ML19296A533
| ML19296A533 | |
| Person / Time | |
|---|---|
| Site: | Millstone, 05000496, 05000497  |
| Issue date: | 04/10/1979 |
| From: | NORTHEAST NUCLEAR ENERGY CO. |
| To: | |
| Shared Package | |
| ML19263D750 | List: |
| References | |
| NUDOCS 7904130224 | |
| Download: ML19296A533 (23) | |
Text
ANNUAL REPORT 1978 innrrHEAST wyg g gy UTILrriliS 7904130224
DIRECTORS WILLIAN1 B. ELLIS LELAN F. SILLIN, JR.
President, Chairman of the Board & Chief Executive Officer, Northeast Utilities Northeast Utilities WALTER F. FEE PETER N1. STERN Executive Vice President, Vice President, Northeast Utilities Service Company Northeast Utilities Service Company WARREN A. GRETEN DONALD C. SWITZER Vice President, Vice Chairman, Northtas: Utilities Service Company Northeast Utilities LEON E. N1 ACLATHl.IN, JR.
WALTER F. TORRANCE, JR.
Vice President and Chief Vice President, General Counsel &
Administrative Officer.
Assistant Secretary, Western N1assachusetts Electric Company Northeast Utilities Service Company HERBERT W. SEARS ANTHONY E. WALLACE Vice President.
Executive Vice President, Northeast Utilities Service Company Northeast Utilities Service Company OFFICERS LEI AN F. SILLIN, JR.
FRANCIS L. KINNEY Chairman and Chief Executive Utficer Vice President DONALD C. SWITZER LEONARD A. O'CONNOR Vice Chairman Vice President and Treasurer WILLIAN1 B. ELLIS HERBERT W. SEARS President Vice President WALTER F. FEE PETER N1. STERN Executive Vice President Vice President ANTHONY E. WALLACE WALTER F. TORRANCE, JR.
Executive Vice President Vice President, General Counsel &
Assistant Secretary LEON E. N1AGLATHLIN, JR.
Vice President and WARREN A. HUNT Chief Administrative Officer Controller PHilli'T. ASHTON ROBERT W. BISHOP Vice President Secretary and Assistant Clerk ALBERT G. BAER JOHN T. HICKEY Vice President Assistant Secretary WARREN F. URECHT ALu!NA A. PLUTA Vice President Clerk ROBERT S. BRON1 AGE ROY N1. SEGER Vice President Assistant Clerk WILLI AN1 G. COUNSIL ROBERTC. ARONSON Vice President Assistant Treasurer RAYN10ND E. DONOVAN DONALD G. PARDUS Vice Presioent Assistant Treasurer WARREN A. GRETEN Vice President
Western Massachusetts Electric Company N1 arch 5,1979 To The Shareholders:
The Annual Report of Northeast Ultilities, which provides coverage of the entire Northeast Utilities system, including Western N1assachusetts Electric Company, has been mailed to all WN1ECO preferred shareholders. This report is brief for that reason.
The financial statements and statistical data included in this report show the results of operations of the Company in 1978.
While the Company's earnings showed a slight improvement during 1978, they remained somewhat below the returns allowed by the DPU. Accordingly, we plan, later in 1979, to file for increased retail rates. Such rates would become effective in 1980, almost three years since the last rate increase.
Several organizational changes were made to unify the Boards of Directors and Offices of all operating companies of the Northeast Utilities system.
Donald C. Switzer was elected Vice Chairman and William B. Ellis was elected President of the Company. Other changes included the elections of Herbert W. Sears as a Director, Walter F.
Torrance, Jr. as a Director and Vice President, Walter F. Fee as Executive Vice President, Philip T.
Ashton William G. Counsil, Raymond E. Donovan and Peter N1. Stern as Vice Presidents and Robert W. Bishop as Secretary.
Four retirements were noted in 1978. Retiring as Directors were Paul H. Niehrtens after 36 years of system service and Joseph R. Ntaher after 31 years of system service. Retiring as Vice Presidents were John B. N1adigan after 38 years of service and Robert H. Pearson after 31 years of system ser-vice.
Sincerely, e
- f. Chz,' ft.
President Chairman
AU DITORS' REPORT To the Board of Directors of Western Massachusetts Electric Company:
We have examined the balance sheets of Western Massachusetts Electric Company (a Massachusetts corporation and a wholly owned subsidiary of Northeast Utilities) as of December 31,1978 and 1977, and the related statements of income, retained earnings and sources of funds for gross property additions for the years then ended. Our examination was made in accordance with generally accepted auditing standards, and accordingly included such tests of the accounting records and such other auditing procedures as we considered necessary in the circumstances.
In our opinion, the accompanying financial statements present fairly the financial position of Western Massachusetts Electric Company at December 31,1978 and 1977, and the results of its operations and the sources of funds for gross property additions for the years then ended, in conformity with generally accepted accounting principles consistently applied during the periods.
ARTHUR ANDERSEN & CO.
Hartford, Connecticut, February 14,1979.
3
Western Massachusetts Electric Company GTATEMENTS OF INCOME ar the Years Ended December 31 1978 1977 (Thousands of Dollars)
Operating Revenues
$156,031 5144 013 Operating Expenses:
Operation -
Fuel 40,203 33,576 Other 35,460 33,o79 Maintenance 9,389 8,832 Depreciation 14,200 13,868 Federal and state income taxes (Note 2) 13,620 13,327 Taxes other than income taxes 15,198 14.261 Total operating expenses 128,070 117,543 Operating Income 27,o61 27 370 Other Income:
Allowance for equity funds used during construction 2,483 1,908 Equity in earnings of regional nuclear generating companies 845 818 Other, net (162)
(192)
Income taxes applicable to other income-credit (Note 2) 218 241 Net other income 3,384 2.865 Income before interest charges 31,345 30 235 Interest Charges:
Interest on long-term debt 17,485 17.011 Other interest 1,428 1,687 Allowance for borrowed funds used during construction (3,082)
(2.750)
Totalinterest charges 15,831 15,042 Net Income S 15,514 5 14.203 STATEMENTS OF RETAINED EARNINGS For the Years Ended December 31.
1978 1977 (Thousands of Dollars) llalance at beginning of period
$27,055
$27,500 Transfer req aired by FERC (a) 889 Net income 15,514 14,293 Cash dividends on preferred stock (2,984)
(2,984)
Cash dividends on common stock (12,204)
(11,754) llalance at end of period (b) 528,270
$27.055 (a) FERC Docket No. RM77-17 required the transfer of hydro reserves from other deferred credits to retained earnings.
(b) At December 31,1978, retained earnings of $4,500,000 were available for payment of cash di 'dends on common stock.
Th( +.tompanying notes are an integral part of tbese financial statements.
4
Western Massachusetts Electric Company STATEMENTS OF SOURCES OF FUNDS FOR GROSS PROPERTY ADDITIONS For the Tcars Fmle I December 31.
1978 1977 t Ihmami, o! Dolla m funds Generated From Operations Net income
$15,514 514.203 Principal noncath items -
Depreciation 14,200 13.868 Deferred income taxes, net 12,355 12,317 Amortization of deferred charges and other noncash items 014 1 008 Allowance for f unds used during construction (5,565)
(4,757)
Total funds f rom operations 37,418 37,710 1.ess - Cash dividends paid on:
Common stock 12,204 11.754 Preferred stock 2,084 2.084 Net funds generated f rom operations
_22,230 22.081 lunds Obtained From Financing Increase (decrease) in short-term debt 2,200 (8. 75'0)
Other Sources (Uses) Of Funds Decrease (increase)in net current assets (excluding short-term debt):
Cash and special deposits 1,730 (701)
Receivables and accrued utility revenues 808 3,225 Fuel, materials and supplies (1481 1,144 Accounts payable 3,198 (301)
Accrued taxes (462)
(o,154)
Other, net (5,5041 2.820 Net change (279) 42 Sales of utility plant 7,011 Deferred iuel costs 2,481 (3,340?
Other, net 1,432 o,102 Net other s iurces (uses) of f unds 3,634 0.815 Fotal Funds for Construe tion from Above Sources 28,064 24.046 Allowance For Funds Us,1 During Construction 5,565 4.757 GROSS PROPERTY Al DITIONS 533,62j
$28,803 Composition Of Gross 7 roperty Additions:
Electric utihty plant 533,390
$27,404 Nuclear f uel 230 1 300 Total 533,620 528.803 1he accompanying notes are an integral part of these financia! statements.
5
Western Massachusetts Electric Company BALANCE SHEETS At December 31.
1978 1977 (Thousands of Dollars)
ASSETS Utility Plant:
Elettric plant in service, at original cost 5444,169
$434,522 Less: Accumulated provision for depreciation 101,459
_ 90,220 342,710 344,302 Construction work in progress (Note 7) 86,100 66,033 Nuclear fuel, in process 1,577 1,347 Total net utility plant 430,387 411,682 Other Property and Investments:
Investments in regional nuclear generating companies, at equity 9,368 9,337 Other, at cost 2,375 2,366 11,743 11,703 Current Assets:
Cash and special deposits (Note 3) 1,793 3,532 Receivables, less accumulated provision for uncollectible accounts of $482,000 in 1978 and $520,000 in 1977 9,891 12,633 Due from af filiated companies 4,189 2,601 Accrued utility revenues 5,889 5,633 Fuel, materials and supplies, at average cost 5.681 5,533 Prepayments and other 304 105 27,752 30,127 Deferred Charges:
Unamortized debt expense 622 665 Deferred fuel costs 1,263 3,744 Other 598 1 088 2,483 6,307 Total Assets
$472,365
$459,900 The accompanying notes are an integral part of these balance sheets.
6
At December 31, 1978 1977 (Thousa..
of Dollars)
CAPITAllZATION AND LIAlllLITIES Capitalization:
Common stock - $25 par value.
Authorized and outstanding 1,072,471 shares S 26,812 5 2o,812 Capital surplus, paid in (no change during years) 78,233 78,233 Retained earnings 28,270 27.055 Total common stockholder's equity 133,315 132,100 Preferred stock (cumulative) - $100 par value. Authorized and outstanding,350,000 shares (Note 4) 35,000 35,000 1.ong-term debt, net (Note 5) 213,763 213.703 Total capitalization 382,078 380.803 Current Liabilities:
Notes payable to banks (Note 3) 600 14,750 Commercial paper (Note 3) 16,350 Accounts payable 3,926 3,26o Due to affiliated companies 8,285 5,747 Accrued taxes 1,347 1,809 Accrued interest 4,000 4,094 Other 2,198 7,584 36,79o 37,250 Deferred Credits:
Accumulated deferred income taxes 41,702 36,474 Accumulated deferred investment tax credits 10,928 3,801 Other 861 1,401 53,491 41,766 Commitments and Contingencies (Note 7)
Total Capitalization and Liabilities
$472,365 5450,000 7
Western Massachusetts Electric Company NOTES TO FINANCIAL STATEMEN TS (1)
SUMNIARY OF SIGNIFICANT ACCOUNTING POLICIES General: The Company, The Connecticut Light and Power Company (CL&P).The liartford Electric 1.ight Company (llELCOi and Holyoke Water Power Company (HWP) are the principal operating subsid. aries comprising the Northeast Utilities system (system) and are wholly owned by Northeast Utilities, a registered holding company under the Public Utility liolding Company Act of 1935. Other wholly owned subsidiaries of Northeast Utdities providing substantial support services to the system operating companies include Northeast Utilities Service Company (NUSCO) (a system service company supplying centralized ad-ministrative, accounting, engineering, financial, legal, operations, planning, purchasing and other services to the system companies), Northeast Nuclear Energy Company (NNECO)
(agent for the system companies in construction and operation of nuclear >;enerating facilities and the financing of nuclear fuel for such facilities), and The Rocky River Realty Company and The Quinnehtuk Company (each a real estate company which rents administrative facilities to the system companies). Ali transactions among affiliated companies are on a recovery of cost basis and are subject to approval of various federal and state regulatory commissions having jurisdiction.
The Company purchases electricity from Holyoke Power and Electric Company, a wholly owned subsidiary of HWP, in accordance with the Nit. Tom Electric Power Agreement.
The Company is part of a New England bulk power system which provides for purchases and sales of electric energy through a regional dispatch control agency. Arrangements among the Company and system companies, outside agencies and other utilities covering inter-connections, interchange of electric power and sales of utility property are subject to regulation by the Federal Energy Regulatory Commission (FERC) or the Securitier. and Ex-change Commission (SEC). The Company is subject to further regulation by FERC and the N1assachusetts Department of Public Utilities (DPU) and follows the accounting policies prescribed by tt ~ respective commissions.
The Company is a part owner with other system and New England electric utilities of the stock of four regional nuclear generating companies. These companies, with the Company's ownership interest shown parenthetically are: Connecticut Yankee Atom;c Power Company (0.5 percent), Yankee Atomic Electric Company (7 percent), N1aine Yankee Atomic Power Company (3 percent) and Vermont Yankee Nuclear Power Corporation (2.5 percent). The Company's investment in these companies is accounted for on an equity basis. The electricity produced from these facilities is committed to the participants based on their ownership in-terests and is billed pursuant to contractual agreements which are approved by FERC.
Reecnnes: Revenues are based on authorized rates applied to customer consamption of utility services. Rates may not be increased without a formal proceeding before the appropriate regulatory commbsion. The Company accrues an estimate for energy delivered but unbilled at the end of accounting periods.
Nuclear Fucl: The Company, CL&P and HELCO own the Niillstone Nuclear Unit Nos. I and 2 as tenants in common and NNECO owns the nuclear fuel for such units. The cost of NNECO's nuclear fuel, based on a net salvage value of zero, is amortized on a unit-of-production method at rates based on estimated kilowatt-hours of energy to be provided and is billed to the companies based on their percentage ownership in the units. The amount of nuclear fuel expense charged to the Company, based on its 19 percent ownership, aggregated $3,730,000 and 53.897,000 for 1978 and 1977, respectively. The Company intends to request that the DPU allow the amortization of estimated spent fuel disposal costs on its 10 percent share of Niillstone Unit Nos. I and 2 as part of its nuclear fuel costs. It is estimated that the Company's portion of the future disposal costs of N1illstone Unit Nos. I and 2 spent fuel, excluding prior period disposal costs, could approximate $7o0.000 - 5050,000 per > zar. If the prior period disposal costs are amortized over ten years as the Company intends to request of the DPU, such amortization would amount to an additional $570,000 - 57c0.000 per year during such ten-year period. Storage for spent fuel at the N1illstor,e nuclear station. including the facilities currently under construction at Niillstone Unit No. 3, will be sufficient until at least the mid-1000's.
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Dcpreciatiori: The provision for depreciation is computed using the straight-line method at approved rates which are based on the estimated service lives of depreciable utility plant in service and estimated removal costs less expected salvage. The depreciation rates for the several classes of electric plant, which are equivalent to a composite rate of 3.44 percent in 1078 and 3.45 percent in 1077, are applied to the average plant in service during the year, other than for major facilities which are depreciated from the time such facilities are placed in service. At the time depreciable property is retired from service, the original cost, plus cost of removal less salvage, of such property is charged to the accumulated provision for depreciation.
A study completed in 197o estimated decommissioning costs for the two nuclear units owned by the system at approximately 570 million. This study contemplated a decom-missioning method with an indetmitely long period of time between retirement and com-pletion of the removal process. Prehminary results of a 1070 study indicate increased costs for three alternative methods of decommissioning. The complete removal of the facilities at the time of retirement method, with an estimated cost of 5127 million, is the mest viable and e(onomic method of decommissioning these units. The Company, which owns 10 percent of these units, has not been allowed by the DPU to accrue any decommissioning costs and, therefore, no amount is presently included in its depreciation rates. The 1070 study indicates the Comt :ny's costs of decommissioning these units to be approximately $1.0 million per year.
Alairrtenance: The cost of maintenance, repairs and replacements of minor items of property is charged to maintenance expense. Replacements and renewals of items considered to be units of property are charged to the utility plant accounts.
FederalIncome Taics: The tax effect of timing ditferences (Jif terences between the peric.ds in which transactions af fect income in the financial statements and the periods in which they affect the determiaation of income subject to tau, is accounted for as prescribed by and in accordance with the rate-making treatment of the applicable regulatory commissions which is normaiization accounting. See Note 2 for the detail of income tax expense.
Allorcance for fimds Used Dming Construction: The allowance for funds used during con-struction (AFUDC) represents the estimated cost of capital funds used to finance the Com-pany's construction program. The costs of construction are not recognized as part of the rate base for rate-making purposes until facilities are brought into service and, as permitted by applicable regulatory commissions, the Company charges AFUDC to the construction cost of utility plant. The AFUDC rate applied to construction work in progress for 1078 and 1077 was o percent. The Company has not recorded the effect of compounding such rate.
Rctirement Plan: The Company participates in a uniform noncontributory retirement plan covering all regular employees. It is the policy of the Company to provide for and fund the actuarial liability, which includes the current cost and the amortization of prior service cost over a period of 40 years. Total pe:.sion cost, part of which was charged to utility plant, app.oximated $2.135,000 in 1078 and $2.000,000 in 1077. The pension fund assets exceeded the actuarially computed value of vested benefits at December 31, 1078. The unfunded ac-tuarial liability of the plan was approxima:ely $14,300.000 at December 31,1978.
Dcfcrred Fact Costs: T he Company defers the changes in f uel costs which have not been billed under its fuel adjustment clauses.
(2)
INCOME TAX EXPENSE The detail of federal and state income tax provisions charged to operations is set forth below:
Year Ended December 31, 1978 1977 (Thousandsof Dollars)
Current income taxes:
Federal 5
75 5
82 State 972 687 Total cuirent
_ 1,047 760 Deferred income taxes, net:
lavestment tax credits 7,127 1,352 Federal 4,676 10,203 State 552 762 Total deferred 12,355 12.317 Total income taxes
$13 402 513,086 t
Such provision (credit) is included in the accompanying statements of income as follows:
Operating expenses
$13,620
$13.327 Other income (218)
(241)
Totalincome taxes
$13,402 513.086 Deferred income taxes are comprised of the tax effects of timing differences as follows:
Investment tax credits
$7,127 51,352 g
Interest capitalized 1,560 1,261 Unbilled revenues (230)
(118)
Deferred fuel costs (1,259) 866 Liberalized depreciation 4,194 8,261 Other a63 695 Deferred income taxes, net 512,355 512.317 The principal reasons for the difference between total tax expense and the amount calculated by applying the federal in-come tax r *= to pretax income from continuing operations are as follows:
Expected tax, at 48% of pretax income 513,880
$13,142 Tax effect of differences:
Additional depreciation for tax purposes 874 895 Allowance for funds used during construction -
not recognized as income for tax purposes (1,196)
(1,122)
Overhead costs of construction - expensed for wx purposes (629)
(515)
Allocated affiliated companies' losses (548)
(575)
Cost of removal - expensed for tax purposes (312)
(326)
State tax, net of federal benefit 793 754 Other, net 540 833 Totalincome taxes 513,402 513.086 Effective income tax rate 46 %
48 %
At Dec-mber 31,1978, the Company had unused and unrecorded investment tax credits cmounting to approximately $3,500,000, which are available to offset f-deral income tax provisions for *, ears through 1985.
10
(3)
SHORT-TERM DEDT The Company utilizes bank loans and commuial paper to finance temporarily its continuing construction program. The system con es have joint bank credit lines with terms calling for interest rates equal to the prime ran t.e prime rate plus a fraction thereof, at the time of borrowing. The credit lines expire at urious times in 1979 and, although these lines are generally renewable, the continuing availability of the unused lines of credit is subject to review by the banks involved. At December 31, 1078, the amount of unused available borrowing capacity under the credit lines available to the Company was $150,000,000; howtver, substantially all of these joint credit lines are also available to other system com-panies. The maximum amount of short-term borrowings as currently authorized by the SEC is
$40.000,000.
Essentially all of the cash of the Company represents compensating balances in support of the system's lines of credit: however, the compensating balances are not subject to contractual restrictions on withdrawal.
Additional information with respect to short-term debt is as follows:
1978 1977 Weighted average interest rate for borrowings outstanding at end of period (euluding ef fect of compensating balan(es) 11.5'T 8.0 "b Maximum amount of borrowings outstandmg at any month-end
$ 16,450.000
$22.000 000 Average daily borrowings during period S11.371,000
$17.042.000 Weighted average interest rate during the period (based on the daily amounts out-standing and culuding ef fect of compensating balances) 0.2'T
- 7. 2 "b Range of maturities at December 31 (in days) 2-20 30-178 (4)
I' REFERRED STOCK Details of pref erred stoc k outstanding at December 31.1078 and 1077 are as follows:
Cur rent Shares Description Redemption Price Outwdirm Par Value 0.60"b Series A of 1070
$108.70*
1:,000
$15,000,000 7.72"b Series B of 1071 107.37*
.X).000 20.000.000 50.000
_$35,000.000
- Redemption price reduces in future years.
All or any part of each outstandmg series of preferred stock may be redeemed by the Company at any time at established redemption prices plus accrued dividends to the date of redemption.
11
(5)
LONG-TERM DEBT Details of long-term debt outstanding are as follows:
December 31, 1078 lo77 (Thousands of Dollars)
First Mortgage Bonds:
31/8% Series B, due 1984 5 6,000
$ 6,000 43/8% Series C, due 1987 12,000 12,000 43/8% Series E, due 1092 8,000 8,000 53/4% Series F, due 1997 15,000 15,000 63/4"o Series G, due 1008 10,000 10,000 73/8% Series H.
due 1998 15,000 15,000 93/8% Series t, due 2000 30,000 30,000 73/4"o Series J, due 2002 30,000 30,000 91/4% Series K, due 2004 25,000 25,000 13 1/8 % Series L, due 1982 10,000 10,000 91/4% Series M.
due 200o 30 000 30.000 Total First Mortgage Bonds 191,000 191,000 Pollution Control Note,5.90%, due 1998 2.214 2,214 Unsecured Note,114% of prime due 1980-1981 20,000 20,000 Unamortized premium and discount, net 540 570 Long-term debt, net S213.763
$213.703 Long-term debt maturities and cash sinking fund requirements on debt outstanding at December 31, 1978, are as follows: 1980, $10,000,000; 1981, $10,000,000 and 1982,
$10,000,000. In addition, there is an annual 19 sinking and improvement fund requirernent, which amounts to $1,910,000 for 1979. Such sinking and improvement fund requirement may be satisfied by the deposit of cash or bonds, or by certification of property additions.
All or any part of each outstanding series of first mortgage bonds may be redeemed by the Company at any time at established redemption prices plus accrued interest to the date of redemption, except certain series which are subject to certain refunding limitations during their initial five-year redemption periods.
Essen" illy all utility plant is subject to the lien of the mortgage indenture.
(6)
LEASES The Company has entered into lease agreements for the use of substation equipment, data processing and office equipment, vehicles and office space. Since lease rentals are charged to expense for rate-making purposes, capitalization of these leases is not required. Had the Company capitalized the leased property at the beginning of the lease terms, the effect on assets, liabilities, expenses or net income would not be material.
Rcntal payments charged to electric operations, including rental payments on capitalizable leases, amounted to $1,733,000 for 1978 and $1,319,000 for 1977.
Future minimum rental payments, excluding executory costs such as real estate taxes, state use taxes, insurance and maintenance, under long-term noncancellable leases are ap-proximately as follows: 1979, $1.600,000; 1980, $1,600,000; 1981, $1,500,000; 1982,
$1,400,000; 1983, $1,500.000; and for years subsequent to 1983, an aggregate of $17,400,000.
(7)
CONSTRUCTION PROGRAM, FINANCING AND CONTINGENCIES The Company is engaged in a continuous construction program and currently forecasts construction e penditures, including nuclear fuel, to be approximately $42 million in 1979 and
$236 million for the years 1980-1984.
The construction progrars is subject to periodic review and revision, and actual con-struction expenditures may vary from such estimates due to various factors such as revised load estimates, inflation, the availability and cost of capital and the granting of timely and adequate rate relief by regulatory commissions. It is expected that compliance with present and developing regulations established by various authorities in the areas of nuclear plant licensing and safety, land use, water and air quality and other environmental matters will 12
require additional capital expenditures and increased operating costs not now determinable in amount. In addition, uncertainties related to the reprocessing or permanent storage of nuclear fuel may require revisions in f uture nuclear fuel costs.
At December 31, 1978, construction work in progress included an investment of 571,200,000 in jointly owneci nuclear generating facilities consisting of a 12.4 percent interest in Millstone Unit No. 3 of 566,300,000 and a 14.3 percent interest in the proposed Montague nuclear plant of $4,900,000. All the companies owning undivided interests in these jointly owned facilities are required to provide their own financing in order to support their portion of construction costs.
In October 1977, the Connecticut Public Utilities Control Authority granted 39 percent of CL&P's and HELCO's requested rate increases. The system subsequently announced certain reductions in its construction program and deferred the planned in-service date of Millstone Unit No. 3 from 1982 to 1986. The current estimated cost of Millstone Unit No. 3 is 52 billion when placed in service in 1986. In 1978, primarily because of regulatory delays, the system suspended its early site review effort for the Montague Units, but continues to perform meteorological and aquatic studies of the s.te and is continuing to capitalize AFUDC.
In 1979, the Company's construction program is expected to be financed from internal sources and short-term debt. Future earnings and the Company's ability to meet earnings coverage requirements for long-term financing will be affected by a number cf f actors in-cluding timely and adequate rate relief, growth in sales, performance of nuclear generating units, inflation, interest and preferred stock dividend rates and other factors, the nature and effect of which cannot be determined in advance.
(8)
GENERAL IMPACT OF INCREASED COSTS (UNAUDITED)
Substantial increases in recent years in fossil fuel prices have generally been recovered directly by increased revenues under fossil fuel clauses. To recover increases in other operating ex-penses, f requent requests for general ra:e increases have been required. The increases in recent years in construction costs of utility plant have exceeded general rates of inflation and the estimated replacement cost of such assets are significantly greater than the historical cost which forms the basis for revenue determination by the regulatory authorities. The Com-pany's ability to replace its productive capacity in the future will be contingent upon its ability to finance such replacement. This, in turn, will depend on the Company's ability to obtain adequate and timely rate relief. In compliance with the reporting requirements of the SEC, additional information with respect to replacement cost of productive capacity will be in-cluded in Annual Report Form 10-K filed with the SEC for the year 1978.
(9)
QUARTERLY FINANCIAL DATA (UN AUDITED) (a)
Summarized quarterly financial data for 1978 and 1977 are as follows:
Quarter Ended March 31 June 30 September 30 December 31 (Thousands of Dallars) 1978 Operating Revenues
$46,530
$39,712 533,816
$35,973 Operating income 5 J,780 S 5,747 5 6,944 5 6,490 Net income S 5,547 5 2,600
$ 3,891 5 3,386 1o77 Operating Revenues
$38,015 532.072 537,451
$37,375 Operating Income
$ ei 565 5 5.708 5 7.160
$ 7 037 Net income S 3.300
$ 2,427 5 3.874 5 4,602 (a) Fluctuations between quarters withir a year and as compared to the previous year are primarily due to seasonal variations and the impact of nuclear performance.
13
Western Massachusetts Electric Company
SUMMARY
OF OPERATIONS r
For the Years Emle,IDecember 3I.
1973 1977 Operating Revenues
$156,031
$144.913 Operating Expenses:
Op(ration and maintenance 85,052 76.087 Depreciation 14,200 13.868 Federal and state income taxes 13,620 13.327 Taxes other than income taxes 15,108 14 2e1 Total operating expenses 128,070 117,543 Operating income 27,961 27,370 Other Income, Net 3,384 2.865 Income Before Interest Charges 31,3_45 30 235 Interest Charges. Net 15,831 15,942
=
Net income (before cumulative effect of accounting changes) 15,514 14.293 Cumulative effect prior to January 1,1974 of accounting changes, relating to deferred fuel costs and unbilled revenucs, net of applicable income taxes of $1,817,000 Net income 5 15 514 5 14.293 l'ro forma Net Income (assuming the 1974 accounting changes above were applied retroactively)
(a) The pro forma change for 1968 is estimated to be immaterial and, therefore, has not been computed.
14
1976 1975 1974 1973 10 8 0
(TIwitsamis of [h ollar81 5134.135 5126.514 5110.067 500.756 548,117 76,5o4 86,674 77,363 52,1o0 26.067 14,181 8,133 7,7o6
",432 4,187 6,717 (1,081) 2,184 1,695 2,890 13,318 11,210 10,503 10,132 5.400 110,780 104,036 07.000 71 428 30,543 23,355 21,578 21,1o1 19,328 8,574 2.568 3,515 2.010 2.803 53
_ 25.023 25.003 24,071 22.131 8.627 15,639 12,266 12.304 10 05o 2,738 10.284 12,827 11,677 12.075 5,880 1 co0 5 10.284 5 12 827 5 13.337 512,075 5 5.880 5 11.677
$12.230 (a) 15
Western Massachusetts Electric Company MANAGEMENT DISCUSSION AND ANALYSIS OF SUMM ARY OF OPERATIONS Comparison of the Year 1978 with the Year 1977 Operating revenues increased $11.1 million (7.7%) in 1978 over 1977, primarily due to a rate increase which was received in April 1977 and an increase in fuel cost recoveries, reflected in billings through higher fossil fuel clause charges on customers' bills.
The increase in operating revenues was accompanied by an increase in operating expenses of
$10.5 million. The most significant portion of this increase resulted from a 59.0 million (11.8%)
increase in operation and maintenance expenses. This increase was due primarily to the operation and maintenance expenses associated with the Millstone Unit Nos. I and 2 outages for refueling and maintenance and the impact of inflation. Current and deferred income taxes increased slightly in 1978 due to higher taxable income.
The increase in allowance for equity funds used during construction caused the increase in other income and reflects the growth in construction work in progress. Most of this growth in construction work in progress r ntes to the Company's share of Millstone Unit No. 3.
Comparison of the Year 1977 with the Year 1976 Operating revenues increased $10.8 million (8.0%) in 1977 over 1976. This increase was primarily due to the impact of rate increases granted earlier in the year and an increase in kilowatt-hour sales.
Operation expense increased $6.8 million (6.1%) in 1977 p. -arily as a result of an increase in federal and state income taxes. The increase in federal and state income tax expense resulted from increased taxable income after utilization of net operating losses and the increased utilization of investment tax credits. Taxes other than income taxes increased due to higher property taxes as a result of higher assessments and mill rates. Depreciation expense decreased slightly due to the disallowance of a portion of the nuclear plant depreciatio, rate by the DPU.
The increase in allowance for equity funds used during construction caused the increase in other income and reflects growth in construction work in progress, most of which relates to the Company's share of Millstone Unit No. 3.
Western Massachusetts Electric Company STATISTICS A ccraxe Utdity Plarit Aminal Electric Deceml'er 31.
Kwli Sales Resider:tial Customers Employces
( Tlion sa nd~1 (Alillions)
Kwl U<c lal
( A veraech (Deceml,cr 31) 148 5183.004 2.454 5.501 148,408
%2 1973 3oo.078 3.440 7.770 150.o13 1.027 1074 408.131 3.370 7.501 101.104 080 1075 451.518 3.200 7.404 102.773 027 107o 483.532 3.432 7.o34 le3,418 884 1077 501.002 3.441 7.513 1o4.500 853 1078 531.840 3.430 7.430 105,151 828 (a) Based on residential equivalent customers, reflecting total dwelling units.
Io
Address General Correspondence In Care Of:
Northeast Utilities Service Company Investor Relations Department P.O. Box 270 Hartford, Connecticut 06101 Tel (203) 666-6911 General Office 174 Brush Hill Avenue, West Springfield, Massachusetts first Mortgage Bonds Trustee and Interest Paying Agent The First National Bank of Boston, Corporate Trust Department P.O. Box 644. Boston, Massachusetts 02102 Preferred Stock Transfer and Dividend Disbursing Agent The Connecticut Bank and Trust Company, Stock Transfer Department One Constitution Plaza, Hartford, Connecticut 06115 Pre'ferred Stock Registrar Hartford National Bank and Trust Company, Hartford, Connecticut 06115 Preferred Stock Dividend Payment Dates 9.60"o Series A March 1, June 1, September 1 and December 1 7.72"o Series B January 1, April 1, July I and Octobe-1 The data contained in this Report are submitted for the sole purpose of providing information to present stockholders about the Company.
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