-----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, K1dDgBpgH6mZleuXZ1Q9Ax6GPfis/UbAhV35GauRnJ8YcA+i8LWyc0RQ9ONhxfKr cYvW0LxNx1FrphAPCf7gHQ== 0000071297-98-000029.txt : 19980504 0000071297-98-000029.hdr.sgml : 19980504 ACCESSION NUMBER: 0000071297-98-000029 CONFORMED SUBMISSION TYPE: U5S PUBLIC DOCUMENT COUNT: 19 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980501 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: U5S SEC ACT: SEC FILE NUMBER: 001-03446 FILM NUMBER: 98607704 BUSINESS ADDRESS: STREET 1: 25 RESEARCH DR CITY: WESTBOROUGH STATE: MA ZIP: 01581 BUSINESS PHONE: 5083669011 U5S 1 File No. 30-33 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. FORM U-5-S ANNUAL REPORT FOR THE YEAR ENDED DECEMBER 31, 1997 Filed pursuant to the Public Utility Holding Company Act of 1935 by LOGO NEW ENGLAND ELECTRIC SYSTEM 25 Research Drive, Westborough, Massachusetts 01582 Item 1. SYSTEM COMPANIES AND INVESTMENT THEREIN AS OF DECEMBER 31, 1997 (1)
Value Per Books of Percent of Issuer and Number of Voting Power Carrying Name of Company Common Shares (100% unless Value (and abbreviation used herein) Owned Specified) to Owner - ------------------------------ ------------- ------------ --------- (000's) New England Electric System (Voluntary Association) (NEES) None Granite State Electric Company (Granite) 60,400 $ 20,867 Granite State Energy, Inc. (Granite State Energy) 1,000 (283) Unsecured Debt - 445 Massachusetts Electric Company (Mass Electric) 2,398,111 500,300 Nantucket Electric Company (Nantucket) 1 4,669 The Narragansett Electric Company (Narragansett) 1,132,487 291,691 Narragansett Energy Resources Company (NERC) 25 2,846 Unsecured Debt - 750 NEES Energy, Inc. (NEES Energy) 1,000 (9,455) Unsecured Debt - 22,717 NEES Global Transmission, (2) Inc. (NEES Global) 1,000 (9,159) Unsecured Debt - 14,074 New England Hydro-Transmission Electric Company, Inc. (NEHTEC) 1,866,050 53.97 26,499 New England Hydro-Transmission Corporation (NEHTC) 9,254 53.97 17,317 New England Electric Transmission Corporation (NEET) 100 2,661 New England Energy Incorporated (NEEI) (3) 2,500 (25,766) Unsecured debt - 23,092 New England Power Service Company (NEPSCO) 3 18,189 New England Power Company (NEP) 6,449,896 99.71 913,019 Investment in NEP Preferred Stock 29,274 NEES Communications, Inc. (NEESCom) (4) 1,000 (633) Unsecured debt - 925 ---------- $1,844,039 ========== New England Hydro Finance Company (NEHFC) (5) 504 53.97 $ 5 NERC Ocean State Power (6) - 20.04 $ 19,529 Ocean State Power II (6) - 20.04 $ 15,206 NEES Energy AllEnergy Marketing Company, LLC (AllEnergy) (7) - 99 Texas Liquids Ltd, Inc. NEES Global AllEnergy Marketing Company, LLC (AllEnergy) (7) 1 Texas Liquids Ltd, Inc. NEP Connecticut Yankee Atomic Power Company 52,500 15 $ 16,585 Maine Yankee Atomic Power Company 100,000 20 $ 15,627 Vermont Yankee Nuclear Power Corporation 80,002 20 $ 10,526 Yankee Atomic Electric Company 46,020 30 $ 7,087 New England Wholesale Electric Company (8)* NEERI International (9) * - -------------------- *Inactive.
(1) Attached as Exhibit E.1. hereto is a schedule showing investments during the year ended December 31, 1997 in the NEES Money Pool, through which certain System companies lend to or borrow from other System companies (Commission File Nos. 70-8679, 70-8901, and 70-9089). (2) At the board meeting held June 16, 1997, New England Electric Resources, Inc. was renamed NEES Global Transmission, Inc. NEES Global is a wholly-owned, nonutility subsidiary of NEES which provides consulting and independent project development services domestically and internationally to nonaffiliates. (3) Samedan/NEEI Exploration Company was a partnership engaged in oil and gas exploration and development. NEEI owns a 50% interest in the partnership and had invested 738,024,794 in the partnership as of December 31, 1997. NEEI sold it's oil and gas properties in February 1998. (4) NEESCom is a wholly-owned, nonutility subsidiary of NEES which provides telecommunications and information-related products and services, and was formed under the laws of Massachusetts on August 2, 1996. (5) NEHFC has two shareholders, NEHTEC and NEHTC, which each have a 50% interest. The tabulation shown above reflects NEES' indirect ownership in NEHFC. (6) Both Ocean State Power and Ocean State Power II are general partnerships; NERC owns a 20% equity interest in each. (7) AllEnergy, a Massachusetts Limited Liability Corporation, was formed on September 18, 1996 as an energy marketing joint venture between NEES Energy and a wholly-owned subsidiary of Eastern Enterprises, a regional gas holding company. On December 3, 1997, NEES purchased Eastern Enterprises 50% interest. With this purchase, ALLEnergy became a wholly-owned indirect subsidiary of NEES. NEES Energy owns a 99% interest and NEES Global owns a 1% interest. In December, 1996, AllEnergy acquired Texas Liquids LTD, Inc. of New Jersey. (8) Incorporated in 1972; not yet capitalized. (9) In July 1996, NEERI International, a wholly-owned subsidiary of NEES Global, was formed under the laws of the Cayman Islands. NEES Global owned two shares of NEERI International until December 22, 1997, at which time NEES Global sold its two shares to a non- affiliated third party. Item 2. ACQUISITION OR SALES OF UTILITY ASSETS (See attached Exhibit F, FERC Form 1 pages.) Item 3. ISSUE, SALE, PLEDGE, GUARANTEE OR ASSUMPTION OF SYSTEM SECURITIES (None to be reported.) Item 4. ACQUISITION, REDEMPTION OR RETIREMENT OF SYSTEM SECURITIES
Calendar Year 1997 ------------------ Name of Company Acquiring, Redeeming Number of Shares or Retiring or Principal Amount Commission Securities -------------------------- Authorization (Issuer unless Redeemed or (Release No. Name of Issuer otherwise noted) Acquired Retired (1) Consideration or Other) -------------- ---------------- ----------- ------------- ------------- -------------- GRANITE STATE ENERGY Sub. Promissory Note NEES $90,000 $90,000 26520 NEEI Sub. Promissory Note NEES $2,595,360 $2,595,360 (A) Sub. Promissory Note $500,000 $500,000 (A) NEHFC Secured Notes $11,520,000 $11,520,000 25304 & (B) NEES ENERGY Sub. Promissory Note NEES $21,062,500 $21,062,500 26520 & 26633 Sub. Promissory Note $2,850,000 $2,850,000 NEET Common Stock 20 shares $559,011 24162 Secured Note $4,624,000 $4,624,000 24162 NEP Bonds $38,500,000 $40,663,150 (B) Preferred Stock NEES $29,091,500 $28,675,667 (B) NARRAGANSETT Bonds $32,500,000 $32,500,000 (B) Preferred Stock NEES $23,700,150 $25,022,801 (B) MASSACHUSETTS ELECTRIC Bonds $30,000,000 $30,000,000 (B) Preferred Stock NEES $34,261,475 $37,261,260 (B) NEES GLOBAL Sub. Promissory Note NEES $7,925,000 $7,925,000 (C) Sub. Promissory Note $2,300,000 $2,300,000 (C) NERC Secured Notes $1,920,000 $1,920,000 26397 & (B) Item 4. ACQUISITION, REDEMPTION OR RETIREMENT OF SYSTEM SECURITIES (Cont.) Calendar Year 1997 ------------------ Name of Company Acquiring, Redeeming Number of Shares or Retiring or Principal Amount Commission Securities ------------------------ Authorization (Issuer unless Redeemed or (Release No. Name of Issuer otherwise noted) Acquired Retired (1) Consideration or Other) -------------- ---------------- ----------- ------------- ------------- -------------- NEES COMMUNICATIONS, INC. Sub. Promissory Note NEES $1,025,000 $1,025,000 (D) Sub. Promissory Note $100,000 $100,000 (D) NEES Common Stock 283,000 shares $10,929,371 (B) NANTUCKET Bonds $765,000 $765,000 (B) - -------------------- (1) Securities were extinguished. (A) SEC Release No. 24847 and Rule 45(b)(3). (B) Rule 42. (C) SEC Release No. 25261, 26017, 26057, 26235, 26277, 26291, & 26681. (D) NEESCom is an Exempt Telecommunications Company pursuant to Section 34 of the Act.
Item 5. INVESTMENTS IN SECURITIES OF NONSYSTEM COMPANIES As of December 31, 1997.
Number of Shares or General Principal Percent Nature Carrying Amount Voting of Issuer's Value Name of Owner Name of Issuer Security Owned Owned Power Business to Owner - ------------- -------------- -------------- --------- ------- ----------- ----------- (in thous.) NEES UNITIL Corporation Capital Stock 34,400 shs. 0.8 Public $303 no par value Utility Three Two business Stocks $ 74 Subsidiaries development (A) corporations - -------------------- (A) Mass. Electric, Narragansett, and NEP.
Item 6. OFFICERS AND DIRECTORS Part I. As of December 31, 1997. (Note A)
Mass NEES NEES Granite Elec Narra NEEI Global NEET NEP NEPSCO NEHTC NEHTEC NERC NEHFC ---- ------- ---- ----- ---- ----- ---- --- ------ ----- ------ ---- ----- Andrew H. Aitken VP s VP - --------------------------------------------------------------------------------------------------------------------------------- John Amoroso 245 S. Main Street, Hopedale, MA VP s - --------------------------------------------------------------------------------------------------------------------------------- Cynthia A. Arcate 9 Lowell Road, Salem, NH E-VP s - --------------------------------------------------------------------------------------------------------------------------------- Lawrence E. Bailey P D s - --------------------------------------------------------------------------------------------------------------------------------- Thomas J. Bascetta 9 Laurel St., Etna, NH D f - --------------------------------------------------------------------------------------------------------------------------------- Urville J. Beaumont 8 Samoset Dr., Salem, NH D f - --------------------------------------------------------------------------------------------------------------------------------- Francis X. Beirne 95 Sawyer Road, Waltham, MA s - --------------------------------------------------------------------------------------------------------------------------------- Timothy M. Bigler 95 Sawyer Road, Waltham, MA - --------------------------------------------------------------------------------------------------------------------------------- Joan T. Bok 22 Beacon St., Boston, MA D ChB D D D D D D D D f D D D D - --------------------------------------------------------------------------------------------------------------------------------- William M. Bulger 1 Beacon St., Boston, MA D f - --------------------------------------------------------------------------------------------------------------------------------- Marilyn R. Campbell 79 Brady Avenue, Salem, NH D f - --------------------------------------------------------------------------------------------------------------------------------- Item 6. OFFICERS AND DIRECTORS Part I. As of December 31, 1997. (Note A) Granite State Nantucket NEES NEES Texas HydroServe Energy Electric Comm. Energy AllEnergy Liquids Group ------ --------- ---- ------ --------- ------- ------ Andrew H. Aitken - ------------------------------------------------------------------------------------------------------------- John Amoroso 245 S. Main Street, Hopedale, MA VP - ------------------------------------------------------------------------------------------------------------- Cynthia A. Arcate 9 Lowell Road, Salem, NH - ------------------------------------------------------------------------------------------------------------- Lawrence E. Bailey - ------------------------------------------------------------------------------------------------------------- Thomas J. Bascetta 9 Laurel St., Etna, NH - ------------------------------------------------------------------------------------------------------------- Urville J. Beaumont 8 Samoset Dr., Salem, NH - ------------------------------------------------------------------------------------------------------------- Francis X. Beirne 95 Sawyer Road, Waltham, MA VP - ------------------------------------------------------------------------------------------------------------- Timothy M. Bigler 95 Sawyer Road, Waltham, MA VP - ------------------------------------------------------------------------------------------------------------- Joan T. Bok 22 Beacon St., Boston, MA D D D D - ------------------------------------------------------------------------------------------------------------- William M. Bulger 1 Beacon St., Boston, MA - ------------------------------------------------------------------------------------------------------------- Marilyn R. Campbell 79 Brady Avenue, Salem, NH - ------------------------------------------------------------------------------------------------------------- Item 6. OFFICERS AND DIRECTORS Part I. As of December 31, 1997 (continued). (Note A) Mass NEES NEES Granite Elec Narra NEEI Global NEET NEP NEPSCO NEHTC NEHTEC NERC NEHFC ---- ------- ---- ----- ---- ----- ---- --- ------ ----- ------ ---- ----- Stephen A. Cardi 400 Lincoln Ave., Warwick, RI D f - --------------------------------------------------------------------------------------------------------------------------------- John G. Cochrane T T T VP s T T T T - --------------------------------------------------------------------------------------------------------------------------------- Eric P. Cody VP s - --------------------------------------------------------------------------------------------------------------------------------- Sally L. Collins 23 Ridgewood Terrace, Northampton, MA D f - --------------------------------------------------------------------------------------------------------------------------------- William R. Connallon 476 Union Ave., Middlesex, NJ - --------------------------------------------------------------------------------------------------------------------------------- Thomas Churbuck - --------------------------------------------------------------------------------------------------------------------------------- Debra M. Crowell s - --------------------------------------------------------------------------------------------------------------------------------- Dan C. Delurey VP s - --------------------------------------------------------------------------------------------------------------------------------- John H. Dickson 95 Sawyer Rd., Waltham, MA s - --------------------------------------------------------------------------------------------------------------------------------- Jeffrey A. Donahue P D VP s VP VP - --------------------------------------------------------------------------------------------------------------------------------- William J. Flaherty 1101 Turnpike St., No. Andover, MA VP s - --------------------------------------------------------------------------------------------------------------------------------- Peter G. Flynn VP s - --------------------------------------------------------------------------------------------------------------------------------- Andrea Foley-Stapleford VP s - --------------------------------------------------------------------------------------------------------------------------------- David Fredericks 2 Fairgrounds Rd., Nant., MA - --------------------------------------------------------------------------------------------------------------------------------- Richard W. Frost 55 Bearfoot Rd., Northboro, MA VP VP D VP VP s - --------------------------------------------------------------------------------------------------------------------------------- Item 6. OFFICERS AND DIRECTORS Part I. As of December 31, 1997 (continued). (Note A) Granite State Nantucket NEES NEES Texas HydroServe Energy Electric Comm. Energy AllEnergy Liquids Group ------ --------- ---- ------ --------- ------- ------- Stephen A. Cardi 400 Lincoln Ave., Warwick, RI - ------------------------------------------------------------------------------------------------------------- John G. Cochrane T T - ------------------------------------------------------------------------------------------------------------- Eric P. Cody - ------------------------------------------------------------------------------------------------------------- Sally L. Collins 23 Ridgewood Terrace, Northampton, MA - ------------------------------------------------------------------------------------------------------------- William R. Connallon 476 Union Ave., Middlesex, NJ P s - ------------------------------------------------------------------------------------------------------------- Thomas Churbuck P S s - ------------------------------------------------------------------------------------------------------------- Debra M. Crowell T s - ------------------------------------------------------------------------------------------------------------- Dan C. Delurey - ------------------------------------------------------------------------------------------------------------- John H. Dickson 95 Sawyer Rd., Waltham, MA P D P - ------------------------------------------------------------------------------------------------------------- Jeffrey A. Donahue - ------------------------------------------------------------------------------------------------------------- William J. Flaherty 1101 Turnpike St., No. Andover, MA - ------------------------------------------------------------------------------------------------------------- Peter G. Flynn - ------------------------------------------------------------------------------------------------------------- Andrea Foley-Stapleford - ------------------------------------------------------------------------------------------------------------- David Fredericks 2 Fairgrounds Rd., Nant., MA VP s - ------------------------------------------------------------------------------------------------------------- Richard W. Frost 55 Bearfoot Rd., Northboro, MA - ------------------------------------------------------------------------------------------------------------- Item 6. OFFICERS AND DIRECTORS Part I. As of December 31, 1997 (continued). (Note A) Mass NEES NEES Granite Elec Narra NEEI Global NEET NEP NEPSCO NEHTC NEHTEC NERC NEHFC ---- ------- ---- ----- ---- ----- ---- --- ------ ----- ------ ---- ----- Frances H. Gammell 200 Providence Street, P.O. Box 1007 W. Warwick, RI D f - --------------------------------------------------------------------------------------------------------------------------------- Ronald T. Gerwatowski 280 Melrose St., Providence, RI S s - --------------------------------------------------------------------------------------------------------------------------------- Dr. Kalyan K. Ghosh 486 Chandler St., Worcester, MA D f - --------------------------------------------------------------------------------------------------------------------------------- Peter H. Gibson 95 Sawyer Road, Waltham, MA - --------------------------------------------------------------------------------------------------------------------------------- Don F. Goodwin VP s - --------------------------------------------------------------------------------------------------------------------------------- Christopher G. Gulick 95 Sawyer Road, Waltham, MA - --------------------------------------------------------------------------------------------------------------------------------- Michael E. Hachey VP s - --------------------------------------------------------------------------------------------------------------------------------- Gregory A. Hale s - --------------------------------------------------------------------------------------------------------------------------------- George W. Harris Ledge Road, Pelham, NH D f - --------------------------------------------------------------------------------------------------------------------------------- Nicholas D. N. Harvey, Jr. 41 S. Park Street, Hanover, NH D f - --------------------------------------------------------------------------------------------------------------------------------- William H. Heil 95 Sawyer Road, Waltham, MA - --------------------------------------------------------------------------------------------------------------------------------- David L. Holt E-VP s - --------------------------------------------------------------------------------------------------------------------------------- Charles B. Housen 120 E. Main Street, Erving, MA D f - --------------------------------------------------------------------------------------------------------------------------------- Item 6. OFFICERS AND DIRECTORS Part I. As of December 31, 1997 (continued). (Note A) Granite State Nantucket NEES NEES Texas HydroServe Energy Electric Comm. Energy AllEnergy Liquids Group ------ --------- ---- ------ --------- ------- ---------- Frances H. Gammell 200 Providence Street, P.O. Box 1007 W. Warwick, RI - ------------------------------------------------------------------------------------------------------------- Ronald T. Gerwatowski 280 Melrose St., Providence, RI - ------------------------------------------------------------------------------------------------------------- Dr. Kalyan K. Ghosh 486 Chandler St., Worcester, MA - ------------------------------------------------------------------------------------------------------------- Peter H. Gibson 95 Sawyer Road, Waltham, MA VP - ------------------------------------------------------------------------------------------------------------- Don F. Goodwin - ------------------------------------------------------------------------------------------------------------- Christopher G. Gulick 95 Sawyer Road, Waltham, MA VP - ------------------------------------------------------------------------------------------------------------- Michael E. Hachey - ------------------------------------------------------------------------------------------------------------- Gregory A. Hale S C - ------------------------------------------------------------------------------------------------------------- George W. Harris Ledge Road, Pelham, NH - ------------------------------------------------------------------------------------------------------------- Nicholas D. N. Harvey, Jr. 41 S. Park Street, Hanover, NH - ------------------------------------------------------------------------------------------------------------- William H. Heil 95 Sawyer Road, Waltham, MA Ch Ch - ------------------------------------------------------------------------------------------------------------- David L. Holt - ------------------------------------------------------------------------------------------------------------- Charles B. Housen 120 E. Main Street, Erving, MA - ------------------------------------------------------------------------------------------------------------- Item 6. OFFICERS AND DIRECTORS Part I. As of December 31, 1997 (continued). (Note A) Mass NEES NEES Granite Elec Narra NEEI Global NEET NEP NEPSCO NEHTC NEHTEC NERC NEHFC ---- ------- ---- ----- ---- ----- ---- --- ------ ----- ------ ---- ----- Alfred D. Houston E-VP VP T D P D D D D P s D D D D - --------------------------------------------------------------------------------------------------------------------------------- Michael E. Jesanis VP T T T T s - --------------------------------------------------------------------------------------------------------------------------------- Paul L. Joskow 7 Chilton Street, Brookline, MA D f - --------------------------------------------------------------------------------------------------------------------------------- David C. Kennedy VP s - --------------------------------------------------------------------------------------------------------------------------------- Joseph J. Kirby 38 Elm Street, Westerly, RI D f - --------------------------------------------------------------------------------------------------------------------------------- John M. Kucharski 45 William Street, Wellesley, MA D f - --------------------------------------------------------------------------------------------------------------------------------- Edward H. Ladd 125 Claybrook Rd., Dover, MA D f - --------------------------------------------------------------------------------------------------------------------------------- Cheryl A. LaFleur VP S D D D VP D VP Ds D D D D - --------------------------------------------------------------------------------------------------------------------------------- Shannon M. Larson 280 Melrose St., Providence, RI VP s - --------------------------------------------------------------------------------------------------------------------------------- Ralph E. Loomis 633 Penn. Ave., NW 6th floor Washington, DC VP s - --------------------------------------------------------------------------------------------------------------------------------- John F. Malley VP s P D - --------------------------------------------------------------------------------------------------------------------------------- Paul R. Marshall 55 Bearfoot Rd., Northboro, MA S s S S - --------------------------------------------------------------------------------------------------------------------------------- Item 6. OFFICERS AND DIRECTORS Part I. As of December 31, 1997 (continued). (Note A) Granite State Nantucket NEES NEES Texas HydroServe Energy Electric Comm. Energy AllEnergy Liquids Group ------ --------- ---- ------ --------- ------- ------- Alfred D. Houston D D D VP D - ------------------------------------------------------------------------------------------------------------- Michael E. Jesanis - ------------------------------------------------------------------------------------------------------------- Paul L. Joskow 7 Chilton Street, Brookline, MA - ------------------------------------------------------------------------------------------------------------- David C. Kennedy D - ------------------------------------------------------------------------------------------------------------- Joseph J. Kirby 38 Elm Street, Westerly, RI - ------------------------------------------------------------------------------------------------------------- John M. Kucharski 45 William Street, Wellesley, MA - ------------------------------------------------------------------------------------------------------------- Edward H. Ladd 125 Claybrook Rd., Dover, MA - ------------------------------------------------------------------------------------------------------------- Cheryl A. LaFleur D D D - ------------------------------------------------------------------------------------------------------------- Shannon M. Larson 280 Melrose St., Providence, RI - ------------------------------------------------------------------------------------------------------------- Ralph E. Loomis 633 Penn. Ave., NW 6th floor Washington, DC - ------------------------------------------------------------------------------------------------------------- John F. Malley - ------------------------------------------------------------------------------------------------------------- Paul R. Marshall 55 Bearfoot Rd., Northboro, MA - ------------------------------------------------------------------------------------------------------------- Item 6. OFFICERS AND DIRECTORS Part I. As of December 31, 1997 (continued). (Note A) Mass NEES NEES Granite Elec Narra NEEI Global NEET NEP NEPSCO NEHTC NEHTEC NERC NEHFC ---- ------- ---- ----- ---- ----- ---- --- ------ ----- ------ ---- ----- Robert L. McCabe 280 Melrose St., Providence, RI Ch D Ch D Ch Ds - --------------------------------------------------------------------------------------------------------------------------------- Joshua A. McClure P.O. Box 1119, Westerly, RI D f - --------------------------------------------------------------------------------------------------------------------------------- Howard W. McDowell D T Co Co Co Co Co s Co Co Co Co - --------------------------------------------------------------------------------------------------------------------------------- Patricia McGovern 400 Atlantic Avenue, Boston, MA D f - --------------------------------------------------------------------------------------------------------------------------------- Robert H. McLaren VP s - --------------------------------------------------------------------------------------------------------------------------------- James P. Meehan s - --------------------------------------------------------------------------------------------------------------------------------- Howard R. Mortenson P.O. Box 885, Charlestown, NH D f - --------------------------------------------------------------------------------------------------------------------------------- Charles H. Moser 55 Bearfoot Rd., Northboro, MA VP s - --------------------------------------------------------------------------------------------------------------------------------- Richard Nadeau 280 Melrose St., Providence, RI VP s - --------------------------------------------------------------------------------------------------------------------------------- James A. Newmann 476 Union Ave., Middlesex, NJ - --------------------------------------------------------------------------------------------------------------------------------- Kwong O. Nuey 55 Bearfoot Rd., Northboro, MA VP s - --------------------------------------------------------------------------------------------------------------------------------- Rosemarie O'Donahue 476 Union Ave., Middlesex, NJ - --------------------------------------------------------------------------------------------------------------------------------- Richard J. Oldach 95 Sawyer Road, Waltham, MA - --------------------------------------------------------------------------------------------------------------------------------- Chester O. Paradise VP s - --------------------------------------------------------------------------------------------------------------------------------- Item 6. OFFICERS AND DIRECTORS Part I. As of December 31, 1997 (continued). (Note A) Granite State Nantucket NEES NEES Texas HydroServe Energy Electric Comm. Energy AllEnergy Liquids Group ------ --------- ---- ------ --------- ------- ------- Robert L. McCabe 280 Melrose St., Providence, RI Ch D - ------------------------------------------------------------------------------------------------------------- Joshua A. McClure P.O. Box 1119, Westerly, RI - ------------------------------------------------------------------------------------------------------------- Howard W. McDowell T Co - ------------------------------------------------------------------------------------------------------------- Patricia McGovern 400 Atlantic Avenue, Boston, MA - ------------------------------------------------------------------------------------------------------------- Robert H. McLaren T - ------------------------------------------------------------------------------------------------------------- James P. Meehan C - ------------------------------------------------------------------------------------------------------------- Howard R. Mortenson P.O. Box 885, Charlestown, NH - ------------------------------------------------------------------------------------------------------------- Charles H. Moser 55 Bearfoot Rd., Northboro, MA - ------------------------------------------------------------------------------------------------------------- Richard Nadeau 280 Melrose St., Providence, RI - ------------------------------------------------------------------------------------------------------------- James A. Neumann 476 Union Ave., Middlesex, NJ VP - ------------------------------------------------------------------------------------------------------------- Kwong O. Nuey 55 Bearfoot Rd., Northboro, MA - ------------------------------------------------------------------------------------------------------------- Rosemarie O'Donahue 476 Union Ave., Middlesex, NJ VP - ------------------------------------------------------------------------------------------------------------- Richard J. Oldach 95 Sawyer Road, Waltham, MA VP VP - ------------------------------------------------------------------------------------------------------------- Chester O. Paradise - ------------------------------------------------------------------------------------------------------------- Item 6. OFFICERS AND DIRECTORS Part I. As of December 31, 1997 (continued). (Note A) Mass NEES NEES Granite Elec Narra NEEI Global NEET NEP NEPSCO NEHTC NEHTEC NERC NEHFC ---- ------- ---- ----- ---- ----- ---- --- ------ ----- ------ ---- ----- Lydia M. Pastuszek 55 Bearfoot Rd., Northboro, MA Sr-VP Sr-VP Sr-VP s - --------------------------------------------------------------------------------------------------------------------------------- Frank L. Peraino 95 Sawyer Road, Waltham, MA - --------------------------------------------------------------------------------------------------------------------------------- Anthony C. Pini VP VP s - --------------------------------------------------------------------------------------------------------------------------------- Kirk L. Ramsauer C s C C - --------------------------------------------------------------------------------------------------------------------------------- Marcy L. Reed 95 Sawyer Road, Waltham, MA - --------------------------------------------------------------------------------------------------------------------------------- John F. Reilly 1 Merrimack Plaza, Lowell, MA D f - --------------------------------------------------------------------------------------------------------------------------------- Lawrence J. Reilly 55 Bearfoot Rd., Northboro, MA P D P D P D s - --------------------------------------------------------------------------------------------------------------------------------- Thomas E. Rogers VP s - --------------------------------------------------------------------------------------------------------------------------------- Christopher E. Root 55 Bearfoot Rd., Northboro, MA Sr-VP Sr-VP Sr-VP s - --------------------------------------------------------------------------------------------------------------------------------- John W. Rowe P D D D Ch D D D Ch D Ch D s D D D D - --------------------------------------------------------------------------------------------------------------------------------- Michael F. Ryan 280 Melrose St., Providence, RI D VPs - --------------------------------------------------------------------------------------------------------------------------------- George M. Sage P.O. Box 9527, Providence, RI D f - --------------------------------------------------------------------------------------------------------------------------------- Nancy H. Sala 939 Southbridge St., Worcester, MA VP s - --------------------------------------------------------------------------------------------------------------------------------- Richard P. Sergel Sr-VP D D D D P D D s P D P D P D - --------------------------------------------------------------------------------------------------------------------------------- Item 6. OFFICERS AND DIRECTORS Part I. As of December 31, 1997 (continued). (Note A) Granite State Nantucket NEES NEES Texas HydroServe Energy Electric Comm. Energy AllEnergy Liquids Group ------ --------- ---- ------ --------- ------- -------- Lydia M. Pastuszek 55 Bearfoot Rd., Northboro, MA - ------------------------------------------------------------------------------------------------------------- Frank L. Peraino 95 Sawyer Road, Waltham, MA VP - ------------------------------------------------------------------------------------------------------------- Anthony C. Pini P D - ------------------------------------------------------------------------------------------------------------- Kirk L. Ramsauer C S S - ------------------------------------------------------------------------------------------------------------- Marcy L. Reed 95 Sawyer Road, Waltham, MA VP T VP T - ------------------------------------------------------------------------------------------------------------- John F. Reilly 1 Merrimack Plaza, Lowell, MA - ------------------------------------------------------------------------------------------------------------- Lawrence J. Reilly 55 Bearfoot Rd., Northboro, MA P D - ------------------------------------------------------------------------------------------------------------- Thomas E. Rogers - ------------------------------------------------------------------------------------------------------------- Christopher E. Root 55 Bearfoot Rd., Northboro, MA - ------------------------------------------------------------------------------------------------------------- John W. Rowe D D P D - ------------------------------------------------------------------------------------------------------------- Michael F. Ryan 280 Melrose St., Providence, RI - ------------------------------------------------------------------------------------------------------------- George M. Sage P.O. Box 9527, Providence, RI - ------------------------------------------------------------------------------------------------------------- Nancy H. Sala 939 Southbridge St., Worcester, MA - ------------------------------------------------------------------------------------------------------------- Richard P. Sergel D - ------------------------------------------------------------------------------------------------------------- Item 6. OFFICERS AND DIRECTORS Part I. As of December 31, 1997 (continued). (Note A) Mass NEES NEES Granite Elec Narra NEEI Global NEET NEP NEPSCO NEHTC NEHTEC NERC NEHFC ---- ------- ---- ----- ---- ----- ---- --- ------ ----- ------ ---- ----- Dennis E. Snay 55 Bearfoot Rd., Northboro, MA Sr-VP s - --------------------------------------------------------------------------------------------------------------------------------- Charles E. Soule 50 O'Neill Drive, Westboro, MA D f - --------------------------------------------------------------------------------------------------------------------------------- William E. Trueheart 2804 Chesterfield Pl. N.W. Washington, DC D f - --------------------------------------------------------------------------------------------------------------------------------- Arnold H. Turner VP VP s VP VP VP - --------------------------------------------------------------------------------------------------------------------------------- John G. Upham II 170 Medford St., Malden, MA VP s - --------------------------------------------------------------------------------------------------------------------------------- Jeffrey W. VanSant VP VP s - --------------------------------------------------------------------------------------------------------------------------------- William Watkins, Jr. 280 Melrose Street, Providence, RI E-VP s - --------------------------------------------------------------------------------------------------------------------------------- Roslyn M. Watson 25 Braddock Park, Boston, MA D f - --------------------------------------------------------------------------------------------------------------------------------- Anne Wexler 1317 F Street, N.W., Suite 600 Washington, DC D f - --------------------------------------------------------------------------------------------------------------------------------- James Q. Wilson 32910 Camino de Buena Ventura, Malibu, CA D f - --------------------------------------------------------------------------------------------------------------------------------- Item 6. OFFICERS AND DIRECTORS Part I. As of December 31, 1997 (continued). (Note A) Granite State Nantucket NEES NEES Texas HydroServe Energy Electric Comm. Energy AllEnergy Liquids Group ------ --------- ---- ------ --------- ------- -------- Dennis E. Snay 55 Bearfoot Rd., Northboro, MA - ------------------------------------------------------------------------------------------------------------- Charles E. Soule 50 O'Neill Drive, Westboro, MA - ------------------------------------------------------------------------------------------------------------- William E. Trueheart 2804 Chesterfield Pl., N.W. Washington, DC - ------------------------------------------------------------------------------------------------------------- Arnold H. Turner - ------------------------------------------------------------------------------------------------------------- John G. Upham II 170 Medford St., Malden, MA - ------------------------------------------------------------------------------------------------------------- Jeffrey W. VanSant - ------------------------------------------------------------------------------------------------------------- William Watkins, Jr. 280 Melrose Street, Providence, RI - ------------------------------------------------------------------------------------------------------------- Roslyn M. Watson 25 Braddock Park, Boston, MA - ------------------------------------------------------------------------------------------------------------- Anne Wexler 1317 F Street, N.W., Suite 600 Washington, DC - ------------------------------------------------------------------------------------------------------------- James Q. Wilson 32910 Camino de Buena Ventura, Malibu, CA - ------------------------------------------------------------------------------------------------------------- Item 6. OFFICERS AND DIRECTORS Part I. As of December 31, 1997 (continued). (Note A) Mass NEES NEES Granite Elec Narra NEEI Global NEET NEP NEPSCO NEHTC NEHTEC NERC NEHFC ---- ------- ---- ----- ---- ----- ---- --- ------ ----- ------ ---- ----- James R. Winoker 222 Richmond Street Providence, RI D f - --------------------------------------------------------------------------------------------------------------------------------- Robert King Wulff C C S C s S - --------------------------------------------------------------------------------------------------------------------------------- Geraldine M. Zipser C s - --------------------------------------------------------------------------------------------------------------------------------- Item 6. OFFICERS AND DIRECTORS Part I. As of December 31, 1997 (continued). (Note A) Granite State Nantucket NEES NEES Texas HydroServe Energy Electric Comm. Energy AllEnergy Liquids Group ------ --------- ---- ------ --------- ------- -------- James R. Winoker 222 Richmond Street Providence, RI - ------------------------------------------------------------------------------------------------------------- Robert King Wulff S - ------------------------------------------------------------------------------------------------------------- Geraldine M. Zipser - ------------------------------------------------------------------------------------------------------------- Key: Ch-Chairman; ChB-Chairman of the Board; VCh-Vice Chairman; D-Director; P-President; E-VP-Executive Vice President; Sr-VP-Senior Vice President; VP-F-Vice President--Finance; VP-Vice President; T-Treasurer; Co-Controller; C-Clerk; S-Secretary; s-Salary; f-Fee. Note A: Address is 25 Research Drive, Westborough, Massachusetts 01582 unless otherwise indicated.
Item 6. OFFICERS AND DIRECTORS Part II. Financial Connections as of December 31, 1997.
Position Name and Held in Name of Location of Financial Applicable Officer or Financial Institution Exemption Director Institution (g) Rule ---------- ----------- ----------- ---------- William M. Bulger Citizens Bank of Massachusetts D a Boston, MA Joseph J. Kirby The Washington Trust Co., C c Westerly, RI John M. Kucharski State Street Boston Corp., D a Boston, MA Robert L. McCabe Citizen Savings Bank, D c,f Providence, RI John F. Reilly Family Bank, D c Haverhill, MA John W. Rowe First National Bank of Boston, D a,c,d,e,f Boston, MA Bank of Boston Corporation, D a,c,d,e,f Boston, MA Charles E. Soule Westboro Savings Bank T a Westboro, MA William Watkins, Jr. Rhode Island Hospital Trust D f National Bank, Providence, RI Roslyn M. Watson The Dreyfus Laurel Funds, T d New York, NY American Express Centurion D d Bank, Wilmington, DE - -------------------- a - Rule 70(a) b - Rule 70(b) c - Rule 70(c) d - Rule 70(d) e - Rule 70(e) f - Rule 70(f) g - C-Chairman & CEO; D-Director; T-Trustee
Item 6. OFFICERS AND DIRECTORS Part III. Disclosures made in proxy statements and annual reports on Form 10-K, filed in 1998, follow: NEES SUMMARY COMPENSATION TABLE
Long Term Compen- Annual Compensation (b) sation ----------------------- --------- Other Restricted Name and Annual Share All Other Principal Salary Bonus Compensa- Awards Compensa- Position (a) Year ($) ($)(c) tion ($)(d) ($)(e) tion ($)(f) - ------------ ---- ------ ------ ----------- --------- ---------- Richard P. 1997 244,893 242,020 8,764 51,043 781 Sergel, 1996 212,700 110,724 5,366 138,376 3,535 President and 1995 184,956 139,373 4,877 0 3,424 Chief Executive Officer (elected 2/6/98) John W. Rowe, 1997 597,600 285,692 12,599 152,206 2,544 Former President 1996 537,600 287,896 9,093 370,288 4,891 and Chief 1995 537,600 427,213 9,568 0 4,750 Executive Officer Alfred D. 1997 345,072 314,028 9,616 88,573 1,836 Houston, 1996 335,016 167,306 6,265 182,267 4,649 Executive Vice 1995 262,800 177,663 5,753 0 4,180 President Cheryl A. LaFleur 1997 176,388 192,437 6,827 37,768 335 Senior 1996 165,624 89,477 4,059 106,020 3,251 Vice President, 1995 125,616 107,617 116 0 2,721 General Counsel and Secretary Michael E. 1997 164,736 188,213 7,399 31,866 320 Jesanis, Senior 1996 153,995 80,070 4,007 101,376 3,218 Vice President 1995 140,784 85,703 275 27,718 3,012 and Chief Financial Officer
(a) Officers of NEES also hold various positions with subsidiary companies. Compensation for these positions is included in this table. (b) Includes deferred compensation in category and year earned. (c) The bonus figures represent: 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. In 1996 and 1997, the bonus amounts were all cash or contributions to the Incentive Thrift Plan, including related deferred compensation plan matches. In 1995, Mr. Sergel's bonus was $96,649 in cash and contributions and $42,724 in shares; Mr. Rowe's bonus was $276,728 in cash and contributions and $150,485 in shares; Mr. Houston's bonus was $123,160 in cash and contributions and $54,503 in shares; Ms. LaFleur's bonus was $84,370 in cash and contributions and $23,247 in shares; and Mr. Jesanis's bonus was $85,703 in cash and contributions and $27,718 in shares. (d) Includes amounts reimbursed by NEES for the payment of taxes on certain noncash benefits and System contributions to the Incentive Thrift Plan that are not bonus contributions including related deferred compensation plan match. See description under Plan Summaries. (e) The incentive share awards for the named executives made for 1996 and 1997 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. As cash dividends are declared, the number of deferred share equivalents will be increased as if the dividends were reinvested in shares. See also Payments Upon a Change in Control below. The shares awarded for 1995 were not restricted and the value of the awards is included in the bonus column. As of December 31, 1997, the following executive officers held the amount of restricted and deferred share equivalents with the value indicated: Mr. Sergel 8,698 shares, $371,840 value; Mr. Rowe 28,380 shares, $1,213,245 value; Mr. Houston 11,689 shares, $499,705 value; Ms. LaFleur 5,890 shares, $251,798 value; and Mr. Jesanis 6,233 shares, $266,461 value. The value was calculated by multiplying the closing market price on December 31, 1997, by the number of shares. No awards vested during 1997 under NEES' Long- Term Performance Share Award Plan. See Long Term Incentive Plan - Awards in Last Fiscal Year. (f) Includes Company contributions to life insurance. See description under Plan Summaries. The life insurance contribution is calculated based on the value of term life insurance for the named individuals. The premium costs for most of these policies have been or will be recovered by the Company. Prior to 1997, this column also included Company contributions to the Incentive Thrift Plan that are not bonus contributions. These figures are now included in the Other Annual Compensation column. NEP SUMMARY COMPENSATION TABLE
Long-Term Compensa- Annual Compensation (b) tion -------------------------- --------- Other Restricted Name and Annual & Deferred All Other Principal Compensa- Share Compensa- Position Year Salary Bonus tion Awards tion (a) ($) ($)(c) ($)(d) ($)(e) ($)(f) - ---------- ---- ------- ------ --------- ---------- --------- Lawrence E. 1997 156,516 188,214 3,316 0 600 Bailey 1996 151,956 101,667 116 0 3,776 President 1995 144,720 92,328 116 0 3,598 John W. 1997 217,987 104,212 4,596 55,520 928 Rowe(g) 1996 180,096 96,445 3,046 124,047 1,638 Former 1995 157,070 124,818 2,795 0 1,387 Chairman Jeffrey D. 1997 154,433 133,560 8,274 0 1,077,143(h) Tranen 1996 200,684 100,548 5,002 125,836 3,358 Former 1995 188,884 135,224 4,972 0 3,377 President Andrew H. 1997 122,580 78,193 2,231 0 416 Aitken 1996 119,004 75,370 116 0 2,568 Vice 1995 107,081 66,683 108 0 2,243 President John F. 1997 140,280 96,072 2,922 0 375 Malley 1996 133,394 104,885 116 0 3,141 Vice 1995 127,236 96,261 116 0 2,907 President Arnold H. 1997 132,012 81,953 2,228 0 628 Turner 1996 128,172 89,185 116 0 2,849 Vice 1995 128,172 65,439 116 0 2,276 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 on certain noncash benefits and contributions to the incentive thrift plan by NEP that are not bonus contributions including related deferred compensation plan match. See description under Plan Summaries. (e) The incentive share awards for the named executives who are also NEES executives made for 1996 and 1997 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. As cash dividends are declared, the number of deferred share equivalents will be increased as if the dividends were reinvested in shares. The shares awarded for the other named executives and for all executives for 1995 were not restricted and the value of the awards is included in the bonus column. As of December 31, 1997, the following executive officers held the amount of restricted and deferred shares with the value indicated: Mr. Bailey 3,892 shares, $166,383 value; Mr. Rowe 28,380 shares, $1,213,245 value; Mr. Aitken 3,044 shares, $130,131 value; Mr. Malley 3,759 shares, $160,697 value; and Mr. Turner 2,625 shares, $112,218 value. The value was calculated by multiplying the closing market price on December 31, 1997 by the number of shares. No awards vested during 1997 under the Long-Term Performance Share Award Plan. (f) Includes NEP contributions to life insurance. 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. Prior to 1997, this column also included contributions by NEP to the incentive thrift plan that are not bonus contributions. These figures are now included in the Other Annual Compensation column. (g) Mr. Rowe resigned effective February 6, 1998. (h) Mr. Tranen resigned effective September 12, 1997. All Other Compensation includes: $830 for contributions to life insurance as described in footnote (f) above, $28,452 as accrued vacation pay, $621,081 as a severance payment, and $426,780 in pension related benefits. MASS. ELECTRIC SUMMARY COMPENSATION TABLE
Long-Term Compensa- Annual Compensation (b) tion -------------------------- --------- Other Restricted Name and Annual & Deferred All Other Principal Compen- Share Compensa- Position Year Salary Bonus sation Awards tion (a) ($) ($)(c) ($)(d) ($)(e) ($)(f) - ---------- ---- ------- ------ -------- ---------- --------- Lawrence J. 1997 160,515 168,637 6,910 0 448 Reilly 1996 96,163 70,177 2,467 46,082 2,250 President 1995 38,561 34,985 37 0 986 Richard P. 1997 149,549 147,794 5,352 31,170 477 Sergel 1996 135,213 70,388 3,411 87,965 2,247 Former 1995 123,480 93,047 3,256 0 2,285 Chairman Lydia M. 1997 125,481 81,944 2,544 0 241 Pastuszek 1996 86,068 52,017 69 22,115 1,893 Senior Vice 1995 86,597 53,204 72 0 2,403 President Christopher E. 1997 98,421 103,890 2,067 0 147 Root 1996 92,055 67,050 99 0 2,032 Senior Vice 1995 84,173 37,158 89 0 1,537 President Nancy H. 1997 124,344 60,661 2,603 0 283 Sala 1996 118,251 65,493 116 0 2,730 Vice 1995 115,524 59,932 116 0 2,498 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 on certain noncash benefits and contributions to the incentive thrift plan by Mass. Electric that are not bonus contributions including related deferred compensation plan match. See description under Plan Summaries. (e) The incentive share awards for the named executives who are also NEES executives made for 1996 and 1997 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. As cash dividends are declared, the number of deferred share equivalents will be increased as if the dividends were reinvested in shares. In 1996, certain named officers also received special share awards in the form of deferred share equivalents. The shares awarded for the other named officers and for all executives for 1995 were not restricted and the value of the awards is included in the bonus column. As of December 31, 1997, the following executive officers held the amount of restricted and deferred shares with the value indicated: Mr. Reilly 6,320 shares, $270,180 value; Mr. Sergel 8,698 shares, $371,840 value; Ms. Pastuszek 2,886 shares, $123,377 value; Mr. Root 2,632 shares, $112,518 value; and Ms. Sala 1,989 shares, $85,030 value. The value was calculated by multiplying the closing market price on December 31, 1997 by the number of shares. No awards vested during 1997 under the Long-Term Performance Share Award Plan. (f) Includes Mass. Electric contributions to life insurance. See description under Plan Summaries. The life insurance contribution is calculated based on the value of term life insurance for the named individuals. The premium costs for most of these policies have been or will be recovered by Mass. Electric. Prior to 1997, this column also included contributions by Mass. Electric to the incentive thrift plan that are not bonus contributions. These figures are now included in the Other Annual Compensation column. NARRAGANSETT SUMMARY COMPENSATION TABLE
Long-Term Compensa- Annual Compensation (b) tion -------------------------- --------- Other Restricted Name and Annual & Deferred All Other Principal Compensa- Share Compensa- Position Year Salary Bonus tion Awards tion (a) ($) ($)(c) ($)(d) ($)(e) ($)(f) - ---------- ---- ------- ------ --------- ---------- --------- Robert L. 1997 179,460 148,868 9,881 0 1,528 McCabe 1996 127,388 88,905 4,819 50,308 3,424 Chairman 1995 152,407 111,785 4,206 0 4,851 and Former President Lawrence J. 1997 679 452 29 0 1 Reilly 1996 16,329 11,916 419 7,825 382 President(g) 1995 30,322 26,625 29 0 622 William 1997 135,972 84,924 2,839 0 88,885(h) Watkins, 1996 132,012 84,081 119 0 4,509 Jr. 1995 128,172 77,967 119 0 4,054 Executive Vice President Richard W. 1997 113,856 52,347 2,396 0 596 Frost 1996 108,432 57,680 119 0 2,888 Vice 1995 103,272 48,972 119 0 2,787 President Shannon M. 1997 105,012 51,259 2,220 0 330 Larson 1996 81,293 21,879 116 0 1,808 Vice 1995 68,432 2,908 132 0 1,809 President Michael F. 1997 103,983 52,060 2,197 0 220 Ryan 1996 64,555 18,397 77 0 1,473 Vice 1995 74,917 14,499 94 0 231 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 on certain noncash benefits and contributions to the incentive thrift plan by Narragansett that are not bonus contributions including related deferred compensation plan match. See description under Plan Summaries. (e) The incentive share awards for the named executives made for 1996 and 1997 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. As cash dividends are declared, the number of deferred share equivalents will be increased as if the dividends were reinvested in shares. The shares awarded for 1995 were not restricted and the value of the awards is included in the bonus column. As of December 31, 1997, the following executive officers held the amount of restricted and deferred shares with the value indicated: Mr. McCabe 6,725 shares, $287,493 value; Mr. Reilly 6,320 shares, $270,180 value; Mr. Watkins 353 shares, $15,091 value; Mr. Frost 798 shares, $34,115 value; Ms. Larson 6,320 shares, $270,180 value; and Mr. Ryan 10 shares, $428 value. The value was calculated by multiplying the closing market price on December 31, 1997 by the number of shares. Mr. Reilly and Ms. Larson are married and both of their restricted shares are included in the others total. No awards vested during 1997 under the Long-Term Performance Share Award Plan. (f) Includes Narragansett contributions to life insurance. 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. Prior to 1997, this column also included contributions by Narragansett to the incentive thrift plan that are not bonus contributions. These figures are now included in the Other Annual Compensation column. (g) Elected President effective October 1, 1997. (h) Retired effective January 1, 1998. All Other Compensation includes $1,528 contributions to life insurance as described in footnote (f) and a payment of $87,357 as a special retirement payment. Security Ownership ------------------ The following table lists the holdings of NEES common shares as of March 2, 1998 by NEES, NEP, Mass. Electric, and Narragansett directors, the executive officers named in the Summary Compensation Tables, and all directors and executive officers, as a group. Shares Deferred Beneficially Share Name Owned (a) Equivalents (b) - ---- ----------- --------------- Joan T. Bok 13,605 William M. Bulger 100 1,272 Alfred D. Houston 13,688 11,558 Michael E. Jesanis 4,000 5,847 Paul L. Joskow 2,829 313 John M. Kucharski 2,800 Edward H. Ladd 6,475 Cheryl A. LaFleur 3,191 5,787 Joshua A. McClure 2,461 307 John W. Rowe (c) 14,823 25,355 George M. Sage 4,000 Richard P. Sergel 8,086 8,313 Charles E. Soule 1,270 5,201 Anne Wexler 2,629 James Q. Wilson 3,508 James R. Winoker 2,300 Robert L. McCabe 10,156 6,054 Lydia M. Pastuszek 7,185 2,446 Lawrence J. Reilly 3,656 5,959 Christopher E. Root 2,036 2,304 Nancy H. Sala 4,153 (d) 1,636 Dennis E. Snay 4,608 535 Richard W. Frost 7,677 502 Shannon M. Larson 3,656 5,959 Michael F. Ryan 829 10 Ronald L. Thomas 1,405 William Watkins, Jr. 1,113 Andrew H. Aitken 6,606 2,572 Lawrence E. Bailey 5,153 3,330 John F. Malley 2,506 3,364 Jeffrey D. Tranen 107 Arnold H. Turner 4,914 2,112 All directors and executive officers, as a group (43 persons) 201,90 (e) 111,005 (e) (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 below. (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 is paid out in the same form, cash or NEES shares, as was deferred. 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. Deferred share equivalents for directors are held under the Directors Deferred Compensation Plan. See Board Structure and Compensation for a description of that plan. Potential share awards under the Long-Term Performance Share Award Plan are not included in this table. (c) Mr. Rowe, former President and Chief Executive Officer, resigned effective February 6, 1998. (d) Ms. Sala disclaims a beneficial ownership interest in 281 shares held in custodial accounts. (e) Amount is less than 1% of the total number of shares of the Company outstanding. Share Ownership Guidelines -------------------------- The System has long recognized the importance of consistent alignment of executive interests with those of shareholders. In 1995, the Compensation Committee of the Board voted that it is expected that executives will own shares or share equivalents to certain minimum levels within five years of being subject to the requirement. For Mr. Sergel, the level is 40,000 shares. For Mr. Houston, the level is 25,000 shares. For the other executives listed in the Executive Compensation Summary Table, the level is 7,000 to 15,000 shares. Other executives are expected to hold from 2,000 to 7,000 shares depending on their compensation levels and bonus plans. In 1996, the Board of Directors voted that members of the Board were expected to own 2,500 shares within five years of being subject to that requirement. To further reinforce the importance of executive share ownership, all shares awarded to System officers under the Incentive Share and the Long- Term Performance Share Award Plans, described below, are restricted for five years, unless deferred, at the officer's option, until termination of service or ten years. Share Ownership of Certain Beneficial Owners -------------------------------------------- Listed below is the only person or group known to the System as of March 9, 1998 to beneficially own 5% or more of NEES common shares. However, T. Rowe Price Trust Company disclaims beneficial ownership of all such shares. The quantity of shares listed below is as of December 31, 1997. Amount and Nature Name and Address of of Beneficial Percent of Beneficial Owner Ownership Common Shares ------------------- ------------------ -------------- T. Rowe Price Trust Company 5,377,414 shares as 8.3% 100 East Pratt Street trustee for Baltimore, MD 21202 System employee benefits plans, including those discussed herein. Contracts and Transactions with System Companies ------------------------------------------------ During 1997, Mr. Joskow did consulting work for NEES or subsidiaries of NEES under a separate consulting contract for which he was paid approximately $30,000. These consulting services were not related to his duties as a Board member. During 1997, Mrs. Bok served as a consultant to NEES. Under the terms of her contract, she received a retainer of $100,000. Mrs. Bok also served as a director for each of NEES' direct subsidiaries during 1997. She agreed to waive the normal fees and annual retainers otherwise payable for services by nonemployees on these boards and received in lieu thereof a single annual stipend of $60,000. Compensation Committee Interlocks and Insider Participation ----------------------------------------------------------- Mr. Winoker served as a member of NEES' Compensation Committee for a portion of 1997. Mr. Winoker is Chief Executive Officer of Belvoir Properties, Inc. (Belvoir). A subsidiary of NEES entered into a three-year lease for office space in 1996 with Belvoir with an annual rent of $34,000. Belvoir also leases two parcels of land in Providence, Rhode Island from a subsidiary of NEES under a twenty-year lease with an initial annual rent of approximately $60,000. 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 the System Companies listed in the above tables) are presented in the Summary Compensation Tables. Goals Program - ------------- The Goals Program establishes goals annually. For 1997, 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 Other Annual Compensation in the Summary Compensation Tables) and, based on an incentive formula tied, in 1997, 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 1997, the contribution 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 $160,000 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 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. After termination of employment, Messrs. Rowe and Houston may elect, commencing at age 55 or later, to receive an annuity income equal to 40% of final annual salary for Mr. Rowe and 22.5% of 1998 annual salary plus 40% of final annual salary for Mr. Houston. In that event, the life insurance is reduced over fifteen years to an amount equal to the participant's final annual salary. Due to changes in the tax law, this plan was closed to new participants, and an alternative was established with only a life insurance benefit. The individuals listed in the NEES Summary Compensation Table and Messrs. McCabe and Reilly are in one or the other of these plans. Financial Counseling - -------------------- NEES pays for personal financial counseling for senior 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 - ----- NEES does not have any share option plans. Long Term Incentive Plan - Awards in Last Fiscal Year ----------------------------------------------------- The following tables show the potential awards, for those executive officers named in the Summary Compensation Tables who participate in the plan, under the Long-Term Performance Share Award Plan (more fully described in the Compensation Committee Report on page 42) for the performance cycle commencing January 1, 1997. The System's performance will be measured over the three-year period ending December 31, 1999. NEES ---- 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 3,266 3 years 20 3,266 John W. Rowe (d) 8,617 3 years 0 0 Alfred D. Houston 4,976 3 years 30 4,976 Cheryl A. LaFleur 2,543 3 years 15 2,543 Michael E. Jesanis 1,188 3 years 7 1,188 NEP --- Estimated Future Payouts under Non-stock Price-based Plans ------------------------------------------------ Number of Common Share Performance Name Equivalents(a) Period Threshold(b) Target(c) ---- -------------- ----------- ------------ --------- Lawrence E. Bailey 1,128 3 years 7 1,128 John W. Rowe(d) 8,617 3 years 0 0 Jeffrey D. Tranen(d) 3,333 3 years 0 0 Andrew H. Aitken 884 3 years 5 884 John F. Malley 1,011 3 years 6 1,011 Arnold H. Turner 952 3 years 6 952 Mass Electric --------------- Estimated Future Payouts under Non-stock Price-based Plans ------------------------------------------------ Number of Common Share Performance Name Equivalents(a) Period Threshold(b) Target(c) ---- -------------- ----------- ------------ --------- Lawrence J. Reilly 1,179 3 years 7 1,179 Richard P. Sergel 3,266 3 years 20 3,266 Lydia M. Pastuszek 1,019 3 years 6 1,019 Christopher E. Root 832 3 years 5 832 Nancy H. Sala 538 3 years 3 538 Narragansett ------------ Estimated Future Payouts under Non-stock Price-based Plans ------------------------------------------------ Number of Common Share Performance Name Equivalents(a) Period Threshold(b) Target(c) ---- -------------- ----------- ------------ --------- Robert L. McCabe 1,311 3 years 8 1,311 Lawrence J. Reilly 1,179 3 years 7 1,179 William Watkins, Jr. 980 3 years 6 980 Richard W. Frost 493 3 years 3 493 Shannon M. Larson 454 3 years 3 454 Michael F. Ryan 459 3 years 3 459
(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 0. (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. (d) Upon Mr. Tranen's resignation in September 1997 and Mr. Rowe's resignation in February 1998, they became ineligible to receive any award under the Long-Term Performance Share Award Plan. 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. The measures of performance for the cycle commencing January 1, 1997 are as follows: total shareholder return compared to the national group (60th-75th percentile); total shareholder return compared to the regional group (50th-75th percentile); maintenance or improvement of bond ratings; new business development; growth of transmission and distribution business; and system service levels, measured by system reliability and regulatory compliance. The national grouping is composed of approximately 80 electric utilities. The regional grouping is composed of New England/New York regional utilities. Retirement Plans - ---------------- The following chart shows estimated annual benefits payable to executive officers under the qualified pension plan and the supplemental retirement plan, assuming retirement at age 65 in 1998. PENSION PLAN TABLE ------------------
FIVE-YEAR 10 YEARS 15 YEARS 20 YEARS 25 YEARS 30 YEARS 35 YEARS AVERAGE SERVICE SERVICE SERVICE SERVICE SERVICE SERVICE COMPENSATION - ------------ ------- ------- ------- ------- ------- ------- $ 300,000 60,300 87,500 114,700 141,100 167,500 184,100 $ 400,000 81,000 117,500 154,000 189,600 225,100 241,600 $ 500,000 101,700 147,600 193,500 238,100 282,700 311,000 $ 600,000 122,400 177,600 232,900 286,600 340,300 374,500 $ 700,000 143,100 207,700 272,300 335,100 397,900 437,900 $ 800,000 163,800 237,700 311,700 383,600 455,500 501,400 $ 900,000 184,500 267,800 351,100 432,100 513,100 564,800 $1,000,000 205,200 297,800 390,500 480,600 570,700 628,300 $1,100,000 225,900 327,900 429,900 529,100 628,300 691,700 $1,200,000 246,600 357,900 469,300 577,600 685,900 755,200 $1,300,000 267,300 388,000 508,700 626,100 743,500 818,700 $1,400,000 288,000 418,000 548,100 674,600 801,100 882,100
For purposes of the retirement plans, Mr. Sergel, Mr. Rowe, Mr. Houston, Ms. LaFleur, and Mr. Jesanis currently have 19, 20, 35, 12, and 15 credited years of service, respectively. Messrs. Bailey, Rowe, Tranen, Aitken, Malley, and Turner currently have 29, 20, 28, 25, 26, and 32 credited years of service, respectively. Mr. Reilly, Mr. Sergel, Ms. Pastuszek, Mr. Root, and Ms. Sala currently have 16, 19, 17, 15, and 28 credited years of service, respectively. Mr. McCabe, Mr. Reilly, Mr. Watkins, Mr. Frost, Ms. Larson, and Mr. Ryan currently have 29, 16, 25, 35, 18, and 3 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. Long-Term Performance Share Awards will not be included. 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 percent joint and survivor benefit with a spouse of the same age, the benefit shown would be reduced by approximately 16 percent. The pension plan table above does not include annuity payments to be received in lieu of life insurance for Messrs. Rowe and Houston. Those payments are described above under Plan Summaries. In December 1997, the NEES companies announced a voluntary early retirement program available to all nonunion employees over age 55 with ten or more years of service. Messrs. Amoroso, Frost, McCabe, Nadeau, Snay, and Turner were all eligible for the offer. The program offered either an annuity or a lump sum equal to the greater of either one week's base pay times the number of years of service or an additional five years service and five years of age toward their pension. The offer also included certain health care and bridging of social security benefits. The program is conditioned upon consummation of the divestiture of the nonnuclear generating business to USGen. Mr. McCabe also has an employment agreement which provides that if he remains in the employ of the NEES companies until December 31, 1998, or the retirement effective date under the offer, he will receive an annuity or a lump sum equal to an additional five years of service and five years of age toward his pension plus $225,000, subject to an offset for any benefits under the general offer. The value of Messrs. Amoroso, Frost, McCabe, Nadeau, Snay, and Turner's benefits under the offer and the contract cannot be determined until their retirement following the divestiture. The System covers the full cost of post-retirement health benefits for the senior executives listed in the Summary Compensation Table. Payments Upon a Change of Control or Termination of Employment - -------------------------------------------------------------- NEES has agreements with certain of its executives, including those named in the Summary Compensation Table, which provide severance benefits in the event of certain terminations of employment following a Change in Control of NEES (as defined below). The terms of the agreements are for three years with automatic annual extensions, unless terminated by the System. If, following a Change of 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. Sergel 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. 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 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. Upon a change in control a participant in the deferred compensation plan has the option of receiving a full distribution of the participant's cash and share accounts and the actuarial value of future benefits from the insurance related benefits under a prior plan, all less 10%. The System's bonus plans, including the incentive compensation plans described in the Compensation Committee report, 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. These payments 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 participant's account times the average achievement percentage for the Incentive Thrift Plan for the three prior years. The System's Retirees Health and Life Insurance Plan has provisions preventing changes in benefits adverse to the participants for three years following a Change in Control. The Incentive Share Plan and related Incentive Share Deferral Agreements provide that, upon the occurrence of a change in control (defined more narrowly than in the other plans), any restrictions on shares and account balances would cease. Under a retention agreement between Mr. Aitken and NEP, he has agreed to remain in NEP's employ, at the sole option of NEP, until the earlier of February 1999 or the closing date of the sale of the generation assets to USGen in return for a lump sum payment of $47,345. In August 1998, NEP will pay an additional amount equal to 4-1/2 months' base salary if it has not released Mr. Aitken from this obligation by July 6, 1998. In light of the changes in the utility industry, NEES has determined that executive officers (including those listed in the Summary Compensation Table, but excluding Messrs. Houston and Sergel) would receive a benefit equal to one and one-half times annual compensation, for a severance other than one for cause or following a change in control. New England Electric System Compensation Committee Report on Executive Compensation - ------------------------------------------ As members of the Compensation Committee (the Committee) of the Board of Directors (the Board), we have the responsibility for executive compensation, including the administration of certain of the Company's incentive compensation plans. The System's total compensation package is designed to attract, retain, and reward superior managers who are committed to solid financial performance and who successfully can lead the System as our industry becomes increasingly competitive. The compensation package reflects the fact that these managers' backgrounds are not necessarily limited to our System or industry. Total compensation consists of Base Salary, Incentive Compensation (performance based, at risk compensation), and Benefits. The Committee periodically reviews each component of the System's executive compensation program to ensure that pay levels and incentive opportunities are competitive and that incentive opportunities are linked to System performance. The System's general compensation philosophy is that (1) the Base Salary ranges should be competitive, with individual salaries reflecting performance and experience; (2) a significant portion of management compensation should be tied to achievement of corporate goals in order to maintain a sharp focus on corporate performance; (3) substantial portions of incentive compensation should be in shares so as to consistently align the interest of management and the System's shareholders and customers; and (4) an ever higher percentage of total compensation should be at risk and share-based as one moves upward through management. The compensation of the Chief Executive Officer, Mr. Rowe in 1997 and Mr. Sergel in 1998, is based on these considerations. As discussed below, the incentive compensation plans are being restructured to reflect the new focus of the System during and following divestiture. Compensation Decisions - ---------------------- The NEES Board votes the compensation of the Chief Executive Officer and Mr. Houston, acting upon recommendations of the Committee. The Committee reports its decisions to the Board. After meeting in executive session without any System officers present and discussing the reports made by the Committee, the Board unanimously has accepted each of the recommendations described below made in 1997 and to date in 1998. The Committee also votes the compensation of all other System executive officers listed in the Summary Compensation Table, as well as other senior employees. The Board has ratified the compensation decisions for these executive officers. Although System management may be present during Committee discussions of officers' compensation, Committee decisions with respect to the compensation of Mr. Rowe were reached in executive session. Under Section 162(m) of the Internal Revenue Code, tax deductions are limited for compensation above $1 million, not including amounts deferred. Mr. Rowe's total compensation of $898,435 in cash and $152,206 in deferred shares for 1997 exceeded $1 million. Given the mandatory deferral of his plan share bonuses, the Internal Revenue Code provisions do not currently impact the System. Total compensation for each of the other executive officers is below the $1 million threshold. The Committee has not, therefore, had to address issues related to Section 162(m) and does not expect to in the near future, but will continue to monitor these issues. Base Salary - ----------- Base Salary levels are established after consideration of the appropriate market to determine the salary range for a position. Extensive salary survey analyses are compiled annually and presented to the Committee for review. Salary ranges are then defined on the basis of those market surveys. These surveys may include some of the same companies included in incentive compensation plan comparisons or in the corporate performance chart. In November 1997, after consideration of multiple surveys prepared by various consulting organizations and industry groups, and taking into account the continued outstanding performance of the System and Mr. Rowe's leadership in the restructuring of the electric utility industry, the Committee recommended the base salary for Mr. Rowe be set at $625,200 for 1998. This would have placed Mr. Rowe somewhat above the 50th percentile in the compensation surveys. The Board adopted this recommendation. On February 10, 1998, upon Mr. Rowe's resignation as President and Chief Executive Officer of the System, the Committee considered the appropriate compensation for Messrs. Sergel and Houston in view of their new responsibilities. The Committee reviewed information developed from multiple compensation surveys for the 50th percentile for corporations in the same revenue range as the System. This data was further stratified between the utility industry and general industry. The Committee considered the relative experience and past performance of, and our future expectations for, Messrs. Houston and Sergel, the historical compensation levels in the System for their new positions, and comparative salary data presented to us. We further reviewed the System's compensation philosophy as to the relative values for base salary, incentive compensation, and benefits. We then recommended the base salaries for Mr. Houston and for Mr. Sergel be set at $450,000 per year, effective February 1, 1998. As described below, we determined an appropriate change in control agreement for Mr. Sergel and supplemental insurance annuity benefits for Mr. Houston. The Board adopted our recommendations. In November 1997, the Committee reviewed the performance of each individual in the compensation group below the Chief Executive Officer, and, after the Committee's subjective analysis of their performance and discussion with the Chief Executive Officer, we set the salaries for these individuals. Performance Based Incentive Compensation - ---------------------------------------- Performance Based Incentive Compensation (at risk compensation or bonus) is designed to deliver rewards above base salary, if the System and the individual executives perform well. Annual Target Plans ------------------- For 1997, the incentive components of the annual target compensation plans were based on formulae with defined threshold targets. Under the formulae, in order for any plan bonuses to be awarded, the System must achieve a return on equity that places the System in the top 50% of the approximately 80 electric utilities in the national utility group (the national grouping) or in the top 50% of the New England/New York regional utilities (the regional grouping). See the Return on Equity table, below. The Board, in response to extraordinary events, may enhance or curtail the actual return on equity used to determine whether the System met the targets. The Board did not do so for 1997. On February 24, 1998, the Committee voted the bonuses under these plans. For the maximum incentive to be awarded, the System had to achieve a return on equity in the top 25% of both the national and regional groupings and the System's cost per kilowatt-hour must be the lowest or next lowest of a selected group of New England electric utilities. In 1997, if only one of the return on equity targets had been met, Mr. Rowe and Mr. Houston would have received a formula bonus of 12% of base pay in cash and 7.2% in shares. The maximum would have been 50% of base pay in cash and 30% in shares. Based on the performance described below, their formula bonus (cash and shares) was 42.5% of base pay in cash and 25.5% in shares. For purposes of determining the bonus amount for 1997, the System placed in the 79th percentile in return on shareholder equity of the national grouping and first in the regional grouping. The System placed third in the regional grouping with respect to lowest customer cost per kilowatt-hour in 1997. No bonus awards would have been made under the plans if earnings were not sufficient to cover dividends, even if the return on equity targets had been met. Mr. Rowe's and Mr. Houston's bonuses under the plan were directly related to achievement of the above described corporate targets. For 1997, the incentive compensation plan bonuses of the other executives were additionally dependent upon the achievement of individual goals. The participants in the incentive compensation plans are awarded NEES common shares under the Incentive Share Plan, approved by the shareholders in 1990. No discretion is exercised by the Committee in the awarding of shares generated by the formulae. An individual's award of shares under the Incentive Share Plan is a fixed percentage of her or his cash award for that year from the incentive compensation plan in which she or he participates. For Mr. Rowe and Mr. Houston, the percentage was 60%. If no cash award is made, no shares are distributed under the formulae. Further, total plan awards of shares in any calendar year cannot exceed one-half of one percent (0.5%) of the number of outstanding shares at the end of the previous calendar year. (The incentive plan shares awarded, including those restricted or deferred, for 1997 were approximately .06% of the number of outstanding shares.) As noted above under Share Ownership Guidelines, the share awards of System officers were restricted. New Annual Target Plans ----------------------- Over several meetings in 1997, the Committee considered the appropriate structure of the annual bonus plans. We decided to replace the existing plans because: the System is shifting from a vertically integrated utility to being primarily a transmission and distribution company; the System's strategic plan calls for new business development in competitive new areas; and comparative return on equity and cost per kilowatt-hour measurements will become increasingly less representative as the prime measures of success as different utilities proceed through competitive transitions at different times and at different rates. The incentive compensation plans therefore were revised to reflect the achievement of core business operating income and strategic objectives. Annual income targets will be established by the Board of Directors prior to or early in the plan year. In addition, strategic objectives will be established for each year. For 1998 those objectives are: achieving recovery of stranded investments; maximizing the return on the sale of the generation business; running the best wires business in the Northeast; increasing the size of the energy delivery business; and profiting from growth in unregulated ventures. Participants in the senior plan and other principal System officers will share all five of these objectives. Other participants may have some but not all of these objectives depending upon their responsibilities within the System. Benchmarks have been established for each of the strategic objectives. The Committee retains the discretion to adjust the benchmarks as it deems necessary in response to unanticipated events during the year. For Messrs. Sergel and Houston, achievement of the operating income target would provide a formula bonus of 15% to 25% of base pay. Achievement above that target and achievement of all strategic objectives in full would produce an award of 50% of base pay in cash and 30% in shares. Special Bonus Awards -------------------- In its review of System performance in 1997 as part of its evaluation of the annual target plans, the Committee noted the strong earnings of the System in a very difficult year, the success achieved to date in meeting the strategic objectives, particularly those relating to the recovery of stranded investment and maximizing the return from the sale of the generation business, and recommended to the Board special cash bonuses of $147,000 to Mr. Houston and $126,000 to Mr. Sergel. We also voted the special bonuses to other officers which are reflected in the compensation table. Three-Year Target Plan ---------------------- In order to increase executive focus on multi-year performance, in 1995 the System established the Long-Term Performance Share Award Plan described below. No payout was made in 1997 nor will be made under this plan until the Spring of 1999. Under this plan, awards are based upon various measures of System performance over a three-year period. Each award factor or measurement functions independently. The factors change from year to year and include financial and operating performance. The factors may be related to those in the incentive plans. The factors are established by the Committee at the beginning of each cycle. 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 pay on January 1 of the first year of the plan measurement period. For Mr. Rowe, that percentage was 50%. Under the terms of this plan, Mr. Rowe forfeited his allocated shares as a result of his resignation. Percentages for other executives range 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. For example, for the first cycle, 20% of the shares are dependent upon total shareholder return compared to other regional utilities. See Estimated Future Payouts under Non-Stock Price- Based Plans, above. Benefits - -------- The executive benefits are designed both to provide a competitive package and to retain System flexibility in staffing management to meet changing conditions. New England Electric System Compensation Committee John M. Kucharski George M. Sage Anne Wexler Corporate Performance --------------------- Total Return - ------------ The following table shows total shareholder return for NEES (capital appreciation plus reinvested dividends) for the years 1992 through 1997, as compared to the Standard & Poor's 500 Index and the Edison Electric Institute (EEI) Index of 100 investor-owned electric companies, assuming the investment of $100 on December 31, 1992.
NEES S & P 500 EEI Index ---- --------- --------- 1992 100.00 100.00 100.00 1993 107.25 110.08 111.15 1994 94.06 111.53 98.29 1995 124.27 153.44 128.78 1996 116.71 188.67 130.32 1997 152.60 251.61 166.00
Note: The share price performance shown on the table above is not necessarily indicative of future price performance. Return on Equity - ---------------- The following table shows the return on equity of NEES common shares for the years 1993 through 1997 compared to a national grouping of approximately 80 electric utilities and a regional grouping of utilities in the New York and New England area. As discussed in the report of the Compensation Committee, return on equity is a key driver of the System's incentive compensation program.
NEES National Regional Grouping Grouping ---- -------- -------- 1993 12.6% 11.9% 11.4% 1994 12.7% 11.4% 11.4% 1995 12.8% 11.7% 10.4% 1996 12.6% 11.4% 11.1% 1997 12.8% 10.9% 10.6%
Note: The earnings performance shown on the graph above is not necessarily indicative of future performance. NEES Board Structure and Compensation ------------------------------------- NEES has an Executive Committee, an Audit Committee, a Compensation Committee, a Corporate Responsibility Committee, and a Nominating Committee. The committee memberships listed below are as of March 1, 1998. The members of the Executive Committee are Mrs. Bok, Mr. Houston, Mr. Joskow, Mr. Ladd, Mr. Sage, Mr. Sergel, and Ms. Wexler. Mrs. Bok serves as the Chairman of this Committee. During the intervals between meetings of the Board of Directors, the Executive Committee has all the powers of the Board that may be delegated. The members of the Audit Committee are Messrs. Bulger, Joskow, Soule, and Winoker. Mr. Joskow serves as the Chairman of this Committee. The Audit Committee reviews with the independent public accountants the scope of their audit and management's financial stewardship for the current and prior years. This Committee also recommends to the NEES Board of Directors and to the boards of the subsidiaries of NEES the independent public accountants to be engaged for the coming year. The members of the Compensation Committee are Mr. Kucharski, Mr. Sage, and Ms. Wexler. Mr. Sage serves as the Chairman of this Committee. The Compensation Committee is responsible for executive compensation, including the administration of certain of the System's incentive compensation plans. The members of the Corporate Responsibility Committee are Mrs. Bok, Mr. McClure, Mr. Sergel, Mr. Wilson, and Mr. Winoker. Mr. Wilson serves as the Chairman of this Committee. The Corporate Responsibility Committee reviews compliance with laws and regulations, offers guidance in considering public policy issues, and helps to assure ethical conduct. The members of the Nominating Committee are Mr. Joskow, Mr. Ladd, Mr. Sage, and Ms. Wexler. Mr. Ladd serves as Chairman of this Committee. The Nominating Committee functions as a Corporate Governance Committee and also considers and evaluates director candidates, determines criteria and procedures for selecting nonmanagement directors, and conducts periodic reviews of director performance. This Committee also considers written recommendations from shareholders for nominees to the Board. The Chairman of the Executive Committee receives an annual retainer of $12,000. Other members of the Executive Committee, except Messrs. Houston and Sergel, receive an annual retainer of $5,000. The Chairmen of the Audit, Compensation, Corporate Responsibility, and Nominating Committees each receive an annual retainer of $6,000. Other members of the Audit, Compensation, and Corporate Responsibility Committees, except Mr. Sergel, receive annual retainers of $4,000. There is no retainer for the other members of the Nominating Committee. All directors participating in a Committee meeting, except Messrs. Houston and Sergel, receive a meeting fee of $1,000 plus expenses. Members of the Board of Directors, except Messrs. Houston and Sergel, receive annually a retainer of $20,000 and 300 NEES common shares, and receive a meeting fee of $1,000 plus expenses for each meeting attended. NEES permits directors to defer all or a portion of any cash retainers, meeting fees, and retainer shares under a deferred compensation plan. At the end of the deferral period, the compensation is paid out in the same form, cash or shares, as was deferred. Deferred shares do not have voting rights or other rights associated with ownership while deferred. A special account is maintained on NEES' books showing the amounts deferred and the interest accrued thereon. Group life insurance of $80,000 is provided to each member of the Board of Directors. Director contributions to qualified charities are matched by NEES under a matching gift program, which has a maximum limit of $3,500. Pursuant to a director retirement plan, nonemployee directors who have served on the Board of NEES for 5 years or more will receive a retirement benefit upon the later of the director's retirement from the Board or age 60. The benefit level is 100% of the annual cash retainer for directors who served on the Board for 10 or more years and 75% of the annual cash retainer for directors who served between 5 and 10 years. There are no death benefits under the plan. The Board of Directors held 9 meetings in 1997. The Executive, Audit, Compensation, Corporate Responsibility, and Nominating Committees held 2, 3, 3, 3, and 2 meetings, respectively, in 1997. All directors attended at least 75% of the aggregate number of meetings of the Board of Directors and the committees of which they were members. Mass. Electric, Narragansett, and NEP Directors' Compensation - ------------------------------------------------------------- Members of the Mass. Electric and Narragansett Boards of Directors, except employees of NEES System companies, received 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 previously noted for Mrs. Bok. Effective December 31, 1997, the composition of all three boards was changed to include only employees of NEES System companies. Item 7. CONTRIBUTIONS AND PUBLIC RELATIONS (1) None. Payments are made to certain employees and other persons, who may act in the capacities enumerated in Item 7 for services rendered or materials purchased, but such payments are not contributions. (2) Year Ended December 31, 1997.
Accounts Charged, if any, per Books Purpose of Disbursing Name of Recipient or Beneficiary (A) Company Amount - ------------------------------- ------- ----------------- ------ Name of Company --------------- Mass. Electric -------------- Nashua River Watershed Council 426.10 $ 100.00 Connecticut River Watershed Council 426.10 $ 225.00 Joyce & Joyce (B) 426.10 $136,612.50 Edison Electric Institute 426.40 $ 82,874.00 The Lowell Plan 426.10 $ 7,500.00 Massachusetts Taxpayers Foundation 426.10 $ 8,682.00 Business for Social Responsibility 426.10 $ 5,500.00 The Alliance to Save Energy 426.10 $ 8,250.00 Pioneer Institute for Public Policy 426.10 $ 2,500.00 Financial Accounting Foundation 426.10 $ 790.00 EDP Economic Development 426.10 $ 500.00 Haley and Aldrich Inc. (B) 426.40 $ 1,241.25 Concord Coalition for Economic Development 426.10 $ 5,000.00 Department of Economic Development 426.10 $ 5,000,00 Massachusetts Audubon Society 426.10 $ 5,395.00 NEP --- Gallagher Callahan and Gartrell (B) 426.40 $267,705.00 Joyce & Joyce (B) 426.40 $114,938.00 Sullivan & Leshane, Inc. (B) 426.40 $107,609.00 Edison Electric Institute 426.40 $ 36,164.00 Alliance for Competitive Energy 426.40 $ 35,027.00 Halloran & Sage (B) 426.40 $ 24,472.00 McGovern, Noel & Benik, Inc. 426.40 $ 15,000.00 Save the Bay 426.10 $ 27,025.00 American Enterprise Institute 426.10 $ 20,000.00 The Alliance to Save Energy 426.10 $ 11,250.00 Black Contractor's Association of RI 426.10 $ 10,000.00 Mass Taxpayers Foundation 426.10 $ 8,682.00 The Nature Conservancy 426.10 $ 5,050.00 Society for the Protection of NH Forest 426.10 $ 5,036.00 Resources for the Future 426.10 $ 5,000.00 Audubon Society of NH 426.10 $ 4,050.00 Business for Social Responsibility 426.10 $ 2,500.00 Pioneer Institute for Public Policy Research 426.10 $ 2,500.00 Connecticut River Watershed Council 426.10 $ 2,500.00 Deerfield River Watershed Association 426.10 $ 2,500.00 C.R.W.C. - River Fest 426.10 $ 2,500.00 Connecticut River Joint Commissions 426.10 $ 2,200.00 Business & Industry Association of NH 426.10 $ 1,875.00 Waste Cap of Massachusetts 426.10 $ 1,500.00 The Rhode Island Black Heritage Society 426.10 $ 600.00 Trout Unlimited, Inc. 426.10 $ 500.00 Nashua River Watershed Association 426.10 $ 500.00 The Green Mountain Club, Inc. 426.10 $ 300.00 Massachusetts Audubon Society 426.10 $ 291.00 Westport River Watershed Alliance 426.10 $ 250.00 American Forests 426.10 $ 100.00 NEP (Cont.) --- The Archaeological Conservancy 426.10 $ 50.00 Natural Resources Defense Council Inc. 426.10 $ 45.00 Mass. Forestry Association 426.10 $ 35.00 National Wildlife Federation 426.10 $ 30.00 Southern Povert Law Center 426.10 $ 25.00 The Wilderness Society 426.10 $ 25.00 Union of Concerned Scientists 426.10 $ 25.00 Narragansett ------------ John G. Coffey, Esq. (B) 426.40 $ 40,000.00 McGovern, Noel & Benik, Inc. (B) 426.40 $ 15,000.00 Edison Electric Institute 426.40 $ 28,629.50 Winsor Association Co. (B) 426.40 $ 24,000.00 Rhode Island Urban Project 426.10 $ 7,500.00 National Conference of Christians & Jews 426.10 $ 3,000.00 Urban League of Rhode Island 426.10 $ 1,000.00 Providence Foundation 426.10 $ 9,000.00 Rhode Island Public Expenditure Council 426.10 $ 23,386.00 The Alliance to Save Energy 426.10 $ 2,700.00 Nature Conservancy 426.10 $ 1,000.00 Save the Bay 426.10 $ 1,210.00 Financial Accounting Foundation 426.10 $ 360.00 Granite State ------------- Gallagher Callahan and Gartrell (B) 426.40 $ 20,703.75 Edison Electric Institute 426.40 $ 3,014.00 Business and Industry Association of NH 426.10 $ 750.00 The Alliance to Save Energy 426.10 $ 300.00 Financial Accounting Foundation 426.10 $ 30.00 Audubon Society of New Hampshire 426.10 $ 495.00 NEES ---- Massachusetts Business Roundtable 426.40 $ 700.00 Nantucket Electric Company - -------------------------- Nantucket Green Fund 426.1 $ 1,000.00 - -------------------- (A) All such payments, unless otherwise noted, were subscriptions, dues, and/or contributions. (B) Payments for legislative services.
Item 8. SERVICE, SALES AND CONSTRUCTION CONTRACTS Part I.
Serving Receiving Compensation Transaction Company Company (1997) - ----------- ------- --------- ------------ Fuel Purchase Contract (1) NEEI NEP $34,604,642 Phase I Terminal Facility Support Agreement (2) NEET NEP $ 1,639,587 Phase II Massachusetts Transmission NEHTEC NEP $ 7,612,155 Facilities Support Agreement (3) Phase II New Hampshire Transmission NEHTC NEP $ 6,004,821 Facilities Support Agreement (4) - -------------------- (1) Contract dated 7/26/79 as amended was in effect at 12/31/97. (2) Agreement dated 12/1/81 as amended was in effect at 12/31/97. (3) Agreement dated 6/1/85 as amended was in effect at 12/31/97. (4) Agreement dated 6/1/85 as amended was in effect at 12/31/97.
Part II. See Item 6, Part III. Part III. None. Item 9. WHOLESALE GENERATORS AND FOREIGN UTILITY COMPANIES None. Item 10. FINANCIAL STATEMENTS AND EXHIBITS Financial Statements - -------------------- NEES Consolidating Financial Statements (Supplement A-1) and Financial Statements and Supporting Schedules of NEES and NEES subsidiaries consolidated contained in the NEES 1997 Form 10-K (Supplement A-2). Exhibits - -------- Unless otherwise indicated, the exhibits listed below are incorporated by reference to the appropriate exhibit numbers and the commission file numbers indicated in parenthesis. A. Annual Reports: 1. a. Connecticut Yankee Atomic Power Company 1997 Annual Report to Shareholders (Exhibit A.2.1 to Northeast Utilities' Form U-5-S, File No. 30-246). b. Connecticut Yankee Atomic Power Company 1997 FERC Form 1 (Exhibit A.2.2 to Northeast Utilities' Form U-5-S, File No. 30-246). 2. a. Maine Yankee Atomic Power Company 1997 Annual Report (filed herewith). b. Maine Yankee Atomic Power Company 1997 FERC Form 1 (filed herewith). 3. Massachusetts Electric Company, Form 10-K for the year ended December 31, 1997 (File No. 0-5464). 4. The Narragansett Electric Company, Form 10-K for the year ended December 31, 1997 (File No. 1-7471). 5. New England Electric System, Form 10-K for the year ended December 31, 1997 (File No. 1-3446). 6. New England Power Company, Form 10-K for the year ended December 31, 1997 (File No. 1-6564). 7. a. Vermont Yankee Nuclear Power Corporation 1997 Annual Report to Stockholders (filed herewith). b. Vermont Yankee Nuclear Power Corporation 1997 FERC Form 1 (filed herewith). 8. a. Yankee Atomic Electric Company 1997 Annual Report to Stockholders (filed herewith). b. Yankee Atomic Electric Company 1997 FERC Form 1 (filed herewith). 9. New England Electric Transmission Corporation 1997 Annual Report (filed herewith). B. Corporate Documents: 1. AllEnergy Marketing Company, L.L.C.: a. Limited Liability Company Agreement (Exhibit B-1 to Amendment No. 1 to Form U-1, File No. 70-8921). b. Amendment No. 1 to Limited Liability Company Agreement (Exhibit 10(jj) to 1997 NEES Form 10-K, File No. 1-3446). 2. Texas Liquids, L.L.C.: a. Limited Liability Company Agreement (filed herewith). 3. Granite State Electric Company: a. Articles of Organization (Exhibit B.1.a to NEES 1983 Form U-5-S). b. By-laws (Exhibit B.1.b to NEES 1983 Form U-5-S). 4. Granite State Energy, Inc.: a. Certificate of Incorporation (Exhibit No. 3(i) to Certificate of Notification, File No. 70-8803). b. By-laws (Exhibit No. 3(ii) to Certificate of Notification, File No. 70-8803). 5. HydroServ Group, L.L.C.: a. Certificate of Organization (schedules omitted) (filed herewith). 6. Massachusetts Electric Company: a. Articles of Organization (Exhibit B.2.a to NEES 1983 Form U-5- S); Articles of Amendment dated March 5, 1993, August 11, 1993, September 20, 1993, and November 1, 1993 (Exhibit 3(a) to 1993 Form 10-K, File No. 0-5464). b. By-laws (Exhibit 3(b) to 1997 Mass. Electric Form 10-K, File No. 0-5464). 7. Nantucket Electric Company: a. Articles of Organization (Exhibit A-6 filed under cover of Form SE, File No. 70-8675). b. By-laws (Exhibit A-7 filed under cover of Form SE, File No. 70- 8675). 8. The Narragansett Electric Company: a. Charter (Exhibit B.3.a to NEES 1983 Form U-5-S); Amendment to Charter dated June 9, 1988 (Exhibit B.3.a to NEES 1988 Form U-5-S). b. By-laws (Exhibit 3 to 1980 Form 10-K, File No. 0-898). c. Preference Provisions as amended dated December 15, 1997 (Exhibit 4(c) to NEES 1997 Form 10-K, File No. 1-3446). 9. Narragansett Energy Resources Company: a. Articles of Incorporation (Exhibit B.4.a to NEES 1987 Form U-5-S). b. By-laws (Exhibit B.4.b to NEES 1995 Form U-5-S). 10. NEERI International: a. Articles of Association (Exhibit B.8.a to NEES 1996 Form U-5-S). b. Memorandum of Association (Exhibit B.8.b to NEES 1996 Form U-5-S). 11. NEES Communications, Inc.: a. Articles of Organization (Exhibit B.9.a to NEES 1996 Form U-5-S). b. By-laws (Exhibit B.9.b to NEES 1996 Form U-5-S). 12. NEES Energy, Inc.: a. Certificate of Incorporation (Exhibit 3(i) to Certificate of Notification, File No. 70-8803). b. By-laws (Exhibit 3(ii) to Certificate of Notification, File No. 70-8803). 13. NEES Global Transmission, Inc.: a. Articles of Organization (Exhibit B.5.a to NEES 1993 Form U-5- S). b. By-Laws (Exhibit B.5.b to NEES 1993 Form U-5-S). 14. New England Electric System: a. Agreement and Declaration of Trust (Exhibit 3 to NEES 1994 Form 10-K, File No. 1-3446). 15. New England Electric Transmission Corporation: a. Restated Articles of Incorporation (Exhibit B.6.a to NEES 1983 Form U-5-S). b. By-laws (Exhibit B.6.b to NEES 1983 Form U-5-S). 16. New England Energy Incorporated: a. Articles of Organization (Exhibit B.7.a to NEES 1983 Form U-5- S); Articles of Amendment dated April 8, 1988 (Exhibit B.8.a to NEES 1988 Form U-5-S). b. By-laws (Exhibit B.8.b to NEES 1995 Form U-5-S). 17. New England Hydro Finance Company, Inc. a. Articles of Organization (Exhibit B.9.a to NEES 1988 Form U-5-S). b. By-laws (Exhibit B.9.b to NEES 1995 Form U-5-S). 18. New England Hydro-Transmission Corporation a. Articles of Incorporation (Exhibit B.8.a to NEES 1986 Form U-5-S); Articles of Amendment dated January 18, 1989 (Exhibit B.10.a to NEES 1988 Form U-5-S). b. By-laws (Exhibit B.10.b to NEES 1988 Form U-5-S). 19. New England Hydro-Transmission Electric Company a. Restated Articles of Organization dated January 13, 1989 (Exhibit B.11.a to NEES 1988 Form U-5-S). b. By-laws (Exhibit B.11.b to NEES 1988 Form U-5-S). 20. New England Power Company: a. Articles of Organization (Exhibit B.8.a to NEES 1983 Form U-5- S); Articles of Amendment dated June 25, 1987 (Exhibit B.12.a to NEES 1988 Form U-5-S). b. By-laws (Exhibit 3(b) to 1997 Form 10-K, File No. 0-1229). 21. New England Power Service Company: a. Articles of Organization (Exhibit B.9.a to NEES 1983 Form U-5- S). b. By-laws (Exhibit B.13.b to NEES 1988 Form 10-K, File No. 0-1229). C. Funded Debt: 1. Granite State Electric Company: Note Agreement with John Hancock dated March 15, 1985 (Exhibit A to Granite Certificate of Notification, File No. 70-6998). Note Agreement with Teachers Insurance dated as of February 1, 1987 (Exhibit A to Granite Certificate of Notification, File No. 70-7288). Note Agreement with Aid Association for Lutherans dated as of October 1, 1991 (Exhibit C-1 to NEES 1991 Form U-5-S). Note Agreement with First Colony Life Insurance Company dated as of November 1, 1993 (Exhibit C-1 to NEES 1993 Form U-5-S). Note Agreement with First Colony Life Insurance Company dated as of July 1, 1995 (Exhibit A to Granite Certificate of Notification, File No. 70-8625). 2. 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 NEES Form 10-K, File No. 1-3446). 3. 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 C-3 to NEES 1991 Form U-5-S; 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 NEES Form 10-K, File No. 1- 3446). 4. New England Electric Transmission Corporation: Note Agreement with PruCapital Management, Inc. et al. dated as of September 1, 1986; 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). 5. New England Energy Incorporated: Credit Agreement dated as of April 13, 1995 (Exhibit 10(e)(v) to 1995 NEES Form 10-K, File No. 1-3446). 6. New England Power Company: a. 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 1988 Form 10-K, File No. 0-1229; 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 C.6.b to NEES 1991 Form U-5-S; Exhibit 4(c)(ii) to NEES 1992 Form 10-K, File No. 1- 3446; Exhibit 4(d) to NEES 1993 Form 10-K, File No. 1-3446; Exhibit 4(d) to 1995 NEES Form 10-K, File No. 1-3446). b. Loan Agreement with Massachusetts Industrial Finance Agency dated as of March 15, 1980 and two supplements thereto (Exhibit C.8.c to NEES 1983 Form U-5-S); Supplements dated as of October 1, 1992 and September 1, 1993 (Exhibit C-6b to NEES 1993 Form U-5-S). c. Loan Agreement with Business Finance Authority of the State of New Hampshire (formerly the Industrial Development Authority of the State of New Hampshire) dated as of November 15, 1983 (Exhibit C.8.d to NEES 1983 Form U-5-S); First Supplement dated as of April 1, 1986 (Exhibit C.7.d to NEES 1986 Form U-5-S); Second Supplement dated as of August 1, 1988 (Exhibit C.7.d to NEES 1988 Form U-5- S); Third Supplement dated as of February 1, 1989; Fourth Supplement dated as of November 1, 1990 (Exhibit C.6.d to NEES 1990 Form U-5-S); Fifth Supplement dated as of June 15, 1991 (Exhibit C.6.d to NEES 1991 Form U-5-S); Sixth Supplement dated as of January 1, 1993 (Exhibit C.6.d to NEES 1992 Form U-5-S); Seventh Supplement dated as of October 1, 1993 and Eighth Supplement dated as of December 1, 1993 (Exhibit C.6.c to NEES 1993 Form U-5-S); Ninth Supplement dated as of February 1, 1995 (Exhibit 6.c to NEES 1995 Form U-5-S), Tenth Supplement dated as of January 15, 1996, Eleventh Supplement dated as of January 15, 1996, and Twelfth Supplement dated as of December 1, 1996 (Exhibit 6.c to NEES 1996 Form U-5-S). d. Loan Agreement with the Connecticut Development Authority dated as of October 15, 1985 (Exhibit C-8(h) to NEES 1985 Form U-5-S). 7. Narragansett Energy Resources Company: Note Agreements with Connecticut General Life Insurance Company, CIGNA Property and Casualty Insurance Company, Insurance Company of North America, and Life Insurance Company of North America, dated November 30, 1995 (Exhibit A to NERC Certificate of Notification, File No. 70-8671). D. New England Electric System and Subsidiary Companies, Federal and State Income Tax Allocation Agreement (Exhibit D to NEES 1996 Form U-5-S). E. 1. Schedule showing Money Pool investments for 1997 (filed herewith). 2. NEERI annual report on Modified Form U-13-60 (filed herewith). 3. Ocean State Power Financial Statements as of December 31, 1997 (filed herewith). 4. Ocean State Power II Financial Statements as of December 31, 1997 (filed herewith). 5. OSP Finance Company Financial Statements as of December 31, 1997 (filed herewith). 6. Financial Statements of the New England Electric System Companies Incentive Thrift Plan (Thrift Plan) (filed herewith). 7. Financial Statements of the New England Electric System Companies Incentive Thrift Plan II (Thrift Plan II) (filed herewith). 8. Financial Statements of the Yankee Atomic Electric Company Thrift Plan (filed herewith). F. Schedules (filed herewith). G. Financial Data Schedules (filed herewith). H. None. I. None. 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. SIGNATURE New England Electric System, a registered holding company, has duly caused this Annual Report, Form U-5-S, for the year ended December 31, 1997, Commission's File No. 30-33 to be signed on its behalf, by the undersigned thereunto duly authorized, pursuant to the requirements of the Public Utility Holding Company Act of 1935. NEW ENGLAND ELECTRIC SYSTEM s/John G. Cochrane By: John G. Cochrane, Treasurer Date: May 1, 1998 EX-99 2 EXHIBIT INDEX EXHIBIT INDEX ------------- Exhibit No. Description Page - ----------- ----------- ---- Supplement NEES Consolidating Balance Sheet, Filed A-1 Consolidating Income and Retained Earnings herewith Statements and Consolidating Statement of Changes in Financial Position for the year ended December 31, 1997 Supplement NEES Form 10-K for the year ended Filed under A-2 December 31, 1997 cover of Form SE A.1.a Connecticut Yankee Atomic Power Company Incorporated 1997 Annual Report to Shareholders by reference A.1.b Connecticut Yankee Atomic Power Company Incorporated 1997 FERC Form 1 by reference A.2.a Maine Yankee Atomic Power Company Filed under 1997 Annual Report cover of Form SE A.2.b Maine Yankee Atomic Power Company Filed under 1997 FERC Form 1 cover of Form SE A.3 Massachusetts Electric Company Incorporated Form 10-K for the year ended December 31, 1997 by reference A.4 The Narragansett Electric Company Incorporated Form 10-K for the year ended December 31, 1997 by reference A.5 New England Electric System Incorporated Form 10-K for the year ended December 31, 1997 by reference A.6 New England Power Company Incorporated Form 10-K for the year ended December 31, 1997 by reference A.7.a Vermont Yankee Nuclear Power Corporation Filed under 1997 Annual Report to Stockholders cover of Form SE A.7.b Vermont Yankee Nuclear Power Corporation Filed under 1997 FERC Form 1 cover of Form SE A.8.a Yankee Atomic Electric Company Filed under 1997 Annual Report to Stockholders cover of Form SE A.8.b Yankee Atomic Electric Company Filed under 1997 FERC Form 1 cover of Form SE A.9 New England Electric Transmission Filed under Corporation 1997 Annual Report cover of Form SE B.1.a AllEnergy Marketing Company, L.L.C. Incorporated Limited Liability Company Agreement by reference B.1.b Amendmment No. 1 to AllEnergy Marketing Incorporated Company, L.L.C. Limited Liability by reference Company Agreement B.2.a. Texas Liquids, L.L.C. Limited Liability Filed herewith Company Agreement EXHIBIT INDEX ------------- Exhibit No. Description Page - ----------- ----------- ---- B.3.a Granite State Electric Company Incorporated Articles of Organization by reference B.3.b Granite State Electric Company Incorporated By-laws by reference B.4.a Granite State Energy, Inc. Incorporated Certificate of Incorporation by reference B.4.b Granite State Energy, Inc. Incorporated By-laws by reference B.5.a HydroServ Group, L.L.C. Certificate Filed herewith of Organization (schedules omitted) B.6.a Massachusetts Electric Company Incorporated Articles of Organization and Articles by reference of Amendment B.6.b Massachusetts Electric Company Incorporated By-laws by reference B.7.a Nantucket Electric Company Incorporated Articles of Organization by reference B.7.b Nantucket Electric Company Incorporated By-laws by reference B.8.a The Narragansett Electric Company Incorporated Charter and Amendment thereto by reference B.8.b The Narragansett Electric Company Incorporated By-laws by reference B.8.c The Narragansett Electric Company Incorporated Preference Provisions as amended by reference B.9.a Narragansett Energy Resources Company Incorporated Articles of Incorporation by reference B.9.b Narragansett Energy Resources Company Incorporated By-laws by reference B.10.a NEERI International Incorporated Articles of Association by reference B.10.b NEERI International Incorporated Memorandum of Association by reference B.11.a NEES Communications, Inc. Incorporated Articles of Organization by reference B.11.b NEES Communications, Inc. Incorporated By-laws by reference B.12.a NEES Energy, Inc. Incorporated Certificate of Incorporation by reference B.12.b NEES Energy, Inc. Incorporated By-laws by reference B.13.a NEES Global Transmission, Inc. Incorporated Articles of Organization by reference B.13.b NEES Global Transmission, Inc. Incorporated By-laws by reference EXHIBIT INDEX ------------- Exhibit No. Description Page - ----------- ----------- ---- B.14.a New England Electric System Incorporated Agreement and Declaration of Trust by reference B.15.a New England Electric Transmission Corporation Incorporated Restated Articles of Incorporation by reference B.15.b New England Electric Transmission Corporation Incorporated By-laws by reference B.16.a New England Energy Incorporated Incorporated Articles of Organization and Articles of by reference Amendment B.16.b New England Energy Incorporated Incorporated By-laws by reference B.17.a New England Hydro Finance Company, Inc. Incorporated Articles of Organization by reference B.17.b New England Hydro Finance Company, Inc. Incorporated By-Laws by reference B.18.a New England Hydro-Transmission Corporation Incorporated Articles of Incorporation and Articles of by reference Amendment B.18.b New England Hydro-Transmission Corporation Incorporated By-laws by reference B.19.a New England Hydro-Transmission Electric Company Incorporated Restated Articles of Organization by reference B.19.b New England Hydro-Transmission Electric Company Incorporated By-laws by reference B.20.a New England Power Company Incorporated Articles of Organization and Articles of by reference Amendment B.20.b New England Power Company Incorporated By-laws by reference B.21.a New England Power Service Company Incorporated Articles of Organization by reference B.21.b New England Power Service Company Incorporated By-laws by reference C.1 Granite State Electric Company Incorporated Note Agreement with John Hancock by reference Granite State Electric Company Incorporated Note Agreement with Teachers Insurance by reference Granite State Electric Company Incorporated Note Agreement with Aid Association for by reference Lutherans Granite State Electric Company Incorporated Note Agreement with First Colony Life by reference Insurance Company Granite State Electric Company Incorporated Note Agreement with First Colony Life by reference Insurance Company EXHIBIT INDEX ------------- Exhibit No. Description Page - ----------- ----------- ---- C.2 Massachusetts Electric Company Incorporated First Mortgage Indenture and Deed of Trust by reference and twenty-one supplements thereto C.3 The Narragansett Electric Company Incorporated First Mortgage Indenture and Deed of Trust by reference and twenty-two supplements thereto C.4 New England Electric Transmission Corporation Incorporated Note Agreement with PruCapital Management, Inc. by reference et al. and Mortgage, Deed of Trust and Security Agreement C.5 New England Energy Incorporated Incorporated Credit Agreement by reference C.6.a New England Power Company General and Incorporated Refunding Mortgage Indenture and Deed of Trust by reference and twenty supplements thereto C.6.b New England Power Company Incorporated Loan Agreement with Massachusetts Industrial by reference Finance Agency and supplements thereto C.6.c New England Power Company Incorporated Loan Agreement with Business Finance Authority by reference of the State of New Hampshire (formerly the Industrial Development Authority of the State of New Hampshire) and twelve supplements thereto C.6.d Loan Agreement with Connecticut Development Incorporated Authority by reference C.7 Narragansett Energy Resources Company Incorporated Note Agreements by reference D New England Electric System and Subsidiary Incorporated Companies, Federal and State Income Tax by reference Allocation Agreement E.1 Money Pool investments for 1997 Filed herewith E.2 NEERI annual report on Modified Form U-13-60 Filed herewith E.3 Ocean State Power Financial Statements as of Filed December 31, 1997 herewith E.4 Ocean State Power II Financial Statements Filed as of December 31, 1997 herewith E.5 OSP Finance Company Financial Statements Filed as of December 31, 1997 herewith E.6 New England Electric System Companies Filed under Incentive Thrift Plan Financial Statements cover of Form SE E.7 New England Electric System Companies Filed under Incentive Thrift Plan II Financial Statements cover of Form SE E.8 Yankee Atomic Electric Company Filed under Thrift Plan Financial Statements cover of Form SE EXHIBIT INDEX ------------- Exhibit No. Description Page - ----------- ----------- ---- F Schedules Filed under cover of Form SE G Financial Data Schedules Filed herewith EX-99 3 SUPPLEMENT A-1 SUPPLEMENT A-1 NEW ENGLAND ELECTRIC SYSTEM AND SUBSIDIARIES CONSOLIDATING BALANCE SHEET AT DECEMBER 31, 1997 CONSOLIDATING INCOME AND RETAINED EARNINGS STATEMENTS FOR YEAR ENDED DECEMBER 31, 1997 CONSLIDATING STATEMENT OF CASH FLOWS FOR YEAR ENDED DECEMBER 31, 1997 NEW ENGLAND ELECTRIC SYSTEM AND SUBSIDIARIES CONSOLIDATED INDEX OF CONSOLIDATED WORKSHEETS YEAR ENDED DECEMBER 31, 1997
Pages ----- Consolidating Balance Sheet, Adjustments and Eliminations............................. 1 - 2 Consolidating Statement of Income, Adjustments and Eliminations....................... 3 - 4 Consolidating Statement of Retained Earnings, Adjustments and Eliminations............ 5 - 6 Consolidating Statement of Cash Flows, Adjustments and Eliminations................... 7 - 8 INDEX OF INDIVIDUAL COMPANY STATEMENTS Balance Statement Retained Statement of Sheet of Income Earnings Cash Flows ------- --------- -------- ------------ NEW ENGLAND ELECTRIC SYSTEM (PARENT) 1 3 5 7 GRANITE STATE ELECTRIC COMPANY (GRANITE STATE) 1 3 5 7 MASSACHUSETTS ELECTRIC COMPANY (MASS. ELECTRIC) 1 3 5 7 THE NARRAGANSETT ELECTRIC COMPANY (NARRA. ELECTRIC) 1 3 5 7 NEW ENGLAND POWER COMPANY (NEP) 1 3 5 7 NEW ENGLAND ENERGY INCORPORATED (NEEI) 1 3 5 7 NEW ENGLAND POWER SERVICE COMPANY (NEPSCO) 1 3 5 7 NEW ENGLAND HYDRO-TRANSMISSION ELECTRIC COMPANY, INC. (NEHTECI) 1 3 5 7 NEW ENGLAND HYDRO-TRANSMISSION CORPORATION (NEHTC) 1 3 5 7 NARRAGANSETT ENERGY RESOURCES COMPANY (NERC) 1 3 5 7 NEES GLOBAL TRANSMISSION, INC. (NEES GLOBAL) 1 3 5 7 NEES COMMUNICATIONS, INC. (NEESCOM) 1 3 5 7 NANTUCKET ELECTRIC COMPANY (NANTUCKET) 1 3 5 7 GRANITE STATE ENERGY (GSEN) 1 3 5 7 NEES ENERGY (NEESEN) 1 3 5 7
Page 1A NEW ENGLAND ELECTRIC SYSTEM AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET DECEMBER 31, 1997 (IN THOUSANDS)
GRANITE MASS. NARRA. STATE ELECTRIC ELECTRIC NEP NEEI NEPSCO NEHTECI NEHTC ------- -------- -------- --- ---- ------ ------- ----- Assets Utility plant, at original cost $69,792$1,579,309 $760,923 $3,057,749 $5,877 $220,637 $173,246 Less accumulated depreciation and amortization 20,788 465,796 198,551 1,196,972 61,679 40,812 ------------------ -------- ---------- ---------- ------- -------- -------- 49,004 1,113,513 562,372 1,860,777 5,877 158,958 132,434 Construction work in progress 187 13,363 5,739 29,015 ------------------ -------- ---------- ---------- ------- -------- -------- Net utility plant 49,191 1,126,876 568,111 1,889,792 5,877 158,958 132,434 ------------------ -------- ---------- ---------- ------- -------- -------- Oil and gas properties $1,299,817 Less accumulated amortization 1,128,659 Work in progress ---------- Net oil and gas properties 171,158 ---------- Investments in nuclear power companies, at equity 49,825 Investments in other subsidiaries, at equity Other investments at cost 1,043 10,925 4,758 34,723 61,132 5 5 Current assets 7,025 236,041 89,459 338,337 14,260 23,764 5,524 1,569 Deferred charges and other assets 1,011 34,525 50,527 450,415 342 589 4,473 5,156 ------------------ -------- ---------- ---------- ------- -------- -------- $58,270$1,408,367 $712,855 $2,763,092 $185,760 $91,362 $168,960 $139,164 ================== ======== ========== ========== ======= ======== ======== Page 1B NEW ENGLAND ELECTRIC SYSTEM AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET DECEMBER 31, 1997 (IN THOUSANDS) (Continued) NEES NERC GLOBAL NEESCOM NANTUCKET GS EN NEES EN PARENT ---- ------ -------- ---------- ------- ------- ------- Assets Utility plant, at original cost $46,888 Less accumulated depreciation and amortization 10,418 -------- ------ ---------- ---------- ---------- ---------- --------- 36,470 Construction work in progress 404 -------- ------ ---------- ---------- ---------- --------- --------- Net utility plant 36,874 -------- ------ ---------- ---------- ---------- --------- --------- Oil and gas properties Less accumulated amortization Work in progress Net oil and gas properties Investments in nuclear power companies, at equity Investments in other subsidiaries, at equity 34,735 $185 1,814,765 Other investments at cost 3,875 106 1,984 33,666 Current assets 2,122 1,133 403 3,910 232 21,139 49,278 Deferred charges and other assets 730 1,175 4,918 -------- ------ -------------------- ---------- ----------- ---------- $37,587 $5,193 $403 $42,065 $232 $28,041 $1,897,709 ======== ====== ==================== ========== =========== ========== Page 1C NEW ENGLAND ELECTRIC SYSTEM AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET DECEMBER 31, 1997 (IN THOUSANDS) (Continued) TOTAL ADJUSTMENTS NEES & ELMINATIONS CONSOLIDATED ------------- ------------ Assets Utility plant, at original cost $54,320 $5,860,101 Less accumulated depreciation and amortization (1) 1,995,017 --------- --------- 54,321 3,865,084 Construction work in progress 48,708 ------ ---------- Net utility plant 54,321 3,913,792 ------ ---------- Oil and gas properties 1,299,817 Less accumulated amortization 1,128,659 Work in progress ------- --------- Net oil and gas properties 171,158 ------- --------- Investments in nuclear power companies, at equity 49,825 Investments in other subsidiaries, at equity 1,812,267 37,418 Other investments at cost 34,577 117,645 Current assets 320,713 473,483 Deferred charges and other assets 5,535 548,326 ---------- ---------- $2,227,413 $5,311,647 ========== ==========
Page 1D NEW ENGLAND ELECTRIC SYSTEM AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET DECEMBER 31, 1997 (IN THOUSANDS) (Continued)
GRANITE MASS. NARRA. STATE ELECTRIC ELECTRIC NEP NEEI NEPSCO NEHTECI NEHTC ------- -------- --------- --- ---- ------ ------- ----- Capitalization and liabilities Common share equity $20,936 $500,407$291,839 $913,259 ($2,674) $22,252 $52,542 $34,336 Minority interests in consolidated subsidiaries Cumulative preferred stock 15,739 12,800 39,666 Long-term debt 15,000 338,387 183,545 647,720 122,000 77,610 47,360 ------------------------------------ ---------- ------- -------- -------- Total capitalization 35,936 854,533 488,184 1,600,645 119,326 22,252 130,152 81,696 ------------------------------------ ---------- ------- -------- -------- Current liabilities Long-term debt due within 1 year 20,000 5,000 50,000 6,960 4,560 Short-term debt 4,075 34,700 16,350 111,250 Other current liabilities 11,353 244,085 96,260 177,093 6,158 29,543 3,649 4,543 ------------------------------------ ---------- ------- -------- -------- Total current liabilities 15,428 298,785 117,610 338,343 6,158 29,543 10,609 9,103 ------------------------------------ ---------- ------- -------- -------- Deferred federal and state income taxes 4,383 179,474 82,871 369,757 58,741 (12,784) 20,870 17,822 Unamortized investment tax credits 899 15,463 7,023 53,463 7,329 3,984 Other reserves and deferred credits 1,624 60,112 17,167 400,884 1,535 52,351 26,559 ------------------------------------ ---------- ------- -------- -------- $58,270$1,408,367$712,855$2,763,092 $185,760 $91,362 $168,960 $139,164 ==================================== ========== ======= ======== ======== Page 1E NEW ENGLAND ELECTRIC SYSTEM AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET DECEMBER 31, 1997 (IN THOUSANDS) (Continued) NEES NERC GLOBAL NEESCOM NANTUCKET GS EN NEES EN PARENT ---- ------ -------- ----- ------- ------- ------ Capitalization and liabilities Common share equity $3,277 $4,915 292 $4,669 $162 $13,234 $1,745,288 Minority interests in consolidated subsidiaries 191 Cumulative preferred stock Long-term debt 26,719 29,140 -------- ------- ---------- ---------- --------------------- ---------- Total capitalization 29,996 4,915 292 33,809 162 13,425 1,745,288 -------- ------- ---------- ---------- --------------------- ---------- Current liabilities Long-term debt due within 1 year 1,920 1,470 Short-term debt 25 102,000 Other current liabilities 1,006 278 111 4,683 60 14,922 46,310 -------- ------- ---------- ---------- --------------------- --------- Total current liabilities 2,926 278 111 6,178 60 14,922 148,310 -------- ------- ---------- ---------- --------------------- --------- Deferred federal and state income taxes 2,973 602 10 (725) (3,619) Unamortized investment tax credits 1,692 165 Other reserves and deferred credits 1,311 419 7,730 -------- ------- ---------- ---------- ---------- ---------- ---------- $37,587 $5,193 $403 $42,065 $232 $28,041 $1,897,709 ======== ======= ========== ========== ========== ========== ========== Page 1F NEW ENGLAND ELECTRIC SYSTEM AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET DECEMBER 31, 1997 (IN THOUSANDS) (Continued) TOTAL ADJUSTMENTS NEES & ELIMINATIONS CONSOLIDATED -------------- ------------ Capitalization and liabilities Common share equity $1,860,292 $1,744,442 Minority interests in consolidated subsidiaries (42,871) 43,062 Cumulative preferred stock 29,092 39,113 Long-term debt 1,487,481 ---------- ---------- Total capitalization 1,846,513 3,314,098 ---------- ---------- Current liabilities Long-term debt due within 1 year 89,910 Short-term debt 16,450 251,950 Other current liabilities 307,872 332,182 ---------- ---------- Total current liabilities 324,322 674,042 ---------- ---------- Deferred federal and state income taxes 720,375 Unamortized investment tax credits 90,018 Other reserves and deferred credits 56,578 513,114 ---------- ---------- $2,227,413 $5,311,647 ========== ==========
Page 2A NEW ENGLAND ELECTRIC SYSTEM AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET - ADJUSTMENTS AND ELIMINATIONS DECEMBER 31, 1997 (IN THOUSANDS)
GRANITE MASS. NARRA. STATE ELECTRIC ELECTRIC NEP NEEI NEPSCO NEHTECI NEHTC ------- -------- -------- --- ---- ------ ------- ----- Debit Common share equity 20,867 500,278 291,727 913,225 (2,674) 18,189 52,506 34,315 Short-term debt 4,075 4,800 4,425 3,125 Other current liabilities 8,396 183,980 54,223 52,961 10 666 1,587 1,639 Other reserves and deferred credits 6,817 50,971 1,535 Cumulative preferred stock 29,092 Oil and Gas Properties ------- -------- -------- ---------- -------- ------- ------- ------- Total $33,338 $689,058 $357,192 $1,049,374 ($1,129) $18,855 $54,093 $35,954 ======= ======== ======== ========== ======== ======= ======= ======= Credit Minority interests in consolidated subsidiaries 26,042 17,020 Deferred charges and other assets 6,817 1,877 Utility plant, at original cost 53,999 Investments in other subsidiaries, at equity Other investments at cost 124 481 428 350 3,879 5 5 Accumulated depreciation and amortization Current assets 404 1,322 1,112 233,146 13,870 13,497 2,965 1,379 Accumulated Amortization - Oil and Gas Properties ------- -------- -------- ---------- -------- ------- ------- ------- Total $528 $1,803 $8,357 $287,495 $15,747 $17,376 $29,012 $18,404 ======= ======== ======== ========== ======== ======= ======= ======= Page 2B NEW ENGLAND ELECTRIC SYSTEM AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET - ADJUSTMENTS AND ELIMINATIONS DECEMBER 31, 1997 (IN THOUSANDS) (Continued) NEES NERC GLOBAL NEESCOM NANTUCKET GS EN NEES EN PARENT ---- ------ -------- --------- ------- ------- ------ Debit Common share equity 3,278 4,915 292 4,669 162 13,234 5,309 Short-term debt 25 Other current liabilities 1,565 54 377 1,297 126 1,007 (16) Other reserves and deferred credits 904 (3,649) Cumulative preferred stock Oil and Gas Properties ------ ------ ---------- -------- -------- -------- ------- Total $4,843 $4,969 $669 $6,895 $288 $14,241 $1,644 ====== ====== ========== ======== ======== ======== ======= Credit Minority interests in consolidated subsidiaries (191) Deferred charges and other assets (319) 811 (3,651) Utility plant, at original cost 321 Investments in other subsidiaries, at equity 163 1,812,104 Other investments at cost 29,305 Accumulated depreciation and amortization 1 Current assets 2,100 92 347 1,416 994 48,069 Accumulated Amortization - Oil and Gas Properties ------ ------ ---------- -------- ------------------ ---------- Total $1,781 $255 $347 $2,548 $803 $1,885,828 ====== ====== ========== ======== ================== ========== Page 2C NEW ENGLAND ELECTRIC SYSTEM AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET - ADJUSTMENTS AND ELIMINATIONS DECEMBER 31, 1997 (IN THOUSANDS) (Continued) TOTAL ADJUSTMENTS & ELIMINATIONS -------------- Debit Common share equity $1,860,292 Short-term debt $16,450 Other current liabilities $307,872 Other reserves and deferred credits $56,578 Cumulative preferred stock $29,092 Oil and Gas Properties ---------- Total $2,270,284 ========== Credit Minority interests in consolidated subsidiaries $42,871 Deferred charges and other assets $5,535 Utility plant, at original cost $54,320 Investments in other subsidiaries, at equity $1,812,267 Other investments at cost $34,577 Accumulated depreciation and amortization $1 Current assets $320,713 Accumulated Amortization - Oil and Gas Properties ---------- Total $2,270,284 ==========
Page 3A NEW ENGLAND ELECTRIC SYSTEM AND SUBSIDIARIES CONSOLIDATED INCOME STATEMENT YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS)
GRANITE MASS. NARRA. STATE ELECTRIC ELECTRIC NEP NEEI NEPSCO NEHTECI NEHTC ------- -------- -------- --- ---- ------ ------- ----- Operating revenue $68,780 $1,624,085 $520,038 $1,677,903 $41,078 $32,415 -------- ---------- -------- ---------- -------- ---------------- -------- Operating expenses: Fuel for generation 10,934 372,734 Purchased electric energy 47,845 1,145,047 298,496 527,647 Other operation 9,490 217,150 74,375 241,506 4,128 5,760 10,059 Maintenance 1,813 36,906 12,447 89,820 1,323 218 Depreciation and amortization 2,483 49,694 22,957 98,024 49,620 8,896 5,866 Taxes, other than income taxes 1,971 31,143 39,366 67,311 301 3,081 3,073 Income taxes 1,243 42,454 14,247 90,009 (2,404) 5,834 3,022 -------- ---------- -------- ---------- -------- ---------------- -------- Total operating expenses 64,845 1,522,394 472,822 1,487,051 51,645 24,894 22,238 -------- ---------- -------- ---------- -------- ---------------- -------- Operating income 3,935 101,691 47,216 190,852 (51,645) 16,184 10,177 Other income: Allowance for equity funds used during construction Equity in income of generating companies 5,189 Other income (expense), net (51) (1,536) (750) (3,404) 52,625 1,839 167 59 -------- ---------- -------- ---------- -------- ---------------- -------- Operating and other income 3,884 100,155 46,466 192,637 980 1,839 16,351 10,236 -------- ---------- -------- ---------- -------- ---------------- -------- Interest: Interest on long-term debt 1,260 27,612 16,179 42,277 2,289 8,123 4,997 Other interest 428 7,214 2,475 7,055 7 49 Allowance for borrowed funds used during construction (13) (429) (120) (1,238) -------- ---------- -------- ---------- -------- ---------------- -------- Total interest 1,675 34,397 18,534 48,094 2,289 8,130 5,046 -------- ---------- -------- ---------- -------- ---------------- -------- Income after interest 2,209 65,758 27,932 144,543 (1,309) 1,839 8,221 5,190 Preferred dividends of subsidiaries 2,821 1,955 2,075 Minority interests -------- ---------- -------- ---------- -------- ---------------- -------- Net income $2,209 $62,937 $25,977 $142,468 ($1,309) $1,839 $8,221 $5,190 ======== ========== ======== ========== ======== ================ ======== Page 3B NEW ENGLAND ELECTRIC SYSTEM AND SUBSIDIARIES CONSOLIDATED INCOME STATEMENT YEAR ENDED DECEMBER 31, 1997(IN THOUSANDS) (Continued) NEES NERC GLOBAL NANTUCKET NEESCOM GS EN NEES EN PARENT ---- ------ --------- ------- ------- ------ ------ Operating revenue $14,552 $590 $10,909 -------- ---------- -------- ------- -------- -------- -------- Operating expenses Fuel for generation 212 Purchased electric energy 5,215 650 Other operation 55 3,339 131 13,813 4,593 Maintenance 845 Depreciation and amortization 1 1,807 46 Taxes, other than income taxes 509 5 4 31 Income taxes 318 262 (68) (1,179) (27) -------- ---------- -------- ------- -------- -------- ------- Total operating expenses 374 12,189 718 12,684 4,597 -------- ---------- -------- ------- -------- -------- ------- Operating income (374) 2,363 (128) (1,775) (4,597) Other income: Allowance for equity funds used during construction Equity in income of generating companies 5,051 (7,357) 41,536 Other income (expense), net 70 (3,839) 37 (643) 1,157 184,397 -------- ---------- -------- ------- -------- -------- ------- Operating and other income 4,747 (3,839) 2,400 (643) (128) (7,975) 221,336 -------- ---------- -------- ------- -------- -------- ------- Interest: Interest on long-term debt 2,209 1,939 426 Other interest (2) 67 552 Allowance for borrowed funds used during construction (109) -------- ---------- -------- ------- -------- -------- ------- Total interest 2,207 1,897 978 -------- ---------- -------- ------- -------- -------- ------- Income after interest 2,540 (3,839) 503 (643) (128) (7,975) 220,358 Preferred dividends of subsidiaries Minority interests -------- ---------- -------- ------- -------- -------- -------- Net income $2,540 ($3,839) $503 ($643) ($128) ($7,975)$220,358 ======== ========== ======== ======= ======== ======== ======== Page 3C NEW ENGLAND ELECTRIC SYSTEM AND SUBSIDIARIES CONSOLIDATED INCOME STATEMENT YEAR ENDED DECEMBER 31, 1997(IN THOUSANDS) (Continued) TOTAL ADJUSTMENTS NEES & ELIMINATIONS CONSOLIDATED -------------- ------------ Operating revenue $1,487,759 $2,502,591 ---------- ---------- Operating expenses Fuel for generation 11,419 372,461 Purchased electric energy 1,496,671 528,229 Other operation 27,741 556,658 Maintenance 143,372 Depreciation and amortization 2,902 236,492 Taxes, other than income taxes 301 146,494 Income taxes 1,687 152,024 ---------- --------- Total operating expenses 1,540,721 2,135,730 ---------- ---------- Operating income (52,962) 366,861 Other income: Allowance for equity funds used during construction Equity in income of generating companies 34,179 10,240 Other income (expense), net 245,883 (15,755) ---------- ---------- Operating and other income 227,100 361,346 ---------- ---------- Interest: Interest on long-term debt 107,311 Other interest 906 16,939 Allowance for borrowed funds used during construction (1) (1,908) ---------- ---------- Total interest 905 122,342 ---------- ---------- Income after interest 226,195 239,004 Preferred dividends of subsidiaries (5,468) 12,319 Minority interests (6,647) 6,647 ---------- ---------- Net income $238,310 $220,038 ========== ==========
Page 4A NEW ENGLAND ELECTRIC SYSTEM AND SUBSIDIARIES CONSOLIDATED INCOME STATEMENT - ADJUSTMENTS AND ELIMINATIONS YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS)
GRANITE MASS. NARRA. STATE ELECTRIC ELECTRIC NEP NEEI NEPSCO NEHTECI NEHTC ------- -------- -------- --- ---- ------ ------- ----- Income: Operating revenue $219 $5,394 $1,070 $1,503,248($36,845) $7,612 $6,005 Allowance for equity funds used during construction Equity in income of generating companies Other income (expense), net 3 27 49 16 52,645 239 232 78 Minority interests 4,075 2,572 ------- ---------- -------- ---------- ------- ------ ------- ------ Total $222 $5,421 $1,119 $1,503,264 $15,800 $239 $11,919 $8,655 ======= ========== ======== ========== ======= ===== ======= ====== Expenses: Fuel for generation 11,419 Purchased electric energy 47,815 1,144,557 298,280 154 Other operation 83 2,501 112 21,065 (191) 678 3,457 Depreciation and amotization 2,902 Taxes, other than income taxes 301 Income taxes (1) 1,369 Interest on long-term debt Other interest 137 260 199 298 Allowance for borrowed funds used during construction (1) Preferred dividends of subsidiaries (3,736) (1,666) ------- ---------- -------- ---------- ------- ------ ------- ------ Total $48,035 $1,143,580 $296,925 $32,936 $4,381 $678 $3,457 ======= ========== ======== ========== ======= ====== ======= ====== Net ($47,813) ($1,138,159) ($295,806) $1,470,328 $11,419 $239$11,241 $5,198 Page 4B NEW ENGLAND ELECTRIC SYSTEM AND SUBSIDIARIES CONSOLIDATED INCOME STATEMENT - ADJUSTMENTS AND ELIMINATIONS YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS) (Continued) NEES NERC GLOBAL NANTUCKET GS EN NEES EN PARENT ---- ------ --------- ----- ------- ------ Income: Operating revenue $1,056 Allowance for equity funds used during construction Equity in income of generating companies (7,357) 41,536 Other income (expense), net 40 23 7,329 185,202 Minority interests ------ -------- ---------- ------- ------ -------- Total $40 $1,079 ($28) $226,738 ====== ======== ========== ====== ====== ======== Expenses: Fuel for generation Purchased electric energy 5,215 650 Other operation 36 Depreciation and amortization Taxes, other than income taxes Income taxes 319 Interest on long-term debt Other interest 12 Allowance for borrowed funds used during construction Preferred dividends of subsidiaries (66) ------- -------- ---------- ------- ------ -------- Total $319 $5,227 $686 ($66) ======= ======== ========== ======= ====== ======= Total ($279) ($4,148) ($686) ($28) $226,804 Page 4C NEW ENGLAND ELECTRIC SYSTEM AND SUBSIDIARIES CONSOLIDATED INCOME STATEMENT - ADJUSTMENTS AND ELIMINATIONS YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS) (Continued) TOTAL ADJUSTMENTS & ELIMINATIONS -------------- Income: Operating revenue $1,487,759 Allowance for equity funds used during construction Equity in income of generating companies 34,179 Other income (expense), net 245,883 Minority interests 6,647 ---------- Total $1,774,468 ========== Expenses: Fuel for generation 11,419 Purchased electric energy 1,496,671 Other operation 27,741 Depreciation and amortization 2,902 Taxes, other than income taxes 301 Income taxes 1,687 Interest on long-term debt Other interest 906 Allowance for borrowed funds used during construction (1) Preferred dividends of subsidiaries (5,468) ---------- Total $1,536,158 ========== Net $238,310
Page 5A NEW ENGLAND ELECTRIC SYSTEM AND SUBSIDIARIES CONSOLIDATED STATEMENT OF RETAINED EARNINGS YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS)
GRANITE MASS. NARRA. STATE ELECTRIC ELECTRIC NEP NEEI NEPSCO NEHTECI NEHTC ------- -------- -------- --- ---- ------ ------- ----- Retained earnings at beginning of year $9,645 $165,936 $119,978 $400,610 ($24,707) $1,839 $232 $848 Additions: Net income after preferred dividends of subsidiaries 2,209 62,937 25,977 142,468 (1,309) 1,839 8,221 5,190 Deductions: Common dividends 1,027 23,981 14,722 135,448 1,839 8,035 5,139 Premium on redemption of preferred stock 3,736 1,666 32 32 ------- -------- -------- ----------------- ------ ------- ------- Retained earnings at end of year $10,827 $201,156 $129,567 $407,630 ($26,016) $1,839 $386 $867 ======= ======== ======== ================= ====== ======= ======= Page 5B NEW ENGLAND ELECTRIC SYSTEM AND SUBSIDIARIES CONSOLIDATED STATEMENT OF RETAINED EARNINGS YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS) (Continued) NEES NERC GLOBAL NANTUCKET NEESCOM GS EN NEES EN PARENT ---- ------ --------- ------- ------- ------- ------ Retained earnings at beginning of year $937 ($5,321) $356 $0 ($155) ($1,507) $889,340 Additions: Net income after preferred dividends of subsidiaries 2,540 (3,839) 503 (643) (128) (7,975) 220,358 Deductions: Common dividends 1,000 153,132 Premium on redemption of preferred stock ------- -------- -------- --------- -------- -------- --------- Retained earnings at end of year $2,477 ($9,160) $859 ($643) ($283) ($9,482) $956,566 ======= ======== ======== ========= ======== ======== ========= Page 5C NEW ENGLAND ELECTRIC SYSTEM AND SUBSIDIARIES CONSOLIDATED STATEMENT OF RETAINED EARNINGS YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS) (Continued) TOTAL ADJUSTMENTS NEES & ELIMINATIONS CONSOLIDATED -------------- ------------ Retained earnings at beginning of year $670,739 $887,292 Additions: Net income after preferred dividends of subsidiaries 238,310 220,038 Deductions: Common dividends 191,511 152,812 Premium on redemption of preferred stock 5,466 -------- --------- Retained earnings at end of year $712,072 $954,518 ========= ========
Page 6A NEW ENGLAND ELECTRIC SYSTEM AND SUBSIDIARIES CONSOLIDATED STATEMENT OF RETAINED EARNINGS - ADJUSTMENTS AND ELIMINATIONS YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS)
GRANITE MASS. NARRA. STATE ELECTRIC ELECTRIC NEP NEEI NEPSCO NEHTECI NEHTC ------- -------- -------- --- ---- ------ ------- ----- Retained earnings at beginning of year $9,645 $166,752 $120,339 $401,481 ($24,707) $1,839 $232 $848 Additions: Net income after preferred dividends of subsidiaries 2,209 62,937 25,977 142,468 (1,309) 1,839 8,221 5,190 Deductions: Common dividends 1,027 23,981 14,722 135,448 1,839 8,035 5,139 Premium on redemption of preferred stock 3,736 1,666 32 32 ------- -------- -------- ----------------- ------ ------- ------- Retained earnings at end of year $10,827 $201,972 $129,928 $408,501 ($26,016) $1,839 $386 $867 ======= ======== ======== ================= ====== ======= ======= Page 6B NEW ENGLAND ELECTRIC SYSTEM AND SUBSIDIARIES CONSOLIDATED STATEMENT OF RETAINED EARNINGS - ADJUSTMENTS AND ELIMINATIONS YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS) (Continued) NEES NERC GLOBAL NANTUCKET NEESCOM GS EN NEES EN PARENT ---- ------ --------- ------- ------- ------- ------ Retained earnings at beginning of year $937 ($5,321) $356 ($155) ($1,507) Additions: Net income after preferred dividends of subsidiaries 2,540 (3,839) 503 (643) (128) (7,975) 320 Deductions: Common dividends 1,000 320 Premium on redemption of preferred stock ------- -------- -------- ------ -------- -------- ------ Retained earnings at end of year $2,477 ($9,160) $859 ($643) ($283) ($9,482) ======= ======== ======== ====== ======== ======== ====== Page 6C NEW ENGLAND ELECTRIC SYSTEM AND SUBSIDIARIES CONSOLIDATED STATEMENT OF RETAINED EARNINGS - ADJUSTMENTS AND ELIMINATIONS YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS) (Continued) TOTAL ADJUSTMENTS & ELIMINATIONS -------------- Retained earnings at beginning of year $670,739 Additions: Net income after preferred dividends of subsidiaries 238,310 Deductions: Common dividends 191,511 Premium on redemption of preferred stock 5,466 -------- Retained earnings at end of year $712,072 ========
Page 7A NEW ENGLAND ELECTRIC SYSTEM AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS)
GRANITE MASS. NARRA. STATE ELECTRIC ELECTRIC NEP NEEI NEPSCO NEHTECI NEHTC ------- -------- -------- --- ---- ------ ------- ----- Operating Activities: Net Income $2,209 $65,758 $27,932 $144,543 ($1,309) $1,839 $8,221 $5,190 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Undistributed earnings of subsidiaries Depreciation and amortization 2,483 49,694 22,957 101,186 49,621 8,896 5,866 Deferred income taxes and investment tax credits-net (150) 478 (415) (12,728) (14,698) (4,814) 3,010 1,392 Allowance for funds used during construction (13) (429) (120) (1,238) Amortization of unbilled revenues Minority interests Decrease (increase) in other current assets 476 4,155 1,874 (6,698) 7,338 (293) (900) 991 Increase (decrease) in payables and other current liabilities 483 (8,951) 20,311 (20,010) (271) 4,551 (1,046) 990 Other, net 280 36,902 1,181 19,919 2,258 19 545 -------- --------- ------------------- ------------------ ---------------- Net cash provided by (used in) operating activities $5,768 $147,607 $73,720 $224,974 $40,681 $3,541 $18,200 $14,974 -------- --------- ------------------- ------------------ ---------------- Investing Activities: Plant expenditures, excluding allowance for funds used during construction (3,046) (87,998) (30,965) (69,863) (440) (52) Oil and gas exploration and development (13,204) Decrease (increase) in other investments (53) (1,408) (294) (4,040) (2,607) -------- --------- ------------------- ------------------ ---------------- Net cash provided by (used in) investing activities ($3,099) ($89,406) ($31,259) ($73,903) ($13,204) ($2,607) ($440) ($52) -------- --------- ------------------- ------------------ ---------------- Page 7B NEW ENGLAND ELECTRIC SYSTEM AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS) (Continued) NEES NERC GLOBAL NEESCOM NANTUCKET GS EN NEES EN PARENT ---- ------ ------- --------- ------- ------ ------ Operating Activities: Net Income $2,540 ($3,839) ($643) $503 ($128) ($7,975) $220,358 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Undistributed earnings of subsidiaries 7,357 (41,444) Depreciation and amortization 1,807 47 Deferred income taxes and investment tax credits-net (324) (52) 190 10 (725) (914) Allowance for funds used during construction (109) Amortization of unbilled revenues Minority interests Decrease (increase) in other current assets (268) 1,406 (398) 9,933 89 (84) (8,852) Increase (decrease) in payables and other current liabilities (1) (438) 110 169 50 1,022 3,608 Other, net 720 1 942 (1,653) 341 -------- --------- --------- ---------- ---------- -------- -------- Net cash provided by (used in) operating activities $2,667 ($2,923) ($930) $13,435 $21 ($2,011) $173,097 -------- --------- --------- ---------- ---------- -------- -------- Investing Activities: Plant expenditures, excluding allowance for funds used during construction (11,699) (176) Oil and gas exploration and development Decrease (increase) in other investments (2,585) (13,708) (115,789) -------- --------- --------- ---------- ---------- -------- --------- Net cash provided by (used in) investing activities ($2,585) ($11,699) ($13,884) ($115,789) -------- --------- --------- ---------- ---------- -------- --------- Page 7C NEW ENGLAND ELECTRIC SYSTEM AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS) (Continued) TOTAL ADJUSTMENTS NEES & ELIMINATIONS CONSOLIDATED -------------- ------------ Operating Activities: Net Income $245,161 $220,038 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Undistributed earnings of subsidiaries (34,087) Depreciation and amortization 2,903 239,654 Deferred income taxes and investment tax credits-net 1,438 (31,178) Allowance for funds used during construction (1) (1,908) Amortization of unbilled revenues Minority interests (6,647) 6,647 Decrease (increase) in other current assets (30,841) 39,610 Increase (decrease) in payables and other current liabilities 19,005 (18,428) Other, net (5,223) 66,678 ---------- ---------- Net cash provided by (used in) operating activities $191,708 $521,113 ---------- ---------- Investing Activities: Plant expenditures, excluding allowance for funds used during construction (1,144) ($203,095) Oil and gas exploration and development (48) ($13,156) Decrease (increase) in other investments (117,815) ($22,669) -------- --------- Net cash provided by (used in) investing activities ($119,007) ($238,920) -------- ---------
Page 7D NEW ENGLAND ELECTRIC SYSTEM AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS) (Continued)
GRANITE MASS. NARRA. STATE ELECTRIC ELECTRIC NEP NEEI NEPSCO NEHTECI NEHTC ------- -------- -------- --- ---- ------ ------- ----- Financing Activities: Dividends paid to minority interests Dividends paid on common shares (1,027) (26,380) (13,590) (127,386) (1,839) (8,653) (5,026) Dividends paid on preferred stock (3,359) (2,301) (2,075) Preferred stock - retirements (34,178) (23,834) Long-term debt - issues 15,000 10,000 Long-term debt - retirements (30,000) (32,500) (38,500) (27,000) (6,960) (4,560) Premium on reacquisition of long-term debt (2,163) Capital contribution from parent 37,914 25,500 Subordinated notes payable to parent (net) 2,095 Changes in short-term debt (1,400) (9,075) (2,675) 17,650 (3,000) Gain on redemption of preferred stock (3,736) (1,666) Return of capital to minority interests and related premium (4,260) (2,494) Repurchase of common shares ------- --------- -------- --------- ---------- ------------------------- Net cash provided by (used in) financing activities ($2,427) ($53,814) ($41,066)($152,474) ($24,905)($1,839)($19,873)($15,080) ------- --------- -------- --------- ---------- ------------------------- Net increase (decrease) in cash and cash equivalents $242 $4,387 $1,395 ($1,403) $2,572 ($905) ($2,113) ($158) Cash and cash equivalents at beginning of year 95 2,356 1,727 3,046 199 8,023 4,883 1,556 ------- --------- -------- --------- ---------- ------------------------- Cash and cash equivalents at end of year $337 $6,743 $3,122 $1,643 $2,771 $7,118 $2,770 $1,398 ======= ========= ======== ========= ========== ========================= Page 7E NEW ENGLAND ELECTRIC SYSTEM AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS) (Continued) NEES NERC GLOBAL NEESCOM NANTUCKET GS EN NEES EN PARENT ---- ------ ------- --------- ------ ------- ------ Financing Activities: Dividends paid to minority interests Dividends paid on common shares (153,083) Dividends paid on preferred stock Preferred stock - retirements Long-term debt - issues Long-term debt - retirements (1,920) (765) Premium on reacquisition of long-term debt Capital contribution from parent 5,625 935 90 Subordinated notes payable to parent (net) 18,212 Changes in short-term debt (1,475) (1,000) 102,000 Gain on edemption of preferred stock Return of capital to minority interests and related premium Repurchase of common shares (11,123) -------- --------- ---------- ------- ------- ------- -------- Net cash provided by (used in) financing activities ($1,920) $5,625 $935 ($2,240) $90 $17,212 ($62,206) -------- --------- ---------- ------- ------- ------- -------- Net increase (decrease) in cash and cash equivalents $747 $117 $5 ($504) $111 $1,317 ($4,898) Cash and cash equivalents at beginning of year 817 181 632 23 291 5,963 -------- --------- ---------- ------- ------- ------- -------- Cash and cash equivalents at end of year $1,564 $298 $5 $128 $134 $1,608 $1,065 ======== ========= ========== ======= ======= ======= ======== Page 7F NEW ENGLAND ELECTRIC SYSTEM AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS) (Continued) TOTAL ADJUSTMENTS NEES & ELIMINATIONS CONSOLIDATED -------------- ------------ Financing Activities: Dividends paid to minority interests 6,809 (6,809) Dividends paid on common shares (184,221) (152,763) Dividends paid on preferred stock (7,735) Preferred stock - retirements 29,209 (87,221) Long-term debt - issues 25,000 Long-term debt - retirements (142,205) Premium on reacquisition of long-term debt (2,163) Capital contribution from parent 70,064 Subordinated notes payable to parent (net) 20,307 Changes in short-term debt (4,875) 105,900 Gain on redemption of Preferred stock (5,402) Return of capital to minority interests and related premium (3,406) (3,348) Repurchase of common shares 1,674 (12,797) ---------- ---------- Net cash provided by (used in) financing activities ($77,576) ($276,406) ---------- ---------- Net increase (decrease) in cash and cash equivalents ($4,875) $5,787 Cash and cash equivalents at beginning of year 21,315 8,477 ---------- ---------- Cash and cash equivalents at end of year $16,440 $14,264 ========== ==========
Page 8A NEW ENGLAND ELECTRIC SYSTEM AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS - ADJUSTMENTS AND ELIMINATIONS YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS)
GRANITE MASS. NARRA. STATE ELECTRIC ELECTRIC NEP NEEI NEPSCO NEHTECI NEHTC ------- -------- -------- --- ---- ------ ------- ----- Operating Activities: Net income (loss) $2,209 $65,758 $27,932 $144,543 ($1,309) $1,839 $8,221 $5,190 Undistributed earnings of subsidiaries Depreciation and amortization 2,903 Minority interests (4,075) (2,572) Deferred income taxes and investment tax credits-net 80 (31) (852) 1,722 325 1,229 287 Allowance for funds used during construction Decrease (increase) in other current assets 321 2,817 138 (33,343) 7,501 (1,676) (116) 856 Increase (decrease) in payables and other current liabilities 594 19,041 10,310 (10,877) (310) 213 (451) 763 Other, net 539 346 (2) (24) (24) ------- --------- -------- ---------- -------- -------- -------- -------- Net cash provided by (used in) operating activities $3,204 $88,124 $37,875 $102,043 $9,110 $376 $4,784 $4,501 ------- --------- -------- ---------- -------- -------- -------- -------- Investing Activities: Plant expenditures, excluding allowance for funds used during construction Oil and gas exploration and development (48) Decrease (increase) in other investments (30) (179) (156) (161) (1,241) ------- --------- -------- ---------- -------- -------- -------- -------- Net cash provided by (used in) investing activities ($30) ($179) ($156) ($161) ($48) ($1,241) ------- --------- -------- ---------- -------- -------- -------- -------- Page 8B NEW ENGLAND ELECTRIC SYSTEM AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS - ADJUSTMENTS AND ELIMINATIONS YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS) (Continued) NEES NERC GLOBAL NEESCOM NANTUCKET GS EN NEES EN PARENT ---- ------ ------- --------- ------ ------- ------ Operating Activities: Net income (loss) $2,540 ($3,839) ($643) $503 ($128) ($7,975) $320 Undistributed earnings of subsidiaries 7,357 (41,444) Depreciation and amortization Minority interests Deferred income taxes and investment tax credits-net (1,401) 79 Allowance for funds used During construction (1) Decrease (increase) in other current assets (265) 788 (347) 309 25 (7,850) Increase (decrease) in payables and other current liabilities 286 (1,289) 377 450 46 (21) (127) Other, net 319 921 (7,226) (72) ------- --------- --------- ------- ------ ------- -------- Net cash provided by (used in) operating activities $1,478 ($4,340) ($613) $2,262 ($82) ($7,840) ($49,174) ------- --------- --------- ------- ------- ------- -------- Investing Activities: Plant expenditures, excluding allowance for funds used during construction (968) (176) Oil and gas exploration and development Decrease (increase) in other investments (163) 129 (116,014) ------- --------- --------- ------- ------- ------- --------- Net cash provided by (used in) investing activities ($163) ($968) ($47)($116,014) ------- --------- --------- ------- ------- ------- --------- Page 8C NEW ENGLAND ELECTRIC SYSTEM AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS - ADJUSTMENTS AND ELIMINATIONS YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS) (Continued) TOTAL ADJUSTMENTS & ELIMINATIONS -------------- Operating Activities: Net income (loss) $245,161 Undistributed earnings of subsidiaries (34,087) Depreciation and amortization 2,903 Minority interests (6,647) Deferred income taxes and investment tax credits-net 1,438 Allowance for funds used during construction (1) Decrease (increase) in other current assets (30,841) Increase (decrease) in payables and other current liabilities 19,005 Other, net (5,223) --------- Net cash provided by (used in) operating activities $191,708 --------- Investing Activities: Plant expenditures, excluding allowance for funds used during construction (1,144) Oil and gas exploration and development (48) Decrease (increase) in other investments (117,815) --------- Net cash provided by (used in) investing activities ($119,007) ---------
Page 8D NEW ENGLAND ELECTRIC SYSTEM AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS - ADJUSTMENTS AND ELIMINATIONS YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS) (Continued)
GRANITE MASS. NARRA. STATE ELECTRIC ELECTRIC NEP NEEI NEPSCO NEHTECI NEHTC ------- -------- -------- --- ---- ------ ------- ----- Financing Activities: Dividends paid to minority interest 4,316 2,493 Dividends paid on common shares (1,027) (26,380) (13,590) (127,386) (1,839) (8,653) (5,026) Dividends paid on preferred stock (3,359) (2,301) (2,075) Preferred stock - retirements Capital contribution from parent 37,914 25,500 Subordinated notes payable to parent (net) 2,095 Changes in short-term debt (1,400) (475) (875) (2,150) Gain on redemption of preferred stock (3,736) (1,666) Return of capital to minority interests and related premium (36) (21) Repurchase of common shares 30 179 156 161 1,241 ------- --------- -------- ------------------ ---------------- -------- Net cash provided by (used in) financing activities ($2,397) $4,143 $7,224 ($131,450) $2,095 ($598)($4,373) ($2,554) ------- --------- -------- ------------------ ---------------- -------- Net increase (decrease) in cash and cash equivalents $777 $92,088 $44,943 ($29,568)$11,157 ($1,463) $411 $1,947 ------- --------- -------- ------------------ ---------------- -------- Cash and cash equivalents at beginning of year $175 $7,975 $4,845 $1,445 Cash and cash equivalents at end of year $2,750 $7,100 $2,745 $1,370 ======= ========= ======== ================== ================ ======== Page 8E NEW ENGLAND ELECTRIC SYSTEM AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS - ADJUSTMENTS AND ELIMINATIONS YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS) (Continued) NEES NERC GLOBAL NEESCOM NANTUCKET GS EN NEES EN PARENT ---- ------ ------- --------- ------ ------- ------ Financing Activities: Dividends paid to minority interest Dividends paid on common shares (320) Dividends paid on preferred stock Preferred stock - retirements 29,209 Capital contribution from parent 5,625 935 90 Subordinated notes payable to parent (net) 18,212 Changes in short-term debt 25 Gain on redemption of preferred stock Return of capital to minority interests and related premium (3,349) Repurchase of common shares (93) ------------------ --------- ------- ------- ------- -------- Net cash provided by (used in) financing activities $5,625 $935 $25 $90 $18,212 $25,447 ------------------ --------- ------- ------- ------- -------- Net increase (decrease) in cash and cash equivalents $1,478 $1,122 $322 $1,319 $8 $10,325 ($139,741) ------------------ --------- ------- ------- ------- --------- Cash and cash equivalents at beginning of year $800 $150 $5,925 Cash and cash equivalents at end of year $1,550 $925 ================== ========= ======= ======= ======= ======== Page 8F NEW ENGLAND ELECTRIC SYSTEM AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS - ADJUSTMENTS AND ELIMINATIONS YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS) (Continued) TOTAL ADJUSTMENTS & ELIMINATIONS -------------- Financing Activities: Dividends paid to minority interest 6,809 Dividends paid on common shares (184,221) Dividends paid on preferred stock (7,735) Preferred stock - retirements 29,209 Capital contribution from parent 70,064 Subordinated notes payable to parent (net) 20,307 Changes in short-term debt (4,875) Gain on redemption of preferred stock (5,402) Return of capital to minority interests and related premium (3,406) Repurchase of common shares 1,674 ---------- Net cash provided by (used in) financing activities ($77,576) ---------- Net increase (decrease) in cash and cash equivalents ($4,875) ---------- Cash and cash equivalents at beginning of year $21,315 Cash and cash equivalents at end of year $16,440 =========
EX-99 4 EXHIBIT B.2.A TEXAS LIQUIDS, L.L.C. LIMITED LIABILITY COMPANY AGREEMENT Dated as of December 18, 1996 TABLE OF CONTENTS PAGE ARTICLE 1 DEFINITIONS.......................................... 1 ARTICLE 2 FORMATION AND PURPOSE................................ 1 2.1 Formation, etc.................................. 1 2.2 Name............................................ 2 2.3 Registered Office/Agent......................... 2 2.4 Term............................................ 2 2.5 Purpose......................................... 2 2.6 Powers.......................................... 2 2.7 Filing of Certificate........................... 4 2.8 Foreign Qualification .......................... 4 ARTICLE 3 MEMBERSHIP AND CAPITAL .............................. 4 3.1 Members; Initial Capital Contributions.......... 4 3.2 Maintenance of Capital Accounts................. 5 3.3 Percentage Interests............................ 5 3.4 Return of Capital Contributions................. 5 ARTICLE 4 STATUS AND RIGHTS OF MEMBERS......................... 6 4.1 Limited Liability................................ 6 4.2 No Make Up....................................... 6 4.3 Return of Distributions.......................... 6 ARTICLE 5 DESIGNATION, RIGHTS, AUTHORITIES, POWERS, RESPONSIBILITIES, AND DUTIES OF THE MANAGER.......... 6 5.1 Manager.......................................... 6 5.2 Officers; Agents................................. 7 ARTICLE 6 DISTRIBUTIONS AND ALLOCATIONS OF PROFIT AND LOSS..... 8 6.1 Distributions................................... 8 6.2 Allocations of Net Profits...................... 9 6.3 Changes in Members' Interests................... 9 6.4 Tax Credits..................................... 9 ARTICLE 7 TAX MATTERS MEMBER ................................... 10 7.1 Tax Matters Member ............................... 10 ARTICLE 8 TRANSFER OF INTERESTS................................. 10 8.1 Transfer of Interests............................. 10 8.2 Requirements Applicable to Transfers.............. 10 ARTICLE 9 BOOKS, RECORDS, ACCOUNTING, AND REPORTS............... 12 9.1 Books and Records................................. 12 9.2 Delivery to Member................................ 12 9.3 Financial Statements ............................. 13 9.4 Filings .......................................... 13 -i- PAGE ARTICLE 10 AMENDMENTS TO AGREEMENT .............................. 13 ARTICLE 11 DISSOLUTION OF COMPANY................................ 14 11.1 Termination of Membership........................ 14 11.2 Events of Dissolution or Liquidation............. 14 11.3 Liquidation...................................... 14 11.4 Distributions to Members......................... 14 11.5 No Action for Dissolution........................ 15 11.6 No Further Claim................................. 15 ARTICLE 12 INDEMNIFICATION....................................... 15 12.1 General.......................................... 15 12.2 Persons Entitled to Indemnity.................... 16 12.3 Procedure Agreements............................. 16 12.4 Extent of Duties................................. 16 12.5 Fiduciary and Other Duties....................... 16 ARTICLE 13 MISCELLANEOUS......................................... 17 13.1 Additional Documents............................. 17 13.2 General.......................................... 17 13.3 Notices, Etc..................................... 17 13.4 Gender and Number................................. 18 13.5 Severability...................................... 18 13.6 Headings.......................................... 18 13.7 No Third Party Rights............................. 18 EXHIBIT 1 Defined Terms.......................................... 20 EXHIBIT 5.2 OFFICERS .............................................. 24 -ii- TEXAS LIQUIDS, L.L.C. LIMITED LIABILITY COMPANY AGREEMENT THIS LIMITED LIABILITY COMPANY AGREEMENT of TEXAS LIQUIDS, L.L.C. is dated as of December 18, 1996, by and between AllEnergy Marketing Company, L.L.C., a Massachusetts limited liability company ("AllEnergy") and AllEnergy Marketing Company, Inc., a Massachusetts corporation ("AMCI") (each individually a "Member" and collectively, the "Members"). WHEREAS, the Members wish to form a limited liability company pursuant to and in accordance with the Massachusetts Limited Liability Company Act in order to conduct the business described herein; and WHEREAS, the Members wish to enter into this Agreement to provide for, among other things, the management of the business and affairs of the Company, the allocation of profits and losses among the Members, the respective rights and obligations of the Members to each other and to the Company, and certain other matters. NOW, THEREFORE, the Members hereby agree as follows: ARTICLE 1 DEFINITIONS Certain capitalized terms used in this Agreement have specifically defined meanings which are either set forth or referred to in Exhibit 1, which is attached hereto and incorporated herein by reference. ARTICLE 2 FORMATION AND PURPOSE 2.1 Formation, etc. The Members hereby form a limited liability company pursuant to and in accordance with the Act effective upon the filing of the Certificate with the Secretary of State of The Commonwealth of Massachusetts. The rights, duties and liabilities of the Members shall be determined pursuant to the Act and this Agreement. To the extent that such rights, duties or obligations are different by reason of any provision of this Agreement than they would be in the absence of such provision, this Agreement shall, to the extent permitted by the Act, control. 2.2 Name. The name of the Company shall be Texas Liquids, L.L.C. The business of the Company may be conducted under that name or, upon compliance with applicable laws, any other name that the Manager deems appropriate or advisable. The Manager shall file, or shall cause to be filed, any fictitious name certificates and similar filings, and any amendments thereto, that the Manager considers necessary, appropriate or advisable. 2.3 Registered Office/Agent. The registered office required to be maintained by the Company in The Commonwealth of Massachusetts pursuant to the Act shall initially be c/o AllEnergy Marketing Company, LLC, 3 University Office Park, 95 Sawyer Road, Waltham, Massachusetts, 02154. The name of the registered agent of the Company pursuant to the Act shall initially be William H. Heil, whose address shall be that of the registered office of the Company. The Company may, upon compliance with the applicable provisions of the Act, change its registered office or registered agent from time to time in the discretion of the Manager. 2.4 Term. The term of the Company (the "Term") shall continue until such date as shall be designated by the Manager, unless sooner terminated as hereinafter provided. 2.5 Purpose. The Company is formed for the object and purpose of, and the nature of the business to be conducted and promoted by the Company is, engaging in any lawful act or activity for which limited liability companies may be formed under the Act and engaging in any and all activities necessary, advisable, convenient or incidental thereto. Such object and purpose shall include, without limitation, purchasing, marketing, selling and distributing energy commodities (including but not limited to propane and natural gas, electricity and other energy sources) and related products, providing related services, and engaging in any and all other activities necessary, advisable, convenient or incidental to such activities. 2.6 Powers. Without limiting the generality of Section 2.5, the Company shall have the power and authority to take any and all actions necessary, appropriate, proper, advisable, incidental or convenient to or for the furtherance of the purpose set forth in Section 2.5, including, but not limited to, the power: 2.6.1 to conduct its business, carry on its operations and have and exercise the powers granted to a limited liability company by the Act in any state, territory, district or possession of the United States or in any foreign country as may be necessary, convenient or incidental to the accomplishment of the purpose of the Company; 2.6.2 to enter into, perform and carry out contracts of any kind necessary to, in connection with, in furtherance of, convenient to, or incidental to the accomplishment of the purpose of the Company, including without limitation, contracts to purchase, market, sell or distribute propane, natural gas, electricity or any other energy commodity or related products or to provide related services, which contracts may be with a third party, a Member or an Affiliate of a Member; 2.6.3 to purchase or otherwise acquire, enter into, establish, own, invest in, trade, close out, use, employ, market, sell, mortgage, lend or otherwise dispose of positions under options, future contracts, forward contracts, spot contracts, swap contracts and other financial products, whether for hedging purposes or otherwise; 2.6.4 to purchase, take, receive, subscribe for or otherwise acquire, own, hold, enter into, invest in, trade, vote, use, employ, sell, mortgage, lend, pledge, or otherwise dispose of, and otherwise use and deal in and with, shares and other equity interests in, obligations of, and other financial instruments with or in respect of, domestic and foreign corporations, associations, general, limited and limited liability partnerships, trusts, limited liability companies and other entities (including without limitation corporations, associations, partnerships, trusts, limited liability companies and other entities that engage or propose to engage in one or more businesses similar or related to the business of the Company, including specifically but not by way of limitation energy services companies), individuals, international agencies, and the United States government and any other national, state, regional, territorial, local or municipal government and any agency or instrumentality of any such government; 2.6.5 to acquire by purchase, exchange, lease, contribution of property or otherwise, own, hold, operate, maintain, finance, improve, market, lease, sell, distribute, convey, mortgage, encumber, transfer, demolish or dispose of any real or personal property, including but not limited to propane, natural gas, electricity or any other energy commodity that may be necessary, convenient or incidental to the accomplishment of the purpose of the Company; 2.6.6 to lend money, to invest and reinvest its funds and to take and hold real and personal property for the payment of funds so loaned or invested; 2.6.7 to negotiate, enter into, renegotiate, extend, renew, terminate, modify, amend, waive, execute, acknowledge or take any other action with respect to any lease, contract or security agreement in respect of any assets of or the business of the Company; 2.6.8 to borrow and issue evidences of indebtedness and to secure the same by a mortgage, pledge or other lien on the assets of the Company; provided, however, that without the prior written consent of the Member in question, the Company shall not incur any indebtedness that provides for the liability of any Member; 2.6.9 to open, close, and to make deposits to and withdrawals from bank and other deposit accounts; 2.6.10 to give or terminate guarantees and indemnities; 2.6.11 to hire, employ and dismiss employees, agents and representatives, attorneys, accountants, brokers, investment bankers, appraisers and any other advisors or consultants of the Company or service providers to the Company, and define their duties and fix their compensation and benefits; 2.6.12 to indemnify any Person in accordance with this Agreement; 2.6.13 to cease its activities and cancel its Certificate; 2.6.14 to sue and be sued, complain and defend, and participate in administrative or other proceedings, in its name; 2.6.15 to pay, collect, compromise, litigate, arbitrate or otherwise adjust or settle any and all other claims or demands of or against the Company or to hold such proceeds against the payment of contingent liabilities; and 2.6.16 to make, execute, acknowledge and file any and all documents or instruments necessary, convenient or incidental to the accomplishment of the purpose of the Company. 2.7 Filing of Certificate. Lisa Monique Fairfax is designated as an authorized person within the meaning of the Act to execute, deliver and file the Certificate, and said named individual and any such Persons as the Manager shall designate from time to time are each hereby designated as an authorized person, within the meaning of the Act, to execute, deliver and file any amendments or restatements of the Certificate and any other certificates necessary for the Company to qualify to do business in a jurisdiction in which the Company may wish to conduct business. 2.8 Foreign Qualification. The Manager shall take all necessary actions to cause the Company to be authorized to conduct business legally in Massachusetts and any other jurisdictions which the Manager shall determine. ARTICLE 3 MEMBERSHIP AND CAPITAL 3.1 Members; Initial Capital Contributions. The Members of the Company are AllEnergy and AMCI, each of which is admitted to the Company as a Member effective upon its execution of this Agreement. The Manager shall determine the aggregate initial Capital Contribution to be made by the Members. AMCI shall contribute an amount equal to 1% of such aggregate initial Capital Contribution and AllEnergy shall contribute an amount equal to 99% of such aggregate initial Capital Contribution. 3.2 Maintenance of Capital Accounts. A separate account (each a "Capital Account") shall be established and maintained for each Member and shall be credited with (a) such Member's Capital Contributions and (b) such Member's share of the Net Profit of the Company, and shall be charged with (c) Distributions to such Member and (d) such Member's share of the Net Losses of the Company. It is the intention of the Members that the Capital Accounts be maintained in accordance with the provisions of Section 704(b) of the Code and the Regulations thereunder, that any liabilities be taken into account in accordance with the provisions of Section 752 of the Code and the Regulations thereunder, and that this Agreement be interpreted consistently therewith. 3.3 Percentage Interests. The percentage interest of each Member in the profits of the Company (each a "Percentage Interest") shall initially be as follows: AllEnergy 99% AMCI 1% The Percentage Interests of the Members shall be subject to adjustment from time to time pursuant to the terms of this Agreement. 3.4 Return of Capital Contributions. No Member shall have the right to demand a return of all or any part of its Capital Contributions, and any return of the Capital Contributions of any Member shall be made solely from the assets of the Company and only in accordance with the terms of this Agreement. No interest shall be paid to any Member with respect to its Capital Contributions. 3.5 Additional Capital Contributions. From time to time, the Manager may determine that additional funds are required by the Company. In such a case, the Manager may (but is not required to) request that the Members (including the Manager) make Capital Contributions ratably in accordance with the Members' Percentage Interests, in an aggregate amount equal to all or a portion of the funds required. The Members shall then discuss and unanimously determine the aggregate amount of the Capital Contributions, if any, that they are willing to make, which Capital Contributions must be made ratably by the Members and may not, in the aggregate, exceed the amount requested by the Manager. If the aggregate amount of the Capital Contributions agreed upon by the Members is acceptable to the Manager, the Members shall make such Capital Contributions within ten (10) business days of the date on which they are informed of the Manager's acceptance. ARTICLE 4 STATUS AND RIGHTS OF MEMBERS 4.1 Limited Liability. Except as otherwise provided by the Act, the debts, obligations and liabilities of the Company, whether arising in contract, tort or otherwise, shall be solely the debts, obligations and liabilities of the Company, and no Member nor any other Indemnified Person shall be obligated personally for any such debt, obligation or liability of the Company. All Persons dealing with the Company shall look solely to the assets of the Company for the payment of the debts, obligations or liabilities of the Company. 4.2 No Make Up. In no event shall any Member be required to pay to the Company, to any other Member or its Affiliate or to any third party, any deficit balance that may exist from time to time in such Member's Capital Account. 4.3 Return of Distributions. Except as otherwise expressly required by law, a Member, in its capacity as such, shall have no liability either to the Company or any of its creditors in excess of (a) the amount of its Capital Contributions actually made, (b) its share of any assets and undistributed profits of the Company, (c) its obligation to make Capital Contributions and any other payments expressly provided for in this Agreement, and (d) to the extent required by law, the amount of any Distributions wrongfully distributed to it. Except as required by law or a court of competent jurisdiction, no Member shall be obligated by this Agreement to return any Distribution to the Company or pay the amount of any Distribution for the account of the Company or to any creditor of the Company. However, if any court of competent jurisdiction holds that, notwithstanding the provisions of this Agreement, any Member is obligated to return or pay any part of any Distribution, the obligation shall be that of such Member alone, and not of any other Member unless the court so provides. The amount of any Distribution returned to the Company by or on behalf of a Member or paid by or on behalf of a Member for the account of the Company or to a creditor of the Company shall be added to the account or accounts from which it was subtracted when it was distributed to the Member. ARTICLE 5 DESIGNATION, RIGHTS, AUTHORITIES, POWERS, RESPONSIBILITIES, AND DUTIES OF THE MANAGER 5.1 Manager. The Manager of the Company shall be AllEnergy. The Manager shall have the exclusive power and authority to manage the business and affairs of the Company and to make all decisions with respect thereto. The Manager, to the extent of its powers set forth in this Section 5.1, is an agent of the Company for the purpose of the Company's business, and the actions of the Manager taken in accordance with such powers shall bind the Company. Except as otherwise expressly provided in this Agreement, the Manager, acting on behalf of the Company, or Persons designated by the Manager, including officers and agents appointed by the Manager, shall be the only Persons authorized to execute documents which shall be binding on the Company. To the fullest extent permitted by Massachusetts law, but subject to any specific provisions hereof granting rights to Members, the Manager shall have the power to do any and all acts, statutory or otherwise, with respect to the Company or this Agreement, which would otherwise be possessed by the Members under the laws of The Commonwealth of Massachusetts, and the Members, other than a Member who is also the Manager, shall have no power whatsoever with respect to the management of the business and affairs of the Company or to bind the Company. Subject to the provisions of this Agreement which require the consent or approval of one or more Members, the powers and authority granted to the Manager hereunder shall include all those necessary or convenient for the furtherance of the purposes and powers of the Company and shall include the power to make all decisions with regard to the management, operations, assets, financing and capitalization of the Company, including without limitation, the power and authority to undertake and make decisions concerning: (a) hiring and firing of employees, attorneys, accountants, brokers, investment bankers and other advisors and consultants, (b) the entering into of contracts or agreements, (c) opening of bank and other deposit accounts and operations thereunder, (d) purchasing, constructing, improving, developing and maintaining of real property, (e) purchasing of insurance, goods, supplies, equipment, materials and other personal property, (f) the borrowing of money, the obtaining of credit, the issuance of notes, debentures, securities, equity or other interests of or in the Company and the securing of the obligations undertaken in connection therewith with mortgages on and security interests in all or any portion of the real or personal property of the Company, in each case whether with a Member or another Person, (g) the making of investments in or the acquisition of securities of any person or entity, (h) the giving of guarantees and indemnities, (i) entering into of leases for real or personal property, (j) mergers with or acquisitions of other entities, (k) dissolution, (1) the sale or lease of all or any portion of the assets of the Company, (m) forming subsidiaries or joint ventures, (n) compromising, arbitrating, adjusting and litigating claims in favor of or against the Company, and (o) all other acts or activities necessary or desirable for the carrying out of the purpose of the Company. 5.2 Officers; Agents. The Manager by written instrument signed by the Manager shall have the power to appoint agents (who may be referred to as officers) to act for the Company with such titles, if any, as the Manager deems appropriate and to delegate to such officers or agents such of the powers to manage and control the business and affairs of the Company as are granted to the Manager hereunder, and as Manager may in its sole discretion determine, including the power to execute documents on behalf of the Company; provided, however, that no such delegation by the Manager shall cause the Manager to cease to be the "manager" of the Company within the meaning of the Act. The officers or agents so appointed may include persons holding titles such as Chief Executive Officer, President, Vice President, Chief Operating Officer, Chief Financial Officer, Secretary, Treasurer or Controller. Unless the authority of the agent designated as the officer in question is limited or expanded in the document appointing such officer or is otherwise specified by the Manager, any officer so appointed shall have the same authority to act for the Company as a corresponding officer of a Massachusetts corporation would have to act for a Massachusetts corporation in the absence of a specific delegation of authority and as more specifically set forth in Exhibit 5.2 hereto; provided, however, that unless such power is specifically delegated to the officer in question either for a specific transaction or generally, no such officer shall have the power to lease or acquire real property, to borrow money, to issue notes, debentures, securities, equity or other interests of or in the Company, to make investments in (other than the temporary investment of surplus cash in the ordinary course of business), or to acquire securities of any Person, to give guarantees or indemnities, to merge, consolidate, liquidate or dissolve the Company or to sell or lease all or any substantial portion of the assets of the Company. The Manager, in its sole discretion, may by written instrument signed by the Manager ratify any act previously taken by an officer or agent acting on behalf of the Company. By its signature to this Agreement, the Manager hereby designates the following Persons as the initial officers of the Company: Chairman, Chief Executive Officer and President: William H. Heil Vice President and Treasurer (Chief Financial Officer): Marcy L. Reed Secretary: L. William Law, Jr. Assistant Secretary: James P. Meehan ARTICLE 6 DISTRIBUTIONS AND ALLOCATIONS OF PROFIT AND LOSS 6.1 Distributions. 6.1.1 In General. The Manager shall have, subject to Article 11, the sole authority to determine the timing and the aggregate amount of any Distributions to the Members. Subject to the foregoing and to Section 11.4, Distributions shall be made to the Members pro rata in accordance with the Members' then prevailing Percentage Interests. 6.1.2 Withholding. All amounts withheld pursuant to the Code or any provision of any federal, state, local or foreign tax law with respect to any payment, distribution, or allocation to the Company or the Members shall be treated as amounts distributed to the Members pursuant to Section 6.1 for all purposes under this Agreement. The Manager shall withhold from Distributions to, and with respect to allocations to, the Members shall pay over to the appropriate federal, state, local or foreign government any amounts required to be so withheld, and shall allocate any such amounts to the Members in respect of whose Distribution or allocation the tax was withheld. 6.1.3 Property Distributions and Installment Sales. The Manager may from time to time including upon liquidation determine to distribute property other than cash to the Members. In such a case, such in-kind Distribution shall be made to the Members entitled thereto in the same proportions as the Members would have been entitled to cash distributions. The amount by which the fair market value of any property to be distributed in kind to the Members exceeds or is less than the tax basis of such property shall, to the extent not otherwise recognized by the Company, be taken into account in determining Net Profit and Net Loss and determining the Capital Accounts of the Members as if such property had been sold at its fair market value immediately prior to its distribution. If any assets are sold in transactions in which, by reason of the provisions of section 453 of the Code or any successor thereto, gain is realized but not recognized, such gain shall be taken into account when realized in computing gain or loss of the Company for purposes of allocation of Net Profit or Net Loss under this Article 6, and, if such sales shall involve substantially all the assets of the Company, the Company shall be deemed to have been dissolved and terminated notwithstanding any election by the Members to continue the Company for purposes of collecting the proceeds of such sales. 6.2 Allocations of Net Profits and Net Loss. Subject to Sections 6.3 and 6.5, the Net Profit and the Net Loss of the Company shall be allocated among the Members ratably in accordance with their Percentage Interests. 6.3 Changes in Members' Interests. If during any Fiscal Year of the Company there is a change in any Member's Interest in the Company, the Manager shall confer with the tax advisors to the Company and, in conformity with such advice allocate the Net Profit or Net Loss to the Members so as to take into account the varying Interests of the Members in the Company in a manner that complies with the provisions of Section 706 of the Code and the Regulations thereunder. 6.4 Tax Credits. All foreign tax credits of the Company for a Fiscal Year (or portion thereof, if appropriate) shall be allocated among the Members in the same proportion as the net income and gains of the Company that were subject to the foreign taxes that gave rise to such credits. All other items of federal income tax credit shall be allocated among the Members in accordance with their Percentage Interests. 6.5 Compliance with Capital Account Maintenance Provisions. It is the intent of the Members that the Company be treated as a partnership for federal income tax purposes and that the provisions hereof relating to each Member's distributive share of income, gain, loss, deduction, and credit (and items thereof) comply with the provisions of Sections 704(b), 704(c), and other relevant provisions of the Code and the applicable Regulations. In particular, there are hereby included in the Agreement such provisions governing the allocation of income, gain, loss, deduction and credit (and items thereof) as may be necessary to provide that the Company's allocation provisions contain a so- called "Qualified Income Offset" provision and comply with all provisions relating to the allocation of so-called "Nonrecourse Deductions" and "Member Nonrecourse Deductions" and the chargeback thereof as set forth in the Regulations under Section 704(b) of the Code. Allocations of Nonrecourse Deductions shall be made ratably among the Members in accordance with their Percentage Interests. In allocating Net Profits pursuant to Section 6.2, the Manager shall take into account (and, if necessary, modify the allocations to reflect) anticipated future allocations under the minimum gain chargeback rules of Regulations Section 1.704-2. 6.6 Tax Allocations. Except as otherwise required by Code Section 704(c) or the Regulations thereunder, each item of income, gain, loss and deduction, as determined for federal income tax purposes, shall be allocated among the Members in the same manner as its correlative item of "book" income, gain, loss or deduction is allocated pursuant to Sections 6.2 through 6.5. ARTICLE 7 TAX MATTERS MEMBER 7.1 Tax Matters Member. The Manager shall be the "tax matters partner" of the Company as provided in the Regulations under Code Section 6231 and analogous provisions of state law (the "Tax Matters Member"). The Tax Matters Member shall represent the Company, at the Company's expense, in connection with all examinations of the Company's affairs by tax authorities including any resulting administrative or judicial proceedings. ARTICLE 8 TRANSFER OF INTERESTS 8.1 Transfer of Interests. No Member shall sell, assign, exchange, convey, gift, pledge, mortgage, encumber, dispose of or otherwise transfer (each, whether used as a noun or a verb, a "Transfer") all or any part of its Interest unless such transfer is first approved by the other Member acting in its sole discretion. 8.2 Requirements Applicable to Transfers. 8.2.1 No Transfer of all or any part of a Member's Interest may be made pursuant to Section 8.1 unless and until the Manager shall have received such of the following (to the extent applicable to the proposed Transfer) as it may have requested: (i) the agreement in writing of the transferee to comply with all of the terms and provisions of this Agreement; (ii) a duly executed and acknowledged written instrument of Transfer, specifying the Interests being transferred and setting forth the intention of the Member effecting the Transfer that the transferee succeed to a portion or all of such Member's Interest; and (iii) an opinion of counsel (who may be counsel for the Company), satisfactory in form and substance to the Manager to the effect that: (A) such proposed transferee has obtained such regulatory and other governmental approvals as may be required to permit it to be a Member of the Company, and the Transfer is otherwise in compliance with all applicable laws; (B) such Transfer would not violate the Securities Act of 1933, as amended, or any state securities or blue sky laws applicable to the Company or the Interest to be transferred; (C) such Transfer would not cause the Company to be considered a publicly traded partnership under Section 7704(b) of the Code; (D) such Transfer would not cause the Company to lose its status as a partnership for federal income purposes; and (E) such Transfer would not cause termination of the company for federal income tax purposes. 8.2.2 The transferring Member and its transferee shall pay, or reimburse the Company for, all reasonable costs and expenses incurred by the Company in connection with the Transfer and admission of the transferee as a Member, including any legal fees incurred in connection with the legal opinions referred to in Section 8.2.1, on or before the tenth business day after the receipt by such Persons of the Company's invoice for the amount due. If payment is not made by the date due, the Person owing that amount shall pay interest on the unpaid amount from the date due until paid at a rate per annum equal to the prime rate, as announced from time to time in the Wall Street Journal, plus one percentage point. 8.2.3 Each Member hereby severally agrees that it will not Transfer all or any part of its Interest in the Company except as permitted by this Agreement. 8.2.4 The transferee of an Interest shall be admitted as a Member of the Company provided that the Transfer is effected in compliance with this Article 8. Each transferee shall succeed to the same portion of the balance of the Capital Account of the transferor, as of the effective date of the Transfer, as the transferred Interest bears to the entire Interest of the transferor immediately prior to such Transfer, and shall otherwise become subject to and be bound by all of the provisions of this Agreement as a Member of the Company. 8.2.5 If a Member Transfers its entire Interest, such Transfer shall be treated as a withdrawal of such Member, but the Company shall not dissolve if the business of the Company is continued without dissolution in accordance with clause (b) of Section 11.2 hereof. 8.2.6 No Transfer of an Interest shall effect a release of the transferring Member from any liabilities to the Company or the other Members arising from events occurring prior to the Transfer. ARTICLE 9 BOOKS. RECORDS, ACCOUNTING, AND REPORTS 9.1 Books and Records. The Company shall maintain at its principal office all of the following: 9.1.1 A current list of the full name and last known business address of each Member together with true and full information regarding the amount of cash and a description and statement of the agreed value of any other property or services contributed by each Member and which each Member has agreed to contribute in the future, and the date on which each Member became a member of the Company; 9.1.2 A copy of the Certificate, this Agreement, including any and all amendments to either thereof, together with executed copies of any powers of attorney pursuant to which the Certificate, this Agreement or any amendment has been executed; 9.1.3 Copies of the Company's federal, state, and local income tax or information returns and reports, if any, for the six most recent taxable years; 9.1.4 The audited financial statements of the Company for the six most recent Fiscal Years; and 9.1.5 The Company's books and records for at least the current and past five Fiscal Years. 9.2 Delivery to Members; Inspection. Upon the request of any Member for any purpose reasonably related to such Member's Interest as a Member of the Company: 9.2.1 The Company shall promptly deliver to the requesting Member, at the expense of the Company, a copy of the information required to be maintained by Sections 9.1.1. through 9.1.4. 9.2.2 The Members may review, at the Company's office during normal business hours, the Company's federal, state and local income tax or information returns prior to the filing thereof and the Company's books and records referred to in Section 9.1.5. 9.2.3 The Company will provide any Member at such Member's expense such other information regarding the business affairs of the Company as the Member shall reasonably request. 9.3 Financial Statements. The Manager shall maintain or cause to be maintained books of account reflecting the operations of the Company on an annual basis and shall prepare or cause to be prepared for the Members at least annually, at the Company's expense, financial statements of the Company prepared in accordance with generally accepted accounting principles. 9.4 Filings. At the Company's expense the Manager shall cause the income tax and information returns for the Company to be prepared and timely filed with the appropriate authorities and to have prepared and to furnish to each Member such information with respect to the Company as is necessary to enable the Members to prepare and timely file their federal and state income tax returns. The Manager, at the Company's expense, shall also cause to be prepared and timely filed, with appropriate federal and state regulatory and administrative bodies, all reports required to be filed by the Company with those entities under then current applicable laws, rules, and regulations. The reports shall be prepared on the accounting or reporting basis required by the regulatory bodies. ARTICLE 10 AMENDMENTS TO AGREEMENT This Agreement may be amended or modified with the prior written consent of the Manager; provided, that, the Members expressly agree that in the event of a Transfer of all or a portion of a Member's Interest or the admission of a new Member, this Agreement shall be revised to reflect such Transfer or such admission, as the case may be, and to amend such provisions of this Agreement as the Members shall determine to be appropriate, it being contemplated that in the event that either Member Transfers all of its Interest to another Person and such Person is admitted as a Member, such Person shall be subject to all of the provisions of this Agreement to which the transferor Member was previously subject. The Manager shall cause to be prepared and filed any amendment to the Certificate that may be required to be filed under the Act as a consequence of any amendment to this Agreement. Any modification or amendment to this Agreement pursuant to this Article 10 shall be binding on all Members. ARTICLE 11 DISSOLUTION OF COMPANY 11.1 Termination of Membership. No Member shall resign or withdraw from the Company except that, subject to the restrictions set forth in Article 8, any Member may Transfer its Interest in the Company and the transferee may become a Member in place of the Member which transferred its Interest. If any Member ceases to be a Member for any reason, the business of the Company may be continued by the remaining Members (so long as there are two such remaining Members) as provided in clause (b) of Section 11.2. 11.2 Events of Dissolution or Liquidation. The Company shall be dissolved upon the happening of any of the following events: (a) the written determination of the Manager, (b) the withdrawal, bankruptcy or dissolution of any Member, unless there are at least two remaining Members and the business of the Company is continued (and if the Manager is no longer a Member, a new manager is selected) by the consent of the remaining Members holding Interests that together represent more than a 50% Percentage Interest within 90 days following the occurrence of any such event, or (c) the entry of a decree of judicial dissolution under Section 44 of the Act. 11.3 Liquidation. If the Company is dissolved and not continued, the Company shall immediately commence to wind up its affairs. A reasonable period of time shall be allowed for the orderly termination of the Company's business, discharge of its liabilities, and distribution or liquidation of the remaining assets so as to enable the Company to minimize the normal losses attendant to the liquidation process. The Company's property and assets or the proceeds from the liquidation thereof shall, subject to the requirements of the Act, be distributed in accordance with Section 11.4. A full accounting of the assets and liabilities of the Company shall be taken and a statement thereof shall be furnished to each Member within 30 days after the distribution of all of the assets of the Company. Such accounting and statements shall be prepared under the direction of the Manager. Upon such final accounting, the Company shall terminate and an authorized person, appointed pursuant to Section 2.7, shall cancel the Certificate in accordance with the Act. 11.4 Distributions to Members. Distributions to Members upon liquidation shall be made in accordance with the Members' Capital Account balances (after adjustment pursuant to Section 6.2). Notwithstanding Section 11.3 or the first sentence of this Section 11.4, the Company shall not make any Distribution pursuant to this Section 11.4 unless the Manager shall have determined that the Company has sufficient assets to pay all accrued and contingent liabilities of which the Manager is aware after making reasonable inquiry. 11.5 No Action for Dissolution. The Members acknowledge that irreparable damage would be done to the goodwill and reputation of the Company if any Member should bring an action in court to dissolve the Company under circumstances where dissolution is not required by Section 11.2. This Agreement has been drawn carefully to provide fair treatment of all parties and equitable payment in liquidation of the Interests of all Members. Accordingly, except where the Manager has failed to liquidate the Company as required by Section 11.2 and except as specifically provided in Section 44 of the Act, each Member hereby waives and renounces its right to initiate legal action to seek dissolution or to seek the appointment of a receiver or trustee to liquidate the Company. 11.6 No Further Claim. Upon dissolution, each Member shall look solely to the assets of the Company for the return of its Capital Contributions, and if the Company's property remaining after payment or discharge of the debts and liabilities of the Company, including debts and liabilities owed to one or more of the Members, is insufficient to return the aggregate Capital Contributions of each Member, a Member shall have no recourse against the Company or any other Member except to the extent that the other Member has received Distributions in excess of those to which such Member was entitled to under the terms of this Agreement. ARTICLE 12 INDEMNIFICATION 12.1 General. To the maximum extent permitted by law, the Company shall indemnify, defend, and hold harmless, each Manager and each Member, including the Tax Matters Member, and each Member's officers, trustees, directors, partners, members, shareholders, and employees (and each such Person's officers, trustees, directors, partners, members, shareholders, and employees), and the employees and officers of the Company (all indemnified persons being referred to as "Indemnified Persons"), from any liability, loss, or damage incurred by the Indemnified Person by reason of any act performed or omitted to be performed by the Indemnified Person in connection with the business of the Company and from liabilities or obligations of the Company imposed on such Person by virtue of such Person's position with the Company, including attorneys' fees and costs and any amounts expended in the settlement of any such claims of liability, loss, or damage; provided, however, that, if the liability, loss, damage, or claim arises out of any action or inaction of an Indemnified Person, indemnification under this Section 12.1 shall be available only if (a) either (i) the Indemnified Person, at the time of such action or inaction, determined, in good faith, that its or his course of conduct was in, or not opposed to, the best interests of the Company, or (ii) in the case of inaction by the Indemnified Person, the Indemnified Person did not intend its or his inaction to be harmful or opposed to the best interests of the Company, and (b) the action or inaction did not constitute fraud or a Violation of the Business Judgment Rule by the Indemnified Person, and provided, further, that indemnification under this Section 12.1 shall be recoverable only from the assets of the Company and not from any assets of the Members. The Company may pay or reimburse attorneys' fees of an Indemnified Person as incurred, if such Indemnified Person executes an undertaking to repay the amount so paid or reimbursed if there is a final determination by a court of competent jurisdiction that such Indemnified Person is not entitled to indemnification under this Article 12. The Company may pay for insurance covering liability of the Indemnified Persons for negligence in operation of the Company's affairs. 12.2 Persons Entitled to Indemnity. Any Person who is within the definition of "Indemnified Person" at the time of any action or inaction in connection with the business of the Company shall be entitled to the benefits of this Article 12 as an "Indemnified Person" with respect thereto, regardless whether such Person continues to be within the definition of "Indemnified Person" at the time of such Person's claim for indemnification or exculpation hereunder. 12.3 Procedure Agreements. The Company may enter into an agreement with any of its officers and employees setting forth procedures consistent with applicable law for implementing the indemnities provided in this Article 12. 12.4 Extent of Duties. No Indemnified Person shall be liable, in damages or otherwise, to the Company or to any Member for any loss that arises out of any act performed or omitted to be performed by it or him pursuant to the authority granted by this Agreement if (a) either (i) the Indemnified Person, at the time of such action or inaction, determined, in good faith, that such Person's course of conduct was in, or not opposed to, the best interests of the Company, or (ii) in the case of inaction by the Indemnified Person, the Indemnified Person did not intend such Person's inaction to be harmful or opposed to the best interests of the Company, and (b) the conduct of the Indemnified Person did not constitute fraud or a Violation of the Business Judgment Rule by such Indemnified Person. 12.5 Fiduciary and Other Duties. 12.5.1 To the extent that, at law or in equity, an Indemnified Person has duties (including fiduciary duties) and liabilities relating thereto to the Company or to any other Indemnified Person, an Indemnified Person acting under this Agreement shall not be liable to the Company or to any other Indemnified Person for its good faith reliance on the provisions of this Agreement. The provisions of this Agreement, to the extent that they restrict the duties (including fiduciary duties) of an Indemnified Person otherwise existing at law or in equity, are agreed by the parties hereto to replace such other duties of such Indemnified Person. The provisions of this Section 12.5.1 shall not be construed to relieve any Indemnified Person from liability for such Person's fraud or a Violation of the Business Judgment Rule. 12.5.2 Whenever in this Agreement an Indemnified Person is permitted or required to make a decision (a) in its "discretion" (without qualification as to how the discretion is to be exercised) or under a grant of similar authority or latitude, the Indemnified Person shall act reasonably and in good faith based on facts known to the Person at the time, (b) in its "sole discretion" or under a grant of similar authority or latitude, the Indemnified Person shall be entitled to consider only such interests and factors as it desires, including its own interests, and shall have no duty or obligation to give any consideration to any interest of or factors affecting the Company or any other Person, and (c) under any other express standard, the Indemnified Person shall act under such express standard and shall not be subject to any other general standard imposed by this Agreement or applicable law. ARTICLE 13 MISCELLANEOUS 13.1 Additional Documents. At any time and from time to time after the date of this Agreement, upon the request of the Manager, each Member shall do and perform, or cause to be done and performed, all such additional acts and deeds, and shall execute, acknowledge, and deliver, or cause to be executed, acknowledged, and delivered, all such additional instruments and documents, as may be required to effectuate the purposes and intent of this Agreement. 13.2 General. This Agreement: (a) shall be binding upon the executors, administrators, estates, heirs, and legal successors of the Members; (b) shall be governed by and construed in accordance with the laws of The Commonwealth of Massachusetts; (c) may be executed in more than one counterpart as of the day and year first above written; and (d) contains the entire contract among the Members as to the subject matter hereof. The waiver of any of the provisions, terms, or conditions contained in this Agreement shall not be considered as a waiver of any of the other provisions, terms, or conditions hereof. 13.3 Notices. Etc. Any notice, demand or other communication given to a Manager or Member under this Agreement shall be deemed to be given if given in writing (including telex, telecopy or similar teletransmission) addressed as provided below (or to the addressee at such other address as the addressee shall have specified by notice actually received by the addressor), and if either (a) actually delivered in fully legible form to such address (evidenced, in the case of a telex, by receipt of the correct answer back and, in the case of delivery by overnight courier, by confirmation of delivery from the overnight courier service making such delivery) or (b) in the case of a letter, five days shall have elapsed after the same shall have been deposited in the United States mails, with first-class postage prepaid and registered or certified. If to AllEnergy, to it at 3 University Office Park, 95 Sawyer Road, Waltham, Massachusetts 02154 If to AMCI, to it at 9 Riverside Road, Weston, Massachusetts 02193. 13.4 Gender and Number. Whenever required by the context, as used in this Agreement, the singular number shall include the plural, the plural shall include the singular, and all words herein in any gender shall be deemed to include the masculine, feminine and neuter genders. 13.5 Severability. If any provision of this Agreement is determined by a court to be invalid or unenforceable, that determination shall not affect the other provisions hereof, each of which shall be construed and enforced as if the invalid or unenforceable portion were not contained herein. That invalidity or unenforceability shall not affect any valid and enforceable application thereof, and each said provision shall be deemed to be effective, operative, made, entered into or taken in the manner and to the full extent permitted by law. 13.6 Headings. The headings used in this Agreement are used for administrative convenience only and do not constitute substantive matter to be considered in construing the terms of this Agreement. 13.7 No Third Party Rights. The provisions of this Agreement are for the benefit of the Company, the Manager and the Members and no other Person, including creditors of the Company shall have any right or claim against the Company, the Manager or any Member by reason of this Agreement or any provision hereof or be entitled to enforce any provision of this Agreement. [The remainder of this page has deliberately been left blank.] IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first set forth above. ALLENERGY MARKETING COMPANY, L.L.C. By: /s/ W. H. Heil Name: William H. Heil Title: Chairman and Chief Executive Officer ALLENERGY MARKETING COMPANY, INC. By: /s/ L. William Law, Jr. Name: L. William Law, Jr. Title: Vice President & Clerk EXHIBIT 1 Defined Terms "Act" shall mean the Massachusetts Limited Liability Company Act (MGL c. 156C), as amended and in effect from time to time. "Affiliate" shall mean, with respect to any specified Person, any Person that directly or through one or more intermediaries controls or is controlled by or is under common control with the specified Person. As used in this definition, the term "control" means the possession, directly or indirectly, of the power or authority to direct or cause the direction of the management and policies of a Person, whether through ownership of voting securities, by contract or otherwise. "Agreement" shall mean the Limited Liability Company Agreement of the Company dated as of December 18, 1996, as amended from time to time. "AllEnergy" is defined in the preamble of the Agreement. "AMCI" is defined in the preamble of the Agreement. "Business Day" shall mean a day when national banks are open for business in Boston, Massachusetts. "Capital Account" is defined in Section 3.2. "Capital Contribution" shall mean with respect to any Member, the amount of cash and the fair market value of any other property contributed to the Company with respect to the Interest held by such Member (net of liabilities secured by such contributed property or that the Company is considered to assume or take the property subject to pursuant to Code section 752). "Certificate" shall mean the Certificate of Organization of the Company and any and all amendments thereto and restatements thereof filed on behalf of the Company as permitted hereunder with the office of the Secretary of State of The Commonwealth of Massachusetts. "Code" shall mean the Internal Revenue Code of 1986, as amended from time to time, and the corresponding provisions of any future federal tax law. "Company" shall mean the limited liability company formed under and pursuant to the Act and this Agreement. "Distribution" shall mean the amount of cash and the fair market value of any other property distributed to a Member in respect of the Member's Interest in the Company (net of liabilities secured by such distributed property or that the Member is considered to assume or take the property subject to pursuant to Code section 752). "Effective Date" shall mean December 18, 1996. "Energy Commodity" shall mean propane, natural gas, electricity, oil and any other energy source, as well as all options, futures contracts, forward contracts, collars, spot contracts or swap contracts related to the choice, purchase or consumption of any energy commodity and any other financial products marketed or used in connection therewith. "Energy Related Products and Services" shall mean products and services related to the choice, purchase or consumption of any Energy Commodity, whether or not sold or provided on a bundled basis with such natural gas, electricity, oil or other energy source. "Fair Value" as applied to all or any portion of the Interest of any Member or to the non-cash consideration proposed to be paid as all or a portion of the Offered Price for an Interest by a third-party offeror, shall mean the fair market value of the relevant portion of the Interest or of such consideration as agreed upon by the Members or as shown by an appraisal performed by an independent appraiser satisfactory to all Members. In the event that the Members do not agree on such fair market value or on the selection of an independent appraiser within 10 days after the event which gives rise to the need to determine Fair Value, each Member shall select an appraiser within 20 days of such event and those two appraisers shall select within 30 days of such event another independent appraiser to perform the appraisal. The three appraisers so selected shall then have 15 days from the date of the selection of the third appraiser to determine the fair market value of the relevant portion of the Interest or consideration in question. When determining the fair market value of an Interest, the appraisers shall consider, among other factors, book value, liquidation value, replacement value and the value of future cash flows of the Company as a going concern and shall make no deduction, discount or other subtraction whatsoever for the possible minority status or limited voting rights of any Member. If the single appraiser has been appointed, such appraiser's determination of value shall be final and binding. If three appraisers shall have been appointed as hereinabove set forth, the values determined by the three appraisers shall be averaged, the determination which shall differ most from such average shall be disregarded, the remaining two determinations shall be averaged, and such average shall be final and binding. If one independent appraiser is selected, the Members shall each bear one-half of the expenses of the independent appraiser. If the Members have each selected an appraiser, each Member shall bear the expenses of its own appraiser and one-half the expenses of the independent appraiser selected by the two appraisers. "Fiscal Year" shall mean the fiscal year of the Company which shall end on December 31 in each year or on such other date in each year as the Manager shall otherwise elect. "Indemnified Persons" is defined in Section 12.1. "Interest" shall mean the entire interest of a Member in the capital and profits of the Company, including the right of such Member to any and all benefits to which a Member may be entitled as provided in this Agreement, together with the obligations of such Member to comply with all the terms and provisions of this Agreement. "Manager" shall mean AllEnergy. The Manager shall be the manager of the Company under the Act. "Member Nonrecourse Deductions" shall mean "partner non- recourse deductions" as defined in Regulations Section 1.704- 2(i)(1). "Members" shall mean the Persons listed as members on the signature page to the Agreement and any other Person that both acquires an Interest in the Company and is admitted to the Company as a Member pursuant to the Agreement. "Net Profit" and "Net Loss" shall mean, for each Fiscal Year or other period, an amount equal to the Company's taxable income or loss, respectively, for such year or period, determined in accordance with Section 703(a) of the Code (taking into account all items of income, gain, loss, or deduction required to be stated separately pursuant to Section 703(a)(1) of the Code), with the following adjustments: (a) any income of the Company that is exempt from federal income tax and not otherwise taken into account in computing Net Profit or Net Loss pursuant to this provision shall be added to such taxable income or reduce such taxable loss; and (b) any expenditures of the Company described in Section 705(a)(2)(B) of the Code (relating to expenditures which are neither deductible nor properly chargeable to capital) or treated as Code Section 705(a)(2)(B) expenditures pursuant to Section 1.704-l(b)(2)(iv)(i) of the Regulations, and not otherwise taken into account in computing Net Profit or Net Loss pursuant to this provision, shall be subtracted from such taxable income or increase such taxable loss. "Nonrecourse Deduction" shall have the meaning set forth in Regulations Section 1.704-2(b)(1). "Percentage Interests" is defined in Section 3.3. "Person" shall mean an individual, partnership, joint venture, association, corporation, trust, estate, limited liability company, limited liability partnership, or any other legal entity. "Qualified Income Offset" shall have the meaning set forth in Regulations Section 1.704-l(b)(2)(ii)(d). "Regulations" shall mean the Treasury regulations, including temporary regulations, promulgated under the Code, as such regulations may be amended from time to time (including the corresponding provisions of any future regulations). "Securities Act" shall mean the Securities Act of 1933, as amended. "Tax Matters Member" is defined in Section 7.1. "Term" is defined in Section 2.4. "Transfer" is defined in Section 7.1.1. "Violation of the Business Judgment Rule" means conduct which is materially inconsistent with the obligation to be reasonably informed and to act in good faith or which is reckless, grossly negligent, willful misconduct or constitutes a knowing violation of law. EXHIBIT 5.2 OFFICERS 5.2.1. Officers. Officers and agents of the Company, if any, shall be appointed by the Manager from time to time in its sole discretion. An officer may be but none need be a Member. Any two or more offices may be held by the same person. Any officer may be required by the Manager to secure the faithful performance of the officer's duties to the Company by giving bond in such amount and with sureties or otherwise as the Manager may determine. 5.2.2. Powers. Subject to the limitations set forth in Section 5.2 of the Agreement, each officer shall have, in addition to the duties and powers herein set forth, the duties and powers set forth in Section 5.2 of the Agreement or delegated to such officer as provided in said Section 5.2. 5.2.3. Election. Officers may be appointed by the Manager at any time. At any time or from time to time the Manager may delegate to any officer its power to appoint any other officer or any agents. 5.2.4. Tenure. Each officer shall hold office until such officer's respective successor is chosen and qualified unless a shorter period shall have been specified by the terms of such officer's appointment, or in each case until such officer sooner dies, resigns, is removed or becomes disqualified. Each agent shall retain its authority at the pleasure of the Manager, or the officer by whom such agent was appointed or by the officer who then holds agent appointive power. 5.2.5. Resignation: Removal; Vacancies. Any officer or agent may resign by delivering a written letter of resignation to the Manager, which resignation shall not require acceptance and, unless otherwise specified in the letter of resignation, shall be effective upon receipt. The Manager or the officer appointing the officer or agent may remove any officer or agent at any time without giving any reason for such removal and no officer or agent or shall be entitled to any damages by virtue of such officer's removal from office or such position as agent. If any office becomes vacant, the position may be filled by the Manager or in such other manner as the officer in question was appointed. 5.2.6. President and Vice President. Unless the Manager otherwise specifies, the President shall be the chief executive officer and shall have direct charge of all business operations of the Company and, subject to the control of the Manager, shall have general charge and supervision of the business of the Company. Any vice presidents shall have duties as shall be designated from time to time by the Manager or the President. 5.2.7. Treasurer and Assistant Treasurers. Unless the Manager otherwise specifies, the Treasurer shall be the chief financial officer of the Company and shall be in charge of its funds and valuable papers, and shall have such other duties and powers as may be designated from time to time by the Manager or the President. If no Controller is elected, the Treasurer shall, unless the Manager otherwise specifies, also have the duties and powers of the Controller. Any Assistant Treasurers shall have such duties and powers as shall be designated from time to time by the Manager, the President or the Treasurer. 5.2.8. Controller and Assistant Controllers. If a Controller is elected, the Controller shall, unless the Manager otherwise specifies, be the chief accounting officer of the Company and be in charge of its books of account and accounting records, and of its accounting procedures. The Controller shall have such other duties and powers as may be designated from time to time by the Manager, the President or the Treasurer. Any Assistant Controller shall have such duties and powers as shall be designed from time to time by the Manager, the President, the Treasurer or the Controller. 5.2.9. Secretary and Assistant Secretaries. The Secretary shall record all proceedings of the Members in a book or series of books to be kept therefor and shall file therein all actions by written consent of the Members. In the absence of the Secretary from any meeting, an Assistant Secretary, or if there be one or no Assistant Secretary is present, a temporary secretary chosen at the meeting, shall record the proceedings thereof. The Secretary shall keep or cause to be kept records, which shall contain the names and record addresses of all Members. The Secretary shall have such other duties and powers as may from time to time be designated by the Manager or the President. Any Assistant Secretaries shall have such duties and powers as shall be designated from time to time by the Manager, the President or the Secretary. 5.2.10. Execution of Papers. Except as the Manager may generally or in particular cases authorize the execution thereof in some other manner, and subject to the limitations set forth in Sections 5.2 of the Agreement, all deeds, leases, transfers, contracts, bonds, notes, checks, drafts or other obligations made, accepted or endorsed by the corporation shall be signed by the President, a Vice President or the Treasurer. EX-2 5 EXHIBIT B.5.A HYDROSERV GROUP, L.L.C. LIMITED LIABILITY COMPANY AGREEMENT Dated as of July 25, 1997 HYDROSERV GROUP, L.L.C. LIMITED LIABILITY COMPANY AGREEMENT THIS LIMITED LIABILITY COMPANY AGREEMENT of HydroServ Group, L.L.C. is dated as of July 25, 1997, by and between Underwater Unlimited Diving Services, Inc. (UUDSI), a New Hampshire corporation, and NEES Global Transmission, Inc. (NGT), a Massachusetts corporation. WHEREAS, the Members wish to form a limited liability company pursuant to and in accordance with the Massachusetts Limited Liability Company Act in order to conduct the business described herein; and WHEREAS, the Members wish to enter into this Agreement to provide for, among other things, the management of the business and affairs of the Company, the allocation of profits and losses among the Members, the respective rights and obligations of the Members to each other and to the Company, and certain other matters. NOW, THEREFORE, the Members hereby agree as follows: ARTICLE I DEFINITIONS Certain capitalized terms used in this Agreement have specifically defined meanings which are either set forth or referred to in Exhibit 1, which is attached hereto and incorporated herein by reference. ARTICLE 2 FORMATION AND PURPOSE 2.1 Formation, etc. The Members hereby form a limited liability company pursuant to and in accordance with the Act effective upon the filing of the Certificate with the Secretary of State of The Commonwealth of Massachusetts. The rights, duties and liabilities of the Members shall be determined pursuant to the Act and this Agreement. To the extent that such rights, duties or obligations are different by reason of any provision of this Agreement than they would be in the absence of such provision, this Agreement shall, to the extent permitted by the Act, control. 2.2 Name. The name of the Company shall be HydroServ Group, L.L.C. The business of the Company may be conducted under that name or, upon compliance with applicable laws, any other name that the Members deem appropriate or advisable. The Members shall file any fictitious name certificates and similar filings, and any amendments thereto, that shall be necessary to permit the Company to carry on its business under the desired name. 2.3 Registered Office/Agent. The registered office required to be maintained by the Company in The Commonwealth of Massachusetts pursuant to the Act shall initially be 25 Research Drive, Westborough, MA. The name and address of the registered agent of the Company pursuant to the Act shall initially be Kirk L. Ramsauer, 25 Research Drive, Westborough, MA. The Company may, upon compliance with the applicable provisions of the Act, change its registered office or registered agent from time to time in the discretion of the Members. 2.4 Term. The term of the Company (the "Term") shall continue until December 31, 2006 or such later date as shall be designated by the Members, unless sooner terminated as hereinafter provided. 2.5 Purpose. The Company is formed for the object and purpose of marketing and selling the capabilities and services of UUDSI and New England Power Company (an affiliate of NGT, hereinafter referred to as NEP), which are operation and maintenance, field and construction, as outlined in Attachments 2 and 3 of the business plan contained in Schedule 2. These capabilities and services will be marketed and sold to hydroelectric facilities and other similar facilities nationwide. The Company will also market and sell goods and services for nonmember, noncompeting companies that service the same market. The Company will also engage in any and all other activities necessary, advisable, convenient, or incidental to such activities. 2.5.1 Exclusive Agent. The Company is the Exclusive Agent for marketing and selling the capabilities and services of UUDSI and NEP, as defined in Attachments 2 and 3 of the business plan in Schedule 2, to customers in the hydro industry in the United States and Canada. 2.5.2 HydroServ Customers. All present hydro customers of each Member and all future customers sourced by HydroServ Group, LLC will be considered to be "HydroServ Customers". Schedule 5 lists present hydro customers of UUDSI, and Schedule 6 lists those of NEP. The transfer of those customers listed on Schedules 5 and 6 to HydroServ Customers shall be at no cost, fee, commission, or other charge. 2.6 Powers. Without limiting the generality of Section 2.5, the Company shall have the power and authority to take any and all actions necessary, appropriate, proper, advisable, incidental or convenient to or for the furtherance of the purpose set forth in Section 2.5, including, but not limited to, the power: 2.6.1 to conduct its business, carry on its operations and have and exercise the powers granted to a limited liability company by the Act in any state, territory, district or possession of the United States or in any foreign country as may be necessary, convenient or incidental to the accomplishment of the purpose of the Company; 2.6.2 to enter into, perform and carry out contracts of any kind necessary to, in connection with, in furtherance of, convenient to, or incidental to the accomplishment of the purpose of the Company; 2.6.3 to purchase, take, receive, subscribe for or otherwise acquire, own, hold, enter into, invest in, trade, vote, use, employ, sell, mortgage, lend, pledge, or otherwise dispose of, and otherwise use and deal in and with, shares and other equity interests in, obligations of, and other financial instruments with or in respect of, domestic and foreign corporations, associations, general, limited and limited liability partnerships, trusts, limited liability companies, individuals, international agencies, and the United States government, and any other national, state, regional, territorial, local or municipal government and any agency or instrumentality of any such government; 2.6.4 to acquire by purchase, exchange, lease, contribution of property or otherwise, own, hold, operate, maintain, finance, improve, market, lease, sell, distribute, convey, mortgage, encumber, transfer, demolish or dispose of any real or personal property; 2.6.5 to lend money, to invest and reinvest its funds and to take and hold real and personal property for the payment of funds so loaned or invested; 2.6.6 to negotiate, enter into, renegotiate, extend, renew, terminate, modify, amend, waive, execute, acknowledge or take any other action with respect to any lease, contract or security agreement in respect of any assets or the business of the Company; 2.6.7 to borrow and issue evidences of indebtedness and to secure the same by a mortgage, pledge or other lien on the assets of the Company; provided, however, that without the prior written consent of the Member in question, the Company shall not incur any indebtedness that provides for the liability of any Member; 2.6.8 to open, close, and to make deposits to and withdrawals from bank and other deposit accounts; 2.6.9 to give or terminate guarantees and indemnities; 2.6.10 to hire, employ and dismiss employees, agents and representatives, attorneys, accountants, brokers, investment bankers, appraisers and any other advisors or consultants of the Company, and define their duties and fix their compensation; 2.6.11 to indemnify any Person in accordance with this Agreement; 2.6.12 to cease its activities and cancel its Certificate; 2.6.13 to sue and be sued, complain and defend, and participate in administrative or other proceedings, in its name; 2.6.14 to pay, collect, compromise, litigate, arbitrate or otherwise adjust or settle any and all other claims or demands of or against the Company or to hold such proceeds against the payment of contingent liabilities; and 2.6.15 to make, execute, acknowledge and file any and all documents or instruments necessary, convenient or incidental to the accomplishment of the purpose of the Company. 2.7 Filing of Certificate. Ernest Griggs is designated as an authorized person within the meaning of the Act to execute, deliver and file the Certificate, and any such other Persons as the Members shall specify are hereby designated as authorized persons, within the meaning of the Act, to execute, deliver and file any amendments or restatements of the Certificate and any other certificates necessary for the Company to qualify to do business in a jurisdiction in which the Company may wish to conduct business. 2.8 Foreign Qualification. The Members shall take all necessary actions to cause the Company to be authorized to conduct business legally in Massachusetts and any other jurisdictions which the Members shall determine. 2.9 Responsibilities. The Company in addition to any and all activities associated with running the Company is responsible for the following partial list of activities: (a) management of all hydro marketing and sales personnel activities; (b) assisting each Member with the development and marketing of any and all specific products and services relating to the specific delivery of that Member's hydro services to a HydroServ Customer; (c) assisting UUDSI and NEP in preparation of proposals; and (d) interfacing with HydroServ Customers as required. ARTICLE 3 MEMBERSHIP AND CAPITAL 3.1 Members: Initial Capital Contributions. The Members of the Company are UUDSI and NGT, each of which is admitted to the Company as a Member effective upon its execution of this Agreement. Each Member shall make an initial capital contribution of $250,000 net of its marketing and sale expenses for the benefit of the Company incurred since the date this Agreement is signed; such initial capital contribution shall be made in accordance with Schedule 7 attached hereto. The initial capital contribution shall be made promptly after receipt by NGT of corporate approvals required by NGT in order to make its contributions, and to make an equity investment in UUDSI of $1 million, such approvals to be in form and substance acceptable to NGT. 3.2 Maintenance of Capital Accounts. A separate account (each a "Capital Account") shall be established and maintained for each Member which shall be increased by (a) such Member's Capital Contributions and (b) such Member's share of the Net Profit of the Company, and shall be charged with (c) Distributions to such Member and (d) such Member's share of the Net Losses of the Company. It is the intention of the Members that the Capital Accounts be maintained in accordance with the provisions of Section 704(b) of the Code and the Regulations thereunder, that any liabilities be taken into account in accordance with the provisions of Section 752 of the Code and the Regulations thereunder, and that this Agreement be interpreted consistently therewith. 3.3 Percentage Interests. The percentage interest of each Member in the capital and profits of the Company (each a "Percentage Interest") shall initially be as follows: UUDSI 50% NGT 50% The Percentage Interests shall be subject to adjustment as provided in Sections 3.6 and 3.7.4. 3.4 Additional Capital Contributions. 3.4.1 Required Contributions. The Members may from time to time determine that additional Capital Contributions are required by the Company (Total Additional Capital Contribution). In such a case, each Member agrees that upon not less than ten Business Days following the determination by the Members, such Member will contribute to the Company as an Additional Capital Contribution a percentage of the Total Additional Capital Contribution that is equal to its Percentage Interest adjusted in accordance with Section 3.4.1.1. 3.4.1.1 Each Member's Additional Capital Contribution will be adjusted to reflect the relative benefit it or its affiliates derived from contracts resulting from the marketing and sales efforts of the Company. Each Member's Additional Capital Contribution shall be 6% of gross revenue received under such contract(s) for the past twelve months. To the extent that the aggregate of all Members' contributions result in more than the Total Additional Capital Contribution, such contributions will be proportionally reduced to the Total Additional Capital Contribution, such reduction calculated based on relative contributions by each Member. To the extent that the aggregate of all Members' contributions result in less than the Total Additional Contribution, the shortfall will be contributed by each Member on the basis of its Percentage Interest at such time. 3.4.2 Funds Transfers. Capital Contributions required by this Section 3.4 shall be made by wire transfer of immediately available funds to the Company's account at such bank as the Company may from time to time designate in writing. 3.4.3 Voluntary Contributions. Following the Effective Date, no Member shall be required or permitted to make any Capital Contributions to the Company except pursuant to this Section 3.4. 3.5 Return of Capital Contributions. No Member shall have the right to demand a return of all or any part of its Capital Contributions, and any return of the Capital Contributions of any Member shall be made solely from the assets of the Company. No interest shall be paid to any Member with respect to its Capital Contributions. 3.6 Additional Members; New Issuances; Classes of Members. Except as contemplated by Article 9, no new Members shall be admitted to the Company without the consent of the Members. Upon the written consent of the Members, the Company may issue Interests, which may represent interests in both the capital and the profits of the Company or which may be interests in only the future profits of the Company ("Profits Interests") to Persons who are not yet Members, or may increase the Interest of an existing Member, for such consideration (including but not limited to cash, other property or the provision of services) and on such terms as the Members shall unanimously determine. Upon the issuance of a new Interest, or an increase in the Percentage Interest represented by an existing Interest, the Percentage Interests of all existing Members shall be diluted ratably. Each Person that is to be issued an Interest shall deliver to the Company, as a condition of its admission to the Company as a Member, such documents of the type specified in Section 9.4. l(i) and (ii) as the Members shall request. The Members shall constitute a single class of Members for all purposes under the Act and this Agreement unless and to the extent that this Agreement specifically provides for different classes or groups of Members of the Company. 3.7 Defaults in Making Capital Contributions. If any Member shall default in making any Capital Contribution required to be made pursuant to Section 3.4.1 (each such Capital Contribution which is not made, a "Defaulted Capital Contribution"), and such default shall continue for more than twenty Business Days after notice from the Company, the following provisions shall apply: 3.7.1 Member Default Loan. The Member who has not failed to make the required Capital Contribution shall be entitled (but not required) to advance to the Company on behalf of the Member who has failed to make the required Capital Contribution (the "Defaulting Member") an amount equal to all or a portion of the Defaulted Capital Contribution. Any amount so advanced by the non-Defaulting Member shall be considered a Member Default Loan by the non-Defaulting Member to the Defaulting Member. 3.7.2 Repayment of Member Default Loan. A Member Default Loan shall be the obligation of the Defaulting Member, shall be governed by the internal laws of The Commonwealth of Massachusetts, shall bear interest at a rate of 12% per annum which shall be compounded annually., and shall be payable on or before twenty Business Days after written demand first out of Distributions which would otherwise be made to the Defaulting Member and to the extent not sufficient, then out of the general assets of the Defaulting Member. Payments on Member Default Loans shall be applied first to accrued interest and then to principal. The Company shall pay to the Member making the Member Default Loan instead of to the Defaulting Member any and all Distributions which would otherwise have been paid to the Defaulting Member until the Member Default Loan and all interest thereon has been paid in full; provided, however, that all such Distributions shall be deemed to have been made first to the Defaulting Member and subsequently paid by the Defaulting Member to the non-Defaulting Member as a payment against the Member Default Loan and interest thereon. No Distributions of any kind shall be made directly to the Defaulting Member until such time as the Member Default Loan and all interest thereon has been paid by or for the account of the Defaulting Member. 3.7.3 Survival of Obligation to Make Capital Contribution. Notwithstanding the foregoing provisions of this Section 3.7, the Defaulting Member shall continue to be obligated to make the required Capital Contribution, except to the extent that (a) such required Capital Contribution has been made by repayment of the principal of any Member Default Loan that has been made to fund such required Capital Contribution or has otherwise been made by the Defaulting Member or (b) such Defaulting Member has been relieved of such obligation pursuant to Section 3.7.4, and the Company may by appropriate action enforce such obligation of the Defaulting Member. If the non- Defaulting Member has made a Member Default Loan, any Capital Contributions made as a result of such enforcement proceedings or otherwise shall be paid to the Member making the Member Default Loan until the Member Default Loan and all interest thereon are paid in full. If the non-Defaulting Member has not made a Member Default Loan, then the Defaulting Member's obligation to make the Defaulted Capital Contribution to the Company shall bear interest until paid at a rate of 12% per annum, which shall be compounded annually, and shall be payable on demand first out of Distributions which would otherwise be made to the Defaulting Member and to the extent not sufficient then out of the general assets of the Defaulting Member. 3.7.4 Dilution Provisions. (i) If the non-Defaulting Member has made a Member Default Loan and such Member Default Loan remains outstanding, then such Member shall have the option, at any time after the (sixtieth day) following the date on which the Capital Contribution was originally due, to convert all or a portion of the principal amount of such loan into an additional Capital Contribution of the non-Defaulting Member. In the event of such a conversion by the non-Defaulting Member, the Percentage Interests of the Members shall be adjusted by decreasing the Percentage Interest of the Defaulting Member, and increasing the Percentage Interest of the non-Defaulting Member, by 5 percentage points for each $100,000 of principal so converted. The Defaulting Member shall be relieved of its obligation to pay that portion of the principal amount of the Member Default Loan so converted, but the Defaulting Member shall continue to be obligated to pay (i) any interest which had accrued on that portion of the principal of the Member Default Loan prior to such conversion and (ii) the principal of, and interest on, that portion of the Member Default Loan not so converted. (ii) If the non-Defaulting Member does not make a Member Default Loan and if the full amount of the required Capital Contribution of the Defaulting Member is not made within 60 days after the date on which the Capital Contribution was originally due, then as of the close of business on such sixtieth day, the Percentage Interests of the Members shall be adjusted by decreasing the Percentage Interest of the Defaulting Member, and increasing the Percentage Interest of the non-Defaulting Member, by 10 percentage points for each $100,000 not contributed by the Defaulting Member. The Defaulting Member shall be relieved of such Member's obligation to make the required Capital Contribution in question (but not, of such Member's obligation to pay the interest accrued thereon) to the extent that such Member's Percentage Interest and is adjusted pursuant to this Section 3.7.4(ii). ARTICLE 4 STATUS AND RIGHTS OF MEMBERS 4.1 Limited Liability. Except as otherwise provided by the Act, the debts, obligations and liabilities of the Company, whether arising in contract, tort or otherwise, shall be solely the debts, obligations and liabilities of the Company, and no Member nor any other Indemnified Person shall be obligated personally for any such debt, obligation or liability of the Company. All Persons dealing with the Company shall look solely to the assets of the Company for the payment of the debts, obligations or liabilities of the Company. 4.2 No Make Up. In no event shall any Member be required to pay to the Company, to any other Member or its Affiliate or to any third party, any deficit balance that may exist from time to time in such Member's Capital Account. 4.3 Return of Distributions. Except as otherwise expressly required by law, a Member, in its capacity as such, shall have no liability either to the Company or any of its creditors in excess of (a) the amount of its Capital Contributions actually made, (b) its share of any assets and undistributed profits of the Company, (c) its obligation to make Capital Contributions and any other payments expressly provided for in this Agreement, and (d) to the extent required by law, the amount of any Distributions wrongfully distributed to it; provided, however, that, to the maximum extent permitted by applicable law, the obligations of the Members under Section 3.4 shall be solely for the benefit of the Company and not the creditors of the Company. Except as required by law or a court of competent jurisdiction, a Member shall not be obligated by this Agreement to return any Distribution to the Company or pay the amount of any Distribution for the account of the Company or to any creditor of the Company. However, if any court of competent jurisdiction holds that, notwithstanding the provisions of this Agreement, any Member is obligated to return or pay any part of any Distribution, the obligation shall be that of such Member alone, and not of any other Member unless the court so provides. The amount of any Distribution returned to the Company by or on behalf of a Member or paid by or on behalf of a Member for the account of the Company or to a creditor of the Company shall be added to the account or accounts from which it was subtracted when it was distributed to the Member. 4.4 Specific Limitations. No Member shall have the right or power to: (a) withdraw or reduce its Capital Contribution except as a result of the dissolution of the Company or as otherwise provided by law or in this Agreement, (b) other than upon the Effective Date or with the approval of the Members, make voluntary Capital Contributions or to contribute any property to the Company other than cash, (c) bring an action for partition against the Company or any Company assets, (d) cause the termination and dissolution of the Company, except as set forth in this Agreement, or (e) upon the distribution of its Capital Contribution require that property other than cash be distributed in return for its Capital Contribution. Each Member hereby irrevocably waives any and all rights that it may have to maintain an action for partition of any of the Company's property. Except as otherwise set forth in this Agreement, no Member shall have priority over any other Member either as to the return of its Capital Contribution or as to Net Profit, Net Loss, or Distributions; provided, that this provision shall not apply to the repayment by the Company of loans (as distinguished from Capital Contributions) which a Member has made to the Company. Other than upon the termination and dissolution of the Company as provided by this Agreement, there has been no time agreed upon when the Capital Contribution of any Member will be returned. 4.5 [Intentionally left blank] 4.6 Confidential Information. 4.6.1 Non-Disclosure. Each Member agrees that, except as otherwise consented to by the Members, all non-public information furnished to it pursuant to this Agreement or otherwise in connection with the Company's operation of its business, including without limitation, any and all information concerning the Company's suppliers and customers and the Company's business dealings with such Persons, will be kept confidential and will not be disclosed or utilized by such Member, or by any of its agents, representatives, employees or Affiliates (or any employee, agent or representative thereof), in any manner or for any purpose whatsoever, in whole or in part, except that (a) each Member shall be permitted to disclose such information to those of its agents, attorneys, accountants, financial and business consultants, other representatives, and employees who need to be familiar with such information in connection with such Member's investment in the Company and who are charged with an obligation of confidentiality, (b) each Member shall be permitted to disclose such information to financial institutions and bona fide prospective purchasers and capital investors when such Persons have agreed in writing to maintain confidentiality, (c) each Member shall be permitted to disclose such information to its members, partners and stockholders and their members, partners and stockholders so long as they agree not to utilize such information in their own business or that of any Affiliate in any way and to keep such information confidential (including from any Affiliate) on the terms set forth herein, (d) each Member shall be permitted to disclose information to the extent required by law, so long as such Member shall have first afforded the Company with a reasonable opportunity to contest the necessity of disclosing such information, (e) each Member shall be permitted to disclose information to the extent necessary for the enforcement of any right of such Member arising under this Agreement and (f) each Member shall be permitted to disclose that information expressly permitted by the Members to be disclosed. No Member, nor any officer, agent, representative or Affiliate of a Member, nor any officer, agent or representative of the Company shall disclose the terms of this Agreement to any Person except (i) to the extent required by law or (ii) for legitimate business purposes approved by the Members. 4.6.2 Precautionary Measures. Each Member shall take such precautionary measures as may be required to ensure (and such Member shall be responsible for) compliance with this Section 4.6 by any of its Affiliates, and its and their directors, officers, employees and agents and other Persons to which it may disclose confidential information in accordance with this Section 4.6. 4.6.3 Destruction or Return of Confidential Information. In the event a Member shall cease to be a Member, it shall promptly destroy (and provide a certificate of destruction to the Company with respect to), or return to the Company, all confidential information of the Company in its possession. Notwithstanding the immediately-preceding sentence, a Member that ceases to be a Member may retain for a stated period, but not disclose to any other Person, confidential information for the exclusive purposes of (A) explaining such Member's corporate decisions with respect to the Company or (B) preparing such Member's tax returns and defending audits, investigations and proceedings relating thereto; provided, however, that the Member must notify the Company in advance of such retention and specify in such notice the stated period of such retention. 4.6.4 Survival of Provisions Beyond Term. The obligations of each Member under this Section 4.6 shall survive both termination of such Member's membership in the Company and the dissolution and termination of the Company until the earlier of the second anniversary of such termination or the second anniversary of the end of the Term. 4.6.5 Remedies. The Members agree that no adequate remedy at law exists for a breach or threatened breach of any of the provisions of this Section 4.6, the continuation of which unremedied will cause the Company and the other Members to suffer irreparable harm. Accordingly, the Members agree that the Company and the other Members shall be entitled, in addition to other remedies that may be available to them, to immediate injunctive relief from any breach of any of the provisions of this Section 4.6 and to specific performance of their rights hereunder, as well as to any other remedies available at law or in equity. 4.7 Use of Member's Names and Trademarks. Except as specifically permitted by a license agreement, the Company, the Members and their Affiliates shall not use the name or trademark of any Member or its Affiliates in whole or in part as or in its name or in connection with public announcements regarding the Company or marketing or financing activities of the Company, without the prior consent of such Member or Affiliate, which shall not be unreasonably withheld. ARTICLE 5 MANAGEMENT 5.1 Management by the Members. The management of the Company is fully vested in the Members, acting exclusively in their membership capacities. Each Member shall designate by notice to the Company, one or more representatives of such Member (each, a "Representative") who shall be authorized to speak on behalf of and take actions on behalf of such Member. A Member's designation may be changed at any time by notice to the Company. The Members expressly intend that the Company will not have "managers," as that term is used in the Act or in Rev. Proc. 95- 10, 1995-3 I.R.B. 20, it being understood that the Representatives do not constitute "managers," but that each Representative acts solely as the agent of the Member that appointed it. Any controversy or dispute arising out of this Agreement is subject to the dispute resolution provisions of Section 16.5. 5.2 Meetings of Members; Consents. Deliberations and actions of the Members (including deliberations and actions by the Members) shall occur at meetings of the Members or by written consents executed by the Members in accordance with Section 5.10. Meetings of the Members, for any purpose or purposes, may be called by any Member or Members holding Interests representing at least fifty (50) percent of the aggregate Percentage Interests. 5.3 Place of Meetings. The Members may designate any place, either within or outside The Commonwealth of Massachusetts, as the place of meeting for any meeting of the Members. If no designation is made, the place of meeting shall be the principal place of business of the Company. 5.4 Notice of Meetings. Except as provided in Section 5.5, notice stating the place, day and hour of a meeting of Members shall be delivered in accordance with Section 16.4 not less than forty-eight (48) hours before the time of the meeting, by or at the direction of the Member or Members calling the meeting, to each other Member. The purpose or purposes of such meeting shall be specified in such notice. 5.5 Meeting of All Members. If the Members consent to the holding of a meeting of Members at any time and place and attend such meeting, such meeting shall be valid without call or notice, and at such meeting any lawful action may be taken. 5.6 Quorum. The Members, represented in person or by proxy, shall constitute a quorum at any meeting of Members. 5.7 Voting. (i) Voting by Percentage Interests; Voting Thresholds. Except as provided otherwise in this Agreement, voting shall be according to the Members' respective Percentage Interests; provided, however, that unless otherwise expressly provided in this Agreement, all decisions by the Members or by their Representatives shall require the affirmative vote of each of the Members. At such time as one or more additional, nonaffiliated Members are added, the voting requirements will be reviewed to provide less than unanimous votes for matters not affecting the limited liability, nature, or purpose of the Company. (ii) Disclaimer of Duties. With respect to any vote, consent or approval at any meeting of the Members or otherwise under this agreement, each Member may grant or withhold such vote, consent or approval (a) in its sole and absolute discretion, (b) with or without cause, (c) subject to such conditions as it shall deem appropriate, and (d) without taking into account the interests of, and without incurring liability to, the Company, any other Member, or any officer or employee of the Company. The provisions of this Section 5.7(ii) shall apply notwithstanding the negligence, gross negligence, willful misconduct, strict liability or other fault or responsibility of a Member. 5.8 Representatives and Proxies. At any meeting of Members, a Member shall be deemed in attendance if at least one of its Representatives is in attendance. At any meeting of Members, a Member may instead vote by proxy executed in writing by the Member or by a duly authorized attorney-in-fact. Such proxy shall be filed with the Company before or at the time of the meeting. No proxy shall be valid after eleven (11) months from the date of its execution, unless otherwise provided in the proxy. 5.9 Conference Telephone. Any Member may participate in a meeting of the Members by means of conference telephone or similar communications equipment which permits all persons participating in the meeting to hear each other, and participation in the meeting by means of such equipment shall constitute presence in person at such meeting. 5.10 Action by Members Without a Meeting. Action required or permitted to be taken at a meeting of Members may be taken without a meeting if the action is evidenced by one or more written consents describing the action taken, signed by the Members and delivered to the Company for inclusion in the minutes or for filing with the Company records. Action taken under this Section 5.10 is effective when the Members have signed the consent, unless the consent specifies a different effective date. 5.11 Waiver of Notice. When any notice is required to be given to any Member, a waiver thereof in writing signed by or on behalf of the Member entitled to such notice, whether before, at or after the time stated therein, shall be equivalent to the giving of such notice. 5.12 Duties and Authority of the Members. Each Member shall have the full power and authority to take any and all actions on behalf of or with respect to the Company that are permitted under Massachusetts law to be taken by members of a limited liability company; provided, however that each Member agrees not to take any action in the name of or on behalf of the Company unless such action, and the taking thereof by such Member, shall have been authorized by the Members or is expressly authorized by this Agreement. The Members may ratify previously unauthorized actions taken by a Member in the name of and on behalf of the Company, which ratification shall cure any breach by such Member of the prior sentence arising from such actions. Subject to the two immediately preceding sentences, the powers and authority granted to the Members hereunder shall include all those necessary or convenient for the furtherance of the purpose and powers of the Company and shall include the power and authority to make all decisions and take all actions with regard to the management, operations, assets, financing and capitalization of the Company, including without limitation, the power and authority to make decisions concerning, and take all actions in respect of, all those matters specified in Section 2.6. 5.13 Officers. The Members may designate one or more Persons to be officers of the Company. Any officers so designated shall have such titles and, subject to the other provisions of this Agreement, have such authority and perform such duties as the Members may delegate to them, including the power to execute documents, and shall serve at the pleasure of the Members. Unless the authority of the agent designated as the officer in question is limited or expanded in the document appointing such officer or is otherwise specified by the Members, any officer so appointed shall have the same authority to act for the Company as a corresponding officer of a Massachusetts corporation would have to act for a Massachusetts corporation in the absence of a specific delegation of authority; provided, however, that unless such power is specifically delegated to the officer in question either for a specific transaction or generally, no such officer shall have the power to act in a manner that is not consistent with the Business Plan and Annual Budget then in effect, to lease or acquire real property, to borrow an amount of money in excess of $20,000, to issue notes, debentures, securities, equity or other interests of or in the Company, to make investments in (other than the temporary investment of surplus cash), or to acquire securities of any Person, to give guarantees or indemnities, to merge, consolidate, liquidate or dissolve the Company or to sell or lease all or any substantial portion of the assets of the Company. The Members, in their discretion, may by written instrument signed by such Members ratify any act previously taken by an officer or agent acting on behalf of the Company. 5.14 Transactions with Affiliates. Except as otherwise provided under this Agreement, the Company will not engage in any transaction with an Affiliate of any Member without the prior written consent of the other Members. 5.15 Transactions with HydroServ Customers. UUDSI and/or NEP, as the case may be, shall be solely responsible for negotiating and closing such transactions in such manner and pursuant to procedures acceptable to the party involved in the transaction including without limitation selection of legal counsel for such purposes and shall be solely responsible for management of its own operating personnel, transaction pricing, credit and risk analysis, receivable collections, contract generation and negotiation, documentation filing and support, tax and finance accounting and management of all legal and financial accounting personnel and activities including tax advisory requirements and analysis. All proposals and letters of proposal shall include disclaimers clearly setting forth that such documents do not create or evidence any obligation or commitment by the Company and by NEP, NGT, and/or UUDSI if not involved in the transaction. 5.15.1 Bid Proposal Review Team. The success of the Company and ultimately UUDSI and NEP who depend on the successful efforts of HydroServ, will depend on well prepared bids and proposals, that ensure both likelihood of securing the work and the profitability of that work. Therefore, UUDSI and NEP agree to each designate a representative, to act in concert with the President of the Company, as a final review team for all bids and proposals being submitted to HydroServ Customers. 5.15.2 Transaction Review Team. All transactions, agreements, contracts, etc. involving the Company, except those covered by Section 5.15.1 and Schedule No. 1, will be reviewed by the review team established under Section 5.15.1 and approved by the designated representatives. 5.16 Income. The Company derives income from other nonmember, noncompeting companies, who service the same hydro industry clients, in the form of Marketing Fees. Schedule No. 1 outlines the fee structure. ARTICLE 6 BUSINESS PLAN, BUDGET 6.1 Business Plan. The initial business plan for the Company (the "Business Plan") as agreed upon by the Members, is attached as Schedule 2. At least 60 days prior to the beginning of the second and each subsequent Fiscal Year, the Members shall discuss and revise the Business Plan of the Company so that the Business Plan shall at all times reflect the strategic plan for the Company for the then current Fiscal Year and the subsequent four Fiscal Years. 6.2 Annual Budget. The budget for the first Fiscal Year of the Company, as agreed upon by the Members, is attached as Schedule 3. The Members shall, at least 45 days before the beginning of each subsequent Fiscal Year, determine a budget for the Company for the next Fiscal Year (the budget for the Company's first Fiscal Year and each subsequent budget, each an "Annual Budget"); provided that if an Annual Budget is not agreed upon for any Fiscal Year, the Annual Budget for the preceding Fiscal Year shall remain in effect. Each Annual Budget shall include a projected profit and loss statement, cash flow statement and balance sheet for the next Fiscal Year, and shall specify and quantify capital expenditures, if any. ARTICLE 7 DISTRIBUTIONS AND ALLOCATIONS 7.1 Distributions. 7.1.1 In General. Subject to Section 3.7.2, the Company shall make Distributions at the end of the calendar year in such amounts as the Members shall unanimously determine; provided, that all Distributions (other than Distributions in liquidation of the Company) shall be made ratably to Members in accordance with their Percentage Interests, and all Distributions in liquidation of the Company shall be made in proportion to the Members' Capital Account balances so as to reduce each Member's Capital Account balance to zero. 7.1.1.1 The Company will receive revenue from marketing fees paid by nonmember(s). This revenue will be used to cover operating expenses, as projected in the Business Plan, Schedule No. 2. 7.1.2 Statutory Bar on Distributions. Notwithstanding any provision to the contrary contained in this Agreement, the Company shall not make a Distribution to any Member on account of its interest in the Company if such Distribution would violate Section 18-607 of the Act or other applicable law. 7.1.3 Withholding. All amounts withheld pursuant to the Code or any provision of any federal, state, local or foreign tax law with respect to any payment, distribution, or allocation to the Company or the Members shall be treated as amounts distributed to the Members pursuant to Section 7.1 for all purposes under this Agreement. The Company shall withhold from Distributions to, and with respect to allocations to, the Members and to pay over to the appropriate federal, state, local or foreign government any amounts required to be so withheld, and shall allocate any such amounts to the Members in respect of whose Distribution or allocation the tax was withheld. 7.1.4 Property Distributions and Installment Sales. The Members may from time to time determine to distribute property other than cash to the Members. In such a case, such in-kind Distribution shall be made to the Members entitled thereto in the same proportions as the Members would have been entitled to cash distributions. The amount by which the fair market value of any property to be distributed in kind to the Members exceeds or is less than the Book Value of such property shall, to the extent not otherwise recognized by the Company, be taken into account in determining Net Profit and Net Loss and determining the Capital Accounts of the Members as if such property had been sold at its fair market value immediately prior to its distribution. If any assets are sold in transactions in which, by reason of the provisions of section 453 of the Code or any successor thereto, gain is realized but not recognized, such gain shall be taken into account when realized in computing gain or loss of the Company for purposes of allocation of Net Profit or Net Loss under this Article 7, and, if such sales shall involve substantially all the assets of the Company, the Company shall be deemed to have been dissolved and terminated notwithstanding any election by the Members to continue the Company for purposes of collecting the proceeds of such sales. 7.2 Allocations of Net Profits. Subject to Section 7.4, the Net Profit of the Company shall be allocated among the Members ratably in accordance with their Percentage Interests. 7.3 Allocation of Net Losses. Subject to Section 7.4, the Net Loss of the Company shall be allocated among the Members ratably in accordance with their Percentage Interests. 7.4 Other Allocation Provisions. Prior to making the allocations of Net Profit or Net Loss for the Fiscal Year in accordance with Sections 7.2 and 7.3, income, gain, loss, deduction and credit (and items thereof) shall be allocated in accordance with the provisions of this Section 7.4 to the extent required by the Code and applicable Regulations. Any amounts allocated pursuant to this Section 7.4 shall not again be allocated under Section 7.2 or 7.3. 7.4.1 Qualified Income Offset; Nonrecourse and Member Nonrecourse Deductions. There is hereby included in the Agreement such provisions governing the allocation of income, gain, loss, deduction and credit (and items thereof) as may be necessary to provide that the Company's allocation provisions contain a so-called "Qualified Income Offset" and comply with all provisions relating to the allocation of so-called "Nonrecourse Deductions" and "Members Nonrecourse Deductions" and the charge back thereof as set forth in the Regulations under Section 704(b) of the Code; provided, however, that the incorporation of such provisions shall affect only the allocation of income, gain, losses and deductions as between Members and shall not otherwise affect the amount or timing of any Distribution of cash or property to any Member provided for in this Agreement. Allocations of Nonrecourse Deductions shall be made ratably among the Members in accordance with their Percentage Interests. In allocating Net Profits pursuant to Section 7.4.2 hereof, the Members shall take into account (and, if necessary, modify the allocations to reflect) anticipated future allocations under the minimum gain chargeback rules of Regulation Section 1.704-2. 7.4.2 Special Adjustments. To the extent that an adjustment to the adjusted tax basis of any Company asset is required pursuant to Section 734(b) or Section 743(b) of the Code and is required, pursuant to Regulation Section 1.704- 1(b)(2)(iv)(m), to be taken into account in determining Capital Accounts, the amount of such adjustment to the Capital Accounts shall be treated as an item of gain (if the adjustment increases the basis of the asset) or loss (if the adjustment decreases such basis), and such gain or loss shall be specially allocated to the Members in a manner consistent with the manner in which their Capital Accounts are required to be adjusted pursuant to such Section of the Regulations. 7.4.3 Recourse Indebtedness. In the event that indebtedness of the Company is recourse to one or more, but not all, of the Members, the Members, with the advice of independent accountants, shall make such modifications to the allocation provisions of Sections 7.2 and 7.3 as it shall determine to be appropriate. 7.4.4 Limitation on Net Losses. Notwithstanding any other provision of this Agreement to the contrary, Net Loss shall not be allocated to any Member if such allocation would cause such Member to have an Adjusted Capital Account Deficit or increase such Member's Adjusted Capital Account Deficit. To the extent an allocation of Net Loss would cause or increase an Adjusted Capital Account Deficit as to any Member, the limitation set forth in this Section 7.4.4 shall be applied on a Member by Member basis in accordance with the Members' respective Percentage Interests so as to allocate the maximum permissible Net Loss to each Member without causing any Member to have an Adjusted Capital Account Deficit. 7.5 Changes in Members' Interests. If during any Fiscal Year of the Company there is a change in any Member's Interest in the Company, the Members shall confer with the tax advisors to the Company and, in conformity with such advice allocate the Net Profit or Net Loss to the Members so as to take into account the varying Interests of the Members in the Company in a manner that complies with the provisions of Section 706 of the Code and the Regulations thereunder. 7.6 Tax Allocations. 7.6.1 In General. Subject to Section 7.6.2, each item of income, gain, loss and deduction, as determined for federal income tax purposes, shall be allocated among the Members in the same manner as its correlative item of "book" income, gain, loss or deduction is allocated pursuant to Sections 7.2 through 7.5. 7.6.2 Section 704(c) Allocations. In the event there is a difference between the Book Value at which any property is accepted as a contribution to the capital of the Company (or deemed accepted pursuant to Regulation Section 1.704- 1(b)(2)(iv)(g)) and the adjusted tax basis of such property to the Company, the Company shall, solely for federal income tax purposes, specially allocate the income, gain, loss and deduction attributable to such property as and to the extent required by Section 704(c) of the Code and any applicable Regulations under Section 704(b) or Section 704(c) of the Code. 7.7 Tax Credits. All items of federal income tax credit shall be allocated among the Members in accordance with their Percentage Interests. 7.8 Adjustment of Capital Accounts. Unless the Members shall determine otherwise, the Book Values of all the Company's assets shall be adjusted to equal their respective gross fair market values, as determined by the Members (and the Capital Accounts of the Members shall be adjusted accordingly by treating any increase in Book Value as an item of Book Gain and any decrease in Book Value as an item of Book Loss), as of the following times: (a) the acquisition of an additional Interest in the Company by any new or existing Member in exchange for more than a de minimis additional Capital Contribution; (b) the distribution by the Company to a Member of more than a de minimis amount of assets of the Company as consideration for an Interest; and (c) the liquidation of the Company; provided, however, that adjustments pursuant to clauses (a) and (b) above shall be made only if the Members reasonably determine that such adjustments are necessary or appropriate to reflect the relative economic interests of the Members in the Company. 7.9 Interpretation. It is the intent of the Members that the Company be treated as a partnership for federal tax purposes and that the provisions hereof relating to each Member's distributive share of income, gain, loss, deduction, and credit (and items thereof) comply with the provisions of Sections 704(b), 704(c), 706 and other relevant provisions of the Code and the applicable Regulations. In furtherance of the foregoing, the Members hereby agree that they will seek to resolve any ambiguity in the provisions of this Agreement in a manner that will preserve and protect the tax allocations provided for in this Article 7 for federal income tax purposes and, subject to the last sentence hereof, to adopt such curative provisions to offset the effect of the allocations required by Section 7.4 as they may deem necessary. Notwithstanding the foregoing, no Member shall have the right to require or compel any distribution of cash or property not authorized or provided for by the provisions of this Agreement or to alter any distribution of cash or property provided for by the provisions of this Agreement on the ground that such action is necessary to cause the provisions hereof to conform to the provisions of the Regulations. 7.10 Loans to Company. Nothing in this Agreement shall prevent any Member from making secured or unsecured loans to the Company by agreement with the Company. ARTICLE 8 TAX MATTERS MEMBER 8.1 Tax Matters Member. Unless and until another Member is designated as the Tax Matters Member by the Members, NGT shall be the tax matters partner of the Company as provided in the Regulations under Code Section 6231 and analogous provisions of state law ("Tax Matters Member"). The Tax Matters Member shall represent the Company, at the Company's expense, in connection with all examinations of the Company's affairs by tax authorities including any resulting administrative or judicial proceedings. 8.2 Indemnity of Tax Matters Member. The Company shall indemnify and reimburse the Tax Matters Member for all reasonable expenses (including legal and accounting fees) incurred as Tax Matters Member pursuant to this Article 8 in connection with any administrative or judicial proceeding with respect to the tax liability of the Members as long as the Tax Matters Member has determined in good faith that its course of conduct was in, or not opposed to, the best interest of the Company. The payment of all such expenses shall be made before any Distributions are made to the Members. The taking of any action and the incurring of any expense by the Tax Matters Member in connection with any such proceeding, except to the extent provided herein or required by law, is a matter in the sole discretion of the Tax Matters Member and the provisions on limitations of liability of the Tax Matters Member and indemnification set forth in Article 13 shall be fully applicable to the Tax Matters Member in its capacity as such. 8.3 Information Furnished. To the extent and in the manner provided by applicable law and the Regulations, the Tax Matters Member shall furnish the name, address, profits interest, and taxpayer identification number of each Member to the Internal Revenue Service. 8.4 Notice of Proceedings, etc. The Tax Matters Member shall use its best efforts to keep each Member informed of any administrative and judicial proceedings for the adjustment at the Company level of any item required to be taken into account by a Member for income tax purposes or any extension of the period of limitations for making assessments of any tax against a Member with respect to any Company item, or of any agreement with the Internal Revenue Service that would result in any material change either in income or loss as previously reported. 8.5 Notices to Tax Matters Member. Any Member that receives a notice of an administrative proceeding under Code Section 6233 relating to the Company shall promptly notify the Tax Matters Member of the treatment of any Company item on such Member's federal income tax return that is or may be inconsistent with the treatment of that item on the Company's return. Any Member that enters into a settlement agreement with the Internal Revenue Service or any other government agency or official with respect to any Company item shall notify the Tax Matters Member of such agreement and its terms within sixty days after its date. ARTICLE 9 TRANSFER OF INTERESTS 9.1 Transfer of Interests. No Member shall sell, assign, exchange, convey, gift, pledge, mortgage, encumber, dispose of or otherwise transfer (herein, whether used as a noun or a verb, collectively called a 'Transfer') all or any part of its Interest except in strict accordance with this Article 9. Any attempted Transfer of all or any part of an Interest, other than in strict accordance with this Article 9, shall be, and is hereby declared, null and void ab initio. The Members agree that a breach of the provisions of this Article 9 may cause irreparable injury to the Company and to the other Members for which monetary damages (or other remedy at law) are inadequate in view of (i) the complexities and uncertainties in measuring the actual damages that would be sustained by reason of the failure of a Member to comply with such provision and (ii) the uniqueness of the Company business and the relationship among the Members. Accordingly, the Members agree that the provisions of this Article 9 may be enforced by specific performance. 9.2 Restrictions on Transfer. No Member shall at any time Transfer to another Person, other than in a Required Regulatory Transfer, less than all of its Interest. Prior to the second anniversary of the Effective Date, no Member shall Transfer its Interest in the Company, unless such Transfer is first approved by the other Member(s), which approval may be granted or withheld in the sole and absolute discretion of such other Member; provided, however, that (i) NGT may at any time prior to such date, Transfer, without consent of the other Member(s) all of its Interest to a non-affiliated, new owner of substantially all of the hydroelectric facilities currently owned by its Affiliate, New England Power Company; (ii) any Member may, at any time prior to such date, Transfer, without the consent of the other Member(s), all of its Interest to an Affiliate and (iii) any Member may, without the consent of the other Member(s), make a Required Regulatory Transfer of the Required Portion of its Interest at any time prior to such date, but only after it has complied with the terms of Section 9.3; and provided, further, however that any such Transfer is made in accordance with the Securities Act of 1933, as amended, to the extent applicable thereto. 9.3 Right of First Refusal. 9.3.1 Offer. (i) (A) If any Member received a bona fide offer (an "Offer") from any Person (other than an Affiliate) to purchase on or after the second anniversary of the Effective Date all of its Interest or (B) if a Member either is notified by a United States federal or Massachusetts governmental agency that it must make a Required Regulatory Transfer, or determines and demonstrates to the satisfaction of the other Member that it must make a Required Regulatory Transfer of all or any portion of its Interest prior to the third anniversary of the Effective Date, and the Transfer proposed to be effected by the Member is approved by the requisite governmental agency; and (ii) if such Member (for purposes of this Section 9.3, the "Selling Member") desires to Transfer all of its Interest pursuant to such Offer, or the Required Portion of such Interest in such Required Regulatory Transfer, it shall give written notice (the "Notice of Sale") to the other Members of (i) that portion of its Interest subject to such Offer, or proposed to be transferred in the Required Regulatory Transfer (which in the case of a Required Regulatory Transfer shall not be more than the Required Portion of its Interest and otherwise shall not be less than all of its Interest) (the "Offered Interest"), (ii) in the case of an Offer, the price offered (the "Offered Price"), (iii) the specific terms of the proposed transfer and (iv) the name of the proposed transferee, or in the case of a Proposed Regulatory Transfer in which there is to be more than one transferee, the proposed transferees). The receipt of the Notice of Sale by the other Member shall constitute an offer by the Selling Member to sell (i) in the case of an Offer, the Offered Interest and (iii) in the case of a Required Regulatory Transfer, either the Offered Interest or the entire Interest of the Selling Member (the "Entire Interest"), at the election of the other Member, to the other Member at the Right of First Refusal Price, which offer shall remain outstanding for a period of 30 days after receipt of the Notice of Sale by the other Member. In the case of an Offer, the term "Right of First Refusal Price" shall mean the Offered Price, provided, that, if all of a portion of the Offered Price is to be paid other than in cash, the term "Right of First Refusal Price" shall mean the sums of (i) the dollar amount of that portion of the Offered Price payable in cash and (ii) the Fair Value of that portion of the Offered Price payable in non-cash consideration, and provided, further, that if the Offer giving rise to the application of this Section 9.3.1 is an Offer not only for the Offered Interest, but also for additional property of the Selling Member (or one or more Affiliates of the Selling Member, in which case the additional property may include stock of an Affiliate of such Affiliate), the term "Right of First Refusal Price" shall mean the Fair Value of the Offered Interest. In the case of a Required Regulatory Transfer, the term "Right of First Refusal Price" shall mean the Fair Value of the Required Portion of the Interest or the entire Interest, as appropriate. 9.3.2 Acceptance. During the 30-day period following receipt of the Notice of Sale by the non-Selling Member, such other Member may accept such offer by giving written notice (a "Notice of Purchase") of its intention to purchase all of the Offered Interest or the Entire Interest, at such Member's election, at the Right of First Refusal Price and otherwise on the terms specified in the Notice of Sale. 9.3.3 Closing. If the non-Selling Member gives a Notice of Purchase for the Offered Interest or the Entire Interest, as the case may be, pursuant to this Section 9.3, the purchase of the Offered Interest or the Entire Interest, as the case may be, pursuant to this Section 9.3 shall be made within 30 days after the date of such Notice of Purchase at the Right of First Refusal Price otherwise on terms identical in all material respects to the terms specified in the Notice of Sale. 9.3.4 Transfer to Original Offeror. If the other Member does not give a Notice of Purchase for at least all of the Offered Interest, or if payment therefor is not made within 30 days after receipt of the Notice of Purchase by the Selling Member, the Selling Member shall have 75 days from the giving of the Notice of Sale (or such longer period of time as may be required for any regulatory approvals) in which to Transfer the Offered Interest to the purchaser specified in the Notice of Sale at a price not lower than the Offered Price, and on terms and conditions not more favorable to said purchaser than the terms specified in the Notice of Sale. 9.4 Requirements Applicable to All Transfers. 9.4.1 No Transfer of all or any part of a Member's Interest may be made pursuant to Section 9.2 or 9.3 unless such Transfer would not cause a termination of the Company for federal income tax purposes under Section 708 of the Code; and until each of the Members shall have received such of the following (to the extent applicable to the proposed Transfer) as it may have requested: (i) a copy of the instrument pursuant to which the Transfer is to be effected, which shall specify the name and business address of the transferor and the transferee, the portion of the transferor's Interest that is being transferred and the Percentage Interest represented thereby, and which shall contain (A) representations and warranties by the transferor and the transferee that the Transfer and admission of the transferee as a Member are being made in accordance with applicable laws and (B) representations and warranties by the transferee to the same effect as those contained in Article 14 hereof; (ii) the agreement in writing of the transferee to comply with all of the terms and provisions of this Agreement; (iii) an opinion of responsible counsel (who may be counsel for the Company), satisfactory in form and substance to the Members to the effect that: (A) such Transfer would not violate the Securities Act of 1933, as amended, or any state securities or blue sky laws applicable to the Company or the Interest to be transferred; (B) such Transfer would not cause the Company to be considered a publicly traded partnership under section 7704(b) of the Code; (C) such Transfer would not cause the Company to lose its status as a partnership for federal income tax purposes; (D) such Transfer would not cause a termination of the Company for federal income tax purposes; and 9.4.2 The transferring Member and its transferee shall pay, or reimburse the Company for, all reasonable costs and expenses incurred by the Company in connection with the Transfer and admission of the transferee as a Member, including any legal fees incurred in connection with the legal opinions referred to in Section 9.4.1, on or before the tenth business day after the receipt by such Persons of the Company's invoice for the amount due. If payment is not made by the date due, the Person owing that amount shall pay interest on the unpaid amount from the date due until paid at a rate per annum equal to the prime rate, as announced from time to time in the Wall Street Journal, plus two percentage points. 9.4.3 Each Member hereby severally agrees that it will not transfer all or any part of its Interest in the Company except as permitted by this Agreement. 9.4.4 The transferee of an Interest shall be admitted as a Member of the Company provided that the Transfer is effected in strict compliance with this Article 9. Each transferee shall succeed to the same portion of the balance of the Capital Account of the transferor, as of the effective date of the Transfer, as the transferred Interest bears to the entire Interest of the transferor immediately prior to such Transfer. 9.4.5 If a Member transfers its entire Interest, the Company shall not dissolve if the business of the Company is continued without dissolution in accordance with clause (c) of Section 12.2 hereof. 9.4.6 No Transfer of an Interest shall effect a release of the transferring Member from any liabilities to the Company or the other Members arising from events occurring prior to the Transfer. 9.5 Buy-Sell Right. 9.5.1 Each Member (the "Buy-Sell Offeror") shall have the right at any time (including at any time following the receipt of a Notice of Sale from the other Member but prior to the delivery of a Notice of Purchase , but not including after a dissolution of the Company pursuant to any event specified in Section 12.2 hereof, except that after a dissolution of the Company pursuant to an event specified in Section 12.2 (d) (other than a withdrawal) the remaining Member shall have such right) to withdraw from the Company (notwithstanding the pendency of any arbitration proceeding or request for arbitration, or of the enforcement of any claim against a Member for breach of or for default under the terms of this Agreement) by giving to the other Member (the Buy-Sell Offeree") a notice of intention to withdraw, which notice shall contain an offer (the "Buy-Sell Offer") stating the cash price (the "Buy-Sell Offer Price") at which the Buy-Sell Offeror is willing to purchase or sell an undivided 100% interest in the Company, including all of the business, properties, assets, name and goodwill owned by the Company (the "Company Property"). 9.5.2 Upon its receipt of the notice and Buy-Sell Offer given and delivered pursuant to Section 9.5.1, the Buy-Sell Offeree shall be obligated, in accordance with the procedures set forth in this Section 9.5, either to: (i) purchase the Buy-Sell Offeror's Interest for cash at a purchase price equal to the Buy-Sell Offer price specified in the Buy-Sell Offer, multiplied by the Buy-Sell Offeror's Percentage Interest at the time such offer to buy is accepted; or (ii) sell to the Buy-Sell Offeror the Buy-Sell Offeree's Interest for cash at a purchase price equal to such Buy-Sell Offer Price multiplied by the Buy-Sell Offeree's Percentage Interest at the time such offer to sell is accepted. 9.5.3 The Buy-Sell Offeree shall give written notice of its election to the Buy-Sell Offeror within 60 days after the Buy-Sell Offeree's receipt of the Buy-Sell Offer. Failure of the Buy-Sell Offeree to give the Buy-Sell Offeror notice within such 60-day period that the Buy-Sell Offeree has elected under Section 9.5.2(i) shall be conclusively deemed to be an election under Section 9.5.2(ii) above. 9.5.4 If the Buy-Sell Offeree elects to proceed under Section 9.5.2(i) above, the Buy-Sell Offeree shall purchase the Buy-Sell Offeror's Interest as provided in this Section 9.5. If the Buy-Sell Offeree elects to proceed under Section 9.5.2(ii) above, the Buy-Sell Offeror shall purchase the Buy-Sell Offeree's Interest as provided in this Section 9.5. 9.5.5 If, following an election by the Buy-Sell Offeree to purchase or sell under this Section 9.5, the party which is then obligated to purchase is not ready, willing or able to consummate the purchase in accordance with Sections 9.5.6 and 9.5.7 below, such party shall be deemed to be in breach of and default under the terms of this Agreement (hereinafter, the "Buy- Sell Defaulting Member"). The non-defaulting Member, in addition to all other rights and remedies available to it against the Buy- Sell Defaulting Member, shall have the right (but not the obligation) to purchase the Interest of the Buy-Sell Defaulting Member as if the Buy-Sell Defaulting Member had made an election under Section 9.5.2(ii) hereof. If the non-defaulting Member exercises such right to purchase the Interest of the Buy-Sell Defaulting Member, it shall give notice of such exercise not later than 30 days after the date on which the Closing would otherwise have occurred under Section 9.5.6(i) hereof, and the Closing of such purchase by the non-defaulting Member shall take place not later than 30 days after such notice of exercise. 9.5.6 (i) The closing ("Buy-Sell Closing") of any sale pursuant to this Section 9.5 shall be held at a mutually acceptable place, on a mutually acceptable date not more than 30 days after receipt by the Buy-Sell Offeror of the written notice of election, or the expiration of the time of the Buy-Sell Offeree to so elect, as provided in Section 9.5.3. (ii) At the Buy-Sell Closing, the selling party shall execute and deliver to the purchasing party all bills of sale and other instruments of transfer and conveyance, in form and substance satisfactory to the purchasing party, as may be necessary to convey, transfer, assign and deliver to the purchasing party ownership of all of the selling party's Interest. It is the intention of the parties that such transfer of the selling party's Interest shall result in vesting ownership of all of the Company Property in the purchasing party, free and clear of all liens and encumbrances other than those of the Company incurred in accordance with this Agreement. The selling party agrees, from time to time at the request of the purchasing party, at or after the date of Buy-Sell Closing to execute and deliver such instruments of conveyance, assignment, transfer and consent as may be required or advisable for the effective conveyance, assignment, transfer and consent as may be required or advisable for the effective conveyance and transfer of the business, properties, assets, name, goodwill, and rights included in the selling party's Interest in the Company or otherwise to vest ownership of all of the Company Property in the purchasing party. (iii) At the Buy-Sell Closing, the purchasing party shall pay to the selling party the purchase price determined as of the date of the Buy-Sell Closing pursuant to this Section 9.5 in cash or by a cashier's or certified check from a bank acceptable to the selling party. 9.5.7 At the Buy-Sell Closing, the purchasing party shall by a legally enforceable agreement, effective upon the effectiveness of the sale of the selling party's Interest pursuant to this Section 9.5: (i) assume and become obligated to pay or discharge any indebtedness, lien, mortgage or encumbrance on the Company Property incurred in accordance with this Agreement to the extent that the selling party has personal liability with respect thereto; (ii) assume and become obligated to pay, or perform or discharge the obligations and liabilities that the selling party may have incurred in accordance with this Agreement to third parties as a Member in the Company (other than liabilities for which the purchasing party may have a claim against the selling party due to the selling party's breach of, or default under, the terms of this Agreement); (iii) assume or become obligated to pay or perform or discharge the obligations and liabilities that the selling party or any Affiliate of the selling party may have incurred to third parties as a guarantor of obligations of the Company or to support financing arrangements of the Company in some other manner contemplated by this Agreement or agreed to by all Members, such as an agreement to maintain the working capital of the Company; (iv) release and discharge the selling party of all obligations and liabilities (except those on account of or arising our of any material breach of or default under the terms of this Agreement) to the purchasing party or the Company incurred hereunder or otherwise in connection with the operation of the business of the Company in accordance with this Agreement; and (v) save, defend and indemnify the selling party and its Affiliates against and hold them harmless from any and all liabilities specified in subsections (i) through (iv) of this Section 9.5.7. 9.6 Enforcement of Buy-Sell. If either Member shall default in the performance of its obligations under Section 9.5 of this Agreement, the other Member shall have the right to bring any proceedings or action at law, in equity (including for specific performance), or otherwise to enforce the performance of such obligations or any claim arising out of such default, notwithstanding any of the provisions of Section 16.5 hereof. It is understood and agreed by the parties hereto that the remedies available hereunder to enforce the performance of a Member's duties and obligations under Section 9.5 hereof shall include (but not be limited to) the right of specific performance, and the party seeking specific performance shall not be required to post any bond. 9.7 Termination of Marketing Relationship. Upon the sale of a Member's Interest pursuant to Section 9.5, the Company will terminate its marketing relationship with such selling Member. ARTICLE 10 BOOKS, RECORDS, ACCOUNTING, AND REPORTS 10. 1 Books and Records. The Company shall maintain at its principal office all of the following: 10.1.1 A current list of the full name and last known business address of each Member together with true and full information regarding the amount of cash and a description and statement of the agreed value of any other property or services contributed by each Member and which each Member has agreed to contribute in the future, and the date on which each Member became a member of the Company; 10.1.2 A copy of the Certificate, this Agreement, including any and all amendments to either thereof, together with executed copies of any powers of attorney pursuant to which the Certificate, this Agreement or any amendment has been executed; 10.1.3 Copies of the Company's federal, state, and local income tax or information returns and reports, if any, for the six most recent taxable years; 10.1.4 The audited financial statements of the Company for the six most recent Fiscal Years; and 10.1.5 The Company's books and records for at least the current and past five Fiscal Years. 10.2 Delivery to Members; Inspection. Upon the request of any Member for any purpose reasonably related to such Member's Interest as a Member of the Company: 10.2.1 The Company shall promptly deliver to the requesting Member, at the expense of the Company, a copy of the information required to be maintained by Sections 10.1.1 - through 10.1.4. 10.2.2 The Members may review, at the Company's office during normal business hours, the Company's federal, state and local income tax or information returns prior to the filing thereof and the Company's books and records referred to in Section 10.1.5. 10.2.3 The Company will provide any Member at such Member's expense such other information regarding the business affairs of the Company as the Member shall reasonably request. 10.3 Financial Statements. The Members shall maintain or cause to be maintained books of account reflecting the operations of the Company and shall cause to be prepared for the Members (i) monthly and quarterly financial statements which financial statements shall show variances from the Annual Budget, and (ii) audited annual financial statements of the Company prepared in accordance with generally accepted accounting principles. Until the Members determine otherwise, an Affiliate of NGT will provide services to the Company as required by this Article 10. 10.4 Filings. At the Company's expense the Members shall cause the income tax returns for the Company to be prepared and timely filed with the appropriate authorities and to have prepared and to furnish to each Member such information with respect to the Company as is necessary to enable the Members to prepare and timely file their federal and state income tax returns. The Members, at the Company's expense, shall also cause to be prepared and timely filed, with appropriate federal and state regulatory and administrative bodies, all reports required to be filed by the Company with those entities under then current applicable laws, rules, and regulations. The reports shall be prepared on the accounting or reporting basis required by the regulatory bodies. ARTICLE 11 AMENDMENTS TO AGREEMENT 11.1 Amendments. This Agreement may be amended or modified with the prior written consent of the Members. 11.2 Filings. The Members shall cause to be prepared and filed any amendment to the Certificate that may be required to be filed under the Act as a consequence of any amendment to this Agreement. 11.3 Binding Effect. Any modification or amendment to this Agreement pursuant to Section 11.1 shall be binding on all Members. ARTICLE 12 DISSOLUTION OF COMPANY 12.1 Termination of Membership. No Member shall resign or withdraw from the Company during the first 24 months following its initial capital contribution except as provided below and except that, subject to the restrictions set forth in Article 9, any Member may Transfer its Interest in the Company and the transferee may become a Member in place of the Member which transferred its Interest. If any Member ceases to be a Member for any reason, the business of the Company may be continued by the remaining Members (so long as there are two such remaining Members) as provided in clause (c) of Section 12.2. (a) After that 24 month time period, a Member may terminate its membership in the Company upon giving at least ninety (90) days prior written notice to the other Member(s) if the Company has not met the performance standards set forth in Schedule No. 4 and a mutually agreed upon remedial action plan has not corrected the performance problem within a reasonable time; (b) Without regard to that 24 month time period, a Member may terminate its membership in the Company upon written notice to the other Member(s) for the following reasons: (i) if the other Member(s) shall fail to perform or observe, within 30 days after written notice of such failure, any material respect any of the covenants, conditions or agreements to be performed or observed under this Agreement; or (ii) any representation or warranty made by another Member in any other agreement or in any other document or certificate furnished to the other party in connection herewith or therewith or pursuant hereto or thereto shall prove to have been incorrect in any material respect when made; or (iii) another Member sells or merges substantially all of its assets with a third party (excluding a transfer under Article 9) and/or voluntarily suspends substantially all of its operations or the franchises, concessions, permits, rights or privileges required for the conduct of the business and operations of it are revoked, canceled or otherwise terminated; or (iv) if the purchaser of the hydro facilities of NGT's affiliate, New England Power Company, elects not take NGT's interest in the Company, then within one year after such election; or (v) another Member shall (i) commence any case, proceeding or other action (A) under any existing or future applicable law of any jurisdiction, domestic or foreign, relating to bankruptcy, insolvency, reorganization or relief of debtors, seeking to have an order for relief entered with respect to it, or seeking to adjudicate it a bankrupt or insolvent, or seeking reorganization, arrangement, adjustment, winding-up, liquidation, dissolution, composition or other relief with respect to it or its debts, or (B) seeking appointment of a receiver, trustee, custodian or other similar official for it or for all or any substantial part of its assets, or shall make a general assignment for the benefit of its creditors; or (ii) there shall be commenced against it any case, proceeding or other action of a nature referred to in clause (i) above which (A) results in the entry of an order for relief or any such adjudication or appointment or (B) remains undismissed, undischarged or unbounded for a period of sixty (60) days; or (iii) there shall be commenced against it any case, proceeding or other action seeking issuance of a warrant of attachment, execution, distraint or similar process against all or any substantial part of its assets which results in the entry of an order for any such relief which shall not have been vacated, discharged, or stayed or bonded pending appeal within 60 days from the entry thereof; or (iv) it shall take any action in furtherance of, or indicating its consent to, approval of, or acquiescence in, any of the acts set forth in clause (i), (ii), or (iii) above; or (v) it shall generally not, or shall be unable to, or shall admit in writing its inability to, pay its debts as they become due. (c) Without regard to that 24-month time period, in the event a member terminates its membership, the terminating Member's capital account shall be returned as though there had been a liquidation as provided in Section 12.4. The terminating Member shall pay a residual fee of 2.5% of gross project revenue from a HydroServ customer for a period of two years, such fee to be paid to the Company or if the Company has been liquidated, to the other Members. 12.2 Events of Dissolution or Liquidation. The Company shall be dissolved upon the happening of any of the following events: (a) December 31, 2006 unless such date is extended pursuant to Section 2.4, (b) the unanimous written determination of the Members, (c) the resignation, withdrawal, expulsion, bankruptcy or dissolution of any Member, unless there are at least two remaining Members and the business of the Company is continued by the consent of a Majority in Interest of the Members remaining within 90 days following the occurrence of any such event, or (d) the entry of a decree of judicial dissolution under Section 18- 802 of the Act. 12.3 Liquidation. If the Company is dissolved and not continued, the Company shall immediately commence to wind up its affairs. A reasonable period of time shall be allowed for the orderly termination of the Company's business, discharge of its liabilities, and distribution or liquidation of the remaining assets so as to enable the Company to minimize the normal losses attendant to the liquidation process. The Company's property and assets or the proceeds from the liquidation thereof shall, subject to the requirements of the Act, be distributed in accordance with Section 12.4. A full accounting of the assets and liabilities of the Company shall be taken and a statement thereof shall be furnished to each Member within 30 days after the distribution of all of the assets of the Company. Such accounting and statements shall be prepared under the direction of the Members. Upon such final accounting, the Company shall terminate and an authorized person, appointed pursuant to Section 2.7, shall cancel the Certificate in accordance with the Act. 12.4 Distributions to Members. Distributions to Members upon liquidation shall be madein accordance with the Members' Capital Account balances. Notwithstanding Section 12.3 or the first sentence of this Section 12.4, the Company shall not make any Distribution pursuant to this Section 12.4 unless the Members shall have determined that the Company has sufficient assets to pay all accrued and contingent liabilities of which the Members are aware after making reasonable inquiry. 12.5 No Action for Dissolution. The Members acknowledge that irreparable damage would be done to the goodwill and reputation of the Company if any Member should bring an action in court to dissolve the Company under circumstances where dissolution is not required by Section 12.2. This Agreement has been drawn carefully to provide fair treatment of all parties and equitable payment in liquidation of the Interests of all Members. Accordingly, except where the Members have failed to liquidate the Company as required by Section 12.2 and except as specifically provided in Section 18-802(a) of the Act, each Member hereby waives and renounces its right to initiate legal action to seek dissolution or to seek the appointment of a receiver or trustee to liquidate the Company. 12.6 No Further Claim. Upon dissolution, each Member shall look solely to the assets of the Company for the return of its Capital Contributions, and if the Company's property remaining after payment or discharge of the debts and liabilities of the Company, including debts and liabilities owed to one or more of the Members, is insufficient to return the aggregate Capital Contributions of each Member, a Member shall have no recourse against the Company or any other Member except to the extent that the other Member has received Distributions in excess of those to which such Member was entitled to under the terms of this Agreement. ARTICLE 13 INDEMNIFICATION 13.1 General. To the maximum extent permitted by law, the Company shall indemnify, defend, and hold harmless each Member, including the Tax Matters Member, and each Member's officers, trustees, directors, partners, members, shareholders, employees, and agents [(and each such Person's officers, trustees, directors, partners, members, shareholders, employees and agents)], and the employees, officers, and agents of the Company (all indemnified persons being referred to as "Indemnified Persons"), from any liability, loss, or damage incurred by the Indemnified Person by reason of any act performed or omitted to be performed by the Indemnified Person in connection with the business of the Company and from liabilities or obligations of the Company imposed on such Person by virtue of such Person's position with the Company, including attorneys' fees and costs and any amounts expended in the settlement of any such claims of liability, loss, or damage; provided, however, that, if the liability, loss, damage, or claim arises out of any action or inaction of an Indemnified Person, indemnification under this Section 13.1 shall be available only if (a) either (i) the Indemnified Person, at the time of such action or inaction, determined, in good faith, that its or his course of conduct was in, or not opposed to, the best interests of the Company, or (ii) in the case of inaction by the Indemnified Person, the Indemnified Person did not intend its or his inaction to be harmful or opposed to the best interests of the Company, and (b) the action or inaction did not constitute fraud by the Indemnified Person, and provided, further, that indemnification under this Section 13.1 shall be recoverable only from the assets of the Company and not from any assets of the Members. The Company may pay or reimburse attorneys' fees of an Indemnified Person as incurred, if such Indemnified Person executes an undertaking to repay the amount so paid or reimbursed if there is a final determination by a court of competent jurisdiction that such Indemnified Person is not entitled to indemnification under this Article 13. The Company may pay for insurance covering liability of the Indemnified Persons for negligence in operation of the Company's affairs. 13.2 Persons Entitled to Indemnity. Any Person who is within the definition of "Indemnified Person" at the time of any action or inaction in connection with the business of the Company shall be entitled to the benefits of this Article 13 as an "Indemnified Person" with respect thereto, regardless whether such Person continues to be within the definition of "Indemnified Person" at the time of such Person's claim for indemnification or exculpation hereunder. 13.3 Procedure Agreements. The Company may enter into an agreement with any of its officers, employees and agents setting forth procedures consistent with applicable law for implementing the indemnities provided in this Article 13. 13.4 Extent of Duties. No Indemnified Person shall be liable, in damages or otherwise, to the Company or to any Member for any loss that arises out of any act performed or omitted to be performed by it or him pursuant to the authority granted by this Agreement if (a) either (i) the Indemnified Person, at the time of such action or inaction, determined, in good faith, that such Person's course of conduct was in, or not opposed to, the best interests of the Company, or (ii) in the case of inaction by the Indemnified Person, the Indemnified Person did not intend such Person's inaction to be harmful or opposed to the best interests of the Company, and (b) the conduct of the Indemnified Person did not constitute fraud [or a Violation of the Business Judgment Rule] by such Indemnified Person. 13.5 Fiduciary and Other Duties. 13.5.1 To the extent that, at law or in equity, an Indemnified Person has duties (including fiduciary duties) and liabilities relating thereto to the Company or to any other Indemnified Person, an Indemnified Person acting under this Agreement shall not be liable to the Company or to any other Indemnified Person for its good faith reliance on the provisions of this Agreement. The provisions of this Agreement, to the extent that they restrict the duties (including fiduciary duties) of an Indemnified Person otherwise existing at law or in equity, are agreed by the parties hereto to replace such other duties of such Indemnified Person. The provisions of this Section 13.5.1 shall not be construed to relieve any Indemnified Person from liability for such Person's fraud or a Violation of the Business Judgment Rule. 13.5.2 Whenever in this Agreement an Indemnified Person is permitted or required to make a decision (a) in its "discretion" (without qualification as to how the discretion is to be exercised) or under a grant of similar authority or latitude, the Indemnified Person shall act reasonably and in good faith based on facts known to the Person at the time, (b) in its "sole discretion" or under a grant of similar authority or latitude, the Indemnified Person shall be entitled to consider only such interests and factors as it desires, including its own interests, and shall have no duty or obligation to give any consideration to any interest of or factors affecting the Company or any other Person, and (c) under an express standard, the Indemnified Person shall act under such express standard and shall not be subject to any other general standard imposed by this Agreement or applicable law. ARTICLE 14 REPRESENTATIONS AND COVENANTS BY THE MEMBERS Each Member hereby represents, warrants and covenants to the Company and each other Member that the following statements are true and correct as of the Effective Date and shall be true and correct at all times thereafter that such Member is a Member: 14.1 Organization, Corporate Authority. It is duly incorporated, organized or formed (as applicable), validly existing, and (if applicable) in good standing under the laws of the jurisdiction of its incorporation, organization or formation; if required by applicable law, it is duly qualified and in good standing in the jurisdiction of its principal place of business, if different from its jurisdiction of incorporation, organization or formation; and it has full power and authority to execute and deliver this Agreement and to perform its obligations hereunder and has obtained any regulatory approvals that may be required, and if such approvals are subject to any conditions, has disclosed such conditions to the other Members; and all necessary actions by the board of directors, shareholders, managers, members, partners, trustees, beneficiaries, or other applicable Persons necessary for the due authorization, execution, delivery, performance of this Agreement by it have been duly taken. 14.2 Legal, Valid and Binding Obligation. It has duly executed and delivered this Agreement and the other documents contemplated herein, and they constitute the legal, valid and binding obligation of such Member enforceable against it in accordance with their terms (except as may be limited by bankruptcy, insolvency or similar laws of general application and by the effect of general principles of equity, regardless of whether considered at law or in equity), its authorization, execution, delivery, and performance of this Agreement does not and will not (i) conflict with, or result in a breach, default or violation of (A) the organizational documents of such Member, (B) any contract or agreement to which such Member is a party or is otherwise subject, or (C) any law, order, judgment, decree, writ, injunction or arbitral award to which that Member is subject; or (ii) require any consent, approval or authorization from, filing or registration with, or notice to, any governmental authority or other Person, unless such requirement has already been satisfied. 14.3 Investment Intent. It is acquiring its Interest with the intent of holding the same for investment for its own account and without the intent or a view of participating directly or indirectly in any distribution of such Interests within the meaning of the Securities Act or any applicable state securities laws. 14.4 Securities Regulation. It acknowledges and agrees that its Interest is being issued and sold in reliance on the exemption from registration contained in Section 4(2) of the Securities Act and exemptions contained in applicable state securities laws, and that its Interest cannot and will not be sold or transferred except in a transaction that is exempt under the Securities Act and those state acts or pursuant to an effective registration statement under the Securities Act and those state acts or in a transaction that is otherwise in compliance with the Securities Act and those state acts. It understands that it has no contractual right for the registration under the Securities Act of its Interest for public sale and that, unless its Interest is registered or an exemption from registration is available, its Interests may be required to be held indefinitely. 14.5 Information. It has received all documents, books, and records pertaining to an investment in the Company requested by it. It has had a reasonable opportunity to ask questions of and receive answers from the other Members concerning the Company, and all such questions have been answered to its satisfaction. 14.6 Tax Position. Unless it provides prior written notice to the Company, it will not take a position on its federal income tax return, in any claim for refund, or in any administrative or legal proceedings that is inconsistent with any information return filed by the Company or with the provisions of this Agreement. ARTICLE 15 COMPANY REPRESENTATIONS In order to induce the Members to enter into this Agreement and to make the Capital Contributions contemplated hereby, the Company hereby represents and warrants to each Member as follows: 15.1 Legal Existence. The Company is a duly formed and validly existing limited liability company under the Act and the Certificate has been duly filed as required by the Act. The Company has all necessary power and authority under the Act to issue the Interests to be issued to the Members hereunder. 15.2 Valid Issuance. When the Interest is issued to the Member as contemplated by this Agreement and the Capital Contributions required to be made by such Member are made, the Interest issued to the Member will be duly and validly issued and except as specifically provided in the Agreement, no liability for any additional capital contributions or for any obligations of the Company will attach thereto. 15.3 Options, etc. Except as set forth in this Agreement, the Company does not have outstanding any rights or options to subscribe for or purchase any warrants or other agreements providing for or requiring the issuance of Interests in the Company to any Person or any obligation to purchase or otherwise acquire any Interests in the Company. ARTICLE 16 MISCELLANEOUS 16.1 Additional Documents. At any time and from time to time after the date of this Agreement, upon the request of the Members, each Member shall do and perform, or cause to be done and performed, all such additional acts and deeds, and shall execute, acknowledge, and deliver, or cause to be executed, acknowledged, and delivered, all such additional instruments and documents, as may be required to effectuate the purposes and intent of this Agreement. 16.2 Execution of Papers. The Members agree to execute such instruments, documents and papers as the Members deem necessary or appropriate to carry out the intent of this Agreement. 16.3 General. This Agreement: (a) shall be binding upon the executors, administrators, estates, heirs, and legal successors of the Members; (b) shall be governed by and construed in accordance with the laws of The Commonwealth of Massachusetts; (c) may be executed in more than one counterpart as of the day and year first above written; and (d) contains the entire contract among the Members as to the subject matter hereof. The waiver of any of the provisions, terms, or conditions contained in this Agreement shall not be considered as a waiver of any of the other provisions, terms, or conditions hereof. 16.4 Notices, Etc. All notices and other communications required or permitted hereunder shall be in writing and shall be deemed effectively given upon personal delivery or receipt (which may be evidenced by a return receipt if sent by registered mail or by signature if delivered by courier or delivery service), addressed as set forth below, or at such other address as such Person shall have furnished to the Company in writing as the address to which notices are to be sent hereunder and if to any Member at the address of such Member in the records of the Company. 16.5 Disputed Matters. Any controversy or dispute arising out of this Agreement, the interpretation of any of the provisions hereof, or the action or inaction of any Member hereunder shall first be discussed in good faith among the Members. If such good faith discussions do not lead to a resolution of the controversy or dispute then the Members shall meet with a mutually acceptable mediator to further attempt to resolve such controversy or dispute. If the Members are still unable to resolve such controversy or dispute after consulting with a mediator, the matter shall be submitted to arbitration in Boston, Massachusetts before the American Arbitration Association under the commercial arbitration rules then obtaining of said Association. Any award or decision obtained from any such arbitration proceeding shall be final and binding on the parties, and judgment upon any award thus obtained may be entered in any court having jurisdiction thereof. To the fullest extent permitted by law, no action at law or in equity based upon any claim arising out of or related to this Agreement shall be instituted in any court by any Member except (a) an action to compel arbitration pursuant to this Section 16.5 or (b) an action to enforce an award obtained in an arbitration proceeding in accordance with this Section 16.5. The responsibility for paying the costs and expenses of the arbitration, including compensation to the arbitrator and any experts retained by the arbitrator, shall be allocated among the Members who are parties to the arbitration in a manner determined by the arbitrator to be fair and reasonable under the circumstances. Each such Member shall be responsible for the fees and expenses of its respective counsel, consultants and witnesses, unless the arbitrator determines that compelling reasons exist for allocating all or a portion of such costs and expenses to one or more of the other Members who are parties to the arbitration. 16.6 Gender and Number. Whenever required by the context, as used in this Agreement, the singular number shall include the plural, the plural shall include the singular, and all words herein in any gender shall be deemed to include the masculine, feminine and neuter genders. 16.7 Severability. If any provision of this Agreement is determined by a court to be invalid or unenforceable, that determination shall not affect the other provisions hereof, each of which shall be construed and enforced as if the invalid or unenforceable portion were not contained herein. That invalidity or unenforceability shall not affect any valid and enforceable application thereof, and each said provision shall be deemed to be effective, operative, made, entered into or taken in the manner and to the full extent permitted by law. 16.8 Headings. The headings used in this Agreement are used for administrative convenience only and do not constitute substantive matter to be considered in construing the terms of this Agreement. 16.9 No Third Party Rights. The provisions of this Agreement are for the benefit of the Company and the Members and no other Person, including creditors of the Company shall have any right or claim against the Company or any Member by reason of this Agreement or any provision hereof or be entitled, to enforce any provision of this Agreement. 16.10 Rights to Trademark HydroServ Group. In consideration hereof, UUDSI shall transfer all of its rights in and to the trademark "HydroServ Group," registered by UUDSI in order to market and sell Hydro Services on behalf of both parties prior to the completion of this Agreement, to the Company. IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first set forth above. UNDERWATER UNLIMITED DIVING SERVICES, INC. s/ David Rowe By: Name: David Rowe Title: President NEES GLOBAL TRANSMISSION, INC. s/ John G. Cochrane By: Name: John G. Cochrane Title: Treasurer EXHIBIT I DEFINED TERMS "Act" shall mean the Massachusetts Limited Liability Company Act (MGL c. 156C), as amended and in effect from time to time. "Adjusted Capital Account Deficit" means, with respect to any Member, the deficit balance, if any, in such Member's Capital Account as of the end of the relevant Fiscal Year, after giving effect to the following adjustments: (a) credit to such Capital Account any amounts which such Member is obligated to restore pursuant to any provision of this Agreement or is deemed to be obligated to restore pursuant to the next to the last sentences of the Regulations Sections 1.704-2(g)(1) and 1.704-2(i)(5) after taking into account any changes during such year in Company minimum gain and Member minimum gain (as determined under such Regulations); and (b) debit to such Capital Account the items described in Section 1.704-1 (b)(2)(ii)(d)(4), (5) and (6) of the Regulations. "Affiliate" shall mean, with respect to any specified Person, any Person that directly or through one or more intermediaries controls or is controlled by or is under common control with the specified Person. As used in this definition, the term "control" means the possession, directly or indirectly, of the power or authority to direct or cause the direction of the management and policies of a Person, whether through ownership of voting securities, by contract or otherwise. "Alternative Representative" is defined in Section 5.2.1. "Annual Budget" is defined in Section 6.2. "Agreement" shall mean the Limited Liability Company Agreement of the Company dated as of July , 1997, as amended from time to time. "Book Gain" or "Book Loss" shall mean the gain or loss recognized by the Company for Code Section 704(b) book purposes in any Fiscal Year or other period by reason of the sale, exchange or other disposition of any asset of the Company. Such Book Gain or Book Loss shall be computed by reference to the Book Value of such asset as of the date of such sale, exchange or other disposition, rather than by reference to the tax basis of such asset as of such date, and each and every reference herein to "gain" or "loss" shall be deemed to refer to Book Gain or Book Loss, rather than to tax gain or tax loss, unless otherwise expressly provided herein. "Book Value" of an asset shall mean, as of any particular date, the value at which the asset is properly reflected on the books and records of the Company as of such date. The initial Book Value of each asset shall be its cost, unless such asset was contributed to the Company by a Member, in which case the initial Book Value shall be the fair market value, as agreed to by the Members, and such Book Value shall thereafter be adjusted for Depreciation with respect to such asset rather than for the cost recovery deductions to which the Company is entitled for income tax purposes with respect thereto and shall be adjusted as appropriate pursuant to Section 7.9. "Business Day" shall mean a day when national banks are open for business in Boston, Massachusetts. "Business Plan" is defined in Section 6.1. "Capital Account" is defined in Section 3.2. "Capital Contribution" shall mean with respect to any Member, the amount of cash and the Book Value of any other property contributed to the Company with respect to the Interest held by such Member (net of liabilities secured by such contributed property or that the Company is considered to assume or take the property subject to pursuant to Code section 752). "Certificate" shall mean the Certificate of Formation of the Company filed July ___, 1997 and any and all amendments thereto and restatements thereof filed on behalf of the Company as permitted hereunder with the office of the Secretary of State of The Commonwealth of Massachusetts. "Code" shall mean the Internal Revenue Code of 1986, as amended from time to time, and the corresponding provisions of any future federal tax law. "Company" shall mean the limited liability company formed under and pursuant to the Act and this Agreement. "Defaulted Capital Contribution" is defined in Section 3.7. "Defaulting Member" is defined in Section 3.7.1. "Depreciation" shall mean for each Fiscal Year or other period, an amount equal to the depreciation, amortization or other cost recovery deduction allowable with respect to an asset for such year or other period, except if the Book Value of an asset differs from its adjusted basis for federal income tax purposes at the beginning of any such year or other period, Depreciation shall be an amount that bears the same relationship to the Book Value of such asset as the depreciation, amortization, or other cost recovery deduction computed for tax purposes with respect to such asset for the applicable period bears to the adjusted tax basis of such asset at the beginning of such period, or if such asset has a zero adjusted tax basis, Depreciation shall be an amount determined under any reasonable method selected by the Members, with the advice of its independent accountants. "Distribution" shall mean the amount of cash and the Book Value of any other property distributed to a Member in respect of the Member's Interest in the Company (net of liabilities secured by such distributed property or that the Member is considered to assume or take the property subject to pursuant to Code section 752). "Effective Date" shall mean July 25, 1997. "Exclusive Agent" is defined in Section 2.5.1. "Fiscal Year" shall mean the fiscal year of the Company which shall end on December 31 in each year or on such other date in each year as the Members shall otherwise elect. "HydroServ Customer" is defined in Section 2.5.2. "Indemnified Persons" is defined in Section 13.1. "Interest" shall mean the entire interest of a Member in the capital and profits of the Company, including the right of such Member to any and all benefits to which a Member may be entitled as provided in this Agreement, together with the obligations of such Member to comply with all the terms and provisions of this Agreement. "Majority in Interest" shall mean, as applied to all the Members, or a specified group of Members, Members who in the aggregate hold more than a 50 % interest in each of the profits and capital of the Company owned by all Members or by the specified group of Members, as the case may be. "Marketing Fee" is defined in Section 5.16 and Schedule No. 1. "Member Default Loan" shall mean any loan made to a Defaulting Member as contemplated by Section 3.7.1. "Member Nonrecourse Deductions" shall mean "partner non- recourse deductions" as defined in Regulations Section 1.704- 2(i)(1). "Members" shall mean the Persons listed as members on the signature page to the Agreement and any other Person that both acquires an Interest in the Company and is admitted to the Company as a Member pursuant to the Agreement. "Net Profit" and "Net Loss" shall mean, for each Fiscal Year or other period, an amount equal to the Company's taxable income or loss, respectively, for such year or period, determined in accordance with Section 703(a) of the Code (taking into account all items of income, gain, loss, or deduction required to be stated separately pursuant to Section 703(a)(1) of the Code), with the following adjustments: (a) any income of the Company that is exempt from federal income tax and not otherwise taken into account in computing Net Profit or Net Loss pursuant to this provision shall be added to such taxable income or reduce such taxable loss; (b) any expenditures of the Company described in Section 705(a)(2)(B) of the Code (relating to expenditures which are neither deductible nor properly chargeable to capital) or treated as Code Section 705(a)(2)(B) expenditures pursuant to Section 1.704-1(b)(2)(iv)(i) of the Regulations, and not otherwise taken into account in computing Net Profit or Net Loss pursuant to this provision, shall be subtracted from such taxable income or increase such taxable loss; (c) Book Gain or Book Loss from the sale or other disposition of any asset of the Company shall be taken into account in lieu of any federal income tax gain or loss recognized by the Company by reason of such sale or other disposition; and (d) in lieu of the depreciation, amortization and other cost recovery deductions taken into account in computing such taxable income or loss, there shall be taken into account Depreciation for such fiscal year or other period, computed as provided in this Agreement. "Nonrecourse Deduction" shall have the meaning set forth in Regulations Section 1.704-2(b)(1). "Notice of Purchase" is defined in Section 9.3.1. "Notice of Sale" is defined in Section 9.3.1. "Offered Interest" is defined in Section 9.3.1. "Percentage Interest" is defined in Section 3.3. "Permitted Percentage" is defined in Section 9.3.1. "Person" shall mean an individual, partnership, joint venture, association, corporation, trust, estate, limited liability company, limited liability partnership, or any other legal entity. "Profits Interest" is defined in Section 3.6. "PUHCA" shall mean the Public Utility Holding Company Act of 1935. "Qualified Income Offset" shall have the meaning set forth in Regulations Section 1.704-1 (b)(2)(ii)(d). "Regulations" shall mean the Treasury regulations, including temporary regulations, promulgated under the Code, as such regulations may be amended from time to time (including the corresponding provisions of any future regulations). "Representative" is defined in Section 5.1. "Required Portion" shall mean in respect of any Interest all or a portion of which is required to be transferred in a Required Regulatory Transfer, the smallest portion of such Interest that must be transferred in order to satisfy the requirements of such Required Regulatory Transfer. "Required Regulatory Transfer" shall mean any Transfer by a Member of all or a portion of its Interest which is required to be effected by any regulation, rule, administrative order or other administrative pronouncement of binding legal effect of any state public utility commission (or other similar agency). "Members" shall mean NGT and UUDSI and, if such Members together do not constitute a Majority in Interest of the Members, such other Members as shall be necessary to cause the Members to constitute a Majority in Interest of the Members. "Securities Act" shall mean the Securities Act of 1933, as amended. "Selling Member" is defined in Section 9.3. "Tax Matters Member" is defined in Section 8.1. "Term" is defined in Section 2.4. "Transaction" is defined in Section 5.15. "Transfer" is defined in Section 9.1.1. "Violation of the Business Judgment Rule" means conduct which is materially inconsistent with the obligation to be reasonably informed and to act in good faith or which is reckless, grossly negligent, willful misconduct or constitutes a knowing violation of law. EX-99 6 EXHIBIT E.1 Exhibit E.1. 1997 Report on NEES Money Pool ($000's)
Avg. Max. Min. Investment Company Invest. Invest. Invest. at 12/31/97 - ------- ------- ------- ------- ----------- NEES (Trust) $10,166 $2,565 $ 325 $ 925 Massachusetts Electric Co. 30 3,475 -0- -0- New England Power Co. -0- -0- -0- -0- The Narragansett Electric Co. 451 7,750 -0- -0- Granite State Electric Co. -0- -0- -0- -0- Nantucket Electric Co. 455 7,775 -0- -0- New England Power Service Co. 6,779 16,500 -0- 9,500 New England Electric Transmission -0- -0- -0- -0- Corporation New England Energy Incorporated 3,957 11,950 175 2,750 New England Hydro-Transmission 4,697 8,400 1,625 2,750 Electric Company (NEHTEC) New England Hydro-Transmission 1,573 4,700 300 1,375 Corporation (NEHTC) Narragansett Energy Resources 837 1,700 375 1,550 Company (NERC)
EX-99 7 EXHIBIT E.2 Exhibit E.2. Modified FORM U-13-60 ANNUAL REPORT For the Period Beginning January 1, 1997 and Ending December 31, 1997 To The U.S. SECURITIES AND EXCHANGE COMMISSION Of NEES Global Transmission, Inc. A Subsidiary Service Company Date of Incorporation: January 13, 1992 State or Sovereign Power under which Incorporated or Organized: The Commonwealth of Massachusetts Location of Principal Executive Offices of Reporting Company: 25 Research Drive Westborough, MA 01582 Report filed pursuant to Order dated September 4, 1992 in file number 70-7950 Name, title, and address of officer to whom correspondence concerning this report should be addressed: J.G. Cochrane, Treasurer 25 Research Drive Westborough, MA 01582 Name of Principal Holding Company Under Which Reporting Company is Organized: New England Electric System SEC 1926 (6-82) PAGE 2 INSTRUCTIONS FOR USE OF MODIFIED FORM U-13-60 1. Time of Filing Annual Report essentially in the form of U-13-60 shall be filed appended to Form U5S, Annual Report of the Parent and Associate Companies Pursuant to the Public Utility Holding Company Act of 1935. Form U5S is required to be filed by May 1. 2. Number of Copies Each annual report shall be filed in duplicate. The company should prepare and retain at least one extra copy for itself in case correspondence with reference to the report becomes necessary. 3. Definitions - Definitions contained in Instruction 01-8 to the Uniform System of Accounts for Mutual Service Companies and Subsidiary Service Companies, Public Utility Holding Company Act of 1935, as amended February 2, 1979 shall be applicable to words or terms used specifically within this Form U-13-60. 4. Organization Chart - The company shall submit with each annual report a copy of its current organization chart. PAGE 3 ANNUAL REPORT OF NEES GLOBAL TRANSMISSION, INC. LISTING OF SCHEDULES AND ANALYSIS OF ACCOUNTS
Schedule or Page Description of Schedules and Accounts Account No. Number COMPARATIVE BALANCE SHEET Schedule I 4-5 Company property Schedule II 6-7 Accumulated provision for depreciation and amortization of company property Schedule III 8 Investments Schedule IV 9 Accounts receivable Schedule V 10 Miscellaneous deferred debits Schedule IX 11 Proprietary capital Schedule XI 12 Long-term debt Schedule XII 13 Current and accrued liabilities Schedule XIII 14 Notes to financial statements Schedule XIV 15 COMPARATIVE INCOME STATEMENT Schedule XV 16 Analysis of billing - nonassociate companies Account 458 17-18 Departmental analysis of salaries Account 920 19 Outside services employed Account 923 20-21 Miscellaneous general expenses Account 930.2 22 Taxes other than income taxes Account 408 23 Donations Account 426.1 24 Other deductions Account 426.5 25 Notes to statement of income Schedule XVIII 26 ORGANIZATION CHART 27
PAGE 4 ANNUAL REPORT OF NEES GLOBAL TRANSMISSION, INC. For the Year Ended December 31, 1997 SCHEDULE I COMPARATIVE BALANCE SHEET Give balance sheet of Company as of December 31 of the current and prior year
Account Assets and Other Debits As of December 31 Current Prior COMPANY PROPERTY 101 Company property (Schedule II) $ $ 107 Construction work in progress (Schedule II) --------- --------- Total Property --------- --------- 108 Less accumulated provision for depreciation and amortization of company property (Schedule III) --------- --------- Net Company Property --------- --------- INVESTMENTS 123 Investments in associate companies (Sch. IV) 162,500 124 Other Investments (Schedule IV) 3,897,495 1,475,000 --------- --------- Total Investments 4,059,995 1,475,000 --------- --------- CURRENT AND ACCRUED ASSETS 131 Cash 297,938 180,836 134 Special deposits 135 Working funds 136 Temporary cash investments (Schedule IV) 141 Notes receivable 143 Accounts receivable (Schedule V) 742,844 1,234,582 144 Accumulated provision of uncollectible accounts 146 Accounts receivable from associate companies 56,469 128,096 152 Fuel stock expenses undistributed 154 Materials and supplies 163 Stores expense undistributed 165 Prepayments 866,287 174 Miscellaneous current and accrued assets --------- --------- Total Current and Accrued Assets 1,097,251 2,409,801 --------- --------- DEFERRED DEBITS 181 Unamortized debt expense 184 Clearing accounts 186 Miscellaneous deferred debits (Schedule IX) 188 Research, development, or demonstration expenditures 190 Accumulated deferred income taxes --------- ---------- Total Deferred Debits --------- ---------- TOTAL ASSETS AND OTHER DEBITS $5,157,246 $3,884,801 ========= ==========
PAGE 5 ANNUAL REPORT OF NEES GLOBAL TRANSMISSION, INC. For the Year Ended December 31, 1997 SCHEDULE I COMPARATIVE BALANCE SHEET
Account Liabilities and Proprietary Capital As of December 31 Current Prior PROPRIETARY CAPITAL 201 Common stock issued (Schedule XI) $ 1,000 $ 1,000 211 Miscellaneous paid-in-capital (Schedule XI) 14,073,999 8,448,999 215 Appropriated retained earnings (Schedule XI) 216 Unappropriated retained earnings (Schedule XI) (9,160,030) (5,321,413) ----------- ----------- Total Proprietary Capital 4,914,969 3,128,586 ----------- ----------- LONG-TERM DEBT 223 Advances from associate companies (Schedule XII) 224 Other long-term debt (Schedule XII) 225 Unamortized premium on long-term debt 226 Unamortized discount on long-term debt - debit --------- ----------- Total Long-Term Debt --------- ----------- CURRENT AND ACCRUED LIABILITIES 231 Notes payable 232 Accounts payable 144,860 238,342 233 Notes payable to associate companies (Schedule XIII) 234 Accounts payable to associate companies (Schedule XIII) 18,824 465,891 236 Taxes accrued 76,340 237 Interest accrued 238 Dividends declared 241 Tax collections payable 2,253 382 242 Miscellaneous current and accrued liabilities (Schedule XIII) --------- ---------- Total Current and Accrued Liabilities 242,277 704,615 --------- ---------- DEFERRED CREDITS 253 Other deferred credits 255 Accumulated deferred investment tax credits --------- ---------- Total Deferred Credits --------- ---------- 283 ACCUMULATED DEFERRED INCOME TAXES 51,600 --------- ---------- TOTAL LIABILITIES AND PROPRIETARY CAPITAL $5,157,246 $3,884,801 ========== ==========
PAGE 6 ANNUAL REPORT OF NEES GLOBAL TRANSMISSION, INC. For the Year Ended December 31, 1997 SCHEDULE II COMPANY PROPERTY (Not Applicable)
BALANCE AT RETIREMENTS BALANCE BEGINNING OR OTHER (1) AT CLOSE DESCRIPTION OF YEAR ADDITIONS SALES CHANGES OF YEAR Account 301 Organization 303 Miscellaneous Intangible Plant 304 Land and Land Rights 305 Structures and Improvements 306 Leasehold Improvements 307 Equipment (2) 308 Office Furniture and Equipment 309 Automobiles, Other Vehicles and Related Garage Equipment 310 Aircraft and Airport Equipment 311 Other Company Property (3) ---- ------- --- ---- ---- SUB-TOTAL None None ---- ------- --- ---- ---- 107 Construction Work in Progress (4) ---- ------- --- ---- ---- TOTAL None None ==== ======= === ==== ==== (1) PROVIDE AN EXPLANATION OF THOSE CHANGES CONSIDERED MATERIAL:
PAGE 7 ANNUAL REPORT OF NEES GLOBAL TRANSMISSION, INC. For the Year Ended December 31, 1997 SCHEDULE II - CONTINUED (Not Applicable) (2) Subaccounts are required for each class of equipment owned. The company shall provide a listing by subaccount of equipment additions during the year and the balance at the close of the year:
BALANCE AT CLOSE SUBACCOUNT DESCRIPTION ADDITIONS OF YEAR ---- ---- TOTAL None None ==== ==== (3) DESCRIBE OTHER COMPANY PROPERTY: None (4) DESCRIBE CONSTRUCTION WORK IN PROGRESS: None
PAGE 8 ANNUAL REPORT OF NEES GLOBAL TRANSMISSION, INC. For the Year Ended December 31, 1997 SCHEDULE III ACCUMULATED PROVISION FOR DEPRECIATION AND AMORTIZATION OF COMPANY PROPERTY (Not Applicable)
ADDITIONS OTHER BALANCE AT CHARGED CHANGES BALANCE BEGINNING TO RETIRE- ADD AT CLOSE DESCRIPTION OF YEAR ACCT 403 MENTS (DEDUCT)(1) OF YEAR Account 301 Organization 303 Miscellaneous Intangible Plant 304 Land and Land Rights 305 Structures and Improvements 306 Leasehold Improvements 307 Equipment 308 Office Furniture and Equipment 309 Automobiles, Other Vehicles and Related Garage Equipment 310 Aircraft and Airport Equipment 311 Other Company Property ---- --- --- --- ---- TOTAL None None ==== === === === ==== 22) PROVIDE AN EXPLANATION OF THOSE CHANGES CONSIDERED MATERIAL: None
PAGE 9 ANNUAL REPORT OF NEES GLOBAL TRANSMISSION, INC. For the Year Ended December 31, 1997 SCHEDULE IV INVESTMENTS INSTRUCTIONS: Complete the following schedule concerning investments. Under Account 124 "Other Investments," state each investment separately, with description, including, the name of issuing company, number of shares or principal amount, etc.
BALANCE AT BALANCE AT BEGINNING CLOSE DESCRIPTION OF YEAR OF YEAR ACCOUNT 123 - INVESTMENT IN ASSOCIATE COMPANIES 162,500 ------- ------- TOTAL None 162,500 ======= ======= ACCOUNT 124 - OTHER INVESTMENTS Separations Technologies, Inc. $999,999 $ 999,999 Monitoring Technologies, Inc. 475,001 475,001 Underwater Unlimited Diving Services, Inc. 1,000,000 Nexus Energy Software, Inc. 1,400,000 HydroServ Group, LLC 22,495 ---------- --------- TOTAL (1) $1,475,000 $3,897,495 ========== ========= ACCOUNT 136 - TEMPORARY CASH INVESTMENTS ------- --------- TOTAL None None ======= ========= (1) See page 15 "Notes to Financial Statements" footnote (2), (3), (5), (6), (7).
PAGE 10 ANNUAL REPORT OF NEES GLOBAL TRANSMISSION, INC. For the Year Ended December 31, 1997 SCHEDULE V ACCOUNTS RECEIVABLE INSTRUCTIONS: Complete the following schedule listing accounts receivable.
BALANCE AT BALANCE AT BEGINNING CLOSE OF YEAR OF YEAR DESCRIPTION ACCOUNT 143 - Accounts Receivable (Non- Associated Companies) 1,234,582 742,844 ---------- -------- TOTAL $1,234,582 $742,844 ========== ========
PAGE 11 ANNUAL REPORT OF NEES GLOBAL TRANSMISSION, INC. For the Year Ended December 31, 1997 SCHEDULE IX MISCELLANEOUS DEFERRED DEBITS INSTRUCTIONS: Provide detail of items in this account. Items less than $10,000 may be grouped by class, showing the number of items in each class.
BALANCE AT BALANCE AT BEGINNING CLOSE DESCRIPTION OF YEAR OF YEAR ACCOUNT 186 - DEFERRED DEBITS ---- ---- TOTAL None None ==== ====
PAGE 12 ANNUAL REPORT OF NEES GLOBAL TRANSMISSION, INC. For the Year Ended December 31, 1997 SCHEDULE XI PROPRIETARY CAPITAL
OUTSTANDING NUMBER OF PAR OR STATED CLOSE OF PERIOD ACCOUNT SHARES VALUE NO. OF TOTAL NUMBER CLASS OF STOCK AUTHORIZED PER SHARE SHARES AMOUNT 201 COMMON STOCK ISSUED 10,000 $1 1,000 $1,000 INSTRUCTIONS: Classify amounts in each account with a brief explanation, disclosing the general nature of transactions which give rise to the reported amounts. DESCRIPTION AMOUNT ACCOUNT 223 - MISCELLANEOUS PAID-IN CAPITAL (1) 14,073,999 ACCOUNT 215 - APPROPRIATED RETAINED EARNINGS ---------- TOTAL 14,073,999 ========== INSTRUCTIONS: Give particulars concerning net income or (loss) during the year, distinguishing between compensation for the use of capital owed or net loss remaining from servicing non-associates per the General Instructions of the Uniform Systems of Accounts. For dividends paid during the year in cash or otherwise, provide rate percentage, amount of dividend, date declared and date paid. BALANCE AT NET INCOME BALANCE AT BEGINNING OR DIVIDENDS CLOSE DESCRIPTION OF YEAR (LOSS) PAID OF YEAR ACCOUNT 216 - UNAPPROPRIATED RETAINED EARNINGS $(5,321,413) $(3,838,617) None $(9,160,030) ---------------------- ---- ----------- TOTAL $(5,321,413) $(3,838,617) None $(9,160,030) ====================== ==== =========== (1) Amount represents contributions in the form of non-interest bearing subordinated notes issued from New England Electric System (NEES). As of December 31, 1997, NEES was authorized to invest up to $19.0 million dollars in the Company in the form of either subordinated noninterest bearing notes, capital contributions or common stock.
PAGE 13 ANNUAL REPORT OF NEES GLOBAL TRANSMISSION, INC. For the Year Ended December 31, 1997 SCHEDULE XII LONG-TERM DEBT (Not Applicable) INSTRUCTIONS: Advances from associate companies should be reported separately for advances on notes, and advances on open account. Names of associate companies from which advances were received shall be shown under the class and series of obligation column. For Account 224 - Other long-term debt provide the name of creditor company or organization, terms of the obligation, date of maturity, interest rate, and the amount authorized and outstanding.
TERMS OF OBLIG DATE BALANCE AT BALANCE AT CLASS & SERIES OF INTEREST AMOUNT BEGINNING DEDUCTIONS CLOSE NAME OF CREDITOR OF OBLIGATION MATURITY RATE AUTHORIZED OF YEAR ADDITIONS (1) OF YEAR ACCOUNT 223 - ADVANCES FROM ASSOCIATE COMPANIES: ACCOUNT 224 - OTHER LONG-TERM DEBT: ----- TOTAL None ===== (1) Give an explanation of deductions: None
PAGE 14 ANNUAL REPORT OF NEES GLOBAL TRANSMISSION, INC. For the Year Ended December 31, 1997 SCHEDULE XIII CURRENT AND ACCRUED LIABILITIES INSTRUCTIONS: Provide balance of notes and accounts payable to each associate company. Give description and amount of miscellaneous current and accrued liabilities. Items less than $10,000 may be grouped, showing the number of items in each group.
BALANCE AT BALANCE AT BEGINNING CLOSE DESCRIPTION OF YEAR OF YEAR ACCOUNT 233 - NOTES PAYABLE TO ASSOCIATE COMPANIES ---- ---- TOTAL None None ==== ==== ACCOUNT 234 - ACCOUNTS PAYABLE TO ASSOCIATE COMPANIES New England Power Service Company $(15,980) New England Hydro Transmission Electric Co. 39 New England Electric Transmission Corp. 59 NEES Energy, Inc. 2,024 Narragansett Electric Company 2,843 Massachusetts Electric Company 8,298 9,970 New England Power Company 468,608 8,177 Nantucket Electric Company 677 ------- ------- TOTAL $465,891 $18,824 ======= ======= ACCOUNT 242 - MISCELLANEOUS CURRENT AND ACCRUED LIABILITIES ---- ---- TOTAL None None ==== ====
PAGE 15 ANNUAL REPORT OF NEES GLOBAL TRANSMISSION, INC. For the Year Ended December 31, 1997 SCHEDULE XIV NOTES TO FINANCIAL STATEMENTS INSTRUCTIONS: The space below is provided for important notes regarding the financial statements or any account thereof. Furnish particulars as to any significant contingent assets or liabilities existing at the end of the year. Notes relating to financial statements shown elsewhere in this report may be indicated here by reference. (1) To assist Nantucket Electric Company (NEC) in meeting its short-term needs for reliable energy, NGT provided materials, delivery, installation, interconnection and start-up testing services for a fully automated two unit diesel driven electric generating plant at the existing NEC Airport Generating Station. The work took place at NEC and New England Electric facilities pursuant to a letter agreement and has been completed. The total compensation under the agreement was recognized during the third quarter of 1994. The agreement provides for billing over a three year period at $25,070 per month effective the month immediately following the notice to proceed by NEC. As of May 31, 1997 the balance was paid in full. (2) On May 23, 1995, NGT invested $999,999 in Separations Technologies, Inc. (STI). This investment is in the form of 153,846 shares of 6% cumulative convertible preferred stock. (3) On July 12, 1996 NGT invested $475,001 in Monitoring Technologies, Inc. This investment is in the form of 271,429 shares of Series E convertible preferred stock. (4) In July, 1996 NEERI International, a wholly-owned subsidiary of NEERI, was formed under the laws of the Cayman Islands. NGT owned two shares of NEERI International, until December 22, 1997, at which time NGT sold the two shares to a non-affiliated third party. (5) Effective July 1, 1997, NEERI changed its name to NEES Global Transmission, Inc. (NGT). NGT is a Massachusetts Corporation which was formed in January 1992. NGT was not capitalized until October 13, 1992 when one thousand shares of NGT common stock were issued to New England Electric System (NEES). (6) In July, 1997 NGT invested $1,000,000 in Underwater Unlimited Diving Services, Inc. in the form of 200,000 shares of convertible non-voting preferred stock. (7) In August, 1997 NGT invested $1,400,000 in Nexus Energy Software, Inc. in the form of 1,000,000 shares of Series A preferred stock. (8) In 1997, NGT contributed initial capital of $130,000 to HydroServ Group, LLC for 50% company ownership. Losses of $107,505 were recognized during the year. (9) In July, 1997 NGT entered into an agreement with ABB Power Systems, a Swedish corporation, which provides for reimbursement of 50% of project development costs. Such reimbursements were recorded as a lump sum reduction in expenses, shown in account 923 "Outside services employed." (10) In the fourth quarter of 1997, NGT invested $162,500 to purchase a 10% interest in AllEnergy Marketing Co., LLC. PAGE 16 ANNUAL REPORT OF NEES GLOBAL TRANSMISSION, INC. For the Year Ended December 31, 1997 SCHEDULE XV COMPARATIVE INCOME STATEMENT
ACCOUNT DESCRIPTION CURRENT PRIOR YEAR YEAR INCOME 458 Services rendered to nonassociate companies $ 574,490 $1,379,230 421 Miscellaneous income or loss (107,505) ---------- ---------- TOTAL INCOME $ 466,985 $1,379,230 --------- ---------- EXPENSE 920 Salaries and wages 921 Office supplies and expenses 361,806 437,161 922 Administrative expense transferred - credit 923 Outside services employed 5,523,587 6,902,369 924 Property insurance 925 Injuries and damages 926 Employee pensions and benefits 930.1 General advertising expenses 930.2 Miscellaneous general expenses 931 Rents 932 Maintenance of structures and equipment 403 Depreciation and amortization expense 408 Taxes other than income taxes 409 Income taxes (1,528,191) (2,228,500) 410 Provision for deferred income taxes 411 Provision for deferred income taxes - credit (51,600) (123,900) 411.5 Investment tax credit 426.1 Donations 426.5 Other deductions 427 Interest on long-term debt 430 Interest on debt to associate companies 431 Other interest expense ------------ ------------ TOTAL EXPENSE $ 4,305,602 $ 4,987,130 ------------ ------------ NET INCOME OR (LOSS) $(3,838,617) $(3,607,900) ============ ============
PAGE 17 ANNUAL REPORT OF NEES GLOBAL TRANSMISSION, INC. For the Year Ended December 31, 1997 ANALYSIS OF BILLING NONASSOCIATE COMPANIES ACCOUNT 458
DIRECT INDIRECT COMPENSATION EXCESS TOTAL COST COST FOR USE TOTAL OR AMOUNT NAME OF NONASSOCIATE COMPANY CHARGED CHARGED OF CAPITAL COST DEFICIENCY BILLED 458-1 458-2 458-3 458-4 AVCOM, Inc. (1) 15 15 Mr. Raymond LeBlanc (2) 25 25 Town of Wellesley (3) 50 50 Energy Connections (4) 99 99 Hudson Light & Power (5) 4,800 4,800 Montana Power Company (6) 6,904 6,904 Hanover Improvement Society (7) 9,376 9,376 University of Massachusetts (8) 17,500 17,500 Separation Technologies, Inc. (9) 47,949 47,949 United States Dept. of Agriculture (10) 52,391 52,391 MCM Enterprise, LTD (11) 68,188 68,188 Si3 (12) 108,273 108,273 U.S. Army Corps. of Engineers (13) 258,920 258,920 ------- ------- Total 574,490 574,490 ======= =======
PAGE 18 INSTRUCTION: Provide a brief description of the services rendered to each nonassociated company: (1) Consulting services for meter testing. (2) Consulting services for meter testing. (3) Consulting services for meter testing. (4) Consulting services for meter testing. (5) Consulting and electrical services for installation of interrupters. (6) Consulting services for presentation of retail access processes. (7) Consulting engineering services at earthen dam site. (8) Consulting services for installation of radio tower. (9) Consulting and electrical services for installation of transformers. (10) Consulting and construction services for subwatershed dam repairs. (11) Consulting services for installation of rotor-mounted scanners. (12) Consulting services for retrofit and calibration of electric meters. (13) Construction services for dam gate machinery refurbishment. PAGE 19 ANNUAL REPORT OF NEES GLOBAL TRANSMISSION, INC. For the Year Ended December 31, 1997 DEPARTMENTAL ANALYSIS OF SALARIES ACCOUNT 920
NAME OF DEPARTMENT NUMBER PERSONNEL Indicate each dept. or SALARY END OF service function EXPENSE YEAR None None ---- ---- TOTAL None None ==== ====
PAGE 20 ANNUAL REPORT OF NEES GLOBAL TRANSMISSION, INC. For the Year Ended December 31, 1997 OUTSIDE SERVICES EMPLOYED ACCOUNT 923 INSTRUCTIONS: Provide a breakdown by subaccount of outside services employed. If the aggregate amounts paid to any one payee and included within one subaccount is less than $100,000, only the aggregate number and amount of all such payments included within the subaccount need be shown. Provide a subtotal for each type of service.
RELATIONSHIP "A"- ASSOCIATE FROM WHOM PURCHASED TYPE OF SERVICE "NA"- NON ASSOCIATE AMOUNT LEGAL SERVICES Skadden, Arps, Slate Legal Services NA $441,336 Meagher & Flom Tozzini, Freire, Legal Services NA 203,171 Teixeira, E. Silva 11 Vendors (each under $100,000) 352,007 ------- SUBTOTAL $996,514
PAGE 21 ANNUAL REPORT OF NEES GLOBAL TRANSMISSION, INC. For the Year Ended December 31, 1997 OUTSIDE SERVICES EMPLOYED ACCOUNT 923
RELATIONSHIP "A"- ASSOCIATE FROM WHOM PURCHASED TYPE OF SERVICE "NA"- NON ASSOCIATE AMOUNT OTHER SERVICES New England Power Construction, Engineering, A $2,925,213 Service Company & Administrative Svcs. New England Power Intercompany Consulting A 375,313 Company Services Sigla, S.A. Consulting Services NA 360,956 A. Gilberto Carvalho Consulting Services NA 215,538 Bank Boston Financial Consulting NA 153,996 Services Underwater Unlimited Consulting & Inspection NA 115,147 Diving Services Services American Continental Consulting Services NA 102,109 Group ABB Power Systems Reimbursement Agreement NA ($546,000) 34 Vendors* 824,801 (each under $100,000) ---------- SUBTOTAL $4,527,073 ---------- TOTAL SERVICES $5,523,587 ========== *includes $19,974 from associated companies
PAGE 22 ANNUAL REPORT OF NEES GLOBAL TRANSMISSION, INC. For the Year Ended December 31, 1997 MISCELLANEOUS GENERAL EXPENSES ACCOUNT 930.2 INSTRUCTIONS: Provide a listing of the amount included in Account 930.2, "Miscellaneous General Expenses", classifying such expenses according to their nature. Payments and expenses permitted by Sections 321(b)(2) of the Federal Election Campaign Act, as amended by Public Law 94-283 in 1976 (2 U.S.C. Section 441(b)(2)) shall be separately classified. DESCRIPTION AMOUNT ---- TOTAL None ==== PAGE 23 ANNUAL REPORT OF NEES GLOBAL TRANSMISSION, INC. For the Year Ended December 31, 1997 TAXES OTHER THAN INCOME TAXES ACCOUNT 408 INSTRUCTIONS: Provide an analysis of Account 408, "Taxes Other Than Income Taxes". Separate the analysis into two groups: (1) other than U.S. Government taxes, and (2) U.S. Government taxes. Specify each of the various kinds of taxes and show the amounts thereof. Provide a subtotal for each class of tax. KIND OF TAX AMOUNT 1) OTHER THAN U.S. GOVERNMENT TAXES Massachusetts State Tax ----- SUBTOTAL ----- 2) U.S. GOVERNMENT TAXES ----- SUBTOTAL ----- TOTAL None ===== PAGE 24 ANNUAL REPORT OF NEES GLOBAL TRANSMISSION, INC. For the Year Ended December 31, 1997 DONATIONS ACCOUNT 426.1 INSTRUCTIONS: Provide a listing of the amount included in Account 426.1, "Donations", classifying such expenses by its purpose. The aggregate number and amount of all items of less than $3,000 may be shown in lieu of details. NAME OF RECIPIENT PURPOSE OF DONATION ---- TOTAL None ==== PAGE 25 ANNUAL REPORT OF NEES GLOBAL TRANSMISSION, INC. For the Year Ended December 31, 1997 OTHER DEDUCTIONS ACCOUNT 426.5 INSTRUCTIONS: Provide a listing of the amount included in Account 426.5, "Other Deductions", classifying such expenses according to their nature. DESCRIPTION NAME OF PAYEE ---- TOTAL None ==== PAGE 26 ANNUAL REPORT OF NEES GLOBAL TRANSMISSION, INC. For the Year Ended December 31, 1997 SCHEDULE XVIII NOTES TO STATEMENT OF INCOME INSTRUCTIONS: The space below is provided for important notes regarding the statement of income or any account thereof. Furnish particulars as to any significant increase in services rendered or expenses incurred during the year. Notes relating to financial statements shown elsewhere in this report may be indicated here by reference. PAGE 27 ANNUAL REPORT OF NEES GLOBAL TRANSMISSION, INC. ORGANIZATION CHART For the Year Ended December 31, 1997 Board of Directors ! ! ! President ! ! ! ------------------------------ ! ! ! ! ! ! Treasurer Clerk PAGE 28 ANNUAL REPORT OF NEES GLOBAL TRANSMISSION, INC. For the Year Ended December 31, 1997 SIGNATURE CLAUSE Pursuant to the requirements of the Public Utility Holding Company Act of 1935 and the rules and regulations of the Securities and Exchange Commission issued thereunder, the undersigned company has duly caused this report to be signed on its behalf by the undersigned officer thereunto duly authorized. NEES GLOBAL TRANSMISSION, INC. --------------------------------- (Name of Reporting Company) By: s/John G. Cochrane ------------------------------- (Signature of Signing Officer) J.G. Cochrane Treasurer ------------------------------------------- (Printed Name and Title of Signing Officer) Date: April 30, 1998 --------------- EX-99 8 EXHIBIT E.3 Exhibit E.3 ARTHUR ANDERSEN LLP OCEAN STATE POWER FINANCIAL STATEMENTS AS OF DECEMBER 31, 1997 AND 1996 TOGETHER WITH AUDITORS' REPORT ARTHUR ANDERSEN LLP REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Management Committee of Ocean State Power: We have audited the accompanying balance sheets of Ocean State Power (a Rhode Island partnership) as of December 31, 1997 and 1996, and the related statements of income, changes in partners' capital and cash flows for the years then ended. These financial statements are the responsibility of the Partnership'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. As described in Note 2, these financial statements were prepared in accordance with the accounting requirements of the Federal Energy Regulatory Commission as set forth in its applicable Uniform System of Accounts and published accounting releases, which is a comprehensive basis of accounting other than generally accepted accounting principles. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Ocean State Power as of December 31, 1997 and 1996, and the results of its operations and its cash flows for the years then ended, in accordance with the accounting requirements of the Federal Energy Regulatory Commission as set forth in its applicable Uniform System of Accounts and published accounting releases. s/Arthur Anderson LLP Boston, Massachusetts March 12, 1998 OCEAN STATE POWER BALANCE SHEETS DECEMBER 31, 1997 AND 1996 (DOLLARS IN THOUSANDS)
1997 1996 ------------ ------------ ASSETS ELECTRIC PLANT, AT ORIGINAL COST $240,598 $241,139 Less accumulated depreciation and amortization (Note 2) 80,595 68,636 ------------------------ Net electric plant 160,003 172,503 CURRENT ASSETS: Cash and cash equivalents 1,914 4,532 Accounts receivable: Affiliated companies (Notes 1, 3 and 6) 12,227 12,576 Other 3,989 4,786 Inventories: Fuel 609 597 Materials and supplies 5,443 6,023 Prepayments 243 297 ------------ ----------- Total current assets 24,425 28,811 DEFERRED CHARGES AND OTHER ASSETS: Unamortized debt expense (Note 2) 1,157 1,256 Site restoration fund (Note 2) 7,443 6,018 Other 258 273 ------------ ----------- Total deferred charges and other assets 8,858 7,547 Total assets $193,286 208,861 ============ =========== PARTNERS' CAPITAL AND LIABILITIES CAPITALIZATION: Partners' capital (see accompanying statement) $ 77,540 $ 79,738 Long-term debt, net of current maturities (Note 4) 74,011 84,509 ------------------------ Total capitalization 151,551 164,247 ------------------------ CURRENT LIABILITIES: Current maturities of long-term debt (Note 4) 5,998 5,998 Accounts payable and accrued expenses: Affiliated companies 848 927 Other 5,732 9,240 Accrued interest on debt - affiliates 257 281 ------------------------ Total current liabilities 12,835 16,446 COMMITMENTS AND CONTINGENCIES (Note 5) RESERVES AND DEFERRED CREDITS: Deferred federal income taxes payable by partners (Notes 2 and 7) 10,383 10,257 Unamortized investment tax credits (Notes 2 and 7) 10,034 10,777 Site restoration reserve (Note 2) 7,443 6,018 Deferred rent revenue (Note 6) 1,040 1,116 ------------------------ Total reserves and deferred credits 28,900 28,168 Total partners' capital and liabilities $193,286 $208,861 ======================== The accompanying notes are an integral part of these financial statements.
OCEAN STATE POWER STATEMENTS OF INCOME YEARS ENDED DECEMBER 31, 1997 AND 1996 (DOLLARS IN THOUSANDS)
1997 1996 ----------- ----------- ELECTRIC OPERATING REVENUES (Notes 1 and 2) $93,810 100,657 OPERATING EXPENSES: Fuel costs 43,981 43,947 Operating expense 8,412 7,972 Maintenance expense 3,688 10,275 Depreciation and site restoration (Note 2) 13,224 13,145 Income taxes payable by partners (Notes 2 and 7) 5,221 5,506 Property taxes and payments in lieu of taxes (Note 5) 1,758 1,719 ----------- ----------- 76,284 82,564 ----------- ----------- Operating income 17,526 18,093 OTHER INCOME (EXPENSE): Allowance for other funds used during construction (Note 2) - 232 Interest income 251 211 Other, net (43) (38) ----------- ----------- 208 405 Income before interest charges 17,734 18,498 INTEREST CHARGES: Long-term debt (Note 4) 6,570 7,219 Allowance for borrowed funds used during construction (Note 2) - (113) ----------- ----------- 6,570 7,106 Net income $11,164 $11,392 =========== =========== The accompanying notes are an integral part of these financial statements.
OCEAN STATE POWER STATEMENTS OF CHANGES IN PARTNERS' CAPITAL YEARS ENDED DECEMBER 31, 1997 AND 1996 (DOLLARS IN THOUSANDS)
EUA Narragansett TCPL Ocean State Energy JMC Ocean Power Ltd. Corp. Resources Co. State Corp. Total ---------- ----------- ------------- ----------- ---------- PARTNERSHIP INTEREST 40.0% 29.9% 20.0% 10.1% 100.0% BALANCE AT DECEMBER 31, 1995 $32,886 24,582 16,443 8,303 82,214 Net income 4,556 3,407 2,279 1,150 11,392 Current federal income taxes payable by partners (Notes 2 and 7) 1,893 1,414 946 479 4,732 Distributions (7,440) (5,561) (3,720) (1,879) (18,600) ----------- ---------- ---------- ---------- ----------- BALANCE AT DECEMBER 31, 1996 $31,895 23,842 15,948 8,053 79,738 Net income 4,466 3,338 2,232 1,128 11,164 Current federal income taxes payable by partners (Notes 2 and 7) 2,335 1,746 1,168 589 5,838 Distributions (7,680) (5,741) (3,840) (1,939) (19,200) ----------- ---------- ---------- ---------- ----------- BALANCE AT DECEMBER 31, 1997 $31,016 23,185 15,508 7,831 77,540 =========== ========== ========== ========= ========== The accompanying notes are an integral part of these financial statements.
OCEAN STATE POWER STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 1997 AND 1996 (DOLLARS IN THOUSANDS)
1997 1996 ----------- -------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $11,164 11,392 Adjustments to reconcile net income to net cash provided by operating activities: Income taxes payable by partners 5,221 5,506 Depreciation 12,102 12,023 Provision for site restoration 1,122 1,122 Site restoration interest 303 272 Amortization of debt expense 99 98 Amortization of rent revenue (76) (75) Allowance for other funds used during construction - (232) Salvage 589 626 Changes in assets and liabilities: Accounts receivable 1,146 (606) Inventories 568 (2,798) Prepayments 54 (50) Accounts payable and accrued expenses (3,587) 2,980 Accrued interest (24) (15) Other assets and liabilities 15 19 ----------- ---------- Net cash provided by operating activities 28,696 30,262 CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (191) (999) Site restoration fund (1,425) (1,394) ----------- ---------- Net cash used for investing activities (1,616) (2,393) CASH FLOWS FROM FINANCING ACTIVITIES: Distributions to partners (19,200) (18,600) Repayment of long-term debt Senior notes (5,998) (5,998) Revolver (4,500) (200) ----------- ----------- Net cash used for financing activities (29,698) (24,798) NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (2,618) 3,071 CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 4,532 1,461 ----------- ----------- CASH AND CASH EQUIVALENTS, END OF YEAR $ 1,914 4,532 =========== =========== CASH PAID FOR INTEREST $6,496 7,135 =========== =========== The accompanying notes are an integral part of these financial statements.
OCEAN STATE POWER NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1997 (1) ORGANIZATION AND BUSINESS Organization and Management Ocean State Power (OSP) is a Rhode Island general partnership with four general partners (see Note 3). OSP is managed by a committee of representatives from each of the partners and has no employees. Plant operations and project administration are performed under various contractual arrangements as described below. Business OSP was formed to construct, own and operate a combined cycle electric generating plant located in Burrillville, Rhode Island, adjacent to a second generating plant that is operated by an affiliate, Ocean State Power II (OSP II). The plant's average net capacity is approximately 250 megawatts, and it is fired by natural gas purchased under a firm 20-year gas purchase contract. The plant commenced commercial operations on December 31, 1990. The plant's capacity and energy output are being sold under 20-year take-or-pay unit power agreements to three investor-owned utilities located in Massachusetts and Rhode Island. These utilities are obligated to pay their portion of OSP's total costs, including amounts for income taxes payable by partners, and a return on invested capital. The price of the energy sold is determined based on a Federal Energy Regulatory Commission (FERC) filed cost of service contract with an adjustment factor for unit availability. The following utilities have agreed to purchase electricity generated in the following proportions: Power Purchase Power Purchaser Affiliate of Percentage --------------- ------------ ----------- Boston Edison Company - 23.5% New England Power Company Narragansett Energy Resources Company 48.5 Montaup Electric Company EUA Ocean State Corporation 28.0 ------ 100.0% ====== (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Regulation OSP's rates, operations, accounting and other matters are subject to the regulatory authority of the FERC and other federal and state agencies. Certain gas transportation agreements are also subject to regulation by Canadian authorities. OCEAN STATE POWER NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1997 (Continued) (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Regulation (Continued) OSP is subject to the provisions of Statement of Financial Accounting Standards (SFAS) No. 71, Accounting for the Effects of Certain Types of Regulation, and, therefore, certain of the accounting principles followed may differ from enterprises in general to reflect the economic effect of rate actions of the FERC. See Note 5 for a discussion of industry restructuring and the related uncertainties associated with accounting for regulated businesses. Allowance for Funds Used During Construction OSP capitalizes an allowance for funds used during construction (AFUDC), which represents the net cost of borrowed funds used for construction purposes and a reasonable rate of return on OSP's equity when used. These costs will be recovered over the service life of the plant in the form of revenue collected to recover depreciation expense. Electric Operating Revenues OSP bills its customers monthly based on estimates in accordance with the agreements described in Note 1, with a subsequent true-up to reflect actual costs. Amounts due from customers at year-end but not yet reflected in customers' bills totaled $192,000 in 1997 and $324,000 in 1996 and are included in accounts receivable. The unit power agreements contain incentive provisions related to the performance of the facility. These incentives provide for bonuses payable to OSP based on the extent to which the electrical capability of the plant exceeds target performance levels. Alternatively, these incentives provide for decreases in capacity charges payable by power purchasers based on the extent to which the electrical capability of the plant falls below target levels. OSP has billed and recorded revenues related to these performance incentives of $3.5 million in 1997 and $3.9 million in 1996. Unamortized Debt Expense Unamortized debt expense represents the costs incurred related to project financing and are amortized using the effective interest rate method over the original life of the debt. OCEAN STATE POWER NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1997 (Continued) (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Depreciation and Site Restoration Depreciation is provided to allocate the cost of OSP's electric plant on a straight-line basis over the following estimated useful lives: Plant and equipment Remaining life of unit power agreement (expires 2010) Furniture and fixtures 5 years Following termination of operations, OSP is obligated to restore the site to its original preconstruction condition. Based on a study conducted in 1991, the estimated cost, in future dollars, for OSP and OSP II is approximately $65 million. OSP accrues for one half of the estimated site restoration costs over the life of the plant; OSP II is responsible for the remaining half of the estimated costs. The estimate of site restoration is based on a number of assumptions. The future dollars estimate was determined by inflating individual costs from mid-1993 to the anticipated date of expenditure, expressed at six-month periods, at an annual 4.5% inflation rate. The 1994 FERC Settlement Agreement assumes an after-tax rate of return on amounts collected for site restoration of 5.5%, with collections beginning in November 1991 and continuing through October 2011. Changes in assumptions for such things as labor and material costs, technology, inflation and the timing of site restoration could cause this estimate to change in the near term. OSP recognizes the relative uncertainties associated with site restoration, including its changing technology and the possibility of new requirements of law, and therefore recognizes the need to monitor and adjust site restoration collections through supplemental rate filings with the FERC. Funds are deposited into a trust pending their ultimate use. In accordance with SFAS No. 115, Accounting for Certain Investments in Debt and Equity Securities, OSP and OSP II have classified their site restoration funds as available- for-sale securities and reflected them at fair market value in the accompanying balance sheets. The investment income is retained within the trust account. The cost and fair market value of the site restoration funds at December 31, 1997 were $6,581,000 and $7,443,000, respectively, and at December 31, 1996 were $5,459,000 and $6,018,000, respectively. The staff of the Securities and Exchange Commission has questioned certain current accounting practices of the electric utility industry regarding the recognition, measurement and classification of decommissioning costs for nuclear generating stations in financial statements of electric utilities. In response to those questions, the Financial Accounting Standards Board (FASB) has initiated a review of the accounting for such costs. The FASB has considered several approaches, including recording the OCEAN STATE POWER NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1997 (Continued) (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Depreciation and Site Restoration (Continued) entire estimated liability for decommissioning costs initially, rather than accruing the costs over the operating life of the generating unit. OSP believes that such an accounting change, if adopted by the FASB, would not adversely affect OSP's results of operations due to its ability to recover decommissioning costs through rates. Cash and Cash Equivalents OSP considers all highly liquid investments with a maturity of three months or less to be cash equivalents. Income Taxes Income taxes are the responsibility of the partners and are not normally reflected in the financial statements of partnerships under generally accepted accounting principles. However, the billing calculation includes an allowance for income taxes, and the FERC requires that OSP record this provision on its records to reflect the income taxes calculated as if OSP were a taxable corporation. The provisions for current and deferred income taxes payable by partners are recorded without regard to whether each partner could utilize its share of OSP tax deductions and investment tax credits. Partners' capital and the net investment base are reduced by the amount equivalent to accumulated deferred federal income taxes payable by partners and unamortized investment tax credit in calculating the allowed return. Investment tax credits are deferred to the extent they would be utilized on a separate-company basis and are amortized over the lives of the related property. At December 31, 1996, OSP has fully utilized its investment tax credits for tax purposes. OSP recognizes, in accordance with SFAS No. 109, Accounting for Income Taxes, tax assets and liabilities for the cumulative effect of all temporary differences between financial statement carrying amounts and the tax bases of assets and liabilities, including the impact of deferred investment tax credits. The standard also requires the adjustment of deferred tax liabilities or assets for an enacted change in tax laws or rates, among other things. Planned Major Overhauls Periodic major overhauls of the gas and stream turbines will be necessary to maintain the facility's operating capacity. The Partnership follows the direct expensing method for these overhaul costs. OCEAN STATE POWER NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1997 (Continued) (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Use of Estimates The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. (3) PARTNERS' CAPITAL The general partners, along with their respective equity interests, at December 31, 1997 are as follows:
Equity Partner Affiliate of Interest TCPL Power Ltd. TransCanada PipeLines Limited 40.0% EUA Ocean State Corporation Eastern Utilities Associates 29.9 Narragansett Energy Resources Company New England Electric System 20.0 JMC Ocean State Corporation J. Makowski Company, Inc. 10.1 ----- 100.0% =====
(4) LONG-TERM DEBT OSP Finance Company is a finance affiliate of OSP and OSP II (the Partnerships), and each Partnership owns 50% of its common stock. OSP Finance Company's single purpose is to provide long-term financing for the Partnerships. In October 1992, OSP Finance Company issued senior notes to various institutional investors in three tranches with fixed interest rates and varying maturity dates. Upon receipt of the senior note proceeds, OSP Finance Company extended loans to Partnerships, with terms the same as the senior notes. On July 20, 1994, the Partnerships entered into a revolving secured credit agreement (the Revolver) with a commercial bank for $15,000,000. The Partnerships must pay an annual commitment fee of .15% on the unused portion of the Revolver. Principal borrowings under the Revolver are payable in full at maturity. The Revolver expires on July 20, 2001 and bears interest at varying rates. The interest rate at December 31, 1997 and 1996 was 6.344% and 6.031%, respectively. The weighted average amount outstanding on this revolver at December 31, 1997 and 1996 was $1,192,000 and $5,317,000 for OSP, respectively. OCEAN STATE POWER NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1997 (Continued) (4) LONG-TERM DEBT (Continued) Debt outstanding at December 31, 1997 is as follows (dollars in thousands):
OSP OSP II Total 6.96% Series A senior notes due June 15, 2002 $26,701 $22,887 $49,588 7.92% Series B senior notes due February 15, 2006 22,077 18,923 41,000 8.21% Series C senior notes due September 15, 2011 31,231 26,769 58,000 Revolving line of credit - 3,300 3,300 ------- ------- ------- Total long-term debt 80,009 71,879 151,888 Less Current maturities 5,998 5,141 11,139 ------- ------- ------- Long-term debt, excluding current maturities $74,011 $66,738 $140,749 ======= ======= =======
Debt outstanding at December 31, 1996 is as follows (dollars in thousands):
OSP OSP II Total 6.96% Series A senior notes due June 15, 2002 $32,699 $28,028 $60,727 7.92% Series B senior notes due February 15, 2006 22,077 18,923 41,000 8.21% Series C senior notes due September 15, 2011 31,231 26,769 58,000 Revolving line of credit 4,500 2,000 6,500 ------- ------- ------- Total long-term debt 90,507 75,720 166,227 Less Current maturities 5,998 5,141 11,139 ------- ------- ------- Long-term debt, excluding current maturities $84,509 $70,579 $155,088 ======= ======= =======
The Partnerships are guarantors of the senior note agreement and the Revolver on a joint and several basis. The senior notes and amounts outstanding under the Revolver are collateralized by assignment of the rights and interest in all of the Partnerships' unit power agreements and all resulting proceeds, with the exception, however, of revenues under the unit power agreements that are attributable to domestic gas transportation, on which the domestic gas transporter has a first lien. OCEAN STATE POWER NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1997 (Continued) (4) LONG-TERM DEBT (Continued) The senior note agreement and the Revolver contain certain covenants, including restrictions on the creation of liens, sale of assets, amendment of agreements and the incurrence of additional indebtedness. OSP's share of the senior notes matures at $5,998,000 per year over the life of the senior notes. (5) COMMITMENTS AND CONTINGENCIES OSP has entered into various agreements in connection with the operation of the power plant. OSP is obligated under the following agreements/commitments. Gas Supply and Transportation OSP has a firm, 20-year gas purchase contract with a Canadian supplier for the purchase of 50,000 Mcf per day or a minimum of 12,318,750 Mcf per year, to be delivered to the U.S./Canadian border. OSP may also purchase additional quantities of gas as available. The contract price is based on an initial base price, subject to monthly adjustments based on changes in the New England Power Pool's (NEPOOL) Fossil Fuel Index price. This contract provides OSP with its primary fuel supply while maintaining other gas supply options and oil as backups. OSP has a firm, 20-year fuel transportation agreement with Tennessee Gas Pipeline Company for delivery of natural gas from the U.S./Canadian border to the plant. The agreement may be extended beyond 20 years on a year-by-year basis. Tax Treaty The Partnerships entered into a tax treaty with the Town of Burrillville, Rhode Island, providing for annual payments to the town in lieu of any taxes that would normally be assessed. Payments are to be made quarterly over the 20-year period through 2011 and are to be shared equally by the Partnerships. The total payments for OSP in 1997 and for each of the five years subsequent to December 31, 1997 are as follows (dollars in thousands): 1997 $1,546 1998 1,671 1999 1,774 2000 1,774 2001 1,774 2002 1,924 Other Commitments As part of the costs incurred to obtain the site on which the power unit is constructed, OSP has entered into certain agreements that provide for payments in lieu of taxes in OCEAN STATE POWER NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1997 (Continued) (5) COMMITMENTS AND CONTINGENCIES (Continued) Other Commitments (Continued) addition to the tax treaty above. OSP agreed to make annual payments to the scholarship and community service foundations in Burrillville, Rhode Island, and Uxbridge, Massachusetts, as well as to the Harrisville, Rhode Island, fire district in anticipation of any services to be rendered. Payments are to be made annually over the 20-year life and are to be shared equally by the Partnerships. Deferred Revenues OSP filed its 1995 supplement to its rate schedules with the FERC on February 1, 1995, setting forth its proposed Return on Equity (ROE) of 12.90% for 1995. Three parties challenged OSP's determination of the ROE and requested a hearing to determine the appropriate ROE for 1995. After a hearing was set, OSP submitted an offer to settle the proceedings at an ROE of 12.33%, which the presiding administrative law judge certified to the FERC. The parties are currently waiting for the FERC's decision on whether to approve the settlement offer. At December 31, 1997, OSP has deferred revenue recognition of $1,021,000 for the difference between 12.90% and 12.33%, OSP's estimated result of the proceedings. Industry Restructuring The states in which OSP's partners and power purchasers are based have utility restructuring plans in different stages of development or implementation. Some states, such as Massachusetts, call for an earlier initiation of retail competition and divestiture of generation assets, as well as providing for other arrangements for recovery of stranded costs. OSP believes that there are many uncertainties associated with any major restructuring of the electric utility industry. Among them are: the positions that will ultimately be taken by the various New England states and their regulatory agencies and their applicability to OSP; the role of the FERC in any restructuring involving OSP, and the ultimate positions it will take on relevant issues within its jurisdiction; to what extent the United States Congress will take legislative action and, if it does, with what results; whether the necessary political consensus can be reached on the significant and complex issues involved in changing the long-standing structure of the electric utility industry; and to what extent electric utilities will be permitted to recover their strandable costs. OSP cannot predict what form the restructuring of the electric utility industry will take, and therefore, what effect any resulting restructuring will have on OSP's business operations or financial results. OCEAN STATE POWER NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1997 (Continued) (6) RELATED PARTIES Ownership Sales In November 1997, agreements were reached whereby an affiliate of TCPL Power Ltd. will acquire all of the issued and outstanding capital stock of JMC Ocean State Corporation and Narragansett Energy Resources Company. As part of the agreements, a separate affiliate of TCPL Power Ltd. will acquire all of the rights and obligations under the OSP and OSP II unit power agreements currently held by New England Power Company. These transactions are expected to close following approvals by federal and state regulators. Ground Lease OSP entered into an agreement to lease certain property on which OSP II was constructed to OSP II. The original lease term expires on December 31, 2011 and is renewable in five-year periods through September 2088. The lease may be terminated by OSP II with the appropriate written notice to OSP during the initial term. OSP may terminate the lease only upon its purchase of OSP II's power unit. Under the provisions of the lease, OSP II paid approximately $1.1 million of initial rent upon receipt of its construction financing. OSP has classified amounts under this provision as deferred rent revenue to be amortized over the life of the lease. OSP has an option to acquire OSP II's unit at any time at a price equal to the greater of its fair value or any amounts due under any mortgage on the unit. Common Facilities Lease OSP entered into an agreement to lease to OSP II an undivided interest in certain common facilities. The basic term expired on September 30, 1997. The Partnerships are currently in the process of renewing this lease, which may be extended in five-year increments through September 2088. Rent is payable in an amount equal to OSP II's share of the monthly investment cost of the common facilities for the basic term of the lease and an amount equal to a fair market rental value of the leased property thereafter. OSP II is obligated to share in the costs of maintaining the facility and has an option to purchase its undivided interest in the common facilities for its appraised fair market value. The lease may be terminated by OSP II upon written notice and payment of certain rents based on the fair market value during the canceled term. Project Administration Agent Effective October 1, 1996, TransCanada Power (TCP), a division of TransCanada Energy Ltd., an affiliate of TCPL Power Ltd., was appointed project administration agent to manage the day-to-day affairs of OSP. TCP is compensated at agreed-upon billing rates that are adjusted annually. TCP was paid approximately $597,000 and $137,000 for services OCEAN STATE POWER NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1997 (Continued) (6) RELATED PARTIES (Continued) Project Administration Agent (Continued) provided in 1997 and 1996, respectively. The prior project administration agent, J. Makowski Management Corp., was paid approximately $727,000 in 1996 for services rendered. Interconnection Facility The Partnerships entered into an agreement to lease the interconnection facility from Blackstone Valley Electric Company (BVE), an affiliate of Eastern Utilities Associates. Rent payments are to be paid monthly over the 20-year period through 2011 and are to be shared equally by the Partnerships. OSP paid BVE approximately $604,000 in 1997 and $637,000 in 1996 for use of the interconnection facility. Gas Layoff Sales During the years ended December 31, 1997 and 1996, OSP made the following sales of available gas at market prices to the following affiliate entities (dollars in thousands):
1997 1996 Selkirk Cogen Partners (an affiliate of JMC Ocean State Corporation) $141 $16 US Generating Corp. (an affiliate of JMC Ocean State Corporation) - 78 New England Power Company - 17
(7) PROVISION FOR INCOME TAXES PAYABLE BY PARTNERS OSP provides an amount equal to income tax expense as if it were a separate corporation, and this amount is a component of cost of service. The partners are exempt from state income tax in Rhode Island. Computed federal income taxes payable by partners are as follows (dollars in thousands):
1997 1996 Current $5,838 $ 4,732 Deferred 126 271 Investment tax credits, net (743) 503 ------- ------- $5,221 $ 5,506 ======= =======
OCEAN STATE POWER NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1997 (Continued) (7) PROVISION FOR INCOME TAXES PAYABLE BY PARTNERS (Continued) The tax effects of the temporary differences and tax carryforwards that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 1997 and 1996 are presented below (dollars in thousands):
1997 1996 Deferred tax assets Site restoration reserve $2,603 $ 2,104 Deferred rent revenue 364 390 ------- ------- Total deferred tax assets 2,967 2,494 ------- ------- Deferred tax liabilities Property, plant and equipment 13,172 12,618 Regulatory asset 178 133 ------- ------- Total deferred tax liabilities 13,350 12,751 ------- ------- Net deferred tax liability $10,383 $10,257 ======= =======
A valuation allowance has not been recorded at December 31, 1997 and 1996, since OSP expects that all deferred income tax assets will be utilized in the future. (8) DISCLOSURE OF FAIR MARKET VALUE OF FINANCIAL INSTRUMENTS The carrying amounts of cash and cash equivalents approximate fair value because of the short maturity of these investments. The fair value of the site restoration fund is based on the quoted market prices of the investments of the fund. The fair value of long-term debt is estimated based on currently quoted market prices for similar types of borrowing arrangements. The estimated fair value of OSP's financial instruments as of December 31, 1997 are as follows (dollars in thousands):
Carrying Value Fair Value Cash and cash equivalents $ 1,914 $ 1,914 Site restoration fund 7,443 7,443 Long-term debt 80,009 72,871
The estimated fair value of OSP's financial instruments as of December 31, 1996 are as follows (dollars in thousands):
Carrying Value Fair Value Cash and cash equivalents $ 4,532 $ 4,532 Site restoration fund 6,018 6,018 Long-term debt 90,507 96,190
EX-99 9 EXHIBIT E.4 Exhibit E.4 ARTHUR ANDERSEN LLP OCEAN STATE POWER II FINANCIAL STATEMENTS AS OF DECEMBER 31, 1997 AND 1996 TOGETHER WITH AUDITORS' REPORT ARTHUR ANDERSEN LLP REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Management Committee of Ocean State Power II: We have audited the accompanying balance sheets of Ocean State Power II (a Rhode Island partnership) as of December 31, 1997 and 1996, and the related statements of income, changes in partners' capital and cash flows for the years then ended. These financial statements are the responsibility of the Partnership'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 audits 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. As described in Note 2, these financial statements were prepared in accordance with the accounting requirements of the Federal Energy Regulatory Commission as set forth in its applicable Uniform System of Accounts and published accounting releases, which is a comprehensive basis of accounting other than generally accepted accounting principles. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Ocean State Power II as of December 31, 1997 and 1996, and the results of its operations and its cash flows for the years then ended, in accordance with the accounting requirements of the Federal Energy Regulatory Commission as set forth in its applicable Uniform System of Accounts and published accounting releases. s/Arthur Andersen LLP Boston, Massachusetts March 12, 1998 OCEAN STATE POWER II BALANCE SHEETS DECEMBER 31, 1997 AND 1996 (DOLLARS IN THOUSANDS)
ASSETS 1997 1996 ------------- ----------- ELECTRIC PLANT, AT ORIGINAL COST $180,197 $176,525 Less-Accumulated depreciation and amortization (Note 2) 51,728 45,142 ------------ ------------ 128,469 131,383 CONSTRUCTION WORK IN PROGRESS - 2,866 ------------ ------------ Net electric plant 128,469 134,249 CURRENT ASSETS: Cash and cash equivalents 1,690 516 Accounts receivable: Affiliated companies (Notes 1, 3 and 6) 13,509 12,899 Other 4,210 4,202 Inventories: Fuel 609 597 Materials and supplies 5,454 6,031 Prepayments 243 297 ------------ ----------- Total current assets 25,715 24,542 DEFERRED CHARGES AND OTHER ASSETS: Prepaid rent (Note 6) 1,040 1,116 Unamortized debt expense (Note 2) 1,001 1,089 Site restoration fund (Note 2) 6,816 5,383 Other 190 201 ------------ ----------- Total deferred charges and other assets 9,047 7,789 Total assets $163,231 166,580 ============ =========== PARTNERS' CAPITAL AND LIABILITIES CAPITALIZATION: Partners' capital (see accompanying statement) $73,353 72,713 Long-term debt, net of current maturities (Note 4) 66,738 70,579 ------------ ------------ Total capitalization 140,091 143,292 CURRENT LIABILITIES: Current maturities of long-term debt (Note 4) 5,141 5,141 Accounts payable and accrued expenses: Affiliated companies 2,989 2,552 Other 5,072 6,778 Accrued interest on debt - affiliates 226 238 ------------ ------------ Total current liabilities 13,428 14,709 COMMITMENTS AND CONTINGENCIES (Note 5) RESERVES AND DEFERRED CREDITS: Deferred federal income taxes payable by partners (Notes 2 and 7) 2,896 3,196 Site restoration reserve (Note 2) 6,816 5,383 ------------ ------------ Total reserves and deferred credits 9,712 8,579 Total partners' capital and liabilities $163,221 $166,580 ============ ============ The accompanying notes are an integral part of these financial statements.
OCEAN STATE POWER II STATEMENTS OF INCOME YEARS ENDED DECEMBER 31, 1997 AND 1996 (DOLLARS IN THOUSANDS)
1997 1996 ----------- ----------- ELECTRIC OPERATING REVENUES (Notes 1 and 2) $100,131 $101,508 OPERATING EXPENSES: Fuel costs 45,989 54,051 Operating expense 11,134 11,098 Maintenance expense 10,633 2,960 Depreciation and site restoration (Note 2) 10,115 9,886 Income taxes payable by partners (Notes 2 and 7) 5,207 5,395 Property taxes and payments in lieu of taxes (Note 5) 1,777 1,711 ------------ ------------ 84,855 85,101 Operating income 15,276 16,407 OTHER INCOME (EXPENSE): Allowance for other funds used during construction (Note 2) 96 69 Interest income 328 219 Other, net (67) (35) ------------ ------------ 357 253 Income before interest charges 15,633 16,660 INTEREST CHARGES: Long-term debt (Note 4) 5,754 6,596 Allowance for borrowed funds used during construction (Note 2) (54) (34) ------------ ------------ 5,700 6,562 Net income $ 9,933 $ 10,098 ============ ============ The accompanying notes are an integral part of these financial statements.
OCEAN STATE POWER II STATEMENTS OF PARTNERS' CAPITAL YEARS ENDED DECEMBER 31, 1997 AND 1996 (DOLLARS IN THOUSANDS)
EUA Narragansett TCPL Ocean State Energy JMC Ocean Power Ltd. Corp. Resources Co. State Corp. Total ---------- ----------- ------------- ----------- ---------- PARTNERSHIP INTEREST 40.0% 29.9% 20.0% 10.1% 100.0% BALANCE AT DECEMBER 31, 1995 $ 30,601 22,874 15,300 7,727 76,502 Net income 4,039 3,019 2,020 1,020 10,098 Current federal income taxes payable by partners (Notes 2 and 7) 2,285 1,709 1,142 577 5,713 Distributions (7,840) (5,860) (3,920) (1,980) (19,600) ------------ ----------- ----------- ----------- ------------ BALANCE AT DECEMBER 31, 1996 29,085 21,742 14,542 7,344 72,713 Net income 3,973 2,970 1,987 1,003 9,933 Current federal income taxes payable by partners (Notes 2 and 7) 2,203 1,647 1,101 556 5,507 Distributions (5,920) (4,425) (2,960) (1,495) (14,800) ------------ ----------- ----------- ----------- ------------ BALANCE AT DECEMBER 31, 1997 $29,341 21,934 14,670 7,408 73,353 ============ =========== =========== =========== ============ The accompanying notes are an integral part of these financial statements.
OCEAN STATE POWER II STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 1997 AND 1996 (DOLLARS IN THOUSANDS)
1997 1996 ----------- ---------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $9,933 10,098 Adjustments to reconcile net income to net cash provided by operating activities: Income taxes payable by partners 5,207 5,395 Depreciation 8,993 8,764 Provision for site restoration 1,122 1,122 Site restoration interest 311 218 Amortization of debt expense 88 678 Allowance for other funds used during construction (96) (69) Salvage 226 108 Changes in assets and liabilities: Accounts receivable (618) 973 Inventories 565 (2,813) Prepayments 54 (88) Prepaid rent 76 75 Accounts payable and accrued expenses (1,269) 2,605 Accrued interest (12) (13) Other assets and liabilities 11 80 ----------- ----------- Net cash provided by operating activities 24,591 27,133 CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (3,343) (2,939) Site restoration fund (1,433) (1,340) ----------- ----------- Net cash used for investing activities (4,776) (4,279) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of long-term debt 1,300 1,300 Distributions to partners (14,800) (19,600) Repayment of long-term debt (5,141) (5,141) ------------ ------------ Net cash used for financing activities (18,641) (23,441) NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,174 (587) CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 516 1,103 ------------ ------------ CASH AND CASH EQUIVALENTS, END OF YEAR $ 1,690 $ 516 ============ ============ CASH PAID FOR INTEREST $ 5,678 5,930 ============ ============ The accompanying notes are an integral part of these financial statements.
OCEAN STATE POWER II NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1997 (1) ORGANIZATION AND BUSINESS Organization and Management Ocean State Power II (OSP II) is a Rhode Island general partnership with four general partners (see Note 3). OSP II is managed by a committee of representatives from each of the partners and has no employees. Plant operations and project administration are performed under various contractual arrangements, as described below. Business OSP II was formed to construct, own and operate a combined cycle electric generating plant located in Burrillville, Rhode Island, adjacent to a second generating plant that is operated by an affiliate, Ocean State Power (OSP). The plant's average net capacity is approximately 250 megawatts, and it is fired by natural gas purchased under a firm 20- year gas purchase contract. The plant commenced commercial operations on October 1, 1991. The plant's capacity and energy output is being sold under 20-year take-or-pay unit power agreements to three investor-owned utilities located in Massachusetts and Rhode Island. These utilities are obligated to pay their portion of OSP II's total costs, including amounts for income taxes payable by partners, and a return on invested capital. The price of the energy sold is determined based on a Federal Energy Regulatory Commission (FERC) filed cost of service contract with an adjustment factor for unit availability. The following utilities have agreed to purchase electricity generated in the following proportions: Power Purchase Power Purchaser Affiliate of Percentage --------------- ------------ ----------- Boston Edison Company - 23.5% New England Power Company Narragansett Energy Resources Company 48.5 Montaup Electric Company EUA Ocean State Corporation 28.0 ------ 100.0% ====== (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Regulation OSP II's rates, operations, accounting and other matters are subject to the regulatory authority of the FERC and other federal and state agencies. Certain gas transportation agreements are also subject to regulation by Canadian authorities. OCEAN STATE POWER II NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1997 (Continued) (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Regulation (Continued) OSP II is subject to the provisions of Statement of Financial Accounting Standards (SFAS) No. 71, Accounting for the Effects of Certain Types of Regulation, and, therefore, certain of the accounting principles followed may differ from enterprises in general to reflect the economic effect of rate actions of the FERC. See Note 5 for a discussion of industry restructuring and the related uncertainties associated with accounting for regulated businesses. Allowance for Funds Used During Construction OSP II capitalizes an allowance for funds used during construction (AFUDC), which represents the net cost of borrowed funds used for construction purposes and a reasonable rate of return on OSP II's equity when used. These costs will be recovered over the service life of the plant in the form of revenue collected to recover depreciation expense. Electric Operating Revenues OSP II bills its customers monthly based on estimates in accordance with the agreements described in Note 1, with a subsequent true-up to reflect actual costs. Amounts due from customers at year-end but not yet reflected in customers' bills totaled approximately $496,000 in 1997 and $618,000 in 1996 and are included in accounts receivable. The unit power agreements contain incentive provisions related to the performance of the facility. These incentives provide for bonuses payable to OSP II based on the extent to which the electrical capability of the plant exceeds target performance levels. Alternatively, these incentives provide for decreases in capacity charges payable by power purchasers based on the extent to which the electrical capability of the plant falls below target levels. OSP II has billed and recorded revenues related to these performance incentives of $3.3 million in 1997 and $3.2 million in 1996. Unamortized Debt Expense Unamortized debt expense represents the costs incurred related to project financing and are amortized using the effective interest rate method over the original life of the debt. OCEAN STATE POWER II NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1997 (Continued) (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Depreciation and Site Restoration Depreciation is provided to allocate the cost of OSP II's electric plant on a straight-line basis over the following estimated useful lives: Plant and equipment Remaining life of unit power agreement (expires 2011) Following termination of operations, OSP II is obligated to restore the site to its original preconstruction condition. Based on a study conducted in 1991, the estimated cost, in future dollars, for OSP and OSP II is approximately $65 million. OSP II accrues for one half of the estimated site restoration costs over the life of the plant; OSP is responsible for the remaining half of the estimated costs. The estimate of site restoration is based on a number of assumptions. The future dollars estimate was determined by inflating individual costs from mid-1993 to the anticipated date of expenditure, expressed at six-month periods, at an annual 4.5% inflation rate. The 1994 FERC Settlement Agreement assumes an after-tax rate of return on amounts collected for site restoration of 5.5%, with collections beginning in November 1991 and continuing through October 2011. Changes in assumptions for such things as labor and material costs, technology, inflation and the timing of site restoration could cause this estimate to change in the near term. OSP II recognizes the relative uncertainties associated with site restoration, including its changing technology and the possibility of new requirements of law, and therefore recognizes the need to monitor and adjust site restoration collections through supplemental rate filings with the FERC. Funds are deposited into a trust pending their ultimate use. In accordance with SFAS No. 115, Accounting for Certain Investments in Debt and Equity Securities, OSP and OSP II have classified their site restoration funds as available- for-sale securities and reflected them at fair market value in the accompanying balance sheets. The investment income is retained within the trust account. The cost and fair market value of the site restoration fund at December 31, 1997 was $6,042,000 and $6,816,000, respectively, and at December 31, 1996 were $4,920,000 and $5,383,000, respectively. The staff of the Securities and Exchange Commission has questioned certain current accounting practices of the electric utility industry regarding the recognition, measurement and classification of decommissioning costs for nuclear generating stations in financial statements of electric utilities. In response to those questions, the Financial Accounting Standards Board (FASB) has initiated a review of the accounting for such costs. The FASB has OCEAN STATE POWER II NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1997 (Continued) (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Depreciation and Site Restoration (Continued) considered several approaches, including recording the entire estimated liability for decommissioning costs initially, rather than accruing the costs over the operating life of the generating unit. OSP II believes that such an accounting change, if adopted by the FASB, would not adversely affect OSP II's results of operations due to its ability to recover decommissioning costs through rates. Cash and Cash Equivalents OSP II considers all highly liquid investments with a maturity of three months or less to be cash equivalents. Income Taxes Income taxes are the responsibility of the partners and are not normally reflected in the financial statements of partnerships under generally accepted accounting principles. However, the billing calculation includes an allowance for income taxes, and the FERC requires that OSP II record this provision on its records to reflect the income taxes calculated as if OSP II were a taxable corporation. The provisions for current and deferred income taxes payable by partners are recorded without regard to whether each partner could utilize its share of OSP II tax deductions. Partners' capital and the net investment base are reduced by the amount equivalent to accumulated deferred federal income taxes payable by partners in calculating the allowed return. OSP II recognizes, in accordance with SFAS No. 109, Accounting for Income Taxes, tax assets and liabilities for the cumulative effect of all temporary differences between financial statement carrying amounts and the tax bases of assets and liabilities. The standard also requires the adjustment of deferred tax liabilities or assets for an enacted change in tax laws or rates, among other things. Planned Major Overhauls Periodic major overhauls of the gas and stream turbines will be necessary to maintain the facility's operating capacity. The Partnership follows the direct expensing method for these overhaul costs. Use of Estimates The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. OCEAN STATE POWER II NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1997 (Continued) (3) PARTNERS' CAPITAL The general partners, along with their respective equity interests, at December 31, 1997 are as follows:
Equity Partner Affiliate of Interest TCPL Power Ltd. TransCanada PipeLines Limited 40.0% EUA Ocean State Corporation Eastern Utilities Associates 29.9 Narragansett Energy Resources Company New England Electric System 20.0 JMC Ocean State Corporation J. Makowski Company, Inc. 10.1 ----- 100.0% =====
(4) LONG-TERM DEBT OSP Finance Company is a finance affiliate of OSP and OSP II (the Partnerships), and each Partnership owns 50% of its common stock. OSP Finance Company's single purpose is to provide long- term financing for the Partnerships. In October 1992, OSP Finance Company issued senior notes to various institutional investors in three tranches with fixed interest rates and varying maturity dates. Upon receipt of the senior note proceeds, OSP Finance Company extended loans to Partnerships, with terms the same as the senior notes. On July 20, 1994, the Partnerships entered into a revolving secured credit agreement (the Revolver) with a commercial bank for $15,000,000. The Partnerships must pay an annual commitment fee of .15% on the unused portion of the Revolver. Principal borrowings under the Revolver are payable in full at maturity. The Revolver expires on July 20, 2001 and bears interest at varying rates. The interest rate at December 31, 1997 and 1996 was 6.344% and 6.013%, respectively. The weighted average amount outstanding on this revolver at December 31, 1997 and 1996 was $3,367,000 and $1,342,000 for OSP II, respectively. Debt outstanding at December 31, 1997 is as follows (dollars in thousands): OCEAN STATE POWER II NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1997 (Continued) (4) LONG-TERM DEBT (Continued)
OSP OSP II Total 6.96% Series A senior notes due June 15, 2002 $26,701 $22,887 $49,588 7.92% Series B senior notes due February 15, 2006 22,077 18,923 41,000 8.21% Series C senior notes due September 15, 2011 31,231 26,769 58,000 Revolving line of credit - 3,300 3,300 ------- ------- ------- Total long-term debt 80,009 71,879 151,888 Less Current maturities 5,998 5,141 11,139 ------- ------- ------- Long-term debt, excluding current maturities $74,011 $66,738 $140,749 ======= ======= =======
Debt outstanding at December 31, 1996 is as follows (dollars in thousands):
OSP OSP II Total 6.96% Series A senior notes due June 15, 2002 $32,699 $28,028 $60,727 7.92% Series B senior notes due February 15, 2006 22,077 18,923 41,000 8.21% Series C senior notes due September 15, 2011 31,231 26,769 58,000 Revolving line of credit 4,500 2,000 6,500 ------- ------- ------- Total long-term debt 90,507 75,720 166,227 Less Current maturities 5,998 5,141 11,139 ------- ------- ------- Long-term debt, excluding current maturities $84,509 $70,579 $155,088 ======= ======= =======
The Partnerships are guarantors of the senior note agreement and the Revolver on a joint and several basis. The senior notes and amounts outstanding under the Revolver are collateralized by assignment of the rights and interest in all of the Partnerships' unit power agreements and all resulting proceeds, with the exception, however, of revenues under the unit power agreements that are attributable to domestic gas transportation, on which the domestic gas transporter has a first lien. The senior note agreement and the Revolver contain certain covenants, including restrictions on the creation of liens, sale of assets, amendment of agreements and the incurrence of additional indebtedness. OCEAN STATE POWER II NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1997 (Continued) (4) LONG-TERM DEBT (Continued) OSP II's share of the senior notes matures at $5,141,000 per year over the life of the senior notes. (5) COMMITMENTS AND CONTINGENCIES OSP II has entered into various agreements in connection with the operation of the power plant. OSP II is obligated under the following agreements/commitments. Gas Supply and Transportation OSP II has a firm, 20-year gas purchase contract with two Canadian suppliers for the purchase of 25,000 Mcf from each supplier per day or a total minimum of 12,318,750 Mcf per year, to be delivered to the U.S./Canadian border. One of the gas purchase contracts was entered into with an affiliate of TCPL Power Ltd., a general partner. OSP II may also purchase additional quantities of gas as available. The contract prices are based on an initial base price, subject to monthly adjustments based on changes in the New England Power Pool's (NEPOOL) Fossil Fuel Index price. These contracts provide OSP II with its primary fuel supply while maintaining other gas supply options and oil as backups. OSP II has a firm, 20-year fuel transportation agreement with Tennessee Gas Pipeline Company for delivery of natural gas from the U.S./Canadian border to the plant. The agreement may be extended beyond 20 years on a year-by-year basis. Tax Treaty The Partnerships entered into a tax treaty with the Town of Burrillville, Rhode Island, providing for annual payments to the town in lieu of any taxes that would normally be assessed. Payments are to be made quarterly over the 20- year period through 2011 and are to be shared equally by the Partnerships. The total payments for OSP II in 1997 and for each of the five years subsequent to December 31, 1997 are as follows (dollars in thousands): 1997 $1,546 1998 1,671 1999 1,774 2000 1,774 2001 1,774 2002 1,924 Other Commitments As part of the costs incurred to obtain the site on which the power unit is constructed, OSP II has entered into certain agreements that provide for payments in lieu of taxes in addition to the tax treaty above. OSP II agreed to OCEAN STATE POWER NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1997 (Continued) (5) COMMITMENTS AND CONTINGENCIES (Continued) Other Commitments (Continued) make annual payments to the scholarship and community service foundations in Burrillville, Rhode Island, and Uxbridge, Massachusetts, as well as to the Harrisville, Rhode Island, fire district in anticipation of any services to be rendered. Payments are to be made annually over the 20-year life and are to be shared equally by the Partnerships. Deferred Revenues OSP II filed its 1995 supplement to its rate schedules with the FERC on February 1, 1995, setting forth its proposed Return on Equity (ROE) of 12.90% for 1995. Three parties challenged OSP II's determination of the ROE and requested a hearing to determine the appropriate ROE for 1995. After a hearing was set, OSP II submitted an offer to settle the proceedings at an ROE of 12.33%, which the presiding administrative law judge certified to the FERC. The parties are currently waiting for the FERC's decision on whether to approve the settlement offer. At December 31, 1997, OSP II has deferred revenue recognition of $958,000 for the difference between 12.90% and 12.33%, OSP II's estimated result of the proceedings. Industry Restructuring The states in which OSP II's partners and power purchasers are based have utility restructuring plans in different stages of development or implementation. Some states, such as Massachusetts, call for an earlier initiation of retail competition and divestiture of generation assets, as well as providing for other arrangements for recovery of stranded costs. OSP II believes that there are many uncertainties associated with any major restructuring of the electric utility industry. Among them are: the positions that will ultimately be taken by the various New England states and their regulatory agencies and their applicability to OSP II; the role of the FERC in any restructuring involving OSP II, and the ultimate positions it will take on relevant issues within its jurisdiction; to what extent the United States Congress will take legislative action and, if it does, with what results; whether the necessary political consensus can be reached on the significant and complex issues involved in changing the long-standing structure of the electric utility industry; and to what extent electric utilities will be permitted to recover their strandable costs. OSP II cannot predict what form the restructuring of the electric utility industry will take, and therefore, what effect any resulting restructuring will have on OSP II's business operations or financial results. OCEAN STATE POWER NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1997 (Continued) (6) RELATED PARTIES Ownership Sales In November 1997, agreements were reached whereby an affiliate of TCPL Power Ltd. will acquire all of the issued and outstanding capital stock of JMC Ocean State Corporation and Narragansett Energy Resources Company. As part of the agreements, a separate affiliate of TCPL Power Ltd. will acquire all of the rights and obligations under the OSP and OSP II unit power agreements currently held by New England Power Company. These transactions are expected to close following approvals by federal and state regulators. Ground Lease OSP II entered into an agreement to lease certain property on which OSP II was constructed from OSP. The original lease term expires on December 31, 2011 and is renewable in five-year periods through September 2088. The lease may be terminated by OSP II with the appropriate written notice to OSP during the initial term. OSP may terminate the lease only upon its purchase of OSP II's power unit. Under the provisions of the lease, OSP II paid approximately $1.1 million of initial rent upon receipt of its construction financing. OSP II has classified amounts under this provision as prepaid rent to be amortized over the life of the lease. OSP has an option to acquire OSP II's power unit at any time at a price equal to the greater of its fair value or any amounts due under any mortgage on the unit. Common Facilities Lease OSP II entered into an agreement to lease from OSP an undivided interest in certain common facilities. The basic term expired on September 30, 1997. OSP I and OSP II are currently in the process of renewing this lease, which may be extended in five- year increments through September 2088. Rent is payable in an amount equal to OSP II's share of the monthly investment cost of the common facilities for the basic term of the lease and an amount equal to a fair market rental value of the leased property thereafter. OSP II is obligated to share in the costs of maintaining the facility and has an option to purchase its undivided interest in the common facilities for its appraised fair market values. The lease may be terminated by OSP II upon written notice and payment of certain rents based on the fair market value during the canceled term. Project Administration Agent Effective October 1, 1996, TransCanada Power (TCP), a division of TransCanada Energy Ltd., an affiliate of TCPL Power Ltd., was appointed project administration agent to manage the day-to-day affairs of OSP II. TCP is compensated at agreed-upon billing rates that are adjusted annually. OCEAN STATE POWER NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1997 (Continued) (6) RELATED PARTIES (Continued) Project Administration Agent (Continued) TCP was paid approximately $597,000 and $137,000 for services provided in 1997 and 1996, respectively. The prior project administration agent, J. Makowski Management Corp., was paid approximately $586,000 in 1996 for services rendered. Interconnection Facility OSP and OSP II entered into an agreement to lease the interconnection facility from Blackstone Valley Electric Company (BVE), an affiliate of Eastern Utilities Associates. Rent payments are to be paid monthly over the 20-year period through 2011 and are to be shared equally by the OSP and OSP II. OSP II paid BVE approximately $604,000 in 1997 and $637,000 in 1996 for use of the interconnection facility. Gas Layoff Sales During the years ended December 31, 1997 and 1996, OSP II made the following sales of available gas at market prices to the following affiliate entities (dollars in thousands):
1997 1996 Selkirk Cogen Partners (an affiliate of JMC Ocean State Corporation) $165 $- US Generating Corp. (an affiliate of JMC Ocean State Corporation) - 27
(7) PROVISION FOR INCOME TAXES PAYABLE BY PARTNERS OSP II provides an amount equal to income tax expense as if it were a separate corporation, and this amount is a component of cost of service. The partners are exempt from state income tax in Rhode Island. Computed federal income taxes payable by partners are as follows (dollars in thousands):
1997 1996 Current $5,507 $ 5,713 Deferred (300) (318) ------- ------- $5,207 $ 5,395 ======= =======
The tax effects of the temporary differences and tax carryforwards that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 1997 and 1996 are presented below (dollars in thousands): OCEAN STATE POWER NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1997 (Continued) (7) PROVISION FOR INCOME TAXES PAYABLE BY PARTNERS (Continued)
1997 1996 Deferred tax assets Site restoration reserve $2,374 $ 1,872 Other 241 215 ------- ------- Total deferred tax assets 2,615 2,087 ------- ------- Deferred tax liabilities Property, plant and equipment 5,469 5,244 Regulatory asset 42 39 ------- ------- Total deferred tax liabilities 5,511 5,283 ------- ------- Net deferred tax liability $2,896 $3,196 ======= =======
A valuation allowance has not been recorded at December 31, 1997 and 1996, since OSP II expects that all deferred income tax assets will be utilized in the future. (8) DISCLOSURE OF FAIR MARKET VALUE OF FINANCIAL INSTRUMENTS The carrying amounts of cash and cash equivalents approximate fair value because of the short maturity of these investments. The fair value of the site restoration fund is based on the quoted market prices of the investments of the fund. The fair value of long-term debt is estimated based on currently quoted market prices for similar types of borrowing arrangements. The estimated fair value of OSP II's financial instruments as of December 31, 1997 are as follows (dollars in thousands):
Carrying Value Fair Value Cash and cash equivalents $ 1,690 $ 1,690 Site restoration fund 6,816 6,816 Long-term debt 71,879 65,761
The estimated fair value of OSP II's financial instruments as of December 31, 1996 are as follows (dollars in thousands):
Carrying Value Fair Value Cash and cash equivalents $ 516 $ 516 Site restoration fund 5,383 5,383 Long-term debt 75,720 80,591
EX-99 10 EXHIBIT E.5 Exhibit E.5 ARTHUR ANDERSEN LLP OSP FINANCE COMPANY FINANCIAL STATEMENTS AS OF DECEMBER 31, 1997 AND 1996 TOGETHER WITH AUDITORS' REPORT ARTHUR ANDERSEN LLP REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Stockholders and the Board of Directors of OSP Finance Company: We have audited the accompanying balance sheets of OSP Finance Company (a Delaware corporation) as of December 31, 1997 and 1996, and the related statements of operations, stockholders' equity and cash flows for the years then ended. 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 audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit also 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 OSP Finance Company as of December 31, 1997 and 1996, and the results of its operations and its cash flows for the years then ended, in conformity with generally accepted accounting principles. s/Arthur Andersen LLP Boston, Massachusetts March 12, 1998 OSP FINANCE COMPANY BALANCE SHEETS DECEMBER 31, 1997 AND 1996 (DOLLARS IN THOUSANDS)
ASSETS 1997 1996 ----------- --------- CURRENT ASSETS: Loans receivable from stockholders: Ocean State Power $ 5,998 $ 5,998 Ocean State Power II 5,141 5,141 Interest receivable from stockholders: Ocean State Power 257 275 Ocean State Power II 220 235 ------------ ------------ Total current assets 11,616 11,649 ------------ ------------ LOANS RECEIVABLE FROM STOCKHOLDERS-NONCURRENT (Note 2): Ocean State Power 74,011 80,009 Ocean State Power II 63,438 68,579 ------------ ------------ Total loans receivable-noncurrent 137,449 148,588 ------------ ------------ $149,065 160,237 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Current maturities of senior notes (Note 2) $ 11,139 11,139 Accrued interest 477 510 ------------ ------------ Total current liabilities 11,616 11,649 SENIOR NOTES, EXCLUDING CURRENT MATURITIES (Note 2) 137,449 148,588 ------------ ------------ Total liabilities 149,065 160,237 ------------ ------------ STOCKHOLDERS' EQUITY: Common stock, $1.00 par value: Authorized 1,000 shares Issued and outstanding 20 shares - - Additional paid-in capital 1 1 Accumulated deficit (1) (1) ------------ ------------ Total stockholders' equity - - ------------ ------------ $149,065 160,237 ============ ============ The accompanying notes are an integral part of these financial statements.
OSP FINANCE COMPANY STATEMENTS OF OPERATIONS YEARS ENDED DECEMBER 31, 1997 AND 1996 (DOLLARS IN THOUSANDS)
1997 1996 ---------- ---------- INCOME: Interest from Ocean State Power $ 6,380 $ 6,797 Interest from Ocean State Power II 5,468 5,826 ----------- ----------- Total income 11,848 12,623 INTEREST EXPENSE: Senior notes due 2002 3,839 4,614 Senior notes due 2006 3,247 3,247 Senior notes due 2011 4,762 4,762 ----------- ----------- Total interest expense 11,848 12,623 ----------- ----------- Net income $ - $ - =========== =========== The accompanying notes are an integral part of these financial statements.
OSP FINANCE COMPANY STATEMENTS OF STOCKHOLDERS' EQUITY YEARS ENDED DECEMBER 31, 1997 AND 1996 (DOLLARS IN THOUSANDS)
Additional Total Common Paid-in Accumulated Stockholders' Stock Capital Deficit Equity -------- ---------- ------------ ------------- BALANCE AT DECEMBER 31, 1995 $ - $ 1 $ (1) $ - Net income - - - - -------- -------- ------- --------- BALANCE AT DECEMBER 31, 1996 $ - 1 (1) - Net income - - - - -------- ------- ------- -------- BALANCE AT DECEMBER 31, 1997 $ - $ 1 $ (1) $ - ======== ======= ======= ======== The accompanying notes are an integral part of these financial statements.
OSP FINANCE COMPANY STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 1997 AND 1996 (DOLLARS IN THOUSANDS)
1997 1996 ----------- ---------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ - $ - Adjustments to reconcile net income to net cash provided by operating activities: Changes in operating assets and liabilities: Interest receivable 33 32 Accrued interest (33) (32) ----------- ---------- Net cash provided by operating activities - - ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Repayment of loans by stockholders 11,139 11,139 ----------- ----------- Net cash provided by investing activities 11,139 11,139 ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Repayment of senior notes (11,139) (11,139) ----------- ----------- Net cash used for financing activities (11,139) (11,139) ----------- ----------- NET INCREASE IN CASH - - CASH, BEGINNING OF PERIOD - - ----------- ----------- CASH, END OF PERIOD $ - $ - =========== =========== CASH PAID FOR INTEREST $11,880 $12,655 =========== =========== The accompanying notes are an integral part of these financial statements.
OSP FINANCE COMPANY NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1997 (1) ORGANIZATION AND BUSINESS ------------------------- OSP Finance Company (the Company) was incorporated in July 1992 as a finance affiliate of Ocean State Power (OSP) and Ocean State Power II (OSP II). OSP and OSP II (the Partnerships) each own 50% of the Company's common stock. The Company's single purpose is to provide long-term debt financing for the Partnerships. Upon receipt of the senior note proceeds, as discussed in Note 2, the Company loaned the proceeds to the Partnerships. The costs associated with the refinancing were paid by the Partnerships. The interest and repayment terms of the loans receivable are the same as the senior notes. The Company does not expect to recognize any income(loss) for financial reporting or income tax purposes. The Partnerships were formed to construct, own and operate two combined-cycle electric generating plants located in Burrillville, Rhode Island. Each plant's average net capacity is approximately 250 megawatts, and each is fired by natural gas purchased under firm 20-year gas purchase contracts. OSP commenced commercial operations on December 31, 1990, and OSP II commenced commercial operations on October 1, 1991. Each plant's capacity and energy output is being sold under 20-year take-or-pay unit power agreements to three investor-owned utilities located in Massachusetts and Rhode Island. (2) SENIOR NOTES On October 19, 1992, the Company issued senior notes in three tranches with fixed interest rates and varying maturity dates. The senior notes were purchased by various institutional investors. A detail of the senior notes outstanding at December 31, 1997 is as follows:
OSP OSP II Total 6.96% Series A senior notes due June 15, 2002 $26,701 $22,887 $49,588 7.92% Series B senior notes due February 15, 2006 22,077 18,923 41,000 8.21% Series C senior notes due September 15, 2011 31,231 26,769 58,000 ------- ------- ------- Total senior notes payable 80,009 68,579 148,588 Less Current maturities 5,998 5,141 11,139 ------- ------- ------- Senior notes payable, excluding current maturities $74,011 $63,438 $137,449 ======= ======= =======
OSP FINANCE COMPANY NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1997 (Continued) (2) SENIOR NOTES (Continued) Senior notes outstanding at December 31, 1996 is as follows:
OSP OSP II Total 6.96% Series A senior notes due June 15, 2002 $32,699 $28,028 $60,727 7.92% Series B senior notes due February 15, 2006 22,077 18,923 41,000 8.21% Series C senior notes due September 15, 2011 31,231 26,769 58,000 ------- ------- ------- Total senior notes payable 86,007 73,720 159,727 Less Current maturities 5,998 5,141 11,139 ------- ------- ------- Senior notes payable, excluding current maturities $80,009 $68,579 $148,588 ======= ======= =======
The fair value of the Company's senior notes at December 31, 1997, estimated based on currently quoted market prices for similar types of borrowing arrangements, is approximately $135,332,000 in 1997 and $170,281,000 in 1996. The Partnerships are guarantors of the senior note agreement on a joint and several basis. The senior notes are collateralized by assignment of the rights and interest in all OSP and OSP II's unit power agreements and all resulting proceeds, with the exception, however, of revenues under the unit power agreements that are attributable to domestic gas transportation, on which the domestic gas transporter has a first lien. The senior note agreement contains certain covenants, including restrictions on the creation of liens, sale of assets, amendment of agreements and the incurrence of additional indebtedness. The senior notes mature at $11,139,000 per year, $5,998,000 for OSP and $5,141,000 for OSP II, over the life of the senior notes. EX-27 11 NEES FINANCIAL DATA SCHEDULE
OPUR1 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. 1,000 DEC-31-1997 DEC-31-1997 12-MOS PER-BOOK 3,913,792 376,046 473,483 548,326 0 5,311,647 64,970 736,605 954,518 1,744,442 0 39,113 1,487,481 0 0 251,950 89,910 0 0 0 1,698,751 5,311,647 2,502,591 152,024 1,983,706 2,135,730 366,861 (5,515) 361,346 122,342 220,038 6,851 220,038 152,812 107,311 521,113 $3.39 $3.39 Total deferred charges includes other assets. Preferred stock reflects preferred stock of subsidiaries. Preferred stock dividends reflect preferred stock dividends of subsidiaries. Total common stockholders equity includes treasury stock at cost and unrealized gain on securities. EX-27 12 MECO FINANCIAL DATA SCHEDULE
OPUR1 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. 1 MASSACHUSETTS ELECTRIC COMPANY 1,000 DEC-31-1997 DEC-31-1997 12-MOS PER-BOOK 1,126,876 0 236,041 45,450 0 1,408,367 59,953 239,169 201,156 500,407 0 15,739 338,387 4,800 0 29,900 20,000 0 0 0 499,134 1,408,367 1,624,085 42,454 1,479,940 1,522,394 101,691 (1,536) 100,155 34,397 65,758 2,821 62,937 23,981 27,612 147,607 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. Total common stockholders equity includes the unrealized gain on securities. EX-27 13 EXHIBIT G FINANCIAL DATA SCHEDULE
OPUR1 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. 2 THE NARRAGANSETT ELECTRIC COMPANY 1,000 DEC-31-1997 DEC-31-1997 12-MOS PER-BOOK 568,111 0 89,459 55,285 0 712,855 56,624 105,536 129,567 291,839 0 12,800 183,545 4,425 0 11,925 5,000 0 0 0 203,321 712,855 520,038 14,247 458,575 472,822 47,216 (750) 46,466 18,534 27,932 1,955 25,977 14,722 16,179 73,720 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. Total common stockholders equity includes the unrealized gain on securities. EX-27 14 NEP FINANCIAL DATA SCHEDULE
OPUR1 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. 3 NEW ENGLAND POWER COMPANY 1,000 DEC-31-1997 DEC-31-1997 12-MOS PER-BOOK 1,889,792 84,548 338,337 450,415 0 2,763,092 128,998 376,597 407,630 913,259 0 39,666 647,720 3,125 0 108,125 50,000 0 0 0 1,001,197 2,763,092 1,677,903 90,009 1,397,042 1,487,051 190,852 1,785 192,637 48,094 144,543 2,075 142,468 135,448 42,277 224,974 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. Total common stockholders equity includes the unrealized gain on securities. EX-27 15 GRANITE FINANCIAL DATA SCHEDULE
OPUR1 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE SHEET AND RELATED STATEMENTS OF INCOME, RETAINED EARNINGS AND CASH FLOWS OF GRANITE STATE ELECTRIC COMPANY, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 4 GRANITE STATE ELECTRIC COMPANY 1,000 DEC-31-1997 DEC-31-1997 12-MOS PER-BOOK 49,191 0 7,025 2,054 0 58,270 6,040 4,000 10,827 20,936 0 0 15,000 4,075 0 0 0 0 0 0 18,259 58,270 68,780 1,243 63,602 64,845 3,935 (51) 3,884 1,675 2,209 0 2,209 1,027 1,260 5,768 0 0 Total deferred charges includes other assets and other property and investments. Total common stockholders equity includes net unrealized gains on securities. Per share data is not relevant because the Company's common stock is wholly-owned by New England Electric System. EX-27 16 NEH FINANCIAL DATA SCHEDULE
OPUR1 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE SHEET AND RELATED STATEMENTS OF INCOME, RETAINED EARNINGS AND CASH FLOWS OF NEW ENGLAND HYDRO- TRANSMISSION ELECTRIC COMPANY, INC., AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 5 NEW ENGLAND HYDRO-TRANSMISSION ELECTRIC COMPANY, INC. 1,000 DEC-31-1997 DEC-31-1997 12-MOS PER-BOOK 158,958 5 5,524 4,473 0 168,960 37,000 15,156 386 52,542 0 0 77,610 0 0 0 6,960 0 0 0 31,848 168,960 41,078 5,834 19,060 24,894 16,184 167 16,351 8,130 8,221 0 8,221 8,035 8,123 18,200 0 0 EX-27 17 NHH FINANCIAL DATA SCHEDULE
OPUR1 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE SHEET AND RELATED STATEMENTS OF INCOME, RETAINED EARNINGS AND CASH FLOWS OF NEW ENGLAND HYDRO-TRANSMISSION CORPORATION, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 6 NEW ENGLAND HYDRO-TRANSMISSION CORPORATION 1,000 DEC-31-1997 DEC-31-1997 12-MOS PER-BOOK 132,434 5 1,569 5,156 0 139,164 18,350 15,118 868 34,336 0 0 47,360 0 0 0 4,560 0 0 0 52,908 139,164 32,415 3,022 19,216 22,238 10,177 59 10,236 5,046 5,190 0 5,190 5,139 4,997 14,974 0 0 EX-27 18 NEET FINANCIAL DATA SCHEDULE
OPUR1 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE SHEET AND RELATED STATEMENTS OF INCOME, RETAINED EARNINGS AND CASH FLOWS OF NEW ENGLAND ELECTRIC TRANSMISSION CORPORATION, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 7 NEW ENGLAND ELECTRIC TRANSMISSION CORPORATION 1,000 DEC-31-1997 DEC-31-1997 12-MOS PER-BOOK 39,070 0 165 341 0 39,576 100 2,400 310 2,810 0 0 16,240 2,400 0 0 4,624 0 0 0 13,502 39,576 9,680 (20) 6,631 6,611 3,069 0 3,069 2,209 860 0 860 735 2,080 4,720 0 0 Total deferred charges includes other assets. EX-27 19 NANTUCKET FINANCIAL DATA SCHEDULE
OPUR1 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE SHEET AND RELATED STATEMENTS OF INCOME, RETAINED EARNINGS AND CASH FLOWS OF NANTUCKET ELECTRIC COMPANY, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 8 NANTUCKET ELECTRIC COMPANY 1,000 DEC-31-1997 DEC-31-1997 12-MOS PER-BOOK 36,874 0 3,910 1,281 0 42,065 0 3,810 859 4,669 0 0 29,140 25 0 0 1,470 0 0 0 6,761 42,065 14,552 262 11,927 12,189 2,363 37 2,400 1,897 503 0 503 0 1,939 13,435 0 0 Total deferred charges includes other assets and other property and investments. -----END PRIVACY-ENHANCED MESSAGE-----