ML20036A385
| ML20036A385 | |
| Person / Time | |
|---|---|
| Site: | Millstone, Seabrook, Haddam Neck File:Connecticut Yankee Atomic Power Co icon.png |
| Issue date: | 12/31/1992 |
| From: | Ellis W, Fox B WESTERN MASSACHUSETTS ELECTRIC CO. |
| To: | |
| Shared Package | |
| ML20035G106 | List: |
| References | |
| NUDOCS 9305110155 | |
| Download: ML20036A385 (37) | |
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V Western Massachusetts Electric Company WMECO a subsidiary of Northeast Utilities i
o
- L992 nnualepor:
pe=ne, PDR
,o
t Directors
/7 Robert G. Abalt John B. Keane
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Vice Presiderit and Vice President and General Counsel-Corporate Chief Administrative Officer Frank R. Locke Robert E. Busch President and Chief Operating Officer Executive Vice President and Chief Pubbe Service Company of New Hampshire Financial Officer Hugh C. MacKenzie John E Cagnetta Senior Vice President Senior Vice President William B. Ellis Executive Vice President Chairman and Ciuef Executive Officer Bernard M. Fox President and Chief Operating Officer Officers William B. Ellis Tod O. Dixon Roger C. Zaklukiewic:
Chairman and Chief Vice President Vice President Executive Officer Cheryl W. Grise Janice EJacque Bernard M. Fox Vice President Clerk President and Chief Operating Officer Barry liberman Theresa H. Allsop Vice President Assistant Clerk Robert E. Busch k
Executive Vice President and John B. Keane2 Mark A.Joyse Vice President and General Assistant Clerk Chief Financial Officer Counsel-Corporate Joseph E Deegan j
John E Opeka Executive Vice President Francis L. Kinney Assistant Controller Vice President Patricia R. Mclaughlin John E Cagnetta Keith R. Marvin Assistant Controller Senior Vice President Vice President JohnJ. Roman Hugh C. MacKenzie John W. Noyes Assistant Controller i
Senior Vice President Vice President and Controller Thomas V. Foley Robert G. Abair Wayne D. Romberg Assisunt Secretary Vice President and Vice President Chief Administrative Officer Frank E Sabatino Assistant Secretary C. Thayer Browne2 Vice President Vice President and Treasurer C Frederick Sears Assistant Treasurer Ronald G. Chevalier Vice President Vice President Robert E Wax Assistant Treasurer Eric A. DeBarba Vice President, Secretary, Vice President Assistant Clerk and General Counsel 1.Mr Browne has resigned as %ce President and Treasurer eficcun May 1.1993.at which ume he will serve as %ce President-Investrnen Management.
2.Mr. Keane has resigned as %ce PresAdent and C<neral CounseMrporate c!Iecuve May 1.1993, at which ume he will serve as
%ce President and Ircasurer.
Febrwy 28,1993 r
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t 1992 Annual Report
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Westem Massachusetts Electric Company s
index 1
1 Contents
,P_agg r
Letter to Preferred Stockholders 1
2-3 Balance Sheets......
4 Statements of income.....
5 Statements of Cash Flows.
Statements of Common Stockholder's Equity......................
6 Notes to Financial Statements.................................
7-23 Report of Independent Public Accountants...........
24 Management's Discussion and Analysis of Financial Condition and Results of Operations...............................
25-31 i
Selected Financial Data...
32 i
Statements of Quarterfy Financial Data 32 l
Statistics.......................................... -.........
33 Preferred Stockholder and Bondholder information 34 i
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WESTERN MASSACHUSETTS ELECTRIC COMPANY March, 1993 TO OUR PREFERRED STOCKHOLDERS:
The financial statements and statistical data contained in f
this report reflect the financial position, results of operations and statements of cash flow of Western Massachusetts Electric Company (WMECO) for 1992.
The 1992 Annual Report of Northeast Utilities, which provides information regarding the entire Northeast Utilities system, including WMECO, also has been mailed to all WMECO preferred stockholders.
In 1992, operating revenues increased to $410.7 million from i
$409.8 million in 1991.
Net income before preferred dividends increased to $37.0 million in 1992 from $34.6 million in 1991, primarily attributable to the July 1991 and July 1992 Massachusetts Department of Public Utility (DPU) retail rate decisions and lower interest charges associated with refunding high-coupon debt.
On May 20, 1992, the DPU approved, by a two-to-one vote', a settlement proposed jointly by WMECO and the Massachusetts Attorney General's Office that resolved most issues in WMECO's December 1991 rate case.
As a result, WMECO's annual retail rates increased by approximately $12 million, or 3 percent, on July 1, l
or 1992, and will increase by approximately $11 million, I
2.7 percent, on July 1, 1993.
WMECO had requested an increase of approximately $36 million, or 9.1 percent for one year.
A more comprehensive discussion of these items is contained within this report.
sincerely, t
William B.
Ellis Bernard M.
Fox President and Chief Chairman and Chief Executive Officer Operating Officer
T-Westem Massachusetts Electne Company i
1 BALANCE SHEFTS N
1992 1991 At Decer iber 31,
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(Thousands of Dollars) i i
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Assets Utility Plant, at original cost:
Electric...........
$ 1,158,160
$ 1,129,078 Less: Accumulated provision for depreciation......
364,702 352.855-793,458 776,223 l
Constnaction work in progress.........................
18,522 27,094 Nuche ar iuel, net............................
37,704 43,190 Total net utility plant........
849,684 846.507 Other Property and investments:
Nuclear decommissioning trusts, at cost.........-..
41,986 34,885 i
investments in regional nuclear generating i
companies, at equity............
14,567 14,543 3,842 4,068 Othe r, at cost..............................................
i 60,395 53,496 i
Current Assets:
l' 165 164 Cash and special deposits..........................
Receivables, less accumulated provision for uncollectible accounts of $2,117,000 in 1992 and $1,977,000 in 1991....
36,587 40,179 Receivables from affiliated companies.................
2,829 7.497 15,627 19,655 Accrued utility revenues................
Fuel, materials, and suppres, at average cost.........
9,001 9,491 t
Prepayments and other....................
7,572 16,165
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71,781 93,151 Deferred Charges:
Amortizable property investment - Millstone 3........
39,201 50,376 Deferred costs - Mittstone 3.
30,497 41,052 Ur: recovered contract obligation - YAEC (Note 2)....
28,160 l
Deferred DOE assessment (Note 1).
9,630 Unamortized debt expense.
2,141 1,954 Othe r.
39,195 33.057 148.824 126,439 6
Total Assets............._...........................
$ 1,130 684 51,119193 l
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The accompanying notes are an integral part of these financial statements.
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t W: stem Massachusetts Electric Company BALANCE SHEETS C
6 At December 31, 1992 1991
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(l'housands of Dollars) i Capitalization and Liabilities Capitalization Common stock - $25 par value - Authorized and t
outstanding 1,072,471 shares in 1992 and 1991...
26,812 26.812 Capital surplus, paid 1n..........
149,026 148,696 I
Retained eamings..............
91,077 91.708 Total common stockholder's equity...................
266,915 267,216' Cumulative preferred stock -
$100 par value - authonzed 1,000,000 shares; outstanding 200,000 shares in 1992 and 350,000 shares in 1991;
$25 par value - authorized 3,600,000 shares, outstanding 3,280,000 shares in 1992 and 1991 Not subject to mandatory redemption (Note 5)......
73,500 88,500 Subject to mandatory redemption (Note 6)......
27.000 28,500 Long -term de bt (Note 7)..................................
392,824 392.943 Total capitalization.................................
760.239 777,159 Obligations Under Capital Leases......................
27,425 32.024 Current Liabilities:
Notes payable to banks..............
18,000 9,000 Notes payable to affiliated company.
35,750 Comme reial pape r.............................................
23,500 Long-term debt and preferred stock - current portion.........................................................
1,652 8,154 Obligations under capital leases - current portion............................................
14,084 12,110 Accounts payable....
16,038 19,151 Accounts payable to affiliated companies............
15.549 17,791 Accrue d taxe s..... -.....................................
10,270 10,944 Accrued interest..
5,798 6,752 Other.........................................~.........
9,124 6.261 i
114.015-125,913 Deferred Credits:
Accumulaed deferred income taxes...........
144,865 139,496 Accumutmed deferred investment tax credrts....
37,512 38,763 DeferTed contract obligation - YAEC (Note 2)........
28,160 Deferred DOE obligation (Note 1)....
9,630 Other.....
8,838 6.238 229,005 184,497 Commitments and Contingencies (Note 10)
Total Capitalization and Liabilities..............
]L1230384_
$ 1,119,593 The accompanying notes are an integral part of these friancial statements. l w
Westem Mxw%setts Electric Company STATEMENTS OF INCOME
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For the Years Ended December 31, 1992 1991 1990
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Ope ratin g R even ues............................
$ 410,720
$ 409,840
$ 375,456 Operating Expenses:
Operation -
Fuel, purchased and net interchange power........,..
86,356 99,717 91,648 Other...
126,060 114.231 91,860 M aintenance................................
39,303 36,795 40,199 Depreciation....
34,257 35,636 39,353 Amortization of regJlmory assets..
26,321 24,950 23,303 Federal and state income taxes 20,926 22,856 16,453 (Note 8)....
Taxes other than income taxes.............
16,984 15,932 15.192 Total operating expenses...
350.207
, 350,117 318,008 Operatin g locome................................
60.513 59,723 57,448 Other income:
Allowance for other funds used Wring construction........
504 5
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[m Deferred Millstone 3 retum - other
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funds-2,119 2.763 5.346 Equityin eamings of regional nuclear generating companies....
2,170 2,181 2.209 Other, net.............................
2,124 1,890 2,552 locome taxes - credit...-.
810 1,969 3,746 Other income, net....
7.727 8,808 13.856 income before interest charges....,
68,240 68,531 71,304 interest Charges:
Interest on long-term debt....
31,694 33.557 35,143 Other interest.................
1,492 2,745 4,696 A!nowance for borrowed funds used ering construction.....
(1,023)
(1,201)
(1,354)
Deferred Millstone 3 retum - borrowed funds, net of income taxes..
(945)
(1,207)
(2,372)
Interest charges, net.....................
31,218 33,894 36,113 Net income..........................................
$__37,0_22_
34,637 35,191 The accompanying notes are an integral part of these financial statements. 4\\._
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STATEMENTS OF CASH FLOWS For me Years Ended December St.
1992 1991 1990 t
(Thousendsof Dollars)
Cash Flows From Operations:
8 37,022 8
34,637 8
35,191 l
Notincome Adjusted for the following:
Depreciation and amortization ofleseed property -
47,648 45.148 61.608 Deterred income taxes and inve stment tex cred!ta, net..
(785) 3,767 1,548
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Deterred return - Milletone 3, not of amortization.
9.110 8.216 3.681 Dolerred energy coats,not of amortization 12.629 (6.418) 26 Not change h dekrred charges and other 11,943 12,796 15.633 noncash teme..
Changes h workhg cephat:
Receksties and accrued utitty revenues 12.268 (7,216) 1,544 400 3.870 (1.280) -
Fuoi, materials, and supplies.
Accounte payable
=-
(5.355) 6.262 2,147 Accrued taxes...
(295) 344 4.235 09)er workhg capital (excludes caen) 1,932 4,971 (4,094)
Not cash Sows from operations.
126,627 104,377 120,239 Cash Flows Uood For Financing Activities:
65.000 35,000 Long-term debt...
m (1,704)
(470)
Finariobg expenses..
increase h otilgations under capitsilesees.
7,224 3.443 16.069 Not hcrease (decrease) h short-term debt....
(3.250) 7.750 1.000 Reacquieltions and totiremonte oflong-term debt...
(94,167)
(20.152)
(35.712)
Reacquialtions and retiremente of preferred stock......
(15,002)
(1,496)
Repayment of caphellesee obligstions (9,557)
(11,645)
(19,961)
Cash dMdande on preferred stock (7,485)
(8.048)
- (9.607) r Cash dMdende on common stock (29.536)
(31.499)
(34.450)
Not eneh Sows used for Snenchg actMtiea (67,243)
(61,649)
(49,394) i investment Acthritios:
Investments h plant (hcludin g capitsi lease a):
Bectric and other utity plant.
(46,565)
(32,780)
(47.162)
Nuclear fuel _
(6.221)
(4.013)
(16,430)
Lees: Allowance for other funde used during eenstruction..
(504)
(5)
(3)
Not cash tows umed for bwe atments in pf ant......
(52.282)
(36,798)
(63,569)
Other investment actktiee, net.
(7.101)
(5,917)
(7.231)
Not cash sows used forinveetmente (59,383)
(42.705)
(70.820)
Not inetoano in Cash for the Podod...
1 23 25 i
Cash and special depos8e-t>eginning of period..
164 141 116 Cash ar'd spooled depoete-end of period 165 8
164 8
141 Supplemental Cash Flow information:
Cash paid (vooelved) Artng tio year for:
interest, not e( amounts cephaltre d &rtn g construction. -.
8 30 758 8
32s618 8
35,285 income taxes 8
17.711 8
22.047 8
(1.233)
The accompanying notes are an integraf part of these Snencinf statements.
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. Western Mass::chusetts Electric Company STATEMENTS OF COMMON STOCKHOLDER *S EQUITY l
Capital Common
. Surplus, Retained.
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i Stock Paid in Earnings (a)
' Total (Thousands of Dollars)
Balance at January 1,1990.................
$ 26.812
$ 148,107
$ 105,493
$ 280,412 i
Not income f or 1990.............................
35,191 35,191 Cash dividends on preferred stock.....................................................
(9,607)
- (9,607)
Cash dividends on common stock........
(34,459).
(34.459)
Capital stock expenses, net.................
294 294 l
Balance at December 31, 1990...........
26,812 148,401 96,618 271,831
.j Net inco me for 1991..............................
34,637 34,637 Cash dividends on preferred stock................................................
(8,048)
(8,048)
Cash dividends on common stock........
(31,499)
(31,499)
Capital stock expenses, net................
295 295 l
Balance at December 31, 19 91...........
26,812 148,696 91,708 267,216 Net inco me for 1992.............................
37,022 37,022 Cash dividends on preferred stoek.................................................
(7,485)
(7,485)'
Cash dividends on common stock........
(29,536).
(29.536)
. Loss on the redrement of preferred stock...................................................
(632)
(632)
Capital stock expenses, net................
330 330 I
Balance at December 31, 19 9 2...........
$ 26,812
$ 149,026
$ 91,077
$ 266,915 (a) The Company has dividend restrictions imposed by its long-term debt agreements.
i At December 31,1992, these restrictions totaled approximately $71.1 million.
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The accompanying notes are an integral par 1 of these financial statements.
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j Western Massachusetts Electric Company NOTES TO FINANCIAL STATEMENTS 1.
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES General Westem Massachusetts Electric Company (WMECO or the Company), The Connecticut Ught and Power Company (CL&P), Holyoke Water Power Company (HWP), and Public Service Company of New Hampshire (PSNH) are the operating subsidiaries comprising the Northeast Utilhies system (the system) and are wholly owned by Northeast Utilities (NU).
l Other wholly owned subsiduries of NU provde substantial support services to the system. Northeast UtRities Service Company (NUSCO) supplies centralized accounting, administratNe, data processing, engineering, financial, legal, operational, planning, purchasing, and other services to the system companies.
Northeast Nuclear Energy Company (NNECO) acts as agent for system companies in operating the Millstone nuclear generating facilities. The Company purchases electricity from Holyoke Power & Electric Company, a wholly owned subsidiary of HWP.
All transactions among affiliated companies are on a recovery of cost basis which may include amounts representing a retum on equity, and are subject to approval by various federal and state regulatory agencies.
Accounting Reclassifications Certain amounts in the accompanying financial statements of WMECO for the year ended December 31, 1991 and December 31,1990 have been reclassified to conform with the December 31,1992 presentation.
Public Utility Regulation NU is registered with the Securities and Exchange Commission (SEC) as a holding company under the Public Utility Holding Company Act cd 1935 (1935 Act), and it and its subsidiaries, including the Company, are subject to the provisions of the 1935 Act. Arrangoments among the system companies, outside agencies, and other utilities covering interconnections, interchange of electric power, and sales of utility property are subject to regulation by the Federal Energy Regulatory Commission (FERC) and/or the SEC.
The Company is subject to further regulation for rates and other matters by the FERC and the Massachusetts Department of Public Utliities (DPU), and follows the accounting policies prescribed by the commissions.
Revenues Utility revenues are based on authorized rates applied to each customer's use of electricity. Rates can be increased only through a formal proceeding before the appropriate regu!atory commission. At the end of each accounting period, WMECO accrues an estimate for the amount of energy delNered but unbilled.
Accounting Release 14 On November 25,1991, the FERC issued Accounting Release 14 (AR 14) limiting the application of the purchased power account to the cost of energy and capacity purchases and net setticments on batter transactions. WMECO adopted AR-14, on a prospective basis, January 1,1992.
Spent Nuclear Fuel Disposal Costs Under the Nuclear Waste Policy Act of 1982. WMECO must pay the United States Department of Energy (DOE) for the disposal of spent nuclear fuel and high-level radioactive waste. Fees for nuclear fuel bumed on or after AprE 7.1983 are paid to the DOE on a quarterly basis. For nuclear fuel used to generate >
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Western Massachusetts Electric Company n
Q NOTES TO FINANCIAL STATEMENTS electricity prior to April 7,1983 (prior period fuef), payment may be made anytime prior to the first deUvery of spent fuel to the DOE. At December 31,1992, fees due to the DOE for the disposal of prior period fuel were approximately $31.0 million. including Interest costs of $15.4 million. As of December 31,1992, approximately $29.5 mulion had been collected through rates.
Under the Energy Policy Act of 1992 (Energy Act), WMECO will be assessed for its proportionate share of the costs of the decontamination and decommissioning of uranium enrichment plants operated by the DOE (D&D assessment). The Energy Act imposes an overall cap of $2.25 bution on the obligation of the commercial power industry and limits the annual special assessment to $150 million each year over a 15-year period. The Energy Act also requires that regulators treat D&D assessments as a reasonable ated necessary cost of fuel, to be fully recovered in rates, like any other fuel cost. The cap and annual recovery amounts will be adjusted annually for inflation. The D&D assessment will be allocated among utilities based upon services purchased in prior years. At December 31,1992, WMECO's share of these estimated costs was approximately $9.6 million. Management expects that WMECO will be allowed to recover these costs.
Accordingly, the Company has recognized these costs as a regulatory asset with a corresponding obligation, on its Balance Sheets.
Investments and Jointly Owned Electric Utility Plant Realonal Nuclear Generatino Comoanies: WMECO owns common stock of four regional nuclear generating companies (Yankee companies). The Yankee companies with the Company's ownership interests, are:
Y Connecticut Yankee Atomic Power Company (CY).....
9.5%
Yankee Atomic Electric Company (YAEC).......
7.0 Maine Yankee Atomic Power Company (MY) 3.0 Vermont Yankee Nudear Power Corporation (VY)....................
2.5 WMECO's investments in the Yankee companies are accounted for on the equity basis. The electricity produced by these facilities is committed to the participants substantially on the basis of their ownership interests and is billed pursuant to contractual agreements.
The 173-megawatt (MW) YAEC nuclear power plant was shut down pennanently on February 26,1992.
For more information on the Yankee companies, see Note 2 Nucleef Decommission!ng.
Millstone 1: WMECO has a 19 percent joint. ownership interest in MHistone 1, a 660-MW nuclear generating unit. As of December 31,1992, plant-in-service and the accumulated provision for depreciation induded approximately $76.5 mRiion and $28.1 million, respectively, for WMECO's share of MIistone 1. WMECO's share of Millstone 1 operating expenses is induded in the corresponding operating expenses on the accompanying Statements Of income MlHstone 2: WMECO has a 19 percent joint-ownership interest in MHistone 2, an 875-MW nudear generating unit. As of December 31,1992, plant-in-service and the accumulated prwision for depreciation induded approximately $154.5 mRiion and $31.3 million, rcupectively, for WMECO's share of Millstone 2.
WMECO's share of MH! stone 2 operating expenses is included in the corresponding operating expenses on the accompanying Statements Of income.
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Western Massachusetts Electric Company Q
NOTES TO FINANCIAL STATEMENTS Millstone 3: WMECO has a 12.24 percent joint ownership Interest in Millstone 3, an 1,149-MW nuclear generating unit. As of December 31,1992, plant-in-service and the accumulated provision for depreciation included approximately $374.3 million and $64.2 million, respectively, for the Company's proportionate share of Millstone 3. WMECO's share of Millstone 3 expenses is included in the corresponding operating expenses on the accompanying Statements Of income.
Depreciation The provision for depreciation is calculated using the straight-line method based on estimated remaining INes of depreciable utility plant-in-service, adjusted for salvage va!ue and removal costs as approved by the appropriate regulatory agency. Except for major faci!!tles, depreciation factors efe applied to the average plant-in-service during the period. Major facilities are depreciated from the time they are placed in service. When plant is retired from service, the original cost of plant, including costs of removal, less salvage, is charged to the accumulated provision for depreciation. For nuclear production plants, the costs of removal, less salvage, that have been funded through extemal decommissioning trusts will be charged to those trusts. See Note 2, Nuclear Decommissioning, for additional information.
The de;.*eciation rates for the several classes of electric plant-in-service are equkalent to a composite rate of 3.0 percent in 1992, 3.3 percent in 1991, and 3.8 percent in 1990.
Income Taxes The tax effect of timing differences (differences between the periods in which transactions affect income in the financial statements and the periods in which they affect the determination of income subject to tax)
A is accounted for in accordance with the ratemaking treatment of the applicable regulatory commissions.
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See Note 8 for the components of income tax expense.
WMECO has not provided deferred income taxes for certain timing differences during periods when the DPU did not permit the recovery of such income taxes through rates charged to customers. The cumulative net amount of income tax timing differences for which deferred taxes have not been provided was approximately $55 mt!! ion at Decembe 31, 1992. As allowed under current regulatory practices, deferred taxes not previously provided are being collected in customers' rates as such taxes become payable.
In February 1992, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No.109 Accounting for income Taxes (SFAS 109). SFAS 109 supersedes previously issued income tax accounting standards and is effectke January 1,1993. When SFAS 109 is adopted, it wDI increase assets and liabElties by approximately $100 million, but wHI not have a material effect on net income.
Allowance for Funds Used During Construction (AFUDC)
AFUDC, a noncash cost calculated in accordance with FERC guidelines, represents the estimated cost of capital funds used to finance WMECO's construction program. These costs, which are one component of the total capitalized cost of construction, are not recognized as part of the rate base for ratemaking purposes until facElties are placed in service. The effectke AFUDC rates under the grosseincome tax method for 1992,1991, and 1990 were 6.2 percent,7.0 percent, and 8.8 percent, respectkely.
Energy Adjustment Clause in Massachusetts, all retal fuel costs are collected on a current basis by means of a separate fuel charDe bll ling rate. As permitted by the DPU, WMECO defers the difference between forecasted and actual fue!
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-m NOTES TO FINANCIAL STATEMENTS costs until it is recovered or refunded quarterly under a retail fuel adjustment clause. Massachusetts law requires the establishment of an annual performance program related to fuel procurement and use. The program establishes performance standards for plants owned and operated by the Company or plants in which WMECO has a life-of-unit contract. Therefore, revenues collected under the Company's retall fuel adjustment clause are subject to refund pending review by the DPU. To date, there have been no significant adjustments as a resutt of this program.
For additional information, see Note 10, Commitments and Contingencies-Nuclear Perfonnance.
Phasewin Plan As of December 31,1991, WMECO completed the phase-in portion of its phase in plan for MElstone 3. The plan is in compliance with Statement of Financial Accounting Standards No. 92, Regulated Enterprises-Accounting for Phase-in Plans. Beginning in 1986, the DPU has permitted the Company to recover the portion of its Millstone 3 investment representing the amount currently determined to be "unuseful* by the DPU ($33.0 million at December 31,1992), excluding the applicable equity AFUDC, over a ten-year period, without eaming a retum. On June 30,1987, WMECO also began recovering the deferred retum, including carrying charges, on the recoverable but not yet phased-in portion of its investment in Millstone 3. This recovery is taking place over a nine year period. As of December 31,1992, $53.3 million of the deferred retum, including carrying charges, has been recovered and $30.5 mElion of the deferred retum, including carrying charges, remains to be recovered over the period ending June 30,1995.
2.
NUCLEAR DECOMMISSIONING The Company's 1992 decommissioning study concluded that complete and immediate dismantlement at retirement continues to be the most v!able and economic method of decommissioning the three Millstone units. Decommissioning studies are reviewed and updated penodically to reflect changes in decommissioning requirements, technology, and in!!ation.
The estimated cost of decommissioning WMECO's ownership share of MRistone 1,2, and 3, in year-end 1992 dollars,is $68.8 million, $55.3 mBlion, and $48.4 mHlion, respectNely. Nuclear decommissioning costs i
are included in depreciation expense on the Statements Of income. Nuclear decommissioning, as a cost of removal, is included in the accumulated provision for depreciation on the Balance Sheets.
WMECO has estabilshed independent decommissioning trusts for its portion of the costs of decommissioning Millstone 1,2, and 3. As of December 31,1992, WMECO has collected, through rates,
$33 0 million toward the future decommissioning costs of its share of the MElstone units, which has been transferred to extemal decommissioning trusts. The decommissioning trusts are reported on the Balance Sheets, at cost, which approximates market.
WMECO, along with other New England uttities, has equ!!y investments in the four Yankee companies.
Each Yankee company owns a single nuclear generating unit. The estimated costs, in year-end 1992 dollars, of decommissioning WMECO's ownership share of CY, MY, and W, are $30.3 milion, $7.0 mRiion, and $6.0 million, respectNely. As discussed in the following paragraph, YAEC's owners voted to permanently shut down the YAEC unit on February 26,1992. The decommissioning costs of the Yankee companies are recorded on their respective financial statements. Under the terms of their contracts with the Yankee companies, the shareholders-sponsors are responsible for their proportionate share of the operating costs of each unit, including decommissioning. The nuclear decommissioning costs of the Yankee companics are included as part of the cost of power.
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NOTES TO FINANCIAL STATEMENTS s.
l YAEC has begun preparations for an orderly decommissioning of its nuclear facittry. On June 1,1992, YAEC filed a rate fi!ing to obtain FERC authorization to cot!ect the closing and decommissioning costs and to recover the remaining investment in the YAEC nuclear power plant, over the remaining period of the plant's Nudear Regulatory Commission operating license. YAEC, the FERC staff, and intervenors to the FERC proceeding have approved a settlement agreement for approximately $402.3 million that would resolve all outstanding issues. The settlement agreement is awatting FERC approval. At December 31, i
1992, WMECO's share of these estimated costs was approximately $28.2 million. Management expects that WMECO w!!! continue to be allowed to recover such FERC-approved costs from its customers.
Accordingly, WMECO has recognized these costs as a regulatory asset, with a corresponding obligation, on its Balance Sheets. WMECO has a 7 percent equity investment, approximately $1,7 million, in YAEC.
WMECO had relied on YAEC for approximataly one percent of its capacity.
3.
LEASES WMECO and CL&P have entered into the Niantic Bay Fuel Trust (NBFT) capital lease agreement to finance up to $530 million of nuclear fuel for Millstone 1 and 2 and their share of the nudear fuel for Millstone 3.
WMECO and CL&P make quarteriy lease payments for the cost of nuclear fuel consumed in the reactors (based on a units-of-production method at rates which reflect estimated kRowatt-hours of energy provided) plus financing costs associated with the fuel in the reactors. Upon permanent discharge from the reactors, ownership of the nudear fuel transfers to WMECO and CL&P.
WMECO has also entered into lease agreements, some of which are capital leases, for the use of p
substation equipment, data processing and office equipment, vehicles, nuclear control room simulators,
(
and office space. The provisions of these lease agreements generally provide for renewal options. The
\\
following rental payments have been charged to operating expense:
Capital Operating
)
Yggtr Leases Leases 1992.
$13,799,000
$7,263.000 1991 11,599,000 6,790,000 1990...
23,275,000 6,863,000 Interest included in capital lease rental payments was $2,895,000 in 1992, $3,434,000 in 1991, and
$4,100,000 in 1990.
Substantially all of the capital lease rental payments were made pursuant to the nudear fuel lease agreement. Future minimum lease payments under the nudear fuel capital lease cannot be reasonably estimated on an annual basis due to variations in the usage of nuclear fuel.
f" (s I
J
Western Massachusetts Electric Company es NOTES TO FINANCIAL STATEMENTS Future minimum rental payments, excluding annual nuclear fuel lease payments and executory costs, such as property taxes, state use taxes, insurance, and maintenance, under long-term noncanceiable leases.
as of December 31,1992, are approximately:
Capital Operating Year leases leases (Thousands of Dollars) 1993..
40
$ 5.300 40 5,000 1994....
1995.
40 4,600 40 4,100 1996..
1997..
40 3,300 After 1997 230 40.900 Future minimum lease payments....
430
$ 63 200 Less amount representing interest 130 Present value of future minimum lease payments for other than 300 nuclear fuel i
j Present value of future nudear D
fuel lease payments........
41.200 Total
$ 41.500 4.
SHORT-TERM DEBT NU, CL&P, WMECO, HWP, NNECO, and The Rocky RNer Realty Company (RRR) have established a revolving credit facility with a group of 19 banks. Under this facElty, the participating companies may borrow up 1o an aggregate of $360 mHilon. IndNidual borrowing limits are $175 milion for NU,- $360 million for CL&P, $75 million for WMECO, $8 mR! ion for HWP, $60 million for NNECO, and $15 milion for RRR.
The system companies may borrow funds on a short-term revoMng basis using either fixed-rate loans or standbyloans. Fixed rates are set using competitke bidding. Standby. loan rates are based upon several attematNe variable rates. The system companies are obligated to pay a facIlty fee of.20 percent of each bank's total commitment under the three-year portion of the facElty, representing 75 percent of the total facIlty, plus.135 percent of each bank's total commitment under the 364-day portion of the facElty, representing 25 percent of the total faellty. At December 31,1992, there were no borro#.ngs under the factity.
Certain subsidiaries of NU, including WMECO, are members of the Northeast UtElties System Money Pool (Pool). The Pool provides a more efficient use of the cash resources of the system, and reduces outside short-term borrowings. NUSCO administers the Pool as agent for the member companies. Short-term borrowing needs of the member companies are first met with avalable funds of other member companies, induding funds borrowed by NU parent. NU parent may lend to the Pool but may not borrow. Investing and borrowing subsidiaries recebe or pay interest based on the average daly Federal Funds rate. Funds
/"'N(J
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m
Western Massachusetts Electric Company NOTES TO FINANCIAL STATEMENTS may be withdrawn from or repaid to the Pool at any time without prior notice. However, borrowings based on loans from NU parent bear interest at Nb parent's cost and must be repaid based upon the terms of NU parent's original borrowing.
The amount of short-term borrowings that may be incurred by the Company is subject to periodic approval by the SEC under the 1935 Act. In addition, the charter of WMECO contains provisions restricting the amount of short-term borrowings. Under the SEC and/or charter restrictions, as of January 1,1993, the Company was authorized to incur short-term borrowings up to a maximum of $75 million.
5.
PREFERRED STOCK NOT SUBJECT TO MANDATORY REDEMPTION Details of preferred stock not subject to mandatory redemption are:
December 31, Shares 1992 Outstanding Redemption December 31, December 31.
Descriotion Price 1992 1992 1991 1990 (Thousands of Dollars) 9.60% Series A
$15,000
$15,000 of 1970..
7.72% Series B 103.51 200,000 20,000 20,000 20,000 of 1971...
I 1988 Adjustable k
Rate DARTS....
25.00 2.140.000 53.500 53.500 53.500 Total preferred stock not subject to mandatory redemption.....
2 340 000
$73 500
}$gjg
}ggjpg All or any part of each outstanding series of preferred stock may be redeemed by the Company at any time at established redemption prices plus accrued dividends to the date of redemption.
Western Massachusetts Electric Company gx NOTES TO FINANCIAL STATEMENTS
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6.
PREFERRED STOCK SUBJECT TO MANDATORY REDEMPTION Details of preferred stock subject to mandatory redemption are:
December 31, Shares 1992 Outstanding Redemption December 31 December 31.
Descriotion Price 1992 1992 1991 1990 (Thousands of Dollars) 7.60% Series of 1987.
26.27*
1,140,000
$28.500
$28,502
$30,000 Less preferred stock to be redeemed within one year, net of reacquired stock.......
. 1.500 2
EZ.222 H2.222 12.2.222
' Redemption price reduces in future years.
The 7.60% 1987 Series Preferred Stock requires a sinking-fund sufficient to retire a minimum of 60,000 shares (or a rnaximum of 120,000) at $25 per share each year commencing February 1,1992.
In case of defauft on sinkinD-fund payments, no payments may be made on any Junior stock by way of dkidends or otherwise (other than in shares of junior stock) so long as the default continues. If the Company is in arrears in the payment of dkidends on any outstanding shares of preferred stock, the s
Company would be prohibited from redemption or purchase of less than all of the preferred stock outstanding. All or part of the 7.60% Series of 1987 rnay be redeemed by the Company at any time at an established redemption price plus accrued dkidends to the date of redemption except that during the initial five-year redemption period 11 is subject to certain refunding limitations.
s
Western Massachusetts Electric Company f_.s\\
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k
)
NOTES TO FINANCIAL STATEMENTS 7.
LONG-TERM DEBT Details of long-term debt outstanding are:
December 31.
1992 1991 (Thousands of Ddlars)
First Mortgage Bonds:
43/8% Series E, due 1992..
$ 8,000 59,400 60,000 91/4% Series S, due 1995......
91/4% Series U, due 1995 35.000 35,000 53/4% Series F, due 1997....
15,000 15,000 15,000 15,000 73/8% Series H.
due 1998...
63/4% Series G, due 1993..
10,000 10,000 30,000 93/8% Series 1, due 2000.
73/4% Series J, due 2002.
30,000 30,000 73/4% Series V, due 2002......
85,000 25,000 91/4% Series K, due 2004........
30,000 91/4% Series M, due 2006........
93/4% Series R, due 2016 25,000 25,000 101/8% Series T, due 2018.........
34235 34.650 Total First Mortgage Bonds..
308,635 317,650
/^
t Pdlution Control Notes:
(
Variable rate, due 2014-2015.....................
52,400 52,400 1,454 1,606 5.9%, due 1998 Fees and interest due for spent fuel disposal costs 30,966 29,856 Less: Amounts due within one year.........
152 8,152 (479)
(417)
Unamortized premium and discount, net..
Long-term debt, net...
$ 392.824
$392.943 Long-term debt maturtties and cash sinking-fund requirements on debt outstanding at December 31,1992 forthe years 1993 through 1997 are: $152,000 in 1993 and in 1994, $94,552,000 in 1995, $152,000 in 1996, and $15,152,000 in 1997, in addition, there are annual 1 percent sinking-and improvement-fund requirements, currently amounting to $3.100,000 in 1993, $3,100,000 in each of the years 1994 through 1995, and $2,150,000 in 1996 and 1997. Such sinking-and improvement. fund requirements may be satisfied by the deposit of cash or bonds or by certification of property additions.
All or any part of each outstanding series of first mortgage bonds may be redeemed by the Company at any time at established redemption prices plus accrued interest to the date of redemption, except certain series which are subject to certain refunding limitations during their respectNe initial fke-year redemption periods.
Essentia!!y all of the Company's utElty plant is subject to the tiens of its first mortgage bond indentures.
As of December 31,1992, the Company has secured $52.4 mRiion of pdlution contrd notes with second mortgage liens on Mulstone 1 junior to the liens of its first mortgage bond indentures. _
Western Massachusetts Electric Company b)
NOTES TO FINANCIAt. STATEMENTS g
V 8.
INCOME TAX EXPENSE The components of the federal and state income tax provisions are:
For the Years Ended December 31.
1992 1991 1990 (Thousands of Dollars)
Current income taxes:
$16,736
$13,550
$ 8,606 Federal........
4.165 3.570 2.553 i
State.............
20.901 17.120 11.159 Total current Deferred income taxes, net:
(1.466) 1.581 110 Federal.....
117 1.259 1.222 State.
(1.349) 2.840 1.339 Total deferred................
(1.251)
(1.251)
(1.073) investment tax credits, net..
$18 301 M
$11.425 Total income tax expense The components of totalincome tax expense are classified as follows:
[
Income taxes charged to operating expenses...................
$20,926
$22,856
$16,453 Income taxes associated with the amortization of deferred Mi!! stone 3 retum - borrowed funds (2,410)
(2,945)
(2,791)
Income taxes associated with AFUDC and deferred Millstone 3 retum -
I borrowed funds........................
595 767 1,509 (810)
(1.969)
(3.746)
Other income taxes - credit...............
Total income tax expense...................
$18 301 M
$11.425
/~% m
i f
Western Massachusetts Electric Company O)
NOTES TO FINANCIAL STATEMENTS ih/
l i
Deferred income taxes are comprised of the tax effects of timing differences as follows:
For the Years Ended December 31.
1992 1991 1990 (Thousands of Dollars) f a
5 Depreciation, excluding leased nuclear fuel........................
$ 5,097
$ 6.498
$ 4,763 (979)
(1,916)
~
Construction overheads......................
i Depreciation on leased nuclear fuel, settlement credits, and disposal costs.........................
(1,028)
(587) 80 Energy adjustment clause...................
(4,663) 1.409 828 AFUDC and deferred Miltstone 3 retum. net.
(1,815)
(2.178)
(1,281 )
Deferred refueling cost.......
666 6
(1,411) 775 (1.809) -
Early retiremerri program Other...............................
f381)
_ 480 276 Deferred income taxes, net.
}{1.24,,2)
$_2&40 1,,1 }22 i
The effective income tax rate is computed by dkiding total income tax expense by the sum of such taxes and net income The differences between the effective rate and the federal statutory income tax rate are:
For the Years Ended December 31.
1992 1991 1990 (Thousands of Dollars)
Federal statutory income tax rate...............
34.00 %
34.00 %
34.00 %
t Tax effect of differences:
Depreciation differences....................
(2.86)
(.02)
(5.07)
Deferred Millstone 3 retum. other funds.........
(1.30)
(1.76)
(3.90)
Amortization of deferred Millstone 3 retum - other funds..
5.16 5.39 5.78
[
(1.84)
(4.20) construction overheads....................
investment tax credit amortization............
(2.26)
(2.35)
(2.30)
State income taxes, net of federal benefit........
5.11 6.03 5.42 Adjustment for prior years taxes..............
(2.71)
(1.87)
(3.56)
Other, net...............................
(2 06)
(211)
(1 66) i Effective income tax rate....................
M%
gg,E%
g4,},1,,%
I l
-?
l
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-17
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Western Massachusetts Electric Company 7:
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NOTES TO FINANCIA1. STATEMENTS l
9.
POSTRET1REMENT BENEFITS The Company participates in a uniform noncontributory-defined beneftt retirement plan covering all regular system employees. Benefits are based on years of service and employees' highest compensation during five consecutive years of employment. The Company's direct-allocated portion of the system's pension.
cost, part of which was charged to utility plant, approximated ($504,000) in 1992, $1,910,000 in 1991, and
$161,000 in 1990.
Currently, the Company funds annually an amount at least equal to that which will satisfy the requirements -
of the Employee Retirement income Security Act and the internal Revenue Code. Pension costs are determined using market.related values of pension assets. Pension assets are invested primarDy in equity l
securities, bonds, and insurance contracts.
The components of net pension cost for the system (excluding PSNH and North Atlantic Energy Service Corporation) are:
For the Years Ended December 31.
1992 1991 1990 (Thousands of Dollars)
Service cost.....................
$ 27.480
$ 48,738
$ 30.459 Int erest cost.....................
69,746 71,041' 64,352 Retum on plan assets.............
(77,232)
(198.437) 10,498 '
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)
Net amortization..................
(16.266) 108.175 (94.034) i j
Net pension cost.................
$ 3.728
$ 29 517
$ 11.275 For calculating pension cost, the following assumptions were used:
i For the Years Ended December 31.
1992 1991 1990
~
Discount rate.........................
8.5%
9.0%
9.0%
Expected I.ong-term rate,
of retum............................
9.0 9.7 9.7 3
Compensation / progression rate...........
6.8 7.5 7.5 1
i t
I
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- 18-
)
i 3
Western Massachusetts Electric Company NOTES TO FINANCIA1. STATEMENTS The following table represents the plan's funded status reconclied to the NU Consolidated Balance Sheets:
At December 31.
1992 1991 (Thousands of Dollars) l Accumulated benefit obligation, including $719.608,000 of vested benefits at December 31,1992 and
$585,419,000 of vested benefits at December 31,1991.........
$ 764.432
$ 623.795 Projected benefit obligation.....
$1,055,295
$ 848,374 Less: Market value of plan assets.......
t.226.468 1.031.699 Market value in excess of projected benefit obligation......................
171,173 183,325 Unrecognized transition amcunt...
(18,277)
(26,958)
Unrecognized prior service costs.........
8.658 7.323 Unrecogn! zed net gain....
(214.894)
(176.380)
Accrued pension liability..............
$ (53 340)
$ (12 690)
The following actuarial assumptions were used in calculating the plan's year-end funded status:
At December 31.
1992 1991 Discount rate.........................
8.0%
8.5%
Compensation / progression rate...........
5.0 6.8 in addition to pension benefits, the Company currently has a practice of providing certain health care and life insurance benefits to retired employees. The direct cost of providing those benefits was approximately
$2,174,000 in 1992, $1,567,000 in 1991, and $1,554,000 in 1990. The Company currently recognizes health care benefits primarily t.s paid and provides for life insurance benefits through premiums paid to an insurance company.
in December 1990, the FASB issued Statement of Financial Accounting Standards No.106, Employers' Accounting for Postratirement Benefits Other Than Pensions (SFAS 106). This new standard requires that the expected cost of postratirement benefits, primarty health and life insurance benefits, must be charged to expense during the years that employees render service. This is a signifcant change from the Company's current policy of recognizing these costs as paid. Effective January 1,1993, WMECO will adopt SFAS 106 on a prospectNe basis. WMECO anticipates that it wRI amortize its SFAS 106 prior service obli ation of approximately $36 milion over a 20-year period The adoption d SFAS 106 wtl increase the D
direct cost of postretirement benefits by approximately $3 mulion in 1993. The accrual of the not SFAS 106 obligation is not expected to have a material impact on the financial position or on results of operations.'
WMECO has received approval to defer SFAS 106 costs as part of the settlement of its 1991 rate case. __
..m
l Western Massachusetts Electric Company l
NOTES TO FINANCIAL STATEMENTS v
10.
COMMITMENTS AND CONTINGENCIES Construction Program The construction program is subject to periodic review and revision. Actual construction expenditures may vary from estimates due to factors such as revised load estimates, inflation, revised nuclear safety regulations, delays, difficulties in the licensing process, the availabl!ity and cost of capital, and the granting of timely and adequate rate relief by regulatory commissions, as well as actions by other regulatory bodies.
The Company currently forecasts construction expenditures (including AFUDC) of $222.2 mmion for the years 1993-1997, including $48.8 million for 1993. In addition, the Company estimates that nuclear fuel requirements, including nuclear fuel financed through the NBFT, will be $61.2 million for the years 1993-1997, including $10.3 million for 1993. See Note 3, Leases for additional information about the financing of nuclear fuel, Nuclear Performance WMECO has incurred approximately $16 million in replacement power costs associated with Millstone outages that occurred between October 1990 and February 1992. Recovery of prudently incurred replacement power costs is permitted, with limitations, through a retall fuel adjustment clause.
Management believes that some portion of the remaining replacement power costs may be disallowed or subject to refund pending completion of regulatory reviews. However, management believes that its actions with respect to these outages have been prudent and does not expect the outcome of these reviews to have a material adverse impact on the Company's future results of operations.
s See Note 1, Summary of Significant Accounting Policles-Energy Adjustment Clauses, and Management's Discussion And Analysis for additional information regarding nuclear performance and energy adjustment clauses.
Hydro-Quebec Along with other New England utEities, WMECO, CL&P, PSNH, and HWP entered into agreements to support transmission and terminal facilities to import electricity from the Hydro-Ouebec system in Canada.
The Company is obligated to pay, over a 30-year period, its proportionate share of the annual operation, maintenance, and capital costs of these facilities. WMECO's share of Hydro-Quebec costs are currently forecast to be $21.1 million for the years 1993-1997, including $4.5 million for 1993.
Environmental Matters WMECO is subject to regulation by federal, state, and local authorities with respect to air and water quality, handling, and the disposal of toxic substances and hazardous and solid wastes, ard the hr.ndling and use of chemical products. The cumulathre long-term economic cost impact of increasingly stringent environmental requirements cannot be estimated. However, WMECO has an acthre environmental auditing program to detect and remedy noncompilance with environmental laws or regulations. WMECO may incur significant additional costs, greater than amounts included in cost of removal and other reserves, in connection with the generation, transmission, and distribution of electricity and the storage, transportation, and disposal of by-products and wastes. WMECO may also encounter significantly increased costs to remedy the environmental effects of prior waste handling and disposal practices.
WMECO has recorded a liability for what it believes is, based upon information currently avallable, the estimated environmental remediation costs for waste disposal sites for which it expects to bear legal -.
"1
Western Massachusetts Electric Company NOTES TO FIN ANCIAL STATEMENTS liability. To date, these costs have not been material with respect to the eamings or financial position of the Company. In most cases, the extent of addhional future environmental cleanup costs is not estimable I
due to factors such as the unknown magnitude of possible contamination, the possible effects of future legislation and regulation, the possible effects of technological changes related to future cleanup, and the difficulty of determining future liability, if any, for the cleanup of sites at which WMECO has been informed that it may be determined to be legally liable by the United States Environmental Protection Agency, the l
Connecticut Department of Environmental Protection, or the Massachusetts Department of Environmental Protection. In addition, WMECO cannot estimate the potentialliability for future claims that may be brought against it by private parties. However, considering known facts and existing laws and regulatory practices, management does not believe that such matters will have a material adverse effect on WMECO's financial position or future results of operations.
Changing environmental requirements could hinder the construction of new generating units, transmission and distribution lines, substations, and other facilities. Changing environmental requirements could also require extensive and costly modifications to WMECO's existing hydro, nuclear, and fossil-fuel generating units, and transmission and distribution systems, and could raise operating costs significantly. WMECO may also face significantly increased capital and operating costs for work centers, substations, and other facilities as a result of environmental regulations. However, WMECO believes that it is in substantial compliance with current environmentallaws and regulations.
Nuclear insurance Contingencies The Price-Anderson Act currently limits public liability from a single incident at a nucisar power plant to
$7.9 billion. The first $200 million of liability would be provided by purchasing the maximum amount of commercially avaHable insurance. Additional coverage of up to a total of $7.3 billion would be provided by an assessment of $63 million per incident, levied on each of the 116 nuclear units that are currently subject to the Secondary Financial Protection Program in the United States, subject to a maximum assessment of $10 million per incident per nuclear un!! in any year. In addition, if the sum of all public liability claims and legal costs arising from any nuclear incident exceeds the maximum amount of financial protection, each reactor operator can be assessed an additional 5 percent, up to $3.2 million, or
$365.4 mi!Iion in total, for all 116 nuclear units. The maximum assessment is to be adjusted at least every five years to reflect inflationary changes. Based on WMECO's ownership interests in Millstone 1,2, and 3 WMECO's maximum liability would be $33.2 mll lion per incident. In addition, through WMECO's power purchase contracts with the four Yankee regional nuclear generating companies, WMECO would be responsible for up to an additional $14.5 million per incident. Payments for WMECO's ownership interest in nuclear generating facilities would be limited to a maximum of $7.2 million per incident per year.
Insurance has been purchased from Nuclear Electric insurance Umited (NEIL) to cover: (1) certain extra costs incurred in obtaining replacement power during prolonged accidental outages w!!h respect to WMECO's ownership interests in Millstone 1,2, and 3, and CY, and (2) the cost of repair, replacement, or decontamination or premature decommissioning of utility property resutting from occurrences with respect to WMECO's ownership interests in Millstone 1, 2, and 3, CY, MY, and W. All companies insured with NEIL are subject to retroactive assessments if losses exceed the accumulated funds avalable to NEIL The maximum potential assessments against WMECO with respect to losses arising during current policy years are approximately $2.0 m!!! ion under the replacement power policles and $4.6 million under the property damage, decontamination, and decommissioning policies. Although WMECO has purchased the limits of coverage currently available from the conventional nuclear insurance pools, the cost of a nuclear incident could exceed available insurance proceeds.
Western Massachusetts Electric Company
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NOTES TO FINANCIAL STATEMENTS Insurance has been purchased from American Nuclear Insurers / Mutual Atomic Energy Liability Underwriters, aggregating $200 million on an industry basis for coverage of worker dalms. All companies insured under this coverage are subject to retrospective assessments of $3.2 million per reactor. The maximum potential assessments against WMECO with respect to losses arising during the current policy period are approximately $2.3 million.
Financing Arrangements for the Regional Nuclear Generating Companies The Company believes that the regional nuclear generating companies will require additional extemal financing in the next several years for construction expenditures, nuclear fuel, and other purposes.
Although the ways in which each regional nuclear generating company will attempt to finance these expenditures have not been determined, the Company expects that it may be asked to provide direct or indirect financial support for one or more of these companies.
11.
FAIR VALUE OF FINANCIAL INSTRUMENTS in December 1991, the FASB issued Statement of Financial Accounting Standards No.107, Disclosures About Fair Values of Financialinstruments (SFAS 107). SFAS 107 requires companies to disclose the estimated fair value of their financial instruments for which it is practicable to estimate fair value.
The following methods and assumptions were used to estimate the fair value of each of the following financial instruments:
Cash and special deposirs The carrying amount approximates fair value.
k Nuclear decomm/ssioning trusts: The carrying amount approximates fair value.
Preferred stock: The fair value of WMECO's fixed rate preferred stock is based upon the quoted market price for those issues or similar issues. WMECO's adjustable rate preferred stock is assumed to have a fair value equal to its carrying value.
Long-term debt The fair value of WMECO's fixed-rate long-term debt is based upon the quoted market price for those issues, or simaar issues. Adjustable rate securities are assumed to have a fair value equal to their carrying value.
b O
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Western Massachusetts Electric Company NOTES TO FINANCIAL STATEMENTS The carrying amount of WMECO's financial instruments, and the estimated fair value at December 31,1992, is as follows:
Carrying Fair Amount Value (Thof tsands of Dollars)
Preferred stock not subject to mandatory redemption..................
$ 73.500
$ 72.600 Preferred stock subject to Mg M
mandatory redemption.......
Long term debt-E ggg}
- RZjfigj, First Mortgage Bonds.
Other long-term debt
$ 84.820 M
y The fair values shown above have been reported to meet the disclosure requirements of SFAS 107 and do not purport to represent the amounts that those obligations would be settled at.
I 1 1
" 1D
Western Massachusetts Electric Company p
iL Report of Independent Public Accountants To the Board of Directors of Westem Massachusetts Electric Company:
We have audited the balance sheets of Westem Massachusetts Electric Company (a Massachusetts corporation and a wholly cwned subsidiary of Northeast Utilities) as of December 31,1992 and 1991, and the related statements of income, common stockholder's equity, and cash flows for each of the three years in the period ended December 31,1992. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the f6nancial statements are free of material misstatement. An audit includes examining, on a test basis, uvidence supporting the amounts and disclosures in the financial 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 ali material respects, the financial position of Westem Massachusetts Electric Company as of December 31,1992 and 1991, and the results of its es operations and cash flows for each of the three years in the period ended December 31,1992, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN & CO.
Hartford, Connecticut February 19,1993
[ (w s g
Westem Massachusetts Electric Company
)
V MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS l
This section contains management's assessment of Westem Massachusetts Electric Company's (WMECO or the company) financial condition and the principal factors having an impact on the results of operations. The company is a wholly owned subsidiary of Northeast Utiilties (NU). This discussion should be read in conjunction whh the company's financial statements and footnotes.
J FINANCIAL CONDITION Overview The company's net income increased to $37.0 m!!! ion in 1992 from $34.6 m!!! ion in 1991. The increase is primarily attributable to the July 1991 and 1992 retall rate decisions and lower interest charges resulting from lower interest rates and lower capital requirements. Retail sales were down approximately 1.5 percent in 1992 due to a weak New England economy and cooler summer weather.
i The weakened New England economy continues to adversely affect the company's financial health. The current economic downtum has been felt more severely in the New Eng!and region than in many other parts of the United States. The recovery is expected to be later and considerably less robust in New England than for other regions of the United States. The company's most recent projection is that retail sales will increase only at a 1.5 percent annual growth rate over the next two years.
The price of electricity in New England is high relative to electricity in many other areas of the United States. Relatively high state and local taxes, labor costs, and other costs of doing business In New EnD and contribute, along with relatively high energy costs, to competitive disadvantages for many i
industrial and commercial customers of the company. These disadvantaDes have aggravated the pressures on business customers in the current weakened regional and national economic environment.
Management has recognized that it needs to be responsive to ks business customers, in particular, in dealing with the cost of electrichy, and to recognize that many business customers have attematives such as fuel switching, reiocations, and self-generation.
Working independently, and in concert with the Massachusetts Office of Business Development, the.
company has taken aggressive actions to retain existing business customers and to attract business expansion in its service territories. These economic development actMties frequently involve negotiated reductions in rates for fixed periods of time, as well as technical support and energy conservation services. Negotiated rates coupled with energy conservation services are designed to be flexible enough to attract and retain business, while minimizing lost contribution.
On June 5,1992, NU acquired Public Service Company of New Hampshire (PSNH), the largest electric utIRy in New Hampshire. The acquishion of PSNH by NU provides an opportunky to achieve an overall reduction in costs for current and future ratepayers of the company. Specific areas for expecte3 cost savings include the improved avalabilty of PSNH's fossi steam generating facIlties, the joint op eration of the combined NU and PSNH systems, capacky cost benefits resulting from the diversky of peakloads between PSNH and the NU system, and a reduction in purchasing, administrative, and general costs.
Tnese cost reductions will better enable the company to maintain affordable electric service and also reduce the threat that its largest customers will seek attemative sources of electricky, f i s
4 9
.n
The company continues to pursue cost-management efforts whHe maintaining reliable service.1. abor is the company's largest nonfuel operation and maintenance expense resource. An aggressNe target
(
of limiting growth in overall labor expendttures for 1993 to,elow the rate of inflation has been b
established. This will be accomplished while increasing labor costs committed to improving the x
performance of the nuclear units.
Because of the prevailing economic climate, the company's 1993 financial objectkes continue to be very conservatke. The principal focus in the short-term is to maintain financial ratios and eamings at their current levels.
Flate Matters There is an increasing amount o' deferred charges reflected on the company's balance sheets. The unrecovered contract obligation for Yankee Atomic Electric Company and the United States Department of Energy deferred assessment added approximately $37.8 mHiion in 1992. These items, when added to the balance of deferred costs and amortizable property investment for Ml!! stone 3 resu!t in a significant amount of assets to be recovered in the future. The company is currently recovering some amounts of these deferred charges from customers, and rnanagement expects that substantially all of the deferred charges will be recovered in the future.
The amount of deferred charges will increase when the company adopts Statement of Financial Accounting Standards (SFAS) No.109, Accounting for income Taxes, in 1993. Under SFAS No.109, the company will reflect as a regulatory asset and a deferred tax liabi'ity the cumulatNe amount of income taxes associated with timing differences for which deferred taxes have not been provided. When SFAS No.109 is adopted it will increase both essets and liabilities by approximately $100 mR! ion but wHI not have a rnaterial effect on net income. The company wHI also adopt SFAS No.106 Employers' Accounting for Postretirement Beneftts Other Than Pensions, In 1993, but it is not expected to have a p
material impact on financial condition or results of operations. The company expects to recover these
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costs in future rate proceedings.
See the Notes To Financial Statements for further details on deferred charges and accounting standards not yet adopted.
On February 17,1993, President Clinton announced a proposed tax phekage that would include an increase in the corporate income tax rate from 34 percent to 36 percent and an energy tax. The company estimates that the increase in the corporate tax rate, which would be retroactke to January 1, 1993, would require an annual increase in revenues to be recovered from customers of approximately
$3 million. The company estimates that the proposed energy tax would increase revenues to be recovered from customers by appedmate!y $13 mHlion when it is fu!!y implemented in 1997. The energy tax, as proposed, would be phased-in evenly over three years beginning on July 1,1994. Actual impacts on the company and on revenues to be recovered nom customers could vary significantly depending on the final form any legislation would take and how ru'es for implementing and administering the tax would unfold.
On May 20,1992, the Department of Public Utatties (DPU) approved a settlement proposed joirrJy by the company and the Massachusetts Attomey General's Office that resolved most issues in the company's December 1991 rate case. As a resutt, the company's annual retal rates increased by approximately $12 mH! ion, or 3 percent, on July 1,1992, and will increase by approximatety $11 million, or 2.7 percent, on July 1,1993. The company had requested an increase of appGATiately $36 mH! ion, or 9.1 percent, for one year. N m
The DPU also approved, on May 20,1992, a proposal under which the company would spend
$17 million annually on its conservation and load-management (C&LM) programs in both 1992 and 1993.
The energy conservation agreement was proposed jointly by the company, the Attomey Generars office, the Conservation Law Foundation, the DPU's Settlement Intervention Staff, and the Massachusetts Division of Energy Rescurces and required the company to establish a conservation charge (CC). In July 1992, the DPU approved an amended settlement agreement, which establishes a CC that promotes rate stability by spreading the costs and subsequent recovery of 1992 and 1993 C&UA programs over the period from July 1,1992 through December 31,1993.
The company filed a revised CC charge for 1993 based on actual 1992 expenditures and the pre-approved 1993 budget. The DPU ordered the new rate to be effective on March 1,1993.
The company has incurred approximately $16 million in replacement power costs associated with Mll! stone outages that occurred over the period October 1990 through February 1992. Recovery of prudently incurred replacement power costs is perm!tted, with limitations, through a retail fuel adjustment clause. The DPU reviews generating un!! performance and related fuel costs against preset performance goals. The DPU has not yet issued decisions regarding the company's performance over the period June 1987 through May 1992. On December 21,1992, the company notified the DPU that the company will forego recovery of approximately $1 mi!! ion in replacement power costs associated with an October 1991 Millstone 1 outage. The outage was necessary to permit extensive training of the unt!'s nuclear operators. Management believes some portion of the remaining replacement power costs may be subject to refund pending completion of the DPU's performance program reviews. However, management believes that its actions with respect to these outages have been prudent and does not expect the outcome of the DPU reviews to have a material adverse impact on the company's future eamings.
Environmental Matters i
The company devotes substantial resources to identify and then to meet the multitude of environmental requirements it faces. The company has active auditing programs addressing a variety of different regulatory requirements, including an environmental auditing program to detect and remedy noncompliance with environmentallaws or regulations.
To date, the estimated environmental remediation costs for sites wtilch the system companies expect to bear legal liabi!!ty have not been material with respect to the eamings or financial position of the company. The extent of additional future environmental cleanup costs is not estimable due to factors such as the unknown magnitude of possible contamination; however, considering known facts and existing laws and practices, management does not expect these costs to have a material adverse impact on the company's financial posttion or future resufts of operations.
The company expects that the implementation of the 1990 Clean Air Act Amendments wDI require only modest emissions reductions because of the company's investment in nuclear energy in the 1970s and 1980s and a commitment to burning low-suffur fuels at company's fossil-fired plants. This should serve as a competitive advantage, since many of the company's electric utility competitors will have significantly increased costs to meet this environmental standard.
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For information regarding nuclear decommissioning, environmental matters, and other contingencies, see the Notes to Financial Statements.
Nuclear Performance WMECO owns 19 percent of Millstone Unhs 1 and 2 and 12.2385 percent of Millstone Unit 3. The performance of the three Millstone nuclear electric generating unhs was less than satisfactory in 1992 desphe some improvement over 1991. The three units' composite capacity factor was only 55.2 percent in 1992, compared with 38.4 percent in 1991 and a 1992 national average of 69.7 percent. The low 1992 capacity factor was the result of a Millstone 2 outage to replace the steam generators and perform scheduled refueling and maintenance actkities, and some unexpected technical and operating difficulties. The Millstone 2 outage commenced on May 29,1992, the steam generator replacement was completed in December 1992, and the unit retumed to service on January 13,1993.
In an effort to improve its nuclear performance, NU management in 1992, undertook a Performance Enhancement Program (PEP). The PEP was developed in response to an intensNe self-assessment which indicated that aggressNe management actions were needed to address detailed action plans to improve performance. Forty-two action plans were devised to correct problems with work procedures, operations, and employee relations. Several of these plans were completed in 1992 and are now being tested. Additional plans will be implemented in 1993 and all will be in place by the end of 1997. The program was designed to ensure that the plants operate superbly with concem for safety, cost-effectiveness, and efficiency.
As a result of PEP, NU has begun to add approximately 450 positions to its existing authorized nuclear I
staff and wi!! increase its planned expenditures by about $35 million to $40 million annually over the next five years. NU expended approximately $12 miliion in 1992 for PEP. To offset this increase, NU has increased its cost-management efforts in other areas. Management expects that total authorized personnel levels will continue to be reduced even with the additional employees in nuclear.
Uquidity and Capital Resources Cash provided from operations increased $22.3 million in 1992, compared with the same period in 1991.
Cash used for financing actNities was $5.6 million higher in 1992, compared with the same period in 1991. Cash used for investments was $16.7 ml!! ion higher in 1992, compared with the same period in 1991 primarily due to higher investments in uti!!!y plant.
There was no new money financing in 1992. To take advantage of favorable market conditions during 1992, the company refinanced $85 mi!! ion of First Mortgage Bonds. An additional $15 million preferred stock redemption was done using short-term debt.
Under current forecasts, no new money financing is planned for 1993. Required funding wD! be obtained from intemaffy generated funds and nuclear fuel trust financing. The system companias intend,if market l
I condrtions permit, to continue to refinance a portion of their outstanding long-term debt and preferred stock at a lower effectke cost.
i On January 20,1993, the company sold $60 mi!! ion of First Mortgage Bonds, Series W. The bonds bear interest at an annual rate of 6 875 percent and wRI mature on January 1,2000. Proceeds from this issue w21 be used to redeem 9.25 percent First Mortgage Bonds on Apri 1,1993.
Short-term borrowing needs of the company are first met with aval!able funds of the other NU subsidiaries, including funds borrowed by NU, through the NU Money Pool. Certain subsidiaries of NU established the Money Pool to provide a more effectke use of the cash resources of the NU system and C k
to reduce outside short-term borrowings. Investing and borrowing subsidiaries receive or pay interest O
based on the average daily Federal Funds rate, except that borrowings based on loans from NU bear
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interest at NU's cost. Funds may be withdrawn or repaid to the Money Pool at any tirne without prior
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notice. At December 31,1992, the company had no borrowings outstanding under the Money Pool.
The company's 1992 construction expenditures were $46.6 million. The company's most significant 1992 construction project was the replacement of the two Millstone 2 steam generators. The replacernent project began on May 29,1992 and was completed in December 1992. The project cost approximately $198 million (including allowance for funds used during construction (AFUDC) but excluding the cost of replacement power).
Construction program expenditures, including AFCDC, for the period 1993 through 1997 are estimated to be $222.2 million including $48.8 million for 1993. The construction program's main focus is maintaining and upgrading the existing transmission and distribution system, and nuclear and fossil-generating facilities. The company expects to spend approximately 52 percent of its construction budget on transmission and distribution,45 percent on generating stations, and the remaining 3 percent on computers, telephones, and general office facilities. The company does not foresee the need for new major generating facilities until the year 2007.
The company and The Connecticut Light and Power Company (CL&P) continue to utilize a nuclear fuel trust to finance nuclear fuel requirements for their shares of Millstone Units 1, 2, and 3.
As of December 31,1992, the company's portion of the trust's investment in nuclear fuel, net of the fourth quarter 1992 lease payment made on January 31,1993, was $38.4 mt!! ion. Nuclear fuel requirements for WMECO's share of Millstone Units 1,2, and 3 of $61.2 mi!! ion for the years 1993 through.1997 including $10.3 million for 1993 are expected to be financed by the trust.
in addition to construction and nuclear fuel requirements, the company is obligated to meet p
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$117.7 million of long-term debt maturities and cash sinking-fund requirements for the years 1993
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through 1997 including $1.7 million for 1993.
RESULTS OF OPERATIONS Operating Revenues Operating revenues increased $0.9 million from 1991 to 1992 and increased $34.4 million from 1990 to 1991. The components of the change in operating revenues for the past two years are provided in the table below.
Change in Operating Revenues increase # Decrease) 1992 vs 1991 1991 vs 1990 (Malions of Dottars)
Regulatory decisions
$22.5
$23.3 Fuel and purchased power cost recoveries (18.3) 8.0 Sales and other revenues (3 3) 1.1 Total revenue change
$0.9 g4,4,,
Revenues related to regulatory decisions increased in 1992, as compared to 1991, primarily because O
of the effects of the July 1991 and July 1992 DPU retail rate decisions. Fuel and purchased power cost recoveries decreased primarily becausw J Iower energy sales to other utilities.
Revenues related to regulatory decisions increased in 1991, as compared to 1990, primarily because of the effects of the June 1990 and the July 1991 DPU retall rate decisions. Fuel and purchased power cost recoveries increased primarily because of a significantly higher level of higher priced outside energy purchases.
Fuel, Purchased and Net Interchange Power Fuel, purchased and net interchange power c'ecreased $13.4 million in 1992, as compared to 1991, primarily because of lower interchange purchases, partially offset by previously incurred replacement power costs that are not recoverable as a result of regulatory reviews.
Fuel, purchased and net interchange power increased $8.1 million in 1991, as compared to 1990, primarily because of higner interchange purchases, partially offset by the matching of revenues and expenses under the provisions of the company's energy adjustment clause.
Otb J Opers'.'on and Maintenance Expenses
( ther operathn and maintenance expenses increased $14.3 million in 1992, as compared to 1991, picnarily due to higher 1992 costs of scheduled refueling and maintenance outage activities at nuclear and issil units, pipe inspection activities at the Millstone units, and PEP activities, partially offset by the 1991 costs associated with the voluntary early retirement programs.
Other operation and maintenance expenses increased $19.0 million in 1991, as compared to 1990,
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primarily because of higher costs associated with voluntary early retirement programs and the commercial operation of the Phase 11 Hydro-Quebec project.
s Depreciation Expenses Depreciation expenses decreased $3.7 ml!! ion in 1991, as compared to 1990, primarily as a result of a July 1991 DPU decision that authorized the company to depreciate its electric generation, transmission, and distribution equipment over a longer period.
Texes Federal and state income taxes increased $7.3 million in 1991, as compared to 1990, primarily because of higher taxable income, partially offset by an adjustment for concluded revenue agent reviews.
Deferred Millstone 3 Return The deferred retum on Millstone 3 decreased $3.7 mHlion in 1991, as compared to 1990, primarily because the company completed the phase-in of its recoverable Millstone 3 investment into rate base in 1990.
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. 1 interest Charges interest on long-term debt and other interest decreased $3.1 ml!! ion in 1992, as compar'ed to 1991, and
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$3.5 million in 1991, as compared to 1990, primarily because of lower interest rates and lower capital requirements.
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Westem Massachusetts Electric Company SELECTED FINANCIAL DATA 7m i
Years Ended December 31.
1992 1991 1990 1989 1988 Uhousands of Dollars)
Operating Revenues.......
$ 410,720
$ 409,840
$ 375,456
$ 348,720
$ 318,061 Operating income......
60,513 59,723
' 57,448 55,483 51,445 Net income.
37,022 34,637 35,191 38,578 43,465 Cash DMdends on Common Stock.
29,536 31,499 34,459 28.974 29,880 Total Assets..
1,130.684 1,119.593 1,134.986 1.135,096 1,151,806 Long. Term Debt *,....
392.976 401,095 419.527 418,093 444,943 Preferred Stock Not Subject to Mandatory Redemption.
73.500 88.500 88,500 88,500 88,500 t
Preferred Stock Subject to Mandatory Redemption *....
28,500 28,502 30,000 30,000 30,000 a
Obligations Under Capital
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Leases
- 41.509 44,134 52,370 56.730 70,116 N
- Includes portions due within one year.
STATEMENTS OF OUARTERLY FINANCIAL DATA (Unsudited)
Ouarter Ended 1992 March 31 June 30 Seotember 30 December 31 Fhousands of Dollars) 6 Operating Revenues........
$112.897
$ 95 231
$ 99.524 M
Operating income..........
},.29Eg1
$ 9 276
$ 11.849
$ 18.423 '
Net income
$ 14 427
$ 3.518
$ 6.312
$ 12.765
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1991
?
Operating Revenues........
$107.614
$ 92.038
$101.409
$108 779 Operating income..........
$ 19 846
$ 12263
$ 17.205 110A09 Net income..............
$ 13.444 5 6795
$ 10.928 M
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Westem Massachusetts Electric Company STATISTICS Gross Electric Utility Plant Average December 31, Annual Electric (Thousands of kWh Sales Residential Customers Employees Doltars)
(Milli 0ns) kWh Use (Averace)
(December 31.)
1992
$1,214,386 4,155 7,433 191,920 739 1991 1,199,362 3,780 7,494 191,692 797 1990 1,184,285 3.874 7,619 191,759 826 1939 1,147,780 3,975 7,878 190,217 849 1988 1,126.866 3,965 7,853 187,170 840 1987 1,088,809 3,845 7,584 183,563 871
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Westem Massachusetts Electric Company i
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First Mortoaoe Bonds -
Trustee and Interest Paying Agent s
The First National Bank of Boston, Corporate Trust Department P.O. Box 1897, Boston, Massachusetts 02105
. Preferred Stock t
Transfer Agent, DMdend Disbursing Agent and Registrar Northeast UtHities Service Company Shareholder Services
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P.O. Box 5006, Hartford, CT 06102-5006 1993 Dividend Payment Dates 7.72% Series B -
January 1, Apr01, July 1 and October 1 7.60% Series -
February 1, May 1, August I and November 1 DARTS
- January 11, March 1, AprH 19, June 7 July 26, September 13 November 1, and December 20 m
Address General Correspondence in Care of:.
Northeast UtDities Service Company investor Relations Department P.O. Box 270 Hartford, Connecticut 06141-0270 Tel. (203) 665-5000 General Office 174 Brush HHI Avenue, West Springfield, Massachusetts,01090@10 k
- Transfer and Paying Agent:
Bankers Trust Company, Corporate Trust and Agency Group P.O. Box 318 Church Street Station, New York, New York 10015 The data contained in this Report is submitted for the sole purpose of providing information to present stockholders about the Company.
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