-----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, DRKPCcrDKKAluyhavtT5SVXre8Cb0gKazaMCMRiS8f6Q7QkWzCL9dRIaUoFA/ojA b10GZ8SAgtK3e1uBkG8i4A== 0000071337-98-000007.txt : 19980917 0000071337-98-000007.hdr.sgml : 19980917 ACCESSION NUMBER: 0000071337-98-000007 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19980916 ITEM INFORMATION: ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 19980916 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: 8-K SEC ACT: SEC FILE NUMBER: 001-06564 FILM NUMBER: 98710587 BUSINESS ADDRESS: STREET 1: 25 RESEARCH DR CITY: WESTBOROUGH STATE: MA ZIP: 01582 BUSINESS PHONE: 6173669011 8-K 1 SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 8-K CURRENT REPORT Pursuant to Section 13 of the Securities Exchange Act of 1934 Date of Earliest Event Reported: September 1, 1998 NEW ENGLAND POWER COMPANY (exact name of registrant as specified in charter) Massachusetts 1-6564 04-1663070 (state or other (Commission (I.R.S. Employer jurisdiction of File No.) Identification No.) incorporation) 25 Research Drive, Westborough, Massachusetts 01582 (Address of principal executive offices) (508) 389-2000 (Registrant's telephone number, including area code) Item 2. Acquisition or Disposition of Assets - -------------------------------------------- On September 1, 1998, New England Power Company (NEP) and The Narragansett Electric Company, both subsidiaries of New England Electric System (NEES), completed the sale of substantially all of their non-nuclear generating business to USGen New England, Inc. (USGen), an indirect who1ly owned subsidiary of PG&E Corporation (PG&E). NEP's share of the proceeds amounted to approximately $1.55 billion. In addition, NEP was reimbursed approximately $140 million for costs associated with early retirements and special severance programs for employees affected by industry restructuring and the value of inventories. For more information on the terms and events leading to the sale, the accounting implications of the sale, and the assets sold, see NEP's Annual Report on Form 10-K for the year ended December 31, 1997. As part of the sale, USGen purchased NEP's entitlement to approximately 1,100 MW of power procured under long-term contracts. NEP is required to make a monthly fixed contribution towards the above-market cost of the purchased power from closing through January 2008. USGen is responsible for the balance of the costs under the purchased power contracts. Pursuant to the transfer agreement, under certain conditions involving formal assignment of the contracts to USGen and a release of NEP from further obligations to the power supplier, NEP is required to make a lump sum payment of the present value of its monthly fixed contribution obligations. To date during 1998, NEP has made lump sum payments of approximately $340 million which reduced the monthly fixed contributions to an average of $9.5 million. The lump sum payments and remaining monthly fixed contributions are recoverable from customers as part of industry restructuring settlements reached by NEP with various parties and approved by state and Federal regulators. Item 5. Other Events - -------------------- NEP used approximately $270 million of the proceeds of the sale of assets described in Item 2 for the defeasance of long-term mortgage debt, including (i) $38 million of tax-exempt pollution control revenue bonds issued by the Connecticut Development Authority and (ii) $230 million of publicly-held mortgage bonds. A portion of the publicly-held mortgage bonds were acquired through a tender offer. Approximately $372 million of mortgage bonds securing a like amount of tax-exempt pollution control revenue bonds (PCRB's) issued by various public agencies were retired. The $372 million of PCRB's were then reoffered on an unsecured basis. Approximately $410 million was used to retire short-term debt and preferred stock held by NEES. (Note that the above figures are as of September 1, 1998 and that the attached proforma financial statements are as of June 30, 1998.) NEP expects that its state and Federal tax liability related to the sale (net of deductions related to power contract lump sum payments) will equal approximately $200 million. The NEP Board of Directors has authorized the repurchase of up to five million shares (out of 6.5 million shares) of its common stock held by NEES at the then book value per share. This transaction has not been consummated pending approval of the Securities and Exchange Commission under the Public Utility Holding Company Act of 1935 and is not reflected in the attached pro forma financial statements. Item 7. Financial Statements, Pro Forma Financial Information and Exhibits - ------------------------------------------------------------- Pro Forma Financial Information The following unaudited pro forma consolidated financial statements are filed with this report: Pro Forma Balance Sheet of New England Power Company at June 30, 1998 Pro Forma Statements of Income of New England Power Company: Year Ended December 31, 1997 Six Months Ended June 30, 1998 The Pro Forma Balance Sheet of New England Power Company (the Company) at June 30, 1998 reflects the financial position of the Company after giving effect to the disposition of the assets discussed in Item 2 and assumes the disposition took place on June 30, 1998. The Pro Forma Statements of Income for the fiscal year ended December 31, 1997 and the six months ended June 30, 1998 assume that the disposition occurred on January 1, 1997, and are based on the operations of the Company for the year ended December 31, 1997 and the six months ended June 30, 1998. The unaudited pro forma financial statements have been prepared by the Company based upon assumptions deemed reasonable by it. The unaudited pro forma financial statements presented herein are shown for illustrative purposes only and are not indicative of the future financial position or future results of operations of the Company, or the financial position or results of operations of the Company that would have actually occurred had the transaction been in effect as of the date or for the periods presented. In particular, while the disposition of the assets portrayed herein will have a significant impact on the results of operations, such disposition is only one component of the restructuring that the Company is undergoing at this time. A more complete description of all such restructuring changes is included in the Company's 1997 Annual Report on Form 10-K. The unaudited pro forma financial statements should be read in conjunction with the historical financial statements and related notes of the Company. SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Current Report on Form 8-K to be signed on its behalf by the undersigned thereunto duly authorized. NEW ENGLAND POWER COMPANY s/John G. Cochrane By John G. Cochrane Treasurer Date: September 16, 1998 EX-99 2 EXHIBIT INDEX Exhibit No. Description Page - ----------- ----------- ---- 1 Pro Forma Balance Filed Sheet of New England herewith Power Company at June 30, 1998 2 Pro Forma Statements of Filed Income of New England herewith Power Company for the year ended December 31, 1997 and six months ended June 30, 1998 3 Notes to Unaudited Pro Forma Filed Financial Statements herewith EX-99 3 EXHIBIT 1 NEW ENGLAND POWER COMPANY Balance Sheet At June 30, 1998 (Actual and Pro Forma) (Unaudited)
ASSETS ------ Actual Adjustments Pro Forma ------ ----------- --------- (In Thousands) Utility plant, at original cost $3,084,842 $(1,848,677) $1,236,165 Less accumulated provisions for depreciation and amortization 1,234,869 (807,674) 427,195 ------------------------------- 1,849,973(1,041,003) 808,970 Construction work in progress 30,217 (5,087) 25,130 ------------------------------- Net utility plant 1,880,190(1,046,090) 834,100 ------------------------------- Investments: Nuclear power companies, at equity 47,443 - 47,443 Non-utility property and other investments 35,191 (769) 34,422 ------------------------------- Total investments 82,634 (769) 81,865 ------------------------------- Current assets: Cash 1,001 659,481 660,482 Accounts receivable: Affiliated companies 232,000 - 232,000 Others 27,031 - 27,031 Fuel, materials, and supplies, at average cost 59,680 (50,724) 8,956 Prepaid and other current assets 55,514 (17,876) 37,638 ------------------------------- Total current assets 375,226 590,881 966,107 ------------------------------- Accrued Yankee nuclear plant costs 272,939 - 272,939 Deferred charges and other assets 462,542 1,016,642 1,479,184 ------------------------------- $3,073,531$ 560,664$3,634,195 =============================== 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 86,779 - 86,779 Other paid-in capital 319,818 34,484 354,302 Retained earnings 462,968 1,503 464,471 Unrealized gains on securities, net 55 - 55 ------------------------------- Total common equity 998,618 35,987 1,034,605 Cumulative preferred stock, par value $100 per share 39,666 - 39,666 Long-term debt 647,829 (278,010) 369,819 ------------------------------- Total capitalization 1,686,113 (242,023) 1,444,090 ------------------------------- Current liabilities: Short-term debt (including $159,175,000 to affiliates) 366,950 (366,950) - Accounts payable (including $6,118,000 to affiliates) 113,723 - 113,723 Accrued liabilities: Taxes 10,552 - 10,552 Interest 8,217 - 8,217 Other accrued expenses 30,913 80,525 111,438 ------------------------------- Total current liabilities 530,355 (286,425) 243,930 ------------------------------- Deferred federal and state income taxes 414,527 (211,625) 202,902 Unamortized investment tax credits 52,452 (22,333) 30,119 Accrued Yankee nuclear plant costs 272,939 - 272,939 Other reserves and deferred credits 117,145 1,323,070 1,440,215 ------------------------------- $3,073,531$ 560,664$3,634,195 =============================== The accompanying notes are an integral part of these financial statements.
EX-99 4 EXHIBIT 2 NEW ENGLAND POWER COMPANY Statement of Income Six Months Ended June 30, 1998 (Actual and Pro Forma) (Unaudited)
Actual AdjustmentsPro Forma ------ -------------------- (In Thousands) Operating revenue, principally from affiliates $759,467$(456,823)$302,644 -------- --------- -------- Operating expenses: Fuel for generation 158,987 (154,447) 4,540 Purchased electric energy 244,674 (88,200) 156,474 Other operation 92,410 (58,059) 34,351 Maintenance 51,920 (39,501) 12,419 Depreciation and amortization 59,146 (26,746) 32,400 Taxes, other than income taxes 35,491 (25,731) 9,760 Income taxes 35,576 (19,525) 16,051 -------- --------- -------- Total operating expenses 678,204 (412,209) 265,995 -------- --------- -------- Operating income 81,263 (44,614) 36,649 Other income: Equity in income of nuclear power companies 2,614 - 2,614 Other income (expense), net (2,492) (97) (2,589) -------- --------- -------- Operating and other income 81,385 (44,711) 36,674 -------- --------- -------- Interest: Interest on long-term debt 19,316 (11,162) 8,154 Other interest 6,250 (3,378) 2,872 Allowance for borrowed funds used during construction - credit (556) 301 (255) -------- --------- -------- Total interest 25,010 (14,239) 10,771 -------- --------- -------- Net income $ 56,375$ (30,472) $ 25,903 ======== ========= ======== The accompanying notes are an integral part of these financial statements.
NEW ENGLAND POWER COMPANY Statement of Income Twelve Months Ended December 31, 1997 (Actual and Pro Forma) (Unaudited)
Actual Adjustments Pro Forma ------ -------------------- (In Thousands) Operating revenue, principally from affiliates $1,677,903$(990,307) $ 687,596 ---------- ------------------- Operating expenses: Fuel for generation 372,734 (351,897) 20,837 Purchased electric energy 527,647 (189,591) 338,056 Other operation 241,506 (141,367) 100,139 Maintenance 89,820 (48,720) 41,100 Depreciation and amortization 98,024 (52,800) 45,224 Taxes, other than income taxes 67,311 (48,835) 18,476 Income taxes 90,009 (48,840) 41,169 ---------- ------------------- Total operating expenses 1,487,051 (882,050) 605,001 ---------- ------------------- Operating income 190,852 (108,257) 82,595 Other income: Equity in income of nuclear power companies 5,189 - 5,189 Other income (expense), net (3,404) 2,781 (623) ---------- ------------------- Operating and other income 192,637 (105,476) 87,161 ---------- ------------------- Interest: Interest on long-term debt 42,277 (24,203) 18,074 Other interest 7,055 (3,813) 3,242 Allowance for borrowed funds used during construction - credit (1,238) 669 (569) ---------- ------------------- Total interest 48,094 (27,347) 20,747 ---------- ------------------- Net income $ 144,543$ (78,129)$ 66,414 ========== =================== The accompanying notes are an integral part of these financial statements.
EX-99 5 EXHIBIT 3 Notes to Unaudited Pro Forma Financial Statements - ------------------------------------------------ Balance Sheet - ------------- 1. The historical financial statements of the New England Power Company (the Company) as of June 30, 1998 have been adjusted to give effect to the transaction between USGen New England, Inc. (USGen), an indirect wholly owned subsidiary of PG&E Corporation, and the Company and its affiliate, The Narragansett Electric Company (Narragansett Electric), that occurred effective September 1, 1998. New England Electric System (NEES) first contributed its investment in Narragansett Energy Resources Company (NERC), which was a 20 percent owner of the Ocean State Power generating units, to the Company. The Company and Narragansett Electric then sold their nonnuclear generating assets, excluding the Company's ownership interest in the Wyman 4 generating unit, as well as the Company's newly acquired equity investment in NERC, to USGen. The pro forma financial statement adjustments are based on the Company's and Narragansett Electric's book value of the assets being sold at June 30, 1998. The substance of the transactions are detailed in the entries shown below, but can be summarized as follows: - - The Company, Narragansett Electric and NEES sold assets (plant assets, materials and supplies inventory and NEES' investment in NERC) with a book value of $1.1 billion for proceeds of approximately $1.6 billion. The resulting gain was credited to a regulatory liability account reflecting the obligation to pass this gain on to ratepayers in connection with restructuring rate settlement agreements. - - The Company absorbed $20 million, before tax, of transaction costs in income. - - The Company received additional proceeds of $85 million from USGen, which were used to offset the recognition of a liability for employee severance and early retirement costs. - - Approximately $22 million, before tax, of unamortized investment tax credits associated with assets sold was credited to income. - - Certain capital lease assets and obligations were eliminated as a result of these capital lease obligations being transferred to USGen. - - The Company retired $278 million of long-term debt and $367 million of short-term debt. - - The Company recorded a liability and offsetting regulatory asset reflecting the present value of the Company's monthly fixed contribution to USGen in connection with purchased power contracts transferred to USGen. In addition, in connection with the direct assignment of one of these purchased power contracts, the Company made a lump sum payment to USGen in lieu of ongoing monthly payments. This lump sum payment was also reflected as a regulatory asset. 2. The cash proceeds and disposition of those proceeds reflected in these financial statements is as follows: Cash proceeds: Per Asset Purchase Agreement (APA) $1,590,000,000 Reimbursement of early retirement and severance costs 85,000,000 Materials & Supplies at book value 10,858,481 Reimbursement of purchased power contract prepayment 5,046,250 Fuel inventory at book value 37,529,435 -------------- Total proceeds $1,728,434,166 Use of proceeds: Pay transaction costs 20,000,000 -------------- Total net proceeds $1,708,434,166 Less: Narragansett Electric proceeds 41,909,077 -------------- NEP net proceeds $1,666,525,089 USGen has also assumed certain on-site hazardous waste obligations for which the Company had recorded on its books an accrued liability of $141,787 at June 30, 1998. In addition, in 1992, the Company and Narragansett Electric entered into a 10 year tax treaty with the City of Providence, Rhode Island which required the companies to prepay certain property taxes prior to completion of the Manchester Street repowering project. Upon completion of the repowering project, the Company and Narragansett Electric were amortizing such payments over the remainder of the term of the treaty. These prepaid property taxes offset the gain on sale of these assets being credited to a regulatory liability account. 3. Entries to record the effect of the sale: Debit Credit Entry 1: ----- ------ Cash - Increase $1,666,525,089 Utility Plant - Decrease $1,783,801,668 Accumulated Provision for Depreciation - Decrease 807,674,400 Construction Work in Progress - Decrease 5,087,229 Non-Utility property - Decrease 769,000 Investment in NERC - Decrease 34,483,668 Material and Supplies, at average cost - Decrease 10,858,481 Fuel inventory - Decrease 37,529,435 Prepaid and Other Current Assets - Decrease 17,876,650 Other Current Liabilities - Early Retirement and Severance Costs - Increase 85,000,000 Miscellaneous deductions - Transaction costs - Increase 20,000,000 Other Reserves and Deferred Credits - Increase 518,793,358 Entry 2: Unamortized Investment Tax Credits (ITC) - Decrease $22,332,745 ITC amortization - Decrease $22,332,745 Deferred income tax expense - Increase 8,760,019 Reserve for deferred income taxes - Increase 8,760,019 Debit Credit Entry 3: ----- ------ Current income tax - Increase $220,440,519 Current income tax - Decrease $ 7,845,000 Accrued income taxes payable - Increase 212,595,519 Deferred income tax expense - Decrease 220,440,519 Reserve for deferred income taxes - Decrease 220,440,519 Entry 4: Other Reserves and Deferred Credits - Decrease $2,335,449 Fuel, Materials, and Supplies, at average cost - Decrease $2,335,449 Entry 5: Other Accrued Expenses - Decrease $ 4,333,131 Other Reserves and Deferred Credits - Decrease 60,542,199 Utility Plant - Decrease $64,875,330 Entry 6: Long-term debt - Decrease $278,010,000 Short-term debt - Decrease 366,950,000 Accrued income taxes payable - Decrease 212,595,519 Cash - Decrease $857,555,519 Debit Credit Entry 7: ----- ------ Deferred Charges and Other Assets - Increase $1,016,641,825 Other Reserves and Deferred Credits - Increase $867,153,867 Cash - Decrease 149,487,958 Entry 8: Investment in NERC - Increase $34,483,668 Other paid-in-capital - Increase $34,483,668 Entry 9: Accrued liabilities - Decrease $141,787 Deferred federal and state income tax - Increase $55,616 Retained earnings - Increase 86,171 4. In addition to the APA, the Company and USGen entered into several ancillary agreements. One such agreement is the PPA Transfer Agreement. Under the PPA Transfer Agreement, USGen will purchase the Company's entitlements of approximately 1,100 MW of power procured by the Company under long-term contracts with utility and non-utility generators, which have terms expiring as late as 2019. Under the PPA Transfer Agreement, the Company will make a monthly fixed contribution with USGen reimbursing the Company for the balance of the costs. The Company's contributions will end in January 2008. The present value of these contributions has been recorded as a regulatory asset, as described in Entry 7 above. 5. In addition to the transactions portrayed herein, certain other indirectly related transactions have taken place in September 1998 which are not reflected in these pro forma financial statements. The Company paid a special common dividend of approximately $130 million, and also repurchased approximately $30 million of its preferred stock held by NEES. Additionally, the NEES Board of Directors authorized the purchase from time to time of up to an additional 5 million shares over the 5 million share buyback authorization announced in August 1997. To date, NEES has purchased approximately 4.8 million shares. Income Statement - ---------------- The rates the Company charged its customers were not separately set for its individual assets and, as a result, it was not possible to determine from billing records the amount of revenues that would be attributable to the assets sold. The Company's rates have historically been set by regulators on a bundled basis in a manner which attempts to reimburse the Company for the cost of operating and maintaining its facilities plus providing it a reimbursement for interest expense, preferred dividends and a return on its equity investment and related income taxes. In the rate making process, the calculation of the reimbursement for these capital related costs is through the determination of rate base, which is composed of the net investment in assets devoted to providing service to customers. The principal component of rate base is the Company's net investment in utility property, plant and equipment. The Company's Pro Forma Statements of Income have been prepared by first allocating net income based on the percentage breakdown of net plant investment sold, exclusive of capital leases, versus assets retained. This results in 54.05 percent of historical net income removed as a pro forma adjustment. This net plant investment calculation was similarly used, with some modification which will be described later, for interest expense and income taxes. For most other income statement accounts, management utilized a more specific identification approach. Once having allocated net income in the manner described above and once having allocated the other income statement accounts, it was possible to derive a revenue figure for the assets sold versus retained following essentially a similar process that the regulatory rate making process would use to derive a revenue requirement. While the above discussion is applicable to 1997, the impacts of industry restructuring during 1998 resulted in the unbundling of certain revenue streams for the Company for portions of 1998. A full discussion of these changes is available in the Company's 1997 Annual Report on Form 10-K. Due to the fact that the Company had both bundled and unbundled revenue streams during 1998, and the associated complexities in attempting to meld multiple methodologies, management elected to utilize the approach described below for the pro forma income statement for both the year ended December 31, 1997 and the six months ended June 30, 1998. Interest Expense The plant-based methodology utilized for net income was similarly utilized for the calculation of pro forma adjustments for interest expense on long-term debt, other interest and allowance for borrowed funds used during construction. However, once having allocated total long-term debt outstanding between assets sold versus retained using the net plant investment approach, it was possible to perform a more specific allocation of lower cost pollution control debt outstanding versus higher cost other long-term debt outstanding. This resulted in more of the lower cost pollution control debt being associated with assets retained and assigned more interest expense to the assets sold. Purchased Power Pro forma adjustments for purchased power were derived via specific identification of purchased power contracts subject to the PPA Transfer Agreement between the Company and USGen, net of the monthly fixed contributions towards purchased power, as discussed in Item 2 above. Fuel expense, other operation expense, maintenance expense, depreciation and amortization expense, and taxes, other than income taxes Pro forma adjustments for these income statement captions were calculated primarily by specific identification of costs. The only significant exception in this area is for the transmission portion of the Company's business, for which allocation factors for the various categories, contemplated in the Company's current transmission cost-of-service, were utilized. Income Taxes Income taxes were allocated primarily based on the derivation of net income using the net plant investment allocation approach described above. However, certain items which have the effect of changing the Company's effective tax rate were able to be allocated on a specific identification basis between assets sold versus retained. Other Income (Expense) Since the Company's ownership interest in nuclear power companies was not sold, the equity in income in these companies will be retained. With respect to other costs included in other income, these represent primarily incentive compensation costs, other executive benefit costs and donations and lobbying costs. These costs were allocated primarily based on either the historical allocation of internal salaries and wages or the allocation of net investment between assets sold versus retained. -----END PRIVACY-ENHANCED MESSAGE-----