ML19327B004
| ML19327B004 | |
| Person / Time | |
|---|---|
| Site: | Seabrook  |
| Issue date: | 12/31/1988 |
| From: | Ellis W NORTHEAST UTILITIES |
| To: | |
| Shared Package | |
| ML19327A998 | List: |
| References | |
| NUDOCS 8910240180 | |
| Download: ML19327B004 (52) | |
Text
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~ NOIrrHEAST UTILITkES L
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1988 Annual Regk>rt
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. THECOVER ~.
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/ %& HIGHLIGHTS' 1988 1987 h4.Y.%[g.E 3 W , + f;, sh,/.9 ,
Operating & venues $2,279,491,000 $2,080,898,000 9.5 Net income $233,922,000 $229,145,000 2.1 hw,.R p. fg ,,, L' %. f.ws... 4' Earnings Per Common Share $2.18 $2.11 2.1 r, - o %,3 i')VM Common Shares Outstanding (Average) 108,669,106 108,669,106 - M g A;c Dividends Paid Per Share $1.76 $1.76 -
; Sales of Ekstricity (kWh - Thousands) 24,412,000 23,405,000 4.3
_ :u M y Sales of Gas (Mc0 31,707,000 30,804,000 2.9
$k$ .. ., L Electric Customers (Year-end) 1,235,675 1,209,686 2.1
' M'I Gas Customers (Year-end) 175,073 169,937 3.0 Construction Expenditures" $291,939,000 $329,497,000 (11.4)
' Includes gas operations to be divested. See Note I et Notes to Cansolidated Financial Statements.
"Encludes nuclear tuel.
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"' 5 : ..y .,p2 CONTENTS Highlights 1
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- letter to Shareholders . 2 IgPp Performance Highlights . 6 afi.qq ; Financial and Statistical Section 17 Shareholder Information . 46 Omcers and Trustees 48
;Th COMMUNITY SERVICE Companies often are looked upon as cold, impersonal entities with little regard for the personal needs of individuals, but we at NU consider oursekes a family of concerned men and women. We not only touch more people than almost any other business in Connecticut and utstern Massachusetts, but we feel a
*y responsibility to work within our communities with caring sensibstity, giving of ourselves to help others
, f; share a meaningful, productive, and rewarding quality oflife.
+ i Throughout this report, copy contained in light purple boxes, such as this one, will cotwr some of these L - ' .m Nil comm unity activities.
NE a
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'h in 1988, utilities within the context of the growing out of governmental auch decisions to keep electric rates 1 Northeast free enterprise system.
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Utilities (NU) at artificially low levels. found itself Ore of the principles in the involved in United States' development of the For NU, this rapidly changing
%] e ( a match for free enterprise system was that environment has become quite a' .
_l-, survivalin the a corporation could utilize its threatening. As competitors'
.]j j increasingly resources and resourcefulnecs to " gambits" have unfolded, NU has competitive market a product, then recover come to recognize the potential for energy the costs and make a profit by signincant losses of energy sales n.aketplace. That match is being charging prices determined by and revenues to unregulated played on a amplex " chessboard the forces of supply, demand, power producers. Relymg on the of competing business forces. and competition, adage,"The best defense is a good offense," NU has devebped a The convergence of social, political, One exception to Di; principle plan to respond to the competition and economic forces that resulted was the electric utility industry, and, at the same time, move the in this competitive environment In the early 1900s, state and match to a larger board-a board can best be understood by lookin'n federal governments placed enlarge,d by possible geographical back on the evolution of regulated members of this emerging expansion or new business line industry under a system of opportunities.
comprehensive government regulation in return for generally To help achieve our goals, we noncompetitive marketplaces. developed a set of" strategies Thus, financial performance for prolltability in public service" became more a product of to protect and improve upon our regulatory mandate than position of more than a century of free-flowing e.conomic ofleadership and to counter with forces. At the same time, moves based on~ strengthening technological improvements our existing assets and adding < S led to a reliable energy to our profitability through B supply and other greater diversity. Our strategies for the 1990s are: increase the s.- considerable benefits pk . AQ for society. For over competitiveness of NU's core 70 years, this compact business; improve NU's financial between the country and performance; expand NU's electric the electric utilities business geographically; and enter
,'. worked remarkably well. new energy-related businesses.
Much of this letter is devoted to
~ ,
However, during the late these strategies and performance 1970s, regulated electric activities related to them; otner utilities began to be information is covered in the challenged by the forces
- Performance Highlights" section of con. petition-principally beginning on Page 6.
unregulated pnwer A producers-and by chronic financial underperformance e .s
. , 7 9
d , William B. Ellis, NU chairman and chief executive officer, was presented with the resti ious *Communits Service kwarb of the UnitedofV l
\, ~ the Capital Area in January The I award honored his decade o' ice to
' his \
the commitmentcommunity as anand the e.templify activist Unitra Way,ing \ good corporate citizenship and socsal l responsibil.'ty, and, in the words of the j award presentation, his standing *as a l model member of a caring community.'
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% The First Strategy:Inrrease individu11s cnd erg: nit:ti:ns That decision 1: wared CL&P's I the Competitiveness of NU's wha have been interv:ntrs end - til:wid return en equity from 14 Core Business (See essay by interested parties in the company's' percent to 12.6 percent,provided l
. Frank R. locke, senior vice - rate cases. This process resulted . a $10 millicn one time refund to ,
. president-Customer Service, in a broad spectrum of new and electric customers reduced gas , ,
l cn Page 7.) enhanced conservation and load. - revenues $10.4 million, prohibited : L management (C&LM) programs. CL&P from recovering certain 1 No matter what moves we might- fossil fuel costs, and imposed a
- contemplate, none will succeed When we announced our C&LM $17.5 million penalty for capacity ~~ r unless we continue to operate our programs in May 1988, the sales at what the DPUC called !
core electric business as efficiently Conservation Law Foundation below market value. The penalty - cs possible. Therefore, during one of the is being challe.nged in Connecticut y 1988, we continued to strengthen of New England participants in tIioInc.llaborative co ' courts. ' NU's core business by reduemg, process, described the programs - e:sts, improving customer service, as "the most comprehensive and ' A further Connecticut rate- t cnd seeking more competitive rate sophisticated package of energy- decision rendered in December structures through the regulatory saving measures yet proposed - 1988 also was disappointing in process, anywhere in the country,,, the treatment it would give the - proceeds of recent capacity sales e The results of cost cutting and NU's Massachusetts utility that will significantly benefit NU expense reduction activities have subsidiary, Western customers. In return for CL&P been impressive. Functional Massachusetts Electric funding an additional portion of j operating expense budgets were Company (WMECO), took the the Seabrook project for four rsduced well below 1987 levels, ' lead in establishing a similar months, several regional utilities 1 as was NU's 1988 capital budget. ' collaborative process it. agreed to buy 1800 megawatt-Personnel level planning allowed- cooperation with five other years of capacity through 1994. L us to reduce our work force by electric utilities in the Bay State. These capacity sales will contribute more than 300 authorized over $200 million in net revenues ' positions with virtually no layoffs. In another matter that will affect and mitigate the need for future the NU system, CL&P moved in - rate increases, but the DPUC ,i Even as we achieved these 1988 to divest its Gas Business. will not allow any of that revenue '
- savings, COMPUTERWORLD NU proposed to establish the to flow to NU shareholders. On magazine, a widely read computer Gas Business as an independent the positive side,in the same i industry trade journal, holding company, Yankee Energy December 1988 ruling in the rreognized NU as the most with an CL&P rate case, the DPUC efficient user of data processing System, operatingInc., gas distri (YES)bution utilit '
y' equipment, dollars, and personnel Yankee Gas Services Company, as y, > emong more than 250 corporations its principal subsidiary. Specifics - surveyed. This is wonderful the divestiture will be Earnings /Dh,idends recognition of how we are concerninkareholders given to s when final increasing the productivity of approvals have been received. m tARuisc5 m omotwos our highly skilled employees to From a strategic perspective PER SHARE PER 5HARf ec itribute in a significant way to however,it is clear that, while making NU a more competitive divestiture will meet a mandate a "fak^i[T3 g playerin the new business of federallaw,it also will enable environment. us to focus on our core electric Dollars business and reinforce it as the 3.00- ,
'Ib improve customer service, foundation upon which NU will NU expanded programs designed expand. -
to recognize the energy related
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needs of our major commercial The Second Strategy: Improve 2.50 and industrial accounts, to NU's Financial Performance ' increase direct contacts with these (See essay by Robert E. Busch, ortant customers, senior vice president-Finance, strategically and to work witimfi them to devise on Page 9.) B 2'00 energy saving programs that will increase their perception of NU The second strategy, tied to our as the highest value supplier of efTort to achieve more competitive energy service. rate structures, involves im proving NU's financial performance. Its 1.50
. 'Ib ensure that our energy saving financial performance in 1988 programs were effective and continued to be weaker than that properly targeted, NU's of most electric utilities and, y Connecticut utility subsidiary, therefore, disappointing, largely j ,no The Connecticut Light and Power because of the Connecticut Company (CL&P), pioneered a Department of Public Utility collaborative process in which Contrors (DPUC) February 1988 ,
we negotiated directly with many ruling in the CL&P rate case. ' 0 1984 1985 1986 1987 1988 { _. . _ . ~ . ~ . . . . . . . _ _ _ _ _ _ _ _ _ _ - . . - ___ , _ _ _ - - - - . _ _ _ _ - .
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cpproved an recel:rati:n cf thi ($8 6 milli:n)incre se in b:se PSNH rev2nues. NU proposed a J phase in of all:wed Millstone 3 revenu:s f;r WMECO, fir sh rt sevsn ye:r rate cgreement with construction costs into CL&P's of the 8.3 percent ($22.5 million) the state of New Hampshire and - rate base, bringing the total increase WMECO had requested. that regulation of PSNH remain ;
< to 80 percent. This will save The DPU also increased the with the New Hampshire Public >
CL&P customers an estimated - . percentage of allowed Millstone 3 Utilities Commission. !*
$40 million during the remainder construction costs in rate base to '
of the phase in period. The 60 percant, increased WMECO's NU proposed to transfer PSNH's decision also approved allowed return on equity from share of the Seabrook nuclear mechanisms to help ensure 12.5 percent to 12.75 percent, and pre, ject to a separate company improved recovery of fossil fuel ordered equalized rates of return owned by PSNH's unsecured ~ j
- costs and nuclear outage expenses, among all groups of customers. creditors and to guarantee ;
' purchase of the new company's !
'1989 CL&P In December 1988, WMECO ower for On January appealed 20' Hartford Superior filed a new rate case seeking a to the share the life of of the Seabrook's[9 unit ( years).
Court to reverse the DPUC on 9.76 percent increase ($28.3 million) two aspects ofits December 1988 in revenues. The company asks- We recognize that PSNH's ( decision-denying shareholder that the phase in of Millstone 3 due almost entirely participation in the revenues from costs be accelerated by using bankruptcy,ial to its financ involvement with , capacity sales to other utilities revenues expected from NU Seabrook,in no way negates the ' and disallowing CL&P a return capacity sales. strength ofits core business and , , on money spent on fuel but not valued customer service. We ' yet collected in rates. On balance, the decisions made see this amliation resulting by the Connecticut DPUC and the in increased economics and The earnings outlook for 1989 is Massachusetts DPU were, once emciencies of operction, greater dimmed by the DPUC's December again inadequate, having the access by the combined companies 1988 decision. CL&P had overall effect of significantly to best priced power from Canada : requested increases of 5.4 percent impacting 1988 earnings and and areas to the west of New . t ($94.4 million)in electric revenues dimming the outlook for 1989. England,and amore profitable NU. and 2.3 percent ($4.9 million)in Still, some degree of success was I gas revenues. These modest achieved in convincing these The Fourth Strategy: Enter New requests were significantly lower regulatory bodies to c <aluate our Energy Related Businesses than the 19 percent increase in needs within the context of today's (See essay by John P. Cagnetta, t the Consumer Price Index from environment in which we must senior vice president-Corporate ; the end of1983-when CL&P be permitted to operate on a Planning and Regulatory , received its last rate increase- competitive basis to benefit our Relations, on Page 13.) j to the end of1988. However, the customers and achieve equitable DPUC approved increases of only returns for our shareholders. In September 1988, NU began , 1.54 percent ($27.3 million) and widening its business horizona 0.66 percent ($1.4 million), The Third Strategy: Expand to increase profitability through F 4 respectively. CL&P's request for NU's Electric Business the addition of nontraditional, a 13.5 percent return on equity Geographleally (See essay by unregulated power generation L was reduced to 12.9 percent. John F. Opeka, executive vice and energy services enterprises, president-Engineering and Because of anticipated Operations, on Page 11.) We filed an application with i" disappointing 1988 earnings the Securities and Exchange and the need to expense all costs Geographical expansion was Commission to create a wholly related to the completion of the adopted as a strategy to enlarge owned subsidiary, Charter Oak Seabrook 1 nuclear power project, the NU family of companies by Energy, Inc.,(COE), to invest and i the Board of Trustees voted,in amliating with companies in participate in cogeneration and January 1988, not to increase growing and profitable service roduction facilities l the $1.76 per share dividend, territories and to increase small nationally. powedr e believe COE will I l following nine consecutive years economics and emeiencies of complement our core electric , - ofincreases. In January 1989, operation through a broader business and will provide an unregulated source of added the Board of Trustees voted to base and peak load diversity. continue the indicated annual profitability with strong dividend at the same $1.76 level As a first step toward potential earnings. l because NU is expecting lower geographical expansion, in carnings as a result of the spin oli January 1989, NU submitted a We also initiated plans to become of the gas business and because proposal, with a total value of involved in an energy service NU is already paying out more more than $2 billion, to Public company to provide services . than 80 percent ofits earnings Service of New Hampshire associated with the installation in the form of dividends. (PSNH) to acquire PSNH's of conservation and load-operating busmess and establish ' management equipment, The Massachusetts Department it as an NU operating subsidiary. pnmarily for larger commercial of Public Utilities'(DPU) ruling in Necess try funds would be raised and industrial customers. Our June 1988 also was disappointing. in the capital markets and repaid preliminary plan calls for The DPU approved a 3.2 percent from amliation economics and providing energy services "T . '
L throughout New Engl:nd in generate elretricity at lower-than- Th2 Outcsma cf th2 Match: We crd:r to help casure maximum pro; ected ecsts, resulting in a $23.2 beliens the the drcmstic sucesssss amelency in our region's business mil,lon refund to CLAP customers. NU achieved in capacity sales, community. cost management, and customer The Nuclear Regulatory service during 1988 created the Building on Existing Strengths: Commission gave very favorable opportunity for your company to We believe NU is well positioned ratings to the three Millstone expand its geographical boundanes i to pursue these strate units and Connecticut Yankee, and develop unregulated, I ofits many strengths.gien These because and our success in maintaining all nontraditional, energy related assetsinclude one of the industry's Millstone units on line during the subsidiaries, most highly skilled and effective summer of1988 made it possible wuk forces our strategie location, for the NU system to provide What began as a year of" changing the continuing vitality of the power to help meet heavy demand the way we do business" to meet j Connecticut, Massachusetts, and thrc ighout New England, growing competition in the electric j New England economics, our high- energy marketplace, ended with ; quality customer service, and a In addition prospects for an NU that will be l considerable base of physical assets. plants contm, ue toNU's fossil exceed New and hydro larger and increasingly diversified England Power Pool targets for and profitable. We are more Another strength is the superior plant availability. determined than ever to use every performance of NU's generating resource at our command to ensure capacity NU's composite nuclear N1; also extended its commitment NU's role as the predominant capacity factor was 79.2 percent to improve reliability in its ciectric service company in all of , in 1988, well above the national transmission and distribution New England: , aver .ge of 65.1 pe-cent. The system, because we know that l erformance of these meeting competition is not simply ' excellent units ena bled the NU system to a matter of having the lowest price. It's also being the highest iM 1 j value provider, and reliability is William B. Ellis an integral part of that value. Chairman and Chief Executive Officer
, O,ur achievements in ,,
excellence m service were recognized in October 1988 when Governor William A. Bernard M. Fox
' s O'Neill presented to President and Chief NU the Connecticut Operating and Financial Officer
. q~g Quality Improvement l I:
Award in the service 1 compames category. March 3,1989 ! The newly created j award recognized NU's < service improvements, l enhanced productivity, l and contributions to its l l business customers in l l helping them maintain their competitive edge l in the marketplace. l l l l l k '
,, l l Bernard M. Fax, NUpresident and )
chiefoperating and financial offleer, , is chairman of the $4.5 million Capital 1 Campaign for a new residence and ! t emergency shelter for The Open Hearth, l
\ a Hartford organization serving disadvantaged and homeless men. Mayor l
\ Carrie Saxon Perry ofHartfordpaid en bute to Fox fo; the energy and commitment he i \ hus brought to the compaign,for thepositive public image ofthe am2ation he has helped to create, and r being 'a messenger 1 to the community on halfof The Open l Hearth.' Mayor rerry added, 'The Open Hearth couldn't have a better spokesman.'
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' SYSTEM PERFORMANCE- ' Regul; tory C:mmissi:n for their rell;bility targets, hiiping to l SUPPLY. consistently good perf;rmtnce meet intermedi:te end peak lzd i and for " strong commitments to conditions. (Baseloads are i
'At January 1,1989, the Northeast safety at alllevels." Nuclear normally carried by nuclear i
; Utilities (NU) system had electrical generation provided 68 percent < units.) These units produced i
, generating capacity, net of sales of our total electrical energy 27 percent of the electricity we !
. cnd purchases, of 6756 megawatts requirements in 1988. generated in 1988-23 percent l
' (MW). Summer demand peaked from oil, 3 percent from coal, )
.C
'ct 4883 MW on August 12,1988, Even though the Connecticut and 1 percent from natural gas, i cnd winter demand peaked at Yankee nuclear plant was down 4830 MW on January 14,1988, for maintenance and refueling Four fossil fueled units at our .)
. for three months, Millstone 2 Devon facility were put on 1 i,
Through its operating companies, was down for two months, and deactivated reserve status when J The Connecticut Light and Power Millstone 3 for one and one half Millstone 3 came on line in 1986. ,
. Company (CL&P), Holyoke Watet months in 1988, the nuclear units These units were part of a total i Power Company (HWP), and in which we have entitlements of approximately 444 MW- i Western Massachusetts Electric experienced an average capacity including Middletown Unit 1 and 1 Company (WMECO), NU factor of 79.2 percent in 1988, well six gas turbine units--originally' -
participates in the New England above the industry average of intended for retirement at the + Power Pool (NEPOOL). NEPOOL 65.1 percent. same time. But, in response to : reached a new all time summer regional New England capacity q demand peak ofl9,608 MW on Connecticut Yankee celebrated its requirements and contingent upon
- August 11,1988. NU's plants and 20th year of commercial operation purchases of this capacity and an
. personnel were instrumentalin on January 1,1988. Notable in additional 500 MW of capacity by i meeting the region's demand. those 20 years is that it held the NEPOOL participants over the
, title of the largest nuclear next five years, the Devon units Nuclear generating station in the world were reactivated and the : i for two years, twice held the world retirement of the other units was ,
Our nuclear plants carned record for days of continuaus deferred. Devon Unit 3 was back , high ratings from the Nuclear operation, and had generated more on line in November 1987 and the other three units by May 1988. than 80 billion kilowatt-hours of electricity. (80 billion kilowatt-Nuclear Capacity Factors hours is equivalent to supplying Additionally,in the fall ofl988, , power to all the residences in five other gas turbine units- 1 MB U.s ' Connecticut far the past ten years.) totaling 93 MW-were reactivated ;
~ MB QE sf to service. Four of the units were r Percent In December 1988, NU was made operational by November 1988 90 a full member of the National and the fifth is expected on line >
Academy of Nuclear Training in by May 1989. These units were ceremonics at the Lelan F. Sillin, retired earlier in the 1980s but 80 Jr., Nuclear Training Center at are being brought back on line the Millstone site. Connecticut for the company to engage in ; Yankee and Millstone 1 and 2 additional capacity sales. , programs had previously been ) accredited, and with the Several trash to energy plants in
.70'LI . II i accreditation of the Millstone 3 Connecticut started up or were l
~.60 programs, NU received full operating in 1988, with varying !
j ! membership. Accreditation is degrees of success NU supports j j received only after a rigorous the concept of these plants but, in n site review by a board of a case before the Supreme Court i 50 I experts in each of ten separate of Connecticut, we argued that the j state law requirement of payment p III 1984 1985 1986 1987 1988 training programs. Fossil of the high municipal rate-about three times higher than the cost 1
'sas,a on omin tiecmc : naima ,,r ait u.s at which we can generate the power nuou, punion commer(bl oma NU's fossil fueled generating ourselves-is unconstitutional and
, sou,ce Nudu, R,nubio,y c **""a will cost ratepayers more in the units on average operated above 7 ..
,o
?; INCREASE THE and trimming its capital exhnditures by approximately
' I COMPETITIVENESS OF $25 million.
NU'S CORE BUSINESS by Frank R. Locko
- We reduced the number of authorized personnel by senior vice president more than 300 through nonnal attrition and turnover, a I Customer Service hiring freeze and redeployment of workers to fill critical vacancies, wberever feasible, but with virtually no NU entered 1988 challenged layoffs. At the same time, we maintained competitive l as never before by increasing wages and benefits.
competition in the energy marketplace. However, tKe challenge.
- NU improved its customer service by continuing to rather than intimidating us, decentralize operations to put day-to-da decision-strengthened NU's determination making and responsibility in the hands f regional to maintain its position as the predominant electric officials who are closest to customers. We expanded the service company in all of New England. number of meetings between our senior management I
and the senior management of our largest commercial
'Ib meet the challenge, NU embarked on a three part and industrial customers. We extended training for NU's
, competitive strate,gy to strengthen its core electne field staff to update them on the needs of our customers business by reducing costs, improving customer service, and ways in which those needs could best be served.
, and working with regulators to develop a more i competitive rate structure. We built this strategy on
- We sharpened the focus of NU's conservation and load-l o r existing strengths-one of the best work forces in management programs to help customers improve their
, the industry, more than $6 billion in p ysical assets, own profitability and to persuade them to stay with the i excellent plant performance, outstand ng customer NU system rather than switch to self generation. ! service, and our strategic location in a region continuing to enjoy strong economic growth.
- We stepped up spending on reliability improvements, i bud eting more than $80 million for service reliabilit'y l During 1988 we com leted the first phase of an wor in the next six years, and allocated more than l Activities Value Anal sis (AVA),in which our emp1 ees $20 million to tree trimming, nearly triple the 1985 level.
! identified areas where costa could be reduced, fune ons i eliminated or curtailed, and service improved. This in the regulatory arena, we tailored our rate cases to
! una sis followed a similar review that had been t to achieve a more com titive rate structure. In I con ucted in our nuclear operations. In addition, a study t 1987 CL&P rate case ecision, we secured from ! of Fossil / Hydro operations was completed in late 1988 the Connecticut DPUC an acknowledgment of the and is being reviewed competitive threat to the system and the first steps b a committee of to hel CL&P meet the competition. Those steps management. in:lu ed backup / standby rates, improved treatment I The committee of demand and energy charges, and rate design thanges is expected to to encourage energy conservation. recommend s s specific courses The changes in the rate structure are not sufficient to
'( of action by eliminate the subsidies larger customers have to pay
' > ,-J mid 1989. to keep rates low for residential customers, but we are f' y4. determined to carry this effort forward in ensuing cases.
As a result of AVA in 1988: For NU,1988 was the first of three years ofintensive work to implement our com etitive strategy to make the
- NU reduced NU companies more cost e etive, customer conscious, l its costs by and service reliable.
lowering its functional As the energy marketplace contmues to change through Operations growing competition, NU's resolve is stronger than ever and to ensure that our core electric business will be able to Maintenance provide the highest value for the best price. ! budget by more than $30 million, l l l Frank R. Locke, NU senior vice president-Customer Service, has a long history community involvement in the Greater ringfield area and as President ofJunior Achievement (JA) 1 of Western Massachusetts. His leadership has l het ed increase the number of students enrolled in 1 JA business partnership programs to more than 1 4.000. United States Re sentative Richard Neal, l former Mayor rin eld, said, " Dick Locke's 1 sincerity and i y to our community have been ' steadfast, and Ine's always been willing to go the extra mile for community .ndeavors. Em pleased to call hsm a friend.' Y
}{f long run f r the combin2d cost cf Hydro-Qu2bec in 1988, allowing ' contrzetual terms. To dete, en l trash dispos:1 and elIctricity. th> reginn to r2ducs its nnd for estimxttd s ving to rat;ptysrs of I burning fossil fuel. NU's Hydro- about $11 million in the 1990-91 )
Hydro Quebec entitlement is 23.6 percent 5,eriod has been realized from of that 690-MW transfer capability. these negotiations, although the Hydroelectric plants provided Phase II of the agreement with impact to ratepayers is still I 3 percent of our total energy Hydro-Quebec will increase the expected to be $280 million requirements in 1988. amount of power available from during this period. i this source nearly threefold. In 1988, NU reevaluated the Construction financing was obtained Regional Supply l benefit of going forward with for the project in February 1989, cxpansion plans for three with NU providing a $16.6 million NU is utilizing its capacity by hydroelectric stations-Bulls equity contribution, and construction providing an economic supply Bridge and Falls Village in is progressing on schedule. Two of power to six New England Connecticut and Cabot Station in major components-345-kilovolt utilities and, at the same time, Massachusetts-with a combined transmission lines-are expected gaining revenues. In 1988, we capacity of nearly 42 MW. to be in service by the end of1989, negotiated " slice of system" Because oil prices have dropped ond the entire project is scheduled contracts with these companies 1 cnd construction costs have for completion in fall of1990. for capacity sales in varying I continued to climb, economic amounts over the next six years. l cnalysis indicates that ratepayers Cogeneration and Small (A
- slice of system"is the average would not have seen savings for Power Production cost of all capacity provided by I
ct least 41 years. Therefore, NU.) While NU will deliver almost the expansion plans have been Duri ig 1988,12 cogenerators 3000 megawatt years of capacity abandoned for the present. and small power producers sold to the other companies, it will still firm energy to the NU system have adequate supplies to handle l Hydro-Quebec pursuant to long-term contracts. growth in its own service territory, i Interconnection Combined with another even with additional obligations l 61 customers who self generated that could be placed on the system Up to 690 MW of hydropower was primarily for their own needs, if PSNH joins NU. l imported to New England from private power production accounted for approximately 2 percent of the system's energy CONSERVATION AND LOAD Energy Contribut. ion By Source needs. With the addition of MANAGEMENT M n a cAs another 16 projects with contractual M NUCLEAR M coat commitments to NU that are Demand M HYDRO M coctNERAHON Currently in various stages of l planning and construction, this NU's conservation programs are 1973 contribution will grow to more an integral part of our least-cost l j than 13 percent in the early 1990s. planning efforts to provide j greatest value to our customers l Due to changing conditions in the and improved returns for our energy marketplace, continued shareholders. It should be noted, softness of oil prices, conservation however, that these programs are and load management, and taking place against a background regulatory policies, much of this ofinexorably increasing demand. I privately owned capacity will come While NU presently has the into service ahead of NU's need for capacity to serve not only its own i 1988 new supply resources and initially customers but also other utilities l at prices substantially higher than in the region, faster-than-expected NU could produce the power for growth could require us to resume m itself. In recognition of the planning additional capacity. negative impact this situation can have on the system companies' Demand grow +h projections for retail rates, NU has opened the region have been low for negotiations with several several years. New England has developers to restructure grown faster than expected. For 7 1__-_____________--________--__-_-___-________. _ _ _ _ - .
[ q; v ] , g' l IMPROVE NITS FINANCIAL PERFORMANCE which othu c:pacity short New Englind utilitlis e to purchtse 1 rge c. mounts cf our capacity in returnN d O I g by Robert E. Busch CLAP providing critical, sh:rt term funding f;r the ( senior vice president Finance Seabrook nuclear power project. 3 These sales over the next six years at our
- slice-of.
The challenge of the 1990s in many system
- costs will contribute a benefit of riore than respects will be to capitz.lize on the $200 million in net revenues reducing revenues opportunities of our increasingly required from ratepayers and mitigating the effects
-l- competitive marketplace while of potential disallowances for excess capacity, s 55$ contending with the realities of the g regulatory decisions of the 1980s. In addition, NU has achieved msjor accomplishments in the area of energy conservation and load management
- l. Over the past decade constraints (C&LM). NU's major subsidiaries have developed, imposed by regulatory decisions have led to a financial through collaborativo negotiations with some of the l weakening of utilities through disallowances and write- companies' traditional rate case adversaries, C&l31
! offs. Financial stress, in turn, has been exacerbated by programs designed to persuade larger commercial and
- the emergence of unregulated competition, typically in mdustrial customers to iemain on the NU system, the form ofindependent power producers who seek to rather than switch to self generation. The ability to attract large commercial and industrial customers. This retain this key market segment is a cornerstone of NU's can result in significant load and sales loss for a utility, determination to maintain its future financial strength.
Regulators are then faced with the dilemma of raising ! rates for remaining customers to cover existing fixed NU also embarked in 1988 on a long range business costs or further restraining earnings, strategy based on a more cost effective core electric business and expansion ofits geographical and business In some instances, regulation and independent power boundaries to increase profitability through greeter production have combined to result in expensive, diversity. These areas form a basis for the financial mandated buy backs of uneconamic power, driving up growth we envision. utilities' costs of doing business. This has forced them I to seek more competitive rate designs which usually NU is drawing on its considerable strength and include increased residential rates, placing regulators resources to succeed in the changing utility in the middle of a political minefield. environment. Our greatest assets are our solid core l business, our skilled and experienced work fo-ce, and in fact, NU companies, responding to recent legislation our diverse and efficient generation facilities. These and to pressure from state regulators, began signing valuable assets, combined with a highly capable contracts in 1983 to purchase power from cogenerators management group committed to a strategy of growth and small power producers that are expected to add and diversity, will form about 600 megawatts of capacity to the NU system by a team prepared to 1991. While this power will he!p NU avoid construction capitalize on the l of new generating capacity, it will cost more over the opportunities in next several years than it would cost NU to renerate an increasingly the power itself. competitive energy Instead of being resigned to these financial burdens, marketplace. NU has chosen to adapt to the changing energy These environment, using the company's resources to take opportunities advantage of the opportunities afforded by a more will provide competitive marketplace. For example, NU is seeking NU with to renegotiate its contracts with cogenerators to reduce the ability ratepayer impacts, especially in the early years of these to become projects, and delay the projects until their power is financially needed by NU. stronger and more The Connecticut Light and Power Company (CL&P) profitable achieved a major financial breakthrough in July and m the August 1988 when it created a " win win" scenario in 1990s. Robert E. Busch, NU senior vice president-Finance, is a member of an American Leadership Forum class which is considering a number of 6 f{ proposals to deal with societal problems. The y Forum combines the talents ofpublic and private sector leaders in a cooperative spirit of commitment to commun:ty snvolvement. One of those working with Busch, Reverend Thomas : Hoyt, Jr., director of the Black Afinistries Program at the Hartford Seminary, praised his exuberant ' spirit, saying, " Bob Busch is a lover ofpeople who brings his sntellectual, logical mind to the team f approach, assisting the group to accomplish its goals."
v, , l'988, we f; rec:sted a growth cf ' the M:ss:chusetts DPUto c nvene tha mstaur:s installed, slectric ., s J3.6 percent in cur customers' o simil:r group. This time, ct - snsrgy conservati:n tetiins tik:n , m - tiectrical energy demand; actual WMECO's suggestion, the process will save cm.tomers more than
, ' growth was 4.3 percent. For 1989, was broadened by inviting other ' $60 million. Customers can now we are' forecasting a growth of Massachusetts utilities. Five of . receive similar conservation )
. 2.8 percent. Our ten year growth the six accepted. The first phase, measures through CONNSAVE,' j rate is forecast to be 1.7 percent development of generic programs, a not for profit organization ;
per year.; was completed January 15,1989. ' sponsored by all of Connecticut's The second phase, development of electric and gas utilities. ,
, 4 Conservation and Load- company specific programs,is Management Programs currently in progress. For commercial customers, CL&P -
introduced the Energy Action '
~ In 1988, CL&P took part in a Hospitals and farms were the Program for large customers, collaborative effort, directed by a focus of two of the new energy This comprehensive program l February 4 DPUC order, to plan conservation programs offers customers a way to improve j an $8 million expansion in CL&P's > undertaken by CL&P in 1988 as the energy emeiency of their l existing $10 million conservation " part ofits collaborative process. buildings with incentives designed l End load management program . A no interest revolving loan to shrink the payback period of -J
' budget. The unique part was that ' fund (Connecticut Hospital conservation investments. Services it was a cooperative effort by Association Revolving Loan Fund) are offered through independent frequent adversaries-the power was implemented for financing contractors / arrangers who provide
- company on one hand and public conservation projects at 28 a complete range of technical agencies and private intervenors of Connecticut's acute care services from assessment of
, en the other. Taking part'were hospitals. Estimates are that conservation opportunities several Connecticut state implementation of conservation to assistance in the actual agencies-Office of Consumer
- measures could produce total ' installation of the conservation Counsel, the Prosecutorial energy savings of more than measures.
' Division of DPUC, and the Energy 85 million kilowatt hours over the Division of the Omce of Policy and life of the measures. Farm Share, A guidebook, Energy &
Management. They werejoined by introduced in Connecticut in 1988 Economics, was introduced for ; the Conservation Law Foundation and in Massachusetts in 1989, use by architects, engineers, and of New England, Inc. is a program which offers working developers. This book provides farmers an energy audit with strategies for energy-saving ollice After four months ofintensive recommendations on saving building design that can be used work, the group developed a energy, plus a 50 percent rebate in new construction.
- conservation plan that was of the installed cost of energy- ,
approved by the DPUC without efficient farm equipment. The book also shows that energy-dissent on June 22,1988. Livostock waterers, heat recovery efficient buildings can be built equipment, high emciency without increasing construction "This is the most comprehensive ventilation fans, energy efficient costs. This guidebook was , and sophisticated package of motors, and electric water heater introduced to the design energy savings measures yet equipment insulation are all community at a meeting , proposed anywhere in the eligible for rebates. Farm Share attended by over 100 leading country," according to Douglas I. participants also are eligible architects, engineers, and Foy, executive director of the for an additional 10 percent developers. Conservation Law Foundation of bonus on lighting rebates for New England, Inc. He also said, installing energy efficient Lighting accounts for up to
' "It represents an important step lighting products. 40 percent of businesses' electric in transforming the region into bills. The Energy Saver Lighting '
an e!Iicient user of electricity and One of the country's most Rebate program provided CL&P in reducing energy waste. NU successful utility sponsored and WMECO commercial and is to be congratulated for its residential conservation industrial customers with over willingness to take the lead in programs, Wrap-Up/ Seal Up, $1.1 million in rebates during moving toward a more cost- was concluded by CL&P in 1988. 1988. This represents an energy affective and reliable energy future." This program helped more than savings of over 350 million In 'conjune; ion with WME.CO rate 200,000 households reduce their kilowatt hours over the life proceedings, WMECO ofTered to energy costs. Over the lives of of the measures. 3
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I EXPAND NUYi ELECTRIC Among tho miny advantag:s of en NU PSNH afnlittion i BUSINESS GEOGRAPHICALIX ars: l k* E f)' W by John F. Opeka esecutive vice preeldent
- NU has the capacity that PSNH will need into the ;
1 3 Engineering and Operations 1990s and,in fact, PSNH has been purchasing capacity l from NU for some thr.e; ; The 1980e have become a benchmark i decade for members of the electric
- Since PSNH is a winter peaking utility and NU is I utility industry. Once secure in their a summer peaking utility,lneressed economies and I role as regulated utilities with little efficiencies of operation can be achieved because of I competition, these companies have peak load diversity; I
- 7s been brought face-to-face with the i realities of the competitive world.
- The service territories of the two cornpanies abut on i the New Hampshire Massachusetts state line, and their l Unregulated power producers began transmission systems interconnect; 1 siphoning off some utilities' larger commercial and l industrial customers, leaving the utilities burdened
- An affiliation of the two companies will enhance each I by the fixed costs ofinvestment in existing plants. company's access to outside wer sources from the l Can'adian border in the no to Long Island Sound j Faced with these evolving new riska, NU developed and the New York border in the south and west; -
a strategic blueprint to address the emerging I competitive dynamics. The blueprint includes
- Regulation of an NU PSNH subsidiary would remain exploration of new growth opportunities. with the New Hampshire Public Utilities Commission, I which is much desired by the people of New Hampshire.
The n;ost significant of these grow +h opportunities involved expanding the boundaries of NU's service The final decision as to the reorganization of PSNH will territory. In January 1988, the decision by Public be made by the United States Bankruptcy Court and Service of New Hampshire (PSNH) to seek protection PSNil's creditors. Once this case is decided, one way from its creditors under federal bankruptcy laws due or the other, NU will be ready to explors other possible almost exclusively to PSNH's crushing financial burdens acquisitions. from lengthy delays in bringing the Seabrook nuclear power project on line, opened a window of opportunity A number of recent studies have concluded that, because j for NU. ofincreasing competition in the ener marketplace
'and a trend toward consolidations inge electne utility During the remainder of 1988, NU gathered and industry, the number ofinvestor-owned utilities can be analyzed volumes ofinformation about PSNH and expected to shrink.
consulted at length with public and private leaders throughout New Hampshire. The result was a Our long rsnge proposal in January 1989 by NU to PSNH to business strategy acquire the operating business of PSNH, excluding emisions that a Seabrook, and to establish it as a subsidiary of NU. larger, stronger, l and more Based on the current and projected strength of the diversified and New Hampshire economy and the soundness of the profitable NU non Seabrook business of PSNH, we were cominced will be one of , that the addition of this expanding and profitab'a the survivors, I service territory would add to the financial strength and not one of I and performance of the NU system. the memories. 1 John F. Opeka, NU executive vice president-Engineernng and Operation is a member of the Board ofDirectors of the portunities industrialization Center (OIC) New I onden \ County. OIC provides appropriate education, , training, and counseling to help place economically disadvantaged and unskilled persons in productive and rewardingjobs. l Bennie Jennings, executive director-olC, p described Opeka as a down to earth man who 9 . A l is easy to communicate with, but one who is ; I etficient, doesnt waste time, subscribes to well- ,t laid plans, and consistently achieves his goals. l 1 _ __ l
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' SYSTEM PIANNING' to impr:va the rell bility cfits dry. E ch repr:sentative receiv:s l
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. s rvice, the Connecticut DPUC training, not enly in the lit:st NU - ;
Our Integrated Demand and . . Issued new criticism ofit. procedures, but also in courtesy, . 'l Supply Planning process is . tact, and concern. j helping NU plan for future 'Ib meet the challenge of capacity needs. Based on a improving service, we have 'Ib better serve commercial and t g 1.8 percent predicted average established a Reliability Task industrial customers, for several - i annual t,rowth rate in customer Force to focus our efforts to reduce years NU management . demand during the next two outages. We have added over representatives, including our
' decades, we foresee the need . $80 million to the capital budget senior officers, have met with the .
for 2250 MW of new summer for the next six years to improve top managements of our major - capacity by 2008, our transmission and distribution industrial and commercial system, replacing obsolete customers. Our goalis to ensure Demand management is expected equipment in certain areas while that NU service goes the extra j. to reduce this need by 526 MW. - expanding capacity in others. We mile to help with conservation, Cogeneration is expected to havo increased our budget for load management, and other - contribute at least an additional . tree trimming, from about . procedures to fulfill energy. , 615 MW of new capacity, and $8 million in 1985 to $20 million requirements when they are ./ Seabrook Unit I will contribute . in 1988. This is a key program needed, and at the lowest cost' , i another 47 MW. We plan to meet in reducing outages often caused possible. Through the end of the need of about 1060 MW with by storm damage. (There are 1988, we've conducted 93 of additional conservation, load ~ 175 trees per mile along NU's these visits.- management, cogeneration, and distribution lines, compared with l by potentially repowering NU's an average of 70 for other utilities Tangible recognition of our effbrts ;
, older fossil units, surveyed threighout the country.) to improve customer service in -
We also have installed over 200 1988 came in the form of a SYSTEM RELIABILITY additionalline "reclosers," which . Connecticut Quality Improvement - ! automatically restore power after -Award in the service companies ! In early 1988, even as NU was minor outages, and we have category, presented to NU by . implementing a number of steps improved shielding to keep birds Governor William A. O'Neill. ' and squirrels from interrupting service. ; REGULATORY AND PUBLIC NU Load and Resource Plan POLICY ISSUES e otuANo use coc(NERAnON CUSTOMER SERVICE MANac(MIN' A major NU strategy to meet the um ttAst cost um exisnNc NU undertook major efforts in emerging challenge of competition
""0"5 is to persuade regulators to allow 1988 to become more effective in our relations with individual cost-based rate e,tructures. In Megawatts customers, while striving to Massachusetts, we have been 10000 anomn enhance system reliability, largely successful, but after some j
~~ ^'* H'C preliminary signs of success with
. u The average number of contacts the Connecticut DPUC in its 8000 o ano C EE between a residential customer decision on our 1987 rate case, we i
ded and an NU company is 15 times a were disappointed in December of
._ year-12 of these occasions occur 1988 that the regulators did not when the customer receives a b!!!, accept the concept. Instead, the 6000 not usually considered a pleasant Connecticut DPUC kept in place occasion. Because the three a rate structure under which I remaining contacts are usually in large industrial and commercial
- reference to a problem, we want ratepayers subsidize residential to solve that problem quickly and ratepayers. Such ratemaking can conveniently for the customer. only harm individual customers, 2000 -
'Ib that end, we keep customer because iflarge energy users are service representatives on call driven to drop off the system to s at each of our six service centers generate their own electricity, it 1 0 . seven days a week,24 hours a forces rate increases on all who l
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~N ~M ENTER NEW ENERG% of efizring crzdis to-grave project servie:s, including RELATED BUSINESSES dzsign, fintncmg, construction, end operation.
(3 I L Q by Jghn P. Cogn2tta _- eenior vice Corporate kresidentanning and The electric utilities oing to survive in this thatwilare ftake steps necessary to be new era are the ones that Regulatory Relations cost competitive and customer responsive, and NU has developed a long-range business strategy to do just that. During the mid-1970s, the An important part of this strategy is the expansion of 1 American economy experienced our business from that of being a generator, transmitter, significant changes that would and distributor of electricity to that of being a high value have a profound impact on provider of a wide variety of energy services. This value-hundrods of companies-like added customer service can enable NU to compete more l NU-and their customers. These disruptive forces, effectively. including oil price shocks, the nuclear accident at Three Mile Island, and the emergence of cogeneration and One of the many strengths of NU is its ability to manage self. generation technology, impacted the electric utility and operate large, capital-intensive electric facilities, ' industry, creating pressures for electric price increases. and we've taken steps to bui)d on this strength to extend l NU's reach into the growing field of unregufated power These pricing pressures were accompanied by a production. I movement to introduce new, deregulated suppliers into the utility generation business. The objectives in September 1988, NU filed an application which is of deregulation were to raise the level of competition, pendmg before the Securities and Exchange Commission introduce market pricing, increase supply, and enhance to create a new, wholly owned subsidiary, Charter Oak l the services that had been traditionally provided by Energy Company, Inc.,(COE). COE is designed to i utilities in a regulated environment, invest and participate in cogeneration and small power nroduction facilities throughout the country,
'Ibday, competition is increasingly a fact of life in the complementing our core energy business and addmg I electnc utility industry. New rules have made entry by to NU's profitability.
new players relatively easy, but some of the old rules limit the existing players'-including NU-ability to Energy conservation and load management are being l compete. 'Ibday, we remain fully regulated, while the promoted b3 public and private sector leaders as means i competitive unregulated electne generation industry of controlling growth in demand and improving the ! is experiencing significant growth and strong financial efficiency of consumers' electric technolo< ies, thereby i returns. Thus, one of our basic strategies is to move stretching the existing supply of energy. NU has long ' to that point on the chessboard where we're on a more been involved in this area and, in recent years, has
.#s increased its conservation and load management equal footing with these new players and enjoy the I same financial returns, budget-to $23 million in 1988 and to $30 million in 1989. I Federal legislation i has encouraged NU is studying the possibility of getting into the the development unregulated business of serymg commercial and '
of additional industrial customers ia the installation and servicing I capacity through of energy conservation devices and locd-management cogeneration equipment. Our tentative plans call for participating and independent in energy service company opportunities available power producers. throughout New England. Self generation equipment With more than a century of experience and expertise I is proving in the energy field, NU intends to apply its sklus and attractive to knowledge to new businesses to become a more diverse some large- energy services provider and,in turn, a stronger and volume electric more profitable company. , customers. Mgior I developers have moved into l l the business 1 y John P. Cagr.etta, NU senior vice president-Corporate Planning and Regulatory Relations, has been snvolved for more than two years in Project MASH (Make Something Happen) to provide employment counseling andjob opportunities for selected public assistance recipients at Hartford's Stowe Village public housing complex. Eddie A. Perez, project coordinator, said,
- John has worked hard on this project from the beginning, even attending unant meetings to get them involved. There's never been a time when I called him asking for help, whether in terms of resources or has own time, that he wasn't
~' available."
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1 remain.'We intend to keep re:lly needed to ristore he11 thy $28.3 million, cr 9.76 percent,
. pressing f r cost b: sed r; tis.
earnings, we are pltasid with an Dec:mber 6,1988. WMECO . ! 9' the DPUC's decision to accelerate also requested an increase in Connecticut Rate Dectolons . the phase in of Millstone 3 allowed return on equity from : construction costs and the - 12.75 percent to 13.75 percent. : On Februarp 4,1988, the - approval of new mechanisms for A de' cision is expected in : Connecticut DPUC issued its recovering fossil fuel and other June 1989. ! decision on CL&P's rate request expenses. We are disappointed filed in 1987. Decision results had that there was little movement - ,
' the effect of reducing our allowed toward cost-based rate design, GAS BUSINESS
, ' rate of return from 14.0 percent to which we regard as extremely '!
' 12.6 percent. Further, the DPUC important if we are to retain our Gas Divestiture mandated a one-time refund of larger commercial and industrial
$10 million to our electric customers customers in today's competitive Considerable progress was and reduced gas revenuen $10.4 environment. made during the year toward .,
million. It also penalized NU $17.5 . divestiture of the gas business.
- million for capacity sales at what On January 20,1989, CL&P CL&P filed its plan in May 1988 .
the DPUC called below market initiated an appeal to the with the DPUC and the Securities . l
- value. We appealed this portion Hartford Superior Court to and Exchange Commission (SEC). .
, of the decision on' March 4,1988. reverse two aspects of the DPUC's On December 21,1988, the DPUC decision. One deals with power issued its decision approving, The DPUC's decision on the rate sales to other utilities and the with modification, the application
- design portion of the 1987 request other with earning a return on to spin off the gas business as
- was deferred until June 22,1988, . money spent on fusl but not yet an independent company. The -
- at which time we were permitted collected in rates. If the power divestiture is still subject to review some adjustments in time of day, sales portion is not overturned, and approval by the SEC.
backup, and standby rates. the DPUC's decision to refuse . to allow shareholders to benefit The CL&P plan calls for formation CL&P again filed for rate from the sales will cost NU of a new, independent gas holding increases on July 1,1988, asking shareholders $2.8 million (pretax) company-Yankee Energy for an increase of $109.2 million in 1989. The DPUC's decision to System, Inc.,(YES)-and an
- in electric revenues and for refuse to allow a return on money operating company-Yankee Gas .}
; $6.7 million in gas revenues. spent on fuel but not yet collected Services Company. Both will be
' Because of NU's capacity sales in rates reduces annual CL&P completely independent of NU to other utilities-which also revenues by $6.6 million. with their own boards of directors,
- resolved the issue of excess management, and staff. Two other ,
capacity-and a greater-than- Massachusetts Rate Decisions YES subsidiaries will be NorConn expected increase in sales, this Properties, Inc., a real estate request was subsequently reduced On June 30,1988, the company; and Housatonic to $94.4 million, or 5.4 percent,in Massachusetts DPU issued a Corporation, which will own electric revenues and $4.9 million, decision on WMECO's 1987 rate an 11 percent interest in the , or 2.3 percent,in gas revenues. request, filed in December, propoued Iroquois pipeline allowing an increase of project. On December 21,1988, the DPUC $8.6 million, or 3.2 percent, in granted an increase of $27.3 million, revenues. Again, this was far The divestiture plan approve?
. or 1.54 percent, in our electric short of the $29 million originally by the DPUC calls for preser :
revenues, and an increase of requested and later reduced to NU shareholders to receive onc
$1.4 million, or 0.66 percent,in $22.5 million. The allowed rate share of YES for each 20 shares gas revenues. This was CL&P's of return was increased slightly, of NU they own. Those with first rate increase since 1983. from 12.5 percent to 12.75 percent fewer than 200 NU shares will A rate of return on equity of and, as in Connecticut, an receive a cash payment in lieu ^
13.5 percent was requested; we additional portion of Millstone 3 of YES stock. )
.were granted a slight increase, construction costs was phased into J from 12.6 to 12.9 percent. the rate base.
- Details of the divestiture will be j sent to shareholders when all While these increases fell WMECO again filed for an necessary approvals have been discouragingly short of what is increase in revenues of received and a firm date for the
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w neg:titted and approved by the Y:rk, cnd New Jersey While the
' }'i 1989 his been fixedspin4ff--tentativ:1y
. DPUC f:r aJuly hng term 1, . supply tf propos:1 still faces an extensive ,
F gas to the Dexter Corporation to environmental review by FERC, ; [' In anticipation of the' spin off, fuelits 48.5 MW cogeneration - it is hoped construction will begin field and staff organizations are unit in Wm' dsor Locks. Scheduled ' next year and the line will be in
' being put in place to assume l to begin operation next year, the operation in 1991. CL&P, which
. nearly all the functions presently facility will use about 3.7 billion. owns 11 percent of the project,
' : performed by NU. The new - cubic feet of gas annually-about will receive 30 million cubic feet
-. company will have about 10 percent of the present annual a day in 1991 and 59 million in 600 employees, a!most all of sendout. 1992 and thereafter, them from NU. For about three
$ . years, Yankee Gas will contract The company now provides service -
' with NU for meter reading, to about 175,000 customers in 57 ' - PUBLICAFFAIRSAND billing, and other services. Connecticut cities and towns. COMMUNITY SERVICE Gas System Expansion Gas Supply NU continues to devote substantial resources to programs More than 5,000 new customers Progress was made and efforts are in public affairs'and community ,
P were added during 1988, continuing to acquire additional , services. These range from _ including about 1,200 from the - supplies of gas to meet the regular briefings by senior Pequot Gas Company, serving - growing demands of customers. management for public officials , Stonington and North Stonington, to our always-popular school whose assets and service franchise Negotiations begun in August 1988 classroom demonstrations on
. were purchased in December 1988. moultedin a settlement agreement- safety by NU linemen.
'Ib upgrade the Pequot system and ' approved by the Federal Energy .
improve the level of service, work Regulatory Commission (FERC) Since our load management
- is under way on a program of in January 1989-among the and conservation efforts depend cithodic protection, replacement of proponents of projects seeking to largely on public and customer some facilities, and a leak survey. supply more gas to the Northeast, awareness of the benefits of these including the Iroquois Gas .
programs, we continue media Construction of a five. mile main Transmission System. A proposal communications and direct I extension from Brookfield to by Iroquois and 'Ibnnessee Gas communications with customers , New Milford was completed. The Pipeline Company calls for on conservation subjects.
- i Lline will serve a major industrial construction of a 370 mile pipeline customer (the Kimberly Clark from Canada to Long Island to .We have a special obligation
- plant) and other customers along transport 539 million cubic feet of to find new and better ways of L Route 7. A contract also was gas a day to New England, New serving lower income individuais 1
A NU's Proud Tradition of oflicers to linemen-and the teams, supported by United 1: / %1 Volunteeriam Beached States federal funds, spent more than six weeks sn Jamaica G All the Way to Jamalca applying their skill and experience to the ditficult task. U & / NUpeople have a tradition ofcommitms nt Working long hours in good. stricken, mountainous, and and sacri ce in community service and heavily wooded terrain and hot, humid, and sometimes 1-
- h in times emergency. We are enormouuly rainy weather, the crews restored power to hospitals and proud of personnel whojour ed to schools, factories andplantations, and public utilities and Jamaica to restore power tireles after transportation facilities.
that country had been devastated a j hurricane on September 12. Hurricane Just three years earlier, line crews from as far away as
- Gilbert leB more than 95 percent of the Canada helped restore NU's system after it was crsppled M'Q l M island's electric customers without powen Jamaican authorities estimated that, by Hurricane Gloria. 7'he devastation wrought by Gilbert guve NU the opportunity to offer its helping hand to a without outside assistance, restoration ofelectric service people in desperate need.
could have taken as long as two years. The gratitude ofJamaicans was matched by the pride of The Jamaican community of Greater Hartford appealed to NU the NU volunteers in a job well done. That pride was for help, and NU responded by sending 60 workers, divided shared by everyone in the NUfamily who is committed to [ t into three teams, to assist in the restoration effort. Every the spirit ofcaring and sharing, which is so much a part l; one of the 60 was a volunteer-from supervisors to safety of the character of all NU employees. L. 1 II
, . __ . _ . _ _ - __~ ~ ,. _ _. - _ _- _ _. . . _ _ - - - - _ _ - _ - ~ ~ _ -.
M '
?and bnilles in our regi:n cnd to - Retirements-Retiring en ,
identify and work with hirdship- October 1~,1988, citer 35 ye:rs cf m situations. An example is our . service, was Harrie R. Nims, vice cooperative'etTort with the. president-Transmission and
' Connecticut Department of . Distribution Engineering and -
Human Resources to fund and Operations. provide weatherization services
- for the needy. Retiring on January 1,1989,~ after 39 years of service, was Leon E.
.Our support for the Special Maglathlin, Jr., senior vice
~ Olympics received an award from president-Customer Service.
the Connecticut Special Olympics - organization and is just one of the Retiring on May 1,1989, after 37 . many ways NU and its employees years of service, will be Carroll A. ! are involved in the life of the Caffrey, vice president-Human l communities we serve. We believe Resources. we have a fundamental obligation to support the economic well- ' ~ being and superior quality oflife that distinguishes our region.
' ORGANIZATION AND .
MANAGEMENT Executive Changes-Hugh C.
. MacKenzie, previously regional . ;
superintendent-Operations, Western Massachusetts Region, was elected vice president-Transmission and Distribution Engineering and Operations, effective July 1,1988. Frank R. Locke, previously regional vice president and chief , administrative officer, Western T
' Massachusetts Region, was elected senior vice president-Customer Service, effective L October 1,1988.
l l Robert G. Abair, previously district manager-Greenfield District, Western Massachusetts L Region, was elected regional vice president and chief administrative officer, Western L- Massachusetts Region, elTective l October 1,1988. 1
- . Barry Ilberman, previously ~
assistant vice president-Human Resources, was elected vice president-Human Resources, effective February 1,1989. l Y _ _ _ .__ -. m . .. _. ___ _ __. _ _1
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j 288 NORTHEASJ78 ANNUAL REPORT .%!hMi-by.. m W ~
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, This section contains .
value. The marke6to book earn its ROE In cdditi:n, the C 1 management's assessment cf. . r:ti) decreased from 1.23 ct expected divestiture cf th) 1 Mrtheast Utilities'(the company December 31,1987 to 1.18 company's gas business will reduce i or NU) fmancial condition and the at December 31,1988. At income-generating assets by j principal factors with an impact on . December 31,1988, the closing ' approximately 5 percent. CL&Ps the results of operations. This price of the company's common gas business contributed 3.9 percent discussion should be read in shares was $19% per share, of the total NU earnings in 1988. :
, conjunction with the company's ~ Common dhidends paid in 1988 <
corsolidated financial statements and 1987 were $1.76 per share. Notwithstanding management's and footnotes. The company has not changed the concern with inadequate earnings, ; currentindicated annual dividend several events could lead to a .,
' FINANCIAL CONDITION of $1.76 per share in 1989 in gradualimprovement in the a recognition of the planned spin off company's financial condition. -
Overview of CL&Ps gas business, vehich is Durmg 1988, CL&P entered into currently expected to be completed arrangements to sell over 3,000 . The company's earnings per share this summer, and because NU is megawatt years of capacity over (EPS) increased to $2.15 in already paying out more than the next six years at the NU 1988 from $2.11 in 1987.The 80 percent ofits earnings in the system's average cost. CL&P. t s company's earnings improved in form of dhidends. Although NU expects to realize net revenues of i 1988 as a result ofincreased '
. willlose the contribution to over $400 million during the six- i t electric and gas sales, a decline in earnings made by the gas year period from these sales. Under '
' operation and maintenance expenses, business, those earnings and any current Connecticut rate-setting ,
. due in part to management's cost- subsequent dividends of the new principles,these net revenues are $
containment efTorts, and the gas company, Yankee Energy applied to reduce revenues required
$16.9 million after-tax write-off, ' System, Inc., (YES), would be from customers and are not - .
reflected in 1987 earnings, of available to NU shareholders who available, even in part, as earnings ' 3
- Seabrook I costs in excess of a . remain owners of YES. For forinvestors CL&P has appealed ',
. Connecticut $4.7 billion statutory additionalinformation regarding this principle to the Hartford
' ' cap " The increase in 1988 earnings gas divestiture, see the " Notes to Superior Court. Nevertheless, was partially offset by the effects of Consolidated Financial Statements." management believes that a February 1988 Connecticut investors benefit indirectly from Department of Public Utility CL&P would use a major part of the capacity sales because these Control (DPUC) retail rate decision the proceeds from the divestiture of transactions will assist in allowing (February Decision), effective its gas business to redeem, at par, CL&Ps electric rates to remain January 1,1988, which lowered certain high-interest rate first competitive at a time when s
,The Connecticut Light and Power mortgage bonds. The amount of customers may otherwise seek Company's(CL&P) allowed return cash available for redemptions alternative lower cost sources of :
- on equity (ROE) from 14.0 percent will depend, among other things, energy. The revenues from the to 12.6 percent, lowered annual on the book value of CL&Ps gas capacity sales will also limit gas revenues by approximately assets on the divestiture date and CL&Ps need to apply for future
$10.4 million, provided for a the capital market conditions at rate increases.
$10 million one time refund to that time. If capital market electric customers, prohibited CL&P conditions are unfavorable, CL&P Another positive factor that will from recovering certain fossil fuel may accept a secured note in lieu of strengthen the company's costs, and imposed a $17.5 million cash and would be able to redeem financial condition by increasing penalty for capacity sales at what some or all of the debt as planned internal cash generation is the
.the DPUC called below market only when and as it receives accelerated phase-in of the ,
value.The penalty has been payments on the note. Millstone 3 investment into rate appealed to the Hartford Superior base. A December 1988 DPUC Court. The 1988 earnings were Management expects the retail rate decision (December also adversely affected by company's earnings to remain Decision) allows CL&P to include management's decision to stop relatively flat in the near future an additional 32 percent ofits accruing allowance for funds used even though company operational allowed Millstone 3 investment in during construction (AFUDC) on performance has been superior. The rate base, effective January 1,1989. Seabrook 1, effective January 1, $119 million after-tax Millstone 3 In addition, Western 1988,' and the expensing of 1988 write-offin 1986 and the write-off Massachusetts Electric Company , Seabrook 1 costs in excess of the of Seabrook 1 investment in (WMECO) recently filed an
$4.7 billion " cap." excess of the $4.7 billion " cap" will application with the Massachusetts (
continue to afTect the company's Department of Public Utilities During 1988, the market price of financial condition adversely (DPU) which, if approved by the the company's common shares because they reduced the equity DPU, would permit WMECO to remained consistently above book base on which CL&P is allowed to phase in the fourth of five equal 3
_ , , ~ -_ mm , a ,< ..m - t j f . annualinstallments of the "used In assessing the potential marketing plan to enhance p , h and useful' portion of WMECO's impact of any cdditi:nal customer service and impr:ve . M listene 3 investment. This write off, management energy efficiency, an aggressive h.s would bring the portion of estimates that for every $10 million cost management pmgram to hold L mooverable Millstone 3 earning a . write-off of CL&P's Seabmok I down electric prices, and working onsh sturn to 80 percentin both - investment, NU's EPS in the year with regulators to reduce the i f
' jurisdictions. WMECO's. rate . of the write-off would decrease nonresidential-customer subsidies '
application also proposes a approximately $0.06 per share. to residential customers provided method to accelerate the final Future earnings would also be by current rate design. In late ' phase in installment by using reduced because of a lowered 1988, CL&P agreed, subject to revenues expected fmm the NU ' equity base. DPUC approval, to reduce this ' ; system capacity sales- subsidy in its largest industrial , arrangements. CL&P and A number ofissues continue to customer's electric rate in
" . WMECO are allowed to earn a affect the planned commercial exchange for this customer's -
noncash return on the portion of operation of Seabrook 1, including commitment not to self generate Millstone 3 not curantly included the financial qualifications of for three years. Management in rate base. As noncash earnings thejoint owners of the pioject to estimates that the annual net on Millstone 3 are replaced with meet their responsibilities as revenue loss would be $3 million , f ' cash earnings, management licensees. Until these issues are if this customer self generates, l believes that CL&P's and resolved, management cannot while the proposed rate reduction '
' WMECO's key financial ratios predict whether or when the unit would be less than $1 million. ;
'should improve and that there is a will operate, Solely for financial reasonable possibility that bond planning purposes, NU now . Management believes that the cost-and preferred sinck ratings will assumes that Seabrook I will containment effort, modest rate alsoimprove, commence operation on January 1, design changes allowed by 199L If Seabrook 1 ultimately regulators, improvements made in Seabrook Project does not operate, CL&P would seek the customer service area, and the
- full recovery ofits investment.
- 1988 sales of additional capacity CL&P has a 4.06 percent ' While the DPUC has permitted have substantially reduced the joint ownershipinterest in. CL&P to recover substantial company's exposure to load loss.
, ' the Seabrook project. At portions ofits investments in While the company has ,
December 31,1988, CL&P's similar circumstances, experienced wholesale customer construction work in progress management cannot predict the losses of 20 MW in the last two , (CWIP) balance included an extent to which CL&P will be years, the actual installation of self- ;
. investment of $190.5 million in permitted to recover its Seabrook 1 generation facilities has been <
Seabrook 1, after writing off investment. For additional minimal. Management estimates '!
$33.8 million of Seabrook 1 information regarding the that the potentialloss of additional investment to date, including - Seabrook project, see the " Notes to baseload sales to competition,if
$9.7 million of cash costs in 1988. Consolidated Financial the company achieves its t
Effective January 1,1988, CL&P Statements." competitive goals, now ranges stopped accruing AFUDC on its between 100 and 160 MW in the s Seabrook 1 investment. The write. Competition / Cost Contahunent early 1990s, offs aflectedjudgments that company management made in In 1987, an extensive study by the Under consideration in .. applying the provisions of company identified self generation Connecticut is a proposal to extend L Statement of Financial Accounting bylarge industrial and commercial the state's 7% percent sales tax to Standards No. 90, Regulated customers, cogeneration facilities, utility bills. If enacted, the sales Enterprises- Accounting for and competition from other tax could have a significant , Abandonments and Disallowances utilities for wholesale customers as adverse effect on the elTorts to
- l. ' ofPlant Costs (SFAS 90) to the significant factors posing a threat minimize large load losses.
L' likelihood of recovering CL&P's to the company's existing energy Seabrook investment. The write- market. At that time, the company New Business Ventures ofTs do not indicate that CL&P identified a potentialloss of as believes that the potential much as 20 percent, approximately To increase profitability through ! disallowances are legallyjustified 750 n egawatts (MW), ofits the addition of nontraditional, I' or appropriate, or that ClhP will operating subsidiaries' electric load unregulated power generation and not challenge those potential by the early 1990s if the company energy services enterprises, disallowances. CL&P's investment did not immediately address these management has explored new
,in Seabrook is still subject to a issues. In response to these business opportunities in areas
' variety of regulatory reviews and competitive forces, management where it can utilize the expertise it approvals, and further write-ofTs implemented a strategy to mitigate needs to service its core utility under SFAS 90 may be required. this threat. The strategy includes a business. Management believes, II m . .
t o I'
\%
for instinci, th;t the company's . creitelong term stritegic L
, 2 Actual Electric . cxperiInce in eflici:ntly managing - ' cdventages f:r the company's Construction Expenditures wide ranging capital resources, utility business, hVs existing )
,- large-scale physical plant assets, generating capacity can be made 1 M raOouctios un TRANSMSSION ,
+
, sophisticated computer resources, available to supplemeat the needs I and a complex customer services of the rapidly expanding New E oisTRisuTiON m oTHtR - network has potential Hampshire economy whether or applicationsin other energy- not Seabrook 1 operates. While ' 1 5 Millions related areas.- other utilities have expressed -
800 interest in acquiring PSNH, and ! To implement management's PSNH has proposed a plan of j 799 y decision to diversify into closely reorganization that would result i related business opportunities, . In an internal corporate ' j the company filed an application restructurmg without an ; i with the Securities and Exchange , acquisition by a third party, NU
' 3' Commission (SEC) in management believes the proposed i 500 - September 3988 for authority to- NU PSNH combination weald be 5
. create an unregulated wholly the most advantageous outcome for - ;
e 400 - - , owned NU subsidiary, New Hampshire customers.
< Charter Oak Energy,Inc.,(COE). .
4 00 - .
- n. COE is being formed as a vehicle On January 12,1989, the company j r
i j s to invest and participate in delivered a comprehensive J 200 - i
< cogeneration and small power $2 billion proposal to
< ! production facilities, as defined representatives of PSNH.The -
100 -
, : j by the Public Utility Regulatory company's proposalis designed to -
1 Policies Act of1978. Management ~ remove PSNH from bankruptcy
; 1 expects COE to strengthen and and assure New Hampshire -
1984 1985 1986 1987 1988 Complement the company's core residents a reliable energy supply.- electric utility business in the PSNH's ownership in Seabrook ~ , energy market by acquiring equity would be transferred to a separate ; interests in corporations, New Hampshire company to be 4 partnerships, joint ventures, or owned by existing PSNH other entities. SEC action on this unsecured creditors. Through a aplication is expected in the first power pun:hase contract with the half of1989. reorganized PSNH, the separate company owning Seabrook would be s
. Projected Electric Geographical Expansion provided with revenue to support Construction Expenditures its obligations to the Seabrook M PRODUCTION Cl TRANSWSSION On January 28,1988, Public project. Before it can become t effective, the proposal must be ;
Service of New Hampshire (PSNH) M DISTRIBUTION M OTHER filed a voluntary Chapter 11 accepted by PSNH creditors and petition in the United States security holders and approved by ,
$ Millions Bankruptcy Court in Manchester, the Bankruptcy Court and federal 800 and state. regulatcrs. Because of the New Hampshire. Management believes that PSNH is a likelihood of competing offers for 700 - fundamentally sound electric PSNH and the uncertainties of the utility that went bankrupt because bankruptcy and regulatory ,
600 - processes, hVs acquisition of it was unable to finance its 35.6 percent ownership share of PSNH is not assured. 500 - the Seabrook project through the extended delays that the project Construction Program 400 - encountered. Following PSNH's
- bankruptcy filing, the company The system's 1988 electric announced that it has an interest construction expenditures of 3* ~ W ; in acquiring PSNH's operating $265.6 million were the lowest
'"' since 1980. Following the assets, exclusive of its interest in
? 8's , s ,
200 - 1 l J Seabrook. Management believes completion of Millstone 3 in 1986, I ? I ! I the acquisition of PSNH would the construction program's focus 100 - l 2 be a logical expansion of the changed to expenditures for 0
- j. f ' -{l NU system's geographical boundaries, would add a healthy improvements to existing transmission, distribution, and 1989 1990 1991 1992 1993 new service territory, and would generating facilities. The company g
. ~ . . . . .. . . ._. . _ -
r , ,. # _ . m- , we w
; and the sale of preferred stock. lower cost capitah provides B
&}'has
$80budgeted million cy;rmore the next than six ye:rs In cdditi:n to constructi:n and opportunities for reducing rev2nue T to improve the reliability ofits- nuclear fuel requirements, the requirements and improving s t transmission and distribution system companies are obligated to company earnings and coverage of
. system. The company does not meet maturities and cash sinking- fixed charges. As discussed in
' forosee the need to construct, on' fund requirements totallag *Oveniew," the anticipated gas
' behalf ofits customers, a myor $668.2 million for the years 1989 divestiture may provide a portion l < new generating facility until well ' through 1993. External financing of the cash necessary to accomplish 7 into the future.. will contim's to be necessary to these redemptions.
L . .
< meet total cash requirements,
. ' In the 1990s, Millstone 2's steam : although not at the levels of past Rate Matters
' generators may require . years, since projected construction .
replacement and could involve a'. ' expenditures have been in the December Decision, the
- five- to six month outage at a cost substantially reduced. The chart on DPUC approved CIAP's first of approximately $150 million, not this page illustrates how the cash retail rate increase since late 1983.
including the cost of replacement requirements for construction, The December Decision provides
- power. Management is attempting nuclear fuel, maturities (net of for an annualincrease in electric to minimize th-length of this refinancings), and sinking funds and gas revenues of approximately possible outay by arranging were met for the five year period ' $27.3 million (1.54 percent) and procurement ofitems with long ' 1984 to 1988. For 1989, external $1.4 million (0.66 percent),-
1:ad times, funds are expected to provide about respectively. CLAP had requested one-third of total cash requirements, an annualincrease in electric and The charts on the previous page excluding the effects of the planned gas revenues of approximately c ahow both the reduction in the spin-off of CIAP's gas business. $94.4 million and $4.9 million, . overall level of electric construction respectively. The DPUC increased cxpenditures for tl.e period 1989 The system companies issued CIAPs allowed ROE from through 1993 compared with the approximately $366.5 million of 12.6 percent to 12.9 percent,.
. period 1984 through 1988 and the first mortgage bonds, preferred allowed an additional 32 percent changein the nature of the stock, and pollution control bonds of Millstone 3 to be phased into rate expenditures. The projections in 1988. As in recent years, a base, concluded that CIAP does include $35 million of costs significant portion of the not have excess generating associated with Millstone 2's steam proceeds from these issues was . capacity, and approved a new fossil-
. g:nerators, used to redeem, prior to maturity, fuel adjustment clause (FAC)on a high interest rate debt and high-
, Financing dhidend preferred stock to lower ! the company's cost of capital. , Sources f Cash Requirements ; CIAFs and WMECO's bonds are
. rated Baal by Moody's and BBB + CIAP and WMECO continue to num isitRNAL b toscTram !
. by Standard and Poor's, but utilize a nuclear fuel trust to finance oest ,
l their nuclear fuel requirements for su ornia. 1-management has a goal of seeing uma cAmAL. that the senior securities progress, Millstone 1,2, and 3. As of stoco gNo .
- l. over time, to at least a strong "A" December 51,1988, the trust's taus l' rating. Management believes that investment in nuclear fuel was i thisis an achievable goal because $333.1 million. Nuclear fuel i of higher cash earnings due to the requirements of $317.8 million .
l cecelerated Millstone 3 phase-in for the yevs 1989 to 1993 Percent are expected to be financed 100 l- allowed in rate decisions. For l cxample, the percentage of cash by the trust. 90 - 1 earnings (earnings excluding [ 1 80 ' ' !- AFUDC and the deferred In 1988, the system companies - y 6 Millstone 3 return) averaged increased available credit 70 - t t ; E L 31 percent in the period 1984 facilities and lines by $12 million, g. 4 ; k through 1988, and for 1939 that making $400 million available. 60 i 3 j E'3 a h I l' percentage is projected to increase At December 31,1988, the system 50 -
- 69 ii N to approximately 65 percent, companies had $146 million of .
A ! g1 external short term borrowings. 40 - g
.l 4 ,
j j Cash requirements in excess of 30 - , h . . t 3 internally generated funds are in 1989, the system companies 20 - i i q l p : 1 i generally financed through short , intend to continue redeeming $ ( j h intermediate , and long term high. interest rate debt as 10 - l 1 l borrowings, nuclear fuel trust financing, leasing agreements, opportunities arise. Elimination of high. cost debt, or replacement with 0 1 i }$$ l 1984 1985 1986 1987 1988
$I
ib , l trial basis. Management beli;ves . In Janutry 1989, CL&P filed an which defmed taxes h:ve not been i
/ that the revised FAC will improve , ' eppealin the H:rtf:rd Superior provided. The company expects that, -
I the responsiveness of the FAC to Court to reverse two aspects of the when the new standard is adopted changes in the cost of generating December Decision, one dealing in 1990,it willincrease assets
' fossil kilowatt hours (kWh), improve with power sales to other utilities and liabilities by approximately the timeliness of the collection of and the other dealing with the $1.1 billion, but will not have a .I fossil fuel costs, and reduce DPUC refusal to allow CL&P a ' material effect on net income. , l
> administrative burdens .
return on monies expended on fuel 1 associated with current fuel clause but not yet collected in rates. If RESULTS OF OPERATIONS .j calculations. However, management CL&P prevails on both issues, 1 is disappointed with the DPUC's annual electric revenues would The relative magnitude of the J decision not to reinstate deferred- increase by about 0.5 percent, or various expenditures incurre<l by the j electric-fuel accounting. $9.4 million. system's continuing operati: s is Management is concerned that the In June 1988, the DPU issued a DPUC does not provide any . decision granting WMECO an Operating Revenues 6 financial reward to shareholders $8.6 million(3.2 percent) annual for management's actions that have increase in base revenues of Operating revenues increased < produced significant savings for - its requested increase of $201.2 million from 1987 to 1988 .! Connecticut's ratepayers. These $22.5 million. In its decision, the and increased $49.8 million from 'j concerns result from the DPUC's DPU granted %%1ECO the entire 1986 to 1987. The components of the I denial to shareholders of any of the third step of the five year phase-in changein operating revenues for the l direct benefit of the capacity sales ofits "used and useful" investment past two years are provided in the 1 arrangements entered into in in Millstone 3, bringing the phased- table on this page. l 1988 and ha failure to recognize in total to 60 percent, and increased . t Operating revenues related to the management's cost containment WMECO's allowed ROE from efforts. Management is also 12.5 percent to 12.75 percent. rate moderation fund increased j ,. disappointed that the revenue' . because, effective January 1,1988, I allowance for gas does not . In December 1988, WMECO filed the February, Decision discontinued ) adequately reflect the impact of the an application with the DPU CL&P's requirement to reserve a ( capital structure ordered by the requesting an increase in annual level of revenues in excess of that DPUC in its decision approving,in revenues of $28.3 million, or re ulred to earn a specified ROE. l principle, the gas divestituro plan. 9.76 percent. The need for an In ddition, the February Decision i increase is driven by a combination ordered CL&P to recognize in i of higher costs and the continued revenues, over the 12 month period I phase-in of WMECO's investment beginning January 1,1988, a i 1988 Distribution of Revenue in Millstone 3. portion of those revenues I reserved prior to January 1,1988. New Accounting Standard Fuel cost recoveries ir. creased primarily because of higher The Financial Accounting energy sales. Revenues related Standards Board has issued a new to regulatory decisions income tax accounting standard decreased pr;marily because of the
- which will become effective in1990. February Decision which, among
! The new accounting standard other things, provided for l requires, among other things, that a $10 million refund to electric 1 regulated utilities reflect, on their customers in January 1988, lowered CL&P's allowed ROE, and l balance sheets, the taxes related '
to the cumulative amount of imposed a $17.5 million penalty l income tax timing differences for associated with capacity sales, j OfHER OP(RAflON AND MAINTENANCE l EXPtNS($ Ql.9% Change in Operating Revenues l ENERGY Increase /(Decrease) i i wc$ o 1988 vs.1987 1987 vs.1986 l stNtmuis3N minion. or Donmi Of((EctNoNHtR Rate moderation fund $106.6 $(13.3) INCOME. NET (15.1% Fuel cost recoveries 53.2 (41.3) i, TAXE W 6S Regulatory decisions (30.3) 78.0 COMMON AND PREFERRED Sales and other 71.7 26.4 DivlotNDS (10.6N Total revenue change $201.2 $ 49.8 (ARNINGS RETAINto FOR R(INVi$fMENT Q.lW 3 _
y , , 3: wm *
.a a-i ,
a. U md Electric sales increased primarily - Othercperati:n and maintenance return cn Millstone 3 decreased L J because of the continued economic expensesinemased $103.1 millionin $17.6 million primarily because
' Lgrowth in the region and higher . ' 1987 as compared to 1986 primarily . CIAP and WMECO had
' cooling and heating requirements becauseof the first fullyear of . additional portions of their-
- in 1988. expenses associated with operation recoverable Millstone 3' of Millstone 3, higher nuclear investments phased into rate base 1.* Fuel cost recoveries decreased in refueling and maintenance outage in 1988 as compared to the same
.1987 primarily because oflower cost expenses,and the generalimpact period in 1987 ~
~
energy provided by Millstone 3, . ofinflation on most expenses in 1987. which mplaced higher cost fossili Total debt and equity AFUDC . fuel generation. Millstone 3 was Depreciation Expenses ' decreased $68.6 million in.1987 as cperational for a full yearin 1987 compared to 1986. This decrease ' and appmximately eight months in Depreciation expenses increased was caused by a lower average I:' ' 1986. Revenues related to $14.3 million in 1988 as compared CWIP balance, reflecting the regulatory decisions increased in to 1987 primarily because of commercial operation of-r 1987 primarily as a result of the greater plantinvestment and Millstone 3 in April 1986. The '
, recovery of nonfuel costs associated higher decommissioninglevels, deferred return on Millstone 3 with the commercial operation of increased $22.5 million. This -
l Millstone 3. Electric sales . Depreciation expenses increased increase reflected a full year of l increased primarily because $32.2 million in 1987 as compared returns on phase in plans in 1987 l of the cominued growth in the to 1986 primarily because of the compared to a partial year in 1986, ! regional economy. . commercial operation of partially offset by CIAP and Millstone 3 in April 1986. WMECO reflecting additional Electric Energy Expenses partions of their recoverable
, Amortization of Deferred Millstone 3 investments phased' Electric energy expenses, which Millstone 3 Return into rate base, effective 1 include fuel and net purchased January 1,1987 and j L and inten:hange power,inemased The amortization of deferred June 30,1987, respectively. j 1 . $59.2 million in 1988 as compared Millstone 3 return increased - i l ' T to 1987. This increase was $66.7 million in 1988 as compared Gas Operations l
primarily because of higher kWh to 1987 primarily because the requirements and higher cost February Decision allowed CL&P Income from gas operations to be energy purchases from other to begin amortizing deferred phase- divested decreased $5.5 million in i utilities throughout the region, in costs, effective January 1,1988. 1988 compared to 1987 primarily i because of the February Decision Electric energy expenses decreased Taxes requiring a $10.4 million
' $27.5 million in 1987 as compared reduction in gas revenues, effective to 1986. This decrease was primarily Federal and state income taxes January 1,1988, partially offset I because oflower cost energy provided increased $33.9 million in 1988 as by a 3.0 percent increase in sales.
l by the operation ofMillstone 3 and compared to 1987 primarily because 1
- l. the matching of revenues and ofhigher taxable income, partially Income from gas operations to be l expenses under the provisions of offset by a lower statutory tax divested increased $3.9 million in 1
- the company's energy adjustment rate. Taxes other than income taxes 1987 compared to 1986 primarily I clauses.These decreases were increased $18.3 million in 1988 as because of a 9.0 percent increase l partially offset by greater kWh compared to 1987 primarily because in gas sales as a result of the requirements in 1987 and the of higher expenses associated with availability and lower cost of gas effect of the DPUC prohibiting Connecticut gross earnings taxes compared to other fuels.
CLAP from recovering certain and Connecticut sales taxes. l- fossil-fuel costs. j Allowance for Funds Used Other Operation and During Construction and MaintenanceExpenses Deferred Millstone 3 Return Other operation and maintenance Total debt and equity AFUDC cxpenses decreased $64.6 million decreased $22.0 million in 1988 as in 1988 as compared to 1987 compared to 1987. This decrease primarily because of higher sales was caused primarily by CIAP's
^
of capacity in 1988, lower nuclear decision not to accrue AFUDC refueling and maintenance outage on Seabrook 1, efTectke
- l. expenses in 1988, and the efTect of January 1,1988, since recovery L cost containment measures of such AFUDC is no longer implemented by management. considered probable. The defbrred LL ,
Ei
mm , . 3 CompanyReport ^ >
, 1 The consolidated financial statements of Northeast Utilities and subsidiaries and other sections of this Annual
. Report were prepared by the company. These financial statements, which were audited by Arthur Andersen &
Co., were prepared in accordance with generally accepted accounting principles using estimates and judgment, where required, and giving consideration to materiality.
, The company has endeavored to establish a control environment that encourages the maintenance of high .
; standards of conduct in all ofits business activities. The company maintains a system ofinternal accounting controls
.. that is supported by an organization of trained management personnel, policies and procedures, and a .
comprehensive program of internal audits. Through established programs, the company regularly communicates I to its management employees their internal control responsibilities and policies prohibiting conflicts ofinterest. f The Audit Committee of the Board of Trustees is composed entirely of outside trustees. This committee meets periodically with management, the internal auditors, and the independent auditors to review the activities of - each and to discuss audit matters, financial reporting, and the adequacy ofinternal controls. Because ofinherent limitations in any system ofinternal controls, errors or irregularities may occur and not be detected. The company believes, however, that its system ofinternal accounting controls and control .. environment provide reasonable assurance that its assets are safeguarded from loss or unauthorized use and p that its financial records, which are the basis for the preparation of all financial statements, are reliable. i Report ofIndependent Public Accountants To the Board of Trustees and Shareholders
'of Northeast Utilities:
L We have audited the consolidated balance sheets and consolidated statements of capitalization of Northeast Utilities (a Massachusetts trust) and subsidiaries as of December 31,1988 and 1987, and the related consolidated statements ofincome, common shareholders' equity, cash flows, and income taxes for each of the three years in the period ended December 31,1988. These financial r.tatements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our r audits. We conducted our audits in accordance with generally necepted auditing standards.Those standards require that t we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the fmancial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the fmancial position of Northeast Utilities and subsidiaries as of December 31,1988 and 1987, and the results ofits operations and cash flows for each of the three years in the period ended December 31,1988, in conformity with generally accepted accounting principles. s As discussed more fully in Note 7, a number or licensing, regulatory, and other uncertainties currently exist [ relating to the Seabrook nuclear project. Because management is unable to predict how these uncertainties will be resolved, they cannot now predict what portion of the investment in the Seabrook project (approximately
$210 million at December 31,1988) will ultimately be recoverable.
Hartford, Connecticut February 24,1989 ARTHUR ANDERSEN & CO.
r
% N, a A' ..r. s M: For the Years Ended December 31, 1988 1987 1986 .
L , (Thousands of Dollars, except share information) E .. p Operations Excluding Gas Operations To Be Divested: o Operating Revenues ..... ............. ... .. ..... ....... ... .... .... ....... $ 2,079,248 $ 1,878,082 $ 1,828,303 - , Operating Expenses: s . Operation - ' E Fuel.......................................................................... 416,092 385,725 428,895 - ! Purchased and interchange power, net ..................... 8,252 (20,542) (36,192) ; Other.................................................................... 514,165 561,979 508,709 M ain t e n ance . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . , 191,271- 208,023 158,223 Depre ci a ti on . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . .. 206,769 - 192,431 160,217 Amortization of deferred Millstone 3 return ................. 68,894 2,171 -
. Fedeial and state income taxes (See Consolidated p -
Statements of Income Taxes) .. ........................ .. ..... 176,372 128,160 172,932
,s Taxes other than income taxes .......... .................. .. .. . 166,174 147,879 - 155,143 Total operating expenses ............................... . ..... 1,747,989 1,600.826 1,547,927 L
O pe ra t in g I n com e .. .. ... ..... . . . . ..... . ... . . . . .. . ... . . .. .. . .. . . .. 331,259 277.256 280,376 1 u A OtherIncome: .. Allowance for other ftmds used during construction . .. 2,537 13,467 67,343 Defen ed Millstone 3 return - other funds ............... .. 75,004 94,217 78,736
. Equity in earnings of regional nuclear generating co m p a n ie s '. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . .. . . . . . . . . . . .. . . .: .. . . . . . ... 10,088 11,368 12,928 Write.off of plant costs ............................................. . . (9,717) (24,122) (184,432)
Other, net.................................................................. 6,661 (2,468) . (2,354) -
% ~ Incom e taxes - credi t .... . ... ... . .. .... ..... .... . .... ... . . . .. . . ... .. . 39,015 52.216 126,961 O the r income, net .... . . . . .. . ... . . . ..... ... .... .. .. .. .. . .. . .. . ... .. . 123,588 144,678 99,182 Ineome before interest charges ........... ..... ... ... .. ..... 454,847 421,934 379,558 Interest Charges:
Interest on long term debt . .... .... ..... . . . . . . .. ...... .. 219,793 203,065 208,918 Other inte rest ....... ... .. . ... . . . .. . .. . . . . ... .. . . . .. . . . ... . . .. . . . .. . . . . . . . 14,078 17,713 19,273 Allowance for borrowed funds used during s con stru ction . . .. . . . . . . ... . . . .. . . . . . . . . ... .. .. . . . . .. . . . . .. . . . . . (5,527) (16,632) (31,354) Deferred Millstone 3 return - borrowed funds, net of income taxes ............ ............ ....... ...... (36,923) (35,324) 28,278) Interest charges, net .... .................... ............ ....... 191,421 168,822 168,559 Income afler interest charges ...... . . . ... .... . . . . . . . 263,426 253,112 210,999 - Preferred Dividends of Subsidiaries ... . . .. . .. 38,582 38.58,3 39,76] Income from Continulng Operations ................ ...... .... 224,844 214,529 171,234 Income from Gas Operations To Be Divested (Note 1) 9,078 14,616 10,705 Net Incom e .... . . .. . . ............. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 233,922 $ 229,145 $ 181,9g Earnings Per Common Share: Continuing operations . ....... . . . . . . . . . . . . . . . . . . . $ 2.07 $ 1.97 $ 1.58 ! Gas operations to be divested .. .. . .. . .. . .. .. .08 .14 .10 Net Income ... ... . . . . . . . . . . . $_ 2.15 $ 2.11 $ 1.68 Common Shares Outstanding (average) ... . 108,669,106 108.669,106 108,352.517 l l l l The accompanying notes are an integral part of these financial statements, g
,c -
s, ' V s ,
+
y '
+
, For the Years Ended December 31 -1988 1987 1986~'
8 Thousands of Dolbro O L Cash Flows From Operations: Income before preferred dividends ........ ............................ $263,426 $253,112 $210,999 -
' Adjusted for the following: ,
Depreciation ......_... ............................................... 194,489 182,970 164,681 ; Amortization of leased property ....................................... s 113,347 120,987 112,371
' Deferred income taxes, net .................. ............................ 40,722 51,473 .. 7,994 Deferred return - Millstone 3 .......................................... (111,927) (129,541) (107,014) , ' Allowance for other funds used during construction ........ (2,537)' (13,467) (67,343)-
1 Rate mode ra tion fund ....... .... . ... . .......... . ...... .. . .. . ... .... ..... .. . (77,694) 25,304 52,390 Write.off of plant costs ........... ....................... ................. - 24,122 184,432 Amortization of deferred Millstone 3 return .................... 68,894 2,171 - i [ . Amortization of deferred charges and other noncash ite ms . . . .. . . . .. . . . . . . .. . . .. . . .. . . . .. . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . 40,318 (28,604) (1,808) .
"' l
' Changes in working capital 4 Receivables and accrued utility revenues ..................... (61,131) (10,831) 17,986 ;
Fuel, materials and supplies ......................................... (3,183) (16,268)' (4,754) . Accounts payable ..... . ... .. . . . .. . .. ... .. ... ..... . ... . .. .. . ... .. ..... .. ... (3,370) (11,027) (27,150) Accru e d tax e s . . . . . . .. . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78,971 (57,430). 17,754 . Other working capital (excludes casb\ .......... ............... 10,083 11.204 (1,419) Het cash flows from continuing operations .............. ........... 550,408 404,175 559,119 Netcashflowsfromgasoperationstobedivested(Notel) .... . 23,794 30,348 30,681 434,523 t Net cash flows from operations ............................................ 574,202 _589.800 b Cash Flows From Financing Activities: Co mmon sh are s . . .. .. . .. . . . .. . . . . . . .. . . . . .. .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
- - 27,977 Pre ferred stock .......... ... . . ....... ... ..... .. ... .. . .. . .. ..... .... .. . ...... .... 53,500 80,000 -
Lo ng.te rm d ebt ... . . . . . . . .. . . . . .. . . .. . . . . . . .. . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . 313,000 328,549 461,006 Increase in obligations under capitalleases .................... 87,006 114,128 95,343 Net increase (decrease) in short. term debt ...................... (56,500) 83,000 10,750 Reacquisitions and retirements oflonpterm debt y' and p re fe rred stock .... ... . .... . . . .... .. . .. . . ... . . . .. .. . . ... . .. .. . ... . . (247,462) -(232,835) (335,605) Premium on reacquisitions and financing expenses ........ (12,979) (23,802) (10,173) Repayment of capital lease obligations ... .. ..... .. . .... . . (108,516) (121,627) (96,786) Cash dividends on preferred stock ................................... (40,510) (40,451) (41,691) < Cash dividends on common shares ........... ......... ............. (191,257) (191,258) (182,034) h~. Millstone 3 construction trust .. ..... .............. ............. .... - - (96.989) Net cash flows from financing activities . ..................... . .... (203,718) (4.296) (168,202) Investment In Plant (including capitalleases): Electric emd other utility plant ........................ ......... ...... (265,560) (304,939) (392,162) G as utility plant .. ... .. . .... . .. . .. . . .............. .. ..... .... .. . ... .... (26,370) (24,508) (21,192) L (86,976) (122,163) (76.117) N u cle ar fu el . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (378,915) (451,660) (489,471)
. Less: Allowance for other funds used during construction (2,537) (13,467) (67,343)
Net investment l'a plar t .......... ....................... . . . . . . . . . . . . (376,378) (438,103) (422,128) l Net Decrease In Cash For The Period ... .. . . ....... . $ (5,894) $ (7,966) $ (530) Supplemental Cash Flow Information: Cash paid during the year for:
$224,187 $214,202 $193,374 Interest, net of amounts capitalized during construction 30,509 72,889 15,650 Income taxes .. .. . . .. .. .... ...... . . . . . . . . . . . . . .
1 i 1 l-The accompanying notes are an integral part of these financial statements. l-g
~
_ _ . _ , _ . ..~ s , a . ,c t' , . x
-' 1988 1987 1986-c For the Years Ended December 31
- A
('Th'***hd8 #f Doller8. **c'Pt percentages) i: J 'Ihe components of the federal and state income tax (C . provisions charged to continuing operations are: b> Current income taxes: Federal......................................................... $ 70,607 $ 15,706 8 17,182 Stata.............................................................................. 26,027 3,765 17,920 Total curren t ' .. .. . . . . . . .. .. . . .... . .. . . . . . . . . .. . . . . . . . . . . . . . . . . .. . . . .. .. . . . 96,634 19,471 35.102 Deferred income taxes, net: Investment tax credits ...................... ..... ...................... (8,557) (2,582) 25,962 50,895 81,323 .43,883 [: Federal........................................................................ State........................................................................... 5,305 ' 12,152 2,194 Total deferred .................. ............................ 47,643 90,893 72.039 t-Total income tax expense ..................................................... $144,277 $110,364 $107,141 L The componente of'.otal inco.ne tax expense are classified as follows: Income taxes charged to operating expenses ................... $176,372 $123,160 $172,932 Income taxes associated with the amortization of deferred Millstone 3 return-borrowed funds ............... (18,805) - - Income taxes associated with the allowance 4 for funds used during construction (AFUDC) and deferred Millstone 3 return-borrowed funds ......... 25,725 39,420 61,170 Other income taxes - credit .............................................. '(39,015) (52,216) (126,961) Total income tax expense ................................................. $144,277 $110,364 . $107,141 Deferred income taxes are comprised of the tax effects of timing differences as follows: Investment tax credits ... .............................................. $ (8,557) $ (2,582) $ . 25,962 Liberalized depreciation, excluding leased nuclear fuel 73,438 81,316 69,316 Construction overheads ...................................... ........ 557 8,062 405 Liberalized depreciation on leased nuclear fuel, settlement credits, and disposal costs ......... ............. (8,320) (8,588)- Decommissioning costs ............. ................ ............... .. (2,908) (9(676) 461) (4,972) Energy adjustment clauses ............................ .... ....... (21,308) 6,849 (9,956) AFUDC and deferred Millstone 3 return, net . .. .... .... 6,920 39,420 61,170 Rate moderation fund ................................... ...... ........ 28,826' (12,509) (18,097) Canceled nuclear project ............................ ... ... .......... (770) (914) 8,250 Write. oft of plant costs ...... .. ................ .......... .......... (4,029) (5,854) (48,115) Alternative minimum tax ............ ... ............ .............. - (15,895) - Deferred refueling cost ... .... ............................. ........ 477 3,289 1,631 Contributions in aid of construction ................ .. ........ (5,200) (5,674) - Loss on bond redemption .......... .......... ... ........... ........ - 6,847 -
' Pension accru al ...... .. . .. . ... ....... .. .. .. . . . ... .... . . . .. . . . .. . ... .. .. . . (5,143) (2,957) -
Other........................................................................ (6,340) 1,632 (4,967) .
' Deferred income taxes, net ........... ....................... . ........ .. $ 47,643 $ 90,893 $ 72,039 The effective income tax rate is computed by dividing total ,
income tax expense by the sum of such taxes and mcome ' after interest charges. The differences between the effective rate and the federal statutory income tax rate are: Federal statutory income tax rate .... ......... . . . . . . . . . . . 34.00 % 39.95 % 46.00 % Tax effect of differences: Depreciation difTererices ............................... ... 4.33 3.56 4.19 Other funds portion of AFUDC not recognized as income for tax purposes .................... ........ . .. . .. (.21) (1.48) (9.65) Deferred Millstone 3 return-other funds . ........ .._ .. . (6.25) (10.36) (11.47) Amortization of deferred Millstone 3 return-other funds 4.25 .18 - Construction overheads-portion not deferred . . . . . .. (.60) (.29) (2.18) Investment tax credit amortization . ...... . . . . . (2.10) (2.43) (2.86) State income taxes, net of federal benefit . . . . . . . . . . . . 5.18 2.63 3.41 I Write-ofIof plant costs ............ ........... . . . . . . . . ~ ... - .68 8.17 l Other, net.. .......................................... .. . (3.21) (2.08) (1.94) l EfTective income tax rate .. .... .. ... .... . ... . . . . ~ . . . . . . . 35.39% 30.36 % 33.67 % i
. . . . _ =-_ . _ . _ . .
The accompanying notes are anintegral part of these financial statements. g . 1 1
z. 7 At December 31, - 1988 1987-1 (Thousands of Donarsi f Utility Plant,'at original cost: Electric................................................................................................. $6,199.446 $5,974,207 I L" < Other..................................................................................................... _
"I,915 62.758 -
F,277,361 6,036,965 ~ ; C Less: Accumulated provision for depreciation ............................. ...... 1,628,751 1.467,003 , e 4,648,610 4,569,962 L - Construction work in progress .......... ........... .......................... ... ......... 325,104 329,327 N u cle ar fuel, n e t . . .. .~. .. . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 348,316 366,139 Net utility plant, continuing operations .......... ...................... ....... 5,322,030 5,265.428
. Gas plant, to be divested (includes constniction work in progress of ,
86,641,000 in 1988 and $5,712.000 in 1987) ............... ...................... 347,244 321,140 ( Less: Accumulated provision for depreciation ........... ......... ............. _ 92,657 83.237 Net gas plant, to be divested (Note 1) ............. ........ ................... .. 254,587 237,903' ; Total ne t utility plan t . .. .. . .. .. . . ...... ... .. . . . . . . . . . .. . .. . . . . .. .. . . . .. .. . .. . .. . ... . . 6,576,617 5.503,331 j i OtherProperty andInvestments: Investments in regional nuclear generating companies, at equity ........ 64,677 62,745 Other,atcost........................................................................................ 33,214 35,198 97,891 97,943 Current Assets: 13,878 19,772 i Cash and special deposits (Note 5) ... ......... ...... ............ ....... .............. Receivables,less accumulated provision for uncollectible accounts of $9,623,000 in 1988 and $11,057,000 in 1987 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 270,409 218,383 3 Accrued u tility re ven u es '.. . . . .. .. . . . . . . .. .. .... .. . . . . . . . .. . . . . . . .. .. . .. .. . . ... .. . ... .. . . 99,448 90,343 ; Fuel, materials and supplies, at average cost .... ............ . ............ .... 144,747 141,564 ' Accumulated deferred income taxes - current portion .. .. .. ...... .. ... . - 41,758 f Prepayments and other ... . . . . . .. . . . .. . . .. . 15,571 14,764 . r 544,053 526,584 i ' Deferred Charges: Unamortized debt expense ..... ........... ...... ...... .... ... ..... . ............. .... 12,577 11,311 Energy adjustment clauses, net .. ... ........ ................... ......... ............... 26,232 86,229 Unrecovered spent nuclear fuel disposal costs .......... ... ..... ................. 25,433 24,180 Canceled nuclear project . .. .. ....... .......... ............ ....... . .. .... ..... . ...... .. 19,205 21,659 Defe rred costs - Millstone 3 .. ...... ... ...................... . . . ..... . .. .... .... . 276,015 237,513 Amortizable property investment - Millstone 3 . .. .. ......... ... ....... .. 82,369 92,868 Other....................................................................................... 104,216 62,176 i 546,047 535,936 Total Asseis ...... ... ... . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . $6,764,608 $6,663,794 The accompanying notes are an integral part of these financial statements. 28' -
n F e ,, i e ,+ p s)y 4, At December 31, ~1988 1987 . y S (Thousands of Dollars) D ~. Capitalkation and Liabilities . r [ JCapitalization:(See Consolidated Statements of Capitalization) f: . Common shareholders' equity: . a Common shares, $5 par value - authorized 225,000,000 shares; .
. < outstanding 108,669,106 shares in 1988 and 1987 ......................... $ 543,348. $ 543,346 '
Ca pital surplus, paid in . ..... . ... ......... . . .. ... ...... . ... .. .. .. . ...... .. . . . ...... ....... 456,626 ' 458,550 ; Retained earnings .. .. .. ......... ............. .. . ... . . . . . .... ... . . .. . ..... ....... . ........ ... . . 837,062 794,397
. . . Total common shareholders' equity ................................................ 1,837,034 1,796,293 = -
p Preferred stock not subject to mandatory redemption ..................... ..... 344,695- 291,195 t 1" ' Preferred stock subject to mandatory redemption ................................. 109,392 197,142' '
.Long-termdebt...................................................................................... ,
2,706,571 2.576,647 Total capitalization .. ..... ....... .. ....... . .. . .............. . . .... . ..... .. . . . . . ...... ... . .. . '4,997,692 _4,861,277 p . Obligations Under Capital Leases ....... . .. .................... ... .. .............. 306,582' 324.502-
~ Current Liabilities:
No tes payable to banks .. ........ .. .. . .... . . . .. .. .. .. . . . . . . . ... . ... . . .. .. .. .. .. . . . ... . . ... .. . . . . 95,000 90,500 ,
. Co mm e rci al pa per . .. . .. .. . .. . . . . . . . . . . . . . . . . . .. . . . . .. . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51,000. 112,000 4 Long. term debt and preferred stock - current portion ........................ 128,812 94,803
' Obligations under capital leases - current portion .............................. 103,770.' 108,212 ;
Accounts pay a ble . . . . .. . . . . . . .. . . . . . . . . . . . . . . .. . . . . ... . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . 140,399 142,917 l
- Rate mod e r Atton fund .. ... .. .. . .. ... .. .. . . . . ... ..... ... ... .. . .. . . . . .. ....... ...'. . . . . .. . ......... - 77,694
. A ccru e d taxe s . . . . . . . . . . . . . . . . . .. . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . .. . 133,372' 54,401 .
. - Accru ed i n te re s t . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63,567 59,612 .l Other........................................................................................ 59,269 65,088-772,189 305,227 -
Deferred Credits: Accumulated deferred income taxes ................ ................. ................... 382,817 373,713 Accumulated deferred investment tax credits .......... ... ........ ..... .... .... 254,456 267,696 Other................................................................................................ 60,872' 31,379 688,145 - 672,788 {
. Commitments and Contingencies (Note 7) l l
l l ?. l l- J Total Lapitalization and Liabilltles ........... .. .... .... . .. . . .. $6,764,608 $6,663,794 l 1 1 l. I L . The accompanying notes are an integral part of these financial statements. - l 29 1 1.. 1
. --- -., .-,e. , . ,-- . -, . ,.- , , -~ -
m- ,< 3: n ' At December 31, 1988 157 < [ (Thousands of Detters') Cosnmon Shareholders' Rquity (See Balance Sheets) ...... $1,837,034 $1,796.293 l .... I Cumulativa Preferrsd Stock of Subsidiaries:
$25 par value-authorized 11,000,000 ahares at December 31, 3 i and 10,000.000 shares at December Si,1987; outstanding i E,340,000 shares in 1988 and 3,200,0N shares in 1987
$50 par value-authorized 9,000,000 ahres at Decereber 31,1988 ;
and 1987; outstanding 5,760,504 sharm in 1988 and . 6,940,504 shares in 1987 ! $100 par value-authorized 1,000,000 shares at December P,1088 - 1 and 1987; outstanding 350,000 shares in 1988 and j i 700,000 shares in 1987 Curient Redemption Curre'nt Shares , Dividend Rates Prices (a) Outstanding _ ' Not Subject to Mandatory Redemption:
$25parvalue- A@ustableRate $ 25.00 2,140,000 53,500 -
$50parvalue- $1.90to$4.80 $ 50.00to$ 54.00 5,123.895 ... 256,195 256,195
$100parvalue - $7.72 to$9.60 $103.51to$103.99 350,000 ... 35,000 35,000 Total Preferred Stock Not Subject to lnandatory Redemption .............. 344,695 291,195 l
Subject to Mandatory Redemption:(b) ,
$25parvalue-$1.90to82.275 $ 2G.90 to $ 27.12 3,200,000 ... 80,000 80,000 i
$50parvalue- $5.24 to$5.76 $ 52.76 to $ 53.93 636,609 ... 31,832 40,832 ;
$50parvalue- A@ustableRate - 50,000
. $100parvalue- A@ustableRate .
- 35,000 Total Preferred Stock Subject to Mandatory Redemption ..................... 111,832 205,832 ,
Less: Preferred Stock to be redeemed within one year .......................... 2,440 8,690 Preferred Stock Subject to Mandatory Redemption, Net .... ................. 109,392 197,142 i Long. Term Debt: First Mortgage Bonds - Maturi;y Interest Rates
.- 48,000 l 1938 3 7/8% to 4 33% ..... .... ... . . .....................
1990 4 7/8% to 13.35% .......... .............. . . . . . . . . . . . . . . . . . . . . 28,380 34,260 j 1992 43/8% . .............................................. 8,000 8,000 199? 4 1/4 % to 12 1/4 % .... .. ... . . ... .... .. ... . .... .... ... . .. .... ..... .. 250,000 125,000 199&1998 4 1/2 % to 15 % . .. . . . . . .. . . . . . .. . . . . . . . . . . . . . . . . . . .. . .. .. . . . . . . . .. . -. 681,624 669,022 1999 2003 7 4'8 % to 1 1 % . . . . . . . . . .. . . . . . . . . . . . . .. . . . . . . . . .. . . .. . . . . . . . . .. . . . . . . . 399,754 404,407 i 2004 2008 8-3'4 % to 9 3/8% ... . . .... . . . .. .. .. .:.. ....... ... ...... .. ...... .. .. 275,000 275,000 2009 2013 15% .,.................................................. 11,217 22,274 2314 2018 94'4 % t o 12 % . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 208,734 99,000 < Tntal First Mortgage Bonds .... .. ...................................... ...... ...... 1,862,709 1.684.963 l Other leng. Terra Debt - ' Pollution Controi Notes - 26,140 34,190 : 1988 2007 5.90% to 10 % . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 415,500 397,500 : D03 2018 Adj ustable Ra te . . .. .. . . .. ....... ..... . . .. .. . . ... . ... . . . . .. ..... .. 250,000 275,000 t
. Notes - 19081992 7.96% to 9.23 % .. . .. . . . . . . . . .. .. . ... . . . .. . .. .. . . . .. . .
116,935 Fees and laterest due for spent iuel disposal costs . ..... ... . . . . . . . . . . 126,298 155,498 158,655 Other.............................................................................. 973,436 982,280 Total Other Long. Term Debt ......................... ..... .... . . ........ . . (6,2 12) (4,4S3) Unamu.Ctad premium and discount. riet .. ..... .. ................. 2,829,943 2,662,760 Total long. Term Debt (c) ... ... .. . ... ... . . . .. . . . . . . . . . . . . . . . . 86,113 Less amounts due within one year ... .... .......... .. .. . . . .. . .... . 123,372 ,
,2,706,571 2.576,647 ,
long Term Debt, Net ... ... . ...... .. . . . . . . . . .. . . . . . . . . . . . . .
$4,997,692 $4,661,277 Total Capitallration ........ . .... . . . . . . . . . .. . . . . . .. . . .
~
The accompanying notes are an integral part of thee financial statements. g
w_ - . l
) (a) During their rnpoetive initial five- (c) lag term debt maturities and cash P. year redemption periods, each of these sinkin6 fund sequirements on debt
!' seriesit sub to certain refunding outstanding at December 31,1988 for limitations. emption prices reduce the years 1989 through 1993 are: in future years. $103,666,000, $105,823,000,
- $101,681,000, $80,400,000, and I'
(b) The minimum sinking fund $258,750,000, respectively. In [ provisions of the r,eries subject to. addition, there are annual 1 percent mandatory redemption aggregate sinking and improvement fund !. $2,500,000 for the years 1989 through requirements of approximately 1991, $4,000,000 in 1992, and $17,800,000 for the years 1989
$6,500,000 in 1993. In case of default through 1992, and $17,700,000 in i
on sinking-fund payments, no 1993. Such sinking. and payments may be made on anyjunior improvement fund requirements stock by way of divideads or otherwise may be satisfied by the deposit of (other than in shares ofju"Jor stock) so cash or bonds or by certification long as the default continues. If a of property additions. subsidiary is in arrears in the payment Essentially all utility plant of The of diddends on any outstanding Connecticut Light and Power sharts of preferred stock, the subsidiary Company (CL&P) and Western would be prohibited from rcdemption Massachusetts Electric Company or purchase ofless than all of the (WMECO), wholly owned subsidiaries preferred stock outstandin8- of Northeast Utilities, is subject to the liens of their respective first mortgage Changes in Preferred Stock Subject to bond indentures. In addition, Mandatory Redemption: CL&P and WMECO have secured (Tt,ousands of Dwarst
$346.1 million of pollution control Bala a, January 1,1986 $185,833 notes with second mortgago liens on
%uisitions and Millstone 1 junior to the liens of retirements .................. (19,001) their respective first mortgage Balance, December 31,1986 166,832 bond indentures.
I ssues . . .... ... ........ .... .. .... .. 80,000 Reacquisitions and retirements .................. (41,000) Balanee, December 31,1987 205,832 Reacquisitions and retirements .................. J4,000) Balance, December 31,1988 $111,832 g 4
Capital Co amon Surplus, Retained ' Shares Pald in Earningom Total (Thousands of IMlare Balance at January 1,1986 ....................... ............. $536,404 $445,886 $756.581 $1,738,871 Net income for 1986 ........... .... ................... .... ......... 181,939 181,939 Cash dhidends on common shares - $1.68 pershare............................................................. (182,034) (182,034) Issuance of 1,368.268 common shares, $5 par value 6.942 21,035 27,977 Common share and preferred stock issuance and retirement expenses and premium on reacqcited preferred stock ................................... (1,663,) (1.663) Balance at December 31, 1986 ....... ..... .... ....... . .... . . 543,346 465,258 756,486 1,765,090 Ne t ineome fo r 1987 ..... ... ...... ...... ..... .. . ... .. . .. ... ..... ... . . 229,145 229,145 Cash dhidends on common thares - $1.76 : pershare.............................................................. (191,258) (191,258) Preferred stock issuance and retirement expenses and premium on reacquired preferred stock ........ (6,684) (6,684) Sale of minor subsidiary ............. ............................. (24) 24 Balanee at December 31, 198 7 . . . . . . . .. . . . . . . . . . . . . . . . . . .. . . . . 543,346 458,550 794,397 1,796,293 Net income for 1988 ..... .. . .. ...... . . .. ... ..... ... .. .. .. .. .... . ... .. 233,922 233,922 Cash dhidends on common shares - $1.76 pershare............................................................... (191,257) (191,257) - Preferred stock issuance a'n d retirement expenses, ; ne t of amortization ............................ ................... (1,924) (1.924) ;
. Balance at December 31, 1988 ... . .. .. . ... . . .. .. . .. .... $543.346 $456.626 $837,062 $1.837,034 l .
(a) Certain consolidated subsidiaries have dividend restrictions imposed by their long. term debt agreements. At December 31,1988. under the - respective agreements, there was approximately $234 million of consolidated retained earnmgs available for dividends. L .i i 1 b l l l L l \ t i t l The accomps"bg notes are an integral part of these financial statements. 32
L 2
, 1. Gas Divestiture and gas service customers. Common operation and maintenance expenses an allocated In 1987, Nonheast Utilities (NU or the primarily using a frula consisting of three
. company) determined to dispose of the gas components: gross plant, gross revenues, and
,^
. utility business of The Connecticut Light and gross payroll. Interest charges and preferred i Power Company (CIAP), a wholly owned stock dividends are allocated primarily subsidiary of NU, The gas business divestiture based on the propodionate relationship of ;
is being effected to comply with the requirements beginning-of. year net utility plant balances. . of the Public Utility lloiding Company >
\et of1935 (1935 Act). Summarized results of operations of the gas business are as follows: .
t In May 1988, applications were filed with the . Connecticut Depadment of Public Utility Contml(DPUC) and the Securities and I the Year. Ended Exchange Commission (SEC), which outlined U"'**' 83' '"' **87 #8 ' the plan of divestiture. The divestiture is O '"S*"d'*fD """' - , scheduled to occur during mid.1989. However, Operating Rennun- 82M.24s $202,816 $203J14 + the exact date ofdivestiture is contingent on Of*ratins t's pen.n: when regulatory approvsl is achieved. OM'[ "rc5. sed for 103,o68 resale; 97,638 105.434 The plan of divestiture calls for the creation of Other.. . . . . . . . . 31,732 31,468 30,oo8 a new gas holding company system (Yankee Maintenance , s.64s e,716 6.770 ; s,ws 11,704 11.268 System) with Yankee Energy System, Inc. flC,'j",*[d state YES), a newly formed Connecticut income taan ... ....... .. e,sts 16,766 12,799 ' corporation, as parent. The spin off of the Taxes other than Yankee System will be effected by means of a income taxu . - 14,444 13,717 n.31s j g special stock dividend to NU shareholders. YES Total operating
' cnd NU will then be two completely separate ** p'n'" = 178'488 178 988 181 687 ':
companies. The plan calls for NU shar., holders Operatins Income si,s11 25,s17 22.227 ; cs of a given record date to receive one share of Other Income (Expensen, , Net . 6s iso) 124 YES fsr each 20 shares of NU. Shareholders who would receive fewer than ten YES shares will I",'[*lyf " '"'""' 21,s74 25,7e 22.351 receive cash in lieu of such shares. Internt Charges . 1o,868 9,283 9,720 , Gas assets transferred to the Yankee System I",*((,,"f" '"*""' 11,oos 16,4s4 12.s31 . will be paid for in cash $f satisfactory terms can Preferred Dividends ., 1.928 1.668 1.926 ; be arranged from third padies in the capital Net Income - 8 0,o78 8 14,616 8 10.705 , markets. If financing is not available on + satisfactory terms in the capital markets, ; payment will be made for the gas assets partly 2. Summary of Significant Accounting in cash and partly by issuing purchase money Policies notes. These notes will be secured by a first mortgage on such assets. ' Principles of Consolidation: NU is the parent , company of the Northeast Utilities system (the e On December 21,1988, a decision was issued by system). The consolidated financial statement the LPUC in which the DPUC approved the of the company include the accounts of all divestiture by NU ofits gas business. The gas wholly owned subsidiaries. Significant divestiture is still subject to review and approval intercompany transactions have been eliminated ; by the SEC under the 1935 Act, and specific in consolidation.
. details of the divestiture still need to be cpproved by the DPUC. Public Utility Regulation: NU is registered +
with the SEC as a holding company under the in segregating the results of gas operations, the 1935 Act, and it and its subsidiaries are subject , company allocates certain expenses common to to the provisions of the 1935 Act. Arrangements both electric and gas operations. The allocation among the system companies, outside agencies, methods have been prescribed by the DPUC for and other utilities covering interconnections, ; use in establishing rates to be charged to electric interchange of el:ctric power, and sales of utility
M' Ja_<. . . . smmmrnxm n o r >-, I t ' Department of Energy (DOE) for the disposal property are subject to regulation by the Federal Energy negulatory Commiulon (FERC) of spent nuclear fuel and high-level radioactive
, waste. For nuclear fuel used to generste
' and/or the SEC.The opereting subsidiaries are electricity prior to April 7,1983 (prior period subject to further regulation for rates and other matters by the FERC and'or their applicable fuel), payment may be made anytime prior to Y the first delivery of spent fuel to the DOE. At state regulatory commissions and follow December 31,1988, fees due to the DOE for the the accounting policies prescribed by the disposal of prior period fuel were approximately respective commissions. $126.3 million, including interest costs of i~
Investmen'ts and Jointly Owned Electric $44.2 million. As of December 31,1988, UtL11tyPlant CMP andWestern approximately $100.9 million had been Massachusetts Electric Company (WMECO), a collected through rates, wholly owned subsidiary of NU, own common Fees for fuel burned after April 7,1983 are paid stock of four regional nuclear generating to the DOE on a quarterly basis. companies. These companies, with the system's cwnership interests, are: Depreciation: The provision for depreciation is calculated using the straight line method Connecticut Yankee Atomic Power bas.ed on estimated remaining usefullives of Company (CY) 44.0% Yankee Atomic Electric Company 31.5% depreciable utility plant in senice, acUusted for Maine Yankee Atomic Pcwer Company net salvage value and removal costs as approved 15.0% by the appropriate regulatory agency. Except (MY) for major facilities, depreciation factors are Vermont Yankee Nuclear Power Corporation (VY) 12.0T applied to the average plant in service during the period. Major facilities are depreciated from the time they are placed in service. When plant . The system's investments in these companies is retired from service, the original cost of are accounted for on the uity basis.The plant, including costs of removal,less salvage, electricity produced from t ese facilities is , is charged to the accumulated provision committed to the participants based on their tor depreelat'on. i ownership interests and is billed pursuant to contractual agreements. The depreciation rates for th) several classes of electric and gas plant in service are equivalent CMP and WMECO have a 65.17 percent joint to the fellowmg compostte rates: ownership interest in Millstone 3, a 1,156-Year Electric Gas
!: megawatt nuclear generating unit. As of December 31,1988, plant in service and 1988 3.57c 4.07c accumuisted depreciation included 1987 3.3 3.9 approximately $2.2 billion and $162.8 million, 1986 3.4 4.0 respectively, for CMPs and WMECO's shares Income Taxes: The tax effect of timing of Millstone 3. CMPs and WMECO's shares differences (differences between the periods in of Millstone 3 expenses are included in the corresponding operating expenses on the which transactions affect income in the financial
. accompanying Consolidated Statements statements and the periods in which they affect the determination ofincome subject to tax)is ofIncome.
accounted for in accordance with the ratemaking Revenues: Utility revenues are based on treatment of the applicable regulatory authorized rates applied to each customer's use commissions. See Consolidated Statements of of electricity or gas. Rates can be increased Income Taxes on page 27 for the ecmponents of only through a formal proceeding before the income tax expense. appropriate regulatory commission. At the end of each accounting period, CMP and WMECO The company has not provided deferred income accrue an estimate for the amount of energy taxes for certain timing diffe;ences during delivered but unbilled. periods when applicable regulatory authorities did not permit the recovery of such income taxes Spent Nuclear Fuel Disposal Costs: Under through rates charged to customers. The the Nuclear Waste Policy Act of 1982, CMP cumulative net amount ofincome tax timing and WMECO must pay the United States ditierences for which deferred taxes have not I
Q - -
, N, '
1' , ;
' been prwided was approximately $800 million The DPUC did not allow deferred fossil fuel i at December 31,1988. As allowed under current accounting for the period Jenuary 1,1988 through {
regulatory practices, deferred taxes not December 31,1988 and in its December 1988 rate : pmiously prwided are being collected in order, the DPUC has continued to disallow f customers' rrt= as such taxes become psyable, defernid fosail fuel accounting. The DPUC is -; i permitting CIAP to recover deferred fossil fuel In December 1987, the Financial Accounting balances which at December 31,1988 amounted ; Standards Board issued Statement of Financial to $62.8 million and $20 million over a remaining - h , Accounting Standards No. 96, Axountingfor period of seven years and two years, ! L Income Taxes (SFAS 96). SFAS 96 supersedes nspectively, without earning a return. + [' pmious);' issued income tax accounting standards and will be effective in 1990. The The DPUC has approved the use of a Generation - L company expects that when SFAS 96 is adopted Utilization Adjustment Clause (GUAC) which ! it will increase assets and liabilities by $1.1 levels the efTect on fuel costs caused by l billion, but will not have a material effect on net variations from a 67 percent composite t income. nuclear generation capacity factor through l February 29,1988 and a 69 percent composite .; Allowance for Funds Used During nuclear generation capacity factor effective Construction (AFUDC): AFUDC, a nnneash h! arch 1,1988. In the December 1988 rate ,
' item calculated in accordance with FERC decision, the DPUC approved a GUAC capacity !
guidelines, represents the estimated cost of factor of 70 perrent effective January 1,1989. ! capital funds used to finance the system's At the end of a 12 month peried ending July 31 ! construction program. These costs, which are one of each year, these net variations from the 'i component of the total capitalized cost of amounts included in base rate cost levels an i construction, are not recognized as pert of the refunded to, or collected from, customers over ' rate base for ratemaking purposes until the subsequent 11 month period. Should the
,y facilities are placed in service, annual nuclear capacity factor fall below l 55 percent, CLAP would have to apply to the L The effective AFUDC rate under the gross-of- DPUC for permission to recover the additional i income tax method for 1988 was 9.1 percent. In fuel expense. During the period from l 1987, AFUDC was capitalized at 9.4 percent, August 1,1987 to July 31,1988, the composite !
cxcept for a trash-to-energy project and nuclear generation factor was 72.1 percent, ! Seabrook 1, which were capitalized on a net of- resulting in a fuel cost savings of approximately i income tax basis at 6.2 percent and 6.7 percent, $23.2 million, which is being refunded to ! respectively. The effective AFUDC rate under customers during the period from , the net of income tax methrd for 1986 was September 1,1988 to July 31,1989. ! 8.2 percent. CIAFs gas rates include a purchased gas . In cordunction with the establishment of a adjustment clause under which gas costs above .i
$4.7 billion statutory " cap" on the construction or below base rate levels are charged or credited i costs of Seabrook 1, effective January 1,1988, to customers. As prescribed by the DPUC, most - l CLAP stopped accruing AFUDC on its differences between claps actual purchased gas ;
cost and the current cost recovery are deferred i Seabrook l investment. For additional information regarding the Seabrook project, until future recovery or refund is permitted. } see Note 7," Commitments and Contingencies."
- WMECO: As pennitted by the hiassachusetts
' Energy Adjustment Clauses: Department of Public Utilities (DPU), WhfECO i
. CL&P: Retail ch etric rates include a fuel defers the difference between forecasted and ,
cdjustment clause (FAC) under which actual fuel costs until it is recovered or refunded fossil-fuel prices above or below base rate quarterly under a retail fuel adjustment clause, j hvels are charged or credited to customers, hiassachusetts law requires the establishment of - Administrative proceedings are required each an annual performance program related to fuel , month to approve the charges or credits proposed procurement and use. The program establishes ! fo- the folloving month for the FAC. hionthly performance standards for plants owned and FAC rates are also subject to retroactive operated by WhfECO or plants in which WMECO ; has a life-of unit contract. Therefore, revenues review and appropriate adjustment by the DPUC each quarter afler public hearings. collected under the WhfECO retail fuel , D
L .
~
f' ' adjustment clause are subject to refund pending also began to recover the deferred return, )
- review by the DPU. To date, there have been including carrying charges, on the recoverable
,' no significant a$ustments as a result of this but not yet phased in po tion ofits investment :
[ program. in Millstone 3. This recovery will take place } over a nine year period. As of December 31, ! [, Phase in Plans: As discussed below, both 1988, $8.2 million of the deferred return, CL&P and %NECO are phasing into rates the including carrying charges, has been recovered. f recoverable parts of their respective Millstone 3 ; investments. These plans, as currently ' E At December 31,1988, $211.9 million (or (; designed, are in compliance with Statement 60 percent) of the "used and useful" portion of Financial Accountmg Standards No. 92, of WMECO's investment in Millstone 3 was~ t l ' R4rulated Enterprises - Accounting for in rate base. This includes the additional Phase in Plans. 20 percent of %%ECO's Millstone 3 : investment phased into rates during 1988, ! CL&P As allowed by the DPUC, CIAP is leaving 40 percent or $141.3 million of !
' phasing into rate base its allowed investment in %NECO's recoverable Millstone 3 investment l Millstone 3. CMP must apply to the DPUC for for future phase-in. l revenue increases sufficient to recover the installments as they are phased in. The DPUC On December 16,1988, %%ECO filed an !
has provided for full deferred earnings and application with the DPU requesting the carrying charges on CIAFs allowed investment fourth annual installment of the phase in plan l in Millstone 3. Through December 31,1988, to become elTective on July 1,1989. In addition, ! CL&P had placed into rate base $843.2 million %NECO has proposed a plan to the DPU which, ! or 48 percent ofits allowed investment if adopted, would accelerate the phase in of the : in Millstone 3. The amortization and recovery fifth and final installment to become effective in l of deferrals through rates began January 1,1988 November 1989. The plan as proposed would and will end no later than December 31,1995. avoid any additional increases in base rates .
. As of December 31,1988, $62.8 million since %NECO has recommended that the costs . .
of the deferred return, including carrying associated with the fifth and finalinstallment ; charges, has been recovered. of the Millstone 3 phase in be offset with revenues expected from certain NU system In December 1988, the DPUC permitted CIAP capacity sales arrangements with other ; to place an additional 32 percent ofits allowed New England utilities. . Millstone 3 investment into rate base, efTective January 1,1989. With this approval, $1.4 billion (or 80 percent) of CIAFs allowed investment in 3. NuclearDecommissioning j
- Millstone 3 has been placed into rate base as of January 1,1989.The remaining $351 million A 1987 decommissioning study indicates that l l
(or 20 percent) of CIAFs allowed investment in immediate dismantlement at retirement l , Millstone 3 la to be phased into rate base in four is the most viable and economic method of - 5 percent steps beginning in 1992. decommissioning the three Millstone units. The estimated cost of deco'nmissioning CIAFs l WMECO: Under the terms of the original rate and %MECO's aggregate ownership share of t order,%%ECO must apply to the DPU for these units is $645 million in year end 1988 dollars. Decommissioning studies are reviewed revenue increases sufficient to recover the Millstone 3 installments as they are to be phased and updated periodically to reflect changes in. On June 30,1988, the DPU allowed the in decommissioning requiremems, technology, third of five equal annual installments of the and inflation. :
*used and useful' portion of %NECO's l investment in Millstone 3 to be added to CL&P and %NECO have established independent decommissioning trusts for their )
i
. %NECO's rate base. Beginning in 1986, the DPU has permitted %NECO to recover the portion portion of the costs of decommissioning i l Millstone 1,2, and 3.
l representing the amount currently determined to be "unuseful* by the DPU ($69.3 million at December 31,1988), excluding the applicable As of December 31,1988, CIAP and %NECO r have collected through rates $76.4 million for equity AFUDC, over a ten year period, without earning a return. On June 30,1987, %MECO future decommissioning costs, of which l l l l T6
n , c y ( . $513 million has teen funded enrnally. executory costs such as property taxes, state !,- ' Although a portion of the estimawl total use taxes, insurance, and msintenance, 3 decommissioning costs has been appmved by underlong-term noncancelable leases as of i
. regulatory agencies and is reflected in the December 31,1988 are approximately:
depreciation expense of CL&P and WMECO, ; the companies believe revenuis in amounts Capital reting greater than those currently beir g collected Y'ar 14am am , will be required to pay the full p xjected costs ofdecommission;ag. 1989 ,. 6,600 8 2e.200 1 1990- 5.800 24.300 1991 .-.... . J,700 17.800 ; 1992- .~........... 6.700 12.900 ;
- 4. Leases 1993 .
6,700 7,600 After 1993 ..... . < 47,600 43,600 CL&P and WMECO have entered into a capital Future minimum lean lease agreement to finance up to $530 mi llion payments 77.000 s134.600 i of nuclear fuel for Millstone 1 and 2 and their 14:s emount npnunung . share of the nuclear fuel for Millstone 3. CL&P nt, ,t s4,so0 and %NECO make quaderly lease pay nents Prennt value or future for the cost of nuclear Ibel consumed in the minimum lene payments for , reactors tbased on a units-of pmduction me'. hod other than nuclest fuel ... .. . 4t.400 ; i ct rates which reflect estimated kWh of ene rgy P""$!"/jld',',",'"p'lyng, 337,93o previded) plus financing costa associated with .g.,g,i ,g g,339 the fuel in the reactors. Upon permanent - discharge from the reactors, ownership of the nuclear fuel transfers to CL&P and WMECO. 5. Short Term Debt i The system companies have also entered into The system companies have various credit lines ! y lease agreements, some of which are capital totaling $400 million. Of this amount, leases, for the use of substation equipment, $350 million is available to CL&P and WMECO , data processing and office equipment, vehicles, through a revohing credit agreement with a nuclear control room simulators, and office gmup of eleven banks. The maximum borrowing l space. The provisions of these lease agreements generally provide for renewal options. The limit of CL&P under the arreement is
$350 million less amounts bormwed (not to f.llowmg rental payments have been charged to exceed 0105 million) by %NECO. CL&P and ?
~
operating expense: WMECO may borrow funds on a short term revoh ing basis using either fixed rate loans Capital - Operating or standby loans. Fixed rates are set using ; Year Leases Leases competitive bidding. Standby loan rates - 1988 $138,065,000 $27,298,000 are based upon several alternative variable i
. 1987 141,185,000 31,794,000 rates. CL&P and WMECO are obligated to l 1986 134,608,000 23,557,000 pay a facility fee of.1875 percent per annum on their proportionate share of the commitment.
Interest included in capital lease rental At December 31,1988, CL&P r.nd I payments was $29,524,000 in 1988, WMECO had $80 million outstanding - +
$31,392,000 in 1987, and $33,298,000 in 1986. under this agreement.
~ Substantially all of the capitallease rental The remaining $50 million is available to the payments were made pursuant to the nuclear NU sysam companies through a revohing fuellease agreement. Future minimum credit agreement with seven bankt Under this ;
lease payments under the nuclear fuel capitcl agreement, the NU system companies can i lease cannot be reasonably estimated on an borrow in the eggregate an amount not to exceed cnnual basis due to variations in the usage $50 million. Loans under this agreement are on of nuclear fuel, a short-term revohing basis in the form of either Eurodollar loans based on the LIBOR, plus % of Future minimum rental payments, excluding 1 percent, or as Alternative Base Rate Loa >s at annt al nuclear fuel lease payments, and the greater of the prime rate or % of 1 percent
L 6
' over the Federal Funds Effective Rate. Thb F;r calculating pension cost the following agreement will expire on August 25,1991 unless assumptions were used:
F extended, on an annual basis, for a maximum of four years beyond the expiration of the initial For the Years Ended D.cernber s1 tons 1987
' three. year term. At December 31,1988, the amount of unused borrowing capacity under this Discount rate .. 9.5% 8.5%
, agreement was $50 million. Expected long. term rate t of return ... .- -- = 9.7 9.7 Cash and special deposits at December 31,1988 Compensation'progrusi
"""""'""'""""'"""' 8'5 7*5 f included $7,866,000 of restricted funds which
; will be used to redeem a portion ofM!ECO's The following table represents the plan's funded Senes Q bonds in h! arch 1989, status reconciled to the consolidated balance sheet: .
At December 31. loss 1987
- 6. Retirement Plan thusands of Dollars)
The company's subsidiaries participate in a Accumulated benefit obligstion, uniform noncontributory defined benefit including $386.MB,000 retirement plan covering all regular system employees. Benefits ar,e based on g cars of ,' , 9gf service and employees compensation during the and $358,957,000 at last five years of employment. Total pension cost, Deceinber 31,1997 .............. $419,781 $397.549
='~~~"
part of which was charged to utility plant. approximated $17,214,000 in 1988, $19,158,000 Projected benefit obligation . .. 694,315 664,338 in 1987, and $31,731,000 in 1986. less: Market value of plan apets 768,001 - 701,462 The company has adopted the provisions of p'rojected benefit obligation - Statement of Financial Accounting Standards surplus m----- --- ... 73,686 37,124 .
' l No. 87, Emploprs' Accounting for Pensions, Unrecognized transitit u (SFAS 87) efrective January 1,1987. As amount ..... .. ... ... . . . . . . . . . . . (81,233) me 259) required by SFAS 87, the actuarial cost method Unrecognized net gain .. .... . . (67,259) i S 387) was changed from the entry. age normal method Accrued pension (llaSility) . .... $ (27,806) $ T;S22 to the projected unit credit. method. ,
The following actitarial assumptions were used : It is the policy of the subsidiaries to fund in calculating the plan's year end funded status: ! annually an amount at least equal to that which , will satisfy the requirements of the Employee At December 31 ISBs 1987 l' Retirement Income Security Act (ERISA) and Discount rate . 9.5% 9.5% the Internal Revenue Code. Pension costs are Compensation / progression ( determined using market related values of rate. . . . . . . . . . . . . . . 8.5 8.5 ; pension assets. Pension assets are invested primarily in equity securities, bonds, and In addition to pension benefits, the company's . insurance contracts. subsidiaries provide certain health care 1 and life inscrance benefits to retired employees. The components of net pension cost are: The cost of providing those benefits was approximately $7,333,000 in 1988, $6,567,000 For the Years Ended December 31 1988 1987 in 1987 and $5,082,000 in 1986. The company
< w u..nd. .r noii.r., recognizes health care benefits primarily as incurred and provides for life insurance Service cost . , .. . . . . . . . $31,893 $32,812 benefits through premiums paid to an i Interest cost . . .. .... . . . . . 59,715 $4,318 insurance company. ,
Return on plan assets . . . . . . (B4,825) (36,811) Net amortization . 10,431 (31,161) l- . . l' Net pension cost . . . . $17,214 $19,158 7. Conunitments and Contingencies ; i Construction Progrant The construction program is subject to periodic review and l l * ; W i l
L . + , . . .' q- }y : 3;.,. . ,- ,
.,yq,.
L revision. Actual construction expenditures may license for the project. In September 1988, the f vary fbm such estimates due to factors such as NRC adopted a rule clarification that allows nmeed load estimates, innation, revised nuclear lloensing for fuel loading and low power safety regulations, delays, difficulties in the operation before implementation of off site licensing pmeess, the availability and cost of pmmpt notific4 tion systems (sirens), thereby capital, and the granting of timely and deferring rerolution of the stren issue until the - adequate rate nlief by regulatory commissions, full power operating license is to be issued. On as well as actions by other regulatory bodies. August 8,1988, the NRC's Licensing Board issued an order renewing the authorisation to The system companies currently forecast operate Seabrook 1 at up to 5 percent of the construction expenditures (including AFUDC) unit's rated power. The Federal Emergency L of $1.45 billion for the years 1989-1993, Management Agency and the NRC also issued including $330.8 million for 1989. These favorable reports with respect to an emergency forecasted expenditures include gas preparedness exercise held at Seabrook expenditures of $122.5 million for the years in June 1988. 19891993 and $P9.4 million for 1989. In cddition, the system companies estimate that Financial qualification issues remain as nuclear fuel requirements will be $320 million substantial obstacles to the issuance of a low-for the years 19891993, including $26.7 million power license. Principal items that have given for 1989. the NRC renewed concern about financial qualifications are the January 28,1988 filing by <. Corrosion, pitting, and denting of tubes within Public Serv;ee Company of New Hampshire steam generator assemblies have been (PSNH, a 35.6 percent owner of the project) for problems found at numemus nuclear units, pmtection from its creditors under Chapter 11 These pmblems were first identified at of the Federal Bankruptcy Code, the June 1988
' Millstone 2 in a 1977 outage, and since then.the announcement by the Massachusetts Municipal
% unit's steam generator systern has been the Wholesale Electric Company (MMWEC) that it
,V subject of regular inspections and repairs. In would no longer fund its Seabrook obligations, and light of the repairs that have been required,it the ability of various Seabrook participants to may become necessary to replace Millstone 2's fund decommissioning costs in the event that steam generators durmg the mid 1990s. the unit operates for low power testing, but an Commitments are being made to procure spare operating license is ultimately denied.
steam generator subassemblies. lf a steam generator replacement becomes necessary, an On December 21,1988, the NRC authorized its tutage of five to six months could be involved. staff to issue a low power license for Seabrook 1 The cost of the replacement (excluding once certain financial conditions are met. These replacement power costs) could be approximately conditions require that the joint owners provide
$150 million, reasonable assurances that funding will be available for decommissioning in the event Seabrook: CIAP has a 4.06 percent joint Seabmok 1 is canceled after low power testing.
ownership interest in the Seabrook project. At The NRC estimates that $72.1 million would be December 31,1988, CIAP's construedon work required for decommissioning. CIAP's in pmgress balance included an investment of proportionate share of decommissioning cost
$190.5 million in Seabrook 1. Seabrook I has approximates $2.9 million. To accommodate any faced serious opposition to its efforts to obtain intervenor challenge, the NRC provided that a an operating license. Receipt of an operating low power license may not be issued until ten license requires the resolution of several issues, days after notice to the NRC by the staff that including the project's emergency response and the decommissioning funding terms of the order evacuation procedures, the disposition oflegal have been met.
E challenges from government officials and citizen groups in Mr.ssachusetts, and the financial On December 27,1988, PSNH filed, with the difnculties of severaljoint owners of the pmject. United States Bankruptcy Court (Court) a reorganiration plan that provides for a holding Progress has been made in addressing the company structure and a partial shift of rate emergency response and evacuation issues that regulation from the state to the federal level. must be resolved before the Nuclear Regulatory The filing allows PSNH to retain the exclusive Commission (NRC) can issue a low power right to file a plan with the Court until 5 L -___
i
;- . 1 February 27,1989 or such time as the Court agreements to finance and construct additional ,
E; sets. For information concerning NU's offer to transmission and termintl facilities (Phase ID l purchase PSNH's non Seabmok assets, see to import electricity from the Hydro-Quebec
?- Note 8, *Public Service Company of New system in Canada. The Phase !! project is ;
Hampshire." currently estimated to cost approximately r- $565 million of which approximately $270 million ' As short term funding to compensate for has been expended or committed as of E MMWEC's ceasing to fund its portion of the December 31,1988. These facilities, which are ! Seabrook project, CL&P provided approximately scheduled to be completed in the fall of 1990, ; F $7.2 million of financing for Seabrook. In would increase the capability of the Hydro- i
; return for CL&P's funding, other Seabrook Quebec interconnection to 2,000 MW. Upon l owners have agreed to purchase capacity from completion of Phase 11, NU is expected to have an !
the NU system. The NU system is not, thmugh equity ownership approximating $41 million in these funding arrangements, acquiring the Phase !! facilities. Under the terms of the . any additional ownership in the Seabrook Phase !! equity agreement, NU will be required i project beyond the 4.06 percent share currently to guarantee the obligations of other participants ! held by CL&P. that have lower credit ratings and NU will j receive compensation for such guarantees. ; In light of the substantial uncertainties affecting i Seabrook 1, management cannot predict ' Nuclear Insurance Contingencies: On l whether or when the unit will operate. Solely for August 22,1988, an extension of the Price. i financial planning purposes, NU now assumes Anderson Act(Act)through August 1,2002 :* i that Seabrook I will commence operation on was signed, revising nuclear liability Je.nuary 1,1991 If Seabrook 1 ultimately does indemnification. The revised Act limits public t not operate, CL&P would seek full recovery of liability from a single incident at a nuclear power its investment. While the D.PUC has permitted plant to $7.6 billion. The first $160 million of , CL&P to recover substantial portions ofits liability would be provided by purchasing the i investments in similar circumstances, maximum amount of commercially available ; management cannot predict the extent to insurance. Additional coverage of up to ,
- which CL&P will be permitted to recover its $7.1 billion would be provided by an assessment Seabmok 1 investment. of $63 million per incident, levied on each of the ; , 113 nuclear units currently licensed to operate !
Seabrook 2 has been canceled by thejoint in the United States, subject to a maximum ! owners. Through December 31,1988, CL&P nssessment of $10 million per incident per ' had recovered approximately $6.3 million of nuclear unit la any year. In addition, if the sum of all public liability claims and legal costs -i
. its retail investment in St abrook 2. CL&P has been granted $2.5 million of annual revenues arising from any nuclear incident exceeds the i to recover a portion ofits remaining retail maximum amount of financial pmtection, each .
Investment in Seabrook 2, which at reactor operator can be assessed an additional December 31,1988 amounted to $19.2 million. 5 percent, up to $3.2 million. The maximum The DPUC has not permitted CL&P to earn a assessment is to be adjusted at least every five , return on this investment, years to reflect inflationary changes. Based on CL&P's and WMECO's ownership interests in i in 1986, the DPUC initiated a review, conducted the three Millstone units, the NU system's l by Theodore Barry and Associates (TB&A), of maximum liability would be $175.4 million per the prudence of CL&Ps and The United incident. In addition, through CL&Ps and Illuminating Company's, an unalliliated WMECO's power purchase contracts with the l: Connecticut utility, investments in the Seabrook four Yankee regional nuclear electric generating l l . project. On September 15,1987, TB&A issued companies, and CL&P't. ownership in Seebrook, t I their report, identifying $1.38 billion of alleged the NU system would be responsible for up to an l imprudent Seabrook project expenditures additional $70.5 million per incident. , incurred through October 1,1986. CL&P Payments for the NU system's ownership disagrees with the TB&A report conclusions, interest in nuclear generating facilities would be Hearings are expected to begin in mid 1989. limited to a maximum of $37.2 million per , incident per year. Hydro-Quebec: Along with various New England utilities, NU has entered into l l E . - - .
o [ hwurance has been purchased from Nuclear CL&P and WMECO may be asked to prmide i Electric Insurance Limited (NEIL) to cover: additional capital and/or other types of direct or j h (a) eertain extra costa incurred in obtaining indirect financial support for one or more of the ' l : replacement power during a prolo regional nuclear generating companies. j accidental outage with respect to C P's i and WMECO's ownership interesta in ! Millstone 1,2, and 3, and CY; and,(b) the cost 8. Public Service Company of New of repair, replacement, or decontamination of Hampshire f utility property resulting from insured i- occurrences at Millstone 1,2, and 3, CY, MY, On January 12,1989, NU made an offer to ! and VY. All companies insu wd with NEIL are purchase the non Scabrook assets of PSNH. '! subject to retroactive assessments iflosses Under the tenne of the oser, PSNH would exceed the accumulated funds available to become a New Hampshire regulated operating : NEIL. The maximum potential assessments subsidiary of NU. FShWs 35.6 percent share of , against CL&P and WMECO with respect to the Seabrook nuclear power plant would be spun < loanes arising during current policy years are offinto a separate company owned by PSNH's , l cpproximately $11.6 million under the existing unsecured creditors and security replacement power policies and $13.3 million holders. NU's Ne v Hampshire subsidiary under the property damage and decontamination -would contract to buy the power for as long as F
- policies. Although CL&P and %%iECO have the plant operates. !
purchased the limits of coverage currently available from the conventional nuclear The offer values PSNH's non-Seabrook assets at , insurance pools, the cost of a nuclear incider,t $1.2 billion. New financing will be provided to pay : I could exceed available insurance proceeds. off PSNH's first , third., and general and i e refunding mortgage bonds, except $100 million of , In addition, insurance has been purchased from pollution control revenue bonds which will be i American Nuclear Insurers / Mutual Atomic assumed. The interest in the new Seabrook Energy Liability Underwriters, aggregating company would be worth approximately ,
$160 million on an industry basis for coverage $750 million, based on the power purchase of worker claims. All companies insured contract NU has proposed for its new New '
L under this coverage are subject to retrospectiv e Hampshire subsidiary. assessments of $2.7 million per reactor. The ! maximum potential assessments against CL&? The offer is subject to approval by the Ccurt,
' cnd WMECO with respect to losses arising PSNH's creditors and security holders, and .
during the current policy period are federal and state regulatory authorities. ; cpproximately $10 million. Approval of this offer is not assured. l Financing Arrangements for the Regional -;
' Nuclear Generating Companies:The !
owners of CY, including CL&P and WMECO, have guaranteed their pro rata shares of
$29.4 million 17 percent Series A Debentures.
'Ihe guarantees of CL&P and WMECO aggregate $13.5 million.
The owners of VY, including CL&P and WMECO, have guaranteed their pro rata shares of a $40 million nuclear fuel financing through the Vernon Energy Trust. The < guarantees of CL&P and WMECO aggregate ' up to $4.8 million. The owners of MY, including CL&P and i e WMECO, have guaranteed their pro rata shares of MY's obligations under a $50 millica nuclear fuel loan agreement. The guarantees of CL&P l cnd WMECO aggregate up to $7.5 million. . ; II t, '
h 1988 1987 .1986 '1985 1984 , (Thousands of Dollars cacept percentages (.nd share detal l l Balance Sheet Data: Net Utility Plant - ! Continuing Operations ....., $5,322,030 $5,265,428 $5,128,125 $5,204,687. $4,650,428 - Net Gas Plant to be . Dives ted . ......... ................... 254,587 237,903 224,581 214,115 204,187 . Total Assets ......... ................. 6,764,608 6,663,794 6,299,755 6,147,720 5,507,040 .l Total Capitalization ............... 5,123,504 4,956,080 4,743,914 4,681,995 4,319,404 . l' Obligations Under . i' Capital leases ........... ....... 410,352 432,714 441,183 440,587. 392,593 income and Share Data > Continuing Operations: Operating Revenues .......... $2,079,248 $1,878,082 $1,828,303 $1,861,011 $' a'r0,822 ! l Net Income .... .................... 224,844 214,529 171,234 277,768 4615 Earnings per Share ............ $ 2.07 $ 1.97 $ 1,58 $ 2.62 2.73 , l i Gas Operations to be Divested: . ,. Operating Revenues .......... $200,243 $202,816 $203,814 $220,010 $224,430 . Net Income ........ ................. 9,078 14,616 10,705 10,773 12,323 ' Earnings per Share ............ $ 0.08 $ 0.14 $ 0.10 $ 0.10 $ 0.12 ; Dividends per Share ............. $ 1.76 $ 1,76 $ 1.68 $ 1.58 $ 1.48 ; Payout Ratio (%) .................... 81.9 83.4 100.0 58.1 51.9- 'i Number of Shares Outstanding - Average ...... 108,669,106 108,669,106 108,352,517 106,221,131 101,398,235 i j Rate of Return Earned on ! l Avg. Com'non Equity (%) ... 13.0 12.8 ? O.4 17.4 19.8 , Book Value per Share ............ $16.90 $16.53 $16.24 $16.21 $15.07 i Market Price - High ............ $23% $28 $28% $18% $14% . !
- Low . .. ....... ... $18% $18 $17% $13% $10% !
l l L Capitalization (includes portions due within one year) ;
- Common Shareholders' Eq ui ty . . . . . . . . .. . . .. . . . . . .. . . . . . . . . . . . $1,837,034 $1,796,293 $1,765,090 $1,738,871 $1,575,705 .
Preferred Stock Not Subject to Mandatory : Redemption ....... ..... ........ . 344,695 291,195 291,195 291,195 291,195
- Preferred Stock Subject to .
Mandatory Redemption ..... 111,832 205,832 166,832 185,833 186,978 : r long. Term Debt ....... ..... ...... 2,829,943 2,662,760 2.520,797 2.466.096 2,265,526 Total Capitalization ............... 45,123,504 $4,956.080 $4,743,914 $4,681,995 $4,319.404 : i Common Shareholders' ' Equit y . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35.9 % 36.2% 37.2% 37.1 % 30.5% Preferred Stock Not : Subject to Mandatory Redemption ................... . .. 6.7 5.9 6.2 6.2 6.7 i Preferred Stock Subject to Mandatory Redemption . ... 2.2 4.2 3.5 4.0 4.3 l Long Term Debt ................ ... 55.2 53.7 53.1 52.7 52.5 l Total Capitalization .. .. ..... . . 100.0 % 100.0 % 100.0% 100.0% 100.0"r l 1
m
. - _ _.m .
P
- y Consolidated Statements of Quarterly Financial Data (Unaudited) !
. Quarter Ended p M1988 March 31 June 30 September 30 Dee2mber 31 ;
! (Thousands of Dollars, encep per share deta) l f Continuing Operations: 4 Operating hvenues ............................. 4587,490 8489.922 $543,841 ' $527,995 l 4
L Operating Income ................................. 8 84,140 $ 71,991 4 96,844 $ 78,284 Net Income ........ .... .... ..... ......... ........... . $ 55,643 $ 43,976 8 65,650 -8 59,575 t Er.rnings Per Common Share ... . ........, 80.51 $0.40 $0.60 $0.56 i Gas Operations to be Divested: . l r Operating hvenues ............................. $ 78,199 $ 84,999 $ 23,612 8 63,433 Operating Income ................................. $ 13,042 8 2,125 $ (180) $ 6,824 4 Net Income (14ss)................. ................ - $ 9,860 $ (1,142) $ (3,388) $ 3,748 Earnings Per Common Share ............... 80.09 $(0.01) $(0.03) $0.03 1987 Continuing Operations: ! Operating kvenues ............................. $460,539 $457,109 $473,649 $486,785 i Operating Income ................................. $' 77,205 $ 77,378 8 66,867 $ 55,806 l Net Income ......... ............ .............. ........ $ 75.639 $ 54.474 . $ 57,849 $ 26,567 -
~
Earnings Per Common Share ............... ' $0.70 $0.50 $0.53 $0.24 Gas Operations to be Divested: Operating Revenues ......... ................... $ 79,797 $ 34,620 $ 25,447 $ 62,952 , Operating Income ................. ........ ...... $ 13.191 $ 2,435 $ 1,303 $ 8,888 ; i Net Ineome (Loss) .................................. $ 10.391 $ (400) $ (1,458) $ 6,083 Eamings Per Common Share ....... . .... $0.09 $0.00 $(0.01) $0.06 ! Consolidated General Operating Statistics : . 1988 1987 1986 1985 1954 System Capability - MW (a) .................... 5,737.7 5,564.5 5,972.8 5,462.9 5,869.0 System Peak Demand - MW ................... 4,883.3 4,590.5 4,241.5 4,340.2 4,234.4 Nuclear Capacity - MW (a) .... ................ 2,590.4 2,420.2 2,681.4 1,932.2 1,937.8 Nuclear Capacity Factor (9)(a) . ............ .. 79.2 74.9 75.7 66.0 78.5 : Nuclear Contribution To Total Energy bquirements (9 )(a) . . . . 68.5 68.5 67.1 47.6 57.2 ! talincledes company entitle.nents in regional nuclear generating companics, net of capacity sales and purchases.
~
43
- m. _ . _ . . . ._ . _ _ . _ __ . _ .
1988 - 1987- 1986 1985 1984 I Source of Electric Energy: (kWh - millions)(a) Nuclear - Steam .................. 19,146 18,019 16,624 11,453 13,711 Fossil - Steam ...................... 8,805 7,912 9,048 8,325 9,065 Hydro - Conventional .......... 825 866 895 726 840
!. Hydro - Pumped Storage ...... 1.111 973 950 925 875 Internal Combustion ............. 84 39 33 16 34 Energy Used For Pumping .... (1,509) (1,322) _' (1,293) (1.287) (1,199) r Net Generation ..........- .... 28,462 26,487 26,257 20,158 23,326 Purchased And Net ; inte rchange ............. . ...... . (1,717) (1,000) (1,725) 3,320 (115)
Company Use And - Unaccounted For ..... .......... (2,333) (2.082) (2,050) (1,859) (1,793) Net Energy Sold ............. 24,412 23,405 22,45J2 21,619 21.418 Revenues:(thousands) Residential ............... ............. 8 838,011 $ 780,866 $ 741,838 $ 750,076 $ 754,075 Commercial ..... ...... ... ........ 673,819 630,678 602,924 606,414 589,898 In d us t rial ... .... .... ...... ... .. ... .... 366,517 353,394 350,310 371,079 381,289 Other Utilities ....................... 38,294 43,170 55,683 56,857 . 56,492 r Streetlighting and Rail roads .... ... ... ................. . 33,151 32,318 34,741 34,899 32,252 Miscellaneous ....... ......... ... .. . 82,169 (18,146) (2.464) 9,698 29,340 . Total Electric ............ . 2,031,961 1,822,280 1,783,032 1,829,023 1,843,346 :
. Ot h e r . . . . . . . . .. . . . . . . . . . . .. .. . . . . . . . . . . . . 47,287 -
55,802 45.271 _ 31,986 27,476 ! Total .. . . . . . . .. . . . . . . . . . . . . . . . . . . $2,079,248 $1,878,082 ,$1,828,303 $1.861,011 $1,870,822 Sales: (kWh - millions) i Residential .. .. .. . . . . . . . . . . . . . . . 9,412 8,825 8.274 7,837 7,804 Commerciel .......... ............ .. .. 8,585 8,151 7,676 7,185 6,904 Ind ustrial ........ .. ...... . .. ... . 5,533 5,449 5,394 5,286 5.374 + Other Utilitles ....-.. . .. . . .. . 598 699 830 1,016 1,082 Streetlighting and Railroads ......... ... . . ... ...... 282 281 308 295 254 Total . ... .. . . .. .. .. .. ... . .. ... 24,412 23,405 22,482 21,619 21,418 Customers:(average) l Residential ..... .......... ... .... .... 1,117,356 1,091,539 1,063,998 1,041,254 1,021,871 1
- Commercial .... .................... 98,095 94,164 90,924 88,031 85,658 l Industrial ..... ...... ... .... ... . .. . 5,063 5,084 5,102 5,087 5,022 Othe r . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . 3,191 3,090 3.061 3.035 2.992 i Total .. . . . . . . . . . . . . . . . . . . . . . . . . 1,223,705 1,193,877 1,163.085 1,137,407 1,115,543
[ Average Annual Use Per Residential j Customer (kWh) . .. .. 8,418 8.061 7.746 7,492 7.596 i Average Annual Bill Per Residential Customer . . . . . . .. 8749.54 $713.24 $694.51 $717.06 $734.00 Average Revenue Per kWh: Residential ....... ... .. .. . .. ... 8.90c 8.85c 8.97c 9.57c 9.66c Commercial .. .. .... .... ... .. . 7.85 7.74 7.85 8.44 8.54 l Industrial . . . . . . 6.62 6.49 6.49 7.02 7.10
- (a) Generated in system and regional nuclear generating plants.
i i eu e i 44
]
? 1 ' ~ e. .-*
v, .v .,4,
- 5. .
1988 1987 1986 1985 1964 S)
. Source of Gas:
I (Mcf - thousands) Purchased ..... ... ....... ............... 88,858 35,587 29,237 S0,534 32,099 Prod uced ...... ..... .. ................... 286 178 223 23e 318 L Company Use And Unaccounted For ................ (2,387) (4,961) (1.211) (2.8'5) (2,735) Net Sold .... .................... .. 31,707 30,804 28.249 27.9:5 29,682 Maximum Day Sendeut (M - The rms) .......... ....... 2,176 1,898 1,847 1,' .70 1,722 ' Revenues:(thousands) - Residential .... .......... $ 97,118 $ 97,276 $ 99,654 $ 98,812 $ 98,799 Commercial ........................... 58,075 57,667 58,006 58,934 59,576 In d u st rial ... .... . .... .. .. .. .... . .. ..... 41,663 46,058 43,952 57,367 67,645
. Miscellaneous . ... .................. 3,387 1,815 2.202 4.897 (1,590)
Tot al . . . . . .. . .. . . . . .. . . . . .. . . . .. . $200,243 $202.816 $203,814 $220.010 $224.430 1 Sales (Mcf - thousands) Residential .. . ............... ... . 11,846 11,167 10,730 10,125 10,159 Comme rci al . ..... .... ...... ... .... ... . 9,296 8,763 8,134 7,704 7,822 Ind ustri al .... ...... . ...... .... ....... .. 10,301 10,850 9,381 10,082 11,697 Oth e r . . .. . . .. . . . . . . . . . .. . .. . . . . . . . . . .. . . . 24 4 4 4 264_ Total . . . . .. . .. . . . .. . . . . . . . .. . . ... . .. 31,707 30,804 28,249 27,915 29.682 Customers:(average)
. Residential ............ ... ... ......., 152,020 148.523 145,234 142,280 140,508 Commercial ..... ................ .... 17,975 17,057 16,165 15,506 14,437 In d ustrial . . .. .. .. . ...... . ... .... . .. .. . 1,405 1.371 1,346 1,333 1,307 Tot al . .. . .. . .. . . .. . . . . .. . . . . .. . . . . 171.100 166,951 162,765 159,119 156,452 Average Annual Use Per Residential Customer (Mc0 ... ........... 77.9 75.2 73.9 71.2 72.3 Average Annual Bill Per Residential C u st om e r ......... . .. . .... . . .... . $638.84 $654.96 $686.13 $694.49 $703.15 Average Revenue Per Mcf:
Residential ............. ............... $8.20 $8.71 $9.29 $9.76 $9.73 Commercial ... ....................... 6.25 6.58 7.13 7.65 7.62 Industrial ..... .. . . . . . . . .. 4.04 4.25 4.69 5.69 5.78 I~i m
s .;
, s Shareholders . !
~ As of January 31,1989, there were 158,040 common shareholders of record of Northeast Utilities, j Common Share Information .
l The common shares of Northeast Utilities are listed on the New York Stock Exchange. The ticker i symbol is "NU," although it is frequently presented as "Noest Ut" in various financial publications. j The high and low sales prices and dividends paid for the past two years by quarters are shown below: j Quarterly Dhidend l Year Quarter High Low Per Share j 1988 First $23% $19% $0.44 Second 20 % 18 % 0.44 ! Third 20 % 18 % 0.44 ) Fourth - 21 % 19% 0.44 ; 1987 First 28 24 % 0.44 I Second 25 % 21 % 0.44 , Third 24 % 21 % 0.44 , Fourth 23% - 18 0.44 j Dhidend Reinvestment and Common Share Purchase Plan l The company has a Dividend Reinvestment and Common Share Purchase Plan under which all ; common shareholders may use their dMdends to purchase additional common shares. The company ; absorbs all brokerage fees for purchases under the plan, t The Connecticut Bank and Trust Company, N.A., One Constitution Plaza, Hartford, Connecticut 06115, ,, is the company's dividend paying agent and administera the company's Dividend Reinvestment and ' s. ; Common Sharc Purchase Plan. l Annual Meeting The annual meeting of shareholders of Northeast Utilities will be held on Tuesday, May 23,1989, at i 10 a.m., at The Howard Johnson Hotel and Conference Center, in Windsor Locks, Connecticut, which ! is located at Exit 41 (Center Street) of Interstate 91.
. Transfer Agents and Registrars '
The Connecticut Bank and Trust Company, N.A. State Street Bank and Trust Company Stock Transfer Department Corporate Stock Transfer Department ; One Constitution Plaza 225 Franklin Street Hartford, Connecticut 06115 Boston, Massachusetts 02107 j i
- Form 10 K '
l Northeast Utilities will provide shareholders a copy ofits 1988 Annual Report to the Securities and Exchange Commission on Form 10 K, including the financial statements and i schedules thereto, without charge, upon receipt of a written requerrt sent to: l ' Theresa H. Allsop Assistant Secretary l Northeast Utilities l P.O. Box 270 Hartford, Connecticut 061410270 .
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t . a. IOFFICERS ' Pmeldents John.J. Smith Chief ve Omeer- Optmtions (Gas) C.Thayer Bmwne George D.Uhl Wintarn B.Ellis Nasurer # Canell A.Caby Richard P.Wemer Tod O.Dixon mMyEnginndng
, and Praident and Chief Operating and information Resources hetal Omcer Re;/mond E. Donovan '
Marketing and Consumer Services , y,.,,,4 y, y, Regional % Presidents Albed J.H4ek Corporate Ptrformones Services Robert G. Abale and Organizational Contml Western Massachusetts Executive Vice President Richarxl R. Carella j nkmds yg u Eastern John F. Opeka Francis L. Kinney Engineering and Operations PublicAtfairs f,tf, .Gemuld Hugh C. MacKenzie Ro hnsmission and Distdbution N*kpN* C.J.Nomnen Engineering and Operations Senior VicePneidents - N R. Rogers Keith R.Marvin Purchasing arid Maten'als PhilipT. Ashton Management best W. Zonghetti Generul Manager - Gas Group J hn W.Noyes Robert E. Busch y; Regulatory Relations John P. Cagnetta nard A O'Connor Finance and Accounting (Gas) y ,g,y g y g , Corporate Planning and Regulatory Relations Richard A.Reckert w wy, FossilandH,wiroProduction Thestsa H. Allsop Customer Service Edward J. Mmerka Wayne D. Romberg Nuclear Operadons . hh T Karen G.Valenti Nuclear Engincedng and WalterT. Schulthels Operations Pouer Supply Planning and Lawrence H. Shay Reseth Administratite Services C. Frederick Sears Assistant Treasurers Walter F. Torrane , s.. Nuclear and Ent'ironmental Engineering Robe [n Secretary and Gens.ulI aunsel Eugene G.Vertefeuille l I
' As of February 1,1989 i 47
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\- OFFICERS TRUSTEES William B.Ellis * + ' William O. Bailey t* Elizabeth T. Kennan Chairman of the Board Chairman,Chiefhecutive President and ChiefExecutite Offwer ORiar, and a Director Mount Holyoke College
^VBIA Inc. and Municipal * + t Denham C. Lunt, Jr. ' Bernard M. Fox Bond investors Assumna I President and ChiefOpenting Chairman, President, Corpomtkn Chiefbecutite Odiar, andFinancialOfficer (insu er ofmunicipal bcnds) and a Director B'., bed E. Busch .t Edward B. Bates Lunt Siltersmiths Oenior Vice President Fo?merChairman Walter F.Torrance, Jr. Connecticut Mutual + #' B, Senior Via President, Secretary, Life insurance Company y,, g, and Cenem! Counsel + # Richauxl L. Creviston YaleLaw School C.Thayer Bmwne Chairman and a Director OmniBank ofConnecticut,Inc. st* % iQ.Papen J Via Prssident and Drasurer George D.Uhl *t DonaldW. Davis Waterbury Republican
Vice President and Contmiler Chairman andAmerican The Stanly Works (newspapers) Theitsa H. AllsoP (tools, harduurr, and Assistant Secretars industrialpmducts) + #' Norman C. Rasmussen Professor ofNuclear
- Cheryl %,. Grise *+# Donald J. Donahue Engineering Asssstant Secretary Chairrnan MassachusettsinstitJe Karen G.V&nti Magna Copper Company ofDchnology
- Assistant Secretary * +' William B. Ellis d' William K. Rellly jQ President Robed C. Amnson Chairman of the Board and Assistant Deasurer Chiefhecutite Officer WorldWildlife,Fundand ,
The Consenotson Foundatson Arthur H. Hierl *- Bermtrd M. Fox (international consenotion President and Chief Opemting Assistant Treasurer anatkn and emimnmental Eugene G.Vertefeuille research smup, respectitely) Assistant Deasurrr ** George B. Harvey * + # Albert E. Steiger, Jr. Chas,rman of the Board, President, Chiefbecutite President, and a Director Oficer, and a Director
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#7' Eugene D. Jones Senior Vice President Greine"inc.
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