-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, RE4RJudLl/2BW9Ws6XfU5cFRMIHozw/IYieYLwGq8NCceu8Jk1nCvjTfZ2+GY3aS YnW4dqlmx2IFiM14uw3MIQ== 0000071337-95-000019.txt : 19951119 0000071337-95-000019.hdr.sgml : 19951119 ACCESSION NUMBER: 0000071337-95-000019 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19950930 FILED AS OF DATE: 19951113 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: 95589190 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, 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 September 30, 1995. PART I FINANCIAL INFORMATION Item 1. Financial Statements - ---------------------------- NEW ENGLAND POWER COMPANY Statements of Income Periods Ended September 30 (Unaudited)
Quarter Nine Months -------- ----------- 1995 1994 1995 1994 ---- ---- ---- ---- (In Thousands) Operating revenue, principally from affiliates $421,935 $419,555$1,191,230 $1,175,617 -------- -------- -------------------- Operating expenses: Fuel for generation 75,355 68,846 206,185 206,348 Purchased electric energy 133,660 139,173 419,209 378,930 Other operation 52,676 49,495 156,167 141,238 Maintenance 16,481 23,943 70,386 73,206 Depreciation and amortization 22,602 35,610 79,797 104,517 Taxes, other than income taxes 13,974 14,113 43,359 43,500 Income taxes 37,518 33,158 72,915 83,596 -------- -------- -------------------- Total operating expenses 352,266 364,338 1,048,018 1,031,335 -------- -------- -------------------- Operating income 69,669 55,217 143,212 144,282 Other income: Allowance for equity funds used during construction 2,535 2,199 7,488 6,261 Equity in income of nuclear power companies 1,356 1,478 4,247 4,209 Other income (expense) - net (713) 130 (1,812) (2,840) -------- -------- -------------------- Operating and other income 72,847 59,024 153,135 151,912 -------- -------- -------------------- Interest: Interest on long-term debt 11,859 9,620 34,861 28,111 Other interest 2,637 1,378 7,007 2,412 Allowance for borrowed funds used during construction - credit (3,333) (1,792) (9,088) (3,800) -------- -------- -------------------- Total interest 11,163 9,206 32,780 26,723 -------- -------- -------------------- Net income $ 61,684 $ 49,818 $ 120,355$ 125,189 ======== ======== ==================== Statements of Retained Earnings Retained earnings at beginning of period $368,443 $374,651 $ 372,763$ 346,153 Net income 61,684 49,818 120,355 125,189 Dividends declared on cumulative preferred stock (858) (858) (2,575) (2,582) Dividends declared on common stock (41,924) (40,312) (103,198) (85,461) -------- -------- -------------------- Retained earnings at end of period $387,345 $383,299 $ 387,345$ 383,299 ======== ======== ==================== 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)
1995 1994 ---- ---- (In Thousands) Operating revenue, principally from affiliates $1,556,370 $1,550,523 ---------- ---------- Operating expenses: Fuel for generation 260,377 277,986 Purchased electric energy 553,862 502,452 Other operation 211,539 191,765 Maintenance 107,708 106,386 Depreciation and amortization 113,259 135,733 Taxes, other than income taxes 54,259 54,553 Income taxes 85,915 98,961 ---------- ---------- Total operating expenses 1,386,919 1,367,836 ---------- ---------- Operating income 169,451 182,687 Other income: Allowance for equity funds used during construction 10,369 7,387 Equity in income of nuclear power companies 4,854 5,899 Other income (expense) - net 735 (2,868) ---------- ---------- Operating and other income 185,409 193,105 ---------- ---------- Interest: Interest on long-term debt 45,461 38,937 Other interest 6,551 6,077 Allowance for borrowed funds used during construction - credit (11,142) (4,459) ---------- ---------- Total interest 40,870 40,555 ---------- ---------- Net income $ 144,539 $ 152,550 ========== ========== Statements of Retained Earnings Retained earnings at beginning of period $ 383,299 $ 334,170 Net income 144,539 152,550 Dividends declared on cumulative preferred stock (3,433) (3,448) Dividends declared on common stock (137,060) (99,973) ---------- ---------- Retained earnings at end of period $ 387,345 $ 383,299 ========== ========== 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 1995 1994 ------ ---- ---- (In Thousands) Utility plant, at original cost $2,745,552 $2,524,544 Less accumulated provisions for depreciation and amortization 1,046,476 1,001,393 ---------- ---------- 1,699,076 1,523,151 Net investment in Seabrook 1 under rate settlement 19,012 38,283 Construction work in progress 221,936 314,777 ---------- ---------- Net utility plant 1,940,024 1,876,211 ---------- ---------- Investments: Nuclear power companies, at equity 47,080 46,349 Nonutility property and other investments, at cost 23,758 22,980 ---------- ---------- Total investments 70,838 69,329 ---------- ---------- Current assets: Cash 2,476 377 Accounts receivable, principally from sales of electric energy: Affiliated companies 217,355 197,655 Others 49,277 69,532 Fuel, materials and supplies, at average cost 76,996 73,361 Prepaid and other current assets 32,405 33,729 ---------- ---------- Total current assets 378,509 374,654 ---------- ---------- Accrued Yankee Atomic costs 104,257 122,452 Deferred charges and other assets 198,315 170,192 ---------- ---------- $2,691,943 $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 387,345 372,763 ---------- ---------- Total common equity 891,172 876,590 Cumulative preferred stock, par value $100 per share 60,516 60,516 Long-term debt 735,386 695,466 ---------- ---------- Total capitalization 1,687,074 1,632,572 ---------- ---------- Current liabilities: Long-term debt due in one year 10,000 Short-term debt (including $29,175,000 and $16,575,000 to affiliates) 166,575 145,575 Accounts payable (including $40,186,000 and $69,089,000 to affiliates) 156,200 179,761 Accrued liabilities: Taxes 18,098 6,133 Interest 11,796 9,914 Other accrued expenses 10,406 10,866 ---------- ---------- Total current liabilities 373,075 352,249 ---------- ---------- Deferred federal and state income taxes 382,715 364,073 Unamortized investment tax credits 57,589 59,014 Accrued Yankee Atomic costs 104,257 122,452 Other reserves and deferred credits 87,233 82,478 ---------- ---------- $2,691,943 $2,612,838 ========== ========== 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)
1995 1994 ---- ---- (In Thousands) Operating Activities: Net income $ 120,355 $ 125,189 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 84,241 107,674 Deferred income taxes and investment tax credits - net 16,927 10,204 Allowance for funds used during construction (16,576) (10,061) Decrease (increase) in accounts receivable 555 (13,407) Decrease (increase) in fuel, materials, and supplies (3,635) (7,100) Eecrease (increase) in prepaid and other current assets 1,324 (946) Increase (decrease) in accounts payable (23,561) 12,226 Increase (decrease) in other current liabilities 13,387 (11,891) Other, net (30,905) (22,259) --------- --------- Net cash provided by operating activities $ 162,112 $ 189,629 --------- --------- Investing Activities: Plant expenditures, excluding allowance for funds used during construction $(125,240) $(172,837) Other investing activities (300) --------- --------- Net cash used in investing activities $(125,240) $(173,137) --------- --------- Financing Activities: Dividends paid on common stock $(103,198) $ (59,661) Dividends paid on preferred stock (2,575) (2,582) Redemption of preferred stock (512) Long-term debt - issues 60,000 5,000 Long-term debt - retirements (10,000) Changes in short-term debt 21,000 41,880 --------- --------- Net cash used in financing activities $ (34,773) $ (15,875) --------- --------- Net increase (decrease) in cash and cash equivalents $ 2,099 $ 617 Cash and cash equivalents at beginning of period 377 610 --------- --------- Cash and cash equivalents at end of period $ 2,476 $ 1,227 ========= ========= Supplementary Information: Interest paid less amounts capitalized $ 29,347 $ 25,859 --------- --------- Federal and state income taxes paid $ 37,670 $ 60,165 --------- --------- 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, ---------------------------------------- 1995 1994 1995 1994 ---- ---- ---- ---- (In Thousands) Operating revenue $154,853 $119,729 $527,666 $428,469 ======== ======== ======== ======== Net income $ 5,979 $ 7,945 $ 22,263 $ 23,389 ======== ======== ======== ======== Company's equity in net income $ 1,356 $ 1,478 $ 4,247 $ 4,209 ======== ======== ======== ======== September 30, December 31, 1995 1994 ---- ---- (In Thousands) Plant $ 467,319 $ 537,103 Other assets 1,413,571 1,458,186 Liabilities and debt (1,630,999) (1,748,960) ----------- ----------- Net assets $ 249,891 $ 246,329 =========== =========== Company's equity in net assets $ 47,080 $ 46,349 =========== ===========
At September 30, 1995, $13,137,000 of undistributed earnings of the nuclear power companies were included in the Company's retained earnings. Note B - Hazardous Waste - ------------------------ The Federal Comprehensive Environmental Response, Compensation and Liability Act, more commonly known as the "Superfund" law, imposes strict, joint and several liability, regardless of fault, for remediation of property contaminated with hazardous substances. A number of states, including Massachusetts, have enacted similar laws. Note B - Hazardous Waste - Continued - ------------------------ The electric utility industry typically utilizes and/or generates in its operations a range of potentially hazardous products and by-products. New England Electric System subsidiaries currently have in place an internal environmental audit program and an external waste disposal vendor audit and qualification program intended to enhance compliance with existing federal, state, and local requirements regarding the handling of potentially hazardous products and by-products. The Company has been named as a potentially responsible party by either the U.S. Environmental Protection Agency or the Massachusetts Department of Environmental Protection for six sites at which hazardous waste is alleged to have been disposed. Private parties have also contacted or initiated legal proceedings against the Company regarding hazardous waste cleanup. The Company is currently aware of other sites, and may in the future become aware of additional sites, that it may be held responsible for remediating. Predicting the potential costs to investigate and remediate hazardous waste sites continues to be difficult. There are also significant uncertainties as to the portion, if any, of the investigation and remediation costs of any particular hazardous waste site that may ultimately be borne by the Company. Where appropriate, the Company intends to seek recovery from its insurers and from other PRPs, but it is uncertain whether and to what extent such efforts would be successful. The Company believes that hazardous waste liabilities for all sites of which it is aware will not be material to its financial position. Note C - Purchased Power Contract Dispute - ----------------------------------------- In October 1994, the Company was sued by Milford Power Limited Partnership (MPLP), a venture of Enron Corporation and Jones Capital that owns a 149 megawatt gas-fired power plant in Milford, Massachusetts. The Company purchases 56 percent of the power output of the facility under a long-term contract with MPLP. The suit 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 Note C - Purchased Power Contract Dispute - Continued - ----------------------------------------- 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 before the Federal Energy Regulatory Commission making similar allegations to those asserted in MPLP's lawsuit. Hearings on this claim concluded in October 1995. An Administrative Law Judge initial decision is expected in early 1996. Note D - 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 E - Shipping Charter Contract Dispute - ------------------------------------------ On August 17, 1995, the Massachusetts Superior Court dismissed a lawsuit filed against NEP in May 1995 by Keystone Shipping Company (Keystone). The Court held that Keystone's claims, relating to a ship charter, were subject to mandatory arbitration under the charter between NEP and Intercoastal Bulk Carriers, Inc. (IBC), an affiliate of Keystone. On August 21, 1995, an arbitration panel unanimously ruled in NEP's favor. In September 1995, the parties signed mutual releases. The ship is currently in Note E - Shipping Charter Contract Dispute - Continued - ------------------------------------------ dry dock for routine maintenance and inspection. During the inspection, it was determined that repair work is needed. Under the releases, IBC is responsible for the cost of such repairs and the arbitration panel would hear any disputes which arise concerning the cost of repair. Note F - ------ In the opinion of the Company, these statements reflect all adjustments (which include normal recurring adjustments) necessary for a fair statement of the results of its operations for the periods presented and should be considered in conjunction with the notes to the financial statements in the Company's 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 increased for the third quarter by approximately $12 million compared with the corresponding period in 1994. This increase reflects sales growth, reduced overhaul activity of wholly-owned generating units, and lower depreciation and amortization expense, partially offset by increased interest costs and increased reimbursements to affiliates for service extension discounts (SEDs) to customers and affiliate generation and transmission (G&T) costs incurred for the benefit of the Company. The decrease in depreciation and amortization is due to reduced amortization of the Seabrook 1 nuclear unit (Seabrook 1) in accordance with the Company's 1995 rate agreement, and the completion, in the second quarter of 1995, of the amortization of costs of certain coal conversion facilities. These decreases were partially offset by the effects of increased depreciation rates approved in the Company's 1995 rate agreement and depreciation of new plant expenditures. Earnings for the first nine months of 1995 decreased approximately $5 million due to increased purchased power costs resulting from scheduled plant overhauls and refueling shutdowns at partially-owned nuclear power suppliers and costs to repair the steam generator tubes at the nuclear power plant owned by Maine Yankee Atomic Power Company (Maine Yankee) in which the Company has a 20 percent interest. Also contributing to lower nine month earnings were increased interest expenses, increased operation and maintenance costs, and increased reimbursements to affiliates for SEDs and their G&T costs. 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 that were recovering the costs of a coal conversion project and a portion of the Company's investment in Seabrook 1. These two surcharges 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 during the fourth quarter of 1995. 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 are being deferred and will be 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 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 $12 million. The FERC's approval of this rate agreement applies to all of NEP's customers except the Milford Power Limited Partnership (MPLP). MPLP, which owns a gas-fired power plant in Milford, Massachusetts, has protested this rate agreement based on issues related to the Manchester Street Station repowering project. Hearings on this protest concluded in October 1995 and an Administrative Law Judge initial decision is expected in early 1996 (for further discussion see Note C). Operating Revenue - ----------------- The following table summarizes the changes in operating revenue: Increase (Decrease) in Operating Revenue Third Quarter Nine Months ------------- ------------ 1995 vs 1994 1995 vs 1994 ------------- ------------ (In Millions) Sales increase $ 7 $ 9 Fuel recovery (2) 17 SED reimbursements (3) (9) Narragansett integrated facilities credit (2) (6) Other 2 5 --- --- $ 2 $16 === === The increase in sales reflects the effects of an increase in peak demands in the second and third quarters of 1995. The Company experienced a decrease in peak demands in the first quarter of the year. 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 credits in 1995 reflect costs associated with a new transmission line that went into service in September 1994. In addition, the Company is reimbursing Narragansett for an increased level of costs being incurred in 1995 associated with the dismantlement of a previously retired South Street generating facility. As part of the Company's 1995 rate agreement, these credits in 1995 are being recovered over a three year period. Operating Expenses - ------------------ The following table summarizes the changes in operating expenses: Increase (Decrease) in Operating Expenses Third Quarter Nine Months ------------- ------------ 1995 vs 1994 1995 vs 1994 ------------- ------------ (In Millions) Fuel costs $ (1) $ 17 Purchased energy excluding fuel 2 23 Operation and maintenance (4) 12 Depreciation and amortization (13) (24) Taxes 4 (11) ---- ---- $(12) $ 17 ==== ==== Fuel costs represent fuel for generation and the portion of purchased electric energy permitted to be recovered through the Company's fuel adjustment clause. The increase in fuel costs in the first nine months of 1995 reflects increased short-term purchases due to decreased nuclear generation, decreased hydro production due to low water levels, and overhauls of fossil fuel generating facilities. Purchased energy excluding fuel represents the remainder of purchased electric energy costs. The increase in purchased energy excluding fuel for the first nine months of 1995 is the result of increased costs associated with scheduled plant overhauls and refueling shutdowns at partially-owned nuclear power facilities and costs to repair the steam generator tubes at Maine Yankee in which the Company has a 20 percent interest. The Maine Yankee nuclear unit has been shut down since January 1995, but is expected to return to service by year end. The Company recorded the full estimated incremental cost of the repairs in the first six months of 1995 as a charge to purchased power expense. The increase also includes amortization of previously deferred purchased power contract termination costs. Under the existing terms of certain purchased power contracts with other utilities, the Company will be reducing its power purchases which will result in a $19 million reduction in 1996 purchased power expenses. The increase in operation and maintenance costs for the nine months is primarily due to the recognition of currently incurred and previously deferred PBOP costs in accordance with the Company's 1995 rate agreement, increased transmission system related costs and increased general and administrative costs, partially offset by a decrease in generating plant overhaul costs. In the third quarter, the impact of reduced generating plant overhaul activity more than offset the increases in costs in other areas. The decrease in depreciation and amortization is due to decreased amortization of Seabrook 1 and the completion, in the second quarter of 1995, of the amortization of certain coal conversion facilities, partially offset by the effects of increased depreciation rates approved in the Company's 1995 rate agreement and depreciation of new plant expenditures. The change in taxes for the third quarter and first nine months of 1995 is primarily due to the change in income for those periods. Allowance For Funds Used During Construction (AFDC) - -------------------------------------------------- AFDC increased for the third quarter and first nine months of 1995 due to increased construction work in progress, principally associated with the Manchester Street Station repowering project. In September 1995, the first of three generating units began commercial operation at the power plant. The remaining units are scheduled to commence commercial operation during the fourth quarter of this year. AFDC ends for these projects when the units go into commercial operation. Interest Expense - ---------------- The increase in interest expense is primarily due to increased long-term and short-term debt balances and higher interest rates. 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. Massachusetts, Rhode Island, and New Hampshire, the three states served by these retail affiliates, have been considering various proposals for allowing electric customers greater choice over their electricity supplier. Massachusetts Electric Company (Massachusetts Electric) and Narragansett proposed to the Massachusetts Department of Public Utilities (MDPU) and the Rhode Island Public Utilities Commission (RIPUC), respectively, a set of interdependent principles for industry restructuring which was agreed to by groups representing environmental protection advocates, governmental agencies, non-utility generators, investor-owned utilities, and large and small customer interests. These principles included, among others, provisions for increased customer choice while allowing utilities the opportunity to recover the cost of their past commitments (stranded costs). In August 1995, the MDPU adopted principles similar to those filed by Massachusetts Electric, including a reasonable opportunity for recovery of stranded costs over a period not to exceed 10 years. The MDPU directed Massachusetts Electric and two other utilities to file by February 16, 1996, a detailed plan consistent with the MDPU decision. Also in August 1995, the RIPUC decision adopted the principles proposed by Narragansett, except for one regarding temporary support for renewable fuel technologies. The RIPUC ordered Narragansett to file a report no later than February 1, 1996 on its progress in negotiating a specific plan consistent with the principles. In October 1995, the New England Electric System (NEES) Companies began discussions with interested parties regarding the plan to be filed pursuant to the MDPU and RIPUC orders. That plan, to be called "Choice: New England", will propose that all customers of electric utilities in the three states served by NEES retail subsidiaries have the ability to choose their power supplier beginning in 1998. Under the plan, the Company's generation assets would become competitive, while its transmission assets would remain regulated. Among other provisions, the plan would also propose a uniform access charge so that all regional utilities will have an opportunity to recover the cost of commitments made under the current regulated system. NEES believes that its "Choice: New England" proposal meets the principles for industry restructuring adopted by the MDPU and RIPUC for increased customer choice while providing utilities with an opportunity to recover costs which may be stranded by such customer choice. However, there can be no assurance that a final plan will include an access charge which would recover all stranded costs. Furthermore, market pricing of generation will increase the volatility of NEES revenues and, because of competitive pressures, may not result in full cost recovery. 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. Narragansett urged the Governor to exercise his veto, because Narragansett believed 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 committed among other things, that if the measures were not enacted, Narragansett would 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 issues, that filing would address the proper means for recovering past costs incurred to serve exiting customers through a compensatory access charge. If the charges were approved by the RIPUC, the appropriate access tariffs would then be filed with the FERC. The Rhode Island Legislature may still override the vetoes. In August 1995, the MDPU issued an order in a stranded cost case involving another utility and one of its customers. This customer, which previously purchased all of its requirements from the utility, installed cogenerating equipment and requested that the utility provide only backup service. In its order, the MDPU required the customer to pay the utility 75 percent of the net stranded costs attributable to serving the customer's load. Because, in part, utilities have always been exposed to the risk of customer cogeneration, the MDPU indicated that its order, which is under appeal, did not set precedent for the issue of stranded cost recovery in the context of utility industry restructuring. In New Hampshire, the New Hampshire Public Utilities Commission (NHPUC) has been 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 in which it found that franchise territories in New Hampshire are exclusive as a matter of law. The order also stated that 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. NHPUC guidelines issued in October 1995 provide that each New Hampshire utility must allow customers representing 3 percent of its peak load (four megawatts (MW) for Granite State Electric Company (Granite State)) to have access to alternative suppliers of generation for three years, starting May 1, 1996. Customers participating in the pilot would be responsible for paying 50 percent of the utility's stranded costs, with the balance borne by utility shareholders. In comments filed on the preliminary guidelines, Granite State requested that the guidelines be revised to adopt "Choice: New England" as an alternative approach to the proposed pilot. Granite State offered to file the plan with the NHPUC in February, consistent with the filings contemplated in Massachusetts and Rhode Island, so that the plan could be implemented on a pilot basis by May 1, 1996. Granite State's comments also challenged the legal basis for the proposed assignment of stranded costs, arguing that the guidelines will result in an unconstitutional taking without compensation, are preempted by federal law, and are inequitable. The June 1995 legislation also established a legislative committee on retail wheeling and restructuring. The committee is expected to issue an interim report on its findings in November 1995 and a final report by March 1, 1996. 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 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, or the NEES companies' own initiatives, such as "Choice: New England", could, in the near future, cause all or a portion of the Company's operations to cease meeting the criteria of FAS 71. In that event, the application of FAS 71 to such operations would be discontinued and a non-cash write-off of previously established regulatory assets and liabilities related to such operations would be required. At September 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 has 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 D. Utility Plant Expenditures and Financings - ----------------------------------------- Cash expenditures for utility plant totaled $125 million for the first nine months of 1995, including $82 million related to the Company's 90 percent share of the Manchester Street Station repowering project in Providence, Rhode Island. In September 1995, the first of three generating units began commercial operation at the power plant. The remaining units are scheduled to commence commercial operation during the fourth quarter of this year. The approximately 500 MW repowering project is estimated to cost approximately $455 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 nine 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. The Company does not plan to issue any additional long-term debt in 1995. At September 30, 1995, the Company had $167 million of short-term debt outstanding, including $137 million of commercial paper borrowings. At September 30, 1995, the Company had lines of credit and bond purchase facilities with banks totaling $510 million which are available to provide liquidity support for commercial paper borrowings and for $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 September 30, 1995. For the twelve-month period ending September 30, 1995, the ratio of earnings to fixed charges was 5.14. 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 a Company rate filing, discussed in Part I of this report in Management's Discussion and Analysis of Financial Condition and Results of Operations and in Note C of Notes to Unaudited Financial Statements, is incorporated herein by reference and made a part hereof. Information concerning dismissal of a lawsuit filed against the Company in May 1995 by Keystone Shipping Company, discussed in Note E of Notes to Unaudited Financial Statements, is incorporated herein by reference and made a part hereof. Item 6. Exhibits and Reports on Form 8-K - ----------------------------------------- The Company is filing the following revised exhibit for incorporation by reference into its registration statements on Form S-3, Commission file Nos. 33-48257, 33-48897, and 33-49193: 12 Statement re computation of ratios The Company is filing Financial Data Schedules. The Company filed a report on Form 8-K dated August 16, 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 September 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: November 13, 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 September 30, 1995 Years Ended December 31, Actual -------------------------------------------------------------- (Unaudited) 1994 1993* 1992* 1991* 1990* -------------- ---- ---- ---- ---- ---- (In Thousands) Net Income $144,539 $149,373 $141,468 $134,151 $134,747 $222,219 - ---------- Less undistributed income of nuclear power companies 39 6 544 320 (240) (133) -------- -------- -------- -------- -------- -------- 144,500 149,367 140,924 133,831 134,987 222,352 Add income taxes and fixed charges - ---------------------------------- Current federal income taxes 46,876 61,350 62,454 64,417 62,182 50,543 Deferred federal income taxes 26,083 20,501 17,745 4,741 11,134 38,367 Investment tax credits - net (3,603) (3,577) (2,606) (1,328) (7,732) (26,026) State income taxes 15,464 17,328 17,242 14,596 15,526 21,867 Interest on long-term debt 45,461 38,711 45,837 59,382 67,426 67,385 Interest on short-term debt and other interest 6,551 1,956 5,427 2,071 2,490 6,900 Estimated interest component of rentals 3,416 3,635 3,851 4,121 4,115 1,447 -------- -------- -------- -------- -------- -------- Net earnings available for fixed charges $284,748 $289,271 $290,874 $281,831 $290,128 $382,835 ======== ======== ======== ======== ======== ======== Fixed charges: Interest on long-term debt $ 45,461 $ 38,711 $ 45,837 $ 59,382 $ 67,426 $ 67,385 Interest on short-term debt and other interest 6,551 1,956 5,427 2,071 2,490 6,900 Estimated interest component of rentals 3,416 3,635 3,851 4,121 4,115 1,447 -------- -------- -------- -------- -------- -------- Total fixed charges $ 55,428 $ 44,302 $ 55,115 $ 65,574 $ 74,031 $ 75,732 ======== ======== ======== ======== ======== ======== Ratio of earnings to fixed charges 5.14 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
UT THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE SHEET AND RELATED STATEMENTS OF INCOME, RETAINED EARNINGS AND CASH FLOWS OF NEW ENGLAND POWER COMPANY, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 DEC-31-1995 DEC-31-1994 DEC-31-1995 DEC-31-1994 SEP-30-1995 SEP-30-1994 SEP-30-1995 SEP-30-1994 9-MOS 9-MOS 3-MOS 3-MOS PER-BOOK PER-BOOK PER-BOOK PER-BOOK 1,940,024 0 0 0 70,838 0 0 0 378,509 0 0 0 302,572 0 0 0 0 0 0 0 2,691,943 0 0 0 128,998 0 0 0 374,829 0 0 0 387,345 0 0 0 891,172 0 0 0 0 0 0 0 60,516 0 0 0 735,386 0 0 0 166,575 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 0 828,294 0 0 0 2,691,943 0 0 0 1,191,230 1,175,617 421,935 419,555 72,915 83,596 37,518 33,158 975,103 947,739 314,748 331,180 1,048,018 1,031,335 352,266 364,338 143,212 144,282 69,669 55,217 9,923 7,630 3,178 3,807 153,135 151,912 72,847 59,024 32,780 26,723 11,163 9,206 120,355 125,189 61,684 49,818 2,575 2,582 858 858 117,780 122,607 60,826 48,960 103,198 85,461 41,924 40,312 34,861 28,111 11,859 9,620 162,112 189,629 104,096 65,216 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-----