0000071337-95-000014.txt : 19950811 0000071337-95-000014.hdr.sgml : 19950811 ACCESSION NUMBER: 0000071337-95-000014 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19950630 FILED AS OF DATE: 19950810 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: NEW ENGLAND POWER CO CENTRAL INDEX KEY: 0000071337 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 041663070 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-06564 FILM NUMBER: 95560473 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 June 30, 1995 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number 1-6564 (LOGO) NEW ENGLAND POWER COMPANY (Exact name of registrant as specified in charter) MASSACHUSETTS 04-1663070 (State or other (I.R.S. Employer jurisdiction of Identification No.) incorporation or organization) 25 Research Drive, Westborough, Massachusetts 01582 (Address of principal executive offices) Registrant's telephone number, including area code (508-389-2000) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes (X) No ( ) Common stock, par value $20 per share, authorized and outstanding: 6,449,896 shares at June 30, 1995. PART I FINANCIAL INFORMATION Item 1. Financial Statements ---------------------------- NEW ENGLAND POWER COMPANY Statements of Income Periods Ended June 30 (Unaudited)
Quarter Six Months -------- ---------- 1995 1994 1995 1994 ---- ---- ---- ---- (In Thousands) Operating revenue, principally from affiliates $378,177 $356,488 $769,295 $756,062 -------- -------- -------- -------- Operating expenses: Fuel for generation 70,234 64,143 130,830 137,502 Purchased electric energy 140,208 118,919 285,549 239,757 Other operation 53,335 47,341 103,491 91,743 Maintenance 23,476 28,357 53,905 49,263 Depreciation and amortization 27,262 34,249 57,195 68,907 Taxes, other than income taxes 14,083 14,031 29,385 29,387 Income taxes 16,125 17,256 35,397 50,438 -------- -------- -------- -------- Total operating expenses 344,723 324,296 695,752 666,997 -------- -------- -------- -------- Operating income 33,454 32,192 73,543 89,065 Other income: Allowance for equity funds used during construction 2,552 2,286 4,953 4,062 Equity in income of nuclear power companies 1,491 1,444 2,891 2,731 Other income (expense) - net 1,263 (599) (1,099) (2,970) -------- -------- -------- -------- Operating and other income 38,760 35,323 80,288 92,888 -------- -------- -------- -------- Interest: Interest on long-term debt 11,764 9,339 23,002 18,491 Other interest 2,255 995 4,370 1,034 Allowance for borrowed funds used during construction - credit (2,948) (1,193) (5,755) (2,008) -------- -------- -------- -------- Total interest 11,071 9,141 21,617 17,517 -------- -------- -------- -------- Net income $ 27,689 $ 26,182 $ 58,671 $ 75,371 ======== ======== ======== ======== Statements of Retained Earnings Retained earnings at beginning of period $372,250 $370,289 $372,763 $346,153 Net income 27,689 26,182 58,671 75,371 Dividends declared on cumulative preferred stock (859) (858) (1,717) (1,724) Dividends declared on common stock (30,637) (20,962) (61,274) (45,149) -------- -------- -------- -------- Retained earnings at end of period $368,443 $374,651 $368,443 $374,651 ======== ======== ======== ======== 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 June 30 (Unaudited)
1995 1994 ---- ---- (In Thousands) Operating revenue, principally from affiliates $1,553,990 $1,548,881 ---------- ---------- Operating expenses: Fuel for generation 253,868 281,375 Purchased electric energy 559,375 506,466 Other operation 208,358 184,927 Maintenance 115,170 104,533 Depreciation and amortization 126,267 133,937 Taxes, other than income taxes 54,398 53,482 Income taxes 81,555 100,065 ---------- ---------- Total operating expenses 1,398,991 1,364,785 ---------- ---------- Operating income 154,999 184,096 Other income: Allowance for equity funds used during construction 10,033 5,813 Equity in income of nuclear power companies 4,976 5,441 Other income (expense) - net 1,578 (2,449) ---------- ---------- Operating and other income 171,586 192,901 ---------- ---------- Interest: Interest on long-term debt 43,222 40,818 Other interest 5,292 5,524 Allowance for borrowed funds used during construction - credit (9,601) (3,246) ---------- ---------- Total interest 38,913 43,096 ---------- ---------- Net income $ 132,673 $ 149,805 ========== ========== Statements of Retained Earnings Retained earnings at beginning of period $ 374,651 $ 306,926 Net income 132,673 149,805 Dividends declared on cumulative preferred stock (3,433) (3,811) Dividends declared on common stock (135,448) (77,399) Premium on redemption of preferred stock (870) ---------- ---------- Retained earnings at end of period $ 368,443 $ 374,651 ========== ========== 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)
June 30, December 31, ASSETS 1995 1994 ------ ---- ---- (In Thousands) Utility plant, at original cost $2,556,429 $2,524,544 Less accumulated provisions for depreciation and amortization 1,034,436 1,001,393 ---------- ---------- 1,521,993 1,523,151 Net investment in Seabrook 1 under rate settlement 22,814 38,283 Construction work in progress 381,589 314,777 ---------- ---------- Net utility plant 1,926,396 1,876,211 ---------- ---------- Investments: Nuclear power companies, at equity 46,669 46,349 Nonutility property and other investments, at cost 23,194 22,980 ---------- ---------- Total investments 69,863 69,329 ---------- ---------- Current assets: Cash 1,093 377 Accounts receivable, principally from sales of electric energy: Affiliated companies 210,838 197,655 Others 41,650 69,532 Fuel, materials and supplies, at average cost 85,659 73,361 Prepaid and other current assets 31,002 33,729 ---------- ---------- Total current assets 370,242 374,654 ---------- ---------- Accrued Yankee Atomic costs 107,769 122,452 Deferred charges and other assets 196,750 170,192 ---------- ---------- $2,671,020 $2,612,838 ========== ========== 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 368,443 372,763 ---------- ---------- Total common equity 872,270 876,590 Cumulative preferred stock, par value $100 per share 60,516 60,516 Long-term debt 735,325 695,466 ---------- ---------- Total capitalization 1,668,111 1,632,572 ---------- ---------- Current liabilities: Long-term debt due in one year 10,000 Short-term debt (including $17,375,000 and $16,575,000 to affiliates) 165,880 145,575 Accounts payable (including $37,154,000 and $69,089,000 to affiliates) 138,793 179,761 Accrued liabilities: Taxes 2,744 6,133 Interest 10,930 9,914 Other accrued expenses 10,700 10,866 Dividends payable 30,637 ---------- ---------- Total current liabilities 369,684 352,249 ---------- ---------- Deferred federal and state income taxes 376,340 364,073 Unamortized investment tax credits 58,064 59,014 Accrued Yankee Atomic costs 107,769 122,452 Other reserves and deferred credits 91,052 82,478 ---------- ---------- $2,671,020 $2,612,838 ========== ========== The accompanying notes are an integral part of these financial statements.
NEW ENGLAND POWER COMPANY Statements of Cash Flows Six Months Ended June 30 (Unaudited)
1995 1994 ---- ---- (In Thousands) Operating Activities: Net income $ 58,671 $ 75,371 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 59,929 70,916 Deferred income taxes and investment tax credits, net 11,990 7,373 Allowance for funds used during construction (10,708) (6,070) Decrease (increase) in accounts receivable 14,699 4,895 Decrease (increase) in fuel, materials, and supplies (12,298) (9,009) Decrease (increase) in prepaid and other current assets 2,727 (1,238) Increase (decrease) in accounts payable (40,968) 17,760 Increase (decrease) in other current liabilities (2,539) (18,706) Other, net (23,487) (16,879) -------- --------- Net cash provided by operating activities $ 58,016 $ 124,413 -------- --------- Investing Activities: Plant expenditures, excluding allowance for funds used during construction $(95,251) $(116,861) -------- --------- Net cash used in investing activities $(95,251) $(116,861) -------- --------- Financing Activities: Dividends paid on common stock $(30,637) $ (38,699) Dividends paid on preferred stock (1,717) (866) Changes in short-term debt 20,305 33,625 Long-term debt - issues 60,000 Long-term debt - retirements (10,000) Preferred stock - retirement (512) -------- --------- Net cash provided by (used in) financing activities $ 37,951 $ (6,452) -------- --------- Net increase in cash and cash equivalents $ 716 $ 1,100 Cash and cash equivalents at beginning of period 377 610 -------- --------- Cash and cash equivalents at end of period $ 1,093 $ 1,710 ======== ========= Supplementary Information: Interest paid less amounts capitalized $ 19,974 $ 15,960 -------- --------- Federal and state income taxes paid $ 19,158 $ 40,687 -------- --------- 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 Six Months Ended June 30, ---------------------------------------- 1995 1994 1995 1994 ---- ---- ---- ---- (In Thousands) Operating revenue $165,533 $158,091 $372,813 $308,740 ======== ======== ======== ======== Net income $ 7,966 $ 7,522 $ 16,284 $ 15,444 ======== ======== ======== ======== Company's equity in net income $ 1,491 $ 1,444 $ 2,891 $ 2,731 ======== ======== ======== ======== June 30, December 31, 1995 1994 ---- ---- (In Thousands) Plant $ 493,616 $ 537,103 Other assets 1,461,390 1,458,186 Liabilities and debt (1,706,156) (1,748,960) ----------- ----------- Net assets $ 248,850 $ 246,329 =========== =========== Company's equity in net assets $ 46,669 $ 46,349 =========== =========== At June 30, 1995, $12,720,000 of undistributed earnings of the nuclear power companies were included in the Company's retained earnings. For further discussion see Note B. Note B - Maine Yankee Atomic Power Company ------------------------------------------ The Company has a 20 percent interest in Maine Yankee Atomic Power Company (Maine Yankee) which owns an 880 megawatt (MW) nuclear generating station. Since January 1995, the station has Note B - Maine Yankee Atomic Power Company - Continued ------------------------------------------ been shutdown for refueling and inspection. During the inspection, Maine Yankee detected substantial deterioration of steam generator tubes. To correct the situation, Maine Yankee is installing welded sleeves (involving the insertion of a partial new tube inside the existing tube) on all of the steam generator tubes. Similar repairs have been undertaken at other nuclear plants, but not on the scale proposed at Maine Yankee. In the second quarter of 1995, the Company accrued approximately $4 million for its portion of the anticipated future incremental costs to repair the steam generator tubes. These repair costs were charged to purchased power expense. Replacement power costs incurred as a result of the Maine Yankee shutdown are being recovered through the Company's fuel clause. The station is expected to return to service by the end of 1995. Note C - 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 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. The Company has been named as a potentially responsible party (PRP) by either the U.S. Environmental Protection Agency or the Massachusetts Department of Environmental Protection for six sites at which hazardous waste is alleged to have been disposed. Private parties have also contacted or initiated legal proceedings against the Company regarding hazardous waste cleanup. The Company is currently aware of other sites, and may in the future become aware of additional sites, that it may be held responsible for remediating. Note C - Hazardous Waste - Continued ------------------------ Predicting the potential costs to investigate and remediate hazardous waste sites continues to be difficult. There are also significant uncertainties as to the portion, if any, of the investigation and remediation costs of any particular hazardous waste site that may ultimately be borne by the Company. Where appropriate, the Company intends to seek recovery from its insurers and from other PRPs, but it is uncertain whether and to what extent such efforts would be successful. The Company believes that hazardous waste liabilities for all sites of which it is aware will not be material to its financial position. Note D - Purchased Power Contract Dispute ----------------------------------------- In October 1994, the Company was sued by Milford Power Limited Partnership (MPLP), a venture of Enron Corporation and Jones Capital that owns a 149 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. The suit 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 remainder 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 also asserts that the Company deliberately misled regulatory bodies concerning the Manchester Street Station repowering project. MPLP seeks compensatory damages in an unspecified amount, as well as treble damages. The Company believes that the allegations of wrongdoing are without merit. The Company has filed counterclaims and crossclaims against MPLP, Enron Corporation, and Jones Capital, seeking monetary damages and termination of the purchased power contract. MPLP also intervened in the Company's recent rate filing making similar allegations to those asserted in MPLP's lawsuit. Hearings are expected to begin in October 1995. MPLP also intervened in a recent Massachusetts Electric Company rate filing. Note E - Shipping Charter Agreement Dispute ------------------------------------------- In May 1995, the Company was sued by Keystone Shipping Company (Keystone). The suit arose after the Company, which charters a vessel for coal shipment purposes from Intercoastal Bulk Carriers, Inc. (IBC), a Keystone affiliate, gave notice in November 1994 that it intended to exercise its explicit contractual right under the charter agreement to terminate the charter and purchase the vessel. The Company, concurrently with the notice, initiated arbitration to resolve any objections to its exercise of such a right. In arbitration, the panel ruled in the Company's favor on several preliminary issues which were appealed by Keystone in federal court, but later dismissed by the court. Keystone's suit alleges that the Company induced Keystone to enter into the charter agreement by making fraudulent misrepresentations regarding the purchase option. Keystone alleges damages in excess of $40 million. The complaint includes allegations that the Company violated Massachusetts General Laws chapter 93A, which provides for the possibility of treble damages. The Company believes that Keystone's allegations are without merit and has filed a motion to dismiss the lawsuit since the issues are the subject of arbitration. At present, the vessel remains under the ownership of IBC and the Company is continuing to pay the charter rate, subject to the Company's reservation of its rights to seek damages and other relief against Keystone and IBC. Note F - New Accounting Standard -------------------------------- In March 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of (FAS 121), effective for fiscal year 1996. This standard clarifies when and how to recognize an impairment of long- lived assets. In addition, FAS 121 requires that all regulatory assets, which must have a high probability of recovery to be initially established, must continue to meet that high probability standard to avoid being written off. However, if written off, a regulatory asset can be restored if it again has a high probability of recovery. The impact of this standard will be driven by the facts and circumstances that exist when the standard is adopted and thereafter. Note G ------ 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 1994 Annual Report. Item 2. Management's Discussion and Analysis of Financial --------------------------------------------------------- Condition and Results of Operations ----------------------------------- This section contains management's assessment of New England Power Company's financial condition and the principal factors having an impact on the results of operations. This discussion should be read in conjunction with the Company's financial statements and footnotes and the 1994 Annual Report on Form 10-K. Earnings -------- Net income for the first six months of 1995 decreased $17 million from the corresponding period in 1994, however, net income increased for the second quarter by approximately $2 million. The decrease in the six months is due to (a) increased purchased power costs due to scheduled plant overhauls and refueling outages by partially-owned nuclear power suppliers, (b) increased operation and maintenance expense due to overhauls at the Company's generating plants, (c) increased reimbursements to affiliates for customer discounts and for generation and transmission costs and, (d) increased interest expense. These decreases in income were partially offset by reduced depreciation and amortization expense. The increase in income in the second quarter reflects sales growth and a reduction in depreciation and amortization expense, partially offset by increased purchased power expense. Maine Yankee Atomic Power Company --------------------------------- The Company has a 20 percent interest in Maine Yankee Atomic Power Company (Maine Yankee) which owns an 880 megawatt nuclear generating station. Since January 1995, the station has been shut down for refueling and inspection. During the inspection, Maine Yankee detected substantial deterioration of steam generator tubes. To correct the situation, Maine Yankee is installing welded sleeves (involving the insertion of a partial new tube inside the existing tube) on all of the steam generator tubes. Similar repairs have been undertaken at other nuclear plants, but not on the scale proposed at Maine Yankee. In the second quarter of 1995, the Company accrued approximately $4 million for its portion of the anticipated future incremental costs to repair the steam generator tubes. These repair costs were charged to purchased power expense. Replacement power costs incurred as a result of the Maine Yankee shutdown are being recovered through the Company's fuel clause. The station is expected to return to service by the end of 1995. Rate Activity ------------- In February 1995, the Federal Energy Regulatory Commission (FERC) approved a rate agreement filed by the Company. Under the agreement, which became effective January 1995, the Company's base rates are frozen until 1997. Before this rate agreement, the Company's rate structure contained two surcharges which were recovering the costs of a coal conversion project and a portion of the Company's investment in the Seabrook 1 nuclear unit (Seabrook 1). These two surcharges would have fully recovered their related costs by mid-1995, however, under the rate agreement they have been continued as part of base rates. The agreement also allows for full recovery of costs associated with the Manchester Street Station repowering project, which is scheduled for completion later this year. In addition, the agreement allows the Company to recover approximately $50 million of deferred costs associated with terminated purchased power contracts and postretirement benefits other than pensions (PBOPs) over seven years. Under the agreement, the Company is fully recovering currently incurred PBOP costs. The agreement further provides for the recovery over three years of $27 million of costs related to the dismantling of a retired generating station in Rhode Island and the replacement of a turbine rotor at one of the Company's generating units. The agreement also increases the Company's recovery of depreciation expense by approximately $8 million annually to recognize costs that will be incurred upon the eventual dismantling of its Brayton Point and Salem Harbor generating plants. Under the agreement, approximately $15 million of the $38 million in Seabrook 1 costs due to be recovered in 1995 pursuant to a 1988 settlement agreement will be deferred and recovered in 1996. Finally, the agreement provided that the Company would reimburse its wholesale customers for discounts provided by those wholesale customers to their retail customers under service extension discount (SED) programs. Under these programs, retail customers are entitled to such discounts only if they have signed an agreement not to purchase power from another supplier or generate any additional power themselves for a three to five year period. Reimbursements in 1995 are expected to total $13 million. The FERC's approval of this rate agreement applies to all of the Company's customers except the Town of Norwood, Massachusetts and the Milford Power Limited Partnership (MPLP), (which together represent less than 2 percent of the Company's sales), who intervened in the rate case. In June 1995, the Company and the Town of Norwood filed a settlement agreement with the FERC. This settlement is subject to FERC approval. A separate hearing will be conducted, beginning in October 1995, to address the issues raised by MPLP. Operating Revenue ----------------- The following table summarizes the changes in operating revenue: Increase (Decrease) in Operating Revenue Second Quarter Six Months -------------- ------------ 1995 vs 1994 1995 vs 1994 -------------- ------------ (In Millions) Sales increase $ 5 $ 1 Fuel recovery 18 19 SED reimbursements (3) (6) Narragansett integrated facilities credit 1 (3) Other 1 2 --- --- $22 $13 === === For a discussion of fuel recovery see the fuel costs discussion in the Operating Expenses section. See the Rate Activity section for a discussion of SED reimbursements. The entire output of The Narragansett Electric Company's (Narragansett) generating capacity is made available to the Company. Narragansett receives a credit on its purchased power bill from the Company for its fuel costs and other generation and transmission related costs. The increased credit for the six months reflects increased costs associated with a new transmission line and with the dismantlement of Narragansett's previously retired South Street generating facility. The decrease in the credit in the second quarter of 1995 reflects an adjustment in South Street dismantlement costs reimbursed in the second quarter of 1994. Operating Expenses ------------------ The following table summarizes the changes in operating expenses: Increase (Decrease) in Operating Expenses Second Quarter Six Months -------------- ------------ 1995 vs 1994 1995 vs 1994 -------------- ------------ (In Millions) Fuel costs $16 $ 17 Accrued New England Energy Incorporated fuel costs 1 2 Purchased energy excluding fuel 10 20 Operation and maintenance 1 17 Depreciation and amortization (7) (12) Taxes (1) (15) --- ---- $20 $ 29 === ==== Fuel costs represent fuel for generation and the portion of purchased electric energy permitted to be recovered through the Company's fuel adjustment clause. The increase in fuel costs reflects increased short-term purchases and alternate energy purchases due to decreased generation from the Company's nuclear power suppliers, decreased hydro production due to low water levels, and overhauls of the Company's thermal generating facilities. Purchased energy excluding fuel represents the remainder of purchased electric energy costs. The increase in purchased energy excluding fuel for the first six months of 1995 is the result of increased costs associated with scheduled plant overhauls and refueling outages as well as an accrual in the second quarter of 1995 of approximately $4 million relating to Maine Yankee (see Maine Yankee Atomic Power Company section). The increase also reflects amortization of previously deferred purchased power termination costs. The increase in operation and maintenance expenses for the six months ended June 30, 1995, reflects increased maintenance costs associated with overhauls of generating plants, in part to achieve compliance with the Clean Air Act, increased general, administrative and information system costs, and recognition of currently incurred and previously deferred PBOP costs in accordance with the Company's 1995 rate agreement. The decrease in depreciation and amortization is due to decreased amortization of Seabrook 1, partially offset by the effects of increased depreciation rates approved in the Company's 1995 rate agreement and depreciation of new plant expenditures. A portion of the Company's Seabrook 1 amortization and the amortization of the Company's Oil Conservation Adjustment was completed in the second quarter of 1995. The amounts recorded in the first six months related to these completed amortizations totaled $12 million, before tax. A separate portion of the Seabrook 1 amortization will continue through the end of 1996. The decrease in taxes for the first six months of 1995 is primarily due to decreased income. Allowance For Funds Used During Construction (AFDC) -------------------------------------------------- AFDC increased for the second quarter and first six months of 1995 due to increased construction work in progress, principally associated with the Manchester Street Station repowering project, scheduled to commence commercial operation in late 1995. Interest Expense ---------------- The increase in interest expense is primarily due to increased long-term and short-term debt balances and higher interest rates in the second quarter and first six months of 1995. Competitive Conditions ---------------------- The electric utility business is being subjected to rapidly increasing competitive pressures, stemming from a combination of trends, including surplus generating capacity, increasing electric rates, improved technologies, increasing demand for customer choice, and new regulations and legislation intended to foster competition. See the Company's Annual Report on Form 10- K for the year ended December 31, 1994. The Company derives over 95 percent of its operating revenue from sales of electricity to three retail affiliates of the Company. The three states served by these retail affiliates have been considering various proposals for allowing electric customers greater choice over their electricity supplier. The Massachusetts Department of Public Utilities (MDPU) has been holding hearings on the regulation and structure of the electric utility industry. The Rhode Island Public Utilities Commission (RIPUC) convened a task force of utilities, commercial and industrial customers, and other interested parties to prepare a report on restructuring the industry. In these two proceedings, Massachusetts Electric Company and Narragansett have filed with the respective commissions a set of interdependent principles for industry restructuring. These principles, which were agreed to by groups representing environmental protection advocates, governmental agencies, non-utility generators, investor-owned utilities, and large and small customer interests, include provisions for increased customer choice while allowing utilities the opportunity to recover the cost of their past commitments, as well as provisions for protecting residential customers, encouraging renewable resources and energy conservation, and honoring contracts with independent power producers. The parties agreeing to the principles suggested to the MDPU and RIPUC that they be permitted a six month period for discussions and negotiations leading to the development of detailed, company-specific plans. The MDPU and RIPUC are expected to issue separate decisions this summer. In July 1995, the Governor of Rhode Island vetoed two bills that would have allowed certain industrial customers to buy power from alternative suppliers, rather than through the local electric utility. The Rhode Island Legislature may still override the vetoes and it has indicated that it will consider alternative legislation in September 1995. Narragansett cannot predict whether any such legislation will be enacted. Because Narragansett believed that the proposed legislation would result in piecemeal deregulation that would not be fair to customers or shareholders and would circumvent the comprehensive proceedings mentioned above, Narragansett urged the Governor to exercise his veto. Narragansett committed that, if the measures were not enacted into law, Narragansett would provide a two year rate discount to manufacturing customers. In addition, Narragansett committed, if the measures were not enacted, to submit by July 1, 1996, a specific and detailed proposal to the RIPUC addressing the issues associated with providing open access to Narragansett's distribution system for its large commercial and industrial customers. Among other things, that filing would address the proper means for recovering past costs incurred to serve exiting customers through a compensatory access charge. If the charges are approved by the RIPUC, the appropriate access tariffs would then be filed with the FERC. Also, as previously reported, the New Hampshire Public Utilities Commission (NHPUC) is considering the proposal of a new company, Freedom Energy Company (Freedom Energy), to sell electricity at retail rates to large customers of another utility. In June 1995, the NHPUC issued an order in the Freedom Energy docket addressing preliminary issues. The NHPUC found, in a split decision, that it does not believe franchise territories in New Hampshire are exclusive as a matter of law. The order also stated that it did not believe federal law precluded the NHPUC from authorizing retail wheeling. However, the order makes clear that Freedom Energy must obtain additional regulatory approvals at the state and federal level before it could operate as a public utility in the franchise territory of another utility. In addition, in June 1995, the Governor of New Hampshire signed into law a bill which instructs the NHPUC to establish a retail competition pilot program open to all classes of customers. The program could be effective as early as January 1, 1996. The NHPUC will first have to determine that a pilot program would be fair, lawful, and in the public good. The size, scope, and other characteristics of the pilot are not prescribed by the legislation and will be subject to NHPUC determination. The legislation also established a legislative committee on retail wheeling and restructuring. The committee is to report its findings by November 1, 1995. In March 1995, the FERC issued a notice of proposed rule- making in which it stated that recovery in rates of legitimate and verifiable stranded costs from departing customers is the appropriate method for recovery of costs stranded as the result of wholesale competition. Under the FERC policy proposal, costs stranded as a result of retail competition would be subject to state commission review if the state commission has the necessary statutory authority, and subject to FERC review if the state commission does not have such authority. A final decision is expected in mid-1996. Electric utility rates have historically been based on a utility's costs. As a result, electric utilities are subject to certain accounting standards that are not applicable to other business enterprises in general. Financial Accounting Standard No. 71, Accounting for the Effects of Certain Types of Regulation (FAS 71), requires regulated entities, in appropriate circumstances, to establish regulatory assets and liabilities, and thereby defer the income statement impact of certain costs that are expected to be recovered in future rates. The Company believes that its operations currently meet the criteria established in FAS 71. However, the effects of regulatory and/or legislative initiatives could, in the near future, cause all or a portion of the Company's operations to cease meeting the criteria of FAS 71. In that event, the application of FAS 71 to such operations would be discontinued and a non-cash write-off of previously established regulatory assets and liabilities related to such operations would be required. At June 30, 1995, the Company had pre-tax regulatory assets (net of regulatory liabilities) of approximately $300 million. In addition, the Company's affiliate, New England Energy Incorporated had a regulatory asset of approximately $200 million which is recoverable in its entirety from the Company. This amount would also be included in any write-down of the Company's regulatory assets. If competitive or regulatory change should cause a substantial revenue loss or lead to the permanent shutdown of any generating facilities, a substantial write-down of plant assets could be required pursuant to Financial Accounting Standard No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of (FAS 121). This standard, effective for fiscal year 1996, clarifies when and how to recognize an impairment of long- lived assets. For further discussion of FAS 121 see Note F. Utility Plant Expenditures and Financings ----------------------------------------- Cash expenditures for utility plant totaled $95 million for the first six months of 1995, including $60 million related to the Company's 90 percent share of the Manchester Street Station repowering project in Providence, Rhode Island. The repowering of the Manchester Street generating station, scheduled to commence commercial operation in late 1995, is estimated to cost approximately $510 million, excluding transmission facilities. The funds necessary for utility plant expenditures during the period were provided by net cash from operating activities, after the payment of dividends, and from proceeds of short-term and long-term debt issues. In the first six months of 1995, the Company issued $50 million of long-term debt at interest rates ranging from 6.69 percent to 7.94 percent. In addition, the Company refinanced $10 million of variable rate mortgage bonds in the first six months of 1995. The Company does not plan to issue any additional long-term debt in 1995. At June 30, 1995, the Company had $166 million of short-term debt outstanding including $149 million of commercial paper borrowings. At June 30, 1995, the Company had lines of credit and bond purchase facilities with banks totaling $490 million which are available to provide liquidity support for commercial paper borrowings and for $342 million of the Company's outstanding variable rate mortgage bonds in tax-exempt commercial paper mode and for other corporate purposes. There were no borrowings under these lines of credit at June 30, 1995. For the twelve-month period ending June 30, 1995, the ratio of earnings to fixed charges was 5.10. PART II. OTHER INFORMATION Item 1. Legal Proceedings ---------------------------- Information concerning a lawsuit filed against the Company by Milford Power Limited Partnership on October 28, 1994, and intervention into the Company's rate filing, discussed in Note D of Notes of Unaudited Financial Statements, is incorporated herein by reference and made a part hereof. Information concerning a lawsuit filed against the Company by Keystone Shipping Company on May 17, 1995, in the Massachusetts Essex Superior Court, discussed in Note E of Notes of Unaudited Financial Statements, is incorporated herein by reference and made a part hereof. Item 4. Submission of Matters to a Vote of Security-Holders ------------------------------------------------------------- On May 10, 1995, a Special Meeting in lieu of Annual Meeting of Shareholders was held. By unanimous vote of the 6,449,896 shares having general voting rights represented at this meeting: The number of directors for the ensuing year was fixed at six. The following were elected as directors: Joan T. Bok Frederic E. Greenman Alfred D. Houston John W. Newsham John W. Rowe Jeffrey D. Tranen Michael E. Jesanis was elected Treasurer and Robert King Wulff was elected Clerk. The terms of office are until the next annual meeting of stockholders and until their successors are duly chosen and qualified. Coopers & Lybrand was also selected as Auditor for the year 1995. In addition, the liability and indemnification provisions of the Company's by-laws were amended by changing the definition of officers covered by such provisions. Item 6. Exhibits and Reports on Form 8-K ----------------------------------------- The Company is filing the following revised exhibit for incorporation by reference into its registration statements on Form S-3, Commission File Nos. 33-48257, 33-48897, and 33-49193: 12 Statement re computation of ratios The Company is filing Financial Data Schedules. The Company filed a report on Form 8-K dated May 17, 1995, containing Item 5, Other Events. SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report on Form 10-Q for the quarter ended June 30, 1995 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: August 10, 1995 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-12 3 EXHIBIT 12 NEW ENGLAND POWER COMPANY Computation of Ratio of Earnings to Fixed Charges (SEC Coverage) (Unaudited)
12 Months Ended June 30, 1995 Years Ended December 31, Actual -------------------------------------------------------------- (Unaudited) 1994 1993* 1992* 1991* 1990* -------------- ---- ---- ---- ---- ---- (In Thousands) Net Income $132,673 $149,373 $141,468 $134,151 $134,747 $222,219 ---------- Less undistributed income of nuclear power companies (64) 6 544 320 (240) (133) -------- -------- -------- -------- -------- -------- 132,737 149,367 140,924 133,831 134,987 222,352 Add income taxes and fixed charges ---------------------------------- Current federal income taxes 44,994 61,350 62,454 64,417 62,182 50,543 Deferred federal income taxes 24,317 20,501 17,745 4,741 11,134 38,367 Investment tax credits - net (3,594) (3,577) (2,606) (1,328) (7,732) (26,026) State income taxes 14,778 17,328 17,242 14,596 15,526 21,867 Interest on long-term debt 43,222 38,711 45,837 59,382 67,426 67,385 Interest on short-term debt and other interest 5,292 1,956 5,427 2,071 2,490 6,900 Estimated interest component of rentals 3,507 3,635 3,851 4,121 4,115 1,447 -------- -------- -------- -------- -------- -------- Net earnings available for fixed charges $265,253 $289,271 $290,874 $281,831 $290,128 $382,835 ======== ======== ======== ======== ======== ======== Fixed charges: Interest on long-term debt $ 43,222 $ 38,711 $ 45,837 $ 59,382 $ 67,426 $ 67,385 Interest on short-term debt and other interest 5,292 1,956 5,427 2,071 2,490 6,900 Estimated interest component of rentals 3,507 3,635 3,851 4,121 4,115 1,447 -------- -------- -------- -------- -------- -------- Total fixed charges $ 52,021 $ 44,302 $ 55,115 $ 65,574 $ 74,031 $ 75,732 ======== ======== ======== ======== ======== ======== Ratio of earnings to fixed charges 5.10 6.53 5.28 4.30 3.92 5.06 ---------------------------------- *The ratio of earnings to fixed charges for 1993 to 1990 have been restated to reflect the estimated interest component of rentals.
EX-27 4 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. 1,000 6-MOS 6-MOS QTR-2 QTR-2 DEC-31-1995 DEC-31-1994 DEC-31-1995 DEC-31-1994 JUN-30-1995 JUN-30-1994 JUN-30-1995 JUN-30-1994 PER-BOOK PER-BOOK PER-BOOK PER-BOOK 1,926,396 0 0 0 69,863 0 0 0 370,242 0 0 0 304,519 0 0 0 0 0 0 0 2,671,020 0 0 0 374,829 0 0 0 368,443 0 0 0 872,270 0 0 0 128,998 0 0 0 0 0 0 0 60,516 0 0 0 735,325 0 0 0 165,880 0 0 0 0 0 0 0 0 0 0 0 10,000 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 827,029 0 0 0 2,671,020 0 0 0 769,295 756,062 378,177 356,488 35,397 50,438 16,125 17,256 660,355 616,559 328,598 307,040 695,752 666,997 344,723 324,296 73,543 89,065 33,454 32,192 6,745 3,823 5,306 3,131 80,288 92,888 38,760 35,323 21,617 17,517 11,071 9,141 58,671 75,371 27,689 26,182 1,717 1,724 859 858 56,954 73,647 26,830 25,324 61,274 45,149 30,637 20,962 23,002 18,491 11,764 9,339 58,016 124,413 (12,931) 16,463 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 notes payable to associated companies. Per share data is not relevant because the Company's common stock is wholly owned by New England Electric System.