ML20062B465
| ML20062B465 | |
| Person / Time | |
|---|---|
| Site: | Seabrook  |
| Issue date: | 12/31/1989 |
| From: | MASSACHUSETTS MUNICIPAL WHOLESALE ELECTRIC CO. |
| To: | |
| Shared Package | |
| ML20062A991 | List: |
| References | |
| NUDOCS 9010250078 | |
| Download: ML20062B465 (52) | |
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' new decade dawns in 1990, and with it comes a series of challenges for hih1TEC and its member utilities Staying competitive in the 1990s will f [
require a clear sense of direction and a strong sense of purpose. We have ,
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identified the challenges and know what we want to achieve. Our purpose is to provide the Nih1TEC members with the high-qualirv cost-etTecove en _
ergy services they will need in the decade ahead. Here are the challenges and Nih1WEC's responses.
I e Challenge: Power Supply Needs hiust Be hiet :
hih1WEC Respanse: Provide the AIAIW'EC members with an adequate, i reliable economic and environmentally sensitive mix ofpoun supply resources i;. and demand-side optionsfor the 1990s.
Challenge: Transmission Access and Pricing -
l h1h1WEC Response: Assure that the A1AlW'EC members have accus to the regional transmission system at afiir and reasonable cost, and work t:nvard a more competitive utility marketplace in New England. !
Challenge: Competition /Emciency l Nih1WEC Response: Alake AfAlW'EC the vendor ofchoice among energy service providers by enhancing the quality and value ofSibfW'EC services.
Challenge: Contract Litigation l-l hih1WEC Response: Bring the Seabrook contract litigation to a close as quickly as possible.
l !
l Challenge: Financial Strength l h1h1WEC Response: Accomplish a re}ionding of'AlbiW'EC's outstanding debt and develop a position ofstrength infinancial markets.
l l Challenge: Seabrook h1h1WEC Response: W'ork to assure the timely and eficient operation of lV^) the project.
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L . wenty years ago,' when the hiassachusetts hiunicipal L
Wholesale Electric Company was created by the state's-L municipal utilities, changes were taking place in the i
region's electric utility industry that uni 6ed the .
hihtWEC members and inspired them to achieve their common goal ofindependence. Threatened by plans that would have left them with little control over their e futures, they set out to develop an independent public pmyer supply for the municipal utilities of hiassachu-setts ... and they did.
There have been challenges and con 0icts along the.
way, but they have_ been conquered by municipal utility joint action, which has produced a public power force to be reckoned with in the development of plans for New England's electric power industry.
Now, electric utilities are entering a new era - an era of competition, an era of deregulation - that again is changing the face of their business. In many ways. this-latest wave of change has served to rally the 31 hih1TEC members behind a proactive strategy to pro.
tect the future interests of municipal utilities.' Once.
again, there are challenges commanding the attention -
7 '3 f;'ygg fhg of consumer owned utilities and requiring a strong
. j sense of unity and strength withm the public pcmer
-' Chairman ofthe Board communin. .
These kinds of challenges - the ones that threaten to
. and the EreS/ dent erode the bene 6ts of public power - are the ones that bind and strengthen the Ath1TEC organization. They provide a common ground for cooperation and joint
[ action to achieve common goals.
At the same time, AthtWEC is changing from within to strengthen the organization and provide better sen-ice to its member utilities. Due to their diversity in size, customer base and other characteristics, there are always L differences of opinion among hihtWEC's members. !
There are different service needs, ditTerent power supply needs and diR'erent strategies for individual member utilities.
To address these individual needs, and to enhance its I members' competitiveness, hihtWEC is 00'ering more choices as members search for the most cost-effective way to meet their service needs. htore AthtWEC services are optional in 1990, providing an opporture ity for members to tailor a service package to meet [
7 ~i specific needs. {
C)! While the commercial operation of Seabrook is near i 1
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rtahn . there arc soll s cabrook related issues for .
NIN1% 1 ( to address, primank the seabrook contract
. - 's hoganon between .\lN1% 1 C and some at its members. .
per
%t arc workmg hard to resohe this lingation as quickly ~
as possible so that a c san tosus our attention and re- . .>
sources on N1\1% 1 ( pnnsipal mission: to provide its members a ah an adequate rehable and economic suppis tit (in ti h i' .
In lookmg b.u r. - + .t u as a vear of change for 1 .
\1M Wl( as the o , . a orked toward its goal of .
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besonung the 1 ncrp star of the Commonwealth for its -
member utihnes. In the pro <ess of examining the ,' .
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broader issues facmg mumapal utilities. we have been ; ~
pleased bv the collecove determinanon to tight for pub- k. --
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lic power nghts. Belief in the need for ioint acnon is as ',
strong as ever Cooperation is the key that turns that [- .' .
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l members to remain independent and competitive in the decade ahead. Rowdi simen l ,e uac,: c,c..rn i t on < a , ,..w .: .. < wa
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reahn . there are still seabrook-related issues for
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NIN1% i( to address, pnmanly he seabrook contract .
.p haganon between .NINlw if and some ofits members. .,
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% e are workmg hard to resolve this litigation as quickly . . . .4-as possible so that w e san totus our attention and re- ,
i sourtes on N1N1% i ( s pnnapal mission: to provide its , ,.
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members u ah an adequate rehable and economic . ;
supph of ei:ans m ..
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in lookmu h.u k .n e t w as a vear of change for .
NIN1%'t.( as the +npar . aorked toward its goal of becommg the 1.nergv star of the Commonwealth for its
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member unhoes. In the process of examining the
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braader issues faung municipal utilities, we have been i-. , +
4 pleased bv the collecove determination to tight for pub- L -
lic power nghts. Beliefin the need for joint action is as ,
strong as ever. Cooperation is the key that turns that f- .. p- J' belief into strength, which will enable MMWEC and its / '
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members to remain independent and competitive m the /
Rahard i statten Presu4rrn beorge l ! ran D'a, rara s: o' t*'r 8". d decade ahead.
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ecoming the Energy Star of the- :
g Commonweahh for its member
- ' , utilities is a challenging assignment y -
for Ath1TEC, '
The massive forces of competi-tion, regulation, technology and the p environment are producing an at-
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. mosphere of excitement and antici. '
' pation for electric utilities. The I? industry is on the threshold of mo-mentous change, and tlw otilities l
with the leadershi;. athi vision 'o be active participants in molding 1e future are the ones that will thrive in the 1990s. *
.Throughout its 20 years of exis- ,
tence - as a private company from 1969 to early 1976. and as a publie corporation thereafter - hlh!WEC
- has been the champion of munici- !
pal utilirv rights When the munici- t pals created hihtWEC and decided .
CieneralManager's v
Report ' J'"! P ^" indereadeat P"b ie power supply, it was a bold move '
with no guarantee of success, flut ,
. they did succeed, and in the process they secured a voice for municipal utilities in the affairs of the region's electric utilities, lleginning with their campaign for independence. ,
NINtWEC and its members have '
been at the forefront of change.
In any business, staying competi-tive means offering greater service value to your customers, in 1989, hthtWEC worked hard to enhance the efTiciency'of hihtWEC's busi-3 ness and energy resources. Compe-tition is at the root of these efTorts, and hihiWEC is determined to remain the energy service provider of choice for the state's municipal utilities.
hiarket forces that respect compe-
/ L tition, efficiency and initiative more
'd than traditic ' are changing the verv
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tabns and stru<ture at the electric utihty industrv. N- snere is this change ,' ~ ,
more pronounted than in the competition for transmission access.
x t it paramount son <ern to N1.\tWEC and its members are the changes . ,
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'akmc plau m the elestrh power business in New England. where power ~
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sopphes are sh irt and uuhties too of ten are forced to rely on emergency .$.
ops unng pro <cdure, to mamtain electne system rehability. Curtailing cus- .~ (. .
. 7 ioms r usage r not the was t i balance the supply and demand for electricirv. .
in addinon. there is sonscrn in New England about the impacts on trans- ,
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nu ,on sen u < ,t N on heast 't ohnes acquiring the Public Service Co. of L s - .
.. . . . .f N u Hampshirs \t \1\\ la has mtervened in cases involving the acquisi-
.on h< rore :h I s a. ! n<rgs Regulatorv Commission WERO and the Se- .' .
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s unnes and ! u ,- i m~ ion SEQ to protect its members' transmis- -
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\l.\1\\ 11 is Jcas.ma to nelping its members meet the challenges of the ;
l Wos through t hou.ev options and control over their power supply destiny. g.-
Be<oming the i nergs star ot'the Commonweahh will require innovanon. ,
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hard work and the tourage to meet the challenges of our industry and region boldly and creanvei) .
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lectric power supply shortages and limitations on, trans-mission capacity in the Northeast have forced the fre-quent use of emergency operating procedures over the past several years. Improvements in emergency proce-dures, greater cooperation in planning and operations,-
and a slowdown in economic growth .have provided short term relief. However, the only way to resolve the electric system reliability issues facing the region is to
' add generating and transmission capacity, although doing so is fraught with a number of complex eco-nomic, political, legal and technical problems.
In New England, the need to resolve these issues is in-tensified because the region already is operating on the edge of adequacy in terms of electnc generating and
- transmission capacity.
" Dependency on uncommitted resources for genera-tion adequacy puts the reliability of the electric supply in this region at cons:derable risk,' states the 1989 Re-liability Assessment of the North American Electric Reliability Council. The uncommitted resources noted in the assessment include non-utility generators and de-mand management programs.
These concerns are retlected in the New England -
pgy,g. Suppfy Power Pool s assessment of resource adequacy between 1991 and 2004. In the assessment, NEPOOL assigns probabilities to a number of uncertainties and then de-termines the degree of resource adequacy in different situations. Some of the uncertainties involve the effee-tiveness of demand management programs, the amount and reliability of non utility generating projects. the amount of older generating unit retirements, the level of reserve capacity required, and the amount of growth in demand for electricity. These are just a few of the uncertainties making planning for an adequate, re-liable and economic power supply more complex and demanding.
The hiN1WEC members are facing a need for ap-proximately 200 megawatts by 1995 and about 300 megawatts by the year 2000. This assumes operation of the Seabrook plant as well as the Hydro-Quebec Phase 11 interconnection in 1990. To address these needs, hihiWEC has reviewed dozens of power supply project proposals and demand-side strategies in an etTort to provide its members with as many resource options as possible. Power supply planning in this competitive environment requires a greater commitment to research l
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and deselopment including extensive involvement and being reviewed by N1N1WEC play an important role in negonations uith non-utility generators. planning for resource adequacy because unlities are not During lo89. .\l.\tWEC produced its first Resource plantiing any maior projects before 1995 and the excess 6ptum, thr the ~99, report, which recommends the pur- capacirv in New England is vanishing.
sh ne of more than 1;l megawatts trom a varierv of Each of .1.\1TEC's
\ members received a " personal-me: pendent power proiects to help meet members' ized" version of the Resource Optums/hr the '903 report.
necJs through 1904. The report compares the merits of detailing individual member needs and purchase recom-14 proietts whose deselopers have proposed to generate mendations for baseload, intermediate and peakmg and sell clettrian to the NIN1Wl:C members. A rank- power from various projects. The reports w ill be up-mg u stem used to culuate cash proicer takes into con- dated periodically to redecr anv changes m member odcranon sush thmgs as the deseloper's expenence, needs and resource availabilirv and/or economas.
l hsnsmg stat us. sat m .nmon warus. fuel suppiv plans. .NINtWEC ako has created four special resource des el-and pohtaal supp<.~ "r tbc prmect. The system also opment projects to keep track of what capa<nt n as ail-awe scs a prom t , , m snan, with members strategic able to meet memberi baseload, intermediate. peakmg j enals and obic<tnes. w han imohe such things as and near-term power suppls needs. These new proiects.
stheduling to meet capaurv needs. environmental is- used in conjunction with the resource options reports, sues, location and transmnuon considerations. will provide members with the mformation they need to in the tinal analysis, each proiect is ranked based on make investment decisions to meet the power supply l its viability, cost and consistency with goals and objec- need in their communities. Participation in these special tives. The recommended projects - ranked among the projects is optional, which enables members to partici-most likely to achieve operation and provide economic, pare only in the special projects that best meet their ,
etiable power - are scheduled for operation benseen needs. It is within these special projects that the bulk of 1990 and 1993. These and other non-utility projects .\tN1TEC's resource development work will take place, 1
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assuring that opportunities to purchase or otherwise ;
acquire new capacity are not missed. This revised ap.
j proach to power supply planning allows MMWEC and i i
its members to target resources to the areas of greatest need.
MMWEC Members' In another etTort to assure resource adequacy, Compos.ite Fuel Mix 1989 NiMWEC has undertaken a study that could lead to - g constructien of up to 300 megawatts in new generating ' )
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capacity at MMWEC's Stony Brook Energy Center or I at other acceptable locations. The new unit study, au-s,mm,co wim thorized by the Board of Directors late in 1989, is a .
contmaation of the company s statewide power plant siting study completed in 1988. The siting study identi.
fled several sites in Massachusetts, including the Stony 3, Brook Energy Center, as good candidates for power ,
o plant construction. The present study will result in a detailed implementation plan that will outline the engi- !
l- neermg permittmg, financing, transmission, fuel supply l g, and other requirements for construction of a new unit. '
It also will address various ownership, contracting and financing options. -l In addition to pursuing the new-unit option, there were a number of other activities supporting the A MMTEC power supply program in 1989. In.luly. the .
Federal Energy Regulatory Commission issued a deci-sion that led to a 20 percent increase in the amount of low-cost hydroelectric power supplied to Massachusetts ;
municipal utilities from the New York Power Author-MMWEC Membw' ity. The decision, in response to a complaint filed by i Growth In Energy Use MMWEC and the Connecticut Municipal Electric En- ;
ergy Cooperative, increased the Massachusetts allocat ,
j l tion of hydroelectric power by 12.4 megawatts, to a ta8a -
total of 72,5 megawatts. MMWEC administers the Massachusetts allocation of New York hydroelectric
" ; power as an agent of the state Department of Public .
i j Utilities and has fought to protect and enhance the mu-
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i nicipals' rights to the power under federal law, Early in l 1990, a contract extending the allocation through 2001
! was approved by New York Gov. Mario Cuomo.
i i i Aside from the substantial power cost savings result-
- I I ing from this contract, it provides important benefits for the MMWEC members in terms of fuel diversity. The l increase in New York hydroelectric power, coupled with the operation of Hydro-Quebec Phase 11 later in 1990, I will increase the MMWEC members' reliance on hydro
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resources, consistent with MMWEC's fuel diversity
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MMWEC Suppiv and Demand
, " Prot ide the MMWEC members with an b l
adeauate, reliable, economic and 6 n,-n ent ironmentally sensitit e mix ofpower supply :
o resources and demand-side optionsfor the l a 1990s."
no no.
no and the region has additional peaking capacity available 4 during emergencies. So far, members have gained 6;0 4
kilowatts of peaking capacity credit through the Dollars 4
"" on Demand program.
o hihiWEC also has been awarded a 575,000 grant '
nni,,n eo m.'* '" I" '* * " from the U.S. Department of Energy to help fmance an electric thermal storage heating program for several .
member utilities. This program will involve the installa.
tion of electric thermal storage heating units, which objectives. This is particularly important in light of the convert electricity to heat and store the heat overnight -l nited States' growing dependence on foreign oil and for use during the day. This will help reduce consumer the increased exposure to the consequences of sudden and utility costs because the units use electricity during changes in the price and supply of oil, the night when the demand for and cost of electricity is
- Demand management programs are a vital compo- lower.
nent of the NIN!WEC power supply program, provid. The NihiWEC members experienced a welcomed mg utilities and their customers with opportunities to lower rate of growth in electric energy use in 1989. pri- '
use their energy resources more efficiently. Successful marily due to a slowdown in economic activitv in Ntas-demand management programs help to offset the need sachusetts and generally moderate weather during the for new electric generating capacity and represent an year. Niember utilities used approximately 1.9 percent
- important resource in a region that is short on capacity. more electricity in 1989 than they did in 1988. This NIN!WEC has identitied cost etTective load manage- compares with growth rates of 5.9 percent in 1988,6.S ;
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ment and conservation opportunities for each ofits percent in 1987, and 5.3 percent in 1986. Similarly.
member utilitietand is providing the support needed to NEPOOL recorded a growth rate of about 1. percent >
implement these programs. in 1989, compared to 5.2 percent in 1988.
1 NIN!WEC's Dollars on Demand load management The lower growth rate provides a little breathing program helps member utilities meet their peaking ca- room and relief for utilities trying to balance supply pacity needs without building new power plants or buy- with demand. But increases in supply are not keeping ing capacity from other utilities. Under this program, pace with increases in demand, and demand. side op-the utilities sign contracts with industrial or commercial tions alone cannot close the gap. Lack of reliable electric 7
customers that agree to use their standby generators at service enn cause maior economic problems for both times when New England is experiencing a peak power hiassach 2setts and New England, and avoiding these L - shortage. The customer is paid an amount fixed in the problem 4 will require compromise on a number of regu- !
antract; the utility's peak load requirements are re- latory, e avironmental and other issues related to pro-duced due to the availability of the standby generator: ducing and delivering electricity.
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'ransmission facilities are a^ vital part of the electrie
{ power system, carrying electricity from power plant to customer and delivering other services necessary to .
ensure the reliability, adequaev and economy of powet .
supplies.
Today's transmission grid includes connections be.
tween power plants and customers as well as intercon.
nections benveen neighboring power systems. Coordi.
nated operation of transmission facilities has enabled utilities to deliver the least. cost generation to customers, it has enabled utilities to take advantage of economic resources from another region, and to exchange capacity to enhance reliability during system emergencies. Inter.
connections also allow neighboring power systems with ditTerent peak demand periods to share generating ca.
pacity, reducing the need for new power plants.
This system works well as long as transmission capac.
ity is adequate to support economy and reliability trans.
actions, and as long as it is available at a reasonable cost.
However, there are several things happening in New England that adversely affect both the cost and availa.
bility of transmission service.
Use f the transmission system has increased dramati; L
13*aHS7H/SS/0H ACCESS cally over the past few vears. Lo,id g'rowth, mcreased use ofinterconnections and more economy tr,msactions and.OT/C/Ng have devoured excess transmission capacity. The system is heavily loaded and virtually inaccessible during peak demand periods. There are restrictions on power im.
ports to the region due to transmission limitations arid restrictions on the use of some transmission lines in New Englind.
With excess capacity becoming scarcer,it is more difficult and costly to acquire needed transmission serv.
ice. Transmission. dependent utilities like MMWEC, which with few exceptions do not own transmission capacity, are at a competitive disadvantage in etTorts to acquire transmission for long term, economic resources and short term, economy transactions. Some contracts now include provisions enabling transmission owners to cancel access if they need the transmission themselves.
Other contracts include charges for " lost opportunities,"
which enable the owners to collect on opportunities they missed because they sold their transmission capacity.
Higher costs and conditions such as these have spoiled the economy of several deals, but more critically, they -
threaten the public policy goals for an open, competi-l
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i ene leasisost electra utility mdustry in New England. another 250 locations. Such dramatic changes reqmre
\nother aspect of the problem involves the access re- new investments in transmission facilities as well as as-tpmements of non utilitt generators. which are expect- sured access at a reasonable cost.
cd to pros ide a large pornon of the generating capacity Also facing New England are the transmission im.
naded m Neu 1 neland. Proudmg greater access to pacts of Northeast UtihJes (NU) acquiring Pubht Sen -
non-unhn generators aould make a casier for this ice Co. of New Hampshire The acquisioon would gne largd umegulated ie of power producers to build NU domination over the trai smission and bulk power thcu plants and genaue ciestriuty . Without transmis- markets in New England, enhan ing the prospects for uon au cw t hese pn.m m doomed. Howes er, grant. anticompetitive behavior. The conbmed transmnuon mg sut h auess r.n u s sonterns about the cost and relia- assets of NU and PSNH encircle easten Massachusetts bihn of the elestra svstem because the non utility gen- and Rhode Island, which would leave ut.'ities in this crators are not bound bv the .same operattng standards area dependent on NU for access to resoure s outside and procedures that gmern existing public utihties. the area. This expanded NU would control n, ire than in addinon, the trar,smission system in New England 9; percent of the unused transmission facilities ommg was not designed for such a large scale addition of small into the region.
generators. At present NEPOOL receives approxi. It appears that the acquisition will be approved by the matelv 20.000 megawatts from about 250 locations, but U.S. Bankruptcy Court overseeing PSNH's Chapter . I espects its next 2.000 to 3.000 megawatts to come from bankruptcy case, but there will be other regulatory ap-11
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s T provals required. MMWEC hu intervened in proceed-
. . ings before the FERC and the SEC in which NU is seeking approval for different aspects of the acquisition.
In its pleadings, MMWEC seeks restrictions to the ac.
quisition to prevent anticompetitive behavior, consis-
'Mssuu that the MMWEC members have access tent with federal antitrust policies. MMWEC is seeking to the regional transmission system at afair and adequate protection of the public interest by suggestinE -
tgat the new company be required to provide nondis-reasonahlt cost, and work toward a more criminatory access to transmission at cost-based rates.
MMWEC also has serious concerns about the ability of competitive utilly marketplace in New NU, with its increased market power, to dominate England " NEPOOL The basic issues surrounding transmission access and pricing have ripeaed to the point where most parties agree there is a need for change, but the diversity of interests will make development of a standard policy diHicult. As this d: bate unfolds, MMWEC will be tak-ing additional actions to protect and promote the inter-ests ofits m:mbers and the public power communirv.
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3 lf . , l y [ . L In 1989, hihi4Tl 'ontinued its support of the Transmission Access Poha study (TAPS) Group, a I nitional organizanon of transmission-dependent utili-ties. TAPS has undertaken a number of activities in support of a national transmission system with equal , access. ,oint-venture transmission projects and cost. l based wheeling rates. TAPS and MMWEC support a transmission poliev that assures access to the existing , crid at cost-based rates and encourages cooperation l among all transmission users in the planning, construc-l non and use of new transmission facilities. As the representative in NEPOOL of public power systems in Massachusetts, Connecticut and Rhode Is-land, MMWEC also is deeply involved in erTorts within l the pool to address the region's transmission issues. , ! There is potential to resolve many of these issues at the l regional level by working to improve the NEPOOL Agreement. The agreement provides NEPOOL mem-
- bers with limited rights to transmission, but it was writ-ten long before the sweeping changes that have taken place in the electric utihrv industrv. The rules of the game as well as the participants have changed, and solu-tions to New England's transmission problems will re-quire the cooperative efforts of transnussion owners, users and regulators.
Several amendments to the NEPOOL Agreement are proposed in a transmissinn plan put forward in 1989 by a task force of the New England Governors' Conference Power Planning Committee. The thrust of the proposal, w hich was drafted by Massachusetts Department of Pubhc Utihtiem Commissioner Susan Tierney, is to ac-knowledge 2nd incorporate into the agreement the 4 4 transmisse n requirements or non-utility generators. When ecupled with the ongoing etTorts of utilities wichin N EPOOL thn proposal represents a signift- Aaru to h Engl.ind's =for riunu nonsmm cant step n the direcnon of consolidating transmission """ la '** a 'a db= ** 6"* *' ' ~ '"' issues and workmg woperatnely toward finding solu- ',""""','" ,f,[, . * " " "),'" ^l"'"" [,,,,,,, tions. Problems soll eust with the Tierney transmission proposal, but the ideas and potential solutions are being detined. and an interest in finding answers is developing. MMWEC will continue its work with member utili-ties, the Northeast Public Power Association, the American Public Power Association and others to track transmission issues and develop positions and strategies that promote public power interests. 13
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b A e ( he traditional competition for MMWEC and its mem-bers has been the investor-owned utilities (IOU), with MMWEC and the municipals fighting for their rights V to participate in the industry on equal footing with the IOUs. This competition took place within the bounda-ries of regulations that sheltered nost aspects of the electric utilirv business from "outside" competition. The energy crises of the 1970s, high interest rates, huge cost overruns on power plants, capacity shortages, heightened environmental concern, and other issues have caused a break with this tradition. There is a graw. - ing call for deregulation of the electric utilitv industry and opening the industrv to market forces and competi. _ tion. This has already taken place to some extent, and utilities are respondmg with diversification programs, acquisition plans and efforts to "rightsize" their organi-zations. What is emerging is a more diversified and more competitive electric power industry. In this competitive environment, MMWEC has taken numerous steps to enhance the efficiency and _ value of its business and energy resources. These include a maior cost-reduction program, a fundamental change _ inServicedeiverYStrateSY' Promising venture into the l0mpetition/ Efficiency natural gas market, the successful marketmg or MMWEC's combined-cycle expertise, and significant improvements in MMWEC's power brokering pro-gram. These and other actions reflect MMWEC's com-mitment to emciency in all aspects ofits busmess. which will result in greater service value in the energv senices marketplace. In May 1989, MMWEC implemented a plan to im- 2 prove the efficiencv of MMWEC operations and reduce administrative costs by about $1 million a year, or ap-proximately 10 percent, by 1991. The plan allows ; MMWEC to reduce overhead costs without adverselv i atTecting services and to improve the productivity and j emciency of basic systems. It also streamlines and refo-
- cuses MMWEC operations on the company's principal power supply mission, including plant operations and project development and fmancing. To accomplish this.
there has been a realignment of stafT responsibilities and a net reduction in staff. There also h s been a significant investment in new computer equipment and other basic systems, which has improved the productivity and effi-ciency of the organization. These changes are part of a broader strategy to be
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2 7+e 0 1 i S B B G @ l t S a mo une to the needs of individual MMWEC " service packages" or proiects. As a result, MMWEC i\ t naJe signaicant progress in 1989 on and Chicopee have developed a new Service Agreement
* . , nbe: MMTEC s customers that satisties Chicopee's specitic sersice needs and pro-
. m u e s houes \s this erfort expands, vides MMWEC with adduional revenue to moderate
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;e < , orier indn idual or groups of mem- overall service costs.
, s . ace m sen u es tailored to meet their Additional changes to the Sernce Agreement are an-ocipated as MMWEC canonues this effort to " person-
. nes ughhghted bv the experi- alize" its services and proude its customers with the best i w M ,
mpal L.ighting Plant, which sernce value. At the same ame. MMWEC is exploring x u_ u with MMTEC in opportunities in the natural gas market to usure a reh-
' m - hoices. At the time. able and competinvelv priced fuel supplv. We also are mee or bulk power supplv working to market our sernces bevond the MMWEC 's s w ere nanaamr. under the 5ernce Agreement. membership, which will add to the companv's revenues. < he bee a canJard contract that all member The purpose of these erTorts is to use the resources avail-1 s rnust ugn t haopee did not want all the serv- able to MMWEC as edicientiv and cost erfecuvely as s
mandated under the 5ernce Agreement, so it termi- possible so that MMWEC and its members will be nated the agreement Early in 1990, after months of more compenave in the 1990s and beyond. dmusuon and studv. MMWEC decided to unbundle With nuclear, coal and oil out of favor for the genera-h bulk power supply sermes. This was done by main- tion of electricity in New England, natural gas has raining a core group of service:, common to all, but also emerged as the fuel of choice for new power generation. nubbsh ng tour opnonal power supply development In addinon, there is a growmg demand for natural gas Ii
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M 4 L6 \A 4 G \ f S o a more response to the needs ofindividual MMWEC " service packages" or projects. As a result, MMWEC c mbers We made significant progress in 1989 on and Chicopee have developed a new Service Agreement
, nr.,ude the members - MMWEC's customers that satisfies Chicopee's specific service needs and pro-
.s a more senice choices. As this effort expands, vides MMWEC with additional revenue to moderate mm H hopes, to otter mdividual or groups of mem- overall service costs.
unes a package of services tailored to meet their Additional changes to the Service Agreement are an-m needs ticipated as MMWEC continues this etTort to " person-
<rcss m tha area n best highlighted by r.he experi- aFze" its services and provide its customers with the best a the Chaopee .\1unicipal Lighting Plant, which senice value. At the same time, MMWEC is exploring mnated as s en he \greement with MMWEC in opportunities in the natural gas market to assure a reli-
- Juc to !as k .4 sen ice choices. At the time, able and competitively priced fuel supply. We also are l am sen hes mmodm a range of bulk power supply working to market our services beyond the MMWEC wnhes were mandatorv under the Service Agreement, membership, which will add to the company's revenues.
l ! whah has been a standard contract that all memFer The purpose of these efforts is to use the resources avail-ahnes must sign. Chicopee did not want all the se.v- able to MMWEC as efliciently and cost-effectively as aes mandated under the Service Agreement, so it termi- possible so that MMWEC and its members will be nated the agreement. Early in 1990, after months of more competitive in the 1990s and beyond. discussion and study, MMWEC decided to unbundle With nuclear, coal and oil out of favor for the genera-as bulk power supply services. This was done by main- tion of elemicity in New England, natural gas has taming a core group of services common to all, but also emerged as the fuel of choice for new power generation. establishing four optional power supply development In addition, there is a growing demand for natural gas j f 15
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( f i velopments in the natural gas market. NINITEC is pur- i suing other alternatives. This has involved negotiations with the present supplier and several maior interstate pipeline companies. MNfWEC is seeking to obtam "Make MMWEC the vendor ofchoice among natural gas supply and transportation contracts that energy service providers by enhancing the P'*"ide access t gas fr m Canada. the N1idwest, the Gulf L,oast and other areas. Enhanced reliability would quality and value ofMMWEC services. " be the result of such diversirv in supply. A capability to supply Stony Brook with natural gas all year is being pursued, in addition to opportunities to acquire addi-tional supplies for a new unit if necessarv. New pipeline capacity is needed to increase the supply of natural gas to Stony Brook, and a number of new pipeline options
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are being pursued, including MMWEC ownership. joint ownership and third-party ownership of the neces-sarv pipeline facdities. N1ost of 1989 was devoted to breaking into the natu-l ral gas market, understanding the competitive forces at I work and establishing MMWEC as a serious entirv. This in itselfis a maior accomplishment, which was highlighted by the hiring of a full-time gas supply man-ager in November. Niore concrete results. in terms at ,* contracts and commitments, are expected in 1%0 We l hope to improve the reliability and lower the price of l natural gas for Stony Brook through these efforts. w hich l will provide competitive benefits and opportunities for The MMu"EC management team mdudes fem leth loseph O Roy. Ston' the MMWEC members. I s~.,, t ue.p c e,re. manage.1,nn c na rowe. nppi, ce=re manage' tM ", .me' runs u. di ev .1na Gan i Hu ni gene.2. N1uch as naturalSas is the fuel of choice. combined-
,,,...y cycle is the technology of choice for new generation in the 1990s. There are a number of benetits to combmed-cycle plants. They typically take less time and maner to build; thev can be built in increments to match load requirements; they can burn a variety of fuels: they can as an energs sourse for homes and businesses in the be brought on line quickly; and they have relativeh low
'epon. As a result. there a mtense competition among operation and maintenance costs. In addition, chev can pipcime sompanies and gas suppliers for a share of the be extremely erEcient.
New t.ngiand gas marke The quesnons of where the These are benetits well known to MMWEC. owner gas w di come from. w here a wdl go and how a will get and operator of the 341-megawatt, combined cycle there . ire being discussed in regulatorv proceedings and Stony Brook plant, which entered operation in 1981 tast-paced negonanons m the Unned States and Canada. and is consistently ranked among the most efficient MMTEC and its members have a substantial interest plants of as kmd in the world. MMWEC has a vast m this market that centers on a goal of obtaimng a com- amount of experience and data related to combined-penave fuel supply for MMWEC's Stony Brook power cycle construction, operation and maintenance and in plant and future projects. MMWEC's present natural 1989 we began putting that information to work. s supplier has provided an interruptible supply of gas Marketing MMWEC's combined-cycle expertise ha.s O3r stony Brook since 1983, but wah so many new de-in a rive-year agreement with a Canadian utihty resulted
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;, .,,ar to improve the compernwe value of ses semces. MWEC u marer..~ the knowledge and expertue it hau acqusred through the constructxon and
- ,o. awn s ori Stony Brook power plans. above.
s under which MMWEC is providing consulting services greater efficiency in the use of their energy resources. Junng the construction and start-up of a combined- The power brokering program resulted in power cost evele plant near London, England. Some of the services savings of $1.1 million in 1989 and has saved members to be provided by MMWEC include engineering and more than $11 million in power costs since 1982. Jeugn services; construction and plant commissioning Through this program, MMWEC arranges short-seruces; operator recruiting and training services; assis- term purchases and sales of capacity and energy to help un<e :n the development of operating procedures, member utilities match their supply and demand for mamtenance and reporting systems: and ongoing engi- electricity as closely as possible. After determining neenng support services. which systems have power surpluses and deficiencies,
\1NITEC aho sponsored seminars on the design, MMWEC arranges transactions that provide revenues mnstruenon. operanon and maintenance of combined- for systems with power surpluses and economic pur-c.Je plants m im orfenng an opportunity for electric chase options for those with deficiencies. A daily power unlity protemonah and mdependent power producers brokering program was initiated in 1989, increasing the to benetit trom MNtWEC s experience in building and opportunities for economic energy transactions. In ad-op rating 5 tony Brook. These efforts will enable dition, discussions are under way that could lead to MMWEC to stay on the cutting edge of combined- MMWEC playing an important role in a regional evele technologv and could reduce the lead time associ- power brokering program available to all public power ated with a decision by MMWEC to expand Stony systems in New England.
Brook or build a new plant. In addition, they provide a These and other activities contribute to improving the new source of revenue again, enhancing the value of value of MMWEC's business and energy resources, and MMTEC services for our member utilities. they all add up to a commitment to making MMWEC Short-term power brokering conducted through the vendor of choice among energy service providers by MMTEC has enabled member utilities to achieve enhancing the quality and value of MMWEC services. 17
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;R; MWEC is involved in several lawsuits stemming from -
_ f. e ' its ownership interest in Seabrook Station, most of.s t them between MMWEC and the present and formbr ; participants in MMWEC's' Seabrook power supply ' projects.:The bulk of MMWEC's current litigation is t.
~ the result of the January 1989 fmal decision of the ;
. Vermont Supreme Court voiding the Project No.'6 Seabrook contracts between MMWEC and six Ver-mont utilities.
Project No. 6 represents a 6 percent ownership in'. 1 Seabrook for MMWECiTwenty Massachusetts munici.' pal utilities and eight out-of-state' utilities signed con; tracts in 1979 obligating them to purchase Project No. 1 6 capability and to pay MMWEC's share of Project
.No. 6 costs.
(, The Vermont Supreme Court decision voids the Project No. 6 contracts in Vermont "ab initio," or from; the beginning. As a result of this decision,~ 10 Project No. 6 participants are claiming that their contracts should be voided because MMWEC never had 100 percent of Project No. 6 capability under contract which they claim is a condition precedent to ths etTeci j tiveness f the contracts, These 10 utilities - all [] Contract 1/t/gation.
^. -
Massachusetts participants - clso are challenging . MMWEC's implementation of the step up provision of the contract, through which MMWEC has reallocated j l the Vermont share of Project Noi 6 capability and asso-ciated costs to other Project No. 6 participants. Two former Project No. 6 participants also are m.tk- , mg claims' stemming from the Vermont decision ~. The . j i Eastern Maine Electric Cooperative is claiming in j l Chapter 11 bankruptcy proceedings th~at its Project No. , l 6 contract never existed, based on the 100 percent par- { ticipation issue raised by the Massachusetts participants. "; In addition, one of the former Vermont participants. the Washington Electric Cooperative, is seeking restitu- j tion of payments made to MMWEC under the now-- { voided contract. . j In May 1989, MMWEC petitioned the U.S. Su-' .j preme Court for review of the Vermont Supreme Court
- decision. In October, the high court denied MMWEC's - !
petition. MMWEC's efforts to move beyond the financial and legal uncertainties stemming from its ownership in p Seabrook have been successful on many fronts. How-V ever, the litigation stemming from the Vermont Su-
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I8d 4 PublLC InttNmentahty and the Mett$e of the 50%fr4 to J - b23 PfWrity 4f . by thke act shall be deggnett and held to to the performarwe bil Leberai ce scia GAttat3&l publk iggg 3-44 s4Wif3 bill suma m. g g. G%^ T m*** Jam ,$- <mergney aer, E 2-z t0 4-44 0f av g 1 3,,, w o,,,,,, ,, % , . inmos (4) IACh ClO Of towtt whic.h na entitled to nominate & ditt 100 el the C0fpO*tttQn immed24tery prior 10 MW effwtne idte M t' e g g ,, dj .
- - - . - . . _ . ~ , . . , . _ ,,. ,_
preme Court decision raises issues that must be ad- before a single justice of the SJC in May and obtained dressed before MMWEC can fully emerge from the two preliminarv injunctions requiring the participants shadow of seabrook. While MMWEC is disappointed to continue making payments due under the contracts uith the speed at which some of these cases are proceed- during the litigation. The preliminarv miunctions note mg. we remam contident in our ultimate success. The MMWEC's likelihood of success in the case and reject i present haganon invohes issues that can and will be an argument advanced by Hudson and Peabody that resobed with ame. enabling MMWEC to focus more their obligation to pay is conungent on the existence of timt and resourses on m pnncipal power supply the Seabrook Sellback Agreement between MMWEC misuon. and Public Service Co. of New Hampshire Under the The Pro,ect No o mntraa litigation in Massachu- Sellback Agreement, which has been terminated. PSNH setts nem from the wpenor ( Lourt level to the Massa- agreed to purchase a portion of MMTEC's Project No. chusetts dupreme ludd Court iSJC) in 1989, oniy to 6 capability during the initial years of seabrook's opera-be sent back to the Supenor Court early in 1990. The tion at MMWEC's cost. 10 Massachusetts mumetpal utilities involved in this After several months of procedural and strategic ma-case are based in the communities of Shrewsbury. Hing- neuvering by the parties, the issues were framed in a ham. Sterling, Georgetown. West Boylston, Paxton, single case before the single justice of the SJC. Danvers, Holden. Hudson and Peabody. Several filed MMWEC moved for a summarv judgment realTirming separate complaints against MMWEC challenging their the validity of the Project No. 6 contracts and the de-Project No. 6 contracts in Superior Court between late fendant mumcipal utilities mcved to compel arbitration l 1988 and Apri! 1989 of the case. Meanwhile, discovery that the municipals MMWEC was successful in consolidating the cases said was necessary to respond to MMWEC's summarv 19 l 1
At a hearing on Jan. 24,1990, the judge decided to ijudgment motion was progressing. recuse himself and send the case back to Superior
~
The municipals' motions to compel arbitration were
' - denied in November, with the judge ruling that the mu. Court. Before this action, MMWEC was expecting a nicipals. as a result of various levels of participation in final decision around mid;1990 on the impacts of the the litigation, waived their rights to arbitration. In a Vermont decision on the validity of the Project No. 6 memorandum accompanying this decision, the judge contracts in Massachusetts. Now, the final decision will again noted MMWEC's likelihood of success in the _
be delayed. There is keen interest among members of
~
case. In mid-December, the judge established a schedule the financial community in the outcome of this litiga-calling for completion ofdiscovery on MMWEC's me- tion because the contracts in question are the source of rion for summary judgment by Feb. 2,1990 and a hear. revenue for principal and interest payments on more than $500 million in bonds issued for Project No. i ing on'all summary judgment motions on Feb. 28. Then the municipals filed counterclaims against Until this litigation is resolved, MMWEC's fmancing ~ MMWEC involving issues not related to the Vermont capability will be severely restrained. Jecision, MMWEC in January 1990 moved to compel In a related matter, the Eastern Maine Electric Coop. arb;tration of the counterclaims to keep the case focused erative, a former Project No. 6 participant that is in on the Vermont issues. Hmvever, Hudson, Peabo@ Chapter 1i bankruptcy proceedings, raised the 100 and Danvers filed a motion asking the 6,gie justice percent participation issue in bankruptcy court, claim - hearing the case to recuse, or disqualify, himself due to ing that its Project No,6 contract never existed. This his past partnership in a law firm that served as under- came in response to a claim f; led by MMWEC against writers' counsel for MMWEC's Project No. s bond the cooperative for 531 million plus other potential' issues. The three utilities argued that a potential conflict damages resulting from the cooperative's breach ofits ofinterest existed for the judge even though he left the Project No. 6 contract. At MMWEC's request, the 100 Q 1rm more than five years befc re the bond issues. percent participation issue in this bankruptcy case has J i MMWEG Seabrook Ownership t
. Bonds Percent of Kilowatt Outstanding Power Supply Project Seabrook- Entitlement ($000)
Nudear Project No. 4 4.3% 49.829 KW $258.610 Nudear Project No. 5 1.1% 12.612 KW 76,380 Project No. 6 6.0% 69,012 KW 515,625 Nuclear Mix No. l' O.19 % 1,875 KW 16,961 Totals 11.59 % 133,328 KW $867,576
- Nuclear Ma No. I abo includes ownership in Mdistone Unic No. 3. which is not reflected in this table.
p
a . . - . . . . - - , 1 e? i " Bring the Seabrook contract DI - -
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litigation to a close as quickly -
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Alast of the htigarwn that AlAfWEC u inseh ed in trems from its ou nenhap interest on the Seabrook htarwn nudrar you t' td. 'ut Jbot t n certitied to the full bench of the Massachusetts TEC plus legal fees. The counterclaim asserts WTC s SJC Meanwhile, the iudge hearing the bankruptcy case negligence and negligent misrepresentations in sigmng has indicated a strong interest in seeing the case settled, the Project No. 6 contract and representing that it had which would eliminate the need for SJC action on full power and authority to sign, comply with and fully the 100 percent participation issue. MMWEC and perform under the contract. In October 1989, the Ver- ! the woperative are conunuing to explore settlement mont Department of Public Service filed a motion to I possibilines. intervene in the WEC case and a complaint seeking res- ; The Vermont Supreme Court decision also resulted citution of S6.2 million in payments made by all six m addmonallitigation m Vermont. In March 1989, Vermont utilities to MMWEC under the Project No. 6 the Washmgton Electra ( ooperante (WEC) of Ver- contract. The Department of Public Service motion to mom tiled a complamt m \ ermont Superior Court interwne and related complaint were denied on seekmg resntunon at V?4 om n pavments made to March 5,1990. NtMWEC under m P- < v o contract. WEC ob- Also in Vermont, MMWEC is involved in Superior toned an order trom mt spenor Court attaching the Court litigation with the Department of Public Service payments due MMWEC rrom other Vermont utilities and other parties related to contracts for MMWEC's
- under contracts for power from MMWEC's Stony Stony Brook power plant. MMWEC is seeking a ruling Brook power plant - as secunty for its restitution on the validity of the Stony Brook contracts - in light claim. Late in .\: _h MMWEC petitioned to have the of the Vermont Supreme Court ruling - since these case removed to tederal d, -ict court in Vermont, contracts are virtually identical to the Project No. 6 where the attachment order was dissolved. contracts voided by the court.
'i er t crying unsuccessfully to resolve this case with- (Additional information and further detail on litiga-
.urther litigation, MMWEC in July 1989 filed a tion can be found in the footnotes to the financial state-counterclaim seeking S16 million m damages from ments in the back of this reportJ 21
s ! i m 4 o 4 ( 'he financial challenge foi MMWEC in 1990 is to ref move the obstacles to a reftiriding of MMWEC's our-standing high interest debt; which could save the. MMWEC members and their customers hundreds of ., millions of dollars in debt'smice costs. Such a refund-ing could significantly moderate the rate impacts ofl Seabrook in member communities and help to , strengthen the financial positions of both_ MMWEC and its members.- Of the $1.4 billion in.MMWEC bonds outstanding, about 5867.5 million were issued to finance MMWEC's 11.59 percent ownership in Seabrook Station. MMWEC has authority from the Mass'achusetts De-partment of Public Ut.ilities to issue 563pmillion in - bonds to refund the bulk ofits Seabrook debt. MMWEC also has DPU authority to issue an addi-tional $60 million in bonds to refund a portion of 3 MMWEC's Millstone Unit No. 3 debt. In 1989,
=
, MMWEC petitioned the DPU for authority to issue an
- additional 5285 million in refunding bonds for its Seab.
. rook and Stony Brook power supply projects. Approval
- of the 1989 request would bring MMWEC's total re-funding authority to approximately $9/6 million.
GinancialStrength , In meetings with staff, member representanves. nnans cial counsel and others,'MMWEC had been preparing for a major refunding bond issue in 1990.' However, it' now appears that issuance will be delayed as MMWEC -
. waits the outcome oflitigation involvhyg the validity of; MMWEC's Project No. 6 Seabrook' contracts. An analysis of potential reftmding savings performed in mid-1989 shows a gross, hfe-of bonds savings potential of nearly 5360 million, based on a number of key as sumptions. The assumptions' include:
- That the Project No. 6 contract litigation in Massa-chusetts is resolved in MMWEC's favor.
- That MMWEC's Baa/BBB bond ratings are rein-stated.
- That financial markets allow the issuance of tax'-
exempt refunding bonds by MMWEC at interest rates around 8 to 8.5 percent.
- That MMWEC's request for additional refunding authority is granted by the DPU.
- That all tax issues concerning the refunding of Proi-ect No. 6 debt are resolved to allow all Project No. 6 debt to be refunded on a tax-exempt basis.
The principal roadblcek to refunding is the Project
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[.. I l l. I !. R h \ ! : bQ :No. 6 contract litigation _in Massachusetts. This litiga- rounding negotiations related to the Seabrook Settle- 1 l
-tion is of such crucial importance because the contracts ment Agreement. However, when these concerns were
- in quesuon require parucipants to pay MMWEC's costs addressed, Moody's continued the suspension, citing
= for Project No. 6. which include the debt service on the Project No. 6 contract litigation. MMWEC's BBB^
5517.6 million in bonds issued for the project. Partici. rating from Standard & Poor's has been on credit watch j pants in the litigation are continuing to make their with negative implications since the issues in this litiga- j
= Project NoJ6 payments under court order, tion surfaced. j
?. Incertainty about the validity of these contracts has -Based on these credit reports and information gath. L fresulted in adverse eff.ets on MMWEC's credit ratings. cred from other sectors of the financial community, ! p .DutT& Phelps, a Chicago-based credit rating agency, MMWEC has determined that there is little. if any,- ;
-dropped MMWEC 5 rating to below investment grade, market for MMWEC refunding bonds at reasonable i from BBB to BB. because o the i issues raised in this interest costs with the major contract litigation out- ,
- litigation. When parucipants were ordered to continue standing. In fact, any bonds issued under MMWEC's ,
,; making Project No. 6 payments and it appeared the General Bond Resolution would be subject to the same {
; case would be resolved in MMWEC's favor somenme . scrutmy. The resolution provides for a common and 1 Lin.1990 DutT& Phelps placed MMWEC's rating on a equal lien on MMWEC revenues to cover principal and . ,
watch list with a favorable trend. Early in 1990, after interest payments on all bonds issued under the resolu-
; the case was ordered back to Superior Court, MMWEC tion, regardless of series, issue date or purpose. The risk, ;
was removed from the Duff & Phelps watch list. although its occurrence is highly unlikely, is that the n MMWEC's Baa rating from Moody's Investors Serv- Project No. 6 contracts will be ruled invalid, leaving ice has been under suspension since August 1988. Ini. MMWEC without a source of revenue to pay the debt tially, the suspension was a result of uncertainty sur- service on $517.6 million in bonds. 23 ,
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y [' . tne impacts biWEC staff spent consider 2b'le time explaining oflitigation on its tinancial plans in various
-i
! legal'and financial forums in 1989. At the same time,
- efforts continued to address the tax issues related to -
f
" plans for the tax exempt refunding of Projest No. 6 'Mccomplish a refunding ofMMWEC's Ldebt. Initially, the Tax Reform Act of 1986 prohibited l the. tax; exempt refunding of Project No. 6 bonds'due to outstanding
- debt and develop a position of 3; L the. percentage of project benefits targeted for out-of-l state, taxable entities. That situation has changed, to the strength infnancial markets." ,
g -' W lbsnefit of MMWEC's refunding plans, with the elimi- 1 ination'of the Vermont participants and the Eastern - Maine Electric Cooperative from the project. Likewise, termination of the Seabrook Sellback Agreement be. ] 4 Qtveen MMWEC and PSNH,ivhich involved the sale of i4 project output to PSNH. has benefitted MMWEC's re. ,l funding' plans. . .
' It is MMWEC's intent to be action-ready when the requirements for refunding, such as proper market con- ,
L . h opportunity for refunding arrives,~and identifying and ditions, are beyond MMWEC's control. In the meantime, all current Project No. 6 partici-- i j analping the complex tax questions related to the re. 11 funding has been an important part of this process. pants are paying their project bills. The portion of : Project No. 6 costs associated with the Vermont utilities: While the tax issues and other aspects of the refunding l L
, can be analyzed and addressed, some of the .
and the Eastern Maine Electric Cooperative, which h' ave ' j' been removed from the project, have been reallocated to hl ' the remaining Project No. 6 participants. These reallo-p cared costs are presently being covered with available Project No. 6 funds. MMWEC's General Bond Resolution requires that the Bond Fund Reserve Account and the Reserve and Contingency Fund be valued at June 30 of each year. Money in excess of the amounts required by the resolu- - MMWEC Refunding Authority tion to be held in each fund are available for transfer. 2 This valuation process is done for each of MMWEC's?
,, i m eight power supply projects. In 1989, a record $13.3 stony Brook Puking mdlion in excess funds was returned to participants in L
- sion:v eroounio.
seven power supply projects. No funds were returned to L* p;
=
m p ,y Project No. 6 participants. As discussed earlier in this report, there is a study un-nos O
+oo der way to determine the requirements and alternatives
"' i"' "
for financing and construction of a new generating unit j e '
'= by MMWEC. Several member utilities have voiced L
a e,,;,, ,3 strong support for MMWEC construction of a new L; ! ion croiat e4 unit, but they also would like to see financing for the 1
" " ' " new unit stand apart from the common lien, system anw n,. .
funding approach used by MMWEC to finance its ex-isting power supply projects. Early in 1989, MMWEC x arranged a $2.5 million bond financing for the Hydro-l' I
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c .. . .. . . y , Quebec Phase 11 project that is independent of other - L , , MMWEC debriso thereia precedent for the stand-0 > alone typiof Anancing contemplated for a new unit. ' Bonds issu'ed 1The requirements tbr sueh a Snancing, ivhich is still in Ohe preliminarv stages of studv and a
"'I"(I al P :
' nalvsis, would in-Amount - Saler
- Net Interest-
' clude a new bond resolution and n.ew contracts to pro- Issue (0005) Date .
' vide security for infestors.
Cost N
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([ As part.o this.edbrt, MMWEC staff conducted a $5$ , 5[$g
, . 8y. ~I ]2
- survey of 2domt action agencies in the Umted States gg-~ Series B 83.500 12 cr-
- 6l1 to see how agencies similar to MMWEC have Gnanced .19 8 series A- 5.000' 9/13rs _
' o_s y power supply projects. The results of the survey have 19'9 series A - .150.000 . 8/16r9 . .o t
been incorporated into the new unit studv, which is .1980 series A 112.000 8/6/80 ioj 1981 series A ' 100.0001 5/28/81 p3 expected to be complete later in 1990. At$that point, it . (will be up to the MMWEC members and Board of
- Directors to examine the requirements for a new um,t hrjes,gB 3932 serie,3
[330,00o 8/
.iof;3,g2 .in,2' s and decide whether and how to proceed.; '1984 Series A 95,000 !!!1/84. no
. JThere were a number of other accomplishments in ;1985 series A 61,500 2/6/85 13y
! 1989, inclu' ding the retirement of $2.7 million in bonds L1985 series B . 53.200 ' 2/6/85 , : 13.s , j 198' Saies A M8,260 6/ U 8' s.9 ^ j issued for ihe Stony Brook Intermediate and Peaking 1987 Series B $139A00 6/1/87- ' i1.8 4 Power Supply Projects. The retirement of these bonds, which were called or repurchased with surplus construc-w -q tion fund monies, will result in a reduction in debt serv.
1 ice ihr these projects in excess of 57.1 million over the s/ life'of the bonds. Also in 1989, MMWEC renewed a short term loan 4 agreement wit _h two banks to finance the purchase of long-Term Financing Data .(000s) - _ power for resale to member utilities. The one-year Approximate
? power tinancing agreement provides MMWEC with a- capabilitv Bonds" Bonds '
! 510 million line of credit to pay for power purchased-Project Description - (Mw) ' ~1ssued ouistanding
, ~t hrough contracts with other u~tilities, which is then Stony Brook Intermediate 311.3 51'k980 s1 % '10
' resold to members participating in the pawer contracts.-
~
stonv Brook Peaking 170.0 8s.o;o s Ms : An optional consolidated billing procedure established Tvman Project ' 22; 9A20 ~.2 2 s in 19S9 will case the administrative burden on member Nucleu Mix No. I' 20.3 180.200 WMilo utilities and allow more lead time for processing Nuclear Proint No. 3 36.8 296.30o 20 UOO MMWEC bilh at the local level. The procedure places a Nuclear Project No. 4 49.8 292.930 2 % io Nuclear Pr jur N . 5 12.6 87.220 number of ditIerent bdlings including MMWEC serv-Project No. 6 69.0 $ 51'.600 f<oso p l 44>26 tces billings and up to a dozen ditTerent power contract
. billings, on the same billing cycle.
Through the difncult financial times stemming from The cancellation of Pilgnm L'nic No.2 meluded in Nudear W h 1 (W 1) has reduced the 6nancing requirements for W l to an
'its Seabrook ownership, MMWEC has exhibited the
** ""' ' 'h'" 'h' '" ""t Previously issued. Proceeds remaining flexibility and resourcefulness necessa9 to meet its 6 after all units in W ! are completed will be used to retire W l bondt
- nancial obligations. While pursuing plans and options ooes noi include bonds issued. and subsequently renred. for for the refunding, new unit tinancing and other impor- ,,, min,,,a p,o;,c,3.
6 tant programs, MMWEC remains committed to en-i j hancing the financialintegrity and strength of the
~
company and its member utilities. 25
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-t r t appears that Seabrook Station will become part of the -
Af New England power supply in 1990, ending one of the - i . longest and most costly construction'and licensing ;
' battles'in the history of commercial nuclear power.
Bringing Seabrook int'o' operation will mean that
' MMWEC will begin receiving its 11,59 percent of the project's output, or approximately 133 megawatts, which represents a vital portion of MMWEC's power supply program.- And;it will mean-that MMWECs ' ,
Seabrook participants, who have been paying for the .
' project since 1986, will begm receiving a return on their investment.
There will no doubt be celebrations among the joint: iowners and project proponents when Seabrook clicks' into the grid, but it will be a bittersweet victory be-cause of the heavy financial roll taken by the $6.35
' billion project. .
In MMWEC's case, Seabrook's ravenous appetite for -
~
4 dollars was brought under control in 1989 with the im-plementation of the Seabrook Settlement Agreement._In fact, MMWEC ceased making Seabrook construction-payments in mid-1988 when it began the negotiating ; M _ Process that led to' the Settlement Agreement.
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Under this landmark agreement, Public Service Co. of New Hampshire agreed to pay MMWECs share of " Seabrook costs, up to $30 million. Northeast Utilities also agreed not to seek repayment of approximately $7 Q million it paid to cover MMWEC's share of Seabrook-costs while the agreement was.being negotiated. PSNH. L s paid MMWEC 53.5 million on Aug.1,1989, the etTec. tive date of the agreement, and will pay MMWEC an
~
additional $16 million over eight years begmnmg with-commercial operation of the plant, in addition, MMWEC is protected against actiolns a that could result in a reduction or loss ofits ownership u , share. In return, MMWEC agreed to terminate.its Sell- , backl Agreement with PSNH, under which PSNH had agreed to purchase a portion of MMWECs Seabrook L entitlement during the initial years of operation. The agreement also provides for a mutual release of Seab-rook related legal claims between MMWEC and ~~ PSNH. Approved in April 1989 by the U.S. Bank. ruptcy Court overseeing the PSNH Chapter 11 bank- 3 ruptcy proceedings, the Settlement Agreement _will be
-b (] part of any PSNH reorganization plan adopted by >
the court.
u I -9 ,
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N Cgge %g4 [ 1 NRCgives $ : QQ ; l . b 5 --- Seabrook li l$N"gcM g FT C6 geT b c OD gg O U pt@g 09gtg dC f 3 e gen to e'r ;- ' ~ ~ S A"' as 099 occ5 0 Iead lawyera aJac' - eru,CK TATE s,ie\3ye@g 0 tC T
** N SW
\ 0" ROCKVI Y case for Atto .c bevok Stau -
$ %3n6n o ,,e**o#i ruml $ a @ " 'o $ h " g y S; e byc#* i
- g:p u - e y. ;
, gg% ,
ik ti.!!pt.r licennng ofSeabrook Station became a realsey ear!v in 1990. Operation of the plant retilbring a needed neu resource unto the Al.\fWEC l~ pnier ,i< ppis a>ulenable member unlines to begin recosering these unrestment sn the plant. l-On the licensing front, there were several key events opponents to block the licensing in federal appeals ! L for Seabrook in 1989. In May, the Nuclear Regulatory court, the project received its full-power operating li-Commission issued Seabrook's low power license, cense on March 15. Seabrook operator New Hampshire ivhich cleared the way for testing the reactor at 5 per- Yankee expects to have the plant running at full power a cent power. In June, operators started the reactor, mark- by mid-1990. ing the first nuclear fission reaction ever inside Seab- MMWEC is in the process of converting its Seabrook rook's rea: tor containment vessel. And in November, power supply projects from the construction mode to
- the NRC's Atomic Safety and Licensing Board ap- the operating mode, which involves the development of proved Seabrook's emergency response plans for Massa- operating budgets and the billing of operating costs to :
chusetts and authorized issuance of a full-power license. MMWEC's Seabrook participants. As with its other With a 3-0 vote on March 1,1990, NRC commis- power supply projects,MMWEC will monitor Seabrook sinners authorized issuance of a full power license for operations and costs to assure that the plant is being run Seabrook. Following the unsuccessful effort of project as efficiently as possible. 27 -i
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, To the Board of Directors of- i.
Massachusetts Municipal Wholesale Electric Company: - l t
-We have audited the accompanying statement of financial position of:
Massachusetts Municipal Wholesale Electric Company (a Massachusetts j. public corporation) as of December 31,1989 and the related statements of 1l operations and cash flows f6r the year then ended. These financial state- : ments are the responsibility of the Company's management. Our responsi; 1 bility is to express an opinion on these financial statements based on our audit. The financial statements of Massachusetts Municipal Wholesale Elec-tric Company as of December 31,1988, were audited by other auditors j 2' whose report thereon _, dated April 14,1989, expressed an unqualified opin-ion on' those statements. . '- We conducted our audit in accordance with generally accepted auditing L standards. Those standards require that we plan and perform the audit to . brain reasonable assurance about whether the financial statements are free; i '-tV Inde8.endent. of material misstatement. An audit includes examining. on a test basis. evi-4 Auditors, Report aence supporting the amounts ana aisciosures in the financiai statements. ; An audit also includes assessing the accounting principles used and signifi. cant estimates made by management, as well as evaluating the overall finan-cial statement presentation. ,We believe that our audit provides a reasonable . u L basis for our opinion. In our opinion, the 1989 fmancial statements referred to above present : fairly. in all material respects, the financial position of Massachusetts : l [ . Municipal Wholesale Electric Company as of December 31,1989 and the - I results ofits operations and its cash flows for the year then ended in confor-
- f. mity with generally accepted accounting principles. ,
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- harnnnus ofFinawialPosiiioni l December 31,1989 and I988 ;
J . (in Thousands) .
' 1989 1988 Assets _.
1 , Electric Plant . In Senice (Note 4) . ..- ' $ - 390,938 - $ - 389,920 J . i Accumulated Depreciation (Note 2) -(86,456) (72.580) 304,482' 317,340 Under Construction (Notes 2 'and 4) 799,463' 743,331 Nuclear Fuel-Net of Amortization (Note 2) 44,560- 42,411 Total Electric Plant 1,148,505 1,103.082 Special Funds (Notes 2,3, and 8) 269,585 275,126 ) Current Assets Cash and Temporary Investments (Notes 2 and 8) 1,826 2,318 7,610 10,198
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- Accounts Receivable (Note 7) !
Unbilled Revenues (Note 2) 7,373 7,061 ! Inventories at cost (Note 2) 8,816 10,095 1 Prepaid Expenses 2,152 2,231 27,777 31,723 297,362 306.849
;y'} Total Special Funds and Current Assets y '
Deferred Charges Amounts Recoverable Under Terms of the - Power Sales Agreements (Notes 2 and 5) 329 69,558 1 Unamortized Debt Discount and Expenses . 38,348 39,861 < Other - 3,128 990 41,805 110,409 .}
$ 1,487,672 $ 1,520,340 ~l
, Liabilities j Long-Term Debt (Note 3)
$ 1,427,185 $ 1,446.170
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Bonds Pavable 1 Current Liabilities Current Maturities of Long-Term Debt 16,270 13,780 l
< Notes Payable (Note 3) 25- 31 Accounts Payable 34,492 49,636- l Accrued Expenses 9,700 10,723 60,487 74,170 -j i
Commitments and Contingencies (Notes 4 and 7)
$ 1,487,672 $ 1,520,340 p ..
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The accompanying notes are an integral part of these financial statements. i
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f idhlfi': %?9 * ~ e'f/d i/S ?O l December 31,- l989 and I988 m 49 , gnf 4-E1 (in Thou' sands) t ]g3 - -1989- 1988 y n ,,,y Revenues (Note 2): 5 258,184 5 260,696 y interest income ' 26,145 - 24,224'
- Total Revenues and Interest income .5 284,329 284,920 =
c, 4 l Operating and Service Expenses:
' 5 34,955 .5 30,402 Fuel Used in Electric Generation -
. O, Purchased Power 82,355 80,940
, pJlJ Other Operating. 12,628 11,565 id Maintenance 4,664 5,157
;/ Depreciation (Note 2) 13,995 - .13,827 of Taxes Other Than income 2,919 2,706 '
;! ' . 151,516 - 144,597
[; ' interest Expense:
, ;l{ interest Charges 138,311 139,369
. Interest Charged to Projects .During _ _
(72,231) (72,191). Construction (Notes 2 and 4) C 4' 66.080 217,596
~ 67.178 211,775 Total Operating Costs and Interest Expense 60 Reserve for Project Billings Net (Note 7) (2,496) 14,759 L" Decrease in Amounts Recoverable Hi Under Terms of the Power Sales m - Agreements (Notes 2 and 4) 69.229 58.386 5284,329 5284,920
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) Statements of Cash Fibws
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(In Thousands)'
- m. 1989 -1988 Cash flows from operating activities:. 5 284,329 - $ 284,920 Total Revenues and Interest income .(215,100), -(226.534)
' Total Expenses.
Adjustments to arrive at net cash
. provided by operating activities:
- Depreciation and decommissioning 14,131 .14.044 Amortization 3,203 3.253 a Reserve for Project Billings (2,722) 15,000 Changes 'in. current assets and liabilities:
Accounts Receivable '2,588 (14,280) Unbilled Revenues (312) . (25) Inventories 1,279 (2,742) Prepaid Expenses . 79 -326 Accounts Payable . (1,284) - 5,642
' Accrued Expenses'and Other 1,595. (2,013)
Net cash provided by operating activities 87,786' 77,591 Cash flows from investing activities: Construction expenditures and purchases of nuclear fuel (2,683) (17A97) Interest charged to Projects during construction (72,231) -(72,191) Net reduction in Special Funds 5,541 26,525 Decommissioning Trust payments - (2,423) (255) Other 199 187 Net cash used for investing activities - -(71,597) (63.231) i Cash flows from fmancing activities: Payments for principal of1.ong-Term Debt (16,495) (13,840) Change in Notes Payable (6) (303) Net cash used for fmancing activities (16,501) (14.143) Net increase Idecrease) in cash and temporary investments (312) 217 Cash and temporary investments at beginning of year 2,138 1,921 Cash and temporary investments at end of year $ 1,826 $ 2,138 Cash paid during the year for interest (Net of amount capitalized as shown above) $ 56,874 $ 57,977 The accompanying notes are an integral part of these fmancial statements.
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.'t MMWEC k Notes to FinancialStatements (1) Musachsaerts Municipal Wholesale Electric Company (MMWEC)
MMTEC is a pohtical subdmsion of the Commonwealth of Massachusetts, authorized to issue revenue bonduecured by revenues derived from Power Sales Agreements (see Note ') with its members and other electric sniems to 6 nance the construction and ownership of electnc power facilities. A Musachusetts city or town hasing a municipal electric department, authonzed by maionn vote of the cin or town, may become a member by applying for admission to MMWEC and agreemg to comply with the terms and conditions of membenhip u the MMWEC By Laws may require. As of December 31,1989, thirtv-one Musachusetts municipahties were memben. MMWEC obtains power supply capacin by acquiring interests in various generating units and the operanon ofits own electric generating facihues tProiecesL See Note 4 for a discussion of MMWEC's construc-non program and commitments related to these facihties. In addiuon, MMTEC contracts for power for resale to its memben (2) Significant Accounting Policies MMWEC presents its general purpose financial statements in acccrdance with generally accepted accounting pnnciples as promulgated by the Financial Accounting Standards Boud and the Governmental Accounung Standards Board Interest Charged to Projects During Constrwtion MMWEC capitalizes interest as an element of the cost of electnc plant and other property while under construcuan, mcluding an appropnate testing period. A corresponding amount is reflected as a reduction of mterest expense. The amount ofinterest capitalized is based on the cost of debt, including amortizauon of debt 9 discount and expenses. related to each Project, net ofinvestment gains and losses and interest income derned trom unexpended Proiect funds. Nwlear Fuel Nuclear fuel includes fuel in use, in stock and in prxess for Millstone Unit 3 and fuel in stock and in process for Seabrook L' nit 1. Fuel in use for Millstone Umt 3 is reflected net of accumulated amomzanon of $70 mdlion and 55 3 mdhon through December 31,1989 and 1988, respectively. The cost of nuclear fuelis amomzed to Fuel Lied m Electne Generanon based on the relanonship of energy produced m the current penod to total expected energy production for nuclear fuel m the reactor. A provision for fuel disposal costs is also included m Fuel Used m Electnc Generation bued upon a fuel disposal contract with the Department of Energv. Specsal Funds Proceeds from the sales of revenue bonds for Proiects are deposited with Trustees to be invested until chev ue equired for somtrucuon or debt semce payments. As defmed in MMWEC's General Bond Resolunon. m',estments are hmited to direct obhganons of, or obliganons the principal of and interest on which are uncon-mn~nalk guaranteed by the United States, Federal government agency secunnes, new housmg authonty bonds mued M pubhe agencies or municipahties, direct and general obliganons of certain states or cenam pohtical sure. isions. bank ume deposits evidenced by cenificate; ofdeposits issued by banks, and repurchase agreements aitn pnmarv dealers secured by certam secunties. Certain special funds are more restricted u to which of the aforementioned investments can be purchased. (See Note 8.) C.uh and Temporary Investments Cena n other funds are used for power purchases and working capital requirements of MMWEC. These funds are not governed by the General Bond Resolution. In addition to the mvestment secunnes delineated in the General Bond Resolution, MMWEC is authorized by the Board of Directors to purchase Canadian currency for cash and forward settlement and to invest in repurchue agreements with banks where MMWEC has e estabbshed accounts. (See Note 8.) Inventones Fuel od mventory is accounted for by the average cost method. Spare parts inventory is recorded at average 33
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- MMWEC u%tes to FinawdStatements (2) Significant Accounting Policies fcontinued)
- cost. At - December 31,1989 and 1988, fuel oil inventory was valued at $3.9 million and 55.8 million.
' respectively.'.and spare paru inventory amounted to $4.9 million and $4.3 million, respectively.
Revenues and Unbilled Revenues Revenues include electric sales for resale provided from MMWEC's operating units and power purchases: billings for administrative and general services provided to MMWEC's Service
Participants:
and billings ofdebt service on certain Projects prior to commercial operation of the units within those Projects. The details of revenues are as follows: 1989' 1988 (In Thousands) Electric sales for resale $168,415 l $171,362 Service -2,323 2,918 Pre. operation debt service 87,446 86.416 i Revenues $258.184 5260,696 'i i I MMWEC bills its members for costs incurred in providing services and purchased power obtained on their y behalfunder terms of the Service Agreement and the Power Purchase Agreements. Service revenues are recorded j as the expenses are incurred. Amounts which are not yet billed are included in Unbilled Revenues on the ! Statements of Financial Position, q
'] Electric sales for resale and pre operation debt service revenues are fixed by MMWEC's Board of Directors l n./ ' at a level to recover operating and debt service costs. The difference between amounts billed currently under the L i terms of the Power Sales Agreements and total expenses recorded in the Statement of Operations is charged or [
credited to Amounts Recoverable Under Terms of the Power Sales Agreements. 1 Amounu Recoverable Under Terms ofthe Power Sales Agreemena l Billings to Project Participants are designed to recover costs in accordance with the Power Sales Agreements. The billings are accordingly structured on a Project.by Project basis to provide for debt service, operating funds and reserve requirements. Expenses are reflected in the Statement of Operations in accordance with generally 3 accepted accounting principlesc The difference between amounts billed and expensed is charged to Amounts - d Recoverable Under Terms of the Power Sales Agreements and will be recovered through future billings. The j principal daTerences which have resulted in the net deferral of costs include depreciation, costs associated with j cancelled or abandoned projects, certain interest, reserves and other costs. On a cumulative basis, M MTEC has j deferred $0.3 million and $69.6 million ofcosts as of December 31,1989 and 1988, respectively. Individual 1 Projects with a cumulative deferral ofcosts total 5132.5 million and $ 119.6 million and Projects with cumulative billings m excess of costs total $132.2 million and $50.0 million at December 31,1989 and 1988. respectively. .j These a mounts have been netted in the Statements of Financial Position. The reduction ofAmounts Recoverable ; Under Terms of the Power Sales Agreements for Projects with billings in excess of cost is primarily due to the j billing ofinterest costs for Projects under construction. ; Depreciation Electric plant in service is depreciated using the straight line method. The aggregate annual provisions for depreciation for 1989 and 1988 averaged 4% of the original cost of depreciable property. 4 (3) Debt Power Supply System Revenue Bonds
) To finance construction of ownership interests in electric generating projects under its General Bond d - Resolution, MMWEC issues Power Supply System Revenue Bonds (Bonds). The Bonds are secured under its 4
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, (3) Debt icontinuedi General' Bond Resolution by a pledge of the revenues derived by MMWEC under terms of Power Sales -
Agreements and from the ownership and operation of the Projects in its power supply systemi Pursuant to thef Power Sales Agreements with the Project Participants, each Project Participant is obligated to payits share of the
- actual costs relating to the generating units planned..under' construction or in operation. The Project Participants' obligations are not contingent upon the completion or operational status of the units. I,
; MhtWEC financings. other than obligations maturing within one year, require Massachusetts Department j of Public Utilities (DPU) authorization. :
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The Bonds Payable consist of Serial and Term Bonds and are comprised of the following issues, which, l except for the 1987 Series B Bonds, are subject to optional redemption approximately ten years after the issue ; ; date, at 103% of the principal amount, descending periodically thereafter to 100%. The 1987 Series B Bonds are subject to redemption beginning in 1992 at 109% of the principal amount, descending periodically thereafter to .100%. . Net Interest December 31. I Issue - Cost 1989- 1983- ;' (in Thousands),
.1976 Series A 7.2% $ 62,645 5 63.590 1977 Series A< 6A% - 163,185 165,845 1977 series B 6.1% 81,265 82A10
, 1978 Series A 6.8% 63,930 64.735 *I
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I979 Series A 7.0% 130,200-82,105 135,010 85.450
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. (,/ ' 1980 Series A 10.2 %
1981 Series A 12.3 % 99,505 100,000 ; 1981 Series B : 13.4 % 82.395 82,810 3 1982 Series A 13.4 % 65,155 65,605 1982 Series B 10.2 % 127,870 128,635' -! 1984 Series A i 1.0% 94,510 95,000 a 1985 Series B- 13.5 % 53,030 53.200
?1987 Series A 8.9% 198,260 198.260 4 ,
,1987 Series B 11.8 % 139,400 139A00 .'}
Bonds Pavable '1,443,455 ~ 1,459,950 b
' Less: Current Maturities (16,270) (13.780)
$1,427,185 $ 1,446.170 Total 1.ong. Term Debt The aggreFate annual principal payments due on the Bonds in the next five years are as follows: 1990-
$ 16,2 0.000: 1991. $ 17,280,000; 1992 . $ 19,765,000; 1993 . $21,140,000; and 1994 . $22,665,000. .;
- Ir, accordance with the General Bond Retolution, MMWEC utilized excess Stony Brook Intermediate and j Peaking Project Construction funds to retire $1.5 and $1.2 million of 1979 and 1980 Series A Bonds, !
respectively, at a total gain of $62,000.
' Bond Refunding Authority MMWEC has received DPU authority to issue $691 million ofbonds to refund currendy outstanding high 4 interest bonds. Hearings on a petition requesting an additional $285 million ofbond refunding authority have been completed. ;
N 0 _. Ner Revenue Available For Debt Service hY in accordance with the provisions of MMWEC's General Bond Resolution, MMWEC covenants that it ! i b ' 35 L {'
e ' ' r , hl 4 w'wyc i ()fh f fo f!H W N Y d fC M C H ($ [(3) Debt /conimu<di ' shall fix, revise and collect rates, rolls, rents and other fees and charges, sufficient to produce revenues to pay all operating and maintenance expenses and principal of, premium, if any, and the interest on Bonds and to pay "all other obligations against its revenue. Revenues, which include applicable interest earnings from investments. are required to equal 1.10 times the annual debt service for each contract year ending June 30, after deduction - ofcertain operating and maintenance expenses and exclusive ofdepreciation. For the contract years ended June 30.1989,1988 and prior years, MMWEC met the Bond Resolution debt service coverage requirements for the. .( applicable MMTEC Projects. 4 Contract Year Ended June 30, , 1989 1988 i (In Thousands) Debt Service Coverage:
' . Revenues . $171,651 $148.031 Other Billings .
719' 719.
' Reserve and Contingency Fund Billings 13,121 10,607 Total 185,491 159,357 Less: Operating and Maintenance Expenses (41,159)- (42,680)
- Available Revenues Net of Expenses $144,332 $116.677 i
Debt Service Requirement $131,211 $ 106.070 Coverage (110% Required) 110 % 110 % . Nores Payable
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MMWEC maintains a $10 million revolving line ofcredit to finance temporarily certain power purchases '
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made by MMWEC for resale under power purchase contracts. Borrowinc tre secured by the corresponding ; receivables. The balances outstanding ac December 31,1989 and 1988 werc u,000 and $31,000, respectively. interest charged on borrowings under the line are at the bank's prime race. In addition, a commitment fee of j i 3/8 of 1% per annum is charged on the unused portion of the line based on the average daily principal amount of the loan outstanding. Other Financing in January 1989 MMWEC executed a $2.5 million 1989 Series A Revenue Bond Credit Facility. The three year Credit Facility is at the bank's prime rate for borrowings under $1 million Borrowings of amounts in excess of $ 1 million accrue interest at MMWEC's option using prime, Euro dollar base rates plus 1 1/4% or C D base rates plus 13/8%. Euro dollar and CD base rates vary depending on the length ofmaturity of the interest rate commitment period. The balance outstanding at the end of the three year period may be. upon the mutual l l agreement of the bank and MMWEC, amortized over a ten-year period. A commitment fee of 1/2 of 1% per ! annum. on the unused portion of the facility, is being waived until MMWEC utilizes the facility in excess of the i
$1.000 balance outstanding on December 31, 1989. The Credit Facility is to finance MMWEC's equity 7
- ow nenhip in the Hydro-Quebec Phase 11 transmission interconnection and is secured by contracts with certain Massachusetts murucipal systems.
(4) Construction and Financing
. On March.1,1990, the U.S. Nuclear Regulatory Commission (NRC) authorized a full-power operating license for Seabrook Unit I (Unit). The Commissioners placed a fourteen-day stay on issuance ofthe full power license to give plant opponents time to file legal challenges or appeals in the appropriate courts. No stays of the NRC's granting of a full power license were issued and the Unit has begun its ascent to full power operation. ,
The unit is to be made available for New England Power Pool dispatch and commercial operation upon or near j completion of the estimated seventy two-day test period. The Unit will then be included in the MMWEC
) Project Participants' power supplies, at which time MMWEC will increase the current debt service billings to l V- include operations, fuel and maintenance expenses.
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- (4) Construction and Financing funrinudf
- Als!*TC's 11.6% ioint ownership interest in the Seabrook Station represents a substantial portion ofits plant.
investment and Anancing program. Seabrook Station o'nginally consisted of two 1,150 megawatt nuclear reactors. Unit 2 was cancelled as discussed in Note 5. Unit Cancellation. Construction of Seabrook Station Unit I was completed by New Hampshire Yankee (NH Yankee), which'cunently is a division of Public Service of New ;
~ Hampshire (PSNH), the Unit's lead owner holding 35.6% of the Unit. In October 1986, Seabrook received a 40-year operatinglicense with certain pre conditions that included completion oflow power testing and NRC approval of radiological emergency response plans for New Hampshire and Musachusetts communities within a ten, mile radius of Seabrook; These conditions have been' met. The NRC issued a rule change in 1987 that allows ownen of nuclear power plann to obtain an operating license upon NRC approval of utility spon'ored s -
emergency response plans in cases.where states have refused to panicipate in formulating such plans. Emergency i response plans were 61ed with the NRC by NH Yankee and in June 1988 a graded exercise was held. The NRC statT, in August 1989, recommended that a full power license be granted on the basis that adequate and - implementable response plans were in place for Massachusetts and New Hampshire. Seabrook Station has experienced persistent and substantial cost increases and sign 16 cant schedule delays; has been the source of: continuing controversy and opposition from government oHicials, regulaton, intervenors and othersi and has created fmancial problems for many ofits joint owners, including MMWEC. In September 1988, the NRC issued a ruling requiring the Seabrook Station joint owners to demonstrate their Gnancial ability to decommission the plant after low power testing in the event the plant did not obtain a full powerlicense. In December 1988, the NRC decided on all pending fmancial qualification questions which were brought to its attention relatinpo Seabrook. The NRC ruled, among c'.her things,that 572.l million be provided for decommissioning priar to low power testing. The joint ownen have purchased a surety bond and NH Yanku established pre. opera ional and supplementary trusts to meet the above condition. MMTEC's De-
. cember 31,1989 trust balances of $2.1 million are to be refunded after the unit is declared in commercial operation and cenain other conditions are satis 6ed. For additional information regarding decommissioning expenses, see Note 7, Commitments and Contingencies . Other issues.
PSNH, as a result of the continued delay in commercial operation of Seabrook Unit I and its inability to secover costs of the Unit through rates prior to commercial operation, had been experiencing substantial ditEculty in sustaining its Gnancial obligations for its 35.6% share of the Seabrook project. PSNH challenged the constitutionality of New Hampshire's anti-CWIP law, which prohibited PSNH from charging customen for construction projects that are not in operation. In January 1988, the New Hampshire Supreme Court upheld the application of the state's anti-CTIP law, prohibiting PSNH from billing its customen for Seabrook.related cosn until the commercial operation of the Unit. This decision e6ectively barred approval, by the New Hampshire Public Utilities Commission, of PSNH's previously 61cd emergency rate relief request and shortly thereafter PSNH fled for protection from its creditors under Chapter il of the Federal Bankruptcy Code. I he Bankruptcv Coun administering the reorganization of PSNH allowed reorganization plans to be 6ted and gas e the panies through May 16,1989 to agree on a consensual reorganization plan. No plan was agreed ~
' upon and the court permitted competing reorganization plans to be submitted. After hearings on the disclosure statements associated with the plans, PSNH, the State of New Hampshire, various Bankruptcy Creditor and Equiry Committees and others agreed to and joined in sponsoring the reorganization plan submitted by Northeast Utilitics (NUlPSNH Plan) co acquire PSNH, including Seabrook Station. Hearings on con 6rmation of the NU/PSNH Plan are scheduled to commence in April 1990.
On June 1,1988, MMWEC's Board of Directors adopted a strategic plan of action relating to its Seabrook joint ownenhip interests. The plan of action evidenced, among other things, an intention to drawdov,., funds previously paid and not to pay any future direct obligations to the Seabrook project. Accordingly, no addith 'al payments have been made since that date for construction, maintenance or nuclear fuel under the Seabrook Project Disbursing Agent Agreement orjoint Ownership Agreement. MMWEC's prepayments were exhausted on or about July 24,1988. The Connecticut Light and Power Company, in exchange for a power sales arrange. 37
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'.MWEC -
I()fe; in f!ib t . L % llc 1HfH($ (4) Construction and Financing (restinued) ment with otherimnt owners, and through additional payments urnished funds to the Seabr'ook Project in lieu . of MMWEC's payments, for the July 24 to November 30,1988 period. As part of a Comprehensive Seabrook Setdement, the Connecticut Light and Power Company released any claims it may have had against MMWEC as a result of making payments to the Seabrook Project. On June 10.1988. PSSH gave notice urider a provision of the Seabrook joint Ownership Agreement that MMWEC was in default ofits joint ownership obligations. Pursuant to the same Joint Ownership Agreement. MMWEC had five months after such notice to cure any default. MMWEC did not agree with such notice that a default occurred on June 10,1988. On November 4,1988, MMWEC and PSNH entered into a Memoran. dum of Understanding whereby MMWEC continues its full ownership in Seabrook Station and further agreed to execute a Settlement Agreement. Upon the Effective Date August' t,1989, the Memorandum and th_e Settlement Agreement provided, among other things, that all notices of default were rescinded and covenants not to sue among the maior joint owners of Seabrook were effective. The Settlement Agreement requires PSNH to be responsible for MMWEC's portion of the Seabrook Station pre-operational costs, commencing December ' 1,1988 to the commercial operation of the unit or up to $30 million, whichever comes first.;The $30 million of construction funds are projected to be exhausted in the spring of 1990. The Settlement6 A teement calls for MMWEC to make up any shortfalls in payments seven days after the commercial operation or cancellation _ of the Unit. The Settlement Agreement also provides the Seabrook joint owners with the right to obtain equitable relief, but not to reduce MMWEC's ownership share, after sixty days written notice for nonpayment by MMWEC, before commercial operation or cancellation. As further required in the Settlement Agreement, PSSH paid MMWEC $3.5 million on the Effective Date of the Agreement. The Settlement Agreement also calls for PSS H to make a 52 million annual payment to MMWEC for eight years upon the commercial operation -
- - uf the Unit. As part of the Settlement Agreement, MMWEC and PSNH agreed to terminate the Sellback Agreement, which called for PSNH to purchase Seabmok capacity from MMWEC at cost. The Settlement .
Agreement called for extension of an existing transmission contract and limits MMWEC's exposure for decommissioning and cancellation costs to $10 million. The PSNH bankruptcy court accepted the Comprehensive Seabrook Settlement and PSNH is making Seabrook Station construction payments on behalf of MMWEC. M MWEC has an ownership interest in the following joindy owned electric generating facilities in operation and under construction: MMWEC Share of Amounts as of Capability December 31. Proieus in Operation Facility .MW On Thousands) 1989 1988 Stony Brook 170.0 $ 56,194 $ 56,127 PeAq Pwee 311.3 146,305 146,057 innemesate Preca Stony Brook 22.7 7,344 7,319 W 3mar, Prmee W.F. Wyman Unit 4 18.4 50,584 50,528 Nu ior W No Milhtone Unit 3 36,8 128,186 128,076 Nuciar Proiect No. 3 Millstone Unit 3 388,613 388,107 Projects Under Construction Seabrook Unit i 1.9 8,287 7.975
' Nuclear Mix No. I 49.8 249,506 237,727 Nuclear Proica No. 4 Seabrook Unit 1 12.6 67,873 63,718 '
Nuclear Project No. 5 Seabrook Unit i 69.0 473,797 433.911 Project No. 6 Seabrook Unit 1 799,463 743,331
$ 1.188,076 $ 1,131.4 38
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, l (4) Construction and Financing (continud) ;
The foregoing amounts represent hth!WEC ownership interest by Project, but exclude nuclear fuel and krvice . company anetsr e (5) Unit Cancellations [ _.MWEC's investment in Scabrook Station includes an equivalent interest in Units I and 2. Seabrook's ! E ioint owners have authorized the sale of all salvageable components and equipment from the cancelled Seabrook - ! Unit 2; The joint owners have also agreed to allow the current Seabrook Unit 2 construction permit to lapse / l and to take no action for renewal. MMWEC's net costs, including interest expense in Seabrook Unit 2 of$ 123.3 ' , and $112.3 million as of December 31,1989 and 1988, respectively, have been deferred and will be recovered - . under the terms of the Power Sales Agreements. ] In October 1981, the Boston Edison Company cancelled Pilgrim Unic 2, which is included in MMWEC's ! i Nuclear Mix 1 MMWEC's net costs, including interest expense associated with the Unit, which aggregated
- c. ' $59.5 and $56.1 million as of December 31,1989 and 1988, respectively, were deferred and will be recovered
-under the terms o ithe Power Sales Agreements. j i
(6) Benefit Plans
. MMWEC has two non contributory pension plans covering substantially all full time active employees.
One plan' covers union employees (union plan) and the other plan covers non union employees (non union 7 plan). z The amoun't shown below as the Pension Benefic Obligation for MMWEC is a standardized disclosure jq l p measure of the present value of pension benefits, adjusted for the etTect of projected salary increases, estimated t V _ m be payable in the future as a result of employee service to date. The measure is the actuarial present value of . credited projected benefits and is independent of the funding method used to determine contribuuons to the plans. j The pension benefit obligation was computed as part of an actuarial valuation performed as ofJanuary 1. l 1989. Significant actuarial assumptions used in the valuation include a rate ofreturn on the investment ofpresent
- and future assets of 8.0% a year compounded annually, and projected salarv increases of 5.5% a year com-pounded annually. The pension benefit obligation for both plans at January 1,1989 is as follows: {
l t Retirees currently receiving benefits , and terminated employees not yet - _ receiving benefits $ 123,133 L , Current Employees: i L ' Employer financed vested 611,440 ? Employer financed non vested N8,389 Total pension benefit obligation 1,492.962 Net asset available for benefits, at market 1.158.602 Unfunded Pension Benefit Obligation $ 334.360 MMWEC makes annual contributions to the pension plans equal to the amounts recorded as pension i i expense, which are $302,000 and $ 112,000 for the years ended December 31,1989 and 1988, respectively. The
. union plan uses the aggregate actuarial cost method and the non. union plan uses the frozen initialliability '
actuarial cost method in determining pension expense. The assumed rate of return used in determining pension expense wu 8.5%. Pension costs applicable to prior years service are amortized over thirty years.
,. g , Historical trend and other information which is required to be disclosed in accordance with Governmental i Accoundng Standards Statement No. 5 is not considered material and therefore is not presented.
- v. MMWEC contributes to an employee savings plan administered by a life insurance company. All full time 39 L
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emplo.tces meeting the service requirements are eligible to participate in this defined contribution plan. Under 6 the proustons of the plan. MNITEC's and the employee's contributions vest immediately. MMWEC contrib, ' - uted $'*0,000 and $~3.000. while the employees contributed $109.000, and 5106.000 during the years ended fs December 31.1989 and 1988, respectively.
- 07) Commitments and Contingencies Power Purchases -
0 MMWEC has' entered into a contract witis the New Brunswick Electric Power Commission (NBEPC) for
!che purchase of 100 MW of capacity from the Point Lepreau nuclear unit. The contract became e6ective in Februarv 1983, the unit's in-service date, and was initially e6ective through October 1987, with options for ~
extensions.~ MMTEC exercised a second option in 1988 for a one year extension of the contract, simultane-b ously with obtaining some contract modificationse that when approved by the Canadian National Energy Board and with completion of transmission arrangements. will extend the contract through October 1994. The d contract payment provisions require MMWEC to pay in all events certain fded, operating, maintenance and d other charges relating to'the unit. The fixed minimum payments under_ the contract, as estimated by MMWEC for its planning purposes for - each of the years 1990 through 1992, amount to approximately $36 million. Capacity entitlements decrease to 1 50 MW in November 1993 through the end of the contract period, thus reducing the estimated fixed charges for 1993 and 1994 to $33 million and 515 million, respectively. MMWEC has entered into corresponding agree-ments with i ts members and other utilities to resell the power. [' ; .
/ MMTEC entered into agreements for participation in the interconnection between New England utilities
~ and the Hydro-Quebec electric system near Sherbrooke, Quebec (Phase 1), which began commercial operation
]
.in October 1986. New England Electric Transmission Corporation and Vermont Electric Transmission Com.
pany constructed the New England portion of the interconnection at a total cost of about $ 140 million, ofwhich ! 3.65% or $5,1 million_is MMWEC's share to support. MMWEC has also entered into similar agreements for - 1 the eqansion of the Hydro-Quebec interconnection (Phase II). Operation of Phase !! is scheduled for the fall of 1990 at a total estimated cost of $565 million. of which MMWEC's d; rect share will be 0.5908% or $3.3
. million. MMTEC has corresponding agreements with its members and another utility to resell the power ]4 received over these lines including recovery of MMWEC's share of the costs of the lines.
Power Sales Agreements In January 198% certain residents of the Town of Groton brought suit against the Town of Groton f l Municipal 1.ight Department the Town of Groton and MMWEC, challenging the validity of the Nuclear Mix No.1. Nuclear Pro!ect Nos. 3,4 and 5 and Project No. 6 Power Sales Agreements. In February 1987, the Mas-j1 uehtnet:, supenor Court granted the defendants' motions for summary judgement and upheld the validity of Grotoni P,mer Sales Agreements with MMWEC. The decision was appealed by the plaintiffs to the . Masachusetts Supreme j udicial Coun. which in J uly 1988, aHirmed the lower court's ruling thus upholding the :i ii
~ validity ofGroton's Power Sales Agreements with MMWEC. No funher court appeals have been filed. Groton coatinued to make the required payments to MMWEC throughout the period oflegal challenge of the Power
]j Sales Agreements.
g ! The Vermont Department of Public Service brought an action against MMWEC in a Superior Court of Vermont in October 1985 challenging the validity of the Project No. 6 Power Sales Agreements as entered into j by the Vermont Participants. In November 1986; the Superior Court Judge ruled that the Power Sales Agree- ' ments for Project No. 6 between MMWEC and several consumer-owned utilities in Vermont were valid under i Vermont law. The ruling rejected contentions by the Vermont Department of Public Service, Vermont Electric T} _) Cooperative and the Village ofStowe Water & Light Depanment that the contracts were invalid and, therefore. not binding agreements. The plaintifTs appealed this ruling to the Vermont Supreme Coun, which heard 4
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- AtMWEC Nj0ffS TO flHJMdl difMCHIS ,
A Commitments and Contingencies kontinud) arguments in Apnl 1W In September 1988, the Vermont Supreme Court ruled that the Proiret No. 6 Power Sales Agreements w ich the Vermont utilities were not valid since inception troid ab iniitio) because mter alia, the utilities lxLed the staturorv authority to enter mio the contracu and to delegate cenain authority to MM 41C. Subsequent to the Vermont Supreme Coun ruling. MMWEC Gled a motion tequesting the coun to gran a i rehearing and allow oral argumenn on ses cral issues, including potential violations of the U.S. Corntitunon and : allegations that MM4TC's claims were not adequately addressed in the court's decision. In Januarv 1989. the : Vermont Supreme Court denied MM41C'i motion for a rchearing and MMWEC 61ed a writ ofcertiorari with the United States Supreme Court to review the Vermont Supr me Court decision. The writ of ceniorari wu , denied in October 1989. i The Vermont Supreme Court decision resulted in the Vermont municipal Project No. 6 Participants ceasing to make their payments to MMWEC. !n 1988 MMTEC recorded a $15 mi!! ion reserve, a ponion of ' which wu for the receivable from the Vermont Participants. The teserve was adjusted by S2.7 million in 1989. The Vermont Electric Cooperative and Washinpon Electric Cooperative of Vermont had aheady stopped making payments m January 1986 and 1988, respectively. Shortfalls in the Project No. 6 revenues are being made up from available funds within the Project. The defauh by the Vermont Panicipants and Eastern Maine Electric Cooperative remited in a reallocation of the Proiect No. 6 capabihty and liabilities in accordance with the Powet Sales Apeement. MMWEC believes the shortfalls will ulumately be recovered from billinp to other Participann under the Power Sales Agreements. MMWEC continues to believe the Massachusetts Power Sin Agreements are valid enforceable contracts. Management believes thc nonpayment by the nut of state Pankipants will noi : I fm have a material advene impact on MMWEC, + e in as much as the Stony Bmok :nrermediate Project has approximately B.2% of Project Capability under Q). Power Sales Apcemenu with Vernmnt entities, w hich Power Sales Agreements are virtually identical to the Proi- , ect No. 6 Power Sales Aprement, the Vermont Supreme Coun decision on the Proicet No. 6 Power Sales Agreement could apply equally to the Stony Brook Intermediate Power Sales Agreement. The Vermont Legislature enacted legislation seeking to validate the Stony Brook Intermediate Power Sales Agreement in light of the Vermont Supreme Court decision. MMWEC is seeking a declaration of the vahdity of the Stony Brook Intermediate Power sales Agreement, u well a the curative legislation,in the maner of MMWEC v Sute of Ecemind currently pending in the Superior Coun in Wuhinpon County, Vermont. The Wrmont Syreme Court decision declaring the Project No. 6 Vermont Panicipants' contracu void ab initio cwed cenam Masuchmetts Project No. 6 Participants to nise inues relating to the validirv of the Project v l No 6 Power sales Apeements, alleging among other thinp that 100% panicipation is a condition precedent (. i to the tahd.tv of the Prmeet Power Sales Agreements. In April 1989, the Hingham Municipal Lighting Plant r h and the shrew sbu v Electne Light Plant both Gled identical but separate actionsin the Superior Coun ofSutTolk County m Masuchusein. The basis for the complaints is whether the Protect No. 6 Power Sales Agreements , are vahd and tundmg u to them, since as alleged in the complaints, a condition presedent to the vahdity of all the Prmect L 6 Power Sales Agreements in 100% participation in uid Agreement, and if the Vermont Parncipann nntraen are void ab initio,then this condition precedent hu not been met. Further,the complaint , alleged that any mercue in Project No. 6 billinp as a result of the nonpayment by the Vermont Project No. 6
- Participann is unlawful on the buis that the Proicci No. 6 Power Sales Apeements failed to have 100% partici-pation and MMTEC's me of Project No. 6 funds to cover the shortfallin receipts constiturn a breach of the Power Sales Agreemenn. Five other Musachusetts Project No. 6 Panicipants Gled similar complaints in Suffolk County Supenor Coun. i in April 1989, MMWEC Sted an original action in the Supreme Judicial Court for the Commonwealth of s
Massachusetts against two Massachusetts Project No. 6 Panicipants. A single justice of the court accepted r- MMWEC's motion to have the coun transfer to the Supreme J udicial Coun the other Project No. 6 Panicipant cases pending in the Superior Coun. Furthermore, the jusnee granted MMTEC's requests for preliminary iniunctions ordering the non paymg Participants to pay their obligations. MMWEC also 6ted a Motion for 41 i
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Summan Judgment with the Single jmtice who allowni for discovery to take place prior to scheduhng a hearing on the summart pudgment motions. The Danvers. Hudson and Peabody light depanments filed a motion uking the iustice to recuse himself due to a potential conflict, which he did in January 1990, sending the cue back to the SutTolk County Superior Court, where the cue is currently. The Town of Hudson Light & Power Department and the City of Peabody Municipal Light Plant filed a lawsuit ag.pnst MMTEC in November 1988. which among other thinp. sought to enjoin the MM4TC Board of Directors from acting upon the Memorandum of Understand ng (discussed in Note 41. In November 1988, the Manachusern Superior Coun denied the Hudson / Peabody injunction request, which denial wu upheld by the Muwchusetts Appeals Coun. In December 1988, the Town of Hudson Light & Power Department and the City of Pubady Municipal Light Plant amended their complaint against MMTEC to include challenges to the validity of the Project No. 6 Power Sales Agreement on the 100% panicipation inue, as previoudy dis-cuned within the context of the Vermont Supreme Court decision. MMUTC moved to compelarbitration of this dispute and the Superior Court granted M M4TC's motion in accordance with the terms of the Power Sales Apeements. The arbitration is currently ori held pending the outcome of the cues discussed above, MMTEC is working to resolve the above noted inues. Ahhough the outcome of these challenges cannot be predicted with abelute certainty, it is the opinion of bond counsel, lept counsel. and management that the Muuchusetts Project No. 6 Power Sales Agreements will be deemed to have had 100% panicipation. In March 1989, Washinpon Electric Cooperative of Vermont filed suit against MMWEC in the Wuhington County Superior Court in Vermont for restitution of payments made to MMWEC under the Project No. 6 Power Salci Agreements. Wahington Electric Cooperative received an ex pane trustee process
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_/ apinst other Vermont utilities which are making payments under MMWEC's Stony Brook Intermesate Unit contracts. MMTEC he removed this cue to the United States District Court for the District ofVermont, where hear ngs were held and an order was issued to dissolve the trustee process contingent on MMWEC giving notice of any intent to take away the Vermont Panicipants' intermediate Unit capacity. On July 31, l989 MMWEC filed action against cenain directors, managen and attorneys of the Wuhington Electric Cooperative for misrepresentation. These third pany defendann have mmed to dismin the claims, in November 1989, the Vermont Depanment of Public Service moved to intervene in this cue and fded a claim of $6.2 inillion for restitution of all Vermont Project No. 6 Panicipant payments. In March 1990, the Federal Coun, pursuant to MMWEC's motion, dismissed the Vermont Department of Public Service inter. vention in the cue and dismissed the 56.2 million restitution claim. Lutern Maine Electric Cooperatne (EMEC), a Panicipant in MM4TC's Project No. 6 did not make its lune 1W payment and filed for protection under Chapter 11 of the Federal Bankruptcy Code in August 1987 in its permon. EM EC asked the coun to reject its contract with MMWEC. In October 19E8, EMEC's petition for reicumn of the contract wu denied by the U.S. Bankruptcy Coun. The ji.dge concluded that MMWEC ha a uhd Jaim apmst EMEC stemming from EMEC's default under the contraci prior to EMEC's entering into Chapter i1. MMWEC hu formally filed a claim in the proceeding for the money it is owed. EMEC responded to the daim with a counterclaim alleging, among other thinp. that its Project No. 6 Power Sales Apeement w ith M MTEC is void as a result of the Vermont Supreme Coun decision. The trialon the adversarial claim scheduled for January 1990 was postponed as the two panies agreed to dncuss settlement. EM EC's counsel unilaterally filed a settlement agreement with the coun. MMWEC objected to the filing and agreement. Hearing have been held on the filed documents wherein the coun indicated an order is to be inued. In January 1986, the Hull Municipal Lighting Plant filed suit against MMWEC seeking a declaration that its Power Sales Agreements for Nuclear Mix 1, Nuclear Projects Nos. 4 and 5 and Project No. 6 relating to
, '~ N Seabrook were invalid, and an injunction against MMWEC collecting any amounts from Hull under the apeements and monetary damages. The suit challenps the validity of these Power Sales Apeements on various ~) pounds and alleges, among other thinp, various misrepresentations, breaches and imprudencies by MMWEC.
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MMWEC , f(jf(*f lQ f . ,lQ'a *l' f,l,Q 4l}f')f f f (?) Commitments and Contingencies kontinuedi On March 4.19m the Mmachusetts Superive Court granted MM4TC's monons to stay thelegal proceedings ; and compel arbitranon of the suit and for a preliminarv injunction requiring Hull to pay in share of monthlv i pow er mts u rcquired by the Power Sales Agreements. On March 21.1986, a single justice of the Mmachusetts i Appeah Court denied Hulli petition for relief from the orders of the Superior Court, and the matter went to arbitration. The Musachu erts Supreme Judicial Court subsequently took the cue and issued an opmion I: , uphold ng the inmnction. In August 1987, the arbitrator ruled that the contracts signed by Hull s light board
- with MMWEC were valid. The arbitrator hu yet to rule on the other alleged breaches, imprudencies and misrepresentatiom claimed against MMWEC by Hulh After withholding paymtats. Hullis currently making payments, under protest, in accordance with the court order. After a hiatus in the cue a new arbitrator was agreed
- to in January 1990, The dacovery in this cue is expected to be completed in the summer of 1990.
Bued on the opinions of Bond Counsel and other legal counsel, discussions with such counsel and other considerations. management belieses that the ultimate resolution of the actions described ab ve will not have o a material, adverse effect on the Gnancial position of MMWEC. MMTEC continues to enforce the provisions E of the Power Sales Agreements to usure that adequate revenues are collected to meet debt service payments on its bonds in accordance with the General Bond Resolution. Other luurs MMWEC, as a joint owner of the Millstone Unit 3 and Seabrook Unit i nuclear units,is required to set aside funds for the eventual decommissioning of these units. MMWEC's policy is to fund these reserve l requirements over the licensed life of the units through monthly billings to MMWEC Participants in the unin. M MTEC's share of the total estimated Millstone Unit 3 reserve requirement is $9.3 million,ofwhich $ 830.000
) has been funded as of December 31,1989. The amount is included in other deferred charges and accrued expen es. MMTECi share of the Seabrook Unit 1 projected reserve requirement is $33 million, the funding of which will begin with the cemmercial operation of the unit.
In August 1988, a revised Price Anderson Act was enacted, calling for a 6fteen-year extension of the nuclear liability indemni6 cation process. The revised Act limits public liability from a incident at a nuclear power plant . I to $'.6 billion. The $200 million primary layer ofinsurance for the liability ha been purchased in the commer. cial market. Additional coverage of $7. I billion is to be provided through a $63 million per incident messment of each of the currently licensed nuclear units in the United States. The maximum messment is $10 million , per incident per u nit in any year. If the sum of the liability claims and costs from an incident exceed the maximum amount of Anancial protection, each reactor owner is subject to an additional $3.2 million assessment. The maimum messment is subject o adjustment for inflation every 6ve years. MMWEC's interest in the Millstone t 'mr 3 and seabmok Unit I could result in a maximum assenment of $3.0million and $7.3 million respectiselv.
'MMWEC n not eurtently covered under gradual pollution liability insurance related to MMTEC's Siony Brmk power plant. Management is not aware of any material claims made during 1989 or outstanding u of De, ember R lon AJdunai :ntormanon regarding commitments and contingencies relative to MMWECi debt and in olvement n nuclear projects is discussed in Note 3 Debt and Note 4 Construction and Financing. ,
(8) Investments and Deposits All bank deposits, which amounted to $43,000 at December 31,1989, are maintained at a single f nancial institution. The Federal Deposit Insurance Corporation currently insures up to $100.000 per depositor. MMWEC's uninsured deposits ranged fronaero to $12.1 million during 1989 due to seasonal cuh flows, the timing of daily cash receipts and favorable earnings otTered on these demand deposits. Investments are stated at cost adjusted for accretion (amortization) of the discount (premium). MMWEC's
^y normal practice is to hold its investments until maturity. At December 31,1989, all securities underlying ) repurchue agreements, and all other investments, were held in MMWEC's name by independent custodians consisting of the Construction Fund Trustees, Bond Fund Trustee or MMTEC's depository bank, except for 43
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i l!m ,' e f . 'MWEC jores to Financial katements y [: (8) Investments and Deposits (annnurd) 52.7 million of repurchase agreements, which were with the depository bank. Investments, representing the Special Funds and Cash and Temporary Imestments, as well as certain additional amounts, disbursed but j;
- available for investment, and accrued interest, are presented below:
i ' 1988 1989 Carrying Market Carrying Market E Type of Investment Amount Value . Amount Value (in Thousands) Repurchase agreements 5 25,859 5 26,327 $11.208_ $ 11,348
- Other imestments:
Certi6 cates of Deposit 89 89 168 168 U.S. Treasury bills 34 34 97 97 49,479 49,527 66.341 65,414 U.S. Treasury notes 30,765 30,715 55,35B $4,353 U.S. Agency bonds 169,327 169,240 145,588 145.529 - U.S. Agency discount notes 249,694 249,605 267,552 265.561 Total Other investmenti Totallnvestments $275,553 5275,932 5278.760 $276.909 Due to seasonal cash Aows during 1989 and 1988, blMWEC, from time to time, invested in repurchase [ } V agreements with its depository bank that were collateralized by securities in MMWEC's name held by the depoutory bank. MMWEC's practice is to monitor the market value of the underlying securities to ensure that the market value equals or exceeds the amount invested. p-i l 1 v I 1
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Bond l'und Trustec Contr' n ental Bank. Lt Chicago Illinois Paving Agents
- Continental Bank. N.A. Citibank. N.A.
Chicago. Illinois New 1*ork, New )*ork 1976 Series A Bonds 1976 Series A Bonds 1977 Series A Bonds 19?' Series A Bonds 19-~ Series B Bonds 19?? Series B Bonds 1978 Series A Bonds 1978 Series A Bonds
'1979 Series A Bonds 1979 Series A Bonds 1980 Series A Bonds 1980 Series A Bonds 1981 Series A Bonds 1981 Series A Bonds 1981 Series B Bonds 1981 Series B Bonds 1982 Series A Bonds 1982 Series A Bonds 1982 Series B Bonds 1982 Series B Bonds 1984 Series A Bonds 198; Serin A Bonds j yg) gy73 f.gggggg gyg pgy 19s5 Series B Bonds 1987 Series A Bonds 198 Series B Bonds
>b.nonut Bank ofBoison. N.A. Bank ofNew England, N.A.
Bo>wn. .\laua.bwcas Boston. .\lassachwerts 19 8 Series A Bonds 1976 Series A Bonds 19 9 Series A Bonds 1977 Series A Bonds 1950 Series A Bondi 1977 Series B Bonds 19S1 serin A Bonds lost Serin B Bnnds 1982 Series A Bondi 1982 Serin B bonds 1985 Serin A Bond \nt!Gp.ltion Notes l 45
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,a. p ,* h 3, 7 b < MMVEC Power Supply Program Jointly Owned Units W.F. Wyman Stony Brook Stony Brook .
< Unit No.
- Intermediate Unit Peaking Unit L
l.ocation: Yanmuth. MF Ludlow. MA Ludlow. Nt; Owner: Central ME Power Co. MMWEC \lMWIC Fuel: No. t> Oil No. 2 Oil! Natural Gas No. 2 Oil Total Capacity: 619 M W 343 M W F0 MW MMWIC Ownenhip: 22. M W 311.3 MW 4 10MW Millstone Unit No. 3 Seabrook Unit No. I tc l.ocation: Waterford CT Seabnmk. NH Owner: Northeat Utilines Public $cmcc Co. of NH Fuel: Nuclear Nuclear Total Capacim 1.150 M W. 1.150 M W MMWEC Ownership: 55.2 MW 133.3 MW hs l Major Contracts
)t' NU Slise of Spiem Pt. l.epreau Unie 1 Niagara River Project Hydro-Quebec Lourion: New Brunswick, Canada Niagara Rner. NY Quebec. Canada NU system Owner: NB Electric Power Comm. New York Power Auth. Numerous Nt. Utihties Nnrtheast Utihties Fuel: Nuclear Hydroelectric Hydroelectric Nuclear. Oil. Hvdro Total Capacim e3% M W 2400 M W 690 M W ' 4410 M W Contraci Amount: 100 MT- As erage oi62 MW ' 25.1% MW for Phase t ' l MW WWo 14 MW 90:91 91,o; 3% MW 92/93 42 MW 94 04 Contract l erm: I brough 1994 Through July 2001 Phoe I through 199* Through 1994 Phase 11 1990-2000 Refuse Fuels Anociates Canal Unit No. 2 Montville/Middletown
;manon ' nierence, MA Bourne, .\M Monnille. CT Middiciown. CT s wne une Fuels Asmc. Montaup Electra Co. Northeet t tihtin i nei rash No. 6 Od No. 6 Oil; Oil / Natural Gas I otal upaan : ; MT 584 M T "60 MW (3 Middletown Unitsi ,
492 MW (2 Montville Unitst l Contract Amount: 11.5 MW 30 MT/ Summer 50.8 MW.diuded among all the uniti 50 MWIWinter l Contract Term: 20 years Through 1995 Through 1992 -{
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- Willunar.ur to 2.W) AfTunder Ph.ur il
' Well sner.ue to 31..) aft under Ph.ar ll \-' ) 50 \fTse 19%
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i [. MMWECMembership Ashburnham Munkipal Light Plant hierrimac hiunicipal Light Depanment Roben W. Guidd. 3!anager Richard A. Kennedy, Afanager Belmont h!unicipal Light Depanment Middleborough Gas & Electric Department Kenneth L. Conroy, Afanager John W. Dunfey,3/anager Boylston hiunicipal Light Depanment hiiddleton hiunicipal Light Department H. Bradford White. Jr.,3/anager William Kelly, Acting 3/anager Chicopee Stunicipal Lighting Plant North Attleborough F.lectric Department Barn W. Soden. 3/anager David I. Sweetland, 3/unager Concord Municipal Light Department Paxton hlunicipal Light Department Daniel J. Sack 3/anager Harold L Smith,3/anager Danvers Electric Division Princeton hiunicipal Light Depanment Roben, Linnekin,3/anager Sharon A. Sta:, Afanager Georgetown hiunicipal Light Department Reading hiunicipal Light Depanment Edward I. Stanley, 3/anager Leonard D. Rucker, Afanager Groton Electric Light Department Rowley Municipal Lighting Plant Roger H. Beeltie. 3/anager G. Robert Merry,3/anager Hingham Municipal Lighting Plant Shrewsbury Electric Light Plant Jmeph R. Spadea, Jr.,3/anager Thomas R. Josie,3/anager Holden Municipal Light Department South Hadley Electric Light Depanment Edla A. Bloom. Direcmr Wayne D. Doerpholt,3/anager Molyoke Gas & Electric Department Sterling Municipal Light Depanment George E. Learv 3/anager Mark V. Magyar, Afanager Hull Municipal Lighting Plant Templeton Municipal Lighting Plant Roger lah Va naer- Gerald P. Skelton,3/anager Ipmich Munural Light Department Wakefield Municipal Light Department (Lnald it - 'lavager William J. Wallace, 3/anager Littleton Electric Light & Water Department West Boylston Municipal Lighting Plant Cunis 1. Lanciani, Alanager John F. Scirpoli,3/anager Mansfield Municipal Electric Department Westfield Gu & Electric Light Department John Larch, Afanager Daniel Golubek, Alanager Marblehead Municipal Light Department Pascoag Fire District Electric Department L Richard L. Bailev,3/anager Howard C. Peters, 3/anager Non-Member Senice Participant 47
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Mim !i mber BoarJ of thret. Niemben ot' the Board ot' Directors are l can. Hohoke n s. .t ! t member commis- (ias N Electra Department manager. statten. I utleton l s o i manager- e m the membership. Elettnc 1.ight & \\ ater Departmtrit somnussioner: Allan
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nc ( im ernor ot' Niassachu. \mes. Reading .\1unicipal light Department tommnsioner wn t ins .o :% se arp , ued p..smons n presenth open. Daniel Golubek. Westfield Gas & l.lettra 1.ight Depart-
\1\1% i ( , ,orporate ottiers are George l'. l can . shair- ment manager: Donald 5 tone. Ipswich \1unaipal 1.ight man Rahardi Natten . preudent: (;an- l . H unt. general Department manager: Gilbert .\1cCarth.s. Waketicld N1u-manager and sesretan : \'irgmi.i B Rutledge treasurer; meipal Light Department commnsioner; lohn 1.arth. .\tans-Naholas I wobbo. general counsel John W. Welch assis- ticld .\1unicipal Elettra Department manager: and Rahard 1 st secretan . hihn .\1. % esolowski. assistant treasurer; and P. Rothe, gubernatonal appointee. Euept t'or gubernator-nes l' I aller asustani treasurer. Orfaers are elected annu- 'ai appomtect members ot' the board are elected annualk 2h in Nta. bs the Board ot Direttort m \tav i -.- '* ~e.,_----__s_ _ , _ _ _ . , . _ _ . _ _ _ _ _ _ . _ _ _ _ _ , _ _ . _ _ , , _ , , _ , _ _ _ _ _ _ , _ , , _ , , _ _ _ _ _ _ , , _ _ _ _ _ _ _ _ _ , ___ _ , _
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Compe. PO Box 4:6.1.udlow. MA 01056. All requests for infortnation about'MMWEC should be directed to thu ofHce. @ MMWEC 1990
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