-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, S7UVFtlGHi3/f/1lWWRoAOARYjMqnaHmlVlm4L+ew6/Iby5upn+stlZHtO3MCZKG tcNyCf6f3x2K2rf8Tm2VRg== 0000072741-94-000073.txt : 19941111 0000072741-94-000073.hdr.sgml : 19941111 ACCESSION NUMBER: 0000072741-94-000073 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19940930 FILED AS OF DATE: 19941110 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: NORTHEAST UTILITIES CENTRAL INDEX KEY: 0000072741 STANDARD INDUSTRIAL CLASSIFICATION: 4911 IRS NUMBER: 042147929 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-05324 FILM NUMBER: 94558797 BUSINESS ADDRESS: STREET 1: 174 BRUSH HILL AVE CITY: WEST SPRINGFIELD STATE: MA ZIP: 01090-0010 BUSINESS PHONE: 2036655000 MAIL ADDRESS: STREET 1: 107 SELDON ST CITY: BERLIN STATE: CT ZIP: 06037-1616 10-Q 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549-1004 [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1994 ------------------ OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to ------ ------ Commission File Number 1-5324 ------ NORTHEAST UTILITIES ------------------- (Exact name of registrant as specified in its charter) MASSACHUSETTS 04-2147929 ------------- ---------- (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) 174 BRUSH HILL AVENUE, WEST SPRINGFIELD, MASSACHUSETTS (01090-0010) - ------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) (413) 785-5871 -------------- (Registrant's telephone number, including area code) Not Applicable -------------- (Former name, former address and former fiscal year, if changed since last report) 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 ___ ___ Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Class Outstanding at October 31, 1994 ----- ------------------------------- Common Shares, $5.00 par value 124,826,517 shares NORTHEAST UTILITIES AND SUBSIDIARIES TABLE OF CONTENTS Page No. -------- Part I. Financial Information Item 1. Financial Statements Consolidated Balance Sheets - September 30, 1994 and December 31, 1993 2 Consolidated Statements of Income - Three and Nine Months Ended September 30, 1994 and 1993 4 Consolidated Statements of Cash Flows - Nine Months Ended September 30, 1994 and 1993 5 Notes to Consolidated Financial Statements 6 Report of Independent Public Accountants 10 Item 2. Management's Discussion and Analysis 11 of Financial Condition and Results of Operations Part II. Other Information Item 1. Legal Proceedings 20 Item 5. Other Information 21 Item 6. Exhibits and Reports on Form 8-K 22 Signatures 23 PART I. FINANCIAL INFORMATION NORTHEAST UTILITIES AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Unaudited)
September 30, December 31, 1994 1993 ------------- ------------- (Thousands of Dollars) ASSETS - ------ Utility Plant, at original cost: Electric................................................ $ 9,278,023 $ 9,119,285 Other................................................... 144,377 146,228 ------------- ------------- 9,422,400 9,265,513 Less: Accumulated provision for depreciation......... 3,234,160 3,021,987 ------------- ------------- 6,188,240 6,243,526 Construction work in progress........................... 187,687 208,084 Nuclear fuel, net....................................... 214,897 218,051 ------------- ------------- Total net utility plant............................. 6,590,824 6,669,661 ------------- ------------- Other Property and Investments: Nuclear decommissioning trusts, at market in 1994 and at cost in 1993 (Note 2)...................... 238,764 206,179 Investments in regional nuclear generating companies, at equity................................... 82,383 81,029 Investments in transmission companies, at equity........ 25,650 26,536 Other, at cost.......................................... 36,076 36,882 ------------- ------------- 382,873 350,626 ------------- ------------- Current Assets: Cash and special deposits............................... 21,667 32,008 Receivables, net........................................ 362,515 357,449 Accrued utility revenues................................ 110,878 150,794 Fuel, materials, and supplies, at average cost.......... 201,208 194,968 Recoverable energy costs, net--current portion.......... 18,875 667 Prepayments and other................................... 54,334 34,611 ------------- ------------- 769,477 770,497 ------------- ------------- Deferred Charges: Regulatory asset--income taxes, net..................... 1,169,025 1,183,716 Regulatory asset--PSNH.................................. 701,930 769,498 Deferred costs--nuclear plants.......................... 255,094 294,004 Unrecovered contract obligation--YAEC (Note 4)...... 117,133 132,826 Recoverable energy costs, net........................... 170,876 148,789 Deferred conservation and load-management costs......... 106,453 111,442 Deferred DOE assessment................................. 50,538 53,476 Amortizable property investments........................ 23,960 34,229 Unamortized debt expense................................ 34,233 37,444 Other................................................... 142,076 111,956 ------------- ------------- 2,771,318 2,877,380 ------------- ------------- Total Assets........................................ $ 10,514,492 $ 10,668,164 ============= =============
See accompanying notes to consolidated financial statements. NORTHEAST UTILITIES AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Unaudited)
September 30, December 31, 1994 1993 ------------- ------------- (Thousands of Dollars) CAPITALIZATION AND LIABILITIES - ------------------------------ Capitalization: Common shareholders' equity: Common shares, $5 par value--authorized 225,000,000 shares; 134,210,090 shares issued and 124,826,585 shares outstanding in 1994 and 134,207,025 shares issued and 124,326,836 shares outstanding in 1993.................................. $ 671,051 $ 671,035 Capital surplus, paid in.............................. 903,788 901,740 Deferred benefit plan - employee stock ownership plan...................................... (217,204) (228,205) Retained earnings..................................... 937,198 879,518 ------------- ------------- Total common shareholders' equity.............. 2,294,833 2,224,088 Preferred stock not subject to mandatory redemption..... 239,700 239,700 Preferred stock subject to mandatory redemption......... 379,000 380,500 Long-term debt.......................................... 3,833,878 4,045,468 ------------- ------------- Total capitalization........................... 6,747,411 6,889,756 ------------- ------------- Obligations Under Capital Leases.......................... 164,289 171,004 ------------- ------------- Current Liabilities: Notes payable to banks.................................. 146,000 173,500 Commercial paper........................................ 39,000 - Long-term debt and preferred stock--current portion................................................ 338,809 420,142 Obligations under capital leases--current portion................................................ 77,285 72,756 Accounts payable........................................ 198,198 229,118 Accrued taxes........................................... 91,752 40,501 Accrued interest........................................ 82,265 69,682 Accrued pension benefits................................ 89,196 82,513 Other................................................... 78,672 83,853 ------------- ------------ 1,141,177 1,172,065 ------------- ------------ Deferred Credits: Accumulated deferred income taxes....................... 1,956,173 1,911,981 Accumulated deferred investment tax credits............. 194,641 201,635 Deferred contract obligation--YAEC (Note 4)......... 117,133 132,826 Deferred DOE obligation................................. 39,530 43,034 Other................................................... 154,138 145,863 ------------- ------------ 2,461,615 2,435,339 ------------- ------------ Commitments and Contingencies (Note 5) Total Capitalization and Liabilities........... $ 10,514,492 $ 10,668,164 ============= =============
See accompanying notes to consolidated financial statements. NORTHEAST UTILITIES AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
Three Months Ended Nine Months Ended September 30, September 30, --------------------------- --------------------------- 1994 1993 1994 1993 ------------- ------------- ------------- ------------- (Thousands of Dollars, except share information) Operating Revenues.......................... $ 923,708 $ 915,239 $ 2,744,509 $ 2,727,200 ------------- ------------- ------------- ------------- Operating Expenses: Operation -- Fuel, purchased and net interchange power. 220,694 215,651 628,462 713,695 Other..................................... 237,505 266,919 677,700 727,435 Maintenance................................ 76,259 69,049 221,850 197,938 Depreciation............................... 84,933 80,313 248,715 240,945 Amortization of regulatory assets, net..... 29,244 59,192 131,082 173,098 Federal and state income taxes............. 75,558 63,353 226,923 171,904 Taxes other than income taxes.............. 63,633 58,037 190,648 184,871 ------------- ------------- ------------- ------------- Total operating expenses............ 787,826 812,514 2,325,380 2,409,886 ------------- ------------- ------------- ------------- Operating Income............................ 135,882 102,725 419,129 317,314 ------------- ------------- ------------- ------------- Other Income: Deferred nuclear plants return--other funds................................... 6,777 8,955 20,771 29,928 Equity in earnings of regional nuclear generating and transmission companies... 3,687 3,504 10,794 9,586 Other, net................................ (4,125) 8,558 2,559 1,012 Income taxes--credit...................... 6,482 8,418 9,963 22,221 ------------- ------------- ------------- ------------- Other income, net................... 12,821 29,435 44,087 62,747 ------------- ------------- ------------- ------------- Income before interest charges...... 148,703 132,160 463,216 380,061 ------------- ------------- ------------- ------------- Interest Charges: Interest on long-term debt................ 77,903 82,572 234,736 251,501 Other interest............................ 2,554 4,254 5,622 12,217 Deferred nuclear plants return--borrowed funds.................................. (7,717) (13,007) (31,533) (41,692) ------------- ------------- ------------- ------------- Interest charges, net............... 72,740 73,819 208,825 222,026 ------------- ------------- ------------- ------------- Income before cumulative effect of accounting change................. 75,963 58,341 254,391 158,035 Cumulative effect of accounting change...... - - - 51,681 ------------- ------------- ------------- ------------- Income before Preferred Dividends of Subsidiaries................. 75,963 58,341 254,391 209,716 Preferred Dividends of Subsidiaries......... 10,934 11,920 32,329 36,089 ------------- ------------- ------------- ------------- Earnings For Common Shares.................. $ 65,029 $ 46,421 $ 222,062 $ 173,627 ============= ============= ============= ============= Earnings Per Common Share: Before cumulative effect of accounting change................................... $ 0.52 $ 0.37 $ 1.78 $ 0.98 Cumulative effect of accounting change..... - - - 0.42 ------------- ------------- ------------- ------------- Total Earnings Per Common Share............. $ 0.52 $ 0.37 $ 1.78 $ 1.40 ============= ============= ============= ============= Common Shares Outstanding (average)......... 124,790,381 124,068,513 124,583,613 123,833,747 ============= ============= ============= =============
See accompanying notes to consolidated financial statements. NORTHEAST UTILITIES and SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Nine Months Ended
September 30, ---------------------- 1994 1993 ---------- ---------- (Thousands of Dollars) Cash Flows From Operations: Income before preferred dividends.............................. $ 254,391 $ 209,716 Adjusted for the following: Depreciation ................................................ 248,715 240,945 Deferred income taxes and investment tax credits, net........ 83,521 17,377 Deferred nuclear plants return, net of amortization.......... 36,412 11,572 Deferred energy costs, net of amortization................... (40,295) 91,789 Amortization of regulatory asset-PSNH........................ 41,503 67,941 Deferred conservation and load-management costs, net of amortization........................................ 4,989 (5,774) Other sources of cash........................................ 35,337 93,609 Other uses of cash........................................... (33,755) (15,496) Changes in working capital: Receivables and accrued utility revenues..................... 34,850 6,958 Fuel, materials, and supplies................................ (6,240) 15,488 Accounts payable............................................. (30,920) 75,689 Accrued taxes................................................ 51,251 (35,834) Other working capital (excludes cash)........................ (5,638) 25,044 ---------- ---------- Net cash flows from operations................................... 674,121 799,024 ---------- ---------- Cash Flows Used For Financing Activities: Issuance of common shares...................................... 11,049 17,907 Issuance of long-term debt..................................... 485,000 729,850 Net increase (decrease) in short-term debt..................... 11,500 (95,740) Reacquisitions and retirements of long-term debt and preferred stock.......................................... (783,359) (615,946) Cash dividends on preferred stock.............................. (32,329) (36,089) Cash dividends on common shares................................ (164,382) (163,441) ---------- ---------- Net cash flows used for financing activities..................... (472,521) (163,459) ---------- ---------- Investment Activities: Investments in plant: Electric utility plant....................................... (176,685) (167,610) Nuclear fuel................................................. (5,651) (17,306) ---------- ---------- Net cash flows used for investments in plant................... (182,336) (184,916) Other investment activities, net .............................. (29,605) (24,038) ---------- ---------- Net cash flows used for investments.............................. (211,941) (208,954) ---------- ---------- Net Increase (Decrease) In Cash for the Period................... (10,341) 426,611 Cash and special deposits - beginning of period.................. 32,008 45,646 ---------- ---------- Cash and special deposits - end of period........................ $ 21,667 $ 472,257 ========== ==========
See accompanying notes to consolidated financial statements. NORTHEAST UTILITIES AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. General The accompanying unaudited consolidated financial statements should be read in conjunction with the Annual Report of Northeast Utilities (the company or NU) on Form 10-K for the year ended December 31, 1993 (1993 Form 10-K). In the opinion of the company, the accompanying financial statements contain all adjustments necessary to present fairly the financial position as of September 30, 1994, the results of operations for the three and nine months ended September 30, 1994 and 1993, and the statements of cash flows for the nine months ended September 30, 1994 and 1993. The results of operations for the three and nine months ended September 30, 1994 and 1993 are not necessarily indicative of the results expected for a full year. Certain amounts in the accompanying consolidated financial statements of the company for the period ended September 30, 1993 have been reclassified to conform with the September 30, 1994 presentation. 2. Changes in Accounting Principles Statement of Financial Accounting Standards No. 115 (SFAS 115): In May 1993, the Financial Accounting Standards Board (FASB) issued SFAS 115, "Accounting for Certain Investments in Debt and Equity Securities." SFAS 115 addresses the accounting and reporting for certain investments in debt and equity securities, and expands the use of fair value accounting for these securities. SFAS 115 is applicable to NU with respect to its investments in nuclear decommissioning trusts. SFAS 115 requires investments in decommissioning trusts to be presented at fair value and was adopted by NU on a prospective basis in the first quarter of 1994. As a result of the adoption of SFAS 115, NU's investment in nuclear decommissioning trusts increased by approximately $2.7 million as of September 30, 1994, with a corresponding offset to the accumulated provision for depreciation. The $2.7 million increase represents cumulative gross unrealized holding gains of $6.3 million, offset by cumulative gross unrealized holding losses of $3.6 million. There was no change in funding requirements of the trusts nor any impact on earnings as a result of the adoption of SFAS 115. Statement of Financial Accounting Standards No. 119 (SFAS 119): In October 1994, FASB issued SFAS 119, "Disclosure about Derivative Financial Instruments and Fair Value of Financial Instruments." SFAS 119 requires disclosures about derivative financial instruments - futures, forward, swap, and option contracts, and other financial instruments with similar characteristics. The Connecticut Light and Power Company (CL&P), a wholly-owned subsidiary of NU, has entered into fossil fuel hedging contracts to minimize its exposure under certain fixed rate contracts. Currently, the differential between the market value of fossil fuel and the fossil fuel prices included in these contracts is not considered to be material. 3. Capitalization On October 12, 1994, CL&P issued $140 million of First and Refunding Mortgage Bonds, 1994 Series D (the Bonds). The Bonds bear interest at an annual rate of 7.875 percent, and will mature on October 1, 2024. The Bonds have a one-time put feature which allows bondholders to put the Bonds back to CL&P for repayment at par on October 1, 2001. The net proceeds from the issue and sale of the Bonds were used to repay a portion of the short-term debt which was incurred to repay the CL&P 4.25 percent Series WW Bonds ($170 million) on their maturity date of October 1, 1994. 4. Yankee Atomic Electric Company (YAEC) YAEC owns a 185-MW nuclear power plant in Rowe, Massachusetts. The NU system has a 38.5 percent equity investment approximating $9.9 million in YAEC. The NU system had relied on YAEC for less than 1 percent of its capacity. YAEC's owners voted to permanently shut down the YAEC unit in February 1992. Under the terms of the contracts with YAEC, the shareholders-sponsors are responsible for their proportionate share of the operating costs of the unit, including decommissioning. The nuclear decommissioning costs of YAEC are included as part of the cost of power by CL&P, Public Service Company of New Hampshire (PSNH), and Western Massachusetts Electric Company (WMECO), all wholly-owned subsidiaries of NU. YAEC has begun decommissioning its nuclear facility. On June 1, 1992, YAEC filed a rate filing to obtain Federal Energy Regulatory Commission (FERC) authorization to collect the closing and decommissioning costs and to recover the remaining investments in the YAEC nuclear power plant over the remaining period of the plant's Nuclear Regulatory Commission (NRC) operating license. The bulk of these costs has been agreed to by the YAEC joint owners and approved, as a settlement, by the FERC. At September 30, 1994, the NU system's share of the estimated remaining costs is approximately $117.1 million. Management expects that CL&P, PSNH, and WMECO will continue to be allowed to recover such FERC-approved costs from their customers. Accordingly, NU has recognized these costs as regulatory assets, with corresponding obligations, on its Consolidated Balance Sheets. On October 26, 1994, YAEC submitted a revised decommissioning cost estimate as part of its decommissioning plan with the NRC. Following the receipt of NRC approval, this estimate will be filed with the FERC. This revised cost estimate is expected to increase the NU system's share of estimated remaining costs by $51.7 million over the $117.1 million that is currently recorded. For additional information regarding YAEC, see the Notes to Consolidated Financial Statements in NU's 1993 Form 10-K. 5. Commitments and Contingencies Construction Program: For information regarding the construction program, see the Notes to Consolidated Financial Statements in NU's 1993 Form 10-K. Nuclear Performance: For information regarding the termination of the Connecticut Department of Public Utility Control's (DPUC) prudence review of the 1992 Millstone 2 steam generator replacement project, see Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) in NU's June 1994 and March 1994 Form 10-Qs. For information regarding the termination of the Massachusetts Department of Public Utilities' (DPU) performance review proceedings related to outages at the Millstone nuclear units, see the MD&A and Part II. Other Information - Item 1. Legal Proceedings in NU's June 1994 and March 1994 Form 10-Qs. For further information regarding the performance of the NU system's nuclear units, see the Notes to Consolidated Financial Statements in NU's 1993 Form 10-K. PSNH Rate Agreement: For information regarding the PSNH Rate Agreement, see the MD&A in NU's June 1994 Form 10-Q and the Notes to Consolidated Financial Statements in NU's 1993 Form 10-K. Environmental Matters: On a periodic basis, the NU system reviews known waste disposal sites, and related reserves, for which the system's subsidiaries expect to bear legal liability. As a result of its latest review, the NU system increased the liability recorded for its estimated environmental remediation costs, excluding any insurance recoveries or recoveries from third parties, from $4.0 million to $11.0 million. In the event that it becomes necessary to effect remedies that are not currently probable, it is reasonably possible that the upper limit of the NU system's environmental liability range could be approximately $16.3 million. For additional information regarding environmental matters, see Part II. Other Information - Item 5. Other Information in NU's June 1994 Form 10-Q and the Notes to Consolidated Financial Statements in NU's 1993 Form 10-K. Nuclear Insurance Contingencies: The Price-Anderson Act currently limits public liability from a single incident at a nuclear power plant to $8.8 billion. The first $200 million of liability would be provided by purchasing the maximum amount of commercially available insurance. Additional coverage of up to a total of $8.4 billion would be provided by an assessment of $75.5 million per incident, levied on each of the 111 nuclear units that are currently subject to the Secondary Financial Protection Program in the United States, subject to a maximum assessment of $10 million per incident per nuclear unit in any year. In addition, if the sum of all public liability claims and legal costs arising from any nuclear incident exceeds the maximum amount of financial protection, each reactor operator can be assessed an additional five percent, up to $3.8 million, or $419.0 million in total, for all 111 nuclear units. The maximum assessment is to be adjusted at least every five years to reflect inflationary changes. Based on the ownership interests in Millstone 1, 2, and 3 and in Seabrook 1, the NU system's maximum liability would be $244.2 million per incident. In addition, through contracts with the three Yankee regional nuclear generating companies with operating plants, the NU system would be responsible for up to an additional $67.4 million per incident. Payments for the NU system's ownership interest in nuclear generating facilities would be limited to a maximum of $39.3 million per incident per year. For additional information regarding nuclear insurance contingencies, see the Notes to Consolidated Financial Statements in NU's 1993 Form 10-K. Financing Arrangements for the Regional Nuclear Generating Companies: For information regarding financing arrangements for the regional nuclear generating companies, see the Notes to Consolidated Financial Statements in NU's 1993 Form 10-K. Purchased Power Arrangements: For information regarding purchased power arrangements, see the MD&A in this Form 10-Q, the MD&A in NU's June 1994 Form 10-Q, the MD&A and Part II. Other Information - Item 1. Legal Proceedings, in NU's March 1994 Form 10-Q and the Notes to Consolidated Financial Statements in NU's 1993 Form 10-K. Hydro-Quebec: For information regarding Hydro-Quebec, see the Notes to Consolidated Financial Statements in NU's 1993 Form 10-K. Great Bay Power Corporation (GBPC): For information regarding GBPC's bankruptcy proceedings, see the MD&A in this Form 10-Q, Part II. Other Information - Item 1. Legal Proceedings in NU's June 1994 Form 10-Q and the Notes to Consolidated Financial Statements in NU's 1993 Form 10-K. Property Taxes: For information on property taxes, see Part II. Other Information - Item 1. Legal Proceedings in this Form 10-Q and the Notes to Consolidated Financial Statements in NU's 1993 Form 10-K. Report of Independent Public Accountants ---------------------------------------- To Northeast Utilities: We have reviewed the accompanying consolidated balance sheet of Northeast Utilities (a Massachusetts trust) and subsidiaries as of September 30, 1994, and the related consolidated statements of income for the three and nine-month periods ended September 30, 1994 and 1993, and the consolidated statements of cash flows for the nine-month periods ended September 30, 1994 and 1993. These financial statements are the responsibility of the company's management. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to the financial statements referred to above for them to be in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Arthur Andersen LLP Hartford, Connecticut November 9, 1994 NORTHEAST UTILITIES AND SUBSIDIARIES Management's Discussion and Analysis of Financial Condition and Results of Operations This section contains management's assessment of Northeast Utilities' (NU or the company) financial condition and the principal factors having an impact on the results of operations. This discussion should be read in conjunction with the company's consolidated financial statements and footnotes and the 1993 Form 10-K and the First and Second Quarter 1994 Form 10-Qs. FINANCIAL CONDITION Overview The company's earnings increased to $1.78 per common share for the nine months ended September 30, 1994, from $1.40 for the same period in 1993. The 1993 earnings reflect the cumulative effect of a change in the method of accounting for Connecticut municipal property tax expense adopted by certain subsidiaries of NU in the first quarter of 1993. This change resulted in a one-time contribution to 1993 earnings of approximately $52 million or $0.42 per common share. Earnings per share increased to $0.52 for three months ended September 30, 1994, from $0.37 for the same period in 1993. The increases in earnings from 1993 for the three- and nine-month periods, before the effect of the one-time accounting change, are primarily attributable to the costs of a work force reduction program in the third quarter of 1993 which reduced 1993 earnings by $0.14 per share. In addition, earnings for the three- and nine-month periods were impacted by higher retail sales resulting from a colder winter and an unusually hot June in 1994 and an improvement in the regional economy, increased revenues from mid-1993 rate increases in NU subsidiaries' retail jurisdictions, lower operation expenses, lower interest costs, the impacts of a Public Service Company of New Hampshire (PSNH) global settlement at the end of 1993 and the deferral of cogeneration expenses in Connecticut. These increases were partially offset by lower 1994 revenues from sales to other utilities, higher maintenance expenses and additional amounts reserved for environmental exposures. The nine-month earnings in 1993 were also reduced by disallowances in 1993 resulting from The Connecticut Light and Power Company s (CL&P) rate decision. Retail Wheeling and Utility Restructuring See Part II. Other Information - Item 5. Legal Proceedings. for information concerning retail wheeling and utility restructuring. Regulatory Matters Connecticut CL&P has a mechanism that has been in operation since 1979 designed to recover or refund certain non-nuclear fuel costs if the nuclear units do not operate at a predetermined capacity factor (the Generation Utilization Adjustment Clause or GUAC). On August 31, 1994, the DPUC delayed inclusion of CL&P s GUAC recovery for the 1993-1994 period, amounting to $23.7 million, until CL&P had revised the calculation to true up for actual booked fuel expense for the same period. The true up, which reduces the GUAC recovery by $7.9 million, was filed on September 13, 1994. A final decision ordering the true-up is expected in late November 1994. If the DPUC orders this offset, CL&P plans to appeal. For additional information on this matter, see CL&P s 1993 Form 10-K, under the caption Item 1. Business - CL&P Adjustment Clauses and NU s Quarterly Report on Form 10-Q for the quarter ended June 30, 1994. Unrecovered conservation and load management (C&LM) costs at September 30, 1994, were approximately $106 million. These costs are being recovered over periods ranging from 3.85 to 8 years. On October 31, 1994, CL&P filed its recovery mechanism (CAM) for 1995 C&LM costs and programs. The filing proposes 1995 C&LM expenditures of $36.7 million to be recovered over 3.93 years and a zero CAM rate. New Hampshire On September 15, 1994, PSNH filed testimony and exhibits supporting a request for a revised rate under its Fuel and Purchased Power Adjustment Clause (FPPAC) to be effective on December 1, 1994. PSNH estimates that it will underrecover its fuel and purchased power costs for the period ending November 30, 1994 due to outages at the Seabrook nuclear unit. PSNH requested recovery of these undercollections over two six month FPPAC periods in order to maintain the FPPAC rate at its current level. The costs associated with purchases from certain independent power producers (IPPs) over the level assumed in the rate agreement executed by the Governor and the Attorney General of New Hampshire in 1989 and subsequently approved by the New Hampshire Public Utilities Commission (NHPUC) (the Rate Agreement) are deferred and recovered over ten-year periods through the FPPAC. At September 30, 1994, IPP deferrals which are included in recoverable energy costs, net on the balance sheet were approximately $128 million. Most of these purchases are under long-term rate orders (20-30 years) at prices significantly higher than PSNH's current or projected avoided costs. PSNH has been attempting to renegotiate these rate orders as required under the Rate Agreement. On September 23, 1994, the NHPUC approved settlement agreements and, in turn, a fifth amendment to the Rate Agreement allowing the settlement agreements to be implemented, with two wood-fired IPPs covering approximately 19.8 MW of capacity. Under the Rate Agreement, PSNH was required to make its best efforts to renegotiate rate orders with eight woodburner IPPs, including these two. The six remaining woodburners account for approximately 87 MW of capacity. The two settling IPPs will give up their rights to sell their output to PSNH in exchange for lump sum cash payments totaling approximately $40 million. The buyout payments will be added to the deferred balance of IPP costs. PSNH will retain 100 percent of the savings resulting from these arrangements during the remainder of the fixed rate period, and they will be used to reduce the IPP deferred balance. Thereafter, PSNH will retain 50 percent of the savings until the deferred balance is amortized entirely. The balance of the savings will be flowed back to customers through the FPPAC. The period during which appeals of the NHPUC decision could be filed has lapsed. PSNH closed these transactions on October 27, 1994 and November 8, 1994. PSNH is involved in mediation with the owners of the other six facilities. PSNH must report to the NHPUC and a New Hampshire legislative committee on the results of the negotiations by November 14, 1994. For additional information on this matter, see NU s 1993 Form 10-K, under the caption Item 1. Business - New Hampshire Retail Rates and NU s Quarterly Report on Form 10-Q for the quarter ended June 30, 1994 under the caption Part II. Other Information - Item 1. Legal Proceedings. The deferred return associated with the amount of North Atlantic Energy Corporation s (NAEC) Seabrook investment that has not been included in rates was approximately $172 million through September 30, 1994, including approximately $51 million which is recorded as utility plant. This amount and the additional deferred amounts associated with the remaining phase-in will be recovered under NAEC's purchase agreement with PSNH over the period December 1997 through May 2001. PSNH will recover these deferred amounts from customers over the period of June 1998 through May 2001. Nuclear Matters The composite capacity factor of the five nuclear generating units that the NU system operates (including the Connecticut Yankee nuclear unit (CY)) was 64.3 percent for the nine months ended September 30, 1994, as compared with 81.0 percent for the same period in 1993. The lower 1994 capacity factor was primarily the result of extended refueling and maintenance outages for Millstone 1 and Seabrook. CY, Seabrook and Millstone 2 were also out of service for varying lengths of time in the first nine months of 1994 because of some unexpected technical and operating difficulties. These difficulties included a manual shutdown of CY when both service water headers were declared inoperable, an automatic trip from 100 percent power for Seabrook when a main steam isolation valve closed during quarterly surveillance testing and a Millstone Unit 2 shutdown to replace a degraded lower seal on a reactor coolant pump. On October 1, 1994, Millstone Unit 2 was shut down for a planned refueling and maintenance outage that was originally scheduled for 63 days. The outage has encountered several unexpected difficulties which will lengthen the duration of the outage. The magnitude of the schedule impact is currently under review. On November 4, 1994, the plan of reorganization of Great Bay Power Corporation (GBPC)(formerly known as EUA Power Corporation), a joint owner of Seabrook Station along with CL&P and NAEC, both wholly owned subsidiaries of NU, and other non-System entities, was confirmed by the United States Bankruptcy Court. The confirmation order will become final on November 11, 1994. The closing of the plan of reorganization financing, which consists of the purchase of 60 percent of the common stock of GBPC by Omega Advisors and Elliott Associates is expected to close on November 15, 1994, if all of the conditions precedent to closing have been satisfied. The conditions include the absence of any material adverse change and a requirement that Seabrook be operating at full reactor power on the morning of the closing date. At the time of closing, CL&P will be repaid by GBPC for the outstanding principal and accrued interest on the debtor-in-possession loans made by CL&P during the bankruptcy proceeding. At present, the outstanding principal amount of these loans by CL&P total approximately $7.3 million. For additional information on this matter, see NU s Quarterly Report on Form 10-Q for the quarter ended June 30, 1994 under the caption Part II. Other Information - Item 1. Legal Proceedings. LIQUIDITY AND CAPITAL RESOURCES Cash provided from operations decreased approximately $125 million for the first nine months of 1994, as compared with the same period in 1993, primarily due to decreased revenues from replacement power costs under the GUAC. Cash used for financing activities was approximately $309 million higher in 1994, as compared with 1993, primarily due to higher reacquisitions and retirements of long-term debt, partially offset by an increase in short-term debt. The NU system has an ongoing program to use excess cash to reduce long-term debt levels. The NU system s construction program expenditures amounted to approximately $177 million for the first nine months of 1994, as compared to approximately $168 million during the same period in 1993. The system companies have entered into interest-rate cap contracts to reduce the potential impact of upward changes in interest rates on certain variable-rate tax-exempt pollution control revenue bonds held by CL&P, PSNH, and Western Massachusetts Electric Company, as well as a portion of the PSNH variable-rate term loan. A total of $567 million of outstanding long-term variable-rate debt is hedged by these interest-rate caps. The fair market value of outstanding interest-rate cap contracts as of September 30, 1994, is approximately $2.3 million. RESULTS OF OPERATIONS Comparison of the Third Quarter of 1994 with the Third Quarter of - ----------------------------------------------------------------- 1993 - ---- Operating revenues increased approximately $8 million in the third quarter of 1994, as compared with 1993. The components of the change in operating revenues are as follows: Changes in Operating Revenues Increase/(Decrease) - ----------------------------- ------------------- (Millions of Dollars) Regulatory decisions $ 11 Fuel, purchased power, and FPPAC cost recoveries 20 Retail Sales volume 6 Sales to Other Utilities (22) Other revenues (7) ---- Total revenue change $ 8 ==== Revenues related to regulatory decisions increased primarily because of the retail rate increase for CL&P in July 1994 and the June 1994 retail rate increase for PSNH, partially offset by the June 1994 retail rate reduction for WMECO. Fuel, purchased power and FPPAC cost recoveries increased primarily due to higher fuel expenses and higher interchange revenues. Sales to other utilities decreased primarily because of the expiration of some capacity sales contracts. Fuel, purchased, and net interchange power expense increased approximately $5 million in the third quarter of 1994, as compared with 1993, primarily because of a higher level of energy purchases from other utilities. Other operation and maintenance expenses decreased approximately $22 million in the third quarter of 1994, as compared with 1993, primarily due to the one-time charge associated with the work force reduction program in 1993, lower 1994 payroll and benefits costs and lower capacity charges from the regional nuclear generating units, partially offset by higher 1994 costs associated with the operation and maintenance activities of the nuclear units, the establishment of a reserve for excess/obsolete inventory in 1994, and 1994 charges associated with a targeted early retirement program. Amortization of regulatory assets, net decreased approximately $30 million in the third quarter of 1994, as compared with 1993, primarily because of the deferral of CL&P cogeneration expenses beginning in July 1994, the amortization in 1994 of PSNH's regulatory liability as allowed under the 1993 Global Settlement, which reduces amortization expense and the amortization in 1993 of costs paid by CL&P to the developers of two wood-to-energy plants. Taxes other than income taxes increased approximately $6 million in the third quarter of 1994, as compared with 1993, primarily due to an adjustment in 1993 as a result of a favorable settlement with the State of Connecticut over disputed sales taxes. Federal and state income taxes increased approximately $14 million in the third quarter of 1994, as compared with 1993, primarily because of higher book taxable income. Deferred nuclear plants return decreased approximately $7 million in the third quarter of 1994, as compared with 1993, primarily because additional Millstone 3 investment was phased into rates on January 1, 1994. Other income decreased approximately $13 million in the third quarter of 1994, as compared with 1993, primarily because of an increase to the environmental reserve in 1994, and a 1993 gain on the sale of property by CL&P. Interest charges decreased approximately $6 million in the third quarter of 1994, as compared with 1993, primarily because of lower average interest rates as a result of the company's refinancing activities, lower 1994 debt levels and interest accrued in 1993 associated with a potential Connecticut sales tax assessment. Comparison of the First Nine Months of 1994 with the First Nine Months - ---------------------------------------------------------------------- of 1993 - ------- Operating revenues increased approximately $17 million in the first nine months of 1994, as compared with 1993. The components of the change in operating revenues are as follows: Changes in Operating Revenues Increase/(Decrease) - ----------------------------- ------------------- (Millions of Dollars) Regulatory decisions $ 36 Fuel, purchased power, and FPPAC cost recoveries (6) Retail sales volume 55 Sales to other utilities (55) Other revenues (13) ---- Total revenue change $ 17 ==== Revenues related to regulatory decisions increased primarily because of retail rate increases for CL&P in July 1993 and 1994, the June 1993 and 1994 retail rate increases for PSNH and the July 1993 retail rate increase for WMECO, partially offset by the June 1994 retail rate reduction for WMECO. Retail sales volume increased primarily as a result of higher retail sales from a colder winter and an unusually hot June in 1994 and an improvement in the regional economy. Retail sales increased 3.8 percent for the first nine months of 1994, as compared with 1993 of which approximately 3 percent is attributed to improvement in the regional economy. Sales to other utilities decreased primarily because of the expiration of some capacity sales contracts. Fuel, purchased, and net interchange power expense decreased approximately $85 million in the first nine months of 1994, as compared with 1993, primarily because of the timing in the recognition of fuel expenses under the provisions of CL&P s GUAC mechanism and previously deferred replacement power costs that were determined not to be recoverable in 1993 as a result of nuclear outage prudence regulatory reviews in Connecticut, partially offset by a higher level of energy purchases from other utilities. Other operation and maintenance expenses decreased approximately $26 million in the first nine months of 1994, as compared with 1993, primarily due to the one-time charge associated with a work force reduction program in 1993, lower 1994 payroll and benefit costs, lower fossil unit costs and lower capacity charges from the regional nuclear generating units, partially offset by higher 1994 costs associated with the operation and maintenance activities of the nuclear units, a higher reserve for excess/obsolete inventory in 1994 and 1994 charges associated with a targeted early retirement program. Amortization of regulatory assets, net decreased approximately $42 million in the first nine months of 1994, as compared with 1993, primarily because of the amortization in 1994 of PSNH's regulatory liability as allowed under the 1993 Global Settlement, the deferral of CL&P cogeneration expenses beginning in July 1994, and lower 1994 expenses associated with the recovery of Hydro-Quebec support payments, partially offset by the amortization through June 1994 of costs paid by CL&P to the developers of two wood-to-energy plants and higher 1994 amortization of Millstone 3 and Seabrook 1 phase-in costs. Taxes other than income taxes increased approximately $6 million in the first nine months of 1994, as compared with 1993, primarily due to an adjustment in 1993 as a result of a favorable settlement with the State of Connecticut over disputed sales taxes. Federal and state income taxes increased approximately $67 million in the first nine months of 1994, as compared with 1993, primarily because of higher book taxable income. Deferred nuclear plants return decreased approximately $19 million in the first nine months of 1994, as compared with 1993, primarily because additional Millstone 3 investment was phased into rates on January 1, 1994. Interest charges decreased approximately $23 million in the first nine months of 1994, as compared with 1993, primarily because of lower average interest rates as a result of the company's refinancing activities, lower 1994 debt levels and interest accrued in 1993 associated with a potential Connecticut sales tax assessment. The cumulative effect of the accounting change of approximately $52 million in 1993 represents the one-time change in the method of accounting for Connecticut municipal property tax expense recognized in the first quarter of 1993. PART II. OTHER INFORMATION Item 1. Legal Proceedings 1. On October 15, 1993, the Merrimack County, New Hampshire, Superior Court issued a decision dismissing PSNH's appeals of the property taxes assessed against it by the Town of Bow, New Hampshire for the years 1988, 1989, 1990 and 1991. The decision rejected the "unit method" of valuation (essentially book cost) and approved the "reproduction cost" method of valuation, resulting in property tax valuations approximately three times greater than net book cost, with a commensurate rise in property taxes in Bow. PSNH's 495-MW, coal- fired Merrimack Station and 12.1-MW, hydroelectric Garvins Falls Station are located in Bow. On November 2, 1994, PSNH's appeal to the New Hampshire Supreme Court was rejected and the holding of the trial court was affirmed. This decision will not impact PSNH's net income, assets or liabilities because the taxes in question had previously been paid and substantially all such amounts were included in base rates. However, other towns in New Hampshire are employing the same methodology to assess taxes against PSNH's property, and the long-term effect of the decision could be adverse to PSNH's financial condition in an amount not presently determinable. For additional information on this matter, see Item 3 - Legal Proceedings in NU s 1993 Form 10-K. 2. On October 18, 1994, the NRC responded to Northeast Nuclear Energy Company s (NNECO) response in the Millstone Unit 1 Feedwater Coolant Injection System (FWCI) matter, stating that, upon reconsideration by the NRC, the violation's severity level and calculation of the civil penalty would not change. The NRC also decided that further action against the NNECO manager was not warranted. NNECO is a wholly-owned subsidiary of NU. For additional information on this matter, see "Part II. Other Information - Item 1. Legal Proceedings" in NU s June 1994 Form 10-Q. 3. With respect to proceedings at FERC on the 30th Amendment to the New England Power Pool Agreement and related issues concerning transmission access and discounted rates for pool-planned units, on August 3, 1994 FERC granted a motion filed by certain of the parties seeking to suspend the procedural schedule pending the filing of terms of a settlement reached by the parties. The parties have agreed to file joint status reports of their progress. For additional information on this matter, see "Part II. Other Information - Item 1. Legal Proceedings in NU s March 1994 and June 1994 Form 10-Qs. Item 5. Other Information 1. On September 9, 1994, the DPUC issued its final retail wheeling decision. This concluded a proceeding initiated in October 1993 to investigate whether retail wheeling should be permitted in Connecticut. The proceeding was intended as a follow-up and an update to a 1987 report of the DPUC to the legislature concluding that retail wheeling would be inadvisable for Connecticut. The September 1994 decision noted the potential for retail wheeling or other forms of more intense competition in the future. However, it concluded that because of the need to first deal with issues associated with a transition to more intense competition for retail sales such as the need to reallocate public policy and stranded costs, if retail wheeling is authorized, it should not be introduced prior to Connecticut's utilities' year of need, which for CL&P is 2007. The DPUC also recommended that utilities continue to contain costs and work with customers to keep Connecticut's electric rates competitive in order to attract and retain business in the state. There have been several bills introduced and regulatory proceedings initiated in Massachusetts and New Hampshire that involve the potential for retail wheeling, electric utility industry restructuring, and regulatory reform. To date, none of these bills have been enacted and none of the regulatory proceedings have progressed to a point to which management can assess the likelihood that any of them might have an effect on any system company. For additional information on this matter, see "Item 1. Business - Retail Wheeling" in NU s 1993 Form 10-K and the MD&As in NU s March 1994 and June 1994 Form 10-Qs. 2. On September 6, 1994, NU filed a Petition for Rehearing with the First Circuit Court of Appeals from FERC's application of a stringent "public interest standard" to the Seabrook Power Contract, which Petition is pending. For additional information on this matter, see "Item 3 - Legal Proceedings" in NU s 1993 Form 10-K and "Part II. Other Information - Item 5. Other Information" in NU s June 1994 Form 10-Q. Item 6. Exhibits and Reports on Form 8-K (a) Listing of Exhibits: Exhibit Number Description ------- ----------- 15 Letter regarding unaudited financial information 27 Financial Data Schedule (b) Reports on Form 8-K: No reports on Form 8-K have been filed during this reporting period. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. NORTHEAST UTILITIES ------------------- Registrant Date November 9, 1994 By /s/ Bernard M. Fox -------------------- ----------------------------- Bernard M. Fox President and Chief Executive Officer Date November 9, 1994 By /s/ John W. Noyes -------------------- ----------------------------- John W. Noyes Vice President and Controller EX-27 2
UT 0000072741 NORTHEAST UTILITIES 1,000 QTR-3 DEC-31-1994 SEP-30-1994 PER-BOOK 6,590,824 382,873 769,477 2,771,318 0 10,514,492 671,051 903,788 937,198 2,294,833 379,000 239,700 3,833,878 146,000 0 39,000 337,309 1,500 164,289 77,285 2,784,494 10,514,492 2,744,509 216,960 2,098,457 2,325,380 419,129 34,124 463,216 208,825 254,391 32,329 222,062 164,382 0 674,121 1.78 0.00
EX-15 3 Exhibit 15 November 9, 1994 To Northeast Utilities: We are aware that Northeast Utilities has incorporated by reference in its Registration Statement No. 33-34622 and No. 33-40156 its Form 10-Q for the quarter ended September 30, 1994, which includes our report dated November 9, 1994 covering the unaudited interim financial information contained therein. Pursuant to Regulation C of the Securities Act of 1933, that report is not considered a part of the registration statement prepared or certified by our firm within the meaning of Sections 7 and 11 of the Act. Very truly yours, ARTHUR ANDERSEN LLP Arthur Andersen LLP -----END PRIVACY-ENHANCED MESSAGE-----