-----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, F80wWy9bVvCgEWX3WGhcVUA2t7bHtoyWjaFGUvns+VJ6+Sv8dOC3ddYu30WHSaoc xA86KRm7HaXscCPgNC25bA== 0000072741-96-000147.txt : 19961115 0000072741-96-000147.hdr.sgml : 19961115 ACCESSION NUMBER: 0000072741-96-000147 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961113 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: NORTHEAST UTILITIES CENTRAL INDEX KEY: 0000072741 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [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: 96660495 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, 1996 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, 1996 Common Shares, $5.00 par value 136,051,937 shares NORTHEAST UTILITIES AND SUBSIDIARIES TABLE OF CONTENTS Page No. Part I. Financial Information Item 1. Financial Statements Consolidated Balance Sheets - September 30, 1996 and December 31, 1995 2 Consolidated Statements of Income - Three and Nine Months Ended September 30, 1996 and 1995 4 Consolidated Statements of Cash Flows - Nine Months Ended September 30, 1996 and 1995 5 Notes to Consolidated Financial Statements 6 Report of Independent Public Accountants 12 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 13 Part II. Other Information Item 1. Legal Proceedings 21 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, 1996 1995 ------------- ------------- (Thousands of Dollars) ASSETS - ------ Utility Plant, at cost: Electric................................................ $ 9,610,066 $ 9,490,142 Other................................................... 157,367 187,389 ------------- ------------- 9,767,433 9,677,531 Less: Accumulated provision for depreciation......... 3,874,639 3,629,559 ------------- ------------- 5,892,794 6,047,972 Unamortized PSNH acquisition costs...................... 514,065 588,910 Construction work in progress........................... 196,059 165,111 Nuclear fuel, net....................................... 185,960 198,844 ------------- ------------- Total net utility plant............................. 6,788,878 7,000,837 ------------- ------------- Other Property and Investments: Nuclear decommissioning trusts, at market............... 358,980 325,674 Investments in regional nuclear generating companies, at equity................................... 84,620 81,996 Investments in transmission companies, at equity........ 22,702 23,558 Investments in Charter Oak Energy, Inc. projects........ 44,703 41,221 Other, at cost.......................................... 46,283 35,318 ------------- ------------- 557,288 507,767 ------------- ------------- Current Assets: Cash and cash equivalents............................... 238,943 29,038 Receivables, net........................................ 419,501 435,931 Accrued utility revenues................................ 103,456 136,260 Fuel, materials, and supplies, at average cost.......... 203,041 200,580 Recoverable energy costs, net--current portion.......... - 79,300 Prepayments and other................................... 54,944 34,430 ------------- ------------- 1,019,885 915,539 ------------- ------------- Deferred Charges: Regulatory assets: Income taxes,net...................................... 1,066,579 1,176,356 Deferred costs--nuclear plants........................ 180,374 168,600 Unrecovered contractual obligation.................... 69,832 103,475 Recoverable energy costs, net......................... 324,608 237,078 Deferred demand-side management costs................. 83,225 117,070 Cogeneration costs.................................... 76,679 92,162 Other................................................. 107,827 154,218 Unamortized debt expense................................ 37,197 37,645 Other .................................................. 82,107 48,827 ------------ ------------ 2,028,428 2,135,431 ------------ ------------ Total Assets.............................................. $ 10,394,479 $ 10,559,574 ============ ============
See accompanying notes to consolidated financial statements. NORTHEAST UTILITIES AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Unaudited)
September 30, December 31, 1996 1995 ------------- ------------- (Thousands of Dollars) CAPITALIZATION AND LIABILITIES - ------------------------------ Capitalization: Common shareholders' equity: Common shares, $5 par value--authorized 225,000,000 shares; 136,051,923 shares issued and 128,201,100 shares outstanding in 1996 and 135,611,166 shares issued and 127,050,647 shares outstanding in 1995.................................. $ 680,260 $ 678,056 Capital surplus, paid in.............................. 941,205 936,308 Deferred benefit plan--employee stock ownership plan...................................... (181,722) (198,152) Retained earnings..................................... 941,341 1,007,340 ------------- ------------- Total common shareholders' equity.............. 2,381,084 2,423,552 Preferred stock not subject to mandatory redemption..... 169,700 169,700 Preferred stock subject to mandatory redemption......... 276,000 302,500 Long-term debt.......................................... 3,688,530 3,705,215 ------------- ------------- Total capitalization........................... 6,515,314 6,600,967 ------------- ------------- Minority Interest in Consolidated Subsidiaries............ 99,895 99,935 ------------- ------------- Obligations Under Capital Leases.......................... 187,095 147,372 ------------- ------------- Current Liabilities: Notes payable to banks.................................. 15,000 99,000 Long-term debt and preferred stock--current portion................................................ 281,013 219,657 Obligations under capital leases--current portion................................................ 19,189 83,110 Accounts payable........................................ 289,656 319,038 Accrued taxes........................................... 66,750 75,218 Accrued interest........................................ 71,853 53,699 Accrued pension benefits................................ 91,603 90,630 Other................................................... 128,037 105,821 ------------- ------------ 963,101 1,046,173 ------------- ------------ Deferred Credits: Accumulated deferred income taxes....................... 2,083,974 2,135,852 Accumulated deferred investment tax credits............. 170,847 178,060 Deferred contractual obligation......................... 72,332 103,475 Other................................................... 301,921 247,740 ------------- ------------ 2,629,074 2,665,127 ------------- ------------ Commitments and Contingencies (Note 8) Total Capitalization and Liabilities........... $ 10,394,479 $ 10,559,574 ============= =============
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, --------------------------- --------------------------- 1996 1995 1996 1995 ------------- ------------- ------------- ------------- (Thousands of Dollars, except share information) Operating Revenues............................. $ 955,518 $ 985,092 $ 2,855,624 $ 2,770,130 ------------- ------------- ------------- ------------- Operating Expenses: Operation -- Fuel, purchased and net interchange power.... 308,111 242,923 819,570 680,860 Other........................................ 266,395 244,351 825,599 694,091 Maintenance................................... 104,998 70,048 283,018 197,926 Depreciation.................................. 88,300 89,514 268,704 263,016 Amortization of regulatory assets, net........ 42,212 36,727 81,469 96,897 Federal and state income taxes................ 12,696 75,816 96,651 201,085 Taxes other than income taxes................. 64,774 63,416 197,501 188,220 ------------- ------------- ------------- ------------- Total operating expenses............... 887,486 822,795 2,572,512 2,322,095 ------------- ------------- ------------- ------------- Operating Income............................... 68,032 162,297 283,112 448,035 ------------- ------------- ------------- ------------- Other Income: Deferred nuclear plants return--other funds...................................... 1,919 3,431 7,332 10,727 Equity in earnings of regional nuclear generating and transmission companies...... 3,326 3,637 10,637 9,854 Other, net................................... 6,126 3,270 16,774 633 Income taxes................................. (1,762) 306 (3,554) 6,511 ------------- ------------- ------------- ------------- Other income, net...................... 9,609 10,644 31,189 27,725 ------------- ------------- ------------- ------------- Income before interest charges......... 77,641 172,941 314,301 475,760 ------------- ------------- ------------- ------------- Interest Charges: Interest on long-term debt................... 71,156 78,692 214,229 239,271 Other interest............................... (55) 1,981 8,539 4,753 Deferred nuclear plants return--borrowed funds..................................... (3,141) (5,827) (11,976) (17,476) ------------- ------------- ------------- ------------- Interest charges, net.................. 67,960 74,846 210,792 226,548 ------------- ------------- ------------- ------------- Income after interest charges........... 9,681 98,095 103,509 249,212 Preferred Dividends of Subsidiaries............ 8,648 8,569 25,308 31,004 ------------- ------------- ------------- ------------- Net Income..................................... $ 1,033 $ 89,526 $ 78,201 $ 218,208 ============= ============= ============= ============= Earnings Per Common Share...................... $ 0.01 $ 0.71 $ 0.61 $ 1.74 ============= ============= ============= ============= Common Shares Outstanding (average)............ 128,086,873 126,412,303 127,832,699 125,769,477 ============= ============= ============= =============
See accompanying notes to consolidated financial statements. NORTHEAST UTILITIES AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Nine Months Ended September 30, ----------------------- 1996 1995 ----------- ----------- (Thousands of Dollars) Operating Activities: Income before preferred dividends of subsidiaries......... $ 103,509 $ 249,212 Adjustments to reconcile to net cash from operating activities: Depreciation............................................ 268,704 263,016 Deferred income taxes and investment tax credits, net... 27,443 103,961 Deferred nuclear plants return, net of amortization..... (10,148) 61,084 Recoverable energy costs, net of amortization........... (8,230) (46,592) Amortization of PSNH acquisition costs.................. 42,743 41,323 Deferred cogeneration costs, net of amortization........ 15,483 (49,068) Deferred demand-side-management costs, net of amortization............................ 33,845 7,880 Deferred nuclear refueling outage, net of amortization.. 40,954 (19,973) Nuclear compliance reserves, net........................ 40,006 - Other sources of cash................................... 164,921 159,285 Other uses of cash...................................... (40,288) (37,800) Changes in working capital: Receivables and accrued utility revenues................ 49,234 13,926 Fuel, materials, and supplies........................... (2,461) (17,437) Accounts payable........................................ (29,382) (53,799) Accrued taxes........................................... (8,468) 66,389 Other working capital (excludes cash)................... (19,177) (13,390) ----------- ----------- Net cash flows from operating activities.................... 668,688 728,017 ----------- ----------- Financing Activities: Issuance of common shares................................. 10,622 21,462 Issuance of long-term debt................................ 222,100 - Issuance of Monthly Income Preferred Securities..................................... - 100,000 Net decrease in short-term debt........................... (84,000) (122,500) Reacquisitions and retirements of long-term debt.......... (209,914) (139,227) Reacquisitions and retirements of preferred stock......... (1,500) (133,175) Cash dividends on preferred stock......................... (25,308) (31,004) Cash dividends on common shares........................... (144,200) (165,876) ----------- ----------- Net cash flows used for financing activities................ (232,200) (470,320) ----------- ----------- Investment Activities: Investment in plant: Electric and other utility plant........................ (161,704) (168,772) Nuclear fuel............................................ (1,453) (11,681) ----------- ----------- Net cash flows used for investments in plant.............. (163,157) (180,453) Investments in nuclear decommissioning trusts............. (47,211) (46,832) Other investment activities, net.......................... (16,215) (23,945) ----------- ----------- Net cash flows used for investments......................... (226,583) (251,230) ----------- ----------- Net Increase In Cash For The Period......................... 209,905 6,467 Cash and cash equivalents - beginning of period............. 29,038 27,126 ----------- ----------- Cash and cash equivalents - end of period................... $ 238,943 $ 33,593 =========== ===========
See accompanying notes to consolidated financial statements. NORTHEAST UTILITIES AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A. Presentation The accompanying unaudited consolidated financial statements should be read in conjunction with Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) in this Form 10- Q, the Annual Report of Northeast Utilities (the company or NU) on Form 10-K for the year ended December 31, 1995 (1995 Form 10-K), the company's Form 10-Qs for the quarters ended March 31, 1996 and June 30, 1996, and the company's Form 8-Ks dated January 31, 1996, March 30, 1996, April 15, 1996, June 3, 1996, June 18, 1996, June 28, 1996, July 22, 1996, and August 19, 1996. In the opinion of the company, the accompanying financial statements contain all adjustments necessary to present fairly the financial position as of September 30, 1996, the results of operations for the three-month and nine-month periods ended September 30, 1996 and 1995, and the statements of cash flows for the nine-month periods ended September 30, 1996 and 1995. All adjustments are of a normal, recurring, nature except those described below in Note 8B. The results of operations for the three- month and nine-month periods ended September 30, 1996 and 1995 are not necessarily indicative of the results expected for a full year. Certain reclassifications of prior period data have been made to conform with the current period presentation. NU is the parent company of the Northeast Utilities system (the system). The system furnishes retail electric service in Connecticut, New Hampshire, and western Massachusetts through four wholly owned subsidiaries, The Connecticut Light and Power Company (CL&P), Public Service Company of New Hampshire (PSNH), Western Massachusetts Electric Company (WMECO), and Holyoke Water Power Company. A fifth wholly owned subsidiary, North Atlantic Energy Corporation (NAEC), sells all of its entitlement to the capacity and output of the Seabrook nuclear power plant to PSNH. In addition to its retail electric service, the system furnishes firm and other wholesale electric services to various municipalities and other utilities. The system serves about 30 percent of New England's electric needs and is one of the 20 largest electric utility systems in the country as measured by revenues. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. B. Cash and Cash Equivalents Cash and cash equivalents includes cash on hand and short-term cash investments which are highly liquid in nature and have original maturities of three months or less. 2. NEW ACCOUNTING STANDARD The Financial Accounting Standards Board (FASB) has issued Statement of Financial Accounting Standards (SFAS) 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," which establishes accounting standards for evaluating and recording asset impairment. The company adopted SFAS 121 as of January 1, 1996. SFAS 121 requires the evaluation of long-lived assets for impairment when certain events occur or when conditions exist that indicate the carrying amounts of assets may not be recoverable. Based on the current regulatory environment in the system's service areas, as of September 30, 1996, SFAS 121 did not have a material impact on the company's financial position or results of operations. This conclusion may change in the future as competitive factors influence wholesale and retail pricing in the electric utility industry or if the cost-of-service based regulatory structure were to change. For further information, see the MD&A in this Form 10-Q, NU's Form 8-K dated August 19, 1996, NU's Form 10-Qs for the quarters ended March 31, 1996 and June 30, 1996, and NU's 1995 Form 10- K. 3. REGULATORY ASSETS - RECOVERABLE ENERGY COSTS On October 8, 1996, the Connecticut Department of Public Utility Control issued its final order establishing an Energy Adjustment Clause (EAC) effective January 1, 1997. The EAC will replace CL&P's existing Fuel Adjustment Clause and the Generation Utilization Adjustment Clause. For further information regarding CL&P's recoverable energy costs see the MD&A and Note 8B in this Form 10-Q, NU's Form 8-K dated August 19, 1996, NU's Form 10-Qs for the quarters ended March 31, 1996 and June 30, 1996 and NU's 1995 Form 10-K. 4. SHORT-TERM DEBT For information on short-term debt, see the MD&A in this Form 10-Q, NU's Form 10-Q for the quarter ended March 31, 1996, and NU's 1995 Form 10-K. 5. ACCOUNTS RECEIVABLE SECURITIZATION PROGRAM On September 13, 1996, WMECO entered into an agreement to sell fractional undivided percentage receivable interests in WMECO's eligible billed and unbilled accounts receivable. The amount of receivables sold at any one time will not exceed $40 million plus limited reserves for losses. To the extent actual loss experience of the pool receivables exceeds the loss reserves, the purchaser will absorb the excess. WMECO has retained collection and servicing responsibilities as agent for the purchaser. As of November 12, 1996, no receivables had been sold under this agreement. The FASB has issued SFAS 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities," which establishes, in part, accounting standards for the accounting and recognition of transfers of financial assets. SFAS 125 will be effective for transfers and servicing of financial assets occurring after December 31, 1996 and will be applied prospectively. Under the terms of its receivables financing agreement, WMECO is obligated to restructure its existing arrangement to, in effect, satisfy the requirements of SFAS 125 and obtain certain regulatory approvals, or waiver thereof, by February 1, 1997 or the arrangement will terminate. For information on CL&P's accounts receivable securitization program entered into on July 11, 1996, see NU's Form 10-Q for the quarter ended June 30, 1996. This program is also being restructured to satisfy the conditions of SFAS 125. 6. DERIVATIVE FINANCIAL INSTRUMENTS Fuel Swaps: As of September 30, 1996, CL&P had outstanding fuel-swap contracts with a total notional value of approximately $227.3 million, and a negative mark-to-market position of approximately $12.7 million. Interest-Rate Swaps: As of September 30, 1996, NAEC had outstanding interest-rate swap agreements with a total notional value of approximately $225 million and a positive mark-to-market position of approximately $3.9 million. These swap agreements have been made with various financial institutions, each of which is rated "BBB+" or better by Standard & Poor's rating group. CL&P and NAEC are exposed to credit risk on fuel swaps and interest-rate swaps if the counterparties fail to perform their obligations. However, CL&P and NAEC anticipate that the counterparties will be able to fully satisfy their obligations under the contracts. For further information on derivative financial instruments, see the MD&A in this Form 10-Q, NU's Form 10-Qs for the quarters ended March 31, 1996 and June 30, 1996, and NU's 1995 Form 10-K. 7. NUCLEAR DECOMMISSIONING For information regarding nuclear decommissioning, see NU's Form 10-Q for the quarter ended March 31, 1996 and NU's 1995 Form 10-K. For information regarding the possible closure and decommissioning of Connecticut Yankee (CY), see Note 8B in this Form 10-Q. 8. COMMITMENTS AND CONTINGENCIES A. Construction Program: For information regarding NU's construction program, see NU's 1995 Form 10-K. B. Nuclear Performance: Millstone: NU has previously disclosed in its 1995 Form 10-K, its Form 10-Qs for the quarters ended March 31, 1996 and June 30, 1996, and its Form 8-Ks dated January 31, 1996, March 30, 1996, April 15, 1996, June 3, 1996, June 18, 1996, June 28, 1996, July 22, 1996, and August 19, 1996 that, among other things: (i) the Millstone nuclear units have been placed on the Nuclear Regulatory Commission's (NRC) watch list, (ii) the three Millstone units are currently out of service, (iii) the company is currently restructuring its nuclear organization and developing operational readiness plans, and (iv) the company is currently incurring substantial costs, including replacement power costs, while the three Millstone units are not operating. Management cannot predict when the NRC will allow any of the Millstone units to return to service and thus cannot estimate the total replacement power costs the companies will ultimately incur. Management now estimates NU will expense approximately $147 million of incremental non-fuel nuclear operation and maintenance costs in 1996. Approximately $108 million of the $147 million was expensed in the first three quarters of 1996; $87 million for CL&P, $20 million for WMECO, and $1 million for PSNH. It is likely this estimate will rise as NU and the NRC identify additional issues that need to be resolved. The recovery of fuel, purchased power, and other outage-related costs is subject to prudence reviews in Connecticut, Massachusetts, and New Hampshire. While it is too early to estimate the total amount of such costs or the results of any prudence reviews, management believes that there is significant exposure to non-recovery of a material amount of such costs. For further information, see the Securities and Exchange Commission's filings referenced above, the MD&A, and Part II, Item 5 in this Form 10-Q. Connecticut Yankee: On October 9, 1996, Connecticut Yankee Atomic Power Company (CYAPC), which owns and operates the CY nuclear generating unit, announced that a permanent shutdown of the unit seems likely based on an economic analysis of the costs of operating the unit compared to the costs of closing the unit and incurring replacement power costs over the remaining period of the unit's NRC operating license. The final decision is pending a vote by CYAPC's board of directors which is expected to occur in the fourth quarter of 1996. The NU system has a 49 percent equity investment, approximating $52 million, in CYAPC and relies on CYAPC for approximately 3.5 percent of its system capacity. The preliminary estimate of the sum of future payments for the closing, decommissioning, and recovery of the remaining investment in CY, assuming permanent shut down, is approximately $797 million. The NU system's share of these remaining estimated costs is approximately $391 million. The contracts under which CL&P, WMECO, and PSNH purchase their entitlement of CYAPC power permit CYAPC to recover these costs from CL&P, WMECO, and PSNH. Should CYAPC board's decision result in permanent closure of CY, CYAPC expects to file updated decommissioning costs and certain amendments to its power contracts with the Federal Energy Regulatory Commission (FERC). Based upon regulatory precedent, CYAPC believes it will continue to collect from its power purchasers, including CL&P, WMECO, and PSNH, its decommissioning costs, the owners' unrecovered investments in CYAPC and other costs associated with the permanent closure of the unit over the remaining period of the unit's NRC operating license, which expires in 2007. Management expects that CL&P, WMECO, and PSNH will continue to be allowed to recover such FERC-approved costs from their customers. For further information regarding CY, see the MD&A in this Form 10-Q, NU's Form 10-Qs for the quarters ended March 31, 1996 and June 30, 1996, and NU's Form 8-Ks dated June 3, 1996, July 22, 1996, and August 19, 1996. C. Environmental Matters: For information regarding environmental matters, see NU's 1995 Form 10-K. D. Nuclear Insurance Contingencies: For information regarding nuclear insurance contingencies, see NU's 1995 Form 10-K. E. Long-Term Contractual Arrangements: For information regarding long- term contractual arrangements, see NU's 1995 Form 10-K. F. Class Action Suit: For information regarding the class action suit that was filed against NU on July 3, 1996, see Part II, Item 1. Legal Proceedings in NU's Form 10-Q for the quarter ended June 30, 1996. 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, 1996, and the related consolidated statements of income for the three and nine-month periods ended September 30, 1996 and 1995, and the consolidated statements of cash flows for the nine-month periods ended September 30, 1996 and 1995. 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. \s\ Arthur Andersen LLP Arthur Andersen LLP Hartford, Connecticut November 12 , 1996 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 and Subsidiaries' (NU or the system) financial condition and the principal factors having an impact on the results of operations. This discussion should be read in conjunction with NU's consolidated financial statements and footnotes in this Form 10-Q, the 1995 Form 10-K, the First and Second Quarter 1996 Form 10-Qs, and the Form 8-Ks dated January 31, 1996, March 30, 1996, April 15, 1996, June 3, 1996, June 18, 1996, June 28, 1996, July 22, 1996, and August 19, 1996. FINANCIAL CONDITION Overview Earnings per common share were $0.01 for the three months ended September 30, 1996, a decrease of $0.70 from the same period in 1995, and $0.61 for the nine months ended September 30, 1996, a decrease of $1.13 from the same period in 1995. The earnings for the three- and nine-month periods were lower primarily due to higher operating costs and reserves related to the outages at the Millstone units, the impact of The Connecticut Light and Power Company's (CL&P) approved rate settlement agreement, costs associated with meeting summer 1996 capacity requirements, lower 1996 CL&P cogeneration deferrals, and one-time tax benefits recognized in 1995. These decreases were partially offset by lower amortization of Millstone 3 phase-in costs and lower 1996 interest expense. In addition, the nine-month decrease in earnings was partially offset by higher retail sales in 1996. NU expects to continue incurring substantial costs during the remainder of 1996 as a result of the Millstone outages, which could result in a loss for the fourth quarter. A key factor affecting 1996 earnings will be the level of costs expended to address Nuclear Regulatory Commission (NRC) concerns and the replacement-power costs incurred to serve the system's customers in the absence of energy from the Millstone units. Management currently estimates that it will expense about $147 million of incremental non-fuel operation and maintenance costs in 1996, approximately $108 million of which were expensed during the first nine months of 1996, including a reserve for future costs of $40 million. It is likely that these costs will rise as NU and the NRC identify additional issues that need to be resolved. Monthly replacement-power costs for NU system companies attributable to the nuclear outages average approximately $30 million. The NU Board of Trustees (the Board) evaluates the dividend on NU's common shares quarterly. At its October 22, 1996 meeting, the Board declared a $0.25 per quarter common dividend, payable on December 31, 1996, to holders of record on December 1, 1996. For further information on NU's dividend, see NU's Form 8-K dated July 22, 1996. Millstone Outages NU has a 100-percent ownership interest in Millstone 1 and 2 and a 68-percent ownership interest in Millstone 3. Millstone units 1, 2, and 3 (Millstone) have been out-of-service since November 4, 1995, February 21, 1996, and March 30, 1996, respectively. For further information on the current Millstone outages see NU's 1995 Form 10- K, Form 8-Ks dated January 31, 1996, March 30, 1996, June 3, 1996, June 18, 1996, June 28, 1996, July 22, 1996, and August 19, 1996, and the First and Second Quarter 1996 Form 10-Qs. On October 18, 1996, the NRC announced that it will establish a Special Projects Office to oversee inspection and licensing activities at Millstone. The Special Projects Office will be responsible for (1) licensing and inspection activities at NU's Connecticut plants; (2) oversight of the Independent Corrective Action Verification Program; (3) oversight of NU's corrective actions related to safety issues involving employee concerns; and (4) inspections necessary to implement NRC oversight of the plants' restart activities. Management believes that this development should provide dedicated NRC resources and clearer lines of communication between NU and the NRC during the recovery process. On October 24, 1996, the NRC issued an order to Northeast Nuclear Energy Company (NNECO), a wholly-owned subsidiary of NU that operates Millstone, that requires NNECO to devise and implement a comprehensive plan within 60 days of this order for handling safety concerns raised by Millstone employees and for assuring an environment free from retaliation and discrimination. The NRC also ordered NNECO to contract for an independent third party to oversee this corrective action plan within 30 days of the date of this order. The members of the independent third-party organization must not have had any direct previous involvement with activities at Millstone and must be approved by the NRC. Oversight by the third-party group will continue until NNECO demonstrates, by performance, that the conditions leading to this order have been corrected. Management cannot presently estimate the effect these efforts will have on the timing of unit restarts or what additional costs, if any, these developments may cause. Seabrook NU has a 40-percent ownership interest in the Seabrook nuclear power plant (Seabrook) which is operated by North Atlantic Energy Service Corporation (NAESCO), a wholly-owned subsidiary of NU. Seabrook 1 operated at a capacity factor of 95.7 percent through September 1996, as compared to 92.8 percent for the same period in 1995. On October 9, 1996, the NRC issued a request for information concerning all nuclear plants in the United States, except the three Millstone units, which had previously received such requests. Such information will be used to verify that these facilities are being operated and maintained in accordance with NRC regulations and the unit's specific licenses. The NRC has indicated that the information, which must be submitted within 120 days of the date of the request, will be used to determine whether future inspection or enforcement activities are warranted for any plant. NAESCO is currently preparing its response to the NRC's request, with respect to Seabrook. Seabrook's operations were not restricted by the request. The NRC's April 1996 inspection found Seabrook to be a well-operated facility without any major safety issues or weaknesses and noted that it would reduce its future inspections in a number of areas as a result of its findings. Connecticut Yankee NU has a 49-percent ownership interest in the Connecticut Yankee Atomic Power Company (CYAPC) which owns and operates the Connecticut Yankee nuclear power plant (CY or the plant). CY has been out-of-service since July 22, 1996. For further information on CY, see NU's Form 8-Ks dated June 3, 1996, July 22, 1996, and August 19, 1996, the First and Second Quarter 1996 Form 10-Qs, and Note 8b - Commitments and Contingencies - Nuclear Performance - Connecticut Yankee - of the Notes to Consolidated Financial Statements in this Form 10-Q. On October 9, 1996, CYAPC announced that a permanent shutdown of the plant seems likely based on an economic analysis of the costs of operating the plant compared to the costs of closing the plant and incurring replacement power costs over the remaining period of the plant's NRC operating license. The final decision is pending a vote by CYAPC's Board of Directors (CYAPC Board) which is expected to occur in the fourth quarter of 1996. The NU system relies on its entitlements in CY for approximately 3.5 percent of its system capacity. The contracts under which CL&P, Western Massachusetts Electric Company (WMECO), and Public Service Company of New Hampshire (PSNH) purchase their entitlements of CYAPC power permit CYAPC to recover these costs from CL&P, WMECO, and PSNH. Should the CYAPC Board's decision result in permanent closure of CY, CYAPC expects to file updated decommissioning costs and certain amendments to its power contracts with the Federal Energy Regulatory Commission (FERC). Based upon regulatory precedent, CYAPC believes it will continue to collect from its power purchasers, including CL&P, WMECO, and PSNH, its decommissioning costs, the owners' unrecovered investments in CYAPC, and other costs associated with the permanent closure of the plant over the remaining period of the plant's NRC operating license, which expires in 2007. Management expects that CL&P, WMECO, and PSNH will continue to be allowed to recover such FERC-approved costs from their customers. Capacity Assuming normal weather conditions, management expects that the NU system will have sufficient capacity to meet peak load demands even if CY and Millstone are not operational at any time during the 1996-1997 winter season and the 1997 summer season, so long as the remaining generating units in Connecticut and the New England region have normal operability. If high levels of unplanned outages of the remaining units were to occur due to sustained operation during prolonged periods of extreme weather, coincident with peak load demand, NU and the other Connecticut utilities may have to resort to operating procedures designed to reduce customer demand. Rate Matters Connecticut On October 3, 1996, the Connecticut Department of Public Utility Control (DPUC) issued a final procedural order confirming that prudence hearings on the current nuclear outages would be delayed until the nuclear plants have returned to service. CL&P will not be permitted to collect the associated replacement power costs until prudence issues have been resolved. For further information on the matter see NU's Form 8-K dated August 19, 1996. On October 8, 1996, the DPUC issued its final order establishing an Energy Adjustment Clause (EAC) in place of CL&P's existing Fuel Adjustment Clause and Generation Utilization Adjustment Clause (GUAC). The EAC will take effect on January 1, 1997. The EAC is designed to calculate the difference between actual fuel costs and the fuel revenue collected through base rates. The order establishes a six-month EAC billing period. The EAC includes an incentive mechanism which disallows recovery of the first $9 million in fuel costs that exceeds base levels and permits CL&P to retain the first $9 million in fuel cost savings. The EAC also designates a 60 percent nuclear capacity factor floor. When the six-month nuclear capacity factor falls below 60 percent, related energy costs are deferred to the subsequent EAC period for consideration for recovery. Finally, the costs to serve nonfirm wholesale transactions will continue to be neutralized through the EAC. New Hampshire The New Hampshire legislature has enacted legislation calling for restructuring of the electric utility industry to provide customer choice of retail energy supplier not later than July 1, 1998. On September 10, 1996, the New Hampshire Public Utilities Commission (NHPUC) issued its Preliminary Plan (the Plan) to implement this law. Under the Plan, utilities with rates above the regional average would be allowed to recover a smaller amount of stranded costs than other utilities. PSNH's rates are well above the regional average as a result of mandated purchases from qualifying facilities under the Public Utilities Regulatory Policies Act and state law, and also as a result of the resolution of PSNH's bankruptcy and assets created by the Rate Agreement that was entered into by NU and the State of New Hampshire (Rate Agreement). On October 18, 1996, PSNH filed its initial comments on the Plan, stating, in part, that the Plan failed to take into consideration the contractual commitments of the State of New Hampshire under the Rate Agreement. If the Plan is implemented in substantially its present form by the NHPUC on February 28, 1997 (the date established by the restructuring legislation), the State would be in breach of its Rate Agreement obligations by failing to authorize a compensatory interim stranded cost recovery charge for PSNH. In the event of such final action on the Plan by the NHPUC and if the State is able to avoid its obligations under the Rate Agreement, NU and PSNH would be exposed to the risk that they would not recover a substantial amount of their potentially strandable investments associated with the resolution of PSNH's bankruptcy, which could have a material adverse impact on their financial position and results of operations. Management has evaluated the potential effects of the Plan in accordance with Statement of Financial Accounting Standards 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of. Management believes that the recovery of PSNH's potentially strandable assets through future revenues remains probable based on the Rate Agreement. For further information on New Hampshire rate and restructuring issues, see NU's 1995 Form 10-K, Second Quarter 1996 Form 10-Q and Form 8-Ks dated June 3, 1996 and August 19, 1996. Massachusetts On August 30, 1996, the Massachusetts Department of Public Utilities (DPU) approved a settlement agreement between WMECO and the Massachusetts Attorney General to maintain WMECO's Fuel Adjustment Charge (FAC) at its August 1996 level through February 1997. The settlement also provides that WMECO will not seek carrying charges on any deferred fuel costs incurred as a result of maintaining the FAC at the agreed-upon level. In accepting the settlement, the DPU deferred any inquiry into WMECO's fuel expenses, including replacement power fuel expenses related to the Millstone outages. Liquidity And Capital Resources Cash provided from operations decreased approximately $59 million in the first nine months of 1996, from 1995, primarily due to higher cash operating costs related to the nuclear outages and costs associated with meeting summer capacity requirements, partially offset by higher retail sales. Net cash used for financing activities decreased approximately $238 million primarily due to lower reacquisitions and retirements of long-term debt and preferred stock, higher issuances of long-term debt, lower cash dividends on common shares, and lower repayment of short-term debt. Cash used for investments decreased approximately $25 million primarily due to lower nuclear fuel expenditures and lower investments in nonutility generation projects. On October 8, 1996, Moody's Investors Service (Moody's) downgraded the senior securities of NU, CL&P, WMECO, the Niantic Bay Fuel Trust (NBFT), and CYAPC for the second time since May 1996. Standard & Poor's Ratings Group (S&P) downgraded the senior securities of NU, CL&P, and NBFT on October 11, 1996. S&P and Moody's also lowered the commercial paper ratings for CL&P and NBFT to A-3/P-3, increasing the difficulty for the NU system to market commercial paper. All NU system company securities remain on S&P's CreditWatch. The system companies have taken various actions to ensure that they will have access to adequate cash resources, at reasonable cost, even if the nuclear outages extend significantly longer, or the associated costs are significantly greater, than management currently foresees. These actions have contributed to a net increase in cash of approximately $205 million. CL&P completed a $62 million tax-exempt debt issue in May 1996 and issued $160 million of first-mortgage bonds in June 1996. The net proceeds from the issuance of CL&P's first mortgage bonds, plus funds from other sources, will be used to repay approximately $193 million of CL&P's first-mortgage bonds that are due on April 1, 1997. Additionally, CL&P established a facility under which it may sell, from time to time, up to $200 million of fractional interests in its billed and unbilled accounts receivable, with limited recourse. This facility has not been used to date. On September 13, 1996, WMECO established a facility under which it may sell, from time to time, up to $40 million of fractional interests in its billed and unbilled accounts receivable, with limited recourse. This facility has not been used to date. Under the current revolving credit agreements (the Current Credit Agreements), $342.5 million of short-term borrowing capacity is available to the participating NU system companies. The Current Credit Agreements are scheduled to be decreased to $257 million on November 27, 1996, when one-fourth of the borrowing capacity expires. NU, CL&P, and WMECO expect to enter into a new three-year revolving credit agreement (the New Credit Agreement) in mid-November 1996 with a group of banks. Under the New Credit Agreement, NU will be able to borrow on a revolving basis up to $150 million, CL&P will be able to borrow up to $315 million, and WMECO will be able to borrow up to $150 million, subject to a total borrowing limit of $315 million for all three borrowers. Once the New Credit Agreement becomes effective, the Current Credit Agreement will be reduced to $57 million. More than $400 million of short-term borrowing capacity will be available in the aggregate to NU, CL&P, and WMECO under: the New Credit Agreement ($315 million); the Current Credit Agreements that will remain in effect after the New Credit Agreement becomes effective ($57 million in the aggregate); and informal uncommitted credit lines with individual banks (approximately $40 million as of November 15, 1996). In connection with the arrangement of the New Credit Agreement, NU, CL&P, and WMECO received authority from the Securities and Exchange Commission to borrow up to $200 million, $375 million, and $150 million, respectively, on a short- term basis. Those limits are higher than the previous limits of $150 million, $325 million, and $60 million, respectively. For further information on short-term debt, see NU's First Quarter 1996 Form 10- Q and NU's 1995 Form 10-K. The Board's July 22, 1996 decision to reduce NU's common dividend from $0.44 to $0.25 per share quarterly will conserve cash at the rate of approximately $100 million annually, if continued at the new level. Management considers the new dividend level to be sustainable in a range of scenarios. CL&P has entered into fuel-swap agreements to reduce a portion of the fuel-price risk associated with its long-term negotiated energy contracts. North Atlantic Energy Corporation (NAEC) has entered into interest-rate swap agreements to reduce interest-rate risk associated with its $225 million variable-rate bank note. These swaps are not used for trading purposes. The differential paid or received as fuel prices or interest rates change is recognized in income when realized. As of September 30, 1996, CL&P and NAEC had outstanding swap agreements with a total notional value of approximately $227.3 and $225 million, respectively. The settlement amounts associated with the swaps increased earnings by approximately $5.6 million for CL&P and increased interest expense by approximately $0.8 million for NAEC during the first nine months of 1996. CL&P's fuel swaps seek to minimize exposure associated with rising fuel prices and effectively fix the cost of fuel and profitability of certain of its long- term negotiated contract sales. NAEC's interest-rate swap agreements effectively fix its variable-rate bank note at 7.05 percent. RESULTS OF OPERATIONS Income Statement Variances Millions of Dollars Increase/(Decrease) Third Year- Quarter Percent to-Date Percent Operating revenues $(30) (3)% $ 85 3% Fuel, purchased and net interchange power 65 27 139 20 Other operation 22 9 132 9 Maintenance 35 50 85 43 Amortization of regulatory assets, net 5 15 (15) (16) Federal and state income taxes (61) (81) (94) (49) Other income, net 3 87 16 (a) Deferred nuclear plants return (4) (45) (9) (32) Interest on long-term debt (8) (10) (25) (10) Preferred dividends of subsidiaries 0 0 (6) (18) Net income (88) (99) (140) (64) (a) Percentage greater than 100 Comparison of the Third Quarter of 1996 with the Third Quarter of 1995 Total operating revenues decreased due to lower fuel recoveries and lower retail sales, partially offset by higher recognition of reimbursable conservation services ($11 million). Fuel recoveries decreased $32 million primarily due to lower Fuel and Purchased Power Adjustment Clause (FPPAC) revenues for PSNH as a result of a customer refund ordered by the NHPUC and lower average fossil fuel prices. Retail sales decreased 0.9 percent ($7 million) primarily due to milder weather in 1996, partially offset by modest economic growth in 1996. Fuel, purchased, and net interchange power expense increased primarily due to higher energy costs in 1996 due to the nuclear outages. Other operation and maintenance expense increased primarily due to higher costs associated with the nuclear outages ($23 million) and 1996 costs associated with meeting summer capacity requirements ($10 million). In addition, these costs reflect higher office equipment expenses, higher recognition of reimbursable conservation expenses, and higher 1996 demand-side-management costs. Amortization of regulatory assets, net increased primarily due to higher amortizations as a result of the 1996 CL&P Settlement ($15 million), lower 1996 CL&P cogeneration deferrals, and higher 1996 amortization of previously deferred CL&P cogeneration costs ($20 million), partially offset by the completion of CL&P's and WMECO's amortizations of Millstone 3 phase-in costs in 1995 ($24 million). Federal and state income taxes decreased primarily due to lower book taxable income, partially offset by a one-time tax benefit in 1995 as a result of the expiration of the federal statute of limitations for 1991. Interest on long-term debt decreased primarily due to lower average interest rates as a result of refinancing activities and lower average 1996 debt levels. Comparison of the First Nine Months of 1996 with the First Nine Months of 1995 Total operating revenues increased due to higher retail sales, regulatory decisions, higher fuel recoveries, and higher recognition in 1996 of reimbursable conservation services ($22 million), partially offset by lower wholesale revenues. Retail sales increased 2.5 percent ($45 million), primarily due to modest economic growth in 1996. Regulatory decisions increased revenues by $18 million primarily due to the mid-1995 retail-rate increase for CL&P and the June 1, 1995 and 1996 retail-rate increases for PSNH, partially offset by 1996 reserves for CL&P over-recoveries of demand-side-management costs. Fuel recoveries increased $10 million primarily due to higher base fuel revenues for PSNH as result of higher sales, the recovery of GUAC costs for CL&P and higher outside energy costs, partially offset by lower FPPAC revenues for PSNH as result of a customer refund ordered by the NHPUC. Wholesale revenues decreased $12 million primarily due to higher recognition in 1995 of lump-sum payments for termination of a CL&P long-term contract and the expiration in 1995, of some capacity sales contracts. Fuel, purchased, and net interchange power expense increased primarily due to higher energy costs in 1996 due to the nuclear outages and the write-off of GUAC balances under the 1996 CL&P Settlement, partially offset by lower nuclear generation. Other operation and maintenance expense increased primarily due to higher costs associated with the nuclear outages ($108 million, including $40 million of reserves for future costs) and 1996 costs associated with meeting summer capacity requirements ($31 million). In addition, these costs reflect higher recognition of postretirement benefit costs, higher office equipment expenses, higher recognition of reimbursable conservation expenses, and higher demand- side-management costs, partially offset by lower 1996 charges from the regional nuclear generating units. Amortization of regulatory assets, net decreased primarily due to the completion of CL&P's and WMECO's amortizations of Millstone 3 phase-in costs in 1995 ($79 million), partially offset by lower 1996 CL&P cogeneration deferrals and higher 1996 amortization of previously deferred cogeneration costs ($52 million), and higher amortizations as a result of the 1996 CL&P Settlement ($15 million). Federal and state income taxes decreased primarily due to lower book taxable income, partially offset by tax benefits from a favorable tax ruling recognized during the first quarter of 1995 and the expiration of the federal statute of limitations for 1991, recognized during the third quarter of 1995. Other income, net increased primarily due to the deferral of the PSNH interest expense associated with an FPPAC refund, the 1995 write-down of CL&P's wholesale investment in Millstone 3, a 1995 increase to the environmental reserve, and higher interest income due to higher temporary cash investments in 1996. Deferred nuclear plants return decreased primarily due to additional Seabrook investment being phased into rates, partially offset by a one-time adjustment to NAEC's Seabrook deferred return of $5 million in June 1995. Interest on long-term debt decreased primarily due to lower average interest rates as a result of refinancing activities and lower average 1996 debt levels. Preferred dividends decreased primarily due to a 1995 charge to earnings for premiums on redeemed preferred stock and a reduction in preferred stock levels. PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS 1. In January 1992, a lawsuit was filed against NU and CL&P alleging that the cancer suffered by one of the plaintiffs was caused by electric and magnetic fields (EMF) emanating from CL&P's Meadow Street substation and distribution lines. The Connecticut Superior Court granted summary judgment to NU and CL&P on two counts of the five count complaint. Following the summary judgment, the plaintiffs withdrew the remaining three counts. On September 6, 1996, the plaintiffs filed an appeal of the summary judgment on only one of the two counts in the Connecticut Appellate Court for the District of New Haven. For additional information on litigation relating to EMF, see "Item 3. Legal Proceedings" in NU's 1995 Form 10-K. ITEM 5. OTHER INFORMATION 1. The NRC's Office of Investigations (OI) has been examining various matters at Millstone and CY, including but not limited to procedural and technical compliance matters and employee concerns. One of these matters has been referred, and others may be referred, to the Office of the U. S. Attorney for the District of Connecticut (U. S. Attorney) for possible criminal prosecution. The referred matter concerns full core off-load procedures and related matters at Millstone. The U. S. Attorney is also reviewing possible criminal violations arising out of certain of NU's other activities at Millstone and CY, including the 1996 nuclear workforce reduction. The U. S. Attorney, together with the U. S. Environmental Protection Agency and the Connecticut Attorney General, is also investigating possible criminal violations of federal and state environmental laws at certain NU facilities, including Millstone. Management does not believe that any system company or officer has engaged in conduct that would warrant a federal criminal prosecution. NU intends to fully cooperate with the OI and the U.S. Attorney in their ongoing investigations. For more information regarding the full core off-load matter, see "Part II. Other Information" in NU's Form 10-Q for the quarter ended March 31, 1996. For more information regarding NU's 1996 nuclear workforce reduction and the NRC's review thereof, see NU's 1995 Form 10-K. For more information regarding the investigation of environmental matters at Millstone, see "Part II. Other Information" in NU's Form 10-Q for the quarter ended June 30, 1996. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Listing of Exhibits: Exhibit Number Description 10 Material Contract 15 Letter regarding unaudited financial information 27 Financial Data Schedule (b) Reports on Form 8-K: 1. NU filed a Form 8-K dated August 19, 1996 disclosing that: * A Connecticut court ruled that the Town of Haddam had over- assessed the CY nuclear power plant. * NU appointed Bruce Kenyon as President and CEO of NU's nuclear operations and Mr. Kenyon is in the process of implementing a nuclear management reorganization. NU's three Millstone units continue to be out of service and management is continuing its efforts to bring the units on-line. * Moody's Investor Service has placed all of the NU system securities under review for possible downgrades. * The DPUC issued a draft decision proposing to replace CL&P's two existing energy recovery mechanisms with an EAC. * The NHPUC has issued a preliminary plan to restructure the state's electric industry, including PSNH. * PSNH has notified the State of New Hampshire that the state is in breach of its obligations under the Rate Agreement. 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 12, 1996 By: /s/ Bernard M. Fox Bernard M. Fox Chairman, President, and Chief Executive Officer Date November 12, 1996 By: /s/ John J. Roman John J. Roman Vice President and Controller EX-27 2
UT 0000072741 NORTHEAST UTILITIES AND SUBSIDIARIES 1,000 9-MOS DEC-31-1995 SEP-30-1996 PER-BOOK 6,788,878 557,288 1,019,885 2,028,428 0 10,394,479 680,260 941,205 941,341 2,381,084 276,000 169,700 3,688,530 15,000 0 0 254,513 26,500 187,095 19,189 3,195,146 10,394,479 2,855,624 100,205 2,475,861 2,572,512 283,112 34,743 314,301 210,792 103,509 25,308 78,201 144,200 0 668,688 0.61 0.00
EX-10 3 CONFIDENTIAL SEPARATION AGREEMENT AND GENERAL RELEASE THIS AGREEMENT, made and entered into as of the 16th day of August, 1996, by and between Northeast Utilities Service Company, a Connecticut corporation (the Company ), with its principal office in Berlin, Connecticut, and Robert E. Busch ( Busch ). W I T N E S S E T H: WHEREAS, the Company had heretofore employed Busch as the President of its Energy Resources Group; and WHEREAS, Busch and the Company have agreed that Busch will leave employment as of August 31, 1996; and WHEREAS, the Company and Busch wish to enter into an agreement to provide for a mutual release as to claims including, without limitation, claims that might be asserted by Busch under the Age Discrimination in Employment Act, as further described herein, reaffirm Busch's right to indemnification for actions taken within the scope of his employment and provide the Company with Busch's undertaking not to compete with the Company and to keep certain information confidential; NOW, THEREFORE, in consideration of the mutual promises contained herein, the parties hereto, intending to be legally bound, hereby agree as follows: 1. The Company and Busch hereby agree that Busch's separation shall be effective on August 31, 1996 (the Separation Date ). As of August 15, 1996, Busch also resigns all officer and director positions with the Company and its subsidiaries and affiliates. 2. Notwithstanding Busch's separation, in consideration of the release provided by Busch under paragraph 6 below, the Company shall pay or cause to be paid or provided to Busch, subject to applicable employment and income tax withholdings and deductions, the following: a. Severance equal to 2 times the average of Busch's total compensation for 1995 and 1994, with 80% of such amount being paid on the 10th business day following the Separation Date and 20% being paid on January 2, 1997; b. A Target Benefit under the Company's Supplemental Executive Retirement Plan for Officers (the Supplemental Plan ) commencing on the first day of the month following Busch's attainment of age 55, calculated using Busch's actual compensation and credited service (each as defined in the Supplemental Plan), the provisional calculation formula specified in the Supplemental Plan and the actuarial reduction factors specified in the Company's Retirement Plan or, in the alternative, an amount equivalent to such Target Benefit; c. For a period of two years following the Separation Date, Busch and his spouse and eligible dependents shall be eligible for a continuation of medical coverage, as in effect at such time and as the same may be changed from time to time for employees generally, or until Busch has obtained new employment that provides comparable medical coverage, if earlier (or to receive cash in lieu of such coverage if it may not be continued or would adversely affect the tax status of the medical plan under applicable law or regulations). Upon attaining age 55, Busch and his spouse and eligible dependents shall be eligible for retiree medical coverage, as in effect at such time and as the same may be changed from time to time for retirees generally; and d. Outplacement services from Lee Hecht for a period of one year from the Separation Date; provided, however, that if Busch has not obtained new employment by the end of such period, outplacement services shall continue for an additional six months or until Busch has obtained new employment, if earlier. 3. Busch agrees and acknowledges that the Company, on a timely basis, has paid, or agreed to pay, to Busch all other amounts due and owing based on his prior services and that the Company has no obligation, contractual or otherwise to Busch, except as provided herein, nor does it have any obligation to hire, rehire or re-employ Busch in the future. Notwithstanding the foregoing, if the Company requests, Busch will provide reasonable personal services to the Company in connection with matters over which he was responsible during his employment by the Company (including, but not limited to, litigation that results from any such matter) and the Company will pay him for such personal services on a per diem basis at a rate equal to the per diem equivalent of his base salary from the Company immediately before the Separation Date as well as reimburse him for documented expenses reasonably incurred in rendering such services. 4.a. Busch agrees and recognizes that by reason of his employment by and service to the Company he has had access to certain confidential and proprietary information relating to the Company's business, which may include, but is not limited to, trade secrets, customer information, supplier information, cost and pricing information, marketing and sales techniques, strategies and programs, computer programs and software and financial information (collectively referred to as Confidential Information ). Busch acknowledges that such Confidential Information is a valuable and unique asset of the Company. Busch covenants that he will not, unless expressly authorized in writing by the Company, at any time, directly or indirectly, use any Confidential Information or divulge or disclose any Confidential Information to any person, firm or corporation, unless such information is in the public domain through no fault of Busch or except when required to do so by a court of law, by any governmental agency having supervisory authority over the business of the Company or by any administrative or legislative body (including a committee thereof) with apparent jurisdiction to order him to divulge, disclose or make accessible such information in which case Busch will inform the Company in writing promptly of such required disclosure, but in any event at least two business days prior to disclosure. All written Confidential Information (including, without limitation, in any computer or other electronic format) which came into Busch's possession during the course of his employment shall remain the property of the Company. On the Separation Date, Busch shall immediately return to the Company all written Confidential Information in his possession. b.(i) For a period of two years after the Separation Date, Busch will not, except with the prior written consent of the Company, directly or indirectly, own, manage, operate, join, control, finance or participate in the ownership, management, operation, control or financing of, or be connected as an officer, director, employee, partner, principal, agent, representative, consultant or otherwise with, or use or permit his name to be used in connection with, any business or enterprise (or division thereof, if applicable) which is engaged in any business that is competitive with any business or enterprise in which the Company or any of its subsidiaries or affiliates is engaged, anywhere within the Company's service area, as defined below, whether or not such business or enterprise is actually located within the service area. For the purposes of this paragraph, service area shall mean the geographic area within the states of Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, Ohio, Pennsylvania, Rhode Island, Vermont, Washington D.C. and West Virginia. Busch acknowledges that the listed service area is the area in which the Company, or its subsidiaries or affiliates, presently does business or is reasonably expected to do business in the near future. (ii) The foregoing restrictions shall not be construed to prohibit the ownership by Busch of less than five percent (5%) of any class of securities of any corporation which is engaged in any of the foregoing businesses having a class of securities registered pursuant to the Securities Exchange Act of 1934 (the Exchange Act ), provided that such ownership represents a passive investment and that neither Busch nor any group of persons including Busch in any way, either directly or indirectly, manages or exercises control of any such corporation, guarantees any of its financial obligations, otherwise takes any part in its business, other than exercising his rights as a shareholder, or seeks to do any of the foregoing. c. Busch further covenants and agrees that, for two years following the Sep- aration Date, he will not, directly or indirectly, (1) solicit, divert, take away, or attempt to solicit, divert or take away, any of the Company's Prin- cipal Customers, defined for the purposes hereof to include any customer of the Company, or of any of its subsidiaries or affiliates, from which $100,000 or more of annual gross revenues are derived at such time, or (2) encourage any Principal Customer to reduce its patronage of the Company. d. Busch further covenants and agrees that, for two years following the Sep- aration Date, he will not, directly or indirectly, solicit or hire, or encourage the solicitation or hiring of, any person who was a managerial or higher level employee of the Company at any time during the term of Busch's employment by the Company by any employer other than the Company for any position as an employee, independent contractor, consultant or otherwise. The foregoing covenant of Busch shall not apply to any person after 12 months have elapsed subsequent to the date on which such person's employment by the Company has terminated. 5.(a) Busch acknowledges and agrees that the restrictions contained in paragraph 4 are reasonable and necessary to protect and preserve the legitimate interests, properties, goodwill and business of the Company, that the Company would not have entered into this Agreement in the absence of such restrictions and that irreparable injury will be suffered by the Company should Busch breach any of the provisions of that paragraph. Busch further acknowledges and agrees that a breach of any of the restrictions in paragraph 4 cannot be adequately compensated by monetary damages. Busch agrees that he shall forfeit any payment or benefits due hereunder and the Company shall be entitled to preliminary and permanent injunctive relief, without the necessity of proving actual damages, as well as an equitable accounting of all earnings, profits and other benefits arising from any violation of paragraph 4, which rights shall be cumulative and in addition to any other rights or remedies to which the Company may be entitled. In the event that any of the provisions of paragraph 4 hereof should ever be adjudicated to exceed the time, geographic, service, or other limitations permitted by applicable law in any jurisdiction, it is the intention of the parties that the provision shall be amended to the extent of the maximum time, geographic, service, or other limitations permitted by applicable law, that such amendment shall apply only within the jurisdiction of the court that made such adjudication and that the provision otherwise be enforced to the maximum extent permitted by law. Busch agrees that for a period of two years following the Separation Date, he will provide, and that at all times after the date hereof the Company may similarly provide, a copy of paragraph 4 hereof to any business or enterprise (1) which he may directly or indirectly own, manage, operate, finance, join, control or participate in the ownership, management, operation, financing, or control of, or (2) with which he may be connected as an officer, director, employee, partner, principal, agent, representative, con- sultant or otherwise, or in connection with which he may use or permit his name to be used; provided, however, that this provision shall not apply after expiration of the time periods set forth therein. b. Busch irrevocably and unconditionally (1) agrees that any suit, action or other legal proceeding arising out of paragraph 4 hereof, including without limitation, any action commenced by the Company for preliminary and permanent injunctive relief and other equitable relief, may be brought in the United States District Court for the District of Connecticut, or if such court does not have jurisdiction or will not accept jurisdiction, in any court of general jurisdiction in Hartford, Connecticut, (2) consents to the non-exclusive jurisdiction of any such court in any such suit, action or proceeding, and (3) waives any objection which Busch may have to the laying of venue of any such suit, action or proceeding in any such court. Busch also irrevocably and unconditionally consents to the service of any process, pleadings, notices or other papers. 6. In full and complete settlement of any claims that Busch may have against the Company, including any possible violations of the Age Discrimination in Employment Act, 29 U.S.C. Section 621 et seq., ( ADEA ) in connection with his separation from employment, and for and in consideration of the undertakings of the Company described herein, Busch does hereby REMISE, RELEASE, AND FOREVER DISCHARGE the Company, and each of its subsidiaries and affiliates, their officers, directors, shareholders, partners, employees and agents, and their respective successors and assigns, heirs, executors and administrators (hereinafter all included within the term the Company ), of and from any and all manner of actions and causes of actions, suits, debts, claims and demands whatsoever in law or in equity, which he ever had, now has, or hereafter may have, or which Busch's heirs, executors or administrators hereafter may have, by reason of any matter, cause or thing arising from Busch's employment rela- tionship or his separation from employment, including but not limited to, any claims which have been asserted, could have been asserted, or could be asserted now or in the future under any federal, state or local laws, including any claims under ADEA, Title VII of the Civil Rights Act of 1964, as amended, 42 U.S.C. Section 2000e et seq. ( Title VII ), the Employee Retirement Income Security Act of 1974, as amended ( ERISA ), the Rehabilitation Act of 1973, the Americans with Disabilities Act, the Family and Medical Leave Act, the Energy Reorganization Act of 1974, as amended, Section 11(c) of the Occupational Safety and Health Act, and the Energy Policy Act, and any common law claims now or hereafter recognized and all claims for counsel fees and costs; provided, however, that nothing herein shall preclude Busch from joining the Company, and the Company shall defend Busch, in any action brought against him which arises out of actions taken within the scope of his employment by the Company and for which he would have been indemnified pursuant to the Declaration of Trust of Northeast Utilities as of the date hereof, unless later limited in accordance with applicable law, or under applicable law, [in which case he shall notify the Company within five business days after receiving service of process as to the commencement of the action, give the Company the right to control the defense of any such action except that Busch may retain separate counsel approved by the Company, which approval shall not be unreasonably withheld, and whose reasonable legal fees and expenses will be paid for and advanced by the Company, where (1) the Company has taken or proposes to take a position adverse or detrimental to Busch's position or interest in such action or (2) Busch's interests are, or potentially could be, separate and distinct from the interests of the other defendants who are being represented by the same counsel that the Company proposes to represent Busch]. Notwithstanding the foregoing, nothing contained herein shall prevent Busch from requiring the Company to fulfill its obligations hereunder or under any employee benefit plan, as defined in Section 3(3) of ERISA, maintained by the Company and in which Busch participated. Nothing in this Agreement shall be construed to prohibit Busch from reporting any suspected instance of illegal activity of any nature, any nuclear safety concern, any workplace safety concern, or any public safety concern to the Nuclear Regulatory Commission (NRC), the United States Department of Labor, or any other federal or state governmental agency. This Agreement shall not be construed to prohibit Mr. Busch from providing information to the NRC or to any other federal or state governmental agency or governmental officials, or testifying in any civil or criminal proceedings concerning any matter. This Agreement shall not be construed as a waiver or withdrawal of safety concerns, if any, which Mr. Busch may have reported to the NRC, or the withdrawal of participation by Mr. Busch in any NRC proceedings. 7. Except to the extent permitted by paragraph 6, Busch further agrees and covenants that neither he, nor any person, organization or other entity on his behalf, will file, charge, claim, sue or cause or permit to be filed, charged, or claimed, any action for damages, including injunctive, declaratory, monetary or other relief against the Company, involving any matter arising from Busch's employment relationship or his separation from employment, including, or involving any continuing effects of any actions or practices which may have arisen or occurred prior to the date of this Agreement in connection therewith, including any charge of discrimination under ADEA, Title VII, the Workers' Compensation Act or state or local laws. In addition, Busch further agrees and covenants that should he, or any other person, organization or entity on his behalf, file, charge, claim, sue or cause or permit to be filed, charged, or claimed, any action for damages, including injunctive, declaratory, monetary or other relief, despite his agreement not to do so hereunder, or should he otherwise fail to abide by any of the terms of this Agreement, then the Company will be relieved of all further obligations owed hereunder, he will forfeit all monies paid to him hereunder and he will pay all of the costs and expenses of the Company (including reasonable attorneys' fees) incurred in the defense of any such action or undertaking. 8. In full and complete settlement of any claims that the Company may have against Busch, other than the fulfillment of Busch's obligations hereunder and any claim described in paragraph 10 below, and for and in consideration of the undertakings of Busch described herein, the Company does hereby REMISE, RELEASE, AND FOREVER DISCHARGE Busch and his heirs, executors and administrators (hereinafter all included within the term Busch ), of and from any and all manner of actions and causes of actions, suits, debts, claims and demands whatsoever in law or in equity, which the Company ever had, now has, or hereafter may have, by reason of any civil (but specifically not any criminal act) matter, cause or thing whatsoever within the scope of Busch's employment by the Company from the beginning of Busch's employment with the Company to the date of this Agreement; and particularly, but without limitation of the foregoing general terms, any claims arising from or relating in any way to actions taken by Busch within the scope of his employment relationship and his separation from employment with the Company. 9. Except for any claim described in paragraph 10 below, the Company further agrees and covenants that neither it, nor any person, organization or other entity on its behalf, will file, charge, claim, sue or cause or permit to be filed, charged, or claimed, any action for damages, including injunctive, declaratory, monetary or other relief against Busch, involving any matter occurring at any time in the past up to the date of this Agreement, or involving any continuing effects of any actions or practices which may have arisen or occurred prior to the date of this Agreement, within the scope of his employment by the Company, so long as Busch meets all of his obligations under this Agreement. In addition, the Company further agrees and covenants that should it, or any other person, organization or entity on its behalf, file, charge, claim, sue or cause or permit to be filed, charged, or claimed, any action for damages, including injunctive, declaratory, monetary or other relief, despite its agreement not to do so hereunder, then it will pay all of the costs and expenses of Busch (including reasonable attorneys' fees) incurred in the defense of any such action or undertaking. 10. The Company expressly excepts from the provisions of paragraph 8 and 9, above, any actions, claims, suits, or other assertions against Busch which are instituted by the Company as the result of an investigation conducted upon the demand of a shareholder including but not limited to the investigation conducted upon the demand of Samuel Holtzman, or any actions instituted on behalf of the Company by shareholders, including but not limited to all such actions now pending in the courts of Connecticut and Massachusetts. 11. Busch hereby agrees and acknowledges that under this Agreement, the Company has agreed to provide him with compensation and benefits that are in addition to any amounts to which he otherwise would have been entitled in the absence of this Agreement, and that such additional compensation is sufficient to support the covenants and agreements by Busch herein. 12. Busch further agrees and acknowledges that the undertakings of the Company as provided in this Agreement are made to provide an amicable conclusion of Busch's employment by the Company and, further, that Busch will not require the Company to publicize anything to the contrary. Busch and the Company, its officers and directors, will not, disparage the name, business reputation or business practices of the other. In addition, by signing this Agreement, Busch agrees not to pursue any internal grievance with the Company. 13. Busch hereby certifies that he has read the terms of this Agreement, that he has been advised by the Company to consult with an attorney and that he understands its terms and effects. Busch acknowledges, further, that he is executing this Agreement of his own volition, without any threat, duress or coercion and with a full understanding of its terms and effects and with the intention, as expressed in paragraph 6 hereof, of releasing all claims recited herein in exchange for the consideration described herein, which he acknowledges is adequate and satisfactory to him provided the Company meets all of its obligations under this Agreement. The Company has made no representations to Busch concerning the terms or effects of this Agreement other than those contained in this Agreement. 14. Busch hereby acknowledges that he was presented with this Agreement initially on August 15, 1996, and subsequently on October 18, 1996, and that he was informed that he had the right to consider this Agreement and the release contained herein for a period of 21 days prior to execution. Busch also understands that he has the right to revoke this Agreement for a period of 7 days following execution, by giving written notice to the Company at 107 Selden Street, Berlin, CT 06037, in which event the provisions of this Agreement shall be null and void, and the parties shall have the rights, duties, obligations and remedies afforded by applicable law. 15. Busch and the Company agree that if any part of this Agreement is determined to be invalid, illegal or otherwise unenforceable, the remaining provisions of this Agreement shall not be affected and will remain in full force and effect. 16. This Agreement shall be interpreted and enforced under the laws of the State of Connecticut and shall supersede any other versions of this Agreement. 17. The obligations under this Agreement, including but not limited to the obligation under paragraph 2b hereof, shall, in the first instance, be paid and satisfied by the Company; provided, however, that the Company will cause each entity in which Northeast Utilities (or its successors or assigns) now or hereafter holds, directly or indirectly, more than a 50 percent voting interest and that has at least fifty (50) employees on its direct payroll (an Employer ) to approve and adopt this Agreement and, by such approval and adoption, to be bound by the terms hereof as though a signatory hereto. If the Company shall be dissolved or for any other reason shall fail to pay and satisfy the obligations, each individual Employer shall thereafter shall be jointly and severally liable to pay and satisfy the obligations to Busch. IN WITNESS WHEREOF, the parties hereto have executed this Agreement this 24th day of October, 1996. WITNESS NORTHEAST UTILITIES SERVICE COMPANY By: /s/ Jeanne E. Taylor By: /s/Cheryl W. Grise ---------------------- -------------------------- WITNESS ROBERT E. BUSCH By: /s/ Michelle DeSilva By: /s/Robert E. Busch ---------------------- --------------------------- EX-15 4 Exhibit 15 November 12, 1996 To Northeast Utilities: We are aware that Northeast Utilities has incorporated by reference in its Registration Statement No. 33-34622, No. 33-40156, No. 33-44814, and No. 33- 63023 its Form 10-Q for the quarter ended September 30, 1996, which includes our report dated November 12, 1996 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 or a report prepared or certified by our firm within the meaning of Sections 7 and 11 of the Act. Very truly yours, /s/ Arthur Andersen LLP Arthur Andersen LLP -----END PRIVACY-ENHANCED MESSAGE-----