-----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, D+QNmjstHD1+D/z5klSpoxYufkF+rDyScfqH8ul5Wo+50jzHh7HWT5mcq1k0JUxr GbBkgx+GDk37VQsxpTqJAw== 0000071297-97-000025.txt : 19970329 0000071297-97-000025.hdr.sgml : 19970329 ACCESSION NUMBER: 0000071297-97-000025 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 36 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970328 SROS: BSE SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: NEW ENGLAND ELECTRIC SYSTEM CENTRAL INDEX KEY: 0000071297 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 041663060 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 001-03446 FILM NUMBER: 97567317 BUSINESS ADDRESS: STREET 1: 25 RESEARCH DR CITY: WESTBOROUGH STATE: MA ZIP: 01581 BUSINESS PHONE: 5083669011 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MASSACHUSETTS ELECTRIC CO CENTRAL INDEX KEY: 0000063073 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 041988940 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 000-05464 FILM NUMBER: 97567318 BUSINESS ADDRESS: STREET 1: 25 RESEARCH DR CITY: WESTBOROUGH STATE: MA ZIP: 01582 BUSINESS PHONE: 5083892000 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NARRAGANSETT ELECTRIC CO CENTRAL INDEX KEY: 0000069659 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 050187805 STATE OF INCORPORATION: RI FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 001-07471 FILM NUMBER: 97567319 BUSINESS ADDRESS: STREET 1: 280 MELROSE ST CITY: PROVIDENCE STATE: RI ZIP: 02901 BUSINESS PHONE: 4019411400 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NEW ENGLAND POWER CO CENTRAL INDEX KEY: 0000071337 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 041663070 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 001-06564 FILM NUMBER: 97567320 BUSINESS ADDRESS: STREET 1: 25 RESEARCH DR CITY: WESTBOROUGH STATE: MA ZIP: 01582 BUSINESS PHONE: 6173669011 10-K405 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For fiscal year ended December 31, 1996 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Registrant; State of Incorporation or I.R.S. Employer Commission Organization; Address; Identification File Number and Telephone Number Number ------------ ---------------------- --------------- 1-3446 NEW ENGLAND ELECTRIC SYSTEM 04-1663060 (A Massachusetts voluntary association) 25 Research Drive Westborough, Massachusetts 01582 Telephone: 508-389-2000 1-6564 NEW ENGLAND POWER COMPANY 04-1663070 (A Massachusetts corporation) 25 Research Drive Westborough, Massachusetts 01582 Telephone: 508-389-2000 0-5464 MASSACHUSETTS ELECTRIC COMPANY 04-1988940 (A Massachusetts corporation) 25 Research Drive Westborough, Massachusetts 01582 Telephone: 508-389-2000 1-7471 THE NARRAGANSETT ELECTRIC COMPANY 05-0187805 (A Rhode Island corporation) 280 Melrose Street Providence, Rhode Island 02907 Telephone: 401-784-7000 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. (X) Yes ( ) No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. (X)
Securities registered pursuant to Section 12(b) of the Act:
Outstanding at Name of each exchange Registrant Title of each class March 18, 1997 on which registered - ---------- ------------------- -------------- --------------------- New England Common Shares 64,826,067 New York Stock Exchange Electric Boston Stock Exchange System Securities registered pursuant to Section 12(g) of the Act: Registrant Title of each class - ---------- ------------------- New England 6.00% Cumulative Preferred Stock Power Company Dividend Series Preferred Stock Massachusetts Cumulative Preferred Stock Electric Company Preferred Stock - Cumulative The Narragansett Cumulative Preferred Stock Electric Company Aggregate market value of the voting stock Number of shares of held by nonaffiliates common stock outstanding of the registrants at of the registrants at March 18, 1997 March 18, 1997 ---------------------- ------------------------ New England $2,187,879,761 64,826,067 ($1 par value) Electric System New England $6,095,375 6,449,896 ($20 par value) Power Company Massachusetts None 2,398,111 ($25 par value) Electric Company The Narragansett None 1,132,487 ($50 par value) Electric Company
Documents Incorporated by Reference
Part of Form 10-K into which Description document is incorporated - ---------------------------------- ---------------------------- Portions of Annual Reports to Part II Shareholders for the year ended December 31, 1996 of the following companies, as set forth in Part II New England Electric System New England Power Company Massachusetts Electric Company The Narragansett Electric Company Portions of Proxy Statement of Part III New England Electric System filed in connection with its annual meeting of shareholders to be held on April 29, 1997, as set forth in Part III This combined Form 10-K is separately filed by New England Electric System, New England Power Company, Massachusetts Electric Company, and The Narragansett Electric Company. Information contained herein relating to any individual company is filed by such company on its own behalf. Each company makes no representation as to information relating to the other companies.
TABLE OF CONTENTS PAGE GLOSSARY OF TERMS........................................... iii FORWARD LOOKING INFORMATION................................. v PART I ITEM 1. BUSINESS............................................ 1 THE SYSTEM.................................................. 1 System Organization.................................... 1 Employees.............................................. 3 ELECTRIC UTILITY OPERATIONS................................. 4 Industry Restructuring................................. 4 Massachusetts Settlement Agreement.................. 5 Rhode Island Legislation............................ 7 New Hampshire Proceeding and Settlement Agreement... 8 Federal Activity.................................... 9 1935 Act............................................ 10 Divestiture of Generation Business.................. 10 Risk Factors........................................ 11 Accounting Implications............................. 12 Business Activity...................................... 13 Results of Operations.................................. 17 Rates.................................................. 18 General............................................. 18 NEP Rates........................................... 19 Mass. Electric Rates................................ 20 Narragansett Rates.................................. 21 Granite State Rates................................. 22 Recovery of Demand-Side Management Expenditures..... 22 Electric Utility Properties............................ 23 Divestiture......................................... 23 Energy Mix.......................................... 23 Generation, Transmission, and Distribution Properties....................................... 24 Map - Electric Utility Properties................... 28 Fuel for Generation................................. 29 Nonutility Power Producer Information............... 32 Nuclear Units....................................... 33 Regulatory and Environmental Matters.................... 43 Regulation.......................................... 43 Hydroelectric Project Licensing..................... 43 Environmental Requirements.......................... 44 Construction and Financing.............................. 49 Research and Development................................ 53 EXECUTIVE OFFICERS........................................... 54 ITEM 2. PROPERTIES........................................... 58 ITEM 3. LEGAL PROCEEDINGS.................................... 58 -i- PAGE PART II ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. 59 ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SECURITY HOLDER MATTERS..................... 59 ITEM 6. SELECTED FINANCIAL DATA............................. 59 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS................. 60 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA......... 60 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE................. 61 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. 61 ITEM 11. EXECUTIVE COMPENSATION............................. 66 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT......................................... 81 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS..... 84 PART IV ITEM 14. EXHIBITS AND REPORTS ON FORM 8-K................... 85 INDEX TO FINANCIAL STATEMENTS............................... 114 -ii- GLOSSARY OF TERMS Term Meaning ---- ------- AFDC allowance for funds used during construction AllEnergy AllEnergy Marketing Company, LLC BUW Brotherhood of Utility Workers of New England, Inc. C&LM Conservation and Load Management Connecticut Yankee Connecticut Yankee Atomic Power Company Distribution Companies Mass. Electric, Narragansett, Granite State, and Nantucket DOE U.S. Department of Energy DOJ Department of Justice DSM demand-side management EMF electric and magnetic fields EPA U.S. Environmental Protection Agency FERC Federal Energy Regulatory Commission FAS 121 Financial Accounting Standards No. 121, Accounting for the Impairment of Long- Lived Assets and for Long-Lived Assets to Be Disposed Of FAS 71 Financial Accounting Standards No. 71, Accounting for the Effects of Certain Types of Regulation Firm Energy agreement between NEPOOL members and Contract Hydro-Quebec Granite State Granite State Electric Company Granite State Granite State Energy, Inc. Energy IBC Intercoastal Bulk Carriers, Inc. Interconnection transmission interconnection between participating New England utilities and Hydro-Quebec ISA independent safety assessment ISC International Shipping Company Keystone Keystone Shipping Company kWh kilowatt hour Maine Yankee Maine Yankee Atomic Power Company Mass. Electric Massachusetts Electric Company Mass. Hydro New England Hydro-Transmission Electric Company, Inc. MDPU Massachusetts Department of Public Utilities MRS Monitored Retrievable Storage Nantucket Nantucket Electric Company Narragansett The Narragansett Electric Company NEEI New England Energy Incorporated NEERI New England Electric Resources, Inc. NEES New England Electric System NEESCom NEES Communications, Inc. NEES companies the subsidiaries of NEES NEES Energy NEES Energy, Inc. NEET New England Electric Transmission Corporation -iii- GLOSSARY OF TERMS Term Meaning ---- ------- NEP New England Power Company NEPOOL New England Power Pool NEUs New England Utilities N.H. Hydro New England Hydro-Transmission Corporation NHPUC New Hampshire Public Utilities Commission North Atlantic North Atlantic Energy Corporation NOx nitrogen oxide NRC Nuclear Regulatory Commission NU Northeast Utilities NU Companies Public Service Company of New Hampshire, North Atlantic Energy Corporation, and Northeast Utilities OSP Ocean State Power OSP II Ocean State Power II PBOPs postretirement benefits other than pensions PPCA purchased power cost adjustment PRP potentially responsible party Pricing Policy SEC approved pricing policy between NEEI and NEP PSNH Public Service Company of New Hampshire Resources Narragansett Energy Resources Company retail choice retail customers are allowed to choose their electricity supplier retail wheeling utilities required to deliver electricity over their transmission and distribution systems to retail customers who have chosen a different electricity supplier RIDEM Rhode Island Department of Environmental Management RIPUC Rhode Island Public Utilities Commission Samedan Samedan Oil Corporation Seabrook 1 Seabrook Nuclear Generating Station Unit 1 SEC Securities and Exchange Commission SED service extension discount Service Company New England Power Service Company SO2 sulphur dioxide spent nuclear fuel high level radioactive waste SPCC Spill prevention control and counter-measure stranded costs the amounts by which prudently incurred costs incurred to supply customers electricity under a regulated industry structure exceed market prices under an unregulated industry structure System the subsidiaries of NEES collectively unbilled revenues electricity delivered but not yet billed Vermont Yankee Vermont Yankee Nuclear Power Corporation Yankee Atomic Yankee Atomic Electric Company Yankee Companies Yankee Atomic, Vermont Yankee, Maine Yankee, and Connecticut Yankee 1935 Act Public Utility Holding Company Act of 1935, as amended -iv- FORWARD LOOKING INFORMATION This report and other presentations made by NEES and its subsidiaries contain forward looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. Throughout this report, forward looking statements can be identified by the words or phrases "will likely result", "are expected to", "will continue", "is anticipated", "estimated", "project", "believe", or similar expressions. Although NEES and each of its subsidiaries believe that, in making any such statements, its expectations are based on reasonable assumptions, any such statements may be influenced by factors that could cause actual outcomes and results to be materially different from those projected. Important factors that could cause actual results to differ materially from those in the forward looking statements include, but are not limited to: the impact of general economic changes in New England; changing fuel prices; the impact of industry restructuring and increased competition in the electric utility industry, as more fully set out below under INDUSTRY RESTRUCTURING, page 4; federal and state regulatory developments and changes in law which may have a substantial adverse impact on the value of NEES and the NEES companies' assets; changes in accounting rules and interpretations which may have an adverse impact on the NEES companies' statements of financial position and reported earnings; timing and adequacy of rate relief; adverse changes in electric load and customer growth; climatic changes or unexpected changes in weather patterns; generating plant and distribution facility performance and possible power shortages, as more fully set out below under Generation, Transmission, and Distribution Properties, page 24; and decommissioning costs associated with nuclear generating facilities, as set out under Nuclear Units below, page 33 (see Risk Factors, page 11, for more information). -v- PART I Item 1. BUSINESS THE SYSTEM SYSTEM ORGANIZATION New England Electric System (NEES) is a voluntary association created under Massachusetts law on January 2, 1926, and is a registered holding company under the Public Utility Holding Company Act of 1935, as amended (the 1935 Act). NEES owns voting stock in the amounts indicated of the following companies, which together constitute the System. % Voting Securities State of Type of Owned by Name of Company Organization Business NEES --------------- ------------ -------- --------- AllEnergy Marketing Company, Mass. Marketing * L.L.C. (AllEnergy) Granite State Electric Company N.H. Retail 100 (Granite State) Electric Granite State Energy, Inc. N.H. Marketing 100 (Granite State Energy) Massachusetts Electric Company Mass. Retail 100 (Mass. Electric) Electric Nantucket Electric Company Mass. Retail 100 (Nantucket) Electric The Narragansett Electric Company R.I. Retail 100 (Narragansett) Electric Narragansett Energy Resources R.I. Wholesale 100 Company (Resources) Electric Generation NEERI International Cayman International ** Islands, Project B.W.I. Development NEES Communications, Inc. Mass. Telecommunications 100 (NEESCom) NEES Energy, Inc. (NEES Energy) Mass. Marketing 100 New England Electric Resources, Mass. Development 100 Inc. (NEERI) Services New England Electric Transmission N.H. Electric 100 Corporation (NEET) Transmission New England Energy Incorporated Mass. Oil and Gas 100 (NEEI) Exploration & Development New England Hydro Finance Company, Mass. Debt Financing *** Inc. (N.E. Hydro Finance) New England Hydro-Transmission N.H. Electric 53.97(a) Corporation (N.H. Hydro) Transmission * NEES Energy owns 50% of the voting securities ** NEERI owns 100% of the voting securities ***Mass. Hydro and N.H. Hydro each own 50% of the voting securities % Voting Securities State of Type of Owned by Name of Company Organization Business NEES --------------- ------------ -------- --------- New England Hydro-Transmission Mass. Electric 53.97(a) Electric Company, Inc. Transmission (Mass. Hydro) New England Power Company (NEP) Mass. Wholesale 98.85(b) Electric Generation & Transmission (c) New England Power Service Company Mass. Service 100 (Service Company) Company (a) The common stock of these subsidiaries is owned by NEES and certain participants (or their parent companies) in the second phase of the Hydro-Quebec project. See Interconnection with Quebec, page 32. (b) Holders of common stock and 6% Cumulative Preferred Stock of NEP have general voting rights. The 6% Cumulative Preferred Stock represents 1.15% of the total voting power. (c) For information on NEP's ownership interest in nuclear generating units, see Nuclear Units, page 33. The facilities of NEES' four distribution electric subsidiaries, Mass. Electric, Narragansett, Granite State, and Nantucket (collectively referred to as the Distribution Companies), and of its principal wholesale electric subsidiary, NEP, constitute a single integrated electric utility system that is directly interconnected with other utilities in New England and New York State, and indirectly interconnected with utilities in Canada. See ELECTRIC UTILITY OPERATIONS, page 4. Granite State Energy is a wholly-owned, nonutility subsidiary of NEES which provides a range of energy and related services, including but not limited to sales of electric energy, audits, power quality, fuel supply, repair, maintenance, construction, design, engineering, and consulting. NEES Energy is a wholly-owned, nonutility marketing subsidiary of NEES. NEES Energy owns a 50% interest in AllEnergy, an energy marketing joint venture between NEES Energy and a wholly-owned subsidiary of Eastern Enterprises, a regional gas holding company. NEESCom is a wholly-owned, nonutility subsidiary of NEES which provides telecommunications and information-related products and services. NEET owns and operates a portion of an international transmission interconnection between the electric systems of Hydro-Quebec and New England. Mass. Hydro and N.H. Hydro own and operate facilities in connection with an expanded second phase of this interconnection. N.E. Hydro Finance provides the debt financing to Mass. Hydro and N.H. Hydro for the capital costs of the interconnection. For more information, see Interconnection with Quebec, page 32. NEEI is engaged in various activities relating to fuel supply for the System. These activities primarily include participation (principally through a partnership with a nonaffiliated oil company) in domestic oil and gas exploration, development, and production and the sale to NEP of fuel purchased in the open market. As part of the NEES companies' plan to divest their generating business, NEEI is planning to sell its oil and gas properties. For more information, see INDUSTRY RESTRUCTURING, page 4, and Oil and Gas Operations, page 30. Resources is a general partner, with a 20% interest, in each of two partnerships formed in connection with the Ocean State Power project. NEES' ownership interest in Resources is being offered for sale as part of the NEES companies' divestiture of their generating business. For more information, see INDUSTRY RESTRUCTURING, page 4, and Ocean State Power, page 32. The Service Company has contracted with NEES and its subsidiaries to provide, at cost, such administrative, engineering, construction, legal and financial services as the companies request. NEERI is a wholly-owned, nonutility subsidiary of NEES which provides consulting and independent project development services domestically and internationally to nonaffiliates. NEERI also provides maintenance and construction services under contract to certain nonaffiliated utility customers. NEERI International is a wholly-owned, nonutility subsidiary of NEERI which will serve as a holding company for NEERI's capitalized international projects. EMPLOYEES At December 31, 1996, NEES subsidiaries had approximately 4,790 employees. At that date, the total number of employees was approximately 845 at NEP, 1,740 at Mass. Electric, 760 at Narragansett, 70 at Granite State, 30 at Nantucket and 1,345 at the Service Company. Of the 4,790 employees, approximately 3,000 are members of labor organizations. Collective bargaining agreements with the Brotherhood of Utility Workers of New England, Inc. (BUW), the International Brotherhood of Electrical Workers, and the Utility Workers Union of America, AFL-CIO expire in May, 1999. The NEES companies have reached agreement with the BUW on certain employee benefits related to industry restructuring and divestiture, including a voluntary early retirement package and benefits for displaced employees. ELECTRIC UTILITY OPERATIONS INDUSTRY RESTRUCTURING On October 1, 1996, the NEES companies announced their intention to divest their generating business. The decision to divest the generating business was due to a combination of factors, discussed below, relating to the restructuring of the electric utility industry. For the past several years, the electric utility business has been subjected to rapidly increasing competitive pressures stemming from a number of trends, including the presence of surplus generating capacity, a disparity in electric rates among regions of the country, improvements in generation efficiency, increasing demand for customer choice, and new regulations and legislation intended to foster competition. In the recent past, this competition was most prominent in the bulk power market, in which nonutility generators have significantly increased their market share. Despite increased competition in the bulk power market, competition in the retail market has been limited as electric utilities have maintained exclusive franchises for the retail sale of electricity in specified service territories. In states across the country, including Massachusetts, Rhode Island, and New Hampshire, there have been proposals to allow retail customers to choose their electricity supplier, with incumbent utilities required to deliver that electricity over their transmission and distribution systems (also known as "retail wheeling"). When electricity customers are allowed to choose their electricity supplier, utilities across the country will face the risk that market prices may not be sufficient to recover the costs of the commitments incurred to supply customers under a regulated structure. The amounts by which costs exceed market prices are commonly referred to as "stranded costs." NEES provides electric service to retail customers through separate distribution subsidiaries operating in Massachusetts, Rhode Island, and New Hampshire. Each of the distribution subsidiaries currently purchases electricity on behalf of its customers under wholesale all-requirements contracts with NEES's wholesale generating subsidiary, NEP. NEP also provides all- requirements service to seven unaffiliated electric utilities. NEP estimates that at December 31, 1996, its above-market commitments on behalf of its all-requirements customers are as much as $4.5 billion on a present-value basis (before the application of the proceeds from the sale of its generating business). Those commitments consist of (i) the above-market portion of generating plant commitments, (ii) regulatory assets, (iii) the above-market portion of purchased power contracts, and (iv) the operating cost of nuclear plants that cannot be avoided by shutting down the plants, including nuclear decommissioning costs. As described below, comprehensive legislation was enacted in Rhode Island and a settlement agreement was reached in Massachusetts which, when all regulatory approvals are in place, would allow recovery of NEP's above-market commitments to retail customers in those states, which make up 95% of NEP's all- requirements sales. In return for that recovery, the NEES companies have agreed to provide lower rates to customers, as well as sell their generating business. Efforts are ongoing with New Hampshire and unaffiliated customers to secure recovery of the balance of NEP's above-market commitments. Massachusetts Settlement Agreement On February 26, 1997, the Massachusetts Department of Public Utilities (MDPU) approved a settlement among NEP, its Massachusetts distribution affiliates Mass. Electric and Nantucket, the Massachusetts Attorney General, the Massachusetts Division of Energy Resources, and 12 other parties, which provides for retail choice for Massachusetts customers and the recovery of NEP's above- market commitments to serve those customers. The settlement provides for the commencement of retail choice on January 1, 1998 (contingent on choice being available to the customers of all Massachusetts investor-owned utilities). Customers who do not choose an alternative supplier would receive "standard offer" service, which would be priced to guarantee customers at least a 10% savings in 1998 compared with September 1996 bundled electricity prices. In accordance with the settlement, NEP's wholesale contracts with Mass. Electric and Nantucket have been amended to allow for early termination of all-requirements service under those contracts. The amendment provides that upon early termination, Mass. Electric's and Nantucket's share of the cost of NEP's above- market generation commitments will be recovered through a transition access charge on distribution facilities. The above-market portion of costs associated with generating plants and regulatory assets would be recovered over 12 years and would earn a return on equity of 9.4%. As the transition access charge declines, NEP would earn mitigation incentives that would supplement its return on equity. The incentives are structured such that NEP believes, based on its expectations of the level of mitigation it can achieve through divestiture and other means, that it could earn a cumulative return on equity on unrecovered costs of approximately 11%. The above-market component of purchased power contracts and nuclear decommissioning costs would be recovered as incurred over the life of those obligations, a period expected to extend beyond 12 years. Initially, the transition access charge would be set at 2.8 cents per kilowatt-hour (kWh) through December 31, 2000, and is expected to decline thereafter. The initial transition access charge assumes that the generating plants have no market value. To measure their actual market value, the NEES companies agreed to sell their generating business. The net proceeds from the sale will be used to reduce the transition access charge. The settlement also establishes performance-based rates for Mass. Electric. Under the settlement, Mass. Electric's nonfuel rates (and NEP's wholesale rates to Mass. Electric) would be frozen at current levels until the earlier of the commencement of retail choice or January 1, 2001. Upon commencement of retail choice, Mass. Electric's distribution rates would be set at a level approximately $45 million above the level embedded in its current bundled rates, with such rates then frozen through the year 2000. This increase reflects changes to the distribution cost of service that include an $11 million increase in annual depreciation expense, a $3 million annual contribution to a storm fund, and increased amortization of unfunded deferred income taxes of $1 million over six years. Mass. Electric's return on equity would be subject to a floor of 6% and a ceiling of 11%, effective upon commencement of retail choice. Earnings over the ceiling would be shared equally between customers and shareholders up to a maximum of 12.5%. This sharing results in an effective cap on the shareholder's return on equity of 11.75%. To the extent that earnings fall below the floor, Mass. Electric would be authorized to surcharge customers for the shortfall. The settlement would also eliminate Mass. Electric's purchased power cost adjustment (PPCA) mechanism as of July 31, 1996. This mechanism allows Mass. Electric to reconcile purchased power rate changes from NEP and the effects of NEP's seasonal rates. The settlement also stipulates that Mass. Electric's net $18 million PPCA refund liability balance at July 31, 1996 will be used to prefund a storm contingency fund with $3 million, while the remainder will be used to offset regulatory assets for hazardous waste costs. The settlement is subject to approval by the Federal Energy Regulatory Commission (FERC). The FERC accepted the filing to become effective February 1, 1997, subject to refund, and ordered hearings. The Utility Workers Union of America and the Massachusetts Alliance of Utility Unions, who intervened in the MDPU proceeding on the settlement, have indicated they intend to appeal the MDPU's order approving the settlement to the Massachusetts Supreme Judicial Court. If an appeal is brought, the NEES companies will oppose it. Several bills are pending before the Massachusetts legislature on electric industry restructuring, including comprehensive legislation introduced by Governor William F. Weld and by the legislature's Joint Committee on Electric Restructuring. These bills cover many of the topics addressed in the settlement and could impact the implementation of the settlement. Among the issues being considered by the legislature is securitization, whereby a utility would assign to a trust all or a portion of its rights to receive access charges in exchange for a lump sum reimbursement of stranded costs. Rhode Island Legislation In August 1996, the state of Rhode Island enacted pioneering legislation that allows customers in that state the opportunity to choose their electricity supplier. Under the Rhode Island statute, state accounts, certain new customers, and the largest manufacturing customers will be able to choose their supplier beginning on July 1, 1997. These customers represent approximately 2% of NEES's retail customer kWh sales. The balance of Rhode Island customers will be able to choose their supplier in 1998, with an additional 10% of customers load having choice on January 1 and the remainder on July 1. All Rhode Island customers would have choice of supplier at an earlier date if retail access becomes available to 40% or more of the kWh sales in New England. The statute calls for NEP's contract with NEES's Rhode Island distribution subsidiary, Narragansett, to be amended to permit a gradual, early termination of all-requirements service under this contract. The amendment provides that, in return, Narragansett's 22% share of the cost of NEP's above-market generation commitments would be recovered through a transition access charge on Narragansett's distribution facilities. The specifics of the transition access charge are similar to, and were a model for, those contained in the Massachusetts settlement. One difference is the statute's return on equity, which will be set at 11% as long as the NEES companies complete the divestiture or other market valuation of their generating business; otherwise, the return will be equal to 9.2%. Provisions relative to Narragansett's above- market generation commitments are parallel to those discussed above under Massachusetts Settlement Agreement. The statute also establishes performance-based rates for distribution utilities, such as Narragansett. Under the statute, Narragansett increased distribution rates by approximately $11 million in 1997 and is entitled to a similar increase in 1998. In addition, in 1997, Narragansett's return on equity from distribution operations, exclusive of any performance standards factors, will be subject to a floor of 6% and a ceiling of 11%. Earnings over the ceiling will be shared equally between customers and shareholders up to a maximum return on equity from distribution operations of 12.5%. This sharing results in an effective cap on the shareholder's return on equity of 11.75%. To the extent that earnings fall below the floor, Narragansett will be authorized to surcharge customers for the shortfall. NEP and Narragansett filed with the FERC an amendment to their all-requirements contract in order to implement the statute. The FERC has set down the amendment, along with the Massachusetts settlement, for hearing. Narragansett has indicated it is willing to make certain changes to its plan in Rhode Island to parallel provisions in the Massachusetts settlement. Implementation of other aspects of the statute is subject to approval of the Rhode Island Public Utilities Commission (RIPUC). Proposed legislation has also been introduced in Rhode Island dealing with securitization of stranded costs. New Hampshire Proceeding and Settlement Agreement On February 28, 1997, the New Hampshire Public Utilities Commission (NHPUC) issued its plan to implement a New Hampshire law calling for retail access by 1998. Under the plan, utilities such as Granite State whose rates are below the regional average would be allowed full recovery of stranded costs as calculated by the NHPUC. However, the NHPUC indicated that its methodology and proposed timing of recovery would yield both initial access charges and total recovery less than that requested by Granite State. Further, the NHPUC indicated that its decision would not result in savings for Granite State's customers. On March 3, 1997, Public Service Company of New Hampshire (PSNH), the largest utility in New Hampshire, North Atlantic Energy Corporation (North Atlantic), and Northeast Utilities (collectively, the NU Companies) filed in federal court to stay the implementation of the NHPUC's plan. The NU Companies asserted that the NHPUC plan as applied to them could trigger bankruptcy of North Atlantic and PSNH. The case was transferred to the United States District Court of Rhode Island, which issued a temporary restraining order staying the NHPUC plan as applied to the NU Companies pending further action. The NHPUC on March 19, 1997, also granted a temporary stay of its own order. Granite State is seeking to intervene in the federal action to protect its rights, and will seek rehearing of the NHPUC plan by the NHPUC. Prior to the issuance of the NHPUC order, Granite State had reached an interim settlement with several customers and other stakeholders that would set initial access charges at 2.8 cents per kWh for two years, and in other respects would mirror the Massachusetts settlement described above. Stranded costs to be recovered after the two-year period would be subject to future regulatory determination. Unlike the NHPUC order, the interim agreement would provide all customers with a rate reduction of approximately 10%. This interim settlement is still pending before the NHPUC. Granite State's all-requirements purchased power contract with NEP requires either party to give seven years notice prior to terminating the contract. Termination of the contract would create stranded costs at NEP that it would seek permission from the FERC to recover from Granite State pursuant to the contract. However, it is unclear whether Granite State would be allowed under the NHPUC's rules to fully recover all of the stranded costs billed to it by NEP. If the NHPUC did not allow Granite State to fully recover stranded costs billed to it by NEP pursuant to FERC order, Granite State would seek a remedy in the courts. Federal Activity In April 1996, the FERC issued Order No. 888 requiring utilities that own transmission facilities to file open access tariffs to make available transmission service to affiliates and nonaffiliates at fair, nondiscriminatory rates. Order No. 888 also stated that public utilities will be allowed to seek recovery of legitimate and verifiable stranded costs from departing customers as a result of wholesale competition. The FERC indicated that it will provide for the recovery of retail stranded costs only if state regulators lack the legal authority to address those costs at the time retail wheeling is required. The FERC also stated that it would permit stranded cost recovery under wholesale all- requirements contracts, such as those between NEP and its retail affiliates. However, upon reconsideration, FERC determined that it will serve as the primary forum for deciding stranded cost recovery cases if a nonjurisdictional municipal utility annexes territory currently served by a local retail utility. This move by FERC fills in a jurisdictional gap that could have arisen under the original Order No. 888, since municipal utilities are not necessarily subject to state commission jurisdiction. On February 26, 1997, the FERC announced Order No. 888-A, reaffirming the principles of Order No. 888, including stranded cost recovery. Because of the Massachusetts settlement and the Rhode Island statute, NEP does not expect it will rely exclusively on Order No. 888 to recover stranded costs from its affiliates in Massachusetts and Rhode Island. NEP cannot predict at this time whether an Order No. 888 filing will be necessary to fully recover stranded costs from Granite State or from seven unaffiliated wholesale customers should any of those customers choose to terminate service under their contracts with NEP. Granite State and these seven unaffiliated customers are responsible for approximately 3% and 2% of NEP's sales, respectively. In July 1996, NEP, on behalf of the NEES companies, filed a transmission tariff with the FERC pursuant to Order No. 888. The FERC accepted the filing, but ordered NEP to refile to conform more closely with the FERC's requirements under Order No. 888. The implementation of the tariff in mid-1996 did not have a significant impact on NEP's revenues. A number of proposals for federal legislation related to industry restructuring have been brought forward for consideration by the current Congress. The scope and aim of these vary widely; however, the NEES companies and others will argue that state settlements should be respected. NEES cannot predict what federal legislation, if any, may be enacted. 1935 Act The 1935 Act generally has been construed to limit the operations of a registered holding company to a single integrated public utility system, plus such additional businesses as are functionally related to such system. Among other things, the 1935 Act requires NEES and its subsidiaries to seek prior SEC approval before effecting mergers and acquisitions or pursuing other types of nonutility initiatives. Such pervasive regulation may impede or delay NEES's efforts to achieve its strategic and operating objectives. Consequently, NEES continues to support efforts to repeal or modify this legislation. In 1995, the SEC issued a report to the United States Congress advocating repeal of the 1935 Act, either on a conditional and transitional basis or immediate and outright repeal. The basis for the SEC's recommendation for repeal is that the 1935 Act is no longer reflective of regulatory and economic conditions. Following the SEC's report, there were several bills introduced in both the United States Senate and House of Representatives in 1996 which would have repealed the 1935 Act on a conditional and transitional basis and transferred its oversight functions to the FERC and the states. Although this proposed legislation did not pass, several bills addressing 1935 Act repeal or amendment have been introduced in the current legislative session. Divestiture of Generation Business Under the Massachusetts settlement and, if such settlement is approved by the FERC, automatically under the Rhode Island statute, the NEES companies must complete the divestiture of their nonnuclear generating business within six months of the later of the commencement of retail choice in Massachusetts or the receipt of all necessary regulatory approvals. The NEES companies are in the process of soliciting proposals for the acquisition of their nonnuclear generating business with the objective of reaching definitive purchase and sale agreements by mid-1997. Closing would follow the receipt of regulatory approvals, which are expected to take at least six to 12 months following the execution of purchase and sale agreements. At December 1996, the nonnuclear net book value of the generating plant was approximately $1.1 billion. As part of the divestiture plan, NEP will endeavor to sell, or otherwise transfer, its minority interest in four nuclear power plants to nonaffiliates. NEP may retain responsibility for decommissioning and related expenses, if necessary. To the extent that NEP is unable to divest its nuclear generating interests, the Massachusetts settlement provides for a sharing between customers and shareholders of the revenues associated with the nuclear interests and the costs not otherwise reflected in the access charge, with 80% allocated to customers and 20% to shareholders. This sharing mechanism is not included in the Rhode Island statute previously discussed. Narragansett will be compensated by NEP for any difference between the sale price of Narragansett's share of the Manchester Street Station and its net book value. In addition, NEEI is planning to sell its oil and gas properties, the cost of which is supported by NEP through fuel purchase contracts. NEP has approximately $740 million of mortgage bonds outstanding. The bond indenture restricts the sale of the trust property in its entirety or substantially in its entirety. The proposed sale of NEP's generating business would likely require that NEP either amend the bond indenture or either defease or call the bonds in connection with the proposed sale. Any defeasance of bonds would be by the deposit of cash representing principal and interest to the maturity date or interest, principal, and general redemption premium to an earlier redemption date. Risk Factors While substantial progress has been made in resolving the uncertainty regarding the impact on shareholders from industry restructuring, significant risks remain. These include, but are not limited to: (i) the potential that ultimately the Massachusetts settlement and the Rhode Island statute will not be implemented in the manner anticipated by NEES, (ii) the possibility of state or federal legislation that would increase the risks to shareholders above those contained in the Massachusetts settlement and Rhode Island statute, and (iii) the potential for adverse stranded cost recovery decisions involving Granite State and NEP's unaffiliated customers. The major risk factors affecting the Distribution Companies relate to the possibility of adverse regulatory or judicial decisions or legislation which limits the level of revenues the Distribution Companies are allowed to charge for their services. While substantial progress has been made in resolving the uncertainty regarding recovery by the Distribution Companies of stranded costs billed to them by NEP, significant risks remain. These risks are primarily attributable to the potential that ultimately the Massachusetts settlement and the Rhode Island statute, referred to above, will not be implemented in the manner anticipated by the Distribution Companies and/or the possibility of other state or federal legislation which would increase the risks to the Distribution Companies above those contained in the Massachusetts settlement and the Rhode Island statute. Even if these risks do not materialize, the implementation of the Massachusetts settlement and the Rhode Island statute will negatively impact financial results for NEES, starting in 1998. The returns on equity permitted on NEES subsidiaries' transmission and distribution operations (up to 11.75%) and on the unrecovered commitments in the generating business (generally 9.4% to 11%) are less than those historically earned by NEES. In addition, starting in 1998, earnings will be affected by the return on the reinvestment of the proceeds from the sale of the generation business. Such reinvestment return is likely, at least in the near term, to be less than is currently earned by the generation business. Also, once NEP has divested its generating business and completed its stranded cost recovery, it will become solely a provider of transmission services with at least initially a smaller capital investment than currently exists. Accounting Implications Historically, electric utility rates have been based on a utility's costs. As a result, electric utilities are subject to certain accounting standards that are not applicable to other business enterprises in general. Financial Accounting Standards No. 71, Accounting for the Effects of Certain Types of Regulation (FAS 71), requires regulated entities, in appropriate circumstances, to establish regulatory assets, and thereby defer the income statement impact of certain costs expected to be recovered in future rates. The NEES companies have recorded approximately $550 million in regulatory assets in compliance with FAS 71 of which approximately $75 million relate to the transmission and distribution business. Both the Massachusetts settlement and the Rhode Island statute provide for full recovery of the costs of generating assets and oil and gas related assets (including regulatory assets) not recoverable from the proceeds of the divestiture of NEP's generating business. The costs of these assets would be recovered as part of a transition access charge imposed on all distribution customers. After the proposed divestiture, substantially all of NEP's business, including the recovery of its stranded costs, would remain under cost-based rate regulation. NEES believes the Massachusetts settlement and the Rhode Island statute will enable the NEES distribution companies operating in those states to recover through rates their specific costs of providing ongoing distribution services. In addition, FERC Order No. 888 enables transmission companies to recover their specific costs of providing transmission service. NEES believes these factors will allow its principal subsidiaries to continue to apply FAS 71 and that no impairment of plant assets will exist under Statement of Financial Accounting Standards No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of (FAS 121). Any loss from the divestiture of generating assets and oil and gas assets will be recorded as a regulatory asset to be recovered through the ongoing transition access charge. Although NEES believes that its subsidiaries will continue to meet the criteria for continued application of FAS 71, NEES understands that members of the SEC staff have raised questions concerning the continued applicability of FAS 71 to certain other electric utilities facing restructuring. In addition, despite the progress made to date in Massachusetts and Rhode Island, it is possible that the final restructuring plans ultimately ordered by regulatory bodies would not reflect full recovery of stranded costs, including a fair return on those costs as they are being recovered. In the event that future circumstances should cause the application of FAS 71 to be discontinued, a noncash write-off of previously established regulatory assets and liabilities related to the affected operations would be required. In addition, write- downs of plant assets under FAS 121 could be required, including a write-off of any loss from the divestiture of the generating business. BUSINESS ACTIVITY NEP's business is principally generating, purchasing, transmitting, and selling electric energy in wholesale quantities. In 1996, 95% of NEP's all-requirement revenue from the sale of electricity was derived from sales for resale to affiliated companies and 5% from sales for resale to municipal and other utilities. NEP is the wholesale supplier of the electric energy requirements of the Distribution Companies under contracts that, absent the amendments discussed under Federal Activity above, require seven years notice of termination. Narragansett receives credits against its purchases of power from NEP for the cost of generation from its Providence units, which are functionally integrated with NEP's facilities to achieve maximum economy and reliability. Discussions of NEP's generating properties, load growth, energy mix, and fuel supplies include the related properties of Narragansett. For details of sales of energy and operating revenue for the last five years, see OPERATING STATISTICS on page 29 of the New England Power Company 1996 Annual Report to Stockholders (the NEP 1996 Annual Report). (For a discussion of electric utility operations in a more competitive environment, see INDUSTRY RESTRUCTURING, page 4.) The combined service area of the Distribution Companies constitutes the retail service area of the System and covers more than 4,500 square miles with a population of about 3,000,000 (1990 census). See Map - Electric Utility Properties, page 28. The largest cities served are Worcester, Mass. (population 170,000) and Providence, R.I. (population 161,000). Mass. Electric provides approximately 960,000 customers with electric service at retail in a service area comprising approximately 43% of the area of The Commonwealth of Massachusetts. The population of the service area is about 2,160,000 or 36% of the total population of the Commonwealth (1990 Census). Mass. Electric's service area consists of 146 cities and towns including the highly diversified commercial and industrial cities of Worcester, Lowell, and Quincy, the Interstate 495 high technology belt, suburban communities, and many rural towns. The economy of the area is diversified. Principal industries served by Mass. Electric include computer manufacturing and related businesses, electrical and industrial machinery, plastic goods, fabricated metals and paper, and chemical products. In addition, a broad range of professional, banking, medical, and educational institutions is served. During 1996, 41% of Mass. Electric's revenue from the sale of electricity was derived from residential customers, 37% from commercial customers, 21% from industrial customers, and 1% from others. In 1996, the 20 largest customers of Mass. Electric accounted for approximately 7% of its electric revenue. For details of sales of energy and operating revenue for the last five years, see OPERATING STATISTICS on page 27 of Mass. Electric's 1996 Annual Report to Stockholders (the Mass. Electric 1996 Annual Report). In February 1997, a settlement agreement among Mass. Electric and two affiliates, the Massachusetts Attorney General, the Massachusetts Division of Energy Resources, and 12 other parties was approved by the MDPU. This settlement provides for retail choice of power supplier by Massachusetts customers beginning January 1, 1998 (see INDUSTRY RESTRUCTURING, page 4). Narragansett provides approximately 330,000 customers with electric service at retail. Its service territory, which includes urban, suburban, and rural areas, covers about 839 square miles or 80% of the area of Rhode Island, and encompasses 27 cities and towns including the cities of Providence, East Providence, Cranston, and Warwick. The population of the area is about 725,000 (1990 Census) which represents about 72% of the total population of the state. The economy of the territory is diversified. Principal industries served by Narragansett produce fabricated metal products, electrical and industrial machinery, transportation equipment, textiles, jewelry, silverware, and chemical products. In addition, a broad range of professional, banking, medical, and educational institutions is served. During 1996, 44% of Narragansett's revenue from the sale of electricity was derived from residential customers, 41% from commercial customers, 14% from industrial customers, and 1% from others. In 1996, the 20 largest customers of Narragansett accounted for approximately 9% of its electric revenue. For details of sales of energy and operating revenue for the last five years, see OPERATING STATISTICS on page 32 of Narragansett's 1996 Annual Report to Stockholders (the Narragansett 1996 Annual Report). Rhode Island legislation passed in 1996 allows utility customers to choose their power supplier. Distribution companies, including Narragansett, would be required to deliver the power to their customers. This customer choice is being phased in over 12 months beginning July 1997 (see INDUSTRY RESTRUCTURING, page 4). Granite State provides approximately 36,000 customers in 21 New Hampshire communities with electric service at retail in the State of New Hampshire in a service area having a population of about 73,000 (1990 Census), including several communities along the Connecticut River, especially in the Lebanon and Walpole areas, and the Salem area in Southern New Hampshire. During 1996, 47% of Granite State's revenue from the sale of electricity was derived from commercial customers, 39% from residential customers, 13% from industrial customers, and 1% from others. In 1996, the 10 largest customers of Granite State accounted for about 18% of its electric revenue. Granite State is not subject to the reporting requirements of the Securities Exchange Act of 1934, and its financial impact on the System is relatively small. Information on Granite State is provided herein solely for the purpose of furnishing a more complete description of System operations. In February 1997, the NHPUC issued its plan to implement a law calling for retail access in New Hampshire by 1998 (see INDUSTRY RESTRUCTURING, page 4). On March 26, 1996, NEES acquired Nantucket Electric Company for $3.5 million. Nantucket provides approximately 8,300 customers with electric service at retail. Its service territory is limited to the Island and Town of Nantucket, which is located in the Atlantic Ocean approximately 30 miles off the coast of Cape Cod, Massachusetts. The Town has a resident population of approximately 7,800 and an estimated average yearly tourist population of approximately 40,000, peaking in July and August. During 1996, 61% of Nantucket's revenue from the sale of electricity was derived from residential customers, 38% from commercial customers, and 1% from others. During 1996, a 26-mile-long submarine cable connecting Nantucket Island with the transmission system on the mainland was constructed. Nantucket is not subject to the reporting requirements of the Securities Exchange Act of 1934, and its financial impact on the System is relatively small. Information on Nantucket is provided herein solely for the purpose of furnishing a more complete description of System operations. The electric utility business of NEP and the Distribution Companies is not highly seasonal. For NEP and the Distribution Companies, industrial customers are broadly distributed among standardized industrial classifications. No single industrial classification exceeds 3% of operating revenue, and no single customer of the System contributes more than 1% of operating revenue. NEESCom was established in August 1996 to allow the NEES companies to generate revenues from the global telecommunications industry. This subsidiary is not regulated under the Public Utility Holding Company Act of 1935 (an exempt telecommunications company) and has a license from the Federal Communications Commission. It will focus on the fiber optics, cable, and personal communications sectors of the telecommunications industry. AllEnergy's principal purpose is to sell energy and provide a range of energy-related services, including but not limited to, marketing, brokering and sales of energy, audits, fuel supply, repair, maintenance, construction, operation, design, engineering, and consulting, to customers in the competitive market in New England and New York. In December 1996, AllEnergy announced the acquisition of Texas Liquids, Ltd., Inc. of New Jersey, adding propane and other petroleum products to AllEnergy's menu of offerings. NEERI is a wholly-owned nonutility subsidiary of NEES. Its principal purpose is to provide consulting and independent project development services for domestic and international transmission projects. In December 1996, NEERI proposed a 600-megawatt high voltage direct current submarine cable transmission connection between Connecticut and Long Island, which would introduce competitively attractive sources of power to Long Island. Under the proposal, NEERI, or an affiliate, would build, operate, own, and maintain the facilities. NEES and the NEES companies have from time to time considered, and expect to consider in the future, various strategies designed to enhance NEES's competitive position and to increase its ability to anticipate and adapt to changes in the electric utility industry. These strategies may include business combinations with other companies, internal restructurings, acquisitions or dispositions of assets or lines of business, and additions to or reductions of franchised service territories. NEES and the NEES companies may from time to time engage in discussions, either internally or with third parties, regarding one or more of these potential strategies. Those discussions may be subject to confidentiality agreements and NEES's policy is generally not to comment on such activities. No assurances can be given that any potential transaction of the type described above may actually occur, or, if one does occur, the ultimate effect thereof on NEES's or any NEES company's results of operations, financial condition or competitive position. See Divestiture of Generation Business, page 10. RESULTS OF OPERATIONS The following is the detail of consolidated kWh sales and deliveries and revenue from sales of electricity by the System for the last five years.
Sales and Deliveries of Electricity (in thousands of kWh) ------------------------------------ Classification 1996 1995 1994 1993 1992 - -------------- ---- ---- ---- ---- ---- Residential 7,993,375 7,837,527 7,879,747 7,749,514 7,666,992 Commercial 8,559,082 8,378,580 8,266,754 8,064,024 7,851,859 Industrial 4,892,524 4,952,217 4,858,638 4,863,059 4,870,612 Other 137,378 142,848 149,724 154,981 164,450 ---------- ---------- ---------- ---------- ---------- Total Sales to Ultimate Customers 21,582,359 21,311,172 21,154,863 20,831,578 20,553,913 Sales for Resale 3,611,643 1,592,577 2,289,091 1,958,499 2,125,463 ---------- ---------- ---------- ---------- ---------- Total Sales 25,194,002 22,903,749 23,443,954 22,790,077 22,679,376 Deliveries 101,402 ---------- ---------- ---------- ---------- ---------- Total Sales and Deliveries 25,295,404 22,903,749 23,443,954 22,790,077 22,679,376 ========== ========== ========== ========== ========== Revenues from Sales of Electricity (in thousands of dollars) ---------------------------------- Classification 1996 1995 1994 1993 1992 - -------------- ---- ---- ---- ---- ---- Residential $ 849,070 $ 841,433 $ 811,585 $ 818,120 $ 775,973 Commercial 792,380 773,138 741,194 742,121 728,645 Industrial 383,659 393,174 381,062 401,533 408,243 Other 26,902 25,836 24,580 24,745 24,776 ---------- ---------- ---------- ---------- ---------- Total Sales to Ultimate Customers 2,052,011 2,033,581 1,958,421 1,986,519 1,937,637 Amortization of Unbilled Revenues 8,209 38,458 2,700 Sales for Resale 140,110 79,452 88,912 80,554 82,580 ---------- ---------- ---------- ---------- ---------- Total 2,192,121 2,121,242 2,085,791 2,069,773 2,020,217 Other Operating Revenue 158,577 150,470 157,238 164,205 161,459 ---------- ---------- ---------- ---------- ---------- Total Operating Revenue $2,350,698 $2,271,712 $2,243,029 $2,233,978 $2,181,676 ========== ========== ========== ========== ==========
In 1996, kWh deliveries to ultimate customers increased 1.7%, while total kWh sales increased 1.3%. The difference is the result of pilot programs in Massachusetts and New Hampshire, whereby the NEES distribution companies delivered power provided by other companies. The increase in kWh deliveries reflects the effects of an improving economy and the acquisition of Nantucket, partially offset by the effects of milder weather in the last half of the year. RATES General In 1996, 71% of the System's electric utility revenues was attributable to NEP, whose rates are subject to regulation by the FERC. The rates of Mass. Electric and Nantucket, Narragansett, and Granite State are subject to the respective jurisdictions of the state regulatory commissions in Massachusetts, Rhode Island, and New Hampshire. The rates of each of the Distribution Companies contain a PPCA. The PPCA is designed to allow the Distribution Companies to pass on to their customers changes in purchased power expense resulting from changes allowed by the FERC in NEP's rates. PPCA changes become effective on the dates specified in the filing of the adjustments with the state regulatory commission (not earlier than 30 days after such filing) unless the state regulatory commission orders otherwise. There have been, on occasion, regulatory delays in permitting PPCA increases. Narragansett and Granite State rates have PPCA clauses that fully reconcile on an annual basis purchased power expenses incurred by the companies against purchased power related revenues. Mass. Electric's PPCA is designed to allow Mass. Electric to pass on to its customers changes in purchased energy costs resulting from rate increases or decreases by NEP. Mass. Electric's PPCA mechanism is also designed to pass on to customers the effects of NEP's seasonal rates. A settlement approved by the MDPU on February 26, 1997 and currently pending before the FERC would terminate Mass. Electric's and Nantucket's PPCA as of July 31, 1996. However, since the Massachusetts settlement had not been approved at the end of 1996, Mass. Electric accrued refund provisions of $9 million related to assumed operation of the PPCA provision during the last five months of 1996. For more information, see INDUSTRY RESTRUCTURING, page 4. Under a case decided by the Rhode Island Supreme Court in 1977 (Narragansett v. Burke), NEP's wholesale rates must be accepted as allowable expenses for rate-making purposes by state commissions in retail rate proceedings. In 1986 and 1988 the U.S. Supreme Court reaffirmed this doctrine in two cases that did not involve NEP. However, the Narragansett v. Burke doctrine has been indirectly challenged by a number of state regulatory commissions which have held that federal preemption of the regulation of wholesale electric rates does not preclude the state commission from reviewing the prudence of a utility's decision to purchase power under a FERC-approved rate, and from disallowing costs if it finds that the purchase was an imprudent choice among alternative sources. In a 1985 opinion, the New Hampshire Supreme Court took this position on the issue of state regulation of wholesale power purchases. Also, legislation has been filed from time to time in Congress that would have eroded or repealed the doctrine. If state commissions were to refuse to allow the Distribution Companies to include the full cost of power purchased from NEP in their rates, System earnings could be adversely affected. The rates of NEP and the Distribution Companies contain fuel adjustment clauses that allow the rates to be adjusted to reflect changes in the cost of fuel. NEP's fuel clause is on a current basis. Mass. Electric has a fuel clause billing procedure that provides for billing of fuel costs estimated on a quarterly basis, while fuel costs billed by Narragansett and Granite State are estimated on a semi-annual basis. Billings are adjusted in the subsequent period for any excess or deficiency in fuel cost recovery. For a discussion of rates in a more competitive environment and the divestiture of the generation business, see INDUSTRY RESTRUCTURING, page 4. NEP Rates In February 1995, the FERC approved a rate agreement filed by NEP. Under the agreement, which became effective January 1995, NEP's base rates were frozen through 1996. Before this rate agreement, NEP's rate structure contained two surcharges that were recovering the costs of a coal conversion project and a portion of NEP's investment in Seabrook 1. These two surcharges fully recovered their related costs by mid-1995. The agreement also provides for (i) full recovery of costs associated with the Manchester Street Station repowering project, which began commercial operation in late 1995, (ii) the recovery of approximately $50 million of deferred costs associated with terminated purchased power contracts and postretirement benefits other than pensions (PBOPs) over seven years, (iii) full recovery of currently incurred PBOP costs, (iv) the recovery over three years of $27 million of costs related to the dismantling of a retired generating station in Rhode Island and the replacement of a turbine rotor at one of NEP's generating units, and (v) increased recovery of depreciation expense by approximately $8 million annually to recognize costs that will be incurred upon the eventual dismantling of its Brayton Point and Salem Harbor generating plants. Under the agreement, approximately $15 million of the $38 million in Seabrook 1 costs scheduled for recovery in 1995 pursuant to a 1988 settlement agreement were deferred for recovery in 1996 and are now fully recovered. Finally, the agreement provided that NEP would reimburse its wholesale customers for discounts provided by those wholesale customers to their retail customers under service extension discount (SED) programs. Under these programs, retail customers are entitled to such discounts only if they have signed an agreement not to purchase power from another supplier or generate any additional power themselves for a three to five-year period. Reimbursements totaled approximately $12 million in each of 1995 and 1996. Mass. Electric Rates Rate schedules applicable to electric services rendered by Mass. Electric are on file with the MDPU. In 1993, the MDPU approved a rate agreement filed by Mass. Electric, the Massachusetts Attorney General, and two groups of large commercial and industrial customers. Under the agreement, effective December 1, 1993, Mass. Electric implemented an 11-month general rate decrease of $26 million (annual basis). 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 the recognition of electricity delivered but not yet billed (unbilled revenues) for accounting purposes. Unbilled revenues at September 30, 1993 of approximately $35 million were amortized to income over 13 months ending December 1994. The agreement further provided for rate discounts for large commercial and industrial customers who signed agreements to give a five-year notice to Mass. Electric before they purchase power from another supplier or generate any additional power themselves. In addition, commencing in 1995 the cost of these discounts is being passed on to NEP as a result of a NEP rate settlement that was approved by the FERC in early 1995. Under a settlement approved by the MDPU on February 26, 1997, and currently pending before the FERC, these discounts would end when retail choice commences, and the notice provision would be waived to the extent that it would limit a customer's ability to purchase electricity from an alternate supplier. On February 7, 1997, the MDPU approved a settlement that would set unbundled distribution rates at a level approximately $45 million above the level embedded in current bundled rates upon the commencement of retail choice. The settlement is subject to the approval of the FERC. For more information, see INDUSTRY RESTRUCTURING, page 4. The MDPU approved a $31 million increase to base rates for Mass. Electric, effective October 1, 1995. Narragansett Rates Rate schedules applicable to electric services rendered by Narragansett are on file with the RIPUC and the Rhode Island Division of Public Utilities and Carriers. The RIPUC approved a $10.8 million increase to base rates for Narragansett effective January 1, 1997 pursuant to the 1996 legislation providing customers the opportunity to choose their electric supplier. Under this legislation, Narragansett is entitled to a similar increase in 1998. The RIPUC approved a settlement agreement that provided for a $15 million increase to base rates for Narragansett effective December 1, 1995. The RIPUC also approved $3 million of new discounts for manufacturing customers. In February 1995, the FERC approved a rate agreement, effective in January 1995, for NEP. This rate agreement, among other things, increased the credits Narragansett receives from NEP for the costs of owning and operating its generation and transmission facilities by $14 million on an annual basis. Narragansett supplies all of the output of its generating facilities to NEP. The increase in the credits reflects Narragansett's 10% investment in the Manchester Street Station, which entered commercial operation in the second half of 1995, and the transmission facilities associated with the station, which were placed in service in September 1994. An additional increase in these credits of approximately $2 million took effect in January 1996. In 1994, the RIPUC approved a rate agreement between Narragansett and the Rhode Island Division of Public Utilities and Carriers that provided for Narragansett to recognize, for accounting purposes, $14 million of unbilled revenues over a 21- month period which ended in December 1995. The agreement further provided for rate discounts for large commercial and industrial customers who signed agreements to give a five-year notice to Narragansett before they purchase power from another supplier or generate any additional power themselves. In addition, commencing in 1995, the cost of these discounts is being passed on to NEP as a result of the NEP rate settlement referred to above. Effective January 1, 1997, the RIPUC approved a settlement that made the discounts unavailable to customers not already receiving the discounts. The settlement also provides for terminating the discounts and five-year notice obligations to existing customers if those customers begin to purchase their electricity from a nonregulated power producer. NEP made a filing at the FERC (which the FERC has accepted, made effective, and set for hearing) waiving the requirement that NEP consent prior to Narragansett modifying agreements with its customers that include the discount and notice provisions. Effective January 1993, the RIPUC approved a $1.5 million increase in rates for Narragansett, representing the first step of a three-year phase-in of Narragansett's recovery of costs associated with PBOPs. The second and third $1.5 million increases took effect in January 1994 and 1995, respectively. A 1986 Rhode Island Supreme Court decision held that the RIPUC's rate-making power includes the authority to order refunds of amounts earned in excess of an allowed return. As a result, the RIPUC monitors Narragansett's earnings on a regular basis. However, in 1996, the General Assembly enacted a statute establishing a floor and ceiling on Narragansett's return on equity from distribution operations. For more information, see INDUSTRY RESTRUCTURING, page 4. Granite State Rates In May 1996, the NHPUC approved a permanent Granite State rate increase of $1.1 million, effective June 1, 1996. In October 1995, the company had received approval to collect an interim increase of $0.9 million, effective November 1, 1995. Granite State was also permitted to modify its fuel clause and PPCA mechanisms related to the treatment of its gross receipts tax. This modification yielded an additional $0.5 million of increased revenues, which is included in rate increases. Commencing in 1995, Granite State began offering discounts to large commercial and industrial customers who give Granite State a five-year notice before they purchase power from another supplier or generate additional power themselves. Granite State is reimbursed for these discounts by NEP. Under the NHPUC's restructuring rules, the five-year notice obligations would remain in effect. However, the restructuring settlement proposed by Granite State would waive the five-year notice obligations and terminate the discounts. Recovery of Demand-Side Management Expenditures The Distribution Companies offer conservation and load management programs, usually referred to in the industry as Demand- Side Management (DSM) programs, which are designed to help customers use electricity efficiently, as a part of meeting the NEES companies' regulatory requirements and customers' needs for energy services. The Distribution Companies regularly file their DSM programs with their respective regulatory agencies and have received approval to recover DSM program expenditures in rates on a current basis. Mass. Electric's expenditures were $48 million, $53 million, and $59 million in 1996, 1995, and 1994, respectively. Narragansett's expenditures were $10 million, $9 million, and $10 million in 1996, 1995, and 1994, respectively. Since 1990, the Distribution Companies have been allowed to earn incentives based on the results of their DSM programs. The Distribution Companies must be able to demonstrate the electricity savings produced by their DSM programs to their respective state regulatory agencies before incentives are recorded. Mass. Electric recorded $5.7 million, $5.1 million, and $7.1 million of before-tax incentives in 1996, 1995, and 1994, respectively. Narragansett recorded $0.2 million, $0.5 million, and $0.6 million of before-tax incentives in 1996, 1995, and 1994, respectively. The Distribution Companies, other than Narragansett, have received regulatory orders that will give them the opportunity to continue to earn incentives based on 1997 DSM program results. In Rhode Island, the RIPUC approved Narragansett's request to recover lost base revenues based on its 1997 DSM programs. ELECTRIC UTILITY PROPERTIES Divestiture On October 1, 1996, the NEES companies announced their intention to divest their generating business. For more information, see INDUSTRY RESTRUCTURING, page 4. Energy Mix The following table displays the contributions of various fuel sources and other generation to total net generation of electricity by NEP during the past three years, as well as an estimate for 1997:
% of Net Generation ------------------------------ Estimated Actual --------- ------------------- 1997 1996 1995 1994 ---- ---- ---- ---- Coal 37 42 38 37 Nuclear 8 14 14 19 Gas (1) 27 24 22 16 Oil 9 1 10 10 Hydroelectric 7 7 5 6 Hydro-Quebec 6 6 5 6 Renewable Nonutility Generation (2) 6 6 6 6 --- --- --- --- 100 100 100 100 (1) Gas includes both utility and nonutility generation. (2) Waste to energy and hydro.
Generation, Transmission, and Distribution Properties The electric utility properties of the System companies consist of NEP's and Narragansett's fossil-fuel base load and intermediate load steam and combined cycle generating units, conventional and pumped storage hydroelectric stations, internal combustion peaking units, portions of fossil fuel and nuclear generating units, the ownership interests of NEET, Mass. Hydro, and N.H. Hydro in the Hydro-Quebec Interconnection, and an integrated system of transmission lines, substations, and distribution facilities. See Map - Electric Utility Properties, page 28. NEP's integrated system consists of 2,277 circuit miles of transmission lines, 118 substations with an aggregate capacity of 13,876,563 kVA, and 7 pole or conduit miles of distribution lines. The properties of Mass. Electric and Narragansett include substations and distribution and transmission lines, which are interconnected with transmission and other facilities of NEP. At December 31, 1996, Mass. Electric owned 252 substations, which had an aggregate capacity of 2,830,614 kVA, 140,141 line transformers with the capacity of 7,204,723 kVA, and 16,055 pole or conduit miles of distribution lines. Mass. Electric also owns 83 circuit miles of transmission lines. At December 31, 1996, Narragansett owned 240 substations, which had an aggregate capacity of 2,917,267 kVA, 46,854 line transformers with the capacity of 2,009,013 kVA, and 4,338 pole or conduit miles of distribution lines. Narragansett, in addition, owns 324 circuit miles of transmission lines. Substantially all of the properties and franchises of Mass. Electric, Narragansett, and NEP are subject to the liens of indentures under which mortgage bonds have been issued. NEP's bond indenture restricts the sale of the trust property in its entirety or substantially in its entirety. The proposed sale of NEP's generating business would likely require that NEP either amend the bond indenture or either defease or call the bonds in connection with the proposed sale. For details of the mortgage liens on these properties see the long-term debt note in Notes to Financial Statements in each of these companies' respective 1996 annual reports. The properties of NEET are subject to a mortgage under its financing arrangements. The net capability at December 31, 1996, and the net generation for the twelve months ended December 31, 1996, from all sources were as follows:
Year(s) Placed Energy Net Net Source Location In-Service Source Capability Generation ------ -------- ---------- ------ ---------- ------------- Fossil Fuel Units (MW) (000's of MWh) Brayton Point Station Units 1,2 & 3 Somerset, 1963-1969 Coal-Oil-Gas(a) 1,130 7,924 Unit 4 Mass. 1974 Oil-Gas 446 569 Salem Harbor Station Units 1,2 & 3 Salem, 1952-1958 Coal-Oil(a) 314 2,019 Unit 4 Mass. 1972 Oil 400 932 Manchester St. Prov., 1995 Gas-Oil 495 3,299 Station(b) R.I. Other System Me., Mass. 1963-1978 Oil 99 110 Units(c) Hydroelectric Units(d) Conventional Mass.,N.H. 1909-1987 & Vt. Water 578 1,819 Pumped Storage Bear Swamp Rowe, Mass. 1974 Water 589 (196) Nuclear Units(e) Yankees Me. and Vt. 1972 Nuclear 253 2,015 Millstone 3 Waterford, 1986 Nuclear 140 302 Conn. Seabrook 1 Seabrook, 1990 Nuclear 116 894 N.H. Other(f) - - - 716 3,807 ----- ------ Total 5,276 23,494 ===== ======
(a) These units currently burn coal, but are also capable of burning oil. In addition Brayton Point Units 1, 2, and 3 are capable of limited co-firing of natural gas. (b) In 1995, NEES subsidiaries completed the approximately 500 MW repowering of Manchester Street Station in Providence, R.I. Total costs for the generating station were approximately $440 million, including allowance for funds used during construction (AFDC). (c) Includes (i) an interest in a jointly owned oil-fired unit in Yarmouth, Maine, and (ii) diesel units at various locations. (d) See Hydroelectric Project Licensing, page 43. (e) See Nuclear Units, page 33. (f) Capability includes contracted purchases (1,313 MW) less contract sales (597 MW). Net generation includes the effects of the above contracted purchases and economy interchanges through the New England Power Exchange (including a 223 MW capacity credit associated with purchases from Hydro-Quebec and purchases from nonutility generation). For further information see Nonutility Power Producer Information, page 32. NEP and Narragansett are members of the New England Power Pool (NEPOOL). Mass. Electric, Nantucket, and Granite State participate in NEPOOL through NEP. The NEPOOL Agreement provides for coordination of the planning and operation of the generation and transmission facilities of its members. The NEPOOL Agreement incorporates generating capacity reserve obligations, provisions regarding the use of major transmission lines, and provisions for payment for facilities usage. The NEPOOL Agreement further provides for New England-wide central dispatch of generation through the New England Power Exchange. Through NEPOOL, operating and capital economies are achieved and reserves are established on a region-wide rather than an individual company basis. At the end of 1996, NEPOOL filed with the FERC a comprehensive proposal to restructure NEPOOL. The main elements of the proposal include: (1) the establishment of a regional transmission tariff that will ensure open, nondiscriminatory access to the regional transmission network; (2) the development of wholesale competitive markets and a power exchange for capacity, energy and several ancillary services with market-based pricing for these products and services; (3) a new governance structure for NEPOOL that will allow for more flexible and representative governance; and (4) the creation of a new institution, the Independent System Operator, that will operate the bulk power system, administer the regional tariff and power exchange. The NEES companies support this restructuring proposal because they believe it will facilitate the development of robust competition in the electricity markets in New England. A number of parties intervened in the proceeding. In February 1997, the FERC accepted the filing and set the matter down for hearings. The 1996 NEPOOL peak demand of 19,507 MW occurred on August 6, 1996. This was below the all time NEPOOL peak demand of 20,519 MW set on July 21, 1994. The 1996 summer peak for the System of 4,091 MW occurred at the same day as the NEPOOL peak demand. The previous all-time peak load of 4,385 MW occurred on July 21, 1994. The 1996-1997 winter peak of 3,868 MW occurred on January 20, 1997. NEPOOL currently projects a capacity shortfall of approximately 450 MW from long-range planning criteria for the summer of 1997, assuming normal summer weather. This projection further assumes that the three Millstone units and the Maine Yankee unit will be unavailable during the summer. Extensive or extended hot weather or losses of other major generating units or transmission ties could further strain the System. NEPOOL participants are working to mitigate any capacity shortages and prevent disruptions in electric service this summer. Among the steps being taken are: (1) acceleration or deferral of planned maintenance outages to occur outside of the summer period; (2) reactivation of currently idle generating units; (3) reduction of exposure to peak customer loads through increased availability of interruptible loads; and (4) coordination with neighboring power systems to maximize NEPOOL's ability to purchase and import emergency power as necessary. The NEES companies cannot predict whether these steps will be sufficient to prevent service disruptions or, if there are disruptions, how extensive they might be. MAP (Displays electric utility properties of NEES subsidiaries) Fuel for Generation NEP burned the following amounts of coal, residual oil, and gas during the past three years: 1996 1995 1994 ---- ---- ---- Coal (in millions of tons) 3.8 3.4 3.3 Oil (in millions of barrels) 2.2 1.7 3.4 Natural Gas (in billions of cubic feet) 28.6 16.2 4.0 Coal Procurement Program Depending on coal-fired generating unit availability and the degree to which the units are dispatched, NEP's 1997 coal requirements should range between 3.7 and 3.9 million tons. NEP obtains its domestic coal under contracts of varying lengths and on a spot basis from domestic coal producers in Kentucky, West Virginia, and Virginia, and from mines in Colombia and Venezuela. Two different rail systems (CSX and Norfolk Southern) transport coal from domestic sources to loading ports on the east coast. NEP's coal is transported from east coast ports by ocean-going collier to Brayton Point and Salem Harbor. NEP has a term charter with International Shipholding Corporation for the S.S. Energy Enterprise, a self-unloading collier, which carries most of NEP's U.S. coal and a portion of foreign coal. NEP also charters other coal-carrying vessels for the balance of foreign coal, and presently has contracts of affreightment with Canada Steamship Lines, International and Marbulk Shipping Inc. As protection against interruptions in coal deliveries, NEP maintains average coal inventories at its generating stations of 35 to 55 days. To meet environmental requirements, NEP uses coal with a relatively low sulphur content. NEP's average price for coal burned, including transportation costs, calculated on a 26 million Btu per ton basis, was $42.90 per ton in 1994, $42.25 in 1995, and $42.03 in 1996. Based on a 42 gallon barrel of oil producing 6.3 million Btu's, these coal prices were equivalent to approximately $10.41 per barrel of oil in 1994, $10.25 in 1995, and $10.20 in 1996. Oil Procurement Program Depending on unit availability, dispatch, and the relationship of oil and gas prices, the System's 1997 oil requirements are expected to be approximately 4.2 to 4.5 million barrels. The System obtains its oil requirements through short-term contracts with oil suppliers and purchases on the spot market. The System currently has a total storage capacity for approximately 1.3 million barrels of residual and diesel fuel oil. The System's average cost of oil burned, calculated on a 6.3 million Btu per barrel basis, was $13.17 in 1994, $14.46 in 1995, and $17.19 in 1996. Natural Gas NEP has contracts with two Canadian natural gas suppliers for a total of 35 million cubic feet per day as well as a 7.5 million cubic feet per day liquified natural gas supply contract with a Massachusetts corporation. NEP has service agreements for firm transportation of natural gas with a number of pipeline companies. The agreements are sufficient to cover a total delivery to New England of an aggregate amount of approximately 127.5 million cubic feet per day. Service under the pipeline agreements and one of the supply contracts require minimum fixed payments. NEP's minimum fixed payments under all pipeline and supply agreements are currently estimated to be approximately $57 million to $60 million per year from 1997 to 2001. Remaining fixed payments from 2002 through 2014 total approximately $525 million. The amount of the fixed payments is subject to FERC regulation and will depend on FERC actions affecting the rates on each of the pipelines. In connection with managing its fuel supply, NEP uses a portion of this pipeline capacity to sell natural gas. Proceeds from sales of natural gas and pipeline capacity of $50.2 million, $71 million, and $55 million in 1996, 1995, and 1994, respectively, have been passed on to customers through NEP's fuel clause. Nuclear Fuel Supply As noted below, NEP participates with other New England utilities in the ownership of several nuclear units. See Nuclear Units, page 33. The utilities responsible for supply for these units are not experiencing any difficulty in obtaining commitments for the supply of each element of the nuclear fuel cycle. Oil and Gas Operations As part of the NEES companies' divestiture of their generating business, NEEI is planning to sell its oil and gas properties. For more information, see INDUSTRY RESTRUCTURING, page 4. Since 1974, NEEI has engaged in oil and gas exploration and development, primarily through a partnership with Samedan Oil Corporation (Samedan), a subsidiary of Noble Affiliates, Inc. NEEI's oil and gas activities are regulated by the SEC under the 1935 Act. Under the terms of the Samedan-NEEI partnership agreement, Samedan is the managing partner and oversees all partnership operations including the sale of production. Effective January 1, 1987, NEEI decided not to acquire new oil and gas prospects due to prevailing and expected oil and natural gas market conditions. This decision did not affect NEEI's interests and commitments in oil and gas properties owned as of December 31, 1986 by the Samedan-NEEI partnership. Samedan continues to explore, develop, and manage these properties on behalf of the partnership. Thus, the results of NEEI's operations are substantially affected by the performance of Samedan. Samedan may elect to terminate the partnership at the end of any calendar year upon one year's prior notice. NEEI is required to obtain SEC approval for further investment in these oil and gas properties. On December 20, 1994, the SEC issued an order authorizing NEEI to invest up to $30 million in its partnership with Samedan for the years 1995-1998. NEEI is winding down its oil and gas program. The level of expenditures for exploration and development of existing properties has declined as a result of the decision not to acquire new oil and gas prospects after December 31, 1986. NEEI's activities are primarily rate-regulated and consist of all prospects entered into prior to 1984. Losses from this rate-regulated program are being passed on to NEP and ultimately to retail customers, under an intercompany pricing policy (Pricing Policy) approved by the SEC. Due to declines in oil and gas prices, NEEI has incurred operating losses since 1986 and expects to generate substantial additional losses in the future. NEP's ability to pass such losses on to its customers was favorably resolved in NEP's 1988 FERC rate settlement. This settlement 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. NEEI follows the full cost method of accounting for its oil and gas operations, under which capitalized costs (including interest paid to banks) relating to wells and leases determined to be either commercial or noncommercial are amortized using the unit of production method. Due to the Pricing Policy, NEEI's rate-regulated program has not been subject to certain SEC accounting rules, applicable to non-rate-regulated companies, which limit the costs of oil and gas property that can be capitalized. The Pricing Policy has allowed NEEI to capitalize all costs incurred in connection with fuel exploration activities of its rate regulated program, including interest paid to banks of which $7 million was capitalized in 1996 and $10 million was capitalized in 1995 and 1994, respectively. In the absence of the Pricing Policy, the SEC's full cost "ceiling test" rule requires non-rate-regulated companies to write-down capitalized costs to a level which approximates the present value of their proved oil and gas reserves. Based on NEEI's 1996 average oil and gas selling prices at December 31, 1996, if this test were applied, it would have resulted in a write-down of approximately $93 million after-tax. Nonutility Power Producer Information The System companies purchase a portion of the electricity generated by, or provide back-up or standard service to, 136 small power producers, cogenerators, or independent power producers (a total of 6,188,414 MWh of purchases in 1996). As of December 31, 1996, these nonutility generation sources include 24 low-head hydroelectric plants, 49 wind or solar generators, 9 waste to energy facilities, 51 cogenerators, and 3 independent power producers. The total capacity of these sources is as follows: Source MW at 12/31/96 ------ -------------- Hydro 37 Waste to Energy 173 Cogeneration 305 Independent Power Producers 374 ---- Total 889 These amounts include 735 MW of long-term capacity, 16 MW of short-term capacity, and 138 MW treated as load reductions and includes the Ocean State Power contracts discussed below. These contracts are being offered for sale pursuant to the NEES companies' divestiture of their generating business. For more information, see INDUSTRY RESTRUCTURING, page 4. Ocean State Power Ocean State Power (OSP) and Ocean State Power II (OSP II) are general partnerships that own and operate a two unit gas-fired combined cycle electric power plant in Burrillville, R.I. The two units have a combined winter net electrical capability of approximately 562 MW. Each unit's capacity and energy output is sold under 20-year unit power agreements to a group of New England utilities, including NEP, which has contracts for 48.5% of the output of each unit. NEP is required to make certain minimum fixed payments to cover capital and fixed operating costs of these units in amounts estimated to be $75 million per year. Resources is a general partner with a 20% interest in both OSP and OSP II and had an equity investment of approximately $35 million at December 31, 1996. Interconnection with Quebec NEET, Mass. Hydro, and N.H. Hydro own and operate, on behalf of NEPOOL participants in the project, a 450 kV direct current transmission line and related terminals to interconnect the New England and Quebec transmission systems (the Interconnection). The transfer capability of the Interconnection is 2,000 MW. Operating limits implemented by adjacent Power Pools covering New York, New Jersey, Pennsylvania, and Maryland often restrict the effective transfer capability to a lower level. NEPOOL members purchase from and sell energy to Hydro-Quebec pursuant to several agreements. The principal agreement calls for NEPOOL members to purchase 7 billion kWh of energy each year for ten years (the Firm Energy Contract). Purchases under the Firm Energy Contract totaled over 5.3 billion kWh in 1996. Net energy deliveries from Hydro-Quebec over the Interconnection totaled more than 8.1 billion kWh in 1996. These additional deliveries reflect the use of the Interconnection by participants to conduct independent transactions with Hydro- Quebec on a regular basis. The Interconnection has two phases. NEP's participation in both is approximately 18%. NEP and the other participants have entered into support agreements that end in 2020, to pay monthly their proportionate share of the total cost of constructing, owning, and operating the transmission facilities. NEP accounts for these support agreements as capital leases and accordingly recorded approximately $69 million in utility plant at December 31, 1996. Under the support agreements, NEP has agreed to guarantee its share of debt financing for the second phase. At December 31, 1996, NEP had guaranteed approximately $27 million of project debt. In the event any Interconnection facilities are abandoned for any reason, each participant is contractually committed to pay its pro-rata share of the net investment in the abandoned facilities. On July 11, 1996, various New England utilities which are members of NEPOOL, including NEP (collectively, the New England Utilities or NEUs), submitted a dispute to arbitration regarding their Firm Energy Purchased Power Contract with Hydro-Quebec. The dispute concerns the components of a pricing formula. Based on NEP's interpretation of Hydro-Quebec's claims, NEP's share of additional billings owed to Hydro-Quebec would be approximately $3.5 million on a retroactive basis and an estimated $3.8 million per year on a prospective basis through 2001. The arbitrator denied the NEUs' motion to dismiss Hydro-Quebec's claims as untimely, without prejudice to their right to raise that motion later at the conclusion of the evidence. Discovery is under way, and hearings are expected to commence in June 1997. Nuclear Units General NEP is a stockholder of Yankee Atomic Electric Company (Yankee Atomic), Vermont Yankee Nuclear Power Corporation (Vermont Yankee), Maine Yankee Atomic Power Company (Maine Yankee), and Connecticut Yankee Atomic Power Company (Connecticut Yankee). Each of these companies (collectively referred to as the Yankee Companies) owns a single nuclear generating unit. NEP purchases the output of the Maine Yankee and Vermont Yankee nuclear electric generating plants in the same percentages as its stock ownership, less small entitlements taken by municipal utilities. NEP has power contracts with each Yankee Company that require NEP to pay an amount equal to its share of total fixed and operating costs (including decommissioning costs) of the plant plus a return on equity. The stockholders of three Yankee Companies (Vermont Yankee, Maine Yankee, and Connecticut Yankee) have agreed, subject to regulatory approval, to provide capital requirements in the same proportion as their ownership percentages of the particular Yankee Company. Yankee Atomic and Connecticut Yankee have permanently ceased operations. In addition, NEP is a joint owner of the Millstone 3 nuclear generating unit in Connecticut and the Seabrook 1 nuclear generating unit in New Hampshire. Millstone 3 and Seabrook 1 are operated by subsidiaries of NU. NEP pays its proportionate share of costs and receives its proportionate share of output from the Yankee Companies, Millstone 3, and Seabrook 1. Listed below is information on each operating nuclear plant in which NEP has an ownership interest.
Maine Yankee 20 44 Vermont Yankee 20 36 Millstone 3 12 379 Seabrook 1 10 55
Nuclear Plant Decommissioning NEP is liable for its share of decommissioning costs for Millstone 3, Seabrook 1, and each of the Yankee Companies. See Decommissioning Trust Funds, page 35, regarding a Maine statute relating to Maine Yankee's decommissioning trust fund. Decommissioning costs include not only estimated costs to decontaminate the units as required by the Nuclear Regulatory Commission (NRC), but also costs to dismantle the uncontaminated portion of the units. NEP records decommissioning cost expense on its books consistent with its rate recovery. NEP is recovering its share of projected decommissioning costs for Millstone 3 and Seabrook 1 through depreciation expense. In addition, NEP is paying its portion of projected decommissioning costs for all of the Yankee Companies through purchased power expense. Such costs reflect estimates of total decommissioning costs approved by the FERC. Connecticut Yankee NEP has a 15% equity ownership interest in Connecticut Yankee. As a result of an economic analysis, the Connecticut Yankee board of directors voted in December 1996 to permanently shut down and decommission the plant. In December 1996, Connecticut Yankee filed with the FERC to recover all of its approximately $246 million undepreciated investment in the plant and other costs over the period extending through June 2007, when the plant's NRC operating license would have expired. In a 1993 decision, the FERC allowed Yankee Atomic to recover its undepreciated investment in its permanently shut down nuclear plant, in part on the grounds that owners should not be discouraged from closing uneconomic plants. Several parties have intervened in opposition to Connecticut Yankee's filing. NEP believes that the FERC will allow NEP to recover from its customers all costs that the FERC allows Connecticut Yankee to recover from NEP. NEP has recorded the estimated future payment obligation to Connecticut Yankee of $114 million as a liability and as an offsetting regulatory asset, reflecting NEP's expected future rate recovery of such costs. The NRC has identified numerous apparent violations of its regulations, which may result in the assessment of civil penalties. Yankee Atomic NEP has a 30% ownership interest in Yankee Atomic. In 1992, the Yankee Atomic board of directors decided to permanently cease power operation of, and decommission, the facility. Decommissioning is currently under way. NEP has recorded an estimate of its total future payment obligations to Yankee Atomic for post operating costs as a liability and as an offsetting regulatory asset, reflecting its expected future rate recovery of such costs. This liability and related regulatory asset are approximately $52 million each at December 31, 1996. Decommissioning Trust Funds Each nuclear unit in which NEP has an ownership interest has established a decommissioning trust fund or escrow fund into which payments are being made to meet the projected costs of decommissioning. Each of the Yankee Companies includes charges for all or a portion of decommissioning costs in its cost of energy. These charges vary depending upon rate treatment, the method of decommissioning assumed, economic assumptions, site and unit specific variables, and other factors. Any increase in these charges is subject to FERC approval. Estimates of NEP's pro-rata share (based on ownership) of decommissioning costs, NEP's share of the actual book values of decommissioning fund balances set aside for each unit at December 31, 1996, and the expiration date of the operating license of each plant are as follows:
NEP's share of ($ in millions) ----------------------------- Estimated Decommissioning Decommissioning Fund License Costs Balances (1) Expiration Unit (in 1996 $) (12/31/96) Date ---- --------------- --------------- ---------- Maine Yankee $74 $31 2008 Vermont Yankee $75 $30 2012 Millstone 3 $62 $16 2025 Seabrook 1 $45 $ 7 2026 (1) Certain additional amounts are anticipated to be available through tax deductions.
NEP is currently collecting through rates amounts for decommissioning based upon cost estimates and funding methodologies authorized by FERC. Such estimates are determined periodically for each plant and may not reflect the current projected cost of decommissioning. There is no assurance that decommissioning costs actually incurred by the Yankee Companies, Millstone 3, or Seabrook 1 will not substantially exceed these amounts. For example, decommissioning cost estimates assume the availability of permanent repositories in the United States for both low-level and high-level nuclear waste; currently, only low-level waste sites are available. See Low-Level Waste Disposal, page 41. If any of the units were shut down prior to the end of their operating licenses, the funds collected for decommissioning to that point would be insufficient. NRC rules require that reasonable assurance be provided that adequate funds will be available for the decommissioning of commercial nuclear power plants. The rule establishes minimum funding levels that licensees must satisfy. Each of the units in which NEP has an interest has filed a report with the NRC providing assurance that funds will be available to decommission the facility. A Maine statute provides that if both Maine Yankee and its decommissioning trust fund have insufficient assets to pay for the plant decommissioning, the owners of Maine Yankee are jointly and severally liable for the shortfall. The definition of owner under the statute covers NEP and may cover companies affiliated with it. NEP and the Distribution Companies cannot determine, at this time, the constitutionality, applicability, or effect of this statute. If NEP or the Distribution Companies were required to make payments under this statute, they would assess their legal remedies at that time. In any event, NEP and the Distribution Companies would attempt to recover through rates any payments required. If any claim in excess of NEP's ownership share were enforced against a NEES company, that company would seek reimbursement from any other Maine Yankee stockholder which failed to pay its share of such costs. Investments in Nuclear Units There is widespread concern about the safety of nuclear generating plants. The NRC regularly reviews the adequacy of its comprehensive requirements for nuclear plants. In fact, during 1996, the NRC placed heightened emphasis upon assurance that plants are operating in compliance with their design and licensing bases. Many local, state, and national public officials have expressed their opposition to nuclear power in general and to the continued operation of nuclear power plants. From time to time, various organizations and individuals file petitions raising safety concerns at particular nuclear units. It is possible that this controversy will result in cost increases and modifications to, or premature shutdown of, the operating nuclear units in which NEP has an interest. The Millstone 3 and Maine Yankee nuclear generating units are currently shut down and have been placed on the NRC "Watch List," signifying that their safety performance exhibits sufficient weakness to warrant increased NRC attention. Neither may restart without NRC approval. At present, the Vermont Yankee and Seabrook 1 nuclear generating units appear to be operating routinely without major problems. On October 9, 1996, the NRC issued letters to operators of nuclear power plants requiring them to document that the plants are operated and maintained within their design and licensing bases, and that any deviations are reconciled in a timely manner. The Seabrook 1, Maine Yankee, and Vermont Yankee nuclear power plants responded to the NRC letters in February 1997. Uncertainties regarding the future of nuclear generating stations, particularly older units, such as Maine Yankee and Vermont Yankee, are increasing rapidly and could adversely affect their service lives, availability, and costs. These uncertainties stem from a combination of factors, including the acceleration of competitive pressures in the power generation industry and increased NRC scrutiny. In general, the increased NRC scrutiny on the nuclear plants mentioned above, coupled with accelerating competitive pressures in the power generation industry, is expected to have a negative impact upon NEP's operations and costs and those of co-owners of the various units. North Atlantic, a subsidiary of Northeast Utilities (NU) that owns 35.57% of the Seabrook unit, has announced that it may have to seek protection under the bankruptcy laws due to the effect of the NHPUC restructuring rules announced February 28, 1997. For more information, see New Hampshire Proceeding and Settlement Agreement, page 8. Millstone 3 In April 1996, the NRC ordered Millstone 3, which has experienced numerous technical and nontechnical problems, to remain shut down pending verification that the unit's operations are in accordance with NRC regulations and the unit's operating license. Millstone 3 is operated by a subsidiary of NU. NEP is not an owner of the Millstone 1 and 2 nuclear generating units, which are also shut down under NRC orders. A number of significant prerequisites must be fulfilled prior to restart of Millstone 3, including certification by NU that the unit adequately conforms to its design and licensing bases, an independent verification of corrective actions taken at the units, an NRC assessment concluding a culture change has occurred, public hearings, and a vote of the NRC Commissioners. NU announced in December 1996 that it expects Millstone 3 to be ready for restart around the end of 1997, subject to review by the NRC Commissioners. NEP cannot predict when Millstone 3 will be allowed by the NRC to restart, but believes that the unit will remain shut down for a very protracted period. NEP incurred $10 million of actual costs in 1996 related to corrective actions associated with the outage. NEP has also accrued a liability of approximately $3 million for its share of future corrective action costs. Additional costs may be incurred. During the outage, NEP is also incurring approximately $1.6 million per month in incremental replacement power costs, which it has been recovering from customers through its fuel clause. Several criminal investigations related to Millstone 3 are ongoing. The NRC has identified numerous apparent violations of its regulations which may result in the assessment of civil penalties. NEP and other minority owners of Millstone 3 are assessing their legal rights with respect to NU's operation of Millstone 3. Maine Yankee Over the past few years, the Maine Yankee nuclear generating plant has experienced numerous technical and nontechnical problems. In 1995, the plant had been shut down for much of the year due to the discovery of cracks in its steam generator tubes. The plant is currently shut down due to a cable routing problem. In addition, due to leaking nuclear fuel rods, 68 fuel assemblies will be replaced. As a result, Maine Yankee management does not expect the unit to restart until summer of 1997. In late 1995, allegations were made to the NRC that inadequate analyses of the plant's emergency core cooling system had been performed. As a result of the allegations, the NRC limited the plant's operation to 90% of full capacity. In September 1996, the NRC asked the Department of Justice (DOJ) to review, for potential criminal violations, an NRC investigatory report on the allegations. The DOJ is not limited in its investigation to the matters covered in that report. During 1996, the NRC conducted an independent safety assessment (ISA) and identified a number of weaknesses, deficiencies, and apparent violations which could result in fines. Yankee Atomic performed professional services for Maine Yankee associated with the matters being investigated. In response to the ISA results, Maine Yankee has indicated that it will spend more than $50 million in 1997 on operational improvements. Additionally, in February 1997, Entergy Corporation, an operator of five nuclear units, commenced providing management services. Under a confirmatory action letter issued by the NRC on December 18, 1996, and supplemented on January 30, 1997, Maine Yankee must fulfill certain commitments before its plant will be allowed by the NRC staff to return to service. Because of regulatory and other uncertainties faced by Maine Yankee, NEP cannot predict whether or when Maine Yankee will return to service. During the outage, NEP is incurring approximately $1.8 million per month in incremental replacement power costs, which it has been recovering from customers through its fuel clause. High-Level Waste Disposal The Nuclear Waste Policy Act of 1982 provides a framework and timetable for selection of sites for repositories of high-level radioactive waste (spent nuclear fuel) from United States nuclear plants. The U.S. Department of Energy (DOE) has entered into contracts with the Yankee Companies, the Millstone 3 joint owners, and the Seabrook 1 joint owners for acceptance of title to, and transportation and storage of, this waste. Under these contracts, each operating unit will pay fees to the DOE to cover the development and creation of waste repositories. Fees for fuel burned since April 1983 have been collected by the DOE on an ongoing basis at the rate of one tenth of a cent per kWh of net generation. Fees for generation up through April 1983 were determined by the DOE as follows: $13.2 million for Yankee Atomic, $48.7 million for Connecticut Yankee, $50.4 million for Maine Yankee, and $39.3 million for Vermont Yankee. Neither Millstone 3 nor Seabrook 1 has been assessed any fees for fuel burned through April 1983, because they did not enter commercial operation until 1986 and 1990, respectively. The Yankee Companies had several options to pay these fees. Yankee Atomic paid its fee to the DOE for the period through April 1983. The other three Yankee Companies elected to defer payment until a future date, thereby incurring interest expense. However, payment to the DOE must occur prior to the first delivery of spent fuel. Connecticut, Maine, and Vermont Yankee have segregated a portion of their respective DOE obligations in external accounts. The remainder of the funds have been used to support general capital requirements. All expect to separately fund in full in external accounts their DOE obligation (including accrued interest) prior to payment to the DOE. To the extent that any of the three Yankee Companies is unable to fully meet its DOE obligation at the prescribed time, NEP might be required to provide additional funds. Prior to such time that the DOE takes delivery of a plant's spent nuclear fuel, it is stored on site in spent fuel pools. Maine Yankee, Millstone 3, Seabrook 1, and Vermont Yankee are in the process of reconfiguring their spent fuel pools to allow for additional storage capability. Upon successful completion of the reconfiguring, Maine Yankee and Millstone 3 will have sufficient spent fuel pool capacity to support plant operation through the expiration of their respective current NRC license. Seabrook 1's licensed storage capacity will allow a full core discharge until 2011. Vermont Yankee will be able to maintain a full core discharge capability until 2004. Yankee Atomic has adequate on-site storage capacity for all its spent fuel. Federal legislation enacted in 1987 directed the DOE to proceed with the studies necessary to develop and operate a permanent high-level waste disposal site at Yucca Mountain, Nevada. There is local opposition to development of this site. Although originally scheduled to open in 1998, the DOE currently estimates that the permanent disposal site is not expected to open before 2015. Nuclear waste legislation mandating DOE acceptance of spent fuel at an interim storage site in Nevada by January 1, 1998 was passed by the U.S. Senate in July 1996, but the House failed to vote on any waste bill prior to adjourning for the year. Therefore, new legislation will be considered in the next (105th) Congress. On July 23, 1996, the U.S. Court of Appeals for the District of Columbia Circuit issued its decision in a lawsuit petitioning the Court to declare the 1998 contract date a binding legal obligation. The Court stated that the DOE is obligated "to start disposing Spent Nuclear Fuel no later than January 31, 1998." The Court's decision did not specify a plan for ensuring that the DOE meets its obligations, but rather noted that it was premature to determine the appropriate remedy since the DOE had not yet defaulted upon either its statutory or contractual obligation. The DOE did not file an appeal by the October 22, 1996 deadline and its next course of action is unclear. On November 12, 1996, a group consisting of 40 agencies from 29 states and several municipal utilities sent a letter to the DOE asking what procedures and schedule the DOE will implement to comply with the court decision obligating DOE to begin taking spent fuel in 1998. On January 31, 1997, 36 utilities and 33 states filed lawsuits against DOE in the U.S. Court of Appeals for the District of Columbia Circuit. The plaintiffs want to suspend payments to the Nuclear Waste Fund until DOE begins taking spent fuel. The payment would instead be made to special escrow accounts. The petitioners in the lawsuits requested that the court review the above decision in which the same court ruled that the January 31, 1998 contract date was binding and order DOE to prepare a plan to begin taking spent fuel by that date. They also requested that the court order DOE to submit that plan to the court within 30 days of the ruling. Lastly, the plaintiffs requested that the court protect them from any retaliatory action by DOE by not allowing DOE to suspend or terminate the waste acceptance contracts of utilities participating in the lawsuit, or to penalize suspended payments. The legislation enacted in 1987 also provides for the development of a Monitored Retrievable Storage (MRS) facility and abandons plans to identify and select a second, permanent disposal site. An MRS facility would provide temporary storage for high-level waste prior to eventual permanent disposal. Pending new legislation filed in the next Congress, it is not known when an MRS facility would begin accepting deliveries. Additional delays due to political and technical problems are likely. Federal authorities have deferred indefinitely the commercial reprocessing of spent nuclear fuel. Low-Level Waste Disposal Federal law allows the states in which the three existing low- level waste disposal sites were located to deny access to nonregional waste generators after 1992. Under the statute, individual states are responsible for finding local sites for disposal or forming regional disposal compacts by defined milestone dates. None of the states in which NEP holds an interest in a nuclear facility has met the statutory milestones toward developing disposal sites. Currently, two low-level waste disposal sites in the U.S. are accepting nonregional waste, Chem-Nuclear Systems, Inc.'s site in Barnwell, South Carolina and Envirocare of Utah, Inc's site in Clive, Utah. The Barnwell facility reopened its services to most nonregional generators on July 1, 1995 and is authorized to remain open until July 1, 2005. In 1996, the South Carolina Supreme Court upheld the constitutionality of the legislative action that reopened Barnwell to nonregional generators. Envirocare began accepting Class A low-level waste in 1995. Class A waste is the least contaminated of the three categories defining low-level waste. The Barnwell facility accepts all three categories of waste. Connecticut Yankee, Maine Yankee, Millstone 3, Seabrook, and Yankee Atomic are currently shipping low-level waste to these sites. The states of Maine and Vermont have established a compact with Texas for the disposal of low-level waste in Hudspeth County, Texas. The compact agreement has been approved in all three states and is now before the U.S. Congress. If Congress approves, the site is expected to begin accepting waste during 1998. While Maine Yankee has been shipping its low-level waste off-site, Vermont Yankee has elected to store low-level waste on-site until that time. The compact releases Maine and Vermont from having to site an in-state disposal facility. Connecticut, Massachusetts, and New Hampshire are still required to pursue local or regional low-level waste disposal facilities. However, Massachusetts suspended its search for a local disposal facility in 1996. Nuclear Insurance The Price-Anderson Act limits the amount of liability claims that would have to be paid in the event of a single incident at a nuclear plant to $8.9 billion (based upon 110 licensed reactors). The maximum amount of commercially available insurance coverage to pay such claims is $200 million. The remaining $8.7 billion would be provided by an assessment of up to $79.3 million per incident levied on each of the participating nuclear units in the United States, subject to a maximum assessment of $10 million per incident per nuclear unit in any year. The maximum assessment, which was most recently adjusted in 1993, is adjusted for inflation at least every five years. NEP's current interest in Maine Yankee, Vermont Yankee, Millstone 3, and Seabrook 1 would subject NEP to a $58.0 million maximum assessment per incident. NEP's payment of any such assessment would be limited to a maximum of $7.3 million per incident per year. As a result of the permanent cessation of power operation of the Yankee Atomic plant, Yankee Atomic has received from the NRC a partial exemption from obligations under the Price-Anderson Act. However, Yankee Atomic must continue to maintain $100 million of commercially available nuclear insurance coverage. Connecticut Yankee is planning to file with the NRC for a similar exemption. Each of the nuclear units in which NEP has an ownership interest also carries nuclear property insurance to cover the costs of property damage, decontamination or premature decommissioning, and workers' claims resulting from a nuclear incident. These policies may require additional premium assessments if losses relating to nuclear incidents at units covered by this insurance occurring in a prior six-year period exceed the accumulated funds available. NEP's maximum potential exposure for these assessments, either directly, or indirectly through purchased power payments to the Yankee Companies, is approximately $11 million per year. Other Items Federal legislation requires emergency response plans, approved by federal authorities, for nuclear generating units. The Yankee Companies, Seabrook 1, and Millstone 3 are not currently experiencing difficulty in maintaining approval of their emergency response plans. REGULATORY AND ENVIRONMENTAL MATTERS Regulation Numerous activities of NEES and its subsidiaries are subject to regulation by various federal agencies. Under the 1935 Act, many transactions of NEES and its subsidiaries are subject to the jurisdiction of the SEC. With the intensifying competitive pressures within the electric utility industry, there has been increasing debate about modifying or repealing the 1935 Act. The System supports its repeal. Under the Federal Power Act, certain electric subsidiaries of NEES are subject to the jurisdiction of the FERC with respect to rates, accounting, and hydroelectric facilities. In addition, the NRC has broad jurisdiction over nuclear units and federal environmental agencies have broad jurisdiction over environmental matters. The electric utility subsidiaries of NEES are also subject to the jurisdiction of regulatory bodies of the states and municipalities in which they operate. For more information, see: INDUSTRY RESTRUCTURING, page 4, RATES, page 18, Fuel for Generation, page 29, Oil and Gas Operations, page 30, Nuclear Units, page 33, and Environmental Requirements, page 44. Hydroelectric Project Licensing NEP is the largest operator of conventional hydroelectric facilities in New England. Most of NEP's hydroelectric projects are licensed by the FERC. These licenses expire periodically and the projects must be relicensed at that time. NEP's present licenses expire over a period from 2001 to 2020, excluding the Deerfield River Project discussed below. Upon expiration of a FERC license for a hydro project, the project may be taken over by the United States or licensed to the existing, or a new licensee. If the project were taken over, the existing licensee would receive an amount equal to the lesser of (i) fair value of the project or (ii) original cost less depreciation and amounts held in amortization reserves, plus in either case severance damages. The net book value of NEP's hydroelectric projects was $238 million as of December 31, 1996. In the event that a new license is not issued when the existing license expires, FERC must issue annual licenses to the existing licensee which will allow the project to continue operation until a new license is issued. A new license for a project may incorporate operational restrictions and requirements for additional nonpower facilities (e.g., fish passage or recreational facilities) that could affect operation of the project, and may also require additional capital investment. For example, NEP has previously received new licenses for projects on the Connecticut River that involved construction of an extensive system of fish ladders. The license for the 84 MW Deerfield River Project expired at the end of 1993. NEP filed an application for a new license in 1991. NEP has signed, with 15 governmental agencies and advocacy groups, an Offer of Settlement which embodies operational, environmental and recreational conditions acceptable to the parties. In 1996, FERC issued a final environmental impact statement which supports the Offer of Settlement. NEP has received water quality certifications from the Commonwealth of Massachusetts and the State of Vermont needed to complete the FERC relicensing processing. The Vermont certificate was appealed by an advocacy group; however, the appeal has subsequently been settled. On March 25, 1997, the FERC voted to issue NEP a new 40-year license for the project. The next NEP project to require a new license will be the 368 MW Fifteen Mile Falls Project on the Connecticut River in New Hampshire and Vermont. This license expires in 2001. The formal process of preparing an application for a new license began in 1996 with the filing of a Letter of Intent to Relicense with the FERC. In 1994, the FERC adopted a policy statement in which it asserted that it has authority over the decommissioning of licensed hydroelectric projects being abandoned or denied a new license. However, the FERC has recognized in the process leading to the policy statement that mandated project removal would occur in only rare circumstances. The FERC also declined to require any generic funding mechanism to cover decommissioning costs. If a project is decommissioned, the licensee may incur substantial costs. Environmental Requirements Existing Operations The NEES subsidiaries are subject to federal, state, and local environmental regulation of, among other things, wetlands and flood plains; air and water quality; storage, transportation, and disposal of hazardous wastes and substances; underground storage tanks; and land-use. It is likely that the stringency of environmental regulation affecting the System and its operations will increase in the future. Siting and Construction Activities for New Facilities All New England states require, in certain circumstances, regulatory approval for site selection or construction of electric generating and major transmission facilities. Connecticut, Maine, Massachusetts, New Hampshire, and Rhode Island also have programs of coastal zone management that might restrict construction of power plants and other electrical facilities in, or potentially affecting, coastal areas. All agencies of the federal government must prepare a detailed statement of the environmental impact of all major federal actions significantly affecting the quality of the environment. The New England states have environmental laws which require project proponents to prepare reports of the environmental impact of certain proposed actions for review by various agencies. The System is not currently constructing generating plants or major transmission facilities. Environmental Expenditures Total System capital expenditures for environmental protection facilities have been substantial. System capital expenditures for such facilities amounted to approximately $51 million in 1994, $39 million in 1995, and $9 million in 1996, including expenditures by NEP of $44 million, $32 million, and $3 million, respectively, for those years. The System estimates that capital expenditures for environmental protection facilities in 1997 and 1998 will not be material to the System. Hazardous Substances 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. 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. NEES subsidiaries currently have in place an internal environmental audit program and an external waste disposal vendor audit and qualification program intended to enhance compliance with existing federal, state, and local requirements regarding the handling of potentially hazardous products and by- products. NEES and/or its subsidiaries have been named as potentially responsible parties (PRPs) by either the U.S. Environmental Protection Agency (EPA) or the Massachusetts Department of Environmental Protection for 23 sites at which hazardous waste is alleged to have been disposed. Private parties have also contacted or initiated legal proceedings against NEES and certain subsidiaries regarding hazardous waste cleanup. The most prevalent types of hazardous waste sites with which NEES and its subsidiaries have been associated are manufactured gas locations. (Until the early 1970s, NEES was a combined electric and gas holding company system.) NEES is aware of approximately 40 such manufactured gas locations (including nine of the 23 locations for which NEES companies have been named PRPs) mostly located in Massachusetts. NEES and its subsidiaries are currently aware of other possible hazardous waste sites and may in the future become aware of additional sites, that they may be held responsible for remediating. In 1993, the MDPU approved a settlement agreement regarding the rate recovery of remediation costs of former manufactured gas sites and certain other hazardous waste sites located in Massachusetts. Under that agreement, qualified costs related to these sites are paid out of a special fund established on Mass. Electric's books. Mass. Electric made an initial $30 million contribution to the fund. Rate-recoverable contributions of $3 million, adjusted since 1993 for inflation, are added annually to the fund along with interest and any recoveries from insurance carriers. At December 31, 1996, the fund had a balance of $17 million. Under the 1996 Massachusetts settlement, an additional $15 million will be transferred to the fund in 1997 out of existing reserves for refunds. Predicting the potential costs to investigate and remediate hazardous waste sites continues to be 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. 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. At December 31, 1996, NEES had total reserves for environmental response costs of $48 million and a related regulatory asset of $18 million. NEES believes that hazardous waste liabilities for all sites of which it is aware, and which are not covered by a rate agreement, are not material to its financial position. In October 1996, the American Institute of Certified Public Accountants issued new accounting rules for Environmental Remediation Liabilities which become effective in 1997. NEES does not believe these new rules will have a material effect on NEES's financial position or results of operations. 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. In October 1996, the National Research Council of the National Academy of Sciences released a report stating no conclusive and consistent evidence demonstrates that exposures to residential EMF produce adverse health effects. 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. 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 the impact on the NEES companies would be if this cause of action is recognized in the states in which NEES companies operate and in contexts other than condemnation cases. Air Approximately 45% of NEP's electricity is produced at eight older thermal generating units in Massachusetts. Six are principally fueled by coal, one by oil, and one by oil and gas. The federal Clean Air Act requires significant reduction in utility sulfur dioxide (SO2) and nitrogen oxides (NOx) emissions that result from burning fossil fuels by the year 2000 to reduce acid rain and ground-level ozone (smog). NEP reduced SO2 emissions under Phase 1 of the federal acid rain program and SO2 and NOx emissions under Massachusetts regulations, all of which took effect in 1995. The SO2 and NOx reductions that were made to meet 1995 requirements have resulted in one-time operation and maintenance costs of $21 million and capital costs of $113 million through December 31, 1996. Depending on fuel prices, NEP also expects to incur not more than $5 million annually in increased costs to purchase cleaner fuels to meet SO2 emission reduction requirements. All eight of NEP's thermal units will be subject to Phase 2 of the federal and state acid rain regulations that become effective in 2000. NEP believes that the SO2 controls already installed for the 1995 requirements will satisfy the Phase 2 acid rain regulations. In connection with the federal ozone emission requirements, state environmental agencies in ozone nonattainment areas are developing a second phase of NOx reduction regulations that would have to be fully implemented by NEP no later than 1999. While the exact costs are not known, NEP estimates that the cost of implementing these regulations would not jeopardize continued operation of NEP's units. The generation of electricity from fossil fuel also emits trace amounts of certain hazardous air pollutants and fine particulates. An EPA study of utility hazardous air pollutant emissions is expected to be completed in 1997. The study's conclusions could lead to new emission standards requiring costly controls or fuel restrictions on NEP plants. At this time, NEES and its subsidiaries cannot estimate the impact the findings of this research might have on NEP's operations. In 1995, the NEES companies and the DOE executed an accord pursuant to the Climate Challenge Program, a joint voluntary effort of the DOE and the electric utility industry. Under the accord, the NEES companies committed to reduce greenhouse gas emissions 20% below 1990 levels by 2000. Climate Challenge is a component of President Clinton's Climate Change Action Plan. Water The federal Clean Water Act prohibits the discharge of any pollutant (including heat), except in compliance with a discharge permit issued by the states or the EPA for a term of no more than five years. NEP and Narragansett have received required permits for all their steam-generating plants. NEET has received its required surface water discharge permits for all of its current operations. NEES facilities store substantial amounts of oil and are required to have spill prevention control and counter-measure (SPCC) plans. Currently, major System facilities such as Brayton Point and Salem Harbor have up-to-date SPCC plans. A comprehensive study of smaller facilities has been completed to determine the appropriate plans for these facilities and a five-year implementation plan is under way. In October 1996, the EPA announced it was beginning a process to determine whether to modify or revoke NEP's water discharge permit for its Brayton Point 1,576 megawatt power plant. This action came two years before the permit expiration date. The EPA stated it took this step in response to a request from the Rhode Island Department of Environmental Management (RIDEM) that action be taken on the Brayton Point permit prior to its 1998 renewal, based on concerns raised in a final RIDEM report issued in October 1996. The report asserted a statistical correlation between the decline in the fish population in Mount Hope Bay and a change in operations at Brayton Point that occurred in the mid-1980's. In February 1997, NEP signed a memorandum of agreement negotiated with the various federal and state environmental agencies under which NEP will voluntarily operate under more stringent conditions than under its existing permit. The agreement is in lieu of any immediate action on the permit, but will cover only the months of February and March 1997. During this time, the parties will continue to work toward a longer-term solution. NEP cannot predict at this time what permit changes will be required or the impact on Brayton Point's operations and economics. However, permit changes may substantially impact the plant's capacity and ability to produce energy as well as require significant capital expenditures of tens of millions of dollars to construct equipment to address the concerns raised by the environmental agencies. Nuclear The NRC, along with other federal and state agencies, has extensive regulations pertaining to environmental aspects of nuclear reactors. Safety aspects of nuclear reactors, including design controls and inspection programs to mitigate any possibility of nuclear accidents and to reduce any damages therefrom, are also subject to NRC regulation. See Nuclear Units, page 33. CONSTRUCTION AND FINANCING Estimated construction expenditures (including nuclear fuel) for the System's electric utility companies are shown below for 1997 through 1999. The System conducts a continuing review of its construction and financing programs. These programs and the estimates shown below are subject to revision based upon changes in assumptions as to System load growth, rates of inflation, receipt of adequate and timely rate relief, the availability and timing of regulatory approvals, new environmental and legal or regulatory requirements, total costs of major projects, and the availability and costs of external sources of capital.
Estimated Construction Expenditures ----------------------------------- 1997 1998 1999 Total ---- ---- ---- ----- (In Millions - excluding AFDC) NEP - --- Generation (1)(2) 20 20 10 50 Transmission 50 50 50 150 ---- ---- ---- ---- Total NEP 70 70 60 200 ---- ---- ---- ---- Mass. Electric - -------------- Distribution 95 90 95 280 Narragansett - ------------ Transmission 5 5 5 15 Distribution 40 35 35 110 ---- ---- ---- ---- Total Narragansett 45 40 40 125 ---- ---- ---- ---- Granite State - ------------- Distribution 5 4 4 13 ---- ---- ---- ---- Nantucket - --------- Distribution 15 1 1 17 ---- ---- ---- ---- Combined Total - -------------- Generation (1)(2) 20 20 10 50 Transmission 55 55 55 165 Distribution 155 130 135 420 ---- ---- ---- ---- Grand Total 230 205 200 635 ---- ---- ---- ---- (1) Includes nuclear fuel. (2) Due to the NEES companies' pending divestiture of the generating business, estimated generation construction expenditures would substantially decrease. For more information, see INDUSTRY RESTRUCTURING, page 4.
Financing All of NEP's construction expenditures during the period from 1997 to 1999 will be financed by internally generated funds. The proportion of the Distribution Companies' construction expenditures estimated to be financed by internally generated funds during the period from 1997 to 1999 is: Mass. Electric 90% Narragansett 75% Granite State 75% Nantucket 100% The general practice of the operating subsidiaries of NEES has been to finance construction expenditures in excess of internally generated funds initially by issuing unsecured short-term debt. This short-term debt is subsequently reduced through sales by such subsidiaries of long-term debt securities and preferred stock, and through capital contributions from NEES to the subsidiaries. NEES, in turn, generally has financed capital contributions to the operating subsidiaries through retained earnings and the sale of additional NEES shares. Since April 1991, NEES has been meeting all of the requirements of its dividend reinvestment and common share purchase plan and employee share plans through open market purchases. Under these plans, NEES may revert to the issuance of new common shares at any time. The ability of NEP and the Distribution Companies to issue short-term debt is limited by regulatory restrictions, by provisions contained in their charters, and by certain debt and other instruments. Under the charters or by-laws of NEP, Mass. Electric, and Narragansett, short-term debt is limited to 10% of capitalization. The preferred stockholders authorized these limitations to be increased to 20% of capitalization until 1998 for NEP and Narragansett, and until 1999 for Mass. Electric, at which time the limits will revert to 10% of capitalization. The following table summarizes the short-term debt limits at December 31, 1996, and the amount of outstanding short-term debt and lines of credit and standby bond facilities at such date.
($ millions) Lines of Credit/ Standby Bond Limit Outstanding Facilities ----- ----------- ---------------- NEP 335 94 530 Mass. Electric 150 44 90 Narragansett 100 19 41 Granite State 10 5 7 Nantucket 5 1.5 3
NEES and certain subsidiaries, with regulatory approval, operate a money pool to more effectively utilize cash resources and to reduce outside short-term borrowings. Short-term borrowing needs are met first by available funds of the money pool participants. Borrowing companies pay interest at a rate designed to approximate the cost of outside short-term borrowings. Companies which invest in the pool share the interest earned on a basis proportionate to their average monthly investment in the money pool. Funds may be withdrawn from or repaid to the pool at any time without prior notice. At December 31, 1996, NEP, Mass. Electric, Narragansett, and Granite State each had money pool borrowings of approximately $5 million. In order to issue additional long-term debt and preferred stock, NEP and the Distribution Companies, excluding Nantucket, must comply with earnings coverage requirements contained in their respective mortgages, note agreements, and preference provisions. The most restrictive of these provisions in each instance generally requires (1) for the issuance of additional mortgage bonds by NEP, Mass. Electric, and Narragansett, for purposes other than the refunding of certain outstanding mortgage bonds, a minimum earnings coverage (before income tax) of twice the pro forma annual interest charges on mortgage bonds, and (2) for the issuance of additional preferred stock by NEP, Mass. Electric, and Narragansett, minimum gross income coverage (after income tax) of one and one-half times pro forma annual interest charges and preferred stock dividends, in each case for a period of twelve consecutive calendar months within the fifteen calendar months immediately preceding the proposed new issue. The respective long-term debt and preferred stock coverages of NEP and the Distribution Companies, excluding Nantucket, under their respective mortgage indentures, note agreements, and preference provisions, are stated in the following table for the past three years:
Coverage ----------------------- 1996 1995 1994 ---- ---- ---- NEP - --- General and Refunding Mortgage Bonds 4.16 4.05 4.13 Preferred Stock 2.47 2.45 2.60 Mass. Electric - -------------- First Mortgage Bonds 3.25 2.82 3.65 Preferred Stock 1.93 1.71 2.02 Narragansett - ------------ First Mortgage Bonds 3.22 3.10 2.16 Preferred Stock 2.04 2.01 1.61 Granite State - ------------- Notes (1) 2.82 2.38 2.26 (1) As defined under the most restrictive note agreement.
RESEARCH AND DEVELOPMENT Expenditures for the System's research and development activities totaled $8.3 million, $7.5 million, and $5.5 million in 1994, 1995, and 1996, respectively. Total expenditures are expected to be about $7.6 million in 1997. About 39% of these expenditures support the Electric Power Research Institute, which conducts research and development activities on behalf of its sponsors and provides the System with access to a wide range of relevant research results at minimum cost. The System also directly funds research projects of a more site-specific concern to the System and its customers. These projects include: - creating options to maintain electric service quality and reliability for customers at the lowest cost; - developing conservation, load control, and rate design measures that will help customers use electric energy more efficiently; and - developing, assessing, and demonstrating new technologies and fuels that will ensure economic, efficient and environmentally sound production and delivery of electric energy in the future. EXECUTIVE OFFICERS NEES - ---- All executive officers are elected to continue in office subject to Article 19 of the Agreement and Declaration of Trust until the first meeting of the Board of Directors following the next annual meeting of shareholders, or the special meeting of shareholders held in lieu of such annual meeting, and until their successors are chosen and qualified. The executive officers also serve as officers and/or directors of various subsidiary companies. John W. Rowe - Age: 51 - President and Chief Executive Officer since 1989 - Elected Chairman of NEP in 1993 - President of NEP from 1991 to 1993 - Chairman of NEP from 1989 to 1991. Alfred D. Houston - Age: 56 - Executive Vice President since 1994 - Senior Vice President-Finance from 1987 to 1994 - Vice President of NEP from 1987 to 1994 - Vice President of Narragansett since 1976 - Treasurer of Narragansett since 1977. Richard P. Sergel - Age: 47 - Elected Senior Vice President in 1996 - Vice President from 1992 to 1995 - Treasurer from 1990 to 1991 - Chairman of Mass. Electric and Narragansett since 1993 - Treasurer of NEP and Mass. Electric from 1990 to 1991 - Vice President of the Service Company from 1988 to 1993. Jeffrey D. Tranen - Age: 50 - Elected Senior Vice President in 1996 - Vice President from 1991 to 1995 - President of NEP since 1993 - Vice President of NEP from 1984 to 1993 - President of Mass. Hydro, N.H. Hydro, and NEET since 1991. Cheryl A. LaFleur - Age: 42 - Vice President, Secretary, and General Counsel since 1995 - Vice President of Mass. Electric from 1993 to 1995 - Vice President of the Service Company - 1992-1993 and since 1995 - Senior Counsel for the Service Company from 1989 to 1991 - Elected Vice President of NEP in 1995. Michael E. Jesanis - Age: 40 - Elected Vice President in 1997 - Treasurer since 1992 - Director of Corporate Finance from 1990 to 1991. NEP - --- The Treasurer is elected by the stockholders to hold office until the next annual meeting of stockholders and until the successor is duly chosen and qualified. The other executive officers are elected by the Board of Directors to hold office subject to the pleasure of the directors and until the first meeting of directors after the next annual meeting of stockholders and until their successors are duly chosen and qualified. Certain officers of NEP are, or at various times in the past have been, officers and/or directors of the System companies with which NEP has entered into contracts and had other business relations. John W. Rowe* - Chairman since 1993 - President from 1991 to 1993 - Chairman from 1989 to 1991. Jeffrey D. Tranen* - President since 1993 - Vice President from 1984 to 1993. Andrew H. Aitken - Age: 52 - Vice President since 1995 - Director of Environmental and Safety for the Service Company since 1993 - Director, Environmental Affairs for the Service Company from 1981 to 1993. Lawrence E. Bailey - Age: 53 - Vice President since 1989 - Plant Manager of Brayton Point Station from 1987 to 1991. Jeffrey A. Donahue - Age: 38 - Vice President since 1993 - Elected President of NEERI in 1996 - various engineering positions with the Service Company since 1983 - Director of Construction since 1992 - Chief Electrical Engineer since 1991. Michael E. Hachey - Age: 43 - Elected Vice President in 1997 - Manager of Generation Marketing from 1994 to present - Manager of Independent Power Projects from 1989 to 1993. Cheryl A. LaFleur* - Vice President since 1995. John L. Levett - Age: 47 - Elected Vice President in 1996 - Elected President of NEERI International in 1996 - President of NEERI from 1994 to 1996 - Manager of Generation Marketing for the Service Company from 1992 to 1993. John F. Malley - Age: 48 - Vice President since 1992 - Manager of Generation Planning for the Service Company from 1986 to 1991. Arnold H. Turner - Age: 56 - Vice President since 1989 - Director of Transmission Marketing since 1993. Jeffrey W. VanSant - Age: 43 - Vice President since 1993 - Manager of Oil and Gas Exploration and Development for the Service Company from 1985 to 1993 - Manager of Oil and Gas Procurement from 1992 to 1993 - Manager of Natural Gas Supply from 1989 to 1992. Michael E. Jesanis* - Treasurer since 1992. Howard W. McDowell - Age: 53 - Controller since 1987 - Controller of Mass. Electric and Narragansett since 1987 - Treasurer of Granite State since 1984. *Please refer to the material supplied under the caption EXECUTIVE OFFICERS - NEES for other information regarding this officer. Mass. Electric - -------------- The Treasurer is elected by the stockholders to hold office until the next annual meeting of stockholders and until the successor is duly chosen and qualified. The other executive officers are elected by the board of directors to hold office subject to the pleasure of the directors and until the first meeting of the directors after the next annual meeting of stockholders. Certain officers of Mass. Electric are, or at various times in the past have been, officers and directors of System companies with which Mass. Electric has entered into contracts and had other business relations. Richard P. Sergel* - Chairman since 1993. Lawrence J. Reilly - Age: 41 - Elected President in 1996 - Elected President of Granite State in 1997 - Elected President of Nantucket in 1996 - Vice President for the Service Company from 1993 to 1996 - Director of Rates for the Service Company from 1990 to 1996. John C. Amoroso - Age: 58 - Vice President since 1993 - District Manager, Southeast District from 1992 to 1993 - Manager, Southeast District from 1985 to 1992. Eric P. Cody - Age: 46 - Vice President since 1995 - Vice President and Director, Information Services for the Service Company from 1991 to 1995. Charles H. Moser - Age: 56 - Vice President since 1993 - Chief Protection and Planning Engineer for the Service Company from 1984 to 1993. Lydia M. Pastuszek - Age: 43 - Vice President since 1993 - Vice President of NEP from 1990 to 1993 - President of Granite State from 1990 to 1996. Anthony C. Pini - Age: 44 - Vice President since 1993 - Assistant Controller for the Service Company from 1985 to 1993. Christopher E. Root - Age: 38 - Vice President since 1995 - Director, Retail Distribution Services for the Service Company from 1993 to 1995 - Chief of Division Engineering for the Service Company from 1992 to 1993 - Manager, Distribution Engineering for Narragansett from 1990 to 1992. Nancy H. Sala - Age: 45 - Vice President since 1992 - Assistant to the President of Mass. Electric from 1990 to 1992. Dennis E. Snay - Age: 55 - Vice President since 1990. Michael E. Jesanis* - Treasurer since 1992. Howard W. McDowell - Controller since 1987 and Assistant Treasurer since 1977 - Reference is made to the material supplied under the caption EXECUTIVE OFFICERS - NEP for other information regarding Mr. McDowell. *Please refer to the material supplied under the caption EXECUTIVE OFFICERS - NEES for other information regarding this officer. Narragansett - ------------ Officers are elected by the board of directors or appointed, as appropriate, to serve until the meeting of directors following the annual meeting of stockholders, and until their successors are chosen and qualified. Officers other than the President, Treasurer, and Secretary, serve also at the pleasure of the directors. Certain officers of Narragansett are, or at various times in the past have been, officers and directors of System companies with which Narragansett has entered into contracts and had other business relations. Richard P. Sergel* - Chairman since 1993. Robert L. McCabe - Age: 55 - President since 1986. William Watkins, Jr. - Age: 64 - Executive Vice President since 1992 - Vice President of the Service Company from 1980 to 1992. Richard W. Frost - Age: 57 - Vice President since 1993 - District Manager - Southern District from 1990 to 1993. Alfred D. Houston* - Vice President since 1976 - Treasurer since 1977. Shannon M. Larson - Age: 39 - Elected Vice President in 1996 - Manager of Retail Marketing from 1995 to 1996 - Coordinator of Emerging Markets from 1994 to 1995 - Manager of Conservation and Load Management from 1990 to 1993 - Principal Analyst for the Service Company from 1993 to 1994. Richard Nadeau - Age: 61 - Vice President since 1994 - Director of Customer Service since 1993 - Assistant to the President from 1990 to 1993. Michael F. Ryan - Age: 45 - Vice President since 1994 - Rhode Island Director for U.S. Senator John H. Chafee from 1986 to 1994. Howard W. McDowell - Controller since 1987 - Reference is made to the material supplied under the caption EXECUTIVE OFFICERS - NEP for other information regarding Mr. McDowell. *Please refer to the material supplied under the caption EXECUTIVE OFFICERS - NEES for other information regarding this officer. Item 2. PROPERTIES See Item 1. Business - Generation, Transmission, and Distribution Properties, page 24. Item 3. LEGAL PROCEEDINGS In August 1995, the Massachusetts Superior Court dismissed a lawsuit filed against NEP in May 1995 by Keystone Shipping Company (Keystone), which had challenged NEP's right to terminate NEP's charter of a ship owned by Keystone's affiliate, Intercoastal Bulk Carriers (IBC), and to purchase the ship from IBC. In addition, that month an arbitration panel unanimously ruled against IBC, holding that NEP had such rights under the charter. Keystone and IBC challenged both rulings, but in September 1995, the parties entered into a settlement in which Keystone and IBC dismissed their claims against NEP. Thereafter, the ship was sold to an affiliate of International Shipholding Corporation, with whom NEP had entered into a new charter, and was sent to dry dock for inspection and routine maintenance. The inspection revealed that further work was needed to make the ship seaworthy. Under NEP's charter with IBC, these costs, which are estimated to be in excess of $10 million, are IBC's responsibility. NEP therefore initiated arbitration against both IBC and Keystone before the same panel. Keystone has filed suit in federal district court seeking to stay the arbitration as to Keystone. The federal district court denied Keystone's motion to have the arbitration stayed with respect to Keystone. Keystone has appealed the denial to the First Circuit Court of Appeals. The First Circuit heard argument on the matter early in the year; a decision is awaited. Hearings before the arbitration panel are under way. Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of security holders during the last quarter of 1996. PART II Item 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SECURITY HOLDER MATTERS NEES information in response to the disclosure requirements specified by this Item 5. appears under the captions in the NEES Annual Report indicated below: Required Information Annual Report Caption -------------------- --------------------- (a) Market Information Shareholder Information (b) Holders Shareholder Information (c) Dividends Financial Results The information referred to above is incorporated by reference in this Item 5. NEP, Mass. Electric, and Narragansett - The information required by this item is not applicable as the common stock of all these companies is held solely by NEES. Information pertaining to payment of dividends and restrictions on payment of dividends is incorporated herein by reference to each company's 1996 Annual Report. Item 6. SELECTED FINANCIAL DATA NEES ---- The information required by this item is incorporated herein by reference to page 26 of the NEES 1996 Annual Report. NEP --- The information required by this item is incorporated herein by reference to page 46 of the NEP 1996 Annual Report. Mass. Electric -------------- The information required by this item is incorporated herein by reference to page 30 of the Mass. Electric 1996 Annual Report. Narragansett ------------ The information required by this item is incorporated herein by reference to page 29 of the Narragansett 1996 Annual Report. Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. NEES ---- The information required by this item is incorporated herein by reference to pages 16 through 25 of the NEES 1996 Annual Report. NEP --- The information required by this item is incorporated herein by reference to pages 3 through 16 of the NEP 1996 Annual Report. Mass. Electric -------------- The information required by this item is incorporated herein by reference to pages 3 through 9 of the Mass. Electric 1996 Annual Report. Narragansett ------------ The information required by this item is incorporated herein by reference to pages 3 through 9 of the Narragansett 1996 Annual Report. Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA NEES ---- The information required by this item is incorporated herein by reference to pages 26 through 46 of the NEES 1996 Annual Report. NEP --- The information required by this item is incorporated herein by reference to pages 1, 16 through 44, and 46 of the NEP 1996 Annual Report. Mass. Electric -------------- The information required by this item is incorporated herein by reference to pages 1, 10 through 28, and 30 of the Mass. Electric 1996 Annual Report. Narragansett ------------ The information required by this item is incorporated herein by reference to pages 1, 10 through 27, and 29 of the Narragansett 1996 Annual Report. Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE NEES, NEP, Mass. Electric, and Narragansett - None. PART III Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT NEES ---- The information required by this item is incorporated herein by reference to the material under the caption ELECTION OF DIRECTORS in the definitive proxy statement of NEES, dated March 10, 1997, for the 1997 Annual Meeting of Shareholders, provided that the information under the headings "Compensation Committee Report on Executive Compensation" and "Corporate Performance" are not so incorporated. Reference is also made to the information under the caption EXECUTIVE OFFICERS - NEES in Part I of this report. NEP --- The names of the directors of NEP, their ages, and a brief account of their business experience during the past five years appear below. Information required by this item for Executive Officers is provided under the caption EXECUTIVE OFFICERS - NEP in Part I of this report. Directors are elected to hold office until the next annual meeting of stockholders or special meeting held in lieu thereof and until their respective successors are chosen and qualified. Joan T. Bok - Director since 1979 - Age: 67 - Chairman of the Board of NEES - Chairman or Vice Chairman of the Company from 1988 to 1994 - Chairman of NEES from 1984 to 1994 (Chairman, President, and Chief Executive Officer from July 26, 1988 until February 13, 1989). Directorships of NEES System companies: New England Electric System, Granite State Electric Company, Granite State Energy, Inc., Massachusetts Electric Company, Nantucket Electric Company, The Narragansett Electric Company, Narragansett Energy Resources Company, NEES Communications, Inc., NEES Energy, Inc., New England Electric Resources, Inc., New England Electric Transmission Corporation, New England Energy Incorporated, New England Hydro Finance Company, Inc., New England Hydro-Transmission Corporation, New England Hydro-Transmission Electric Company, Inc., and New England Power Service Company. Other directorships: Avery Dennison Corporation, John Hancock Mutual Life Insurance Company, and Monsanto Company. Alfred D. Houston* - Director since 1984. Directorships of NEES System companies: Granite State Energy, Inc., Nantucket Electric Company, Narragansett Energy Resources Company, NEERI International, NEES Communications, Inc., NEES Energy, Inc., New England Electric Resources, Inc., New England Electric Transmission Corporation, New England Energy Incorporated, New England Hydro Finance Company, Inc., New England Hydro-Transmission Corporation, New England Hydro-Transmission Electric Company, Inc., and New England Power Service Company. Mr. Houston also serves as a member representative for NEES Energy, Inc. on the Member's Committee of AllEnergy Marketing Co., LLC. Cheryl A. LaFleur* - Director since December 31, 1995. Directorships of NEES System companies: Granite State Energy, Inc., Narragansett Energy Resources Company, NEES Communications, Inc., NEES Energy, Inc., New England Electric Resources, Inc., New England Electric Transmission Corporation, New England Energy Incorporated, New England Hydro Finance Company, Inc., New England Hydro-Transmission Corporation, New England Hydro- Transmission Electric Company, Inc., and New England Power Service Company. Ms. LaFleur also serves as a member representative for NEES Energy, Inc. on the Member's Committee of AllEnergy Marketing Co., LLC. John W. Rowe* - Director since 1989. Directorships of NEES System companies and affiliates: Granite State Energy, Inc., New England Electric System, Massachusetts Electric Company, The Narragansett Electric Company, Narragansett Energy Resources Company, NEES Communications, Inc., NEES Energy, Inc., New England Electric Resources, Inc., New England Electric Transmission Corporation, New England Energy Incorporated, New England Hydro Finance Company, Inc., New England Hydro-Transmission Corporation, New England Hydro-Transmission Electric Company, Inc., New England Power Service Company, and Maine Yankee Atomic Power Company. Other directorships: Bank of Boston Corporation and UNUM Corporation. Mr. Rowe also serves as a member representative for NEES Energy, Inc. on the Member's Committee of AllEnergy Marketing Co., LLC. Jeffrey D. Tranen* - Director since 1991. Directorships of NEES System affiliates: Granite State Energy, Inc., Narragansett Energy Resources Company, NEES Energy, Inc., New England Electric Resources, Inc., New England Electric Transmission Corporation, New England Energy Incorporated, New England Hydro Finance Company, Inc., New England Hydro- Transmission Corporation, New England Hydro-Transmission Electric Company, Inc., and New England Power Service Company. *Please refer to the material supplied under the caption EXECUTIVE OFFICERS - NEES and EXECUTIVE OFFICERS - NEP in Part I of this report for other information regarding this director. Mass. Electric -------------- The names of the directors of Mass. Electric, their ages, and a brief account of their business experience during the past five years appear below. Information required by this item for Executive Officers is provided under the caption EXECUTIVE OFFICERS - - Mass. Electric in Part I of this report. Directors are elected to hold office until the next annual meeting of stockholders or special meeting held in lieu thereof and until their respective successors are chosen and qualified. Urville J. Beaumont - Director since 1984 - Age: 65 - Treasurer and Director, law firm of Beaumont & Campbell, P.A. Joan T. Bok* - Director since 1979. Sally L. Collins - Director since 1976 - Age: 61 - Director of Workplace Health Services since 1993 - Health Services Administrator at Kollmorgen Corporation EOD from 1985 to 1993. Kalyan K. Ghosh - Director since 1995 - Age: 59 - President of Worcester State College since 1992 - CEO and Acting President, Worcester State College from 1990 to 1992. Charles B. Housen - Director since 1979 - Age: 64 - Chairman, President, and Director of Erving Industries, Inc., Erving, Mass. Patricia McGovern - Director since 1994 - Age: 55 - Director of law firm of Goulston & Storrs, P.C. since 1995 - Counsel to Goulston & Storrs, P.C. from 1993 to 1995 - Massachusetts State Senator and Chair of the Senate Ways and Means Committee from 1985 to 1992. John F. Reilly - Director since 1988 - Age: 64 - President, Director, and CEO of Fred C. Church, Inc., Lowell, Mass. - Other directorships: Colonial Gas Company, Family Bank, and New England Insurance Co., Ltd. Lawrence J. Reilly - Elected Director in 1996 - Reference is made to material supplied under the caption EXECUTIVE OFFICERS - Mass. Electric for other information regarding Mr. Reilly. John W. Rowe* - Director since 1989. Richard P. Sergel* - Director since 1993. Roslyn M. Watson - Director since 1992 - Age: 47 - President of Watson Ventures (commercial real estate development and management) Boston, Mass. since 1993 - Vice President of the Gunwyn Company (commercial real estate development) Cambridge, Mass. from 1986 - 1993 - Other directorships: The Dreyfus Laurel Funds and American Express Centurion Bank. *Please refer to the material supplied under the caption EXECUTIVE OFFICERS - NEES in Part I of this report and/or the material supplied under the caption DIRECTORS AND OFFICERS OF THE REGISTRANT - NEP in this Item for other information regarding this director. Narragansett ------------ The names of the directors of Narragansett, their ages, and a brief account of their business experience during the past five years appear below. Information required by this item for Executive Officers is provided under the caption EXECUTIVE OFFICERS - - Narragansett in Part I of this report. Directors are elected to hold office until the next annual meeting of stockholders or special meeting held in lieu thereof and until their respective successors are chosen and qualified. Joan T. Bok* - Director since 1979. Stephen A. Cardi - Director since 1979 - Age: 55 - Treasurer of Cardi Corporation (construction), Warwick, R.I. Frances H. Gammell - Director since 1992 - Age: 47 - Director, Senior Vice President, Chief Financial Officer, Treasurer, and Secretary of Original Bradford Soap Works, Inc. Joseph J. Kirby - Director since 1988 - Age: 65 - Chairman and Chief Executive Officer of Washington Trust Bancorp, Inc., Westerly, R.I. and Chairman and Chief Executive Officer of the Washington Trust Company. Robert L. McCabe - President and Director of Narragansett since 1986 - Other directorship: Citizens Savings Bank - Please refer to the material supplied under the caption EXECUTIVE OFFICERS - Narragansett in Part I of this report for other information regarding Mr. McCabe. John W. Rowe* - Director since 1989. Richard P. Sergel* - Chairman and Director since 1993. William E. Trueheart - Director since 1989 - Age: 54 - Visiting Scholar, Harvard University Graduate School of Education since 1996 - President of Bryant College, Smithfield, Rhode Island from 1989 to 1996. John A. Wilson, Jr. - Director since 1971 - Age: 67 - Consultant to and former President of Wanskuck Co., Providence, R.I., - Consultant to Hinckley, Allen, Tobin & Silverstein (attorneys), Providence, R.I. *Please refer to the material supplied under the caption DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT - NEP in this Item for other information regarding this director. Section 16(a) of the Securities Exchange Act of 1934 requires the System's officers and directors, and persons who own more than 10% of a registered class of the System's equity securities, to file reports on Forms 3, 4, and 5 of share ownership and changes in share ownership with the SEC and the New York Stock Exchange and to furnish the System with copies of all Section 16(a) forms they file. Based solely on NEP's, Mass. Electric's, and Narragansett's review of the copies of such forms received by them, or written representations from certain reporting persons that such forms were not required for those persons, NEP, Mass. Electric, and Narragansett believe that, during 1995, all filing requirements applicable to its officers, directors, and 10% beneficial owners were complied with. Item 11. EXECUTIVE COMPENSATION NEES ---- The information required by this item is incorporated herein by reference to the material under the captions BOARD STRUCTURE AND COMPENSATION, EXECUTIVE COMPENSATION, PAYMENTS UPON A CHANGE IN CONTROL, PLAN SUMMARIES, LONG TERM INCENTIVE PLAN - AWARDS IN LAST FISCAL YEAR, and RETIREMENT PLANS in the definitive proxy statement of NEES, dated March 10, 1997, for the 1997 Annual Meeting of Shareholders, provided that the information under the headings "Compensation Committee Report on Executive Compensation" and "Corporate Performance" are not so incorporated. NEP, MASS. ELECTRIC, AND NARRAGANSETT ------------------------------------- EXECUTIVE COMPENSATION The following tables give information with respect to all compensation (whether paid directly by NEP, Mass. Electric, or Narragansett or billed to it as hourly charges) for services in all capacities for NEP, Mass. Electric, or Narragansett for the years 1994 through 1996 to or for the benefit of the Chief Executive Officer and the four other most highly compensated executive officers for each company. NEP SUMMARY COMPENSATION TABLE
Long-Term Compensa- Annual Compensation (b) tion -------------------------- --------- Other Restricted Name and Annual & Deferred All Other Principal Compensa- Share Compensa- Position Year Salary Bonus tion Awards tion (a) ($) ($)(c) ($)(d) ($)(e) ($)(f) - ---------- ---- ------- ------ --------- ---------- --------- John W. 1996 180,096 96,445 3,046 124,047 1,638(g) Rowe 1995 157,070 124,818 2,795 0 1,387 Chairman 1994 211,598 119,716 4,018 67,966 1,911 Jeffrey D. 1996 200,684 100,548 5,002 125,836 3,358(h) Tranen 1995 188,884 135,224 4,972 0 3,377 President 1994 187,356 98,357 5,049 45,804 3,466 Lawrence E. 1996 151,956 101,667 116 0 3,776(i) Bailey 1995 144,720 92,328 116 0 3,598 Vice 1994 140,471 66,510 116 27,484 3,952 President John F. 1996 133,394 104,885 116 0 3,141(j) Malley 1995 127,236 96,261 116 0 2,907 Vice 1994 117,169 65,474 116 27,469 2,996 President Arnold H. 1996 128,172 89,185 116 0 2,849(k) Turner 1995 128,172 65,439 116 0 2,276 Vice 1994 124,428 52,888 116 21,747 2,849 President
(a) Certain officers of NEP are also officers of NEES and various other System companies. (b) Includes deferred compensation in category and year earned. (c) The bonus figure represents: cash bonuses under an incentive compensation plan, the all-employee goals program, the variable match of the incentive thrift plan, including related deferred compensation plan matches, special cash bonuses, and unrestricted shares under the incentive share plan. See descriptions under Plan Summaries. (d) Includes amounts reimbursed by NEP for the payment of taxes. (e) Special share bonuses were made to a limited number of executives in 1996. Under the terms of those awards, the share values were mandatorily deferred until the executives' termination of employment. No awards vested during 1996 under the Long-Term Performance Share Award Plan. The incentive share awards for the named executives made for 1994 were in the form of restricted shares (with a five-year restriction) or deferred share equivalents, deferred for receipt for at least five years, at the executive's option. In 1996 awards for NEES officers were similarly restricted. As cash dividends are declared, the number of deferred share equivalents will be increased as if the dividends were reinvested in shares. None of the shares awarded for 1995 were restricted. As of December 31, 1996, the following executive officers held the amount of restricted and deferred shares with the value indicated: Mr. Rowe 27,022 shares, $942,392 value; Mr. Tranen 7,719 shares, $269,200 value; Mr. Bailey 3,220 shares, $112,298 value; Mr. Malley 2,834 shares, $98,836 value; and Mr. Turner 2,774 shares, $96,743 value. The value was calculated by multiplying the closing market price on December 31, 1996 by the number of shares. (f) Includes NEP contributions to life insurance and the incentive thrift plan that are not bonus contributions, including any related deferred compensation plan match. See description under Plan Summaries. The life insurance contribution is calculated based on the value of term life insurance for the named individuals. The premium costs for most of these policies have been or will be recovered by NEP. (g) For Mr. Rowe, the amount and type of compensation in 1996 is as follows: $1,005 for contributions to the thrift plan and $633 for life insurance. (h) For Mr. Tranen, the amount and type of compensation in 1996 is as follows: $2,735 for contributions to the thrift plan and $623 for life insurance. (i) From Mr. Bailey, the amount and type of compensation in 1996 is as follows: $3,000 for contributions to the thrift plan and $776 for life insurance. (j) For Mr. Malley, the amount and type of compensation in 1996 is as follows: $2,668 for contributions to the thrift plan, and $474 for life insurance. (k) For Mr. Turner, the amount and type of compensation in 1996 is as follows: $2,051 for contributions to the thrift plan and $798 for life insurance. MASS. ELECTRIC SUMMARY COMPENSATION TABLE
Long-Term Compensa- Annual Compensation (b) tion -------------------------- --------- Other Restricted Name and Annual & Deferred All Other Principal Compensa- Share Compensa- Position Year Salary Bonus tion Awards tion (a) ($) ($)(c) ($)(d) ($)(e) ($)(f) - ---------- ---- ------- ------ --------- ---------- --------- Richard P. 1996 135,213 70,388 3,411 87,965 2,247(g) Sergel 1995 123,480 93,047 3,256 0 2,285 Chairman 1994 113,021 63,550 3,307 29,731 2,228 Lawrence J. 1996 96,163 70,177 2,467 46,082 2,250(h) Reilly 1995 38,561 34,985 37 0 986 President 1994 25,576 16,917 26 6,136 563 Eric P. 1996 124,186 79,124 116 0 2,876(i) Cody 1995 67,714 40,590 70 0 1,548 Vice 1994 74,318 37,144 74 15,371 1,726 President Nancy H. 1996 118,251 65,493 116 0 2,730(j) Sala 1995 115,524 59,932 116 0 2,498 Vice 1994 107,621 39,318 116 16,129 2,493 President Anthony C. 1996 114,058 66,117 113 17,258 2,580(k) Pini 1995 111,300 59,993 116 0 2,403 Vice 1994 105,884 43,465 116 17,688 2,454 President
(a) Certain officers of Mass. Electric are also officers of NEES and various other System companies. (b) Includes deferred compensation in category and year earned. (c) The bonus figure represents: cash bonuses under an incentive compensation plan, the all-employee goals program, the variable match of the incentive thrift plan, and unrestricted shares under the incentive share plan or special share bonuses. See descriptions under Plan Summaries. (d) Includes amounts reimbursed by Mass. Electric for the payment of taxes. (e) Special share bonuses were made to a limited number of executives in 1996. Under the terms of those awards, the share values were mandatorily deferred until the executives' termination of employment. No awards vested during 1996 under the Long-Term Performance Share Award Plan. The incentive share awards for the named executives made for 1994 were in the form of restricted shares (with a five-year restriction) or deferred share equivalents, deferred for receipt for at least five years, at the executive's option. In 1996 awards for NEES officers were similarly restricted. As cash dividends are declared, the number of deferred share equivalents will be increased as if the dividends were reinvested in shares. None of the shares awarded for 1995 were restricted. As of December 31, 1996, the following executive officers held the amount of restricted and deferred shares with the value indicated: Mr. Sergel 7,471 shares, $260,551 value; Mr. Reilly 4,677 shares, $163,110 value; Mr. Cody 2,714 shares, $94,651 value; Ms. Sala 1,639 shares, $57,160 value; and Mr. Pini 1,640 shares, $57,195 value. The value was calculated by multiplying the closing market price on December 31, 1996 by the number of shares. (f) Includes Mass. Electric contributions to life insurance and the incentive thrift plan that are not bonus contributions, including any related deferred compensation plan match. See description under Plan Summaries. The life insurance contribution is calculated based on the value of term life insurance for the named individuals. The premium costs for most of these policies have been or will be recovered by Mass. Electric. (g) For Mr. Sergel, the type and amount of compensation in 1996 is as follows: $1,907 for contributions to the thrift plan and $340 for life insurance. (h) For Mr. Reilly, the type and amount of compensation in 1996 is as follows: $1,923 for contributions to the thrift plan and $327 for life insurance. (i) For Mr. Cody, the type and amount of compensation in 1996 is as follows: $2,484 for contributions to the thrift plan and $392 for life insurance. (j) For Ms. Sala, the type and amount of compensation in 1996 is as follows: $2,365 for contributions to the thrift plan and $365 for life insurance. (k) For Mr. Pini, the type and amount of compensation in 1996 is as follows: $2,281 for contributions to the thrift plan and $299 for life insurance. NARRAGANSETT SUMMARY COMPENSATION TABLE
Long-Term Compensa- Annual Compensation (b) tion -------------------------- --------- Other Restricted Name and Annual & Deferred All Other Principal Compensa- Share Compensa- Position Year Salary Bonus tion Awards tion (a) ($) ($)(c) ($)(d) ($)(e) ($)(f) - ---------- ---- ------- ------ --------- ---------- --------- Richard P. 1996 70,998 36,959 1,791 46,188 1,180(g) Sergel 1995 54,821 41,310 1,446 0 1,015 Chairman 1994 50,319 26,293 1,472 13,237 992 Robert L. 1996 127,388 88,905 4,819 50,308 3,424(h) McCabe 1995 152,407 111,785 4,206 0 4,851 President 1994 140,785 68,784 4,457 28,576 4,256 William 1996 132,012 84,081 119 0 4,509(i) Watkins, 1995 128,172 77,967 119 0 4,054 Jr. 1994 124,428 62,799 115 26,136 6,186 Executive Vice President Richard W. 1996 108,432 57,680 119 0 2,888(j) Frost 1995 103,272 48,972 119 0 2,787 Vice 1994 99,300 34,269 115 13,629 2,706 President Richard 1996 100,884 24,830 119 0 3,004(k) Nadeau 1995 95,838 15,500 119 0 2,902 Vice 1994 91,572 11,272 115 3,267 3,037 President
(a) Certain officers of Narragansett are also officers of NEES and various other System companies. (b) Includes deferred compensation in category and year earned. (c) The bonus figure represents: cash bonuses under an incentive compensation plan, the all-employee goals program, the variable match of the incentive thrift plan, and unrestricted shares under the incentive share plan or special share bonuses. See descriptions under Plan Summaries. (d) Includes amounts reimbursed by Narragansett for the payment of taxes. (e) Special share bonuses were made to a limited number of executives in 1996. Under the terms of those awards, the share values were mandatorily deferred until the executives' termination of employment. No awards vested during 1996 under the Long-Term Performance Share Award Plan. The incentive share awards for the named executives made for 1994 were in the form of restricted shares (with a five-year restriction) or deferred share equivalents, deferred for receipt for at least five years, at the executive's option. In 1996 awards for NEES officers were similarly restricted. As cash dividends are declared, the number of deferred share equivalents will be increased as if the dividends were reinvested in shares. None of the shares awarded for 1995 were restricted. As of December 31, 1996, the following executive officers held the amount of restricted and deferred shares with the value indicated: Mr. Sergel 7,471 shares, $260,551 value; Mr. McCabe 6,027 shares, $210,192 value; Mr. Watkins 2,490 shares, $86,839 value; Mr. Frost 895 shares, $31,213 value; and Mr. Nadeau 201 shares, $7,010 value. The value was calculated by multiplying the closing market price on December 31, 1996 by the number of shares. (f) Includes Narragansett contributions to life insurance and the incentive thrift plan that are not bonus contributions, including any related deferred compensation plan match. See description under Plan Summaries. The life insurance contribution is calculated based on the value of term life insurance for the named individuals. The premium costs for most of these policies have been or will be recovered by Narragansett. (g) For Mr. Sergel, the type and amount of compensation in 1996 is as follows: $1,001 for contributions to the thrift plan and $179 for life insurance. (h) For Mr. McCabe, the type and amount of compensation in 1996 is as follows: $2,165 for contributions to the thrift plan and $1,259 for life insurance. (i) For Mr. Watkins, the type and amount of compensation in 1996 is as follows: $2,640 for contributions to the thrift plan and $1,869 for life insurance. (j) For Mr. Frost, the type and amount of compensation in 1996 is as follows: $2,169 for contributions to the thrift plan and $719 for life insurance. (k) For Mr. Nadeau, the type and amount of compensation in 1996 is as follows: $2,018 for contributions to the thrift plan and $986 for life insurance. Directors' Compensation Members of the Mass. Electric and Narragansett Boards of Directors, except employees of NEES System companies, i.e., Messrs. McCabe, L. J. Reilly, Rowe, and Sergel, receive a quarterly retainer of $1,500, a meeting fee of $600 plus expenses, and 50 NEES common shares each year. Since all members of the NEP Board are employees of NEES System companies, no fees are paid for service on the Board except as noted below for Mrs. Bok. Mrs. Bok retired as an employee of the System on January 1, 1994 (remaining as Chairman of the Board of NEES and a director for NEES subsidiaries). Mrs. Bok has agreed to waive the normal fees and annual retainers otherwise payable for services by nonemployees on NEES subsidiary boards and receives in lieu thereof a single annual stipend of $60,000. Mrs. Bok also serves as a consultant to NEES. Under the terms of her contract, she receives an annual retainer of $100,000. Mass. Electric and Narragansett permit directors to defer all or a portion of any cash retainers, meeting fees, and retainer shares under a deferred compensation plan. A director may elect to defer to a NEES Share Account or a Prime Rate Account. While deferred, the shares do not have voting rights or other rights associated with ownership. At the time of electing to defer compensation, the director also elects whether to receive payment after ten years or upon retirement, and, if upon retirement, whether in ten payments or a lump sum. Special accounts are maintained on Mass. Electric's and Narragansett's books showing the amounts deferred and the interest or dividends accrued thereon. Director contributions to qualified charities are matched by the Company under a matching gift program, which has a maximum limit of $3,500. Other NEP, Mass. Electric, and Narragansett do not have any share option plans. The NEES Compensation Committee administers certain of the incentive compensation plans, and the Management Committee administers the others (including the incentive share plan). Retirement Plans The following table shows estimated annual benefits payable to executive officers under the qualified pension plan and the supplemental retirement plan, assuming retirement at age 65 in 1997. PENSION TABLE
Five-Year Average 10 Years 15 Years 20 Years 25 Years 30 Years 35 Years Compensa- of of of of of of tion Service Service Service Service Service Service - --------- -------- -------- -------- -------- -------- -------- $100,000 19,000 27,500 36,100 44,300 52,600 57,600 $150,000 29,400 42,600 55,800 68,600 81,400 89,300 $200,000 39,700 57,600 75,500 92,800 110,200 121,100 $250,000 50,100 72,600 95,200 117,100 139,000 152,800 $300,000 60,400 87,600 114,900 141,300 167,800 184,500 $350,000 70,800 102,700 134,600 165,600 196,600 216,200 $400,000 81,100 117,700 154,300 189,800 225,400 248,000 $500,000 101,800 147,700 193,700 238,300 283,000 311,400
For purposes of the retirement plans, Messrs. Rowe, Tranen, Bailey, Malley, and Turner currently have 19, 27, 28, 25, and 31 credited years of service, respectively. Mr. Sergel, Mr. Reilly, Mr. Cody, Ms. Sala, and Mr. Pini currently have 18, 15, 13, 27, and 18 credited years of service, respectively. Messrs. Sergel, McCabe, Watkins, Frost, and Nadeau currently have 18, 28, 24, 34, and 41 credited years of service, respectively. Benefits under the pension plans are computed using formulae based on percentages of highest average compensation computed over five consecutive years. The compensation covered by the pension plan includes salary, bonus, and incentive share awards. The benefits listed in the pension table are not subject to deduction for Social Security and are shown without any joint and survivor benefits. If the participant elected at age 65 a 100% joint and survivor benefit with a spouse of the same age, the benefit shown would be reduced by approximately 16%. The Pension Table above does not include annuity payments to be received in lieu of life insurance for Messrs. Rowe and Houston. The policies are described below under Plan Summaries. Under the Retirement Supplement Plan, participants receive an annual adjustment to their pension benefits. The amount of the adjustment is equal to the rate of interest on AAA bonds for the prior year less two percent (but in no case more than the increase in the cost of living). Mr. Rowe is the only active employee now participating in this plan. The System contributes the full amount toward post-retirement health benefits for senior executives. NEP, MASS. ELECTRIC, AND NARRAGANSETT PAYMENTS UPON A CHANGE OF CONTROL NEES has agreements with certain of its executives, including Messrs. Rowe, Sergel, and Tranen, which provide severance benefits in the event of certain terminations of employment following a Change in Control of NEES (as defined below). (Mr. Tranen's contracts also provide severance benefits in the event of a divestiture of all or a substantial portion of the System's fossil fuel generating assets.) If, following a Change in Control, the executive's employment is terminated other than for cause (as defined) or if the executive terminates employment for good reason (as defined), NEES will pay to the executive a lump sum cash payment equal to three times (two times for some executives) the sum of the executive's most recent annual base compensation and the average of his or her bonus amounts for the prior three years. If Mr. Rowe receives payments under his severance agreement that would subject him to any federal excise tax due under section 280G of the Internal Revenue Code, he will receive a cash "gross-up" payment so he would be in the same net after-tax position he would have been in had such excise tax not been applied. In addition, NEES will provide disability and health benefits to the executive for two to three years, provide such post-retirement health and welfare benefits as the executive would have earned within such two to three years, and grant two or three additional years of pension credit. Mr. Rowe would become eligible for benefits under the Retirement Supplement Plan described above prior to the five-year vesting term. Change in Control, including potential change of control, occurs (1) when any person becomes the beneficial owner of 20% of the voting securities of NEES, (2) when the prior members of the Board of NEES no longer constitute a 2/3 majority of the Board, or (3) NEES enters into an agreement that could result in a Change in Control. The terms of the agreements are for three years with automatic annual extensions, unless terminated by NEES. The System's bonus plans, including the incentive compensation plans, the Incentive Thrift Plan, and the Goals Program, provide for payments equal to the average of the bonuses for the three prior years in the event of a Change of Control. This payment would be made in lieu of the regular bonuses for the year in which the Change in Control occurs. The Long-Term Performance Share Award Plan provides for a cash payment equal to the value of the performance shares in the participants' account times the average target achievement percentage for the Incentive Thrift Plan for the three prior years. The System's Retirees Health and Life Insurance Plan I has provisions preventing changes in benefits adverse to the participants for three years following a Change in Control. The Incentive Share Plan and the related Incentive Share Deferral Agreements provide that, upon the occurrence of a change in control (defined more narrowly than in other plans), restrictions on all shares and account balances would cease. In light of the changes in the utility industry, NEES determined that executive officers, including those listed in the Summary Compensation Tables, but excluding Mr. Rowe, would receive a benefit equal to either 1 or 1-1/2 times annual compensation, for a severance other than one for cause or following a change in control. NEP, MASS. ELECTRIC, AND NARRAGANSETT PLAN SUMMARIES A brief description of the various plans through which compensation and benefits are provided to the named executive officers is presented below to better enable shareholders to understand the information presented in the tables shown earlier. The amounts of compensation and benefits provided to the named executive officers under the plans described below (and charged to NEP, Mass. Electric, or Narragansett) are presented in the Summary Compensation Tables. Goals Program The goals program covers all employees who have completed one year of service with any NEES subsidiary. Goals are established annually. For 1996, these goals related to earnings per share, customer costs, safety, absenteeism, demand-side management results, generating station availability, transmission reliability, environmental and OSHA compliance, and customer satisfaction. Some goals apply to all employees, while others apply to particular functional groups. Depending upon the number of goals met, and provided the minimum earnings goal is met, employees may earn a cash bonus of 1% to 4-1/2% of their compensation. Incentive Thrift Plan The incentive thrift plan (a 401(k) program) provides for a match of 40% of up to the first 5% of base compensation contributed to the System's incentive thrift plan (shown under All Other Compensation in the Summary Compensation Tables) and, based on an incentive formula tied to earnings per share, may fully match the first 5% of base compensation contributed (the additional amount, if any, is shown under Bonus in the Summary Compensation Tables). Under Federal law, contributions to these plans are limited. In 1996, the salary reduction amount was limited to $9,500. Deferred Compensation Plan The Deferred Compensation Plan offers executives the opportunity to defer base pay and bonuses. The plan offers the option of investing at the prime rate or in NEES shares; however, share bonuses may only be deferred in a share account. Under Federal law, the Incentive Thrift Plan, described above, is required to limit participant base compensation to $150,000 in calculating the NEES match. Under the Deferred Compensation Plan, NEES will make a contribution to an executive's share account equivalent to the resultant reduction in his or her match under the Incentive Thrift Plan. Life Insurance NEES has established for certain senior executives life insurance plans funded by individual policies. The combined death benefit under these insurance plans is three times the participant's annual salary. These plans are structured so that, over time, NEES should recover the cost of the insurance premiums. Messrs. McCabe, Reilly, Rowe, Sergel, and Tranen are participants in these plans. After termination of employment, Mr. Rowe may elect, commencing at age 55 or later, to receive an annuity income equal to 40% of annual salary. In that event, his life insurance would be reduced over 15 years to an amount equal to his final annual salary. Incentive Compensation Plan The System bonus plan for certain senior employees provides that in order for cash bonuses to be awarded, NEES must achieve a return on equity that places NEES in the top 50% of the approximately 90 electric utilities listed in the utility group formerly tracked by Duff & Phelps (the National Grouping) or in the top 50% of the New England/New York regional utilities (the Regional Grouping). Bonuses are also dependent upon the achievement of individual goals. In order to provide a long-term component to the incentive compensation plan, participants may also be awarded NEES common shares. An individual's award of shares under the incentive share plan is a fixed percentage of her or his cash bonus for that year. If no cash award is made, no shares are distributed. Long-Term Performance Share Award Plan This plan was established in 1996. There will be no payments under the plan until the Spring of 1999. Awards under the plan are based upon various measures of NEES performance over a three-year period. Each award factor or measurement functions independently. The factors include financial and operating performance. Performance is rated on rolling three-year periods, with a new cycle beginning each year. An individual's potential award under the plan is a fixed percentage (ranging from 15% to 50%) of base pay. At the end of the three-year cycle, the participant receives NEES shares based upon the performance against the various factors. Financial Counseling NEP, Mass. Electric, and Narragansett pay for personal financial counseling for certain executives. As required by the IRS, a portion of the amount paid is reported as taxable income for the executive. Financial counseling is also offered to other employees through seminars conducted at various locations each year. Other The NEES companies do not have any share option plans. NEP LONG-TERM INCENTIVE PLAN - AWARDS IN LAST FISCAL YEAR ----------------------------------------------------- The following table shows the potential awards, for those executive officers named in the Summary Compensation Table, under the Long-Term Performance Share Award Plan for the performance cycle commencing January 1, 1996. The NEES System's performance will be measured over the three-year period ending December 31, 1998. ESTIMATED FUTURE PAYOUTS UNDER NON-STOCK PRICE-BASED PLANS ------------------------------------------------
Number of Common Share Performance Name Equivalents(a) Period Threshold(b) Target(c) ---- -------------- ----------- ------------ --------- John W. Rowe 6,747 3 years 169 6,747 Jeffrey D. Tranen 2,763 3 years 69 2,763 Lawrence E. Bailey 954 3 years 24 954 John F. Malley 839 3 years 21 839 Arnold H. Turner 805 3 years 21 805
(a) Amounts are denominated in common share units. No dividends are attributable to share units. At the end of the cycle, awards are paid either in shares or in cash (valued at the five-day average price prior to the January 15 following the close of the performance cycle). (b) The awards in this column represent the threshold number of shares that could be earned if the minimum attainment level is reached for one factor. The minimum payout upon failure to achieve any of the goals would be zero. (c) The awards in this column represent the target (and maximum) number of shares that could be earned if the maximum performance is achieved for all factors. The Long-Term Performance Share Award Plan provides awards based on various measures of System performance over a three-year period. Each award factor functions independently. The performance targets for each cycle are set by the Compensation Committee of the NEES Board. All participants share the same factors and factor weights. Performance is rated on rolling three- year periods, with a new cycle beginning each year. An individual's potential award under the plan is a fixed percentage of her or his base salary on January 1 of the first year of the plan measurement period. The percentage ranges from 15% to 50%. No dividends accrue on the allocated shares until awarded. At the end of the three-year cycle, the participant receives actual shares based upon the performance against the various factors. The measures of performance for this cycle are as follows: return on equity compared to the national group (60th-75th percentile); kilowatt-hour cost compared to regional group (67th- 90th percentile); total shareholder return compared to the regional group (60th-75th percentile); maintenance or improvement of bond ratings; and system service levels, measured by customer satisfaction, system reliability, system availability, and regulatory compliance. The national grouping is the utility group formerly tracked by Duff & Phelps. The regional grouping is composed of New England/New York regional utilities. MASS. ELECTRIC LONG-TERM INCENTIVE PLAN - AWARDS IN LAST FISCAL YEAR ----------------------------------------------------- The following table shows the potential awards, for those executive officers named in the Summary Compensation Table, under the Long-Term Performance Share Award Plan for the performance cycle commencing January 1, 1996. The NEES System's performance will be measured over the three-year period ending December 31, 1998. ESTIMATED FUTURE PAYOUTS UNDER NON-STOCK PRICE-BASED PLANS ------------------------------------------------
Number of Common Share Performance Name Equivalents(a) Period Threshold(b) Target(c) ---- -------------- ----------- ------------ --------- Richard P. Sergel 2,670 3 years 67 2,670 Lawrence J. Reilly 804 3 years 21 804 Eric P. Cody 782 3 years 20 782 Nancy H. Sala 448 3 years 12 448 Anthony C. Pini 442 3 years 11 442
(a) Amounts are denominated in common share units. No dividends are attributable to share units. At the end of the cycle, awards are paid either in shares or in cash (valued at the five-day average price prior to the January 15 following the close of the performance cycle). (b) The awards in this column represent the threshold number of shares that could be earned if the minimum attainment level is reached for one factor. The minimum payout upon failure to achieve any of the goals would be zero. (c) The awards in this column represent the target (and maximum) number of shares that could be earned if the maximum performance is achieved for all factors. The Long-Term Performance Share Award Plan provides awards based on various measures of System performance over a three-year period. Each award factor functions independently. The performance targets for each cycle are set by the Compensation Committee of the NEES Board. All participants share the same factors and factor weights. Performance is rated on rolling three- year periods, with a new cycle beginning each year. An individual's potential award under the plan is a fixed percentage of her or his base salary on January 1 of the first year of the plan measurement period. The percentage ranges from 15% to 50%. No dividends accrue on the allocated shares until awarded. At the end of the three-year cycle, the participant receives actual shares based upon the performance against the various factors. The measures of performance for this cycle are as follows: return on equity compared to the national group (60th-75th percentile); kilowatt-hour cost compared to regional group (67th- 90th percentile); total shareholder return compared to the regional group (60th-75th percentile); maintenance or improvement of bond ratings; and system service levels, measured by customer satisfaction, system reliability, system availability, and regulatory compliance. The national grouping is the utility group formerly tracked by Duff & Phelps. The regional grouping is composed of New England/New York regional utilities. NARRAGANSETT LONG-TERM INCENTIVE PLAN - AWARDS IN LAST FISCAL YEAR ----------------------------------------------------- The following table shows the potential awards, for those executive officers named in the Summary Compensation Table who participate in the plan, under the Long-Term Performance Share Award Plan for the performance cycle commencing January 1, 1996. The NEES System's performance will be measured over the three-year period ending December 31, 1998. ESTIMATED FUTURE PAYOUTS UNDER NON-STOCK PRICE-BASED PLANS ------------------------------------------------
Number of Common Share Performance Name Equivalents(a) Period Threshold(b) Target(c) ---- -------------- ----------- ------------ --------- Richard P. Sergel 2,670 3 years 67 2,670 Robert L. McCabe 1,108 3 years 28 1,108 William Watkins, Jr. 829 3 years 21 829 Richard W. Frost 409 3 years 11 409
(a) Amounts are denominated in common share units. No dividends are attributable to share units. At the end of the cycle, awards are paid either in shares or in cash (valued at the five-day average price prior to the January 15 following the close of the performance cycle). (b) The awards in this column represent the threshold number of shares that could be earned if the minimum attainment level is reached for one factor. The minimum payout upon failure to achieve any of the goals would be zero. (c) The awards in this column represent the target (and maximum) number of shares that could be earned if the maximum performance is achieved for all factors. The Long-Term Performance Share Award Plan provides awards based on various measures of System performance over a three-year period. Each award factor functions independently. The performance targets for each cycle are set by the Compensation Committee of the NEES Board. All participants share the same factors and factor weights. Performance is rated on rolling three- year periods, with a new cycle beginning each year. An individual's potential award under the plan is a fixed percentage of her or his base salary on January 1 of the first year of the plan measurement period. The percentage ranges from 15% to 50%. No dividends accrue on the allocated shares until awarded. At the end of the three-year cycle, the participant receives actual shares based upon the performance against the various factors. The measures of performance for this cycle are as follows: return on equity compared to the national group (60th-75th percentile); kilowatt-hour cost compared to regional group (67th- 90th percentile); total shareholder return compared to the regional group (60th-75th percentile); maintenance or improvement of bond ratings; and system service levels, measured by customer satisfaction, system reliability, system availability, and regulatory compliance. The national grouping is the utility group formerly tracked by Duff & Phelps. The regional grouping is composed of New England/New York regional utilities. Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT NEES ---- The information required by this item is incorporated herein by reference to the material under the caption TOTAL COMMON EQUITY BASED HOLDINGS in the definitive proxy statement of NEES, dated March 10, 1997, for the 1997 Annual Meeting of Shareholders, provided that the information under the headings "Compensation Committee Report on Executive Compensation" and "Corporate Performance" are not so incorporated. NEP, Mass. Electric, and Narragansett ------------------------------------- NEES owns 100% of the voting securities of Mass. Electric and Narragansett. NEES owns 98.85% of the voting securities of NEP. SECURITY OWNERSHIP The following tables list the holdings of NEES common shares as of March 1, 1997 by NEP, Mass. Electric, and Narragansett directors, the executive officers named in the Summary Compensation Tables, and all directors and executive officers, as a group. NEP ---
Shares Deferred Beneficially Share Name Owned (a) Equivalents (b) ---- ------------ -------------- Lawrence E. Bailey 5,200 2,485 Joan T. Bok 17,111 Alfred D. Houston 13,235 8,892 Cheryl A. LaFleur 2,543 4,603 John F. Malley 4,988 2,566 John W. Rowe 22,677 20,419 Jeffrey D. Tranen 8,141 6,764 Arnold H. Turner 4,048 1,985 All directors and executive officers, as a group (13 persons) 99,156 (c) 56,370 Mass. Electric -------------- Shares Deferred Beneficially Share Name Owned (a) Equivalents (b) ---- ------------ ------------- Urville J. Beaumont 293 Joan T. Bok 17,111 Eric P. Cody 2,435 2,044 Sally L. Collins 295 Kalyan K. Ghosh 51 242 Charles B. Housen 18 Cheryl A. LaFleur 2,543 4,603 Patricia McGovern 161 Anthony C. Pini 8,413 1,113 John F. Reilly 296 Lawrence J. Reilly 2,738 4,469 John W. Rowe 22,677 20,419 Nancy H. Sala 7,749 (d) 1,538 Richard P. Sergel 8,413 6,692 Roslyn M. Watson 296 181 All directors and executive officers, as a group (21 persons) 105,521 (c) 50,319
Narragansett ------------
Shares Deferred Beneficially Share Name Owned (a) Equivalents (b) ---- ------------ ------------- Joan T. Bok 17,111 Stephen A. Cardi 294 Richard W. Frost 6,805 472 Frances H. Gammell 296 292 Joseph J. Kirby 295 Robert L. McCabe 9,532 5,022 Richard Nadeau 4,115 John W. Rowe 22,677 20,419 Richard P. Sergel 8,413 6,692 William E. Trueheart 296 702 William Watkins, Jr. 5,512 2,185 John A. Wilson, Jr. 658 All directors and executive officers, as a group (15 persons) 90,110 (c) 44,841
(a) Number of shares beneficially owned includes: (i) shares directly owned by certain relatives with whom directors or officers share voting or investment power; (ii) shares held of record individually by a director or officer or jointly with others or held in the name of a bank, broker, or nominee for such individual's account; (iii) shares in which certain directors or officers maintain exclusive or shared investment or voting power whether or not the securities are held for their benefit; and (iv) with respect to the executive officers, allocated shares in the Incentive Thrift Plan described above. (b) Deferred share equivalents are held under the Deferred Compensation Plan or pursuant to individual deferral agreements. Under the Plan or deferral agreements, executives may elect to defer cash compensation and share awards. There are various deferral periods available under the plans. At the end of the deferral period, the compensation may be paid out in NEES common shares, cash, or a combination thereof. The rights of the executives to payment are those of general, unsecured creditors. While deferred, the shares do not have voting rights or other rights associated with ownership. As cash dividends are declared, the number of deferred share equivalents will be increased as if the dividends were reinvested in NEES common shares. (c) Amount is less than 1% of the total number of shares of NEES outstanding. (d) Ms. Sala disclaims a beneficial ownership interest in 260 shares held under the Uniform Gift to Minors Act. Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The construction company of Mr. Stephen A. Cardi, a director of Narragansett, was paid approximately $138,000 in 1996 pursuant to a contract to provide gravel to Narragansett and approximately $2 million by NEP in 1996 pursuant to a contract to construct Collier Point Park at Manchester Street Station. Mr. John A. Wilson, Jr., a director of Narragansett, is a consultant to Hinckley, Allen, Snyder & Comen (Attorneys). Hinckley, Allen, Snyder & Comen was retained by Narragansett and its affiliates in 1996. Reference is made to Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT and Item 11. EXECUTIVE COMPENSATION. PART IV Item 14. EXHIBITS AND REPORTS ON FORM 8-K List of Exhibits Unless otherwise indicated, the exhibits listed below are incorporated by reference to the appropriate exhibit numbers and the Commission file numbers indicated in parentheses. NEES ---- (3) Agreement and Declaration of Trust dated January 2, 1926, as amended through April 28, 1992 (Exhibit 3 to 1994 NEES Form 10-K, File No. 1-3446). (4) Instruments Defining the Rights of Security Holders (a) Massachusetts Electric Company First Mortgage Indenture and Deed of Trust, dated as of July 1, 1949, and twenty-one supplements thereto (Exhibit 7-A, File No. 1-8019; Exhibit 7-B, File No. 2-8836; Exhibit 4-C, File No. 2-9593; Exhibit 4 to 1980 Form 10-K, File No. 2-8019; Exhibit 4 to 1982 Form 10-K, File No. 0-5464; Exhibit 4 to 1986 Form 10-K, File No. 0-5464; Exhibit 4(a) to 1988 Form 10-K, File No. 1-3446; Exhibit 4(a) to 1989 Form 10-K, File No. 1-3446; Exhibit 4(a) to 1992 Form 10-K, File No. 1-3446; Exhibit 4(a) to 1993 Form 10-K, File No. 1-3446; Exhibit 4(a) to 1995 Form 10-K, File No. 1-3446). (b) The Narragansett Electric Company First Mortgage Indenture and Deed of Trust, dated as of September 1, 1944, and twenty-two supplements thereto (Exhibit 7-1, File No. 2-7042; Exhibit 7-B, File No. 2-7490; Exhibit 4-C, File No. 2-9423; Exhibit 4-D, File No. 2-10056; Exhibit 4 to 1980 Form 10-K, File No. 0-898; Exhibit 4 to 1982 Form 10-K, File No. 0-898; Exhibit 4 to 1983 Form 10-K, File No. 0-898; Exhibit 4 to 1985 Form 10-K, File No. 0-898; Exhibit 4 to 1986 Form 10-K, File No. 0-898; Exhibit 4 to 1987 Form 10-K, File No. 0-898; Exhibit 4 to 1991 Form 10-K, File No. 0-898; Exhibit 4(b) to 1992 Form 10-K, File No. 1-3446; Exhibit 4(b) to 1993 Form 10-K, File No. 1-3446; Exhibit 4(b) to 1995 Form 10-K, File No. 1-3446). (c) The Narragansett Electric Company Preference Provisions, as amended, dated March 23, 1993 (Exhibit 4(c) to 1993 NEES Form 10-K, File No. 1- 3446). (d) New England Power Company Indentures General and Refunding Mortgage Indenture and Deed of Trust dated as of January 1, 1977 and twenty supplements thereto (Exhibit 4(b) to 1980 Form 10-K, File No. 0-1229; Exhibit 4(b) to 1982 Form 10-K, File No. 0-1229; Exhibit 4(b) to 1983 Form 10-K, File No. 0-1229; Exhibit 4(b) to 1985 Form 10-K, File No. 0-1229; Exhibit 4(b) to 1986 Form 10-K, File No. 0-1229; Exhibit 4(c)(ii) to 1988 Form 10-K, File No. 1-3446; Exhibit 4(c)(ii) to 1989 Form 10-K, File No. 1-3446; Exhibit 4(c)(ii) to 1990 Form 10-K, File No. 1-3446; Exhibit 4(c)(ii) to 1991 Form 10-K, File No. 1-3446; Exhibit 4(c)(ii) to 1992 Form 10-K, File No. 1-3446; Exhibit 4(d) to 1993 Form 10-K, File No. 1-3446; Exhibit 4(d) to 1995 Form 10-K, File No. 1-3446). (10) Material Contracts (a) Boston Edison Company et al. and New England Power Company: Amended REMVEC Agreement dated August 12, 1977 (Exhibit 5-4(d), File No. 2-61881). (b) The Connecticut Light and Power Company et al. and New England Power Company: Sharing Agreement for Joint Ownership, Construction and Operation of Millstone Unit No. 3 dated as of September 1, 1973, and Amendment dated as of August 1, 1974 (Exhibit 10-5, File No. 2-52820); Amendments dated as of December 15, 1975 and April 1, 1986; (Exhibit 10(b), to 1990 Form 10-K, File No. 1-3446). Transmission Support Agreement dated August 9, 1974; Instrument of Transfer to NEP with respect to the 1979 Connecticut Nuclear Unit, and Assumption of Obligations, dated December 17, 1975 (Exhibit 10-6(b), File No. 2-57831). (c) Connecticut Yankee Atomic Power Company et al. and New England Power Company: Stockholders Agreement dated July 1, 1964 (Exhibit 13-9-A, File No. 2-23006); Power Purchase Contract dated July 1, 1964 (Exhibit 13-9-B, File No. 2-23006); Additional Power Contract dated as of April 30, 1984 and 1996 Amendatory Agreement dated as of December 4, 1996 (filed herewith); Supplementary Power Contract dated as of April 1, 1987 (Exhibit 10(c) to 1987 Form 10-K, File No. 1-3446); Capital Funds Agreement dated September 1, 1964 (Exhibit 13-9-C, File No. 2-23006); Transmission Agreement dated October 1, 1964 (Exhibit 13-9-D, File No. 2-23006); Agreement revising Transmission Agreement dated July 1, 1979 (Exhibit to 1979 Form 10-K, File No. 1-3446); Amendment revising Transmission Agreement dated as of January 19, 1994 (Exhibit 10(c) to 1995 Form 10-K, File No. 1-3446). (d) Maine Yankee Atomic Power Company et al. and New England Power Company: Capital Funds Agreement dated May 20, 1968 and Power Purchase Contract dated May 20, 1968 (Exhibit 4-5, File No. 2-29145); Amendments dated as of January 1, 1984, March 1, 1984 (Exhibit 10(d) to 1983 Form 10-K, File No. 1-3446), October 1, 1984, and August 1, 1985 (Exhibit 10(d) to 1985 Form 10-K, File No. 1-3446); Stockholders Agreement dated May 20, 1968 (Exhibit 10-20, File No. 2-34267); Additional Power Contract dated as of February 1, 1984 (Exhibit 10(d) to 1985 Form 10-K, File No. 1-3446). (e) New England Energy Incorporated Contracts (i) Capital Funds Agreement with NEES dated November 1, 1974 (Exhibit 10-29(b), File No. 2-52969); Amendment dated July 1, 1976, and Amendment dated July 26, 1979 (Exhibit 10(g)(i) to 1980 Form 10-K, File No. 1-3446); Amendment dated August 26, 1981 (Exhibit 10(f)(i) to 1981 Form 10-K, File No. 1-3446); Amendment dated March 26, 1985 (Exhibit 10(e)(i) to 1985 Form 10-K, File No. 1-3446); Amendment dated as of April 28, 1989 (Exhibit 10(e)(i) to 1989 Form 10-K, File No. 1-3446); Amendment dated as of June 1, 1990 (Exhibit 10(e)(i) to 1990 Form 10-K, File No. 1-3446); Amendment dated as of April 13, 1995 (filed herewith). (ii) Loan Agreement with NEES dated July 19, 1978 and effective November 1, 1974, and Amendment dated July 26, 1979 (Exhibit 10(g)(iii) to 1980 Form 10-K, File No. 1-3446); Amendment dated August 26, 1981 (Exhibit 10(f)(ii) to 1981 Form 10-K, File No. 1-3446); Amendment dated March 26, 1985 (Exhibit 10(e)(ii) to 1985 Form 10-K, File No. 1-3446); Amendment dated as of April 28, 1989 (Exhibit 10(e)(ii) to 1989 Form 10-K, File No. 1-3446); Amendment dated as of June 1, 1990 (Exhibit 10(e)(ii) to 1990 Form 10-K, File No. 1-3446); Amendment dated as of April 13, 1995 (filed herewith). (iii) Fuel Purchase Contract with New England Power Company dated July 26, 1979, and Amendment dated August 26, 1981 (Exhibit 10(f)(iii) to 1981 Form 10-K, File No. 1-3446); Amendment dated March 26, 1985, and Amendment effective January 1, 1984 (Exhibit 10(e)(iii) to 1985 Form 10-K, File No. 1-3446); Amendment dated as of April 28, 1989 (Exhibit 10(e)(iii) to 1989 Form 10-K, File No. 1-3446). (iv) Partnership Agreement with Samedan Oil Corporation as Amended and Restated on February 5, 1985 (Exhibit 10(e)(iv) to 1984 Form 10-K, File No. 1-3446); Amendment dated as of January 14, 1992 (Exhibit 10(e)(iv) to 1991 Form 10-K, File No. 1- 3446). (v) Credit Agreement dated as of April 13, 1995 (Exhibit 10(e)(iv) to 1995 Form 10-K, File No. 1-3446). (vi) Capital Maintenance Agreement dated November 15, 1985, and Assignment and Security Agreement dated November 15, 1985 (Exhibit 10(e)(vi) to 1985 Form 10-K, File No. 1-3446); Amendment dated as of April 28, 1989 (Exhibit 10(e)(vi) to 1989 Form 10-K, File No. 1-3446); Amendment dated as of April 13, 1995 (filed herewith). (f) New England Power Company and New England Electric Transmission Corporation et al.: Phase I Terminal Facility Support Agreement dated as of December 1, 1981 (Exhibit 10(g) to 1981 Form 10-K, File No. 1-3446); Amendments dated as of June 1, 1982, and November 1, 1982 (Exhibit 10(f) to 1982 Form 10-K, File No. 1-3446); Agreement with respect to Use of the Quebec Interconnection dated as of December 1, 1981 (Exhibit 10(g) to 1981 Form 10-K, File No. 1-3446); Amendments dated as of May 1, 1982, and November 1, 1982 (Exhibit 10(f) to 1982 Form 10-K, File No. 1-3446); Amendment dated as of January 1, 1986 (Exhibit (10)(f) 1986 Form 10-K, File No. 1-3446); Agreement for Reinforcement and Improvement of New England Power Company's Transmission System dated as of April 1, 1983 (Exhibit 10(f) to 1983 Form 10-K, File No. 1-3446); Lease dated as of May 16, 1983 (Exhibit 10(f) to 1983 Form 10-K, File No. 1-3446); Upper Development - Lower Development Transmission Line Support Agreement dated as of May 16, 1983 (Exhibit 10(f) to 1983 Form 10-K, File No. 1-3446). (g) New England Electric Transmission Corporation and PruCapital Management, Inc. et al: Note Agreement dated as of September 1, 1986 (Exhibit 10(g) to 1986 Form 10-K, File No. 1-3446); Mortgage, Deed of Trust and Security Agreement dated as of September 1, 1986 (Exhibit 10(g) to 1986 Form 10-K, File No. 1-3446); Equity Funding Agreement with New England Electric System dated as of December 1, 1985 (Exhibit 10(g) to 1991 Form 10-K, File No. 1-3446). (h) Vermont Electric Transmission Company, Inc. et al. and New England Power Company: Phase I Vermont Transmission Line Support Agreement dated as of December 1, 1981; Amendments dated as of June 1, 1982, and November 1, 1982 (Exhibit 10(g) to 1982 Form 10-K, File No. 1-3446); Amendment dated as of January 1, 1986 (Exhibit 10(h) to 1986 Form 10-K, File No. 1-3446). (i) New England Power Pool Agreement: (Exhibit 4(e), File No. 2-43025); Amendments dated July 1, 1972, and March 1, 1973 (Exhibit 10-15, File No. 2-48543); Amendment dated March 15, 1974 (Exhibit 10-5, File No. 2-52775); Amendment dated June 1, 1975 (Exhibit 10-14, File No. 2-57831); Amendment dated September 1, 1975 (Exhibit 10-13, File No. 2-59182); Amendments dated December 31, 1976, January 31, 1977, July 1, 1977, and August 1, 1977 (Exhibit 10-16, File No. 2-61881); Amendments dated August 15, 1978, January 3, 1980, and February 1980 (Exhibit 10-3, File No. 2-68283); Amendment dated September 1, 1981 (Exhibit 10(h) to 1981 Form 10-K, File No. 1-3446); Amendment dated as of December 1, 1981 (Exhibit 10(h) to 1982 Form 10-K, File No. 1-3446); Amendments dated June 1, 1982, June 15, 1983, and October 1, 1983 (Exhibit 10(i) to 1983 Form 10-K, File No. 1-3446); Amendments dated August 1, 1985, August 15, 1985, September 1, 1985, and January 1, 1986 (Exhibit 10(i) to 1985 Form 10-K, File No. 1-3446); Amendment dated September 1, 1986 (Exhibit 10(i) to 1986 Form 10-K, File No. 1-3446); Amendment dated April 30, 1987 (Exhibit 10(i) to 1987 Form 10-K, File No. 1-3446); Amendments dated March 1, 1988 and May 1, 1988 (Exhibit 10(i) to 1988 Form 10-K, File No. 1-3446); Amendment dated March 15, 1989 (Exhibit 10(i) to 1989 Form 10-K, File No. 1-3446); Amendment dated October 1, 1990 (Exhibit 10(i) to 1990 Form 10-K, File No. 1-3446); Amendment dated as of September 15, 1992 (Exhibit 10(i) to 1992 Form 10-K, File No. 1-3446); Amendments dated as of June 1, 1993, July 1, 1995, and September 1, 1995 (Exhibit 10(i) to 1995 Form 10-K, File No. 1-3446); Amendment dated as of December 1, 1996 (filed herewith). (j) Public Service Company of New Hampshire et al. and New England Power Company: Agreement for Joint Ownership, Construction and Operation of New Hampshire Nuclear Units dated as of May 1, 1973; Amendments dated May 24, 1974, June 21, 1974, September 25, 1974 and October 25, 1974 (Exhibit 10-18(b), File No. 2-52820); Amendment dated January 31, 1975 (Exhibit 10-16(b), File No. 2-57831); Amendments dated April 18, 1979, April 25, 1979, June 8, 1979, October 11, 1979, December 15, 1979, June 16, 1980, December 31, 1980 (Exhibit 10(i) to 1980 Form 10-K, File No. 1-3446); Amendments dated June 1, 1982, April 27, 1984, June 15, 1984 (Exhibit 10(j) to 1984 Form 10-K, File No. 1-3446); Amendments dated March 8, 1985, March 14, 1986, May 1, 1986 and September 19, 1986 (Exhibit 10(j) to 1986 Form 10-K, File No. 1-3446); Amendment dated November 12, 1987 (Exhibit 10(j) to 1987 Form 10-K, File No. 1-3446); Amendment dated January 13, 1989 (Exhibit 10(j) to 1989 Form 10-K, File No. 1-3446); Amendment dated as of November 1, 1990 (Exhibit 10(j) to 1991 Form 10-K, File No. 1- 3446). Transmission Support Agreement dated as of May 1, 1973 (Exhibit 10-23, File No. 2-49184); Instrument of Transfer to NEP with respect to the New Hampshire Nuclear Units and Assumptions of Obligations dated December 17, 1975 and Agreement Among Participants in New Hampshire Nuclear Units, certain Massachusetts Municipal Systems and Massachusetts Municipal Wholesale Electric Company dated May 28, 1976 (Exhibit 10-16(c), File No. 2-57831); Seventh Amendment To and Restated Agreement for Seabrook Project Disbursing Agent (Exhibit 10(j) to 1991 Form 10-K, File No. 1- 3446); Amendments dated as of June 29, 1992 (Exhibit 10(j) to 1992 Form 10-K, File No. 1- 3446); Seabrook Project Managing Agent Operating Agreement dated as of June 29, 1992, and amendment to Seabrook Project Managing Agent Agreement dated as of June 29, 1992 (Exhibit 10(j) to 1992 Form 10- K, File No. 1-3446). (k) Vermont Yankee Nuclear Power Corporation et al. and New England Power Company: Capital Funds Agreement dated February 1, 1968, Amendment dated March 12, 1968, and Power Purchase Contract dated February 1, 1968 (Exhibit 4-6, File No. 2-29145); Amendments dated as of June 1, 1972 and April 15, 1983 (Exhibit 10(k) to 1983 Form 10-K, File No. 1-3446) and April 24, 1985 (Exhibit 10(k) to 1985 Form 10-K, File No. 1-3446); Amendment dated as of June 1, 1985 (Exhibit 10(k) to 1987 Form 10-K, File No. 1-3446); Amendments dated as of May 6, 1988 (Exhibit 10(k) to 1988 Form 10-K, File No. 1-3446); Amendment dated as of June 15, 1989 (Exhibit 10(k) to 1989 Form 10-K, File No. 1-3446); Additional Power Contract dated as of February 1, 1984 (Exhibit 10(k) to 1983 Form 10-K, File No. 1-3446); Guarantee Agreement dated as of November 5, 1981 (Exhibit 10(j) to 1981 Form 10-K, File No. 1-3446). (l) Yankee Atomic Electric Company et al. and New England Power Company: Amended and Restated Power Contract dated April 1, 1985 (Exhibit 10(l) to 1985 Form 10-K, File No. 1-3446); Amendment dated May 6, 1988 (Exhibit 10(l) to 1988 Form 10-K, File No. 1-3446); Amendments dated as of June 26, 1989 and July 1, 1989 (Exhibit 10(l) to 1989 Form 10-K, File No. 1-3446); Amendment dated as of February 1, 1992 (Exhibit 10(l) to 1992 Form 10-K, File No. 1-3446). *(m) New England Electric Companies' Deferred Compensation Plan as amended through November 26, 1996 (filed herewith). *(n) New England Electric System Companies Retirement Supplement Plan as amended through June 1, 1996 (filed herewith). *(o) New England Electric Companies' Executive Supplemental Retirement Plan I as amended through May 20, 1996 (filed herewith). *(p) New England Electric Companies' Executive Supplemental Retirement Plan II as amended through October 25, 1995 (filed herewith). *(q) New England Electric Companies' Incentive Compensation Plan I as amended through October 24, 1995 (filed herewith). *(r) New England Electric Companies' Incentive Compensation Plan II as amended through January 1, 1995 (Exhibit 10(r) to 1995 Form 10-K, File No. 1- 3446). *(s) New England Electric Companies' Incentive Compensation Plan III as amended through January 1, 1996 (filed herewith). *(t) New England Electric Companies' Senior Incentive Compensation Plan as amended through January 1, 1995 (Exhibit 10(q) to 1995 Form 10-K, File No. 1- 3446). *(u) New England Electric System Directors Deferred Compensation Plan as amended through December 1, 1996 (filed herewith). *(v) Forms of Life Insurance Program (Exhibit 10(s) to 1986 Form 10-K, File No. 1-3446); and Form of Life Insurance (Collateral Assignment) (Exhibit 10(t) to 1991 Form 10-K, File No. 1-3446). *(w) New England Electric Companies' Incentive Share Plan as amended through February 24, 1997 (filed herewith). *(x) New England Electric Companies' Long-Term Performance Share Award Plan amended through February 24, 1997 (filed herewith). *(y) New England Electric System Directors' Retirement Plan dated May 1, 1994 (filed herewith). *(z) Forms of Severance Protection Agreement (filed herewith). *(aa) New England Power Service Company and Joan T. Bok: Service Credit Letter dated October 21, 1982 (Exhibit 10(cc) to 1992 Form 10-K, File No. 1-3446). *(bb) New England Electric System and John W. Rowe: Service Credit Letter dated December 5, 1988 (Exhibit 10(dd) to 1992 Form 10-K, File No. 1-3446). *(cc) Agreement between New England Electric System and John W. Rowe dated February 28, 1995 (filed herewith). *(dd) New England Power Service Company and the Company: Form of Supplemental Pension Service Credit Agreement (Exhibit 10(ee) to 1992 Form 10-K, File No. 1-3446). (ee) New England Power Company and New England Hydro-Transmission Electric Company, Inc. et al: Phase II Massachusetts Transmission Facilities Support Agreement dated as of June 1, 1985 (Exhibit 10(t) to 1986 Form 10-K, File No. 1-3446); Amendment dated as of May 1, 1986 (Exhibit 10(t) to 1986 Form 10-K, File No. 1-3446); Amendments dated as of February 1, 1987, June 1, 1987, September 1, 1987, and October 1, 1987 (Exhibit 10(u) to 1987 Form 10-K, File No. 1-3446); Amendment dated as of August 1, 1988 (Exhibit 10(u) to 1988 Form 10-K, File No. 1-3446); Amendment dated January 1, 1989 (Exhibit 10(u) to 1990 Form 10-K, File No. 1-3446). (ff) New England Power Company and New England Hydro-Transmission Corporation et al: Phase II New Hampshire Transmission Facilities Support Agreement dated as of June 1, 1985 (Exhibit 10(u) to 1986 Form 10-K, File No. 1-3446); Amendment dated as of May 1, 1986 (Exhibit 10(u) to 1986 Form 10-K, File No. 1-3446); Amendments dated as of February 1, 1987, June 1, 1987, September 1, 1987, and October 1, 1987 (Exhibit 10(v) to 1987 Form 10-K, File No. 1-3446); Amendment dated as of August 1,1988 (Exhibit 10(v) to 1988 Form 10-K, File No. 1-3446); Amendments dated January 1, 1989 and January 1, 1990 (Exhibit 10(v) to 1990 Form 10-K, File No. 1-3446). (gg) New England Power Company et al: Phase II New England Power AC Facilities Support Agreement dated as of June 1, 1985 (Exhibit 10(v) to 1986 Form 10-K, File No. 1-3446); Amendment dated as of May 1, 1986 (Exhibit 10(v) to 1986 Form 10-K, File No. 1-3446); Amendments dated as of February 1, 1987, June 1, 1987, and September 1, 1987 (Exhibit 10(w) to 1987 Form 10-K, File No. 1-3446); Amendment dated as of August 1, 1988 (Exhibit 10(w) to 1988 Form 10-K, File No. 1-3446). (hh) New England Hydro-Transmission Electric Company, Inc. and New England Electric System et al: Equity Funding Agreement dated as of June 1, 1985 (Exhibit 10(w) to 1986 Form 10-K, File No. 1-3446); Amendment dated as of May 1, 1986 (Exhibit 10(w) to 1986 Form 10-K, File No. 1-3446); Amendment dated as of September 1, 1987 (Exhibit 10(x) to 1987 Form 10-K, File No. 1-3446); Amendment dated as of August 1, 1988 (Exhibit 10(x) to 1988 Form 10-K, File No. 1-3446). (ii) New England Hydro-Transmission Corporation and New England Electric System et al: Equity Funding Agreement dated as of June 1, 1985 (Exhibit 10(x) to 1986 Form 10-K, File No. 1-3446); Amendment dated as of May 1, 1986 (Exhibit 10(x) to 1986 Form 10-K, File No. 1-3446); Amendment dated as of September 1, 1987 (Exhibit 10(y) to 1987 Form 10-K, File No. 1-3446); Amendment dated as of August 1, 1988 (Exhibit 10(y) to 1988 Form 10-K, File No. 1-3446). (jj) Ocean State Power, et al., and Narragansett Energy Resources Company: Equity Contribution Agreement dated as of December 29, 1988 (Exhibit 10(aa) to 1988 Form 10-K, File No. 1-3446); Amendment dated as of September 29, 1989 (Exhibit 10(aa) to 1989 Form 10-K File No. 1-3446); Ocean State Power, et al., and New England Electric System: Equity Contribution Support Agreement dated as of December 29, 1988 (Exhibit 10(aa) to 1988 Form 10-K, File No. 1-3446); Amendment dated as of September 29, 1989 (Exhibit 10(aa) to 1989 Form 10-K, File No. 1-3446); Ocean State Power II, et al., and Narragansett Energy Resources Company: Equity Contribution Agreement dated as of September 29, 1989 (Exhibit 10(aa) to 1989 Form 10-K File No. 1-3446); Ocean State Power II, et al., and New England Electric System: Equity Contribution Support Agreement dated as of September 29, 1989 (Exhibit 10(aa) to 1989 Form 10-K File No. 1-3446). (kk) NEES Energy, Inc./AllEnergy Marketing Company, L.L.C.: Limited Liability Company Agreement dated as of September 18, 1996 (Exhibit B-1 to Amendment No. 1 to Form U-1, File No. 70-8921). * Compensation related plan, contract, or arrangement. (13) 1996 Annual Report to Shareholders (filed herewith). (21) Subsidiary list appears in Part I of this document. (24) Power of Attorney (filed herewith). (27) Financial Data Schedule (filed herewith). NEP --- (3) (a) Articles of Organization as amended through June 27, 1987 (Exhibit 3(a) to 1988 Form 10-K, File No. 0-1229). (b) By-laws of the Company as amended May 10, 1995 (Exhibit 3(b) to 1995 Form 10-K, File No. 0-1229). (4) General and Refunding Mortgage Indenture and Deed of Trust dated as of January 1, 1977 and twenty supplements thereto (Exhibit 4(b) to 1980 Form 10-K, File No. 0-1229; Exhibit 4(b) to 1982 Form 10-K, File No. 0-1229; Exhibit 4(b) to 1983 Form 10-K, File No. 0-1229; Exhibit 4(b) to 1985 Form 10-K, File No. 0-1229; Exhibit 4(b) to 1986 Form 10-K, File No. 0-1229; Exhibit 4(b) to 1986 Form 10-K, File No. 0-1229; Exhibit 4(b) to 1988 Form 10-K, File No. 0-1229; Exhibit 4(c)(ii) to 1989 NEES Form 10-K, File No. 1-3446; Exhibit 4(c)(ii) to 1990 NEES Form 10-K, File No. 1-3446; Exhibit 4(c)(ii) to 1991 NEES Form 10-K, File No. 1-3446; Exhibit 4(c)(ii) to 1992 NEES Form 10-K, File No. 1-3446; Exhibit 4(d) to 1993 NEES Form 10-K, File No. 1-3446; Exhibit 4(d) to 1995 NEES Form 10-K, File No. 1-3446). (10) Material Contracts (a) Boston Edison Company et al. and the Company: Amended REMVEC Agreement dated August 12, 1977 (Exhibit 5-4(d), File No. 2-61881). (b) The Connecticut Light and Power Company et al. and the Company: Sharing Agreement for Joint Ownership, Construction and Operation of Millstone Unit No. 3 dated as of September 1, 1973, and Amendment dated as of August 1, 1974 (Exhibit 10-5, File No. 2-52820); Amendments dated as of December 15, 1975 and April 1, 1986 (Exhibit 10(b) to NEES' 1990 Form 10-K File No. 1-3446). Transmission Support Agreement dated August 9, 1974; Instrument of Transfer to the Company with respect to the 1979 Connecticut Nuclear Unit, and Assumption of Obligations, dated December 17, 1975 (Exhibit 10-6(b), File No. 2-57831). (c) Connecticut Yankee Atomic Power Company et al. and the Company: Stockholders Agreement dated July 1, 1964 (Exhibit 13-9-A, File No. 2-2006); Power Purchase Contract dated July 1, 1964 (Exhibit 13-9-B, File No. 2-23006); Additional Power Contract dated as of April 30, 1984 and 1996 Amendatory Agreement dated as of December 4, 1996 (Exhibit 10(c) to 1996 Form 10-K, File No. 1-3446); Supplementary Power Contract dated as of April 1, 1987 (Exhibit 10(c) to 1987 Form 10-K, File No. 0-1229); Capital Funds Agreement dated September 1, 1964 (Exhibit 13-9-C, File No. 2-23006); Transmission Agreement dated October 1, 1964 (Exhibit 13-9-D, File No. 2-23006); Agreement revising Transmission Agreement dated July 1, 1979 (Exhibit to NEES' 1979 Form 10-K, File No. 1-3446); Amendment revising Transmission Agreement dated as of January 19, 1994 (Exhibit 10(c) to NEES' 1995 Form 10-K, File No. 1-3446; Five Year Capital Contribution Agreement dated November 1, 1980 (Exhibit 10(e) to NEES' 1980 Form 10-K, File No. 1-3446). (d) Maine Yankee Atomic Power Company et al. and the Company: Capital Funds Agreement dated May 20, 1968 and Power Purchase Contract dated May 20, 1968 (Exhibit 4-5, File No. 2-29145); Amendments dated as of January 1, 1984, March 1, 1984 (Exhibit 10(d) to NEES' 1983 Form 10-K, File No. 1-3446); October 1, 1984, and August 1, 1985 (Exhibit 10(d) to NEES' 1985 Form 10-K, File No. 1-3446); Stockholders Agreement dated May 20, 1968 (Exhibit 10-20; File No. 2-34267); Additional Power Contract dated as of February 1, 1984 (Exhibit 10(d) to NEES' 1985 Form 10-K, File No. 1-3446). (e) Mass. Electric and the Company: Primary Service for Resale dated February 15, 1974 (Exhibit 5-17(a), File No. 2-52969); Amendment of Service Agreement dated June 22, 1983 (Exhibit 10(b) to Mass. Electric's 1986 Form 10-K, File No. 0-5464); Amendment of Service Agreement effective November 1, 1993 (Exhibit 10(e) to 1993 Form 10-K, File No. 0-1229); Memorandum of Understanding effective May 22, 1994 (Exhibit 10(e) to 1994 Form 10-K, File No. 0-1229). (f) The Narragansett Electric Company and the Company: Primary Service for Resale dated February 15, 1974 (Exhibit 4-1(b), File No. 2-51292); Amendment of Service Agreement dated July 26, 1990 (Exhibit 4(f) to New England Power Company's 1990 Form 10-K, File No. 0-1229). Amendment of Service Agreement dated July 24, 1991 (Exhibit 10(f) to 1991 Form 10-K, File No. 0-1229); Amendment of Service Agreement effective November 1, 1993 (Exhibit 10(f) to 1993 Form 10-K, File No. 0- 1229); Memorandum of Understanding effective May 22, 1994 (Exhibit 10(e) to 1994 Form 10-K, File No. 0-1229); Amendment of Service Agreement effective January 1, 1995 (Exhibit 10(f) to 1995 Form 10-K, File No. 0-1229). (g) Time Charter between International Shipholding Corp., and New England Power Company dated as of October 27, 1994; Amendments dated as of September 22, 1995 (Exhibit 10(g) to 1995 Form 10-K, File No. 0-1229). (h) Consent and Agreement among New England Power Company, Central Gulf Lines, Inc., Enterprise Ship Company, Inc., and The Bank of New York dated as of September 28, 1995 (Exhibit 10(h) to 1995 Form 10- K, File No. 0-1229). (i) New England Electric Transmission Corporation et al. and the Company: Phase I Terminal Facility Support Agreement dated as of December 1, 1981 (Exhibit 10(g) to NEES' 1981 Form 10-K, File No. 1-3446); Amendments dated as of June 1, 1982 and November 1, 1982 (Exhibit 10(f) to NEES' 1982 Form 10-K, File No. 1-3446); Agreement with respect to Use of the Quebec Interconnection dated as of December 1, 1981 (Exhibit 10(g) to NEES' 1981 Form 10-K, File No. 1-3446); Amendments dated as of May 1, 1982 and November 1, 1982 (Exhibit 10(f) to NEES' 1982 Form 10-K, File No. 1-3446); Amendment dated as of January 1, 1986 (Exhibit 10(f) to NEES' 1986 Form 10-K, File No. 1-3446); Agreement for Reinforcement and Improvement of the Company's Transmission System dated as of April 1, 1983 (Exhibit 10(f) to NEES' 1983 Form 10-K, File No. 1-3446); Lease dated as of May 16, 1983 (Exhibit 10(f) to NEES' 1983 Form 10-K, File No. 1-3446); Upper Development-Lower Development Transmission Line Support Agreement dated as of May 16, 1983 (Exhibit 10(f) to NEES' 1983 Form 10-K, File No. 1-3446). (j) Vermont Electric Transmission Company, Inc. et al. and the Company: Phase I Vermont Transmission Line Support Agreement dated as of December 1, 1981; Amendments dated as of June 1, 1982 and November 1, 1982 (Exhibit 10(g) to NEES' 1982 Form 10-K, File No. 1-3446); Amendment dated as of January 1, 1986 (Exhibit 10(h) to NEES' 1986 Form 10-K, File No. 1-3446). (k) New England Energy Incorporated and the Company: Fuel Purchase Contract dated July 26, 1979, and Amendment dated August 26, 1981 (Exhibit 10(f)(iii) to NEES' 1981 Form 10-K, File No. 1-3446); Amendment dated March 26, 1985, and Amendment effective January 1, 1984 (Exhibit 10(e)(iii) to NEES' 1985 Form 10-K, File No. 1-3446); Amendment dated as of April 28, 1989 (Exhibit 10(e)(iii) to 1989 NEES Form 10-K, File No. 1-3446). (l) New England Power Pool Agreement: (Exhibit 4(e), File No. 2-43025); Amendments dated July 1, 1972, March 1, 1973 (Exhibit 10-15, File No. 2-48543);Amendment dated March 15, 1974 (Exhibit 10-5, File No. 2-52775); Amendment dated June 1, 1975 (Exhibit 10-14, File No. 2-57831); Amendment dated September 1, 1975 (Exhibit 10-13, File No. 2-59182); Amendments dated December 31, 1976, January 31, 1977, July 1, 1977, and August 1, 1977 (Exhibit 10-16, File No. 2-61881); Amendments dated August 15, 1978, January 3, 1980, and February 1980 (Exhibit 10-3, File No. 2-68283); Amendment dated September 1, 1981 (Exhibit 10(h) to NEES' 1981 Form 10-K, File No. 1-3446); Amendment dated December 1, 1981 (Exhibit 10(h) to NEES' 1982 Form 10-K, File No. 1-3446); Amendments dated June 1, 1982, June 15, 1983, and October 1, 1983 (Exhibit 10(i) to NEES' 1983 Form 10-K, File 1-3446); Amendments dated August 1, 1985, August 15, 1985, September 1, 1985, and January 1, 1986 (Exhibit 10(i) to NEES' 1985 Form 10-K, File No. 1-3446); Amendment dated September 1, 1986 (Exhibit 10(i) to NEES' 1986 Form 10-K, File No. 1-3446); Amendment dated April 30, 1987 (Exhibit 10(i) to NEES' 1987 Form 10-K, File No. 1-3446); Amendments dated March 1, 1988 and May 1, 1988 (Exhibit 10(i) to NEES' 1988 Form 10-K, File No. 1-3446); Amendment dated March 15, 1989 (Exhibit 10(i) to 1989 NEES Form 10-K, File No. 1-3446); Amendment dated October 1, 1990 (Exhibit 10(i) to 1990 NEES Form 10-K, File No. 1-3446); Amendment dated October 1, 1990 Exhibit 10(i) to 1990 NEES Form 10-K, File No. 1-3446); Amendment dated as of September 15, 1992 (Exhibit 10(i) to 1992 NEES Form 10-K, File No. 1-3446); Amendments dated as of June 1, 1993, July 1, 1995, and September 1, 1995 (Exhibit 10(i) to 1995 NEES Form 10-K, File No. 1-3446); Amendment dated as of December 1, 1996 (Exhibit 10(i) to 1996 NEES Form 10-K, File No. 1-3446). (m) New England Power Service Company and the Company: Specimen of Service Contract (Exhibit 10(l) to 1994 Form 10-K, File No. 0-1229). (n) Massachusetts Electric Company, et al. and the Company: Form of Mutual Assistance Agreement (filed herewith). (o) Massachusetts Electric Company, et al. and the Company: Restructuring Settlement Agreement approved by the Massachusetts Department of Public Utilities (filed herewith). (p) Public Service Company of New Hampshire et al. and the Company: Agreement for Joint Ownership, Construction and Operation of New Hampshire Nuclear Units dated as of May 1, 1973; Amendments dated May 24, 1974, June 21, 1974, September 25, 1974 and October 25, 1974 (Exhibit 10-18(b), File No. 2-52820); Amendment dated January 31, 1975 (Exhibit 10-16(b), File No. 2-57831); Amendments dated April 18, 1979, April 25, 1979, June 8, 1979, October 11, 1979, December 15, 1979, June 16, 1980, and December 31, 1980 (Exhibit 10(i) to NEES' 1980 Form 10-K, File No. 1-3446); Amendments dated June 1, 1982, April 27, 1984, and June 15, 1984 (Exhibit 10(j) to NEES' 1984 Form 10-K, File No. 1-3446); Amendments dated March 8, 1985, March 14, 1986, May 1, 1986, and September 19, 1986 (Exhibit 10(j) to NEES' 1986 Form 10-K, File No. 1-3446); Amendment dated November 12, 1987 (Exhibit 10(j) to NEES' 1987 Form 10-K, File No. 1-3446); Amendment dated January 13, 1989 (Exhibit 10(j) to NEES' 1990 Form 10-K, File No. 1-3446); Seventh Amendment as of November 1, 1990 (Exhibit 10(m) to NEES' 1991 Form 10-K, File No. 1-3446). Transmission Support Agreement dated as of May 1, 1973 (Exhibit 10-23, File No. 2-49184); Instrument of Transfer to the Company with respect to the New Hampshire Nuclear Units and Assumptions of Obligations dated December 17, 1975 and Agreement Among Participants in New Hampshire Nuclear Units, certain Massachusetts Municipal Systems and Massachusetts Municipal Wholesale Electric Company dated May 28, 1976 (Exhibit 16(c), File No. 2-57831); Seventh Amendment To and Restated Agreement for Seabrook Project Disbursing Agent dated as of November 1, 1990 (Exhibit 10(m) to NEES' 1991 Form 10-K, File No. 1-3446); Amendments dated as of June 29, 1992 (Exhibit 10(j) to NEES' 1992 Form 10-K, File No. 1- 3446). Settlement Agreement dated as of July 19, 1990 between Northeast Utilities Service Company and the Company (Exhibit 10(m) to NEES' 1991 Form 10-K, File No. 1-3446). Seabrook Project Managing Agent Operating Agreement dated as of June 29, 1992, Amendment to Seabrook Project Managing Agent Operating Agreement dated as of June 29, 1992 (Exhibit 10(j) to NEES' 1992 Form 10-K, File No. 1- 3446). (q) Vermont Yankee Nuclear Power Corporation et al. and the Company: Capital Funds Agreement dated February 1, 1968, Amendment dated March 12, 1968 and Power Purchase Contract dated February 1, 1968 (Exhibit 4-6, File No. 2-29145); Amendments dated as of June 1, 1972, April 15, 1983 (Exhibit 10(k) to NEES' 1983 Form 10-K, File No. 0-1229) and April 24, 1985 (Exhibit 10(n) to NEES' 1985 Form 10-K, File No. 1-3446); Amendment dated as of June 1, 1985 (Exhibit 10(n) to 1988 Form 10-K, File No. 0-1229); Amendments dated May 6, 1988 (Exhibit 10(n) to 1988 Form 10-K, File No. 0-1229); Amendment dated as of June 15, 1989 (Exhibit 10(k) to 1989 NEES Form 10-K, File No. 1-3446); Additional Power Contract dated as of February 1, 1984 (Exhibit 10(k) to NEES' 1983 Form 10-K, File No. 1-3446); Guarantee Agreement dated as of November 5, 1981 (Exhibit 10(j) to NEES' 1981 Form 10-K, File No. 1-3446). (r) Yankee Atomic Electric Company et al. and the Company: Amended and Restated Power Contract dated April 1, 1985 (Exhibit 10(l) to NEES' 1985 Form 10-K, File No. 1-3446); Amendment dated May 6, 1988 (Exhibit 10(l) to NEES' 1988 Form 10-K, File No. 1-3446); Amendments dated as of June 26, 1989 and July 1, 1989 (Exhibit 10(l) to 1989 NEES Form 10-K, File No. 1-3446); Amendment dated as of February 1, 1992 (Exhibit 10(l) to 1992 NEES Form 10-K, File No. 1-3446). *(s) New England Electric Companies' Deferred Compensation Plan as amended through November 26, 1996 (Exhibit 10(m) to NEES' 1996 Form 10-K, File No. 1-3446). *(t) New England Electric System Companies Retirement Supplement Plan as amended through June 1, 1996 (Exhibit 10(n) to NEES' 1996 Form 10-K, File No. 1-3446). *(u) New England Electric Companies' Executive Supplemental Retirement Plan I as amended through May 20, 1996 (Exhibit 10(o) to NEES' 1996 Form 10-K, File No. 1-3446). *(v) New England Electric Companies Executive Supplemental Retirement Plan II as amended through October 25, 1995 (Exhibit 10(p) to NEES' 1996 Form 10-K, File No. 1-3446). *(w) New England Electric Companies' Incentive Compensation Plan I as amended through October 24, 1995 (Exhibit 10(p) to NEES' 1996 Form 10-K, File No. 1-3446). *(x) New England Electric Companies' Incentive Compensation Plan II as amended through January 1, 1995 (Exhibit 10(r) to NEES' 1995 Form 10-K, File No. 1-3446). *(y) New England Electric Companies' Incentive Compensation Plan III as amended through January 1, 1996 (Exhibit 10(s) to NEES' 1996 Form 10-K, File No. 1-3446). *(z) New England Electric Companies' Senior Incentive Compensation Plan as amended through January 1, 1995 (Exhibit 10(q) to NEES' 1995 Form 10-K, File No. 1-3446). *(aa) Forms of Life Insurance Program: (Exhibit 10(s) to NEES' 1986 Form 10-K, File No. 1-3446); and Form of Life Insurance (Collateral Assignment) (Exhibit 10(t) to NEES' 1991 Form 10-K, File No. 1-3446). *(bb) New England Electric Companies' Incentive Share Plan as amended through February 24, 1997 (Exhibit 10 (w) to NEES 1996 Form 10-K, File No. 1-3446). *(cc) New England Electric System Directors' Retirement Plan dated May 1, 1994 (Exhibit 10(y) to 1996 NEES Form 10-K, File No. 1-3446. *(dd) Forms of Severance Protection Agreement (Exhibit 10 (z) to NEES' 1996 Form 10-K, File No. 1-3446). *(ee) New England Electric Companies' Long-Term Performance Share Award Plan amended through February 24, 1997 (Exhibit 10(x) to NEES' 1996 Form 10-K, File No. 1-3446). (ff) New England Hydro-Transmission Electric Company, Inc. et al. and the Company: Phase II Massachusetts Transmission Facilities Support Agreement dated as of June 1, 1985 (Exhibit 10(t) to NEES' 1986 Form 10-K, File No. 1-3446); Amendment dated as of May 1, 1986 (Exhibit 10(t) to NEES' 1986 Form 10-K, File No. 1-3446); Amendments dated as of February 1, 1987, June 1, 1987, September 1, 1987, and October 1, 1987 (Exhibit 10(u) to NEES' 1987 Form 10-K, File No. 1-3446); Amendment dated as of August 1, 1988 (Exhibit 10(u) to NEES' 1988 Form 10-K, File No. 1-3446); Amendment dated January 1, 1989 (Exhibit 10(u) to NEES' 1990 Form 10-K, File No. 1-3446). (gg) New England Hydro-Transmission Corporation et al. and the Company: Phase II New Hampshire Transmission Facilities Support Agreement dated as of June 1, 1985 (Exhibit 10(u) to NEES' 1986 Form 10-K, File No. 1-3446); Amendment dated as of May 1, 1986 (Exhibit 10(u) to NEES' 1986 Form 10-K, File No. 1-3446); Amendments dated as of February 1, 1987, June 1, 1987, September 1, 1987, and October 1, 1987 (Exhibit 10(v) to NEES' 1987 Form 10-K, File No. 1-3446). Amendment dated as of August 1, 1988 (Exhibit 10(v) to NEES' 1988 Form 10-K, File No. 1-3446); Amendments dated January 1, 1989 and January 1, 1990 (Exhibit 10 (v) to NEES' 1990 Form 10-K, File No. 1-3446). (hh) Vermont Electric Power Company et al. and the Company: Phase II New England Power AC Facilities Support Agreement dated as of June 1, 1985 (Exhibit 10(v) to NEES' 1986 Form 10-K, File No. 1-3446); Amendment dated as of May 1, 1986 (Exhibit 10(v) to NEES' 1986 Form 10-K, File No. 1-3446). Amendments dated as of February 1, 1987, June 1, 1987, and September 1, 1987 (Exhibit 10(w) to NEES' 1987 Form 10-K, File No. 1-3446); Amendment dated as of August 1, 1988 (Exhibit 10(w) to NEES' 1988 Form 10-K, File No. 1-3446). * Compensation related plan, contract, or arrangement. (13) 1996 Annual Report to Stockholders (filed herewith). (21) Subsidiary list (filed herewith). (24) Power of Attorney (filed herewith). (27) Financial Data Schedule (filed herewith). Mass. Electric -------------- (3) (a) Articles of Organization of the Company as amended March 5, 1993, August 11, 1993, September 20, 1993, and November 15, 1993 (Exhibit 3(a) to 1993 Form 10-K, File No. 0-5464). (b) By-Laws of the Company as amended February 4, 1993, July 30, 1993, and September 15, 1993 (Exhibit 3(b) to 1993 Form 10-K, File No. 0-5464). (4) First Mortgage Indenture and Deed of Trust, dated as of July 1, 1949, and twenty-one supplements thereto (Exhibit 7-A, File No. 1-8019; Exhibit 7-B, File No. 2-8836; Exhibit 4-C, File No. 2-9593; Exhibit 4 to 1980 Form 10-K, File No. 2-8019; Exhibit 4 to 1982 Form 10-K, File No. 0-5464; Exhibit 4 to 1986 Form 10-K, File No. 0-5464); Exhibit 4 to 1988 Form 10-K, File No. 0-5464; Exhibit 4(a) to 1989 NEES Form 10-K, File No. 1-3446; Exhibit 4(a) to 1992 NEES Form 10-K, File No. 1-3446; Exhibit 4(a) to 1993 NEES Form 10-K, File No. 1-3446; Exhibit 4(a) to 1995 NEES Form 10-K, File No. 1-3446). (10) Material Contracts (a) Boston Edison Company et al. and Company: Amended REMVEC Agreement dated August 12, 1977 (Exhibit 5-4(d), File No. 2-61881). (b) New England Power Company and the Company: Primary Service for Resale dated February 15, 1974 (Exhibit 5-17(a), File No. 2-52969); Amendment of Service Agreement dated July 22, 1983 (Exhibit 10(b) to 1986 Form 10-K, File No. 0-5464); Amendment of Service Agreement effective November 1, 1993 (Exhibit 10(e) to 1993 NEP Form 10-K, File No. 0- 1229); Memorandum of Understanding effective May 22, 1994 (Exhibit 10(e) to 1994 NEP Form 10-K, File No. 0-1229). (c) New England Power Pool Agreement: (Exhibit 4(e), File No. 2-43025); Amendments dated July 1, 1972, and March 1, 1973 (Exhibit 10-15, File No. 2-48543); Amendment dated March 15, 1974 (Exhibit 10-5, File No. 2-52775); Amendment dated June 1, 1975 (Exhibit 10-14, File No. 2-57831); Amendment dated September 1, 1975 (Exhibit 10-13, File No. 2-59182); Amendments dated December 31, 1976, January 31, 1977, July 1, 1977, and August 1, 1977 (Exhibit 10-16, File No. 2-61881); Amendments dated August 15, 1978, January 3, 1980, and February 1980 (Exhibit 10-3, File No. 2-68283); Amendment dated September 1, 1981 (Exhibit 10(h) to NEES' 1981 Form 10-K, File No. 1-3446); Amendment dated as of December 1, 1981 (Exhibit 10(h) to NEES' 1982 Form 10-K, File No. 1-3446); Amendments dated June 1, 1982, June 15, 1983, and October 1, 1983 (Exhibit 10(i) to NEES' 1983 Form 10-K, File No. 1-3446); Amendments dated August 1, 1985, August 15, 1985, September 1, 1985, and January 1, 1986 (Exhibit 10(i) to NEES' 1985 Form 10-K, File No. 1-3446); Amendment dated September 1, 1986 (Exhibit 10(i) to NEES' 1986 Form 10-K, File No. 1-3446); Amendments dated April 30, 1987 (Exhibit 10(i) to NEES' 1987 Form 10-K, File No. 1-3446); Amendments dated March 1, 1988 and May 1, 1988 (Exhibit 10(i) to NEES' 1988 Form 10-K, File No. 1-3446); Amendment dated March 15, 1989 (Exhibit 10(i) to 1989 NEES Form 10-K, File No. 1-3446). Amendment dated October 1, 1990 (Exhibit 10(i) to 1990 NEES Form 10-K, File No. 1-3446); Amendment dated as of September 15, 1992 (Exhibit 10(i) to 1992 NEES Form 10-K, File No. 1-3446). Amendments dated as of June 1, 1993, July 1, 1995, and September 1, 1995 (Exhibit 10(i) to 1995 NEES Form 10-K, File No. 1- 3446); Amendment dated as of December 1, 1996 (Exhibit 10(i) to 1996 NEES Form 10-K, File No. 1- 3446). (d) New England Power Service Company and the Company: Specimen of Service Contract (Exhibit 10(l) to 1994 NEP Form 10-K, File No. 0-1229). (e) New England Power Company et al. and the Company: Form of Mutual Assistance Agreement (Exhibit 10(n) to 1996 NEP Form 10-K, File No. 0-1229). (f) New England Power Company et al. and the Company: Restructuring Settlement Agreement approved by the Massachusetts Department of Public Utilities February 26, 1997 (Exhibit 10(o) to 1996 Form 10-K, File No. 0-1229). (g) New England Telephone and Telegraph Company and the Company: Specimen of Joint Ownership Agreement for Wood Poles (Exhibit 4(e), File No. 2-24458). *(h) New England Electric Companies' Deferred Compensation Plan as amended through November 26, 1996 (Exhibit 10(m) to NEES' 1996 Form 10-K, File No. 1-3446). *(i) New England Electric System Companies Retirement Supplement Plan as amended through June 1, 1996 (Exhibit 10(n) to NEES' 1996 Form 10-K, File No. 1-3446). *(j) New England Electric Companies' Executive Supplemental Retirement Plan I as amended through May 20, 1996 (Exhibit 10(o) to NEES' 1996 Form 10-K, File No. 1-3446). *(k) New England Electric Companies' Executive Supplemental Retirement Plan II as amended through October 25, 1995 (Exhibit 10(p) to NEES' 1996 Form 10-K, File No. 1-3446). *(l) New England Electric Companies' Incentive Compensation Plan as amended through January 1, 1995 (Exhibit 10(p) to NEES' 1995 Form 10-K, File No. 1-3446). *(m) New England Electric Companies' Incentive Compensation Plan II as amended through January 1, 1995 (Exhibit 10(r) to NEES' 1995 Form 10-K, File No. 1-3446). *(n) New England Electric Companies' Incentive Compensation Plan III as amended through January 1, 1996 (Exhibit 10(s) to NEES' 1996 Form 10-K, File No. 1-3446). *(o) New England Electric Companies' Form of Deferred Compensation Agreement for Directors (Exhibit 10(p) to NEES' 1980 Form 10-K, File No. 1-3446). *(p) New England Electric Companies' Senior Incentive Compensation Plan as amended through January 1, 1995 (Exhibit 10(q) to NEES' 1995 Form 10-K, File No. 1-3446). *(q) Forms of Life Insurance Program: (Exhibit 10(s) to NEES' 1986 Form 10-K, File No. 1-3446); and Form of Life Insurance (Collateral Assignment) (Exhibit 10(t) to NEES' 1991 Form 10-K, File No. 1-3446). *(r) New England Electric Companies' Incentive Share Plan as amended through February 24, 1997 (Exhibit 10(w) to NEES' 1996 Form 10-K, File No. 1-3446). *(s) New England Electric Companies' Long-Term Performance Share Award Plan amended through February 24, 1997 (Exhibit 10 (x) to NEES' 1996 Form 10-K, File No. 1-3446). *(t) New England Electric System Directors' Retirement Plan dated May 1, 1994 (Exhibit 10(y) to NEES' 1996 Form 10-K, File No. 1-3446. *(u) Forms of Severance Protection Agreement (Exhibit 10 (z) to NEES' 1996 Form 10-K, File No. 1-3446). *(v) New England Power Service Company and the Company: Form of Supplemental Pension Service Credit Agreement (Exhibit 10(ee) to 1992 NEES Form 10-K, File No. 1-3446). * Compensation related plan, contract, or arrangement. (12) Statement re computation of ratios for incorporation by reference into the Mass. Electric registration statement on Form S-3, Commission File No. 33-59145 (filed herewith). (13) 1996 Annual Report to Stockholders (filed herewith). (24) Power of Attorney (filed herewith). (27) Financial Data Schedule (filed herewith). Narragansett ------------ (3) (a) Articles of Incorporation as amended June 9, 1988 (Exhibit 3(a) to 1988 Form 10-K, File No. 0-898). (b) By-Laws of the Company (Exhibit 3 to 1980 Form 10-K, File No. 0-898). (4) (a) First Mortgage Indenture and Deed of Trust, dated as of September 1, 1944, and twenty-two supplements thereto (Exhibit 7-1, File No. 2-7042; Exhibit 7-B, File No. 2-7490; Exhibit 4-C, File No. 2-9423; Exhibit 4-D, File No. 2-10056; Exhibit 4 to 1980 Form 10-K, File No. 0-898; Exhibit 4 to 1982 Form 10-K, File No. 0-898; Exhibit 4 to 1983 Form 10-K, File No. 0-898; Exhibit 4 to 1985 Form 10-K, File No. 0-898; Exhibit 4 to 1986 Form 10-K, File No. 0-898; Exhibit 4 to 1987 Form 10-K, File No. 0-898; Exhibit 4(b) to 1991 NEES Form 10-K, File No. 1-3446; Exhibit 4(b) to 1992 NEES Form 10-K, File No. 1-3446; Exhibit 4(b) to 1993 NEES Form 10-K, File No. 1-3446; Exhibit 4(b) to 1995 NEES Form 10- K, File No. 1-3446). (b) The Narragansett Electric Company Preference Provisions, as amended, dated March 23, 1993 (Exhibit 4(c) to 1993 NEES Form 10-K, File No. 1- 3446). (10) Material Contracts (a) Boston Edison Company et al. and the Company: Amended REMVEC Agreement dated August 12, 1977 (Exhibit 5-4(d), File No. 2-61881). (b) New England Power Company and the Company: Primary Service for Resale dated February 15, 1974 (Exhibit 4-1(b), File No. 2-51292); Amendment of Service Agreement dated July 26, 1990 (Exhibit 10(f) to 1990 NEP Form 10-K, File No. 0-1229); Amendment of Service Agreement dated July 24, 1991 (Exhibit 4(f) to 1991 NEP Form 10-K, File No. 0-1229); Amendment of Service Agreement effective November 1, 1993 (Exhibit 10(f) to 1993 NEP Form 10-K, File No. 0- 1229); Memorandum of Understanding effective May 22, 1994 (Exhibit 10(f) to 1994 NEP Form 10-K, File No. 0-1229); Amendment of Service Agreement effective January 1, 1995 (Exhibit 10(f) to 1995 NEP Form 10-K, File No. 0-1229). (c) New England Power Pool Agreement: (Exhibit 4(e), File No. 2-43025); Amendments dated July 1, 1972, and March 1, 1973 (Exhibit 10-15, File No. 2-48543); Amendment dated March 15, 1974 (Exhibit 10-5, File No. 2-52775); Amendment dated June 1, 1975 (Exhibit 10-14, File No. 2-57831); Amendment dated September 1, 1975 (Exhibit 10-13, File No. 2-59182); Amendments dated December 31, 1976, January 31, 1977, July 1, 1977, and August 1, 1977 (Exhibit 10-16, File No. 2-61881); Amendments dated August 15, 1978, January 3, 1980, and February 1980 (Exhibit 10-3, File No. 2-68283); Amendment dated September 1, 1981 (Exhibit 10(h) to NEES' 1981 Form 10-K, File No. 1-3446); Amendment dated December 1, 1981 (Exhibit 10(h) to NEES' 1982 Form 10-K, File No. 1-3446); Amendments dated June 1, 1982, June 15, 1983, and October 1, 1983 (Exhibit 10(i) to NEES' 1983 Form 10-K, File No. 1-3446); Amendments dated August 1, 1985, August 15, 1985, September 1, 1985, and January 1, 1986 (Exhibit 10 (i) to NEES' 1985 Form 10-K, File No. 1-3446); Amendment dated September 1, 1986 (Exhibit 10(i) to NEES' 1986 Form 10-K, File No. 1-3446); Amendment dated April 30, 1987 (Exhibit 10(i) to NEES' 1987 Form 10-K, File No. 1-3446); Amendments dated March 1, 1988 and May 1, 1988 (Exhibit 10(i) to NEES' 1988 Form 10-K, File No. 1-3446); Amendment dated March 15, 1989 (Exhibit 10(i) to 1989 NEES Form 10-K, File No. 1-3446). Amendment dated October 1, 1990 (Exhibit 10(i) to 1990 NEES' Form 10-K, File No. 1-3446); Amendment dated as of September 15, 1992 (Exhibit 10(i) to NEES' 1992 Form 10-K, File No. 1-3446); Amendments dated as of June 1, 1993, July 1, 1995, and September 1, 1995 (Exhibit 10(i) to NEES' 1995 Form 10-K, File No. 1-3446); Amendment dated as of December 1, 1996 (Exhibit 10(i) to 1996 NEES Form 10-K, File No. 1-3446). (d) New England Power Service Company and the Company: Specimen of Service Contract (Exhibit 4(l) to 1994 NEP Form 10-K, File No. 0-1229). (e) New England Power Company et al. and the Company: Form of Mutual Assistance Agreement (Exhibit 10 (n) to 1996 Form 10-K, File No. 0-1229). (f) New England Telephone and Telegraph Company and the Company: Specimen of Joint Ownership Agreement for Wood Poles (Exhibit 3(d), File No. 2-24458). *(g) New England Electric Companies' Deferred Compensation Plan, as amended through November 26, 1996 (Exhibit 10(m) to NEES' 1996 Form 10-K, File No. 1-3446). *(h) New England Electric System Companies Retirement Supplement Plan, as amended through June 1, 1996 (Exhibit 10(n) to NEES' 1996 Form 10-K, File No. 1-3446). *(i) New England Electric Companies' Executive Supplemental Retirement Plan I, as amended through May 20, 1996 (Exhibit 10(o) to NEES' 1996 Form 10-K, File No. 1-3446). *(j) New England Electric Companies' Executive Supplemental Retirement Plan II, as amended through October 25, 1995 (Exhibit 10(p) to NEES' 1996 Form 10-K, File No. 1-3446). *(k) New England Companies' Incentive Compensation Plan, as amended through January 1, 1995 (Exhibit 10(p) to NEES' 1995 Form 10-K, File No. 1-3446). *(l) New England Electric Companies' Incentive Compensation Plan II as amended through January 1, 1995 (Exhibit 10(r) to NEES' 1995 Form 10-K, File No. 1-3446). *(m) New England Electric Companies' Incentive Compensation Plan III as amended through January 1, 1996 (Exhibit 10(s) to NEES' 1996 Form 10-K, File No. 1-3446). *(n) New England Electric Companies' Form of Deferred Compensation Agreement for Directors (Exhibit 10(p) to NEES' 1980 Form 10-K, File No. 1-3446). *(o) New England Electric Companies' Senior Incentive Compensation Plan as amended through January 1, 1995 (Exhibit 10(q) to NEES' 1995 Form 10-K, File No. 1-3446). *(p) Forms of Life Insurance Program (Exhibit 10(s) to NEES' 1986 Form 10-K, File No. 1-3446); and Form of Life Insurance (Collateral Assignment) (Exhibit 10(t) to NEES' 1991 Form 10-K, File No. 1-3446). *(q) New England Electric Companies' Incentive Share Plan as amended through February 24, 1997 (Exhibit 10(u) to NEES' 1995 Form 10-K, File No. 1-3446). *(r) New England Power Service Company and the Company: Form of Supplemental Pension Service Credit Agreement (Exhibit 10(ee) to 1992 NEES Form 10-K, File No. 1-3446). *(s) New England Electric Companies Long-Term Performance Share Award Plan amended through February 24, 1997 (Exhibit 10 (x) to NEES' 1996 Form 10-K, File No. 1-3446). *(t) New England Electric System Directors' Retirement Plan dated May 1, 1994 (Exhibit 10 (y) to NEES 1996 Form 10-K, File No. 1-3446). *(u) Forms of Severance Protection Agreement (Exhibit 10(z) to NEES' 1996 Form 10-K, File No. 1-3446). * Compensation related plan, contract, or arrangement. (12) Statement re computation of ratios for incorporation by reference into the Narragansett registration statement on Form S-3, Commission File No. 33-61131 (filed herewith). (13) 1996 Annual Report to Stockholders (filed herewith). (24) Power of Attorney (filed herewith). (27) Financial Data Schedule (filed herewith). Reports on Form 8-K NEES ---- NEES filed reports on Form 8-K dated February 1, 1996, February 16, 1996, May 30, 1996, September 12, 1996, September 18, 1996, and October 1, 1996, all of which contained Item 5. NEP --- NEP filed reports on Form 8-K dated February 1, 1996, February 16, 1996, May 30, 1996, September 12, 1996, and October 1, 1996, all of which contained Item 5. Mass. Electric -------------- Mass. Electric filed reports on Form 8-K dated February 16, 1996, September 12, 1996, and October 1, 1996, all of which contained Item 5. Narragansett ------------ Narragansett filed reports on Form 8-K dated February 7, 1996, May 30, 1996, and October 1, 1996, all of which contained Item 5. NEW ENGLAND ELECTRIC SYSTEM SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf, by the undersigned thereunto duly authorized. NEW ENGLAND ELECTRIC SYSTEM* s/John W. Rowe John W. Rowe President and Chief Executive Officer March 28, 1997 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated. (Signature and Title) Principal Executive Officer s/John W. Rowe John W. Rowe President and Chief Executive Officer Principal Financial Officer s/Alfred D. Houston Alfred D. Houston Executive Vice President and Chief Financial Officer Principal Accounting Officer s/Michael E. Jesanis Michael E. Jesanis Vice President and Treasurer Directors (a majority) Joan T. Bok William M. Bulger Paul L. Joskow Edward H. Ladd Joshua A. McClure John W. Rowe s/John G. Cochrane George M. Sage All by: Charles E. Soule John G. Cochrane Anne Wexler Attorney-in-fact James Q. Wilson James R. Winoker Date (as to all signatures on this page) March 28, 1997 *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. NEW ENGLAND POWER COMPANY SIGNATURES Pursuant to the Requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. The signature of the undersigned company shall be deemed to relate only to matters having reference to such company. NEW ENGLAND POWER COMPANY s/Jeffrey D. Tranen Jeffrey D. Tranen President Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated. The signature of each of the undersigned shall be deemed to relate only to matters having reference to the above-named company. (Signature and Title) Principal Executive Officer s/Jeffrey D. Tranen Jeffrey D. Tranen President Principal Financial Officer s/Michael E. Jesanis Michael E. Jesanis Treasurer Principal Accounting Officer s/Howard W. McDowell Howard W. McDowell Controller Directors (a majority) Joan T. Bok Alfred D. Houston s/John G. Cochrane Cheryl A. LaFleur John W. Rowe All by: Jeffrey D. Tranen John G. Cochrane Attorney-in-fact Date (as to all signatures on this page) March 28, 1997 MASSACHUSETTS ELECTRIC COMPANY SIGNATURES Pursuant to the Requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. The signature of the undersigned company shall be deemed to relate only to matters having reference to such company. MASSACHUSETTS ELECTRIC COMPANY s/Lawrence J. Reilly Lawrence J. Reilly President Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated. The signature of each of the undersigned shall be deemed to relate only to matters having reference to the above-named company. (Signature and Title) Principal Executive Officer s/Lawrence J. Reilly Lawrence J. Reilly President Principal Financial Officer s/Michael E. Jesanis Michael E. Jesanis Treasurer Principal Accounting Officer s/Howard W. McDowell Howard W. McDowell Controller Directors (a majority) Urville J. Beaumont Joan T. Bok Sally L. Collins Kalyan K. Ghosh Patricia McGovern s/John G. Cochrane John F. Reilly, Jr. All by: Lawrence J. Reilly John G. Cochrane John W. Rowe Attorney-in-fact Richard P. Sergel Roslyn M. Watson Date (as to all signatures on this page) March 28, 1997 THE NARRAGANSETT ELECTRIC COMPANY SIGNATURES Pursuant to the Requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. The signature of the undersigned company shall be deemed to relate only to matters having reference to such company. THE NARRAGANSETT ELECTRIC COMPANY s/Robert L. McCabe Robert L. McCabe President Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated. The signature of each of the undersigned shall be deemed to relate only to matters having reference to the above-named company. (Signature and Title) Principal Executive Officer s/Robert L. McCabe Robert L. McCabe President Principal Financial Officer s/Alfred D. Houston Alfred D. Houston Vice President and Treasurer Principal Accounting Officer s/Howard W. McDowell Howard W. McDowell Controller Directors (a majority) Joan T. Bok Stephen A. Cardi s/John G. Cochrane Richard W. Frost All by: Frances H. Gammell Joseph J. Kirby John G. Cochrane Robert L. McCabe Attorney-in-fact Willliam E. Trueheart Date (as to all signatures on this page) March 28, 1997 NEW ENGLAND ELECTRIC SYSTEM AND SUBSIDIARIES INDEX TO FINANCIAL STATEMENTS
References (Page) ----------------------- 1996 Annual Form Report to 10-K Shareholders* ---- ------------- Report of Independent Accountants........................... 46 Statements of Consolidated Income, Year Ended December 31, 1996, 1995 and 1994............. 27 Statements of Consolidated Retained Earnings, Year Ended December 31, 1996, 1995 and 1994............. 27 Consolidated Balance Sheets, December 31, 1996 and 1995... 28 Consolidated Statements of Cash Flows, Year Ended December 31, 1996, 1995 and 1994............. 29 Consolidated Statements of Capitalization, December 31, 1996 and 1995.............................. 30 Notes to Financial Statements............................... 31-45 For the Year Ended December 31, 1996, 1995 and 1994: Consent of Independent Accountants........................ 115 * Incorporated by Reference
CONSENT OF INDEPENDENT ACCOUNTANTS ---------------------------------- We consent to the incorporation by reference in the registration statements of New England Electric System on Form S-3 of the Dividend Reinvestment and Common Share Purchase Plan (File No. 33-12313) and on Forms S-8 of the New England Electric System Companies Incentive Thrift Plan (File No. 33-26066), the New England Electric System Companies Incentive Thrift Plan II (File No. 33-35470) and the Yankee Atomic Electric Company Thrift Plan (File No. 2-67531) of our report dated February 28, 1997 on our audits of the consolidated financial statements of New England Electric System and subsidiaries as of December 31, 1996 and 1995 and for each of the three years in the period ended December 31, 1996, which report is incorporated by reference in this Annual Report on Form 10-K. We also consent to the incorporation by reference in the registration statements of New England Power Company on Forms S-3 (File Nos. 33-48257, 33-48897, and 33-49193) Massachusetts Electric Company on Form S-3 (File No. 33-59145) and The Narragansett Electric Company on Form S-3 (File No. 33-61131) of our reports dated February 28, 1997 on our audits of the financial statements of New England Power Company, Massachusetts Electric Company and The Narragansett Electric Company, respectively, as of December 31, 1996 and 1995 and for each of the three years in the period ended December 31, 1996, which reports are incorporated by reference in this Annual Report on Form 10-K. s/ Coopers & Lybrand L.L.P. Boston, Massachusetts COOPERS & LYBRAND L.L.P. March 28, 1997 NEW ENGLAND POWER COMPANY INDEX TO FINANCIAL STATEMENTS
References (Page) ---------------------- 1996 Annual Form Report to 10-K Shareholders* ---- ------------- Report of Independent Accountants........................... 2 Statements of Income, Year Ended December 31, 1996, 1995 and 1994............... 17 Statements of Retained Earnings, Year Ended December 31, 1996, 1995 and 1994............... 17 Balance Sheets, December 31, 1996 and 1995.................. 18 Statements of Cash Flows, Year Ended December 31, 1996, 1995 and 1994............... 19 Notes to Financial Statements............................... 20-44 For the Year Ended December 31, 1996, 1995 and 1994: Consent of Independent Accountants....................... 115 * Incorporated by Reference
MASSACHUSETTS ELECTRIC COMPANY INDEX TO FINANCIAL STATEMENTS
References (Page) ---------------------- 1996 Annual Form Report to 10-K Shareholders* ---- ------------- Report of Independent Accountants........................... 2 Statements of Income, Year Ended December 31, 1996, 1995 and 1994............... 10 Statements of Retained Earnings, Year Ended December 31, 1996, 1995 and 1994............... 10 Balance Sheets, December 31, 1996 and 1995.................. 11 Statements of Cash Flows, Year Ended December 31, 1996, 1995 and 1994............... 12 Notes to Financial Statements............................... 13-28 For the Year Ended December 31, 1996, 1995 and 1994: Consent of Independent Accountants........................ 115 * Incorporated by Reference
THE NARRAGANSETT ELECTRIC COMPANY INDEX TO FINANCIAL STATEMENTS
References (Page) ---------------------- 1996 Annual Form Report to 10-K Shareholders* ---- ------------- Report of Independent Accountants........................... 2 Statements of Income, Year Ended December 31, 1996, 1995 and 1994............... 10 Statements of Retained Earnings, Year Ended December 31, 1996, 1995 and 1994............... 10 Balance Sheets, December 31, 1996 and 1995.................. 11 Statements of Cash Flows, Year Ended December 31, 1996, 1995 and 1994............... 12 Notes to Financial Statements............................... 13-27 For the Year Ended December 31, 1996, 1995 and 1994: Consent of Independent Accountants........................ 115 * Incorporated by Reference
EX-99 2 NEES EXHIBIT INDEX --------------- Exhibit No. Description Page - ----------- ----------- ---- (3) Agreement and Declaration of Incorporated Trust dated January 2, 1926, by Reference as amended through April 28, 1992 (4)(a) Massachusetts Electric Company Incorporated First Mortgage Indenture and by Reference Deed of Trust, dated as of July 1, 1949, and twenty-one supplements thereto (4)(b) The Narragansett Electric Incorporated Company First Mortgage Indenture by Reference and Deed of Trust, dated as of September 1, 1944, and twenty-two supplements thereto (4)(c) The Narragansett Electric Incorporated Company Preference Provisions, by Reference as amended, dated March 23, 1993 (4)(d) New England Power Company General Incorporated and Refunding Mortgage Indenture by Reference and Deed of Trust dated as of January 1, 1977 and twenty supplements thereto (10)(a) Boston Edison Company et al. and Incorporated New England Power Company: by Reference Amended REMVEC Agreement dated August 12, 1977 (10)(b) The Connecticut Light and Power Incorporated Company et al. and New England by Reference Power Company: Sharing Agreement for Joint Ownership, Construction and Operation of Millstone Unit No. 3 dated as of September 1, 1973, and Amendments thereto; Transmission Support Agreement dated August 9, 1974; Instrument of Transfer to NEP with respect to the 1979 Connecticut Nuclear Unit, and Assumption of Obligations, dated December 17, 1975 (10)(c) Connecticut Yankee Atomic Power Incorporated Company et al. and New England by Reference Power Company: Stockholders Agreement dated July 1, 1964; Power Purchase Contract dated July 1, 1964; Additional Power Contract dated as of April 30, 1984; Supplemntary Power Contract dated as of April 1, 1987, Capital Funds Agreement dated September 1, 1964; Transmission Agreement dated October 1, 1964; Agreement revising Transmission Agreement dated July 1, 1979 and Amendment thereto dated January 19, 1994 1996 Amendatory Agreement dated Filed herewith as of December 4, 1996 (10)(d) Maine Yankee Atomic Power Company Incorporated et al. and New England Power by Reference Company: Capital Funds Agreement dated May 20, 1968 and Power Purchase Contract dated May 20, 1968; Amendments dated as of January 1, 1984, March 1, 1984, October 1, 1984, and August 1, 1985; Stockholders Agreement dated May 20, 1968; Additional Power Contract dated as of February 1, 1984 (10)(e)(i) New England Energy Incorporated Incorporated Capital Funds Agreement with by Reference NEES dated November 1, 1974 and Amendments thereto Amendment dated as of April 13, Filed herewith 1995 (10)(e)(ii) New England Energy Incorporated Incorporated Loan Agreement with NEES dated by Reference July 19, 1978 and effective November 1, 1974, and Amendments thereto Amendment dated as of April 13, Filed herewith 1995 (10)(e)(iii) New England Energy Incorporated Incorporated Fuel Purchase Contract with by Reference New England Power Company dated July 26, 1979, and Amendments thereto (10)(e)(iv) New England Energy Incorporated Incorporated Partnership Agreement with by Reference Samedan Oil Corporation as Amended and Restated on February 5, 1985 and Amendment thereto (10)(e)(v) New England Energy Incorporated Incorporated Credit Agreement dated as of by Reference April 13, 1995 (10)(e)(vi) New England Energy Incorporated Incorporated Capital Maintenance Agreement by Reference dated November 15, 1985, and Assignment and Security Agreement dated November 15, 1985 and Amendment dated as of April 28, 1989 Amendment dated as of April 13, Filed herewith 1995 (10)(f) New England Power Company and Incorporated New England Electric Transmission by Reference Corporation et al.: Phase I Terminal Facility Support Agreement dated as of December 1, 1981 and Amendments thereto; Agreement with respect to Use of the Quebec Interconnection dated as of December 1, 1981 and Amendments thereto; Agreement for Reinforcement and Improvement of New England Power Company's Transmission System dated as of April 1, 1983; Lease dated as of May 16, 1983; Upper Development - Lower Development Transmission Line Support Agreement dated as of May 16, 1983 (10)(g) New England Electric Transmission Incorporated Corporation and PruCapital by Reference Management, Inc. et al: Note Agreement dated as of September 1, 1986; Mortgage, Deed of Trust and Security Agreement dated as of September 1, 1986; Equity Funding Agreement with New England Electric System dated as of December 1, 1985 (10)(h) Vermont Electric Transmission Incorporated Company, Inc. et al. and New by Reference England Power Company: Phase I Vermont Transmission Line Support Agreement dated as of December 1, 1981 and Amendments thereto (10)(i) New England Power Pool Incorporated Agreement and Amendments thereto by Reference Amendment dated as of December Filed herewith 1, 1996 (10)(j) Public Service Company of New Incorporated Hampshire et al. and New England by Reference Power Company: Agreement for Joint Ownership, Construction and Operation of New Hampshire Nuclear Units dated as of May 1, 1973 and Amendments thereto; Transmission Support Agreement dated as of May 1, 1973; Instrument of Transfer to NEP with respect to the New Hampshire Nuclear Units and Assumptions of Obligations dated December 17, 1975; Agreement Among Participants in New Hampshire Nuclear Units, certain Massachusetts Municipal Systems and Massachusetts Municipal Wholesale Electric Company dated May 28, 1976; Seventh Amendment To and Restated Agreement for Seabrook Project Disbursing Agent and Amendments thereto; Seabrook Project Managing Agent Operating Agreement dated as of June 29, 1992, and Amendment to Seabrook Project Managing Agent Agreement dated as of June 29, 1992 (10)(k) Vermont Yankee Nuclear Power Incorporated Corporation et al. and New by Reference England Power Company: Capital Funds Agreement dated February 1, 1968, Amendment dated March 12, 1968, and Power Purchase Contract dated February 1, 1968 and Amendments (10)(k) thereto; Additional Power (cont.) Contract dated as of February 1, 1984; Guarantee Agreement dated as of November 5, 1981 (10)(l) Yankee Atomic Electric Company Incorporated et al. and New England Power by Reference Company: Amended and Restated Power Contract dated April 1, 1985 and Amendments thereto (10)(m) New England Electric Companies' Filed herewith Deferred Compensation Plan as amended through November 26, 1996 (10)(n) New England Electric System Filed herewith Companies Retirement Supplement Plan as amended through June 1, 1996 (10)(o) New England Electric Companies' Filed herewith Executive Supplemental Retirement Plan I as amended through May 20, 1996 (10)(p) New England Electric Companies' Filed herewith Executive Supplemental Retirement Plan II as amended through October 25, 1995 (10)(q) New England Electric Companies' Filed herewith Incentive Compensation Plan I as amended through October 24, 1995 (10)(r) New England Electric Companies' Incorporated Incentive Compensation Plan II by Reference as amended through January 1, 1995 (10)(s) New England Electric Companies' Filed herewith Incentive Compensation Plan III as amended through January 1, 1996 (10)(t) New England Electric Companies' Incorporated Senior Incentive Compensation by Reference Plan as amended through January 1, 1995 (10)(u) New England Electric System Filed herewith Directors Deferred Compensation Plan as amended through December 1, 1996 (10)(v) Forms of Life Insurance Program Incorporated and Form of Life Insurance by Reference (Collateral Assignment) (10)(w) New England Electric Companies' Filed herewith Incentive Share Plan as amended through February 24, 1997 (10)(x) New England Electric Companies' Filed herewith Long-Term Performance Share Award Plan amended through February 24, 1997 (10)(y) New England Electric System Filed herewith Directors' Retirement Plan dated May 1, 1994 (10)(z) Forms of Severance Protection Filed herewith Agreement (10)(aa) New England Power Service Incorporated Company and Joan T. Bok: by Reference Service Credit Letter dated October 21, 1982 (10)(bb) New England Electric System Incorporated and John W. Rowe: Service by Reference Credit Letter dated December 5, 1988 (10)(cc) Agreement between New England Filed herewith Electric System and John W. Rowe dated February 28, 1995 (10)(dd) New England Power Service Incorporated Company and the Company: by Reference Form of Supplemental Pension Service Credit Agreement (10(ee) New England Power Company and Incorporated New England Hydro-Transmission by Reference Electric Company, Inc. et al: Phase II Massachusetts Transmission Facilities Support Agreement dated as of June 1, 1985 and Amendments thereto (10)(ff) New England Power Company and Incorporated New England Hydro-Transmission by Reference Corporation et al: Phase II New Hampshire Transmission Facilities Support Agreement dated as of June 1, 1985 and Amendments thereto (10)(gg) New England Power Company et Incorporated al: Phase II New England Power by Reference AC Facilities Support Agreement dated as of June 1, 1985 and Amendments thereto (10)(hh) New England Hydro-Transmission Incorporated Electric Company, Inc. and New by Reference England Electric System et al: Equity Funding Agreement dated as of June 1, 1985 and Amendments thereto (10)(ii) New England Hydro-Transmission Incorporated Corporation and New England by Reference Electric System et al: Equity Funding Agreement dated as of June 1, 1985 and Amendments thereto (10)(jj) Ocean State Power, et al., and Incorporated Narragansett Energy Resources by Reference Company: Equity Contribution Agreement dated as of December 29, 1988; Amendment dated as of September 29, 1989 Ocean State Power, et al., and Incorporated New England Electric System: by Reference Equity Contribution Support Agreement dated as of December 29, 1988; Amendment dated as of September 29, 1989; Ocean State Power II, et al., Incorporated and Narragansett Energy Resources by Reference Company: Equity Contribution Agreement dated as of September 29, 1989; Ocean State Power II, et al., and New England Electric System: Equity Contribution Support Agreement dated as of September 29, 1989 (10)(kk) NEES Energy, Inc./AllEnergy Incorporated Marketing Company, L.L.C. by Reference Limited Liability Company Agreement dated as of September 18, 1996 (13) 1996 Annual Report to Filed herewith Shareholders (21) Subsidiary list Incorporated by Reference (24) Power of Attorney Filed herewith (27) Financial Data Schedule Filed herewith NEP EXHIBIT INDEX ------------- Exhibit No. Description Page - ----------- ----------- ---- (3)(a) Articles of Organization as Incorporated amended through June 27, 1987 by Reference (3)(b) By-laws of the Company as Incorporated amended May 10, 1995 by Reference (4) General and Refunding Mortgage Incorporated Indenture and Deed of Trust by Reference dated as of January 1, 1977 and twenty supplements thereto (10)(a) Boston Edison Company et al. Incorporated and the Company: Amended by Reference REMVEC Agreement dated August 12, 1977 (10)(b) The Connecticut Light and Power Incorporated Company et al. and the Company: by Reference Sharing Agreement for Joint Ownership, Construction and Operation of Millstone Unit No. 3 dated as of September 1, 1973, and Amendments thereto; Transmission Support Agreement dated August 9, 1974; Instrument of Transfer to the Company with respect to the 1979 Connecticut Nuclear Unit, and Assumption of Obligations, dated December 17, 1975 (10)(c) Connecticut Yankee Atomic Power Incorporated Company et al. and the Company: by Reference Stockholders Agreement dated July 1, 1964; Power Purchase Contract dated July 1, 1964; Supplementary Power Contract dated as of April 1, 1987; Capital Funds Agreement dated September 1, 1964; Transmission Agreement dated October 1, 1964; Agreement revising Transmission Agreement dated July 1, 1979; Amendment revising Transmission Agreement dated as of January 19, 1994; Five Year Capital Contribution (10)(c) Agreement dated November 1, 1980; (cont.) Guarantee Agreement dated as of November 13, 1981; Guarantee Agreement dated as of August 1, 1985 (10)(d) Maine Yankee Atomic Power Incorporated Company et al. and the Company: by Reference Capital Funds Agreement dated May 20, 1968 and Power Purchase Contract dated May 20, 1968; and Amendments thereto; Stockholders Agreement dated May 20, 1968; Additional Power Contract dated as of February 1, 1984; Guarantee Agreement dated as of September 23, 1985 (10)(e) Mass. Electric and the Company: Incorporated Primary Service for Resale dated by Reference February 15, 1974; and Amendments thereto; Memorandum of Understanding effective May 22, 1994 (10)(f) The Narragansett Electric Incorporated Company and the Company: by Reference Primary Service for Resale dated February 15, 1974 and Amendments thereto; Memorandum of Understanding effective May 22, 1994 and Amendment therto (10)(g) Time Charter between Incorporated International Shipholding, Corp. by Reference and New England Power Company dated as of October 27, 1994; Amendments dated as of September 22, 1995 (10)(h) Consent and Agreement among New Incorporated England Power Company, Central by Reference Gulf Lines, Inc., Enterprise Ship Company, Inc., and The Bank of New York, dated as of September 28, 1995 (10)(i) New England Electric Incorporated Transmission Corporation et al. by Reference and the Company: Phase I Terminal Facility Support Agreement dated as of December 1, 1981; Amendments dated as of June 1, 1982 and November 1, 1982; Agreement with (10)(i) respect to Use of the Quebec (cont.) Interconnection dated as of December 1, 1981; Amendments dated as of May 1, 1982 and November 1, 1982; Amendment dated as of January 1, 1986; Agreement for Reinforcement and Improvement of the Company's Transmission System dated as of April 1, 1983; Lease dated as of May 16, 1983; Upper Development-Lower Development Transmission Line Support Agreement dated as of May 16, 1983 (10)(j) Vermont Electric Transmission Incorporated Company, Inc. et al. and the by Reference Company: Phase I Vermont Transmission Line Support Agreement dated as of December 1, 1981 and Amendments thereto (10)(k) New England Energy Incorporated Incorporated and the Company: Fuel Purchase by Reference Contract dated July 26, 1979, and Amendments thereto (10)(l) New England Power Pool Incorporated Agreement and Amendments by Reference thereto (10)(m) New England Power Service Incorporated Company and the Company: by Reference Specimen of Service Contract (10)(n) Massachusetts Electric Filed herewith Company, et al. and the Company: Form of Mutual Assistance Agreement (10)(o) Massachusetts Electric Filed herewith Company, et al. and the Company: Restructuring Settlement Agreement approved by the Massachusetts Department of Public Utilities (10)(p) Public Service Company of New Incorporated Hampshire et al. and the by Reference Company: Agreement for Joint Ownership, Construction and Operation of New Hampshire Nuclear Units dated as of May 1, 1973 and Amendments (10)(p) thereto; Seventh Amendment (cont.) as of November 1, 1990; Transmission Support Agreement dated as of May 1, 1973; Instrument of Transfer to the Company with respect to the New Hampshire Nuclear Units and Assumptions of Obligations dated December 17, 1975 and Agreement Among Participants in New Hampshire Nuclear Units, certain Massachusetts Municipal Systems and Massachusetts Municipal Wholesale Electric Company dated May 28, 1976; Seventh Amendment To and Restated Agreement for Seabrook Project Disbursing Agent dated as of November 1, 1990; Amendments dated as of June 29, 1992 Settlement Agreement dated as Incorporated of July 19, 1990 between by Reference Northeast Utilities Service Company and the Company Seabrook Project Managing Incorporated Agent Operating Agreement by Reference dated as of June 29, 1992; and Amendment thereto (10)(q) Vermont Yankee Nuclear Power Incorporated Corporation et al. and the by Reference Company: Capital Funds Agreement dated February 1, 1968, Amendment dated March 12, 1968 and Power Purchase Contract dated February 1, 1968 and Amendments thereto; Additional Power Contract dated as of February 1, 1984; Guarantee Agreement dated as of November 5, 1981 (10)(r) Yankee Atomic Electric Company Incorporated et al. and the Company: by Reference Amended and Restated Power Contract dated April 1, 1985 and Amendments thereto (10)(s) New England Electric Companies' Incorporated Deferred Compensation Plan as by Reference amended through November 26, 1996 (10)(t) New England Electric System Incorporated Companies Retirement Supplement by Reference Plan as amended through June 1, 1996 (10)(u) New England Electric Companies' Incorporated Executive Supplemental Retirement by Reference Plan I as amended through May 20, 1996 (10)(v) New England Electric Companies' Incorporated Executive Supplemental Retirement by Reference Plan II as amended through October 25, 1995 (10)(w) New England Electric Companies' Incorporated Incentive Compensation Plan I as by Reference amended through October 24, 1995 (10)(x) New England Electric Companies' Incorporated Incentive Compensation Plan II as by Reference amended through January 1, 1995 (10)(y) New England Electric Companies' Incorporated Incentive Compensation Plan III as by Reference amended through January 1, 1996 (10)(z) New England Electric Companies' Incorporated Senior Incentive Compensation by Reference Plan as amended through January 1, 1995 (10)(aa) Forms of Life Insurance Program Incorporated and Form of Life Insurance by Reference (Collateral Assignment) (10)(bb) New England Electric Companies' Incorporated Incentive Share Plan as amended by Reference through February 24, 1997 (10)(cc) New England Electric System Incorporated Directors' Retirement Plan by Reference dated May 1, 1994 (10)(dd) Forms of Severance Protection Incorporated Agreement by Reference (10)(ee) New England Electric Companies' Incorporated Long-Term Performance Share by Reference Award Plan amended through February 24, 1997 (10)(ff) New England Hydro-Transmission Incorporated Electric Company, Inc. et al. by Reference and the Company: Phase II Massachusetts Transmission Facilities Support Agreement dated as of June 1, 1985 and Amendments thereto (10)(gg) New England Hydro-Transmission Incorporated Corporation et al. and the by Reference Company: Phase II New Hampshire Transmission Facilities Support Agreement dated as of June 1, 1985 and Amendments thereto (10)(hh) Vermont Electric Power Company Incorporated et al. and the Company: Phase by Reference II New England Power AC Facilities Support Agreement dated as of June 1, 1985 and Amendments thereto (13) 1996 Annual Report to Filed herewith Stockholders (21) Subsidiary list Filed herewith (24) Power of Attorney Filed herewith (27) Financial Data Schedule Filed herewith Mass. Electric -------------- EXHIBIT INDEX ------------- Exhibit No. Description Page - ----------- ----------- ---- (3)(a) Articles of Organization of the Incorporated Company as amended through by Reference November 15, 1993 (3)(b) By-Laws of the Company as Incorporated amended through September 15, by Reference 1993 (4) First Mortgage Indenture and Incorporated Deed of Trust, dated as of by Reference July 1, 1949, and twenty-one supplements thereto (10)(a) Boston Edison Company et al. Incorporated and Company: Amended REMVEC by Reference Agreement dated August 12, 1977 (10)(b) New England Power Company Incorporated and the Company: Primary by Reference Service for Resale dated February 15, 1974; Amendment of Service Agreement dated July 22, 1983; Amendment of Service Agreement effective November 1, 1993; Memorandum of Understanding effective May 22, 1994 (10)(c) New England Power Pool Incorporated Agreement and Amendments by Reference thereto (10)(d) New England Power Service Incorporated Company and the Company: by Reference Specimen of Service Contract (10)(e) New England Power Company Incorporated et al. and the Company: by Reference Form of Mutual Assistance Agreement (10)(f) New England Power Company Incorporated et al. and the Company: by Reference Restructuring Settlement Agreement approved by the Massachusetts Department of Public Utilities February 26, 1997 (10)(g) New England Telephone and Incorporated Telegraph Company and the by Reference Company: Specimen of Joint Ownership Agreement for Wood Poles (10)(h) New England Electric Companies' Incorporated Deferred Compensation Plan as by Reference amended through November 26, 1996 (10)(i) New England Electric System Incorporated Companies Retirement Supplement by Reference Plan as amended through June 1, 1996 (10)(j) New England Electric Companies' Incorporated Executive Supplemental Retirement by Reference Plan I as amended dated May 20, 1996 (10)(k) New England Electric Companies' Incorporated Executive Supplemental Retirement by Reference Plan II as amended through October 25, 1995 (10)(l) New England Electric Companies' Incorporated Incentive Compensation Plan by Reference as amended through January 1, 1995 (10)(m) New England Electric Companies' Incorporated Incentive Compensation Plan II by Reference as amended through January 1, 1995 (10)(n) New England Electric Companies' Incorporated Incentive Compensation Plan III by Reference as amended through January 1, 1996 (10)(o) New England Electric Companies' Incorporated Form of Deferred Compensation by Reference Agreement for Directors (10)(p) New England Electric Companies' Incorporated Senior Incentive Compensation by Reference Plan as amended through January 1, 1995 (10)(q) Forms of Life Insurance Program Incorporated and Form of Life Insurance by Reference (Collateral Assignment) (10)(r) New England Electric Companies' Incorporated Incentive Share Plan as amended by Reference through February 24, 1997 (10)(s) New England Electric Companies' Incorporated Long-Term Performance Share by Reference Award Plan amended through February 24, 1997 (10)(t) New England Electric System Incorporated Directors' Retirement by Reference Plan dated May 1, 1994 (10)(u) Forms of Severance Protection Incorporated Agreement (10)(v) New England Power Service Incorporated Company and the Company: by Reference Form of Supplemental Pension Service Credit Agreement (12) Statement re computation of Filed herewith ratios for incorporation by reference into the Mass. Electric registration statement on Form S-3, Commission File No. 33-59145 (13) 1996 Annual Report to Filed herewith Stockholders (24) Power of Attorney Filed herewith (27) Financial Data Schedule Filed herewith Narragansett ------------- EXHIBIT INDEX ------------- Exhibit No. Description Page - ----------- ----------- ---- (3)(a) Articles of Incorporation as Incorporated amended June 9, 1988 by Reference (3)(b) By-Laws of the Company Incorporated by Reference (4)(a) First Mortgage Indenture and Incorporated Deed of Trust, dated as of by Reference September 1, 1944, and twenty-two supplements thereto (4)(b) The Narragansett Electric Incorporated Company Preference Provisions, by Reference as amended, dated March 23, 1993 (10)(a) Boston Edison Company et al. Incorporated and the Company: Amended REMVEC by Reference Agreement dated August 12, 1977 (10)(b) New England Power Company and Incorporated the Company: Primary Service for by Reference Resale dated February 15, 1974; Amendments of Service Agreement; Memorandum of Understanding effective May 22, 1994; Amendment of Service Agreement effective January 1, 1995 (10)(c) New England Power Pool Agreement Incorporated and Amendments thereto by Reference (10)(d) New England Power Service Incorporated Company and the Company: by Reference Specimen of Service Contract (10)(e) New England Power Company Incorporated et al. and the Company: by Reference Form of Mutual Assistance Agreement (10)(f) New England Telephone and Incorporated Telegraph Company and the by Reference Company: Specimen of Joint Ownership Agreement for Wood Poles (10)(g) New England Electric Companies' Incorporated Deferred Compensation Plan by Reference as amended through November 26, 1996 (10)(h) New England Electric System Incorporated Companies Retirement Supplement by Reference Plan, as amended through June 1, 1996 (10)(i) New England Electric Companies' Incorporated Executive Supplemental Retirement by Reference Plan I, as amended through May 20, 1996 (10)(j) New England Electric Companies' Incorporated Executive Supplemental Retirement by Reference Plan II, as amended through October 25, 1995 (10)(k) New England Electric Companies' Incorporated Incentive Compensation Plan I, by Reference as amended through January 1, 1995 (10)(l) New England Electric Companies' Incorporated Incentive Compensation Plan II, by Reference as amended through January 1, 1995 (10)(m) New England Electric Companies' Incorporated Incentive Compensation Plan III, by Reference as amended through January 1, 1996 (10)(n) New England Electric Companies' Incorporated Form of Deferred Compensation by Reference Agreement for Directors (10)(o) New England Electric Companies' Incorporated Senior Incentive Compensation by Reference Plan as amended through January 1, 1995 (10)(p) Forms of Life Insurance Program Incorporated and Form of Life Insurance by Reference (Collateral Assignment) (10)(q) New England Electric Companies' Incorporated Incentive Share Plan as amended by Reference through February 24, 1997 (10)(r) New England Power Service Incorporated Company and the Company: by Reference Form of Supplemental Pension Service Credit Agreement (10)(s) New England Electric Companies' Incorporated Long-Term Performance Share by Reference Award Plan as amended through February 24, 1997 (10)(t) New England Electric System Incorporated Directors' Retirement Plan by Reference dated May 1, 1994 (10)(u) Forms of Severance Protection Incorporated Agreement by Reference (12) Statement re computation of Filed herewith ratios for incorporation by reference into the Narragansett registration statement on Form S-3, Commission File No. 33-61131 (13) 1996 Annual Report to Filed herewith Stockholders (24) Power of Attorney Filed herewith (27) Financial Data Schedule Filed herewith EX-10 3 NEES EXHIBIT 10(C) Exhibit 10(c) Execution Copy 1996 AMENDATORY AGREEMENT This Agreement, dated as of the 4th day of December, 1996, is entered into by and between Connecticut Yankee Atomic Power Company ("Connecticut Yankee" or "Seller") and New England Power ("Purchaser"). For good and valuable consideration, the receipt of which is hereby acknowledged, it is agreed as follows: 1. BASIC UNDERSTANDINGS Connecticut Yankee was organized in 1962 to provide for the supply of power to its sponsoring utility companies, including the Purchaser (collectively the "Purchasers"). It constructed a nuclear electric generating unit, having a net capability of approximately 582 megawatts electric (the "Unit") at a site in Haddam Neck, Connecticut. Connecticut Yankee was issued a full- term, Facility Operating License for the Unit by the Nuclear Regulatory Commission (which, together with any successor agencies, is hereafter called the "NRC"), which license is now stated to expire on June 29, 2007. The Unit has been in commercial operation since January 1, 1968. The Unit was conceived to supply economic power on a cost of service formula basis to the Purchasers. Connecticut Yankee and the Purchaser are parties to a Power Contract dated as of July 1, 1964 ("Initial Power Contract"). Pursuant to the Initial Power Contract and other similar contracts (collectively, the "Initial Power Contracts") between Connecticut Yankee and the other Purchasers, Connecticut Yankee contracted to supply to the Purchasers all of the capacity and electric energy available from the Unit for a term of thirty (30) years following January 1, 1968. Connecticut Yankee and the Purchaser are also parties to an Additional Power Contract, dated as of April 30, 1984 ("Additional Power Contract"). The Additional Power Contract and other similar contracts (collectively, the "Additional Power Contracts") between Connecticut Yankee and the other Purchasers provide for an operative term stated to commence on January 1, 1998 (when the Initial Power Contracts terminate) and extending until a date (the "End of Term Date") which is 30 days after the later of the date on which the last of the financial obligations of Connecticut Yankee has been extinguished or the date on which Connecticut Yankee is finally relieved of any obligations under the last of the licenses (operating or possessory) which it holds, or hereafter receives, from the NRC with respect to the Unit. The Additional Power Contracts also provide, in the event of their earlier cancellation, for the survival of the decommissioning cost obligation and for the applicable provisions thereof to remain in effect to permit final billings of costs incurred prior to such cancellation. Pursuant to the Power Contract and the Additional Power Contract, the Purchaser is entitled and obligated to take its entitlement percentage of the capacity and net electrical output of the Unit during the service life of the Unit and is obligated to pay therefor monthly its entitlement percentage of Connecticut Yankee's cost of service, including decommissioning costs, whether or not the Unit is operated. Connecticut Yankee and the Purchaser are also parties to a 1987 Supplementary Power Contract, dated as of April 1, 1987 ("1987 Supplementary Power Contract"). The 1987 Supplementary Power Contract and other similar contracts (collectively, the "1987 Supplementary Power Contracts") between Connecticut Yankee and the other Purchasers restate and supersede earlier Supplementary Power Contracts and Agreements Amending Supplementary Power Contracts between Connecticut Yankee and the Purchasers. Pursuant to the 1987 Supplementary Power Contracts, the Purchasers make monthly certain supplementary payments to Connecticut Yankee during the terms of the Initial Power Contracts and Additional Power Contracts. On December 4, 1996, the board of directors of Connecticut Yankee, after conducting a thorough review of the economics of continued operation of the Unit for the remainder of the term of the Facility Operating License for the Unit in light of other alternatives available to Connecticut Yankee and the Purchasers, determined that the Unit should be permanently shut down effective December 4, 1996. The Purchaser concurs in that decision. As a consequence of the shutdown decision, Connecticut Yankee and the Purchaser propose at this time to amend the 1987 Supplementary Power Contract and the Additional Power Contract in various respects in order to clarify and confirm provisions for the recovery under said contracts of the full costs previously incurred by Connecticut Yankee in providing power from the Unit during its useful life and of all costs of decommissioning the Unit, including the costs of maintaining the Unit in a safe condition following the shutdown and prior to its decontamination and dismantlement. Connecticut Yankee and each of the other Purchasers are entering into agreements which are identical to this Agreement except for necessary changes in the names of the parties. 2. PARTIES' CONTRACTUAL COMMITMENTS Connecticut Yankee reconfirms its existing contractual obligations to protect the Unit, to maintain in effect certain insurance and to prepare for and implement the decommissioning of the Unit in accordance with applicable laws and regulations. Consistent with public safety, Connecticut Yankee shall use its best efforts to accomplish the shutdown of the Unit, the protection and any necessary maintenance of the Unit after shutdown and the decommissioning of the Unit in a cost-effective manner and shall use its best efforts to ensure that any required storage and disposal of the nuclear fuel remaining in the reactor at shutdown and all spent nuclear fuel or other radioactive materials resulting from operating of the Unit are accomplished consistent with public health and safety considerations and at the lowest practicable cost. The Purchaser reconfirms its obligations under its Initial Power Contract, Additional Power Contract and 1987 Supplementary Power Contract to pay its entitlement percentage of Connecticut Yankee's costs as deferred payment in connection with the capacity and net electrical output of the Unit previously delivered by Connecticut Yankee and agrees that the decision to shut down the Unit described in Section 1 hereof does not give rise to any cancellation right under Section 9 of the Initial Power Contract or Section 10 of the Additional Power Contract. Except as expressly modified by this Agreement, the Provisions of the Additional Power Contract and the 1987 Supplementary Power Contract remain in full force and effect, recognizing that the mutually accepted decision to shut down the Unit renders moot those provisions which by their terms relate solely to continuing operation of the Unit. 3. AMENDMENT OF PAYMENT PROVISIONS OF ADDITIONAL POWER CONTRACT AND 1987 SUPPLEMENTARY POWER CONTRACT A. Section 2 of the Additional Power Contract is hereby amended by deleting the first two paragraphs thereof and by inserting in lieu thereof the following: This contract shall become effective upon receipt by the Purchaser of notice that Connecticut Yankee has entered into Additional Power Contracts, as contemplated by Section 1 above, with each of the other Purchasers. The operative term of this contract shall commence on such date as may be authorized by the FERC and shall terminate on the date (the "End of Term Date") which is the later to occur of (i) 30 days after the date on which the last of the financial obligations of Connecticut Yankee which constitute elements of the payment calculated pursuant to Section 7 of this contract has been extinguished by Connecticut Yankee, or (ii) 30 days after the date on which Connecticut Yankee is finally relieved of all obligations under the last of any licenses (operating and/or possessory) which it now holds from, or which may hereafter be issued to it by, the NRC with respect to the Unit under applicable provisions of the Atomic Energy Act of 1954, as amended from time to time (the "Act"). B. The second paragraph of Section 4 of the Additional Power Contract is amended by deleting the phrase "Second Supplementary Power Contracts" wherever it appears and inserting in lieu thereof the phrase "1987 Supplementary Power Contracts". C. The first paragraph of Section 7 of the Additional Power Contract is amended to read as follows: With respect to each month commencing on or after the commencement of the operative term of this contract, whether or not this contract continues fully or partially in effect, the Purchaser will pay Connecticut Yankee as deferred payment for the capacity and output of the Unit provided to the Purchaser by Connecticut Yankee prior to the permanent shutdown of the Unit on December 4, 1996, to the extent not otherwise paid in accordance with the Power Contract, but without duplication: D. The eighth paragraph of Section 7 of the Additional Power Contract is amended by changing the period at the end to a comma and inserting: , but including for purposes of this contract: (i) with respect to each month until the commencement of decommissioning of the Unit, the Purchaser's entitlement percentage of all expenses related to the storage or disposal of nuclear fuel or other radioactive materials, and all expenses related to protection and maintenance of the Unit during such period, including to the extent applicable all of the various sorts of expenses included in the definition of "Decommissioning Expenses", to the extent incurred during the period prior to the commencement of decommissioning; (ii) with respect to each month until expenses associated with disposal of pre-April 7, 1983 spent nuclear fuel have been fully covered by amounts which have been collected from Purchasers and paid to a segregated fund as contemplated by Section 8 of the 1987 Supplementary Power Contract, dated as of April 1, 1987, between Connecticut Yankee and the Purchaser, as amended (the "1987 Contract"), the Purchaser's entitlement percentage of previously uncollected expenses associated with disposal of such prior spent nuclear fuel, as determined in accordance with Section 10 of the 1987 Contract; and (iii) with respect to each month until End of License Term, the Purchaser's entitlement percentage of monthly amortization of (a) the amount of any unamortized deferred expenses, as permitted from time to time by the Federal Energy Regulatory Commission or its successor agency, plus (b) the remaining unamortized amount of Connecticut Yankee's investment in plant, nuclear fuel and materials and supplies and other assets. Such amortization shall be accrued at a rate sufficient to amortize fully such unamortized deferred expenses and Connecticut Yankee's investments in plant, nuclear fuel and materials and supplies or other assets over a period extending to June 29, 2007, PROVIDED, that if during any calendar month ending on or before December 31, 2000 either of the following events shall occur: (a) Connecticut Yankee shall become insolvent or (b) Connecticut Yankee shall be unable, from available cash or other sources, to meet when due during such month its obligations to pay principal, interest, premium (if any) or other fees with respect to any of its indebtedness of money borrowed, then Connecticut Yankee may adjust upward the accrual for amortization of the unrecovered investment for such month to an amount not exceeding the applicable maximum level specified in Appendix A hereto, provided that concurrently therewith the net Unit investment shall be reduced by an amount equal to the amount of such adjustment. As used herein, "End of License Term" means June 29, 2007 or such later date as may be fixed, by amendment to the NRC Facility Operating License for the Unit, as the end of the term of the Facility Operating License. E. The definitions in Section 7 of the Additional Power Contract and in Section 3 of the 1987 Supplementary Power Contract of "Total Decommissioning Costs" and "Decommissioning Expenses" are hereby amended to read as follows: "Total Decommissioning Costs" for any month shall mean the sum of (x) an amount equal to all accruals in such month to any reserve, as from time to time established by Connecticut Yankee and approved by its board of directors, to provide for the ultimate payment of the Decommissioning Expenses of the Unit, plus (y), during the Decommissioning Period, the Decommissioning Expenses for the month, to the extent such Decommissioning Expenses are not paid with funds from such reserve, plus (z) Decommissioning Tax Liability for such month. It is understood (i) that funds received pursuant to clause (x) may be held by Connecticut Yankee or by an independent trust or other separate fund, as determined by said board of directors, (ii) that, upon compliance with applicable regulatory requirements, the amount, custody and/or timing of such accruals may from time to time during the term hereof be modified by said board of directors in its discretion or to comply with applicable statutory or regulatory requirements or to reflect changes in the amount, custody or timing of anticipated Decommissioning Expenses, and (iii) that the use of the term "to decommission" herein encompasses compliance with all requirements of the NRC for permanent cessation of operation of a nuclear facility and any other activities reasonably related thereto, including provision for the interim storage of spent nuclear fuel. "Decommissioning Expenses" shall include all expenses of decommissioning the Unit, and all expenses relating to ownership and protection of the Unit during the Decommissioning Period, and shall also include the following: (1) All costs and expenses of any NRC-approved method of removing the Unit from service, including without limitation: dismantling, mothballing and entombment of the Unit; removing nuclear fuel and other radioactive material to temporary and/or permanent storage sites; construction, operation, maintenance and dismantling of a spent fuel storage facility; decontaminating, restoring and supervising the site; and any costs and expenses incurred in connection with proceedings before governmental authorities relating to any authorization to decommission the Unit or remove the Unit from service; (2) All costs of labor and services, whether directly or indirectly incurred, including without limitation, services of foremen, inspectors, supervisors, surveyors, engineers, security personnel, counsel and accountants, performed or rendered in connection with the decommissioning of the Unit and the removal of the Unit from service, and all costs of materials, supplies, machinery, construction equipment and apparatus acquired or used (including rental charges for machinery, equipment or apparatus hired) for or in connection with the decommissioning of the Unit and the removal of the Unit from service, and all administrative costs, including services of counsel and financial advisers of any applicable independent trust or other separate fund; it being understood that any amount, exclusive of proceeds of insurance, realized by Connecticut Yankee as salvage on any machinery, construction equipment and apparatus, the cost of which was charged to Decommissioning Expense, shall be treated as a reduction of the amounts otherwise chargeable on account of the costs of decommissioning of the Unit; and (3) All overhead costs applicable to the Unit during the Decommissioning Period, or accrued during such period, including without limiting the generality of the foregoing, taxes (other than taxes on or in respect of income), charges, license fees, excises and assessments, casualties, health care costs, pension benefits and other employee benefits, surety bond premiums and insurance premiums. F. Section 7 of the Additional Power Contract and Section 3 of the 1987 Supplementary Power Contract are each hereby amended by adding the following new paragraph after the definition of "Decommissioning Tax Liability": "Decommissioning Period" shall mean the period commencing with the notification by Connecticut Yankee to the NRC of a decision of the board of directors of Connecticut Yankee to cease permanently the operating of the Unit for the purpose of producing electric energy and ending with the date when Connecticut Yankee has completed the decommissioning of the Unit and the restoration of the site and has been relieved of all its obligations under the last of any licenses issued to it by the NRC. G. The first sentence of Section 8 of the Additional Power Contract is hereby amended to read as follows: Connecticut Yankee will bill the Purchaser, no later than ten (10) days after the end of any month, for all amounts payable by the Purchaser with respect to such particular month pursuant to Section 7 hereof. H. Section 8 of the Additional Power Contract and Section 4 of the 1987 Supplementary Power Contract are each amended to delete the name "The Connecticut Bank and Trust Company, National Association" and substitute "Fleet National Bank". I. Section 5 of the 1987 Supplementary Power Contract is amended to read as follows: 5. DECOMMISSIONING FUND Connecticut Yankee agrees to pay to, or cause to be paid to, the Connecticut Yankee Trust or any successor trust approved by the board of directors of Connecticut Yankee all funds collected pursuant to Section 3 under clause (x) of the definition of "Total Decommissioning Costs". J. Section 10 of the Additional Power Contract is amended to read as follows: 10. CANCELLATION OF CONTRACT. If either (i) the Unit is damaged to the extent of being completely or substantially completely destroyed, or (ii) the Unit is taken by exercise of the right of eminent domain or a similar right or power, then and in any such case, the Purchaser may cancel the provisions of this contract, except that in all cases other than those described in clause (ii) above, the Purchaser shall be obligated to continue to make the payments of Total Decommissioning Costs and the other payments required by Section 7 and the provisions of that Section and the related provisions of this contract shall remain in full force and effect until the End of Term Date, it being recognized that the costs which Purchaser is required to pay pursuant to Section 7 represent deferred payments in connection with power heretofore delivered by Connecticut Yankee hereunder. Such cancellation shall be effected by written notice given by the Purchaser to Connecticut Yankee. In the event of such cancellation, all continuing obligations of the parties hereunder as to subsequently incurred costs of Connecticut Yankee other than the obligations of the Purchaser to continue to make the payments required by Section 7 shall cease forthwith. Notwithstanding the foregoing, the applicable provisions of this contract shall continue in effect after the cancellation hereof to the extent necessary to permit final billings and adjustments hereunder with respect to obligations incurred through the date of cancellation and the collection thereof. Any dispute as to the Purchaser's right to cancel this contract pursuant to the foregoing provisions shall be referred to arbitration in accordance with the provisions of Section 13. Notwithstanding anything in this contract elsewhere contained, the Purchaser may cancel this contract or be relieved of its obligations to make payments hereunder only as provided in the next preceding paragraph of this Section 10. Further, if for reasons beyond Connecticut Yankee's reasonable control, deliveries are not made as contemplated by this contract, Connecticut Yankee shall have no liability to the Purchaser on account of such non- delivery. K. Section 2 of the 1987 Supplementary Power Agreement is amended to change the date in the definitions of "operating expenses" and "M" from "May 26, 2004" to "June 29, 2007". 5. EFFECTIVE DATE This Agreement shall become effective upon receipt by the Purchaser of notice that Connecticut Yankee has entered into 1996 Amendatory Agreements, as contemplated by Section 1 hereof, with each of the other Purchasers. 6. INTERPRETATION The interpretation and performance of this Agreement shall be in accordance with and controlled by the laws of the State of Connecticut. 7. ADDRESS Except as the parties may otherwise agree, any notice, request, bill or other communication from one party to the other relating to this Agreement, or the rights, obligations or performance of the parties hereunder, shall be in writing and shall be effective upon delivery to the other party. Any such communication shall be considered as duly delivered when mailed to the respective post office address of the other party shown following the signatures of such other party hereto, or such other post office address as may be designated by written notice given in the manner as provided in this Section. 8. CORPORATE OBLIGATIONS This Agreement is the corporate act and obligation of the parties hereto. 9. COUNTERPARTS This Agreement may be executed in any number of counterparts and each executed counterpart shall have the same force and effect as an original instrument and as if all the parties to all of the counterparts had signed the same instrument. Any signature page of this Agreement may be detached from any counterpart without impairing the legal effect of any signatures thereon, and may be attached to another counterpart of this Agreement identical in form hereto but having attached to it one or more signature pages. IN WITNESS WHEREOF, the parties have executed this Amendatory Agreement by their respective duly authorized officers as of the day and year first named above. CONNECTICUT YANKEE ATOMIC POWER COMPANY s/John B. Keane By_______________________________ John B. Keane Vice President and Treasurer Address: 107 Selden Street Berlin, CT 06037 NEW ENGLAND POWER COMPANY s/Jeffrey D. Tranen By_______________________________ Jeffrey D. Tranen President Address: 25 Research Drive Westborough, MA 01582 Appendix A to 1996 Amendatory Agreement ------------------------- MAXIMUM AMORTIZATION SCHEDULE ----------------------------- If the event occurs during the twelve months ending: Maximum Amortization Accrual: December 31, 1997 $100,000,000.00 December 31, 1998 $80,000,000.00 December 31, 1999 $40,000,000.00 December 31, 2000 $20,000,000.00 EX-10 4 NEES EXHIBIT 10(E)(I) Exhibit 10(e)(i) AMENDMENT NO. 7 DATED AS OF APRIL 13, 1995 TO CAPITAL FUNDS AGREEMENT DATED NOVEMBER 1, 1974 BETWEEN NEW ENGLAND ENERGY INCORPORATED AND NEW ENGLAND ELECTRIC SYSTEM New England Energy Incorporated ("NEEI") and New England Electric System ("NEES") hereby agree to amend the Capital Funds Agreement dated November 1, 1974, between NEEI and NEES, as amended by Amendment No. 1 dated as of July 1, 1976, Amendment No. 2 dated as of July 26, 1979, Amendment No. 3 dated as of August 26, 1981, Amendment No. 4 dated as of March 26, 1985, and Amendment No. 5 dated as of April 28, 1989 and Amendment No. 6 dated as of June 1, 1990 (said Capital Funds Agreement as so amended being the "Agreement", the terms defined therein being used herein as therein defined unless otherwise defined herein), as hereinafter set forth. Article II is amended to read in full as follows: "II. Term. __ ____ This Agreement shall be effective as of November 1, 1974 and shall expire on a date (the "Expiration Date") which is the later of (a) April , 2002, and (b) the date upon which (i) all promissory notes of NEEI issued pursuant to the Credit Agreement dated as of April 13, 1995 (the "Credit Agreement") among NEEI, the banks named therein (the "Banks") and Credit Suisse, as agent (the "Agent"), and all other amounts due and owing under the Credit Agreement, shall have been paid in full and (ii) none of the Banks shall have any commitment to lend under the Credit Agreement." Article IX is amended by deleting the phrase "FPC Hydrocarbon Properties" each time it appears and inserting in lieu thereof the phrase "Hydrocarbon Properties subject to the Fuel Purchase Contract". Except as specifically amended above, the Agreement shall remain in full force and effect and is hereby ratified and confirmed 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. IN WITNESS WHEREOF, the parties hereto have executed this Amendment No. 7 to the Capital Funds Agreement dated November 1, 1974, as amended by Amendment No. 1 dated as of July 1, 1976, Amendment No. 2 dated as of July 26, 1979, Amendment No. 3 dated as of August 26, 1981, Amendment No. 4 dated as of March 26, 1985, and Amendment No. 5 dated as of April 28, 1989, and Amendment No. 6 dated as of June 1, 1990 by their respective officers thereunto duly authorized as of the date first above written. NEW ENGLAND ENERGY INCORPORATED s/John G. Cochrane By Name: John G. Cochrane Title: Treasurer NEW ENGLAND ELECTRIC SYSTEM s/Michael E. Jesanis By Name: Michael E. Jesanis Title: Treasurer EX-10 5 NEES EXHIBIT 10(E)(II) Exhibit 10(e)(ii) AMENDMENT NO. 6 DATED AS OF APRIL 13, 1995 TO LOAN AGREEMENT DATED JULY 19, 1978 BETWEEN NEW ENGLAND ENERGY INCORPORATED AND NEW ENGLAND ELECTRIC SYSTEM New England Energy Incorporated ("NEEI") and New England Electric System ("NEES") hereby agree to amend the Loan Agreement dated July 19, 1978, between NEEI and NEES, as amended by Amendment No. 1 dated as of July 26, 1979, Amendment No. 2 dated as of August 26, 1981, Amendment No. 3 dated as of March 26, 1985, Amendment No. 4 dated as of April 28, 1989, and Amendment No. 5 dated as of June 1, 1990 (said Loan Agreement as so amended being the "Loan Agreement", the terms defined therein being used herein as therein defined unless otherwise defined herein), as hereinafter set forth. 1. Paragraph 1 is amended to read in full as follows: "1. Effective Date. This Loan Agreement shall be effective as of November 1, 1974 and shall expire on a date (the "Expiration Date") which is the later of (a) April , 2002, and (b) the date upon which (i) all promissory notes of NEEI issued pursuant to the Credit Agreement dated as of April 13, 1995 (the "Credit Agreement") among NEEI, the banks named therein (the "Banks") and Credit Suisse, as agent (the "Agent"), and all other amounts due and owing under the Credit Agreement, shall have been paid in full and (ii) none of the Banks shall have any commitment to lend under the Credit Agreement. The terms hereof shall govern (i) retroactively, all loans made by NEES or NEEI pursuant to this Loan Agreement during the period from November 1, 1974 to the date of execution of Amendment No. 6 to this Loan Agreement, such loans being listed on Exhibit 1 of Amendment No. 6 to this Loan Agreement and referred to hereinafter as 'Prior Loans'; and (ii) loans by NEES to NEEI from and after the date of execution of Amendment No. 6 to this Loan Agreement referred to hereinafter as 'Subsequent Loans'." 2. Paragraph 2 is amended to read as follows: "2. Subordinated Promissory Notes. All loans under this Loan Agreement shall be evidenced by Subordinated Promissory Notes in the forms attached hereto as Exhibit 2. NEEI has executed a Subordinated Promissory Note for each of the Prior Loans. Such Prior Loans shall in all respects be governed by the terms of this Loan Agreement and said Subordinated Promissory Notes, as amended by Amendment Nos. 1, 2, 3, 4, 5, and 6 hereto." 3. Exhibits 1 and 3 are deleted and replaced by Exhibits 1 and 3 hereto, respectively. Upon the execution and delivery of this Amendment No. 6 by NEEI and NEES, NEES shall be obligated to endorse on each Subordinated Promissory Note from time to time held by it the following legend: "Pursuant to Amendments dated as of July 26, 1979, August 26, 1981, March 26, 1985, April 28, 1989, June 1, 1990 and April 13, 1995, the Loan Agreement referred to in this Note was amended to, among other things, (i) clarify the nature, and extend the duration, of the maker's right to borrow under the Loan Agreement and (ii) alter the terms of subordination applicable to this Note", or a legend of similar effect. Except as specifically amended above, the Loan Agreement and the Subordinated Promissory Notes shall remain in full force and effect and are hereby ratified and confirmed. 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. IN WITNESS WHEREOF, the parties hereto have executed this Amendment No. 6 to the Loan Agreement dated July 19, 1978, as amended by Amendment No. 1 dated as of July 26, 1979, Amendment No. 2 dated as of August 26, 1981, Amendment No. 3 dated as of March 26, 1985, Amendment No. 4 dated as of April 28, 1989, and Amendment No. 5 dated as of June 1, 1990 by their respective officers thereunto duly authorized as of the date first above written. NEW ENGLAND ENERGY INCORPORATED s/John G. Cochrane By Name: John G. Cochrane Title: Treasurer NEW ENGLAND ELECTRIC SYSTEM s/Michael E. Jesanis By Name: Michael E. Jesanis Title: Treasurer EX-10 6 NEES EXHIBIT 10(E)(VI) Exhibit 10(e)(vi) AMENDMENT NO. 2 DATED AS OF APRIL 13, 1995 TO CAPITAL MAINTENANCE AGREEMENT DATED AS OF NOVEMBER 15, 1985 BETWEEN NEW ENGLAND ENERGY INCORPORATED AND NEW ENGLAND ELECTRIC SYSTEM New England Energy Incorporated ("NEEI") and New England Electric System ("NEES") hereby agree to amend the Capital Maintenance Agreement dated as of November 15, 1985, as amended by Amendment No. 1 dated as of April 28, 1989 (said Capital Maintenance Agreement being the "Capital Maintenance Agreement", the terms defined therein being used herein as therein defined unless otherwise defined herein) as hereinafter set forth. 1. The two introductory paragraphs are amended to read in full as follows: "CAPITAL MAINTENANCE AGREEMENT, dated as of November 15, 1985, made by NEW ENGLAND ELECTRIC SYSTEM, a voluntary association of the type commonly known as a Massachusetts business trust, organized and existing under the laws of the Commonwealth of Massachusetts (the "Shareholder"), in favor of NEW ENGLAND ENERGY INCORPORATED, a corporation organized and existing under the laws of the Commonwealth of Massachusetts (the "Borrower") and in favor of the Banks (the "Banks") parties to the Credit Agreement (as defined below) and Credit Suisse, as agent (the "Agent") for the Banks. PRELIMINARY STATEMENT. The Banks and the Agent have entered into a Credit Agreement dated as of April 13, 1995, with the Borrower (said Agreement, as it may hereafter be amended or otherwise modified from time to time, being the "Credit Agreement", the terms defined therein and not otherwise defined herein being used herein as therein defined). This Agreement is intended to provide security for the CMA Advances to be made under the Credit Agreement, and it is a condition precedent to the making of Advances by the Banks under the Credit Agreement that the Shareholder, as owner of 100 percent of the outstanding shares of stock of the Borrower, shall have executed and delivered this Agreement." 2. Section 1(b) is amended to read in full as follows: "(b) In addition to, and as a separate and independent obligation hereunder to the Banks and the Agent, the Shareholder hereby unconditionally guarantees and agrees to pay to the Agent (for the account of the Banks) on each Amortization Date (to the extent not paid by the Borrower) the outstanding principal amount of CMA Advances in excess of the Commitment (computed after giving effect to any scheduled reductions in the Commitment on such Amortization Date but, irrespective of, and without giving effect to, any acceleration, mandatory prepayment or other disposition, adjudication or settlement that may occur among the Agent, the Banks and the Borrower with respect to CMA Advances on or prior to any such Amortization Date), together with all interest thereon and expenses (including counsel fees and expenses) incurred by the Agent or the Banks for enforcing any rights under this subsection (b). For purposes only of subsections (e) and (f) below, each payment by the Shareholder pursuant to this subsection (b) shall be deemed to be an 'INVESTMENT' ." 3. Section 1(c) is amended to read in full as follows: "(c) An 'Investment' shall be any of (i) the purchase by the Shareholder and sale by the Borrower of capital stock of the Borrower, or (ii) the purchase by the Shareholder and sale by the Borrower of promissory notes of the Borrower subject to the terms of subordination annexed to the Credit Agreement as Exhibit 1.01J, or (iii) the contribution by the Shareholder to the Borrower of additional equity capital, PROVIDED, HOWEVER, in each such case, that payment in any such transaction shall be made by the Shareholder in U.S. Dollars to the Agent (for the Account of the Borrower) at the address referred to in Section 8.02 of the Credit Agreement and all such payments shall be applied pursuant to Section 2.11(e) of the Credit Agreement and the Shareholder shall indicate in a written notice to the Agent whether such payment is in respect of the current fiscal quarter or the preceding fiscal quarter. If the Shareholder shall fail to indicate the fiscal quarter in respect of which such payment is made, such payment shall be conclusively presumed to be in respect of the current fiscal quarter. Upon receipt of any such payment, the maximum CMA Borrowing Base shall be reduced by any amount equal to the principal amount of CMA Advances repaid after the application pursuant to Section 2.11(e) of the Credit Agreement." 4. Section 7 is amended to read in full as follows: "SECTION 7. COVENANTS OF SHAREHOLDER. So long as any CMA Committed Advance, CMA Competitive Advance, or interest thereon, shall remain unpaid or the Banks shall have any obligation to make CMA Advances under the Credit Agreement, the Shareholder shall not: (a) MAINTENANCE OF OWNERSHIP OF BORROWER. Sell or otherwise dispose of any shares of capital stock of the Borrower or permit the Borrower to issue, sell or otherwise dispose of any shares of its capital stock except to the Shareholder. (b) SUBROGATION. Exercise any rights which it may acquire by way of subrogation under this Agreement, by any payment made hereunder or otherwise. If any amount shall be paid to the Shareholder on account of such subrogation rights at any time prior to the payment in full of the CMA Committed Advances, CMA Competitive Advances, and interest thereon, and the termination of the Banks' bligation to make CMA Advances under the Credit Agreement, such amount shall be held in trust for the benefit of the Agent and the Banks and shall forthwith be paid to the Agent to be credited and applied in accordance with Section 2.11(e) of the Credit Agreement. If (i) the Shareholder shall make payment to the Agent or the Banks of all or any amounts due under the Committed Notes, the CMA Competitive Notes or the CMA Advances, and (ii) all amounts due under the Committed Notes, the CMA Advances, all other amounts payable with respect thereto under the Credit Agreement, and all other amounts payable under this Agreement shall be paid in full, and the Banks have no further commitment to make CMA Advances under the Credit Agreement, the Agents and the Banks will, at the Shareholder's request, execute and deliver to the Shareholder appropriate documents, without recourse and without representation or warranty, necessary to evidence the transfer by subrogation to the Shareholder of an interest in such amounts resulting from such payment by the Shareholder." 5. Section 12 is amended to read in full as follows: "SECTION 12. CONTINUING AGREEMENT; TRANSFER OF NOTES. This Agreement is a continuing agreement and shall (i) remain in full force and effect until payment in full of the Committed Notes, the CMA Competitive Notes, all other amounts payable with respect thereto under the Credit Agreement, and all other amounts payable under this Agreement and the Banks have no further commitment to make CMA Advances under the Credit Agreement, (ii) be binding upon the Shareholder, its successors and assigns, and (iii) inure to the benefit of and be enforceable by the Borrower, the Banks, the Agent and their respective successors, transferees and assigns. Without limiting the generality of the foregoing clause (iii) , (a) any Bank may assign all or a portion of its rights and obligations under the Credit Agreement as described in Section 8.07 of the Credit Agreement and any person or entity which as been assigned all or a portion of a CMA Advance, a CMA Committed Note or a CMA Competitive Note shall have the rights in respect thereof granted to Banks herein and (b) any Bank may grant participations in any CMA Advance owing to such Bank and any Committed Note or CMA Competitive Note held by it to any other person or entity, provided that the participants of such participation shall not have any of the rights in respect thereof granted to such Bank herein other than to receive the proceeds hereof as and when received by the participating Bank." Except as specifically amended above, the Capital Maintenance Agreement shall remain in full force and effect and is hereby ratified and confirmed. 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. IN WITNESS WHEREOF, the parties hereto have executed this Amendment No. 2 to the Capital Maintenance Agreement dated as of November 15, 1985, as amended by Amendment No. 1 dated as of April 28, 1989, by their respective officers thereunto duly authorized as of the date first above written. NEW ENGLAND ENERGY INCORPORATED s/John G. Cochrane _______________________________________ Name: John G. Cochrane Title: Treasurer NEW ENGLAND ELECTRIC SYSTEM s/Michael E. Jesanis _______________________________________ Name: Michael E. Jesanis Title: Treasurer EX-10 7 NEES EXHIBIT 10(I) NEES Exhibit 10(i) THIRTY-THIRD AGREEMENT AMENDING NEW ENGLAND POWER POOL AGREEMENT THIS THIRTY-THIRD AGREEMENT, dated as of the 1st day of December, 1996, is entered into by the signatory Participants for the amendment and restatement by them of the New England Power Pool Agreement dated as of September, 1, 1971 (the "NEPOOL Agreement"), as previously amended by thirty (30) amendments, the most recent of which was dated as of September 1, 1995. WHEREAS, the signatory Participants propose to restate the NEPOOL Agreement to provide for a restructured New England Power Pool and to include as part of such restated pool agreement a NEPOOL Open Access Transmission Tariff (the "Tariff"); NOW THEREFORE, the signatory Participants hereby agree as follows: SECTION I AMENDMENT AND RESTATEMENT OF NEPOOL AGREEMENT --------------------------------------------- The NEPOOL Agreement as in effect on December 1, 1996 (the "Prior NEPOOL Agreement") is amended and restated, as of the effective dates provided in Section II, to read as provided in Exhibit A hereto (the "Restated NEPOOL Agreement"). SECTION II EFFECTIVENESS OF THE THIRTY-THIRD AGREEMENT ------------------------------------------- This Thirty-Third Agreement, and the amendment and restatement provided for above, shall become effective as follows: (1) Parts One, Two, Four and Five, of the Restated NEPOOL Agreement and all of the provisions of the Tariff shall become effective, and Sections 1 to 8, inclusive, 10, 11, 13, 14.2, 14.3, 14.4 and 16 of the Prior NEPOOL Agreement shall cease to be in effect,on March 1, 1997 or on such other date as the Federal Energy Regulatory Commission ("Commission") shall provide that such portion of the Restated NEPOOL Agreement shall become effective (the "First Effective Date"); and (2) the remaining portions of the Restated NEPOOL Agreement shall become effective, and Sections 9, 12, 14.1, 14.5, 14.6, 14.7, 14.8 and 15 of the Prior NEPOOL Agreement together with the related exhibits and supplements to the Prior NEPOOL Agreement shall cease to be in effect, on July 1, 1997 or such other date on or before January 1, 1998 as the NEPOOL Management Committee may fix, after it has determined that the necessary detailed criteria, rules and standards and computer programs to implement such remaining portions of the Restated NEPOOL Agreement are in place, or on such other date or dates as the Federal Energy Regulatory Commission may fix, on its own or pursuant to the request of the Management Committee, (the "Second Effective Date"). SECTION III INTENT OF AGREEMENT ------------------- This Thirty-Third Agreement is intended by the signatories hereto to effect a comprehensive amendment and restatement of the NEPOOL Agreement and to provide a regional open access transmission arrangement in accordance with the Restated NEPOOL Agreement and the Tariff, which is Attachment B to the Restated NEPOOL Agreement. Subject to the understandings expressed in the balance of this Section and in Section IV, the signatories agree to support the acceptance of the Thirty-Third Agreement by the Commission. Subject to the understandings expressed in Section IV of this Agreement, in entering into this Thirty-Third Agreement the signatories expressly condition their commitment on acceptance of this Thirty-Third Agreement, including the Restated NEPOOL Agreement and the Tariff, by the Commission and any other regulatory body having jurisdiction without significant conditions or modifications. If significant conditions are imposed or significant modifications are required, the signatories reserve the right to renegotiate the Thirty-Third Agreement as a whole or to terminate it. SECTION IV ALTERNATIVE AMENDMENTS ----------------------- The signatories have been unable to reach final agreement on two aspects of the transmission arrangements for a restructured NEPOOL which would be in effect after the five- year Transition Period provided for in the Tariff, as follows: (a) the continued treatment of "grandfathered contracts" as Excepted Transactions; and (b) the continuance and treatment of Participant Regional Network Service rates which differ from an average Regional Network Service rate. It is agreed that any Participant which signs this Agreement shall be entitled to take any position before the Commission that it deems best with respect to either of these two aspects of the transmission arrangements. However, Participants signing this Agreement are requested to consider the proposed treatment of these aspects of the transmission arrangements in the following Alternate A and Alternate B and to indicate, if they are willing, in the optional supplemental agreement on the signature page to this Agreement their position on these alternates. The alternates are as follows: Alternate A is as follows: ------------------------- 1. The introductory portion of paragraph (3) of Section 25 of the Tariff shall be amended to read as follows: (3) for the period from the effective date of the Tariff until the termination of the transmission agreement or the end of the Transition Period, whichever occurs first: 2. The description of the "Participant RNS Rate" in Schedule 9 to the Tariff shall be amended by modifying the proviso at the end of the second sentence of paragraph (4) of the Schedule to read as follows: provided that in no event shall its pre-1997 Participant RNS Rate be less than 70% of the pre-1997 Pool PTF Rate until the end of Year Five, and thereafter shall be equal to the pre-1997 Pool PTF Rate for Year Six and thereafter. and by amending the proviso at the end of the third sentence of paragraph (4) of the Schedule to read as follows: provided that in no event shall its pre-1997 Participant RNS Rate be greater than 130% of the pre- 1997 Pool PTF Rate until the end of Year Five, and thereafter shall be equal to the pre-1997 Pool PTF Rate for Year Six and thereafter. Alternate B is as follows: ------------------------- 1. The introductory portion of paragraph (3) of Section 25 of the Tariff shall be amended to read as follows: (3) for the period from the effective date of this Tariff until the termination of the transmission agreement: 2. The description of the "Participant RNS Rate" in Schedule 9 to the Tariff shall be amended by modifying the proviso at the end of the second sentence of paragraph (4) of the Schedule to read as follows: provided that in no event shall its pre- 1997 Participant RNS Rate be less than 70% of the pre-1997 Pool PTF Rate until the end of Year Five, and thereafter shall be no less than 50% of the pre- 1997 Pool PTF Rate for Year Six through Year Ten, and shall be equal to the pre-1997 Pool PTF Rate for Year Eleven and thereafter. and by amending the provison at the end of the third sentence of paragraph (4) of the Schedule to read as follows: provided that in no event shall its pre- 1997 Participant RNS Rate be greater than 130% of the pre-1997 Pool PTF Rate until the end of Year Five and thereafter shall be no greater than 127% of the pre- 1997 Pool PTF Rate for Year Six, 123% of the pre-1997 Pool PTF Rate for Year Seven, 118% of the pre-1997 Pool PTF Rate for Year Eight, 112% of the pre-1997 Pool PTF Rate for Year Nine, 105% of the pre-1997 Pool PTF Rate for Year Ten, and shall be equal to the pre-1997 Pool PTF Rate for Year Eleven and thereafter. SECTION V USAGE OF DEFINED TERMS ---------------------- The usage in this Thirty-Third Agreement of terms which are defined in the Prior NEPOOL Agreement shall be deemed to be in accordance with the definitions thereof in the Prior NEPOOL Agreement. SECTION VI COUNTERPARTS ------------- This Thirty-Third Agreement may be executed in any number of counterparts and each executed counterpart shall have the same force and effect as an original instrument and as if all the parties to all the counterparts had signed the same instrument. Any signature page of this Thirty-Third Agreement may be detached from any counterpart of this Thirty-Third Agreement without impairing the legal effect of any signatures thereof, and may be attached to another counterpart of this Thirty-Third Agreement identical in form thereto but having attached to it one or more signature pages. IN WITNESS WHEREOF, each of the signatories has caused a counterpart signature page to be executed by its duly authorized representative, as of the 1st day of December, 1996. COUNTERPART SIGNATURE PAGE TO THIRTY-THIRD AGREEMENT AMENDING NEW ENGLAND POWER POOL AGREEMENT DATED AS OF DECEMBER 1, 1996 The NEPOOL Agreement, being dated as of September 1, 1971, and being previously amended by thirty (30) amendments the most recent of which was dated as of September 1, 1995. Boston Edison Company (Participant) By: Name: Title: Address: 800 Boylston Street Boston, MA 02199-8001 SUPPLEMENTAL AGREEMENT WITH RESPECT TO ALTERNATES A & B The undersigned agrees that either Alternate A or Alternate B as described in Section IV of the foregoing Agreement will be acceptable to it if chosen and accepted by the Commission without significant modifications. Accordingly, the undersigned further agrees that in the event either Alternate A or Alternate B, as described in Section IV of the foregoing Agreement, is chosen and accepted without significant modifications by the Commission, the Tariff shall be deemed to be automatically amended, effective 30 days after the issuance of the Commission's order, to incorporate the accepted Alternate. Boston Edison Company (Participant) By: Name: Title: Address: 800 Boylston Street Boston, MA 02199-8001 COUNTERPART SIGNATURE PAGE TO THIRTY-THIRD AGREEMENT AMENDING NEW ENGLAND POWER POOL AGREEMENT DATED AS OF DECEMBER 1, 1996 The NEPOOL Agreement, being dated as of September 1, 1971, and being previously amended by thirty (30) amendments the most recent of which was dated as of September 1, 1995. Boylston Municipal Light Department (Participant) By: Name: Title: Address: Paul X. Tivnan Road Boylston, MA 01505-0753 SUPPLEMENTAL AGREEMENT WITH RESPECT TO ALTERNATES A & B The undersigned agrees that either Alternate A or Alternate B as described in Section IV of the foregoing Agreement will be acceptable to it if chosen and accepted by the Commission without significant modifications. Accordingly, the undersigned further agrees that in the event either Alternate A or Alternate B, as described in Section IV of the foregoing Agreement, is chosen and accepted without significant modifications by the Commission, the Tariff shall be deemed to be automatically amended, effective 30 days after the issuance of the Commission's order, to incorporate the accepted Alternate. Boylston Municipal Light Department (Participant) By: Name: Title: Address: Paul X. Tivnan Road Boylston, MA 01505-0753 COUNTERPART SIGNATURE PAGE TO THIRTY-THIRD AGREEMENT AMENDING NEW ENGLAND POWER POOL AGREEMENT DATED AS OF DECEMBER 1, 1996 The NEPOOL Agreement, being dated as of September 1, 1971, and being previously amended by thirty (30) amendments the most recent of which was dated as of September 1, 1995. Central Maine Power Company (Participant) By: Name: Title: Address: 83 Edison Drive Augusta, ME 04336-0001 SUPPLEMENTAL AGREEMENT WITH RESPECT TO ALTERNATES A & B The undersigned agrees that either Alternate A or Alternate B as described in Section IV of the foregoing Agreement will be acceptable to it if chosen and accepted by the Commission without significant modifications. Accordingly, the undersigned further agrees that in the event either Alternate A or Alternate B, as described in Section IV of the foregoing Agreement, is chosen and accepted without significant modifications by the Commission, the Tariff shall be deemed to be automatically amended, effective 30 days after the issuance of the Commission's order, to incorporate the accepted Alternate. Central Maine Power Company (Participant) By: Name: Title: Address: 83 Edison Drive Augusta, ME 04336-0001 COUNTERPART SIGNATURE PAGE TO THIRTY-THIRD AGREEMENT AMENDING NEW ENGLAND POWER POOL AGREEMENT DATED AS OF DECEMBER 1, 1996 The NEPOOL Agreement, being dated as of September 1, 1971, and being previously amended by thirty (30) amendments the most recent of which was dated as of September 1, 1995. Central Vermont Public Service Corporation (Participant) By: Name: Title: Address: 77 Grove Street Rutland, VT 05701-3400 SUPPLEMENTAL AGREEMENT WITH RESPECT TO ALTERNATES A & B The undersigned agrees that either Alternate A or Alternate B as described in Section IV of the foregoing Agreement will be acceptable to it if chosen and accepted by the Commission without significant modifications. Accordingly, the undersigned further agrees that in the event either Alternate A or Alternate B, as described in Section IV of the foregoing Agreement, is chosen and accepted without significant modifications by the Commission, the Tariff shall be deemed to be automatically amended, effective 30 days after the issuance of the Commission's order, to incorporate the accepted Alternate. Central Vermont Public Service Corporation (Participant) By: Name: Title: Address: 77 Grove Street Rutland, VT 05701-3400 COUNTERPART SIGNATURE PAGE TO THIRTY-THIRD AGREEMENT AMENDING NEW ENGLAND POWER POOL AGREEMENT DATED AS OF DECEMBER 1, 1996 The NEPOOL Agreement, being dated as of September 1, 1971, and being previously amended by thirty (30) amendments the most recent of which was dated as of September 1, 1995. Chicopee Municipal Lighting Plant (Participant) By: Name: Title: Address: 725 Front Street Chicopee, MA 01021-0405 SUPPLEMENTAL AGREEMENT WITH RESPECT TO ALTERNATES A & B The undersigned agrees that either Alternate A or Alternate B as described in Section IV of the foregoing Agreement will be acceptable to it if chosen and accepted by the Commission without significant modifications. Accordingly, the undersigned further agrees that in the event either Alternate A or Alternate B, as described in Section IV of the foregoing Agreement, is chosen and accepted without significant modifications by the Commission, the Tariff shall be deemed to be automatically amended, effective 30 days after the issuance of the Commission's order, to incorporate the accepted Alternate. Chicopee Municipal Lighting Plant (Participant) By: Name: Title: Address: 725 Front Street Chicopee, MA 01021-0405 COUNTERPART SIGNATURE PAGE TO THIRTY-THIRD AGREEMENT AMENDING NEW ENGLAND POWER POOL AGREEMENT DATED AS OF DECEMBER 1, 1996 The NEPOOL Agreement, being dated as of September 1, 1971, and being previously amended by thirty (30) amendments the most recent of which was dated as of September 1, 1995. Connecticut Municipal Electric Energy Cooperative (Participant) By: Name: Title: Address: 30 Stott Avenue Norwich, CT 06360-1535 SUPPLEMENTAL AGREEMENT WITH RESPECT TO ALTERNATES A & B The undersigned agrees that either Alternate A or Alternate B as described in Section IV of the foregoing Agreement will be acceptable to it if chosen and accepted by the Commission without significant modifications. Accordingly, the undersigned further agrees that in the event either Alternate A or Alternate B, as described in Section IV of the foregoing Agreement, is chosen and accepted without significant modifications by the Commission, the Tariff shall be deemed to be automatically amended, effective 30 days after the issuance of the Commission's order, to incorporate the accepted Alternate. Connecticut Municipal Electric Energy Cooperative (Participant) By: Name: Title: Address: 30 Stott Avenue Norwich, CT 06360-1535 COUNTERPART SIGNATURE PAGE TO THIRTY-THIRD AGREEMENT AMENDING NEW ENGLAND POWER POOL AGREEMENT DATED AS OF DECEMBER 1, 1996 The NEPOOL Agreement, being dated as of September 1, 1971, and being previously amended by thirty (30) amendments the most recent of which was dated as of September 1, 1995. Fitchburg Gas and Electric Light Company (Participant) By: Name: Title: Address: 6 Liberty Lane West Hampton, NH 03842-1720 SUPPLEMENTAL AGREEMENT WITH RESPECT TO ALTERNATES A & B The undersigned agrees that either Alternate A or Alternate B as described in Section IV of the foregoing Agreement will be acceptable to it if chosen and accepted by the Commission without significant modifications. Accordingly, the undersigned further agrees that in the event either Alternate A or Alternate B, as described in Section IV of the foregoing Agreement, is chosen and accepted without significant modifications by the Commission, the Tariff shall be deemed to be automatically amended, effective 30 days after the issuance of the Commission's order, to incorporate the accepted Alternate. Fitchburg Gas and Electric Light Company (Participant) By: Name: Title: Address: 6 Liberty Lane West Hampton, NH 03842-1720 COUNTERPART SIGNATURE PAGE TO THIRTY-THIRD AGREEMENT AMENDING NEW ENGLAND POWER POOL AGREEMENT DATED AS OF DECEMBER 1, 1996 The NEPOOL Agreement, being dated as of September 1, 1971, and being previously amended by thirty (30) amendments the most recent of which was dated as of September 1, 1995. Hingham Municipal Lighting Plant (Participant) By: Name: Title: Address: 19 Elm Street Hingham, MA 02043-2518 SUPPLEMENTAL AGREEMENT WITH RESPECT TO ALTERNATES A & B The undersigned agrees that either Alternate A or Alternate B as described in Section IV of the foregoing Agreement will be acceptable to it if chosen and accepted by the Commission without significant modifications. Accordingly, the undersigned further agrees that in the event either Alternate A or Alternate B, as described in Section IV of the foregoing Agreement, is chosen and accepted without significant modifications by the Commission, the Tariff shall be deemed to be automatically amended, effective 30 days after the issuance of the Commission's order, to incorporate the accepted Alternate. Hingham Municipal Lighting Plant (Participant) By: Name: Title: Address: 19 Elm Street Hingham, MA 02043-2518 COUNTERPART SIGNATURE PAGE TO THIRTY-THIRD AGREEMENT AMENDING NEW ENGLAND POWER POOL AGREEMENT DATED AS OF DECEMBER 1, 1996 The NEPOOL Agreement, being dated as of September 1, 1971, and being previously amended by thirty (30) amendments the most recent of which was dated as of September 1, 1995. New Hampshire Electric Cooperative, Inc. (Participant) By: Name: Title: Address: RFD 4, Box 2100 Tenney Mountain Highway Plymouth, NH 03264-9420 SUPPLEMENTAL AGREEMENT WITH RESPECT TO ALTERNATES A & B The undersigned agrees that either Alternate A or Alternate B as described in Section IV of the foregoing Agreement will be acceptable to it if chosen and accepted by the Commission without significant modifications. Accordingly, the undersigned further agrees that in the event either Alternate A or Alternate B, as described in Section IV of the foregoing Agreement, is chosen and accepted without significant modifications by the Commission, the Tariff shall be deemed to be automatically amended, effective 30 days after the issuance of the Commission's order, to incorporate the accepted Alternate. New Hampshire Electric Cooperative, Inc. (Participant) By: Name: Title: Address: RFD 4, Box 2100 Tenney Mountain Highway Plymouth, NH 03264-9420 COUNTERPART SIGNATURE PAGE TO THIRTY-THIRD AGREEMENT AMENDING NEW ENGLAND POWER POOL AGREEMENT DATED AS OF DECEMBER 1, 1996 The NEPOOL Agreement, being dated as of September 1, 1971, and being previously amended by thirty (30) amendments the most recent of which was dated as of September 1, 1995. Paxton Municipal Light Department (Participant) By: Name: Title: Address: 578 Pleasant Street Paxton, MA 01612-1365 SUPPLEMENTAL AGREEMENT WITH RESPECT TO ALTERNATES A & B The undersigned agrees that either Alternate A or Alternate B as described in Section IV of the foregoing Agreement will be acceptable to it if chosen and accepted by the Commission without significant modifications. Accordingly, the undersigned further agrees that in the event either Alternate A or Alternate B, as described in Section IV of the foregoing Agreement, is chosen and accepted without significant modifications by the Commission, the Tariff shall be deemed to be automatically amended, effective 30 days after the issuance of the Commission's order, to incorporate the accepted Alternate. Paxton Municipal Light Department (Participant) By: Name: Title: Address: 578 Pleasant Street Paxton, MA 01612-1365 COUNTERPART SIGNATURE PAGE TO THIRTY-THIRD AGREEMENT AMENDING NEW ENGLAND POWER POOL AGREEMENT DATED AS OF DECEMBER 1, 1996 The NEPOOL Agreement, being dated as of September 1, 1971, and being previously amended by thirty (30) amendments the most recent of which was dated as of September 1, 1995. The Narragansett Electric Company (Participant) By: Name: Title: Address: 25 Research Drive Westborough, MA 01582-0001 SUPPLEMENTAL AGREEMENT WITH RESPECT TO ALTERNATES A & B The undersigned agrees that either Alternate A or Alternate B as described in Section IV of the foregoing Agreement will be acceptable to it if chosen and accepted by the Commission without significant modifications. Accordingly, the undersigned further agrees that in the event either Alternate A or Alternate B, as described in Section IV of the foregoing Agreement, is chosen and accepted without significant modifications by the Commission, the Tariff shall be deemed to be automatically amended, effective 30 days after the issuance of the Commission's order, to incorporate the accepted Alternate. The Narragansett Electric Company (Participant) By: Name: Title: Address: 25 Research Drive Westborough, MA 01582-0001 COUNTERPART SIGNATURE PAGE TO THIRTY-THIRD AGREEMENT AMENDING NEW ENGLAND POWER POOL AGREEMENT DATED AS OF DECEMBER 1, 1996 The NEPOOL Agreement, being dated as of September 1, 1971, and being previously amended by thirty (30) amendments the most recent of which was dated as of September 1, 1995. The United Illuminating Company (Participant) By: Name: Title: Address: 157 Church Street New Haven, CT 06506-0901 SUPPLEMENTAL AGREEMENT WITH RESPECT TO ALTERNATES A & B The undersigned agrees that either Alternate A or Alternate B as described in Section IV of the foregoing Agreement will be acceptable to it if chosen and accepted by the Commission without significant modifications. Accordingly, the undersigned further agrees that in the event either Alternate A or Alternate B, as described in Section IV of the foregoing Agreement, is chosen and accepted without significant modifications by the Commission, the Tariff shall be deemed to be automatically amended, effective 30 days after the issuance of the Commission's order, to incorporate the accepted Alternate. The United Illuminating Company (Participant) By: Name: Title: Address: 157 Church Street New Haven, CT 06506-0901 COUNTERPART SIGNATURE PAGE TO THIRTY-THIRD AGREEMENT AMENDING NEW ENGLAND POWER POOL AGREEMENT DATED AS OF DECEMBER 1, 1996 The NEPOOL Agreement, being dated as of September 1, 1971, and being previously amended by thirty (30) amendments the most recent of which was dated as of September 1, 1995. Bangor Hydro-Electric Company (Participant) By: Name: Title: Address: 33 State Street Bangor, ME 04402-0932 SUPPLEMENTAL AGREEMENT WITH RESPECT TO ALTERNATES A & B The undersigned agrees that either Alternate A or Alternate B as described in Section IV of the foregoing Agreement will be acceptable to it if chosen and accepted by the Commission without significant modifications. Accordingly, the undersigned further agrees that in the event either Alternate A or Alternate B, as described in Section IV of the foregoing Agreement, is chosen and accepted without significant modifications by the Commission, the Tariff shall be deemed to be automatically amended, effective 30 days after the issuance of the Commission's order, to incorporate the accepted Alternate. Bangor Hydro-Electric Company (Participant) By: Name: Title: Address: 33 State Street Bangor, ME 04402-0932 COUNTERPART SIGNATURE PAGE TO THIRTY-THIRD AGREEMENT AMENDING NEW ENGLAND POWER POOL AGREEMENT DATED AS OF DECEMBER 1, 1996 The NEPOOL Agreement, being dated as of September 1, 1971, and being previously amended by thirty (30) amendments the most recent of which was dated as of September 1, 1995. EASTERN UTILITIES ASSOCIATES COMPANIES Blackstone Valley Electric Company Eastern Edison Company Montaup Electric Company Newport Electric Company (Participants) By: Name: Title: Address: 750 West Center Street West Bridgewater, MA 02379-0543 SUPPLEMENTAL AGREEMENT WITH RESPECT TO ALTERNATES A & B The undersigned agrees that either Alternate A or Alternate B as described in Section IV of the foregoing Agreement will be acceptable to it if chosen and accepted by the Commission without significant modifications. Accordingly, the undersigned further agrees that in the event either Alternate A or Alternate B, as described in Section IV of the foregoing Agreement, is chosen and accepted without significant modifications by the Commission, the Tariff shall be deemed to be automatically amended, effective 30 days after the issuance of the Commission's order, to incorporate the accepted Alternate. EASTERN UTILITIES ASSOCIATES COMPANIES Blackstone Valley Electric Company Eastern Edison Company Montaup Electric Company Newport Electric Company (Participants) By: Name: Title: Address: 750 West Center Street West Bridgewater, MA 02379-0543 COUNTERPART SIGNATURE PAGE TO THIRTY-THIRD AGREEMENT AMENDING NEW ENGLAND POWER POOL AGREEMENT DATED AS OF DECEMBER 1, 1996 The NEPOOL Agreement, being dated as of September 1, 1971, and being previously amended by thirty (30) amendments the most recent of which was dated as of September 1, 1995. NEW ENGLAND ELECTRIC SYSTEM OPERATING COMPANIES Granite State Electric Company Massachusetts Electric Company New England Power Company (Participants) By: Name: Title: Address: 25 Research Drive Westborough, MA 01582-0001 SUPPLEMENTAL AGREEMENT WITH RESPECT TO ALTERNATES A & B The undersigned agrees that either Alternate A or Alternate B as described in Section IV of the foregoing Agreement will be acceptable to it if chosen and accepted by the Commission without significant modifications. Accordingly, the undersigned further agrees that in the event either Alternate A or Alternate B, as described in Section IV of the foregoing Agreement, is chosen and accepted without significant modifications by the Commission, the Tariff shall be deemed to be automatically amended, effective 30 days after the issuance of the Commission's order, to incorporate the accepted Alternate. NEW ENGLAND ELECTRIC SYSTEM OPERATING COMPANIES Granite State Electric Company Massachusetts Electric Company New England Power Company (Participants) By: Name: Title: Address: 25 Research Drive Westborough, MA 01582-0001 COUNTERPART SIGNATURE PAGE TO THIRTY-THIRD AGREEMENT AMENDING NEW ENGLAND POWER POOL AGREEMENT DATED AS OF DECEMBER 1, 1996 The NEPOOL Agreement, being dated as of September 1, 1971, and being previously amended by thirty (30) amendments the most recent of which was dated as of September 1, 1995. NORTHEAST UTILITIES SYSTEM COMPANIES The Connecticut Light and Power Company Holyoke Power and Electric Company Holyoke Water Power Company Public Service Company of New Hampshire Western Massachusetts Electric Company (Participants) By: Name: Title: Address: 107 Selden Street Berlin, CT 06037-1616 SUPPLEMENTAL AGREEMENT WITH RESPECT TO ALTERNATES A & B The undersigned agrees that either Alternate A or Alternate B as described in Section IV of the foregoing Agreement will be acceptable to it if chosen and accepted by the Commission without significant modifications. Accordingly, the undersigned further agrees that in the event either Alternate A or Alternate B, as described in Section IV of the foregoing Agreement, is chosen and accepted without significant modifications by the Commission, the Tariff shall be deemed to be automatically amended, effective 30 days after the issuance of the Commission's order, to incorporate the accepted Alternate. NORTHEAST UTILITIES SYSTEM COMPANIES The Connecticut Light and Power Company Holyoke Power and Electric Company Holyoke Water Power Company Public Service Company of New Hampshire Western Massachusetts Electric Company (Participants) By: Name: Title: Address: 107 Selden Street Berlin, CT 06037-1616 COUNTERPART SIGNATURE PAGE TO THIRTY-THIRD AGREEMENT AMENDING NEW ENGLAND POWER POOL AGREEMENT DATED AS OF DECEMBER 1, 1996 The NEPOOL Agreement, being dated as of September 1, 1971, and being previously amended by thirty (30) amendments the most recent of which was dated as of September 1, 1995. VERMONT UTILITIES Barton Village, Inc. City of Burlington Electric Department Central Vermont Public Service Company Citizens Utilities Company Green Mountain Power Corporation Rochester Electric Light & Power Company Town of Readsboro Electric Light Department Vermont Electric Cooperative, Inc. Vermont Electric Generation & Transmission Cooperative, Inc. Vermont Electric Power Company, Inc. Vermont Marble Company Vermont Public Power Supply Authority Village of Enosburg Falls Water & Light Department Village of Hardwick Electric Department Village of Hyde Park, Inc. Village of Jacksonville Village of Johnson Electric Light Department Village of Ludlow Electric Light Department Village of Lyndonville Electric Department Village of Morrisville Water & Light Department Village of Northfield Electric Department Village of Orleans Electric Department Village of Stowe Water & Light Department Village of Swanton Washington Electric Cooperative, Inc. (Participants) By: Vermont Electric Power Company, Inc. By: Name: Title: Address: Pinnacle Ridge Avenue Rutland, VT 05701 SUPPLEMENTAL AGREEMENT WITH RESPECT TO ALTERNATES A & B The undersigned agrees that either Alternate A or Alternate B as described in Section IV of the foregoing Agreement will be acceptable to it if chosen and accepted by the Commission without significant modifications. Accordingly, the undersigned further agrees that in the event either Alternate A or Alternate B, as described in Section IV of the foregoing Agreement, is chosen and accepted without significant modifications by the Commission, the Tariff shall be deemed to be automatically amended, effective 30 days after the issuance of the Commission's order, to incorporate the accepted Alternate. VERMONT UTILITIES Barton Village, Inc. City of Burlington Electric Department Central Vermont Public Service Company Citizens Utilities Company Green Mountain Power Corporation Rochester Electric Light & Power Company Town of Readsboro Electric Light Department Vermont Electric Cooperative, Inc. Village of Hyde Park, Inc. Village of Jacksonville Village of Johnson Electric Light Department Village of Ludlow Electric Light Department Village of Lyndonville Electric Department Village of Morrisville Water & Light Department Village of Northfield Electric Department Village of Orleans Electric Department Village of Stowe Water & Light Department Village of Swanton Washington Electric Cooperative, Inc. (Participants) By: Vermont Electric Power Company, Inc. By: Name: Title: Address: Pinnacle Ridge Avenue Rutland, VT 05701 COUNTERPART SIGNATURE PAGE TO THIRTY-THIRD AGREEMENT AMENDING NEW ENGLAND POWER POOL AGREEMENT DATED AS OF DECEMBER 1, 1996 The NEPOOL Agreement, being dated as of September 1, 1971, and being previously amended by thirty (30) amendments the most recent of which was dated as of September 1, 1995. UNITIL CORPORATION PARTICIPANT COMPANIES Concord Electric Company Exeter & Hampton Electric Company UNITIL Power Corp. (Participants) By: Name: Title: Address: 6 Liberty Lane West Hampton, NH 03833-4547 SUPPLEMENTAL AGREEMENT WITH RESPECT TO ALTERNATES A & B The undersigned agrees that either Alternate A or Alternate B as described in Section IV of the foregoing Agreement will be acceptable to it if chosen and accepted by the Commission without significant modifications. Accordingly, the undersigned further agrees that in the event either Alternate A or Alternate B, as described in Section IV of the foregoing Agreement, is chosen and accepted without significant modifications by the Commission, the Tariff shall be deemed to be automatically amended, effective 30 days after the issuance of the Commission's order, to incorporate the accepted Alternate. UNITIL CORPORATION PARTICIPANT COMPANIES Concord Electric Company Exeter & Hampton Electric Company UNITIL Power Corp. (Participants) By: Name: Title: Address: 6 Liberty Lane West Hampton, NH 03833-4547 COUNTERPART SIGNATURE PAGE TO THIRTY-THIRD AGREEMENT AMENDING NEW ENGLAND POWER POOL AGREEMENT DATED AS OF DECEMBER 1, 1996 The NEPOOL Agreement, being dated as of September 1, 1971, and being previously amended by thirty (30) amendments the most recent of which was dated as of September 1, 1995. COMMONWEALTH ENERGY SYSTEM COMPANIES Cambridge Electric Light Company Canal Electric Company Commonwealth Electric Company (Participants) By: Name: Title: Address: 2421 Cranberry Highway Wareham, MA 02571-1002 SUPPLEMENTAL AGREEMENT WITH RESPECT TO ALTERNATES A & B The undersigned agrees that either Alternate A or Alternate B as described in Section IV of the foregoing Agreement will be acceptable to it if chosen and accepted by the Commission without significant modifications. Accordingly, the undersigned further agrees that in the event either Alternate A or Alternate B, as described in Section IV of the foregoing Agreement, is chosen and accepted without significant modifications by the Commission, the Tariff shall be deemed to be automatically amended, effective 30 days after the issuance of the Commission's order, to incorporate the accepted Alternate. COMMONWEALTH ENERGY SYSTEM COMPANIES Cambridge Electric Light Company Canal Electric Company Commonwealth Electric Company (Participants) By: Name: Title: Address: 2421 Cranberry Highway Wareham, MA 92571-1002 COUNTERPART SIGNATURE PAGE TO THIRTY-THIRD AGREEMENT AMENDING NEW ENGLAND POWER POOL AGREEMENT DATED AS OF DECEMBER 1, 1996 The NEPOOL Agreement, being dated as of September 1, 1971, and being previously amended by thirty (30) amendments the most recent of which was dated as of September 1, 1995. Granite State Electric Company (Participant) By: Name: Title: Address: 25 Research Drive Westborough, MA 01582-0001 SUPPLEMENTAL AGREEMENT WITH RESPECT TO ALTERNATES A & B The undersigned agrees that either Alternate A or Alternate B as described in Section IV of the foregoing Agreement will be acceptable to it if chosen and accepted by the Commission without significant modifications. Accordingly, the undersigned further agrees that in the event either Alternate A or Alternate B, as described in Section IV of the foregoing Agreement, is chosen and accepted without significant modifications by the Commission, the Tariff shall be deemed to be automatically amended, effective 30 days after the issuance of the Commission's order, to incorporate the accepted Alternate. Granite State Electric Company (Participant) By: Name: Title: Address: 25 Research Drive Westborough, MA 01582-0001 COUNTERPART SIGNATURE PAGE TO THIRTY-THIRD AGREEMENT AMENDING NEW ENGLAND POWER POOL AGREEMENT DATED AS OF DECEMBER 1, 1996 The NEPOOL Agreement, being dated as of September 1, 1971, and being previously amended by thirty (30) amendments the most recent of which was dated as of September 1, 1995. Massachusetts Electric Company (Participant) By: Name: Title: Address: 25 Research Drive Westborough, MA 01582-0001 SUPPLEMENTAL AGREEMENT WITH RESPECT TO ALTERNATES A & B The undersigned agrees that either Alternate A or Alternate B as described in Section IV of the foregoing Agreement will be acceptable to it if chosen and accepted by the Commission without significant modifications. Accordingly, the undersigned further agrees that in the event either Alternate A or Alternate B, as described in Section IV of the foregoing Agreement, is chosen and accepted without significant modifications by the Commission, the Tariff shall be deemed to be automatically amended, effective 30 days after the issuance of the Commission's order, to incorporate the accepted Alternate. Massachusetts Electric Company (Participant) By: Name: Title: Address: 25 Research Drive Westborough, MA 01582-0001 COUNTERPART SIGNATURE PAGE TO THIRTY-THIRD AGREEMENT AMENDING NEW ENGLAND POWER POOL AGREEMENT DATED AS OF DECEMBER 1, 1996 The NEPOOL Agreement, being dated as of September 1, 1971, and being previously amended by thirty (30) amendments the most recent of which was dated as of September 1, 1995. Massachusetts Municipal Wholesale Electric Company (Participant) By: Name: Title: Address: Moody Street Ludlow, MA 01056-0426 SUPPLEMENTAL AGREEMENT WITH RESPECT TO ALTERNATES A & B The undersigned agrees that either Alternate A or Alternate B as described in Section IV of the foregoing Agreement will be acceptable to it if chosen and accepted by the Commission without significant modifications. Accordingly, the undersigned further agrees that in the event either Alternate A or Alternate B, as described in Section IV of the foregoing Agreement, is chosen and accepted without significant modifications by the Commission, the Tariff shall be deemed to be automatically amended, effective 30 days after the issuance of the Commission's order, to incorporate the accepted Alternate. Massachusetts Municipal Wholesale Electric Company (Participant) By: Name: Title: Address: Moody Street Ludlow, MA 01056-0426 COUNTERPART SIGNATURE PAGE TO THIRTY-THIRD AGREEMENT AMENDING NEW ENGLAND POWER POOL AGREEMENT DATED AS OF DECEMBER 1, 1996 The NEPOOL Agreement, being dated as of September 1, 1971, and being previously amended by thirty (30) amendments the most recent of which was dated as of September 1, 1995. Vermont Electric Power Company, Inc. (Participant) By: Name: Title: Address: Pinnacle Ridge Avenue Rutland, VT 05701 SUPPLEMENTAL AGREEMENT WITH RESPECT TO ALTERNATES A & B The undersigned agrees that either Alternate A or Alternate B as described in Section IV of the foregoing Agreement will be acceptable to it if chosen and accepted by the Commission without significant modifications. Accordingly, the undersigned further agrees that in the event either Alternate A or Alternate B, as described in Section IV of the foregoing Agreement, is chosen and accepted without significant modifications by the Commission, the Tariff shall be deemed to be automatically amended, effective 30 days after the issuance of the Commission's order, to incorporate the accepted Alternate. Vermont Electric Power Company, Inc. (Participant) By: Name: Title: Address: Pinnacle Ridge Avenue Rutland, VT 05701 COUNTERPART SIGNATURE PAGE TO THIRTY-THIRD AGREEMENT AMENDING NEW ENGLAND POWER POOL AGREEMENT DATED AS OF DECEMBER 1, 1996 The NEPOOL Agreement, being dated as of September 1, 1971, and being previously amended by thirty (30) amendments the most recent of which was dated as of September 1, 1995. New England Power Company (Participant) By: Name: Title: Address: 25 Research Drive Westborough, MA 01582-0001 SUPPLEMENTAL AGREEMENT WITH RESPECT TO ALTERNATES A & B The undersigned agrees that either Alternate A or Alternate B as described in Section IV of the foregoing Agreement will be acceptable to it if chosen and accepted by the Commission without significant modifications. Accordingly, the undersigned further agrees that in the event either Alternate A or Alternate B, as described in Section IV of the foregoing Agreement, is chosen and accepted without significant modifications by the Commission, the Tariff shall be deemed to be automatically amended, effective 30 days after the issuance of the Commission's order, to incorporate the accepted Alternate. New England Power Company (Participant) By: Name: Title: Address: 25 Research Drive Westborough, MA 01582-0001 COUNTERPART SIGNATURE PAGE TO THIRTY-THIRD AGREEMENT AMENDING NEW ENGLAND POWER POOL AGREEMENT DATED AS OF DECEMBER 1, 1996 The NEPOOL Agreement, being dated as of September 1, 1971, and being previously amended by thirty (30) amendments the most recent of which was dated as of September 1, 1995. AGF, Inc. (Participant) By: Name: Title: Address: 816 Elm Street Manchester, NH 03101 SUPPLEMENTAL AGREEMENT WITH RESPECT TO ALTERNATES A & B The undersigned agrees that either Alternate A or Alternate B as described in Section IV of the foregoing Agreement will be acceptable to it if chosen and accepted by the Commission without significant modifications. Accordingly, the undersigned further agrees that in the event either Alternate A or Alternate B, as described in Section IV of the foregoing Agreement, is chosen and accepted without significant modifications by the Commission, the Tariff shall be deemed to be automatically amended, effective 30 days after the issuance of the Commission's order, to incorporate the accepted Alternate. AGF, Inc. (Participant) By: Name: Title: Address: 816 Elm Street Manchester, NH 03101 COUNTERPART SIGNATURE PAGE TO THIRTY-THIRD AGREEMENT AMENDING NEW ENGLAND POWER POOL AGREEMENT DATED AS OF DECEMBER 1, 1996 The NEPOOL Agreement, being dated as of September 1, 1971, and being previously amended by thirty (30) amendments the most recent of which was dated as of September 1, 1995. AIG Trading Corporation (Participant) By: Name: Title: Address: One Greenwich Plaza Greenwich, CT 06830 SUPPLEMENTAL AGREEMENT WITH RESPECT TO ALTERNATES A & B The undersigned agrees that either Alternate A or Alternate B as described in Section IV of the foregoing Agreement will be acceptable to it if chosen and accepted by the Commission without significant modifications. Accordingly, the undersigned further agrees that in the event either Alternate A or Alternate B, as described in Section IV of the foregoing Agreement, is chosen and accepted without significant modifications by the Commission, the Tariff shall be deemed to be automatically amended, effective 30 days after the issuance of the Commission's order, to incorporate the accepted Alternate. AIG Trading Corporation (Participant) By: Name: Title: Address: One Greenwich Plaza Greenwich, CT 06830 COUNTERPART SIGNATURE PAGE TO THIRTY-THIRD AGREEMENT AMENDING NEW ENGLAND POWER POOL AGREEMENT DATED AS OF DECEMBER 1, 1996 The NEPOOL Agreement, being dated as of September 1, 1971, and being previously amended by thirty (30) amendments the most recent of which was dated as of September 1, 1995. Alternate Power Source, Inc. (Participant) By: Name: Title: Address: 200 Clarendon Street Boston, MA 02116 SUPPLEMENTAL AGREEMENT WITH RESPECT TO ALTERNATES A & B The undersigned agrees that either Alternate A or Alternate B as described in Section IV of the foregoing Agreement will be acceptable to it if chosen and accepted by the Commission without significant modifications. Accordingly, the undersigned further agrees that in the event either Alternate A or Alternate B, as described in Section IV of the foregoing Agreement, is chosen and accepted without significant modifications by the Commission, the Tariff shall be deemed to be automatically amended, effective 30 days after the issuance of the Commission's order, to incorporate the accepted Alternate. Alternate Power Source, Inc. (Participant) By: Name: Title: Address: 200 Clarendon Street Boston, MA 02116 COUNTERPART SIGNATURE PAGE TO THIRTY-THIRD AGREEMENT AMENDING NEW ENGLAND POWER POOL AGREEMENT DATED AS OF DECEMBER 1, 1996 The NEPOOL Agreement, being dated as of September 1, 1971, and being previously amended by thirty (30) amendments the most recent of which was dated as of September 1, 1995. ANP Energy Direct Company (Participant) By: Name: Title: Address: 108 National Street Milford, MA 01757 SUPPLEMENTAL AGREEMENT WITH RESPECT TO ALTERNATES A & B The undersigned agrees that either Alternate A or Alternate B as described in Section IV of the foregoing Agreement will be acceptable to it if chosen and accepted by the Commission without significant modifications. Accordingly, the undersigned further agrees that in the event either Alternate A or Alternate B, as described in Section IV of the foregoing Agreement, is chosen and accepted without significant modifications by the Commission, the Tariff shall be deemed to be automatically amended, effective 30 days after the issuance of the Commission's order, to incorporate the accepted Alternate. ANP Energy Direct Company (Participant) By: Name: Title: Address: 108 National Street Milford, MA 01757 COUNTERPART SIGNATURE PAGE TO THIRTY-THIRD AGREEMENT AMENDING NEW ENGLAND POWER POOL AGREEMENT DATED AS OF DECEMBER 1, 1996 The NEPOOL Agreement, being dated as of September 1, 1971, and being previously amended by thirty (30) amendments the most recent of which was dated as of September 1, 1995. Aquila Power Corporation (Participant) By: Name: Title: Address: 10700 East 350 Highway Kansas City, MO 64138 SUPPLEMENTAL AGREEMENT WITH RESPECT TO ALTERNATES A & B The undersigned agrees that either Alternate A or Alternate B as described in Section IV of the foregoing Agreement will be acceptable to it if chosen and accepted by the Commission without significant modifications. Accordingly, the undersigned further agrees that in the event either Alternate A or Alternate B, as described in Section IV of the foregoing Agreement, is chosen and accepted without significant modifications by the Commission, the Tariff shall be deemed to be automatically amended, effective 30 days after the issuance of the Commission's order, to incorporate the accepted Alternate. Aquila Power Corporation (Participant) By: Name: Title: Address: 10700 East 350 Highway Kansas City, MO 64138 COUNTERPART SIGNATURE PAGE TO THIRTY-THIRD AGREEMENT AMENDING NEW ENGLAND POWER POOL AGREEMENT DATED AS OF DECEMBER 1, 1996 The NEPOOL Agreement, being dated as of September 1, 1971, and being previously amended by thirty (30) amendments the most recent of which was dated as of September 1, 1995. Ashburnham Municipal Light Plant (Participant) By: Name: Title: Address: 86 Central Street Ashburnham, MA 01430-0823 SUPPLEMENTAL AGREEMENT WITH RESPECT TO ALTERNATES A & B The undersigned agrees that either Alternate A or Alternate B as described in Section IV of the foregoing Agreement will be acceptable to it if chosen and accepted by the Commission without significant modifications. Accordingly, the undersigned further agrees that in the event either Alternate A or Alternate B, as described in Section IV of the foregoing Agreement, is chosen and accepted without significant modifications by the Commission, the Tariff shall be deemed to be automatically amended, effective 30 days after the issuance of the Commission's order, to incorporate the accepted Alternate. Ashburnham Municipal Light Plant (Participant) By: Name: Title: Address:86 Central Street Ashburnham, MA 01430-0823 COUNTERPART SIGNATURE PAGE TO THIRTY-THIRD AGREEMENT AMENDING NEW ENGLAND POWER POOL AGREEMENT DATED AS OF DECEMBER 1, 1996 The NEPOOL Agreement, being dated as of September 1, 1971, and being previously amended by thirty (30) amendments the most recent of which was dated as of September 1, 1995. Belmont Municipal Light Department (Participant) By: Name: Title: Address: 450 Concord Avenue Belmont, MA 02178-0907 SUPPLEMENTAL AGREEMENT WITH RESPECT TO ALTERNATES A & B The undersigned agrees that either Alternate A or Alternate B as described in Section IV of the foregoing Agreement will be acceptable to it if chosen and accepted by the Commission without significant modifications. Accordingly, the undersigned further agrees that in the event either Alternate A or Alternate B, as described in Section IV of the foregoing Agreement, is chosen and accepted without significant modifications by the Commission, the Tariff shall be deemed to be automatically amended, effective 30 days after the issuance of the Commission's order, to incorporate the accepted Alternate. Belmont Municipal Light Department (Participant) By: Name: Title: Address: 450 Concord Avenue Belmont, MA 02178-0907 COUNTERPART SIGNATURE PAGE TO THIRTY-THIRD AGREEMENT AMENDING NEW ENGLAND POWER POOL AGREEMENT DATED AS OF DECEMBER 1, 1996 The NEPOOL Agreement, being dated as of September 1, 1971, and being previously amended by thirty (30) amendments the most recent of which was dated as of September 1, 1995. Berkshire Power Development, Inc. (Participant) By: Name: Title: Address: 50 Rowes Wharf, Suite 400 Boston, MA 02110 SUPPLEMENTAL AGREEMENT WITH RESPECT TO ALTERNATES A & B The undersigned agrees that either Alternate A or Alternate B as described in Section IV of the foregoing Agreement will be acceptable to it if chosen and accepted by the Commission without significant modifications. Accordingly, the undersigned further agrees that in the event either Alternate A or Alternate B, as described in Section IV of the foregoing Agreement, is chosen and accepted without significant modifications by the Commission, the Tariff shall be deemed to be automatically amended, effective 30 days after the issuance of the Commission's order, to incorporate the accepted Alternate. Berkshire Power Development, Inc. (Participant) By: Name: Title: Address:50 Rowes Wharf, Suite 400 Boston, MA 02110 COUNTERPART SIGNATURE PAGE TO THIRTY-THIRD AGREEMENT AMENDING NEW ENGLAND POWER POOL AGREEMENT DATED AS OF DECEMBER 1, 1996 The NEPOOL Agreement, being dated as of September 1, 1971, and being previously amended by thirty (30) amendments the most recent of which was dated as of September 1, 1995. Cincinnati Gas & Electric Company (Participant) By: Name: Title: Address: 139 East Fourth Street Cincinnati, OH 45201 SUPPLEMENTAL AGREEMENT WITH RESPECT TO ALTERNATES A & B The undersigned agrees that either Alternate A or Alternate B as described in Section IV of the foregoing Agreement will be acceptable to it if chosen and accepted by the Commission without significant modifications. Accordingly, the undersigned further agrees that in the event either Alternate A or Alternate B, as described in Section IV of the foregoing Agreement, is chosen and accepted without significant modifications by the Commission, the Tariff shall be deemed to be automatically amended, effective 30 days after the issuance of the Commission's order, to incorporate the accepted Alternate. Cincinnati Gas & Electric Company (Participant) By: Name: Title: Address: 139 East Fourth Street Cincinnati, OH 45201 COUNTERPART SIGNATURE PAGE TO THIRTY-THIRD AGREEMENT AMENDING NEW ENGLAND POWER POOL AGREEMENT DATED AS OF DECEMBER 1, 1996 The NEPOOL Agreement, being dated as of September 1, 1971, and being previously amended by thirty (30) amendments the most recent of which was dated as of September 1, 1995. Citizens Lehman Power Sales (Participant) By: Name: Title: Address: 530 Atlantic Avenue Boston, MA 02110 SUPPLEMENTAL AGREEMENT WITH RESPECT TO ALTERNATES A & B The undersigned agrees that either Alternate A or Alternate B as described in Section IV of the foregoing Agreement will be acceptable to it if chosen and accepted by the Commission without significant modifications. Accordingly, the undersigned further agrees that in the event either Alternate A or Alternate B, as described in Section IV of the foregoing Agreement, is chosen and accepted without significant modifications by the Commission, the Tariff shall be deemed to be automatically amended, effective 30 days after the issuance of the Commission's order, to incorporate the accepted Alternate. Citizens Lehman Power Sales (Participant) By: Name: Title: Address: 530 Atlantic Avenue Boston, MA 02110 COUNTERPART SIGNATURE PAGE TO THIRTY-THIRD AGREEMENT AMENDING NEW ENGLAND POWER POOL AGREEMENT DATED AS OF DECEMBER 1, 1996 The NEPOOL Agreement, being dated as of September 1, 1971, and being previously amended by thirty (30) amendments the most recent of which was dated as of September 1, 1995. CNG Power Services Corporation (Participant) By: Name: Title: Address: One Park Ridge Center Pittsburgh, PA 15244-0746 SUPPLEMENTAL AGREEMENT WITH RESPECT TO ALTERNATES A & B The undersigned agrees that either Alternate A or Alternate B as described in Section IV of the foregoing Agreement will be acceptable to it if chosen and accepted by the Commission without significant modifications. Accordingly, the undersigned further agrees that in the event either Alternate A or Alternate B, as described in Section IV of the foregoing Agreement, is chosen and accepted without significant modifications by the Commission, the Tariff shall be deemed to be automatically amended, effective 30 days after the issuance of the Commission's order, to incorporate the accepted Alternate. CNG Power Services Corporation (Participant) By: Name: Title: Address: One Park Ridge Center Pittsburgh, PA 15244-0746 COUNTERPART SIGNATURE PAGE TO THIRTY-THIRD AGREEMENT AMENDING NEW ENGLAND POWER POOL AGREEMENT DATED AS OF DECEMBER 1, 1996 The NEPOOL Agreement, being dated as of September 1, 1971, and being previously amended by thirty (30) amendments the most recent of which was dated as of September 1, 1995. Concord Municipal Light Plant (Participant) By: Name: Title: Address: 135 Keyes Road Concord, MA 01742-1601 SUPPLEMENTAL AGREEMENT WITH RESPECT TO ALTERNATES A & B The undersigned agrees that either Alternate A or Alternate B as described in Section IV of the foregoing Agreement will be acceptable to it if chosen and accepted by the Commission without significant modifications. Accordingly, the undersigned further agrees that in the event either Alternate A or Alternate B, as described in Section IV of the foregoing Agreement, is chosen and accepted without significant modifications by the Commission, the Tariff shall be deemed to be automatically amended, effective 30 days after the issuance of the Commission's order, to incorporate the accepted Alternate. Concord Municipal Light Plant (Participant) By: Name: Title: Address: 135 Keyes Road Concord, MA 01742-1601 COUNTERPART SIGNATURE PAGE TO THIRTY-THIRD AGREEMENT AMENDING NEW ENGLAND POWER POOL AGREEMENT DATED AS OF DECEMBER 1, 1996 The NEPOOL Agreement, being dated as of September 1, 1971, and being previously amended by thirty (30) amendments the most recent of which was dated as of September 1, 1995. Danvers Electric Department (Participant) By: Name: Title: Address: 2 Burroughs Street Danvers, MA 01923-2702 SUPPLEMENTAL AGREEMENT WITH RESPECT TO ALTERNATES A & B The undersigned agrees that either Alternate A or Alternate B as described in Section IV of the foregoing Agreement will be acceptable to it if chosen and accepted by the Commission without significant modifications. Accordingly, the undersigned further agrees that in the event either Alternate A or Alternate B, as described in Section IV of the foregoing Agreement, is chosen and accepted without significant modifications by the Commission, the Tariff shall be deemed to be automatically amended, effective 30 days after the issuance of the Commission's order, to incorporate the accepted Alternate. Danvers Electric Department (Participant) By: Name: Title: Address: 2 Burroughs Street Danvers, MA 01923-2702 COUNTERPART SIGNATURE PAGE TO THIRTY-THIRD AGREEMENT AMENDING NEW ENGLAND POWER POOL AGREEMENT DATED AS OF DECEMBER 1, 1996 The NEPOOL Agreement, being dated as of September 1, 1971, and being previously amended by thirty (30) amendments the most recent of which was dated as of September 1, 1995. Duke/Louis Dreyfus Energy Services (New England) L.L.C. (Participant) By: Name: Title: Address: 10 Westport Road Wilton, CT 06897 SUPPLEMENTAL AGREEMENT WITH RESPECT TO ALTERNATES A & B The undersigned agrees that either Alternate A or Alternate B as described in Section IV of the foregoing Agreement will be acceptable to it if chosen and accepted by the Commission without significant modifications. Accordingly, the undersigned further agrees that in the event either Alternate A or Alternate B, as described in Section IV of the foregoing Agreement, is chosen and accepted without significant modifications by the Commission, the Tariff shall be deemed to be automatically amended, effective 30 days after the issuance of the Commission's order, to incorporate the accepted Alternate. Duke/Louis Dreyfus Energy Services (New England) L.L.C. (Participant) By: Name: Title: Address: 10 Westport Road Wilton, CT 06897 COUNTERPART SIGNATURE PAGE TO THIRTY-THIRD AGREEMENT AMENDING NEW ENGLAND POWER POOL AGREEMENT DATED AS OF DECEMBER 1, 1996 The NEPOOL Agreement, being dated as of September 1, 1971, and being previously amended by thirty (30) amendments the most recent of which was dated as of September 1, 1995. Eastern Power Distribution, Inc. (Participant) By: Name: Title: Address: 2900 Eisenhower Avenue Suite 300 Alexandria, VA 22314 SUPPLEMENTAL AGREEMENT WITH RESPECT TO ALTERNATES A & B The undersigned agrees that either Alternate A or Alternate B as described in Section IV of the foregoing Agreement will be acceptable to it if chosen and accepted by the Commission without significant modifications. Accordingly, the undersigned further agrees that in the event either Alternate A or Alternate B, as described in Section IV of the foregoing Agreement, is chosen and accepted without significant modifications by the Commission, the Tariff shall be deemed to be automatically amended, effective 30 days after the issuance of the Commission's order, to incorporate the accepted Alternate. Eastern Power Distribution, Inc. (Participant) By: Name: Title: Address: 2900 Eisenhower Avenue Suite 300 Alexandria, VA 22314 COUNTERPART SIGNATURE PAGE TO THIRTY-THIRD AGREEMENT AMENDING NEW ENGLAND POWER POOL AGREEMENT DATED AS OF DECEMBER 1, 1996 The NEPOOL Agreement, being dated as of September 1, 1971, and being previously amended by thirty (30) amendments the most recent of which was dated as of September 1, 1995. Electric Clearinghouse, Inc. (Participant) By: Name: Title: Address: 13430 Northwest Freeway Suite 1200 Houston, TX 77040-6095 SUPPLEMENTAL AGREEMENT WITH RESPECT TO ALTERNATES A & B The undersigned agrees that either Alternate A or Alternate B as described in Section IV of the foregoing Agreement will be acceptable to it if chosen and accepted by the Commission without significant modifications. Accordingly, the undersigned further agrees that in the event either Alternate A or Alternate B, as described in Section IV of the foregoing Agreement, is chosen and accepted without significant modifications by the Commission, the Tariff shall be deemed to be automatically amended, effective 30 days after the issuance of the Commission's order, to incorporate the accepted Alternate. Electric Clearinghouse, Inc. (Participant) By: Name: Title: Address: 13430 Northwest Freeway Suite 1200 Houston, TX 77040-6095 COUNTERPART SIGNATURE PAGE TO THIRTY-THIRD AGREEMENT AMENDING NEW ENGLAND POWER POOL AGREEMENT DATED AS OF DECEMBER 1, 1996 The NEPOOL Agreement, being dated as of September 1, 1971, and being previously amended by thirty (30) amendments the most recent of which was dated as of September 1, 1995. Energy Choice, L.L.C. (Participant) By: Name: Title: Address: 6000 Ocean Boulevard Ocean Ridge, FL 33435 SUPPLEMENTAL AGREEMENT WITH RESPECT TO ALTERNATES A & B The undersigned agrees that either Alternate A or Alternate B as described in Section IV of the foregoing Agreement will be acceptable to it if chosen and accepted by the Commission without significant modifications. Accordingly, the undersigned further agrees that in the event either Alternate A or Alternate B, as described in Section IV of the foregoing Agreement, is chosen and accepted without significant modifications by the Commission, the Tariff shall be deemed to be automatically amended, effective 30 days after the issuance of the Commission's order, to incorporate the accepted Alternate. Energy Choice, L.L.C. (Participant) By: Name: Title: Address: 6000 Ocean Boulevard Ocean Ridge, FL 33435 COUNTERPART SIGNATURE PAGE TO THIRTY-THIRD AGREEMENT AMENDING NEW ENGLAND POWER POOL AGREEMENT DATED AS OF DECEMBER 1, 1996 The NEPOOL Agreement, being dated as of September 1, 1971, and being previously amended by thirty (30) amendments the most recent of which was dated as of September 1, 1995. Enron Capital & Trade Resources (Participant) By: Name: Title: Address: 1400 Smith Street Houston, TX 77002-7361 SUPPLEMENTAL AGREEMENT WITH RESPECT TO ALTERNATES A & B The undersigned agrees that either Alternate A or Alternate B as described in Section IV of the foregoing Agreement will be acceptable to it if chosen and accepted by the Commission without significant modifications. Accordingly, the undersigned further agrees that in the event either Alternate A or Alternate B, as described in Section IV of the foregoing Agreement, is chosen and accepted without significant modifications by the Commission, the Tariff shall be deemed to be automatically amended, effective 30 days after the issuance of the Commission's order, to incorporate the accepted Alternate. Enron Capital & Trade Resources (Participant) By: Name: Title: Address: 1400 Smith Street Houston, TX 77002-7361 COUNTERPART SIGNATURE PAGE TO THIRTY-THIRD AGREEMENT AMENDING NEW ENGLAND POWER POOL AGREEMENT DATED AS OF DECEMBER 1, 1996 The NEPOOL Agreement, being dated as of September 1, 1971, and being previously amended by thirty (30) amendments the most recent of which was dated as of September 1, 1995. Federal Energy Sales, Inc. (Participant) By: Name: Title: Address: 3222 North Ridge Road Elyria, OH 44035 SUPPLEMENTAL AGREEMENT WITH RESPECT TO ALTERNATES A & B The undersigned agrees that either Alternate A or Alternate B as described in Section IV of the foregoing Agreement will be acceptable to it if chosen and accepted by the Commission without significant modifications. Accordingly, the undersigned further agrees that in the event either Alternate A or Alternate B, as described in Section IV of the foregoing Agreement, is chosen and accepted without significant modifications by the Commission, the Tariff shall be deemed to be automatically amended, effective 30 days after the issuance of the Commission's order, to incorporate the accepted Alternate. Federal Energy Sales, Inc. (Participant) By: Name: Title: Address: 3222 North Ridge Road Elyria, OH 44035 COUNTERPART SIGNATURE PAGE TO THIRTY-THIRD AGREEMENT AMENDING NEW ENGLAND POWER POOL AGREEMENT DATED AS OF DECEMBER 1, 1996 The NEPOOL Agreement, being dated as of September 1, 1971, and being previously amended by thirty (30) amendments the most recent of which was dated as of September 1, 1995. Georgetown Municipal Light Department (Participant) By: Name: Title: Address: Moulton & West Main Streets Georgetown, MA 01833 SUPPLEMENTAL AGREEMENT WITH RESPECT TO ALTERNATES A & B The undersigned agrees that either Alternate A or Alternate B as described in Section IV of the foregoing Agreement will be acceptable to it if chosen and accepted by the Commission without significant modifications. Accordingly, the undersigned further agrees that in the event either Alternate A or Alternate B, as described in Section IV of the foregoing Agreement, is chosen and accepted without significant modifications by the Commission, the Tariff shall be deemed to be automatically amended, effective 30 days after the issuance of the Commission's order, to incorporate the accepted Alternate. Georgetown Municipal Light Department (Participant) By: Name: Title: Address: Moulton & West Main Streets Georgetown, MA 01833 COUNTERPART SIGNATURE PAGE TO THIRTY-THIRD AGREEMENT AMENDING NEW ENGLAND POWER POOL AGREEMENT DATED AS OF DECEMBER 1, 1996 The NEPOOL Agreement, being dated as of September 1, 1971, and being previously amended by thirty (30) amendments the most recent of which was dated as of September 1, 1995. Global Petroleum Corporation (Participant) By: Name: Title: Address: 800 South Street Waltham, MA 02154 SUPPLEMENTAL AGREEMENT WITH RESPECT TO ALTERNATES A & B The undersigned agrees that either Alternate A or Alternate B as described in Section IV of the foregoing Agreement will be acceptable to it if chosen and accepted by the Commission without significant modifications. Accordingly, the undersigned further agrees that in the event either Alternate A or Alternate B, as described in Section IV of the foregoing Agreement, is chosen and accepted without significant modifications by the Commission, the Tariff shall be deemed to be automatically amended, effective 30 days after the issuance of the Commission's order, to incorporate the accepted Alternate. Global Petroleum Corporation (Participant) By: Name: Title: Address: 800 South Street Waltham, MA 02154 COUNTERPART SIGNATURE PAGE TO THIRTY-THIRD AGREEMENT AMENDING NEW ENGLAND POWER POOL AGREEMENT DATED AS OF DECEMBER 1, 1996 The NEPOOL Agreement, being dated as of September 1, 1971, and being previously amended by thirty (30) amendments the most recent of which was dated as of September 1, 1995. Great Bay Power Corporation (Participant) By: Name: Title: Address: 20 Ladd Street, Suite 202 Portsmouth, NH 03801-4080 SUPPLEMENTAL AGREEMENT WITH RESPECT TO ALTERNATES A & B The undersigned agrees that either Alternate A or Alternate B as described in Section IV of the foregoing Agreement will be acceptable to it if chosen and accepted by the Commission without significant modifications. Accordingly, the undersigned further agrees that in the event either Alternate A or Alternate B, as described in Section IV of the foregoing Agreement, is chosen and accepted without significant modifications by the Commission, the Tariff shall be deemed to be automatically amended, effective 30 days after the issuance of the Commission's order, to incorporate the accepted Alternate. Great Bay Power Corporation (Participant) By: Name: Title: Address: 20 Ladd Street, Suite 202 Portsmouth, NH 03801-4080 COUNTERPART SIGNATURE PAGE TO THIRTY-THIRD AGREEMENT AMENDING NEW ENGLAND POWER POOL AGREEMENT DATED AS OF DECEMBER 1, 1996 The NEPOOL Agreement, being dated as of September 1, 1971, and being previously amended by thirty (30) amendments the most recent of which was dated as of September 1, 1995. Groton Electric Light Department (Participant) By: Name: Title: Address: 23 Station Avenue Groton, MA 01450 SUPPLEMENTAL AGREEMENT WITH RESPECT TO ALTERNATES A & B The undersigned agrees that either Alternate A or Alternate B as described in Section IV of the foregoing Agreement will be acceptable to it if chosen and accepted by the Commission without significant modifications. Accordingly, the undersigned further agrees that in the event either Alternate A or Alternate B, as described in Section IV of the foregoing Agreement, is chosen and accepted without significant modifications by the Commission, the Tariff shall be deemed to be automatically amended, effective 30 days after the issuance of the Commission's order, to incorporate the accepted Alternate. Groton Electric Light Department (Participant) By: Name: Title: Address: 23 Station Avenue Groton, MA 01450 COUNTERPART SIGNATURE PAGE TO THIRTY-THIRD AGREEMENT AMENDING NEW ENGLAND POWER POOL AGREEMENT DATED AS OF DECEMBER 1, 1996 The NEPOOL Agreement, being dated as of September 1, 1971, and being previously amended by thirty (30) amendments the most recent of which was dated as of September 1, 1995. Holden Municipal Light Department (Participant) By: Name: Title: Address: Reservoir Street Holden, MA 01520 SUPPLEMENTAL AGREEMENT WITH RESPECT TO ALTERNATES A & B The undersigned agrees that either Alternate A or Alternate B as described in Section IV of the foregoing Agreement will be acceptable to it if chosen and accepted by the Commission without significant modifications. Accordingly, the undersigned further agrees that in the event either Alternate A or Alternate B, as described in Section IV of the foregoing Agreement, is chosen and accepted without significant modifications by the Commission, the Tariff shall be deemed to be automatically amended, effective 30 days after the issuance of the Commission's order, to incorporate the accepted Alternate. Holden Municipal Light Department (Participant) By: Name: Title: Address: Reservoir Street Holden, MA 01520 COUNTERPART SIGNATURE PAGE TO THIRTY-THIRD AGREEMENT AMENDING NEW ENGLAND POWER POOL AGREEMENT DATED AS OF DECEMBER 1, 1996 The NEPOOL Agreement, being dated as of September 1, 1971, and being previously amended by thirty (30) amendments the most recent of which was dated as of September 1, 1995. Holyoke Gas and Electric Department (Participant) By: Name: Title: Address: 70 Suffolk Street Holyoke, MA 01040 SUPPLEMENTAL AGREEMENT WITH RESPECT TO ALTERNATES A & B The undersigned agrees that either Alternate A or Alternate B as described in Section IV of the foregoing Agreement will be acceptable to it if chosen and accepted by the Commission without significant modifications. Accordingly, the undersigned further agrees that in the event either Alternate A or Alternate B, as described in Section IV of the foregoing Agreement, is chosen and accepted without significant modifications by the Commission, the Tariff shall be deemed to be automatically amended, effective 30 days after the issuance of the Commission's order, to incorporate the accepted Alternate. Holyoke Gas and Electric Department (Participant) By: Name: Title: Address: 70 Suffolk Street Holyoke, MA 01040 COUNTERPART SIGNATURE PAGE TO THIRTY-THIRD AGREEMENT AMENDING NEW ENGLAND POWER POOL AGREEMENT DATED AS OF DECEMBER 1, 1996 The NEPOOL Agreement, being dated as of September 1, 1971, and being previously amended by thirty (30) amendments the most recent of which was dated as of September 1, 1995. Houlton Water Company (Participant) By: Name: Title: Address: 21 Bangor Street Houlton, ME 04730 SUPPLEMENTAL AGREEMENT WITH RESPECT TO ALTERNATES A & B The undersigned agrees that either Alternate A or Alternate B as described in Section IV of the foregoing Agreement will be acceptable to it if chosen and accepted by the Commission without significant modifications. Accordingly, the undersigned further agrees that in the event either Alternate A or Alternate B, as described in Section IV of the foregoing Agreement, is chosen and accepted without significant modifications by the Commission, the Tariff shall be deemed to be automatically amended, effective 30 days after the issuance of the Commission's order, to incorporate the accepted Alternate. Houlton Water Company (Participant) By: Name: Title: Address: 21 Bangor Street Houlton, ME 04730 COUNTERPART SIGNATURE PAGE TO THIRTY-THIRD AGREEMENT AMENDING NEW ENGLAND POWER POOL AGREEMENT DATED AS OF DECEMBER 1, 1996 The NEPOOL Agreement, being dated as of September 1, 1971, and being previously amended by thirty (30) amendments the most recent of which was dated as of September 1, 1995. Hudson Light and Power Department (Participant) By: Name: Title: Address: 49 Forest Avenue Hudson, MA 01749 SUPPLEMENTAL AGREEMENT WITH RESPECT TO ALTERNATES A & B The undersigned agrees that either Alternate A or Alternate B as described in Section IV of the foregoing Agreement will be acceptable to it if chosen and accepted by the Commission without significant modifications. Accordingly, the undersigned further agrees that in the event either Alternate A or Alternate B, as described in Section IV of the foregoing Agreement, is chosen and accepted without significant modifications by the Commission, the Tariff shall be deemed to be automatically amended, effective 30 days after the issuance of the Commission's order, to incorporate the accepted Alternate. Hudson Light and Power Department (Participant) By: Name: Title: Address: 49 Forest Avenue Hudson, MA 01749 COUNTERPART SIGNATURE PAGE TO THIRTY-THIRD AGREEMENT AMENDING NEW ENGLAND POWER POOL AGREEMENT DATED AS OF DECEMBER 1, 1996 The NEPOOL Agreement, being dated as of September 1, 1971, and being previously amended by thirty (30) amendments the most recent of which was dated as of September 1, 1995. Hull Municipal Lighting Plant (Participant) By: Name: Title: Address: 15 Edgewater Road Hull, MA 02045-2714 SUPPLEMENTAL AGREEMENT WITH RESPECT TO ALTERNATES A & B The undersigned agrees that either Alternate A or Alternate B as described in Section IV of the foregoing Agreement will be acceptable to it if chosen and accepted by the Commission without significant modifications. Accordingly, the undersigned further agrees that in the event either Alternate A or Alternate B, as described in Section IV of the foregoing Agreement, is chosen and accepted without significant modifications by the Commission, the Tariff shall be deemed to be automatically amended, effective 30 days after the issuance of the Commission's order, to incorporate the accepted Alternate. Hull Municipal Lighting Plant (Participant) By: Name: Title: Address: 15 Edgewater Road Hull, MA 02045-2714 COUNTERPART SIGNATURE PAGE TO THIRTY-THIRD AGREEMENT AMENDING NEW ENGLAND POWER POOL AGREEMENT DATED AS OF DECEMBER 1, 1996 The NEPOOL Agreement, being dated as of September 1, 1971, and being previously amended by thirty (30) amendments the most recent of which was dated as of September 1, 1995. Indeck-Pepperell Power Associates, Inc. (Participant) By: Name: Title: Address: 212 Carnegie Center, Suite 206 Princeton, NJ 08540 SUPPLEMENTAL AGREEMENT WITH RESPECT TO ALTERNATES A & B The undersigned agrees that either Alternate A or Alternate B as described in Section IV of the foregoing Agreement will be acceptable to it if chosen and accepted by the Commission without significant modifications. Accordingly, the undersigned further agrees that in the event either Alternate A or Alternate B, as described in Section IV of the foregoing Agreement, is chosen and accepted without significant modifications by the Commission, the Tariff shall be deemed to be automatically amended, effective 30 days after the issuance of the Commission's order, to incorporate the accepted Alternate. Indeck-Pepperell Power Associates, Inc. (Participant) By: Name: Title: Address: 212 Carnegie Center, Suite 206 Princeton, NJ 08540 COUNTERPART SIGNATURE PAGE TO THIRTY-THIRD AGREEMENT AMENDING NEW ENGLAND POWER POOL AGREEMENT DATED AS OF DECEMBER 1, 1996 The NEPOOL Agreement, being dated as of September 1, 1971, and being previously amended by thirty (30) amendments the most recent of which was dated as of September 1, 1995. Ipswich Municipal Light Department (Participant) By: Name: Title: Address: 272 High Street Ipswich, MA 01938-0151 SUPPLEMENTAL AGREEMENT WITH RESPECT TO ALTERNATES A & B The undersigned agrees that either Alternate A or Alternate B as described in Section IV of the foregoing Agreement will be acceptable to it if chosen and accepted by the Commission without significant modifications. Accordingly, the undersigned further agrees that in the event either Alternate A or Alternate B, as described in Section IV of the foregoing Agreement, is chosen and accepted without significant modifications by the Commission, the Tariff shall be deemed to be automatically amended, effective 30 days after the issuance of the Commission's order, to incorporate the accepted Alternate. Ipswich Municipal Light Department (Participant) By: Name: Title: Address: 272 High Street Ipswich, MA 01938-0151 COUNTERPART SIGNATURE PAGE TO THIRTY-THIRD AGREEMENT AMENDING NEW ENGLAND POWER POOL AGREEMENT DATED AS OF DECEMBER 1, 1996 The NEPOOL Agreement, being dated as of September 1, 1971, and being previously amended by thirty (30) amendments the most recent of which was dated as of September 1, 1995. KCS Power Marketing, Inc. (Participant) By: Name: Title: Address: 379 Thornall Street Edison, NJ 08837 SUPPLEMENTAL AGREEMENT WITH RESPECT TO ALTERNATES A & B The undersigned agrees that either Alternate A or Alternate B as described in Section IV of the foregoing Agreement will be acceptable to it if chosen and accepted by the Commission without significant modifications. Accordingly, the undersigned further agrees that in the event either Alternate A or Alternate B, as described in Section IV of the foregoing Agreement, is chosen and accepted without significant modifications by the Commission, the Tariff shall be deemed to be automatically amended, effective 30 days after the issuance of the Commission's order, to incorporate the accepted Alternate. KCS Power Marketing, Inc. (Participant) By: Name: Title: Address: 379 Thornall Street Edison, NJ 08837 COUNTERPART SIGNATURE PAGE TO THIRTY-THIRD AGREEMENT AMENDING NEW ENGLAND POWER POOL AGREEMENT DATED AS OF DECEMBER 1, 1996 The NEPOOL Agreement, being dated as of September 1, 1971, and being previously amended by thirty (30) amendments the most recent of which was dated as of September 1, 1995. KOCH Power Services, Inc. (Participant) By: Name: Title: Address: 600 Travis Street Houston, TX 77002 SUPPLEMENTAL AGREEMENT WITH RESPECT TO ALTERNATES A & B The undersigned agrees that either Alternate A or Alternate B as described in Section IV of the foregoing Agreement will be acceptable to it if chosen and accepted by the Commission without significant modifications. Accordingly, the undersigned further agrees that in the event either Alternate A or Alternate B, as described in Section IV of the foregoing Agreement, is chosen and accepted without significant modifications by the Commission, the Tariff shall be deemed to be automatically amended, effective 30 days after the issuance of the Commission's order, to incorporate the accepted Alternate. KOCH Power Services, Inc. (Participant) By: Name: Title: Address: 600 Travis Street Houston, TX 77002 COUNTERPART SIGNATURE PAGE TO THIRTY-THIRD AGREEMENT AMENDING NEW ENGLAND POWER POOL AGREEMENT DATED AS OF DECEMBER 1, 1996 The NEPOOL Agreement, being dated as of September 1, 1971, and being previously amended by thirty (30) amendments the most recent of which was dated as of September 1, 1995. LG&E Power Marketing Inc. (Participant) By: Name: Title: Address: 12500 Fair Lakes Circle, Ste #350 Fairfax, Virginia 22033 SUPPLEMENTAL AGREEMENT WITH RESPECT TO ALTERNATES A & B The undersigned agrees that either Alternate A or Alternate B as described in Section IV of the foregoing Agreement will be acceptable to it if chosen and accepted by the Commission without significant modifications. Accordingly, the undersigned further agrees that in the event either Alternate A or Alternate B, as described in Section IV of the foregoing Agreement, is chosen and accepted without significant modifications by the Commission, the Tariff shall be deemed to be automatically amended, effective 30 days after the issuance of the Commission's order, to incorporate the accepted Alternate. LG&E Power Marketing Inc. (Participant) By: Name: Title: Address: 12500 Fair Lakes Circle, Ste #350 Fairfax, Virginia 22033 COUNTERPART SIGNATURE PAGE TO THIRTY-THIRD AGREEMENT AMENDING NEW ENGLAND POWER POOL AGREEMENT DATED AS OF DECEMBER 1, 1996 The NEPOOL Agreement, being dated as of September 1, 1971, and being previously amended by thirty (30) amendments the most recent of which was dated as of September 1, 1995. Littleton Electric Light & Water Department (Participant) By: Name: Title: Address: 39 Ayer Road Litteton, MA 01460-3406 SUPPLEMENTAL AGREEMENT WITH RESPECT TO ALTERNATES A & B The undersigned agrees that either Alternate A or Alternate B as described in Section IV of the foregoing Agreement will be acceptable to it if chosen and accepted by the Commission without significant modifications. Accordingly, the undersigned further agrees that in the event either Alternate A or Alternate B, as described in Section IV of the foregoing Agreement, is chosen and accepted without significant modifications by the Commission, the Tariff shall be deemed to be automatically amended, effective 30 days after the issuance of the Commission's order, to incorporate the accepted Alternate. Littleton Electric Light & Water Department (Participant) By: Name: Title: Address: 39 Ayer Road Littleton, MA 01460-3406 COUNTERPART SIGNATURE PAGE TO THIRTY-THIRD AGREEMENT AMENDING NEW ENGLAND POWER POOL AGREEMENT DATED AS OF DECEMBER 1, 1996 The NEPOOL Agreement, being dated as of September 1, 1971, and being previously amended by thirty (30) amendments the most recent of which was dated as of September 1, 1995. Mansfield Municipal Electric Department (Participant) By: Name: Title: Address: 50 West Street Mansfield, MA 02048-2404 SUPPLEMENTAL AGREEMENT WITH RESPECT TO ALTERNATES A & B The undersigned agrees that either Alternate A or Alternate B as described in Section IV of the foregoing Agreement will be acceptable to it if chosen and accepted by the Commission without significant modifications. Accordingly, the undersigned further agrees that in the event either Alternate A or Alternate B, as described in Section IV of the foregoing Agreement, is chosen and accepted without significant modifications by the Commission, the Tariff shall be deemed to be automatically amended, effective 30 days after the issuance of the Commission's order, to incorporate the accepted Alternate. Mansfield Municipal Electric Department (Participant) By: Name: Title: Address: 50 West Street Mansfield, MA 02048-2404 COUNTERPART SIGNATURE PAGE TO THIRTY-THIRD AGREEMENT AMENDING NEW ENGLAND POWER POOL AGREEMENT DATED AS OF DECEMBER 1, 1996 The NEPOOL Agreement, being dated as of September 1, 1971, and being previously amended by thirty (30) amendments the most recent of which was dated as of September 1, 1995. Marblehead Municipal Light Department (Participant) By: Name: Title: Address: 80 Commercial Street Marblehead, MA 01945-0369 SUPPLEMENTAL AGREEMENT WITH RESPECT TO ALTERNATES A & B The undersigned agrees that either Alternate A or Alternate B as described in Section IV of the foregoing Agreement will be acceptable to it if chosen and accepted by the Commission without significant modifications. Accordingly, the undersigned further agrees that in the event either Alternate A or Alternate B, as described in Section IV of the foregoing Agreement, is chosen and accepted without significant modifications by the Commission, the Tariff shall be deemed to be automatically amended, effective 30 days after the issuance of the Commission's order, to incorporate the accepted Alternate. Marblehead Municipal Light Department (Participant) By: Name: Title: Address: 80 Commercial Street Marblehead, MA 01945-0369 COUNTERPART SIGNATURE PAGE TO THIRTY-THIRD AGREEMENT AMENDING NEW ENGLAND POWER POOL AGREEMENT DATED AS OF DECEMBER 1, 1996 The NEPOOL Agreement, being dated as of September 1, 1971, and being previously amended by thirty (30) amendments the most recent of which was dated as of September 1, 1995. Merrimac Municipal Light Department (Participant) By: Name: Title: Address: 2 School Street Merrimac, MA 01860-1915 SUPPLEMENTAL AGREEMENT WITH RESPECT TO ALTERNATES A & B The undersigned agrees that either Alternate A or Alternate B as described in Section IV of the foregoing Agreement will be acceptable to it if chosen and accepted by the Commission without significant modifications. Accordingly, the undersigned further agrees that in the event either Alternate A or Alternate B, as described in Section IV of the foregoing Agreement, is chosen and accepted without significant modifications by the Commission, the Tariff shall be deemed to be automatically amended, effective 30 days after the issuance of the Commission's order, to incorporate the accepted Alternate. Merrimac Municipal Light Department (Participant) By: Name: Title: Address: 2 School Street Merrimac, MA 01860-1915 COUNTERPART SIGNATURE PAGE TO THIRTY-THIRD AGREEMENT AMENDING NEW ENGLAND POWER POOL AGREEMENT DATED AS OF DECEMBER 1, 1996 The NEPOOL Agreement, being dated as of September 1, 1971, and being previously amended by thirty (30) amendments the most recent of which was dated as of September 1, 1995. Middleborough Gas and Electric Department (Participant) By: Name: Title: Address: 32 South Main Street Middleborough, MA 02346 SUPPLEMENTAL AGREEMENT WITH RESPECT TO ALTERNATES A & B The undersigned agrees that either Alternate A or Alternate B as described in Section IV of the foregoing Agreement will be acceptable to it if chosen and accepted by the Commission without significant modifications. Accordingly, the undersigned further agrees that in the event either Alternate A or Alternate B, as described in Section IV of the foregoing Agreement, is chosen and accepted without significant modifications by the Commission, the Tariff shall be deemed to be automatically amended, effective 30 days after the issuance of the Commission's order, to incorporate the accepted Alternate. Middleborough Gas and Electric Department (Participant) By: Name: Title: Address: 32 South Main Street Middleborough, MA 02346 COUNTERPART SIGNATURE PAGE TO THIRTY-THIRD AGREEMENT AMENDING NEW ENGLAND POWER POOL AGREEMENT DATED AS OF DECEMBER 1, 1996 The NEPOOL Agreement, being dated as of September 1, 1971, and being previously amended by thirty (30) amendments the most recent of which was dated as of September 1, 1995. Middleton Municipal Electric Department (Participant) By: Name: Title: Address: 197 North Main Street Middleton, MA 01949-0168 SUPPLEMENTAL AGREEMENT WITH RESPECT TO ALTERNATES A & B The undersigned agrees that either Alternate A or Alternate B as described in Section IV of the foregoing Agreement will be acceptable to it if chosen and accepted by the Commission without significant modifications. Accordingly, the undersigned further agrees that in the event either Alternate A or Alternate B, as described in Section IV of the foregoing Agreement, is chosen and accepted without significant modifications by the Commission, the Tariff shall be deemed to be automatically amended, effective 30 days after the issuance of the Commission's order, to incorporate the accepted Alternate. Middleton Municipal Electric Department (Participant) By: Name: Title: Address: 197 North Main Street Middleton, MA 01949-0168 COUNTERPART SIGNATURE PAGE TO THIRTY-THIRD AGREEMENT AMENDING NEW ENGLAND POWER POOL AGREEMENT DATED AS OF DECEMBER 1, 1996 The NEPOOL Agreement, being dated as of September 1, 1971, and being previously amended by thirty (30) amendments the most recent of which was dated as of September 1, 1995. Milford Power Limited Partnership (Participant) By: Name: Title: Address:c/o ENRON Capitol & Trade 1400 Smith Street, Suite 2834 Houston, TX 77002 SUPPLEMENTAL AGREEMENT WITH RESPECT TO ALTERNATES A & B The undersigned agrees that either Alternate A or Alternate B as described in Section IV of the foregoing Agreement will be acceptable to it if chosen and accepted by the Commission without significant modifications. Accordingly, the undersigned further agrees that in the event either Alternate A or Alternate B, as described in Section IV of the foregoing Agreement, is chosen and accepted without significant modifications by the Commission, the Tariff shall be deemed to be automatically amended, effective 30 days after the issuance of the Commission's order, to incorporate the accepted Alternate. Milford Power Limited Partnership (Participant) By: Name: Title: Address: c/o ENRON Capitol & Trade 1400 Smith Street, Suite 2834 Houston, TX 77002 COUNTERPART SIGNATURE PAGE TO THIRTY-THIRD AGREEMENT AMENDING NEW ENGLAND POWER POOL AGREEMENT DATED AS OF DECEMBER 1, 1996 The NEPOOL Agreement, being dated as of September 1, 1971, and being previously amended by thirty (30) amendments the most recent of which was dated as of September 1, 1995. Morgan Stanley & Co., Inc. (Participant) By: Name: Title: Address: 1585 Broadway New York, NY 10036 SUPPLEMENTAL AGREEMENT WITH RESPECT TO ALTERNATES A & B The undersigned agrees that either Alternate A or Alternate B as described in Section IV of the foregoing Agreement will be acceptable to it if chosen and accepted by the Commission without significant modifications. Accordingly, the undersigned further agrees that in the event either Alternate A or Alternate B, as described in Section IV of the foregoing Agreement, is chosen and accepted without significant modifications by the Commission, the Tariff shall be deemed to be automatically amended, effective 30 days after the issuance of the Commission's order, to incorporate the accepted Alternate. Morgan Stanley & Co., Inc. (Participant) By: Name: Title: Address: 1585 Broadway New York, NY 10036 COUNTERPART SIGNATURE PAGE TO THIRTY-THIRD AGREEMENT AMENDING NEW ENGLAND POWER POOL AGREEMENT DATED AS OF DECEMBER 1, 1996 The NEPOOL Agreement, being dated as of September 1, 1971, and being previously amended by thirty (30) amendments the most recent of which was dated as of September 1, 1995. Multi-Energies USA, Inc. (Participant) By: Name: Title: Address: c/o KPMG 2000 McGill College Avenue Suite 1000 Montreal, Quebec H3A3N4 SUPPLEMENTAL AGREEMENT WITH RESPECT TO ALTERNATES A & B The undersigned agrees that either Alternate A or Alternate B as described in Section IV of the foregoing Agreement will be acceptable to it if chosen and accepted by the Commission without significant modifications. Accordingly, the undersigned further agrees that in the event either Alternate A or Alternate B, as described in Section IV of the foregoing Agreement, is chosen and accepted without significant modifications by the Commission, the Tariff shall be deemed to be automatically amended, effective 30 days after the issuance of the Commission's order, to incorporate the accepted Alternate. Multi-Energies USA, Inc. (Participant) By: Name: Title: Address: c/o KPMG 2000 McGill College Avenue Suite 1000 Montreal, Quebec H3A3N4 COUNTERPART SIGNATURE PAGE TO THIRTY-THIRD AGREEMENT AMENDING NEW ENGLAND POWER POOL AGREEMENT DATED AS OF DECEMBER 1, 1996 The NEPOOL Agreement, being dated as of September 1, 1971, and being previously amended by thirty (30) amendments the most recent of which was dated as of September 1, 1995. Natural Resources Group (Participant) By: Name: Title: Address: 111 Broadway New York, NY 10006 SUPPLEMENTAL AGREEMENT WITH RESPECT TO ALTERNATES A & B The undersigned agrees that either Alternate A or Alternate B as described in Section IV of the foregoing Agreement will be acceptable to it if chosen and accepted by the Commission without significant modifications. Accordingly, the undersigned further agrees that in the event either Alternate A or Alternate B, as described in Section IV of the foregoing Agreement, is chosen and accepted without significant modifications by the Commission, the Tariff shall be deemed to be automatically amended, effective 30 days after the issuance of the Commission's order, to incorporate the accepted Alternate. Natural Resources Group (Participant) By: Name: Title: Address: 111 Broadway New York, NY 10006 COUNTERPART SIGNATURE PAGE TO THIRTY-THIRD AGREEMENT AMENDING NEW ENGLAND POWER POOL AGREEMENT DATED AS OF DECEMBER 1, 1996 The NEPOOL Agreement, being dated as of September 1, 1971, and being previously amended by thirty (30) amendments the most recent of which was dated as of September 1, 1995. North American Energy Conservation, Inc. (Participant) By: Name: Title: Address: 100 Clinton Square, Suite 400 126 North Salina Street Syracuse, NY 13202-1012 SUPPLEMENTAL AGREEMENT WITH RESPECT TO ALTERNATES A & B The undersigned agrees that either Alternate A or Alternate B as described in Section IV of the foregoing Agreement will be acceptable to it if chosen and accepted by the Commission without significant modifications. Accordingly, the undersigned further agrees that in the event either Alternate A or Alternate B, as described in Section IV of the foregoing Agreement, is chosen and accepted without significant modifications by the Commission, the Tariff shall be deemed to be automatically amended, effective 30 days after the issuance of the Commission's order, to incorporate the accepted Alternate. North American Energy Conservation, Inc. (Participant) By: Name: Title: Address: 100 Clinton Square, Suite 400 126 North Salina Street Syracuse, NY 13202-1012 COUNTERPART SIGNATURE PAGE TO THIRTY-THIRD AGREEMENT AMENDING NEW ENGLAND POWER POOL AGREEMENT DATED AS OF DECEMBER 1, 1996 The NEPOOL Agreement, being dated as of September 1, 1971, and being previously amended by thirty (30) amendments the most recent of which was dated as of September 1, 1995. North Attleborough Electric Department (Participant) By: Name: Title: Address: 275 Landry Avenue North Attleborough, MA 02761-0790 SUPPLEMENTAL AGREEMENT WITH RESPECT TO ALTERNATES A & B The undersigned agrees that either Alternate A or Alternate B as described in Section IV of the foregoing Agreement will be acceptable to it if chosen and accepted by the Commission without significant modifications. Accordingly, the undersigned further agrees that in the event either Alternate A or Alternate B, as described in Section IV of the foregoing Agreement, is chosen and accepted without significant modifications by the Commission, the Tariff shall be deemed to be automatically amended, effective 30 days after the issuance of the Commission's order, to incorporate the accepted Alternate. North Attleborough Electric Department (Participant) By: Name: Title: Address: 275 Landry Avenue North Attleborough, MA 02761-0790 COUNTERPART SIGNATURE PAGE TO THIRTY-THIRD AGREEMENT AMENDING NEW ENGLAND POWER POOL AGREEMENT DATED AS OF DECEMBER 1, 1996 The NEPOOL Agreement, being dated as of September 1, 1971, and being previously amended by thirty (30) amendments the most recent of which was dated as of September 1, 1995. Norwood Municipal Light Department (Participant) By: Name: Title: Address: 206 Central Street Norwood, MA 02062-3567 SUPPLEMENTAL AGREEMENT WITH RESPECT TO ALTERNATES A & B The undersigned agrees that either Alternate A or Alternate B as described in Section IV of the foregoing Agreement will be acceptable to it if chosen and accepted by the Commission without significant modifications. Accordingly, the undersigned further agrees that in the event either Alternate A or Alternate B, as described in Section IV of the foregoing Agreement, is chosen and accepted without significant modifications by the Commission, the Tariff shall be deemed to be automatically amended, effective 30 days after the issuance of the Commission's order, to incorporate the accepted Alternate. Norwood Municipal Light Department (Participant) By: Name: Title: Address: 206 Central Street Norwood, MA 02062-3567 COUNTERPART SIGNATURE PAGE TO THIRTY-THIRD AGREEMENT AMENDING NEW ENGLAND POWER POOL AGREEMENT DATED AS OF DECEMBER 1, 1996 The NEPOOL Agreement, being dated as of September 1, 1971, and being previously amended by thirty (30) amendments the most recent of which was dated as of September 1, 1995. PacifiCorp Power Marketing, Inc. (Participant) By: Name: Title: Address: 70 West Red Oak Lane White Plains, NY 10604-3602 SUPPLEMENTAL AGREEMENT WITH RESPECT TO ALTERNATES A & B The undersigned agrees that either Alternate A or Alternate B as described in Section IV of the foregoing Agreement will be acceptable to it if chosen and accepted by the Commission without significant modifications. Accordingly, the undersigned further agrees that in the event either Alternate A or Alternate B, as described in Section IV of the foregoing Agreement, is chosen and accepted without significant modifications by the Commission, the Tariff shall be deemed to be automatically amended, effective 30 days after the issuance of the Commission's order, to incorporate the accepted Alternate. PacifiCorp Power Marketing, Inc. (Participant) By: Name: Title: Address: 70 West Red Oak Lane White Plains, NY 10604-3602 COUNTERPART SIGNATURE PAGE TO THIRTY-THIRD AGREEMENT AMENDING NEW ENGLAND POWER POOL AGREEMENT DATED AS OF DECEMBER 1, 1996 The NEPOOL Agreement, being dated as of September 1, 1971, and being previously amended by thirty (30) amendments the most recent of which was dated as of September 1, 1995. PanEnergy Power Services, Inc. (Participant) By: Name: Title: Address: 5400 Westheimer Court Houston, TX 77056 SUPPLEMENTAL AGREEMENT WITH RESPECT TO ALTERNATES A & B The undersigned agrees that either Alternate A or Alternate B as described in Section IV of the foregoing Agreement will be acceptable to it if chosen and accepted by the Commission without significant modifications. Accordingly, the undersigned further agrees that in the event either Alternate A or Alternate B, as described in Section IV of the foregoing Agreement, is chosen and accepted without significant modifications by the Commission, the Tariff shall be deemed to be automatically amended, effective 30 days after the issuance of the Commission's order, to incorporate the accepted Alternate. PanEnergy Power Services, Inc. (Participant) By: Name: Title: Address: 5400 Westheimer Court Houston, TX 77056 COUNTERPART SIGNATURE PAGE TO THIRTY-THIRD AGREEMENT AMENDING NEW ENGLAND POWER POOL AGREEMENT DATED AS OF DECEMBER 1, 1996 The NEPOOL Agreement, being dated as of September 1, 1971, and being previously amended by thirty (30) amendments the most recent of which was dated as of September 1, 1995. Pascoag Fire District - Electric Department (Participant) By: Name: Title: Address: 55 South Main Street Pascoag, RI 02859-0107 SUPPLEMENTAL AGREEMENT WITH RESPECT TO ALTERNATES A & B The undersigned agrees that either Alternate A or Alternate B as described in Section IV of the foregoing Agreement will be acceptable to it if chosen and accepted by the Commission without significant modifications. Accordingly, the undersigned further agrees that in the event either Alternate A or Alternate B, as described in Section IV of the foregoing Agreement, is chosen and accepted without significant modifications by the Commission, the Tariff shall be deemed to be automatically amended, effective 30 days after the issuance of the Commission's order, to incorporate the accepted Alternate. Pascoag Fire District - Electric Department (Participant) By: Name: Title: Address: 55 South Main Street Pascoag, RI 02859-0107 COUNTERPART SIGNATURE PAGE TO THIRTY-THIRD AGREEMENT AMENDING NEW ENGLAND POWER POOL AGREEMENT DATED AS OF DECEMBER 1, 1996 The NEPOOL Agreement, being dated as of September 1, 1971, and being previously amended by thirty (30) amendments the most recent of which was dated as of September 1, 1995. Peabody Municipal Light Plant (Participant) By: Name: Title: Address: 70 Endicott Street Peabody, MA 01960-4208 SUPPLEMENTAL AGREEMENT WITH RESPECT TO ALTERNATES A & B The undersigned agrees that either Alternate A or Alternate B as described in Section IV of the foregoing Agreement will be acceptable to it if chosen and accepted by the Commission without significant modifications. Accordingly, the undersigned further agrees that in the event either Alternate A or Alternate B, as described in Section IV of the foregoing Agreement, is chosen and accepted without significant modifications by the Commission, the Tariff shall be deemed to be automatically amended, effective 30 days after the issuance of the Commission's order, to incorporate the accepted Alternate. Peabody Municipal Light Plant (Participant) By: Name: Title: Address: 70 Endicott Street Peabody, MA 01960-4208 COUNTERPART SIGNATURE PAGE TO THIRTY-THIRD AGREEMENT AMENDING NEW ENGLAND POWER POOL AGREEMENT DATED AS OF DECEMBER 1, 1996 The NEPOOL Agreement, being dated as of September 1, 1971, and being previously amended by thirty (30) amendments the most recent of which was dated as of September 1, 1995. Phibro Inc. (Participant) By: Name: Title: Address: 500 Nyala Farms Westport, CT 06880-6262 SUPPLEMENTAL AGREEMENT WITH RESPECT TO ALTERNATES A & B The undersigned agrees that either Alternate A or Alternate B as described in Section IV of the foregoing Agreement will be acceptable to it if chosen and accepted by the Commission without significant modifications. Accordingly, the undersigned further agrees that in the event either Alternate A or Alternate B, as described in Section IV of the foregoing Agreement, is chosen and accepted without significant modifications by the Commission, the Tariff shall be deemed to be automatically amended, effective 30 days after the issuance of the Commission's order, to incorporate the accepted Alternate. Philbro, Inc. (Participant) By: Name: Title: Address: 500 Nyala Farms Westport, CT 06880-6262 COUNTERPART SIGNATURE PAGE TO THIRTY-THIRD AGREEMENT AMENDING NEW ENGLAND POWER POOL AGREEMENT DATED AS OF DECEMBER 1, 1996 The NEPOOL Agreement, being dated as of September 1, 1971, and being previously amended by thirty (30) amendments the most recent of which was dated as of September 1, 1995. Plum Street Enterprises, Inc. (Participant) By: Name: Title: Address: P.O. Box 5001 Syracuse, NY 13250-5001 SUPPLEMENTAL AGREEMENT WITH RESPECT TO ALTERNATES A & B The undersigned agrees that either Alternate A or Alternate B as described in Section IV of the foregoing Agreement will be acceptable to it if chosen and accepted by the Commission without significant modifications. Accordingly, the undersigned further agrees that in the event either Alternate A or Alternate B, as described in Section IV of the foregoing Agreement, is chosen and accepted without significant modifications by the Commission, the Tariff shall be deemed to be automatically amended, effective 30 days after the issuance of the Commission's order, to incorporate the accepted Alternate. Plum Street Enterprises, Inc. (Participant) By: Name: Title: Address: P.O. Box 5001 Syracuse, NY 13250-5001 COUNTERPART SIGNATURE PAGE TO THIRTY-THIRD AGREEMENT AMENDING NEW ENGLAND POWER POOL AGREEMENT DATED AS OF DECEMBER 1, 1996 The NEPOOL Agreement, being dated as of September 1, 1971, and being previously amended by thirty (30) amendments the most recent of which was dated as of September 1, 1995. Princeton Municipal Light Department (Participant) By: Name: Title: Address: 4 Town Hall Drive Princeton, MA 01541-0247 SUPPLEMENTAL AGREEMENT WITH RESPECT TO ALTERNATES A & B The undersigned agrees that either Alternate A or Alternate B as described in Section IV of the foregoing Agreement will be acceptable to it if chosen and accepted by the Commission without significant modifications. Accordingly, the undersigned further agrees that in the event either Alternate A or Alternate B, as described in Section IV of the foregoing Agreement, is chosen and accepted without significant modifications by the Commission, the Tariff shall be deemed to be automatically amended, effective 30 days after the issuance of the Commission's order, to incorporate the accepted Alternate. Princeton Municipal Light Department (Participant) By: Name: Title: Address: 4 Town Hall Drive Princeton, MA 01541-0247 COUNTERPART SIGNATURE PAGE TO THIRTY-THIRD AGREEMENT AMENDING NEW ENGLAND POWER POOL AGREEMENT DATED AS OF DECEMBER 1, 1996 The NEPOOL Agreement, being dated as of September 1, 1971, and being previously amended by thirty (30) amendments the most recent of which was dated as of September 1, 1995. PSI Energy, Inc. (Participant) By: Name: Title: Address: 139 East Fourth Street Cincinnati, OH 45021 SUPPLEMENTAL AGREEMENT WITH RESPECT TO ALTERNATES A & B The undersigned agrees that either Alternate A or Alternate B as described in Section IV of the foregoing Agreement will be acceptable to it if chosen and accepted by the Commission without significant modifications. Accordingly, the undersigned further agrees that in the event either Alternate A or Alternate B, as described in Section IV of the foregoing Agreement, is chosen and accepted without significant modifications by the Commission, the Tariff shall be deemed to be automatically amended, effective 30 days after the issuance of the Commission's order, to incorporate the accepted Alternate. PSI Energy, Inc. (Participant) By: Name: Title: Address: 139 East Fourth Street Cincinnati, OH 45021 COUNTERPART SIGNATURE PAGE TO THIRTY-THIRD AGREEMENT AMENDING NEW ENGLAND POWER POOL AGREEMENT DATED AS OF DECEMBER 1, 1996 The NEPOOL Agreement, being dated as of September 1, 1971, and being previously amended by thirty (30) amendments the most recent of which was dated as of September 1, 1995. QST Energy Trading, Inc. (Participant) By: Name: Title: Address: 300 Hamilton Boulevard Suite 330 Peoria, IL 61602 SUPPLEMENTAL AGREEMENT WITH RESPECT TO ALTERNATES A & B The undersigned agrees that either Alternate A or Alternate B as described in Section IV of the foregoing Agreement will be acceptable to it if chosen and accepted by the Commission without significant modifications. Accordingly, the undersigned further agrees that in the event either Alternate A or Alternate B, as described in Section IV of the foregoing Agreement, is chosen and accepted without significant modifications by the Commission, the Tariff shall be deemed to be automatically amended, effective 30 days after the issuance of the Commission's order, to incorporate the accepted Alternate. QST Energy Trading, Inc. (Participant) By: Name: Title: Address: 300 Hamilton Boulevard Suite 330 Peoria, IL 61602 COUNTERPART SIGNATURE PAGE TO THIRTY-THIRD AGREEMENT AMENDING NEW ENGLAND POWER POOL AGREEMENT DATED AS OF DECEMBER 1, 1996 The NEPOOL Agreement, being dated as of September 1, 1971, and being previously amended by thirty (30) amendments the most recent of which was dated as of September 1, 1995. Reading Municipal Light Department (Participant) By: Name: Title: Address: 230 Ash Street Reading, MA 01867-0250 SUPPLEMENTAL AGREEMENT WITH RESPECT TO ALTERNATES A & B The undersigned agrees that either Alternate A or Alternate B as described in Section IV of the foregoing Agreement will be acceptable to it if chosen and accepted by the Commission without significant modifications. Accordingly, the undersigned further agrees that in the event either Alternate A or Alternate B, as described in Section IV of the foregoing Agreement, is chosen and accepted without significant modifications by the Commission, the Tariff shall be deemed to be automatically amended, effective 30 days after the issuance of the Commission's order, to incorporate the accepted Alternate. Reading Municipal Light Department (Participant) By: Name: Title: Address: 230 Ash Street Reading, MA 01867-0250 COUNTERPART SIGNATURE PAGE TO THIRTY-THIRD AGREEMENT AMENDING NEW ENGLAND POWER POOL AGREEMENT DATED AS OF DECEMBER 1, 1996 The NEPOOL Agreement, being dated as of September 1, 1971, and being previously amended by thirty (30) amendments the most recent of which was dated as of September 1, 1995. Rowley Municipal Lighting Plant (Participant) By: Name: Title: Address: 47 Summer Street Rowley, MA 01969 SUPPLEMENTAL AGREEMENT WITH RESPECT TO ALTERNATES A & B The undersigned agrees that either Alternate A or Alternate B as described in Section IV of the foregoing Agreement will be acceptable to it if chosen and accepted by the Commission without significant modifications. Accordingly, the undersigned further agrees that in the event either Alternate A or Alternate B, as described in Section IV of the foregoing Agreement, is chosen and accepted without significant modifications by the Commission, the Tariff shall be deemed to be automatically amended, effective 30 days after the issuance of the Commission's order, to incorporate the accepted Alternate. Rowley Municipal Lighting Plant (Participant) By: Name: Title: Address: 47 Summer Street Rowley, MA 01969 COUNTERPART SIGNATURE PAGE TO THIRTY-THIRD AGREEMENT AMENDING NEW ENGLAND POWER POOL AGREEMENT DATED AS OF DECEMBER 1, 1996 The NEPOOL Agreement, being dated as of September 1, 1971, and being previously amended by thirty (30) amendments the most recent of which was dated as of September 1, 1995. Shrewsbury Electric Light Plant (Participant) By: Name: Title: Address: 100 Maple Avenue Shrewsbury, MA 01545-5398 SUPPLEMENTAL AGREEMENT WITH RESPECT TO ALTERNATES A & B The undersigned agrees that either Alternate A or Alternate B as described in Section IV of the foregoing Agreement will be acceptable to it if chosen and accepted by the Commission without significant modifications. Accordingly, the undersigned further agrees that in the event either Alternate A or Alternate B, as described in Section IV of the foregoing Agreement, is chosen and accepted without significant modifications by the Commission, the Tariff shall be deemed to be automatically amended, effective 30 days after the issuance of the Commission's order, to incorporate the accepted Alternate. Shrewsbury Electric Light Plant (Participant) By: Name: Title: Address: 100 Maple Avenue Shrewsbury, MA 01545-5398 COUNTERPART SIGNATURE PAGE TO THIRTY-THIRD AGREEMENT AMENDING NEW ENGLAND POWER POOL AGREEMENT DATED AS OF DECEMBER 1, 1996 The NEPOOL Agreement, being dated as of September 1, 1971, and being previously amended by thirty (30) amendments the most recent of which was dated as of September 1, 1995. South Hadley Electric Light Department (Participant) By: Name: Title: Address: 85 Main Street South Hadley, MA 01075-2706 SUPPLEMENTAL AGREEMENT WITH RESPECT TO ALTERNATES A & B The undersigned agrees that either Alternate A or Alternate B as described in Section IV of the foregoing Agreement will be acceptable to it if chosen and accepted by the Commission without significant modifications. Accordingly, the undersigned further agrees that in the event either Alternate A or Alternate B, as described in Section IV of the foregoing Agreement, is chosen and accepted without significant modifications by the Commission, the Tariff shall be deemed to be automatically amended, effective 30 days after the issuance of the Commission's order, to incorporate the accepted Alternate. South Hadley Electric Light Department (Participant) By: Name: Title: Address: 85 Main Street South Hadley, MA 01075-2706 COUNTERPART SIGNATURE PAGE TO THIRTY-THIRD AGREEMENT AMENDING NEW ENGLAND POWER POOL AGREEMENT DATED AS OF DECEMBER 1, 1996 The NEPOOL Agreement, being dated as of September 1, 1971, and being previously amended by thirty (30) amendments the most recent of which was dated as of September 1, 1995. Southern Energy Marketing, Inc. (Participant) By: Name: Title: Address: 900 Ashwood Parkway Suite 310 Atlanta, GA 30338 SUPPLEMENTAL AGREEMENT WITH RESPECT TO ALTERNATES A & B The undersigned agrees that either Alternate A or Alternate B as described in Section IV of the foregoing Agreement will be acceptable to it if chosen and accepted by the Commission without significant modifications. Accordingly, the undersigned further agrees that in the event either Alternate A or Alternate B, as described in Section IV of the foregoing Agreement, is chosen and accepted without significant modifications by the Commission, the Tariff shall be deemed to be automatically amended, effective 30 days after the issuance of the Commission's order, to incorporate the accepted Alternate. Southern Energy Marketing, Inc. (Participant) By: Name: Title: Address: 900 Ashwood Parkway Suite 310 Atlanta, GA 30338 COUNTERPART SIGNATURE PAGE TO THIRTY-THIRD AGREEMENT AMENDING NEW ENGLAND POWER POOL AGREEMENT DATED AS OF DECEMBER 1, 1996 The NEPOOL Agreement, being dated as of September 1, 1971, and being previously amended by thirty (30) amendments the most recent of which was dated as of September 1, 1995. Sterling Municipal Electric Light Department (Participant) By: Name: Title: Address: 50 Main Street Sterling, MA 01564-2129 SUPPLEMENTAL AGREEMENT WITH RESPECT TO ALTERNATES A & B The undersigned agrees that either Alternate A or Alternate B as described in Section IV of the foregoing Agreement will be acceptable to it if chosen and accepted by the Commission without significant modifications. Accordingly, the undersigned further agrees that in the event either Alternate A or Alternate B, as described in Section IV of the foregoing Agreement, is chosen and accepted without significant modifications by the Commission, the Tariff shall be deemed to be automatically amended, effective 30 days after the issuance of the Commission's order, to incorporate the accepted Alternate. Sterling Municipal Electric Light Department (Participant) By: Name: Title: Address: 50 Main Street Sterling, MA 01564-2129 COUNTERPART SIGNATURE PAGE TO THIRTY-THIRD AGREEMENT AMENDING NEW ENGLAND POWER POOL AGREEMENT DATED AS OF DECEMBER 1, 1996 The NEPOOL Agreement, being dated as of September 1, 1971, and being previously amended by thirty (30) amendments the most recent of which was dated as of September 1, 1995. Strategic Energy, Ltd. (Participant) By: Name: Title: Address: Two Gateway Center Pittsburgh, PA 15222 SUPPLEMENTAL AGREEMENT WITH RESPECT TO ALTERNATES A & B The undersigned agrees that either Alternate A or Alternate B as described in Section IV of the foregoing Agreement will be acceptable to it if chosen and accepted by the Commission without significant modifications. Accordingly, the undersigned further agrees that in the event either Alternate A or Alternate B, as described in Section IV of the foregoing Agreement, is chosen and accepted without significant modifications by the Commission, the Tariff shall be deemed to be automatically amended, effective 30 days after the issuance of the Commission's order, to incorporate the accepted Alternate. Strategic Energy, Ltd. (Participant) By: Name: Title: Address: Two Gateway Center Pittsburgh, PA 15222 COUNTERPART SIGNATURE PAGE TO THIRTY-THIRD AGREEMENT AMENDING NEW ENGLAND POWER POOL AGREEMENT DATED AS OF DECEMBER 1, 1996 The NEPOOL Agreement, being dated as of September 1, 1971, and being previously amended by thirty (30) amendments the most recent of which was dated as of September 1, 1995. Taunton Municipal Lighting Plant (Participant) By: Name: Title: Address: 55 Weir Street Taunton, MA 02780-0870 SUPPLEMENTAL AGREEMENT WITH RESPECT TO ALTERNATES A & B The undersigned agrees that either Alternate A or Alternate B as described in Section IV of the foregoing Agreement will be acceptable to it if chosen and accepted by the Commission without significant modifications. Accordingly, the undersigned further agrees that in the event either Alternate A or Alternate B, as described in Section IV of the foregoing Agreement, is chosen and accepted without significant modifications by the Commission, the Tariff shall be deemed to be automatically amended, effective 30 days after the issuance of the Commission's order, to incorporate the accepted Alternate. Taunton Municipal Lighting Plant (Participant) By: Name: Title: Address: 55 Weir Street Taunton, MA 02780-0870 COUNTERPART SIGNATURE PAGE TO THIRTY-THIRD AGREEMENT AMENDING NEW ENGLAND POWER POOL AGREEMENT DATED AS OF DECEMBER 1, 1996 The NEPOOL Agreement, being dated as of September 1, 1971, and being previously amended by thirty (30) amendments the most recent of which was dated as of September 1, 1995. Templeton Municipal Lighting Plant (Participant) By: Name: Title: Address: School Street Baldwinville, MA 01436 SUPPLEMENTAL AGREEMENT WITH RESPECT TO ALTERNATES A & B The undersigned agrees that either Alternate A or Alternate B as described in Section IV of the foregoing Agreement will be acceptable to it if chosen and accepted by the Commission without significant modifications. Accordingly, the undersigned further agrees that in the event either Alternate A or Alternate B, as described in Section IV of the foregoing Agreement, is chosen and accepted without significant modifications by the Commission, the Tariff shall be deemed to be automatically amended, effective 30 days after the issuance of the Commission's order, to incorporate the accepted Alternate. Templeton Municipal Lighting Plant (Participant) By: Name: Title: Address: School Street Baldwinville, MA 01436 COUNTERPART SIGNATURE PAGE TO THIRTY-THIRD AGREEMENT AMENDING NEW ENGLAND POWER POOL AGREEMENT DATED AS OF DECEMBER 1, 1996 The NEPOOL Agreement, being dated as of September 1, 1971, and being previously amended by thirty (30) amendments the most recent of which was dated as of September 1, 1995. Town of Braintree Electric Light Department (Participant) By: Name: Title: Address: 44 Allen Street Braintree, MA 02184-3598 SUPPLEMENTAL AGREEMENT WITH RESPECT TO ALTERNATES A & B The undersigned agrees that either Alternate A or Alternate B as described in Section IV of the foregoing Agreement will be acceptable to it if chosen and accepted by the Commission without significant modifications. Accordingly, the undersigned further agrees that in the event either Alternate A or Alternate B, as described in Section IV of the foregoing Agreement, is chosen and accepted without significant modifications by the Commission, the Tariff shall be deemed to be automatically amended, effective 30 days after the issuance of the Commission's order, to incorporate the accepted Alternate. Town of Braintree Electric Light Department (Participant) By: Name: Title: Address: 44 Allen Street Braintree, MA 02184-3598 COUNTERPART SIGNATURE PAGE TO THIRTY-THIRD AGREEMENT AMENDING NEW ENGLAND POWER POOL AGREEMENT DATED AS OF DECEMBER 1, 1996 The NEPOOL Agreement, being dated as of September 1, 1971, and being previously amended by thirty (30) amendments the most recent of which was dated as of September 1, 1995. TransCanada Power Corp. (Participant) By: Name: Title: Address: 1400, 421-7th Avenue S.W. Calgary, Ab T2P 4K9 CANADA SUPPLEMENTAL AGREEMENT WITH RESPECT TO ALTERNATES A & B The undersigned agrees that either Alternate A or Alternate B as described in Section IV of the foregoing Agreement will be acceptable to it if chosen and accepted by the Commission without significant modifications. Accordingly, the undersigned further agrees that in the event either Alternate A or Alternate B, as described in Section IV of the foregoing Agreement, is chosen and accepted without significant modifications by the Commission, the Tariff shall be deemed to be automatically amended, effective 30 days after the issuance of the Commission's order, to incorporate the accepted Alternate. TransCanada Power Corp. (Participant) By: Name: Title: Address: 1400, 421-7th Avenue S.W. Calgary, Ab T2P 4K9 CANADA COUNTERPART SIGNATURE PAGE TO THIRTY-THIRD AGREEMENT AMENDING NEW ENGLAND POWER POOL AGREEMENT DATED AS OF DECEMBER 1, 1996 The NEPOOL Agreement, being dated as of September 1, 1971, and being previously amended by thirty (30) amendments the most recent of which was dated as of September 1, 1995. PEPCO Energy Company (Participant) By: Name: Title: Address:2004 Renaissance Boulevard King of Prussia, PA 19406 SUPPLEMENTAL AGREEMENT WITH RESPECT TO ALTERNATES A & B The undersigned agrees that either Alternate A or Alternate B as described in Section IV of the foregoing Agreement will be acceptable to it if chosen and accepted by the Commission without significant modifications. Accordingly, the undersigned further agrees that in the event either Alternate A or Alternate B, as described in Section IV of the foregoing Agreement, is chosen and accepted without significant modifications by the Commission, the Tariff shall be deemed to be automatically amended, effective 30 days after the issuance of the Commission's order, to incorporate the accepted Alternate. PEPCO Energy Company (Participant) By: Name: Title: Address: 2004 Renaissance Boulevard King of Prussia, PA 19406 COUNTERPART SIGNATURE PAGE TO THIRTY-THIRD AGREEMENT AMENDING NEW ENGLAND POWER POOL AGREEMENT DATED AS OF DECEMBER 1, 1996 The NEPOOL Agreement, being dated as of September 1, 1971, and being previously amended by thirty (30) amendments the most recent of which was dated as of September 1, 1995. USGen Power Services, L.P. (Participant) By: Name: Title: Address: 7500 Old Georgetown Road Bethesda, MD 20814 SUPPLEMENTAL AGREEMENT WITH RESPECT TO ALTERNATES A & B The undersigned agrees that either Alternate A or Alternate B as described in Section IV of the foregoing Agreement will be acceptable to it if chosen and accepted by the Commission without significant modifications. Accordingly, the undersigned further agrees that in the event either Alternate A or Alternate B, as described in Section IV of the foregoing Agreement, is chosen and accepted without significant modifications by the Commission, the Tariff shall be deemed to be automatically amended, effective 30 days after the issuance of the Commission's order, to incorporate the accepted Alternate. USGen Power Services, L.P. (Participant) By: Name: Title: Address: 7500 Old Georgetown Road Bethesda, MD 20814 COUNTERPART SIGNATURE PAGE TO THIRTY-THIRD AGREEMENT AMENDING NEW ENGLAND POWER POOL AGREEMENT DATED AS OF DECEMBER 1, 1996 The NEPOOL Agreement, being dated as of September 1, 1971, and being previously amended by thirty (30) amendments the most recent of which was dated as of September 1, 1995. Vermont Electric Generation & Transmission Cooperative, Inc. (Participant) By: Name: Title: Address: School Street Johnson, VT 05656 SUPPLEMENTAL AGREEMENT WITH RESPECT TO ALTERNATES A & B The undersigned agrees that either Alternate A or Alternate B as described in Section IV of the foregoing Agreement will be acceptable to it if chosen and accepted by the Commission without significant modifications. Accordingly, the undersigned further agrees that in the event either Alternate A or Alternate B, as described in Section IV of the foregoing Agreement, is chosen and accepted without significant modifications by the Commission, the Tariff shall be deemed to be automatically amended, effective 30 days after the issuance of the Commission's order, to incorporate the accepted Alternate. Vermont Electric Generation & Transmission Cooperative, Inc. (Participant) By: Name: Title: Address: School Street Johnson, VT 05656 COUNTERPART SIGNATURE PAGE TO THIRTY-THIRD AGREEMENT AMENDING NEW ENGLAND POWER POOL AGREEMENT DATED AS OF DECEMBER 1, 1996 The NEPOOL Agreement, being dated as of September 1, 1971, and being previously amended by thirty (30) amendments the most recent of which was dated as of September 1, 1995. Vitol Gas & Electric LLC (Participant) By: Name: Title: Address: 470 Atlantic Avenue Boston, MA 02100-2208 SUPPLEMENTAL AGREEMENT WITH RESPECT TO ALTERNATES A & B The undersigned agrees that either Alternate A or Alternate B as described in Section IV of the foregoing Agreement will be acceptable to it if chosen and accepted by the Commission without significant modifications. Accordingly, the undersigned further agrees that in the event either Alternate A or Alternate B, as described in Section IV of the foregoing Agreement, is chosen and accepted without significant modifications by the Commission, the Tariff shall be deemed to be automatically amended, effective 30 days after the issuance of the Commission's order, to incorporate the accepted Alternate. Vitol Gas & Electric LLC (Participant) By: Name: Title: Address: 470 Atlantic Avenue Boston, MA 02110-2208 COUNTERPART SIGNATURE PAGE TO THIRTY-THIRD AGREEMENT AMENDING NEW ENGLAND POWER POOL AGREEMENT DATED AS OF DECEMBER 1, 1996 The NEPOOL Agreement, being dated as of September 1, 1971, and being previously amended by thirty (30) amendments the most recent of which was dated as of September 1, 1995. Wakefield Municipal Light Department (Participant) By: Name: Title: Address: 9 Albion Street Wakefield, MA 01880-0390 SUPPLEMENTAL AGREEMENT WITH RESPECT TO ALTERNATES A & B The undersigned agrees that either Alternate A or Alternate B as described in Section IV of the foregoing Agreement will be acceptable to it if chosen and accepted by the Commission without significant modifications. Accordingly, the undersigned further agrees that in the event either Alternate A or Alternate B, as described in Section IV of the foregoing Agreement, is chosen and accepted without significant modifications by the Commission, the Tariff shall be deemed to be automatically amended, effective 30 days after the issuance of the Commission's order, to incorporate the accepted Alternate. Wakefield Municipal Light Department (Participant) By: Name: Title: Address: 9 Albion Street Wakefield, MA 01880-0390 COUNTERPART SIGNATURE PAGE TO THIRTY-THIRD AGREEMENT AMENDING NEW ENGLAND POWER POOL AGREEMENT DATED AS OF DECEMBER 1, 1996 The NEPOOL Agreement, being dated as of September 1, 1971, and being previously amended by thirty (30) amendments the most recent of which was dated as of September 1, 1995. West Boylston Municipal Lighting Plant (Participant) By: Name: Title: Address: 4 Crescent Street West Boylston, MA 01583-1310 SUPPLEMENTAL AGREEMENT WITH RESPECT TO ALTERNATES A & B The undersigned agrees that either Alternate A or Alternate B as described in Section IV of the foregoing Agreement will be acceptable to it if chosen and accepted by the Commission without significant modifications. Accordingly, the undersigned further agrees that in the event either Alternate A or Alternate B, as described in Section IV of the foregoing Agreement, is chosen and accepted without significant modifications by the Commission, the Tariff shall be deemed to be automatically amended, effective 30 days after the issuance of the Commission's order, to incorporate the accepted Alternate. West Boylston Municipal Lighting Plant (Participant) By: Name: Title: Address: 4 Crescent Street West Boylston, MA 01583-1310 COUNTERPART SIGNATURE PAGE TO THIRTY-THIRD AGREEMENT AMENDING NEW ENGLAND POWER POOL AGREEMENT DATED AS OF DECEMBER 1, 1996 The NEPOOL Agreement, being dated as of September 1, 1971, and being previously amended by thirty (30) amendments the most recent of which was dated as of September 1, 1995. Westfield Gas & Electric Light Department (Participant) By: Name: Title: Address: 100 Elm Street Westfield, MA 01085-2907 SUPPLEMENTAL AGREEMENT WITH RESPECT TO ALTERNATES A & B The undersigned agrees that either Alternate A or Alternate B as described in Section IV of the foregoing Agreement will be acceptable to it if chosen and accepted by the Commission without significant modifications. Accordingly, the undersigned further agrees that in the event either Alternate A or Alternate B, as described in Section IV of the foregoing Agreement, is chosen and accepted without significant modifications by the Commission, the Tariff shall be deemed to be automatically amended, effective 30 days after the issuance of the Commission's order, to incorporate the accepted Alternate. Westfield Gas & Electric Light Department (Participant) By: Name: Title: Address: 100 Elm Street Westfield, MA 01085-2907 COUNTERPART SIGNATURE PAGE TO THIRTY-THIRD AGREEMENT AMENDING NEW ENGLAND POWER POOL AGREEMENT DATED AS OF DECEMBER 1, 1996 The NEPOOL Agreement, being dated as of September 1, 1971, and being previously amended by thirty (30) amendments the most recent of which was dated as of September 1, 1995. Wheeled Electric Power Company (Participant) By: Name: Title: Address: 50 Charles Lindbergh Blvd. Suite 400 Uniondale, NY 11553 SUPPLEMENTAL AGREEMENT WITH RESPECT TO ALTERNATES A & B The undersigned agrees that either Alternate A or Alternate B as described in Section IV of the foregoing Agreement will be acceptable to it if chosen and accepted by the Commission without significant modifications. Accordingly, the undersigned further agrees that in the event either Alternate A or Alternate B, as described in Section IV of the foregoing Agreement, is chosen and accepted without significant modifications by the Commission, the Tariff shall be deemed to be automatically amended, effective 30 days after the issuance of the Commission's order, to incorporate the accepted Alternate. Wheeled Electric Power Company (Participant) By: Name: Title: Address: 50 Charles Lindbergh Blvd. Suite 400 Uniondale, NY 11553 COUNTERPART SIGNATURE PAGE TO THIRTY-THIRD AGREEMENT AMENDING NEW ENGLAND POWER POOL AGREEMENT DATED AS OF DECEMBER 1, 1996 The NEPOOL Agreement, being dated as of September 1, 1971, and being previously amended by thirty (30) amendments the most recent of which was dated as of September 1, 1995. Working Assets Funding Service, Inc. (Participant) By: Name: Title: Address: 701 Montgomery Street, #400 San Francisco, CA 94111 SUPPLEMENTAL AGREEMENT WITH RESPECT TO ALTERNATES A & B The undersigned agrees that either Alternate A or Alternate B as described in Section IV of the foregoing Agreement will be acceptable to it if chosen and accepted by the Commission without significant modifications. Accordingly, the undersigned further agrees that in the event either Alternate A or Alternate B, as described in Section IV of the foregoing Agreement, is chosen and accepted without significant modifications by the Commission, the Tariff shall be deemed to be automatically amended, effective 30 days after the issuance of the Commission's order, to incorporate the accepted Alternate. Working Assets Funding Service, Inc. (Participant) By: Name: Title: Address: 701 Montgomery Street, #400 San Francisco, CA 94111 EX-10 8 NEES EXHIBIT 10(M) Exhibit 10(m) NEW ENGLAND ELECTRIC COMPANIES' DEFERRED COMPENSATION PLAN Executed June 15-18, 1979 Amended October 12, 1982 Amended July 31, 1984 Amended May 13, 1985 Amended December 8, 1986 Amended November 24, 1992 Amended January 1, 1995 Amended October 24, 1995 Amended October 15, 1996 Amended November 26, 1996 TABLE OF CONTENTS ----------------- Page ---- I. PURPOSE; EXISTING BENEFITS . . . . . . . . . . . . .1 II. DEFINITIONS. . . . . . . . . . . . . . . . . . . . .1 2.01 Actuarial Value. . . . . . . . . . . . . . . . . . .1 2.02 Beneficial Owner . . . . . . . . . . . . . . . . . .2 2.03 Beneficiary. . . . . . . . . . . . . . . . . . . . .2 2.04 Benefits Committee . . . . . . . . . . . . . . . . .2 2.05 Board. . . . . . . . . . . . . . . . . . . . . . . .2 2.06 Cash Account . . . . . . . . . . . . . . . . . . . .2 2.07 Cash Account Balance . . . . . . . . . . . . . . . .3 2.08 Change in Control. . . . . . . . . . . . . . . . . .3 2.09 Chief Executive Officer. . . . . . . . . . . . . . .4 2.10 Compensation . . . . . . . . . . . . . . . . . . . .4 2.11 Compensation Committee . . . . . . . . . . . . . . .5 2.12 Deferral Agreement . . . . . . . . . . . . . . . . .5 2.13 Deferred Compensation. . . . . . . . . . . . . . . .5 2.14 Deferred Compensation Account. . . . . . . . . . . .5 2.15 Deferral Match . . . . . . . . . . . . . . . . . . .5 2.16 Deferral Unit. . . . . . . . . . . . . . . . . . . .5 2.17 Disability . . . . . . . . . . . . . . . . . . . . .5 2.18 Dividend . . . . . . . . . . . . . . . . . . . . . .6 2.19 Dividend Reinvestment Plan . . . . . . . . . . . . .6 2.20 Election Period. . . . . . . . . . . . . . . . . . .6 2.21 Employer . . . . . . . . . . . . . . . . . . . . . .6 2.22 Incentive Plans. . . . . . . . . . . . . . . . . . .7 2.23 Incentive Shares . . . . . . . . . . . . . . . . . .7 2.24 Incentive Thrift Plan. . . . . . . . . . . . . . . .7 2.25 Interest . . . . . . . . . . . . . . . . . . . . . .7 2.26 A Major Transaction. . . . . . . . . . . . . . . . .7 2.27 New England Electric System. . . . . . . . . . . . .9 2.28 Other Plans. . . . . . . . . . . . . . . . . . . . .9 2.29 Participant. . . . . . . . . . . . . . . . . . . . 10 2.30 Performance Shares . . . . . . . . . . . . . . . . 10 2.31 Performance Share Plan . . . . . . . . . . . . . . 10 2.32 Person . . . . . . . . . . . . . . . . . . . . . . 10 2.33 Plan Year. . . . . . . . . . . . . . . . . . . . . 11 2.34 Qualified Plan . . . . . . . . . . . . . . . . . . 11 2.35 Related Plan Year. . . . . . . . . . . . . . . . . 11 2.36 Shares . . . . . . . . . . . . . . . . . . . . . . 11 2.37 Share Account. . . . . . . . . . . . . . . . . . . 11 2.38 Share Account Balance. . . . . . . . . . . . . . . 11 2.39 Share Price. . . . . . . . . . . . . . . . . . . . 12 2.40 Subsidiary . . . . . . . . . . . . . . . . . . . . 13 2.41 Termination of Service . . . . . . . . . . . . . . 13 2.42 Vested . . . . . . . . . . . . . . . . . . . . . . 13 III. ADMINISTRATION . . . . . . . . . . . . . . . . . . 14 3.01 Benefits Committee . . . . . . . . . . . . . . . . 14 3.02 Liability for Acts . . . . . . . . . . . . . . . . 14 3.03 Minors, Etc. . . . . . . . . . . . . . . . . . . . 14 3.04 Proof. . . . . . . . . . . . . . . . . . . . . . . 15 3.05 Denied Claims. . . . . . . . . . . . . . . . . . . 15 3.06 Participant List . . . . . . . . . . . . . . . . . 17 IV. OPERATION OF THE PLAN . . . . . . . . . . . . . . . . 17 4.01 Deferral Election. . . . . . . . . . . . . . . . . 17 (A) Form of Election . . . . . . . . . . . . . . 17 (B) Time of Election . . . . . . . . . . . . . . 18 4.02 Deferral Match . . . . . . . . . . . . . . . . . 19 4.03 Deferred Compensation Accounts . . . . . . . . . 20 (A) Cash Account . . . . . . . . . . . . . . . . 20 (B) Share Account. . . . . . . . . . . . . . . . 21 4.04 Payment of Balances. . . . . . . . . . . . . . . 22 (A) Election of Time of Payment. . . . . . . . . 22 (B) Payments After Ten Years . . . . . . . . . . 22 (C) Payments at Retirement . . . . . . . . . . . 22 (D) Payments Upon Termination of Service.. . . . 23 (E) Hardship Payments. . . . . . . . . . . . . . 23 (F) Dissolution of Employer; A Major Transaction; Change in Control . . . . . . . 24 (G) Death or Disability. . . . . . . . . . . . . 25 (H) Form of Payments . . . . . . . . . . . . . . 25 (I) Distributed Shares.. . . . . . . . . . . . . 26 (J) Taxes. . . . . . . . . . . . . . . . . . . . 28 4.05 No Segregation of Assets . . . . . . . . . . . . 28 4.06 Failure of Payments. . . . . . . . . . . . . . . 29 V. AMENDMENT OR TERMINATION. . . . . . . . . . . . . . . . 30 5.01 Right to Amend or Terminate. . . . . . . . . . . 30 VI. GENERAL PROVISIONS . . . . . . . . . . . . . . . 31 6.01 Nonalienation of Benefits. . . . . . . . . . . . 31 6.02 No Implied Rights. . . . . . . . . . . . . . . . 31 6.03 Effectuation of Interest . . . . . . . . . . . . 31 6.05 Headings . . . . . . . . . . . . . . . . . . . . 32 6.06 Gender and Number. . . . . . . . . . . . . . . . 32 6.07 Separability . . . . . . . . . . . . . . . . . . 32 6.08 Applicability. . . . . . . . . . . . . . . . . . 33 6.09 Governing Law. . . . . . . . . . . . . . . . . . 33 6.10 Effective Date . . . . . . . . . . . . . . . . . 33 SIGNATURE. . . . . . . . . . . . . . . . . . . . . . . . . 33 APPENDIX A . . . . . . . . . . . . . . . . . . . . . . . . 34 NEW ENGLAND ELECTRIC COMPANIES' DEFERRED COMPENSATION PLAN -------------------------- I. PURPOSE; EXISTING BENEFITS -------------------------- The purpose of the Deferral Plan (the Plan) is to enable executives to better plan the timing of their receipt of income by deferring cash compensation and bonus shares, in accordance with federal tax statutes. The Plan was first executed in June of 1979, and has been amended on several occasions since. The Plan is being further amended effective as of October 24, 1995, in order to reflect changes in executive benefit plans and to permit additional participations. Deferrals made under previous versions of the Plan are to receive benefits and are controlled by the terms of such versions, except that subsection 4.04(F) will be controlling in the event of a Change in Control or Major Transaction. Any deferral elections in effect shall continue through December 31, 1995. II. DEFINITIONS ----------- 2.01 Actuarial Value will be established using the most recent assumptions established by the Benefits Committee for the Qualified Plan. 2.02 Beneficial Owner shall have the meaning defined in Rule 13d-3 under the Securities Exchange Act of 1934. 2.03 Beneficiary means any person designated in writing by a Participant (which designation may be changed from time to time) to receive benefits under the Plan payable upon death of the Participant. Unless otherwise designated, the Beneficiary will be the beneficiary under the Participant's Group Life Insurance enrollment and insurance provided, in whole or in part, by the Employer. If there is no designated Beneficiary alive when the Participant dies, the benefit shall be paid to the estate of the Participant. 2.04 Benefits Committee means the Benefits Committee established in accordance with the Qualified Plan. 2.05 Board means the Board of Directors of the New England Electric System. 2.06 Cash Account means the account established for Participants in accordance with subsection 4.03(A). 2.07 Cash Account Balance means the amount deferred by the Participant in his or her Cash Account and Interest thereon, all as provided in subsection 4.03(A), less any payments or reductions made in accordance with Sections 4.04 and 4.06. 2.08 Change in Control occurs when the conditions set forth in either of the following paragraphs shall have been satisfied: (a) any Person is or becomes the Beneficial Owner, directly or indirectly, of securities of New England Electric System (not including in the securities beneficially owned by such Person any securities acquired directly from New England Electric System or its affiliates) representing 20% or more of the combined voting power of New England Electric System's then outstanding securities; or (b) during any period of not more than two consecutive years after January 1, 1995, individuals who at the beginning of such period constitute the Board and any new director (other than a director designated by a Person who has entered into an agreement with New England Electric System to effect a transaction described in clause (a) of this Section) whose election by the Board or nomination for election by New England Electric System's shareholders was approved or recommended by a vote of at least two- thirds of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved or recommended, cease for any reason to constitute a majority of the Board. 2.09 Chief Executive Officer means the Chief Executive Officer of the New England Electric System. 2.10 Compensation means (a) the monthly base pay (including any amount deferred hereunder) of a Participant, (b) any Incentive Compensation, (c) any Incentive and Performance Shares, and (d) any other bonuses specifically designated by the Employer at the time of the award as being deferred under the terms of this Plan. 2.11 Compensation Committee means the Compensation Committee of the Board. 2.12 Deferral Agreement means the share deferral agreement, if any, made by the Participant and the Company in December 1994. 2.13 Deferred Compensation means the Compensation of a Participant deferred in accordance with the terms of this Plan. 2.14 Deferred Compensation Account means the special memorandum account(s) established for a Participant on the books of his Employer pursuant to Section 4.03. 2.15 Deferral Match means the amount contributed by the Employer pursuant to Section 4.02. 2.16 Deferral Unit means an insurance related investment unit established under prior provisions of the Plan. 2.17 Disability means a physical or mental condition of the Participant which, based on satisfactory medical evidence, is believed to be permanent and to render the Participant unfit to perform duties for an Employer. 2.18 Dividend has the meaning set out in subsection 4.03(B). 2.19 Dividend Reinvestment Plan means the New England Electric System Dividend Reinvestment and Common Share Purchase Plan, as amended from time to time. 2.20 Election Period is the 365-day period following: (a) the mailing of the notice to the Participant of his or her eligibility to make an election due to a Change of Control or a Major Transaction, or (b) Termination of Service, as applicable. 2.21 Employer is the company within the New England Electric System holding company system which pays the base pay or fees of the Participant. 2.22 Incentive Plans means: (a) New England Electric Companies' Senior Incentive Compensation Plan, (b) New England Electric Companies' Incentive Compensation Plan I, (c) New England Electric Companies' Incentive Compensation Plan II, and (d) New England Electric Companies' Incentive Compensation Plan III, as they may be amended from time to time. 2.23 Incentive Shares mean annual incentive share awards under the New England Electric Companies' Incentive Share Plan, as it may be amended from time to time. 2.24 Incentive Thrift Plan means The New England Electric System Companies Incentive Thrift Plan as amended from time to time. 2.25 Interest means the factor described in Subsection 4.03(A). 2.26 A Major Transaction shall be deemed to have occurred if the conditions set forth in any one of the following paragraphs shall have been satisfied: (a) the shareholders of New England Electric System approve a merger or consolidation with any corporation or business trust, other than (i) a merger or consolidation which would result in the individuals who prior to such merger or consolidation constitute the Board constituting at least two-thirds of the board of directors of New England Electric System or the surviving or succeeding entity immediately after such merger or consolidation, or (ii) a merger or consolidation effected to implement a recapitalization (or similar transaction) in which no Person acquires more than 20% of the combined voting power of New England Electric System's then outstanding securities; (b) the shareholders of New England Electric System approve a plan of complete liquidation thereof; or (c) the shareholders of New England Electric System approve an agreement for the sale or disposition of all or substantially all of New England Electric System's assets, other than a sale or disposition which would result in the individuals who prior to such sale or disposition constitute the Board constituting at least two-thirds of the board of directors of the Person purchasing such assets immediately after such sale or disposition. 2.27 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. 2.28 Other Plans means the New England Electric Companies' Executive Supplemental Retirement Plan, the New England Electric System Companies Retirement Supplement Plan, the New England Electric System Directors Deferred Compensation Plan, New England Electric Companies' Senior Incentive Compensation Plan, New England Electric Companies' Incentive Compensation Plan I, New England Electric Companies' Incentive Compensation Plan II, New England Electric Companies' Incentive Compensation Plan III, or New England Electric Companies Long- term Performance Share Award Plan. 2.29 Participant means a Participant in one of the Incentive Plans. 2.30 Performance Shares means the potential share grants awarded under the Performance Share Plan. 2.31 Performance Share Plan means the New England Electric Companies Long-term Performance Share Award Plan. 2.32 Person shall have the meaning given in Section 3(a)(9) of the Exchange Act, as modified and used in Sections 13(d) and 14(d) thereof; however, a Person shall not include (i) New England Electric System or any subsidiary thereof, (ii) a trustee or other fiduciary holding securities under an employee benefit plan of New England Electric System or any subsidiary thereof, (iii) an underwriter temporarily holding securities pursuant to an offering of such securities, or (iv) a corporation owned, directly or indirectly, by the shareholders of New England Electric System in substantially the same proportions as their ownership of shares of New England Electric System. 2.33 Plan Year means a calendar year. 2.34 Qualified Plan means the New England Electric System Companies' Final Average Pay Pension Plan I. 2.35 Related Plan Year means, for deferrals under subsection 4.01(A)(i), the Plan Year in which the Compensation was earned; for deferrals under subsection 4.01(A)(ii) or (iii), the Plan Year for which performance is awarded by the Incentive Compensation or Incentive Shares; and for deferrals under subsection 4.01(A)(iv), the last year of the Performance Cycle. 2.36 Shares means common shares of New England Electric System. After a merger, consolidation, or other similar restructuring of New England Electric System, Shares shall mean the common shares of the new entity. 2.37 Share Account means the account established for Participants in accordance with subsection 4.03(B). 2.38 Share Account Balance means the amount deferred by the Participant in his or her Share Account and Dividends thereon, all as provided in subsection 4.03(B), less any payments or reductions made in accordance with Sections 4.04 and 4.06. 2.39 Share Price for purchases shall be determined using as a proxy the price of Shares being acquired by the New England Electric System Dividend Reinvestment Plan during the time period when the Shares for this Plan would be acquired were this Plan a participant in that plan. The Share Price for Shares being liquidated shall be determined by using the price actually received by the Rabbi Trust on a sale of Shares related hereto or by using as a proxy the price received for those Shares sold by the Dividend Reinvestment Plan next following the date of determination. For a Change in Control or Major Transaction, the cash value of Shares will be established using the highest average of the high and low prices on the New York Stock Exchange Composite Transaction as reported in the Wall Street Journal for any five consecutive trading days in the 60 days preceding the Change in Control or Major Transaction. If there is no trading in the Shares on the New York Stock Exchange for a substantial amount of time during the five-day period, or if publication by The Wall Street Journal of reports of Share transactions for any day in the five-day period does not take place or is subject to reporting error, the value of Shares shall be determined by the Benefits Committee on the basis of such market quotations or other method as the Benefits Committee shall deem appropriate. 2.40 Subsidiary means a company five per centum or more of whose outstanding voting securities or partnership or membership interests are owned, controlled, or held with power to vote, directly or indirectly, by New England Electric System or any subsidiary thereof. 2.41 Termination of Service shall occur when the Participant is neither (i) employed by a Subsidiary nor (ii) a member of the board of directors of New England Electric System or any Subsidiary. 2.42 Vested - a Participant will be Vested under the Qualified Plan when they satisfy the requirements for 100% vesting in their accrued benefits under that plan. III. ADMINISTRATION -------------- 3.01 Benefits Committee. This Plan shall be administered by the Benefits Committee, and interpretations of the Plan by the Benefits Committee shall be final and binding on all parties. 3.02 Liability for Acts. Neither the Compensation Committee, the Benefits Committee, nor the Employers, nor the members, officers, directors, agents, or employees of any of the foregoing shall be liable for any error of omission or commission unless such error results from its, his, or her own gross negligence, willful misconduct, or lack of good faith; nor shall any such party be liable for any act of gross negligence, willful misconduct, or lack of good faith of any other such party. 3.03 Minors, Etc. If a minor, person declared incompetent, or person incapable of handling the disposition of his or her property is entitled to receive a benefit, make an application, or make an election hereunder, the Benefits Committee may direct that such benefits be paid to, or such application or election be made by, the guardian, legal representative, or person having the care and custody of such minor, incompetent, or incapable person. Any payment made, application allowed, or election implemented in accordance with this Section shall completely discharge the Plan, the Compensation Committee, the Benefits Committee, the Employers, and New England Electric System from all liability with respect thereto. 3.04 Proof. The Benefits Committee may require proof of the death, Disability, incompetency, minority, or incapacity of any Participant or Beneficiary, and of the right of a person to receive any benefit or make any application or election. 3.05 Denied Claims. The procedures when a claim under this Plan is denied are as follows: (A) The Benefits Committee shall: (i) notify the claimant within a reasonable time of such denial, setting forth the specific reasons therefor; and (ii) afford the claimant a reasonable opportunity for a review of the decision. (B) The notice of such denial shall set forth, in addition to the specific reasons for the denial, the following: (i) identification of pertinent provisions of this Plan; (ii) such additional information as may be relevant to denial of claim; and (iii) an explanation of the claims review procedure; and advice that the claimant may request an opportunity to submit a statement of issues and comments. (C) Within sixty days following advice of denial of a claim, upon request made by the claimant, the Benefits Committee shall take appropriate steps to review its decision in light of any further information or comments submitted by the claimant. The Benefits Committee may hold a hearing at which the claimant may present the basis of any claim for review. (D) The Benefits Committee shall render a decision within a reasonable time (not in excess of 120 days) after the claimant's request for review and shall advise the claimant in writing of its decision, specifying the reasons and identifying the appropriate provisions of this Plan. (E) The Benefits Committee shall report to the Compensation Committee any denials of claims, requests for review, and actions taken in response to such requests. The Compensation Committee may review such denials and actions and may affirm, modify, or reverse same. 3.06 Participant List. The Chief Executive Officer shall be responsible for maintaining an up-to-date list of the Participants with copies to Compensation Committee and Benefits Committee members. IV. OPERATION OF THE PLAN --------------------- 4.01 Deferral Election. ------------------ (A) Form of Election. For elections made after September 1, 1995, a Participant may elect to defer Compensation as follows: (i) A Participant may elect to have his or her 2.09(a) Compensation reduced by any percentage - not exceeding 15 percent. (ii) A Participant may elect to defer any whole percentage of his or her Incentive Compensation. (iii) A Participant may elect to defer all of his or her Incentive Shares. (iv) A Participant may elect to defer all of his or her Performance Shares. The amount of deferrals under (i) and (ii) may be reduced by the amount of the Participant's salary reduction contribution under the Incentive Thrift Plan. These elections are not exclusive and a Participant may elect one, or any combination thereof. (B) Time of Election. Except as provided in this section, elections for deferrals under subsection 4.01(A)(i) shall be made prior to commencement of the Plan Year in which the Compensation is to be earned; elections for deferrals under subsections 4.01(A)(ii) or (iii) shall be made prior to the Plan Year, the performance in which is rewarded by the Incentive Compensation or Incentive Shares; elections for deferrals under subsection 4.01(A)(iv) shall be made prior to commencement of the third year of the performance cycle as defined in the Performance Share Plan. If any individual becomes a Participant or qualifies for a new form of bonus during a Plan Year, he or she may, at that time, elect prior to receipt of the related 2.10(a) Compensation, award of Incentive Compensation or Incentive Shares, or allocation of Performance Shares to defer Compensation received or earned in that or a succeeding Plan Year. An election once made shall be effective for each succeeding year until a superseding election is made or until it is cancelled. Any superseding election shall be effective for each Plan Year subsequent to the year in which it was made. Each Participant qualifying for participation on December 11, 1995, may elect, prior to December 31, 1995, to make a 4.01(A)(ii) or (iii) deferral with respect to bonuses rewarding performance in 1995. 4.02 Deferral Match. The Employer shall add to a Participant's Share Account an amount equal to the difference between the employer contributions actually made on behalf of the Participant under the Incentive Thrift Plan and the amount that would have been made had the Participant's compensation under that plan not been restricted under Section 4.01(a)(17) of the Internal Revenue Code. Deferred Match contributions will be made at such time or times as the monies would otherwise have been paid as employer contributions under the Thrift Plan. 4.03 Deferred Compensation Accounts. Deferrals shall be allocated to either a Cash Account or a Share Account. Deferral Match contributions shall be allocated to the Participant's Share Account. Other deferrals shall be allocated to the account selected by the Participant at the time he or she makes an election for the related deferral. Cash or Share values are to be determined by the Share Price on the date the cash or Shares would otherwise have been paid to the Participant. Once a deferral is allocated to the Cash or Share Account, it may not be reallocated. The Deferred Compensation Accounts for each Participant shall continue to reflect amounts deferred under the prior provisions of the Incentive Plans and any Deferral Agreement. (A) Cash Account. The Cash Account for each Participant shall be credited with an amount of Deferred Compensation as of the date the equivalent cash payment would otherwise have been made, Incentive Shares awarded, or Performance Shares first allocated to the Participant (converting Shares to Cash at the Share Price on said date). All Cash Accounts shall be increased by a factor (the Interest) as follows: As of the last day of each Plan Year, the Employer shall credit to each such account interest on the balance in such account computed with regard to the amount of time during the Plan Year that such amount has been credited to such account. The rate of interest shall be the twelve-month average for the Plan Year of the monthly base rates on prime corporate loans at the principal office of The First National Bank of Boston in effect on the last day of each month. (B) Share Account. The Share Account for each Participant shall be credited with an amount of Deferred Compensation as of the date the equivalent cash payment would otherwise have been made (at the Share Price on the next investment date), Incentive Shares awarded, or Performance Shares finally awarded to the Participant. Upon each declaration of cash dividends on Shares, the Participant's Share Account shall be increased by the number of Shares equivalent to the dividend declared on a Share (the Dividend) multiplied by the number of Shares credited to the Participant's Share Account on the date of record calculated as if the Shares in the Account had participated in the Dividend Reinvestment Plan. 4.04 Payment of Balances. (A) Election of Time of Payment. At the time of electing to defer Compensation, in accordance with subsection 4.01(A), the Participant shall also elect whether to receive payment after ten years or upon Termination of Service on or after the date when the Participant could first commence receiving benefits under the Qualified Plan. (B) Payments After Ten Years. If the Participant has elected payment after ten years, the full related Cash and Share Account Balances shall be paid as soon as practicable after the close of the tenth anniversary of the close of the Related Plan Year. (C) Payments at Retirement. If the Participant has elected payment on the date when the Participant could first commence receiving benefits under the Qualified Plan, the Participant's full Cash and Share Account Balances shall be paid in ten annual payments commencing at such date. (D) Payments Upon Termination of Service. Regardless of the payment election previously made by the Participant, the full Cash and Share Account balances of a Participant who is not Vested under the Qualified Plan shall be paid as soon as practicable after a Termination of Service. Regardless of the payment election previously made by the Participant, within the Election Period following Termination of Service, a Participant who is Vested in the Qualified Plan may elect to receive as soon as practical payment of his full Cash and Share Account balances, less 10%. (E) Hardship Payments. Prior to a Participant's Termination of Service (or completion of a subsection 4.04(C) payment stream, if applicable), the Benefits Committee shall have the power and discretion to make a payment to such Participant from his or her Deferred Compensation Account at any time if the Benefits Committee determines that the Participant is suffering from a serious financial emergency resulting from circumstances beyond the Participant's control which would cause a hardship to the Participant unless such payment was made. Payments will be made first from the Cash Account, to the extent not in Deferral Units, secondly from the Share Account, and thirdly from Deferral Units. Benefits otherwise payable from a partially liquidated Deferral Unit shall then be actuarially adjusted, using the most recent assumptions established by the Benefits Committee for the Qualified Plan, for the payment made. No payments will be made on account of Deferral Units for which a split-dollar option has been elected under prior provisions of the Plan. Any such hardship payment will be in a lump sum and will not exceed the lesser of (i) the amount necessary to satisfy the hardship situation or (ii) the balance of the Participant's Deferred Compensation Accounts. (F) Dissolution of Employer; A Major Transaction; Change in Control. In the event of dissolution, liquidation, or winding up of the business of the Employer or the New England Electric System, whether voluntary or involuntary, the Participant shall receive, at the time of such event, a lump sum payment equal to the balance in his Cash and Share Accounts and the Actuarial Value of the maximum value of future benefits from Deferral Units, unless the New England Electric System has assumed all the rights, duties, and obligations of the Employer hereunder. In the event of a Major Transaction or a Change in Control, any Participant, whether terminated or active, may elect at any time during the Election Period to receive, in lieu of any future benefits hereunder, a lump sum payment equal to the balance of his Cash and Share Accounts and the Actuarial Value of the maximum value of future benefits from Deferral Units, all less 10%. The Employer of each Participant at the time (or at termination, if applicable) shall, as soon as practicable after a Major Transaction or a Change in Control advise the Participant of his rights under this paragraph. (G) Death or Disability. In the event of the Participant's death, the full Cash and Share Account Balances shall be distributed to the Beneficiary as soon as practicable. At the request of the Participant following his Disability, the full Cash and Share Account Balances shall be distributed to the Participant as soon as practicable. (H) Form of Payments. Except as provided herein, any distribution from a Cash Account will be in cash. Any distribution from a Share Account will be in the form of Shares; however, the Participant may elect, before the 30th day preceding the tenth anniversary or Termination of Service, as the case may be, to receive cash in lieu of Shares for any percentage up to 100% of said distribution. All distributions on account of Hardship, death, Disability, dissolution, Change in Control, Major Transaction, or Failure of Payments shall be in cash. (I) Distributed Shares. The date of determination for the Share Price of Shares distributed or converted hereunder shall be: (i) for payments under 4.04(B), December 31 of the concluding year; (ii) for payments under 4.04(C) and the first paragraph of 4.04(D), the last day of the month prior to the payment date; (iii) for payments under 4.04(E), the last trading date of the month prior to the month in which the Benefits Committee authorizes the distribution; (iv) for payments under the first paragraph of 4.04(F), the last trading date of the month preceding the triggering event; (v) for payments under the second paragraph of 4.04(F), the highest average of the high and low prices on the New York Stock Exchange Composite Transaction as reported in the Wall Street Journal for any five consecutive trading days in the 60 days preceding the Change in Control or Major Transaction (if there is no trading in the Shares on the New York Stock Exchange for a substantial amount of time during the five- day period, or if publication by The Wall Street Journal of reports of Share transactions for any day in the five-day period does not take place or is subject to reporting error, the value of Shares shall be determined by the Benefits Committee on the basis of such market quotations or other method as the Benefits Committee shall deem appropriate); (vi) for payments under 4.04(G), the last day of the month following the triggering event; (vii) for elections made during an election period other than under the second paragraph of 4.04(F), the last day of the month following filing of the election with the Company; and (viii) for payments made under 4.06, the last day of the month preceding the triggering event. Shares to be distributed shall be purchased on the open market, unless an officer of the New England Electric System determines otherwise; provided, however, if the Employer has placed an appropriate number of Shares in the Rabbi Trust for the benefit of the Participant, the Employer may satisfy the requirement by distribution of said Shares. (J) Taxes. If a distribution is to be made solely in Shares, the Employer may withhold from such distribution an amount equal to its withholding obligations under state and Federal tax laws. 4.05 No Segregation of Assets. The Employer shall not be required to set aside or segregate any assets of any kind to meet any obligations under this Plan. All obligations of the Employer shall be reflected by bookkeeping entries only. The Participants shall have no rights under this Plan to any specific assets of the Employer (including any Shares purchased by the Employer to reflect its obligation hereunder) and ownership of any insurance policies relating to Deferral Units shall remain with the Employer. The rights of a Participant under this Plan shall be those of a general, unsecured creditor of the Employer. 4.06 Failure of Payments. Any provision of this Plan to the contrary notwithstanding, if (i) an Employer shall fail to make any payment to any Participant when due under this Plan or (ii) any employer or company shall fail to make any payments to any Participant due under any of the Other Plans, each Participant will be paid immediately a lump sum payment equal to the balance of his Cash and Share Accounts (and the Actuarial Value of the maximum value of future benefits from Deferral Units). If any employer or company shall fail to make a payment as provided in (i) or (ii) due to inadvertence or a good faith delay to permit processing and shall immediately upon discovery of such failure or delay make such payment in full, the original failure to make the payment or payments shall not, for the purposes of this paragraph, be a failure to make a payment. If any employer or company shall, in good faith, contest a claim by a participant under this Plan or any of the other above-listed plans, the failure to make the contested payment or payments shall not, for the purpose of this paragraph, be a failure to make a payment. Subject to any necessary regulatory approvals, if the Employer does not make the aforesaid payment, New England Electric System will make the payment. V. AMENDMENT OR TERMINATION ------------------------ 5.01 Right to Amend or Terminate. The Compensation Committee may amend or terminate this Plan at any time; provided, however, that no such action shall affect any right or obligation with respect to any Compensation previously earned; provided, further, that, if the Compensation Committee, in its sole discretion, determines that (a) changes in Federal income tax statutes, rules, or regulations, (b) changes in the Federal tax rate paid by the Employers, or (c) the application or potential application to the Plan of Section 406 of Title I of the Employee Retirement Income Security Act of 1974 make it advisable, existing Deferral Units may be modified or canceled; and provided further, no amendment or discontinuance in any manner adverse to a Participant with respect to benefit formula or optional form of payment may be made for three years following a Change in Control or a Major Transaction. No such modification or cancellation shall affect any Participant's Cash or Share Account Balance. No such modification may reduce the then established retirement income or death benefit of a Participant who has had a Termination of Service, but it may reduce or eliminate any subsequent increases in either or both. VI. GENERAL PROVISIONS ------------------ 6.01 Nonalienation of Benefits. Except as provided in the split-dollar option under prior provisions of the Plan, a Participant shall not have the right to commute, sell, assign, transfer, or otherwise convey the right to receive any payments under this Plan, which payments and the right thereto shall be nonassignable and nontransferable, whether voluntarily or involuntarily. 6.02 No Implied Rights. Neither this Plan nor the making of payments or purchases of insurance by an Employer shall be construed to create any obligation upon an Employer to continue the Plan or to continue purchases of insurance or to give any present or future employee any right to continued employment. 6.03 Effectuation of Interest. In the event it should become impossible for New England Electric System, the Employers, the Compensation Committee, or the Benefits Committee to perform any act required by the Plan, New England Electric System, the Employers, the Compensation Committee, or the Benefits Committee may perform such other act as it in good faith determines will most nearly carry out the intent and purpose of the Plan. 6.04 Copy of Plan. An executed copy of the Plan shall be available for inspection by Participants or other persons entitled to benefits under the Plan at reasonable times at the Personnel Offices of the Employers. 6.05 Headings. The headings of articles and sections of the Plan are for convenience of reference only. 6.06 Gender and Number. Unless the context requires otherwise, the singular shall include the plural; the masculine gender shall include the feminine; and such words as "herein", "hereinafter", "hereof", and "hereunder" shall refer to this instrument as a whole and not merely to the subdivision in which such words appear. 6.07 Separability. If any term or provision of this Plan, as presently in effect or as amended from time to time, or the application thereof to any payments or circumstances, shall to any extent be invalid or unenforceable, the remainder of this Plan and the application of such term or provision to payments or circumstances other than those as to which it is invalid or unenforceable shall not be affected thereby, and each term or provision of this Plan shall be valid and enforced to the fullest extent permitted by law. 6.08 Applicability. All provisions of this Plan shall be uniformly applicable to all Participants. 6.09 Governing Law. Except as otherwise required by law, this Plan and all matters arising thereunder shall be governed by the laws of The Commonwealth of Massachusetts. 6.10 Effective Date. This Amendment shall be effective October 24, 1995. Dated: February 24, 1997 s/George M. Sage SIGNATURE ______________________________ Chairman Pursuant to Vote of October 24, 1995, of the Compensation Committee APPENDIX A ADDITIONAL DEFERRALS 1. By vote of the Compensation Committee of October 15, 1996, certain individuals were granted special performance bonuses of share grants, said bonuses to be deferred to the individual's Share Account under the Plan and subject to all the benefits and limitations of the Plan, except that the provision for payments after ten years will not apply. 2. By vote of the NEES Board of Directors on November 26, 1996, John W. Rowe was granted a special performance bonus of 6,000 shares, said bonus to be deferred to his Share Account under the Plan and subject to all the benefits and limitations of the Plan, except that the Share Account balance relating to the 6,000 shares shall no longer be deferred but shall be paid as soon as practical after a Termination of Service. EX-10 9 NEES EXHIBIT 10(N) Exhibit 10(n) NEW ENGLAND ELECTRIC SYSTEM COMPANIES RETIREMENT SUPPLEMENT PLAN Executed November 1, 1979 Amended October 12, 1982 November 23, 1982 June 21, 1984 May 27, 1986 April 1, 1991 September 1, 1993 January 1, 1995 December 1, 1995 June 1, 1996 TABLE OF CONTENTS ----------------- Page ---- Definitions. . . . . . . . . . . . . . . . . . . . . . . . .1 1. Actuarial Value . . . . . . . . . . . . . . . . . .1 2. Adjusted Benefit. . . . . . . . . . . . . . . . . .1 3. Adjustment. . . . . . . . . . . . . . . . . . . . .2 4. Adjustment Factor . . . . . . . . . . . . . . . . .2 5. Basic Benefit . . . . . . . . . . . . . . . . . . .2 6. Beneficial Owner. . . . . . . . . . . . . . . . . .2 7. Board . . . . . . . . . . . . . . . . . . . . . . .3 8. Change in Control . . . . . . . . . . . . . . . . .3 9. Committee . . . . . . . . . . . . . . . . . . . . .4 10. Company . . . . . . . . . . . . . . . . . . . . . .4 11. Initial Adjusted Benefit. . . . . . . . . . . . . .4 12. A Major Transaction . . . . . . . . . . . . . . . .5 13. New England Electric System . . . . . . . . . . . .6 14. Participant . . . . . . . . . . . . . . . . . . . .7 15. Person. . . . . . . . . . . . . . . . . . . . . . .7 16. Plan. . . . . . . . . . . . . . . . . . . . . . . .8 17. Qualified Plan. . . . . . . . . . . . . . . . . . .8 18. Qualified Plan Benefit. . . . . . . . . . . . . . .8 19. Retirement. . . . . . . . . . . . . . . . . . . . .8 20. Retirement Income . . . . . . . . . . . . . . . . .8 21. Spouse. . . . . . . . . . . . . . . . . . . . . . .8 22. Supplemental Plan . . . . . . . . . . . . . . . . .9 23. Supplemental Plan Benefit . . . . . . . . . . . . .9 24. Year of Service . . . . . . . . . . . . . . . . . .9 Plan Benefits. . . . . . . . . . . . . . . . . . . . . . . .9 1. Retirement Benefit. . . . . . . . . . . . . . . . .9 2. Form of Payment . . . . . . . . . . . . . . . . . 10 3. Spouse's Death Benefit. . . . . . . . . . . . . . 10 Timing of Payments . . . . . . . . . . . . . . . . . . . . 10 Lump Sum Payments. . . . . . . . . . . . . . . . . . . . . 11 Administration and Claims. . . . . . . . . . . . . . . . . 12 Government Regulations . . . . . . . . . . . . . . . . . . 12 Nonassignment. . . . . . . . . . . . . . . . . . . . . . . 13 Provisions of Benefits . . . . . . . . . . . . . . . . . . 13 Vesting. . . . . . . . . . . . . . . . . . . . . . . . . . 13 Amendment or Discontinuance. . . . . . . . . . . . . . . . 14 Effective Date . . . . . . . . . . . . . . . . . . . . . . 14 Signature. . . . . . . . . . . . . . . . . . . . . . . . . 14 NEW ENGLAND ELECTRIC SYSTEM COMPANIES ------------------------------------- Retirement Supplement Plan ------------------------- Definitions ----------- When used in the Plan, the following words will have the meaning given below: 1. Actuarial Value will be established using the most recent assumptions established by the Benefits Committee for the Qualified Plan. 2. Adjusted Benefit means the product of (a) and (b) below: (a) the Adjusted Benefit or the Initial Adjusted Benefit, as is applicable, for the prior year and (b) the Adjustment Factor. The Adjusted Benefit will be determined as soon as necessary data is available after the beginning of each year. Each year, at the time of the first payment of the Adjusted Benefit, an appropriate retroactive payment will be made to adjust amounts due between January of the current year and the time of the adjustment. 3. Adjustment means, for the then current year, (a) less (b) below: (a) Moody's AAA Corporate Bond rate for the prior year (b) 200 basis points. In no event, however, may the Adjustment exceed the percentage increase, if any, in the Consumer Price Index for the prior year, and in no event may the Adjustment be less than zero. 4. Adjustment Factor means (a) plus (b) below: (a) 1.000, and (b) the Adjustment expressed in decimal form. 5. Basic Benefit means, for retirements on or after April 1, 1991, an annual retirement benefit equal to that calculated under the Supplemental Plan without regard to any domestic relations order that would otherwise affect the amount of said benefit. 6. Beneficial Owner shall have the meaning defined in Rule 13d-3 under the Securities Exchange Act of 1934. 7. Board means the Board of Directors of New England Electric System. 8. Change in Control occurs when the conditions set forth in either of the following paragraphs shall have been satisfied: (a) any Person is or becomes the Beneficial Owner, directly or indirectly, of securities of New England Electric System (not including in the securities beneficially owned by such Person any securities acquired directly from New England Electric System or its affiliates) representing 20% or more of the combined voting power of New England Electric System's then outstanding securities; or (b) during any period of not more than two consecutive years after January 1, 1995, individuals who at the beginning of such period constitute the Board and any new director (other than a director designated by a Person who has entered into an agreement with New England Electric System to effect a transaction described in clause (a) of this paragraph) whose election by the Board or nomination for election by New England Electric System's shareholders was approved or recommended by a vote of at least two-thirds of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved or recommended, cease for any reason to constitute a majority of the Board. 9. Committee means the Compensation Committee of the Board of Directors of the New England Electric System. 10. Company means the subsidiary of New England Electric System by which the Participant was employed on the day immediately preceding the date he has a termination of employment. 11. Initial Adjusted Benefit means the product of (a) and (b) below: (a) The Basic Benefit; (b) the Adjustment Factor. 12. A Major Transaction shall be deemed to have occurred if the conditions set forth in any one of the following paragraphs shall have been satisfied: (a) the shareholders of New England Electric System approve a merger or consolidation with any corporation or business trust, other than (i) a merger or consolidation which would result in the individuals who prior to such merger or consolidation constitute the Board constituting at least two-thirds of the board of directors of New England Electric System or the surviving or succeeding entity immediately after such merger or consolidation, or (ii) a merger or consolidation effected to implement a recapitalization (or similar trasaction) in which no Person acquires more than 20% of the combined voting power of New England Electric System's then outstanding securities; (b) the shareholders of New England Electric System approve a plan of complete liquidation thereof; or (c) the shareholder of New England Electric System approve an agreement for the sale or disposition of all or substantially all of New England Electric System's assets, other than a sale or disposition which would result in the individuals who prior to such sale or disposition constitute the Board constituting at least two-thirds of the board of directors of the Person purchasing such assets immediately after such sale or disposition. 13. 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. 14. Participant means any of those officers of the New England Electric System who (a) participated in this Plan as of February 1, 1991, or (b) are designated as participants in this Plan by the Committee. 15. Person shall have the meaning given in Section 3(a)(9) of the Exchange Act, as modified and used in Sections 13(d) and 14(d) thereof; however, a Person shall not include (i) New England Electric System or any subsidiary thereof, (ii) a trustee or other fiduciary holding securities under an employee benefit plan of New England Electric System or any subsidiary thereof, (iii) an underwriter temporarily holding securities pursuant to an offering of such securities, or (iv) a corporation owned, directly or indirectly, by the shareholders of New England Electric System in substantially the same proportions as their ownership of shares of New England Electric System. 16. Plan means the Retirement Supplement Plan. 17. Qualified Plan means the New England Electric System Companies' Final Average Pay Pension Plan I. 18. Qualified Plan Benefit means the annual benefit payable at Retirement on a straight life annuity basis under the terms of the Qualified Plan without regard to any qualified domestic relations order that would otherwise affect the amount of said benefit. 19. Retirement means the date on which retirement benefits under the Qualified Plan commence. 20. Retirement Income means the monthly benefit for which a Participant is eligible under this Plan. 21. Spouse shall have the meaning provided in the Qualified Plan. 22. Supplemental Plan means New England Electric System Companies' Executive Supplemental Retirement Plan. 23. Supplemental Plan Benefit means the annual benefit payable at Retirement on a straight life annuity basis under the terms of the Supplemental Plan without regard to any domestic relations order that would otherwise affect the amount of said benefit. 24. Year of Service shall have the meaning provided in the Qualified Plan. Plan Benefits ------------- 1. Retirement Benefit ------------------ A Participant shall be entitled to receive under this Plan an annual retirement benefit equal to (a) less (b) below: (a) the Adjusted Benefit for the given year; (b) the sum of the Qualified Plan Benefit and the Supplemental Plan Benefit. 2. Form of Payment --------------- Retirement Income shall be payable in the same form as that elected under the provisions of the Qualified Plan; provided, however, to the extent that the form of benefit was dictated by the terms of a qualified domestic relations order, the form may be that which would have applied (or any form that could have been elected) in the absence of said order. The annual Retirement Income payment from this Plan shall be adjusted by the actuarial equivalent factor used to reduce retirement benefits under the Qualified Plan, other than reductions for retirement before age 65. 3. Spouse's Death Benefit ---------------------- If a Participant has not had a termination of employment, a Spouse's death benefit shall be payable under this Plan on the same terms as provided in the Supplemental Plan. Timing of Payments ------------------ A Participant shall be eligible for benefits under this Plan when and if he or she is eligible for benefits under the Qualified Plan. Benefits shall commence on the first anniversary of the date on which the Participant first receives benefits under the Qualified Plan. Lump Sum Payments ----------------- Any provision of this Plan to the contrary notwithstanding, if (i) any company shall fail to make any payment to any Participant when due under this Plan or (ii) any company or employer shall fail to make any payment to any participant due under either of the New England Electric Companies Deferred Compensation Plan or the Supplemental Plan, the full amount of the current Actuarial Value of the Participant's benefits under this Plan shall be payable immediately to each Participant as a lump-sum; provided, however, if any employer or company shall, in good faith, contest a claim by a participant under this Plan or any of the other above-listed plans, the failure to make the contested payment or payments shall not, for the purpose of this paragraph, be a failure to make a payment. At any time following a Change in Control or a Major Transaction, any Participant who has had a Termination of Employment, whether before or after the Change in Control or Major Transaction, may elect to receive, in lieu of any future benefits hereunder, a lump sum payment equal to the Actuarial Value of the maximum value of said future benefits, less 10%. If the Company does not make the aforesaid lump sum payments, the New England Electric System will make the payment for the account of the Company. Administration and Claims ------------------------- The Committee shall have for this Plan the same duties, including, but not limited to, the procedures for denied claims, as the Benefits Committee and the Benefits Appeal Committee have for the Qualified Plan. Government Regulations ---------------------- It is intended that this Plan will comply with all applicable laws and governmental regulations, and the Company shall not be obligated to perform an obligation hereunder in any case where, in the opinion of the Company's counsel, such performance would result in violation of any law or regulation. Nonassignment ------------- To the fullest extent permitted by law, no benefit under the Plan, nor any other interest hereunder of any Participant or contingent annuitant, may be assigned or alienated. Provisions of Benefits ---------------------- This Plan will be unfunded. Benefits will be paid from the operating revenues of the Company. A Participant's rights to benefits under this Plan shall be those of an unsecured, general creditor of the Company. Vesting ------- A Participant's accrued benefits shall be 100% vested after 60 months of participation in this Plan. If a Participant should become totally and permanently disabled or die, prior to the completion of 60 months of participation in the Plan, the Participant or the Participant's Spouse shall be entitled to receive a prorated benefit derived by multiplying the full benefit, otherwise payable but for the passage of time under the Plan, by the quotient obtained by dividing the months of participation by sixty. Amendment or Discontinuance --------------------------- The Committee may amend or discontinue the Plan at any time; provided, no modification shall reduce a benefit which a Participant was eligible to receive under the Plan at the time of such amendment or discontinuance; and provided further, no amendment or discontinuance in any manner adverse to a Participant with respect to benefit formula or optional form of payment may be made for three years following a Change in Control or a Major Transaction. Effective Date -------------- This Amendment shall be effective June 1, 1996. Dated: February 24, 1997 s/George M. Sage __________________________________ Chairman of the Compensation Committee Pursuant to Vote of the Compensation Committee of May 20, 1996 EX-10 10 NEES EXHIBIT 10(O) Exhibit 10(o) NEW ENGLAND ELECTRIC COMPANIES' EXECUTIVE SUPPLEMENTAL RETIREMENT PLAN I Executed December 4, 1978 Amended November 5, 1979 October 12, 1982 March 14, 1983 June 21, 1984 July 31, 1984 July 23, 1986 April 1, 1991 January 1, 1995 October 25, 1995 May 20, 1996 TABLE OF CONTENTS ----------------- Page ---- Plan Purposes and Objectives . . . . . . . . . . . . . . . .1 Definitions. . . . . . . . . . . . . . . . . . . . . . . . .1 1. Actuarial Value. . . . . . . . . . . . . . . . . .2 2. Beneficial Owner . . . . . . . . . . . . . . . . .2 3. Benefits Committee . . . . . . . . . . . . . . . .2 4. Board. . . . . . . . . . . . . . . . . . . . . . .2 5. Change in Control. . . . . . . . . . . . . . . . .2 6. Code . . . . . . . . . . . . . . . . . . . . . . .3 7. Committee. . . . . . . . . . . . . . . . . . . . .3 8. Company. . . . . . . . . . . . . . . . . . . . . .3 9. Early Retirement Date. . . . . . . . . . . . . . .4 10. Final Average Total Compensation . . . . . . . . .4 11. Incentive Compensation . . . . . . . . . . . . . .4 12. Incentive Plan . . . . . . . . . . . . . . . . . .4 13. Incentive Share Awards . . . . . . . . . . . . . .4 14. A Major Transaction. . . . . . . . . . . . . . . .4 15. New England Electric System. . . . . . . . . . . .6 16. Participant. . . . . . . . . . . . . . . . . . . .6 17. Person . . . . . . . . . . . . . . . . . . . . . .7 18. Qualified Compensation . . . . . . . . . . . . . .7 19. Qualified Plan . . . . . . . . . . . . . . . . . .7 20. Qualified Plan Benefit . . . . . . . . . . . . . .7 21. Retirement . . . . . . . . . . . . . . . . . . . .8 22. Retirement Income. . . . . . . . . . . . . . . . .8 23. Spouse . . . . . . . . . . . . . . . . . . . . . .8 24. Termination of Employment. . . . . . . . . . . . .8 25. Total Compensation . . . . . . . . . . . . . . . .8 26. Years of Service . . . . . . . . . . . . . . . . .8 Plan Benefits. . . . . . . . . . . . . . . . . . . . . . . .9 1. Retirement Benefit . . . . . . . . . . . . . . . .9 2. Form of Payment. . . . . . . . . . . . . . . . . 10 3. Spouse's Death Benefit . . . . . . . . . . . . . 11 Timing of Payments . . . . . . . . . . . . . . . . . . . . 12 Lump Sum Payments. . . . . . . . . . . . . . . . . . . . . 12 Vesting and Forfeiture of Benefits . . . . . . . . . . . . 13 Administration and Claims. . . . . . . . . . . . . . . . . 14 Government Regulations . . . . . . . . . . . . . . . . . . 15 Nonassignment. . . . . . . . . . . . . . . . . . . . . . . 15 Provisions of Benefits . . . . . . . . . . . . . . . . . . 15 Amendment or Discontinuance. . . . . . . . . . . . . . . . 15 Effective Date . . . . . . . . . . . . . . . . . . . . . . 16 Signature. . . . . . . . . . . . . . . . . . . . . . . . . 16 NEW ENGLAND ELECTRIC COMPANIES' Executive Supplemental Retirement Plan I ---------------------------------------- Plan Purposes and Objectives ---------------------------- The Supplemental Plan I is maintained by the Companies primarily for the purpose of providing deferred compensation for a select group of management or highly compensated employees within the meaning of Title I of the Employee Retirement Income Security Act. The objectives of the Executive Supplemental Retirement Plan I (the Supplemental Plan I) are as follows: 1. to increase the overall effectiveness of the executive compensation program so as to attract, retain, and motivate qualified management personnel; 2. to provide retirement benefits related to Total Compensation; and 3. to soften the financial impact of early retirement for selected executives. Definitions ----------- When used in the Supplemental Plan I, the following words will have the meanings indicated below: 1. Actuarial Value will be established using the most recent assumptions established by the Benefits Committee for the Qualified Plan. 2. Beneficial Owner shall have the meaning defined in Rule 13d-3 under the Securities Exchange Act of 1934. 3. Benefits Committee means the Benefits Committee established in accordance with the New England Electric System Companies Final Average Pay Pension Plan I. 4. Board means the Board of Directors of New England Electric System. 5. Change in Control occurs when the conditions set forth in either of the following paragraphs shall have been satisfied: (a) any Person is or becomes the Beneficial Owner, directly or indirectly, of securities of New England Electric System (not including in the securities beneficially owned by such Person any securities acquired directly from New England Electric System or its affiliates) representing 20% or more of the combined voting power of New England Electric System's then outstanding securities; or (b) during any period of not more than two consecutive years after January 1, 1995, individuals who at the beginning of such period constitute the Board and any new director (other than a director designated by a Person who has entered into an agreement with New England Electric System to effect a transaction described in clause (a) of this paragraph) whose election by the Board or nomination for election by New England Electric System's shareholders was approved or recommended by a vote of at least two-thirds of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved or recommended, cease for any reason to constitute a majority of the Board. 6. Code means the Internal Revenue Code of 1986, as amended from time to time. 7. Committee means the Compensation Committee of the Board. 8. Company means the subsidiary of New England Electric System by which the Participant is employed on the date on which he or she has a Termination of Employment. 9. Early Retirement Date shall have the meaning provided in the Qualified Plan. 10. Final Average Total Compensation means the highest average of the Participant's twelve-month Total Compensation during any consecutive sixty-month period of employment (or during total employment if less than sixty months) within the last 120 months of employment ending with the last day of the month next preceding a given date of determination. 11. Incentive Compensation shall have the meaning provided in the Incentive Plan. 12. Incentive Plan means the New England Electric Companies' Incentive Compensation Plan I and New England Electric Companies' Senior Incentive Compensation Plan. 13. Incentive Share Awards shall mean annual incentive share awards under the New England Electric Companies' Incentive Share Plan. 14. A Major Transaction shall be deemed to have occurred if the conditions set forth in any one of the following paragraphs shall have been satisfied: (a) the shareholders of New England Electric System approve a merger or consolidation with any corporation or business trust, other than (i) a merger or consolidation which would result in the individuals who prior to such merger or consolidation constitute the Board constituting at least two-thirds of the board of directors of New England Electric System or the surviving or succeeding entity immediately after such merger or consolidation, or (ii) a merger or consolidation effected to implement a recapitalization (or similar trasaction) in which no Person acquires more than 20% of the combined voting power of New England Electric System's then outstanding securities; (b) the shareholders of New England Electric System approve a plan of complete liquidation thereof; or (c) the shareholder of New England Electric System approve an agreement for the sale or disposition of all or substantially all of New England Electric System's assets, other than a sale or disposition which would result in the individuals who prior to such sale or disposition constitute the Board constituting at least two-thirds of the board of directors of the Person purchasing such assets immediately after such sale or disposition. 15. 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. 16. Participant means a. A Participant in the New England Electric Companies' Senior Incentive Compensation Plan, b. A Catetory A or B Participant in the New England Electric Companies' Incentive Compensation Plan I, and c. Any other persons participating in this Supplemental Plan I as of October 25, 1995. 17. Person shall have the meaning given in Section 3(a)(9) of the Securities Exchange Act of 1934, as modified and used in Sections 13(d) and 14(d) thereof; however, a Person shall not include (i) New England Electric System or any subsidiary thereof, (ii) a trustee or other fiduciary holding securities under an employee benefit plan of New England Electric System or any subsidiary thereof, (iii) an underwriter temporarily holding securities pursuant to an offering of such securities, or (iv) a corporation owned, directly or indirectly, by the shareholders of New England Electric System in substantially the same proportions as their ownership of shares of New England Electric System. 18. Qualified Compensation means compensation as defined in the Qualified Plan without regard to any reduction required by Section 4.01(a)(17) of the code. 19. Qualified Plan means New England Electric System Companies' Final Average Pay Pension Plan I. 20. Qualified Plan Benefit means the annual benefit payable at Retirement on a straight life annuity basis under the terms of the Qualified Plan without regard to any qualified domestic relations order that would otherwise affect the amount of said benefit. 21. Retirement means the date on which retirement benefits under the Qualified Plan commence. 22. Retirement Income means the monthly benefit for which a Participant is eligible under the Supplemental Plan I. 23. Spouse shall have the meaning provided in the Qualified Plan. 24. Termination of Employment shall occur when the Participant is no longer employed by a company participating in the Supplemental Plan I. 25. Total Compensation means Qualified Compensation, except that Incentive Compensation and Incentive Share Awards shall be included in the same twelve-month period for which they are awarded, plus any compensation or share awards deferred during the same twelve-month period under the terms of the New England Electric System Companies Revised Deferred Compensation Plan (or its predecessors) during the same twelve-month period to the extent not included in Qualified Compensation. 26. Years of Service shall have the meaning provided in the Qualified Plan. Plan Benefits ------------- 1. Retirement Benefit ------------------ A Participant shall be entitled to receive from the Company for retirements on or after April 1, 1991, an annual retirement benefit equal to (a) plus (b) plus (c) plus (d) plus (e) less (f) less (g) below: (a) 1.5% of Final Average Total Compensation for each Year of Service up to 10 years; (b) 1.3% of Final Average Total Compensation for each Year of Service from 11 to 20 years; (c) 1.25% of Final Average Total Compensation for each Year of Service from 21 to 30 years; (d) .6% of Final Average Total Compensation for each Year of Service over 30 years; (e) .57% of Final Average Total Compensation in excess of the Average Social Security Wage Base for each Year of Service, up to 35 years; (f) any benefit payable on a straight life annuity basis which was accrued, under a plan maintained by an employer other than a New England Electric System company, for service granted pursuant to the additional service credits provision of the Qualified Plan; and (g) the Qualified Plan Benefit. All of the above amounts are to be determined as at the Participant's Termination of Employment. 2. Form of Payment --------------- Retirement Income shall be payable in the normal form as follows: (a) If a Participant has a Spouse, the normal form of payment shall be a contingent annuitant option with the Spouse, as contingent annuitant, entitled to receive 50% of the Participant's reduced amount of Retirement Income. (b) If a Participant does not have a Spouse, the normal form of payment shall be a straight life annuity with no amount of Retirement Income payable after the Former Participant's death. If a Participant elects an optional form of payment under the Qualified Plan, the same option and actuarial equivalent factors shall apply to Retirement Income payable under the Supplemental Plan I; provided, however, to the extent the form of benefit was dictated by the terms of a qualified domestic relations order, the form may be that which would have applied (or any form that could have been elected) in the absence of said order. In calculating the benefit payable under any option, the same actuarial equivalent factors in the Qualified Plan shall be used in the Supplemental Plan I, except that no reduction factors for retirement prior to age 65 shall be applied against a Participant's Retirement Income. 3. Spouse's Death Benefit ---------------------- The Spouse of a Participant vested under the Qualified Plan who has not had a Termination of Employment is entitled to a pre-retirement spouse benefit, if the Participant dies before payment of benefits commence. The Spouse will be entitled to receive an annual benefit determined as follows: (a) as if the Participant had retired and elected Retirement Income payments to begin on the first day of the month next following the later of the date of death or Participant's fifty-fifth birthday, and (b) the Retirement Income was payable in the form of a contingent annuitant option with the Spouse, as contingent annuitant, entitled to receive 50% (100% if the Participant died after his or her 55th birthday and while an active employee) of the Participant's amount of Retirement Income subject to reduction for benefits payable hereunder under a domestic relations order. Timing of Payments ------------------ A Participant shall be eligible for benefits under the Supplemental Plan I when and if he or she is eligible for benefits under the Qualified Plan, except as provided herein. Benefits shall commence on the date on which the Participant or the Spouse first receives benefits under the Qualified Plan. Lump Sum Payments ----------------- Any provision of the Supplemental Plan I to the contrary notwithstanding, if (i) any company shall fail to make any payment to any Participant when due under the Supplemental Plan I or (ii) the employer or company shall fail to make any payment to any participant due under any of the New England Electric Companies' Senior Incentive Compensation Plan, the New England Electric Companies' Incentive Compensation Plan I, the New England Electric Companies Deferred Compensation Plan, or the New England Electric System Companies Retirement Supplement Plan, the full amount of the current Actuarial Value of a Participant's benefits under the Supplemental Plan I shall be payable immediately as a lump-sum; provided, however, if any employer or company shall, in good faith, contest a claim by a participant under this Supplemental Plan I or any of the other above-listed plans, the failure to make the contested payment or payments shall not, for the purpose of this paragraph, be a failure to make a payment. At any time following a Change in Control or Major Transaction, any Participant who has had a Termination of Employment, whether before or after the Change in Control or Major Transaction, may elect to receive, in lieu of any future benefits hereunder, a lump sum payment equal to the Actuarial Value of the maximum value of said future benefits, less 10%. If the Company does not make the aforesaid lump sum payments, the New England Electric System will make the payment for the account of the Company. Vesting and Forfeiture of Benefits ---------------------------------- Except as provided in the following paragraph, a Participant's accrued benefit shall be 100% vested after five Years of Service. A Participant will forfeit his or her benefits under the Supplemental Plan I if before the earlier of age 65 or five years following Termination of Employment he or she, without the prior consent of the New England Electric System's Chief Executive Officer (the "CEO") [or prior consent of the Committee in the case of the CEO], enters into or in any manner takes part in, as an employee, agent, officer, owner, or otherwise, any business or authority which in the opinion of the CEO is in competition with, in the same field as, or regulating the business of New England Electric System or any of its subsidiaries, or which in the opinion of the CEO provides services peculiarly essential to utility operation. Violation of this provision will result in termination of payments, and any obligations to make future payments to the Participant and the Participant's Spouse. A Participant may request to have the Committee review any decision made by the CEO under this provision that adversely affects the Participant. The Committee's decision shall be final. Upon the occurrence of a Change in Control or a Major Transaction, the second paragraph of this section shall no longer have any effect. Administration and Claims ------------------------- The Benefits Committee shall have for the Supplemental Plan I the same duties as for the Qualified Plan, except as specifically provided herein. The Benefits Appeal Committee for the Qualified Plan shall have for the Supplemental Plan I the same duties relative to denied claims as for the Qualified Plan, except as may be specifically provided herein. Government Regulations ---------------------- It is intended that the Supplemental Plan I will comply with all applicable laws and governmental regulations, and the Company shall not be obligated to perform an obligation hereunder in any case where, in the opinion of the Company's counsel, such performance would result in violation of any law or regulation. Nonassignment ------------- To the fullest extent permitted by law, no benefit under the Plan, nor any other interest hereunder of any Participant, Spouse, or contingent annuitant, shall be assignable, transferable, or subject to sale, mortgage, pledge, hypothecation, commutation, anticipation, garnishment, attachment, execution, or levy of any kind. Provisions of Benefits ---------------------- The Supplemental Plan I will be unfunded. Benefits will be paid from the operating revenues of the Company. A Participant's rights to benefits under the Supplemental Plan I shall be those of an unsecured, general creditor of the Company. Amendment or Discontinuance --------------------------- The Committee may amend or discontinue the Supplemental Plan I at any time; provided, no modification shall reduce a benefit which a Participant was eligible to receive under the Supplemental Plan I at the time of such amendment or discontinuance; and provided further, no amendment or discontinuance in any manner adverse to a Participant with respect to benefit formula or optional form of payment may be made for three years following a Change in Control or a Major Transaction. Effective Date -------------- The Plan, as amended, is to be effective for retirements on and after May 20, 1996. s/George M. Sage _________________________________ Chairman of the Compensation Committee Pursuant to Votes of October 24, 1995, and May 20, 1996 EX-10 11 NEES EXHIBIT 10(P) Exhibit 10(p) NEW ENGLAND ELECTRIC COMPANIES' EXECUTIVE SUPPLEMENTAL RETIREMENT PLAN II Effective Date: October 25, 1995 TABLE OF CONTENTS ----------------- Page ---- Plan Purposes and Objectives . . . . . . . . . . . . . . . .1 Definitions. . . . . . . . . . . . . . . . . . . . . . . . .1 1. Actuarial Value. . . . . . . . . . . . . . . . . .1 2. Beneficial Owner . . . . . . . . . . . . . . . . .1 3. Benefits Committee . . . . . . . . . . . . . . . .1 4. Board. . . . . . . . . . . . . . . . . . . . . . .2 5. Change in Control. . . . . . . . . . . . . . . . .2 6. Code . . . . . . . . . . . . . . . . . . . . . . .3 7. Committee. . . . . . . . . . . . . . . . . . . . .3 8. Company. . . . . . . . . . . . . . . . . . . . . .3 9. Early Retirement Date. . . . . . . . . . . . . . .3 10. Final Average Total Compensation . . . . . . . . .3 11. Incentive Compensation . . . . . . . . . . . . . .3 12. Incentive Plans. . . . . . . . . . . . . . . . . .4 13. Incentive Share Awards . . . . . . . . . . . . . .4 14. Major Transaction. . . . . . . . . . . . . . . . .4 15. Management Committee . . . . . . . . . . . . . . .5 16. New England Electric System. . . . . . . . . . . .5 17. Participant. . . . . . . . . . . . . . . . . . . .6 18. Person . . . . . . . . . . . . . . . . . . . . . .6 19. Qualified Compensation . . . . . . . . . . . . . .6 20. Qualified Plan . . . . . . . . . . . . . . . . . .7 21. Qualified Plan Benefit . . . . . . . . . . . . . .7 22. Retirement . . . . . . . . . . . . . . . . . . . .7 23. Retirement Income. . . . . . . . . . . . . . . . .7 24. Spouse . . . . . . . . . . . . . . . . . . . . . .7 25. Termination of Employment. . . . . . . . . . . . .7 26. Total Compensation . . . . . . . . . . . . . . . .7 27. Years of Service . . . . . . . . . . . . . . . . .8 Plan Benefits. . . . . . . . . . . . . . . . . . . . . . . .8 1. Retirement Benefit . . . . . . . . . . . . . . . .8 2. Form of Payment. . . . . . . . . . . . . . . . . .9 3. Spouse's Death Benefit . . . . . . . . . . . . . 10 Timing of Payments . . . . . . . . . . . . . . . . . . . . 11 Lump Sum Payments. . . . . . . . . . . . . . . . . . . . . 11 Vesting and Forfeiture of Benefits . . . . . . . . . . . . 12 Administration and Claims. . . . . . . . . . . . . . . . . 13 Government Regulations . . . . . . . . . . . . . . . . . . 13 Nonassignment. . . . . . . . . . . . . . . . . . . . . . . 13 Provisions of Benefits . . . . . . . . . . . . . . . . . . 14 Amendment or Discontinuance. . . . . . . . . . . . . . . . 14 Effective Date . . . . . . . . . . . . . . . . . . . . . . 14 NEW ENGLAND ELECTRIC COMPANIES' Executive Supplemental Retirement Plan II ----------------------------------------- Plan Purposes and Objectives ---------------------------- The Supplemental Plan II is established by the Companies primarily for the purpose of providing deferred compensation for a select group of management or highly compensated employees within the meaning of Title I of the Employee Retirement Income Security Act. The objectives of the Executive Supplemental Retirement Plan II (the Supplemental Plan II) are as follows: 1. to increase the overall effectiveness of the executive compensation program so as to attract, retain, and motivate qualified management personnel; and 2. to provide retirement benefits related to Total Compensation. Definitions ----------- When used in the Supplemental Plan II, the following words will have the meanings indicated below: 1. Actuarial Value will be established using the most recent assumptions established by the Benefits Committee for the Qualified Plan. 2. Beneficial Owner shall have the meaning defined in Rule 13d-3 under the Securities Exchange Act of 1934. 3. Benefits Committee means the Benefits Committee established in accordance with the New England Electric System Companies Final Average Pay Pension Plan I. 4. Board means the Board of Directors of New England Electric System. 5. Change in Control occurs when the conditions set forth in either of the following paragraphs shall have been satisfied: (a) any Person is or becomes the Beneficial Owner, directly or indirectly, of securities of New England Electric System (not including in the securities beneficially owned by such Person any securities acquired directly from New England Electric System or its affiliates) representing 20% or more of the combined voting power of New England Electric System's then outstanding securities; or (b) during any period of not more than two consecutive years after January 1, 1995, individuals who at the beginning of such period constitute the Board and any new director (other than a director designated by a Person who has entered into an agreement with New England Electric System to effect a transaction described in clause (a) of this paragraph) whose election by the Board or nomination for election by New England Electric System's shareholders was approved or recommended by a vote of at least two-thirds of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved or recommended, cease for any reason to constitute a majority of the Board. 6. Code means the Internal Revenue Code of 1986, as amended from time to time. 7. Committee means the Compensation Committee of the Board of Directors of New England Electric System. 8. Company means the subsidiary of New England Electric System by which the Participant is employed on the date on which he or she has a Termination of Employment. 9. Early Retirement Date shall have the meaning provided in the Qualified Plan. 10. Final Average Total Compensation means the highest average of the Participant's twelve-month Total Compensation during any consecutive sixty-month period of employment (or during total employment if less than sixty months) within the last 120 months of employment ending with the last day of the month next preceding a given date of determination. 11. Incentive Compensation shall have the meaning provided in the Incentive Plans. 12. Incentive Plans mean the New England Electric Companies' Incentive Compensation Plan I, the New England Electric Companies' Incentive Compensation Plan II, and the New England Electric Companies' Incentive Compensation Plan III. 13. Incentive Share Awards shall mean annual incentive share awards under the New England Electric Companies' Incentive Share Plan. 14. A Major Transaction shall be deemed to have occurred if the conditions set forth in any one of the following paragraphs shall have been satisfied: (a) the shareholders of New England Electric System approve a merger or consolidation with any corporation or business trust, other than (i) a merger or consolidation which would result in the individuals who prior to such merger or consolidation constitute the Board constituting at least two-thirds of the board of directors of New England Electric System or the surviving or succeeding entity immediately after such merger or consolidation, or (ii) a merger or consolidation effected to implement a recapitalization (or similar transaction) in which no Person acquires more than 20% of the combined voting power of New England Electric System's then outstanding securities; (b) the shareholders of New England Electric System approve a plan of complete liquidation thereof; or (c) the shareholder of New England Electric System approve an agreement for the sale or disposition of all or substantially all of New England Electric System's assets, other than a sale or disposition which would result in the individuals who prior to such sale or disposition constitute the Board constituting at least two-thirds of the board of directors of the Person purchasing such assets immediately after such sale or disposition. 15. Management Committee means the Management Committee established in accordance with the New England Electric System Companies' Incentive Compensation Plan I. 16. 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. 17. Participant means a Category C Participant in the New England Electric Companies' Incentive Compensation Plan I who is not a participant in the New England Electric Companies' Executive Supplemental Retirement Plan. 18. Person shall have the meaning given in Section 3(a)(9) of the Securities Exchange Act of 1934, as modified and used in Sections 13(d) and 14(d) thereof; however, a Person shall not include (i) New England Electric System or any subsidiary thereof, (ii) a trustee or other fiduciary holding securities under an employee benefit plan of New England Electric System or any subsidiary thereof, (iii) an underwriter temporarily holding securities pursuant to an offering of such securities, or (iv) a corporation owned, directly or indirectly, by the shareholders of New England Electric System in substantially the same proportions as their ownership of shares of New England Electric System. 19. Qualified Compensation means compensation as defined in the Qualified Plan without regard to any reduction required by section 4.01(a)(17) of the Code. 20. Qualified Plan means New England Electric System Companies' Final Average Pay Pension Plan I. 21. Qualified Plan Benefit means the annual benefit payable at Retirement on a straight life annuity basis under the terms of the Qualified Plan without regard to any qualified domestic relations order that would otherwise affect the amount of said benefit. 22. Retirement means the date on which retirement benefits under the Qualified Plan commence. 23. Retirement Income means the monthly benefit for which a Participant is eligible under the Supplemental Plan II. 24. Spouse shall have the meaning provided in the Qualified Plan. 25. Termination of Employment shall occur when the Participant is no longer employed by a company participating in the Supplemental Plan II. 26. Total Compensation means Qualified Compensation, except that Incentive Compensation and Incentive Share Awards shall be included in the same twelve-month period for which they are awarded, plus any compensation or share awards deferred during the same twelve-month period under the terms of the New England Electric System Companies Revised Deferred Compensation Plan (or its predecessors) during the same twelve-month period to the extent not included in Qualified Compensation. 27. Years of Service shall have the meaning provided in the Qualified Plan. Plan Benefits ------------- 1. Retirement Benefit ------------------ A Participant shall be entitled to receive from the Company an annual retirement benefit equal to (a) plus (b) plus (c) plus (d) plus (e) less (f) less (g) below: (a) 1.5% of Final Average Total Compensation for each Year of Service up to 10 years; (b) 1.3% of Final Average Total Compensation for each Year of Service from 11 to 20 years; (c) 1.25% of Final Average Total Compensation for each Year of Service from 21 to 30 years; (d) .6% of Final Average Total Compensation for each Year of Service over 30 years; (e) .57% of Final Average Total Compensation in excess of the Average Social Security Wage Base for each Year of Service, up to 35 years; (f) any benefit payable on a straight life annuity basis which was accrued, under a plan maintained by an employer other than a New England Electric System company, for service granted pursuant to the additional service credits provision of the Qualified Plan; and (g) the Qualified Plan Benefit. All of the above amounts are to be determined as at the Participant's Termination of Employment. 2. Form of Payment --------------- Retirement Income shall be payable in the normal form as follows: (a) If a Participant has a Spouse, the normal form of payment shall be a contingent annuitant option with the Spouse, as contingent annuitant, entitled to receive 50% of the Participant's reduced amount of Retirement Income. (b) If a Participant does not have a Spouse, the normal form of payment shall be a straight life annuity with no amount of Retirement Income payable after the Former Participant's death. If a Participant elects an optional form of payment under the Qualified Plan, the same option and actuarial equivalent factors shall apply to Retirement Income payable under the Supplemental Plan II; provided, however, to the extent the form of benefit was dictated by the terms of a qualified domestic relations order, the form may be that which would have applied (or any form that could have been elected) in the absence of said order. In calculating the benefit payable under any option, the same actuarial equivalent factors in the Qualified Plan shall be used in the Supplemental Plan II. 3. Spouse's Death Benefit ---------------------- The Spouse of a Participant vested under the Qualified Plan who has not had a Termination of Employment is entitled to a pre-retirement spouse benefit, if the Participant dies before payment of benefits commence. The Spouse will be entitled to receive an annual benefit determined as follows: (a) as if the Participant had retired and elected Retirement Income payments to begin on the first day of the month next following the later of the date of death or Participant's fifty-fifth birthday, and (b) the Retirement Income was payable in the form of a contingent annuitant option with the Spouse, as contingent annuitant, entitled to receive 50% (100% if the Participant died after his or her 55th birthday and while an active employee) of the Participant's amount of Retirement Income subject to reduction for benefits payable hereunder under a domestic relations order. Timing of Payments ------------------ A Participant shall be eligible for benefits under the Supplemental Plan II when and if he or she is eligible for benefits under the Qualified Plan, except as provided herein. Benefits shall commence on the date on which the Participant or the Spouse first receives benefits under the Qualified Plan. Lump Sum Payments ----------------- Any provision of the Supplemental Plan II to the contrary notwithstanding, if (i) any company shall fail to make any payment to any Participant when due under the Supplemental Plan II or (ii) the employer or company shall fail to make any payment to any participant due under either of the New England Electric Companies' Incentive Compensation Plan I or the New England Electric Companies Deferred Compensation Plan, the full amount of the current Actuarial Value of a Participant's benefits under the Supplemental Plan II shall be payable immediately as a lump-sum; provided, however, if any employer or company shall, in good faith, contest a claim by a participant under this Supplemental Plan II or any of the other above-listed plans, the failure to make the contested payment or payments shall not, for the purpose of this paragraph, be a failure to make a payment. At any time following a Change in Control or Major Transaction, any Participant who has had a Termination of Employment, whether before or after the Change in Control or Major Transaction, may elect to receive, in lieu of any future benefits hereunder, a lump sum payment equal to the Actuarial Value of the maximum value of said future benefits, less 10%. If the Company does not make the aforesaid lump sum payments, the New England Electric System will make the payment for the account of the Company. Vesting and Forfeiture of Benefits ---------------------------------- Except as provided in the following paragraph, a Participant's accrued benefit shall be 100% vested after five Years of Service. A Participant will forfeit his benefits under the Supplemental Plan II if before the earlier of age 65 or five years following Termination of Employment he, without the prior consent of the New England Electric System's Chief Executive Officer (the "CEO"), enters into or in any manner takes part in, as an employee, agent, officer, owner, or otherwise, any business or authority which in the opinion of the CEO is in competition with, in the same field as, or regulating the business of New England Electric System or any of its subsidiaries, or which in the opinion of the CEO provides services peculiarly essential to utility operation. Violation of this provision will result in termination of payments, and any obligations to make future payments to the Participant and the Participant's Spouse. A Participant may request to have the Committee review any decision made by the CEO under this provision that adversely affects the Participant. The Committee's decision shall be final. Upon the occurrence of a Change in Control or a Major Transaction, the second paragraph of this section shall no longer have any effect. Administration and Claims ------------------------- The Benefits Committee shall have for the Supplemental Plan II the same duties as for the Qualified Plan, except as specifically provided herein. The Benefits Appeal Committee for the Qualified Plan shall have for the Supplemental Plan II the same duties relative to denied claims as for the Qualified Plan, except as may be specifically provided herein. Government Regulations ---------------------- It is intended that the Supplemental Plan II will comply with all applicable laws and governmental regulations, and the Company shall not be obligated to perform an obligation hereunder in any case where, in the opinion of the Company's counsel, such performance would result in violation of any law or regulation. Nonassignment ------------- To the fullest extent permitted by law, no benefit under the Plan, nor any other interest hereunder of any Participant, Spouse, or contingent annuitant, shall be assignable, transfer able, or subject to sale, mortgage, pledge, hypothecation, commutation, anticipation, garnishment, attachment, execution, or levy of any kind. Provisions of Benefits ---------------------- The Supplemental Plan II will be unfunded. Benefits will be paid from the operating revenues of the Company. A Participant's rights to benefits under the Supplemental Plan II shall be those of an unsecured, general creditor of the Company. Amendment or Discontinuance --------------------------- The Management Committee may amend or discontinue the Supplemental Plan II at any time; provided, no modification shall reduce a benefit which a Participant was eligible to receive under the Supplemental Plan II at the time of such amendment or discontinuance; and provided further, no amendment or discontinuance in any manner adverse to a Participant with respect to benefit formula or optional form of payment may be made for three years following a Change in Control or a Major Transaction. Effective Date -------------- The Plan, as amended, is to be effective for retirements on and after October 25, 1995. s/George M. Sage ________________________________ Chairman of the Compensation Committee pursuant to vote of the Committee dated October 24, 1995 EX-10 12 NEES EXHIBIT 10(Q) Exhibit 10(q) NEW ENGLAND ELECTRIC COMPANIES' INCENTIVE COMPENSATION PLAN I Adopted - August 24, 1977 Amended - December 5, 1978 Amended - May 17, 1982 Amended - July 31, 1984 Amended - July 30, 1985 Amended - February 9, 1987 Amended - May 23, 1990 Amended - December 1, 1991 Amended - January 1, 1992 Amended - January 1, 1994 Amended - February 21, 1994 Amended - January 1, 1995 Amended - October 24, 1995 TABLE OF CONTENTS ----------------- Page ---- I. PURPOSE . . . . . . . . . . . . . . . . . . . . . . . . .1 II. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . .1 2.01 Base Compensation. . . . . . . . . . . . . . . .1 2.02 Beneficial Owner . . . . . . . . . . . . . . . .1 2.03 Board. . . . . . . . . . . . . . . . . . . . . .1 2.04 Category A Participant . . . . . . . . . . . . .2 2.05 Category B Participant . . . . . . . . . . . . .2 2.06 Category C Participants. . . . . . . . . . . . .2 2.07 Change in Control. . . . . . . . . . . . . . . .2 2.08 Committee. . . . . . . . . . . . . . . . . . . .3 2.09 Continuing Directors . . . . . . . . . . . . . .3 2.10 Corporate Targets. . . . . . . . . . . . . . . .4 2.11 Fund . . . . . . . . . . . . . . . . . . . . . .4 2.12 Incentive Compensation . . . . . . . . . . . . .4 2.13 Low Return Target. . . . . . . . . . . . . . . .4 2.14 A Major Transaction. . . . . . . . . . . . . . .5 2.15 Management Committee . . . . . . . . . . . . . .6 2.16 New England Electric System. . . . . . . . . . .6 2.17 Participant. . . . . . . . . . . . . . . . . . .7 2.18 Person . . . . . . . . . . . . . . . . . . . . .7 2.19 Plan Year. . . . . . . . . . . . . . . . . . . .7 2.20 Senior Incentive Compensation Plan . . . . . . .7 III. ADMINISTRATION. . . . . . . . . . . . . . . . . . . . .8 3.01 Administration and Interpretation. . . . . . . .8 3.02 Amendment and Termination. . . . . . . . . . . .8 3.03 Salary Approvals.. . . . . . . . . . . . . . . .8 3.04 No Segregation of Assets; No Assignment. . . . .8 3.05 Accounting.. . . . . . . . . . . . . . . . . . .9 IV. PARTICIPATION . . . . . . . . . . . . . . . . . . . . .9 4.01 Selection. . . . . . . . . . . . . . . . . . . .9 4.02 Notification.. . . . . . . . . . . . . . . . . .9 4.03 Goals. . . . . . . . . . . . . . . . . . . . . 10 V. PARTICIPANTS' COMPENSATION. . . . . . . . . . . . . . 10 5.01 Base Compensation and Incentive Compensation.. 10 VI. BASE COMPENSATION . . . . . . . . . . . . . . . . . . 10 6.01 Determination. . . . . . . . . . . . . . . . . 10 VII. INCENTIVE COMPENSATION. . . . . . . . . . . . . . . . 10 7.01 Incentive Compensation Amounts.. . . . . . . . 10 7.02 Criteria for Determining Incentive Compensation.. . . . . . . . . . . . . . . . . 11 7.03 Notification of Award. . . . . . . . . . . . . 11 7.04 Cooperation of Others. . . . . . . . . . . . . 11 VIII. INCENTIVE COMPENSATION FUND . . . . . . . . . . . . 12 8.01 Calculation. . . . . . . . . . . . . . . . . . 12 8.02 Scaling. . . . . . . . . . . . . . . . . . . . 12 8.03 Minimum Performance Requirement. . . . . . . . 13 IX. PAYMENT UPON CHANGE OF CONTROL. . . . . . . . . . . . 13 9.01 Change in Control. . . . . . . . . . . . . . . 13 X. GENERAL PROVISIONS. . . . . . . . . . . . . . . . . . 14 10.01 Other Benefit Plans. . . . . . . . . . . . . . 14 10.02 Termination of Participation; Interplan Transfer.. . . . . . . . . . . . . . . . . . . 14 10.03 Future Employment. . . . . . . . . . . . . . . 15 10.04 Headings.. . . . . . . . . . . . . . . . . . . 15 10.05 Gender and Number. . . . . . . . . . . . . . . 15 10.06 Governing Law. . . . . . . . . . . . . . . . . 15 10.07 Effective Date.. . . . . . . . . . . . . . . . 16 SIGNATURE. . . . . . . . . . . . . . . . . . . . . . . . . 16 ii NEW ENGLAND ELECTRIC COMPANIES' INCENTIVE COMPENSATION PLAN I ----------------------------- I. PURPOSE ------- The purpose of the Incentive Compensation Plan I (the Plan) is to achieve and maintain a high level of corporate performance by making it possible for those selected executives whose efforts and responsibilities have direct and major influence on corporate earnings to earn significant compensation rewards in proportion to (i) measured corporate performance and (ii) the individual executive's contribution. II. DEFINITIONS ----------- 2.01 Base Compensation means the compensation referred to in Section 6.01 and includes all salary, whether received or deferred. 2.02 Beneficial Owner shall have the meaning defined in Rule 13d-3 under the Exchange Act. 2.03 Board means the Board of Directors of New England Electric System. 2.04 Category A Participant means those Participants so designated by the Committee. 2.05 Category B Participant means those Participants so designated by the Committee. 2.06 Category C Participants means all Participants not designated either Category A or Category B Participants. 2.07 Change in Control occurs when the conditions set forth in either of the following paragraphs shall have been satisfied: (i) any Person is or becomes the Beneficial Owner, directly or indirectly, of securities of New England Electric System (not including in the securities beneficially owned by such Person any securities acquired directly from New England Electric System or its affiliates) representing 20% or more of the combined voting power of New England Electric System's then outstanding securities; or (ii) during any period of not more than two consecutive years after January 1, 1995, individuals who at the beginning of such period constitute the Board and any new director (other than a director designated by a Person who has entered into an agreement with New England Electric System to effect a transaction described in clause (i) of this paragraph) whose election by the Board or nomination for election by New England Electric System's shareholders was approved or recommended by a vote of at least two-thirds of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved or recommended, cease for any reason to constitute a majority of the Board. 2.08 Committee means the Compensation Committee of the Board. 2.09 Continuing Directors means, as of the date of determination, any director who was a member of the Board on January 1, 1990, or who was recommended for his initial term of office by a majority of the Continuing Directors in office at the time of such recommendation, but excludes any director who, together with his affiliates, is the beneficial owner of 20% or more of the outstanding Shares (excluding securities beneficially owned by reason of being a trustee of any employee benefit plan of the System). 2.10 Corporate Targets means the same return on common equity targets and cents per kilowatthour targets found in Article IV of the Senior Incentive Compensation Plan for the Plan Year. 2.11 Fund means the fund established each year as provided in Section 8.01. 2.12 Incentive Compensation means the award made from the Fund to each Participant in accordance with Section 7.01. 2.13 Low Return Target means the same low equity return target provided in the Senior Incentive Compensation Plan for the Plan Year. 2.14 A Major Transaction shall be deemed to have occurred if the conditions set forth in any one of the following paragraphs shall have been satisfied: (a) the shareholders of New England Electric System approve a merger or consolidation with any corporation or business trust, other than (i) a merger or consolidation which would result in the individuals who prior to such merger or consolidation constitute the Board constituting at least two-thirds of the board of directors of New England Electric System or the surviving or succeeding entity immediately after such merger or consolidation, or (ii) a merger or consolidation effected to implement a recapitalization (or similar trasaction) in which no Person acquires more than 20% of the combined voting power of New England Electric System's then outstanding securities; (b) the shareholders of New England Electric System approve a plan of complete liquidation thereof; or (c) the shareholder of New England Electric System approve an agreement for the sale or disposition of all or substantially all of New England Electric System's assets, other than a sale or disposition which would result in the individuals who prior to such sale or disposition constitute the Board constituting at least two-thirds of the board of directors of the Person purchasing such assets immediately after such sale or disposition. 2.15 Management Committee means the Chief Executive Officer of New England Electric System and one or more other New England Electric System officers as appointed by the Committee. 2.16 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. 2.17 Participant means an individual who has been selected, in accordance with Section 4.01, or an equivalent prior provision, to be a participant in the Plan. 2.18 Person shall have the meaning given in Section 3(a)(9) of the Exchange Act, as modified and used in Sections 13(d) and 14(d) thereof; however, a Person shall not include (i) New England Electric System or any subsidiary thereof, (ii) a trustee or other fiduciary holding securities under an employee benefit plan of New England Electric System or any subsidiary thereof, (iii) an underwriter temporarily holding securities pursuant to an offering of such securities, or (iv) a corporation owned, directly or indirectly, by the shareholders of New England Electric System in substantially the same proportions as their ownership of shares of New England Electric System. 2.19 Plan Year means a calendar year. 2.20 Senior Incentive Compensation Plan means New England Electric Companies' Senior Incentive Compensation Plan, as amended from time to time. III. ADMINISTRATION -------------- 3.01 Administration and Interpretation. The Plan shall be administered by the Committee, and interpretations of the Plan by the Committee shall be final and binding on all parties. 3.02 Amendment and Termination. The Committee may amend or terminate the Plan at any time; provided, however, that no such action shall affect any right or obligation with respect to any award of Incentive Compensation previously granted; and provided, further, the provisions of Article IX and Sections 2.06 and 2.08 may not be amended without the written consent of any Participant affected. 3.03 Salary Approvals. The Committee will approve all salary changes for individual Participants. Where required, such changes must also receive the approval of the board of directors of a subsidiary company. 3.04 No Segregation of Assets; No Assignment. New England Electric System is not required to set aside or segregate any assets of any kind to meet obligations under this Plan. A Participant has no rights under this Plan to any specific assets of New England Electric System. A Participant may not commute, sell, assign, transfer, or otherwise convey the right to receive any payments under this Plan, which payments and the right thereto shall be, to the fullest extent permitted by law, nonassignable and nontransferable, whether voluntarily or involuntarily. 3.05 Accounting. The Manager of Internal Audits and the Controller will be responsible to the Committee for accounting matters directly affecting the Plan. IV. PARTICIPATION ------------- 4.01 Selection. It is anticipated (but not binding) that the Committee shall select, by December 1 of each year, the Participants for the following year. 4.02 Notification. The Management Committee shall notify those Participants who have been included in the Plan for the following year and those who have been dropped from the Plan. 4.03 Goals. Individual goals for each Participant will be made each Plan Year. Participants will be advised of the goals prior to the Plan Year for which they apply. V. PARTICIPANTS' COMPENSATION -------------------------- 5.01 Base Compensation and Incentive Compensation. The compensation for each Participant will consist of two parts: Base Compensation and Incentive Compensation. VI. BASE COMPENSATION ----------------- 6.01 Determination. A Participant's performance will be evaluated and his/her compensation, including any merit or promotional increase, will be set in accordance with the New England Electric Salary Management Program. A Participant's Base Compensation may be set anywhere within the salary range. VII. INCENTIVE COMPENSATION ---------------------- 7.01 Incentive Compensation Amounts. When the books are closed at the end of a Plan Year and the amount of the Fund for that year is determined in accordance with Article VIII, the Management Committee will make recommendations to the Committee for amounts of money from the Fund to be awarded to each Participant. The Committee will act on the recommendations and the money will be distributed to the Participants based upon the Committee's determination by the end of March following the Plan Year. 7.02 Criteria for Determining Incentive Compensation. Each Participant's award shall be governed, first, by the degree of success achieved by the Participant in reaching his/her individual goals established prior to the Plan Year. The money remaining in the Fund will be allocated among all the Participants based upon their total individual performances during the Plan Year. 7.03 Notification of Award. The Management Committee shall be responsible for seeing that each Participant is told the basis for the amount of his/her Incentive Compensation. 7.04 Cooperation of Others. To achieve any of the established goals will require the close cooperation of all the Participants. If the Committee feel in any instance that lack of such cooperation by others is making it difficult for a Participant to achieve his/her individual goals, the dollars not paid to this Participant will not be distributed to the other members of the Plan. Otherwise, all money in the Fund will be distributed. VIII. INCENTIVE COMPENSATION FUND ------------------------------- 8.01 Calculation. The Fund for the Plan will be based on the sum of the percentages for the Corporate Targets reached multiplied by the sum of all Participants' Base Compensation, namely: Return on Common Equity - Target A 17.5% Return on Common Equity - Target B 8% Return on Common Equity - Target C 17.5% Return on Common Equity - Target D 8% Cents Per Kilowatthour - Target A 10% Cents Per Kilowatthour - Target B 5% 8.02 Scaling. Results will be scaled using straight line interpolation between the Return on Common Equity Targets A and B and between Return on Common Equity Targets C and D. In determining whether the Return on Common Equity Targets are met, the Committee may enhance or curtail the actual return on equity in response to extraordinary events or other factors relevant to performance of New England Electric System companies. 8.03 Minimum Performance Requirement. If the Low Return Target is not achieved, there will be no Incentive Compensation for the Plan Year. IX. PAYMENT UPON CHANGE OF CONTROL ------------------------------ 9.01 Change in Control. In the event of a Change in Control or Major Transaction, each Participant will receive, within 30 days, a cash payment equal to the average of the bonus percentages for this Plan for the last three years prior to the Change in Control or Major Transaction times the Participant's annualized Base Compensation. If the Change in Control or Major Transaction occurs prior to the determination and payment of the Incentive Compensation for the prior Plan Year, the Participant will also receive within 30 days a cash payment equal to said percentage times the Participant's Base Compensation received in the prior Plan Year; provided, however, if it is determined that the Fund percentage calculated in accordance with Sections 8.01 and 8.02 for said prior Plan Year would have been greater, such higher percentage will be used. No further benefits will be payable from this Plan. X. GENERAL PROVISIONS ------------------ 10.01 Other Benefit Plans. A Participant's Incentive Compensation will not be used in determining the Participant's benefits under any group insurance plan or any incentive program other than New England Electric Companies' Incentive Share Plan. 10.02 Termination of Participation; Interplan Transfer. If, for any reason, a Participant should cease to be actively employed by a subsidiary of New England Electric System prior to July 1 of a Plan Year, that person will not be deemed a Participant for that year unless the Management Committee determines there are extraordinary circumstances which justify inclusion. A Participant who ceases to be so actively employed during the last six months of a Plan Year will be deemed a Participant for that year on a proportional basis. The Management Committee will also determine the extent, if any, of participation by the person replacing a Participant. If a Participant becomes a participant in another incentive compensation plan during the Plan Year, the Participant will be deemed to be a Participant for that year on a proportional basis in each of the Plans, respectively. 10.03 Future Employment. Neither the Plan nor the making of awards hereunder shall be construed to create any obligation to continue the Plan or to give any present or future employee any right to continued employment. 10.04 Headings. The headings of articles and sections of the Plan are for convenience of reference only. 10.05 Gender and Number. Unless the context requires otherwise, the singular shall include the plural; the masculine gender shall include the feminine; and such words as "herein", "hereinafter", "hereof", and "hereunder" shall refer to this instrument as a whole and not merely to the subdivisions in which such words appear. 10.06 Governing Law. Except as otherwise required by law, the Plan and all matters arising thereunder shall be governed by the laws of The Commonwealth of Massachusetts. 10.07 Effective Date. This Amendment shall be effective January 1, 1995. s/George M. Sage SIGNATURE ____________________________ Pursuant to Vote dated October 24, 1995, of the Compensation Committee EX-10 13 NEES EXHIBIT 10(S) Exhibit 10(s) NEW ENGLAND ELECTRIC COMPANIES' INCENTIVE COMPENSATION PLAN III Adopted - November 29, 1988 Amended - May 23, 1990 Amended - December 1, 1991 Amended - January 1, 1994 Amended - March 1, 1994 Amended - January 1, 1995 Amended - January 1, 1996 TABLE OF CONTENTS ----------------- Page ---- I. PURPOSE. . . . . . . . . . . . . . . . . . . . . . . . .1 II. DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . .1 2.01 Base Compensation . . . . . . . . . . . . . . . .1 2.02 Beneficial Owner. . . . . . . . . . . . . . . . .1 2.03 Board . . . . . . . . . . . . . . . . . . . . . .1 2.04 Change in Control . . . . . . . . . . . . . . . .1 2.05 Continuing Directors. . . . . . . . . . . . . . .5 2.06 Corporate Targets . . . . . . . . . . . . . . . .5 2.07 Fund. . . . . . . . . . . . . . . . . . . . . . .5 2.08 Incentive Compensation. . . . . . . . . . . . . .5 2.09 Low Return Target . . . . . . . . . . . . . . . .6 2.10 A Major Transaction . . . . . . . . . . . . . . .6 2.11 Management Committee. . . . . . . . . . . . . . .7 2.12 New England Electric System . . . . . . . . . . .7 2.13 Participant . . . . . . . . . . . . . . . . . . .8 2.14 Person. . . . . . . . . . . . . . . . . . . . . .8 2.15 Plan Year . . . . . . . . . . . . . . . . . . . .8 2.16 SBU . . . . . . . . . . . . . . . . . . . . . . .8 2.17 SBU Head. . . . . . . . . . . . . . . . . . . . .8 2.18 Senior Incentive Compensation Plan. . . . . . . .9 III. ADMINISTRATION. . . . . . . . . . . . . . . . . . . . .9 3.01 Administration and Interpretation.. . . . . . . .9 3.02 Amendment or Termination. . . . . . . . . . . . .9 3.03 No Segregation of Assets; No Assignment.. . . . .9 3.04 Participant List. . . . . . . . . . . . . . . . 10 3.05 Accounting. . . . . . . . . . . . . . . . . . . 10 IV. PARTICIPATION. . . . . . . . . . . . . . . . . . . . . 10 4.01 Selection.. . . . . . . . . . . . . . . . . . . 10 4.02 Notification. . . . . . . . . . . . . . . . . . 10 4.03 Goals.. . . . . . . . . . . . . . . . . . . . . 10 V. PARTICIPANTS' COMPENSATION . . . . . . . . . . . . . . 11 5.01 Base Compensation and Incentive Compensation. . 11 VI. BASE COMPENSATION. . . . . . . . . . . . . . . . . . . 11 6.01 Performance Evaluation. . . . . . . . . . . . . 11 VII. INCENTIVE COMPENSATION. . . . . . . . . . . . . . . . 11 7.01 Incentive Compensation Amounts. . . . . . . . . 11 7.02 Criteria for Determining Incentive Compensation. . . . . . . . . . . . . . . . . . 12 7.03 Notification of Award.. . . . . . . . . . . . . 12 7.04 Cooperation of Others.. . . . . . . . . . . . . 12 VIII. INCENTIVE COMPENSATION FUND . . . . . . . . . . 12 8.01 Calculation.. . . . . . . . . . . . . . . . . . 12 8.02 Scaling.. . . . . . . . . . . . . . . . . . . . 13 8.03 Minimum Performance Requirement.. . . . . . . . 13 IX. PAYMENT UPON CHANGE OF CONTROL . . . . . . . . . . . . 14 9.01 Change of Control.. . . . . . . . . . . . . . . 14 X. GENERAL PROVISIONS . . . . . . . . . . . . . . . . . . 14 10.01 Other Benefit Plans.. . . . . . . . . . . . . . 14 10.02 Termination of Participation; Interplan Transfer. . . . . . . . . . . . . . . 15 10.03 Future Employment.. . . . . . . . . . . . . . . 15 10.04 Headings. . . . . . . . . . . . . . . . . . . . 15 10.05 Gender and Number.. . . . . . . . . . . . . . . 15 10.06 Governing Law.. . . . . . . . . . . . . . . . . 16 10.07 Effective Date. . . . . . . . . . . . . . . . . 16 SIGNATURE NEW ENGLAND ELECTRIC COMPANIES' INCENTIVE COMPENSATION PLAN III ------------------------------- I. PURPOSE ------- The purpose of this Incentive Compensation Plan III (the Plan) is to achieve and maintain a high level of corporate performance by making it possible for executives whose efforts and responsibilities have an influence on corporate earnings to earn compensation rewards in proportion to (i) measured corporate performance and (ii) the individual executive's contribution. II. DEFINITIONS ----------- 2.01 Base Compensation means the compensation referred to in Section 6.01. 2.02 Beneficial Owner shall have the meaning defined in Rule 13d-3 under the Exchange Act. 2.03 Board means the Board of Directors of New England Electric System. 2.04 Change in Control occurs when: (a) Through March 15, 1995: (i) any person, firm, corporation, organization, or association of persons or organizations acting in concert (excluding any qualified employee benefit plan of the System) acquires more than 20% of the outstanding Shares, whether in whole or in part, by means of an offer made publicly to the holders of all or substantially all of the outstanding Shares to acquire Shares for cash, other property, or a combination thereof or by any other means, unless the transaction is consented to by vote of a majority of the Continuing Directors; (ii) New England Electric System transfers all or a substantial part of its assets to another person, firm, corporation, organization, or association of persons or organizations acting in concert (excluding a subsidiary controlled by New England Electric System itself), unless the transaction is consented to by vote of a majority of the Continuing Directors; (iii) New England Electric System consolidates or merges with or into any person, firm, corporation, organization, or association of persons or organizations, unless the transaction is consented to by vote of a majority of the Continuing Directors; or (iv) during any period of 24 consecutive months, individuals who at the beginning of such 24-month period were directors of New England Electric System shall cease to constitute a majority of the Board, unless (a) the remaining directors who were directors at the beginning of such period, and (b) any other directors whose election was approved in advance by directors representing a majority of the directors then in office who were directors at the beginning of such period constitute a majority of the Board; and (b) After January 1, 1995, the conditions set forth in either of the following paragraphs shall have been satisfied: (i) any Person is or becomes the Beneficial Owner, directly or indirectly, of securities of New England Electric System (not including in the securities beneficially owned by such Person any securities acquired directly from New England Electric System or its affiliates) representing 20% or more of the combined voting power of New England Electric System's then outstanding securities; or (ii) during any period of not more than two consecutive years on or after January 1, 1995, individuals who at the beginning of such period constitute the Board and any new director (other than a director designated by a Person who has entered into an agreement with New England Electric System to effect a transaction described in clause (i) of this paragraph) whose election by the Board or nomination for election by New England Electric System's shareholders was approved or recommended by a vote of at least two-thirds of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved or recommended cease for any reason to constitute a majority of the Board. 2.05 Continuing Directors means, as of the date of determination, any director who was a member of the Board on January 1, 1990, or who was recommended for his initial term of office by a majority of the Continuing Directors in office at the time of such recommendation, but excludes any director who, together with his affiliates, is the beneficial owner of 20% or more of the outstanding Shares (excluding securities beneficially owned by reason of being a trustee of any employee benefit plan of the System). 2.06 Corporate Targets means the same return on common equity targets and cents per kilowatthour targets found in Article IV of the Senior Incentive Compensation Plan for the Plan Year. 2.07 Fund means the fund established for each SBU for each year as provided in Section 8.01. 2.08 Incentive Compensation means the award made from the Fund to each Participant in accordance with Section 7.01. 2.09 Low Return Target means the same low equity return target provided in the Senior Incentive Compensation Plan for the Plan Year. 2.10 A Major Transaction shall be deemed to have occurred if the conditions set forth in any one of the following paragraphs shall have been satisfied: (a) the shareholders of New England Electric System approve a merger or consolidation with any corporation or business trust, other than (i) a merger or consolidation which would result in the individuals who prior to such merger or consolidation constitute the Board constituting at least two-thirds of the board of directors of New England Electric System or the surviving or succeeding entity immediately after such merger or consolidation, or (ii) a merger or consolidation effected to implement a recapitalization (or similar trasaction) in which no Person acquires more than 20% of the combined voting power of New England Electric System's then outstanding securities; (b) the shareholders of New England Electric System approve a plan of complete liquidation thereof; or (c) the shareholder of New England Electric System approve an agreement for the sale or disposition of all or substantially all of New England Electric System's assets, other than a sale or disposition which would result in the individuals who prior to such sale or disposition constitute the Board constituting at least two-thirds of the board of directors of the Person purchasing such assets immediately after such sale or disposition. 2.11 Management Committee means the Management Committee established in accordance with the New England Electric System Companies' Incentive Compensation Plan I. 2.12 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. 2.13 Participant means an individual who has been selected, in accordance with Section 4.01, or an equivalent prior provision, to be a participant in the Plan. 2.14 Person shall have the meaning given in Section 3(a)(9) of the Exchange Act, as modified and used in Sections 13(d) and 14(d) thereof; however, a Person shall not include (i) New England Electric System or any subsidiary thereof, (ii) a trustee or other fiduciary holding securities under an employee benefit plan of New England Electric System or any subsidiary thereof, (iii) an underwriter temporarily holding securities pursuant to an offering of such securities, or (iv) a corporation owned, directly or indirectly, by the shareholders of New England Electric System in substantially the same proportions as their ownership of shares of New England Electric System. 2.15 Plan Year means a calendar year. 2.16 SBU means the business unit (administrative services, retail business, or wholesale business) in which the Participant is employed. If the Participant joins a different SBU during the Plan Year, the Participant's service will be allocated on a proportional basis to each of said SBUs. 2.17 SBU Head means the New England Electric System Vice President responsible for the SBU. 2.18 Senior Incentive Compensation Plan means New England Electric Companies' Senior Incentive Compensation Plan, as amended from time to time. III. ADMINISTRATION -------------- 3.01 Administration and Interpretation. The Plan shall be administered by the Management Committee, and interpretations of the Plan by the Management Committee shall be final and binding by all parties. 3.02 Amendment or Termination. The Management Committee may amend or terminate the Plan at any time; provided, however, that no such action shall affect any right or obligation with respect to any Incentive Compensation previously granted; and provided, further, the provisions of Article IX and Sections 2.04 and 2.05 may not be amended without the written consent of any Participant affected. 3.03 No Segregation of Assets; No Assignment. New England Electric System is not required to set aside or segregate any assets of any kind to meet obligations under this Plan. A Participant has no rights under this Plan to any specific assets of New England Electric System. A Participant may not commute, sell, assign, transfer, or otherwise convey the right to receive any payments under this Plan, which payments and the right thereto shall be, to the fullest extent permited by law, nonassignable and nontransferable, whether voluntarily or involuntarily. 3.04 Participant List. The Management Committee shall be responsible for maintaining an up-to-date list of the Participants in the Plan. 3.05 Accounting. The Manager of Internal Audits and the Controller will be responsible to the Management Committee for accounting matters directly affecting the Plan. IV. PARTICIPATION ------------- 4.01 Selection. The participants in the Plan will be selected by the Management Committee. 4.02 Notification. It is anticipated (but not binding) that the Management Committee shall notify by December 1 of each year those executives who for the following year have been included in the Plan and those that may be subsequently dropped from the Plan. 4.03 Goals. The SBU Head, or his or her designees, shall establish individual goals for each Participant for each Plan Year and shall advise each Participant what goals have been so established. V. PARTICIPANTS' COMPENSATION -------------------------- 5.01 Base Compensation and Incentive Compensation. The compensation for each Participant will consist of two parts: Base Compensation and Incentive Compensation. VI. BASE COMPENSATION ----------------- 6.01 Performance Evaluation. A Participant's performance will be evaluated and his/her compensation, including any merit or promotional increase, will be set in accordance with the New England Electric Salary Management Program. A Participant's Base Compensation may be set anywhere within the salary range. VII. INCENTIVE COMPENSATION ---------------------- 7.01 Incentive Compensation Amounts. When the books are closed at the end of a Plan Year and the amount of the Fund for that year is determined in accordance with Article VIII, the SBU Head will recommend to the Management Committee and the Management Committee will determine the appropriate amount to be awarded each Participant, and this money will be distributed to the Participants by the end of March following the Plan Year. 7.02 Criteria for Determining Incentive Compensation. In arriving at each Participant's Incentive Compensation, the SBU Head and the Management Committee shall be governed by the degree of success achieved by the Participant in reaching his/her individual goals which were established prior to the Plan Year. Their decision will be binding. The money remaining in the Fund will be allocated among all the Participants based upon their total individual performances during the Plan Year. 7.03 Notification of Award. The SBU Head shall be responsible for seeing that each Participant is told the basis for the size of his/her Incentive Compensation. 7.04 Cooperation of Others. To achieve any of the established goals will require the close cooperation of all the Participants. If the SBU Head or the Management Committee feels in any instance that lack of such cooperation by others is making it difficult for a Participant to achieve his/her individual goals, the dollars not paid to this Participant will not be distributed to the other members of the Plan. Otherwise, all money in the Fund will be distributed. VIII. INCENTIVE COMPENSATION FUND --------------------------- 8.01 Calculation. The Fund for each SBU Plan will be based on the sum of the percentages for the Corporate Targets reached multiplied by the sum of the Base Compensation for all Participants in that SBU, namely: Return on Common Equity - Target A 6% Return on Common Equity - Target B 2 1/2% Return on Common Equity - Target C 6% Return on Common Equity - Target D 2 1/2% Cents Per Kilowatthour - Target A 3% Cents Per Kilowatthour - Target B 2% 8.02 Scaling. Results will be scaled using straight line interpolation between the Return on Common Equity Targets A and B and between Return on Common Equity Targets C and D. In determining whether the Return on Common Equity Targets are met, the Management Committee may enhance or curtail the actual return on equity in response to extraordinary events or other factors relevant to performance of New England Electric System companies. 8.03 Minimum Performance Requirement. If the Low Return Target is not achieved, there will be no Incentive Compensation for the Plan Year. IX. PAYMENT UPON CHANGE OF CONTROL ------------------------------ 9.01 Change of Control. In the event of a Change in Control or Major Transaction, each Participant will receive, within 30 days, a cash payment equal to the average of the bonus percentages for the last three years (or, if less than three years, the number of full calendar years since December 31, 1995) for this Plan prior to the Change in Control or Major Transaction times the Participant's Base Compensation. If the Change in Control or Major Transaction occurs prior to the determination and payment of the Incentive Compensation for the prior Plan Year, the Participant will also receive within 30 days a cash payment equal to said percentage times the Participant's Base Compensation received in the prior Plan Year; provided, however, if it is determind that the Fund percentage calculated in accordance with Sections 8.01 and 8.02 for said prior Plan Year would have been greater, such higher percentage will be used. No further benefits will be payable from this Plan. X. GENERAL PROVISIONS ------------------ 10.01 Other Benefit Plans. A Participant's Incentive Compensation will not be used in determining a Participant's benefits under any group insurance plan or any incentive program other than New England Electric Companies' Incentive Share Plan. 10.02 Termination of Participation; Interplan Transfer. If, for any reason, a Participant should cease to be actively employed by a subsidiary of New England Electric System prior to July 1 of a Plan Year, that person will not be deemed a Participant for that year unless the SBU Head determines there are extraordinary circumstances which justify inclusion. A Participant who ceases to be so actively employed during the last six months of a Plan year will be deemed a Participant for that year on a proportional basis. The SBU Head will also determine the extent, if any, of participation by the person replacing a Participant. If a Participant becomes a participant in another incentive compensation plan during the Plan Year, the Participant will be deemed to be a Participant for that year on a proportional basis in each of the Plans, respectively. 10.03 Future Employment. Neither the Plan nor the making of awards hereunder shall be construed to create any obligation to continue the Plan or to give any present or future employee any right to continued employment. 10.04 Headings. The headings of articles and sections of the Plan are for convenience of reference only. 10.05 Gender and Number. Unless the context requires otherwise, the singular shall include the plural; the masculine gender shall include the feminine; and such words as "herein," "hereinafter," "hereof," and "hereunder" shall refer to this instrument as a whole and not merely to the subdivisions in which such words appear. 10.06 Governing Law. Except as otherwise required by law, the Plan and all matters arising thereunder shall be governed by the laws of The Commonwealth of Massachusetts. 10.07 Effective Date. This Amendment shall be effective January 1, 1996. s/John W. Rowe Date: J.W. Rowe s/J.T. Bok Date: April 20, 1995 J.T. Bok The Management Committee In accordance with votes of the New England Electric System Compensation Committee of October 24, 1995 EX-10 14 NEES EXHIBIT 10(U) Exhibit 10(u) NEW ENGLAND ELECTRIC SYSTEM DIRECTORS DEFERRED COMPENSATION PLAN May 13, 1985 Amended June 21, 1985 Amended November 25, 1986 Amended November 24, 1992 Amended May 20, 1996 Amended December 1, 1996 TABLE OF CONTENTS ----------------- Page ---- I. EFFECT. . . . . . . . . . . . . . . . . . . . . . . . . . .1 II. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . .1 2.01 Actuarial Value . . . . . . . . . . . . . . . . . .2 2.02 Beneficial Owner. . . . . . . . . . . . . . . . . .2 2.03 Beneficiary . . . . . . . . . . . . . . . . . . . .2 2.04 Benefits Committee. . . . . . . . . . . . . . . . .2 2.05 Board . . . . . . . . . . . . . . . . . . . . . . .2 2.06 Cash Account. . . . . . . . . . . . . . . . . . . .3 2.07 Cash Account Balance. . . . . . . . . . . . . . . .3 2.08 Change in Control . . . . . . . . . . . . . . . . .3 2.09 Company . . . . . . . . . . . . . . . . . . . . . .4 2.10 Compensation. . . . . . . . . . . . . . . . . . . .4 2.11 Compensation Committee. . . . . . . . . . . . . . .5 2.12 Deferred Compensation . . . . . . . . . . . . . . .5 2.13 Deferred Compensation Account . . . . . . . . . . .5 2.14 Deferral Unit . . . . . . . . . . . . . . . . . . .5 2.15 Disability. . . . . . . . . . . . . . . . . . . . .5 2.16 Dividend. . . . . . . . . . . . . . . . . . . . . .5 2.17 Dividend Reinvestment Plan. . . . . . . . . . . . .6 2.18 Election Period . . . . . . . . . . . . . . . . . .6 2.19 Interest. . . . . . . . . . . . . . . . . . . . . .6 2.20 A Major Transaction . . . . . . . . . . . . . . . .6 2.21 New England Electric System . . . . . . . . . . . .8 2.22 Other Plans . . . . . . . . . . . . . . . . . . . .8 2.23 Participant . . . . . . . . . . . . . . . . . . . .9 2.24 Person. . . . . . . . . . . . . . . . . . . . . . .9 2.25 Plan Year . . . . . . . . . . . . . . . . . . . . .9 2.26 Qualified Plan. . . . . . . . . . . . . . . . . . .9 2.27 Retainer Shares . . . . . . . . . . . . . . . . . .9 2.28 Retirement. . . . . . . . . . . . . . . . . . . . 10 2.29 Shares. . . . . . . . . . . . . . . . . . . . . . 10 2.30 Share Account . . . . . . . . . . . . . . . . . . 10 2.31 Share Account Balance . . . . . . . . . . . . . . 11 2.32 Share Price . . . . . . . . . . . . . . . . . . . 11 2.33 Subsidiary. . . . . . . . . . . . . . . . . . . . 12 III. ADMINISTRATION . . . . . . . . . . . . . . . . . . . . . 12 3.01 Benefits Committee. . . . . . . . . . . . . . . . 12 3.02 Liability for Acts. . . . . . . . . . . . . . . . 12 3.03 Minors, Etc.. . . . . . . . . . . . . . . . . . . 13 3.04 Proof.. . . . . . . . . . . . . . . . . . . . . . 13 3.05 Denied Claim. . . . . . . . . . . . . . . . . . . 14 IV. OPERATION OF THE PLAN . . . . . . . . . . . . . . . . . . 15 4.01 Deferral Election.. . . . . . . . . . . . . . . . 15 4.02 Time of Election. . . . . . . . . . . . . . . . . 16 4.03 Deferred Compensation Accounts. . . . . . . . . . 17 A. Cash Account . . . . . . . . . . . . . . . 18 B. Share Account. . . . . . . . . . . . . . . 18 4.04 Payment of Balances . . . . . . . . . . . . . . . 19 A. Election of Time of Payment. . . . . . . . 19 B. Payments After Ten Years . . . . . . . . . 19 C. Payments at Retirement . . . . . . . . . . 19 D. Hardship Payments. . . . . . . . . . . . . 20 E. Dissolution of Company; A Major Transaction; Change in Control . . . . . . 21 F. Death or Disability. . . . . . . . . . . . 22 G. Form of Payments . . . . . . . . . . . . . 22 H. Distributed Shares . . . . . . . . . . . . 23 I. Taxes. . . . . . . . . . . . . . . . . . . 25 4.05 No Segregation of Assets. . . . . . . . . . . . . 25 4.06 Failure of Payments . . . . . . . . . . . . . . . 26 V. AMENDMENT OR TERMINATION. . . . . . . . . . . . . . . . . 27 5.01 Right to Amend and Terminate. . . . . . . . . . . 27 VI. GENERAL PROVISIONS. . . . . . . . . . . . . . . . . . . . 28 6.01 Nonalienation of Benefits.. . . . . . . . . . . . 28 6.02 Effectuation of Interest. . . . . . . . . . . . . 28 6.03 Copy of Plan. . . . . . . . . . . . . . . . . . . 28 6.04 Headings. . . . . . . . . . . . . . . . . . . . . 29 6.05 Gender and Number.. . . . . . . . . . . . . . . . 29 6.06 Separability. . . . . . . . . . . . . . . . . . . 29 6.07 Applicability.. . . . . . . . . . . . . . . . . . 30 6.08 Governing Law.. . . . . . . . . . . . . . . . . . 30 6.09 Effective Date. . . . . . . . . . . . . . . . . . 30 SIGNATURE. . . . . . . . . . . . . . . . . . . . . . . . . . . 30 ii NEW ENGLAND ELECTRIC SYSTEM DIRECTORS DEFERRED COMPENSATION PLAN ------------------------------------ I. EFFECT ------ The Directors Deferred Compensation Plan was first executed in May of 1985. This instrument constitutes an amendment and restatement of the Plan. The Plan was further amended as of May 20, 1996, in order to provide additional flexibility and to encourage additional share equivalent ownership by Directors. The Plan is being further amended as of December 1, 1996, in order to permit participation by Directors of Subsidiaries. All rights to Deferred Compensation of Participants shall be determined exclusively by the provisions of this instrument. Deferrals made under previous versions of the Plan and under individual deferral agreements will provide benefits under, and are controlled by, the terms of such versions, except that Subsection 4.04(F) will be controlling in the event of a Change of Control or a Major Transaction. Any deferral elections in effect shall continue through December 31, 1996. II. DEFINITIONS ----------- 2.01 Actuarial Value will be established using the most recent assumptions established by the Benefits Committee for the Qualified Plan. 2.02 Beneficial Owner shall have the meaning defined in Rule 13d-3 under the Exchange Act. 2.03 Beneficiary means any person designated in writing by a Participant (which designation may be changed from time to time) to receive benefits under the Plan payable upon death of the Participant. Unless otherwise designated, the Beneficiary will be the beneficiary under the Participant's Group Life Insurance enrollment and insurance provided by the Company or a subsidiary. If there is no designated Beneficiary alive when the Participant dies, the benefit shall be paid to the estate of the Participant. 2.04 Benefits Committee means the Benefits Committee established in accordance with the Qualified Plan. 2.05 Board means the Board of Directors of the New England Electric System. 2.06 Cash Account means the account established for a Participant in accordance with subsection 4.03(A) and the amounts in individual cash deferral agreements with directors of Subsidiaries executed prior to their being able to participate in the Plan. 2.07 Cash Account Balance means the amount deferred by the Participant in his or her Cash Account and Interest thereon, all as provided in Subsection 4.03(A), less any payments or reductions made in accordance with Section 4.04 or 4.06. 2.08 Change in Control occurs when the conditions set forth in either of the following paragraphs shall have been satisfied: (a) any Person is or becomes the Beneficial Owner, directly or indirectly, of securities of New England Electric System (not including in the securities beneficially owned by such Person any securities acquired directly from New England Electric System or its affiliates) representing 20% or more of the combined voting power of New England Electric System's then outstanding securities; or (b) during any period of not more than two consecutive years after January 1, 1995, individuals who at the beginning of such period constitute the Board and any new director (other than a director designated by a Person who has entered into an agreement with New England Electric System to effect a transaction described in clause (a) of this Section) whose election by the Board or nomination for election by New England Electric System's shareholders was approved or recommended by a vote of at least two- thirds of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved or recommended, cease for any reason to constitute a majority of the Board. 2.09 Company means the New England Electric System. 2.10 Compensation means (a) quarterly retainers for Board and committee service; (b) meeting fees for Board and committee service; and (c) Retainer Shares. 2.11 Compensation Committee means the Compensation Committee of the Board. 2.12 Deferred Compensation means the Compensation of a Participant deferred in accordance with the terms of this Plan. 2.13 Deferred Compensation Account means the special memorandum account established for a Participant on the books of the Company or Subsidiary pursuant to Section 4.03. 2.14 Deferral Unit means an investment unit established under prior provisions of the Plan. 2.15 Disability means a physical or mental condition of the Participant which, based on satisfactory medical evidence, is believed to be permanent and to render the Participant unfit to engage in an occupation for compensation or profit. 2.16 Dividend has the meaning set out in subsection 4.03(B). 2.17 Dividend Reinvestment Plan means the New England Electric System Dividend Reinvestment and Common Share Purchase Plan, as amended from time to time. 2.18 Election Period is the 365-day period following: (a) the mailing of the notice to the Participant of his or her eligibility to make an election due to a Change of Control or a Major Transaction, or (b) the date when the Participant is no longer a member of either the Board or the Board of Directors of a Subsidiary, as applicable. 2.19 Interest means the factor described in Subsection 4.03(A). 2.20 A Major Transaction shall be deemed to have occurred if the conditions set forth in any one of the following paragraphs shall have been satisfied: (a) the shareholders of New England Electric System approve a merger or consolidation with any corporation or business trust, other than (i) a merger or consolidation which would result in the individuals who prior to such merger or consolidation constitute the Board constituting at least two-thirds of the board of directors of New England Electric System or the surviving or succeeding entity immediately after such merger or consolidation, or (ii) a merger or consolidation effected to implement a recapitalization (or similar transaction) in which no Person acquires more than 20% of the combined voting power of New England Electric System's then outstanding securities; (b) the shareholders of New England Electric System approve a plan of complete liquidation thereof; or (c) the shareholder of New England Electric System approve an agreement for the sale or disposition of all or substantially all of New England Electric System's assets, other than a sale or disposition which would result in the individuals who prior to such sale or disposition constitute the Board constituting at least two-thirds of the board of directors of the Person purchasing such assets immediately after such sale or disposition. 2.21 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. 2.22 Other Plans means the New England Electric Companies' Executive Supplemental Retirement Plan, the New England Electric System Companies Retirement Supplement Plan, the New England Electric System Deferred Compensation Plan, New England Electric Companies' Senior Incentive Compensation Plan, New England Electric Companies' Incentive Compensation Plan I, New England Electric Companies' Incentive Compensation Plan II, New England Electric Companies' Incentive Compensation Plan III, or New England Electric Companies Long-term Performance Share Award Plan. 2.23 Participant means a Director of the Company or a Subsidiary who is not an employee of the Company or any of its affiliates and who has completed a participation agreement. 2.24 Person shall have the meaning given in Section 3(a)(9) of the Exchange Act, as modified and used in Sections 13(d) and 14(d) thereof; however, a Person shall not include (i) New England Electric System or any subsidiary thereof, (ii) a trustee or other fiduciary holding securities under an employee benefit plan of New England Electric System or any subsidiary thereof, (iii) an underwriter temporarily holding securities pursuant to an offering of such securities, or (iv) a corporation owned, directly or indirectly, by the shareholders of New England Electric System in substantially the same proportions as their ownership of shares of New England Electric System. 2.25 Plan Year means a calendar year. 2.26 Qualified Plan means the New England Electric System Companies' Final Average Pay Pension Plan I. 2.27 Retainer Shares means Shares paid as of each May for Board service and as of each August. 2.28 Retirement means the date on which a Participant commences receiving retirement income payments under this Plan. Such payment will normally commence on the first business day of the month after the later of the date on which the Participant reaches age 65 or the date when the Participant is no longer a member of either the Board or the Board of Directors of a Subsidiary; however, a Participant may, at any time on or after he or she has ceased to be a member of the Board of the Company or any Subsidiary, apply in writing to the Benefits Committee for approval of an earlier commencement. The decision whether to allow such earlier commencement shall be in the sole discretion of the Benefits Committee. Retirement under this Plan is not contingent upon retirement under the Qualified Plan or any other plan maintained by the Company or a Subsidiary. 2.29 Shares means common shares of New England Electric System. After a merger, consolidation, or other similar restructuring of New England Electric System, Shares shall mean the common shares of the new entity. 2.30 Share Account means the account established for a Participant in accordance with Subsection 4.03(B). 2.31 Share Account Balance means the amount deferred by the Participant in his or her Share Account and Dividends thereon, all as provided in Subsection 4.03(B), less any payments or reductions made in accordance with Sections 4.04 and 4.06. 2.32 Share Price for purchases shall be determined using as a proxy the price of Shares being acquired by the New England Electric System Dividend Reinvestment Plan during the time period when the Shares for this Plan would be acquired were this Plan a participant in that plan. The Share Price for Shares being liquidated shall be determined by using the price actually received by the Rabbi Trust on a sale of Shares related hereto or by using as a proxy the price received for those Shares sold by the Dividend Reinvestment Plan next following the date of determination. For a Change in Control or Major Transaction, the cash value of Shares will be established using the highest average of the high and low prices on the New York Stock Exchange Composite Transaction as reported in the Wall Street Journal for any five consecutive trading days in the 60 days preceding the Change in Control or Major Transaction. If there is no trading in the Shares on the New York Stock Exchange for a substantial amount of time during the five-day period, or if publication by The Wall Street Journal of reports of Share transactions for any day in the five-day period does not take place or is subject to reporting error, the value of Shares shall be determined by the Benefits Committee on the basis of such market quotations or other method as the Benefits Committee shall deem appropriate. 2.33 Subsidiary means Granite State Electric Company, Massachusetts Electric Company, or The Narragansett Electric Company. III. ADMINISTRATION --------------- 3.01 Benefits Committee. This Plan shall be administered by the Benefits Committee, and interpretations of the Plan by the Benefits Committee shall be final and binding on all parties. 3.02 Liability for Acts. Neither the Compensation Committee, the Benefits Committee, nor the Company, nor any Subsidiary nor the members, officers, directors, agents, or employees of any of the foregoing shall be liable for any error of omission or commission unless such error results from its, his, or her own gross negligence, willful misconduct, or lack of good faith; nor shall any such party be liable for any act of gross negligence, willful misconduct, or lack of good faith of any other such party. 3.03 Minors, Etc. If a minor, person declared incompetent, or person incapable of handling the disposition of his or her property is entitled to receive a benefit, make an application, or make an election hereunder, the Benefits Committee may direct that such benefits be paid to, or such application or election be made by, the guardian, legal representative, or person having the care and custody of such minor, incompetent, or incapable person. Any payment made, application allowed, or election implemented in accordance with this Section shall completely discharge the Plan, the Compensation Committee, the Benefits Committee, the Company, and each Subsidiary from all liability with respect thereto. 3.04 Proof. The Benefits Committee may require proof of the death, Disability, incompetency, minority, or incapacity of any Participant or Beneficiary, and of the right of a person to receive any benefit or make any application or election. 3.05 Denied Claim. The procedures when a claim under this Plan is denied by the Benefits Committee are as follows: (a) The Benefits Committee shall: (i) notify the claimant within a reasonable time of such denial, setting forth the specific reasons therefor; and (ii) afford the claimant a reasonable opportunity for a review of the decision. (b) The notice of such denial shall set forth, in addition to the specific reasons for the denial, the following: (i) identification of pertinent provisions of this Plan; (ii) such additional information as may be relevant to denial of claim; and (iii) an explanation of the claims review procedure; and advice that the claimant may request an opportunity to submit a statement of issues and comments. (c) Within sixty days following advice of denial of a claim, upon request made by the claimant, the Benefits Committee shall take appropriate steps to review its decision in light of any further information or comments submitted by the claimant. The Benefits Committee may hold a hearing at which the claimant may present the basis of any claim for review. (d) The Benefits Committee shall render a decision within a reasonable time (not in excess of 120 days) after the claimant's request for review and shall advise the claimant in writing of its decision, specifying the reasons and identifying the appropriate provisions of this Plan. (e) The Benefits Committee shall report to the Compensation Committee any denials of claims, requests for review, and actions taken in response to such requests. The Compensation Committee may review such denials and actions and may affirm, modify, or reverse same. IV. OPERATION OF THE PLAN --------------------- 4.01 Deferral Election. A Participant may elect to defer compensation as follows: A. A Participant may elect to defer any whole percentage of his or her quarterly retainer, including any committee retainer. B. A Participant may elect to defer any whole percentage of his or her meeting fees, including committee fees. C. A Participant may elect to defer all of his or her Retainer Shares. These elections are not exclusive and a Participant may elect one, or any combination thereof. 4.02 Time of Election. Elections for deferrals shall be made prior to commencement of the Plan Year in which the Compensation is to be earned. If an individual becomes a Participant during a Plan Year, he or she may, at the time, elect prior to receipt of the related Compensation to defer Compensation received or earned during that or a succeeding Plan Year. An election once made shall be effective for each succeeding year until a superseding election is made or until it is cancelled. Any superseding election shall be effective for each Plan Year subsequent to the year in which it was made. Each Participant qualifying for participation on April 30, 1996, may elect, prior to July 1, 1996, to make a 4.01 (A) or (B) deferral with respect to retainers and meeting fees for the last two quarters of 1996. 4.03 Deferred Compensation Accounts. Deferrals of cash retainers and meeting fees shall be allocated to either a Cash Account or a Share Account as selected by the Participant at the time he or she makes an election for the related deferral. Deferrals of Retainer Shares shall be allocated to a Share Account. Share values are to be determined by the Share Price on the date the cash or Shares would otherwise have been paid to the Participant. Once a deferral is allocated to the Cash or Share Account, it may not be reallocated; provided, however, prior to July 1, 1996, a Participant may reallocate his or her existing Cash Account Balance (other than that related to Deferral Units) or any portion thereof to a Share Account; and, provided further, that prior to February 1, 1997, a Participant may reallocate his or her existing Cash Balances relating to service with a Subsidiary, or any portion thereof, to a Share Account. A. Cash Account. The Cash Account for each Participant shall be credited with an amount of Deferred Compensation as of the date the equivalent cash payment would otherwise have been made. All Cash Accounts shall be increased by a factor (the Interest) as follows: As of the last day of each Plan Year, the Company shall credit to each such account interest on the balance in such account computed with regard to the amount of time during the Plan Year that such amount has been credited to such account. The rate of interest shall be the twelve-month average for the Plan Year of the monthly base rates on prime corporate loans at the principal office of The First National Bank of Boston in effect on the last day of each month. B. Share Account. The Share Account for each Participant shall be credited with an amount of Deferred Compensation as of the date the equivalent cash payment would otherwise have been made (at the Share Price on the next investment date) or Retainer Shares awarded to the Participant. Upon each declaration of cash dividends on Shares, the Participant's Share Account shall be increased by the number of Shares equivalent to the dividend declared on a Share (the Dividend) multiplied by the number of Shares credited to the Participant's Share Account on the date of record calculated as if the Shares in the Account had participated in the Dividend Reinvestment Plan. 4.04 Payment of Balances. A. Election of Time of Payment. At the time of electing to defer Compensation, in accordance with Subsection 4.01, the Participant shall also elect whether to receive payment after ten years or upon Retirement; and, if upon Retirement, whether in ten payments or a lump sum. B. Payments After Ten Years. If the Participant has elected payment after ten years, the full related Cash and Share Account Balances shall be paid as soon as practicable after the close of the tenth anniversary of the close of the related Plan Year. C. Payments at Retirement. If the Participant has elected payment at Retirement, the Participant's full Cash and Share Account Balances shall be paid either (i) in ten annual payments commencing at Retirement, or (ii) in a lump sum as soon as practicable after Retirement. D. Hardship Payments. Prior to a Participant's termination of Board service (or completion of a subsection 4.04 (C)(i) payment stream, if applicable), the Compensation Committee shall have the power and discretion to make a payment to such Participant from his or her Deferred Compensation Account at any time if the Compensation Committee determines that the Participant is suffering from a serious financial emergency resulting from circumstances beyond the Participant's control which would cause a hardship to the Participant unless such payment was made. Payments will be made first from the Cash Account, to the extent not in Deferral Units, secondly from the Share Account, and thirdly from Deferral Units. Benefits otherwise payable from a partially liquidated Deferral Unit shall then be actuarially adjusted, using the most recent assumptions established by the Benefits Committee for the Qualified Plan, for the payment made. No payments will be made on account of Deferral Units for which a split-dollar option has been elected under prior provisions of the Plan. Any such hardship payment will be in a lump sum and will not exceed the lesser of (i) the amount necessary to satisfy the hardship situation or (ii) the balance of the Participant's Deferred Compensation Accounts. E. Dissolution of Company; A Major Transaction; Change in Control. In the event of dissolution, liquidation, or winding up of the business of the Company or, if applicable, the Subsidiary, whether voluntary or involuntary, the Participant shall receive, at the time of such event, a lump sum payment equal to the balance in his Cash and Share Accounts and the Actuarial Value of the maximum value of future benefits from Deferral Units. A Participant may, at any time after either a Change in Control or a Major Transaction, and when the Participant has ceased to be a member of the Board or, if applicable, the Board of Directors of the Subsidiary, elect to receive, in lieu of any future benefits hereunder, a lump sum payment equal to the Cash Accounts and Share Accounts and the Actuarial Value of the maximum value of future benefits from Deferral Units, all less 10%. The Company or, if applicable, the Subsidiary shall as soon as possible after a Change in Control or Major Transaction advise the Participant of his rights under this paragraph. F. Death or Disability. In the event of the Participant's death, the full Cash and Share Account Balances shall be distributed to the Beneficiary as soon as practicable. At the request of the Participant following his Disability, the full Cash and Share Account Balances shall be distributed to the Participant as soon as practicable. G. Form of Payments. Except as provided herein, any distribution from a Cash Account will be in cash. Any distribution from a Share Account will be in the form of Shares; however, the Participant may elect, before the 30th day preceding the tenth anniversary or Retirement, as the case may be, to receive cash in lieu of Shares for any percentage up to 100% of said distribution. All distributions on account of Hardship, death, Disability, dissolution, Change in Control, Major Transaction, or failure of payments shall be in cash. H. Distributed Shares. The date of determination for the Share Price of Shares distributed or converted hereunder shall be: (i) for payments under 4.04(B), December 31 of the concluding year; (ii) for payments under 4.04(C)(i), the last day of the month prior to the payment; (iii) for payments under 4.04(C)(ii), the last day of the month following Retirement; (iv) for payments under 4.04(D), the last trading date of the month prior to the month in which the Compensation Committee authorizes the distribution; (v) for payments under the first paragraph of 4.04(E), the last trading date of the month preceding the triggering event; (vi) for payments under the second paragraph of 4.04(E), the highest average of the high and low prices on the New York Stock Exchange Composite Transaction as reported in the Wall Street Journal for any five consecutive trading days in the 60 days preceding the Change in Control or Major Transaction (if there is no trading in the Shares on the New York Stock Exchange for a substantial amount of time during the five-day period, or if publication by the Wall Street Journal of reports of Share transactions for any day in the five-day period does not take place or is subject to reporting error, the value of Shares shall be determined by the Benefits Committee on the basis of such market quotations or other method as the Benefits Committee shall deem appropriate); (vii) for payments under 4.04(F), the last day of the month following the triggering event; (viii) for elections made during an election period other than under the second paragraph of 4.04(F), the last day of the month following filing of the election with the Company; and (ix) for payments made under 4.06, the last day of the month preceding the triggering event. Shares to be distributed shall be purchased by the Company or the Subsidiary on the open market, unless an officer of the Company determines otherwise; provided, however, if the Company or Subsidiary has placed an appropriate number of Shares in the Rabbi Trust for the benefit of the Participant, the Company or Subsidiary may satisfy the requirement by distribution of said Shares. I. Taxes. If a distribution is to be made solely in Shares, the Company or the Subsidiary may withhold from such distribution an amount equal to its withholding obligations under state and Federal tax laws. 4.05 No Segregation of Assets. Neither the Company nor any Subsidiary shall be required to set aside or segregate any assets of any kind to meet any obligations under this Plan. All obligations of the Company and the Subsidiaries shall be reflected by bookkeeping entries only. The Participants shall have no rights under this Plan to any specific assets of the Company or the Subsidiaries (including any Shares purchased by the Company to reflect its obligation hereunder) and ownership of any insurance policies relating to Deferral Units shall remain with the Company. The rights of a Participant under this Plan shall be those of a general, unsecured creditor of the Company or the Subsidiary. 4.06 Failure of Payments. Any provision to the contrary, if, after termination of service on the Board of the Company or the Subsidiary, as applicable, the Company or a Subsidiary shall fail to make any payment to a Participant when due under this Plan or any employer or company shall fail to make payments to any Participant due under any of the Other Plans, each Participant will be paid immediately a lump sum payment equal to the balance of his Cash and Share Accounts (and the Actuarial Value of the maximum value of future benefits from Deferral Units). If any employer or company shall fail to make a payment as provided above due to inadvertence or a good faith delay to permit processing and shall immediately upon discovery of such failure or delay make such payment in full, the original failure to make the payment or payments shall not, for the purposes of this paragraph, be a failure to make a payment. If any employer or company shall, in good faith, contest a claim by a participant under this Plan or any of the Other Plans, the failure to make the contested payment or payments shall not, for the purpose of this paragraph, be a failure to make a payment. V. AMENDMENT OR TERMINATION ------------------------ 5.01 Right to Amend and Terminate. The Compensation Committee may amend or terminate this Plan at any time; provided, however, that no such action shall affect any right or obligation with respect to any Compensation previously earned; provided, further, that, if the Compensation Committee, in its sole discretion, determines that (a) changes in Federal income tax statutes, rules, or regulations, (b) changes in the Federal tax rate paid by the Company, or (c) the application or potential application to the Plan of Section 406 of Title I of the Employee Retirement Income Security Act of 1974 make it advisable, existing Deferral Units may be modified or cancelled; and provided further, no amendment or discontinuance in any manner adverse to a Participant with respect to benefit formula or optional form of payment may be made for three years following a Change in Control or a Major Transaction. No such modification or cancellation shall affect any Participant's Cash or Share Account Balances. No such modification may reduce the then established retirement income or death benefit of a Participant who has had a Termination of Service, but it may reduce or eliminate any subsequent increases in either or both. VI. GENERAL PROVISIONS ------------------ 6.01 Nonalienation of Benefits. Except as provided in the split dollar option under prior provisions of the Plan, to the fullest extent permitted by law a Participant shall not have the right to commute, sell, assign, transfer, or otherwise convey the right to receive any payments under this Plan, which payments and the right thereto shall be nonassignable and nontransferable, whether voluntarily or involuntarily. 6.02 Effectuation of Interest. In the event it should become impossible for the Company, any Subsidiary, the Compensation Committee, or the Benefits Committee to perform any act required by the Plan, the Company, any Subsidiary, the Compensation Committee, or the Benefits Committee may perform such other act as it in good faith determines will most nearly carry out the intent and purpose of the Plan. 6.03 Copy of Plan. An executed copy of the Plan shall be available for inspection by Participants or other persons entitled to benefits under the Plan at reasonable times at the offices of the Company. 6.04 Headings. The headings of articles and sections of the Plan are for convenience of reference only. 6.05 Gender and Number. Unless the context requires otherwise, the singular shall include the plural; the masculine gender shall include the feminine; and such words as "herein", "hereinafter", "hereof", and "hereunder" shall refer to this instrument as a whole and not merely to the subdivision in which such words appear. 6.06 Separability. If any term or provision of this Plan, as presently in effect or as amended from time to time, or the application thereof to any payments or circumstances, shall to any extent be invalid or unenforceable, the remainder of this Plan and the application of such term or provision to payments or circumstances other than those as to which it is invalid or unenforceable shall not be affected thereby, and each term or provision of this Plan shall be valid and enforced to the fullest extent permitted by law. 6.07 Applicability. All provisions of this Plan shall be uniformly applicable to all Participants. 6.08 Governing Law. Except as otherwise required by law, this Plan and all matters arising thereunder shall be governed by the laws of The Commonwealth of Massachusetts. 6.09 Effective Date. This Amendment shall be effective June 1, 1996 and as to Direction of Subsidiaries December 1, 1996. s/George M. Sage ______________________________ Chairman Pursuant to Votes of the Compensation Committee EX-10 15 NEES EXHIBIT 10(W) Exhibit 10(w) NEW ENGLAND ELECTRIC COMPANIES' INCENTIVE SHARE PLAN Adopted February 27, 1990 Effective January 1, 1990 Amended February 8, 1991 Amended January 1, 1994 Amended February 21, 1994 Amended February 22, 1995 Amended February 26, 1996 Amended February 24, 1997 TABLE OF CONTENTS ----------------- Page ---- I. PURPOSE. . . . . . . . . . . . . . . . . . . . . . . . . .1 II. DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . .1 2.01 Annual Incentive Share Award . . . . . . . . .1 2.02 Beneficial Owner . . . . . . . . . . . . . . .1 2.03 Benefits Committee . . . . . . . . . . . . . .2 2.04 Cash Bonus . . . . . . . . . . . . . . . . . .2 2.05 Change in Control. . . . . . . . . . . . . . .2 2.06 Company. . . . . . . . . . . . . . . . . . . .3 2.07 Compensation Committee . . . . . . . . . . . .4 2.08 Continuing Directors . . . . . . . . . . . . .4 2.09 Hardship . . . . . . . . . . . . . . . . . . .4 2.10 ICP-I. . . . . . . . . . . . . . . . . . . . .4 2.11 ICP-I Category A Participant . . . . . . . . .5 2.12 ICP-I Category B Participant . . . . . . . . .5 2.13 ICP-II . . . . . . . . . . . . . . . . . . . .5 2.14 A Major Transaction. . . . . . . . . . . . . .5 2.15 Management Committee . . . . . . . . . . . . .6 2.16 Matching Percentage. . . . . . . . . . . . . .7 2.17 New England Electric Company Management Incentive Plan . . . . . . . . . . . . . . . .7 2.18 New England Electric System. . . . . . . . . .8 2.19 NEES Board . . . . . . . . . . . . . . . . . .8 2.20 Participant. . . . . . . . . . . . . . . . . .8 2.21 Incentive Compensation Plan III. . . . . . . .9 2.22 Person . . . . . . . . . . . . . . . . . . . .9 2.23 Plan . . . . . . . . . . . . . . . . . . . . .9 2.24 Plan Year. . . . . . . . . . . . . . . . . . .9 2.25 Restricted Shares. . . . . . . . . . . . . . 10 2.26 Shares . . . . . . . . . . . . . . . . . . . 10 2.27 System . . . . . . . . . . . . . . . . . . . 10 2.28 Trustee. . . . . . . . . . . . . . . . . . . 10 III. ADMINISTRATION . . . . . . . . . . . . . . . . . . . . . 10 3.01 Administration and Interpretation. . . . . . 10 3.02 Amendment or Termination.. . . . . . . . . . 11 IV. ANNUAL INCENTIVE SHARE AWARD . . . . . . . . . . . . . . 11 4.01 Calculation of Award.. . . . . . . . . . . . 11 4.02 Purchase of Shares.. . . . . . . . . . . . . 11 4.03 Timing of Purchase.. . . . . . . . . . . . . 13 4.04 Distribution of Shares.. . . . . . . . . . . 13 4.05 Change in Control. . . . . . . . . . . . . 13 V. RESTRICTED SHARES. . . . . . . . . . . . . . . . . . . . 14 5.01 Assignment and Alienability. . . . . . . . . 14 5.01A Restriction on Shares to Officers. . . . . . 14 5.02 Death or Disability. . . . . . . . . . . . . 15 5.03 Change of Control. . . . . . . . . . . . . . 15 5.04 Hardship.. . . . . . . . . . . . . . . . . . 15 5.05 Voting, Tender, Dividend Rights. . . . . . . 15 5.06 Deferral of Receipt of Shares. . . . . . . . 15 VI. GENERAL PROVISIONS . . . . . . . . . . . . . . . . . . . 16 6.01 Other Benefit Plan.. . . . . . . . . . . . . 16 6.02 Future Employment. . . . . . . . . . . . . . 16 6.03 Headings. . . . . . . . . . . . . . . . . . 16 6.04 Gender and Number. . . . . . . . . . . . . . 16 6.05 Governing Law. . . . . . . . . . . . . . . . 17 SIGNATURE. . . . . . . . . . . . . . . . . . . . . . . . . . . 17 NEW ENGLAND ELECTRIC COMPANIES' INCENTIVE SHARE PLAN -------------------- I. PURPOSE ------- The purpose of the Incentive Share Plan (the Plan) is to achieve and maintain a high level of corporate performance and continue the identification of interest between management and shareholders by making it possible for those selected executives and individuals whose efforts and responsibilities have a direct and major influence on corporate performance to earn significant compensation, in the form of restricted shares, measured by the individual's achievements under other NEES company incentive compensation or bonus plans. II. DEFINITIONS ----------- 2.01 Annual Incentive Share Award means the award referred to in Article IV. 2.02 Beneficial Owner shall have the meaning defined in Rule 13d-3 under the Exchange Act. 2.03 Benefits Committee means the committee established in accordance with New England Electric System Companies' Final Average Pay Pension Plan I. 2.04 Cash Bonus means the total cash bonus awarded a Participant for a Plan Year under a New England Electric Company Management Incentive Plan, including amounts awarded upon a Change in Control or a Major Transaction. 2.05 Change in Control occurs when the conditions set forth in either of the following paragraphs shall have been satisfied: (i) any Person is or becomes the Beneficial Owner, directly or indirectly, of securities of New England Electric System (not including in the securities beneficially owned by such Person any securities acquired directly from New England Electric System or its affiliates) representing 20% or more of the combined voting power of New England Electric System's then outstanding securities; or (ii) during any period of not more than two consecutive years on or after January 1, 1995, individuals who at the beginning of such period constitute the NEES Board and any new director (other than a director designated by a Person who has entered into an agreement with New England Electric System to effect a transaction described in clause (i) of this paragraph) whose election by the NEES Board or nomination for election by New England Electric System's shareholders was approved or recommended by a vote of at least two-thirds of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved or recommended cease for any reason to constitute a majority of the NEES Board. 2.06 Company means any New England Electric System Company that has an employee(s) who participates in the Plan. 2.07 Compensation Committee means the compensation committee of the NEES Board. 2.08 Continuing Directors means, as of the date of determination, any director who was a member of the NEES Board as of January 1, 1990, or who was recommended for his/her initial term of office by a majority of the Continuing Directors in office at the time of such recommendation, but excludes any director who, together with his/her affiliates, is the beneficial owner of 20% or more of the outstanding Shares (excluding securities beneficially owned by reason of being a trustee of any employee benefit plan of the System). 2.09 Hardship means a circumstance where the Benefits Committee determines that the Participant is suffering from a serious financial emergency resulting from circumstances beyond the Participant's control. 2.10 ICP-I means New England Electric System Companies' Incentive Compensation Plan, as amended from time to time. 2.11 ICP-I Category A Participant means those participants designated as such pursuant to ICP-I, as amended from time to time. 2.12 ICP-I Category B Participant means those participants designated as such pursuant to ICP-I, as amended from time to time. 2.13 ICP-II means New England Electric System Companies' Incentive Compensation Plan II, as amended from to time. 2.14 A Major Transaction shall be deemed to have occurred if the conditions set forth in any one of the following paragraphs shall have been satisfied: (a) the shareholders of New England Electric System approve a merger or consolidation with any corporation or business trust, other than (i) a merger or consolidation which would result in the individuals who prior to such merger or consolidation constitute the NEES Board constituting at least two- thirds of the board of directors of New England Electric System or the surviving or succeeding entity immediately after such merger or consolidation, or (ii) a merger or consolidation effected to implement a recapitalization (or similar trasaction) in which no Person acquires more than 20% of the combined voting power of New England Electric System's then outstanding securities; (b) the shareholders of New England Electric System approve a plan of complete liquidation thereof; or (c) the shareholder of New England Electric System approve an agreement for the sale or disposition of all or substantially all of New England Electric System's assets, other than a sale or disposition which would result in the individuals who prior to such sale or disposition constitute the NEES Board constituting at least two-thirds of the board of directors of the Person purchasing such assets immediately after such sale or disposition. 2.15 Management Committee means the Management Committee established in accordance with the New England Electric System Companies' Incentive Compensation Plan I. 2.16 Matching Percentage means: 60% if the Participant is a participant in New England Electric Companies' Senior Incentive Compensation Plan; 50% if the Participant is an ICP-I Category A Participant; 45% if the Participant is an ICP-I Category B Participant; 45% if the Participant is an ICP-I Category C Participant; 45% if the Participant is a participant in ICP-II; or 33% if the Participant is a participant in ICP-III. 2.17 New England Electric Company Management Incentive Plan means any or all of the following plans as in effect from time to time: New England Electric Companies' Senior Incentive Compensation Plan; ICP-I; ICP-II; and ICP-III. 2.18 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, or agent thereof assumes or shall be held to any liability therefor. 2.19 NEES Board means board of directors of New England Electric System. 2.20 Participant means any individual who is a participant in a New England Electric Company Management Incentive Plan. 2.21 Incentive Compensation Plan III means New England Electric Companies' Incentive Compensation Plan III, as amended from time to time. 2.22 Person shall have the meaning given in Section 3(a)(9) of the Exchange Act, as modified and used in Sections 13(d) and 14(d) thereof; however, a Person shall not include (i) New England Electric System or any subsidiary thereof, (ii) a trustee or other fiduciary holding securities under an employee benefit plan of New England Electric System or any subsidiary thereof, (iii) an underwriter temporarily holding securities pursuant to an offering of such securities, or (iv) a corporation owned, directly or indirectly, by the shareholders of New England Electric System in substantially the same proportions as their ownership of shares of New England Electric System. 2.23 Plan means the New England Electric Companies' Incentive Share Plan, as amended from time to time. 2.24 Plan Year means a calendar year. 2.25 Restricted Shares means Shares issued under the Plan subject to the restrictions found in Article V. 2.26 Shares means common shares of New England Electric System. 2.27 System means the New England Electric System holding company system. 2.28 Trustee means any bank or other financial institution so designated by the Management Committee. III. ADMINISTRATION -------------- 3.01 Administration and Interpretation. The Plan shall be administered by the Management Committee. Interpretations of the Plan by the Management Committee shall be final and binding on all parties; provided, however, any interpretations which would substantially increase the benefits under the Plan of any member of the Management Committee shall be referred to the Compensation Committee. 3.02 Amendment or Termination. The Compensation Committee may amend or terminate the Plan at any time; provided, however, that no such action shall affect any right or obligation with respect to any Annual Incentive Share Award previously granted; and provided, further, the provisions of Sections 2.05, 2.08, and 5.03 may not be amended without the written consent of any Participant affected. IV. ANNUAL INCENTIVE SHARE AWARD ---------------------------- 4.01 Calculation of Award. Each Participant's Annual Incentive Share Award shall be determined by multiplying the Participant's Cash Bonus by the applicable Matching Percentage. 4.02 Purchase of Shares. The Annual Incentive Share Award provided by the Companies shall be used to purchase Shares in the Participant's name. The number of Shares purchased shall be rounded up for any award amounts not sufficient to purchase a whole Share. Shares awarded may, at the option of the Compensation Committee, be either newly issued or purchased on the open market. If Shares are purchased on the open market, the Management Committee may require each Company to deposit cash in a trust as needed to buy the requisite number of Shares for awards as they are determined. The Trustee will invest the cash in Shares as soon as practicable. Any Shares purchased by the Trustee shall be held until all awards have been invested in Shares. Share awards shall be allocated and distributed to Participants as soon as practicable after completion of all purchases. Any awards held in trust shall be held for the exclusive benefit of the Participants. The price of Shares, whether purchased from the System or on the open market, will be computed on the basis of the average of high and low prices on the New York Stock Exchange - Composite Transactions as reported in The Wall Street Journal for the five consecutive trading days ending on the last trading day prior to the fifteenth day of January following the Plan Year for which the award applies, or the date of Change in Control, if applicable. If there is no trading in Shares on the New York Stock Exchange for a substantial amount of time during the five-day period, or if publication by The Wall Street Journal of reports of Share transactions for any day in the five-day period does not take place or is subject to reporting error, the value of Shares shall be determined by the System on the basis of such market quotations or other method as the System shall deem appropriate. The price of Shares purchased on the open market shall not include commissions. To the extent Shares held by the Trustee earn cash dividends, said dividends shall be allocated and distributed to Participants on a pro-rata basis. 4.03 Timing of Purchase. Purchase of Shares under the Plan shall take place as soon as practicable following the end of the Plan Year for which the Annual Incentive Share Award applies. 4.04 Distribution of Shares. Shares shall be distributed to Participants within a reasonable time after purchase is completed. 4.05 Change in Control. In the event of a Change in Control or of a Major Transaction, each Participant will receive, within 30 days, a cash payment calculated in accordance with Section 4.01. If the Change in Control or Major Transaction occurs prior to the determination and payment of the Participant's Cash Bonus for the Prior Year, the Participant will also receive within 30 days a cash payment calculated in accordance with Section 4.01 for that year. No further benefits in either Shares or cash will be payable for this Plan. V. RESTRICTED SHARES ----------------- 5.01 Assignment and Alienability. All Shares awarded under the Plan, in respect of performance prior to 1995, shall not be commuted, sold, assigned, transferred, or otherwise conveyed, whether voluntarily or involuntarily, for a period of five years from issuance. 5.01A Restriction on Shares to Officers. All Shares awarded under the Plan to officers of New England Electric System, in respect of performance in 1996 and thereafter, shall not be commuted, sold, assigned, transferred, or otherwise conveyed, whether voluntarily or involuntarily, for a period of five years from issuance; provided, however, said Shares may be deferred to the New England Electric Companies' Deferred Compensation Plan. 5.02 Death or Disability. In the event of a Participant's death or disability, any and all restrictions on Restricted Shares shall lapse. 5.03 Change of Control. In the event of a Change of Control or a Major Transaction, any and all restrictions on Restricted Shares shall lapse. 5.04 Hardship. In the event of Hardship, the Benefits Committee may authorize a removal of restrictions on the number of Restricted Shares necessary to alleviate the Hardship. 5.05 Voting, Tender, Dividend Rights. Participants hold all voting, tender offer, exchange offer, and dividend rights to Restricted Shares. 5.06 Deferral of Receipt of Shares. Anything in this Plan to the contrary notwithstanding, a Participant may elect to defer receipt of an Annual Incentive Share Award and the related Shares by means of a separate agreement with the Participant's Company. Thereafter, the Participant's right to an incentive share award or shares deferred thereunder shall be governed solely by the terms of such other agreement. VI. GENERAL PROVISIONS ------------------ 6.01 Other Benefit Plan. Awards or other distributions issued under the Plan will not be used in determining a Participant's benefit under any group insurance plan or any incentive program. 6.02 Future Employment. Neither the Plan nor the making of awards hereunder shall be construed to create any obligation to continue the Plan or to give any present or future employee any right to continued employment. 6.03 Headings. The headings of articles and sections of the Plan are for convenience of reference only. 6.04 Gender and Number. Unless the context requires otherwise, the singular shall include the plural; the masculine gender shall include the feminine; and such words as "herein", "hereinafter", "hereof", and "hereunder" shall refer to this instrument as a whole and not merely to the subdivisions in which such words appear. 6.05 Governing Law. Except as otherwise required by law, the Plan and all matters arising thereunder shall be governed by the laws of The Commonwealth of Massachusetts. SIGNATURE February 24, 1997 s/George M. Sage Date: ______________________ _________________________________ Pursuant to Votes dated February 21, 1994, February 22, 1995, February 26, 1996, and February 24, 1997, by the Compensation Committee EX-10 16 NEES EXHIBIT 10(X) Exhibit 10(x) NEW ENGLAND ELECTRIC COMPANIES LONG-TERM PERFORMANCE SHARE AWARD PLAN Adopted - November 28, 1995 Amended - February 24, 1997 TABLE OF CONTENTS ----------------- Page ---- I. PURPOSE . . . . . . . . . . . . . . . . . . . . . . . . .1 II. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . .1 2.01 Base Compensation . . . . . . . . . . . . . . .1 2.02 Beneficial Owner. . . . . . . . . . . . . . . .1 2.03 Beneficiary . . . . . . . . . . . . . . . . . .1 2.04 Board . . . . . . . . . . . . . . . . . . . . .2 2.05 Change in Control . . . . . . . . . . . . . . .2 2.07 Disability. . . . . . . . . . . . . . . . . . .3 2.08 Employer. . . . . . . . . . . . . . . . . . . .4 2.09 Incentive Plans . . . . . . . . . . . . . . . .4 2.10 A Major Transaction . . . . . . . . . . . . . .4 2.11 New England Electric System . . . . . . . . . .6 2.12 Participant . . . . . . . . . . . . . . . . . .6 2.13 Performance Cycle . . . . . . . . . . . . . . .6 2.14 Performance Shares. . . . . . . . . . . . . . .6 2.15 Person. . . . . . . . . . . . . . . . . . . . .6 2.16 Plan Year . . . . . . . . . . . . . . . . . . .7 2.17 Retirement. . . . . . . . . . . . . . . . . . .7 2.18 Shares. . . . . . . . . . . . . . . . . . . . .7 2.19 System. . . . . . . . . . . . . . . . . . . . .7 III. ADMINISTRATION. . . . . . . . . . . . . . . . . . . . . .8 3.01 Administration and Interpretation.. . . . . . .8 3.02 Amendment and Termination.. . . . . . . . . . .8 3.03 No Segregation of Assets; No Assignment.. . . .8 3.04 Accounting. . . . . . . . . . . . . . . . . . .9 IV. PERFORMANCE SHARES. . . . . . . . . . . . . . . . . . . .9 4.01 Goals . . . . . . . . . . . . . . . . . . . . .9 4.02 Performance Shares. . . . . . . . . . . . . . .9 4.03 Plan Factor . . . . . . . . . . . . . . . . . 10 4.04 Change in Incentive Plan. . . . . . . . . . . 10 4.05 Determination of Shares to be Received. . . . 11 4.06 Restriction on Shares to Officers . . . . . . 11 V. PAYMENT UPON CHANGE OF CONTROL OR TERMINATION OF EMPLOYMENT. . . . . . . . . . . . . . . . . . . . . . . 12 5.01 Change in Control . . . . . . . . . . . . . . 12 5.02 Death . . . . . . . . . . . . . . . . . . . . 13 5.03 Disability, Retirement or Special Severance . 13 5.04 Other Termination . . . . . . . . . . . . . . 14 5.05 Hardship. . . . . . . . . . . . . . . . . . . 14 5.06 Proof . . . . . . . . . . . . . . . . . . . . 14 VI. GENERAL PROVISIONS. . . . . . . . . . . . . . . . . . . 15 6.01 Other Benefit Plans.. . . . . . . . . . . . . 15 6.02 Future Employment.. . . . . . . . . . . . . . 15 6.03 Headings. . . . . . . . . . . . . . . . . . . 15 6.04 Gender and Number.. . . . . . . . . . . . . . 15 6.05 Governing Law.. . . . . . . . . . . . . . . . 16 6.06 Effective Date. . . . . . . . . . . . . . . . 16 SIGNATURE. . . . . . . . . . . . . . . . . . . . . . . . . . . 16 NEW ENGLAND ELECTRIC COMPANIES LONG-TERM PERFORMANCE SHARE AWARD PLAN --------------------------------------- I. PURPOSE ------- The purpose of the Long-Term Performance Share Award Plan (the Plan) is to achieve and maintain a high level of continued corporate performance by making it possible for those executives whose efforts and responsibilities have direct and major influence on corporate activity to earn significant compensation rewards in proportion to measured corporate performance over a multi-year period. II. DEFINITIONS ----------- 2.01 Base Compensation means the Participant's salary level as in effect on a given date of determination. 2.02 Beneficial Owner shall have the meaning defined in Rule 13d-3 under the Exchange Act. 2.03 Beneficiary means any person designated in writing by the Participant (which designation may be changed from time to time) to receive benefits under the Plan payable upon death of the Participant. Unless otherwise designated, the Beneficiary will be the beneficiary under the Participant's Group Life Insurance enrollment and insurance provided, in whole or in part, by the Employer. If there is no designated Beneficiary alive when the Participant dies, the benefit shall be paid to the estate of the Participant. 2.04 Board means the Board of Directors of New England Electric System. 2.05 Change in Control occurs when the conditions set forth in either of the following paragraphs shall have been satisfied: (a) any Person is or becomes the Beneficial Owner, directly or indirectly, of securities of New England Electric System (not including in the securities beneficially owned by such Person any securities acquired directly from New England Electric System or its affiliates) representing 20% or more of the combined voting power of New England Electric System's then outstanding securities; or (b) during any period of not more than two consecutive years after January 1, 1995, individuals who at the beginning of such period constitute the Board and any new director (other than a director designated by a Person who has entered into an agreement with New England Electric System to effect a transaction described in clause (i) of this paragraph) whose election by the Board or nomination for election by New England Electric System's shareholders was approved or recommended by a vote of at least two-thirds of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved or recommended, cease for any reason to constitute a majority of the Board. 2.06 Committee means the Compensation Committee of the Board. 2.07 Disability means a physical or mental condition of the Participant which, based on satisfactory medical evidence, is believed to be permanent and to render the Participant unfit to perform duties for an Employer. 2.08 Employer means the company within the New England Electric System holding company system which pays the base payof the Participant. 2.09 Incentive Plans means: (a) the New England Electric Companies' Senior Incentive Compensation Plan, (b) the New England Electric Companies' Incentive Compensation Plan I, and (c) the New England Electric Companies' Incentive Compensation Plan II. 2.10 A Major Transaction shall be deemed to have occurred if the conditions set forth in any one of the following paragraphs shall have been satisfied: (a) the shareholders of New England Electric System approve a merger or consolidation with any corporation or business trust, other than (i) a merger or consolidation which would result in the individuals who prior to such merger or consolidation constitute the Board constituting at least two-thirds of the board of directors of New England Electric System or the surviving or succeeding entity immediately after such merger or consolidation, or (ii) a merger or consolidation effected to implement a recapitalization (or similar trasaction) in which no Person acquires more than 20% of the combined voting power of New England Electric System's then outstanding securities; (b) the shareholders of New England Electric System approve a plan of complete liquidation thereof; or (c) the shareholders of New England Electric System approve an agreement for the sale or disposition of all or substantially all of New England Electric System's assets, other than a sale or disposition which would result in the individuals who prior to such sale or disposition constitute the Board constituting at least two-thirds of the board of directors of the Person purchasing such assets immediately after such sale or disposition. 2.11 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. 2.12 Participant means a participant in one of the Incentive Plans. 2.13 Performance Cycle means a three-year performance cycle commencing on January one of a Plan Year. A new, independent Performance Cycle will commence each Plan Year. 2.14 Performance Shares means the potential share grants assigned under Section 4.02. 2.15 Person shall have the meaning given in Section 3(a)(9) of the Exchange Act, as modified and used in Sections 13(d) and 14(d) thereof; however, a Person shall not include (i) New England Electric System or any subsidiary thereof, (ii) a trustee or other fiduciary holding securities under an employee benefit plan of New England Electric System or any subsidiary thereof, (iii) an underwriter temporarily holding securities pursuant to an offering of such securities, or (iv) a corporation owned, directly or indirectly, by the shareholders of New England Electric System in substantially the same proportions as their ownership of shares of New England Electric System. 2.16 Plan Year means a calendar year. 2.17 Retirement means termination of service with the System on or after the date when the Participant could first commence receiving benefits under the New England Electric System Companies' Final Average Pay Pension Plan I. 2.18 Shares means common shares of New England Electric System. 2.19 System means the New England Electric System and its subsidiaries. III. ADMINISTRATION -------------- 3.01 Administration and Interpretation. The Plan shall be administered by the Committee, and interpretations of the Plan by the Committee shall be final and binding on all parties. 3.02 Amendment and Termination. The Committee may amend or terminate the Plan at any time; provided, however, that no such action shall affect any right or obligation with respect to any Performance Shares allocated to a Participant's account. 3.03 No Segregation of Assets; No Assignment. Neither New England Electric System nor any Employer is required to set aside or segregate any assets of any kind to meet obligations under this Plan. A Participant has no rights under this Plan to any specific assets of New England Electric System or any Employer (including any Shares purchased by the Employer to reflect its obligations hereunder). A Participant may not commute, sell, assign, transfer, or otherwise convey the right to receive any payments under this Plan, which payments and the right thereto shall be, to the fullest extent permitted by law, nonassignable and nontransferable, whether voluntarily or involuntarily. 3.04 Accounting. The Manager of Internal Audits and the Controller will be responsible to the Committee for accounting matters directly affecting the Plan. IV. PERFORMANCE SHARES ------------------ 4.01 Goals. Prior to commencement of a Performance Cycle, the Committee shall establish independent goals for that cycle in critical areas of System performance.There may be sub-goals within each goal. The Committee will identify the performance factor, the award range, and the weight for each goal. All Participants will share equally in all goals. 4.02 Performance Shares. For each Performance Cycle, the account of each Participant will be assigned Performance Shares of a value equivalent to the Participant's Base Compensation on January 1 of the Plan Year (except as set forth in Section 4.04) multiplied by the appropriate plan factor as set out in Section 4.03. The value of a Performance Share, whether purchased from the System or on the open market, will be computed on the basis of the average of high and low prices on the New York Stock Exchange - Composite Transactions as reported in The Wall Street Journal for the five consecutive trading days ending on the last trading day prior to the fifteenth day of January of the Plan Year. No dividends (either in cash or shares) will be paid on or accrued to Performance Shares during a Performance Cycle. 4.03 Plan Factor. The plan factors are as follows: For Participants in: -------------------- Senior Incentive Compensation Plan 50% Incentive Compensation Plan I - Level A 50% Incentive Compensation Plan I - Level B 25% Incentive Compensation Plan I - Level C 25% Incentive Compensation Plan II 15% 4.04 Change in Incentive Plan. If a Participant becomes eligible for a particular Incentive Plan during the Plan Year or if a Participant ceases to be a Participant in a particular Incentive Plan during the Plan Year, his Performance Shares for that cycle will be adjusted to reflect (i) the ratio of the months served in that particular Incentive Plan to twelve and (ii) his Base compensation under the new Incentive Plan. 4.05 Determination of Shares to be Received. As soon as practicable after the termination of a Performance Cycle, the Participant will receive Shares equal to the number of Performance Shares assigned to him at the commencement of the cycle multiplied by the sum of the value of the goal achievements for that cycle. Each goal will be independently measured. Any fractional Share will be rounded up to the next whole Share. The Participant may elect, prior to the close of the Performance Cycle, to receive cash in lieu of 50% of the Shares so awarded. The value of Shares so converted shall be determined on the basis of the high and low prices, whether purchased from the System or on the open market, computed on the basis of the average of high and low prices on the New York Stock Exchange - Composite Transactions as reported in The Wall Street Journal for the five consecutive trading days ending on the last trading day prior to the fifteenth day of January of the calendar year following the close of the Performance Cycle. 4.06 Restriction on Shares to Officers. All Shares awarded under the Plan to officers of New England Electric System shall not be commuted, sold, assigned, transferred, or otherwise conveyed, whether voluntarily or involuntarily, for a period of five years from issuance; provided, however, said Shares may be deferred to the New England Electric Companies' Deferred Compensation Plan. In the event of a Change in Control or a Major Transaction, the foregoing restriction shall lapse. The hardship provisions of the Incentive Share Plan shall apply to these restricted shares. V. PAYMENT UPON CHANGE OF CONTROL OR TERMINATION OF EMPLOYMENT ----------------------------------------------------------- 5.01 Change in Control. In the event of a Change in Control or a Major Transaction, each Participant will receive, within 30 days of such event, a cash payment equal to the product of "a" times "b" times "c", where: "a" is the number of Performance Shares in the Participant's account, and "b" is the value of a Performance Share determined using the highest Share price of any Share in the sixty days preceding the Change in Control or Major Transaction, and "c" is, for performance cycles through December 31, 2000, the average of the target achievement percentages for the Incentive Compensation Plan I for the last three years prior to the Change in Control or Major Transaction and, for performance cycles ending after December 31, 2000, the average of the goal achievements for this Plan for the last three years prior to the Change in Control or Major Transaction. 5.02 Death. In the event of a Participant's death, the Beneficiary will receive, by the end of March following the calendar year in which the death occurs, Shares calculated as follows: The Performance Shares for the Plan Year in which the Participant died will be adjusted to reflect the number of months (or portions thereof) elapsed divided by twelve. For each Performance Cycle, the Plan Factors will be calculated as if that Cycle had terminated at the close of the calendar year in which the Participant died. 5.03 Disability, Retirement or Special Severance. In the event of his Disability, Retirement, transfer to a direct or indirect subsidiary of New England Electric System in which the New England Electric System owns 50% or less equity interest, or severance as part of a program under which a number of employees are being severed in connection with a unique event, such as sale of the System generation or restructuring of the Company as part of a restructuring of the electric utility industry, a Participant will receive, by the end of the March following the close of the Performance Cycle, a distribution in accordance with Section 4.05. His Performance Shares for the Plan Year in which he is disabled, retires, or is transferred will be adjusted to reflect the number of months (or portions thereof) elapsed divided by twelve. 5.04 Other Termination. In the event of termination of employment other than those referred to in Section 5.02 or 5.03, a Participant will forfeit his Performance Shares. 5.05 Hardship. Other than as provided herein, there will be no distributions from the Plan to Participants, whether for hardship or otherwise. 5.06 Proof. The Committee may require proof of the death, Disability, incompetency, minority, or incapacity of any Participant or beneficiary, and of the right of a person to receive any distribution hereunder. VI. GENERAL PROVISIONS ------------------ 6.01 Other Benefit Plans. Neither a Participant's Performance Shares nor any cash or Shares distributed hereunder will be used in determining the Participant's benefits under any group insurance plan, pension plan, or any other incentive program. 6.02 Future Employment. Neither the Plan nor the making of awards hereunder shall be construed to create any obligation to continue the Plan or to give any present or future employee any right to continued employment. 6.03 Headings. The headings of articles and sections of the Plan are for convenience of reference only. 6.04 Gender and Number. Unless the context requires otherwise, the singular shall include the plural; the masculine gender shall include the feminine; and such words as "herein", "hereinafter", "hereof", and "hereunder" shall refer to this instrument as a whole and not merely to the subdivisions in which such words appear. 6.05 Governing Law. Except as otherwise required by law, the Plan and all matters arising thereunder shall be governed by the laws of The Commonwealth of Massachusetts. 6.06 Effective Date. This Plan shall be effective for Plan Years beginning on and after January 1, 1996. February 24, 1997 Dated:_____________________ s/George M. Sage ___________________________________ Pursuant to vote of November 28, 1995, of the NEES Board and vote of February 24, 1997, of the Compensation Committee EX-10 17 NEES EXHIBIT 10(Y) Exhibit 10(y) NEW ENGLAND ELECTRIC SYSTEM --------------------------- DIRECTORS RETIREMENT PLAN ------------------------- May 1, 1994 New England Electric System --------------------------- Directors Retirement Plan ------------------------- TABLE OF CONTENTS ----------------- Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . .1 Board . . . . . . . . . . . . . . . . . . . . . . . . . . .1 Committee . . . . . . . . . . . . . . . . . . . . . . . . .1 New England Electric System . . . . . . . . . . . . . . . .1 Participant . . . . . . . . . . . . . . . . . . . . . . . .1 Retainer. . . . . . . . . . . . . . . . . . . . . . . . . .1 Qualified Plan. . . . . . . . . . . . . . . . . . . . . . .1 Quarter of Service. . . . . . . . . . . . . . . . . . . . .1 Plan Benefits. . . . . . . . . . . . . . . . . . . . . . . . . .2 Retirement Benefit. . . . . . . . . . . . . . . . . . . . .2 Form of Payment . . . . . . . . . . . . . . . . . . . . . .2 Termination of Benefits . . . . . . . . . . . . . . . . . .2 No Death Benefits . . . . . . . . . . . . . . . . . . . . .2 Administration and Claims. . . . . . . . . . . . . . . . . . . .2 Government Regulations . . . . . . . . . . . . . . . . . . . . .3 Nonassignment. . . . . . . . . . . . . . . . . . . . . . . . . .3 Provisions of Benefits . . . . . . . . . . . . . . . . . . . . .3 Vesting. . . . . . . . . . . . . . . . . . . . . . . . . . . . .3 Amendment or Discontinuance. . . . . . . . . . . . . . . . . . .3 Effective Date . . . . . . . . . . . . . . . . . . . . . . . . .4 NEW ENGLAND ELECTRIC SYSTEM --------------------------- DIRECTORS RETIREMENT PLAN ------------------------- Definitions - ----------- When used in this Plan, the following words will have the meaning given below: 1. Board means the Board of Directors of New England Electric System. 2. Committee means the Compensation Committee of the Board. 3. 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. 4. Participant means any non-employee director of the New England Electric System. 5. Retainer means the annualized cash retainer paid for service on the Board (excluding retainers for service on committees, retainers for service as an officer of a Committee or the Board, any meeting fees or expenses, and the value of shares granted under the New England Electric System Director Share Plan) payable for the quarter immediately preceding the Participant's termination of service. 6. Qualified Plan means the New England Electric System Companies' Final Average Pay Pension Plan I. 7. Quarter of Service means a calendar quarter for all or any portion of which the Participant served as a member of the Board, excluding any quarter during which the Participant was an employee of the New England Electric System or any of its subsidiaries. Plan Benefits - ------------- 1. Retirement Benefit ------------------ A Participant shall be entitled to receive under this plan an annual retirement benefit (payable on a quarterly basis) equal to (a) times (b), where: (a) is the Retainer and (b) is: (i) 100%, if the Participant has 40 or more Quarters of Service, or (ii) 75%, if the Participant has 20 or more but less than 40 Quarters of Service. No retirement benefit shall be payable if the Participant has less than 20 Quarters of Service. 2. Form of Payment --------------- Retirement benefits shall be paid in cash on the first business day of each calendar quarter following the later of the Participant's termination of service or age 60. 3. Termination of Benefits ----------------------- Benefits shall cease at the Participant's death. 4. No Death Benefits ----------------- There are no death benefits hereunder nor any retirement benefits payable to anyone other than the Participant. Administration and Claims - ------------------------- The Committee shall have for this Plan the same powers, indemnities, and duties, including, but not limited to, the procedures for denied claims, as the benefits committee and the benefits appeal committee have for the Qualified Plan. Government Regulations - ---------------------- It is intended that this Plan will comply with all applicable laws and governmental regulations, and the Company shall not be obligated to perform an obligation hereunder in any case where, in the opinion of the Company's counsel, such performance would result in violation of any law or regulation. Nonassignment - ------------- No benefit under the Plan, nor any other interest hereunder of any Participant or contingent annuitant, may be assigned or alienated. Provisions of Benefits - ---------------------- This Plan will be unfunded. Benefits will be paid from the operating revenues of the Company. A Participant's rights to benefits under this Plan shall be those of an unsecured, general creditor of the Company. Vesting - ------- A Participant's accrued benefits shall be 100% vested after twenty Quarters of Service. Amendment or Discontinuance - --------------------------- The Committee may amend or discontinue the Plan at any time; provided that no modification shall reduce a benefit which a Participant was eligible to receive under the Plan if he or she had terminated service at the time of such amendment or discontinuance. Effective Date - -------------- This Plan shall be effective May 1, 1994. May 31, 1994 s/Joan T. Bok Dated: EX-10 18 NEES EXHIBIT 10(Z) Exhibit 10(z) AGREEMENT BETWEEN NEW ENGLAND ELECTRIC SYSTEM AND ________________________ Dated __________________ TABLE OF CONTENTS ---------------------- Page ---- 1. Defined Terms. . . . . . . . . . . . . . . . . . . . . . . 1 2. Term of Agreement. . . . . . . . . . . . . . . . . . . . . 1 3. Company's Covenants Summarized . . . . . . . . . . . . . . 2 4. The Executive's Covenants. . . . . . . . . . . . . . . . . 2 5. Compensation Other Than Severance Payments . . . . . . . . 3 6. Severance Payments . . . . . . . . . . . . . . . . . . . . 4 7. Termination Procedures and Compensation During Dispute . . 9 8. No Mitigation. . . . . . . . . . . . . . . . . . . . . . . 11 9. Successors; Binding Agreement. . . . . . . . . . . . . . . 12 10. Notices . . . . . . . . . . . . . . . . . . . . . . . . . 12 11. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . 13 12. Validity. . . . . . . . . . . . . . . . . . . . . . . . . 14 13. Counterparts. . . . . . . . . . . . . . . . . . . . . . . 14 14. Settlement of Disputes; Arbitration . . . . . . . . . . . 14 15. Definitions . . . . . . . . . . . . . . . . . . . . . . . 14 AGREEMENT --------- THIS AGREEMENT dated February 28, 1995, is made by and between New England Electric System, a Massachusetts business trust (the "Company"), and ________________________ (the "Executive"). WHEREAS the Company considers it essential to the best interests of its shareholders to foster the continuous employment of key management personnel; and WHEREAS the Board of Directors of the Company (the "Board") recognizes that, as is the case with many publicly-held companies, the possibility of a Change in Control or a Major Transaction (as defined in the last Section hereof) exists and that such possibility, and the uncertainty and questions which it may raise among management, may result in the departure or distraction of management personnel to the detriment of the Company and its shareholders; and WHEREAS the Board has determined that appropriate steps should be taken to reinforce and encourage the continued attention and dedication of members of the management of the Company and its subsidiaries (collectively, the "System"), including the Executive, to their assigned duties without distraction in the face of potentially disruptive circumstances arising from the possibility of a Change in Control or a Major Transaction; NOW THEREFORE, in consideration of the premises and the mutual covenants herein contained, the Company and the Executive hereby agree as follows: 1. Defined Terms. The definition of capitalized terms used in this Agreement is provided in the last Section hereof. 2. Term of Agreement. This Agreement shall commence on the date hereof and shall continue in effect through December 31, 1997; provided, however, that commencing on January 1, 1996 and each January 1 thereafter, the term of this Agreement shall automatically be extended for one additional year unless, not later than September 30 of the preceding year, the Company or the Executive shall have given notice not to extend this Agreement or a Change in Control or a Major Transaction shall have occurred prior to such January 1; provided, however, if a Change in Control or a Major Transaction shall have occurred during the term of this Agreement, this Agreement shall continue in effect for a period of thirty-six (36) months beyond the month in which such Change in Control or Major Transaction occurred. 3. Company's Covenants Summarized. In order to induce the Executive to remain in the employ of the NEES Companies and in consideration of the Executive's covenants set forth in Section 4 hereof, the Company agrees, under the conditions described herein, to pay the Executive the "Severance Payments" described in Section 6.1 hereof and the other payments and benefits described herein in the event the Executive's employment with the NEES Companies is terminated following a Change in Control or a Major Transaction and during the term of this Agreement. The obligations of the Company hereunder shall be deemed satisfied to the extent payments are made by any NEES Company. No amount or benefit shall be payable under this Agreement unless there shall have been (or, under the terms hereof, there shall be deemed to have been) a termination of the Executive's employment with the NEES Companies following a Change in Control or a Major Transaction. This Agreement shall not be construed as creating an express or implied contract of employment and, except as otherwise agreed in writing between the Executive and the Company, the Executive shall not have any right to be retained in the employ of the NEES Companies. 4. The Executive's Covenants. The Executive agrees that, subject to the terms and conditions of this Agreement, in the event of a Potential Change in Control or a Potential Major Transaction during the term of this Agreement, the Executive will remain in the employ of the NEES Companies until the earliest of (i) a date which is twelve (12) months from the date of such Potential Change of Control or Potential Major Transaction, (ii) the date of a Change in Control or a Major Transaction, (iii) the date of termination by the Executive of the Executive's employment for Good Reason (determined by treating the Potential Change in Control or Potential Major Transaction as a Change in Control or a Major Transaction, as applicable, in applying the definition of Good Reason), by reason of death or Disability or Retirement, or (iv) the termination by the NEES Companies of the Executive's employment for any reason. 5. Compensation Other Than Severance Payments. 5.1 Following a Change in Control or a Major Transaction and during the term of this Agreement, during any period that the Executive fails to perform the Executive's full-time duties with the NEES Companies as a result of incapacity due to physical or mental illness, the Company shall provide the Executive with disability benefits equivalent to those under the Disability Insurance Plan (without regard to any amendment to such plan made subsequent to the Change in Control or Major Transaction which amendment adversely affect the Executive's rights thereunder) until the Executive's employment is terminated by the Employer for Disability. 5.2 If the Executive's employment shall be terminated for any reason following a Change in Control or a Major Transaction and during the term of this Agreement, the Company shall pay the Executive's full salary to the Executive through the Date of Termination at the rate in effect at the time the Notice of Termination is given, together with all compensation and benefits payable to the Executive through the Date of Termination under the terms of any compensation or benefit plan, program or arrangement maintained by the Employer during such period; except to the extent that the Executive is receiving payments with respect to such period, or a portion thereof, in accordance with Section 5.1. 5.3 If the Executive's employment shall be terminated for any reason following a Change in Control or a Major Transaction and during the term of this Agreement, the Company shall pay to the Executive the normal post-termination compensation and benefits due the Executive as such payments become due. Such post-termination compensation and benefits shall be determined under, and paid in accordance with, the System's applicable retirement, insurance and other compensation or benefit plans, programs and arrangements. Provided that the benefits payable to the Executive pursuant to the Standard Severance Plan for Non-Union Employees (the "Severance Plan") or its successor do not exceed benefits payable to the Executive under this Agreement, the Executive hereby waives all rights to benefits pursuant to the Severance Plan. 6. Severance Payments. 6.1 Subject to Section 6.2 hereof, the Company shall pay the Executive the payments described in this Section 6.1 (the "Severance Payments") upon the termination of the Executive's employment following a Change in Control or a Major Transaction and during the term of this Agreement, in addition to the payments and benefits described in Section 5 hereof, unless such termination is (i) by the Employer for Cause, (ii) by reason of death, Disability or Retirement, or (iii) by the Executive without Good Reason. The Executive's employment shall be deemed to have been terminated following a Change in Control or a Major Transaction by the Employer without cause or by the Executive with Good Reason if the Executive's employment is terminated prior to a Change in Control or a Major Transaction without cause at the direction of a Person who has entered into an agreement with the Company the consummation of which will constitute a Change in Control or a Major Transaction, or if the Executive terminates his employment with Good Reason prior to a Change in Control or a Major Transaction (determined by treating a Potential Change in Control or Potential Major Transaction as a Change in Control or a Major Transaction, as applicable, in applying the definition of Good Reason) if the circumstance or event which constitutes Good Reason occurs at the direction of such Person. (A) In lieu of any further salary payments to the Executive for periods subsequent to the Date of Termination, the Company shall pay to the Executive a lump sum severance payment, in cash, equal to three times the sum of (i) the higher of the Executive's annual base salary in effect as of the Date of Termination or in effect immediately prior to the Change in Control or Major Transaction, and (ii) the higher of the average amount paid to the Executive pursuant to the New England Electric Companies' Senior Incentive Compensation Plan, New England Electric Companies' Incentive Compensation Plan I, New England Electric Companies' Incentive Compensation Plan II, Performance Based Bonus Plan, and the Incentive Share Plan or successors of any such plans, with respect to the three years preceding the year in which the Date of Termination occurs or the average amount paid with respect to the three years preceding the year in which the Change in Control or Major Transaction occurs. (B) In addition to the retirement benefits to which the Executive is entitled under each Pension Plan or any successor plan thereto, the Company shall pay the Executive a lump sum amount, in cash, equal to the excess of (x) the actuarial equivalent of the retirement pension (taking into account any early retirement subsidies associated therewith and determined as a straight life annuity commencing at the later of age 55 or the third anniversary of the Date of Termination) which the Executive would have accrued under the terms of each such Pension Plan (without regard to any amendment to such Pension Plan made subsequent to a Change in Control or a Major Transaction, which amendment adversely affects in any manner the computation of retirement benefits thereunder), determined as if the Executive were fully vested thereunder and had accumulated (after the Date of Termination) thirty- six (36) additional months of service credit thereunder and had been credited under each such Pension Plan during such period with compensation at the higher of (a) Executive's compensation (as defined in such Pension Plan) during the twelve (12) months immediately preceding the Date of Termination or (b) Executive's compensation (as defined in such Pension Plan) during the twelve (12) months immediately preceding the Change in Control or Major Transaction, over (y) the actuarial equivalent of the retirement pension (taking into account any early retirement subsidies associated therewith and determined as a straight life annuity commencing at the later of age 55 or the Date of Termination) which the Executive had accrued pursuant to the provisions of each such Pension Plan as of the Date of Termination. For purposes of this Section 6.1(B), "actuarial equivalent" shall be determined using the same methods and assumptions utilized under the New England Electric Companies' Final Average Pay Plan I (or a successor thereto) immediately prior to the Date of Termination (without regard to any amendment of such methods and assumptions made subsequent to a Change in Control or a Major Transaction, which amendment results in a lower actuarial equivalent value). The discount rate used for the calculation of benefits hereunder shall be that used by the System for valuing the liabilities of the New England Electric Companies' Final Average Pay Plan I (or a successor thereto) immediately prior to the Date of Termination. (C) If the Executive would have become entitled to benefits under the System's post-retirement health care or life insurance plans had his employment terminated at any time during the period of thirty- six (36) months after the Date of Termination, the Company shall pay such benefits to the Executive commencing on the later of (a) the date that such coverage would have first become available and (b) the date the benefits described in (D) below terminate. (D) For the thirty-six (36) month period immediately following the Date of Termination, the Company shall arrange to provide the Executive with life, disability, accident and health insurance benefits substantially similar to those which the Executive is receiving immediately prior to the Notice of Termination (without giving effect to any reduction in such benefits subsequent to a Change in Control or a Major Transaction which reduction constitutes Good Reason). Benefits otherwise receivable by the Executive pursuant to this Section 6.1(D) shall be reduced to the extent comparable benefits are actually received by or made available to the Executive without cost during the thirty-six (36) month period following the Executive's termination of employment (and any such benefits actually received by the Executive shall be reported to the Company by the Executive). If the benefits provided to the Executive under this Section 6.1(D) shall result in a decrease, pursuant to Section 6.2, in the Severance Payments and these Section 6.1(D) benefits are thereafter reduced pursuant to the immediately preceding sentence because of the receipt of comparable benefits, the Company shall, at the time of such reduction, pay to the Executive the lesser of (a) the amount of the decrease made in the Severance Payments pursuant to Section 6.2, or (b) the maximum amount which can be paid to the Executive without being, or causing any other payment to be, nondeductible by reason of section 280G of the Code. 6.2 Notwithstanding any other provisions of this Agreement, in the event that any payment or benefit received or to be received by the Executive in connection with a Change in Control or a Major Transaction, or the termination of the Executive's employment (whether pursuant to the terms of this Agreement or any other plan, arrangement or agreement with the System, any Person whose actions result in a Change in Control or a Major Transaction or any Person affiliated with the System or such Person) (all such payments and benefits, including the Severance Payments, being hereinafter called "Total Payments") would be subject (in whole or part), to the Excise Tax, then the Severance Payments shall be reduced to the extent necessary so that no portion of the Total Payments is subject to the Excise Tax (after taking into account any reduction in the Total Payments provided by reason of section 280G of the Code in such other plan, arrangement or agreement) if (A) the net amount of such Total Payments, as so reduced, (and after deduction of the net amount of federal, state and local income tax on such reduced Total Payments) is greater than (B) the excess of (i) the net amount of such Total Payments, without reduction (but after deduction of the net amount of federal, state and local income tax on such Total Payments), over (ii) the amount of Excise Tax to which the Executive would be subject in respect of such Total Payments. For purposes of determining whether and the extent to which the Total Payments will be subject to the Excise Tax, (i) no portion of the Total Payments the receipt or enjoyment of which the Executive shall have effectively waived in writing prior to the Date of Termination shall be taken into account, (ii) no portion of the Total Payments shall be taken into account which in the opinion of tax counsel selected by the Company does not constitute a "parachute payment" within the meaning of section 280G(b)(2) of the Code, (including by reason of section 280G(b)(4)(A) of the Code) and, in calculating the Excise Tax, no portion of such Total Payments shall be taken into account which constitutes reasonable compensation for services actually rendered, within the meaning of section 280G(b)(4)(B) of the Code, in excess of the Base Amount allocable to such reasonable compensation, and (iii) the value of any non-cash benefit or any deferred payment or benefit included in the Total Payments shall be determined by the Company in accordance with the principles of sections 280G(d)(3) and (4) of the Code. Prior to the payment date set forth in Section 6.3 hereof, the Company shall provide the Executive with its calculation of the amounts referred to in this Section and such supporting materials as are reasonably necessary for the Executive to evaluate the Company's calculations. If the Executive objects to the Company's calculations, the Company shall pay to the Executive such portion of the Severance Payments (up to 100% thereof) as the Executive determines is necessary to result in the Executive receiving the greater of clauses (A) and (B) of this Section. 6.3 The payments provided for in Section 6.1 (other than Section 6.1(D)) hereof shall be made not later than the fifth day following the Date of Termination, provided, however, that if the amounts of such payments, and the limitation on such payments set forth in Section 6.2 hereof, cannot be finally determined on or before such day, the Company shall pay to the Executive on such day an estimate, as determined in good faith by the Company, of the minimum amount of such payments to which the Executive is clearly entitled and shall pay the remainder of such payments (together with interest at the rate provided in section 1274(b)(2)(B) of the Code) as soon as the amount thereof can be determined but in no event later than the thirtieth (30th) day after the Date of Termination. In the event that the amount of the estimated payments exceeds the amount subsequently determined to have been due, such excess shall constitute a loan by the Company to the Executive, payable on the fifth (5th) business day after demand by the Company (together with interest at the rate provided in section 1274(b)(2)(B) of the Code). At the time that payments are made under this Section, the Company shall provide the Executive with a written statement setting forth the manner in which such payments were calculated and the basis for such calculations including, without limitation, any opinions or other advice the Company has received from counsel, auditors or consultants (and any such opinions or advice which are in writing shall be attached to the statement). 6.4 The Company also shall pay to the Executive all legal fees and expenses incurred by the Executive in disputing in good faith any termination of his employment hereunder or in seeking in good faith to obtain or enforce any benefit or right provided by this Agreement or in connection with any tax audit or proceeding to the extent attributable to the application of section 4999 of the Code to any payment or benefit provided hereunder. Such payments shall be made within five (5) business days after delivery of the Executive's written requests for payment accompanied with such evidence of fees and expenses incurred as the Company reasonably may require. 7. Termination Procedures and Compensation During Dispute. 7.1 Notice of Termination. After a Change in Control or a Major Transaction and during the term of this Agreement, any purported termination of the Executive's employment (other than by reason of death) shall be communicated by written Notice of Termination from one party hereto to the other party hereto in accordance with Section 10 hereof. For purposes of this Agreement, a "Notice of Termination" shall mean a notice which shall indicate the specific termination provision in this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated. Further, a Notice of Termination for Cause is required to include a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters (3/4) of the entire membership of the Board at a meeting of the Board which was called and held for the purpose of considering such termination (after reasonable notice to the Executive and an opportunity for the Executive, together with the Executive's counsel, to be heard before the Board) finding that, in the good faith opinion of the Board, the Executive was guilty of conduct set forth in clause (i) or (ii) of the definition of Cause herein, and specifying the particulars thereof in detail. 7.2 Date of Termination. "Date of Termination", with respect to any purported termination of the Executive's employment after a Change in Control or a Major Transaction and during the term of this Agreement, shall mean (i) if the Executive's employment is terminated for Disability, thirty (30) days after Notice of Termination is given (provided that the Executive shall not have returned to the full-time performance of the Executive's duties during such thirty (30) day period), and (ii) if the Executive's employment is terminated for any other reason, the date specified in the Notice of Termination (which, in the case of a termination by the Employer, shall not be less than thirty (30) days (except in the case of a termination for Cause) and, in the case of a termination by the Executive, shall not be less than fifteen (15) days nor more than sixty (60) days, respectively, from the date such Notice of Termination is given). 7.3 Dispute Concerning Termination. If within fifteen (15) days after any Notice of Termination is given, or, if later, prior to the Date of Termination (as determined without regard to this Section 7.3), the party receiving such Notice of Termination notifies the other party that a dispute exists concerning the termination, the Date of Termination shall be the date on which the dispute is finally resolved, either by mutual written agreement of the parties or by a final judgment, order or decree of a court of competent jurisdiction (which is not appealable or with respect to which the time for appeal therefrom has expired and no appeal has been perfected); provided further that the Date of Termination shall be extended by a notice of dispute only if such notice is given in good faith and the party giving such notice pursues the resolution of such dispute with reasonable diligence. 7.4 Compensation During Dispute. If a purported termination occurs following a Change in Control or a Major Transaction and during the term of this Agreement, and such termination is disputed in accordance with Section 7.3 hereof, the Company shall pay the Executive the full compensation in effect when the notice giving rise to the dispute was given (including, but not limited to, salary) and continue the Executive as a participant in all compensation, benefit and insurance plans in which the Executive was participating when the notice giving rise to the dispute was given, until the dispute is finally resolved in accordance with Section 7.3 hereof. Amounts paid under this Section 7.4 are in addition to all other amounts due under this Agreement (other than those due under Section 5.2 hereof) and shall not be offset against or reduce any other amounts due under this Agreement. 8. No Mitigation. The Company agrees that, if the Executive's employment with the NEES Companies terminates during the term of this Agreement, the Executive is not required to seek other employment or to attempt in any way to reduce any amounts payable to the Executive by the Company pursuant to this Agreement. Further, the amount of any payment or benefit provided for in this Agreement (other than in Section 6.1(D) hereof) shall not be reduced by any compensation earned by the Executive as the result of employment by another employer, by retirement benefits, by offset against any amount claimed to be owed by the Executive to the System, or otherwise. 9. Successors; Binding Agreement. 9.1 In addition to any obligations imposed by law upon any successor to the Company, the Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. Failure of the Company to obtain such assumption and agreement prior to the effectiveness of any such succession shall be a breach of this Agreement and shall entitle the Executive to compensation from the Company in the same amount and on the same terms as the Executive would be entitled to hereunder if the Executive were to terminate the Executive's employment for Good Reason after a Change in Control or a Major Transaction, except that, for purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed the Date of Termination. 9.2 This Agreement shall inure to the benefit of and be enforceable by the Executive's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If the Executive shall die while any amount would still be payable to the Executive hereunder (other than amounts which, by their terms, terminate upon the death of the Executive) if the Executive had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to the executors, personal representatives or administrators of the Executive's estate. 10. Notices. For the purpose of this Agreement, notices and all other communications provided for in the Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States registered mail, return receipt requested, postage prepaid, addressed to the respective addresses set forth below, or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notice of change of address shall be effective only upon actual receipt: To the Company: New England Power Service Company 25 Research Drive Westborough, MA 01582-0099 Attention: Director of Human Resources To the Executive: _______________________ _______________________ _______________________ 11. Miscellaneous. No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing and signed by the Executive and such officer as may be specifically designated by the Board. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. This Agreement supersedes any other agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of The Commonwealth of Massachusetts. All references to sections of the Exchange Act or the Code shall be deemed also to refer to any successor provisions to such sections. Any payments provided for hereunder shall be paid net of any applicable withholding required under federal, state or local law and any additional withholding to which the Executive has agreed. The obligations of the Company and the Executive under Sections 6 and 7 shall survive the expiration of the term of this Agreement. 12. Validity. The invalidity or unenforceability or any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. 13. Counterparts. This Agreement may be executed in several counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. 14. Settlement of Disputes; Arbitration. All claims by the Executive for benefits under this Agreement shall be directed to and determined by the Board and shall be in writing. Any denial by the Board of a claim for benefits under this Agreement shall be delivered to the Executive in writing and shall set forth the specific reasons for the denial and the specific provisions of this Agreement relied upon. The Board shall afford a reasonable opportunity to the Executive for a review of the decision denying a claim and shall further allow the Executive to appeal to the Board a decision of the Board within sixty (60) days after notification by the Board that the Executive's claim has been denied. Any further dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration in Boston, Massachusetts, in accordance with the rules of the American Arbitration Association then in effect. Judgment may be entered on the arbitrator's award in any court having jurisdiction; provided, however, that the Executive shall be entitled to seek specific performance of the Executive's right to be paid until the Date of Termination during the pendency of any dispute or controversy arising under or in connection with this Agreement. 15. Definitions. For purposes of this Agreement, the following terms shall have the meanings indicated below: (A) "Base Amount" shall have the meaning defined in section 280G(b)(3) of the Code. (B) "Beneficial Owner" shall have the meaning defined in Rule 13d-3 under the Exchange Act. (C) "Board" shall mean the Board of Directors of the Company. (D) "Cause" for termination by the Employer of the Executive's employment, after any Change in Control or Major Transaction, shall mean (i) the willful and continued failure by the Executive to substantially perform the Executive's duties with the System (other than any such failure resulting from the Executive's incapacity due to physical or mental illness or any such actual or anticipated failure after the issuance of a Notice of Termination for Good Reason by the Executive pursuant to Section 7.1) after a written demand for substantial performance is delivered to the Executive by the Board, which demand specifically identifies the manner in which the Board believes that the Executive has not substantially performed the Executive's duties, or (ii) the willful engaging by the Executive in conduct which is demonstrably and materially injurious to the System, monetarily or otherwise. For purposes of clauses (i) and (ii) of this definition, no act, or failure to act, on the Executive's part shall be deemed "willful" unless done, or omitted to be done, by the Executive not in good faith and without reasonable belief that the Executive's act, or failure to act, was in the best interest of the System. (E) A "Change in Control" shall be deemed to have occurred if the conditions set forth in any one of the following paragraphs shall have been satisfied: (I) any Person is or becomes the Beneficial Owner, directly or indirectly, of securities of the Company (not including in the securities beneficially owned by such Person any securities acquired directly from the Company or its affiliates) representing 20% or more of the combined voting power of the Company's then outstanding securities; or (II) during any period of not more than two consecutive years (not including any period prior to the execution of this Agreement), individuals who at the beginning of such period constitute the Board and any new director (other than a director designated by a Person who has entered into an agreement with the Company to effect a transaction described in clause (I) of this paragraph) whose election by the Board or nomination for election by the Company's shareholders was approved or recommended by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved or recommended, cease for any reason to constitute a majority thereof. (F) "Code" shall mean the Internal Revenue Code of 1986, as amended from time to time. (G) "Company" shall mean New England Electric System and any successor to its business and/or assets which assumes and agrees to perform this Agreement by operation of law, or otherwise (except in determining, under Section 15(E) hereof, whether or not any Change in Control or Major Transaction has occurred in connection with such succession). (H) "Date of Termination" shall have the meaning stated in Section 7.2 hereof. (I) "Disability" shall be deemed the reason for the termination by the Employer of the Executive's employment, if, as a result of the Executive's incapacity due to physical or mental illness, the Executive shall have been absent from the full-time performance of the Executive's duties with the System for a period of six (6) consecutive months, the Company shall have given the Executive a Notice of Termination for Disability, and, within thirty (30) days after such Notice of Termination is given, the Executive shall not have returned to the full-time performance of the Executive's duties. (J) "Disability Insurance Plan" shall mean the Company Disability Insurance Plan or any successor thereto. (K) "Employer" shall mean the NEES Company by which the Executive is employed at the time of determination. (L) "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended from time to time. (M) "Excise Tax" shall mean any excise tax imposed under section 4999 of the Code. (N) "Executive" shall mean the individual named in the first paragraph of this Agreement. (O) "Good Reason" for termination by the Executive of the Executive's employment shall mean the occurrence (without the Executive's express written consent) of any one of the following acts by the System, or failures by the System to act, unless, in the case of any act or failure to act described in paragraph (I), (V), (VI), (VII), or (VIII) below, such act or failure to act is corrected prior to the Date of Termination specified in the Notice of Termination given in respect thereof: (I) the assignment to the Executive of duties substantially inconsistent with the Executive's status as an executive officer of the System; (II) a reduction in the Executive's annual base salary as in effect on the date hereof or as the same may be increased from time to time; (III) requiring the Executive to be based at a location more than 100 miles from the town of Westborough, Massachusetts, except for required travel on the System's business to an extent substantially consistent with the Executive's present business travel obligations; (IV) the failure by the Employer, to pay to the Executive any portion of the Executive's compensation within seven (7) days of the date such compensation is due; (V) the failure by the System to continue in effect any compensation plan in which the Executive participates immediately prior to the Change in Control or the Major Transaction which is material to the Executive's total compensation, including but not limited to the New England Electric Companies' Incentive Compensation Plan I, New England Electric Companies' Incentive Compensation Plan II, New England Electric Companies' Senior Incentive Compensation Plan, New England Electric Companies' Incentive Share Plan, New England Electric Systems Companies' Deferred Compensation Plan and the New England Electric Companies' Executive Supplemental Retirement Plan or any substitute plans adopted prior to the Change in Control or Major Transaction, unless an equitable arrangement (embodied in an ongoing substitute or alternative plan) has been made with respect to such plan, or the failure by the System to continue the Executive's participation therein (or in such substitute or alternative plan) on a basis not substantially less favorable, both in terms of the amount of benefits provided and the level of the Executive's participation relative to other participants, as existed at the time of the Change in Control or Major Transaction; (VI) the failure by the System to continue to provide the Executive with benefits substantially similar to those enjoyed by the Executive under any of the System's pension, life insurance, medical, health and accident, or disability plans in which the Executive was participating at the time of the Change in Control or the Major Transaction, the taking of any action by the System which would directly or indirectly materially reduce any of such benefits or deprive the Executive of any material fringe benefit enjoyed by the Executive at the time of the Change in Control or Major Transaction, or the failure by the Employer to provide the Executive with the number of paid vacation days to which the Executive is entitled on the basis of years of service with the NEES Companies in accordance with the Employer's normal vacation policy in effect at the time of the Change in Control or Major Transaction; or (VII) any purported termination of the Executive's employment which is not effected pursuant to a Notice of Termination satisfying the requirements of Section 7.1; for purposes of this Agreement, no such purported termination shall be effective. The Executive's right to terminate the Executive's employment for Good Reason shall not be affected by the Executive's incapacity due to physical or mental illness. The Executive's continued employment shall not constitute consent to, or a waiver of rights with respect to, any act or failure to act constituting Good Reason hereunder. (P) A "Major Transaction" shall be deemed to have occurred if the conditions set forth in any one of the following paragraphs shall have been satisfied: (I) the shareholders of the Company approve a merger or consolidation of the Company with any corporation or business trust, other than (i) a merger or consolidation which would result in the individuals who prior to such merger or consolidation constitute the Board constituting at least two- thirds (2/3) of the board of directors of the Company or the surviving or succeeding entity immediately after such merger or consolidation, or (ii) a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no Person acquires more than 20% of the combined voting power of the Company's then outstanding securities; or (II) the shareholders of the Company approve a plan of complete liquidation of the Company; or (III) the shareholders of the Company approve an agreement for the sale or disposition by the Company of all or substantially all the Company's assets, other than a sale or disposition which would result in the individuals who prior to such sale or disposition constitute the Board constituting at least two-thirds (2/3) of the board of directors of the Person purchasing such assets immediately after such sale or disposition. (Q) "NEES Companies" shall mean all NEES Companies, collectively. (R) "NEES Company" shall mean a subsidiary of the Company. (S) "Notice of Termination" shall have the meaning stated in Section 7.1 hereof. (T) "Pension Plan" shall mean each of the plans and agreements listed in Attachment A. (U) "Person" shall have the meaning given in Section 3(a)(9) of the Exchange Act, as modified and used in Sections 13(d) and 14(d) thereof; however, a Person shall not include (i) the Company or any NEES Company, (ii) a trustee or other fiduciary holding securities under an employee benefit plan of the Company or any NEES Company, (iii) an underwriter temporarily holding securities pursuant to an offering of such securities, or (iv) a corporation owned, directly or indirectly, by the shareholders of the Company in substantially the same proportions as their ownership of shares of the Company. (V) "Potential Change in Control" shall be deemed to have occurred if the conditions set forth in any one of the following paragraphs shall have been satisfied: (I) the Company enters into an agreement, the consummation of which would result in the occurrence of a Change in Control; (II) the Company or any Person publicly announces an intention to take or to consider taking actions which, if consummated, would constitute a Change in Control; (III) any Person who is or becomes the Beneficial Owner, directly or indirectly, of securities of the Company representing 10% or more of the combined voting power of the Company's then outstanding securities, increases such Person's beneficial ownership of such securities by 5% or more over the percentage so owned by such Person on the date hereof unless such Person has reported or is required to report such ownership (but less than 25%) on Schedule 13G under the Exchange Act (or any comparable or successor report) or on Schedule 13D under the Exchange Act (or any comparable or successor report) which Schedule 13D does not state any intention to or reserve the right to control or influence the management or policies of the Company or engage in any of the actions specified in Item 4 of such Schedule (other than the disposition of the common shares) and, within 10 business days of being requested by the Company to advise it regarding the same, certifies to the Company that such Person acquired such securities of the Company in excess of 14.9% inadvertently and who, together with its affiliates, thereafter does not acquire additional securities while the Beneficial Owner of 15% or more of the securities then outstanding; provided, however, that if the Person requested to so certify fails to do so within 10 business days, then such occurrence shall become a Potential Change in Control immediately after such 10 business day period; or (IV) the Board adopts a resolution to the effect that, for purposes of this Agreement, a Potential Change in Control has occurred. (W) "Potential Major Transaction" shall be deemed to have occurred if the conditions set forth in any one of the following paragraphs shall have been satisfied: (I) the Company enters into an agreement, the consummation of which would result in the occurrence of a Major Transaction; (II) the Company or any Person publicly announces an intention to take or to consider taking actions which, if consummated, would constitute a Major Transaction; or (III) the Board adopts a resolution to the effect that, for purposes of this Agreement, a Potential Major Transaction has occurred. (X) "Retirement" shall be deemed the reason for the termination by the Employer or the Executive of the Executive's employment if such employment is terminated in accordance with the Employer's written mandatory retirement policy, if any, as in effect immediately prior to the Change in Control or Major Transaction, or in accordance with any retirement arrangement established with the Executive's written consent with respect to the Executive. (Y) "Severance Payments" shall mean those payments described in Section 6.1 hereof. (Z) "System" shall mean the Company and the NEES Companies, collectively. (AA) "Total Payments" shall mean those payments described in Section 6.2 hereof. New England Electric System By Chairman of the Compensation Committee ATTACHMENT A ------------ New England Electric System Companies' Final Average Pay Pension Plan I New England Electric Companies' Executive Supplemental Retirement Plan Letter dated February 23, 1994, from John W. Rowe AGREEMENT BETWEEN NEW ENGLAND ELECTRIC SYSTEM AND _________________________ Dated ___________________ TABLE OF CONTENTS ----------------- Page ---- 1. Defined Terms . . . . . . . . . . . . . . . . . . . . . . 1 2. Term of Agreement . . . . . . . . . . . . . . . . . . . . 1 3. Company's Covenants Summarized. . . . . . . . . . . . . . 2 4. The Executive's Covenants . . . . . . . . . . . . . . . . 2 5. Compensation Other Than Severance Payments. . . . . . . . 3 6. Severance Payments. . . . . . . . . . . . . . . . . . . . 4 7. Termination Procedures and Compensation During Dispute. . 10 8. No Mitigation . . . . . . . . . . . . . . . . . . . . . . 11 9. Successors; Binding Agreement . . . . . . . . . . . . . . 12 10. Notices . . . . . . . . . . . . . . . . . . . . . . . . . 13 11. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . 13 12. Validity. . . . . . . . . . . . . . . . . . . . . . . . . 14 13. Counterparts. . . . . . . . . . . . . . . . . . . . . . . 14 14. Settlement of Disputes; Arbitration . . . . . . . . . . . 14 15. Definitions . . . . . . . . . . . . . . . . . . . . . . . 14 AGREEMENT --------- THIS AGREEMENT dated February 28, 1995, is made by and between New England Electric System, a Massachusetts business trust (the "Company"), and _________________ (the "Executive"). WHEREAS the Company considers it essential to the best interests of its shareholders to foster the continuous employment of key management personnel; and WHEREAS the Board of Directors of the Company (the "Board") recognizes that, as is the case with many publicly-held companies, the possibility of a Change in Control or a Major Transaction (as defined in the last Section hereof) exists and that such possibility, and the uncertainty and questions which it may raise among management, may result in the departure or distraction of management personnel to the detriment of the Company and its shareholders; and WHEREAS the Board has determined that appropriate steps should be taken to reinforce and encourage the continued attention and dedication of members of the management of the Company and its subsidiaries (collectively, the "System"), including the Executive, to their assigned duties without distraction in the face of potentially disruptive circumstances arising from the possibility of a Change in Control or a Major Transaction; NOW THEREFORE, in consideration of the premises and the mutual covenants herein contained, the Company and the Executive hereby agree as follows: 16. Defined Terms. The definition of capitalized terms used in this Agreement is provided in the last Section hereof. 17. Term of Agreement. This Agreement shall commence on the date hereof and shall continue in effect through December 31, 1997; provided, however, that commencing on January 1, 1996 and each January 1 thereafter, the term of this Agreement shall automatically be extended for one additional year unless, not later than September 30 of the preceding year, the Company or the Executive shall have given notice not to extend this Agreement or a Change in Control or a Major Transaction shall have occurred prior to such January 1; provided, however, if a Change in Control or a Major Transaction shall have occurred during the term of this Agreement, this Agreement shall continue in effect for a period of thirty-six (36) months beyond the month in which such Change in Control or Major Transaction occurred. 18. Company's Covenants Summarized. In order to induce the Executive to remain in the employ of the NEES Companies and in consideration of the Executive's covenants set forth in Section 4 hereof, the Company agrees, under the conditions described herein, to pay the Executive the "Severance Payments" described in Section 6.1 hereof and the other payments and benefits described herein in the event the Executive's employment with the NEES Companies is terminated following a Change in Control or a Major Transaction and during the term of this Agreement. The obligations of the Company hereunder shall be deemed satisfied to the extent payments are made by any NEES Company. No amount or benefit shall be payable under this Agreement unless there shall have been (or, under the terms hereof, there shall be deemed to have been) a termination of the Executive's employment with the NEES Companies following a Change in Control or a Major Transaction. This Agreement shall not be construed as creating an express or implied contract of employment and, except as otherwise agreed in writing between the Executive and the Company, the Executive shall not have any right to be retained in the employ of the NEES Companies. 19. The Executive's Covenants. The Executive agrees that, subject to the terms and conditions of this Agreement, in the event of a Potential Change in Control or a Potential Major Transaction during the term of this Agreement, the Executive will remain in the employ of the NEES Companies until the earliest of (i) a date which is twelve (12) months from the date of such Potential Change of Control or Potential Major Transaction, (ii) the date of a Change in Control or a Major Transaction, (iii) the date of termination by the Executive of the Executive's employment for Good Reason (determined by treating the Potential Change in Control or Potential Major Transaction as a Change in Control or a Major Transaction, as applicable, in applying the definition of Good Reason), by reason of death or Disability or Retirement, or (iv) the termination by the NEES Companies of the Executive's employment for any reason. 20. Compensation Other Than Severance Payments. 20.1 Following a Change in Control or a Major Transaction and during the term of this Agreement, during any period that the Executive fails to perform the Executive's full-time duties with the NEES Companies as a result of incapacity due to physical or mental illness, the Company shall provide the Executive with disability benefits equivalent to those under the Disability Insurance Plan (without regard to any amendment to such plan made subsequent to the Change in Control or Major Transaction which amendment adversely affect the Executive's rights thereunder) until the Executive's employment is terminated by the Employer for Disability. 20.2 If the Executive's employment shall be terminated for any reason following a Change in Control or a Major Transaction and during the term of this Agreement, the Company shall pay the Executive's full salary to the Executive through the Date of Termination at the rate in effect at the time the Notice of Termination is given, together with all compensation and benefits payable to the Executive through the Date of Termination under the terms of any compensation or benefit plan, program or arrangement maintained by the Employer during such period; except to the extent that the Executive is receiving payments with respect to such period, or a portion thereof, in accordance with Section 5.1. 20.3 If the Executive's employment shall be terminated for any reason following a Change in Control or a Major Transaction and during the term of this Agreement, the Company shall pay to the Executive the normal post-termination compensation and benefits due the Executive as such payments become due. Such post-termination compensation and benefits shall be determined under, and paid in accordance with, the System's applicable retirement, insurance and other compensation or benefit plans, programs and arrangements. Provided that the benefits payable to the Executive pursuant to the Standard Severance Plan for Non-Union Employees (the "Severance Plan") or its successor do not exceed benefits payable to the Executive under this Agreement, the Executive hereby waives all rights to benefits pursuant to the Severance Plan. 21. Severance Payments. 21.1 Subject to Section 6.2 hereof, the Company shall pay the Executive the payments described in this Section 6.1 (the "Severance Payments") upon the termination of the Executive's employment following a Change in Control or a Major Transaction and during the term of this Agreement, in addition to the payments and benefits described in Section 5 hereof, unless such termination is (i) by the Employer for Cause, (ii) by reason of death, Disability or Retirement, or (iii) by the Executive without Good Reason. The Executive's employment shall be deemed to have been terminated following a Change in Control or a Major Transaction by the Employer without cause or by the Executive with Good Reason if the Executive's employment is terminated prior to a Change in Control or a Major Transaction without cause at the direction of a Person who has entered into an agreement with the Company the consummation of which will constitute a Change in Control or a Major Transaction, or if the Executive terminates his employment with Good Reason prior to a Change in Control or a Major Transaction (determined by treating a Potential Change in Control or Potential Major Transaction as a Change in Control or a Major Transaction, as applicable, in applying the definition of Good Reason) if the circumstance or event which constitutes Good Reason occurs at the direction of such Person. (A) In lieu of any further salary payments to the Executive for periods subsequent to the Date of Termination, the Company shall pay to the Executive a lump sum severance payment, in cash, equal to two times the sum of (i) the higher of the Executive's annual base salary in effect as of the Date of Termination or in effect immediately prior to the Change in Control or Major Transaction, and (ii) the higher of the average amount paid to the Executive pursuant to the New England Electric Companies' Senior Incentive Compensation Plan, New England Electric Companies' Incentive Compensation Plan I, New England Electric Companies' Incentive Compensation Plan II, Performance Based Bonus Plan, and the Incentive Share Plan or successors of any such plans, with respect to the three years preceding the year in which the Date of Termination occurs or the average amount paid with respect to the three years preceding the year in which the Change in Control or Major Transaction occurs. (B) In addition to the retirement benefits to which the Executive is entitled under each Pension Plan or any successor plan thereto, the Company shall pay the Executive a lump sum amount, in cash, equal to the excess of (x) the actuarial equivalent of the retirement pension (taking into account any early retirement subsidies associated therewith and determined as a straight life annuity commencing at the later of age 55 or the second anniversary of the Date of Termination) which the Executive would have accrued under the terms of each such Pension Plan (without regard to any amendment to such Pension Plan made subsequent to a Change in Control or a Major Transaction, which amendment adversely affects in any manner the computation of retirement benefits thereunder), determined as if the Executive were fully vested thereunder and had accumulated (after the Date of Termination) twenty- four (24) additional months of service credit thereunder and had been credited under each such Pension Plan during such period with compensation at the higher of (a) Executive's compensation (as defined in such Pension Plan) during the twelve (12) months immediately preceding the Date of Termination or (b) Executive's compensation (as defined in such Pension Plan) during the twelve (12) months immediately preceding the Change in Control or Major Transaction, over (y) the actuarial equivalent of the retirement pension (taking into account any early retirement subsidies associated therewith and determined as a straight life annuity commencing at the later of age 55 or the Date of Termination) which the Executive had accrued pursuant to the provisions of each such Pension Plan as of the Date of Termination. For purposes of this Section 6.1(B), "actuarial equivalent" shall be determined using the same methods and assumptions utilized under the New England Electric Companies' Final Average Pay Plan I (or a successor thereto) immediately prior to the Date of Termination (without regard to any amendment of such methods and assumptions made subsequent to a Change in Control or a Major Transaction, which amendment results in a lower actuarial equivalent value). The discount rate used for the calculation of benefits hereunder shall be that used by the System for valuing the liabilities of the New England Electric Companies' Final Average Pay Plan I (or a successor thereto) immediately prior to the Date of Termination. (C) If the Executive would have become entitled to benefits under the System's post-retirement health care or life insurance plans had his employment terminated at any time during the period of twenty- four months after the Date of Termination, the Company shall pay such benefits to the Executive commencing on the later of (a) the date that such coverage would have first become available and (b) the date the benefits described in (D) below terminate. (D) For the twenty-four (24) month period immediately following the Date of Termination, the Company shall arrange to provide the Executive with life, disability, accident and health insurance benefits substantially similar to those which the Executive is receiving immediately prior to the Notice of Termination (without giving effect to any reduction in such benefits subsequent to a Change in Control or a Major Transaction which reduction constitutes Good Reason). Benefits otherwise receivable by the Executive pursuant to this Section 6.1(D) shall be reduced to the extent comparable benefits are actually received by or made available to the Executive without cost during the twenty- four (24) month period following the Executive's termination of employment (and any such benefits actually received by the Executive shall be reported to the Company by the Executive). If the benefits provided to the Executive under this Section 6.1(D) shall result in a decrease, pursuant to Section 6.2, in the Severance Payments and these Section 6.1(D) benefits are thereafter reduced pursuant to the immediately preceding sentence because of the receipt of comparable benefits, the Company shall, at the time of such reduction, pay to the Executive the lesser of (a) the amount of the decrease made in the Severance Payments pursuant to Section 6.2, or (b) the maximum amount which can be paid to the Executive without being, or causing any other payment to be, nondeductible by reason of section 280G of the Code. 21.2 Notwithstanding any other provisions of this Agreement, in the event that any payment or benefit received or to be received by the Executive in connection with a Change in Control or a Major Transaction, or the termination of the Executive's employment (whether pursuant to the terms of this Agreement or any other plan, arrangement or agreement with the System, any Person whose actions result in a Change in Control or a Major Transaction or any Person affiliated with the System or such Person) (all such payments and benefits, including the Severance Payments, being hereinafter called "Total Payments") would not be deductible (in whole or part), by the System, an affiliate or Person making such payment or providing such benefit as a result of section 280G of the Code, then, to the extent necessary to eliminate the nondeductability of such portion of the Total Payments under section 280G of the Code (and after taking into account any reduction in the Total Payments provided by reason of section 280G of the Code in such other plan, arrangement or agreement), (A) the cash Severance Payments shall first be reduced (if necessary, to zero), and (B) all other non-cash Severance Payments shall next be reduced (if necessary, to zero). For purposes of this limitation (i) no portion of the Total Payments the receipt or enjoyment of which the Executive shall have effectively waived in writing prior to the Date of Termination shall be taken into account, (ii) no portion of the Total Payments shall be taken into account which in the opinion of tax counsel selected by the Company's independent auditors and reasonably acceptable to the Executive does not constitute a "parachute payment" within the meaning of section 280G(b)(2) of the Code, including by reason of section 280G(b)(4)(A) of the Code, (iii) the Severance Payments shall be reduced only to the extent necessary so that the Total Payments (other than those referred to in clauses (i) or (ii)) in their entirety constitute reasonable compensation for services actually rendered within the meaning of section 280G(b)(4)(B) of the Code or are otherwise not subject to disallowance as deductions pursuant to section 280G of the Code, in the opinion of the tax counsel referred to in clause (ii); and (iv) the value of any non-cash benefit or any deferred payment or benefit included in the Total Payments shall be determined by the Company's independent auditors in accordance with the principles of sections 280G(d)(3) and (4) of the Code. If it is established pursuant to a final determination of a court or an Internal Revenue Service proceeding that, notwithstanding the good faith of the Executive and the Company in applying the terms of this Section 6.2, the aggregate "parachute payments" paid to or for the Executive's benefit are in an amount that would result in any portion of such "parachute payments" not being deductible by reason of section 280G of the Code, then the Executive shall have an obligation to pay the Company upon demand an amount equal to the sum of (i) the excess of the aggregate "parachute payments" paid to or for the Executive's benefit over the aggregate "parachute payments" that could have been paid to or for the Executive's benefit without any portion of such "parachute payments" not being deductible by reason of section 280G of the Code; and (ii) interest on the amount set forth in clause (i) of this sentence at the rate provided in section 1274(b)(2)(B) of the Code from the date of the Executive's receipt of such excess until the date of such payment. 21.3 The payments provided for in Section 6.1 (other than Section 6.1(D)) hereof shall be made not later than the fifth day following the Date of Termination, provided, however, that if the amounts of such payments, and the limitation on such payments set forth in Section 6.2 hereof, cannot be finally determined on or before such day, the Company shall pay to the Executive on such day an estimate, as determined in good faith by the Company, of the minimum amount of such payments to which the Executive is clearly entitled and shall pay the remainder of such payments (together with interest at the rate provided in section 1274(b)(2)(B) of the Code) as soon as the amount thereof can be determined but in no event later than the thirtieth (30th) day after the Date of Termination. In the event that the amount of the estimated payments exceeds the amount subsequently determined to have been due, such excess shall constitute a loan by the Company to the Executive, payable on the fifth (5th) business day after demand by the Company (together with interest at the rate provided in section 1274(b)(2)(B) of the Code). At the time that payments are made under this Section, the Company shall provide the Executive with a written statement setting forth the manner in which such payments were calculated and the basis for such calculations including, without limitation, any opinions or other advice the Company has received from counsel, auditors or consultants (and any such opinions or advice which are in writing shall be attached to the statement). 21.4 The Company also shall pay to the Executive all legal fees and expenses incurred by the Executive in disputing in good faith any termination of his employment hereunder or in seeking in good faith to obtain or enforce any benefit or right provided by this Agreement or in connection with any tax audit or proceeding to the extent attributable to the application of section 4999 of the Code to any payment or benefit provided hereunder. Such payments shall be made within five (5) business days after delivery of the Executive's written requests for payment accompanied with such evidence of fees and expenses incurred as the Company reasonably may require. 22. Termination Procedures and Compensation During Dispute. 22.1 Notice of Termination. After a Change in Control or a Major Transaction and during the term of this Agreement, any purported termination of the Executive's employment (other than by reason of death) shall be communicated by written Notice of Termination from one party hereto to the other party hereto in accordance with Section 10 hereof. For purposes of this Agreement, a "Notice of Termination" shall mean a notice which shall indicate the specific termination provision in this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated. Further, a Notice of Termination for Cause is required to include a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters (3/4) of the entire membership of the Board at a meeting of the Board which was called and held for the purpose of considering such termination (after reasonable notice to the Executive and an opportunity for the Executive, together with the Executive's counsel, to be heard before the Board) finding that, in the good faith opinion of the Board, the Executive was guilty of conduct set forth in clause (i) or (ii) of the definition of Cause herein, and specifying the particulars thereof in detail. 22.2 Date of Termination. "Date of Termination", with respect to any purported termination of the Executive's employment after a Change in Control or a Major Transaction and during the term of this Agreement, shall mean (i) if the Executive's employment is terminated for Disability, thirty (30) days after Notice of Termination is given (provided that the Executive shall not have returned to the full-time performance of the Executive's duties during such thirty (30) day period), and (ii) if the Executive's employment is terminated for any other reason, the date specified in the Notice of Termination (which, in the case of a termination by the Employer, shall not be less than thirty (30) days (except in the case of a termination for Cause) and, in the case of a termination by the Executive, shall not be less than fifteen (15) days nor more than sixty (60) days, respectively, from the date such Notice of Termination is given). 22.3 Dispute Concerning Termination. If within fifteen (15) days after any Notice of Termination is given, or, if later, prior to the Date of Termination (as determined without regard to this Section 7.3), the party receiving such Notice of Termination notifies the other party that a dispute exists concerning the termination, the Date of Termination shall be the date on which the dispute is finally resolved, either by mutual written agreement of the parties or by a final judgment, order or decree of a court of competent jurisdiction (which is not appealable or with respect to which the time for appeal therefrom has expired and no appeal has been perfected); provided further that the Date of Termination shall be extended by a notice of dispute only if such notice is given in good faith and the party giving such notice pursues the resolution of such dispute with reasonable diligence. 22.4 Compensation During Dispute. If a purported termination occurs following a Change in Control or a Major Transaction and during the term of this Agreement, and such termination is disputed in accordance with Section 7.3 hereof, the Company shall pay the Executive the full compensation in effect when the notice giving rise to the dispute was given (including, but not limited to, salary) and continue the Executive as a participant in all compensation, benefit and insurance plans in which the Executive was participating when the notice giving rise to the dispute was given, until the dispute is finally resolved in accordance with Section 7.3 hereof. Amounts paid under this Section 7.4 are in addition to all other amounts due under this Agreement (other than those due under Section 5.2 hereof) and shall not be offset against or reduce any other amounts due under this Agreement. 23. No Mitigation. The Company agrees that, if the Executive's employment with the NEES Companies terminates during the term of this Agreement, the Executive is not required to seek other employment or to attempt in any way to reduce any amounts payable to the Executive by the Company pursuant to this Agreement. Further, the amount of any payment or benefit provided for in this Agreement (other than in Section 6.1(D) hereof) shall not be reduced by any compensation earned by the Executive as the result of employment by another employer, by retirement benefits, by offset against any amount claimed to be owed by the Executive to the System, or otherwise. 24. Successors; Binding Agreement. 24.1 In addition to any obligations imposed by law upon any successor to the Company, the Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. Failure of the Company to obtain such assumption and agreement prior to the effectiveness of any such succession shall be a breach of this Agreement and shall entitle the Executive to compensation from the Company in the same amount and on the same terms as the Executive would be entitled to hereunder if the Executive were to terminate the Executive's employment for Good Reason after a Change in Control or a Major Transaction, except that, for purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed the Date of Termination. 24.2 This Agreement shall inure to the benefit of and be enforceable by the Executive's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If the Executive shall die while any amount would still be payable to the Executive hereunder (other than amounts which, by their terms, terminate upon the death of the Executive) if the Executive had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to the executors, personal representatives or administrators of the Executive's estate. 25. Notices. For the purpose of this Agreement, notices and all other communications provided for in the Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States registered mail, return receipt requested, postage prepaid, addressed to the respective addresses set forth below, or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notice of change of address shall be effective only upon actual receipt: To the Company: New England Power Service Company 25 Research Drive Westborough, MA 01582-0099 Attention: Director of Human Resources To the Executive: _______________________ _______________________ _______________________ 26. Miscellaneous. No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing and signed by the Executive and such officer as may be specifically designated by the Board. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. This Agreement supersedes any other agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of The Commonwealth of Massachusetts. All references to sections of the Exchange Act or the Code shall be deemed also to refer to any successor provisions to such sections. Any payments provided for hereunder shall be paid net of any applicable withholding required under federal, state or local law and any additional withholding to which the Executive has agreed. The obligations of the Company and the Executive under Sections 6 and 7 shall survive the expiration of the term of this Agreement. 27. Validity. The invalidity or unenforceability or any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. 28. Counterparts. This Agreement may be executed in several counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. 29. Settlement of Disputes; Arbitration. All claims by the Executive for benefits under this Agreement shall be directed to and determined by the Board and shall be in writing. Any denial by the Board of a claim for benefits under this Agreement shall be delivered to the Executive in writing and shall set forth the specific reasons for the denial and the specific provisions of this Agreement relied upon. The Board shall afford a reasonable opportunity to the Executive for a review of the decision denying a claim and shall further allow the Executive to appeal to the Board a decision of the Board within sixty (60) days after notification by the Board that the Executive's claim has been denied. Any further dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration in Boston, Massachusetts, in accordance with the rules of the American Arbitration Association then in effect. Judgment may be entered on the arbitrator's award in any court having jurisdiction; provided, however, that the Executive shall be entitled to seek specific performance of the Executive's right to be paid until the Date of Termination during the pendency of any dispute or controversy arising under or in connection with this Agreement. 30. Definitions. For purposes of this Agreement, the following terms shall have the meanings indicated below: (A) "Beneficial Owner" shall have the meaning defined in Rule 13d-3 under the Exchange Act. (B) "Board" shall mean the Board of Directors of the Company. (C) "Cause" for termination by the Employer of the Executive's employment, after any Change in Control or Major Transaction, shall mean (i) the willful and continued failure by the Executive to substantially perform the Executive's duties with the System (other than any such failure resulting from the Executive's incapacity due to physical or mental illness or any such actual or anticipated failure after the issuance of a Notice of Termination for Good Reason by the Executive pursuant to Section 7.1) after a written demand for substantial performance is delivered to the Executive by the Board, which demand specifically identifies the manner in which the Board believes that the Executive has not substantially performed the Executive's duties, or (ii) the willful engaging by the Executive in conduct which is demonstrably and materially injurious to the System, monetarily or otherwise. For purposes of clauses (i) and (ii) of this definition, no act, or failure to act, on the Executive's part shall be deemed "willful" unless done, or omitted to be done, by the Executive not in good faith and without reasonable belief that the Executive's act, or failure to act, was in the best interest of the System. (D) A "Change in Control" shall be deemed to have occurred if the conditions set forth in any one of the following paragraphs shall have been satisfied: (I) any Person is or becomes the Beneficial Owner, directly or indirectly, of securities of the Company (not including in the securities beneficially owned by such Person any securities acquired directly from the Company or its affiliates) representing 20% or more of the combined voting power of the Company's then outstanding securities; or (II) during any period of not more than two consecutive years (not including any period prior to the execution of this Agreement), individuals who at the beginning of such period constitute the Board and any new director (other than a director designated by a Person who has entered into an agreement with the Company to effect a transaction described in clause (I) of this paragraph) whose election by the Board or nomination for election by the Company's shareholders was approved or recommended by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved or recommended, cease for any reason to constitute a majority thereof. (E) "Code" shall mean the Internal Revenue Code of 1986, as amended from time to time. (F) "Company" shall mean New England Electric System and any successor to its business and/or assets which assumes and agrees to perform this Agreement by operation of law, or otherwise (except in determining, under Section 15(E) hereof, whether or not any Change in Control or Major Transaction has occurred in connection with such succession). (G) "Date of Termination" shall have the meaning stated in Section 7.2 hereof. (H) "Disability" shall be deemed the reason for the termination by the Employer of the Executive's employment, if, as a result of the Executive's incapacity due to physical or mental illness, the Executive shall have been absent from the full-time performance of the Executive's duties with the System for a period of six (6) consecutive months, the Company shall have given the Executive a Notice of Termination for Disability, and, within thirty (30) days after such Notice of Termination is given, the Executive shall not have returned to the full-time performance of the Executive's duties. (I) "Disability Insurance Plan" shall mean the Company Disability Insurance Plan or any successor thereto. (J) "Employer" shall mean the NEES Company by which the Executive is employed at the time of determination. (K) "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended from time to time. (L) "Executive" shall mean the individual named in the first paragraph of this Agreement. (M) "Good Reason" for termination by the Executive of the Executive's employment shall mean the occurrence (without the Executive's express written consent) of any one of the following acts by the System, or failures by the System to act, unless, in the case of any act or failure to act described in paragraph (I), (V), (VI), (VII), or (VIII) below, such act or failure to act is corrected prior to the Date of Termination specified in the Notice of Termination given in respect thereof: (I) the assignment to the Executive of duties substantially inconsistent with the Executive's status as an executive officer of the System; (II) a reduction in the Executive's annual base salary as in effect on the date hereof or as the same may be increased from time to time; (III) requiring the Executive to be based at a location more than 100 miles from the town of Westborough, Massachusetts, except for required travel on the System's business to an extent substantially consistent with the Executive's present business travel obligations; (IV) the failure by the Employer, to pay to the Executive any portion of the Executive's compensation within seven (7) days of the date such compensation is due; (V) the failure by the System to continue in effect any compensation plan in which the Executive participates immediately prior to the Change in Control or the Major Transaction which is material to the Executive's total compensation, including but not limited to the New England Electric Companies' Incentive Compensation Plan I, New England Electric Companies' Incentive Compensation Plan II, New England Electric Companies' Senior Incentive Compensation Plan, New England Electric Companies' Incentive Share Plan, New England Electric Systems Companies' Deferred Compensation Plan and the New England Electric Companies' Executive Supplemental Retirement Plan or any substitute plans adopted prior to the Change in Control or Major Transaction, unless an equitable arrangement (embodied in an ongoing substitute or alternative plan) has been made with respect to such plan, or the failure by the System to continue the Executive's participation therein (or in such substitute or alternative plan) on a basis not substantially less favorable, both in terms of the amount of benefits provided and the level of the Executive's participation relative to other participants, as existed at the time of the Change in Control or Major Transaction; (VI) the failure by the System to continue to provide the Executive with benefits substantially similar to those enjoyed by the Executive under any of the System's pension, life insurance, medical, health and accident, or disability plans in which the Executive was participating at the time of the Change in Control or the Major Transaction, the taking of any action by the System which would directly or indirectly materially reduce any of such benefits or deprive the Executive of any material fringe benefit enjoyed by the Executive at the time of the Change in Control or Major Transaction, or the failure by the Employer to provide the Executive with the number of paid vacation days to which the Executive is entitled on the basis of years of service with the NEES Companies in accordance with the Employer's normal vacation policy in effect at the time of the Change in Control or Major Transaction; or (VII) any purported termination of the Executive's employment which is not effected pursuant to a Notice of Termination satisfying the requirements of Section 7.1; for purposes of this Agreement, no such purported termination shall be effective. The Executive's right to terminate the Executive's employment for Good Reason shall not be affected by the Executive's incapacity due to physical or mental illness. The Executive's continued employment shall not constitute consent to, or a waiver of rights with respect to, any act or failure to act constituting Good Reason hereunder. (N) A "Major Transaction" shall be deemed to have occurred if the conditions set forth in any one of the following paragraphs shall have been satisfied: (I) the shareholders of the Company approve a merger or consolidation of the Company with any corporation or business trust, other than (i) a merger or consolidation which would result in the individuals who prior to such merger or consolidation constitute the Board constituting at least two- thirds (2/3) of the board of directors of the Company or the surviving or succeeding entity immediately after such merger or consolidation, or (ii) a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no Person acquires more than 20% of the combined voting power of the Company's then outstanding securities; or (II) the shareholders of the Company approve a plan of complete liquidation of the Company; or (III) the shareholders of the Company approve an agreement for the sale or disposition by the Company of all or substantially all the Company's assets, other than a sale or disposition which would result in the individuals who prior to such sale or disposition constitute the Board constituting at least two-thirds (2/3) of the board of directors of the Person purchasing such assets immediately after such sale or disposition. (O) "NEES Companies" shall mean all NEES Companies, collectively. (P) "NEES Company" shall mean a subsidiary of the Company. (Q) "Notice of Termination" shall have the meaning stated in Section 7.1 hereof. (R) "Pension Plan" shall mean each of the plans and agreements listed in Attachment A. (S) "Person" shall have the meaning given in Section 3(a)(9) of the Exchange Act, as modified and used in Sections 13(d) and 14(d) thereof; however, a Person shall not include (i) the Company or any NEES Company, (ii) a trustee or other fiduciary holding securities under an employee benefit plan of the Company or any NEES Company, (iii) an underwriter temporarily holding securities pursuant to an offering of such securities, or (iv) a corporation owned, directly or indirectly, by the shareholders of the Company in substantially the same proportions as their ownership of shares of the Company. (T) "Potential Change in Control" shall be deemed to have occurred if the conditions set forth in any one of the following paragraphs shall have been satisfied: (I) the Company enters into an agreement, the consummation of which would result in the occurrence of a Change in Control; (II) the Company or any Person publicly announces an intention to take or to consider taking actions which, if consummated, would constitute a Change in Control; (III) any Person who is or becomes the Beneficial Owner, directly or indirectly, of securities of the Company representing 10% or more of the combined voting power of the Company's then outstanding securities, increases such Person's beneficial ownership of such securities by 5% or more over the percentage so owned by such Person on the date hereof unless such Person has reported or is required to report such ownership (but less than 25%) on Schedule 13G under the Exchange Act (or any comparable or successor report) or on Schedule 13D under the Exchange Act (or any comparable or successor report) which Schedule 13D does not state any intention to or reserve the right to control or influence the management or policies of the Company or engage in any of the actions specified in Item 4 of such Schedule (other than the disposition of the common shares) and, within 10 business days of being requested by the Company to advise it regarding the same, certifies to the Company that such Person acquired such securities of the Company in excess of 14.9% inadvertently and who, together with its affiliates, thereafter does not acquire additional securities while the Beneficial Owner of 15% or more of the securities then outstanding; provided, however, that if the Person requested to so certify fails to do so within 10 business days, then such occurrence shall become a Potential Change in Control immediately after such 10 business day period; or (IV) the Board adopts a resolution to the effect that, for purposes of this Agreement, a Potential Change in Control has occurred. (U) "Potential Major Transaction" shall be deemed to have occurred if the conditions set forth in any one of the following paragraphs shall have been satisfied: (I) the Company enters into an agreement, the consummation of which would result in the occurrence of a Major Transaction; (II) the Company or any Person publicly announces an intention to take or to consider taking actions which, if consummated, would constitute a Major Transaction; or (III) the Board adopts a resolution to the effect that, for purposes of this Agreement, a Potential Major Transaction has occurred. (V) "Retirement" shall be deemed the reason for the termination by the Employer or the Executive of the Executive's employment if such employment is terminated in accordance with the Employer's written mandatory retirement policy, if any, as in effect immediately prior to the Change in Control or Major Transaction, or in accordance with any retirement arrangement established with the Executive's written consent with respect to the Executive. (W) "Severance Payments" shall mean those payments described in Section 6.1 hereof. (X) "System" shall mean the Company and the NEES Companies, collectively. (Y) "Total Payments" shall mean those payments described in Section 6.2 hereof. New England Electric System By Chairman of the Compensation Committee ATTACHMENT A ------------ New England Electric System Companies' Final Average Pay Pension Plan I New England Electric Companies' Executive Supplemental Retirement Plan EX-10 19 NEES EXHIBIT 10(CC) Exhibit 10(cc) AGREEMENT BETWEEN NEW ENGLAND ELECTRIC SYSTEM AND JOHN W. ROWE Dated February 28, 1995 TABLE OF CONTENTS ----------------- Page ---- 1. Defined Terms . . . . . . . . . . . . . . . . . . . . . . 1 2. Term of Agreement . . . . . . . . . . . . . . . . . . . . 1 3. Company's Covenants Summarized. . . . . . . . . . . . . . 2 4. The Executive's Covenants . . . . . . . . . . . . . . . . 2 5. Compensation Other Than Severance Payments. . . . . . . . 3 6. Severance Payments. . . . . . . . . . . . . . . . . . . . 4 7. Termination Procedures and Compensation During Dispute. . 10 8. No Mitigation . . . . . . . . . . . . . . . . . . . . . . 12 9. Successors; Binding Agreement . . . . . . . . . . . . . . 12 10. Notices . . . . . . . . . . . . . . . . . . . . . . . . . 13 11. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . 13 12. Validity. . . . . . . . . . . . . . . . . . . . . . . . . 14 13. Counterparts. . . . . . . . . . . . . . . . . . . . . . . 14 14. Settlement of Disputes; Arbitration . . . . . . . . . . . 14 15. Definitions . . . . . . . . . . . . . . . . . . . . . . . 15 AGREEMENT ---------- THIS AGREEMENT dated February 28, 1995, is made by and between New England Electric System, a Massachusetts business trust (the "Company"), and John W. Rowe (the "Executive"). WHEREAS the Company considers it essential to the best interests of its shareholders to foster the continuous employment of key management personnel; and WHEREAS the Board of Directors of the Company (the "Board") recognizes that, as is the case with many publicly-held companies, the possibility of a Change in Control or a Major Transaction (as defined in the last Section hereof) exists and that such possibility, and the uncertainty and questions which it may raise among management, may result in the departure or distraction of management personnel to the detriment of the Company and its shareholders; and WHEREAS the Board has determined that appropriate steps should be taken to reinforce and encourage the continued attention and dedication of members of the management of the Company and its subsidiaries (collectively, the "System"), including the Executive, to their assigned duties without distraction in the face of potentially disruptive circumstances arising from the possibility of a Change in Control or a Major Transaction; NOW THEREFORE, in consideration of the premises and the mutual covenants herein contained, the Company and the Executive hereby agree as follows: 31. Defined Terms. The definition of capitalized terms used in this Agreement is provided in the last Section hereof. 32. Term of Agreement. This Agreement shall commence on the date hereof and shall continue in effect through December 31, 1997; provided, however, that commencing on January 1, 1996 and each January 1 thereafter, the term of this Agreement shall automatically be extended for one additional year unless, not later than September 30 of the preceding year, the Company or the Executive shall have given notice not to extend this Agreement or a Change in Control or a Major Transaction shall have occurred prior to such January 1; provided, however, if a Change in Control or a Major Transaction shall have occurred during the term of this Agreement, this Agreement shall continue in effect for a period of thirty-six (36) months beyond the month in which such Change in Control or Major Transaction occurred. 33. Company's Covenants Summarized. In order to induce the Executive to remain in the employ of the NEES Companies and in consideration of the Executive's covenants set forth in Section 4 hereof, the Company agrees, under the conditions described herein, to pay the Executive the "Severance Payments" described in Section 6.1 hereof and the other payments and benefits described herein in the event the Executive's employment with the NEES Companies is terminated following a Change in Control or a Major Transaction and during the term of this Agreement. The obligations of the Company hereunder shall be deemed satisfied to the extent payments are made by any NEES Company. No amount or benefit shall be payable under this Agreement unless there shall have been (or, under the terms hereof, there shall be deemed to have been) a termination of the Executive's employment with the NEES Companies following a Change in Control or a Major Transaction. This Agreement shall not be construed as creating an express or implied contract of employment and, except as otherwise agreed in writing between the Executive and the Company, the Executive shall not have any right to be retained in the employ of the NEES Companies. 34. The Executive's Covenants. The Executive agrees that, subject to the terms and conditions of this Agreement, in the event of a Potential Change in Control or a Potential Major Transaction during the term of this Agreement, the Executive will remain in the employ of the NEES Companies until the earliest of (i) a date which is twelve (12) months from the date of such Potential Change of Control or Potential Major Transaction, (ii) the date of a Change in Control or a Major Transaction, (iii) the date of termination by the Executive of the Executive's employment for Good Reason (determined by treating the Potential Change in Control or Potential Major Transaction as a Change in Control or a Major Transaction, as applicable, in applying the definition of Good Reason), by reason of death or Disability or Retirement, or (iv) the termination by NEES Companies of the Executive's employment for any reason. 35. Compensation Other Than Severance Payments. 35.1 Following a Change in Control or a Major Transaction and during the term of this Agreement, during any period that the Executive fails to perform the Executive's full-time duties with the NEES Companies as a result of incapacity due to physical or mental illness, the Company shall provide the Executive with disability benefits equivalent to those under the Disability Insurance Plan (without regard to any amendment to such plan made subsequent to the Change in Control or Major Transaction which amendment adversely affect the Executive's rights thereunder) until the Executive's employment is terminated by the Employer for Disability. 35.2 If the Executive's employment shall be terminated for any reason following a Change in Control or a Major Transaction and during the term of this Agreement, the Company shall pay the Executive's full salary to the Executive through the Date of Termination at the rate in effect at the time the Notice of Termination is given, together with all compensation and benefits payable to the Executive through the Date of Termination under the terms of any compensation or benefit plan, program or arrangement maintained by the Employer during such period; except to the extent that the Executive is receiving payments with respect to such period, or a portion thereof, in accordance with Section 5.1. 35.3 If the Executive's employment shall be terminated for any reason following a Change in Control or a Major Transaction and during the term of this Agreement, the Company shall pay to the Executive the normal post-termination compensation and benefits due the Executive as such payments become due. Such post-termination compensation and benefits shall be determined under, and paid in accordance with, the System's applicable retirement, insurance and other compensation or benefit plans, programs and arrangements. Provided that the benefits payable to the Executive pursuant to the Standard Severance Plan for Non-Union Employees (the "Severance Plan") or its successor do not exceed benefits payable to the Executive under this Agreement, the Executive hereby waives all rights to benefits pursuant to the Severance Plan. 36. Severance Payments. 36.1 The Company shall pay the Executive the payments described in this Section 6.1 (the "Severance Payments") upon the termination of the Executive's employment following a Change in Control or a Major Transaction and during the term of this Agreement, in addition to the payments and benefits described in Section 5 hereof, unless such termination is (i) by the Employer for Cause, (ii) by reason of death, Disability or Retirement, or (iii) by the Executive without Good Reason. The Executive's employment shall be deemed to have been terminated following a Change in Control or a Major Transaction by the Employer without cause or by the Executive with Good Reason if the Executive's employment is terminated prior to a Change in Control or a Major Transaction without cause at the direction of a Person who has entered into an agreement with the Company the consummation of which will constitute a Change in Control or a Major Transaction, or if the Executive terminates his employment with Good Reason prior to a Change in Control or a Major Transaction (determined by treating a Potential Change in Control or Potential Major Transaction as a Change in Control or a Major Transaction, as applicable, in applying the definition of Good Reason) if the circumstance or event which constitutes Good Reason occurs at the direction of such Person. (A) In lieu of any further salary payments to the Executive for periods subsequent to the Date of Termination, the Company shall pay to the Executive a lump sum severance payment, in cash, equal to three times the sum of (i) the higher of the Executive's annual base salary in effect as of the Date of Termination or in effect immediately prior to the Change in Control or Major Transaction, and (ii) the higher of the average amount paid to the Executive pursuant to the New England Electric Companies' Senior Incentive Compensation Plan, New England Electric Companies' Incentive Compensation Plan I, New England Electric Companies' Incentive Compensation Plan II, Performance Based Bonus Plan, and Incentive Share Plan or successors of any such plans, with respect to the three years preceding the year in which the Date of Termination occurs or the average amount paid with respect to the three years preceding the year in which the Change in Control or Major Transaction occurs. (B) In addition to the retirement benefits to which the Executive is entitled under each Pension Plan or any successor plan thereto, the Company shall pay the Executive a lump sum amount, in cash, equal to the excess of (x) the actuarial equivalent of the retirement pension (taking into account any early retirement subsidies associated therewith and determined as a straight life annuity commencing at the later of age 55 or the third anniversary of the Date of Termination) which the Executive would have accrued under the terms of each such Pension Plan (without regard to any amendment to such Pension Plan made subsequent to a Change in Control or a Major Transaction, which amendment adversely affects in any manner the computation of retirement benefits thereunder), determined as if the Executive were fully vested thereunder and had accumulated (after the Date of Termination) thirty-six (36) additional months of service credit thereunder and had been credited under each such Pension Plan during such period with compensation at the higher of (a) Executive's compensation (as defined in such Pension Plan) during the twelve (12) months immediately preceding the Date of Termination or (b) Executive's compensation (as defined in such Pension Plan) during the twelve (12) months immediately preceding the Change in Control or Major Transaction, over (y) the actuarial equivalent of the retirement pension (taking into account any early retirement subsidies associated therewith and determined as a straight life annuity commencing at the later of age 55 or the Date of Termination) which the Executive had accrued pursuant to the provisions of each such Pension Plan as of the Date of Termination. For purposes of this Section 6.1(B), "actuarial equivalent" shall be determined using the same methods and assumptions utilized under the New England Electric Companies' Final Average Pay Plan I (or a successor thereto) immediately prior to the Date of Termination (without regard to any amendment of such methods and assumptions made subsequent to a Change in Control or a Major Transaction, which amendment results in a lower actuarial equivalent value). The discount rate used for the calculation of benefits hereunder shall be that used by the System for valuing the liabilities of the New England Electric Companies' Final Average Pay Plan I (or a successor thereto) immediately prior to the Date of Termination. (C) If the Executive would have become entitled to benefits under the System's post-retirement health care or life insurance plans had his employment terminated at any time during the period of thirty- six months after the Date of Termination, the Company shall pay such benefits to the Executive commencing on the later of (a) the date that such coverage would have first become available and (b) the date the benefits described in (D) below terminate. (D) For the thirty-six (36) month period immediately following the Date of Termination, the Company shall arrange to provide the Executive with life, disability, accident and health insurance benefits substantially similar to those which the Executive is receiving immediately prior to the Notice of Termination (without giving effect to any reduction in such benefits subsequent to a Change in Control or a Major Transaction which reduction constitutes Good Reason). Benefits otherwise receivable by the Executive pursuant to this Section 6.1(D) shall be reduced to the extent comparable benefits are actually received by or made available to the Executive without cost during the thirty-six (36) month period following the Executive's termination of employment (and any such benefits actually received by the Executive shall be reported to the Company by the Executive). (E) The Company shall pay the Executive the retirement benefit described in the New England Electric System Companies' Retirement Supplement Plan (without regard to any amendment made subsequent to a Change in Control or a Major Transaction which amendment adversely affects in any manner the computation of retirement benefits thereunder) as if the Executive were a vested participant thereunder; provided, however that such retirement benefit shall be calculated without regard to the benefits described in Section 6.1(B). 36.2 In the event that the Executive becomes entitled to the Severance Payments, if any of the Severance Payments will be subject to the Excise Tax, the Company shall pay to the Executive an additional amount (the "Gross-Up Payment") such that the net amount retained by the Executive, after deduction of any Excise Tax on the Severance Payments and any federal, state and local income tax and Excise Tax upon the payment provided for by this Section 6.2, shall be equal to the Severance Payments. For purposes of determining whether any of the Severance Payments will be subject to the Excise Tax and the amount of such Excise Tax, (i) any other payments or benefits received or to be received by the Executive in connection with a Change in Control or a Major Transaction, or the Executive's termination of employment (whether pursuant to the terms of this Agreement or any other plan, arrangement or agreement with the System, any Person whose actions result in a Change in Control or a Major Transaction or any Person affiliated with the System or such Person) shall be treated as "parachute payments" within the meaning of section 280G(b)(2) of the Code, and all "excess parachute payments" within the meaning of section 280G(b)(l) of the Code shall be treated as subject to the Excise Tax, unless in the opinion of tax counsel selected by the Company's independent auditors and reasonably acceptable to the Executive such other payments or benefits (in whole or in part) do not constitute parachute payments, including by reason of Section 280G(b)(4)(A) of the Code, or such excess parachute payments (in whole or in part) represent reasonable compensation for services actually rendered, within the meaning of section 280G(b)(4)(B) of the Code, in excess of the Base Amount allocable to such reasonable compensation, or are otherwise not subject to the Excise Tax, (ii) the amount of the Severance Payments which shall be treated as subject to the Excise Tax shall be equal to the lesser of (A) the total amount of the Severance Payments or (B) the amount of excess parachute payments within the meaning of section 280G(b)(l) of the Code (after applying clause (i), above), and (iii) the value of any non-cash benefits or any deferred payment or benefit shall be determined by the Company's independent auditors in accordance with the principles of sections 280G(d)(3) and (4) of the Code. For purposes of determining the amount of the Gross-Up Payment, the Executive shall be deemed to pay federal income taxes at the highest marginal rate of federal income taxation in the calendar year in which the Gross-Up Payment is to be made and state and local income taxes at the highest marginal rate of taxation in the state and locality of the Executive's residence on the Date of Termination, net of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes. In the event that the Excise Tax is subsequently determined to be less than the amount taken into account hereunder at the time of termination of the Executive's employment, the Executive shall repay to the Company, at the time that the amount of such reduction in Excise Tax is finally determined, the portion of the Gross-Up Payment attributable to such reduction (plus that portion of the Gross-Up Payment attributable to the Excise Tax and federal, state and local income tax imposed on the Gross-Up Payment being repaid by the Executive to the extent that such repayment results in a reduction in Excise Tax and/or a federal, state or local income tax deduction) plus interest on the amount of such repayment at the rate provided in section 1274(b)(2)(B) of the Code. In the event that the Excise Tax is determined to exceed the amount taken into account hereunder at the time of the termination of the Executive's employment (including by reason of any payment the existence or amount of which cannot be determined at the time of the Gross-Up Payment), the Company shall make an additional Gross-Up Payment in respect of such excess (plus any interest, penalties or additions payable by the Executive with respect to such excess) at the time that the amount of such excess is finally determined. The Executive and the Company shall each reasonably cooperate with the other in connection with any administrative or judicial proceedings concerning the existence or amount of liability for Excise Tax with respect to the Severance Payments. 36.3 The payments provided for in Section 6.1 (other than Sections 6.1(D) and 6.1(E)) and 6.2 hereof shall be made not later than the fifth day following the Date of Termination, provided, however, that if the amounts of such payments cannot be finally determined on or before such day, the Company shall pay to the Executive on such day an estimate, as determined in good faith by the Company, of the minimum amount of such payments to which the Executive is clearly entitled and shall pay the remainder of such payments (together with interest at the rate provided in section 1274(b)(2)(B) of the Code) as soon as the amount thereof can be determined but in no event later than the thirtieth (30th) day after the Date of Termination. In the event that the amount of the estimated payments exceeds the amount subsequently determined to have been due, such excess shall constitute a loan by the Company to the Executive, payable on the fifth (5th) business day after demand by the Company (together with interest at the rate provided in section 1274(b)(2)(B) of the Code). At the time that payments are made under this Section, the Company shall provide the Executive with a written statement setting forth the manner in which such payments were calculated and the basis for such calculations including, without limitation, any opinions or other advice the Company has received from counsel, auditors or consultants (and any such opinions or advice which are in writing shall be attached to the statement). 36.4 The Company also shall pay to the Executive all legal fees and expenses incurred by the Executive in disputing in good faith any termination of his employment hereunder or in seeking in good faith to obtain or enforce any benefit or right provided by this Agreement or in connection with any tax audit or proceeding to the extent attributable to the application of section 4999 of the Code to any payment or benefit provided hereunder. Such payments shall be made within five (5) business days after delivery of the Executive's written requests for payment accompanied with such evidence of fees and expenses incurred as the Company reasonably may require. 37. Termination Procedures and Compensation During Dispute. 37.1 Notice of Termination. After a Change in Control or a Major Transaction and during the term of this Agreement, any purported termination of the Executive's employment (other than by reason of death) shall be communicated by written Notice of Termination from one party hereto to the other party hereto in accordance with Section 10 hereof. For purposes of this Agreement, a "Notice of Termination" shall mean a notice which shall indicate the specific termination provision in this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated. Further, a Notice of Termination for Cause is required to include a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters (3/4) of the entire membership of the Board at a meeting of the Board which was called and held for the purpose of considering such termination (after reasonable notice to the Executive and an opportunity for the Executive, together with the Executive's counsel, to be heard before the Board) finding that, in the good faith opinion of the Board, the Executive was guilty of conduct set forth in clause (i) or (ii) of the definition of Cause herein, and specifying the particulars thereof in detail. 37.2 Date of Termination. "Date of Termination", with respect to any purported termination of the Executive's employment after a Change in Control or a Major Transaction and during the term of this Agreement, shall mean (i) if the Executive's employment is terminated for Disability, thirty (30) days after Notice of Termination is given (provided that the Executive shall not have returned to the full-time performance of the Executive's duties during such thirty (30) day period), and (ii) if the Executive's employment is terminated for any other reason, the date specified in the Notice of Termination (which, in the case of a termination by the Employer, shall not be less than thirty (30) days (except in the case of a termination for Cause) and, in the case of a termination by the Executive, shall not be less than fifteen (15) days nor more than sixty (60) days, respectively, from the date such Notice of Termination is given). 37.3 Dispute Concerning Termination. If within fifteen (15) days after any Notice of Termination is given, or, if later, prior to the Date of Termination (as determined without regard to this Section 7.3), the party receiving such Notice of Termination notifies the other party that a dispute exists concerning the termination, the Date of Termination shall be the date on which the dispute is finally resolved, either by mutual written agreement of the parties or by a final judgment, order or decree of a court of competent jurisdiction (which is not appealable or with respect to which the time for appeal therefrom has expired and no appeal has been perfected); provided further that the Date of Termination shall be extended by a notice of dispute only if such notice is given in good faith and the party giving such notice pursues the resolution of such dispute with reasonable diligence. 37.4 Compensation During Dispute. If a purported termination occurs following a Change in Control or a Major Transaction and during the term of this Agreement, and such termination is disputed in accordance with Section 7.3 hereof, the Company shall pay the Executive the full compensation in effect when the notice giving rise to the dispute was given (including, but not limited to, salary) and continue the Executive as a participant in all compensation, benefit and insurance plans in which the Executive was participating when the notice giving rise to the dispute was given, until the dispute is finally resolved in accordance with Section 7.3 hereof. Amounts paid under this Section 7.4 are in addition to all other amounts due under this Agreement (other than those due under Section 5.2 hereof) and shall not be offset against or reduce any other amounts due under this Agreement. 38. No Mitigation. The Company agrees that, if the Executive's employment with the NEES Companies terminates during the term of this Agreement, the Executive is not required to seek other employment or to attempt in any way to reduce any amounts payable to the Executive by the Company pursuant to this Agreement. Further, the amount of any payment or benefit provided for in this Agreement (other than in Section 6.1(D) hereof) shall not be reduced by any compensation earned by the Executive as the result of employment by another employer, by retirement benefits, by offset against any amount claimed to be owed by the Executive to the System, or otherwise. 39. Successors; Binding Agreement. 39.1 In addition to any obligations imposed by law upon any successor to the Company, the Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. Failure of the Company to obtain such assumption and agreement prior to the effectiveness of any such succession shall be a breach of this Agreement and shall entitle the Executive to compensation from the Company in the same amount and on the same terms as the Executive would be entitled to hereunder if the Executive were to terminate the Executive's employment for Good Reason after a Change in Control or a Major Transaction, except that, for purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed the Date of Termination. 39.2 This Agreement shall inure to the benefit of and be enforceable by the Executive's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If the Executive shall die while any amount would still be payable to the Executive hereunder (other than amounts which, by their terms, terminate upon the death of the Executive) if the Executive had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to the executors, personal representatives or administrators of the Executive's estate. 40. Notices. For the purpose of this Agreement, notices and all other communications provided for in the Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States registered mail, return receipt requested, postage prepaid, addressed to the respective addresses set forth below, or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notice of change of address shall be effective only upon actual receipt: To the Company: New England Power Service Company 25 Research Drive Westborough, MA 01582-0099 Attention: Director of Human Resources To the Executive: John W. Rowe 929 Salem End Road Framingham, MA 01701 41. Miscellaneous. No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing and signed by the Executive and such officer as may be specifically designated by the Board. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. This Agreement supersedes any other agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of The Commonwealth of Massachusetts. All references to sections of the Exchange Act or the Code shall be deemed also to refer to any successor provisions to such sections. Any payments provided for hereunder shall be paid net of any applicable withholding required under federal, state or local law and any additional withholding to which the Executive has agreed. The obligations of the Company and the Executive under Sections 6 and 7 shall survive the expiration of the term of this Agreement. 42. Validity. The invalidity or unenforceability or any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. 43. Counterparts. This Agreement may be executed in several counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. 44. Settlement of Disputes; Arbitration. All claims by the Executive for benefits under this Agreement shall be directed to and determined by the Board and shall be in writing. Any denial by the Board of a claim for benefits under this Agreement shall be delivered to the Executive in writing and shall set forth the specific reasons for the denial and the specific provisions of this Agreement relied upon. The Board shall afford a reasonable opportunity to the Executive for a review of the decision denying a claim and shall further allow the Executive to appeal to the Board a decision of the Board within sixty (60) days after notification by the Board that the Executive's claim has been denied. Any further dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration in Boston, Massachusetts, in accordance with the rules of the American Arbitration Association then in effect. Judgment may be entered on the arbitrator's award in any court having jurisdiction; provided, however, that the Executive shall be entitled to seek specific performance of the Executive's right to be paid until the Date of Termination during the pendency of any dispute or controversy arising under or in connection with this Agreement. 45. Definitions. For purposes of this Agreement, the following terms shall have the meanings indicated below: (A) "Base Amount" shall have the meaning defined in section 280G(b)(3) of the Code. (B) "Beneficial Owner" shall have the meaning defined in Rule 13d-3 under the Exchange Act. (C) "Board" shall mean the Board of Directors of the Company. (D) "Cause" for termination by the Employer of the Executive's employment, after any Change in Control or Major Transaction, shall mean (i) the willful and continued failure by the Executive to substantially perform the Executive's duties with the System (other than any such failure resulting from the Executive's incapacity due to physical or mental illness or any such actual or anticipated failure after the issuance of a Notice of Termination for Good Reason by the Executive pursuant to Section 7.1) after a written demand for substantial performance is delivered to the Executive by the Board, which demand specifically identifies the manner in which the Board believes that the Executive has not substantially performed the Executive's duties, or (ii) the willful engaging by the Executive in conduct which is demonstrably and materially injurious to the System, monetarily or otherwise. For purposes of clauses (i) and (ii) of this definition, no act, or failure to act, on the Executive's part shall be deemed "willful" unless done, or omitted to be done, by the Executive not in good faith and without reasonable belief that the Executive's act, or failure to act, was in the best interest of the System. (E) A "Change in Control" shall be deemed to have occurred if the conditions set forth in any one of the following paragraphs shall have been satisfied: (I) any Person is or becomes the Beneficial Owner, directly or indirectly, of securities of the Company (not including in the securities beneficially owned by such Person any securities acquired directly from the Company or its affiliates) representing 20% or more of the combined voting power of the Company's then outstanding securities; or (II) during any period of not more than two consecutive years (not including any period prior to the execution of this Agreement), individuals who at the beginning of such period constitute the Board and any new director (other than a director designated by a Person who has entered into an agreement with the Company to effect a transaction described in clause (I) of this paragraph) whose election by the Board or nomination for election by the Company's shareholders was approved or recommended by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved or recommended, cease for any reason to constitute a majority thereof. (F) "Code" shall mean the Internal Revenue Code of 1986, as amended from time to time. (G) "Company" shall mean New England Electric System and any successor to its business and/or assets which assumes and agrees to perform this Agreement by operation of law, or otherwise (except in determining, under Section 15(E) hereof, whether or not any Change in Control or Major Transaction has occurred in connection with such succession). (H) "Date of Termination" shall have the meaning stated in Section 7.2 hereof. (I) "Disability" shall be deemed the reason for the termination by the Employer of the Executive's employment, if, as a result of the Executive's incapacity due to physical or mental illness, the Executive shall have been absent from the full-time performance of the Executive's duties with the System for a period of six (6) consecutive months, the Company shall have given the Executive a Notice of Termination for Disability, and, within thirty (30) days after such Notice of Termination is given, the Executive shall not have returned to the full-time performance of the Executive's duties. (J) "Disability Insurance Plan" shall mean the Company Disability Insurance Plan or any successor thereto. (K) "Employer" shall mean the NEES Company by which the Executive is employed at the time of determination. (L) "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended from time to time. (M) "Excise Tax" shall mean any excise tax imposed under section 4999 of the Code. (N) "Executive" shall mean the individual named in the first paragraph of this Agreement. (O) "Good Reason" for termination by the Executive of the Executive's employment shall mean the occurrence (without the Executive's express written consent) of any one of the following acts by the System, or failures by the System to act, unless, in the case of any act or failure to act described in paragraph (I), (V), (VI), (VII), or (VIII) below, such act or failure to act is corrected prior to the Date of Termination specified in the Notice of Termination given in respect thereof: (I) the assignment to the Executive of duties substantially inconsistent with the Executive's status as an executive officer of the System; (II) a reduction in the Executive's annual base salary as in effect on the date hereof or as the same may be increased from time to time; (III) requiring the Executive to be based at a location more than 100 miles from the town of Westborough, Massachusetts, except for required travel on the System's business to an extent substantially consistent with the Executive's present business travel obligations; (IV) the failure by the Employer, to pay to the Executive any portion of the Executive's compensation within seven (7) days of the date such compensation is due; (V) the failure by the System to continue in effect any compensation plan in which the Executive participates immediately prior to the Change in Control or the Major Transaction which is material to the Executive's total compensation, including but not limited to the New England Electric Companies' Incentive Compensation Plan I, New England Electric Companies' Incentive Compensation Plan II, New England Electric Companies' Senior Incentive Compensation Plan, New England Electric Companies' Incentive Share Plan, New England Electric Systems Companies' Deferred Compensation Plan and the New England Electric Companies' Executive Supplemental Retirement Plan or any substitute plans adopted prior to the Change in Control or Major Transaction, unless an equitable arrangement (embodied in an ongoing substitute or alternative plan) has been made with respect to such plan, or the failure by the System to continue the Executive's participation therein (or in such substitute or alternative plan on a basis not substantially less favorable, both in terms of the amount of benefits provided and the level of the Executive's participation relative to other participants, as existed at the time of the Change in Control or Major Transaction; (VI) the failure by the System to continue to provide the Executive with benefits substantially similar to those enjoyed by the Executive under any of the System's pension, life insurance, medical, health and accident, or disability plans in which the Executive was participating at the time of the Change in Control or the Major Transaction, the taking of any action by the System which would directly or indirectly materially reduce any of such benefits or deprive the Executive of any material fringe benefit enjoyed by the Executive at the time of the Change in Control or Major Transaction, or the failure by the Employer to provide the Executive with the number of paid vacation days to which the Executive is entitled on the basis of years of service with the NEES Companies in accordance with the Employer's normal vacation policy in effect at the time of the Change in Control or Major Transaction; or (VII) any purported termination of the Executive's employment which is not effected pursuant to a Notice of Termination satisfying the requirements of Section 7.1; for purposes of this Agreement, no such purported termination shall be effective. The Executive's right to terminate the Executive's employment for Good Reason shall not be affected by the Executive's incapacity due to physical or mental illness. The Executive's continued employment shall not constitute consent to, or a waiver of rights with respect to, any act or failure to act constituting Good Reason hereunder. (P) "Gross-Up Payment" shall have the meaning given in Section 6.2 hereof. (Q) A "Major Transaction" shall be deemed to have occurred if the conditions set forth in any one of the following paragraphs shall have been satisfied: (I) the shareholders of the Company approve a merger or consolidation of the Company with any corporation or business trust, other than (i) a merger or consolidation which would result in the individuals who prior to such merger or consolidation constitute the Board constituting at least two-thirds (2/3) of the board of directors of the Company or the surviving or succeeding entity immediately after such merger or consolidation, or (ii) a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no Person acquires more than 20% of the combined voting power of the Company's then outstanding securities; or (II) the shareholders of the Company approve a plan of complete liquidation of the Company; or (III) the shareholders of the Company approve an agreement for the sale or disposition by the Company of all or substantially all the Company's assets, other than a sale or disposition which would result in the individuals who prior to such sale or disposition constitute the Board constituting at least two-thirds (2/3) of the board of directors of the Person purchasing such assets immediately after such sale or disposition. (R) "NEES Companies" shall mean all NEES Companies, collectively. (S) "NEES Company" shall mean a subsidiary of the Company. (T) "Notice of Termination" shall have the meaning stated in Section 7.1 hereof. (U) "Pension Plan" shall mean each of the plans and agreements listed in Attachment A. (V) "Person" shall have the meaning given in Section 3(a)(9) of the Exchange Act, as modified and used in Sections 13(d) and 14(d) thereof; however, a Person shall not include (i) the Company or any NEES Company, (ii) a trustee or other fiduciary holding securities under an employee benefit plan of the Company or any NEES Company, (iii) an underwriter temporarily holding securities pursuant to an offering of such securities, or (iv) a corporation owned, directly or indirectly, by the shareholders of the Company in substantially the same proportions as their ownership of shares of the Company. (W) "Potential Change in Control" shall be deemed to have occurred if the conditions set forth in any one of the following paragraphs shall have been satisfied: (I) the Company enters into an agreement, the consummation of which would result in the occurrence of a Change in Control; (II) the Company or any Person publicly announces an intention to take or to consider taking actions which, if consummated, would constitute a Change in Control; (III) any Person who is or becomes the Beneficial Owner, directly or indirectly, of securities of the Company representing 10% or more of the combined voting power of the Company's then outstanding securities, increases such Person's beneficial ownership of such securities by 5% or more over the percentage so owned by such Person on the date hereof unless such Person has reported or is required to report such ownership (but less than 25%) on Schedule 13G under the Exchange Act (or any comparable or successor report) or on Schedule 13D under the Exchange Act (or any comparable or successor report) which Schedule 13D does not state any intention to or reserve the right to control or influence the management or policies of the Company or engage in any of the actions specified in Item 4 of such Schedule (other than the disposition of the common shares) and, within 10 business days of being requested by the Company to advise it regarding the same, certifies to the Company that such Person acquired such securities of the Company in excess of 14.9% inadvertently and who, together with its affiliates, thereafter does not acquire additional securities while the Beneficial Owner of 15% or more of the securities then outstanding; provided, however, that if the Person requested to so certify fails to do so within 10 business days, then such occurrence shall become a Potential Change in Control immediately after such 10 business day period; or (IV) the Board adopts a resolution to the effect that, for purposes of this Agreement, a Potential Change in Control has occurred. (X) "Potential Major Transaction" shall be deemed to have occurred if the conditions set forth in any one of the following paragraphs shall have been satisfied: (I) the Company enters into an agreement, the consummation of which would result in the occurrence of a Major Transaction; (II) the Company or any Person publicly announces an intention to take or to consider taking actions which, if consummated, would constitute a Major Transaction; or (III) the Board adopts a resolution to the effect that, for purposes of this Agreement, a Potential Major Transaction has occurred. (Y) "Retirement" shall be deemed the reason for the termination by the Employer or the Executive of the Executive's employment if such employment is terminated in accordance with the Employer's written mandatory retirement policy, if any, as in effect immediately prior to the Change in Control or Major Transaction, or in accordance with any retirement arrangement established with the Executive's written consent with respect to the Executive. (Z) "Severance Payments" shall mean those payments described in Section 6.1 hereof. (AA) "System" shall mean the Company and the NEES Companies, collectively. (BB) "Total Payments" shall mean those payments described in Section 6.2 hereof. New England Electric System s/George M.Sage By Chairman of the Compensation Committee s/John W. Rowe John W. Rowe ATTACHMENT A ------------ New England Electric System Companies' Final Average Pay Pension Plan I New England Electric Companies' Executive Supplemental Retirement Plan Letter dated December 5, 1988, from Joan T. Bok EX-13 20 NEES ANNUAL REPORT [COVER PHOTO] 1996 New England Electric System Annual Report "Keeping the lights on, earning our keep - lasting values in a changing world." [NEES LOGO] [PHOTO OF LINE DEPARTMENT EMPLOYEES] About the cover Line Department employees tend to our more than 22,000 miles of distribution and transmission wires - the critical infrastructure of NEES's electricity delivery business. Clockwise, from left: Narragansett Electric's Jeff Crum, Jack Hobson, Doug Paul, Marie Sullivan, and Luon Kim. 1996 NEES has consistently overcome challenges - from the oil embargoes and inflation of the 1970's, to a severe recession in the early 1990's - to provide competitive financial performance for our shareholders. To continue this record, we are adapting the NEES organization to a restructured industry. We agreed to sell our generation business, and to shift our primary focus to the energy delivery or regulated wires business. We also began to pursue new opportunities in competitive businesses such as energy services, transmission project management, and telecommunications.
Financial Results 1996 1995 1994 -------- ------- ------- Earnings per average share $ 3.22 $ 3.15 $ 3.07 Dividends declared per share $ 2.360 $ 2.345 $ 2.285 Book value per share at year end $ 25.98 $ 25.13 $ 24.33 Market price per share at year end $34 7/8 $39 5/8 $32 1/8 Growth in kilowatt-hour (kWh) deliveries to ultimate customers 1.7% 0.7% 1.6% Cost per kWh sold to ultimate customers (cents) 9.51 9.54 9.29
Return on Common Equity [GRAPH] New England Electric System 12.6% Median of U.S. Electric Utilities 11.5% Median of New England/New York Electric Utilities 11.1% New England Electric System (NEES) is a public utility holding company headquartered in Westborough, Massachusetts. Its subsidiaries are currently engaged in the generation, transmission, distribution, and sale of electric energy, and serve 1.3 million customers in Massachusetts, Rhode Island, and New Hampshire. Other business activities include independent transmission projects, telecommunications, and energy marketing through AllEnergy Marketing Company, L.L.C., a joint venture with Eastern Enterprises. "The actions of our legislators and regulators will provide substantial long-term benefits to our customers while treating NEES investors fairly." [PICTURE OF UTILITY RESTRUCTURING ACT SIGNING] Rhode Island makes history as Governor Lincoln Almond (seated) signs the Utility Restructuring Act. Left to right: Robert McCabe, president of Narragansett Electric; John Harwood, Speaker of the House; David Gulvin of Eastern Utilities; Senator Paul Tavares; Senator William Irons; NEES CEO John Rowe; and House Majority Leader George Caruolo. To Our Fellow Shareholders Changes came, fast and furious, during 1996. But despite the uneasiness brought on by the restructuring of New England's electricity industry, NEES employees kept their focus where it belongs on continuing the outstanding financial record that investors in NEES have come to expect. We did this by providing better service at lower cost. We thank these hard working people for bringing NEES its eighth consecutive year of solid financial performance. Earnings per share were $3.22, compared with $3.15 in the previous year. Return on common equity was 12.6 percent, placing us in the top third of the nation s electric utilities. We are the only utility to be in the top third of the New England-New York region in each of the last eight years, and are pleased that the stock market has recognized this superior performance, generally with the highest share-price-to-book ratio in the region. Competition As you know, we face growing pressures to modify utility franchises with new, more competitive structures. These pressures are particularly powerful in New England where the cost of electricity has exceeded the national average for many years. NEES's costs are lower than those of its neighbors, but we are not immune to these pressures. We are focusing on obtaining fair treatment for utilities and their shareholders, rather than attempting to delay trends that we consider inescapable or to oppose public policies we perceive to be sound. In 1996, our efforts to make public policy work for our investors yielded substantial success. In August, Rhode Island adopted the first detailed, definitive agenda for bringing the benefits of competition and customer choice to all consumers while compensating utility shareholders for the harm done to their existing generating commitments. In September, we achieved a settlement agreement in Massachusetts with the Attorney General, Division of Energy Resources, and a variety of other interests on a similar plan which the Department of Public Utilities has now approved. These breakthroughs are described in more detail on pages 6-8. Their principal features include the opening of our transmission and distribution systems to retail competition in 1998, rate reductions for customers, and a transition charge to compensate NEES for investments in generation that cannot be recovered in the new marketplace or otherwise mitigated. Similar measures have now been adopted in California and Pennsylvania. The actions of our legislators and regulators will provide substantial long-term benefits to our customers while treating our investors fairly. If we had been required to give our competitors access to our wires without provision for recovering past investments, large portions of our generating commitments would have become unrecoverable, or "stranded," depriving you of the capital you have invested. These stranded investment issues must be addressed in each state that chooses a competitive model. We are grateful that two of our states have addressed these issues so squarely and we are working to resolve them in New Hampshire as well. [PHOTO OF JOHN W. ROWE APPEARS HERE] John W. Rowe, President and Chief Executive Officer Restructuring Adapting to a revolution is never easy or painless. Competition and guaranteed rate reductions will reduce our revenues in 1998 and require even more substantial cost reductions than we have previously attained. More fundamentally, in exchange for stranded cost recovery, NEES has agreed to sell all of its fossil and hydroelectric power plants and to seek buyers for its nuclear and purchased power contracts. Selling our generation is a bold response to new realities, but is also a major concession. While NEES achieved its present form in 1947, our roots in generation go back to 1907 when our corporate predecessors developed hydroelectric generation on the Connecticut River. So, parting with our power plants is as emotionally unsettling as selling the family home. We are compelled to decrease the size of the System. Many of our most valuable employees will leave to take jobs with the new owners, and some will need to seek employment elsewhere. Nevertheless, this tough decision to divest our generation business was necessary to protect the value of your investment. By agreeing to divest, we secured a broad base of support from customers, regulators, and legislative leaders for the recovery of stranded costs. Further, we will avoid volatile returns and possible losses from the generating business over the next several years, a scenario that is inconsistent with the stable returns that most investors seek from electric utilities. As the generation sale process goes forward, we are working with our labor unions and employees to implement the organizational changes necessary, and to determine the benefits to be paid to employees who lose their positions. We are confident that, whether for a NEES company or for the new owners of our generating business, NEES people will succeed at meeting the new challenges of the industry. [PHOTO OF JOAN T. BOK APPEARS HERE] Joan T. Bok, Chairman of the Board Vision Once the divestiture is complete, a new vision arises for NEES - to become the region's most profitable, most successful electricity delivery company. We have the know-how, the infrastructure, and the skilled people to excel at that business, and we expect substantial opportunities to expand our electricity delivery system in coming years. The cash from our generation sale will give us new capabilities in that regard. We are seizing new opportunities in the energy industry through a joint venture with Eastern Enterprises, the parent company of the largest gas company in Massachusetts. This joint venture, AllEnergy Marketing Company, L.L.C., positions us to be a successful marketer of natural gas, electricity, propane, oil, and energy related services. AllEnergy has a superb management and sales team, and NEES plans to contribute up to $50 million over a five-year period to give it the maximum chance of success. Director In July 1996, the NEES board of directors elected a new member, William M. Bulger. Mr. Bulger is president of the University of Massachusetts, and had served as Massachusetts Senate president for 18 years. We are delighted that someone of Mr. Bulger's intellectual force and breadth of experience has joined our board, and are confident that he will make a substantial contribution. Commitment The year 1996 was clearly one of major change and difficult decisions for NEES. But the underpinning of NEES's success remained - and will remain - an unyielding commitment to shareholder value. This commitment permeates our organization, from the board room, to the executive suite, to the locker rooms of our crews. It is founded on employee self-interest and shared success. From 12 to 46 percent of each employee's total compensation (depending on position) will hinge on NEES meeting annual targets for earnings and customer costs. We are one of the few U.S. electric utilities to have agreements with labor unions that base part of compensation on the company's financial performance for shareholders. Through various investment programs, our employees collectively are NEES's largest shareholder. We thank you for your confidence in NEES and the employees of our companies, a few of whom are highlighted on the following pages. The focused efforts and commitment of this kind of people will continue to make NEES the right utility investment choice. We also thank you for your investment in our company. We will strive to make 1997 another successful year, and to be ready for retail competition when it comes in 1998. s/John W. Rowe John W. Rowe President and Chief Executive Officer s/Joan T. Bok Joan T. Bok Chairman of the Board February 28, 1997 Making public policy work for our company NEES leads New England's electric utilities in shaping the restructuring of the electricity industry. This leadership derives from our position as New England's lowest-cost major electricity provider, our tradition of productive working relationships with policy makers, and our absolute commitment to shareholder value. "The accomplishments of 1996 greatly reduce the uncertainty associated with industry restructuring." [PHOTO OF PAM VIAPIANO, JOSE ROTGER, PAIGE GRAENING, AND TERRY SCHWENNESEN] Responding to new rules that promote competition among power suppliers are legal and rates experts, left to right: Pam Viapiano, Jose Rotger, Paige Graening, and Terry Schwennesen. Our top priority in negotiations with state legislators, regulators, and various stakeholders was to obtain rules for industry restructuring that will allow us to recover our stranded costs. This is critical, because providing competitors access to our transmission and distribution systems threatens to reduce the value of our generation and purchased power contracts by as much as $4.5 billion. While more work remains to be done, we have succeeded in establishing a framework for recovering those investments. Legislation Rhode Island's Utility Restructuring Act of 1996 was the first legislation enacted in the nation to establish precise ground rules and timetables for competition in retail electricity markets. The statute phases in choice of electricity supplier for Rhode Island customers during a 12-month period beginning in July 1997. It set a precedent for treating utilities fairly by establishing a transition charge that enables recovery of the above-market sunk costs of our plants and other obligations. The transition charge will be set at 2.8 cents per kilowatt-hour for the first three years, but declines to approximately 0.7 cents per kilowatt-hour in 12.5 years. Under the statute, the transition charge will be adjusted to reflect the result of the sale of our generation business. We are grateful to the officials of Rhode Island for reconciling fair treatment of shareholders with real savings and real choices for customers. [PHOTO OF LARRY REILLY APPEARS HERE] Larry Reilly, President of Massachusetts Electric Settlement In September, we were the first electric utility in Massachusetts to reach agreement with the state's Attorney General and Division of Energy Resources on a plan called "Consumers First." The plan would offer Massachusetts customers a choice of electricity suppliers beginning in 1998 and allow utilities to recover stranded costs through a charge similar to that in the Rhode Island statute. Under the agreement, the NEES companies must divest ownership of our power plants to another company or companies. The market value of our generation fleet, as determined by the divestiture, will be deducted from the amount of stranded investment we can recover, reducing the transition charge paid by customers. "Our people and our power plants are the best in New England, and will be a major force in the region's energy market as it enters the next century." [PHOTO OF GENERATOR OVERHAUL] Working on a generator overhaul at our Bellows Falls hydro station in Vermont are, left to right: Tim Nelson, Dennis Harty, and Mike Welch. Recently, the Massachusetts Department of Public Utilities (DPU) approved our Consumers First settlement. In addition, it issued final rules on industry restructuring and a detailed proposal for enabling legislation. These rules are consistent with the basic principles contained in Consumers First and reaffirm the state's commitment to stranded cost recovery. To effectuate the Rhode Island statute and Massachusetts settlement, we have filed with the FERC to terminate the wholesale power contracts between New England Power Company and Massachusetts Electric, Nantucket Electric, and Narragansett Electric. FERC Order No. 888, issued in April 1996, opened wholesale power sales to competition and provided for full recovery of stranded costs from customers. In late February 1997, the New Hampshire Public Utilities Commission (NHPUC) endorsed the principle of full stranded cost recovery for utilities such as our subsidiary Granite State Electric whose rates are below regional averages. However, the NHPUC indicated that the calculation of stranded costs to be recovered would be less than that proposed by Granite State. The NHPUC indicated that its decision would not result in savings for Granite State's customers. Earlier, Granite State had reached an interim settlement agreement with several customers and other parties that would provide a guaranteed rate reduction, initial access charges, and other terms mirroring our Massachusetts settlement. The New Hampshire interim settlement is pending before the NHPUC. [PHOTO OF LARRY BAILEY APPEARS HERE] Larry Bailey, Director of Generation Operations Work remains to be done in obtaining final approvals for our plan of action, putting the industry rules into effect, and successfully completing the divestiture of our generation business. Legislatures or regulators may yet take a detrimental course. However, the accomplishments of 1996 greatly reduce the uncertainty associated with industry restructuring. Focusing on success Our plans for the future are to focus on the regulated electricity delivery (or "wires") business, to expand it when and where possible, and to make targeted investments in unregulated businesses where we believe we can increase shareholder value. [PHOTO OF MARILYN FLINT-JACQUES APPEARS HERE] Marilyn Flint-Jacques, Customer Service Operations Manager Infrastructure Our wires infrastructure includes more than 20,000 miles of distribution lines and 2,400 miles of transmission lines, serving more than 1.3 million customers in a 4,700 square-mile area of Massachusetts, Rhode Island, and New Hampshire. While those customers will look to the competitive marketplace for their electricity supplier, they will continue to rely on the local distribution company to deliver that supply to their homes and businesses and to do so with high reliability. We believe that the pressures of the new era, including new performance-based rate structures, will compel the consolidation of wires companies. Indeed, this could parallel the era of rapid consolidation through which our present System was built. As we go forward, we will be opportunistic in merging with or acquiring companies that allow us to expand our distribution infrastructure and customer base. Maintaining and improving our network of power lines and related equipment will take on increasing importance in coming years as customers' requirements continue to increase. Both the Rhode Island statute and the Massachusetts settlement allow our distribution companies the opportunity to earn fair returns while providing high-quality customer service. We will draw on existing strengths to deliver that service - reliable transmission and distribution systems; highly skilled workers to build, maintain, dispatch, and fix those systems; information and communication technologies to support the business; and a customer service strategy that keeps our people in direct contact with customers. "World class customer service requires a round-the-clock, state-of-the-art facility. In 1996, we made that facility a reality." [PHOTO OF SERVICE REPRESENTATIVES] 150 highly-trained service representatives are a critical link to customers, both in day-to-day transactions and in storm-related emergencies. Left to right: Mary Jane Powers, Steven Soucy, Lee Anne Swanson, and Michael Rossacci. Service To better meet the needs of customers in the coming years, we opened a new, state-of-the-art Customer Service and Operations Center to take calls and serve customers seven days a week, 24 hours per day. This Northborough, Mass. facility consolidates the customer service operations of seven Massachusetts locations. Extensive training of employees, round-the-clock availability, and sophisticated software allow us to answer customer questions more easily and quickly, and to handle more than 1.5 million calls per year. The facility also serves as our new control center for coordinating repair work to lines and related equipment during major emergencies. During back-to-back snowstorms in December 1996, the staff handled more than 70,000 calls and coordinated the efforts of more than 500 line crews, some from as far away as Canada and Pennsylvania. Because the center was purposely built to meet needs greater than our own, it will support our growth strategy. The NEES companies were leaders in developing billing systems for retail competition pilot programs, and are marketing our center's customer and billing services to other energy companies. [PHOTO OF JEFF DONAHUE APPEARS HERE] Jeff Donahue, President, NEERI Transmission In the area of electricity transmission, we will seek competitive investment opportunities, within and outside the United States, that are emerging as utilities around the world respond to privatization initiatives. Transmission development projects will be pursued by our subsidiary New England Electric Resources, Inc. (NEERI). Where appropriate, NEERI will team with its strategic partner, ABB Power Systems, a global leader in transmission equipment. NEERI's strong experience and partnership with ABB will make it a leading contender for large transmission development projects. Our extensive experience includes the high voltage direct current interconnection with Hydro-Quebec that delivers hydroelectricity from James Bay in Canada to New England, and the 26-mile-long submarine cable that in 1996 connected Nantucket Island to our transmission grid on the mainland. Both were completed on time and under budget. The Nantucket cable allows us to better serve the island, which joined our System in 1996, and also includes a fiber installation that will allow enhanced telecommunications service. In December, we proposed to build, own, and operate a 600-megawatt high voltage direct current submarine cable transmission connection between Connecticut and Long Island, which would introduce competitively attractive sources of power to Long Island. "Our expertise in high voltage direct current transmission positions us for opportunities on a global scale." Telecommunications We established a new subsidiary, NEES Communications, Inc. (NEES Com), in August 1996 to allow the NEES companies to capture a portion of the estimated $300 billion per year global telecommunications industry. This subsidiary, which is an exempt telecommunications company with a license from the Federal Communications Commission, will seek to create value for both customers and shareholders. It will focus on the fiber optics, cable, and personal communications sectors of the telecommunications industry. By year-end 1996, three fiber optic projects, which will over time yield more than $2 million in customer savings, had been completed. [PHOTO OF LAYING SUBMARINE CABLE] In 1996, a NEES company completed the 26-mile-long submarine cable connecting Nantucket Island to the mainland. It is the longest underwater power cable in the Northeast. "AllEnergy will compete with a full range of fuels and services to help customers get more value for their energy dollars." [PHOTO OF ALLENERGY TEAM] The AllEnergy team's significant experience in electricity, natural gas, and other energy products and services is coupled with strong sales and marketing capabilities. The team includes, left to right: Bill Heil, Mary Smith, Deborah Chin, and John Dickson. Energy marketing We joined with Eastern Enterprises, the parent company of Boston Gas, the largest natural gas distributor in New England, to form AllEnergy Marketing Company, L.L.C. in 1996. This venture provides energy commodities, products, and services to customers in the competitive market in New England and New York. In December, AllEnergy announced the acquisition of Texas Liquids Ltd, Inc. of New Jersey, adding propane and other petroleum products to AllEnergy's menu of offerings. The strength of this venture is its ability to meet the unique, evolving energy needs of customers within the region by offering all energy commodities - electricity, gas, propane, and oil - as well as value-added services such as energy management and power supply consulting. It was a successful participant in retail competition pilot programs in New Hampshire and Massachusetts during 1996. Moving forward As competition approached, NEES promptly recognized that the value of NEES shareholders' investments could be threatened by stranded costs. We acted decisively to insure fair treatment for our shareholders. We made significant progress in this area in 1996 and are further along than most utilities in putting the stranded cost recovery issue behind us. Now, we must consolidate these accomplishments into real revenue streams, and strengthen our wires and other businesses. Another new chapter is opening, in which we will strive to grow both our existing and new businesses and to continue delivering superior utility returns. [PHOTO OF MARCY REED APPEARS HERE] Marcy Reed, Chief Financial Officer, AllEnergy Financial Review Industry Restructuring On October 1, 1996, the New England Electric System (NEES) companies announced their intention to divest their generating business. The decision to divest the generating business was due to a combination of factors, discussed below, relating to the restructuring of the electric utility industry. For the past several years, the electric utility business has been subjected to rapidly increasing competitive pressures stemming from a number of trends, including the presence of surplus generating capacity, a disparity in electric rates among regions of the country, improvements in generation efficiency, increasing demand for customer choice, and new regulations and legislation intended to foster competition. In the recent past, this competition was most prominent in the bulk power market, in which nonutility generators have significantly increased their market share. Despite increased competition in the bulk power market, competition in the retail market has been limited as electric utilities have maintained exclusive franchises for the retail sale of electricity in specified service territories. In states across the country, including Massachusetts, Rhode Island, and New Hampshire, there have been proposals to allow retail customers to choose their electricity supplier, with incumbent utilities required to deliver that electricity over their transmission and distribution systems (also known as "retail wheeling"). When electricity customers are allowed to choose their electricity supplier, utilities across the country will face the risk that market prices may not be sufficient to recover the costs of the commitments incurred to supply customers under a regulated structure. The amounts by which costs exceed market prices are commonly referred to as "stranded costs." [GRAPH APPEARS HERE, EARNINGS PER AVERAGE SHARE] NEES provides electric service to retail customers through separate distribution subsidiaries operating in Massachusetts, Rhode Island, and New Hampshire. Each of the distribution subsidiaries purchases electricity on behalf of its customers under wholesale all-requirements contracts with NEES's wholesale generating subsidiary, New England Power Company (NEP). NEP also provides all-requirements service to seven unaffiliated electric utilities. NEP estimates that at December 31, 1996 its above-market commitments on behalf of its all-requirements customers are as much as $4.5 billion on a present-value basis (before the application of the proceeds from the sale of its generating business). As described below, comprehensive legislation was enacted in Rhode Island and a settlement agreement was reached in Massachusetts which, when all regulatory approvals are in place, would allow recovery of NEP's above-market commitments to retail customers in those states, which make up 95 percent of NEP's all-requirements sales. In return for that recovery, the NEES companies have agreed to provide lower rates to customers, as well as sell their generating business. Efforts are ongoing with New Hampshire and unaffiliated customers to secure recovery of the balance of NEP's above-market commitments. Massachusetts Settlement Agreement On February 26, 1997, the Massachusetts Department of Public Utilities (MDPU) approved a settlement among NEP, its Massachusetts distribution affiliates Massachusetts Electric Company (Massachusetts Electric) and Nantucket Electric Company (Nantucket), the Massachusetts Attorney General, the Massachusetts Division of Energy Resources, and 12 other parties, which provides for retail choice by Massachusetts customers and the recovery of NEP's above-market commitments to serve those customers. The settlement provides for the commencement of retail choice on January 1, 1998 (contingent on choice being available to the customers of all Massachusetts investor-owned utilities). Customers who do not choose an alternative supplier would receive "standard offer" service, which would be priced to guarantee customers at least a 10 percent savings in 1998 compared with September 1996 bundled electricity prices. In accordance with the settlement, NEP's wholesale contracts with Massachusetts Electric and Nantucket have been amended to allow for early termination of all-requirements service under those contracts. The amendment provides that upon early termination, Massachusetts Electric's and Nantucket's share of the cost of NEP's above-market generation commitments will be recovered through a transition access charge on distribution facilities. Those commitments consist of (i) the above-market portion of generating plant commitments, (ii) regulatory assets, (iii) the above-market portion of purchased power contracts, and (iv) the operating costs of nuclear plants that cannot be avoided by shutting down the plants, including nuclear decommissioning costs. The above-market portion of costs associated with generating plants and regulatory assets would be recovered over 12 years, and would earn a return on equity of 9.4 percent. As the transition access charge declines, NEP would earn mitigation incentives that would supplement its return on equity. The incentives are structured such that NEP believes, based on its expectations of the level of mitigation it can achieve through divestiture and other means, that it could earn a cumulative return on equity on unrecovered costs of approximately 11 percent. The above-market component of purchased power contracts and nuclear decommissioning costs would be recovered as incurred over the life of those obligations, a period expected to extend beyond 12 years. Initially, the transition access charge would be set at 2.8 cents per kilowatt-hour (kWh) through December 31, 2000, and is expected to decline thereafter. The initial transition access charge assumes that the generating plants have no market value. To measure their actual market value, the NEES companies agreed to sell their generating business. The net proceeds from the sale will be used to reduce the transition access charge. [GRAPH APPEARS HERE, RETURN ON COMMON EQUITY] The settlement also establishes performance-based rates for Massachusetts Electric. Under the settlement, Massachusetts Electric's nonfuel rates (and NEP's wholesale rates to Massachusetts Electric) would be frozen at current levels until the earlier of the commencement of retail choice or January 1, 2001. Upon commencement of retail choice, Massachusetts Electric's distribution rates would be set at a level approximately $45 million above the level embedded in its current bundled rates, with such rates then frozen through the year 2000. This increase reflects changes to the distribution cost of service that include an $11 million increase in annual depreciation expense, a $3 million annual contribution to a storm fund, and increased amortization of unfunded deferred income taxes of $1 million over six years. Massachusetts Electric's return on equity would be subject to a floor of 6 percent and a ceiling of 11 percent, effective upon commencement of retail choice. Earnings over the ceiling would be shared equally between customers and shareholders up to a maximum of 12.5 percent. This sharing results in an effective cap on shareholder's return on equity of 11.75 percent. To the extent that earnings fall below the floor, Massachusetts Electric would be authorized to surcharge customers for the shortfall. The settlement would also eliminate Massachusetts Electric's purchased power cost adjustment (PPCA) mechanism as of July 31, 1996. This mechanism allows Massachusetts Electric to recover purchased power rate changes from NEP and the effects of NEP's seasonal rates. The settlement also stipulates that Massachusetts Electric's net $18 million PPCA refund liability balance at July 31, 1996 will be used to prefund a storm contingency fund with $3 million, while the remainder will be used to offset regulatory assets for hazardous waste costs. The settlement is subject to approval by the Federal Energy Regulatory Commission (FERC). The FERC accepted the filing to become effective February 1, 1997, subject to refund, and ordered hearings. In addition, various bills are pending before the Massachusetts legislature relating to utility restructuring issues that could affect the implementation of the settlement. Rhode Island Legislation In August 1996, the state of Rhode Island enacted pioneering legislation that allows customers in that state the opportunity to choose their electricity supplier. Under the Rhode Island statute, state accounts, certain new customers, and the largest manufacturing customers will be able to choose their supplier beginning on July 1, 1997. These customers represent approximately 2 percent of NEES's retail customer kWh sales. The balance of Rhode Island customers will be able to choose their supplier in 1998. The statute calls for NEP's contract with NEES's Rhode Island distribution subsidiary, The Narragansett Electric Company (Narragansett), to be amended to permit a gradual, early termination of all-requirements service under this contract. The amendment provides that, in return, Narragansett's 22 percent share of the cost of NEP's above-market generation commitments would be recovered through a transition access charge on Narragansett's distribution facilities. The specifics of the transition access charge are similar to, and were a model for, those contained in the Massachusetts settlement. One difference is the statute's return on equity, which will be set at 11 percent as long as the NEES companies complete the divestiture or other market valuation of their generating business; otherwise, the return will be equal to 9.2 percent. The statute also establishes performance-based rates for distribution utilities, such as Narragansett. Under the statute, Narragansett increased distribution rates by approximately $11 million in 1997, and is entitled to a similar increase in 1998. In addition, in 1997, Narragansett's return on equity from distribution operations will be subject to a floor of 6 percent and a ceiling of 11 percent. Earnings over the ceiling will be shared equally between customers and shareholders up to a maximum return on equity from distribution operations of 12.5 percent. This sharing results in an effective cap on shareholder's return on equity of 11.75 percent. To the extent that earnings fall below the floor, Narragansett will be authorized to surcharge customers for the shortfall. NEP and Narragansett filed with the FERC an amendment to their all-requirements contract in order to implement the statute. The FERC has set down the amendment, along with the Massachusetts settlement, for hearing. Narragansett has indicated it is willing to make certain changes to its plan in Rhode Island to parallel provisions in the Massachusetts settlement. Implementation of other aspects of the statute is subject to approval of the Rhode Island Public Utilities Commission (RIPUC). [GRAPH APPEARS HERE, DIVIDENDS DECLARED PER SHARE ANNUAL RATE] New Hampshire Proceeding and Settlement Agreement On February 28, 1997, the New Hampshire Public Utilities Commission (NHPUC) issued its plan to implement a New Hampshire law calling for retail access by 1998. Under the plan, utilities such as Granite State Electric Company (Granite State) whose rates are below the regional average would be allowed full recovery of stranded costs as calculated by the NHPUC. However, the NHPUC indicated that its methodology and proposed timing of recovery would yield both initial access charges and total recovery less than that requested by Granite State although the NHPUC indicated that its decision would not result in savings for Granite State's customers. Prior to the issuance of the NHPUC order, Granite State reached an interim settlement with several customers and other stakeholders that would set initial access charges at 2.8 cents per kWh for two years, and in other respects would mirror the Massachusetts settlement described previously. Stranded costs to be recovered after the two-year initial period would be subject to future regulatory determination. Unlike the NHPUC order, the interim settlement agreement would provide all customers with a rate reduction of approximately 10 percent. This interim settlement is still pending before the NHPUC. Federal Activity In April 1996, the FERC issued Order No. 888 requiring utilities that own transmission facilities to file open access tariffs to make available transmission service to affiliates and nonaffiliates at fair, nondiscriminatory rates. Order No. 888 also stated that public utilities will be allowed to seek recovery of legitimate and verifiable stranded costs from departing customers as a result of wholesale competition. The FERC indicated that it will provide for the recovery of retail stranded costs only if state regulators lack the legal authority to address those costs at the time retail wheeling is required. The FERC also stated that it would permit stranded cost recovery under wholesale all-requirements contracts, such as the contracts between NEP and its retail affiliates. Because of the Massachusetts settlement and the Rhode Island statute, NEP does not expect it will rely exclusively on Order No. 888 to recover stranded costs from its affiliates in Massachusetts and Rhode Island. NEP cannot predict at this time whether an Order No. 888 filing will be necessary to fully recover stranded costs from Granite State or from seven unaffiliated wholesale customers should any of those customers choose to terminate service under their contract with NEP. Granite State and these seven unaffiliated customers are responsible for approximately 3 percent and 2 percent of NEP's sales, respectively. In July 1996, NEP, on behalf of the NEES companies, filed a transmission tariff with the FERC pursuant to Order No. 888. The FERC accepted the filing, but ordered NEP to refile to conform more closely with the FERC's requirements under Order No. 888. Implementation of the tariff in mid-1996 did not have a significant impact on NEP's revenues. On February 26, 1997, the FERC announced Order No. 888-A, reaffirming the principles of Order No. 888, including stranded cost recovery. A number of proposals for legislation related to industry restructuring have been brought forward for consideration by the current Congress. The scope and aim of these vary widely; however, the NEES companies and others will argue that state settlements should be respected. NEES cannot predict what federal legislation, if any, may be enacted. Divestiture of Generation Business Under the Massachusetts settlement and thus automatically under the Rhode Island statute, the NEES companies must complete the divestiture of their generating business within six months of the later of the commencement of retail choice in Massachusetts or the receipt of all necessary regulatory approvals. The NEES companies are in the process of soliciting proposals for the acquisition of their nonnuclear generating business with the objective of reaching definitive purchase and sale agreements by mid-1997. Closing would follow the receipt of regulatory approvals, which are expected to take at least six to 12 months following the execution of purchase and sale agreements. At December 1996, nonnuclear net generating plant was approximately $1.1 billion. As part of the divestiture plan, NEP will endeavor to sell, or otherwise transfer, its minority interest in four nuclear power plants to nonaffiliates. NEP may retain responsibility for decommissioning and related expenses, if necessary. To the extent that NEP is unable to divest its nuclear generating interests, the Massachusetts settlement provides for a sharing between customers and shareholders of the revenues associated with the nuclear interests and the costs not otherwise reflected in the access charge, with 80 percent allocated to customers and 20 percent to shareholders. This sharing mechanism is not included in the Rhode Island statute previously discussed. In addition, New England Energy Incorporated (NEEI) is planning to sell its oil and gas properties, the cost of which is supported by NEP through fuel purchase contracts. [GRAPH APPEARS HERE, BOOK VALUE PER SHARE AT YEAR END ($)] Risk Factors While substantial progress has been made in resolving the uncertainty regarding the impact on shareholders from industry restructuring, significant risks remain. These include, but are not limited to (i) the potential that ultimately the Massachusetts settlement and the Rhode Island statute will not be implemented in the manner anticipated by NEES, (ii) the possibility of state or federal legislation that would increase the risks to shareholders above those contained in the Massachusetts settlement and Rhode Island statute, and (iii) the potential for adverse stranded cost recovery decisions involving Granite State and NEP's unaffiliated customers. Even if these risks do not materialize, the implementation of the Massachusetts settlement and the Rhode Island statute will negatively impact financial results for NEES starting in 1998. The returns on equity permitted on NEES subsidiaries' transmission and distribution operations (up to 11.75 percent) and on the unrecovered commitments in the generating business (generally 9.4 percent to 11 percent) are less than those historically earned by NEES. In addition, starting in 1998, earnings will be affected by the return on the reinvestment of the proceeds from the sale of the generation business. Such reinvestment return is likely, at least in the near term, to be less than is currently earned by the generation business. Accounting Implications Historically, electric utility rates have been based on a utility's costs. As a result, electric utilities are subject to certain accounting standards that are not applicable to other business enterprises in general. Financial Accounting Standards No. 71, Accounting for the Effects of Certain Types of Regulation (FAS 71), requires regulated entities, in appropriate circumstances, to establish regulatory assets, and thereby defer the income statement impact of certain costs expected to be recovered in future rates. The NEES companies have recorded approximately $550 million in regulatory assets in compliance with FAS 71 of which approximately $75 million relate to the transmission and distribution business. Both the Massachusetts settlement and the Rhode Island statute provide for full recovery of the costs of generating assets and oil and gas related assets (including regulatory assets) not recoverable from the proceeds of the divestiture of NEP's generating business. The cost of these assets would be recovered as part of a transition access charge imposed on all distribution customers. After the proposed divestiture, substantially all of NEP's business, including the recovery of its stranded costs, would remain under cost-based rate regulation. NEES believes the Massachusetts settlement and the Rhode Island statute will enable the NEES distribution companies operating in those states to recover through rates their specific costs of providing ongoing distribution services. In addition, FERC Order No. 888 enables transmission companies to recover their specific costs of providing transmission service. NEES believes these factors will allow its principal subsidiaries to continue to apply FAS 71 and that no impairment of plant assets will exist under Statement of Financial Accounting Standards No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of (FAS 121). Any loss from the divestiture of generating assets and oil and gas assets will be recorded as a regulatory asset to be recovered through the ongoing transition access charge. Although NEES believes that its subsidiaries will continue to meet the criteria for continued application of FAS 71, NEES understands that members of the SEC staff have raised questions concerning the continued applicability of FAS 71 to certain other electric utilities facing restructuring. In addition, despite the progress made to date in Massachusetts and Rhode Island, it is possible that the final restructuring plans ultimately ordered by regulatory bodies would not reflect full recovery of stranded costs, including a fair return on those costs as they are being recovered. In the event that future circumstances should cause the application of FAS 71 to be discontinued, a noncash write-off of previously established regulatory assets and liabilities related to the affected operations would be required. In addition, write-downs of plant assets under FAS 121 could be required, including a write-off of any loss from the divestiture of the generating business. [GRAPH APPEARS HERE, 1996 DISTRIBUTION OF REVENUE(%)] Overview of Financial Results Earnings were $3.22 per share in 1996 compared with $3.15 and $3.07 per share in 1995 and 1994, respectively. The return on common equity was 12.6 percent in 1996, 12.8 percent in 1995, and 12.7 percent in 1994. The market price of NEES common shares was $34 7/8 per share at the end of 1996 compared with $39 5/8 per share and $32 1/8 per share at the end of 1995 and 1994, respectively. The increase in 1996 earnings reflects retail rate increases and higher kWh sales as well as decreased purchased power costs. These increases in income were partially offset by a decreased allowance for funds used during construction (AFDC) and increased property tax expense, both primarily due to the completion in the second half of 1995 of the Manchester Street Station. The increase in 1995 earnings reflects slightly higher kWh sales to ultimate customers, decreased depreciation and amortization expense, and decreased operation and maintenance expenses, partially offset by higher purchased power and interest expenses. Operating Revenue Operating revenue increased $79 million in 1996 and reflects retail rate increases and sales growth, partially offset by decreases in revenues under rate adjustment mechanisms. Retail rate increases include a Massachusetts Electric $31 million base rate increase effective in October 1995, a Narragansett $12 million base rate increase effective in December 1995, and a Granite State $1 million increase effective in November 1995. Rate adjustment mechanisms referred to above include the distribution subsidiaries' PPCA mechanisms. The provisions of the Massachusetts settlement would have caused the PPCA mechanism for Massachusetts Electric to end, effective July 31, 1996. However, since the Massachusetts settlement had not been approved at the end of 1996, Massachusetts Electric accrued refund provisions of $9 million related to assumed operation of the PPCA provision during the last five months of 1996. In 1996, kWh deliveries to ultimate customers increased 1.7 percent, while total kWh sales increased 1.3 percent. The difference is the result of pilot programs in Massachusetts and New Hampshire, whereby the NEES distribution companies delivered power provided by other companies. The increase in kWh deliveries reflects the effects of an improving economy and the acquisition of Nantucket, partially offset by the effects of milder weather in the last half of the year. Operating revenue increased $29 million in 1995. This increase reflected modest sales growth, increased fuel revenues, the November 1994 expiration of a Massachusetts Electric temporary rate decrease, and the October 1995 Massachusetts Electric rate increase. These increases were partially offset by a decrease in the amortization of unbilled revenues in 1995 compared with 1994. Kwh sales to ultimate customers increased less than 1 percent in 1995. This increase was primarily due to a return to more normal weather in the fourth quarter of 1995, along with a warmer summer in 1995, partially offset by lower kWh sales in the first quarter of 1995 due to unusually mild weather. The distribution companies have received approval from their respective regulatory agencies to recover demand-side management (DSM) program expenditures in rates on a current basis. These expenditures were $59 million, $64 million, and $70 million in 1996, 1995, and 1994, respectively. Since 1990, the distribution companies have been allowed to earn incentives based on the results of their DSM programs and have recorded before-tax incentives of $6.0 million, $5.7 million, and $7.7 million in 1996, 1995, and 1994, respectively. Operating Expenses Total operating expenses increased $54 million in 1996 compared with 1995. This increase reflects increased fuel costs and increased taxes. These increases were partially offset by decreased maintenance expense, lower purchased power costs, and decreased depreciation and amortization expense. [GRAPH APPEARS HERE, CUSTOMERS SERVED PER EMPLOYEE] Fuel costs increased in 1996, primarily due to fixed pipeline demand charges that, prior to the completion of the Manchester Street Station, were being partially deferred for amortization and recovery after the unit went into service in the second half of 1995. The increase in fuel costs also reflects increased generation as a result of growth in sales to ultimate customers as well as generation supplied to other utilities. In 1996 purchased power costs decreased, reflecting the expiration of certain purchased power contracts. In addition, purchased power costs in the first half of 1995 included NEP's share of costs to repair steam generator tubes at the Maine Yankee nuclear power plant in which NEP has a 20 percent ownership interest. Maintenance expense decreased in 1996, reflecting reduced thermal and hydro generating plant overhaul activity, partially offset by $13 million of costs to correct deficiencies at the Millstone 3 nuclear unit, in which NEP has a 12 percent ownership interest. In the fourth quarter of 1996, Massachusetts Electric incurred approximately $8 million of costs related to a severe winter storm. The Massachusetts settlement provides for the recovery of the costs associated with major storms; however, its application to the 1996 storm is subject to clarification by the MDPU. Because the Massachusetts settlement had not been approved as of December 31, 1996, Massachusetts Electric deferred the 1996 storm costs based upon long-standing regulatory practice allowing the recovery over five years of costs of major storms. In 1996, depreciation and amortization expense decreased, reflecting a decrease in oil and gas amortization expense as well as the completion in mid-1995 of the amortization of a portion of Seabrook 1 costs and Salem Harbor coal conversion costs. These decreases were partially offset by increased depreciation of other utility plant assets, including the Manchester Street Station. Taxes, other than income taxes, increased in 1996, primarily as a result of increased property taxes on the Manchester Street Station. Total operating expenses increased $2 million in 1995 compared with 1994, reflecting increased purchased power and fuel expenses. Purchased power expense increased, reflecting overhauls and refueling shutdowns at partially-owned nuclear power facilities, including NEP's share of costs to repair steam generator tubes at the Maine Yankee nuclear power plant. The increase in purchased power expense also includes the amortization of previously deferred purchased power contract termination costs. Fuel costs, including the fuel portion of purchased power expense, increased in 1995, reflecting increased short-term purchases by NEP due to decreased nuclear generation and decreased hydro production resulting from low water levels. In accordance with NEP's 1995 rate agreement, other operation expense in 1995 reflects the commencement of the amortization over seven years, of approximately $19 million of previously deferred costs associated with postretirement benefits other than pensions (PBOP) and the recognition of currently incurred PBOP costs. NEP's 1995 rate agreement also provided for the recovery over three years of $27 million of costs related to the replacement of a turbine rotor at one of NEP's generating stations and of charges described above associated with the dismantlement of a retired generating facility. Depreciation and amortization expense decreased in 1995 due to reduced amortization of Seabrook 1 in accordance with NEP's 1995 rate agreement, which deferred recognition of $15 million of such amortization from 1995 to 1996, the completion of the amortization of the costs of certain coal conversion facilities in the first half of 1995, and decreased oil and gas amortization due to decreased production. Partially offsetting these decreases were increased depreciation rates of approximately $8 million approved in NEP's 1995 rate agreement, increased charges associated with the dismantlement of a retired generating facility, and depreciation of new plant expenditures, including the Manchester Street Station. Allowance for Funds Used During Construction The changes in AFDC in 1996 and 1995 are due to the Manchester Street Station repowering project which began commercial operation in the second half of 1995. Investments in Nuclear Units NEP owns minority interests in six nuclear generating units, two of which, Yankee Atomic and Connecticut Yankee, have been shut down permanently. Two others, Millstone 3 and Maine Yankee, are currently shut down and have been placed on the Nuclear Regulatory Commission's (NRC) "Watch List," signifying that their safety performance exhibits sufficient weakness to warrant increased NRC attention. Neither may restart without NRC approval. At present, the Vermont Yankee and Seabrook 1 nuclear generating units appear to be operating routinely without major problems. On October 9, 1996, the NRC issued letters to operators of nuclear power plants requiring them to document that the plants are operated and maintained within their design and licensing bases, and that any deviations are reconciled in a timely manner. The Seabrook 1, Maine Yankee, and Vermont Yankee nuclear power plants responded to the NRC letters in February 1997. Uncertainties regarding the future of nuclear generating stations, particularly older units such as Maine Yankee and Vermont Yankee, are increasing rapidly and could adversely affect their service lives, availability, and costs. These uncertainties stem from a combination of factors, including the acceleration of competitive pressures in the power generation industry and increased NRC scrutiny. Connecticut Yankee NEP has a 15 percent equity ownership interest in Connecticut Yankee. As a result of an economic analysis, the Connecticut Yankee board of directors voted in December 1996 to permanently shut down and decommission the plant. In December 1996, Connecticut Yankee filed with the FERC to recover all of its approximately $246 million undepreciated investment in the plant and other costs over the period extending through June 2007, when the plant's NRC operating license would have expired. In a 1993 decision, the FERC allowed Yankee Atomic to recover its undepreciated investment in its permanently shut down nuclear plant, in part on the grounds that owners should not be discouraged from closing uneconomic plants. Several parties have intervened in opposition to Connecticut Yankee's filing. NEP believes that the FERC will allow NEP to recover from its customers all costs that the FERC allows Connecticut Yankee to recover from NEP. NEP has recorded the estimated future payment obligation to Connecticut Yankee of $114 million as a liability and as an offsetting regulatory asset, reflecting NEP's expected future rate recovery of such costs. The NRC has identified numerous apparent violations of its regulations, which may result in the assessment of civil penalties. Millstone 3 In April 1996, the NRC ordered Millstone 3, which has experienced numerous technical and nontechnical problems, to remain shut down pending verification that the unit's operations are in accordance with NRC regulations and the unit's operating license. Millstone 3 is operated by a subsidiary of Northeast Utilities (NU). NEP is not an owner of Millstone 1 and 2 nuclear generating units, which are also shut down under NRC orders. A number of significant prerequisites must be fulfilled prior to restart of Millstone 3, including certification by NU that the unit adequately conforms to its design and licensing bases, an independent verification of corrective action taken at the unit, an NRC assessment concluding a culture change has occurred, public hearings, and a vote of the NRC Commissioners. NU announced in December 1996 that it expects Millstone 3 to be ready for restart around the end of 1997, subject to review by the NRC Commissioners. NEP cannot predict when Millstone 3 will be allowed by the NRC to restart, but believes that the unit will remain shut down for a very protracted period. NEP incurred $10 million of actual costs in 1996 related to corrective actions associated with the outage. NEP has also accrued a liability of approximately $3 million for its share of future corrective action costs. Additional costs may be incurred. During the outage, NEP is also incurring approximately $1.6 million per month in incremental replacement power costs, which it has been recovering from customers through its fuel clause. Several criminal investigations related to Millstone 3 are ongoing. The NRC has identified numerous apparent violations of its regulations which may result in the assessment of civil penalties. NEP and other minority owners of Millstone 3 are assessing their legal rights with respect to NU's operation of Millstone 3. Maine Yankee Over the past few years, the Maine Yankee nuclear generating plant has experienced numerous technical and nontechnical problems. In 1995, the plant had been shut down for much of the year due to the discovery of cracks in its steam generator tubes. The plant is currently shut down due to a cable routing problem. In addition, due to leaking nuclear fuel rods, 68 fuel assemblies will be replaced. As a result, Maine Yankee management does not expect the unit to restart until at least summer of 1997. In late 1995, allegations were made to the NRC that inadequate analyses of the plant's emergency core cooling system had been performed. As a result of the allegations, the NRC limited the plant's operation to 90 percent of full capacity. In September 1996, the NRC asked the Department of Justice (DOJ) to review, for potential criminal violations, an NRC investigatory report on the allegations. The DOJ is not limited in its investigation to the matters covered in that report. During 1996, the NRC conducted an independent safety assessment (ISA) and identified a number of weaknesses, deficiencies, and apparent violations which could result in fines. Yankee Atomic performed professional services for Maine Yankee associated with the matters being investigated. In response to the ISA results, Maine Yankee has indicated that it will spend more than $50 million in 1997 on operational improvements. Additionally, in February 1997, Entergy Corporation, an operator of five nuclear units, commenced providing management services. Under a confirmatory action letter issued by the NRC on December 18, 1996, and supplemented on January 30, 1997, Maine Yankee must fulfill certain commitments before its plant will be allowed by the NRC staff to return to service. Because of regulatory and other uncertainties faced by Maine Yankee, NEP cannot predict whether or when Maine Yankee will return to service. During the outage, NEP is incurring approximately $1.8 million per month in incremental replacement power costs, which it has been recovering from customers through its fuel clause. Brayton Point In October 1996, the Environmental Protection Agency (EPA) announced it was beginning a process to determine whether to modify or revoke NEP's water discharge permit for its Brayton Point 1,576 megawatt power plant. This action came two years before the permit expiration date. The EPA stated it took this step in response to a request from the Rhode Island Department of Environmental Management (RIDEM) that action be taken on the Brayton Point permit prior to its 1998 renewal, based on concerns raised in a final RIDEM report issued in October 1996. The report asserted a statistical correlation between the decline in the fish population in Mount Hope Bay and a change in operations at Brayton Point that occurred in the mid-1980's. In February 1997, NEP signed a memorandum of agreement negotiated with the various federal and state environmental agencies under which NEP will voluntarily operate under more stringent conditions than under its existing permit. The agreement is in lieu of any immediate action on the permit, but will cover only the months of February and March 1997. During this time, the parties will continue to work toward a longer-term solution. NEP cannot predict at this time what permit changes will be required or the impact on Brayton Point's operations and economics. However, permit changes may substantially impact the plant's capacity and ability to produce energy as well as require significant capital expenditures of tens of millions of dollars to construct equipment to address the concerns raised by the environmental agencies. Hazardous Waste The electric utility industry typically utilizes and/or generates in its operations a range of potentially hazardous products and by-products. The most prevalent types of hazardous waste sites with which NEES and its subsidiaries have been associated are manufactured gas locations. (Until the early 1970s, NEES was a combined electric and gas holding company system.) NEES is aware of 40 such manufactured gas locations, including nine of the 23 locations for which NEES companies have been identified by either federal or state environmental regulatory agencies as potentially responsible parties, mostly located in Massachusetts. In 1993, the MDPU approved a settlement agreement that provides for rate recovery of remediation costs of former manufactured gas sites and certain other hazardous waste sites in Massachusetts. A more detailed discussion of this settlement agreement and of potential hazardous waste liabilities is contained in Note D-3 of the Notes to the Financial Statements. Predicting the potential costs to investigate and remediate hazardous waste sites continues to be difficult. At December 31, 1996, NEES had total reserves of $48 million and a related regulatory asset of $18 million. NEES believes that hazardous waste liabilities for all sites of which it is aware, and which are not covered by a rate agreement, are not material to its financial position. 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. In October 1996, the National Research Council of the National Academy of Sciences released a report stating no conclusive and consistent evidence demonstrates that exposures to residential EMF produce adverse health effects. 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. 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 the impact on the NEES companies would be if this cause of action is recognized in the states in which NEES companies operate and in contexts other than condemnation cases. Liquidity and Capital Resources Capital requirements for 1996 and projections for 1997 are shown below:
Year ended December 31 (millions of dollars) 1996 1997 ---- ---- Cash expenditures for utility plant $235 $230 Oil and gas exploration and development 20 15 ---- ---- Total capital expenditures 255 245 Maturing debt and prepayment requirements 24 80 ---- ---- Total capital requirements $279 $325 Cash from utility operations after payment of dividends $242 $250 Cash from oil and gas operations 29 35 ---- ---- Total cash from operations after the payment of dividends $271 $285 ---- ----
The long-term financing activities of the NEES subsidiaries for 1996 and the projected long-term financings for 1997 are summarized as follows:
1996 Actual 1997 Projected (millions of dollars) Issues Retirements Issues Retirements ------ ----------- ------ ----------- NEP $48 $ 58 $ - $ 3 Massachusetts Electric 20 - 50 30 Narragansett 2 2 40 33 Granite State - 1 5 - Nantucket 28 - - 1 Hydro-Transmission companies - 12 - 11 Narragansett Energy Resources Company - 1 - 2 NEEI - 33 - 20 ------ ---------- ------ ---------- $98 $107 $95 $100
Interest rates on the long-term debt issued in 1996 shown above range from 4.10 percent to 7.24 percent. Net cash from operating activities provided all of the funds necessary for oil and gas expenditures in 1996 and is projected to provide all of the funds necessary in 1997. NEEI's 1996 oil and gas exploration and development costs included $7 million of capitalized interest costs. At December 31, 1996, NEES and its consolidated subsidiaries had lines of credit and standby bond purchase facilities with banks totaling $706 million. These lines and facilities were used at December 31, 1996 for liquidity support for $4 million of short-term borrowings, $141 million of commercial paper borrowings, and $372 million of NEP mortgage bonds in tax-exempt commercial paper mode. Fees are paid on the lines and facilities in lieu of compensating balances. New England Electric System and Subsidiaries Selected Financial Data Year Ended December 31 (dollar amounts expressed in millions, except per share data)
1996 1995 1994 1993 1992 ------- -------- ------- ------- ------- Operating revenue: Electric sales (excluding fuel cost recovery) $ 1,531 $ 1,521 $ 1,518 $ 1,488 $ 1,424 Fuel cost recovery 662 600 568 582 597 Other utility revenue 125 121 117 117 118 Oil and gas sales 33 30 40 47 43 ------- ------- ------- ------- ------- Total operating revenue $ 2,351 $ 2,272 $ 2,243 $ 2,234 $ 2,182 Net income $ 209 $ 205 $ 199 $ 190 $ 185 Average common shares (000's) 64,924 64,944 64,970 64,970 64,970 Per share data: Net income $ 3.22 $ 3.15 $ 3.07 $ 2.93 $ 2.85 Dividends declared $ 2.360 $ 2.345 $ 2.285 $ 2.22 $ 2.14 Return on average common equity 12.6% 12.8% 12.7% 12.6% 12.6% Total assets $ 5,223 $ 5,191 $ 5,085 $ 4,796 $ 4,585 Capitalization: Common share equity $ 1,685 $ 1,632 $ 1,581 $ 1,530 $ 1,487 Minority interests 46 49 55 56 61 Cumulative preferred stock 126 147 147 147 162 Long-term debt 1,615 1,675 1,520 1,512 1,533 ------- ------- ------- ------- ------- Total capitalization $ 3,472 $ 3,503 $ 3,303 $ 3,245 $ 3,243 Deliveries to ultimate customers (millions of kWh) 21,674 21,311 21,155 20,832 20,554 Cost per kWh sold to ultimate customers (cents) 9.51 9.54 9.29 9.50 9.43 System maximum demand (MW) 4,091 4,381 4,385 4,081 3,964 Electric capability (net MW)-year end 5,276 5,482 5,533 5,362 5,479 Number of employees 4,787 4,832 4,990 4,969 5,415 Number of ultimate customers (in thousands) 1,333 1,314 1,300 1,288 1,277 ------- ------- ------- ------- -------
New England Electric System and Subsidiaries Statements of Consolidated Income Year Ended December 31 (thousands of dollars, except per share data)
1996 1995 1994 ---------- ---------- ---------- Operating revenue $2,350,698 $2,271,712 $2,243,029 Operating expenses: Fuel for generation 334,994 237,498 220,956 Purchased electric energy 509,400 548,370 514,143 Other operation 501,090 500,721 494,741 Maintenance 127,785 136,058 161,473 Depreciation and amortization 246,379 264,666 301,123 Taxes, other than income taxes 143,733 132,631 125,840 Income taxes 139,199 128,340 128,257 ---------- ---------- ---------- Total operating expenses 2,002,580 1,948,284 1,946,533 ---------- ---------- ---------- Operating income 348,118 323,428 296,496 Other income: Allowance for equity funds used during construction 7,852 10,169 Equity in income of generating companies 10,334 10,552 9,758 Other income (expense), net (8,166) (6,306) (3,856) ---------- ---------- ---------- Operating and other income 350,286 335,526 312,567 ---------- ---------- ---------- Interest: Interest on long-term debt 110,479 108,365 93,500 Other interest 19,527 19,826 11,298 Allowance for borrowed funds used during construction (2,246) (14,016) (7,793) ---------- ---------- ---------- Total interest 127,760 114,175 97,005 ---------- ---------- ---------- Income after interest 222,526 221,351 215,562 Preferred dividends and net gain on reacquisition of preferred stock of subsidiaries 6,463 8,690 8,697 Minority interests 7,127 7,904 7,439 ----------- ----------- ----------- Net income $ 208,936 $ 204,757 $ 199,426 ----------- ----------- ----------- Average common shares 64,924,468 64,944,187 64,969,652 Per share data: Net income $ 3.22 $ 3.15 $ 3.07 Dividends declared $ 2.360 $ 2.345 $ 2.285 ----------- ----------- -----------
Statements of Consolidated Retained Earnings Year Ended December 31 (thousands of dollars)
1996 1995 1994 --------- --------- --------- Retained earnings at beginning of year $ 831,529 $ 779,045 $ 728,075 Net income 208,936 204,757 199,426 Dividends declared on common shares (153,173) (152,273) (148,456) --------- --------- --------- Retained earnings at end of year $ 887,292 $ 831,529 $ 779,045 --------- --------- ---------
The accompanying notes are an integral part of these consolidated financial statements. New England Electric System and Subsidiaries Consolidated Balance Sheets At December 31 (thousands of dollars)
1996 1995 ---------- ---------- Assets Utility plant, at original cost $5,692,956 $5,480,001 Less accumulated provisions for depreciation and amortization 1,853,003 1,710,991 ---------- ---------- 3,839,953 3,769,010 Net investment in Seabrook 1 under rate settlement (Note A) 15,210 Construction work in progress 56,652 71,682 ---------- ---------- Net utility plant 3,896,605 3,855,902 ---------- ---------- Oil and gas properties, at full cost (Note A) 1,286,661 1,266,290 Less accumulated provision for amortization 1,081,940 1,032,777 ---------- ---------- Net oil and gas properties 204,721 233,513 ---------- ---------- Investments: Nuclear power companies, at equity (Note D) 47,902 47,056 Other subsidiaries, at equity 40,124 40,259 Other investments 96,399 87,992 ---------- ---------- Total investments 184,425 175,307 ---------- ---------- Current assets: Cash 8,477 7,064 Accounts receivable, less reserves of $18,702 and $18,308 262,103 284,033 Unbilled revenues 59,093 66,300 Fuel, materials, and supplies, at average cost 74,111 73,724 Prepaid and other current assets 85,096 77,673 ---------- ---------- Total current assets 488,880 508,794 ---------- ---------- Deferred charges and other assets (Note B) 448,620 417,360 ---------- ---------- $5,223,251 $5,190,876 ---------- ---------- Capitalization and liabilities Capitalization (see accompanying statements): Common share equity $1,685,417 $1,631,779 Minority interests in consolidated subsidiaries 46,293 48,912 Cumulative preferred stock of subsidiaries 126,166 147,016 Long-term debt 1,614,578 1,675,170 ---------- ---------- Total capitalization 3,472,454 3,502,877 ---------- ---------- Current liabilities: Long-term debt due within one year 79,705 23,960 Short-term debt 145,050 203,250 Accounts payable 148,592 157,486 Accrued taxes 14,911 15,894 Accrued interest 27,494 27,455 Dividends payable 37,276 38,683 Other current liabilities (Note F) 109,582 73,104 ---------- ---------- Total current liabilities 562,610 539,832 ---------- ---------- Deferred federal and state income taxes 750,929 780,451 Unamortized investment tax credits 91,936 93,408 Other reserves and deferred credits 345,322 274,308 Commitments and contingencies (Note D) ---------- ---------- $5,223,251 $5,190,876 ---------- ----------
The accompanying notes are an integral part of these consolidated financial statements. New England Electric System and Subsidiaries Consolidated Statements of Cash Flows Year ended December 31 (thousands of dollars)
1996 1995 1994 -------- -------- -------- Operating activities Net income $208,936 $204,757 $199,426 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 250,508 270,292 305,908 Deferred income taxes and investment tax credits, net (30,328) 24,056 41,741 Allowance for funds used during construction (2,246) (21,868) (17,962) Amortization of unbilled revenues (8,209) (38,458) Minority interests 7,127 7,904 7,439 Decrease (increase) in accounts receivable, net and unbilled revenues 30,770 1,194 (33,107) Decrease (increase) in fuel, materials, and supplies 126 20,707 (20,117) Decrease (increase) in prepaid and other current assets (7,209) (955) (7,714) Increase (decrease) in accounts payable (9,568) (11,451) 40,595 Increase (decrease) in other current liabilities 33,999 (4,784) (25,676) Other, net 40,455 (11,790) (34,109) -------- -------- -------- Net cash provided by operating activities $522,570 $469,853 $417,966 -------- -------- -------- Investing activities Plant expenditures, excluding allowance for funds used during construction $(234,409) $(329,385) $(438,016) Oil and gas exploration and development (20,371) (17,947) (28,233) Other investing activities (10,309) (32,460) (18,830) --------- --------- --------- Net cash used in investing activities $(265,089) $(379,792) $(485,079) --------- --------- --------- Financing activities Dividends paid to minority interests $ (8,878) $ (12,159) $ (8,416) Dividends paid on NEES common shares (153,759) (151,335) (148,063) Short-term debt (59,862) (30,720) 162,195 Long-term debt-issues 97,850 425,000 97,000 Long-term debt-retirements (106,811) (311,920) (34,920) Preferred stock-retirements (20,900) (512) Premium on reacquisition of long-term debt (2,003) Return of capital to minority interests and related premium (1,633) (1,364) Repurchase of common shares (2,075) (1,543) --------- --------- --------- Net cash provided by (used in) financing activities $(256,068) $ (86,044) $ 67,284 --------- --------- --------- Net increase in cash and cash equivalents $ 1,413 $ 4,017 $ 171 Cash and cash equivalents at beginning of year 7,064 3,047 2,876 --------- --------- --------- Cash and cash equivalents at end of year $ 8,477 $ 7,064 $ 3,047 --------- --------- --------- Supplementary information Interest paid less amounts capitalized $ 119,710 $ 105,459 $ 90,500 --------- --------- --------- Federal and state income taxes paid $ 168,255 $ 68,312 $ 114,597 --------- --------- --------- Dividends received from investments at equity $ 12,987 $ 14,748 $ 15,350 --------- --------- ---------
The accompanying notes are an integral part of these consolidated financial statements. New England Electric System and Subsidiaries Consolidated Statements of Capitalization At December 31 (thousands of dollars)
Common share equity 1996 1995 ---------- ---------- Common shares, par value $1 per share Authorized - 150,000,000 shares Issued - 64,969,652 shares $ 64,970 $ 64,970 Paid-in capital 736,773 736,823 Retained earnings 887,292 831,529 Treasury stock - 102,957 and 45,931 shares, respectively (3,618) (1,543) ---------- ---------- Total common share equity $1,685,417 $1,631,779
Shares outstanding Cumulative preferred stock of subsidiaries 1996 1995 1996 1995 --------- -------- -------- -------- $100 Par value- 4.44% to 4.76% 371,640 430,140 $ 37,164 $ 43,014 6.00% to 7.24% 375,020 525,020 37,502 52,502 $50 Par value 4.50% to 6.95% 730,000 730,000 36,500 36,500 $25 Par value 6.84% 600,000 600,000 15,000 15,000 --------- --------- -------- -------- Total cumulative preferred stock of subsidiaries (annual dividend requirement of $7,332 for 1996 and $8,690 for 1995) 2,076,660 2,285,160 $126,166 $147,016 --------- --------- -------- --------
Long-term debt (Note G) Maturity Rate 1996 1995 ----------------- ----------------------- ---------- Mortgage bonds 1996 through 1999 5.060%-8.280%$ 173,500 $ 183,500 2000 through 2004 6.240%-8.520% 243,500 243,500 2005 through 2014 6.110%-8.450% 94,000 74,000 2015 through 2026 7.050%-9.125% 442,700 472,550 2018 through 2022 Variable 371,850 342,000 Notes Granite State Electric Company 1996 through 2025 7.370%-9.440% 15,000 16,000 Nantucket Electric Company 1997 through 2016 4.100%-8.500% 31,500 New England Energy Incorporated 1998 through 2002 Variable 149,000 182,000 Hydro-Transmission Companies 2001 through 2015 8.820%-9.410% 148,010 159,530 Narragansett Energy Resources Company 2010 7.250% 30,560 32,000 ----------------- ----------------------- ---------- Unamortized discounts and premiums, net (5,337) (5,950) -------------------- Total long-term debt 1,694,283 1,699,130 -------------------- Long-term debt due in one year (79,705) (23,960) -------------------- $1,614,578$1,675,170 --------------------
The accompanying notes are an integral part of these consolidated financial statements. New England Electric System and Subsidiaries Notes to Consolidated Financial Statements Note A - Significant Accounting Policies 1. Nature of operations New England Electric System (NEES) is a public utility holding company. NEES and its subsidiaries constitute the second largest electric utility system in New England. Its core business activities are the generation, transmission, distribution, and sale of electric energy and the delivery of related services, including energy efficiency improvements, to residential, commercial, industrial, and municipal customers. Other business activities include independent transmission projects and rate-regulated domestic oil and gas operations. The NEES system provides electric service to retail customers through separate distribution subsidiaries, Massachusetts Electric Company (Massachusetts Electric) and Nantucket Electric Company (Nantucket), which operate in Massachusetts; The Narragansett Electric Company (Narragansett), which operates in Rhode Island; and Granite State Electric Company (Granite State), which operates in New Hampshire. Each of the distribution subsidiaries purchases electricity on behalf of its customers under wholesale all-requirements contracts with NEES's wholesale generating subsidiary, New England Power Company (NEP). (See Note B for a discussion of industry restructuring and NEP's proposed divestiture of its generating business.) 2. Basis of consolidation and financial statement presentation The consolidated financial statements include the accounts of NEES and all subsidiaries except New England Electric Transmission Corporation, which is recorded under the equity method. Presentation of this subsidiary on the equity basis is not material to the consolidated financial statements. Nantucket, which was acquired by NEES on March 26, 1996, is also included in the consolidated financial statements. NEP has a minority interest in four regional nuclear generating companies (Yankees). Narragansett Energy Resources Company (NERC) has a 20 percent general partnership interest in the Ocean State Power (OSP) generating facility. NEES Energy, Inc. (NEES Energy) has a 50 percent interest in AllEnergy Marketing Company, L.L.C., a new energy marketing joint venture with a wholly-owned subsidiary of Eastern Enterprises. NEP, NERC, and NEES Energy account for these ownership interests under the equity method. NEES owns 50.4 percent of the outstanding common stock of both New England Hydro-Transmission Electric Company, Inc. and New England Hydro-Transmission Corporation (Hydro-Transmission companies). The consolidated financial statements include 100 percent of the assets, liabilities, and earnings of the Hydro-Transmission companies. Minority interests, which represent the minority stockholders' proportionate share of the equity and income of the Hydro-Transmission companies, have been separately disclosed on the NEES consolidated balance sheets and income statements. NEP is also a 12 percent and 10 percent joint owner, respectively, of the Millstone 3 and Seabrook 1 nuclear generating units, each 1,150 megawatts. NEP's net investments in Millstone 3 and Seabrook 1, included in "Net utility plant," are approximately $379 million and $55 million, respectively. NEP's share of the related expenses for these units is included in "Operating expenses." The accounts of NEES and its utility subsidiaries are maintained in accordance with the Uniform System of Accounts prescribed by regulatory bodies having jurisdiction. All significant intercompany transactions between consolidated subsidiaries have been eliminated. In preparing the financial statements, management is required to make estimates that affect the reported amounts of assets and liabilities and disclosures of asset recovery and contingent liabilities as of the date of the balance sheets, and revenues and expenses for the period. These estimates may differ from actual amounts if future circumstances cause a change in the assumptions used to calculate these estimates. 3. Electric sales revenue All of NEES's subsidiaries accrue revenues for electricity delivered but not yet billed (unbilled revenues), with the exception of Granite State. Included in income are $8 million and $38 million, in 1995 and 1994, respectively, which represent amortization of the initial effect of recording unbilled revenues, in accordance with the retail rate agreements. Accrued revenues are also recorded in accordance with rate adjustment mechanisms. 4. Allowance for funds used during construction (AFDC) The utility subsidiaries capitalize AFDC as part of construction costs. AFDC represents the composite interest and equity costs of capital funds used to finance that portion of construction costs not yet eligible for inclusion in rate base. AFDC is capitalized in "Utility plant" with offsetting noncash credits to "Other income" and "Interest." This method is in accordance with an established rate-making practice under which a utility is permitted a return on, and the recovery of, prudently incurred capital costs through their ultimate inclusion in rate base and in the provision for depreciation. The composite AFDC rates were 5.6 percent, 7.3 percent, and 7.6 percent, in 1996, 1995, and 1994, respectively. 5. Depreciation and amortization The depreciation and amortization expense included in the statements of consolidated income is composed of the following:
Year ended December 31 (thousands of dollars) 1996 1995 1994 -------- -------- -------- Depreciation $171,193 $159,510 $136,746 Nuclear decommissioning costs (see Note D-4) 2,629 2,629 1,951 Amortization: Oil and gas properties (see Note A-6) 49,163 68,708 79,232 Investment in Seabrook 1 under rate settlement 15,210 23,073 65,061 Oil Conservation Adjustment (OCA) - 4,467 11,854 Property losses 6,280 6,279 6,279 Millstone 3 additional amortization, under rate settlement 1,904 - - -------- -------- -------- Total depreciation and amortization expense $246,379 $264,666 $301,123 -------- -------- --------
Depreciation is provided annually on a straight-line basis. The provision for depreciation as a percentage of weighted average depreciable property was 3.2 percent in 1996, 3.3 percent in 1995, and 3.1 percent in 1994. The OCA was designed to recover expenditures for coal conversion facilities at NEP's Salem Harbor Station. These costs were fully amortized at December 31, 1995. In addition, Seabrook 1 costs under the rate settlement were fully amortized at December 31, 1996. In December 1996, New England Energy Incorporated (NEEI) recorded a $13 million adjustment, which reduced its amortization of oil and gas properties to correct amounts recorded in the years 1990 through 1996. 6. Oil and gas operations NEEI participates in a rate-regulated domestic oil and gas exploration, development, and production program through a partnership with a nonaffiliated oil company. This program consists of prospects acquired prior to December 31, 1983. No new prospects will be acquired under this program. However, NEEI continues to incur costs in connection with existing prospects. In conjunction with divestiture of the NEES companies' generation business, NEEI intends to sell its oil and gas properties. Losses from this program are passed on to NEP, and ultimately to retail customers, under an intercompany pricing policy approved by the Securities and Exchange Commission (SEC). NEEI has incurred operating losses since 1986 due to low oil and gas prices, and expects to incur substantial additional losses in the future. Such losses were $22 million, $44 million, and $40 million in 1996, 1995, and 1994, respectively. NEP's ability to pass these losses on to its customers was favorably resolved in NEP's 1988 Federal Energy Regulatory Commission (FERC) rate settlement. This settlement 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. NEEI follows the full cost method of accounting for its oil and gas operations, under which capitalized costs (including interest paid to banks) relating to wells and leases, determined to be either commercial or noncommercial, are amortized using the unit of production method. The pricing policy has allowed NEEI to capitalize all costs incurred in connection with fuel exploration activities of its rate-regulated program, including interest paid to banks, of which $7 million was capitalized in 1996, and $10 million in both 1995 and 1994. In the absence of the pricing policy, the SEC's cost center "ceiling test" rule requires non-rate-regulated companies to write down capitalized costs to a level that approximates the present value of their proved oil and gas reserves. Based on NEEI's 1996 average oil and gas selling prices, application of the ceiling test would have resulted in a write-down of approximately $93 million after tax ($149 million before tax) at December 31, 1996. 7. Cash NEES and its subsidiaries classify short-term investments with an original maturity of 90 days or less as cash. Note B - Industry Restructuring The electric utility business is rapidly progressing toward the unbundling of what is now a fully-regulated, bundled product into separate generation, transmission, and distribution components and creating competition in the generation component. Under the current regulatory framework, electric utilities have incurred costs related to commitments to supply electricity to customers that may not be economical in a competitive environment. The amounts by which such costs exceed market prices are commonly referred to as "stranded costs." As described below, a variety of new rules, laws, or proposals have been enacted, or are in process, in the jurisdictions that the NEES subsidiaries operate, to provide for competition in a deregulated generation environment, and allow for stranded cost recovery. See also the "Industry Restructuring" section of Financial Review for a more in-depth discussion of current developments in this area. Massachusetts and Rhode Island On February 26, 1997, the Massachusetts Department of Public Utilities (MDPU) approved an industry restructuring settlement agreement among NEP, its Massachusetts distribution affiliates Massachusetts Electric and Nantucket, the Massachusetts Attorney General, and other parties. In August 1996, the state of Rhode Island enacted industry restructuring legislation. The Massachusetts settlement and the Rhode Island statute have many similarities. Both plans: - - provide for complete retail choice by customers of their power supplier. In Rhode Island, this would begin in July 1997 for certain customers. All customers in Rhode Island and Massachusetts would have choice in 1998. In Massachusetts, choice is contingent on open access being available to all customers of Massachusetts investor-owned utilities; - - provide for recovery of their allocated share of NEP's stranded costs; - - provide customers who do not choose an alternative supplier with service called "standard offer" service; - - implement performance-based rates over varying periods with predetermined rate increases and with additional adjustments that can occur as a result of performance standards or if earnings are below or above an established floor and ceiling; - - require an adjustment of stranded cost recovery to reflect the market value of fossil and hydroelectric generating assets with the Massachusetts settlement requiring actual divestiture of such assets; - - propose amendments to the NEP-retail companies' wholesale all-requirements contracts which have been filed with and accepted by the FERC, set down for hearing, and made effective, subject to refund. The stranded costs to be recovered in both Massachusetts and Rhode Island include (i) the above-market portion of generating plant commitments and regulatory assets to be recovered over 12 years in Massachusetts and 12.5 years in Rhode Island and (ii) the above-market portion of purchased power contracts and the operating cost of nuclear plants, that cannot be avoided by shutting down the plants, including nuclear decommissioning costs. These latter costs would be recovered as incurred over the life of these obligations, a period expected to extend beyond 12 years. NEP estimates that at December 31, 1996 its above-market commitments are approximately $4.5 billion on a present-value basis before application of the proceeds from the sale of its generating business. Under the Massachusetts settlement, the NEES companies must complete the divestiture of their generating business within six months of the later of the commencement of retail choice in Massachusetts or the receipt of all necessary regulatory approvals. As part of the divestiture plan, NEP will endeavor to sell, or otherwise transfer, its minority interest in four nuclear power plants to nonaffiliates. To the extent NEP is unable to divest its nuclear generating interest, the Massachusetts settlement provides for a sharing between customers and shareholders of the nuclear-related revenues and costs not otherwise reflected in the stranded cost recovery, with 80 percent allocated to customers and 20 percent to shareholders. In addition, NEEI is planning to sell its oil and gas properties, the cost of which is supported by NEP through fuel purchased contracts. New Hampshire and federal activity On February 28, 1997, the New Hampshire Public Utilities Commission (NHPUC) issued its plan to implement a New Hampshire law calling for retail access by 1998. Under the plan, utilities such as Granite State whose rates are below the regional average would be allowed full recovery of stranded costs as calculated by the NHPUC. However, the NHPUC indicated that its methodology and proposed timing of recovery would yield both initial access charges and total recovery less than that requested by Granite State although the NHPUC indicated that its decision would not result in savings for Granite State's customers. Prior to the issuance of the NHPUC order, Granite State reached an interim settlement with several customers and other stakeholders that would set initial access charges at 2.8 cents per kWh for two years, and in other respects would mirror the Massachusetts settlement described previously. Stranded costs to be recovered after the two-year initial period would be subject to future regulatory determination. Unlike the NHPUC order, the interim settlement agreement would provide all customers with a rate reduction of approximately 10 percent. This interim settlement is still pending before the NHPUC. In April 1996, the FERC issued Order No. 888 requiring utilities that own transmission facilities to file open access tariffs to make available transmission service to affiliates and nonaffiliates at fair, nondiscriminatory rates. In mid-1996, NEP filed a transmission tariff with the FERC pursuant to this requirement. Order No. 888 also stated that public utilities will be allowed to seek recovery of legitimate and verifiable stranded costs from departing customers as a result of wholesale competition. The FERC also stated that it would permit stranded cost recovery under wholesale all-requirements contracts, such as the contracts between NEP and its retail affiliates. Because of the Massachusetts settlement and the Rhode Island statute, NEP does not expect it will rely exclusively on Order No. 888 to recover stranded costs from its affiliates in Massachusetts and Rhode Island. NEP cannot predict at this time whether an Order No. 888 filing will be necessary to fully recover stranded costs from Granite State or from seven unaffiliated wholesale customers should any of those customers choose to terminate service under their contract with NEP. Granite State and these seven unaffiliated customers are responsible for approximately 3 percent and 2 percent of NEP's sales, respectively. On February 26, 1997, the FERC announced Order No. 888-A, reaffirming the principles of Order No. 888, including stranded cost recovery. Accounting implications Historically, electric utility rates have been based on a utility's costs. As a result, electric utilities are subject to certain accounting standards that are not applicable to other business enterprises in general. Financial Accounting Standards No. 71, Accounting for the Effects of Certain Types of Regulation (FAS 71), requires regulated entities, in appropriate circumstances, to establish regulatory assets, and thereby defer the income statement impact of certain costs expected to be recovered in future rates. The NEES companies have recorded approximately $550 million in regulatory assets in compliance with FAS 71 of which approximately $75 million relate to the transmission and distribution business. Both the Massachusetts settlement and the Rhode Island statute provide for full recovery of the costs of generating assets and oil and gas related assets (including regulatory assets) not recoverable from the proceeds of the divestiture of NEP's generating business. The cost of these assets would be recovered as part of a transition access charge imposed on all distribution customers. After the proposed divestiture, substantially all of NEP's business, including the recovery of its stranded costs, would remain under cost-based rate regulation. NEES believes the Massachusetts settlement and the Rhode Island statute will enable the NEES distribution companies operating in those states to recover through rates their specific costs of providing ongoing distribution services. In addition, FERC Order No. 888 enables transmission companies to recover their specific costs of providing transmission service. NEES believes these factors will allow its principal subsidiaries to continue to apply FAS 71 and that no impairment of plant assets will exist under Statement of Financial Accounting Standards No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of (FAS 121). Any loss from the divestiture of generating assets and oil and gas assets will be recorded as a regulatory asset to be recovered through the ongoing transition access charge. Although NEES believes that its subsidiaries will continue to meet the criteria for continued application of FAS 71, NEES understands that members of the SEC staff have raised questions concerning the continued applicability of FAS 71 to certain other electric utilities facing restructuring. In addition, despite the progress made to date in Massachusetts and Rhode Island, it is possible that the final restructuring plans ultimately ordered by regulatory bodies would not reflect full recovery of stranded costs, including a fair return on those costs as they are being recovered. In the event that future circumstances should cause the application of FAS 71 to be discontinued, a noncash write-off of previously established regulatory assets and liabilities related to the affected operations would be required. In addition, write-downs of plant assets under FAS 121 could be required, including a write-off of any loss from the divestiture of the generating business.
The components of regulatory assets are as follows: At December 31 (thousands of dollars) 1996 1995 -------- -------- Oil and gas properties: in excess of SEC "ceiling test" (see Note A-6) $149,100 $178,200 -------- -------- Regulatory assets included in current assets & liabilities: Accrued NEEI losses (see Note A-6) 21,648 43,731 Rate adjustment mechanisms (see Note F) (48,894) (6,720) -------- -------- (27,246) 37,011 -------- -------- Regulatory assets included in deferred charges: Accrued Connecticut Yankee costs (see Note D-4) 114,425 - Accrued Yankee Atomic costs (see Note D-4) 51,988 67,566 Unamortized losses on reacquired debt 52,167 54,583 Deferred SFAS No. 106 costs (see Note E-2) 29,839 38,669 Deferred SFAS No. 109 costs (see Note C) 72,075 74,083 Purchased power contract termination costs 19,578 23,494 Deferred gas pipeline charges (see Note D-2) 59,733 62,873 Environmental response costs (see Note D-3) 18,265 19,276 Deferred storm costs 6,530 8,259 Unamortized property losses 253 12,044 Other 6,226 24,109 -------- -------- 431,079 384,956 -------- -------- $552,933 $600,167 -------- --------
Additional deferred charges included in "Deferred charges and other assets" on the consolidated balance sheets, that do not represent regulatory assets, totaled $17,541,000 and $32,404,000 at December 31, 1996 and 1995, respectively. Note C - Income Taxes Total income taxes in the statements of consolidated income are as follows:
Year ended December 31 (thousands of dollars) 1996 1995 1994 -------- -------- -------- Income taxes charged to operations $139,199 $128,340 $128,257 Income taxes charged to "Other income" (3,018) 762 779 -------- -------- -------- Total income taxes $136,181 $129,102 $129,036 -------- -------- --------
Total income taxes, as shown above, consist of the following components:
Year ended December 31 (thousands of dollars) 1996 1995 1994 -------- -------- -------- Current income taxes $166,509 $105,046 $ 87,295 Deferred income taxes (28,652) 25,578 46,166 Investment tax credits, net (1,676) (1,522) (4,425) Total income taxes $136,181 $129,102 $129,036 -------- -------- --------
Total income taxes, as shown on previous page, consist of federal and state components as follows:
Year ended December 31 (thousands of dollars) 1996 1995 1994 -------- -------- -------- Federal income taxes $111,573 $103,503 $104,136 State income taxes 24,608 25,599 24,900 -------- -------- -------- Total income taxes $136,181 $129,102 $129,036 -------- -------- --------
Investment tax credits of subsidiaries are deferred and amortized over the estimated lives of the property giving rise to the credits. Although investment tax credits were generally eliminated by the 1986 tax legislation, additional carry forward amounts continue to be recognized. With regulatory approval, the subsidiaries have adopted comprehensive interperiod tax allocation (normalization) for temporary book/tax differences. Total income taxes differ from the amounts computed by applying the federal statutory tax rates to income before taxes. The reasons for the differences are as follows:
Year ended December 31 (thousands of dollars) 1996 1995 1994 -------- --------- -------- Computed tax at statutory rate $123,053 $119,892 $118,006 Increases (reductions) in tax resulting from: Reversal of deferred taxes recorded at a higher rate (2,175) (3,306) (4,230) Amortization of investment tax credits (4,347) (4,443) (5,272) State income tax, net of federal income tax benefit 15,995 16,639 16,185 All other differences 3,655 320 4,347 -------- --------- -------- Total income taxes $136,181 $ 129,102 $129,036 -------- --------- --------
The following table identifies the major components of total deferred income taxes:
At December 31 (millions of dollars) 1996 1995 ------- -------- Deferred tax asset: Plant related $ 110 $ 104 Investment tax credits 37 38 All other 143 122 ------- -------- 290 264 ------- -------- Deferred tax liability: Plant related (811) (788) Equity AFDC (53) (56) All other (177) (200) ------- -------- (1,041) (1,044) ------- -------- Net deferred tax liability $ (751) $ (780) ------- -------
There were no valuation allowances for deferred tax assets deemed necessary. Federal income tax returns for NEES and its subsidiaries have been examined and reported on by the Internal Revenue Service (IRS) through 1991. The returns for 1992 and 1993 are currently under examination by the IRS. Note D - Commitments and Contingencies 1. Plant expenditures The NEES subsidiaries' utility plant expenditures are estimated to be $230 million in 1997. At December 31, 1996, substantial commitments had been made relative to future planned expenditures. 2. Natural gas pipeline capacity In connection with serving NEP's gas-burning electric generation facilities, NEP has entered into several contracts for natural gas pipeline capacity and gas supply. These agreements require minimum fixed payments that are currently estimated to be approximately $57 million to $60 million per year from 1997 to 2001. Under these agreements, remaining fixed payments from 2002 through 2014 total approximately $525 million. As part of a rate settlement, NEP was recovering 50 percent of the fixed pipeline capacity payments through its current fuel clause and deferring the recovery of the remaining 50 percent until the Manchester Street repowering project was completed. These deferrals ended in November 1995, at which time NEP had deferred payments of approximately $63 million, which will be amortized over 25 years in accordance with rate settlements (see Note B). In connection with managing its fuel supply, NEP uses a portion of this pipeline capacity to sell natural gas. Proceeds from the sale of natural gas and pipeline capacity of $50 million, $71 million, and $55 million in 1996, 1995, and 1994, respectively, have been passed on to customers through NEP's fuel clause. These proceeds have been reflected as an offset to the related fuel expense in "Fuel for generation" in NEP's statements of income. Natural gas sales decreased in 1996 as a result of the Manchester Street Station entering commercial operation in the second half of 1995. 3. 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. 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. NEES subsidiaries currently have in place an internal environmental audit program and an external waste disposal vendor audit and qualification program intended to enhance compliance with existing federal, state, and local requirements regarding the handling of potentially hazardous products and by-products. NEES and/or its subsidiaries have been named as potentially responsible parties (PRPs) by either the United States Environmental Protection Agency (EPA) or the Massachusetts Department of Environmental Protection for 23 sites at which hazardous waste is alleged to have been disposed. Private parties have also contacted or initiated legal proceedings against NEES and certain subsidiaries regarding hazardous waste cleanup. The most prevalent types of hazardous waste sites with which NEES and its subsidiaries have been associated are manufactured gas locations. (Until the early 1970s, NEES was a combined electric and gas holding company system.) NEES is aware of approximately 40 such manufactured gas locations (including nine of the 23 locations for which NEES companies are PRPs) mostly located in Massachusetts. NEES and its subsidiaries are currently aware of other possible hazardous waste sites, and may in the future become aware of additional sites, that they may be held responsible for remediating. In 1993, the MDPU approved a settlement agreement regarding the rate recovery of remediation costs of former manufactured gas sites and certain other hazardous waste sites located in Massachusetts. Under that agreement, qualified costs related to these sites are paid out of a special fund established on Massachusetts Electric's books. Massachusetts Electric made an initial $30 million contribution to the fund. Rate-recoverable contributions of $3 million, adjusted since 1993 for inflation, are added annually to the fund along with interest and any recoveries from insurance carriers. At December 31, 1996, the fund had a balance of $17 million. Under the 1996 Massachusetts settlement, an additional $15 million will be transferred to the fund in 1997 out of existing reserves for refunds. Predicting the potential costs to investigate and remediate hazardous waste sites continues to be 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. 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. At December 31, 1996, NEES had total reserves for environmental response costs of $48 million and a related regulatory asset of $18 million. NEES believes that hazardous waste liabilities for all sites of which it is aware, and which are not covered by a rate agreement, are not material to its financial position. In October 1996, the American Institute of Certified Public Accountants issued new accounting rules for Environmental Remediation Liabilities which become effective in 1997. NEES does not believe these new rules will have a material effect on NEES's financial position or results of operations. 4. Nuclear plant decommissioning and nuclear fuel disposal NEP is liable for its share of decommissioning costs for Millstone 3, Seabrook 1, and all of the Yankees. Decommissioning costs include not only estimated costs to decontaminate the units as required by the Nuclear Regulatory Commission (NRC), but also costs to dismantle the uncontaminated portion of the units. NEP records decommissioning cost expense on its books consistent with its rate recovery. NEP is recovering its share of projected decommissioning costs for Millstone 3 and Seabrook 1 through depreciation expense. In addition, NEP is paying its portion of projected decommissioning costs for all of the Yankees through purchased power expense. Such costs reflect estimates of total decommissioning costs approved by the FERC. Connecticut Yankee NEP has a 15 percent equity ownership interest in Connecticut Yankee. As a result of an economic analysis, the Connecticut Yankee board of directors voted in December 1996 to permanently shut down and decommission the plant. In December 1996, Connecticut Yankee filed with the FERC to recover all of its approximately $246 million undepreciated investment in the plant and other costs over the period extending through June 2007, when the plant's NRC operating license would have expired. In a 1993 decision, the FERC allowed Yankee Atomic to recover its undepreciated investment in its permanently shut down nuclear plant, in part on the grounds that owners should not be discouraged from closing uneconomic plants. Several parties have intervened in opposition to Connecticut Yankee's filing. NEP believes that the FERC will allow NEP to recover from its customers all costs that the FERC allows Connecticut Yankee to recover from NEP. NEP has recorded the estimated future payment obligation to Connecticut Yankee of $114 million as a liability and as an offsetting regulatory asset, reflecting NEP's expected future rate recovery of such costs. The NRC has identified numerous apparent violations of its regulations, which may result in the assessment of civil penalties. Yankee Atomic NEP has a 30 percent ownership interest in Yankee Atomic. In 1992, the Yankee Atomic board of directors decided to permanently cease power operation of, and decommission, the facility. Decommissioning is currently underway. NEP has recorded an estimate of its total future payment obligations for post-operating costs to Yankee Atomic as a liability and as an offsetting regulatory asset, reflecting its expected future rate recovery of such costs. This liability and related regulatory asset are approximately $52 million each at December 31, 1996. Decommissioning Trust Funds Each nuclear unit in which NEP has an ownership interest has established a decommissioning trust fund or escrow fund into which payments are being made to meet the projected costs of decommissioning. Listed below is information on each operating nuclear plant in which NEP has an ownership interest.
NEP's share of (millions of dollars) ----------------------------------- NEP's EstimatedDecommissioning Ownership Net Decommissioning Fund License Unit Interest (%)Plant AssetsCost (in 1996$) Balances* Expiration - ---- ----------- ------------ --------------- --------------- ---------- Maine Yankee** 20 44 74 31 2008 Vermont Yankee 20 36 75 30 2012 Millstone 3*** 12 379 62 16 2025 Seabrook 1*** 10 55 45 7 2026 *Certain additional amounts are anticipated to be available through tax deductions. **A Maine statute provides that if both Maine Yankee and its decommissioning trust fund have insufficient assets to pay for the plant decommissioning, the owners of Maine Yankee are jointly and severally liable for the shortfall. ***Fund balances are included in "Other investments" on the balance sheets and approximate market value.
There is no assurance that decommissioning costs actually incurred by the Yankees, Millstone 3, or Seabrook 1 will not substantially exceed these amounts. For example, decommissioning cost estimates assume the availability of permanent repositories for both low-level and high-level nuclear waste; those repositories do not currently exist. If any of the units were shut down prior to the end of their operating licenses, the funds collected for decommissioning to that point would be insufficient. The Nuclear Waste Policy Act of 1982 establishes that the federal government is responsible for the disposal of spent nuclear fuel. The federal government requires NEP to pay a fee based on its share of the net generation from the Millstone 3 and Seabrook 1 nuclear units. NEP is recovering this fee through its fuel clause. Similar costs are incurred by the Maine Yankee and Vermont Yankee nuclear generating units. These costs are billed to NEP and also recovered from customers through NEP's fuel clause. 5. Investments in nuclear units The Millstone 3 and Maine Yankee nuclear generating units are currently shut down and have been placed on the NRC "Watch List," signifying that their safety performance exhibits sufficient weakness to warrant increased NRC attention. Neither may restart without NRC approval. At present, the Vermont Yankee and Seabrook 1 nuclear generating units appear to be operating routinely without major problems. On October 9, 1996, the NRC issued letters to operators of nuclear power plants requiring them to document that the plants are operated and maintained within their design and licensing bases, and that any deviations are reconciled in a timely manner. The Seabrook 1, Maine Yankee, and Vermont Yankee nuclear power plants responded to the NRC letters in February 1997. Uncertainties regarding the future of nuclear generating stations, particularly older units, such as Maine Yankee and Vermont Yankee, are increasing rapidly and could adversely affect their service lives, availability, and costs. These uncertainties stem from a combination of factors, including the acceleration of competitive pressures in the power generation industry and increased NRC scrutiny. Millstone 3 In April 1996, the NRC ordered Millstone 3, which has experienced numerous technical and nontechnical problems, to remain shut down pending verification that the unit's operations are in accordance with NRC regulations and the unit's operating license. Millstone 3 is operated by a subsidiary of Northeast Utilities (NU). NEP is not an owner of the Millstone 1 and 2 nuclear generating units, which are also shut down under NRC orders. A number of significant prerequisites must be fulfilled prior to restart of Millstone 3, including certification by NU that the unit adequately conforms to its design and licensing bases, an independent verification of corrective actions taken at the unit, an NRC assessment concluding a culture change has occurred, public hearings, and a vote of the NRC Commissioners. NU announced in December 1996 that it expects Millstone 3 to be ready for restart around the end of 1997, subject to review by the NRC Commissioners. NEP cannot predict when Millstone 3 will be allowed by the NRC to restart, but believes that the unit will remain shut down for a very protracted period. NEP incurred $10 million of actual costs in 1996 related to corrective actions associated with the outage. NEP has also accrued a liability of approximately $3 million for its share of future corrective action costs. Additional costs may be incurred. During the outage, NEP is also incurring approximately $1.6 million per month in incremental replacement power costs, which it has been recovering from customers through its fuel clause. Several criminal investigations related to Millstone 3 are ongoing. The NRC has identified numerous apparent violations of its regulations which may result in the assessment of civil penalties. NEP and other minority owners of Millstone 3 are assessing their legal rights with respect to NU's operation of Millstone 3. Maine Yankee Over the past few years, the Maine Yankee nuclear generating plant has experienced numerous technical and nontechnical problems. In 1995, the plant had been shut down for much of the year due to the discovery of cracks in its steam generator tubes. The plant is currently shut down due to a cable routing problem. In addition, due to leaking nuclear fuel rods, 68 fuel assemblies will be replaced. As a result, Maine Yankee management does not expect the unit to restart until at least summer of 1997. In late 1995, allegations were made to the NRC that inadequate analyses of the plant's emergency core cooling system had been performed. As a result of the allegations, the NRC limited the plant's operation to 90 percent of full capacity. In September 1996, the NRC asked the Department of Justice (DOJ) to review, for potential criminal violations, an NRC investigatory report on the allegations. The DOJ is not limited in its investigation to the matters covered in that report. During 1996, the NRC conducted an independent safety assessment (ISA) and identified a number of weaknesses, deficiencies, and apparent violations which could result in fines. Yankee Atomic performed professional services for Maine Yankee associated with the matters being investigated. In response to the ISA results, Maine Yankee has indicated that it will spend more than $50 million in 1997 on operational improvements. Additionally, in February 1997, Entergy Corporation, an operator of five nuclear units, commenced providing management services. Under a confirmatory action letter issued by the NRC on December 18, 1996, and supplemented on January 30, 1997, Maine Yankee must fulfill certain commitments before its plant will be allowed by the NRC staff to return to service. Because of regulatory and other uncertainties faced by Maine Yankee, NEP cannot predict whether or when Maine Yankee will return to service. During the outage, NEP is incurring approximately $1.8 million per month in incremental replacement power costs, which it has been recovering from customers through its fuel clause. 6. Nuclear insurance The Price-Anderson Act limits the amount of liability claims that would have to be paid in the event of a single incident at a nuclear plant to $8.9 billion (based upon 110 licensed reactors). The maximum amount of commercially available insurance coverage to pay such claims is $200 million. The remaining $8.7 billion would be provided by an assessment of up to $79.3 million per incident levied on each of the participating nuclear units in the United States, subject to a maximum assessment of $10 million per incident per nuclear unit in any year. The maximum assessment, which was most recently adjusted in 1993, is adjusted for inflation at least every five years. NEP's current interest in the Yankees (excluding Yankee Atomic and Connecticut Yankee), Millstone 3, and Seabrook 1 would subject NEP to a $58.0 million maximum assessment per incident. NEP's payment of any such assessment would be limited to a maximum of $7.3 million per incident per year. As a result of the permanent cessation of power operation of the Yankee Atomic plant, Yankee Atomic has received from the NRC a partial exemption from obligations under the Price-Anderson Act. However, Yankee Atomic must continue to maintain $100 million of commercially available nuclear insurance coverage. Connecticut Yankee is planning to file with the NRC for a similar exemption. Each of the nuclear units in which NEP has an ownership interest also carries nuclear property insurance to cover the costs of property damage, decontamination or premature decommissioning, and workers' claims resulting from a nuclear incident. These policies may require additional premium assessments if losses relating to nuclear incidents at units covered by this insurance occurring in a prior six-year period exceed the accumulated funds available. NEP's maximum potential exposure for these assessments, either directly, or indirectly through purchased power payments to the Yankees, is approximately $11 million per year. 7. Long-term contracts for the purchase of electricity NEP purchases a portion of its electricity requirements pursuant to long-term contracts with owners of various generating units. These contracts expire in various years from 1997 to 2029. In conjunction with its divestiture plan, NEP will endeavor to sell these long-term contracts. Certain of these contracts require NEP to make minimum fixed payments, even when the supplier is unable to deliver power, to cover NEP's proportionate share of the capital and fixed operating costs of these generating units. The fixed portion of payments under these contracts totaled $186 million in 1996, $215 million in 1995, and $190 million in 1994. These contracts, excluding contracts with Yankee Atomic and Connecticut Yankee (see Note D-4), have minimum fixed payment requirements of $155 million in 1997, $150 million in 1998 and 1999, $145 million in 2000 and 2001, and approximately $1.3 billion thereafter. Approximately 92 percent of the payments under these contracts are to the Yankees and OSP, entities in which NEES subsidiaries hold ownership interests. NEP's other contracts, principally with nonutility generators, require NEP to make payments only if power supply capacity and energy are deliverable from such suppliers. NEP's payments under these contracts amounted to $230 million in 1996, $245 million in 1995, and $210 million in 1994. Note E - Employee Benefits 1. Pension plans The NEES companies' retirement plans are noncontributory defined-benefit plans covering substantially all employees. The plans provide pension benefits based on the employee's compensation during the five years prior to retirement. The NEES companies' funding policy is to contribute each year the net periodic pension cost for that year. However, the contribution for any year will not be less than the minimum contribution required by federal law or greater than the maximum tax deductible amount. Net pension cost for 1996, 1995, and 1994 included the following components:
Year ended December 31 (thousands of dollars) 1996 1995 1994 -------- -------- ------- Service cost - benefits earned during the period $ 14,918 $ 14,167 $13,715 Plus (less): Interest cost on projected benefit obligation 51,461 54,821 49,067 Return on plan assets at expected long-term rate (52,085) (49,691) (47,281) Amortization 2,887 5,589 5,781 Net pension cost $ 17,181 $ 24,886 $21,282 -------- -------- ------- Actual return on plan assets $ 91,571 $130,979 $ 4,384 -------- -------- -------
Year ended December 31 1997 1996 1995 1994 ----- ----- ----- ----- Assumptions used to determine pension cost: Discount rate 7.25% 7.25% 8.25% 7.25% Average rate of increase in future compensation levels 4.13% 4.13% 4.63% 4.35% Expected long-term rate of return on assets 8.50% 8.50% 8.75% 8.75%
The increase in 1995 costs and the decrease in 1996 costs reflect additional amounts recorded in the fourth quarter of 1995 related to certain supplemental benefit changes. The following table sets forth the retirement plans' funded status:
At December 31 (millions of dollars) 1996 1995 ---------------------------- ------------------------------ Union Non-UnionSupple- Union Non-Union Supple- EmployeeEmployee mental EmployeeEmployee mental Plans Plans Plans Plans Plans Plans -------- ---------------- -------- --------- ------- Benefits earned Actuarial present value of accumulated benefit liability: Vested $298 $342 $47 $293 $343 $60 Nonvested 9 10 1 8 10 - ------------------------ ---------------- -------- Total $307 $352 $48 $301 $353 $60 ------------------------ ---------------- -------- Reconciliation of funded status Actuarial present value of projected benefit liability $355 $398 $54 $346 $402 $73 Unrecognized prior service costs (6) (3) - (7) (4) (16) SFAS No. 87 transition liability not yet recognized (amortized) - (1) (3) - (1) (4) Net gain (loss) not yet recognized (amortized) 25 15 (3) (1) (23) (7) Additional minimum liability recognized - - 3 - - 14 ------------------------ ---------------- -------- 374 409 51 338 374 60 ------------------------ ---------------- -------- Pension fund assets at fair value 384 428 - 349 392 - SFAS No. 87 transition asset not yet recognized (amortized) (10) - - (11) - - ------------------------ ---------------- -------- 374 428 - 338 392 - ------------------------ ---------------- -------- Accrued pension/(prepaid) payments recorded on books $ - $(19) $51 $ - $(18) $60 ------------------------ ---------------- --------
The plans' funded status at December 31, 1996 and 1995 were calculated using the assumed rates from 1997 and 1996, respectively, and the 1983 Group Annuity Mortality table. Plan assets are composed primarily of corporate equity, debt securities, and cash equivalents. In addition to its regular pension funds shown in the table above, NEES and its subsidiaries have a separate trust fund, commonly referred to as a Rabbi Trust, for certain supplemental pensions and deferred compensation for key executives and employees. The balance of this Rabbi Trust is invested in short-term investments and NEES shares. At December 31, 1996 and 1995, the Rabbi Trust held 102,957 and 45,931 NEES shares, respectively, accounted for as treasury stock. At the end of 1996 and 1995, the difference between costs and market value of investments in the Rabbi Trust was not material. The short-term investments held in the Rabbi Trust amount to $45 and $43 million at December 31, 1996 and 1995, respectively. 2. Postretirement benefit plans other than pensions (PBOPs) The NEES subsidiaries provide health care and life insurance coverage to eligible retired employees. Eligibility is based on certain age and length of service requirements and in some cases retirees must contribute to the cost of their coverage. The total cost of PBOPs for 1996, 1995, and 1994 included the following components:
Year ended December 31 (thousands of dollars) 1996 1995 1994 -------- -------- -------- Service cost - benefits earned during the period $ 6,794 $ 7,137 $ 8,575 Plus (less): Interest cost on accumulated benefit obligation 24,667 29,377 27,813 Return on plan assets at expected long-term rate (12,958) (9,742) (7,821) Amortization 13,099 16,204 18,273 -------- -------- -------- Net postretirement benefit cost $ 31,602 $ 42,976 $ 46,840 -------- -------- -------- Actual return on plan assets $ 24,881 $ 29,054 $ 185 -------- -------- --------
Year ended December 31 1997 1996 1995 1994 -------- -------- -------- -------- Assumptions used to determine postretirement benefit cost: Discount rate 7.25% 7.25% 8.25% 7.25% Expected long-term rate of return on assets 8.25% 8.25% 8.50% 8.50% Health care cost rate - 1994 - - - 11.00% Health care cost rate - 1995 to 1999 8.00% 8.00% 8.50% 8.50% Health care cost rate - 2000 to 2004 6.25% 6.25% 8.50% 8.50% Health care cost rate 2005 and beyond 5.25% 5.25% 6.25% 6.25%
The following table sets forth benefits earned and the plans' funded status:
At December 31 (millions of dollars) 1996 1995 -------- -------- Accumulated postretirement benefit obligation: Retirees $ 236 $ 230 Fully eligible active plan participants 24 23 Other active plan participants 109 121 -------- -------- Total benefits earned 369 374 Unrecognized prior service costs (1) (1) Unrecognized transition obligation (294) (313) Net gain not yet recognized 101 71 -------- -------- 175 131 -------- -------- Plan assets at fair value 202 160 -------- -------- Prepaid postretirement benefit costs recorded on books $ 27 $ 29
The plans' funded status at December 31, 1996 and 1995 were calculated using the assumed rates in effect for 1997 and 1996, respectively. The assumptions used in the health care cost trends have a significant effect on the amounts reported. Increasing the assumed rates by 1 percent in each year would increase the accumulated postretirement benefit obligation as of December 31, 1996 by approximately $44 million and the net periodic cost for 1996 by approximately $5 million. The NEES subsidiaries fund the annual tax-deductible contributions. Plan assets are invested in equity and debt securities and cash equivalents. Note F - Short-Term Borrowings and Other Current Liabilities At December 31, 1996, NEES and its consolidated subsidiaries had lines of credit and standby bond purchase facilities with banks totaling $706 million. These lines and facilities were used at December 31, 1996 for liquidity support for $4 million of short-term borrowing, $141 million of commercial paper borrowings, and $372 million of NEP mortgage bonds in tax-exempt commercial paper mode (see Note G). Fees are paid on the lines and facilities in lieu of compensating balances. The weighted average rate on outstanding short-term borrowings was 5.51 percent at December 31, 1996. The fair value of the NEES subsidiaries' short-term debt equals carrying value. The components of other current liabilities are as follows:
At December 31 (thousands of dollars) 1996 1995 -------- ------- Accrued wages and benefits $ 37,872 $30,222 Rate adjustment mechanisms 50,614 19,772 Customer deposits 10,595 10,993 Other 10,501 12,117 -------- ------- $109,582 $73,104 -------- -------
Note G - Long-Term Debt Substantially all of the properties of NEP, Massachusetts Electric, and Narragansett are subject to the lien of mortgage indentures under which mortgage bonds have been issued. The aggregate payments to retire maturing long-term debt are as follows:
(thousands of dollars) 1997 1998 1999 2000 2001 ------- -------- -------- -------- ------- Maturing long-term debt $66,265 $ 76,470 $34,480 $ 92,485 $ 6,495 Mandatory prepayments: Hydro-Transmission companies 11,520 11,520 11,520 11,520 10,790 NEEI - 14,000 30,000 30,000 30,000 NERC 1,920 1,920 2,280 2,280 2,280 ------- -------- ------- -------- ------- Total $79,705 $103,910 $78,280 $136,285 $49,565 ------- -------- ------- -------- -------
The terms of $372 million of variable rate pollution control revenue bonds collateralized by NEP mortgage bonds at December 31, 1996 require NEP to reacquire the bonds under certain limited circumstances. NEP has approximately $740 million of mortgage bonds outstanding, including those collateralizing pollution control revenue bonds. The bond indenture restricts the sale of the trust property in its entirety or substantially in its entirety. The proposed sale of NEP's generating business would likely require that NEP either amend the bond indenture or defease the bonds in connection with the proposed sale. Any defeasance of bonds would be by the deposit of cash representing principal and interest to the maturity date or interest, principal, and general redemption premium to an earlier redemption date. At December 31, 1996, interest rates on NEP's variable rate bonds ranged from 2.30 percent to 4.80 percent. Also, at December 31, 1996, interest rates on NEEI's debt ranged from 5.30 percent to 6.17 percent. At December 31, 1996, the NEES subsidiaries' long-term debt had a carrying value of approximately $1,694,000,000 and a fair value of approximately $1,730,000,000. The fair value of debt that reprices frequently at market rates approximates carrying value. The fair market value of the NEES subsidiaries' long-term debt was estimated based on the quoted prices for similar issues or on the current rates offered to the NEES companies for debt of the same remaining maturity. Note H - Supplementary Quarterly Financial Information (unaudited)
1996 Quarter Ended Mar. 31 June 30 Sept. 30 Dec. 31 -------- -------- -------- -------- (thousands of dollars, except per share amounts) Operating revenue $586,220 $551,110 $616,857 $596,511 Operating income $ 94,955 $ 69,133 $ 97,384 $ 86,646 Net income $ 61,496 $ 35,001 $ 64,375 $ 48,064 Net income per average share $ .95 $ .54 $ .99 $ .74 -------- -------- -------- --------
1995 Quarter Ended Mar. 31 June 30 Sept. 30 Dec. 31* -------- -------- --------- -------- (thousands of dollars, except per share amounts) Operating revenue $ 558,316 $533,547 $599,126 $580,723 Operating income $ 73,385 $ 59,881 $102,321 $ 87,841 Net income $ 47,662 $ 33,531 $ 73,820 $ 49,744 Net income per average share $ .73 $ .52 $ 1.14 $ .76 --------- -------- -------- -------- *See Note E
Report of Management The management of New England Electric System is responsible for the integrity of the consolidated financial statements included in this Annual Report. The financial statements were prepared in accordance with generally accepted accounting principles using management's informed best estimates and judgments where appropriate to fairly present the financial condition of the NEES companies and their results of operations. The information included elsewhere in this report is consistent with the financial statements. The NEES companies maintain an accounting system and system of internal controls which are designed to provide reasonable assurance as to the reliability of the financial records, the protection of assets, and the prevention of any material misstatement of the financial statements. The NEES companies' accounting controls have been designed to provide reasonable assurance that errors or irregularities, which could be material to the financial statements, are prevented or detected by employees within a timely period as they perform their assigned functions. The NEES companies' internal auditing staff independently assesses the effectiveness of internal controls and recommends improvements where appropriate. Coopers & Lybrand L.L.P., the NEES companies' independent accountants, are engaged to audit and express their opinion on the financial statements. Their audit includes a review of internal controls to the extent required by generally accepted auditing standards. The Audit Committee, composed solely of outside directors, meets periodically with management, the internal auditor, and the independent accountants to ensure that each is carrying out its responsibilities and to discuss auditing, internal accounting control, and financial reporting matters. Both the internal auditor and the independent accountants have free access to the Audit Committee, without management present, to discuss the results of their audit work. /s John W. Rowe /s Alfred D. Houston John W. Rowe Alfred D. Houston President and Executive Vice President Chief Executive Officer and Chief Financial Officer Report of Independent Accountants To the Board of Directors and Shareholders of New England Electric System: We have audited the accompanying consolidated balance sheets and consolidated statements of capitalization of New England Electric System and subsidiaries (the Company) as of December 31, 1996 and 1995 and the related consolidated statements of income, retained earnings and cash flows for each of the three years in the period ended December 31, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 1996 and 1995, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 1996, in conformity with generally accepted accounting principles. Boston, Massachusetts /s Coopers & Lybrand L.L.P. February 28, 1997 Shareholder Information For shareholder information or assistance, write or call Shareholder Services at: New England Electric System, Shareholder Services, P.O. Box 770, Westborough, MA 01581 Toll-free number: 1-800-466-7215 Local number: (508) 389-4900 Fax: (508) 836-0276 E-mail: shrser@neesnet.com Dividend reinvestment Shareholders of New England Electric System common shares who hold their shares in registered form are eligible to participate in the Dividend Reinvestment and Common Share Purchase Plan. The Plan provides participants the opportunity to reinvest their dividends and send in optional cash payments to purchase additional common shares. These shares will be newly issued shares or shares purchased in the open market. The Company will pay all brokerage commissions and service charges associated with the Plan. For more information on the Plan, please contact Shareholder Services at our toll-free number listed above. Direct deposit of dividends Shareholders who hold New England Electric System common shares in their own name may request to have their dividends directly deposited into their checking or savings account. This service is provided without fees. If you participate in Direct Deposit, you will receive a credit advice for your records. To sign up for this service, please call Shareholder Services on our toll-free number to request an authorization form. Change of address Please contact Shareholder Services on our toll-free number to notify us of your address change. Form 10-K Copies of the Annual Report on Form 10-K to the Securities and Exchange Commission for 1996 are available upon request at no charge by writing to the address at left. Annual meeting The annual meeting of New England Electric System will be held at the Casino, located at Roger Williams Park in Providence, RI on April 29, 1997 at 10:30 a.m. Stock exchange listings New England Electric System common shares are listed on the New York Stock Exchange and the Boston Stock Exchange under the symbol NES. Transfer agent Certificates for transfer should be mailed to our transfer agent at: Bank of Boston, c/o Boston EquiServe P.O. Box 8040 Boston, MA 02266-8040
New England Electric System common shares 1996 1995 ---- ---- Price Range ($) Price Range ($) High Low Dividend High Low Dividend Declared ($) Declared ($) First Quarter 40.625 36.125 .590 34.250 30.625 .575 Second Quarter 38.875 32.875 .590 35.250 29.625 .590 Third Quarter 36.375 31.125 .590 37.250 32.875 .590 Fourth Quarter 35.625 31.000 .590 40.000 37.000 .590
The total number of shareholders at December 31, 1996 was 52,564. [MAP OF SERVICE AREAS] NEES Subsidiaries As of January 1, 1997 Massachusetts Electric Company 25 Research Drive, Westborough, Massachusetts 01582 The Narragansett Electric Company 280 Melrose Street, Providence, Rhode Island 02901 Granite State Electric Company 407 Miracle Mile, Suite 1, Lebanon, New Hampshire 03766 Nantucket Electric Company 25 Research Drive, Westborough, Massachusetts 01582 AllEnergy Marketing Company, L.L.C.* 95 Sawyer Road, Waltham, Massachusetts 02154 * Joint venture with Eastern Enterprises Granite State Energy, Inc. 4 Park Street, Concord, New Hampshire 03301 NEES Energy, Inc. 25 Research Drive, Westborough, Massachusetts 01582 Narragansett Energy Resources Company 280 Melrose Street, Providence, Rhode Island 02901 New England Power Company 25 Research Drive, Westborough, Massachusetts 01582 NEES Communications, Inc. 25 Research Drive, Westborough, Massachusetts 01582 New England Electric Resources, Inc. 25 Research Drive, Westborough, Massachusetts 01582 New England Energy Incorporated 25 Research Drive, Westborough, Massachusetts 01582 New England Electric Transmission Corporation 4 Park Street, Concord, New Hampshire 03301 New England Hydro-Transmission Corporation 407 Miracle Mile, Suite 1, Lebanon, New Hampshire 03766 New England Hydro-Transmission Electric Company, Inc. 25 Research Drive, Westborough, Massachusetts 01582 New England Power Service Company 25 Research Drive, Westborough, Massachusetts 01582 Executive Team [PHOTO OF EXECUTIVE TEAM] Left to right: Alfred D. Houston, Cheryl A. LaFleur, Michael E. Jesanis, Richard P. Sergel, John W. Rowe, and Jeffrey D. Tranen NEES Officers As of January 1, 1997 John W. Rowe President and Chief Executive Officer Alfred D. Houston Executive Vice President and Chief Financial Officer Richard P. Sergel Senior Vice President Jeffrey D. Tranen Senior Vice President Cheryl A. LaFleur Vice President, General Counsel, and Secretary Michael E. Jesanis Vice President and Treasurer Distribution Company Presidents (not pictured) Robert L. McCabe - - The Narragansett Electric Company Lawrence J. Reilly - - Massachusetts Electric Company - - Nantucket Electric Company - - Granite State Electric Company [PHOTOS OF NEES DIRECTORS] Left to right: Edward H. Ladd, James Q. Wilson, Joshua A. McClure, John M. Kucharski, George M. Sage, John W. Rowe, Joan T. Bok, Charles E. Soule, Paul L. Joskow, Anne Wexler, James R. Winoker, and William M. Bulger NEES Directors As of January 1, 1997 Joan T. Bok Chairman of the Board, New England Electric System, Westborough, Massachusetts - - Corporate Responsibility Committee - - Executive Committee William M. Bulger President, University of Massachusetts, Boston, Massachusetts - - Audit Committee Paul L. Joskow Professor of Economics and Management and Head, Department of Economics, Massachusetts Institute of Technology, Cambridge, Massachusetts - - Audit Committee John M. Kucharski Chairman, President, and Chief Executive Officer, EG&G, Inc., Wellesley, Massachusetts - - Compensation Committee Edward H. Ladd Chairman, Standish, Ayer & Wood, Inc., Investment counselors, Boston, Massachusetts - - Executive Committee - - Nominating Committee Joshua A. McClure Former President, American Custom Kitchens, Inc., Providence, Rhode Island - - Corporate Responsibility Committee John W. Rowe President and Chief Executive Officer, New England Electric System, Westborough, Massachusetts - - Corporate Responsibility Committee - - Executive Committee George M. Sage President and Treasurer, Bonanza Bus Lines, Inc., Providence, Rhode Island - - Compensation Committee - - Executive Committee - - Nominating Committee Charles E. Soule President and Chief Executive Officer, Paul Revere Insurance Group, Worcester, Massachusetts - - Audit Committee Anne Wexler Chairman, The Wexler Group, Management consultants, Washington, D.C. - - Corporate Responsibility Committee - - Executive Committee - - Nominating Committee James Q. Wilson Professor of Strategy and Organization, University of California at Los Angeles - - Corporate Responsibility Committee James R. Winoker Chief Executive Officer, Belvoir Properties, Inc., Providence, Rhode Island - - Audit Committee - - Compensation Committee 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 therefore. This report is not to be considered as an offer to sell or buy or solicitation of an offer to sell or buy any security. [NEES LOGO] New England Electric System 25 Research Drive Westborough, Massachusetts 01582 Telephone 508-389-2000 www.nees.com EX-24 21 NEES POWER OF ATTORNEY EXHIBIT (24) POWER OF ATTORNEY ----------------- Each of the undersigned directors of New England Electric System (the "Company"), individually as a director of the Company, hereby constitutes and appoints John G. Cochrane, Patricia M. Needham, and Robert K. Wulff, individually, as attorney-in-fact to execute on behalf of the undersigned the Company's annual report on Form 10-K for the year ended December 31, 1996, to be filed with the Securities and Exchange Commission, and to execute any appropriate amendment or amendments thereto as may be required by law. Dated this 25th day of February, 1997. s/Joan T. Bok s/John W. Rowe _________________________ _________________________ Joan T. Bok John W. Rowe s/William M. Bulger s/George M. Sage _________________________ _________________________ s/William M. Bulger George M. Sage s/Paul L. Joskow s/Charles E. Soule _________________________ _________________________ Paul L. Joskow Charles E. Soule s/Anne Wexler _________________________ _________________________ John M. Kucharski Anne Wexler s/Edward H. Ladd s/James Q. Wilson _________________________ _________________________ Edward H. Ladd James Q. Wilson s/Joshua A. McClure s/James R. Winoker _________________________ _________________________ Joshua A. McClure James R. Winoker EX-27 22 NEES FDS
UT THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET AND RELATED CONSOLIDATED STATEMENTS OF INCOME, RETAINED EARNINGS AND CASH FLOWS OF NEW ENGLAND ELECTRIC SYSTEM, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000071297 New England Electric System 1,000 DEC-31-1996 DEC-31-1996 12-MOS PER-BOOK 3,896,605 389,146 488,880 448,620 0 5,223,251 64,970 736,773 887,292 1,685,417 0 126,166 1,614,578 0 0 145,050 79,705 0 0 0 1,572,335 5,223,251 2,350,698 139,199 1,863,381 2,002,580 348,118 2,168 350,286 127,760 208,936 6,463 208,936 153,173 110,479 522,570 $3.22 $3.22 Total deferred charges includes other assets. Preferred stock reflects preferred stock of subsidiaries. Preferred stock dividends reflect preferred stock dividends of subsidiaries and net gain on reacquisition of preferred stock. Total common stockholders equity is reflected net of treasury stock at cost. EX-10 23 NEP EXHIBIT 10(N) MUTUAL ASSISTANCE AGREEMENT --------------------------- WHEREAS, the Massachusetts Electric Company, Nantucket Electric Company, The Narragansett Electric Company, Granite State Electric Company, New England Power Company, New England Electric Transmission, New England Hydro-Transmission Corporation and New England Hydro-Transmission Electric Company, Inc. (individually, a Company and together, the Companies) are each an operating electric utility and an affiliated company within the New England Electric System, Massachusetts, WHEREAS, each of the Companies from time to time have required and may continue to require limited incidental assistance and services to ensure that their electric utility operations and equipment are maintained and perform in accordance with good utility practice, WHEREAS, each of the Companies may find it from time to time economic and efficient to obtain from one another such needed services and assistance, and to provide the same to one another at cost, NOW, THEREFORE, the Companies enter into this Mutual Assistance Agreement. COVENANTS 1. Each Company will, to the extent possible, respond to requests from any other Company for specific or general incidental assistance and services. Such requests may be modified or canceled by the requesting Company and may be refused by the responding Company. 2. Requests for incidental assistance and services shall generally be for the types of services set forth in Exhibit A, attached hereto and incorporated by reference. 3. All incidental assistance and services rendered under this Mutual Assistance Agreement will be at actual cost thereof. Direct charges will be made for assistance and services. 4. Bills for incidental assistance and services will be rendered as soon as practicable after the close of each month. Bills shall be paid as promptly as practicable following receipt. 5. This Mutual Assistance Agreement is subject to modification or termination at any time to the extent that its performance may conflict with any federal or state law or any rule, regulation or order of a federal or state regulatory body having jurisdiction thereover. This Agreement is furthermore subject to approval of any federal or state regulatory body whose approval is a legal prerequisite to its execution and performance. 6. This Agreement shall be in effect for calendar year 1997. 7. Any number of counterparts of this Mutual Assistance Agreement may be executed, and each shall have the same force and effect as an original instrument, as if all parties to all counterparts had signed the same instrument. MASSACHUSETTS ELECTRIC COMPANY By Title NANTUCKET ELECTRIC COMPANY By Title THE NARRAGANSETT ELECTRIC COMPANY By Title GRANITE STATE ELECTRIC COMPANY By Title NEW ENGLAND POWER COMPANY By Title NEW ENGLAND ELECTRIC TRANSMISSION By Title NEW ENGLAND HYDRO-TRANSMISSION CORPORATION By Title NEW ENGLAND HYDRO-TRANSMISSION ELECTRIC COMPANY By Title Exhibit A --------- Description of Assistance and Services Available ------------------------------------------------ Construction and Maintenance Manpower and equipment for construction, extension, improvement, maintenance or repair of electric properties. Emergencies Assistance in emergency maintenance and restoration of utility service and in mobilization of personnel and equipment. Engineering Engineering services; technical advice, design, installation, supervision, planning, research, testing, operation of communications, and operation and maintenance of specialized technical equipment. Stores Services re storing of materials, supplies and equipment. Miscellaneous Consulting and monitoring services; land and/or real facilities rentals related to transmission or wholesale power sales; reimbursement of convenience expenses. Exhibit B --------- Determination of Cost of Service -------------------------------- Cost of service will be determined in accordance with the rules, regulations and orders of the Securities Exchange Commission, and will include all costs of doing business incurred by the providing Company. Records will be maintained for each unit of the providing Company in order to accumulate all costs of doing business and to determine the cost of service. These costs will include wages and salaries of employees and related expenses such as insurance, taxes, pensions and other employee welfare expenses, and general administrative costs. Charges for services rendered and related expenses and non- personnel expenses (e.g., use of automotive equipment, etc.) will be billed directly to the requesting Company. Charges for services will be determined from the time sheets of employees and will be computed on the basis of each employee's hourly rate plus a percentage factor to cover related expenses and general administrative expenses. Records of such related expenses and general administrative expenses will be maintained and subjected to periodic review. Out-of-pocket expenses which are incurred for the requesting Company will be billed at cost. Charges for non-personnel expenses, such as for use of automobiles, trucks and heavy equipment, will normally be computed on the basis of costs per hour or per mile. EX-10 24 NEP EXHIBIT 10(O) COMMONWEALTH OF MASSACHUSETTS DEPARTMENT OF PUBLIC UTILITIES ____________________________________ ) Electric Utility Industry ) D.P.U. Docket Nos. 96-100 Restructuring ) and 96-25 ) ____________________________________) RESTRUCTURING SETTLEMENT AGREEMENT ---------------------------------- This Restructuring Settlement Agreement ("Settlement") is jointly sponsored by the Attorney General, American National Power, Conservation Law Foundation, Division of Energy Resources, KCS Power Marketing, Inc., Low- Income Intervenors(1), Massachusetts Community Action Directors Association, Massachusetts Energy Directors Association, Massachusetts High Technology Council, Northeast Energy and Commerce Association, Northeast Energy Efficiency Council, Inc, The Energy Consortium, Union of Concerned Scientists, U.S. Generating Company, New England Power Company ("NEP"), and Massachusetts Electric Company and Nantucket Electric Company (referred to collectively as "Mass. Electric"). The Settlement is designed to provide a resolution of some issues presented in the industry restructuring Docket Nos. D.P.U. 96-100 (the Department's generic proceeding on electric utility restructuring) and D.P.U. 96- 25 (Mass. Electric's own restructuring proceeding). This Settlement, once approved by the Department, would require a restructuring of the New England Electric System ("NEES") in furtherance of the competitive market structure objectives of the Department and would implement the restructuring plan of the Attorney General as applied to Mass. Electric and its affiliates in the New __________ 1 The Low-Income Intervenors are Irving Berstein and Pearl Noorigian who are represented by the National Consumer Law Center. England Electric System. The Settlement includes a requirement for a filing by NEP to separate its generation business from its transmission business, a commitment voluntarily to divest NEP's generation business through a sale or spinoff of 100 percent of that business, a request for approval of the jurisdictional separation between transmission facilities subject to the Federal Energy Regulatory Commission's ("FERC") jurisdiction and distribution facilities subject to the Department's jurisdiction, and the assurance of stranded cost recovery by NEP and Mass. Electric. This Settlement also resolves all ratemaking issues for Mass. Electric and assures that Mass. Electric's rates to retail customers comply fully with the requirements of the Attorney General's principles. Finally, this Settlement resolves certain other issues necessary to implement retail choice for Mass. Electric's customers on the Retail Access Date which is defined as the later of January 1, 1998 or the date when retail access is made available to all customers of the investor-owned utilities in Massachusetts. The parties to this Settlement recognize and fully understand that their mutual promises in this Settlement evidence the consideration they have extended to each other in their efforts to settle the issues of D.P.U. 96-25 in accordance with the principles articulated in D.P.U. 96-100. The willingness and ability of Mass. Electric and NEP to commit to and fulfill any and all of their obligations under this Settlement, including in particular the full divestiture of NEP's generating business, are predicated and conditioned upon the commitments by the Attorney General and the Department to the recovery in full of Mass. Electric's and NEP's stranded costs, as set forth in this Settlement and in the wholesale rate settlement included in Attachment 3. The Settlement is designed to implement the Attorney General's principles for electric industry restructuring in Massachusetts in a manner that is consistent with the proposals articulated by the Department in its orders in D.P.U. 96-100. It is further designed to insure recovery of Mass. Electric's access charge as part of its transition from a fully bundled, completely regulated electric utility to an unbundled distribution company in an emerging competitive industry. The Settlement follows the outline of the Attorney General's principles. The parties have agreed on the following: I. Price Reductions for Customers. ------------------------------ The Attorney General's principles will produce reduced rates for all customers on the Retail Access Date. The Settlement accomplishes that objective by freezing Mass. Electric's base rates prior to the Retail Access Date, implementing unbundled rates for Mass. Electric on January 1, 1997, and providing retail delivery tariffs with a standard offer option on the Retail Access Date. Mass. Electric's unbundled tariffs that will be effective from January 1, 1997 through the Retail Access Date, together with supporting documentation, are included in Attachment 1. Mass. Electric's retail delivery tariffs with the standard offer option that will be effective on and after the Retail Access Date are included in Attachment 2. Mass. Electric's retail delivery tariffs contemplate the corporate separation of NEP's generation and transmission, and recognize that NEP will be paid the transmission rates established by FERC. Under a separate wholesale rate settlement included in Attachment 3, NEP's wholesale base rates to Mass. Electric will be frozen through the Retail Access Date, or through December 31, 2000 if the Retail Access Date has not yet occurred or Mass. Electric has not otherwise terminated its all- requirements service under the wholesale tariff. Following the Retail Access Date, NEP will cease providing Mass. Electric all-requirements service under its wholesale tariff, FERC Electric Tariff, Original Volume No. 1 (Tariff 1), and NEP will implement, and Mass. Electric will pay, the contract termination charges set forth in that wholesale rate settlement. The approval by FERC of the wholesale rate settlement included in Attachment 3 is a condition to the effectiveness of this Settlement and to the provision of retail access by Mass. Electric to its customers. Failure by FERC to approve the wholesale rate settlement as filed shall render this Settlement null and void and of no effect. A. The Unbundled Rates Effective from January 1, 1997 Through the Retail Access Date. -------------------------------------------------------------- The unbundled rates included in Attachment 1 shall be phased in during the first six months of 1997 beginning on January 1, 1997 in accordance with the following terms: 1. Mass. Electric's unbundled rates in Attachment 1 are divided into delivery service charges and energy service charges. The delivery service charges include Mass. Electric's distribution costs including the conservation cost factors approved by the Department for calendar year 1997, an allowance for transmission costs, and recovery of fixed costs associated with NEP's purchased power expense currently recovered in NEP's W-95 rate. The energy service charges include Mass. Electric's fuel clause plus an allowance equal to the variable energy cost currently recovered in NEP's W-95 rate. Mass. Electric's fuel clause will continue to operate as a fully reconciling charge during the effective period of the unbundled rates. 2. Mass. Electric's unbundled rates will be used for billing purposes to provide information to customers. Further information, such as the estimate of variable energy and capacity costs under the Boston Edison Company E-Plan proposal will be made available to any customer upon request. 3. Mass. Electric will eliminate its purchased power adjustment clause as of January 1, 1997 and will roll PPCA W-95(S) into its base rates by adding the PPCA W-95(S) amount of $0.00307 per kilowatthour and the PPCA reconciliation adjustment of $0.00051 per kilowatthour to base revenues. No further reconciliations of purchased power expense and revenues will be required after August 1, 1996, and any balance whether positive or negative existing from the PPCA reconciliation will be retained or borne by Mass. Electric and will not be refunded or collected from customers.(1) __________ 1 The balance in the PPCA reconciliation account through July 1996 is approximately $18 million. This includes: a) an overrecovery of $25 million since the last PPCA factor adjustment; and b) a remaining balance of $7 million on the underrecovery now being collected through a PPCA reconciliation adjustment. Mass. Electric will credit the $18 million balance by applying $3 million to prefund a storm fund effective on August 1, 1996, and by applying $15 million to Mass. Electric's hazardous waste fund in lieu of the repayment of service extension discounts for customers who have received the discounts and who choose another supplier within the Service Extension Discount notice period. No further reconciliations of purchased power expense and revenues will be required after July 31, 1996. For August through December, Mass. Electric will accept the risk of an underrecovery and retain the benefit of any overrecovery. In addition, any refunds made pursuant to footnote 2 of the wholesale rate settlement in Attachment 3 shall be retained by Mass. Electric. 4. The unbundled rates in Attachment 1 shall remain in effect for all usage prior to the Retail Access Date, subject to Section I.C. below. The fuel adjustment factor shall be applied to billings after the Retail Access Date for usage occurring before the Retail Access Date. The final balances in the fuel factor remaining after the Retail Choice Date shall be returned to or collected from customers in the first quarter after the Retail Access Date. 5. Effective on January 1, 1997, Mass. Electric shall close, or cease to offer, to new customers the following rates and incentive clauses: Scheduled Interruptible Service, Rate I-1 Economy Interruptible Service, Rate I-2 Cooperative Interruptible Service Provision, Rate I-3 Cooperative Interruptible Service Provision, Rate I-4 Cooperative Interruptible Service Provision, Rate I-5 Flexible Time-of-Use Pricing, Rate G-5 Community Partnership Program Discount Provision Jobs Through Conservation Program Discount Provision General Service - G-5 Rate Incentive Provision Service Extension Discount B. Retail Delivery Rates and the Standard Offer Effective from the Retail Access Date Through December 31, 2000. --------------------------------------------------------------- The retail delivery rates included in Attachment 2 shall become effective for usage on and after the Retail Access Date on the following terms. 1. Mass. Electric's retail delivery rates included in Attachment 2 include four components. The first three of the components will be included in a delivery service charge, and the fourth will be billed separately to customers taking standard offer service. The four components are as follows: (a) Distribution charges that will remain in place through December 31, 2000 and which may be superseded by a filing that becomes effective after suspension on January 1, 2001. Performance standards are also established for reliability and customer satisfaction in the distribution component of the rate with credits to customers if the standards are not achieved; (b) Transmission charges that recover on a fully reconciling basis the transmission charges billed to Mass. Electric by NEP together with the charges, if any, billed to Mass. Electric by or for the benefit of a Regional Transmission Group, an Independent System Operator, any other transmission provider, or any regional entity that may be created or allowed to implement rates and tariffs for transmission services or reliability related operating services under FERC accepted tariffs; (c) Access charges that are designed to recover on a fully reconciling basis all contract termination charges paid by Mass. Electric to NEP. As set forth more fully below these access charges are fixed at 2.8 cents per kilowatthour for the period through December 31, 2000, subject to the residual value credit under Attachment 3, and at declining levels thereafter. The access charges are subject to adjustment for various factors in NEP's wholesale rate settlement included in Attachment 3. (d) A standard offer for service during a transition period that is fixed for the period through December 31, 2004 subject only to a fuel index, which is set forth in Attachment 8, on the following schedule: Calendar Year Average Price per kilowatthour ------------- ------------------------------ 1998 2.8 cents 1999 3.1 cents 2000 3.4 cents 2001 3.8 cents 2002 4.2 cents 2003 4.7 cents 2004 5.1 cents Together the charges in paragraphs (a) through (d) comply with the Attorney General's principles related to rates and prices. In addition, Attachment 4 contains revised terms and conditions for Mass. Electric that reflect changes to Mass. Electric's terms and conditions associated with its change to an unbundled distribution company, and which set forth the requirements for customers taking retail access. The details of each charge included in the rates and the changes to the terms and conditions are set forth in the paragraphs below. 2. Distribution Charges. The distribution charges in the retail delivery rates will become effective on the Retail Access Date and will remain in effect through December 31, 2000 on the following terms. (a) Mass. Electric shall be authorized to implement the depreciation rates shown in Attachment 5 as of the effective date of the retail delivery rates. (b) Mass. Electric shall be authorized to establish a storm fund to pay for all of the incremental costs of any major storm, defined as any storm with incremental costs of over $1.0 million occurring after the date this Settlement is approved by the Department. The storm fund will be prefunded with $3.0 million on August 1, 1996 pursuant to footnote 2 above. The distribution component of the retail delivery rates contains a $3.0 million accrual for this charge and Mass. Electric shall begin to accrue this amount to the fund on an annual basis commencing on the date when the retail delivery rates become effective. The accrual shall continue at $3.0 million per year until a modification is approved by the Department following a filing by Mass. Electric. Mass. Electric is authorized to charge all incremental costs of major storms against the fund and to pay or accrue interest on the fund balance whether positive or negative in accordance with the protocols for the fund set forth in Attachment 6. (c) This Settlement is based on the existing separation of distribution and transmission facilities on the integrated NEP and Mass. Electric systems, and thus assumes that all property owned by Mass. Electric, except for those facilities that are paid for by NEP pursuant to the Integrated Facilities Schedule III-B of Tariff 1, is subject to the Department's ratemaking jurisdiction when it is used to provide access to retail customers.(1) As set forth below, the parties agree that this separation is reasonable and appropriate, and should be approved by FERC and the Department for ratemaking purposes as part of this Settlement. However, approval of the jurisdictional separation of facilities without change is not a condition of this Settlement, and Mass. Electric and NEP will modify the separation in a manner that is necessary to accommodate __________ 1 An analysis that supports the jurisdictional separation and demonstrates its compliance with the seven factor test established by FERC in Order 888 is included in Attachment 12. the policies of the Commission and the Department. In the event that facilities or costs are transferred from transmission to distribution or from distribution to transmission, the parties agree that appropriate adjustments to the transmission and distribution components of the rates will be made to reflect the transfer. (d) The retail delivery rates are based on the assumption that all remaining unfunded state and federal deferred income tax balances(1) are recovered over six years after the effective date of the retail delivery rates. (e) Mass. Electric shall implement the performance standards for reliability and customer satisfaction set forth in Attachment 7, and Mass. Electric shall be required to credit customers with an amount calculated in accordance with the schedules in that attachment during the year following any year that it failed to meet any performance standard. In addition, Mass. Electric shall propose, by July 1, 1997, a performance standard for the effective management of line losses. (f) By April 1 of each year, Mass. Electric shall file with the Department to adjust rates to recover or refund revenues necessary to assure that Mass. Electric's annual return on equity associated with distribution operations from the prior year averaged between six percent and eleven percent __________ 1 At December 31, 1995, unfunded deferred federal and state income tax balances were $4,490,000 and $8,761,000, respectively. See Attachment 6, pp. 3-4. before any credits that may be required pursuant to paragraph (e) or incentives earned on demand side programs as authorized by the Department pursuant to section III.C, below. Mass. Electric's return on equity for the prior year shall be calculated using the earnings available for common equity as reported to the Securities and Exchange Commission in Mass. Electric's annual report as adjusted in the preceding sentence divided by the average of the thirteen monthly common equity balances on Mass. Electric's books for the same period.(1) If Mass. Electric's return on equity so calculated is below six percent, it shall be authorized to increase its rates by a uniform per kilowatthour surcharge calculated to provide sufficient revenues to increase Mass. Electric's return on equity to six percent. If Mass. Electric's calculated return on equity is above eleven percent, it shall be required to reduce its rates by a uniform per kilowatthour surcharge to refund revenues necessary to reduce the calculated return on equity between eleven and 12.5 percent by 50 percent and the earnings above 12.5 percent by 100 percent. If Mass. Electric's calculated return on equity falls between six and eleven percent, then no further adjustment shall be authorized or required. __________ 1 Mass. Electric's earnings available for common equity and common equity balances shall also be adjusted to eliminate the effects of any writedown and to restore expenses associated with any such writedown that may result from the implementation of industry restructuring or this Settlement. (g) Mass. Electric shall also adjust its retail delivery rates for the effects of any changes in the federal or state income, revenue, sales, or franchise tax rates or laws, or any externally imposed accounting changes, if they affect Mass. Electric's costs by more than $1.0 million per year or any other charges under the retail delivery rates in Attachment 2. (h) The retail delivery rates in Attachment 2 include fully reconciling charges for Mass. Electric's access charges and transmission payments. To maintain rate stability and avoid rate dislocations, cost allocations among rate classes were determined using the allocators for these cost functions that have been developed and approved in prior cases within continuity constraints, and then, once rates have been designed, a uniform cents per kilowatthour reconciling factor is subtracted from the energy component of the rate designs and applied to all customers as a uniform cents per kilowatthour charge. For billing purposes the transmission and access charges shall be rolled into the distribution rates and shall not be shown separately on bills to customers. (i) The discount for the R-2 Rate that is available for Mass. Electric's low income customers is designed to reduce the base rates of a customer taking standard offer service by 35 percent in accordance with the Attorney General's principles. To assure that the same level of discount is available regardless of the supplier and to allow the operation of the reconciling access and transmission charges, the discount is applied exclusively to the distribution component of the rate. The recovery of the discount from Mass. Electric's other customers is based on distribution rate base in accordance with the practice in prior cases. (j) Mass. Electric's energy conservation services charge and conservation cost factors are included in the base rates in Attachment 2, and separate Energy Conservation Service and conservation cost factors will be discontinued on the effective date of the retail delivery rates. Any outstanding balances, whether positive or negative, will be added to or subtracted from Mass. Electric's demand side program budgets for the first two years after the Retail Access Date. 3. Transmission Charges. The transmission charges in Mass. Electric's retail delivery rates shall be recovered in a uniform cents per kilowatthour factor under the transmission cost adjustment provisions included in the tariffs in Attachment 2. The transmission cost adjustment shall recover the costs billed to Mass. Electric by NEP, by any other transmission provider, and by other regional transmission or operating entities, such as NEPOOL, a regional transmission group (RTG), an independent system operator (ISO), or other regional body, in the event that they are authorized to bill Mass. Electric directly for their services. The transmission cost adjustment shall be established annually based on a forecast of transmission costs, and shall include a full reconciliation and adjustment for any over- or under- recoveries occurring under the prior year's adjustment. As set forth below, the Parties have agreed to support the implementation of NEPOOL reforms, including the formation of an RTG and ISO to the extent consistent with this Settlement. These reforms are desirable, but are neither a condition to retail access by Mass. Electric nor of the approval of this Settlement. 4. Access Charges. The access charges in Mass. Electric's retail delivery rates shall be recoverable in a uniform cents per kilowatthour factor under the access cost adjustment provisions included in the tariffs in Attachment 2. The access cost adjustment factor will recover on a fully reconciling basis the contract termination charges billed by NEP to Mass. Electric under the wholesale rate settlement included in Attachment 3 and shall be subject to the dispute resolution procedures set forth in Section 3.5 of that wholesale rate settlement. The Parties agree that: a) the wholesale rate settlement in Attachment 3 is reasonable; b) approval of this Settlement by the Department represents express authorization of Mass. Electric to pay those charges under G.L. c. 164, Sec. 94A until Mass. Electric's obligation to NEP for payment of contract termination charges has been fully extinguished; c) the decision by Mass. Electric to execute the contract termination agreement with NEP included in Attachment 3 and to pay the contract termination charges is reasonable and prudent; and (d) the contract termination charges shall be recoverable in Mass. Electric's rates for retail delivery services for as long as the contract termination charges remain in effect. 5. Standard Offer. Consistent with the Attorney General's principles Mass. Electric shall arrange to provide standard offer service through a transition period ending on December 31, 2004, by putting it out to bid. Standard offer service shall be available to all of Mass. Electric's retail customers on the Retail Access Date. After the Retail Access Date customers are free to leave the standard offer at any time to purchase from an alternative supplier in the market, but, once the market option is selected, a customer may not return to service at standard offer prices, provided, however, that standard offer service shall be available to all residential or G-1 customers who have previously taken service from an alternative supplier for the first year after the Retail Access Date, if such residential or G-1 customer elects to return to standard offer service within 90 days of first taking service from the alternative supplier. The terms and conditions for the bids by potential suppliers for standard offer service are set forth in Attachment 8. Mass. Electric's standard offer prices are guaranteed, subject to the fuel price index described in Attachment 8. Under the tariffs included in Attachment 2, Mass. Electric's charges for standard offer service are included as a separate surcharge to the rates for retail delivery service that apply to all retail access customers. Mass. Electric shall reconcile the revenues billed to retail customers taking standard offer service against payments to suppliers of standard offer service and recover or refund any under or overcollections on the following terms: (a) Any revenues billed by Mass. Electric for standard offer service in excess of payments to suppliers of that service shall be accumulated in an account and credited with interest calculated using the methodology for calculating interest on customer deposits specified in Mass. Electric's terms and conditions. The accumulated balance at the end of each calendar year shall be credited to all of Mass. Electric's retail delivery customers through a uniform cents per kilowatthour factor in the following year. (b) In the event that the revenues billed by Mass. Electric do not recover Mass. Electric's payments to suppliers or Mass. Electric defers expenses to meet the inflation cap established in Section I.B.9, Mass. Electric shall be authorized to accumulate the deficiencies in the account together with interest calculated as above and recover those amounts by implementing a uniform cents per kilowatthour surcharge on the rates for standard offer service, if and to the extent that the access charges billed by Mass. Electric to its retail delivery customers are for any reason below the unadjusted contract termination charges listed under the NEP wholesale rate settlement in Attachment 3. Under- recoveries, if any, that remain after the standard offer transition period ends on December 31, 2004 shall be recovered from all retail delivery customers by a uniform surcharge not exceeding $0.004 per kilowatthour commencing on January 1, 2010. 6. Safety Net Service. In recognition that electricity is an essential service, and that there is a risk that in a competitive market some low-income customers may be unable to obtain or retain service on reasonable terms on account of a credit profile that would not create a barrier to service under the current regulated monopoly supply, Mass. Electric shall arrange to provide electric supply for low-income customers who are no longer eligible to receive service under the standard offer and not adequately supplied by the market because they are unable to obtain or retain electric service from competitive power suppliers. Service under this provision shall be made available under rates, terms and conditions approved by the Department. Mass. Electric shall fully recover the reasonable costs it incurs in arranging this service. 7. Basic Service. In recognition that customers may face an occasional hiatus between competitive suppliers, and in an effort to prevent such customers from losing power because they do not have a contractual relationship with a viable supplier, Mass. Electric shall facilitate the continued delivery of power, such as by providing supply through the short-term wholesale power market, to such customers and allow them to have a reasonable opportunity to make other supply arrangements, and shall fully recover its reasonable costs of providing such service. Such supply shall be provided on terms and conditions approved by the Department. 8. Terms and Conditions. Mass. Electric's terms and conditions in Attachment 4 have been modified to reflect the changes in Mass. Electric's operations. In addition to modifications that are necessary to reflect changes to Mass. Electric's business with its customers, the terms and conditions included in Attachment 9 have been added to specify the terms and conditions for the settlement process with suppliers. Those requirements are designed to allocate load and resources as required under the NEPOOL agreement and protocols. These terms and conditions are recommended by Mass. Electric for approval by the Department as part of this Settlement. However, approval is not a condition of the Settlement. 9. Inflation Cap for Standard Offer Customers. Mass. Electric shall assure that the economic value of the ten percent rate reduction for customers is maintained by capping average revenues per kilowatthour for retail delivery service plus the standard offer, adjusted to exclude: (1) the fuel price index in Attachment 8; (2) any adjustments caused by the return on equity floor under Section I.B.1(f); and (3) changes in tax laws or accounting under Section I.B.1(g), at 8.91 cents per kilowatthour adjusted for the Consumer Price Index occurring between October 1, 1996 and the effective date of any adjustment to the standard offer price under Section I.B.1(d). Mass. Electric shall defer expenses associated with payments to vendors under the standard offer equal to the amount necessary to meet the inflation cap and recover such deferral using the mechanism in Section I.B.5(b). C. Right to File for Rate Change in the Event that Retail Access Date Postponed ------------------------------------------------------------------ Nothing in this Settlement shall prevent the Parties from seeking a rate change to become effective after suspension on January 1, 2001 in the event that the Retail Access Date has not occurred by that time. II. Benefits of Competition Extended to All Customers. ------------------------------------------------- The Attorney General's principles require utilities to extend the benefits of competition to all customers. This Settlement achieves that requirement by providing all customers with the opportunity to choose alternative suppliers on the Retail Access Date and by guaranteeing significant rate reductions for customers who take standard offer service prior to choosing an alternative supplier under the ratemaking portion of this Settlement. Specifically, the parties agree that Mass. Electric shall implement retail access on the following terms: A. Prior Commitments with Customers. -------------------------------- Prior commitments under Mass. Electric's rates or contracts will be treated as follows: 1. Service Extension Agreements: Many of Mass. Electric's non- residential customers have executed Service Extension Agreements under Paragraph 3 of Mass. Electric's currently effective terms and conditions. Mass. Electric shall waive the five year notice provision insofar as it would limit the customer's ability to purchase electricity from an alternative supplier under the terms of Mass. Electric's retail delivery tariffs included in Attachment 2 and shall require no repayment by the customer as would otherwise be required under the terms and conditions and their contracts. Nothing in this Settlement shall require Mass. Electric to waive the advance written notice required before the retail customer may install on-site non-emergency generation for its own use or bypass Mass. Electric's distribution system. 2. Service Extension Discounts. Many of Mass. Electric's customers served under Rate G-3 have exercised their option to sign a service extension discount agreement under which the customer must provide five years prior notice before purchasing electricity from an alternative supplier or installing non-emergency generation for its own use, but is allowed to buy down its five year notice provision to three years by repaying 120 percent of all Service Extension Discounts received from Mass. Electric over the prior two years. Under this Settlement, Mass. Electric will waive the five year notice provision without requiring such repayment insofar as it would limit the customer's ability to purchase electricity from an alternative supplier under the terms of Mass. Electric's retail delivery tariffs included in Attachment 2.(1) As with the Service Extension Agreements, nothing in this Settlement shall require Mass. Electric to waive the advance written notice required before the retail customer may install on- site non-emergency generation for its own use or bypass Mass. Electric's distribution system. Mass. Electric shall eliminate the Service Extension Discount as of the Retail Access Date. Under Section 7.3 of its W-95 wholesale rate settlement (in FERC Docket No. ER95-267-000), NEP agreed to reimburse Mass. Electric for the discounts provided to customers under Service Extension Discount agreements. NEP's tariff provision, however, requires that payments for the buy down of the notice period be paid to NEP (Tariff 1, Section III-D, p.2, Par. 4) and requires Mass. Electric to obtain NEP's consent prior to modifying the Service Extension Discount agreements. (Id, Par.6). In the wholesale rate settlement included as Attachment 3 to this __________ 1 To the extent necessary to allow customers to purchase from alternative suppliers under the retail delivery tariffs, Mass. Electric will also waive condition 3 in the availability provisions of its G-5 Rate Incentive Provision that requires customers participating on that rate not to have provided notice under the Service Extension Discount Agreement. Mass. Electric also has a special contract with Raytheon that was approved by the Department on January 30, 1996. Under Section V.A. of that contract, the Parties agreed that the agreement was to remain in effect through December 31, 1998, even if retail access were to occur earlier than that date. Under this Settlement, Mass. Electric shall provide Raytheon with the option to terminate as of the Retail Access Date even if that date occurs prior to January 1, 1999. Settlement, NEP provides that consent and waives its right to reimbursement, as well as ceases payment to Mass. Electric for Service Extension Discounts. 3. Notice Provisions in Mass. Electric's Tariffs. Mass. Electric's General Service (G) rate tariffs include a provision requiring all customers to provide two years prior written notice before purchasing from an alternative source or installing additional on- site generation capacity for the customer's own use. Mass. Electric shall waive this notice requirement for purchases from alternative suppliers under the terms of Mass. Electric's retail delivery rates included in Attachment 2. Nothing in this Settlement shall require Mass. Electric to waive the advance written notice required before the retail customer may install additional on-site, non-emergency generation for its own use or bypass Mass. Electric's distribution system. 4. Conservation and Load Management Program Terms and Conditions. Many of Mass. Electric's nonresidential customers have participated in Mass. Electric's conservation and load management programs that require repayment of Mass. Electric's incentive payments if the customer purchases electricity from an alternative supplier. Mass. Electric shall waive this repayment obligation insofar as it would limit the customer's ability to purchase electricity from an alternative supplier. Nothing in this Settlement shall require Mass. Electric to waive the requirement for repayment before the retail customer may install on-site, non- emergency generation for its own use or bypass Mass. Electric's distribution system. B. Implementation of Retail Access. ------------------------------- This Settlement requires Mass. Electric to provide retail access and implement the retail delivery rates in Attachment 2 on the Retail Access Date, which is the later of January 1, 1998 or the date on which retail access is made available to all customers of the investor-owned utilities in Massachusetts. Under this Settlement, this condition will be achieved when legislation, final regulatory or court action, or unchallenged settlements with all other investor- owned utilities are in place. In the event that retail access is not yet available to all customers of investor-owned utilities by January 1, 1998, Mass. Electric in its sole discretion shall have the option to accelerate the Retail Access Date under this Settlement, implement retail access for its customers, and make the tariffs in Attachment 2 effective by providing the Department and the Parties with 90 days advance notice in writing. Upon such notice, no further action by the Department will be required for the tariffs to become effective. III. Protect the Environment and Promote Conservation. ------------------------------------------------ The third element of the Attorney General's plan requires the restructuring plans of utilities to protect the environment and promote conservation. This Settlement complies with these requirements by requiring significant emissions reductions from NEP's units, and by continuing funding for demand side programs including clean renewable resources. The Parties have agreed to the following terms: A. Siting Reform ------------- The parties agree to work cooperatively with all interested persons to update the existing Energy Facilities Siting Board statute, G.L. C. 164, Secs. 69G through 69R, to substitute for the existing need and least cost requirements in the current statute a mechanism that maintains the existing alternative technologies review (with its minimum environmental impacts standard), maintains the existing alternative site review, and which gives a preference for clean energy technologies, including demand-side management and clean renewables, in the Commonwealth's energy supply. The parties will make best efforts to reach agreement on proposed legislation reflecting these changes on or before December 4, 1996, for filing with the Legislature on that date. The Division of Energy Resources and the clients represented by the National Consumer Law Center elect not to be signatories to this paragraph. B. Emissions Reductions. -------------------- NEP or its successors in interest shall reduce the emissions of NOx and SO2 from its Salem Harbor Units 1, 2, 3, and 4, and its Brayton Point Units 1, 2, 3, and 4 by the amounts and on the schedule and terms set forth in Attachment 10. Nothing in this Settlement shall affect NEP's obligations to comply with environmental regulations lawfully imposed or restrict the environmental regulators' authority to impose new environmental standards. C. Conservation and Load Management and Renewables. ----------------------------------------------- By July 1, 1997, Mass. Electric shall develop and file with the Department annual budgets for demand side programs and clean renewables for the period 1998 through 2001 designed at $66.7 million adjusted for any outstanding balances from the ECS and conservation cost factors on the Retail Access Date pursuant to Section I.B.2., above. At least 15 percent of the amount budgeted for residential programs in any given year shall be spent on low income residential programs, and the amount budgeted for low income residential programs implemented through the existing weatherization and fuel assistance program network shall be a minimum of $1.1 million in 1998, $1.3 million in 1999, $1.4 million in 2000, and $1.5 million in 2001 provided that the performance of the network contractors is of satisfactory quality. For each of the following years, funds shall be allocated within the $66.7 million budget to commercialize and develop fuel cells and a diverse group of clean renewables in a manner approved by the Department, with collaborative input, based on the following rates per kilowatthour times the kilowatthours distributed by Mass. Electric. In 1998 the rate shall be $0.00025; in 1999, $0.00055; in 2000, $0.00085; and in 2001, $0.00125 times the kilowatthours distributed by Mass. Electric. The budgets shall also include expenditures for the energy conservation service (ECS) program, interruptible rate credits, Mass. Electric's demand side programs, the installation of sophisticated metering and control systems, overhead costs, and the incentive or bonus earned from programs implemented prior to the Retail Access Date and to be earned on the demand side programs implemented after the Retail Access Date pursuant to this paragraph. During any given year Mass. Electric shall reconcile actual spending and earned incentive to the approved budget, with a separate reconciliation for renewables and demand side management, and shall carry forward any balance, positive or negative, into the following year through an adjustment to the approved budget. While the Department will decide the appropriate level for ongoing conservation, load management and renewables funding after December 31, 2001, Mass. Electric, the Attorney General, the Conservation Law Foundation, the Northeast Energy Efficiency Council, the Union of Concerned Scientists, and the Division of Energy Resources jointly recommend that evaluation of funding after this date be informed by review of the then current market barriers and experience gained with the competitive energy markets and customer choice established in this Agreement; and should further be based upon environmental and economic goals to be achieved by such funding established by the Department through appropriate proceedings. Ongoing commercialization support for fuel cells and clean renewable technologies beyond December 31, 2001 should also be based on a goal of supplying at least four percent of Massachusetts electricity kilowatthour sales from such new, clean technologies by the end of 2007. Generation technologies potentially eligible for commercialization support, subject to Department review, shall include a diverse group of low and zero emissions generation technologies with substantial long-term, cost- effective regional production potential which utilize any of the following: a) solar photovoltaic and solar thermal electric energy; b) wind energy; c) ocean thermal, wave and/or tidal energy; d) fuel cells; e) landfill gas; and f) low emission advanced biomass power conversion technologies like gasification using such biomass fuels as wood, agricultural, or food wastes; energy crops, biogas, or organic refuse-derived fuel. While the Department will decide how funds shall be allocated based on input from a collaborative process, the commercialization of clean generating technologies should be accomplished in a least cost manner. Optimal use should be made of competitive bidding in funding commercialization activities. Commercialization activities shall also attempt to promote as diverse a group of clean technologies as is practical and ensure no single resource or technology dominates commercialization efforts. The Company will perform pilot projects in 1997 funded out of the adjustment for cost of conservation and load management approved by the Department for 1997 to assess the value of distributed clean generation, conservation and load management technologies in reducing or avoiding distribution system costs. Operational procedures to invest in clean distributed generation and geographically-targeted DSM that lower distribution service costs should be implemented as soon as is practical. Clean distributed generation of 30 kilowatts (kW) or less to include fuel cells, renewables and small scale cogeneration shall remain eligible for "net metering" as provided for in existing Department regulations regarding the buy- back of generated power at the retail rate. IV. Protect Low Income Customers. ---------------------------- The fourth principle in the Attorney General's plan focuses on the continued protection of low income customers. Mass. Electric's plan complies with this principle by continuing the discount for Rate R-2 customers, assuring that all customers receive immediate rate reductions through standard offer service, providing safety net service for low-income customers that have no other alternative supplier (see Section I.B.2., above), and funding the residential low income demand side programs in Section III.C. In addition, Mass. Electric shall implement a program to protect against redlining by market suppliers by paying market suppliers of Rate R-2 customers directly for electricity delivered up to the prices for Standard Offer Service set forth in Section I.B.1.(d) and then including the costs of such service in Mass. Electric's distribution bill to Rate R-2 customers. In this way, Mass. Electric, rather than the market supplier, shall assume the risk of nonpayment from Rate R-2 customers. Electric service is essential and should be available to all customers. The restructured electricity industry should provide adequate safeguards to assure universal service. Programs and mechanisms that enable residential customers with low incomes to manage and afford essential electricity requirements will be maintained throughout the period of the settlement in order to foster the goal of universal service. V. Create a Fully Functioning Stable and Reliable Structure for the Competitive Market. ---------------------------------------------------------------- The Attorney General's final principle focuses on the institutional structure and protections necessary to prevent unfair and anti-competitive conduct, and to maintain reliable and safe electricity supplies. These industry structure issues focus on the region as a whole and the corporate structure of Mass. Electric and its affiliates within the New England Electric System. A. Regional Reform. --------------- The regional issues center on the formation of a regional transmission group, an independent system operator and NEPOOL reform. Mass. Electric and NEP have made proposals and participated actively in these issues. The current version of NEP's NEPOOL Restructuring Proposal and proposal for a regional transmission group is included as Attachment 11. NEP and Mass. Electric shall continue to support at a minimum, the regional reforms set forth in those documents, and shall consult with the parties to this Settlement to develop mutually agreeable approaches to these issues that are consistent with the terms of this Settlement. However, this Settlement is not conditional upon the adoption, approval, or implementation of the regional reforms listed in those attachments. Nothing in this Settlement shall limit parties from advocating positions other than those in Attachment 11. B. The Jurisdictional Separation Between Transmission and Distribution. ------------------------------------------------------ In Order 888, FERC set forth a seven factor test for determining whether facilities used to provide access to retail customers are subject to the ratemaking jurisdiction of FERC under the Federal Power Act or of the Department under state law. Attachment 12 provides a specific evaluation of FERC's seven factors as applied to the separation of facilities between Mass. Electric and NEP. The parties agree that all of Mass. Electric's facilities, except for those that are paid for by NEP pursuant to the Integrated Facilities Schedule III-B of Tariff 1, meet FERC's seven factor test for designation as distribution facilities subject to the Department's jurisdiction, and the parties support an affirmative recommendation by the Department to FERC that the current separation between the transmission facilities owned by NEP and distribution facilities owned by Mass. Electric be adopted by FERC for ratemaking purposes as part of the approval of this Settlement. However, approval of the jurisdictional separation of facilities without change is not a condition of this Settlement. C. The Transfer of Transmission Properties and Facilities. ------------------------------------------------------ NEP shall develop and file a plan with the Department by July 1, 1997 to separate its generating business from its transmission business. D. Divestiture of NEP's Generating Business. ---------------------------------------- 1. Consistent with the restructuring plan advanced by the Division of Energy Resources, NEP agrees, subject to the receipt of all required governmental approvals, to sell, spin off, or otherwise transfer ownership of its generating business to a nonaffiliated entity or entities, other than properties, assets, and entitlements classified to the transmission function. The parties intend that the properties to be divested shall also include (1) properties owned by New England Energy Inc. (NEEI), (2) the generating units of Nantucket Electric, to the extent they are not classified to the transmission function, including any proceeds from the sale of emission credits, and (3) The Narragansett Electric Company's ownership interest in the Manchester Street Station. NEP shall develop and file by July 1, 1997 a plan with the Department to implement divestiture. This plan shall include in particularized detail the generating business to be divested and all properties, assets, and entitlements to be included in the divestiture and shall be updated with an informational filing 90 days before the date of divestiture. The Department shall review the plan and shall issue a final order on the method of sale and the reasonableness of the proceeds as part of its plan approval. The divestiture shall be completed by six months after the later of the Retail Access Date or the receipt of all governmental approvals necessary for the transfer. If, for any reason, the divestiture is not completed within three years of the Retail Access Date, NEP shall file a report with the Department explaining the delay. 2. As part of the divestiture, NEP will endeavor to sell, lease, assign, or otherwise dispose of its minority shares of nuclear units or entitlements on terms that will assign ongoing operating costs and responsibility to a nonaffiliated third party but may require NEP to retain the obligation for post- shutdown, decommissioning, and site restoration for these units or entitlements. NEP shall recover these post-shutdown, decommissioning, and site restoration costs from Mass. Electric through the contract termination charge, and shall credit any net positive value or recover any payments associated with such transaction in the reconciliation account of the contract termination charge. The Parties agree that this approach is reasonable and NEP is authorized to include it in its divestiture plan. This plan will be subject to the approval of the Nuclear Regulatory Commission ("NRC") to the extent required by NRC regulations. In the event that NEP is unable to sell, lease, assign, or otherwise dispose of its nuclear units or entitlements, NEP shall include 80 percent of the going forward costs of operating the units and entitlements, including variable costs and capital additions, and 80 percent of the revenues from kilowatthour sales from the units and entitlements, in the reconciliation account and recover or return any differences through its contract termination charges to Mass. Electric. Within six months prior to implementing the Performance Based Rate set forth in the prior sentence, NEP will consult with the parties on a performance standard for nuclear safety indicators and will file such performance standard with a maximum potential credit for nonperformance of $1 million. NEP's sales, if any, from its nuclear units and entitlements shall only be made in the wholesale market to nonaffiliates, provided that NEP shall retain the right to use its minority shares of the units or entitlements to fulfill its minimum, zero bid obligations under the standard offer. As part of the divestiture, NEP will endeavor to sell, assign or otherwise dispose of its power contracts on terms that will assign ongoing contract payments to a nonaffiliated third party. In that event, changes to the above market payment to power suppliers shall be reflected in the Reconciliation Account. In the event that such contracts cannot be sold, assigned, or otherwise disposed of, the power purchased from those contracts shall be sold and the contract payments and market value associated with the sale shall be reflected in the Reconciliation Account. Such sales, if any, shall only be made in the wholesale market to nonaffiliates, provided, however, that NEP shall retain the right to use the contracts, including that with Hydro Quebec, to fulfill its minimum, zero bid obligations under the standard offer. Nothing in this Settlement shall affect the rights of suppliers or NEP under purchased power contracts. 3. In this proceeding, the Department and intervenors have expressed the goals of attaining a market valuation of utility stranded costs and creating a competitive market for supplying electricity to consumers. The Department has expressed a preference for voluntary divestiture of utility generation as a means of achieving these goals. The Department has stated that it "has the authority to approve the voluntary divestiture of assets", but that it has "no explicit statutory authority [to] order divestiture, nor is it likely to be implied." (D.P.U. 95-30, August 16, 1995). NEP and Mass. Electric have asserted that the Department lacks authority to order divestiture, and would contest any effort by the Department to do so. NEP and Mass. Electric have agreed, as part of this Settlement, voluntarily to undertake such divestiture. In exchange, and as consideration for this voluntary divestiture, the parties to this Settlement, and the Department by its approval of this Settlement, agree that NEP's contract termination charges as set forth in Attachment 3 to Mass. Electric and Mass. Electric's access charges as set forth in Section I.B.1(c) for the period contemplated by this Settlement are just and reasonable. Accordingly, and to give effect to the reliance placed by the parties on the foregoing, the Department shall treat the findings that such contract termination charges and access charges are just and reasonable as a final determination made after public notice and a full investigation of the merits, and, in any future proceeding brought by any person or party, or by the Department on its own motion, shall accord such finding the full benefit of policies of repose including, without limitation, the application of the doctrines of res judicata, collateral estoppel, the filed rate doctrine, the prohibition against retroactive ratemaking, and the finality of contracts, it being the express intention of the parties to prevent, as a matter of law and policy, the Department or any other authority from: (a) revisiting the issue of the justness and reasonableness of the contract termination charges and the access charges; (b) reducing, other than as set forth in Attachment 3, the amount of the contract termination charges or the access charges; or (c) otherwise limiting the right of NEP, its successors or assigns, or Mass. Electric to charge and recover the contract termination charges or the access charges set forth in this Settlement for any reason prior to their recovery in full as contemplated by this Settlement. 4. As a part of this Settlement, NEP is requesting financing and other authorizations from the Department, including approval of the assignment of its right to receive all or a portion of contract termination charges from Mass. Electric to lender(s) or other third parties. Mass. Electric is requesting authorization from the Department to guarantee full payment to lender(s) of all or a portion of access charges payable to NEP and/or its assignee(s) and/or to fully indemnify NEP and/or its assignee(s) in the event that payments to lender(s) are not fully covered by access charges. In connection with these financings, NEP and Mass. Electric may be required to make irrevocable commitments to lenders in substantially the form of Attachment 13. Approval of this Settlement by the Department shall constitute authorization and approval by the Department under the statutes listed in Attachment 13 including, but not limited to, (1) NEP to complete the financing including the assignments, (2) NEP and Mass. Electric to make these irrevocable commitments, and (3) Mass. Electric to indemnify NEP and/or its assignee. Approval of this Settlement shall represent findings by the Department that (1) these irrevocable commitments, indemnification, and assignments are just and reasonable and in the public interest, and (2) the payments by Mass. Electric and NEP related to these commitments and indemnification are fully recoverable in retail delivery rates. 5. To facilitate the divestiture and valuation of NEP's units, the parties agree that it is in the public interest for NEP or its successors or assigns to be authorized to sell electricity at market prices in the wholesale markets, and that NEP or its successors or assigns shall be free to apply to become an exempt wholesale generator pursuant to Section 32 of the Public Utility Holding Company Act of 1935 and other Federal law, rules and regulations, and to designate each and every generating facility and entitlement it owns as an eligible facility pursuant to that statute. Approval of this Settlement by the Department shall represent express findings by the Department that it has sufficient regulatory authority, resources, and access to books and records to exercise its duties, and that the full participation of NEP in the market and the designation of each of its facilities as eligible facilities will benefit consumers, is consistent with state laws, will not provide any unfair competitive advantage by virtue of its status as a facility owned or formerly owned by NEP, and is in the public interest. Nothing in this Settlement shall prevent an affiliate of Mass. Electric from re-entering the generation business following the completion of divestiture, and nothing in this Settlement shall prevent affiliates of Mass. Electric from marketing electricity, other energy sources, or energy services to customers within or outside Mass. Electric's service territory. E. Standards of Conduct. -------------------- As of the date of approval of this Settlement, Mass. Electric shall adopt the standards of conduct set forth in Attachment 14. These standards are recommended by Mass. Electric for approval by the Department as part of this Settlement. However, approval is not a condition of the Settlement. F. Customer Service Standards -------------------------- Minimum residential customer service safeguards and protections for consumers in their dealings with competitive power suppliers, as provided by statute or the rules of the Department, should be maintained. G. Unbundled Distribution Services ------------------------------- Effective January 1, 2000, Mass. Electric shall file with the Department a proposal to unbundle distribution services that can be provided competitively, without impairing system reliability or other system benefits. VI. Successors and Assigns. ---------------------- The rights conferred and obligations imposed on any Signatory by this Settlement shall be binding on or inure to the benefit of their successors in interest or assignees as if such successor or assignee was itself a Signatory hereto. VII. Additional Provisions. --------------------- A. This Settlement is the product of settlement negotiations. The content of those negotiations shall be privileged and all offers of settlement shall be without prejudice to the position of any party or participant presenting such offer. B. Except as expressly set forth above, this Settlement is submitted on the conditions that it be approved in full by the Department and that FERC approve in full the wholesale rate settlement included in Attachment 3, and on the further conditions that if the Department does not approve the Settlement in its entirety or FERC does not approve Attachment 3 in its entirety, the Settlement shall be deemed withdrawn and shall not constitute a part of the record in any proceeding or used for any purpose. C. Acceptance of this Settlement by the Department shall not be deemed to restrain the Department' exercise of its authority to promulgate future orders, regulations or rules which resolve similar matters affecting other parties in a different fashion, provided, however, that approval of this Settlement by the Department shall represent an express grant by the Department of a waiver for Mass. Electric and NEP of any rule, requirement or regulation promulgated by the Department as part of its proceeding on utility restructuring that is inconsistent with the terms of this Settlement and the wholesale rate settlement included in Attachment 3. Nor shall this Settlement be deemed to restrain the authority of the General Court to enact any law which would resolve similar matters affecting other parties in a different fashion. D. The Department approval of this Settlement shall endure so long as is necessary to fulfill this Settlement's objectives. In the event of future regulatory or legislative actions which may render any part of this Settlement ineffective, Mass. Electric and NEP shall nevertheless be held harmless and made whole. Respectfully submitted, EX-13 25 NEP ANNUAL REPORT Annual Report 1996 New England Power Company A Subsidiary of New England Electric System [LOGO] New England Power A NEES Company New England Power Company 25 Research Drive Westborough, Massachusetts 01582 Directors (As of January 1, 1997) Joan T. Bok Chairman of the Board of New England Electric System Alfred D. Houston Executive Vice President and Chief Financial Officer of New England Electric System Cheryl A. LaFleur Vice President and General Counsel of the Company and Vice President, General Counsel, and Secretary of New England Electric System John W. Rowe Chairman of the Company and President and Chief Executive Officer of New England Electric System Jeffrey D. Tranen President of the Company and Senior Vice President of New England Electric System Officers (As of January 1, 1997) John W. Rowe Chairman of the Company and President and Chief Executive Officer of New England Electric System Jeffrey D. Tranen President of the Company and Senior Vice President of New England Electric System Cheryl A. LaFleur Vice President and General Counsel of the Company and Vice President, General Counsel, and Secretary of New England Electric System Andrew H. Aitken Vice President Lawrence E. Bailey Vice President Jeffrey A. Donahue Vice President John L. Levitt Vice President John F. Malley Vice President Arnold H. Turner Vice President Jeffrey W. VanSant Vice President Michael E. Jesanis Treasurer of the Company and Vice President and Treasurer of New England Electric System Robert King Wulff Clerk of the Company and of certain affiliates and Assistant Clerk of certain affiliates John G. Cochrane Assistant Treasurer of the Company and of certain affiliates and Vice President of an affiliate Kirk L. Ramsauer Assistant Clerk of the Company and Clerk of certain affiliates Howard W. McDowell Controller of the Company and of certain affiliates and Treasurer of certain affiliates Transfer Agent and Dividend Paying Agent of Preferred Stock Bank of Boston, Boston, Massachusetts Registrar of Preferred Stock State Street Bank and Trust Company, Boston, Massachusetts This report is not to be considered an offer to sell or buy or solicitation of an offer to sell or buy any security. New England Power Company New England Power Company, a wholly-owned subsidiary of New England Electric System (NEES), is a Massachusetts corporation and is qualified to do business in Massachusetts, New Hampshire, Rhode Island, Connecticut, Maine, and Vermont. The Company is subject, for certain purposes, to the jurisdiction of the regulatory commissions of these six states, the Securities and Exchange Commission and the Federal Energy Regulatory Commission. The Company's business is currently that of generating, purchasing, transmitting, and selling electric energy in wholesale quantities to other electric utilities, principally its affiliates Granite State Electric Company, Massachusetts Electric Company, Nantucket Electric Company, and The Narragansett Electric Company. On October 1, 1996, the NEES companies, including the Company announced their intention to divest their generating business. The Company's wholesale contracts with its distribution affiliates have been amended to allow for early termination of all-requirements service under those contracts. The amendment, which is subject to regulatory approval, provides that upon early termination, the distribution affiliates in Massachusetts and Rhode Island will recover their share (95 percent) of the cost of the Company's above-market generation commitments through a contract termination charge. This charge will, in turn, be paid by the distribution affiliate's facilities. Efforts are ongoing with New Hampshire and unaffiliated customers to secure recovery of the balance of the Company's above-market commitments. (See "Industry Restructuring" section of Financial Review for further discussion.) Report of Independent Accountants New England Power Company, Westborough, Massachusetts: We have audited the accompanying balance sheets of New England Power Company (the Company), a wholly-owned subsidiary of New England Electric System, as of December 31, 1996 and 1995 and the related statements of income, retained earnings, and cash flows for each of the three years in the period ended December 31, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 1996 and 1995, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1996 in conformity with generally accepted accounting principles. Boston, Massachusetts COOPERS & LYBRAND L.L.P. February 28, 1997 New England Power Company Financial Review Industry Restructuring On October 1, 1996, the New England Electric System (NEES) companies, including the Company, announced their intention to divest their generating business. The decision to divest the generating business was due to a combination of factors, discussed below, relating to the restructuring of the electric utility industry. For the past several years, the electric utility business has been subjected to rapidly increasing competitive pressures stemming from a number of trends, including the presence of surplus generating capacity, a disparity in electric rates among regions of the country, improvements in generation efficiency, increasing demand for customer choice, and new regulations and legislation intended to foster competition. In the recent past, this competition was most prominent in the bulk power market, in which nonutility generators have significantly increased their market share. Despite increased competition in the bulk power market, competition in the retail market has been limited as electric utilities have maintained exclusive franchises for the retail sale of electricity in specified service territories. In states across the country, including Massachusetts, Rhode Island, and New Hampshire, there have been proposals to allow retail customers to choose their electricity supplier, with incumbent utilities required to deliver that electricity over their transmission and distribution systems (also known as "retail wheeling"). When electricity customers are allowed to choose their electricity supplier, utilities across the country will face the risk that market prices may not be sufficient to recover the costs of the commitments incurred to supply customers under a regulated structure. The amounts by which costs exceed market prices are commonly referred to as "stranded costs." The Company provides electric service to its distribution affiliates, Massachusetts Electric Company (Massachusetts Electric), Nantucket Electric Company (Nantucket), The Narragansett Electric Company (Narragansett), and Granite State Electric Company (Granite State). Each of these affiliates purchases electricity on behalf of its customers under wholesale all-requirements contracts with the Company. The Company also provides all-requirements service to seven unaffiliated electric utilities. The Company estimates that at December 31, 1996, its above-market commitments on behalf of its all-requirements customers are as much as $4.5 billion on a present-value basis (before the application of the proceeds from the sale of its generating business). As described below, comprehensive legislation was enacted in Rhode Island and a settlement agreement was reached in Massachusetts which, when all regulatory approvals are in place, would allow recovery of the Company's above-market commitments to retail customers in those states, which make up 95 percent of the Company's all-requirements sales. In return for that recovery, the NEES companies have agreed to provide lower rates to customers, as well as sell their generating business. Efforts are ongoing with New Hampshire and unaffiliated customers to secure recovery of the balance of the Company's above-market commitments. Massachusetts Settlement Agreement On February 26, 1997, the Massachusetts Department of Public Utilities (MDPU) approved a settlement among the Company, its Massachusetts distribution affiliates Massachusetts Electric and Nantucket, the Massachusetts Attorney General, the Massachusetts Division of Energy Resources, and 12 other parties, which provides for retail choice by Massachusetts customers and the recovery of the Company's above-market commitments to serve those customers. The settlement provides for the commencement of retail choice on January 1, 1998 (contingent on choice being available to the customers of all Massachusetts investor-owned utilities). Customers who do not choose an alternative supplier would receive "standard offer" service, which would be priced to guarantee customers at least a 10 percent savings in 1998 compared with September 1996 bundled electricity prices. In accordance with the settlement, the Company's wholesale contracts with Massachusetts Electric and Nantucket have been amended to allow for early termination of all-requirements service under those contracts. The amendment, which is subject to regulatory approval, provides that upon early termination, Massachusetts Electric's and Nantucket's share of the cost of the Company's above-market generation commitments will be recovered through a contract termination charge. This charge will, in turn, be paid by the Company's affiliates' distribution facilities. Those commitments consist of (i) the above-market portion of generating plant commitments, (ii) regulatory assets, (iii) the above-market portion of purchased power contracts, and (iv) the operating cost of nuclear plants that cannot be avoided by shutting down the plants, including nuclear decommissioning costs. The above-market portion of costs associated with generating plants and regulatory assets would be recovered over 12 years, and would earn a return on equity of 9.4 percent. As the transition access charge declines, the Company would earn mitigation incentives that would supplement its return on equity. The incentives are structured such that the Company believes, based on its expectations of the level of mitigation it can achieve through divestiture and other means, that it could earn a cumulative return on equity on unrecovered costs of approximately 11 percent. The above-market component of purchased power contracts and nuclear decommissioning costs would be recovered as incurred over the life of those obligations, a period expected to extend beyond 12 years. Initially, the transition access charge would be set at 2.8 cents per kilowatt-hour (kWh) through December 31, 2000, and is expected to decline thereafter. The initial transition access charge assumes that the generating plants have no market value. To measure their actual market value, the NEES companies, including the Company, agreed to sell their generating business. The net proceeds from the sale will be used to reduce the transition access charge. The settlement is subject to approval by the Federal Energy Regulatory Commission (FERC). The FERC accepted the filing to become effective February 1, 1997, subject to refund, and ordered hearings. The Utility Workers Union of America and the Massachusetts Alliance of Utility Unions, who intervened in the MDPU proceeding on the settlement, have indicated they intend to appeal the MDPU's order approving the settlement to the Massachusetts Supreme Judicial Court. If an appeal is brought, the NEES companies will oppose it. Several bills are pending before the Massachusetts legislature on electric industry restructuring, including comprehensive legislation introduced by Governor William F. Weld and by the legislature's Joint Committee on Electric Restructuring. These bills cover many of the topics addressed in the settlement and could impact the implementation of the settlement. Among the issues being considered by the legislature is securitization, whereby a utility would assign to a trust all or a portion of its rights to receive access charges in exchange for a lump sum reimbursement of stranded costs. Rhode Island Legislation In August 1996, the state of Rhode Island enacted pioneering legislation that allows customers in the state the opportunity to choose their electricity supplier. Under the Rhode Island statute, state accounts, certain new customers, and the largest manufacturing customers will be able to choose their supplier beginning on July 1, 1997. These customers represent approximately 2 percent of NEES's retail customer kWh sales. The balance of Rhode Island customers will be able to choose their supplier in 1998. The statute calls for the Company's contract with NEES's Rhode Island distribution subsidiary, Narragansett, to be amended to permit a gradual, early termination of all-requirements service under this contract. The amendment provides that, in return, Narragansett's 22 percent share of the cost of the Company's above-market generation commitments would be recovered through a transition access charge on Narragansett's distribution facilities. The specifics of the transition access charge are similar to, and were a model for, those contained in the Massachusetts settlement. One difference is the statute's return on equity, which will be set at 11 percent as long as the NEES companies complete the divestiture or other market valuation of their generating business; otherwise, the return will be equal to 9.2 percent. The Company and Narragansett filed with the FERC an amendment to their all-requirements contract in order to implement the statute. The FERC has set down the amendment, along with the Massachusetts settlement, for hearing. Narragansett has indicated it is willing to make certain changes to its plan in Rhode Island to parallel provisions in the Massachusetts settlement. Implementation of other aspects of the statute is subject to approval of the Rhode Island Public Utilities Commission (RIPUC). New Hampshire Proceeding and Settlement Agreement On February 28, 1997, the New Hampshire Public Utilities Commission (NHPUC) issued its plan to implement a New Hampshire law calling for retail access by 1998. Under the plan, utilities such as Granite State whose rates are below the regional average would be allowed full recovery of stranded costs as calculated by the NHPUC. However, the NHPUC indicated that its methodology and proposed timing of recovery would yield both initial access charges and total recovery less than that requested by Granite State although the NHPUC indicated that its decision would not result in savings for Granite State's customers. The largest utility in New Hampshire is Public Service Company of New Hampshire (PSNH). PSNH has appealed the NHPUC's decision to the courts and has included in its appeal certain arguments which could have an impact on Granite State. Granite State has therefore petitioned to intervene in this appeal to protect its interest on those issues. Prior to the issuance of the NHPUC order, Granite State reached an interim settlement with several customers and other stakeholders that would set initial access charges at 2.8 cents per kWh for two years, and in other respects would mirror the Massachusetts settlement described previously. Stranded costs to be recovered after the two-year initial period would be subject to future regulatory determination. Unlike the NHPUC order, the interim settlement agreement would provide all customers with a rate reduction of approximately 10 percent. This interim settlement is still pending before the NHPUC. Federal Activity In April 1996, the FERC issued Order No. 888 requiring utilities that own transmission facilities to file open access tariffs to make available transmission service to affiliates and nonaffiliates at fair, nondiscriminatory rates. Order No. 888 also stated that public utilities will be allowed to seek recovery of legitimate and verifiable stranded costs from departing customers as a result of wholesale competition. The FERC indicated that it will provide for the recovery of retail stranded costs only if state regulators lack the legal authority to address those costs at the time retail wheeling is required. The FERC also stated that it would permit stranded cost recovery under wholesale all-requirements contracts, such as the contracts between the Company and its retail affiliates. On February 26, 1997, the FERC announced Order No. 888-A, reaffirming the principles of Order No. 888, including stranded cost recovery. Because of the Massachusetts settlement and the Rhode Island statute, the Company does not expect it will rely exclusively on Order No. 888 to recover stranded costs from its affiliates in Massachusetts and Rhode Island. The Company cannot predict at this time whether an Order No. 888 filing will be necessary to fully recover stranded costs from Granite State or from seven unaffiliated wholesale customers should any of those customers choose to terminate service under their contract with the Company. Granite State and these seven unaffiliated customers are responsible for approximately 3 percent and 2 percent of the Company's sales, respectively. In July 1996, the Company, on behalf of the NEES companies, filed a transmission tariff with the FERC pursuant to Order No. 888. The FERC accepted the filing, but ordered the Company to refile to conform more closely with the FERC's requirements under Order No. 888. Implementation of the tariff in mid-1996 did not have a significant impact on the Company's revenues. A number of proposals for federal legislation related to industry restructuring have been brought forward for consideration by the current Congress. The scope and aim of these vary widely; however, the NEES companies and others will argue that state settlements should be respected. The Company cannot predict what federal legislation, if any, may be enacted. Divestiture of Generation Business Under the Massachusetts settlement and, if approved by the FERC, automatically under the Rhode Island statute, the Company must complete the divestiture of its generating businesses within six months of the later of the commencement of retail choice in Massachusetts or the receipt of all necessary regulatory approvals. The Company is in the process of soliciting proposals for the acquisition of its nonnuclear generating business with the objective of reaching definitive purchase and sale agreements by mid-1997. Closing would follow the receipt of regulatory approvals, which are expected to take at least six to 12 months following the execution of purchase and sale agreements. At December 1996, nonnuclear net generating plant was approximately $1.1 billion. As part of the divestiture plan, the Company will endeavor to sell, or otherwise transfer, its minority interest in four nuclear power plants to nonaffiliates. The Company may retain responsibility for decommissioning and related expenses, if necessary. To the extent that the Company is unable to divest its nuclear generating interest, the Massachusetts settlement provides for a sharing between customers and shareholders of the revenues associated with the nuclear interests and the costs not otherwise reflected in the access charge, with 80 percent allocated to customers and 20 percent to shareholders. This sharing mechanism is not included in the Rhode Island statute previously discussed. In addition, New England Energy Incorporated (NEEI) is planning to sell its oil and gas properties, the cost of which is supported by the Company through fuel purchase contracts. The Company has approximately $740 million of mortgage bonds outstanding. The bond indenture restricts the sale of the trust property in its entirety or substantially in its entirety. The proposed sale of the Company's generating business would likely require that the Company either amend the bond indenture or defease or call the bonds in connection with the proposed sale. Any defeasance of bonds would be by the deposit of cash representing principal and interest to the maturity date or interest, principal, and general redemption premium to an earlier redemption date. Risk Factors While substantial progress has been made in resolving the uncertainty regarding the impact on shareholders from industry restructuring, significant risks remain. These include, but are not limited to (i) the potential that ultimately the Massachusetts settlement and the Rhode Island statute will not be implemented in the manner anticipated by the Company, (ii) the possibility of state or federal legislation that would increase the risks to shareholders above those contained in the Massachusetts settlement and Rhode Island statute, and (iii) the potential for adverse stranded cost recovery decisions involving Granite State and the Company's unaffiliated customers. Even if these risks do not materialize, the implementation of the Massachusetts settlement and the Rhode Island statute will negatively impact financial results for the Company starting in 1998. The returns on equity permitted on the unrecovered commitments in the generating business (generally 9.4 percent to 11 percent) are less than those historically earned by the Company. Also, once the Company has divested its generating business and completed its stranded cost recovery, it will become solely a provider of transmission services with substantially lower revenues and capital requirements than currently exists. Accounting Implications Historically, electric utility rates have been based on a utility's costs. As a result, electric utilities are subject to certain accounting standards that are not applicable to other business enterprises in general. Financial Accounting Standards No. 71, Accounting for the Effects of Certain Types of Regulation (FAS 71), requires regulated entities, in appropriate circumstances, to establish regulatory assets, and thereby defer the income statement impact of certain costs expected to be recovered in future rates. The Company has recorded approximately $340 million in net regulatory assets in compliance with FAS 71. In addition, the Company's affiliate, NEEI, has a regulatory asset of approximately $150 million, which is recoverable in its entirety from the Company. Both the Massachusetts settlement and the Rhode Island statute provide for full recovery of the costs of generating assets and oil and gas related assets (including regulatory assets) not recoverable from the proceeds of the divestiture of the Company's generating business. The costs of these assets would be recovered as part of a contract termination charge imposed on all distribution customers. After the proposed divestiture, substantially all of the Company's business, including the recovery of its stranded costs, would remain under cost-based rate regulation. Specifically, FERC Order No. 888 enables transmission companies, which the Company would essentially become, to recover their specific costs of providing transmission service. The Company believes these factors will allow it to continue to apply FAS 71 and that no impairment of plant assets will exist under Statement of Financial Accounting Standards No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of (FAS 121). Any loss from the divestiture of generating assets and oil and gas assets will be recorded as a regulatory asset to be recovered through the contract termination charge. Although the Company believes that it will continue to meet the criteria for continued application of FAS 71, the Company understands that members of the SEC staff have raised questions concerning the continued applicability of FAS 71 to certain other electric utilities facing restructuring. In addition, despite the progress made to date in Massachusetts and Rhode Island, it is possible that the final restructuring plans ultimately ordered by regulatory bodies would not reflect full recovery of stranded costs, including a fair return on those costs as they are being recovered. In the event that future circumstances should cause the application of FAS 71 to be discontinued, a noncash write-off of previously established regulatory assets and liabilities related to the affected operations would be required. In addition, write-downs of plant assets under FAS 121 could be required, including a write-off of any loss from the divestiture of the generating business. Overview Net income increased by $1 million in 1996. This increase reflects a reduction in purchased electric energy, excluding fuel and a reduction in operation and maintenance expense. Partially offsetting these increases were decreases in allowance for funds used during construction and increased property taxes, both primarily due to the completion in the second half of 1995 of the Manchester Street generating station, as well as increased integrated facilities credits to the Company's affiliate, Narragansett. The Company also experienced reduced peak demand charge billings in 1996. Net income increased by $2 million in 1995 reflecting higher sales, lower depreciation and amortization expense and lower maintenance expense. Partially offsetting these increases were increased purchased power costs excluding fuel, increased costs related to postretirement benefits other than pensions (PBOPs), increased reimbursements to affiliates for service extension discounts (SEDs) to customers and generation and transmission costs incurred for the benefit of the Company. In addition, interest costs also increased in 1995. Operating Revenue The following table summarizes the changes in operating revenue: Increase (Decrease) in Operating Revenue 1996 1995 ---- ---- (In Millions) Fuel recovery $ 70 $ 27 Accrued NEEI fuel revenues (22) 4 Narragansett integrated facilities credit (9) (10) SED reimbursements (12) Sales growth and peak demand charges (7) 15 Other (2) 6 ---- ---- $ 30 $ 30 ==== ==== Accrued NEEI fuel revenues and accrued NEEI fuel costs (see "Operating Expenses" section) reflect losses incurred by NEEI, an affiliate of the Company, on its rate-regulated oil and gas operations. These revenues are accrued in the year of the loss but are billed to the Company's customers through its fuel adjustment clause in the following year. Changes in accrued NEEI fuel revenues and fuel costs are principally due to fluctuations in NEEI production (see Note D-6). In addition, in December 1996, NEEI recorded a $13 million adjustment which reduced its 1996 amortization of oil and gas properties to correct amounts recorded in the years 1990 through 1996. The entire output of Narragansett's generating capacity is made available to the Company. Narragansett receives a credit on its purchased power bill from the Company for its fuel costs and other generation and transmission-related costs. The increased credits in 1996 relate to costs associated with the dismantlement of the previously retired South Street generating facility and with Narragansett's portion of the repowered Manchester Street generating station that entered commercial operation in the second half of 1995. The Company's 1995 rate agreement provided for the deferral and recovery over three years of $12 million of these credits related to the dismantlement of Narragansett's South Street station. Operating Expenses The following table summarizes the changes in operating expenses: Increase (Decrease) in Operating Expenses 1996 1995 ---- ---- (In Millions) Fuel costs $ 74 $ 27 Accrued NEEI fuel costs (22) 4 Purchased energy excluding fuel (28) 22 Other operation and maintenance (22) (2) Depreciation and amortization 1 (35) Taxes 8 (1) ---- ---- $ 11 $ 15 ==== ==== Total fuel costs represent fuel for generation and the portion of purchased electric energy permitted to be recovered through the Company's fuel adjustment clause. The increase in fuel costs in 1996 is primarily due to fixed pipeline demand charges that, prior to the completion of the Manchester Street Station, were being partially deferred for amortization and recovery after the unit went into service in the second half of 1995. The increase in fuel costs also reflects increased generation as a result of increased sales to affiliates as well as generation supplied to other utilities. See "Operating Revenue" section for a discussion of accrued NEEI fuel costs. In 1996, purchased power costs, excluding fuel, decreased, reflecting the expiration of certain purchased power contracts. In addition, purchased power costs in the first half of 1995 included the Company's share of costs to repair steam generator tubes at the Maine Yankee nuclear power plant in which the Company has a 20 percent interest. The increase in 1995 also reflected other overhaul and refueling shutdowns by partially owned nuclear power suppliers and the commencement of amortization over seven years of $29 million of deferred purchased power contract termination costs, in accordance with a 1995 rate settlement. The decrease in operation and maintenance in 1996 reflects reduced thermal and hydro generating plant overhaul activity partially offset by $13 million of costs to correct deficiencies at the Millstone 3 nuclear unit, in which the Company has a 12 percent ownership interest. The Company also experienced a reduction in transmission wheeling costs, pension costs, PBOPs and other general and administrative costs. The decrease in operation and maintenance expense in 1995 has also reflected reduced overhaul activity partially offset by the commencement of amortization over seven years of $19 million of deferred PBOP costs in accordance with the 1995 rate settlement. The rate agreement also provided for the deferral and recovery over three years of $15 million of costs related to the replacement of a turbine rotor at one of the Company's generating stations. Depreciation expense increased in 1996 due to new plant expenditures, including the Manchester Street Station which entered service in the last half of 1995. This increase was partially offset by the completion in mid-1995 of the amortization of a portion of Seabrook 1 costs and Salem Harbor coal conversion costs. Depreciation in 1995 decreased due to reduced amortization of Seabrook 1 in accordance with the 1995 rate settlement which deferred recognition of $15 million of such amortization from 1995 to 1996 as well as the completion of the amortizations mentioned above. Partially offsetting these decreases were increased depreciation rates of approximately $8 million approved in the 1995 rate agreement and increased depreciation of new plant expenditures, including the Manchester Street Station. The increase in taxes in 1996 reflects municipal property taxes. The increase in municipal property taxes is primarily as a result of increased taxes on the Manchester Street Station. Allowance for Funds Used During Construction (AFDC) The changes in AFDC in 1996 and 1995 are due to the Manchester Street Station repowering project which began commercial operation in the second half of 1995. Investments in Nuclear Units The Company owns minority interests in six nuclear generating units, two of which, Yankee Atomic and Connecticut Yankee, have been shut down permanently. Two others, Millstone 3 and Maine Yankee, are currently shut down and have been placed on the Nuclear Regulatory Commission's (NRC) "Watch List," signifying that their safety performance exhibits sufficient weakness to warrant increased NRC attention. Neither may restart without NRC approval. At present, the Vermont Yankee and Seabrook 1 nuclear generating units appear to be operating routinely without major problems. On October 9, 1996, the NRC issued letters to operators of nuclear power plants requiring them to document that the plants are operated and maintained within their design and licensing bases, and that any deviations are reconciled in a timely manner. The Seabrook 1, Maine Yankee, and Vermont Yankee nuclear power plants responded to the NRC letters in February 1997. Uncertainties regarding the future of nuclear generating stations, particularly older units such as Maine Yankee and Vermont Yankee, are increasing rapidly and could adversely affect their service lives, availability, and costs. These uncertainties stem from a combination of factors, including the acceleration of competitive pressures in the power generation industry and increased NRC scrutiny. Connecticut Yankee The Company has a 15 percent equity ownership interest in Connecticut Yankee. As a result of an economic analysis, the Connecticut Yankee board of directors voted in December 1996 to permanently shut down and decommission the plant. In December 1996, Connecticut Yankee filed with the FERC to recover all of its approximately $246 million undepreciated investment in the plant and other costs over the period extending through June 2007, when the plant's NRC operating license would have expired. In a 1993 decision, the FERC allowed Yankee Atomic to recover its undepreciated investment in its permanently shut down nuclear plant, in part on the grounds that owners should not be discouraged from closing uneconomic plants. Several parties have intervened in opposition to Connecticut Yankee's filing. The Company believes that the FERC will allow the Company to recover from its customers all costs that the FERC allows Connecticut Yankee to recover from the Company. The Company has recorded the estimated future payment obligation to Connecticut Yankee of $114 million, as a liability and as an offsetting regulatory asset, reflecting the Company's expected future rate recovery of such costs. The NRC has identified numerous apparent violations of its regulations, which may result in the assessment of civil penalties. Millstone 3 The Company is a 12 percent joint owner of Millstone 3. In April 1996, the NRC ordered Millstone 3, which has experienced numerous technical and nontechnical problems, to remain shut down pending verification that the unit's operations are in accordance with NRC regulations and the unit's operating license. Millstone 3 is operated by a subsidiary of Northeast Utilities (NU). The Company is not an owner of Millstone 1 and 2 nuclear generating units, which are also shut down under NRC orders. A number of significant prerequisites must be fulfilled prior to restart of Millstone 3, including certification by NU that the unit adequately conforms to its design and licensing bases, an independent verification of corrective action taken at the unit, an NRC assessment concluding a culture change has occurred, public hearings, and a vote of the NRC Commissioners. NU announced in December 1996 that it expects Millstone 3 to be ready for restart around the end of 1997, subject to review by the NRC Commissioners. The Company cannot predict when Millstone 3 will be allowed by the NRC to restart, but believes that the unit will remain shut down for a very protracted period. The Company incurred $10 million of actual costs in 1996 related to corrective actions associated with the outage. The Company has also accrued a liability of approximately $3 million for its share of future corrective action costs. Additional costs may be incurred. During the outage, the Company is also incurring approximately $1.6 million per month in incremental replacement power costs, which it has been recovering from customers through its fuel clause. Several criminal investigations related to Millstone 3 are ongoing. The NRC has identified numerous apparent violations of its regulations which may result in the assessment of civil penalties. The Company and other minority owners of Millstone 3 are assessing their legal rights with respect to NU's operation of Millstone 3. Maine Yankee The Company has a 20 percent equity ownership interest in Maine Yankee. Over the past few years, the Maine Yankee nuclear generating plant has experienced numerous technical and nontechnical problems. In 1995, the plant had been shut down for much of the year due to the discovery of cracks in its steam generator tubes. The plant is currently shut down due to a cable routing problem. In addition, due to leaking nuclear fuel rods, 68 fuel assemblies will be replaced. As a result, Maine Yankee management does not expect the unit to restart until summer of 1997. In late 1995, allegations were made to the NRC that inadequate analyses of the plant's emergency core cooling system had been performed. As a result of the allegations, the NRC limited the plant's operation to 90 percent of full capacity. In September 1996, the NRC asked the Department of Justice (DOJ) to review, for potential criminal violations, an NRC investigatory report on the allegations. The DOJ is not limited in its investigation to the matters covered in that report. During 1996, the NRC conducted an independent safety assessment (ISA) and identified a number of weaknesses, deficiencies, and apparent violations which could result in fines. Yankee Atomic performed professional services for Maine Yankee associated with the matters being investigated. In response to the ISA results, Maine Yankee has indicated that it will spend more than $50 million in 1997 on operational improvements. Additionally, in February 1997, Entergy Corporation, an operator of five nuclear units, commenced providing management services. Under a confirmatory action letter issued by the NRC on December 18, 1996, and supplemented on January 30, 1997, Maine Yankee must fulfill certain commitments before its plant will be allowed by the NRC staff to return to service. Because of regulatory and other uncertainties faced by Maine Yankee, the Company cannot predict whether or when Maine Yankee will return to service. During the outage, the Company is incurring approximately $1.8 million per month in incremental replacement power costs, which it has been recovering from customers through its fuel clause. Brayton Point In October 1996, the Environmental Protection Agency (EPA) announced it was beginning a process to determine whether to modify or revoke the Company's water discharge permit for its Brayton Point 1,576 megawatt power plant. This action came two years before the permit expiration date. The EPA stated it took this step in response to a request from the Rhode Island Department of Environmental Management (RIDEM) that action be taken on the Brayton Point permit prior to its 1998 renewal, based on concerns raised in a final RIDEM report issued in October 1996. The report asserted a statistical correlation between the decline in the fish population in Mount Hope Bay and a change in operations at Brayton Point that occurred in the mid-1980's. In February 1997, the Company signed a memorandum of agreement negotiated with the various federal and state environmental agencies under which the Company will voluntarily operate under more stringent conditions than under its existing permit. The agreement is in lieu of any immediate action on the permit, but will cover only the months of February and March 1997. During this time, the parties will continue to work toward a longer-term solution. The Company cannot predict at this time what permit changes will be required or the impact on Brayton Point's operations and economics. However, permit changes may substantially impact the plant's capacity and ability to produce energy as well as require significant capital expenditures of tens of millions of dollars to construct equipment to address the concerns raised by the environmental agencies. 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. In October 1996, the National Research Council of the National Academy of Sciences released a report stating no conclusive and consistent evidence demonstrates that exposures to residential EMF produce adverse health effects. It is impossible to predict the ultimate impact on the Company 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. 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 the impact on the Company would be if this cause of action is recognized in the states in which the Company operates and in contexts other than condemnation cases. Utility Plant Expenditures and Financing Cash expenditures for utility plant totaled $66 million for 1996. The funds necessary for utility plant expenditures during the period were provided by net cash from operating activities, after the payment of dividends. Cash expenditures for utility plant for 1997 are estimated to be $70 million. Internally generated funds are expected to fully cover the Company's 1997 capital expenditures in 1997. In 1996, the Company refinanced $48 million of variable rate mortgage bonds. In addition, in 1996, the Company retired $10 million of mortgage bonds. In August 1996, the Company repurchased $6 million of its 4.64 percent series of cumulative preferred stock. In May 1996, the Company redeemed all ($15 million) of its 7.24 percent series of cumulative preferred stock. At December 31, 1996, the Company had $94 million of short-term debt outstanding including $89 million of commercial paper borrowings and $5 million of borrowings from affiliates. At December 31, 1996, the Company had lines of credit and bond purchase facilities with banks totaling $530 million which are available to provide liquidity support for commercial paper borrowings and for $372 million of the Company's outstanding variable rate mortgage bonds in tax-exempt commercial paper mode and for other corporate purposes. There were no borrowings under these lines of credit at December 31, 1996. New England Power Company Statements of Income
Year Ended December 31, (In Thousands) 1996 1995 1994 ---- ---- ---- Operating revenue, principally from affiliates $1,600,309 $1,570,539 $1,540,757 ---------- ---------- ---------- Operating expenses: Fuel for generation 342,545 279,849 260,540 Purchased electric energy 508,910 547,926 513,583 Other operation 203,456 211,872 196,610 Maintenance 79,118 92,954 110,528 Depreciation and amortization 104,209 102,758 137,979 Taxes, other than income taxes 66,416 58,716 54,400 Income taxes 91,894 91,051 96,596 ---------- ---------- ---------- Total operating expenses 1,396,548 1,385,126 1,370,236 ---------- ---------- ---------- Operating income 203,761 185,413 170,521 Other income: Allowance for equity funds used during construction 7,746 9,142 Equity in income of nuclear power companies 5,159 5,721 4,816 Other income (expense), net (1,851) (1,610) (293) ---------- ---------- ---------- Operating and other income 207,069 197,270 184,186 ---------- ---------- ---------- Interest: Interest on long-term debt 45,111 46,797 38,711 Other interest 10,066 10,525 1,956 Allowance for borrowed funds used during construction - credit (591) (11,479) (5,854) ---------- ---------- ---------- Total interest 54,586 45,843 34,813 ---------- ---------- ---------- Net income $ 152,483 $ 151,427 $ 149,373 ========== ========== ========== Statements of Retained Earnings Year Ended December 31, (In Thousands) 1996 1995 1994 ---- ---- ---- Retained earnings at beginning of year $ 385,309 $ 372,763 $ 346,153 Net income 152,483 151,427 149,373 Dividends declared on cumulative preferred stock (2,574) (3,433) (3,440) Dividends declared on common stock, $20.80, $21.00, and $18.50 per share, respectively (134,158) (135,448) (119,323) Premium on redemption of preferred stock (450) --------- --------- --------- Retained earnings at end of year $ 400,610 $ 385,309 $ 372,763 ========= ========= ========= The accompanying notes are an integral part of these financial statements.
New England Power Company Balance Sheets
At December 31, (In Thousands) 1996 1995 Assets ---- ---- Utility plant, at original cost $2,991,797 $2,941,469 Less accumulated provisions for depreciation and amortization 1,118,340 1,047,982 ---------- ---------- 1,873,457 1,893,487 Net investment in Seabrook 1 under rate settlement (Note D-2) 15,210 Construction work in progress 36,836 41,566 ---------- ---------- Net utility plant 1,910,293 1,950,263 ---------- ---------- Investments: Nuclear power companies, at equity (Note D-1) 47,902 47,055 Non-utility property and other investments 30,591 26,627 ---------- ---------- Total investments 78,493 73,682 ---------- ---------- Current assets: Cash 3,046 2,607 Accounts receivable: Affiliated companies 201,370 204,314 Accrued NEEI revenues (Note D-6) 21,648 43,731 Others 23,219 17,821 Fuel, materials, and supplies, at average cost 58,709 54,664 Prepaid and other current assets 25,050 27,986 ---------- ---------- Total current assets 333,042 351,123 ---------- ---------- Deferred charges and other assets (Note B) 325,887 273,275 ---------- ---------- $2,647,715 $2,648,343 ========== ========== Capitalization and Liabilities Capitalization: Common stock, par value $20 per share, authorized and outstanding 6,449,896 shares $ 128,998 $ 128,998 Premiums on capital stocks 86,779 86,829 Other paid-in capital 289,818 288,000 Retained earnings 400,610 385,309 ---------- ---------- Total common equity 906,205 889,136 Cumulative preferred stock, par value $100 per share (Note G) 39,666 60,516 Long-term debt 733,006 735,440 ---------- ---------- Total capitalization 1,678,877 1,685,092 ---------- ---------- Current liabilities: Long-term debt due in one year 3,000 10,000 Short-term debt (including $5,275 and $1,025 to affiliates) 93,600 125,150 Accounts payable (including $25,301 and $50,760 to affiliates) 127,226 163,791 Accrued liabilities: Taxes 8,158 3,447 Interest 9,668 10,482 Other accrued expenses (Note F) 16,577 10,834 Dividends payable 27,412 32,249 ---------- ---------- Total current liabilities 285,641 355,953 ---------- ---------- Deferred federal and state income taxes 382,164 390,197 Unamortized investment tax credits 55,486 57,509 Other reserves and deferred credits 245,547 159,592 Commitments and contingencies (Note D) ---------- ---------- $2,647,715 $2,648,343 ========== ========== The accompanying notes are an integral part of these financial statements.
New England Power Company Statements of Cash Flows
Year Ended December 31, (In Thousands) 1996 1995 1994 Operating activities: ---- ---- ---- Net income $ 152,483 $ 151,427 $ 149,373 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 108,338 108,384 142,764 Deferred income taxes and investment tax credits, net (7,458) 25,683 23,051 Allowance for funds used during construction (591) (19,225) (14,996) Decrease (increase) in accounts receivable 19,629 1,321 (6,932) Decrease (increase) in fuel, materials, and supplies (4,045) 18,697 (17,406) Decrease (increase) in prepaid and other current assets 2,936 5,743 (7,275) Increase (decrease) in accounts payable (36,565) (15,970) 35,661 Increase (decrease) in other current liabilities 9,640 (2,150) (30,823) Other, net 28,582 (28,244) (26,845) --------- --------- --------- Net cash provided by operating activities $ 272,949 $ 245,666 $ 246,572 --------- --------- --------- Investing activities: Plant expenditures, excluding allowance for funds used during construction $ (65,981) $(162,766) $(229,015) Other investing activities (3,878) (3,614) (3,053) --------- --------- --------- Net cash used in investing activities $ (69,859) $(166,380) $(232,068) --------- --------- --------- Financing activities: Dividends paid on common stock $(138,995) $(103,198) $(133,835) Dividends paid on preferred stock (2,574) (3,433) (3,440) Changes in short-term debt (31,550) (20,425) 95,050 Long-term debt - issues 47,850 60,000 28,000 Long-term debt - retirements (57,850) (10,000) Preferred stock - retirements (20,900) (512) Gain on redemption of preferred stock 1,368 --------- --------- --------- Net cash used in financing activities $(202,651) $ (77,056) $ (14,737) --------- --------- --------- Net increase (decrease) in cash and cash equivalents $ 439 $ 2,230 $ (233) Cash and cash equivalents at beginning of year 2,607 377 610 --------- --------- --------- Cash and cash equivalents at end of year $ 3,046 $ 2,607 $ 377 ========= ========= ========= Supplementary Information: Interest paid less amounts capitalized $ 51,212 $ 41,557 $ 32,510 --------- --------- --------- Federal and state income taxes paid $ 96,006 $ 57,948 $ 83,455 --------- --------- --------- Dividends received from investments at equity $ 4,313 $ 5,014 $ 4,809 --------- --------- --------- The accompanying notes are an integral part of these financial statements.
New England Power Company Notes to Financial Statements Note A - Significant Accounting Policies 1. Nature of operations: The Company, a wholly-owned subsidiary of New England Electric System (NEES), is a Massachusetts corporation and is qualified to do business in Massachusetts, New Hampshire, Rhode Island, Connecticut, Maine, and Vermont. The Company is subject, for certain purposes, to the jurisdiction of the regulatory commissions of these six states, the Securities and Exchange Commission, and the Federal Energy Regulatory Commission (FERC). The Company's business is currently that of generating, purchasing, transmitting, and selling electric energy in wholesale quantities to other electric utilities, principally its affiliates Granite State Electric Company (Granite State), Massachusetts Electric Company (Massachusetts Electric), Nantucket Electric Company (Nantucket), and The Narragansett Electric Company. (See Note B for a discussion of industry restructuring and the Company's proposed divestiture of its generating business.) 2. System of accounts: The accounts of the Company are maintained in accordance with the Uniform System of Accounts prescribed by regulatory bodies having jurisdiction. In preparing the financial statements, management is required to make estimates that affect the reported amounts of assets and liabilities and disclosures of asset recovery and contingent liabilities as of the date of the balance sheets, and revenues and expenses for the period. These estimates may differ from actual amounts if future circumstances cause a change in the assumptions used to calculate these estimates. 3. Allowance for funds used during construction (AFDC): The Company capitalizes AFDC as part of construction costs. AFDC represents the composite interest and equity costs of capital funds used to finance that portion of construction costs not yet eligible for inclusion in rate base. AFDC is capitalized in "Utility plant" with offsetting noncash credits to "Other income" and "Interest." This method is in accordance with an established rate-making practice under which a utility is permitted a return on, and the recovery of, prudently incurred capital costs through their ultimate inclusion in rate base and in the provision for depreciation. The composite AFDC rates were 5.8 percent, 7.5 percent, and 7.8 percent, in 1996, 1995, and 1994, respectively. 4. Depreciation and amortization: The depreciation and amortization expense included in the statements of income is composed of the following:
Year Ended December 31, (In Thousands) 1996 1995 1994 ---- ---- ---- Depreciation $ 78,187 $ 66,309 $ 52,834 Nuclear decommissioning costs (Note D-3) 2,629 2,629 1,951 Amortization: Investment in Seabrook 1 under rate settlement (Note D-2) 15,210 23,074 65,061 Oil Conservation Adjustment (OCA) 4,467 11,854 Property losses 6,279 6,279 6,279 Millstone 3 additional amortization, under rate settlement 1,904 -------- -------- -------- Total depreciation and amortization expense $104,209 $102,758 $137,979 ======== ======== ========
Depreciation is provided annually on a straight-line basis. The provision for depreciation as a percentage of weighted average depreciable property was 2.9 percent in 1996, 2.7 percent in 1995, and 2.4 percent in 1994. The OCA was designed to recover expenditures for coal conversion facilities at the Company's Salem Harbor Station. These costs were fully amortized at December 31, 1995. In addition, pre-1988 Seabrook 1 costs under the rate settlement were fully amortized at December 31, 1996. 5. Cash: The Company classifies short-term investments with a maturity of 90 days or less at time of purchase as cash. Note B - Industry Restructuring The electric utility business is rapidly progressing toward the unbundling of what is now a fully-regulated, bundled product into separate generation, transmission, and distribution components and creating competition in the generation component. Under the current regulatory framework, electric utilities have incurred costs related to commitments to supply electricity to customers that may not be economical in a competitive environment. The amounts by which such costs exceed market prices are commonly referred to as "stranded costs." As described below, a variety of new rules, laws, or proposals have been enacted, or are in process, in the jurisdictions that the NEES subsidiaries operate, to provide for competition in a deregulated generation environment, and allow for stranded cost recovery. See also the "Industry Restructuring" section of Financial Review for a more in-depth discussion of current developments in this area. Massachusetts and Rhode Island On February 26, 1997, the Massachusetts Department of Public Utilities approved an industry restructuring settlement agreement among the Company, its Massachusetts distribution affiliates, Massachusetts Electric and Nantucket, the Massachusetts Attorney General, and other parties. In August 1996, the state of Rhode Island enacted industry restructuring legislation. The Massachusetts settlement and the Rhode Island statute have many similarities. Both plans: - - provide for complete retail choice by customers of their power supplier. In Rhode Island, this would begin in July 1997 for certain customers. All customers in Rhode Island and Massachusetts would have choice in 1998. In Massachusetts, choice is contingent on open access being available to all customers of Massachusetts investor-owned utilities; - - provide for recovery of their allocated share of the Company's stranded costs; - - provide customers who do not choose an alternative supplier with service called "standard offer" service; - - require an adjustment of stranded cost recovery to reflect the market value of fossil and hydroelectric generating assets with the Massachusetts settlement requiring actual divestiture of such assets; - - propose amendments to the New England Power Company- distribution companies' wholesale all-requirements contracts which have been filed with and accepted by the FERC, set down for hearing, and made effective, subject to refund. The stranded costs to be recovered in both Massachusetts and Rhode Island include (i) the above-market portion of generating plant commitments and regulatory assets to be recovered over 12 years in Massachusetts and 12.5 years in Rhode Island and (ii) the above-market portion of purchased power contracts and the operating cost of nuclear plants, that cannot be avoided by shutting down the plants, including nuclear decommissioning costs. These latter costs would be recovered as incurred over the life of these obligations, a period expected to extend beyond 12 years. The Company estimates that at December 31, 1996, its above-market commitments are approximately $4.5 billion on a present-value basis before application of the proceeds from the sale of its generating business. Under the Massachusetts settlement, the Company must complete the divestiture of its generating business within six months of the later of the commencement of retail choice in Massachusetts or the receipt of all necessary regulatory approvals. As part of the divestiture plan, the Company will endeavor to sell, or otherwise transfer, its minority interest in four nuclear power plants to nonaffiliates. To the extent the Company is unable to divest its nuclear generating interests, the Massachusetts settlement provides for a sharing between customers and shareholders of the nuclear-related revenues and costs not otherwise reflected in the stranded costs recovery, with 80 percent allocated to customers and 20 percent to shareholders. In addition, New England Energy Incorporated is planning to sell its oil and gas properties, the cost of which is supported by the Company through fuel purchased contracts. The Utility Workers Union of America and the Massachusetts Alliance of Utility Unions, who intervened in the MDPU proceeding on the settlement, have indicated they intend to appeal the MDPU's order approving the settlement to the Massachusetts Supreme Judicial Court. If an appeal is brought, the NEES companies will oppose it. New Hampshire and federal activity On February 28, 1997, the New Hampshire Public Utilities Commission (NHPUC) issued its plan to implement a New Hampshire law calling for retail access by 1998. Under the plan, utilities such as Granite State whose rates are below the regional average would be allowed full recovery of stranded costs as calculated by the NHPUC. However, the NHPUC indicated that its methodology and proposed timing of recovery would yield both initial access charges and total recovery less than that requested by Granite State. Further, the NHPUC indicated that its decision would not result in savings for Granite State's customers. The largest utility in New Hampshire is Public Service Company of New Hampshire (PSNH). PSNH has appealed the NHPUC's decision to the courts and has included in its appeal certain arguments which could have an impact on Granite State. Granite State has therefore petitioned to intervene in this appeal to protect its interest on those issues. Prior to the issuance of the NHPUC order, Granite State had reached an interim settlement with several customers and other stakeholders that would set initial access charges at 2.8 cents per kilowatt-hour (kWh) for two years, and in other respects would mirror the Massachusetts settlement described above. Stranded costs to be recovered after the two-year initial period would be subject to future regulatory determination. Unlike the NHPUC order, the interim settlement agreement would provide all customers with a rate reduction of approximately 10 percent. This interim settlement is still pending before the NHPUC. In April 1996, the FERC issued Order No. 888 requiring utilities that own transmission facilities to file open access tariffs to make available transmission service to affiliates and nonaffiliates at fair, nondiscriminatory rates. In mid-1996, the Company filed a transmission tariff with the FERC pursuant to this requirement. Order No. 888 also stated that public utilities will be allowed to seek recovery of legitimate and verifiable stranded costs from departing customers as a result of wholesale competition. The FERC also stated that it would permit stranded cost recovery under wholesale all-requirements contracts, such as those between the Company and its retail affiliates. On February 26, 1997, the FERC announced Order No. 888-A, reaffirming the principle of Order No. 888, including stranded cost recovery. Because of the Massachusetts settlement and the Rhode Island statute, the Company does not expect it will rely exclusively on Order No. 888 to recover stranded costs from its affiliates in Massachusetts and Rhode Island. The Company cannot predict at this time whether an Order No. 888 filing will be necessary to fully recover stranded costs from Granite State or from seven unaffiliated wholesale customers should any of those customers choose to terminate service under their contracts with the Company. Granite State and these seven unaffiliated customers are responsible for approximately 3 percent and 2 percent of the Company's sales, respectively. Accounting implications Historically, electric utility rates have been based on a utility's costs. As a result, electric utilities are subject to certain accounting standards that are not applicable to other business enterprises in general. Financial Accounting Standards No. 71, Accounting for the Effects of Certain Types of Regulation (FAS 71), requires regulated entities, in appropriate circumstances, to establish regulatory assets, and thereby defer the income statement impact of certain costs expected to be recovered in future rates. The Company has recorded approximately $340 million in regulatory assets in compliance with FAS 71. In addition, the Company's affiliate, NEEI, has a net regulatory asset of approximately $150 million, which is recoverable in its entirety from the Company. Both the Massachusetts settlement and the Rhode Island statute provide for full recovery of the costs of generating assets and oil and gas related assets (including regulatory assets) not recoverable from the proceeds of the divestiture of the Company's generating business. The costs of these assets would be recovered as part of a contract termination charge imposed on all distribution customers. After the proposed divestiture, substantially all of the Company's business, including the recovery of its stranded costs, would remain under cost-based rate regulation. Specifically, FERC Order No. 888 enables transmission companies, which the Company would essentially become, to recover their specific costs of providing transmission service. The Company believes these factors will allow it to continue to apply FAS 71 and that no impairment of plant assets will exist under Statement of Financial Accounting Standards No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of (FAS 121). Any loss from the divestiture of generating assets and oil and gas assets will be recorded as a regulatory asset to be recovered through the contract termination charge. Although the Company believes that it will continue to meet the criteria for continued application of FAS 71, the Company understands that members of the SEC staff have raised questions concerning the continued applicability of FAS 71 to certain other electric utilities facing restructuring. In addition, despite the progress made to date in Massachusetts and Rhode Island, it is possible that the final restructuring plans ultimately ordered by regulatory bodies would not provide for full recovery of stranded costs, including a fair return on those costs as they are being recovered. In the event that future circumstances should cause the application of FAS 71 to be discontinued, a noncash write-off of previously established regulatory assets and liabilities related to the affected operations would be required. In addition, write-downs of plant assets under FAS 121 could be required, including a write-off of any loss from the divestiture of the generating business. The components of regulatory assets are as follows:
At December 31, (In Thousands) 1996 1995 ---- ---- Regulatory assets included in current assets and liabilities: Accrued NEEI losses (see Note D-6) $ 21,648 $43,731 Rate adjustment mechanisms (4,790) -------- ------- 16,858 43,731 Regulatory assets included in deferred charges: Accrued Connecticut Yankee costs (see Note D-3) 114,425 Accrued Yankee Atomic costs (see Note D-3) 51,988 67,566 Unamortized losses on reacquired debt 31,353 32,571 Deferred SFAS No. 106 costs (see Note E-2) 13,680 16,416 Deferred SFAS No. 109 costs (see Note C) 27,461 30,059 Purchased power contract termination costs 19,578 23,494 Deferred gas pipeline charges (see Note D-9) 59,733 62,873 Unamortized property losses 253 12,044 Other 2,727 22,049 -------- -------- 321,198 267,072 -------- -------- $338,056 $310,803 ======== ========
Amounts included in "Deferred charges and other assets" on the balance sheets that do not represent regulatory assets totaled $4,689,000 and $6,203,000 at December 31, 1996 and 1995, respectively. As previously noted, the Company's affiliate, NEEI, has a regulatory asset of approximately $150 million, which is recoverable in its entirety from the Company (see Note D-6). Note C - Income Taxes The Company and other subsidiaries participate with NEES in filing consolidated federal income tax returns. The Company's income tax provision is calculated on a separate return basis. Federal income tax returns have been examined and reported on by the Internal Revenue Service (IRS) through 1991. The returns for 1992 and 1993 are currently under examination by the IRS. Total income taxes in the statements of income are as follows:
Year Ended December 31, (In Thousands) 1996 1995 1994 ---- ---- ---- Income taxes charged to operations $91,894 $91,051 $96,596 Income taxes charged (credited) to "Other income" 555 353 (994) ------- ------- ------- Total income taxes $92,449 $91,404 $95,602 ======= ======= ======= Total income taxes, as shown above, consist of the following components: Year Ended December 31, (In Thousands) 1996 1995 1994 ---- ---- ---- Current income taxes $99,907 $65,721 $72,551 Deferred income taxes (5,435) 27,188 26,628 Investment tax credits, net (2,023) (1,505) (3,577) ------- ------- ------- Total income taxes $92,449 $91,404 $95,602 ======= ======= =======
Investment tax credits have been deferred and are being amortized over the estimated lives of the property giving rise to the credits. Total income taxes, as shown above, consist of federal and state components as follows:
Year Ended December 31, (In Thousands) 1996 1995 1994 ---- ---- ---- Federal income taxes $76,656 $74,590 $78,274 State income taxes 15,793 16,814 17,328 ------- ------- ------- Total income taxes $92,449 $91,404 $95,602 ======= ======= =======
With regulatory approval from the FERC, the Company has adopted comprehensive interperiod tax allocation (normalization) for temporary book/tax differences. Total income taxes differ from the amounts computed by applying the federal statutory tax rates to income before taxes. The reasons for the differences are as follows:
Year Ended December 31, (In Thousands) 1996 1995 1994 ---- ---- ---- Computed tax at statutory rate $85,726 $84,991 $85,741 Increases (reductions) in tax resulting from: Amortization of investment tax credits (2,023) (2,227) (3,045) State income taxes, net of federal income tax benefit 10,265 10,929 11,263 All other differences (1,519) (2,289) 1,643 ------- ------- ------- Total income taxes $92,449 $91,404 $95,602 ======= ======= =======
The following table identifies the major components of total deferred income taxes:
At December 31, (In Millions) 1996 1995 ---- ---- Deferred tax asset: Plant related $ 97 $ 92 Investment tax credits 23 24 All other 46 43 ----- ----- 166 159 ----- ----- Deferred tax liability: Plant related (415) (397) Equity AFDC (45) (47) All other (88) (105) ----- ----- (548) (549) ----- ----- Net deferred tax liability $(382) $(390) ==== =====
There were no valuation allowances for deferred tax assets deemed necessary. Note D - Commitments and Contingencies 1. Yankee nuclear power companies (Yankees): The Company has minority interests in four Yankee Nuclear Power Companies. These ownership interests are accounted for on the equity method. The Company's share of the expenses of the Yankees is accounted for in "Purchased electric energy" on the statements of income. A summary of combined results of operations, assets, and liabilities of the four Yankees is as follows:
(In Thousands) 1996 1995 1994 ---- ---- ---- Operating revenue $ 697,054 $ 695,781 $ 631,940 =========== =========== =========== Net income $ 27,567 $ 31,657 $ 30,345 =========== =========== =========== Company's equity in net income $ 5,159 $ 5,721 $ 4,816 =========== =========== =========== Net plant 401,049 443,967 537,103 Other assets 2,031,336 1,418,681 1,458,186 Liabilities and debt (2,177,068) (1,612,843) (1,748,960) ----------- ----------- ----------- Net assets $ 255,317 $ 249,805 $ 246,329 =========== =========== =========== Company's equity in net assets $ 47,902 $ 47,055 $ 46,349 =========== =========== =========== Company's purchased electric energy $ 110,778 $ 115,647 $ 106,404 =========== =========== ===========
At December 31, 1996, $14 million of undistributed earnings of the Yankees were included in the Company's retained earnings. 2. Jointly-owned nuclear generating units: The Company is also a 12 percent and 10 percent joint owner, respectively, of the Millstone 3 and Seabrook 1 nuclear generating units, each 1,150 megawatts. The Company's net investment in Millstone 3, included in "Net utility plant" is approximately $379 million. The Company's pre-1988 investment in Seabrook 1 has been fully amortized in 1996 pursuant to a settlement agreement. The Company's net investment in Seabrook 1 since January 1, 1988, which is approximately $55 million, is included in "Net utility plant" on the Company's balance sheet and is being depreciated over the term of Seabrook 1's operating license. The Company's share of expenses for these units is included in "Operating expenses." 3. Nuclear plant decommissioning and nuclear fuel disposal: The Company is liable for its share of decommissioning costs for Millstone 3, Seabrook 1, and all of the Yankees. Decommissioning costs include not only estimated costs to decontaminate the units as required by the Nuclear Regulatory Commission (NRC), but also costs to dismantle the uncontaminated portion of the units. The Company records decommissioning costs expense on its books consistent with its rate recovery. The Company is recovering its share of projected decommissioning costs for Millstone 3 and Seabrook 1 through depreciation expense. In addition, the Company is paying its portion of projected decommissioning costs for all of the Yankees through purchased power expense. Such costs reflect estimates of total decommissioning costs approved by the FERC. Connecticut Yankee The Company has a 15 percent equity ownership interest in Connecticut Yankee. As a result of an economic analysis, the Connecticut Yankee board of directors voted in December 1996 to permanently shut down and decommission the plant. In December 1996, Connecticut Yankee filed with the FERC to recover all of its approximately $246 million undepreciated investment in the plant and other costs over the period extending through June 2007, when the plant's NRC operating license would have expired. In a 1993 decision, the FERC allowed Yankee Atomic to recover its undepreciated investment in its permanently shut down nuclear plant, in part on the grounds that owners should not be discouraged from closing uneconomic plants. Several parties have intervened in opposition to Connecticut Yankee's filing. The Company believes that the FERC will allow the Company to recover from its customers all costs that the FERC allows Connecticut Yankee to recover from the Company. The Company has recorded the estimated future payment obligation to Connecticut Yankee of $114 million as a liability and as an offsetting regulatory asset, reflecting the Company's expected future rate recovery of such costs. The NRC has identified numerous apparent violations of its regulations, which may result in the assessment of civil penalties. Yankee Atomic The Company has a 30 percent ownership interest in Yankee Atomic. In 1992, the Yankee Atomic board of directors decided to permanently cease power operation of, and decommission, the facility. Decommissioning is currently underway. The Company has recorded an estimate of its total future payment obligations for post-operating costs to Yankee Atomic as a liability and as an offsetting regulatory asset, reflecting its expected future rate recovery of such costs. This liability and related regulatory asset are approximately $52 million each at December 31, 1996. Decommissioning Trust Funds Each nuclear unit in which the Company has an ownership interest has established a decommissioning trust fund or escrow fund into which payments are being made to meet the projected costs of decommissioning. Listed below is information on each operating nuclear plant in which the Company has an ownership interest.
The Company's share of (millions of dollars) ------------------------------- Estimated The Company's Net DecommissioningDecommissioning License Ownership Plant Cost (in 1996 $) Fund Balances* Expiration Unit Interest(%) Assets Maine Yankee ** 20 44 74 31 2008 Vermont Yankee 20 36 75 30 2012 Millstone 3 *** 12 379 62 16 2025 Seabrook 1 *** 10 55 45 7 2026 * Certain additional amounts are anticipated to be available through tax deductions. ** A Maine statute provides that if both Maine Yankee and its decommissioning trust fund have insufficient assets to pay for the plant decommissioning, the owners of Maine Yankee are jointly and severally liable for the shortfall. *** Fund balances are included in "Other investments" on the balance sheets and approximate market value.
There is no assurance that decommissioning costs actually incurred by the Yankees, Millstone 3, or Seabrook 1 will not substantially exceed these amounts. For example, decommissioning cost estimates assume the availability of permanent repositories for both low-level and high-level nuclear waste; those repositories do not currently exist. If any of the units were shut down prior to the end of their operating licenses, the funds collected for decommissioning to that point would beinsufficient. The Nuclear Waste Policy Act of 1982 establishes that the federal government is responsible for the disposal of spent nuclear fuel. The federal government requires the Company to pay a fee based on its share of the net generation from Millstone 3 and Seabrook 1 nuclear units. The Company is recovering this fee through its fuel clause. Similar costs are incurred by the Maine Yankee and Vermont Yankee nuclear generating units. These costs are billed to the Company and also recovered from customers through the Company's fuel clause. 4. Investments in nuclear units The Millstone 3 and Maine Yankee nuclear generating units are currently shut down and have been placed on the NRC "Watch List," signifying that their safety performance exhibits sufficient weakness to warrant increased NRC attention. Neither may restart without NRC approval. At present, the Vermont Yankee and Seabrook 1 nuclear generating units appear to be operating routinely without major problems. On October 9, 1996, the NRC issued letters to operators of nuclear power plants requiring them to document that the plants are operated and maintained within their design and licensing bases, and that any deviations are reconciled in a timely manner. The Seabrook 1, Maine Yankee, and Vermont Yankee nuclear power plants responded to the NRC letters in February 1997. Uncertainties regarding the future of nuclear generating stations, particularly older units, such as Maine Yankee and Vermont Yankee, are increasing rapidly and could adversely affect their service lives, availability, and costs. These uncertainties stem from a combination of factors, including the acceleration of competitive pressures in the power generation industry and increased NRC scrutiny. Millstone 3 In April 1996, the NRC ordered Millstone 3, which has experienced numerous technical and nontechnical problems, to remain shut down pending verification that the unit's operations are in accordance with NRC regulations and the unit's operating license. Millstone 3 is operated by a subsidiary of Northeast Utilities (NU). The Company is not an owner of Millstone 1 and 2 nuclear generating units, which are also shut down under NRC orders. A number of significant prerequisites must be fulfilled prior to restart of Millstone 3, including certification by NU that the unit adequately conforms to its design and licensing bases, an independent verification of corrective actions taken at the unit, an NRC assessment concluding a culture change has occurred, public hearings, and a vote of the NRC Commissioners. NU announced in December 1996 that it expects Millstone 3 to be ready for restart around the end of 1997, subject to review by the NRC Commissioners. The Company cannot predict when Millstone 3 will be allowed by the NRC to restart, but believes that the unit will remain shut down for a very protracted period. The Company incurred $10 million of actual costs in 1996 related to corrective actions associated with the outage. The Company has also accrued a liability of approximately $3 million for its share of future corrective action costs. Additional costs may be incurred. During the outage, the Company is also incurring approximately $1.6 million per month in incremental replacement power costs, which it has been recovering from customers through its fuel clause. Several criminal investigations related to Millstone 3 are ongoing. The NRC has identified numerous apparent violations of its regulations which may result in the assessment of civil penalties. The Company and other minority owners of Millstone 3 are assessing their legal rights with respect to NU's operation of Millstone 3. Maine Yankee Over the past few years, the Maine Yankee nuclear generating plant has experienced numerous technical and nontechnical problems. In 1995, the plant had been shut down for much of the year due to the discovery of cracks in its steam generator tubes. The plant is currently shut down due to a cable routing problem. In addition, due to leaking nuclear fuel rods, 68 fuel assemblies will be replaced. As a result, Maine Yankee management does not expect the unit to restart until summer of 1997. In late 1995, allegations were made to the NRC that inadequate analyses of the plant's emergency core cooling system had been performed. As a result of the allegations, the NRC limited the plant's operation to 90 percent of full capacity. In September 1996, the NRC asked the Department of Justice (DOJ) to review, for potential criminal violations, an NRC investigatory report on the allegations. The DOJ is not limited in its investigation to the matters covered in that report. During 1996, the NRC conducted an independent safety assessment (ISA) and identified a number of weaknesses, deficiencies, and apparent violations which could result in fines. Yankee Atomic performed professional services for Maine Yankee associated with the matters being investigated. In response to the ISA results, Maine Yankee has indicated that it will spend more than $50 million in 1997 on operational improvements. Additionally, in February 1997, Entergy Corporation, an operator of five nuclear units, commenced providing management services. Under a confirmatory action letter issued by the NRC on December 18, 1996, and supplemented on January 30, 1997, Maine Yankee must fulfill certain commitments before its plant will be allowed by the NRC staff to return to service. Because of regulatory and other uncertainties faced by Maine Yankee, the Company cannot predict whether or when Maine Yankee will return to service. During the outage, the Company is incurring approximately $1.8 million per month in incremental replacement power costs, which it has been recovering from customers through its fuel clause. 5. Nuclear insurance: The Price-Anderson Act limits the amount of liability claims that would have to be paid in the event of a single incident at a nuclear plant to $8.9 billion (based upon 110 licensed reactors). The maximum amount of commercially available insurance coverage to pay such claims is $200 million. The remaining $8.7 billion would be provided by an assessment of up to $79.3 million per incident levied on each of the participating nuclear units in the United States, subject to a maximum assessment of $10 million per incident per nuclear unit in any year. The maximum assessment, which was most recently adjusted in 1993, is adjusted for inflation at least every five years. The Company's current interest in the Yankees (excluding Yankee Atomic and Connecticut Yankee), Millstone 3, and Seabrook 1 would subject the Company to a $58.0 million maximum assessment per incident. The Company's payment of any such assessment would be limited to a maximum of $7.3 million per incident per year. As a result of the permanent cessation of power operation of the Yankee Atomic plant, Yankee Atomic has received from the NRC a partial exemption from obligations under the Price-Anderson Act. However, Yankee Atomic must continue to maintain $100 million of commercially available nuclear insurance coverage. Connecticut Yankee is planning to file with the NRC for a similar exemption. Each of the nuclear units in which the Company has an ownership interest also carries nuclear property insurance to cover the costs of property damage, decontamination or premature decommissioning, and workers' claims resulting from a nuclear incident. These policies may require additional premium assessments if losses relating to nuclear incidents at units covered by this insurance occurring in a prior six-year period exceed the accumulated funds available. The Company's maximum potential exposure for these assessments, either directly, or indirectly through purchased power payments to the Yankees, is approximately $11 million per year. 6. Oil and gas operations: NEEI, a subsidiary of NEES, is engaged in domestic oil and gas exploration, development, and production. NEEI operates under an intercompany pricing policy with the Company which has been approved by the Securities and Exchange Commission (SEC). The pricing policy requires the Company to purchase all fuel meeting its specifications offered to it by NEEI. Under the pricing policy, NEEI's oil and gas exploration program is composed of prospects entered into through December 31, 1983 under a rate-regulated program. NEEI has incurred operating losses since 1986, due to low oil and gas prices, and expects to incur substantial additional losses in the future. These losses are passed on to the Company in the year after they are incurred by NEEI and, in turn, are being recovered from customers through the Company's fuel clause. The Company's ability to pass these losses on to its customers was favorably resolved in the Company's 1988 FERC rate settlement. This settlement 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. In 1996, 1995, and 1994, the Company recorded accrued fuel expenses and accrued revenues of $22 million, $44 million, and $40 million, respectively, representing losses incurred by NEEI in each year. In the absence of the pricing policy, the SEC's cost center "ceiling test" rule requires non-rate-regulated companies to write down capitalized costs to a level which approximates the present value of their proved oil and gas reserves. Based on NEEI's 1996 average oil and gas selling prices, application of the ceiling test would have resulted in a write-down of approximately $93 million after tax ($149 million before tax) at December 31, 1996. 7. Plant expenditures: The Company's utility plant expenditures are estimated to be approximately $70 million in 1997. At December 31, 1996, substantial commitments had been made relative to future planned expenditures. 8. Hydro-Quebec Interconnection: The Company is a participant in both the Hydro-Quebec Phase I and Phase II projects. The Company's participation percentage in both projects is approximately 18 percent. The Hydro-Quebec Phase I and Phase II projects were established to transmit power from Hydro-Quebec to New England. Three affiliates of the Company were created to construct and operate transmission facilities related to these projects. The participants, including the Company, have entered into support agreements that end in 2020, to pay monthly their proportionate share of the total cost of constructing, owning, and operating the transmission facilities. The Company accounts for these support agreements as capital leases and accordingly recorded approximately $69 million in utility plant at December 31, 1996. Under the support agreements, the Company has agreed, in conjunction with any Hydro-Quebec Phase II project debt financing, to guarantee its share of project debt. At December 31, 1996, the Company had guaranteed approximately $27 million of project debt. 9. Natural gas pipeline capacity: In connection with serving the Company's gas-burning electric generation facilities, the Company has entered into several contracts for natural gas pipeline capacity and gas supply. These agreements require minimum fixed payments that are currently estimated to be approximately $57 million to $60 million per year from 1997 to 2001. Under these agreements, remaining fixed payments from 2002 through 2014 total approximately $525 million. As part of a rate settlement, the Company was recovering 50 percent of the fixed pipeline capacity payments through its current fuel clause and deferring the recovery of the remaining 50 percent until the Manchester Street repowering project was completed. These deferrals ended in November 1995, at which time the Company had deferred payments of approximately $63 million which will be amortized over 25 years in accordance with rate settlements (see Note B). In connection with managing its fuel supply, the Company uses a portion of this pipeline capacity to sell natural gas. Proceeds from the sale of natural gas and pipeline capacity of $50 million, $71 million, and $55 million, in 1996, 1995, and 1994, respectively, have been passed on to customers through the Company's fuel clause. These proceeds have been reflected as an offset to the related fuel expense in "Fuel for generation" in the Company's statements of income. Natural gas sales decreased in 1996 as a result of the Manchester Street Station entering commercial operation in the second half of 1995. 10. 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. 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. NEES subsidiaries currently have in place an internal environmental audit program and an external waste disposal vendor audit and qualification program intended to enhance compliance with existing federal, state, and local requirements regarding the handling of potentially hazardous products and by-products. The Company has been named as a potentially responsible party (PRP) by either the United States Environmental Protection Agency or the Massachusetts Department of Environmental Protection for six sites at which hazardous waste is alleged to have been disposed. Private parties have also contacted or initiated legal proceedings against the Company regarding hazardous waste cleanup. The Company is currently aware of other sites, and may in the future become aware of additional sites, that it may be held responsible for remediating. Predicting the potential costs to investigate and remediate hazardous waste sites continues to be 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 the Company. Where appropriate, the Company intends to seek recovery from its insurers and from other PRPs, but it is uncertain whether, and to what extent, such efforts will be successful. The Company believes that hazardous waste liabilities for all sites of which it is aware are not material to its financial position. In October 1996, the American Institute of Certified Public Accountants issued new accounting rules for Environmental Remediation Liabilities which become effective in 1997. The Company does not believe these new rules will have a material effect on the Company's financial position or results of operations. 11. Long-term contracts for the purchase of electricity: The Company purchases a portion of its electricity requirements pursuant to long-term contracts with owners of various generating units. These contracts expire in various years from 1997 to 2029. In conjunction with its divesture plan, the Company will endeavor to sell these long-term contracts. Certain of these contracts require the Company to make minimum fixed payments, even when the supplier is unable to deliver power, to cover the Company's proportionate share of the capital and fixed operating costs of these generating units. The fixed portion of payments under these contracts totaled $186 million in 1996, $215 million in 1995, and $190 million in 1994. These contracts, excluding contracts with Yankee Atomic and Connecticut Yankee (see Note D-3), have minimum fixed payment requirements of $155 million in 1997, $150 million in 1998 and 1999, $145 million in 2000 and 2001, and approximately $1.3 billion thereafter. Approximately 92 percent of the payments under these contracts are to the Yankees and Ocean State Power, entities in which the Company or its affiliates hold ownership interests. The Company's other contracts, principally with nonutility generators, require the Company to make payments only if power supply capacity and energy are deliverable from such suppliers. The Company's payments under these contracts amounted to $230 million in 1996, $245 million in 1995, and $210 million in 1994. Note E - Employee Benefits 1. Pension plans: The Company participates with other subsidiaries of NEES in noncontributory, defined-benefit plans covering substantially all employees of the Company. The plans provide pension benefits based on the employee's compensation during the five years prior to retirement. The Company's funding policy is to contribute each year the net periodic pension cost for that year. However, the contribution for any year will not be less than the minimum contribution required by federal law or greater than the maximum tax deductible amount. Net pension cost for 1996, 1995, and 1994 included the following components:
Year Ended December 31, (In Thousands) 1996 1995 1994 - -------------------------------------- ---- ---- ---- Service cost - benefits earned during the period $ 2,769 $2,231 $2,202 Plus (less): Interest cost on projected benefit obligation 6,669 6,406 6,403 Return on plan assets at expected long-term rate (7,204) (6,488) (6,554) Amortization 270 131 557 ------- ------- ------- Net pension cost $ 2,504 $ 2,280 $ 2,608 ======= ======= ======= Actual return on plan assets $12,672 $17,108 $ 608 ======= ======= ======= Year Ended December 31, 1997 1996 1995 1994 - ----------------------- ---- ---- ---- ---- Assumptions used to determine pension cost: Discount rate 7.25% 7.25% 8.25% 7.25% Average rate of increase in future compensation levels 4.13% 4.13% 4.63% 4.35% Expected long-term rate of return on assets 8.50% 8.50% 8.75% 8.75%
The funded status of the plans cannot be presented separately for the Company as the Company participates in the plans with other NEES subsidiaries. The following table sets forth the funded status of the NEES companies' plans at December 31:
Retirement Plans, (In Millions) 1996 1995 ---- ---- Union Non-Union Union Non-Union Employee Employee Employee Employee Plans Plans Plans Plans -------- --------- ------- -------- Benefits earned Actuarial present value of accumulated benefit liability: Vested $298 $342 $293 $343 Non-vested 9 10 8 10 ---- ---- ---- ---- Total $307 $352 $301 $353 ==== ==== ==== ==== Reconciliation of funded status Actuarial present value of projected benefit liability $355 $398 $346 $402 Unrecognized prior service costs (6) (3) (7) (4) SFAS No. 87 transition liability not yet recognized (amortized) - (1) - (1) Net gain (loss) not yet recognized (amortized) 25 15 (1) (23) ---- ---- ---- ---- 374 409 338 374 ---- ---- ---- ---- Pension fund assets at fair value 384 428 349 392 SFAS No. 87 transition asset not yet recognized (amortized) (10) - (11) - ---- ---- ---- ---- 374 428 338 392 ---- ---- ---- ---- Accrued pension/(prepaid) payments recorded on books $ - $(19) $ - $(18)
The plans' funded status at December 31, 1996 and 1995 were calculated using the assumed rates from 1997 and 1996, respectively, and the 1983 Group Annuity Mortality table. Plan assets are composed primarily of corporate equity, debt securities, and cash equivalents. 2. Postretirement Benefit Plans Other Than Pensions (PBOPs): The Company provides health care and life insurance coverage to eligible retired employees. Eligibility is based on certain age and length of service requirements and in some cases retirees must contribute to the cost of their coverage. The total cost of PBOPs for 1996, 1995, and 1994 included the following components:
Year Ended December 31, (In Thousands) 1996 1995 1994 ---- ---- ---- Service cost - benefits earned during the period $ 1,407 $ 1,344 $ 1,628 Plus (less): Interest cost on accumulated benefit obligation 3,580 4,013 3,954 Return on plan assets at expected long-term rate (1,832) (1,374) (1,111) Amortization 1,867 2,079 2,591 ------- ------- ------- Net postretirement benefit cost $ 5,022 $ 6,062 $ 7,062 ======= ======= ======= Actual return on plan assets $ 3,572 $ 4,137 $ 54 1997 1996 1995 1994 ---- ---- ---- ---- Assumptions used to determine postretirement benefit cost: Discount rate 7.25% 7.25% 8.25% 7.25% Expected long-term rate of return on assets 8.25% 8.25% 8.50% 8.50% Health care cost rate - 1994 11.00% Health care cost rate - 1995 to 1999 8.00% 8.00% 8.50% 8.50% Health care cost rate - 2000 to 2004 6.25% 6.25% 8.50% 8.50% Health care cost rate - 2005 and beyond 5.25% 5.25% 6.25% 6.25%
The following table sets forth benefits earned and the plans' funded status:
At December 31, (In Millions) 1996 1995 ---- ---- Accumulated postretirement benefit obligation: Retirees $ 32 $ 30 Fully eligible active plan participants 2 1 Other active plan participants 20 20 ---- ---- Total benefits earned 54 51 Unrecognized transition obligation (41) (43) Unrecognized net gain 13 12 ---- ---- 26 20 ---- ---- Plan assets at fair value 29 23 ---- ---- Prepaid postretirement benefit costs recorded on books $ 3 $ 3 ==== ====
The plans' funded status at December 31, 1996 and 1995 were calculated using the assumed rates in effect for 1997 and 1996, respectively. The assumptions used in the health care cost trends have a significant effect on the amounts reported. Increasing the assumed rates by 1 percent in each year would increase the accumulated postretirement benefit obligation as of December 31, 1996 by approximately $6 million and the net periodic cost for 1996 by approximately $1 million. The Company funds the annual tax-deductible contributions. Plan assets are invested in equity and debt securities and cash equivalents. Note F - Short-term Borrowings and Other Accrued Expenses At December 31, 1996, the Company had $94 million of short-term debt outstanding including $89 million in commercial paper borrowings and $5 million of borrowings from affiliates. NEES and certain subsidiaries, including the Company, with regulatory approval, operate a money pool to more effectively utilize cash resources and to reduce outside short-term borrowings. Short-term borrowing needs are met first by available funds of the money pool participants. Borrowing companies pay interest at a rate designed to approximate the cost of outside short-term borrowings. Companies which invest in the pool share the interest earned on a basis proportionate to their average monthly investment in the money pool. Funds may be withdrawn from or repaid to the pool at any time without prior notice. At December 31, 1996, the Company had lines of credit and standby bond purchase facilities with banks totaling $530 million which are available to provide liquidity support for commercial paper borrowings and for $372 million of the Company's outstanding variable rate mortgage bonds in tax-exempt commercial paper mode (see Note H) and for other corporate purposes. There were no borrowings under these lines of credit at December 31, 1996. Fees are paid on the lines and facilities in lieu of compensating balances. The weighted average rate on outstanding short-term borrowings was 5.9 percent at December 31, 1996. The fair value of the Company's short-term debt equals carrying value. The components of other accrued expenses are as follows:
At December 31, (In Thousands) 1996 1995 ---- ---- Accrued wages and benefits $ 7,190 $ 6,258 Capital lease obligations due within one year 4,328 4,323 Rate adjustment mechanisms 4,790 Other 269 253 ------- ------- $16,577 $10,834 ======= =======
Note G - Cumulative Preferred Stock
A summary of cumulative preferred stock at December 31, 1996 and 1995 is as follows (in thousands of dollars except for share data): Shares Authorized Dividends Call and Outstanding Amount Declared Price --------------- ------ ------------ ----- 1996 1995 1996 1995 1996 1995 ---- ---- ---- ---- ---- ---- ----- $100 Par value 6.00% Series 75,020 75,020$ 7,502 $ 7,502 $ 451 $ 451 (a) 4.56% Series 100,000 100,000 10,000 10,000 456 456$104.08 4.60% Series 80,140 80,140 8,014 8,014 368 368 101.00 4.64% Series 41,500 100,000 4,150 10,000 328 464 102.56 6.08% Series 100,000 100,000 10,000 10,000 608 608 102.34 7.24% Series - 150,000 - 15,000 363 1,086 103.06 ------- -------------- ------- ------ ------ Total 396,660 605,160$39,666 $60,516 $2,574 $3,433 (a) Noncallable.
The annual dividend requirement for total cumulative preferred stock was $2,075,000 for 1996 and $3,433,000 for 1995. In August 1996, the Company repurchased $6 million of its 4.64 percent series of cumulative preferred stock. In May 1996, the Company redeemed all ($15 million) of its 7.24 percent series of cumulative preferred stock. Note H - Long-term Debt A summary of long-term debt is as follows:
At December 31, (In Thousands) Series Rate % Maturity 1996 1995 - ---------------------------------------------------------------------------- General and Refunding Mortgage Bonds: W(93-3) 5.12 February 2, 1996 $ 5,000 W(93-8) 5.06 February 5, 1996 5,000 Y(94-3) 8.10 December 22, 1997 $ 3,000 3,000 W(93-2) 6.17 February 2, 1998 4,300 4,300 W(93-4) 6.14 February 2, 1998 1,300 1,300 W(93-5) 6.17 February 3, 1998 5,000 5,000 W(93-7) 6.10 February 4, 1998 10,000 10,000 W(93-9) 6.04 February 4, 1998 29,400 29,400 Y(94-4) 8.28 December 21, 1999 10,000 10,000 W(93-6) 6.58 February 10, 2000 5,000 5,000 Y(95-1) 7.94 February 14, 2000 5,000 5,000 Y(95-2) 7.93 February 14, 2000 10,000 10,000 Y(95-3) 7.40 March 21, 2000 10,000 10,000 Y(95-4) 6.69 June 5, 2000 25,000 25,000 W(93-1) 7.00 February 3, 2003 25,000 25,000 Y(94-2) 8.33 November 8, 2004 10,000 10,000 K 7.25 October 15, 2015 38,500 38,500 L 7.80 April 1, 2016 29,850 X variable March 1, 2018 79,250 79,250 R variable November 1, 2020 135,850 117,850 S variable November 1, 2020 50,600 20,750 T variable November 1, 2020 18,000 U 8.00 August 1, 2022 170,000 170,000 V variable October 1, 2022 106,150 106,150 Y(94-1) 8.53 September 20, 2024 5,000 5,000 Unamortized discounts (2,344) (2,910) -------- -------- Total long-term debt 736,006 745,440 ======== ======== Long-term debt due in one year (3,000) (10,000) -------- -------- $733,006 $735,440 ======== ========
Substantially all of the properties and franchises of the Company are subject to the lien of the mortgage indentures under which the general and refunding mortgage bonds have been issued. The Company will make cash payments of $3 million in 1997, $50 million in 1998, $10 million in 1999, and $55 million in 2000 to retire maturing mortgage bonds. There are no cash payments required in 2001. The terms of $372 million of variable rate pollution control revenue bonds collateralized by the Company's mortgage bonds at December 31, 1996 require the Company to reacquire the bonds under certain limited circumstances. The Company has approximately $740 million of mortgage bonds outstanding. The bond indenture restricts the sale of the trust property in its entirety or substantially in its entirety. The proposed sale of the Company's generating business would likely require that the Company either amend the bond indenture or defease the bonds in connection with the proposed sale. Any defeasance of bonds would be by the deposit of cash representing principal and interest to the maturity date or interest, principal, and general redemption premium to an earlier redemption date. At December 31, 1996, interest rates on the Company's variable rate bonds ranged from 2.30 percent to 4.80 percent. At December 31, 1996, the Company's long-term debt had a carrying value of $736,000,000 and had a fair value of approximately $753,000,000. The fair value of debt that reprices frequently at market rates approximates carrying value. For all other debt, the fair market value of the Company's long-term debt was estimated based on the quoted prices for similar issues or on the current rates offered to the Company for debt of the same remaining maturity. Note I - Restrictions on Retained Earnings Available for Dividends on Common Stock Pursuant to the provisions of the Articles of Organization and the By-Laws relating to the Dividend Series Preferred Stock, certain restrictions on payment of dividends on common stock would come into effect if the "junior stock equity" was, or by reason of payment of such dividends became, less than 25 percent of "Total capitalization." However, the junior stock equity at December 31, 1996 was 54 percent of total capitalization, including long-term debt due in one year, and, accordingly, none of the Company's retained earnings at December 31, 1996 were restricted as to dividends on common stock under the foregoing provisions. Under restrictions contained in the indentures relating to general and refunding mortgage bonds (Series K), none of the Company's retained earnings at December 31, 1996 were restricted as to dividends on common stock. However, a portion of the Company's retained earnings (less than $25 million) may be restricted due to regulatory requirements related to hydroelectric licensed projects. Note J - Supplementary Income Statement Information Advertising expenses, expenditures for research and development, and rents were not material and there were no royalties paid in 1996, 1995, or 1994. Taxes, other than income taxes, charged to operating expenses are set forth by classes as follows:
Year Ended December 31, (In Thousands) 1996 1995 1994 ---- ---- ---- Municipal property taxes $58,942 $49,807 $46,506 Federal and state payroll and other taxes 7,474 8,909 7,894 ------- ------- ------- $66,416 $58,716 $54,400
New England Power Service Company, an affiliated service company operating pursuant to the provisions of Section 13 of the Public Utility Holding Company Act of 1935, furnished services to the Company at the cost of such services. These costs amounted to $85,124,000, $106,411,000, and $103,961,000, including capitalized construction costs of $19,412,000, $24,671,000, and $22,396,000, for each of the years 1996, 1995, and 1994, respectively. New England Power Company Operating Statistics (Unaudited)
Year Ended December 31, 1996 1995 1994 1993 1992 ---- ---- ---- ---- ---- Sources of Energy (Thousands of kWh) Net generation - thermal 14,445,96911,547,85610,971,31911,621,03812,087,775 Net generation - conventional hydro 1,818,670 1,257,533 1,352,600 1,253,925 1,212,155 Generation - pumped storage 514,400 519,931 525,653 548,358 530,796 Net generation - nuclear 1,280,119 1,812,468 1,767,959 1,696,677 1,592,340 Nuclear entitlements 2,015,104 1,278,598 2,535,534 2,196,998 2,214,976 Purchased energy from nonaffiliates (B) 6,957,693 8,857,842 8,674,191 7,800,975 7,287,856 Energy for pumping (710,155) (716,279) (723,352) (750,784) (738,364) -------------------------------------------------- Total generated and purchased 26,321,80024,557,94925,103,90424,367,18724,187,534 Losses, company use, etc. (507,536) (690,626) (635,695) (548,228) (632,850) -------------------------------------------------- Total sources of energy 25,814,26423,867,32324,468,20923,818,95923,554,684 Sales of Energy (Thousands of kWh) Resale: Affiliated companies 22,531,78822,338,30122,182,76121,858,49121,497,993 Less - generation by affiliated Company (A) (329,883) (64,035) (5,781) (4,506) (83,753) -------------------------------------------------- Net sales to affiliated companies 22,201,90522,274,26622,176,98021,853,98521,414,240 Other utilities (B) 2,802,974 947,537 1,731,225 1,528,686 1,705,591 Municipals 795,974 633,970 551,866 426,525 415,659 -------------------------------------------------- Total sales for resale 25,800,85323,855,77324,460,07123,809,19623,535,490 Ultimate customers 13,411 11,550 8,138 9,763 19,194 -------------------------------------------------- Total sales of energy 25,814,26423,867,32324,468,20923,818,95923,554,684 Operating Revenue (In Thousands) Revenue from electric sales Resale: Affiliated companies $1,480,460$1,498,848$1,448,503$1,459,619$1,450,831 Less - G and T credits (A) (59,956) (43,532) (32,346) (26,001) (38,697) -------------------------------------------------- Net sales to affiliated companies 1,420,504 1,455,316 1,416,157 1,433,618 1,412,134 Other utilities (B) 95,249 41,193 56,306 52,695 55,156 Municipals 43,699 37,036 32,055 27,574 26,980 -------------------------------------------------- Total revenue from sales for resale 1,559,452 1,533,545 1,504,518 1,513,887 1,494,270 Ultimate customers 1,065 945 606 752 1,399 ---------------------------------------- --------- Total revenue from electric sales 1,560,517 1,534,490 1,505,124 1,514,639 1,495,669 Other operating revenue 39,792 36,049 35,633 34,375 35,206 -------------------------------------------------- Total operating revenue $1,600,309$1,570,539$1,540,757$1,549,014$1,530,875 Annual Maximum Demand (kW - one hour peak) 4,091,000 4,381,000 4,385,000 4,081,000 3,964,000 (A) The generation and transmission facilities of affiliates are operated as an integrated part of the Company's power supply and the affiliates receive generation and transmission (G and T) credits against their power bills for costs of facilities so integrated. (B) Includes transactions with the New England Power Pool.
New England Power Company Selected Financial Information
Year Ended December 31, (In Millions) 1996 1995 1994 1993 1992 ---- ---- ---- ---- ---- Operating revenue: Electric sales (excluding fuel cost recovery) $ 918 $ 941 $ 942 $ 939 $ 907 Fuel cost recovery 642 594 563 576 589 Other 40 36 36 34 35 ------ ------ ------ ------ ------ Total operating revenue $1,600 $1,571 $1,541 $1,549 $1,531 Net income $ 152 $ 151 $ 149 $ 141 $ 134 Total assets $2,648 $2,648 $2,613 $2,441 $2,387 Capitalization: Common equity $ 906 $ 889 $ 877 $ 850 $ 825 Cumulative preferred stock 40 61 61 61 86 Long-term debt 733 735 695 667 666 ------ ------ ------ ------ ------ Total capitalization $1,679 $1,685 $1,633 $1,578 $1,577 Preferred dividends declared $ 3 $ 3 $ 3 $ 5 $ 6 Common dividends declared $ 134 $ 135 $ 119 $ 111 $ 100
Selected Quarterly Financial Information (Unaudited)
First Second Third Fourth (In Thousands) Quarter Quarter Quarter Quarter ------- ------- ------- ------- 1996 Operating revenue $400,460 $375,001 $431,420 $393,428 Operating income $ 55,277 $ 39,628 $ 63,782 $ 45,074 Net income $ 40,973 $ 26,768 $ 52,559 $ 32,183 1995 Operating revenue $391,118 $378,177 $421,935 $379,309 Operating income $ 40,089 $ 33,454 $ 69,669 $ 42,201 Net income $ 30,982 $ 27,689 $ 61,684 $ 31,072
Per share data is not relevant because the Company's common stock is wholly-owned by New England Electric System. A copy of New England Power Company's Annual Report on Form 10-K to the Securities and Exchange Commission for the year ended December 31, 1996 will be available on or about April 1, 1997, without charge, upon written request to New England Power Company, Shareholder Services Department, 25 Research Drive, Westborough, Massachusetts 01582. EX-21 26 SUBSIDIARY LIST EXHIBIT (21) Subsidiaries of New England Power Company -----------------------------------------
State of Incorporation or Name of Company Organization --------------- ------------------------- Connecticut Yankee Atomic Connecticut Power Company Maine Yankee Atomic Maine Power Company Vermont Yankee Nuclear Vermont Power Corporation Yankee Atomic Electric Company Massachusetts
EX-24 27 NEP POWER OF ATTORNEY EXHIBIT (24) POWER OF ATTORNEY ----------------- Each of the undersigned directors of New England Power Company (the "Company"), individually as a director of the Company, hereby constitutes and appoints John G. Cochrane, Patricia M. Needham, and Robert K. Wulff, individually, as attorney-in-fact to execute on behalf of the undersigned the Company's annual report on Form 10-K for the year ended December 31, 1996, to be filed with the Securities and Exchange Commission, and to execute any appropriate amendment or amendments thereto as may be required by law. Dated this 18th day of March, 1997. s/Joan T. Bok s/Alfred D. Houston _________________________ _________________________ Joan T. Bok Alfred D. Houston s/Cheryl A. LaFleur s/John W. Rowe _________________________ _________________________ Cheryl A. LaFleur John W. Rowe s/Jeffrey D. Tranen _________________________ Jeffrey D. Tranen EX-27 28 NEP FDS
UT THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE SHEET AND RELATED STATEMENTS OF INCOME, RETAINED EARNINGS AND CASH FLOWS OF NEW ENGLAND POWER COMPANY, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000071337 New England Power Company 1,000 DEC-31-1996 DEC-31-1996 12-MOS PER-BOOK 1,910,293 78,493 333,042 325,887 0 2,647,715 128,998 376,597 400,610 906,205 0 39,666 733,006 5,275 0 88,325 3,000 0 0 0 872,238 2,647,715 1,600,309 91,894 1,304,654 1,396,548 203,761 3,308 207,069 54,586 152,483 2,574 149,909 134,158 45,111 272,949 0 0 Total deferred charges includes other assets. Per share data is not relevant because the Company's common stock is wholly-owned by New England Electric System. EX-12 29 MECO COMPUTATION OF RATIOS
MASSACHUSETTS ELECTRIC COMPANY Computation of Ratio of Earnings to Fixed Charges (SEC Coverage) (Unaudited)
Years Ended December 31, ------------------------------------------------------------- 1996 1995 1994 1993 1992 ---- ---- ---- ---- ---- (In Thousands) Net Income $37,926 $29,101 $34,726 $23,779 $34,905 - ---------- Add income taxes and fixed charges - ---------------------------------- Current federal income taxes 25,867 9,437 (6,762) 5,606 3,977 Deferred federal income taxes (6,052) 6,156 24,932 3,430 13,451 Investment tax credits - net (1,118) (1,132) (1,228) (1,228) (1,228) Massachusetts franchise tax 4,479 3,935 4,681 3,348 3,858 Interest on long-term debt 27,089 25,901 20,967 23,403 21,910 Interest on short-term debt and other 6,473 6,784 6,366 3,638 3,657 ------- ------- ------- ------- ------- Net earnings available for fixed charges $94,664 $80,182 $83,682 $61,976 $80,530 ------- ------- ------- ------- ------- Fixed charges: Interest on long-term debt $27,089 $25,901 $20,967 $23,403 $21,910 Interest on short-term debt and other 6,473 6,784 6,366 3,638 3,657 ------- ------- ------- ------- ------- Total fixed charges $33,562 $32,685 $27,333 $27,041 $25,567 ======= ======= ======= ======= ======= Ratio of earnings to fixed charges 2.82 2.45 3.06 2.29 3.15 - ----------------------------------
EX-13 30 MECO ANNUAL REPORT Annual Report 1996 Massachusetts Electric Company A Subsidiary of New England Electric System [LOGO] Massachusetts Electric A NEES Company Massachusetts Electric Company 25 Research Drive, Westborough, Massachusetts 01582 Directors (As of January 1, 1997) Urville J. Beaumont Treasurer and Director of Beaumont and Campbell, P.A. (Attorneys), Salem, New Hampshire Joan T. Bok Chairman of the Board of New England Electric System Sally L. Collins Director of Workplace Health Services, Greenfield, Massachusetts Dr. Kalyan K. Ghosh President of Worcester State College Charles B. Housen Chairman and President of Erving Industries, Erving, Massachusetts Patricia McGovern Director of Goulston and Storrs, P.C., Boston, Massachusetts John F. Reilly, Jr. President and Chief Executive Officer of Fred C. Church, Inc., Lowell, Massachusetts Lawrence J. Reilly President of the Company and certain affiliates John W. Rowe President and Chief Executive Officer of New England Electric System Richard P. Sergel Chairman of the Company and Senior Vice President of New England Electric System Roslyn M. Watson President of Watson Ventures, Boston, Massachusetts Officers (As of January 1, 1997) Richard P. Sergel Chairman of the Company and Senior Vice President of New England Electric System Lawrence J. Reilly President and Chief Executive Officer John C. Amoroso Vice President Eric P. Cody Vice President Charles H. Moser Vice President Lydia M. Pastuszek Vice President Anthony C. Pini Vice President Christopher E. Root Vice President Nancy H. Sala Vice President Dennis E. Snay Vice President Michael E. Jesanis Treasurer of the Company and Vice President and Treasurer of New England Electric System Thomas G. Robinson Assistant Clerk and General Counsel of the Company Robert King Wulff Clerk of the Company and of certain affiliates Howard W. McDowell Controller and Assistant Treasurer of the Company, Treasurer of certain affiliates, and Controller of certain affiliates Transfer Agent, Dividend Paying Agent, and Registrar of Preferred Stock State Street Bank and Trust Company, Boston, Massachusetts This report is not to be considered an offer to sell or buy or solicitation of an offer to sell or buy any security. Massachusetts Electric Company Massachusetts Electric Company is a wholly-owned subsidiary of New England Electric System operating in Massachusetts. The Company's business is the distribution and sale of electricity at retail. Electric service is provided to approximately 960,000 customers in 146 cities and towns having a population of approximately 2,160,000 (1990 Census). The Company's service area covers approximately 43 percent of Massachusetts. The cities and towns served by the Company include the highly diversified commercial and industrial cities of Worcester, Lowell, and Quincy, the Interstate 495 high technology belt, suburban communities, and many rural towns. The principal industries served include computer manufacturing and related businesses, electrical and industrial machinery, plastic goods, fabricated metals and paper, and chemical products. In addition, a broad range of professional, banking, medical, and educational institutions is served. In February 1997, a settlement agreement among the Company and two affiliates, the Massachusetts Attorney General, the Massachusetts Division of Energy Resources, and 12 other parties was approved by the Massachusetts Department of Public Utilities. This settlement provides for retail choice of power supplier by Massachusetts customers beginning January 1, 1998 (see "Industry Restructuring" section of Financial Review). The properties of the Company consist principally of substations and distribution lines interconnected with transmission and other facilities of New England Power Company (NEP), a wholesale generating affiliate. The Company buys its electric energy requirements from NEP under a contract which obligates NEP to furnish such requirements at its standard resale rate. In accordance with the settlement, NEP's wholesale contract with the Company has been amended to allow for early termination of all-requirements service. The amendment, which is subject to regulatory approval, provides that upon early termination, the Company's share of the cost of NEP's above- market generation commitments will be recovered through a contract termination charge. This charge will, in turn, be paid by customers that use the Company's distribution facilities. Report of Independent Accountants Massachusetts Electric Company, Westborough, Massachusetts: We have audited the accompanying balance sheets of Massachusetts Electric Company (the Company), a wholly-owned subsidiary of New England Electric System, as of December 31, 1996 and 1995 and the related statements of income, retained earnings, and cash flows for each of the three years in the period ended December 31, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 1996 and 1995, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1996 in conformity with generally accepted accounting principles. Boston, Massachusetts COOPERS & LYBRAND L.L.P. February 28, 1997 Massachusetts Electric Company Financial Review Industry Restructuring For the past several years, the electric utility business has been subjected to rapidly increasing competitive pressures stemming from a number of trends, including the presence of surplus generating capacity, a disparity in electric rates among regions of the country, improvements in generation efficiency, increasing demand for customer choice, and new regulations and legislation intended to foster competition. In the recent past, this competition was most prominent in the bulk power market, in which nonutility generators have significantly increased their market share. Despite increased competition in the bulk power market, competition in the retail market has been limited as electric utilities have maintained exclusive franchises for the retail sale of electricity in specified service territories. In states across the country, including Massachusetts, there have been proposals to allow retail customers to choose their electricity supplier, with incumbent utilities required to deliver that electricity over their transmission and distribution systems (also known as "retail wheeling"). When electricity customers are allowed to choose their electricity supplier, utilities across the country will face the risk that market prices may not be sufficient to recover the costs of the commitments incurred to supply customers under a regulated structure. The amounts by which costs exceed market prices are commonly referred to as "stranded costs." The Company currently purchases electricity on behalf of its customers under a wholesale all-requirements contract with the Company's wholesale generating affiliate, New England Power Company (NEP). As described below, a settlement agreement was reached in Massachusetts which, when all regulatory approvals are in place, would allow recovery of NEP's above-market commitments to retail customers in Massachusetts, which make up 73 percent of NEP's all-requirements sales. On February 26, 1997, the Massachusetts Department of Public Utilities (MDPU) approved a settlement among the Company, NEP, Nantucket Electric Company (Nantucket), a distribution affiliate, the Massachusetts Attorney General, the Massachusetts Division of Energy Resources, and 12 other parties, which provides for retail choice by Massachusetts customers and the recovery of NEP's above-market commitments to serve those customers. The settlement provides for the commencement of retail choice on January 1, 1998 (contingent on choice being available to the customers of all Massachusetts investor-owned utilities). Customers who do not choose an alternative supplier would receive "standard offer" service, which would be priced to guarantee customers at least a 10 percent savings in 1998 compared with September 1996 bundled electricity prices. In accordance with the settlement, NEP's wholesale contract with the Company has been amended to allow for early termination of all-requirements service. The amendment, which is subject to regulatory approval, provides that upon early termination, the Company's share of the cost of NEP's above-market generation commitments (estimated at approximately $3 billion on a present- value basis) will be recovered through a contract termination charge. This charge will, in turn, be paid by customers that use the Company's distribution facilities. Those commitments consist of (i) the above-market portion of generating plant commitments, (ii) regulatory assets, (iii) the above-market portion of purchased power contracts, and (iv) the operating costs of nuclear plants that cannot be avoided by shutting down the plants, including nuclear decommissioning costs. The above-market portion of costs associated with generating plants and regulatory assets would be recovered over 12 years. The above-market component of purchased power contracts and nuclear decommissioning costs would be recovered as incurred over the life of those obligations, a period expected to extend beyond 12 years. Initially, the transition access charge would be set at 2.8 cents per kilowatt-hour (kWh) through December 31, 2000, and is expected to decline thereafter. The initial transition access charge assumes that the generating plants have no market value. To measure their actual market value, the New England Electric System (NEES) companies agreed to sell their generating business. The net proceeds from the sale will be used to reduce the transition access charge. The settlement also establishes performance-based rates for the Company. Under the settlement, the Company's nonfuel rates (and NEP's wholesale rates to the Company) would be frozen at current levels until the earlier of the commencement of retail choice or January 1, 2001. Upon commencement of retail choice, the Company's distribution rates would be set at a level approximately $45 million above the level embedded in its current bundled rates, with such rates then frozen through the year 2000. This increase reflects changes to the distribution cost of service that include an $11 million increase in annual depreciation expense, a $3 million annual contribution to a storm fund, and increased amortization of unfunded deferred income taxes of $1 million over six years. The Company's return on equity would be subject to a floor of 6 percent and a ceiling of 11 percent, effective upon commencement of retail choice. Earnings over the ceiling would be shared equally between customers and shareholders up to a maximum of 12.5 percent. This sharing results in an effective cap on shareholder's return on equity of 11.75 percent. To the extent that earnings fall below the floor, the Company would be authorized to surcharge customers for the shortfall. The settlement would also eliminate the Company's purchased power cost adjustment (PPCA) mechanism as of July 31, 1996. This mechanism allows the Company to recover purchased power rate changes from NEP and the effects of NEP's seasonal rates. The settlement also stipulates that the Company's net $18 million PPCA refund liability balance at July 31, 1996 will be used to prefund a storm contingency fund with $3 million, while the remainder will be used to offset regulatory assets for hazardous waste costs. The settlement is subject to approval by the Federal Energy Regulatory Commission (FERC). The FERC accepted the filing to become effective February 1, 1997, subject to refund, and ordered hearings. The Utility Workers Union of America and the Massachusetts Alliance of Utility Unions, who intervened in the MDPU proceeding on the settlement, have indicated they intend to appeal the MDPU's order approving the settlement to the Massachusetts Supreme Judicial Court. If an appeal is brought, the NEES companies will oppose it. Several bills are pending before the Massachusetts legislature on electric industry restructuring, including comprehensive legislation introduced by Governor William F. Weld and by the legislature's Joint Committee on Electric Restructuring. These bills cover many of the topics addressed in the settlement and could impact the implementation of the settlement. A number of proposals for federal legislation related to industry restructuring have been brought forward for consideration by the current Congress. The scope and aim of these vary widely; however, the NEES companies and others will argue that state settlements should be respected. The Company cannot predict what federal legislation, if any, may be enacted. Risk Factors The major risk factors affecting the Company relate to the possibility of adverse regulatory or judicial decisions or legislation which limits the level of revenues the Company is allowed to charge for its services. While substantial progress has been made in resolving the uncertainty regarding recovery by the Company of stranded costs billed to it by NEP, significant risks remain. These risks are primarily attributable to the potential that ultimately the settlement, referred to above, will not be implemented in the manner anticipated by the Company and/or the possibility of state or federal legislation which would increase the risks to the Company above those contained in the settlement. Accounting Implications Historically, electric utility rates have been based on a utility's costs. As a result, electric utilities are subject to certain accounting standards that are not applicable to other business enterprises in general. Financial Accounting Standards No. 71, Accounting for the Effects of Certain Types of Regulation (FAS 71), requires regulated entities, in appropriate circumstances, to establish regulatory assets, and thereby defer the income statement impact of certain costs expected to be recovered in future rates. The Company has recorded approximately $16 million in net regulatory assets in compliance with FAS 71. The Company believes that the continuing rate- making policies and practices of the MDPU and the terms of the Massachusetts settlement will enable the Company to recover both its specific costs of providing ongoing distribution services and stranded costs billed to it by NEP. The Company believes that these factors will allow it to continue to apply FAS 71. In the event that future circumstances should cause the application of FAS 71 to be discontinued, a noncash write-off of previously established regulatory assets and liabilities would be required. Overview of Financial Results Net income for 1996 increased $9 million compared with 1995, reflecting a 1995 rate increase, growth in sales, and decreased demand charges from NEP, partially offset by increased operation and maintenance expense and reduced revenues due to rate adjustment mechanisms. Net income for 1995 decreased $6 million compared with 1994. Although the Company experienced growth in sales and reduced operation and maintenance costs, such increases in income were more than offset by increased purchased power costs, increased interest expense, and a decrease in revenue due to the operation of the Company's PPCA mechanism. Operating Revenue The following table summarizes the changes in operating revenue: Increase (Decrease) in Operating Revenue 1996 1995 ---- ---- (In Millions) Fuel recovery $ 13 $ 38 PPCA mechanism (6) (11) Rate changes/service extension discount (SEDs) 23 26 Unbilled revenues recognized under rate agreement - (32) Demand-side management (DSM) recovery (5) (8) Sales and deliveries growth and other 8 11 --- ---- $33 $ 24 === ==== In 1996, kWh deliveries to ultimate customers increased 1.6 percent while total kWh sales increased 1.0 percent compared with a 0.9 percent increase in 1995. The difference is the result of pilot programs in Massachusetts, whereby the Company delivered power provided by other companies. Peak demand billing levels to commercial and industrial customers decreased 0.8 percent in 1996 compared with a 2.0 percent increase in 1995. The increase in kWh deliveries in 1996 reflects the effects of an improving economy partially offset by the effects of milder weather in the last half of the year. The Company's rates contain a fuel clause and a PPCA provision. These mechanisms are designed to allow the Company to pass on to its customers changes in purchased energy costs resulting from rate increases or decreases by NEP. The PPCA mechanism is also designed to pass on to customers the effects of NEP's seasonal rates. The provisions of the Massachusetts settlement would have caused the PPCA mechanism for the Company to end, effective July 31, 1996. However, since the Massachusetts settlement had not been approved at the end of 1996, the Company accrued refund provisions of $9 million related to assumed operation of the PPCA provision during the last five months of 1996. Rate changes reflect the November 1994 expiration of a $26 million temporary rate decrease, as well as a $31 million general rate increase that went into effect on October 1, 1995. Unbilled revenues recognized under the Company's rate agreement reflect the Company's completion of the recognition of $35 million of unbilled revenues over a 13-month period that ended in December 1994 in accordance with an October 1993 rate agreement. The Company has received approval from the MDPU to recover DSM program expenditures in rates on a current basis. These expenditures were $48 million, $53 million, and $59 million in 1996, 1995, and 1994, respectively. Since 1990, the Company has been allowed to earn incentives based on the results of its DSM programs. The Company recorded before-tax incentives of $5.7 million, $5.1 million, and $7.1 million in 1996, 1995, and 1994, respectively. Operating Expenses The following table summarizes the changes in operating expenses: Increase (Decrease) in Operating Expenses 1996 1995 ---- ---- (In Millions) Purchased electric energy: Fuel costs $13 $38 SED reimbursements - (9) Purchases and demand charges from NEP (6) 10 Other operation and maintenance: DSM (5) (6) Other 12 (9) Depreciation 3 2 Taxes 6 (1) --- --- $23 $25 === === The increase in fuel costs from NEP in 1996 reflects increased purchases as well as increased gas pipeline demand charges being recovered by NEP through its fuel adjustment clause in connection with NEP's Manchester Street Station entering service in the second half of 1995. The increase in fuel costs in 1995 reflects decreased nuclear generation due to overhauls and decreased hydro production resulting from low water levels. Other operation and maintenance expense increased in 1996 after a decline in 1995. The decline in 1995 had primarily been in distribution system related costs, however, the Company experienced an increase in these costs in 1996. The increase in 1996 also reflects increased customer service expenses, in part, related to the start-up of a new customer service center. In both 1995 and 1996, the Company also experienced increased general and administrative expenses including increased postretirement benefits expenses other than pensions (PBOPs) commensurate with additional amounts being recovered from customers. The Company is recovering deferred PBOP costs over five years. In the fourth quarter of 1996, the Company incurred approximately $8 million of costs related to a severe winter storm. The Massachusetts settlement provides for the recovery of the costs associated with major storms; however, its application to the 1996 storm is subject to clarification by the MDPU. Because the Massachusetts settlement had not been approved as of December 31, 1996, the Company deferred the 1996 storm costs based upon long-standing regulatory practice allowing the recovery over five years of costs of major storms. The changes in taxes in 1996 and 1995 are primarily due to changes in taxable income levels. The Company also experienced a sizeable increase in municipal property taxes in 1995 and a lesser increase in 1996. Hazardous Waste The electric utility industry typically utilizes and/or generates in its operations a range of potentially hazardous products and by-products. The most prevalent types of hazardous waste sites with which the Company has been associated are manufactured gas locations. The Company is aware of approximately 35 such manufactured gas locations in Massachusetts, including eight of the 19 locations for which the Company has been identified by either federal or state environmental regulatory agencies as a potentially responsible party. In 1993, the MDPU approved a settlement agreement that provides for rate recovery of remediation costs of former manufactured gas sites and certain other hazardous waste sites in Massachusetts. A more detailed discussion of this settlement agreement and of potential hazardous waste liabilities is contained in Note D-2 of the Notes to the Financial Statements. Predicting the potential costs to investigate and remediate hazardous waste sites continues to be difficult. At December 31, 1996, the Company had total reserves of $38 million and a related regulatory asset of $15 million. The Company believes that hazardous waste liabilities for all sites of which it is aware, and which are not covered by a rate agreement, are not material to its financial position. 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. In October 1996, the National Research Council of the National Academy of Sciences released a report stating no conclusive and consistent evidence demonstrates that exposures to residential EMF produce adverse health effects. It is impossible to predict the ultimate impact on the Company 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. 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 the impact on the Company would be if this cause of action is recognized in Massachusetts and in contexts other than condemnation cases. Utility Plant Expenditures and Financing Cash expenditures for utility plant totaled $94 million in 1996. The funds necessary for utility plant expenditures during 1996 were primarily provided by net cash from operating activities, after the payment of dividends and long-term debt issuances. Cash expenditures for utility plant for 1997 are estimated to be approximately $95 million. Internally generated funds are expected to fully meet capital expenditures in 1997. In 1996, the Company issued $20 million of first mortgage bonds, bearing an interest rate of 6.82 percent. In July 1996, Nantucket, issued $28 million of tax-exempt long-term debt at rates ranging from 4.10 percent to 6.75 percent to fund construction of an undersea cable. The Company guaranteed the debt on behalf of Nantucket. The Company plans to issue a net $20 million of long-term debt in 1997 to fund capital expenditures. At December 31, 1996, the Company had $44 million of short-term debt outstanding including $39 million of commercial paper borrowings and $5 million of borrowings from affiliates. As of December 31, 1996, the Company had lines of credit with banks totaling $90 million which are available to provide liquidity support for commercial paper borrowings and other corporate purposes. There were no borrowings under these lines of credit at December 31, 1996. Massachusetts Electric Company Statements of Income
Year Ended December 31, (In Thousands) 1996 1995 1994 ---------- ---------- ---------- Operating revenue $1,538,537 $1,505,676 $1,482,070 ---------- ---------- ---------- Operating expenses: Purchased electric energy, principally from New England Power Company, an affiliate 1,120,709 1,113,673 1,074,402 Other operation 211,663 206,660 215,794 Maintenance 31,102 29,525 35,502 Depreciation 47,357 44,829 42,775 Taxes, other than income taxes 30,559 30,022 28,664 Income taxes 25,186 19,297 22,265 ---------- ---------- ---------- Total operating expenses 1,466,576 1,444,006 1,419,402 ---------- ---------- ---------- Operating income 71,961 61,670 62,668 Other income (expense), net (1,213) (541) (995) ---------- ---------- ---------- Operating and other income 70,748 61,129 61,673 ---------- ---------- ---------- Interest: Interest on long-term debt 27,089 25,901 20,967 Other interest 6,473 6,784 6,366 Allowance for borrowed funds used during construction - credit (740) (657) (386) ---------- ---------- ---------- Total interest 32,822 32,028 26,947 ---------- ---------- ---------- Net income $ 37,926 $ 29,101 $ 34,726 ========== ========== ========== Statements of Retained Earnings Year Ended December 31, (In Thousands) 1996 1995 1994 -------- -------- -------- Retained earnings at beginning of year $150,308 $136,911 $135,276 Net income 37,926 29,101 34,726 Dividends declared on cumulative preferred stock (3,114) (3,114) (3,114) Dividends declared on common stock, $8.00, $5.25, and $12.50 per share, respectively (19,184) (12,590) (29,977) -------- -------- -------- Retained earnings at end of year $165,936 $150,308 $136,911 ======== ======== ======== The accompanying notes are an integral part of these financial statements.
Massachusetts Electric Company Balance Sheets
At December 31, (In Thousands) 1996 1995 Assets ---------- ---------- Utility plant, at original cost $1,509,896 $1,420,069 Less accumulated provisions for depreciation 430,585 399,711 ---------- ---------- 1,079,311 1,020,358 Construction work in progress 9,119 21,118 ---------- ---------- Net utility plant 1,088,430 1,041,476 ---------- ---------- Current assets: Cash 2,356 1,840 Accounts receivable: From sales of electric energy 165,866 160,795 Other (including $1,605 and $1,776 from affiliates) 2,600 3,527 Less reserves for doubtful accounts 13,146 12,544 ---------- ---------- 155,320 151,778 Unbilled revenues (Note A-3) 43,390 49,800 Materials and supplies, at average cost 8,820 10,602 Prepaid and other current assets 25,923 22,514 ---------- ---------- Total current assets 235,809 236,534 ---------- ---------- Deferred charges and other assets (Note B) 66,019 65,090 ---------- ---------- $1,390,258 $1,343,100 ========== ========== Capitalization and Liabilities Capitalization: Common stock, par value $25 per share, authorized and outstanding 2,398,111 shares $ 59,953 $ 59,953 Premiums on capital stocks 45,862 45,862 Other paid-in capital 155,310 155,310 Retained earnings 165,936 150,308 ---------- ---------- Total common equity 427,061 411,433 Cumulative preferred stock (Note G) 50,000 50,000 Long-term debt 343,321 353,267 ---------- ---------- Total capitalization 820,382 814,700 ---------- ---------- Current liabilities: Long-term debt due in one year 30,000 Short-term debt (including $5,275 and $1,000 to affiliates) 43,775 55,450 Accounts payable (including $157,603 and $165,515 to affiliates) 178,263 181,943 Accrued liabilities: Taxes 961 7,371 Interest 9,635 9,502 Other accrued expenses (Note F) 54,833 17,136 Customer deposits 4,308 4,633 Dividends payable 7,973 1,977 ---------- ---------- Total current liabilities 329,748 278,012 ---------- ---------- Deferred federal and state income taxes 177,778 184,575 Unamortized investment tax credits 16,566 17,684 Other reserves and deferred credits 45,784 48,129 Commitments and contingencies (Note D) ---------- ---------- $1,390,258 $1,343,100 ========== ========== The accompanying notes are an integral part of these financial statements.
Massachusetts Electric Company Statements of Cash Flows
Year Ended December 31, (In Thousands) 1996 1995 1994 Operating activities: -------- -------- -------- Net income $ 37,926 $ 29,101 $ 34,726 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 47,357 44,829 42,775 Deferred income taxes and investment tax credits, net (7,850) 6,666 28,909 Allowance for borrowed funds used during construction (740) (657) (386) Amortization of unbilled revenues (32,300) Decrease (increase) in accounts receivable, net and unbilled revenues 2,868 4,281 (7,580) Decrease (increase) in materials and supplies 1,782 922 (923) Decrease (increase) in prepaid and other current assets (3,409) (931) (1,593) Increase (decrease) in accounts payable (3,680) (159) 3,985 Increase (decrease) in other current liabilities 31,095 (2,326) (10,379) Other, net (2,430) (2,340) (12,982) -------- -------- -------- Net cash provided by operating activities $102,919 $ 79,386 $ 44,252 -------- -------- -------- Investing activities: Plant expenditures, excluding allowance for funds used during construction $(93,828) $(89,735) $(94,105) Other investing activities (598) (1,972) (4,892) -------- -------- -------- Net cash used in investing activities $(94,426) $(91,707) $(98,997) -------- -------- -------- Financing activities: Capital contributions from parent $ 14,000 Dividends paid on common stock $(13,188) (24,580) $(21,584) Dividends paid on preferred stock (3,114) (3,114) (3,114) Long-term debt - issues 20,000 88,000 36,000 Long-term debt - retirements (35,000) Changes in short-term debt (11,675) (26,370) 43,895 -------- -------- -------- Net cash provided by(used in)financing activities $ (7,977) $ 12,936 $ 55,197 -------- -------- -------- Net increase in cash and cash equivalents $ 516 $ 615 $ 452 Cash and cash equivalents at beginning of year 1,840 1,225 773 -------- -------- -------- Cash and cash equivalents at end of year $ 2,356 $ 1,840 $ 1,225 ======== ======== ======== Supplementary information: Interest paid less amounts capitalized $ 30,569 $ 29,130 $ 24,562 -------- -------- -------- Federal and state income taxes paid (refunded) $ 39,174 $ (8,026) $ 1,645 -------- -------- -------- The accompanying notes are an integral part of these financial statements.
Massachusetts Electric Company Notes to Financial Statements Note A - Significant Accounting Policies 1. Nature of Operations: The Company is a wholly-owned subsidiary of New England Electric System (NEES) operating in Massachusetts. The Company's business is the distribution and sale of electricity at retail. Electric service is provided to approximately 960,000 customers in 146 cities and towns having a population of approximately 2,160,000 (1990 Census). The Company's service area covers approximately 43 percent of Massachusetts. The properties of the Company consist principally of substations and distribution lines interconnected with transmission and other facilities of New England Power Company (NEP), the Company's wholesale generating affiliate. The Company purchases all of its electric energy requirements from NEP under a contract which obligates NEP to furnish such requirements at its standard resale rate. This contract requires either party to give seven years notice prior to terminating the contract. (See Note B for a discussion of industry restructuring and NEP's proposed divestiture of its generating business.) 2. System of Accounts: The accounts of the Company are maintained in accordance with the Uniform System of Accounts prescribed by regulatory bodies having jurisdiction. In preparing the financial statements, management is required to make estimates that affect the reported amounts of assets and liabilities and disclosures of asset recovery and contingent liabilities as of the date of the balance sheets and revenues and expenses for the period. These estimates may differ from actual amounts if future circumstances cause a change in the assumptions used to calculate these estimates. 3. Electric Sales Revenue: The Company accrues revenues for electricity delivered but not yet billed (unbilled revenues). Income in 1994 included $32 million, which represented the completion of the amortization over 13 months of the initial effect of recording unbilled revenues, in accordance with a rate agreement. Accrued revenues are also recorded in accordance with rate adjustment mechanisms. 4. Allowance for Funds Used During Construction (AFDC): The Company capitalizes AFDC as part of construction costs. AFDC represents an allowance for the cost of funds used to finance construction. AFDC is capitalized in "Utility plant" with offsetting noncash credits to "Interest." This method is in accordance with an established rate-making practice under which a utility is permitted a return on, and the recovery of, prudently incurred capital costs through their ultimate inclusion in rate base and in the provision for depreciation. The composite AFDC rates were 5.4 percent, 6.0 percent, and 4.8 percent, in 1996, 1995, and 1994, respectively. 5. Depreciation: Depreciation is provided annually on a straight-line basis. The provision for depreciation as a percentage of weighted average depreciable property was 3.3 percent in each of the years 1996, 1995, and 1994. 6. Cash: The Company classifies short-term investments with a maturity of 90 days or less at time of purchase as cash. Note B - Industry Restructuring For the past several years, the electric utility business has been subjected to rapidly increasing competitive pressures stemming from a number of trends, including the presence of surplus generating capacity, a disparity in electric rates among regions of the country, improvements in generation efficiency, increasing demand for customer choice, and new regulations and legislation intended to foster competition. In the recent past, this competition was most prominent in the bulk power market, in which nonutility generators have significantly increased their market share. Despite increased competition in the bulk power market, competition in the retail market has been limited as electric utilities have maintained exclusive franchises for the retail sale of electricity in specified service territories. In states across the country, including Massachusetts, there have been proposals to allow retail customers to choose their electricity supplier, with incumbent utilities required to deliver that electricity over their transmission and distribution systems (also known as "retail wheeling"). When electricity customers are allowed to choose their electricity supplier, utilities across the country will face the risk that market prices may not be sufficient to recover the costs of the commitments incurred to supply customers under a regulated structure. The amounts by which costs exceed market prices are commonly referred to as "stranded costs." The Company currently purchases electricity on behalf of its customers under a wholesale all-requirements contract with NEP. As described below, a settlement agreement was reached in Massachusetts which, when all regulatory approvals are in place, would allow recovery of NEP's above-market commitments to retail customers in Massachusetts, which make up 73 percent of NEP's all-requirements sales. On February 26, 1997, the Massachusetts Department of Public Utilities (MDPU) approved a settlement among the Company, NEP, Nantucket Electric Company (Nantucket), a distribution affiliate, the Massachusetts Attorney General, the Massachusetts Division of Energy Resources, and 12 other parties, which provides for retail choice by Massachusetts customers and the recovery of NEP's above-market commitments to serve those customers. The settlement provides for the commencement of retail choice on January 1, 1998 (contingent on choice being available to the customers of all Massachusetts investor-owned utilities). Customers who do not choose an alternative supplier would receive "standard offer" service, which would be priced to guarantee customers at least a 10 percent savings in 1998 compared with September 1996 bundled electricity prices. In accordance with the settlement, NEP's wholesale contract with the Company has been amended to allow for early termination of all-requirements service. The amendment, which is subject to regulatory approval, provides that upon early termination, the Company's share of the cost of NEP's above-market generation commitments (estimated at approximately $3 billion on a present- value basis) will be recovered through a contract termination charge. This charge will, in turn, be paid by customers that use the Company's distribution facilities. Those commitments consist of (i) the above-market portion of generating plant commitments, (ii) regulatory assets, (iii) the above-market portion of purchased power contracts, and (iv) the operating costs of nuclear plants that cannot be avoided by shutting down the plants, including nuclear decommissioning costs. The above-market portion of costs associated with generating plants and regulatory assets would be recovered over 12 years. The above-market component of purchased power contracts and nuclear decommissioning costs would be recovered as incurred over the life of those obligations, a period expected to extend beyond 12 years. Initially, the transition access charge would be set at 2.8 cents per kilowatt-hour (kWh) through December 31, 2000, and is expected to decline thereafter. The initial transition access charge assumes that the generating plants have no market value. To measure their actual market value, the NEES companies agreed to sell their generating business. The net proceeds from the sale will be used to reduce the transition access charge. The settlement also establishes performance-based rates for the Company. Under the settlement, the Company's nonfuel rates (and NEP's wholesale rates to the Company) would be frozen at current levels until the earlier of the commencement of retail choice or January 1, 2001. Upon commencement of retail choice, the Company's distribution rates would be set at a level approximately $45 million above the level embedded in its current bundled rates, with such rates then frozen through the year 2000. This increase reflects changes to the distribution cost of service that include an $11 million increase in annual depreciation expense, a $3 million annual contribution to a storm fund, and increased amortization of unfunded deferred income taxes of $1 million over six years. The Company's return on equity would be subject to a floor of 6 percent and a ceiling of 11 percent, effective upon commencement of retail choice. Earnings over the ceiling would be shared equally between customers and shareholders up to a maximum of 12.5 percent. This sharing results in an effective cap on shareholder's return on equity of 11.75 percent. To the extent that earnings fall below the floor, the Company would be authorized to surcharge customers for the shortfall. The settlement would also eliminate the Company's purchased power cost adjustment (PPCA) mechanism as of July 31, 1996. This mechanism allows the Company to recover purchased power rate changes from NEP and the effects of NEP's seasonal rates. The settlement also stipulates that the Company's net $18 million PPCA refund liability balance at July 31, 1996 will be used to prefund a storm contingency fund with $3 million, while the remainder will be used to offset regulatory assets for hazardous waste costs. The settlement is subject to approval by the Federal Energy Regulatory Commission (FERC). The FERC accepted the filing to become effective February 1, 1997, subject to refund, and ordered hearings. The Utility Workers Union of America and the Massachusetts Alliance of Utility Unions, who intervened in the MDPU proceeding on the settlement, have indicated they intend to appeal the MDPU's order approving the settlement to the Massachusetts Supreme Judicial Court. If an appeal is brought, the NEES companies will oppose it. Several bills are pending before the Massachusetts legislature on electric industry restructuring, including comprehensive legislation introduced by Governor William F. Weld and by the legislature's Joint Committee on Electric Restructuring. These bills cover many of the topics addressed in the settlement and could impact the implementation of the settlement. A number of proposals for federal legislation related to industry restructuring have been brought forward for consideration by the current Congress. The scope and aim of these vary widely; however, the NEES companies and others will argue that state settlements should be respected. The Company cannot predict what federal legislation, if any, may be enacted. Accounting Implications Historically, electric utility rates have been based on a utility's costs. As a result, electric utilities are subject to certain accounting standards that are not applicable to other business enterprises in general. Financial Accounting Standards No. 71, Accounting for the Effects of Certain Types of Regulation (FAS 71), requires regulated entities, in appropriate circumstances, to establish regulatory assets, and thereby defer the income statement impact of certain costs expected to be recovered in future rates. The Company has recorded approximately $16 million in net regulatory assets in compliance with FAS 71. The Company believes that the continuing rate- making policies and practices of the MDPU and the terms of the Massachusetts settlement will enable the Company to recover both its specific costs of providing ongoing distribution services and stranded costs billed to it by NEP. The Company believes that these factors will allow it to continue to apply FAS 71. In the event that future circumstances should cause the application of FAS 71 to be discontinued, a noncash write-off of previously established regulatory assets and liabilities would be required. The components of regulatory assets are as follows:
At December 31, (In Thousands) 1996 1995 --------- -------- Regulatory assets (liabilities) included in current assets and liabilities: Rate adjustment mechanisms (see Note F) $(40,264) $ (792) --------- -------- Regulatory assets included in deferred charges: Unamortized losses on reacquired debt 7,482 8,034 Deferred SFAS No. 106 costs (see Note E-2) 13,568 17,185 Deferred SFAS No. 109 costs (see Note C) 8,244 8,308 Environmental response costs (see Note D-2) 14,546 15,526 Deferred storm costs 11,221 4,433 Other 862 1,312 -------- -------- 55,923 54,798 -------- -------- $ 15,659 $54,006 ======== ========
Amounts included in "Deferred charges and other assets" on the Company's balance sheets that do not represent regulatory assets totaled $10,096,000 and $10,292,000 at December 31, 1996 and 1995, respectively. Note C - Income Taxes The Company and other subsidiaries participate with NEES in filing consolidated federal income tax returns. The Company's income tax provision is calculated on a separate return basis. Federal income tax returns have been examined and reported on by the Internal Revenue Service (IRS) through 1991. The returns for 1992 and 1993 are currently under examination by the IRS. Total income taxes in the statements of income are as follows:
Year Ended December 31, (In Thousands) 1996 1995 1994 ------- ------- ------- Income taxes charged to operations $25,186 $19,297 $22,265 Income taxes charged (credited) to "Other income" (2,010) (901) (642) ------- ------- ------- Total income taxes $23,176 $18,396 $21,623 ======= ======= ======= Total income taxes, as shown above, consist of the following components: Year Ended December 31, (In Thousands) 1996 1995 1994 -------- -------- -------- Current income taxes $ 31,026 $ 11,730 $ (7,286) Deferred income taxes (6,732) 7,798 30,137 Investment tax credits, net (1,118) (1,132) (1,228) -------- -------- --------- Total income taxes $ 23,176 $ 18,396 $ 21,623 ======== ======== ========= Investment tax credits have been deferred and are being amortized over the estimated lives of the property giving rise to the credits. Total income taxes, as shown above, consist of federal and state components as follows:
Year Ended December 31, (In Thousands) 1996 1995 1994 ---- --- --- Federal income taxes $18,697 $14,461 $16,942 State income taxes 4,479 3,935 4,681 ------- ------- ------- Total income taxes $23,176 $18,396 $21,623 ======= ======= =======
Consistent with rate-making policies of the MDPU, the Company has adopted comprehensive interperiod tax allocation (normalization) for temporary book/tax differences. Total income taxes differ from the amounts computed by applying the federal statutory tax rates to income before taxes. The reasons for the differences are as follows:
Year Ended December 31, (In Thousands) 1996 1995 1994 ---- ---- ---- Computed tax at statutory rate $ 21,386 $ 16,624 $ 19,722 Increases (reductions) in tax resulting from: Amortization of investment tax credits (1,118) (1,132) (1,228) State income taxes, net of federal income tax benefit 2,911 2,558 3,043 All other differences (3) 346 86 -------- -------- -------- Total income taxes $ 23,176 $ 18,396 $ 21,623 ======== ======== ========
The following table identifies the major components of total deferred income taxes:
At December 31, (In Millions) 1996 1995 ---- ---- Deferred tax asset: Plant related $ 9 $ 9 Investment tax credits 7 7 All other 57 42 ------ ------ 73 58 ------ ------ Deferred tax liability: Plant related (216) (209) All other (35) (34) ------ ------ (251) (243) ------ ------ Net deferred tax liability $ (178) $ (185) ====== ======
There were no valuation allowances for deferred tax assets deemed necessary. Note D - Commitments and Contingencies 1. Plant Expenditures: The Company's utility plant expenditures are estimated to be approximately $95 million in 1997. At December 31, 1996, substantial commitments had been made relative to future planned expenditures. 2. 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. 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. NEES subsidiaries currently have in place an internal environmental audit program and an external waste disposal vendor audit and qualification program intended to enhance compliance with existing federal, state, and local requirements regarding the handling of potentially hazardous products and by-products. The Company has been named as a potentially responsible party (PRP) by either the United States Environmental Protection Agency or the Massachusetts Department of Environmental Protection for 19 sites at which hazardous waste is alleged to have been disposed. Private parties have also contacted or initiated legal proceedings against the Company regarding hazardous waste cleanup. The most prevalent types of hazardous waste sites with which the Company has been associated are manufactured gas locations. The Company is aware of approximately 35 such manufactured gas locations in Massachusetts (including eight of the 19 locations for which the Company is a PRP). The Company is currently aware of other possible hazardous waste sites, and may in the future become aware of additional sites, that it may be held responsible for remediating. In 1993, the MDPU approved a settlement agreement regarding the rate recovery of remediation costs of former manufactured gas sites and certain other hazardous waste sites located in Massachusetts. Under that agreement, qualified costs related to these sites are paid out of a special fund established on the Company's books. The Company made an initial $30 million contribution to the fund. Rate-recoverable contributions of $3 million, adjusted since 1993 for inflation, are added annually to the fund along with interest and any recoveries from insurance carriers and other third parties. At December 31, 1996, the fund had a balance of $17 million. Under the 1996 Massachusetts settlement, an additional $15 million will be transferred to the fund in 1997 out of existing reserves for refunds. Predicting the potential costs to investigate and remediate hazardous waste sites continues to be 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 the Company. Where appropriate, the Company intends to seek recovery from its insurers and from other PRPs, but it is uncertain whether, and to what extent, such efforts will be successful. At December 31, 1996, the Company had total reserves for environmental response costs of $38 million and a related regulatory asset of $15 million. The Company believes that hazardous waste liabilities for all sites of which it is aware, and which are not covered by a rate agreement, are not material to its financial position. In October 1996, the American Institute of Certified Public Accountants issued new accounting rules for Environmental Remediation Liabilities which become effective in 1997. The Company does not believe these new rules will have a material effect on its financial position or results of operations. Note E - Employee Benefits 1. Pension Plans: The Company participates with other subsidiaries of NEES in noncontributory, defined-benefit plans covering substantially all employees of the Company. The plans provide pension benefits based on the employee's compensation during the five years prior to retirement. The Company's funding policy is to contribute each year the net periodic pension cost for that year. However, the contribution for any year will not be less than the minimum contribution required by federal law or greater than the maximum tax deductible amount. Net pension cost for 1996, 1995, and 1994 included the following components:
Year Ended December 31, (In Thousands) 1996 1995 1994 -------- -------- -------- Service cost - benefits earned during the period $ 4,429 $ 3,992 $ 4,134 Plus (less): Interest cost on projected benefit obligation 16,935 17,576 16,435 Return on plan assets at expected long-term rate (18,562) (18,122) (17,223) Amortization 316 99 1,060 -------- -------- -------- Net pension cost $ 3,118 $ 3,545 $ 4,406 ======== ======== ======== Actual return on plan assets $ 32,675 $ 47,717 $ 1,541 ======== ======== ======== 1997 1996 1995 1994 ---- ---- ---- ------ Assumptions used to determine pension cost: Discount rate 7.25% 7.25% 8.25% 7.25% Average rate of increase in future compensation levels 4.13% 4.13% 4.63% 4.35% Expected long-term rate of return on assets 8.50% 8.50% 8.75% 8.75%
The funded status of the plans cannot be presented separately for the Company as the Company participates in the plans with other NEES subsidiaries. The following table sets forth the funded status of the NEES companies' plans:
At December 31, (In Millions) 1996 1995 ---- ---- Union Non-Union Union Non-Union Employee Employee Employee Employee Plans Plans Plans Plans -------- -------- -------- --------- Benefits earned Actuarial present value of accumulated benefit liability: Vested $298 $342 $293 $343 Nonvested 9 10 8 10 ---- ---- ---- ---- Total 307 352 301 353 ==== ==== ==== ==== Reconciliation of funded status Actuarial present value of projected benefit liability 355 398 346 402 Unrecognized prior service costs (6) (3) (7) (4) SFAS No. 87 transition liability not yet recognized (amortized) - (1) - (1) Net gain (loss) not yet recognized (amortized) 25 15 (1) (23) ---- ---- ---- ---- 374 409 338 374 ---- ---- ---- ---- Pension fund assets at fair value 384 428 349 392 SFAS No. 87 transition asset not yet recognized (amortized) (10) - (11) - ---- ---- ---- ---- 374 428 338 392 ---- ---- ---- ---- Accrued pension/(prepaid) payments recorded on books $ - $(19) $ - $(18)
The plans' funded status at December 31, 1996 and 1995 were calculated using the assumed rates from 1997 and 1996, respectively, and the 1983 Group Annuity Mortality table. Plan assets are composed primarily of corporate equity, debt securities, and cash equivalents. 2. Postretirement Benefit Plans Other Than Pensions (PBOPs): The Company provides health care and life insurance coverage to eligible retired employees. Eligibility is based on certain age and length of service requirements and in some cases retirees must contribute to the cost of their coverage. The total cost of PBOPs for 1996, 1995, and 1994 included the following components:
Year Ended December 31, (In Thousands) 1996 1995 1994 -------- -------- -------- Service cost - benefits earned during the period $ 2,232 $ 2,368 $ 2,840 Plus (less): Interest cost on accumulated benefit obligation 9,661 11,699 11,050 Return on plan assets at expected long-term rate (5,455) (4,165) (3,306) Amortization 5,267 6,628 7,287 -------- -------- -------- Net postretirement benefit cost $ 11,705 $ 16,530 $ 17,871 ======== ======== ======== Actual return on plan assets $ 10,857 $ 12,209 $ 265 ======== ======== ======== 1997 1996 1995 1994 ---- ---- ---- ---- Assumptions used to determine postretirement benefit cost: Discount rate 7.25% 7.25% 8.25% 7.25% Expected long-term rate of return on assets 8.25% 8.25% 8.50% 8.50% Health care cost rate - 1994 - - - 11.00% Health care cost rate - 1995 to 1999 8.00% 8.00% 8.50% 8.50% Health care cost rate - 2000 to 2004 6.25% 6.25% 8.50% 8.50% Health care cost rate - 2005 and beyond 5.25% 5.25% 6.25% 6.25%
The following table sets forth benefits earned and the plans' funded status:
At December 31, (In Millions) 1996 1995 ------ ------ Accumulated postretirement benefit obligation: Retirees $ 94 $ 93 Fully eligible active plan participants 11 12 Other active plan participants 39 44 ------ ------ Total benefits earned 144 149 Unrecognized prior service costs - (1) Unrecognized transition obligation (117) (124) Unrecognized net gain 40 26 ------ ------ 67 50 Plan assets at fair value 82 65 ------ ------ Prepaid postretirement benefit costs recorded on books $ 15 $ 15 ====== ======
The plans' funded status at December 31, 1996 and 1995 were calculated using the assumed rates in effect for 1997 and 1996, respectively. The assumptions used in the health care cost trends have a significant effect on the amounts reported. Increasing the assumed rates by 1 percent in each year would increase the accumulated postretirement benefit obligation as of December 31, 1996 by approximately $17 million and the net periodic cost for 1996 by approximately $2 million. The Company funds the annual tax-deductible contributions. Plan assets are invested in equity and debt securities and cash equivalents. Note F - Short-term Borrowings and Other Accrued Expenses At December 31, 1996, the Company had $44 million of short-term debt outstanding including $39 million in commercial paper borrowings and $5 million of borrowings from affiliates. NEES and certain subsidiaries, including the Company, with regulatory approval, operate a money pool to more effectively utilize cash resources and to reduce outside short-term borrowings. Short-term borrowing needs are met first by available funds of the money pool participants. Borrowing companies pay interest at a rate designed to approximate the cost of outside short-term borrowings. Companies which invest in the pool share the interest earned on a basis proportionate to their average monthly investment in the money pool. Funds may be withdrawn from or repaid to the pool at any time without prior notice. At December 31, 1996, the Company had lines of credit with banks totaling $90 million which are available to provide liquidity support for commercial paper borrowings and other corporate purposes. There were no borrowings under these lines of credit at December 31, 1996. Fees are paid in lieu of compensating balances on most lines of credit. The weighted average rate on outstanding short-term borrowings was 6.1 percent at December 31, 1996. The fair value of the Company's short-term debt equals carrying value. The components of other accrued expenses are as follows:
At December 31, (In Thousands) 1996 1995 ------- ------- Rate adjustment mechanisms $39,863 $ 3,908 Accrued wages and benefits 12,591 11,066 Other 2,379 2,162 ------- ------- $54,833 $17,136 ======= =======
Note G - Cumulative Preferred Stock
A summary of cumulative preferred stock at December 31, 1996 and 1995 is as follows (dollar amount expressed in thousands except for share data): Shares Authorized Dividends Call and Outstanding Amount Declared Price --------------- ------------- --------------- ----- 1996 1995 1996 1995 1996 1995 ---- ---- ---- ---- ---- ---- ----- $25 Par value - 6.84% Series 600,000 600,000$15,000 $15,000 $1,026 $1,026 (a) $100 Par value - 4.44% Series 75,000 75,000 7,500 7,500 333 333$104.068 4.76% Series 75,000 75,000 7,500 7,500 357 357 103.730 6.99% Series 200,000 200,000 20,000 20,000 1,398 1,398 (b) ------- -------------- -------------- ------- Total 950,000 950,000$50,000 $50,000 $3,114 $3,114 ======= ============== ============== ======= (a) Callable on or after October 1, 1998 at $25.80. (b) Callable on or after August 1, 2003 at $103.50. The annual dividend requirement for total cumulative preferred stock was $3,114,000 for 1996 and 1995. There are no mandatory redemption provisions on the Company's cumulative preferred stock.
Note H - Long-term Debt A summary of long-term debt is as follows:
At December 31, (In Thousands) Series Rate % Maturity 1996 1995 - --------------------------------------------------------------------------- First Mortgage Bonds: R(92-4) 7.230 June 3, 1997 $ 10,000 $ 10,000 R(92-5) 7.210 June 3, 1997 5,000 5,000 S(92-6) 6.120 August 15, 1997 12,000 12,000 S(92-7) 6.010 August 15, 1997 3,000 3,000 U(95-3) 7.800 February 13, 1998 5,000 5,000 U(95-4) 7.790 February 16, 1998 5,000 5,000 R(92-1) 7.240 December 30, 1998 10,000 10,000 S(92-3) 6.630 August 12, 1999 7,500 7,500 S(92-4) 6.600 August 12, 1999 7,500 7,500 U(95-5) 7.930 February 14, 2000 6,000 6,000 S(92-2) 6.980 July 17, 2000 5,000 5,000 S(92-9) 6.310 September 15, 2000 10,000 10,000 R(92-6) 7.710 July 1, 2002 10,000 10,000 S(92-11) 7.250 October 28, 2002 5,000 5,000 S(92-12) 7.340 November 25, 2002 10,000 10,000 T(93-2) 7.090 January 27, 2003 20,000 20,000 T(93-5) 6.400 June 24, 2003 10,000 10,000 U(93-1) 6.240 November 17, 2003 5,000 5,000 U(94-6) 8.520 November 30, 2004 10,000 10,000 U(95-1) 8.450 January 10, 2005 10,000 10,000 U(95-2) 8.220 January 24, 2005 10,000 10,000 U(95-7) 7.920 March 3, 2005 9,000 9,000 V(95-1) 6.720 June 23, 2005 10,000 10,000 V(96-1) 6.780 November 20, 2006 20,000 T(93-7) 6.660 June 23, 2008 5,000 5,000 T(93-8) 6.660 June 30, 2008 5,000 5,000 T(93-10) 6.110 September 8, 2008 10,000 10,000 T(93-11) 6.375 November 17, 2008 10,000 10,000 R(92-3) 8.550 February 7, 2022 5,000 5,000 S(92-5) 8.180 August 1, 2022 10,000 10,000 S(92-10) 8.400 October 26, 2022 5,000 5,000 T(93-1) 8.150 January 20, 2023 10,000 10,000 T(93-3) 7.980 January 27, 2023 10,000 10,000 T(93-4) 7.690 February 24, 2023 10,000 10,000 T(93-6) 7.500 June 23, 2023 3,000 3,000 T(93-9) 7.500 June 29, 2023 7,000 7,000 U(93-2) 7.200 November 15, 2023 10,000 10,000 U(93-3) 7.150 November 24, 2023 1,000 1,000 U(94-1) 7.050 February 2, 2024 10,000 10,000 U(94-2) 8.080 May 2, 2024 5,000 5,000 U(94-3) 8.030 June 14, 2024 5,000 5,000 U(94-4) 8.160 August 9, 2024 5,000 5,000 U(94-5) 8.850 November 7, 2024 1,000 1,000 U(95-6) 8.460 February 28, 2025 3,000 3,000 V(95-2) 7.630 June 27, 2025 10,000 10,000 V(95-3) 7.600 September 12, 2025 10,000 10,000 V(95-4) 7.630 September 12, 2025 10,000 10,000 Unamortized discounts (1,679) (1,733) -------- -------- Total long-term debt 373,321 353,267 ======== ======== Long-term debt due in one year 30,000 -------- -------- $343,321 $353,267 ======== ========
Substantially all of the properties and franchises of the Company are subject to the lien of mortgage indentures under which the first mortgage bonds have been issued. In July 1996, Nantucket issued $28 million of tax-exempt long- term debt at rates ranging from 4.10 percent to 6.75 percent to fund construction of an undersea cable. The Company guaranteed the debt on behalf of Nantucket. The Company will make cash payments of $30,000,000 in 1997, $20,000,000 in 1998, $15,000,000 in 1999, and $21,000,000 in 2000 to retire maturing mortgage bonds. There are no cash payments required in 2001. At December 31, 1996, the Company's long-term debt had a carrying value of approximately $343,000,000 and had a fair value of approximately $380,000,000. The fair market value of the Company's long-term debt was estimated based on the quoted prices for similar issues or on the current rates offered to the Company for debt of the same remaining maturity. Note I - Restrictions on Retained Earnings Available for Dividends on Common Stock As long as any preferred stock is outstanding, certain restrictions on payment of dividends on common stock would come into effect if the "junior stock equity" was, or by reason of payment of such dividends became, less than 25 percent of "Total capitalization." However, the junior stock equity at December 31, 1996 was 50 percent of total capitalization, and accordingly, none of the Company's retained earnings at December 31, 1996 were restricted as to dividends on common stock under the foregoing provisions. Under restrictions contained in the indentures relating to first mortgage bonds, $20,113,000 of the Company's retained earnings at December 31, 1996 were restricted as to dividends on common stock. Note J - Supplementary Income Statement Information Advertising expenses, expenditures for research and development, and rents were not material and there were no royalties paid in 1996, 1995, or 1994. Taxes, other than income taxes, charged to operating expenses are set forth by classes as follows:
Year Ended December 31, (In Thousands) 1996 1995 1994 ------- ------- ------- Municipal property taxes $23,304 $23,119 $21,186 Federal and state payroll and other taxes 7,255 6,903 7,478 ------- ------- ------- $30,559 $30,022 $28,664
New England Power Service Company, an affiliated service company operating pursuant to the provisions of Section 13 of the Public Utility Holding Company Act of 1935, furnished services to the Company at the cost of such services. These costs amounted to $67,756,000, $67,680,000, and $71,107,000, including capitalized construction costs of $9,330,000, $7,660,000, and $8,977,000 for each of the years 1996, 1995, and 1994, respectively. Massachusetts Electric Company Operating Statistics (Unaudited)
Year Ended December 31, 1996 1995 1994 1993 1992 ---- ---- ---- ---- ---- Sources of Energy (Thousands of kWh) Purchased energy: From New England Power Company, an affiliate 16,757,485 16,594,81216,455,77416,179,204 16,005,087 From others 3,570 2,887 3,364 12,676 13,916 ---------- ------------------------------ ---------- Total purchased 16,761,055 16,597,69916,459,13816,191,880 16,019,003 Losses, company use, etc. (739,586)(730,608)(733,804) (740,390) (711,157) ---------- ------------------------------ ---------- Total sources of energy 16,021,469 15,867,09115,725,33415,451,490 15,307,846 ========== ============================== ========== Sales and Deliveries of Energy (Thousands of kWh) Residential 5,855,0545,768,6355,798,806 5,694,539 5,645,350 Commercial 6,141,6385,999,5555,936,170 5,743,924 5,645,867 Industrial 3,926,3313,998,5063,885,391 3,850,075 3,907,040 Other 86,186 89,759 95,382 99,991 105,842 Total sales to ---------- ------------------------------ ---------- ultimate customers 16,009,209 15,856,45515,715,74915,388,529 15,304,099 Sales for resale 12,260 10,636 9,585 62,961 3,747 ---------- ------------------------------ ---------- Total sales of energy 16,021,469 15,867,09115,725,33415,451,490 15,307,846 ---------- ------------------------------ ---------- Deliveries 97,141 - - - - ---------- ------------------------------ ---------- Total sales and deliveries of energy 16,118,610 15,867,09115,725,33415,451,490 15,307,846 ========== ============================== ========== Maximum Demand (kW - one hour peak) 2,855,0003,029,0003,016,000 2,819,000 2,791,000 Average Annual Use per Residential Customer (kWh) 6,887 6,844 6,948 6,888 6,886 Number of Customers at December 31 Residential 854,108 847,437 839,443 831,223 824,072 Commercial 99,085 97,211 95,430 93,414 92,281 Industrial 4,445 4,503 4,551 4,637 4,624 Other 824 854 880 906 952 ---------- ------------------------------ ---------- Total ultimate customers 958,462 950,005 940,304 930,180 921,929 Other (for resale) 178 179 178 278 22 Deliveries 14 - - - - ---------- ------------------------------ ---------- Total customers 958,654 950,184 940,482 930,458 921,951 ========== ============================== ========== Operating Revenue (In Thousands) Residential $ 612,134 $ 610,856$ 588,518$ 593,336 $ 549,884 Commercial 566,743 543,715 523,826 518,965 510,638 Industrial 312,539 312,057 301,502 316,140 319,905 Other 18,627 17,991 17,147 17,416 17,489 ---------- ------------------------------ ---------- Total revenue from ultimate customers 1,510,0431,484,6191,430,993 1,445,857 1,397,916 Amortization of unbilled revenues - - 32,300 2,700 - Sales for resale 1,182 1,013 924 5,399 278 ---------- ------------------------------ ---------- Total revenue from electric sales 1,511,2251,485,6321,464,217 1,453,956 1,398,194 Other operating revenue 27,312 20,044 17,853 14,584 14,754 ---------- ------------------------------ ---------- Total operating revenue $1,538,537 $1,505,676$1,482,070$1,468,540 $1,412,948 ========== ============================== ==========
Massachusetts Electric Company Selected Financial Information
Year Ended December 31, (In Millions) 1996 1995 1994 1993 1992 ---- ---- ---- ---- ---- Operating revenue: Electric sales (excluding fuel cost recovery) $1,084 $1,072 $1,088 $1,062 $1,012 Fuel cost recovery 427 414 376 392 386 Other 28 20 18 15 15 ------ ------ ------ ------ ------ Total operating revenue $1,539 $1,506 $1,482 $1,469 $1,413 Net income $ 38 $ 29 $ 35 $ 24 $ 35 Total assets $1,390 $1,343 $1,296 $1,232 $1,015 Capitalization: Common equity $ 427 $ 412 $ 384 $ 382 $ 331 Cumulative preferred stock 50 50 50 50 50 Long-term debt 343 353 266 265 266 ------ ------ ------ ------ ------ Total capitalization $ 820 $ 815 $ 700 $ 697 $ 647 Preferred dividends declared $ 3 $ 3 $ 3 $ 4 $ 3 Common dividends declared $ 19 $ 13 $ 30 $ 19 $ 23
Selected Quarterly Financial Information (Unaudited)
First Second Third Fourth (In Thousands) Quarter Quarter Quarter Quarter ------- ------- ------- ------- 1996 Operating revenue $390,819 $358,479 $398,542 $390,697 Operating income $ 20,687 $ 13,783 $ 13,538 $ 23,953 Net income $ 10,734 $ 5,456 $ 4,774 $ 16,962 1995 Operating revenue $373,092 $355,431 $392,575 $384,578 Operating income $ 13,349 $ 11,173 $ 11,799 $ 25,349 Net income $ 5,126 $ 2,567 $ 3,653 $ 17,755
Per share data is not relevant because the Company's common stock is wholly-owned by New England Electric System. A copy of Massachusetts Electric Company's Annual Report on Form 10-K to the Securities and Exchange Commission for the year ended December 31, 1996 will be available on or about April 1, 1997, without charge, upon written request to Massachusetts Electric Company, Shareholder Services Department, 25 Research Drive, Westborough, Massachusetts 01582. EX-24 31 MECO POWER OF ATTORNEY EXHIBIT (24) POWER OF ATTORNEY ----------------- Each of the undersigned directors of Massachusetts Electric Company (the "Company"), individually as a director of the Company, hereby constitutes and appoints John G. Cochrane, Patricia M. Needham, and Robert K. Wulff, individually, as attorney-in-fact to execute on behalf of the undersigned the Company's annual report on Form 10-K for the year ended December 31, 1996, to be filed with the Securities and Exchange Commission, and to execute any appropriate amendment or amendments thereto as may be required by law. Dated this 19th day of March, 1997. s/Urville J. Beaumont s/John F. Reilly, Jr. _________________________ _________________________ Urville J. Beaumont John F. Reilly, Jr. s/Joan T. Bok s/Lawrence J. Reilly _________________________ _________________________ Joan T. Bok Lawrence J. Reilly s/Sally L. Collins s/John W. Rowe _________________________ _________________________ Sally L. Collins John W. Rowe s/Kalyan K. Ghosh s/Richard P. Sergel _________________________ _________________________ Dr. Kalyan K. Ghosh Richard P. Sergel s/Roslyn M. Watson _________________________ _________________________ Charles B. Housen Roslyn M. Watson s/Patricia McGovern _________________________ Patricia McGovern EX-27 32 MECO FDS
UT THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE SHEET AND RELATED STATEMENTS OF INCOME, RETAINED EARNINGS AND CASH FLOWS OF MASSACHUSETTS ELECTRIC COMPANY, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000063073 Massachusetts Electric Company 1,000 DEC-31-1996 DEC-31-1996 12-MOS PER-BOOK 1,088,430 0 235,809 66,019 0 1,390,258 59,953 201,172 165,936 427,061 0 50,000 343,321 5,275 0 38,500 30,000 0 0 0 496,101 1,390,258 1,538,537 25,186 1,441,390 1,466,576 71,961 (1,213) 70,748 32,822 37,926 3,114 34,812 19,184 27,089 102,919 0 0 Total deferred charges includes other assets. Per share data is not relevant because the Company's common stock is wholly-owned by New England Electric System. EX-12 33 NARRA COMPUTATION OF RATIOS
THE NARRAGANSETT ELECTRIC COMPANY Computation of Ratio of Earnings to Fixed Charges (SEC Coverage) (Unaudited)
Years Ended December 31, ------------------------------------------------------------ 1996 1995 1994 1993 1992 ---- ---- ---- ---- ---- (In Thousands) Net Income $22,954 $23,910 $14,589 $14,274 $21,052 - ---------- Add income taxes and fixed charges - ---------------------------------- Current federal income taxes 6,918 7,212 1,020 2,183 4,608 Deferred federal income taxes 4,675 3,512 3,930 2,199 4,560 Investment tax credits - net (498) (503) (508) (508) (507) Interest on long-term debt 17,205 16,627 14,334 12,715 13,290 Interest on short-term debt and other 2,883 3,663 2,897 2,074 1,277 ------- ------- ------- ------- ------- Net earnings available for fixed charges $54,137 $54,421 $36,262 $32,937 $44,280 ------- ------- ------- ------- ------- Fixed charges: Interest on long-term debt $17,205 $16,627 $14,334 $12,715 $13,290 Interest on short-term debt and other 2,883 3,663 2,897 2,074 1,277 ------- ------- ------- ------- ------- Total fixed charges $20,088 $20,290 $17,231 $14,789 $14,567 ======= ======= ======= ======= ======= Ratio of earnings to fixed charges 2.69 2.68 2.10 2.23 3.04 - ----------------------------------
EX-13 34 NARRA ANNUAL REPORT Annual Report 1996 The Narragansett Electric Company A Subsidiary of New England Electric System {LOGO} Narragansett Electric A NEES Company The Narragansett Electric Company 280 Melrose Street Providence, Rhode Island 02901 Directors (As of January 1, 1997) Joan T. Bok Chairman of the Board of New England Electric System Stephen A. Cardi Treasurer, Cardi Corporation (Construction), Warwick, Rhode Island Frances H. Gammell Senior Vice President, Treasurer, and Secretary, Original Bradford Soap Works, Inc., West Warwick, Rhode Island Joseph J. Kirby Chairman and Chief Executive Officer, Washington Trust Bancorp, Inc., Westerly, Rhode Island Robert L. McCabe President and Chief Executive Officer of the Company John W. Rowe President and Chief Executive Officer of New England Electric System Richard P. Sergel Chairman of the Company and Senior Vice President of New England Electric System William E. Trueheart Visiting Scholar of Graduate School of Education, Harvard University, Cambridge, Massachusetts John A. Wilson, Jr. Consultant to and former President of Wanskuck Company (Cable reel manufacturer), Providence, Rhode Island and Consultant to Hinkley, Allen, Tobin and Silverstein Officers (As of January 1, 1997) Richard P. Sergel Chairman of the Company and Senior Vice President of New England Electric System Robert L. McCabe President and Chief Executive Officer William Watkins, Jr. Executive Vice President Richard W. Frost Vice President Alfred D. Houston Vice President and Treasurer of the Company and Executive Vice President and Chief Financial Officer of New England Electric System Shannon M. Larson Vice President Richard Nadeau Vice President Michael F. Ryan Vice President Thomas G. Robinson Secretary of the Company and General Counsel of an affiliate John G. Cochrane Assistant Treasurer of the Company and of certain affiliates and Vice President of an affiliate Craig L. Eaton Assistant Secretary Howard W. McDowell Controller of the Company and of certain affiliates and Treasurer of certain affiliates Transfer Agent, Dividend Paying Agent, and Registrar of Preferred Stock Fleet National Bank, Providence, Rhode Island This report is not to be considered an offer to sell or buy or solicitation of an offer to sell or buy any security. The Narragansett Electric Company The Narragansett Electric Company is a wholly-owned subsidiary of New England Electric System (NEES) operating in Rhode Island. The Company's business is the distribution and sale of electricity at retail. Electric service is provided to approximately 330,000 customers in 27 cities and towns having a population of approximately 725,000 (1990 Census). The Company's service area, which includes urban, suburban, and rural areas, covers approximately 80 percent of Rhode Island, and includes the cities of Providence, East Providence, Cranston, and Warwick. The diversified economy of the Company's service area produces fabricated metal products, electrical and industrial machinery, transportation equipment, textiles, jewelry, silverware, and chemical products. In addition, a broad range of professional, banking, medical, and educational institutions is served. Rhode Island legislation passed in 1996 allows utility customers in Rhode Island to choose their power supplier. This customer choice is being phased in over 12 months beginning July 1997. Distribution companies, including the Company, would be required to deliver the power to their customers (see "Industry Restructuring" section of Financial Review). The properties of the Company include an integrated system of transmission and distribution lines and substations. In addition, the Company owns a 10 percent share of the 489 megawatt Manchester Street generating station. The entire output of this plant is made available to New England Power Company (NEP), the Company's wholesale generating affiliate, as part of the integrated NEES system. Under an all-requirements contract with NEP, the Company purchases its electric energy requirements from NEP. The contract provides for the integration of the Company's generating and transmission facilities with NEP's facilities in order to achieve maximum economy and reliability. The contract also provides for the application of credits against the Company's power bills from NEP for costs associated with the Company's facilities so integrated. NEP and the Company agreed to the divestiture of their fossil and hydroelectric generating facilities as part of industry restructuring. The Company will be compensated by NEP for any difference between the sale price of the Company's share of the Manchester Street Station and its net book value. In addition, the Company's all-requirements contract with NEP has been amended to allow for early termination of all-requirements service. The amendment provides that upon early termination, the Company's share of the cost of NEP's above-market generation commitments will be recovered through a contract termination charge. This charge will, in turn, be paid by customers that use the Company's distribution facilities. Report of Independent Accountants The Narragansett Electric Company, Providence, Rhode Island: We have audited the accompanying balance sheets of The Narragansett Electric Company (the Company), a wholly-owned subsidiary of New England Electric System, as of December 31, 1996 and 1995 and the related statements of income, retained earnings, and cash flows for each of the three years in the period ended December 31, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 1996 and 1995, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1996 in conformity with generally accepted accounting principles. Boston, Massachusetts COOPERS & LYBRAND L.L.P. February 28, 1997 The Narragansett Electric Company Financial Review Industry Restructuring For the past several years, the electric utility business has been subjected to rapidly increasing competitive pressures stemming from a number of trends, including the presence of surplus generating capacity, a disparity in electric rates among regions of the country, improvements in generation efficiency, increasing demand for customer choice, and new regulations and legislation intended to foster competition. In the recent past, this competition was most prominent in the bulk power market, in which nonutility generators have significantly increased their market share. Despite increased competition in the bulk power market, competition in the retail market has been limited as electric utilities have maintained exclusive franchises for the retail sale of electricity in specified service territories. In states across the country, including Rhode Island, there have been proposals to allow retail customers to choose their electricity supplier, with incumbent utilities required to deliver that electricity over their transmission and distribution systems (also known as "retail wheeling"). When electricity customers are allowed to choose their electricity supplier, utilities across the country will face the risk that market prices may not be sufficient to recover the costs of the commitments incurred to supply customers under a regulated structure. The amounts by which costs exceed market prices are commonly referred to as "stranded costs." The Company currently purchases electricity on behalf of its customers under a wholesale all-requirements contract with the Company's wholesale generating affiliate, New England Power Company (NEP). As described below, comprehensive legislation was enacted in Rhode Island which, when all regulatory approvals are in place, would allow recovery of NEP's above-market commitments to retail customers in Rhode Island, which make up 22 percent of NEP's all- requirements sales. In August 1996, the state of Rhode Island enacted pioneering legislation that allows customers in that state the opportunity to choose their electricity supplier. Under the Rhode Island statute, state accounts, certain new customers, and the largest manufacturing customers will be able to choose their supplier beginning on July 1, 1997. These customers represent approximately 10 percent of the Company's kilowatt-hour (kWh) sales. The balance of Rhode Island customers will be able to choose their supplier in 1998, with an additional 10 percent of customers load having choice on January 1 and the remainder on July 1. All Rhode Island customers would have choice of supplier beginning at an earlier date if retail access becomes available to 40 percent or more of the kWh sales in New England by that date. The statute calls for NEP's contract with the Company to be amended to permit a gradual, early termination of all-requirements service. The amendment provides that, in return, the Company's 22 percent share of the cost of NEP's above-market generation commitments (estimated at approximately $1 billion on a present-value basis) would be recovered through a contract termination charge. This charge will, in turn, be paid by customers that use the Company's distribution facilities. Those commitments consist of (i) generating plant commitments, (ii) regulatory assets, (iii) the above-market component of purchased power contracts, and (iv) the operating cost of nuclear plants which cannot be avoided by shutting down the plants, including nuclear decommissioning. Sunk costs associated with generating plants and regulatory assets would be recovered over a period of 12.5 years. The above-market component of purchased power contracts and the nuclear decommissioning costs would be recovered as incurred over the life of those obligations, a period expected to extend beyond 12 years. The transition access charge would be reduced to reflect the net proceeds from the sale of the New England Electric System (NEES) companies' generating assets. (See "Divestiture of Generation Business" section below.) The initial transition access charge, before the application of those proceeds, would be set at 2.8 cents per kWh through December 31, 2000, and is expected to decline thereafter. The statute also establishes performance-based rates for distribution utilities, such as the Company. Under the statute, the Company increased distribution rates by approximately $11 million in 1997, and is entitled to a similar increase in 1998. In addition, in 1997, the Company's return on equity from distribution operations will be subject to a floor of 6 percent and a ceiling of 11 percent. Earnings over the ceiling will be shared equally between customers and shareholders up to a maximum return on equity from distribution operations of 12.5 percent. This sharing results in an effective cap on shareholder's return on equity of 11.75 percent. To the extent that earnings fall below the floor, the Company will be authorized to surcharge customers for the shortfall. NEP and the Company filed with the Federal Energy Regulatory Commission (FERC) an amendment to their all-requirements contract in order to implement the statute. The FERC has set down the amendment for hearing. The Company has indicated it is willing to make certain changes to its plan in Rhode Island to parallel provisions in a similar Massachusetts settlement. The Massachusetts settlement was approved by the Massachusetts Department of Public Utilities on February 26, 1997. The settlement provides for retail choice for Massachusetts customers in 1998 and the recovery of NEP's above-market commitments to serve those customers. Implementation of other aspects of the statute is subject to approval of the Rhode Island Public Utilities Commission (RIPUC). A number of proposals for federal legislation related to industry restructuring have been brought forward for consideration by the current Congress. The scope and aim of these vary widely; however, the NEES companies and others will argue that state settlements should be respected. The Company cannot predict what federal legislation, if any, may be enacted. Divestiture of Generation Business NEP and the Company agreed to the divestiture of their fossil and hydroelectric generating facilities as part of industry restructuring. Such divestiture must be accomplished within six months of the later of the commencement of retail choice in Massachusetts, currently scheduled for January 1, 1988, or the receipt of all necessary regulatory approvals. The Company will be compensated by NEP for any difference between the sale price of the Company's share of the Manchester Street Station and its net book value. Proposals are being solicited for the acquisition of the nonnuclear generating business, with the objective of reaching definitive purchase and sale agreements by mid-1997. Closing would follow the receipt of regulatory approvals, which are expected to take at least six to 12 months following the execution of purchase and sale agreements. The Rhode Island statute also requires the Company to transfer its transmission assets to NEP at net book value. Risk Factors The major risk factors affecting the Company relate to the possibility of adverse regulatory or judicial decisions or legislation which limits the level of revenues the Company is allowed to charge for its services. While substantial progress has been made in resolving the uncertainty regarding recovery by the Company of stranded costs billed to it by NEP, significant risks remain. These risks are primarily attributable to the potential that ultimately the statute, referred to above, will not be implemented in the manner anticipated by the Company and/or the possibility of other state or federal legislation which would increase the risks to the Company above those contained in the statute. Accounting Implications Historically, electric utility rates have been based on a utility's costs. As a result, electric utilities are subject to certain accounting standards that are not applicable to other business enterprises in general. Financial Accounting Standards No. 71, Accounting for the Effects of Certain Types of Regulation (FAS 71), requires regulated entities, in appropriate circumstances, to establish regulatory assets, and thereby defer the income statement impact of certain costs expected to be recovered in future rates. The Company has recorded approximately $44 million in net regulatory assets in compliance with FAS 71. The Company believes that the continuing rate- making policies and practices of the RIPUC and the terms of the Rhode Island statute will enable the Company to recover both its specific costs of providing ongoing distribution services and stranded costs billed to it by NEP. The Company believes that these factors will allow it to continue to apply FAS 71. In the event that future circumstances should cause the application of FAS 71 to be discontinued, a noncash write-off of previously established regulatory assets and liabilities would be required. Overview Net income in 1996 decreased by $1 million. This decrease was primarily due to (i) the completion of the amortization, in accordance with a rate agreement, of the initial effect of recording unbilled revenues as well as (ii) a decrease in allowance for funds used during construction (AFDC) primarily due to the completion in the second half of 1995 of the Manchester Street Station. These decreases were partially offset by the effects of a rate increase that went into effect in late 1995. Net income for 1995 increased by $9 million compared with 1994. This increase reflects the 1995 commencement of the recovery of the Company's investment in the Manchester Street Station, and related transmission facilities that went into service in 1994. The increase in earnings in 1995 also reflects the recognition of unbilled revenues over a 21-month period that ended December 31, 1995. These increases were partially offset by increased depreciation expense and increased interest expense. Operating Revenue The following table summarizes the changes in operating revenue: Increase (Decrease) in Operating Revenue (In Millions) 1996 1995 ---- ---- Sales growth $ 1 $ 2 Fuel recovery 3 11 Rate changes 11 1 Unbilled revenues recognized under rate agreements (8) 2 Purchased power cost adjustment (PPCA) mechanism (4) 1 Demand-side management (DSM) recovery - (1) Other 1 1 --- --- $ 4 $17 === === KWh sales to ultimate customers increased less than 1 percent in both 1996 and 1995. The Company's rates contain a fuel clause and a PPCA provision. These mechanisms are designed to allow the Company to pass on to its customers changes in purchased energy costs from NEP. Rate changes primarily represent a $12 million general rate increase that went into effect in December 1995. Also, in 1994, the RIPUC approved a rate agreement for the Company that provided for the recognition, for accounting purposes, of $14 million of unbilled revenues over a 21-month period which ended in December 1995. The Company has received approval from the RIPUC to recover DSM program expenditures in rates on a current basis. These expenditures were $10 million, $9 million, and $10 million in 1996, 1995, and 1994, respectively. Since 1990, the Company has been allowed to earn incentives based on the results of its DSM programs. The Company recorded before-tax incentives of $0.2 million, $0.5 million, and $0.6 million in 1996, 1995, and 1994, respectively. Operating Expenses The following table summarizes the changes in operating expenses: Increase (Decrease) in Operating Expenses (In Millions) 1996 1995 ---- ---- Fuel for generation and electric energy: Fuel costs $ 3 $11 Integrated facilities credit from NEP 3 (18) Purchases and demand charges and other (4) - Other operation and maintenance DSM 1 - Other 1 (2) Depreciation (4) 7 Taxes, other than income taxes 2 1 Income taxes 1 6 --- --- $ 3 $ 5 === === The entire output of the Company's 10 percent share of the Manchester Street generating station is made available to NEP, and the Company receives a credit on its purchased power bill from NEP for its fuel and other generation and transmission costs. The decrease in these credits in 1996 and a portion of the increase in 1995 reflects fluctuations in the level of reimbursable costs being incurred in the dismantlement of the Company's previously retired South Street generating station. In addition, these credits increased in both 1996 and 1995 in connection with the completion of the Manchester Street Station in 1995. Both of these factors are also reflected in the changes in depreciation expense in 1996 and 1995. The reduction in other operation and maintenance expenses in 1995 reflects decreased distribution system related expenses, partially offset by increased postretirement benefit expenses. The increases in taxes other than income taxes in both 1996 and 1995 is due primarily to increased municipal property taxes. The 1996 increase is primarily attributable to the Manchester Street Station. Allowance for Funds Used During Construction AFDC decreased in both 1996 and 1995. The 1996 decrease is due to the completion in 1995 of the Manchester Street Station, and the 1995 decrease is due to the completion in 1994, of transmission facilities related to the Manchester Street Station. Hazardous Waste The electric utility industry typically utilizes and/or generates in its operations a range of potentially hazardous products and by-products. The Company has been named as a potentially responsible party by either federal or state environmental regulatory agencies for three sites at which hazardous waste is alleged to have been disposed. The Company is aware of approximately five sites on which gas was manufactured or manufactured gas was stored that were owned either by the Company or by its predecessor companies. A more detailed discussion of potential hazardous waste liabilities is contained in Note D-2 of the Notes to the Financial Statements. Predicting the potential costs to investigate and remediate hazardous waste sites continues to be difficult. The Company believes that hazardous waste liabilities for all sites of which it is aware are not material to its financial position. 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. In October 1996, the National Research Council of the National Academy of Sciences released a report stating no conclusive and consistent evidence demonstrates that exposures to residential EMF produce adverse health effects. It is impossible to predict the ultimate impact on the Company 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. 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 the impact on the Company would be if this cause of action is recognized in Rhode Island and in contexts other than condemnation cases. Utility Plant Expenditures and Financing Cash expenditures for utility plant totaled $53 million in 1996. The funds necessary for utility plant expenditures during 1996 were primarily provided by net cash from operating activities, after the payment of dividends. Cash expenditures for utility plant for 1997 are estimated to be approximately $45 million. Internally generated funds are estimated to provide approximately 70 percent of capital expenditure requirements in 1997. Cash expenditures for utility plant are also expected to be funded through the issuance of long-term debt. In 1996, the Company issued $2 million of first mortgage bonds bearing an interest rate of 7.24 percent to refinance higher rate bonds. In November 1995, the Company retired $16 million of first mortgage bonds prior to maturity and incurred premiums of $1.9 million. At December 31, 1996, the Company had $19 million of short-term debt outstanding including $14 million of commercial paper borrowings and $5 million of borrowings from affiliates. As of December 31, 1996, the Company had lines of credit with banks totaling $41 million. There were no borrowings under these lines of credit at December 31, 1996. The Narragansett Electric Company Statements of Income
Year Ended December 31, (In Thousands) 1996 1995 1994 ---- ---- ---- Operating revenue $503,585 $499,113 $481,669 -------- -------- -------- Operating expenses: Fuel for generation and purchased electric energy, (principally from New England Power Company, an affiliate) 297,060 294,652 300,888 Other operation 71,625 71,814 72,872 Maintenance 13,009 11,174 12,281 Depreciation 27,899 31,533 24,813 Taxes, other than federal income taxes 38,530 36,627 35,818 Federal income taxes 11,951 10,888 4,883 -------- -------- -------- Total operating expenses 460,074 456,688 451,555 -------- -------- -------- Operating income 43,511 42,425 30,114 -------- -------- -------- Other income: Allowance for equity funds used during construction 106 1,028 Other income (expense), net (732) (192) (856) -------- -------- -------- Operating and other income 42,779 42,339 30,286 -------- -------- -------- Interest: Interest on long-term debt 17,205 16,627 14,334 Other interest 2,883 3,663 2,897 Allowance for borrowed funds used during construction credit (263) (1,861) (1,534) -------- -------- -------- Total interest 19,825 18,429 15,697 -------- -------- -------- Net income $22,954 $23,910 $14,589 ======== ======== ======== Statements of Retained Earnings Year Ended December 31, (In Thousands) 1996 1995 1994 ---- ---- ---- Retained earnings at beginning of year $108,227 $91,556 $81,659 Net income 22,954 23,910 14,589 Dividends declared on cumulative preferred stock (2,143) (2,143) (2,143) Dividends declared on common stock, $8.00, $4.50, and $2.25 per share, respectively (9,060) (5,096) (2,549) -------- -------- -------- Retained earnings at end of year $119,978 $108,227 $91,556 ======== ======== ======== The accompanying notes are an integral part of these financial statements.
The Narragansett Electric Company Balance Sheets
At December 31, (In Thousands) 1996 1995 ---- ---- Assets Utility plant, at original cost $742,481 $699,906 Less accumulated provisions for depreciation 187,690 173,391 -------- -------- 554,791 526,515 Construction work in progress 5,392 8,733 -------- -------- Net utility plant 560,183 535,248 -------- -------- Current assets: Cash 1,727 1,999 Accounts receivable: From sales of electric energy 54,426 59,760 Other (including $1,253 and $1,464 from affiliates) 3,415 9,330 Less reserves for doubtful accounts 5,149 5,516 -------- -------- 52,692 63,574 Unbilled revenues (Note A-3) 15,300 16,500 Fuel, materials, and supplies, at average cost 4,300 6,245 Prepaid and other current assets 15,919 15,887 -------- -------- Total current assets 89,938 104,205 -------- -------- Deferred charges and other assets (Note B) 56,881 60,168 -------- -------- $707,002 $699,621 ======== ======== Capitalization and Liabilities Capitalization: Common stock, par value $50 per share, authorized and outstanding 1,132,487 shares $56,624 $56,624 Premiums on preferred stocks 170 170 Other paid-in capital 80,000 80,000 Retained earnings 119,978 108,227 -------- -------- Total common equity 256,772 245,021 Cumulative preferred stock, par value $50 per share 36,500 36,500 Long-term debt 178,517 210,892 -------- -------- Total capitalization 471,789 492,413 -------- -------- Current liabilities: Long-term debt due in one year 32,500 Short-term debt (including $5,300 and $1,000 to affiliates) 19,025 22,675 Accounts payable (including $40,425 and $38,510 to affiliates) 45,221 46,247 Accrued liabilities: Taxes 3,877 6,380 Interest 5,677 5,847 Other accrued expenses (Note F) 11,949 19,558 Customer deposits 5,638 5,691 Dividends payable 2,801 1,102 -------- -------- Total current liabilities 126,688 107,500 -------- -------- Deferred federal income taxes 81,880 76,017 Unamortized investment tax credits 7,517 8,016 Other reserves and deferred credits 19,128 15,675 Commitments and contingencies (Note D) -------- -------- $707,002 $699,621 ======== ======== The accompanying notes are an integral part of these financial statements.
The Narragansett Electric Company Statements of Cash Flows
Year Ended December 31, (In Thousands) 1996 1995 1994 ---- ---- ---- Operating activities: Net income $22,954 $23,910 $14,589 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 27,899 31,533 24,813 Deferred federal income taxes and investment tax credits, net 4,177 3,009 3,422 Allowance for funds used during construction (263) (1,967) (2,562) Amortization of unbilled revenues (8,209) (6,158) Decrease (increase) in accounts receivable, net and unbilled revenues 12,082 (2,215) (14,163) Decrease (increase) in fuel, materials, and supplies 1,945 (1,075) (598) Decrease (increase) in prepaid and other current assets (32) (1,894) (2,478) Increase (decrease) in accounts payable (1,026) (9,892) 5,134 Increase (decrease) in other current liabilities (10,335) 9,320 12,312 Other, net 8,236 5,931 5,877 --------- --------- --------- Net cash provided by operating activities $65,637 $48,451 $40,188 --------- --------- --------- Investing activities: Plant expenditures, excluding allowance for funds used during construction $(52,574) $(72,897) $(92,503) Other investing activities (181) (251) (911) --------- --------- --------- Net cash used in investing activities $(52,755) $(73,148) $(93,414) --------- --------- --------- Financing activities: Capital contributions from parent $20,000 $15,000 Dividends paid on common stock $(7,361) (4,813) (2,831) Dividends paid on preferred stock (2,143) (2,143) (2,143) Changes in short-term debt (3,650) (7,125) 10,075 Long-term debt issues 2,000 38,000 33,000 Long-term debt retirements (2,000) (16,000) Premium on reacquisition of long-term debt (1,936) --------- --------- --------- Net cash provided by (used in) financing activities $(13,154) $25,983 $53,101 --------- --------- --------- Net increase (decrease) in cash and cash equivalents $(272) $1,286 $(125) Cash and cash equivalents at beginning of year 1,999 713 838 --------- --------- --------- Cash and cash equivalents at end of year $1,727 $1,999 $713 ========= ========= ========= Supplementary Information: Interest paid less amounts capitalized $18,620 $17,050 $14,015 --------- --------- --------- Federal income taxes paid $8,873 $1,084 $2,982 --------- --------- --------- The accompanying notes are an integral part of these financial statements.
The Narragansett Electric Company Notes to Financial Statements Note A - Significant Accounting Policies 1. Nature of Operations: The Company is a wholly-owned subsidiary of New England Electric System (NEES) operating in Rhode Island. The Company's business is the distribution and sale of electricity at retail. Electric service is provided to approximately 330,000 customers in 27 cities and towns having a population of approximately 725,000 (1990 Census). The Company's service area, which includes urban, suburban, and rural areas, covers approximately 80 percent of Rhode Island. The properties of the Company include an integrated system of transmission and distribution lines and substations. In addition, the Company owns a 10 percent share of the 489 megawatt Manchester Street generating station. The entire output of this plant is made available to New England Power Company (NEP), the Company's wholesale generating affiliate, as part of the integrated NEES system. Under a contract with NEP, the Company purchases all of its electric energy requirements from NEP. The contract provides for the integration of the Company's generating and transmission facilities with NEP's facilities in order to achieve maximum economy and reliability. The contract also provides for the application of credits against the Company's power bills from NEP for costs associated with the Company's facilities so integrated. This contract requires either party to give seven years notice prior to terminating the contract. (See Note B for a discussion of industry restructuring and NEP's and the Company's proposed divestiture of their generating business.) 2. System of Accounts: The accounts of the Company are maintained in accordance with the Uniform System of Accounts prescribed by regulatory bodies having jurisdiction. In preparing the financial statements, management is required to make estimates that affect the reported amounts of assets and liabilities and disclosures of asset recovery and contingent liabilities as of the date of the balance sheets and revenues and expenses for the period. These estimates may differ from actual amounts if future circumstances cause a change in the assumptions used to calculate these estimates. 3. Electric Sales Revenue: The Company accrues revenues for electricity delivered but not yet billed (unbilled revenues). Included in income were $8 million in 1995 and $6 million in 1994, which represented the amortization over 21 months of the initial effect of recording unbilled revenues, in accordance with a rate agreement. Accrued revenues are also recorded in accordance with rate adjustment mechanisms. 4. Allowance for Funds Used During Construction (AFDC): The Company capitalizes AFDC as part of construction costs. AFDC represents the composite interest and equity costs of capital funds used to finance that portion of construction costs not yet eligible for inclusion in rate base. AFDC is capitalized in "Utility plant" with offsetting noncash credits to "Other income" and "Interest." This method is in accordance with an established rate-making practice under which a utility is permitted a return on, and the recovery of, prudently incurred capital costs through their ultimate inclusion in rate base and in the provision for depreciation. The composite AFDC rates were 5.3 percent, 6.2 percent, and 6.8 percent in 1996, 1995, and 1994, respectively. 5. Depreciation: Depreciation is provided annually on a straight-line basis. The provision for depreciation as a percentage of weighted average depreciable property was 4.0 percent, 5.0 percent, and 4.5 percent in 1996, 1995, and 1994, respectively. The change in the depreciation rates in 1996 and 1995 is primarily due to the recognition through depreciation expense of dismantlement costs for a retired generating facility. 6. Cash: The Company classifies short-term investments with a maturity of 90 days or less at time of purchase as cash. Note B - Industry Restructuring For the past several years, the electric utility business has been subjected to rapidly increasing competitive pressures stemming from a number of trends, including the presence of surplus generating capacity, a disparity in electric rates among regions of the country, improvements in generation efficiency, increasing demand for customer choice, and new regulations and legislation intended to foster competition. In the recent past, this competition was most prominent in the bulk power market, in which nonutility generators have significantly increased their market share. Despite increased competition in the bulk power market, competition in the retail market has been limited as electric utilities have maintained exclusive franchises for the retail sale of electricity in specified service territories. In states across the country, including Rhode Island, there have been proposals to allow retail customers to choose their electricity supplier, with incumbent utilities required to deliver that electricity over their transmission and distribution systems (also known as "retail wheeling"). When electricity customers are allowed to choose their electricity supplier, utilities across the country will face the risk that market prices may not be sufficient to recover the costs of the commitments incurred to supply customers under a regulated structure. The amounts by which costs exceed market prices are commonly referred to as "stranded costs." The Company currently purchases electricity on behalf of its customers under a wholesale all-requirements contract with NEP. As described below, comprehensive legislation was enacted in Rhode Island which, when all regulatory approvals are in place, would allow recovery of NEP's above-market commitments to retail customers in Rhode Island, which make up 22 percent of NEP's all- requirements sales. In August 1996, the state of Rhode Island enacted pioneering legislation that allows customers in that state the opportunity to choose their electricity supplier. Under the Rhode Island statute, state accounts, certain new customers, and the largest manufacturing customers will be able to choose their supplier beginning on July 1, 1997. These customers represent approximately 10 percent of the Company's kilowatt-hour (kWh) sales. The balance of Rhode Island customers will be able to choose their supplier in 1998, with an additional 10 percent of customers load having choice on January 1 and the remainder on July 1. All Rhode Island customers would have choice of supplier beginning January 1, 1998 if retail access is available to 40 percent or more of the kWh sales in New England by that date. The statute calls for NEP's contract with the Company to be amended to permit a gradual, early termination of all-requirements service. The amendment provides that, in return, the Company's 22 percent share of the cost of NEP's above-market generation commitments (estimated at approximately $1 billion on a present-value basis) would be recovered through a contract termination charge. This charge will, in turn, be paid by customers that use the Company's distribution facilities. Those commitments consist of (i) generating plant commitments, (ii) regulatory assets, (iii) the above-market component of purchased power contracts, and (iv) the operating cost of nuclear plants which cannot be avoided by shutting down the plants, including nuclear decommissioning. Sunk costs associated with generating plants and regulatory assets would be recovered over a period of 12.5 years. The above-market component of purchased power contracts and the nuclear decommissioning costs would be recovered as incurred over the life of those obligations, a period expected to extend beyond 12 years. The transition access charge would be reduced to reflect the net proceeds from the sale of the NEES companies' generating assets. (See "Divestiture of Generation Business" section below.) The initial transition access charge, before the application of those proceeds, would be set at 2.8 cents per kWh through December 31, 2000, and is expected to decline thereafter. The statute also establishes performance-based rates for distribution utilities, such as the Company. Under the statute, the Company increased distribution rates by approximately $11 million in 1997, and is entitled to a similar increase in 1998. In addition, in 1997, the Company's return on equity from distribution operations will be subject to a floor of 6 percent and a ceiling of 11 percent. Earnings over the ceiling will be shared equally between customers and shareholders up to a maximum return on equity from distribution operations of 12.5 percent. This sharing results in an effective cap on shareholder's return on equity of 11.75 percent. To the extent that earnings fall below the floor, the Company will be authorized to surcharge customers for the shortfall. NEP and the Company filed with the Federal Energy Regulatory Commission (FERC) an amendment to their all-requirements contract in order to implement the statute. The FERC has set down the amendment for hearing. The Company has indicated it is willing to make certain changes to its plan in Rhode Island to parallel provisions in a similar Massachusetts settlement. The Massachusetts settlement was approved by the Massachusetts Department of Public Utilities on February 26, 1997. The settlement provides for retail choice for Massachusetts customers in 1998 and the recovery of NEP's above-market commitments to serve those customers. Implementation of other aspects of the statute is subject to approval of the Rhode Island Public Utilities Commission (RIPUC). A number of proposals for federal legislation related to industry restructuring have been brought forward for consideration by the current Congress. The scope and aim of these vary widely; however, the NEES companies and others will argue that state settlements should be respected. The Company cannot predict what federal legislation, if any, may be enacted. Divestiture of Generation Business NEP and the Company agreed to the divestiture of their fossil and hydroelectric generating facilities as part of industry restructuring. Such divestiture must be accomplished within six months of the later of the commencement of retail choice in Massachusetts, currently scheduled for January 1, 1988, or the receipt of all necessary regulatory approvals. The Company will be compensated by NEP for any difference between the sale price of the Company's share of the Manchester Street Station and its net book value. Proposals are being solicited for the acquisition of the nonnuclear generating business, with the objective of reaching definitive purchase and sale agreements by mid-1997. Closing would follow the receipt of regulatory approvals, which are expected to take at least six to 12 months following the execution of purchase and sale agreements. The Rhode Island statute also requires the Company to transfer its transmission assets to NEP at net book value. Accounting Implications Historically, electric utility rates have been based on a utility's costs. As a result, electric utilities are subject to certain accounting standards that are not applicable to other business enterprises in general. Financial Accounting Standards No. 71, Accounting for the Effects of Certain Types of Regulation (FAS 71), requires regulated entities, in appropriate circumstances, to establish regulatory assets, and thereby defer the income statement impact of certain costs expected to be recovered in future rates. The Company has recorded approximately $44 million in net regulatory assets in compliance with FAS 71. The Company believes that the continuing rate-making policies and practices of the RIPUC and the terms of the Rhode Island statute will enable the Company to recover both its specific costs of providing ongoing distribution services and stranded costs billed to it by NEP. The Company believes that these factors will allow it to continue to apply FAS 71. In the event that future circumstances should cause the application of FAS 71 to be discontinued, a noncash write-off of previously established regulatory assets and liabilities would be required. The components of regulatory assets are as follows:
At December 31, (In Thousands) 1996 1995 ---- ---- Regulatory assets (liabilities) included in current assets and liabilities: Rate adjustment mechanisms (see Note F) $(2,870) $(7,661) -------- -------- Regulatory assets included in deferred charges: Deferred SFAS No. 109 costs (see Note C) 30,439 29,251 Unamortized losses on reacquired debt 13,287 13,918 Deferred SFAS No. 106 costs (see Note E 2) 2,487 4,894 Deferred storm costs 3,676 Other 5,656 3,900 -------- -------- 51,869 55,639 -------- -------- Regulatory liabilities reflected in other reserves and deferred credits - storm fund (4,691) - -------- -------- $44,308 $47,978 ======== ======== Amounts included in "Deferred charges and other assets" on the Company's balance sheets that do not represent regulatory assets totaled $5,012,000 and $4,529,000 at December 31, 1996 and 1995, respectively.
Note C - Federal Income Taxes The Company and other subsidiaries participate with NEES in filing consolidated federal income tax returns. The Company's income tax provision is calculated on a separate return basis. Federal income tax returns have been examined and reported on by the Internal Revenue Service (IRS) through 1991. The returns for 1992 and 1993 are currently under examination by the IRS. Total federal income taxes consist of the following components:
Year Ended December 31, (In Thousands) 1996 1995 1994 ---- ---- ---- Income taxes charged to operations: Current income taxes $ 7,499 $7,560 $1,511 Deferred income taxes 4,950 3,831 3,880 Investment tax credits, net (498) (503) (508) ------- ------- ------- Total income taxes charged to operations 11,951 10,888 4,883 ------- ------- ------- Income taxes charged (credited) to "Other income": Current income taxes (581) (348) (491) Deferred income taxes (275) (319) 50 ------- ------- ------- Total income taxes charged (credited) to "Other income" (856) (667) (441) ------- ------- ------- Total federal income taxes $11,095 $10,221 $4,442 ======= ======= ======= Investment tax credits have been deferred and are being amortized over the estimated lives of the property giving rise to the credits.
Consistent with rate-making policies of the RIPUC, the Company has adopted comprehensive interperiod tax allocation (normalization) for most temporary book/tax differences. Total federal income taxes differ from the amounts computed by applying the federal statutory tax rates to income before taxes. The reasons for the differences are as follows:
Year Ended December 31, (In Thousands) 1996 1995 1994 ---- ---- ---- Computed tax at statutory rate $11,917 $11,946 $6,661 Increases (reductions) in tax resulting from: Book versus tax depreciation not normalized 778 529 653 Costs associated with utility plant retirements deducted for tax purposes (1,341) (1,768) (1,872) Allowance for equity funds used during construction - (37) (360) Amortization of investment tax credits (498) (503) (508) All other differences 239 54 (132) ------- ------- ------- Total federal income taxes $11,095 $10,221 $4,442 ======= ======= ======= The following table identifies the major components of total deferred income taxes: At December 31, (In Millions) 1996 1995 ---- ---- Deferred tax asset: Plant related $2 $2 Investment tax credits 3 3 All other 13 13 ----- ----- 18 18 ===== ===== Deferred tax liability: Plant related (67) (62) All other (33) (32) ----- ----- (100) (94) ----- ----- Net deferred tax liability $(82) $(76) ===== ===== There were no valuation allowances for deferred tax assets deemed necessary.
Note D - Commitments and Contingencies 1. Plant Expenditures: The Company's utility plant expenditures are estimated to be approximately $45 million in 1997. At December 31, 1996, substantial commitments had been made relative to future planned expenditures. 2. Hazardous Waste: The Federal Comprehensive Environmental Response, Compensation and Liability Act, more commonly know as the "Superfund" law, imposes strict, joint and several liability, regardless of fault, for remediation of property contaminated with hazardous substances. The electric utility industry typically utilizes and/or generates in its operations a range of potentially hazardous products and by-products. NEES subsidiaries currently have in place an internal environmental audit program and an external waste disposal vendor audit and qualification program intended to enhance compliance with existing federal, state, and local requirements regarding the handling of potentially hazardous products and by-products. The Company has been named as a potentially responsible party (PRP) by either the United States Environmental Protection Agency or the Massachusetts Department of Environmental Protection for three sites (two of which are located in Massachusetts) at which hazardous waste is alleged to have been disposed. The Company is currently aware of other sites, and may in the future become aware of additional sites, that it may be held responsible for remediating. Gas was manufactured from coal in Rhode Island in the past. The Company is aware of five sites on which gas was manufactured or manufactured gas was stored that were owned either by the Company or by its predecessor companies. It is not known to what extent the Company would be held liable for hazardous wastes, if any, left at these manufactured gas locations. Predicting the potential costs to investigate and remediate hazardous waste sites continues to be 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 the Company. A preliminary review by a consultant hired by the NEES companies of the potential cost of investigating and, if necessary, remediating Rhode Island manufactured gas sites resulted in costs per site ranging from less than $1 million to $11 million. An informal survey of other utilities conducted on behalf of NEES and its subsidiaries indicated costs in a similar range. Where appropriate, the Company intends to seek recovery from its insurers and from other PRPs, but it is uncertain whether, and to what extent, such efforts will be successful. The Company believes that hazardous waste liabilities for all sites of which it is aware are not material to its financial position. In October 1996, the American Institute of Certified Public Accountants issued new accounting rules for Environmental Remediation Liabilities which become effective in 1997. The Company does not believe these new rules will have a material effect on its financial position or results of operations. Note E - Employee Benefits 1. Pension Plans: The Company participates with other subsidiaries of NEES in noncontributory, defined-benefit plans covering substantially all employees of the Company. The plans provide pension benefits based on the employee's compensation during the five years prior to retirement. The Company's funding policy is to contribute each year the net periodic pension cost for that year. However, the contribution for any year will not be less than the minimum contribution required by federal law or greater than the maximum tax deductible amount. Net pension cost for 1996, 1995, and 1994 included the following components:
Year Ended December 31, (In Thousands) 1996 1995 1994 ---- ---- ---- Service cost benefits earned during the period $2,007 $1,963 $1,877 Plus (less): Interest cost on projected benefit obligation 8,954 9,327 8,629 Return on plan assets at expected long-term rate (9,787) (9,567) (9,024) Amortization 165 67 567 ------- ------- ------- Net pension cost $1,339 $1,790 $2,049 ------- ------- ------- Actual return on plan assets $17,228 $25,192 $809 ======= ======= ======= 1997 1996 1995 1994 ---- ---- ---- ---- Assumptions used to determine pension cost: Discount rate 7.25% 7.25% 8.25% 7.25% Average rate of increase in future compensation levels 4.13% 4.13% 4.63% 4.35% Expected long-term rate of return on assets 8.50% 8.50% 8.75% 8.75%
The funded status of the plans cannot be presented separately for the Company as the Company participates in the plans with other NEES subsidiaries. The following table sets forth the funded status of the NEES companies' plans at December 31:
Retirement Plans, (In Millions) 1996 1995 ---- ---- Union Non-Union Union Non-Union Employee Employee Employee Employee Plans Plans Plans Plans -------- --------- -------- --------- Benefits earned Actuarial present value of accumulated benefit liability: Vested $298 $342 $293 $343 Nonvested 9 10 8 10 ---- ---- ---- ---- Total $307 $352 $301 $353 ==== ==== ==== ==== Reconciliation of funded status Actuarial present value of projected benefit liability $355 $398 $346 $402 Unrecognized prior service costs (6) (3) (7) (4) SFAS No. 87 transition liability not yet recognized (amortized) - (1) (1) Net gain (loss) not yet recognized (amortized) 25 15 (1) (23) ---- ---- ---- ---- 374 409 338 374 ---- ---- ---- ---- Pension fund assets at fair value 384 428 349 392 SFAS No. 87 transition asset not yet recognized (amortized) (10) - (11) ---- ---- ---- ---- 374 428 338 392 ---- ---- ---- ---- Accrued pension/(prepaid) payments recorded on books $ - $(19) $ - $(18)
The plans' funded status at December 31, 1996 and 1995 were calculated using the assumed rates from 1997 and 1996, respectively, and the 1983 Group Annuity Mortality table. Plan assets are composed primarily of corporate equity, debt securities, and cash equivalents. 2.Postretirement Benefit Plans Other Than Pensions (PBOPs) The Company provides health care and life insurance coverage to eligible retired employees. Eligibility is based on certain age and length of service requirements and in some cases retirees must contribute to the cost of their coverage. The total cost of PBOPs for 1996, 1995, and 1994 included the following components:
Year Ended December 31, (In Thousands) 1996 1995 1994 ---- ---- ---- Service cost - benefits earned during the period $1,030 $1,072 $1,252 Plus (less): Interest cost on accumulated benefit obligation 5,034 6,006 5,630 Return on plan assets at expected long-term rate (2,803) (2,080) (1,640) Amortization 2,739 3,539 3,716 ------- ------- ------- Net postretirement benefit cost $6,000 $8,537 $8,958 ======= ======= ======= Actual return (loss) on plan assets $5,469 $6,161 $(23) ======= ======= ======= 1997 1996 1995 1994 ---- ---- ---- ---- Assumptions used to determine postretirement benefit cost: Discount rate 7.25% 7.25% 8.25% 7.25% Expected long-term rate of return on assets 8.25% 8.25% 8.50% 8.50% Health care cost rate 1994 11.00% Health care cost rate 1995 to 1999 8.00% 8.00% 8.50% 8.50% Health care cost rate 2000 to 2004 6.25% 6.25% 8.50% 8.50% Health care cost rate 2005 and beyond 5.25% 5.25% 6.25% 6.25% The following table sets forth benefits earned and the plans' funded status: At December 31, (In Millions) 1996 1995 ---- ---- Accumulated postretirement benefit obligation: Retirees $51 $50 Fully eligible active plan participants 5 6 Other active plan participants 19 20 ---- ---- Total benefits earned 75 76 Unrecognized transition obligation (62) (66) Net gain not yet recognized 22 16 ---- ---- 35 26 Plan assets at fair value 42 34 ---- ---- Prepaid postretirement benefit costs recorded on books $7 $8 ==== ====
The plans' funded status at December 31, 1996 and 1995 were calculated using the assumed rates in effect for 1997 and 1996, respectively. The assumptions used in the health care cost trends have a significant effect on the amounts reported. Increasing the assumed rates by 1 percent in each year would increase the accumulated postretirement benefit obligation as of December 31, 1996 by approximately $9 million and the net periodic cost for 1996 by approximately $1 million. The Company funds the annual tax-deductible contributions. Plan assets are invested in equity and debt securities and cash equivalents. Note F - Short-term Borrowings and Other Accrued Expenses At December 31, 1996, the Company had $19 million of short-term debt outstanding including $14 million in commercial paper borrowings and $5 million of borrowings from affiliates. NEES and certain subsidiaries, including the Company, with regulatory approval, operate a money pool to more effectively utilize cash resources and to reduce outside short-term borrowings. Short-term borrowing needs are met first by available funds of the money pool participants. Borrowing companies pay interest at a rate designed to approximate the cost of outside short-term borrowings. Companies which invest in the pool share the interest earned on a basis proportionate to their average monthly investment in the money pool. Funds may be withdrawn from or repaid to the pool at any time without prior notice. At December 31, 1996, the Company had lines of credit with banks totaling $41 million. There were no borrowings under these lines of credit at December 31, 1996. Fees are paid in lieu of compensating balances on most lines of credit. The weighted average rate on outstanding short-term borrowings was 6.0 percent at December 31, 1996. The fair value of the Company's short-term debt equals carrying value.
The components of other accrued expenses are as follows: At December 31, (In Thousands) 1996 1995 ---- ---- Rate adjustment mechanisms $4,632 $14,075 Accrued wages and benefits 7,259 5,483 Other 58 - ------- ------- $11,949 $19,558 ======= =======
Note G - Cumulative Preferred Stock
A summary of cumulative preferred stock at December 31, 1996 and 1995 is as follows (in thousands of dollars except for share data): Shares Authorized Dividends Call and Outstanding Amount Declared Price --------------- ------ ------------- ----- 1996 1995 1996 1995 1996 1995 ---- ---- ---- ---- ---- ---- $50 Par value 4.50% Series 180,000 180,000 $9,000 $9,000 $405 $405 55.000 4.64% Series 150,000 150,000 7,500 7,500 348 348 52.125 6.95% Series 400,000 400,000 20,000 20,000 1,390 1,390 (a) ------- ------- ------- ------- ------ ------ Total 730,000 730,000 $36,500 $36,500 $2,143 $2,143 ======= ======= ======= ======= ====== ====== (a)Callable on or after August 1, 2003 at $51.74. The annual dividend requirement for total cumulative preferred stock was $2,143,000 for 1996 and 1995.
Note H - Long-term Debt
A summary of long-term debt is as follows: At December 31, (In Thousands) Series Rate % Maturity 1996 1995 - ----------------------------------------------------------------------------- First Mortgage Bonds: U(92-1) 7.230 June 3, 1997 $10,000 $10,000 U(92-2) 7.210 June 3, 1997 5,000 5,000 U(92-3) 7.000 June 16, 1997 10,000 10,000 U(92-7) 5.700 September 16, 1997 7,500 7,500 V(95-1) 7.810 February 16, 1998 5,000 5,000 V(94-2) 6.960 May 3, 1999 2,000 2,000 V(94-3) 6.910 May 4, 1999 1,000 1,000 U(92-6) 6.630 August 12, 1999 5,000 5,000 U(92-5) 6.980 July 17, 2000 5,000 5,000 U(92-8) 6.340 September 18, 2000 10,000 10,000 U(92-4) 7.830 June 17, 2002 15,000 15,000 U(93-1) 7.080 January 13, 2003 7,500 7,500 U(93-2) 6.560 April 15, 2003 5,000 5,000 U(93-4) 6.350 July 1, 2003 5,000 5,000 V(94-4) 7.420 June 15, 2004 5,000 5,000 V(94-6) 8.330 November 8, 2004 10,000 10,000 U(93-3) 6.650 June 30, 2008 5,000 5,000 S 9.125 May 1, 2021 22,200 22,200 T 8.875 August 1, 2021 22,000 24,000 U(93-5) 7.050 September 1, 2023 5,000 5,000 U(94-1) 7.050 February 2, 2024 5,000 5,000 V(94-1) 8.080 May 2, 2024 5,000 5,000 V(94-5) 8.160 August 9, 2024 5,000 5,000 V(95-2) 7.750 June 2, 2025 10,000 10,000 V(95-3) 7.500 October 10, 2025 7,000 7,000 W(95-1) 7.300 November 13, 2025 16,000 16,000 W(96-1) 7.240 January 19,2026 2,000 - Unamortized discounts and premiums (1,183) (1,308) -------- -------- Total long-term debt $211,017 $210,892 ======== ======== Long-term debt due in one year 32,500 - -------- -------- $178,517 $210,892 ======== ========
Substantially all of the properties and franchises of the Company are subject to the lien of mortgage indentures under which the first mortgage bonds have been issued. The Company will make cash payments of $32,500,000 in 1997, $5,000,000 in 1998, $8,000,000 in 1999, and $15,000,000 in 2000 to retire maturing mortgage bonds. There are no cash payments required in 2001. At December 31, 1996, the Company's long-term debt had a carrying value of approximately $211,000,000 and had a fair value of approximately $203,000,000. The fair market value of the Company's long-term debt was estimated based on the quoted prices for similar issues or on the current rates offered to the Company for debt of the same remaining maturity. Note I - Restrictions on Retained Earnings Available for Dividends on Common Stock As long as any preferred stock is outstanding, certain restrictions on payment of dividends on common stock would come into effect if the "junior stock equity" was, or by reason of payment of such dividends became, less than 25 percent of "Total capitalization." However, the junior stock equity at December 31, 1996 was 51 percent of total capitalization and, accordingly, none of the Company's retained earnings at December 31, 1996 were restricted as to dividends on common stock under the foregoing provisions. Note J - Regulatory Matters A 1986 Rhode Island Supreme Court decision held that the RIPUC's rate-making powers include the authority to order refunds of amounts earned in excess of an allowed return. As a result, the RIPUC monitors the Company's earnings on a regular basis. Note K - Supplementary Income Statement Information Advertising expenses, expenditures for research and development, and rents were not material and there were no royalties paid in 1996, 1995, or 1994. Taxes, other than federal income taxes, charged to operating expenses are set forth by class as follows:
Year Ended December 31, 1996 1995 1994 (In Thousands) ---- ---- ---- Municipal property taxes $16,546 $15,172 $13,944 State gross earnings tax 18,764 18,617 19,270 Federal and state payroll and other taxes 3,220 2,838 2,604 ------- ------- ------- $38,530 $36,627 $35,818 ======= ======= =======
New England Power Service Company, an affiliated service company operating pursuant to the provisions of Section 13 of the Public Utility Holding Company Act of 1935, furnished services to the Company at the cost of such services. These costs amounted to $27,336,438, $29,094,719, and $32,445,000, including capitalized construction costs of $6,426,000, $6,268,000, and $7,756,000 for each of the years 1996, 1995, and 1994, respectively. The Narragansett Electric Company Operating Statistics (Unaudited)
Year Ended December 31, 1996 1995 1994 1993 1992 ---- ---- ---- ---- ---- Sources of Energy (Thousands of kWh) Net generation for New England Power Company, an affiliate 329,883 64,035 5,781 4,506 83,753 Purchased energy: From New England Power Company (net of generation) 4,698,017 4,955,575 5,001,843 4,982,254 4,729,733 From others 2,422 2,080 2,909 2,343 2,249 -------------------------------------------------- Total generated and purchased 5,030,322 5,021,690 5,010,533 4,989,103 4,815,735 Losses, company use, etc. (251,709) (260,960) (263,234) (270,373) (229,106) -------------------------------------------------- Total sources of energy 4,778,613 4,760,730 4,747,299 4,718,730 4,586,629 ================================================== Sales of Energy (Thousands of kWh) Residential 1,847,111 1,835,085 1,843,970 1,817,675 1,783,754 Commercial 2,035,294 2,031,541 1,983,508 1,931,377 1,877,738 Industrial 847,877 843,635 868,092 917,305 869,062 Other 47,745 49,881 51,138 51,821 55,476 -------------------------------------------------- Total sales to ultimate customers 4,778,027 4,760,142 4,746,708 4,718,178 4,586,030 Sales for resale 586 588 591 552 599 -------------------------------------------------- Total sales of energy 4,778,613 4,760,730 4,747,299 4,718,730 4,586,629 ================================================== Annual Maximum Demand (kW one hour peak) 929,000 1,031,000 1,005,000 939,000 919,000 Average Annual Use per Residential Customer (kWh) 6,304 6,305 6,397 6,337 6,265 Number of Customers at December 31 Residential 294,274 292,659 289,317 287,876 286,228 Commercial 33,101 32,412 32,195 31,948 31,534 Industrial 1,778 1,792 1,825 1,869 1,914 Other 868 873 875 878 941 -------------------------------------------------- Total ultimate customers 330,021 327,736 324,212 322,571 320,617 Other electric companies (for resale) 2 2 2 1 3 -------------------------------------------------- Total customers 330,023 327,738 324,214 322,572 320,620 ================================================== Operating Revenue (In Thousands) Residential $216,103 $205,649 $200,778 $202,522 $196,983 Commercial 202,219 198,429 189,059 190,185 183,702 Industrial 68,447 72,071 72,136 78,088 76,275 Other 7,809 7,236 6,883 6,778 6,587 -------------------------------------------------- Total revenue from ultimate customers 494,578 483,385 468,856 477,573 463,547 Amortization of unbilled revenues - 8,209 6,158 - - Sales for resale 75 70 68 64 68 -------------------------------------------------- Total revenue from electric sales 494,653 491,664 475,082 477,637 463,615 Other operating revenue 8,932 7,449 6,587 5,391 4,637 -------------------------------------------------- Total operating revenue $503,585 $499,113 $481,669 $483,028 $468,252 ==================================================
The Narragansett Electric Company Selected Financial Information
Year Ended December 31, (In Millions) 1996 1995 1994 1993 1992 ---- ---- ---- ---- ---- Operating revenue: Electric sales (excluding fuel cost recovery) $361 $361 $356 $351 $342 Fuel cost recovery 134 131 120 127 121 Other 9 7 6 5 5 ------ ------ ------ ------ ------ Total operating revenue $504 $499 $482 $483 $468 Net income $23 $24 $15 $14 $21 Total assets $707 $700 $647 $556 $479 Capitalization: Common equity $257 $245 $208 $183 $176 Cumulative preferred stock 36 36 37 37 27 Long-term debt 179 211 189 156 143 ------ ------ ------ ------ ------ Total capitalization $472 $492 $434 $376 $346 Preferred dividends declared $2 $2 $2 $2 $2 Common dividends declared $9 $5 $3 $5 $5
Selected Quarterly Financial Information (Unaudited)
First Second Third Fourth (In Thousands) Quarter Quarter Quarter Quarter ------- ------- ------- ------- 1996 Operating revenue $127,285 $116,470 $140,481 $119,349 Operating income $12,286 $8,245 $13,419 $9,561 Net income $6,290 $3,117 $8,169 $5,378 1995 Operating revenue $125,020 $116,426 $139,217 $118,450 Operating income $12,645 $7,301 $12,699 $9,780 Net income $7,766 $3,058 $7,939 $5,147
Per share data is not relevant because the Company's common stock is wholly-owned by New England Electric System. A copy of The Narragansett Electric Company's Annual Report on Form 10-K to the Securities and Exchange Commission for the year ended December 31, 1996 will be available on or about April 1, 1997, without charge, upon written request to The Narragansett Electric Company, Shareholder Services Department, 280 Melrose Street, Providence, Rhode Island 02901. EX-24 35 NARRA POWER OF ATTORNEY EXHIBIT (24) POWER OF ATTORNEY ----------------- Each of the undersigned directors of The Narragansett Electric Company (the "Company"), individually as a director of the Company, hereby constitutes and appoints John G. Cochrane, Patricia M. Needham, and Robert K. Wulff, individually, as attorney-in-fact to execute on behalf of the undersigned the Company's annual report on Form 10-K for the year ended December 31, 1996, to be filed with the Securities and Exchange Commission, and to execute any appropriate amendment or amendments thereto as may be required by law. Dated this 25th day of March, 1997. s/Joan T. Bok s/Joseph J. Kirby _________________________ _________________________ Joan T. Bok Joseph J. Kirby s/Stephen A. Cardi s/Robert L. McCabe _________________________ _________________________ Stephen A. Cardi Robert L. McCabe s/Richard W. Frost _________________________ _________________________ Richard W. Frost John W. Rowe s/Frances H. Gammell _________________________ _________________________ Frances H. Gammell Richard P. Sergel s/William E. Trueheart _________________________ William E. Trueheart EX-27 36 NARRA FDS
UT THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE SHEET AND RELATED STATEMENTS OF INCOME, RETAINED EARNINGS AND CASH FLOWS OF THE NARRAGANSETT ELECTRIC COMPANY, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000069659 The Narragansett Electric Company 1,000 DEC-31-1996 DEC-31-1996 12-MOS PER-BOOK 560,183 0 89,938 56,881 0 707,002 56,624 80,170 119,978 256,772 0 36,500 178,517 5,300 0 13,725 32,500 0 0 0 183,688 707,002 503,585 11,951 448,123 460,074 43,511 (732) 42,779 19,825 22,954 2,143 20,811 9,060 17,205 65,637 0 0 Total deferred charges includes other assets. Per share data is not relevant because the Company's common stock is wholly-owned by New England Electric System. -----END PRIVACY-ENHANCED MESSAGE-----