ML20058J980

Boston Edison Co 1989 Annual Rept, & Securities & Exchange Commission Form 10-K

ML20058J980
Person / Time
Site:	Pilgrim
Issue date:	12/31/1989
From:	Bird R BOSTON EDISON CO.
To:
References
90-145, NUDOCS 9012060204
Download: ML20058J980 (162)

Text

g' 10CFR50.71(b) 10CFR140.15(b) sos 70NEDmW Ngnm Nuclear Power Station Rock y Hill Road Plymouth, Massachusetts 02360 l

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l Ralph G. Bird l 5enior Vice President - Nuclear November 26 1990 BECo 90-145 U.S. Nuclear Regulatory Commission Document Control Desk L Hashington, DC 20555 l License DPR-35

Docket 50-293 l

l ANNUAL FINANCIAL STATEMENT l

In accordance with 10CFR50.71(b) and 10CFR140.15(b)(1), Boston Edison is submitting the 1989 Annual Report and the Securities and Exchange Commission l (SEC) Form 10-K which corresponds to the 1989 Annual Report.

He are also including copies of SEC Form 10-0 which provides "similar financial

! statements" in accordance with 10CfR110.15(b)(2). The SEC form 10-0 reports-l are for the quarters ending March 31, 1990, June 30, 1990 and September 30, l 1990.

l If you have any questions regarding this submittal, please contact our Licensing Division at (617) 849-894';. -

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,[wrR.G. Bird HTL/njm/5010 Attachments cc: Mr. R. Faton, Project Manager DivisionofReactorProjects-1/II Office of Nuclear Reactor Regulation Mail Stop: 1401 U. S. Nuclear Regulatory Commission 1 White Flint North.

11555 Rockville Pike Rockville, MD 20852 U. S. Nuclear Regulatory Commission Region I 475 Allendale Road King of Prussia, PA 19406 Senior NRC Resident Inspector is . . v 0k Pilgrim Nuclear Power Station 9012060204 891231 PDR ADOCK 05000293 1 PDC

. SECURITIES AND EXCHANGE COMMISSION I WASHINGTON, D.C. 20549 l

FORM 10-0 QUARTERLY REPORT UNDER SECTION 13 OR 15(d) 0F THE SECURITIES EXCHANGE ACT of 1934 For the Ouarter Ended Sectember 30. 1990 Commission file number 123.Q1 BOSTON EDISON CDIPAKY ,

(Exact name of registrant as specified in its charter)

Massachusetts 04-1278810 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.)

800 Boylston Streets Boston. Massachusetts 02199 (Address of principal executive offices) (Zip Code) l l

Reaistrant's telechone number. includina area code 617-424-2000 l

NONE l Former name, former address and former fiscal year, if changed since last

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report.

Indicate by check mark whether the rsgistrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such l filing requirements for the past 90 days, l

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Yes X No Indicate the number of shares outstanding of each of the issuer's classes'of common stock, as of the latest practicable date, Class Outstandina at Seotember 30. 1990 1 Common Stock, $5 par value 38,885,359 shares Exhibit list appears on pages 19-20.

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BOSTON EDISON COMPANY .

OUARTERLY REPORT ON FORM 10-0 SEPTEMBER 30. 1990 PART I - FINANCIAL INFORMATION Paae Item 1. Financial Statements Balance Sheets - September 30, 1990 (Unaudited) and December 31, 1989 3 Stater.ents of Income (Unaudited) - Quarters and Nine Montns Ended September 30, 1990 and 1989 4 Statements of Cash Flows (Unaudited) - Nine Months Ended September 30,1990 and 1989 5 Notes to Unaudited Financial Statements 6-9 Item 2. Management's Discussion and Analysis of 6 Results of Operations and Financial Condition. 10-18 PART II - OTHER INFORMATION Item 1. Legal Proceedings 19 Item 2. Changes in Securities 19 Item 3. Defaults Upon Senior Securities 19 Item 4. Submission of Matters to a Vote of Secu"ity Holders 19 Item 5. Other Information 19 Item 6. Exhibits and Reports on Form 8-K 19-20 Signature Page 21 .

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BOSTON EDISON COMPANY PART I - FINANCIAL INFORMATION

, Item 1 - Financial Statements. September 30, BALANCE SHEETS 1990 December 31, (Unaudited) 1989 ASSETS ($ in thousands)

Property, plant and equipment, at original cost:

Utility plant in service $3,280,480 $3,172,132 Less: accumulated depreciation 1.002.060 950.298 Net Property, Plant and Equipment 2,278,420 2,221,834 Nuclear fuel - net 81,301 93,839 Construction work in progress 95.935 83.827 Net utility plant _ 2,455,656 2,399,500 Investments in affiliated companies 24,763 22,427 Nuclear decommissioning fund 35,835 31,085 Current assets:

Cash 3,135 1,989 Accounts receivable 139,546 187,950 Accrued Utility Revenues (Note 8) 33,014 Materials, supplies & fuel oil (avg. cost) 96,700 89,643 Prepaid and other current assets 4.773 7.260 Total Current Assets 327,168 286,842 l

Deferred debits:

Deferred cost of cancelled nuclear unit (Note 5) 69,873 84,744 Deferred nuclear outage costs 1,184 2.309 Other 52.662 51.364 Total Assets 12.967.141 12.878.271

, CAPITALIZATION AND LIABILITIES Common stock equity:

Par value $5 per share (Note 2) $ 194,427 $ 192,630 Premium on common stock 313,277 308,561 Retained earnings 171.465 143.357 i Total Common Stock Equity 679,169 644,548 Cumulative preferred stock:

Non-mandatory redeemable series 83,000 83,000 Mandatory redeemable series 50,000 50,000 Cumulative preference stock:

Non-mandatory redeemable series 38,287 38,287 Mandatory redeemable series 50,000 50,000 First mortgage bonds 780,825 798,839 Debentures (Note 9) 100,000 Unsecured Medium-Term Notes 100,000 150,000 Current liablitties:

Long-term debt due within one year 57,550 5,675 Bank loans 30,500 39,000 Commercial paper 150,000 174,840 Accounts payable 82,982 115,891 Property, Income and other taxes accrued 16,345 8,669 Interest accrued 24,957 21,104 Dividends payable 17.066 17,308 Other 11.398 7,008 Rate and Centract Settlements (Note 3) 85.091 89.541 Total Current Liabilities 475.889 479.036 Commitments and Contingencies (Notes 3 & 5)

Deferred credits:

Accumulated deferred income taxes 421,398 377,227 Accumulated deferred investment tax credits 90,319 94,835 Nuclear decommissioning reserve 40,019 35,409 Other 13,235 27,090 Rate Settlement (Note 3) 45.000 50.000 Total Capitalization and Liabilities 12.967.141 12.878.271 See accompanying Notes to Unaudited Financial Statements.

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. I BOSTON EDISON COMPANY '

STATEMENTS OF INCOME (Unaudited)

(in thousands, except per share amounts)

Ouarter Ended Nine Months Ended 9/30/90 9/30/89 9/30/90 9/30/B9 Operating revenues (Note 3): 1353.863 13B3.895 1933.179 $962.877 Operating expenses:

Fuel 43,161 87,274 198,162 201,496 Net purchased power 55,160 48,092 133,088 168,163 Other operations and maintenan'.e (Note 3) 98,041 98.535 276.966 267,778 Depreciation and amorth.otion 30,935 30,542 92,660 91,538 Amortization of deferred cost of c6ncelled nuclear unit (Note 7) 6.095 6.095 18,286 18,286 Amortization of deferred nuclear outage costs (Note 3) 375 5,344 1,125 16,032 Taxes - property and other 13.333 13,626 41.951 44,541 Provision for income taxes 25.280 .1L25.3 27.342 19.018 Total operating expenses 222.JjlQ 305.761 789.5BD 826.852 Operating income 81,483 78,134 143,599 136,J25 Other income: 4 Allowance for other funds used during construction 996 3,5B5 Other - net (Notes 6 & 7) 2.374 6.616 5.370 10.029 Operating and other income 83.857 85.746 148.969 _149.639 Interest charges:  !

Lona-term debt 24,313 22,905 69,148 68,689 Other 4,689 5,147 16,135 13,560 Allowance for borrowed funds used during construe. tion - credit (2.059) (1.267) (5.950) (4.505)

Total interest charges 26.943 26.785 79.333 77.744 Net income before cumulative effect of accounting change 56,914 58,961 69,636 71,895 Cumulative effect of accrual for unbilled revenues, net of taxes of 59,819 (Note 8) ,

Net Income 56,914 58,961 EM  !

85,46J 71,895 Preferred and preference dividends provided 4,412 4,412 13,239 13,239 Balance available for common stock (Notes 3 & 4) 1 52.502 1 54.549 1 72.221 1 58.656 Common shares outstanding (weighted average) 38,837 38,328 38,719 38,169 Earnings per share of common stock:

Before cumulative effect of accounting change $ 1.35 5 1.42 1,46

$ 5 1.54 Cumulative effect of accrual of unbilled revenues (Note 8) 0.41 Total 1 1.35 $ 1.42 $ 1.87 1.54 5

Dividends declared per common share 1 0.38 $ 0.455 5 1.14 $ 1.365 See accompanying Notes to Unaudited Financici Statements.

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BOSTON EDISON COMPANY

, STATEMENTS OF CASH FLOWS

, (Unaudited)

Nine Months Ended Sect. 30. 1990 Sect. 30. 19!9

($ in thousands)

Cash flows from Operating Activities:

Het Income excluding proceeds from eminent domain taking $ 85,460 $ 66,396 Adjustments to reconcile net income to net cash provided by operating activities:

Cumulative effect (net) for years prior to 1990 of change for Unbilled revenues (Note B) (15,824) Depreciation 82,090 80,503 Amortization of Nuclear fuel 17,094 5,561 Amortization of deferred cost of cancelled nuclear unit (net) (Note 7) 14,871 14.076 Other Amortization (Note 3) 9,529 11,250 Amortization of Deferred Nuclear Outage Costs 1,125 16,032 Net Changes in:

Accounts Receivable (79) (44,834)

Accrued utility revenues (Note 8) (3,371) Materials & Supplies (7,057) (8,187)

Accounts Payable (32,909) (34,400)

Other Current Assets and liabilities 18,408 29,082 Allowance for funds Used During Construction (5,950) (8,091)

(Increase)/ Decrease in Deferred fuel (5,517) 4.977 Increase in Deferred Income Taxes 36,041 15,229 (Decrease) in Investment Tax Credit, net (3,442) (3,810)

Net Change in Other Deferred Debits and Credits (17,758) 8,298 Cash Outlays:

Rate and Contract Settlement (Note 3) (9.450) , Net Cash Provided by Operating Activities 163.261 152.082 Cash Flows (Used)/Provided by Investing Activities:

Plant Expenditures (excluding AFUDC) (154,484) (145,791)

Decommissioning fund (4,750) (5,237)

Investments in Affiliated Companies (2,336) (9,659)

Proceeds from eminent domain (Note 6) 9.145 Net Cash flows (Used) by Investing Activities (161.570) (151.542)

Cash Flows (Used)/Provided by Financing Activities:

Issuances of Common Stock 6,529 8,239 Issuance of Debentures (Note 9) 100,000 Debt Retirements (16,139) Increase /(Decrease) in Notes Payable (33,340) 65,420 Dividends Paid (57.F95) (65.195)

Net Cash Flows (Used)/Provided by Financing Activities (545) 8.4M Increase in Cash /Special Deposits 1,146 9,004 Cash /Special Deposits at the Beginning of the Year 1.989 3.235 Cash /Special Deposits at the End of the Period 1 3.135 5 12.239 Cash paid during the period for:

Interest $ 81,431 5 80,530 Less: Amounts Capitalized (5.99) (4.505)

Total 5 75.481 5 76.025 Income Taxes 5 6.950 5 9.918 ]'

See accompanying Notes to Unaudited Financial Statements.

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E03 TON EDP;Cx CCHPAkY -

NOTES TO UNAUDITED E,'.GEU.L5]ATEMENT$

1) Basis of Presentation Certain information and footnote disclosures, normally included in financial statements prepared in accordance with generally accepted accounting principles, have been condensed or omitted in this Form 10-0 pursuant to the Rules and Regulations of the Securities and Exchange Commission. However, in the opinion of Boston Edison Company (the Company), the disclosures contained in this Form 10-0 are adequate to make the information presented not misleading. These statements should be read in conjunction with the financial statements and the notes thereto and all other information included in the Company's Annual Report to the Securities and Exchange Commission on Form 10-K for the year ended December 31, 1989, the Company's Quarterly Report to the Securities and Exchange Commission on Form 10-Q for each of the quarters ended March 31, 1990 and June 30, 1990.

l In the opinion of the Company, the accompanying unaudited financial statements reflect all adjustments, including normal recurring accruals, necessary to present fairly the financial position as of September 30, 1990 and the results of operations for the quarter and the nine months i ended September 30, 1990 and 1989, and Statements of Cash Flows for the l nine months ended September 30, 1990 and 1989. Certain prior year balances have been reclassified to reflect current classifications.

The results of operations for the quarter and nine months ended  !

September 30, 1990 are not indicative of the results which may be.

expected for the full year. In prior years, the Company experienced i' major fluctuations in quarterly net income. The Company's kHb sales and

base revenues are seasonal in nature, with both being lower in the i spring and fall seasons. In addition, pursuant to retail rate orders of the Commonwealth of Massachusetts Department of Public Utilities (DPU),

base retail rates billed to customers are, on average, forty percent 4 higher in the billing m uths of July through October. Accordingly, a significant portion of annual earnings occurs in the Company's third quarter. See " Management's Discussion and Analysis of Results of Operations and Financial Condition" included in Part I of this Form 10-0 and Item 1(c)(1)(v) " Seasonal Nature of Business" in the Company's Annual Report to the Securities and Exchange Commission on Form 10-K for the~ year ended December 31, 1989. See also " Settlement of Certain Proceedings" included in Note 3 of Notes to (baudited Financial Statements her;under.

In the first quarter of 1990 the Company began accruing-the base portion of revenues for services rendered but aot billed in order to match rJvenuet with expenses more closely. Prior to this adoption, the '

Company recognized revenues when services were billed. See also Note 3 of Notes to Unaudited Financial Statements.

2) Securities Issued The Company issued 120,989 shares of its common stock in accordance with the Company's Dividend Reinvestment and Common Stock Purchase Plan 6

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t NOTES TO UNAUDITED FINANCIAL STATEMENTS (Continued).

- during the quarter ended Septembtr 30, 1990. At September 30, 1990, the Company had 50,000,000 shares of common stock authorized, of which 38,8E3,359 shares were issued and outstanding. See Note 1 of Notes to Schedules of Capital Stock and Indebtedness included in the Company's Annual Report to the Securities and Exchange Commission on Form 10-K for the year ended December 31, 1919.

3) Settlement of Certain Proceeditai On October 31, 1989, the Commonwealth of Massachusetts Department of Public Utilities (the "DPU") approved a settlement agreement effective November 1, 1989 (the "DPU Settlement Agreement"), relating to certain DPU proceedings involving the Company. On November 5, 1990, the Federal Energy Regulatory Commission (the "FERC") approved the previous purchased power contract settlement agreements (the " Wholesale Settlement Agreements") relating to claims filed by certain wholesale customers of the Company in conjunction with the 1986-1988 outage at Pilgrim Nuclear Power Station (" Pilgrim Station"). As a result of the DPU Settlement Agreement and the Wholesale Settlement Agreements, the Company recorded in the fourth quarter of 1989 a before-tax charge of $178,650,000 (including a reserve for the remaining regulatory proceedings and related litigation in connection with the wholesale customer dispute described above), with an after-tax effect of approximately $106,280,000 or $2.78 per share of common stock. _This charge was included in the 1989 year-end Statement of Income as a component of "Other Income (Loss)" consistent with accounting practice and presentation applicable to the electric utility industry. The components associated with this 1989 non-recurring charge to earnings are not recoverable through rates from either the Company's retail or wholesale customers.

The non-recurring charge to earnings associated with all of the Settlement Agreements includes approximately $80,000,000 for demand-side management programs, $31,000,000 for certain replacement power costs, the write off of the remaining $31,000,000 of previously deferred incremental nuclear outage costs, and $36,000,000 of litigation, regulatory commission and other costs.

This charge includes approximately $31,000,000 of incremental operation and maintenance charges incurred prior to 1989. Prior to the October 1989 Settlement Agreements, previously deferred incremental nuclear outage costs were being ame,rtized to expense (as part of normal operating

expenses) over a five year period consistent with previous retail rate orders from the DPU and wholesale contract provisions.

The Company made cash outlays relating to all Settlement Agreements of approximately $8,000,000 in 1989 and approximately $9,450,000 in the nine months ended September 30, 1990. As of September 30, 1990, the Company anticipates making future cash outlays of approximately $130,000,000 as part of these approved settlement agreements (of which approximately

$85,000,000 are classified as a current liability on the Company's balance sheet), a portion of which will be paid in the fourth quarter of 1990. See also Item 1(c)(1)(ii): " REGULATION" of the Company's Annual Report to the Securities and Exchange Commission on Form 10-K for the year ended December 31, 1989 and Item 2 Management's Discussion and Analysis, hereunder, for additional details on the Settlement Agreements.

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i RQIli TO UNAUDITED FINANCIAL STATEMENTS (Continued) ,

In connection with the DPU Settlement Agreement, the Company has agreed to limit its retail revenue increases prior to November 1, 1992 to approximately 21 per year, subject to adjustment based on Pilgrim Station's performance. The Company experienced no significant adjustments to the first performance year. The Company's ability to maintain or increase earnings through October 31, 1992 will depend primarily on its ability to control costs and increase kilowatthour i sales, as well as the efficient operation of Pilgrim Station. During the I

period November 1,1992 through October 31, 2000, the Company has agreed l

l to institute a new cost recovery mechanism, which is also tied to Pilgrim Station's performance, for a portion of the Company's investment and costs related to Pilgrim Station, l 4) Antitrmt Litication On Juy 24,1987, the Towns of Concord and Hellesley, Massachusetts (the Towns), filed a complaint against the Company in the United States District Court for the District of Massachusetts alleging violations of the federal antitrust laws. The Company supplies substantially all of the electric power requirements of the Towns. The Towns' complaints '

included allegations of price discrimination, anticompetitive restrictions and price squeeze. In May 1989, a jury determined that the

, Company had violated the antitrust laws and awarded damages of l $13,100,000, which resulted in a total judgment of $39,300,000 when i trebled under antitrust law plus interest. On September 21, 1990 the United States Court of Appeals for the First Circuit reversed the

$39,300,000 judgmentagainsttheCompany. The 1989 judgment has not been reflected in the Company's financial statements, and, accordingly, the Appeals Court decision had no effect on the Company's reported earnings.

5) Commitments 4 n M oat.incentiis - Hazardous Haste Under the requirements of the applicable state and federal "Superfund" laws and regulattens adopted thereunder, the Company and others are exposed to potential joint and several liability with respect to the clean-up of sites where hazardous wastes may have been spilled or '

disposed of in the past. The Company has had clatas asserted against it i related to clean-up costs at a number of such sites in Massachusetts and 1 other states. While the Company is unable at this time to predict the '

ultimate total clean-up costs for such sites or what'its share of costs ,

will be for each such site, on the basis of information presently available, the Company believes the likelihood that it would incur any mat: rial liability in connection with such sites is remote.  ;

6) Eminent Domain On May 4, 1989 the Commonwealth of Massachusetts Metropolitan District '

Commission (the MDC) filed an order of land taking with respect to certain Company-owned property located in Quincy, MA. The MDC tendered their offered amount of $9,145,000 to the Company on August 24,1989, and the Company recorded a gain of $0.14 per common share, which is reflected in the accompanying financial statements for 1989. The Company continues to evaluate the adequacy of the offered amount and the options available to it. '

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NOTES TO UNAUDITED FINANCIAL STATEMENTS (Continued)

7) Cancelled Nuclear Unit i The Company commenced amortizing the cost of the cancelled Pilgrim 2 nuclear unit in May 1982 over approximately eleven and one-half years <

pursuant to retail rate orders of the DPU. Such costs include certain '

financial carrying costs that will be reviewed and may be increased or ,

decreased from time to time by the DPU. -The application of Statement of '

i Financial Accounting Standards ("SFAS") No. 90 had the effect of l increasing net income for the quarter and nine months ended September 30, 1990 by $660,000 (50.02 per share) and $2,108.000 ($0.05 per share) net j of taxes of $410,000 and $1,307,000, respectively, and the quarter and nine months ended September 30, 1989 by $826,000 (0.02 per share) and

$2,597,000 (50.07 per share) net of taxes of $513,000 and $1,612,000, I respectively, due to the inclusion in net income of the imputed interest l income related to the cancellea Pilgrim 2 nuclear unit costs being recovered through revenues from customers. The unamortized discount at  ;

i September 30, 1990 was approximately $7,034,000 with related deferred taxes of approximately $2.695,000.

l 8) Chance in Accountina Princiole - Unbilled Revenues Effective January 1, 1990, the Company began accraing the base portion of l revenues for services rendered but not billed, in order to more closely l match revenues with expenses. The effect of the change in accounting '

principle in the quarter ended September 30, 1990 was an increase of

$0.11 per common share ($4.259,000 net of taxes of $2,643,000), and for l the nine months ended September 30, 1990 was an increase of $0.46 per  !

common share ($17,904,000 net of taxes of $11,110,000) consisting of l l

$0.41 per common share ($15,824,000 net of taxes of $9,819,000) for the cumulative effect of the change at January 1, 1990, and $0.05 per common share ($2,080,000 mt e.f taxes of $1,291,000) for the nine months ended l September 30, 1990. Had the Company been accruing unbilled revenues in i 1989, the pro forma effect of this change on tl.# quarter and nine months l ended September 30, 1989 results would have been as follows (in thousands, except earnings per share):

Quarter Ended Nine Months Ended i September 30. 1989 September 30. 1989 l As Reported Ero Forma As Reoorted Pro Forma 1 Net Income $58,961 $62,503 $71,895 $74,702 Balance Available i for Common Stock 54,549 58,091 58,656 61,463 Earnings Per  :

Common Share 1.42 1.51 1.54 1.61

9) Debentures l On June 11, 1990 the Company issued $100,000,000 of debentures. The debentures bear an interest rate of 9.875% per annem and matures on June 1, 2020. On or after June 1, 2000, the debentures are redeemable at prices declining from 104.483% of par beginning on June 1, 2000 to 100% of par after June 1, 2010. The debentures are unsecured obligations of the Company. Tne net proceeds from the sale of the securities were used to reduce certain outstanding short-term indebtedness incurred for capital

' expenditures for extensions, additions and improvements to the Company's plant and praperties.

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BOSTON EDISON COMPANY

• Item 2. Managemcat's Discussion and Analysis of Results of Operations and Financial Condition for the Quarter and Nine Months Ended September 30, 1990 Versus the Comparable 1989 Periods Reculatory Proceedinas_

i On October 31, 1989, the Commonwealth of Massachusetts Department of Public Utilities ("DPU") approved a settlement agreement (the "DPU Settlement Agreement") effective November 1, 1989 relating to certain DPU proceedings involving the Company. On November 5, 1990 the Federal Energy Regulatory Commission (the "FERC") approved the Wholesale Settlement Agreements relating to claims filed by certain wholesale customers of the Company in conjunction with the 1986-1988 out>,e at Pilgrim Station. The Company anticipates making cash payments to the wnolesale settling parties in the fourth quarter of 1990 as discussed further hereunder. As a result of the DPU Settlement Agreement and the Wholesale Settlement Agreements, the Company recorded in the fourth quarter of 1989 a before-tax charge of $178,650,000, with an after-tax effect of $106,280,000 or $2.78 per share of common stock.

This charge was included in the 1989 year-end Statement of Incomc as a component of "Other Income (Loss)" consistent with accounting practice and presentation applicable to the electric utility industry. The components associated with this 1989 non-recurring charge to earnings are not recoverable through rates from either the Company's retail or wholesale customers. The charge to earnings for all of the Settlement Agreements includes approximately

$80,000,000 of certain demand-side management expenses and $31,000,000 of previously deferred incremental nuclear outage expenses. Demand-side management expenditures (not directly associated with the Settlement Agreements) are normally recoverable through rates pursuant to regulatory guidelines. Deferred incremental nuclear outage costs (not directly associated with the Settlement Agreements) are normally included as part of operating expenses (" Amortization of Deferred Nuclear Outage Costs") in the Statement of Income. The Company expects to seek recovery of similar costs incurred in the future in accordance with past regulatory decisions of the DPU.

Although the OPU Settlement Agreement and the Wholesale Settlement Agreements have removed major uncertainties facing the Company, other uncertainties remain and are discussed further under the section entitled " Outlook for the Remainder of 1990 and Beyond" hereunder.

Results of Ooerations - Ouarter Ended Seotember 30. 1990 versus OuarteI Ended Seotember 30. 1989 Earnings per share amounted to $1.35 for the three months ended September 30, 1990 as compared to $1.42 for the same period last year ($1.51 per common share on a proforma basis; see Note 8 of Notes to Unaudited Financial Statements for additional information involving the Company's adoption of a change in accounting principle effective January 1,1990). The results of operations for the three months ended September 30, 1989 include a 50.14 per common share gain relating to an eminent domain of Company property as discussed further in Note 6 of Notes to Unaudited Financial Statements 4 preceding. See also Note 1 of Notes to Unaudited Financial Statements preceding for further information relative to the seasonality of the Company's earnings.  !

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1 Results of Ooerations - Ouarter Ended Sectember 30. 1990 versus Ouarter j Ended Sootember 30. 1989 (Continued)

Total operating revenues amounted to $353,863,000, a 7.8% decrease from last )

year. The Company experienced a 0.1% decrease in retail kWh sales over the l comparable period last year. An analysis of the decrease is as follows. 1 1

0.1% decrease in retail kWh sales billed $ (679.000) ]

Increase in performance clause revenues (a) 5,396.000 Decrease in fuel and purchased power adjustment clause revenues (38,365,000)

Sales for resale (2,239,000)

Accrual of unbilled revenues and other changes (b) 5.859.000 Decrease in total revenues $(30.028.000)

(a) As part of the DPU Settlement Agreement effective November 1, 1989, -

the Company is permitted to increase retail rates by approximately

$20,000,000 over the period November 1, 1989 to October 31, 1990 (subject to adjustment based upon the operation of Pilgrim Station).

The Company experienced no significant adjustments to the first performance year.

(b) See Note 8 of Notes to Unaudited Financial Statements preceding regarding the Company's 1990 adoption of a change in accounting principle.

Retail kWh sales for the quarter ended $sptember 30, 1990 remained relatively unchanged in comparison to the same period last year. The large decreases in fuel and purchased power revenues and fuel and net purchased power expenses of

$38,365,000 and $37,045,000 are due primarily to a temporary overcollection of

-fuel costs in 1989 as opposed to a temporary undercollection of fuel costs in l 1990. Any differences between actual costs incurred versus billed costs are l adjusted in the subsequent quarterly retail fuel clause filing. The major l portion of fuel and purchased power expenses are recovered through fuel and j purchased power clauses with the balance being recovered through the base rates.

Other operating and maintenance expenses decreased slightly, by $494,000; increases in labor, certain employee benefits expense and uncollectibles were more than offset by decreases in pension, regulatory commission, and research and development expenses. Amortization of deferred nuclear outage costs decreased $4,969,000 due to the writeoff of substantially all deferred nuclear outage costs in the fourth quarter of 1989 as part of the $178,650,000 charge as discussed previously.

Property and other tax expense decreased $293,000 due to lower property taxes I as a result of the settlement of a tax dispute with the City of Boston, MA.

The Company's most recent effective income tax rate for 1990 is 31.1% versus l 25.5% in 1989. The lower figure in 1989 related to reversal of certain prior

, years' deferred income taxes, the calculation of which was based upon a FERC l- rulemaking regarding AFUDC; these were restored to income as such methodology has not been adopted by the DPU. In accordance with the terms of the DPU Settlement Agreement, the Company is restoring to income certain municipal property tax abatements ($3,261,000) and deferred income taxes ($1,228,000) for the quarter ended September 30, 1990; see also Note B of Notes to t-11

Results of Onorations - Ouarter Ended Seotember 30. 1990 versus Ouarter .

Ended Sectember 30. 1989 (Contir.ued)

Financial Stat a.sts included in the Company's Annual Report to the Securities and Exchange Commiss bn on form 10-K for the year ended December 31, 1989.

Other income in 19es ' tiudes a $0.14 per share gain relating to an eminent -

domain as discussed previously.

AFUDC totaled $2,059,000, a decrease of 9% from 1989, due to decreases in the AFUDC construction work in progress base and the AFUDC rate. Total interest expense increased $950,000, primarily related to an in:rease in the average short-term loan balance outstanding, which is necessary to support the Company's ongoing program of plant expenditures, and ihe issuance of

$100,000,000 of 9 7/8% Debentures in June of 1990.

Results of Operations - Nine Months Ended Sectember 30. 1990 versus Nine Months Ended Seotember 30. 1989 Earnings per common share for the nine months ended September 30, 1990 amounted to $1.87 and $1.54 for the same period in 1989. The result of operations for the nine months ended September 30, 1990 include $0.41 per common share due to the cumulative effect of a change in accounting principle effective January 1, 1990 (accrual of unbilled revenues), as discussed further in Note 8 of Notes to Unaudited Financial Statements preceding. Excluding the cumulative effect of the change in accounting principle previously provided, earnings amounted to $1.46 per common share for the nine months ended September 30, 1990 as compared to $1.54 per common share ($1.61 per common -

share on a pro forma basis) for the same period last year. The 1989 results include a $0.14 per common share gain relating to an eminent domain of Company property as discussed further in Note 6 of Notes to Unaudited Financial Statements preceding. Net income for both periods includes several non-cash items including equity income from investments in affiliated companies, amortization of prior year municipal property tax abatements, the reversal to income of certain deferred taxes, AFUDC, and the imputed interest effect of the Company's retroactive adoption of SFAS No. 90 (as discussed further in Note 7 of Notes to Unaudited Financial Statements preceding). These non-cash items (which excludes the effect of the Company's adoption of a change in ,

accounting principle effective January 1, 1990 as discussed further in Note 8 i of Notes to Unaudited Financial Statements) amounted to $0.39 per common share '

in the nine months ended September 30, 1990 and $0.35 per common share for the same period last year.

l Total operating revenues amounted to $933,179,000, a decrease of 3.1%, as follows:

0.3% increase in retail kWh sales billed $ 2,077.000 Increase in performance clause revenues (a) 15,336,000 Decrease in fuel and purchased i power adjustment clause revenues (46,795,000) '

Sales for tesale (2,765,000)

Accrual of unbilled revenues and other changes (b) 2.449.000 l Decrease in total revenues $(29.698.000) l l

12 l

.~.

Results of Ocarations - Nine Months Ended Sentember 30. 1990 versus Nine Months Ended September 30. 1989 (Continued)

(a) As part of the DPU Settlement Agreement, effective November 1, 1989, the Company is permitted to increase retail rates by approximately

$20,000,000 over the period November 1, 1989 to October 31, 1990 (subject to adjustment based upon the operation of Pilgrim Station),

t The Company experienced no significant adjustments to the first performance year.

t (b) See Note 8 of Notes to Unaudited Financial Statements preceding regarding the Company's 1990 adoption of a change in accounting principle.

Retail kWh sales billed for the nine months ended September 30, 1990 increased 0.3% in comparison to the same period last year. The large decrease in fuel and purchased power revenues and fuel and purchased power expenses of

$46,795,000 and $38,409,000, respectively are due to lower fuel costs associated with an increase in Company generation in 1990, which replaced higher cost kWh purchases from other utilities, as compared to the same period

, last year, and a temporary overcollection of fuel costs in 1989 as opposed to a temporary undercollectina. of fuel costs in 1990. Any differences between actual costs incui nd versus billed costs are adjusted in the subsequent quarterly retail fuel clause filing. Generation from Company owned facilities was up 20% for the nine months of 1990 as compared to the same period last year coupled with a large decline in kWh purchased from other utilities.

The major portion of fuel and purchased power expenses are recovered through fuel

~

and purchased power clauses with the balance being recovered through the base rates.

Other operation and maintenance expenses increased $9.188,000, primarily as a result of increases in labor, employee benefits expense and uncollectibles, partially offset by decreases in regulatory commission and research and development expenses. Amortization of deferred nuclear outage costs decreased

$14,907.000 due to the writeoff of substantially all deferred nuclear outage costs in the fourth quarter of 1989 as part of the $178,650,000 charge as discussed previously,

Property and other tax expense decreased $2,590,000 due to lower property e taxes as a result of the settlement of a tax dispute with the City of Boston, MA. The Company's effective income tax rates for the nine months ended September 30, 1990 and 1989 were 31.1% (including the cumulative effect of a change in accounting principle) and 25.5%, respectively. The lower figure in 1989 is related to the reversal of certain prior years' deferred income taxes, the calculation of which was based upon a FERC rulemaking regarding AFUDC; these were being restored to income as such methodology has not been adopted by the DPU. In accordance with the terms of the DPU Settlement Anreement, the Company is restoring to income certain municipal tax abatements (h,783,000),

and deferred income taxes ($1.847,000) for the nine months ended September 30, 1990. See also Note B of Notes to Financial Statements in the Company's Annual Report to the Securities and Exchange Commission on Form 10-K for the year ended December 31, 1989. Other income in 1989 includes a $0.14 per share gain on an eminent domain as discussed previously.

-l AFUDC totaled $5,950,000, a decrease of 26% from 1989, due to decreases in both the average construction work in progress base and the AFUDC rate. Total interest expense increased 3,034,000, primarily related to an increase in average short-term le n balance outstanding, which is necessary to support the Company's ongoing program of plant expenditures, and the June 1990 issuance of

$100,000,000 of 9 7/8% Debentures. ,

13

Financial Condition. Liouidity and Outlook for Future See Part II, Item 7 " Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Company's Annual Report to the Securities and Exchange Commission on Form 10-K for the year ended December 31, 1989 and Part I, Item 2 " Management's Discussion and Analysis of Results of Operations and Financial Condition" in the Company's Quarterly Report to the Securities and Exchange Commission on Form 10-Q for each of the quarters ended March 31, 1990 and June 30, 1990. See also " Regulatory Proceedings" preceding.

The Company's scheduled debt principal repayments are $23,000,000 in 1990 (which includes approximately $17,000,000 of early retirements in April, 1990) and will be approximately $57,000,000 in 1991. Interest on anticipated long-term debt outstanding, estimated to be $90,000,000 in 1990 and

$105,000,000 in 1991, is expected to be funded via normal cash flow from electric operations. Funds generated internally represented approximately 59%, 43% and 48% of plant expenditures in the years 1989, 1988, and 1987, respectively, and represented approximately 97% of the $154,484,000 of plant expenditures incurred through the nine months ended September 30, 1990.

The Company's estimate of working capital needs for calendar years 1990 and 1991 is expected to be consistent with historical levels, except for the abnormal impact of the $130,000,000 of expected future cash outlays in 1990-1992 as part of the settlement agreements (of which approximately

$85,000,000 are classified as a current liability on the Company's balance sheet). Approximately $50,000,000 of these payments may be made to the wholesale settling parties in the fourth quarter of 1990. The Company meets working capital requirements, as well as the interim financing necessary for its current program of plant expenditures, primarily by internally generated funds, supplemented by the issuance of short-term commercial paper and bank borrowings. The Company currently has short-term borrowing authority from the FERC of $350,000,000, which the Company deems adequate to cover working capital and other liquidity requirements (which includes the $130,000,000 of future cash outlays as discussed above). As of September 30, 1990, the Company had $180,500,000 of short-term debt outstanding. The Company has available a three year $330,000,000 revolving credit facility. As of September 30, 1990, the Company had not applied to the DPU for regulatory approval to incur long-term debt under this agreement, nor had the Company incurred any short-term debt thereunder. The Company also has arrangements with certain banks to provide additional short-term credit on an uncommitted and as available basis. The Company's level of aggregate shr.rt-term borrowings is expected to decline in the remainder of 1990 assuming the <

issuance of additional long-term securities late in 1990 a:, discussed further hereunder.

On June 11, 1990 the Company issued $100,000,000 of 9 7/8% Debentures due 2020, the proceeds of which were used to reduce short-term borrowings which were incurred for capital expenditures for extensions, additions and improvements to the Company's plant and properties. As a result of the issuance of these securities, the Company's capitalization ratios are 52%

long-term debt. 12% preferred / preference stock, and 361 common equity, which are the same as the 1989 year-end levels. On July 2, 1990 the Company filed a registration statement with the Securities and Exchange Commission ("SEC")

14

I Financial Condition. Liouidity and Outlook for Future (Continued) seeking approval to issue an additional $100,000,000 in debt securities. The proceeds will be used for capital expenditures for extensions, additions and improvements to the Company's plant and properties or for the payment of obligations incurred for such expenditures. This registration statement was declareo effective in October, 1990, however, the Company has not issued any securities hereunder. The Company's current intention is to issue additional  !

securities pursuant to this registration statement prior to December 31, 1990.

In September,1990, the Company filed for an additional 2,000,000 shares of common stock with the SEC to be issued in accordance with the Company's Dividend Reinvestment and Common Stock Purchase Plan.

The Company generated sufficient cash flow in the twelve months ended September 30, 1990 to meet all debt service requirements, however, as a result of recording the charges associated with both the DPU Settlement Agreement and the Wholesale Settlement Agreements in the fourth quarter of 1989, the Company's ratio of earnings to fixed charges was 0.76X for the twelve months ended September 30, 1990. The Company would have needed to generate additional taxable income of approximately $28.245,000 to cover its fixed charges of approximately $119,530,000 incurred in the twelve months ended September 30, 1990.

Outlook for the Remainder of 1990 and Beyond i

l In connection with the DPU Settlement Agreement, the Company has agreed to limit its retail revenue increases prior to November 1,1992 to approximately i 2% per year, subject to adjustment based on Pilgrim Station's performance.

Accordingly, the Company's ability to maintain or increase earnings through October 31, 1992, will depend primarily on its ability to control costs and increase kilowatthour sales, as well as the efficient operation of Pilgrim Station. During the performance period November 1, 1989 through October 31, l 1990 the Company has received approximately $20,200,000 in accordance with the retail revenue increases and Pilgrim Station performance. During the period from November 1, 1989 through October 31, 1990 Pilgrim Station has operated at a capacity factor of approximately 68%. The Company experienced no significant adjustments to the first performance year ended October 31, 1990.

Effective November 1, 1990 annual retail revenues will increase an additional

$22,500,000, subject to adjustment based upon Pilgrim Station's performance.

During the period November 1, 1992 through October 31, 2000, the Company has t agreed to institute a new cost recovery mechanism, which is also tied to l Pilgrim Station's performance, for a portion of the Company's investment and l costs related to Pilgrim Station.

The Cogany does not currently anticipate significant growth in retail kWh sales. Retail kWh sales billed for the nine months ended September 30, 1990 I were 0.3% greater than the same period last year. The Company's future growth l of base revenues may be impacted by the implementation of demand-side I management ("DSM") programs. (Some of the major programs include; 1) rebates l to customers for reduced energy consumption, 2) offering commercial and industrial customers no-cost programs to revamp facilities, 3) offering largest commercial and industrial customers the opportunity to redesign energy systems, 4) cash incentives to customers for the use of their own on-site generation, 5) offering commercial and industrial customers rehtes for replacing lighting systems with more energy efficient systems, and 6) offering 15

~ . - _ _ _ . - . _ . _ - --- - - . _ _

Financial Condition. Liouidity and Outlook for Future (Continued) energy saving measures to residential customers who use electric hot water heating systems.) The Company has expended approximately $9,500,000 through September 30, 1990 for DSM expenditures of which approximately $8,000,000 is associated with the previously discussed DPU Settlement Agreement and is not i subject to rate recovery. Additional information relating to the seasonality j of the Company's kWh sales, base revenues, and quarterly earnings can be found l

in Note 1 of Notes to Unaudited Financial Statements.

In 1989, Northeast Utilities became the apparent successful bidder for the ownership of Public Service of New Hampshire, an electric utility serving a large portion of the State of New Hampshire. Completion of the transaction is subject to various regulatory approvals. The Company and other utilities are requesting FERC to impose conditions on this takeover on the basis that the new combined entity would control virtually all excess generating capacity in New England and most of the available major electric transmission facilities entering the New England region.

The Company is currently recovering increased power generation costs associated with recent fossil fuel price increases via the normal operation of fuel adjustment clauses.

On September 21, 1990 a jury verdict for $39,300,000 was reversed with respect to a May 1989 antitrust suit decision (see also Note 4 of Notes to Unaudited Financial Statements).

The Company has been named as a potentially responsible party by certain environmental authorities with respect to the clean up of certain hazardous waste sites; the Company believes that the likelihood it will incur any material liability with respect to such claims is remote.

Edaar Enerov Park On May 1, 1990, the Company filed its Long-Range Forecast of Electric Power Needs and Requirements for the years 1990-2014 with the Commonwealth of Massachusetts Energy Facilities Siting Council (the EFSC"). Included with this filing was a request for approval of the Edgar Energy Park project, which is a proposed 300 MH combined cycle generating station which the Company plans to construct on the Company-owned site of the retired Edgar Generating Station located in Heymouth, Massachusetts. Also on May 1,1990 the Company filed with the DPU a request for a zoning exemption for the Edgar Energy Park Project. On August 1, 1990, the Company filed additional requests at the DPU seeking 1) approval to form a wholly-owned subsidiary to coristruct and operate the 300 MH generating unit at the Edgar Energy Park; 2) approval to make an equity investment up to $90 million in the subsidiary; and 3) approval of a contract between the Company and the subsidiary under which the Company would purchase the energy and capacity of the generating unit for 20 years. DPU l hearings on approval to form the subsidiary and to make an initial investment

! in the subsidiary are scheduled for November, 1990. The Company intends to file before year end for Federal Energy Regulatory Commission ("FERC")

I approval of the power purchase contract between the Company and its l

subsidiary.

16

l ,

Financial Condition. Liouidity and Outlook for Future (Continued) 1 In addition to proceedings before the DPU, EFSC and FERC, the Company has also commenced applications for other required permits and approvals, including in particular many environmental permits, before a number of other federal, state l and local agencies. Receipt of all the various permits and regulatory l approvals is not expected prior to the first half of 1991. Assuming the successful completion of permitting activities and receipt of regulatory approvals, it is anticipated that construction of this facility by the subsidiary could start in the second half of 1991, with completion in 1994.

i Qther Uncertainties Emeraency Precaredness Plan for Pilorim Station l

l On August 4, 1987, the Federal Emergency Management Agency (" FEMA") released I the results of a review of the adequacy of the offsite emergency preparedness l pian for Pilgrim Station. FEMA identified certain deficiencies in the then existing offsite emergency response plan and withdrew its previous interim finding of adequacy. The Company continues to work with the Commonwealth of Massachusetts (the " Commonwealth") and local officials to improve offsite emergency preparedness plans, which are the responsibility of the Commonwealth. FEMA has performed an informal technical review of the draft I emergency plans submitted by the Commonwealth and local officials. On October l 12 and 13, 1989, the Company, along with the Commonwealth and local officials, l participated in a full scale emergency preparedness exercise for Pilgrim l

Station. The exercise was monitored by the NRC and FEMA. On February 1, 1990, FEMA issued a report to the Commonwealth identifying two deficiencies in the Commonwealth's performance during the October drill and directed the state to schedule and successfully complete a remedial drill addressing these deficiencies. The remedial drill was conducted on May 25, 1990. On August 31, 1990 FEMA issued its final report on the emergency preparedness exercise I conducted on October 12 and 13, 1989. The report indicated that there were no I deficiencies following the remedial drill conducted on May 25, 1990. The l l

report identified forty three areas requiring corrective action (which the l Commonwealth and local communities must resolve in future exercises) as well  !

as nine planning issues.

l In July 1990, the Inspector General of the NRC issued a report which was l critical of the NRC's review of the adequacy of the offsite emergency preparedness program during the fall of 1989. As a result of the Inspector i General's Report, a congressional hearing was held in Plymouth on October 30, l 1990 and a task force was created by the NRC for the purpose of conducting an in-depth review of the adequacy of the offsite emergency preparedness program. The task force, which is comprised of officials from the NRC and FEMA, is meeting with local and state officials to determine whether the NRC should reconsider its current finding that there is reasonat,1e assurance that the offsite program is adequate. It is not anticipated that the task force i will complete these deliberations before the end of January 1991.

While progress has been made in emergency preparedness in recent years, formal i approval of the offsite emergency plans for Pilgrim Station has not been l obtained from any of the necessary parties. As previously stated, the NRC l

will continue to monitor emergency preparedness issues on an ongoing basis.  !

l The Commonwealth has previously stated that it has not determined whether adequate planning is possible for the area around Pilgrim Station. Without continued Commonwealth and local participation it would be extremely difficult to formulate emergency response plans satisfactory to the NRC. Various individuals, groups and public officials continue to monitor and oppose 1 operations at Pilgrim Station.

17

Cancer Studies Comoleted In September, 1990, the National Institutes of Health / National Cancer Institute released the results of a two-year study regarding the incidence of cancer in the areas surrounding nuclear power plants. The study, which included the area-surrounding Pilgrim Station, showed no increased cancer risk to residents of counties where there are nuclear power plants.

[ Ir October, 1990, the Commonwealth of Massachusetts Department of Public L hea.;5 released the results of a three-year case control study conducted for

' the purpo.e of investigating adult leukemia incidence rates for certain communities surrounding Pilgrim Station. The report stated that there was an S

-- increased risk of adult leukemia for persons living near Pilgrim Station prior

' to 1984 and recommended increased monitoring of radiation releases from the plant, stricter air quality requirements in the Commonwealth and a study of

child leukemia incidences.

7 The Company strongly disputes the findings of the Commonwealth's study. The results are contrary to a large body of scientific information collected over P

the past 40 years on the health effects of radiation and also to data on worker ' rom Pilgrim Station which indicate normal cancer incidence rates.

?

M M.'

=2 18 I

.e BOSTON EDlSON COMPANY PART II - OTHER INFORMATION Item 1. Leaal Proceedinas See Items (1)(c)(1)(ii), subcaption " Regulation", 1(c)(1)(xii):

" Environmental Matters", and 3: " Legal Proceedings" in the Company's Annual Report to the Securities and Exchange Commission on form 10-K for the year ended December 31, 1989, and Item 1 " Legal Proceedings" included in Part II

- Other Information in the Company's Quarterly Report to the Securities and Exchange Commission on Form 10-Q for each of the quarter ended March 31, 1990 and June 30, 1990; see also Notes 3 and 4 of Notes to Unaudited Financial Statements and " Management's Discussion and Analysis" included in Part I of this Form 10-0 See also Item 1(c)(1)(ii) " Expected Plant Expenditures and Related Financing" (subheading " Regulation") in the Company's Annual Report to the Securities and Exchange Commission on Form 10-K for the year ended December 31, 1989 and " Management's Discussion and Analysis" included in Part 1 of the Company's Quarterly Report to Securities and Exchange Commission on form 10-Q for the quarters ended March 31, 1990 and June 30, 1990.

Item 2. Chanaes in Securities

= See Notes 2 and 9 of Notes to Unaudited Financial Statements included Part I of this Form 10-Q.

Item 3. Defaults Uoon Senior Securities - None Item 4. Submission of Matters to a Vote of Security Holders - Not Applicable 4 Item 5. Other Information Effective December 1, 1990 Stephen J. Sweeney will be retiring as Chief Executive Officer. Bernard H. Reznicek was elected by the Company's Board of Directors to replace him. Also effective December 1, 1990 Thomas J. May and

- Ralph G. Bird were elected Executive Vice Presidents. Effective December 1, 1990 George Davis was elected Senior Vice President, Nuclear and John J.

Higgins was elected Senior Vice President - Human Resources. Effective October 1, 1990 Roy Anderson was elected, Vice President - Nuclear Administration. Kenneth Highfill, Vice President, Nuclear Operations is leaving the Company to resume a career in consulting.

Item 6. Exhibits and Reoorts on Form 8-K a) Exhibits filed Herewith:

Exhibit 12 -

Computation of Ratio of Earnings to Fixed Charges Z 12.1 - Computation of Ratio of Earnings to Fixed Charges N

19

i ,

BOSTON EDISON COMPANY

PART II - OTHER INFORMATION (Continued)

Exhibit 15 -

Letter re: unaudited financial information 15.1 - Report of Independent Certified Public Accountants Exhibit 28 -

Other Exhibits 28.1 - Letter of Independent Certified Public  ;

Accountants Re: Form S-3 Registration Statements filed by the Company on Novamber 18, '

1985 (File No. 33-01614), July 15, 1986 (File No. 33-07103), July 2, 1990 (File No. 33-35588), September 14, 1990 (File No. 33-36824) and Form S-8 -t Registration Statements filed by the Company on October 10, 1985 (File No.

33-00810) and July 28, 1986 (File No. 33-75S8).

b) A Form 8-K was filed by the Company on September 21, 1990 with the Securities and Exchange Commission. The report contained i information under Item 5 - Other Events, which included information regarding-the United States Court of Appeals reversal of a-

$39,300,000 judgment against the Company related to a 1989 i antitrust verdict.

I i

20

SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly aut:1orized.

BOSTON EDISON COMPANY (Registrant)

Date: November 13, 1990 /s/ Robert J. Heafer. Jr.

Robert J. Heafer, Jr.

Controller and Chief ,

Accounting Officer 21 i

L

j-I SECURITIES AND EXCHANGE COMMISSION

' HASHINGTON, D.C. 20549 FORM 10-Q QUARTERLY REPORT UNDER SECTION 13 OR 15(d) 0F THE SECURITIES EXCHANGE ACT of 1934 For Ouarter Ended _ June 30. 1990 Commission file number 1-2301 BOSTON EDISON COMPANY (Exact name of registrant as specified in its charter)

Hassachusetts 04-1278810 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.)

800 Boylston Street. Boston. Massachusetts 02199 (Address of principal executive offices) (Zip Code)

Reaistrant's telechone number. includina area code 617-424-2000 NONE Former name, former address and former fiscal year, if changed since last report.

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange- Act of 1934 during the preceding 12 months-(or for such shorter period that the registrant was required to file such reports), and (2) has been subject to-such filing requirements for the past 90 days.

Yes X No Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.

Class Outstandina at June 30. 1990

. Common Stock, $5 par value 38,764,370 shares Exhibit list appears on page 18.

1

BOSTON EDISON COMPANY ')

i OUARTERLY REPORT ON FORM 10-0 JUNE 30.1990 PART I - FINANCIAL INFORMATION Paae Item 1. Financial Statements Balance Sheets - June 30, 1990 (Unaudited) and December 31, 1989 3 Statements of Income (Unaudited) - Quarters and Six Months Ended June 30, 1990 and 1989 4 Statements of Cash Flows (Unaudited) - Six Honths Ended June 30, 1990 and 1989 5 Notes to Unaudited Financial Statements 6-9 Item 2. Management's Discussion and Analysis of Results of-Operations and Financial Condition. 10-17 PART II - OTHER INFORMATION Item 1. . Legal Proceedings 18 Item 2. Changes in Securities 18 Item 3. Defaults Upon Senior Securities 18-Item 4. Submission of Matters to.a Vote of Security Holders 18 Item S. Other Information 18 Item 6. Exhibits and Reports on Form 8-K 18-19 Signature Page 20 2

BOSTON ED1 SON COMPANY PART f - FINANCIAL 1NFORMATION 0 Item 1 - Financial Statements. June 30,

' December 31, BALANCE SHEETS 1990 LQnandit_en n 1989 ASSETS ($ in thousands)

Property, plant and equipment, at original cost:

Utility plant in service $3,270,679 $3,172,132 Less: accumulated depreciation 988.876 950.298 Net Property, Plant and Equipment 2,281,803 2,221,834 Nuclear fuel - net 85,109 93,839 Ccnstruction work in progress 70.407 83.812 Net utility plant 2,437,319 2,399,500 Investments in affiliated companies 23,161 22,427 Nuclear decommissioning fund 34,324 31,085 Current assets:

Cash -

3,030 1,989 Accounts receivable 156,246 187,950 Accrued Utility Revenues (Note 6) 26,112 Materials, supplies & fuel oil (avg cost) 96,402 89,643 Prepaid and other current assets 4.730 7.260 Total Current Assets 286,520 286,842 Deferred debits:

Deferred sost of cancelled nuclear unit (Note 5) 74,899 84,744 Deferred nuclear outage costs 1,559 2,309 Other 53.935

• 51.36/

Total Assets $2.911.717 52.878.271 ~

CAPITALIZATION AND LIABILITIES Common stock equity:

Par value $5 per share (Note 2) $ 193,822 5 192,630 Premium on common stock 311,683 308,561 Retained earnings 133.744 143.357 Total Common Stock Equity 5 639,249 644,548 Cumulative preferred stock:

Non-mandatory redeemable series 83,000 83,000 Mandatory redeemable Series 50,000 50,000 Cumulative preference stock:

Non-mandatory redeemable series 38,287 38,287 Mandatory redeemable series 50,000 50,000 First mortgac:e bonds 782,700 798,839 Unsecured Medium-Term Notes 150,000 150,000 Debentures (Note 7) 100,000 Current liabilities:

Long-term debt due within one year 5,675 5,675 Bank loans 56,500 39,000 Commercial paper 151,000 174,840 Accounts payable 80,105 115,891 Income and other taxes accrued 7,946 8,669

. Interest accrued 21,364 21,104 Dividends payable 17,016 17,308 Other 1,085 7,008 Rate and Contract Settlements (Note 3) 91.944 89.541 Total Current Liabilities 432.635 479.036 Commitments and Contingencies (Notes 3 & 4)

Deferred credits:

Accumulated deferred income taxes 393,990 377,227 Accumulated deferred investment tax credits 91,466 94,835 Nuclear decomm'ssioning reserve 38,499 35,409 Other 16,891 27,090 Rate Settlement (Note 3) 45.000 50.000 Total Capitalization and Liabilities 52.911.717 52.878.271 See accompanying Notes to Unaudited Financial Statements.

3

BOSTON EDISON COMPANY g STATEMENTS OF INCOME '

(Unaudited)

($ in thousands, except per share amounts)

= Ouarter Ended Six Months Ended 6/30/90 6/30/89 6/30/90 6/30/82 Operating revenues (Note 3): $269.652 $282.729 $579.316 $578.982 Operating expenses:

Fuel 66,902 46,252 155,001 114,222 Net purchased power /other 37,035 71,125 77,928 120,071 Other operations and maintenance (Note 3)- 92,526 85,214 178,925 169,243

- Depreciation and amortization 30,830 30,525 61,725 60,996 Amortization of deferred cost of

[ canceled nuclear unit Amortization of deferred nuclear 6,095 6,095 12,190 12,190 outage costs (Note 3) 375 5,344 750 10,688 Taxes - property and other 14,322 15,381 28,617 30,916 Provision for income taxes (1.338) (1.534) 2.062 2.765 Total operating expenses 246.747 258.402 517.198 -521.091 Operating income 22,905 24,327 62,118 57,891 Other income:

Allowance for other funds used during construction 1,275 2,589-Other - net (Note 5) 1.713 1.401 2.996 3.413 Operating and other income- 24,618 27,003 65.114 63,893 Interest charges:

Long-term debt 22,484 22,893 44,835 45,784 Other .

5,874 4,555 11,446 8,413 Allowance for borrowed funds used during. construction - credit (1.692) (1.565) (3.890) (3.238)

Total interest charges 26.666 25.881 52.391 50.959 Net' income (loss) before cumulative effect of accounting change (2,048) 1,120 12,723 12,934 Cumulative effect of accrual for-unbilled revenues, net'of taxes of

$9,819 (Note 6) - 15.824 Net-Income (Loss) (2,048) 1,120 28,547 12,934 Preferred and preference dividends provided 4.414 4.414 8.827 8.827

==

Balance available for common stock (Notes 3 & 4) 1_ig,412) $ (3.294) $ 19.720 $ 4.107 Common shares outstanding

_ (weighted average) 38,720 38,172 38',660 38,088 Earnings (loss) per share of common stock:

Before cumulative effect of accounting change $(0.17) $(0.09) $0.10 $0.11 Cumulative effect of accrual of unbilled revenues (Note 6) 1Qm4 1  : Total- $(0.17) 1124Q2) 10u il $0.11

. Dividends declared per. common share 1_g; $0.455 $0.76 $0.91' See accompanying Notes to Unaudited Financial Statements. 4

o BOSTON EDISON COMPANY STATEMENTS OF CASH FLOWS (Unaudited) Six Months Ended June 30. 1990 June 30. 1989 ($ in thousands) Cash Flows from Operating Activities: Net Income $ 28,547 $ 12,934

     ;         Adjustments to reconcile net income to net cash provided by operating activities:

Cumulative effect (net) for years prior to 1990 of accounting change for unbilled revenues (Note 6) (15,824) Depreciation 54,892 53,671 Amortization of Nuclear Fuel 11,822 1,514 Amortization of deferred cost of [' cancelled nuclear unit (net) (Note 5) 9,845 9,320 Other Amortization 6,194 8,093 Net Changes in: Accounts receivable 20,267 (3,367) Accrued utility revenues (Note 6) 3,531 Haterials & Supplies (6,759) (1,438) Accounts Payable (35,786) (22,886) (3,856) L Other current assets and liabilities 1,409 Allowance for Funds Used During Construction (3,890) (5,827) (Increase) Decrease in Deferred Fuel 7,436 (13,779). Increase in Deferred Income Taxes 8,633 2,408 (Decrease) in Investment Tax Credit, net (2,295) (2,541) Amortization of Deferred Nuclear Outage Costs 750 10,688

                     -Net Change in Other Deferred Debits and Credits                                                                            (15,389)                                           8,012 Cash Outlays:

Rate and Contract Settlement (Note 3) (2.597) Net Cash Provided by Operating Activities 65.521 58.211 Cash Flows Used by Investing Activities: Plant Expenditures (excluding AFUDC) 103,889 99,089 Decommissioning Fund 3,239 2,797 Investments in Affiliated Companies ,, 734 8.965 Net Cash Flows Used by Investing Activities 107.862 110.851 Cash flows Provided (Used) by Financing Activities: Issuances of Common Stock 4,314 5,480 Incresse/(decrease) in Notes Payable (6,340) 90,510 Issuance of Debentures (Note 7) 100,000 Debt Retirements (16,139) Dividends Paid (38.453) (43.694)- Het Cash Provided by Financing Activities 43.382 52.296 Increase /(Decrease) in Cash 1,041 (344) Cash.at the Beginning of the Year 1.989 3.235 Cash at the End of the Period 5 3.030 $ 2.891 Cash paid during the period for: Interest. $ 56,021 $ 53,597 Less: Amoents Capitalized (3.890) (3.238) Total 5 52.131 5 50.359

      ,                 Income Taxes                                                                       $ 2.225                                        $ 9.917 i                           See accompanying Notes to Unaudited Financial Statements.

5-l

3

                                                                                             ,    1 BOSTON EDISON COMPANY                              g NOTES TO UNAUDITED FINANCIAL STATEMENTS

1) Basis of Presentation Certain information and footnote disclosures, normally included in financial statements prepared in accordance with generally accepted accounting principles, have been condensed or omitted in this form 10-Q pursuant to the Rules and Regulations of the Securities and Exchange Commission. However, in the opinion of Boston Edison Company (the Company), the disclosures contained in this Form 10-0 are adequate to make the information presented not misleading. These statements should be read in conjunction with the financial statements and the notes thereto and all other information included in the Company's Annual Report to the Securities and Exchange Commission on Form 10-K for the year ended December 31, 1989 and the Company's Quarterly Report to the Securities and Exchange Commission on Form 10-Q for the quarter ended March 31, 1990.

In the opinion of the Company, the accompanying unaudited financial statements reflect all adjustments, including normal recurring accruals, necessary to present fairly the financial position as of June 30, 1990 and the results of operations for the three and six months ended June 30, 1990 and 1989, and cash flows for the six months ended June 30, 1990 and 1989. < Certain prior year balances have been reclassified to reflect current classifications. l' . . L The results of operations for the quarter and six months ended June 30, 1990 are not indicative of the results which may be expected for the. full year. During 1989 and 1988, the Company experienced major fluctuations in g quarterly net income. The Company's kWh sales and base revenues are u seasonal in nature, with both being lower in the spring and fall seasons, i In addition, pursuant to retail rate orders of the Commonwealth of

                 ~

Hassachusetts Department of Public Utilities ("DPU"), base retail rates billed.to customers are, on average, forty percent higher in the billing-

             -months of July through October. < Accordingly, a significant portion of-annual' earnings occurs in the Company's third quarter. .See "Hanagement's Discussion.and Analysis of Results of Operations and Financial Condition"

l. included in Part I of this Form 10-Q and Item 1(c)(1)(v) " Seasonal Nature <

of Business" in the Company's- Annual Report to the Securities.and Exchange Commission-on Form 10-K for the year ended December 31, 1989. In the first quarter of 1990 the Company began accruing the base portion of revenues for services rendered but not billed in order _to match revenues L with expenses more closely. Prior to this. adoption, thel Company recognized e L revenues when services were billed. See also Note 6 of Notes to Unaudited~ Financial Statements.

2) Securities Issued The Company issued 118,738 shares of its common stock in accordance with the Dividend Reinvestment and Common Stock Purchase Plan during the quarter ended June 30, 1990.

L At June 30, 1990, the Company had 50,000,000 shares of common stock l authorized, of which 38,764,370 shares were issued and outstanding. See 6 L L

NOTES TO UNAUDITED FINANCIAL STATEMENTS (Continued) Note 1 of Notes to Schedules of Capital Stock and Indebtedness included in l the Company's Annual Report to-the Securities and Exchange Commission on form 10-K for the year ended December 31, 1989, and Note 2 of Notes to Unaudited financial Statements included in the Company's Quarterly Report to the Securities and Exchange Commis: ion on form 10-Q for the Quarter ended March 31, 1990. See also Note 7 hereunder.

3) Settlement of Certain Proceedinas On October 31, 1989, the DPU approved a settlement agreement effective November 1, 1989 (the "DPU Settlement Agreement"), relating to certain OPU proceedings involving the Company. On August 3, 1990, agreements between the Company and the Towns of Concord and Hellesley, MA which are wholesale customers of the Company, were filed with the Federal Energy Regulatory Commission ("FERC") settling certain claims related to the 1986-1988 outage at Pilgrim Station. Previously, in January 1990 and in April 1990, the Company had entered into related settlement agreements with certain wholesale customers having long-term purchased power contracts for a portion of the output of the Pilgrim Station. Hith the execution of the August 3, 1990 agreements and the previous purchased power contract agreements (" Wholesale Settlement Agreements"), all wholesale rate proceedings related to the Pilgrim Outage have been settled. The Wholesale Settlement Agreements are subject to the approval of FERC. As a result of the DPU Settlement Agreement and the Wholesale Settlement Agreements, the Company recorded in the fourth quarter of 1989 a before-tax charge of

          $178,650,000 (including a reserve for remaining regulatory proceedings and related litigation in connection with the FERC proceedings described above), with an after-tax effect of approximately $106,280,000 or $2.78 per share of Common. Stock. This. charge includes approximately $8,000,000 of cash outlays in 1989 and approximately $31,000,000 of previously deferred nuclear' outage costs. As of June 30, 1990, the Company anticipates making future cash outlays of'approximately $139,000,000 as part of these settlement agreements, (of which approximately $92,000,000 are classified as a current liability on the accompanying balance sheet as of June 30, 1990. However, the timing for a portion of these payments is subject to receipt of the necessary regulatory approvals).

See also Item 1(c)(1)(ii) " Expected Plant Expenditures and Related Financing" (subheading " Regulation") included in the Company's Annual Report to the Securities and Exrange Commission on form 10-K for the year-ended December 31, 1989 and Item 2, " Management's Discussion and Analysis" hereunder.

4) Commitments and Continaencies (See also Note 3) a) Wholesale and Contract Customers On' July 24, 1987, the Towns of Concord, MA and Hellesley, MA (the  !

              " Towns") filed a complaint against the Company in the United States District Court for the District of Massachusetts alleging violation of the. federal antitrust laws. The Company supplies substantially all of    i the electric power requirements of the Towns. The Towns' complaint included allegations of price discrimination, anticompetitive restriction and price squeeze. In May 1989, a jury determined that the Company had violated federal antitrust laws and awarded damages of
              $13,100,000, which results in a total judgment of $39,300,000, plus interest, when trebled under antitrust law.      If upheld, the judgment 7
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NOTES TO UNAUDITED FINANCIAL STATEMENTS (Continued) a) Wholesale and Contract Customers (Continued) j (which is not reflected in the accompanying financial statements) would represent a charge to earnings of approximately 50.64 per share of common stock. The Com9any has appealed the judgment to-the United' States Court of Appeals for the First Circuit, which heard oral arguments in the case on April 5,1990. Based upon the advice of legal counsel, management believes that the decision is contrary to the facts and applicable law and that it is unlikely that this judgment will be upheld on appeal. b) liitzardous Haste Under the requirements of the applicable state and federal "Superfund" laws tnd regulations adopted thereunder, the Company and others are exposeC to potential joint and several liability with respect to the clean-up of sites where hazardous wastes may have been spilled or dispose'J of in the past. The Company has had claims asserted against it related to clean-up costs at a number of such sites in Massachusetts and other states. While the Company is unable at this time to predict the ultimate total clean-up costs for such sites or what its share of costs will be for each such site, on the basis of information presently available, the Company believes the likelihood that it would incur any material liability in connection with such sites to be remote.

5) Cancelled Nuclear' Unit The Company commenced amortizing the cost of the cancelled Pilgrim 2 nuclear unit in May 1982 over approximately eleven and one-half years pursuant to retail rate orders of the OPU. Such costs include certain i

financial carrying costs that will be reviewed and may be increased or l decreased from time to time by the OPU. The application of Statement of h ' Financial Accounting Standards-("SFAS") No. 90 had the effect of increasing net income for the quarter and six months ended June 30, 1990 by $703,000-($0.02 per share) ani $1,448,000 ($0.04 per share) net of taxes of $436,000 and $898,000, tespectively, and the quarter and six months ended June 30, 1989 by $865,000'($0.02 per share) and $1,771,000

($0.05 per. share) net of taxes of $537,000 and $1,099,000, due to the inclusion in net income of the-impLted interest income related to the cancelled Pilgrim 2 nuclear unit costs being. recovered through revenues from customers. The unamortized discount at June 30, 1990 was 1 approximately 58,100,000 with related deferred taxes of $3.100,000. [ 6). Chance in Accountina Princiole - Unbilled Revenues l Effective January 1, 1990, the Company began accruing the base porti.on of- i

            -revenues for services rendered but not billed, in order to more closely             '

match revenues with expenses. The effect of the change in accounting principle in the quarter ended June 30, 1990 was an increase of $0.01 per l common share ($284,000 net of taxes of.$177,000), and for the six months. Em'- ended June 30, 1990 was an increase of $0.35 per common share ($13,645,000

   +         net of M es of $8,467,000) consisting of a $0.41 per common share-($15,824,000 net of taxes of $9.,819,000) for the cumulative effect of the change-at January 1, 1990, reduced by a $0.06 per common share ($2,179,000        (

net of taxes of $1,352,000) for the six months ended June 30, 1990. ' 8 l l l

                                                   . - _ - __ _               _ _ _.             1

o EQIKS TO UNAUD1TED FINANCI AL STATEMENTS _fContinued) I 6) Chance in Accountina Printicle - Unbilled Revenues (Continued) Had the Company been accruing unbilled revenues in 1989, the pro forma effect of this change on the quarter and six months ended June 30, 1989 results would have been as follows (in thousands, except earnings per share): Quarter Ended Six Months Ended June 30. 1EH3 June 30. 1989 As ReDorted Pro Forma As ReDorted Pro Forma - Net Income $1,120 $2,460 $12,934 $12,198 Balance Available for Common Stock (3,294) (1,954) 4,107 3,371 Earnings (Loss) Per Common Share 'O.09) (0.05) 0.11 0.09

7) Debentures On June 11, 1990 the Company issued $100,000,000 of debentures. The debt instrument bears an interest rate of 9.875% per annum and matures on June 1, 2020. The debentures are redeemable at prices declining from 104.483%

of par beginning on June 1, 2000 to 100% of par after June 1, 2010. However, the debentures may not be redeemed prior to June 1, 2000. Interest is payable on June 1 and December 1 in each year commencing on December 1, 1990. The debentures are unsecured obligations of-the Company. The net proceeds from the sale of the securities were used to reduce certain outstanding short-term indebtedness and/or for capital expenditures for extensions, additions and improvements to the Company's plant and properties. 9

BOSTON EDISON COMPANY I Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition for the Quarter and Six Months Ended June 30, 1990 Versus the Comparable 1989 Periods Reaulatory Proceedinas On October 31, 1989, the Commonwealth of Massachusetts Department of Public Utilities ("DPU") approved a settlement agreement (the "DPU Settlement Agreement") effective November 1, 1989 relating to certain DPU proceedings involving the Company. In addition, in January, April and August 1990, the Company entered into settlement agreements with certain wholesale customers (the " Wholesale Settlement Agreements") to resolve certain pending regulatory and legal proceedings concerning the 1986-1988 outage at Pilgrim Station. The Wholesale Settlement Agreements are subject to the approval of FERC. As a result of the DPU Settlement Agreement and the Wholesale Settlement Agreements, the Company recorded in the fourth quarter of 1989 a before-tax charge of $178,650,000, with an after-tax effect of $106,280,000 or $2.78 per share of common stock. Although the DPU Settlement Agreement and the Wholesale Settlement Agreements have removed major uncertainties facing the Company, other uncertainties remain and are discussed further under the section entitled " Outlook for the Remainder of 1990 and Beyond" hereunder. Results of Ooerations - Ouarter Ended June 30. 1990 versus Ouarter Ended June

30. 1989 The Company incurred a loss per common share of ($0.17) for the three ironths ended June 30, 1990 as compared to a loss of ($0.09) per common share ($0.05 loss per common share on a pro forma basis; see Note 6 of Notes to Unaudited Financial Statements preceding for additional information involving the Company's adoption of a change in accounting principle effective January 1, 1990) for the same period last year. -A large portion of the decrease in net income (loss) is attributable to a decrease in Allowances for Funds Used During Construction ("AFUDC") and higher net financing costs as discussed further hereunder. The Company continues to experience positive cash flow from operations. See also Note 1 of Notes to Unaudited Financial Statements preceding for information relating to the seasonality of the Company's earnings.

Total operating revenues amounted to $269,652,000, a decrease of 4.6% as follows: 0.6% increase in retail kKn sales billed $ 150,000 Increase in performance clause revenues (a) 4,753.,000 Decrease in fuel and purchased power adjustment clause revenues (16,833,000) Other decreases (1.142.000) Decrease in total revenues 103.077.000) (a) As part of the DPU Settlement Agreement effective November 1, 1939, the Company is permitted to increase retail rates by approximately $20,000,000 over the period November 1, 1989 to October 31, 1990 (subject to adjustment based upon the operation of Pilgrim Station). 10

Results of Operations - Quarter Ended June 10. 1990 versus Ouarter Ended June

30. 19_83 (Continagg).

I The large decreases in fuel and purchased power revenues and fuel and net purchased power expenses of $16,838,000 and $13,440,000, respectively, are due to a large decrease in purchased power expense, partially offset by a temporary overcollection of fuel costs in 1990 as opposed to an undercollection in the same period last year. Generation from Company owned facilities was up 57% in the second quarter of 1990, coupled with a large decline in kWh purchases from other utilities. The major portion of fuel and purchased power expenses are recovered through fuel and purchased power clauses with the balance being recovered through the base rates. Other operating and maintenance expenses increased by $7,312,000, primarily as a result of increases in scheduled maintenance expense, nuclear-related operations expense, and bad debt expense. Amortization of deferred nuclear outage costs decreased $4,969,000 due to the write off of substantially all deferred nuclear outage costs in the fourth quarter of 1989 as part of a before tax charge of $178,650,000, as discussed previously in Note 3 of Notes to Unaudited Financial Statements. Property and other taxes decreased $1,059,000, mostly due to lower property taxes as a result of the settlement of a tax dispute with the City of Boston, MA. The Company's most recent annualized effective income tax rate for 1990 is 31.0% (including the cumulative effect of a change in accounting prirciple) versus 24.6% in 1989. The decline in 1989 is related to the reversal of certain prior years' deferred income taxes, the calculation of which was based upon a FERC rulemaking regarding AFUDC; these were restored to income as such methodology has not been adopted by the DPU. In accordance with the terms of the DPU Settlement Agreement, the Company is restoring to income certain municipal tax abatements and deferred taxes in 1990; see Note B of Notes to financial Statements included in the Company's Annual Report to the Securities and Exchange Commission on Form 10-K for the year ended December 31, 1989. AFUDC totaled $1,692,000, a decrease of 40% from the comparable period last year, due to decreases in both the average construction work in progress base and the AFUDC rate. Total interest expense increased $910,000, primarily related to an increase in the average short-term loan balance outstanding, which is necessary to support the Company's ongoing program of plant expenditures. Results of Ooerations - Six Months Ended June 30. 1990 versus Six N ihs Ended June 30. 1989 Earnings per common share for the six months ended June 30, 1990 amounted to

        $0.51 and $0.11 for the same period in 1989. The results of operations for the six months ended June 30, 1990 include $0.41 per common share due to the cumulative effect of a change in accounting principle effective January 1, 1990 (accrual of unbilled revenues), as discussed further in Note 6 of Notes to Unaudited Financial Statements included in Part I of this Form 10-0 Excluding the cumulative effect of the change in accounting principle, earnings amounted to $0.10 per common share for the six months ended June 30, 1990, as compared to $0.11 per common share ($0.09 per common share on a pro forma basis) for the same period last year.

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i i Results of Onerations - Six Months Ended June '30.1990 versus Six Months Ended June 30. 1989 (Continued) { 4 Total operating revenues, which remained relatively unchanged on a comparative basis, amounted to $579,316,000; the change between periods is detailed as follows: 0.5% increase in retail kWh salts billed 5 2,756,000 Increase in performance clause revenues (a) 9,940,000 Decrease in fuel and purchased power adjustment clause revenues (8,430,000) , Other decreases (3.932.000) Increase in total revenues 5 334.000 (a) As part of the DPU Settlement Agreemtnt,' effective November 1, 1989, the Company is permitted to increase retail rates bt approximately $20,000,000 over the period November 1, 1989 to October 31. 1990 (subject to adjustment based upon the operatioa of Pilgrir, Station). The decreases in fuel and purchased power revenuss and fuel and purchased i power expenses of $8,430,000 and $1,364,000, respectively, are due primarily to a large decrease iri purchased power expenses, partially offset by a temporary overcollection of fuel costs in 1990 as opposed to an undercollection in the same period last year. Generation from Company owned L facilities was up 37% for the first half of 1990 as compared to the same period last year coupled with a large decline in kWh purchased from other utilities.. The major portion of fuel and purchased power expenses are ' recovered through fuel and purchased power clauses with the balance being recovered through the base rates. , b Other operation'and maintenance expenses increased $9,682,000 primarily as a result of. increases in employee benefits expense, nuclear operations expense, and bad debt expense. Amortization of deferred nuclear outage costs decreased

   $9,938,000 due to the write off of substantially all deferred nuclear outage costs in the-fourth quarter of 1989 as part of a before tax charge of                    i
   $178,650,000, as previously discussed in Note 3 of. Notes to Unaudited                   i Financial Statements.-

Property and other tax expense decreased $2,299,000 due to lower. property taxes:as a result of the settlement of a tax dispute with the City of Boston-and lower pre-tax income. The Company's effective income tax rates for the six months. ended June 30, 1990 and 1989 were 31.0%-(including the cumulative-effect of a change in accounting principle) and 24.6%. The decline in 1989 is related to the reversal of certain prior years' deferred income taxes, the calculation of which was-based upon a FERC rulemaking regarding AFUDC; these  ; were being restored to income as such methodology has'not been adopted by the 4 DPU. .In accordance with the terms of the DPU Settlement Agreement, the Company is restoring to income certain municipal tax abatements and deferred taxes in 1990; see Note B of Notes to Financial Statements in .the Company's Annual Report to the Securities and Exchange Commission on Form 10-K for the year ended December-31, 1989. Other-income decrea;ed 121; 1989 activity included approximately $900,000'of interest income relating to financial advances to certain transmission companies in which the Company has invested interests. 12 l

---.um .. Results of Qperatipns - Six Months Ended June E 1990 versus_Six Months Rnded June 30. 1989 (Continued) AFUDC totaled $3,890,000, a decrease of 33% from 1989, due to decreases in both the average construction work in progress base and the AFUDC rate. Total interest expense increased $2,084,000, primarily related to an increase in average short-term loan balance outstanding, which is necessary to support .the Company's ongoing program of plant expenditures. Financial Condition and liauidity See Part II, Item 7 "Hanagement's Discussion and Analysis of Financial Condition and Results of Operations" in the Company's Annual Report to the Securities and Exchange Commission on Form 10-K for the year ended December 31, 1989 and the Company's Quarterly f. aport to the Securities and Exchange Commission on Form 10-0 for the Quarter ended March 31, 1990. See also Notes 2, 3, 4 and 7 of Notes to Unaudited Financial Statements. The Company's debt principal repayments are $23,000,000 in 1990 (which includes approximately $17,000,000 of early retirements in April, 1990) and will be $56,800,000 in 1991. Interest on anticipated long-term debt outstanding, estimated to be $90,000,000 in 1990 and $106,000,000 in 1991, is expected to be funded via normal cash flow from electric operations. Funds generated internally represented approximately 59%, 43% and 4Pi. of plant expenditures in the years 1989, 1988, and 1987, respectively, and represented approximately 59% of the $104,000,000 of plant expenditures incurred during the first six months of 1990. The Company's estimate of working capital needs for calendar years 1990 and 1991 is expected to be consistent with historical levels, except for the abnormal impact of approximately $139,000,000 of future cash outlays in 1990-1992 as discussed further in Note 3 of Notes to Unaudited Financial Statements. The Company meets working capital requirements, as well as the interim financing necessary for its current program of plant expenditures, primarily by internally generated funds, supplemented by the issuance of short-term commercial paper and bank borrowings. The Company currently has short-term borrowing authority from the FERC of $350,000,000, which the Company deems adequate to cover working capital and other liquidity requirements (which includes the $139,000,000 of future cash outlays as discussed above). As of June 30, 1990, the Company had $207,500,000 of short-term debt outstanding. The Company has available a three year

            $330,000,000 revolving credit facility. As of June 30, 1990, the Company had not applied to the OPU for regulatory approval to incur long-term debt under this agreement, nor had the Company nicurred any short-term debt thereunder.

The Company also has arrangements with certain banks to provide additional short-term credit on an uncommitted and as available basis. The Company's level of aggregate short-term borrowings is expected to decline in 1990 assuming the-issuance of additional long-term securities later in 1990 as discussed further hereunder. 13 i l'um-i

                                                                                     ..     . I i smuiiiii__

Financial Condition and t.iauidity (Continued) g On June 11, 1990 the Company issued $100,000,000 of 9 7/8% debentures due 2020, the proceeds of which were used to reduce short-term borrowings which were incurred for capital expenditures for extensions, additions and improvements to the Company's plant and properties. As a result of the issuance of these securities, the Company's capitalization ratios are 54% long-term debt, 12% preferred / preference stock, and 34% common equity, as compared to the 1989 year-end levels of 52%, 12% and 36%, respectively. On July 2,1990 the Company filed a registration statement with the Securities and Exchange Commission ("SEC") seeking approval to issue an additional

          $100,000,000 in debt securities. The proceeds will be used for capital expenditures for extensions, additions and improvements to the Company's plant and properties or for the payment of obligations incurred for such expenditures. As of this filing, this registration statement has not become effective, nor has the Company issued any securities hereunder.       The Company's current intention is to' issue additional securities pursuant to this registration statement prior to December 31, 1990.

In April 1990 the Company redeemed the remaining $16,139,000 of outstanding Series T (121/4%) and Series V (12 5/8%) First Mortgage Bonds, at a redemption price approximating 110% of par value plus accrued interest. The Company generated sufficient cash flow in the twelve months ended June 30, 1990 to meet all debt service requirements, however, as a result of recording the charges associated with both the DPU Settlement Agreement and the Wholesale Settlement Agreements in the fourth quarter of 1989, the Company's ratio of earnings to fixed charges was 0.73X for the twelve months ended June 30, 1990. The Company would have needed to generate additional taxable income of approximately $31,480,000 to cover its fixed charges of approximately

          $118.317,000 incurred in the twelve months ended June 30, 1990.

Outlook'for the Remainder of 1990 and Bevond In connection with the CPU Settlement Agreement, the Company has agreed to limit its retail. revenue increases prior to November 1,1992 to approximately 2% per year, subject to adjustment based on Pilgrim Station's performante. Accordingly, the Company's ability to maintain or increase earnings through such period will depend primarily on its ability to control costs and increase kilowatthour sales, as well as the efficient operation of Pilgrim Station. During-the period November 1, 1992 through October 31, 2000, the Company he: agreed to institute a new cost recovery mechanism, which is tiso tied to Pilgrim Station's performance - for a portion of the Company's investment and costs related to Pilgrim Station. As a result, the Company's potential earnings after 1992 will continue to depend, in part, upon the efficient operation of Pilgrim Station. In connection with the DPU Settlement Agreement the Company also agreed to expend over the next three years, and not seek recovery for, $75,000,000 on certain demand-side management programs. See also Item 1(c)(1)(ii) " Expected Plant Expenditures and Related Financing" (subheading " Regulation") included in the Company's Annual Report to the Securities and Exchange Commission on Form 10-X for the year ended December 31, 1989. On February 12, 1990, the NRC formally accepted the completion of the power ascension and test program at Pilgrim Station which began in December 1988. During the period from November 1,1989 through July 31, 1990 Pilgrim Station operated at a capacity factor of 67%. For the performance year ending October 31, 1990, the Company believes the Pilgrim capacity factor will be in the neutral zone of 60% to 76% and that all other Pilgrim related performance factors will not be below the neutral zone. 14

s'

     +

Outlook for the Remainder of 190 and Beyond (Continued) l The Company does not anticipate significant growth in retail kHb sales. Retail kHb sales billed for the six months ended June 30, 1990 were 0.5% greater than the same period last year. The Company's growth in base revenues is being impacted by the implementation of demand-side management ("0SH") programs. Some of the major programs include; 1) rebates to customers for reduced energy consumption, 2) offering comercial and industrial customers I no-cost programs to revamp facilities, 3) offering largest commercial and industrial customers the opportunity to redesign energy systems, 4) cash incentives to customers for the use of their own on-site generations, 5) ' offtring commercial and industrial customers rebates for replacing lighting , systems with more energy efficient systems, and 6) offering residential customers energy saving measures who use electric hot water heating systems. l However, the Company plans to seek future recovery of lost base revenues l associated with the implementation of DSM programs from the DPU, consistent l with a recent DPU decision on a similar issue involving another Hassachusetts  ! electric utility. The Company has expended approximately $6,000,000 in the I first six months of 1990 for DSM expenditures. Additional information relating to the seasonality of the Company's kHh sales, base revenues, and quarterly earnings can be found in Note 1 of Notes to Unaudited Financial Statements. l In 1989, Northeast Utilities became the apparent successful bidder for the ownership of Public Service of New Hampshire, an electric utility serving a large portion of the State of New Hampshire. Completion of the transaction is subject to various regulatory approvals. The Company and other utilities are ' requesting FERC to impose conditions on this takeover on the basis that the new combined entity would control virtually all excess generating capacity in New England and most of the available major electric transmission facilities entering the New England region. 4 The Company may have additional financial rxposure with respect to a jury i verdict of $39,300,000, plus interest, in an antitrust suit which the Company l is currently appealing (as discussed further in Note 4(a) of Notes to U,naudited Financial Statements), based upon the advice of legal counsel, management believes that the decision is contrary to the facts and applicable law and that it is unlikely that the judgment will be upheld on appeal. The Company has been named as a potentially responsible party by certain ehvironmental authorities with respect to the clean up of certain hazardous waste sites; the Company believes that the likelihood it will incur any significant liability with respect to such claims to be remote (see also Note 4(b) of Notes to Unaudited Financial Statements). On May 15, 1990 the Company signed four year contracts with its labor unions. Edaar Enerav Park On May 1, 1990, the Company filed its Long-Range Forecast of Electric Power Needs and Requirements for the years 1990-2014 with the Commonwealth of Massachusetts Energy facilities Siting Council (the "EFSC"). Included with this filing was a-request for approval of the Edgar Energy Park project, which is a proposed 300 MH combined cycle generating station which the Company plans i to construct on the Company-owned site of the retired Edgar Generating Station located in Heymouth, Massachusetts. Also on May 1, 1990 the Company filed with the DPU a request for a zoning exemption for the Edgar Energy Park Project. On August 1,1990, the Company filed additional requests at the D?U 15 L

Edoar Enerav Park (Continued) seeking 1) approval to form a wholly-owned subsidiary to construct and operate k the 300 MH generating unit at the Edgar Energy Park; 2) approval to make an equity investment up to $90 million in the subsidiary; and 3) approval of a contract between the Company and the subsidiary under which the Company would purchase the energy and capacity of the generating unit. In addition to proceedings before the DPU and EFSC, the Company has also commenced applications for other required permits and approvals, including in particular many environmental permits, before a number of other federal, state and local agencies. Receipt of all the various permits and regulatory approvals is not expected prior to the first half of 1991. Assuming the successful completion of permitting activities and receipt of regulatory approvals, it is anticipated that construction of this facility by the subsidiary could start in the second hal,f of 1991, with completion in 1994. Other Matters The. Company intends to file with the OPU in the fall of 1990 for recovery of planned 1991 DSM expenditures in excess of the amounts required as part of the DPU Gottlerient Agreement. Recovery of amounts in excess of those expenditures diNXiated with the DPU Settlement Agreement will be sought in accordance with OPU guidelines and regulations. Crhtract purchasers of a portion of the output of Pilgrim Station (i.e,, other ui.ilities, municipal light companies and the Towns of Concord and Hellesley, MA) have filed complaints at FERC and in court seeking reimbursement for

            ,eplacement power incurred as the result of alleged mismanagment of Pilgrim

, Station as well as additional relief. The Company has entered into Wholesale Settlement Agreements with all of these contract purchasers which are subject to approval by TERC. The courts have stayed further proceedings pending the outccme of the proceedings at FERC. As a result of'the Wholesale Settlement Agreements 3 the Company anticipates rnaking cash payments to the settling parties of y proximately $50,000,000, the timing of which will be dependent upon the receipt of the necessary regulatory approvals. Other Untertainties Emeroency Pregaredness Plan for Pilarim Station On August 4, 1987, the Federal Emergency Management Agency (" FEMA") released the results of a review of the adequacy of the offsite emergency preparedness plan for Pilgrim Station. FEMA identified certain deficiencies in the then existing offsite emergency response plan and withdrew its previous interim finding of adequacy. The Company continues to work with The Commonwealth of Massachusetts (the "Comenwealth") and local officials to improve offsite emergegy preparedness plans, which are the responsibility of the Commonwaalth. FEMA has performed an informal technical review of the draft emergency plans submitted by the Commonvetlth and local officials. On October 12 and 13, 1989, the Company, along with tbo Cormonwealth end local officials, participated in a full $cale emergency preparecess exercin for Mgrim Station. The program was monitored by the NRC and FEML Da re ruary 1, 1990, FEMA issued a report to the Omnmith identifylog two defichucks in the Commonwealth's performance dodng the October drill am direc.tec the state to schedule and successfully compleu a remedia7 driH addr.essing thete

deficiencies. The remedMI criH was conducted on May 25, 1990 ard the report of FEMA's evaluation has rot been issued.

16 , P f*f t o- f

                '      Emeroency Precaredness Plan for Pilorim Station (Continued)
                 -     While progress has been made in emergency preparedness, formal approval of the
                 >     emergency plans has not been obtained from any of the necessary parties. The NRC has indicated that it will continue to monitor emergency preparedness issues on an ongoing basis. The Commonwealth has previously stated that it has not determined whether adequate planning is possible for the area around Pilgrim Station. Hithout continued Commonwealth and local participation it would be extremely difficult to formulate emergency response plans satisfactory to the NRC. Various individuals, groups and public officials continue to monitor and oppose operations at Pilgrim Station.

Health Studies Certain governmental agencies are currently conducting studies to determine whether there is a link between Pilgrim Station and purported elevated levels of radiation-sensitive cancer in certain communities near Pilgrim Station. The Commonwealth of Massachusetts Department of Public Health plans to release the results of its studies later in 1990. The Company continues to monitor the situation closely and disputes any contention linking Pilgrim Station to any elevation in cancer levels. 1 4 ' . . sgy -- . - - - . - - - -

v l BOSTON EDISON CMPANY l PART II - OTHER D'/ORMATION

• l Item 1. Leaal Proceedinas l See Items (1)(c)(1)(ii), subcaption " Regulation", 1(c)(1)(xii):

        " Environmental Matters", and 3: " Legal Proceedings" in the Company's Annual l

Report to the Securities and Exchange Commission on Form 10-K for the year l L ended December 31, 1989, and Item 1 " Legal Proceedings" included in Part II j 1-

       - Other Information in the Company's Quarterly Report to the Securities and Exchange Commission on Form 10-Q for the quarter ended March 31, 1990. See also Notes 3 of Notes to Unaudited Financial Statements and "Hanagement's Discussion and Analysis" included in Part I of this Form 10-Q. See also Item               .

1(c)(1)(ii) " Expected Plant Expenditures and Related Financing" (subheading - l

        " Regulation") in the Company's Annual Report to the Securities and Exchange Commission on Form 10-K for the year ended December 31, 1989 and "Hanagement's Discussion and Analysis" included in Part 1 of the Company's Quarterly Report to Securities and Exchange Commission on form 10-Q for the quarter ended March 31, 1990.

On February 10, 1982 the Boston Housing Authority (" BHA") filed an action against the Company in the Massachusetts Superior Court seeking approximately

       $10,000,000 in damages for alleged overcharges for electricity and steam furnished over a six-year period, together with a claim for treble damages pursuant to H.G.L. c. 93A. On December 15, 1983 the Massachusetts Supreme Judicial Court affirmed an order of the Massachusetts Superior Court dismissing the BHA's claim of unconstitutional and unfair electric rate
      ' discrimination and remanded the claim for steam overcharges (approximately
       $4,000,000) to the Superior Court for completion of the pleadings and trial.

Item 2. Chanaes in Securities 1 See-Notes 2 and 7 of Notes to Unaudited Financial Statements included Part I of this-Form 10-0 Item 3. Defaults Voon Senior Securities - None

      . Item 4     Submission of Hatters to a Vote of Security Holders - Not Applicable Item 5. Other Information - None Item 6. Exhibits and Reoorts on Form 8-K a) Exhibits filed Herewith:

Exhibit 3 - Articles of Incorporation and Bylaws 3.1 - Boston Edison Company Bylaws April 19,1977 as amended January 22, 1987, January 28, 1988,' Hay 24, 1988 and November 22, 1989. Exhibit 12 - Computation of Ratio of Earnings to Fixed Charges 12.1 - Computation of Ratio of Earnings to fixed Charges 18

l Item 6. Exhibits and ReDorts on Form 8-K (Continued)

  . I-               Exhibit 15     -   Letter re: unaudited financial information 15.1    - Report of Independent Certified Public Accountants                                        .

Exhibit 28 - Other Exhibits l

        .                               28.1    - Letter of Independent Certified Public Accountants                                   i Re:    Form S-3 Registration Statements       '

filed by the Company on November 18, 1985 (File No. 33-01614), July 15. 1986 (File No. 33-07103), and-July 2, 1990 (File No. 33-35588), and Form S-S ' Registration Statements filed by the Company on October 10, 1985 (File No. 33-00810) and July 28, 1986 (File No. 33-7558). 28.2 Settlement Agreement between Boston Edison Company and the Towns of Concord l and Hellesley, Hassachusetts, filed August 3, 1990 at FERC. . i b) A Form 8-K was filed by the Company on June 28, 1990 with the Securities and Exchange Commission. The report contained L information under Item 7, Financial Statements and Exhibits, which . L- included the filing of-the First Supplemental Indenture dated June. i 1,.1990. > l i l-i, l. o l-l' l I-l l I9 L

O. 4 SIGNATURE , Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. BOSTON EDISON COMPANY (Registrant) Date: August 13, 1990 /s/ Robert J. Heafer. Jr. Robert J. Heafer, Jr. Controller and Chief Accounting Officer 20

ot

*I~

SECURITIES AND EXCHANGE COMMISSION HASHINGTON, D.C. 20549 FORM 10-Q QUARTERLY REPORT UNDER SECTION 13 OR 15(d) 0F THE SECURITIES EXCHANGE ACT of 1934 For Ouarter End.ed March 31. 1990 Commission file number 1-2301 BOSTON EDISON COMPANY (Exact name of registrant as specified in its charter) Hassachusetts 04-1278810 (State or other jurisdiction of (I.R.S. Employer incorpuration or organization) Identification No.) 800 Boylston Street. Boston. Massachusetts 02199 (Address of principal executive offices) (Zip Code) Rgaistrant's teleohone number. includina area code 617-424-2000 NONE Former name, former address and former fiscal year, if changed since last report. Indicate by check mark whether the registrant (1) has filed all reports

                                   . required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes X No Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Class Qutstandina at March 31. 1990 Common Stock, $5 par value 38,645,632 shares Exhibit list appears on page 16.

     't g
 ','       SQSTON EDISON COMPANY                                                      j l

00ARTERLY REPORT ON FORM 10-0  ! l HARCH 31. 1990 i i PART I - FINANCIAL INFORMATION Paae j Item 1. Financial Statements ) i Balance Sheets - March 31, 1990 (Unaudited) and December 31, 1989 2 ) Statements of Income (Unaudited) - Three Months Ended March 31, 1990 and 1989 3 i Statements of Cash Flows (Unaudited) - Three Months Ended March 31, 1990 and 1989 4  : Notes to Unaudited Financial Statements 5-8 [ Item 2.. Management's Olscussion and Analysis of Results of Operations and Financial Condition. 9-14 ,

          = Exhibit to Part I                                               16.      ;

l l PART II - OTHER INFORMATION- 1 Item.1. legal Proceedings 15

                                                                                     .i
          ~ Item 2. Changes in Securities                                 15-Item 3. Defaults Upon Senior Securities                       15 Item 4. Submission of Hatters to a Vote of Security Holders   15 Item.5. Other Information                                        15 g!

Item 6. Exhibits and Reports.on Form 8-K 16. , 1 Signature Page 17 i 1

c

• 5 BOSTON EDISON COMPANY g PART I - FINANCIAL INFORMATION

   ,           Item 1 - Financial Statementi.                      March 31, BALANCE SHEETS    1990          December 31, Gnpudited)       _._1989 ASSETS                                                      ($ in thousands)

Property, plant and equipment, at original cost: Utility plant in service $3,223,087 $3,172,132 Less: accumulated depreciation 971.182 950.298 2,251,905 2,221,834 Nuclear fuel - net 89,165 93,839 Construction work in progress 73.768 83.827 Net utility plant 2,414,838 2,399,500 Investments in affiliated companies 22,675 22,427 Nuclear decommissioning fund 33,007 31,085 Current assets: Cash /Special Deposits 1,915 1,989 Accounts receivable 157,778 187,950 Accrued Utility Revenues (Note 6) 25,651 Materials and supplies, at average cost 90,199 89,643 Prepaid and other current assets 6.1 &Q 7.260 281,663 286,842 Deferred debits: Deferred cost of cancelled nuclear unit (Note 5) 79,855 84,744 Deferred nuclear outage costs 1,934 2,309 Other 52.689 51.364 CAPITALIZATION AND LIABILITIES Common stock equity: Par value $5 per share (Note 2) $ 193,228 $ 192,630 Premium on common stock 310,137 308,561 Retained earnings 154.933 143.357 658,298 644,548 Cumulative preferred stock: Non-mandatory redeemable series 83,000 83,000 1 Mandatory redeemable Series 50,000 50,000 Cumulative preference stock: Non-mandatory redeemable series 38,287 38,287 i Mandatory redeemable series 50,000 50,000 First mortgage bonds 798,839 798,839 Unsecured Medium-Term Notes 150,000 150,000 Current liabilities: Long-term debt due within one year 5,67S 5,675 Bank loans 35,000 39,000 Commercial paper 185,000 174,840 Accounts payable 83,099 115,891 Property and other taxes accrued 20,833 8,669 Interest accrued 22,073 .21,104 Dividends payable 16,973 17,308 Other 5,177 7,008 Rate and Contract Settlements (Note 3) 88.457 89.541 462.287 479.036 Commitments and Contingencies (Notes 3 & 4) , Deferred credits: Accumulated deferred income taxes 392,376 377,227 l Accumulated deferred investment tax credits 93,688 94,835 l Nuclear decommissioning reserve 37,125 35,409 Other 22,761 27,090 Rate Settlement (Note 3) 50.000 50.000

                                                                   $2.886.661          $2.878.271 See accompanying Notes to Unaudited financial Statements.

2

 - - - - - - - - - -                     -               - - - - - -            ~

l BOSTON EDISON COMPANY

               '    ~

STATEMENTS OF INCOME (Unaudited) ($ in thousands, except per share amounts) Three Months Ended _ 3/31/90 3/31/82 Operating revenues (Note 3): $309.664 1296.253 Operating expenses: Fuel 88,099 67,969 Net purchased power /other 40,893 48,wu Other operations and maintenance (Note 3) 86,399 84,029 Depreciation and amortization 30,895 30,471 Amortization of deferred cost of canceled nuclear unit 6,095 6,095 Amortization of deferred nuclear outage costs (Note 3) 375 5,344 Taxes - property and other 14,295 15,535 Provision for income taxes 3.400 4.299 Total operating expenses 270.451 262.689 Operating income 39,213 33,564 Other income: Allowance for other funds used during construction 1,314 Other - net (Note 5) 1.283 2.012 Operating and other income 40,496 36,890 Interest charges: Long-term debt 22,351 22,891 Other 5.572 3,858 Allowance for borrowed funds used during construction - credit (2.198) (1.672) Total interest charges 25.725 25.077 Net-income before cumulative effect of accounting change 14,771 11,813 Cumulative effect of accrual.for unbilled re enues, net of taxes of

                              $9,819 (Note 6)                                          15.82.4                                      -Net Income                                                 30,595       11,813 Preferred and preference dividends provided     .

4 4)) 4.413

                           . Balance available for common stock (Notes 3 & 4)                              $ 26.182     1 7.400 Common shares outstanding (weighted average)                                  38,599       38,002 Earnings per share of common stock:

Before cumulative effect of accounting change $0.27 $0.19 Cumulative-effect of accrual of unbilled revenues (Note 6) 0.41 Total 19,dQ, $0.19 Dividend declared per common share $0.38 $0.455 See accompanying Notes to Unaudited Financial Statemcats. 3

        ,s ~

o' BOSTON EDISON COMPANY

 ,                                          STATEMENTS OF CASH FLOWS (Unaudited)

Three Months Ended March 31. 199D March 31. 1989 ($ in thousan1.r) Cash flows from Operating Activities: Net Income $30,595 $11,813 Adjustments to reconcile net income to net cash provided by operating activities: r Cumulative effect (net) for years prior to 1990 of accounting change for unbilled revenues (Note 6) (15,8E ) Depreciation 27,475 26,856 Amortization of Nuclear fuel 6,323 417 Amortization of deferred cost of cancelled nuclear unit (net) (Note 5) 4,889 4,628 Other Amortization 3,054 4,750 Net Changes in: Accounts receivable 18,433 (11,177) Accrued utility revenues (Note () 3,992 Materials & Supplies (555) (3,766) Accounts Payable (32,792) (15,207) Other current assets and liabilities 12,441 21,132 Allowance for funds Used During Construction (2,198) (2,986) (Increase) Decrease in Deferred fuel 7,739 (3,392) Increase (Decrease) in Deferred Income Taxes 6,206 (327) (Decrease) in Investment Tax Credit, net (1,147) (1,270) Amortization of Deferred Nuclear Outage Costs 375 5,344 Net Change in Other Deferred Debits and Credits (6,281) 16,180 Cash Outlays: Rate and Contract Settlements (1.084) Net Cash Provided by Operating Activities 61.641 52.995 Cash flows (Used) by Investing Activities: Plant Expenditures (excluding AFUDC) (48,524) (43,893) Decommissioning Fund (1,922) (1,326) Investments in Affiliated Companies (248) (8.025) Net Cash Flows (Used) by Investing Activities (50.694) (53.244) Cash Flows Provided (Used) by financing Activities: Issuances of Common Stock 2,173 2,897 Increase in Notes Payable 6,160 18,620 Dividends Paid .(19.354) (21.356) Net Cash Provided (Used) by Financing Activities (11.021) 161 (Decrease) in Cash (74) (88) l Cash at the 8eginning of the Year 1.989 3.235 l Cash at the End of the Period }1.915 $ 3.147 Cash paid during the period for: Interest $26,954 $25,608 Less: Amounts Capitalized (2.198) (1.672) Total }24.756 })ld31

Income Taxes _$ 2.225 $ 9.917 1

1 See accompanying Notes to Unaudited Financial Statements. 4 l

o I , q BOSTON EDISON COMPANY NOTES TO UNAUDITED FINANCIAL STATEMENTS

1) Basis of Presentation Certain information and footnote disclosures, normally included in financial statements prepared in accordance with generally accepted accounting principles, have been condensed or omitted in this form 10-Q pursuant to the Rules and Regulations of the Securities and Exchange Commission. However, in the opinion of Boston Edison Company (the Company), the disclosures contained in this form 10-Q are adequate to make the information presented not misleading. These statements should be read incon,junctionwiththefinancialstatementsandthenotestheretoandall other information included in the Company's Annual Report to the Securities and Exchange Commission on Form 10-K for the year ended December 31, 1989.

In the opinion of the Company, the accompanying unaudited financial statements reflect all adjustments, including normal recurring accruals, necessary to present fairly the financial position as of March 31, 1990 and the results of operations and cash flows for the three months ended March 31, 1990 and 1989. Certain prior year balances have been reclassified to reflect current classifications. The results of :perations for the three months ended March 31, 1990 are not indicative of the results which may be expected for the full year. During 1989 and 1988, the Company experienced major fluctuations in quarterly net income. The Company's kWh sales and base revenues are seasonal in nature, with both being lower in the spring and fall seasons. In addition, pursuant to retail rate orders of the Commonwealth of Massarhusetts Department of Public Utilities (OPU"), base retail rates billed to customers are, on average, forty percent higher in the billing months of July through October. Accordingly, a significant portion of annual earnings occurs in the Company's third quarter. See " Management's Discussion and Analysis of Results of Operations and Financial Condition" included in Part I of this Form 10-0 and Item 1(c)(1)(v) " Seasonal Nature of Business" in the Company's Annual Report to the Securities and Exchange Commission on Form 10-K for the year ended December 31, 1989. In the first quarter of 1990 the Company began accruing the non-fuel portion of base revenues for services rendered but not billed to more closely match revenues and expenses. Prior to this adoption, the Company recognized revenues when ;eieices were billed.- See also Note 6 of Notes to Unaudited financial Statements.

2) Securities Issued The Company issued 119,547 shares of its common stock in ac .,rdance with the Dividend Reinvestment and Common Stock Purchase Plan during the quarter ended March 31, 1990.

At March 31, 1990, the Company had 50,000,000 shares of common stock authorized, of which 38,645,632 shares were issued and outstanding. See

                    .5te 1 of Notes to Schedules of Capital Stock and Indebtedness included in the Company's Annual Report to the Securities and Exchange Commission on Form 10-K for the year ended December 31, 1989.

5 j 1

c l I s MIES TO UNAODITED FINANCIAL STATEMENTS (Continutdl

3) Settlement of Certain Proceedinas On October 31, 1989, the DPU approved a settlement agreement effective November 1. 1989 (the "DPU Settlement Agreement"), relating to ceitain DPU proceedings involving the Company. In addition, in January 1990 and in April 1990, the Company entered into settlement agreements with certain I wholesale customers (the " Wholesale Settlement Agreements"), to resolve a portion of certain pending regulatory and legal proceedings concerning long-term purchased power contracts with such customers for a portion of the output of the Pilgrim Nuclear Power Station (" Pilgrim Station"). The Wholesale Settlement Agreements are subject to the approval of the Federal Energy Regulatory Commission ("FERC"). As a result of the DPU Settlement Agreement and the Hholesale Settlement Agreements, the Company recorded in the fourth quarter of 1989 a before-tax charge of $178,6SO,000 (including a reserve for remaining regulatory proceedings and related litigation in connection with the FERC proceedings described above), with an after-tax effect of approximately $106,280,000 or $2.78 per share of Common Stock.

The Towns of Concord and Hellesley, MA, (the Towns) which receive ' approximately 2% of the output of Pilgrim Station through the Company's l all-requirements service to the Towns, and intervened in the FERC j proceedings described above, are not parties to the Wholesale Settlement f Agreements. The FERC procedural schedule as to the Towns has been suspended until May 21, 1990. The Towns and the Company are attempting to , l reach a negotiated settlement. Any settlement agreement which is reached ) between the Towns and the Company will be subject to approval by the.FERC. ] The Company believes that reserves previously established in the fourth 1 quarter of 1989 are adequate to cover the settlement with the Towns. See also Item l(c)(1)(ii) " Expected Plant Expenditures and Related Financing" (subheading " Regulation") included in the Company's Annual Report to the Securities and Exchange Commission on Form 10-K for the year ended December 4 j 31, 1989 and Item 2 " Management's Olscussion and Analysis" hereunder, j

4) Commitments and Continaencies (See also Note 3)  !

a) Wholesale and Contract Customers On July 24. 1987, the Towns of Concord, MA and Hellesley, MA (the Towns) filed a complaint against the Company in the United States . District Court for the District of Massachusetts alleging violation of  ! the federal antitrust laws. The Company supplies substantially all of  ; the electric power requirements of the Towns. The Towns' complaint ' included allegations of price discrimination, anticompetitive restriction and price squeeze. In May 1989, a jury determined that the Company had violated federal antitrust laws and awarded damages of

                     $13,100,000, which results in a total judgment of $39,300,000 when trebled under antitrust law. If upheld, the judgment (which is not reflected in the accompanying financial statements) would represent a charge to earnings of approximately $0.64 per share of common stock.        ,

The Company has appealed the judgment to the United States Court of Appeals for the First Circuit, which heard oral arguments in the case on April 5, 1990. Management believes that the decision is contrary to the facts and applicable law and that it is unlikely that this  ; i judgment will be upheld on appeal. ! 6

                                                                                                ]

      ^
   ,.                     NOTES TO UNAUDITED FINANCIAL STATEMENTS (ContinutM                        I b) tbzardous Haste l

Under the requirements of the applicable state and federal "Superfund" ' laws and regulations adopted thereunder, the Company and others are exposed to potential joint and several liability with respect to the l clean-up of sites where hazardous wastes may have been spilled or I disposed of in the past. The Company has had claims asserted against it related to clean-up costs at a number of such sites in Massachusetts and other states. While the Company is unabla at this time to predict the ultimate total clean-up costs for such sites or what its share of costs will be for each such site, on the basis of information presently available, the Company believes the likelihood that it would incur any material liability in connection with such sites :) be remote. c) Generatina Unit Performance Proaram In compliance with t 1981 amendment to the Massachusetts statute under which the Company recovers its fuel and purchased power costs, the Company is required each year to submit to the DPU pe formance standards applicable to its generating units and to other units from l which the Company purchases power pursuant to long-term contracts. The Company also provides quarterly progress reports to the DPU with respect to generating unit performance. The DPU is empowered to conduct a review of such performance ano has the right to reduce subsequent fuel clause billings if it finds that the Company has been unreasonable or imprudent in the operation of its generatir.g units or in the procurement of fuel. The Company's most recent generating unit performance program covered the period November 1, 1988 to October 31, 1989. On May 2, 1990, the DPU issued an order in which it made a finding of no imprudent or l unreasonable actions by the Company in the operation of its generating , units during this period. Consequently, the DPU did not require any refunds of money previously recovered through the fuel charge to be made to the Company's customers.

5) Cancelled Nuclear Unit The Company commenced amortizing the cost of the cancelled Pilgrim 2 nuclear unit in May 1932 over approximately eleven and one-half years pursuont to retail rate orders of the DPU, Such costs include certain +

financial carrying costs that will be reviewed and may be increased or 4 decreased from time to time by the DPU. The adoption of SFAS No. 90 had the dfect of increasing net income for the three months ended March 31, 1990 and March 31, 1989 by $745,000 ($0.02 per share) and $905,000 (50.02 per share), net of taxes of $462,000 and $562,000, respectively, due to the inclusion in net income of the imputed interest income related to the cancelled Pilgrim 2 nuclear unit , costs being recovered through revenues from customers. The unamortized discount at March 31, 1990 was approximately $9,243,000, with related deferred taxes of $3,539,000. 7

     .i '
  ,,                     HQTES TO UNA4DITED FINANCIAL _ STATEMENTS (Continued)

6) Chanae in Accountina Printicle - Unbilled Revenues Effective January 1, 1990, the Company began accruing the base portion of revenues for services rendered but not billed, in order to more closely match revenues with expenses. The cumulative effect of this accounting change as of January 1, 1990 was to increase earnings by $0.41 per common share ($15,824,000, net of taxes of $9,819,000). In addition, the effect of this change on the quarter ended March 31, 1990 operating results was to reduce earnings by $0.06 per common share ($2,463,000, net of taxes of

              $1,529,000).

Had the Company been accruing unbilled revenues in 1989, the pro forma effect of this change on the quarter ended March 31, 1989 results would have been as follows (in thousands, except earnings per share): As Reported Pro forma Net Income $11,813 $9,737 Balance available for Common Stock 7,400 5,324 Earnings Per Common Share 50.19 $0.14 8

    ,,                                   BOSTON EDISON COMPANY s'

Item 2. Management's Discussion and Analysis of Resulte of Operations and Financial Condition for the Three Months Ended March 31, 1990 Versus the Comparable 1989 Period Reaulatory Proceeding 1 On October 31, 1989, the Conmonwealth of Hassachusetts Department of Public Utilities approved a settlement agreement effective November 1, 1989, relating to certain DPU proceedings involving the Company. In addition, in January and April 1990, the Company entered into settlement agreements with certain wholesale customers (the " Wholesale Settlement Agreements") to resolve most of certain pending regulatory and legal proceedings concerning long-term purchased power contracts with such customers for a portion of the output of Pilgrim Nuclear Power Station (" Pilgrim Station"). The Wholesale Settlement Agreements are subject to the approval of the Federal Energy Regulatory Commission ("FERC"). As a result of the DPU Settlement Agreement and the Wholesale Settlement Agreements, the Company recorded in the fourth quarter of 1989 a before-tax charge of $178,650,000 (including a reserve for remaining regulatory proceedings and related litigation in connection with the FERC proceedings described above), with an after-tax effect of $106,280,000 or

         $2.78 per share of common stock.

Although the DPU Settlement Agreement and the Wholesale Settlement i Agreements have removed major uncertainties facing the Company, other uncertainties remain and are discussed further under the section entitled

         " Outlook for 1990 and Beyond".

Results of Ooerations - Three Months Ended March 31. 1990 Versus Three Months Ended March 31. 1989 EarniMs per common share amounted to $0.68 for the three months ended March 31, 1990 as compared to $0.19 per common share for the same period last year. The results of operations for the three months ended March 31, 1990 include $0.41 per common share due to the cumulative effect of a change in I accounting principle effective January 1,1990 (accrual of unbilled revenues), as discussed further in Note 6 of Notes to Unaudited Financial Statements included in Part I of this form 10-Q. Excluding the cumulative effect of the change in accounting principle, earnings amounted to $0.27 per common share for the three months ended March 31, 1990 as compared to $0.19 per common share ($0.14 per common share on a pro forma basis) for the same period last year. Total operating revenues amounted to $309,664,000, an increase of 4.5%, as follows: l (000's) l 0.4% increase in retail kWh sales $2,606 l Performance clause revenues (a) 5,187 i Increase in fuel and purchased i power adjustment clause revenues 8,408 l Other, net (2.790) g Increase in total revenues $13.411_ ( (a) As part of the DPU Settlement Agreement, effective November 1, 1989, the Company is permitted to increase retail rates by approximately l $20,000,000 over the period from November 1, 1989 to October 31, 1990 l (subject to adjustment based upon the operation of Pilgrim Station). 9  !

l ' l Results of OJerations - Three Months Fnded March 31. 1990_Versus Three Months Ended March 31. 1989 (Continued) l The large increases in fuel and purchased power revenues and fuel and i purchased power expenses of $8,408,000 and $12.076,000, respectively, are due primarily to a temporary undercollection of fuel costs in 1989 as opposed to i an overcollection in the same period this year. Generation from Company owned l facilities was up 22% in the first quarter of 1990, with a corresponding 43% l decline in kWh purchases from other utilities. The major portion of fuel and purchased power expenses are recovered through fuel and purchased power l clauses with the balance being recovered through the base rates. Other i

operation and maintenance expenses increased $2,370,000, primarily as a result i of increases in scheduled maintenance expense, and employee benefits expense; 1989 activity included a $1,500,000 provision for a potential writeoff of certain Pilgrim Station capital investments. Amortization of deferred nuclear outage costs decreased $4,969,000; the remaining balance of such costs was l l charged to income in the fourth quarter of 1989 as part of a before tax charge ,

of $178,650,000 as discussed previously. l Property and other tax expense decreased $1,240,000 due to lower property taaes as a result of the settlement of a tax dispute with the City of Boston, MA. The Company's effective income tax rates for the first quarters of 1990 l and 1989 were 30.9%, and 30.6%, respectively. In accordance with the terms of l the DPU Settlement Agreement, the Company is restoring to income certain municipal tax abatements and deferred income taxes in 1990. Other income decreased $729,000; 1989 activity included approximately l $900,000 of interest income relating to financial advances to certain l transmission companies in which the Company has invested interests. AFU0C totaled $2.198,000, a decrease of 26% from 1989, due to a large decrease in the construction work in progress base. Total interest expense increased $1,174,000, primarily related to an increase in the average ! short-term loan balance outstanding, which is necessary to support the ! Company's ongoing program of plant expenditures. Financial Condition and Liauidity i See Part II, Item 7 "Hanagement's Discussion and Analysis of Financial l Condition and Results of Operations" in the Company's Annual Report to the Securities and Exchange Commission on Form 10-K for the year ended December 31, 1989. See Notes 2, 3 and 4 of Notes to Unaudited Financial Statements included in Part I of this form 10-0. The Company currently has short-term borrowing authority from the FERC of

$350,000,000, which the Company deems adequate to cover working capital and

' other liquidity requirements. The Company meets working capital requirements, as well as the interim financing necessary for its current program of plant expenditures, primarily by internally generated funds, supplemented by the issuance of short-term commercial paper and bank borrowings. As of March 31, 1990, the Company had $220,000,000 of short-term debt outstanding. The Company also arranged for a three year, $350,000,000 revolving credit facility in May 1988. Effective March 10, 1990, tne Company amended this revolving credit agreement. The amendment reduces the credit line to $330,000,000 and ! 10

  .,o

./ Financial Condition and Liouidity (Continued) extends the agreement until February 28, 1993. As of March 31, 1990, the Company had not applied to the DPU for regulatory approval to incur long-term debt under this agreement, nor had the Company incurred any short-term debt thereunder. The Company also has arrangements with certain banks to provide additional short-term credit on an uncommitted and as available basis. During 1989 the Company filed a registration statement with the Securities and Exchange Commission seeking approval to issue $100,000,000 of debt securities (together with $65,000,000 of previously registered cirst Mortgage Bonds). This registration statement became effective on huuary 29, 1990. The Company's current intention is to issue securities pursuat t to this registration statement during 1990 for capital expenditures for exter sions, adclitions and laSrovements to the Company's plant and properties or nr the payment of wijgotions incurred for such expenditures. As of the date of this i filing, tio securities have been issued in relation to these filings. In April 1990 the Company redeemed the remaining $16.139,000 of i outstanding Series T (12 1/4%) and Series V (12 5/8%) First Mortgage Bonds, at ' a redemption price approximating 110% of par value plus accrued interest. i The Company generated sufficient cash flow in the twelve months ended l March 31, 1990 to meet all debt service requirements, however, as a result of I recording the charges associated with both the DPU Settlement Agreement and I the Wholesale Settlement Agreements in the fourth quarter of 1989, the Company's ratio of earnings to fixed charges was 0.76X for the twelve months ended March 31, 1990. The Company would have needed to generate additional taxable income of approximately $28,458,000 to cover its fixed charges of approximately $117,590,000 incurred In the twelve months ended March 31, 1990. Outlook for 1990 and Beypad In connection with the DPU Settlement Agreement, the Company has agreed to limit its retail revenue increases prior to November 1, 1992 to approximately 2% per year, subject to adjustment based on Pilgrim Station's performance. Accordingly, the Company's ability to maintain or increase earnings through such period will depend primarily on its ability to control costs and increase kilowatthour sales, as well as the efficient operation of Pilgrim Station. During the period November 1, 1992 through October 31, 2000, the Company has agreed to institute a new cost recovery mechanism, which is also tied to Pilgrim Station's performance, for a portion of the Company's investment and costs related to Pilgrim Station. As a result, the Company's potential earnings af ter 1992 will continue to depend, in part, upon the efficient operation of Pilgrim Station. In connection with the DPU Settlement Agreement the Company also agreed to expend over the next three years, and not seek recovery for, $75,000,000 on certain demand-side management programs. See also Item 1(c)(1)(ii) " Expected Plant Expenditures and Related Financing" (subheading " Regulation") included in the Company's Annual Report to the Securities and Exchange Commission on Form 10-K for the year ended December 31, 1989. 11

O Outlook for 1990 and Bevo_rd (Continued) On February 12, 1990, the NRC formally accepted the completion of the power ascension and test program at Pilgrim Station which began in December 1988. During the period from November 1, 1989 through April 30, 1990 Pilgrim Station operated at a capacity factor of approximately 62%, which was within the neutral zone of 60% to 76%. Pilgrim Station underwent a planned surveillance outage from March 11, 1990 to April 28, 1990. A large portion of the Company's kWh sales are iri the commercial sector as compared to the industrial sector. While the Company does not anticipate any significant effects from a continuation of the current slowdown in the regional economy, the Company does not anticipate significant growth in retail kWh sales. Retail kWh sales for the three months ended March 31, 1990 were 0.4% greater than the same period last year. The Company's growth in base revenues may also be reduced by the implementation of demand-side management programs. Additional information relating to the seasonality of the Company's kWh sales, base revenues, and quarterly earnings can be found in Note 1 of Notes to Unaudited Financial Statements included in Part I of this form 10-0 The Company may have additional financial exposure with respect to a jury verdict of $39,300,000 against the Company in an antitrust suit which the Company is currently appealing (as discussed further in Note 4(a) of Notes to Unaudited Financial Statements included in Part I of this Form 10-0); management believes that the decision is contrrry to the facts and applicable law and that it is unlikely that the judgment vtil be upheld on appeal. The Company has been named as a potentially responsible party by certain environmental authorities with respect to the clean up of certain hazardous waste sites; the Company believes that it is remote that it will incur any significant liability with respect to such claims (see Note 4(b) of Unaudited Notes to Unaudited Financial Statements). The Company began negotiations involving its labor contracts on January l 22, 1990 which are continuing through the contract expiration date of May 15, 1990. On May 1, 1990 the Company filed its Long-Range Forecast of Electric , Power Needs and Requirements for the years 1990-2014 with the Massachusetts ! Energy Facilities Siting Council for approval relating to the electric service needs and requirements of the Company's service area. Included with this filing was also a request for approval of the Edgar Energy Park project which l is a 306 MH combined cycle generating station which the Company proposes to l construct on the former site of the Company's now retired Edgar Generating Station in Heymouth, Massachusetts. Also on May 1,1990 the Company filed with the DPU a request for a zoning exemption for the Edgar Energy Park Prcj ec t . Assuming the successful completion of permitting activities and receipt of regulatory approvals, it is anticipated that construction of this facility could start in the first half of 1991 should the Company so elect. In March 1990 the Company announced plans to spend up to $213,000,000 (in 1990 dollars) over the next five years as part of its energy conservation plan in its retail service area. Included in these expenditures is $75,000,000 resulting from the DPU Settlement Agreement, for which the Company will not seek recovery (as discussed previously in Note 3 of Notes to Unaudited 12

 , ' - Proceedinas Reaardina Lona-Term Purchased Power Contracts Financial Statements included in Part I of this Form 10-Q). Recovery of expenditures of amounts in excess of $75,000,000 will be sought according to DPU guidelines and regulations.

Approximately 26% of the output from Pilgrim Station is sold to other utilities pursuant to long-term purchased power contracts which require such purchasers to pay a proportionate share of the costs of the plant. In December 1987, complaints were filed at the FERC against the Company by two utilities that receive approximately twelve percent of the total output from Pilgrim Station pursuant to such long-term purchased power contracts. The complaints alleged that the Company mismanaged the operation of the unit and sought, among other relief, termination of the Pilgrim contract and reimbursement for damages incurred. Billings pursuant to such contracts (excluding fuel) from April 12, 1986 through March 31, 1990 were approximately

          $310,000,000. The Company filed responses denying the utilities' allegations. All Pilgrim contract customers, with the exception of one municipal light department, intervened in the proceedings before FERC. One utility and thirteen municipal light departments filed complaints in court seeking additional relief. In addition, the Towns of Concord, MA and Hellesley, MA, wholesale customers of the Company which receive about 2% of Pilgrim's output through the Company's all-requirements service to them, intervened in these proceedings seeking reimbursement for replacement power costs incurred during the outage. The Company answered these complaints, and the courts stayed any further proceedings pending the outcome of the proceedings at FERC. In January 1990 and in April 1990, the Company entered into the Wholesale Settlement Agreements with the contract purchasers of 26%

of the output of Pilgrim Station described above. The Wholesale Settlement Agreements are subject to approval by FERC. Pursuant to the Wholesale Settlement Agreements, the Company has agreed: (1) to compensate the settling parties for a portion of replacement power costs incurred during the Pilgrir. Station outage and for certain demand side management programs in certain of such customers' service territories and (ii) to reimburse the parties for certain litigation costs. In addition, the Company has agreed not to bill such customers for a portion of the deferred incremental operations and maintenance costs incurred during the Pilgrim Station outage. As a result of the Wholesale Settlement Agreements, the Company anticipates making cash payments to the settling parties of approximately $50,000,000, the timing of which will be dependent upon the receipt of the necessary regulatory approvals. The Towns of Concord and Hellesley have not entered into Settlement Agreements with the Company, although negotiations are continuing with the Towns. Other Uncertaintiei Emeraency Precaredness Plan for Pilarim Station i On August 4, 1987, the Federal Emergency Management Agency (" FEMA") l released the resuh. of a review of the adequacy of the offsite emergency

preparedness plan for Pilgrim Station. FEMA identified certain deficiencies l in the then existing offsite emergency response plan and withdrew its previous interim finding of adequacy. The Company continues to work with The Commonwealth of Massachusetts (the " Commonwealth") and local officials to improve offsite emergency preparedness plans, which are the responsibility of the Commonwealth. The Commonwealth has submitted its draft emergency plan to FEMA for informal technical review. On October 12 and 13, 1989, the Company, 13

   ,'     'Other Uncertainties - (Continued)

Emeraency Preoaredness Plan for Pilarim StilthD along with the Commonwealth and local officials, participated in a full scale emergency preparedness exercise for the Pilgrim Station. The program was monitored by the NRC and FEMA. On February 1, 1990, FEMA issued a report to the Commonwealth identifying two deficiencies in the Commonwealth's performance during the October drill and directed the state to schedule and successfully complete a remedial drill addressing these deficiencies. The Commonwealth in a letter to FEMA dated March 7, 1990 committed to conduct this remedial drill. The drill is scheduled for May 25, 1990. The Company cannot predict what action, if any, the NRC or FEMA might take if the Commonwealth's remedial drill is not deemed sufficient. While progress has been made in emergency preparedness, formal approval of the emergency plans has not been obtained from any of the necessary parties. The NRC has indicated that it will continue to monitor emergency preparedness issues on an ongoing basis. The Commonwealth maintains that it has not determined whether adequate planning is possible for the area around Pilgrim Station. Without continued Commonwealth and local participation it would be extremely difficult to formulate emergency response plans satisfactory to the NRC. Various individuals, groups and public officials continue to monitor and oppose operations at Pilgrim Station. Health Studies Certain governmental agencies are currently conducting studies to determine whether there is a link between Pilgrim Station and purported elevated levels of radiation-sensitive cancer in certain communities near Pilgrim Station. According to media reports, the Commonwealth of Massachusetts Department of Public Health currently plans to release the results of its studies in the spring of 1990. The Company continues to monitor the situation closely and disputes any contention linking Pilgrim Station to any elevation in cancer levels. li

 ,                                    BOSTON EDISON COMPANY PART II - OTHER INFORMATION I_ tem 1. Leoal Proceedinas See Items (1)(c)(1)(li), subcaption " Regulation", 1(c)(1)(xii):
        " Environmental Matters", and 3: " Legal Proceedings" in the Company's Annual Report to the Securities and Exchange Commission on Form 10-K for the year ended December 31, 1989. See also Notes 3 and 4 of Notes to Unaudited financial Statements included in Part I of this form 10-Q. See also Item 1(c)(1)(ii) " Expected Plant Expenditures and Related Financing" (subheading -
         " Regulation") in the Company's Annual Report to the Securities and Exchange Commission on Form 10-K for the year ended December 31, 1989 and Item 2 -
         "Hanagement's Discussion and Analysis" included in Part I of this Form 10-Q.

On February 10, 1982 the Boston Housing Authority (" BHA") filed an action against the Company in the Massachusetts Superior Court seeking approximately

         $10,000,000 in damages for alleged overcharges for electricity and steam furnished over a six-year period, together with a claim for treble damages pursuant to M.G.L. c. 93A. On December 15, 1983 the Massachusetts Supreme Judicial Court affirmed an order of the Massachusetts Superior Court dismissing the BHA's claim of unconstitutional and unfair electric rate discrimination and remanded the claim for steam overcharges (appro/imately
         $4,000,000) to the Superior Court for completion of the pleadings aad trial.

Ltem 2. Chanaes in Securities See Note 2 of Notes to Unaudited Financial Statements included Part I of this form 10-Q. Ltem 3. Defaults Uoon Senior Securities - None Ltem 4. Submission of Matters to 4 Vote of Security Holders a) The Company's Annual Meeting of Stockholders was held on Monday, May 7, 1990 in Boston, MA. Proxies for the meeting ore solicited pursuant to Regulation '4A. b) There was no solicitation in opposition to the Board of Directors' nominees, as listed in the proxy statement, for directors to be elected at the meeting and all such nominees were elected. See also Item 5 hereunder. c) No other business was cansacted other than the election of directors. d) Not applicable. Item 5. Other Informatigr} Thomas J. Galligan, Jr. and Richard D. Hill, members of the Board of Directors, retired effective May 7, 1990. Charles K. Gifford, President of Bank of Boston, and Sherry H. Penney, Chancellor of the University of Massachusetts - Boston, were elected to the Board of Directors at the May 7, 1990 Annual Meeting of Stockholders. 15

V- BOSTON EDISON COMPANY ', PART II - OTHER INFORMATION (Continued) Item 6. Exhibits and Reports on Form 8-X a) Exhibits filed Herewith: Exhibit 1 - Underwriting Agreements 1.1 - Series B Medium-Term Notes Distribution Agreement Exhibit 12 - Computation of Ratio of Earnings to Fixed Charges 12.1 - Computation of Ratio of Earnings to fixed Charges Exhibit 15 - Letter re: unaudited financial information 15.1 - Report of Independent Certified Public Accountants Exhibit 18 - Letter re: Change in accounting principle 18.1 - i.etter of Independent Certified Public Accountants Exhibit 28 - Other Exhibits 28.1 - Letter of Independent Certified Public Accountants Re: Form S-3 Registration Statements filed by the Company on November 18, 1985 (File No. 33-01614) and July 15, 1986 (File No. 33-07103), and June 30, 1989 (File No. 33-29628) and Form S-8 Registration Statements, filed by the Company on October 10, 1985 (File No. 33-00810) and July 28,1986 (File No. 33-7558). 28,2 - Settlement Agreement 8etween Boston Edison Company and City of Holyoke Gas and Electric Department et.al., dated April 26,1990. Haster appendix is included. All appendices were identical. b) Forms 8-K were filed by the Company on January 10, 1990, January 25, 1990 and February 14 1990 with the Securities and Exchange Commission. The reports contained information under Item 5, Other Events, which included the Hholesale Settlement Agreements involving FERC proceedings, release of 1989 earnings, and the 1989 audited financial statements, respectively. 16

u.n f SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the

                              , registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.                                                                                                   !

i i t 1 4 1 j i 1 I a 1-SQSTONLEDISON COMPANY . (Registrant) i i

                              -Date: May 14, 1990                                                    /s/ Robert J. Heafer. Jr.                                       1
     -                                                                                                   Robert J. Heafer, Jr.                                       J Controller and Chief
                                                                                                          ' Accounting Officer
.m ,

5 ii. L. 3 i e 17 r

      .                                          SECURITIES AND EXCilANGE COMMISSION s                                         Wcshington D.C 20549 t

e FORM 10 K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF Tile SECURITIES EXCilANGE ACT OF 1934 For the fiscal year ended December 31,1989 Commission file number 12301 BOSTON EDISON COMPANY (Esact same of registrant as speelfled la its charter)

Massachusetts 04 1278810 - (State or otherjunsdicuon of (1.R.S. Employer ircorporation or organization) Identification No.) [ 800 Boylston Street, Boston, Massachusetts (Address of pnncipal execuuve offices) 02199 (Zip Code) Registrant's telephone number, including area code 617 424 2000

 -      Securities registered pursuant to Section 12(b) of the Act
   >                                                                                                                       Name of each exchange Tide of each class                                                                                       on whleh registered e

Common Stock Boston Stock Exchange (par value 55 per share) New York Stock Exchange Preference Stock: Boston Stock Exchange S t.46 Series.. New York Stock Exchange r (par value 51 per share) Cumulative Preferred Stock, New York Stock Exchange 8.88% Series (par value $100 per share) _ First Mortgage Bonds: New York Stock Exchange Series P,91/4% Duc 2007 Securities registered purusant to Section 12(g) of the Act None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shoner period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO

  =

State the aggregate market value of the voting stock held affiliates of the registrant as of March 1,1990 computed by reference to the last reponed sale price of the Common Stock,55 par value, of the registrant of the New York Stock Exchange Consolidated Tape on that date: 5734,267,008. L Indicate the numter of shares outstandinc of each of the recistrant's classes of et mmon stock, as of the latest practicable date. Class Outstandine at March 1,1990 Common Stock,55 par value 38,645,632 shares _ auments Incorporated by Referen _c Part Document 1.!! and 111 Portions of Annual Report to Shareholders for Year Ended December 31,1989 Portions of definitive Proxy Statement dated March 22,1990 for Annual Meeting of Stockholders to be 111 held May 7,1990. Exl.ibit List appears on page 34 E

r 1 ( BOSTON EDISON COMPANY ANNUAL REPORT ON FORM 10.K December 31. 1989 PART I PAGE Item 1. Business. 2 Item 2. Property and Power Supply. 17 Item 3. Legal Proceedings. 23 Item 4. Submission of Matters to a Vote of Security Holders. 24 PART II - Item 5. Market for the Registrant's Common Stock and Related Stockholder Matters. 30 Item 6. Selected Financial Data. 31 Item 7. Management's Discussion and Analysis of Results of Operations 31 and Financial Condition. Item 8. Financial Statements and Supplementary Data. 31 Item 9. Changes in and Disagreements with Account &nts cc Accountine and Financial Disclosure. 31 PART III l Item 10. Direttors and Executivrs Officers of the Registrant. 32 Item 11. Executive Compensation. 32 Iters 12. Security ownership of Certain Beneficial Owners and Management. 32 1 Item 13. Certain Relationships and Related Transactions. 33

i. PART IV Iten 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 34

_1-

                                                                                                                                                              ?

PART I > r _ Item 1: BUSINESS RgE1 (a): GENERAL DEVELOPMENT OF BUSINESS Item 1 (a) (1): DESCRIPTION OF BUSINESS Boston Edison Company ("the Company") is an investor-owned regulated public utility engaged in the energy and energy services business, which includes the generation, purchase, transmission, distribution and sale of electric energy and the development and implementation of demand-side management programs. It was incorporated in 1886 under the laws of The o Commonwealth of Massachusetts. Its principal executive offices are located at i 800 Boylston Street, Boston, Massachusetts 02199, and its main telephone number is (617) 424-2000. Item 1 (b): FINANCIAL INFORMATION ABOUT INDUSTRY SEGHENTS The Company opr. rates soiely in the electric utility business. For information concerning the tale of the Company's steam heating business in

          .                 - 1987, see Note C of Notes to Financial Statements contained on Page 29 of the Annual Report to Shareho'lders for the year ended December 31, 1989

_: incorporated herein by reference. In 1989 the Comonwealth of Massachusetts Department of Public Utilities (the "DPU") granted interim approval for the formation of Harbor Electric Energy Company, a wholly owned regulated subsidiary of the Company. The subsidiary will supply transmission service to the Massachusetts Water Resource Authority. Item 1 (c): NARRATIVE DESCRIPTION OF BUSINESS ke RtLLhLil)_(i): PRINCIPAL PRODUCTS AND SERVICES F The Company supplies electricity at retail to an area of approximately 590 square miles within 30 miles of boston, Massachusetts, encompassing the p City of Boston tad .39 surrounding cities and towns. The population of the

  ;-                          territory served with electricity at retail is approximately 1,500,000. At 5                           Dece.mber 31, 1989, the Company served approximately 640,000 customers.                                        The Company also suoplies electricity at wholesale for resale to other utilities and municipal electric department). r or inforretion relating to the principal E                           classe's or services ffcm which the Company derives its electric revenues, see r'

selected sales statistics contained on page 38 of the Annual Report to Shareholders for the yar ynded Detember 31, 1989, incorparated herein by reference. Id Item 1 (c) (1) (ii): EXPECTED PLANT EXPG QlIURES AND RE QTED FINANCING E

• For certain information concerning the Company's expected plant 7 expenditures and related financing, see Management's Discussion and Analysis

    =

contained on Pages 15 through 19 of the Annual Report to Shareholders for the year ended December 31, 1989, incorporated herein by reference.

    =

m

   ,  Plant Eroendituret. The Company's most recent estimated plant expenditures, which are subject to continuing review and adjustment, sinkirig t~und requirements and long-term debt maturities for the periods 1990 through 1994 are shown in the following table.

($ in 000's in table and notes to table) 1110 1191 1191 1193 1914 Plant Expenditures (1) $255,000 $260,000 $220,000 $200,000 $180,000 AFUDC (2) 12,000 16,000 11,000 13,000 11,000 First Hortgage Bond Naturities and Sinking Fund Requirements 5,675 6,800 21,800 6,800 6,800 Medium-Term Note Naturities - 50,000 - 50,000 50,000 Mandatory Sinking Fund - 7.27% Preferred Stock - - - 2,000 2,000 Stated Rate Auction Preference Stock (3) - - - - - (1) Included in the table are $51,000 of estimated contractual obligations at December 31, 1989 for plant and equipment (including nuclear fuel). (2) Base ' upon assumed allowance for funds used during construction ("AFUDC") accrual rates of 8.0% - 5.0%. (3) See Note 5 of Notes to Schedules of Capital Stock and Indebtedness contained on Pages 25 and 26 of the Annual Report to Shareholders for the year ended December 31, 1989, incorporated herein by reference, for information on potential mandatory redemption requirements on the Company's outstanding Stated Rate Auction Preference Stock commencing November,1991. As part of various settlement agreements between the Company, the DPU and certain wholesale customers, the Company expects to incur cash outlays of approximately $139,000,000, the timing of which is subject to receipt of the necessary regulatory approvals. See " Rate Proceedings and Pilgrim Nuclear Power Station" hereunder for additional information. Funds generated internally represented approximately 59%, 43% and 48% of plant expenditures in 1989, 1988 and 1987, respectively. Plant expenditures associated with work at Pilgrim Station approximated $30,000,000 in 1989,

     $45,000,000 in 1988 and $158,000,000 in 1987. The remaining plant expenditures of $214,000,000 in 1989 were primarily related to improvements in the Company's transmission and distribution systems. It is expected that a portion of future plant expenditures will be funded internally.

During 1989 the Company filed a registration statement with the ! Securities and Exchange Commission seeking approval to issue $100,000,000 of debt securities (together with $65,000,000 of previously registered First Mortgage Bonds). This registration statement became effective on January 29, 1990. The Company's current intention is to issue securities pursuant to this l registration statement in the first half of 1990 for such purposes as the refinancing of certain outstanding long-term indebtedness and for capital I expenditures for extensions, additions and improvements to the Company's plant ! and properties or for the payment of obligations incurred for such I expenditures. As of March 22, 1990 no securities have been issued in relation L to this filing. The Company's 1989 year-end capitalization ratios were 52% long-term debt 12% preferred / preference stock and 36% common equity as compared to 1988 year-end levels of 50%,12% and 38% and the 1987 year-end levels of 48%,10% l and 42%, respectively. The decline in 1989 in common equity was primarily l related to charges associated with various Settlement Agreements whi;h were e recorded in the fourth quarter of 1989 as discussed further hereundtr. The ' Company does not expect to be able to satisfy net earning requireme ts necessary to issue additional shares of cumulative preferred stock before 1991. In addition, without approval of the holders of the Companj's common stock, the aggregate liquidation value of all outstanding shares of preference stock cannot exceed $100,000,000; following the issuance of 500,000 shares of Stated Rate Auction Preference Stock in 1988, the Company may not issue additional shares of preference stock having a liquidation value in excess of approximately $10,000,000 without obtaining such approval. The Company's securities ratings were not changed during 1989 by the three major rating agencies that rate utilities securities. Moody's Investors Services ratings are Baal for first mortgage bonds, preferred stock at baa2, preference stock at baa3 and commercial paper at Prime 2. Standard and Poor's ratings are BBB+ for first mortgage bonds, BBB for preferred stock, SBB- for preference stock, and A2 for cornmercial paper. The ratings from Duff & Phelps are BBB+ for first mortgage bonds, BBB- for preferred and preference stock and Duff 2 for commercial paper. The Company's Series A Unsecured Medium-Term Notes have been rated Baa2, BBB, and BBB by each of the aforementioned agencies, respectively. These ratings are subject to continuing review by the rating agencies. All three rating agencies have recently affirmed current security ratings. The Company generated sufficient cash flow in 1989 to meet all debt service requirements. However, as a result of recording the charges associated with various Settlement Agreements (as discussed further breunder), the Company's ratio of earnings to fixed charges declined to 0.52X in 1989. The Company would have needed to generate additional taxable income of approximately $55,708,000 to cover its fixed charges of approximately $116,445,000 in 1989. Excluding the effect of recording of these Settlement Agreements, the Company's ratio of earnings to fixed charges for 1989 would have been,2.06X. Demand-Side Manaaement Proaram Excenditures. In March 1990, the Company announced plans to spend up to $213,000,000 over the next five years as part of itt, energy conservation plan in its retail service area. Included in these expenditures is $75,000,000 resulting from the OPU Settlement Agreement, for which the Company will not seek recovery as discussed further in " Rate Proceedings and Pilgrim Nuclear Power Station" hereunder. Recovery of expenditures of amounts in excess of $75,000,000 will be sought according to DPU guidelines and regulations. Liouidity and Workina Caoital Reauirements. The Company currently has short-term borrowing authority of $350,000,000, which the Company deems adequate to cover working capital and other liquidity requirements. The Company meets working capital requirements, as well as the interim financing necessary for its current program of plant expenditures, primarily by internally generated funds supplemented by the issuance of short-term commercial paper and bank borrowings. The Company arranged for a three year $350,000,000 revolving credit facility in May of 1988. Effective March 10, 1990, the Company amended this revolving credit agreement. *ihe amendment reduces the credit line to $330,000,000 and extends the agreement until February 28, 1993. As of December 31, 1989, the Company had not applied to the DPU for regulatory approval to incur long-term debt under this agreement, nor had the Company incurred any short-term debt thereunder. The Company also has arrangements with certain banks to provide additional short-term credit on an uncommitted and as available basis.

 . . . - . ~ . . -       - . .     .~           .         .- .    . _ . .-    - - - - -       -        -- -

i ! , EGULATION l Rates. Accountina and Securities The Company and its wholly owned subsidiary operate primarily under the jurisdiction of the DPU, which jurisdiction includes supervision over retail

rates for electricity, accounting, the issuance of bonds, capital stock and certain other securities, and the investment by the Company in other l entitles, The Federal Energy Regulatory Commission ("FERC") has jurisdiction over various phases of the business of the Company including, among other things, regulation of the system of accounts, certain issuances of short-term debt, rates for power sold at wholesale for resale, and facilities used for the transmission or sale of such power.

In 1988, the DPU implemented regulations which would require electric utilities subject to its jurisdiction to obtain pre-approval for both investments in new generation capacity and for major incremental investments in existing generation capacity. Under these regulations, prior to making such generation investments the Company must file with the DPU an agreement l which defines the revenue amounts associated with the investments which the Company will be allowed to recover through rates. The regulations require the Company to bear the risk of changes in the majority of project costs. Rate-payers bear the risk of unanticipated demand reductions and fuel price changes. The Company is actively participating in the DPU's rulemaking process i governing Massachusetts electric companies concerning the acquisition of future supply and demand resources. Proposed DPU regulations set forth a ! procedure which would require electric companies to use an all-resource ! solicitation process to establish a mix of resources to guarantee least-cost, reliable service. These rules are anticipated to be in place by the end of 1990. These regulations also specify the rules by which electric utilities l would receive cost-recovery for the construction of new utility plants, as well as demand-side management programs. The Company is recovering through depreciation an annual provision for the cost of decommissioning Pilgrim Station at the end of its useful life. Funds collected for decommissioning are restricted in their use; such funds , collected in rates are based upon the latest cost estimate to decommission the l plant (immediate dismantlement method) as approved by the DPU (1985 estimate of $122,000,000). Securities held in the nuclear decommissioning fund are stated at cost, which approximates market. The Company will request approval of its updated estimate of decommissioning (currently $218,000,000) in its next retail rate case expected in 1992. The Company also collects a provision for the cost of decommissioning Pilgrim Station from contract customers. In compliance with a 1981 amendment to the Massachusetts statute under which the Company recovers its fuel and purchased power costs, the Company is required each year to submit to the DPU performance standards applicable to its generating units and to other units from which the Company purchases power pursuant to long-term contracts. The Company also provides quarterly progress reports to the DPU with respect to generation unit performance. The DPU is empowered to conduct a review of such performance and has the right to reduce subsequent fuel clause billings if it finds that the Company has been unreasonable or imprudent in the operation of its generating units or in the procurement of fuel. On December 20, 1989, the DPU issued its decision in its annual review of the Company's gLneration unit performance for the period l l

November 1, 1987 through October 31, 1988. The DPU order disallowed certain , replacement power costs totaling approximately $130,000. This amount was - refunded to the Company's retail customers during the period May through October 1989. The Company's most recent generation unit performance program covered the period November 1, 1988 to October 31, 1989. As in prior years, the Company did not meet all the DPU performance goals. On January 29, 1990, the DPU initiated a ninety day investigation of the performance of the Company's units (excluding Pilgrim Station) and the other units from which the Company purchased power under long-term contracts during that period. While the Company believes it was prudent in the operation of its generation units, the ultimate resolution of certain replacement power costs already billed to customers cannot be determined by the Company. No provision for any amounts that may be refundable as a result of the foregoing has been made in 1989 however, in the opinion of management such amounts would not be material. Hearings began on March 13, 1990, with an order expected in the spring of 1990. Nuclear The Federal Nuclear Regulatory Commission ("NRC") has broad and continuing regulatory jurisdiction over the siting, construction and operation of nuclear reactors with respect to public health and safety, environmental matters and antitrust considerations. A permit or license granted by the NRC may be revoked, suspended or modified by the NRC because of conditions revealed by the application therefor or any report or inspection which would warrant the NRC to refuse to grant a license on an original application or for failur? to construct or operate a facility in accordance with the terms of a construction permit or license. Evolving NRC regulatory requirements, resulting in part from continuing NRC review of existing regulations and certain operating occurrences at other nuclear plants throughout the country and the world, have periodically resulted in the imposition of additional requirements for all domestic nuclear plants, including Pilgrim Station. NRC inspections and investigations may on occasion result in the issuance of notices of violation of NRC regulatory requirements. Such notices of violation may, in accordance with the NRC's Enforcement Policy, be accompanied by orders directing that certain actions be taken or by the imposition of monetary civil penalties. In addition, the Company might undertake certain actions in regard to Pilgrim Station at the request or suggestion of its insurers or of the Institute of Nuclear Power Operations ("INP0"), a voluntary association of nuclear utilities dedicated to the promotion of safety and reliability in the operation of nuclear power plants. Nuclear power continues to be a subject of political controversy and public debate which is manifested from time to time in the form of requests for various kinds of federal, state and local legislative or regulatory action, through direct voter initiatives or referenda, or through the institution of litigation. The Company cannot predict the extent, cost or timing of any modifications to Pilgrim Station which might be required in the future as a result of additional regulatory or other requirements nor can it determine the effect of such future requirements on the continued operation of Pilgrim Station. Rate Proceedinas and Pilarim Nuclear Power Station On October 31, 1989, the DPU approved a settlement agreement effective November 1,1969 (the "DPU Settlement Agreement") relating to certain DPU

             ,  proceedings involving the Company. In addition, in January 1990, the Company I        .       entered into settlement agreements with certain wholesale customers (the
                " Wholesale Settlement Agreements") to resolve a portion of certain pending regulatory and legal proceedings concerning long-term purchased power contracts with such customers for a portion of the output of Pilgrim Nuclear Power Station (" Pilgrim Station"). The Wholesale Settlement Agreements are subject to the approval of the Federal Energy Regulatory Commission ("FERC"),

as well as, in part, approval by the DDU of a related agreement. As a result of the DPU Settlement Agreement and the Wholesale Settlement Agreements, the Company recorded in the fourth quarter of 1989 a before-tax charge of

                $178,650,000 (including a reserve for remaining regulatory proceedings and related litigation in connection with the long-term purchased power dispute described above), with an after-tax effect of approximately $106,280,000 or
                $2.78 per share of Common Stock.

Although the DPU Settlement Agreement and the Wholesale Settlement Agreem?nts have removed certain major uncertainties facing the Company, other uncertainties remain. (See " Management's Discussion and Analysis" and Note G of " Notes to Financial Statements" contained on pages 15 through 19 and 30

               'through 31, respectively, of the Annual Report to Shareholders for the year ended December 31, 1989, incorporated herein by reference.)

Settlement of Certain DPU Proceedinas On October 31, 1989, the DPU approved the DPU Settlement Agreement resolving certain DPU proceedings involving the Company. These proceedings involved: (i) consideration of the recovery of approximately $300,000,000 of replacement fuel and purchased power costs associated with the 1986-1989 Pilgrim Station outage and power ascension program; (ii) a petition by certain customers of the Company requesting that the DPU remove from the Company's retail rate base all investments in Pilgrim Station; and (iii) the Company's request for a retail rate increase of $85,800,000. The Settlement Agreement was proposed by the Company, the Attorney General of the Commonwealth of Massachusetts and other interested parties to the proceedings. Pursuant to the DPU Settlement Agreement, the Company has agreed: (i) to limit its retail revenue increases prior to November 1,1992 to approximately 2% per year (except in the case of certain changes in tax law, or a significant increase or decrease in expenses due to a change in law or a catastrophic event), subject to adjustment based on Pilgrim Station's performance; (ii) to expend and not seek recovery of $75,000,000 which will be spent over the next three years on certain demand-side management programs and overseen by a special board consisting of representatives from the Company and various public agencies and groups; (iii) to implement during the period November 1, 1992 through October 31, 2000 a new cost recovery mechanism for the recovery of a portion of the Company's investment in and operations and maintenance costs related to Pilgrim Station; and (iv) not to seek recovery of the retail portion of approximately $101,000,000 of incremental operations and maintenance costs incurred during the Pilgrim Station outage (of which approximately $70,000,000 had been amortized through December 31, 1989, with the balance included as part of the fourth quarter charge described above). Under the DPU Settlement Agreement, the Company is allowed consecutive annual retail revenue increases of $20,000,000 effective November 1, 1989,

                  $22,500,000 effective November 1, 1990, and $25,000,000 effective November 1, 1991, subject to adjustment in accordance with Pilgrim Station's performance measured by its capacity factor and by NRC ahd certain other industry               .

I

standards. For the period November 1, 1989 through October 31, 1992, no , adjustment will be made if Pilgrim Station's capacity factor is between 60% - and 76%. For each 1% below 60%, revenues will be reduced $1,000,000 with a maximum additional decrease of $30,000,000, and for each 1% in excess of 76%, revenues will be increased by $1,000,000 with a maximum additional increase of $15,000,000. In addition, revenues will be adjusted based on the Company's average Systematic Assessment of Licensee Performance ("SALP") ratings issued by the NRC (resulting in a maximum additional decrease in revenues of $6,000,000 and a maximum additional increase of $3,000,000, with no adjustment for an average SALP rating between 1.6 and 1.8). Adjustments due to Pilgrim Station's performance in relation to other industry standards could result in an annual maximum additional decrease in revenues of $3,000,000 and a maximum additional increase of $1,500,000. Between November 1, 1992 and October 31, 2000, recovery of the undepreciated portion of approxin.ately $50,000,000 of capital additions made to Pilgrim Station during the odage, one-fourth of the Company's undepreciated post-1988 capital additions and one-fourth of the annual operations and maintenance expenses at Pilgrim Station will be recovered through a per-kilowatthour charge, subject to adjustment based upon the same NRC and industry standards applied during the period November 1,1989 through October 31, 1992. In addition, in the event that Pilgrim Station operates below a 35% capacity factor in a year between November 1, 1992 and October 31, 2000, the DPU Settlement Agreement incorporates a revenue floor which entitles the Company to bill retail customers the per kilowatthour charge as if the plant operated at a capacity factor of 35% on the first such occurrence. Each time the Company elects to utilize the revenue floor, it is reduced for subsequent years. Other Pilgrim Station costs will continue to be recovered in retail base rates. Under the OPU Settlement Agreement, the Company will not be required to make any refund to retail customers of Pilgrim Station replacement fuel and purchased power costs incurred through October 3, 1989 (the date the DPU Settlement Agreement was filed with the DPU). Also, the parties to the DPU Settlement Agreement have agreed not to challenge the prudency of any capital costs incurred at Pilgrim Station prior to December 31, 1988 (the approximate date of the commencement of Pilgrim Station's power ascension program). Finally, if the Company would not otherwise achieve retail rates of return of 11.0% in 1990, 11.5% in 1991, and 12.0% in 1992, the Company may make certain accounting adjustments (but only to the extent that such adjustments do not result in the Company's exceeding such retail rates of return): (i) by reducing deferred income tax expense by $2,000,000 in 1990, $13,000,000 in 1991, and $23,000,000 in 1992 and (ii) by accelerating the amortization period for certain municipal property tax abatements, totaling approximately

$37,000,000, from six years to three years.

On February 12, 1990, the NRC formally accepted the completion of the power ascension and test program at Pilgrim Station which began in December 1988. During the period from November 1, 1989 through February 28, 1990 Pilgrim Station operated at a capacity factor of 84.8%, which was above the neutral zone of 60% to 76%. Pilgrim Station began a planned surveillance outage on March 11, 1990 which is expected to last about six weeks.

    ,          Proceedinas Reaardina Lona-Term Purchased Power Contracts Approximately 26% of the output from Pilgrim Station is sold to other utilities pursuant to long-term purchased power contracts which require such purchasers to pay a proportionate share of the costs of the plant. In L         December 1987, complaints were filed at the FERC against the Company by two i

utilities that receive approximately twelve percent of the total output from Pilgrim Station pursuant to such long-term purchased power contracts. The l- complaints alleged that the Company mismanaged the operation of the unit and sought, among other relief, termination of the Pilgrim contract and l reimbursement for damages incurred. Billings pursuant to such contracts I (excluding fuel) from April 12, 1986 through December 31, 1989 were approximately $288,000,000. The Company filed responses denying the i utilities' allegations. All Pilgrim contract customers, with the exception of one municipal light department, intervened in the proceedings before FERC. One utility and thirteen municipal light departments filed complaints in court seeking additional relief. In addition, the Towns of Concord, MA and Hellesley, MA, wholesale customers of the Company, intervened in these proceedings seeking reimbursement for replacement power costs incurred during the outage. The Company answered these complaints, and the courts stayed any further proceedings pending the outcome of the proceedings at FERC. In January 1990, the Company entered into the Wholesale Settlement Agreements with certain of the parties to the proceedings described above. The Wholesale Settlement Agreements are subject to approval by FERC, as well as, in part, approval by the DPU of a related agreement. Parties to the Wholesale l Settlement Agreements have contracts to purchase approximately 23% of the ( output of Pilgrim Station. Pursuant to the Wholesale Settlement Agreements, l the Company has agreed: (i) to compensate the settling parties for a portion l of replacement power costs incurred during the Pilgrim Station outage and for certain demand side management programs in certain of such customers' service territories and (ii) to reimburse the parties for certain litigation costs. In addition, the Company has agreed not to bill such customers for a portion of the deferred incremental operations and maintenance costs incurred during the Pilgrim Station outage. As a result of the Wholesale Settlement Agreements, the Company anticipates making cash payments.to the settling parties of approximately $45,000,000, the timing of which will be dependent upon the receipt of the necessLry regulatory approvals. Thirteen municipal light departments, having contracts for less than 3% of the output of Pilgrim Station (for which billings pursuant to such contracts, excluding fuel, from April 12, 1986 through December 31, 1989.were approximately $33,000,000), as well as the Towns of Concord and Hellesley, MA, are not parties to the Wholesale Settlement Agreements. On February 22, 1990, the procedural schedule was suspended for four weeks on the grounds that the thirteen municipal light departments and the Company believe that they had arrived at a basis for settling the disputes between them. Any settlement agreements which are reached between the Municipal light departments and the Company will be subject to approval by the FERC. Negotiations are continuing with the Towns of Concord and Hellesley. The Company believes that reserves previously established in the fourth quarter of 1989 are adequate to cover j these tentative settlements. Emeroency Preparedness Plan for Pilarim Station On August 4, 1987, the Federal Emergency Management Agency ("FEHA") released the results of a review of the adequacy of the offsite emergency preparedness plan for Pilgrim Station. FEMA identified certain deficiencies in the then existing offsite emergency response plan and withdrew its previous interim finding of adequacy. The Company continues to work with The

                                                   -9_

l

Common:ealth of Massachusetts (the " Commonwealth) and local officials to , improve offsite emergency preparedness plans, which are the responsibility of - the Commonwealth. The Commonwealth has submitted its draft emergency plan to FEMA for informal technical review. On October 12 and 13, 1989, the Company, along with the Commonwealth and local officials, participated in a full scale emergency preparedness exercise for the Pilgrim Station. The program was monitored by the NRC and FEMA. On February 1, 1990, FEMA issued a report to the Commonwealth identifying two deficiencies in the Commonwealth's performance during the October drill and directed the state to schedule and successfully complete a remedial drill demonstrating rectification of these deficiencies. The Commonwealth in a letter to FEMA dated March 7, 1990 committed to conduct this remedial drill. It is anticipated that the drill will be conducted sometime during the spring of 1990. The Company cannot predict what action, if any, the NRC Staff might take if such a demonstration is not made. While progress has been made in emergency preparedness, formal approval of the emergency plans has not been obtained from any of the necessary parties. The NRC has indicated that it will continue to monitor emergency preparedness issues on an ongoing basis. The Commonwealth maintains that it has not determined whether adequate planning is possible for the area around Pilgrim Station. Without continued Commonwealth and local participation it would be extremely difficult to formulate emergency response plans satisfactory to the NRC. Various individuals, groups and public officials continue to monitor and oppose operations at Pilgrim Station. Health Studies Certain governmental agencies are currently conducting studies to determine whether there is a link between Pilgrim Station and purported elevated levels of radiation-sensitive cancer in certain communities near Pilgrim Station. According to published reports, the Commonwealth of Massachusetts Department of Public Health currently plans to release the results of its studies in the spring of 1990. The Company continues to monitor the situation closely and disputes any contention linking Pilgrim Station to any elevation in cancer levels. Item 1 (c) (1) (iii): SOURCES AND AVAILABILITY OF FUEL SUPPLY The Company's generation units, other than Pilgrim Station, are oil or oil and natural gas-fired. Fossil fuel related expenses (excluding net purchased power) accounted for approximately 24%, 19% and 23% of the Company's total electric operating expenses in each of the years ended December 31, 1989, 1988, and 1987, respectively. The Company's generation (excluding net purchased power) by type of fuel since 1985 and the cost of fuels during that period are set forth below: Percentage of Company Average Cost in Cents per Hillion Eeneration by Source (%) BTU's on a Burned Basis (t) 19M 19E 19E 19E M M 19E M 19M 11M 011 .... 53.7 89.8 76.3 81.9 33.5 267.08 228.53 278.8 239.4 420.7 Nuclear 14.6 -- -- 10.4 40.1 56.79 -- -- 102.5 63.7 Nat. Gas. 31.6 10.2 23.7 7.7 26.4 234.26 212.83 231.1 227.7 336.4 4 for information relating to alternative energy sources and the long-range i availability to the Company of purchased power alternatives from Canadian energy resources, see Item 2 " Property and Power Supply". Q11 The majority of the Company's residual oil purchases involve imported oil acquired primarily from international suppliers. The Company has contracts with major oil companies which can supply most of the Company's  ; estimated requirements, assuming no major disruptions in the oil producing ' regions of the world that cut off important sources of oil. Within contract provisio;is, the Company retains the ability to purchase significant amounts of l o): or natural gas in the spot market when it is economical to do so. Natural Gas. The Company has the ability to burn natural gas, oil, or both simultaneously (depending upon the amount of natural gas available and the difference in price between natural gas and residual oil) M the New Boston generation units and the Mystic Unit #7 generation unit. Natural gas 1 is supplied to the units on an "interruptible" basis; such a contract permits i interruptions in deliveries by the supplier when natural gas pipeline capacity I is needed to refill storage facilities or serve other year-round customers. Deliveries of natural gas to the Company's generation units from suppliers may , also be dependent on the availability of pipeline capacity to the New England l region and/or on competitive forces prevailing in the pipeline industry. Purchased Power. See Item 2 " Property and Power Supply" for information relative to the availability to the Company of purchased energy from other ) utilities and/or the New England Power Pool ("NEP00L"). Such sources supplied l 21.8%, 39.3% and 34.1% of the Company's total system kWh output in each of the 1 years ended December 31, 1989, 1988 and 1987, respectively. These purchased i energy percentages are higher than normal due to the extended outage of the l Pilgrim Station. See also Item 2 " Property and Power Supply" hereunder for l further information on potential transmission line access issues facing the i New England region in the near future, and Company planned future purchases of power from cogenerators and/or independent power producers. Nuclear. 'The cycle of production and utilization of nuclear fuel consists of (1) the mining and milling of uranium ore; (2) the conversion of I uranium concentrate to uranium hexafluoride; (3) the enrichment of the uranium ' hexafluoride; (4) the fabrication of nuclear fuel assemblies; (5) the utilization of the nuclear fuel in the generation station reactor; and (6) the storage and reprocessing or disposal of spent nuclear fuel assemblies. The Company's contractual entitlements for suppites of uranium I l concentrates are at the present time sufficient to permit operation of Pilgrim l l Station through 1993. The Company has also entered into contracts for other segments of the nuclear fuel supply cycle which will satisfy the requirements of Pilgrim Station with respect to such segments through the approximate dates as follows: conversion - 1991; enrichment - 2001; fabrication - 2004. L for information relating to the Company's spent nuclear fuel storage l facilities and disposal of spent nuclear fuel and the impact on the Company of the Nuclear Haste Policy Act of 1982, see Item 1 (c) (1) (xii) " Environmental Matters" hereunder.

                                                                                                    . i
                                                                                               .      l Item 1 (c) (1) (iv);     FRANCHISES                                               -

The Company by virtue of its charter, which is unlimited in time, has the right to engage in the business of producing and selling electricity, steam and other forms of energy, has powers incidental thereto and is entitled to i l all the rights and privileges o/ and subject to the duties imposed upon 1 electric companies under the General Laws of Massachusetts. The locations in public ways for the Company's electric transmission and distribution lines are I obtained from municipal and other Commonwealth authorities which in granting i such locations act as agenti of the Cor. nwealth. The action of such authorities is in some cases subiet.t to appect to the DPU. These locations  ! are unlimited in time, but the rights obtained therefor are not vested and are l l subject to the action of such authorities and ';he legislature. See also Item ) 1(c)(1)(x) " Competitive Conditions" hereunder. l l Item 1 (c) (1) (v): SEASONAL NATURE OF BUSINESS ) The number of kilowatthours of electricity sold by the Company in its I territory has historically been less in the spring and fall than during winter i and summer as sales vary somewhat with weather conditions. The Company's l l electric revenues and operating incone are also dependent on a variety of other factors, which are not necessarily seasonal, including contract sales of system and unit power to other electric companies, changes in the Company's rates and charges, the extent and tiature of transactions involving NEPOOL, and general economic conditions. 1he Company has been directed by the DPU to bill a " summer surcharge" rate to retail customers during the billing months of July through October, which is usually when the Company has experienced its I annual peak load. The Company's retail rate order established in June of 1986 l directed that a further portion of the Company's annual revenues be collected I in the billing months of July through October rather than in the other l months. Accordingly, a significant portion of annual earnings occurs in the I Company's third quarter. In addition, the order directed that large commercial and industrial customers be billed throughout the year pursuant to mandatory time-of-use rates. Approximately 150 commercial and industrial customers are transferred to time-of-use rates each year. See Item 2

                 " Property and Power Supply" for information relative to the Company's l

1989-1990 winter and 1989 summer peak loads. For further information on quarterly results, see Selected Financial Statistics - Supplementary Financial Information, (Unaudited), 1989 and 1988, Quarterly Financial Data contained on page 36 of the Annual Report to Shareholders for the year ended December 31, 1989, incorporated herein by reference. Item 1 (c) (1) (vi): WORKING CAPITAL PRACTICES The Company has no special practices with respect to working capital that would be considered unusual for the electric utility industry. For information relating to the operation of the Company's retail fuel and purchased power adjustment clause, see Note A.2. of Notes to Financial Statements contained on page 27 of the Annual Report to Shareholders for the year ended December 31, 1989, incorporated herein by reference. Item 1 (c) (1) (vii): CUSTOMERS No material part of the business of the Company is dependent upon a single customer. Item 1 (c) (1) (viii): BACKLOG - Not ADD 11 cable

l Item 1 (c) (1) (ix): GOVERNMENT CONTRACTS l No material portion of the Company's business is subject to renegotiation 1 or termination of contracts at the election of the U.S. Government. j Item 1 (c) (1) (x): COMPETITIVE CONDITIONS The Company, like other Hassachusetts electric companies, is protected to the following extent against other utilities offering service to retail customers in any of the municipalities comprising the Company's service area: , first, another electric utility may not extend its service area to include municipalities other than those named in its agreement of association or , enarter without the authorization of the DPU granted after notice and public hearing; second, another company may not obtain an initial location for its lines in a municipality served by the Company without the epproval of the municipal authorities, subject to the right of appeal to the DPU; and third, a municipality may not engage in the electric utility business without complying with statutes which require (a) in the case of a city, a two-thirds vote of its city council (or a vote of a majority of the commissioners if the city government consists of a commission) passed in each of two consecutive municipal years and thereafter ratified by a majority of the voters at an annual or specific city election and (b) in the case of a town, a two-thirds vote at each of two town meetings held at intervals of not less than two nor more than thirteen months. Such statutes also require the municipality, if the Company elects to sell, to purchase so much of the Company's property within the limits of such municipality as the parties determine by agreement or, if the parties fail to agree, so much of such property as the DPU determines and at prices fixed by the DPU. In 1987, the Town of Bellingham, MA petitioned the DPU to permit the transfer of electric service currently provided by the Company to another , electric utility. Revenues from Bellingham in 1989 represented less than 1% , l of annual total Company revenues. The Bellingham service situation is unusual in that two utilities currently serve different segments of the town. A public hearing was held by the DPU in August 1987. Except for certain correspondence in 1988 between local and Commonwealth officials and the DPU, I the Company is not aware of any further action by the DPU to date. In connection with the generation of electricity and the sale of L electricity for resale, the Company competes with other electric utilities, j- non-utility power plant developers, and Qualifying Cogeneration and Small l Power Production Facilities ("QF's") as defined in the Public Utility Regulatory Policies Act of 1978 ("PURPA"), as amended . PURPA requires the Company to purchase electric energy offered for sale N QF's at a price equal l to the Company's avoided cost. Amounts of electric e,e 'v currently purchased by the Company from QF's and the amount of kHh sales peru.nently lost to former customers, including certain hospitals, now utilizing their own generation facilities are not material to the financial statements which are part of the Annual Report to Shareholders for the year ended December 31, > 1989, incorporated herein by reference. See also Item 2 (a)'" Property and Power Supply" and (c) " Independent Power Producers /Cogenerators" hereunder. The Company also competes with natural gas and other energy service companies for market share of new construction in the Company's service l territory as it relates to the providing of energy primarily for heating and cooling purposes. l

Item-l'(c)'(1)-(xi): RESEARCH ACTIVITIES - The Company actively participates in several industry-sponsored research activitics; however, such amounts incurred for research and development L activities were not material to the financial statements which are part of the Annual Report to Shareholders for the year ended December 31, 1989, and are h incorporated herein by reference.

                    ' Item 1 (c) (1) (xii):      ENVIRONMENTAL MATTERS The Company, like other electric utilities, is subject to local zoning            ,

and similar controls and to developing standards administered by federal, ' state and local authorities with respect to siting of facilities and air quality, water quality, waste disposal and other environmental considerations. Such standards and controls may require modification of existing facilities or curtailment or cessation of operations at such facilith, may delay construction of new facilities and increase capital and operating costs o) substantial amounts, and may in some cases result in the

administrative imposition of monetary civil penalties. The Company believes that its operating facilities are in substantial compliance with presently applicable statutory and regulatory requirements relating to such matters.

The Company estimates that its capital expenditures for environmental purposes during the five years 1985 through 1989 totaled approximately

                     $55,699,000, and such capital expenditures for the period 1990 through 1994
          ,          are presently expected toL be- approximately $161,270,000, including approximately.532,331,000' for the year 1990 and $39,608,000 for 1991.
                   . Substantial-additional expenditures may be required as a result of changes in
                   ' environmental requirements, or any decision to construct new facili: as.

The Company is subject to regulation by the Massachusetts Energy Facilities Siting Council ("the Council"), which must approve the Company's i long-range-forecasts with terpect to the electric power needs and requirements - of:the Company's service area. Such forecasts are. required-to be filed with the Council every five years with supplements required in intervening years.

                    ,Totapprove a long-range forecast or supplement, the Council must find, among other things, that plans for'certain new gene., tion or trans 'ssion facilities are consistent with Massachusetts policies rega. ding health, environmental:             .
                   . protection and resource use and development.. Construction of certain generation and transmission facilities is prohibited unless such facilities are approved by the Council as consistent with the most recently approved long-range forecast or supplement. In the most recent decision concerning the-r         : Company's long-range forecast on February 16, 1989, the Council approved the
   ?

lCom pny's long-range-forecast covering the years.1988-2011~. The Company's nextlena-range forecast is to be filed with the Council- in April 1990. In a separate proceeding before the Council, the Company received approval on September 27, 1989 for a 115kV transmission line from South Boston, MA to /m Deer Island in the City of Boston to serve wastewater treatment facilities to ebe= constructed by'the Massachusetts Hater Resources Authority on Deer Island.

                - The transmission line.is now being constructed by Harbor Electric Energy Company, the' Company's wholly-owned subsidiary.

The Company is subject to regulation by the United States Environmental Protection. Agency-(" EPA") and the Massachusetts Department of Environmental  ! Protection-("DEP") with. respect to discharges of effluent from the Company's power plants into receiving 5.aters. The Federal Clean Hater Act and the Massachusetts Clean Haters Act require dischargers to receive permits limiting t t

t o discharges in accordance with applicable effluent discharge limitations and water quality standards. ' M Company has received discharge permits as required by the EPA and the 0EP for each of its electric generation plants. One of those discharge permits had an expiration date during 1988. Action has not been'taken by the EPA and DEP to renew such permit. However, the Company has made timely application foi renewal of such permit in accordance with applicable regulations and, pending final action on such renewal application, such permit remains in full force and effect. The Company is subject to regulation by the DEP and the EPA relative to emissions into the air ficm the Company's fossil-fired power plants. Pursuant to applicable Massachusetts law and regulations pertaining to the control of acid rain, the total of sulfur dioxide emissions from all sources in the Commonwealth has been capped and the average emission rate of certain large fossil fuel burning facilities, none of which are Company owned, has been restricted. The Company is also aware of legislative proposals before the U. S. Congress which might add still further restrictions regarding the sulfur content of fuel used in the generation of electricity. To the extent that regulations limiting the sulfur content of oil burned in generation plants require the use of Lore expensive fuel, the Company believes that fuel adjustment clauses in its retail and wholesale rate schedules presently provide for recovery of the resulting increased costs. Similarly, any fuel savings which may result from use of higher sulfur content fuel will be passed on to the Company's customers under the fuel and purchased power adjustment clauses. The Company is subject to regulation by the EPA pursuant to the provisions of the Federal Toxic Substances Control Act concerning the use, storage and disposal of polychlorinated biphenyls ("PCBs"). Through December 31, 1989 the Company had substantially completed the removal of all PCBs from certain Company facilities in accordance with these regulations. The Company is subject to various federal, state and local laws and regulations pertaining to the handling and disposal of asbestos-containing materials. At present, a program is being undertaken-to remove systematically

         .all asbestos from the Company's generation stations and underground transmission and distribution system. The-removal of this material will be performed over an unspecified period and is subject to annual review and authorization-.

The Company is subject to various federal, statt and local laws and regulations pertaining to the generation, treatment, transport, storage and disposal of certain hazardous substances and to the clean-up of locations where such substances have either been spilled or disposed of. Among such

 ,            laws of principal importance to the Company's operations are the Federal Resource Conservation and Recovery Act (" RCRA"), the Federal Comprehensive Environmental Response Conservation and Liability Act (" CERCLA"), the Federal Superfund Amendments and Reauthorizati# Act (" SARA"), the Massachusetts Hazardous Haste Management Act ("MHHMA O , and the Massachusetts Oil and Hazardous Material Release, Prevention ;.nd Response Act ("MOHMRPRA"). Under the requirements of RCRA and MHHMA and applicable regulations adopted thereunder, certain facilities which treat, store or dispose of hazardous wastes must be licensed and the Company is required to meet other applicable requicaments regarding the generation and handling of hazardous wastes at all of the L0mpany's facilities. Pursuant to such requirements, wastewater treatment systems at the Company's Mystic and New Boston Stations which were
                                ~.

1 formerly operated pursuant to interim status regulations under RCRA and MHHMA , are now being closed in accordance with those laws and have been replaced by - facilities that do not require licensing under such laws. In addition, the Compan has applied for licenses under RCRA and HHHMA for the treatment and storas of mixed wastes at Pilgrim Station. Such treatment and storage has currently received interim status approval under those laws and regulations. J Under the requirements of CERCLA, SARA and H0HMRPRA and applicable regulations adopted thereunder, the Company and others are exposed to potential joint and several liability with respect to the clean-up of sites where hazardous wastes may have been pilled or disposed of in the past. The Company has had claims asserted agai N t it related to clean-up costs at approximately a dozen such sites in Massachusetts and other states. Such sites include Company-owned facilities which have been the location of spills , or leakage and which the Company is in the process of cleaning up in the  ! ordinary course of business. Other such sites include disposal sites with numerous parties and involving complex litigation or negotiations among the parties and with regulatory authorities concerning the scope and cost of , clean-@ and the sharing of costs among the potentially responsible parties.  ! At several of the larger of such sites the estimated total clean-up costs for the site is in the range of $50 to $100 million depending upon the remedy ultimately selected; however in each such case the Company is but one of many parties, the Company's alleged percentage share of waste contributed to the site is in the range of 1% or less and the Company is an active participant with other parties in negotiations with regulatory authorities. While the Company is unable at this time to predict the ultimate total clean-up costs for all of such sites or what its share of costs will be for each such site, on the basis of the information presently available regarding each hite, the Company believes it is remote that it would incur any material liability in connection with such sites. The Company presently disposes of low-level radioactive waste ("LLH") generated at Pilgrim Station thro %a arrangements for decontamination and disposal with licensed. brokers and for disposal with licensed disposal facilities located in Barnwell, . South Carolina and Richland, Washington. Pursuant to the Federal- Low-Level Radioactive Haste Policy Act of 1980, as amended by the Low-Level Radioactive Haste Policy Amendments Act of 1985, the Company's continued access to such disposal facilities may not be available after racember 31, 1992. In the interim, such access is restricted to annual volume below that of previous shipments to such facilities and is conditioned upon the payment of surcharges as well as upon the meeting by the Commonwealth of certain milestones involving the establishment of alternative disposal facilities accessible to Massachusetts waste generators. Legislation has been enacted in Hassachusetts establishing a regulatory scheme for managing the Commonwealth's LLH including the possible siting, licensing and construction of-such a facility within the Commonwealth. Pending the construction of such a facility or the adoption by the Commonwealth of some other LLH management scheme pursuant to such legislation, the Company continues to monitor the situation and is investigating options which are available to it. The Company presently has spent nuclear fuel storage capacity at Pilgrim Station sufficient to store spent nuclear fuel generated through the year 1995. Pursuant to the Federal Nuclear Haste Policy Act of 1982 ("NWPA"), and through a contract entered into with the United States Department of Energy (" DOE") in accordance with that Act, DOE will be responsible for the ultimate disposal of spent nuclear fuel generated at Pilgrim Station. In accordance with this contract, the Company paid approximately $40,583,000 in June 1985 to 1

     ,-  DOE.for disposal of nuclear fuel depleted through April 7, 1983 and is paying DOE on a quarterly basis for the cost of nuclear fuel depleted since that date. The Company is recovering these. costs through its fuel and purchased power adjustment clauses. Under the contract, DOE is to take delivery of spent nuclear fuel beginning in 1998. In order to fulfill its obligations,       i DOE is presently engaged in an effort to construct a reposia ry for such spent   )

nuclear fuel and other high level radioactive waste at Yucca Mountain, Nevada; 1 however, such effort has encountered substantial public and political I opposition and litigation and DOE has publicly stated that it may be unable to construct such s repository by 1998. In addition, DOE has been authorized to construct, following licensing by the NRC, a monitored retrievable storage facility which would provide storage and packagin, of spent nuclear fuel and high level radioactive waste prior to shipment to a permanent repository; however, no site has been identified for such a facility. The Company is unable to predict whether and on what schedule DOE will eventually construct such a repository or monitored retrievable storage facility and what will be the effect upon the Company if a delay should occur. The Company is investigating all options which may be available to it, including the expansion of existing spent nuclear fuel storage capacity at Pilgrim Station. 1 Item 1 (c) (1) (xiii): NUMBER OF PERSONS EttPLOYED I l The Company had 4,686 persons employed as of the end of 1989, 4,664 of ) whom are full-time employees; 2,991 of the employees are represented by two locals of the Utility Workers Union of America, AFL-CIO. The current four ' year labor contract in effect with the locals is scheduled to expire on May 15, 1990.. The Company began collective bargaining negotiations with both H locals .in mid January 1990. The Company anticipates resolution of these l negotiations by May 15, 1990. Item 1 (d): FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT SALES See Item 1 (c) (1) (i) " Principal Products and Services" for information relative to the geographical area served by the Company. Item 1 (e): ADDITIONAL INFORMATION - NONE Item 2: PROPERTY AND POWER SUPPLY

a. Comoany-owned facilities Existina Facilities. The Company's total installed electric generation capability as of January 1,1990 is as follows:

Installed Capacity Year Uni.t Location (KH) Iyag Installed Pilgrim Nuclear Plymouth, MA 678,000 Nuclear 1972.

        -Power Station l*       New Boston Station        South Boston, MA     717,740     Fossil      1965-1967 Units 1 and 2 Mystic Station            Everett, MA Units 4-5-6                                   468,750     Fossil      1957-1961 Unit 7                                        617,040     Fossil         1975    l Combustion Turbine        Various              238,944     Fossil      1966-1971  !

Generators (ten) ' 1

l The Company participates as a 5.888% joint owner (36,462 kW) in H. F. , Hyman Unit #4, a 619,250 kW (NEP00L year-end maximum capacity) oil-fired unit

• which commenced operations in 1979 and is operated by Central Maine Power Company, located in Yarmouth, Maine, as discussed further in Note K of Notes to Financial Statements contained on page 34 of the Annual Report to Shareholders for the Year Ended December 31, 1989 incorporated herein by reference.

All.of the Company's fossil-fired electric generation units are located at tide water and have access to ample fuel oil storage (and/or natural gas or oil pipelines from nearby suppliers) and condensing water. Additional electric generation capacity is available to the Company as a result of its contractual arrangements with other utilities and its participation in NEP00L, which are described below. For additional information regarding jointly-owned electric plant and long-term purchased power contracts, see Note K of Notes to Financial Statements contained on page 34 of the Annual Report to Shareholders  ; for the year ended December 31, 1989, incorporated herein by reference. As of December 31, 1989 the Company's transmission system comprised approximately 361 miles of overhead circuits operating at 115,000, 230,000 and 345,000 volts and approximately 150 miles of underground circuits operating at 115,000 and 345,000 volts. The substations fed by these lines consisted of 20 transmission or combined transmission and distribution substations with a transformer capacity of 9,099,299 kVA, 91 distribution substations with a transformer capacity of 4,901,240 kVA and 20 primary network units with 85,080 kVA capacity. In addition, high tension service was delivered to 233 customers' substations. The overhead distribution system covered approximately 4,611 miles of streets and the underground distribution system extendert through approximately 870 miles oi ;treets. The important items of property comprising the Lapany's electric generation stations, substations, and certain service ceaters are generally x, located on land owned by the Company, with certain exceptions as set forth in o the Company's First Mortgage Bond Indenture or Supplements thereto. The Company's_ high-tension transmission lines are generally located on land either owned by the Company or subject to an easement in its favor, with crossings of public~ ways,-tide waters and water courses, railroads and public domain when encountered. The Company's low-_ tension distribution lines and fossil- fuel pipelines are located principally in public streets and ways under permission granted by municipal'or Commonwealth authorities. They are, however, also located to some extent in private ways and on private property pursuant to easements, leases, licenses or permits. See also Item 1 (c) (1) (iv)

  " Franchises".-

Planned Facilities. During 1989 the Company cancelled plans for ' ' installation of an 85 MH combustion turbine contingency unit in Halpole, MA, and began pursuing the necessary licensing required to begin installation of an 85 MH combustion turbine contingency unit in Hedway, MA, on Company-owned property. The Company er:ticipates obtaining the necessary licensing over the next two year period. In-1989, the Company continued evaluation of architect / engineer bids for the potential future installation of new generation capacity at the Company's former Edgar Station site (the Edgar Energy Park) located in Heymouth, MA. The Company has submitted applications for a number of environmental permits for the project as well as a Draft Environmental Impact Report (DEIR). Assuming the successful completion of permitting activities, it is anticipated that construction of this facility could start in the first half of 1991 4-; i should the Company so elect. See also Item 1 (c) (1) (ii) " Regulation" preceding with respect to newly promulgated DPU regulations requiring l- pre-approval of new investments in generation capacity,

b. Purchased oower/ contract sales aareements The Company owns 9.5% of the common stock of both Yankee Atomic Electric Company and Connecticut Yankee Atomic Power Company, which operate nuclear generation units located in Rowe, MA and Haddam, CT, respectively, with net capabilities of 173.490 kW and 591,000 kN (NEP00L year-end maximum capability), respectively. Until the expiration of the power contracts relating to these units (July 1991 and June 2007, respectively), the Company is entitled to receive 9.5% of the output of each unit and is obligated to pay to each company 9.5% of such amount as will provide such company with operating revenues and other income from all sources (including power revenues) equal to its total operating expenses plus an annual return on I investment. These contract billing rates include a provision for the ultimate decommissioning of the units and spent nuclear fuel disposal costs. In each case, other New England electric utility companies with varying percentages of ,

participation have made similar arrangements. The Company has entered into a contract pursuant to which the Company, a subsidiary of Commonwealth Energy System and two other utilities are sharing in four equal parts the output of a 572,000 kW (NEP00L year-end maximum  ; capability), oil-fired electric generation plant located at the Cape Cod Canal l L in Sandwich, Massachusetts. The unit is owned by a wholly-owned subsidiary of l Commonwealth Energy System and went into commercial operation in July 1968, at l which time the Company became obligated to pay over a period of thirty-three and one-third years 25% of the unit's fixed and operating costs.  ; The Company has entered into agreements with Montaup Electric C sny, a l subsidiary of Eastern Utilities Associates, and with Commonwealth Eles.tric Company, a subsidiary of Commonwealth Energy System, under which Montaup and l Commonwealth each purchase 11% of the capacity and corresponding energy of L Pilgrim Nuclear Power Station, and pay 11%-of the Unit's fixed and operating I costs. Montaup and Commonwealth have also agreed to indemnify the Company to the extent of 11% each of all loss, liability or damage (not covered by insurance) arising out of the operation, condemnation, shutdown or retirement of the Unit. The Company has similar agreements with certain municipal electric companies for-a total of 3.7% of the capacity and corresponding i l energy of the Pilgrim Nuclear Power Station.. The term of the original ~l l; - agreements with Montaup, Commonwealth and the municipal electric companies ' extended untti the year 2000. The Company signed an amendment to the original agreement with Montaup on January l', 1985 which. extends the term of the i .. Pilgrim Unit Contract from twenty-eight years to a period equal to the full P operati_onal life of the Pilgrim Unit and makes certain other revisions. The L agreement has been accepted by the FERC. For information with respect to lq settlement of litigation concerning these agreements, see " Rate Proceedings and Pilgrim Nuclear Power Station" preceding. t; The Company has entered into an agreement to purchase 100 MW of capacity 1; and energy from the New Brunswick Electric Power Commission's 640 MH Point Lepreau Nuclear Power Station. The Company's entitlement commenced on February 1, 1983. The contract'(as amended) will expire on October 31, 1990 L but may be extended by the Company for one additional twelve-month period. l The Company lias also' entered into an agreement to purchase 100 MH of capacity from the 586 MW (NEPOOL year-end maximum capability) Bear Swamp pumped hydro project of New England Electric System. This purchase will expire on October 31, 1990. H .- . _ - . . _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ - _ - _ _ _ _ _ _ _ _ _

On June 1, 1986 an agreement between the Company and the Massachusetts ' Bay Transportation Authority ("HBTA") was implemented whereby the MBTA's 35.5 MH jet turbine at 0 Street, South Boston, MA was made available for Company dispatch through the year 2005. The MBTA retains the ri jet for its own emergency use and for testing purposes,but ghtthe to Company start up the retains NEP00L credit for its capacity and output. {- Effective November 1, 1986, and terminating October 31, 1991, the Company has agreed to purchase on a unit contract basis 25.4065% (currently 125 MW) of the combined capacities of Northeast Utilities' (NU) Hentville Units 5 and 6, l- and 16.4474% (currently 125 MH) of the combined capacities of their Middletown Units 2, 3, and 4. Montville 5 is capable of burning both gas and oil, and the other four units burn oil exclusively. Middletown 3 is a base-load unit, and the other four units are intermediate duty generation units. The Company

had nreviously reported a three-year purchase of 150 MH of NU's gas turbine capacity that was to expire on October 31, 1990. Under notice duly given under the contract's terms, NU has reduced the contract to 16.7 MH effective L May 1, 1989 through October 31, 1990.

l L The Company has entered a series of agreements with NU which provide for the purchase of a mix of NU unit entitlements known as a " base / pumped storage slice of system", and transmission access to NU's New York tie lines as H follows: Base / Pumped Storage Contract Term Slice of System Purchase Transmission 11/1/89 - 10/31/90 100 MH 100 MH 11/1/90 - 10/31/91 200 MH - I '. 1 11/1/91 - 10/31/93 300 MH - The Company has entered into other agreements with several New England and Hid-Atlantic utilities for varying periods for purchases of system and unit power, for sales of Company system and unit power,- and for transmission services. The Company's rates and charges under certain of these contracts are the subject of proceedings before the FERC.

c. Indeoendent Power Producers /Coaeneraton The Company continues to pursue purchases of electricity from Qualifying Cogeneration and Small Power Produce s ("QF's").- In April 1989, the Company issued its Second Request for Proposals ("RFP") for an additional 200 MH and is in the process of evaluating and finalizing contract negotiations. There are three QFs operational at this time representing 25 MH of capacity and the Company has signed ten long-term purchased power agreements to purchase a total _of 687 MH from QFs which are not yet operational. These current purchases are not material to the financial statements which are part of the Annual Report to Shareholders for the year ended December 31, 1989, The

~ Company's present contracts with QF's call for increased purchases of electric energy in the future. Current DPU Regulations require QF contracts to be approved by the DPU and permit the recovery by the utility of all costs incurred under such approved QF contracts. In addition to the planned purchases mentioned above, the Company has signed a long-term purchased power contract for output from a 250 MH Independent power production facility currently under construction in Rhode Island. The DPU has approved this contract. Commencement of operations is scheduled for late 1990, at which time the Company would receive approximately 47% of the output of the unit and would be obligated to pay its proportionate share of the operating costs. l l ,

     ,  d. Demand-Side Manaagment Proarams The Company is pursuing the installation of demand-side management programs ("DSM") which have an estimated impact of reducing demand by 471 megawatts and saving 904,561 megawatthours by the year 2000. During 1989, i

73,860 kilowatthours were saved and the summer peak was reduced by 80.7

megawatts, due to the implementation of DSM programs since 1986. If the I summer peak had occurred during August, the demand reduction would have been 90 megawatts. See also Item 1(c)(1)(ii) " Expected Plant Expenditures and Related Financing" subparagraph " Demand-Side Management Program Expenditures" preceding. The Company's growth in base revenues may also be reduced by the implementation of demand-side management programs,

e. MffEX In June 1970, the Company and other utilities activated a computer controlled dispatch center for New England (New England Power Exchange -

       "NEPEX"). Also, the major utilities in New England, including the Company, and certain municipal and cooperative utilities executed a NEPOOL Agreement (dated September 1971) which provides for the joint planning and operation of generation and transmission facilities and also incorporates generation capacity obligations and provisions regarding the use of major transmission lines and payment for such use. Pilgrim m.ition lost its capacity ra+1ng as of May 1988 due to its extended outage which ended on December 30, 1988. As a result, the Company purchased replacement capacity as needed to meet its capacity obligations to NEP00L during the outage and Power Ascension and Test Program. During the Power Ascension and 71st Program Pilgrim Station received l       seasonal ratings ranging from 123.3 MH to its full capacity. rating of 669.2 MH on February 1, 1990.

As a result of its participation in NEP00L, the Company's operating  ; revenues and costs are affected to some extent by the operations of other participants in those arrangements. The table below sets forth certain information as of the date of the Company's 1989 summer and 1989-1990 winter peak loads: ill December 21, 1989 July 27, 1989 l (Hinter 1989-90) (1989 Summer) L NEPEX utilities installed capacity (Hinter Max, rating): .... 23,824 MH 22,450 MW . (seasonal normal rating): .. 23,342 MH 22,045 MH I NEPEX peak load . . . . . . . . . 19,585 MH 19,641 MH Company system peak load. . . . . 2,793 MH 2,747 MH The Company's winter and summer system peak loads noted above were all-time seasonal peaks. The Company's net capability at-its summer peak was ! 3,483 MH, and its net capability at its winter peak ~ was 3,682 MW. Its corresponding NEP00L capacity obligations were estimated to be 3,443 MH and 3,648 MH, respectively. Neither NEP00L peak load passed its all-time peak of 19,722 set January 4,1989, but the summer peak of 19,641 was a new all-time summer peak. The New England region continued to face a moderately tight energy supply situation in 1989 due to a variety of factors which included maintenance of

certain generation units and the unavailability of purchased power and/or adequate transmission line capability from outside the region, coupled with near record peak loads. While unit availability was especially high over the seasonal peaks, both summer and winter peak periods required NEP00L's use of such measures as voltage reductions and Company use of interruptible load curtailments and customer generation assistance to avoid load shedding. The .

regional supply situation is expected to improve slightly in 1990 due to the - return to service of Pilgrim Station in 1989 and the potential start up in 1990 of the Seabrook Nuclear Power Station, located in Seabrook, New Hampshire. In March 1983, NEPOOL participants signed an agreement with Hydro-Quebec of Canada. The arrangement, which is designated Phase I, is designed to provide up to three billion kilowatthours of electricity (hydro-electric) annually to NEP00L from Hydro-Quebec (a 690 MH interconnection), and includes an eleven year (1986-1997) energy purchase arrangement and energy banking agreement. Construction of transmission and conversion facilities required to transmit the power under the terms of this agreement were completed in 1986, and power deliveries to NEP00L under Phase I commenced in October 1986. Due to low water levels in certain Canadian provinces. Hydro-Quebec has not been able to deliver to NEPOOL previously projected levels of electricity since 1988. In October 1985, an agreement was finalized between NEP00L and Hydro-Quebec to provide an additional seven b:llion kilowatthours of hydro-electric power annually for ten years. The Company will receive capacity credit through NEP00L for approximately eleven percent of the generation equivalent of the total Hydro-Quebec Interconnection. In the first five years, the price of energy will be set based upon 80 percent of the average New England cost of fossil fuel in the previous year. In the second five years, the price will be set based upon 95 percent of the average New England fossil fuel cost in the previous year. This agreement, designated Phase II, will begin upon completion of the necessary transmission facilities, tentatively scheduled for the fall of 1990 or spring of 1991. This will result in a total interconnection with Hydro-Quebec of 2000 MW. The Company, along with other New England electric utilities, has entered into an agreement to expand the existing 690 MH transmission line l interconnection with the Hydro-Quebec system of Canada to 2,000 MW, The l Company h'as approximately an 11% equity ownership interest in two companies who are constructing these transmission facilities, which is included in the accompanying financial statements. The Company's share of the amounts committed as of December 31, 1989 is approximately $45,000,000. All equity participants are required to guarantee, in addition to their own share, the total obligations of those participants not meeting certain credit criteria. The equity participants are compensated accordingly. Amounts so guaranteed by the Company are approximately $20,000,000 at December 31, 1989.

 'f. Transmission Line Access to the New Enaland Reaion In 1989, anM her New England electric utility became the apparent successful bidder for the ownership of Public Service of New Hampshire, an electric utility serving a large portion of the State of New Hampshire.                  i Completion of the transaction is subject to various regulatory approvals. The            l Company, along with other New England utilities, may oppose this takeover on             !

l the basis that the new entity would substantially control all major electric l transmission lines entering the New England region. , l

g. Insurance l The federal Price-Anderson Act, as amended by the Price-Anderson Amendment Act of 1988, provides that liability from a single nuclear related l

\ l l

     . accident at a U.S. nuclear power plant shall not exceed approximately $7.0 billion. The first $200 million of nuclear liability will be covered by the maximum provided by commercial insurance. Additional nuclear liability insurance up to $7.2 billion is provided by a retrospective assessment of up to $63 million per incident which can be levied on each of the 115 units licensed to operate in the United States, subject to a maYimum assessment Of
          $10 million per reactor per accident in any year. This additional nuclear liability insurance amount of approximately $7.2 billion is subject to change as new comercial nuclear units are licensed and existing units give up their license. In addition to the nuclear liability retrospective assessments discussed above, if the sum of all public liability claims and legal costs arising from any nuclear accident exceeds the maximum amount of available financial protection, each licensee can be assessed an additional 57. of the maximum retrospective assessment ($3.15 million).

Insurance has been purchased from Nuclear Electric Insurance Limited (NEIL) to cover certain costs incurred in obtaining replacement power during a l prolonged accidental outage at Pilgrim Station and the cost of repair, replacement or decontamination of utility property resulting from insured . occurrences at Pilgrim Station. The maximum potential assessments against the l Company with respect to losses arising during current policy years are approximately $3,558,000 under the replacement power policies and $6,947,000 under the property damage and decontamination policies. All companies insured  : with NEIL arit subject to retroactive assessments if losses exceed the accumulated dunds available to NEIL. While assessments may also be made for I losses in certain prior policy years, the Company is not aware of any losses in such yeart which it beli>ves are likely to result in an assessment. Item 3: LEGAL PROCEEDINGS Although the DPU Settlement and Wholesale Settlement have removed certain i major uncertainties facing the Company, however other uncertainties remain as discussed in Item 1(c)(1)(ii) " Regulation" preceding (see "Hanagement's Discussion and Analysis" and Notes G of " Notes to Financial Statements" , contained on pages 15 through 19 and pages 30 through 31, respectively of the , Annual Report to Shareholders for the year ended December 31, 1989 1 incorporated by reference). For further information concerning other Company legal and rate proceedings, see also Item 1 (c) (1) (x11) " Environmental Matters" in this Form 10-K and Notes A.2, and G of Notes to Financial Statements contained on page 27 and pages 30 through 31, respectively of the Annual Report to-Shareholders for the year ended December 31, 1989 incorporated herein by reference. On February 10, 1982 the Boston Housing Authority (" BHA") filed an action against the Company in the Massachusetts Superior Court seeking approximately

         $10,000,000 in damages for alleged overcharges for electricity and steam furnished over a six-year period, together with a claim for treble damages pursuant to M.G.L.-c. 93A. On December 15, 1983.the Massachusetts Supreme Judicial Court affirmed an order of the Massachusetts Superior Court dismissing the BHA's claim of unconstitutional and unfair electric rate discrimination and remanded the claim for steam overcharges (approximately
        $4,000,000) to the Superior Court for completion of the pleadings and trial.

On July 24, 1987, the Towns of Concord, MA and Hellesley, MA (The Towns) filed a complaint against the Company in the United States District Court for the District of Massachusetts alleging violation of the federal antitrust laws. The Company supplies substantis;;y all of the electric power

         'L.u
              ..i.,.i..LL      wil        -

requirements of the Towns. The Towns' complaint included allegations of price e discrimination, anticompetitive restriction and price squeeze. In May 1989, a ' jury determined that the Company had violated federal antitrust laws and awarded damages of $13,100,000, which results in a total judgment of

    $39,300,000 when trebled unaer antitrust law. If upheld, the judgment (which is not reflected in the-accompanying financial statements) would have represented a cht,ge to earnings in 1989 of approximately $0.64 per share of common stock. The Company has appealed the judgment to the United States Court of Appeals for the First Circuit. Management believes that the decision is contrary to the facts and applicable let and that it is unlikely that this judgment will be upheld on appeal.           Hearings are scheduled to begin in April of 1990.

Item 4 - SUBHISSION OF MATTERS TG A VOTE OF SECURITY HOLDERS There were no matters submitted to a vote of security holders during the fourth quarter of 1989. l

_ . _ _ _ . ~ . . . .

     , EXECUTIVE OFFfCERS OF THE REG!STRANT The names, ages, positions and business experience durtig the last five years of all the executive officers of Boston Edison Company and Harbor Electric Energy Company (the Company's wholly owned subsidiary) as of March 1, 1990 are listed below. There are no family relationships between any of the officers of the Company, nor any arrangement or understandir.g between any Company officer and another person pursuant to which he/she was elected as an officer. The expiration of each term of office is the next annual meeting and when successors are duly elected and qualified.

Business Experience Name. Aae and Position Durina Past Five Years Stephen J. Sweeney, 61- Elected Chairman of the Board Chairman of the Board effective December 1986, and Chief Executive Officer Elected Chief Executive Officer effective May 1984. President from September 1983 through September 1987. Director since 1983. Responsibility covers all Company functions. Director of Harbor Electric Energy Company since 1989. Bernard H. Reznicek, 53 Elected President and Chief Operating President and Chief Officer effective October 1987. Operating Officer Director since 1987. Has President and Chief Executive Officer of the Omaha Public Power District from 1981-1987. President and Director of Harbor Electric Energy Company since 1989. Hilliam D. Harrington, 59 Elected Senior Vice President-in Senior Vice President 1982. Has responsibility for Power Delivery, effective July 1986, and Stores and Service since March, 1988. Had responsibility for Power Production (fossil) from July 1986 to February 1989. Had responsibility for all Nuclear activities from 1982 to June 1986. l

Ralph G. Bird, 56 Elected Senior Vice President-Nuclear *

                   . Senior Vice President - Nuclear            effective January 1987. Since February 1987, has responsibility for all nuclear activities. In 1985-1986 served as consultant to Hestinghouse Electric Corporation and Advanced Science & Technology Associates, Inc. In 1984-1985 was employed by Hestinghouse Idaho Nuclear Company. In 1984 served as a principal management consultant to Advanced Science & Technology Associates. Inc.,   Retired from United States Navy in 1984 as Rear Admiral - last duty was Deputy Chief of Naval Material for Logistics and Fleet Operations.

Thomas J. May, 42 Elected Senior Vice President Senior Vice President effective June 1987. a Has responsibility for financial. -

 '                                                              accounting, information services, and Clerk's office. Assumed added responsibilities for energy planning and business planning effective February-1989. Had responsibility for customer service from June 1987 to February 1989. Has Vice President (from 1983-1987) and Treasurer (from 1983 to February 1988). Treasurer and Director of Harbor Electric Energy Company since 1989 Cameron H.;Daley,'44                       Elected' Senior Vice President Senior Vice President-                     effective February 1989. Has responsibility for power supply.

Prior to February -1989, was Vice President - Power Production. Elected Vice President in 1982. x t ' s , i is i i-

                   ,     L. Carlisle Gustin, 46                        Elected Senior Vice President 4-               Senior Vice President                         effective February 1989. Has                  j responsibility for marketing,                 )

customer services and corporate .1 relations. Prior to election was Vice President - Corporate Relations . since September 1986. On special l assignment - Member, Executive Review Group on Nuclear in 1986. Prior to l 1986, was Manager of the Public Information Department. C. Bruce Damrell, 57- Elected Vice President in 1979.

                        'Vice President - Power Delivery                                                              ,

System ' l Craig.D. Peffer, 55 Elected Vice President in 1979. Vice President - Customer Service Assumed responsibility for customer service effective February 1989; prior to that had responsibility for . commercial organization. I c Marc S.:Alpert, 45 Elected Treasurer of the Company Vice President and Treasurer effective March 1988, in addition to. his pravious position as Vice " President. Head of the Treasury Organization effective March 1, 1988. .Has Vice President - Rates from 1983 to 1988, a kN John J. Desmond. III, 56 ' Elected Vice President and General

                                                                    . Counsel in April 1985. Prior-~to
                       'Vice Pres.ident and General Counsel election was Associate General               ,

Counsel, f ' Richard S.'Hahn, 38 Elected Vice President in June 1987. Vice President - Energy Planning Prior to election was Manager - Supply and Demand Planning Department from 1984 to 1987.

      , g s3 h.

s j f: 1

a Arthur P. Phillips, Jr., 52 Elected Vice President effective , Vice President - Corporate Information June 1988. Responsible for

• 1 Services corporate information services.

From June 1988 to January 1989 was Vice President for Customer and Corporate Information Services. Director of Customer and Corporate-Information Services from 1987 to 1988; prior to that was Manager of Information Systems. John J. Higgins, 57 Elected Vice President effective i vice President - Human Resources July 1988. Prior to election was a Director of Construction for the Massachusetts Hater Resourct Authority in 1988. Prior to that was Senior Vice President - Personnel and Industrial Relations, for the Eastern Associated Coal Corporation. Joel:Y. Kamya, 46 Elected Vice President effective Vice' President - Production February 1989. Prior to election-Operations was Manager, Mystic Station, from 1986 to January 1989. Has Manager of Operations' Support, Steam Operations Department, from 1985 - 1986.- Has Project Engineer, Coal Conversion,. , 1982 - 1985. Kenneth 'L. Highfill, 55 Elected Vice President effective Vice President - Nuclear Operations September 1989. . Joined Boston Edison-and Station. Director Company in 1987. Prior to election. held senior. management positions in' the nuclear power industry with San Diego Gas and Electric Company,4 Gas - Cooled Reactor Associates and ' Advanced Science, and Technology'. Associates. Edwin J.;Hagner, 57 Elected Vice President effective  ;

  .Vice President'- Nuclear Engineering      September 1989.      Prior-to election p                                             was Director of Nuclear Engineering.

p Prior to that was staff assistant to L , Senior Vice President, Nuclear. Prior to joining the Company,- held executive positions with Cincinnati-Gas & Electric and Carolina Power & Light.

 . George H.-Davis, 56                       Elected Vice President effective              ;

Vice President - Nuclear Administration September 1989. Prior to election - ' was retired Vice Admiral from the U. S. Navy. , 1 1 4

 , ~ , -
     .a p -4      .. Theodora S. Convisser, 42               Elected Clerk of the Corporation Clerk of the Corporation                 effective September 1986. Assistant General Counsel since 1985. Prior to I

l 1985 was Senior Counsel. Clerk of '! Harbor Electric Energy Company since 1990. L Robert J. Weafer, Jr., 43 Designated Chief Accounting Officer l l -- Controller and Chief Accounting Officer in April 1988 while holding the l position of Controller. Assumed responsibility for Purchasing i Department in April 1988. F Controller and Department Head, l Accounting Budgeting and Control )

   .                                                   Department since 1985. Controller       I and Department Head, Accounting e                                                   Department from 1983 - 1985. Elected an Officer of the Company in 1984.

L Jean C. Quinn, 58 Elected Assistant Clerk of the  ! Assistant Clerk of the Corporation effective September 1986. Corporation Prior'to election was Secretary to , the Chairman of the Board from 1984 - ) 1986. l Donald Anastasia, 41 Elected Assistant Treasurer effective l Assistant Treasurer February 1989, and is Head of the l Asset Management Department. Has Manager of Benefits and Investments in the Financial Management  ; Department from 1985. Prior to that was Manager of Benefits. I

            ' James J.LJudge, 34 Elected Assistant Treasurer in Assistant Treasurer                     1989, (effective January 1990), and is Head of the Financial Management Department. Since 1988 was Manager of Financial Planning in the Financial Management Department.

Prior to 1988 was a Principal Financial Research Analyst. L L

    =                                                               PART II                               '

Item 5 - MARKET FOR__THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS L. MARKE1 INFORMATIQH. e The Company's common stock is listed on the New York Stock Exchange and j the Boston Stock Exchange. j . See Supplementary Financial Information (Unaudited) - Quarterly Stock 3 Data contained on Page 36 of the Annual Report to. Shareholders for the year ended December 31,~1989, incorporated herein by reference,

b. HOLDERS.

As of December 31, 1989, the Company had 49,149 holders of record of its Common Stock (actual count of record holders). c.--DIVIDENDS. For information as to-the frequency and amount of cash dividends declared per common share during the past two fiscal years, see Supplementary Financial Information (Unaudited) - Quarterly Stock Data, contained on Page 36 of the

             ' Annual. Report to Shareholders for the year ended December 31, 1989, incorporated herein by reference.

M i s

   =

l

          ,,     - - - - - -               m I's i i n= l 'IM pii l1.

l

1 Item 6 - SELECTED FINANCIAL DATA The following table summarizes five years of selected financial data of the Company. ($ in 000's. except for Der share data) 1912 19M M M M I Operating i Revenues $1,269,345 $1,202,655 $1,181,097 $1,105,367 $1,161,574 Income /(Loss) I from ' Continuing Electric- , I

             . Operations        -$(16,135)'      ' $84,212             $86,721   $110.015    $98,046      i Earnings /(Loss)-                                                                              I Per Common i

o~ Share from

            ' Continuing Electric Operations               $(0.88)        $1.86               $1.97      $2.68      $2.64 Total Assets        .$2,878,271-    $2,817,050          $2,702,960  $2,361,998 $2,264,988 Long-Term Debt         $948,839        $966,534            $822,659   $728,909   $744,875 Redeemable Preferred /

Preference Stock $100,000 $100,000 $50,000 $35,188 $35,188-Cash Dividends Declared Per - Common Share- $1.745 $1.82 $1.80 $1.75 $1.67 L l L See Item 1.(c)(1)(ii): ." Expected Plant Expenditures and Related Financing"

                                                                                                           )

". subheading " Rate Proceedings and Pilgrim Nuclear Power Station" contained on I pages.6:through 8 preceding. 1

                                                          .                                                l Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS-AND                     ;

FINANCIAL CONDITION

v. See Management's Discussion and Analysis contained on pages 15 through 19 i

of the Annual Report to Shareholders for the year ended December 31, 1989, ' incorporated herein by reference. L Ltem 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA See list of Financial Statements contained in Part IV, Item.14

          . incorporated he' rein by reference.

Item 9 - CNANGES IN AND DISAGREEMENTS HITN ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Nona. b 1.

    ,                                                                                                  -i E

L l . .

PART III < Item 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT (a) IDENTIFICATION OF DIRECTORS. See " Election of Directors - Information about Nominees and Incumbent Directors" - contained on pages 2 through 5 of the definitive Proxy Statement dated March 22, 1990 incorporated herein by reference. (b) IDENTIFICATION OF EXECUTIVE OFFICERS The information required by this item is set forth at the end of Part I of this Form 10-K under the caption " Executive Officers of the Registrant", pursuant to instruction 3 of paragraph (b) of Item 401 of Regulation S-K. (c) IDENTIFICATION OF CERTAIN SIGNIFICANT EMPLOYEES - NOT APPLICABLE. (d) FAMILY RELATIONSHIPS - NOT APPLICABLE. (e) BUSINESS EXPERIENCE For information relating to the business experience during the past five years and other directorships (of companies subject to certain SEC requirements) held by each person nominated to be a director, see " Election ~of Directors - Information about Nominees and Incumbent Directors" contained on pages 2 through 5 of the definitive Proxy Statement dated March 22, 1990, ' incorporated herein'by reference. For information relating to the business experience during the past five years of each person who is an executive officer, see Part I " Executive Officers,of the Registrant". (f) INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS - NOT APPLICABLE. (g) EBOMOTERS AND CONTROL PERSONS - NOT APPLICABLE. Item l'l - EXECUTIVE COMPENSATION

                                            -See paragraphs entitled " Director Compensation". " Executive Compensation", " Pension Plans", " Key Executive Benefit' Plan", " Recognition and Retention Program", " Incentive Compensation Plans", and " Deferred Compensation Agreements", contained on pages 5 through 8 of the definitive Proxy Statement
                                    . dated March 22, 1990, incorporated herein by reference.

Item 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT (a) SECURITY OHNERSHIP'0F CERTAIN BENEFICIAL OWNERS. See page 2 of the definitive Proxy Statement dated March 22, 1990,  ; incorporated herein by reference.

                           '(b) SECURITY OWNERSHIP OF MANAGEMENT.

See " Election of Directors - Information about Nominees and Incumbent E Directors" contained on pages 2 through 5 of the definitive Proxy Statement dated March 22, 1990, incorporated herein by reference. (c) CHANGES IN CONTROL - NOT APPLICABLE Item 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Not applicable. 9 l 33 - r i

PART IV , Item 14: EXHIBITS. FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K  ! Paaes Annual Shareholders Report form 10-K Item 14(a): Exhibits and Financial Statement Schedules: Statements of Income for each of the Three Years in the Period Ended December 31, 1989 20 Statements of Cash Flows for each of the Three Years-in the Period Ended December 31, 1989 21 Balance Sheets as of December 31, 1989 and 1988 22 Statements of Retained Earnings for each of the Three Years in the Period Ended December 31, 1989 23 Schedules of Capital Stock, as of December 31, 1989 and 1988 23 Schedules of Indebtedness, as of December 31, 1989 and 1988 24 Notes to Schedules of Capital Stock and Indebtedness 25-26 Notes to Financial Statements 28-34 { Report of Independent Certified Public Accountants 47 Selected Quarterly Financial' Data (Unaudited) 36

                                  -Selected Statistics (Unaudited)                                                      37-39
       . Schedules for: Years Ended December 31, 1989, 1988 and 1987 V                        -

Property, Plant and Equipment S-1 to S-3 VI - Reserves for Depreciation and Amortization i of Property, Plant and Equipment S-4 to S-6 VII - Guarantees of Securities of Other Issuers S-7 1 IX -

                                                                 'Short-Term Borrowings                                          S-8 X                       -

Supplementary Income Statement Information S-9 All other schedules are omitted since they are not required, not applicable, or contain only information which is otherwise provided in the financial statements or notes thereto listed above.

      ..t.
                      . .                                                        Exhibit SEC Docket Exhibit 3        Articles of Incorporation and By-Laws Incorporated herein by reference:

r 3.1- Restated Articles of Organization 2(a)4 2-58587 3.1.1 Amendment to Restated Articles of 2.4 2-64975 Organization dated May 5,1977 3.1.2 Amendment to Restated Articles of 3.31 1-2301 Organization filed May 26.-1978 Form 10-K for the

              '                                                                            Year Ended December 31, 1981 3.1.3  Amendment to Restated Articles of       3.32    1-2301-Organization filed May 6, 1980                  Form 10-K for the Year Ended December 31, 1981 3.1.4  Amendment to Restated Articles of
                                          -Organization filed May 4, 1983          3.1      1-2301 Form 10-Q for the
                                                                                          -Quarter Ended March 31, 1983
                                   .3.1.5  Amendment to Restated Articles of        3.1     1-2301 Organization filed April 28, 1986                Form 10-Q for the
                                                                                          -Quarter Ended
                                                                                          -March 31,
                                                                                           '1986 3.1.6   Amendment to Restated Articles of        3.5     -2301-Organization filed August 27,'1986              Form 10-K

for the Year Ended-December 31,

                ;                                                                           1986 1

F T

Exhibit SEC Docket 3.1.7 Amendment to Restated Articles of 3.1 1-2301 Organization filed February 19, 1987 Form 10-Q for the Quarter Ended March 31, 1987 3.1.8 Amendment to Restated Articles of 3.1.8 1-2301 Organization filed May 5, 1987 Form 10-X for_the Year Ended December 31, 1987 3.1.9 Amendment to Restated Articles of 4.1 33-24271 Organization as filed May 27, 1988 Registration Statement dated September 22, 1988 ,, 3.1.10 Certificate of Vote of_ Directors 4.2 1-2501

 +

Establishing a Series of a Class of form 10-0 Stock, filed March 9, 1987 for the Quarter Ended September

                          .                                           30, 1988         .j u

13.1.11 Certificate of Vote of Directors 4.3 1-2301

                       , Establishing a Series'of a Class of          Form 10-Q.

Stock, filed October 4,1988 for the

                                                                     ~0uarter Ended September 30.11988
              ; 3 ~. 2 ' Boston Edison Company Bylaws         3.2     1-2301              i
         .              April 19. 1977, as< amended' January          Form 10-K 22, 1987,- January 28, 1988 and               for-the May 24, 1988'                                 Year. Ended' to 

December 31,

1988.

Filed Herewith: 3.3 Articles of Organization of Harbor Electric Energy Company - - 3.4 By-Laws of Harbor Electric Energy Company . . x

1 a  !

                               .-                                                               Exhibit SEC Docket
             .=

I

          .                                                                                                                 1 Exhibit 4-           Instruments Defining the Rights of Security Holders, Including Indentures Incorporated herein by reference:
                                             -4.1-       Indenture'of Trust and First Mortgage   B-2      2-4564 dated December 1,1940 with 4

State Street Trust Company 4.1.1 Tenth supplemental indenture dated 7.5 2-8349 April 1, 1950 4.1.2 Twelfth supplemental indenture dated 4.2 2-80748 November 15,.1951 4.1.3 -Twenty-fourth supplemental indenture 4.1.6 1-2301

                                                       ' dated June 1, 1962                              Form 10-K for the a'

Year Ended-December 31, 1980 4.1.4 Twenty-seventh supplemental indenture 4.1.7 1-2301-dated November 1,1965 Form 10-K for the Year-Ended _q December 31, . 1980 4.1.5 Twenty-ninth supplemental indenture 4.1.8- 1-2301 3 ' dated June 1, 1967 Form 10-K for the L Year Ended > 1

                                                                                                        -December 31, f                                  .
                                -s-1980

1. 4.1.6 Thirtieth supplemental indenture 4.1,9 1-2301-dated November 1 1968J Form 10-K~

E for the Year Ended p December'31, 1980 w ,

                                            ' 4.1. 7. ~ Thirty-first supplemental indenture      4.1.10  1-2301          l dated December 1, 1969                           Form 10-Q
                      '                                                                                  for the Quarter Ended June 30, 1980 t

1 { l

Exhibit SEC Docket - 4.1 '. 8 Thirty-second supplemental indenture 4.1.11 1-2301 dated July 1, 1970 Form 10-0

                                                                                                                                                            )

l for the Quarter Ended June 30, 1980 1 4.1.9- Thirty-third supplemental indenture 4.1.12 1-2301 i dated May 15,.1971 Form 10-Q for the Quarter Ended s June 30, ' 1980

   ";'                                         4.1.10    Thirty-fifth supplemental inNnture       '4.1.10   1-2301 dated April 15, 1977                               Form 10-K for the Year Ended December 31,                                   '

1989. Y[ , 4.1.11 Thirty-sixth supplemental indenture- 4.1.11 1-2301

  !E                                                     dated December 15, 1978                            Form 10-K for the Year Ended .                                   ,

December 31, 1989 -  ; ,f . Filed Herewith:  ! 4 *'.4.l'.12 Thirty-seventh supplemental indenture - e dated October 31, 1979

p. .t.

f.

f. , O o

I.s .I

      .;                                  Incorporated Herein By 

Reference:

                                             ;4.1.13     Thirty-eight supplemental indenture   4.1.16     1-2301 ll                     f                                  dated January 1, 1982                            Form 10-K                             a R                                                                                                          for.the                                        ,

?, Year Ended p . December 31, 1981

      ,    4                                                                                                                                          q
   ')

Refiled pursuant to SEC record retention rules, r,

y.

^

y  ; I) {

          .l, c

i, g j-j f! - ,, _ _ _ _ . _ _ . _ _ _- _ _ _ _

V.

_ -_ \ , y

                           .                                                         Exhibit SEs Docket 4.1.14      Thirty-ninth supplemental indenture    4.1       1-2301            i dated April 15, 1983                            Form 10-Q         '!

s for the Quarter Ended March 31, 1983 l 1 l 4.1.15 Fortieth supplemental indenture 4.1 1-2301 ' dated April 1, 1984 Form 10-Q for the Quarter Ended I March 31, 1984 4.1.16 Forty-first supplemental indenture 4.1 1-2301 - u s dated April 1,1985 Form 10-0 L for the Quarter -'

                 +                                                                              Ended             ,

y , March 31, 1985 )

                                  '4.1.17      Forty-second supplemental indenture  '4.1        1-2301            I dated July 15, 1986                             Form-10-Q l;,                                                                                             for the            !

Quarter l(' pm Ended June 30, ' l 1986-

                                  -4.1.18-     Forty-third supplemental indenture     4.1      1-2301         -)

dated September 15, 1987- Form 10-0 1 for the  !

                                                                                              -Quarter        .j Ended-     ._      l September'30,'   "

1987 4.1.19 Revolving' Credit Agreement dated 4.1 1-2301 as of May 25, 1988 Form 10-Q S for the y Quarter Ended June 30, 1988 Filed' Herewith: 4.1.20 Amendment to Revolving. - -

                                             . Credit Agreement, effective March 10, 1990                                                      l i

1 1 2

i 1 Exhibit SEC Docket .

                                                                                                    ,  l Incorporated herein by reference:

4.1.21 Medium Term Notes Series A - Indenture 4.1 1-2301 dated as of September 1, 1988, between Form 10-Q Boston Edison Company and Bank of for the Montreal Trust Company Quarter En ed Septembe' 30, 1988 HQIE: (Other Supplemental Indentures are not filed herewith since they constitute only conveyances of additional property to the Trustee under the' Indenture and do not amend the Indenture or relate to outstanding series of First Mortgage Bonds.) HQII: (The registrant agrees to furnish to the Securities and Exchange Commission, upon request, a copy of any other instrument with respect to:long-term debt of the registrant. Such-other debt instruments are not filed herewith since they do not relate to authorized debt in an amount greater than 10% of registrant's total assets.)

 ,                                                                      Exhibit - SEC Docket Exhibit 10          Material Contracts i

Incorporated herein by reference: 10.1 Form of Deferred Compensation 10.2 1-2301 Agreement Form 10-K for the

                                                                                         ~

Year Ended 1 December 31, 1980 10.1.1 Form of Deferred Compensation .  ! Agreement, as Amended Aoril 26, 1984 10.1.1 1-2301-t Form 10-K g for the u Year Ended December 31, 1984- , f

   . i m
                                                                                                    -l e

, s

                             .                                                      Exhibit SEC Docket 10.1.2  Form of Deferred Compensation        10.1.2   1-2301 Agreement, as Amended November 27             Form 10-K 1985                                          for the Year Ended December 31, 1985 10.1.3  Form of Deferred Compensation         10.1.3 1-2301 M

Agreement, as Amended Form 10-K November 27, 1986 for the Year Ended December 31, 1989. 10.2 Form of Deferred Fee Agreement 10.3 1-2301 Form 10-K for the Year Einded December 31, 1980-

                        ~

10.2.1 Form of Deferred Fee Agreement, as- 10.2.1 1-2301 Amended April 26, 1984 Form 10-K for the Year Ended December 31, 1984-10.2.2 Form of Deferred Fee Agreement 10.2.2 1-2301 as Amended November 27, 1985 Form 10-K

   '              .'               .'                                                          for the Year. Ended s                                                                                       December 31, 1985 10.2.3  Form of Deferred Fee Agreement,. 10.2.3   1-2301 as Amended November 27, 1986                  Form 10-K for the Year Ended December 31, 1989, w

t i i N

                                                                      - 41
              ~
          '                                                                                                 .s

Exhibit SEC Docket . 10.3 Key Executive Benefit Plan 10.4 1-2301 Form 10-K for the Year Ended December 31, 1981 10.3.1 Amendment to Key Executive Benefit 10.4.1 1-2301 Plan dated February 1, 1986 Form 10-K for the Year Ended December 31, 1985 10.3.2 Amendments to Key Executive Benefit 10.1 1-2301 plan dated May 9, 1986 for the Quarter Ended June 30, 1986 10.3.3 Key Executive Benefit Plan Agreement 10.4.3 1-2301 dated as of January 1, 1987 for Forr: 10-K Ralph G. Bird for the j Year Ended December 31, 1987 1 10.3.4 Amendment to Key Executive Benefit 10.4.4 1-2301 , Plan dated July 13, 1987 and Manager Form 10-K ' Transition Benefits Agreements for for the James M. Lydon Year Ended December 31,  ! 1987 l 10.3.5 Amendment to Key Executive Benefit 10.4.5 1-2301 Plan dated August 20, 1987 and Manager Form 10-K ' Transition Benefits Agreement for for the Joseph P. Tyrrell Year Ended December 31, , 1987 l 10.3.6 Key Executive Benefit Plan Agreement 10.4.6 1-2301 dated as of October 1, 1987 for Form 10-K Bernard W. Reznicek for the 1 i Year Ended December 31, 1987 i i 1 i

L', )

           . .                                                                 Exhibit SEC Docket                   l 10.4      Description of Supplemental Fee          10.5      1-2301 Arrangement for mertain Directors                 Fvrm 10-K for the Year Ended December 31, 1983 10.5      Executive Annual Incentive               10.5      1-2301 Compensation Plan                                 Form 10-K for the 4
     ,                                                                                   Year Ended December 31,             ;

1988. 10.5.1 Executive Long-Term Incentive 10.5.1 ' 2301 Compensation Plan Form 10-K for the Year Ended December 31 - 1988.

                 .          10.6      Description of Nuclear Restart and        10.6     1-2301 Management Continuity Plan, effectivo              form 10-K January 26, 1989 - Ralph G. Bird                   for the Year Ended Decembot 31            -

1988. filed Herewith: 10.7 Recognition and Retention Program - - Exhibit 12 Computation of Ratio of Earnings to Fixed Charges

                       ' Filed herewith:

12.1 Computation of Ratio of Earnings to - - Fixed Charges l Exhibit 13 Annual Report to Shareholders filed berewith: 13.1 ' Boston Edison Company Annual Report to Shareholders for the Year Ended December 31, 1989, which, except for those portions thereof which are expressly incorporated by reference herein, is furnished for the information of the Securities and Exchange Commission and is not deemed to be " flied" as part of this report. p  !

Exhibit 24 Consent of Independent Certified Public Accountants. ' filed herewith: 24.1 Consent of Independent Certified Public Accountants to incorporate, by reference, their opinion included with this Form 10-K, in the form S-3 Registration Statements filed by the Company on November 18,1985 (File No. 33-01614), July 15, 1986 (File No. 33-07103), and June 30, 1989 (File No. 33-29628), and in the Form S-8 , Registration Statements filed by the Company on October 10, 1985 (File No. 33-00810) and July 28, 1986 (File No. 33-7558).  ; Item 14(b): REPORTS ON FORM 8-K A Form 8-K was flied by the Company on October 3, 1989, January 10, 1990, January 25, 1990 and February 14, 1990 with the Securities and Exchange Commission. The reports contained information under Item 5 - Other Events which included the DPU Settlement Agreement, Wholesale Settlement Agreements involving FERC proceedings, release of 1989 earnings, and the 1989 audited financial statements, respectively. L t 1

                                                                                         ?

l 1

                                         ,                                        SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

i BOSTON EDISON COMPANY By /s/ Thomas J. Hav Thomas J. May Senior Vice President Date: March 22, 1990 Pursuant to the requirements of the Securities Exchange Act of 1934 this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on the 22nd day of March, 1990.

                                               /s/ Steohen'J. Sweggev                        Chairman of the Board, Stephen J. Sweeney                       Chief Executive Officer and Director
                                               /s/ Bernard W. Re2Dicek                       President, Chief Operating Bernard W. Reznicek                      Officer and Director
                                               /s/ Themas J. May                             Senior Vice President                 ;

Thomas J. May (Principal Financial Officer) '

                                              /s/ Robert J. Weafer. Jr.                      Controller and Chief Accounting Robert J. Heafer, Jr.                    Officer L                                              /s/ Helene R. Cahners-Kaolan                   Director Helene R. Cahners-Kaplan
                                              /s/ William F. Connell                         Director Hilliam F. Connell
                                              /s/ Gary L. Countryman                         Director Gary L. Countryman

  /s/ Thomas G. Dianan. JI ;             Director Thomas G. Dignan, Jr.                             i
  /s/ Thomas J. Galliaan. Jr.            Director Thomas J. Galligan, Jr.
  /s/ Nelson S. Gifford                  Director Nelson S. Gifford
 /s/ Ken'eth I. Guscott                  Director Kenneth I. Guscott
 /s/ Richard D. Hill                     Director Richard D. Hill
 /s/ Matina S. Horner          __

Director  !

      >Matina S. Horr.ar
 /s/ William D. Maniv                    Director H1111am D. Manly
 /s/ Herbert Roth. Jr.                   Director Herbert Roth, Jr.
 /s/ Fcul   E.' Tsonaas                  Director Paul E. Tsongas Director Charles A. Zraket                                i i

l

9 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS To the Stockholders and Directors of Boston Edison Company: We have audited the financial statements of Boston Edison Company as of December 31,'1989 and 1988 and for each of the three years in the period ended December 31, 1989, which financial statements are included on pages 20 through 34 of the 1989 Annual Report to Shareholders of Boston Edison Company and incorporated by reference herein. We have also audited the financial statement schedules listed in Item 14 (a) of this . Form 10 K. These financial statement schedules are the  ! responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and financial statement schedules based on our audits. We conducted our audits in accordance with generally l accepted auditing standards. Those standards require that we ' l plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining,.on a test basis, i evidence supporting the amounts and disclosures.in the I j financial statements. An audit also includes assessing the  !' i accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a

           - reasonable basis.for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Boston Edison Company as of December 31, 1989 and 1988, and the results of its operations and its cash flows for j aach of the three years in the period ended December 31, 1989, i in conformit 1 In addition,y with generally accepted accounting principles.in our opinion, the financial j referred to,above, when considered in relation to the basic finsncial statements ken as a whole, present-fairly, in all material respects, th. information required to be included-therein. l h%W f&' r COOPERS & LYBRAND i

                                                                                                    ~l Boston, Massachusetts January 23, 1990
                                                                                                      +

, .e

         .'                                                                                                                                                                                  i e                                                                                                                                      BOSTON EDISON COMPANY          SCHEDULE Y PROPERTY, PLANT AND EQUIPMENT DECEMBER 31, 1989                             ,

(IN THOUSANDS) Column A Column F Balance at Close of period Electric Plant: Land and Rights of Way $37,656 i Generating Station and Substation Buildings and Misc. Structures 350,447 Electric Generating Equipment 1,343,837 Transmission, Distribution, Street Lighting and Other Utilization Equipment 1,439,236 Total Electric Plant 3,171,176 i l Nuclear Fuel 235.862 l Non Utility property 956 Construction Work in Progress 83,827 Total $3,491,821

                                                                                                                                                             ==========

Notes (000's) (1) The information called for by columns B C, D and E for 1989 is ositted as neither the total additions nor the total retirements during the year exceed 30% of the balance at the end of 1989. Total additions and retirements, at costs, were $234,128 and $14,043, respectively. (2) Physical property (electric) was depreciated on a straight-line '. basis at various rates ranging from 2.845 to 4.595 in 1989. For further information relating to the Company's policies regarding depreciation and amortization, reference Note A, "Suasary of Significant Accounting Policies" of Notes to Financial Statements, incorporated herein by referer.ce (Annual Report to Shareholders for

                . the year ended December 31, 1989, page 27).

(3) Approximately $176,000 of additions, at cost, in 1989 related to various modifications made to the company's transmission and distribution systes during the year. (4) Included in construction work in progress is $9,490 relating to Harbor Electric Energy Company, a whollr owned regulated subsidiary of the Company. - (5) See Note B. " Rate Proceedings and Pilgrim Nuclear Power Station" of Notes to Financial Statements, incorporated herein by reference ( Annual Report to Shareholders for the year ended December 31, 1989, pages 27 through 29).

• Reference is made to Note F " Allowance for Funds Used During Construction" -

of " Notes to Financial Statements", on page 30 of the 1989 Annual Report to Shareholders, incorporated herein by reference. S-1 *

                                                                                                                                                       )

1 BOSTON EDISON COMPANY SCHEDULE V PROPERTY, PLANT AND EQUIPMENY l

                                                     .............................                                                                     l DECEMBER 31, 1988 (IN THOUSANDS)                                                        i column A
      .................................                                                                                      Column F Balance at Close of period Electric Plants Land and Rights of Way                                                                                                $37,120-Generating Station and Substation Buildings and Misc. Structures                                                                                                 331,134 Electric Generating Equipment                                                                                     1,299,883 Transmission, Distribution, Street Lighting and Other Utilization Equipment                                                                                           1,270,373 Total Electric Plant                                                                                              2,938,510 Nuclear Fuel                                                                                                           233,508 Non Utility property                                                                                                       1,064               -

Construction Work in Progress 98,655 Total $3.271,737 3333838333 Notes (000's) (1) The information called for by columns B, C, D and E for 1988 is omitted as neither the total additions nor the total retirements during the year exceed 10% of the balance at the end of 1988. Total additions and retirementa, at cost *, were $266,165 and $12,134 respectively. (2) Physical property (electric) was depreciated on a straight-line basis at various rates ranging from 2.845 to 4.59% in 1988. For further information relating to the Company's policies regarding depreciation and amortisation, reference Note A. " Summary of Significant Accounting Policies" of Notes to Financial Statements. incorporated herein by reference (Annual Report to Shareholders for the year ended December 31, 1989, page 27). (3) Approximately $247,000 of additions, at cost, in 1988 related to various modifications made at Pilgria Nuclear Power Station during the year. Reference is made to Note F, " Allowance for Funds Used During Construction" of " Notes to Financial Statements", on page 30 of the 1989 Annual Report to Shareholders, incorporated herein by reference. S-2

e Boston Edloon Compeer Sebodate Y Property. Plant and Egelament ,

                                                                                                                                                                                                                                                                                 ~

h 1 . 31.1997 ~

                                                                                                                                                                                                                                                                                     .      L (in thousande)

Column A Column B Coluem C Colume 9 Colome g Colem F Bolence et Additione Setircemets Other Beleme= at I Daginning et et Charges Close of Period Coet Coet B= bit / Credit of Period

Electric Flent

I.and and Rights of Way $32.681 $241 90 90 Generating Statlee and $32.922 I* , Sebetetion Buildings i and Niecellaneous Structores 296.383 14.240 112 9 300,491 Electric Generating Egeipment 1.039.699 43.674 9.164 9

Transeteolon, Dietribution, 1.074.197 ('

Street Lighting and Other Utilisetlen Egelpment 1.036.971 13,791 94.002 77 1.117,959 Total Electric Plant 2.395.704 152.757 23.969 77 1.525.469  ? ( Steen Neeting Plant: n.end att o att e e  ! Generetleg Plant Smildlege and Egelpment 18.728 0 18,728 9 9 Steen Distributies 29.612 0 39.612 9 9 Total Steam Meeting Service Plant ** 39.731 0 39.731 0 8 Total Operating Property and Egelpeent 2,435,435 152,757 62.000 17 Meclear Feel 2.525.499 , 227,327 4.992 9 9 231.419 Non-Utility Property [ 1.033 0 6 (77) 954

Comotraction Work la ri s - 94,559 165.391 0 0 259,988  ;

Total $2.758.354 S322.130 902,999 90 $3.917.704 _______._e ==____._e ___________ ____________ __________ Notes (000's) l l (1) Appronlantely $199.990 of additione, et cost *, in 1987 related to verloos modificatione sede et F11gele Meclear Peeer Station during the year. i (2) Phyelcel property (electric) ene depreeleted on a straight-ilme beste et verlooo retee ranging free 2.842 > to 4.591 in 1997. For further infereotion regerding depreeletion and emertleettee, reference pote A

                        *Seemory of Significant Acceenting Policiee* of Notes to Financlel Statemente, os page 27 of the 1999                                                                                                                                                                 '

Anneel Report to Shercholdere. Incorporated herele by reference. Reference is made to pote F. " Allowance for Fende Used Bering Cewetraction* of Notes to Finemelal . Stateepete w page 30 of the 1999 Anneel Report to Shercholdern, incorporated herein by reference. I

                ** Steen Net                                                          Plant wee sold on Febroery 6, 1987.                                                                                                                                                                    !

i 2-3 i _ L _ _- _ _ _ . . _ _ _ _ _ _ m .._ _ . . . . . _ _ _. _ _

                            ~                                                    _.                      -                             -                               -                       --

t-Boston Edison Company Schede 12 v1 Accumul ted Deprecictite, Depletion asul Amortisation of Propetty, Plant and Eersipment i 1989 (in thousands) Column A Column 9 Colmen C Column D Column E Column F Column G ) Additione Charged to Other Accounts Belance Charlestown Balance Balance Charge to Invty-Salv Retirement Cost of at Close Agelettion et close Beginning Profit and Adjustments Value of Prop Benewsle and Removal of Period Adjusteent Of Period Description of Period foes Retired Replacements

                                                                                                                                    ~~

Depreciation Reserve: i Electric Plant: ! Production -Fossil $228,742 $22.845 $0 $3 $3,340 $3,998 $244,252 80 $244,252

- Nuclea- 207,675 40,998 (A) 0 2 478 134 248,063 0 248,063

                  -Other                  14,108       1,673            0                    0         109              0      15,672 i                                                                                                                                                           0                  15,672                i Total Production                   450,525      65,516            0                    5       3,927        4,132       507,987 Transelasion                            92,379 0             507,987 8,740            0                  14          122           103      100,908 Distribution                                                                                                                                             0              100,908                   :

290.478 29,230 0 1,502 8,348 7,909 305,153 405 1 General 28,715 lll25.%8  ! 9,032 (B) 0 30 1,519 8 36,250 0 36,250 l l Tr,tal Electric 862,297 112.518 (C) 0 1,551 13,916 12,152 950,298 405 950,703 Accumulated Amortisation cf Nuclear Fuel !D) 133,118 10,613 (1,708)(E) 0 0 0 142,023 0 142,023 Tets1 $995.415 $123,131 ($1,708) 81,551 $13,916 $12,152 $1,092.321 $405 $1,092,726

                                  =========== =========== ===========         ________=== =========== _______r=== =__________             =2___======        =_______===

Notes (000's) (A) Excludee $5,354 of nuclear decommiseloning costs. (B) Includes $5,791 for amortization of leasehold leprovements, computer sof tware and load managemant progree costs. l (C) This amount differs from " Depreciation" and "Other amortization" in the Statement of Cash Flows by $6,368 which represents amortizatles of previously incurred costs that do not affect the reserve. (D) For inforention relating to the amortisation policy for nuclear feel, reference Notes A and J of the Notes l to Financial Statements on pages 27 and 33, respectively, of the 1989 Aeneal Report to Shareholders, incorporated herein by reference. (E) Payments to the Department of Energy for poet Apell 1983 nuclear fuel disposal. (F) See Note B, " Rate Proceedings and Pilgrie Nuclear Power Station" of Notes to Financial Statements, incorporated herein by reference (Anneal Report to Shareholders for the year ended December 31, 1989, pages 21 through 29). - S-4 , 4 e *

                                                                                                                       ~ ~             ~>      -
                                                                                                                                                    --w--     ~ ~ _ _ _ _ . _ - -    ----__-_m

Boston Edison Company Sc le YI Accumulated Depreciation, Depletion and

• Amortisation of Property Plant and Eguipment 1988 (in thousands)

Column A Column B Column C Coluen D Column E s Coluen F Colmen G Additions Charged to Other Accounts Balance Charlestown Balance Balance Charge to Invty-Salv Retirement Cost of Beginalng at Close Aquisition at Close , i Profit and Adjusteents Value of Prop Renewals and Removal of Period Adjustment Of Period { Description of Period Lees Betired Replacements { Deprectation Reserve: 1 Electric Plant: Production -Fossil $208,969 $21,839 SO ($110) 8731 $1,225 $228,742 $0 $228,742

                                   - Nuclear                       173,390                           32,005                               0                          2,261                                                                                                                 60                $207,675 11                         0      207,675
                                   -Other                           12,652                            1,598                               0                                                             0                                                                                 141            1    $14,108              0        14.108 l          Total Production                                         395,011                           55,532                               0                         2.151                                                                                                                 932        1,237   $450,525              0      450,525 Transmission                                                  86,142                            6,664                               0                                                     (1)                                                                                       391           35    $92,379              0        92,379 Ifittribution                                                275,300                           27,289                              0                          2,322                                                                                                     9,189                 5.044    $290,673          405        291,083 Oeneral                                                       22,793                            7,416 (B)                           0                                                            0                                                                        1.494                    0    $28,715              0        28,715 Tstal Electric                                               779,246                           96,901 (C)                          0                          4,472                                                                                              12,006                       '6,316    862,297          405        962,702 Accumulated Amortisation l          sf Nuclear Fuel (D)                                      130,429                            2.689                              0                                                            0                                                                                     0            0    133,118              0      133,118 T4tol                                                       $909,675                          809,590                           80                   $4,472                                                                                           $l2,006                                $6.316                               $995,820
                                                        =========== ======;;___ ___________
                                                                                                                                                                                                                                                                                                             $995.415        $405

__;________ ;-_________ ;__________ ___;_______ ==- - =- __ Notes (000's) (A) Excludes $5,354 of nuclear decommissioning costs. (B) Includes $4,585 for amortization of leasehold improvements, computer sof tware and load management progree costs. (C) This amount differs froe " Depreciation" and "Other amortization" in the Statement of Cash Flows by $6,779, which represents amortisation of previously incurred costs %et do not affect the reserve. (G) For information relating to the amortisation policy for nuclear fu e Notes A and J of the Notes to Financial Statements on pages 27 and 33, respectively, of the 19hsc . port to Shareholders, incorporated herein by reference. 3-5

      ~_______        _ _ _ _ _ _ _ _ _ ~ .         _

Boston Edison Company Schedul2 Y1 Accumulcted Deprecintion, Depistion and Amortiz tion cf Property. Plant and Equipment 1987 (in thousands) Column A Column B Column C Column D Column E Column F Column G Additions  ! Charged to Other Accounts Balance Charge to Invty-Salv Retirements Balance Charlestous Balance Beginning Profit Value of Prop Renewals and Coet of

                                                                ,                                                     at Close Acquisition          at Close     i Description                   of Period   and Lose     Adjustments                Retired Replacements Removal of Period              Adjustment of Period Depreciation Reserve:

Electric Plant: Production - Fossil $192,636 $20,638 SO ($31) 82,882 $1,392 $208,969 80 $200,969

                - Nuclear        152,595     29,164 (A)            0                    570         6,284    2,655      173,390                 0      173,390   t
                - Other           11,436      1,352                0                      0-          105        31      12,652                 0        12,652 Total Production          356,667     51,154                0                    539         9,271    4,078     395,011                  8     395,011 Transmission                  82,422      6,006                0                     17         2,071      232       86,142                 0       86,142   i Distribution                 262,845     25,289                0                 2,418         11,644    3,608     275,300                405     275,705 General                       16,694      6.171 (B)            0                      7            83        (4)     22,793                 0       22.793 T4tal Electric                  718,628     88.620                0                 2.981        23,069     7,914     779,246                405     779.651 Stras Heating Service (C)        25,280        380           13,653                      0       39,340        (27)            0               0             0 Non-Utility                           0          0                0                      0             0         0             0               0             0  l Tatal                           743,908     89,000 (D)       13,653                 2.981        62,409     7,887     779,246                405     779,651     '

Accueulated Amortisation of Nuclear Fuel (E) 125,053 5,376 0 0 0 0 130,429 0 130,429 74tal $868,961 894,376 $13,653 $2.981 862.409 $7.887 $909,675 $405 $910,080

                              ========= =========       ===========        _-     = =_=== =_________==           ==  =====e===        =---- ===== =========       !

Notes (000's) (A) Excludes $5,326 of nuclear decossissioning costs. (8) Includes 83.547 for amortisation of leasehold leprovements, intangible plant and load annagement progree costs. (C) Steam heat business was sold on February 6,1987; see Note C of " Notes to Financial Statements" on page 29 of the 1989 Annual Report to Shareholders incorporated herein by reference. (D) This amount differs free " Depreciation" and "Other amortization" in the Statement of Cash Flows by $6778, which represents amortisation of previo ssly incurred costs that do not affect the reserve. (E) For information relating to the amortisation policy for nuclear fuel, reference Notes A and J of the Notes to Financial Staf.eeents on pages 27 amt 33, respectively, of the 1989 Anweal Report to Shareholders, incorporated herein by reference. .

                                                                                                                                                        ~

S-6

                                                                                                                                                                 )

Bostoe Edloom ca=p==y Schesule VII Decesher 31. IS89 emarantees of Securities of Other Isomers (in thousands) es============u=========renn=============================================================================== Column A. Coloan B Column C Column D Column E Column F Colema e Name of leaver Title of lesse Total amount Amounts owned Amount in tressery et securities guerenteed and by Company (b) of leeuer of Nature of Nature of defeelt guerentee by leeuer outstandlag securities guaranteed (b) guaranteed (b) Connecticut Yankee Atoele Power Company Series A Note-due 1996 $2.190 principal and laterest Yankee Atoele Electric Company: principal and interest Beak Note-dse 1991 1.700

                                                                                                      $25 Million sevolving Credit Facility-empires 1990                                                                                      700                                                principal and intereet New England Hydro-                                                                                   $300 Nillion Revolel 4 Credit Transeleolon Corp.(a)                                                                                 Facility-empires 1998                                                                        0,640                                                            principal and laterest New Enstand Nydro-Tremonicolea                                                                                      $300 Million Revolving Credit Electric Co. Inc.(e)                                                                                  Facility-empiree 1998                                                                       11,500                                                            principal and laterest Total                                                                    $24.730
                                                                                                                                                                                                   =========

Notes: (e) As part of Nyda ^_M Phase II, the Company and other New England electric utilities beceae equity ownere in these coepenlee and have agreed to guerentee severally, their proportionate share of the borrowings owtetanding of both New England Nydro-Traneeleolom Corporation and New England3 N dro-Treneeleelon Electric Company. Inc., perouent to a shared $300,000,000 revolving credit facility. Also, included in the amounto guaranteed, the Company and other equity participeste guarastee their proportionate obere of the total obligation of the participante not meeting certain credit criteria. (b) Nose of the securities were emeed by Boston Edloon camp =ay; nome were held in the treesery of the leeuer; and none were in default. S-7 < w- . _ . _ _ _ . ._ . _ _ _ _ . .

                                                                                                                                                                                                                            ~ _ . _ _                  _ _.                                                            -

Boston Edison Company Schedule 11 Short-Ters Borrowings Year ended December 31, (in thousands) Column A Column B Column C Column D Column E Column F Maximus Average Weighted Category of December 31 Amount Amount Average Aggregato Balance Weighted Outstanding Outstanding Interest Rate Short Tere at Close Average During the During the During the g Borrowings of Period Interest Rate Period Period (2) Period (2) 1989 (1) 8213,840 8.91% $233,275

                                                                                                                $169,377               9.40%

L 1988 (1) 8114.580 9.44% $340,705 $212,344 7.632 1987 (1) 8185,663 8.06% $226,312 4118,428 7.02%

1) Borrowings under: Year Ended December 31, t

                                                                                    ......................................                     I 1989                 1988            1987 Lines of Credit                                                         $39,000                          80       842,500 Commercial Paper                                                        17s',840                  114,580         143,163 L

Total $213,840 -$114,580 $185,663 sassassa sanssans massassa

      '2) 50e Note 7 of Notes to Schedules of Capital Stock and Indebtedness on page 26 of the 1989 Annual Report to Shareholders, incorporated herein by reference.

i S-8 I L: i l u .

              ,i*

6 Doston Edison Company Schedule I l l- Supplementary incobe Statement Information Year ended December 31, (in thousands) Column A Column B Charged to Costs Ites and Expenses

1989 1988 1987

1. Maintenance and repairs $91,383 $107,325 4113,047

                                                                                       ======= ======= =======

3. Taxes other than payroll and income taxes:

Mur.icipal property $45,017 $49,851 $48,168

                                                                                       ======= =======                            :::::

L The.above amounts are net of capitalized expenses, i For information relating to Iten 2 "Ascrtization of Deferred Cost of Cancelled Nuclear Unit" and." Amortization of Deferred Nuclear Outage Costs", see " Statements '

            'of.Incono".for the, years ended December 31,1989,1988 and 1987 on page 20 of the 1989 Annual Report.to Shareholders, incorporated herein by reference.                                                                             t

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As anticipated, the loss provisiona for the settlements sovoroly impacted year-end camings. That impact, coupled with a weakening of the Massachusetts economy, made it necessary to reduce tho dividond. The resolution of the regulatory issuos. however, combined with the dividend action, will Strongthen the Company's financial position und enhanco future growth and valuo by allowing us to toinstato dividend growth at least in line with the industry avorugo. The stock ma! Lot initially reacted favorably to the sett!amunt, recognaing the hnancialimportanco of the resolution of our long standing uncertainties Because of the revenuo stream provisions agrood upon over tho next throc years, wo will not spok rato changes during this period. Wo have retainod the replacornent power recovery costs collected dunny Pilgnm's outago, as wellas the capital costs expand-od for modthcations and noodod repairs to Pilgrim. We have agrood to a standard of operating porfor-manco for Pilgrim on which incontivos, or ponaltios, will be assessed, We are confident of meeting thoso standards, which are wcll within the paramotors of tho Station's fivo-year operating plan. In addition to sollling thoso casos, our 1989 oporating pian objectivos woro met. Our innovativo now domand-sido manayamont programs are proccoding successfully in collaboration with vanous intorosted partios, govemment officials and major customers. Our energy resourco plans are in place { l to moot futuro noods. Our rotationships with the regulatory bodios are good and continue to got bot. I tor. And our customer relations and public rotations havo enterad a now and very favorable phase. 1 1 If, as it has boon said, tho past is ;>rologuo, thoso throo years of uncortainty have boon the noc-ossary profsco to a now ora for your company. By giving not only the highost prios 'ty, but also unstint-i ing timo and attention, to the solution of thoso probloms, wo are now able to tako advantage of an l unencumborod and highly promising future. Tlaat the passago from uncertainty to opportunity has occurrod at the close of one docado and tho beginning of the next is symbolic of the oxciting period iprogress and growth wo are ontoring. I

                                          ,gzi          .

f-Stophon J. Swooney Chairman of the Board and Chief becutivo Officor February 22,1990 l 2 1 c d

Chairm**' Orod Cn:et Execut,ve O!Icer

                                      '                Stephen.) Sweenev yoght) with Pres >nent and Chief ode'Bn9 Officer Bernard W Retnicek I
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' The vast decs'de has seen dramatic cnange in the wan m a h cn Soc s E-VfeWS !!!G .jSv5 and Sou'Ces of y'ip?py ]hp gf fpr;ppn g ig !, (f q, p3_r f,pg _ _L_ the p'ociders of eno<pp. trle uSe'S J energ) ano those a ho 'v(JuWe the - mdast , hanvecome+ocubea w a ~ea se t o v,,nv s 1 nose v,,,.,t,e, , r.

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mciude a g owmg conce r, 'o= .nc wwia vn, c on?ne, . a oes,rv ,c i;.,vr B. ; R cc et en iposce ine use or e,-gv a a a ..au e io, a,ternot,,e sa,.ces or 9, W' ene'QV 005 ton { 0: bon. witt' a f)(an D Mr,3ge'nent tegq: o pjg(p i c, g( tyygly Vs - pursuing at: of inese voorities Q

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O cvnem8 avaut ama ,a, tue devietivn, ene at,n.v e :, e, n, che o L tn.patorcon8 cove tgiova ,a,mmy ,,weied sn etr,v avesvo u ,0+ - tfollc0 Q!oWth in tfle uSe of foSSd fuglS Rgpqy pScglggmg (95f5 gf (99 ^ SifuCrion and finanalty la'ensmg delays compoar,,jed by pabj,c fp3 3b9ug m 00 0 h a ')( f f {}?){fet 10fy 0f[tf QQQf ft t 'l (Q } { L; fl} [,j ((} g _fj 9,}*' K' Where no nea nuclear pOAe! plgntS l)gye bggn g((jg_rg(f jn (fyg fg.;g pf theSe Go!)Cefnh, (fle f eali:ation tlas grown t!)dt ef forts to conSeryg gg reduce energy use must rece ve more emphasis Boston Edison is now 10 the forefront of research development and imviementation of avmand. m side manage <nent vraarams Aopipng (ne same ingenuity, innovation ana j enginot resources which it: another decade micrit have been uevotea to meeting increased usage. vour company is wo%ng with ts customers

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LVtY some 25 prograr"s targeted at 0 fferem customer groaps Some o r wnicn are avsent,ea w (?n <o;>o" Bostor' Ed sw nas ni?eas t,ee:  ? > E._ ogwoo as a donas de wad,1,. .nv vue, , w , m e a ls , m.

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n _- been dramatic: low:r costs for customers without lessoning the quality of liic or quality of work, reduction in demand peaks, and a reduced future need for expensive capitalinvestment in now facilities. Regulators and other interested parties have played a constructive . role in this elfort by jointly dovelooing various efficiency and demand ~l s x. reduction programs, and by working together to establish appropriate , incontivos, both for customors and shareholders. We believe those incen- $' . _. . $.

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tives will make this a profitable business opportunity, in an increasingly  ;.[_f

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 .g cooperative atmosphere, allparties have been pursuing the same goals.                Wfi}'~f  '

n'y k egg i Luo Supply Side

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Even with efforts to reduce demand, there will be growth in energy use .

                                                                                                                        .yQy
                                                                                                                    .m' and a need for new sources of supply. New ideas are coming into pluy on l

p the supply side as well. The current regulatory environment provides more i certainty of cost rect u."; 'or new generating plants which can be shown

                                                                                                                                      ~1
 <;                           to be both necessary and economical at the time they are planned.

M . Agreement can now be reached as to the need for as well as the scope of a given project at inception.

  ,L.           a In addition, there is a trend toward smr.ser and more efficient gener-

[ t Q 1 { '$ ating plants. This development has led to streater competition in the indus- { t y, 1 \;&.'$- try, particularly among independent power producers.IBoston Edison is

           @$hN'I i$.W               well positioned to maintain its leadership in this field. Ybut company has bh                           more than 100 years of experience in siting and building power plants.                                     '
 &'l:fT& C. ',h:l Moreover, although the location of a new power plant can be highly con-y      ..
             . ,'p[            troversial. Boston Edison has available sites. The Edgar sito in Weymouth.

h..; s

p. a for example, known as Edgar Energy Park, is being developed as the loca-tion for a new 300 megawatt combined cycle generating facility. Edgar Energy Park could ultimately handle as many as four facihties of this type if they are found to be needeJ.

I2

Boston Edison has also formed Harbor Electric Energy Company, a wholly owned subsidiary which will provide energy for the new waste , , water treatment plant to be built on Deer Island by the Massachusetts '5 ' e W, ; Water Resources Authority. The Authority's initial needs during the con- 5 5 struction phase willbe about 15 megawatts of electricity. This is expected

                                                                                                                   'dllbl'W'h5?.

u slhhkn to increase to 60 megawatts by mid decade. This subsidiary represents a fjlqll;?%kl<f

                                                                                                                         ' 7c.('M new and highly promising direction for Boston Edison. Increasingly in the                   '

years ahead, no will be exploring ways to build value and eamings through

                                                                                                                -([:f(             :

related businesses and subsidiaries. . ',,assas,

                                                                                                                            'f .2 r
               ' Service b:            -

Service has been a leading priority of Boston Edison for more than a century, L1l')'"" Efforts to improve service never cease. During the past year, the average U Q-time for customer outages was reduced by more than a th!rd. L.L. w

                         ' Reorganization has provided more than 100 frontline customer service repre-sentatives to handle calls andletters. This group can provide translation services to custorners in 65 languages to deal with the diversity of our service area.

New customers are now connected in substantially less time than

                         . over before. Boston Ed: son is only the third utility in the nation to introduce ServiceNet, a programmable meter which uses radio to link customers to billing, information, and energy management systems. ServiceNet is a pilot '

program but already has shown great potential benefits in customer service.

                 .-A_n _Ene_rgy
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S.e.rv.ic.es_ Co_m..pany ,**? Q m$ U I In tho decade to corne, Boston Edison will not be perceived only as an elec- . '.k tric power company. Rather, we have become an energy and energy services C gL ' provider. The Company has been restructured to take advsntage of opportu- }fM nities on both the demand side and the supply side of the energy equation. WiW The possiive new regulatory atmosphere allows us to plan wrth confidence (migOR ss#

that investment cosw will be recovered. and with knowledge that our plans are in I,ne with the necos and concerns of the Dub!!c As the Massachusetts economy siows from the boom years o' the Nb eightnes. ne wth be able to pu' sue a balanceo strategy in supp'vince energy h 1 services By helping Our customers both large and smali to Deco ne rnare , f., e f ficien t we will save them money Hoo reduce peak energy loads or oy  %

                                                                                                                'k Generalt! y          faCthfies As new generatinQ R(+0S are identified such as for the waste facihty to be constructed in Boston Harbor. n e wf plan spec'f>-

cally to rneet those needs in the most elf?cient c.od enveronmentally . conscious way possibic Our new Harbor Electric Energy subsidia'y is a prototype of a fierible response to the futu'e = \ An energy services company serves many and diverse constituencses Our cas!Omers range trorn smali households to Copter Piace. which uses i as rnach power as the City of Choisea One of our goals for the nen decaae is to convey a message to the many audiences we add'ess reso oentini, commercial, and industnal customers the regulatory Daards with winch we mieract the pohlical estabhshment and the press That enes. sage is a simple but powerfut one lhe Boston Edison of the ninetics is d t forent on many respects from the comoany of past years it is restructured. it has environmental pnarities which reflect the times, it works with its cus-to'ners to save money at,Q be more efficient in one respect. however your company is the same as it has been for the past one hund'ed ano three veurs Boston Edison promises service and rehabihty to those no serve

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MAN 4GEMENT'S DISCUSSION AND ANALYSIS er izasez; r=t m 2 2 : e .: : == Rate Pmceedings and Pdgrim Nuclear Power Station On October 31. 1989, tt's Commonwealth of Massachusetts Department of Public Utdities (the 'DPU') approved a settlement agreement effective November 1 1989 (the 'OPU Settlement Agreement'). relating to certain DPU proceed-ings involang the Company In add: ten, in January 1990, the Company entered into setticment agreements with certain whoesale l cuntomers (the Wholesa'e Settlement Agreements') to resolve a portion of certarn pending regulatory and legal proceedings concerning long term purchased power contracts with such customers for a portion of the output of Pdgrim Nuclear Power Station ("Pdgrim Station') The Who!csale Settlement Agreements a'e subject to the approval of the Federal Energy Regulatory Commission (TERC') as well as, in part, approval by the DPU of a related agreement As a result of the DPU Settlement Agreement and the Wholesale Settlement Agreements. the Company incurred in the fourth quarter o' 1989 a before tax charge of $178.650.000 (including a reserve for remaining regulatory proceedings and related litigation en connection with the long-term purchased power dispute descnbed above). with an attor tax etlect >f

                 $106,280.000 or $2.78 per share of common stock Although the DPU Settlement Agreement and the Wholesale Settlement Agreements have removed major uncer-tainties facing the Company. other uncertainties remain and are discussed further hereunder.

Results of Operations

     ~

5he ConNpNy~incuned a loss of $0.88 per common share in 1989, pomarity as a result of a $2 78 por common share charge, as discussed above. which was related to the recording of the DPU Sett!vment Agreement and the Wholesale Settlement Agreements arwl an estimate for other leg31 and regulatory proceedings involving Pagnm Station Excluding such charge, eamings per share of common stock from continuing operations for the years onded December 31.1989. 1988. and 1987 amounted to $1.90, $186. and $1.97 respectively The 1989 activity includes a $0.14 per common share pain from an eminent domain taking of certain Company property. The Company sold its steam heating business in February.1987; eamings per common share from disconnnued steam heat operatrons for the year endad December 31, 1987 amounted to $0 30 (including $0 25 gain on the sale of the steam heat business). I989 Versus 1988 The Company incurred a loss of $0 BS per common share for the year ended December 31,1989 compared to camings of $1.86 for the same penod in 1988 The loss of $0.88 per common share in 1989 included a $2.78 charge to ea n ngs pnmanly relating to the DPU Settlement Agreement and the Wholesale Settlement Agreements and oftset, in part. by a

                  $014 per common share ga,n relating to an eminent domain taking of Company property Net income includes three noncash items: Allowances for Funds Used During Construction ('AFUDC*). the imputed interest effect of the Company's retroactive adoption of Statement of Financial Accounting Standards ISFAS) No 90 (as discussed further in Noto E of Notes to financial Ststementsl. and the reversal of certain pnor years' deferred income tares as d:scussed fur-ther hereunder These items amounted to $0 43 per common share in 1989 and $0 65 per common share in 1988.

Total operating revenues amounted to $1,269.345.000, an increase of 5.5%, as follows: O 9% increase in retail kWh sales $ 4.606,000 Performance Clause Ravenues tn 3,174.000 Increase in fuel and purchased power adjustment clause revenues 39,802,000 Sales for resale 11,155,000 Other increases. net m 7,953.000 _ Increase in totalrevenues $66,69_O 00_0 I11 h5 [Wt Or the DPU Settfemen! AgrMment. cftectNe Nowmber I.1980. the Conwy is twrnntred to increase retad rates by copromtely

                            $NC04000 owe the powlinvn Nowrcer 1.1989 to Octobe' 31. %O rsubiect to ad ustment i             based utw the cooranon or Pugnm Staton!             ,

m 1980 orne< iems we rechens by a crmrge or $ 7 600.cw for Pagnm i teowement power ccsts RetailiMh sales for 1989 increased 0 9% from 1988 Sales for resale increased 85% n 1989 pnmardy as a result of increased output ficm Pugrim Station, which retumed to full power in 1989 Approumately 26% of the output from Pdgnm Station is sch1 to other utdat es pursuant to long-torm purchased power contracts The large increases in fueland purchased pour revt'nues and fuel and purchaced power e spenses of $39.802.000 and $47.791,000, resocctively. are due to nsing fossil fuelprices and the mcteased cost per kWh purchased from other utdities. Pdgom Station operated at 15 i.....

produalIy increasing power levels as part of the Power Ascensson and Test Program in 1989 and thus coupled with improved fossil unit performance, the Company has boon at'le to wduco its overa!! level of power purchases from out-sido sources to 22% in 1989 as compared to 4'1% in 1988 The major portton of fuel and purchased power espenses are locovered through fuel and purchased (Aver Clauses with the balanco bo>ng recovered through base rates. Other operatton expensos increased $7,124,000, (>nmanly as a result of increases un labor. omployco benehts expenso and uncollectbles Maintenance expenso decreased $15.972.000 due to decreased empenditures at Pdgnm Station and tower weeks of schodaled unit overhauls on 1989 versus Isst year Depreciatron and amortization crponse increasec' $ 1SS15 000 due to a la!go tocrease to the average depreciable plant investment base, pnmanly compnsed of Pdgnm Station additions (which were comp!vled and placed into service m late 1988) and transmission and distnbution equipment additions, Property and other tat expense decreased $4.640.000 due to lower property taxes as a result of the settlement of a law dispute wuth the City of Hoston. Massachusetts (MA) in lato 1988 The Company's effectivo ancomo tax rato for 1989 (excluding the DPU Setrioment Agreomont and the LVholosa!c Sottlement Agreements on 1989) is 26.7% vorsus 26 9% m 1988 Income taxes onpenso per the accompanying financial statoments decreased

               $1,646.000, a f>ortion of which as due to a shght dochne in tanable income, The Company a%o reversed certain poor years' deferrod incomo taxes on both 1989 and 1988 associated with AFUDC related dolorred taxes provided dunng the years 1977-1979, the calculation of which was based upon FERC Oroor SGI methodology These wore restored to oncorne us such methodology has not been adopted by the DPU The earnings por common share offect of those rever-sais was $0.15 in 1989 and $010 on 1988; soo also Note H of Notes to Financoal Statements Other incomo increased over the pnor year ponod pomanly as a result of expenses incunod in 1988 on opposition to an initiative petition which would havo toquirod the shutdown of all oporating nuclear plants in the Commonwealth in additton. In 1989 the Company recorded a gain of $$,499 000, not of tares, from the ominent domain taknng of certain Company proporty, See Note E of Notes to financial Statements for information on the nmpact on 1989 and 1988 cann ungs 'tossi relative to the Company's adaption in 1987 of SFAS No 90 AFUDC totaled $10.474 000. a decrease of 54% from 1P98. duo to a largo decrease in the construction work in

progt oss base, which is primardy related to the completion of work at Pdgrim Station in late 1988 and in the transmission and oAtrioution system, The Company hnancos a porteon of as captal expendstures through infomally generated funds with the balance thiragh extenal hnancings. Interest exovnse on long term debt ancicased $9.891,000, pomanly as a result of the Septomher 1988 issuance of $150.000.000 of Unsocured Medium-Torm Notes, the proceeds of which were usod to reduce short torm borrowings Preference d,vedonds increased $3 bl2,000 due to the assuanco of 500.000 shares of Stated Rato Auction Preference Stock in Octobor 1988, tho proceeds of which were also used to reduce short.

term borrowrngs 1998 Versus 1987

                 'ihe outago of Pdgnm Station continued for substantmily all of 1988 The Company continued to replace lower cost nuclear fuel generation from Pdgnm Stanon wuth higher cost fossa fue! generahon and purchased energy from other utilt-tres n'hile totaloperating expenses were relatively unchanged from 1987, an increaso m base revenues associated with a 4 8% growth in retad kdowatthour IkbVh) sales was more than offset by higher not hnancing costs and expensos incurred in connection with the Company's opposit;on to the Massachusetts referendum whicn would have roquired the pom1anent shutdown of Pdgnm Station on 1989 AFUDC represented approntmately 24% and 17% of 1988 and 1987 reported eamings. mspectivoly
                         - Tota! operating revenues amounted to $l.202.655.000. On incroaw of 1.8% from I987. The Comfuny experienced a 4 8% increaso on totad kMfh sales a portion of which was due to unumfly warm woather empenenced un the summer of 1988 Fuelclause revenues wac essant&ty unchanged An analysus of the mcrease in tota!rovenvos is as follows:

4 8% increase in retad kbVh sales $29,887,000 Rate reduction duo to Tax Reform Act of 1986 IH (l7,G30.000) Inctcase in contract revenues 6,869.000 Other . _I.832 0_00., increase on totalrevenues $_2 I.5._58. 000 t11 purunt to a rate orm from He Deu on M I.100x t% Campany towaa e aws reme renwroments t>y $34 000.000 to rene.:t the imtwt or uw in normrn Act of IM Fuel and net purchased power expenses, etclusive of dolorred fuel costs decinased 4%; a 5% increase to system power output nas mom than offwt by declining fossd fuel pncos and lower cosi k Wh purchases from other utili-ties The Company a totait favl and riurchawl power adlustment cinuse permns the maior portron of such costs to be bdled to customers utdsng forecasted costs. with the balance being recowled through base rates. A 3% dochne in kWh output from the Company's fossd noneratron stations was o!! set by .ncreasod power purchasos from other utdities. 16 l

~ approximately 40% of system kWh output was from outside sources in 1988 as opposed to 34% for 1987; sinct the commencemer't of the outage at Pagnm Statron in Apol 199G. the Company increased its rehance on purchased power from other utdities in order to mert demand In June 1988, the DPU issued its decision in its annua! review of the Company's generatong units lexcluding Pdgnm Statront performance for the penod November 1.1986 to October 31,1987; the DPU disallowed cortarn replace-ment t>ower costs totati ng appronmately $700,000 This amount we.s recordedin the accompar1ying financialstatements ana was refunded to the Company's retai! customers in 1988 See also Note A(21 of Notes to financialStatements In 1988, the Company recorded a reserve of approurrate? ??,600,000 ($012 per common sharel fo' Pdgrim Station replacement power costs; such amount was refunded to customers vin the quarterly fuel clause This charge was offset in 1989 by the $7,G00,000 reversal of a previously established reserve relattng to a pnot yests' wholesale contract dispute. following the Company's recerpt of a favorabic court ruling Other operation c\penses increased $ 16 801.000 pnmanly US a result of increases in nuclear erpenses, employu benefits expense, legal fees uncollectibles, and regulatory commissoon expenses A $5.722,000 decrease in mainte-nonce expense is due to a lower level of current maintenance expenditures at Pdgnm Station. partially offset by higher l levels of maintenance at the Company's fossil steam stations and combustion turbines Deprocration and amortization i expense increased $8.309.000, the Company placed in service approximately $400.000.000 of plant additions in 1988 of winch $240,000,000 related to Pdgnm Station. Municipal property tax expense and other tares increased $3,104.000 2 ~ due to is.. reased property tax bilkr,gs from the Town of Everett, MA coupled with a higher level of payroll tares, partially offset by lower property taws from the City of Boston, MA due to the settlement of a tax dispute with the City; 1987 proccity tases were reduced due to a revaluation in the Town of Plymouth, M4 Income tares decreased $16.434,000, Q due to a largo decrease in tarable incomo coupled with lower income tan rates estabbshed by the Tar Reform Act of 1986; the Company's effective income tax rates for 1988 and 1987 were 26 9% and 38.0% respective!v. See also Note li H of Notes to Financial Statements for further unformation relative to a decrease on 1988 deferred tax expense of ( $3. 700.000 ($0.10 per common share! which is attnbutable to prior years' operations Other income (net) decreased $3.723.000 from the comparabic poiiod in 1987 primanly due to expenses incurred I in 1988 in connection with the Compary's oppositron to a Massachusetts referendum. See Note E of Notes to Financial Statements for information on the impact on 1988 and 1987 eamings re:ative to the Company s adoption in 1987 of SFAS No. 90. AFUDC totaled $22.916,000, an increase of 31% from 1997, due to a large increase in the average construction work in progress base, a majority of which related to comoteled work at Pilgrim Station Interest expense on long-term debt increased $11,879,000 primarily as a result of the Septembs.1987 issuance of $100.000.000 of Senes x I1% First Mortgage Bonds and the issuance of S150,000,000 of Medium-Term Notes in September 1988 Short term unterest E *A'05UIU'UI'd $IO000'000, an increase of $9,444.000 from 1987; substantia!!y higher levels of short term borrowings were incurred dunny a portion of 1988 to finance capital expenditures for extensions, additions and improvements to the Company's plant and propert,es.

    ^..financial
         . . . . Condition. Liquidity and Outlook for Future-____._.~ __

Gewig Fnnca! t'ono tion On October 31,1989, the DPU <.pproved the DPU Settlement Agreement offective Nusember I.1989, resolving certain proceedungs before the DPU lsee Note B of Notes to Funancial Statements). The Company erpects that the retari rev- = enues allowed to it under the DPU Settlement Agreement, although iomited through October 1992, wdl allow it to sell debt und equity secunties including those d:scussed below which, coupied with normalinfomal generation of funds and supplemented by its short-term borrowing capabditres, would meet orojected working capital (which includes appros mately $139.000,000 of cash outlays as a result of the DPU Settlement Agreement and Wholesale Settlement Agreements), plant expenditures and debt service needs. As part of the DPU Settlement Agreement. the Company has been aHowed consecutive retad revenue incmases of $20.000.000 cifective November 1,1989, $22,500,000 effective November 1,1990 and $25.000,000 effective November 1,1991, subject to adjustment based upon P>lgnm Station's performance In addit?on, if the Company would not otherwise acnievo retad rates of return of I10% in 1990, II.5% in 1991, and 12.0% in 1992. the Compriy may make certain accounnng adl ustments (but only to the extent that such adlustments do not result in the Company's exceeding such mtait rates of retum): (u) by reducing deferred income tax oxpense by $2,000.000 in 1990. $13.000,000 in 1991, and $23.000.000 in 1992 and ful by accelerating the amortization period for certain municipal property tax abatements. totaling approximately $37,000,000, from six to three years Accor:ing?y, the Company's abihty to maintain or increuse earnings wn!l devend primanly upon its abihty to control costs and incmase ks!awatthour sales, as well as the efficient operation of Pdonm Stanon. During the period November 1, 1992 through October 31, 2000. the Company has agreed to nnstitute a new cost recovery mechantsm. which is also tied to Pdynm Station's performance, for a portion of the CompanVs investment and costs related to Pdgrun Station As a result, the Company's potential camings after 1999 wdt continuo to devend. in part. upon tne s Hcionti opera: ion of Pilgnm Stanon I7

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A large portior of the Comfuny's k Wh sales are in the commercial sector as compared to the industnal sector. The New England area is forecasted to exponence a sluggish economy in the ne<st future While the Company does not antic-inste any signihcant offects from a continuaton of the current slowdown in the regonal economy, the Company does not anticipato signibcant growth in retail LWh sales The Company's growth in base revenues may also be reduced by the expenditures associated with demand side management programs. The Company's electnc generation units, other than Prigrim Sta!1on. are fossil fuckfimd (oil or natural gas). Fossil fuel related expenbes (exchiding not purchased pcwor) accounted for apprommately 24 % 19% and 2396 of total operat-

           %g expensos m each of the years ended December 31.1989.1988 and 1987, respectively The majonty of the Company's fossil fuel purchases involve imported residsat fuel ott acquired pomarily from intemational suppliers. and nat-ural gas, which is supphod to the Company on an 'interruptible' basis While the Company does not anticipate major dis-ruptions in either the 0,1 producing regions of the world (which would cut off important sources of oil) of the availabdity cf pipchne cispacity to the New England region, the Company is subsect to changes m the pnce of such fuel The Company behoves that its presont fueladjustment clauses in both its retailand wholesale rate schedulet would provide for mcovery of any potentialincreased costs.

T Tho Company is allected by inflatcn to the extent that its operation and maintenance costs increase accordingly. e The Company is also aficcted by infiation to the extent that unliation appears in the form of higher construction and relat-ed hnancing costs for new generation stations, transnnssion and distnbution eqwpment. and significant improvements to existing facdities in accordance with the DPU Settlement Agreement dated October 3.1989. the Company is allowed consecutive retail revenue increases of approumately 2% cach year over the next three years subject to adjustment based upon Pilgnm Stuhon's performance The Company's level of depreciation expense is based upon the histoncal - cost of its plant; the Com;nny behoves that depreciation expense calculated on a 'roplacomont cost of facihties' basis would be signihcantly higher 1he Company may have additional knancial exposure with respect to a fury verdict of $39.300.000 against the Company in an antitrust suit which the Company is current!y appeahng; management beheves that the decisen is con- ' trary to the facts and apphcable law and that it is unkkely that the judgment will be uphcId on appeal Ln Compar~ % been named US a patont, ally responsible party by certain environmental authontres with respect to the clean up of certain hazardous wasto sites; the Company beheves that it is remoto that it willincur any significant habihty with respect to such clatms (sco Noto G of Notes to Financial Statements). The Company began negotiations involving its labor contracts on January 22,1990. These contracts expire on May I5. I990. Tha Company anticipates favorable resolution of these negotiatens prior to that date. Certam other matters remain open regarding the continued operation of Pilgnm Station. On August 41987, the

           . Federal Emergency Management Agoncy Idantihed certa.n oeficiencies in the then existing offsite emergency response plan for Pilgrim Staten and withdrew its previous Intenm 'hnding of adequacy The Company continues to work with the Commonwealth of Massachusetts and localoilicials to improvc ofIsite emergency preparedness plans and in October of 1989 participated wrih these parties in an integrated emergency prepaiedness exercise. While progress has been made,                y formal approval of ernergency preparedness plans has not been obtained from the nocessary partie% Without continued Commonwealth of Massachusetts ard local participation it would be entremely ditficult to formulate plans satisfactory to the Nuclear Regu'atory Commission Continued operation of Pagrim Statcn is being actively opposed by various individuals. groups and pubhc othcrats Certam govemmental egoncipe are currently conducting stud <es to determine whether there is a hnk between Pdgrim Station and purported elevated levels of radiation-sensitive cancer in certain communities near Pdonm Station The E              Company contmues 10 monitor the situation closely and disputes any contention linking Pdgrim Station to any 3uch ele-vated cancer levels hW Md ?!.mt b)Mn:]lJ'e: Ond futWD Centrancn CW3Clv The Company 3 estimate of piant expenditures over the next hve years (which is subject to continuing review and adjustment $L and debt and preferred stock retirements cs currently estimated to be approximately $1,317,000.000 bncluding nuclear fuel but excluding AFUDCL Long-term debt and medium term note matunties and sinking fund

, requirements for both debt and preferred stock aggregate $201.875.000 in the next five years: see also Note S of Notes ~ to Schedules of Cacutal Stock and Indebtedness with respect to potential mandatory redemption reautrements on the - Company's outstanding Stated Rate Auction Preference Stock subseaunnt to November 1991. - The Corepany is continualty studying various energy altomatives in order to addmss its cavalxhty requuements. w Due to the demand for electricity in the region. coupled with renewed regulatory emphasis on least cost options, a growng share O! future plant enpenditures is being invested in demand-side management programs and regional trans-mission faciistics Pursuant to guidehnes from the DPU. the selection of least cost optens mcy be subject to advance 3;mroval of the cpl). AISO, as part of the DPU Settlement Agreement. the Company is committed to spend $75.000.000 in demand s;de management programs over the nont thrce years, in 1989. the Company continued to seek indeper. dent proposais for nurctuses of power from cogeneration faciht;es and'or pnvate power producers, increased emphasis on P y 18

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customer utdt:ation of demand-side management programs, and orplored the feasibility of instal!ing new generation capacity at the Edgar Energy Park, located on Company-owned property in Weymouth, MA In add: tion. the Company continued to emlore other least cost options includung potentiallong-term purchases of power from Canadian facihties and the Installation of combustion turbines L wl y w) T > Funds generated intema!!y represented appronmate!y 59% 43% and 48% of plant expenditures in 1989,1998, and

                   '1987, respectivoly. Plant expenditures in 1999 were onmanly related to improvements in the Company's transmosson and distnbution systems it is erpected that a porton of future plant expend tures will be funded internally The Company hied a registration statement wrth the Secunties and Exchange Comm:ssion seekong approval to resuc $ 100,000,000 of secunties consisting of first Mortgage Bonds and.!or Unsecured Notes (together with
                    $60,000,000 of previously regrstered Forst Mortgage Bonds) Th:s registratoon statement became effective on January 29,1990. It is the Company's current intenton to issue secunties pursuant to this registratton statement in the first quar-tar of 1990 for such purf>oses as to rehnance certain outstanding long term Indebtedness and for capital crpenditures for extensions, adderons and improvements to the Companis plant and properties or for the payment of obhgations incuned for such expenditures.

The DPU approved in August 1989 the issuance and sale of not more than 2,000.000 additional shares of the Cumpany's $5 par value per shaic common t tock pursuant to the Company's Duvudend Reinvestment and Common Stock Purchase Plan at prices not less than $15 per common share The Company app!<ed certain eminent domain and other proceeds to the redemption of $10,145,000 of Its outstanding First Mortgage Bonds, Senes V 12M% due 2015, in December, I999 The Company currently has short-term borrowing authon:y fr m FERC of $350,000,000, which the Company deems adequate to cover working capital and other bqurdity requirements The Company meets working capital require-

                   - ments, as well as the intenm hnancing necessary for !!s cc. rent p ogram of plant emenditures, pnmanly by intemally generated funds, supplemented by the issuance of shar. ,stm commercoalpapo and bank trorrowings As of December 31,1989, the Company had $213.840,000 of short ter n debt outstanding the Company arranged for a three year,
                     $350,000,000 revolving credit facihty in May 1988, as ciscust,cd further in Note 7 of Notes to Schedules of Capital Stock and !ndebtedness As of December 31,1989, the Company had not applied to the DPU for regulatory approval to incur long term debt under this agreement, nor had the Company oncurred any short term aebt thereunder. The Company also has arrangornants with certain banks to provide additionalshort term c?vdat on an uncommitted and as available basis.

The Company's 1989 year end capitahzation ratios are 52% kng-term dobt.12% preferred,' preference stock and 36% common equity as compared to 1988 year end levels of 50Q 12% and 38% and 1987 year end levels of 48% 10% and 42% respectively The Company did not issue any secunties in 1989, except for $10,943.000 of common stock pursuant to the Company's Dividend Reinvestment and Common Stock Purchase Plan The dechne in 1999 in common equity was pnmanly related to charges associated with the DPU Settlement Agreement and the Wholesale settlement Agreements which were recordedin the fourth quaner of I989. The Company does not expect to be able to satisty net camings requirements necessary to issue additional senes of Cumulative Preferred Stock before 1991. The Company generated suthciem cash flow on 1989 to meet all &bt service requirements, however, as a result of recording the charges assoc!ated with both the DPU Scttlement Agreement and the Wholesale Settlement Agreements, the Company's ratio of eamings to hxed chargec dochned to 0.52X in 1989. The Company would have needed to generate add \toonal taxable income of apprommately $55.708,000 tJ cover ots fixed charges of approximately

                      $116,445,000 in 1989. Excluding the effects of recording both the CPU & Wholesale settlement agreementa the Company s ratio of earnings to hxed charges for 1989 would have been 2.06X. The Company's securities ratmas, from Mocxfy's Investors Services are Baal for first mortgage bonds, baa2 for preferred stock, ba33 for preference stock and Pnme 2 hr commerc:alpaper The ratings from Standard & Poor's are BBB+ for brst mortgage bonds, BBB for praferred stock, and BBB- for preference stock The ratings ham Duff & Phelps are BBB+ for first mortgage bonds, BBB for pre-ferred stock, BBB- for preference stock and Duff a? for commercialpaper The Company's Senes A Unsecured Medium-Term Notes have been rated Baa2, BBB and BBB by each of the aforementioned agencies, respectively. These ratings whnch are uxhanged from 1998, are subject to continuing revrew by the rating agencies Dn Decomber 21,1989, the Company's Board of Detectors voted to reduce the quarterly dividend on shams of the
                     . Company's common stock to 38 cents per share of common stoch a reduction of 16% from the previous rate of 45 5 cents per share of common stock The Company reported a loss for the year (as previously d:scussadi and as a result of the reduction to book value and a slowing of growth in the area economy, an adjustment to the Company's div:dend was necessa:y to realign the current dwidend payout with eamings prospects lm oe law In December 1987, the Financial Accounting Standards Boa <d (FA$B) issued SFAS No 96 which, as amended by SFAS No.103, ns now scheduled to become eft- clvve in 1932. It is anticipated that due to the umpact of regulation the pnmary impact of the statement wol!be verlected on the b:vance sheet and wt!I result in no signibcant impact on net income 19 l
                                                                                                                                           = .

STATEMENTS OF INCOME (L OSS) anc.  :- ===. == years ended December 31

                     - in thousands, except rainings per share                                                                                             1989              1980                        198l Opva::ny iennues                                                                                                          $ I.269.345        5I.20?.655                   $.I I8I.09I Operatrng expurses-277,274             205 305                     236,511 Fuel Net txitchased power                                                                                                     207,I88             23I,366                     201.838

Other opora!:ons and nantonance 356,6bo 365.493 354.419 Depreciation and amortization (Note J) 120,759 105.144 96.835 24.381 24,381 24 38I Amortization of deforred cost of cancelled nuclear unot (Note El Amortization et deforred nucicar outage costs (Note B) 21,376 21.376 21,376 Tmes - property and other b6,972 0I,612 58,508 Provision for incorne taxes (Noto H) 26.222 27.668 44.302

                                  - Total operating expenses                                                                                        I,090.822           1.042,550                    ,038 ?70 Opsvatinu income                                                                                                               178,523            160,105                     142,927 Other iaxxne (loss)'

Rato and contract sett!oments (Note B) {l78.650) 4 0-Incomo tmos on rate and contiut settlements (Note H) 72.370 0- 4 Allowance for other funds used danng construction (Note F) 1,362 6.875 10.534

 ?

Other, not (Nntes D and E) I1,04! _ I,309 5,032 84,646 168.289 158,493 Operating and other incomo Interest chargos. Long4cnn debt ~ 91.674 8I,783 69.904 18.2I9 18.335 8,891 Other Allowance for bonowed funds used dunng construction - credit (Nate F) (7,023) (9. ! 12) _ (16.04I) Totalinterest chargea 100.781 _84,077 _ 7I,772 inwme I& sI from continung one y;an (16,135) 84.212 86,721 Incomo ham d5;continuedsteam heating operations, net (Noto Cl ___4 _ ___ 4 __]O,965 iI6,135i 84.2I2 97,686 Net incnme I:os5)

                         ' Prefon ed and preferenco wvidonds lxovuded                                                                                      17.653             14.141                     13.431 70,071
                         ~ Balance avaihbie far common stock (Noto B)                                                                              $ (33,788)          $_                          $_8005 Common sharos outstand ng (weightsviaveragal                                                                                    38,246            37,68J                      37.169

, Eammas (loss) por sharc of common stock From continuatg operattorts (Note B) $(0.88) $1.86 ' $1.97- - Fnyn discontrnued open:tions (Note C) 4 ~0- .30

                                                                                                                                                                                                           $2.27 Tota!                                                                                                           _.--$(0.8_8)      _,_ --.$.~1._86 lhe acconipanying note 3 and schedules are an integralpart of the broncial statements.
  =

20

                                                                                                                                                                                                             .:=

STAWMLNIS of CASH FLOWS rn ~z  ; =- years ended December 3I to thousands !989 1988 1987 Cash flows from operatono activities-Not incorne (loss) cxcluding gain on sate of steam host operations $ (lG I35) $ 84.212 $ 88.394 Adi ustments to reconcelo net income (! ass) to not cash provrded by of nating activitres ' Rate and contract settlernents, not (Note B) 98.630 -O 0-Derwocration (Notes A andJJ l06.727 97316 85.453 Amortizatoon of nuclear fuel 10 614 2,688 5.376 Amortizatnan of deferred cost of cance!Iod nuc! car unit not (Note E) 18.898 17.903 16.240 Other amortization 12,159 I1,364 10.325 Allowance for funda used dunny construction i10.474) (2?.9I6: II 7,557) Net changes ur Accounts rocoivable (27,5I5) 20.699 (l5,3 78) Matonals and supplees (I,536) 21,133 (38.957) Accounts payable 5.502 II4.9301 48,158 Other current assets and liabilstics 14.783 (13.748) 3,9 78 Other, not 25,242 2.74 8 (26.5441 Net cn ,h provikd by operahng netwae 236,895 201.469 159.488 Cash flows yrvided (used) by investing activities-Plant euponditures (excluding AFUDC) (235.946) (245.103) (309,239) Decorninissioning land (6.983) !3.337) (9.4 74) Investments in electnc companies (l1,207) (8 74) 50 Proceeds from asset d;spositions (Not s C and D) _ 9I45 . _;0- 32500 Not teh luwd! by invrn t > gs ac'iveres (244 U9IJ (249,314) (286.163) Cash flows provided (used) by 'inancing activities: Issuances: Common c;och IO,943 7,866 II,290 Preforted and preferenco stock 4 50.000 50,000 Long-term debt 4 150,000 100,000 Redemptions: Prefotence stock 4 (40.093) Debt retiromants iI6.270) (6,125) (31.677) Not change in notes payablo 99,260 (71,083) I16,698 Duvidonds paid ~ (87 083) _ 82,2G7) ( (79. 28,l). Not cash prowded by hnancino xtivitros 6,850 118451 126,937 Not onescase (decrease)in cash (l,246) 606 202. Cash at the beginning of the year 3.235 2.629 2,367 Cash at the end of the yoar $l1.989 s_2)29.

                                                                                                                        $}.2]35     ~    ~
        ' Cash paid donna the year for Interest. not of amounts capitalited                                                    $100.647          $ 78.509       $ 68609
            ' income taxes -                                                                          $ 42,159        ^ $ 43.843       $ 24,161 -

The accompanying notes and schedules are on integral part of the brancial statements. 21

';\ BALANCE SHEETS ypsnynnenr v                                                                                                                                                                                       December 31 -

Lin thousands 1989 1988

                             >Adets :

Property, plant and c<lurpment at onginal cost

                                   . (Notes A 8, F, J and K):
                                               . ljtoisty plant in sorvrce '                                             $3. I 72.132                                 $2.939,574
 '~

Less: accumulateddeprocration 950,298 $2.22I,834 862,797 $2.077.277 Y 235.862 233.508 Nuclear fue!

                                                    - Less:accurnulatedamortization                                           142.023                 93,839 __ 133.1I8                           100.390 Constructoon work in provioss                                                                        83 b'27                                      98.655 Total                                                                                     2,399.500                                   2.276,322
                              ' ll1VOstments in eIOClfic CompanteS, at cQui!y .                                                                       22,427                                        l1,220       _

INuclear decommissioning fund (Note JJ 31,083 24,102 ' )

  ,-                             Current assets:
                                    . C.ish .                                                                                    1,989                                          3.235
                                    . Accountsreceivable                                                                      IB6,373                                      158,858
    *                               - Matenals & supplies, at average cost                                                     89,643                                        88.107

Protuid expenses & other curtent assets _ 7,260 285.265 27,668 277,868

                               ' Deferred debits.

Deferred cost of cancelled nuclear unit (Noto E) ; 84,744 103.642 L

                                     = Deferred nuclear outage costs (Note B).                                                   2.309                                        55.I44 -
                                       ; Ottpor (Note A) -                                                                _ _52,941               _ 139.99lt           _ 68.,7_52              _22h538.

3 ' $2,817,050 M,, $2.878.271 ~

                                                                                                                                                                                              " = =

n i Capitale.tten and Dabitshos em mnmninvoyse,wus orOwatSrw miinksminesa P= * ' l Cbmmon stock equoty $ 644,546 S' 734.222;  ;

                               )Cumulatwo preferred stoc!v Nodmandatory mdoemable sones                                                                               83,000                                        83,000 i Mandatory rodeomable sones .                                                                               50,000'                                     -50,000'

Cumulative preferenco stock:

                              , ni Nominandatory redeemable series ~                                                                                  L 38,287                                       38.287 ~
                  ,                      hMandatory redoenuble serias                                                                                  50,000                                        50.000 hst mortgtge bonds ;                                                                                                :198,839                                     -8I6.534 Unsocured medium term notes                                                       -\-                             -I50.000 -                                     150.000 IC0rre'nt thbilities:iNoto G1 hi ' First mortgagh' bonds duo wthin one year :                                               ,$'      5.6 75.                              $          -4,250             >

5?l* W  ! Notes payablo; !213,840 ~ l 14,580 L Acc6unts payablo , 115,89I L 110.389 Property and other tates accrued (Note H) 8,669 8,987 c IlInterbstaccrued? .2I,104' 20,969  ;\

                                                                                                                                                                                                                   )

k' l {Diwiends txqvblo . .I7.308 7,008l

                                                                                                                                                                               'l9.910 _

12,322

                    ~ ~
                               .,              Other.

Rate abd contract shttlements (Note B) . + 89.541 479.036 .. :0 . 291.407 M'

                                  -polorred credits:-                     _
                                            ' Accumulathddeferredincome taxes (Nots H).                                       < 377227-                                       453.979
     \                    ,

Accumulated dolorred investment taictedits (Note H1. 94.835 35,409

                                                                                                                                                                                '98,952-
                                                                                                                                                                              . 28,217 ~

Nuclear decommissioning reserve (Note JY i Rato settlement (Note B1, 50,000 0-

                                              . Other :                                                                           2
                                                                                                                             .--.7.,.090               584,561 -                   22 452          . 603.600          '
                                  ' Commitrocnts and cont >ngencies (Notes B and GF
                                                                                                                                                    $2.8783271                                  $f81],
                                                                                                                                                                - - -                           -..-.. 950   .
                    ,         ?T.he hccompanymg notes and schedules am en integralpart of the hnancialstatements, 22 c: ,

i Al .

                  . STATEMENTS OF RETAINED EARNINGS x ., s , e                .=      : e=,=              : = - .. .

years ended December 3I in thousands 1989 1938 1987 Balance at twginning of year $243.569 $242.161 $22b.270 Net tocome (loss) _ t16,135) 84.212 , 97,686 Sublatal 227.434 326,373 3,??,956 Cash divsdends dociated Pmferred 9 147 9.147 8.430 Pretorence 8.506 4.994 5.369 Cominon 66.829 66.996 G?U63 Subtotal _ 84,482 81 804 _ 80,795

   ,                                  Balance at end of year                                                                    $ l42.952                $243,569                 $242,161 The accompanying notes and schedules are an integralpart of the hnancial stateme ts.
                     ' SCHEDOLES OF CAPITAL. S TOCK
   ,                         x: . y v : = .. . a             -,           1 ,

1 Decembo' a I n hn thoucands, except per share amounts 1989 1988 y...,.. . (d Mrik O 3rthik WUrty - b Common stock a: 1 LPar value $5 per share (Note 1}. 50.000,000 shares authorized;

                                          ; tssued and outstanding 38.52G,085 and 37,893.79I shares                                                        $ I92.630               S189,469
                                    ' Premium on LOmmon stock                                                                                                  308.561                 300,779 Retained earnings                                                                                                        I42,9U                 243.569
                                     . Swplus invested in plant '                                                                                         -40[                    _ f06 i                               Total                                                                                                  ,$p4_4,548                $134,222
                . ,                  'Cu,:nuinivu pw!mted stock l              W                      . Paryaluo $ 100 per share, 2,830.000 shares authonzcd, issued and outstanding:.
                                  .          Non-mandatory redeemnb!c series (Note 2):

Senes~ Shares X, 4.25 % 180,000 $ 18,000 $ 18,000

4. n A78% 250.000 25.000 ' 25.000 W .

888W 400.000 _40_,0 _00

                                                                                                                                                                                        ~

_40,000 _

                  *lq.                              Total                                                                                                 '$ 83,000
                                                                                                                                                           ====
                                                                                                                                                                                    $ 83.000

====

7.27% mandatory redeemable series (Note 3) - 500.000 shares S 50.000 $ 50.000

                                                                                                                                                             ~~                     ~ ~

R,( b lCumhtivep!ofu:, vce t wck:

              .il'                    i Par va!Ue $I por share. 8,000.000 authonzed, issued and outstanding.

Non-inandatory redeemable senes (Note 41-

                                                $146 Sones 2,676.000 shares                                                                                  $ 2,675                 $ 2.675 y'                         Prervoum on $1.46 Sencs '                                                                                          35.6.12          - _35.6,12 o                                 Tota!-                                                                                                   $ 38,287                $ 38.287 Mandatory redeomable senes (Note 51" Stated rate auction preference stock - 600,000 shares                                                       $         500           $          500 i                                Premium on stated rate nuct;cn preference stock                                                                    49.500                 49;MO lotal                                                                                                    $ 50.000                 $ 50,000

.a =.  : ==-

                  ')r, Y. J                  I Tlie accompanyinq notes and schedules are an intmyralpart of the financiar statoments W                                                                                                                                                                           23  l g

SCHEDULES OF INDEBTEDNESS s u,======, .===:.

                                    .l ongmm ovM (Note 6)-

IITSt mortg3QO bonds: In thousands

                                                                                                                . . - - - - .               _-.                               ~ - . .                                               . . - -                                          - - - -
                                                  . -       - . . - . - . . ~ - .                     .

Jnterest December 31 Sonos Rato (%) Matunty 1989 1988 H 4 1/4 June 1,1992 5 15,000 $ 15,000

                                   .)                            43/4               Nov. I, I995                                                                                                                                                              25,000                      25,000
     ,                               J-                           6 I/U            June 1. I997                                                                                                                                                               40,000                      40,000 K                           6 7N              h'                 1,1998                                                                                                                                                 50,000                       50,000 L                           9                 Dec.1,1999                                                                                                                                                                50,000                      50.000
       , .                            M                           9 3B              July 1, 2000                                                                                                                                                               GO.000                      60.000 g~ ~ .

N 81/B May 15, 2001 75,000 75,000

         ,                            S-                       Wmble                Jan 15,2002                                                                                                                                                                25.000                      25.000 0                           9 3/4            Dac.15,2003                                                                                                                                                                 78,3 75                    80.750 R.                       10.95               Oct. 31, 2004                                                                                                                                                              60,000                      63,750 3

I' 91/4 Apr.15, 2007 60,000 60,000

                     ,                 T                        I21/4               Apr. I5,2r 13                                                                                                                                                                10,029                      10,029
                                    'U                          10 1/4              Apt, !,2014                                                                                                                                                                  15,000                      I5.000 V                        12 SB              . Apr.1,2015                                                                                                                                                                     6.110                    16.255 W                           91/2             July 15, 2016                                                                                                                                                            135,000                      135,000' g.y                                iX                         11                  Sept 15,2017                                                                                                                                                             100,000                     100,000 N                      Total brst n:ortgage bonds                                                                                                                                                                                    804,514                     '820.784
                                            ' Less: due wittun one year                                                                                                                                                                               _ 5.675                        _

4.250

                   %                                First mortgage twnds not                                                                                                                                                                            $798.839
                                                                                                                                                                                                                                                                                   ' _$816,534___

Unsecured med:um-term notes $ l50,000 $150,000 Awns nwable (Noto '7). Butik loans 5 39,000 $ 4-Q ,'  : Commercia' paper 1_74.840 ' _ IIf 580 m .y , ' Totalnotes payable . $. 2_13,.,.8. 4_0 - .$ I 14.580 g' . ._ i a. hi The accompanytng notes and schedules are an integralpart of the hnancialstatements. 51

         .~r l

1

    )

f f-:,

      ! ' jlO lf g

n, s no

                        # / k) y j!

1

            ,      o                                                                                                                                                                                                                                                                                     24
                                                                                                                                                                                                                                                                                                          =

1

          >                                                              468,881         2.344 405          5.522,068 Bmance Docenber 31,1988                                                            37.893.791     $189,468.955      $300,779,099 Dmdend Reinvestment Plan al                                                      632.294         3,161,470          7,781,966-Balance December 31, 'I999                                                         38.526,080     $I92,630.425      $308,56I 065 t!I . The remaermg oathonted common s%rcs reserved for future assuance under the Omdend Resnvestment and Common Stock Purchan Plan are 2 618.3t2 shara et Docember 31,1989 Tre Company temuna'ed the Employee Stock Ownersko P!an in I969

2. Cumulative Nor> Mandatory Redeemable Preferred Stock There were no changes during 1987,1988, or 1989 in cumulative non. mandatory redeemable preferred stock. The redemption prices at December 31,1989 for the 4.25% 4 78% and e.88% Series of Cumulative Preferred Stock are r . $101625 5102.80, and $102.00, respectively. Upon any hquidation al the Company, holders are enutled to $100 per share.

          % Cumulative Manda:ory Redeemable Preferred Stock
                      . The Company solc; 500.000 shares of 7.27% Sinking Fund Series $100 par value Cumulative Preferred Stock on March 12,1987. The sha'es of 7.27% Preferred Stock are redeemable at the option of the Company at $107.27 prior to May 1
                        .1992; and at pritu declining from $107.27 per share to par value commencing May 1, 2002, provided that no redemp-tion nny be 'aade prior to May 1,1992 through refunding by the issuance of indebtedness or cerrnin stock having an interes* ,ute or cost, or dividend rate or cost to the Company of less than 7.334% per annum. The 7.27% Preferred -
                         %k wrfl be entitled to a sinking fund to retire 20,000 shares at $100 per share, plus accrued dividends on May'1 of each year;beginninhn 1993. On May 1 in any year, beginning in 1993, the Company has the non<umulative option to todoem an additional number of shares, not to exceed 20,000 shares; for the sinking fund at $100 per share, plus .
                       ; accrued dividendal                  ,
           'd, Cumulative Non; Mandatory Redeemable Preference Stock
             -.w.                   ,.2e - --------.                                          ---_ -

There, were no changes during 1987,1988, or 1989 in the $1A6 Series of Preference Stock. Upon resolution of the

                                     ~

JBoard ot Directors, the shares may be redeemed os a whole or in part; the redemption price at December 31.1989 is

                             ^
                          $15l292 per share Subject to the prior preferential oghts of the cumulauw preferred stockholders. upon unvoluntary lis Iuldation of the Cenpang holders of the $1 A6 Senes are entitled to receive $15 per share.
          ! 5. Cumulatuve Mandatory Redeemable                           Preference Stock._
              . .      ..ey-                           - - . .-.---.

On October 6,:1988 the Comtuny issued 500,000 shares of Stated Rate Auction Preference Stock, Series A (STRAPSI.;

                       ; Liauidation Wlue of $100 per share Par Value of $I.00 per share, at a pnce of $100 per share. The duvidend rate is 9.20%.
                        ; per annum through Hovember 30,1991. Thereafter, the dividend rate, for dmdend penods whose length shall be select /

ed by the Company, will be determined by auct:an and may not exceed a Maximum Permitted Rate estabushed by the Commormalth of Massachusetts Department of Pubhc Utihties (DPU), which is currently 15W In certain circumstances, A the dwidand rath would exceed the Maximum Permitted Rate, the Company is cDligated to redeem the STRAPS at

$100 per share plus accrued and unpaid divxtends. The Company may in the future. but is not obligated tc, petition the DPU for an ordw mereasing or climinating the Maximum Permitted Rate. Dividonds are cumulative from date of onginal

                        . issue and are paySble when and as dechred out of funds legally available therefor, The STRAPS are redeemable at the 25
                                                                                                                                                       . rr

Company v option at $100 per sha?e plus accrued and unpaid dvidends to the redemption date, at the end of the initial dvidend penod (November 30,1991) and at certain other times thereafter The Company's preference stock is subordi-nate to the cumulative preferred stock but senior to its common stock both with respect to dividnnds and upon hquida-tion. \Mthout approval of the holders of the Company's common stock, the aggregate hquidation value of all outstanding stwes of preference stock cannot exceed $100.000.000. Following the issuance of the STRAPS the Company may not

                . issue add:tional shares of preference stock having a hquidation value in excess of approumatory $10,000,000 without obtaining such approva! The Company does not expect to be able to sat:sfy not eamings requirements necessary to issue ;dditionalsenes of cumulative preferred stock before 1991.

On March 30. 1987, the Company redeemed all of the outstanding $1.175 Series Preference Stock, at a total

              ' redemption price (including a redemphon premium) of $40.124.000 plus accrued dividends of $361,000 The $4,900.000 redemption pramium has been recorded in deferred debits pending anticipated recovery in the Company 's next rate fihng.

6. Long. Term Debt SubstantiaHy all property. plant and equipment and matenals and supphes owned by the Company are sublect to ben under the terms of the Indenture of Trust and First Mortgage dated December 1,1940, and supplements thereto.

The aggregate puncipal amounts of long term debt and medium-term notes including sinking fund requirements duc in the five years 1990 through 1994 are *r 675,000. $56,800,000. $21,800,000. $56.800,000, and $56,800.000. respectively, See also Note 3 preceding with respect to a sinking fund requirement on the Compan(s outstanding 7.27%

                ' redeemable preferred stock which commences in 1993 and Note 5 preceding with respect to o potentual mandatory rednmphon requirement on'the Company's outstanding STRAPS which nuy be in oflect subsequent to Novtinber 30.199I.

The Company's First Mortgage Bonds. Senes S. adiustable rate due 2002, bore interest at 1L6% per annum for the penodJanuary 14. I989 through January 14. 1990. The rate is adjusted annually and is based upon the ten year con-stant matunty Treasury Rate as pubbshed by the Federal Reserve Board. The interest rate for the period January 15, 1990 through January 14,1991 wull be 10 30W On September 15.1988 the Company ussued $150.000,000 Medium-Term Notes. Series A n three equalincro-ments of $50,000,000, bearing interest at 9.35%, 9 65% and 9.75% per annum and maturing on Septembot 16,1991, September 15.1993, and September !5.1994, respectively The oflective cost to the Company after underwnting com-missions was 9,71W The 9 35% notes are not redeemab'e. The 9 65% and 9.75% notes are redeemab!c at prices dochning from 109.65% and 109 75% of par value, respectividy. to 100% of par value in 1992 and 1993, respectively However, the notes may not be redeemed prior to September 15.1991 and September 15,1992, respectively. through issuances ofindebtedness having an interest cost to the Company of less than 9 65% and 9.75% respectively, Intere3t is payab'o on March I and September 1 in each year, and at matunty The notes are unsecured ob4gations of the Company

       ; 7. Notes PayaNo
                  ' The Company entered into a $350,000,000 revolving credit agreement with a group of banks in May,1988. This agreement replaced most of the Company's committed short term hnes of credit and is intended to provide a standby source of short term borrowings. The agreement terminates on the earlier of (il May 31,199I or (if the 364th day follow-tng the first borrowing if the Company has not recesved regulatory approvat to incur indebtedness pursuant to the agree, ment payabic more than one year after the date thereof. As of December 31,1989, the Company had not apphed to the DPI) for regv!siory approval to incur long-term debt under the agreement nor had the Company incurred any sho:t term
                  ' debt thercundev The Company is obbgated to pay commitment fees on the unused portion of the commitment amount.

t)nder the terms of this agreement the Company is req:iired to maintain and forecast certain bnancialtutros related to capitalitat'on and interest coverages. The most restrictive covenant requires that the Company not declare dividends or make other distnbutinns on its common stock, or incur additional debt if certain capitahzation ratio3 are not main. tarned As of December 31,19W the Company' capitahzabun s rat:0 e tceeded the minimum requirement. See also Nate G. The Comp.my n.'so has arrangements with certain banks to provide additionalshort term credit on an uncommitted and cs avai!ade basis The Company currently has authority to issue up to $350.000.000 of short-term debt. Information respiding short term "towngs, compnsed of bank loans and commercial caper. is as follows: in thousands of do'lars 1939 1988 1987 Madmum short term borrowngs $233.275 $340,705 $226,31? Dai!V we.ghted everage amount outstand:ng $169.377 $?12.344 $118.428 We:ghted awrage interest rates excludng commitment fees on tulance Quang the y ear (daily) 9 40 % 7 63 % 7,02 % 26

NOTES To FINANCIAL STATEMENTS convu zexv-> . . ~ Note A Summary of Signihcant Accounting Pohcies The Company is subject to regulation by vanous agencies. Because of the effect in regv!stod businesses of the tatt>maling process, those are differences in genera!!y accepted accounting pnnciples between regolated and ronregu-lated businesses. Such difteronces are related princitu!!y to the time at which vanous troms ontor into the determinstion of not incomo in accordance with the princip!c of matching costs and revenues. (Accounting pohcios are also descobed in Notes B, f, H, I and J) Cortain reclassifications. not offacting income, have been made *o amounts reported on poor years to conforrn to presentations used in 1989.

l. Deprociation Amortization and Maintenance Physical property (excluding a factor for nuclear decommissioning costs: is ciepreciated on a straight kne basis at approximately 3 5996 annually, utihzing the average remanning hfo method of computing depreciatron At tho *ime of retirement of property units, their cost and the not of cost oftomoval and salvage os charged to accumulated depreciation The cost of nuclea' fuelis amortized to fuoi orpense based on the quantity of energy produced for the generation of electricity. Nuclear fuel enpense also includes a provision for the costs associated with the ultimate disposal of spent nuclear fuel, such estimated dlsposal costs aro subject to review and are amortized to luol expense. where they are -

bcing recovered through the Comp 1ny's fueland purchased power adjustmont clauso. (See Note .) } Maintenance expenso is chargod for the cost of current rovavs, replacoment of items not accounted for as units of property, and minor bottorments of plants and propertios as they are incurred.

2. Forecasted Fuel Clause and Porformanco Clause The Company's retail fuel and purchased power adjustment clauso permits all fuel costs, tlw capacity portion of cortain purchased power costs, certain transmission and demand side nwnagement costs to be billed to customers monthly uti-bzong a lorocasted rate The difforence betwoon actual and estimated cvst is included in deferred debits on the accompa.

nying balanco sheets pending adjustments of subsequent rates. The non-luelportion of certain pisrchased power costs are recovered through base rates. The DPU has the right to reduce subsequent fool clause bdhngs of it finds that the Company has boon unroasonable or imprudent in tho operation of its generating units or in the procuroment of fuol (500 also Noto GIG)I As part of the DPU Settlement Agmement (discussed hether on Noto B), the Company commenced the bilbng of a performance adjustment clauso to retail customers offactive November 1989. 3 Revenue Rocognition The Company recognizes revonues when customers are baled on a cycle bdiing basis

                     ' 4, Amortizations of Discounts Premiums and Redemption Premiums on Debt.

The Company amortizes discounts, premiums, redemption premourns and related expensos associated with dobr tssuances or refinancings ratably over the hfe of the new debt. Note B Rato Procoodings and Pdgrim Nuclear Power Station On taber 3 , h98 the OPU approved a settlement agrooment o!!ective November 1,1999 (the "DPU Settlement Agreement"l relating to certain DPU proceedings involving the Company. In addition, in . january 1990, the Company entered into settlomont agreements with coltain wholesale customers (the "Wholosate Settinment Agreements") to ' resolw a portion of cortain pending regalatory and Icgal proceedings concoming long-term purchased power contracts with such customers for a portion of the output cf Pdgnm Nuclear Power Station rPilgrim Station"). The Wholesale Settlen ont Agrooments am subject to the approval of the Foderal Energy Regulatory Commission (*FERC"), as we!I as, in part, approval by the DPU of a to!ated agreement As a result of the DPU Settlement Agreement and the Wholesale Sett!cment Agre 1ts, the Company recorded in the fourth quarter of 1989 a beforo-tax cturgo ot $178.650,000 iincluding

                       . a reserve for remaining regulatory proceedings and related htigation in connection with the long-term purchased power dhpute descHbed above), with an afscr-tax effect of approximately $106,280.000 or $2.78 per sham of Common Stocw Although the DPU Settlement Agreement and the Wholesaio Settlement Agreements havo removed certain major uncertainties facing the Cornpany, other uncertaintics tima n as discussed further in Note G and in Managcment's Discussion and Analysis.
                                                                                                                                                     =

Sontenan!of Cenn Opv Pweredmqu On October 31,1989, the DPU approved the DPU Scttlement Agreement resolving certain DPU proceedings invoking the Company These proceed,ngs involved (t) consideration of the recovery of approumately $300.000.000 of replace-ment fuel and purchawd power costs assocuated with the 195& t999 Pilgum Station outage and power ascension pro-gram, (v)a petition by certain custo,ners of the Company requesting that the DPU remove from the Company's retai! tate

 ..                                           base all investments on Pilgam Station, and tin) the Company's request for a wta,I rate increase or $85.800.000 The
                                            . Settlement Agreement was r>toposed by the Company. the Attomey General of the Commonwealth of Massachusetts and other interested parties to the proceedings

Pursuant to the DPU Settlement Agreement the Company has agreed. fu to hmit its retail revenue increases poor to Novernber I,1932 to approumately 296 per year -lexcept in the case of certain changes on tax law. or a signifocant increase or dectcase to expenses due to a change inl aw or a catastrophic event) subject to adjustment based on Pdgnm Station's performance; in) to etpend and not seek recovery of $75.000 000 wh

ch wol! be spent over the next three years

                                             - on certain demand-s*de management programs and overseen oy a specia! board cons sting of representatives from the y                                          Company and vanous pul>hc agencies and gwups: fail to implement dunny the penod November 1,1992 through
      ;                                        Ocwher 31, 2000 a new cost recovery mechanism lOr the recovery of a portion of the Compar'y's investment in and L                                               operations and maintenance costs related to Pdgnm Station; and liv) not to seek recovery of the relatiportion of approv-
                                             - mately $101,000.000 of incremental operations and maintere ice costs oncurred danny the Puy om Station outage (of wh ch appronnately $70.000.000 had been amortized through December 31.1939, with the balance included as part of the fourth quarter charge descnbed abovel.

i Under the DPU Settlement Agreement, the Company wat be a!! owed consecutwe annual retail revenue increases of $20.000,000 oflectsve November I, 1989, $22,500,000 effective November I, l990, and $25.000,000 etlective November 1,1991, sub;ect to adjustment in accordance auth Pilgnm Station's performance measured by its capacity fac- _ tot and by Nuclear Regulatcvy Commission (*NRC") and certain ether industry standards For the penod November 1, 1989 thmugh October 31.1992, no adjustment will be made if Pdgum Station's capacity factor is between 60% and 76W For each 1%. below 60%, revenues wdl be reduced $1,000,000 with a mammum additional decrease of

                                                $30,000 000, and for each I % in excess of 76% revenues wdl be increased by $1.000.000 with a maximurn additional increase of '$ 15,000,000. In addthon, revenues wdl be adjusted based on the Company's average Systematic Assessment of licensee Performance lSALP") ratings issued by the NRC (resulting on a mavmum additional decrease in revenues of $0,000,000 and a nuumum acklittonal oncrease of $3.000,000, vv!h no adjustment for an average SALP tating

_ botneen 1 G and 1.8) Adjus!ments due to Pdgrim Station's perfonnance on relation to othat industry standards couki result in an annual mammum additmnal decrease on revenues of $3,000,000 and a maximum addit:onalincrease of $1.500,000 , Between November 1,1992 and October 31, 2000, recovery of the undepreciated portion of approximately

                                                 $50.000,000 of capital addasons made to Pdgnm Station dunng the outage, onnfourth of the Company's undepreciated post 1988 captal additions and one-fourth of the annual operations and maintenance expenses at Pdgrim Station willbe recovered through a per4ilowatthour charge, subject to adjustment based ution the same NRC and industry standards

- apphed during the venod November 1, I989 through Ociober 31,1992. In addition. in the event ttut Pagrim Staten operates 4 below a 35% capacity factor m a year between November 1,1992 and October 31,2000, the DPU Settlement Aptwment encorporates a revenue floor which entitles the Comt.uny to bdi retail customers the por knowatthour dwrge as if the plant operated at a capacity factor of 35% on the first such occurrence. Each time tne Company elects tcr utthzo the rev-enue floor, it is mduced for subsequent years. Other Pagnm Staten costs will continue to be recovered in wtail base rates. Under the DPU Sett!cment Agreement, the Company wdl not be required to make any re'und to mtail customers

                                                .of Pdarim Stat;on replacement tuel and purchased power costs oncurred through October 3,1989 (the date the DPU Settlement Agreement was (ded with the DPU). Al30, the parties to the DPU Sett! ament Agwement have agreed not to challenge the prudency of any cap:tal costs Incurred at Pdgnm Station paar to December 31, :I988 ithe approximate date of the commencement of Pdgnm Station's poser ascenston pwqtam). Finally, if the Company would not otherwuse -

w .

                                                . achieve retad rates of return of II 0% in 1990.115% in 1991. and 12.0% on 1992, the Company may make certain accounting adjustments (but only to the extent that such adjustments do not resalt in the Company's exceeding such

- ret 3d rates of returnl:(a by reducino defened income tat expense by $2.00G000 in 1990, $13,000,000 in 1991, and

                                                   $23,000,000 in 1992 and M by accelerating the amortcahon period for certain municip;I property tax abatements, total-rny appro\imately $37,C00,00G from six years to three years.

P & w a + ! H an!! ; ! my le ' Pwcha wd inv ' O h* Aperommately 26% of the output from PPonm Station is sold to other utihties pursuant to long-term purchased poser 28

                ----_-------.------------a.             .        - - - - - - - - -a -- _ _ - - -                              -

w

contracts which require such purchasers to pay a proporhonate sh,re of the costs of the plant in December 1987, com-plaints were bled at the FERC agarnst the Company by two utilities that receive approumately twe%e percent of the total output from Pdonm Swtron pursuant to such long term purchased power contracts, which a!!eged that the Company mismanaged the operation of the unit and sought. among other relief, termination of the Pdgnm contract and formbursement for damages incurred Bdiings pursuant to such contracts lerclJdung fuel) from Aptd 12. 1986 through December 31,1989 were approumately $288,000,000 The Company filed responses denying the utddies' allegations. AI! Pilgnm contract customers with the exception of one municipal hght department, intervened in the proceedings before FERC One utdity and thirteen municipal hght depwtments ided complaints in court soebng additiona! relief. In addition, the Towns of Concord and Wellesley, MA, wholesaie customers of the Company, intervened in these proceed-sngs Sechng reimbursement for replacement pnwer costs incuned danno the outage. The Company answered these complaints, and the courts stayed any further proceedings pending the outcome of the proceedings at FERC. In January 1990, the Company entered into the Wholesale Settlement Agreements with certain of the parties to the proceedings desenbed above The Wholesale Settlement Agreements are subject to approva'of f Ef1C, as wcIl as, in tat, approval by the DPU of a related agreement. Parties to the Wholesale Settlement Agreements have contracts to purchase approri-mately 23% of the output of Pdgram Station The other parbes to the prowedings, having contracts for less than 39v of the output of Pdgrim Station (for which bditogs pursuant to such contracts, exclud<ng fuel, from Apnl 12,198G through December 31.1989 were apprommately $33,000,000) bs well as the Towns of Concord and Wellesley, MA, are not par-hos to the Wholesale Settlement Agreements and are continuing with their porhon of the proceedings at FEf1C A tents-tive schedule at FErC has been established cal ling for heanngs to commence on September I990 Pursuant to the Wholesale Settlement Agreements, the Company has agreed ii) to compensate the setthog par-ties for a portion of replacement power costs incurred dunny the Pdgom Station outage and for certa:n demand-side inanagement programs in certain of such customers' service temtories and (10 to termburse the parties for certain htiga-tion costs. In addition, the Company has agreed not to bd! such customers for a portion of the deferred incrementalover-ations and maintenance costs incurred dunng the Pdgnm Station outage. As a <csult of the Wholesale Settlement Agreements, the Company anticipatos mahng cash payments to the settling parties of approvmately $45.000.000, the timing of which wdl be dependent upon the receipt of the necessary regulatory approvals. Note C. Sale of Steam Heat Assets The Company sold its steam heating business on Feoruary 6.1987 to Boston Thermal Energy Corporation. a subsidiary of Catalyst Energy Corporaton, for $32.500,000 The Company rea!ced a gain of $9,292,000 tafter tones of $8,278,000) or $0 25 per common share, based upon the average number of shares outstanding danng the period locome in 1987 ham discontinued steam huat operations totated $i,673,000 inet et taxes of $1,293,000) or $0.05 per common sharc for the penod from January I to February 6,1987. Steam revenues for 1987 were approvmately $7,000,003. Note D. Eminent (bmain Tahng

                           . ~ ~ - _ .                       - . . .
                                  'On Mar 4,1989 the Commonwealth of Massachusetts Metropohtan Distoct Commission (the MDC) ided an order of land taung with respect to certain Company-owned property located in Quincy, MA. The MDC tendered its offered
                                 . amount of $9,145,000 to tho Company on August 24, 1989, and the Company recorded a gain of $0.14 per common
                                  - sture, which is reflected nn the accompanying financial statements The Comp,myis cunently evaluanng the adequacy of the offered amount and the ophons avadable to it Note E Concelled Nuc! car Unit The Company commenced amothzing the cost of the canceded Pdgnm 2 nuclear umt in May 1982 over approdmately eleven and one-half years pursuant :o rVail rate orders of the DPU. Such costs include certain financel carrying costs that wdl be revuewed and may be increased or decreased from bme to time by the DPU.

The Company's adopt on at Statements of Fmancial Accounting Standards rSFAS) No. 90, " Accounting for Abandonments and Disallowances of Plan: Costs' in 1987 had the etlect of increasing net incomo & m?9,1983 and I987 by $3.384,000 t$0 09 per share), $3,998,000 ($01I per shaw), and $4.571,000 IM > d per sharel net of taxes of

                                      $2.099,000, $2,48I.000 ond $3.570,000, resoectwely. due to the inclusion in not income of the imouted interest income related to the cancelled Pdgrim 2 nuclear unit costs being recovered through revenues from customers At December 31,1989 the unamortized discount was appronmately $10,450,000. with related deferred ta <es of $4,000,000.

29

                                                                                                                                                        =

U ?;g , s y', i Nold N Abowance foIFunds Used During Construction . -

                                                                                                                                                                                                                                         'i p g 7 2,                                          7                       . , . - ~ _                  - . - -

r

• Obe Coml:bny capitalizes as part of plant expenditures ~ ollowance for funds used during construchon (AFUDC) AFUDC.

lreprocents-the;estimat&d cost of borrowed and equity funds used to hnance the f:cmpany's plant expenditures. This s

                            ] cost is not an item of current cash incomoc but is recovered over the service hie of plant in the form of increased rev-
             *               ' enue collected as a'resuli of higher depreciation expense. _AFUDC rates for the years 1989,1988 and 1987 were 10.2%
                    - : 9 0%'and 10,4 % respectively.                                                                                                                                                                                        ?

c , NoteG.- Commitments and Contingencies (see also Note B) 1

          . e _-._ ,                                          ..--.- _ . ..-_~_._-

hL = 5' r% tal Commitmonts ' .i

             +              ? AYDecember 31; 1989; estimated contractual obhgations for plant and equipment were approximately $51,000,000.
   ; ,'                 l2 Lease L                Comnistmsntf; .                             _

q 3At 06cember 31; 1989 and 1983, the Company had leasos covering certain facihties and equipment. Some of these leas, ('M b 7. -. L es ar.elcapitalleashst as defined by the Financial Accounting Standards Board fFASB). Beginning in1984. FASB required r - Q ^m[ lthat regulated utihtios commence the capitahration of certain leases. Had allleases which meet such criteria been capi-W 9 ; flahnd, the arnount of the esset and 'the habihty that would have been included in the balance sheets as of December 31, lby

             ' b"            Q989
                                .,o and i1988 and the elloct on expenses for each of the three years in the period ended December 31/1989 avuld :                                                                           ,

Q; [not have been material.'

                                        , [Est imated t i,inimum rental commitments under both noncancellable leases and transmission agreements for years isubshquent to 1989 are as follows:                                                                                                                                                                           t X . ~. : ' . .. ' ' , ^ '
        %' W&in9y.,n            thousands        .a-._ -.-                                                                   -          - - . - . -                           - - . _ - -
 -         .2 ,.990          bl
                                                            ~
                                                                                                                                                                                              ~ $ 38,601 -
        + w < W991y                                                                                                                                                                                     43,561 ^

I 36,96I -

      ' f i h' 1199932)
     ' %m p c p m ,3. q                              s.
                                                                                                                                                                                                    ,32,583                            d
                                                    ,D
           p l994:..                                    _
                                                                  ,                                                                                                                                     29,402                             l
             +lA    &'           e

a. r.s thereafter i t _49_1;2._50 . -

f,y '

;L _ ; FTotal        >

v-- w ,

                                                                                                                                                                                                  $f.72258!

• p A' i 4

                         , .                             ~0                   .,           <.                                                .

M, .poWon of the aforementioned lease rentals will be capitalized as part of plant expenditures in th6lIuture, In:I989 [

                                                                                                                                                                                                                                      ]

• b l future minimunirdntalivmmitments increased due to a new. transmission brie agreement as discussed further in Note ; '

Gill?Iotal expbosb foh both lease rentais and transmission agreements for the years ended December 3I;l999,)988, , l[if~ffabf &WweIn $29 300 000 $28 5 0 000 and $26 500 000lresp , , , , . , , , , , , , , , , ,

                                                                                                                                                                                                                                       ,i Ql[ , f$4,200,000. respectively, of capitalized expenses.:

y& \ < sp.,, ' QV j)3.WucleaOnsuranco[. __ _ y 9 Augystl0; 1988, ' afifteen' year ettension to the Price-Anderson Abt became ellective. Tho'Act clirrently provides[ , Q

%>Q f d    ll@h $7.607      O             bt!!

oc .c I. ion 0 hnanc.ialprotection - . .. for public habihty claims andlegalcosts arising from a sing!O nuclear related ac,cident. . h.g m .WQi?Ihd flrst $200lmilhon'ofl nuclear habihty is covered by the' maximum provided by commercial insurance l Additional nuclef

                                                                                                                                                                                                              -s
                                                                                                                                                                                                                       !             'm o

t > ' w v;~o. . .: . : . - p[h. , f{,):bbbbbt)insumnc. elub to $7.246 bilhon is. .pro k Y { % each of ll%1 {5 units hcensed to operate in the United States subject to a manimum assessment of $10 million per;;

        ?                    freakt$ pe; accident in any year [The adchlional nuclear liabihtyinsurance amount of $7.245 billion is subject to change abb                                                                      W:>

Yh;Y[ '

f. $ lhlpowh&brcialnuciear units are licensed aiid exis hptclNv$bssessments discuss,ed above, if the sum of allpubhb habibty clairrs and lega! costs arising (101p any nuclear /

h??f$cidenf e&cUs the ihaximum amount of financial protection, each hcensee can be assessed an addttional $W($3;16; y

                                                                                                                                                                                                                                          ]

{YW lNN!!kv1)$ the' maximum retrospective as'SessmOnt.  ? ;O $& M e hn'5br$nbclhlis been purchased fro'm Nuclear E,ectiic Insurance Limited INEIL) to cover certbin costi incumrd in

                                                                                                                                                                                                                                      \n    '

y:obnining[ replacement power during a prolonged accidental outage at Pilgrim Station and the cost of repair, replacement . . )p%g w$ m

                                                                                                                                                                                                               .                           r lc:;}W foidecontdmination of utility property resulting from insured occurrences at Pilgrim Station: The maxiJ
           ,,            ?, d&, ssments       . ~~             against thd Company with respect to losses ansing during current policy years are approximately i                                                                           ,

L; gNj ?  ;$1563,0Q0 bnder the wpiacement power pol.cres and 56.947,000 under the property damage and decontornination pois '

      ~ o.' j - lcies. All        .c dompanim, insured with NEll are subject to retroactive assessments of losses exceed the ac,cumulateil funds .
         % , lavniksble to NEIMVhile assessments may also be made for losses in certain prior policy years, the Company is nat:

hh .

• lanstrb of Nn'y;'osbes on such years which it believes are likely to resuit on an assessment. ,

s + [ \ 1 _2x  : e&o " ' , j c 1' , . i .. - ' .

E

4. Wholesa!o and Contract Customers On July 24,1987, the 70svs of Concord, MA and Wellesley, MA (the Towns! filed a comp laint against the Company on the United States Dustnct Court for the District of Massachusetts aneging violations of the federat antitrust laws The Comt>any sutsphes substantially all of the electric power requirements of the Towns The Towns' complaint included o!!c-gations of pnce distnmination, anticomp2tstive restnctions and price squeeze In May 1989 a lury determined that the Company had violated federal antitrust laws and awwded damages of $ 13.100.000. which results tn a totaljudgment of

          $39,309.000 when trebled under antitrust law If upheld. the lungment (which is not reflected in the accompanying finan-coal statements! would have reprovented a chypa to earntogs in 1989 of approumately $0f>4 per share of common stock The Company has appea!cd theludgment to the United States Court of Appea!s for the 1st Circuit Management beheves that the deciston os contrary to the facts and applicabic law and that it is unlaely that this ludgment ws/l be upheld on appeal.

L-5 Hazardous Waste Under the requirements of the appricable state and federal 'Superfund' laws and regulations adopted thereunder. the Company and others we owsed to polontial oint l and several hability with respect to the clean-up of sites where haz-Ordous wastes racy have been Spilled or desposed of In the past The Company has had claims asse:ted against it related to clean-up costs at a number of such sites in Massachusetts and other states While the Compant ?s unable at this time to product the ulumate total clean-up costs for such sites or what Its share of costs wallle far each such site, on the basis of informatron presently avaiable, l rt Is remoln that the Company would incur any matettal I, ability in connection wrth such sites G Generattng Unit Performance Program in comphance with a 1981 amendment 10 the Massachusetts statute under which the Comtuny recovers uts funi and purchased power costs the Company es requaed each year to submit to the DPU performance standards apphcable to its generating units and to other units hom wisch the Company purchases po,ver pursuant to lonq-term contracts The Company also provides quarterly progress reports to the DPU with respect to overahng unit perfonnance. The DPU rs _ empowered to conduct a revtew of such performance and has the ngh! to tedw e subsequent fuel clause bilhngs of it _ . finds that the Company has been unnusanablo or imprudent to the operation of its generating units or in the procure-ment of fuel For the performance pw en led October 3I,1988. the Company received an order on December 20,1989 wherein the Company was ordered to is fund to cus omers approumately $130,000. In the performance year ended October 31,1989, as in pnot years, the Company did not meet nll the DPU performance goals No prowston for any amounts that may be refundable as a re?JIt of the foreQOlny has been made in l900, honvVer, In the opinion of manaQO-ment such amounts would not be inate tal.

7. Hydro-Quebec

_ The Company, along with other Neyv England electric utthries. has entered onto an agreement to expand the ewting 690 MW transmission line enterconnection nith the Hydro-Quebec system of Canada to 2,000 MW The Company has approttnutely an 11% equity ownersh:p interest in two companies who are constructing these transmission facihtoes, = which is sncluded in the accompenyong fanancial statements. The Comtuny s share of the amounts committed as of December 31, '1989 is approximaMIv $4000,000 All equity participants are required to guarantee. In add, tion to their ~ own share, the total obhyations of tho,s0 participants not enecting certain credit cntena. The equity participants are conn pensated accord >ngly, Amounts so guarantvol by the Company are approumately $20.000MO at December 31,1989 These transmmsion facehties we currentIv schedded for commercal operetton to the la!I of 1990 2 -o 3I

r p , p ' y ,

               . . . .kincomo G Note
                                 .        w---.--                            TGxes L7he Company's income before income tax expense results solely from domestic operations. Deterred income tax
                                          ;cwpense results from timing differences in the recognl tion of certain income and expenses for tax and financial state-
                                          ' ment purposes. Investment tax credits are reflected in income over the estimated usefui lives of the related property.

y Components ofincome tax expense are as follows: m w s [y' Jin thousands 1989 1988 1987 , l5 a s Cancelled nuclear unit (Note El Excess tax depreciation over book depreciation -

                                                                                                                                                  $ (8,998) 4,464
                                                                                                                                                                        $ (7,750) 7,326
                                                                                                                                                                                             $ (8,997) 18,070 v                 -                  ; Deferred fuelexpense                                                                                          (879)               (221)             5.914

Debt portion of allowance for funds used during construction 2,897 5.099 2.623 i

    ?:

Massachusetts corporate franchise tax (946) - (2,751) 6,278 fl Q Pre-April 7,1983 spent nuclear fuel disposal costs (854) (2.008)

?                    ,

Deforred nucl6ar outage expense (6,795) (6,795) 21,935 i Unbilled revenues .I1,938) (2,688) (2,025) > Cost of remova! 1,359 1,035 3,642 i f 4,843 (1,875) (3,8521 d L Revenue reserve adjustment f, l Conservation & load management 2,242 1,341 -Oc JOther (6,142)tn (8,901HI) (4,553) . Subtotaldeferredincome taxes (9,893) (17,034) 37,027: U '

                                              ,Currentincome tar expense .                                                                            40,348            - 49.936                6.664 g                                                  .

L Investment tax credits (4.233) (5,0341 611 h. s C' . Provision for income taxes 26,222. 27,868 44,302+ 1

          \'                               l Taxes on otherincome]

O

• Current 1,065- 643 ' 2,308 ' '

?                            >

lDeferted . . 5,511 2,481 3,570 L - . . # U ^ Subtotal 6,576 , 3.124 5,876 L p .. t f l Rate'and contract settlements: } VF Current (2,929) -0 ' d y0 ' Deferied (69.441) -0 0-p .> $ubtotali (72,370) 0-id + TotNI .

                                                                                                                                               - $(39.572)              $30,992            - $50.180 (2)b       N s                                ,
                                                          , rThe effective income' tax rates reflectedin the fonancialstatements and the reasons for th'e ir ditferences from the'                              +b 0!            ,

statutory federalincome tax rate a' re explained below: ,

                 ?         \                                                        ,                                            .                       :1989-             L1988.              +1987~          a
    .)                         ?

l < l Statutory tax rate (benefit) . (34.0%) [ 34.0% . 40.0 % lAllosance foro$er funds used during constructiott .(0.8); (2.0) L; , 'li7) 7 -) h ,lb ' (4.5); bg  ; Missachusetts corporate franchise taxL . 4.2 ,38 n 5 Investment t:tx credit ^4 ' (8.2) (4.41 (34L ) f, Municipalproperty tax adjustment

                                                                                                                                                           ' (3.2) .          : (1.51              (1.4)I       3 f'>,                                       [lReversalof outage expense celected taxes ;                                                                    :(7.1)                   -
                                                                                                                                                                                                      -~

V JV e OtherI ' (13.21 it) - (3.4)ill 1.7 > Nb , y Jintal (Y11%l

                                                                                                                                                            ==-
                                                                                                                                                                            . 26.9%             . 38.0% -
                                                                                                                                                                                                  ===

i

     =                           ,i . . . . . .                                   .

(n P (ll isY1989 and in the fourth naarter of 1988. 'the Company reduced deferred ccome tax e< pense by $$.900,000 or $0 t$ per common share f+ - anit $3,700 COO or $0.10 per common sWe, respectwev. resulting from the reversal of certa,n AFUDC reuted deterred taxes provided .

           .                                           > duwg 1.he yen 1977,t9?O. the cakulation of shich nos tused upon f(RC Order 661 methoautogy The OPU has not adupted the FERC .   '

V +

                                                           . methodology fer those yo >rs. as e resun of wh.<h all r,uch 9xcess tklerred ta t omcnnis have been restored to intmme

c. ..c 4 p' . . .

L (2t inclucMs $ t.2M.C00 of current and $8278.000 of deferred mcome tases associated with discontenued steem heat operations (see Note Cl. Feder01 income tat returns through 1982 have been examined and closed.

       'I                                                                                                                                                                                                           I 32 i: '

e. = x .

         .                                                                                                                                                                                                         a
                                                                                                                           .-            a                                                                         a

Note I Pensions and Other Post-Employment Benehts The Company has a noncontributary funded plan, with certain voluntary contnbutory features Benehrs are based upon years of service and an employee's compensat on dartng the last years of ernployment. The Company's funding pohcy is 10 contnbute annually an amour 4 which at least equa!S the mwimum amount required by govemment fundcng standards, but does not exceed the amount which can be deducted for federalincome tax purposes Pian assets consist principa!!y of insurance contracts, eqor'ies and rea! estate Retirement plan costs for the years 1989.1988 and 1987 were $3.728.000 $2. I13.000. and $4. l26.000. respec. hvely of which $837.000. $473.000 and $928.000. respectively. were capitalized in 1987, the Commny changed certain - actuana! assumptions and adopted the provisions of Statement of Financial Accounting Standards No 87

• Employers

- Accounting for Pensions

• The effect of the chiange was not matenal lhe components of not pension cost for !989,1988 and 1967 were as fol'ows:

in *nousands 1989 1988 1987 Current service cost - be ,efits eamed dunng the period $5.821 $ 5.102 $ 5,474 Interest cost on projected benef4 obligation 29.823 27,772 27,6I9

                     ' Actualreturn on plan assets                                                                 (50.261)             (25.674)               (28.764)

Net amortization and deferral 1 _ _8 3_45_

                                                                                                                          . . .         _5.  (

08.. 7) _20. ( 3) Net pension cost S 3.728 $ 2,113 $4,126 The followong table sets forth the plan s funded status at December 31.1989 and 1968: en thousands 1939 1988

~ Actuanaltiresent value of benefit obligations-L Accumulated benent obligation. including vested benchts of $244.586 and $22I.259 $268 2_81 $248.253 Plan ossets at fair value $396hl9 $361,714 Projected benefit (obhgation) for sorwce rendered to date (360.8701 (337,564)

Plan assets in excess of projected be t3 fit ob!!gations 35.179 24,150

                      . Unrecogni:cd poor scrwce cost                                                                                        10,754                            '
                      ; Unrecognized net gain                                                                                             (63.206)               (40,666)

Unwcogmzed not obhgation _ 13.668 I4,603 iAccrued) pension cost included in accounts payable at December 31 $ (3.605) $ (2,113) The weighted-average discount rate and rate of compensation increase used to measure the projected benent T ~ obligehon for 1989 and 1988 were 9 0% and 5.5% respectrvth The werghted average expected long term rate of'

                       . return on plan assets for 1989 and 1988 was 9 25% and 9 0% respectivsfy.

In addrtion to pension benehts, the Company provides certain health care and h!e insurance benents to retired employees. The cost of providing those benehts was approximately $4,574,000 un 1989. $4,069.000 in 1988, and

                      . $2,974.000 in 1987. The Company recognizes health care bwehts and death benehts pomanly as claims are paid.
              ' Note J Estunated Future Costs Related to . .cmate Disposalof Spent Nuclear Fuel and Nucient Generating Plants u       .__...                  _ _ ____, .                ... - _ . - - _        - _ _ ~ . . - . . -              .... .                  __

The Company has expanded its spent nuc! car fuct storage facihty at Psigrim Station to include sufhcient capacity for

                       ; spent nuclear fuel through approximately the year 1995; however, pursuant to the Nuclear Waste Policy Act of 1982, the Urvied States Department of Energy (' DOE")is responsible for the ultimate disposa!of spent nuclea? fuel. The Company
                       ' recoveru the cost of payments to the DOE for the vitimate disposal of spent nuclear fuel through uts fueland purchaseo power arllustment claunes.

The Comtuny is mcownng through depreciat:on an annualprowsion for the cost of decommissioning Prignm Staten at the end o fits usefut li10. Funds collected for decomrnissioning are restnctedin their use; such funds collected un rates are based

                        . noon a 1965 eatamate ($122.000.000) to decommission the plant (immeduate d>smont!cment method) as approved by the DPU.
                        ' lhe Commny wril request aptvoval of an updated est:nute of decommiss.oning (currentty %218.000.000) in its next rate case wttted in 1992 Secunties held in the nuclear decomm usioning fund are stated at cost. nhoch noproximates market. The Corr:pany also col lects a prowsion for the cost of deccmmissionmg P>Ignm Station ftom contract customers-33

r The Company also Mrticipates as an inwstor in tm other domestic nuctoar units Both of these units are recovenng as part of their wholesale rates a provision for estimated charges for spent nuclear fuel disposas costs and plant decom-missioning costs. See also Note All) Note K Information Regarding .lointly_ Owned Electric Piant and Long-Term

                                                               . = _____ _ _ . . _ - _ .

Purchased Power Contracts

1. Jointly-Owned Electnc Plant i The Company is a loint owner of W F Wyman Unit #4. which was constructed by Central Manne Power Company and commenced operations in 1979, included in the accompanying balance sheets is the Company's proportionate share (5.888%) of plant in service of $12.207.000 and SI2,197,000 for 1989 and 1988. respectively, and accumulated depre-ciation of $4,708.000 and $4,273,000 for 1989 and 1988. respectively The Company includes its share of detect ewenses of W F Wyman Unit #4 in the corresponding operating expenses on its income statement.

I 2. Long. Term Contracts for the Pu chase of Electricity

  }
              . The Company has certain long term contracts for the purchase of electric power The Company :s obligated to pay its
              . proportionate share of the operatsng costs (including depreciation and a return on capital) through the contract expira-J         tion date. The total annual costs under these contracts are included with purchased pcaer expense in the Company's

= Statements of Income. The contracts are as follows: in thousands I989 proportionato share Company Interest Share-obDebt

Contract Units of Caccc@ Minimum Portion of Outstanding Ew aration Purchasea its Debt Minsmum Through Cont.

Generating Unit Date  % MW Service Debt Service Exp. Date Canal Unit #I 2001 25 0 143 $ 845 $ 361 $ 2.664 ~ Connecticut knkee Atomic 2007 95 56 3 107 2,385 17,351 t2) 1991 95 16 495 227 1,908 Yankee Atomic

               - Point Lepreau                                          100t31             15.6        100                  24.823                 18.203                           5,608(4)

Northeast Utdities - I MiddletowrerMontvil:e 1991 20.0 2b0 2.633 2.032 1,082(4) Massachusetts BayTransportation Authority Gas Turbine 2005ist 100.0 35 5 0- 0-Northeast Utilities . Base Load 1993t61 16) 16) .._2,01.8 .

                                                                                                                                                 . . . 1.,.26_9                 ._. 2_84 7 4)
                                                                                                                           $33.921               $24.4 77                       $31.460
                 - til we Northwt Utstros contracts retkesent about 10% of the Company's vastA4 ret cambaty; the remawg units hsted av.w mon > gate 10 %

(26 Of ths amount em Comteny has guaranteed $2. I90,0CC (3) The E%nt Lewcau contract termenstes on October 31, KW but may be extendt4 for an aMtronal twehe (nonth perni at the Conuny's

                       - cpton (4) This contract does im ottend for the hie of the unet, however, the amount represents tne es*> mated debt pavn ents throcyh the contract evra-ton date
                  ' tS) ' Tre Conwny us renuond to tuy the grerer of $22 00 ter MV year or 90% of NEIC01. Cacab&ty RosrensMty Adjustment Chargo up to
                         $63 00 per kW ww times the quahl.N catucity (p esently 35 6 MM plus incremental owrating. mentenance and fuel costs The total cWges for ths contract for tFo twehe months erded December 38.19(3 were $2.082.00G
                  '19 1has contract es for 100 MW for the year 1991900. 200 MW for 1900-199L and 300 MW for 1991'1992 and 199219M Of these amounts.

- 60% cnsts cl Northled Mountan punyx1 storage hWro, and t% remaining 40% is made up of varYry amounts of Mllstone Ptunt Unsts I, 2 and 3 Total fmed and variable costs for these contracts for the years ended Decemb. ' 31,1989,1988 and 1987 were-

                   $144.078,000, $133,608.000, and $125.095,000, respectively. The vanable component represents fuel costs which are included with not purchased power in the Statements of Income.

- The aggregate principal amounts of these future unconditional purchase obligations due in the five years 1990 through 1994 are $1G6,185.000. $120.475.000, $91,769,000, $80.930.000, $36.884000. respectively, and $528,054,000

                 . thereafter Tne agg'egate present value of such obligations is $492.762.000.

The Company asno has several transmission contracts which rotate to these purchased power contracti, soformatct, re!ative to the! e agre3ments is included in Note Gf2). m 34

                                                                                                                                                                                          .M

REPORT OF INDEPENDENT CERTIFIED PuBuC ACCOUNTANTS n -e c = r. c = ===_.; . . .=.=;,n=- - - : =: -- To the Stcdholders and Directo s of Boston Edison Company-We have auditnd the accompanying balance sheets of Boston Ed: son Company as of December 31,1989 and 1988 and the reintwl statements of income (loss), retained eamings and cash flows for each of the three years in the penod ended December 31,1989. These fonancial statements are the responsibility of the Company's management Our responsibihty is to erpress an oninion on these bnancial statements based on our audas We conduc sd our audits in accordance with generally accepted aud+ng standards Those standards require that we plan and perform the audst to obtain reasonable assurance about whether the financial statements are free of maten-el misstatement An audit includes eramoning on a test basis, evideoco supporting the amounts and disclosures on the hnancial statements An audit also includes assessing the accounting pnnciples usexi and significant estimates made by inanagement, as avilas evaluatong the overa!! financial statement presentation We believe that out audits provide a rea-sonabia basis for our opuncan In our opinion, the f nancial statements referred to above present fairly, on all matenal respects, the financta! posi-tron of Boston Edison Company as of December 31,1989 and 1988. and the results of its operations and its cash flows for each of the three years in the penod ended December 31,1989. in conformity with genera!!y accepted accounting pnncip'es

                                                                                                  @&                               WC Boston, Massachusetts
                ?                      Jan' y 23. I990
       .            s i '

E'l i  ? 35

                                                                                                                                                                 =

3

                                                                                                                                                                                                     ?
           ? SELECTEDxsaanxe#$r=x=m.e               FINANCIAL STATISTICS       (UNAUDITED,)

aava==== s

                                                                                                                                                                                                  -3 fQuartirly FinancialData P.        r>

Net Balance Earnings (Loss) i in thousands of dollars, Operating Operating incomo Available for Per Share of - J except earnings per share Revenues income (Loss) Common Stock . Common Stock n) [ 1989:- 7 Fir'st quarter $296.253 $33,564 $11.813 $ 7,400. $0.19 Second quarter : 282,729 24,327 1,120 (3,294) (0.09) Third quarter ' 383,895 78.I34 58,961 54,549 I.42

o. Fourth quarter 306,468. 42,498 (88.0291 m (92,443) m (2,40) m C .

j.

 ,                                   . 1988?

1

                                            . Forst quarter                 $299.109                 $26,010.               $ 9,445                 $ 6.182                      $0,16 256,923                                            3,484                    221                       0.0I              i Second quarter ';                                         19.655 Third quarter.                367,310                  -73,664                  54,571                 51,300                       1.36; y - Fourth quarter'                        279,313                     40,776                16,712                 12,360                       0.33 .        -t
                                     - 0) Based upOn QuarterlV weighted average nurnber of common sbarca outstand <ng
 ;               ,                   ~ W Includes $10G280,000 efter-tax writeoff resulting train the recordung of rate and contract settlements on the fourth quarter of 1989 '.
                                                  - KWH sales and base revenues are seasonal n nature, with both being lower in the spring and fall seasons:In[

i

                         <           Uddition, pursuant to retail rate orders of the DPU, base retail rates billed to customers an on average, forty percent .                                       ,
                                    > tdgher in the billing months of .luly through October. Accordingly, a signulicant portic'                             ' varnings occurs in the -'              ;

Company's thirdquarter. l 7QuartslyStock' Data

                                                                                                                                                                                                  ,j
                      ,             3 ollowing F               are.th'e reported high and low sales prices of_ Boston Edison Co npany 2 Munmon stock on the New York l
                                                                                                       ~

Stock Exchange Consolidated Tape for each of the_ quarters of 1989 ar1d 1988 and the devidends declared per share ~

j ,  : d'u rifig each of those quarters! ,

                                                                                                                                                                                 '1988,
                                                                                                                  -1989-           '

j f , W' '

                                                                                 - High .             Low Dividends                           High L

[ low '. Dividends - W First quarterJ .I6 S/8 T 15 3/8 J H Ab5 18 3/4 ' ;16 ~455

        '                  ,           Second quarter '                          17 ar4 .           15 112          A55^                   :16 5/8i            -12 1/2             .455 -'
   ,                                    Third qu3rter                            19I/4'            .I6 7n i         .455                    16.1/8              14                : A55 .
                                     . Fourth quarter ,                        '22 118            ;18:               38                     17 1/4              151/4 ~.           .455-            _

.,sn 1: I_ # { ~~ $

                                                                                                                                                             ,                                 ,     L sa

m. .

b s _ a

          ;4 :                    ,                                                                                                                                                              'i
                                                                                                                                                                                                 ~i
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4 S z

  . SELECTED OPERATING STATISTICS ywrgxvur r: w . - -                         sr c 1989                                                     1988                                     1987            1986            1985 Capacity- MW:

New Boston Station 760 760 760 760 760 Polgnm Station 670 670 670 670 670 Mystic Station 1,018 1,027 1,036 1,034 1,034 L Street Station 22 22 22 23 23 W.F. Wyman Unit #4 36 36 36 36 36 Jet turbines 251 249 256 260 257 Total 2,757 2,764 2.780 2,783 2,780 Contractpurchases ' I,102 I,301 901 700 414 Contract sales (l71) iI73) (223) i173) (238) Not capabihty at year end MW 3,688 3,892 3,458 3,3 ?O 2,956 s

                 - Net capability at peak - MW                                3,483                                                 3.200                                        3.200          2,963            2,949 Capabihty responsibihty to NEPOOL at peak - MW             3,443                                                 3,253                                        2,945          2,905            2,777 Edison temtory; Hourlypeak MW                                    2,626                                                  2,626                                       2,432          2,254            2,416
                           ' Load factor                                        61.4 %                                                       60.5 %                                62.7 %         64 8 %           58.6 %

( Generating station economy (BTU / net kWh) 10,309 10,050 10,151 10.097 10,409 Average cost of fuel (Company) .

                       . e per milhon BTU:
        ,                   _ Fossil                                         254.56                                           226 91                                            272.24         238.45           382.46
                           ' Nuclear .                                       .56.79                                                                                  -                 --      102.53            63.73 Composite                                      223.86                                                                                  -                 -

224.03 265.75

                 - Capabihty (not kW):

Fossil 82 % 83 % 80 % 80 % 77 % Nuclear . 18 % 17% 20% 20 % 23 % Generation isystem k Wh excluding interchange):

Foss. ' 83 % 90 % 90% ' 84 % . 60 %

      ,                     - Nuclear                                              17%                                                                         10% -                  10 %            :X             40" y'

lUtihty plant:

                            . ixpenditures                                 $234,253                           $244,807                                                       $317,797        $,62,206        $166,670 :

Retirements $14.042 ' $12,017- $23.070 $22.236 $16,440 Accdmolated depreciation $950.298 $862,297 - $779.246 $743,908 $685,805

                  .: Depreciable plant                                   $3,130,031                $2,910,390                                                               $2,492,547     $2,383,274       $2.252,088 LNumber of employees at year end                              4,686                                                     4,559 '                                  4,532          4 428            4,364 4      ,

t 37

                                                                                                                                                                                                                   ==

_ _ d __i__ _ . . . _- ._ __----- m - - - - - - - - - _ _ - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - ---

SELECTED SAI.ES STATISTICS nm,- t t e. e . = 1989 1988 1987 1986 1985 Electnc energy: (OVh in thousands) ' Sources inet system output). Generated 11.679.000 8.653,274 8.951.229 9,862.768 12.333.007

                                   . Purchased                                      4.177,079             4.474.726                  3.129.045             2.763.274                     2.262.337 Interchange                                                       _1,116.394                    1.501,746           _ 881,567                        (286.229)

_ _l019.391_I Total 14.936.748 14.244.394 13.582.020 13.507.609 14.309.115 Disposition: Retail Sales: Commercial 7.095 297 7,004.452 6.750.870 6.362.478 5.991.734 hesidentia! 3.413.801 3.430.611 3.188.748 3.048,454 2.896.678 Industnal 1.845.441 1.839,363 1.853.019 1,837.263 1.823.5b'O ~ Street lighting 132.791 131.549 132.666 134.116 132.997 Railroads 126.97I 90.697 . ___O - . ._ 2 Total retail . I2.614,30I I2,496.672 11.925,303 11,382.311 10.844,989 Sales for resafe totairequorements 332.800 _ 331.913 _ 315.354 _ 302.349 423 @ l6 Temtory total 12.947.101 I2.828.590 12.240.657 l1.684 660 11.268.805 Sales for msale - partial requirements _ 805.832 282.,929 __219.298 _ 714 804 1.904 798

  -^

Total system 13.752.983 13.111.519 12.459.955 12.399.464 13.173.603 . Miscellaneous usage 1.183.765 1,132.8.75 1,122.065 1.108.145 1.135.512 Total _14.936.748 ]4.244.394 13 582.020 13,507,609 . 14.309.1,15

                                                                                                                                                                                '~                         ~
                                                                                      ~ ~ ~ ~            ~ ~ ~ ~                      ~~~~~                                             ~~

IGlowatthours - annual growth porcent: Retailsales: a Commercial 13% 3.8 % 6.1 % 6.2% 4. 7 % 0.2 Residential (0 51 7. 6 4.6 5.2

                                              ' Industrial                                        0.3                     10.7)                  0.9                           0.8                     (2.4)             i Street li9 htung                                  09                      (0 81                 (l.11                          0.8                     (1.4)            ll
                                              'hai! roads                                        40 0                         --                      -                            ~              l100 01 Totalretail                               0.9                      4.8                   4.8                           50                        l.9
                     ~

Sales for resale total requirements 0.3 _

5. _43 (28.o) __ _ (S}l

                                                       ' Temtory total                            0.9                      4.8                   4.8                           3.7                       I.6 Sales tot resale partialreautrements .                IB4.8                     29 0                 (69 3)                        (62.5) .               I95 4 lotal system '                 ,_

4.9 % _ _ 5.2 % O 5 % ___ _ __ _12:2 % System total electric revenues by class: i

Commercial 48% 48% 49 % 49 % 48 %

                                        . Residential                                              27%                       28 %                  28 %                          26 %                     26 %           -l 12 %                         13 %                    13 %               !
                                          .fridustrial                                              11 %                      11 %
                                        - Sales for resale                                          10 %                       9%                       9%                         10 %                  . II%

Other . 4% 4% 2% 2% 2%

                                 ' Electric sales statsstics;

^ Resident:alaverages: Annua! nyh use 6.160 6.270 5,903 5.735 5.512 Revenue per nyh 10.I7: 9 9Ie 1022c 945c 10 40C Annua! bill $626.69 $621.43 $603.07 $$42.14 $573.12 Customer: Meters at year.erid 672,992 663.6t .' 653,903 644.138 636,187 i: - Average number 637.871 629.659 62I,083 609.283 600,763 M M 38 m

SutCn D fit;ANCIAL STATISTICS

 .x                      <-            ,

l 1 1989 1988 1987 1996 MS Operating revenues t0.O $ 1,269,345 $ 1,202,655 $ 1.181,097 $ 1,105,367 $1,lu '^ Balance for cornmor (000) $(33. 788) $70.071 $64,255 $97.404 $85.954 Per cornmon shart : lefnirfgs llos5 per share ${0 886 IH s$1 BG $2.27 : $2 72 m $2 09 m D?vedends de cla?vd $1.745 $ I.82 $100 $1. 75 $ 1.67 Divic' ends iaid $1%2 $ 1.82 $ 1.79 $1735 51 645 Book valve $IG 71 $1936 519 35 $18 S4 $16 94 Cash flew $4 91 $4 55 $5.53 $6 01 $7 88

         , %yout artoo                                                            - O!                  98 %            79 %                 64 %                 61 %

Return on average rway id C%I 9 60 % 1110% 14 86 % 16 34 % Yvar+nd dovidend yreld 7.6 % 11 03 % 9 71 % 6 91 % 7.50 % fixed charge coverage (SECI O 52n 2 08x 2 85x 3 50w 3.13< Capitahratoon-L ong-terrn debt 52 % 50 % 48% 40 % 53 % Preferred and preference e'Ivity 17 w> 12 % 10 % 10 % 10 % Co~ mon equity 36 % s, % 42% 44 % 37% Long term debt 000) $948,8'19 $900.534 $822,059 $ 728,909 $ 744,875 Redeemab.+ pmfenad/ preierence stocks (000) $ 100,000 $ 100.000 $50.000 $35.188 $35,188 ' lotalasuts t000) $2.878.271 $2.817.050 $2. 702.900 $2.361,998 $2.264,988 Internalgenerat:vn after dividends (000) $139,799 $1G4,241 $ 148,644 $ 184,723 $171,470 Plant erpc* :litures /000) $235,946 $245,103 $309,239 $ 174,645 $218,485 Intemal genntat,on 59 % 43 % 48% 100 % 78 % Stockho:As al year end 49,149 49.976 48,063 4r,040 50,550 Shares outstan<bng. Weighted avvage 38,245,648 37,683,515 37,168,722 35,817,344 31.9G3,846 War +nd 38,526,085 37,893,791 37,424,910 36,905.558 32,415,130 Stock pace High 22 118 18 3/4 28 28 23 1/8 iow 15 3M 12 172 16 3/4 21 1/8 16 3/4 War end 20 16 1/2 18 3/4 25 3/4 22 7/E Yeartnd nsatket value (000) $764,913 $625,248 $701717 $950,318 $743,522 Trading volurne 29,938,900 46,517,500 30,040,900 29,057,400 15 I58,400 Markclarook (war +nd) I.20 85 .97 137 1.35 Pnce/ earnings te'io Iyestend) -w 88 8.3 95 85

        ' :II Inchodes $7 7eivo comnwn shre kus <rotkuve to erste rut contract se rWments    c

(?l ligLocles $0 30, $0 04, and $0 C5(W comnen share f:Om d sconfonmiopvatrons for the gws 1M7.1986, and 1985. respectne'y (31 Not coiculated tesed upon 4 ksss prr common sharc. A psyoat rata of 96% wtd e prceternungs rato of 10 h were calculated tmsed unv1 the $110(v common share earrvngs en%1rng the $? 78 por common Shre loss 300 to rate ett contract sett<ements 39

     . OfflCERS                                              DIRECTORS
       . ie,                                               m    t         .

Stephen J Sweeney. Chairman and Chief co Helene R Cahners+aplan. Trustee Executiva Officer moi WJhain F Conne!I, Charmian and Chief Bemard W Rezntcel, President and Chief E recutive Ofbeer, Connell Lim:ted Partnersh:p Operating Off:cer (metals recycling and processing and industna' productcn) Wdham D Hamngton, Senor Vce Pressoent un as> Gary L. Counte man Preside ' and Chief Ralph G Bird Senior Vice Presodent Nuclea, Executive Offter, Lit +rty MutualInsurance Thomas J. May Senor Vice President Company Cameron H Daley, Senior Vsco President c:oes) Thomas G Dig urn, Jr. Partner, Ropes & Gray L Cariisle Guston, Senor Voce Picsodent tiaw form) C. Bruce Damiell. Vice President - ta> Thomas J Galbgan, Jr., Former Cha>rman and Power Dehvery System Chief Enocutiva Officer. Boston Edrson Company Craig D Petfer, Vuce Presudent. Customer Servce inoto Nelson S. Gdford. Chairman and Ch.ef Marc S Alpert, Vce President and Treasure, Emtnive Oficer Derm n Manufactunng Company (statronary products. systems and , John .t. Desmond. Ill, Vice President and p,(g ,,;ng, 1' General Counsel nu) Kanneth I. Guscott. General Partner, Long Bav Rchard S Hahn, Voco President' tAanagement Company treal estate Energy Planning dmlopmenti Arthur P Phdhps, Jr., Vice Presidant ' tva Richard D. Hdl. Former Chairman of the Board Corporate Inictmation Servoces and Chief Executive Offcer. Bank of Boston John J Higins Voce President - Corparation (bank holding company) and The Hurnan Re:,e >4es First NationalBank of Boston Joel Y Kamya, Vee President manb> Matina S. Horner. Executive Voce President, Production Operations Teachers Insurance and Annuity Association Kenneth L Hightdl, Voce President . and College Retirement Equitics Fund Nucl< tar Operations and Station n ector Ow Wdham D. Mantg Former Ewcutive Vice Edwin J. Wagner Voce Preside.,t . President. Cabot Corporation tenergy and Nuclear Engineenng performance chemica!s) George W Davis. Jr, Vice President , to Bemard W Re:nicek. President and Chief Nuclear Administration Operating Officer, Boston Ed. son Company Robert J. Wester, Jr., Controller and Chief nh3s Herbert Roth, Jr., Fortner Chairman of the Board and Chief Ewcuto e Ofbcor, LFE Accounting Oficer Corpotation (trathc and industnal process Thoodora S. Convasser. Clerk of the ,,,,, ,y, ,,4 Corporation tn Stephen J Sweeney, Chartman and Chief Donald Anaswsis, Ass sten! Treasurer Erecutive Oflucer, Boston Edison Company n) James J. Judge, Assistant Treasurer mons? Paul E. Tsongas, of counsel, Foley, Hoag and Jean C, Ovann, Assustant Clerk of the Elhot (law brm) aw Charles A Zraket. Pres

• dent and Chief Erecutive Offecer, The MITRE Corporation inot-n1 Elet:ted e'Itwtne Jtmaay t,1990 for-proht system research and engineering firm)

In Memtw of Erecutre Comm>ttee r m Me'nte o Aust Committeo 01 Memtw of E te:v:*ye Pe'Sy?>ol Comettee 14 ) Memtw of Nacica' Divores %wew Committee 15> hfemr of Namonting Comm tree 40 L : 1l l . _

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w % %The hvodend11pinvestment and Common Stock Purchase Plan is available to common. preistred and preference lYh&darrebsdvs:Unddthe plart,ibminott' preferred and preference sharehotters may have their divsdend h kW commbf sock 'at"c$rsnt market prices. Allparttipants may invest optbnal cash contributons, up to a maximum of i l%kl[$!lAllLOO hokiers'of 0pir recstdr,rukrter, 0{ shares of commort which preferrod willbe ce preference invested stock are atchgible the tocurrern inarket participate dorectly in theproce, Plan. Partic} pints d

&lf f         Yhnk nominee) mUst attange participatoon WW(%Bddshcid                                                                                 owners
         & participation with[his Noker orl tank nominee, himust become a record hokke by hadng the shares transferred to his of tts Companfs stocLwhose shares are r 4th tho record holder. Il for any reason a beneficial owner is unable to arrange

. BM M FoNriname: N'& ~kW' hlh , ' ' A correspondmch w

The First NationalBank of Boston conceming changes in plan owr,ership shou!d be directed to the Pla fcy)1]

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                                                                                                                                                                                                # >i0 The first NationalBank      .

Q !\?, Compagwill.be held on May Q1990;at/11:00; , * ^l Stock inst $sfor Agem and Rege:trar of Stock W Wia m[ A; copy;ol the Chainnan's remarks will be b ' i 'F >, .. .. h% sent on roNUdsU L i ? ' ^ Jhe First NationalBank of Boston Mh$vp nyCNhf;:$ l ? ' I M, , f0'51 W l'& v ,kNS$ko'rivisser,br$th&rhetN>rh% 5 mw; v A - ,X

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