-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, g/WQjSWoIbZ3lfZmJ5rxY89cmcydFjflxt8KjxahZulWL6m/CxX3rTYbJMMyxzAv qHz/0ARlkhYhpxuzWQjVLA== 0000071297-94-000053.txt : 19941111 0000071297-94-000053.hdr.sgml : 19941111 ACCESSION NUMBER: 0000071297-94-000053 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19940930 FILED AS OF DATE: 19941110 SROS: BSE SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: NEW ENGLAND ELECTRIC SYSTEM CENTRAL INDEX KEY: 0000071297 STANDARD INDUSTRIAL CLASSIFICATION: 4911 IRS NUMBER: 041663060 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-03446 FILM NUMBER: 94558636 BUSINESS ADDRESS: STREET 1: 25 RESEARCH DR CITY: WESTBOROUGH STATE: MA ZIP: 01581 BUSINESS PHONE: 5083669011 10-Q 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1994 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number 1-3446 (LOGO) NEW ENGLAND ELECTRIC SYSTEM (Exact name of registrant as specified in charter) MASSACHUSETTS 04-1663060 (State or other (I.R.S. Employer jurisdiction of Identification No.) incorporation or organization) 25 Research Drive, Westborough, Massachusetts 01582 (Address of principal executive offices) Registrant's telephone number, including area code (508-366-9011) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes (X) No ( ) Common Shares, par value $1 per share, authorized and outstanding: 64,969,652 shares at September 30, 1994. PART I FINANCIAL INFORMATION Item 1. Financial Statements - ---------------------------- NEW ENGLAND ELECTRIC SYSTEM AND SUBSIDIARIES Statements of Consolidated Income Periods Ended September 30 (Unaudited)
Quarter Nine Months ------- ----------- 1994 1993 1994 1993 ---- ---- ---- ---- (In Thousands) Operating revenue $591,633 $576,644 $1,685,617 $1,674,270 -------- -------- ---------- ---------- Operating expenses: Fuel for generation 55,572 59,870 171,350 165,916 Purchased electric energy 139,279 143,405 379,304 403,598 Other operation 123,504 109,439 349,348 374,809 Maintenance 36,765 34,966 108,818 109,091 Depreciation and amortization 80,057 74,719 236,293 229,261 Taxes, other than income taxes 32,529 30,085 99,044 93,239 Income taxes 39,573 41,662 107,528 89,101 -------- -------- ---------- ---------- Total operating expenses 507,279 494,146 1,451,685 1,465,015 -------- -------- ---------- ---------- Operating income 84,354 82,498 233,932 209,255 Other income: Allowance for equity funds used during construction 2,540 762 7,221 2,419 Equity in income of generating companies 2,664 2,221 7,925 8,016 Other income (expense) - net 46 1,236 (1,468) 2,461 -------- -------- ---------- ---------- Operating and other income 89,604 86,717 247,610 222,151 -------- -------- ---------- ---------- Interest: Interest on long-term debt 23,636 25,303 68,869 76,454 Other interest 5,518 1,794 10,098 4,854 Allowance for borrowed funds used during construction (2,419) (814) (5,234) (1,852) -------- -------- ---------- ---------- Total interest 26,735 26,283 73,733 79,456 -------- -------- ---------- ---------- Income after interest 62,869 60,434 173,877 142,695 Preferred dividends of subsidiaries 2,172 3,005 6,525 8,291 Minority interests 1,846 1,898 5,644 6,141 -------- -------- ---------- ---------- Net income $ 58,851 $ 55,531 $ 161,708 $ 128,263 ======== ======== ========== ========== Common shares 64,969,65264,969,65264,969,652 64,969,652 Net income per common share $.91 $.85 $2.49 $1.97 Dividends declared per share $.575 $.560 $1.710 $1.660 The accompanying notes are an integral part of these financial statements.
NEW ENGLAND ELECTRIC SYSTEM AND SUBSIDIARIES Statements of Consolidated Income Twelve Months Ended September 30 (Unaudited)
1994 1993 ---- ---- (In Thousands) Operating revenue $2,245,325 $2,241,047 ---------- ---------- Operating expenses: Fuel for generation 232,616 230,396 Purchased electric energy 503,013 534,135 Other operation 466,638 495,065 Maintenance 145,946 155,350 Depreciation and amortization 303,663 305,019 Taxes, other than income taxes 126,298 121,365 Income taxes 139,551 114,759 ---------- ---------- Total operating expenses 1,917,725 1,956,089 ---------- ---------- Operating income 327,600 284,958 Other income: Allowance for equity funds used during construction8,597 3,168 Equity in income of generating companies 10,925 10,470 Other income (expense) - net (5,063) (1,072) ---------- ---------- Operating and other income 342,059 297,524 ---------- ---------- Interest: Interest on long-term debt 93,193 103,729 Other interest 15,052 6,418 Allowance for borrowed funds used during construction (6,198) (2,415) ---------- ---------- Total interest 102,047 107,732 ---------- ---------- Income after interest 240,012 189,792 Preferred dividends of subsidiaries 8,819 10,935 Minority interests 7,525 8,565 ---------- ---------- Net income $ 223,668 $ 170,292 ========== ========== Common shares 64,969,652 64,969,652 Net income per common share $3.44 $2.62 Dividends declared per share $2.270 $2.200 The accompanying notes are an integral part of these financial statements.
NEW ENGLAND ELECTRIC SYSTEM AND SUBSIDIARIES Consolidated Balance Sheets (Unaudited)
September 30,December 31, ASSETS 1994 1993 ------ ---- ---- (In Thousands) Utility plant, at original cost $4,846,064 $4,661,612 Less accumulated provisions for depreciation and amortization1,595,4131,511,271 ---------- ---------- 3,250,651 3,150,341 Net investment in Seabrook 1 under rate settlement 55,206 103,344 Construction work in progress 348,988 228,816 ---------- ---------- Net utility plant 3,654,845 3,482,501 ---------- ---------- Oil and gas properties, at full cost 1,241,562 1,220,110 Less accumulated provision for amortization 951,872 884,837 ---------- ---------- Net oil and gas properties 289,690 335,273 ---------- ---------- Investments: Nuclear power companies, at equity 47,041 46,342 Other subsidiaries, at equity 42,354 44,676 Other investments, at cost 48,602 28,836 ---------- ---------- Total investments 137,997 119,854 ---------- ---------- Current assets: Cash 4,033 2,876 Accounts receivable, less reserves of $17,354,000 and $14,551,000 265,879 275,020 Unbilled revenues 48,875 43,400 Fuel, materials and supplies, at average cost 86,447 74,314 Prepaid and other current assets 64,961 69,004 ---------- ---------- Total current assets 470,195 464,614 ---------- ---------- Accrued Yankee Atomic costs 132,920 103,501 Deferred charges and other assets 298,981 290,135 ---------- ---------- $4,984,628 $4,795,878 ========== ========== CAPITALIZATION AND LIABILITIES ------------------------------ Capitalization: Common share equity: Common shares, par value $1 per share: Authorized - 150,000,000 shares Outstanding - 64,969,652 shares $ 64,970 $ 64,970 Paid-in capital 736,823 736,823 Retained earnings 778,685 728,075 ---------- ---------- Total common share equity 1,580,478 1,529,868 Minority interests in consolidated subsidiaries 55,254 55,855 Cumulative preferred stock of subsidiaries 147,016 147,528 Long-term debt 1,512,499 1,511,589 ---------- ---------- Total capitalization 3,295,247 3,244,840 ---------- ---------- Current liabilities: Long-term debt due within one year 47,920 12,920 Short-term debt 147,475 71,775 Accounts payable 137,392 128,342 Accrued taxes 24,428 10,332 Accrued interest 19,920 23,278 Dividends payable 35,172 36,950 Other current liabilities 133,214 153,812 ---------- ---------- Total current liabilities 545,521 437,409 ---------- ---------- Deferred federal and state income taxes 716,723 705,026 Unamortized investment tax credits 97,415 99,355 Accrued Yankee Atomic costs 132,920 103,501 Other reserves and deferred credits 196,802 205,747 ---------- ---------- $4,984,628 $4,795,878 ========== ========== The accompanying notes are an integral part of these financial statements.
NEW ENGLAND ELECTRIC SYSTEM AND SUBSIDIARIES Consolidated Statements of Cash Flows Nine Months Ended September 30 (Unaudited)
1994 1993 ---- ---- (In Thousands) Operating Activities: Net income $ 161,708 $ 128,263 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 239,450 232,441 Deferred income taxes and investment tax credits - net9,804 (27,137) Allowance for funds used during construction (12,455) (4,271) Amortization of unbilled revenues (28,305) Minority interests 5,644 6,141 Early retirement program 23,922 Decrease (increase) in accounts receivable, net and unbilled revenues 3,666 2,651 Decrease (increase) in fuel, materials, and supplies(12,133) 4,264 Increase (decrease) in accounts payable 9,050 (59,846) Increase (decrease) in other current liabilities 18,445 35,657 Other, net (21,121) 49,848 --------- --------- Net cash provided by operating activities $ 373,753 $ 391,933 --------- --------- Investing Activities: Plant expenditures, excluding allowance for funds used during construction $(327,176) $(219,030) Oil and gas exploration and development (21,452) (12,928) Other investing activities (15,995) 1,417 --------- --------- Net cash used in investing activities $(364,623) $(230,541) --------- --------- Financing Activities: Dividends paid to minority interests $ (8,416) $ (7,727) Dividends paid on NEES common shares (110,705) (105,881) Short-term debt 75,700 (40,900) Long-term debt - issues 53,000 314,900 Long-term debt - retirements (17,040) (318,340) Preferred stock - issues 55,000 Preferred stock - redemption (512) (35,000) Premium on redemption of preferred stock of subsidiaries (1,231) Premium on reacquisition of long-term debt (7,355) --------- --------- Net cash used in financing activities $ (7,973) $(146,534) --------- --------- Net increase (decrease) in cash and cash equivalents$ 1,157 $ 14,858 Cash and cash equivalents at beginning of period 2,876 2,768 --------- --------- Cash and cash equivalents at end of period $ 4,033 $ 17,626 ========= ========= Supplementary Information: Interest paid less amounts capitalized $ 73,824 $ 75,266 --------- --------- Federal and state income taxes paid $ 82,404 $ 99,589 --------- --------- The accompanying notes are an integral part of these financial statements.
NEW ENGLAND ELECTRIC SYSTEM AND SUBSIDIARIES Statements of Consolidated Retained Earnings Periods Ended September 30 (Unaudited)
Quarter Nine Months ------- ----------- 1994 1993 1994 1993 ---- ---- ---- ---- (In Thousands) Retained earnings at beginning of period$757,192 $685,398 $ 728,075 $ 684,132 Net income 58,851 55,531 161,708 128,263 Dividends declared on common shares (37,358) (36,384) (111,098) (107,850) Premium on redemption of preferred stock of subsidiaries (1,231) (1,231) -------- -------- --------- --------- Retained earnings at end of period $778,685 $703,314 $ 778,685 $ 703,314 ======== ======== ========= ========= Consolidated Electric Operating Statistics Periods Ended September 30 Quarter Nine Months ------- ----------- 1994 1993 1994 1993 ---- ---- ---- ---- (In Thousands of KWH) Generated at nuclear power plants 413,229 311,983 1,207,259 1,319,753 Generated at system thermal plants 2,629,743 3,177,393 8,539,337 8,467,558 Generated at system hydro plants 228,994 145,013 1,116,801 904,294 Generated at pumped storage plant 119,575 137,042 392,276 411,854 Less energy for pumping 185,034 189,026 539,501 564,507 --------- --------- ---------- ---------- Total generated 3,206,507 3,582,405 10,716,172 10,538,952 Nuclear entitlements 525,668 331,115 1,835,397 1,628,355 Purchased electric energy 2,544,721 2,197,944 6,361,857 6,090,802 --------- --------- ---------- ---------- Total generated and purchased 6,276,896 6,111,464 18,913,426 18,258,109 Less losses, company use, etc. 350,730 465,388 1,170,956 1,025,713 --------- --------- ---------- ---------- Total sales 5,926,166 5,646,076 17,742,470 17,232,396 ========= ========= ========== ========== The accompanying notes are an integral part of these financial statements.
NEW ENGLAND ELECTRIC SYSTEM AND SUBSIDIARIES Statements of Consolidated Retained Earnings Periods Ended September 30 (Unaudited)
Twelve Months ------------- 1994 1993 ---- ---- (In Thousands) Retained earnings at beginning of period $ 703,314 $ 677,187 Net income 223,668 170,292 Dividends declared on common shares (147,481) (142,934) Premium on redemption of preferred stock of subsidiaries(816) (1,231) --------- --------- Retained earnings at end of period $ 778,685 $ 703,314 ========= ========= Consolidated Electric Operating Statistics Twelve Months Ended September 30 Twelve Months ------------- 1994 1993 ---- ---- (In Thousands of KWH) Generated at nuclear power plants 1,584,184 1,563,803 Generated at system thermal plants 11,697,323 11,703,745 Generated at system hydro plants 1,466,432 1,207,340 Generated at pumped storage plant 528,780 546,444 Less energy for pumping 725,778 747,979 ---------- ---------- Total generated 14,550,941 14,273,353 Nuclear entitlements 2,404,040 2,336,212 Purchased electric energy 8,087,697 7,682,408 ---------- ---------- Total generated and purchased 25,042,678 24,291,973 Less losses, company use, etc. 1,742,526 1,376,885 ---------- ---------- Total sales 23,300,152 22,915,088 ========== ========== The accompanying notes are an integral part of these financial statements.
Note A - Hazardous Waste - ------------------------ The Federal Comprehensive Environmental Response, Compensation and Liability Act, more commonly known as the "Superfund" law, imposes strict, joint and several liability, regardless of fault, for remediation of property contaminated with hazardous substances. Parties liable include past and present site owners and operators, transporters that brought wastes to the site, and entities that generated or arranged for disposal or treatment of wastes ultimately disposed of at the site. A number of states, including Massachusetts, have enacted similar laws. The electric utility industry typically utilizes and/or generates in its operations a range of potentially hazardous products and by-products. These products or by-products may not have previously been considered hazardous, and may not currently be considered hazardous, but may be identified as such by federal, state, or local authorities in the future. The New England Electric System (NEES) subsidiaries currently have in place an environmental audit program intended to enhance compliance with existing federal, state, and local requirements regarding the handling of potentially hazardous products and by-products. Federal and state environmental agencies, as well as private parties, have contacted or initiated legal proceedings against NEES and certain subsidiaries regarding liability for cleanup of sites alleged to contain hazardous waste or substances. NEES and/or its subsidiaries have been named as a potentially responsible party (PRP) by either the U.S. Environmental Protection Agency (EPA) or the Massachusetts Department of Environmental Protection (DEP) for 19 sites at which hazardous waste is alleged to have been disposed. NEES and its subsidiaries are also aware of other sites which they may be held responsible for remediating and it is likely that, in the future, NEES and its subsidiaries will become involved in additional proceedings demanding contribution for the cost of remediating additional hazardous waste sites. The most prevalent types of hazardous waste sites that NEES and its subsidiaries have been connected with are former manufactured gas locations. Until the early 1970's, NEES was a combined electric and gas holding company system. NEES is currently aware of approximately 40 locations (including five of the 19 locations for which NEES companies are PRPs) at which gas may have been manufactured and/or stored. Of the manufactured gas locations, 17 have been listed for investigation by the DEP. Note A - Hazardous Waste - Continued - ------------------------ In a lawsuit involving one of these sites, the United States Court of Appeals for the First Circuit affirmed in 1993 an earlier adverse decision against NEES, Massachusetts Electric Company (Massachusetts Electric), and New England Power Service Company. The decision held these companies liable for cleanup of the properties involved in the case. In 1993, the Massachusetts Department of Public Utilities approved a rate agreement filed by Massachusetts Electric that resolved all rate recovery issues related to Massachusetts manufactured gas sites as well as certain other Massachusetts hazardous waste sites. The agreement allows for environmental remediation costs for such sites to be met from a special interest bearing fund established on Massachusetts Electric's books. The fund's initial balance of $30 million has come from previously recorded reserves and is not recoverable from customers. Annual contributions of $3 million, adjusted for inflation, are being added to the fund by Massachusetts Electric and are recoverable in rates. Under the agreement, any shortfalls in the fund will be paid by Massachusetts Electric and be recovered through rates over seven years, without interest. NEES has been notified by the EPA that it is one of several PRPs for cleanup of the Pine Street Canal Superfund site in Burlington, Vermont, at which coal tar and other materials were deposited. Between 1931 and 1951, NEES and its predecessor owned all of the common stock of Green Mountain Power Corporation. Prior to, during, and after that time, gas was manufactured at the Pine Street Canal site. Among the waste by-products of that process were coal and oil tars. The EPA had brought a lawsuit against NEES and other parties to recover all of the EPA's past and future response costs at this site. In 1990, the litigation ended with the filing of a final consent decree with the court. Under the terms of the settlement, to which 14 entities were party, the EPA recovered its past response costs. NEES recorded its share of these costs in 1989. NEES remains a PRP for ongoing and future response costs. In November 1992, the EPA proposed a cleanup plan estimated by the EPA to cost $50 million. In June 1993, the EPA withdrew this cleanup plan in response to public concern about the plan and the cost. It is not known at this time what the ultimate cleanup plan will be, how much it will cost, or what portion NEES will have to pay. Note A - Hazardous Waste - Continued - ------------------------ Predicting the potential costs to investigate and remediate hazardous waste sites continues to be difficult. Factors such as the evolving nature of remediation technology and regulatory requirements and the particular characteristics of each site, including, for example the size of the site, the nature and amount of waste disposed at the site, and the surrounding geography and land use, make precise estimates difficult. There are also significant uncertainties as to the portion, if any, of the investigation and remediation costs of any particular hazardous waste site that may ultimately be borne by NEES or its subsidiaries. At September 30, 1994, NEES had total reserves for environmental response costs of $51 million and a related regulatory asset of $16 million. NEES believes that hazardous waste liabilities for all sites of which it is aware, and which are not covered by a rate agreement, will not be material (10 percent of common equity) to its financial position. Where appropriate, the NEES companies intend to seek recovery from their insurers and from other PRPs, but it is uncertain whether, and to what extent, such efforts will be successful. Note B - Purchased Power Contract Dispute - ----------------------------------------- On October 26, 1994, New England Power Company (NEP) was sued by Milford Power Limited Partnership (MPLP) in the Superior Court for Worcester County, Massachusetts. MPLP, a venture of Enron Corporation and Jones Capital, owns a 149 MW gas-fired power plant in Milford, Massachusetts. NEP purchases 56 percent of the power output of the facility under a long-term contract with MPLP. MPLP alleges that NEP has engaged in a scheme to cause MPLP and its power plant to fail and has prevented MPLP from finding a long-term buyer for the remaining 44 percent of the facility's output. The complaint includes allegations that NEP has violated the Federal Racketeer Influenced and Corrupt Organizations Act, engaged in unfair or deceptive acts in trade or commerce, and breached contracts. MPLP seeks compensatory damages in an unspecified amount, as well as treble damages. NEP believes that the allegations of wrongdoing are without merit. Note C - ------ In the opinion of the Company, these statements reflect all adjustments (which include normal recurring adjustments) necessary for a fair statement of the results of its operations for the periods presented and should be considered in conjunction with the notes to the financial statements in NEES' 1993 Annual Report. Item 2. Management's Discussion and Analysis of Financial --------------------------------------------------------- Condition and Results of Operations ----------------------------------- Earnings - -------- Earnings for the third quarter of 1994 were $.91 per share, compared to $.85 earned in the third quarter of 1993. Earnings for the first nine months of 1994 were $2.49 per share compared to $1.97 per share earned during the corresponding period in 1993. The table below details the principal reasons for these increases in consolidated earnings: Period ending September 30 -------------------------- 3 months 9 months -------- -------- 1993 earnings $ .85 $1.97 Increased kilowatthour sales billed to ultimate customers .10 .18 Decreased purchased power charges excluding fuel .09 .11 Increased other operation and maintenance (excluding 1993 one-time charges listed below) (.15) (.24) 1994 effects of retail companies' rate agreements: General rate reduction/service extension discounts (.08) (.22) Unbilled revenue amortization .12 .26 1994 unbilled revenue - seasonal change (.06) (.08) 1993 One-time charges: Manufactured gas waste reserves .21 Organizational review .27 Other impacts on earnings .04 .03 ----- ----- 1994 earnings $ .91 $2.49 ===== ===== Kilowatthour (KWH) sales to ultimate customers increased 3.3 percent and 2.0 percent in the third quarter and first nine months of 1994. These increases reflect weather conditions and an improving economy, partially offset by the reduction of one billing day due to meter reading schedules. The decrease in purchased power costs primarily reflects overhauls and refueling shutdowns of partially owned nuclear power suppliers in the third quarter of 1993. The increase in operation and maintenance costs reflects increased computer system development costs, increased pension and other retiree benefit costs, and general increases in other areas. New England Power Company (NEP) estimates that it will incur increased costs of approximately $10 million in the fourth quarter of 1994 in connection with overhauls of wholly owned generating units, in part to achieve compliance with the Clean Air Act. (See Clean Air Requirements section). The retail rate agreements were implemented over the last twelve months by Massachusetts Electric Company (Massachusetts Electric) and The Narragansett Electric Company (Narragansett). Included in these rate agreements is a temporary rate reduction by Massachusetts Electric which ended on October 31, 1994, and for both companies, provisions for the recognition of revenues for electricity delivered but not yet billed (unbilled revenues). In addition, the rate agreements provide a 5 percent discount from base rates to certain large commercial and industrial customers. For a further discussion of these rate agreements, see the Rate Activity section. Earnings for the twelve months ended September 30, 1994 were $3.44 per share, which includes a one-time increase to fourth quarter 1993 earnings of $.19 per share related to the reversal of certain reserves and other effects of the Massachusetts Electric rate agreement. The agreement resolved the issue of rate recovery of environmental response costs for Massachusetts manufactured gas locations, certain storm restoration costs, and other costs previously charged to expense. Rate Activity - ------------- In 1993, the Massachusetts Department of Public Utilities (MDPU) approved a rate agreement filed by Massachusetts Electric, the Massachusetts Attorney General, and two groups of large commercial and industrial customers. Under the agreement, effective December 1, 1993, Massachusetts Electric began implementing an 11 month general rate decrease of $26 million (annual basis), from the level of rates then in effect. This rate reduction continued in effect through October 31, 1994, at which time rates increased to the previously approved levels. The agreement also provided for rate discounts totaling up to $4 million on an annual basis available for the period ended October 31, 1994 for large commercial and industrial customers who signed agreements to give a five year notice to Massachusetts Electric before they purchase power from another supplier or generate any additional power themselves. The notice provision may be reduced from five to three years under certain conditions. These discounts increased in November 1994 to an annual level of $11 million, representing a 5 percent discount on base rates, if all eligible customers sign agreements. Customers representing approximately 87 percent of all eligible revenues have signed agreements. Massachusetts Electric also agreed not to increase its base rates before October 1, 1995. These decreases in revenues are being offset by the recognition, for accounting purposes, of unbilled revenue. The agreement provided that unbilled revenue at September 30, 1993 of approximately $35 million would be amortized over thirteen months commencing December 1, 1993. The agreement also resolved all rate recovery issues associated with environmental remediation costs of Massachusetts manufactured gas waste sites formerly owned by Massachusetts Electric and its affiliates, as well as certain other Massachusetts Electric environmental cleanup costs (see Hazardous Waste section). In July 1994, the Rhode Island Public Utilities Commission approved a rate agreement between Narragansett and the Rhode Island Division of Public Utilities and Carriers that provides for a 5 percent base rate discount, excluding fuel costs, for Narragansett's large commercial and industrial customers who sign an agreement to give a five year notice to Narragansett before they purchase power from another supplier or generate any additional power themselves. The notice provision may be reduced from five to three years under certain conditions. The amount of the discount, if all eligible customers sign agreements, is approximately $4 million per year. Customers representing approximately 63 percent of all eligible revenues have signed agreements. The agreement also provides for Narragansett to recognize unbilled revenues for accounting purposes. Unbilled revenues at December 31, 1993 of approximately $14 million are being amortized to income over a twenty-one month period beginning April 1994 through December 1995. Narragansett began recording the effects of this rate agreement in the third quarter of 1994. In 1993, a new accounting standard for postretirement benefits other than pensions (PBOPs) went into effect that requires employers to establish a liability for the expected costs of PBOPs during the working years of employees instead of recording such costs when paid. Each of the New England Electric System (NEES) subsidiaries has received regulatory approval to recover the effect of this standard on a current and/or deferred basis. The Federal Energy Regulatory Commission (FERC) has allowed NEP to defer increased costs resulting from this new standard, pending its next rate filing so long as such filing occurs before the end of 1995. Accordingly, the NEES subsidiaries recovered approximately $5 million in rates in 1993 and are recovering approximately $9 million in 1994. The total amount of PBOP costs deferred for future recovery at September 30, 1994 was approximately $37 million, including $4 million during the third quarter of 1994. NEP has in the past, and is continuing to recover in rates amounts billed to it by Yankee Atomic Electric Company (Yankee Atomic) for decommissioning costs associated with Yankee Atomic's retired nuclear power plant. NEP is a 30 percent owner of Yankee Atomic and was a purchaser of 30 percent of the output of the unit prior to its retirement. Yankee Atomic's recovery of such costs is in accordance with a 1992 settlement agreement it reached in a FERC rate proceeding. Yankee Atomic recently announced a new decommissioning cost estimate that, subject to certain approvals by the Nuclear Regulatory Commission and in turn by the FERC, would increase billings to NEP by approximately $11 million per year. This increase in the cost primarily reflects the unavailability of permanent repositories for both low-level and high-level nuclear waste. NEP has recorded an estimate of its entire future payment obligations to Yankee Atomic as a liability on its balance sheet as well as an offsetting regulatory asset reflecting its expected future rate recovery of such costs. These higher estimated decommissioning costs for Yankee Atomic have been reflected in the amounts recorded on NEP's books at September 30, 1994. Although NEP does not currently have a rate case pending, it has initiated discussions of future rate levels with the parties that usually participate in its rate proceedings. Hydroelectric Generating Station Relicensing - -------------------------------------------- The term of the FERC license for NEP's Deerfield River Hydroelectric Project expired at the end of 1993. NEP filed an application for a new license in 1991, which is still under review. An annual license is granted to NEP until a final determination is made on the application. Several advocacy groups intervened proposing operational modifications. On October 5, 1994, NEP and 12 advocacy groups and government agencies signed a settlement agreement, providing minimum flows, fish passage facilities, wildlife enhancements, and conservation easements on over 17,000 acres of NEP land. The cost of these measures is currently estimated at $25 million to $30 million over the proposed 40 year term of the new license, principally for replacement power costs associated with providing minimum water flows. The agreement is subject to the granting of a FERC license and the states of Vermont and Massachusetts issuing Water Quality Certifications with conditions consistent with the settlement agreement. Demand-Side Management Programs - ------------------------------- The retail companies file their conservation and load management programs, also referred to in the industry as demand- side management (DSM) programs, regularly with their respective regulatory agencies and have received approval to recover in rates estimated DSM expenditures on a current basis. The rates provide for reconciling estimated expenditures to actual DSM expenditures, with interest. Expenditures subject to the reconciliation mechanism were $35 million in the first nine months of 1994 and $62 million for the full year 1993. Since 1990, the retail companies have been allowed to earn incentives based on the results of their DSM programs. Before incentives are recorded, the retail companies must be able to demonstrate to their respective state regulatory agencies the electricity savings produced by their DSM programs. During 1993, the retail companies recorded a total of $7.3 million of incentives, before tax, including $2 million in the first nine months. No incentives were recorded during the first nine months of 1994. The retail companies have received regulatory orders that will give them the opportunity to continue to earn incentives on 1994 DSM program results. Operating Revenue - ----------------- The following table summarizes the changes in operating revenue: Increase (Decrease) in Operating Revenue Third Quarter Nine Months ------------- ------------ 1994 vs 1993 1994 vs 1993 ------------- ------------ (In Millions) Sales Growth to ultimate customers $11 $ 20 General rate reduction/service extension discounts (9) (23) Unbilled revenues recognized under rate agreements 12 28 Change in accrued unbilled revenue (6) (9) Other 7 (5) --- ---- $15 $ 11 === ==== KWH sales to ultimate customers in the third quarter and first nine months of 1994 increased by 3.3 and 2.0 percent, respectively, over the same periods last year. Sales growth primarily reflects weather conditions and an improving economy, partially offset in the first nine months of 1994 by a reduction of one billing day due to meter reading schedules. KWH sales in 1994 are expected to increase in the range of 2.0 to 2.5 percent as compared to 1993. For a discussion of general rate reduction/service extension discounts and unbilled revenues, see Rate Activity section. Operating Expenses - ------------------ The following table summarizes the changes in operating expenses during the period: Increase (Decrease) in Total Operating Expenses Third Quarter Nine Months ------------- ------------ 1994 vs 1993 1994 vs 1993 ------------- ------------ (In Millions) Total fuel costs $ 1 $ (6) Purchased energy excluding fuel (9) (12) Other operation and maintenance 16 (26) Depreciation and amortization 5 7 Taxes - 24 --- ---- $13 $(13) === ==== Total fuel costs represents fuel for generation and the portion of purchased electric energy permitted to be recovered through NEP's fuel adjustment clause. Purchased energy excluding fuel represents the remainder of purchased electric energy costs. The decrease in fuel costs for the first nine months of 1994 reflects reduced alternate energy purchases. The decrease in purchased energy excluding fuel reflects overhauls and refueling shutdowns of partially owned nuclear power suppliers in the third quarter of 1993. The increase in other operation and maintenance expense for the third quarter reflects increased computer system development costs, increased pension and other retiree benefit costs, and general increases in other areas. The decrease in other operation and maintenance expense for the first nine months of 1994 reflects 1993 one-time charges of $22 million in the second quarter for Massachusetts gas waste liabilities, and $28 million associated with an early retirement offer and special severance program recorded in the first quarter, as well as decreased uninsured claims in 1994. These decreases were partially offset in the first nine months of 1994 by increases in the same areas of other operation and maintenance expenses that increased in the third quarter of 1994. The increase in depreciation and amortization expense reflects increased amortization of the net investment in the Seabrook 1 Nuclear Unit (Seabrook 1), increased charges for dismantlement of a previously retired generating station, and depreciation of new plant investment. The increase for the nine month period was partially offset by decreased oil and gas amortization due to decreased production. The increase in taxes for the first nine months of 1994 is primarily due to increased income and increased property taxes. Allowance For Funds Used During Construction (AFDC) - -------------------------------------------------- AFDC increased for the third quarter and first nine months of 1994 due to increased construction work in progress, principally associated with the repowering of the Manchester Street Station (see Liquidity and Capital Resources section). Interest Expense - ---------------- The decrease in interest expense on long-term debt for the first nine months of 1994 is primarily due to significant refinancings of corporate debt at lower interest rates during 1993. Oil and Gas Operations - ---------------------- New England Energy Incorporated (NEEI) participates in a rate-regulated domestic oil and gas exploration, development, and production program consisting of prospects acquired prior to December 31, 1983. NEEI is not acquiring any new prospects. Due to precipitate declines in oil and gas prices, NEEI has incurred operating losses since 1986, and expects to incur substantial additional losses in the future. These losses are being passed on to NEP under an intercompany pricing policy approved by the Securities and Exchange Commission. NEP is allowed to recover these losses from its customers under NEP's 1988 FERC rate settlement, which covered all costs incurred by or resulting from commitments made by NEEI through March 1, 1988. Other subsequent costs incurred by NEEI are subject to normal regulatory review. Proposal to Acquire Nantucket Electric Company - ---------------------------------------------- In September 1994, the board of directors of the Nantucket Electric Company (Nantucket Electric) agreed in principle to be acquired by NEES subject to completing a definitive agreement. The total purchase price is approximately $3.5 million. Earlier in the year, NEES subsidiaries and Nantucket Electric entered into independent agreements for the construction of an undersea cable from Harwich, Massachusetts on Cape Cod to Nantucket Island, and for the long-term electric power supply to the island. Construction of the undersea cable will begin in 1996 and is expected to be fully operational by mid 1997. Hazardous Waste - --------------- The Federal Comprehensive Environmental Response, Compensation and Liability Act, more commonly known as the "Superfund" law, imposes strict, joint and several liability, regardless of fault, for remediation of property contaminated with hazardous substances. Parties liable include past and present site owners and operators, transporters that brought wastes to the site, and entities that generated or arranged for disposal or treatment of wastes ultimately disposed of at the site. A number of states, including Massachusetts, have enacted similar laws. The electric utility industry typically utilizes and/or generates in its operations a range of potentially hazardous products and by-products. These products or by-products may not have previously been considered hazardous, and may not currently be considered hazardous, but may be identified as such by federal, state, or local authorities in the future. NEES subsidiaries currently have in place an environmental audit program intended to enhance compliance with existing federal, state, and local requirements regarding the handling of potentially hazardous products and by-products. Federal and state environmental agencies, as well as private parties, have contacted or initiated legal proceedings against NEES and certain subsidiaries regarding liability for cleanup of sites alleged to contain hazardous waste or substances. NEES and/or its subsidiaries have been named as a potentially responsible party (PRP) by either the U.S. Environmental Protection Agency (EPA) or the Massachusetts Department of Environmental Protection (DEP) for 19 sites at which hazardous waste is alleged to have been disposed. NEES and its subsidiaries are also aware of other sites which they may be held responsible for remediating and it is likely that, in the future, NEES and its subsidiaries will become involved in additional proceedings demanding contribution for the cost of remediating additional hazardous waste sites. The most prevalent types of hazardous waste sites that NEES and its subsidiaries have been connected with are former manufactured gas locations. Until the early 1970's, NEES was a combined electric and gas holding company system. NEES is currently aware of approximately 40 locations (including five of the 19 locations for which NEES companies are PRPs) at which gas may have been manufactured and/or stored. Of the manufactured gas locations, 17 have been listed for investigation by the DEP. In a lawsuit involving one of these sites, the United States Court of Appeals for the First Circuit affirmed in 1993 an earlier adverse decision against NEES, Massachusetts Electric, and New England Power Service Company (NEPSCo). The decision held these companies liable for cleanup of the properties involved in the case. In 1993, the MDPU approved a rate agreement filed by Massachusetts Electric (see Rate Activity section) that resolved all rate recovery issues related to Massachusetts manufactured gas sites as well as certain other Massachusetts hazardous waste sites. The agreement allows for environmental remediation costs for such sites to be met from a special interest bearing fund established on Massachusetts Electric's books. The fund's initial balance of $30 million has come from previously recorded reserves and is not recoverable from customers. Annual contributions of $3 million, adjusted for inflation, are being added to the fund by Massachusetts Electric and are recoverable in rates. Under the agreement, any shortfalls in the fund will be paid by Massachusetts Electric and be recovered through rates over seven years, without interest. NEES has been notified by the EPA that it is one of several PRPs for cleanup of the Pine Street Canal Superfund site in Burlington, Vermont, at which coal tar and other materials were deposited. Between 1931 and 1951, NEES and its predecessor owned all of the common stock of Green Mountain Power Corporation. Prior to, during, and after that time, gas was manufactured at the Pine Street Canal site. Among the waste by-products of that process were coal and oil tars. The EPA had brought a lawsuit against NEES and other parties to recover all of the EPA's past and future response costs at this site. In 1990, the litigation ended with the filing of a final consent decree with the court. Under the terms of the settlement, to which 14 entities were party, the EPA recovered its past response costs. NEES recorded its share of these costs in 1989. NEES remains a PRP for ongoing and future response costs. In November 1992, the EPA proposed a cleanup plan estimated by the EPA to cost $50 million. In June 1993, the EPA withdrew this cleanup plan in response to public concern about the plan and the cost. It is not known at this time what the ultimate cleanup plan will be, how much it will cost, or what portion NEES will have to pay. Predicting the potential costs to investigate and remediate hazardous waste sites continues to be difficult. Factors such as the evolving nature of remediation technology and regulatory requirements and the particular characteristics of each site, including, for example the size of the site, the nature and amount of waste disposed at the site, and the surrounding geography and land use, make precise estimates difficult. There are also significant uncertainties as to the portion, if any, of the investigation and remediation costs of any particular hazardous waste site that may ultimately be borne by NEES or its subsidiaries. At September 30, 1994, NEES had total reserves for environmental response costs of $51 million and a related regulatory asset of $16 million. NEES believes that hazardous waste liabilities for all sites of which it is aware, and which are not covered by a rate agreement, will not be material (10 percent of common equity) to its financial position. Where appropriate, the NEES companies intend to seek recovery from their insurers and from other PRPs, but it is uncertain whether, and to what extent, such efforts will be successful. Electric and Magnetic Fields (EMF) - --------------------------------- In recent years, concerns have been raised about whether EMF, which occur near transmission and distribution lines as well as near household wiring and appliances, cause or contribute to adverse health effects. Numerous studies on the effects of these fields, some of them sponsored by electric utilities (including NEES companies), have been conducted and are continuing. Some of the studies have suggested associations between certain EMF and various types of cancer, while other studies have not substantiated such associations. In February 1993, the EPA called for significant additional research on EMF. In July 1994, a study by a University of Southern California professor suggested an association between EMF and Alzheimer's disease. It is impossible to predict the ultimate impact on NEES subsidiaries and the electric utility industry if further investigations were to demonstrate that the present electricity delivery system is contributing to increased risk of cancer or other health problems. Many utilities, including the NEES companies, have been contacted by customers regarding a potential relationship between EMF and adverse health effects. To date, no court in the United States has ruled that EMF from electrical facilities cause adverse health effects and no utility has been found liable for personal injuries alleged to have been caused by EMF. In any event, the NEES companies believe that they have adequate insurance coverage. Several state courts have recognized a cause of action for damage to property values in transmission line condemnation cases based on the fear that power lines cause cancer. It is difficult to predict what impact there would be on the NEES companies if this cause of action is recognized in the states in which NEES companies operate and in contexts other than condemnation cases. A lawsuit concerning the proposed expansion of a transmission line was filed on April 28, 1994 against NEES, Narragansett, and NEPSCo, in the Superior Court of Rhode Island by certain residents of property which borders existing Narragansett transmission lines in East Greenwich, Rhode Island. The plaintiffs alleged that fear of health risks from exposure to high voltage power lines had devalued their property and ask for unspecified damages. All claims in this case relating to damages from existing lines were dismissed with prejudice. NEES has been informed that another resident is contemplating a similar suit. Narragansett recently received approval from the Rhode Island Energy Facility Siting Board to construct a new line and relocate an existing line on the existing right of way. Bills had been introduced in the Rhode Island legislature to require that transmission lines be placed underground. In July 1993, two bills passed by the legislature restricting the construction of overhead transmission lines were vetoed by the governor. A similar bill was introduced in 1994 and was rejected by the legislature. Legislation has been introduced in Massachusetts that, if passed, would require state agencies to study existing EMF-related research and make recommendations for further legislation. Clean Air Requirements - ---------------------- NEP produces approximately 50 percent of its electricity at eight older thermal generating units located in Massachusetts. Six of the units are fueled by coal and the other two are fueled by oil and natural gas. The 1990 amendments to the federal Clean Air Act require a significant reduction in the nation's sulfur dioxide (SO2) and nitrogen oxide (NOx) emissions by the year 2000. Under the amendments pertaining to SO2 emissions, NEP expects to be included in Phase 1 of the acid rain provisions that will become effective in 1995. NEP is also subject to the Massachusetts SO2 acid rain law that will become effective in 1995, and Phase 2 of the federal acid rain requirements, that will become effective in 2000. In connection with requirements that relate to NOx emissions, state environmental agencies in ozone non-attainment areas were required to develop regulations (also known as Reasonably Available Control Technology requirements, or RACT) that will become effective in 1995 to address the first phase of ozone air quality attainment. These regulations were adopted in Massachusetts in September 1993. The RACT regulations require control technologies (such as low NOx burners) to reduce NOx emissions, an ozone precursor. Additional control measures may be necessary to ensure attainment of the ozone standard. These measures would have to be developed by the states in 1994 and fully implemented by NEP no later than 1999. The extent of these additional control measures is unknown at this time, but could range from minor additions to the RACT requirements to extensive emission reduction requirements, such as costly add-on controls or fuel switching. Should the 1999 ozone attainment requirements be extensive, or additional Clean Air Act or other environmental requirements be imposed, continued operation of certain existing generating units beyond 1999 could be uneconomical. NEP believes that premature retirement of substantially all of its older thermal generating units would cause substantial rate increases. NEP estimates that it will incur one-time operation and maintenance costs totaling approximately $25 million and capital costs totaling approximately $120 million through 1995, of which approximately $12 million and $78 million, respectively, had been spent through September 1994, to comply with SO2 and NOx requirements that will become effective in 1995. In addition, NEP expects to incur increased fuel costs of approximately $10 million to $20 million annually, depending on fuel market conditions, by 1995, as a result of federal and state clean air requirements. The generation of electricity from fossil fuels may emit trace amounts of hazardous air pollutants as defined in the Clean Air Act Amendments of 1990. The Act mandates a study of the potential dangers of hazardous air pollutant emissions from electric utility plants. Such research is currently under way and is expected to be complete in 1995. The study conclusions could result in new emission standards and the need for additional costly controls on NEP plants. At this time, NEES and its subsidiaries cannot estimate the impact that findings of this research might have on operations. Purchased Power Contract Dispute - -------------------------------- On October 26, 1994, NEP was sued by Milford Power Limited Partnership (MPLP) in the Superior Court for Worcester County, Massachusetts. MPLP, a venture of Enron Corporation and Jones Capital, owns a 149 MW gas-fired power plant in Milford, Massachusetts. NEP purchases 56 percent of the power output of the facility under a long-term contract with MPLP. MPLP alleges that NEP has engaged in a scheme to cause MPLP and its power plant to fail and has prevented MPLP from finding a long-term buyer for the remaining 44 percent of the facility's output. The complaint includes allegations that NEP has violated the Federal Racketeer Influenced and Corrupt Organizations Act, engaged in unfair or deceptive acts in trade or commerce, and breached contracts. MPLP seeks compensatory damages in an unspecified amount, as well as treble damages. NEP believes that the allegations of wrongdoing are without merit. Competitive Conditions - ---------------------- The electric utility business is being subjected to increasing competitive pressures, stemming from a combination of trends, including increasing electric rates, improved technologies, and new regulations and legislation intended to foster competition. To date, this competition has been most prominent in the bulk power market in which non-utility generating sources have noticeably increased their market share. For example, in 1984, less than 1 percent of NEP's capacity was supplied by non-utility generation sources. By the end of 1993, non-utility power purchases accounted for 380 MW, or 7 percent, of NEP's total capacity. In addition to competition from non-utility generators, the presence of excess generating capacity in New England has resulted in the sale of bulk power by utilities at prices below the total costs of owning and operating such generating capacity. However, in July 1994, a new all-time regional and System peak occurred which will have the effect of reducing the near-term level of this excess generating capacity in New England. Electric utilities are also facing increased competition in the retail market. Currently, retail competition comes primarily from alternative fuel suppliers (including natural gas companies) for heating and cooling, customer-owned generation to displace purchases from electric utilities, and direct competition among electric utilities to attract major new manufacturing facilities to their service territories. Some state regulatory agencies, other entities, and individuals have developed proposals under which electric utilities and non-utility generators may sell electricity to retail customers of other electric utilities without regard to franchised service territories. For example, the California Public Utilities Commission recently announced a proposal that would give certain large retail customers, by the year 1996, and all other retail customers, by the year 2002, the option of selecting their electricity provider. Power purchased from another provider would still be delivered over the local utility's transmission network which, under the proposal, would be subject to broader access. Other states, including several New England states, federal agencies regulating the NEES companies, and state and federal legislative bodies have considered or are in the process of considering options to foster increased competition. The NEES companies are responding to current and anticipated competitive pressures in a variety of other ways, including cost control and a corporate reorganization into separate retail and wholesale business units. The wholesale business unit is positioning itself for increased competition through such means as terminating certain purchased power and gas pipeline contracts, shutdowns of uneconomic generating stations, as well as rapid amortization of certain plant assets. Specifically, NEP's rates currently include approximately $100 million per year associated with the recovery of certain Seabrook 1 costs under a 1988 rate settlement and coal conversion expenditures at NEP's Salem Harbor station. The recovery of these costs will be completed prior to the end of 1995. The retail business unit's response to competition includes the development of comprehensive value-added services customized to customers' needs and the offering of economic development rates to encourage businesses to locate in our service territory. Further, pursuant to its recent rate agreement, Massachusetts Electric was able to change the standard terms under which it offers service to commercial and industrial customers to extend the notice period a customer must give before purchasing electricity from others or generating any additional electricity for the customer's own use from one year to two years. In addition, Massachusetts Electric and Narragansett are offering a discount from base rates in return for a contract requiring a customer to provide five years written notice before purchasing electricity from others or generating any additional electricity for the customer's own use (the notice provision may be reduced from five to three years under certain conditions). The discount is available to Massachusetts Electric customers with average monthly peak demands over 500 kilowatts, and Narragansett customers with average monthly peak demands over 200 kilowatts. Observers of the electric utility business have recommended various (and sometimes conflicting) strategies for electric utilities to deal with these competitive pressures. These suggestions include business combinations with other companies, restructurings involving separation or sales of portions of the retail and/or wholesale businesses, and diversification into unrelated businesses. For example, the NEES companies have proposed one possible framework for increasing customer choice of suppliers and achieving environmental goals, while preserving shareholder value. This increase in customer choice could decrease the value of generation related assets and purchased power contracts. However, the replacement value of transmission assets likely far exceeds their historic cost. The NEES companies have suggested that utilities should have the ability to offset this decrease in the value of generation related assets by realizing the higher value of transmission assets. As one part of this possible framework, the NEES companies have stated that, in order to accomplish this realization, they would be willing to consider selling their transmission system at replacement cost to entities not in the generation business. This sale would facilitate the transition to a fully competitive generating market. As part of their routine long-term planning process, the NEES companies may, from time to time, be engaged in analysis, either internally or with third parties, of these and other strategies. The FERC ruled in 1992, in a proceeding not involving NEES subsidiaries, that a utility may recover from a wholesale requirements customer, any legitimate, prudent, and verifiable costs that the utility had incurred based on a reasonable expectation that it would continue to sell requirements service to the customer. The FERC has referred to such costs as "stranded costs". On appeal, the United States Court of Appeals for the District of Columbia Circuit has questioned whether allowing utilities to recover stranded costs is anti-competitive and the Court remanded the case back to the FERC for further proceedings and development of the competitive issues. In a separate development, the FERC issued a notice of proposed rule-making on the recovery of investment costs stranded as a result of increased competition. Electric utility rates are generally based on a utility's costs. Therefore, electric utilities are subject to certain accounting standards that are not applicable to other business enterprises in general. These accounting rules require regulated entities, in appropriate circumstances, to establish regulatory assets and liabilities, which defer the income statement impact of certain costs that are expected to be recovered in future rates. The effects of competition could ultimately cause the operations of the NEES companies, or a portion thereof, to cease meeting the criteria for application of these accounting rules. While the NEES companies do not expect to cease meeting these criteria in the near future, if this were to occur, accounting standards of enterprises in general would apply and immediate recognition of any previously deferred costs would be necessary in the year in which these criteria were no longer applicable. In addition, if, because of competition, utilities are unable to recover all of their costs in rates, it may be necessary to write off those costs that are not recoverable. Liquidity and Capital Resources - ------------------------------- Plant expenditures in the first nine months of 1994 amounted to $327 million for the utility subsidiaries, including $138 million related to the Manchester Street Station Repowering project. The necessary funds were primarily provided by net cash from operating activities, after the payment of dividends, and the proceeds of short-term and long-term debt issues. The financing activities of NEES subsidiaries for the first nine months of 1994 are summarized as follows: Long-term Long-term Debt Debt Issues Retirements --------- ----------- (In Millions) Massachusetts Electric $25 Narragansett 23 New England Power 5 Hydro-Transmission Companies $ 9 NEEI 8 --- --- $53 $17 === === The interest rates on the new long-term debt issues shown above ranged from 6.91 to 8.53 percent. In addition, NEP and the retail subsidiaries issued $21 million of long-term debt in November 1994 at interest rates ranging from 8.33 percent to 8.85 percent and plan to issue $70 million of additional long-term debt by the end of 1994 or early 1995. Net cash from operating activities provided all of the funds necessary for oil and gas expenditures for the first nine months of 1994. NEEI's capitalized oil and gas exploration and development costs amounted to $21 million, including $7 million of capitalized interest costs. At September 30, 1994, NEES' consolidated subsidiaries had $147 million of short-term debt outstanding including $129 million in the form of commercial paper borrowings. NEES and its consolidated subsidiaries currently have lines of credit and standby bond purchase facilities with banks totaling $641 million. These lines of credit are available to provide liquidity support for commercial paper borrowings and for $342 million of NEP's outstanding variable rate mortgage bonds in commercial paper mode and for other corporate purposes. Outstanding borrowings under these lines of credit at September 30, 1994 were $18 million. Cash balances at September 30, 1994 were approximately $4 million. The NEES subsidiaries' major construction project is the repowering of Manchester Street Station, a 140 MW electric generating station in Providence, Rhode Island. Repowering will more than triple the power generation capacity of Manchester Street Station and substantially increase the plant's thermal efficiency. NEP owns a 90 percent interest and Narragansett owns a 10 percent interest in the Manchester Street Station. The total cost for the generating station, scheduled for completion in late 1995, is estimated to be approximately $525 million, including AFDC. In addition, related transmission work was estimated to cost $75 million. At September 30, 1994, a total of $310 million, including AFDC, had been spent on the project including the related transmission work. The transmission facilities were in service at September 30, 1994, although all costs related to such work had not yet been incurred. Substantial commitments have been made relative to future planned expenditures for this project. PART II. OTHER INFORMATION Item 1. Legal Proceedings - -------------------------- Information concerning a suit by Milford Power Limited Partnership against the Company's subsidiary, New England Power Company (NEP) filed on October 25, 1994, discussed in Part I of this report in Management's Discussion and Analysis of Financial Condition and Results of Operations is incorporated herein by reference and made a part hereof. Information concerning dismissal of a lawsuit filed against the Company and its subsidiary, The Narragansett Electric Company (Narragansett) on October 28, 1994, by residents of property which borders existing Narragansett transmission lines in East Greenwich, Rhode Island, discussed in Part I of this report in Management's Discussion and Analysis of Financial Condition and Results of Operations is incorporated herein by reference and made a part hereof. Item 6. Exhibits and Reports on Form 8-K - ----------------------------------------- The Company filed a report on Form 8-K dated October 27, 1994, containing Item 5, Other Events. The Company is filing Financial Data Schedules. SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report on Form 10-Q for the quarter ended September 30, 1994 to be signed on its behalf by the undersigned thereunto duly authorized. NEW ENGLAND ELECTRIC SYSTEM s/ Alfred D. Houston Alfred D. Houston Executive Vice President, Authorized Officer, and Principal Financial Officer Date: November 10, 1994 The name "New England Electric System" means the trustee or trustees for the time being (as trustee or trustees but not personally) under an agreement and declaration of trust dated January 2, 1926, as amended, which is hereby referred to, and a copy of which as amended has been filed with the Secretary of the Commonwealth of Massachusetts. Any agreement, obligation or liability made, entered into or incurred by or on behalf of New England Electric System binds only its trust estate, and no shareholder, director, trustee, officer or agent thereof assumes or shall be held to any liability therefor. EX-99 2 Exhibit Index ------------- Exhibit Description Page - ------- ----------- ---- 27 Financial Data Schedule Filed herewith EX-27 3
UT 1,000 DEC-31-1994 DEC-31-1993 DEC-31-1994 DEC-31-1993 SEP-30-1994 SEP-30-1993 SEP-30-1994 SEP-30-1993 9-MOS 9-MOS QTR-3 QTR-3 PER-BOOK PER-BOOK PER-BOOK PER-BOOK 3,654,845 0 0 0 427,687 0 0 0 470,195 0 0 0 431,901 0 0 0 0 0 0 0 4,984,628 0 0 0 64,970 0 0 0 736,823 0 0 0 778,685 0 0 0 1,580,478 0 0 0 0 0 0 0 147,016 0 0 0 1,512,499 0 0 0 147,475 0 0 0 0 0 0 0 0 0 0 0 47,920 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1,549,240 0 0 0 4,984,628 0 0 0 1,685,617 1,674,270 591,633 576,644 107,528 89,101 39,573 41,662 1,344,157 1,375,914 467,706 452,484 1,451,685 1,465,015 507,279 494,146 233,932 209,255 84,354 82,498 13,678 12,896 5,250 4,219 247,610 222,151 89,604 86,717 73,733 79,456 26,735 26,283 161,708 128,263 58,851 55,531 6,525 8,291 2,172 3,005 161,708 128,263 58,851 55,531 111,098 107,850 37,358 36,384 68,869 76,454 23,636 25,303 373,753 391,933 105,189 124,171 $2.49 $1.97 $0.91 $0.85 $2.49 $1.97 $0.91 $0.85 Total deferred charges includes other assets and accrued Yankee Atomic costs. Preferred stock reflects preferred stock of subsidiaries. Preferred stock dividends reflect preferred stock dividends of subsidiaries. Short-term notes includes commercial paper obligations and notes payable to banks. -----END PRIVACY-ENHANCED MESSAGE-----