-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, XYyM1WFPwGZMlhyjX3JC4guoSaAnj2k0lgXfGSQoHzn9+LL1khKqvdXNAVDrr8BM C10QqmMvsZEVJpU17+losQ== 0000071337-94-000012.txt : 19941111 0000071337-94-000012.hdr.sgml : 19941111 ACCESSION NUMBER: 0000071337-94-000012 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19940930 FILED AS OF DATE: 19941110 SROS: NONE 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: 1934 Act SEC FILE NUMBER: 001-06564 FILM NUMBER: 94558641 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 September 30, 1994 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number 0-1229 (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 (508-366-9011) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes (X) No ( ) Common stock, par value $20 per share, authorized and outstanding: 6,449,896 shares at September 30, 1994. PART I FINANCIAL INFORMATION Item 1. Financial Statements - ---------------------------- NEW ENGLAND POWER COMPANY Statements of Income Periods Ended September 30 (Unaudited)
Quarter Nine Months -------- ----------- 1994 1993 1994 1993 ---- ---- ---- ---- (In Thousands) Operating revenue, principally from affiliates$419,555$417,912$1,175,617$1,174,108 -------- -------- -------------------- Operating expenses: Fuel for generation 68,846 72,235 206,348 201,709 Purchased electric energy 139,173 143,187 378,930 402,463 Other operation 49,495 42,657 141,238 135,560 Maintenance 23,943 22,090 73,206 70,081 Depreciation and amortization 35,610 33,814 104,517 100,716 Taxes, other than income taxes 14,113 13,042 43,500 40,878 Income taxes 33,158 34,262 83,596 78,633 -------- -------- -------------------- Total operating expenses 364,338 361,287 1,031,335 1,030,040 -------- -------- -------------------- Operating income 55,217 56,625 144,282 144,068 Other income: Allowance for equity funds used during construction 2,199 624 6,261 2,126 Equity in income of nuclear power companies1,478 1,021 4,209 3,957 Other income (expense) - net 130 549 (2,840) (539) -------- -------- -------------------- Operating and other income 59,024 58,819 151,912 149,612 -------- -------- -------------------- Interest: Interest on long-term debt 9,620 11,500 28,111 35,010 Other interest 1,378 825 2,412 1,762 Allowance for borrowed funds used during construction - credit (1,792) (578) (3,800) (1,266) -------- -------- -------------------- Total interest 9,206 11,747 26,723 35,506 -------- -------- -------------------- Net income $ 49,818 $ 47,072 $ 125,189$ 114,106 ======== ======== ==================== Statements of Retained Earnings Retained earnings at beginning of period$374,651 $306,926 $ 346,153$ 321,699 Net income 49,818 47,072 125,189 114,106 Dividends declared on cumulative preferred stock (858) (1,221) (2,582) (4,017) Dividends declared on common stock (40,312) (17,737) (85,461) (96,748) Premium on redemption of preferred stock (870) (870) -------- -------- -------------------- Retained earnings at end of period $383,299 $334,170 $ 383,299$ 334,170 ======== ======== ==================== 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 Statements of Income Twelve Months Ended September 30 (Unaudited)
1994 1993 ---- ---- (In Thousands) Operating revenue, principally from affiliates$1,550,523 $1,561,234 ---------- ---------- Operating expenses: Fuel for generation 277,986 282,580 Purchased electric energy 502,452 532,700 Other operation 191,765 179,165 Maintenance 106,386 100,624 Depreciation and amortization 135,733 129,414 Taxes, other than income taxes 54,553 53,001 Income taxes 98,961 95,218 ---------- ---------- Total operating expenses 1,367,836 1,372,702 ---------- ---------- Operating income 182,687 188,532 Other income: Allowance for equity funds used during construction7,387 2,866 Equity in income of nuclear power companies 5,899 4,849 Other income (expense) - net (2,868) (1,609) ---------- ---------- Operating and other income 193,105 194,638 ---------- ---------- Interest: Interest on long-term debt 38,937 48,795 Other interest 6,077 1,630 Allowance for borrowed funds used during construction - credit (4,459) (1,660) ---------- ---------- Total interest 40,555 48,765 ---------- ---------- Net income $ 152,550 $ 145,873 ========== ========== Statements of Retained Earnings Retained earnings at beginning of period $ 334,170 $ 315,517 Net income 152,550 145,873 Dividends declared on cumulative preferred stock (3,448) (5,414) Dividends declared on common stock (99,973) (120,936) Premium on redemption of preferred stock (870) ---------- ---------- Retained earnings at end of period $ 383,299 $ 334,170 ========== ========== 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)
September 30,December 31, ASSETS 1994 1993 ------ ---- ---- (In Thousands) Utility plant, at original cost $2,503,384 $2,445,702 Less accumulated provisions for depreciation and amortization 992,656 943,750 ---------- ---------- 1,510,728 1,501,952 Net investment in Seabrook 1 under rate settlement 55,206 103,344 Construction work in progress 285,727 165,860 ---------- ---------- Net utility plant 1,851,661 1,771,156 ---------- ---------- Investments: Nuclear power companies, at equity 47,041 46,342 Nonutility property and other investments, at cost 20,245 19,927 ---------- ---------- Total investments 67,286 66,269 ---------- ---------- Current assets: Cash 1,227 610 Accounts receivable, principally from sales of electric energy: Affiliated companies 206,052 201,674 Others 67,610 58,581 Fuel, materials and supplies, at average cost 63,055 55,955 Prepaid and other current assets 27,400 26,454 ---------- ---------- Total current assets 365,344 343,274 ---------- ---------- Accrued Yankee Atomic costs 132,920 103,501 Deferred charges and other assets 165,966 157,087 ---------- ---------- $2,583,177 $2,441,287 ========== ========== 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 383,299 346,153 ---------- ---------- Total common equity 887,126 849,980 Cumulative preferred stock, par value $100 per share 60,516 61,028 Long-term debt 672,541 667,448 ---------- ---------- Total capitalization 1,620,183 1,578,456 ---------- ---------- Current liabilities: Short-term debt (including $2,500,000 and $8,325,000 to affiliates) 92,405 50,525 Accounts payable (including $66,613,000 and $58,056,000 to affiliates) 156,326 144,100 Accrued liabilities: Taxes 25,283 9,337 Interest 8,541 10,086 Other accrued expenses 12,021 38,313 Dividends payable 40,312 14,512 ---------- ---------- Total current liabilities 334,888 266,873 ---------- ---------- Deferred federal and state income taxes 349,452 344,077 Unamortized investment tax credits 61,192 62,591 Accrued Yankee Atomic costs 132,920 103,501 Other reserves and deferred credits 84,542 85,789 ---------- ---------- $2,583,177 $2,441,287 ========== ========== The accompanying notes are an integral part of these financial statements.
NEW ENGLAND POWER COMPANY Statements of Cash Flows Nine Months Ended September 30 (Unaudited)
1994 1993 ---- ---- (In Thousands) Operating Activities: Net income $ 125,189 $ 114,106 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 107,674 103,896 Deferred income taxes and investment tax credits - net10,204 6,409 Allowance for funds used during construction (10,061) (3,392) Early retirement program 2,967 Decrease (increase) in accounts receivable (13,407) 3,175 Decrease (increase) in fuel, materials, and supplies(7,100) 6,440 Increase (decrease) in accounts payable 12,226 (24,230) Increase (decrease) in other current liabilities (11,891) 18,778 Other, net (23,205) (17,595) --------- --------- Net cash provided by operating activities $ 189,629 $ 210,554 --------- --------- Investing Activities: Plant expenditures, excluding allowance for funds used during construction $(172,837) $(112,161) Other investing activities (300) --------- --------- Net cash used in investing activities $(173,137) $(112,161) --------- --------- Financing Activities: Dividends paid on common stock $ (59,661) $(103,198) Dividends paid on preferred stock (2,582) (4,017) Redemption of preferred stock (512) (25,000) Premium on redemption of preferred stock (870) Long-term debt - issues 5,000 197,400 Long-term debt - retirements (197,400) Premium on reacquisition of long-term debt (2,923) Changes in short-term debt 41,880 37,600 --------- --------- Net cash used in financing activities $ (15,875) $ (98,408) --------- --------- Net increase (decrease) in cash and cash equivalents$ 617 $ (15) Cash and cash equivalents at beginning of period 610 652 --------- --------- Cash and cash equivalents at end of period $ 1,227 $ 637 ========= ========= Supplementary Information: Interest paid less amounts capitalized $ 25,859 $ 32,447 --------- --------- Federal and state income taxes paid $ 60,165 $ 60,703 --------- --------- 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: Quarters Ended Nine Months Ended September 30, ---------------------------------------- 1994 1993 1994 1993 ---- ---- ---- ---- (In Thousands) Operating revenue $119,729 $201,827 $428,469 $531,869 ======== ======== ======== ======== Net income $ 7,945 $ 7,967 $ 23,389 $ 22,879 ======== ======== ======== ======== Company's equity in net income $ 1,478 $ 1,021 $ 4,209 $ 3,957 ======== ======== ======== ======== September 30, December 31, 1994 1993 ---- ---- (In Thousands) Plant $ 535,924 $ 591,650 Other assets 1,316,363 1,286,923 Liabilities and debt (1,603,762) (1,633,139) ----------- ----------- Net assets $ 248,525 $ 245,434 =========== =========== Company's equity in net assets $ 47,041 $ 46,342 =========== =========== At September 30, 1994, $ 13,098,000 of undistributed earnings of the nuclear power companies were included in the Company's retained earnings. Yankee Atomic Electric Company plans to retain its earnings until all of its current debt commitments are satisfied. 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, Note B - Hazardous Waste - Continued - ------------------------ for remediation of property contaminated with hazardous substances. Parties liable include past and present site owners and operators, transporters that brought wastes to the site, and entities that generated or arranged for disposal or treatment of wastes ultimately disposed of at the site. A number of states, including Massachusetts, have enacted similar laws. The electric utility industry typically utilizes and/or generates in its operations a range of potentially hazardous products and by-products. These products or by-products may not have previously been considered hazardous, and may not currently be considered hazardous, but may be identified as such by federal, state, or local authorities in the future. The New England Electric System subsidiaries currently have in place an environmental audit program intended to enhance compliance with existing federal, state, and local requirements regarding the handling of potentially hazardous products and by-products. Federal and state environmental agencies, as well as private parties, have contacted or initiated legal proceedings against the Company regarding liability for cleanup of sites alleged to contain hazardous waste or substances. 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 at six sites at which hazardous waste is alleged to have been disposed. The Company is also aware of other sites for which it may be held responsible for remediating and it is likely that, in the future, the Company will become involved in additional proceedings demanding contribution for the cost of remediating additional hazardous waste sites. Predicting the potential costs to investigate and remediate hazardous waste sites continues to be difficult. Factors such as the evolving nature of remediation technology and regulatory requirements and the particular characteristics of each site, including, for example the size of the site, the nature and amount of waste disposed at the site, and the surrounding geography and land use, make precise estimates difficult. There are also significant uncertainties as to the portion, if any, of the investigation and remediation costs of any particular hazardous waste site that may ultimately be borne by the Company. Although rate recovery may be sought for cleanup costs incurred, it is uncertain what portion, if any, would be allowed in rates. Note B - Hazardous Waste - Continued - ------------------------ The Company believes that hazardous waste liabilities for all sites of which it is aware will not be material (10 percent of common equity) to its financial position. Where appropriate, the Company intends to seek recovery from its insurers and from other PRPs, but it is uncertain whether, and to what extent, such efforts will be successful. Note C - Purchased Power Contract Dispute - ----------------------------------------- On October 26, 1994, the Company was sued by Milford Power Limited Partnership (MPLP) in the Superior Court for Worcester County, Massachusetts. MPLP, a venture of Enron Corporation and Jones Capital, owns a 149 MW gas-fired power plant in Milford, Massachusetts. The Company purchases 56 percent of the power output of the facility under a long-term contract with MPLP. MPLP alleges that the Company has engaged in a scheme to cause MPLP and its power plant to fail and has prevented MPLP from finding a long- term buyer for the remaining 44 percent of the facility's output. The complaint includes allegations that the Company has violated the Federal Racketeer Influenced and Corrupt Organizations Act, engaged in unfair or deceptive acts in trade or commerce, and breached contracts. MPLP seeks compensatory damages in an unspecified amount, as well as treble damages. The Company believes that the allegations of wrongdoing are without merit. Note D - ------ 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 1993 Annual Report. Item 2. Management's Discussion and Analysis of Financial --------------------------------------------------------- Condition and Results of Operations ----------------------------------- Earnings - -------- Net income for the third quarter and first nine months of 1994 increased $3 million and $11 million, respectively, from the corresponding periods in 1993. The increase in the third quarter earnings is primarily due to decreased interest costs and decreased purchased power charges excluding fuel. In the third quarter of 1993, purchased power expense was higher due to overhauls and refueling shutdowns by partially owned nuclear power suppliers. Partially offsetting these increases in earnings were increased other operation and maintenance expenses and the reimbursement through revenue credits to The Narragansett Electric Company (Narragansett) of certain power plant dismantlement costs. Earnings in the first nine months of 1993 included a one-time after-tax charge of $6 million ($10 million before tax) associated with an early retirement offer and special severance program for non-union employees undertaken by the Company as part of an organizational review. Excluding the effects of this 1993 charge, earnings for the first nine months of 1994 increased $5 million. In addition to the reasons for the change in earnings for the third quarter, earnings for the first nine months of 1994 reflected increased peak demand revenues primarily in the first quarter of 1994. The Company estimates that it will incur increased costs of approximately $10 million in the fourth quarter of 1994 in connection with overhauls of its wholly owned generating units, in part to achieve compliance with the Clean Air Act (see Clean Air Requirements section). Regulatory Issues - ----------------- The Federal Energy Regulatory Commission (FERC) has allowed the Company to defer increased costs associated with a new accounting standard for postretirement benefits other than pensions (PBOPs) effective with its next rate filing. New accounting rules established by the Financial Accounting Standards Board, which became effective in 1993, require employers to establish a liability during the working years of employees for the expected cost of providing PBOPs instead of recording such costs when paid. In a statement of policy applicable to all utilities subject to its rate-making jurisdiction, the FERC stated that the increased costs resulting from these new rules could be deferred pending the next rate filing so long as such filing occurs before the end of 1995. Accordingly, the Company has deferred a total of approximately $17 million of increased PBOP costs since January 1, 1993. The Company has in the past, and is continuing to recover in rates amounts billed to it by Yankee Atomic Electric Company (Yankee Atomic) for decommissioning costs associated with Yankee Atomic's retired nuclear power plant. The Company is a 30 percent owner of Yankee Atomic and was a purchaser of 30 percent of the output of the unit prior to its retirement. Yankee Atomic's recovery of such costs is in accordance with a 1992 settlement agreement it reached in a FERC rate proceeding. Yankee Atomic recently announced a new decommissioning cost estimate that, subject to certain approvals by the Nuclear Regulatory Commission and in turn by the FERC, would increase billings to the Company by approximately $11 million per year. This increase in the cost primarily reflects the unavailability of permanent repositories for both low-level and high-level nuclear waste. The Company has recorded an estimate of its entire future payment obligations to Yankee Atomic as a liability on its balance sheet as well as an offsetting regulatory asset reflecting its expected future rate recovery of such costs. These higher estimated decommissioning costs for Yankee Atomic have been reflected in the amounts recorded on the Company's books at September 30, 1994. Although the Company does not currently have a rate case pending, it has initiated discussions of future rate levels with the parties that usually participate in its rate proceedings. Hydroelectric Generating Station Relicensing - -------------------------------------------- The term of the FERC license for the Company's Deerfield River Hydroelectric Project expired at the end of 1993. The Company filed an application for a new license in 1991, which is still under review. An annual license is granted to the Company until a final determination is made on the application. Several advocacy groups intervened proposing operational modifications. On October 5, 1994, the Company and 12 advocacy groups and government agencies signed a settlement agreement, providing minimum flows, fish passage facilities, wildlife enhancements, and conservation easements on over 17,000 acres of Company land. The cost of these measures is currently estimated at $25 million to $30 million over the proposed 40 year term of the new license, principally for replacement power costs associated with providing minimum water flows. The agreement is subject to the granting of a FERC license and the states of Vermont and Massachusetts issuing Water Quality Certifications with conditions consistent with the settlement agreement. Operating Revenue - ----------------- The following table summarizes the changes in operating revenue during the third quarter and first nine months of 1994 compared to the corresponding periods in 1993: Increase (Decrease) in Operating Revenue Third Quarter Nine Months ------------- ------------ 1994 vs 1993 1994 vs 1993 ------------- ------------ (In Millions) Sales increase $12 Fuel recovery $ 3 (5) Narragansett integrated facilities credit (2) (6) Other 1 1 --- --- $ 2 $ 2 === === The increase in sales in the first nine months of 1994 reflects increased sales for resale to other utilities and the effects of an increase in peak demands primarily in the first quarter of 1994. The entire generating output of Narragansett's generating capacity has in the past, and continues to be 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 credit reflects increased dismantlement costs being incurred on Narragansett's previously retired South Street generating facility. Operating Expenses - ------------------ The following table summarizes the changes in operating expenses: Increase (Decrease) in Total Operating Expenses Third Quarter Nine Months ------------- ------------ 1994 vs 1993 1994 vs 1993 ------------- ------------ (In Millions) Fuel costs $ 2 $ (7) Purchased energy excluding fuel (9) (12) Other operation and maintenance 8 9 Depreciation and amortization 2 4 Taxes - 7 --- ---- $ 3 $ 1 === ==== Total fuel costs represents fuel for generation and the portion of purchased electric energy permitted to be recovered through the Company's fuel adjustment clause. Purchased energy excluding fuel represents the remainder of purchased electric energy costs. The decrease in fuel costs for the first nine months of 1994 reflects reduced alternate energy purchases. The decrease in purchased energy excluding fuel reflects overhauls and refueling shutdowns by partially owned nuclear power suppliers in the third quarter of 1993. The increase in other operation and maintenance expense during the third quarter reflects increased demand-side management program costs, increased pension and other retiree benefit costs, increased computer system development costs, increased production maintenance costs, gas pipeline contract termination costs, and general increases in other areas. These increases, which also occurred in the nine month period, were offset by a one-time charge of $10 million associated with an early retirement offer and special severance program recorded in the first quarter of 1993. The increase in depreciation and amortization expense reflects increased amortization of the net investment in the Seabrook 1 Nuclear Unit (Seabrook 1). The increase in taxes for the first nine months of 1994 is primarily due to increased income and increased property tax accruals. Allowance For Funds Used During Construction (AFDC) - -------------------------------------------------- AFDC increased for the third quarter and first nine months of 1994 due to increased construction work in progress, principally associated with the repowering of the Manchester Street Station (see Utility Plant Expenditures and Financing section). Interest Expense - ---------------- The decrease in interest expense for the third quarter and first nine months of 1994 is primarily due to significant refinancings of corporate debt at lower interest rates during 1993. Hazardous Waste - --------------- The Federal Comprehensive Environmental Response, Compensation and Liability Act, more commonly known as the "Superfund" law, imposes strict, joint and several liability, regardless of fault, for remediation of property contaminated with hazardous substances. Parties liable include past and present site owners and operators, transporters that brought wastes to the site, and entities that generated or arranged for disposal or treatment of wastes ultimately disposed of at the site. A number of states, including Massachusetts, have enacted similar laws. The electric utility industry typically utilizes and/or generates in its operations a range of potentially hazardous products and by-products. These products or by-products may not have previously been considered hazardous, and may not currently be considered hazardous, but may be identified as such by federal, state, or local authorities in the future. The New England Electric System subsidiaries (NEES) currently have in place an environmental audit program intended to enhance compliance with existing federal, state, and local requirements regarding the handling of potentially hazardous products and by- products. Federal and state environmental agencies, as well as private parties, have contacted or initiated legal proceedings against the Company regarding liability for cleanup of sites alleged to contain hazardous waste or substances. The Company has been named as a potentially responsible party (PRP) by either the U.S. Environmental Protection Agency (EPA) or the Massachusetts Department of Environmental Protection at six sites at which hazardous waste is alleged to have been disposed. The Company is also aware of other sites for which it may be held responsible for remediating and it is likely that, in the future, the Company will become involved in additional proceedings demanding contribution for the cost of remediating additional hazardous waste sites. Predicting the potential costs to investigate and remediate hazardous waste sites continues to be difficult. Factors such as the evolving nature of remediation technology and regulatory requirements and the particular characteristics of each site, including, for example the size of the site, the nature and amount of waste disposed at the site, and the surrounding geography and land use, make precise estimates difficult. There are also significant uncertainties as to the portion, if any, of the investigation and remediation costs of any particular hazardous waste site that may ultimately be borne by the Company. Although rate recovery may be sought for cleanup costs incurred, it is uncertain what portion, if any, would be allowed in rates. The Company believes that hazardous waste liabilities for all sites of which it is aware will not be material (10 percent of common equity) to its financial position. Where appropriate, the Company intends to seek recovery from its insurers and from other PRPs, but it is uncertain whether, and to what extent, such efforts will be successful. Electric and Magnetic Fields (EMF) - --------------------------------- In recent years, concerns have been raised about whether EMF, which occur near transmission and distribution lines as well as near household wiring and appliances, cause or contribute to adverse health effects. Numerous studies on the effects of these fields, some of them sponsored by electric utilities (including NEES companies), have been conducted and are continuing. Some of the studies have suggested associations between certain EMF and various types of cancer, while other studies have not substantiated such associations. In February 1993, the EPA called for significant additional research on EMF. In July 1994, a study by a University of Southern California professor suggested an association between EMF and Alzheimer's disease. It is impossible to predict the ultimate impact on the Company and the electric utility industry if further investigations were to demonstrate that the present electricity delivery system is contributing to increased risk of cancer or other health problems. Many utilities, including the NEES companies, have been contacted by customers regarding a potential relationship between EMF and adverse health effects. To date, no court in the United States has ruled that EMF from electrical facilities cause adverse health effects and no utility has been found liable for personal injuries alleged to have been caused by EMF. In any event, the NEES companies believe that they have adequate insurance coverage. Several state courts have recognized a cause of action for damage to property values in transmission line condemnation cases based on the fear that power lines cause cancer. It is difficult to predict what impact there would be on the Company if this cause of action is recognized in the states in which the Company operates and in contexts other than condemnation cases. Legislation has been introduced in Massachusetts that if passed, would require state agencies to study existing EMF- related research and make recommendations for further legislation. Clean Air Requirements - ---------------------- The Company produces approximately 50 percent of its electricity at eight older thermal generating units located in Massachusetts. Six of the units are fueled by coal and the other two are fueled by oil and natural gas. The 1990 amendments to the federal Clean Air Act require a significant reduction in the nation's sulfur dioxide (SO2) and nitrogen oxide (NOx) emissions by the year 2000. Under the amendments pertaining to S02 emissions, the Company expects to be included in Phase 1 of the acid rain provisions that will become effective in 1995. The Company is also subject to the Massachusetts S02 acid rain law that will become effective in 1995, and Phase 2 of the federal acid rain requirements, that will become effective in 2000. In connection with requirements that relate to NOx emissions, state environmental agencies in ozone non-attainment areas were required to develop regulations (also known as Reasonably Available Control Technology requirements, or RACT) that will become effective in 1995 to address the first phase of ozone air quality attainment. These regulations were adopted in Massachusetts in September 1993. The RACT regulations require control technologies (such as low NOx burners) to reduce NOx emissions, an ozone precursor. Additional control measures may be necessary to ensure attainment of the ozone standard. These measures would have to be developed by the states in 1994 and fully implemented by the Company no later than 1999. The extent of these additional control measures is unknown at this time, but could range from minor additions to the RACT requirements to extensive emission reduction requirements, such as costly add-on controls or fuel switching. Should the 1999 ozone attainment requirements be extensive, or additional Clean Air Act or other environmental requirements be imposed, continued operation of certain existing generating units beyond 1999 could be uneconomical. The Company believes that premature retirement of substantially all of its older thermal generating units would cause substantial rate increases. The Company estimates that it will incur one-time operation and maintenance costs totaling approximately $25 million and capital costs totaling approximately $120 million through 1995, of which approximately $12 million and $78 million, respectively, had been spent through September 1994, to comply with SO2 and NOx requirements that will become effective in 1995. In addition, the Company expects to incur increased fuel costs of approximately $10 million to $20 million annually, depending on fuel market conditions, by 1995, as a result of federal and state clean air requirements. The generation of electricity from fossil fuels may emit trace amounts of hazardous air pollutants as defined in the Clean Air Act Amendments of 1990. The Act mandates a study of the potential dangers of hazardous air pollutant emissions from electric utility plants. Such research is currently under way and is expected to be complete in 1995. The study conclusions could result in new emission standards and the need for additional costly controls on the Company's plants. At this time, the Company cannot estimate the impact that findings of this research might have on operations. Purchased Power Contract Dispute - -------------------------------- On October 26, 1994, the Company was sued by Milford Power Limited Partnership (MPLP) in the Superior Court for Worcester County, Massachusetts. MPLP, a venture of Enron Corporation and Jones Capital, owns a 149 MW gas-fired power plant in Milford, Massachusetts. The Company purchases 56 percent of the power output of the facility under a long-term contract with MPLP. MPLP alleges that the Company has engaged in a scheme to cause MPLP and its power plant to fail and has prevented MPLP from finding a long-term buyer for the remaining 44 percent of the facility's output. The complaint includes allegations that the Company has violated the Federal Racketeer Influenced and Corrupt Organizations Act, engaged in unfair or deceptive acts in trade or commerce, and breached contracts. MPLP seeks compensatory damages in an unspecified amount, as well as treble damages. The Company believes that the allegations of wrongdoing are without merit. Competitive Conditions - ---------------------- The electric utility business is being subjected to increasing competitive pressures, stemming from a combination of trends, including increasing electric rates, improved technologies, and new regulations and legislation intended to foster competition. To date, this competition has been most prominent in the bulk power market in which non-utility generating sources have noticeably increased their market share. For example, in 1984, less than 1 percent of the Company's capacity was supplied by non-utility generation sources. By the end of 1993, non-utility power purchases accounted for 380 MW, or 7 percent, of the Company's total capacity. In addition to competition from non-utility generators, the presence of excess generating capacity in New England has resulted in the sale of bulk power by utilities at prices below the total costs of owning and operating such generating capacity. However, in July 1994, a new all-time regional and System peak occurred which will have the effect of reducing the near-term level of this excess generating capacity in New England. Since over 95 percent of the Company's sales are to its retail affiliates, the Company is affected by increased competition that these affiliates are facing in the retail market. Currently, retail competition comes primarily from alternative fuel suppliers (including natural gas companies) for heating and cooling, customer-owned generation to displace purchases from electric utilities, and direct competition among electric utilities to attract major new manufacturing facilities to their service territories. Some state regulatory agencies, other entities, and individuals have developed proposals under which electric utilities and non-utility generators may sell electricity to retail customers of other electric utilities without regard to franchised service territories. For example, the California Public Utilities Commission recently announced a proposal that would give certain large retail customers, by the year 1996, and all other retail customers, by the year 2002, the option of selecting their electricity provider. Power purchased from another provider would still be delivered over the local utility's transmission network which, under the proposal, would be subject to broader access. Other states (including several New England states), federal agencies regulating the NEES companies, and state and federal legislative bodies have considered or are in the process of considering options to foster increased competition. The NEES companies are responding to current and anticipated competitive pressures in a variety of other ways, including cost control and a corporate reorganization into separate retail and wholesale business units. The wholesale business unit, which includes the Company, is positioning itself for increased competition through such means as terminating certain purchased power and gas pipeline contracts, shutdowns of uneconomic generating stations, as well as rapid amortization of certain plant assets. Specifically, the Company's rates currently include approximately $100 million per year associated with the recovery of certain Seabrook 1 costs under a 1988 rate settlement and coal conversion expenditures at the Company's Salem Harbor station. The recovery of these costs will be completed prior to the end of 1995. The retail business unit's response to competition includes the development of comprehensive value-added services customized to customers' needs and the offering of economic development rates to encourage businesses to locate in the retail affiliates' service territories. In addition, two of the Company's retail affiliates are offering a discount from base rates in return for a contract requiring a customer to provide five years written notice before purchasing electricity from others or generating any additional electricity for the customer's own use (the notice provision may be reduced from five to three years under certain conditions). Observers of the electric utility business have recommended various (and sometimes conflicting) strategies for electric utilities to deal with these competitive pressures. These suggestions include business combinations with other companies, restructurings involving separation or sales of portions of the retail and/or wholesale businesses, and diversification into unrelated businesses. For example, the NEES companies have proposed one possible framework for increasing customer choice of suppliers and achieving environmental goals, while preserving shareholder value. This increase in customer choice could decrease the value of generation related assets and purchased power contracts. However, the replacement value of transmission assets likely far exceeds their historic cost. The NEES companies have suggested that utilities should have the ability to offset this decrease in the value of generation related assets by realizing the higher value of transmission assets. As one part of this possible framework, the NEES companies have stated that, in order to accomplish this realization, they would be willing to consider selling their transmission system at replacement cost to entities not in the generation business. This sale would facilitate the transition to a fully competitive generating market. As part of their routine long-term planning process, the NEES companies may, from time to time, be engaged in analysis, either internally or with third parties, of these and other strategies. The FERC ruled in 1992, in a proceeding not involving the Company or its affiliates, that a utility may recover from a wholesale requirements customer, any legitimate, prudent, and verifiable costs that the utility had incurred based on a reasonable expectation that it would continue to sell requirements service to the customer. The FERC has referred to such costs as "stranded costs". On appeal, the United States Court of Appeals for the District of Columbia Circuit has questioned whether allowing utilities to recover stranded costs is anti-competitive and the Court remanded the case back to the FERC for further proceedings and development of the competitive issues. In a separate development, the FERC issued a notice of proposed rule-making on the recovery of investment costs stranded as a result of increased competition. Electric utility rates are generally based on a utility's costs. Therefore, electric utilities are subject to certain accounting standards that are not applicable to other business enterprises in general. These accounting rules require regulated entities, in appropriate circumstances, to establish regulatory assets and liabilities, which defer the income statement impact of certain costs that are expected to be recovered in future rates. The effects of competition could ultimately cause the operations of the Company, or a portion thereof, to cease meeting the criteria for application of these accounting rules. While the Company does not expect to cease meeting these criteria in the near future, if this were to occur, accounting standards of enterprises in general would apply and immediate recognition of any previously deferred costs would be necessary in the year in which these criteria were no longer applicable. In addition, if, because of competition, utilities are unable to recover all of their costs in rates, it may be necessary to write off those costs that are not recoverable. Utility Plant Expenditures and Financing - ---------------------------------------- Cash expenditures for utility plant totaled $173 million for the first nine months of 1994 including $110 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 the proceeds of long and short-term debt issues. The Company issued $5 million of long-term mortgage bonds in the third quarter at an interest rate of 8.53 percent. In addition, the Company issued $10 million of long- term debt in November 1994 at an interest rate of 8.33 percent and plans to issue an additional $35 million of long-term debt by the end of 1994 or early 1995. The Company's major construction project is the repowering of Manchester Street Station, a 140 MW electric generating station in Providence, Rhode Island which is jointly owned by the Company (90 percent interest) and Narragansett (10 percent interest). Repowering will more than triple the power generation capacity of Manchester Street Station and substantially increase the plant's thermal efficiency. The total cost for the generating station, scheduled for completion in late 1995, is estimated to be approximately $525 million, including AFDC. In addition, related transmission work was estimated to cost $75 million. At September 30, 1994, a total of $310 million, including AFDC, had been spent on the project including the related transmission work ($247 million by the Company). The transmission facilities were in service at September 30, 1994, although all costs related to such work had not yet been incurred. Substantial commitments have been made relative to future planned expenditures for this project. At September 30, 1994, the Company had $92 million of short-term debt outstanding including $90 million in the form of commercial paper borrowings. The Company currently has lines of credit and standby bond purchase facilities with banks totaling $490 million. These lines of credit are available to provide liquidity support for commercial paper borrowings and for $342 million of the Company's outstanding variable rate mortgage bonds in commercial paper mode and for other corporate purposes. There were no borrowings under these lines of credit at September 30, 1994. For the twelve-month period ending September 30, 1994, the ratio of earnings to fixed charges was 6.57. PART II. OTHER INFORMATION Item 1. Legal Proceedings - -------------------------- Information concerning a suit by Milford Power Limited Partnership against the Company filed on October 25, 1994, discussed in Part I of this report in Management's Discussion and Analysis of Financial Condition and Results of Operations is incorporated herein by reference and made a part hereof. Item 6. Exhibits and Reports on Form 8-K - ----------------------------------------- The Company filed a report on Form 8-K dated October 27, 1994, containing Item 5, Other Events. The Company is filing 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. SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report on Form 10-Q for the quarter ended September 30, 1994 to be signed on its behalf by the undersigned thereunto duly authorized. NEW ENGLAND POWER COMPANY s/ Michael E. Jesanis Michael E. Jesanis, Treasurer, Authorized Officer, and Principal Financial Officer Date: November 10, 1994 EX-99 2 EXHIBIT INDEX EXHIBIT INDEX ============= EXHIBIT NUMBER DESCRIPTION PAGE - -------------- ----------- ---- 12 Statement re Computation Filed Herewith of Ratios 27 Financial Data Schedule Filed Herewith EX-99 3 EXHIBIT 12 NEW ENGLAND POWER COMPANY Computation of Ratio of Earnings to Fixed Charges (SEC Coverage) (Unaudited)
12 Months Ended September 30, 1994 Years Ended December 31, Actual -------------------------------------------------------------- (Unaudited) 1993 1992 1991 1990 1989 -------------- ---- ---- ---- ---- ---- (In Thousands) Net Income $152,550 $141,468 $134,151 $134,747 $222,219 $124,617 - ---------- Less undistributed income of nuclear power companies 1,674 544 320 (240) (133) 715 -------- -------- -------- -------- -------- -------- 150,876 140,924 133,831 134,987 222,352 123,902 Add income taxes and fixed charges - ---------------------------------- Current federal income taxes 64,038 62,454 64,417 62,182 50,543 42,885 Deferred federal income taxes 20,234 17,745 4,741 11,134 38,367 7,841 Investment tax credits - net (2,026) (2,606) (1,328) (7,732) (26,026) 950 State income taxes 17,459 17,242 14,596 15,526 21,867 14,002 Interest on long-term debt 38,937 45,837 59,382 67,426 67,385 66,654 Interest on short-term debt and other6,077 5,427 2,071 2,490 6,900 7,730 -------- -------- -------- -------- -------- -------- Net earnings available for fixed charges $295,595 $287,023 $277,710 $286,013 $381,388 $263,964 ======== ======== ======== ======== ======== ======== Fixed charges: Interest on long-term debt $ 38,937 $ 45,837 $ 59,382 $ 67,426 $ 67,385 $ 66,654 Interest on short-term debt and other6,077 5,427 2,071 2,490 6,900 7,730 -------- -------- -------- -------- -------- -------- Total fixed charges $ 45,014 $ 51,264 $ 61,453 $ 69,916 $ 74,285 $ 74,384 ======== ======== ======== ======== ======== ======== Ratio of earnings to fixed charges 6.57 5.60 4.52 4.09 5.13 3.55 - ----------------------------------
EX-27 4
UT 1,000 DEC-31-1994 DEC-31-1993 DEC-31-1994 DEC-31-1993 SEP-30-1994 SEP-30-1993 SEP-30-1994 SEP-30-1993 9-MOS 9-MOS QTR-3 QTR-3 PER-BOOK PER-BOOK PER-BOOK PER-BOOK 1,851,661 0 0 0 67,286 0 0 0 365,344 0 0 0 298,886 0 0 0 0 0 0 0 2,583,177 0 0 0 128,998 0 0 0 374,829 0 0 0 383,299 0 0 0 887,126 0 0 0 0 0 0 0 60,516 0 0 0 672,541 0 0 0 92,405 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 870,589 0 0 0 2,583,177 0 0 0 1,175,617 1,174,108 419,555 417,912 83,596 78,633 33,158 34,262 947,739 951,407 331,180 327,025 1,031,335 1,030,040 364,338 361,287 144,282 144,068 55,217 56,625 7,630 5,544 3,807 2,194 151,912 149,612 59,024 58,819 26,723 35,506 9,206 11,747 125,189 114,106 49,818 47,072 2,582 4,017 858 1,221 122,607 110,089 48,960 45,851 85,461 96,748 40,312 17,737 28,111 35,010 9,620 11,500 189,629 210,554 65,216 42,476 0 0 0 0 0 0 0 0 Total deferred charges includes other assets and accrued Yankee Atomic costs. Short-term notes includes commercial paper obligations and short-term debt to affiliates. Per share data is not relevant because the Company's common stock is wholly owned by New England Electric System. -----END PRIVACY-ENHANCED MESSAGE-----