ML19309C431

Annual Financial Rept 1979

ML19309C431
Person / Time
Site:	Millstone
Issue date:	03/14/1980
From:	WESTERN MASSACHUSETTS ELECTRIC CO.
To:
Shared Package
ML19309C401	List: ML19309C400 ML19309C405 ML19309C421 ML19309C431
References
NUDOCS 8004080590
Download: ML19309C431 (21)

Text

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O Address General Correspondence in Care Of:

Northeast Utilities Service Company Investor Relations Department P.O. Bos 270 Hartford, Connecticut 06101 Tel. (203) 666-6911

- ' ~ General Office Selden Street, Berlin, Connecticut First Mortgage Bonds Trustee and Interest Paying Agent The First National Bank of Boston, Corporate Trust Department P.O. Box 644, Boston, Massachusetts 02102

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Preferred Stock Transfer and Dividend Disbursing Agent

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Hartford National Bank and Trust Company, Stock Transfer Department 150 Windsor Street, Hartford, Connecticut 06115

- e Registrar United Bank and Trust Company. Hartford, Connecticut 0o103 Dividend Payme'nt Dates

~5 28%,9 60% and 11.52% -January 1, April 1. July 1 and October 1 4.50%,4.96%,6.56% and 9.36% -February 1, May 1. August I and November 1 3.90%,4.50% (1963) and 7.60% - March 1, June 1, September 1 and December 1 l

r The data contained in this Report are submitted for the sole purpose of providing information to l

present stockholders about the Company.

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ANNUAL

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REPORT i

i l-1979 F

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r NORTHEAST gry; ;r "U UTsuTsus

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DIRECTORS 7

LELAN F.SILLIN, JR. Chairman of the Board WILLIAM B.ELLIS Northeast Utilities President, Northeast Utilities PETERM. STERN Vice President, WALTER F. FEE Northeast Utilities Service Company Executive Vice President, Northeast Utilities Service Company DONALD C.SWITZER Vice Chairman, WARREN A.GRETEN*

NortheastUtilities Vice President.

Northeast Utilities Service Company WALTER F.TORRANCE. JR.

Vice President, General Counsel &

LEON E. MAGLATilLIN. JR.

Assistant Secretary, Vice President and Chief Northeast Utilities Service Company Administrative Officer, Western Massachusetts Electric Company ANTHONY E.WALLACE Executive Vice President, HERBERT W. SEARS Northeast Utilities Service Company Vice President, Northeast Utilities Service Company 0FFICERS WARREN A.GRETEN*

Vice President LELAN F. SILLIN, JR.

Chairman and Chief Executive Officer FRANCISL. KINNEY Vice President DONALD C.SWITZER Vice Chairman LEONARD A.O'CONNOR Vice President andTreasurer WILLIAM B. ELLIS President WALTERT.SCHULTHEIS Vice President WALTER F. FEE Executive Vice President HERBERT W. SEARS Vice President ANTHONY E.WALLACE Executive Vice President PETERM. STERN

• Vice President LEON E. MAGLATHLIN, JR.

Vice President and WALTER F.TORRANCE, JR.

Chief AdministrativeOfficer Vice President. General Counse! &

Assistant Clerk PHILIPT. ASHTON Vice President ROBERT W. BISHOP Secretary and Assistant Clerk ALBERT G. BAER" VicePresident ALBINA A.PLUTA Clerk WARREN F.BRECHT Vice President and Controller JOHNT. HICKEY Assistant Secretary CARROLL A.CAFFREY Vice President ROY M.SEGER Assistant Clerk WILLIAM G.COUNSit Vice President ROBERT C. ARONSON Assistant Treasurer RAYMOND E. DONOVAN VicePresident N

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L Western Massachusetts Electric Company N! arch 14,1980 To the Shareholders:

The Annual Report of Northeast Utilities, which provides coverage of the entire Northeast Utilities system, including Western hlassachusetts Electric Company. has been mailed to all Wh1ECO preferred stockholders. 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 1979 As you will note, the Company's earnings showed a decline during 1970 and remained significantly below the return allowed by the Stassachusetts Department of Public Utilities.

The decline in earnings was caused primarily by the combined elfect of rapid inflation, costs associated with implementing new requirements of the Nuclear Regulatory Commission and higher short term interest rates. The Company filed on November lo.1970 for in-creased electric rates totaling S27.o million. A decision on its application is expected by mid-year.

Carroll A. Caffrey and Walter T. Schultheis were elected Vice Presidents in 1979.

Robert S. Bromage. Vice President. retired after 43 years of system service and Warren A.

Greten Vice President, resigned after 30 years of system service. Warren F. Brecht, previously Vice President - Financial Control and Information Services. was named Vice President - hianagement Information Systems and Controller when Warren A. Hunt became System Director - Revenue Requirements.

Sincerely.

ESh2 ;ih..

President Chairman I

Western Massachusetts Electric Company STATEMENTS OF INCOME For the Years Ended December 31.

1979 1978 (Thousandsof Dollars)

Operating Revenues iNote 21 S167,689 5156.031 Operating Expenses:

Operation -

Fuel used in generation 49,718 40.203 Other 40,001 35,460 Maintenance 11,223 9,380 Depreciation 14,5e5 14,200 federal and state income taxes (Note 3) 10,353 13.620 Taxes other than income taxes 15,376 15.108 Total operating expenses 141,236 128.070 Operating Income 26,453 27.961 Other Income:

Allowance for equity funds used during construction 2,629 2,483 Equity in earnings of regional nuclear generating companies 1,129 845 Other, net (171)

(162)

Income taxes applicable to other income-credit (Note 3) 260 218 Net other income 3.847 3.384 income before interest charges 30,300 31.345 Interest Charges:

Interest on long-term debt 18,130 17,485 Other interest 2,774 1,428 Allowance for borrowed funds used during construction (4,277)

(3.082)

Totalinterest charges 16.627 15.831 Net Income 5 13,673 5 15.514 STATEMENTS OF RETAINED EARNINGS For the Years Ended December 3:.

1970 1978 tThousands of Dollars)

Balance at beginning of period S28,270 527,944 Net Income 13,673 15,514 Cash dividends on preferred stock (2,084)

(2,084) l Cash dividends on common stock (9,223)

(12.204)

Halance at end of period (a) 529.736

$28.270 (a) At December 31, 1979, retained earnings of 5o.000.000 were available for payment of cash dividends on common stock under the terms of the Company's First Mortgage Indenture and Deed of Trust.

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The accompanying notes are an integral part of these financial statements.

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Western Massachusetts Electric Company STATEMENTS OF SOURCEG OF FUNDS FOR GROSS PROPERTY ADDITIONS For the Years Ended December 31.

lo70 1978 (Thousandsof Dollars)

Funds Generated From Operations Net income 513,673 515,514 Principal noncash items -

Depreciation 14,565 14,200 Deferred income taxes. net 10,122 12.355 Amortization of deferred charges and other noncash items 350 014 Allowance for funds used during construction to,00o)

(5.5e3)

Total funds from operations 31,813 37,418 Less - Cash dividends paid on:

Common stock 9,223 12,204 Preferred stock 1"

2 084 Net funds generated from operations 19,o06 22.230 Fund, Obtained from Finandng increase in short term debt 24,000 2 200 Other Sources (Uses) Of Funds Decrease (increase) in net current assets (excluding short-term debt):

Cash and special deposits 983 1,73o Receivables and accrued utility revenues (10,107) 898 Fuel, materials and supplies i2,040)

(148)

Accounts payable 3,6o7 3,108 Accrued tases 483 (4o2)

Other, net (1,105)

(5.504)

Net change t 8,119)

(270)

Energy adjustment clause (4,009) 2.481 Other, net

1. 113) 1.432 Net other sources (um) of funds (12.241 3 634 Total Funds for Construction From Above Sources 31,3o5 28.064 Allowance For Funds Used During Construction 6.906 5.565 GROSS PROPERTY ADDITIONS 538.271 533 620 Composition Of Gross Property Additions:

Utility plant 536,807

$33,309 Nuclear fuel 1,3 74 23C Total 538,271 533.629 The accompanying notes are an integral part of these financial statements.

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Western Massachusetts Electric Company BALANCE SHEETS At December 31.

1979 1978 l

(Thousandsof Do!!ars)

ASSETS Utility Plant, at original cost:

Electnc S465,672 5444,169 Less: Accumulated provision for depreciation 113,608 101,459 352,0o4 342,710 Construction work in progress (Note 8) e,058 So,100 Nuclear fuel. in process 2,951 1.577 Total net utility plant 454.073 430.387 Other Property and Investments:

Investments in regional nuclear generating companies, at equity 9,782 9,368 Other, at cost 2,375 2.375 4

12,157 11.743 Current Assets:

Cash and special deposits (Note 4) 800 1,793 Receivables, less accumulated provision for uncollectible accounts of $566.000 in 1979 and 5482,000 in 1978 14,334 9,891 Due from affiliated companies 8,308 4,189 Accrued utility revenues 7,344 5,889 Fuel, materials and supplies, at average cost 7,722 5.661 Prepayments and other 3,300 309 41,407 27,752 Deferred Charges:

Unamortized debt expense 578 622 Energy adjustment clause 2,512 1,263 Other 255 508 3,345 2.483 Total Assets

$511,482 5472.3o5 The accompanying notes are an integral part of these financial statements.

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At December 31, 1979 1978 (Thousandsof Dollars) i-CAPITALIZATION AND LIABILITIES i

Capitalization:

Common stock - 525 par value.

Authorized and outstanding 1,072,471 shares S 26,812 5 26.812 Capital surplus, paid in (no change during years) 78.233 78.233 I

Retained earnings 29,736 28.270 j

Total common stockholderi equity 134,781 133.315 Preferred stock not subject to mandatory redemption (cumulative) - 5100 par value, Authorized and outstanding, 350,000 shares (Note 5) 35,000 35,000

(

l.ong-term debt, net (Note 6) 213,734 213.763 Toral capitalization 383,515 382.078 f

Current Liabilities:

t Notes payable to banks (Note 4) 800 600 Commercial p per(Note 4) 40,150 16,350 Accounts payable e,251 3,926 Due to affiliated companies 9,782 8,285 Accrued tases 1,831 1,347 Accrued interest 3,980 4,090 i

Other 1,440 2,198 l

I 64,234 36.706 Deferred Credits:

Accumulated deferred income tases 49,876 41,702 Accumulated deferred investment tas credits 12,721 10,928 l

Other 1,136 861 63,733 53,491 l

Commitments and Contingencies (Note 8)

Total Capitatiration and Liabilities

$511,482 5472.3e5 i

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Western Massachusetts Electric Company NOTES TO FIN ANCIAL STATEMENTS (1)

SUN!NTARY OF SIGNIFICANT ACCOUNTING POLICIES Cencral: Western N!assachusetts Electric Company (the Ccmpany), The Connecticut Light and Power Company (CL&P) The Hartford Electric Light Company (HELCO) and Holyoke Water Power Company (HWP) are the principal operating subsidiaries comprising the Northeast Utilities system (the system) and are wholly owned by Northeast Utilities, a registered holding company under the Public Utility Holding Company Act of 1935. Other wholly owned subsidiaries of Northeast Utilities providing substantial support services to the system operating companies include Northeast Utilities Service Company (NUSCO)(a system service company supplying centralized administrative, accounting, engineering, financial, legal, operations, planning purchasing and other services to the system companies), North-s east Nuclear Energy Company (NNECO) f agent for the system companies in construction and operation of nuc! car generating facilities and the financing of nuclear fuel for such facilities),

and The Rocky River Realty Company and The Quinnehtuk Company teach a real estate company which rents administrative facdities to the system companies >. All trans-actions among affiliated companies are on a recovery of cost basis, except for transactions with NNECO, which also include amounts representing a return on equity, and are subject to approval of various federal and state regulatory commissions havmg jurisdiction.

The Company purchases electricity from Holyoke Power and Electric Company, a wholly owned subsidiary of HWP, in accordance with the N!t. 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 4

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 Securities and Ex-change Commission (SEC). The Company is subject to further regulation by FERC and the N!assachusetts Department of Public Utilities (DPU) and fellows the accounting policies prescribed by the 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, together with the Company's ownership interest shown parenthetically are: Connecticut Yankee Atomic Power Company (9.5 percent) Yankee Atomic Electric Company (7 percent), Ntaine 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 by these facilities is committed to the participants based on their ownership interests and is billed pursuant to contractual agreements which are approved by

FERC, Reecm4cs: Revenues are based on authorized rates applied to customer consumption of utility services. Rates may not be increased without a formal proceeding before the appropriate regulatory commission. The Company accrues an estimate for energy delivered but unbilled at the end of accounting periods.

Nuc! car Fuel: The Company, CL&P and HELCO own Niillstone I and !! as tenants in com-mon. NNECO owns the nuclear fuel for such units. The cost of NNECO's nuclear fuel is amortized on a unit-of-productiort 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, including a provision in 1979 for estimated spent fuel disposal costs and based on its 10 percent ownership, aggregated 54.855,000 and 53,730.000 for 1979 and 1978, respectively. Storage for spent fuel-at the Niillstone nuclear station, including the facilities currently under construction at N!illstone III, will be suf ficient until at least the mid-1900's.

Depreciation: 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 remo tal costs less expected salvage. The depreciation rates for the several classes of electric plant, which are equivalent to a composite rate of 3.4 percent in 1979 and 1078, are applied to the average plant in service during the year, other than for maior facdities which are depreciated from the time such facilities are placed in service. At the time 6

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t 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 1079 indicates that the complete removal commencing at the time of retirement of the two nuclear units in which the Company has a 19 percent ownership interest is the most viable and economic method of decommissioning these units. The l

Company's share of the total estimated decommissioning cost is $15.3 million. The Company 2

has not been allowed by the DPU to accrue any decommissioning costs and. therefore, no -

- amount is presently included in its depreciation rates. The 1079 study indicates that the t

i Company's costs of decommissioning these units to be approximately So00.000 per year. and j

these costs have been included in the current rate increase filing before the DPU.

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I Maintenancc: The cost of maintenance, repairs and replacements of minor items of property is i

charged to maintenance expense. Replacements and renewals of items considered to be units of property are charged to the utilitv plant accounts.

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Tedera' lncome Tares: The tax effects of timing differences (differences between the periods in i

l which transactions affect income in the financial statements and the periods in which they affect the determination of income subject to taxt is accounted for as prescribed by and in accordance with the rate-making treatment of the applicable regulatory commissions which is normalization accounting. See Note 3 for the detail of income tax expense.

4 Allotcance for Famds Used During Construction: The allowance for funds used during con-i j

struction ( AFUDC) represents the estimated cost of capital funds used to finance the Com-t pany's construction program. The costs of construction are not recognized as part of the rate f

base for rate-making purposes until facilities are brought into service and. as permitted by a

applicable regulatory commissions. the Company charges AFUDC to the construction cost of i

j utility plant. The AFUDC rate applied to construction work in progress for 1979 and 1978 was 9 percent. Through 1079, the Company did not record the effect of compounding such rate.

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Effective January 1.1980, the Company adopted an AFUDC rate of 9.5 percent and also adopted, subiect to the approval by the DPU, net-of-income tax accounting treatment. In j

addition. AFUDC on Millstone 111 will be compounded semi-annually.

l Rctirement Plan: The Company participates in the Northeast Utilities Service Company Retirement Plan (the Planh The Plan, which covers all regular employees, is noncontributory.

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The system's policy is to annually fund an actuarially determined contribution, which in-cludes that year's normal cost, the amortization of prior years' actuarial losses over fifteen years and the amortization of prior service costs over forty years. At December 31,1979, it is i

estimated that the Plan's unfunded liability was approximately 5111.200.000 and that the Plan's assets exceeded the value of vested benefits. The Company's allocated s.rtion of the f

system's contribution, part of which was charged to utility plant, approximated 52.100.000 in l

1979 and $2,100.000 in 1978.

Energy Adjustment Clause. The Company's rates include an adjustment clause under which i

j fossil fuel, purchased power and nuclear fuel costs are billed io customers. As permitted by the.

DPU, the Company defers recognition of these costs until they are recovered under the ad.

- i justment clause.

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(2)

RATE MATTERS E

In November 1979. the Company filed an application with the DPU requesting 527.9 million in additional annual revenues. Under the proposed schedule, the Company's base electric rates combined with fuel charges would rise an overall 17.2 percent. Rate hearings began in early.

1980 and a decision is expected by Ju~ e 1980.

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INCOME TAX EXPENSE The detail of federal and state income tax provisions charged to operations is set forth below:

Year Ended December 31.

1970 1978 (Thousands of Dollars)

Current income taxes:

Federal 5 (346)

S 75 State 317 972 Total current (29) 1.047 Deferred income taxes, net:

Investment tax credits 1,948 7,127 Federal 7,116 4.676 Statc 1,058 552 Total deferred 10.122 12.355 Total income taxes 510.003

$13.402 Such provision (credit) is included in the accompanying statements of income as follows:

Operating expenses

$10,353 513,620 -

Other income

-(260)

(218)

Totalincome taxes

$10.093 S13.402 Deferred income taxes are comprised of the tax effects of timing differences as follows:

Investment tax credits

$1,948

$7.127 Interest capitalized 2,086 1,560 Unbilled revenues (219)

(230)

Settlement credits - nuclear fuel (496)

Energy adjustment clause 1,956 (1,259)

Liberalized depreciation 3,648 4,194 Other -

1.149 963 Deferred income taxes, net 510.122 512.355-The principal reasons for the difference between total tax expense and the amount calculated by applying the federal in-come tax rate to pretax income are as follows:

Expected tax, at 46*b of pretax income in 1979 (48% in 1978) 510,932 513.880 Tax effect of differences:

Additional depreciation for tax purposes 805 874 Allowance for funds used during construction not recognized as income for tax purposes (1,209)

(1,196)

Overhead costs of construction - expensed for tax purposes (672)

(629)

Investment tax credits (381)

Allocated affiliated companies' losses (468)

(548)

Cost of removal - expensed for tax purposes (448)

(312)

State tax. net of federal benefit 742 703 Other. net 702 540 Totalincome taxes

$10.093 513.402 i

Effective income tax rate 42*o 46*'o At December 31, 1979, the Company had unused and unrecorded investment tax credits -

amounting to approximately $4.500.000, which are available to offset federal income tax provisions for years through 1986.

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4 (4)

SHORT TERb1 DEST The Company utilizes bank loans and commercial paper to tinance temporarily its continuing construction program. The system companies have joint bank credit lines with terms calling for interest rates equal to the prime rate or the prime rate plus a fraction thereof. at the time of borrowing. The credit lines expire at various times in 1080 and. although these lines are generally renewable. the continuing availability of the unmed lines of credit is subject to review by the banks involved. At December 31, 1970 the amount of unused available borrowing capacity under the credit lines available to the Company was $150.700.000:

however substantially all of these joint credit lines are also available to other system com-panies. The ma.mimum amount of short-term borrowings as currently authorized by the SEC is 555.000.000.

Essentially all of the cash et the Company represents compensating balances in support of the system's lines cf credit: however, the compensating balances are not subject to contractual restrictions on withdrawal.

Additionalinformation with respet.t to short-term debt is as follows:

IGN 1978 Weighted average interest rate for borrowings outstanding at end of period fexcluding effect of compensating balances) 14.8 %

11.5 %

NIaximum amount of borrowings outstanding at any month-end 540.450.000 51o.050.000 Average daily borrowings during period 521,805.000

$11.371.000 Weighted average interest rate during the period (based on the daily amounts out-standing and excluding effect of compensating balances) 12.5 %

9.2 %

Range of maturities at December 31 (in days) 2-78 2-20 (5)

PREFERRED STOCK. NOT SUBJECT TO N1ANDATORY REDEN!PTION Details of preferred stock outstanding at December 31,1079 and 1978 are as follows:

Current S1: ares Description Redemption Price Outstaruling Par Value 0.e0% Series A of 1970

$108.79

• 150.000 515.000.000 7.72% Series B of 1971 107.37*

200 000 20 000.000 350 000

$35.000 000

• Redemption price reduces in future years.

All or any part of each outstanding 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.

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9 (6)

LONC TER$1 DEBT Details of long-term debt outstanding are as follows:

December 3L lo70 lo78 (Thousands of Dollars)

First hjortgage Bonds:

31/8"o Series B, due 1984 5 6,000 5 6.000 43/8% Series C, due 1087 12.000 12.000 43/8% Senes E.

due 1002 8.000 8.000 53/4% Series F, due 1907 15,000 15,000 63/4% Series G, dueloo8 10,000 10.000 73/8% Series H, due 1998 15,000 15,000 93/8% Series 1.

due 2000 30,000 30.000 73/4% Series I, due 2002 30.000 30.000 91/4% Senes K, due 2004 25.000 25.000 13 1/8 % Series L.

due 1082 10.000 10.000 01e4% Series $1, due 200o 30.000 30.000 Total First hlortgage Bonds 101.000 191,000 Pollution Control Note,5.9%, due 1908 2,214 2,214 Unsecured Note,105% of prime, due 1984 20,000 20.000 l

Unamortized premium and discount, net 520 540 Long-term debt, net

$213.734 5213.763 Long-term debt maturities and cash sinking fund requirements on debt outstanding at December 31, 1979 are as follows: 1982. 510,000,000 and 1984, $26.000,000. In addition, 6

there is an annual 1 percent sinking and improvement fund requirement, which amounts to 51.910,000 for 1980. 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.

Essentially all utihty plant is subject to the lien of the n.ortgage indenture.

(7)

LEASES The Company has entered into lease agreements for the use of substation equipment, data processing and oftice equipment, vehides and oifice <, pace. 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.

Rental payments charged to operations, including rental payments on capitalizable leases, amounted to $1.co8.000 for 1970 and $1,733,000 for 1978.

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: 1980, $1.800,000: 1981, 51,700.000: 1982, $1 o00.000: 1983, 51,700,000: 1984, 51,500,000: and for the years subsequent to 1984, an aggregate of

$16,800,000.

(8)

CONSTRUCTION PROGRAh!, FINANCING AND CONTINGENCIES The Company is engaged in a continuous construction program and currently forecasts construction expenditures, including nuclear fuel, to be approximately $42.1 million in 1980 and $256.8 million for the years 1981-1985 The construction program 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 i* lief by regulatory commissions. It is expected that compliance with present and developing i gulations established by various authorities in the areas of nuclear plant licensing and safet/, land use, water and air quality, and other environmental matters will require additional capital expenditures and increased operating costs not now determinable in amount. Substantial capital and operating expenditures have been budgeted by the Company in response to known ant: anticipated requirements of the U.S. Nuclear Regulatory Com-10

mission (NRC) as a result of its analysis of the Three N!ile Island accident. However, ad-ditional expenditures may be regt. ired as a result of further NRC analysis of the accident. In addition uncertainties related to the reprocessing or permanent storage of nudear fuel may require revisions in future nuclear fuel costs.

At December 31, 1979, construction work in progress included an investment of $88.5 million in jointly owned nuclear generating facilities consisting of a 12.3 percent interest in Niillstone !!! of $83.3 million and a 14.2 percent interest in the proposed N!ontague nuclear plant of 55.2 million. All the companies owning undivided interests in these jointly owned facilities are required to provide their own financir g in order to support their portion of construction costs.

The Niillstone III nuclear unit is being constructed for a 198o in-servira date. The an-ticipated cost of the Company's 12.3 percent ownership share of the unit, acming approval by the appropriate regulatory commissions of the net-of-income tax accounting treatment, as discussed in Note 1, will be $25o mdlion. In 1978. because of regulatory delays and financial constraints, the system suspended its early site review effort for the Ntontague facility but continues to perform meteorological and aquatic studies of the site and to capitalize AFUDC.

In 1080. the Company's construction program is expected to be financed from internal sources. long-term financing and short-term debt. Ft.ture earnings and the Company's ability to meet earnings coverage requirements for long-term financing will be affected by a number of f actors, including 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 etfect of which cannot be determmed in advance.

The current six-year construction program does not include any funds for the conversion of any of the Company's oil-tired generating units to coal. Certain of the Company's units may be subject to federal orders prohibiting the use of oil. The estimated cost of conversion of the unit which the Company believes is presently under consideration by the federal govern-ment for conversion. ranges from approximately 522 million to approximately $43 million, depending on the environmental requirements applicable to the unit.

(0)

QUARTERLY FINANCIAL DATA (UNAUDITED)

Summarized quarterly financial data for 1070 and 1978 are as follows:

Quarter Ended N1 arch 31 lune 30 September 30 Dec'mber 31 iThousands of Dollars) 1970 Operating Revenues

$43.241 S30.917

$41.615 S42.916 Operatmg Income 5 o.3o5 5 5.273 5 6.301 5 5.514 Net income S o,295 S 2.113 5 2.935 S 2.330 1978 Operating Revenues

$46.530 539.712 S33.816 535.973 Operating income S 8380 5 5.747 5 o.944 S 6.490 Net income 5 5.547 5 2.o00

$ 3.801 53386 Fluctuations between quarters within a year are primarily due to seasonal variations.

(10) INtPACT OF CHANGING PRICES (UNAUDITED)

The following supplementary information was prepared on the basis prescribed by the Financial Accounting Standards Board in Statement of Financial Accounting Standards No.

33. " Financial Reporting and Changing Prices" for the purpose of providing certain in-formation about the effects of changing prices. It should be viewed as an estimate of the approximate effect of inflation, rather than a precise measure. Specifically, fixed assets and related depreciation expense appearing in the primary. historical cost financial statements have been restated on two bases, constant dollar and current cost amounts. Restatement of other items would not materially affect the restated amount of net income.

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Statement of Income Adjusted for Changing Prices For the Year Ended December 31,1979 Conventional Constant Dollar Current Cost Historical Averace Average Cost 1979 Dollars 1970 Dollars s h1 lliorss of Dollars)

Operating revenues

$168 5168 5168 Fuel used in generation 50 50 50 Depreciation and nuclear fuel amortization 15 29 33 Other operation and maintenance expenses 31 51 51 Federal and state income taxes 10 10 10 Interest expense 17 17 17 Taxes other than income taxes 15 15 15 Other income 4

4 4

Net income (loss)

(excluding reduction to net recoverable cost)

S 14 5 -(b) 5 (4)

Increase in specific prices (current cost) of fixed assets and nuclear fuel held during the year (a) 5119 Reduction to net recoverable cost 5(27)

(29)

Ef fect of increase in general price level (112)

Excess of increase in general price level over increase in specific prices af ter reduction to net recoverable cost (22)

Cain from decline in purchasing power of net amounts owed 40 40 Net S 13

$ 18 (a) At December 31,1979, current cost of fixed assets and nuclear fuel, net of accumulated depreciation, was

$954,507,000, while historical cost or net cost recoverable ihrough depreciation was $456,235,000.

(b) Including the reduction to net recoverable cost, net income (loss) on a constant dollar basis would have been

($27,000.000) for 1970 Five Year Comparison Of Selected Supplementary Financial Data Adjusted For Effects Of Changing Prices Years Ended December 31, 1970 1978 1977 197e 1975 (In h1illiorts of Average 1979 dollars)

Operating revenues

$1o8

$174 5173 5171 5171 Historical cost information adjusted for generalinflation Net income (loss)(excluding reduction to net recoverab!c cost)

S-Net assets at year-end at net recoverable cost 5127 Current cost information Net income (lossHexcluding reduction to net recoverable cost)

$ (4)

Excess of increase in general price level over increJse in specific prices after reduction to net recoverable cost 5 22 Net assets at year-end at net recoverable cost

$127 GeneralInformation Gain from decline in purchasing power of net amounts owed S 40 Average consumer price index 217.3 105.4 181.5 170.5 161.2 12

6 Constant dollar amounts represent historical costs stated in terms of dollars of equal purchasing power, as measured by the average level of the Co

'mer Price Index for all Urban Consumers (CP!-

U) during the year. With the exception of CWIP, iich has been escalated for AFUDC during the constructicn period, the data for plant was determined by applying the applicable CPI.U to the historical cost of each plant function for which an average age was determined.

Constant dollar restatement corrects distortions caused by recording transactions in dollars of varying purchasing power. The restated amounts do not purport to be appraised value, replacement cost, current value, or the individual prices of particular goods and services in the current market:

nor are they indicative of the Company's future capital requirements.

Current cost amounts reflect the changes in specific prices of plant from the date the plant was acquired to the present, and are based on estimates of the costs to acquire or produce today, assets identical to those owned or assets having the same service potential as the assets owned.

The current cost of plant and equipment was determined by indexing the historical costs of each plant function. for which an average age was determined by the applicable Handy-Whitman Index of Public Utility Construction Costs. Both the constant dollar and current cost amounts of land have been estimated by using the CPI-U.

The current year's depreciation expense for both constant dollar and current cost methods was determined by applying the Company's depreciation rates to the indexed plant amounts. Ac.

cumulated depreciation under both methods was estimated for each major plant function by multiplying the respective cost data by a percentage representing the expired life of existing facilities of each function at December 31,1979.

Fossil fuel inventories and the cost of fossil fuel used in generation have not been cestated from c

their historical cost as regulation permits the recovery of fuel costs through the operation of ad-justment clauses. For this reason, fuel inventories are considered to be monetary assets.

As prescribed in Statement of Financial Accounting Standards No. 33, income taxes were not adjusted.

The excess of the increase in general prices over the increases in specific prices of plant indicates that, for the year 1979, general inflation was greater than the increase in specific prices of plant.

Under the rate-making process prescribed by the regulatory commission to which the Company is subject, only the historical cost of plant is recoverable in revenues as depreciation. Therefore, the excess of the cost of plant stated in terms of constant dollars or current cost that exceeds the historical cost of plant is not presently recoverable in rates as depreciation, and is reflected as a reduction to net recoverable cost.

During a period of inflation, holders of monetary assets suffer a loss of general purchasing power, while holders of monetary liabilities experience a gain. The gain from the decline in pur-chasing power of net amounts owed is primarily attributable to the substantial amount of debt which has been used to finance property, plant and equipment.

Auditors' Report To the Board of Directors of Western N!assachusetts Electric Company:

We have examined the balance sheets of Western N1assachusetts Electric Company (a hlassachusetts corporation and a wholly owned subsidiary of Northeast Utilities) as of December 31, 1970, and 1978, and the related statements of income, retained earnings and sources of funds for gross property additions for the years then ended. Our examinations were 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 financial statements referred to above, present fairly the financial position of Western N!assachusetts Electric Company as of December 31,1979, and 1978, and the results' of its operations and the sources of funds for gross property additions for the years then ended, in con-formity with generally accepted accounting principles applied on a cc,nsistent basis.

. Hartford. Coe.ecticut, February 20,1980.

ARTHUR ANDERSEN & CO.

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Western Massachusetts Electric Company

SUMMARY

OF OPERATIONS For the Years Eerded December 31.

1970 1078

?

Operating Revenues

$1o7,e89 5156 031 Operating bpenses:

Operation and maintenance 100,042 85.052 Depreciation 14,5c5 14.200 Federal and state incor..e taxes 10,333 13.o20 Taxes ather than irmome taxes 15.37o 15 108 Total oper ting expenses 141,23o 128.070 Operating irr.ome 2o,453 27,001 Other Income, Net 3,847 3.384 Income liefore Interest Charges 30.300 31.345 Interest Charges, Net 16.o27 15.831 Incomeibefore cumulative effect of accounting changes) 13,o73 15.514 Cumulative effect prior to lanuary 1,1974 of accounting changes, relating to the energy adjustment clause and unbilled revenues, net of applicable income tases of $1,817,000 Net income 5 13 e73 5 15.514 l'ro forma Net income (assuming the 1974 accounting changes above were applied retroactively) i 6

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(a) The pro forma change for 10o0 is estimated to be immaterial and, therefore, has not been computed.

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1977 107o 1075 1074 lo o c

(Thousamis of Dallars) 5144.013 5134.135 5126.514

$110.0o7 532.590 7o 087 7o.5o4 80,o74 77,3o3 28.o78 13.808 14.I81 8.133 7.7eo 4.SoI 13.327 o.717 (l.081) 2.184

3. leo s

14.201 13.318 11.210 10.503 o 221 117.543 110 780 104.03o 0790o 42 c2e 27,370 23.333 21.578 21,1c1 00o4 28o5 2.5e8 3.515 2 010 1.072 30 235 25.023 25.003 24 071 11.03o 15.042 15.o30 12.2o0 12.304 4.408 14.203 10.284 12.827 11.o77 o.o28 1 000 5 14.203 5 10.284 5 12.827 5 13.337 5 o o28 5 11.e77 (a) 15

Western Massachusetts Electric Company MANAGEMENT DISCUSSION AND ANALYSIS OF SUMM ARY OF OPERATIONS

- A summary of the changes in the principalitems affecting earnings is shown below:

Increa*e / (Decreas4 l

1970 vs.1078 197S vs. lo77 Amount Percent Amount Percent IThous.mds of Dollars)

Operating revenues.

511,658 7.5

$11.118 7.7 Operation and maintenance expenses:

Cost of fuel.

9,515 23.7 6.627 19.7 Other operation expenses.

4.541 12.8 1,781 5.3 Maintenance....

1.834 19.5 557 6.3 -

Provision for depreciation.

3o5 2.o 332 2.4 Provision for income taxes.

(3.267)

(24.01 293 2.2 Other taxes.

178 1.2 937 6.6 Allowance for funds used during construction..

1.341 24.1 808 17.0 Interest and other charges (excluding a!!owance for borrowed funds used i

during construction).

1,901 10.5 212 1.1 Operating Revenues The operating revenues' increase of 7.5 percent in 1979 is primanly due to an increase in fuel cost recoveries reflected in billings through higher fossil fuel clause charges on customers' bills. Revenue increased 7.7 percent in 1978 due to a rate increase which was received in April 1977 and increased fucl clause charges.

Operation and Maintenance Expenses Operation and maintenance expenses increased in 1970 and 1978 by 515.9 million (19 percent) and $9.0 million (12 percent), respectively. Fuel cost increased by 59.5 million (24 percent) in 1079 and So.6 million (20 percent) in 1978 and account for a significant portion of the overall increase.

Fuel cost increases in 1970 were attributable to escalating fossil fuel prices. additional purchases of interchange power, and increased nuclear fuel costs. Nuclear fuel expenses increased due to an in-crease in f uel prices and the provision for the ultimate disposal of spent fuel.

Maintenance expense increased by $1.8 million (20 percent) in 1070 due to increase storm costs and expenses incurred in connection with outages of the Millstone units. Increased maintenance expense in 1o78 was due to scheduled refueling and maintenance of the nuclear units. Expenses in both periods were adversely affected by rising inflation.

Taxes Federal and Massachusetts income taxes decreased in 1079 due to lower taxable income and the lower federal statutory rate. Income taxes increased slightly in 1978 due to higher taxable income.

Other Income Other income consists mainly of the allowance for equity funds used during construction (AFUDC). Total AFUDC. including the portion classified as a credit to interest charges, increased by

$1.3 million (24 percent) in 1979 and $1.0 million (17 percent) in 1078. The increase in AFUDC for both years represents growth in construction work in progress which is primarily due to the Com-pany's investment in the const uction of nuclear projects.

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Interest Charges Total interest charges (excluding the credit for allowance for borrowed funds used during construction) increased in 1970 and 1978 by $2.0 million (11 percent) and 5200.000 (1 percent),

respectively. The increase in 1970 is due to additional short-term borrowings and higher rates on -

these borrowings.

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h 6

Western Massachusetts Electric Company STATISTICS A:?cray Utility I'larrt Armual Electric December 31 Kwit Sales Ress.lcritial Customers Ems'lo vecs

' Titausamie (Alilliarup N:cIn U<etal r.-h cra vo

' Dec emI'er 311 1060

$219.711 2.053 e.203 149.030 072 1974 408,131 3,370 7.501 1o1.101 080 1075 451.518 3.200 7,4o4 162.773 027 1076 483.532 3.432 7.o34 le3 418 884 1077 501.002 3.441 7,513 1o4.50o 853 1078 531.84o 3.430 7,430 1o5.151 828 1070 So7.o81 3.502 7,553 leo.280 815 (al Based on residential equivalent customers, reflecting total dweihng units.

17

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Address General Correspondence in Care Of:

Northeast Utilities Service Company Investor Relations Department P.O. Box 270 Hartford, Connecticut 06101 Tel. (203) 66MW11 Ceneral 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 Registrar Hartford National Bank and Trust Company, Hartford, Connecticut 06115 Dividend Payment Dates 9.60% Series A.

March 1, June 1, September 1 and December 1 7.72% Series B January 1. April 1. July 1 and October 1 l

The data coatained in this Report are submitted for the sole purpose of providing information to prewnt stakholoers about the Company.

...,.. + -....

-,.