ML20101M029
| ML20101M029 | |
| Person / Time | |
|---|---|
| Site: | Seabrook  |
| Issue date: | 12/31/1991 |
| From: | Bok J, Rowe J NEW ENGLAND ELECTRIC SYSTEM |
| To: | |
| Shared Package | |
| ML20101M003 | List: |
| References | |
| NUDOCS 9207080033 | |
| Download: ML20101M029 (43) | |
Text
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*(Partiol ownersh.
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- Corporate Headquarters
I i~ l I'4 M (1 L 1 /A L 11 i U ft L i V 11 i a 1991 1990 Earnings per overage shore $ 2.77 5 .t 11 ' Dividends declared per shore S 2.07 5 204 Book value per shore-year end $22.17 S21.13 Market price per shore-year end $32% S 2 4 ', e Growth (decline)i, Lilowatthour (KW H) soles to ultimate customers (1.2)% 3% Cost per KWH to ultimate customers (cents) 0.99 8.27
'Indvde, $ 1 ED per shore tewh.ng from the teveriot of a port.on of N 190 0 orao da n reImed to Seabroek 1 De e Nee C)
New Er: gland Electric System (NEES)is a public utility holding company head-qunttered in Westborough, Massachusetts. Subsidiaries include Gree retail operating companies-Massachusetts Electric Company, which serves 904,000 customers in 146 Massachusetts cornmunities; The Norro0ansett Electric Com-pony, which serves 319,000 customers in 27 Rhode Island communitiest and Granite State Electric Company, which serves 34,003 customers in 21 New n Hampshire commun6 ties. Other subsidiaries include two wholesole generating companies: New England I ower Compriny, whi:h c; erates 21 generating sto-
^
tions, and Norrugansett Energy Resources Company, which owns 20 percent of the Ocean State Power project; or; oil and Oas vaplerution and fuels company, New England Energy incorporated; thece transmission service componies: New England Electric Trunsmission Corporation, New England Hydro-Transmission - Corporation, and New England Hydro-Transmission Ele ctric Company, Inc.; and a tervice comp,ny, New England Power Sersice Company.
- - - . . -~--
Contents 2 Letter to Shoreholders 37 Report of Management 6 E nvironmentallmprovement 37 Report of independent Acco>;ents 9 Cost Control 23 Supplen,eniary information 10 Diversity and Reliability 40 Shoreholder Information 12 Financial Review Dock System Directors and Officers 20 - iol Statements 26 Notes to Financial Statements
1 TO OUR FELLOW SH AREHOLDERS: s in 1991, New Englan:1 Electric Sys'em (N E E S) delivered
}
solid financial and operating performance in spite of weak i econormc conditions theoughout the Northeast. Our financial i ,, highlights include the following:
^ Earnings were $2.77 per overage share. This resulted in a return l
on equity of 12.6 percent, which was among the best for electric utilities in the Northeast and well above average for electric utilitics across the country. f
. Our share price closed at $32 W at year's end compared with
$24% of the end of 1990, reflect;ng the quality of our earnings as j well as reduced interest rates and a favorable stock market.
l In May, the Board of Directors increased the annual dividend rate
;o $2.08. 1 These results reflect c.- early preparation for the recession and the ability of our employees to accomplish a great deal with
' constrained resources. A portion of the savings created by our j Joan T. Bok, cholernon, Path breaking conservation and load management (C & LM) pro- j and John W. Rowe, president grams yielded seven cents per share under incentive mechanisms and chief encutive ofricer. adopted by public utili'y commissions in each of the three states we serve. These conservation incer.tives, along with recovery of other costs from both state and federal togulatory agencies, have been vital components of our financial performance in addition, as ( further discussed in the Financial Review, the gain from the sole of ( our unregulated oil and gas properties contributed to the I i bottom line. 1991 was the second year of our quality managernent efforI, which fosters continuous improvement in all aspects of l l our electric service. The renewed emphasis on efficiency and cost ; control generated by this process was particularly important since j i
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l 4 I i 1 i ! our 1991 kilowatthour sales to ultimate customers were 1.2 percent lower than in 1990. We further tightened operating budgets; l. ( terminated a power purchase contract, which will save our customers ! $ 18 million; completed the first step in a 4 percent across the board l employment reduction through attrition; and deactivated our oldest and least efficient fossil fired generating facility, the I 100 megawatt (MW) South Street Station. Close coordination of I i l financial planning, budgeting, and rate cases assisted our efforis , to manage both expenses and investments. While rate increases i have been substantialin recer,t years, we are pleased that our ! average prices to customers continued to be among the lowest third of major New England utilities. This cost advantage meets a key service quality benchmark and is likely to continue in 1992 l when we expect our price increases to be below inflation. Team problem-solving is a primary tool for quality improve-Return on Cornmon Equity-1991 ment. Some 180 employee teams are exploring ways to improve tJ 6% 12.2 % . our performance and cost effectiveness in dozens of orcas such , 11 as l os environmental protection, powei plant efficiency, and fuel , inventory management. During tne past year, our quality . improvement teams:
, 'a
+ studied one of our key employee benefit plans and recommended ; .,
improvements that are expected to save S200,000 annually, l reducing costs by 60 percent whilc. improving the service to l imployees; Mod;an of Median of NEf$ }
- i >und wcys to reduce by half the duration of a planned "'gg, $,5l,,,, {
N, rk UMmes maintenance outage at the Bear Swamp pumped storage facility, { reducing replacement power co',ls; and Wisu
- implemented a computer based system that reduces paperwork, time, and costs associated with installing electric service to new ;
customers. l 3 i l
- . - . -,.-.-~ _ - .-....-.~..-__ - . - - - - - _ - - - -. _ - . - - - -
1 l' l li.e lorgest single challenge to our service in 1991 yas Hui tone Bobin August.This stormleft nearly one third of our 1.2 million customers in Rhode Island, Mossochusett5, and New Hampshire without power. Through the total commitment of our line crews, customer service representatives, engineers, and many other employees, we successfully restored service to half of these '
~
- , i.,
customers within 24 hours. By the second day, help was arriving p from os for away as Virginia, Quebec, and Ontario. With this
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assistance, System employees restored service to all customers i within five days. While our line crews worked all hours of the day
- f. .
and night, sometimes in the downpour of a second storm, our
- customer servia personnel answered more than 100,000 calls.
The overall eff.nl by our employees has been praised by customers M" '. p and public r eficials. We are grateful to all of the people who, yet again. demonstrated their commitment to keeping the 7 , e 7. - lighis o'.. Now inits ninth year, our all employees goals program is de signed to focus our employees' talent and commitment on the in the off ermath of Hurricane Edo, objectives that have greatest volve to the System. Agoin in 1991, System line crews such our employees earned bonuses through this program f or meeting ( os this one were loined earnings per shore, customer cost, safety, and other operating by crews from outside New England to replace goals, hundreds cf utility potes % di tb 's h i im e doble and repair thousands wherever we con. In 1991, we initiated intensive efforts with of mites of wire, commercial and industrial customers to improve power quality, working both on our own f aciliN ond within customer f acilities. In the residential sector, we con now respond 10 customer calls in 140 longuages through a special telepi.one service. With growing Hispanic and Asian populations in our region, this service hos been very popular. Our residential space hooting conservation __ ' ' ' - " - - ' - - - - - - . . . ~ _ _ - _ _ _ _ _
programis helping electric heat customers control their bills. Since these customers have seen significant cost increases, this help con ; , be porticularlyimportant. Our surveys show the importance our customers place on . reducing environmentalimpacts. In 1991, wn took o critical step .n meeting this expectation by developing our new resource plan, " NEE SPLAN 3: Environment, Economy, and Energy in the 1990s." Through this plan, we intend to substantially reduce our emissions over the next decode; hold overage rate increases to no more than the level of inflation; and maintain a reliable energy supplyin a competitive marketplace. A summary of NEESPLAN 3 con be found on pages 611 U" ' "9'*' During the 1990s, the companies that succeed in the electric engineer, supervises utility industry will be those that moet the combined challenges ,h,monie ,ing.g,h, Pressure and tempero-of environmentalimprovement, cost control, and increased lute *I PP I eline gas competition. N E ESP'.AN 3 stakes our claim to leodership in flict Ivets Bt cyton Point meeting those chc%iges. u n;,4, d o cm3 3 o N Joan T. Bok Chairman .
./ VA John W. Rowe i
President end Chief Executive Officer February 27,1992 5
E NVIRONME NTAL IMPROVEME NT As part ol N EE SPLAN 3, we substantialimprovements to the plan to ruduce weighted net air appearance of the power plant and emissions from our operations by on the surrounding river front, estimated 45 percent by the year Our Brayton Point Station Unit 4 2000. This reduction takes into in Somerset, Massachusetts, has account emissions from allof the been modified to enable the burning owned or purchased generating of natural gas ris well as oil. Using sources serving our customers 05 well gas of Brayton Point 4 is a vital ev as actions we may take to of f set component of our plan to meet state 9 those emissions. Greenhouse gases and federal acid rain regulations as _
* . including carbon dioxide (CO,) as well as our long term environmental well os regulated emissions like sul. commitments.
g \I ,
, 's fur dioxide (SO,) and nitrogen Also contributing to our air exides (NO.) will be included. emissions reduction will be:
'f*
q 'a , The 45 percent figure is based
- . the use of lower sulfur cool and oil; e ,, , / ,. on the forgets we have set to reduce s
r specific air emissions and the relative . now supplies of energy obtained
/l '
. weights we have assigned to each of from non-utility generators, fueled them. Changesin the relative values primarily by natural gas; would result in a modified overall
. continuedleadershinin consenation e..
S percentage reduction. and lood management; A key contributor to our envi- _ Licensing and parmit- ronmentalimprovement will be the . initiatives to offset the effects of ting ors nearing comple* planned expansion and modernizo- emitting greenhouse gases such as
' ' " ' * ' "' P lanned tion of our Manchester Street Station CO,; and Manchester Street in Providence, Rhode Island. This stoiic.n powering
. purchases from new renewable project in Providence, old 140 MW plant willbe rebuilt ,
Rhode Island, ener9y Projects. into a state of the ort 490MW combined cycle f acility. It will then We are currently obtaining rely primarily on natural got, which about 930 MW, or 17 percent of our emits virtually no SO, and produces overall capacity, f rom hydroelectric 30 percent less CO, per kilowatthour power, a major ior m of renewable than oil fired generation. The resource, and are obtaining 155 repowering project will also include MW from waste to energy facilities, r, ,- _ _ _ _ _ _ _ _ - _ _ _ _ _ _ _ _ _ _ _ _ - - _ _ - _ _ - _ _ _ _ _ _ _ - _ _ - _ _ _ _ _ _ _ - _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ __
. e . Atop a newly-ref urbished precipitator at Solem Harbot Stotion,
- Andre Lemoine (lef t), N *
- working foremon, ,
ond Timothy Brennon, mechanic al enginee r, - prepare to make a final - check el the metal . . plates that intercept - osh before it con enter - the Unit 4 stock.
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in December 1991, our wholesale average rates to ultimate customers f generanon subsidiary invited not increase more than the overall proposals to develop renewablo inflation rate over the period 1991 energy projects including wind, through 2000. While this does not
- l. solar, advanced biomass, and mean we can keep price ine.reases methano recovery to explore the below the levei of inflation each
, commercialfeasibility of these tech- year, we believe the goalis achiev-i<
- nc,logies in our re0i on. Wo intend ab!e when viewed across the decade.
I to purchase up to 40 MW based on We now have behind us most of the , . 1 a the economics and ex perimental rate increases necessary to pay for i value of the proposals received, our conservation programs and for . u (g We also plan to develop several the power purchase commi'rnents ,
} .jl pilot programs in 1992 to evaluate modo in the 1980s. .- M.s* -
[ 1 methods of offsetting greenhouse gas The Systemisimproving its
^ '
emissions. These pilot programs may budgeting and cost monitoring pro. , l h ja include tree pianting to absorb CO, cess to help achieve the new rote - j from the environment and the goal. Our five year budgeting and recovery of methane released in the planning process will serve as an , 1 I mining of cool. "early warning system" that will
'4
- allow us to prevent car moderate actions that would result in signifi-C n' dePortures from our price !
CO ST CO N T RO t. B.coui, oilof our cool projetions. Stable electric rates will permit and oills delivered Since 1982, the N EE S compo-O *" ""'8 *i" U "" "' l nies have maintained on average the NE ES companies to compete rather than rail, we price for electricity that is within the more successfully with other electric hov. occ.i to both lowest c.ost one third of major New utilities, non-utility generators, and dom.itic and foreign l other energy suppliers and will help f u'i ma'b"'< which ' l England electric utilities. After sub-helps hold down our i stantially reduc.mginflation adjusted make our region more attractive to f uel costi. l electricity prices in the mid-1980s, prospective customers. Equally we have faced a 13 percent increase important, our new rate goal repre- : i in real prices from 1988 through sents a benchmark that will require : 1991 us to seek out tne most cost-effective . We are committed to stopping strategiesin pursuing allof our i the recent upward trend. With objectives, including environmental [ NEESPLAN 3, we set a goal that improvement. [ l l 9
- I l l 1
DIVE RSITY AN D REll ABILITY l
- l We are do. eloping on increas- fuels helps insulate our custome rs j l
I ingly diverse and competitively- from price and supply fluctuations. procured power supply to help us Cool, gas, oil, nuclear, and renew-f I rnect our fundamental obligation to ables such as hydro will all contrib. l I provide reliable service. Between ute to our balanced mix in the year .l
- 1990 and 2000, we expect to bring 2000. Natural gas is rising from j into service more than 600 MW of opproximately 3 percent in 1990 to !
l l new non utility generation copocity, on anticipated 26 percent in the year ] I lw . including co generators andinde. 2000, reflecting our recognition of
- i. -
l pendent power producers. This new the relative clean.. ness of that fuel
, ( ,
< generation will bring our total and its economical availability. Our j purchases from non utility sources pilot progroms will help us assess the l ,
yr to approximately 900 MW. possibility of a greater contribution
~
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7 ,
'. continue improving our own generot. These diverse resources will f l% '? ing facilities, including our thermal continue e include o strong conser. l
' . . .,'N' ,
votion and load management lj , generating stations in Mossochu. t0 , .; Je f setts, Manchester Street Station in (C & LM) component to reduce the l t r l - - Rhode Island, and our hydroelec- neod for more expensive supply side ,
- t. .
tric stations on the Connecticut and resources. In 1991, C & LM moosures , l' Deerfield rivers. These facilities will were installed in opproximately continue to represent the bulk of the 56,000 residences and 6,900 com-l resources we devote to meeting our mercial,industriol, and municipal . The System is using Infrared imaging on capacity needs in the year 2000. facilities, displacing the need for distribution lines t Their operating efficiency is therefore opproximately 88 MW of generot-locate hidclen " hot" critical to both our System's reliabil. ing copocity. We expect to avoid the ; spots thct could cause i outoges or equipment ity of supply and to the ottoinment of need for some 800 MW of generot. failure. Cheskin9 our environmental and cost gools. ing copocity by the year 2000
""""O''I' Y through C & LM. Energy efficiency We are pleased that in 1991 our Massachusetts, ore thermal and hydro units, respectively, will help us meet our environmental Michael McCollon (lef t),
o System reliability achieved or matched their 10 yeor goals, deliver maximum value to coordinator, and Frank highs for ovallobili ty, customers, and add value to shore- t Bryson co-owner "'
' ' " " ' 9 of AppliedInfrared ers' energy requirements f rom o financialincentives earned on ;
Tec hnologie s. diverse range of technologies and successful C & LM programs. . I 1 m
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- s. < Earnings were $2.77 per overoge shoro in 1991, and the return on commc.n equity was 12.6%. E in 1990 were $4.11 per shore and $2.36 ner shore in 1989. The 1990 earnings wereincreased by
$1.80 per shore due to the reversol of a portion of a 1988 write.down, which resulted from o rate settlement involving the Seabrook I nuclear unit (Seabrook 1). Excluding the effects of the Seabrook 1 odjustment on 1990 earnings, earnings for 1991 increased by S.46 per shore. The increase in earnings primarily reflects 1990 and 1991 rate increases for subsidiary companies. Also contributing to 1991 earnings was o $ 07 per shore gain due to the March 1991 sole of the unregulated oil and gas proper.
ties of New England Energy incorporatec'(NEEl) (see Oil and Gas Operations). The operations ' of these properties resulted in losse: of S:11 per shore in 1990 and S.06 per shore in 1989.
. Earnings of $2.36 per shor;e for 1989 included a $.16 per shore gain from the settlement of an
- t orbitration cose and the related sole of ou_r interest in a cool ship.'
r . /The annual dividend r'ote' 'was7aised by four[ cents per shore in May 1991 and is now $2.08 on on N,w )-
..$ onnvol basis. The ma'rke.t pr.ic'e'o. -
o . .. f hew Er@loid Electric Sys. tem (N E ES) common
- .. shores at yea W N pe . .
;t;5 w ~. 1991 was $32 ye pe. r shore /, comp.a. red. with, $26, e at -the . -end of.1990.
n
... c anm , .s 19 ~ ' v./ Kilowatthour sale,s-to.o.l.t.imate ~. o . c.usto..me.rs
- x. - de,c,reased by.1.2 percent in 1991. In 1990, k w a4 . .
y- -
. i #c?4.0 percent per year. Due to a substantial,s ow.o.rs end so!esincreoied by 0.3 pe.rc.e_nt.;s .
For th o,e e-five . . . ged,.9
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f ire f.oro continued decline _irikilo'watth.E.w sol 2 g- s'fo.r 1992. ', i%.n. , s C^ . - .- w o ..
'.A a N. ,s ... M..g . A- in 1991, we continued
. v n .. our c.ommitment to and expanded our. e S,f. f. . g monogement (C&LM). Du*ing tb4 year,:.s . ewe spent a total of $92 million on C&LM and have hi < ,, , ,
. t ,,to spen.d $ 108 million min 1992.,Our.C&..LM progroms. provided benefits not only for our custo.m. er
, ', w for our shareholders as well.,1,n 1,931, earn ip, included op.pruimately $7 million (before tox) of _
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incentives relating to these pr' grams lWe have received regulatory opprovals that will give us thof o
$ [%j ' ' 4, r 'YI 'l*ra; opportunity to continue to'ecirn.i25tiveiin'1992 .[. I. ? JJ , , ,
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i , M.sr b.; y MBv. As vpa.rt of a 1988 NEP rote s.v.tlement,$11, issues assoc.iated.%.h.N. wit E e.P'.s.inv.estment. . ,in.Seab..r t < 3 ..m,.m y mw ,m
~b lved 1988-4.. . e%.;g. .c.. yt roug : ,e.cem, er h hD 31. ,.19'87 e 4. . . e were rs so,w,.,R,aecovery,of
- e. v. - ; Seabrook -
.1,costsincurred .y . . since : S e, . . . , . n .4. Wf. s. s . q:was covered. by a separat,e.F.ede.ra.l Ene..rgy~Regu,la. -
-. tory,w ..Commission (FERC) settlement w+ in conne
,.,:L' ; 7.Ewith N EP.'s W.11 rote filingsee,Wh)lesol ,
(v f R , ote;Activijy).VMQ , . O g .' O , 4 c; , . a llylimited s a. . -. . - . ~ o .~
.Th. e 198. 8 se,,ttlement h, d,initia,z ww'n.N.E.<P's Seabro
. e. . w ,+,
arch. .g
.@.# . , , seven years an.d.five mon.ths.+co,m, m ing M. r ,1988lThe m . settlement ' also required that.i.n 4 t.he. event..
. y - .
.; MF r . c.o' c' ell.ation of thew.ce unit,'N. ~EP12w,menc%ou_ld re.provided n v ra.t.e.s
- m. oby.S million fo.r f.ive yeors, but
- - . we that if.b..
- '.. ..w.. cr .- % ..
tl we#J :the c unit we.ntn, ..int,o ~ servico,' .~vN EP,c..ou,lds. incre.ase +.rates b/$ 16.8 million for five ..years.
- , , r n -Th W
, e, x . ment og'r,eement result'ed~in .m a $s179 ofter
.,toxm,,ilh:on.w wri.e.down ($260 million before
.~ ---w tox)in.1988 of q . "
w
. .s n,~n.a .
- ggd P n,NEP's
...,m.a e.4 r w.m Seabroo,k sv .
M o 1.w inv.c.mestmentw,w m
. + .
The write.down - m - as,sumed t.h.. -a.,t
- - e w th.e -w.y. . r..wo unit
- l. .J:.y. . .av..Ms.u.f.t.er o S.eabroo,kjl.en.t.ere.d o c.w,.mmercial s.ervi.ce in 1990, N.E P. . recorded Sdjustment s - 22 m .w. s . .
'3 es, em.d@# reversing a portion ofwrite,.d.own -s.the.#w n t.ak.c'in en m.
1988. - - v The. se~odju.stments increased net income w
.x
'a..
.a djustm. ents were
, 4.. $ 115 million of,ter tox ($,13(m.il. lion.be,. fore tax) recordeS i.n..the o . , : . r t,he year ended 1990.7u .,c, p W. w .Th theincorneother ,m.m.or $cr.1.80 pe
.c - > .
.s . _. .. m .w .
- s. .
W:. m; 4..t.x. v
. s u. nr,eomo n sect, ion.of statement; .
.- n -
- w. -
- 7
. In Febr.uary 1991,.-Pow EUA.n. r. .er .g Co,rp.~~ora. tion,(EUA Power)v -, a. ,12 ~ percent joint o .
; filed for protection fromits creditors under Chopt,er.11 o
,EUA. .g
- Power failed to. fund its shore.of monthlye.Seabr.ook 1 operating and capital costs. Subject to .certoin lim .
EU A1.,'.
.e. e, . .. -
. - s - .
, totions, two joint. owners of S.,eabrook'1,'that are not offiliated.with N.E P, have agreed to
~
' Power up to $ 15 million to cover its mcinthly obligotions to Seabrook 1; This sum is currently.- . es
~O. .
6e sufficient to cover such oblig'otions until the summer'of.1992.'A't this' time, no further arrangements . M [ have been made with respect to EU A Power'lobligations'. - i ? ' ; .
.~; - y. , .
.. m q .* .
+
% 4- t Lc. ~; ~. 6
. , . .y,;cm .r
',', k D j 6
[~ ' g .. b - #
, c v .,g; @; Q> c. ({ y' eE
'% E% * .* I ,
4 e. 32
- . ~ . .- - _ - -
. On October 7,1991, the U.S. Supreme Csurt declined to review the Nuclear Regulatory Commis. sion's (NRC) licensing of Seabrook 1. The only outstanding appealof the license is pending before the l NRC. It was brought by opponents of Seabrook I cho!!cnging on NRC Atomic Safety and Licensing i Board decision that adequate provision had been mode for sheltering persons who might be on the ! beach near Seabrook 1 of the time of onincident, l Because of the highly controversiol noture of nuclear power in general, and the Seabrook plant in par.
! ticular, many challenges to, and investigations of the safety of the design, construction, and operation of the plant have been raised in the post and are likely to cont;nve to be raised in the future. N EP does not l
believe that the currently pending appeal Cil result in Seabrook 1 bein0 permanently withdrawn from j i service or concelled. However, if it were, either os o result of currently pending or unor 'icipoted future ; j events, N E P could be required to ceose collecting revenue permitted by its 1988 ro's settiement and/or ! l make refunds and lower rates for five years, depending upon the circumstances. A write.down could be ( j required at that time (see Note C). ( ) NE P has a 30 percent ownership interest in Yankee Atomic Electric Compcny (Yankee), which owns and f 1 operates a 185 megawatt nuclear generating station in Rowe, Monochusetts. The station began l commercial service in 1960. At December 31,1991, NE P's investment in Yankee was approximately l 56 million. On September 30,1091,the NRC stoff recommended to the NRC Commissioners that the ! Yankee facility be shut down, pending review of concerns os to the pc,ssible embrittlement of the facility's ; I reoc+or vessel. Yankee began shutting down the facility the next day. On February 26,1992, the Yankee ; board of directors decided to permanently cease power operctio, of the facility and, in time, decommis. . sion the f acility. Yankee intends to seek FE RC outhorization to collect, over the remaining teren of the plant's present N RC operating license, the ongoing costs of maintaining and decommissioning the unit as well as previ. ously unrecovered plant investment. The license extends through July 2000. Although these costs are i substantial, they are erpected to be less than the costs of continued operation. NEP believes that the FE RC will continue to ollow it to recover from its custe,mers all costs billed to it by Yankee. [ I i I i Market t' rice Per Shore-Year End ($) Book Value Per Shore-Year End ($) ! 32 % , 28 %
?4 24 22 VI 22.17 21.25 21 43 l
R34 i h18,33 I l l l l l ! f l ! !
'87 '88 iO9 l90 !91 87 88 :89 :90 91 ;
13 l t I I
.4-., - . -- - .. ,- _ _. , ,. , _ . ..__,.,,...__mm._ ,,.y ,_ , , ,., , , , , _.
N E El participates in a rote. regulated domestic oil and gas ex pioration, development, and production
- program consisting of prospects acquired prior to Decembor 31,1983. No ne,v prospects will be ocquired under this program. N E EI has incurred operating losses since 1986, due to precipitate declines j
in oil and gas prices, and expects to incur substantial additionallosses in the future. These losses are being possed on to N EP under on intercompany pricing policy opptc ved by the Securities and Exchange Commission. NE P's ability to pass such losses on to its customers was f avorably resolved in N EP'; 1988 FE RC rate settlement. This settlement covered all costs incurred by or resulting f rom commit-ments mode by N eel through March 1,1988. Other subsequent costs incurred by NEEl are subject to normal regulatory review. Prior to April 1991, N E El participated in a non. rote regulated program composed of prospects entered into offer December 31,1983. Profits or losses on the non. rate. regulated program were borne by shareholders. In March 1991, N eel sold substantial ly all of the proporties in the program, resulting in a gain being recorded in the first quarter of 1991. During 1991, the System recorded earnings of S4.0 million from NEEl's non rate. regulated oil and gas operations primority reflecting this gain. The System recorded ofter tox losses of $6.9 nullion and S3.6 million on these operations in 1990
~
and 1989, respectively. . c.
; o . .- 0 On August 1,1991, N E P filed a $42 million rate cose with the FE RC. The FERC outhorized these new
. . . , ,. rotes to go into effect on March'1,1992, subject to refund pending its review of the requested increase.
As port of this filing N EP also proposed to recover through base rates $39.7 million of purchased power expense ossociated with Unit 2 of Ocean State Power. On Febrvory 14,1992, o partial settlemont of this rote case was filed with the FERC. If opproved, the partial 5,:ttlement would resolve all but one issue in the pending cose and eliminate ti.e 542 million rate increase. Among other things, the portial settle. ment opproves new depreciation rates proposed in N E P's filing, which have the effect of reducing N E P's overoll revenue requirement in 1992 by S 18 million. Under the partial settlement, the $39.7 million increase ossociated with Ocean State Power would still go into effect on March 1,1992. N E P had been allowed to recover these costs through its fuel clause since the unit entered service in late 1991.The partial settlement does not resolve the issue of the oppropriate rotemaking treatment for expenses associated with postretirement benefits other than pensions provided to N EP's employees (see New Accounting Standards). Under the partial settlement, th:s issue will be litigotea and decided by the FERC. , The FERC approved a settlement agrr ement in N EP's W-12 rate case, which allowed N EP to increase rates by $31,1 million as of January 1,1991 and also o'; owed additionot rote increases of
$21.9 million and $ 17.4 million to take effect as of November 1,1990 and December 31,1990, the in service dates of Hydro-Quebec Phase 2 and Unit 1 of Ocean State Power, respectively.
Effective March 1,1990, the F E RC approved a settlement in N E P's W 11 rate case, which allowed ' NEP to increaseits rotes by 539.4 million annually. The FERC oisu allowed N EP to increase rates by S25.7 million annually effective J une 30, lo90, the in service dom of Seabrook 1. This increase was related to tha costs associated w!th Seabrook i that were not included in the 1988 settlement. In addition, the FE RC approved a request to inciease rotes by $ 16.8 million p er year for five years, effective June 30,1990,in occordance withthe terms of the 1988 rate settlement (see Note C). Both the W 11 and W 12 settlements provided that if actual 1990 and 1991 sales varied from the estimated levels reflected in each filing; N EP would recover or refund the variance of up to S 17.4 million in each year. In 1990, actual sales were less tFon the estimated levels, and in 1991 they exceeded the estimated levels. Through 1991, N EP ocerved net revenues of $5.8 million under this rate mechanism. Effective October 1,1991, the t[ossochuse$tt[Departmen$ of Public Utilities (MDPU) opproved a settle-ment, under which Mossochusetts Electric Company (Massachusetts Electric) agreed to o $3 million rate decreoso. The settlement reflects the net effect of a $ 17 million increase in Massachusetts Electric's cost of service, offset by a reduction due to the correction of certain purchased power billings from NEP to Massachusetts Electric. Incivded in the reduction is $2.4 million, which represents the onnvol amount of
^' - - - - - - - - - a- x.____ ,___,__,__,__ _ _ _ _ _
o five year refund, recorded in 1991, of post base rate overrecoveries due to the incorrect purchased power billings from NEP. In addition to the rote decreats, Mossochusetts Elodrioecorded relvads of l $ 13 million of revenues it had previously collected related to these incorrect billings. Effective April 1,1990, the MDPU opproved a rateincrease for Mossochusetts Electric of opproxi- ! motely $41 million and opproved on additional $1 million effective August 1,1990. In 1991, the Narrogonsett Electric Company (Norrogansett) filed a genero! rote increase with the Rhode Island Public Utilities Commission (RIPUC), which would increase rotes by opproximately
$ 14 million. If opproved by the RIPUC, the rote increase wou'd become effective in April 1992.
The RIPUC opproved Narroganse+t's settlement of a July 1990 rote filing which resulted in a
$13 million rate increase effective April 1,1991.
Effective January 1,1990, the RIPUC opproved a settlement of a Narrogonsett general rate increose request, which increased rotes by $5.8 million. In addition, certain discounts offered by Norrogansett, omounting to opproximately S4.5 million annually, were discontinued on Jonvary 1,1990. Effective June 1,1990,the New Hampshire Public Utilities Commission opproved a $1.7 million rate Increase settlement agreement for Granite State Electric Company (Gronite). In December 1991, Massachusetts Electric, Norrogonsett, and Gronite received opproval of their 1992 C&LM programs from their respective stote regulatory commissions. These opprovols will allow current recovery of budgeted 1992 C&lM expenses of $89.5 million, with a reconciliation mechanism to _ odjust for differences betweer. octual and budgeted expenditures. The opprovals also give the c ompo-nies on opportunity to earnincentives based on the results of each company's 1992 programs. Mossochusetts Electric, N arrogonsett, and Granite previously received approval from their respective state regulat:ry commissions to recover estimated 1991 and 1990 C&lM expenses, including the recon-ciliation mechanism referred to above. Actual C&LM expenditures subject to this mechanism in 1991 ond 1990 were $77 million and $50 million, respectively. The commission orders also allowed the componies on opportunity to earn incentives bosed on the results of their 1991 and 1990 programs. Earnings for 1991 and 1990 include opproximately $7 million and $4 million (before tox), respectively, ofincentives recorded by these companies. On August 19,1991, Hurricane Bob hit the System's service territory, cousing customer outages and significant domoge to distribution and transmission facilities. Massachusetts Electric and Narrogansett deferred $5.1 million and $7.6 million, respectively, of storm costs based on the expectation of recovery of these costs through rotes. Based on post precedents, Mossochusetts Electric expects to recover its costs over several years os port ofits next rate filing. Norrogonsett previously establirhed, through the rotemoking process, o storm contingency fund which had occumulated to opproximately S 1.6 million of the time of the storm. Costs in excess of this fund are recovt roble in future rates under the provisions " of thefund. Return on Common Equity (%) Regulation-Percent of 1991 Electric Revenue 14.9 is
- 1s e O FederalEnergy 11 l' Regulatory gi f Commission 5 Massachusetts O Rhedelsland D New Hampshire i t i i87 f88 l$9
; 90 91
^s lf.R.57.Y."l.?,r*"~~
- s. .. . ... .v .n , . .~~'*-'
..ms w sw.s.,
15
~ - - - - -- __ _ _
- - - - ~ ~ _ - . - - _ - _ _ - . - . - - - -
9 n .w . m a.y , ,, . . , < 7 . , , ,- -.n
. N E ES and its utility st inHiories have been contacted,~ or have had legal proceedings initiated against uo .them, by federal and state esironnie'ntc}l'agedcies or b'y private porties regording the cleanup of sites designated as containing hozordous, waste..While the cost to dean up these sites cannot be estimated,it is beliwed at this time that such costs wi!! not be material (ten percent of common ecluity) to the System's financiol position (see Note F). Although~ rote recovery may be sought for cleanup costs incurred,it is uncertain what portion,if any, would be allowed in roles,'porticularly in circumstances in which N E ES, 4 -- . = , ., . v- r _ - ' ' - rather than ong of its utility subsidiaries, in,cu,rs tho,se costs. 4.'fv4 ' In recenmars, concerns have been raised about whether electiic ond magnetic fields (EMF), which occur nect transmission and distribution lines os well as near household wiring and oppliances, cause or contribute to adverse beoith effects. Numerous studies on the effects of these fields, some of them sponsored by electric utilities (including N EE S subsidiaries), have been conducted and are continuing. A few of the studies have suggested associations between certain EMF ond various types of concer. Other studies have not substantiated such associutions. It is impossible to predict the ultimate impact on the System and the utility industry if further investigations were to demonstrate that thn present electricity delivery system is contributing toincreased risk of concer or other health problems. C________.____ _ __ _ _ , __ _ _ _ . _ = ~ - . , A bylow was opproved in 1991 bv the Town of Millbury, Mossochusetts, w hich would have established a mognetic field stondord for tronsmission lines in that town. Millbury is a hub for N E P transmission lines. The bylow was recently held invalid by the Mossochusetts Attorney General. The Maisochuse+ts l
- Supreme Judicial Court has previously struck down ottempts by municipalities to regulate transmission
< lines. Ordinances placing a three year moratnrium on the construction of transmission lines posted in
- three Rhode Island communities and have been challenged by Narrogansett before the RIPUC and in j state court proceedings. The Superior Court of Rhode Island decided that one such ordinance was invalid. The Superior Court also held that the RIPUC does not have the authority to review this ordinance.
T he decision is on oppeal to the Rhode Island Supreme Court. Adoption of similar ordinances hos been i discussed in other Rhode lsland communities, j On November 15,1990, omendments to the federal Cleon Air Act were signed into low. This low i requires a significant reduction in the nation's annual sulfur dioxide (50 ) and nitrogen oxide (NO.) 3 i emissions by the year 2000. Although NE E 5 subsidiaries are not subject to the first phase of the acid ! rain provisions of the federollow that will become effective in 1995, N EES subsidiaries are subject to the Massachusetts ocid rain low that is effective in 1995. Also, federal vzone nonottoiriment requirement. wili tikely offect N E E S subsidiaries by 1995, in on effort to comply with the Mossochusetts !aw, the l j N EE S subsidiaries have been planning and implementing programs, including C&LM initiatives and
- use oflower sulfur fuels, to reduce 50, emissions of generating stations. To meet the additionollederal l requirements, NEES subsidiories plan, as necessary, to installlow NO, burners and burn additional low sulfur fuels.
i The System expects toincur onetime operation, maintenance, and capitoicosts of approximately $ 120 million between 1991 and 1995 to comply with the cleon air requirements. To date, the System , i j has expended $ 18 million in connection with Mossochusetts compliance requirements. In addition, l increased fuel costs are expected to be incurred starting in 1992. These ongoing fuel costs are estimated ; I to reach on onnvollevel of $22 million by 1995. ,
- l. Under the federol Cleon Air Act, stote environmental ogencies must develop requirements to address l ozone nonottoinment by November 1992. An advisory boord composed of environmental officiols from i eight northeastern states is considering a recommendation that would,if odopted, impose extremely
, stringent NO, emission requirements. In the went these requirements are adopted, the System would incur substor o ialodditionalcosts. , in November 1991, the System announced NEESPLAN 3. As port of this plan, the System will be j exploring methods of offsetting emissions of greenhouse gases that have been associated with the ; worming of *he global environment. NEES plans to implement pilot programs to evoluote emissions offsets. , I ' .. .g ' . , ~ ..( 5 Where Each Dollar of 1991 Revenue Went (%) ; ' ' ,' ;. h o' 7 NEES Energy Mix (%) i .n.' '*'. .; (@ . <~ f .. .a t , Q4,. - Mg . s D Fuel' 4
- Q4 .,, y g - - - -
g O Purchased Power Q^'k h yg 14 n . 18 Renewables .' l Q* h4 g ..% .j' y@c$ - g (excl. fuel)'<- c. V.3.40 t , (non. utility)J . s ! O Woges and Benefits D Othe'r O S M) g$ b i E II M U~ fh #T%9f 73 ^Pb
- g u;.Nucin.rN' e W. '
I D Depre lotlen and .s ' .s Amortisation , C , ; uj Oil._ . g 7 ; ; 48 ' * 'I D ' Tom'es Y 42 f m h,y@.4.ff I a t , in, ore,, ond . "N . , %.Vi f Preferred Dividends . -m $,. O rarnings-commonshares *d..%4 gr - O ' ' ~i7el \ t j.3 tei . c. l i r 17 ! . . ,aa, n r. c - wi L.s c - - ~ . . . . , . . ,, . I nent beneht costi other than pensions, principolly heokh Currently, NEES subsidiaries re$r'd postretire core costs, when paid. New occounting rules, issued by the Financial Accounting Standards E,oord, effective in 1993, will require employers such as the NE ES subsidiaries to commence the establishment of o liability during the working years of employees for the empected cost of providing postretirement benefits to those employees. T he impact of the new rules will significontly increase onnvol cost. Had the new accounting rules beenin effect in 1991,it is estimated that the occumulated postretirement bene. fit obligation would be approximateiy $400 million at December 31,1991, and annoul cost would have increased by approximately $50 million (before tomes)in 1991.The N E E S subsidiories are seeking to recover these c:ats through rates. New accounting rules, which will be effective in 1993, will require all def erred tax balances to be restated at the current tax rate, currently percent, and will require any excess to be recloisified from o def erred tax liability account to o customer.related liobility occount. It is expectad that, throvgh the reg. vlotory process, excess reserves for deferred taxes will be poised back to rWomers with no significant impact or, net income. The poss. bock of such excess deferred tax reserves commenced in 1987, with the reduction of the corporate federalincome tax rate. . Capitol requirements for 1991 and r..oiections for 1992 are shown below: , .n. - _y , 1991 1992 Year ended December 31 (millions of dollars) < Cash construction expenditures J - ~- [i e *
- S193 -
I $300 Oil and got exploration and development' 33 20 Totalcapitolexpenditu es . - 226 .320 . Maturing debt ond prapoyment requirements #. '4 7 + + 105 - 20 - Ocean State Power equityinvestmentj y ' - Total copitoi requirements L o 9 _ $293 $425 Cash frc.m operations excluding dividends . S315 $310 The f unds necessary f or cons'ruction expenditures ir! 1991 for NEP and the retail subsidiories were , ~" ~ 2 [f i: y primarily Norrogonsett andprovided Granite tconitructio .- by.v net nditurcashI'roWe'p@.erating Es wer.e also provided from the proceeds oflono m . , . - e , 'octivities term . ^> oft y f. M. .s. ,i~ debt issue's. In .1,991,m. No.rr.oga,nsett e issued S65 y millio, n,c,i f.irst m.,o.rtnoge. . . e.c , bonds to reduce e /NEPt 1 ., ;;- : ' debt, fund construct.i.on ,ex, - - - ~pen.diture,,s7.e
- .d. v ..
n re m,de*em. S40 m, illion d, its Series P f.irst . . ,~ , . a mortgage
- 4. * ' M u.
,p, redeemed $90 million of outstand,ing,Sy.m.,Brnd ries - .c SerieQ,en.eral a,nd refunding mortgage 4 bond.s- m. '.,p- W. N. EP - alsoissued o $50. sv of mill. S ion.r wey% a mri 1,eries T vanoble rate genera, . land . . re, -; fund,ing S p. mo. rtgage b 4 . ., , '; support toxoble pollution controi revenue bonds.Gronite W issued $5 million of notes to r 1?.r?Mhmv ~ y~ -L J.w FW,jshc;rt. Int term' ~.- debt . oridfundY.onst.M. . _ioYe,'M_EiEred,yh'[xT.s. , A fl. ,, .. n.y. ; ,w.erna,,..lly '/r .. .. v , gener.ated -- . , ..f n un.dsn -r are expected g w.to. meet . .- appr.o.xima.telya80 p.erce.m m s n .. A. exp.enditures for;N EPs and.th,e .. , ,e - retoil subsidio.r.iesiT.he retoil . ~ s,ub,sidio. rie. s
- y. .
alon g. term debt.,in 1992. w. Inc.luded - in th.at.amou.ntjs u w ~. $25 r'ni.l.li,on s e oib. sw, m.en.ds.v thet Mosso ,?~.. .w .. .. . vn ..Th,ese o d.n,l il
- b. m .n.c1992.s bear.intere.st rotes ranging from g
- @o ;, ; ?<
- b,1, .:.M co.rnmitte.d .
ue, a r .w ~ toiss.c,duri.ng r morket w condition,4 the first .s ws/ erter.,oNEP plons =..n. .n to refinance S90amillion , e w s of long e %' ,S.,875 to 8,.55 percent.' De 4.I , dk. krm ~ deb ~ inlot,e'1992 or%pending @ e M A M4..iyM3[fhhp [.:f.ydf k k $ h M h d c,, . Net cosh. f rom o. perating:ac.tivities, terth o. m .e pc,ym.e.nt,o,f, divide.endi, p.rovi.de'd the , O. . - . .. m. . +, . : - - vw - New England Hydro #Transm,,issi.on Corpor.atio.'n.a . .an.d m Ne.W En .v # Company, Inciennstruction expenditures. these companies issued In S215Ay million1991',c of long. term : % glan 1 . .. m.~wie .. . notes to o group of insti*utionalinvelters}The pSces$s dere'use'd hrincipo,lly toE refinor i=..'.' 'e c utstonding . .c ,- - ar v.w 3 . y c. .. ,, borrowings under a revolving credit ogreement.J.r;L. Nw q3 M
- t. ..13 n p#q,. -.L
%.. . , ,pM. < g ; i .l -> or &. . y ..;c. <g'c, . N-ri g fg.p.;g s. w . ..y g. ;.p.$ . y .g.f mp &jen .pg g:,..,y'- q, , . g .b,, , , , n , C .; --.n g.7, q . t . ~ ,l 7 rl* 3 * ~ t- . g.ws .fy,,w gQ?to. y : *)in,w.3 J, .*,c. .* .* z ...~ g.s; . 7cn .gJMg+v b p... * ; . ' *.n f : 1 4 ,d W %n p .f Q ;r g y tq @r, bm . , f ;. .iO .s*g.&%,.&. .t~ --y' ' %W: p .,.e l~y. :Y. l . A gg .c..: e e'7; 5 Qg,g\g. . y4 .. s g. , . .j > *s 47, e 3 t .- .* 4 * . . . . ' ' C ' +- O. {
- v. ;t ? i J n. .Hfx .
I . - "i -- _ -- ww. , . i Net conh f rom operating activities pmvided all of the funds necessary for oil and gas em penditures. ~ ! ' h.. NE El's 1991 oil and gas es pGrotion on'd development costs include $22 mi lion el capitalized { . g ., intereit costs. n,s . y'.7 P {* /f 7 .,, i ".,3, N E ES raised $15 million of equity in the first quarter of 1991 through the isivonce of new common i , i shores under its dividend reinvestment and comrion shore purchose plan and employee shore plans'. . _ , 7 In March 1991, NEES begon meeting the requirements of these plans through 9 pen market purchase: l, ' o ., Sp.; of NEES shores. During 1992, NE ES plans to continue meeting plan requirements theough open i ,, ;u, , . , j . . . 47, market purchaset. , n .5.,,-, e ! $ :,.i , . . .} , The SystenPs~mojer proposed con.truction project is the repowering of the Manchester Street Station in Providence, Rhode Istand. Narrogonsett currently opcrotes a 140 MW electric generating station at Manchester Street; the units went into service in the 1940s. To facilitate this joint N E P/Norrogonsett i project, Norrogonsett plans to sell o 90 percent interest in the existing station to N E P in 1992. Under i the proposal, t Lis genciating statier,, which is presently 'veled by residual oil cnd natural gos, will be l converted to be primotif y fueled with natural gos, with dist:llate oil as backup, Repowering will more than triple the power generation copocity of Manchester Street and substantially increase the plant's thermal efficiency. The total cost for the project is estimated to be between $600 million and $650 million, ; i including AFDC and related transmission work. It is esi. mated that NLP'. <hore of this cost will range between S475 million and $520 million, with the balonce being incurred by Narrogansett. Ucensing of l the project is nuoring completion, and construction is scheduled to begin thereofter, with completion j l l l p'onned for 1995. l As of December 31,1991, N E ES and its consolidated subsidiaries did not have any short. term debt < I ! outsronding, but had lines of credit with banks fotoling 5279 million. These lines of credit are available to I provide liquidity support for commercial poper borrowings, and for N E P's Series R and T general and ' refunding mortgage bonds and other corporate purposes. Cash and temporary cash investments of , December 31,1991 were opproximately S66 million. - ; -[ t - y'H' . s ,.. ,,. l : a't. ,s-
- . ~ ~
v
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! . l .. fI$ . , Sales so Ultimate Customers ' N/[. . . ' . 1}, (Millions of Kilowatthours) . , Y .'.: .N'umbr . < .- of Customers (Thousands) W.. - w.- . Tc r " W' S " s. .hw
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+ o e .. C - . .u _ - . . < h4 -is W , $ led-r , deMar*>7 4Md ish.imi O.M a M .e 4 e u Se=' *e- w. ( I i New England Electric System and Subsidiarics Selected Financial Data Year ended December 31 (millions of dollars, except per share dato) 1990 1989 1988 1987 1991 Operating revenue: Electric sales (excluding $1,358 S1,282 S1,084 S 996 S 942 t fuel cost secovery) ' ' 585 523 520 449 453 Fuel cost recovery 65 42 37 28 Other utility eevenue 114 37 39 59 46 [ Oiland gos soles _ _ 59 Totoloperating $ 1,469 $2,094 S1,909 S1,705 S1,541 revenue $ 180 S 262* $ 139 5 (54)* S 171 Netincome (loss) 1 Average common shores 64,916,599 63,818,386 58,836,246 57,026,739 55,377,967 Per shore datos $ 3.09 S 2.77 $ 4.11 ' S 2.36 S (.94)* Notincome (loss) S 2.04 $ 2.01 S 2.07 $ 2.04 S 2.04 Dividends declared Return on overage 12.6 % 20.5% 12.6 % N/A 14.9 % common equity S4,408 $4,116 S3,718 S3,970 brolonets $4,450 Capitalliotions S1,056 S1,191 $ 1,441 $ 1,380 $ 1,212
- Common shore equity 63 62 54 Minority interests 162 162 162 162 162 Cumilative preferted stock 1,387 1,548 1,680 1,639 1,434 Long term debt '
- $3,214 S3,284 S3,067 $2,652 S2,740 l lotalcopitalization 'otal electric soles 20,206 23,502 22,561 23,069 21,487 (milions of kilowatthours) I olet to ultimate f.us omers (millions 20,113 18,990 20,470 20,727 20,665 < II.ilowatthours) Cost per KWH to ultimate 7.04 8.99 8.27 7.28 6.92 customers (cents) System monimum oemond 4,124 3,798 4,250 4,059 4,225 (megawatts) Electric copability 4,921 5,645 5,627 5,480 5,268 (MW net)-year end 5,478 5,256 5,533 5,666 5,580 Number of employees 1,204,189 1,257,213 1,256,656 1,253,425 1,233,519 Number of customers P- '1990 and 1988 indude C1.80 or.J S(3.14) per shore, respectively, resulting from the 1988 rote :ettlement related to Seabrook 1 (Note C). . l - M f New England Electric System and Subsidiaries Statements of Consolidated Income Year ended December 31 (thousands of dollars) 1991 1990 1989 Operating s evenue $2,094,378 $ 1,908,826 31 705,488 Operating expenses: Fuel for generation 268,022 294,)/1 295,132 Purchased electric energy: Fossilandinterchange 360,168 294,599 262,792 Nudeor entitlements 111,105 110,289 104,989 Other operation 428,652 385,148 290,532 Maintenance 148,266 137,117 1.t i,582 Depreciation ond omortization 278,126 259,115 156,681 Taxes, other than income taxes 105,332 92,596 83,156 Income taxes 103,702 81,920 49,286 Totaloperating expenses 1,803,373 1,654,955 1,463,350 Operatingincome 291,005 253,871 242,138 Otherincome: Allowance for equity funds used during construction 1,961 14,387 12,281 ' Equity in income of generating companies 10,370 6,836 6,288 Other income (expense)-net 16,020 (2,961) (504) Seabrook rate settlement odjustment (Note C) 133,590 Federal and stete taxes on Seabrook rate settlement
- adjustment (Note C) (i8,503) ,
Operating and otherincome 319,356 387,220 260,123 Interesig interest on long-terr , debt 118,846 116 565 110,535 Other interest 3,308 267 12,.~ 40 Allowance for borrowed funds used during construction (2,330) (17,486) (17.465) Totalinterest 119,824 106,346 105,410 income offer interest 199,532 280,874 154,/13 10,572 10,572 10,572 Preferred dividends of subsidiories 9,150 8,252 5,491 Minority interests Netincome (Note C) _S 179,810 $ 262,050 S 138,650 Average common shares 64,916,599 63,818,386 58,836,246 Per shore dato: I Netincome $ 2.77 S 4.11 $ 2.36 Dividends derlored $ 2,07 $ 2.04 S 2.04 The accompanying notes are onintegrol p;rt of these finor clot statements. 5 I l l -. New England Electric System and Subsidiaries Consolidated Balance Sheets At December 3)(thousands of dollars) 1991 1990 j . - - . . . . - - Utility plant, at originolcost $ 4,357,758 54,211,315 Assets less occumulated provisions for depreciatior ond omortiz ation ._ 1,344,465 1,246,501 3,013,293 2,964,814 214,225 261,241 Net investment in Seabrook 1 under rate settlement (Note C) Construction work in progress (Note F) 93,680 75,454 Net utihty plant 3,321,198 3,301,509 Oil and Dos properties, at ivil cost 1,179,883 1,217,761 Less occumulated provision for amortization 694,750 _ _ __ 670}9 4 4u5,133 547,267 Net oil and g;s p operties investments Nuclear power companies, at equity (Note D) 45,479 45,959 Other subsidiaries, at equity 50,973 32,690 Other investments, at cos. 18,205 17,148 -- 114,657 95,797 Totolinvestments Current assets: Cash, including temporary cashinvestments of $63,300 ond $19,100 66,133 23,208 Accounts receivable,less reserves of $9,487 and S7,507 263,760 239,148 Fuel, materials and supplies, at overage cost 79,510 92,018 Other curre,a ossets 10,050 8,496 419,453 362,870 Total current assets Unamortired property losses (Noie H) 23,298 28,529 86,338 71,542 Deferred charges and other ossets $4,450,077 S4,407,514 . _ Capitolitotion Capit oliz ation (see accompanying statements): Common shore equity $ 1,440,421 S1,379,749 and liabilities 62,483 Minority interests in consolidated subsidiaries 63,283 162,528 162,528 Cumulative preferred stock _ 1,548,063 1,679,427 long term debt 3,214,295_ 3,284,187 Totoi copitalization Current liobilitiest 104,920 37,890 long term debt due within one year 136,686 146,333 Accovats payable 8,423 8,120 Accrued tomes 26,284 35,454 Accrued interest
- 37,986 35,167 Dividends dectored 66,582 _ 32,303 Other current liabilities 380,881 295,267 Total current liabilities 610,034 592,583 Deferred federal and state income taxes 105,319 113,902 Unamortized investment tax credits 139,548 121,575 Other reserves and deferred credits (Note F)
Commitments and contingencies (Note F) $4,4 50,077 $4,407,514 = = = = - = = = = = The occompanying notes are on integral port of these financial statements. 22 Now England Electric System and Subsidiaries Consolidated Statements of Cash Flows Year ended December 31 (thousands of dollars) 1991 1990 1989 $ 179,810 $ 262,050 $ 138,650 Op:roling Net income cctivities Adjustments to reconcile net income to nel cash provided by operating activities: Depreciation and amortirotion 278,047 261,977 258,767 investment tux credits-net (8,583) (24,314) (4,854) Deferred lederol and stole income :omes 17,451 50,484 (16,067) Seabrook rate settlement c.djustment (133,590) Allowance for funds used during construction (4,291) (31,873) (29,746) l Minori:y interests 9,150 8,252 5,491 Goin on sole of oil and gas properties (7,099) Decrease (increase) in occount s receivable, lessreserves (24,612) (34,656) (12,289) Decrease (increase)in fuel, materials and supplies 12,508 (18,628) (6,635) Increase (decrease)in accounts payable (9,647) 10,332 (20,091) 25,412 (6,525) 11,634 Increase (derreose) in othw current liabilities Other, net (14,880) _(11,665) (27,153) . Nel cash provided by operating activities $ 453,266 $ 317,844 $ 297,107 Inyssling Construction expenditures, exck ling allowance for cclivities Iunds used during constructiom Hydro-Quebec Phase 2 project $ (8,753) $ (36,091) $(319,197) Other projects (183,985) (182,249) (212,710) Oil and gas csploration and development (32,969) (59,913) (54,092) Proceeds from sole of oil and gas properties 22,954 (18,731) (13,515) 16,705 (Increase) decrease in other investments Net cash provided by (used in) investing v ctivities $(221,484) $(291,768) $(569,294) $ 15,349 $ 36,346 $ 138,515 Fin::ncing Proceeds from N E ES common shores issued Contributions to subsidiaries by minority interests 48,739 cctivities Dividends paid to minority interests (4,332) Dividends paid on NEES common shores (134,594) (129,575) (118,660) i 335,000 130,000 536,100 l Long term debt-issues l Long term debt-retiremer's (400,280) (51,629) (381,241) Net cash provided by (u.w in) financing activities $(188,857) $ (14,858) $ 273,453 Net increase in cash and cash equivalents $ 42,925 $ 11,218 $ 1,266 Cash or.d cash equivalents at beginning of year 23,208 11,990 10,724 Cash and cash equivalents at end of year S 66,133 $ 23,208 $ 11,990 P Supplementory interest poid less o.novnts topitalized $ 125,780 $ 95,042 $ 94.974 - Ini:rmeilon Federaland stoteincome taxes paid S 99,917 $ 85,556 S 61,860 Dividends received f rom investments at equity $ 12,434 $ 8,362 $ 6,959 i: The occc eponying notes are on integral part of these financial statements, i f ? - 23 New England Electric System and Subsidiaries ; Statements of Consolidated Retained Earnings ' Year ended December 31 (thousands of dollars) l 1991 1990 1989 1 l Retained earnings at ha jinning of year $ 592,807 $ 461,042 $ 443,798 I 179,810 262,050 138,650 l Net income Dividends declared on common shc.res (134,487) (130,285) (121,406) l $ 638,130 $ 592,807 Retained earnings at end of year __ f461.b43 . Consolidated Statements of Capitalization . At December 31 (thousands of dolfori) Common share equity 1991 _ 1990 Common shores, por value $ 1 per shore Authorized-150,000,000 sharei Outstanding -64,969,652 and 64,371,600 shares $ 64,970 $ 64,372 Poid-in capitol 737,321 722,570 Retained eorning5 638,130 592,807 Total common shote equity $ 1,440,421 S1,379,749 Cumulative preferred stock of subsidiaries 1991 1990 Shores outstanding_ Company Por vofue 1991 1990 Massachusetts Electric Company ' 4.44% Series 100 75,000 75,000 $ 7,500 $ 7,500 4.76% Series 100 75,000 75,000 7,500 7,500 7.80% Series 100 150,000 150,000 15,000 15,000 - 7.84% Series 100 200,000 200,000 20,000 20,000 The Norrogonsett Electric Company 50 180,000 180,000 9,000 9,000 < 4W% Series 4.64% Series 50 150,000 150,000 7,500 7,500 50 200,000 200,000 10,000 10,000 8.00% Series New England Power Company 100 80,140 80,140 8,014 8,014 6.00% 4.56% Series 100 100,000 100,000 10,000 10,000 4,60% Series 100 80,140 80,140 8,014 8,014 100 100,000 100,000 10,000 10,000 4.64% Series 100 100,000 100,000 10,000 10,000 6.08% Series 7.24% Series 100 150,000 150,000 15,000 15,000 100 150,000 150,000 15,000 15,000 , 8.40% Series 100 100,000 100,000 10,000 10,000 8.68% Series Total cumulative preferred stock of subsidiaries (annualdividend requirement of $ 10,572 1,890,280 1,890,280 $162,528 $ 162,528 for 1991 and 1990) ====.: == = == . == ....__..--._.,_..---._____m.. ~ . . _ - . . _ _ _ . _ . . . . . . - _ ~ 24 __ _ _ ___..__.__..m _ _ _ ____.__. _ _ ___ _ . _ . l -}. Long term debt (Note K) 1991 1990 Company Rote Moturity , Notes Granite State Electric Company 855% 1996 $ 5,000 $ 5,000 Granite State Electric Company 12.55 % 2000 3,600 4.000 Gronite Stoie Elec+ric Company 9.44% 2001 5,000 New England Energy incorporoted variable 1998 300,000 318,000 Hydro Transmission Componici various 2015 205,610 __ 205.000 l'irst mort gage Mossochuactts Serics f 5 % 1991 17,490 bonds Elertric Series G 4%% 1992 60,000 60.000 Company Serici H 4%% 1993 10,000 10.000 j Series i 5%% 1996 10,000 10,000 Series J 7%% 1998 15,000 15,000 j Series K 7 5,'e % 1999 15,000 15,000 1 Series M 7%% 2002 20,000 20,000
- Series P 9%% 2016 25,000 25,000
' Series O 9%% 2018 50,000 50,000 j f sries R 9%% 2019 50,000 50,000 . The Series R 8%% 1992 20,000 20,000 .- Narrogonsett Series F 45/s% 1994 4,600 4,600 .f 7,500 7,500 ' Eleetric Seriea G 6%% 1998 Series I 7%% 2002 7,500 7,500 ; co,npony 9 % 2004 9,700 9,700 j- Series J 25,000 25,000 i Serios O 9%% 2014 i Series P 10%% 2016 40,000 Series S 9%% 2021 25,000 Series T 8%% 2021 40,000 New England Series i 4%% 1991 20,000 f, Power Series J 4%% 1992 12,000 12,000 Series K 4%% 1993 10,000 10,000 Company Series L 6%% 1996 10,000 10,000 -l t Series M 6%% 1997 15,000 15,000 Series N 7%% 1998 20,000 20,000 l Series O 7%% 1998 20,000 20,000 j Series P 8%% 1999 15,000 15,000 g 1 Series R 7%% 2002 25,000 25,000 Series S 8%% 2003 40,000 40,000 l 40,000 l Series T 8%% 2003 40,000 ; Gsneraland New England Serie N 8%% 1993 40,000 I refunding Power Series A 8%% 2007 50,000 50,000 Series B 9%% 2008 50,000 . mertgaae bonds Company Series D 9%% 2013 90,000 90,000 1 Series G 9%% 2013 16,150 16,150 ,I Series I 10% % 2nlJ 16,600 16,600 l' Series J 10%% 2013 79,250 79,250 !' Series K 7%% 2015 38,500 38,500 t ! Series L 7.80% 2016 29,850 29,850 Seriei M 9%% 2016 80,000 80,000 !M !> Series R variable 2020 85,850 85,850 4,150 4,150 ll Series 5 vanoble 2020 ll Series T variable 2020 50,000 Unsmortised discounts and premlunis ( 7,877) ' (8,823) Totallong-term debt 1,652,983 1,717,317 Long term debt due within one year (104,920) (37,890) long-term debt $1,548,063. . - - S1,679,427 The accompanying notes are on integral port of these hnancial statements. 25 . - - - . - .__ - . - - - - - - . - - _ - - . ~ - -.- b l .Now England Electric System and Subsidiaries Notes to Financial Statements \ Noto A Significant accounting policies . 1. Basis of The consohdated financial statements include the accounts of New England Electric System (NE E S) and all subsidiaries except New E ngland Electric Transmission Cor poration (N E ET), which is recorded at l consolidation and system equity. Presentation of this subsidiory on the equity basis is not material to the consolidated financial of occounts statements. New England Power Company (NE P) hos a minority interest in four regional nuclear i generating companies (Yonkees). Narro0ansett Energy Resources Company (Resources) hos o 20 percent generoi partnership interest in the Ocean State Power project. NEP and Resources account for these ownership interests on the equity method. NEES owns 504 percent of the outstanding common stock of both New England Hydro.Transminion Electric Company,Inc. and New England Hydro. Transmission Cor~ 3rotion (Hydro.Tronsmission componies). The consolidated financial statements include 100 percent of the assets, liabilities, and earnings of the Hydro. Transmission companies. Since NE ES is the majority stockholder in these ; companies, the ownershipinterests of the other stockholders are colled minority interests and have been l sepotately disclosed on the N E E S consolidated income statement and balance sheet. The " Minority interests"line on the " Statements of Consolidated income " includes the minority interests' portion of the net earnings of the Hydro. Transmission companies. i The accounts of NE ES and its utility subsidiaries are maintained in accordance with the Uniform System of Accounts prescribed by regulatory bodies having jurisdiction. All significont intercompany transactions between consolidated subsidiories have been eliminated.
- Prior to 1991, transactions with the New England Power Poolhad been recorded on a net basis in purchased powe expense. In 1991, the f ronm:tions were seporately recorded in revenues and purchased power expense, therefore the ,.insolidated financial statements for prior years have been reclonihed to conform with the current year presentation.
- 2. Revenue The utility subsidiaries record revenue os billed on a cycle billing basit Accrued revenues are recerded seloted to rate adjustment mechanisms. No revenueis recorded for electricity that has been delivered but not billed.
The utility subsidinries capitalize AFDC os pcrt of construction costs, which represents the c osite
- 3. Allowance for funds interest and equity costs of capital funds used to finance that portion of construction corts not etigible for used during inclusion in rote base. In 1991, on overage of S I 5 million of construc. tion work in progress (CWIP) was construction included in rate base. Af DC is capitaliz ed in " Utility plant" with offsetting noncash credits to "Other income" and " Interest". This method is in accordance with on established rate-making practice under (AFDC) which a utility is permitted a return on, and the ruovery of, prudently incurred capitoi costs through their ultimate inclusion in rate base and in the provision for depreciation. The composite AFDC rates, exciud.
ing the Hydro-Transmission componies, were 8,9 percent,9.1 percent, and 10.1 percent in 1991, , 1990, and 1989, respectively. During the construction phase, the H ydto.Transminion companies capitalized oilinterest costs and o eeturn on common equity. 26
- 4. Depreciation The depreciation and omortization expense inciuded in the " Statements of Comolidated Income"is and ornortization composed of the following:
1991 1990 1989 Year ended December 31 (thousands of dollara $136,443 5124,399 $ 109,438 Depicciation Amortization: Oil and gas properties (Note A-6) 79,320 79,185 93,699 . Investmentin Seabrook I under ecae 47,017 39,458 33,830 settlement (Note C) Property losses (Note H) 6,279 6,534 12.371 Oil conservation odgstment 9,067 9,539 7,493 Total depreciation and ai riiration ex pense $278,126 5259,115 $256,881 E WP j Depreciation is provided annually on a straight.line basis. The provision for depreciation as a percentage of weighted overage deprec;oble property, excluding the Hydro.Transm:ssion componies, [ ; was 3.4 percentin 1991 and 3.3 percentin 1990 and 1989. The Oil Conservation Adjustment (OCA)is designed to recover expenditures for cool conversion l facilities at NEP's Salem Harbor Station by the mid.1990s. At December 31,1991, unomortized cool 1 conversion costs were $39,720,000. j 5. Nuclear fuel The Nuclear Waste Policy Act of 1982 establishes that the federal government is responsible for the I disposoland disposal of spent nuclear fuel The federal government requires NE P to pay a fee based on its shors of i nuclear plant the net generation f rom *he Millstone 3 and Seabrook 1 nuclear units NEP is recovering this fee through q decommissioning its fuel clause. Similar costs ora incurred by the Yonkees. These costs are billed to N E P and e ecovered from customers through N E P's fuel claur ] Also, NE P is recovering its share of estimated decommi,sioning costs for Millstone 3 and Seabrook 1 4 ; through depreciation expense. N E P records decommissioning cost expense on its books consistent j with its rate recovery. In addition, N E P is poying its portion of projected decommissioning costs for the four Yankees through purchased power expense. Such costs reflect estimates of total decommissioning rosts opproved by the Federal Energy Regulatory Commission (FE RC). T here is no assurance that decommissioning costs actually incurred by the Yankees, Millstone 3 or Seabrook I will not substantially exceed these omcunts. The obsence of permanent repositories for both low-level and high level nuclear wasta makes it likely that estimates of decommissioning costs will continue toincrease until such repositories are available. A 1988 Nuclear Regulatory Commission (N RC) rule sets forth f ormulos f or determining the minimum funding levels that licensees must satisf y. To ' meet this requirement, licensees must provide reasonable assurance shot funds will be available for decommissioning equal to the minimum funding level. Each of the nuclear units in which N E P has on { ownership interust has filed the required assurance certification.
- 6. Oil and gas New Engtond Energy incorporated (NEEl) participates in a rate ragulated domestic oil and gas j operotions expioration, development, and production program through a partnership with a non offifioted eil com-
- pony. This program consists of prospects acquired prior to December 31,1983. No new prospects will be acquired under this program. However, N E El continues to incur costs in connc; tion with existing pros-l i
pects. Savings ond lossos from this program are being possed on to NEP and ultimately to retail custom-ers, under an intercompany pricing policy (Pricing Policy) opproved by the Securities and Exchange l Commission (SEC). N E El hos incurred operating losses since 1986, due na precipitate declines in oil and gas prices, and expects to incur substantial additionollosses in the future. N E P's ability to pass such losses on toits customers was favorably resolved in N E P's 1988 FERC rate settlement. This settlement covered all costs incurred by or resulting f rom :ammitments made by Mc El through Morch 1,1988. ' ^ ' - _-- _ _ _ _ _ . _ _ _ . _ _ _ _ _ , _ _ , ~~.-...- -. _ - - _.-_ .-. - _ _ .~ - . . - - - - - - _ _ . Other subsequent costs incurred by N E El are sebject to normoi regulatory review. N E El follows the full cost method of accounting for its oil and gas operations, onder whirh capitoli:ed costs (including interest paid to banks) relating to wells and leases determir.ed to be either commerciol or nen.commerciol ore omortized using the vr.it of production method. Due to the Pric;ng Policy, N E El's eate.rogula'ed pregram hos not been subject to certoin SEC occounting rules, opplicable tc. non.raie regulatec' .ompanies, i I which limit the costs of oil and gas property that con be capitolized. Prior to April 1991, N E El participatedin a non rate regulated program composed of prospects I entered into ofter December 31,1983. During 1990, NEEl sold a small share of its non. rote regoloted l program and, in March 1991, sold substantially all of the remaining properties in the program. The sole j of proper ,es in March 1991 resulted in on after tox gain of approximately $4.5 rmilion. Profits and l losses on the non rote regulated program were borne by shareholders. N E El incurred and capitolized the following costs in connection with its oil and gas exploration and , development activities: Year ended December 31 (thousands of dollars) 1991 1990 1989 leases $ 1,775 $ 933 $ 007 Emploration 5. S e ') 15,889 16,533 Development 1,304 4,390 (5,087) Capito!ized interest costs 21,770 28,322 33,362 Other 2,537 3,367 2,306 Non rote. regulated program costs 7,012 6,071 Total $32,969 $59,913 $54,002
- 7. Cosh NEES and its subsidiaries classify shert. term investments with a maturity of 90 days or less as cash.
Current banking arrangements do not require outstanding checks to be funded until actually presented .I for payment Outstanding checks are, therefore, recorded in accounts payable until such time os the ,, banks present them for payment. Note B lncome taxes \ Totolincome ta xes in the "Statemen's of Consolidated income" are os follows: 1991 1990 1989 Year ended December 31 (thousands of dollars) income taxes charged to operations $103,702 $ 81,920 $ 49,286 income ta xes charged (credited) to "Oiher income" 2,971 (428) 1,630 income tax on rate settlement adjustments (Note C) 18,503 Totalincome taxes $106,673 $ 99,995 $ 50,916 -.--.,--.--==:=.=::==- z===== M Totalincome tones, as shown obove, consist of the following components: 1991 1990 1989 Year ended December 31 (thousands of dollars) - -- . . - . - - - - . ~ - - _ - Current income to xes $ 97,806 $ 87,824 $ 72,133 17,451 36,485 (16,363) - Deferred income taxes Investment tax credits-net (8,584) (24,314) (4,854) Totolincome taxes $106,673 $ 99,995_ $ 50,916 28 Totalincome tones, as shown above, consist of federal and state components os ialiows: c Year ended December 31 (thousands of dollors) 1991 1990 1989 Federalincome taxes S 86,032 S 73,830 S 35,749 State income tones 20,641 26,165 15,167 I Totalincome taxes $106,673 S 09,995 S 50,916 investment tax credits of subsidiaries are duferred and amortized over the estimated lives of the property - giving rise to the credits Since the Tax Reform Act of 1986 generally elimmatedinvestment tax credits, the amounts shown above principally reff sct the amortization olinvestment tax credits generated in prior years. In add; tion, the investment to < credits-net for 1991 and 1990 ieffect 51.7 million and .. $26 million, respectively, of tax credits r ecognized in income related to Scobrook I in accordance with a 1968 rate settlement agreement. With regulatory opproval, the subsidiaries have adopted comprehensive interperiod ta x oliocotion (normalization) for most book /tox tirrmg ddierences. The following table details the c:,mp>nents of the deferred income taxes of these subsidiories: Year ended December 31 (thousands of dollars) 1991 1990 1989 ! Cost associated with utility plant rotirements j L deducted for tax purposes S 5,144 5 6,573 S 4,538 E x cess tax depreciation 21,213 12,572 2,157 Note settlement adjustments (Nr.te C) 37,330 =
- Property loss amortization (2,495) (2,703) (4,877)
Unbilled revenue (3,764) (5,184) (8,133) Conservotion costs capitalized (amortized) (2,673) (4,574) 7,247 Cool ship settlement (7,538) Oil and gas program (19,942) (11,981) (7,434) 6,901 10,354 3,357 ! State incomo to xes Other 13,067 (5,902) (5,680) Totol deferred income taxes S 17,451 S 36,485 $(16,363) New ocounting rules issued by the Financial Accounting Standards Board (FASB), which will be offec- l tive in l' 11, will require all deferred ta x balances to be restated at the current tax rate. Using the currect 34 percent ax iote, the System would have excess reserves for deferred federat income taxes of approx. imotely $38 r 'llion at December 31,1991 Approximately S28 million of this excess relates to NEEl. Although the System has excess reserves for deferred federalincome taxes, it has o deficiency in its net reserves for deferred sto^e income taxes of approximately $8 million. It is expected that, through the reg. ~lo*ory process, net euess reserves for deferred income taxes will be possed back to ratepayers with no significant impact on nee income. Accordingly, any excess will be reclassified from o deferred t 2x g liability account to o custorr..r-related liability account, Such poss back commenced in 1987 with the j reduction of the corp or ate federoiincome tax rate.
- In addition, the new FASB rules will require utilities to establish new deferred tax reserves, including deferred taxes on the equity component of AFDC, N E P's OCA omortization and unomortized investment tax credits, which have not previously been considered subject to +ferred tax occounting.
These additional tax reserves willbe offset by the establishment of reg 4 : ton ossets or liabilities representing amounts ultimatefy expected to be recognized in rotes. Therefore, the opplication of this new rule is not expected to have o significont impact on net income. E 29 . Totolincoms taxes differ from the amounts computed by opplying the statutory tax rate to income before ta xes. The reasons for the differences are os follows: Year ended December 31 (thousands of dollars) 1991 1990 1989 Computed tax at statutory rate $100,999 $ 126,690 S 68,047 increases (reductions)in tax resulting from: Allowance for equity funds use.d during construction (667) (4,892) (4,176) Rote settlement adjustments (Note C) (5,652) Reversalof deferred taxes recorded of a higher rate (6,339) (6,414) (12,343) Amortization of investment tax credits (7,015) (31,365) (8,510) State income tax, net of federalincome tax benefit 13,623 17,269 10,010 - Allother differences 6,0 N 4,359 (2,112) Totalincome taxes $106,673 $ 99,995 $ 50,916 Federoiincome tax returns for N E E S and its subsidiaries have been examined and reported on by the Internal Revenue Service (IRS) through 1987. See Note F-2 for further information regarding the examination of the 1984 throq . P7 to x returns. N:;ts C - Secbrook Nuclear Unit 1 and related rate settlements N E F owns opproximately 10 percent of Seab, . k 1, a 1,150 MW nuclear generating unit, which entered commercial service on June 30,1990. NEP's rate recovery of its investment in Seabrook I has been resolved through two separate rate , settlement agreements. The first of these two settlements was a 1988 ogreement. This agreement resolved allissues related to N EP's pre-1988 investment in the unit and settled o number of other rote issues outstanding at that time. . The 1988 settlement initially limited N EP's recovery ofits pre-1988 investment in Seabrook 1 to $61 million per year for seven years and five months, commencing in March 1988. Under the settlement, N E P was allowed to implement a $ 16.8 million rate increase for five years when the unit went into service on June 30,1990. The 1988 settlement also provided that if Seabrook I were concelled, N EP would reduce the annual level of its rates by $ 12 million for a period of fin years. In addition, if the unit had been concelled, under the FERC's policy applicable to concelled plants, N E P would have been allowed to collect only 50 percons of prudently incurred post 1987 costs. As a result of the 1988 settlement agreement, N EP took o S .D million offer-tax (S260 million before tax) write-down of its Seabrook 1 investment in 1988. The w-ite-down assumed that the unit would be concelled. However, offer Seabrook 1 en cred commercie < ice in 1990, N EP recorded adjustments in the +hird quarter of 1990 reversing a portion of the write-cown taken in 1988. These adjustments increased income by $ 115 million ofter tax (S 134 million before tax) or $ 1.80 per shore for the year ended December 31,1990, and reflect the increased revenues resulting from ochieving commercici operation, the reversol of certain reserves, and the immediate recognition of investment tax credit 5. The second settlement agreement, opproved by the FE RC effective J une 30,1990, increased rates by $25.7 million annually. The rate increase allowed the recovery of (i) costs (not included in the 1989 rate settlement) ossociated with Seabrook 1 entering into service and (ii) NEP's investment in Seabrook I since January 1,1988. in February 1991, EUA Power Corporation (EUA Power), a 12 percent joint owner of Seabrook 1, filed for protection under Chapter 11 of the Bankruptcy Code. In August 1991, EUA Power failed to l ! fund its shore of monthly Seabrook 1 opercting and capitol costs. Subject to certain limitations, two joint 30 .~. .- l l l owners of Seabrook 1, that are not offiliated with N EP, have agreed to loan EUA Power up to S 15 million to cover its monthly obligations to Seabrook 1. T his sum is currently estimated to be sufficient to cover such obligations untilthe summer of 1992. At this time, no further arrangements have been made with , respect to EUA Power's obligations. On October 7,1091, the U.S. Supreme Court declined to review the N RC's licensing of Seabrook 1. The only outstonding appealof the license is pending before the N RC. It was brought by opponents of Seabrook I cho"enging on NRC Atomic Safety and Licensing Board decision that odequate provision had been mode for shelter':.g persons who might be on the beach near Seabrook I at the time of on incident. Because of the highly controversioi noture of nuclear power in general, and the Seabrook plant in particular, many challenges to, and investigations of the safety of the design, construction, and operation of the plant have been raised in the post and are likely to continue to be raised in the future. NEP does not believe that the currently pending appeal will result in Seabrook 1 being permanenily withdrawn from service or concelled. However,ifit were, either as a result of currently pending or unonficipated future events, NEP could be required to cease collecting revenue being collected under the 1988 settlement and/o make refunds and lower rates for five years, depending on the circumstances. A write-down could be required at that time. The pre.1988 investment in Seabrook 1, net of amortization, is shown on a separate line on the balance sheet. Investments in Seabrook 1 since January 1,1988 oreincluded in the " Utility plant" line on the balance sheet. N:t3 D Yenkse Atomic Nuclear Pov<er Stotion N EP has a 30 percent ownership interest in Yankee Atomic Electric Company (Yonkee), which owns and operates a 185 megawatt nuclear generating station in Rowe Massachusetts. The station began commercial service in 1960. At December 31,1991, NEP'sinvestment in Yankee was opproximately $6 million. On September 30,1991, the N RC staff recommended to the N RC Commissioners that the Yankee facility be shut down, pending review of concerns os to the possible embritt'ement of the facility's reactor vessel. Yankee began shutting down the facility the next day. On February 26,1992, the Yankee board of directors decided to permanently cease power operation of the facility and,in time, decommission the facility. Yankee intends to seek FERC outhorization to collect, ever the remaining term of the plant's present N RC operating license, the ongoing costs of maintaining and decommissior.ing the unit as well as previ-ously unrecovered plant investment. The license extends through July 2000. Although these costs are substantial, they are expected to be less than the costs of continued operation. N E P believes that the FERC will continue to allow it to recover from its customers all costs billed to it by Yankee. Net:E Early termination of purchased power contract In August 1991, N E P and another utility agreed to on early termination of a contract which colled for NEP to purchese power from that utility through April 1993. Under the agreement, N EP mode o termi-notion payment of $20 million in January 1992. N EP had recorded a liability for this buy.out amount, os well as on offsetting regulatory asset at December 31,1991. Under a 1992 rate settlement agreement, which is subject to FE RC approval, N E P is allowed rate recovery of this cost. Customers will realize sovings in excess of the amount of the termination payment. 31
- m. mmi.w-h-- -We%.,,,.w_ % ..%w,__ ..._wme.w_.+
-.%e4e+-w--. Note F Commitments and contingencies 4
- 1. Construction The utility subsidiories' construction ex penditures are estimated to be $300 million in 1992. The oil and i expenditures gas subsidiary's expenditures for its exploration and development progroms in 1992 are estimated to be S20 million, which are principally costs of capitol (see Note A-6). At December 31,1991, substantial commitments had been mode relative to future planned espenditures.
- 2. Federal ta x In conne . tion with examinations of the System's ta x returns, the IRS had token the position that no aban-assessments donment of Seabrook Unit 2 took placein 1984 through 1987. Acccedingly, t'v 95 disollowed the abandonment loss and related ta x deductions claimed in the 1904 through 1987 returns, which resulted in substantial proposed tax deficiencies. The System appeoled those disallowances. In December 1991, the System reached a settlement of this matter with the IRS which recognizes the abandonmentlossin 1984 subject to certain adjustments to the amount of the tax loss claimed. Accordingly, the System was able to reverse $5.0 million of the total of 58.2 million of interest reserves established in prior years.
- 3. Franchiss tax NEP paid assessments of additional Massachusetts franchise taxes to+oling opproximately 55.2 million ossessments (including interest) for the years 1983 through 1987. The assessments relate to the method of calculating the portion of N EP's income that is taxable in Mossochusetts. N EP disagreed with the Mossochusetts Department of Revenue's position and accordingly did not charge these amounts to expense. NEP initiated a refund suit for the ossessment. In December 1991, the Mossochun *s Supreme Court found in f avor of NEP. In Jonvary 1992, NEP's payments were refunded in full as a result of this decision.
- 4. Natural gas in connection with N E P's efforts to reduce sulfer dioxide emissions and repower generating units, N E P pipeline capacity has signed several contracts for natural gas pipeline capacity. These ogreements will require minimum fixed payments, which begon in late 1991. Such minimum payments have not beer, firmiy established of this time but are currently estimated to be opproximately $15 million in 1992, $30 million in 1993, S55 million in 1994, and $60 million eachin 1995 and 1996.
- 5. Hozordous The Federal Comprehensive Environmental Response, Compensation, and Uobility Act, more commonly waste known as the "Superfund" low, imposes strict joint and severalliability on persons identified as having caused or contributed to the release or threat of a release of hozordous wastes at a porticular site requiring cleanup action. Parties liable include post and present site owners and operators, transporters _
that brought wastes to the site, and entities that generated or arranged for disposal or treatment of wastes ultimately disposed of of the site. A number of stoies, including Massachusetts, have enacted similar laws. Federal and state environmental agencies, as well as private porties, have contacted or initiated legal proceedings against NEES orits utility subsidiaries regarding liability for cleanup of sites designated as containing hozordous waste, it is possible that, in the future, NEES and its subsidiaries will become involved in demands that they contribute payment to the cost of remedicting additional hazardou: waste sites. One of the known s;tes is the Pine Street Canal Superfund site in Burlington, Vermont. Approximately 16 parties, including NEES, had been notified by the Environmental Protection Agency (EPA) that they w-re potentially responsible parties (PRPs) for deonup of the site, which is contaminated by cool tor and other materials. The EPA had brought a lawsuit against N E E S and two other parties to recover oli of the EPA's post and future response costs at this site. In 1990, the litigation ended with the filing of a final consent decree with the court. Under the terms of the settlement, the EPA recovered its post removal costs. NEES recorded its shore of these costs in 1989. N EES remains a PRP for the EPA's ongoing and future response costs at the Pine Street Canal site, which were not a subject of the settlement or consent decree. 32 1 The business activities of current and former subsidiories of N E E S have resulted and continue to result in the generation of material designored as hozordous waste. For example, NE ES formerly owned gas subsidiaries that were engaged in gas manuf acturing. Gas manuf acturing processes generated some materials, since identified as hozardous waste, that were generally left on-site. During the early 1970s, N E ES sold its gas subsidiaries to gas utilities in New England, included in the sole were some properties where gus manuf acturing facilities were located. Existing N E E S subsid;ories also currently own some of these properties. One of the ges utilities that purchased several of the former NE ES gas subsidiaries has iridicated that it intends to seek recovery from N E E S of any liability it may incur for cleanup of gas monu-facturing sites that formerly were owned by N E E S gas subsidiaries. With re=pect to one such site, that gas utility hos filed a claim against N E ES and Massachusetts Electric Company. N E E S maintains that liability for cleanup of those sites was transferred to the gas utility when the subsidiaries were sold. WI.ile N E ES ond its utility subsidiories connot estimate the costs which may result from potential liability for cleanup of the hozordous waste sites of which they are currently owore, the do not believe at this time that such costs would be material (ten percent of common equity) to N E E S' financial posi+ ion. Although rote recovery may be sought for cleanup costs incurred,it is uncertain whot portion, if any, would be allowed in rates, particularly in circumstances ir <hich NEES, rather than one ofits utility sub-sidiaries, incurs those costs. EPrice. The Price-Anderson Act limits the amount of liability cloiens that would have to be paid in the event of a Anderson Act single incident at a nuclear plant to $7.6 billion. The maximum amount of commercially available insur. ance coverage to pay such claims is only $200 mi! lion. The remaining 57.4 billion would be provided by on assessment of up to $66.2 million per incident levied on each of the ruclear units in the United States, subject to o maximum assessment of $ 10 miliion per incident per ruclear unit in any year. The maximum assessment, which was most recently calculated in 1988, is to be adjusted at least every five years to reflect inflationary changes. N E P's current interest in the Yankees, Millstone 3, and Seabrook I would subject N EP to o S68.2 million maximum assessment per incident. N EP's payment of any such assess-ment would be limited to o maximum of S 10.3 million per incident per year.
- 7. Long-term N EP purchases a portion of its electricity requirements pursuant to long-term contracts with owners of contracts for various generating units. Certain of these contracts require N EP to make minimum fixed payments to the purchase of cover its proportiorate share of the capital and fixed operating costs of these generating units. The _
electricity maiority of the payments are to the Yankees and Ocean State Power, erSties in which NEES subsidiaries . hold ownership interests. These costs are recovered in rates. The contracts also include varieble costs which are also recovered through N E P's rates The total cost of these contracts is included in the pur-chased electric energy lines in the " Statements of Consolidated Income" The table below shows the minimum fixed payments expected to be mode under these contracts for the years 1992 to 1996 including costs ossociated with the retired Yankee plant discussed in Note D (millions of dollars) Ocean State All and Yankees Other 4 1992 $200 S50 1993 200 50 1994 200 45 1995 200 35 1996 220 35 33 N:fo G Rstfrom:nt plans The System's plans are noncentributory defined benefit plans covering substantially ol! employees. The plans provide pension benefits based on the employee's compensation during the five years befor9 retirement. The System's funding policy is to contribute each year, the net periodic pension cost for that year. However, the contribution for any year will not be less than the minimum required c-mribution under federallow or greater than the maximum tax deductible amount. Total pension cost for 1991,1990, and 1989 included the following components: Year ended December 31 (thousands of dollars) 1991 1990 1989 Service cost-benefits earned during the period S 10,319 $ 10,229 S 9,360 Plus (less): Interest cost on orojected benefit obligation 43,602 40,806 38,479 Return on plan ossets at expected long term rate (41,265) (39,531) (37,408) Amortization 780 460 108 Totol pension cost S 13,436 S 11,964 $ 10,539 Assumptions used to deterniine pension cost were: Discount rate 8.5% 8.5% 8.5% Average rate of increase h future compensation levels 6.7% 6.7% 6.7% Expected long. term rate of return on assets 9.0% 9.0% 9.0% Actual return ;n plan assets S 72,668 S 13,060 $ 52,646 T he following table sets forth the plans' funded status: December 31,1991 December 31,1990 Retirement Plans (in thousands) Regular Supplemental Regular Supplemental Plans Plans Plans Plans Benefits corned Actuarial present volve of occumulated benefit liability: Vested S443,350 S32,057 S416,922 S27,519 Non. vested 23,781 223 21,258 209 Total S467,131 $32,280 $438,180 $27,728 Reconciliation of funded status Actuarial present value of projected benefit liability $544,901 S36,664 SS 10,282 $30,784 Unrecognized prior service costs (14,581) (5,007) (11,526) (4,386) FAS 87 transition liability not yet recognized (amortized) - (6,504) - (7,155) Net gain (loss) not yet recognized 2,263 33 (27,291) 2,806 (amortized) 532,583 25,186 471,465 22,049 Pension fund assets at fair value 552,629 - 488,723 - FAS 87 transition osset not yet recognized (amortized) (16,034) - (17,476) - 536,595 - 471,247 - Accrued pensioa payments _ recorded on books S (4,012) S25,186 S 218 S22,049 34 Plan assets are composed primarily of corporate equity, guaranteed investment contracts, Jebt securities, and cash equivalents. Certain health core and life insurance benefits are provided to substantially all retired employees. Such benefits are not funded by the System. The cost of these postretirement benefits is chorged to expense when paid and was estimated to be S 12 million in 1991, S 11.8 mill;on in 1990 and S 10.1 million in 1989. New FASB occounting rules for such costs, w hich w;ll be effective in 1993, will require the NEES subsidiaries to commence the establishment of a liobir6 7 Juring the working years of employees for the expected cost of providing postretirement benefits to those employees. The impact of the new rules will result in o significant increase in annual coe. M ad the new accounting rules for such cosis been in effect in 1991, it is estimated that the occumulated postretirement benet t obligation wout d be approximately S400 million at December 31,1991, and annual cost would have increased by approximately $50 million (before tax) in 1991. The N E ES subsidiaries are seeking to recover these costs through rates. Note H Prepsrty losses NEP is a joint owner of the concelled Seabrook 2 nuclear generating unit. At December 31,1987, NEP had expended opproximately $69 million (S39 million off er tax) on the unit. N EP has been allowed rate recovery of all such costs, but has not been allowed to eo.n a return on the unomortized balonce during the recovery period. N E P has recorded this property loss at a discounted value and is omortizing and recovering it over o ten year pariod ending in 1996. The unomortized portion of heset costs is included in the " Consolidated Bolonce Sheets" under "Unomortized property losses" Note l Shset-term borrowing At December 31,1991, NEES andits consolidated subsidiaries did not have any short term debt outstanding, but had lines of credit with banks totaling $279 million. These lines of credit are available to provide liquidity support for commercial paper borrowings and for NEP's Series R and T general and refunding mortgage bonds (see Note K) and other corporate purposes. There are no compensating balance arrangements, Fees are paid in lieu of compensating balances on most lines of credit. Nste J l Shore capital of New England Electric System l N E ES issued additionoi commen shores, $ 1 por volve, os follows: Year ended December 31 1991 1990 1989 Poid-in Poid-in Poid-in Por capitol Por capitol Por capital (thovsonds of dollars) Public common shore $4,000 $ 100,580 issvonce Dividend reinvestment onJ common share purchase plan $212 S 5,080 $ 773 S19,332 806 19,061 Employee shore plans 386 9,671 621 15,620 576 13,492 5598 S14,751 $ 1,394 S34,952 $5,382 S133,133 35 - N2taK Leng t:rm d:ht Substantially all the properties of N E P and the retail s diaries are subject to the lien of mortgage indentures under which mortgage bonds have been issued. The aggregate paymenti to retire maturing long-term debt and for sinking .:vnd requirements are as follows: (thousands of dollars) 1992 1993 1994 1995 1996 Maturing long-term debt S 92,000 $20,000 S 4,600 $ 20,000 Mondatory prepayments: Hydro Transmission Companies 11,520 11,520 11,520 $11,520 11,520 Gronite State Electric Company 1,400 1,400 1,400 1,400 1,400 NEEl 25,000 75,000 75,000 Other sinking fund requirements 6,670 5,750 5,500 5,500 5,400 $ 111,590 S38,670 $48,020 593,420 $ 113,320 Other sinking fund requirements may be satisfied in cash, bonds, o. by evidencinq additional l property (credited at 60% of cost). The terms cf pollution control revenue bonds colloteralized by N EP's variable rate bonds require N E P to reocquire the bonds under certain limited circumstances. At Decunber 31,1991, interest rates on N EP's variable rate bonds ranged from 4.10 to 6.20 percent. Alse, at December 31,1991, interest rates on N E El's debt ranged from S.31 to 6.125 percent. ! In 1991, the Hydro-Transmission companies issued S215 million of long-term notes in three series with l maturity dates ranging f rom 10 to 25 years and interest r:ses of 8.82 to 9.41 percent. The proceeds were used principally to repay eutstanding borrowings u- a previous revolving credit agreement. Massachusetts Electric Company has agreed to seil S25 million of first mortgage bonds during the first quarter of 1992. These bonds will bear interest rates ranging from 5.875 tc,8.55 percent. I i i l l j 36 l Rsport of The management of New England Electric System is responsible for the integrity of the consolidated Management financial statement > included in this annual report. The financial statements were prepared in accord-once with generally accepted accounting principles using management's informed best estimates and judgments where oppropriate to fairly present the financialcondition of the System and its results of operations. The information included elsewhere in this report is consistent with the financial statements. The System maintains on accounting system and system of internal controls w hich is designed to provide reasonable assurance os to the reliability of the financial records, the protection of ossets, and the prevention of any material misstatement of the financial statements. The System's accounting controls have beon designed to provide reasonable assurance that errors or irregularities, which could be material to *he financial statements, are prevented or detected by employees within a timely period as they perform their assigned functions. The System's internal auditing staff independently assesses the effectiveness of internal controls and recommends improvements when appropriate. Coopers & Lybrand, the System's independent accountants,is engaged to audit and express their opinion on our financial statements. Their audit includes a review of internal controls to the extent required by generally accepted auditing standards. The Board of Directors corries out its responsibility for the financiol statements and the related financial data through its Audit Committee, which is composed solely of outside directors. The Audit Committee meets periodically with management, the internal auditer and the independent accountants to ensure that each is carrying out its responsibilities and to discuss auditing, internal accounting control and financial reporting matters. Both the internal auditor and the independent accountants have free occess to the Audit Committee, without management present, to discuss the results of their audit work. j .r-- - k John W. Rowe Alfred D. Houston President and - Senior Vice President Finance Chief Executive Officer and Chief FinancialOfficer Raport of To the Board of Dhectors and Shoreholders of New England Electric System: Indspendent Acccuntants We have audited the accompanying consolidated balance sheets and consolidated statements of capitalization of New England Electric System and subsidiaries (the Company) as of December 31,1991 and 1990 and the related consolidated statements of income, retained earnings and cash flows for each of the three years in the period ended December 31,1991. These financial statements are the responsibility of the Company's monogement. Our responsibility is to express on 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 materia l misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also indudes ossessing the accounting principles used and significant estimates mode. by monogement, as well as evoluoting the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consohdoted financial position of the Company as of December 31,1991 and 1990, and the consolidated results of its ope ations and its cash faws for each of the three years in the period ended December 31,1991, in conformity with generally accepted accounting principles. bEM 4 Boston, Massachusetts i Febrvory 27,1992 37 New England Electric System and Subsidiaries Supplementary Information on Business Segments (unoudited) The consolidated group operates in two principal domestic industry segments. (thousands of dollars) Electric Oil and gas Consolidated .Yactended Operating revenue S2,056,798 $ 37,580 $2,094,378 D:csmber 31,1991 Depreciation and amortization 198,806 79,320 278,126 Other operating expenses 1,414,394 7,151 1,421,545 income taxes 126,111 (22,409) 103,702 Operating income (loss) 317,487 (26,482) 291,005 Interest expense 119,824 119,824 income from equity investmens 11,803 11,803 Other income (expense)-net (7,696) 4,522 (3,174) $ 201,770 $ (21,960) $ 179,810 Net income (loss) ~ Totalassets S3,964,569 5485,508 $4,450,077 investment 5 ot equity S 96,452 S 96,452 Capital expenditures S 192,738 $ 32,969 S 225,707 Operating revenue S1,869,507 S 39,319 S1,908,826 Yaar ended D cember31,1990 Depreciation and amortization 179,930 79,185 259,115 Other operating expenses 1,305,929 7,991 1,313,920 Income taxes 103,915 (21,995) 81,920 Operating income (loss) 279,733 (25,862) 253,871 Interest expense 105,973 373 106,346 Income from equity investments 5,808 5,808 Otherincome-net 108,688 29 108,717 $ 288,256 S (26,206) S 262,050 Netincome (loss) Totol assets $3,859,714 $547,800 S4,407,514 investments et equity S 78,649 S 78,649 Capitol expenditures S 218,340 S 59,913 $ 278,253 Y crended Ope ating revenue $ 1,645,930 $ 59,558 S1,705,488 163,182 93,699 256,881 D:cember 31,1989 Depreciation and amortization Other operating expenses 1,149,428 7,755 1,157,183 Income taxes 72,607 (23,321) 49,286 Operatingincome (loss) 260,713 (10,575) 242,138 l 105,410 Interest expense 104,229 1,181 8,444 8,444 income from equity investments Other income (expense)-net (6,523) 1 (6,522) $ 158,405 $ (19,755) $ 138,650 j; Net income (loss) $3,549,363 S566,996 S4,116,359 Tcaalasset5 investments at equity S 64,478 $ 64,478 Capital expenditures S 531,907 $ 54,092 S 585,999 ( in 1985, the SEC granted approval to divide N E El's oil and gas expfc, ration and development activities into two i programs: a rate-regulated program and a non rate-regulated progrum. The net loss for 1991 of S22.0 million includes (o) o $4.0 million net profit on the non rate-regulated program and (b) o $26.0 million loss on the rate-l reguloted program, which will be possed on to customers in 1992. The net loss for 1990 of 526.2 million includes (o) o $6.9 millionloss on the non rote-regulated program and (b) o S 19.3 mi!! ion loss on the rote-regulated program, which was possed on to customers in 1991. The neiloss for 1989 of S 19.8 million includes (a) o $3.6 million loss on the non rote-regulated program and (b) o S 16.2 mi5 ion loss on the rote-regulated program, which wcs possed on to customers in 1990. See N ote A-6 of " Notes to Financial Statements" for o more complete discussion of oil and gas operations. 38 New England Electric System and Subsidiaries Supplementary information on Oil and Gas Activities (unoudited) The estimates of NEEl's proved reserves and proved developed resorves of oil and gos, olllocated within the United States, and changes to the estimated proved resen es for 1989,1990 and 1991 ore os follows: Crude oiland condensate Naturol gos (thousandsof Bbt) (thousands of MCF) Proved reserves as of December 31,1988 4,964 154,236 Revisions of previous estimates (2,634) 2,657 Extensions, discoveries and other additions 219 11,250 Production (436) (23,620) Proved reserves as of December 31,1989 2,113 144,523 Revisions of previous estimates 77 (2,394) Extensions, discoveries and other additions 113 5.248 Production (421) (17,368) Proved reserves as of December 31,1990 1,882 130,009 ! Revisions of previous estimates (40) (2,064) Extensions, discoveries and other additions 530 1,731 Production (425) (17,559) Proved reserves as of December 31,1991 1,947 112,117 Average selling price Proved developed reserves year ended December 31, at December 31, Crude oiland Crude oiland condensate Natural gas condensate Natural gas (per Bbi) (per MCF) (thousands of Bbl) (thousands of MCF) 1988 S15,44 S1.89 1,787 143,335 1989 $ 16.85 S1.84 2,015 130,792 1990 $20.56 S1.80 1,796 120,986 1991 $22.80 S1.61 1,402 100,596 Proved reserves are esti:noted quantities of crude oil, condensate and natural gas whi-h geological and engi-neering dato demonstrate with reasonable certainty to be recoverable in future years from known oil and gas reservoirs under existing economic ond operating conditions. Proved-developed reserves are those proved reserves reasonably expected to be recovered through existing wells with existing equipment and operating methods. Includedin the proved reserves and proved-developed reserves at December 31,1990 and 1989 are opproximately 221,000 Bbis and 147,000 Bbis respectively, of crude oil and condensate and 10,034,000 MCF ond 10,443,000 MCF, respectively, of natural gas that relo'e to the non-rate-regulated program. The following independent petroleum engineering consultants prepared estimates of N E El's proved reserves and proved-developed reserves, and such estimates are included in relicace upon such consultants as experts: Paul M. Bennett and Assor.iotes of Dolios, Tenos prepared the estimates for the majority of the 1991,1990, and 1989 reserves and Bennett & Westerman,Inc.of Dollos, Texas prepored the estimates for 1968.The reserves are estimstes only and should not be construed as exact quantities. Future conditions may offect the recovery of - estimated reserves. l 39 l 1991 1990 Price ronge Price range Dividend Dividend High Low doctored High Low declared $27% $24 S.51 $28% $262/e S.51 First quarter Second quarter $29% - $26% S.52 $27% S24 % S.51 Third quarter $31% S27 % $.52 $27% S22 % S 51 Fourth quarter $32% S30 % S.52 $26 S23 % S.51 The fotoi number of shareholders at December 31,1991 was 64,221, .4 First Second Third Fourth ! 'F ' quarter quarter quarter quarter (thousands of dollors) 7 mcm, 1991 ; ,,y, m! $574,200 S475,011 5520,801 S524,366 Operating revenue S 98,632 S 49,155 S 77,625 S 65,593 i-Operating income $ 73,552 S 19,340 $ 44,489 5 42,429 Netincomc Net income per overage shore $ 1,14 S .29 5 .69 $- .65 1990 S494,066 $436,.711 S486,729 S491,320 Operating revenue S 74,064 $ 39,661 S 71,651 $ 68,495 f Operating income I S 49,387 $ 17,290 $ 162,687 $ 32,686 Netincome .78 $ .27 5 2.55* S .51 Net income per overage shore S ' See Note C for a discussion of the rate sentement adjustments. Informotion cbout shareholder records, quarterly New England Electric System dividend payments, direct deposit of dividends, Shoreholder Services Departmer.t seasonal oddress changes, dividend reinvestment, oad Post Office Box 770 optional cash payments may be obtained by Westborough, Massachusetts 01581-0770 contacting: + Shoreholders may also direct questions to their (508)366 9011 .horeholder services representative The represento- A-G Ruth Benjamin, extension 3177 tives listed to the right are assigned to accounts based H-N Judith Doggett, extension 2611 on the first letter of each shareholder's lost nome. O-Z Karen Array, extension 2135 Dividends are generally payable on the first business day of January, April, July,and October. Questions about the transfer of certificate shores The First National Bank of Boston Post Office Box 644, Mail Stop 45-02-On should be directed to: Boston, Mossochusett: 02102-0644 (617)575-2900 New York Stock Exchange Boston Stock Exchonse NES The annual meeting of New England Electric System will be held at the New England Hall, 225 Clarendon Street, Boston, Mossochusetts, on April 28,1992, at 10:30 a.m. Copies of the annuol report on Form 10K to the New England Electric System Securities and Enhange Commission and a Statistical investor Relations Report for 1991 con be obtained, free of charge, by 25 Research Drive Westborough, Mossochusetts 01582 writing to: The nome "New Eny and Electric System" means the trustee or t ustees for the time being (as trustee or trustees but not personally) under on Agreemen ond Doctoration of Trust dated January 2,1926, a s amended, which !s hereby referred to, and a copy of which, as amended, has been filed with the l Secretary of The Commonwealth of Monochusetts. Any agreement, obligation, orliabibty mode, enteredinto, orincurred by or on behalf of Ne Electric Syst-m binds only its trust estate, and no shareholder, director, trustee, ofkr, or ogent thereof assumes er shall be hefd to any liability This report is not to be considved as on oHer to sell or buy or solicitation of an offer to sell or wy any security. p a ,.<re.a pop., 40 l l I fn , m c. " . As of Jonvory 1,1992 As of Jonvory 1,1992 i W. Douglas Bell Felix A. Mirando, Jr. Joan T. Bok MassachusetM Electric Company Former Chairman and Private investor Chairman 25 Research Drive Chief Executive Officer Osterville, Massachusetts Westborough, Mossochusetts 01582 John W. Rowe John H. Dickson, President State Mutual Life Assurance Compensation Committee Co.of Americo President and Worcester, Massachusetts Chief Executive Officer The Narrogansett Electric Company John W. Rowe 280 Melrose Street Ex:cutive Committee President and Frederic E. Greenman orovidence, Rhode Island 02901 Chief Executive Officer Robert L. McCabe, President Seni rVice President, Jun T. Bok New England Electric System Westborough, Mossochusetts Generot Counseland Chairman r nite State Electric Company oc et ry New England Electr:c System Executive Committee 33 West Lebonon Rood Wastborough, Mossochusetts Alft ed D. Houston Lebonon, New Hompshire 03766 Executive Committee George M. Sage Lydio M Postuzek, President Senior Vice President - President Finance and P:vi L. Joskow Bonanzo Bus L.nes, Inc. New England Power Company Chief FinancialOfficer Professor of Economics Providence, Rhode Island 25 Research Drive and Management Executive Committee Edward E. Mulligan Westborough, Mossochusetts 01582 Mossochusetts instifute Customer Service Committee Vice Presidem ' of Technology ttew England Energy incorporated Co, bridge, Mossochusetts Anne Wexler John W. N ewsham 25 Research Drive Audit Conmitte, Chairman Vice President Westborough, Maisochusetts 01582 The Wexler Group Jshn M. Kucharski Monogement consultants Glenn R. Schleede New England Electric transmission Choirmon and Washington, D. C. Vice President Corporation Chief Executive Officer Executive Comrnittee 4 Park Street EG&G,Inc. Compensation Committee Richord P. Sergel Concord, New Hompshire 03301 Wallesley, Mossochusetts Vice President James Q. Wilson New England Hydro-Transmission Compensation Committee Professor of Management Jeffrey D. Tranen Corporation Customer Service Committee The University of Californio Vice President 4 Park Street at Los Angeles Concord, New Hampshirs 03301 Edward H. Ladd Chairman Audit Committee , Michael E. Jesanis Treasurer New England Hydro-Transmission Standish, Ayer & Wood,Inc. Electric Company, Inc. Investment counselors Jame R.Winoke,. Boston, Massachusetts 25 Research Drive Presiden, Westborough, Massachusetts 01582 Exscutive Committee B. B. Greenberg Company Jewelry Manufacturers Narragansett Energy Resources Jeshua A.McClure Providence, Rhode Island mpany Former President Compensation Committee American Custom Kitchens,Inc. Customer Service Commi: tee Prov.dence, i Rhode Island 02901 Providence, Rhode Island Audit Committee New England Power Service Company Malcolm McLane 25 Research Drive Vice President Westborough, Massachusetts 01582
- Orr & Reno, P.A., Attorneys J
Concord, New Hampshire , . Audit Committee Customer Service Committee . ! 'Jorr.es R.Wicoker was elected to the NEES boord of direoors on ' "Vice presidents Robert O. Bigelow, Robert C. Smith, and George P. Saidi August 27,1991. He had served as a director of our Rhode Island retired from NEES during 1991. Vice pre.ident Glenn R. Schleede retired retail subsidiary from 1990 to 1991. Mr. Wincker is a graduate of - from N EES in February 1992. Brown University and Horvord University Graducts School of Busi ^ , ncis. He is Truste. Emeritus of Brown University and is a director of Original Bradford Soop Work: Inc. and the Rhode Island Public , - (' Expenditure Council. i , ._ __ _ _}}