-----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, VGO/h4wOTaqIEU1HiVPmH+SDsHkzTPRLw3Gy75BJNqBtTgIMC1jPy+PvSH/5+/Nc nLorvbNn6B9dxwHLpvmdEg== 0000071337-96-000005.txt : 19960513 0000071337-96-000005.hdr.sgml : 19960513 ACCESSION NUMBER: 0000071337-96-000005 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19960331 FILED AS OF DATE: 19960510 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: NEW ENGLAND POWER CO CENTRAL INDEX KEY: 0000071337 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 041663070 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-06564 FILM NUMBER: 96560084 BUSINESS ADDRESS: STREET 1: 25 RESEARCH DR CITY: WESTBOROUGH STATE: MA ZIP: 01582 BUSINESS PHONE: 6173669011 10-Q 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1996 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number 1-6564 (LOGO) NEW ENGLAND POWER COMPANY (Exact name of registrant as specified in charter) MASSACHUSETTS 04-1663070 (State or other (I.R.S. Employer jurisdiction of Identification No.) incorporation or organization) 25 Research Drive, Westborough, Massachusetts 01582 (Address of principal executive offices) Registrant's telephone number, including area code (508-389-2000) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes (X) No ( ) Common stock, par value $20 per share, authorized and outstanding: 6,449,896 shares at March 31, 1996. PART I FINANCIAL INFORMATION Item 1. Financial Statements - ---------------------------- NEW ENGLAND POWER COMPANY Statements of Income Periods Ended March 31 (Unaudited)
Three Months Twelve Months ------------ ----------- 1996 1995 1996 1995 ---- ---- ---- ---- (In Thousands) Operating revenue, principally from affiliates $400,460 $391,118$1,579,882 $1,532,301 -------- -------- -------------------- Operating expenses: Fuel for generation 80,226 60,596 299,478 247,777 Purchased electric energy 125,534 145,341 528,119 538,086 Other operation 50,024 50,156 211,740 202,364 Maintenance 19,607 30,429 82,132 120,051 Depreciation and amortization 26,520 29,933 99,345 133,254 Taxes, other than income taxes 17,721 15,302 61,136 54,346 Income taxes 25,551 19,272 97,330 82,686 -------- -------- -------------------- Total operating expenses 345,183 351,029 1,379,280 1,378,564 -------- -------- -------------------- Operating income 55,277 40,089 200,602 153,737 Other income: Allowance for equity funds used during construction (5) 2,401 5,339 9,767 Equity in income of nuclear power companies1,344 1,400 5,666 4,929 Other income (expense) - net, including related taxes (1,991) (2,362) (1,240) (284) -------- -------- -------------------- Operating and other income 54,625 41,528 210,367 168,149 -------- -------- -------------------- Interest: Interest on long-term debt 11,705 11,238 47,264 40,797 Other interest 2,168 2,115 10,579 4,032 Allowance for borrowed funds used during construction - credit (221) (2,807) (8,893) (7,846) -------- -------- -------------------- Total interest 13,652 10,546 48,950 36,983 -------- -------- -------------------- Net income $ 40,973 $ 30,982 $ 161,417$ 131,166 ======== ======== ==================== Statements of Retained Earnings Retained earnings at beginning of period $385,309 $372,763 $ 372,250$ 370,289 Net income 40,973 30,982 161,417 131,166 Dividends declared on cumulative preferred stock (858) (858) (3,433) (3,432) Dividends declared on common stock (29,025) (30,637) (133,835) (125,773) -------- -------- -------------------- Retained earnings at end of period $396,399 $372,250 $ 396,399$ 372,250 ======== ======== ==================== The accompanying notes are an integral part of these financial statements. Per share data is not relevant because the Company's common stock is wholly- owned by New England Electric System.
NEW ENGLAND POWER COMPANY Balance Sheets (Unaudited)
March 31, December 31, ASSETS 1996 1995 ------ ---- ---- (In Thousands) Utility plant, at original cost $2,958,743 $2,941,469 Less accumulated provisions for depreciation and amortization 1,067,969 1,047,982 ---------- ---------- 1,890,774 1,893,487 Net investment in Seabrook 1 under rate settlement 11,407 15,210 Construction work in progress 46,156 41,566 ---------- ---------- Net utility plant 1,948,337 1,950,263 ---------- ---------- Investments: Nuclear power companies, at equity 47,302 47,055 Non-utility property and other investments, at cost 26,629 26,627 ---------- ---------- Total investments 73,931 73,682 ---------- ---------- Current assets: Cash 860 2,607 Accounts receivable, principally from sales of electric energy: Affiliated companies 205,839 204,314 Others 50,161 61,552 Fuel, materials, and supplies, at average cost 58,135 54,664 Prepaid and other current assets 29,472 27,986 ---------- ---------- Total current assets 344,467 351,123 ---------- ---------- Deferred charges and other assets 262,822 273,275 ---------- ---------- $2,629,557 $2,648,343 ========== ========== CAPITALIZATION AND LIABILITIES ------------------------------ Capitalization: Common stock, par value $20 per share, authorized and outstanding 6,449,896 shares $ 128,998 $ 128,998 Premiums on capital stocks 86,829 86,829 Other paid-in capital 288,000 288,000 Retained earnings 396,399 385,309 ---------- ---------- Total common equity 900,226 889,136 Cumulative preferred stock, par value $100 per share 60,516 60,516 Long-term debt 732,846 735,440 ---------- ---------- Total capitalization 1,693,588 1,685,092 ---------- ---------- Current liabilities: Long-term debt due within one year 3,000 10,000 Short-term debt (including $12,525,000 and $1,025,000 to affiliates 134,675 125,150 Accounts payable (including $46,874,000 and $50,760,000 to affiliates) 143,841 163,791 Accrued liabilities: Taxes 31,931 3,447 Interest 9,420 10,482 Other accrued expenses 12,093 10,834 Dividends payable 32,249 ---------- ---------- Total current liabilities 334,960 355,953 ---------- ---------- Deferred federal and state income taxes 388,057 390,197 Unamortized investment tax credits 57,003 57,509 Other reserves and deferred credits 155,949 159,592 ---------- ---------- $2,629,557 $2,648,343 ========== ========== The accompanying notes are an integral part of these financial statements.
NEW ENGLAND POWER COMPANY Statements of Cash Flows Quarters Ended March 31 (Unaudited)
1996 1995 ---- ---- (In Thousands) Operating activities: Net income $ 40,973 $ 30,982 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 28,421 31,661 Deferred income taxes and investment tax credits, net (1,930) 2,763 Allowance for funds used during construction (216) (5,208) Decrease (increase) in accounts receivable 9,866 14,738 Decrease (increase) in fuel, materials, and supplies (3,471) (763) Decrease (increase) in prepaid and other current assets (1,486) 6,028 Increase (decrease) in accounts payable (19,949) (11,943) Increase (decrease) in other current liabilities 28,681 15,830 Other, net 3,647 (13,141) -------- -------- Net cash provided by operating activities $ 84,536 $ 70,947 -------- -------- Investing activities: Plant expenditures, excluding allowance for funds used during construction $(23,676) $(40,259) -------- -------- Net cash used in investing activities $(23,676) $(40,259) -------- -------- Financing activities: Dividends paid on common stock $(61,274) Dividends paid on preferred stock (858) $ (858) Changes in short-term debt 9,525 (53,700) Long-term debt - issues 39,850 35,000 Long-term debt - retirements (49,850) (10,000) -------- -------- Net cash used in financing activities $(62,607) $(29,558) -------- -------- Net increase (decrease) in cash and cash equivalents $ (1,747) $ 1,130 Cash and cash equivalents at beginning of period 2,607 377 -------- -------- Cash and cash equivalents at end of period $ 860 $ 1,507 ======== ======== Supplementary information: Interest paid less amounts capitalized $ 13,774 $ 11,104 -------- -------- Federal and state income taxes paid (refunded) $ 4,049 $ (4,771) -------- -------- The accompanying notes are an integral part of these financial statements.
Note A - Investments in Nuclear Power Companies - ----------------------------------------------- A summary of combined results of operations, assets and liabilities of the four Yankee Nuclear Power Companies in which the Company has investments is as follows: Quarter Ended March 31, ---------------- 1996 1995 ---- ---- (In Thousands) Operating revenue $155,115 $207,280 ======== ======== Net income $ 7,388 $ 8,318 ======== ======== Company's equity in net income $ 1,344 $ 1,400 ======== ========
March 31, December 31, 1996 1995 ---- ---- (In Thousands) Plant $ 432,726 $ 443,967 Other assets 1,421,229 1,418,681 Liabilities and debt (1,603,022) (1,612,843) ----------- ----------- Net assets $ 250,933 $ 249,805 =========== =========== Company's equity in net assets $ 47,302 $ 47,055 =========== ===========
At March 31, 1996, $13 million of undistributed earnings of the nuclear power companies were included in the Company's retained earnings. Note B - Hazardous Waste - ------------------------ The Federal Comprehensive Environmental Response, Compensation and Liability Act, more commonly known as the "Superfund" law, imposes strict, joint and several liability, regardless of fault, for remediation of property contaminated with hazardous substances. A number of states, including Massachusetts, have enacted similar laws. Note B - Hazardous Waste - Continued - ------------------------ The electric utility industry typically utilizes and/or generates in its operations a range of potentially hazardous products and by-products. New England Electric System subsidiaries currently have in place an internal environmental audit program and an external waste disposal vendor audit and qualification program intended to enhance compliance with existing federal, state, and local requirements regarding the handling of potentially hazardous products and by-products. The Company has been named as a potentially responsible party (PRP) by either the U.S. Environmental Protection Agency or the Massachusetts Department of Environmental Protection for six sites at which hazardous waste is alleged to have been disposed. Private parties have also contacted or initiated legal proceedings against the Company regarding hazardous waste cleanup. The Company is currently aware of other sites, and may in the future become aware of additional sites, that it may be held responsible for remediating. Predicting the potential costs to investigate and remediate hazardous waste sites continues to be difficult. There are also significant uncertainties as to the portion, if any, of the investigation and remediation costs of any particular hazardous waste site that may ultimately be borne by the Company. Where appropriate, the Company intends to seek recovery from its insurers and from other PRPs, but it is uncertain whether, and to what extent, such efforts would be successful. The Company believes that hazardous waste liabilities for all sites of which it is aware are not material to its financial position. Note C - Millstone 3 Nuclear Generating Unit - -------------------------------------------- The Company is a 12 percent joint owner of the Millstone 3 nuclear generating unit, a 1,150 megawatt unit operated by subsidiaries of Northeast Utilities (NU). In March 1996, the unit was shut down as the result of an internal safety review. On April 4, 1996, the Nuclear Regulatory Commission (NRC) ordered Millstone 3 to remain shut down pending safety verification. The order also requires that specific technical issues be resolved prior to restarting the unit. Based on preliminary estimates provided by NU, the Company expects to incur approximately $1 million in incremental operation and maintenance costs related to Millstone 3. Replacement purchased power costs of approximately $1.5 million per month are also being incurred Note C - Millstone 3 Nuclear Generating Unit - Continued - -------------------------------------------- by the Company. The Company is not a joint owner of the Millstone 1 and 2 nuclear generating units, which are also shut down under NRC orders. NU has stated that the work required to comply with the NRC requirements for Millstone 3 is expected to be completed by July 1996. However, it is uncertain when any of the Millstone units will be allowed to restart. The New England Power Pool (NEPOOL) has indicated that if the Millstone units do not return to service during the summer peak-load period, there could, under certain circumstances, be insufficient power supply available in New England to meet demand. NEPOOL members are taking steps to prepare to meet summer load contingencies. Note D - Purchased Power Contract Dispute - ----------------------------------------- In October 1994, the Company was sued by Milford Power Limited Partnership (MPLP), a venture of Enron Corporation and Jones Capital that owns a 149 megawatt gas-fired power plant in Milford, Massachusetts. The Company purchases 56 percent of the power output of the facility under a long-term contract with MPLP. The suit alleged that the Company engaged in a scheme to cause MPLP and its power plant to fail and prevented MPLP from finding a long-term buyer for the remainder of the facility's output. MPLP sought compensatory damages in an unspecified amount, as well as treble damages. The Company had filed counterclaims and crossclaims against MPLP, Enron Corporation, and Jones Capital, seeking monetary damages and termination of the purchased power contract. On April 24, 1996, the Company and MPLP executed a settlement agreement under which each party agreed to the dismissal of the lawsuit and the counterclaims, the restructuring of their power and fuel purchase arrangements and the payment by MPLP to the Company of an undisclosed amount of money. MPLP will withdraw all allegations made by it against the Company, including claims that the Company deceived its regulators and violated federal criminal statutes. The settlement is contingent upon approval by the Federal Energy Regulatory Commission (FERC) of the restructured arrangements between MPLP and the Company, and a proposed sale of the MPLP partnership interests in the plant to subsidiaries of American National Power, Inc. MPLP also intervened in the Company's current rate filing before the FERC making similar allegations to those asserted in MPLP's lawsuit. In April 1996, an Administrative Law Judge from the FERC strongly rejected all claims by MPLP. The settlement referred to above also resolves this dispute before the FERC. Note E - New Accounting Standard - -------------------------------- In March 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of (FAS 121), effective for fiscal year 1996. This standard clarifies when and how to recognize an impairment of long-lived assets. In addition, FAS 121 requires that all regulatory assets, which must have a high probability of recovery to be initially established, must continue to meet that high probability standard to avoid being written off. However, if written off, a regulatory asset can be restored if it again has a high probability of recovery. This standard did not have a material impact on the financial condition or results of operations, upon adoption. However, the impact in future periods may change as competitive factors and restructuring influence the electric utility industry. Note F - ------ In the opinion of the Company, these statements reflect all adjustments (which include normal recurring adjustments) necessary for a fair statement of the results of its operations for the periods presented and should be considered in conjunction with the notes to the financial statements in the Company's 1995 Annual Report. Item 2. Management's Discussion and Analysis of Financial --------------------------------------------------------- Condition and Results of Operations ----------------------------------- This section contains management's assessment of New England Power Company's financial condition and the principal factors having an impact on the results of operations. This discussion should be read in conjunction with the Company's financial statements and footnotes and the 1995 Annual Report on Form 10-K. Earnings - -------- Net income increased for the first quarter by approximately $10 million compared with the corresponding period in 1995. This increase is due to sales growth, decreased purchased power expense, reduced overhaul activity of wholly-owned generating units and lower depreciation and amortization expense. These increases were partially offset by increased affiliate generation and transmission costs incurred for the benefit of the Company, increased taxes, and decreased allowances for funds used during construction. Competitive Conditions - ---------------------- The electric utility business is being subjected to rapidly increasing competitive pressures, stemming from a combination of trends, including the presence of surplus generating capacity, a disparity in electric rates among regions of the country, improvements in generation efficiency, increasing demand for customer choice, and new regulations and legislation intended to foster competition. See the Company's Annual Report on Form 10-K for the year ended December 31, 1995. In states across the country, including Massachusetts, Rhode Island, and New Hampshire, there have been an increasing number of proposals to allow retail customers to choose their electricity supplier, with incumbent utilities required to deliver that electricity over their transmission and distribution systems (also known as "retail wheeling"). Choice: New England In October 1995, the New England Electric System (NEES) companies announced a plan, Choice: New England, to allow all customers of electric utilities in Massachusetts, Rhode Island, and New Hampshire to choose their power supplier beginning in 1998. Under Choice: New England, the pricing of generation would be deregulated; however, transmission and distribution rates would remain regulated. Under Choice: New England, the Company's wholesale contracts with its affiliates would be terminated. In return, the plan proposes that the cost of the Company's past generation commitments be recovered through a wires access or transition charge to retail customers. Those commitments, which are currently estimated at approximately $4 billion on a present value basis, primarily consist of (i) generating plant commitments, (ii) regulatory assets, (iii) purchased power contracts, and (iv) the operating cost of nuclear plants which cannot be mitigated by shutting down the plants (otherwise referred to as "nuclear costs independent of operation"). Sunk costs associated with utility generating plants, such as past capital investments, and regulatory assets would be recovered over ten years, but at a return on equity of one percentage point over the interest rate on long-term "BBB" rated utility bonds. Purchased power contract costs and nuclear costs independent of operation would be recovered as incurred over the life of those obligations, a period expected to extend beyond ten years. Under Choice: New England, the access charge would be set at three cents per kWh for the first three years. Thereafter, the access charge would vary, but is expected to decline. The provisions of Choice: New England, including the proposed access charge, are subject to state approval and Federal Energy Regulatory Commission (FERC) approval. Choice: New England was formally filed by Massachusetts Electric Company (Massachusetts Electric), one of the Company's retail affiliates, with the Massachusetts Department of Public Utilities (MDPU) in February 1996. Three other utilities and the Massachusetts Division of Energy Resources (DOER) also filed plans with the MDPU in February 1996. The DOER's plan also calls for direct access for all customers beginning in 1998, with a pilot program beginning in 1997. The DOER plan, however, proposes that, in exchange for stranded cost recovery, utilities divest their generating assets, either through sale or spinoff. On May 1, 1996, the MDPU issued a set of proposed rules and regulations governing the implementation of retail choice. The proposed rules would allow all customers of Massachusetts investor-owned utilities to choose their electric supplier beginning in 1998 and would establish a price cap system for regulating the rates of distribution service that would continue to be provided by local utilities. The MDPU proposed rules affirm the principle of stranded cost recovery for utilities over ten years, but create uncertainties concerning the extent of actual stranded cost recovery. While the MDPU did not order mandatory divestiture of generating assets, it stated that it might provide utilities financial incentives to divest. Hearings on the proposed rules are scheduled for June and July. The MDPU has stated that it will issue final regulations in September 1996 and issue orders on the individual utility plans in 1997. The Narragansett Electric Company (Narragansett), a retail affiliate, filed Choice: New England with the Rhode Island Public Utilities Commission (RIPUC) in April 1996. The RIPUC has not yet scheduled hearings on restructuring plans. Other legislative and regulatory initiatives As described in the 1995 Annual Report on Form 10-K, legislation was proposed by the Speaker and Majority Leader of the House of Representatives of the Rhode Island Legislature that would allow electric customers in Rhode Island to choose their power supplier. This legislation, which is similar to Choice: New England, is pending and is expected to be amended prior to final consideration by the House of Representatives. Final consideration is expected to be completed by the summer of 1996. In April 1996, the New Hampshire Legislature passed legislation requiring a restructuring of the electric utility industry. The legislation sets forth principles for restructuring which are modeled after the principles adopted in Massachusetts and Rhode Island. The legislation directs the New Hampshire Public Utilities Commission (NHPUC) to conduct a proceeding to establish criteria for restructuring plans to be filed by each utility in June 1997 and to establish an interim stranded cost recovery charge for each utility, pending a final determination of the appropriate level of stranded cost recovery in the context of a rate proceeding. The bill allows the NHPUC significant discretion in determining the appropriate level of stranded cost recovery and is expected to be signed by the Governor. In April 1996, the FERC issued Order No. 888 addressing open access transmission and indicated that those utilities that own transmission facilities will be required to file open access tariffs to make available transmission service to affiliates and nonaffiliates at fair non-discriminatory rates. Order No. 888 also stated that public utilities will be allowed to seek recovery of legitimate and verifiable stranded costs from departing customers as a result of wholesale competition. The FERC indicated that it will provide for the recovery of retail stranded costs only if state regulators lack the legal authority to address those costs at the time retail wheeling is required. The FERC also stated that it would consider proposals for stranded cost recovery under wholesale requirements contracts, such as the contracts between the Company and its retail affiliates. In response to the FERC Notice of Proposed Rulemaking issued in advance of Order No. 888 discussed above, the Company and NEES Transmission Services, Inc. (NEES Trans), a proposed new subsidiary of NEES, filed transmission tariffs in March 1996 at the FERC that, if accepted by the FERC, will become applicable for all wholesale transmission transactions, including those of the NEES retail distribution affiliates. Under the proposed tariffs and accompanying support agreements, NEES Trans will provide all wholesale transmission services involving the NEES companies' facilities under comparable, nondiscriminatory transmission rates. The existing NEES companies, including the Company, would turn operational control of their transmission facilities over to NEES Trans in exchange for support payments from NEES Trans for these facilities. The Company may, at a later date, transfer its transmission assets to NEES Trans. The net book value of the Company's transmission system is approximately $340 million. The Company is requesting that its filing become effective by June 1, 1996 or upon approval by the Securities and Exchange Commission, for the establishment of this new company. The filing will be amended to conform to Order No. 888. If approved as filed, the implementation of the tariffs would not have a significant impact on the Company's revenues. Risk factors The major risk factors affecting recovery of at-risk assets are: (i) regulatory and legal decisions, (ii) the market price of power, and (iii) the amount of market share retained by the Company. First, there can be no assurance that a final restructuring plan ordered by regulatory bodies, or the courts, or through legislation will include an access charge that would fully recover stranded costs and include a fair return on those costs as they are being recovered. If laws are enacted or regulatory decisions are made that do not offer an opportunity to recover stranded costs, the Company believes it has strong legal arguments to challenge such laws or decisions. Such a challenge would be based, in part, on the assertion that subjecting utility generating assets to competition without compensation for stranded costs, while requiring utilities to open access to their wires at historic cost-based rates, would constitute an unconstitutional taking of property without just compensation. Second, the access charge proposed under Choice: New England recovers only sunk costs, such as plant expenditures and contractual commitments. Because of a regional surplus of electric generation capacity, current wholesale power prices in the short-term market are based on the short-run fuel costs of generating units. Such wholesale prices are not currently providing a significant contribution toward other marginal costs, such as operation and maintenance expenses. The Company expects this situation to continue in a retail market. Third, revenues will also be affected by the Company's ability to retain existing customers and attract new customers in a competitive environment. As a result of the pressure on market prices and market share, it is likely that, even if Choice: New England is implemented, the generating business will experience revenue losses and increased revenue volatility for an indeterminate period, which will limit its ability to contribute to consolidated earnings and dividend growth during that period. Historically, electric utility rates have been based on a utility's costs. As a result, electric utilities are subject to certain accounting standards that are not applicable to other business enterprises in general. Financial Accounting Standards No. 71, Accounting for the Effects of Certain Types of Regulation (FAS 71), requires regulated entities, in appropriate circumstances, to establish regulatory assets and liabilities, and thereby defer the income statement impact of certain costs that are expected to be recovered in future rates. The effects of regulatory, legislative, or utility initiatives, such as the proposed Rhode Island legislation, the proposed rules in Massachusetts, or Choice: New England, could, in the near future, cause all or a portion of the Company's operations to cease meeting the criteria of FAS 71. In that event, the application of FAS 71 to such operations would be discontinued and a non-cash write-off of previously established regulatory assets and liabilities related to such operations would be required. At December 31, 1995, the Company had pre-tax regulatory assets (net of regulatory liabilities) of approximately $300 million. In addition, the Company's affiliate, New England Energy Incorporated (NEEI), has a regulatory asset of approximately $200 million, which is recoverable in its entirety from the Company. In addition to the potential write-down of regulatory assets, write-downs of plant assets could be required if competitive or regulatory change should cause a substantial revenue loss, or lead to the permanent shutdown or sale of any generating facilities. Millstone 3 Nuclear Generating Unit - ----------------------------------- The Company is a 12 percent joint owner of the Millstone 3 nuclear generating unit, a 1,150 megawatt unit operated by subsidiaries of Northeast Utilities (NU). In March 1996, the unit was shut down as the result of an internal safety review. On April 4, 1996, the Nuclear Regulatory Commission (NRC) ordered Millstone 3 to remain shut down pending safety verification. The order also requires that specific technical issues be resolved prior to restarting the unit. Based on preliminary estimates provided by NU, the Company expects to incur approximately $3 million in incremental operation and maintenance costs related to Millstone 3. Replacement purchased power costs of approximately $1.5 million per month are also being incurred by the Company. The Company is not a joint owner of the Millstone 1 and 2 nuclear generating units, which are also shut down under NRC orders. NU has stated that the work required to comply with the NRC requirements for Millstone 3 is expected to be completed by July 1996. However, it is uncertain when any of the Millstone units will be allowed to restart. The New England Power Pool (NEPOOL) has indicated that if the Millstone units do not return to service during the summer peak-load period, there could, under certain circumstances, be insufficient power supply available in New England to meet demand. NEPOOL members are taking steps to prepare to meet summer load contingencies. Operating Revenue - ----------------- The following table summarizes the changes in operating revenue:
Increase (Decrease) in Operating Revenue First Quarter ------------- 1996 vs 1995 ------------- (In Millions) Sales increase $ 2 Fuel recovery 10 Narragansett integrated facilities credit (2) Other (1) --- $ 9 ===
For a discussion of fuel recovery see the fuel costs discussion in the Operating Expenses section. The entire output of Narragansett's generating capacity is made available to the Company. Narragansett receives a credit on its purchased power bill from the Company for its fuel costs and other generation and transmission related costs. The increased credits in 1996 relate to costs associated with the dismantlement of a previously retired South Street generating facility and with Narragansett's portion of the repowered Manchester Street generating station that went into service in the second half of 1995. Operating Expenses - ------------------ The following table summarizes the changes in operating expenses: Increase (Decrease) in Operating Expenses
First Quarter ------------- 1996 vs 1995 ------------- (In Millions) Fuel costs $ 12 Purchased energy excluding fuel (12) Operation and maintenance (11) Depreciation and amortization: Seabrook 1 and Oil Conservation Adjustment (OCA) amortization (7) Manchester Street Station depreciation 4 Taxes 8 ---- $ (6) ====
Fuel costs represent fuel for generation and the portion of purchased electric energy permitted to be recovered through the Company's fuel adjustment clause. The increase in fuel costs in the first quarter of 1996 reflects increased kWh sales and additional fixed pipeline demand charges. In accordance with a 1992 rate agreement, 50 percent of most of the Company's fixed pipeline demand charges in prior years were deferred pending completion of the Manchester Street Station repowering project. The project was completed in the second half of 1995 and, accordingly, no further amounts are being deferred. The previously deferred amounts are currently being amortized over 25 years. Purchased energy excluding fuel represents the remainder of purchased electric energy costs. The decrease in purchased energy excluding fuel for the first quarter of 1996 is principally due to first quarter 1995 overhauls and refueling shutdowns of three partially-owned nuclear power units. Two of these units are scheduled for refueling shutdowns in the second half of 1996. Under the existing terms of certain purchased power contracts with other utilities, the Company is reducing its power purchases in 1996, which will result in a $19 million reduction in purchased power expenses. The decrease in operation and maintenance costs primarily reflects overhauls at wholly-owned generating units in the first quarter of 1995, partially offset by general increases in costs in other areas. The decrease in Seabrook 1 and OCA amortization reflects the completion in mid-1995 of the recovery of a portion of Seabrook 1 costs and certain coal conversion costs. These decreases were partially offset by the depreciation of the Manchester Street Station. The change in taxes for the first quarter of 1996 is primarily due to the change in income for those periods and partially due to increased property taxes, including taxes on the Manchester Street Station. Allowance For Funds Used During Construction (AFDC) - -------------------------------------------------- AFDC decreased for the first quarter of 1996 due to decreased construction work in progress associated with the Manchester Street Station repowering project. The accrual of AFDC ended for this project when the units began commercial operation in the second half of 1995. Utility Plant Expenditures and Financing - ---------------------------------------- Cash expenditures for utility plant totaled $24 million for the first three months of 1996, including $9 million related to the Manchester Street Station repowering project. The funds necessary for utility plant expenditures during the period were provided by net cash from operating activities, after the payment of dividends and short-term debt issuances. In the first quarter of 1996, the Company refinanced $40 million of variable rate mortgage bonds. At March 31, 1996, the Company had $135 million of short-term debt outstanding, including $122 million of commercial paper borrowings and $13 million of borrowings from affiliates. At March 31, 1996, the Company had lines of credit and bond purchase facilities with banks totaling $510 million which are available to provide liquidity support for commercial paper borrowings and for $372 million of the Company's outstanding variable rate mortgage bonds in tax-exempt commercial paper mode and for other corporate purposes. There were no borrowings under these lines of credit at March 31, 1996. For the twelve-month period ending March 31, 1996, the ratio of earnings to fixed charges was 5.24. PART II. OTHER INFORMATION Item 1. Legal Proceedings - -------------------------- Information concerning a settlement agreement regarding a lawsuit filed against the Company by Milford Power Limited Partnership on October 28, 1994, and intervention into a Company rate filing, discussed in this report in Note D of Notes to Unaudited Financial Statements, is incorporated herein by reference and made a part hereof. Information concerning restructuring dockets before state and federal regulatory agencies, discussed in Part I of this report in Management's Discussion and Analysis of Financial Condition and Results of Operations, is incorporated herein by reference and made a part hereof. Item 6. Exhibits and Reports on Form 8-K - ----------------------------------------- The Company is filing the following revised exhibit for incorporation by reference into its registration statements on Form S-3, Commission file Nos. 33-48257, 33-48897, and 33-49193: 12 Statement re computation of ratios The Company is filing Financial Data Schedules. The Company filed reports on Form 8-K dated February 1, 1996, and February 16, 1996, both containing Item 5, Other Events. SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report on Form 10-Q for the quarter ended March 31, 1996 to be signed on its behalf by the undersigned thereunto duly authorized. NEW ENGLAND POWER COMPANY s/Michael E. Jesanis Michael E. Jesanis, Treasurer, Authorized Officer, and Principal Financial Officer Date: May 10, 1996 EX-99 2 EXHIBIT INDEX EXHIBIT INDEX ============= EXHIBIT DESCRIPTION PAGE - ------- ----------- ---- 12 Statement re Computation Filed Herewith of Ratios 27 Financial Data Schedule Filed Herewith EX-12 3 EXHIBIT 12 NEW ENGLAND POWER COMPANY Computation of Ratio of Earnings to Fixed Charges (SEC Coverage) (Unaudited)
12 Months Ended March 31, 1996 Years Ended December 31, Actual -------------------------------------------------------------- (Unaudited) 1995 1994 1993 1992 1991 -------------- ---- ---- ---- ---- ---- (In Thousands) Net Income $161,417 $151,427 $149,373 $141,468 $134,151 $134,747 - ---------- Less undistributed income of nuclear power companies (298) 707 6 544 320 (240) -------- -------- -------- -------- -------- -------- 161,715 150,720 149,367 140,924 133,831 134,987 Add income taxes and fixed charges - ---------------------------------- Current federal income taxes 64,515 55,094 61,350 62,454 64,417 62,182 Deferred federal income taxes 17,145 21,001 20,501 17,745 4,741 11,134 Investment tax credits - net (1,536) (1,505) (3,577) (2,606) (1,328) (7,732) State income taxes 17,524 16,814 17,328 17,242 14,596 15,526 Interest on long-term debt 47,264 46,797 38,711 45,837 59,382 67,426 Interest on short-term debt and other interest 10,579 10,525 1,956 5,427 2,071 2,490 Estimated interest component of rentals 3,288 3,349 3,635 3,851 4,121 4,115 -------- -------- -------- -------- -------- -------- Net earnings available for fixed charges $320,494 $302,795 $289,271 $290,874 $281,831 $290,129 ======== ======== ======== ======== ======== ======== Fixed charges: Interest on long-term debt $47,264 $ 46,797 $ 38,711 $ 45,837 $ 59,382 $ 67,426 Interest on short-term debt and other interest 10,579 10,525 1,956 5,427 2,071 2,490 Estimated interest component of rentals 3,288 3,349 3,635 3,851 4,121 4,115 -------- -------- -------- -------- -------- -------- Total fixed charges $61,131 $ 60,671 $ 44,302 $ 55,115 $ 65,574 $ 74,031 ======== ======== ======== ======== ======== ======== Ratio of earnings to fixed charges 5.24 4.99 6.53 5.28 4.30 3.92 - ----------------------------------
EX-27 4
UT THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE SHEET AND RELATED STATEMENTS OF INCOME, RETAINED EARNINGS AND CASH FLOWS OF NEW ENGLAND POWER COMPANY, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 DEC-31-1996 DEC-31-1995 MAR-31-1996 MAR-31-1995 3-MOS 3-MOS PER-BOOK PER-BOOK 1,948,337 0 73,931 0 344,467 0 262,822 0 0 0 2,629,557 0 128,998 0 374,829 0 396,399 0 900,226 0 0 0 60,516 0 732,846 0 134,675 0 0 0 0 0 3,000 0 0 0 0 0 0 0 798,294 0 2,629,557 0 400,460 391,118 25,551 19,272 319,632 331,757 345,183 351,029 55,277 40,089 (652) 1,439 54,625 41,528 13,652 10,546 40,973 30,982 858 858 40,115 30,124 29,025 30,637 11,705 11,238 84,536 70,947 0 0 0 0 Total deferred charges includes other assets and accrued Yankee Atomic costs. Short-term notes includes commercial paper obligations and notes payable to associated companies. Per share data is not relevant because the Company's common stock is wholly-owned by New England Electric System. -----END PRIVACY-ENHANCED MESSAGE-----