ML20076E727

Annual Financial Rept 1982

ML20076E727
Person / Time
Site:	Seabrook
Issue date:	07/27/1983
From:	Evirs H, Tenney C FITCHBURG GAS & ELECTRIC LIGHT CO.
To:
Shared Package
ML20076E650	List: ML20076E646 ML20076E664 ML20076E671 ML20076E675 ML20076E685 ML20076E690 ML20076E693 ML20076E703 ML20076E714 ML20076E722 ML20076E727 ML20076E730
References
NUDOCS 8308240654
Download: ML20076E727 (32)

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T Common eSuc<

Common Stock Market Price and Dividends The Common Stock of the Company is listed on the American Stock Exchange (Symboh FGE) and the Boston Stock Exchange. The rumber of holders of record of the Company's Common Stock at December 31,1982 was 2,954 About the Cover CASII DIVIDENDS PAID PER SIIARE ON TIIE COhi>10N STOCK The photographs OF TIIE COh1PANY in this year's Fitchburg Gas and Electric Light 1st 2nd 3rd 4th The

-Quarter Quarter Quarter Quarter Year quality of life in the 1952

$.65

$.65

$.65

$.ti5

$2.60 Re e tt c region, made possible

$.65

$.65

$.65

$.65

$2.60 1981 in large part by energy. The linking of reliable energy PRICE RANGE OF COhihiON STOCK sources with nerc technologies for edocatlon, health 1st 2nd 3rd 4th industry and the home

_ Quarter Quarter Quarter Quarter care, business, present both promisc 1982 Iligh 19 %

19 %

20 %

22 and challenge for Low 17 %

18 %

18 19 %

the future.

1981 Iligh 21 %

19 %

10 %

21 %

The Fitchburg Low 18 %

17 %

17 %

17 %

State College Library end Campus Center has been increasing Ihe utili:ation of The Company expects to continue its policy of paying regular cash dividends, althoug

'#',",p" there is no assurance as to future dividends because they are dependent on future earnings.

,mt r a nfain capital requirements and financial conditions. In addition, the payment of dividends telecommunications crrcice, such as a data base schich to the restrictions described in Note 4 to the Consolidated Financial Statements.

c I

procides a listing of several million books i

I located in libraries j

throughout the country. Reliable energy sources are 1

'3%"gea-Taae 0 otte11s vital to man's ability knotcledge and 1

information.

FinancialIIighlights 2 !

Letter to Shareholders 5

Year in Review 14

(

Consolidated Balance Sheets 16 !

l I

Consolidated Statements of Earnings 17 l Consolidated Statements of Changes in Financial Position 18 Consolidated Statements of Retained Earnings 18 l

Notes to Consolidated Financial Statements 27 ;

Report of Independent Certified Public Accountants 2S Managment's Discussion of Financial Condition and Results of Operations 31 i Selected Financial Data 32 Quarterly Financial Data i

, m 18 FITCHBURG GAS AND i

• w ELECTRIC LIGHT COMPANY l -

Using our energies to serve you best i

i Finaacia Highlightsof1982 About the Company 1982 1981 The arca scrred by the Company encom' ! Net Income

$ 1,990,205

$ 2,590,359 Earnings per Average Common Share

$1.86

$3.72 Os a e i I s in north central Massa.

Dividends Paid per Common Share

$2.60

$2.60 Electric Operating Revenues

$28,193,S90

$31,551,691 chucrtts icith a population of approx-Gas Operating Revenues

$18,2S9,210

$16.583,322 imately 60,000 Total Operating Revemies

$46,483,100

$43,138,013 1

ol> T,le,oinpany Kilowatt-Ifours of Electricity Sold 336,366,775 360,271.819 g,

g, and electric scrrice Average Annual Kilowatt-IIour Sales per Residential to the arca communi.

Customer 4,852 4,788 Number of Electric Customers 22,869

~ 22,674 tics of Fitchburg, i

Ashby, Lunenhurg.

- Thousands of Cubic Feet of Gas Sold 2,653,131 2,818,588 and Totensend. In Average Anunal Cubic Feet Sales per Residential addition, tre procide ;

Customer s9,291 97,914 i

gas service in the

! Number of Gas Customerv 14,955 14,767

[I

" # ',I' ""," "'#"8 I l Net Utility Plant

$62,366,276

$52,672,861 f,

f Westminster, Number of Employees 167 166 Fitchhurg is the l Number of Common Shareholders 2,953 2,488 shoppingandfinancial ; Number of Preferred Shareholders 210 8

center for surround-ing communitics, dratting on an esti-

)

mated 225,000 l

people. Proximittl to commercial markets, expanding transpor-l tation facilitics and l Annual.T!ceting the arallability of a The annual meeting of common shareholders is scheduled to be held at The First National Bank of Poston.

l 100 Federal Street, Boston, Massachusetts, in the Directors' Room on the Seccmd Floor, on Tuesday, r t d hlarch 22,1983, at 10:30 A.Nf.

attractu.re to m. dustry. i A key attraction of Transfer of Stock the area is its unique The Company's Tomfer Agent is The First National Bank of Boston, P.O. Box G44, Boston, hfassachusetts i

location trith respect ! 02102.

i to major markett.

9; g

y i

A Disidend Heimestment and Stock Purchase Platiis available to all holders of the Company's Common and l

l public Preferred Stock. Tius plan provides these shareholders with a simple and economical way to increase

! their imestments in the Company autonweically eac h quarter by reinvesting their d;sidends and/or rnaking l optional cash payments quarterly towards the purchase of additional shares of Common Suk. For I information write to: The First National Bank of Boston, FGF Dividend Reimestment Plan, P.O. Box 1681, Boston, Niassachusetts 02105.

I Trustee Tb First National Bank of Boston, P.O. Box IS97, Boston, ? fassachusetts 02105, is Trustee under indentures covering the Company's Notes due hlarch 1,1995 and hiay 1,1999, respectisely.

This report, including the financial statements contained herein,is submittid for the generalinformation of the sharehelders of the Company as such, and is not intended to induce, or for use in connection uith, any sale or purchase of securities.

m

To 'Mreharehor'ers i

(

~

~

i i

l The contmumg recess on m the Company's service area has seriousiv affected E

.,P the level of earnings for 1982. Earnings per common share dropped from $3.72 I

i

\\

in 1981 to $1.86 in 1982. The Company currently estimates that 48.77% of the l

common dividend paid on November 15,1982 is non-taxabie, subject to a final l

l~

review by the Internal Revenue Service. This current estimate represents a change i

l

' ' from our earlier notification to shareholders.

I f

i A major contributor to the decline in earnings has been the continuing erosion T

of industrial electric sales. Beginning in Alarch of 1982, industrial sales started i

to plummet, ending the year some 11.5% below 1981, a year which was also l

i adversely affected by the recession. Further affecting earnings was a significant l

l reduction in profit margins from our interruptible gas sales resulting from the j

l softness in the petroleum market. While our 1981 earnings had been favorable,

, the need for increased base rates became apparent in the development of our financial plans. As a result, the Company filed requests for gas and electric rate j

g l

GQ, increases on July 16 and September 16, respectively. A gas rate increase l

of approximately $2,318,000 on an annual basis became effective February 1, 1983 and a decision on our electric rate request must be made, according to state statute, by Af arch 31.

Afeeting our 1983 goals will depend in great measure on the responsiveness j

9 of the Af assachusetts Department of Public Utilities to the increasing costs of l

providing gas and electric. service. Also, a turnaround in the industrial economy

/

will have a beneficial effect on the Company's earnings just as it had a detrimental 1

^

effect while receding. Our present assessment of the Company's revenue j

requirements tends to indicate that, once the gap between current earnings and j

),

N<-

a reasonable return is closed, future rate increases needed to maintain a satisfactory I

\\

rate of retucn should be consistent with, or lower than, general rates of inflation.

)f To obtam new capital and to reduce short-term borrowings, the Company s.

1 j

completed an aggressive four-month financing program in August 1982 through saks of Common Stock, Preferred Stock and long-term debt. Through those sales and the on-going sales of Common Stock to participants in the Dividend i

Reinvestment and Stock Purchase Plan and to the Employee Stock Ownership

~

Plan, the Company raised $11.9 million of new capital in 1982.

Fitchburg Gas and Electric is well situated to meet its customers' energy l

needs in 1983. The Company continues to work actively to diminish our reliance l

on foreign oil for electric generation through an aggressive search for hydroelectric, nuclear and, when available, coal generation. Gas supplies and storage capacities

have been increased to meet the needs of present and future residential,

! commercal and industrial customers.

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l While the Company remains supportive of nuclear power to lessen our l

reliance on imported oil, the nuclear industry has been hampered by burdensome i

and lengthy governmental regulation and obstructionists' activities. As a result, construction costs for Seabrook Units #1 and #2 in New IIampshire and Afillstone Unit #3 in Connecticut,in each of which the Company has an ownership interest, have risen sharply. Prudent management dictates that the Company review the j

impact these new costs will have on future operations. We must be sure that these major projects are prudently managed, have effective cost controls and can be completed as expeditiously as possible. The Company has and will j

continue to review this situation very closely and will take all reasonable action i

available to it to insure that all these goals are met.

i' A controversial year-long study of municipalization (the possible municipal takeover and operation of the electric portion of Fitchburg Cas and Electric) was undertaken in 1982 by the Fitchburg.\\lunicipal Power Project. It determined that municipalization would not be economically feasible. The study also cited

! the efficiency of the Company's electric transmission and distribution operation and its energy planning, and noted that a municipal utility would not be able to I

purchase or generate power any mere cheaply than Fitchburg Cas and Electric.

Our fundamental goals continue to be to provide reliable, economic service to our customers and to enn a fair return for our investors. Underlying these goals are the objectives 'i maintaining cost effective operations, developing our l

human resources, being a good corporate citizen and building customer j

understanding.

l

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We move forward both stronger and more resilient because of the challenges j

we have met in the past and are confident that we can continue to meet the challenges in 1983 and beyond.

The following report details our 1982 operating results and management's analysis of the major factors affecting those results. We urge your careful examination of the report, encourage your comments and appreciate your continued support.

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~f N nhee<l W CIIAnLEs H. TENNEY ll IIOWAnD W. Evms, Jn. l Chairman of the Board of Directors President

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! Ol'EllATING llESUI.TS j

1 Fitchburg Gas and Electric's financial perfonnance in 1982 fell short of the Fitchburg's retail

! levels reached in the prior year as net income was $1,990,205 compared to the 1

r Icr[o e extcnsive! 19S1 level of $2,590,359. Idtniings per share of Conunon Stock, on a greater l

renotation in recent

! number of shares outstanding, were $1.86 compared to $3.72 in 1981.

years, and in the l

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As a result of the severe economic recession, electric revenues for the year ofenc g n$c

! decreased 10Tc, reflecting a 7% decrease in kilowatt-hour sales. This significant loss in electric revenue and kilowatt-hour sales is primarily attributable to a incasures; inore

". on in operations of some of our large customers. Likewise, a recovery, st iIr er when it occurs, may be expected to produce a retuni to more normallevels of inadation and panice I revenue and kilowatt-hour sales.

solar design.

Fitcidmrg Gas and i

Electric, through its In spite of oil-to-gas conversions and new conunercial and industrial t [r gram, development, firm gas AICF (thousand cubic feet) sales were down by 1.9% due er r encourages and assists to the current recession. While the Company continues to make some interruptible customers cith idea

! gas sales, the virtual climination of profit margins on these sales has further on hore ther/ can sarc cncrgy and dollars.

l eroded canlings in 1982.

j FIN ANClNG l

I In order to reduce short-tenn horrowings incurred in connection with the

! Compan/s on-going capital construction program, the Company completed a i series of financing transactions which produced approximately $11,915,000 of new i

! capital. Aferrill Lynch, Pierce, Fenner & Smith Incorporated was lead underwriter I for the public offerings of Conunon and Preferred Stocks and assisted the i

l Company in securing a purchaser for its new issue of long-tenn Notes.

l l

COA 1AION STOCK In a negotiated offering on June 24, the Company sold to the public 150,000 additional shares of Common Stock at $18.50 per share, providing net proceeds of l approximatcly $2,432,000.

CUhlULATIVE PilEFEllllED STOCK i

The Company received net proceeds of approximately $1,141,000 through

! the sale to the public, on August 5, of 180,000 shares of an initial series of I

Cumulative Preferred Stock, $1 par value, at $25 per share with an annual dividend rate of $ 1.00 per share.

l l

LONG-TEllAl DEllT l

On August 24, the Company privately sold $5,000,000 of its 17%To Notes due l August 15,1992 to John Ilancock Alutual Life Insurance Company, realizing

! net proceeds of approximately $4,910,500.

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DIVIDEND REINVESTMENT PLAN AND l

EMPLOYEE STOCK OWNEBSHIP PLAN l

e With the passage of the Economic Recovery Tax Act of 1981, the Company i

established a Dividend Reinvestment and Stock Purchase Plan (DRP) in June 1982 !

for the Company's common shareholders, qualifying employees and holders of its publicly-held Cumulative Preferred Stock ( Public Preferred Stock). The DRP allows participants to reinvest dividends paid on Common Stock in additional l

Common Stock at 95% of the average market price. Common Stock purchased with l

New deric<s like dividends paid on the Public Preferred Stock or with optional cash payments,

1. $,djst(ed including payroll deductions, are invested at 100% of the average market price.

,"clnn,','"nch"ae During the period 1982 through 1985, certain individual participants in a i helplag flurhank qualified public utility DRP, including that of Fitchburg Gas and Electric, may l

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g elect to exclude $750 a year ($1,500 on a joint return) of reinvested dividends from l

dtP

treatment for patients.

their Federal income tax return and defer paying taxes on those dividends.

New technologies like s

these hace Astped In 1982, the DRP and the previously established Employee Stock Ownership i

increase the average Plan contributed approximately $431,500 of new Common Stock equity through fy*n#irly h7ce$rs the issue of additional shares.

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' in the past decade I

elone.

RATE ACTION i

j On July 2,1982, the Massachusetts Department of Public Utilities (DPU) j j

l dismissed the Company's January 1982 petition which requested reaffirmation of tax normalization of the debt component of allowance for funds used during j

construction ( AFUDC). While dismissing the Company's petition, the DPU did l

reaffirm the concept of normalization and stated that rate coverage for such l

normalization should be viewed in the context of a full rate case. The Company did not file for electric rate relief until September 1982 and received no benefit therefrom in 1982.

l The ruling on Fitchburg Gas and Electric's July 1982 request for a $3.38

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million rate increase in its gas base rates, subsequently revised to $3.17 million, was issued by the DPU on January 31,1983. The Company was granted an increase of $2.32 million,73% of the revised amount requested. The need for rate l

l relief was due to significant increases in the costs of materials, labor and equipment l associated with providing service, a number of improvements in and expansion of 1

l the Company's liquefied natural gas ( LNG) and distribution facilities, the high l

l cost of financing and declining sales income from large interruptible industrial l

l customers.

l t

i The Company's September 1982 request for a $4.10 million increase in its i

I clectric rates, subsequently revised to $3.96 million, has not yet been acted upon l

by the DPU. Hearings on the Company's application were concluded on l

December 20 and final briefs were filed in early February 1983. The Company's l

l revised request for rate reliefincludes an adjustment of $1.77 million to l

l implement increased normalization of the debt component of AFUDC. The implementation of such normalization would not have any direct effect on i

earnings, but, if granted in full, would significantly improve the Company's l

cash flow and hence its financing ability. The need for an increase in electric base j

rates is attributable to steady increases in operating and financing costs. The DPU must render a decision on the Company's request by March 31,1983.

<I

CAPITAL REQUIHf0fENTS Capital requirements during 1982, including AFUDC, totalled $11,074,000.

l This cost represented continued progress payments for jointly-owned nuclear i

plants, including Seabrook Units #1 and 22 and hlillstone Unit #3, as well as expenditures for transmission, distribution and other general plant facilities, including the installation of a 2% mile natural gas distribution main, a street lighting conversion program and replacement of portions of the electric distribution system.

l Capital expenditures in 1983, excluding AFUDC, are estimated at $9,134,000.

Included in this figure are costs associated with the Company's investments in jointly-owned nuclear power plants and local construction requirements.

ELECTRIC OPERATIONS While conservation, as well as load management, is an integral part of l

Fitchburg Gas and Electric's load forecast, future customer energy demand cannot j

be met without securing additional electric generation. Analysis of existing and developing fuel resources continues to position nuclear, coal and hydroelectric facilities as the most economical and reliable answers to generation requirements.

l As part of its future planning, Fitchburg Gas and Electric has invested i

nuclear power plants currently under construction in New England.

Construction of Seabrook Units #1 and #2, in which the Company has a j

0.865% interest (19.9 megawatts), has continued despite the difficulties experienced in the past by the lead owner, Public Service Company of New IIampshire (PSNII).

On July 16,1982, the New IIampshire Public Utilities Commission ( NIIPUC) ordered that none of the proceeds of any future sale of PSNII securities could be used for the construction of Seabrook Unit #2 until Seabrook Unit #1 was complete, or PSNII reduced its own interest in Unit #2, or improved its financial condition. This order was temporarily stayed by the New IIampshire Supreme Court (Supreme Court) pending appeal by PSNII and other participants including the Company.

Following a hearing on October 26 concerning PSNII's appeal of the I

NIIPUC's July 16 order, the Supreme Court ruled on December 27 that the NIIPUC misinterpreted the scope of its authority and abused its discretion by declaring that PSNII could not sell additional securities to finance Unit 22, thus allowing the construction of Unit #2 to continue.

I s

On November 30, PSNII announced revised cost and completion date j

estimates for Seabrook Units el and #2. The new schedule showed completion

! dates of December 1984 and hlarch 1987, respectively, and a total cost, including l AFUDC, of $5.12 billion. Based on the previous April 1981 estimates, the two Units

were to have been completed in February 19S4 and 51ay 19S6, respectively, at a j total cost of $3.56 billion. To ease the 1983 cash requirement for the project, the l Seabrook participants, on December 21, voted to delay Unit #2 by four months to a new in-service date of July 1987. Accordingly, the total estimated project cost will I

i f increase from $5.12 billion to $5.24 billion.

O

As a result of the revised cost and completion date estimates, the Company's total cost to complete the project, including AFUDC,is presently estimated to be

$53.58 million. The Com ny is reviewing the impact of the increased Seabrook cost estimates on its ful,Je operations. As of December 31, the Company had invested approximately $23.20 million in the Seabrook Units. It is anticipated that each Unit will save the Company approximately 100,000 barrels of oil annually when each begins operation.

The Company currently has a 0.217% ownership interest (2.5 megawatts) in Afillstone Unit #3 located in Waterford, Connecticut. During 1982, Northeast Utilities, principal owner of this Unit, increased the estimated total cost of the Unit to $3.54 billion from $2.60 billion. The increase is attributable to inflation and new regulations mandating design changes. As a result, the revised total cost for the Company's ownership interest has increased from approximately $9.1 million to $10.3 million. Afillstone Unit #3 is expected to save the Company approximately 25,000 barrels of oil each year when it begins operation in Alay 1986.

The increased use of hydroelectric generating capacity continues to be a major commitment of Fitchburg Gas and Electric. In Alarch 1982, the Company began receiving 0.5 of a megawatt of low-head hydro capacity from Alassachusetts Ilydro Associates

• unit located on the Lowell Canal System. The contract for this purchase, which is expected to displace 4,000 barrels of oil a year, expires at the end of October 1984.

In addition, the Company signed a 10-year contract with Linweave, Inc., a paper manufacturing firm, to purchase 3.3 megawatts of low-head hydro capacity.

In service since August 4, this additional source of capacity is expected to provide 5% of the Company's total energy requirements, displacing 33,000 barrels of oil each year. Generating hydroelectric energy from its five mills on the IIolyoke (h!assachusetts) Canal System, Linweave expects to upgrade its hydro facilities so that additional capacity will be available for Fitchburg Gas and Electric.

The New England Power Pool (NEPOOL) Afanagement Committee has negotiated certain agreements with Quebec IIydro-Electric Corporation (IIydro-Quebec). These agreements, which are expected to be executed in mid-Alarch 1983, would become effective if and when all appropriate licensing requirements to construct the transmissian line have been met, the necessary state regulatory authorizations allowing NEPOOL members to support the related transmission facilities have been received and an agreement covering the necessary reinforce-ments of the existing transmission systems has been executed. As a member of NEPOOL, Fitchburg Gas and Electric will be entitled to approximately 0.5%

of the IIydro-Quebec power exchange. To enable this exchange of energy, a 690 megawatt interconnection will be constructed in New IIampshire and Vermont for a late 1986 in-service date. To be built with the provision for upgrading, this interconnection is expected to make way for the participants to purchase up to 2,000 megawatts of capacity from IIydro-Quebec if such capacity becomes available.

Providing for customers' energy needs at the lowest possibic cost, with minimal environmental impact, is a challenge facing Fitchburg Gas and Electric. To help meet this challenge, the Company has pooled its research dollars with more than 9

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000 other electric utilities across the country to support the work of the Electric Power Research Institute (EPRI). Research projects include major efforts in fossil fuel, solar, geothermal, wind and nuclear fusion, as well as transmission and distribution facilities improvements. Through EPRI, the Company maximizes its return on every research and development dollar, avoiding costly duplication of research and allowing for extensive projects far beyond the financial capability of the Company.

i Students learn to During 1982, the Company completed its second year of a five-year program operate and program to install a new energy-ellicient, cost effective street lighting system in the City of Q*n "j'j,',

Fitchburg. To date, over 1,200 mercury vapor lights in Fitchburg have been P

negronal vocational replaced with more efficient high pressure sodium lights.

Technical Schoolas they prepare for careers in this rapidly CAS OPEBATlONS expanding field.

' (inset) Michael To ensure reliability of service and to meet present and foreseeable future

! g,y*g' ire energy demands, the Company has improved and further developed its gas system Fitchburg Industrial and secured both additional natural gas and supplemental gas supplies.

Development commission, shou;s a In June 1982, the Company completed the installation of a 2% mile, eight-inch new indestrial park liigh pressure gas main in Fitchburg. The pipeline increases the Company's ability p o pc$[c"#fstomer.

to move natural gas into the Westminster and Gardner areas and its ability to c

Just as educational deliver vaporized LNG from its Westminster facility back to customers in

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Fitchburg. The gas main is also expected to provide the Company with additional u

p meet manpower and flexibility in its use of LNG and liquid propane gas (LPG) supplies and to f,',y,,"[I* lor'h*

increase winter system pressures.

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In its effort to secure long-term supplies, the Company entered into a 13-year c

7,nn be sure that sugerent agreement in April 1982 with Penn-York Energy Corporation to increase its ydr b

plies underground natural gas storage levels from 50,000 hlCF to 136,257 h!CF acallable to meet it, beginning with the 1982-83 storage year.

custocncrs' needs today and in the In the mid-19S0's, Fitchburg Gas and Electric, along with 13 northeastern

'/uture.

l utilities, should begin benefiting from its participation in Boundary G l

corporation formed for the purpose of importing up to 185,000 AICF of natural gas l

per day from Canada. The Boundary Gas Project, which has received approval from the U.S. Economic Regulatory Administration, should provide a new, reliable and long-term supply of natural gas to the Northeast, annually displacing over i

11 million barrels of imported oil. The natural gas will be purchased from Trans-Canada Pipelines, Limited and be delivered via a Niagara Falls interconnection to participants' service areas under transportation agreements with Tennessee Gas Pipeline Company, a division of Tenneco, Inc.

On August 23, the Company signed an amendment to a contract with Bay State Gas Company to increase LNG and LPG supplies from 165,000 hlh1 BTU (million British Thermal Units) to 325,000 hihlBTU annually. Fitchburg Gas and Electric also secured an additional 1.2 million gallons of LPG for the 1982-83 heating season from Dome Petroleum, Ltd. of Ontario. To manage the increasing supplies of LPG at an optimum efficiency level, the Company automated its propane facility in Lunenburg, improving both system control and system reliability.

j{

PROPERTY TAX CLASSIFICNTION In hf arch 1981, area businesses including the Company filed a lawsuit to t

i protest the improper implementation of a variable tax rate based on classes of property. As a result of this lawsuit, the hf assachusetts Supreme Judicial Court (Court) ruled that the City of Fitchburg (City) used an improper method of classification in fiscal year 1981, and that the Commissioner of Revenue, in certifying the City's implementation, deviated from her own guidelines for property tax classification. The Court ruling also concluded that the City should have applied $1.6 million in free cash to reduce fiscal 1981 property taxes. For a remedy, the Court referred the matter to the Appellate Tax Board ( ATB).

That decision cleared the way for the plaintiffs in the case to seek abatements from the ATB on fiscal 1981 and 1982 tax bills. Fitchburg Gas and Electric will seek an abatement in the amount of $130,000 on the free cash issue.

On December 13,1982, the ATB ruled that it would conduct hearings on the

' classification question, but stated it had no jurisdiction to decide the free-cash issue. The City has requested the ATB to reconsider its decision on classification.

Aleanwhile, Tudge Young of the h1assachusetts Superior Court, who originally ruled in favor of the plaintiffs on the $1.6 million of free cash, has said he is j

prepared to decide both issues. Though settlement still seems unclear, the Company is now more hopeful that the inequity will be favorably resolved.

AIUNICIPALIZATION STUDIES CONIPLETED Legal and engineering feasibility studies examining the municipalization of the electric portion of Fitchburg Gas and Electric were completed for the Fitchburg hiunicipal Power Project (Project). These studies, however, found no potential savings for customers of Fitchburg Gas and Electric in a municipalization takeover through the five-year period of the study. The report completed for the Project did note that the Company's transmission and distribution facilities were in generally good condition and commended the Company for its energy planning, commenting that a municipal unlity would not be able to buy or generate power any more cheaply than Fitchburg Gas and Electric. A local law finn conducted an in-depth legal review for the Project. The conclusions were as expected - changes 2

f' in the hf assachusetts General Laws would have to be enacted prior to any takeover attempt.

To counterbalance these studies, Fitchburg Gas and Electric retained the services of Stone & Webster h1anagement Consultants and Stone & Webster Appraisal Corporation, whose findings indicated that municipalization of the electric portion of the Company would not be economically feasible.

The only recommendation that was made by the Project's Steering Committee before its dissolution on December 31,1982 was for the four communities electrically served by the Company to file legislation which would allow a regional power authority or district to be created.

12-

CONSERVATION l

The Company continues to promote conservation efforts through its

]

comprehensive energy audit program, CONTACT (Conservation Techniques and Action). The program offers residential customers personalized energy-j saving suggestions tailored to their homes, appliances and energy-use habits.

Since initiating the program in 1981, over 1,400 customers have taken advantage j

of the opportunity to have their homes analyzed. In addition, the Company provides "how-to"information on insulation and other energy-saving improvements and maintains a list of contractors qualified to perform insulation work.

IIUMAN RESOURCES Fitchburg Gas and Electricis comprised of a network of transmission and l

distribution lines, pipelines, substations and various plants. But crucial to making i

energy flow is another kind of energy-the human energy of our 167 employees.

Providing reliable service has been the hallmark of Fitchburg Gas and Electric employees for 130 years.

I Af any employees carry this tradition into their personal lives as well. Living mostly within our franchise area, some serve on the board of various civic organizations, such as United Way member organizations, and are active in city and town govemments. Others are involved in youth programs, church organizations, charity drives and other activities to make their communities i

better places in which tolive.

Because of the nature of the industry, Fitchburg Gas and Electric places great importance on safety throughout its operation. The Company completed the year with an occupational injury and illness incidence rate of only 3.47 for each 200,000 manhours worked, a record well below the national average.

LABOR AGREEMENT In hlay 1982, Fitchburg Gas and Electric and The Brotherhood of Utility Workers of New England, Inc., Local No. 340, agreed to a new three-year contract.

The agreement, which included wage increases of 8% each year, resolved many issues which should result in improved management-labor relations for an extended period.

l OHGANIZATION At Board of Directors' meetings held Alarch 23,1982, Charles J. Kershaw, j

Jr., who has served the Company for 12 years in various capacities, most recently I

as Senior Financial Analyst, was elected an Assistant Treasurer of the Company and its subsidiary.

l 1

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i i

Consolidated thdance Sheets ASSETS December 31, 1982 1981 Utility Plant (at cost):

Electric

$30,829,203

$30,098,595 Cas 14,596,942 13,580,970 Common 681,238 559,217 Construction work in progress (Note 10) 27,787,817 18,874,882 Utility Plant.

73,895,200 63,113,664 Less: Accumulated depreciation (Note 1) 11,528,924 10,440,803 Net Utility Plant.

62,366,276 52,672,S61 Aliscellaneous Physical Property (at cost) 26,005 26,005 Investments (Note 1) 116,424 283,689 Current Assets:

Cash (Note 7) 577,734 1,859,345 Accounts receivable-less allowance for doubtful accounts of

$291,337 and $421,442 6,272,604 6,939,797 Refundabic income taxes.

654,566 988,253 hiaterials and supplies (at average cost) 1,209,660 1,580,287 Prepayments 726,144 696,397 Property tax refunds 130,320 116,620 Total Current Assets 9,571,028 12,180,6V)

Deferred Debits:

Unamortized debt expense (amortized over term of securities) 413,792 359,406 i

Unamortized cost of abandoned properties (Note 2) 950,251 1,644,178 Other (Note 2) 2,067,165 1,892,423 Total Deferred Debits 3,431,208 3,896,007 l

l 1

TOTAL

$75,510,941

$69,059,261 (The accompanying notes are an integral part of these statements)

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i j

l LIABILITIES December 31, 1982 1981 Capitalization:

Common Stock Equity (Notes 3 and 4):

Common Stock, $10 par value Authorized - 1,000,000 shares Outstanding-860,832 and 687,709 shares S 8,608,320

$ 6,877,090 i

Premium on common stock.

5,725,616 4,250,364 Capital stock expense.

(1,463,361)

(763,523) j Retained earnings

_ 6,744,6S6 7,239,762 Total Common Stock Equity 19,615,261 17,603,693 l

Redeemable Preferred Stock (Note 5):

l Cumulative prefeired stock, $100 par value Authorized -99,820 shares 5%% Series t

Outstanding - 15,200 and 15,620 shares 1,520,000 1,562,000 8% Series Outstanding-22,000 and 22,750 shares 2,200,000 2,275,000 Cumulative preferred stock, $1 par value Authorized - 1,000,000 shares

$4.00 Series Outstanding - 180,000 shares 180,000 Premium on preferred stock 4,320,000 Total Redeemable Preferred Stock 8,220,000 3,837,000 l

Long-term Debt (Note 6) 25,786,000 21,182,000 Total Capitalization 53,621,261 42,622,693 Current Liabilities:

Long-term debt due within one year 323,000 323,000 Notes payable (Note 7) 5,700,000 10,300,000 Accounts payable 6,297,682 6,282,762 Customer deposits and refunds 529,779 575,952 i

Taxes accrued 54,221 100,459 l

Deferred income taxes (Notes 1 and 8) 191,692 Interest accrued 1,032,598 768,225 Total Current Liabilities 13,937,280 18,542,090 Deferred Credits:

Unamortized investment tax credit (Note 1) 3,661,605 3,053,130 Other 99,302 39,639, Total Deferred Credits 3,760,907 3,092,769 Deferred Income Taxes (Notes 1 and 8) 4,109,779 4,731,509 Reserves-Other 81,714 70,200 Commitments (Note 10) l TOTAL

$75,510,941

$69,059,261 (The accompanying notes are an integral part of these statements)

Comolitlaied Statements of Earnings Years Ended December 31, 1982 1981 1980 Operating Revenues:

Electric

$28,193,890

$31,551,691

$28,525,028 Gas 18.289,210 16,583,322 13,785,001 Total Operating Revenues 46,483,100 48,138,013 42,310,029 Operating Expenses:

Operating expenses, other 7,101,172 6,766,170 5,572,558 Electricity purchased for resale 13,516,572 14,466,161 13,515,618 Fuel used in electric generation 4,731,089 6,242,038 4,917,372 Gas purchased for resale 13,316,471 11,174,231 0,172,312 Afaintenance 1,305,100 1,093,543 1,028,141 Depreciation (Note 1) 1,365,440 1,392,751 1,330,989 Amortization of mst of abandoned properties (Note 2) 693,949 766,325 824,122 Provisions for taxes (Notes 1 and 8)

Federal income tax on net operating income (597,375)

(121,819) 535,350 Deferred Federal income 355,260 833,457 508,285 Amortization of investment tax credit (91,029)

(97,776)

(85,214)

State franchisc 2,220 61,311 Deferred state franchise 28,717 (25,652) 56,352 Local property-current 1,481,069 1,673,265 1,626,214

-abatement of prior years (257,807)

Other 256,550 218,778 199,379 Tota! Operating Expenses 43,492,985 44,122,858 39,262,849 Operating Income 2,990,115 4,015,155 3,047,180 Non-operating Income:

Allowance for other funds used during construction (Note 1) 849,206 355,992 134,577 Other (net of income taxes) (Note 8) 67,788 117,417 21,529 Total Non-operating Income 916,994 473,409 156,106 Gross Income 3,907,109 4,488,564 3,203,2S6 Income Deductions:

Interest on long-term debt 2,524,446 2,249,374 1,610,809 Other interest charges 1,449,965 1,4S9,848 544,782 l

l Amortization of debt expense 35,238 26,178 18,361 j

Discount on long-term debt purchased for sinking fund (26,280)

(19,720)

(20,464)

Other 3,0 10 2,812 3,360 Gross Income Deductions 3,9S6,409 3,748,492 2,156,548 Allowance for borrowed funds used during construction l

(Note 1)

(2,069,505)

(1,850,287)

(656,752)

Net Income Deductions 1,916,901

_ 1,898,205 1,500,096 Net Income 1,990,205 2,590,359 1,703,190 Dividend Requirements on Preferred Stock.

549,497 265,419 273,602 Net Income Applicable to Common Stock

$ 1,440,IIIS S 2,324,910

$ 1,429,588 Average Number of Common Shares Outstanding.

773,440 624,574 513,384 l

Earnings per Average Common Share Outstanding

$1.86

$3.72

$2.78 (The accompanying notes are an integral part of these statements)

{h

Consolidated statements of channes in Financial cosition Years Ended December 31, 1982 1981 1980 Funds Provided By:

Funds from Operations 4

Net Income

$ 1,990,205

$ 2,590,339

$ 1,703,190 Principal Non-Cash Charges (Credits) to Earnings Depreciation 1,382,034 1,407,588 1,350,689 Deferred Federalincome tax 576,210 688,634 161,589 Deferred state franchise tax (13,845) 8,886 20,478 l

Amortization of investment tax credit (91,029)

(97,776)

(85,214)

Allowance for other and borrowed funds used during construction (2,918,711)

(2,206,279)

(791,329)

Property tax abatements (141,187)

Amortization of deferred debits 831,908 839,833 894,435 l

Funds Provided by Operations 1,756,772 3,090,058 3,253,838 l

Net Proceeds from Issuance of Long-term Debt 4,910,376 4,872,525 l

Net Proceeds from Sale of Common Stock 2,S63,328 2,140,450 2,092,094 Net Proceeds from Sale of Preferred Stock 4,141,309 Current Portion of Property Tax Abatement 270,813 Decrease (Increase) in Working Capital, Excluding Short-term Debt 2,604,861 311,996 (1,407,046)

Total Funds Provided

$16,276,646

$ 5,572,504

$ 9,082,224 Funds Applied To:

Additions to Plant

$ 7,652,010

$ 4,118,145

$ 3,832,775 Purchase of Additional Interest in Seabrook Units 503,290 9,026,657 Investments in Non-utility Operations 80,869 1,204 125,747 Common Stock Dividends 1,995,105 1,016,986 1,313,921 Preferred Stock Dividends 490,176 266,129 274,281 Funds Used for Retirement of Securities:

l Long-term debt 396,000 191,000 207,000 l

Preferred stock 117,000 117,000 117,000 Decrease (Increase) in Short term Debt 4,600,000 (8,600,000) 3,720,000 Other Applications (Sources)-Net 442,196 (1,164,617)

(508,500)

Total Funds Applied S16,276,646

$ 5,572,504

$ 9,082,224 Increase (Decrease) in Components of Working Capi-tal, Excluding Short term Debt Cash

$(1,281,611)

$ 762,353

$ (630,907)

Accounts receivable-net (667,193)

(1,516,324) 3,373,549 Refundable income taxes (333,687) 590,617 132,640 Materials and supplies (370,627) 750,511 (47,975)

Prepayments 29,747 307,265 (440,743)

Property tax refunds 13,700 (437,981) 91,780 Accounts payable (14,920)

(861,403)

(425,791)

Customer deposits and refunds 46,173 (44,890)

(272,387)

Taxes accrued 46,238 3,183 64,218 Deferred income taxes 191,692 297,150 (357,576)

Interest accrued (264,373)

(192,507)

(79,768)

Increase (Decrease) in Working Capital.

$(2,604,861)

$ (311,996)

$ 1,407,046 (The accompanying notes are an integral part of these statements)

~...

Consolidated Statements of Hetained Earnings Years Ended December 31, 19S2 19S1 19S0 Retained Earnings, Beginning of Year

$7,239,762

$6,532,518

$6,417,530 Net Income 1,990,205 2,590,359 1,703,190 1

Total 9.229,967 9,122,877 8,120,720 Deduct:

Cash dividends declared:

Cumulative preferred stock:

5%% Series at an annual rate of $5.125 per share 78,976 81,129 83,281 8% Series at an annual rate of $8.00 per share 179,000 185,000 191,000

$4.00 Series at an annual rate of $4.00 per share 232,200 Common stock at an annual rate of $2.60 per share 1,995,105 1,616,9S6 1,313,921 Total Deductions 2,485.281 1,883,115 1,588,202 Retained Earnings, End of Year (Note 4) 56,741,686

$7,239,762

_$6,532,518 (The accompanying notes are an integral part of these statements)

Notes to Consolidated Financial Statements Note 1: Summary of Significant Accounting Policies - The Company is subject to regulation by the Massachusetts Department of Public Utilities (DPU) with respect to its rates and accounting.

1 The Company's accounting policies conform with generally accepted accounting principles, as applied in the case of regulated public utilities, and are in accordance with the accounting requirements of the DPU A description of the Company's significant accounting policies follows.

Principles of Consolidation - On February 24,1978, the Company invested $20,000 in the common steck of a wholly-owned subsidiary, Fitchburg Energy Development Company (FEDCO). FEDCO has invested in oil and gas drilling projects, which investments have been recorded on the equity method. All inter-company items have been eliminated in consolidation.

J Revenue Recognition - The Company records unbilled fuel adjustment revenue currently to properly match revenues with related costs. Such unbilled revenue aggregated $434,771, $1,295,425 and

$1,691,820 at December 31,19S2,1981 and 1980, respectively.

Depreciation - Annual provisions are determined on a group straight-line basis. Provisions for de-preciation were equivalent to the following composite rates based on the average depreciable property balances at the beginning and end of each year: 1982 - 3.12%,1981 - 3.24% and 1980 - 3.19%.

Accounting for Income Taxes-For income tax purposes the Company excludes, when appropriate, a portion of unbilled fuel adjustment revenue and accordingly provides deferred income taxes pay-able in the succeeding year on such revenue which is carried as a current asset.

1 The Company has implemented the Accelerated Cost Recovery System (ACHS) method of tax de-preciation for all property additions subsequent to December 31, 1980, and uses an accelerated i

rnethod of tax depreciation for substantially all property additions prior to January 1,1981, which methods result in tax depreciation amounts in excess of book depreciation. The Company further de-ducts currently certain elemer,ts of construction overheads that are capitalized for book purposes. For i

cach of these differences, the Company provides deferred income taxes as had been previously approved for rate-making purposes by the DPU. The Company received, in a July 1982 order from the DPU, reaffirmation of the principle of full normalization.

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Note 1: Summary of Significant Accounting Policies-(Continued)

The Company has recorded deferred income taxes related to certain abandoned properties which are recognized as tax losses at differing times. The Company, in 1979, began capitalizing certain maintenance costs for a generating unit, yet continued to deduct these costs currently for tax pur-poses. Deferred income taxes have been provided for this timing difference.

The annual investment tax credits permitted for additions to the Company's utility property are being amortized to income rateably over the estimated productive lives of the related assets as allowed by the DPU. Such deferrals for the years 1982,1981 and 1980 amount to $769,780, $1,255,S99 and

$374,736, respectively.

The additionalinvestment tax credit permitted under the Company's Employee Stock Ownership Plan (ESOP) is available to reduce Federal income taxes payable by 1%% of the Company's qualified property additions. The resulting amounts are payable to the ESOP.

i Allowance for Funds Used During Construction-An allowance for funds used during construc-tion (AFUDC), a non-cash item, is included in construction work in progress. The objective of AFUDC is to present the earnings that would result in the absence of construction programs and the related financing requirements during the period of that construction. Accordingly, AFUDC capi-talizes the cost of debt and equity employed in meeting these financing requirements, based upon a composite rate applied to construction work in progress, which assumes that funds used for construction were provided by borrowings, preferred stock and common equity. Annual rates of approximately 13%,16% and 14% were used for the years 1982,1981 and 1980, respectively. The equity component of AFUDC equals 58.9%,15.3% and 9.4% of net income applicable to Common Stock for the years 1982,1981 and 19S0, respectively.

Note 2: Deferred Debits Unamortized Cost of Abandoned Properties-The unamortized cost of abandoned properties is l

being amortized at various rates as ordered by the DPU:

On October 18, 1978, the Company filed with the DPU its proposed accounting treatment relative l

to the book abandonment ordered by the DPU of generating Unit #6, which treatment was ap-proved by the DPU on November 7,1978. The Company had commenced amortization of this property in September 1978, retroactive to January 21, 1978, and completed this amortization in November 1982. In September 1981, the Company had abandoned the generating unit for tax purposes pursuant to management's determination that there was no longer economic justification for retaining the Unit as standby capacity available for future rehabilitation. The tax abandonment had no effect on earnings.

On November 1,1979, the Company began amortizing the costs of its investment in the proposed Charlestown Units #1 and #2 nuclear generating plants and completed this amortization in October 1982. This abandonment had been precipitated by the announcement on October 9,1979 by the lead participant, New England Electric System, to defer indefinitely the in-service date and the subsequently announced termination of this project.

On December 31,19SO, Northeast Utilities, the lead participant in the proposed nuclear generating plants,.\\fontague Units #1 and #2, announced the termination of the construction of these units.

j On April 24, 1981, the Company received permission from the DPU to amortize approximately

$294,000 of related costs over a five-year period, effective January 1,1981. Rate recovery is currently being considered in the context of the current electric rate filing.

On September 23, 1981, the Board of Directors of Boston Edison Company voted to cancel the Pilgrim Unit #2 project due to increased costs resulting from regulatory delays. On October 22,1981, the Unit was officially cancelled. The Company requested in its current electric rate filing that the investment in Pilgrim Unit #2, net of deferred taxes related thereto, receive appropriate rate treat-ment allowing for a five-year amortization. This property was classified as a deferred debit at December yn 31,1981, pending DPU approval of the proposed accounting treatment.

I ')

~_ _

Note 2: Deferred Debits -(Continued)

The amounts to be amortized for all properties over the next five years, assuming DPU approval of the five-year amortization of Pilgrim Unit #2 by Afarch 31,1983, are as follows: 1983 - $221,000; 1984-1985 - $263,043; and 1986-1987 - $223,750.

Other Deferred Debits-Other deferred debits are composed of the following:

December 31, 1982 1981 Pilgrim Unit #2 (Note 9)

$1,210,650

$1,200,143 Storm damage 64,594 Property tax abatements receivable 129,626 270,813 Notes receivable 127,171 129,818 Deferred maintenance costs (amortized based upon generation) 171,841 174,747 Afoving expenses 35,553 66,027 Turbine mainte~ nance expense 122,216 Rate case expenses 158,757 hiiscellaneous 46,757 50,875 Total other deferred debits

$2,067,165

$1,892,423 Note 3: Common Stock - On June 2i,1982, the Company sold 150,000 shares of Common Stock to the public at $18.50 per share. At various times during 1982, the Company sold 23,123 shares of Common Stock in connection with the Company's ESOP and Dividend Reinvestment and Stock Pur-chase Plan at an average price of $18.66 per share. Net proceeds of $2,863,328 were used to reduce short. term borrowings incurred in connection with the Company's on going construction program. On June 23,1981, the Company sold 125,000 shares of Common Stock for $19.00 per share. The Company sold an additional 4,232 shares of Common Stock at $18.00 per share to the Company's ESOP on Oc-tober 22,1981. Net proceeds of $2,140,450 in 1981 were used to reduce short-term borrowings incurred in connection with the Company's on-going construction program.

Note 4: Restriction on Retained Earnings-Under the most restrictive provisions of indentures and note purchase agreements relating to the Company's long-term debt, $2,746,807, $3,256,074 and

$2,559,479 of retained earnings were available for the payment of cash dividends on Common Stock at December 31,1982,1981 and 1980, respectively.

Note 5: Redeemable Cumulative Preferred Stock-On August 5,1982, the Company sold to the I

public 180,000 shares of an initial series of Cumulative Preferred Stock, $1 par value, at $25 per share with an annual dividend rate of $4.00 per share. Net proceeds of $4,141,309 were used to reduce short-term borrowings incurred in connection with the Company's on-going construction program.

Both classes of Cumulative Preferred Stock rank equally and are preferred over Common Stock in voluntary liquidation at the redemption price in effect at the time of su~h voluntary liquidation and in involuntary liquidation at $100 per share with respect to the 5%% and 8% Series and at $25 per share with respect to the $ 1.00 Series, all plus accrued dividends.

i Shres of the 5%% Series are redeemable at the Company's option at $101.28 per share. The Company is required to purchase on June 1 of each year not less than 420 shares of the 5%% Series unless a lesser amount of shares is tendered, at $100 per share plus accrued dividends.

Shares of the 8% Series are redeemable at the Company's option at $108.00 per share on or before August 31,1983 and at diminishing premiums thereafter. The Company is required to purchase on June 1 of each year not less than 750 shares of the 8% Series unless a lesser amount of shares is tendered, at $100 per share plus accrued dividends.

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Note 5: Redeemable Cumulative Preferred Stock- (Continued)

Shares of the $4.00 Series are redeemable at the Company's opt?on at $29.00 per share on or before June 1,1987 and at diminishing premiums thereafter. The Company is required to purchase on June 1 7

of each year, commencing in 10SS, 9,000 shares of the $1.00 Series at $25 per share plus accrued dividends.

Purchases of redeemable Preferred Stock during 1982,1981 and 1980 consisted of the following:

Series

1982, 1981 1950 5%%

$42,000

$42,000

$42,000 8%

$75,000

$75,000

$75,000 The aggregate amount of sinking fund requirements in each of the five years following 1982 is $117,000.

Note 6: Long. term Debt - Details of Long-term Debt at December 31,1982 and 1931 are shown below:

December 31, 1982 1981 Twenty-five year Notes,4%%, due February 1,1984

$ 3,054,000

$ 3,097,000 Ten year Notes,17%%, due August 15,1992 5,000,000 Twenty-five year Notes,9%%, due hfarch 1,1995 6,675,000 6,748,000 4

Twenty year Notes,10%, due September 1,1996 t,S00,000 3,000,000 Twenty-five year Notes,10%%, due hfay 1,1999 3,5SO,000 3,660,000 Twenty year Notes,15%%, due September 1,2000 5,000,000 5,000,000 Total

$26,100,000

$21,505,000 Less: Installments due within one year 323,000 i 323,000 Total Long-term Debt

$_25]S6,000

$21,182,000 i

The Company privately sold $5,000,000 of its 17%% Notes due August 15, 1992 to an institutional l

investor on August 24, 1982. Proceeds from the sale were used to reduce short-term borrowings incurred in connection with the Company's on-going capital construction program.

The aggregate amount of sinking fund requirements and payments at maturity for each of the five years following 1982 are: 1983-$323,000; 1984-$3,366,000; 1985-$355,000; and 1986-1987-l

$685,000. The Company has satisfied $75,000 of the sinking fund requirements for the 9%% Notes for 1983.

I Note 7: Credit Arrangements-Under line of credit arrangements for short-term debt with five banks, the Company may borrow up to $15,000,000 on such terms as the Company and the banks may mutually agree upon.

These arrangements do not have termination dates, but are reviewed annually for renewal. At De-1 l

cember 31,1982 and 1981, the unused portion of the credit lines outstanding was $9,300,000 and l

$4,400,000, respectively. Tle Company has agreed to maintain certain average amounts on deposit j

in these banks or pay certain fees in lieu of compensating balances. In 1981 certain of the lines of credit J

required that compensating balances be increased in relation to usage. Compensating balance require-ments at December 31,1982 and 1981 were approximately $80,000 and $970,000, respectively.

M, l

Note 8: Federal Income Tax - Federal income tax expense is comprised of the following com-j ponents:

i Years Ended December 31, 1982 1981 1980 Current expense charged (credited):

Operating expenses

$(597,375)

$(124,849)

$535,350 Non-operating income (63,834)

(24,530)

(30,210)

Amortization of investment tax credit (94,029)

(97,776)

(85,214)

(755,238)

(247,155) 419,926 l

Deferred tax expense charged (credited):

l Deferred unbilled revenue (162,653)

(276,917) 321,701 Accelerated tax depreciation 325,577 322,551 293,194 Abandoned pmperties (174,814) 650,300 (192,419)

Overheads and other 322,306 150,063 63,107 Defened maintenance costs 54,919 (2,494)

(6,441)

Percentage repair allowance (10,105)

(10,016) 29,083 355,260 833,457 508,285 Non-operating expense (42,983)

(19,951)

(24,995) 312,277 813,506 483,290 Total Expense (Benefit)

$(442,961)

$ 566,351'

$903,216 The Federal income tax amounts included in the Consolidated Statement of Earnings differ from the aniounts which result from applying the statutory Federal income tax rate to Net Earnings before income tax. The reasons, with related percentage effects, are as shown below:

Years Ended December 31, 19S2 1981 1980 Statutory Federalincome tax rate 46 %

46 %

46 %

Income tax effects of timing differences:

Allowance for funds used during construction (see Note 1)

(82)

(30)

(10)

Afiscellaneous 7

2 (1)

Effective Federalincome tax rate (29)%

18 %

35 %

Note 9: Regulatory Afatters-On January 25,1982, the Company petitioned the DPU to reaffinn its approval of the concept of tax normalization of the debt component of AFUDC. On July 2,1982, the DPU issued an order dismissing the Company's petition. The DPU order stated that it was unneces-sary and inappropriate to adjudicate the issue presented in the Company's petition since the DPU had I

recognized and approved the practice of normalizing the debt component of AFUDC in many rate cases, including the Company's last rate case. The DPU concluded that the Company's normalizatioa of the debt component of AFUDC should be considered in the context of the Company's next ftill electric rate case.

On July 10,1982 the Company requested a $3,378,000 increase in gas base rates, subsequently revised to approximately $3,173,000. On January 31,1983, the Company was granted an increase of approxi-mately $2,318,000, which amounts to 73% of the revised amount requested.

The Company filed for a $4,103,000 increase in its electric base rates on September 16,1982 which was subsequently adjusted to approximately $3,959,000. This request included a $1,771,000 adjustment to implement normalization of the debt component of AFUDC. The implementation of such normaliza-tion would not have any effect on earnings, but would improve the Company's cash flow. This request i

also included a provision for complete recovery of the Company's investment, net of related taxes, in the abandoned Pilgrim Unit :22 (see Note 2) in the amount of approximately $841,000. In the opinion of counsel, the Company should recover at a minimum approximately $537J)00 of the amount so j

requested if the DPU adheres to prior precedents. Any portion of the amount requested by the Com-pany which it is not permitted to recover will be charged against earnings at the time of final deter-mination. IIearings were concluded on December 20,1982 and the DPU must render a decision on the r;

Company's request by hiarch 31,1983.

Note 10: Commitments Lease Obligations-In accordance with the guidelines of Statement of Financial Accounting Standards No.13 issued by the Financial Accounting Standards Board, the Company is disclosing pertinent information regarding its capital leases. The Securities and Exchange Commission requires, for rate-regulated enterprises, disclosure of the effect on the balance sheet and on expenses if such leases had been capitalized.

The Company has a twenty-five year lease which began April 1,1973 for a combustion turbine and a liquefied natural gas storage facility. The lease is subject to a ten-year rerewal period at the option of the Company at an annual rental of 14%% of the aggregate fair market value at the end of the initialIcase term. Under ceitain conditions the Company has the right to purchase these facilities at an independently appraised market value. Under the lease, the Company has the obligation to maintain the equipment in good operating condition and pay all taxes and insurance on said equipment.

'Ihe Company leases its service center in Fitchburg under a sale and leaseback arrangement. The twenty-two year primary term of the lease began in February 1981 with annual rental payments increasing over the initial term of the lease from approximately $184,000 to $537,000. The lease is subject to five five-year renewal periods at the option of the Company at an annual rent of $270,000.

The Company has the option to purchase the service center on the last day of the primary term or any extended term at a price equal to its fair market value. The Company has a right of first refusal to purchase the service center during the term of the lease if a bona fide offer is made to the lessor. Should the service center be purchased by another party, this right expires after the transfer of ownership resulting from this offer. The lease requires that the Company maintain the service center and pay all taxes and insurance thereon.

liad the Company capitalized its capital leases at December 31,1982 and 1981, the asset and related liability which would have been rccorded on the balance sheets for the Company's capital leases would have been as follows:

December 31, 1982 1981 Asset

$4,731,232

$4,883,192 Liability

$5,807,364

$6,023,941 Ilad the Company capitalized its capital leases, depreciation and other interest charges would have increased and operating expenses, other would have (decreased) as follows:

Years Ended December 31, 19S2 1981 1980 Depreciation

$ 288,133

$ 265,996

$ 182.373 Other Interest Charges

$ 694,413

$ 578,755

$ 183,187 Operating Expenses, Other

$(617,965)

$(544,844)

$(327,877)

The minimum commitments under all non-canceliable long-term leases in effect at December 31,1982 are as follows:

1983

$ 872,217 1984 883,380 1985 867,676 1986 844,753 1987 835,887 1988 - 1992 3,543,284 1993 - 1997 3,803,950 l

1998 - 2002 2,742,586 2003 44,771 Total rental expense for the years ended December 31,1982,1981 and 1980 amounted to $687,142,

$583,810 and $443,913, respectively.

Note 10: Commitments - (Continued) Pension Plans -The Company has in effect two funded pension plans and related Trust Agreements to provide retirement annuities for participating employees at age 65. The entire amount of the annual contribution under the actuarial requirements of the plans is borne by the Company. The Company's contribution to the plms during the years ended December 31,1982,1981 and 19S0 amotmted to $552,824, $561,661 and $533,945, respectively, which includes amortization of prior ser ice costs over j a period of thirty years. The Company's policy is to fund the pension cost accrued. The following additional information is presented as of the most recent benefit information dates: January 1, 1982 1961 Actuarial present value of accumulated plan bene 81ts: Vested $4,459,203 $4,110,820 Non-Vested 75,520 76,412 $4.534,723 $4,187,232 Net assets available for benefits $2,183,048 $1,934,828 The weighted average assumed rate of return used in determining the actuarial present value of accum-ulated plan benefits was 8% for both 1982 and 1981. Joint Ownership Units and Construction - The Company is participating on a tenancy-in-common basis with other New England utilities in the construction and ownership of five generating units. New Ilaven Harbor and Wyman Unit #4, both oil-fired stations, have been in commercial operation since August 1975 and December 1978, respectively, The remaitiing three generating units are nuclear units under construction. During the five-year period ending December 31, 1987, the Company estimates construction requirements, including AFUDC, relative to these units will be approximately $36,280,000. On January 26,1979, the common shareholders approved the acquisition of an additional 0.43332 % ownership interest in each of the Seabrook Units from The Connecticut Light and Power Company 3 (CL&P). On Afarch 25, 1960, the common shareholders approved the acquisition of an additional n 0.26087% ownership in each of the Seabrook Units from Public Service Company of New Ilampshire (PSNII). The purchase of both additional interests, representing an additional 16 megawatts, was ap-proved by the DPU on October 31,19SO and is included in the information presented below. The pur-chase from CL&P increasing the Company's ownership interest in the Seabrook Units was consummated on January 30,1981. The purchase from PSNII increasing the Company's ownership interest in the Seabrook Units was phased in over the thirteen-month period, February 1981 through February 1982. Details relating to the various units are as follows: Company's Share in Thousands of Dollars Proportionate Total Share of Amount of Amount Estimated Total. Utility Expended Cost of Owrership_ Plant m Accumulated through Con-Joint Ownership Units State mw Service Depreciation 12/31/82 struction Seabrook Units

1. 1 & #2 New Ilampshire 0.86519 19.9

$23,152 $53,584 Afillstone Unit #3 Connecticut 0.217 2.5 4,461 10,312 Wyman Unit #4 Afaine 0.1822 1.1 407 61 New Haven Harbor Connecticut 4.5 20.1 6,968 1,526 43.6 $ 7,375 $ 1,587 $27,616 $63,896 Estimates of the total cost of construction are based upon the most recent information furnished by the utilities supervising construction of the nuclear units and various other assumptions made by manage-ment of the Company regarding sources of financing and costs of capital. The Company has been advised by the supervising participant for each project that construction budgets are continually updated in light of increased costs due to deferrals, delays and other factors. As a result of actions taken by the joint owners of the Seabrook Units, including the lead participant PSNII, during November and December of 1982, the cost estimates for the Seabrook Units were revised and the estimated in-N

Note 10: Commitments - (Continued) sersice dates for Units el and d2 were changed to December 19S1 and July 1987, respectively. On September 7,1982, the Company received revised estimated costs of construction from Northeast Util-ities, the parent company of the lead participants in Afillstone Unit c3, with respect to that Unit. The Company expects to finance the cost of its participation in the Units initially through short-term borroWgs. At the appropriate times, short-term borrowings will be converted into equity and long-term debt. The mmplexity of present-day electric utility technology and the time required for the construction of generating facilities and completion of licensing and other regulatory proceedings relating thereto have compelled the Company, as well as other electric utilities, to make substantial investments in nuclear facilities prior to completion of licensing and regulatory proceedings. Cancellation of any of the three nucle. e generating Units for any reason, including the inability to obtain necessary permits or sufficient financing, could result in substantial and possibly unrecoverable charges against the Com-pany's income. These charges could include the amounts incurred by the Company prior to cancella-tion, cancellation penalties and other charges. The scheduling of Afillstone Unit #3, and the right to cancel that Unit, are solely the responsibility of the particular New England utility which is super-l vising construction of that Unit. The scheduling of the Seabrook Units, and the right to cancel either of these Units, can only be made with the consent of 75% of the participating interests of the utilities involved in the con <,truction of those Units. Operating expenses included in the Consolidated Statements of Earnings relating to the joint owner-ship units and their percentage of that specific operating expense are as follows: Thousands of Dollars ('[y"y[j New IIas en Expense i Wyman Unit # 4 Ilarbor Category Operating Expense, Other S 26 $ 375 9% Fuel Used in Electrical Generation 102 4,476 97 Alaintenance 4 196 25 local Property Tax 5 215 20 Other Taxes 11 8 Total Operating Expenses U3I $5,273 Long-term Obligations - The Company maintains contracts for both natural and supplemental gas supplies and the storage and delivery of natural gas stored underground. These contracts contain minimum purchase provisions which the Company is obligated to pay. The minimum purchase pro-vision of the natural gas contracts may increase or decrease on the action of the Federal Energy llegulatory Commission (FERC) with regard to curtailment of supply. All of the supplemental supply contracts contain a minimmn purchase provision subject to product availability from the supplier. The minimum commitment, at currently prevailing rates, for the contracts is as follows: 1933 S12,130,998 19S1 14,214,780 19S5 13,991,411 1956 13,470,216 19S7 13,470,216 19SS-1992 57,964,920 1993-1997 49,378,692 1993-2000 26,603,995 The Company has entered into a transmission support agreemant with other New England utilities to bring electricity from Quebec Ilydro-Electric Corporation via Vermont and New IIampshiro, starting l in 1986, which will cost the Company approximately $200,000 per year. The Company has four contracts for electric purchases with unconditional capacity and transmission charges which approximate $5,400,000 annually through 1956, then $1,300,000 annually through 1992. q~ A substantial pottion of the Company's energy supply is obtained under long-term contracts. Lj

Note 11: Segment Information - In accordance with Financial Accounting Standard No.14, the following information is presented relative to the gas and electric operations of the Company: Electric Operations 1982 1981 1980 Operating revenues $28,193,890 $31,554,691 $28,525,028 Operating income before income taxes S 1,650,425 $ 2,950,982 $ 2,527,335 Identifiable assets as of December 31 $53,132,693 $45,101,618 $32,817,347 Depreciation S 979,783 $ 980,737 $ 976,148 Construction expenditures $ 6,963,559 $12,623,393 $ 1,620,827 Gas Operations 1982 1981 1980 Operating revenues 818,289,210 $16,583,322 $13,785,001 Operating income before income taxes $ 1,032,263 $ 1,651,573 $ 1,595,959 Identifiable assets as of December 31 $13,804,033 $14,229,005 $12,949,057 Depreciation $ 385,657 $ 412,017 $ 354,841 Construction expenditures $ 1,191,741 $ 521,409 $ 2,211,948 Total Company 1982 1981 1980 Operating revemies $46,483,100 $48,138,013 $42,310,029 Operating income before income taxes $ 2,682,688 $ 4,602,555 8 4,123,294 Income tax benefit (expense) 307,427 (587,400) (1,076,114) Non-operating income 916,994 473,409 156,100 Net income deductions (1,916,904) (1,898,205) (1,500,096) Net income $ 1,990,205 $ 2,590,359 $ 1,703,190 Identifiable assets as of December 31 $66,936,726 $59,330,623 $45,766,404 Unallocated assets, primarily working capital 8,574,215 9,728,638 9,753,323 Total assets as of December 31 $75,510,941 $69,059,261 $55,519,727 Depreciation $ 1,365,440 $ 1,392,754 $ 1,330,989 Construction expenditures 8 8,155,300 $13,144,802 $ 3,832,775 Expenses used to determine operating income before taxes are charged directly to either segment or are allocated in accordance with factors contained in cost of senice studies which were included in rate applications approved by the DPU. Assets allocated to each segment are based upon specific identification of such assets provided by Company records. Assets not so identified represent primarily working capitalitems. l 26

...=- __. -- - - - - = I 1 i Report of Independent Certified Public Accountants a i To the Shareholders of FITCIIBURG GAS AND ELECTRIC LIGIIT COh1PANY: 1 We have examined the consolidated balance sheets of Fitchburg Gas and Electric Light Company and Subsidiary as of December 31,1982 and 19S1 and the related consolidated statements of earnings, retained earnings and changes in financial position for each of the three years in the period ended December 31,1982. Our examinations were made in accordance with generally accepted auditing standards and, accordingly, t included such tests of the accounting records and such other auditing procedures as we considered necessary in the circumstances. In our report dated February 3,1982, our opinion on the 1981 and 1980 financial statements was qualified as being subject to the effects on the 1981 and 1980 financial statements of such adjustment,if any, as might have l been required had a challenge by the Attorney Generalof The Commonwealth of Afassachusetts of the Company's method of billing and accounting for revenues under its fuel adjustment clause in effect from January 1 through September 26,1974 been pursued. Based upon their review of the current posture of the matter, the Company's management and their legal counsel are of the opinion that the likelihood of the Attorney General carrying this challenge forward in the future is remote. Accordingly, our present opinion en the 1981 and 1980 financial statements as presented hereir. differ from that expressed in our previous report. In our opinion, the financial statements referred to above present fairly the consolidated financial position l of Fitchburg Gas and Electric Light Company and Subsidiary at December 31,1982 and 1981 and the consolidated results of their operations and changes in their financial position for each of the three years in the period ended December 31,1982, in conformity with generally accepted accounting principles applied on a consistent basis. 1 ALEXANDER GRANT & COh!PANY l r Boston, hiassachusetts February 2,1983 27

Management's Discunion af I'inancial Condition and Hesults of Operations Financial Condition The liquidity and capital resources of the Company, like most electric utility companies, are influenced most significantly by construction required to provide the environmentally-acceptable facilities needed to meet the anticipated energy needs of its customers. The rate-making practices of most utility regulatory commissions, including the hf assachusetts Department of Public Utilities (DPU), effectively require substantial external financing of the investment in additional facilities and equipment. Under these practices, the financing costs of camstruction projects are generally treated as part of the cost of the new facilities. The inclusion of financing costs in the cost of new facilities is acmmpanied by recording Allowance for Funds Used During Construction ( AFUDC) (a non-cash item) in the Statement of Earnings (see Note 1 to the Consolidated Financial Statements). Although this accounting treatment allows recovery of the cost of construction funds through depreciation over the life of the facilities, the recording of income credits is not immediately aemmpanied by cash ilow. As a result, the quantity of earnings may not be greatly reduced during periods of heavy construction, but the cash flow content of earnings is substantially reduced. Low internal cash generation requires a large amount of external financing to support the construction program. Consideration of liquidity and capital resources for an electric utility company must primarily be directed toward an assessment of its ability to attract the capital necessary to support its construction program. The interest expense incurred by the Company which constitutes the debt component of AFUDC is a deductible item for Federal tax purposes, and substantially all the resulting benefit is used to reduce current income tax expense in accordance vith DPU rate-making practice. In order to enhance its cash flow position, the Company petitioned the DPU on January 25,1982 to grant a normalization allowance, that is, retention of a portion of these tax benefits by the Company until such time as the related facilities become operational. On July 2,1982 the DPU dismissed the Company's petition, indicating that the issue presented should be considered in the context of the Company's next full rate case. On September 16,1982, the Company filed for permanent electric rate re!Ief, which is described below, and incorporated into this rate filing an adjustment to implement increased normalization of the debt companent of AFUDC. Approval of such adjustment for normalization by the DPIT would not have any effect on earnings but the Coryany believes that,if granted in full,it would improve the Company's cash flow position by approximately $1,771,000 annually. It is vital to the interests of the Company's shareholders and customers that income from operations be adequate to finance the capital expenditures necessary to meet its service requirements. To achieve a satisfactory level of earnings and improve the cash flow position of the Company,it became necessary to file for permanent gas and electric rate relief on July 16,19S2 and September 16,1982, respectively. The Company's request for gas rate relief amounted to approximately $3,378,000 on an annual basis and was subsequently revised to approximately $3,173,000 on an annual basis. On January 31,1983, the Company was granted an increase of approximately $2,318,000,73% of the revised amount requested. The request for electric rate relief amounted to approximately $ 1,103,000 on an annual basis and was subsequently adjusted to approximately $3,959,000. It included an adjustment of approximately $1,771,000 to implement increased normalization of the debt component of AFUDC. The DPU will further determine in the Company's pending electric rate proceeding that portion of its net investment in the abandoned Pilgrim Unit #2, amounting to approximately SSil,000, which will be recoverable for rate purposes. The Company would be required to charge against earnings, at the time of final determination, any portion of this net investment which would not be recoverable for rate purpose (see Notes 2 and 9 to the Consolidated Financial Statements for further details). IIcarings on this rate request were concluded on December 20,19S2 and final briefs were filed in February 1983. The DPU must render a decision on the Company's request by Alarch 31,19S3. Capital expenditures for utility operations in 19S2 declined by 3S% primarily because of the 1981 purchase of an additional 0.69119% ownership interest in Seabrook Units #1 and #2. In 1982 the Company expended approximately $S,561,000 of its $11,074,000 utility plant expenditures, inclusive of AFUDC, on Seabrook Units #1 and #2 and Millstone Unit #3. Because ofits commitment to Seabrook Units id I and -: 2 and hiillstone Unit # 3, the Company has forecasted a cash construction budget of approximately $9,131,000, exclusive of AFUDC, for 1983, of which M,

( approximately $7,214,000 consists of the on-gointlinvestment in the jointly-owned miclear plants (see Note 10 to the Consolidated Financial Statements for further details). The Company's total cash commitment toward these Units is estimated to be approximately $19,612,000, excluding AFUDC, over the rest five years. This estimated five-year cash commitment assumes that the present cost estimates and in-service dates of the respective Units remain unchanged, unaffected by substantial adverse regulatory actions, labor

• lated disruptions or delays in construction milestones.

While redemptions of long-term Notes will be made to satisfy several annual sinking fund requirements during the next five years, the Company's only long-term debt obligation coming due during this period is the payment at maturity of $3,011,0000 of the Company's 4%rc Notes due in 1981. When internally generated funds are not available, the Company follows a policy of borrowing on a short term basis to meet its capital retptirements and, at the appropriate time, converts its short-term indebtedness into senior capital. The size and timing of such financings will depend upon developments in the financial markets and the ability of the Company to meet financing covenants. The Company has and will continne to review its plans for financing its future service requirements,in particular the timing and amount of the cash outlays required for Seabrook Units gl and #2 aad Millstone Unit d3 now under ccmstruction. Preliminary financing l plans indicate that the Company may saise approximately $30,000,000 during 1983 and 1931, through equity and debt financings, to meet its cash requirements. The Company presently anticipates that during the 1983-19Si period,100% of its estimated construction expenditures will be finanted by externally generated funds. While the Company has not determined its financing plans for 1985-1987,it beliaes that its outside financing iequirements should decrease substantially durin ; that period. This decrease in the need for financing should principally result from a significant improvement in the Company's cash flow associated with the commercial operation of Seabrook Unit pl, currently projected for December 31,1981. Any delay from the planned in-service dates of these Units may result in significantly higher cash outlays for these Units and correspondingly increased future financing requirements. The Company is cognizant of its responsibility to insure that these major construction pmjects are prudently managed, have cIIcetive cost control and can be completed as expeditiously as possible. The Company has reviewed and will continue to review this situation very closely and will take all reasonable action available to it to insure that the goals are inct. The Company is reevaluating its subsidiary's investments in gas and oil exploration projects. The sale of its portion of one of these projects is presently being negotiated. On June 21,1982, the Company issued 150,000 additional shares of Common Stock to the public. On August 5,19S2, the Company sold to the public 1S0,000 shares of an initial series of Cumulative Preferred Stock, $1 par value, with an annual dividend rate of $1.00 per share. The Company privately sold $5,00n,000 of its 17%Tc Notes due 1992 on August 21,19S2. The Company further issued in 19S2, at various times,23.123 shares of Common Stock in connection with its Dividend Reinvestment and Stock Purchase Plan and Employee Stock Ownership Po (ESOP). In 19S1 the Company issued 125,000 shares of Common Stock to the public and 4,232 additional shares 5 connection with the ESOP. The Company previously issued, during 1950,100,000 shares of Common Stock to the public and 3,002 additional shares in eonnection with the ESOP. In 10S0 the Company also sohl privately $5,000,000 of its 15%rc Notes due 2000. The Company's service center, costing approximately $2,700,000, is being funded through a sale and leaseback arrangement entered into in February 1981 for an initial term of 22 years. The Company has a 25 year lease on a combustion turbine and an LNG storage facility which commenced in 1973. The Company leases other equipment including its computer system. Operating Results Net Income declined during 19S2 by approximately $600,151 (23rc). Earnings per average common share for 19S2 were $1.86, on a larger number of shares outstanding, as compared to $3.72 in 1981 and $2.78 in 19S0. This decrease was primarily due to lower kilowatt-hour (KWil) sales to industrial users and a significant reduction in the gross profit associated with interruptible gas sales (sales to customers who possess alternative energy sources and who use gas on an as-available basis). Net Income rose during 1981 by appmximately SS87,000 (52rc ) I after declining by appmximately $558,000 (25Tc) in 19S0. Contributing to these higher 1981 earnings were an l increase in tax benefits associated with the debt component of AFUDC and a rise in gross profit associated with interruptible gas sales. Electric Operating Revenues were lower by 11% in 1982, reflecting primarily the adverse effects of the economic recession upon certain of the Companfs large industrial customers. Electric Operating Revenues increased by 11ro and 17Fo in 1981 and 1980, respectively, principally due to higher fuel costs for generation and energy cost of purchased power, both of which are passed on to customers through the operation of a cost of fuel adjustment clause. During 19S2,1981 and 1980, KWII sales fell by 7Fe,3ro and 6Tc, respectively. [

Cas Operating Revenues rose by 10Tc,209o and 41rc in 1982,1981 and 19S0, repectively. These increases were principally due to the higher cost of purchased gas, which is passed on to customers through the operation of a cost of gas adjustment clause. While the volume of gas sold declined by 5.8% in 1982, if one excluded interruptible gas sales the volume of gas sold wuuld have only been reduced by 1.995. The volume of gas sold in 1981 fell by 3%, and if one excluded interruptible gas sales the volume of gas sold during that period would have increased by 4rc. The volume of gas sold in 1950 increased by 23.5% including an increase in interruptiUe gas sales of 47.4?c. Electricity Purchased for Resale declined by 77o in 1982, reflecting the reduced demand for electricity, while the per unit energy cost rose by only.06 cent (l.2%). In 1981 and 19S0, Electricity Purchased for Resale increased by 79b and 29?o, respectively, reflecting increases in the per unit energy cost of approximately.7 cent (16To) and 1.1 cent (339c,, respectively. Fuel Used in Electric Generation fell by 24To in 1952 reflecting reduced demand for electricity nnd a stabilization in the costs of fuel oil during the year. This compares with 277o and 45% rises in the cost of Fuel Used in Electric Generation in 1981 and 1950, respectively, which were principally due to the escalation in the costs of fuel oil used in the generation of electricity. Gas purchased for resale rose by 197c, 2295 and 577o in 1982.1981 and 1980, respectively, due primarily to higher prices charged by the Company's pipeline supplier. Operating Expenses, Other increased by 59b in 19S2 reflecting primarily higher payroll and related benefits. Operating Expenses, Other increased by 217o in 1981, primarily as a result of certain non-recurring legal expenses, higher wage rates, iaereased bad debt expenses and ceitain other costs reflecting the effects of inflation. Operating Expenses, Other increased by 97c in 19S0 principally due to an accounting adjustment required by the Federal Energy Regulatory Commission, higher tree triuming costs and operating expenses associated with the continua-tion of the gas conversion program. AFUDC row by 32% in 1982, reflecting the cost of financing the Company's on-going capital projects. AFUDC increased by 179% in 1981, principally due to a significant rise in the level of average yearly short-term borrowings, resulting primarily from the additional Seabrook purchases (see Note 10 to Consolidated Financial Statements

• ' Joint Ownership Units and Construction") and increased interest rates.

Local Property Taxes increased by 5To in 1982, due principally to the amount of abatements and reduction of prior pericd assessments received in 1981. Local Property Taxes declined by 139b in 19S1, due principally to a reduction in municipal tax assessment rates mandated in hf assachusetts by Proposition 2%. Local Property Taxes in 1981 were further lowered by abatements and reductions of prior periods, abatements on the Company's combustion turbine and liquefied natural gas tank, and the effect of a November 1981 Af assachusetts Supreme Judicial Court decision requiring the City of Fitchburg to use free cash available at the end of fiscal 19SO to reduce the fiscal 1981 tax rate. Local Property Taxes in 19SO increased by 459b over 1979 principally due to the increased property tax Icvy of over 20rc in the City of Fitchburg, due to the implementation of tax classiBeation, which shifts the property tax burden from the resident!al property owners to the industrial and commercial property owners, and 1979 tax abatements. Other Interest Charges declined by 3ro in 1982, primarily due to lower interest rates. Other Interest Charges had increased by 1739b and 67Fo in 19SI and 19S0, respectively, reflecting increased interest expenses related to higher average daily short-term borrowings required to finance the Company's on-going construction program and to higher short term interest rates. Average daily bank borrowings were approximately $8,404,000, $7,245,000 and $3,067,000 for the years 1982,1981 and 1980, respectively. Average daily interest rates on these borrowings on an annual basis were 15.5Fe,18.69b and 14.49b for the years 1982,1981 and 1980, respectively. Interest on long. term debt increased by 12Fc in 1982, as a result of the sale of the 17%95 Notes in August 1982. Interest on long-term debt rose 40To in 1981, reflecting the full year's effect of interest charges related to the Company's 15%rc Notes, which were sold in October 19S0. i s ,,.,v. m

Selected Financial Da'a 1952 19S1 19S0 1979 1978 R:sults of Operatiow (000's) Operating Revenues: i Electric. $ 28,194 $ 31,555 S 28,525 $ 24,475 $ 21,158 Gas 18,289 16.583 13,785 9,786 7,920 Total Operating Revenues S 46,483 S 48,138 S 42,310 S 34,261 S 29,078 Electricity Purchased for itesale S 13,517 8 14,466 S 13,516 S 10,471 $ 8,538 Fuel Used in Electric Generation S 4,731_ $ 6,242 S 4,917 $ 3,402 $ 2,159 i Gas Purchased for Resale S 13,346 S 11,174 $ 9,1 3 $ 5,851 $ 4,335 Local Property Tax - Net S 1,484 S 1,415 S 1,626 S 1,118 $ 1,694 i AFUDC: Borrowed and Other Funds S 2,919 8 2.206 S 791 S 629 417 Net Income $ 1,900 $ 2,590 $ 1,703 $ 2,261 $ 1,960 Dividend Requirements on Preferred Stock 549 265 274 282 288 Net Income Applicable to Common Stock S 1,441 S 2,325 S 1,429 $ 1,979 $ 1,672 Ccmmon Stock Data Shares of Common Stock: Year end (000's) 861 688 558 455 455 Average (000's) 773 625 513 455 455 Earnings per Average Common Share Outstanding $1.S6 $3.72 $2.78 $4.34 $3.67 Dividends Declared per Common Share S2.60 $2.60 42.60 $1.90 $1.50 Balance Sheet Data (000's) Utility Plant (at cost) S 73,895 $ 63,114 $ 51,220 S 47,144 S 44,461 Accumulated Depreciation $ 11,529 $ 10,441 $ 10,899 $ 9,850 $ 9,194 Total Assets S 75,511 $ 69,059 $ 55,520 $ 50,813 $ 44,225 Capitalization and Short-term Notes: l l Common stock equity $ 19,615 $ 17,601 $ 14,754 $ 12,545 $ 11,430 Redeemable preferred stock equity $ 8,220 $ 3,837 $ 3,954 $ 4,071 $ 4,188 l' Long. term debt $ 25,786 S 21,182 $ 21,573' S 16,780 $ 16,978 Short. term notes payable S 5,700 $ 10,300 $ 1,700 $ 5,420 970 31

.~ Sclected Financial Data - (Continued) 19S2 1981 1980 1979 1978 Electric Statistics Sales - Thousands of KWII 336,367 360,272 370,946 392,691 398,514 Electric Customers - Year End 22,869 22,674 22,339 21,744 21,508 Average Annual KWII Sales per Residential Cus. tomer 4,852 4,788 4,844 5,033 5,073 Average Revenue per Ilundred KWII - Resi-dential $9.47 $10.48 $9.07 $7.78 $6.91 Gas Sta:istics Sales - Thousands of hiCF 2,653 2,819 2,894 2,343 2,062 i Gas Customers - Year End 14,955 14,767 14,280 13,693 13,069 Average Annual Cubic Feet Sales per Residential Customer 99,291 97,914 97,013 86,431 92,076 Average Revenue per AICF - Residential $7.28 $6.31 $5.25 $4.62 $4.03 Quarterly Financial Data Summarized quarterly financial data for 1982 and 1981 is as follows: Three Afonths Ended Afarch 31 June 30 19S2 1981 1982 1981 Tc:al operating revenues $15,836,136 $14,642,214 $10,222,010 $10,517,360 Operating E mme $ 1,198,398 $ 1,209,543 $ 590,287 $ 1,414,142 Net income $ 803,375 $ 756,881 $ 208,710 $ 534,499 Earnings per common share $1.07 $1.23 $.21 $.82 Three Months Ended September 30 December 31 19S2 1981 1982 1981 Total operating revenues $ 9,058,848 $10,186,305 $11,366,076 $12,792,134 Operating income $ 387,494 $ 818,029 $ 784,748 $ 943,441 Net inconie $ 312,242 $ 589,877 $ 665,878 $ 709,102 Earnings per common share $.16 $.77 $.49 $.93 Net income for the quarter ended December 31,1982 has been reduced by $151,224 or $.18 of earnings per average common share due to additional demand charges for 1982 and 1981. Net income for the quarter ended December 31,1981 has been increased by $139,216 or $.20 of earnings per average common share resulting from abatements of real estate taxes.

T Board of Directors Philip II. Bradleyl* John Grado, Jr.* Charles 11. Tenney II* Betired; formerly Resident Vice President of Litton Chairman of the Board of Slanager, Northeast, of 1B51 Industries, inc., Fitchburg, blass. Directors and Chief Exect tice Corporation, Waltham,3! ass. (a diversifed industry), and O@cer of the Company; Chief Executive of its Paper, Director, Chairman of the Board nichard L. Brickley Printing and Forms Group. of Directors and Chief Executive Latcycr; partner in the law frm Officer of subsidiary; Director, of Brickley, Sears & Cole, Boston, Thomas W. Sherman Chairman of the Board of Slass.: Director of subsidiary. Director, Executicc Vice Directors and Chief Executive President and Treasurcr of Bay Oficer of Bay State Gas Iloward W. Evirs. Jr. State Gas Company, Canton, Company, Canton, Alass., President of the Company; Slass.; Director of subsidiart. Concord Electric Company, j Director and President Concord, N.II., and Exeter & of subsidiary. Robert V. Shupef flampton Electric Company, President of it. L. Gourley Co., Exeter, N.ll. Inc., Wellesley, heating, air Slass. (distributors of Robert L. Waref conditioning and scater heating Lattyer; partner in the law firm equipment); President of of Ware & Ware, Fitchburg, ilydronic Technology,Inc., 3! ass. Welleslet, blass. (manufacturers Istember of Audit committee. j

• stember of compensation committee.

of gas bo!lers). Officers Charles II. Tenney II David K. Foote Angela P. Carlson Chairman of the Board of Vice President; Director and Clerk; Secretary of subsidiary; Directors and Chief Executive Vice President of subsidiary. Clerk of Bay State Gas Oficer.*

• Company, Canton, blass.;

Charles J. Kershaw, Jr. Secretary of the Board of Iloward W. Evh s, Jr. Assistant Treasurer; Assistant Directors of Concord Electric President.*

• Treasurerof subsidiary; Assistant Company, Concord, N.fl., and Treasurer of Concord Electric Exeter & llampton Electric Frank L. Childs Company, Concord, N.ll., and Company, Exeter, N.fl.

Vice President and Treasurer; Exeter 4.- llampton Electric Director, Vice President and Company, Exwler, N.fl. William D. hiacGillivray Treasurer of subsidiary; Director, Assistant Clerk; Assistar.' Secretary Vice President and Treasurer of Edward D. hicKenzie of subsidiary; Assistant Ct:rk Concord Electric Company, Assistant Treasurer; Assistant of Bay State Gas Compant, j Concord, N.II., and Exeter & Treasurerof subsidiary; Assistant Canton, Slass. llampton Elcctric Company, Treasurer of Concord Electric Compant, Concord, N.11.; Edward B. Ilartiman Exeter, N.II. j Assistant Treasurer and Secretary Controller; Controller of subsidiary, of Exeter & llampton Electric Company, Exeter, N.II.

• *See Director listing for other principal occupations.

Subsidiary: Fitchburg Energy Development Company.

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