operating activities.................... 402,471 135,114 ----------- ----------- Financing Activities: Issuance of common shares................................. 399 3,451 Issuance of long-term debt................................ 275 200,000 Net increase in short-term debt........................... 30,000 106,250 Reacquisitions and retirements of long-term debt.......... (257,668) (241,450) Reacquisitions and retirements of preferred stock......... (48,678) (25,000) Cash dividends on preferred stock......................... (14,133) (15,806) Cash dividends on common shares........................... - (32,134) ----------- ----------- Net cash flows used for financing activities................ (289,805) (4,689) ----------- ----------- Investment Activities: Investment in plant: Electric and other utility plant........................ (93,371) (112,473) Nuclear fuel............................................ (1,704) (6,074) ----------- ----------- Net cash flows used for investments in plant.............. (95,075) (118,547) Investments in nuclear decommissioning trusts............. (40,592) (26,681) Capital contributions to Charter Oak Energy............... - (28,750) Other investment activities, net.......................... 10,683 (30,435) ----------- ----------- Net cash flows used for investments......................... (124,984) (204,413) ----------- ----------- Net Decrease In Cash For The Period......................... (12,318) (73,988) Cash and cash equivalents - beginning of period............. 143,403 194,197 ----------- ----------- Cash and cash equivalents - end of period................... $ 131,085 $ 120,209 =========== ===========
See accompanying notes to consolidated financial statements. NORTHEAST UTILITIES AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This discussion should be read in conjunction with the consolidated financial statements and footnotes in this Form 10-Q, the First Quarter 1998 Form 10-Q and the 1997 Form 10-K. FINANCIAL CONDITION Overview NU's second-quarter earnings were $6.3 million, or 5 cents a share, compared with a restated loss of $47.0 million, or 37 cents a share, for the second quarter of 1997. For the first six months of 1998, NU lost $11.7 million, or 9 cents a share, compared with a restated loss of $46.1 million, or 36 cents a share, for the first half of 1997. Improved second-quarter results were primarily due to a nearly $140 million reduction in nonfuel operation and maintenance costs in 1998, compared with the same period in 1997. Approximately $80 million of the expense reduction was related to lower costs at nuclear plants fully or partially owned by NU subsidiaries. Lower expenses were recorded at Millstone 1, Connecticut Yankee, and Maine Yankee, which have been permanently shut down and will not return to service. In addition, Millstone 3 spending abated in the second quarter as the unit neared its return to service, and Seabrook's costs fell as the result of a refueling outage in 1997. The company expects spending at Millstone 2 to rise in the third quarter as the company works to return the unit to service by the end of the year. Another $32 million of expense reduction was related to the receipt of proceeds from several insurance carriers for the settlement with certain insurance companies of all past, present and future environmental matters and the reimbursement of certain costs related to a severe January 1998 ice storm in New Hampshire. Partially offsetting these lower costs was a nearly $30 million reduction in revenues in the second quarter of 1998, compared with the same quarter of 1997. That decrease reflected rate cuts in each state served by NU subsidiaries, as well as the accounting for the decision by the DPUC to remove Millstone 2 from CL&P's rates. For the second quarter of 1998, CL&P and WMECO satisfied all financial tests contained in the companies' revolving credit agreement. The next two quarters will continue to be a financial challenge due to the ongoing costs to restart Millstone 2 and the DPUC decision to remove that unit from CL&P's rates. For further information regarding the companies' ability to meet their financial tests, see the Liquidity and Capital Resources section of this MD&A. Millstone Outages CL&P and WMECO have ownership interests of 81 percent and 19 percent, respectively, in Millstone 2. CL&P, WMECO and PSNH have joint ownership interests in Millstone 3 that total 68 percent (52.93 percent for CL&P, 12.24 percent for WMECO and 2.85 percent for PSNH). NNECO, a wholly owned subsidiary of NU, acts as an agent for certain NU system companies and other New England utilities in operating the Millstone units. On June 15, 1998, the NRC granted permission for NNECO to restart Millstone 3, contingent upon the concurrence of the NRC staff. This action reclassified the unit from the NRC's watch list as a Category 3 facility (plants requiring formal NRC concurrence to operate) to a watch list Category 2 facility (plants authorized to operate but that are closely monitored by the NRC). The NRC staff subsequently authorized the restart on June 29, 1998 and the 1,154-megawatt plant was operating at 100 percent power by July 14, 1998. The return to service of Millstone 3 is expected to save the NU system approximately $8 million a month in replacement power($7 million for CL&P, $1 million for WMECO and $300,000 for PSNH). NNECO hopes to return Millstone 2 to service by the end of the year, but such a timetable will be largely dependent on the ability of the company, the NRC staff and the Millstone 2 contractor for the Independent Corrective Action Verification Program (ICAVP), Parsons Power, to complete the design and licensing bases reviews and any resulting corrective actions in a timely manner. For the six months ended June 30, 1998, the NU system's share of nonfuel O&M costs expensed for Millstone was approximately $208 million, compared to $260 million for the same period in 1997. CL&P's, WMECO's and PSNH's share of Millstone nonfuel O&M costs for 1998 were approximately $167 million, $38 million, and $3 million, respectively, compared to $208 million, $49 million, and $3 million, respectively, for the same period in 1997. Replacement power costs for the three Millstone units were approximately $162 million for the six months ended June 30, 1998 compared to $200 million for the same period in 1997. CL&P's and WMECO's share of Millstone replacement power costs for 1998 were approximately $139 million and $22 million, respectively, compared to $167 million and $30 million, respectively, for 1997. PSNH's share of Millstone 3 replacement power costs were approximately $1 million in 1998 and $3 million in 1997. 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 certain rate decisions in Connecticut, CL&P was 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 costs. For further information on the Millstone outages, see the 1997 Form 10-K and the First Quarter 1998 Form 10-Q. Millstone 1 CL&P and WMECO have ownership interests of 81 percent and 19 percent, respectively, in Millstone 1. In July 1998, CL&P filed a continued unit operation study (CUO) with the DPUC. The CUO study regarding Millstone 1 showed that, given certain assumptions, the economic benefit to customers would be less than one percent of the total cost that would be required to operate the unit through the end of its license in 2010. Given the changing utility structure and electric marketplace, CL&P and WMECO have decided to cease restart activities at Millstone 1 and instead prepare for final decommissioning. CL&P, WMECO and NNECO will undertake a number of regulatory filings intended to implement the decommissioning and recovery of remaining assets of Millstone 1. At June 30, 1998, the net unrecovered plant costs for Millstone 1 were approximately $246 million ($199 million for CL&P and $47 million for WMECO). The total estimated decommissioning costs, which have been updated to reflect the early shut down of the unit, are approximately $642.1 million in mid-1997 dollars($520.1 million for CL&P and $122 million for WMECO). At June 30, 1998, approximately $250.3 million of the total estimated decommissioning costs had been funded by CL&P and WMECO, respectively through the use of external trusts($195.1 million for CL&P and $55.2 million for WMECO). CL&P has also recorded a reserve on its books which represents amounts which have been collected by CL&P but not funded, and will also be used to fund the total estimated decommissioning obligation of Millstone 1. At June 30, 1998, the balance of this account on CL&P's books was approximately $19.8 million. Management expects that CL&P and WMECO will each be allowed to recover from customers the estimated remaining costs associated with Millstone 1, including decommissioning, unrecovered plant and related assets, and other expenditures. During the third quarter of 1998, CL&P and WMECO expect to recognize their respective shares of these costs as regulatory assets, with corresponding liabilities on their balance sheets. For further information on Millstone 1, see Connecticut Rate Matters in this MD&A. Liquidity and Capital Resources Cash provided from operating activities increased approximately $267 million in the first six months of 1998, from 1997, primarily due to increased cash from the use of two accounts receivable facilities and reduced expenditures for the Millstone outages. Net cash used for financing activities increased approximately $285 million, primarily due to higher reacquisitions and retirements of long-term debt and preferred stock and a decrease in short-term borrowings partially offset by the elimination of cash dividends on NU common shares. The decrease in short-term borrowings reflects the change in accounting for the receivable financing for CL&P. In 1997 the amount outstanding was reflected as short-term debt. In 1998 it is reflected in cash from operating activities. Net cash flows used for investments decreased approximately $79 million, primarily due to a 1997 capital contribution to Charter Oak Energy projects. For additional information on changes in capitalization, see "Notes to Financial Statements" Note 4. 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 June 30, 1998, CL&P and WMECO had sold approximately $185 million and $20 million of accounts receivable, respectively, to third party purchasers. For additional information on the sale of accounts receivable, see "Notes to Financial Statements" Note 7. NU, CL&P and WMECO are parties to a three-year revolving credit agreement (the Credit Agreement), and NU is separately party to another three-year revolving credit agreement with different borrowing conditions. At June 30, 1998, CL&P and WMECO had $10 million and $20 million, respectively outstanding under the Credit Agreement. PSNH had $50 million outstanding at that time under a separate credit agreement. The NU system companies' ability to make new, and maintain existing, borrowings under their financing arrangements is dependent on their satisfaction of contractual borrowing conditions. The financial tests that must be satisfied to permit NU, CL&P and WMECO to borrow under the Credit Agreement are particularly restrictive throughout 1998. Based on present estimates, it will be difficult for NU, CL&P and WMECO to meet certain of the interest coverage and capital ratio tests contained in the Credit Agreement after the second quarter of 1998. Accordingly, these companies are seeking an amendment to these provisions to enable them to maintain access to funds under the Credit Agreement for the remainder of its life. Similar financial tests are included in an operating lease, which CL&P entered into in June of 1996, related to the use of four turbine generators having an installed cost of approximately $70 million. CL&P is also seeking an amendment to the covenant restrictions in this lease. Management expects that satisfactory new terms will be reached. There is no assurance that these tests, even if so amended, will be met if the NU system encounters additional unexpected costs relating to storms or other operational events or reduced revenues from regulatory actions or the effects of weather on sales. 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 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. Most of the fuel used at Millstone is financed through the Niantic Bay Fuel Trust (NBFT). On June 5, 1998, the NBFT issued $180 million of Series G intermediate term notes (ITNs) to repay other indebtedness previously incurred by the NBFT, and the NBFT presently has no other indebtedness. The permanent shutdown of Millstone 1 in July afforded the ITN holders the right to seek repurchase of a pro rata share of their notes based upon the stipulated loss value of the Millstone 1 fuel compared to the stipulated loss value of all fuel then under the NBFT, approximately $83 million. It is not expected that the ITN holders will seek repurchase. The shutdown also obligates CL&P and WMECO to pay such amount to the NBFT under the NBFT lease whether or not any ITN holders request repurchase. The companies are seeking consents from the ITN holders to amend this lease provision so that they will not be obligated to make this payment, but instead will deposit the proceeds of the sale for salvage of the Millstone 1 fuel. Moneys deposited under the NBFT will be available for various purposes under the NBFT, including the purchase of new fuel for use in the other units. For additional information on leases, see "Notes to Financial Statements" Note 5. On July 14, 1998, the NU Board of Trustees authorized the repurchase of up to 10 million NU common shares through July 1, 2000 in connection with the implementation of utility restructuring in New England. Share repurchases could be accomplished through a variety of means, including open market purchases and possibly the use of certain derivative financial instruments or agreements. NU does not contemplate immediate share repurchases. For more information regarding status of restructuring in the NU System's service territory, see "Restructuring" below and NU's First Quarter 1998 Form 10-Q. In July 1998, North East Optic Network, Inc. (NEON) held an initial public offering (IPO). Prior to the offering NU, through its unregulated subsidiary Mode 1, owned 41.4% of NEON consisting of approximately 5 million common shares. Mode 1 held approximately 4.8 million shares of NEON valued at over $57 million at the closing of the IPO and will be prohibited from selling these shares for 180 days. On July 23, 1998, Moody's Investors Service raised its credit ratings on the senior debt of CL&P and WMECO from Ba3 to Ba2 following the restart of Millstone 3. According to Moody's, "The outlook for these companies is positive, predicated on Unit 3 maintaining a solid operating performance and reflecting prospects for a timely return of the Millstone Unit 2 to full service and rate base in Connecticut. While challenges remain, favorable resolution and implementation of restructuring plans in Connecticut and Massachusetts, including divestiture of assets and securitization of restructuring charges, add significant upside potential for ratings over the longer term." On July 21, 1998, Standard & Poor's (S&P) removed NU and all of its subsidiaries from Credit Watch (negative) for the first time since 1996, in response to the return of Millstone 3 to operation. Restructuring Connecticut CL&P is scheduled to file its restructuring plan in accordance with the Connecticut restructuring legislation with the DPUC by October 1, 1998. New Hampshire On May 26, 1998, the New Hampshire Supreme Court heard arguments on two questions concerning the enforceability of the 1989 Rate Agreement signed between NU and the State of New Hampshire. A court ruling is still pending. On June 12, 1998, the U.S. District Court in Rhode Island issued a written preliminary injunction barring the NHPUC from taking any steps to implement the NHPUC's February 28, 1997 restructuring orders. A trial is scheduled to begin in November. The NHPUC has appealed the order granting the preliminary injunction to the U.S. Court of Appeals for the First Circuit. Oral argument in this appeal will be scheduled in October 1998. Massachusetts WMECO's restructuring plan is currently before the DTE for review. As part of the restructuring plan, WMECO announced it is offering for sale certain of its fossil-fuel and hydroelectric generating assets. WMECO will continue to operate and maintain the transmission and local distribution network and deliver electricity to all customers. For further information on restructuring issues, see "Notes to Financial Statements" Note 9A and NU's First Quarter 1998 Form 10-Q. Rate Matters Connecticut On April 29, 1998, the DPUC issued a final decision to remove Millstone 2 from CL&P's rate base effective May 1, 1998 and Millstone 3 effective July 1, 1998. On July 18, 1998, Millstone 3 returned to rate base after meeting the operating requirements set forth in the DPUC order. Millstone 1 had previously been removed from CL&P's rate base effective March 1, 1998. Removing Millstone 2 from rate base has resulted in a reduction of CL&P's current annual revenue requirements of $37.7 million, or about $3 million a month. This reduction reflects the removal from rates of the O&M, depreciation, and investment return related to the unit, net of replacement power costs. The net reduction of revenue requirements associated with the removal of Millstone 3 from rates was approximately $7 million for the period July 1, 1998 through July 18, 1998. The DPUC allowed the revenue requirement reductions to be applied to reduce regulatory asset balances, which would have been recoverable in future rates. As a result, there was no change in rates. CL&P has accounted for these reductions as a reserve against revenues until such time when the regulatory asset balances are reduced. On July 17, 1998, CL&P filed the results of updated continued unit operation (CUO) studies for Millstone 1 and 2 with the DPUC. The Millstone 2 study concluded that operation of the unit will provide an economic benefit through the end of the unit's license life in 2015. The Millstone 1 CUO study showed that, given certain assumptions, the economic benefit to customers would be less than one percent of the total cost that would be required to operate the unit through the end of its license in 2010. On June 1, 1998, CL&P filed two applications with the DPUC proposing rate reductions totaling 3.4 percent. The first rate application requests a 1 percent reduction effective September 28, 1998, and requests recovery of approximately $75 million of costs to be expended to improve reliability of CL&P's transmission and distribution system. The second rate application was in connection with CL&P's energy adjustment clause and reduced rates 2.4 percent on July 1, 1998 to reflect that CL&P had incurred lower fuel costs over the past six months. For further information on Connecticut rate matters, see NU's First Quarter Form 10-Q. New Hampshire On May 29, 1998, the NHPUC approved slightly more than a 1 percent increase in PSNH's fuel and purchased power adjustment clause (FPPAC)rate for the period June through November 1998, as well as a Stipulation and Settlement Agreement with the Office of Consumer Advocate and the NHPUC staff. The agreement resolved most of the contested issues in the FPPAC proceeding. The increase in the rate will result in the collection of substantially all of PSNH's currently projected fuel and purchased power costs, but continues to defer for future collection a substantial portion of previously incurred costs. For further information on New Hampshire rate matters, see NU's First Quarter 1998 Form 10-Q. Year 2000 Issue The company has established an action plan by which certain processes must be completed by certain dates in order to ensure its operating and reporting systems, including nuclear systems, are able to properly recognize the year 2000. This action plan has three phases: the inventory phase, the detailed assessment phase, and the remediation phase. The inventory phase identifies all operating and reporting systems which may need to be fixed. This phase is on target and is scheduled to be completed by the end of August 1998. The detailed assessment phase is the process by which tests are performed to determine exactly what needs to be done in order to ensure that the systems are able to properly recognize and process the year 2000. The detailed assessment for the majority of the systems, including nuclear, is scheduled to be completed by the end of 1998. The final phase is the remediation phase; by the end of this phase, all mission critical systems will be Year 2000 ready. Management anticipates the remediation phase for mission critical systems to be finalized by mid-1999. The NU system utilizes 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 $34 million which 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 in 1998 and 1999. Since 1996, the company has incurred and expensed approximately $7 million related to the inventory and assessment phases, 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 plans or those of third parties are not successful, there could be a significant disruption of the NU system's operations. As a precautionary measure, NU is developing a contingency plan which will evaluate alternatives that could be implemented if our remediation plans are not successful. The company is committed to assuring that adequate resources are available in order to implement any changes necessary for its nuclear and other operations 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 June 30, 1998, CL&P had outstanding agreements with a total notional value of approximately $356 million and a negative mark to-market portion of approximately $14.7 million. NAEC has entered into various interest rate swap agreements related to its $200 million variable rate note, which essentially fixes 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 Form 10-K. RESULTS OF OPERATIONS Income Statement Variances Increase/(Decrease) Millions of Dollars Second Six Quarter Percent Months Percent Operating revenues $(29) (3)% $(45) (2)% Fuel, purchased and net interchange power 25 9 37 6 Other operation (72) (25) (90) (16) Maintenance (67) (47) (46) (19) Amortization of regulatory assets, net 8 25 5 7 Federal and state income taxes 19 (a) 17 (a) Other income, net (7) (a) (2) (25) Net income/(loss) 53 (a) 34 75 (a) Percentage greater than 100 Comparison of the Second Quarter of 1998 to the Second Quarter of 1997 Total operating revenues decreased in 1998, primarily due to retail rate decreases for CL&P, PSNH and WMECO and the accounting for the impact of Millstone 2 being removed from CL&P's rates, partially offset by higher retail sales. Retail kilowatt hour sales were 1.7 percent higher in 1998 than in the second quarter 1997. 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 expenses decreased in 1998, primarily due to lower costs at the Millstone units ($54 million), the recognition of environmental insurance proceeds ($23 million), lower administrative and general expenses ($19 million), lower capacity charges from CY and MY ($19 million), lower transmission and distribution expenditures primarily due to costs associated with the Long Island Cable repairs in 1997 and lower tree trimming activities in 1998 ($13 million), lower costs at Seabrook as a result of a 1997 refueling outage ($10 million) and the recognition of the January 1998 ice storm insurance reimbursement ($9 million). These decreases were partially offset by higher recognition of nuclear refueling outage costs primarily as a result of the 1996 CL&P Rate Settlement ($7 million). Amortization of regulatory assets, net increased in 1998, primarily due to higher amortizations as a result of the 1998 CL&P interim rate decisions ($12 million) and the amortization in 1998 of Seabrook phase-in costs ($7 million). These increases were partially offset by the completion of the amortization of a portion of the PSNH acquisition premium ($10 million). Federal and state income taxes increased in 1998, primarily due to higher book taxable income. Other income, net decreased in 1998, primarily due to costs associated with CL&P's accounts receivable facility, partially offset by the 1998 benefit from the 1997 shareholder derivative suit settlement. Comparison of the First Six Months of 1998 to the First Six Months of 1997 Total operating revenues decreased in 1998, primarily due to retail rate decreases for CL&P, PSNH and WMECO and the accounting for the impact of Millstone 2 being removed from CL&P's rates, partially offset by higher retail sales. Retail kilowatt hour sales were 0.7 percent higher in 1998 than in the first six months of 1997. 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 expenses decreased in 1998, primarily due to lower costs at the Millstone units ($52 million), lower administrative and general expenses ($33 million), lower capacity charges from CY and MY ($31 million), the recognition of the environmental insurance proceeds ($23 million) and lower costs at Seabrook as a result of a 1997 refueling outage ($9 million). These decreases were partially offset by higher recognition of nuclear refueling outage costs primarily as a result of the 1996 CL&P Rate Settlement ($16 million). Amortization of regulatory assets, net increased in 1998, primarily due to higher amortizations as a result of the 1998 CL&P interim rate decisions ($10 million) and the amortization in 1998 of Seabrook phase-in costs ($7 million). These increases were partially offset by the completion of the amortization of a portion of the PSNH acquisition premium ($10 million). Federal and state income taxes increased in 1998, primarily due to higher book taxable income. 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 June 30, 1998, and the related consolidated statements of income for the three and six-month periods ended June 30, 1998 and restated three and six-month periods ended June 30, 1997, and the consolidated statements of cash flows for the six-month periods ended June 30, 1998 and restated June 30, 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 August 7, 1998 THE CONNECTICUT LIGHT AND POWER COMPANY AND SUBSIDIARIES PART I. FINANCIAL INFORMATION THE CONNECTICUT LIGHT AND POWER COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
June 30, December 31, 1998 1997 (Unaudited) (Restated) ------------- ------------- (Thousands of Dollars) ASSETS - ------ Utility Plant, at original cost: Electric................................................ $ 6,453,871 $ 6,411,018 Less: Accumulated provision for depreciation......... 3,021,191 2,902,673 ------------- ------------- 3,432,680 3,508,345 Construction work in progress........................... 84,912 93,692 Nuclear fuel, net....................................... 137,236 135,076 ------------- ------------- Total net utility plant............................. 3,654,828 3,737,113 ------------- ------------- Other Property and Investments: Nuclear decommissioning trusts, at market............... 414,180 369,162 Investments in regional nuclear generating companies, at equity................................... 56,600 58,061 Other, at cost.......................................... 67,458 66,625 ------------- ------------- 538,238 493,848 ------------- ------------- Current Assets: Cash.................................................... 296 459 Investment in securitizable assets (Note 7)............. 54,296 205,625 Notes receivable from affiliated companies.............. 49,250 - Receivables, net (Note 7)............................... 27,217 50,671 Accounts receivable from affiliated companies........... 3,200 3,150 Taxes receivable........................................ 13,079 70,311 Fuel, materials, and supplies, at average cost.......... 80,680 81,878 Recoverable energy costs, net--current portion.......... 1,444 28,073 Prepayments and other................................... 104,850 79,632 ------------- ------------- 334,312 519,799 ------------- ------------- Deferred Charges: Regulatory assets (Note 2C): Income taxes,net...................................... 662,029 709,896 Unrecovered contractual obligations................... 313,876 338,406 Deferred demand side management costs................. 13,807 52,100 Recoverable energy costs, net......................... 90,868 104,796 Cogeneration costs.................................... 18,688 33,505 Other................................................. 50,076 54,115 Unamortized debt expense................................ 18,181 19,286 Other................................................... 16,680 18,359 ------------- ------------- 1,184,205 1,330,463 ------------- ------------- Total Assets........................................ $ 5,711,583 $ 6,081,223 ============= =============
See accompanying notes to consolidated financial statements. THE CONNECTICUT LIGHT AND POWER COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
June 30, 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................................ 664,129 641,333 Retained earnings (Note 1).............................. 355,312 419,972 ------------- ------------- Total common stockholder's equity.............. 1,141,670 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.......................................... 1,863,193 2,023,316 ------------- ------------- Total capitalization........................... 3,250,135 3,474,300 ------------- ------------- Minority Interest in Consolidated Subsidiary.............. 100,000 100,000 ------------- ------------- Obligations Under Capital Leases.......................... 124,327 18,042 ------------- ------------- Current Liabilities: Notes payable to banks.................................. 10,000 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................................................ 38,433 140,076 Accounts payable........................................ 85,775 124,427 Accounts payable to affiliated companies................ 25,908 92,963 Accrued taxes........................................... 21,028 33,017 Accrued interest........................................ 27,480 14,650 Other................................................... 32,270 23,495 ------------- ------------- 384,649 548,689 ------------- ------------- Deferred Credits: Accumulated deferred income taxes....................... 1,296,271 1,348,617 Accumulated deferred investment tax credits............. 123,050 127,713 Deferred contractual obligations........................ 324,710 348,406 Other................................................... 108,441 115,456 ------------- ------------- 1,852,472 1,940,192 ------------- ------------- Commitments and Contingencies (Note 9) Total Capitalization and Liabilities........... $ 5,711,583 $ 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 Six Months Ended June 30, June 30, ------------------- ----------------------- 1998 1997 1998 1997 (Restated) (Restated) --------- --------- ----------- ----------- (Thousands of Dollars) Operating Revenues................................. $561,224 $574,841 $1,170,185 $1,199,749 --------- --------- ----------- ----------- Operating Expenses: Operation -- Fuel, purchased and net interchange power..... 216,624 216,531 463,316 482,625 Other......................................... 164,052 186,536 341,083 350,732 Maintenance...................................... 56,119 97,753 129,491 168,374 Depreciation..................................... 57,938 59,050 115,573 118,969 Amortization of regulatory assets, net........... 24,382 15,492 37,010 31,361 Federal and state income taxes................... (9,591) (19,685) (20,859) (28,289) Taxes other than income taxes.................... 40,634 38,823 87,244 85,693 --------- --------- ----------- ----------- Total operating expenses................... 550,158 594,500 1,152,858 1,209,465 --------- --------- ----------- ----------- Operating Income/(Loss)............................ 11,066 (19,659) 17,327 (9,716) --------- --------- ----------- ----------- Other Income: Equity in earnings of regional nuclear generating companies........................... 1,544 1,332 3,712 3,149 Other, net....................................... (7,133) 3,496 (13,776) 8,106 Minority interest in income of subsidiary........ (2,325) (2,325) (4,650) (4,650) Income taxes..................................... 5,551 509 8,883 414 --------- --------- ----------- ----------- Other (loss)/income, net................... (2,363) 3,012 (5,831) 7,019 --------- --------- ----------- ----------- Income/(Loss) before interest charges...... 8,703 (16,647) 11,496 (2,697) --------- --------- ----------- ----------- Interest Charges: Interest on long-term debt....................... 33,805 30,605 66,745 63,882 Other interest................................... 1,259 2,909 2,091 3,218 --------- --------- ----------- ----------- Interest charges, net...................... 35,064 33,514 68,836 67,100 --------- --------- ----------- ----------- Net Loss........................................... $(26,361) $(50,161) $ (57,340) $ (69,797) ========= ========= =========== ===========
See accompanying notes to consolidated financial statements. THE CONNECTICUT LIGHT AND POWER COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Six Months Ended June 30, ----------------------- 1998 1997 (Restated) ----------- ----------- (Thousands of Dollars) Operating Activities: Net Loss ................................................... $ (57,340) $ (69,797) Adjustments to reconcile to net cash from operating activities: Depreciation.............................................. 115,573 118,969 Deferred income taxes and investment tax credits, net..... (37,495) (9,948) Amortization of deferred demand-side-management costs, net 38,293 37,329 Recoverable energy costs, net of amortization............. 40,557 11,522 Amortization of deferred cogeneration costs, net ......... 14,817 16,388 Deferred nuclear refueling outage, net of amortization.... - (22,667) Other sources of cash..................................... 58,296 19,899 Other uses of cash........................................ (9,021) (78,924) Changes in working capital: Receivables and accrued utility revenues.................. (161,596) 10,334 Fuel, materials, and supplies............................. 1,198 (4,430) Accounts payable.......................................... (105,707) (57,803) Accrued taxes............................................. (11,989) (3,921) Sale of receivables and accrued utility revenues.......... 185,000 - Investment in securitizable assets........................ 151,329 - Other working capital (excludes cash)..................... 53,619 7,029 ----------- ----------- Net cash flows from/(used for) operating activities........... 275,534 (26,020) ----------- ----------- Financing Activities: Net (decrease)/increase in short-term debt.................. (86,300) 100,000 Issuance of long-term debt.................................. - 200,000 Reacquisitions and retirements of long-term debt............ (45,006) (193,288) Reacquisitions and retirements of preferred stock........... (22,178) - Cash dividends on preferred stock........................... (7,320) (7,611) Cash dividends on common stock.............................. - (5,989) ----------- ----------- Net cash flows (used for)/from financing activities........... (160,804) 93,112 ----------- ----------- Investment Activities: Investment in plant: Electric utility plant.................................... (57,351) (74,494) Nuclear fuel.............................................. (156) (669) ----------- ----------- Net cash flows used for investments in plant................ (57,507) (75,163) NU System Money Pool........................................ (49,250) 53,050 Investments in nuclear decommissioning trusts............... (28,764) (19,194) Other investment activities, net............................ 628 (25,926) Capital contributions ...................................... 20,000 - ----------- ----------- Net cash flows used for investments........................... (114,893) (67,233) ----------- ----------- Net Decrease In Cash For The Period........................... (163) (141) Cash - beginning of period.................................... 459 404 ----------- ----------- Cash - end of period.......................................... $ 296 $ 263 =========== ===========
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 CL&P (the company) is a wholly-owned subsidiary of NU. This discussion should be read in conjunction with NU's MD&A and the company's consolidated financial statements and footnotes in this Form 10-Q, the First Quarter 1998 Form 10-Q, and the 1997 Form 10-K. RESULTS OF OPERATIONS Income Statement Variances Increase/(Decrease) Millions of Dollars Second Six Quarter Percent Months Percent Operating revenues $(14) (2)% $(30) (2)% Fuel, purchased and net interchange power - - (19) (4) Other operation (22) (12) (10) (3) Maintenance (42) (43) (39) (23) Amortization of regulatory assets, net 9 57 6 18 Federal and state income taxes 5 (25) (1) 4 Other income, net (11) (a) (22) (a) Net income/(loss) 24 47 12 18 (a) Percentage greater than 100 Comparison of the Second Quarter of 1998 to the Second Quarter of 1997 CL&P had a net loss for the second quarter of 1998 of approximately $26 million, compared to a restated net loss of approximately $50 million for the second quarter of 1997. Improved second-quarter results were primarily due to a $64 million reduction in nonfuel operation and maintenance costs, partially offset by a reduction in revenues. Total operating revenues decreased in 1998, primarily due to the 1998 interim rate reduction and the accounting for the impact of Millstone 2 being removed from rates. Higher retail sales were offset by lower capacity sales revenues as a result of a settlement with the Connecticut Municipal Electric Energy Cooperative. Retail kilowatt hour sales were 3.1 percent higher in 1998 than in the second quarter 1997. Other operation and maintenance expense decreased in 1998, primarily due to lower costs at the Millstone units ($43 million), lower capacity charges from CY and MY ($11 million), the recognition of environmental insurance proceeds ($8 million), lower administrative and general expenses ($7 million) and lower transmission and distribution expenditures primarily due to costs associated with the Long Island Cable repairs in 1997 and lower tree trimming activities in 1998 ($7 million). These decreases were partially offset by higher capacity purchases ($15 million) and higher recognition of nuclear refueling outage costs primarily as a result of the 1996 Rate Settlement ($9 million). Amortization of regulatory assets, net increased in 1998, primarily due to higher amortizations as a result of the 1998 interim rate decision. Federal and state income taxes increased in 1998, primarily due to higher book taxable income. Other income, net decreased in 1998, primarily due to costs associated with the accounts receivable facility. Comparison of the First Six Months of 1998 to the First Six Months of 1997 For the first six months of 1998, CL&P lost $57 million, compared to a restated loss of $70 million for the first half of 1997. Improved results for the first six months were primarily due to a $49 million reduction in nonfuel operation and maintenance costs, partially offset by a reduction in revenues. Total operating revenues decreased in 1998, primarily due to lower capacity sales revenues as a result of a settlement with the Connecticut Municipal Electric Energy Cooperative, the 1998 interim rate decrease and the accounting for the impact of Millstone 2 being removed from rates. These decreases were partially offset by higher retail sales. Retail kilowatt hour sales were 1.1 percent higher in 1998 than in the first six months of 1997. Fuel, purchased and net interchange power expense decreased in 1998, primarily due to lower intercompany purchases and lower replacement power costs due to lower fuel prices. These decreases were partially offset by the timing in the recognition of costs under the company's fuel clause. Other operation and maintenance expense decreased in 1998, primarily due to lower costs at the Millstone units ($41 million), lower capacity charges from CY and MY ($18 million), lower administrative and general expenses ($10 million), lower transmission and distribution expenditures primarily due to costs associated with the Long Island Cable repairs in 1997 and lower tree trimming activities in 1998 ($8 million) and the recognition of the environmental insurance proceeds ($8 million). These decreases were partially offset by higher capacity purchases ($35 million) and higher recognition of nuclear refueling outage costs primarily as a result of the 1996 Rate Settlement ($18 million). Amortization of regulatory assets, net increased in 1998, primarily due to higher amortizations as a result of the 1998 interim rate decision. Other income, net decreased in 1998, primarily due to costs associated with the accounts receivable facility. Liquidity and Capital Resources Cash provided from operations increased approximately $302 million in the first six months of 1998, from 1997, primarily due to cash available through the company's accounts receivable facility and reduced expenditures for the Millstone outages. Net cash used for financing activities increased approximately $254 million, primarily due to higher net reacquisitions of long-term debt and retirement of preferred stock and a decrease in short-term borrowings, partially offset by no cash dividends on common stock. The decrease in short-term borrowings reflects the change in accounting for the receivable financing for the company. Net cash flows used for investments increased approximately $48 million, primarily due to higher investments in the NU system Money Pool. Financial Condition For the second quarter of 1998, the company satisfied all financial tests contained in the company's revolving credit agreement. The next two quarters will continue to be a financial challenge due to the ongoing costs to restart Millstone 2 and the DPUC decision to remove that unit from rate base. For further information of the company's ability to meet its financial tests, see the Liquidity and Capital Resources section of NU's MD&A. For information relating to the following items, refer to NU's MD&A included in this Form 10-Q: Millstone Outages Millstone 1 Restructuring Rate Matters Year 2000 Issues Risk-Management Instruments PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE PART I. FINANCIAL INFORMATION PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE BALANCE SHEETS
June 30, December 31, 1998 1997 (Unaudited) (Restated) ------------- ------------- (Thousands of Dollars) ASSETS - ------ Utility Plant, at cost: Electric................................................ $ 1,900,707 $ 1,898,319 Less: Accumulated provision for depreciation......... 609,189 590,056 ------------- ------------- 1,291,518 1,308,263 Unamortized acquisition costs........................... 367,064 402,285 Construction work in progress........................... 18,855 10,716 Nuclear fuel, net....................................... 1,305 1,308 ------------- ------------- Total net utility plant............................. 1,678,742 1,722,572 ------------- ------------- Other Property and Investments: Nuclear decommissioning trusts, at market............... 5,022 4,332 Investments in regional nuclear generating companies and subsidiary company, at equity............ 19,282 19,169 Other, at cost.......................................... 3,809 3,773 ------------- ------------- 28,113 27,274 ------------- ------------- Current Assets: Cash and cash equivalents............................... 12,182 94,459 Receivables, net........................................ 77,150 89,338 Accounts receivable from affiliated companies........... 11,797 38,520 Accrued utility revenues................................ 34,439 36,885 Fuel, materials, and supplies, at average cost.......... 36,007 40,161 Recoverable energy costs--current portion............... 65,715 31,886 Prepayments and other................................... 50,304 11,271 ------------- ------------- 287,594 342,520 ------------- ------------- Deferred Charges: Regulatory assets (Note 2C): Recoverable energy costs............................... 173,966 191,686 Income taxes, net...................................... 126,508 128,244 Deferred costs, nuclear plant.......................... 243,973 281,856 Unrecovered contractual obligations.................... 76,996 83,042 Seabrook deferral...................................... 48,309 8,376 Other.................................................. 2,204 2,214 Deferred receivable from affiliated company............. 27,600 32,472 Unamortized debt expense................................ 15,173 11,749 Other................................................... 6,563 5,154 ------------- ------------- 721,292 744,793 ------------- ------------- Total Assets........................................ $ 2,715,741 $ 2,837,159 ============= =============
See accompanying notes to financial statements. PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE BALANCE SHEETS
June 30, 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................................ 424,250 423,713 Retained earnings (Note 1).............................. 203,593 170,501 ------------- ------------- Total common stockholder's equity.............. 627,844 594,215 Preferred stock subject to mandatory redemption......... 50,000 75,000 Long-term debt.......................................... 516,485 516,485 ------------- ------------- Total capitalization........................... 1,194,329 1,185,700 ------------- ------------- Obligations Under Seabrook Power Contracts and Other Capital Leases................................. 750,287 799,450 ------------- ------------- Current Liabilities: Notes payable to banks.................................. 50,000 - Long-term debt and preferred stock--current portion..... 25,000 195,000 Obligations under Seabrook Power Contracts and other capital leases--current portion........................ 129,882 122,363 Accounts payable........................................ 29,311 21,231 Accounts payable to affiliated companies................ 29,234 32,677 Accrued taxes........................................... 93,317 69,445 Accrued interest........................................ 6,138 7,197 Accrued pension benefits................................ 46,032 46,061 Other................................................... 8,231 9,417 ------------- ------------- 417,145 503,391 ------------- ------------- Deferred Credits: Accumulated deferred income taxes....................... 218,904 204,406 Accumulated deferred investment tax credits............. 3,716 3,972 Deferred contractual obligations........................ 76,996 83,042 Deferred revenue from affiliated company................ 27,600 32,472 Other................................................... 26,764 24,726 ------------- ------------- 353,980 348,618 ------------- ------------- Commitments and Contingencies (Note 9) ------------- ------------- Total Capitalization and Liabilities........... $ 2,715,741 $ 2,837,159 ============= =============
See accompanying notes to financial statements. PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE STATEMENTS OF INCOME (Unaudited)
Three Months Ended Six Months Ended June 30, June 30, --------------------- ---------------------- 1998 1997 1998 1997 (Restated) (Restated) ---------- ---------- ---------- ----------- (Thousands of Dollars) Operating Revenues................................. $ 250,784 $ 257,098 $ 512,529 $ 535,419 ---------- ---------- ---------- ----------- Operating Expenses: Operation -- Fuel, purchased and net interchange power..... 70,868 61,032 145,814 136,601 Other......................................... 85,967 94,737 173,792 181,149 Maintenance...................................... 1,328 9,339 29,944 17,450 Depreciation..................................... 11,221 10,865 22,728 22,107 Amortization of regulatory assets, net........... 6,103 14,141 20,238 28,282 Federal and state income taxes................... 21,677 21,447 37,069 49,064 Taxes other than income taxes.................... 11,214 11,347 21,769 21,800 ---------- ---------- ---------- ----------- Total operating expenses................... 208,378 222,908 451,354 456,453 ---------- ---------- ---------- ----------- Operating Income................................... 42,406 34,190 61,175 78,966 ---------- ---------- ---------- ----------- Other Income: Equity in earnings of regional nuclear generating companies and subsidary company..... 795 299 1,466 855 Other, net....................................... 3,082 10 6,479 (130) Income taxes..................................... (3,170) (276) (6,396) (847) ---------- ---------- ---------- ----------- Other income/(loss), net................... 707 33 1,549 (122) ---------- ---------- ---------- ----------- Income before interest charges............. 43,113 34,223 62,724 78,844 ---------- ---------- ---------- ----------- Interest Charges: Interest on long-term debt....................... 11,259 12,919 23,953 25,544 Other interest................................... 253 15 379 (284) ---------- ---------- ---------- ----------- Interest charges, net...................... 11,512 12,934 24,332 25,260 ---------- ---------- ---------- ----------- Net Income......................................... $ 31,601 $ 21,289 $ 38,392 $ 53,584 ========== ========== ========== ===========
See accompanying notes to financial statements. PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE STATEMENTS OF CASH FLOWS (Unaudited)
Six Months Ended June 30, ----------------------- 1998 1997 (Restated) ----------- ----------- (Thousands of Dollars) Operating Activities: Net Income................................................ $ 38,392 $ 53,584 Adjustments to reconcile to net cash from operating activities: Depreciation............................................ 22,728 22,107 Deferred income taxes and investment tax credits, net... 44,423 19,269 Recoverable energy costs, net of amortization........... (16,109) (25,217) Amortization of acquisition costs, net.................. 20,238 28,282 Deferred Seabrook capital costs......................... (39,933) - Other sources of cash................................... 55,453 29,753 Other uses of cash...................................... (72,054) (3,130) Changes in working capital: Receivables and accrued utility revenues................ 41,357 26,386 Fuel, materials, and supplies........................... 4,154 (1,353) Accounts payable........................................ 4,637 (4,527) Accrued taxes........................................... 23,872 6,436 Other working capital (excludes cash)................... (41,307) (34,323) ----------- ----------- Net cash flows from operating activities.................... 85,851 117,267 ----------- ----------- Financing Activities: Net increase in short term debt........................... 50,000 - Reacquisitions and retirements of long-term debt.......... (170,000) - Reacquisition and retirements of preferred stock.......... (25,000) (25,000) Cash dividends on preferred stock......................... (5,300) (6,625) Cash dividends on common stock............................ - (85,000) ----------- ----------- Net cash flows used for financing activities................ (150,300) (116,625) ----------- ----------- Investment Activities: Investment in plant: Electric utility plant.................................. (17,389) (12,746) Nuclear fuel............................................ 3 3 ----------- ----------- Net cash flows used for investments in plant.............. (17,386) (12,743) NU System Money Pool...................................... - 13,100 Other investment activities, net.......................... (442) (1,806) ----------- ----------- Net cash flows used for investments......................... (17,828) (1,449) ----------- ----------- Net Decrease In Cash For The Period......................... (82,277) (807) Cash and cash equivalents - beginning of period............. 94,459 1,015 ----------- ----------- Cash and cash equivalents - end of period................... $ 12,182 $ 208 =========== ===========
See accompanying notes to financial statements. PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE Management's Discussion and Analysis of Financial Condition and Results of Operations PSNH (the company) is a wholly-owned subsidiary of NU. This discussion should be read in conjunction with NU's MD&A and the company's consolidated financial statements and footnotes in this Form 10-Q, the First Quarter 1998 Form 10-Q, and the 1997 Form 10-K. RESULTS OF OPERATIONS Income Statement Variances Increase/(Decrease) Millions of Dollars Second Six- Quarter Percent Months Percent Operating revenues $(6) (2)% $(23) (4)% Fuel, purchased and net interchange power 10 16 9 7 Other operation (9) (9) (7) (4) Maintenance (8) (86) 12 72 Amortization of regulatory assets, net (8) (57) (8) (28) Federal and state income taxes 3 14 (6) (13) Other income, net 3 307 7 (50) Net income/(loss) 10 48 (15) (28) Comparison of the Second Quarter of 1998 to the Second Quarter of 1997 PSNH's net income was approximately $32 million for the second quarter of 1998 compared to $21 million, as restated, for the second quarter of 1997. The increase in net income for the second quarter was primarily due to lower nonfuel operation and maintenance expenses, partially offset by lower revenues. Total operating revenues decreased in 1998, primarily due to a 1997 retail rate decrease, partially offset by higher revenues under the company's fuel clauses. Retail kilowatt-hour sales were flat in 1998 from the same period in 1997. Fuel, purchased and net interchange power expense increased in 1998, primarily due to the timing in the recognition of costs under the company's fuel clause, partially offset by lower purchased power as a result of the Seabrook refueling outage in 1997. Other operation and maintenance expense decreased in 1998, primarily due to the recognition of environmental insurance proceeds ($10 million), lower capacity charges from MY and CY ($4 million), and the recognition of the January ice storm insurance reimbursement ($9 million); partially offset by the amortization of the Seabrook phase-in costs that began in June 1998 ($7 million). Amortization of regulatory assets decreased ($8 million) in 1998, primarily due to completion of the amortization of a portion of the company's acquisition premium. Federal and state income taxes increased due to higher book taxable income. Other income, net increased in 1998, primarily due to the amortization of the Seabrook deferred charges associated with the taxes on the purchased return which began in December 1997. Comparison of the First Six Months of 1998 to the First Six Months of 1997 Net income for the six months ended June 30, 1998 was $38 million, compared to $53 million, as restated, for the six months ended June 30, 1997. The decrease in net income for the six month period was primarily due to lower operating revenues and higher nonfuel operation and maintenance expenses. Total operating revenues decreased in 1998, primarily due to the 1997 retail rate decrease partially offset by higher revenues under the company's fuel clause. Retail kilowatt hour sales increased 0.4% for the six months 1998. Fuel, purchased and net interchange power expense increased in 1998, primarily due to the timing in the recognition of costs under the company's fuel clause, partially offset by lower purchased power as a result of the 1997 Seabrook refueling outage. Other operation and maintenance expense increased in 1998, primarily due to the amortization of Seabrook phase-in costs that began in June 1998 ($7 million), higher costs related to the January ice storm, net of insurance proceeds, ($10 million) and higher fossil maintenance costs ($6 million). These increases were partially offset by lower capacity charges from MY and CY ($6 million), and the recognition of the environmental insurance proceeds ($10 million). Amortization of regulatory assets decreased ($8 million) in 1998, due to the completion of the amortization of a portion of the company's acquisition premium. Federal and state income taxes decreased in 1998, primarily due to lower book taxable income. Other income, net increased in 1998, primarily due to the amortization of the Seabrook deferred charges associated with the taxes on the purchased return which began in December 1997. Liquidity Cash provided from operations decreased approximately $31 million in the first six months of 1998, from 1997, primarily due to the billing from NAEC of the Seabrook phase-in costs which were not being recovered from customers, partially offset by higher working capital. Net cash used for financing activities increased approximately $34 million, primarily due to higher reacquisitions and retirements of long-term debt, partially offset by lower cash dividends on common shares and an increase in short-term debt. Net cash flows used for investments increased approximately $16 million, primarily due to a 1997 decrease in investments in the NU system Money Pool. For information relating to the following items, refer to NU's MD&A included in this Form 10-Q: Financial Condition Millstone Outages Restructuring Rate Matters Year 2000 Issues WESTERN MASSACHUSETTS ELECTRIC COMPANY AND SUBSIDIARY PART I. FINANCIAL INFORMATION WESTERN MASSACHUSETTS ELECTRIC COMPANY AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS
June 30, December 31, 1998 1997 (Unaudited) (Restated) ------------- ------------ (Thousands of Dollars) ASSETS - ------ Utility Plant, at original cost: Electric................................................ $ 1,290,704 $ 1,284,288 Less: Accumulated provision for depreciation......... 585,571 559,119 ------------- ------------ 705,133 725,169 Construction work in progress........................... 18,276 19,038 Nuclear fuel, net....................................... 31,474 30,907 ------------- ------------ Total net utility plant............................. 754,883 775,114 ------------- ------------ Other Property and Investments: Nuclear decommissioning trusts, at market............... 115,643 102,708 Investments in regional nuclear generating companies, at equity................................... 15,332 15,741 Other, at cost.......................................... 6,903 4,900 ------------- ------------ 137,878 123,349 ------------- ------------ Current Assets: Cash.................................................... 270 105 Investments in securitizable assets (Note 7)............ 21,636 25,280 Receivables, net (Note 7)............................... 2,362 2,739 Accounts receivable from affiliated companies........... 3,491 3,933 Taxes receivable........................................ 3,568 10,768 Fuel, materials, and supplies, at average cost.......... 5,005 5,860 Prepayments and other................................... 21,347 14,945 ------------- ------------ 57,679 63,630 ------------- ------------ Deferred Charges: Regulatory assets (Note 2C): Income taxes, net...................................... 58,207 63,716 Unrecovered contractual obligations.................... 87,178 93,628 Recoverable energy costs............................... 27,754 26,270 Other.................................................. 26,076 27,763 Unamortized debt expense................................ 2,289 2,695 Other................................................... 3,532 2,963 ------------- ------------ 205,036 217,035 ------------- ------------ Total Assets........................................ $ 1,155,476 $ 1,179,128 ============= ============
See accompanying notes to consolidated financial statements. WESTERN MASSACHUSETTS ELECTRIC COMPANY AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS
June 30, 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................................ 151,537 151,171 Retained earnings (Note 1).............................. 57,724 58,608 ------------- ------------ Total common stockholder's equity.............. 236,073 236,591 Preferred stock not subject to mandatory redemption..... 20,000 20,000 Preferred stock subject to mandatory redemption......... 18,000 19,500 Long-term debt.......................................... 348,595 386,849 ------------- ------------ Total capitalization........................... 622,668 662,940 ------------- ------------ Obligations Under Capital Leases.......................... 25,690 217 ------------- ------------ Current Liabilities: Notes payable to banks.................................. 20,000 15,000 Notes payable to affiliated company..................... 24,100 14,350 Long-term debt and preferred stock--current portion................................................ 41,500 11,300 Obligations under capital leases--current portion................................................ 8,329 32,670 Accounts payable........................................ 14,344 30,571 Accounts payable to affiliated companies................ 9,860 21,209 Accrued taxes........................................... 151 522 Accrued interest........................................ 7,435 3,318 Other................................................... 8,191 2,446 ------------- ------------ 133,910 131,386 ------------- ------------ Deferred Credits: Accumulated deferred income taxes....................... 241,424 246,453 Accumulated deferred investment tax credits............. 22,630 23,364 Deferred contractual obligations........................ 87,178 93,628 Other................................................... 21,976 21,140 ------------- ------------ 373,208 384,585 ------------- ------------ Commitments and Contingencies (Note 9) Total Capitalization and Liabilities........... $ 1,155,476 $ 1,179,128 ============= ============
See accompanying notes to consolidated financial statements. WESTERN MASSACHUSETTS ELECTRIC COMPANY AND SUBSIDIARY CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
Three Months Ended Six Months Ended June 30, June 30, ------------------- -------------------- 1998 1997 1998 1997 (Restated) (Restated) --------- --------- --------- ---------- (Thousands of Dollars) Operating Revenues............................. $ 90,649 $104,130 $197,838 $ 210,184 --------- --------- --------- ---------- Operating Expenses: Operation -- Fuel, purchased and net interchange power. 25,565 35,255 57,006 76,335 Other..................................... 30,602 40,744 63,976 72,571 Maintenance.................................. 11,901 24,868 27,454 41,353 Depreciation................................. 10,155 9,647 20,494 19,829 Amortization of regulatory assets............ 1,343 1,610 3,039 3,225 Federal and state income taxes............... (230) (7,977) 1,041 (9,244) Taxes other than income taxes................ 4,699 4,777 10,376 10,234 --------- --------- --------- ---------- Total operating expenses............... 84,035 108,924 183,386 214,303 --------- --------- --------- ---------- Operating Income/(Loss)........................ 6,614 (4,794) 14,452 (4,119) --------- --------- --------- ---------- Other Income: Equity in earnings of regional nuclear generating companies....................... 420 359 1,016 852 Other, net................................... (620) (213) 91 357 Income taxes................................. 420 630 214 702 --------- --------- --------- ---------- Other income, net...................... 220 776 1,321 1,911 --------- --------- --------- ---------- Income/(loss) before interest charges.. 6,834 (4,018) 15,773 (2,208) --------- --------- --------- ---------- Interest Charges: Interest on long-term debt................... 6,748 6,001 13,685 11,974 Other interest............................... 824 1,473 1,459 2,343 --------- --------- --------- ---------- Interest charges, net.................. 7,572 7,474 15,144 14,317 --------- --------- --------- ---------- Net (Loss)/Income.............................. $ (738) $(11,492) $ 629 $ (16,525) ========= ========= ========= ==========
See accompanying notes to consolidated financial statements. WESTERN MASSACHUSETTS ELECTRIC COMPANY AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Six Months Ended June 30, ----------------------- 1998 1997 (Restated) ----------- ----------- (Thousands of Dollars) Operating Activities: Net Income/(Loss)........................................... $ 629 $ (16,525) Adjustments to reconcile to net cash from operating activities: Depreciation.............................................. 20,494 19,829 Deferred income taxes and investment tax credits, net..... (2,982) (3,448) Recoverable energy costs, net of amortization............. (1,484) 5,408 Amortization of nuclear refueling outage, net of deferrals 1,806 4,411 Other sources of cash..................................... 11,396 9,222 Other uses of cash........................................ (1,255) (15,422) Changes in working capital: Receivables and accrued utility revenues.................. (19,181) 22,437 Fuel, materials, and supplies............................. 855 (846) Accounts payable.......................................... (27,576) (15,119) Accrued taxes............................................. (371) (2,261) Sale of receivables and accrued utility revenues.......... 20,000 28,000 Investments in securitizable assets....................... 3,644 (17,360) Other working capital (excludes cash)..................... 10,660 1,080 ----------- ----------- Net cash flows from operating activities...................... 16,635 19,406 ----------- ----------- Financing Activities: Net increase in short-term debt............................. 14,750 30,700 Reacquisitions and retirements of long-term debt............ (9,800) (14,700) Reacquisitions and retirements of preferred stock........... (1,500) - Cash dividends on preferred stock........................... (1,513) (1,570) Cash dividends on common stock.............................. - (15,004) ----------- ----------- Net cash flows from/(used for) financing activities........... 1,937 (574) ----------- ----------- Investment Activities: Investment in plant: Electric utility plant.................................... (9,058) (12,816) Nuclear fuel.............................................. - (23) ----------- ----------- Net cash flows used for investments in plant................ (9,058) (12,839) Investments in nuclear decommissioning trusts............... (7,754) (4,743) Other investment activities, net............................ (1,594) (1,215) ----------- ----------- Net cash flows used for investments........................... (18,406) (18,797) ----------- ----------- Net Increase In Cash For The Period........................... 166 35 Cash - beginning of period.................................... 105 67 ----------- ----------- Cash - end of period.......................................... $ 271 $ 102 =========== ===========
See accompanying notes to consolidated financial statements. WESTERN MASSACHUSETTS ELECTRIC COMPANY Management's Discussion and Analysis of Financial Condition and Results of Operations WMECO (the company) is a wholly-owned subsidiary of NU. This discussion should be read in conjunction with NU's MD&A and the company's consolidated financial statements and footnotes in this Form 10-Q, the First Quarter 1998 Form 10-Q and the 1997 Form 10-K. RESULTS OF OPERATIONS Income Statement Variances Increase/(Decrease) Millions of Dollars Second Six Quarter Percent Months Percent Operating revenues $(13) (13)% $(12) (6)% Fuel, purchased and net interchange power (10) (27) (19) (25) Other operation (10) (25) (9) (12) Maintenance (13) (52) (14) (34) Federal and state income taxes 8 (92) 11 (a) Net income/(loss) 11 (94) 17 (a) (a) Percentage greater than 100 Comparison of the Second Quarter of 1998 to the Second Quarter of 1997 WMECO had a net loss for the second quarter of 1998 of approximately $700,000 compared to a restated net loss of approximately $11.5 million for the second quarter of 1997. Improved second quarter results were primarily due to a $23 million reduction in nonfuel operation and maintenance costs, partially offset by a reduction in operating revenues. Total operating revenues decreased in 1998, primarily due to a 10% 1998 retail rate decrease and lower revenues under the company's fuel clause. Retail kilowatt hour sales were 1.2 percent higher in 1998 than in the second quarter 1997. Fuel, purchased and net interchange power expense decreased in 1998, primarily due to the timing in the recognition of costs under the company's fuel clause and lower replacement power costs due to lower fuel prices. Other operation and maintenance expense decreased in 1998, primarily due to lower costs at the Millstone units ($10 million), lower capacity charges from CY and MY ($4 million), lower administrative and general expenses ($3 million) and the recognition of environmental insurance proceeds ($2 million). Federal and state income taxes increased in 1998, primarily due to higher book taxable income. Comparison of the First Six Months of 1998 to the First Six Months of 1997 For the first six months of 1998, WMECO had net income of approximately $600,000 compared to a restated net loss of approximately $16.5 million for the first six months of 1997. Improved results for the six months were primarily due to a $23 million reduction in nonfuel operation and maintenance costs, partially offset by a reduction in operating revenues. Total operating revenues decreased in 1998, primarily due to a 10% 1998 retail rate decrease and lower revenues under the company's fuel clause. These decreases were partially offset by higher retail sales. Retail kilowatt hour sales were 2.5 percent higher than those in the first six months of 1997. Fuel, purchased and net interchange power expense decreased in 1998, primarily due to the timing in the recognition of costs under the company's fuel clause and lower replacement power costs due to lower fuel prices. Other operation and maintenance expense decreased in 1998, primarily due to lower costs associated with the Millstone outages ($10 million), lower capacity charges from CY and MY ($6 million), lower administrative and general expenses ($3 million) and the recognition of the environmental insurance proceeds ($2 million). Federal and state income taxes increased in 1998, primarily due to higher book taxable income. Liquidity and Capital Resources Cash provided from operations decreased approximately $3 million in the first six months of 1998, from 1997, primarily due to a decrease in cash from the use of an accounts receivable facility, partially offset by lower cash expenditures related to the Millstone outages. Net cash from financing activities increased approximately $3 million, primarily due to a decrease in long-term debt reacquisitions and retirements and lower payments of cash dividends, partially offset by lower short-term borrowings. See NU's MD&A in this form 10-Q for further detail regarding Liquidity and Capital Resources. Financial Condition For the second quarter of 1998, the company satisfied all financial tests contained in the company's revolving credit agreement. The next two quarters will continue to be a financial challenge due to the ongoing costs to restart Millstone 2. For further information on the company's ability to meet its financial tests, see the Liquidity and Capital Resources section of NU's MD&A. For information relating to the following items, refer to NU's MD&A included in this form 10-Q: Millstone Outages Millstone 1 Restructuring Rate Matters Year 2000 Issue NORTH ATLANTIC ENERGY CORPORATION PART I. FINANCIAL INFORMATION NORTH ATLANTIC ENERGY CORPORATION BALANCE SHEETS
June 30, 1998 December 31, (Unaudited) 1997 ------------- ------------- (Thousands of Dollars) ASSETS - ------ Utility Plant, at original cost: Electric................................................ $ 769,731 $ 779,111 Less: Accumulated provision for depreciation......... 160,847 143,778 ------------- ------------- 608,884 635,333 Construction work in progress........................... 7,212 4,616 Nuclear fuel, net....................................... 24,069 27,413 ------------- ------------- Total net utility plant............................. 640,165 667,362 ------------- ------------- Other Property and Investments: Nuclear decommissioning trusts, at market............... 31,015 26,547 ------------- ------------- 31,015 26,547 ------------- ------------- Current Assets: Cash.................................................... 533 13 Special deposits........................................ 2,970 - Receivables from affiliated companies................... 23,467 25,695 Taxes receivable........................................ 10,845 4,613 Materials and supplies, at average cost................. 13,024 13,003 Prepayments and other................................... 3,142 4,220 ------------- ------------- 53,981 47,544 ------------- ------------- Deferred Charges: Regulatory assets: Deferred costs--Seabrook............................... 174,188 199,753 Income taxes, net...................................... 45,966 48,736 Recoverable energy costs............................... 1,952 2,057 Unamortized loss on reacquired debt.................... 15,151 18,938 Unamortized debt expense................................ 3,222 3,702 ------------- ------------- 240,479 273,186 ------------- ------------- Total Assets........................................ $ 965,640 $ 1,014,639 ============= =============
See accompanying notes to financial statements. NORTH ATLANTIC ENERGY CORPORATION BALANCE SHEETS
June 30, 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....................................... 48,914 58,702 ------------- ------------- Total common stockholder's equity.............. 209,914 219,702 Long-term debt.......................................... 405,000 475,000 ------------- ------------- Total capitalization........................... 614,914 694,702 ------------- ------------- Current Liabilities: Notes payable to affiliated company..................... 3,050 9,950 Long-term debt--current portion......................... 70,000 20,000 Accounts payable........................................ 6,352 7,912 Accounts payable to affiliated companies................ 763 6,040 Accrued interest........................................ 3,009 3,025 Accrued taxes........................................... 450 - Other................................................... 397 1,055 ------------- ------------- 84,021 47,982 ------------- ------------- Deferred Credits: Accumulated deferred income taxes....................... 216,317 216,701 Deferred obligation to affiliated company............... 27,600 32,472 Other................................................... 22,788 22,782 ------------- ------------- 266,705 271,955 ------------- ------------- Commitments and Contingencies (Note 9) Total Capitalization and Liabilities........... $ 965,640 $ 1,014,639 ============= =============
See accompanying notes to financial statements. NORTH ATLANTIC ENERGY CORPORATION STATEMENTS OF INCOME (Unaudited)
Three Months Ended Six Months Ended June 30, June 30, --------------------- --------------------- 1998 1997 1998 1997 ---------- ---------- ---------- ---------- (Thousands of Dollars) Operating Revenues................................. $ 69,627 $ 50,128 $ 137,796 $ 92,104 ---------- ---------- ---------- ---------- Operating Expenses: Operation -- Fuel.......................................... 3,140 1,697 6,362 5,525 Other......................................... 9,312 10,844 17,769 18,734 Maintenance...................................... 3,826 10,723 6,822 13,656 Depreciation..................................... 6,193 6,156 12,605 12,513 Amortization of regulatory assets, net........... 21,366 - 42,732 - Federal and state income taxes................... 9,124 3,272 18,094 6,517 Taxes other than income taxes.................... 3,301 3,253 6,399 6,570 ---------- ---------- ---------- ---------- Total operating expenses................... 56,262 35,945 110,783 63,515 ---------- ---------- ---------- ---------- Operating Income................................... 13,365 14,183 27,013 28,589 ---------- ---------- ---------- ---------- Other Income: Deferred Seabrook return--other funds............ 1,749 1,812 3,624 3,553 Other, net....................................... (2,002) 20 (4,386) 136 Income taxes..................................... 4,499 716 7,674 870 ---------- ---------- ---------- ---------- Other income, net.......................... 4,246 2,548 6,912 4,559 ---------- ---------- ---------- ---------- Income before interest charges............. 17,611 16,731 33,925 33,148 ---------- ---------- ---------- ---------- Interest Charges: Interest on long-term debt....................... 12,624 12,876 25,439 25,403 Other interest................................... (153) 257 (173) 182 Deferred Seabrook return--borrowed funds......... (3,163) (3,360) (6,553) (6,635) ---------- ---------- ---------- ---------- Interest charges, net...................... 9,308 9,773 18,713 18,950 ---------- ---------- ---------- ---------- Net Income......................................... $ 8,303 $ 6,958 $ 15,212 $ 14,198 ========== ========== ========== ==========
See accompanying notes to financial statements. NORTH ATLANTIC ENERGY CORPORATION STATEMENTS OF CASH FLOWS (Unaudited)
Six Months Ended June 30, ----------------------- 1998 1997 ----------- ----------- (Thousands of Dollars) Operating Activities: Net Income................................................ $ 15,212 $ 14,198 Adjustments to reconcile to net cash from operating activities: Depreciation............................................ 12,605 12,513 Deferred income taxes and investment tax credits, net... 2,462 11,410 Deferred Seabrook return, net of amortization........... 33,011 (10,188) Amortization of deferred obligation to affiliated co.... (4,872) - Other sources of cash................................... 22,469 8,045 Other uses of cash...................................... (7,522) (206) Changes in working capital: Receivables............................................. 2,228 (1,613) Materials and supplies.................................. (21) (267) Accounts payable........................................ (6,837) (10,926) Accrued taxes........................................... 450 (3,171) Other working capital (excludes cash)................... (8,798) 2,725 ----------- ----------- Net cash flows from operating activities.................... 60,387 22,520 ----------- ----------- Financing Activities: Net (decrease)/increase in short-term debt................ (6,900) 35,900 Reacquisitions and retirements of long-term debt.......... (20,000) (20,000) Cash dividends on common stock............................ (25,000) (25,000) ----------- ----------- Net cash flows used for financing activities................ (51,900) (9,100) ----------- ----------- Investment Activities: Investment in plant: Electric utility plant.................................. (2,636) (5,837) Nuclear fuel............................................ (1,551) (5,381) ----------- ----------- Net cash flows used for investments in plant.............. (4,187) (11,218) Investments in nuclear decommissioning trusts............. (3,780) (2,501) ----------- ----------- Net cash flows used for investments......................... (7,967) (13,719) ----------- ----------- Net Increase/(Decrease) In Cash For The Period.............. 520 (299) Cash - beginning of period.................................. 13 299 ----------- ----------- Cash - end of period........................................ $ 533 $ - =========== ===========
See accompanying notes to financial statements. North Atlantic Energy Corporation Management's Discussion and Analysis of Financial Condition and Results of Operations NAEC (the company) is a wholly-owned subsidiary of NU. This discussion should be read in conjunction with NU's MD&A in this Form 10-Q, the company's financial statements and footnotes in this Form 10-Q, the 1998 First Quarter Form 10-Q and the 1997 Form 10-K. FINANCIAL CONDITION Overview Under the Seabrook Power Contract (the Contract), PSNH is unconditionally obligated to pay the company's cost of service for a period equal to the length of the 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 $15 million for the six months ended June 30, 1998, compared to $14 million for the same period in 1997. Liquidity and Capital Resources Cash provided from operations increased by approximately $37 million in the first six 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 $43 million in the first six months of 1998, from 1997, primarily due to the repayment of short-term debt. Cash used for investments decreased by approximately $6 million in the first six months of 1998, from 1997 primarily due to lower expenditures related to electric utility plant and nuclear fuel. See NU's MD&A in this Form 10-Q for further information on liquidity and capital resources. Seabrook Performance Seabrook operated at a capacity factor of 79.7 percent through June 1998, compared to 71.6 percent for the same period in 1997. The higher 1998 capacity factor is due primarily to a refueling outage in 1997. 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. For additional information relating to risk-management instruments, see NU's MD&A in this Form 10-Q and the MD&A in the 1997 10-K. For information relating to the following items, refer to NU's MD&A in this Form 10-Q: PSNH Restructuring Year 2000 Issue RESULTS OF OPERATIONS Income Statement Variances Increase/(Decrease) Millions of Dollars 1998 over/(under) 1997 Second Six- Quarter Percent Months Percent Operating revenues $19 39% $46 50% Other operation (1) (14) (1) (5) Maintenance (7) (64) (7) (50) Amortization of regulatory assets, net 21 (a) 43 (a) Federal and state income taxes 2 81 5 85 Other income, net (2) (a) (5) (33) Net earnings/(loss) 1 19 1 7 (a) Percent greater than 100 Comparison of the Second Quarter of 1998 to the Second Quarter of 1997 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 second quarter 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. Other operation and maintenance expense decreased in 1998 primarily due to higher costs in 1997 relating to the Seabrook outage. Amortization of regulatory assets, net increased in the second quarter of 1998 primarily due to the amortization of the Seabrook deferred return which began in December 1997. Federal and state income taxes increased in the second quarter of 1998 primarily due to higher book taxable income. Other, net income decreased in the second quarter 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. Comparison of the First Six Months of 1998 to the First Six Months of 1997 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 1998 primarily due to increased sales to PSNH as a result of the amortization of the Seabrook deferred return which began in December 1997. Other operation and maintenance expense decreased in 1998 primarily due to higher costs in 1997 relating to the Seabrook outage. Amortization of regulatory assets, net increased in 1998 primarily due to the amortization of the Seabrook deferred return which began in December 1997. Federal and state income taxes increased in 1998 primarily due to higher book taxable income. Other, net income decreased in 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) During the first quarter of 1998, the SEC made an inquiry into the NU system companies' accounting for nuclear compliance costs. The SEC advised NU, CL&P, PSNH and WMECO to reflect these costs as incurred, rather than reserving for them. NU, CL&P, PSNH, and WMECO and their independent auditors, Arthur Andersen LLP believed the accounting they followed was required by, and was in accordance with, generally accepted accounting principles. The NU system companies agreed to adjust their accounting as requested by the SEC beginning with the first quarter 1998 financial statements. The NU system companies also restated 1997 and 1996 financial statements and amended their respective 1997 and 1996 Form 10-Ks. For additional information regarding the SEC inquiry and restatement, see the combined Form 10-Q for the quarter ended March 31, 1998, the Form 8-K dated March 9, 1998 for NU and PSNH, the Form 8-K dated March 25, 1998 for CL&P and WMECO, and the combined NU 1997 Form 10-K. 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 Amended Annual Reports of NU, CL&P, PSNH and WMECO, and the Annual Report of NAEC, which were filed as part of a combined Form 10-K for the year ended December 31, 1997 and the combined Form 10-Q for the quarter ended March 31, 1998 for NU, CL&P, PSNH, WMECO and NAEC. In the opinion of the companies, the accompanying financial statements contain all adjustments necessary to present fairly the companies' financial position as of June 30, 1998, the results of operations for the three-month and six-month periods ended June 30, 1998 and 1997, and the statements of cash flows for the six-month periods ended June 30, 1998 and 1997. All adjustments are of a normal, recurring nature except those described below in Note 9B. The results of operations for the three-month and six-month periods ended June 30, 1998 and 1997 are not 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 June 1998, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS 133 establishes accounting and reporting standards for derivative instruments and hedging activities. This statement becomes effective for the NU system companies on January 1, 2000 and will require derivative instruments used by the NU system companies to be recognized on the balance sheets as assets or liabilities at fair value. The NU system uses derivative instruments for hedging purposes only. These derivative instruments will be accounted for differently depending on which hedging classification the derivative instrument falls under, as defined by SFAS 133. Based on the derivative instruments currently used by the NU system companies to hedge some of its fuel price and interest rate risks, there may be an impact on earnings upon adoption of SFAS 133 which cannot be determined at this time. For additional information regarding derivative instruments, see Note 6, "Interest Rate and Fuel Price Management," in this Form 10-Q, the combined Form 10-Q for the quarter ended March 31, 1998, and the NU 1997 Form 10-K. For additional information regarding new accounting standards, see the combined Form 10-Q for the quarter ended March 31, 1998 and the NU 1997 Form 10-K. 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 restructuring of the electric utility industry is currently the focus of regulatory proceedings in each state in which NU operates. 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 each continue to apply SFAS 71 to these portions of their respective business. In a restructured electric utility environment, the generation portion of each system companies' respective business will be deregulated. Connecticut: The Connecticut General Assembly has passed legislation for electric utility industry restructuring, to begin January 1, 2000 in Connecticut. The legislation requires electric companies operating within the Connecticut jurisdiction, including CL&P, to submit a restructuring plan to the DPUC by October 1, 1998. Management is unable to predict the ultimate outcome of CL&P's restructuring proceeding, however, it believes that it is entitled to full recovery of its prudently incurred costs, including regulatory assets and strandable investments based on the restructuring legislation. Management believes that CL&P's use of regulatory accounting remains appropriate within this jurisdiction pending a final decision on CL&P's October 1998 filing. New Hampshire: Restructuring the electric utility industry in New Hampshire is currently the focus of 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. Massachusetts: 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 filed on December 31, 1997, on an interim basis. During May 1998, WMECO filed a modified restructuring plan with the DTE (collectively, the plan). A final decision on WMECO's modified restructuring plan is expected later in 1998. Management believes that WMECO's use of regulatory accounting remains appropriate within this jurisdiction, pending final decision on the plan by the DTE. Once the DTE completes its review of WMECO's modified restructuring plan and issues a final approval, WMECO will discontinue the 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. WMECO is not expected to write off either its generation-related strandable investments or related regulatory assets. WMECO's generation-related regulatory assets had a book value of approximately $179 million at June 30, 1998. For further information on the NU system companies' respective regulatory environments and the potential impacts of restructuring, see the MD&A and Note 9A in this Form 10-Q, the combined Form 10-Q for the quarter ended March 31, 1998, and the NU 1997 Form 10-K. Regulatory Accounting/Millstone 1: SFAS 90, "Regulated Enterprises - Accounting for Abandonment and Disallowances of Plant Costs," amends SFAS 71 and governs the accounting and reporting required when it becomes probable that a nuclear plant will be abandoned. SFAS 90 requires, in part, that once it becomes probable that the operating asset will be abandoned, the cost of the asset be removed from plant in service, and, that the disallowance of any costs of the abandoned plant which is probable and reasonably estimable be recognized as a loss. NU has decided to cease restart activities at Millstone 1 and instead prepare for final decommissioning. The NU system companies will undertake a number of regulatory filings intended to implement the decommissioning and recovery of remaining assets of Millstone 1. At this point in time, management believes accounting for the plant abandonment in accordance with SFAS 90 will not have a material effect on the NU system companies' results of operations. For further information on the closure of Millstone 1, see the MD&A and Notes 9B and 10 in this Form 10-Q. Regulatory Assets: On May 29, 1998, the NHPUC approved a Stipulation and Settlement, previously agreed to by PSNH, the Office of the Consumer Advocate and the NHPUC staff. This settlement resolved most of the contested issues in a comprehensive fuel and purchased power adjustment clause (FPPAC) proceeding. As approved by the NHPUC, in conjunction with a new reduced NEPOOL capability responsibility, PSNH's revised request produced slightly more than a 1 percent net increase in rates. This rate collects substantially all currently projected fuel and purchased power costs, but will defer a substantial portion of previously incurred costs. For additional information regarding regulatory accounting and assets, see the MD&A in this Form 10-Q, the combined Form 10-Q for the quarter ended March 31, 1998, the Form 8-Ks dated March 9, 1998, and the NU 1997 Form 10-K. 3. SHORT-TERM DEBT (NU, CL&P, WMECO) NU, CL&P and WMECO are parties to a three-year revolving credit agreement, and NU is separately party to another three-year revolving credit agreement with different borrowing conditions (collectively, the Credit Agreement). At June 30, 1998, NU, CL&P and WMECO had $0 million, $10 million, and $20 million, respectively of borrowings outstanding under the Credit Agreement. PSNH had $50 million outstanding at that time under a separate credit agreement. The NU system companies' ability to make new, and maintain existing, borrowings under their respective financing arrangements is dependent on their satisfaction of contractual borrowing conditions. Based on present estimates, it will be difficult for NU, CL&P and WMECO to meet certain of the interest coverage and capital ratio covenants contained in the Credit Agreement after the second quarter of 1998. Accordingly, these NU system companies are seeking an amendment to these provisions to enable them to attain or maintain access to funds under the Credit Agreement for the remainder of its life. Similar financial tests are included in an operating lease, which CL&P entered into in June of 1996, related to the use of four turbine generators having an installed cost of approximately $70 million. CL&P is also seeking an amendment to the covenant restrictions in this lease. Management expects that satisfactory new terms will be reached. There is no assurance that these tests, even if so amended, will be met if the NU system encounters additional unexpected costs relating to storms or other operational events or reduced revenues from regulatory actions or the effects of weather on sales. For additional information, see the MD&A in this Form 10-Q, the combined Form 10-Q for the quarter ended March 31, 1998, and the NU 1997 Form 10-K. 4. CAPITALIZATION (NU, CL&P) CL&P: On June 30, 1998, CL&P elected to redeem and pay off $25,000,000 principal amount of its first and refunding mortgage bonds, 7-1/4%, Series VV, due July 1, 1999 (the Series VV Bonds) at the general redemption price of 100.00 percent of the principal amount thereof together with accrued interest thereon. The partial redemption was funded, in part, through the use of CL&P's accounts receivable sales program and short-term financing facility. During June 1998, the NU Board of Trustees approved a resolution for a capital contribution to be made by NU to CL&P in the amount of $20 million. For information related to NU's stock compensation plans and related stock registrations, see Note 8 in this Form 10-Q and the NU 1997 Form 10-K. For further information on matters related to the NU system companies' capitalization, refer to the MD&A in this Form 10-Q, the combined Form 10-Q for the quarter ended March 31, 1998, and the NU 1997 Form 10-K. 5. LEASES (NU, CL&P, WMECO) CL&P and WMECO utilize the Niantic Bay Fuel Trust (NBFT) to finance substantially all of their nuclear fuel requirements for the Millstone units. The NBFT consisted of a revolving credit facility and intermediate term notes (ITNs). The revolving credit facility portion of the agreement expired on July 31, 1998. The NBFT currently consists of the ITNs. On June 5, 1998, the NBFT issued $180 million Series G ITNs through a private placement offering. The five-year notes mature June 5, 2003 and will bear interest at a rate of 8.59% per annum, payable semiannually. The proceeds from the Series G ITNs were used to refinance the $80 million Series F ITNs which matured on June 5, 1998, to repay outstanding advances and interest under the NBFT Credit Agreement and will be used as cash collateral for future purchases of nuclear fuel. The permanent shutdown of Millstone 1 in July afforded the ITN holders the right to seek repurchase of a pro rata share of their notes based upon the value of the Millstone 1 fuel compared to all fuel then under the NBFT, approximately $83 million. It is not expected at present that any ITN holders will seek repurchase. The shutdown also obligates CL&P and WMECO to pay such amount to the NBFT under the NBFT lease whether or not any ITN holders request repurchase. The companies are seeking consents from the ITN holders to amend this lease provision so that they will not be obligated to make this payment, but instead deposit the proceeds of the sale for salvage of the Millstone 1 fuel. Whatever moneys are deposited under the NBFT will be available for various purposes under the NBFT, including the purchase of new fuel for use in the other units. For additional information regarding the NBFT and other lease matters, see the MD&A in this Form 10-Q, the combined Form 10-Q for the quarter ended March 31, 1998, and the NU 1997 Form 10-K. 6. INTEREST RATE AND FUEL PRICE MANAGEMENT (NU, CL&P, NAEC) Fuel Price Management: As of June 30, 1998, CL&P had outstanding derivative instruments used for fuel-price management with a total notional value of approximately $356 million and a negative mark-to-market position of approximately $14.7 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 June 30, 1998, cash collateral in the amount of approximately $17.1 million was posted under these terms. Interest Rate Management: As of June 30, 1998, NAEC had outstanding derivative instruments used for interest-rate management with a total notional value of approximately $200 million and a negative mark-to-market position of approximately $773 thousand. Credit Risk: These fuel-price and interest-rate management 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, the NU system combined Form 10-Q for the quarter ended March 31, 1998, and the NU 1997 Form 10-K. 7. SALE OF ACCOUNTS RECEIVABLE AND ACCRUED UTILITY REVENUES (CL&P, WMECO) During 1996, CL&P and WMECO entered into agreements to sell up to $200 million and $40 million, respectively, of undivided ownership interests in their eligible customer receivables and accrued utility revenues (receivables). CL&P and WMECO have each established a special purpose, wholly owned subsidiary whose business consists of the purchase and resale of receivables. At June 30, 1998, approximately $185 million and $20 million of receivables had been sold to third-party purchasers by CL&P and WMECO, respectively, through the use of each company's special purpose, wholly owned subsidiary, CL&P Receivables Corporation (CRC) and WMECO Receivables Corporation (WRC). WMECO: For the periods ended May 31, 1998 and June 30, 1998, respectively, WMECO's senior secured debt was not rated at least the required rating as defined under the terms of WMECO's receivables purchase agreement. As a result, an event of termination and a transition event had occurred. WMECO and WRC requested and received waivers of such event of termination from the purchaser and agent. Under the waivers, the purchaser and agent agreed to forebear taking any action as permitted within the agreement as a result of such termination events through December 31, 1998, and agreed to an aggregate purchase limit for all percentage interests subject to the receivables purchase agreement of $40 million. For CRC's and WRC's respective sale agreements with the third-party purchasers, the receivables were sold with limited recourse. Both CRC's and WRC's respective sales agreements provide for a formula-based loss reserve in which additional receivables may be assigned to the third-party purchasers for costs such as bad debt. The third-party purchasers absorb the excess amount in the event that actual loss experience exceeds the loss reserve. At June 30, 1998, approximately $20.3 million and $4.2 million of assets had been designated as collateral by CRC and WRC, respectively. These amounts represent the formula-based amount of credit exposure at June 30, 1998. Historical losses for bad debt for both CL&P and WMECO have been substantially less. For further information on the NU system companies' sale of receivables, see the MD&A in this Form 10-Q and NU 1997 Form 10-K. 8. STOCK-BASED COMPENSATION In May 1998, the shareholders of NU voted to approve the establishment of the Northeast Utilities Employee Share Purchase Plan (ESPP) and the Northeast Utilities Incentive Plan (Incentive Plan). The ESPP allows eligible employees to purchase shares of NU common stock at a predetermined discount of the lower of the price of the stock at the beginning or end of a six-month period. The ESPP is designed to encourage employee ownership in NU. Payroll deductions for the ESPP began in July 1998. The Incentive Plan sets the terms to provide stock-based compensation awards to be made, both on an annual basis and an individual basis, to certain eligible employees and board members in order to assist in recruiting and retaining talented individuals. The Incentive Plan is designed to align the economic interests of the participants with those of the shareholders. The first of the annual grants was made in May 1998. NU accounts for its stock-based compensation programs in accordance with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees." Accordingly, no compensation expense has been recognized for the stock options granted under the Incentive Plan in May 1998, as the exercise price of the options was equal to the market price of the stock on the date of grant. Compensation expense related to the restricted stock grants made under the program in May 1998 was not material. For further information, see Part II, Other Information - Item 4 in this Form 10-Q and the NU 1997 Form 10-K. 9. COMMITMENTS AND CONTINGENCIES (All Companies) A. Restructuring and Rate Matters (All Companies) Connecticut: Restructuring: On April 29, 1998, the governor of the state of Connecticut signed into law a comprehensive electric utility restructuring bill. It is expected that CL&P is permitted, under this legislation, to fully recover its strandable costs. For additional information regarding the Connecticut utility restructuring legislation and the utility restructuring environment in Connecticut, see Note 2C, and the MD&A in this Form 10-Q, the combined Form 10-Q for the quarter ended March 31, 1998, NU's and CL&P's Form 8-Ks dated April 15, 1998 and the NU 1997 Form 10-K. Rate Matters: On June 1, 1998, CL&P filed two rate applications with the DPUC, proposing a total of 3.4 percent in rate reductions. The first application, a base rate case, requested a one percent rate reduction effective September 28, 1998. The second filing, pursuant to CL&P's energy adjustment clause reduced rates 2.4 percent and was effective July 1, 1998. For additional information on the June 1, 1998 Connecticut rate filings, refer to the MD&A in this Form 10-Q. New Hampshire: For information regarding electric utility restructuring and rate matters in the New Hampshire jurisdiction, see the MD&A in this Form 10-Q, Form 8-Ks dated March 9, 1998, the combined Form 10-Q for the quarter ended March 31, 1998, and the NU 1997 Form 10-K. Massachusetts: For information on electric utility restructuring and rate matters in Massachusetts, see the MD&A and Note 2C in this Form 10-Q, the combined Form 10-Q for the quarter ended March 31, 1998, and the NU 1997 Form 10-K. B. Nuclear Performance (All Companies) Millstone: The three Millstone units are operated by NNECO. Millstone 1 and 2 have been out of service since November 4, 1995 and February 21, 1996, respectively. Millstone 2 is currently on the NRC's watch list. Millstone 1: During July 1998, NU decided to cease restart activities at Millstone 1. For further information on this matter, see Note 10 and the MD&A in this Form 10-Q. Millstone 2: NNECO hopes to return Millstone 2 to service by the end of the year, but such timetable will be largely dependent on the NU system companies, the NRC staff and the Millstone 2 contractor for the ICAVP's ability to complete the design and licensing bases reviews, and any resulting corrective actions, in a timely manner. Management cannot be certain as to when the NRC will allow Millstone 2 to return to service and cannot estimate the remaining replacement power costs CL&P and WMECO will ultimately incur. Replacement power costs incurred by NU attributable to the Millstone outages were approximately $162 million for the six months ended June 30, 1998. CL&P's and WMECO's share of those costs for the six month period ended June 30, 1998 were approximately $139 million and $22 million, respectively. PSNH's share of Millstone 3 replacement power costs were immaterial for the six months ended June 30, 1998. Millstone 3: On June 15, 1998, the NRC granted permission for NNECO to restart Millstone 3, contingent upon the concurrence of the NRC staff. This action reclassified the Unit from the NRC's watch list as a Category 3 facility (plants requiring formal NRC concurrence to operate) to a watch list Category 2 facility (plants authorized to operate but that are closely monitored by the NRC). The NRC staff subsequently authorized the restart on June 29, 1998 and the 1,154 megawatt plant was operating at 100 percent power by July 14, 1998. The return to service of Millstone 3 is expected to save NU subsidiaries approximately $8 million a month in replacement power. 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 certain rate 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. Millstone Rate Issues: For information regarding this matter, 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 the NU 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 NU 1997 Form 10-K. C. Environmental Matters (All Companies) For information regarding environmental matters, see the MD&A in this Form 10-Q and the NU 1997 Form 10-K. D. Nuclear Insurance Contingencies (All Companies) Under certain circumstances, in the event of a nuclear incident at one of the nuclear facilities in the country covered by the federal government's third party liability indemnification program, an owner of a nuclear unit could be assessed in proportion to its ownership interest in each of its nuclear units up to $83.9 million. Payments of this assessment would be limited to $10.0 million in any one year per nuclear incident based upon the owner's pro rata ownership interest in each of its nuclear units. In addition, the owner would be subject to an additional five percent or $4.2 million, in proportion to its ownership interests in each of its nuclear units, if the sum of all claims and costs from any one nuclear incident exceeds the maximum amount of financial protection. Under the Price-Anderson Act, the maximum assessment is to be adjusted at least every five years to reflect inflationary changes. Based upon its ownership interests in Millstone 1, 2, and 3 and in Seabrook 1, the NU system's maximum liability, including any additional assessments, would be $271.0 million per incident, of which payments would be limited to $30.8 million per year. In addition, through power purchase contracts with MYAPC, VYNPC, and CYAPC, the NU system would be responsible for up to an additional $74.9 million per incident, of which payments would be limited to $8.5 million per year. For additional information regarding nuclear insurance contingencies, see the NU 1997 Form 10-K. E. Construction Program (All Companies) For information regarding the NU system's construction program, see the NU 1997 Form 10-K. F. Long-Term Contractual Arrangements (NU, CL&P, PSNH, WMECO) The sponsor companies, including CL&P, PSNH and WMECO, of MYAPC, as a group, have entered into several secondary purchaser contracts for the sale of energy and capacity from the Maine Yankee generating plant (MY). Upon the shutdown of MY, the secondary purchasers ceased to make payments under these agreements and have demanded arbitration. To date, the secondary purchasers have not been successful in forcing arbitration of these contracts. The sponsor companies have covered the payments that the secondary purchasers have failed to make. The NU system companies, collectively, have established a receivable in the approximate amount of $3.3 million which is equal to the amount which has been paid by the NU system companies to MYAPC on behalf of the secondary purchasers obligation. Management cannot estimate the period to which the NU system companies will be subject to this obligation. For additional information regarding long-term contractual arrangements, see the NU 1997 Form 10-K. G. Charter Oak Energy, Inc. Sale (NU) For information on COE, see the combined Form 10-Q for the quarter ended March 31, 1998, and the NU 1997 Form 10-K. 10. NUCLEAR DECOMMISSIONING Millstone Unit 1: CL&P and WMECO have ownership interests of 81 percent and 19 percent, respectively, in Millstone 1. In July 1998, CL&P filed a continued unit operation study (CUO) with the DPUC. The CUO study regarding Millstone 1 showed that, given certain assumptions, the economic benefit to customers would be less than one percent of the total cost that would be required to operate the unit through the end of its license in 2010. Given the changing utility structure and electric marketplace, CL&P and WMECO have decided to cease restart activities at Millstone 1 and instead prepare for final decommissioning. CL&P, WMECO and NNECO will undertake a number of regulatory filings intended to implement the decommissioning and recovery of remaining assets of Millstone 1. At June 30, 1998, the net unrecovered plant costs for Millstone 1 were approximately $246 million ($199 million for CL&P and $47 million for WMECO). The total estimated decommissioning costs, which have been updated to reflect the early shutdown of the unit, are approximately $642.1 million in mid-1997 dollars ($520.1 million for CL&P and $122 million for WMECO). At June 30, 1998, approximately $250.3 million of the total estimated decommissioning costs had been funded by CL&P and WMECO, respectively, through the use of external trusts ($195.1 million for CL&P and $55.2 million for WMECO). CL&P has also recorded a reserve on its books which represents amounts which have been collected by CL&P but not funded, and will also be used to fund the total estimated decommissioning obligation of Millstone 1. At June 30, 1998, the balance of this account on CL&P's book was approximately $19.8 million. Management expects that CL&P and WMECO will each be allowed to recover from customers the estimated remaining costs associated with Millstone 1, including decommissioning, unrecovered plant and related assets, and other expenditures. During the third quarter of 1998, CL&P and WMECO expect to recognize their respective share of these costs as regulatory assets, with corresponding liabilities on their balance sheets. For more information on the Millstone 1 closure, see the MD&A and Note 9B in this Form 10-Q, and the NU 1997 Form 10-K. PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDING 1. (NU, CL&P, WMECO) On July 2, 1998, the Massachusetts Superior Court denied a motion by the Massachusetts Municipal Wholesale Electric Company (MMWEC) to place a lien on NU's common stock ownership in WMECO and Holyoke Water and Power Company in connection with the litigation commenced by non-NU joint owners of Millstone 3 in August 1997. MMWEC had requested that the court issue an order restraining NU from disposing of the stock in these subsidiary companies to ensure that a future judgment against NU in favor of MMWEC could be satisfied. The underlying litigation is ongoing. For more information regarding this matter, see "Item 3 - Legal Proceedings" in NU's 1997 Annual Report on Form 10-K and "Item 1 - Legal Proceedings" in NU's Quarterly Report on Form 10-Q for the quarter ending March 31, 1998. 2. (NU) As part of the December 1997 $25.5 million settlement of the shareholder derivative actions against NU, approximately $7.5 million was held in escrow pending the court's ruling on the plaintiffs' petition for attorney's fees in that amount. On June 22, 1998, the court approved a settlement whereby plaintiffs' counsel was paid a total of $2.6 million. On June 26, 1998, NU received the remaining $5.5 million of the settlement fund. For additional information, see "Item 3 - Legal Proceedings" in NU's 1997 Annual Report on Form 10-K. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS (NU) At the Annual Meeting of Shareholders of NU held on May 12, 1998 shareholders voted to fix the number of Trustees for the ensuing year at nine. The vote fixing the number of Trustees was 108,343,806 votes in favor and 2,183,513 votes against, with 1,551,108 abstentions and broker nonvotes. At the Annual Meeting, the following nine nominees were elected to serve on the Board of Trustees by the votes set forth below: For Withheld Total 1. Cotton M. Cleveland 107,271,489 4,805,161 112,076,650 2. William F. Conway 107,928,803 4,147,847 112,076,650 3. E. Gail DePlanque 107,772,536 4,304,114 112,076,650 4. Elizabeth T. Kennan 107,176,756 4,899,894 112,076,650 5. Michael G. Morris 107,955,674 4,120,976 112,076,650 6. William J. Pape II 107,245,460 4,831,190 112,076,650 7. Robert E. Patricelli 107,578,272 4,498,378 112,076,650 8. John F. Swope 106,550,401 5,526,249 112,076,650 9. John F. Turner 107,672,101 4,404,549 112,076,650 NU's shareholders also voted to approve the Employee Share Purchase Plan. The Employee Share Purchase Plan generally provides eligible employees of the Company with a means to purchase, through payroll deductions, common shares at a discount, consistent with the provisions of the Internal Revenue Code of 1986, as amended. The vote approving such plan was 90,224,369 votes in favor and 4,667,809 votes against, with 2,024,735 abstentions and broker nonvotes. NU's shareholders also voted to approve the Incentive Plan. The Incentive Plan provides for annual incentive awards to officers of the Company at or above the Vice President level and grants of incentive stock options, nonqualified stock options, restricted stock, stock appreciation rights and performance units to selected employees of the Company, including employees who are also Trustees of Northeast Utilities. In addition, the Incentive Plan provides for grants of nonqualified stock options to non-employee Trustees of Northeast Utilities and Company contractors. The vote approving such plan was 70,964,406 votes in favor and 23,346,599 votes against, with 2,592,646 abstentions and broker nonvotes. NU's shareholders also ratified the Board of Trustees' selection of Arthur Andersen LLP to serve as independent auditors of NU and its subsidiaries for 1998. The vote ratifying such selection was 108,049,954 votes in favor and 2,246,520 votes against, with 1,786,774 abstentions and broker nonvotes. (CL&P) In a written Consent in Lieu of a Meeting of Stockholders of CL&P ("Consent") dated April 16, 1997, stockholders voted to amend CL&P's Restated Certificate of Incorporation to include the following language regarding the indemnification of directors, officers, employees and agents: SECTION IX INDEMNIFICATION OF DIRECTORS, OFFICERS EMPLOYEES AND AGENTS Effective January 1, 1997, the Company shall indemnify and advance reasonable expenses to an individual made or threatened to be made a party to a proceeding because he/she is or was a Director of the Company to the fullest extent permitted by law under Section 33-771 and Section 33-773 of the Connecticut General Statutes, as may be amended from time to time ("Connecticut General Statutes"). The Company shall also indemnify and advance reasonable expenses under Connecticut General Statutes Sections 33-770 to 33-778, inclusive, as amended, to any officer, employee or agent of the Company who is not a Director to the same extent as a Director and to such further extent, consistent with public policy, as may be provided by contract, the Certificate of Incorporation of the Company, the Bylaws of the Company or a resolution of the Board of Directors. In connection with any advance for such expenses, the Company may, but need not, require any such officer, employee or agent to deliver a written affirmation of his/her good faith belief that he/she has met the relevant standard of conduct or a written undertaking to repay any funds advanced for expenses if it is ultimately determined that he/she is not entitled to indemnification. The Board of Directors, by resolution, the general counsel of the Company, or such additional officer or officers as the Board of Directors may specify, shall have the authority to determine that indemnification or advance for such expenses to any such officer, employee or agent is permissible and to authorize payment of such indemnification or advance for expenses. The Board of Directors, by resolution, the general counsel of the Company, or such additional officer or officers as the Board of Directors may specify, shall also have the authority to determine the terms on which the Company shall advance expenses to any such officer, employee or agent, which terms need not require delivery by such officer, employee or agent of a written affirmation of his/her good faith belief that he/she has met the relevant standard of conduct or a written undertaking to repay any funds advanced for such expenses if it is ultimately determined that he/she is not entitled to indemnification. The indemnification and advance for expenses provided for herein shall not be deemed exclusive of any other rights to which those indemnified or eligible for advance for expenses may be entitled under Connecticut law as in effect on the effective date hereof and as thereafter amended or any Bylaw, agreement, vote of shareholders or disinterested directors or otherwise, both as to action in such person's official capacity and as to action in another capacity while holding such office, and shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such a person. No lawful repeal or modification of this Section IX or the adoption of any provision inconsistent herewith by the Board of Directors and shareholders of the Company or change in statute shall apply to or have any effect on the obligations of the Company to indemnify or to pay for or reimburse in advance expenses incurred by a director, officer, employee or agent of the Company in defending any proceeding arising out of or with respect to any acts or omissions occurring at or prior to the effective date of such repeal, modification or adoption of a provision or statutes change inconsistent herewith. The vote to amend the Restated Certificate of Incorporation was 12,222,930 shares in favor, representing 100 percent of the issued and outstanding shares of common stock of CL&P. In a written Consent in Lieu of an Annual Meeting of Stockholders of CL&P ("Consent") dated June 16, 1998, stockholders voted to fix the number of directors for the ensuing year at four. The vote fixing the number of directors at four was 12,222,930 shares in favor, representing 100 percent of the issued and outstanding shares of common stock of CL&P. Through the Consent, the following four directors were elected, each by a vote of 12,222,930 shares in favor, to serve on the Board of Directors for the ensuing year: John H. Forsgren, Bruce D. Kenyon, Hugh C. MacKenzie and Michael G. Morris. (PSNH) At the Annual Meeting of Stockholders of PSNH held on May 18, 1998, stockholders voted to fix the number of directors for the ensuing year at eight. The vote fixing the number of directors at eight was 1,000 shares in favor, representing 100 percent of the issued and outstanding shares of common stock of PSNH. At the Annual Meeting, the following eight directors were elected, each by a vote of 1,000 shares in favor, to serve on the Board of Directors for the ensuing year: John C. Collins, John H. Forsgren, William T. Frain, Jr., Bruce D. Kenyon, Gerald Letendre, Hugh C. MacKenzie, Michael G. Morris, and Jane E. Newman. (WMECO) In a written Consent in Lieu of an Annual Meeting of Stockholders of WMECO ("Consent") dated June 18, 1998, stockholders voted to fix the number of directors for the ensuing year at four. The vote fixing the number of directors at four was 1,072,471 shares in favor, representing 100 percent of the issued and outstanding shares of common stock of WMECO. Through the Consent the following four directors were elected, each by a vote of 1,072,471 shares in favor, to serve on the Board of Directors for the ensuing year: John H. Forsgren, Bruce D. Kenyon, Hugh C. MacKenzie, and Michael G. Morris. (NAEC) In a written Consent in Lieu of an Annual Meeting of Stockholders of NAEC "Consent") dated June 18, 1998, stockholders voted to fix the number of directors for the ensuing year at three. The vote fixing the number of directors at three was 1,000 shares in favor, representing 100 percent of the issued and outstanding shares of common stock of NAEC. Through the Consent, the following three directors were elected, each by a vote of 1,000 shares in favor, to serve on the Board of Directors for the ensuing year: John H. Forsgren, Bruce D. Kenyon and Michael G. Morris. ITEM 5. OTHER INFORMATION 1. (NU, CL&P, WMECO) On June 1, 1998, the NRC's Director of Nuclear Reactor Regulation issued a decision denying in its entirety a Section 2.206 petition which had been filed by Citizens Awareness Network (CAN) in February of 1998. The petitioners had requested that the NRC revoke the operating licenses of Millstone Units 1, 2 and 3 as a result of the company's harassment and intimidation of the nuclear workforce for raising safety issues. For additional information, see "Item 3 - Legal Proceedings" in NU's 1997 Annual Report on Form 10-K. 2. (NU, PSNH) The New Hampshire Electric Cooperative (NHEC) has certain wholesale requirements purchase obligations with PSNH under an Amended Partial Requirements Agreement (APRA). In 1995 the FERC opened a proceeding in response to a complaint by PSNH that was based on an attempt by NHEC to avoid these wholesale requirements purchase obligations by soliciting bids from qualifying facilities (QF). On May 29, 1998, the FERC denied PSNH's complaint. The FERC ruled that NHEC's purchase obligations under the APRA expressly allow it to purchase QF power. The FERC further stated that the price for such purchases may be determined by negotiation between NHEC and the individual QF. This decision has been tolled while the FERC considers PSNH's request for clarification or rehearing. Also, on May 29, 1998, the FERC issued a ruling in another docket related to the APRA refusing PSNH's request to impose a stranded cost charge on NHEC as a result of reduced purchases by NHEC when it allows its customers to choose their energy supplier from the competitive market. The FERC granted PSNH's request for rehearing of this decision. An initial decision must be rendered by October 30, 1998, and a final decision is expect by March 1999. In 1997, PSNH had sales of approximately $47 million to NHEC under the APRA. For additional information, see "Item 1 - Business - Competition and Marketing - Wholesale Marketing" in NU's 1995 Annual Report on Form 10-K. 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 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: August 7, 1998 By /s/ John H. Forsgren John H. Forsgren Executive Vice President and Chief Financial Officer Date: August 7, 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: August 7, 1998 By /s/ John H. Forsgren John H. Forsgren Executive Vice President, Chief Financial Officer and Director Date: August 7, 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: August 7, 1998 By /s/ John H. Forsgren John H. Forsgren Executive Vice President, Chief Financial Officer and Director Date: August 7, 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: August 7, 1998 By /s/ John H. Forsgren John H. Forsgren Executive Vice President, Chief Financial Officer and Director Date: August 7, 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: August 7, 1998 By /s/ John H. Forsgren John H. Forsgren Executive Vice President and Chief Financial Officer and Director Date: August 7, 1998 By /s/ John J. Roman John J. Roman Vice President and Controller Exhibit 15 August 7, 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 June 30, 1998, which includes our report dated August 7, 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 6-MOS DEC-31-1997 JUN-30-1998 PER-BOOK 6,290,148 775,470 784,391 2,108,411 0 9,958,420 684,503 934,316 695,846 2,167,460 197,072 136,200 3,364,622 80,000 0 0 274,827 30,250 159,886 51,373 3,349,525 9,958,420 1,833,714 24,060 1,682,542 1,716,930 116,784 10,959 138,071 135,614 2,457 14,133 (11,676) 0 0 402,471 (0.09) 0.00
EX-27.2 3 FDS FOR CL&P
UT 0000023426 THE CONNECTICUT LIGHT AND POWER COMPANY AND SUBSIDIARIES 1,000 6-MOS DEC-31-1997 JUN-30-1998 PER-BOOK 3,654,828 538,238 334,312 1,184,205 0 5,711,583 122,229 664,129 355,312 1,141,670 129,072 116,200 1,863,193 10,000 0 0 140,005 3,750 124,327 38,433 2,144,933 5,711,583 1,170,185 (29,742) 1,173,717 1,152,858 17,327 (14,714) 11,496 68,836 (57,340) 7,320 (64,660) 0 0 275,534 0.00 0.00
EX-27.3 4 FDS FOR PSNH
UT 0000315256 PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE 1,000 6-MOS DEC-31-1997 JUN-30-1998 PER-BOOK 1,678,742 28,113 287,594 721,292 0 2,715,741 1 424,250 203,593 627,844 50,000 0 516,485 50,000 0 0 0 25,000 750,287 129,882 566,243 2,715,741 512,529 43,465 414,285 451,354 61,175 7,945 62,724 24,332 38,392 5,300 33,092 0 0 85,851 0.00 0.00
EX-27.4 5 FDS FOR WMECO
UT 0000106170 WESTERN MASSACHUSETTS ELECTRIC COMPANY AND SUBSIDIARY 1,000 6-MOS DEC-31-1997 JUN-30-1998 PER-BOOK 754,883 137,878 57,679 205,036 0 1,155,476 26,812 151,537 57,724 236,073 18,000 20,000 348,595 44,100 0 0 40,000 1,500 25,690 8,329 413,189 1,155,476 197,838 827 182,345 183,386 14,452 1,107 15,773 15,144 629 1,513 (884) 0 0 16,634 0.00 0.00
EX-27.5 6 FDS FOR NAEC
UT 0000880416 NORTH ATLANTIC ENERGY CORPORATION 1,000 6-MOS DEC-31-1997 JUN-30-1998 PER-BOOK 640,165 31,015 53,981 240,479 0 965,640 1 160,999 48,914 209,914 0 0 405,000 3,050 0 0 70,000 0 0 0 277,676 965,640 137,796 10,420 92,689 110,783 27,013 (762) 33,925 18,713 15,212 0 15,212 0 0 60,387 0.00 0.00
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