-----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, TPGdKRYnui8kLTveU3qdWH5brXjLlaqT/lFrNScru/wU4ZhPRfkV98JjMaj6gOCX jrhg6n2oUiOTnBHwNfb8Dg== /in/edgar/work/0000071337-00-000005/0000071337-00-000005.txt : 20001114 0000071337-00-000005.hdr.sgml : 20001114 ACCESSION NUMBER: 0000071337-00-000005 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20000930 FILED AS OF DATE: 20001113 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NEW ENGLAND POWER CO CENTRAL INDEX KEY: 0000071337 STANDARD INDUSTRIAL CLASSIFICATION: [4911 ] IRS NUMBER: 041663070 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 002-26651 FILM NUMBER: 758530 BUSINESS ADDRESS: STREET 1: 25 RESEARCH DR CITY: WESTBOROUGH STATE: MA ZIP: 01582 BUSINESS PHONE: 6173669011 10-Q 1 0001.txt SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2000 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: 3,619,896 shares at September 30, 2000. PART I FINANCIAL INFORMATION Item 1. Financial Statements - ---------------------------- NEW ENGLAND POWER COMPANY Statements of Income Periods Ended September 30 (Unaudited)
Quarter Six Months -------- ---------- 2000 1999 2000 1999 ---- ---- ---- ---- (In Thousands) Operating revenue, principally from affiliates $175,390 $142,066 $331,580 $281,686 -------- -------- -------- -------- Operating expenses: Fuel for generation 4,296 3,857 7,882 6,071 Purchased electric energy: Contract termination and nuclear unit shutdown charges 61,377 47,769 120,981 95,925 Other 16,659 14,330 32,175 26,923 Other operation 17,856 17,665 32,506 33,725 Maintenance 5,862 5,569 10,686 16,971 Depreciation and amortization 22,480 21,210 43,247 42,203 Taxes, other than income taxes 5,894 5,316 11,697 11,075 Income taxes 15,734 7,568 26,929 16,215 -------- -------- -------- -------- Total operating expenses 150,158 123,284 286,103 249,108 -------- -------- -------- -------- Operating income 25,232 18,782 45,477 32,578 Other income and (expense): Allowance for equity funds used during construction - 447 (2) 988 Equity in income of nuclear power companies1,949 1,001 2,817 1,968 Amortization of goodwill (4,446) - (8,783) - Other income (expense), net (124) 935 2,224 3,186 -------- -------- -------- -------- Operating and other income 22,611 21,165 41,733 38,720 -------- -------- -------- -------- Interest: Interest on long-term debt 4,456 3,370 8,442 6,571 Other interest 1,899 246 3,140 452 Allowance for borrowed funds used during construction (204) (120) (532) (226) -------- -------- -------- -------- Total interest 6,151 3,496 11,050 6,797 -------- -------- -------- -------- Net income $ 16,460 $ 17,669 $ 30,683 $ 31,923 ======== ======== ======== ======== Statements of Retained Earnings (In Thousands) Retained earnings at beginning of period $ 16,077 $232,070 $ 1,415 $217,839 Net income 16,460 17,669 30,683 31,923 Dividends declared on cumulative preferred stock (24) (24) (47) (47) Dividends declared on common stock - - - - Gain on redemption of preferred stock 17 - 17 - Repurchase of common stock - 264 - 264 Acquisition adjustment - - 462 - -------- -------- -------- -------- Retained earnings at end of period $ 32,530 $249,979 $ 32,530 $249,979 ======== ======== ======== ======== 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 National Grid USA.
NEW ENGLAND POWER COMPANY Statements of Income Twelve Months Ended September 30 (Unaudited)
2000 1999 ---- ---- (In Thousands) Operating revenue, principally from affiliates $ 613,622 $586,167 --------- -------- Operating expenses: Fuel for generation 15,104 11,528 Purchased electric energy: Contract termination and nuclear unit shutdown charges 213,365 190,910 Other 65,554 46,813 Other operation 66,267 75,126 Maintenance 20,805 30,272 Depreciation and amortization 80,719 98,149 Taxes, other than income taxes 20,831 19,452 Income taxes 44,888 37,829 -------- -------- Total operating expenses 527,533 510,079 -------- -------- Operating income 86,089 76,088 Other income and (expense): Allowance for equity funds used during construction (13) 2,095 Equity in income of nuclear power companies 4,135 3,609 Amortization of goodwill (9,149) - Other income (expense), net 2,541 2,912 -------- -------- Operating and other income 83,603 84,704 -------- -------- Interest: Interest on long-term debt 16,529 13,538 Other interest 4,304 831 Allowance for borrowed funds used during construction (1,121) (497) -------- -------- Total interest 19,712 13,872 -------- -------- Net income $ 63,891 $ 70,832 ========= ======== Statements of Retained Earnings (In Thousands) Retained earnings at beginning of period $ 249,979 $186,354 Net income 63,891 70,832 Dividends declared on cumulative preferred stock (94) (122) Dividends declared on common stock (265,513) - Gain on redemption of preferred stock 17 - Repurchase of common stock - (7,085) Purchase accounting adjustment (16,212) - Acquisition adjustment 462 - --------- -------- Retained earnings at end of period $ 32,530 $249,979 ========= ======== 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 National Grid USA.
NEW ENGLAND POWER COMPANY Balance Sheets (Unaudited)
September 30, March 31, ASSETS 2000 2000 ------ ---- ---- (In Thousands) Utility plant, at original cost $1,566,774 $1,318,026 Less accumulated provisions for depreciation and amortization 961,493 854,309 ---------- ---------- 605,281 463,717 Construction work in progress 36,647 35,730 ---------- ---------- Net utility plant 641,928 499,447 ---------- ---------- Goodwill, net of amortization 340,523 333,771 Investments: Nuclear power companies, at equity 49,325 45,966 Decommissioning trust funds 46,888 36,279 Non-utility property and other investments 14,744 7,490 ---------- ---------- Total investments 110,957 89,735 ---------- ---------- Current assets: Cash, and temporary cash investments (including $-0- and $37,820,000 with affiliates) 47,897 226,921 Accounts receivable: Affiliated companies 80,522 72,780 Others 80,973 48,139 Fuel, materials, and supplies, at average cost 9,847 10,345 Prepaid and other current assets 26,111 25,377 Regulatory asset purchased power obligations 103,789 74,988 ---------- ---------- Total current assets 349,139 458,550 ---------- ---------- Regulatory assets 1,587,179 1,210,800 Deferred charges and other assets 53,484 37,271 ---------- ---------- $3,083,210 $2,629,574 ========== ========== CAPITALIZATION AND LIABILITIES ------------------------------ Capitalization: Common stock, par value $20 per share, Authorized - 6,449,896 shares Outstanding - 3,619,896 shares $ 72,398 $ 72,398 Other paid-in capital 730,413 582,983 Retained earnings 32,530 1,415 Unrealized gain on securities, net 17 - ---------- ---------- Total common equity 835,358 656,796 Cumulative preferred stock, par value $100 per share 1,471 1,567 Long-term debt 371,776 371,773 ---------- ---------- Total capitalization 1,208,605 1,030,136 ---------- ---------- Current liabilities: Short-term debt (including $100,000,000 and $-0- to parent) 163,500 38,500 Accounts payable (including $21,989,000 and $26,993,000 to affiliates) 76,149 51,584 Accrued liabilities: Taxes 3,105 2,394 Interest 1,518 1,900 Purchased power contract obligations 103,789 74,988 Other accrued expenses 7,046 10,879 Dividends payable 23 256,487 ---------- ---------- Total current liabilities 355,130 436,732 ---------- ---------- Deferred federal and state income taxes 278,371 176,351 Unamortized investment tax credits 16,015 16,733 Accrued Yankee nuclear plant costs 300,700 268,855 Purchased power obligations 662,625 611,802 Other reserves and deferred credits 261,764 88,965 ---------- ---------- $3,083,210 $2,629,574 ========== ========== The accompanying notes are an integral part of these financial statements.
NEW ENGLAND POWER COMPANY Statements of Cash Flows Six Months Ended September 30 (Unaudited)
2000 1999 ---- ---- (In Thousands) Operating Activities: Net income $ 30,683 $ 31,923 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 47,646 44,870 Amortization of goodwill 8,783 - Deferred income taxes and investment tax credits, net (1,815) (8,375) Allowance for funds used during construction (530) (1,215) Changes in assets and liabilities, net of effects of merger: Decrease (increase) in accounts receivable, net (18,735) (11,408) Decrease (increase) in fuel, materials, and supplies 602 (1,206) Decrease (increase) in regulatory assets 142,232 127,305 Decrease (increase) in prepaid and other current assets 2,441 (18,065) Increase (decrease) in accounts payable 9,319 1,386 Increase (decrease) in purchased power contract obligations (96,633) (55,719) Increase (decrease) in other current liabilities (6,070) 6,787 Increase (decrease) in other non-current liabilities (16,328) (13,228) Other, net (29,740) (37,549) --------- -------- Net cash provided by (used in) operating activities $ 71,855 $ 65,506 --------- -------- Investing Activities: Plant expenditures, excluding allowance for funds used during construction $ (22,121) $(27,586) Other investing activities (6,594) (199) --------- -------- Net cash provided by (used in) investing activities $ (28,715) $(27,785) --------- -------- Financing Activities: Dividends paid on common stock $(256,463) $ - Dividends paid on preferred stock (47) (47) Changes in short-term debt 125,000 38,500 Long-term debt - retirements (90,575) - Redemption of preferred stock, net of discount (79) - --------- -------- Net cash provided by (used in) financing activities $(222,164) $ 38,453 --------- -------- Net increase (decrease) in cash and cash equivalents $(179,024) $ 76,174 Cash and cash equivalents at beginning of period 226,921 165,981 --------- -------- Cash and cash equivalents at end of period $ 47,897 $242,155 ========= ======== The accompanying notes are an integral part of these financial statements.
Note A - Hazardous Waste - ------------------------ The Federal Comprehensive Environmental Response, Compensation and Liability Act, more commonly known as the "Superfund" law, imposes strict, joint and several liability, regardless of fault, for remediation of property contaminated with hazardous substances. A number of states, including Massachusetts, have enacted similar laws. The electric utility industry typically utilizes and/or generates in its operations a range of potentially hazardous products and by-products. New England Power Company (the Company) currently has in place an internal environmental audit program and an external waste disposal vendor audit and qualification program intended to enhance compliance with existing federal, state, and local requirements regarding the handling of potentially hazardous products and by-products. The Company has been named as a potentially responsible party (PRP) by either the United States Environmental Protection Agency or the Massachusetts Department of Environmental Protection for several 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 possible hazardous waste 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. The Company has recovered amounts from certain insurers, and, where appropriate, intends to seek recovery from other insurers and from other PRPs, but it is uncertain whether, and to what extent, such efforts will be successful. The Company believes that hazardous waste liabilities for all sites of which the Company is aware are not material to its financial position. Note B - Nuclear Units - ---------------------- Yankee Nuclear Power Companies (Yankees) The Company has minority interests in four Yankee Nuclear Power Companies. These ownership interests are accounted for on the equity method. The Company's share of the expenses of the Yankees is accounted for in "Purchased electric energy" on the income statement. A summary of combined results of operations, assets, and liabilities of the four Yankees is as follows:
Quarters Ended Six Months Ended September 30, --------------------------------------- 2000 1999 2000 1999 ---- ---- ---- ---- (In Thousands) Operating revenue $82,653 $91,361 $170,204 $183,170 ======= ======= ======== ======== Net income $18,845 $ 1,167 $ 22,969 $ 6,296 ======= ======= ======== ======== Company's equity in net income recorded $ 1,949 $ 1,001 $ 2,817 $ 1,968 ======= ======= ======== ======== September 30, March 31, 2000 2000 ---- ---- (In Thousands) Net plant $ 156,017 $ 167,317 Other assets 2,140,575 2,520,887 Liabilities and debt (2,082,277) (2,437,609) ----------- ----------- Net assets $ 214,315 $ 250,595 =========== =========== Company's equity in net assets $ 49,325 $ 45,966 =========== ===========
Nuclear Units Permanently Shut Down Three regional nuclear generating companies in which the Company has a minority interest own nuclear generating units that have been permanently shut down. These three units are as follows:
Future The Company's Estimated Investment Billings to as of 9/30/00 Date the Company Unit % $(millions) Retired $(millions) - ----------------------------------------------------------------- Yankee Atomic 34.5 4 Feb 1992 0 Connecticut Yankee 19.5 15 Dec 1996 75 Maine Yankee 24.0 18 Aug 1997 143
In the case of each of these units, the Company has recorded a liability and an offsetting regulatory asset reflecting the estimated future billings from the companies. In a 1993 decision, the Federal Energy Regulatory Commission (FERC) allowed Yankee Atomic to recover its undepreciated investment in the plant, including a return on that investment, as well as unfunded nuclear decommissioning costs and other costs. Maine Yankee and Connecticut Yankee recover their costs, including a return, in accordance with settlement agreements approved by the FERC in May 1999 and July 2000, respectively. Prospectively, under the FERC settlement agreement, Connecticut Yankee has agreed to reduce annual collections for decommissioning through the use of its pre-1983 spent fuel trust funds and to limit its return on equity to 6 percent. In addition, Connecticut Yankee, Yankee Atomic, and Maine Yankee continue to pursue litigation against the Department of Energy (DOE) to assume financial responsibility for storage of spent nuclear fuel. Under rate provisions approved by the FERC for Connecticut Yankee and Yankee Atomic, any recovery from the DOE proceedings after litigation expenses and taxes would be returned to customers. A Maine statute provides that if both Maine Yankee and its decommissioning trust fund have insufficient assets to pay for the plant decommissioning, the owners of Maine Yankee are jointly and severally liable for the shortfall. Maine Yankee had hired Stone & Webster, Inc. (S&W), an engineering, construction, and consulting company, as the principal contractor to decommission the unit. In May 2000, Maine Yankee terminated its long-term contract with S&W and negotiated an arrangement with S&W to continue work until June 2000. On June 2, 2000, S&W filed for Chapter 11 bankruptcy protection due to financial difficulties. S&W was ultimately acquired by Shaw Engineering Group. Bids were submitted to Maine Yankee on October 31, 2000, by candidates to succeed S&W as the principal contractor to complete decommissioning. On June 30, 2000, Federal Insurance Company (Federal) filed a complaint in S&W's bankruptcy proceeding which alleges that Maine Yankee improperly terminated its contract with S&W. If the court were to make such a finding, Federal would be excused from a $37 million performance bond liability to Maine Yankee. Federal's complaint has been removed to the US Federal District Court in Maine for jury trial. On August 24, 2000, Maine Yankee filed a $78.2 million damage claim against S&W in the bankruptcy proceeding. At this time, the Company is unable to determine the potential impact, if any, of these developments. Under the provisions of the Company's industry restructuring settlement agreements approved by state and federal regulators in 1998, the Company recovers all costs, including shutdown costs, that the FERC allows these Yankee companies to bill to the Company. Operating Nuclear Units The Company has minority interests in three operating nuclear generating units which the Company is engaged in efforts to divest: Vermont Yankee, Millstone 3, and Seabrook 1. Uncertainties regarding the future of nuclear generating stations, particularly older units, such as Vermont Yankee, have increased in recent years and could adversely affect their service lives, availability, and costs. These uncertainties stem from a combination of factors, including the acceleration of competitive pressures in the power generation industry and increased Nuclear Regulatory Commission (NRC) scrutiny. The Company performs periodic economic viability reviews of operating nuclear units in which it holds ownership interests. Until such time as the Company divests its operating nuclear interests, the Company will share with customers, through contract termination charges (CTC), 80 percent of the revenues and operating costs related to the Company's interest in these units, with shareholders retaining the balance. Vermont Yankee The following table summarizes the Company's interest in the Vermont Yankee Nuclear Power Corporation as of September 30, 2000:
The Company's Interest (millions of dollars) Equity Net Estimated Decommissioning Ownership Equity Plant Decommissioning Fund License Interest (%) Investment Assets Cost (in 1999$) Balance Expiration ------------ ---------- ------ --------------- ------- ---------- 22.5 $12 $35 $97 $51 2012
In November 1999, the Vermont Yankee Nuclear Power Corporation entered into an agreement with AmerGen Energy Company (AmerGen), a joint venture between PECO Energy and British Energy, to sell the assets of Vermont Yankee. Under the terms of the agreement, after a Vermont Yankee contribution toward the plant's decommissioning trust fund, AmerGen will take over the fund and assume responsibility for the actual cost of decommissioning the plant. The agreement would also require the existing power purchasers (including the Company) to continue to purchase the output of the plant or to buy out of the purchased power obligation. In November 1999, the Company signed an agreement to buy out of its obligation, requiring future payments which will be recovered through the Company's CTC. The Company has recorded an accrued liability and offsetting regulatory asset of $80 million for its share of future liabilities related to Vermont Yankee, including the purchased power contract termination payment obligation, but excluding interest and a return allowance. Although the NRC and the FERC have technically approved the proposed sale, Vermont Yankee has notified AmerGen that neither approval can be deemed final and therefore both approvals remain subject to resolution of certain issues before they would be considered satisfactory to Vermont Yankee in accordance with the terms of its sale agreements with AmerGen. The sale is also contingent upon additional regulatory approvals by the Securities and Exchange Commission, under the Public Utility Holding Company Act of 1935, and the Vermont Public Service Board (VPSB). The Vermont Department of Public Service (VDPS) has filed briefs with the VPSB opposing the transaction. On October 26, 2000, however, the VPSB granted a motion filed by AmerGen, which was supported by the VDPS and Vermont Yankee, requesting the VPSB to delay any decision in the Vermont proceeding until November 15, 2000. AmerGen requested the delay to provide the parties with sufficient time to consider a revised settlement proposal. Millstone 3 In November 1999, the Company entered into an agreement with Northeast Utilities (NU) and certain of NU's subsidiaries to settle claims made by the Company relative to the operation of Millstone 3. Among other things, the settlement provides for NU to include the Company's share of Millstone 3 in an auction of NU's share of the unit. Upon the closing of the sale, NU will pay the Company a total of $25 million, regardless of the actual sale price, and reimburse the Company for any capital expenditures in excess of pre-budgeted levels incurred after October 1999. The Company will also be reimbursed for fuel procurement expenditures which increase net nuclear fuel account balances above balances at that time. The settlement also requires NU to indemnify the Company and assume any residual liabilities resulting from the sale, including any requirements that the sellers continue to purchase output from the unit. In addition, the settlement requires NU to pay the Company an additional $1 million per month for every month beyond April 1, 2001 that the closing does not occur. On August 7, 2000, Dominion Resources, Inc. (Dominion) agreed to purchase the Millstone units, including the Company's 16.2 percent share of Millstone 3, for $1.3 billion in cash. The purchase has received clearance from the Department of Justice/Federal Trade Commission. The purchase must also be approved by the NRC, the FERC, and public utility commissions in various states affected by the purchase transaction. Filings for approval have been made with each regulatory agency. Dominion expects to finalize the transaction by April 2001. Any amounts received pursuant to a sale will, after reimbursement of the Company's transaction costs and net investment in Millstone 3, be credited to customers. Seabrook 1 As part of its restructuring settlement with the State of New Hampshire, Public Service Company of New Hampshire (PSNH), through its affiliate, North Atlantic Energy Corporation (NAEC), has committed to seek New Hampshire Public Utilities Commission approval of a definitive plan to sell, via public auction, its share of Seabrook 1, with such sale to occur no later than December 31, 2003. NAEC owns the largest percentage of the plant with a 35.98 percent interest, and its affiliate, North Atlantic Energy Service Corporation, is the plant operator. As part of its settlement, PSNH has also agreed to make all reasonable efforts to bundle its interests with those of other owners (including the Company) seeking to sell their interests. Note C - Town of Norwood Dispute - -------------------------------- From 1983 until 1998, the Company was the wholesale power supplier for the Town of Norwood, Massachusetts (Norwood). In April 1998, Norwood began taking power from another supplier. Pursuant to a tariff amendment approved by the FERC in May 1998, the Company has been assessing Norwood a CTC. Through September 2000, the charges assessed Norwood amount to approximately $23 million, all of which remain unpaid. The Company has filed a collection action in Massachusetts Superior Court (Superior Court). Separately, Norwood filed suit in Federal District Court (District Court) in April 1997 alleging that the divestiture of the Company's nonnuclear generating business (the divestiture) violated the terms of the 1983 power contract and contravened antitrust laws. The District Court dismissed the lawsuit. On appeal, the First Circuit Court of Appeals (First Circuit) consolidated appeals Norwood made from FERC's orders approving the Company's divestiture, the wholesale rate settlement between the Company and its distribution affiliates, and the CTC tariff amendment. In February 2000, the First Circuit dismissed Norwood's appeal from the FERC orders and dismissed its appeal from all but one of Norwood's District Court claims, which relates to alleged generation market power. In February and March 2000, respectively, the First Circuit denied Norwood's petition for further review of its District Court claims decision and its decision on the FERC orders. On May 30, 2000, Norwood petitioned the US Supreme Court for review of the First Circuit decisions. On October 2, 2000, the US Supreme Court refused Norwood's petitions to review the First Circuit decisions affirming (a) the FERC's approval of the CTC, the divestiture, and the settlement agreements regarding termination of the Company's power sales agreements with its affiliates, and (b) the US District Court's dismissal of Norwood's antitrust and breach of contract claims. In the District Court action, on April 10, 2000, the Company renewed its motion to dismiss Norwood's remaining claim. Norwood amended its complaint to reassert a request for rescission of the divestiture, which it had earlier dropped. A hearing took place before the District Court on July 18, 2000. In the Superior Court collection action, Norwood moved to dismiss the Company's complaint, which the Superior Court denied on April 30, 1999. Norwood filed counterclaims against the Company, which the Company moved to dismiss. The Superior Court deferred decision on the Company's motion pending resolution of Norwood's various appeals to the First Circuit, and on July 21, 2000, the Company renewed its motion to dismiss in light of the First Circuit decisions and filed a motion for summary judgement. Norwood has also appealed a June 1999 FERC decision that rejected Norwood's challenge to the calculation of the CTC based on the terms of the 1983 power contract, which Norwood contended ended in October 1998, not October 2008. On June 29, 2000, the First Circuit rejected Norwood's appeal. Note D - Merger Agreement with Niagara Mohawk - --------------------------------------------- On September 5, 2000, National Grid USA's parent company, National Grid Group plc (National Grid), and Niagara Mohawk Holdings, Inc., announced a merger agreement under which National Grid will acquire Niagara Mohawk (NiMo) through the formation of a new National Grid holding company, New National Grid, and the exchange of NiMo shares for a combination of American Depositary Shares (ADSs) and cash. The terms of the agreement value the transaction at approximately $3.0 billion. The transaction is expected to be completed by late 2001, and is subject to a number of conditions, including regulatory and other governmental approvals, the sale of NiMo's nuclear facilities or other satisfactory arrangements being reached, and approval by NiMo and National Grid shareholders. Note E - Acquisition of Eastern Utilities Associates - ---------------------------------------------------- The acquisition of Eastern Utilities Associates (EUA) by National Grid USA was completed on April 19, 2000 for $642 million, or $31.459 per share. On May 1, 2000, Montaup Electric Company (Montaup), formerly a subsidiary of EUA, was merged into the Company. The acquisition of EUA was accounted for by the purchase method, the application of which, including the recognition of goodwill, has been pushed down and reflected on the financial statements of the National Grid USA subsidiaries, including the Company. Total goodwill amounted to $394 million, of which the Company was allocated $7.8 million relative to the merger of Montaup into the Company. This amount was determined pursuant to an independent study conducted by a third party and is being amortized over 20 years. Combined with the amortization of goodwill allocated to the Company from the acquisition of New England Electric System (NEES) by National Grid, the total annual amortization of goodwill will amount to approximately $17.5 million. Disclosure regarding the acquisition of NEES by National Grid is contained in the Company's Transitional Annual Report on Form 10-K for the period ended March 31, 2000. As a result of the acquisition, Montaup's balance sheet accounts were incorporated into the financial statements of the Company as of May 1, 2000. Listed below are the significant account balances incorporated.
May 1, 2000 Balance (In Thousands) Assets Utility plant, at original cost $227,114 Accumulated provisions for depreciation $(92,093) and amortization Regulatory assets (current and long-term) $547,412 Liabilities Other paid-in capital $135,444 Deferred federal and state income taxes $104,860 Accrued Yankee nuclear plant costs $ 46,030 Purchased power obligations (current and long-term) $176,257 Other reserves and deferred credits $174,942
The accompanying statements of operations do not include any revenues or expenses related to Montaup prior to the subsidiary companies' merger on May 1, 2000. The following unaudited pro forma information presents the results of operations of the Company assuming the merger of Montaup into the Company occurred on October 1, 1998. This pro forma information has been prepared for comparative purposes only and includes an adjustment for additional amortization expense as a result of goodwill. This information does not purport to be indicative of the results of operations that actually would have resulted had the merger occurred on October 1, 1998, or of future results of the Company.
Supplemental Unaudited Pro Forma Information Periods Ended September 30 (In Thousands) Three Months Six Months Twelve Months ------------ ---------- ------------- 2000 1999 2000 1999 2000 1999 ---- ---- ---- ---- ---- ---- Combined Operating Revenues $175,390 $195,650 $344,977 $408,759 $712,100 $882,791 Net Earnings $ 16,460 $ 17,385 $ 30,129 $ 30,344 $ 61,721 $ 68,504
Note F - ------ Income statements for the six and twelve month periods ended September 30, 2000, reflect a reclassification of approximately $4.3 million and approximately $4.7 million, respectively, of goodwill amortization previously reflected on the "Depreciation and amortization" line in "Operating expenses," but now reported in "Other income and expense." Note G - ------ In the opinion of the Company, these financial 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 Transitional Annual Report on Form 10-K for the period ended March 31, 2000. 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 (the Company) 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 Transitional Annual Report on Form 10-K for the period ended March 31, 2000. The Company is a subsidiary of National Grid USA, formerly New England Electric System (NEES). NEES was acquired by National Grid Group plc (National Grid) in March 2000. Merger Agreement with Niagara Mohawk - ----------------------------------- On September 5, 2000, National Grid USA's parent company, National Grid, and Niagara Mohawk Holdings, Inc., announced a merger agreement under which National Grid will acquire Niagara Mohawk (NiMo) through the formation of a new National Grid holding company, New National Grid, and the exchange of NiMo shares for a combination of American Depositary Shares (ADSs) and cash. The terms of the agreement value the transaction at approximately $3.0 billion. The transaction is expected to be completed by late 2001, and is subject to a number of conditions, including regulatory and other governmental approvals, the sale of NiMo's nuclear facilities or other satisfactory arrangements being reached, and approval by NiMo and National Grid shareholders. Acquisition of Eastern Utilities Associates - ------------------------------------------- The acquisition of Eastern Utilities Associates (EUA) by National Grid USA was completed on April 19, 2000 for $642 million, or $31.459 per share. On May 1, 2000, Montaup Electric Company (Montaup), formerly a subsidiary of EUA, was merged into the Company. The acquisition of EUA was accounted for by the purchase method, the application of which, including the recognition of goodwill, has been pushed down and reflected on the financial statements of the National Grid USA subsidiaries, including the Company. Total goodwill amounted to $394 million, of which the Company was allocated $7.8 million relative to the merger of Montaup into the Company. This amount was determined pursuant to an independent study conducted by a third party and is being amortized over 20 years. Combined with the amortization of goodwill allocated to the Company from the acquisition of NEES by National Grid, the total annual amortization of goodwill will amount to approximately $17.5 million. Disclosure regarding the acquisition of NEES by National Grid is contained in the Company's Transitional Annual Report on Form 10-K for the period ended March 31, 2000. As a result of the acquisition, Montaup's balance sheet accounts were incorporated into the financial statements of the Company as of May 1, 2000. Listed below are the significant account balances incorporated.
May 1, 2000 Balance (In Thousands) Assets Utility plant, at original cost $227,114 Accumulated provisions for depreciation $(92,093) and amortization Regulatory assets (current and long-term) $547,412 Liabilities Other paid-in capital $135,444 Deferred federal and state income taxes $104,860 Accrued Yankee nuclear plant costs $ 46,030 Purchased power obligations (current and long-term) $176,257 Other reserves and deferred credits $174,942
The accompanying statements of operations do not include any revenues or expenses related to Montaup prior to the subsidiary companies' merger on May 1, 2000. The following unaudited pro forma information presents the results of operations of the Company assuming the merger of Montaup into the Company occurred on October 1, 1998. This pro forma information has been prepared for comparative purposes only and includes an adjustment for additional amortization expense as a result of goodwill. This information does not purport to be indicative of the results of operations that actually would have resulted had the merger occurred on October 1, 1998, or of future results of the Company.
Supplemental Unaudited Pro Forma Information Periods Ended September 30 (In Thousands) Three Months Six Months Twelve Months ------------ ---------- ------------- 2000 1999 2000 1999 2000 1999 ---- ---- ---- ---- ---- ---- Combined Operating Revenues $175,390 $195,650 $344,977 $408,759 $712,100 $882,791 Net Earnings $ 16,460 $ 17,385 $ 30,129 $ 30,344 $ 61,721 $ 68,504
Change of Fiscal Year - --------------------- National Grid USA and its subsidiaries, including the Company, changed their fiscal year from a calendar year ending December 31, to a fiscal year ending March 31. The Company made this change in order to align its fiscal year with that of National Grid USA's parent company, National Grid. The Company's first new full fiscal year began on April 1, 2000 and will end on March 31, 2001. This report reflects results of operations for the second quarter and first six months of the Company's new fiscal year 2001. Industry Restructuring - ---------------------- For a full discussion of industry restructuring activities, the Company's divestiture of its nonnuclear generating business (the divestiture) and stranded cost recovery, see the "Industry Restructuring" section in the Company's Transitional Annual Report on Form 10-K for the period ended March 31, 2000. Regulatory Asset Recovery - ------------------------- Because electric utility rates have historically been based on a utility's costs, electric utilities are subject to certain accounting standards that are not applicable to other business enterprises in general. The Company applies the provisions of Statement of Financial Accounting Standards No. 71, Accounting for the Effects of Certain Types of Regulation (FAS 71), which requires regulated entities, in appropriate circumstances, to establish regulatory assets or liabilities, and thereby defer the income statement impact of certain charges or revenues because they are expected to be collected or refunded through future customer billings. In 1997, the Emerging Issues Task Force of the Financial Accounting Standards Board concluded that a utility that had received approval to recover stranded costs through regulated rates would be permitted to continue to apply FAS 71 to the recovery of stranded costs. The Company has received authorization from the Federal Energy Regulatory Commission (FERC) to recover through contract termination charges (CTC) substantially all of the costs associated with its former generating business not recovered through the divestiture. Additionally, FERC Order No. 888 enables transmission companies to recover their specific costs of providing transmission service. Therefore, substantially all of the Company's business, including the recovery of its stranded costs, remains under cost-based rate regulation. Because of the nuclear cost-sharing provisions related to the Company's CTC, the Company ceased applying FAS 71 in 1997 to 20 percent of its ongoing nuclear operations, the impact of which is immaterial. As a result of applying FAS 71, the Company has recorded a regulatory asset for the costs that are recoverable from customers through the CTC. At September 30, 2000, this amounted to approximately $1.7 billion, including $1.1 billion related to the above-market costs of purchased power contracts, $0.3 billion related to accrued Yankee nuclear plant costs, and $0.3 billion related to other net CTC regulatory assets. Earnings - -------- Net income for both the quarter and six month period ended September 30, 2000 decreased approximately $1 million compared with the same periods in 1999. The decrease in earnings is a result of goodwill amortization from the mergers with National Grid and EUA, increased interest expense, and decreased mitigation incentives, partially offset by increased income due to the May 1, 2000 merger with Montaup, and increased earnings from nuclear operations. Operating Revenue - ----------------- Operating revenue for the quarter and six month period increased approximately $33 million and $50 million, respectively, compared with the same periods in 1999. These increases are primarily due to the merger with Montaup effective May 1, 2000, as well as increased sales and rates related to obligations to new customer load in Rhode Island, and a net increase in CTC revenues due to fully reconciling true-up mechanisms which allow the Company to adjust revenues proportionately with correlating expenses. For the six month period, the increase also reflects increased kilowatthour sales from partially owned nuclear generating facilities, which experienced refueling outages during the quarter ended June 30, 1999. Operating Expenses - ------------------ Operating expenses for the quarter and six month period increased $23 million and $37 million, respectively, compared with the same periods in 1999. Purchased power expense increased approximately $16 million and $30 million for the quarter and six month period, respectively. The increases are primarily attributed to the inclusion of Montaup's purchased power costs effective May 1, 2000, increased fuel prices, and an increase in standard offer purchases related to obligations to supply new customer load in Rhode Island, partially offset by a decrease in purchased power charges from the Yankee Atomic nuclear power plant as a result of the completion of the purchased power contract and final billing for June 2000. Nuclear operation and maintenance expenses increased approximately $1 million for the quarter, reflecting the merger of Montaup's ownership percentage of Millstone 3 with the Company's effective as of the merger date. These expenses decreased $6 million for the six month period as a result of reduced expenses at the partially owned Millstone 3 and Seabrook 1 nuclear generating facilities, which experienced refueling outages during the quarter ended June 30, 1999. For the six month period, other operating expenses decreased approximately $1 million compared with the same period in 1999, primarily due to reduced pension and postretirement healthcare expenses, partially offset by the receipt of a transmission wheeling refund that reduced expense in June 1999. Interest Expense - ---------------- The increase in interest expense for the quarter and six month period is primarily due to increased interest rates on variable rate long-term debt and increased short-term debt borrowings. Utility Plant Expenditures and Financing - ---------------------------------------- Cash expenditures for the Company for utility plant totaled $22 million for the quarter ended September 30, 2000 and were primarily transmission-related. The funds necessary for utility plant expenditures during the period were primarily provided by internally generated funds. Dividends payable at March 31, 2000, in the amount of $256 million, were paid on June 27, 2000. On September 19, 2000, the Company repurchased 961 shares of its 6 percent $100 par value preferred stock for $79,766. Approximately $17,000 of this transaction was credited to retained earnings. At September 30, 2000, the Company had $100 million of short- term debt outstanding to affiliates and an additional $64 million in commercial paper mode. The Company has regulatory approval to issue up to $375 million of short-term debt. On October 25, 2000, the Company received the necessary regulatory approvals which will allow $39 million of variable rate debt to remain outstanding through 2015. This will result in classifying that portion of the debt as long-term rather than short-term in subsequent reporting periods. Proceeds from the increase in short-term debt were utilized to pay Montaup's debt of approximately $91 million and purchased power contract payable of approximately $60 million. At September 30, 2000, the Company had lines of credit and standby bond purchase facilities with banks totaling $460 million which are available to provide liquidity support for $435 million of the Company's short-term and long-term bonds in tax-exempt commercial paper mode, and for other corporate purposes. There were no borrowings under these lines of credit at September 30, 2000. PART II. OTHER INFORMATION Item 1. Legal Proceedings - -------------------------- Information concerning settlement of a lawsuit brought by the Company against Northeast Utilities on August 7, 1997 in Massachusetts Superior Court, Worcester County concerning the Millstone 3 nuclear unit and a demand for arbitration sent by the Company to Connecticut Light & Power Company and Western Massachusetts Electric Company concerning the Millstone 3 nuclear unit, discussed in this report in Note B of Notes to Unaudited Financial Statements, is incorporated herein and made a part hereof. Information concerning dismissal of a lawsuit brought against the Company by the Town of Norwood, Massachusetts and appeals of that lawsuit and related Federal Energy Regulatory Commission orders, U. S. Supreme Court decision refusing to review First Circuit decisions, and the Company's collection action, discussed in this report in Note C of Notes to Unaudited Financial Statements, is incorporated herein and made a part hereof. On August 31, 1999, the parties to an agreement for joint ownership, construction and operation of the Wyman 4 generation unit, including the Company, made a demand for arbitration to Central Maine Power Company (CMP) for payments alleged due under the agreement upon CMP's sale of Wyman 4 to FPL Energy, Inc. (FPL). Demand was also made to FPL as successor-in-interest to CMP. The Company's portion of the claims under the agreement could total approximately $7 million. Item 6. Exhibits and Reports on Form 8-K - ----------------------------------------- The Company is filing Financial Data Schedules. SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report on Form 10-Q for the quarter ended September 30, 2000 to be signed on its behalf by the undersigned thereunto duly authorized. NEW ENGLAND POWER COMPANY s/John Cochrane John G. Cochrane, Treasurer, Authorized Officer, and Principal Financial Officer Date: November 10, 2000 EX-99 2 0002.txt EXHIBIT INDEX EXHIBIT INDEX ------------- EXHIBIT DESCRIPTION PAGE - ------- ----------- ---- 27 Financial Data Schedule Filed Herewith EX-27 3 0003.txt FINANCIAL DATA SCHEDULE WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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. 3 0000071337 NEW ENGLAND POWER COMPANY 1,000 MAR-31-2001 SEP-30-2000 6-MOS PER-BOOK 641,928 110,957 349,139 1,981,186 0 3,083,210 72,398 730,413 32,530 835,358 0 1,471 371,776 163,500 0 0 0 0 0 0 1,711,105 3,083,210 331,580 26,929 259,174 286,103 45,477 (3,744) 41,733 11,050 30,683 47 30,653 0 8,442 71,855 0 0 Total deferred charges includes regulatory assets, other assets, and goodwill, net of amortization. Total common stockholders equity includes unrealized gain on securities, net. Earnings available for common includes preferred stock dividends and gain on redemption of preferred stock. Per share data is not relevant because the Company's common stock is wholly owned by National Grid USA. -----END PRIVACY-ENHANCED MESSAGE-----