Text

Taunton Municipal Lighting Plant Annual Rept 1994
	ML20094F948
Person / Time
Site:	Seabrook
Issue date:	12/31/1994
From:	Blain J; TAUNTON MUNICIPAL LIGHTING PLANT
To:	;
Shared Package
ML20094F919	List: ML20094F916; ML20094F930; ML20094F938; ML20094F948; ML20094F959;
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	NUDOCS 9511090156
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A Changing World 2 Harnessing Technology .4 Least Cost Power 7 Participative Management 10 Employee Listing 12 Auditor's Letter 13 Belance Sheets 14 Statements of Earnings 15 Statements of Retained Earnings 15 Statements of Cash Flows 16 Notes to Financial Statements 17

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t ~~ a s. l i:a V? .Y " ~ ., s.;,q dl ,I s \\.. Joseph M. Blain: General Manager (A ) CHANGING WORLD The business of delivenng electric power grows increasingly more complex each year It's not just the growing number of regulations, the seemingly endless siting process. or the increased cost of doing business that each of these imposes From my perspective. at the foundation of this complexity is a funda mental shif t in the way our industry does business in the past the whole energy world was based on long term planning We built power plants that I lasted 40 to 50 years We negotiated 10,15 and 70 year contracts Wu "k new" that no rnatter what else happened we'd always have our service terntory and our customers And that fact alone all owed us to look and plan confidently for the long terrn All that is changmg We've seen the trend in the natural gas industry. where deregulation has

created more competition, more players, more uncertainty for utilities. And there's no reason to suspect that same trend will not transform the electric power industry as well. Then, the proverbial shake-out will begin. If small municipal utilities like TMLP expect to remain competitive in this new world of power delivery, three things seem essential. We have to use technology to our best advantage. We have to keep the cost of public power as low as possible. And we have to dedicate ourselves to a level of quality that comes only when people work together as a team. I invite you to review our work in 1994 from these vantage points. I am confident that you will agree that TMLP is becoming well-prepared for this new, competitive world of power delivery. - A -- fl Joseph M. Blain '] -+ l l?' l: 0 1 4-B :W ' 3

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( 6 H A R N E S'S I N G -T E C H N O L O G Y. ) i ' The Taunton Municipal Lighting Plant took a giant step into the future of power production technology in 1994 - to satisfy new environmental regulations, and to enhance our already strong competitive position in the energy marketplace. Protecting the environment-electronically. After several years of meticulous planning, the Pro-duction Department successfully installed, tested and put ir.to operation a custom-designed Continuous Emissions Monitoring System at our Cleary Flood generating station. Required by Federal law starting December 31,1994, CEMS automatically monitors and records a variety of data on stack emissions. That data is then translated into comprehensive reports now required by the Environmental Protection Agency, to verify that utilities are operating in accordance with the amendments to the Clean Air Act of 1990. The $1.5 million system will also be used to verify TMLP's compliance with sulfur and nitrous oxide emis-sion standards set by the Commonwealth of Massachusetts. Nationwide, these systems are part of a continuing effort to reduce the impact of power generation on the environment. At TMLP, CEMS will serve other purposes as well. In our Energy Services and Planning Department CEMS data will enable us to examine various dispatch models based on types of fuel, emission levels and production resources, to minimize the environmental cost of power generation. Further, accurate emissions T h e C o s t' o f. Cle a n ' Air ,1 m, t

trg (, 4 f}1fm Mark Seekeli: Instrument Technician i tracking will also help ES&P compete more effectively in the new emissions market, by signaling when to buy and sell the emission allowances now assigned by the Federal govemment. In the Production Department, we can now use the real time data from CEMS to improve daily operations. For example, our gas turbine may now be automatically adjusted for peak efficiency based on preset emission para-meters measured by CEMS. Over the long term, CEMS will provide a complete histi 3,. operations, not just a l snapshot, so the Production Department will be better prepared to replicate or .a performance conditions. A network to the future. While CEMS supports environmentally sound production, our new regional communications network promises to improve the quality of electric service - and help ensure that our rates remain among the lowest in the Commonwealth. TMLP's Transmission and Distribution Department began procurement of the Supervisory Control and Data Acquisition / Distribution Automation (SCADA/DA) system in August,1994. SCADA/DA, in essence, is a high tech customer service system. When the installation is on-line, it will dramatically improve our ability to monitor and troubleshoot TMLP's distribution system - 420 miles of wires,17,200 poles and 15 substations that carry electricity to 30,542 customers in our 100 square mile service territory. With SCADA/DA, T&D can monitor this entire system, spot potential problems, pinpoint trouble spots, initiate several corrective actions and speed the dispatch of repair crews - all from one centralized location, and well before a customer has to call to report a problem. The short term result: more efficient, more responsive, more cost-effective customer service.

How SCADA Works The SCADA/DA system is a network of fiber optic cables, radio transmitters and intelligent Electrunic Devices that carries information from the field to one of two operational consoles at TMLP. A two-way system, it also allows a console operator to reroute power, engage capacitor banks, read substation meters, open and close switches and make other system adjustments. And it's precisely this send-receive capability that opens up a whole range of customer services -including distribution automation and demand side management. IMS - Tying it all together. The ability to use the SCADA/DA system to communicate with energy sys-tems at residential, commercial and industrial sites introduces the third major technological advance initiated at TMLP in 1994 - a new information Management System. The benefits of the new computer system go beyond EPA reporting analyzing customer energy loads and suggesting ways to reduce our customers' energy costs. It will also boost TMLP's daily efficiency-and cut millions of dollars from our operating costs in the years ahead. Day to day, sophisticated planning software will analyze each department's project proposals, create mas-ter timelines, identify scheduling conflicts and help maximize manpower assignments. A centralized data base and electronic mail, running from department to department over its own fiber optic network, will support faster, more informed decision making Inventory control programs will effect more timely purchasing And a complete account-ing package will bring bookkeeping and billing back in-house - the foundation for justifying the cost of the new sys-tem. Currently, accounting, bookkeeping and billing are contracted to an outside vendor at a cost of approximately

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s r ' n 9 :. *a _y . ?$ 7 e 4: Mark Seekeli: Instrument Technician traciung wdl also help ES&P compete more Effectne!y in the new emisstons maiet. by signahng v, hen to buy and seH the emission ahowances now assigned by the federal government in the ProdJCtion Department. v.e can now use the real time data from CEMS to improse da4 operations for example. Our gas tu'bine may now be automaticaHy adpsted for peak efficency based on preset emission pa'a meters r'ieasure1 by Cf MS Over the long term CEMS wdl proode a complete tostory of operations riot just a snapshot. so the ProdJCtfon Depa'iment A ll be better prepared to rephcate optimal performance cond tions A network to the future Whde CEMS supports enmonmentA sound productm. our ne,s reg;onal l comman'tations netv.ork promnes to irnp'ose the aaal,ty of eiertnt uruce and heip ensu'e that oJr rates remin l l among the lo/,est in the Commoncealth TML P s Transmission and Distnhut'on Department began p'ocu'ement of the Supermory Connot and Data Ataa,sition> Distntanon Aotomat:on ISCADAJDA) system m Aagast 1994 SCADA DA. m event e. n a h,ah tech i Customer servKe system When the instal!abon is on hne it wth drarnatiraHy irnprose out abhty to mor tor and n troadesnoot TMLPs utnt;ution svuem -- 420 mdes of wees 17 200 poles and 15 sustations that ra'ry ek ttnotv to 3D.542 customers m ou' 100 sq we mde serm e ternton With SCADA/DA T&D can mon l tor this enti'e systern s; ot potent'a! prohtems pmpoint troite spo. in nate sewal co rec twe actions and speed the unpatt h of repair crews aH i'o"i one Centrahled location. and c,eH before a customer t as to (aN to rt port a problem Ihe shaf t it>rm resu!! more effi(ient rno'e retpoilsive. nrJ'e Lost ef fe( tive Cu5toret r wrg jte

T one-half r6fion dollars a year. Comparing those fees over the next 10 years to the cost of purchasing and operating our own system revealed a benefit-to-cost ratio of 2.7 - a savings of more than $2.3 million. CEMS, SCADA/DA, IMS - an alphabet soup to most. But for current customers and for those who will choose Greater Taunton for their business or home address, these acronyms will become signals that this public utility is harnessing today's technology to improve service and ensure our ability to compete in the fast-changing . world of power delivery. (N L E A S T) C D S T v P O W E flp) An important part of our mission is to deliver safe, reliable power - at the lowest possible cost. While factors influencing that goal are becoming increasingly complex, we did fulfill that mission again in 1994. According to a report from the Massachusetts Energy Information Administration, among all utilities in the Commonwealth TMLP posted the lowest rates in every major rate category: residential, commercial and industrial. Keeping rates low in 1994, however, did not deter us from looking for new ways to hold down the cost of power for our customers in the years ahead. We are proud to report achievements and strides in this area as well. Craig Foley: Electrical Engineer ( t..

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EAS meets Powerwaves. The Energy Advisor Service and Powerwaves, a cooperative power conserva-tion effort between The Commonwealth of Massachusetts and TMLP, began reducing demand and lowering energy costs for some of TMLP's large industrial customers this year. EAS is a state-sponsored program that audits the effi-ciency of all power-intensive systems - motors, thermal heaters, HVAC, for example - in large industrial facilities. Powerwaves, a new financial support program from TMLP, encourages industrial customers to replace inefficient energy systems identified through an EAS audit by paying part of the replacement cost when the customer's pay-back period exceeds three years. Powerwaves contributes the dollars needed to reduce the payback to three years, whenever we realize a payback through demand and energy reduction within the same three year period. In 1994, six of TMLP's largest industrial customers were selected for Powerwaves, and TMLP identified $93,076 in possible first-year electric power savings. In terms of energy reduction and dollars saved, over the next five years those customers will be able to reduce their energy usage by 5,012,250 kwh - for an estimated savings of more than $494,000. Smartlight expands. We broadened the scope of Smartlight, our residential lighting conservation pro-gram that replaces incandescent bulbs with energy-saving compact fluorescents. Starting early in 1995, we will offer a more extensive array of bulbs, ballasts and lamp parts that will enable more customers to take advantage of this energy and money-saving program. And we will bring the program right to their front doors. Our r'ew electric van will be on the road to demonstrate, deliver and install Smartlight products throughout our service territory. R. Scott Whittemore: Manager - Energy Services & Planning 4 - o 1 }.. L U, t;',y' Ql

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- - ~ ~ - Smart Energy Controller Program Wah the mstahation of the SCADA/DA neinot new and excit:ng ways to redJCe our Customers' elecint I:!HS become ponitde in 1994 /,e began to push those possitahtles closer tu reahty /.qth the formulat:on of the Sma*: Energy Controner Prog'am. which wh offer customers lower ra'es for CyChng the!T e!ect!:C lo3ds OJnng peak energy peflods A typical scenano We,nstan a Remote Term.nal Un:t a smay nouoprocessm. in a customer s home On a hot day in Jalv /. hen oe mind skyrotsets oJ' CompuIeT sen35 51gnUh okeT the bbObAlbA DUt. 04 to the R U. instr cting it ID "CVCte - Ine a,, co',dit;nrier on arin off at n'eset er tervars e, aatomat< cats '< stllrm" that ao cond, u troner !and thousan lie it4 /.o ma'ntani a cordo tah!e enu'onment in the custo"'m s hon 3 an1 mynf. candy dec'cose die demand f or pot.et f or ht tp rg ai red i' e de'm in1 f r:e ( u torn irl ta r, go', a lu/,er elettr+< rate arE1 lo/.er eWhc buts f4 aden!d teu s tet to d1 te icontled tr, the in rd tva'ter of 1916 and on hne as oddv as 19% Castam ioad c ontrol pro 7am, f a' com'"e t tai and md 6 mal customers cul f ono/, Pipehne to savings On the uppN 11e ece capt ;'ed an op;iortunt to to/,er o;r gas tun by negot,at na a new, tra'GDQridtCn Lordratt / IIh bai State Ga' irntead o' buying both gas ana transportation sr nes 9am Bay State. we en'ered mia a 20 yea' ton'rart for anhm.ted use of a Em ", tate o/med p:po that transports ge from an inte'aiaIe pfe!Ine jrre(tly (g the Clejry hqq1 gene'dtm] sta'lon Nlth dp ital [eN to this mtef state p:pehne. /ie 3 Cari now pu'thase gas from many dMerent sua'u t'om the Gulf of Memo to Canait t;ase1 soiely on loMet Cost Ihe r!et resu!! VM reiRC our 00/.er p'od f Iion LostS Wnf}S Ihat /.e Il pay on to our Customers

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5. 4.1 9 y q ^ 'h t .y 9 \\ .? .b g ,an. Jim Irving: Senior Research Analyst Another trip to the landfill. We also revisited the 20-year agreement we entered into in 1993 with two new electric power projects in Halifax and East Bndgewater that will use methane gas, a natural byproduct from landfills, to produce electricity. We increased our entitlement from 4000 kW to 7.600 kW More than diversifying our fuel supply, we pay only for what we receive, at prices fixed below fossil fuel rates. Environmentally, the increased entitlement is also good news. As an alternative to fossil fuels, this ~ landfill power" ehminates 40,000 tons of carbon dioxide emissions each year. Controlling demand, negotiating long-term cost-reduction contracts, diversifying our fuel supply in 1994, they all added up to keeping the cost of electricity low for our customers - once again, the lowest in the Commonwealth. ( P A RTICIP ATIV E ) MANAGEMENT Staying competitive in this increasingly complex industry of power dehvery takes more than technology and low cost power it takes people who are committed to cooperation, dialogue and common goals. That's the foundation for success at TMLP. The Continuous Emissions Monitoring System was not the work of one person or one department It was

3 a collaborative effort involving almost every department - and a long list of consultants and vendors we invited to join our team to make sure the job was done right. While the lion's share of the SCADA/DA installation falls to the Transmission and Distribution Department, this local information highway in some way will affect every depart-ment, every TMLP employee - so they also are playing an active role in its implementation. The Information Management System project follows the same pattern. Too often companies discover how things should have been after a computer system is installed. We chose to find out before - by asking those who would be using the system day in. day out. It took longer, but doing something right often does. Management at TMLP means cooperating not competing, including not excluding, participating as equal partners - not sitting back and waiting for someone else to get the job done. We're harnessing the latest in tech-nology; we're pushing down the cost of power for our customers. But the real reason for our success in 1994 is our 170 employees, committed to team work and committed to keeping TMLP a strong. competitive player in the power industry for many years to come. s Th el Pip ellm e D e el

' ho 19 9 4? E M P L O'Y E E S i d Michael Abbott ' Robert Drake Kelly Lorinski Doris Renaud ' Antone Almeida, Jr. John Dubene Ronald Lund Steven Rogers James Araujo Armand Emend William Lyons Charlotte Romano Lawrence Arieta Michael Emond Valerie MacMaster Manuel Rose Brett Baker Doyle Escobar Daniel Mahoney Richard Rose Brian Belanger Joan Faria Linda Mason Stephen Ross John Bisio Charles Farrell George Mastin, Sr. Ronald Roy 4 Mark Bissonnette Joseph Fernandes Charles McCaffrey D6 teen Rua Mark Blackwell, Jr. Maria Fernander Fsancis McDermott Albert Santos Mark Blackwell. Sr. Glenn Ferroira James McDermott Mark Seekell ' Joseph M. Blain Ronald Ferreira John McDonough John F. Semas Richard Bolduc = David Fink Diane McGrath John M. Semas Leo Bousquet Craig Foley Laurel McGrath Robert Silva Tommie Bruce Joseph Frates Joseph McKenna Edmund Silveira Victet Boote Ernest Frosta Deborah McMurray Katrina Silveira Arthur Cabral Dountas Furtado John McRae Cynthia Silvia Steven 4:antwell Paula Gallagher Robert Medeiros Debra Silvia Bing Chan Freak Gill Ronald Medeiros Gregory Simmons' O-- r,ed Chandier Thomas Goggin oavid Maianson Riis Smiih Patricia Chandler Antonio Gonsalves Ernest Mallo Robert Smith Roberta Chesterfield Edward Goulart Paul Menard Kathleen Smyth Cynthia Clark Kenneth Goulart Paul Mercier Scott Souza Carol Collegan Roland Grandmont Joan Mulcahy Nancy Stankiewic Margaret Cooke John Haggerty William Niekerson Kevin Steadman David Cordeiro Michael Hagoplan Joseph Noberini William Stroiny Bruce Correia Manuel Hathaway David Owen Ralph Strollo, Jr. David Costa Michael Horrigan Adelino Osso John Thomas Michael Cote James Irving Alice Pacheco Frederick Tempson Steven Cote Wallace Jones Diane Paiva Judy Torres Thomas DeBrum Kevin Kiernan Richard Parker John Valcovic Russell Demer Paulette Kingsbury David Pereira Joseph Vasconcellos Lawrence DeThomas Stanley Koss,Jr. Francis Pereira Richard Veler Wayne Dixon Robert Krant Manuel Pereira Anna May Vieira John Dolan Michael Larkin,Jr. Joseph Perry Shirley Vincent Lorraine Donahue Raymond Leannes William Phipps James Warren Stephen Donovan Ronald Legere, Jr. Anthony Pietrayk R. Scott Whittemore Kevin Dooley Daniel tema Frank Piretti Thomas Zagorski Mary Dower Theresa Levesque Louis Ponte Paul Downing Robert Linhares Thomas Powers Paul Dumont Maureen Lounsbury John Punda

h : A u d it o r's (L e tt e r.] Municipal Light Commission of the City of Taunton Taunton, Massachusetts We have audited the accompanying balance sheets of the Taunton Municipal Lighting Plant (a depart-ment of the City of Taunton) as of December 31,1994 and 1993, and the related statements of earnings, retained earnings, and cash flows for the years then ended. These financial statements are the responsibility of the Plant's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial state-ments are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe our audits provide a reasona' le basis for our opinion. o As discussed in note H to the financial statements, certain disclosures required by the Governmental Accounting Standards Board relating to pensions have been omitted. In our opinion, except for the omission of certain pensiun plan disclosures required by the Governmental Accounting Standards Board, the financial statements referred to in the first paragraph above present fairly, in all material respects, the financial position of the Taunton Municipal Lighting Plant as of December 31,1994 and 1993, and the results of its operations and its cash flows for the years then ended in conformity with generally accepted accounting principles. As discussed in note A of notes to the financial statements, the Plant changed its method of accounting for vacation pay during 1994. Boston, Massachusetts Febru6ry 24,1995 4,4f

h B a l a n c e S h e e t's ! ] Assets December 31, 1994 1993 Utility Plant-At Cost Plant in service $91,447,840 $88,157,501 Less accumulated depreciation (note A2) 56,046,338 52,319,897 Not utility plant in service 35,401,502 35,837,004 investment in Seabrook (notes A7 and C) 3,189,676 3.332,311 Construction work in progress (note 1) 6,431,926 3.934,774 Total utility plant 45,023,104 43,104,689 Depreciation Fund (including certificates of deposit of $3,320,000 and $5,820,000 in 1994 and 1993, respectively)(notes A2 and B) 12,547,801 11,836,705 Sick Leave Trust Fund (note A5) 2,891,221 2,621,405 Dther Assets investment in Hydro Quebec Project (note G) 311,472 311,472 Lightwaves (note D) 286,124 262,863 Other deferred debits (note J) 530,432 903,824 Current Assets Cash (note B) 3,644,671 1,838,983 Customer deposits (note B) 346,761 302.125 Accounts receivable, less allowance for doubtful accounts of $703,154 and $448,706, respectively 3,273,919 3,352,012 Due from TMLP Retirement Trust (notes A3 and H) 451,320 387,836 Materials and supplies inventory (note A4) 1,848,482 1,934,681 Prepaid expenses 261,433 112,618 Total current assets 9,826,586 7,928,255 $71,416,740 $66.969.213 Retained Earnings and Liabilities December 31, 1994 1993 Retained Earnings Appropriated retained earnings loans repayment $16,837,000 $16,062.000 Construction repayment 32,434 32,434 16,869,434 16,094,434 Unappropriated retained earnings 26,777,454 25,209.458 Total retained earnings 43,646,888 41,303,892 Long-Term Debt (note E) 15,476,862 16,320,216 Current Liabilities Accounts payable 2,430,151 1,898,232 Customer credits (note A6) 4,301,356 2,213,766 Customer deposits 364,414 308,653 Current maturities of long-term debt (note E) 840,000 775,000 Accrued liabilities Sick leave (note A5) 3,087,851 2.871,835 Vacation (note A9) 550,819 527,679 Interest 554,907 579,771 Payroll 153,335 154,376 Other 10,157 15,793 Total current liabilities 12,292,990 9,345.105 Commitments and Contingencies (notes C, G. H, I, K and L) $71,416,740 $66,969,213 The accompanying notes are a integral part of these financial statements L.... _... _ _ _.....

h. : S t a t e in e n t s ' o f E a r n i n g s1 -)

Years ended December 31, 1994 1993 Operating revenues (note A1) Sales of electricity Commercial and industrial $20,149,485 $20.570.402 Residential 14,061,642 13.865.978 Sales for resale (note G) 2,750,653 2,607,432 Municipal 1,695,950 1,895.935 38,657,730 38,939,747 ~ Other operating revenues 224,284 362.451 Total operating revenues 38,882,014 39.302,198 Operating expenses Power production 20,359,073 20,642.646 Transmission and distribution 2,726,964 2.830.378 Customer accounting 1,374,869 1,399,784 Administrative and general (notes A3, A5 and H) 4,700,143 5.441,016 Depreciation and amortization (note A2) 3,876,795 3.840,534 Nuclear expense 212,887 203,282 Tctal operating expenses 33,250,731 34,357.640 Earnings from operations 5,631,283 4.944,558 Other expense (income) Interest expense 1,317.094 1,359,329 Other expense 2,005 Interest income (276,044) (443.508) Other income (note G) (112,763) (158.361) g Total other expense 922,287 760,265 Net earnings before provision for payment in lieu of taxes 4,702,996 4.184,293 Provision f ar payment in lieu of taxes (note F) 2,360,000 2.360.000 Net Earnings 5 2,342,996 5 1.824.293 ht s t e m e n t s of R e t a i n e'd Earnings.) Appropriated Retained Earnings Unappropriated Loan Construction Retained Years ended December 31,1994 and 1993 Repayment Repayment Earnings Balance at December 31,1992 515.347.000 $32,434 $24,577.502 Prior period adjustment (note A9) (477.337) Balance at December 31,1992 (as restated) 24,100,165 Transfer for bond repayment 715,000 (715,000) Net earnings 1,824.293 Balance at December 31,1993 16.062.000 32,434 25.209.458 Transfer for bond repayment 775.000 (775.000) Net earnings 2,342,996 Balance at December 31,1994 $16,837,000 $32,434 $26.777,454 The accompanying notes are a integeel part of these financial statements.

( 1S t a t e m e n t s - o f ' C a s h' F l o w s. ] Years ended December 31, 1994 1993 Increase (Decreaselin Cash and Cash Equivalents Cash flows from operating activities: Net earnings $ 2,342,996 $ 1,824,293 Adjustments to reconcile net earnings to net cash and cash equivalents provided by operating activities: Depreciation and amortization 3,876,795 3.840,534 Amortization of bond premium (3,354) (3,354) Equity in losses of Seabrook investment (15,579) (12,614) Change in assets and liabilities: (Increase) decrease in customer deposit funds (44,636) 9,922 Decrease in accounts receivable 78,093 206,504 Increase in due from retirement trust (63,484) (387,836) Decrease (increase)in inventory 86,199 (31,935) (Increase) decrease in prepaid expenses (148,815) 3,775 increase in Lightwaves (23,261) (67,549) Decrease in deferred debits 373,392 373,397 increase in accounts payable 531,919 10,892 increase (decrease) in customer credits 2,087,590 (466.033) increase in customer deposits 55,761 5,475 increase in accrued sick leave and vacation 239,156 407.018 (Decrease) increase in other accrued liabilities (31,541) 37,501 Not cash provided by operating activities 9,338,231 5.749,985 Cash flows from investing activities: h Net additions to utility plant (5,776,631) (4,450,888) Investment in certificate of deposit - depreciation fund (5.820.000) Proceeds from matunng certificate of deposits - depreciation fund 2,500,000 increase in Sick Leave Trust Fund (269,816) (207,088) Net cash used in investing activities (3,546,447) (10.477,976) Cash flows from financing activities: Payment of long-term debt $ (775,000) $ (715,000) Net increase (decrease) in cash and cash equivalents 5,016,784 (5,442,991) Cash and cash equivalents at beginning of year 7,855.688 13.298.679 Cash and cash equivalents at end of year $12,872,472 $ 7.855.688 Cash and cash equivalents at end of year is reflected on the balance sheets as follows: Depreciation funds $ 9,227,801 $ 6.016,705 Cash 3,644,671 1,838.983 $12,872.472 $ 7,855.688 Supplemental Disclosure of Cash Flow information: Cash paid during the year for interest $ 1,341,958 $ 1,381.971 The accompanying notes are a integral part of these financial statements.

i. ) (: N o t e s' t o ' Fin a n cial Statements Note A-Summary of Significant Accounting Policies A surnmary of Taunton Municipal Lighting Plant's (the " Plant"l significant accounting pobeies consistently applied in the prepa-ration of the accompanying fmancial statements follows.

1. Rates faunton Municipal Lighting Plant is an enterprise fund of the City of Taunton, Massachusetts (the City). The Plant is under the charge and control of the Mumcipal Light Plant Commissioners m accordance with Chapter 164. Section 55 of the General Laws of the Commonwealth of Massachusetts. Electric power is both produced and purchased and is distributed to customers within their service area. The rates charged by the Plant to its customers are filed with the Massachusetts Department of Pubhc Utikties (MDPU) and are subject to Chapter 164. Section 58 of the General Laws which provides that prices shall be fixed to yield not more than 8% per annum on the cost of the plant after repayment of operating expenses. interest on outstanding debt and depreciation.

The Plant's resulting net earnings amounted to 3 9% and 3 6% of utility plant in 1994 and 1993. respectively 1

2. Depreciation Pursuant to the Department of Public Utikties regulations, depreciation is calculated as a percentage of depre-ciable property at January 1. Depreciation is computed at 4% of the cost of depreciable property Depreciation fund cash is used in accordance with state laws for replacements and additions to the utility plant in service.

3. Pension Plan Substantially all employees of the Pla,t are covered by a contnbutory pension plan administered by the City of Taunton in conformity with State fletirement Board requirements (see note Hl.

4. Inventory Materials and supplies inventory is carried at cost. principally on the average cost method.

5. Sick Leave Trust Fund The Plant estabhshed a Sick Leave Trust Fund (" Trust") in 1982 for the fmancmg of f uture sick leave payments. It is the Plant's intention that the Trust be funded to the extent of the Plant's sick leave liabihty and that future sick leave expense will be paid by the Trust once full funding is achieved The assets of the Trust are shown in the financial statements to pro-vide a more meanmgful presentation, as the assets of the Trust are for the sole benefit of the Plant The assets of the Trust are shown at cost. The market value of the trust assets at December 31.1994 and 1993. were $2.750,723 and $2.687.059. respectivcly The funds are invested in money market funds, treasury notes. mutual funds which invest in government securities. common stocks.

and corporate bonds. Net investment mcome for the Trust of approximately $147.000 and $208.000 in 1994 and 1993. respectively, is reflected in the statements of earnings as an offset to compensated absence expense, as these funds are restocted and can only be used for the payment of sick leave benefits. The net expense for sick leave was approximately $283,000 and $179.000 for the years ended December 31,1994 and 1993, respectively.

6. Customer Credits The Plant's rates include a Purchased Power Cost Adjustment (PPCA) which allt'ws an adjustment of rates charged to customers in order to recover all changes in power costs from stipulated base costs. The PPCA provides for a quarterly reconcebation of total power costs billed with the actual cost of power incurred. Any excess or deficiency in amounts collected as compared to costs incurred is deferred and either credited or bi!Ied to customers over rubseauent periods.

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7. Investment in Seabrook The Plant's investment in Seabrook represents e 010034% jomt ownership share. The Plant records annually depreciation computed at 4% of the initial investment in Seabrook. The Plant's percentage share of new plant additions are capitahzed and their share of operatmg and maintenance expenses, and decommissioning expenses (see riote C) are charged agamst earnings.

8. Cash Equivalents For purposes of the Statement of Cash Flows. the Plant considers certificates of deposit with maturities of three months or less to be cash equivalents.

9. Uacation in 1994, the Plant adopted Governmental Accountmg Standards Board Statement No.16 (GASB No.16). "Accountmg for Compensated Absences". In accordance with GASB No 16. the Plant has retroactively restated unappropnated retained earnings at December 31.1992. The effect of the adoption was not matenal to operations in 1994 and 1993

10. Reclassifications Certam amounts in the financial statements for the year ended December 31.1993 have been reclassified to conform to the current year presentation Note B - Cash and Certificates of Deposit The Plant's cash is oeposited with the City of Taunton Treasurer who commingles it with other City funds The City invests the cash and credits the Plant each year with interest earned on the cash deposits Cash and certificates of deposit deposited with the City of Taunton consists of the foHowing at December 31.

1994 1993 interest beanng pooled funds mclud ng restncted customer deposits of $346J61 and $302.125. respectively $12,309.233 $ 5.459.451 Certificates of deposit with rates of 4 95% - 5 25% matunng at vanous dates durmg 1995 910.000 Certificates of deposit with rates of 2 90% - 4% matunng at vanous dates dunng 1994 5.198.362 Certificates of deposit w:th rates of 5 08% rnatunng 1996 3.320.000 3.320.000 $16.539.233 $13 977 813 Cash and certificates of depot,it at December 31,is reflected as follows: 1994 1993 Depreciation fund $ 8.696.950 $ 8.399,816 Depreciation fund - Unit 9 principal and mterest 3.850.851 3.436.889 Cash 3,644,671 1.838.983 j Customer deposit pnncipal and mterest fund 346.761 302.125 $16.539.233 $13 977.813 Continued on next page

.,,._____..________..__m. - - - - - ~ - - - ' - - - - ' - - - ~ - " - (': Notes'to F i n a n c i a l ' S t a t 'e m e n t s - ) Note C -Investment in Seabrook The Plant is a 0.10034% joint owner of the Seabrook New Hampshire Unit 1. The joint owners of Seabrook have estabhshed a Decommissioning fund that is currently held by a Trustee. The Plant's share of the estimated decommissioning liabihty is approximately $324.000 as of December 31,1994 The Plant is currently contnbuting based on a present value formula, $435 per month over 36 years-Note D - Lightwaves The Plant has initiated an energy saving program for commercial and industrial customers known as Lightwaves. The program enti-ties the customer to a free energy audit and installation of energy efficient equipment Customers are required to pay a monthly fee for a 60 month penod. The fee is based upon the admmistrative costs related to the program. The related administrative costs are being deferred and amortaed over the 60 month bilkng period As of December 31,1994 and 1993, the Plant has deferred these costs which will be billed to customers. Note E - Long-Term Debt Long-term debt is comprised of the followmg bonds: 1994 1993 Electric loan, Act of 1969 Interest rate - various rates from 7.3% to 8% interest payable February 1 and August 1, due serially to February 1. 2006 $16,280.000 $17.055,000 Unamortued premium 36,862 40.216 16,316,862 17.095.216 Less current maturities 840,000 775.000 Total long-term debt $15.476.862 $16.320.216 Aggregate maturities of long-term debt at December 31,1994, are as follows: O 1995 $ 840.000 1990 910.000 1997 985.000 1998 1,065.000 1999 1.150.000 Thereafter 11.330.000 $16.280.000 Note F-Contribution in Lieu of Texas The Plant contnbuted $2.360.000 in 1994 and 1993 to the City of Taunton in heu of taxes All contributions to the City are voted by the Municipal Light Commission. i Noto G - Commitments and Contingencies Interconnection Agreement The City of Taunton, acting by vote of its Municipal Lighting Plant Commission, entered into an agreement with Montaup Electric Company FMontaup"), dated July 31.1970. as amended, concernmg interconnection of electrical operations, purchase and sale of kilowatt capacity, and construction by Taunton of a generatmg unit of approxirt.ately 110 megawatt capability The agreement. origs-nally for the twelve (12) years following the commencement of operations of Unit No. 9 on December 1,1975, was amendeu and the term extended to October 31,1988. Under the current interconnection agreement, the City agrees to exchange with Montao;; Flectric Company fifteen (15) megawatts of Unit No. 9 capacity for ten (10) megawatts of capacity from the Canal No. 2 generatmg unit 50% of which is owned by Montaup. The Plant credited to sales for resale $317.755 and $265.287 of capacity and energy charges b lied to Montaup Electric Company in 1994 and 1993, respectively, for its share of power under the interconnection agreement. I ) Continued on next page

. Notes t o. F i n~ a n c i a l Statements.'- Nets G - Commitments and Contingencies (contj Hydre-Quebec Agreement in 1988, the Plant entered into an agreement with the Massachusetts Municipal Wholesale Electnc Company and other New England Utilities to support the operation of a transmission hne to permit the interchange of electricity between such utilities and Hydro-Quebec Electric Corporation (HydroQuebec) In connection with the agreement, the Plant advanced approximately $800.000 toward development of the project of which approximately $450.000 was returned after the project had obtained financing. In 1991, the Hydro Quebec project was completed Upon completion of this project. each participant received stock in the New England Hydro 2 Transmission Electric Company and The New England Hydro Transmission Corporation proportional to their advances. The investment is being accounted for on the cost basis. The stock received is not readily marketable, but gives the holder rights to purchase power at a percentage of the fossil fuel rate. During the years ended December 31,1994 and 1993, the Plant received dividends from the above noted Companies in the amounts of $55.055 and $76,762, respectively. k Noto H - Pension Plans The Plant contributes to the City of Taunton Employees' Retirement System (" System"). a public employee retirement system that acts as the investment and administrative agent for the City All full-time employees participate in the System. Instituted in 1937 the System is a member of the Massachusetts Contnbutory System and is governed by Massachusetts General Laws Chapter 32. Membership in the System is mandatory upon the commencement of employment for all permanent, full-time employees. The System provides for retirement allowance benefits up to a maximum of 80% of a member's highest three-year average annual cate of regular compensation. Benefit payments are based upon a member's age, length of creditable service, level of compensation ard group classification. f 4 embers of the System become vested after 10 years of creditable service A retirement allowance may be received upon reach-ing a1e 65 or upon attaining twenty years of service. The System also provides for early retirement at age 55 if the part cipant (1) has a record of 10 years of creditable service. (2) was on the City's payroll on January 1.1978. (3) voluntarily left City employment on or after that date, and (4) left accumulated annuity deductions in the fund Active members contribute either 5%. 7% or 8% of their regular compensation dependmg on the date upon which their membership began. The System also provides death and disability benefits. The System does not make a separate measurement of assets and the pension benefit obligation for the Plant. The pension bene-fit Jbligation is a standardized disclosure measure of the present value of pension benefits. adjusted for the effects of projected salary increases and step-rate benefits, estimated to be payable in the future as a result of employee service to date. The measure is intended to help users assess the fundmg status of the System on a gomg-concern basis, assess progress made m accumulating suffi-h cient assets to pay benefits when due, and make comparisons among employers The rneasure is the actuarial present value of cred-ited projected benefits and is independent of the fundmg method used to determme contributions to the System The Plant performed a separate valuation to estimate its portion of the total System benefit obhgation and assets As of July 1, 1991 (the most current valuation date), the Plant's pension benefit obhgation was $22.800.000 determined through an actuarial valua-tion performed for the Plant. The System's net assets available for benefits, allocated to the Plant, on July 1,1991 (valued at market) were $8.700.000 (excluding assets held m Employee Retirement Trust Fund), leaving an unfunded pension benefit obhgation of $14.100.000. The Plant has estabhshed a separate Employees Retirement Trust Fund (Trust Fund) for the fmancing of future pension payments. The Trust Fund had net assets (at cost) of $12.806.000 and $12.656.000 at December 31,1994 and 1993. respectively The market value of the net assets at December 31,1994 and 1993 was $12.373.000 and $13.188,000, respectively These funds are invested in money market funds, fixed mcome securities includmg government and corporate bonds and other equity secunties. The Plant has made no contributions to the Trust Fund in either 1994 or 1993 Begmnmg on July 1.1993, the Plant is to receive from the Trust Fund, over the next thirty-two years, an amount equal to eighty-five percent of the annual amortization of the unfunded pensmn liability The remainmg fifteen percent of the unfunded pension ha-bility will be contributed from current year operations. The foflowing represents the components of the Plant's recorded pension expense: December 31 1994 1993 Contnbutions to the System $1.364.761 $1.378.005 Contributions (from) to the Trust Fund (839.146) 1387.8301 Recorded pension expense $ 525.615 $ 990.175 Pnot to 1993, the System's fundmg pohcy for the participating entities was not actuanally determined The participatmg entities were required to contribute each fiscal year an amount approximating the pension benefits (less certain interest credits) expected to be paid during the year (" pay-as-you go* method). Effective for fiscal year ends 1993 and beyond. the System has removed the " pay-as-you-gc" method and will amortize the unfunded pension benefit obhgation over thirty-rwo years This change has been approved by PLRA. Accountmg standards require certain related disclosures be made mcludmg the components of pension costs and the funded status of the System The effect of omittmg such disclosure on the accompanying fmancial statements has not been determmed for the year ended December 31,1994 Continued on next page

3 ( Notes t o Fi n a n c i a l-. S t a t e m e n t s.) Note 1 - Coal-Fired Electric Generating Facility On January 31,1991, the Plant entered into contrsets with Silver City Energy Limited Partnership (the

Developer"). a Delaware hmited partnership. The contracts pertain to the leasing of a 25 acre parcel, owed by the Plant, adjacent to the Plant's Cleary-flood Station and the subsequent building of a coal fired electric generating facility {ccal plant) by the Developer. The ground lease extends for a period of forty years. Rental payments to the Plant were $50,000 per year until September 15,1994, $500,000 per year until operations commence, and $1.100.000 per year for the remaining lease term.

The Plant has agreed to purchase 20% of the power generated once the coal plant is in operation, which is approximately 30 megawatts. The agreement is for twenty years. The Plant has secured a mortgage on the buildings and facihties to be constructed to secure payment of the aggregate differential. The aggregate differential represents funds to be paid to the Plant in the event that the project is not completed Payment is based on a dollar value per kilowatt which increases over the duratiori of the construction period. If operations do not commence by September 15,1996, the Plant may terminate all contracts with the Developer. In the event of termination of the contracts, the Plant may be entitled to reimbursement by the Developer of up to 50% of certain costs incurred by the Plant. As of Det.enbar 31,1994 the Plant has capitalized approximately $1,560.000 of legal and administrative costs which are included in construction work in progress. These costs will be amortized over the contract period once operations have commenced. With respect to the proposed plant construction, the Plant is involved in certain legal matters relating to zoning. In the opinion of management, the resolution of these matters will not effect the ultimate completion of this project. I Note J-Deferred Maintenance A unit of the Plant underwent a maintenance overhaul, of which the related costs are being amortized over a five-year period The unamortized balance at December 31,1994 and 1993 is $530,432 and $903,824, respectively. Note K - Post Employment Benefits in addition to the pension benefits described in note H, the Plant provides post employment health care benefits to retirees that meet certain requirements. Retirees of the Plant under age 65 are ehgible for the same health benefits as active employees, while retirees over the age of 05 are eligible for MEDEX. The costs of the benefits provided to retirees are borne 75% by the Plant. and 25% by the retirees Retiree's survivors must bear the full cost of the benefits. The Plant is charged their prorata portion of the " pay as-you-go* cost of benefits based on an allocation by the City done arinually. For 1994 and 1993. the costs allocated to the Plant were $330.879 and $346.842, respectively G Note L - Contingencies The Plant is involved in various legal matters incident to its business, none of which is beheved by management to be sigmficant to the financial condition of the Plant. e 1,... t..... i.....,_.........,i... a.. r.... i......r.

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+ - I e I 4 FINANCIAL STATEMENTS AND j REPORT OF INDEPENDENT i CERTIFIED PUBLIC ACCOUNTANTS TAUNTON MUNICIPAL LIGHTING PLANT December 31, 1994 and 1993 a e d 1 4 t i r } l l I l l \\ l 1 w
O 4 C O N.T E N T S Pace REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS 3 FINANCIAL STATEMENTS BALANCE SHEETS 4 STATEMENTS OF EARNINGS 5 STATEMENTS OF RETAINED EARNINGS 6 STATEMENTS OF CASH FLOWS 7 NOTES TO FINANCIAL STATEMENTS 9 SUPPLEMENTAL INFORMATION REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS ON SUPPLEMENTAL INFORMATION 20 UTILITY PLANT 21 OPERATING EXPENSES 23 1 l I l l i l l ____-________--_-____-___-_________-_____________-____-___-_____________a
98 North Cashogton Street Boston, MA 021141913 617 7217CD0 FAX 617 7213640 GrantThornton s Reoort of Indeoendent Certified Public Accountants % # N 5 The U.S. Member Fnm of Grant Thomton Internahonal Municipal Light Commission of the City of Taunton Taunton, Massachusetts We have audited the accompanying balance sheets of the Taunton Municipal Lighting Plant (a department of the City of Taunton) as of December 31, 1994 and 1993, and the related statements of earnings, retained earnings, and cash flows for the years then ended. These financial statements are the responsibility of the Plant's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used ano significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe our audits provide a reasonable basis for our opinion. As discussed in note H to the financial statements, certain disclosures required by the Governmental Accounting Standards Board relating to pensions have been omitted. In our opinion, except for the omission of certain pension plan disclosures required by the Governmental Accounting Standards Board, the financial statements referred to in the first paragraph above present fairly, in all material respects, the financial position of the Taunton Municipal Lighting Plant as of December 31, 1994 and 1993, and the results of its operations and its cash flows for the years then ended in conformity with generally accepted accounting principles. As discussed in note A of notes to the financial l statements, the Plant changed its method of accounting for vacation i pay during 1994. r Boston, Massachusetts hd February 24, 1995
Tzunton Municip2l Lighting Plant BALANCE SHEETS December 31, ASSETS 1994 1993 UTILITY PLANT - AT COST Plant in service $91,447,840 $88,157,501 Less accumulated depreciation (note A2) 56,046,338 52,319,897 Net utility plant in service 35,401,502 35,837,604 j Investment in Seabrook (notes A7 and C) 3,189,676 3,332,311 l Construction work in progress (note I) 6,431,926 3,934,774 Total utility plant 45,023,104 43,104,689 l DEPRECIATION FUND (including certificates of deposit i of $3,320,000 and $5,820,000 in 1994 and 1993, respectively) (notes A2 and B) 12,547,801 11,836,705 SICK LEAVE TRUST FUND (note AS) 2,891,221 2,621,405 OTHER ASSETS Investment in Hydro Quebec Project (note G) 311,472 311,472 Lightwaves (note D) 286,124 262,863 Other deferred debits (note J) 530,432 903,824 CURRENT ASSETS Cash (note B) 3,644,671 1,838,983 Customer deposits (note B) 346,761 302,125 Accounts receivable, less allowance for doubtful accounts of $703,154 and $448,706, respectively 3,273,919 3,352,012 Due from TMLP Retirement Trust (notes A3 and H) 451,320 387,836 Materials and supplies inventory (note A4) 1,848,482 1,934,681 Prepaid expenses 261,433 112.618 Total current assets 9.826,586 7,928,255 $3 416,740 $66,969,213 RETAINED EARNINGS AND LIABILITIES RETAINED EARNINGS Appropriated retained earnings Loans repayment $16,837,000 $16,062,000 Construction repayment 32,434 32,434 16,869,434 16,094,434 Unappropriated retained earnings 26,777,454 25,209,458 Total retained earnings 43,646,888 41,303,892 LONG-TERM DEBT (note E) 15,476,862 16,320,216 CURRENT LIABILITIES Accounts payable 2,430,151 1,898,232 Customer credits (note A6) 4,301,356 2,213,766 Customer deposits 364,414 308,653 Current maturities of long-term debt (note E) 840,000 775,000 Accrued liabilities Sick leave (note A5) 3,087,851 2,871,835 Vacation (note AS) 550,819 527,679 Interest 554,907 579,771 Payroll 153,335 154,376 Other 10,157 15,793 Total current liabilities 12,292.990 9,345,105 COMMI'IMENTS AND CONTINGENCIES (notes C, G, H, I, K and L) $71,416,740 $66,969,213 The accompanying notes are an integral part of these statements. 4 i _a
Taunton Municipal Lighting Plant STATEMENTS OF EARNINGS Years ended December 31, 1994 1993 Operating revenues (note A1) Sales of electricity Commercial and industrial $20,149,485 $20,570,402 Residential 14,061,642 13,865,978 Sales for resale (note G) 2,750,653 2,607,432 Municipal 1.695,950 1.895.935 38,657,730 38,939,747 Other operating revenues 224.284 362.451 I Total operating revenues 38,882,014 39,302,198 Operating expenses Power production 20,359,073-20,642,646 Transmission and distribution 2,726,964 2,830,378 Customer accounting 1,374,869 1,399,784 Administrative and general (notes A3, A5 and H) 4,700,143 5,441,016 Depreciation and amortization (note A2) 3,876,795 3,840,534 Nuclear expense 212.887 203.282 + i Total operating expenses 33,250,731 14.357.640 i Earnings from operations 5,631,283 4,944,558 Other expense (income) Interest expense 1,317,094 1,359,329 Other expense 2,805 Interest income (276,044) (443,508) Other income (note G) (112.763) (158,361) Total other expense 928.287 760,265 Net earnings before provision for payment in lieu of taxes 4,702,996 4,184,293 Provision for payment in lieu of taxes (note F) 2,360.000 2,360,000 NET EARNINGS $ 2.342.996 $ 1.824,293 i The accompanying notes are an integral part of these statements. 5
T. t l Taunton Municipal Lighting Plant STATEMENTS OF RETAINED EARNINGS 1 Years ended December 31, 1994 and 1993 Appropriated i l Retained Earninos Unappropriated Loan Construction Retained ReDavment ReDavment Earninos Balance at December 31, 1992 $15,347,000 $32,434 $24,577,502 Prior period adjustment (note A9) (477,337) Balance at December 31, 1992 (as restated) 24,100,165 Transfer for bond repayment 715,000 (715,000) Net earnings 1,824,293 Balance at December 31, 1993 16,062,000 32,434 25,209,458 Transfer for bond repayment 775,000 (775,000) Net earnings 2,342,996 Balance at December 31, 1994 $16,837,000 $32,434 $26,777,454 l The accompanying notes are an integral part of these statements. 6
\\ Taunton Municipal Lighting Plant STATEMENTS OF CASH FLOWS Years ended December 31, 1994 1993 ' Increase (Decrease) in Cash and Cash Equivalents Cash flows from operating activities: Net earnings $ 2,342,996 $ 1,824,293 Adjustments to reconcile net earnings to net cash and cash equivalents provided by operating activities: Depreciation and amortization 3,876,795 3,840,534 Amortization of bond premium (3,354) (3,354) Equity in losses of Seabrook investment (18,579) (12,614) Change in assets and liabilities: (Increase) decrease in customer deposit funds (44,636) 9,922 Decrease in accounts receivable 78,093 206,504 Increase in due from retirement trust (63,484) (387,836) Decrease (increase) in inventory 86,199 (31,935) (Increase) decrease in prepaid expenses (148,815) 3,775 Increase in Lightwaves (23,261) (67,549) Decrease in deferred debits 373,392 373,392 Increase in accounts payable 531,919 10,892 Increase (decrease) in customer credits 2,087,590 (466,033) Increase in customer deposits 55,761 5,475 Increase in accrued sick leave and vacation 239,156 407,018 (Decrease) increase in other accrued i liabilities (31.541) 37.501 Net cash provided by operating activities 9.338.231 5.749.985 Cash flows from investing activities: Net additions to utility plant (5,776,631) (4,450,888) Investment in certificate of deposit - i depreciation fund (5,820,000) Proceeds from maturing certificate of deposits - depreciation fund 2,500,000 Increase in Sick Leave Trust Fund (269.816) (207.088) Net cash used in investing ,3.546.447) (10.477.976) activities ( i 7
~ -~ l Taunton Municipal Lighting Plant STATEMENTS OF CASH FLOWS - CONTINUED Years ended December 31, j i 1994 1993 Cash flows from financing activities: Payment of long-term debt (775.000) $ (715.000) i Net increase (decrease) in cash and cash equivalents 5,016,784 (5,442,991) Cash and cash equivalents at beginning i of year 7.855.688 13.298.679 Cash and cash equivalents at end of year $12.872.472 $ 7.855.688 Cash and cash equivalents at end of year f is reflected on the balance sheets as follows: i Depreciation funds $ 9,227,801 $ 6,016,705 Cash 3.644.671 1.838.983 i $12.872.472 $ 7.855.688 I SuoDiemental Disclosure of Cash Flow Information: Cash paid during the year for interest $ 1,341,958 $ 1,381,971 l t l The accompanying notes are an integral part of these statements. 8
Taunton Municipal Lighting Plant NOTES TO FINANCIAL STATEMENTS December 31, 1994 and 1993 NOTE A -
~~SUMMARY~~
OF SIGNIFICANT ACCOUNTING POLICIES A summary of Taunton Municipal Lighting Plant's (the " Plant") significant accounting policies consistently applied in the preparation of the accompanying financial statements follows. 1. Rates Taunton Municipal Lighting Plant is an enterprise fund of the City of Taunton, Massachusetts (the City). The Plant is under the charge and control of the Municipal Light-Plant Commissioners in accordance with Chapter 164, Section 55 of the General Laws of the Commonwealth of Massachusetts. Electric power is both produced and purchased and is distributed to customers within their service area. The rates charged by the Plant to its customers are filed with the Massachusetts Department of Public Utilities (MDPU) and are subject to Chapter 164, Section 58 of the General Laws, which provides that prices shall be fixed to yield not more than 8% per annum on the cost of the plant after repayment of operating
~~expenses, interest on outstanding debt and depreciation.~~
The Plant's resulting net earnings amounted to 3.9% and 3.6% of utility plant in 1994 and 1993, respectively. 2. Deoreciation Pursuant to the Department of Public Utilities regulations, depreciation is calculated as a percentage of depreciable property at January 1. Depreciation is computed at 4% of the cost of depreciable property. Depreciation fund cash is used in accordance with state laws for replacements and additions to the utility plant in service. 3. Pension Pla.D Substantially all employees of the Plant are covered by a contributory pension plan administered by the City of Taunton in conformity with State Retirement Board requirements (see note H). 4. Inventory Materials and supplies inventory is carried at
~~cost, principally on the average cost method.~~
9
Taunton Municipal Lighting Plant NOTES TO FINANCIAL STATEMENTS - CONTINUED December 31, 1994 and 1993 NOTE A -
~~SUMMARY~~
OF SIGNIFICANT ACCOUNTING POLICIES - Continued 5. Sick Leave Trust Fund The Plant established a Sick Leave Trust Fund (" Trust") in 1982 for the financing of future sick leave payments. It is the Plant's intention that the Trust be funded to the extent of the Plant's sick leave liability and that future sick leave expense will be paid by the Trust once full funding is achieved. The assets of the Trust are shown in the financial statements to provide a more meaningful presentation, as the assets of the Trust are for the sole benefit of the Plant. The assets of the Trust are shown at cost. The market value of the trust assets at December 31, 1994 and 1993, were $2,750,723 and $2,687,059, respectively. The funds are invested in money market funds, treasury notes, mutual funds which invest in government securities, common stocks, and corporate bonds. Net investment income for the Trust of approximately $147,000 and $208,000 in 1994 and
~~1993, respectively, is reflected in the statements of earnings as an offset to compensated absence expense, as these funds are restricted and can only be used for the payment of sick leave benefits.~~
The net expense for sick leave was approximately $283,000 and $179,000 for the years ende-d December 31, 1994 and 1993, respectively. 6. Customer Credits The Plant's rates include a Purchased Power Cost Adjustment (PPCA) which allows an adjustment of rates charged to customers in order to recover all changes in power costs from stipulated base costs. The PPCA provides for a quarterly reconciliation of total power costs billed with the actual cost of power incurred. Any excess or deficiency in amounts collected as compared to costs incurred is deferred and either credited or billed to customers over subsequent periods. 7. Investment in Seabrook The Plant's Investment in Seabrook represents a 0.10034% joint ownership share. The Plant records annually depreciation computed at 4% of the initial investment in Seabrook. The Plant's percentage share of new plant additions are capitalized and their share of operating and maintenance
~~expenses, and decommissioning expenses (see note C) are charged against earnings.~~
10
Taunton Municipal Lighting Plant NOTES TO FINANCIAL STATEMENTS - CONTINUED December 31, 1994 and 1993 NOTE A -
~~SUMMARY~~
OF SIGNIFICANT ACCOUNTING POLICIES - Continued 8. Cash Ecuivalents For purposes of the Statement of Cash Flows, the Plant considers certificates of deposit with maturities of three months or less to be cash equivalents. 9. Vacation In 1994, the Plant adopted Governt. ental Accounting Standards Board Statement No. 16 (GASB No. 16), " Accounting for Compensated Absences". In accordance with GASB No. 16, the Plant has retroactively restated unappropriated retained earnings at December 31, 1992. The effect of the adoption was not material to operations in 1994 and 1993. 10. Reclassifications Certain amounts in the financial statements for the year ended December 31, 1993 have been reclassified to conform to the current year presentation. NOTE B - CASH AND CERTIFICATES OF DEPOSIT The Plant's cash is deposited with the City of Taunton Treasurer who commingles it with other City funds. The City invests the cash and credits the Plant each year with interest earned on the cash deposits. Cash and certificates of deposit deposited with the City of Taunton consists of the following at December 31, 1994 1993 Interest bearing pooled funds including restricted customer deposits of $346,761 and $302,125, respectively $12,309,233 $ 5,459,451 Certificates of deposit with rates of 4.95% - 5.25% maturing at various dates during 1995 910,000 Certificates of deposit with rates of 2.90% - 4% maturing at various dates during 1994 5,198,362 Certificates of deposit with rates of 5.08% maturing 1996 3.320,000 _3,320.000 $16.539.233 $13,977,813 11
Taunton Municipal Lighting Plant NOTES TO FINANCIAL STATEMENTS - CONTINUED December 31, 1994 and 1993 i i NOTE B - CASH AND CERTIFICATES OF DEPOSIT - Continued 1994 1993 Cash and certificates of deposit at December 31, is reflected as follows: Depreciation fund $ 8,696,950 $ 8,399,816 i Depreciation fund - Unit 9 I principal and interest 3,850,851 3,436,889 Cash 3,644,671 1,838,983 Customer deposit principal and interest fund 346.761 302.125 $16.539.233 $13.977.813 NOTE C - INVESTMENT IN SEABROOK The Plant is a 0.10034% joint owner of the Seabrook New Hampshire Unit 1. The joint owners of Seabrook have established a Decommissioning Fund that is currently held by a Trustee. The Plant's share of the ) estimated decommissioning liability is approximately $324,000 as of l December 31, 1994. The Plant is currently contributing based on a i present value formula, $435 per month over 36 years. S60TE D - LIGHTWAVES The Plant has initiated an energy saving program for commercial and industrial customers known as Lightwaves. The program entitles the customer to a free energy audit and installation of energy efficient equipment. Customers are required to pay a monthly fee for a 60 month period. The fee is based upon the administrative costs related to the program. The related administrative costs are being deferred and amortized over the 60 month billing period. As of December 31, 1994 and 1993, the Plant has deferred these costs which will be billed to customers. 12
Taunton Municipal Lighting Plant NOTES TO FINANCIAL STATEMENTS - CONTINUED December 31, 1994 and 1993 NOTE E - LONG-TERM DEBT Long-term debt is comprised of the following bonds: 1994 1993 Electric loan, Act of 1969 Interest rate - various rates from 7.3% to 8%, interest payable February 1 and August 1, due serially to February 1, 2006 $16,280,000 $17,055,000 Unamortized premium 36.862 40,216 16,316,862 17,095,216 Less current maturities 840.000 775,000 Total long-term debt $15,476,862 $16,320,216 i Aggregate maturities of long-term debt at December 31, 1994, are as i follows: 1995 840,000 1996 910,000 1997 985,000 1998 1,065,000 1999 1,150,000 Thereafter 11.330,000 $16,280.000 EOTE F - CONTRIBUTION IN LIEU OF TAXES The Plant contributed $2,360,000 in 1994 and 1993 to the City of f Taunton in lieu of taxes. All contributions to the City are voted by the Municipal Light Commission. NOTE G - COMMITMENTS AND CONTINGENCIES j Interconnection Acreement j The City of Taunton, acting by vote of its Municipal Lighting Plant Commission, entered into an agreement with Montaup Electric Company ("Montaup"), dated July 31,
1970, as

amended, concerning e
interconnection of electrical operations, purchase and sale of kilowatt capacity, and construction by Taunton of a generating unit i of approximately 110 megawatt capability. The agreement, originally for the twelve (12) years following the commencement of operations 13 ~
Taunton Municipal Lighting Plant NOTES TO FINANCIAL STATEMENTS - CONTINUED December 31, 1994 and 1993 NOTE G - COMMITMENTS AND CONTINGENCIES - Continued of Unit No. 9 on December 1, 1975, was amended and the term extended to October 31, 1988. Under the current interconnection agreement, the City agrees to exchange with Montaup Electric Company fifteen (15) megawatts of Unit No. 9 capacity for ten (10) megawatts of capacity from the Canal No. 2 generating unit, 50% of which is owned by Montaup. The Plant credited to sales for resale $317,755 and $265,287 of capacity and energy charges billed to Montaup Electric Company in 1994 and 1993, respectively, for its share. of power under the interconnection agreement. Hydro-Ouebec Acreement In 1988, the Plant entered into an agreement with the Massachusetts Municipal Wholesale Electric Company and other New England Utilities to support the operation of a transmission line to permit the interchange of electricity between such utilities and Hydro-Quebec Electric Corporation (HydroQuebec). In connection with the agreement, the Plant advanced approximately $800,000 toward development of the project of which approximately $450,000 was returned after the project had obtained financing. In 1991, the Hydro Quebec project was completed. Upon completion of this project, each participant received stock in the New England Hydro Transmission Electric Company and The New England Hydro Transmission Corporation proportional to their advances. The investment is being accounted for on the cost basis. The stock received is not readily marketable, but gives the holder rights to purchase power at a percentage of the fossil fuel rate. During the years ended December 31, 1994 and 1993, the Plant received dividends from the above noted Companies in the amounts of $55,055 and $76,762, respectively. NOTE H - PENSION PLANS The Plant contributes to the City of Taunton Employees' Retirement System (" System"), a public employee retirement system that acts as the investment and administrative agent for the City. All full-time employees participate in the System. Instituted in 1937, the System is a member of the Massachusetts contributory System and is governed by Massachusetts General Laws Chapter 32. Membership in the System is mandatory upon the commencement of employment for all permanent, full-time employees. The System provides for retirement allowance benefits up to a maximum of 80% of a member's highest three-year average annual rate of regular compensation. Benefit payments are based upon a member's age, length of creditable service, level of compensation and group classification. 14
Taunton Municipal Lighting Plant NOTES TO FINANCIAL STATEMENTS - CONTINUED i December 31, 1994 and 1993 NOTE H - PENSION PLANS - Continued Members of the System become vested after 10 years of creditable service. A retirement allowance may be received upon reaching age 65 or upon attaining twenty years of service. The System also provides for early retirement at age 55 if the participant (1) has a record of 10 years of creditable service, (2) was on the City's payroll on January 1, 1978, (3) voluntarily lef t City employment on or af ter that date, and (4) lef t accumulated annuity deductions in the fund. Active members contribute either 5%, 7% or 8% of their regular compensation depending on the date upon which their membership began. The System also provides death and disability benefits. l The System does not make a separate measurement of assets and the pension benefit obligation for the Plant. The pension benefit obligation is a standardized disclosure measure of the present value of pension benefits, adjusted for the effects of projected salary increases and step-rate benefits, estimated to be payable in the future as a result of employee service to date. The measure is intended to help users assess the funding status of the System on a going-concern basis, assess progress made in accumulating sufficient assets to pay benef.its when due, and make comparisons among employers. The measure is the actuarial present value of credited projected benefits and is independent of the funding method used to determine contributions to the System. The Plant performed a separate valuation to estimate its portion of the total System benefit obligation and assets. As of July 1, 1991 (the most current valuation date), the Plant's pension benefit obligation was $22,800,000 determined through an actuarial valuation performed for the Plant. The System's net assets available for benefits, allocated to the Plant, on July 1, 1991 (valued at market) were $8,700,000 (excluding assets held in Employee Retirement Trust Fund), leaving an unfunded pension benefit obligation of $14,100,000. The Plant has established a separate Employees Retirement Trust Fund (Trust Fund) for the financing of future pension payments. The Trust Fund had net assets (at cost) of $12,806,000 and $12,656,000 at December 31, 1994 and 1993, respectively. The market value of the net assets at December 31, 1994 and 1993 was $12,373,000 and $13,188,000, respectively. These funds are invested in money market funds, fixed income securities including government and corporate bonds and other equity securities. The Plant has made no contributions to the Trust Fund in either 1994 or 1993. Beginning on July 1, 1993, the Plant is to receive from the Trust Fund, over the next thirty-two years, an amount equal to eighty-five percent of the annual amortization of the unfunded pension liability. The remaining fifteen percent of the unfunded pension liability will be contributed from current year operations. 15
Taunton Municipal Lighting Plant NOTES TO FINANCIAL STATEMENTS - CONTINUED December 31, 1994 and 1993 NOTE H - PENSION PLANS - Continued The following represents the components of the Plant's recorded pension expense: December 31, 1994 1993 Contributions to the System $1,364,761 $1,378,005 Contributions (from) to the Trust Fund _L . 14 1 ) (387.830) Recorded pension expense 5 .615 990.175 Prior to 1993, the System's funding policy for the participating entities was not actuarially determined. The participating entities were required to contribute each fiscal year an amount approximating the pension benefits (less certain interest credits) expected to be paid during the year (" pay-as-you-go" method). Effective for fiscal year ends 1993 and beyond, the System has removed the " pay-as-you-go" method and will amortize the unfunded pension benefit obligation over thirty-two years. This change has been approved by PERA. Accounting standards require certain related disclosures be made including the components of pension costs and the funded status of the System. The effect of omitting such disclosure on the accompanying financial statements has not been determined for the year ended December 31, 1994. NOTE I - COAL FIRE ELECTRIC GENERATING FACILITY On January 31, 1991, the Plant entered into contracts with Silver City Energy Limited Partnership (the " Developer"), a Delaware limited partnership. The contracts pertain to the leasing of a 25 acre
~~parcel, owed by the Plant, adjacent to the Plant's Cleary-Flood Station and the subsequent building of a~~
coal fired electric generating facility (coal plant) by the Developer. 16
Taunton Municipal Lighting Plant NOTES TO FINANCIAL STATEMENTS - CONTINUED December 31, 1994 and 1993 NOTE I - COAL FIRE ELECTRIC GENERATING FACILITY - Continued The ground lease extends for a period of forty years. Rental payments to the Plant were $50,000 per year until September 15, 1994, $500,000 per year until operations commence, and $1,100,000 per year for the remaining lease term. The Plant has agreed to purchase 20% of the power generated once the coal plant is in operation, which is approximately 30 megawatts. The agreement is for twenty years. The Plant has secured a mortgage on the buildings and facilities to be constructed to secure payment of the aggregate differential. The aggregate differential represents funds to be paid to the Plant in the event that the project is not completed. Payment is based on a dollar value per kilowatt which increases over the duration of the construction period. If operations do not commence by September 15, 1996, the Plant may terminate all contracts with the Developer. In the event of termination of the contracts, the Plant may be entitled to reimbursement by the Developer of up to 50% of certain costs incurred by the Plant. i As of December 31, 1994, the Plant has capitalized approximately $1,560,000 of legal and administrative costs which are included in l construction work in progress. These costs will be amortized over the contract period once operations have commenced. With respect to the proposed plant construction, the Plant is involved in certain legal matters relating to zoning. In the opinion of management, the resolution of these matters will not effect the ultimate completion of this project. i 1 NOTE J - DEFERRED MAINTENANCE A unit of the Plant underwent a maintenance overhaul, of which the related costs are being amortized over a five-year period. The unamortized balance at December 31, 1994 and 1993 is $530,432 and $903,824, respectively. 17
Taunton Municipal Lighting Plant NOTES TO FINANCIAL STATEMENTS - CONTINUED December 31, 1994 and 1993 NOTE K - POST EMPLOYMENT BENEFITS In addition to the pension benefits described in note H, the Plant provides post employment health care benefits to retirees that meet certain requirements. Retirees of the Plant under age 65 are eligible for the same health benefits as active employees, while retirees over the age of 65 are eligible for MEDEX. The costs of the benefits provided to retirees are borne 75% by the Plant, and 25% by the retirees. Retiree's survivors must bear the full cost of the benefits. The Plant is charged their prorata portion of the " pay-as-you-go" cost of benefits based on an allocation by the City done annually. For 1994 and 1993, the costs allocated to the Plant were $330,879 and $346,842, respectively. NOTE L - CONTINGENCIES The Plant is involved in various legal matters incident to its business, none of which is believed by management to be significant to the financial condition of the Plant. j 18
O SUPPLEMENTAL INFORMATION l
f Reoort of Independent Certified Public Accountants on Sucolemental Information Taunton Municipal Lighting Plant Our audit was conducted for the purpose of forming an opinion on the basic financial statements taken as a whole of Taunton Municipal Lighting Plant for the year ended December 31, 1994, which are presented in the preceding section of this report. The supplemental information presented hereinaf ter is presented for purposes of additional analysis and is not a required part of the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, is fairly stated, in all material respects, in relation to the basic financial statements taken as a whole. Boston, Massachusetts /M-[ February 24, 1995
UtilRy Plant Fc7 Pertszt Ert: ling December 31,1994 Accumulated Tale of Balance l Balance Depreciaton Depreciated Account 01/01/94 Additons Retirements 12/31/94 12/31/94 Value 12/31/94 Station Production Plant Land and Land Rights $749,366 $0 50 5749,366 30 5749,366 i Structures & improvements 7,511,107 (111,933) 0 7,399,174 5.799.335 1,599,839 Boiler Plant Equipment 19,026,490 232,955 115,823 19,143,622 13,601,778 5,541,844 Turbo Generator Units 18.035,371 194,319 0 18,229.690 11,114,861 7,114,829 Acessory Electric Group 2,636,262 30,609 0 2,666,871 2,689.489 (22,618) Mrse Power Plant Equip. 660,790 40,303 21,830 679,263 485,544 193,719 Totat Steam Production Plant 48,619,386 386,253 137,653 48,867,986 33,691,007 1%176,979 Other Prod:xtion Plant Fuel Holders & Ahh 516,437 25,607 0 542,044 361,594 180,450 Generators 83,407 0 0 83,407 59,315 24.092 Accessory Electric Group 407,598 0 0 407,598 286,555 121,043 Total Other Production Plant 1.007,442 25,607 0 1,033,049 707,464 325,585 Transmission Plant Land & Land Rights 218,577 (2,335) 0 216,242 0 216.242 Clearing Land Right of Way 35,022 0 0 35,022 0 35,022 Structures & h,ip,mi,sas 133,392 0 0 133,392 84,664 48,728 Staten Equipment 2.381,737 14,117 0 2,395,854 1,507,255 888,599 Towers & Fixtures 908,333 0 0 908,333 621,285 287,048 Poles & Fixtures 2,116,259 23,650 0 2,139,909 703,105 1,436,804 Overtiead Conductor Device 1,227,329 0 0 1,227,329 445,821 781,508 Underground Conduit Elec 3,104 0 0 3,104 2,092 1,012 Underground Conductor Elec 6,170 0 0 6,170 3,759 2,411 Total Transmission Plant 7,029,923 35,432 0 7,065,355 3,367,981 3,697,374
f ~ = UtEy Picnt Fe Peried Endirg December 31,1994 Accumulated TMe of Balance Balance Depreciation Depreciated I Account 01/01/94 Additons Retirements 12/31!94 12/31/94 Value 12/31/94 DistrAtion Plant I land & Land Rights 156,833 2.656 0 159,489 0 159.489 Structures & 6p,ve.,e as 663.585 3,900 0 667,485 249,466 418,019 Staten Equipment 2,517,804 277,439 0 2.795,243 2,344,992 450,251 ) Storage Battery Equip 1.437 5 0 1,442 161 1,281 Poles Towers & Fixtures 3,812,272 228.052 0 4,040,324 2,903,872 1,136,452 Overtiend Conduit & Device 5,187,197 546,422 86,642 5,646.977 2,295,971 3,351,006 Underground Condud 2,421,938 180.712 0 2.602.650 1,833,520 769,130 1 Underground Conductor & Devic 2.233.9C5 150,921 0 2,384.886 1,682,579 702,307 Line Transfor ners 3,867,199 265,976 0 4,133,175 1,742,523 2,390,652 Services 664,702 59,733 0 724,435 277,200 447,235 Meters 1,665.357 44.150 0 1,709,507 1,327,595 381,912 E C S Program 2,834.960 447,590 0 3,282,550 1,021,278 2,261,272 St. Light & Signat Systems 1.489.392 37,258 0 1,G26,650 808.294 718,356 Total Distributen Plant 27,516,641 2,244,814 86.642 29.674,813 16,487,451 13,187,362 General Plard l g I 20 Land & Land Rights 40.972 0 0 40,972 0 40,972 1 Structures & improvements 1,442,217 560,335 0 2,002,552 581,454 1,421,098 l Omce Furniture & Equipment 690,251 109.020 0 799,271 288,867 510,404 Transporation Equipment 1,403.788 72,070 9,038 1,466,820 713.083 753,737 Store Equipment 162,001 8,099 0 170,100 10,553 159,547 Tool Shop Garage Equip 33,283 (958) 0 32,325 20,017 12,308 j Laboratory Equipment 15,204 0 0 15,204 16,325 (1,121) i Power Operated Equipment 28.194 374 0 28,568 28,265 303 l Communecaten Equipment 128,946 72,328 0 201,274 83,866 117,408 Misc. Equipment 103,410 10.299 0 113,709 50,005 63,704 Total General Plant 4,048,266 831,567 9,038 4.870,795 1,792,435 3.078,360 LESS CONTRIBUTION IN (64,158) (64,158) (64,158) AfD OF CONSTRUCTION Total Utility Plant in Service 88,157,500 3,523,673 233,333 91,447,840 56,046,338 35,401,502 Construction W.I.P. 3,934,774 5,603,141 3.105,989 6,431,926 0 6,431,926 $92,092,274 $9,126,814 $3.339,322 $97,879,766 $56,046,338 $41,833,428
Taunton Municipal Lighting Plant OPERATING EXPENSES For the year ended December 31, 1994 1993 POWER PRODUCTION Operation Supervision and engineering 649,953 $ 596,800 Fuel 2,594,936 2,152,428 Labor and expenses 1.850.835 1.862.052 5,095,724 4,611,280 Maintenance Supervision and engineering 337,342 307,718 Structures 210,138 120,332 Boiler plant 826,422 721,759 Electric plant 497,693 841,911 Miscellaneous 219.876 239.284 2,091,471 2,231,004 Purchased power 13.171.878 13.800.362 Total power production 20.359.073 20.642.646 TRANSMISSION AND DISTRIBUTION Operation Supervision and engineering 159,522 153,572 Labor 20,445 20,381 Supplies and expenses 10,269 13,642 Meter expenses 167,969 158,044 7 Customer installation 17,896 20,524 Transmission by others 172,927 188,466 Overhead lines 114,406 128,840 Miscellaneous 246.906 170.892 910,340 854,361 Maintenance Supervision and engineering 341,599 340,393 Lines - electric 1,156,615 1,299,638 Street lighting and signal systems 147,579 138,276 Meters 9,117 8,877 Structures and equipment 11,786 5,854 Line transformers 51,205 64,773 Station equipment 88,307 105,801 Miscellaneous 10.416 12.405 1,816,624 1,976,017 Total transmission and distribution 2.726.964 2.830.378 Forward 23.086.037 23.473.024 ) 23
Taunton Municipal Lighting Plant OPERATING EXPENSES - CONTINUED Year ended December 31, 1994 1993 Brought forward $23,086,037 $23,473,024 CUSTOMER ACCOUNTING Meter reading labor and expenses 72,994 91,347 Accounting and collecting expenses 1,013,663 1,077,561 Uncollectible accounts 282,234 222,000 Advertising expense 5.978 8.876 Total customer accounting 1,374,869 1,399,784 ADMINISTRATIVE AND GENERAL Operation Administrative and general salaries 809,065 922,925 Office supplies and expenses 209,479 227,747 Outside services employed 175,767 215,254 Property insurance 125,092 103,241 Injuries and damages 465,372 549,944 Employee pensions and benefits 2,072,702 2,450,273 Miscellaneous general expenses 306,524 425,728 Transportation expenses 238,964 217,486 Regulatory commission expense 116.290 140.832 4,519,255 5,253,430 Maintenance General plant 180,888 187.586 Total administrative and general 4,700,143 5.441.016 DEPRECIATION AND AMORTIZATION 3,876,795 3,840,534 NUCLEAR EXPENSE 212,887 203,282 $33,250,731 $34,357,640 l 24
t 4 The Global Leader MASSACHUSETTS MUNICIPAL WHOLESALE ELECTRIC COMPANY FINANCIAL STATEMENTS WITH SUPPLEMENTARY INFORMATION DECEMBER 31,1994,1993 AND 1992 WITH INDEPENDENT AUDITORS' REPORT THEREON I i 5 b .)
MASSACHUSETTS MUNICIPAL WHOT FRAIF FI FCTRIC COMPANY FINANCIAL STATEMENTS WITH SUPPIFMENTARY INFORMATION DECEMBER 31.1994.1993 AND 1992 TABIE OF CONTENTS Eage Independent Auditors' Report 1 Financial Statements Statements of Financial Position 2 Statements of Operations 3 Statements of Cash Flows 4 Notes to Financial Statements 5 Supplementary Schedules Independent Auditors' Report on Supplementary Information 21 Schedule I - Project Statements of Financial Position 22 Schedule II - Project Statements of Operations 23 Schedule III - Project Statements of Cash Flows 24
...h' f.
iPeat Marwick LLP one Boston Place Telephone 617 723 7700 Telefax 617 723 6864 Boston, MA 02108-4563 INDEPENDENT AUDITORS' REPORT The Board of Directors Massachusetts Municipal Wholesale Electric Company 1
We have audited the accompanying statements of financial position of Massachusetts Municipal Wholesale Electric Company (a Massachusetts public corporation) as of December 31,1994,1993 and 1992 and the related statements of operations and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance cbout whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant l estimates made by management, as well as evaluating the overall financial statement l presentation. We believe that our audits provide a reasonable basis for our opinion. l In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Massachusetts Municipal Wholesale Electric Company as of December 31,1994,1993 and 1992, and the results of its operations and its cash flows for the j years then ended in conformity with generally accepted accounting principles. j g w March 10,1995 PW9 $$ d b $pj3 C=L, u_
~., MASSACHUSETTS MUNICIPAL WHOLESALE ELECTRIC COMPANY STATEMENTS OF FINANCIAL POSITION DECEMBER 31,1994,1993 AND 1992 (in Housands) ASSETS 1994 1993 1992 Electric Plant in Service (Note 4) $ 1,233,829 $ 1,233,845 $ 1,231,359 Accumulated Depreciation (285,104) (243,440) (201,172) 948,725 990,405 1,030,187 Nuclear Fuel - Net of Amortization 14,731 19,553 24,626 Total Electric Plant % 3,456 1,009,958 1,054,813 Special Funds (Notes 2 and 7) 182,830 191,099 196,259 Current Assets Cash and Temporary Investments (Note 7) 989 1,013 3,619 Accounts Receivable 5,027 9,361 6,163 Unbilled Revenues 5,104 7,813 8,491 inventories 15,597 14,846 15,261 Prepaid Expenses 7,413 7,636 6,652 Total Current Assets 34,130 40,669 40,186 Total Special Funds and Current Assets 216,960 231,768 236,445 Deferred Charges Amounts Recoverable Under Terms of the Power Sales Agreements (Note 2) 214,217 189,808 132,312 Unamortized Debt Discount and haa-- 35,817 39,340 40,272 Nuclear Decommissioning Trusts (Note 8) 6,110 4,683 3,423 Other. 4,253 2,966 2,498 260,397 236,797 178,505 $ 1.440.813 $ 1.478,5_23_ $ 1.469.763 LIABILITIES l long-Term Debt Bonds Payable (Note 3 and 8) $ 1,341,215 $ 1,374,605 $ 1,376,700 Current Liabilities , Current Maturities of long-Term Debt (Note 3 and 8) 36,420 33,175 28,110 Notes Payable (Note 3) 64 113 Accounts Payable 8,525 8,332 11,081 Accrued Expenses 10,969 11,734 7,779 Member and Participant Advances and Reserves 36,479 44,786 42,592 92,393 98,091 89,675 i Deferred Credits 7,205 5,827 3,388 Commitments and Contingencies (Note 6) $_L440,813 $ 1.478 523 $ 1,469.763 1 He accompanying notes are an integral part of these financial statements. 1 2-l
) MASSACHUSETTS MUNICIPAL WHOf FE:AI F FI FCTRIC COMPANY STATEMENT 10F OPERATIONS YEARS ENDED DECEMRFR 31,1994.1993 AND 1992 l (In Thousands) 1994 1993 1992 l Revenues (Note 2) $ 233,910 $ 248,630 $ 275,041 l Interest Income 11,139 11,083 13,435 Total Revenues and Interest Income $_245 049 $ 259.713 $_288.476 2 l Operating and Service Expenses: Fuel Used in Electric Generation 16,359 $ 20,062 $ 23,831 Purchased Power 61,940 74,134 78,925 Other Operating 35,500 29,451 32,533 Maintenance 9,746 10,470 11,873 Depreciation 44,366 44,187 44,101 Taxes Other Than Income 5,139 6,076 8,225 173,050 184,380 199,488 Interest Expense: Interest Charges 81,489 89,742 114,459 Interest Charged to Projects During Construction (Note 2) (36) (169) (466) 81,453 89,573 113,993 Total Operating Costs and Interest Expense 254,503 273,953 313,481 i i Cost of Advance Refunding - Net (Note 3) 12,902 43,857 73,180 Gain on Cancelled Units - Net (Note 4) (6) (601) (671) Gain on Retirement of Debt (207) 12,8 % 43,256 72,302 Increase in Amounts Recoverable Under the Power Sales Agreements due to Excess of Expenses over Revenues (Note 2) (22,350) (57,4%) (97,307) $ 245,049_ $_259.713 $ 288.476 i The accompanying notes are an integral part of these financial statements. 3 l
_ _ _ _ _.. ~ ~.. - _ - _ _ _ _, _ _. _ _ i j MASSACHUSETTS MUNICIPAL WHOI FRAI F FI FCTRIC COMPANY STATEMENTS OF CASH FLOWS YEARS ENDED DECFMRFR 31.1994.1993 AND 1992 ( (In Thousands) 1994 1993 1992 ( Cash flows from operating activities: Total Revenues and Interest Income $ 245,049 $ 259,713 $ 288,476 l Total Costs and Expenses, net (267,399) (317,209) (385,783) l Adjustments to arrive at net cash provided (used) by operating activities: Depreciation and Decommissioning 45,387 45,112 44,978 l Amortization 9,922 14,517. 15,315 i l Write off of Debt Discount and Expenses 10,440 10,288 19,480 Change in current assets and liabilities: Accounts Receivable 4,334 (3,198) (440) Unbilled Revenues 2,709 678 227 I Inventories (751) 415 4,402 l Prepaid Expenses 223 (984) (1,009) [ Accounts Payable 193 (2,749) (4,601) Accrued Expenses and Other (2,024) 4,720 (361) Member and Participant Advances and Reserves (8,307) 2,194 (11,911) i Net cash provided (used) by operating activities 39,776 13,497 (31,227) Cash flows from investing activities: Construction Expenditures and Purchases of Nuclear Fuel (4,281) (10,312) (4,943) Interest Charged to Projects During Construction (36) (169) (466) Net Reduction in Special Funds 8,269 5,160 59,928 Net Unrealized 1.oss on Special Funds (2,059) Decommissioning Trust Refunds (Payments), net (1,427) (1,259) 1,297 Other 425 620 426 Net cash provided (used) for investing activities 891 (5,960) 56,242 Cash flows from financing activities: Proceeds from Sale of Bonds 432,380 444,290 748,295 ) Payment for Bond Issue Costs (10,482) (13,064) (27,427) Payments for Principal of Long-Term Debt (30,525) (29,165) (27,880) Payment for Defcasance of Bonds (432,000) (412,155) (716,325) Change in Notes Payable (64) (49) 113 Net cash used for financing activities (40,691) (10,143) (23,224) Net increase (decrease) in cash and temporary investments (24) (2,606) 1,791 Cash and Temporary Investments at Beginning of Year 1,013 3,619 1,828 Cash and Temporary Investments at End of Year 989 1.013 $_3 619_ l Cash paid during the year for interest (Net of amount capitalized as shown above) $ 77.579 $ 86,035 $ 111,464 The accompanying notes are an integral part of these financial statements.,
~ MASSACHUSETTS MUNICIPAL WHOI FRAI F Fi FCTRIC COMPANY NOTES TO FINANCIAL STATEMENTS DECEMBER 31.1994.1993 AND 1992 (1) Macenchneette Municinal Wholeente Flactric Comnnny (MMWEC) MMWEC is a political subdivision of the Commonwealth of Massachusetts, authorized to issue revenue bonds secured by revenues derived from Power Sales Agreements (PSAs) with its members and other electric systems to fm' ance the construction and ownership of electric power facilities. A Massachusetts city or town having a municipal electric department, authorized by majority vote of the city or town, may become a member by applying for admission to MMWEC and agreeing to comply with the terms and conditions of membership as the MMWEC By-Laws may require. As of December 31, 1994, twenty-eight Massachusetts municipalities were members. i MMWEC obtains power supply capacity by acquiring interests in various generating units and the j operation of its own electric generating facilities (Projects). In addition, MMWEC contracts for power for resale to its members and other utilities. (2) Significant Accoimting Policies MMWEC presents its financial statements in accordance with generally accepted accounting principles as promulgated by the Financial Accounting Standards Board. Interest Charged to Proiacte During Constructinn MMWEC capitalizes interest as an element of the cost of electric plant and nuclear fuel in process. A corresponding amount is reflected as a reduction of interest expense. The amount of interest capitalized is based on the cost of debt, including amortization of debt discount and expenses, related to each Project, net of investment gains and losses and interest income derived from unexpended Project funds. Nuclear Fuel Nuclear fuel includes MMWEC's ownership interest of fuel in use, in stock and in process for Millstone Unit 3 and Seabrook Station. Fuel in use is reflected net of accumulated amortization of $57.2, $50.8 and $40.0 million through December 31,1994,1993 and 1992, respectively. The cost of nuclear fuel is amortized to Fuel Used in Electric Generation based on the relationship of energy produced in the current period to total expected energy production for fuel in the reactor. A provision for fuel disposal costs is included in Fuel Used in Electric Generation based upon disposal contracts with the Department of Energy (DOE). In addition, Fuel Used in Electric Generation includes the annual assessment, under the Energy Policy Act of 1992, for the costs of decontamination and decommissioning of uranium enrichment plants operated by the DOE. Billings from the DOE will occur over the next 13 years. At December 31, 1994, MMWEC's share of Millstone Unit 3 and Seabrook Station unbilled assessments was $498,000 and $749,000, respectively. The amounts are included in Other Deferred Charges and Deferred Credits on the Statements of Financial Position. i
y._ _._ _ _ _ _ -__._..._.m__. ? i MASSACHUSETTS MUNICIPAL WHOT ERAIR i ELECTRIC COMPANY NOTES TO FINANCIAL STATEMENTS l DECEMBER 31.1994.1993 AND 1992 -(2) Sienificaat Accmmtino Policies (continued) Special Funds .l The composition of Special Funds is as follows: j 19M 1991 1992 i Bad (In Thousands) i Construction Fund for deposit of bond proceeds to ) i '517 be used for costs of acquisition and construction Bond Fund Interest, Principal and Retirement Account to pay principal and interest on bonds 20,741 19,573 15,370 Bond Fund Reserve Account set at the maximum annual interest obligation to make up any deficiencies in the Bond Fund Interest, Principal and Retirement Account 77,405 88,166 102,243 Reserve and Contingency Fund to make up deficiencies in the Bond Fund and pay for renewals and extraordinary costs 17,927 17,140 18,364 Revenue Fund to receive revenues and disburse them to other funds 50,323 47,461 47,784 Workmg Capital Funds to maintain funds to cover operating expenses 16,434 18,759 11,981 Total Special Funds 11BL83.0 $191A29 $19fi,259 The Special Funds, other than certain working capital funds, are restricted as to their use by the General Bond Resolution, which also prescribes investment thereof. Investments are limited to direct obligations of, or obligations the principal of and interest on which are 1 unconditionally guaranteed by the United States, certificates or receipts representing direct ownership of future interest or principal payments on direct obligations of, or obligations where the principal of, and interest are guaranteed by the United States, certain federal government agency securities, new l I housing authority bonds issued by public agencies or municipalities, tax-exempt obligations rated in the three highest rating categories or shares of investment companies which solely invest in such obligations, time deposits and certificates of deposits issued by banks insured by the Federal Deposit i Insurance Corporation (FDIC) which deposits are either fully insured by the FDIC, collateralized by government securities or which deposits are issued by a party whose long-term unsecured debt is rated in one of the three highest long-term rating categories, and repurchase agreements provided that a specific written repurchase agreement governs the transaction and the security underlying the repurchase agreement is held by an independent third party. Also, included are bonds or other obligations of any state of the United States or any agency or local government unit of a state which.-
..r----- - - - ~ - - - - ------- - - - - - - - - - - - - - - - - - - - - - - - ^ - - - - - - - MASSACHUSETTS MUNICIPAL WHOT FRAI E FI FCTRIC COMPANY NOTES TO FINANCIAL STATEMENTS DECEMBER 31.1994.1993 AND 1992 (2) Significant Accounting Policies (continued) Rnecial Funds (continued) have been advance refunded and are not callable, domestic dollar denominator money market mutual funds rated in the two highest rating categories, participation units in the combined investments fund created under Massachusetts laws for the purposes of investment by local governments, and shares of inv;stment companies which are authorized to invest in assets or securities comprised of government securities, agency securities, new housing bonds, tax-exempt bonds, and repurchase agreements noted ) tbove. Certain Special Funds are more restricted as to which of the aforementioned investments can be purchased. i Special Funds include amounts held in trust under Power Purchase Agreements, working capital arrangements and agency contracts. These trusteed funds are invested in securities as outlined within the General Bond Resolution, and in repurchase agreements secured by certain securities at banks where MMWEC has established accounts, although the working capital trrangement and agency contracts are not governed by the General Bond Resolution. Cash and Temnorarv Invectments l Certain cash and temporary investment amounts are used for power purchases and working capital requirements of MMWEC. These funds are not governed by the General Bond Resolution. In addition to the investment securities delineated in the General Bond Resolution, l MMWEC invests in repurchase agreements with banks where MMWEC has established accounts. Inventories Fuel oil and spare parts inventory are recorded and accounted for by the average cost method. At December 31,1994,1993 and 1992, fuel oil inventory was valued at $5.1, $4.2 and $3.4 million, and spare parts inventory amounted to $10.5, $10.6 and $11.9 million, respectively. i Revennec and Unbilled Revennec Revenues include electric sales for resale provided from MMWEC's operating units and power purchases and billings for administrative and general services provided to MMWEC's Service Participants. These and additional details of revenues are as follows: Revenues 1994 1991 1992 i (In Thousands) Electric sales for resale $229,586 $243,817 $270.455 Service 2,324 2,813 2,586 PSNH Settlement 2.000 2.000 2.000 Total Revenues $231210 $24L630 $22LQi1 , 1
l MASSACHUSETTS MUNICIPAL WHOLESAI F RI FCTRIC COMPANY NOTES TO FINANCIAL STATEMENTS DECEMBER 31.1994.1993 AND 1992 (2) Sienificant Accountina Policies (continued) Revenues and Unbilled Revenues (continued) MMWEC bills its members for costs incurred in providing services and purchased power obtained on their behalf under terms of the Service Agreement and Power Purchase Agreements. Service revenues are recorded as the expenses are incurred. Amounts which are not yet billed am included in Unbilled Revenues on the Statements of Financial Position. Ammmtc Dacoverable Under Terms of the Power hiec Agreements Billings to Project Participents are designed to recover costs in accordance with the PSAs. The billings are structured on a Project-by-Project basis to provide for debt service, operating funds and reserve requirements. Expenses are reflected in the Statements of Operations in accordance with generally accepted accounting principles. The timing difference between amounts billed versus expensed is charged or credited to Amounts Recoverable Under Terms of the PSAs. Amounts will be recovered through future billings or an expense will be recognized to offset credit balances. The principal differences include depreciation, fuel amortization, costs associated with cancelled Projects, cost of refundmg, billing for certain interest, reserves, net unrealized gain or loss on securities available for sale and other costs. An increase in Amounts Recoverable Under Terms of the PSAs is primarily caused by recognition of depreciation expense in excess of bond principal payments related to a Project and the cost of refinancing programs. Individual Projects have a cumulative deferral of costs which total $220.3, $201.4 and $164.9 million and Projects have cumulative billings in excess of costs which total $6.1, $11.6 and $32.6 million at December 31,1994,1993 and 1992, respectively. These amounts have been netted in the Statements of Financial Position. The December 31, 1994 balance of $214.2 million reflects the Statements of Operations net increase of $22.4 million and the net unrealized loss of $2.0 million on securities available for sale. Nuclear Dw..m..iccinnino Trusts MMWEC maintains external trust funds, as promulgated by Nuclear Regulatory Commission (NRC) and state regulations, to provide for the decommissioning activities of Millstone Unit 3 and Seabrook Station. The December 31, 1994 Millstone Unit 3 and Seabrook Station balances of $3.4 and $2.7 million, respectively, are stated at cost and included as part of the Deferred Charges and Deferred Credits on the Statements of Financial Position. MMWEC's share of the estimated reserve requirement for the prompt dismantling and removal of the Millstone Unit 3 and i Seabrook Station, at the expiration of their original operating licenses in 2025 and 2026, is $20 and $44 million, respectively. Deoreciation Electric plant in service is depreciated using the straight-line method. The aggregate annual provisions for depreciation for 1994,1993 and 1992 averaged 4% of the original cost of depreciable property. .g.
...-.-...---..--.n.--_-_---- i MASSACHUSETTS MUNICIPAL WHOLESAT F f FLFCTRIC COMPANY NOTES TO FINANCIAL STATEMENTS DECEMBER 31.1994.1993 AND 1992 l i (2) Rignificant Accounting Policies (continued) Interest Rate Protection Agreement Premiums paid for purchase of an Interest Rate Protection Agreement are amonized to interest expense over the term of the agreement. Unamortized premiums are included in Other Deferred Charges in the Statements of Financial Position. l Reclassifications I Certain reclassifications have been made to the Financial Statements for prior years to conform to the 1994 presentation. (3) Dcht Power Sunnly System Revenne Bonde ~~ To finance the ownership interests in electric generating facilities under its General Bond Resolution, MMWEC issued Power Supply System Revenue Bonds (Bonds). The Bonds are secured under the General Bond Resolution by a pledge of the revenues derived by MMWEC under the terms of the PSAs and from the ownership and operation of the Projects in its power supply system. Pursuant to the PSAs, each Project Participant is obligated to pay its share of the actual costs relating to the generating units planned, under constmetion or in operation. The Project Participants' obligations are not contingent upon the completion or operational status of the units. MMWEC financings, other than obligations maturing within one year, require Massachusetts Department of Public Utilities' (DPU) authorization. In 1994,1993 and 1992, MMWEC issued $432.4, $444.3 and $748.3 million of refunding bonds, respectively. The proceeds of the 1994 Series bonds, when combined with $9.8 million from the Bond Fund Reserve Account and Bond Retirement Account, were utilized to defease $432 million of the 1977 Series A and B bonds and portions of the 1992 Series A,1992 Series B,1992 Series D,1992 Series E,1993 Series A and 1994 Series B bonds. The proceeds of the 1993 Series bonds, when combined with $14.5 million from the Bond Fund Reserve Account and Bond Fund Principal Account, were utilized to defease $412.1 million of the 1976 Series A bonds and ponions of the 1978 Series A,1979 Series A and 1987 Series A bonds. The proceeds of the 1992 Series bonds, when combined with $49.1 million from the Bond Fund Reserve Account, Construction Fund and Bond Fund Principal Account, were utilized to defease $716.3 million of bonds comprised of the 1980 through 1982 Series bonds and portions of the 1984 Series A,1985 Series B and 1987 Series B bonds. The proceeds from the refunding bonds and the available funds have been deposited in irrevocable escrow accounts and used to purchase direct obligations of the United States Government in an amount sufficient to pay the debt service requirements of the refunded bonds through the redemption dates. The aggregate balances of defeased debt at December 31,1994,1993 and 1992 was $285.2, $296.1 and $111.8 million, respectively. _
== MASSACHUSETTS MUNICIPAL WHOLESAI E FI FCTRIC COMPANY NOTES TO FINANCIAL STATEMENTS DECEMBER 31.1994.1993 AND 1992 (3) Dch1(continued) Power Suppiv Svarem Revenue Bonds (continued) The net cost of the 1994,1993 and 1992 refundings equalled $12.9, $43.9 and $73.2 million, net of $2.7, $2.8 and $7.9 million of expenses, respectively. MMWEC's 1994,1993 and l 1992 refinancing programs in effect reduced the aggregate debt service payments by $107.9, $146.6 and $693.4 million over the remaining life of the bonds and obtained an economic gain (difference between the present values of the old and new debt service payments) of $45.9, $65.5 and $288.2 million, respectively. Bonds Payable consists of serial, term and variable bonds and are comprised of the following issues. The serial and term bonds are generally subject to optional redemption approximately ten years after the issue date, at 103% of the principal amount, descending periodically l thereafter to 100%. Net Interest December 31. ISSug Cost 1994 1993 1922 (In Thousands) [ 1976 Series A 7.2% 56,005 1977 Series A 6.4% 144,240 147,815 j 1977 Series B 6.1 % 74,325 75,910 1978 Series A 6.8% 1,085 60,045 118,125 1979 Series A 7.0% 1984 Series A 11.0 % 800 1,515 1985 Series B 13.5 % 185 525 825 l 1987 Series A 8.9% 10,250 10,730 195,815 f 1987 Series B 11.8 % 540 l 1992 Series A 7.0% 100,875 104,910 104,910 1992 Series B 7.0% 201,410 322,665 326,335 1992 Series C 6.9 % 60,345 61,070 61,070 1992 Series D 6.3 % 87,190 104,690 105,805 1992 Series E 6.0% 115,745 140,050 149,040 1,055 j 1992 Series F 5.3 % 1993 Series A 5.3 % 390,275 441,255 1993 Series B 5.9 % 930 1,435 1994 Series A 5.3 % 115,640 1994 Series B 5.1 % 197,190 1994 Series C Variable 97.600 Bonds Payable 1,377,635 1,407,780 1,404,810 less: Current Maturities (36.420) (33.175) (28.110) Total Long-Term Debt M M jy2[ggQ - - -
1 MASSACHUSETTS MUNICIPAL WHOI ESALE FI FCTRIC COMPANY NOTES TO FINANCIAL STATEMENTS DECEMBER 31.1994.1993 AND 1992 i l (3) Dcht (continued) i i Power Sunnly Syctem Revenue Bonds (cor.tinued) The aggregate annual principal payments due on the bonds in the next five years are as follows: 1995 - $36,420,000; 1996 - $37,750,000; 1997 - $39,415,000; 1998 - $41,315,000; and 1999 - $44,650,000. l The interest rates on the 1994 Series C variable-rate bonds are adjusted from time-to-time. Bondholders may require repurchase of the 1994 Series C bonds at the time of such interest rate adjustment. MMWEC has entered into an agreement to provide for the remarketing of the 1994 Series C bonds if repurchase is required. Also, MMWEC has entered into an agreement i with a bank which generally provides for the purchase by the bank of the 1994 Series C bonds if not J remarketed and issuance of bank bonds under a separate letter of credit facility. The debt service on j the 1994 Series C bonds is on a parity with the senior lien fixed-rate bonds to the extent that the debt service on the 1994 Series C bonds is equal to or less than the debt service on the bonds refunded by the 1994 Series C bonds in a given bond year. Debt Service Forward Deliverv Agreement In conjunction with the issuance of the 1994 Series C bonds, MMWEC also entered into an investment instmment, known as a " Debt Service Forward Delivery Agreement" (Forward Agreement) for purposes other than trading. The purpose of the Forward Agreement is to improve the return on the investment of monies on a portion of the Bond Fund during the seven year term of the agreement. MMWEC currently makes monthly deposits to the various accounts within the Bond ' Fund for the semiannual payment of debt service on its outstanding bonds. The Forward Agreement relates to the investment of these monies prior to the time such deposits are to be used for semiannual debt service payments. In exchange for the right to dictate the investment of such monies, the counterparty pays a fixed amount to MMWEC on a periodic basis, providing MMWEC a fixed return on the funds available during the term of the Forward Agreement. The counterparty has the right to sell to MMWEC Government Obligations that mature prior to the relevant debt service payment dates during the term of the Forward Agreement. The effect of the agreement will allow MMWEC to earn a yield on these investments equal to the yield that could be earned on a security with a five to seven year comparable maturity purchased at the time the contract was executed, while complying with the maturity limitations for investments in the Bond Fund under the terms of the General Bond Resolution. i -
I MASSACHUSETTS MUNICIPAL WHOLESALE l FI FCTRIC COMPANY NOTES TO FINANCIAL STATEMENTS DECEMBER 31.1994.1993 AND 1992 (3) Dcht (continued) Debt Service Forward Delivery Agreement (continued) MMWEC reserves the right to terminate the Forward Agreement in whole or in part in connection with any purchase, redemption or refunding of fixed-rate bonds. In that event, the Forward Agreement provides for the calculation and payment of liquidated damages. In general, if interest rates at the time of the termination are higher than the level at the time the Forward Agreement was executed, then MMWEC would be required to pay damages to the counterparty. Conversely, if interest rates at the time of tennination are lower than at the time of execution of the 1 Forward Agreement, then the counterparty would be required to pay damages to MMWEC. In addition, MMWEC may terminate the agreement in the event of a default by the other party. The defaulting party would be responsible for paying damages as a result of termination, based on the market value of the Forward Agreement. Additionally, MMWEC has the right to terminate the Forward Agreement if the counterparty's credit rating falls below " investment grade" category. In that event, the Forward Agreement prov} des for the calculation and payment of a termination payment designed to be in an amount sufficient to enable MMWEC to enter into an equivalent agreement with another qualified entity. The cash requirement under the Forward Agreement requires MMWEC to make available to the counterparty an average balance of $30.3 million over the seven year term of the agreement in exchange for investments in Government Securities to be held by MMWEC's trustee which mature prior to MMWEC's debt payment dates. The Forward Agreement is not recognized in the Statements of Financial Position to the extent that settlement of cash in exchange for financial instruments has not occurred. To the extent cash has been exchanged for Government Securities, the Government Securities are recorded on the Statements of Financial Position as Special Funds. Interest Rate Protection Agreement j The 1994 Series C bonds were issued to provide a hedge against interest rate risk on the net funding cost of approximately $100 million of short-term floating rate investment assets. MMWEC purchased an Interest Rate Protection Agreement (Cap Agreement) to limit the interest rate j exposure on a portion of the 1994 Series C variable-rate debt to the extent that the variable debt costs exceed the fixed-rate received on the Forward Agreement described above. MMWEC purchased the right to receive annually an amount by which an index-based interest rate, which approximates the interest rate on the 1994 Series C bonds, exceeds the protection rate in the Cap Agreement. The Cap Agreement provides MMWEC with the right to terminate the Cap Agreement if the Cap Agreement provider or its guarantor's credit rating falls below a double A. Upon the occurrence of such event, MMWEC may choose to receive payment of liquidation damages in an amount designed to enable MMWEC to enter into an equivalent agreement with another qualified institution. -
MASSACHUSETTS MUNICIPAL WHOLESATE FIFCTRIC COMPANY NOTES TO FINANCIAL STATEMENTS DECEMBER 31.1994.1993 AND 1992 (3) Dcht (continued) Interest Date Protection Agreement (continued) The $41 million Cap Agreement is comprised of an $11 million tranche with a protection rate of 6.85% which expires on June 30,2000, and a $30 million tranche with a protection rate of 7.25% that expires on June 30,2002. The cost of the Cap Agreement was paid up front and is ) included in Other Deferred Charges on the Statements of Financial Position. There are no futurc MMWEC cash requirements under the terms of the Cap Agreement. The Cap Agreement was I purchased for purposes other than trading. Net Revemie Available for Debt Service In accordance with the provisions of MMWEC's General Bond Resolution, MMWEC cov:nants that it shall fix, revise and collect rates, tolls, rents and other fees and charges, sufficient to produce revenues to pay all operating and maintenance expenses and principal of, premium, if any, and the interest on the Bonds and to pay all other obligations against its revenue. Revenues, which include applicable interest earnings from investments, are required to equal 1.10 times the annual debt service for each contract year ending June 30, after deduction of certain operating and maintenance expenses and exclusive of depreciation. For the contract years ended June 30, 1994, 1993, 1992 and prior years, MMWEC met the General Bond Resolution debt service coverage requirements for the applicable MMWEC Projects. Contract Year Frvied Jiine 30. 1994 1991 1922 Debt Service Coverage: (In Thousands) Revenues $162,980 $168,531 $195,952 Other Billings 588 661 713 Reserve and Contingency Fund Billings 11.549 12.444 14.542 Total 175,117 181,636 211,207 I2ss: Operating & Maintenance Expenses (48.078) (44.747) (51.251) Available Revenues Net of Expenses $12LD12 $13filB2 $15193.fi Debt Service Requirement $111A20 $12ddM $141314 Coverage (110% Required) 110 % 110 % 110 % . t
t 9 MASSACHUSETTS MUNICIPAL WHOLESAT.E FI FCTRIC COMPANY NOTES TO FINANCIAL STATEMENTS DECEMBER 31.1994.1993 AND 1992 (3) Dah1(continued) Notes Pavable MMWEC maintains a $5 million revolving line of credit to finance temporarily certain pow:r purchases made by. MMWEC for resale under power purchase contracts. The balances l outstanding were $0, $64,000 and $113,000 as of December 31,1994,1993 and 1992, respectively, with a maximum outstanding balance of $197,000, $641,000 and $556,000 during 1994,1993 and 1992, respectively. Interest charged on borrowings under the line of credit is at the bank's prime rate. In addition, a commitment fee of one quarter of 1% per annum is charged on the unused portion l of the line based on the average daily principal amount of the loan outstanding. i (4) Flectric Generation Facilities and Financing i MMWEC's power supply capacity includes interests in the Stony Brook Peaking and Intermediate units which it operates. MMWEC is a nonoperating joint owner in the W.F. Wyman i No. 4, Millstone Unit 3 and Seabrook Station units. Electric Plant In Service also includes MMWEC's Service Operations which totalled $2.4, $2.3 and $2.3 million in 1994,1993 and 1992, respectively. Facility and MMWEC Amounts as of December 31 Projects Rhare of Canability (MW) s s s (In Thousands) Peaking Project Stony Brook 170.0 56,242 56,330 56,289 Intermediate Project Stony Brook 311.3 150,579 150,322 147,973 Wyman Project W.F.Wyman No. 4 22.7 7,372 7,357 7,394 Nuclear Project No. 3 Millstone Unit 3 36.8 129,079 128,651 128,372 Nuclear Mix No.1 Millstone Unit 3 18.4 51,031 50,816 50,677 l Nuclear Mix No.1 Seabrook Station 1.9 8,562 8,575 8,579 l Nuclear Project No. 4 Seabrook Station 49.8 258,202 258,545 258,665 Nuclear Project No. 5 Seabrook Station 12.6 70,676 70,764 70,794 Project No. 6 Seabrook Station 69.0 499.711 500.186 500.352 MM M MMWEC's investment in Seabrook Station represents a substantial portion of its plant investment and financing. In January 1988, Public Service of New Hampshire (PSNH), then the lead owner of Seabrook Station, filed for protection from its creditors under Chapter 11 of the Federal Bankruptcy Code. In June 1992, in accordance with a court-approved plan of reorganization, Northeast Utilities (NU) acquired PSNH and placed Seabrook Station in a separate single asset subsidiary corporation. l t._
MASSACHUSETTS MUNICIPAL WHOI ESALE j FI FCTRIC COMPANY NOTES TO FINANCIAL STATEMENTS DECEMBER 31.1994.1993 AND 1992 (4) Electric Generatinn Facilities and Financing (continued) In June 1988, MMWEC's Board of Directors adopted a strategic plan of action relating to its Seabrook Station joint ownership interests. MMWEC and PSNH subsequently entered into a Memorandum of Understanding whereby PSNH paid MMWEC's capital costs up to $30 million, MMWEC maintained its full ownership in Seabrook Station and agreed to a Comprehensive i Settlement Agreement which was approved by the bankruptcy court. The Agreement provided for amendments to the Seabrook Joint Ownership Agreement, notices of default being rescinded, certain covenants not to sue, PSNH to pay MMWEC $2 million per year for eight years upon commercial operation of Seabrook, joint termination of the Sellback Agreement between MMWEC and PSNH and certain other considerations. MMWEC's net costs, including capitalized interest expenses and $126.4 million incurred for the cancelled Seabrook Unit 2, have been deferred and are being recovered under the terms of the PSAs. (5) Benefit Plans MMWEC has two non-contributory defined benefit pension plans covering substantially all full-time active employees. One plan covers union employees (union plan) and the other plan covers non-union employees (non-union plan). The amount shown below as the Pension Benefit Obligation for MMWEC is a standardized disclosure measure of the present value of pension benefits, adjusted for the effect of projected salary increases, estimated to be payable in the future as a result of employee service to date. The measure is the actuarial present value of credited projected benefits and is independent of the funding method used to determine contributions to the plans. The Pension Benefit Obligation was computed as part of an actuarial valuation performed as of January 1,1994. Significant actuarial assumptions used in the valuation include a weighted-average discount rate of 7.5% a year compounded annually, and projected salary increases of 5.5% a year compounded annually. The Pension Benefit Obligation for both plans is as follows: Amounts as of January 1. 1994 1991 1992 Retirees currently receiving benefits and i terminated employees not yet receiving benefits $ 282 $ 137 $ 123 Current Employees: 4 Vested 1,710 1,423 1,172 Non-vested 2.015 1.447 1.239 Total Pension Benefit Obligation 4,007 3,007 2,534 Net assets available for benefits, at market 3.025 2.395 1.859 Unfunded Pension Benefit Obligation $ 282 $ f.12 $_fli 1 MASSACHUSETTS MUNICIPAL WHOLESALE l ELECTRIC COMPANY NOTES TO FINANCIAL STATEMENTS i DECEMBER 31.1994.1993 AND 1992 (5) Benefit Plans (continued) Net assets available for benefits, at market as a percentage of the Pension Benefit Obligation, were 75.5%, 79.6% and 73.3%, as of January 1,1994,1993 and 1992, respectively. I The unfunded Pension Benefit Obligation as a percentage of covered payroll was 17.8%,11.4% and j 12.9% for the years ended January 1,1994,1993 and 1992, respectively. MMWEC makes annual contributions to the pension plans equal to the amounts j recorded as pension expense, which were $471,000, $489,000 and $467,000, for the years ended December 31,1994,1993 and 1992, respectively. Contributions as a percentage of MMWEC's l covered payroll were 7.9%, 8.9% and 8.3% for the years ended December 31,1994,1993 and j 1992, respectively. The union plan uses the aggregate actuarial cost method and the non-union plan j uses the frozen initial liability actuarial cost method in determining pension expense. In addition to 1 the actuarial assumptions outlined above, the assumed long-term rate of return used in determining j - pension expense was 8.5%. Pension costs applicable to prior years' service are amortized over thirty l years. Ten-year historical trend and other information which is required to be disclosed in accordance with Governmental Accounting Standards Statement No. 5 is not considered material and therefore is not presented. i MMWEC contributes to a employee savings plan administered by an insurance l company. All full-time employees meeting the service requirements are eligible to participate in this defined contribution plan. Under the provisions of the plan, MMWEC's contributions vest 2 i immediately. MMWEC contributed $104,000, $105,000 and $94,000 while the employees contributed $167,000, $170,000 and $165,000 during the years ended December 31,1994,1993 and i 1992, respectively. 1 (6) Commitments nna Contingencies i Power Purchases i MMWEC entered into agreements for participation in the transmission interconnection between New England utilities and the Hydro-Quebec electric system near Sherbrooke, Quebec (Phase l I), which began commercial operation in October 1986. The New England portion of the i interconnection was constructed at a total cost of about $140 million, of which 3.65% or $5 million is I MMWEC's share to support. MMWEC also entered into similar agreements for participation in the interconnection between New England utilities and the Hydro-Quebec electric system for the j expansion of the Hydro-Quebec interconnection (Phase II) which went into commercial operation in l November 1990. MMWEC's Phase II equity investment approximates 0.6% or $3.3 million. i MMWEC has corresponding agreements with certain of its members and another utility to recover MMWEC's share of the costs associated with the interconnection. i l,
___-m..m . ~.... _ _. MASSACHUSETI'S MUNICIPAL WHOLESALE ELECTRIC COMPANY NOTES TO FINANCIAL STATEMENTS DECEMBER 31.1994.1993 AND 1992 (6) Commitments and Contingencies (continued) Power Ralen Agreements l MMWEC sells the Project Capability of each of its Projects to its members and other l utilities (Project Participants) under PSAs. In 1988, the Vermont Supreme Court ruled that the Project No. 6 PSAs between MMWEC and the Vermont Project Participants were void since inception. Consequently, pursuant to the PSAs, MMWEC increased the remaining Project No. 6 Participants pro rata shares of Project Cipability to cover the shortfall (step-up), which action was challenged by certain Massachusetts Participants. The Supreme Judicial Court for the Commonwealth of Massachusetts in MMWEC et. al. v. Town of Danvers et. al. noted that "the Project 6 PSAs executed by the defendants are valid and that the step-up provisions therein have been properly invoked". Inasmuch as the Stony Brook Intermediate Project has approximately 8.2% of its Project Capability under PSAs with Vermont entities, which PSAs are virtually identical to the Project No. 6 PSA, MMWEC sought a declaratory judgment and received a Vermont Supreme Court opinion which upheld the validity of the Vermont Participants' Intermediate Unit Project PSAs. Consolidated with the Danvers case noted above, two Massachusetts systems also sued MMWEC over MMWEC's termination of a Sellback Agreement MMWEC had with PSNH (Sellback j Damages Claims). The Massachusetts Appeals Court affirmed MMWEC's summary judgment granted by the Superior Court on five of seven counter claims related to the Sellback Damages Claims. MMWEC sought and received further appellate review and the Massachusetts Supreme Judicial Court is scheduled to hear arguments in April,1995 on whether the Appeals Court erred in reversing the Superior Court on (1) whether MMWEC made certain representations to two Project Participants regarding the Sellback Agreement and (2) whether those two Project Participants reasonably relied on such representations in entering into the Project No. 6 PSAs. The former Vermont Project No. 6 Participants, through various court actions, sought restitution of $6.1 million paid to MMWEC prior to their PSAs being declared void. MMWEC paid the $6.1 million to the former Vermont Project No. 6 Participants through satisfaction of a Vermont Superior Court judgment against MMWEC and settlement of a Vermont Federal Court action. MMWEC is recovering said amount through billings to the Project No. 6 Participants. One of the Project No. 6 Participants has paid its monthly billings in full but is challenging the allocation of such costs to Project No. 6 by seeking arbitration, as provided for within the PSA. Another Project No. 6 Participant is withholding its share of the monthly billings relating to the amount paid, and has also filed for arbitration. MMWEC is seeking a contempt of court order, to enforce a prior court injunction, which ordered said Project Participar.t to make all Project payments when due. -
~ MASSACHUSETTS MUNICIPAL WHOLESAI E FI FCTRIC COMPANY NOTES TO FINANCIAL STATEMENTS DECEMBER 31.1994.1993 AND 1992 i (6) Commitments nna Contineencies (continued) Power hiec Agreemente (continued) Based on bond counsels' opinions regarding the validity of the Power Sales Agreements and general counsel representations regarding the litigation, discussions with such counsel, anni other considerations, management believes that the ultimate resolution of the actions described above will not have a material, adverse effect on the financial position of MMWEC. 4 Other iccuec In August 1988, an amendment to the Price-Anderson Act was enacted, calling for a fifteen year extension of the nuclear liability indemnification process. The Act now provides apprmimately $9.4 billion for public liability claims from a single incident at a nuclear facility. The $200 million primary layer of insurance for the liability has been purchased in the commercial market. Secondary coverage of $8.8 billion is to be provided through a $75.5 million per incident assessment of each of the currently licensed nuclear units in the United States. The maximum . assessment is $10 million per incident per unit in any year. If the sum of the liability claims and costs from an incident exceed the maximum amount of financial protection, each reactor owner is subject to ) an additional $3.8 million assessment. The maximum assessment is subject to adjustment for inflation every five years. MMWEC's interest in Millstone Unit 3 and Seabrook Station could result in a i maximum assessment of $3.6 and $8.8 million, respectively. Insurance has been pmt " from Nuclear Electric Insurance Limited (NEIL) to covzr the cost of repair, replacement, dewatamination or premature decommissioning of utility property resulting from insured occurrences at Millstone Unit 3 and Seabrook Station. MMWEC is subject to a $1 million assessment for its participation in Millstone Unit 3 and Seabrook Station for excess property damage, decontamination and decommissioning, as well as retroactive assessments if losses exceed the financial resources available to NEIL. MMWEC is not currently covered under gradual pollution liability insurance related to MMWEC's Stony Brook power plant. Nothing has come to management's attention concerning any material pollution liability claims made during 1994 or outstanding as of December 31,1994. 1 MMWEC has established a trust fund to enhance its Directors' and Officers' liability coverage. The purpose of the fund is to make available funds for the purchase of Directors' and Officers' liability insurance or indemnification of the Directors or Officers. i j i MASSACHUSETTS MUNICIPAL WHOI ESALE FI ECTRIC COMPANY NOTES TO FINANCIAL STATEMENTS DECEMBER 31.1994.1993 AND 1992 (7) Invectmente and Denosits All bank deposits, which amounted to $313,000 at December 31,1994, are maintained at one financial institution. The Federal Deposit Insurance Corporation currently insures up to $100,000 per depositor. MMWEC's uninsured deposits ranged from zero to $2.9 million during 1994 due to seasonal cash flows, and the timing of daily cash receipts. At December 31, 1994 investments are classified as available for sale and reported at fair value with unrealized gains of $208,000 and unrealized losses of $2.3 million excluded from earnings and reported as a component of Amounts Recoverable Under the Terms of the Power Sales Agreement on the Statements of Financial Position. At December 31,1993 and 1992, investments are stated at cost adjusted for accretion (amortization) of the discount (premium). At December 31,1994, all securities underlying repurchase agreements, and all other investments, were held in MMWEC's name by independent custodians consisting of the Construction Fund Trustees, Bond Fund Tmstee or MMWEC's depository bank. Investments, representing the Special Funds and Cash and Temporary Investments, as well as certain additional amounts disbursed but available for investment, and accrued interest, are presented below: 1994 1993 1992 Amortized Market Amortized Market Amortized Market Tyne ofInvectment Cost Racis Value Cost Racis Value Cost Racis Value (In Thousands) Repurchase Agreements $ 5.826 $ 5.8% $ 2.735 $ 2.893 $ 2.219 $ 2.289 Other Investments: U.S. Treasury bills 2,775 2,878 15 15 65 65 U.S. Treasury notes 77,250 75,090 97,283 101,090 84,681 87,257 U.S. Agency bonds 9,311 9,277 16,314 16,958 18,446 19,240 U.S. Agency discount notes 92,029 91,990 76,824 76,832 %,758 %,762 Invrstment in Government Mutual Funds 42 42 Total Other Investments 181.365 179.235 190.478 194.937 199.950 203.324 Total Investments $1][2.121 11.81131 111L213. $122J110 $202.lfi2 $201611 4 During 1994, the proceeds from the sale of available for sale securities were $10.1 ( million resulting in gross realized gains of $273,000 and gross realized losses of $2,000. The basis l on which cost was determined in computing realized gain or loss was specific identification. Including repurchase agreements, the average contractual maturity of the investments in debt securities at December 31,1994 was 545 days. Temporary investments, made up of funds available from amounts for which the expense has been recognized but not cleared by the bank, approximate $1.8, $.8 and $2.2 million in l 1994,1993 and 1992, respectively, and are included in the total investments noted above. __ _
1 MASSACHUSETTS MUNICIPAL WHOLESAT F FI FCTRIC COMPANY j NOTES TO FINANCIAL STATEMENTS DECEMBER 31.1994.1993 AND 1992 (7) Invectments and Denonits (continued) Due to seasonal cash flows during 1994,1993 and 1992, MMWEC, from time to time, invested in repurchase agreements with its depository bank that were collateralized by securities ] in MMWEC's name held by the depository bank. MMWEC's practice is to monitor the market value i of the underlying securities to ensure that the market value equals or exceeds the amount invested. Management estimated market values of the securities based on independent quoted market prices. 8) Fair Valnes of Financial Instruments The following methods and assumptions were used to estimate the fair value of each ) class of financial instrument for which it is practicable to estimate that value: Invectments nna Decommiccinnino Trusta - The fair values estimated are based on l quoted market prices for those or similar investments. Inng-Term Debt - The fair value is estimated based on quoted market prices for the same or similar issues. Interest Rate Protaction Agreement - The fair value is based on average quoted market prices of agreements with similar duration and strike prices. Debt Service Forward Delivery Agreement - The fair value generally reflects the estimated amounts that MMWEC would receive or pay to terminate the contracts at the reporting date, thereby taking into account the current unrealizeo gains or losses of open contracts. The estimated fair values of MMWEC's financial instruments are as follows: 1994 1993 1992 Carrying Estimated Carrying Estimated Carrying Estimated Value Fair Valne Value Fair Value Value Fair Value (In Thousands) Financial Assets: Investments $ 185,131 $ 185,131 $ 193,213 $ 197,830 $ 202,169 $ 205,613 Decommissioning Trusts 6,110 5,609 4,683 4,682 3,423 3,356 Interest Rate Protection Agreement. 709 581 Financial Liabilities: 1.ong-Term Debt 1,341,200 1,235,800 1,374,605 1,436,100 1,376,700 1,391,600 Unrecognized Financial Instruments: Debt Service Forward j 270 Delivery Agreement The carrying amounts for Cash, Accounts Receivable, Notes Payable, Accounts Payable and Accrued Expenses approximate their fair value due to the short-term nature of these instmments. -
~~l. ;[ "l}; Q ' l ~ _l )~~
0 ~ Ec iPeat Marwick LLP one Boston Place Telephone 617 723 7700 Telefax 617 723 6864 j Boston, MA 021084563 j l INDEPENDENT AUDITORS' REPORT ON SUPPLEMENTARY INFORMATION The Board of Directors Massachusetts Municipal Wholesale Electric Company We have audited and reported separately herein on the financial statements of Massachusetts Municipal Wholesale Electric Company as of and for the years ended December 31,1994,1993 and 1992. Our audits were made for the purpose of forming an opinion on the basic financial statements of the Massachusetts Municipal Wholesale Electric Company taken as a whole. The supplementary information included in Schedules I through III is presented for purposes of additional analysis and is not a required part of the basic financial statements. Such supplementary information has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole. W March 10,1995 Z L'O L.m _
I MASSACHUSETTS MUNICIPALWHDLF/ALRE.LBCIRIC COMPANY t EtolBCT STATEMENTS DEEksANCIAL2DSmDN nsrmasama 31.1994 Om 1h===mds) ASSEIS NUCLEAR NUCLEAR NUCLEAR NUCLEAR PROJECT HYDRO QUESEC SERVICE MIX 1 PROI. 3 PRO 3. 4 PROI. 5 NO. 6 PEAKINO INTERMEDIATE WYMAN PHASElf TtyTAL Ekctric Plant la Service 2,375 5 59,593 $ 129,079 $ 258,202 $ 70,676 $ 499,711 $ 56,242 $ 150,579 $ 7,372 $ l.233,829 Accumulmeed Depreciatine (2,00$J (14,496) 03,660j ___ {39,779) _110M (77.933J J,987) (75,879) J,441) J85,104J 370 45,097 95,419 218,423 59,752 421,778 29,255 74,700 3,931 948,725 Nuclear Fuel Net of Ansnrtizaani 1,152_ 1,981_ 3,944_ 1,036_ 6,618 I4,731_ Total Ekctric Plant 370 46,249 97,400 222,3_67_ 60,788 428,396 29,255 74,700 3,931 963,456 Special Funds Bond Fund Innerest, Principal and Metirernent Account 2,480 1,911 2,540 782 6,719 1,760 4,391 158 20,741 Reserve Acconne 6,798 11,207 13,959 4,352 32,218 2,410 6,177 284 77,405 Reserve med r Fund 3,206 2,158 3,526 1,055 5,000 823 1,879 280 17,927 .-i Revenue Fund 2,217 5,002 6,357 1,717 9,275 8,663 15,760 1,332 50,323 j works Capital Funds J6 4_60 (26) 16,434_ 2 16,460 14,701 20,278, 26,382 7,906 53,212 13,656 28,207 _ 2,054_ (26] 182_,8_3 _0 Currete Assets Cash and Tennporary Invenenents 991 1 I (4) 989 Accuses ReceiveNe 3.978 157 63 151 37 318 195 128 5,027 Umbilled Revenues 5,104 5,104 y Invemearies 65 1,731 438 2,397 1,242 9,510 214 15,597 i N Advances to (frene) Projects I,108 (89) (125) (113) (37) (371) (80) (282) (11) Prepaul Espenses 264_ 1,067_ 2,011 1,537_ 389_ 2,128 3 14 7,413_ Total Corrent Assets _I I,445_ I,200 1,949_ 3,30 _7 827 4 473_ I,165__ 9,437 203 124 34,130_ Taal Special Funds and Current Assets 27.905 15,905 22.227 29,689 8.733 57,685_ 14,821 37,644 _2,257_, 98 216,960 Deferred Charges Amounts RecoversNe (Psymble) Under Tevens ofitse Power Sales Agreensents 7 78,597 91,546 (5,564) 3,817 28,139 405 17,818 (56) (492) 214,217 Userwrtamed den Disecant and Espenses 3,128 4,797 7,211 2,778 15,001 470 2,418 14 35,817 Nuclear Decomunnesecoung Trusts 1,179 2,276 1,006 255 1,394 6,110 Oh 132 296 457 885_ 230 I,312_ 48_ 261_ 51 581 4,253 139 83,200 99,076 3,538_ 7,000 45, 846_ 923_ 20,497 9 89_ 26r 7 $ 28.414 $ 145.350 $ 218.703 $ 255.594 @ $ 531.927 M $ 132.841 M 187 g,44g LIARIl1 TIES Img-Tenn Debt sonds Psymble 3 - $ 137,470 $ 209,165 $ 243,405 $ 73,350 $ 512.425 $ 39,870 $ 120,020 $ 5,510 $ 1.341,215 + Chrrent Laminheses Current Mansnhes of Ims-Tenn Dett 4,855 3,680 5,420 1,505 10,855 2,920 6,880 305 36,420 Accounts PayaNe 4,324 101 98 1,313 332 1,824 24 439 45 25 8.525
s*
10,969 [ Acerned Espenses 3,774 142 98 1,199 300 4,440 54 937 25 Member and Participent Advances g: and Reserves _ 20,316, 1,457 3,115 2,994_ 794_ 633_ 2,131 4,565_ 312 162 36d79 y 28,414 6,555_ 6,991_ 10,926_ 2,931 17,752_ 5,129 12,821 687 187 92,393_ Deferred Credes 1,325 2,547_ I,263 320 IJ50 7,205, H }_18AI4_ $ 145J50, $ 218.703 $ 255,594_ } 76,601. 5 531.927 l_44E l__J37,841 $_M9L 1__18_7 $_L%813
.~ _MASSACHUSETTSMUNICIPAL WHOLJiSALE ELECTRIC COMPANY PROJECT 5TATEMEfG3DF OPERATIONS YEAR ENDED DECEMBER 31,1994 ' * *~ (In TL ") NUCLEAR NUCLEAR NUCLEAR NUCLEAR PROJECT HYDRO QUEBEC SERVICE MIX 1 PROJ. 3 PROJ. 4 PROJ. 5 NO.6 PEAKING INTERMEDIATE WYMAN PHASE 11 TOTAL _ R; venues S 62,962 $ 14,695 $ 20.247 $ 28,151 8,039 $ 62.219 $ 7,002 $ 28,537 $ I,453 $ 605 233,910 Interest income 775_ 990 1,361 1,679 488 367_ 682 I,519 100 98 11,139 Total Revenues and Interest income $ 63.737 $ 15.685 $ 21.608 $ 29.8_30_ 8.527 $ 65.e66 1 7.684 1 30.056 $ I,553, S 703 245.049 Operating and Servim Expenses: Puel Used in Electric Generation 773 $ l.372 1,818 479 5 3,093 578 $ 7,851 395 16,359 Purchased Power 61,335 605 61,940 Other Operating 2,282 2,051 3,646 5,335 1,376 14.5 % 1,145 4,761 308 35,500 Maintenance 43 634 1,109 2,077 526 2,876 263 2,1 to los 9,746 - Depreciation 65 1,910 4,045 9.251 2,532 17,888 2,257 6,191 227 44,366 Texas Other Then income 8_ 162 236 1,184 300 1,640 391 1,078 140 5,139 63,733 5.530 10,408 19,665 5,213 40.093 4.634 21,991 1,178 605 173,050 Interest Expense: Interest Char 8es 4 7,555 11,775 14,612 4,502 33,640 2,532 6.561 308 81,489 Interest Charged to Projects During Construction [4) (13) (6) (2) (11) (3j6 4 7,551 II,762 14,606 4,500 33,629 2,532 6,561 308 81,453 Total Operating Costs and k Interest Expenre 63,737 13,001 22.170 34,271 9,713 73,722 7,166 28,552 1,486 605 254,503 va Qwt (Gein) of Advance Refunding - Net 912 1,903 896 (506) 10,895 (39) (1,136) 57 12,902 Gain on Cancelled Units - Net (2) (t) (3) (6) 912 1,903 894 (587) _ 10,892 (39) (1,136) 57 12.896 Decrease (Increase)in Amounts Recoverable Under the Pbwer Sales Agreements due to excess of Expenses (Revenues) over Revenues (Expenses) 1.692 (2,465) (5,335) (599) (18.948) 557 2,640 10_ 98 (22J50) }_ 632 n $ 15.eB5 $ 21.e08 $ 29.830 8,527 $ 65 e66 $ 7.684 $ 30.056 $ 1,553 m 245.0e9 Nif a. H ft H H
t 4, MA18ACliUSET75 MUNIOPAL WHORESALE EI.ECTRIC CIIMPANY FRGiliCT STATIiMENTS OF CASHE1M IEAR ENDED INK
~~EMBER 31.19M (la Thousands)~~
NUCLEAR NUC12AR NUCLEAR NUCLEAR PRolBCT HYDRO QUEREC SERVICE MIX X PROF. 3 FROI. 4 _ PROJ. 5 NO. 6 PEAKING INTERMEDIATE WYMAN PHASE 11 1DTAL Cash flows finen opeestag activinies: Teaml Revemmes med laserest incesse $ 63.737 15.685 3 21.408 8 29.830 $ 8.527 65.666 $ 7.e84 $ 30.056 $ I.553 -703 245.049 TessiCesas end Empenses ed (63.737) (13.993) (24.073) (35.165) (9.126) (84,614) p.127) (27.416) (1.543) (605) (207.399) r** ** arvive me met em'h provided (used) by eyeenames activieira: l' c and E. 65 2.078 4.M2 9.486 2.592 18.214 2.243 6.120 227 45.387 Asmostamason 1.019 1.592 - 2.179 627 3.924 112 456 13 9.922 Wriae off of Debt Desecume and Fw 1.415 1.729 1.947 193 4.475 167 408 126 10.440 Change in current assess and limbshases Acceemus Recesvable 1.801 93 190 740 155 1.216 89 28 23 (1) 4.334 Umbined Revenues 2.709 2.709 levenneries 3 72 . 18 99 2e9 (l.324) 112 0 51) Pueyeid Expensee 116 (339) (725) 403 102 559 88 29 223 Accommen Peyeble 0 06) 77 94 274 65 517 36 (404) ' 17 23 193 Accrued Empemmes and Odier (l.910) (349) (e97) (406) (130) 2.045 3 (464) (M) (2.024) Meseber and Pheticipant Advances med Reserves (4.639) 650 2.703 - (227) 08) (6.565) 17 (117) 43 (134) (8.307) Net cash provided by (used for) epevening activities (2.164) 6.329 6.783 8.953 2.955 5.5M 3.493 7.311 564 (14) 39.776 Cash flows frees inveening activities: Comsaraction L " asul e Pinchases of Nuclear Pue4 (185) (630) (l.207) (650) (165) (901) (19) (499) (25) (4.251) N Imarrent Charged to Projeeis e Durung Censmaction (4) (13) (6) (2) (II) 06) Na lacrease (Decrease) im Special Pussia 2.31I 2.737 (512) (197) (290) 2.811 (279) I,60s 66 14 s.2e9 Nd Unrealized loss em Special Pumde (7) (412) 0 27) 0 00) (96) (679) 01) (153) (6) G.059) C--
~~Trust Poyaieman (230)~~
(454) G75) 01) (386) (1.427) Osber 85 62 121 43 Il 40 43 425 Net cemb provident by (used for) invessing activisies 2.204 1.515 (2.392) (1.386) (613) 894 (369) 999 35 14 391 i Cash flows froom raamacing activisiee: Proceeds fress Sale of Rands 102.735 73.155 302J70 7.605 119.240 9.100 10.655 7.300 432.300 Payumenes for Rand lesus Casas (2.199) (1.736) (2.617) (157) 0.5003 (104) - (125) (54) (10.482) Peyinemas fu Pruncipal 4 Imme-Tene Debt (2.520) (2.630) (3.640) (1.460) (10.665) G 805) (6.420) (85) 9 0.525) Puyinemas for De'ensmace of Ramde (105.650) G3.180) (103.570) (5.3e0) (Ill.445) (9.315) (12.420) U.760) (432.000) Change a Nones Payable (64) (64) Net casin used for finmacang eceivities (64) (7.844) (4.391) (7.557) (2.3721 (6.430) 0.124) (8.310) ($99) (40.691) Nd (decrease) ha cash and i sesaperary invesemenes (24) (24) Cash and Teampoemry lev-et Resummme cf Year 1.015 I I (4) 1.013 Casin med Teampoemry W y [ at Essi of Year S 991 S - S - S I S - S I S S S W .S 989
~~r i~~
Cash paid durung the year for immerest ID (Net of emioimet copiantired as shown above) S 4 S 7.125 11.235 S 13.906 MS 32.301 Q $ 6.067 W1 1 W579_ j H i Y H H i 6
w e 9 s J5iNiff i I I 9
~~4 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Wa hingten. D. C. 20549-1004 Form 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)~~
OF THE SECURITIES EXCHANGE ACT OF 1934 (Mark One) [ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [ FEE REQUIRED] For the fiscal year ended December 31, 1994 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the transition period from to Commission file number 2-30057 CANAL ELECTRIC COMPANY (Exact name of registrant as specified in its charter) Massachusetts 04-1733577 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) One Main Street, Cambridae, Massachusetts 02142-9150 (Address of principal executive offices) (Zip Code) (617) 225-4000 (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchance on which recistered None None Securities registered pursuant to Section 12(g) of the Act: Title of Class None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES [x] NO [ ] Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Outstanding at Class of Common Stock March 15. 1995 Common Stock, $25 par value 1,523,200 shares The Company meets the conditions set forth in General Instruction J(1)(a) and (b) of Form 10-K as a wholly-owned subsidiary and is therefore filing this Form with the reduced disclosure format. Documents Incorporated by Reference Part in Form 10-K None Not Applicable List of Exhibits begins on page 32 of this report. I CANAL ELECTRIC COMPANY FORM 10-K DECEMBER 31, 199,4 TABLE OF CONTENTS PART I na l l Item 1. Business.......................................... 3 i General......................................... 3 1 l New England Power Pool.......................... 3-t 8 Regulation...................................... 4 i l Fuel Supply..................................... 4 I Power Contracts................................. 5 1 l Power Supply Commitments and l Support Agreements............................ 6 l-j Construction and Financing...................... 6 i Environmental Matters........................... 6 ] I Employees....................................... 7 l Item 2. Properties........................................ 7 Item 3. Legal Proceedings................................. 7 a 1 PART II l 1 1 Item 5. Market for the Registrant's Conunon Stock and 5 Related Stockholder Matters..................... 8 a i I Item 7. Management's Discussion and Analysis of l Results of Operations........................... 9 i d Item 8. Financial Statements and Supplementary Data....... 12 l Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure............. 12 i PART IV ij j Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K............................. 32 1 e 2 l Signatures................................................... 41 e l l 2-a
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i J. .._ _.._4'
.A CANAL ELECTRIC ~ COMPANT i Part I. i Item 1. Business i General l Canal Electric Company (the Company) is a wholesale electric generating ? company organized in 1902 under the laws of:the Commonwealth of Massachu-setts. The company assumed its present corporate name.in-1966'aftermthe ( sale to an affiliated company of its electric distribution and transmission { properties together with the right to do business in the territorias. served. -. l The company is a wholly-owned subsidiary of Commonwealth Energy' System' l ( System"), which together with its subsidiaries is collectively referred to l as "the system." l The Company's generating c'ation is located in Sandwich, Massachusetts t at the eastern end of the Cape Cod Canal. The station consi'sts of two-oil-- fired steam electric generating units: Canal Unit 1, with a rated capacity of 569 MW, wholly-owned by the Company; and Canal Unit 2, with a rated i capacity of SFO MW, jointly-owned by the company and Montaup Electric l Company (Montaup) (an unaffiliated company). Canal Unit 2 is operated by-l the Company under an agreement with Montaup which provides for the equal i sharing of output, fixed charges and operating expenses. Canal Units.1 and -l 2 commenced operation in 1968 and in 1976, respectively. The Company also has a 3.52% interest in the Seabrook 1 nuclear power i plant located in Seabrook, New Hampshire, to provide for a portion of the: } capacity and energy needs of Cambridge Electric Light Company (Cambridge) l and Commonwealth Electric Company (Commonwealth Electric), each of which are retail distribution companies and wholly-owned subsidiaries of the System. The plant has a rated capacity of 1,150 MW. For additional informatzon pertaining to the Company's relationship with-l the system's retail distribution companies, together with more extensive j information on the Company's participation in the Seabrook plant and on .j other sources of power procurement, refer to the " Power Contracts""and-l ' Power Supply Commitments and Support Agreements" sections of this Item 1. i New Encland Power Pool f f The company, together with other electric utility companies in the New England area, is a member of the New England Power Pool (NEPOOL), which was-formed in 1971 to provide for the joint planning and operation of' electric systems throughout New England, f i NEPOOL operates a centralized dispatching facility to ensure reliability } of service and to dispatch the most economically available generating units i of the member companies to fulfill the region's energy requirements _ This concept is accomplished by use of computers to monitor and forecast load { requirements. In the past, this has required that Canal Unit 1 operate whenever possible since it is one of the most efficient oil-fired units in j the country. Canal Unit 2 in. designed for cycling operation which provides i' I i t t i e,---
5 CANAL ELECTRIC COMPANY for economic changes in unit load permitting reduced generation during nights and weekends when demand is lowest. It has performed as one of New England's most efficient units in this type of service. The Company and the System's other electric subsidiaries are also members of the Northeast Power Coordinating Council (NPCC), an advisory organization which includes the major power systems in New England and New York plus the provinces of Ontario and New Brunswick in Canada. NPCC establishes criteria and standards for reliability and serves as a vehicle for coordination in the planning and operation of these systems. Regulation The company is a "public utility
within the meaning of Part II of the Federal Power Act and is subject to regulations thereunder by the FERC as to rates, accounting and~other matters. Tne Coupany is subject to regulation by the DPU as to the issuance of securities.
Fuel Supoly (a) Oil Effective July 1, 1993, the Company executed a twenty-two month contract with Coastal Oil New England, Inc. (Coastal) for the purchase of residual fuel oil. The contract provides for delivery of a set percentage of the Company's fuel requirement, the balance (a maximum of 20%) to be met by spot purchases or by Coastal at the discretion of the Company. Through December 1994, approximately 15.6% of the Company's total requirements have been met by lower-cost spot purchases resulting in savings to its customers. Energy Supply and Credit Corporation (ESCO Massachusetts, Inc.) operates the Company's oil terminal and manages the purchase, receipt and payment of oil under assignment of the Company's supply contracts to ESCO Massachu-setts, Inc. Oil in the terminal's shore tanks is held in inventory by ESCO Massachusetts, Inc. and delivered upon demand to the Company's day tanks. Fuel oil storage facilities at the Canal site have a capacity of 1,199,000 barrels, representing approximately 60 days of normal operatien of the two units. During 1994, ESCO maintained an average daily inventory of 575,000 barrels of fuel oil which represents 30 days of normal operation of the two units. This supply is maintained by tanker deliveries approximately every ten to fifteen days. For a discussion on the cost of fuel oil, refer to " Management's Discussion and Analysis of Results of Operations
~~filed under Item 7 of this report.~~
(b) Nuclear Fuel The nuclear fuel contract and inventory information for Seabrook 1 1As been furnished to the Company by North Atlantic Energy Services Corporation (NAESCO), the plant manager responsible for operation of the unit. Seabrook's requirement for nuclear fuel components are 100% covered through 1999 by existing contracts. CAMAL ELECTRIC COMPANY i There are no spent fuel reprocessing or disposal facilities currently operating in the United States. Instead, commercial nuclear electric gener-ating units operating in the United States are required to retain high level { wastes and spent fuel on-site. As required by the Nuclear Waste Policy Act I of 1982 (the Act), as amended, the joint-owners entered into a contract with the Department of Energy for the transportation and disposal of spent fuel and high level radioactive waste at a national nuclear waste repository or Monitered Retrievable Storage (MRS) facility. Owners or generators of spent i' nuclear fuel or its associated wastes are required to bear all of the costs for such transportation and disposal through payment of a fee of approximately 1 mill /KWH based on net electric generation to the Nuclear e Waste Fund. Under the Act, a temporary storage facility for nuclear waste l was anticipated to be in operation by 1998; a reassessment of the project's schedule requires extending the completion date of the permanent facility until at least 2010. Seabrook 1 is currently licensed for enough on-site storage to accommodate all spent fuel expected to be accumulated through at l ---Icast the year 2010. _ _. Power Contracts The Company is a party to substantially identical life-of-the-unit power contracts with Boston Edison Company, Montaup Electric Company and New England Power Company (unaffiliated utilities), under which each is severally obligated to purchase one-quarter of the capacity and energy of Canal Unit 1. Commonwealth Electric and Cambridge are jointly obligated to purchase the remaining one-quarter of the unit's capacity and energy. i Similar contracts are in effect between the Company and Commonwealth Electric and Cambridge under which those companies are jointly obligated to i purchase the company's entire share of the capacity and energy of Canal Unit ] 2. The price of power is based on a two-part rate consisting of a demand i charge and an energy charge. The demand charge covers all expenses except i fuel costs and includes recovery of the original investment. It also provides for any adjustments to that investment over the economic lives of the units. The energy charge is based on the cost of fuel and is billed to each purchaser in proportion to its purchase of power. Purchasers are billed monthly. The power contracts are on file with the FERC. The Company acts as agent for Commonwealth Electric and/or Cambridge in the procurement of additional capacity, or, to sell a portion of each company's entitlement in Unit 2. Exchange agreements are in place with several utilities whereby, in certain circumstances, it is possible to exchange capacity so that the mix of power improves the pricing for dispatch for both the seller and purchaser. Commonwealth Electric and Cambridge thus secure cost savings for their respective customers by planning for bulk power supply on a single system basis. A Capacity Acquisition and Disposition Agreement, which has been accepted for filing as a rate schedule by the FERC, enables the Company to recover costs incurred in connection with any transaction covered by such Agreement. Commonwealth Electric and Cambridge, in turn, bill charges to retail customers through rates subject to DPU regulation. Currently, Agreements are in effect for Seabrook 1, Phase I and Phase II of the Hydro-Quebec Project, varying amounts of power acquired from Northeast Utilities (NU), a 50 MW exchange with Central Vermont Public Service and a 50 MW exchange with New England Power Company through April 1997. I ! 1 l i
4 I CANAL ELECTRIC COMPANT i Power Sucolv Commitments and Succort Acreements ] In response to solicitations by NU and other utilities, the company, on ( behalf of Commonwealth Electric and Cambridge, purchased entitlements through short-term contracts in various selected generating units. Tne contracts with NU covered the purchase of varying amounts of power throuyh october 1994. These and other bulk electric power purchases are necessa ry in order to fulfill the system's NEPOOL obligation and for the Company to acquire and deliver electric generating capacity to meet Commonwealth Electric and Cambridge requirements. For additional information, refer to l " Transactions with Affiliates" in Note 1 of Notes to Financial Statements and to " Management's Discussion and Analysis of Results of Operations" filed under Items 8 and 7, respectively,.of this report. I I The Company is party to support agreements for Phase I and Phase II of l yt2ry2;eQwbJe Project lind is thereby obligated to pay its share of l , operating and capital costs for Phase II over a 25 year perio,d ending in j 2015. Future minimum lease payments for Phase II have an estimated present j value of $13.8 million at December 31, 1994. In addition, the Company has i an equity interest in Phase II which amounted to $3.8 million in 1994 and $3.9 million in 1993. t Construction and Financina Information concerning the Company's financing and construction programs { is contained in Note 5 of Notes to Financial Statements filed under Item 8 j } i of this report. I i Environmental Matters j I The Company is subject to laws and regulations a&ninistered by federal, l state and local authorities relating to the quality of the environment. l These laws and regulations affect, among other things, the siting and operation of generating facilities, and will continue to impact future l operations, capital costs and construction schedules. I The federal Clean Air Act, as amended, and certain state laws and j regulations impose restrictions on air emissions. Some of these restrictions will become effective in 1995, and others by the year 2000. As l part of its emission reduction program, the Company has been burning more f lower-sulphur content fuel oil. In addition, in October 1993, the Company j reached an agreement with Montaup Electric Company (50% owner of Unit 2) and Algonquin Gas Transmission Company to build a natural gas pipeline that will serve Unit 2, subject to regulatory approvals. Unit 2 will be modified to burn gas in addition to oil. The project will improve air quality on Cape Cod, enable the plant to exceed the stringent 1995 air quality standards established by the Massachusetts Dzpartment of Environmental Protection and will also strengthen the Compt.ny's bargaining position as it seeks to secure l the lowest-cost fuel for its customers. Plant conversion and pipeline construction are expected to bw completed in 1996. l Following the issuance of an environmental consent order in May 1993, l the plant was subject to an intensive 26 week review by the Massachusetts , l 1 l
.A CANAL ELECTRIC COMPANY Department of Environmental Protection. The on-site inspection of th3 plant ended in December 1993, with the plant meeting all state requirements. The plant will remain under state supervision and will be subject to unannounced emissions checks in order to ensure that the highest standards of air quality are maintained. Employees The Company has 125 regular employees, 88 (70%) are represented by the Utility Workers' Union of America, A.F.L.-C.I.O. The existing collective bargaining agreement expires on May 31, 1997. Employee relations have generally been satisfactory. J,t;etn Properties The Company operates a generating station located at the eastern end of l the Cape Cod Canal in Sandwich, Massachusetts. The station consists of two oil-fired steam electric generating units: Canal Unit I with*a rated ) capacity of 569 MW, wholly-owned by the Company; and Canal Unit 2, with a ) rated capacity of 580 MW, jointly-owned by the Company and Montaup Electric Company, a wholly-owned subsidiary of Eastern Utilities Associates. In addition, the Company has a 3.52% joint-ownership interest (40.5 MW of capacity) in Seabrook 1. Refer to Note 3 of Notes to Financial Statements filed under Item 8 of this report for encumbrances relative to the Company's property. Item 3. Leoal Proceedinas The company is subject to legal claims and matters arising from its normal course of business, including its ownership interest in the Seabrook plant'. l 1 -
.. - = - -..-. -. - -. CANAL ELECTRIC COMPANY PART II. Item 5. Market for the Recistrant's Common Stock and Related Stockholder Matters i t (a) Principal Market Not applicable. The Company is a wholly-owned subsidiary of Commonwealth Energy System. [ I (b) Number of Shareholders at December 31, 1994 i One i P (c) Frecuency and Amount of Dividends Declared in 1994 and 1993 l 1994 1993 Per Share Per Share Declaration Date Amount Declaration Date Amount April 25, 1994 $ 2.00 January 28, 1993 $ 4.35 July 18, 1994 2.00 April 26, 1993 2.65 October 24, 1994 3.00 July 26, 1993 2.62 $ 7.00 October 18, 1993 2.50 December 29, 1993 8.54 i l $20.66 i Reference is made to Note 6 of Notes to Financial Statements filed under Item 8 of this report for restrictions against the payment of cash dividends. (d) Future dividends may vary depending upon the Company's earnings and 6 capital requirements as well as financial and other conditions existing at that time. l i
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l CANAL ELECTRIC COMPANY Item 7. Manacement's Discussion and Analysis of Results of Operations The following is a discussion of certain significant factors which have affected operating revenues, expenses and net income during the periods 1 included in the accompanying statements of income and is presented to l facilitate an understanding of the results of operations. This discussion should be read in conjunction with the Notes to Financial Statements filed l under Item 8 of this report. A summary of the period to period changes in the principal items included in the statements of income for the years ended December 31, 1994 and 1993 is shown below: Years Ended Years Ended j December 31, December 31, l 1994 and 1993 1993 and 1992 Increase (Decrease) (Dollars in Thouspnds) Electric Operating Revenues $( 4 674) (2.3)% $ (18 605) (8.4) % Operating Expenses: Fuel used in production (760) (0.9) (13 324) ' ( 13. 9 ) Electricity purchased for resale (350) (1.2) (870) (3.0) Other operation and maintenance (1 998) (5.2) (1 561) (3.9) Depreciation 178 1.3 (1 658) (11.0) Taxes - Federal and state income (503) (5.7) (2 856) (24.3) Local property and other 12 0.3 (568) (13.9) I (3 421) (1.9) (20 837) (10,5) Operating Income (1 253) (5.0) 2 232 9.8 Other Income (163) (54.3) (5 479) (94.8) Income Before Interest Charges (1 416) (5.6) (3 247) (11.4) Interest Charges (452) (4.4) 978 10.6 i Net Income (964) (6.4) (4 225) (19.6) Unit Sales Decrease (MWH) (85 345) (1.9) (1 076 059) (21.8) The following is a summary of unit sales for the periods indicated: Unit Sales (MWH) Period Ended Seabrook Purchased December 31, Unit 1 Unit 2 Unit 1 For Resale Total 1994 2 594 406 1 047 214 218 560 477 506 4 337 Et6 1993 2 382 716 1 275 305 318 694 446 316 4 423 031 1992 3 173 668 1 590 643 273 859 460 920 5 499 090' {
CANAL ELECTRIC COMPANY Revenue, Fuel and Purchased Power Operating revenues for 1994 declined by approximately $4.7 million or 2.3% due to a 1.9% decrease in unit sales. The decrease in unit sales was caused primarily by the reduced availability of Seabrook 1 due to the timing of a scheduled refueling outage which began in early April and was extended through early August 1994 for unscheduled naintenance. Somewhat offsetting the decline was an increase in purchases made on behalf of affiliated retail distribution companies. Also reflected in the change in unit sales was the increased availability of Unit 1 that was offset by the decline in generation from Unit 2 due to scheduled and unscheduled maintenance on the both Units. During 1993, operating revenues decreased by $18.6 million or 8.4% due primarily to a 21.8% decrease in unit sales due to the timing of scheduled maintenance on Units 1 and 2, the operation of the units at reduced capacity during emissions testing and a decrease in the level of shorteterm purchases on behalf of affiliated retail distribution companies. A contributing factor to the decrease was the impact of the excess capacity situation which exists in New England. Somewhat offsetting the decline in unit sales was an increase in power available from Seabrook 1. Fuel, purchased power and transmission costs (included in other operation) represented approximately 57% of the total revenue dollar in 1994, 56% in 1993 and 58% in 1992 and averaged 2.68 cents per KWH in 1994 as compared to 2.58 cents in 1993 and 2.33. cents in 1992. The per barrel cost of oil averaged $14.33 in 1994, $14.02 in 1993 and $12.95 in 1992. In conformance with restrictions on air emissions, the Commonwealth of Massachusetts mandated a reduction in sulphur dioxide emissions requiring i the periodic use of more expensive lower-sulphur (1%) content oil. In 1994, 1% oil averaged $14.92 per barrel as compared to $15.16 per barrel in 1993 $17.25 per barrel in 1992. However, lower-sulphur oil displaced 70.4% of the higher sulphur (2.2%) content oil in 1994, as compared to 57.5% and 24% in 1993 and 1992, respectively. Other Operatina Expenses other operation includes the following: Years Ended December 31, 1994 1993 1992 (Dollars in millions) Other operation: $24.7 $23.7 $27.0 Less: Seabrook 1 operations 4.3 4.6 5.7 Hydro-Quebec Phase II transmission 3.5 3.5 3.5 Power purchased from affiliates 1.3 0.8 2.6 j $15.6 $14.8 $15.2 After excluding the items noted above, other operation, net, increased j approximately $800,000 or 5.4% in 1994 and decreased 2.6% in 1993. The significant changes in power purchased from affiliates were due to a damaged l -
- -. ~ - - - - 7-_. l CANAL ELECTRIC COMPANY i Unit 1 service station transformer from July 1991 through February 1992 which required the company to buy power normally generated at the plant and [ d i a refund ($594,000) received in 1993. reflecting an overbilling which had j occurred in December 1992. The refund was passed back to the company's G customers in 1993 and produced a corresponding reduction to revenues. I The decrease in maintenance expense in 1994 was due primarily to the f 7 j timing of maintenance on Unit 1 and the major overhaul of Unit 2 which j occurred in 1993. The increase in maintenance expense in 1993 reflects the timing of a scheduled inspection and overhaul of the Unit 2 boiler, turbine l i l and generator. J Deoreciation and Taxes i The 1.3% increase in depreciation expense in 1994 was due to a higher I j level of plant-in-service. Depreciation expense decreased 11%, or approximately $1.7 million, during 1993 due to a revision to, accrual rates 4 used in determining depreciation expense and an extension of the depreciable j' life of Unit 1 from 1996 to 2002, resulting from a study conducted as of i December 31, 1992. k I j The 5.7% decrease in income tax expense (approximately $503,000) during 1994 was due to a lower level of pretax income.. Income tax expense decreased approximately $2.9 million or 24.3% in 1993 due to a significantly i lower level of pretax income offset, somewhat, by an increase in the federal i income tax rate to 35%, retroactive to January 1, 1993. Local property and l other taxes were virtually unchanged for 1994 reflecting the impact of slightly higher property tax rates ($73,000) being offset by a decrease in payroll-related taxes ($61,000). The decrease in local property and other taxes during 1993 reflects lower rates and a refund (approximately $300,000) associated with revisions to the nuclear station property tax assessed by the state of New Hampshire to the joint-owners of Seabrook. Other Income During 1994 other income decreased due primarily to lower equity earnings ($67,000) related to the Company's investment in Hydro-Quebec. The significant decrease in other income during 1993 was due to the absence of:
1) an equity component of allowance for funds used during construction (AFUDC) resulting from an adjustment to reflect the 1992 FERC settlement which finalized recovery of the Company's investment in Seabrook 1; 2) interest income related to contested tax issues; and 3) the reversal of a reserve related to the company's Seabrook investment which was detennined to be fully recoverable pursuant to the aforementioned FERC settlement.
Interest Charcos Total interest charges decreased 4.4% during 1994 reflecting a decrease in long-term interest ($984,000) due to the early redemption of the Company's Series D, 11.125% First Mortgage Bonds due in 2007. Somewhat offsetting the decrease in long-term interest was an increase in other interest charges ($427,000) caused by a higher average level of short-term borrowings coupled with higher short-term interest rates. Interest rates on.-
~- I CANAL ELECTRIC COMPANY bank borrowings averaged 4.3% during 1994 as compared to 3.4% for 1993. l Total interest charges increased 10.6% during 1993 due to a significantly l lower level of debt AFUDC reflecting the 1992 FERC Seabrook settlement, lower levels of short-term debt and lower interest rates. i Early Retirement of Debt' On December 1, 1993, the Company redeemed its Series D, 11.125% First } Mortgage Bonds due December 1, 2007 totaling $9.3 million with short-term borrowings. The Company paid a premium of $279,000 on this early redemption and will amortize this amount to expense over the remaining original life of the retired issue. Item 8. Financial Statements and Supplementary Data The Company's financial statements required by this item are filed herewith on pages 13 through 31 of this report. Item 9. Chances in and Disaareements with Accountants on Accountina and Financial Disclosure i None f e._
~~ .. - - -. ~. . _ _ ~. CANAL " 'TRIC COMPANY Item 8. Financial Statements and Succlementary Data REPORT OF INDr.rrNDEid PUBLIC ACCOUNTANTS To Canal Electric Company: r We have audited the accompanying balance sheets of CANAL ELECTRIC COMPANY, (a Massachusetts corporation and wholly-owned subsidiary of Conunonwealth Energy System) as of December 31, 1994 and 1993, and the related i statements of income, retained earnings and cash flows for each of the three l years in the period ended December 31, 1994. These financial statements and j the schedule referred to below are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit I also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. r In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Canal Electric Company as of December 31, 1994 and 1993, and the results of its operations and its cash flows for each of the three years in the period ended December l 31, 1994, in conformity with generally accepted accounting principles. l t As discussed'in Note 7 to the financial statements, effective January 1, 1993, the Company changed its method of accounting for costs associated with postratirement benefits other than pensions. r our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The schedule listed in the index to financial statements and schedules is presented for purposes of complying with l the Securities and Exchange Conmission's rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, fairly states, in all material respects, the financial data required i to be set forth therein in relation to the basic financial statements taken as I a whole. ARTHUR ANDERSEN LLP i Boston, Massachusetts February 21, 1995 i i I
CANAL ELECTRIC COMPANY INDEX TO FINANCIAL STATEVENTS AND SCHEDULES PART II. i FINANCIAL STATEMENTS Balance Sheets at December 31, 1994 and 1993 Statements of Income for the Years Ended December 31, 1994, 1993 and 1992 Statements of Retained Earnings for the Years Ended December 31, 1994, 1993 and 1992 Statements of Cash Flows for the Years Ended December 31, 1994, 1993 and 1992 Notes to Financial Statements t PART IV. i SCHEDULES I Investments In, Equity Earnings of, and Dividends Received From Related Parties for the Years Ended December 31, 1994, 1993 and 1992 I SCHEDULES OMITI'ED All other schedules are not submitted because they are not applicable or l required or because the required information is included in the financial statements or notes thereto. l . l l
_..._...j..__. CANAL FW N IC COMPANY l BALANCE SHEETS DECEMBER 31, 1994 AND 1993 ASSETS 1994 1993 (Dollars in Thousands) PROPERTY, PLANT AND EQUIPMENT, at original cost $409 648 $404 768 l Less - Accumulated depreciation and amortization 150 337 137 720 259 311 267 048 6 250 2 501 Add - Construction work in progress 139 1 641 Nuclear fuel in process 265 700 271 190 13 '844 24 150 LEASED PROPERTY, not INVESTHENTS 3 802 3 861 Equity in corporate joint venture CURRENT ASSETS 12 12 Cash i Accounts receivable - 7 935 12 215 Affiliated companies 9 100 9 549 Other 659 Unbilled revenues Inventories, at average cost - Electric production fuel oil 736 663 Materials and supplies 1 408 1 471 Prepaid taxes - 132 720 Income 932 891 Property 1 277 1 472 Other 21 532 27 652 DEFERRED CHARGES Seabrook 1 7 735 9 OC2 4 Seabrook 2 5 140 6 937 12 195 11 509 Other 25 070 27 448 i $329 948 $344 301 , l
I ' CANAL ELECTRIC COMPANY BALANCE SHEETS DECEMBER 31, 1994 AND 1993 CAPITALIZATION AND LIABILITIES 1994 1993 (Dollars in Thousands) CAPITALIZATION Common Equity - Common stock,.$25 par value - Authorized - 2,328,200 shares outstanding - 1,523,200 shares, wholly-owned by Commonwealth Energy System (Parent) $ 38 080 $ 38 080 Amounts paid in excess of par value 8 321 8 321 Retained earnings 51 647 48 151 98 048 94 552 Long-term debt, including premiums, less current sinking fund requirements 87 713 88 446 185 761 182 998 CAPITAL LEASE OBLIGATIONS 13 258 13 575 CURRENT LIABILITIES r Interim Financing - Notes payable to banks 11 325 28 000 Advances from affiliates 9 350 8 310 20 675 36 310 Other Current Liabilities - Current sinking fund requirements 1 110 1 110 Accounts payable - Affiliated companies 1 932 1 829 i Other 14 857 15 244 i Accrued taxes - Local property and other 977 923 Income 71 460 Capital lease obligations 586 575 Accrued interest and cther 4 120 3 547 i 23 653 23 688 44 328 59 998 DEFERRED CREDITS Accumulated deferred income taxes 68 732 70 854 Unamortized investment tax credits 12 658 13 360 Other 5 211 3 516 86 601 87 730 COMMI'INENTS AND CONTINGENCIES $329 948 $344 301 The accompanying notes are an integral part of these financial statements. ] '
.~ ... =... _. -.. ~ -. ~ - -. CANAL ELECTRIC COMPANY STATEMENTS OF INCOME FOR THE YEARS ENwn DEC NRRR 31, 1994, 1993 AND 1992 1994 1993 1992 (Dollars in Thousands) t ELECTRIC OPERATING' REVENUES Sales to affiliated companies $122 310 $133 060 $144 214 Sales to non-affiliated companies 76 076 70 000 77 451 198 386 203 060 221 665 OPERATING EXPENSES Fuel used in production 81 864 82 624 95 948 Electricity purchased for resale 27 627 27 977 28 847 other operation 24 731 23 694 27 019 Maintenance 11 526 14 561 12 797 Depreciation 13 539 13,361 15 019 Amortization 3 423 3 423 3 423 Taxes - Income 8 390 8 893 11 749 Local property 2 793 2 720 3 392 Payroll and other 729 790 686 174 622 178 043 198 880 OPERATING INCOME 23 764 25 017 22 785 OTHER INCOME Allowance for equity funds used 1 827 during construction Other, not 137 300 3 952 137 300 5 779 INCOME BEFORE INTEREST CHARGES 23 901 25 317 28 564 INTEREST CHARGES Long-term debt 8 283 9 267 9 403 Other interest charges 1 546 989 1 791 Allowance for borrowed funds used during construction (86) (61) (1 977) 9 743 10 195 9 217 NET INCOME $ 14 158 $ 15 122 $ 19 347 The accompanying noter are an integral part of these financial statements. i l
CANAL ELECTRIC COMPANY STATEMENTS OF RETAINED EARNINGS FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992 1994 1993 1992 (Dollars in Thousands) Balance at beginning of year $48 151 $64 498 $62 668 Add (Deduct) d Net income 14 158 15 122 19 347 Cash dividends on common stock (10 662) (31 469) (17 517) Balance at end of year $51 647 $48 151 $64 498 I L L i The accompanying notes are an integral part of these financial statements. I --.
CANAL ELECTRIC COMPANY STAHrir.Ris OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992 1994 1993 1992 i (Dollars in Thousands) OPERATING ACTIVITIES' Net income $ 14 158 $ 15 122 $ 19 347 Effects of noncash items - Depreciation and amortization 18 668 20 333 22 138 Deferred income taxes 1 815 1 445 3 950 Investment tax credits - (7 02) (715) (744) i Allowance for equity funds used (1 827) during construction Earnings from corporate joint venture (507) (573) (620) Dividends from corporate joint venture 566 882 822 Change in working capital, exclusive of cash and interim financing - Accounts receivable 4 729 (513) 1 304 Unbilled revenues 659 '224 (193) i Prepaid (accrued) income taxes, not 199 (990) 1 313 Local property and other taxes, not 13 (30) (526) Accounts payable and other 485 1 603 (2 491) All other operating items, not (3 571) (2 326) (2 988) Net cash provided by operating activities 36 512 34 462 39 485 INVESTING ACTIVITIES Additions to property, plant and equipment (exclusive of AFUDC) (9 396) (6 574) (5 474) Allowance for borrowed funds used i during construction (86) (61) (1 977) Net cash used for investing activities (9 482) (6 635) (7 451) FINANCING ACTIVITIES Proceeds from (payment of) short-term borrowings (16 675) 8 650 (13 850) i Proceeds from affiliate borrowings 1 040 4 590 215 Payment of dividends (10 662) (31 469) (17 517) (9 300) Long-term debt issue refunded Retirement of long-term debt through sinking funds (733) (732) (436) Net cash used for financing activities (27 030) (28 261) (31 588) (434) 446 Net increase (decrease) in cash Cash at beginning of period 12 446 Cash at end of period 12 12 446 The accompanying notes are an integral part of these financial statements. i 1
CANAL ELECTRIC COMPANY NOTES TO FINANCIAL STATEMENTS' (1) Sianificant Accountina Policies (a) General and Reculatory F Canal Electric Company (the Company) is a wholly-owned subsidiary of Commonwealth Energy System. The parent company is referred to in this report as the " System" and together with its. subsidiaries is referred to as "the system." The Company is regulated as to rates, accounting and other matters by various authorities, including the Federal Energy Regulatory r Commission (FERC) and the Massachusetts Department of Public Utilities (DPU). The System is an exempt holding company under the provisions of the Public Utility Holding Company Act of 1935 and, in addition to its i I investment in the Company, has interests in other utility companies and several non-regulated companies. The company has established various regulatory assets in cases where l the DPU and/or the FERC have permitted or are expected to permit recovery of i specific costs over time. The principal regulatory assets included in deferred charges at December 31, 1994 and 1993 were as follows: 1994 1993 (Dollars in Thousands) i Seabrook related costs $12 648 $ 15...774. Deferred income taxes 5 537 7 345 Postratirement benefit costs 1 242 639 Total regulatory assets $19 427 $23 758 Regulatory assets as a percent of total assets 5 9,% 6;9,% 4 (b) Reclassifications certain prior year amounts are reclassified from time to time to con-fona with the presentation used in the current year's financial statements. i (c) Transactions with Affiliates Transactions between the Company and other system companies include purchase 9 and sales of electricity, including the Company's acquisition and resale of capacity entitlements and related energy generated by certain i units of other New England utilities. The Company functions as the principal supplier of electric generation capacity for and on behalf of affiliates cambridge Electric Light company (Cambridge) and Commonwealth Electric Company (Commonwealth Electric), including abandonment and nonconstruction costs related to the Seabrook project. In addition, payments for management, accounting, data processing and other services are made to affiliate COM/ Energy Services Company. Transactions with other system companies are subject to review by the FERC and the DPU. The Company's operating revenues included the following intercompany.
_ ~. - - - -. - ~ - -. - - . ~ -. _--~-.;___..--- CANAL 8'M N IC COMPANY amounts for the periods indicated: Period Ended Electricity Sales Seabrook Units December 31, (Canal Units) Purchased Power and Other (Dollars in Thousands) 1994 $45 906 $31 288 $45 116 1993 53 174 31 777 48 109 1992 60 440 32 592 51 182 j (d) Other Maior customers The Company is a wholesale electric generating company that sells power under life-of-the-unit contracts, approved by FERC to Boston Edison Company, Montaup Electric Company and New England Power Company, (unaffiliated utilities). Each utility is obligated to purchase one-quarter of the capacity and energy of Canal Unit 1. (e) Eauity Method of Accountina The Company uses the equity method of accounting for its 3.8% invest-t ment in the New England / Hydro-Quebec Phase II transmission facilities due in part to its ability to exercise significant influence over operating and financial policies of the entity. Under this method, it records as income the proportionate share of the not earnings of this project with a corre-sponding increase in the carrying value of the investment. The investment amount is reduced as cash dividends are received. For further information on this investment, refer to Schedule I in Part IV of this report. (f) Depreciation and Nuclear Puel Amortization Depreciation is provided.using the straight-line method at rates intended to amortize the original cost and the estimated cost of removal less salvage of properties over their estimated economic live 2. The-Company's composite depreciation rate, based on average depreciable property in service,-was 3.49% in 1994, 3.47% in 1993 and 3.92% in 1992. In 1993, the depreciable life of Unit I was extended from 1996 to 2002 and resulted in a decrease in depreciation expense of approximately $1.7 million in that j period. The cost of nuclear fuel is amortized to fuel expense based on the quantity of energy produced. Nuclear fuel expense also includes a provision s for the costs associated with ths ultimate disposal of the spent nuclear fuel. (g) Maintenance Expenditures for repairs of property and replacement and renewal of items detennined to be less than units of property are charged to maintenance expense. Additions, replacements and renewals of property considered to be units of propnrty, are charged to the appropriate plant accounts. Upon retirement, accumulated depreciation is charged with the original cost of property units and the cost of removal not of salvage.. _
1 CANAL ELECTRIC COMPANY (h) Allowance for Funds Used Durine Construction gg Under applicable rate-making practices, the Company is permitted to include an allowance for funds used during construction (AFUDC) as an element of its depreciable property costs. This allowance is based on the aaount of construction work in progress that is not included in the rate base on which the Company earns a return. An amount equal to the AFUDC capitalized in the current period is reflected in the accompanying statements of income. While AFUDC does not provide funds currently, these amounts are recoverable in revenues over the service life of the constructed property. The Company develops rates based upon its current cost of capital and used a compound rate of 5.25% in 1994, 3.75% in 1993 and 4.75% in 1992. (2) Income Taxes For financial reporting purposes, the Company provides federal and state income taxes on a separate return basis. However, for federal income tax purposes, the Company's taxable income and deductions are included in the consolidated income tax return of the System and it makes tax payments or receives refunds on the basis of its tax attributes in the tax return in accordance with applicable regulations. The following is a summary of the provisions for income taxes for the years ended December 11, 1994, 1993 and 1992: 1994 1993 1992 j (Dollars in Thousands) Federal: Current $ 6 321 $ 7 192 $ 7 636 Deferred 1 460 1 476 3 506 Investment tax credits (702) (715) (744) 7 079 7 953 _JO 398 State: Current 1 138 1 181 1 147 Deferred 355 (31) 1 048 1 493 1 150 2 195 8 572 9 103 12 593 Amortization of regulatory liability (604) relating to deferred income taxes i Total $ 8 572 $9 103 $11 989 Federal and state income taxes charged to: Operating expense $ 8 390 $ 8 893 $11 749 i Other income 182 210 240 $ 8 572 $ 9 103 $11 989 Effective January 1, 1992, the Company adopted the provisions of Statement of Financial Accounting Standards No. 109, " Accounting for Income Taxes" (SFAS No. 109). SFAS No. 109 requires recognition of deferred tax.
E CANAL ELECTRIC COMPANY O liabilities and assets for the expected future tax consequences of events Under that h6ve b..n included in the financial statements or tax returns. this method, deferred tax liabilities and assets are determined based on the difference between the financial statement basis and tax basis of assets and liabilities using enacted tax rates in effect in the year in which the differences are expected to reverse. Accumulated deferred income taxes consisted of the following in 1994 and 1993: 1994 1993 (Dollars in Thousands) Liabilities Property-related $77 587 $78 571 Seabrook nonconstruction 4 504 6 017 All other 1 291 1 497 83 382 86 085 Assets Investment tax credit 8 170 8 623 Regulatory liability 5 189 5 189 All other 1 247 2 047 14 606 15 859 Accumulated deferred income taxes, net $68 776 $70 226 I The net year-end deferred income tax liability above includes a current deferred tax liability of $44,000 and a current deferred tax asset of $628,000 in 1994 and 1993, respectively, which are included in accrued income taxes and prepaid income taxes, respectively, in the accompanying balance sheets. The total income tax provision set forth on the previous page represents 38% of income before such tay.es in each year. The following table reconciles the statutory federal income tax rate to these percentages: l 1994 1993 1992 Federal statutory rate E D Federal income tax expense at statutory levels $7 956 $8 479 $10 654 Increase (Decrease) from statutory rate: Tax versus book depreciation 1 311 1 318 1 302 State tax, net of federal tax benefit 970 748 1 449 Amortization of investment tax credits (689) (671) (671) Allowance for equity funds used during construction (621) Reversals of capitalized expenses (555) (555) Other (421) (216) (124) $8 572 $9 103 $11 989 Effective federal tax rate 38% 38% 38% As a result of the Revenue Reconciliation Act of 1993, the Company's federal income tax rate increased to 35% effective January 1, 1993. -
CANA'l., ELECTRIC COMPANY (3) Lone-Term Debt and Interim Financine (a) Leno-Term Debt Long-term debt outstanding, exclusive of current sinking fund requirements and related premiums, collateralized by substantially all of the company's property, is as follows: Original Balance December 31, Issue 1994 1993 (Dollars in Thousands) First Mortgage Bonds - Series A, 7%, due 1996 $19 000 $ 3 800 $ 4 560 Series B, 8.85%, due 2006 35 000 34 650 34 650 Series E, 7 3/8%, due 2020 10 000 10 000 10 000 Series F, 9 7/8%, due 2020 40 000 40 000 40 000 $88 450 $89 210 The Series A First Mortgage Bonds require an annual sinking fund payment of $760,000 with an option to retire an additional $95,000 per quarter. The Series B First and General Mertgage Bonds require an annual sinking fund payment of $350,000. The requirement may be met by payment, repurchase of bonds or certification of an amount of property additions equal to 60% of bondable property (as that tenn is defined in the indenture). The Company expects to certify additional bondable property in lieu of making sinking fund payments on these bonds. The Series E and Series F First and General Mortgage Bonds were issued in conjunction with The Industrial Development Authority of the State of New Hampshire issuing Solid Waste Disposal Bonds and Pollution Control Bonds, respectively. The bonds were issued pursuant to a Loan and Trust Agreement dated December 1, 1990 among the Authority, the Company and the First f National Bank of Boston, the Trustee. I (b) Notes Payable to Banks l The Company and other system companies maintain both committed and ) uncommitted lines of credit for the financing of their construction programs, on a short-term basis, and for other corporate purposes. As of December 31, 1994, system companies had $90 million of committed lines that will expire at varying intervals in 1995. These lines are normally renewed upon expiration and require annual fees of up to.1875% of the individual line. At December 31, 1994, the uncommitted lines of credit totaled $90 million. Interest rates on the. outstanding borrowings generally are at an adjusted money market rate and averaged 4.3% and 3.4% in 1994 and 1993, respectively. The Company's notes payable to banks totaled $11,325,000 and $28,000,000 at December 31, 1994 and 1993, respectively. l (c) Advances from Affiliates At December 31, 1994 the company had short-term notes payable to the System totaling $9,350,000. The Company had no notes payable to the System ) j
~ m CANAL ELECTRIC COMPANY \\ at December 31, 1993. These notes are written for a term of up to 11 months and 29 days. Interest is at the prime rate and is adjusted for changes in that rate during the terms of the notes. This rate averaged 7.3% and'6% in 1994 and 1993, respectively. The Company is a member of the COM/ Energy Money Pool (the Pool), an arrangement among the subsidiaries of the System, whereby short-term cash surpluses are used to help meet the short-term borrowing needs of the utility subsidiaries. In general, lenders to the Pool receive a higher rate of return than they otherwise would on such investments, while borrowers pay a lower interest rate than that available from banks. Interest rates on the j outstanding borrowings are based on the monthly average rate the Company ) would otherwise have to pay banks, less one-half the difference between that rate and the monthly average U.S. Treasury Bill weekly auction rate. The borrowings are for a period of less than one year and are payable upon demand. Rates on these borrowings averaged 4.3% and 3.2% in 1994 and 1993, respectively. The Company had no notes payable to the Pool a,t December 31, 1994 and had $8,310,000 of notes payable to the Pool at Dece&ber 31, 1993. (d) Disclosures About Fair Value of Financial Instruments Tne fair value of certain financial instruments included in the accompanying balance sheets as of December 31, 1994 and 1993 are as follows: 1994 1993 (Dollars in Thousands) Carrying Fair Carrying Fair value value Value value Long-term Debt $88 823 $91 020 $89 556 $104 325 i The carrying amount of cash, notes payable to banks and advances from affiliates approximates the fair value because of the short maturity of these financial instruments. The estimated fair value of long-term debt is based on quoted market prices of the same or similar issues or on the current rates offered for debt with the same remaining maturity. The fair values shown above do not purport to represent the amounts at which those obligations would be settled. (4) Supplemental Disclosures of Cash Flow Information The Company's supplemental information concerning cash flow activities is as follows: 1994 1993 1992 (Dollars in Thousands) Interest paid (net of capitalized amounts) $9 224 $9 704 $8 464 Income taxes paid 9 055 9 467 8 123.
CANAL ELECTRIC COMPANY (5) Commitments and Continoencies (a) Construction The Company is engaged in a continuous construction program presently estimated at $69.8 million for the five-year period 1995 through 1999. Of that amount, $27.4 million is estimated for 1995. The program is subject to periodic review and revision because of factors such as changes in business conditions, rates of customer growth, effects of inflation, maintenance of reliable and safe service, equipment delivery schedules, licensing delays, availability, and cost of capital and environmental factors. The company expects to finance these expenditures on an interim basis with internally generated funds and short-term borrowings that are ultimately expected to be repaid with proceeds from sales of long-term debt and equity securities. (b) Seabrook Nuclear Power Plant j The system's 3.52% interest in the Seabrook nuclear pok"r plant is e owned by the Company to provide for a portion of the capacity and energy needs of Cambridge and Commonwealth Electric. The Company is recovering 100% of its Seabrook 1 investment through power contracts pursuant to FERC approval. Pertinent information with respect to the Company's joint-ownership interest in Seabrook 1 and information relating to operating expenses which are included in the accompanying financial statements, are as follows: 1994 1993 (Dollars in Thousands) Utility plant-in-service $232 374 $233 140 Nuclear fuel 18 500 18 514 Accumulated depreciation and amortization (41 654) (34 771) Construction work in progress 651 881 $209 871 $217 764 1994 1993 1992 (Dollars in Thousands) Operating expenses: Fuel $ 1 939 $ 3 853 $ 3 952 other operation 4 340 4 580 5 705 Maintenance 1 688 893 1 508 Depreciation 6 531 6 522 6 426 Amortization 1 320 1 319 1 320 $15 818 $17 167 $18 911 Plant capacity (MW) 1,150 In-service date 1990 Canal's share: Operating license Percent interest 3.52% expiration date 2026 Entitlement (MW) 40.5 The company and the other joint-owners have established a Seabrook Nuclear Decommissioning Financing Fund to cover post operation .m_m s CANAZ, ELECTRIC COMPANY + s 4 decommissioning costs. For the years 1994,.1993 and 1992, the Company paid $271,000, $259,000_and $235,000, respectively, as its share of tnc cost af i this fund. The estimated cost to decommission the plant is'$382 million in i 1994 dollars, through December 31, 1994. The Company's share of this I liability (approximately $13.4 million), less its share of the market value j i of the decommissioning trust ($1 million), is approximately $12.4 million. ) -(c) Environmental Matters i j The-Company is subject to laws and regulations administered by i iederal, state and local authorities relating to the quality of the environment. These laws and regulations affect, among other-things, the siting and operation of electric generating and transmission facilities and can require tho' installation.of expensive air and water pollution control equipment. These regulations have had an impact on the Company's operations in the past and will continue to have an impact on future operations, capital costs and construction schedules of major facilities,. i (6) Dividend Restriction At December 31, 1994, approximately $42,414,000 of retained earnings was restricted against the payment of cash dividends by terms of the Indenture of Trust securing long-term debt. '(7) Employee Benefit Plans (a) Pension The Company has a noncontributory pension plan covering substantially all regular employees who have attained the age of 21 and have completed one ] -year of service. Pension benefits are based on an employee's years of l service and compensation. The company makes monthly contributions to the plan consistent with the funding requirements of the Employee Retirement Income Security Act of 1974. Components of pension expense and related assumptions to develop pension expense were as follows: J,9_9.4, 1993 M 9 (Dollars in Thousands) service cost 457 384 319 Interest cost 995 960 799 Return on plan assets - (gain)/ loss 220 (1 741) (1 138) Net amortization and deferral (1 139) 913 386 Total pension expense 533 516 366 Transfers from affiliates, not 279 270 317 Less: Amounts capitalized and other 181 160 150 Net pension expense 631 626 533 Discount rate 7.25% 8.50% 8.50% Assumed rate of return 8.50 8.50 8.50 Rate of increase in future compensation 4.50 5.50 5.50 .__.-.._.....--_m _.__m.- i I CANAL ELECTRIC CO M Pension expense reflects the use of the projected unit credit method which is also the actuarial cost method used in determining future funding of the plan. The funded status of the Company's_ pension plan (using a measurement date of December 31) is as follows: 1 1994 1993 (Dollars in Thousands) Accumulated benefit obligations vested $ (8 698) $ (9 333) Nonvested (1 641) (1 614) $(10 339) $(10 947) Projected benefit obligation $(12 579) $(13 668) Plan assets at fair market value 12 479 12 906 Projected benefit obligation greater than plan assets (100) (762) Unamortized transition obligation-120 138 Unrecognized prior service cost 588 532 i Unrecognized gain (1 057) (248) Accrued pension liability (449) (340) The following actuarial assumptions were used in determining the plan's year-end funded status: 1994 1993 Discount rate 8.50% 7.25% Rate of increase in future compensation 5.00 4.50 Plan assets consist primarily of fixed-income and equity securities. Fluctuations in the fair market value of plan assets will affect pension j expense in future years. j (b) Other Postratirement Benefits i Through December 31, 1992, the Company provided postratirement health j care and life insurance benefits to eligible retired employees. Employees became eligible for these benefits if their age plus years of service at i retirement equaled 75 or more, provided, however, that such service was I performed for the Company or another subsidiary of the System. As of January 1, 1993, the Company eliminated postratirement health care benefits for those non-bargaining employees who were less than 40 years of t;s or had less than 12 years of service at that date. Under certain circumst-nces, eligible employees are now required to make contributions for postratirement benefits. Effective January 1, 1993, the company adopted the provisions of Statement of Financial Accounting Standards No. 106 " Employers' Accounting for Postratirement Benefits Other Than Pensions" (SFAS No. 106). This new j standard requires the accrual of the expected cost of such benefits during' the employees
~~years of service and the recognition of an actuarially determined postratirement benefit obligation earned by existing retirees.~~
The assumptions and calculations involved in determining the accrual and the accumulated postratirement benefit obligation (APBO) closely parallel pension accounting requirements. The cumulative effect of implementation of k
[ CANAL ELECTRIC COMPANY SFAS No. 106 as of January 1, 1993 was approximately $5 million, which is l being smortized over twenty years. Prior to 1993, the cost of postratirement benefits was recognized as the benefits were paid..1Run cost of retiree i l medical care and life insurance benefits totaled $131,000 in 1992. f In 1993, the Company began making contributions to various voluntary employees' beneficiary association (VEBA) trusts that were established l pursuant to section 501(c)9 of the Internal Revenue Code (the Code). The company also makes contributions to a subaccount of its pension plan pursuant to section 401(h) of the Code to satisfy a portion of its postretirement. benefit obligation. The Company contributed approximately $740,000 and $684,000 to these trusts during 1994 and 1993, respectively. b' The not periodic postratirement benefit cost for the years ended I December 31,- 1994 and 1993 include the following components: ,L.91 1993 9 (Dollars in Thousands) l Service cost $ 164 $ 169 409 428 i Interest cost Return on plan assets (11) (35) Amortization of transition obligation 248 249 over 20 years Net amortization and deferral (66) 1 Total postratirement benefit cost 744 812-Transfers from affiliates, not 426 374 Less: Amounts capitalized and other 892 857 J Net postratirement benefit cost $ 278 $ 329 The funded status of the Company's postratirement benefit plan using a measurement date of December 31, 1994 and 1993 is as follows: i M 1993 ] (Dollars in Thousands) Accumulated postratirement benefit obligation: j $(2 710) $(2 596) Retirees (553) (559) Pully eligible active plan participants Other active plan participants (2 250) (2 176) (5 513) (5 331) Plan assets at fair market value 1 187 636 i Projected postratirement benefit obligation greater than plan assets (4 326) (4 695) Unamortized transition obligation 4 474 4 722 Unrecognized gain (148) (27) The following actuarial assumptions were used in detennining the plan's i year-end funded status: ~ 1994 1993 Discount rate 8.50% 7.25% Rate of increase in future compensation 5.00 4.50 CANAL ELECTRIC COMPANY In determining its estimated APBO and the funded status of the plan for is94 and 1993, the Company assumed estimated health care trend rates as follows: 1994 1993 Medicare part B premiums 12.3% 14.9% Medical care 8.5 9.0 Dental care 5.0 5.0 The above rates, with the exception of the dental rate, which remains constant, decrease to five percent in the year 2007 and remain at that level ) thereafter. A one percent change in the medical trend rate would have a $93,000 impact on the Company's annual expense (interest component-$56,000; service cost-$37,000) and would change the transition obligation by approximately $724,000. Plan assets consist primarily of fixed-income and equity speurities. Fluctuations in the fair market value of plan assets will affect postratirement benefit expense in future years. (c) Savinas Plan The company has an Employees Savings Plan that provides for Company contributions equal to contributions by eligible employees up to four percent of each employee's compensation rate. Effective January 1,
~~1993, the rate was increased to five percent for those employees no longer eligible for postratirement health benefits. The Company's contribution was~~
$250,000 in 1994, $234,000 in 1993 and $197,000 in 1992. I (8) Lease oblications The Company leases equipment and office space under arrangements that are classified as operating leases. These lease agreements are for terns of one year or longer. Leases currently in effect contain no provisions that prohibit the Company from entering into future lease agreements or i obligations. The Company has entered into support agreements with other participating l i New England utilities for 3.8% of the Hydro-Quebec Phase II transmission facilities and makes monthly support payments to cover depreciation and interest costs. 1 - _ _ _ _ _ _ _ _ _ - _ _
t 4 A CAMR ELECTRIC COMPANY Future minimum lease payments, by period and in the aggregate, of capital leases and non cancelable operating leases consisted of the following at December 31, 1994: Operatina Leases Capital Leases j (Dollars in Thousands) I 1995 $ 330 $ 2 080 1996 311 2 014 1997 310 1 951 1998 309 1 888 1999 309 1 825 Beyond 1999 929 22 640 Total future minimum lease payments $2 498 32 398 + .Less: Estimated interest element included therein 18 554 Estimated present value of future I minimum lease payments $13 844 l l Total rent expense for all operating leases, except those with terms of a month or less, amounted to $421,000 in 1994, $438,000 in 1993 and $452,000 in 1992. There were no contingent rentals and no sublease rentals for the years 1994, 1993 and 1992. I e l I i l l i I,
p j CANAL ELECTRIC COMPANY j l PART IV. Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K i (a) 1. Index to Financial Statements Financial statements and notes thereto of the Company together with the Report of Independent Public Accountants, are filed under Item 8 of this report and listed on the Index to Financial Statements and Schedules (page 14). (a) 2. Index to Financial Statement Schedules Filed herewith at page indicated are financial statament schedules of the Company: Schedule I - Investments in, Equity Earnings of, and Dividends Received from Related Parties - Years Ended December 31, 1994, 1993 and 1992 (page 40). (a) 3. Exhibits: Notes to Exhibits -
a. Unless otherwise designated, the exhibits listed below are incorporated by reference to the appropriate exhibit numbers and the Securities and Exchange Commission file numbers indicated in parentheses,

b. The following is a glossary of Commonwealth Energy System and subsidiary companies' acronyms that are used throughout the following Exhibit Index:
CES.................... Commonwealth Energy System CE..................... Commonwealth Electric Company CEL.................... Cambridge Electric Light Company CEC.................... Canal Electric Company 1 NBGEL.................. New Bedford Gas and Edison Light Company Exhibit Index Exhibit 3. Articles of incorporation and by-laws. 3.1. Art!cles of incorporation of CEC (Exhibit 1 to CEC's 1990 Form 10-K, File No. 2-30057). 3.2. By-laws of CEC, as amended (Exhibit 2 to the CEC 1990 Form 10-K, File No. 2-30057).
i [ CANAL EfECTRIC COMPANY Exhibit 4. Instruments definina the riahts of security holders, includino l indentures l 4.2.1 Indenture of Trust and First Mortgage between CEC and State Street l Bank and Trust Company, Trustee, dated October 1, 1968 (Exhibit j 4(b) to the CEC Form S-1, File No. 2-30057). 4.2.2 First and General Mortgage Indenture between CEC and Citibank, N.A., Trustee, dated September 1,1976 (Exhibit 4(b) (2) to the CEC l Form S-1, File No. 2-56915). f 4.2.3 First Supplemental dated October 1, 1968 with State Street Bank f and Trust company, Trustee, dated September 1, 1976 (Exhibit l 4 (b) (3 ) to the CEC Form S-1, File No. 2-56915). i 4.2.4 Third Supplemental dated September 1, 1976 with Citibank, N.A., l New York, NY, Trustee, dated December 1, 1990 (Exhibit 3 to the l CEC 1990 Form 10-K, File No. 2-30057). l 4.2.5 Fourth Supplemental dated September 1, 1976 with Citibank, N.A., l New York, NY, Trustee, dated December 1, 1990 (Exhibit 4 to the CEC 1990 Form 10-K, File No. 2-30057). Exhibit 10. Material Contracts 10.1 Power contracts. 10.1.1 Power contracts between CEC and NBGEL and CEL dated December 1, 1965 (Exhibit 13 (a) (1-4) to the CEC Form S-1, File No. 2-30057). 10.1.2.1 Agreement between CEC and Montaup Electric Company (MEC) for use of common facilities by Canal Units I and II and for allocation of related costs, executed October 14, 1975 (Exhibit 1 to the CEC 1985 Form 10-K, File No. 2-30057). 10.1.2.2 Agreement between CEC and NEC for joint-ownership of Canal Unit II, executed October 14, 1975 (Exhibit 2 to the CEC 1985 Form 10-K, File No. 2-30057). 10.1.2.3 Agreement between CEC and MEC for lease relating to Canal Unit II, executed October 14, 1975 (Exhibit 3 to the CEC 1985 Form 10-K, Film No. 2-30057). 10.1.3 Contract between CEC, NBGEL and CEL, affiliated companies, for the sale of specified amounts of electricity from Canal Unit 2 dated January 12, 1976 (Exhibit 7 to the CES Form 10-K for 1985, File No. 1-7316). 10.1.4 Power contract, as amended to February 28, 1990, superseding the Power Contract dated September 1, 1986 and amendment dated June 1,' 1988, between CEC (seller) and CE and CEL (purchasers) for seller's entire share of the Net Unit Capability of Seabrook 1 and related energy (Exhibit 1 to the CEC Form 10-Q (March 1990), File No. 2-30057). L
a CANAL ELECTRIC COMPANY 10.1.5 Purchase and Sale Agreement together with an implementing Addendum dated December 31, 1981 between CEC and CE for the purchase and sale of the CE 3.52% joint-ownership interest in the Seabrook units, dated January 2, 1981 (Exhibit 1 to the Company's Form 8-K (January 13, 1982), File No. 2-30057). 10.1.6 Agreement for Joint-ownership, Construction and Operation of the New Hampshire Nuclear Units (Seabrook) dated May 1, 1973 and filed by NBGEL as Exhibit 13(N) on Form S-1 dated October 1973, File No. 2-49013, and as amended below: 10.1.6.1 First through Fifth Amendments to 10.1.6 dated May 24, 1974, June 21, 1974, September 25, 1974, October 25, 1974, and January 31, 1975, respectively (Exhibit 13(m) to the NBGEL Form S-1 (November 7, 1975), File No. 2-54995). 10.1.6.2 Sixth through Eleventh Amendments to 10.1.6 dated April 18, 1979, April 18, 1979, April 25, 1979, June 8, 1979, October 11, 1979 and December 15, 1979, respectively (Exhibit 1 to the CEC 1989 Form 10-K, File No. 2-30057). 10.1.6.3 Twelfth and Thirteenth Amendments to 10.1.6 dated May 16, 1980 and December 31, 1980, respectively ((Exhibit 1 and 2 to the CE Form 10-Q (June 1982), File No. 2-7749). 10.1.6.4 Fourteenth Amendment to 10.1.6 dated June 1, 1982 (Exhibit 3 to the CE Form 10-Q (June 1982), File No. 2-7749). 10.1.6.5 Fifteenth and Sixteenth Amendments to 10.1.6 dated April 27, 1984 and June 15, 1984, respectively (Exhibit 1 to the CEC Form 10-Q (June 1984), File No. 2-30057). 10.1.6.6 Seventeenth Amendment to 10.1.6 dated March 8, 1985 (Exhibit 1 to the CEC Form 10-Q (March 1985), File No. 2-30057). 10.1.6.7 Eighteenth Amendment to 10.1.6 dated March 14, 1986 (Exhibit 1 to the CEC Form 10-Q (March 1986), File No. 2-30057). 10.1.6.8 Nineteenth Amendment to 10.1.6 dated May 1, 1986 (Exhibit 1 to the CEC Form 10-Q (June 1986), File No. 2-30057). 10.1.6.9 Twentieth Amendment to 10.1.6 dated September 19, 1986 (Exhibit 1 to the CEC Form 10-K for 1986, File No. 2-30057). 10.1.6.10 Twenty-First Amendment to 10.1.6 dated November 12, 1987 (Exhibit 1 to the CEC Form 10-K for 1987, File No. 2-30057). 10.1.6.11 Twenty-Second Amendment and Settlement Agreement to 10.1.6 dated January 13, 1989 (Exhibit 4 to the CEC 1988 Form 10-K, File No. 2-30057). 10.1.7 Resolutions proposed by Merrill Lynch Capital Markets and adopted by the Joint-Owners of the Seabrook Nuclear Project regarding Project financing, dated May 14, 1984 (Exhibit 1 to the CEC Form 10-Q (March 1984), File No. 2-30057). )
o CANAL ELECTRIC COMPANY l 10.1.8 Interim Agreement to Preserve and Protect the Assets of and Investment in the New Hampshire Nuclear Units by and between CEC, PSNH and other Participants dated April 27, 1984 (Exhibit 2 to the CEC Form 10-Q (June 1984), File No.2-30057). 10.1.9 Agreement for Seabrook Project Disbursing Agent establishing Yankee Atomic Electric Company as the disbursing agent under the Joint-Ownership Agreement, dated May 23, 1984 (Exhibit 4 to the CEC Form 10-Q (June 1984), File No. 2-30057). 10.1.9.1 First Amendment to 10.1.9 dated March 8, 1985 (Exhibit 2 to the CEC Form 10-Q (March 1985), File No.2-30057). 10.1.9.2 Second through Fifth Amendments to 10.1.9 dated May 20, 1985, June 18, 1985, January 2, 1986 and November 12, 1987, respectively, (Exhibit 4 to the CEC 1987 Form 10-K, File No. 2-30057). 10.1.10 Capacity Acquisition Agreement between CEC, CEL and CE dated September 25, 1980 (Exhibit 1 to the CEC 1991 Form 10-K, File No. 2-30057). 10.1.10.1 Supplement to 10.1.10 consisting of three capacity Acquisition Comnitments each dated May 7, 1987, concerning Phases I and II of the Hydro-Quebec Project and electricity acquired from Connecticut Light and Power Company (CL&P) (Exhibit 1 to the CEC Form 10-Q-- (September 1987), File No. 2-30057). 10.1.10.2 Supplements to 10.1.10 consisting of two Capacity Acquisition Commitments each dated October 31, 1988, concerning electricity acquired from Western Massachusetts Electric Company and/or CL&P for periods ranging from November 1, 1988 to October 31, 1994 (Erhibit 2 to the CEC Form 10-Q (September 1989), File No. 2-30057). 10.1.10.3 Amendment to 10.1.10 as amended, and restated, June 1,
1993, henceforth referred to as the Capacity Acquisition and Disposition Agreement, whereby CEC, as agent, in addition to acquiring power may also sell bulk electric power which CEL and/or CE owns or otherwise has the right to sell (Exhibit 1 to the CEC Form 10-Q (September 1993), File No. 2-30057).
i 10.1.10.4 Capacity Disposition Commitment dated June 25, 1993 by and between CEC (Unit 2) and CE for the sale of a portion of CE's entitlement in Unit 2 to Green Mountain Power Corporation (Exhibit 1 to the CEC Form 10-Q (September 1993), File No. 2-30057). 10.1.11 Termination Supplement between CEC, CE and CEL for Seabrook Unit 2, dated December 8, 1986 (Exhibit 3 to the CEC Form 10-K for 1986, File No. 2-30057). 10.1.12 Agreement, dated September 1, 1985, With Respect To Amendment of Agreement With Respect To Use of Quebec Interconnection, dated December 1, 1981, among certain NEPOOL utilities to include Phase II facilities in the definition of ' Project" (Exhibit 1 to the CEC l Form 10-Q (September 1985), File No. 2-30057). i (
e e ^* CANAL ELECTRIC COMPANY 10.1.12.1 Amendatory Agreement No.3 with Respect to Use of Quebec Interconnection dated December 1, 1981, as amended to June 1,
~~1990, among certain NEPOOL utilities (Exhibit 1 to the CEC Form 10-Q (September 1990), File No. 2-30057).~~
1 10.1.13 Preliminary Quebec Interconnection Support Agreement - Phase II among certain New England electric utilities dated June 1, 1984 (Exhibit 6 to the CE Form 10-Q (June 1984), File No. 2-7749). 10.1.13.1 First through Third Amendments to 10.1.13 as mmended March 1,
~~1985, January 1, 1986 and March 1, 1987, respectively (Exhibit 1 to the CEC Form 10-Q (March 1987), File No. 2-30057).~~
10.1.13.2 Fifth through Seventh Amendments to 10.1.13 as amended October 15, 1987, December 15, 1987 and March 1, 1988, respectively (Exhibit 1 to the CEC Form 10-Q (June 1988), File No. 2-30057). 10.1.13.3 Fourth and Eighth Amendments to 10.1.13 as amended JN1y 1, 1987 and August 1, 1988, respectively (Exhibit 3 to the CEC Form 10-Q (September 1988), File No. 2-30057). 10.1.13.4 Ninth and Tenth Amendments to 10.1.13 as amended November 1, 1988 and January 15, 1989, respectively (Exhibit 2 to the CEC 1988 Form 10-K, File No. 2-30057). 10.1.13.5 Eleventh Amendment to 10.1.13 as amended November 1, 1989 (Exhibit 4 to the CEC 1989 Form 10-K, File No. 2-30057). 10.1.13.6 Twelfth Amendment to 10.1.13 as amended April 1, 1990 (Exhibit 1 to the CEC Form 10-Q (June 1990) File No. 2-30057). 10.1.14 Agreement to Preliminary Quebec Interconnection Support Agreement - Phase II among Public Service Company of New Hampshire (PSNH), New England Power Co. (NEP), Boston Edison Co. (BECO), and CEC whereby PSNH assigns a portion of its interests under the original Agreement to the other three parties, dated October 1, 1987 (Exhibit 2 to the CEC 1987 Form 10-K, File No. 2-30057). 10.1.15 Phase II Equity Funding Agreement for New England Hydro Transudssion Electric Company, Inc. (New England Hydro) (Massachusetts), dated June 1, 1985, between New England Hydro and certain NEPOOL utilities (Exhibit 2 to the CEC Form 10-Q (September 1985), File No. 2-30057). 10.1.16 Phase II Equity Funding Agreement for New England Hydro Transmission Corporation (New Hampshire Hydro), dated June 1, 1985, between New Hampshire Hydro and certain NEPOOL utilities (Exhibit 3 to the CEC Form 10-Q (September 1985), File No. 2-30057). 10.1.16.1 Amendment No. 1 to 10.1.16 as amended May 1, 1986 (Exhibit 6 to the CEC Form 10-Q (March 1987), File No. 2-30057). 10.1.16.2 Amendment No. 2 to 10.1.16 as amended September 1, 1987 (Exhibit 3 to the CEC Form 10-Q (September 1987), File No. 2-30057). ]
~ ~ - _. _. _. - e CANAL ELECTRIC COMPANY 10.1.17 Phase II Massachusetts Transmission Facilities Support Agreement, dated June 1, 1985, refiled as a single agreement incorporating Amendments 1 through 7 dated May 1, 1986.through January 1, 1989, respectively, between New England Hydro and certain NEPOOL utilities (Exhibit 2 to the CEC Form 10-Q (September 1990), File No. 2-30057). 10.1.18 Phase II New Hampshire Transmission Facilities Support Agreement, dated June 1, 1985, refiled as a single agreement incorporating Amendments 1 through 8 dated May 1, 1986 through January 1,
~~1989, respectively, between New Hampshire Hydro and certain NEPOOL utilities (Exhibit 3 to the CEC Form 10-Q (September 1990), File' No. 2-30057).~~
10.1.19 Phase II New England Power AC Facilities Support Agreement dated June 1, 1985, between New England Power and certain NEPOOL utilities (Exhibit 6 to the CEC Form 10-Q (September.1985), File No. 2-30057). 10.1.19.1 Amendments Nos. I and 2 to 10.1.19 as amended May 1, 1986 and February 1, 1987, respectively (Exhibit 5 to the CEC Form 10-Q (March 1987), File No. 2-30057). 10.1.19.2 Amendments Nos. 3 and 4 to 10.1.19 as amended June 1, 1987 and September 1, 1987, respectively (Exhibit 5 to the CEC Form 10-Q (September 1987), File No. 2-30057). 10.1.20 Phase II BECO AC Facilities Support Agreement, dated June 1, 1985, between BECO and certain NEPOOL utilities (Exhibit 7 to the CEC Form 10-Q (September 1985), File No. 2-30057). I 10.1.20.1 Amendments Nos. 1 and 2 to 10.1.20 as amended May 1, 1986 and February 1, 1987, respectively (Exhibit 2 to the CEC Form 10-Q (March 1987), File No. 2-30057). 10.1.20.2 Amendments Nos. 3 and 4 to 10.1.20 as amended June 1, 1987 and September 1, 1987, respectively (Exhibit 4 to the CEC Form 10-Q' (September 1987), File No. 2-30057). 10.1.21 Agreement Authorizing Execution of Phase II Firm Energy Contract, dated September 1, 1985, among certain NEPOOL utilities in regard to the purchase of power from Hydro Quebec (Exhibit 8 to the CEC Form 10-Q (September 1985), File No. 2-30057). 10.1.22 Agreement to Share certain Costs Associated with the Tewksbury-Seabrook Transmission Line, by and among certain NEPOOL utilities, amending participants, dated May 8, 1986 (Er.hibit 2 to the CEC 1986 Form 10-K, File No. 2-30057). 10.1.23 Purchase Agreement dated March 1, 1991, by and between CEC (seller) and Central Vermont Public Service Corporation (CVPS) whereby CVPS will purchase 50 MW of capacity from CEC Unit 2 for the term of March 1, 1991 to October 31, 1995 (Exhibit 1 to the CEC Form 10-Q (June 1991), File No. 2-30057). (
O CANAL ELECTRIC COMPANY 10.1.24 Power Sale Agreement dated March 1, 1991, by and between CEC (purchaser) and CVPS (seller) whereby buyer will purchase 50 MW of capacity from seller's units (25 MW from Vermont Yankee and 25 MW from Merrimack 2) for the term of March 1, 1991 to October 31, 1995 f (Exhibit 2 to the CEC Form 10-Q (June 1991), File No. 2-30057). j 10.1.25 Power Exchange Contract, dated March 24, 1993, between New England j Power Company (NEP) and CEC for an exchange of unit capacity in which NEP will purchase 20 MW of CEC's Unit 2 capacity in exchange for CEC's purchase of 20 MW of NEP's Bear Swamp Units 1 and 2 (10 MW per unit) commencing May 31, 1993 through April 28, 1997 and NEP will purchase 50 MW of CEC's Unit 2 capacity in exchange for CEC's purchase of 50 MW of NEP's Bear Swamp' Units 1 and 2 (25 MW per j unit) commencing November 1, 1993 through April 28, 1997 (Exhibit 1 I to the CEC Form 10-Q (March 1993), File No. 2-30057). ) 10.2 Other agreements. j i 10.2.1 Employees Savings Plan of Commonwealth Energy System and Subsidiary Companies as amended and restated as of January 1, 1993 (Exhibit 2 to the CES Form 10-Q (September 1993), File No. 1-7316). 10.2.2 Pension Plan for Employees of Commonwealth Energy System and subsidiary Companies as amended and restated January 1, 1993 (Exhibit 1 to the CES Form 10-Q (September 1993), File No.1-7316). '10.2.3 New England Power Pool Agreement (NEPOOL) dated September 1, 1971 as amended through August 1, 1977, between NEGEA Service Corp. as agent for CEL, CEC, NBGEL, and various other electric utilities operating in New England, together with amendments dated August 15, i 1978 and January 31, 1979 and February 1, 1980 (Exhibit 5(c)(13) to l the CES Fonn 5-16 (April 1980), File No. 2-64731). j 10.2.3.1 Thirteenth Amendment to 10.2.3 as amended September 1, 1981 (Exhibit 5 to the CES Form 10-K for 1981, File No. 1-7316). 10.2.3.2 Fourteenth through Twentieth Amendments to 10.2.3 as amended December 1, 1981, June 1, 1982, June 15, 1983, October 1, 1983, August 1, 1985, August 15, 1985 and September 1, 1985, respectively (Exhibit 4 to the CES Form 10-Q (September 1985), File No. 1-7316). 10.2.3.3 Twenty-first Amendment to the New England Power Pool Agreement j dated September 1, 1971, as amended January 1, 1986 (Exhibit 1 to the CES Form 10-Q (March 1986), File No. 1-7316). 10.2.3.4 Twenty-second Amendment to 10.2.3 as amended to September 1, 1986 (Exhibit 1 to the CES Form 10-Q (September 1986), File No. 1-7316). i 10.2.3.5 Twenty-third Amandumnt to 10.2.3 as mnended to April 30, 1987 (Exhibit 1 to the CES Form 10-Q (June 1987), File No. 1-7316). 10.2.3.6 Twenty-fourth Amendment to 10.2.3 as amended to March 1, 1988 (Exhibit 1 to the CES Form 10-K for~1987, File No. 1-7316).. ~
~- c
~~I CANAL ELECTRIC COMPANY 10.2.3.7 Twenty-fifth Amendment to 10.2.3 as amended to May 1, 1988 (Exhibit 1 to the CES Form 10-Q (March 1988), File No. 1-7316).~~
10.2.3.8 Twenty-sixth Amendment to 10.2.3 as amended to March 15, 1989 i I (Exhibit 1 to the CES Form 10-Q (March 1989), File No. 1-7316). 10.2.3.9 Twenty-seventh Amendment to 10.2.3 as amended to October 1, 1990 (Exhibit 3 to the CES 1990 Form 10-K, File No. 1-7316). 10.2.3.10 Twenty-eighth Amendment to 10.2.3 as amended September 15, 1992 (Exhibit 1 to the CES Form 10-Q (September 1994), File No. 1-7316). 10.2.3.11 Twenty-ninth Amendment to-10.2.3 as amended May 1, 1993 (Exhibit 2 to the CES Foma 10-Q (September 1994), File No. 1-7316). 10.2.4 Fuel Supply, Facilities Lease and Operating Contract by and between on the one side, ESCO (Massachusetts), Inc. and Energy Supply & Credit Corporation on the other side and CEC dated February 1, 1985 (Exhibit 1 to the CEC Form 10-K for 1984, File No. 2-30057). 10.2.4.1 Amendments Nos. 1 and 2 to 10.2.4 as amended July 1, 1986 and November 15, 1989, respectively (Exhibit 3 to the CEC 1989 Fonn 10-K, File No. 2-30057). 10.2.5 Oil Supply Contract by and between CEC (buyer) and Carey Energy Fuels Corporation (seller) for a portion of CEC's requirements of No. 6 residual fuel oil, dated July 1, 1991 (Exhibit 3 to the CEC Fonn 10-Q (June 1991), File No. 2-30057). ) 10.2.6 Assignment Agreement between CEC and ESCO (Massachusetts), Inc. (ESCO-Mass) and Energy Supply and Credit Corporation whereby CEC l assigns to ESCO-Mass rights and obligations under the Supply Contract with Carey Energy Fuels Corporation, dated July 1, 1991 (Exhibit 4 to the CEC Form 10-Q'(June 1991), File No. 2-30057). 10.2.7 Assignment and sublease Agreement and CEC's Consent of Assignment thereto whereby ESCO-Mass assigns its rights and obligations under { Part II of the Resupply Agreement dated February 1, 1985 to ESCO Terminals Inc., dated June 4, 1985 (Exhibit 4 to the CEC Form 10-Q (June 1985), File No. 2-30057). Filed herewith: Exhibit 27. Financial Data Schedule for the year ended December 31, 1994 ] (Filed herewith as Exhibit 1) j l (b) Reports on Form 8-K No reports on Form 8-K were filed during the three months ended ' December 31, 1994. l L
I SCHEDULE I CANAL ELECTRIC COMPANY INVES'INENTS IN, EQUITY EARNINGS OF, AND DIVIDENDS RECEIVED FROM RELATED PARTIES l FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992 (Dollars in Thousands) Investment Investment Balance Balance l Description of Investment and Beginning of Equity Dividends End of Name of Issuer Year Shares Earninas Received Year New England / Hydro-Quebec Phase II HVDC Transmission Project - YEAR ENDED DECEMBER 31, 1994 New England Hydro-Transmission Electric Company, Inc. $ 2 408 136 656 $ 314 $ 409 $2 313 New England Hydro-Transmission Corporation 1 453 785.772 193 157 1 489 Total $ 3 861 $ 507 $ 566 $3 802 YEAR ENDED DECEMBER 31, 1993 New England Hydro-Transmission Electric Company, Inc. $ 2 580 - 136 656 $ 361 $ 533 $2 408 New England Hydro-Transmission Corporation 1 590 785.772 212 349 1 453 Total $ 4 170 $ 573 $ 882 $3 861 YEAR ENDED DECEMBER 31, 1992 New England Hydro-Transmission Electric Company, Inc. $ 2 753 136 656 $ -316 $ 489 $2 58C New England Hydro-Transmission Corporation 1 619 785.772 304 333 1 590 Total, $ 4 372 $ 620 $ 822 $4 170 ~-
o CANAL ELECTRIC COMPANY FORM 10-K DECEMBER 31, 1994 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. CANAL ELECTRIC COMPANY (Registrant) By: WILLIAM G. POIST William G. Poist, Chairman of the Board and Chief Executive Officer i Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on, behalf of the registrant and in the capacities and on the dates indicated. Principal Executive Officers: WILLIAM G. POIST March 29, 1995 William G.
Poist, Chairman of the Board and Chief Executive Officer R. D. WRIGHT March 29, 1995 Russell D. Wright, President and Chief Operating Officer Principal Financial Officers JAMES D. RAPPOLI March 29, 1995 James D. Rappoli Financial Vice President and Treasurer Principal Accounting Officer:
JOHN A. WHALEN March 29, 1995 John A. Whalen, Comptroller A majority of the Board of Directors: WILLIAM G. POIST March 29, 1995 William G. Poist, Director R. D. WRIGHT March 29, 1995 Russell D. Wright, Director JAMES D. RAPPOLI March 29, 1995 James D. Rappoli, Director \\ \\ h
NEW HAMPSHIRE 1 ELECTRIC COOPERATIVE, INC. FINANCIAL STATEMENTS DECEMBER 31,1994 AND 1993 (WITH INDEPENDENT AUDITORS' REPORT) l BD eemer.oess.m<seit&exemex yes=====' { P
I B BERRY, DUNN, McNEIL & PARKER CERTIFIED PUBLIC ACCOUNTANTS MAN AGEMENT CONSULTANTS i i t; 'I p I INDEPENDENT AUDITORS' REPORT The Board of Directors and Members New Hampshire Electric Cooperative, Inc. We have audited the accompanying balance sheet of New Hampshire Electric Cooperative, Inc. (the l Cooperative) as of December 31,1994, and the related statements of operations and accumulated deficit and cash flows for the year then ended. These fmancial statements are the responsibility of the Cooperative's management. Our responsibility is to express an opinion on these fmancial state-I ments based on our audit. The fmancial statements of the Cooperative as of and for the year ended December 31,1993, were audited by other auditors whose report dated March 18,1994, expressed an unqualified opinion. We conducted our audit in accordance with generally accepted auditing standards and the standards I for financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reason-able assurance about whether the financial statements are free of material misstatement. An audit I includes examining, on a test basis, evidence supporting the amounts and disclosures in the fmancial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall fmancial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, such fmancial statements present fairly, in all material respects, the financial posi-I tion of New Hampshire Electric Cooperative, Inc., as of December 31,1994, and the results of its operations and its cash flows for the year then ended in conformity with generally accepted account-ing principles. I As described in Note 1 to the fmancial statements, on March 20, 1992, the Bankruptcy Court entered an order confirming the Second Amended Plan of Reorganization, as modified, which l became effective on December 1,1993. Under the Plan of Reorganization, the Cooperative is required to comply with certain conditions as more fully described in Note 1. Yf ,f =, e I Portland, Maine March 24,1995 orkes m: nanew Man, n,a.ma. Mmne Lehanon, Nm Hampere Mandewr, Nm Hampere
NEW HAMPSHIRE ELECTRIC COOPERATIVE, INC. Balance Sheets December 31,1994 and 1993 I ASSETS I. Utility plant Nuclear production $105,905 $106,088 l Transmission 4,343 4,293 Distribution 123,818 118,644 General and other 11,952 12,893 l Construction work in progress 2.189 2.082 Total utility plant 248,207 244,000 I Less accumulated depreciation and amortization .52.956 48.154 l Net utility plant 195.251 195.846 Investment in associated orgamzations, at cost 1.965 1.903 Current assets Cash and cash equivalents 264 266 g Restricted cash 57 69 5 Temporary investments and special deposits 3,304 4,314 Receivables from members g Energy sales, net of allowance for doubtful accounts E $439 and $483 in 1994 and 1993, respectively 5,845 5,039 Other 332 502 Receivable, Public Service Company of New Hampshire 3,024 1,183 Materials and supplies 2,978 3,156 g Prepayments and other current assets 1.146 1.347 Total current assets 16.950 15.876 Deferred debits and other assets .38,736 31.368 l $251902 $244.993 E The accompanying notes are an integral part of these financial statements.. - - - -
L LIABILITIES AND EQUITIES 1924 1993 (000s) (000s) Equities l Patronage capital $ 13,308 $ 13,308 Accumulated deficit (21.514) (21.795) Total deficit (8.206) (8.487) l Current liabilities Line of credit 3,000 Accounts payable 10,735 9,452 Accrued expenses 2,573 1,346 Customer deposits 300 400 Current portion of long-term obligations 2.961 2.817 l Total current liabilities 19.569 14.015 Long-term obligations 241.446 239.001 Deferred credits 93 464 I I I l $M $244.993 I I I
Statements of Operations and Accumulated Deficit Years Ended December 31,1994 and 1993 1 (000s) (000s) Operating revenues $ 94,851 $ 95,414 Operating expenses 78.432 76.091 Operating margin before interest and other deductions 16,419 19,323 Interest and other deductions 18.758 18.293 i Net operating margins (deficits) (2.339) 1.030 l Nonoperating margins (deficits) Reorganization items (868) Interest 3,199 2,231 Other (579) (100) Total nonoperating margins 2.620 1.263 Net income 281 2,293 Assignment of 1993 operating margins to patronage capital (1,030) Accumulated deficit, beginnmg of year (21.795) (23.058) Accumulated deficit, end of year $(21.514) $(21.795) I I l I I l l The accompanying notes are an integral part of these financial statements.
NEW HAMPSHIRE ELECTRIC COOPERATIVE, INC. Statements of Cash Flows Years Ended December 31,1994 and 1993 129.4 1993 (000s) (000s) Cash flows from operating activities Net income $ 281 $ 2,293 Adjustments to reconcile net income to net cash provided by operating activities Depreciation and amortization 8,054 8,251 Gain on sale of fixed assets (34) Interest added to principal 5,178 8,148 Write-down of nuclear plant 160 Decrease (increase) in CFC Capital Term Certificates (62) 162 Customer and other accounts receivable (2,477) 1,173 Supplies 178 (499) Prepaid expenses 201 (540) Deferred debits (7,368) (5,106) I Increase (decrease) in Accounts payable 1,283 (1,563) Accrued expenses 1,227 (7,347) I Deferred credits (371) (2,564) Customer deposits (100) .(19) Net cash provided by operating activities before I reorganization items 5.990 2 I Cash flows from reorganization activities Reorganization expenses (L218) Net cash used by reorganization activities (1.218) Net cash provided by operating activities 5.990 1.331 I Cash flows from investing activities Proceeds from sale of assets 39 Construction and acquisition of plant (7,432) (8,832) Plant removal costs (216) (188) Materials salvaged from retirements .. 184 103 Net cash used by investing activities (1.425) (8.917) (Continued next page) The accompanying notes are an integral part of these financial statements. NEW HAMPSHIRE ELECTRIC COOPERATIVE, INC. Statements of Cash Flows (Concluded) l Years Ended December 31,1994 and 1993 i (000s) (000s) l Cash flows from financing activities Proceeds from credit line $ 3,000 Principal payments of long-term obligations (2.589) (2.541) Net cash provided (used) by financing activities __4H (2.541) Net decrease in cash and cash equivalents (1,024) (10,127) I Cash and cash equivalents, beginning of year 4.649 14.776 Cash and cash equivalents, end of year S.JJgj. $ 4.649 Suppleuental disclosures of cash flow information Cash paid during the year for interest $1QQ $1fL216 I I I I I I I The accompanying notes are an integral part of these financial statements. 5-
NEW HAMPSHIRE ELECTRIC COOPERATIVE, INC. i Notes to Financial Statements l December 31,1994 and 1993 l
~~1. Recrenni7ation Proceedings nnd Basis of Presentation i~~
On May 6,1991, New Hampshire Electric Cooperative, Inc. (NHEC or the Cooperative) filed l a petition for relief under Chapter 11 of the Federal Bankruptcy Code in the United States Bankruptcy Court for the District of New Hampshire (the Bankruptcy Court). Under Chapter 11, most actions to recover claims against NHEC in existence prior to the filing of the petition for relief under the Federal Bankruptcy Code were stayed while NHEC continued business j operations, under the direction of the Bankruptcy Court, as a debtor in possession. On January 13,1992, a Second Amended Plan of Reorganizationjointly proposed with the State l of New Hampshire and Public Service Company of New Hampshire (PSNH) was submitted to the Bankruptcy Court. On March 20, 1992, the Bankruptcy Court confirmed the Second Amended Plan of Reorganization, as modified (the Plan). The Plan provided for NHEC to remain a member-owned electric cooperative and to retain all of its assets, including its 2.17391% undivided ownership interest in the Seabrook Nuclear Plant (Seabrook). Under the l terms of the Plan, NHEC's indebtedness to the Rural Utilities Service (RUS) (formerly the l Rural Electrification Administration) and the National Rural Utilities Cooperative Finance Corporation (CFC) was to be restructured and other creditors of NHEC paid in full. The Plan provided for NHEC to emerge from bankruptcy with forecast revenues sufficient both to meet its obligations for debt service and to provide continuing electric service to all of its members. Forecast revenues are based on load growth studies and certain retail rate assump-I tions. Retail rates are regulated by the New Hampshire Public Utilities Commission (NHPUC) and, although certain assumptions have been made in the Plan, NHEC will be limited to those rates, approved in accordance with rate setting principles as implemented by the NHPUC. In addition to the restructuring of RUS and CFC debt, the Plan provided for the full resolution I and settlement of disputes between NHEC and PSNH, a subsidiary of Northeast Utilities (NU). j NHEC will continue to purchase most of its wholesale power requirements from PSNH under i a long-term contract through November 6, 2006, and will sell its Seabrook power to PSNH under a Sellback Contract through June 30,2000. On December 1,1993, subsequent to satisfaction of all Plan conditions, the Plan became effec-l tive and the comprehensive settlement and discharge of all litigation and claims encompassed by the Plan became final. From the December 1,1993, effective date through December 31,1993, the Cooperative made payments totalling approximately $9 million in settlement of certain l claims. As of December 31,1993, the Cooperative had accrued $2.5 million for the payment of additional consulting fees incurred during the bankruptcy proceedings. There were no further applications for bankruptcy consulting fees made in 1994, and payment of all outstanding fees l was made in 1994 pursuant to the final bankruptcy court order. NEW HAMPSHIRE ELECTRIC COOPERATIVE, INC. Notes to Financial Statements December 31,1994 and 1993
2. _Significant Accounting Policies Organintion and Parnose NHEC is a rural electric cooperative utility established under the laws of the state of New Hampshire. Financing assistance has been provided by the RUS and, therefore, NHEC is subject to certain rules and regulations promulgated for rural electric borrowers by RUS. NHEC is a distribution cooperative, providing electric power to members in certain areas of New Hampshire, and has a 2.17391 % ownership in the Seabrook nuclear facility. NHEC is presently serving over 66,000 members, spread over nine of New Hampshire's ten counties.
Reculation l NHEC is subject to the mies and regulations of the NHPUC for retail sales of power and the Federal Energy Regulatory Commission (FERC) for the sales of wholesale power. System of Accounts NHEC maintains its accounting records in accordance with the FERC chart of accounts as I modified and adopted by RUS. Utility Plant and Deoreciation Utility plant and construction work in progress is stated at cost which includes an allowance for funds used during construction. The provision for depreciation and amortization is computed on a straight-line method at rates I based upon the estimated service lives of the assets. Depreciation and amortization expense was approximately $8,054,000 in 1994 and $8,251,000 in 1993. Major depreciable assets are esti-mated to have the following services lives: Years Nuclear plant 36 Transmission plant 29 Distribution plant 36 General plant 6 to 33 I Maintenance and repairs of utility plant are charged to operations as incurred. Replacements and betterments are capitalized. At the time units of utility plant are retired, the cost of the property l retired and costs of removal, less salvage, are charged to the allowance for depreciation. I I
I l NEW HAMPSHIRE ELECTRIC COOPERATIVE, INC. 1 Notes to Financial Statements ( December 31,1994 and 1993
~~2. Significant Accounting Policies (Continued)~~
Allowance for Funds Used During Construction I Allowance for funds used during construction represents the cost of related borrowed funds used for construction of utility plant. The allowance is capitalized as a component of the cost of utility plant. Capitalization of interest costs related to construction was available to recommence l on December 1,1993; however, no amount was capitalized during 1993. The Cooperative capitalized $60,000 of interest in 1994. l Onerating Revenues Operating revenues are based on rates, authorized by the NHPUC, which are api ed to di l members' consumption of electricity. NHEC bills its members on a cycle basis throughout the month. NHEC records revenues as it bills its customers. Credit is extended to electric customers based on terms dictated by the NHPUC. .I Purchased Power Costs NHEC rates reflect estimates of the cost of purchased power. Retail members are billed at a levelized power cost adjustment charge rate based on projected data for the cost of power from wholesale suppliers. To the extent that cost estimates differ from actual charges incurred, the I differences are deferred and refunded or charged to members through periodic rate adjustments. l Materials and Sunnlies I Inventories of materials and supplies are stated at average cost. Income Tax Status I NHEC is exempt from United States income taxes pursuant to $501(c)(12) of the Internal Revenue Code, which requires that at least 85 % of a cooperative's net income be collected from its members. I Patronage Capital The bylaws of the Cooperative provide that operating revenues from the furnishing of electric energy in excess of operating costs and expenses shall be allocated as patronage capital. All other amounts received in excess of other expenses shall be used to offset any losses incurred during the current or any prior fiscal year and, to the extent not needed for that purpose, allo-cated to its patrons on the basis of their patronage, and any amount so allocated shall be included as part of the capital credited to the accoums of patrons. NEW HAMPSHIRE ELECTRIC COOPERATIVE, INC. Notes to Financial Statements December 31,1994 and 1993
~~2. Significant Accounting Policies (Continued)~~
Patronage Capital (Concluded) NHEC may refund patronage capital with the consent of certain creditors. In the event of the dissolution or liquidation of NHEC, after all outstanding indebtedness has been paid, outstanding capital credits shall be retired without priority on a pro rata basis. Cash and Cnch Eauivalents I NHEC considers all highly liquid debt instruments with an original maturity of three months or less to be cash equivalents. I The Cooperative maintains its cash in bank deposit accounts which may exceed federally insured limits. The Cooperative has not experienced losses in such accounts, and does not believe that it is exposed to any significant risk on cash and cash equivalents. Recently Issued Accounting Standards The Financial Accounting Standards Board has issued Statement of Financial Accounting Standards No.106, " Employers' Accounting for Postretirement Benefits Other Than Pensions" I (SFAS 106). The Cooperative is required to adopt this statement as of January 1,1995. This statement will require accrual of postretirement benefits (such as health care benefits) during the years an employee provides service. The Cooperative provides health care and life insurance I benefits to certain retired employees that meet vesting requirements The cost of these benefits are currently expensed on a pay-as-you-go basis. The total pay-as-you-go health and life insur-ance costs were approximately $54,000 and $69,000 in 1994 and 1993, respectively. The actuarially calculated accumulated postretirement benefit obligation as of January 1,1995, I is approximately $2,250,000. This amount will be recorded as an expense over a 20-year peri-od. The estimated yearly effect on operations will be approximately $400,000 which includes the amortization of the transition obligation. The Cooperative, based on management's understand-ing of the NHPUC's treatment of similar utilities, expects that the postretirement benefit costs will be recovered through current rates. I I 9
NEW HAMPSHIRE ELECTRIC COOPERATIVE INC. 0 Notes to Financial Statements December 31,1994 and 1993
~~2. Significant Accounting Policies (Concluded)~~
Fair Value of Finnncial Instruments The Cooperative has estimated, based on market values or the amounts to be ultimately realized, that the carrying value approximates fair value for all financial instmments. Iong-term debt would have an estimated fair value equivalent to carrying value. These estimates are not neces-I sarily indicative of the amounts that the Cooperative could realize in the current market and different estimation methodologies may have a material effect on the estimated fair value amounts. I Reclassifications l Certain reclassifications have been made to 1993 balances so that they are consistent with 1994 presentation. I
3. Utility Plant - Nuclear The NHPUC, by an order dated May 3,1991, established that NHEC's " initial plant invest-i ment" in the Seabrook nuclear facility for " wholesale" rate setting purposes shall be $126 mil-lion as of the in-service date of July 1,1990.
The Plan provides for the sale of all of the capacity and related output of NHEC's 2.17391% share of the Seabrook nuclear facility to PSNH through June 30,2000. The terms of the sale are I specified in a Unit Contract (the Sellback) between NHEC and PSNH which became effective on December 1,1993. The Sellback also provided that the valuation of the plant will be further j reduced on the effective date. As of the effective date, the value of the plant was adjusted to E approximately $99 million. I Upon termination of the Sellback in June 2000, the capacity and output from NHEC's share of the Seabrook nuclear facility will be available for NHEC to use or sell. Because current electric rates to power consumers other than PSNH exclude Seabrook costs, NHEC will be required to j obtain regulatory approval for any new retail rates which contain costs related to Seabrook. In 1984, construction of Seabrook Unit 2 ceased and in November 1986 the Joint Owners in .l Seabrook (the Joint Owners) voted to abandon the unfinished plant and included in accmed expense is $350,000 which is provided for NHEC's share of the net costs of dismantling. Unit 2 has yet to be dismantled. I NEW HAMPSHIRE ELECTRIC COOPERATIVE, INC. Notes to Financial Statements December 31,1994 and 1993 'I
~~3. Utility Plant - Nuclear (Continued)~~
Decommissioning costs are accrued over the service life of the Seabrook Plant. Decommissioning expenses totaled approximately $163,000 and $132,000 in 1994 and 1993, respectively. The license for the plant is scheduled to expire in 2026. The Cooperative's share of the estimated decommissioning cost is approximately $35 million. These costs are currently being recovered by NHEC through the Sellback Contract with PSNH. The Cooperative con-tributes its share of the costs of decommissioning to an external trust fund. The Cooperative's share of the decommissioning trust fund balance and the accumulated provision for decommis-sioning were $507,000 and $366,000 at December 31,1994 and 1993, respectively. The .l Cooperative is scheduled to make payments ranging from $100,000 to $416,000 per year, through the year 2026, to the Seabrook Decommissioning Fund. These contributions will equal approximately $8,000,000 which, with fund earnings, are scheduled to be sufficient to cover ll estimated decommissioning costs. These amounts are subject to review and revision semian-nually. i The Cooperative's proportionate share of the direct expenses of Seabrook are included in operat-ing expenses in the statements of operations. The Cooperative's share in the assets and liabilities of Seabrook at December 31,1994 and 1993, is as follows: M N (000s) (000s) Nuclear plant $105,905 $106,167 {g Transmission plant 1,491 1,481 l3 Distribution plant 152 152 General plant 1,460 1,413 Construction work-in-progress 176 407 Accumulated depreciation and amortization (12.487) (10.025) Net utility plant in service 96,697 99,595 Other current and accrued assets 5,254 4,013 Deferred debits and other assets 985 2.768 Total assets $102.936 $106.376 Current and accrued liabilities $ 1,003 932 1Ang-term obligations 128 131 Deferred credits 93 121 Total liabilities and credits $ 1.224 $ 1.184 L NEW HAMPSHIRE ELECTRIC COOPERATIVE, INC. Notes to Financial Statements l December 31,1994 and 1993 l
~~3. Utility Plant - Nuclear (Concluded)~~
Nuclear I inbility Insurance I The Price-Anderson Act (the Act), a federal statute amended in 1988 to extend to the year 2002, limits the public liability of a licensee on a nuclear plant for a nuclear incident to approximately $9 billion. Seabrook provides the Joint Owners with a primary layer of insurance in the amount of $200 million maintained with private insurance companies. Secondary coverage of up to $8.3 billion is provided by a retrospective assessment of up to $75.5 million per incident levied on each of the licensed operating nuclear units in the United States, subject to a $10 million maximum assessment per unit in any year. Additionally, if the sum of all public utility claims and legal costs arising from any nuclear accident exceeds the maximum amount of financial protection, each licensee can be assessed an additional 5% (up to $3.8 million) of the maximum retrospec-tive assessment. There is no limit on the number of incidents for which a licensee could be assessed these sums. The Joint Owners are insured, through policies purchased from the Nuclear Electric Insurance Limited (NEIL), for the cost of repair, replacement, decontamination or decommissioning of the plant resulting from insured occurrences. The Joint Owners are subject to maximum potential assessments against Seabrook, with respect to losses arising during current policy years, of I approximately $23.3 million for excess property damage, decontamination and decommissioning. All companies insured with NEIL are subject to retroactive assessments if losses exceed the financial resources available to NEIL. Insurance has been purchased from American Nuclear Insurers / Mutual Atomic Energy Liability I Underwriters aggregating $200 million on an industry basis for coverage of worker claims. All participating reactors insured under this coverage are subject to retroactive assessments of $3.1 million per reactor.
~~4. Investment in Associated Organi7ntion Investments in associated organizations, carried at cost, at December 31,1994 and 1993, consist of the following:~~
199_4 1993 (000s) (000s) .l Capital term certificates - CFC $1,903 $1,903 Patronage capital credits - CFC 62 Total $Mgj, $L901 NEW HAMPSHIRE ELECTRIC COOPERATIVE, INC. Notes to Financial Statements December 31,1994 and 1993 i
~~5. Deferred Debits and Other Assets Deferred debits and other assets at December 31,1994 and 1993, were as follows:~~
I E E (000s) (000s) Deferred debits Deferred regulatory asset - Woodstock substation 387 417 Deferred power costs 1,952 Seabrook prefunding 593 930 l Seabrook - other 392 271 Demand side management 235 Other assets PSNH receivable 33,611 28,143 Nuclear fuel - Seabrook 1,214 1,460 Nonoperating property 100 108 Other .252 39 Total $3fL2M $2L351
~~6. Long-Term Obligations As of December 31,1994 and 1993, long-term obligations were as follows:~~
M M (000s) (000s) 9.3% notes payable to the Rural Utilities Service (RUS) (Note A), payable in monthly installments of $625,000 of interest only through December 1995, monthly installments of $955,917, including interest commencing January 1996, through December 2022 $110,317 $107,692 t 2.0% note payable to RUS, payable in monthly installments of $62,031, including interest, through December 2012 11,288 11,758 5.0% note payable to RUS, payable in monthly installments of l $389,724, including interest, through December 2012 55,593. 57,289 , I
NEW HAMPSHIRE ELECTRIC COOPERATIVE, INC. Notes to Financial Statements December 31,1994 and 1993
~~6. Long-Term Obligations (Continued)~~
I 1294 19 9 (000s) (000s) 'I 9.3% note payable to RUS, payable in monthly installments of $200,245 of interest only through December 1995, monthly installments of $248,545, including interest, commencing January 1996, through December 2022 $ 28,721 $ 28,923 9.3% note payable to RUS (deferred note), payable in monthly j installments of $980,917, including interest starting in August 1997, through July 2000 24,175 22,036 7.0% note payable to CFC (Note 1), payable in monthly install-ments of $2,629, including interest, through December 2012 323 331 9.5% note payable to CFC (Note 2), payable in monthly install-ments of $19,657, including interest, through December 2012 2,034 2,072 9.75% note payable to CFC (Note 3), payable in monthly install-ments of $46,632, including interest, through December 2012 4,748 4,833 6.55% note payable to CFC (Note 4), payable in monthly install-ments of $7,881, including interest, through December 2012 1.001 1.026 Total RUS and CFC 238,200 235,960 PSNH Note 5,930 5,517 Other long-term obligations 277 341 j Total obligations 244,407 241,818 Less current portion (2.961) (2.817) I Totallong-term obligations $241.446 $239.001 The Plan provides for accrued interest on RUS Note A and deferred note, and the PSNH note to be added to the principal balance. Accrued interest added to principal totalled $5,178,000 in 1994 and $8,148,000 in 1993. I The mortgage agreements provide that all outstanding obligations to RUS and CFC are collater-alized by substantially all assets and the rents, income, revenues, proceeds and benefits derived, I received or had for any and all such assets.
NEW HAMPSHIRE ELECTRIC COOPERATIVE, INC. Notes to Financial Statements 1 December 31,1994 and 1993
~~6. Long-Term Obligations (Continued)~~
The Cooperative must also comply with certain covenants which include restrictions on the Cooperative's ability to borrow additional monies, enter into specified transactions or to pay dividends or distribute capital without first secking the mortgagees' approval. Additional cove-nants address insurance coverage, the sale of assets and other nonfinancial matters. CFC has made a commitment to the Cooperative for a $10 million line of credit through December 31, 2023. Borrowing under the line of credit was $3 million in 1994 and none in 1993. CFC also made a commitment to the Cooperative for a work plan loan of approximately $12.2 million to finance future plant additions. There were no borrowings under this commit-ment in 1994 and 1993. CFC Mortgage Notes 2, 3, and 4 are subject to repricing every seven years, the first such s repricing for each loan occurring in 1997,1998, and 1994, respectively. During 1994, CFC Mortgage Note 4 was repriced from 8.75% to 6.55%. The PSNH note began accruing interest at the rate of 7.5% per annum starting on December 1, 1993. Interest and principal will be payable as follows:
a. Annually through 2003, payments v,ill be deemed made on the note in the amount of one cent for every kilowatt hour delivered by PSNH to NHEC under the amended wholesale power contract in excess of forecasted deliveries (deliveries credit); and

b. Any balance ofinterest and principal remaining unpaid on January 1, 2002, shall mature on October 31,2006, and shall be payable by NHEC over the balance of the term of the note in equal monthly installments, adjusted for any payments in (a) above paid in 2002 and 2003, in an amount sufficient to pay such balance, and interest thereon on October 31, 2006.
A deliveries credit of $16,834 was realized in 1993; however, no deliveries credit was realized in 1994. Under generally accepted accounting principles for entities in reorganization under the Bankrupt-cy Code, NHEC was required to restate its debt at its fair value on the effective date. Under the reorganization plan, the Cooperative may refmance existing debt without penalty and the prin-cipal balance of long-tenn debt, restated in the Plan, was considered to approximate the fair value at the effective date. NEW HAMPSHIRE ELECTRIC COOPERATIVE, INC. Notes to Financial Statements December 31,1994 and 1993 l
~~6. Imng-Term Obligations (Concluded)~~
In addition to the five RUS notes detailed above, the Plan provided a $41.6 million contingent note. The Cooperative is obligated to principal and interest payments only to the extent that the I Cooperative experiences load growth in excess of forecasted load growth, accumulates cash above a specified amount, recovers litigation proceeds, or otherwise as provided under the mortgage. The Cooperative did not realize any of those conditions, therefore, no payments were l made in 1994 and 1993. Future payments to RUS under the terms of the contingent note are not expected under normal operating conditions. Interest accrues at a rate of 9.3% per annum, commencing January 1,1993, and totalled approximately $4,225,000 at December 31,1994. l Interest accrual will cease on May 1,2023. Any outstanding balance at May 1, 2023, will be subject to annual forgiveness in amounts not to exceed $10 million or NHEC may pay, on May 1,2023, or each May 1 thereafter, a termination fee of $100,000 to have the note reduced l to zero. Under the terms of the Plan, as long as the contingent note plus accrued interest remains unpaid, NHEC cannot apply for or receive any RUS direct or insured loans or any RUS loan guarantees. Principal payments to be made on long-term obligations are as follows: (000s) 1995 $ 2,961 I 1996 4,139 1997 6,497 1 1998 14,278 1999 15,516 Thereafter 201.016 $244.407 I PSNH's payments commencing in July 1997 regarding deferred obligation to NHEC in accor-dance with the contract coincide with the increased debt payments related to NHEC's Seabrook l ownership. I I L] - - ~ - _ - - _ _ _
NEW HAMPSHIRE ELECTRIC COOPERATIVE, INC. Notes to Financial Statements I December 31,1994 and 1993
~~7. Patronage Equities I~~
~~At December 31,1994 and 1993, patronage capital consisted of: 199_4 1991 (000s) (DNs) Assigned $10,072 $10,072 Unassigned 3.236 3.236 $M $M~~
~~8. Long-Term Power Supply and Sale Agreements The Cooperative has traditionally been a distribution cooperative purchasing power at wholesale j~~
to distribute to its retail customers. In 1981, in connection with its acquisition of a 2.17391% interest in the Seabrook nuclear facility, NHEC updated a partial requirements service arrange-ment with PSNH and entered into a Sellback Contract (Sellback) which, for a period of ten years, required PSNH to buy, at NHEC's cost, any part of NHEC's Seabrook capacity and energy determined to be in excess of NHEC's needs. Pursuant to contracts agreed to under the Plan, PSNH will provide NHEC wholesale power at the so-called "Muni Rate" (the wholesale power rates established pursuant to the settlement among PSNH and cenain municipal electric utilities approved by the FERC) through I November 1, 2006, and continuing thereafter unless five years notice of termination has been provided by either party. NHEC has an exclusive option to extend the contract term until November 1,2011, upon notice to PSNH by November 1,2001. PSNH will purchase power resulting from NHEC's Seabrook interest pursuant to a modified I Sellback. The Sellback terms call for PSNH to purchase the entire amount of NHEC's Seabrook l capacity and energy and to pay all NHEC's Seabrook and associated transmission costs, without regard to Seabrook's operating status, for the ten-year period which began on July 1,1990. For l purposes of the rates paid to the Cooperative by PSNH under the agreement, NHEC's initial cost of Seabrook was established at $126 million by order of the NHPUC. The initial cost was again reduced by depreciation and increased by capital additions. The initial cost was further reduced on the effective date by $17 million pursuant to the modified Sellback. The terms of payment also provide for phase-in of Sellback rates through a graduated deferral of costs in the first five years commencing July 1,1990, recovered with interest during the last three years. l The Cooperative deferred approximately $5,054,000 and $6,594,000 in costs during 1994 and 1993, respectively, for a cumulative deferred balance of approximately $33,611,000 at December 31,1994, and $28,143,000 at December 31,1993. Interest on the deferred balance is accrued at 9.3%. NEW HAMPSHIRE ELECTRIC COOPERATIVE, INC. Notes to Financial Statements December 31,1994 and 1993
~~8. Inng-Term Power Supply and Sale Agreements (Concluded)~~
As part of the settlement between the Cooperative and PSNH, the Cooperative compensated PSNH for its pre-bankruptcy claim resulting from the excess of NHEC's unpaid bills from PSNH over PSNH's unpaid charges from NHEC under the Sellback (recomputed in accordance with the phase-in term discussed above). This compensation is in the form of a promissory note issued to PSNH on December 1,1993, in the principal amount of $5.5 million (see Note 6). Additionally, a $3 million cash payment was made to PSNH on December 1,1993. In Docket No. 92-009 issued on October 5,1992, the NHPUC authorized a 12-month energy surcharge to recoup the $3 million due to PSNH. In accordance with the provisions of Statement of Financial Accounting Standards No. 71, " Accounting for the Effects of Certain Types of Regu-lation," the Cooperative accrued the $3 million due to PSNH over the same period the revenues were collected from members. This resulted in a recording of a $2,250,000 deferred debit at December 31,1992, that was fully amortized during 1993. In addition, capacity and energy are purchased on a wholesale customer basis under contracts from four other suppliers.
~~9. Deferred Credits l~~
~~Deferred credits at December 31,1994 and 1993, were as follows: l 199_4 1991 (000s) (000s) Deferred fuel and purchased energy costs $344 Seabrook 93 120 Other $23, $ffd,~~
~~10. Reorganintion Items Because the reorganization of the Cooperative was completed in 1993, there were no costs I~~
incurred during 1994. Reorganization items consisted of the following for the year ended December 31,1993: (000s) { Interest income $ 307 Professional fees (1,023) l Severance agreements 170 Impairment in the value of Seabrook investment (160) Other (162) $3 !
NEW HAMPSHIRE ELECTRIC COOPERATIVE, INC. Notes to Financial Statements December 31,1994 and 1993
11. Pension and 401(k) Savings Plan Substantially all of the employees of the Cooperative participate in the National Rural Electric Cooperative Association (NRECA) Retirement and Security Program, a multiemployer, defined benefit pension plan. The Cooperative funds accrued pension costs on an annual basis. Since July 1,1987, a moratorium on payments for normal and past service cost contributions has been imposed because the Pension Plan has reached funding limitations. The moratorium was lifted during 1994. The Cooperative made one annual payment for past service costs and two I
monthly payments for future service costs. Pension costs totalled $288,000 for December 31, I 1994, and zero for December 31,1993. The moratorium is scheduled to be reinstated in April of 1995. l The Cooperative has established a tax qualified retirement plan for the benefit of its employees and their beneficiaries. The Cooperative's contribution ranges from 1.4% - 2.0% of ar.nual base pay; bonuses and overtime are excluded. The Cooperative's contribution totalled $89,400 l and $73,000 for 1994 and 1993, respectively.
12. Emnloyee Severance Agreements The Plan provided for the severance of several senior management personnel. Severance agree-I ments were entered into with these individuals and the Cooperative made payments'under the agreements totalling approximately $114,000 and $70,000 in 1994 and 1993, respectively.
~~Payments under these agreements were completed in 1994.~~
~~13. Commitments and Contingencies The Cooperative is involved in various legal proceedings incidental to the conduct ofits normal I~~
~~business operations. In the opinion of management, these proceedings will not have a material adverse impact on the financial condition of the Cooperative. I I I I }}~~

ML20094F948

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