ML19350C779

Annual Financial Rept 1980

ML19350C779
Person / Time
Site:	Millstone, 05000496, 05000497
Issue date:	03/16/1981
From:	Eillis W, Sillin L WESTERN MASSACHUSETTS ELECTRIC CO.
To:
Shared Package
ML19350C763	List: ML19350C762 ML19350C779 ML19350C785 ML19350C790
References
NUDOCS 8104060686
Download: ML19350C779 (27)

Text

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i ANNUAL e

RE3 ORT l

1980 l

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NORTHEAST UTILITIES WESTERN MASS. ELECTRIC COMPANY

$104'0$0$$$

DIRECTORS WILLIAM B ELLIS LELAN F SILLIN JR President and Chief Operatrng Off.cer Gnairman of tne Br Pri and Ch ef Executrve Officet Northeast Utstics Northeast USI

• es WALTER F. FEE PETER M STERN Executive Vice President.

Vice President Northeast Utilities Service Company Northeast Ut<! ties Serv:ce Comcany DONALD C SWITZER E JAMES FERLAND V'ce Chairman, Vice President and Ch:ef Financial Officer, Northeast UtMiies Northeast Utilities WALTER F. TORRANCE.JR LEON E. MAGLATHLIN,JR Senior Vice President. General Counsel and Senior Vice President.

Assistant Secretary.

Northeast Utilities Service Company Northeast Utsties Service Company HERBERT W. SEARS ANTHONY E. WALLACE' Senior Vice President.

Executi.e Vice President.

Northeast Utilities Service Company Northeast Utihties Service Company OFFICERS LELAN F. SILLIN.JR.

WARREN F. BRECHT Chairman and Chief Executive Officer Vice President and Control!er DONALD C SWITZER CARROLL A. CAFFREY Vice Chairman Vice President WILLIAM B ELLIS RAYMOND E DONOVAN President and Chief Operat:ng Officer Vice President WALTER F. FEE FRANCIS L. KINNEY Executive Vice President Vice President E. JAMES FERLAND LEONARD A. O'CONNOR Executive Vice President Vice President and Treasurer and Chief Financial Officer WALTER T. SCHULTHEIS ANTHONY E. WALLACE*

V'ce President Executive Vice President PETER M. STERN WILLI AM G. COUNSIL Vice President Senior Vice President ROBERT W. BISHOP LEON E. M AGLATHl.IN. JR Secretary and Assistant Clerk Senior Vice President ALBINA A. PLUTA HERBERT W. SE ARS Clerk Senior Vice President WALTER F. TORR ANCE.JR.

Assistant Secretary Senior Vice President Generai Counsel and ROY M. SEGER Assistant Clerk Assistant Clerk LAWRENCE H. SH AY ROBERT C. ARONSON Vice President and Chief Administrative Office' Assistant Treasurer PHILIP T. ASHTON MICHAEL K UPPER Vice President Assistant Treasurer

" Retired effective January 1,1981

I Western Massachusetts Electric Company March 16,1981 To The Stockholders:

The Annual Report of Northeast Utilities, which provides coverage of the entire Northeast Utilities system, including Western Massachusetts Electric Company, has been mailed to all WMECO preferred stockholders. This report is brief for that reason.

The financial statements and statistical data included in this report show the results of operations of the Company in 1980.

As you will note, the Company's earnings showed an increase during 1980, but remained significantly below the rate of return found necessary by the Massachusetts Department of Public Utilities (DPU). Additional revenues generated by an annual $14 million rate increase, approved by the DPU in 1980, were partially offset by the effects of rapid inflation, nuclear operation and maintenance costs associated with directives issued by the Nuclear Regulatory Commission and continuing high short-term interest rates. On January 16,1981, the Company filed with the DPU a rate increase application

~ and a petition for interim rate relief.

The Company expects to sell First Mortgage Bonds during the first half of the year, and a preferred stock offering is tentatively planned for the fourth quarter of the year.The specific timing and amount of these issues will be determined at a later date.

Sincerely, 2L2t.&

L, Es% ).

President -

Chairman

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W:.st:rn Massachusetts Electnc Company MANAGEMENT DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Introduction This section is management's assessment of the Company's operating results and their relationship to

'inancial trends. This discussion also assesses the cconomic condition of the Company by focusing on four particular areas of significance:

• Results of Operations

• Construction Program o Financing

• FinancialCondition Our financial statements shou d be read with the understanding that, as a utility, our construction program and related financing requirements arise from our responsibility to provide cost-effective, reliable service to our customers. Also, regulatory agencies may create requirements in the application of accounting procedures for a regulated utility which are not applicable to nonregulated companies. Among the differences are requirements affecting when and how certain revenue and expense items are recngnized.

R:sults of Operations The following is a summary of year-to-year changes in the principalitens affecting earnings:

Increase or(Decrease) 1980 vs.1979 1979 vs 1978 Amount Percent Amount Percent (Doltar Arnounts m T%usands)

Operating revenues

$28.902 17.2 511.658 7.5 Cost of fueland p*pchtsed power 24.406 49.1 9,515 23.7 Other operation expermes 2,733 6.8 4.541 12.8 Maintenance 214 1.9 1.834 19.5 Allowance for funda used durina construction 1,158 16 8 1.341 24.1 Interest and other charges (excluding allowance for funds used during construction) 3.901 18.7 1,991 10.5 Net income

!887 13.8 (1.841) (11.9) 4 2

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Tne recovery of fuel costs comprises an increasingly farge percentage of Iotal revenues. Fuel reccvery revenues increased $24 million in 1980 and $10 million in 1979. Fuel cost recoveries have increased because of continued oil price escalation. In 1979, the average cost of oil to the NU system was approximately $18 per barrel.

In 1980. nverage oil costs rose to $27 per barrel and it is anticipated these costs will continue to escalate in the future.The components of the change in revenues in the past two years are as follows:

1980 1979 IDollae Amounft n Thousands)

Fuel cost recoveries

$23,979 83 %

$9.874 85%

Rate increase.

6,232, 22 Salesincreases/

(decreases)

(2,637)

(9) 1.568 13 Miscellaneous 1,328 4

216 2

TotalRevenue -

Increase

$28,902 100 %

$11.658 100 %

In the near future sales are not expected to contribute

. significantly to overall revenue increates. Sales decreased 2.0' percent in 1980 and increased 1.8 percer't in 1979.

Higher fossil fuel prices are recovered from customers.

Other cost increases, caused by high inflation, largely

those for labor and materials, have a greater impact on earnings since they are not recovered from customers in a timely manner. Nuclear generating costs have also -

risen as a result cf directives issued by the' Nuclear

Regulatory Comrnission Despite increased operating

. costs, the nuclear units continue to offer a substantial

. savings over oil-fired units. For an analysis of the impact L of inflation on the Company see Note 11,'.' Impact of Changing Prices",if Notss to the Financial Statements.-

Allowance for funds dsed during construction

(AFUDC), which represents the estimated cost of capital invested in construction work in progress (CWIP),-

increased $1.2 million in 1980.This increase'is due to the

' : combined effect of several factors. First, the averag'e Pr e 3-

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balance of CWIP increased from $93 million in 1979 to

$109 million in 1980, due primarily to the Millstone ill nuclear unit construction project. In addition, during the year 1980, the Company adopted a number of accounting changes for AFUDC, including the net-of-income tax method, the practice of compounding AFUDC semiannually and the e..e of the rate calculated in accordance with Federal Energy Regulatory Commission guidelines.

Interest expense increased $3.9 million (18.7 percent) in 1980 and $2.0 million (10.5 percent) in 1979. The 1980 increase was due principally to higher short-term

' borrowings although higher interest rates also contributed to the increase. In 1979, higher rhort-term borrowings and higher interest rates contributed about equally to the increase in interest expense.

C;n'struction Program -

Millstone lli continues to be the most significant item in the construction program. Expenditures for this unit comprise 87 percent of total planned expenditures for

. new production facilities. In addition to production facilities, almost $75 million will be spent in the next five years on su ~ h projects as transmission and distribution lines, and other facilities necessary to maintain reliable service.

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Coristruction expenditures (including AFUDC but excluding nuclear _ fuel)in the period 1981 through 1985

- are estimated below -

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Electric.

' Generating Facilities Other Total (Thousarids ot Dollars)

.1981;

$48.553

$10.443 S58.996 1982 45.247

'12,611'

- 57,858 1983

'45,343

.11.372.-

56,715-E1984 45.868

.18.316-64,184 1985 40.727-

- 21.928 62.655-

~ During 1980, a new cost sstimate was' completed for

- Millstone lil;The figures above reflect that revision which

' increased the co'st of the Company's ownership share.

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from $256 million to $321 million. Construction expenditure estimates reflect the cancellation in December 1980 of plans for a two-unit nuclear project in Montague, Massachusetts.

In January 1981, the NU system offered to sell to other utilities a minimum of an 8.7 percent ownership interest (approximately 100 MWs)in Millstone 111 and invited expressions of interest in amounts in excess of 100 MWs.

A determination of whether more than 100 MWs will be sold is to be made following receipt of responses to the offer and will be based on the then financial outlook of each of the system companies and the amount of interest expressed by the utilities. All sales are subject to federal and state regulatory approvals and it is unlikely that any sales could be completed by the end of 1981.

The Company estimates that its expendnures for nuclear fuel (including AFUDC) will be S16 million for the period 1981 -1985. Fuel for Millstone I and 11 is financed by Northeast Nuclear Energy Company (NNECO). The investment in nuclear fuellocated in the Millstone I and 11 reactors is financed by NNECO through capital contributions or advances from Northeast Utilities and the issuance of secured notes and bank borrowings. Up to S50 million of investment in nuclear fuelin process for Millstone I and ll may be financed by NNECO pursuant to a fuel supply trust agreement, under which the trust owns and finances the nuclear fuel before it is placed in the reador. The trust obtains funds by the sale of commercial paper and/or bank loans. NNECO is obligated to purchase the nuclear fuel from the trust when specific

' events occur. The Company, The Connecticut Light and Power Company (CL&P) and The Hartford Electric Light Company (HELCO) presently contemplate entering into a fuel supply trust agreement to finance their share of the nuclear fuel costs for Millstone Ill. Nuclear fuel costs are expect?d to be recovered through rates as the fuelis consumed in the reactor.

As part of its program to reduce dependence on oil, the 5-

Company proposes to convert up to three oil-fired units to coal. Fui; implementation of this plan is highly dependent upon the receipt of environmental approvals and an improvement in the Company's financial condition, since ino cost of converting all three units is estimated at $56 million, assuming no flue gas desulfurization equipment is necessary.Escause of uncertainties about imp!ementation of the plan,the construction program does not include any amounts for coal conversion.

The NU system is currently planning to convert Holyoke Water Power Company's (HWP) Mt. Tom Power Plant if the Company.CL&P, HELCO and HWP receive necessary approval to finance the estimated $35 million cost or conversion (of which approximately $22 million will be borne by the system and the balance will be borne by another utility system which shares the output of Mt.

Tom Power Plant) through the use of an oil conservation adjustment. Such an adjustment would permit the system to retain two-thirds of the fuel cost savings resulting from the conversion until the full cost of the conversion is paid.

Coal burning is expected to oegin about one year after necessary rate and environmental approvals are received.~

> Fin:ncing -

. In addition to the construction program, the Company's financing requirements during the period 1981 -1985 include $36 million to meet long-term debt maturities and sinking-fund requirements of senior securities. Of this amount, $10 million wi!i have to b4 refinanced in 1982.

The Company finances current construction expenditures _and other requita ments in excess of 1 internally generated funds through short-term borrowings, Jfirst mortgage bon'ds, prt' erred sto'ck.-feasing equipment,

' and capital contribfeons from the parent companyc s

iCompariy's 1981 financing isquirements.The sale of 25.

External funds are expected to provide at least half of the.

(to-j0 year mortgage bond securitie' and prefe'rred stock.-

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.without sinking funds may become increasingly difficult -

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as indicated by recent trends in the capital markets.

. In addition to their customary short term borrowing p

arrangements, tne Company. CL&P and HELCO entered

~ into a revolvir.g credit / term ic in agreement with a group of banksin August 1980.This agreement provides additionallines of short-term credn and should allow greater flexibility to the financing program. The aggregate

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credit limit for all three companies under the agreement is

$140 million.

The parent company made a capital contribution of $15 million to the Company in 1980 and an additional capital i

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contribution ma~y be made in 1981. These contributions are necessary to support the Company's equity ratios. A sale of common shares planned for 1981 by the parent company is expected to supply the funds for these contributions.

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' As of December 31.1980,the Company's short-term s

debt totaled S29 million and represented 6.9 percent of 4

. capitalization.The Company's 1981 financing program is

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s 1 aimed at a reduction of short-term debt by year-end 1981.

The Company's ability to maintain the construction

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~ program is dependent on its obtaining timely and adequate rate relief and financing on satisfactory terms.

Fin.ndial Con'dition?

,1The Cornpany requested rate relief in November 1979 of $27.9_ million and.-in May, the Department of Public Utilities (DPU) authorized relief of S11.5 million. As a

, g Lresult of the'Com'pany's motion for rehearing, an

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2 additional S2.5 million was grcnted in October. Becauss

! of the significant shortf allin the DPU's ' decision, the Company file'd on Janu'ary __16.1981. for $41.5 milhon of -

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rate relief and has applie'd for interim e.mergency relief off

$17.3 million. It is expected that the DPU will.act on the -

interim request in April and that the balance of relief.

in'eeded tsy the Compsny wiil be' decided in J.uly.

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4We are hopeful that the 1980 rate increase and the :

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E1981 rate case decision willincreasel earnings coverage L i ratios enough _in 1981 to substantially support the :

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Company's planned financing program. However, these coverage ratios may be adversely affected by several g

f actors over which the Compcny has little control.

Unexpected nperation and maintenance expenditures could adv.trsely affect earnings and coverages. Such expend.tures may be largely outside of the Company's i.

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direct control, since they cculd be called for to maintain reliable service and rec

• regulatory requirements.

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Increased financing costs for inventories and working I

capital requirements have been adversely impacting the r

.. Company's liquidity, Rapidly rising oil prices have

- significantly increased the funds required to maintain normal fossil fuelinventory levels over the past two years.

Oil consumption is affected by the performance of the nuclear units. Low performance of the nuclear generating plants increases oil consumption and the use of

. replacement power. As a consequence, there is an p

' increased need for cash to finance these costs.

. AFUDC ha's become a higher percentage of net

. income throughout the electric utility industry. For the -

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Company, this percentage has increased from 44.4 percent in 1978 to 64.6 percent in 1979 and to 64.1 percent in.1980. In 19867when Millstone ill is removed fro'm construction work in progress and placed in rate ibase,the AFUDC as a percentage of netincome should.

be reduced.

The Company's' required expenditures for construction, nuclear f uel, and maturities and sinking-fund redemptions

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tof outstanding securities'present the Company with n unprecedented needs.fo, capital at a time when

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inadequate rate relief, low earnings coverages and.

x i extremely difficult securities ma' kets alllimit the ability of.

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[ Company's shortderm' borrowing capabilities'could limit 2

access to such funds. Moreover,' rapidly rising fuel costs :

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, requirements could further reduce the Company's.

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internal generation of funds below levels sufficient to support external financing needs. Thus, many factors, both internal and external to the Company, affect its ability to meet cash requirements. However, the most important variable continues to be adequate and timely rate relief. Absent adequate rate relief, the Company may be forced to make further defen@:: cr aDandonments of proposed projects as well as to further reduce its ownership interest in Millstone Ill.

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Western Massachusetts E!actnc Comoany STATE ~ ENTS C F INCC ME For the Years Ended December 31 1980 1979 1978 y w ; ces Operating Revenues (Ncte 2)

$196.591 S167689 5156 031 Operating Expenses:

Operat:on -

Foet 40.726 32 055 24.999 Purchase andinterchange poaer net 33.398 17.663 15204 Other 42.734 40,001 35460 Maintenance 11.437 11.223 9 389 Depreciation 15.279 14.565 14 200 Federal and state income taxes (Note 5) 10.779 10.353 13320 Taxes other than income taxes 15.373 15376 15.103 Total operating expenses 169.726 141 236 128.070 Operating income 26.865 26.453 27.961 Oth:r income:

A!!owance for equ;ty f unds used durmg construction 3.701 2.629 2.483 Eco:ty in earnings cf regional nuclear generating companies 780 1.129 845 Other. net (171)

(162) income taxes app!icable to other income - cred:t (Note 5) 4.656 260 218 Net other income 9.137 3847 3.384 Income before interest charges 36.002 30 300 31.345 Int rest Charges:

Interest en long-term debt 19.637 18,130 17.485 Other interest 5.168 2.774 1,428 Auowance for borrowed funds used dunng construction, net cf the income tax effect of S4.456 000 in 1980 (4.363)

(4 277)

(3 052)

Totalinterest charges 20.442 16.627 15.831 N:t income

$ 15.560 S 13673 S 15.514 The ccompanymg notes are an integr-* cart of these financial statements 10

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l W:st:rn Massachusetts Electric Company STATEMENTS CF SSURCES CF FUNDS l FSR CROSS PROPERTY ADDITIONS f'

l For the Years Ended December 31 1980 1979 1978 l

l lThousar"2s et Dotais)

Funds Generated From Operations i

' N:t income

$15.560

$13.673 S15.514 Principal noncashitems:

Depreciation -

15,279 14,56!.

14200 Deferred income taxes, net 7,928 10.1 T 12.355 Amortiration of deferred charges and other noncashitems 190 369 914 Amortization of energy adjustment clause 2,853 Allowance for equity funds used during construction (3,701)

(2.629)

(2.483)

Total funds from oprations 38,109 36,090 40,500 Less Cash dividends paid on:

Common stock 11,604 9223 12204 Preferred stock 2,534 2.984 2.984 Net funds generated from operations 23,521 23,883 25.312 Fun'ds'Obtained From Financing.

' Proceeds from issuance of long term debt 24,530 Capital contribution from Northeast Utilities (parent company) 15,000

. Increase (decease)in short term debt (11,550) 24.000 2.P00_

Total 27 980 24.000 2.!00

- Other Sources (Uses) Of Funds D: crease (increase) in net current assets (excluding short-t:rm debt):

Cash and specie' Jeposits (2,805) 983 1,739 Receivables anr accrued utility revenues-(3,770)

(10.107) 893 Fuel, materials.und supplies (945).

(2.040)

(148) l Accounts payeofe 13,449 3,667-3.198 L Act_ ad taxes '

(618) 483 (462)

. Other, net 971

' (1 {05)

(5.504)

Net change' 6,282 (8,119)

(279)

. Deferred unusual operating expense (Note 4) -

(767)

Energy adjustment clause (13,452)

(4.009) 2,481

.Oth:r, net.

(993)

(113) 1.432 L Net other sources (uses) of funds

' (8,930)

(12241) 3.634 Tct:1 Funds For Construction From Above Sources

-42,571

'35.642 31,146

.- All:wance For Equity Funds Used During Construction 3,701' 2.629 2.483

,) GROSS PROPERTY' ADDITIONS

- $46.272 :

$38271 -

S33.629 Cfmposition Of Gross Property Additions:

Utitity plant :

$42,868

$36.897 533.399.

7.[tuct:ar fuel-

~ 3,404

~ 1.374 '

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. Total

$46,272

$38.271

$33.629 F

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

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Western Massachusetts Electric Company CALANCE SHEETS

- At December 31, 1980 1979 ithousands of Donaess Assets Utility Plant, at original cost:

Electric

$480,676

$465,672

. Less: Accumulated provision for depreciation 126,351 113.608 354,325 352.064 Construction work in progress (Note 10) 119,694 99.058 LNuclear fuel in process 6.355 2.951 Total net utility plant 480,374 454,073 Other Property and Investments:

investments in regional nuclear generating companies, at equity 9,766 9.782 Other, at cost -

2.838 2.375 12,604 12.157

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Current Assets:

I Cash and special deposits (Note 6):

3,614 809 Receivables',less accumulated provision for uncollectible accounts of $665.000 in 1980 and $566,000 in 1979 19,825 14,334 Receivables from affil ated companies 5,822 8.398 Accrued utility revenues 8,199 7,344 Fuet, materials and supplies, at average cost 8,667 7,722 Prepayments and other 1,191 3.300 47,318 41,907

Deferred Charges:-

-Unamortized debt expense

~644 578 Energy adjustment clause ~.

15,865 2,512 Canceled nuclear project (Note 3) 4,931-

- Deferred unusual operating e_xpense (Note 4) 767 i:

Other.

383

.255 22,590 3.345 Total Assets;

-$562,886

$511.482.

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r At December 31 1980 1979 msa es e oaam Capitalization and Liabilities Capitalization:

. Common stock - $25 par value.

Authorized and outstanding 1.072.471 shares

$ 26.812 5 26.812 Cipital surplus, paid in 93,233 78.233 R(tained earnings 30.708 29.736 Total common stockholder's equity 150,753 134.781 Preferred stock not subject to mandatory redemption (cumulative) - $100 par value. Authonzed and outstanding. 350.000 shares (Note 7) 35.000 35.000 Long-term debt. net (Note 8) 238.348 213.734 Total capitalization 424.101 383.515 Current Liabilities:

Notes payable to banks (Note 6) 3.000 800 Commercial paper (Note 6) 26,400 40.150 Accounts payable 8,543 6.251 Accounts payable to affiliated companies 20,784 9.782 Accrued taxes 1,213 1,831 Accrued interest 5.292 3.980 Other 1.743 1.440 66.975 64.234 Deferred Credits:

Accumulated deferred income taxes 60.679 49.876 Accumulated deferred investment tax credits 10.001 12.721 Other 1,130 1.136 71,810 63.733 Commitments and Contingencies (Note 10) -

. Total Capitalization and Liabilities

$562.886

$511.482 13

W:st:rn Massa hu.'atts Electnc Ccmpany STATEEENTS CF CSMMEN STSCKHELDER'S ECUlTY Ca pital Common Surplus.

Retained Stock Paid in Earnii.gs Tet I iTr ea% ci oo. a.s-.

Bal nce at January 1.1978 526 812 578 233

$27 944 S132 989 Net income fer 1976 16 514 15 514 C:sh dividends on preferred stuck (2.984)

(2 984)

Cash dividends on common stuck (12 204) t 12 204 )

B lance at December 31.1978 26 812 78 233 28.270 133 315 Net income for 1979 13.673 13 673 Cash dividends on preferred stock (2 984)

(2.984)

C sh di ridends on common stock (9 223)

(9 223)

Ba!ance a December 31.1979 26 812 78 233 29 736 134.781 Net int omo for 1980 15 560 15.560 Cash dividends on preferred stock (2.984)

(2 984)

Car'1 dividends on common stock (11 604)

(11.604)

Cr.pital contnbutions from Northeast Utihties (parent company) 15000 iS000 Balance at December 31.1980 (a) 526 812 103 233 S30.708 5150 753

(:) At December 31,1980 reta.ned earnings et $6 983 000 were avadatie for paymcrt of cash dividends on comrnon stock under the provmons of the Company's First Mertgage indenture and Decd of Trust The accompanying notes are an integral part of these financial statements.

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W:st:rn Masscchusetts E! ectr c Company N DTES TO FIN ANCIAL STATEMENTS 1.

Summary Of S!gnificant Accounting Policies General: Western Massachusetts Electnc Company Ghe are sub ect to regu'aton cy the Federat Energy Regu'atory i

Company). The Connect: cut Ught and Power Company Commission (FERC) ande cr the Secur$es ard Excharge iCL&P) The Hartferd Electnc Lignt Company (HELCO).

Ccmm:ssicn(SECi Tre Company is sub;ect to furtner and Holyoke Water Power Company (HWD) are the regulat on for rates and other matters by the FERC and tre operahng subsid. anes compnsmg the Northeast Utht:es Massachusetts Department of PubLc Ut ht:es(DPUL and system (the system) and are whoMy owned by Northeast fo4cas the accounting pohC:es preschced by the Ubbties (NU) respectc<e commes.ons Other subsidiaries of NU provide substantial suppcrt As a puthe utaty, the Cor"pany is granted tre r!gnt to services to the system Northeast Utdit.es Service f unct on as a monopcly in a prescr. bed service territcry.

Company (NUSCO) supphes centrahzed accounting. data Accompanying this prr<dege is tne respons.b?ty to processing engmeering,f nanciallegal. operational provide adequate and rekat!e service to customers pt nning. purchasing, admmistrative and other services to Regulatory agenc:es has e the respons:bO!y to estabhsh the system companies Northeast Nuclear Energy rates at levels sufocient for tre Company to recover costs Comp:ny (NNECO)is responsitte f or the construction of provid1ng serv ce and to perm. tne Company tre and opcration of nuclear facd,1:es. and for fmancing opportun.ty to earn a f a r retum en investment in meetng nuct:ar fuelfor such faciht:es The Connecticut Gas the r respons:bd. ties. the regu!atory agencies may c.eate Company (Conn Gas). a subsidiary of CL&P. performs d.tferences in the apphcation cf account.ng procedures gas supplyfunctions for CL&P and HELCO The system for a regu!ated cortpany cor pared to those of also has two subsidiary rea+ty ccmpan;es. The Rocky nonregu!ated compan,es Rrr Realty Company and The Qumnehtuk Company.

All transactions among att I ated companies are on a Revenues: Reverues are based on autnonzed rates r covery of cost basis which include amounts apphed to customer consumpt<on of uMiy services Rates r:prescnhng a return on equity, and are sub;ect !

may not te increased Mthout a formal proceed ng bef ore cpprovalof various federal and state regulatory t e appropnate regu!atory commiss:en The Company commissions having jurisd ction' ames a esWe for eg heed M AM M The Company purchases e!ectdcity from Holyoke the end cf the accounting penods Power and Electric Company. a whoily owned subsid ary cf HWP.

Tha Company is part of a New Eng!and buik pov;er Nuclear Fuet: The Company. CL&P and HELCO own syst;m providmg for purchases and sa:es of e%ctric Mdisione I and ll as tenants in commen NNECO owns the En:rgy through a regional d.spatch contd agency. In nuclear fuelfor such units The cost of NNECO's nuclear ddttion, the Company is a part owner with other system fuelis amort: zed to operating expenses on a urut-of-End N:w England electric ut hties of the common stock of produchon method at rates based en estmated kdo^att-four reg'onat nuclear generating companies These hours of energy to be provided and is bdied to the comp:nies. with the Company's ownership interest sho wn companies based on the;r percentage ownership in the p r:nthetically, are. Connecticut Yankee Atomic Power un;ts. The amount of nuclear fuel expense charged to tne Company (9 5 percentL Yankee Atomic Electric Company Company. includmg since 1979 a current provision for (7 perc:nt).Mame Yankee Atomic Power Company (3 es!> mated spent fuel disposa1 costs and ba sed on its 19 perc:nt L and Vermont Yankee Nuclear Power percent ownership. aggregated 55 837.000. 54.855.000 Corpor tion (2 5 percent).The Company's investment m and $3.730.000 for 1980.1979 and 1978. respectively.

thesa companies is accounted for on an equ ty basis. 7ne Storage for spent fuel at the Mdistone nuc! ear stahon.

electricity produced from ;hese facihtjes is comm:ttea to including the f ac;htes currently under constructon at the p1rticipants based on their ownersh;p interest 0 and is Mdistone lit. are expected to be suthcient unt.1 at least the bdled pursuant to contractual agreements m;d-1990s Depreciation: The provision for depreciabon is computed Public Utility Regulation: NU is rep 9tered as a holding usmo the strarght-hne remaining hfe method, as approved comp ny under tne Pubhc Ut.htv Po!d ng Company Act of by the DPU. based on the estmated service hves of 1935. End it and its subsidiaries. including tne Company.

depreciable utlty plant in service and estimated removal

'r : subject to the regulatory provisions of the act ccsts less expected salvage. The depreciation rates for Arringements among the System companies, outside the several classes of e!ectric p! ant are equivaient to a agencies and other uttees covering interconnect >cns.

composite rate cf 3 3 percent n 1980 and 3.4 percent in interchange c! efectric power and sales of utthty property.

1979 and 1978. These rates are apphed to the average 15 J

Western Massachusetts Electric Company NDTES TO FINANCIAL STATEMENTS plant in service during the year. Other than for major Retirement Plan: The Company participates in the f acilities which are depreciated from the time such Northeast Utd tres Service Company Retirement Plan (tne facilities are placed in service At the timo depreciable Plan) The Plan. which covers all regular employees is property is retired from service, the original cost plus cost noncontributory. The system's pohcy is to fund annua!!y of removalless salvage of such property,is charged to the an actuana!!y determined contribution. which includes accumulated prowsion for depreciation that year's normal cost. the amortization of prior years' actuar,allosses over fifteen years and the amortization of Nuclear Decommissioning: A study completed in 1979 prior service costs over forty years The Company's indics'e that the comp!cte removat commencing at the allocated portion of the system's pension cost, part of time of retirement is the most viable and economic which was cnarged to utd ty p! ant. rpproximated

$2.500,000 in 1980. $2,100.000 in 1979 and $2.100 000 in method of decommissioning the Mdistone I and Il nuclear 1970 units in which the Company has a 19 percent ownership interest. The Company's share of the total estimated The actuarial present value of accumulated p!an decommissioning cost in 1979 level dollars is $25.3 benefits and plan net assets ava: lab!e f or benefits for the mdlion In October 1980. the DPU allowed the Company to system's plan are presented below:

begin recovering decommissioning costs through depreciation expense. The Company cornmenced January 1, 1980 1979 recordmg the increased depreciation expense on November 1.1980.

Benet.ts:

Vestec

$219.709 S182 447 M:intenance: The cost of maintenance, repairs and sonvested 21.537 17 293 replacements of minor items of procertyis charged to

$241.246

$199 740 l

maintenance expense Replacerr.ents and renewals of tiet assets avalable items considered to be units of prcperty are charged to for benetets

$232.031

$192 603 the utitty plant accounts.

j Fcd:ralIncome Taxes: The tax effects of timing The assumed rate of return usod te deternine the differences (d:ff erences between the penods in which actuarial present value of accumuiated $n benefits was transactions affect income in the financial statements and 6.5 percent for both 1980 and 1979.

the penods in which they affect the determination of income subject to tax),is accounted for as prescr bed by Energy Adjustment Clause: The Company's rates and in accordance with the ratemaking treatment of the nclude an adjustment clause under w hich fossil fuel.

applicable regulatory commissions which is normahlation urchased power and nuclear fuel costs are bd:ed to accounting (See Note 5 for the detait of income tax customers. As permitted by the DPU,the Company defers expense )

recognition of these costs untd they are recovered under the adjustment clause.

Allowance for Funds Used During Construction: The allowance f or f unds used dunng construction ( AFUDC) represents the estimated cost of capital funds used to 2.

Rate Matters finance the Company's constructmn program. These costs, which are one component of the total capualized in May 1980, the DPU granted the Company a retail cost of construction. are not recognized as part of the rate electric rate increase of $11.5 mdtion in October 1980, b s3 for ratemaking purposes until f acihties are brought the DPU issued an arneaded order granting a further into service AFUDC is recovered over the service hfe of revenue increase of $2.5 million. The tota!'evel granted pLnt in the form of increaseo revenue col!ccted as a was 49 8 percent of th.e 527.9 million requested r;sult of higher depreciat;co expense.

On January 16,1981, the Company ided with the DPU Effective January 1,1980, the Company began -

new rates designed to increase revenues by $41.5 mdhon cccounting for AFUDC on the net ct-income tax method per year, commencing February 1,1981. The DPU has The AFUDC rate in 1978 and 1979 under the gross-rate suspenced the rates untd July 31,1981. Also on January method was 9 percent. The effective AFUDC rate for 1980 16,1981, the Company fded a petition for intenm rate under the net of-income tax method was 7.8 percent relief, seeking to allow the Company to co: lect S17.3

. (12.1 percent on the gross-rate method), which was million in increased rates. subject to ref und, pending c: Iculated in accordance with FERC guidelines and resolution of the proceeding on its permanent rate fihng included semi annual compounding on a major Hearings on the petition commenced in February 1981.

1 construction project.

16

Wcstem Massacnusetts E! ectr c Ccmpany NOTES TO FINANCIAL STATEMENTS 3.

Crnceled Nuclear Project Sucn croes e,(c ec h is mctdec a tae accc payg statemerts c' mcome as fence.s in Decemcer 1980.NU cance'ed ts Montag' e Nucter 1960 t 90 t979 Pre;cci which conssted cf f Ao propcsed t 150 MW nuc! ear un.ts en Montague. Massachusetts The dec:s.nn 0:er a' ; e s er ses

$10 779 5tC353 513 620 resu:!ed primardy frcr9 NU's msh to rec;ce the f. narc:ai Cre m we (4 656) 126 1 i2181 burden cf ts construct;co program and because of tre Taies en ; et cer* :n c' i

prospect that its conservation program wcu!d ce

&aa im e taies

$10 579 5 tC C93 St 3 402 successf ul m accomchshmg :ts cd d.spf acement gca:s f c, the 1980s and 1990s. The Company has a 14 2 pe cer Oe' erred mccw taxes are cc pr: sed e'inetai et,ects cf mterest in the prc;ect, representing an ms estmert cf terr e d tfererces as Sc ss approximately $5 5 maco (mclud.ng AFUDC) The 1960 1979 19's Montague site rema>ns Stade for an e ectric generat.ng

.m.,,

v, un:t includmg ccal c-t'uclear units Appbcat on to reccver investment tai cred is

$ (2.875) 5t 943 5' 127 Certa >n prc!ect ccsrs Cf appronate'y $4 9 macn w1 te we,ec ca; taL2ec 2 Cs6 1 560 made to the DPU it is the cointon cf management that Urcaec re e ues (220) 1219>

e231; these costs are property recoveratie The rema neg Se" e et crec ts -

costs of appeoximatefy S600 000 incfuded in ut t y pfact.

19}g

' cear u (267) u Ere<;r a tuMmert c'a.:se 5.119 a

t 1 2 5 e,,

are expected to be apphed toward a future generatng Uceraues cecrec,aton 34 B8 3H3 4194 facd.ty Cance'ec nuc car o'c,ec*

t504 De'errec e ; seat eceraimg es pense 374 O tre<

EOS 1 149 963 4.

D-f:rred Unusual Operating Expense Cete"exce e!aies re:

$ 7.928

$ 10.122 512 355 In the tatter part of 1980. Mestone I was scheduied fcr a ten-year mspectico and retucht'g cutage to be Tne prec: pat rea scos f or !"e d.fterence tet Aeen tctat accomphshed within a tervaeek period The outage was tax expense and the amount ca'cvated by a:p'png the extended because of the stregency cf NRC reau rements feceral mcome tax ra!e to preta x inccme are as folcus and the resu:t,ng fength of t:me necessary ter the prcper 39g3

,979 397g imp!ementation of their mandates. Cer!a n operation and mm-w or v3 mamienance expenses mcurred and excected to be E. ;ected tam at 46% nt;retas incurred. in connecton with this cutage are abncrma? The mccre.n 1983 anc 1979 Company requested and recer.ed permissicn from the and 48% n '9ta

$12.024 510.932 513550 appropriate regu!atory commissions to defer the abncrrral Tau e"ect of c."erences costs bemg mcorred. pendmg consideration in the next Acat c a: ce; rec.at on ter tan ce;cses ESS 83 SN rLt; proceedmg fcr recovery over a specMed pernod Aac6a-ce 'cr e';uty Orcs use c ceng ccrstruct:en

- nct rec ogszed a s

.rceme for tan cuccses (1.702)

(1 209)

(t196) 5.

Inc;me Tax Expense osemea3 cesis et ccr struct.cn - e x pe nsec The detad of federal and state inccme tax provtsions is for tax curseses

(?63)

(672:

(6291 set forth belc#

Westment tax crects (433)

(331) 1980 1079 1978 ANocatec af* Mated

, m, m. yo cc pan,es tcsses (658)

M68; (543:

Current mcome taxes Cost of remca a!-

Federcl

$ (1.807) $ (346) $

75 e'pensed e;r ta n St:te 2

317 972 pu'pcses (434) 9 45)

(312)

State tax. net of federa)

Tot:I current (1.805)

(291 1 047 tenei t 423 742 b3 s

Deterred inco-e ta ses ret Other. ret 1.242 792 540 Insestmeet tax cr Mts (2A75) 1_946 7127 Tc.ai mccme ta nes

$10.579 $10 093 513 402 Fede<D 10.021 7116 4 676 Stat:

782 1 058 55; Effect,ve mcome tax rare 40%

42%

46%

Tot 3 ce'erted 7.928 t o.t 22-12255 At Decemter 31.1980. the Ccmpany had unuse0 and Ta s on cett poe of AFUDC 4 456 unreccrded mvestment tax cred ts amount ng to apcroumately 59 3 m6cn. which are avadab'e to offset Total income ta xes

$10.579 $1 r> C93 513 402 f ederal mccme tax pronsions f or the years through 198,1.

17

W strin Massachusetts Electric Compsay NSTES TO FINANCIAL STATEMENTS 6.

Short-Term Debt for all three companies under the Agreement is $140 The Company utilizes bank loans and commercial million.The maximum borrowing limits of the Company, CL&P and HELCO under the Agreement are $45 million,

' paper to finance temporarily its continuing construction

$80 million and $60 million. respectively. The companies program. The system companies have joint bank credit are obligated to pay a commitment f 6e of one-half of 1

- lines with terms calling for interest rates equal to the prime percent per annum on their peuportionate shares of the rate or the prime rate plus a fraction thereof, at the time of unborrowed portion of the aggregate commitment. Loans borrowing The credit lines expire at various times in 1981 under the Agreement bear interest at rates which vary and, although these lines are generally renewable, the U* 1 0 percent to 106 percent of the higher of the lead continuing availability of the unused lines of credit is bank.s prime rate or one-half of 1 percent per annum subject to review by the banks involved. At December 31, above an average offering rate for three-month 1980,the amount of unused available borrowing capacity cmficates of deposit of major United States money under the credit lines available to the Company was $220 a

e amM d million, however, substantially all of these joint credit lines unused available borrowing capacity under the are also available to other system companies.The l Company's maximum amount of short-term horrowings Agreement for the Company was $45 million.

L as currently authorized by the SEC is $55 million.

Essentially all of the cash of the Company represents l

In addition to their'customGry short-term borrowings compensating balances in support of the Company's lines from banks and from the sale of commercial paper,the of credit. However, the compensating balances are not Company, CL&P and HELCO entered into a Revolving subject to contractual restrictions on withdrawal.

Credit /Termloan Agreement (the Agreement)with a Additionalinformation with respect to short-term debt is

. group of banks in August 1980. The aggregate credit limit as follows:

1980 1979 1978 (ooltar Amounts enThousands)

' Weighted average interest rate for borrowings outstanding at end of pened (excluding effect of compensating balances)

Notes Payable 1o Banks 21.5 %

14.2%

90%

19.7 14 4 10 7 CommercialPaper I

. Maximum amount of borrowing outstanding during the period Notes Payable to Banks

$20.100

$ 7.500

$16.000 CommercialPaper -

42.200 40.150 -

16,350 U A'vertge borrowings dunng the period -

j Notes Payable to Banks

$ 7,578

$ 843

$ 6.160 s Commercial Paper 26,932 21.084 5200 Wrighted average interest rate during the period (based on the daily amounts L outstanding and excluding effect of compensating balances)

Notes Payable to Banks -

17.5 %

259%

92%

Commercial Paper.

14.1 11.9

'92 Ringe of matunties at Decemtier 31 (in days)

Notes Payable to Bank.s -

16 45-78 20-29 Commercial Paceri 1 6 2-53 2 '-

4% j.~ l Preferred Stock Not Subject To Mandatory Redemption D tail's of preferred st.ock riot subject to mandatory redemption outstanding at December 31,1980.1979 and

( 1978 are as follows-

. l Current 1

L Shares.

Description

' Redemption Price Outstanding'

Par Value 960% Series A of 1970

~ $106.39' 150.000

$15,000,000 1/.72% Series B of 1971

- 107.37'-

-200.000

'20.000.000

~

'350.000

- $35.000.000 ~-

~

' Oeoernet on prlce reduces in future years' :

~

[All or any part of eadh outstanding ' eries of preferrsd

established redemption prices plus accrued dividends to -

s pstockLmay be redeemed by the Company at any time at :

1the date of redemption <

];7 M1

~

18 D

W st.:rn M:ssachusetts Electnc Company NOTES TO FINANCIAL STATEMENTS 8.

Lcng-Term Debt D:tals of long-term debt outstand:ng are as f o!!o.vs:

December 31 1980 1979 N.se n e on s,

First Mortgage Bonds-31/8% Ser es B.

due 1984

$ 6,000 S 6.000 43/8% Ser es C.

due 1987 12.000 12 000 43/8% Series E.

due 1992 8.000 8 000 53/4% Senes F.

due1997 15.000 15.000 63/4% Senes G, due 1998 10.000 10.000 73/8% Senes H.

due 1998 15,000 15.000 93/8% SenesI, due 2000 30.000 30 000 73/4% Senes J.

due 2002 30,000 30 000 91/4% Senes K.

due 2004 25,000 25.000 131/8% Senes L.

due 1982 10,000 10.000 91/4% Senes M, due 2006 30,000 30.000 14 5/8 % Senes N.

duc 2010 25.000 Tctal First Mortgage Bonds 216.000 191.000 Po!!ution Control Note. 5 9%. due 1998 2.214 2214 Unsecured Ncte.105% of pnme, due 1984 20,000 20.000 Unamort:2ed premium and discount, nel 134 520 Long. term debt. net

$ 238.348

$213.734 Long-term debt matunties and cash sinking fund 9.

Leases requir;ments on debt outstand:ng at December 31,1980 The Company has entered into lease agreements for

_n as fol!ows: 1982,510,000.000 and 1984. $26.000.000.

the use of substation equipment, data processing and In addition,there are annual 1 percent sinking and office equipment, vehicles and office space. Since lease improvement fund requirements, currently amounting to rentais are charged to expense for ratemaking purposes,

$2,160,000 S2,060.000. 52.060.000. S2.000.000 and capitalization of these leases is not required. Had the S2.000,000 for the years 1981 through 1985 respectively.

Company capitalized the leased property at the beginning Such sinking and imprevement fund requirements may be o e lease terms, the eHect on assets, haWes, satisfied by the deposit of cash or bonds, or by expenses or net income would not be material.

certildtion of property additions.

Rental payments charged to operations, including All or any part of each outstanding series of first ten al payments on capita!izade leases amounted to mortgage bonds may be redeemed by the Company at

$2.426,000 for M80. S2.032.000 for W9 and $1.733,000

ny time at established redemption prices plus accrued for W8.

inter st to the date of redemption, except cartain series te mWmum rental paymeNs. excWg execq which cre subject to certain refunding limitations during Costs such as real estaM taxes, state use taxes.

their initial five-year redemption periods.

swaNe aM ma& nance, Wer lo@erm Essentially all utihty plant is subject to the lien of the nonc ncelable leases are approximately as follows 1981, mortgage indenture' S1,900,000,1982, $1.700.000: 1983 $1,600.000.19S4,

$1,600,000; and 1985, $1,400.000; and for the years subsequent to 1985, an aggregate cf 514,400.000.

19 l

western Massachusetts Electoc Company NOTES TO FINANCIAL STATEMENTS

10. Commitraents and Contingencies Cor.struction Program: The Campany is engaged m a rmon The Company popnses to convert these three od-continuous construction program and current!y forecasts

f. red e! ectr:c generat:on units to coal at an est' mated ccs!

construction expend tures. includmg nuclear fuel to be cf $56 m@on Because ctine Compary s present approximately $60 6 milhon in 1981 and $355 5 mahon for f mancial cond6cn and the need to resowe regu'atory ar'd the years 1981 -1986.

environmental uncertainties perta.ning to ccal conversion.

The construction program is subject to petiodic review the est: mated costs for coal conversion are nct ircluded and revision and actualconstruction expend:tures may ir. the Company s construction program vary from such estimates due to factors such as revised load estimates. inflation, the avadabity and cost of capital. and the granting of timely and adequate rate rebef Nuclear Insurance: The Pnce-Andernon Act currently by regulatory commissions. as well as actions by other hmits pubhc habd.ty from a sing:e accident at a nuclear regulatory bodies. it is ex pected that comphance with po Aer plant to S560 mdhon if the total damages resu;bng present and developing regulations estabhshed by from the accident exceed the private pool msurar ce vanous authorities in the areas of nuclear plant kcensing coverage of $160 mdhon. then the system Compantes and safety, land use water and air quality, and other wou!d be requ: red to pay their share of the e.ucess That environmental matters may require add.tional capital share, for the system companies. would be a maximum of expenditures and increased operating costs. Substantial S5 md! ion for each of the two operatng Mdistone un:ts.

capital and operating expenditures have been budgeted plus their pro rata share of a maximum of 55 mdhon for by the Company in response to known and anticipa!ed each of the other operating nuclear units in which they requirements of the U.S Nuclear Regutatory Commission have an ownership interest Therefore.the system (NRC) flowing from its analyses of the Three Mile Island companies could be assessed for their pcrtion of accident. However, add:fional expend:tures may be ownership mterests in the f our regional nuclear rcquired as a resutt of further Company. mdustry and NRC generating companies (described in Note 1) h the event analyses. f n addition. Oncertainties related 1o the of a nuclearincident.

reprocessing or permanent storage cf nuclear fuel may The Company has also purchased from Nuclear requ!re revisions in f uture nuclear f uel costs.

Electnc Insurance Lim:ted (NEIL) replacement power At December 31,1980, construction work in progress insurance with respect to its ownership interest in (CWIP) included an investment of S104 mdhon for a 12 3 Mdistone I and il and Connecticut Yankee (CY) This percent interest in Mdistone lit. All the companies owning insurance provides for established payments to partially undivided interests in joindy owned f acilities are required of' set the extra expense wh!ch would be incurred in to prov:de financing to support their own portion of obtaining rep!acement power after a nuctear unit has construction costs been out of operat;on for more than six months because The Md! stone ill nuclear unit is being constructed for a of a d. rect physicalloss peril. subject to certain 1986 in-service date. The anticipated cost of the exclusions The insuring agreement provides that. in the Company's 12.3 percent ownership share of the unit wdl event NEIL's losses or costs in any pokcy year exceed the be approximately $321 mill;on. As part of the effort to accumulated f unds available to NEIL. insureds are reduce required f nancmg for their 65 percent ownership subject to retrospective premium ad;ustments to cover of the remaining construction cost of Mdistone Ill, the such excess losses and costs to the extent of five times Company. CL&P and HELCO have made offers to setl. in the annual premium paid by each insured. The maximum

( ggregate, an ownership interest of at least 100 MWs in adjustment payable by the Company with respect to all of th] unit to other utshties. The companies have reserved its msured un!ts, assuming contmuation of the cresent thJ right to atiocate the total reduction among them, and to annual premium is approximately $4 mdhon foi each reduce their ownership ;nterests further.dependmg on the pohcy year.

xt:nt of acceptance of the offer and the financial outlook of C ach of the companies at the end of the offering period Financial Arrangements for the Regior3i Nuclear R:sponses to the off er are due on or before July 6.1981.

Generating Company: The owners of CY. mcludmg the There is at present no assurance that the attempt to Company, have agreed to an interim fmancing reduce the ownership interest in Mdistone !!! can be arrangement. Under which each of the owners would Eccomphshed.

purchase its pro rata share of up to 540 mdlion of CY's subordina!ed notes. of which the Company's port!on Coal Conversion: The provisions of the Power Plant and would be $3 8 mdlion. The Company expects that it may Industrial Fuel Use Act of 1978 could require the be asked to provide additional equity capital and/or other conversion of up to three of the Company's od fired units types of financial support for one or more of the four to coal at an approximate cost to the Company of $58 regional nuclear generating companies.

20

W:st:rn Mass:chusetts Electric Company NOTES TO FINANCIAL STATE"ENTS

11. Impact of Changing Prices (Unaudited)

The foi!ceng supptementary information was prepared than as a precise r"easu e Fixed assets nuc: ear f uel and on the basis prescribed by the Financial Accountmg related depreciation and amortization expense appearing Standards Boardin Statement of Fmancial Account:ng in the histor. cal cost f:nancial statements have been Standards No 33. " Financial Reporting and Changing restated to show the e"ect of both generalinflation Prices" for the purpose of providing certain information (constant do!!ar amounts) and changes in specif:c pr ces about the effects of changmg prices. S:nce inflation (current cost amounts) Restatement of other items wou'd cccounting is experimentalin nature,it shoufd be vieted not matena!!y affect the restated amount cf cperat.ng as an estimate of the approximate effect of inflation rather income Statement of income Adjusted For Changing Prices For The Year Ended December 31,1980 Conventionat Constant Dollar Current Cost Historical Average Average Cost 1980 Dollars 1980 Dollars

.v m so m Operiting revenues

$197

$197 5197 Fud 41 41 41 Purch:sa and interchange power, net 33 33 33 Depr:ciation 15 31 32 Oth:r cperation and maintenaace expense 54 54 54 Fed :r:I and state income taxes 11 11 11 Int:rst enpense 21 21 21 Tm s other tnan income taxes 15 15 15 Oth:rincome 9

9 9

Net mcome (.oss)(eutuding ad:ustment to nea recoverab'e cost)

$ 16 S - (bl

$ (1)

Incr:asain specihc pn=es(current cost)of f:xed assets and nuclear fuel he!d during the year ( al 5 62 Adjustment to net recoverab:e cost 5i37)

Effect of increase in generat price level (97)

Excas of increase in genera! pnce level over merease in so:cinc pnces alter adjustment to net recnvera0!e cost

$ (35)

Gain from dect.ne in purchasing power of net amounts o^ed S 40

$ 40 (a) At D;cember 31.1980. current cost of taxec assets and nuclear fuel net of accumulated depreciation. was $864 rehcn. whde histoncal cost or ret cost recoverab!c through depreciation A as $480 mdhon (b) incfudmg the ad;ustment to net recoverabfe cost, the net loss on a constant dcitar b sis would have been $37 mit!,on in 1980 21

Western Massachusetts Electric Company N3TES TO FINANCIAL STATEMENTS Five-Year Comparison Of Selected Supplementary Financial Data Adjusted For Effects Of Changing Prices en Average 1%0 Dodars Esceot Astorcal Amov ts) e Years Ended Occember 31, 1980 1979 1978 1977 1976 on u aonsoroc e si Operating revenues:

Histoiical

$197

$168 S156

$145

$134 Constant douar 197 190 197 197 194 Nst income (loss) (excluding adjustment to net recoverable cost):

H.stoncat.

$ 16

$ 14 Constant dottar (1)

Current cost (1)

(6)

N:t assets at year end:

' Historical

$151

$135

- Constant dollar / current cost -

144 145 Excess of increase in general price IIvel over increase in specific prices Efter adjustment to net recoverable cost:

Current cost

$ 35

$ 26 Glin from decline in purchasing power of net tmounts owed

$ 40

$ 46 Avirage consumer price index.

246.8 217.4 195.4 181.5 170 5 4

Constant dollar amounts represent histoncal costs dollar and current cost methods was deterinined by stited in dollars of equal purchasing power, a's measured applying the Company's depreciation rates to indexed

.by the average level of the Consumer Price index for all.

p! ant amounts.

~ Urban Consumers (CPI-U) dunng the year. With the Accumulated depreciation of plant under both methods exception of CWIP, the data f or plant was determined by -

was estimated by multiplying the respective cost data by a

- applying the appropriate CPI U to the historical cost of ~

percentage re' presenting the expired life of existing f acilities at December 31, t 980.

pt:nts Fossil fuelinventories and the ccst of f ossil fuel used in s Constant dollar restatement adjusts transactions

. originally recordedin dollars of varying purchasing power.

generation have not been restated from their historical into dellars of equal purchasing power.The restated cost as regulation permits the recovery of fuel costs Amounts do not purport to be appraised value,

' through the operation of the adjustment clause. For this frtplicement cost, current value, or the in'dividual prices of reason, fielinventories are considered monetary assets.

particular goods and services in the current market; nor -

As pres:ribedin Statement of Financial Accounting -

tre theyindicative of the Company's future capital,

Sta'ndardt,No 33, income taxes were not adjusted.

?The excess of the increase in general prices over the.

r;quirements..

. increases in specific prices of plant indicates that, for the.

Current cost amounts reflect the changes in specific '

. pric s of plant from the date the plant was acquired to the '

year 1980. generat inflation was greater than the increase l pres nt.They are based on estimates of the costs to'

' in specific prices of plant as racasured by the Handy-iacquire or produce today, assets identical to those,

' Whitman index of Public Utility Construction Costs?

~

owned, or assets having the same service potential as the

. The results of operations, under both current cost and Css",ts ownedf

constant dollar restatements, show a decline from the 5 The current cost of plant and equipment was~

historical net income This is the result of increased.

L det:rmined by indexing the, historical cost of plant by the -

1 depreciation expense on inflation-adjusted assets, in

,1 cpplicable Handy-Whitman Index of Public UtMty~

addition, the Company will eventually have to replace its Construction Costs Nuclear f uel acenunts reflect the.

. assets at a price many times greater than the original.

' Ecurr:nt replacement cost of such f uel based on current cost, without having the opportunity to recover the m rket prices. Both the constant dollar and current cost replacement value of its assets through historical cost _

1 amounts of land have been estimated by using the' CPI-U.

- depreciation expense.

"(The current year's depreciation expense for both constant An adjustment to income taxes would also be

^

%a

l l

Western M:ssachusetts Electric Company NOTES TO FINANCIAL STATEMENTS j

t l

l I

neccssary to reflect the true impact of inflation Present monetary habihties expenence a gain. The gain from the income tax regulations do not give effect to the dechne in decline in purchasing power of net amounts owed is

. purchasing power of the dollar, Although a dechne in attnbutable to the substantial amount of dect used to income would result in lower income tax, this is not taken finance property, plant and equ:pment. However, this into account in the adjusted income statements.

" gain" is not a revenue item and, theref cre. Cannot be inflation erodes the value of the dol:ar. Genera!!y during considered addit.onal funds for reinvestment or dividend penods of increasing inflation, holders of monetary assets distribution.

suffer e loss of purchasing power, while holders of i

l Auditors' Report l

To the Board of Directors r.

[-

of Western Massachusetts Electnc Company 2

I We have examined the balance sheets of Western Massachusetts Electric Company (a l

Massachusetts corporation and a wholly owned subsidiary of Northeast Utihties) as of December 31.

1930, and 1979, and the related statements of income. common stockholder's equity and sources of i

funds for gross property additions for each of the three years in the period ended December 31 f

1980.Our examinations were made in accordance with genera!!y accepted auditing standards and, accordingly, included such tests of the accounting records and such other aud, ting procedures as we considered necessary in the circumstances.

in our opiniort the financial statements ref erred to above present f airly the financial position of Western Massachusetts Electric Company as of December 31.1980, and 1979, and the results of its operations and the sources of funds for gross property additions for each of the three years in the pened ended December 31,1980. in conformity with genera!!y accepted accountiny pnnciples

, applied on a consistent basis.-

ARTHUR ANDERSEN & CO.

s

- Hartford. Connecticut.

February 20,1981.

23-L

l Westsrn Massa'chusetts Electric Company

~ STATEZENTS CF C,UARTERLY FINANCIAL DATA Ouarter Ended

'1980' March 31 June 3J September 30 December 31 (thousands of DoHars) s Operating Revenues

$50.285

$45,030

$47,772

$53.504 50perating income y

$ 7,702

$ 5,819

$ 7,157

$ 6.187 Netincome

$ 4.003

$ 2.002

$ 4,316

$ 5.239 1979 Operating Revenues :

$43241

$39.917

$41,615

$42.916 Optrating income.

$ 9.365

$ 5273

$ 6.301

$ 5.514 3 Netincome;

$ 6295

$ 2.113

$ 2.935

$ 2.330 SELECTED FINANCIAL DATA

{ t-

' iYrar Ended December 31, 1980 1979 1978 1977 1976 (Thousands of Dollars)

+

Optrating Revenues.

$196,591

- $167.689

$156.031

$144.913

$134.135

1. Operating income.

26.865 26.453 27.961 27,370 23,355

Net income

.15,569 13.673-15.514 14293 10.284 Totti Assets 562,886 -

511,482 472.365 459.909 460.230 Long-Term Debt (excluding current maturities)

238,348 213,734' 213,763 213.793 213.823 3

a

, 42 i

STATISTICS E

~

iAverage -

E Utihty Plant -

. ' Annual

Electric December 31i

_L kWh Sales - _

~ Residential..

. Customers Employees

~

- (Thousands of Donars) -

(Millions)

_ ' kWh Use (a)

- (Average)

- (December 31)-

J1980 :

$606,725

. 3,433'

. 7,498 167,031

--_802

' C. ; SJ L 7,553.:

166,2891 815

[19795 567,681 7

'~

21978.

1.531.846' 7.- L 7,439

'165,151:

828.

- 1977,

501,902' 3441;

7,513 -

164,506

.853

+

483,532 1

' 3.432f

" 7,634-.

163,418:

884

- Q976 J 451,518 L 3,290.

,7,464 -

162,773 927

'1975:.

1970i

'264.563"

2.8342

.6,759.

L151,933, i987

~

-( f ) Based on residential equivalent customers. reflecting total dwelling units.

o'

~

a w -

Address General Correspondence in Care Of:

Northeast Utilities Service Company Investor Relations Department P.O. Box 270 Hartford, Connecticut 06101 Tel. (203) 666-6911 General Office 174 Brush Hill Avenue, West Spangfield, Massachusetts First Mortgage Ronds Trustee and interest Paying Agent The First National Bank of Boston, Corporate Trust Department P.O. Box 644, Boston, Massachusetts 02102 Preferred Stock Transfer and Dividend Disbursing Agent The Connecticut Bank and Trust Company, Stock Transfer Department One Constitution Plaza, Hartford, Connecticut 06115 Registrar Hartford National Bank and Trust Company, Hartford. Connecticut 06115 Dividend Payment Dates 9.60% Series A March I, June 1, September 1 and December 1 7.72% Series B January 1. April 1, July 1 and October 1 The data contained in this Report is submitted for the solo purpose of provid:ng information to present stockholders about the Company.

1

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