ML20125C288
| ML20125C288 | |
| Person / Time | |
|---|---|
| Site: | Seabrook  |
| Issue date: | 01/04/1980 |
| From: | Ritsher J ROPES & GRAY |
| To: | Rubenstein L Office of Nuclear Reactor Regulation |
| References | |
| NUDOCS 8001080308 | |
| Download: ML20125C288 (77) | |
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R O P E S & G R AY j
E2S F R AN KLIN ST RE ET BOSTON O 2110
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'tsta h F 54 94C$r9 January 4, 1980 1
L.
S.
Rubenstein, Branch Chief Li cht Water Reactors, Branch #h Div i sion of Proj ect 'Canagernent United States IJuclear Regulatory j
Cormission
'lnshington, D.
C.
?0555 Re:
Public Service Company of I!ew Hampshi re,
Docket ?!os. 50-443 and 50 444; Director's Decision under 10 CFR P.206 Denying Show Cause Petition.
Dear Mr. Rubenstein:
In connection with the Staff's continuing interest in this subject and with the Commission's order dated Decem-ber 21, 1979 extending the period of review until January 31, 1930, I enclose "wenty-five copies of the report and order l
of the ':ew Har.pshire Public Utilities Commission gr'inting the erercency rate increase reauested by Public Service Com-pa ny o f
'!et.. Hampshire and twenty-five copies of the Trolimi-nnr/ Prospectus dat,ed December 28, 1979 relating to $30,000,000 of General and Refunding :iortcage Bonds of Public Service Com-pan:, of ?;ew Hampshire.
Very truly yours, 0, a/
M[
1 J oi A.
Ritsher
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o[O D,
I JAR: val i:nc losure s tl0g q p
9b cc:
Attached List O
3 90009147 8 o01080 b #
4 Copies so:
t.lan S.
Rosenthal, Chairman Dr. Ernest O.
Salo
.l" Atonic Safety and Licensing Professor of Fisheries Research Appeal Board Institute U.S. Nuclear Regulatory Commission College of Fisheries
.;la shin gt on, D. C.
20555 University of Washington Seattle, Washington 98195 Dr. John H. nuck Atomic Safety and Licensing Dr. Kenneth A. McCollum Appeal Board 1107 West Knapp Street U.S. Nuclear Regulatory Comnission Stillwater, Oklahoma 74074 Washington, D.C.
20555 Robert A.
Backus, Esquire Michael C.
Farrar, Esquire O'Neill Eackus Spielman Atomic Safety and Licensing 116 Lowell Street Appeal Board Manchester, New Hampshire 03105 U.S.
Nuclear Regulatory Commission
'.ashington, D.C.
20555 Laurie Burt, Esquire Assistant Attorney Ceneral Ivan W.
Smith, Esquire Cne Ashburton Place A.t o mi c Safety and Licensing Boston, Massachusetts 02108 Board Panel U.S. Nuclear Regulatory Commission John F. Ahearne, Chairman Washington, D.C.
20555 U.S. Nuclear Regulatory Commission klashington, D.C.
20555 Joseph F. Tubridy, Esquire h100 Cathedral Avenue, N.W.
Victor Gilinsky, Commissioner
.:a shin gt on, D.C.
20016 U.S. Nuclear Regulatory Commission Washington, D.C.
20555 t
Dr. "arvin M. Mann Atomic Safety and Licensing Richard T.
Kennedy, Conmissioner Board Panel U.S.
Nuclear Regulatory Commission U.S.
Nuclear Regu2atory Comnission Washington, D.C.
20555
.-la sh i n gt on,
D.C.
20555 Peter A.
Bradford, Commissioner Stephen G.
Eurns, Esq.
U.S. Nuclear Regulatory Commission Office of the Executive Legal Washington, D.C.
20555 Director U.S.
Nuclear Regulatory Commission Joseph Hendrie, Commissioner Washington, D.C.
20555 U.S, '!uclear Regulatory Commission Washington, D.C, 20555 E.
Tupper Kinder, Esquire Assistant Attorney General Environmental Protection Division Office of the Attorney General 208 State House Annex Concord, New Hampshire 0330 90009148 Earin P.
Sheldon, Esquire Sheldon, Harmon, Roisran & ' 'e i s s Suite 506 1725 I Street,
'!.'l.
lashington, D.
C.
20006
l'ItEl.D11NAltY PitOSPECTl!S DATED DECEMilElt 28, 1979 330-
$30,000,000
~esa lla 9 Public Service Company of New Hampshire a-j E d General and Refunding Mortgage Bonds, Series C
% due 2000
~ue a,
yt j
interent is payable January 15 and,luly 15, comrneneing July 15,1980. The Series C Honds are y ~ j g entitled to a mandatory annual sinking fund payment of p, q 52,250,0no, payable in cash or Series C q Ij llonds, beginning in 1990 with a redemption prien of 100'; of the principal amount plus accrued y E 5 s interest and are also radeemable at the option of the Company at any time, in whole or in part, at the p ]y $ p prices set forth herein, except that prior to January 15,1%5, the Series C Honds ar g
?3 t; at the option of the Company at an interest cost less than 9-per annum. The Company may make Q { $ Ij an additional sinking fund payment in any year in an amount not exceeding the mandatory sinking t t.,1-y lj fund payment for that year. See " Description of the Honds" v
3 t 7 j3 The Series C Honds are secured by a morteace on substantially all of the Company's properties j
g which is subordinate to the lien of a first mortgaec on substantially the same properties and are d A {r 5 also secured by a pledge of certain First 3forteage
~
Honds. At October 31, 1979 there was outstand-p 5 $ k ing $196,495,n00 aggregate principal amount of First 3fortgage Honds (exclusive of pledged First f E 2, i8, Ertgage Honds). See " Description of the Honds" for information with respect to the participation LJ q-o D,g E of holders of the Series U Honds in the lien of the first mortgage.
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See " Problems Pacing the Company" for a description of the Company's financial difficulties.
M
,o e o Application will be made to list the Series C Honds on the New York Stock Exchange. Listing c
j { [ y wiH be subject to meeting the requirements of the Exchange, including those relating to distribution.
$E$s TIIESI: SECURITIES IIAVE NOT llEEN APPHOVED Olt DISAPPROVED IlY TIIE x: m x: ]
~ 2 6 SECURITIES AND EXCIIANGE CO31311SSION NOlt IIAS Tile CO31311SSION
.- - e 7's*2 PASSED UPON TIIE ACCUltACY Olt ADEQUACY OF TIIIS PitOSPECTUS.
3Syaj ANY HEPHESENTATION TO TIIE CONTR ARY IS A CHI 311NAL OFFENSE.
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l'nderw riting E
Price to Di counto and Proceeds to 2 [' ]t m.%
Public(1)
Commi. ion.(2)
Com pany ( l ) (3) n E 11 % 2
] y } y Per Hond 9
9 9
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~, g f g (1) Plus accrunt interest, if any, from the date of original issue.
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si 2, -5 (2) The Company has agreed to indemnify the several Underwriters against certain civil liabilities, i
- 3. i including liabilities under the Securities Act of 1933.
_.ti; (a> Hefore aeductien or expen-payabie by the Uempany estimated at SiTsnon.
gy 2x;=
E GBa The Series C Honds are offered by the several Underwriters when, as and if issued by the Com-333j pany and accepted by the Underwriters and subject to their right to reject orders in whole or in part.
E Y ii e it is expected that the Series U Honds will be ready for delivery at the ollice of Kidder, Peabmly & Co.
NE
= z =j $ Incorporated,10 llanover Square, New York, New York, on or about January
,1930
"""r Kidder, Peabody & Co.
Blyth Eastman Paine Webber p p l' Incorporated Incorporated J_
suvvg 90009149 The date of this Prospectus is January
,1980.
IN CONNECTION WITil TIIIS OFFEltING, Tile UNDEllWillTEllS SIAY OVElt AILOT OR EFFECT THANSACTIONS WillCII STAlllLIZE OH SIAINTAIN TIIE 31AltKET PIIICE OF TIIE IlONDS OFFERED IIEREllY AT LEVELS AllOVE TilOSE WillCII 311GIIT OTHEll.
WISE PHEVAIL IN TIIE OPEN SIAltKET. SUCll STAlllLIZING, IF CO3DIENCED, 31AY llE DISCONTINUED AT ANY TDIE.
AVAILAllLE INFOID1ATION Public Service Company of New Ilampshire (the " Company") is subject to the informa.
tional re<1uirements of the Securities Exchange Act of 1934 and in accordance therewith filca reports arpt other information with the Securities and Exchange Commission. Information for the year 197fl ami prior years concerning directors and officers of the Company, remuneration and any material interests of euch persons in transactions with the Company, is disclosed in proxy tatements di tributed to -tockhohler of the Company and filed with the Commi-ion.
Such report *, proxy statements and other information can be inspected at the office of the Commi ion at lloom 6101 at 1100 L Street, N.W., Washington, D. C.; Itoom 1100, Federal fluilding, 26 Federal Plaza, New York, N.Y.
Suite 1710, Tishman lluilding,10960 Wilshire lloulevard, Im Angeles, California; and Hoom 122ft, Everett 31cKinley Dirksen fluilding,219 South
Dearborn Street,
Chicago, Illinois. Copies of such material may also be obtained at prescribed rates from the Public Heference Section of the Commi sion at 500 North Capitol Street, N.W., Washington, D. C. 20'il9. Certain of the Company's securities are listed on the New York Stock Exchange where report *, proxy material and other information concerning the Company may al-o be in pected.
TIIE CO31PANY q
The Company was incorporated in New IIampshire in 1926. The mailing address of the Com-pany is 1000 Elm Street, Post Office Box 330,3lanchester, New Hampshire 03105 and the Company's telephone number is (603) 669-4000.
The Company is the largest electrie utility in New IIampshire. It operates a single integrated system furnishing electric service in 3fanchester, Nashua, Portsmouth, Berlin, Dover, Keene, Laconia, Franklin, llochester, Somersworth and 187 other New Hampshire municipalities, including about 839'c of the total population of the State. It also sells electricity to other utilities and distributes and sells electricity in 6 towns in Vermont and 13 towns in 31aine. The area served at retail has a popula.
tion of about 746,000.
The Company is presently experiencing seri< 1s difficulties in financing its construction program.
See " Problems Pacing the Company" for a description of the external financine and rate relief required in order to enable the Company to maintain its construction program and continue its business opera-tions. pending commencement of the pmposed reduction in its construction program.
2 90009150
.-=..-- -.
_)
PHOSPECTUS SU3 DIARY The folloteing material is qmdifiul in its cntircty by the detailed information and the finan-cial statonents and notes appearing clutchtre in this Prospcclus. See cspecially "Probitms Focing the Company".
TIIE OFI'I:IllNG Company Public Service Company of New IIampshire Bonds Offered
$30,000,000 General and Refunding Ertgage Bonds, Series C Cf due 2000 Sinking Fund
$2,250,000 annually, commencing,lanuary 15,1990, to retire 759F of the issue prior to maturity.
Use of Proceeds To reduce short-term debt incurred for construction and for other corporate purposes.
Bonds to be listed New York Stock Exchange Tile CO31PANY Business Electric utility Energy Sources (12 months ended October 31,1979)
Oil - 489F, Coal - 379F, Nuclear-109F and Ilydro-59F Estimated 1930-1985 Construction Expenditures (excluding allowance for funds used dt. ring construction)
$5S5,200,0W
- Assuming proposed reduction of ownership interests in nuclear plants tmder construction. See " Problems Facing the Company" FINANCIAL. INFOIDIATION
( Arnounts in thousands except ration)
Tw el,e ntha Year ended Decernher 31, October 31,1979 1978 1977 Operating Revenuea
$289,522
$260,751
$214,787 Operating income 44,637 48,338 29,174 Net income 39,709 36,507 21,722 Batio of Earnings to Fixed Charges-Actual 2.39 2.87 2.38 Pro Forma 1.72 Capitalization and short-term debt as of October 31, 1979, and as adjusted for the estimated proceeds frotn the sale of the Series C Bonds (see " Capitalization"):
l'crcent of Adju*ted Actual An Adjusted Capitalisation Long Term Debt (including current ma-turities)
$346,909
$376,249 47.49f Preferred Stock 112,543 112,543 14.2 Cominon Stock Eyttity 305.200 3f6,200 39.4
$764,652
$793.992 1000?F Short-Term Debt
$ 73,100
$ 43,760 3
l 90009151 L
PHOBLEMS FACING TIIE COMPANY The Company is presently experiencing serious difficulties in obtaining external financing for its construction program and in maintaining cash flow adequate to fund this program and the costs of the Company's current business operations. The major portion of the Company's construction pro-gram is the Company's present 50?f ownership interest in the 2300 MW nuclear generating plant at 7
j Seabrook, New IIampshire. Although the Company has commitments from other utilities which would reduce the Company's interest to about 35Si, delays in obtaining the necessary regulatory l
approvals require the Company to continue to finance 509F of construction costs, possibly until January,1981, or beyond. In that event the Company would have to raise approximately $200,000,000 in pennanent financing in 1980, after the sale of the Series C Bonds offered hereby.
Itate Proceeding The Company's financing program had been based upon the inclusion in the Company's rate base of a portion (approximately 50?F on average) of the expenditures for construction work in progress ("CWIP") associated with major generating facilities, and in 1978 the Company's request for such inclusion was granted by the New Ilampshire Public litilities Commission ("NIIPCC").
After passage of a New IIampshire statute prohibiting the inclusion of CWIP in rate base, the NilPl?C excluded CWIP from the Company's rate base as of May 7,1979. At the same time, the NIIP('C allowed the existing rates to remain in effect, determining that the Company's rates couhl not be changed withott an investigation to establish new rates which woubl provide a just and reason.
able rate of return for the Company. Such an investigation was ordered, and the N11Pt'C'has stated that interrenom' rights with respect to possible rebates would be preserved.
On August 31,1979, the Company filed a new retail tariff with the NIIPI'C providing permanent rates designed to generate revenues of approximately $18,500,000 (about 8.47;) on an annual basis above those currently received. This filing has been suspended by the N11PI'C pending full investi.
gation and has been consolidated with the rate investigation initiated by the NIIPI'C in connection with the elimination of CWIP from rate base. See " Business - Rates - New Ilampshire Retail" In order to provide the Company with the revenues necessary fo it to obtain external financing for its construction program, and in particular to obtain sufficient revenues to satisfy the earnings test contained in the Company's General and Refunding Mortgage Indenture for the issuance of the General and itefunding Mortgage Bonds needed during 1980 (see " Financing-Mortgage Bonds"),
on November 27, 1979, the Company filed a request with the NIIPUC for an emergency surcharge designed to increase annual revenues by approximately $11,970,000 (about 5.59) based on a test year ending May 31,1979. This surcharge represeus a portion of the 8.4% permanent rate increase requested by the Company in August. On 1)ecember 21,1979, the NIIPUC granted the Company the 3
full amount of its request to take effect under bond on 1)ecember 28,1979.
On 1)cecmber 21, 1979, the Company filed with the Federal Energy Regulatory Commission
("FERC") new rates for its wholesale-for-resale customers that would increase revenues from such customers by approximately $4,294,000, or 10.1[F on an annual basis. See " Business - Rates-Other" The Company is seeking to expedite action by the Maine Publie l'tilities Commission on its presently pending requests for rate increases. See "Busim ss - Rates - Other" 4
90009 M~ 2 R WOOOV I
Heduction of Construction Program In view of the cash stringency which would result from the anticipated elimination of CWIP (see Note D to the Statement of Earnings and " Business-Rates-New IIampshire Retail") and the resultant difficulty of financing the 509F interest in Seabrmk, the Company decided in 5farch, 1979 to reduce its ownership interest in the Seabrmk plant to 2896 and thereafter offered ownership interests aggregatinu 229i to other utilities (the " Starch offer"); it also offered to other utilities its ownership interests in the Pilgrim #2 and 31illstone #3 projects.
llaluc/lon of Scabrook Otcurship. The full amount of the 3farch offer was accepted by nine other New England utilities, but three have since informai the Company that they will be unable to take part or all of the amount accepted. 31assachusetts 31unicipal Wholesale Electric Comnany
("3131WEC") agreed to take the major portion of such offer (13.874469F of the plant) but was able to obtain power purchase commitments from its constituent town and city electrie departments which permit it to commit for only approximately 69 of the plant. Central Vermont Public Service Corparation and (!reen 31ountain Power Corporation each accepted 19F but neither will proceed with its ae(ptisition because of conditions contained in the opinion of the Vermont Public Service Board approving the acquisitions which would place the entire risk of the investment on the utilities' stockhohlers until the plant is placed in 4peration.
Consequently, the 31 arch offer has resulted in commitments for about 129F out of the 229F of the ownership interest in Seabrook originally offered. In mid-October,.1979 the Company re-offered the remaining 109 ownership interest in the Seabrook plant to other participants in the plant and to the Company's New Hampshire wholesale customers (the " October offer"); commitments for owner-ship interests aggregating approximately 39F of the plant were received.
Each utility acquiring an ownership interest under either offer will acquire its interest gradually over an Adjustment Period. During the Adjustment Period, the accepting utilities will share pro rata the costs otherwise attributable to the Company's ownership interest until their aggregate invest.
ment in the Seabrook project has been increased to approximately 159F and the Company's invest-ment decreased to approximately 359' of the total investment of all participants. Until the Adjust-ment Periods begin, the Company must continue to finance its construction program at its present 509 ownership interest in Seabrook.
The Adjustment Period for the 31 arch offer will begin only after receipt by the accepting utilities of ail required regulatory and stockhohler approvals (and in the case of 3DIWEC, the obtaining of financing for its increase). The Adjustment Period for each accepting offeree of the October offer will begin only after the Adjustment Period for the 3farch offer begins, and after the accepting offeree obtains its required regulatory approvals (and in the ease of one utility, the approval of its stock-hohlers), whether or not other accepting offerees have obtained their approvals, and in the case of New Ilampshire Electric Cooperative, Inc., which accepted 2.173919F, after it has obtained satisfactory financing.
'The rompany's actual ownership percentage would be 35.234979F. and figures for the Company's
{
financing and construction programs have been calculated using this percentage.
m e000V 90009153
Action by the NIIPUC, the 3fassachusetts Department of Public Utilities c'31DPU") and the Nuclear Regulatory Commission ("NRC") is required. All required New IIampshire approvals were obtained from the NIIPUC for the Starch offer, but new approvals have been sought for the reduced amount of that offer and for the October offer. Under 3Inssachusetts law, the increases of 3fontaup Ehetric Company, New Bedfon1 Gas and Edison 1.ight Company, and Fitchburg Gas and Electric 14ight Company must be approved by their respective stockhohlers (which in the case of 3fontaup and New Bedford are their parent companies), and by the Company's stockholders, who approved the increases of SIontaup and New Bedford under the 3Iarch offer at a meeting held in September,1979. Approval by the AIDPU is also required for these increases, as is 3f DPU approval of the financing for 3131WEC's increased interest; petitions have been filed with the 31DPU for the 3Iontaup and New Bedfont increases and for the 3131WEC financing, and hearings have commenced.
The proceeding involving 31ontaup and New Bedfon1 has been consolidated with two other proceed ings relating to transfets of Seahnsok interests by other participants. The 3fassachusetts Attorney General and others have intervened in these pnmeedings in opposition to the several proposals; in the proceedings relating to other transfers, the Attorney General has challenged the other 3fassachusetts utilities' need for the power from the Seabniok plant, among other things. The 3IDPU has recently decided that the proceeding relating to 3131W E("s financing will involve consideration of the
" financial viability" of the Seahniok project and the " economic and financial impact of the proposed purchase and bond issue upon the municipal entities which comprise 3131WEC" Consequently, it now appears that the several proceedings before the SIDPU will take much longer than originally anticipated. On the present schedule, the proceedings may not be concluded until. lune,19S0 at the earliest, and perhaps not before.f anuary,1981, or later. If the Adjustment Period of any accepting offeree under the October offer has not commenced by.lanuary 1,1981, such offeree's commitment may be terminated by the offeree or by the Company.
Filings have been made with the NRC with nspect to the offers but clearance has not yet been received.
l'ouible S/medouw of S<nbrook Construtior.. The Company has been considering the possibility of a deferral for up to four years of the completion date of Unit #2 of the Seabrook plant as a means of reducing the Company's immediate cash needs; under the.Toint Ownership Agreement relating to Seabrook, the agreement of holders of 759 of the ownership inter sts woubl be required for a deferral. A four year deferral of Unit =2 would reduce the Company's requirements for external financing in 1980 and 1981 by approximately $27,000,000 and $33,000,000, respectively, assuming 507c ownership in both years. IIowever, the Company estimates that the deferral would increase the total cost of the project by approximately $740,000.000 and the Company believes that the cost of replace-ment power woubl greatly exceed the cost of the power which wouhl have been produced by the Unit.
The Company believes that the power from both Units of the Seabrook plant is needed in its service area and in the New England region at the 1983 and 1985 scheduled completion dates.
Offe r of I'ilurim and JInlutmo Inttr<stx, No expressions of interest were r"ceived by the Company with respect to its offer of its interest in the Pilgrim =2 project. The Company has contracted for the sale of approximately twythirds of its interest in 3fillstone =3 subject to the receipt of necessary regulatory approvals, including that of the NHC; proceeds from the sale are required to be deposited with the First 31ortgage Trustee under the terms of the Company's First 31ortgage Indenture. The Company has reoffered and received expressions of interest in purchasing the balance of the Com-6 90009154
. J
y 1
pany's interest in 3fillstone. Only a relatively small portion of the proposed n<luction in the Com-pany's construction program is attributable to the proposed sale of the Company's interest in 5fillstone #3 ($31,280,000 for the period 1981-10S5). See " Construction Program" Immediate Financing Program The Company has a revolving credit agreement with a group of seven commercial banks under which the Company may borrow up to $115,000,000 through June 30,1980 subject to periodic review by the banks; amounts outstanding under the agnement mature on July 1,1980. One additional commercial bank has agned to join the revolving credit, increasing the anmunt available under the credit to $130,000,000, subject to NIIPUC approval of an increase in the Company's short-term borrow-ing limit. The Company believes that the availability of such credit to June 30, 1980 will depend principally upon the success of the Company's financing program described below, and the occurrence of no adverso developments in rate and other regulatory proceedings or in the program to reduce the Company's ownership interest in the Seabrook plant. The group of seven commercial banks has extended to the Company a $25,000,000 term credit due January 3,1980; the banks have agreed to extend the maturity of the term credit to January 5,1981. The Company has additional lines of credit aggregating $5,350,000 with New IIampshire banks. At December 27,1979, an aggregate of $104.100,000 was outstanding under such agreement and lines of credit. On the date of the sah of the Series C Bonds olTered hereby, the Pompany's aggregate short-term horrowings are expected to be approximately $127,100,000.
If the necessary approvals for commencement of the Adjustment Periods for the 3farch and October offers are not obtained until January,1981, the Company estimates that it must raise ap.
proximately $200,000,000 in permanent financing during 1980 after the sale of the Series C Bonds and the extension of the term credit, assuming full utilization of the Company's short-term bank credit by the end of 1980 and without giving effect to the emergency surcharge granted to the Company by the NilPI'C cffective December 28,1979 or to any other requested rate increase which may be granted the Pompany during the period. If all regulatory approvals are received before January,1981, these financing requirements will be reduced.
In July,1979, the Company received advance payments aggregating $10,600,000 from the other Seabrook participants against their present ownership interests in the project. These advances were to be credited against amounts payable by such participants commencing in January,1980, and are secured by the Company's interest in nuclear fuel for the Seabrmk project. The Company has requested the other Seahnmk participants to extend the date after which credits are to be made against their accounts to July 1,1980.
At the present time, the Company is unable to issue any significant amount of First 3fortgage Bonds and the amount of General and Refunding 3fortgage Bonds which the Company can issue is also limited to the extent described under " Financing-3fortgage Bonds" Nece sity of Adequate Hates, Hequired Approvals and Financing The Company may be unable to obtain the external financing necessary for its 50% interest in the Seabmok plant if it does not obtain adequate rates from its pending rate proceedings, and there 1d, ~ [. h(:(
7 90009155 s
[
can he m> assurance that the requin d approvals for the pn> posed reduction in the Companyv interest in the Seahnok project to 35.23497 9 will be obtained or that the Company or other Seahniok partici-pants can obtain financing in the necessary amounts or in a timely manner. The Company's ability to l
obtain m cessary financing may also be adversely affected if nyulatory and other approvals for signifi.
cantly less than the 14.7650VJ of the Seahniok plant committed for by other utilities should be obtained.
Adequate rates and timely approvals and financing are all essential to enable the Company to maintain its construction program and continue its business operations.
INDUSTitY PROBLE3fS The Company has experienced and may in the future experience in varying degrees a number of problems generally common to the electric utility industry. These problems include obtaining ade-quate and timely rate increases, uncertainties caused by increasing political involvement in utility regulation, financing large construction pn> grams during an inflationary period, obtaining sufficient capital on reasonable terms, compliance with environmental regulations, high costs of fossil fuel, delays in licensing and constructing new facilities, ami effects of energy conservation.
Events at tho Thne Mile Island Nuclear Unit No. 2 in Pennsylvania ("TMI") resulted in damage to the plant and release of radionetivity into the surrounding environment and caused widespread concern about the safety of nuclear generating plants. The Company has interests not only in the Seahn>ok project but also in six other nuclear generating plants which are either operating or planned or under construction in New England (see " Business-Joint Projects"); its interests in the four such operating plants represent approximately 89 of the Company's present generating capacity.
Tho Company cannot predict what effect the events at TMI which have precipitated increased oppo-sition to nuchar power may ultimately have upon the completion or the cost of completion of the Seabrook project or such other planned nuclear units or upon the continued operation of the existing nuclear generating plants in New England or upon its planned reduction of its interest in the Sea-i bniok project. heither the Seabrook Units nor any of these six other New England plants utilize a nuclear steam supply system furnished by the vendor which supplied TMI. United Engineers & Con.
structors Inc., the engineer-constructor for the Seahnsok project, was constructor of TMI but was not involved in its design.
The TMI incident has prompted a riennius reexamination of safety relate I equipment and operating pnieedures in all nuclear facilities. On October 30,1979, President Carter's Commission on TMi issued its final report which, among other things, contained extensive recommendations on aspects of nuch ar power; on 1)ecember 7,1979, the President, while reaffirming his support for continued inclusion of nuclear power in his national energy policy, announced his agn ement with the i
spirit and intent of those recomnu udations and his initiation of steps toward their implementation.
The NHC has already pn>mulgated numerous requirements in response to TMl and the report on an l
independent study of TM1 instituted by the NIW is expected in January,19A0. The plants in which j
the Pompany has an inten st are being reviewed by their owner-operators, and those plants and all other nuclear facilities are being reexamined by the NHC. The TMI incident has also generate l a multiplicity of legislative pn>posals in Congress and various state legislatures. While the ultimate 90009iS6 8
m.00009
1 I
1 1
/
effect of these n examinations, studies and proposals cannot be specifically predicted, they could cause delays in construction and costly modifications of both the operating and planned nuclear plants in which the Company has an interest.
[
USE OF PHOCEEDS The pniceeds to the Company from the sale of the Series C Honds will be used to nduco short-term debt incurred for construction and for other corporate purposes. On the date of issue of the Series C llonds, short-term borrowings are expected to be approximately $127,100,000.
CONSTRUCTION PROGItAM The area served by the Company has experienced relatively rapid population and economic growth in the last several years. According to statistics compiled by the United States Department of Com-merce, Bureau of the Census, the average annual rate of population growth in the State of New IIamp.
shire was approximately 2% during the period 1970-78, the second highest rate of growth for any state east of Colorado. Figures released by the New IIampshire Department of Employment Security show that New IIampshire is experiencing one of the lowest unemployment rates in the nation, and the lowest in New England-2.8% (not seasonally adjusted; for the month of September,1979.
As a ruutt, the electric needs of the Company's customers have increased (an average annual increase of 6.99 and 4.3% in the Company's annual peak load during the ten-year and five-year periods, n spectively, ending October 31, 1979). While there is some controversy concerning the rate of growth the Company will experience in the future, the Company has projected the needs of its customers to increase at an average annual rate of appniximately 5.19 at least thniugh 1988, which is anticipated to be the highest increase of any major electric utility in New England furnishing estimates to the New England Power Pooh The Company's forecasts indicate that its net purchases of capacity will have increased to 306 31W at the time of scheduled completion in 1983 of the first unit of the Seahnsok plant described below, of which a 35.23497 9 share woubl be 405.2 31W. If the Seahniok plant is not completed on schedule, there can be no assurance that the Company wouhl be able to purchase suffleient power to render adequate service to its customers.
On,Iuly 30, 1979, the NIIPUC issued its finding that the electrical peak growth rate for F-v IIampshire is 5.0% and that the NIIPUC will use that number pending further review.
The Company proposes to meet the projected needs of its customers primarily through its share of the 2,300 MW Seabrook nuclear plant, with two units each having a capacity of 1,150 MW currently planned for completion in 1983 and 1985, respectively. The Seabrook plant is the only major base load generating station in New England now scheduled to begin service before 1986. In the view of the Company, the plant is essential to meet not only the Company's needs but the New England load as well. As described under " Problems Facing the Company, the Company and other New England t;tilitigspgagreed to adjust their ownership interests in the Seabrook project, subject to receih g,f thNadity regulatory approvals. Assuming an adjustment of the Company's share to 9
90009157
(
4 i
, - 4 I
35.23497 %, its share of the total cost of Seabniok upon completion, including the initial nuclear fuel, is estimated at $704,700,000, excluding any allowance for funds used during construction ("AFUDC")
(see Note D to the Statement of Farnings), which allowance is estimated to be $366,000,000. If the Company's ownemhip interest should remain at 509, these estimated amounts would be $1,000,000,000 and $429,600,000, respectively. See " Problems Facing the Company" and " Financing" for a discussion of the factors affecting the financing of the Seabrook plant, and see " Business-Seabn,ok Nuclear Project" for a discussion of administrative pniceedings and litigation relating to the Seahniok plant.
The Company's aggregate construction program for the six-year period 1980 through 1985, which is subject to continuing review and adjustment, is currently estimated to be about $585,200,000 (excluding AFUDU) if its ownership interest in Seahnsok is reduced to 35.234979 as described above under " Problems Facing the Company" and its ownemhip interest in Millstone *r3 is sold. Such con-struction expenditures would total $911,900,000 if such interests remain at their present levels. The following table sets forth the Company's estimated onstruction expenditures for 1980 (assuming no effect in 1980 of its reduced construction program) and the unadjusted and adjusted 1981-1985 construction programs as described above based on current construction schedules and cost pn>jections (including an inflation factor, which in the case of Seabrook is 89 per annum, and excluding AFUDC):
Estimated Construction Expendituren (Millions of Dollare)
Unadjusted Adjusted 1980 1981 1985 1981 1985 Generating Facilities Company's Share of Seabrook Nuclear Project Plant
$168.0
$370.5
$100.9 Nuclear Fuel 10.5 42.2 16.4 Total 178.5 412.7 117.3 Participation in Other Plants
- Nuclear Plants 5.9 58.0 30.3 Nuclear Fuel 1.1 5.7 2.1 Total 7.0 63.7 32.4 Other Generation 1.4 5.3 8.3 Total Generating Facilities 186.9 484.7 158.0 Transmission Facilities 11.1 106.0 106.0 Distribution and General Facilities 17.7 105.5 105.5 Total
$215.7
$696.2
$369.5
- See " Business - Joint Projects."
90009158 10
,,90i]ii 5 M i
l The following table shows the aggregate amount for each of the years 1980 through 1985 of the Company's estimated construction program before and after adjustment to reflect the maximum redue-tion of the Company's ownership interest in Seabrook to 35.234979E commencing in January,1981 and the sale of its interest in 3fillstone #3 as of that date:
Unadjusted Adjusted Construction Construction Programm Prograin:
1980
$215,700,000
$215,700,000 1981 207,600,000 39,000,000 1982 175,900,000 72,500 000 1983 137,500,000 108,600,000 1984 109,900,000 90,000,000 1985 G5,300,000 59,400,000 Total
$911,900,000
$585,200,000 Actual construction expenditures could vary from these estimates because of changes in the Pompany's plans and load forecasts, cost fluctuations, delays and other factors. The Company estimates that the ultimate cost of its share of Seabrook would increaso between $7,260,000 and $9,940,000 for a 35.234979b ownership interest (and between $10,300,000 and $14,100,000 for a 50% ownership interest) for each month's delay in completion. Delays of inore than one month inay result in a higher per month cost; tho increase in cost in each case depends upon the cause and length of the delay. It is also possible that additional expenditures may be required to meet regulatory and environmental requirements at the Seabrook nuclear plant and at the Company's other generating facilities. See " Industry Problems" and "Husiness - Environmental 3fatters" The complexity of present-day electric utility technology and the time required for the construe-tion of generating facilities and for the completion of the necessary licensing and regulatory proceed-ings, which have become increasingly extensive, have compelled the Company, as well as other electric utilities, to make substantial investments in the construction of such facilities before the licensing and regulatory proceedings are final. At October 31, 1979, the Company had invested approximately
$434,200,000 (including AFliDC of approximately $56,900,000 and nuclear fuel of $28,200,000) in the Seabrook nuclear plant. While it is possible that future developments could lead to cancellation of the project, the Company considers such a possibility unlikely not only because the necessary construction permits and approvals have been received (although certain of them are subject to further court appeal and administrative proceedings, see " Business-Seabrook Nuclear Project") and construc-tion is proceeding but also because of the projected need for the plant's power in the Company's service area and in New England generally. IIowever, if the Seabrook project were cancelhx1, the Company estimates that at the present time its share of the total costs would be substantially more than its investment; the precise amount would depend upon a number of factors, including the amount of termination charges and salvage and the results of negotiations in connection with contract
- terminations. The Company would apply to regulatory authorities for approval to amortize its share
.of. total costs over an appropriate future period and to recover such costs through the Company's retail and wholesale rates. While the Company cannot predict whether and to what extent reguletory 90009159
authorities would permit such recovery, construction of the plant was authorized by the New IIamp.
shire Public Utilities Commission based upon its finding that the plant was required to meet the demand for electric power. See " Business-Seabrook Nuclear Project-NHPUC" I
FINANCING Financing of the Company's 1980-1985 construction program estimatcd at $585,200,000 (assuming its construction program is reduced as described above), and the refinancing at maturity of certain long term debt and nquired sinking fund payments together aggregating $108,988,000 during this periml (see Notes 5 and 7 of Notes to Financial Statements), represents a major undertaking for the Com pany. The Company estimates that approximately $280,000,000 will be generated from internal funds during this period (principally after 1982). The balance is expected to be financed from external sourns.
During 1979, the Company raised approximately $166,060,000 from permanent financing, con-sisting of $39,640,000 from the sale of 2,000,000 shans of Common Stock in January, $30,000,000 from the sale of 1,200,000 shares of Preferred Stock ($25 Par Value) in May, $37,740,000 from the sale of 2,000,000 shares of Common Stock in July and $58,680,000 from the sale of General and Refunding Mortgage Bonds in September. The Company's financing plans for the 1980-1985 period include the issuance of common stock, preferred stock and long term debt, nuclear fuel financing and intermediate-term debt financing.
The success of the Company's financing plan is dependent upon a number of factors, including the Company's ability to obtain adequate and timely rate increases, conditions in the securities mar-kets, economic conditions and the Company's level of sales and particularly resolution of the matters discussed under " Problems Facing the Company" Mortgage Ronds. Due to certain restrict'.ns in the Company's First Mortgage Indenture, no significant amount of First Mortgage Bonds may be issued thereunder until an operating license is obtained for Seabrook Unit #1, now anticipated in late 1982. The Company is considering seeking Ou consent of the holders of its First Mortgage Bonds (75% in principal amount required) to amend that indenture by modifying or eliminating these restrictions, but no assurance can be given that such consent will be sought or obtained. If these amendments are made, the Company is required to redeem all outstanding General and Refunding Mortgage Bonds, including the series C Bonds offered hereby, by exchange for First Mortgage Bonds; until such time, such First Mortgage Bonds as may be issued will be pledged as additional security for the General and Refunding Mortgage Bonds.
At October 31,1979, the Company had $196,495,000 of First Mortgage Bonds outstanding (exclusive of pledged First Mortgage Bonds) and $857,640,000 of Net Utility Plant, including $484,626,000 of Unfinished Construction.
Because of the restrictions in the Company's First Mortgage Indenture, the Company has entered into the General and Refunding Mortgage Indenture dated as of August 15,1978 (the "G&R Inden-turo"), constituting a second mortgage on the Company's properties to secure General and Refunding Mortgage Bonds. The Company sold $60,000,000 of such Bonds to institutional investors in Septem.
ber,1978 and $60,000,000 pursuant to a public offering in September,1979. The terms of the G&R Indenture are generally similar to those of the First Mortgage Indenture except for elimination of the
)
Qh } kh.
90009160 i
above-mentioned restrictions on issuance of bonds and the inclusion of a limitation on the amount of other income (including AFUDC) includible in earnings coverage under the G&Il indenture. See
" Description of the Bonds" For the twelve inonths ended October 31, 1979, the earnings coverage of interest on honds was approximately 2.36, as compared with the requirements for the issuance of additional bonds contained in the G< Indenture of 2.0 At October 31,1979 the earnings coverage test would have limited the principal amount of General and liefunding Mortgage Homls (14r1 annual interest rate assumed) which conhl have been issued to $37,000,000.
/Innk Financing. The Company has a revolving credit agreemerit with a group of seven conuner-cial banks under which the Conipany rnay horrow up to $115,000,000 through. lune 30,19'O subject to periodic review by the banks; amounts outstatuling under the agreement mature on.luly 1,1940.
One additional commercial bank has agreed to join the revolving credit increasing the arnount available urnler t he credit to $130,000,000, subject to NIIPIT approval of an amount equal to the amount permitted under the Company's Articles of Agreement. See " Problems Facing t he Pompany -
Innnediate Financing Program" Seven of the cononercial banks have externled to the ('ompany a
$25,000,000 term credit due.ianuary 3,1940, but the banks have agreed to extend the maturity date to J a nua ry 5, 1981. The Pompany has additional lines of credit aggregating 43,330,000 with New Ilampshire banks.
As of October 31, 1979, the Company could have incurred approximately $140,450,000 of short-term unsecured indebtedness under its Articles of Agreement without obtaining the approval of hohlers of the Preferred Stock. The Nill'1T has approved up to $121,700.000 of short-term horrowings, and the t'ompany has requested approval of the amount from time to tinn permitted ornier its Articles of Agreement.
Per/t rral hch. Under the Company's Articles of Agreement additional Preferred Stock may be issued without the affirmative vote of the hohlers of a nmjority of either class of the Preferred Stock providad that the ratio of earnings to fixed charges and preferred dividends, including dividends on Preferred Stock to be issued, is at least 1.50.
For the twelve months ended October 31,1979, the ratio of earnine to fixed charges and preferred dividends computed under the method prescribed by the Company's Articles of Agreement was 1.95: aml based thereon, the company couhl issue, without such vote of the holders of the Preferred Stock, approximately $69,740,000 of additional Preferred Stock (149 annual dividend rate assumed).
90009161 13 d,
ff 0?
\\
CAPITALIZATION The capitalization and short-term debt of the Company as of October 31,1979 was, and adjusted as of that date to reflect the issuance of $30,000,0lK) principal amount of Series C Bonds offered hereby and the application of the proceeds thereof (assumed to aggregate $29,340,000) would have been, as follows.
4 Arnount Outstanding October 31,1979 Adjunted Arnount l'ercent Arnount Percent i
(Thou*nnds of Dollars)
Long Term Debt (including current maturities) 1:'irst Afortgage 11onds (n)
$196,006
$ 196,006 General and Itefunding Afortgage Ilouda (b) 11 *,6 "
148,023 1*romissory Note "5,000 25,000 l'ollution Control llevenue lionds 7,:'15 7,215 3 6,909 45.4 %
376.249 47.4 %
Total long Term 1)ebt 1* referred Stock -Cumulative
$100 l'ar Value, Authorized, 1,350,000 shares Outstanding, 675,432 sharen (c) 67,543 67,543
$25 l'ar Value, Authorim1,5,000,000 sharen Outstanding, 1,800,000 sharen (e) 45,000 45,000 Total Preferred 8tock 11",543 14.7 112,543 14.2 Common Stock Equity Common Stock-$5 l'ar Value Authorized, 18,000,000 shares Out standing, 13,932,'09 sharen (d) 69,661 ti9,661 Other l' aid In Capital 166,202 166,"02 Itetnined Earnings 69,337 69,337 Total Common Stock Equity 305,200 39.9 305,000 3N4 Total Capitalization (e)
$76 4,652 100.0 %
$793.992 100.0%
8hort Term Debt
$ 73,100
$ 43,700( f)
(a) llecause of certain restrictions in the First Mortgage Indenture no significant amount of bonds may now be issued thereunder. See " Financing" For a description of the outstanding series, see Note 7 of Notes to Financial Statements. Amounts shown exclude pledged First Mortgage lionds.
(b) The amount of bonds issuable under the General and Refunding Mortgage Indenture is subject to certain restrictions. See "I)escription of Ilonds-Additional G&R llonds" and " Financing" For a description of the outstanding series, see Note 7 of Notes to Financial Statements.
(c) For a description of the outstanding series, see Notes 4 and 5 of Notes to Financial Statements.
(d) In addition, as of October 31,1979 there were reserved for issuance upon conversion of the 48,432 shares of Convertible Preferred Stock, 5.509 I)ividend Series, 214,555 shares of Common Stock based upon the conversion price of $22.57 per share (the Convertible Preferred Stock being taken at its yw value of $100 per share).
(e) See Note 8 of Notes to Financial Statements with respect to Commitments and Contingencies.
(f) On the date of the issue of the Series C Honds, short-term bank borrowings are expected to be approximately $127,100,000. See "l'se of Proceeds" and Note 3 of Notes to Financial Statements.
I' 14 90009162 l
STATE 31ENT OF EAltNINGS The following Statement of Earnings, so far as it relates to the five years in the period ended December 31,1978, has been examined by Peat,31arwick,31itchell & Co., independent certified public accountants, whose report thereon appears elsewhere in this Prospectus, The information for the twelve months ended October 31,1979 is unaudited and, in the opinion of management, includes all adjustments (consisting only of normal recurring accruals) necessary to a fair statement of results of operations for such period, This statement should be read in conjunction with the other financial staternents and the related notes appearing elsewhere in this Prospectus, Twebe Enth.
Ended Year Ended December 31, October 31, 1979 1978 1977 1976 1975 1974 (Unaudited)
(Thousands of Dollars)
Operating Revenues ( A)(B)
$2M9,522
$260,751
$214.787
$ 196,674
$180,393
$155,930 Operating Expenses Operation Fuel (D) 110,158 71,990 70,500 54,881 59,511 43,161 Purchased and Interchanged Power 33,735 43,422 37,410 36,468 27,153 32,505 Other 35,s09 31,490 27,641 25,058 22,048 19,253 Maintenance ( A) 19,027 17,502 14,550 12,930 10,727 8,575 Depreciation (A) 15,369 14,752 14,117 13,791 13,522 11,024 rederal and state Taxes on Inconie (A)(C) 16,437 19,666 8,399 9,733 9,916 3,702 Other Taxes, Principally Property Taxen 14,320 13,585 11',596 11,860 10,018 9,756 Total Operating Exptnses 244, 9 5 212,413 185,613 164,721 151,495 128,606 Operating Incorne 44,637 4*,335 29,174 31,953 34,495 27,324 Other Inconie and Deductions Allowance for Equity Funds Used During Construction (D) 13,601 7,525 6,093 3,205 1,573 1,785 D uity in Earnings of Af1111ated Com-ipanies (A) 903 N70 802 1,007 821 870 Other - Lt 1,614 943 491 391 498 2,644 Total Other Income and Deductions 16,11 e 9,6 s l 7,3
- 6 4,603 2,*92 5,299 Income Before Intere.st Charges 60,755 5*,019 36,560 36,556 37,390 32,623 Interest Charges Interest on I,ong Term Debt 20,860 21,073 18,940 17,930 16,680 13,547 Other Intere3t 12,948 8,201 2,029 200 1,209 4,672 Allowance for Dorrowed Funds Used During Censtruction (D)
(1s,767)
(7,762)
(0,171)
(2,661)
(1,307)
(1,896)
Net Interest Charges 21,o47 21,512 14,33s 15,561 16,532 16,323 Net Income 39,70*
36,5iif 21,722 20,995 20,%U 3 16,300 Preferred Dividend Requirements 7,R29 6,391 5,120 4,549 3,604 3,378 Earnings Availalle for Corumon Stock
$ 31,s79
$ 30,116
$ 16,602
$ 16,147
$ 17.204
$ 12,922 Average Sharea of Conanon 8tock Outstand.
ing (Thousands) 11,944 9,275 7,650 6,372 6,11'4 5,134 Earnings Per share of Common Stock (E)
$2.67
$3.25
$2.16
$2.53
$231
$2.52 Dividends Per 8 hare of Conanon stock
$2.12
$1.94
$1.58
$156
$ 1,72
$1.64 Ratio of Earnings To Fixed Charges (F)
Actual 2.39 2.57 2.38 2.61 2.66 1.93 Pro Forma 1.72 (See"3fanagement's Discussion and Analysis of the Statement of Earnings".)
(A) See the applicable portion of Note 1 of Notes to Financial Statements, (11) For thpriod December 3,1977 through 31ay 6,1979 the Company's New Ilampshire retail
, rates wgqpalid in,p,ar} upon the inclusion in the Company's rate base of a portion of the costs I
90009163 I
of construction work in progress (CWIP) associated with major generating projects. The inclu.
sion of CWIP in rate base increased revenues from customers to cover the costs of financing such CWIP. On 31ay 7,1979 a New llampshire statute prohibiting the inclusion of CWIP in the Company's rate base became effective. Ily order dated Aneust 29,1979 the NilPI'C excluded CWIP from the Company's rate base as of 31ay 7,1979, but determined that the Company's rates would remain unchanged pending an investigation to determine the Pompany's resenue n q uire.
ments ami to establish fair and reasonable rates. The NIIPI'C has stated tlait interrenors' rights with respect to possible rebates will be preserved. See "Itusiness - itates - New Ilampshire Itetail" for information concerning a new tariff flied with the NIIPl'C on August 31, 1979.
See " Business-Itates-Other" for a discussion of increased rates to wholesale customers put into effect by the Company on July 29,1978.
In August,1976, the Company and a fuel supplier reached agreement on the amount of a fuel inventory adjustment. As a result of this settlement, operating revenues and fuel expenso for 1976 are each approximately $4,598,000 less than they otherwise wouhl have been.
(C) See Note 2 of Notes to Financial Statements for information regarding income taxes.
(D) AFUDC is the estimated cost, during the period of construction, of funds invested in the con-struction program which are not recovered from customers through current revenues. Such allowance is not realized in cash currently but under the rate-making process the amount of the allowanco will be recovered in cash over the service life of the plant in the form of increased revenue collected as :. result of higher plant costs. The NIIPUC, for the period December 3, 1977 through 31ay 6,1979 permitted the Company to include in rate base a portion of the costs of CWIP associated with major generating projects. Therefore, AFUDU for this period did not include the cost of funds invested in the construction program which were provided by revenues of the Company.
To the extent CWIP is not included in the Company's rate base, the cost of funds invest (d in PWIP (interest on debt and return on equity, including dividends) is not provided by revenues and AFL'DC is added to the cost of the plant beine constructed with offsetting credits in the Statement of Earnings. Since the credits are not cash items, cash for interest and dividends may need to be provided in who!e or in part by additional financing during the construction period.
As dewribed in Note 11 abov. as of 31ay 7,1979, the t'ompany was pn eluded frorn basing its rates upon UWIP in the rate base. Therefore, as of May 7,1979. consistent w it h the Aucust 29, 1979 rate older, t he ('ompany heran recordine A Fl'lH ' for ('WI P previously inclu. led in the ('om-pany's rate base, therchv increasing AFl'lH ' hy approxituately 44,10uhou for t he tu ch e months inded ()ctober 31,1979.
AFl'DU net of applicable deferred income tax provisions equalled 32F1 aml 59F7 of net income for 1978 and the tuelve months emled October 31, 1979. respect ively. The rompany capitalized AFI'DU at a net-of-tax rate of 7tyJ for 1974. Effective January 1.1975, the Com-pany began using a pre-tax rate of 91g; (increased to 10') efl'ective January 1,1979) and began ncognizing deferred income tax i sp. nse applicable to the current tax reduction resulting front illterest eXlsonse awiciated witit co!!st rl!ction, hllt t hese Plulln.!es hall no signitit'allt effect on net inconu..
90009164 l
I b PD00e
1 1
The Company began compounding AFUDC on February 1,1977 resulting in an increase in the gross amount of AFUDC capitalized during 1977 and subsequent periods. This change increased 1977 net income and earnings per share of common stock by approximately $816,000 and $0.11, respectively.
(E) Earnings per share are based on the average number of conunon shares outstanding, after recognition
/
of preferred stock dividend requirements.
(F) Earnings represent the aggregate of Net Income, less undistributed income of unconsolidated com.
panies, plus provisions for Federal and state taxes on income and fixed charges. Fixed charges repre-sent interest, related amortization and the interest component of annual rentals. The pro forma ratio of earnings to fixed charges is 1.72 after giving effect to (1) the annual interest requirements on long-term debt outstanding at October 31, 1979, (2) the annual interest requirements on the Series C Ilonds being offered (assumed to aggregate $4,"00,000) and (3) the annual interest requirements on the estituated average short. term debt expected to he outstanding during the twelve months ending October 31,1980 ($92,520,000 at 17.779 ofl'ective interest rate assumed).
Supplemental ratios of earnings to fixed charges have been calculated pursuant to Accounting Series !!clease No. 122 of the Securities and Exchange Commission. Such ratios include in earnings the undistributed income of unconsolidated companies, ami include in fixed charges the Company's allocable portion of the fixed charges of the regional nuclear generating companies in which the Com.
pany has investments. The supplemental ratios are not inaterially different imm the basic ratios.
(U) The following quarterly information is unaudited, and, in the opinion of management, is a fair sum-mary of results of operations for such periods. Variations between quarters reflect the seasonal nature of the Company's business, and beginning with the fourth quarter of 1977, additionally includes the effect of rate increases. See "31anagement's 1)iscussion and Analysis of the Statement of Earnings."
The fourth quarter of 1977 also includes an adjustment which decreased maintenance expenses recorded in the first three quarters of 1977 by approximately $1,mo,000 Quarter Ended Year 1979 Year 19711 Year 1977 Sept.
Junc*
March Dec.
Sept.
June March Dec.
Sept.
June March (Thounands except per Share Amounts)
Operating 1:evenues $72,91D $65,466 $ 50,072 $69,316 $62,337 $57,038 $71,930 $57,091 $50,678 $ 17,491 $57,527 t
Operati:ig Incorno 10,291 9,302 14,75s 12,324 11,700 10,119 14,195 9,109 6,611 5,252 8,202 Net inconm 11,049 d,335 12.217 9,359 8,572 7,192 11,0*4 7,390 5,098 3,244 5,990 Preferre.1 Dividend IM;uireinent s 2,420 1,952 1,536 1,594 1,50 $
1,599 1,600 1,516 1,199 1,197 1,208 Earnings Available for Conunon Stock s,629 0,353 10,631 7,765 7,274 5,593 9,454 5,574 3,599 2.047 4,78 Average 8haren of Conunon 8twk Outstanding 13,460 11,523 11,319 9,770 9,755 9,109 8,447 8,444 7,523 7,230 7,209 l'arnings Per Share of Cuuunou Stock
$0 64
$0.54
$u.94
$U.79
$0.75
$0.01
$1.12
$0.70
$0.50
$0.28
$0.66
' Amounts restated to be consistent with the August 29, 1979 rate order of the NilPUC described in Note 11 above.
17 l y.4 pf000?
90009165 s
a
MANAGEMENI'S DISCUSSION AND ANALYSIS OF TIIE STATEMENT OF EARNINGS Twelve Months Ended October 31,1979 as Compared with Calendar 1978:
" Operating Revenuts" increased $28,771,000 principally due to (1) the operation of the fuel adjustment clause ($18,081,000), (2) an increase in unit power sales ($3,924,000) and (3) an increase in prime energy sales.
3
" Fuel Expense" increased $38,192,000 because a larger percentage of total power supply was generated by Company owned fossil fuel plants and due to increases in the unit costs of coal and oil.
" Purchased and Interchangcd Pmeer" decreased $9,687,000 due to the increased generation by Company-owned fossil fuel plants.
"Other Operating Expenses" increased principally because of the effect of inflation on wages, supplies and services and employee benefits, the exact arrount of which cannot be determined indi-vidually.
" Federal and State Taxes mt Incmn4" decreased primatily due to a decrease in taxable income.
" Allowance for Equity Funda Used During Construe' ion" and "Allmeance for Borrmeed Funds Used During Cmistruction" increased due to an increase in the Company's construction program, primarily the Seabrook nuclear plant and because APUDC has been accrued from May 7,1979 through October 31,1979 on CWIP included until May 6,1979 in New IIampshire rate base.
"Interrst Charges" increased principally due to (1) additional long-term debt outstanding and (2) an increase in the rates and level of short-term borrowings from banks as an interim method of financing construction of new facilities.
1978 as Compared with 1977:
" Operating Rcrenuts" increased $45,964,000 principally due to a rate increase to New IIampshire ret 'l customers on December 3,1977 ($27,000,000 on an annual basis), increased to $30,000,000 on an annual basis on June 1,1978; a rate increase to wholesale customers on July 29,1978 (approxi-mately $2,400,000 on an annual basis); increased revenue associated with the operation of a fuel adjustment clause ($10,000,000), and an increase in prime energy sales.
" Purchased and Interchanged Power" increased $5,612,000 principally due to increases in capa-city and energy purchases necessary to meet the Company's increased KWII sales and replacement power as required during the shutdown of Merrimack Station.
"Other Operating Expenses" increased principally because of the effect of inflation on wages, supplies and services and emphiyee benefits, the exact amount of which cannot be determined indi-vidually.
"Naintenance Expenses" increased principally due to increased cost of maintenance at Merrimack Station (approximately 60% of the total increase) and because of the effect of inflation on wages and materials (approximately 349) and on costs of annual maintenance at other generating stations (approximately 6%).
a M 000V 90009166 I
j
" Federal and State Taxes on Income" increased $11,267,000 principally due to an increase in current taxable income due to increased operating revenues, and an increase in deferred taxable income.
"Other Taxes, Principally Property Tarcs" increased due primarily to higher real estate property
[
assessments and tax rates.
"Allottance for Equity Funds Und During Construction" and "Allottance for Ih>rrotecd Funds Used During Construction" increased due to an merease in the Company's construction program, primarily the Seabrook nuclear plant.
"Other Income and Dcductions - Other-Net" increased $560,000 primarily as a result of in-creased interest income from short-term investments.
"Inte r(st Charges" increased principally due to (1) additional long. term debt outstanding (ap-proximately 25Si of the total increase) and (2) an increase in the rates and level of short-term borrowings from banks as an interim method of financing construction of new facilities (approxi-mately 7552 ).
1977 a* Compared with 1976:
" Operating Re"rrnuts" increased $18,113,000 in 1977 principally due to increased revenue associ-ated with the operation of a fuel adjustment clause ($7,685,000), an increase in unit power sales
( $3,268,000), a rate increase to New IIampshire retail customers on December 3,1977 ($27,000,000 on an annual basis) and an increase in prime energy sales.
" Furl Expense" increased $15,619,000 in 1977 because a larger percentage of total power supply was generated in Company-owned fossil fuel plants (approximately 499F of the total amount) and due to increases in the mtit costs of coal and oil (approximately 2196), and also because of the inven-tory adjustment referred to in Note B to Statement of Earnings (approximately 3096).
"Other Operating Expcnus" increased in 1977 principally because of the effect of inflation on wages, supplies and services, employee benefits, and additional cost for transmission services associated with additional power purchased.
"Nuintenance Expenses" increased in 1977 principally due to increased costs of maintenance at 31errimack Station (approximately 12Si of the total increase) and because of the effect of inflation on wages and nmterials (approximately 48SF) and on costs of annual maintenance at all generating stations (approximately 40S? ).
"Fcdcral and State Tarcs on Income" decreased $1,334,000 in 1977 primarily due to a decrease in taxable income.
"Other Tarcs, Principally Property Tarcs" increased in 1977 due primarily to higher real estate property tax rates.
" Allowance for Equity Funds Und During Construction" and "Alloteance for Borrotecd Funds Und During Construction" increased substantially in 1977 due to (1) an increase in the Company's construction program, primarily the Seabrook nuclear plant and (2) the effect of compounding of AFUDC semi-annually, effective February 1,1977 as permitted by Federal Power Commission Order No. 561. See Note D to Statement of Earnings.
90009167 t.
m <
19 n, w
i OPEllATING STATISTICS Twelve Months Ended Year Ended December 31, October 31, 1979 1978 1977 1976 1975 1974 MWH Generated and Purchased - Net
~~"~
~~~~
~
l Generated by Water l'ower 280,052 291,972 332,523 328,701 335.521 347,129 l
Generated by Fuel 5,265,169 3,849,653 4,033,704 3,596,002 3,669,800 3,385,098 Total Generated..
5,545,221 4,141,325 4,366,227 3,924,703 4,005,321 3,732,227 Power Purchaned-Nuclear Afilliates.
608,991 674,337 629,116 670,994 618,737 530,129 Other Power Purchased and Inter; hanged 501,065 1,374,245 999,082 1,092,414 819,437 1,138,423 Total Generated and Purc}.ased 6,655,277 6,190,407 5,994,425 5,6 9,111 5,443,545 5,400,779 Disposition of 51Wil Output sold.........
6 "09,680 5,752,784 5,586,378 5,2s6,507 5,055,673 5,054,271 Used by the Company
' 30,543 "2,734 15,217 13,476 13,047 23,821 Absorbed in Delivery 415,054 414,859 392,830 388,128 374,825 302,667, Total Output 6,655,277 6,190,407 5,994,425 5,639,111 g44D15 5,400,779 MWH Hold Itesidentin}
1,803,161 1,765,553 1,700,528 1,676,980 1,552,212 1,552,714 Industrial 1,851,903 1,743,131 1,568,068 1,539,489 1,396,957 1,470,307 600,632 368,785 515,755 372,321 524,831 502,715 Unit Power.
1,953,985 1,875,315 1,763,027 1,697,717 1,581,673 1,528,535 Wholcante, Commercial and Other Total MWII Sold 6,209,630 5,752,754 5,536,378 5,286,507 5,055,673 5,054,271 Bources of Electric Revenue (Thousands of Dollars)
Itesidential Sales
$ 102,572 $ 98,331 $ 81,551 $ 77,153 $ 72,167 $ 57,866 Industrial Hales 72,390 63,565 48,878 45,361 42,049 34,807 13,028 0,104 10,297 7,029 9,130 6,746 Unit Power Hales 92,335 82,549 69,"78 63,392 55,992 44,742 Wholennle, Commercial and Other Mincellaneous Operating Revenue 9,197 7,202 4,783 3,739 7,055 11,769 Total Electric Revenues
$ 259,522 $ 260,751 $ 214,787 $ 196,674 $ 186,393 $ 155,930 Electric Customers (End of Period)
Residential 247,978 244,008 239,830 232,358 226,215 221,737 Indust rial 1,096 1,080 1,046 1,018 987 982 Unit Power.
I 1
1 1
1 1
Wholesale, Commercial and Other 30,362 31,766 30,871 30,115 29,268 28,853 Total Electric Customers 2x1,437 276,555 270,748 263,492 256,471 251,573 Diversity of Industrial Revenues Textile 1*roducts 3.3%
3.7%
3.9 %
4.1%
4.5%
5.6%
Paper Products.
17.7 17.P 16.5 16.8 15.7 17.9 leather Products 2.7 3.0 3.2 3.4 3.6 3.5 Chemicals..
0.8 9.3 9.0 8.3 7.9 8.1 Other Non-Durablo Products 6.8 7.4 7.9 7.6 7.7 7.5 Total Non. Durable Products 40.3 40.6 40.5 40.0 39.4 42.6 Machinery 17.1 16.x 16.3 15.2
.14.8 14.7 Other Durable Products 13.2 13.2 13.0 12.4 12.1 12.0 Total Durable Products 30.3 30.0 29.3 27.6 26.9 26.7 Total Manufacturing 70.6 70.6 69.8 67.8 60.3 69.3 Commercial and Service 29.4 29.4 30.2 32.2 33.7 30.7 Total 300.0 %
100.0 %
100.0 %
100.0 %
100.0 %
100.0 %
Customer Statistics ( Annual)
Average Customers - Residential 245,818 242,410 236,453 "30,390 224,M6 o.n0,937 Average KWII Per Customer - Residential 7,335 7,"83 7,"30 7,279 6,90.
,,008 Average Rate -Cents Per KWH Residential 5.69 5.57 4.74 4.60 4.65 3.73 Industrial 3.91 3.05 3.13 2.95 3.01 37 Other Utilities 3.63 3.20 3.07 2.85 2.44 2.1.
Average Annual Bill-- Residential
$417.27
$405.03
$34 4.00
$334 M
$320.90
$ Nil.91 Average Nuclear Fuel Cost per KWH Generated 0.4127(
0.3634f 0.3181(
0.2859(
0.3506(
0.224Rt Average Fossil Fuel cost per KWH Generated 2.0927(
1.8701(
1.7575(
1.6540(
1.5944f 1.2902(
ul?000?
a 90009168
IlUSINESS Poteer Supply and Properties.
The electric propertiss of the Company form a single integrated system including transmission facilities which are part of the New England-wide transmission grid. The maximum one-hour prime peak load experienced to date by the Company's system was 1,173 net 31W on February 13,1979. At that time the Company had available to meet such load 1,154 31W of its own generating capacity,97 31W from its participations in the four Yankee nuclear generating companies described below under
" Joint Projects" and 217 31W of purchased capacity. Because the generation and transmission systems of the major New England utilities, including the Comparc are operated as if they were a single system, the ability of the Company to meet its load is dependent on the ability of the New Englami utilities to meet the New England load. See "New England Power Pool" below.
The Company has one coal-fired 456 31W electric generating station (31errimack Station), from which the Company has agreed to sell to another utility 100 31W on a single unit basis from Unit #2 through April,199S, and four oil-fired electric generating stations with an aggregate effectise capability of 64131W, consisting of the Newington plant (420 31W), the Schiller plant (180 31W) and two smaller plants. See " Environmental 3Intters" below.
6 The Company also has other generating facilities with an aggregate effective capability of 162 31W us follows: hydro-electric (48 31W), combustion turbine (11131W) and diesel (3 31W). The Company has participations with other New England utilities in five generating units recently com-pleted, under construction or in design stag (s, including the two Seabrook units. See " Construction Program", and see " Joint Projects" and "Seabrook Nuclear Project" below.
Tho Company purchases capa'ity and energy from other utilities as necessary, together with its own generating capacity, to meet its load growth and its reserve obligations under NEPOOL dis-cussed below. These purchases are expected to increase from 217 31W to approximately 306 31W by April, W3 when Seabrook l' nit =1, in which the Company's rodneed interest will be 405.2 31W, is currently scheduled to be completed and to reduce substantially the need for such purchases. See
" Problems Facing the Company" Nesc England Poster Pool.
A New England Power Pool Agreement ("NEPOOL") to which the major investor-owned utilities in New England, including the Company, and certain municipal and cooperative utilities are parties, has been in effect since 1971. This Agreement provides for jomt planning and operation of generating and transmission facilities and also incorporates generating capacity reserve obligations and provisiou regarding the use of major transmission lines and payment for such use.
Substantially all planning, operation and dispatching of electric generating capacity for New England is done on a regional basis under NEPOOL At the time el the 1978-1979 NEPOOL winter peak, the New England utilities had about 21,500 31W of installed capacity to meet the New England peak load of about 14,956 31W.
The Company's capability responsibility under NEPOOL involves carrying an allocated share of a New England capacity requirement which is determined for each period based on certain regional reliability criteria. It is expected that the Company's capacity will be sufficient through its own generating fucilities, its participations and through purchases to meet its NEPOOL obligations in the foreseeable future.
I 90009169 2'
< t. i luAo dm
.a
- o-
joint Projects.
The Company is a part owner with other New England electrie utilitics of four nuclear generating companies. The Company cwns a 776 interest in Yankee Atomic Electric Company, a SSE interest in Cannecticut Yankee Atcmic Power Company, a SSE interest in Alaine Yankee Atomie Power Company and a 49F interest in Vermont Yankee Nuclear Power Corporation, each of which owns an operating nuclear generating phmt with preent net capabilities of 175 31W,575 MW, 78131W and 528 MW, respectively. The stockholders of each of the four nuclear generating companies are entitled to the entire output of the plant in proportion to their respective ownerships, and are obligated to pay their proportionate shares of the generating company's operating expenses and return on invested capital.
The Company is participating on a tenancy-in.conmon basis with other New England utilities in the ownership of five other generating units. One of these, Wyman Unit #4, a 600 31W oibfired generating unit in Stah:e in which the Company has a 3.14339F interest, commenced operation at full capacity in February,1979; the other units are planned or under construction as follows:
Company Share Estimated Construction Cost (3)
Completion Capacity Capacity Total Per Type Date (1)
(MW)
Percent (2) (MW)(2)
(Millions)(2)
KW Seabrook # 1 & #2 Nuclear 1983 & 1985 2,300 35.23495 810.4
$1,070.7
$ 1,321 (New llampshire)
Pilgrim #2 Nuclear 1986 1,150 3.4700 39.9 68.3 1,712 (31assachusetts) 31illstone #3 Nuclear 1956 1,150 3.5910 44.7 100.7 2,253 (Connecticut)
(1) The completion dates of the four nuclear units have been deferred from time to time and addi.
tional deferrals may occur due to licensing delays, economic conditions and other factors.
Due to the time required for the construction of generating facilities and the completion of licensing and regulatory proceedings relating thereto, substantial investments in the above units will be required prior to the completion of licen<ing and regulatory proceedings. There is no assurance that all necessar7 approvals, permits or licenses will be obtained, or if obtained, will not be modified or resoked. See " Industry Problems" (2) See " Problems Facing the Company" for information concerning the proposed reduction of the Company's interest in Scabrook to 35.23497 9 and side of the Company's interest in 31illstone
- 3. If the Company's ownership interest in Rabrook shouhl remain at 504, the capacity would be 1,150 31W and the estimated total cost, $1,429,600.nbo.
(3) Including the cost "f the initial nuclear fuel and AFUDC on the estimated costs of unfinished construction not included in the Company's rate base. APUDC was discontinued on December 3, 1977 on the portion of unfinished construction included in rate base. For purposes of this table such portion of unfinished construction has been excluded from rate base effective 31ay 7,1979 and it has been assumed that AFUDC will be capitalind thereafter on all unfinished construe-tion. See Note D to the Statement of Earnings for a discussion of AFUDC.
22 90009170
Estimated construction expenditures for the jointly owned units used in calculating the estimated cost per KW are based upon information furnished by the utility responsible for the construe.
tion of such unit. The Company has been mlvised by each of the sponsoring utilities that con-struction budgets are continuously under review in light of increased costs due to deferrals, delays and other factors. The estimated expemlitures and completion dates of the nuclear units may also be affected by the licensing and regulatory proceedings relating to each unit and to nuclear power generally and may also be affected by events and conditions which cannot now be predicted.
Seabrook Nuclear Project.
The Company is the lead owner of the Seabrook project nor under construction in Seabrook, New llampshire and has entered into contracts covering the purch se of equipment and services in connection with the project. The project is planned to consist of two Westinghouse pressurized water nuclear reactors utilizing ocean water for condenser cooling purpmes. Other owners of the project presently include The United Illuminating Company ("l'1") (207;), New England Power Company (10Si) and a number of other utilities with snudier participations. UI has made available for sale to other utilities one-half of its 207F ownership interest in accordance with a recommendation of the Connecticut Department of Business Itegulation,1)ivision of Publie l'tility t'ontrol contained in a December,1978 rate decision; howeser, the til offering has not been fully subscribed. See " Problems Pacing the Company" for information conecrning the proposed reduction of the Company's ownership interest in the project.
The project has required numerous approvals and permits from various state and federal regu.
latory bodies consisting principally of a certificate authorizing construction of the plant (which incor-porates related state permits) from the New IIampshire Public Utilities Commission ("NIIPUC")
under New llampshire's power plant siting law; approval of the once-through cooling system for the project by the Environmental Protection Agency (" EPA"); and construction permits from the Nuclear llegulatory Conunission ("NI(C"). All of these approvals and permits have been obtained and, except as described below, there are no appeals or proceedings relating thereto. Construction of the project is continuing and, at September 30,1979, l' nit # 1 and the portion of the project common to both units were approximately 279; complete and Unit =2 was f6f complete.
0 The process of obtaining these approvals ami permits has been long and comi es has been con.
d sistently opposed by a number of intervenine groups, '
nonstrations at the Seabrook site, and he been plagued by lengthy d< lays which greatly inen ased costs for the project. Court appeals from these federal regulator e have neen decided in the Company's favor, but one appeal described below is still pending nLu turther appeals are possible. The Company is unable to predict what effect adverse legislative action, financing problems, work stoppages or further miministrative or court decisions relating to actions of regulatory neencies may have on the completion of the project, on the cost of the project or on the Company. See " Problems Facing the Company" and " Construction Program" SHPUC. The state siting proceedings began in 1972, involved lengthy hearings during 1972 and 1973 and culminated in issuance of the requisite certifiente on January 29,1974. A subsequent appeal to the New Ilampshire Supreme Court resulted in a remand for further findings but did not invali-l 23
~e p 90009171
r date the certificate. The supplemental findings were issued on December 30,1975; no further appeals were taken. The certificate has recently been modified to refleet the extension of the cooling water j
intake tunnel ordered by the 10PA, transmission line relocations ordered by the N1(C, and certain other transmission line relocations.
1 NllC. The N!!C proceedings commenced with the docketing of the application for construction i
permits on July 9,1973. The hearings before an Atomic Safety and Licensing Board (the " Licensing Iloani"), in which seven interrenors in opposition participated, consumed over sixty days during 1975 and 1976 and cuhninated on,Iune 29,1976 in the issuance by the Licensing Board of its Initial Deci-sion (one member dissenting), approving the issuance of construction permits for the Seabrook project.
l The NRC issued the permits on July 7,1976, and construction commenced shortly thereafter but was l
subsequently suspended in 1977 and 1978 for periods of seven months and three weeks, respectively, l
as a result of administrative proceedings and court appeals.
1 The Initial Decision was affirmed by an NitC Atomic Safety aml Licensing Ap ~d Board (the
[
" Appeal floard") (with one member dissenting) and by the NitC. The dissenting member of the l
Appeal floard issued his dissenting opinion which relates to the seismic issue on August 3,1979 and the majority issued a supplemental opinion in response to the dissent on September 6,1979. One intervenor has filed a timely renewal of its petition for review of the seismic issue which is now pend-ing before the NitC There is presently pending before the United States Court of Appeals for the First Circuit an appeal by interrenors from a decision of the NIlO challenging the NitC's refusal in 1976 to saspend tho Seabrook construction permits despite a court decision in litigation not involving the Company which set aside the NitC's rule with respect to the environmental effects of reprocessing spent fuel and disposing of nuclear waste. (Natural fluourru Defense Council, Inc. v. XItc, D. C. Cir. Nos. 74 1385 and 7415R6, which was reversed and remanded by the United States Supreme Court on April 3,1978 in Vermont Yanhe Xuchar I'meer Corporation v. Natural fluourcu Difcnse Council, Inc., No.76-419). 10ffective September 4,1979, the NitC (one member dissenting) has promulgated its final l
rule (which supersedes the interim rule in place since 31 arch,1977) covering the environmental impact of reprocessing spent fuel and disposing of nuclear waste. A petition for review of the final rule is pending before the United States Court of Appeals for the District of Columbia Circuit (State of X(n Fork v. XI/C., D.C. Cir. Nos. 79 2110 and 79-2131). The Company believes that the environ-mental effects of the fuel cycle, determined in necordance with the new rule, are too small to affect the environmental cost-benefit evaluation of the project.
In Slarch,1979, after the Company announced its decision to reduce its ownership interest in the Seabrook project, an intervenor filed a request with the NItC staff for issuance of a show cause order as to why the construction permits should not be suspended or revoked because of the Company's alleged lack of financial qualifications and lack of review of financial qualifications of the partici-pants whose ownership interests are proposed to be increased. On November 16,1979 the NTtC Direc-tor of Nuclear llenetor Begulation issued a decision denying the petition. On May 2,1979 the same intervenor filed a further request with the N!!C staff for issuance of a show cause order as to why the construction permits should mit be suspended or revoked because of the NitC's failure to require development of evacuation plans beyond the low population zone and to evaluate the consequences of certain types of accidents including the possibility of such evneuation. The Company cannot predict when the staff will act on either request or what actions it will take.
o4
~
N 90gue 90009172
Before either of the Seabrmk units can be put into operation, the Company must obtain the requisite operating license from the NRC. The Company intends to file the necessary applications V
therefor in mid-1981 well in advance of the projected in-service date for Unit #1; however, the Company cannot predict the extent of the regulatory proceedings which will result or their outcome.
See " Industry Problems" t
eel. Under the Federal Water Pollution Control Act, as amended, the EPA has jurisdiction over discharges from the cooling sy. stem of the Seabrook plant. In August,1974, the Company applied to EPA for approval of the once-through cooling system utilizing ocean water ami, in. lune and October,1975, the regional administrator of Region I of EPA approved the concept subject to extending the intake tunnel further offshore. After a further hearing resulting from a court remand, the EPA Administrator on August 4,1978 reaffirmed his previous approval of the once-through cooling system and that decision was afCrmed by the United States Court of Appeals for the First Circuit on May ",1979. The period for seeking further review has expired.
Oth e r.
The Company is also involved in proceedings or disputes concerning title to a portion of the Seabrook site, the undergrounding of the Seabrook transmission lines and the use of the Com-pany's water wells on the Seabrook site. The Company believes that none of these matters will have a material adverse effect upon the Seabrook project.
Imu rance. The Federal Price-Anderson Act provides, among other things, that the nutximmn liability for danutges resulting from a nuclear incident would he $560 million, to be provided by private insurance and governmental sources. As required by NRC regulations, prior to operation of the Seabrook project, the owners of the Seabrook projt et will insure against this exposure by pur-chasing the maximum available private insurance (presently $160 million), the remainder to be cov-ered by retrospective premium insurance and liy an indemnity acreement with the NRC. Under recent amendments to that Act, owners of opt rating nuclear facilities may be assessed a retrospective premiuni of up to $5 million for each reactor owned in the esent of any one nuclear incident occur-ring at any reactor in the l'nited States, with a inaximtun a.ssessment of $10 million p r year per reactor owned. As a part owner of other operating New England facilities (see ".loint Projects" above), the Pompany would be oblicated to pay its proportionate share of any such assessments, which f
presently amounts to a maxinunn of $1,050,0no per incident. While it is not yet possible to evaluate
/
the claims being asserted as a result of the T.Til incident, the Pompany does not anticipate any assess-ments being levied under these provisions as a result of that incident.
Regulation.
The Company, as to retail rates, security issues, and various other matters, is ruhjeet to the regulatory authority of the NIIPUC. A management audit report prepared by an independent management consulting firm at the direction of the NilPIT released in October,197h, identified the following management strengths: tight control of staff levels and employee compensation, sound finan-cial planning, sound manacement of the Seabrook project, and a strong transmission and distribution system planning and engine < ring function. According to the report, the more significant opportuni-f ties for improvement are in the follo, vine areas: the overburdening of top management, correction of operating problems at Merrimack Station, fuel procurement and storage, and public relations. In 25 l
M Mugg 90009173 1
addition to recommernling expansion of the top management group by the creation of several new exceutive positions, the report recomincials reorganization and strengthening of the fuel Inanagement function, ktrengthening of the publie affairs function, atul a colnprehensive review of Merrimack Station operations. The Company accepted most of the audit report recomtnendations and is in the process of implementing those recommerulations which were accepted. While the implementation of any particular recommendation is not expected to have a material effect upon the Company's opera-tions, overall implementation is expected to improve the efliciency of the Company's operations at an annual cost of approximately $3,000,0W).
As to properties aml business in 3faine and Vermont, the Company is subject to the regulatory authority of the Public Utilities Comrnission of Maine ("MPIT") and the Vermont Public Ser.
vice Board, respectively. Additionally, both the Connecticut 1)epartment of flusiness Regulation, 1)ivision of Public Utility Control and the Massachusetts 1)epartment of Public Utilities have limited jurisdiction over the Company based on the Company's ownership as a tenant-in-common of portions of the Millstone : 3 and Pilgrim #2 nuclear units. See " Joint Projwts" above. The Company is also subject, as to some phases of its business, including accounts, certain rates, and licensing of its hydro-electric generating plants, to the jurisdiction of the Federal Energy Regu atory Commission
("FERC") under the Federal Power Act. The various nuclear generating units in which the Com-pany has an ownership interest are subject in their construction and operation to the broad regulatory jurisdiction of the NHC uraler the Atomic Energy Act of 1954, particularly in regard to public health, safety, environmental and antitrust matters. See also " Environmental Matters" below.
Rates - Nese Hampshire Retail.
On May 25,1978, the NHPUC granted the Company an increase in iis New Hampshire retail rates of approximately $30,000,000 on an annual basis based on a test year ending in April,1977.
The order allowed the Company a return on conunon equity of 149, an overall rate of return of 10.199, and included in rate base CWIP associated with major generating facilities. The order of the NIIPUC was afilrmed by the New Ilampshire Supreme Court on May 17, 1979. The rates filed with the NHPUC in April,1977 were placed in effret on I)ecember 3,1977 subject to refund; under the NilPUC's May 25,1978 order, no refunds were recessary. On May 17, 1979 the New Hampshire Supreme ('ourt decided that the Company had unlawfully applied the new higher rates to bills remiered after I)eermber 3,1977 for service rendered before that date, and pursuant to an NHPUC order the Company has made refunds to its New Hampshire retail customers of approximately
$ 1,000,000 After passage of a New Hampshire statute prohibiting the inclusion of CWIP in rate base, the NHPUC excluded CWIP from the Company's rate base as of May 7,1979. At the stune time, the NilPlT allowed the existing rates to remain in effect, determining that the Company's rates could not be changed without an investigation to establish new rates which woubl provide a just and reason-able rate of return for the Company, and noted its preliminary conclusion that the exclusion of CWIP by increasing the overall risk to investors justifies an overall rate of return to the Company higher than that allowed in the 1978 proceeding. On intervenor appliention for rehearing, the NilPIT, on December 11, 1979, refused to order immediate refunds based on the exclusion of CWIP, but stated that interrenor rights with respect to possible rebates would be preserved.
"6 i
90009H4
The company filed with the NIIPUC on August 31,1979, a new tariff intended to establish new permanent rates designed to generate revenues approximately $18,500,000 (about 8.49f ) on an annual basis higher than those presently in effect. These rates would be based on a test year ending my 31, 1979 and in part on pro forran adjustments to refleet changes since that date, deletion of CWIP from rate base, an increase in depreciation rates for distribution plant, normalization of the income tax effect of liberalized depreciation with respect to property placed in service after 1970, and an 1892, return on common equity. The new tariff has been suspemled for investigation, and evidentiary hear-ings have begun.
On Novemin r 27, 1979, the Company filed a request with the NIIPUC for an emergency sur-charge designed to inercase annual revenues by approximately $11,970,000 (about 5.57;) on an annual basis above those currently received. This surcharge represents a portion of the 8.4% permanent rate inercase requested by the Company in August. On !)ecember 21, 1979, the NIIPUC granted the
('ompany the full amount of its requested increase to take effect under bond on December 28,1979.
The Company has a fuel adjustment clause which is designed to recover, after a two months' lag, all fuel costs above base, including the energy portion of the cost of purelutsed power. A hearing and prior approval by the NIIPl'C is required with respect to each month's fuel adjustment rate.
In January,1975, the NilPI'C ordered an investigation into the rate structures of the electrie utilities und( r its jurisdiction. IIearings began in July,1975 and continued from time to time through 1978. While the investigation has not been concluded, the proceeding has involved only the proper distribution of rates among the various customers and customer classes and not overall revenue re-q uiremen t s.
Pmsuant to an interim order of the NIIPl'C issued in January,1977, the Company performed peakdoad pricing rate experiments involving certain of its customers and reported the results to the NilPIT legislation was enacted in 1978 requiring the Company to offer time of day and seasonal rates on an optional basis, and such rates have been made available to its residential customers and have been filed for its other customers.
Kates - Other.
Itates to the Company's wholesale-for resale customers increasing revenues from these customers t
by approximately $3,865,000 on an nnnual basis became effective as of April 11, 1976. On April 28, 1978, the Company filed new rates with FEltC proposed by the Company to be effective on my 29, 1978 that would increase revenue from the Company's wholesale-for. resale customers by approxi.
mately $2,40n,0n0 or 7.7% on an annual basis based on a 1978 test year: the new rates went into effect subject to refund on July "9,1978. The Company has also filed with FEllC a p< tition requesting the inclusion of CWIP in rate base. After trial of the CWIP issue, the Administrative I,aw Judge issued an initial decision e January 25,1979, which authorized the Company to include in rate base CWIP associated with major generating facilities and which allowed the Company a return on common equity l
of 139. That decision has been appealed to FEllC. The Company cannot place w holesale rates based on UWIP into effect unless and until FEltU issues a final favorable detision on the CWIP issue.
In another proc < cding befo,e FHitP, the Company's right to collect through a surcharge approxi-mately $1,Gn,nno of necrued but unbilled fuel clause revenue was contested by certain whohwale-for-resale customers, and FEl(P ruled against the surcharge and ordered the Company to refuml approxi-1;It'(ll.!I) 1 -
o_,
90009175
mately $1,622,000 with interest, the Imlance not having been billed. F8RC's decision was affirmed by the United States Court of Appeals for the District of Columbia Circuit, and the Company's request for Supreme Court review has been denied. The Company intends to amortize the after-tax cost of this refund over the twelve-month period ended December 31, 1980. In another phase of the same proceeding, FEltC has ordered a refuni. of the higher cost of spot-market purchases of coal by the Company; the Company's request for a rehearing on the order has been denied. The Company has not yet determined whether to appeal the order.
On December 21,1979, the Company filed with FERU new rates for its wlmlesale-for resale cus-tomers that would inercase revenues from such customers by approximately $4,294,000, or 10.19, on an annual basis. The Company has proposed that the new rates be made effective in two steps parallel to the steps the Company has taken to inecease its retail rates in New IIampshire. The Company has requested that the first step emergency increase of approximately $3,567,000, or 8.49, be allowed to become effective on January 22, 1950, after a one-day suspension. The Company has requested a second step additional rate increase of approximately $727,000 to be allowed to become effective on April 1,1980, after a short suspension. F1:I(C is empowered to suspeml each proposed increase for up to five months from the proposed effective date, and such increases will be subject to refund.
9 Itates essentially identical to those in effect in New IIampshire prior to I)ecember 3,1977 were placed in effect in Vermont on 3 fay 1,1975, and in 31aine on Starch 2,1970. On an annual basis, about $G,000 of additional revenues results from the Vermont increase and approximately $592,000 results from the 31aine increase. In its decision allowing the increase to became effective in 31aine, the 3tPUC conunented on the disparity between the allowed rates of the Company and those of Central 31aine Power Company (CSIP), which serves adjacent territory at lower rates. The decision requested the managements of the two companies to discuss the possibility of a transfer of the Company's 3faine business to CMP and stated that in the future the MPUC might use CMP's rates as a yardstick to determine the reasonableness of the Company's rates. While preliminary discussions have been held
~
between the two managements, no conclusions have been reached concernine the desirability of such a transfer. A complaint was filed with the 31PUC in April,1976, by two 3Inine municipalities and a number of their residents who are customers of the Company alleging that the Company's rates are unreasonable and discriminatory and requesting that the rates be reduced to a level no higher than the rates of CMP. Hearings began in December,1976, and the proceeding is still pending. In 1978 the Company obtained from its 3faine customers approximately 1.49 of its operating revenues.
On August 20,1979, the Company ided with the MPfC a petition requesting a temporary rate adjustment for its 3{aine customers which would increase revenues approximately 99 or $340,000 on an annual basis; this proceeding is pending. On October 31,1979, the Company filed new rates with the MPUC proposed by the Company to be effective on December 1,1979 which wouhl increase revenues from the Company's Maine customers by approximately $1,000,m0 or 279 on an annual basis on a test year endine May 31,1979; the new rates have been suspended pending investigation. The requested 279 permanent increase includes the requested 99 interim inercase.
The Company and Green Mountain Power Corporation have agreed upon the sale of the Com-puny's retail business and properties in Vermont for approximately $727,000 (the price to be adjusted 19 refleet changes occurrine a fter fiscal 1978), subject to the receipt of necessary regulatory approvals.
Ilevenues from the Company's Vermont business in 1978 amounted to approximately $672,003, or about 0.259 of the Company's operating revenues.
9000996 2s
^
e s POM
Fuel Supply.
For the twelve ruonths ended October 31,1979, the Company's firm net output was derived 48c/c from oil,37% from coal,109 from nuclear, and 59 from hydro. As indicated above under " Power Supply and Properties" and "New England Power 1%1", substantially all of New England's genera-tion and transmission systems, including those of the Company, are operated as if they were a single system.
Oil. The New England electrie utilities, including the Company, make greater use of fuel oil for generation of power than those in any other region of the country. Most fuel oil supplies of the New England utilities are derived from foreign sources and are subject to interference by foreign governments and price increams. The Company has negotiated a contract expiring on December 31, 1981 with a supplier for fuel oil for the Company's two large oil-burning plants. The storage capacity for the Company's two arge oil.hurning plants is approximately 30 days operating at full load, and inventory varies substantially depending upon oil shipments. During 1979, the average inventory through December 15,1979 was approximately 15 days operating at full load. The two small plants have limited storage capacity. See " Environmental Mattem" below.
Coal. Coal for the Company's only coal. burning unit, the 456 MW Merrimaem plant, is presently being furnished from West Virginia sources under a contract which expires in April,1983. The contract generally provides that a 45-day supply of coal is to be maintained for the Company, that the base price of the coal may be changed by the seller annually but the Company's disagreement with the change will result in termination of the contract at the end of the year, and that the price of the coal is subject to certain adjustments for changes in the seller's costs. The company's policy is to maintain a 64 day supply of coal on hand for the Merrimack plant; at December 8,1979, a 62. day supply was on hand. The plant, with 119 MW and 337 MW units, presently requires a total of approximately 1,000,000 tons of coal per year. Future annual tonnage requirements of the Company may be more or less than that figure depending upon a number of variables including particularly the relative cost and availability of coal and other fuels and possible conversion of units presently burning oil. See
" Environmental Matters" below.
The Company's approximate average costs of oil and coal for 1973 through October 31,1979 were as follows:
Coal j
Oil Per Oil Per Coal Per Coal Per Spot Price llarrel Million llTU Ton Million 11T0 Per Ton 1973
$ 3.75
$0.61
$ 13.78
$0.51 1974 11.32 1.83 21.97 0.82
$40.67 1975 11.49 1.88 32.55 1.24 37.50 1976 10.95 1.77 34.33 1.25 35.27 c
1977 12.97 2.09 35.54 1.31 1978 12.13 1.95 39.09 1.47 38.54 1979 (through oct-ober 31) 15.27 2.45 41.28 1.53
'No spot purchases by the Company during the period.
1 29 90009177 6 Q W p.0 0 V
Nuclear. The cycle of production of nuclear fuel consists of (1) the mining and milling of uranium ore, (2) the conversion of uranium concentrate to uranium hexafluoride, (3) the enrichment of the uranium hexafluoride, (4) the fabrication of fuel assemblics and (5) the reprocessing, storage, or disposal of spent fuel.
With respect to the Seabrook units, the Company has long-term contracts for enrichment. The Company also has contracts for conversion services and for the fabrication of the initial cores and six reload regions (each region consisting of one-third of a complete core). These contracts are expected to meet the Company's requirementa for fuel cycle services as follows: enrichment through 2008, conversion through 1987, and fabrication through 1986.
The Company has contracted for all of the uranium concentrates required to commence operation of the Seabrook units and is actively seeking additional sources thereof, which it expects will be avail-able when needed. The Company has no contractual arrangements for reprocessing of spent fuel and there are no reprocessing facilities currently operating in the United States; President Carter has stated the position of his Administration to be that the United States should defer indefinitely com-mercial reprocessing and the recycling of spent nuclear fuel. If such services are not available when required for the Seabrook units, the spent fuel can be stored pending reprocessing or disposal.
Although the cost of such storage is not known at the present time, it is anticipated that such cost would be substantial. The Company cannot predict at this time what difficulties will be encountered regarding disposal of nuclear wastes. The NRC, along with other federal agencies, is in the process
]
of developing regulations and guidelines in this area. The Company expects to develop plans for the disposal of its nuclear wastes after promulgation of these regulations and such plans will be subject to regulatory approvals.
The Company has been advised by the companies operating, planning or constructing the other nuclear generating stations in which the Company has an interest that they have contracted for certain segments of the nuclear fuel production cycle through various dates. The Company has further been advised by the sponsors of the four operating nuclear generating stations that they have or will have storago capacity to meet the spent fuel storage needs of the units through various datea ranging from 1985 to the late 1990's. Contracts for other segments of the fuel cycle will be required in the future, and their availability, prices and terms cannot now be predicted.
National Energy Policy.
A national energy act was recently enacted dealing with coal conversion, gas deregulation, energy conservation, energy taxes and utility rate regulation; the effect of this act on the Company, including its rates and fuel supply, cannot be predicted at this time.
Cnrironmental Matters.
The Company is subject to regulation with regard to air and water quality, and may be subject to regulation with regard to other environmental considerations, by various federal, state and local authorities. The Company cannot forecast the effect of all such regulations upon its generating, trans-mission and other facilities, or its operations.
The application of federal, state and local standards to protect the environment, including but not limited to those hereinafter described, involves or may involve review, certification or issuance of 30 r
90009178 i
l l
permits by various federal, state and local authorities. Such standards, particularly in regard to emissions into the air and water, thermal mixing zones and water temperature variations, may halt, limit or prevent operations, or prevent or substantially increase the cost of construction and operation l
of installations and may require substantial investments in new equipment u existing installations.
l They may also require substantialinvestments above the figures stated under " Construction Program" for proposed new projects.
Air Quality Control. Pursuant to the Federal Clean Air Act of 1970, as amended, the State of New llampshire acting through the New Ilampshire Air Resources Commission (" ARC") has adopted regulations containing standards limiting emissions of particulates, sulphur oxides and nitrogen oxides, which are gencrally designed to achieve and maintain Federal primary ambient air quality standards. The Company believes that its fossil fuel generating units are being operated in compliance with AllC's regulations.
Pursuant to the 1977 amendments to the Clean Air Act, ARC has proposed lists showing those areas of New llampshire which have attained or failed to attain national ambient air quality standanis, and revised the State implementation plan, which the EPA has conditionally accepted. It does not appear that the revised State implementation plan will require the Company either to modify operations at any of its fossil fuel generating plants or expend funds for additional air pollution I
control equipment.
While coal now available and expected to be available in the future for the Company's Merrimack Station presently meets all applicahic requirements, if more stringent requirements become effective which could not be met by such coal, the Company might have to install sulphur removal equipment at substantial capital cost or take such other actions as may be required by regulatoc authorities. The installation of such equipment would increase operating costs and reduce the net capability of the units.
In July,1979, the NHPUC instituted an investigation to determine whether any of the five Schiller Station units should he' converted from burning oil to burning natural gas or coal. Ilearings have been held at which the Company has expressed its willingm ss to pn.ceed with conversion to coal provided certain envininmental and economic questions are satisfactorily resolved, but the Company has nyuested the NIIPPC to suspend further consideration of the matter pending developments in the fedend proceedings described below. The Economic Regulatory Administration of the United States Department of Energy (" DOE") on November 19, 1979, issued a notice of proposed prohibition or-ders under the Puel Use Act of 1978 prohibiting three 50 MW units of the five units at the Company's Schiller Station fnem burning oil or natural gas as their primary fuel. It is expected that DOE will, following expiration of certain comment periods and public hearings, issue its order prohibiting the burning of oil or natural gas and therchy nyuiring conversion of the thn+ units to the burning of coal.
Such conversions would requin substantial expenditures and reduce the capability of the units affected.
Water Quality Control. The Company has received from EPA, or from the Maine Department of Environmental Protection in the case of one generating station located in the State of Maine, all o
permits required under the Federal Water Pollution Control Act, as amended, for discharges of thermal and other ef!htents from its generating stations. Such permits have varying expiration dates and the Company has made and expects to make timely applications for renewal. The EPA issued effluent limitations guidelines for steam electric power plants based on appliention of the best practicable control technology (to he met by July 1,1977) and of the best available technology ec>
nomically achievable (to be met by July 1,1984), and alternate effluent standards with respect to bi %.
90009179 s'
31
l thermal discharges from steam electric power plants. The guidelines and standards impose rigorous l
limitations upon the industry. An industry group filed an appeal in a Federal Court of Appeals i
challenging the guidelines and standants, and the Court of Appeals remanded the guidelines and standards to the EPA for reconsideration of certain of them. The Company is in compliance with the July 1,1977 guidelines.
J The discharge permit for the Company's Newington plant contains conditions requiring installa-tion of some type of closed-cyclo condenser cooling system if an exemption is not obtained. The Com-pany has been studying the effects of the plant's operation on the aquatie environment of the Pisca-taqua Itiver and will apply to EPA for an exemption to permit continuation of the present once-through cooling. While it cannot be known what action EPA will take on such application when filed, the Company believes that the results of its studies will support the granting of such exemption. If the Company should be unable to obtain such requested exemption, it would have to make substantial capital expenditures to install the closed-cycle condenser cooling system.
The Company has an ongoing requirement in the discharge permit for its 31errimack plant to monitor the effect of the plant's operation on the 31errimack River. The Company has thus far been ablo in show as required by the permit that the plant's present once.through cooling system does not interfere with resident fish in the affected portion of the Merrimack Itiver. The permit requins that additional biohvical studies he performed by the Company at such time as significant numbers of migratory fish are restored to the 31errimack River for the purpose of showing as n quired by the permit that the present cooling system does not interfere with migratory fish.
The Company's construction and operation of the Seabrook plant, including environmental con-siderations, is subject to regulation by the N1tC and the EPA. See "Seabrook Nuclear Project" above.
Other Environmental Expenditures. The Company's capital expenditures for environmental pn>tection facilities amounted to appniximately $8,fi30,fM10 for 1978, the major portion of which was for facilities to reduce the thermal effect of the discharge of the Seabnmk plant condenser cooling systems, with $250,000 for the control of water pollution at other Company facilities, and approxi-mately $l3,600,000 during 1979.
For the years 1980 and 1981 and for the years 1982-1983, there will he approximately $10,000,000,
$8,R50,000 and $1.950,000, respectively, of further expenditures for these pollution contnil facilities.
The foregoing amounts are included in the construction expenditures set forth under the captions "1980" and " Unadjusted 1981-1985" in the table under " Construction Program." Any expenditures associated with the conversion at the Schiller Station referred to above wouhl be in addition to these amounts.
Employees, Salaries and Wages.
The Company has approximately 1,730 employees, of whom 35% are represented by unions with which the Company has contracts. Such contr' acts became effective June 1,1979, and will expire on July 31,1981. The contracts reflect a 7.59 general wage increase effective June 3,1979 and an addi-tional 7.9% increase effective June 1,1980. Increases comparable to the June 3,1979 increase to union. represented employees have been and will be granted to non-represented employees.
90009180 g pyg
l l
Voluntary Wage and Price Guidelines.
The company is subject to the voluntary Wage and Price Standards of the Federal Council on Wage and Price Stability. The guidelines, now in the second program year, pn> vide that annual increases of wage and benefit payments shoubt not exceed 79, basically the same pay standards which applied the first program year, and that price increases during 1979 1950 can be no greater thtui the base perimi (19761977) price change or 199, whichever is less. The regulatory agencies are asked to assnre compliance to the fullest extent possible. The Company is unable to predict what effect these standards will have upon its operations in the future.
Municipalities and Cooperatices.
New Ilampshire law permits municipalities to engage in the production and sale of electricity, including the power to ecndemn the pL.nt and prolerty of any existing public utility which is located in the municipality. Under legislation enacted in 1975, intended primarily to enable all electric sys-tems (including municipalities) to participate in regional bulk power supply projects, New Ilamp.
shire inunicipalities now have broader powers with respect to contracting and extra. territorial activity, as well as the power to finance through the issuance of revenue bonds the ownership of new generating l
units of at least 25 MW aml new transmission facilities of at least 69 KV. The City of Berlin took preliminary action in 1969 and 1970 authorizing the City to engage in the production, distribution and sale of electricity, but the matter has not been finally determined. The Company's revenues from sales in the City of flerlin in 1978 were about $6,220,000 including revenues of about $3,229,000 from a single large industrial customer. If the City of Ilerlin were to nerptire ownership of the Company's property, the Company woubt he entitled to compensation for the fair value of its property and any severance damages. No other municipality serval at retail by the Company is, so far as is known to the Company, taking steps to engage in such business.
New llampshire Electric Cooperative, Inc., a cooperative association financed by the Rural Elec-trification Administration, as well as five small municipal electrie utilities, operate in areas adjacent to areas served by the Company. The Cooperativg p and is subject to regulation by the NIIPUd an a,'p,nrf[ases most of its electricity from th rthl'ic utility. The Cooperative has agreed to pur.
chase a 2.17301 9 interest in the Seabrook plant. See " Problems Pacing the Company" 90009181 Y, $%
I
=
(
33
l IIIIIS I' AGE INTENTIONALLY LEFT BLANg; 90009182 4
6 g
34
l REPORT OF INDEPENDENT CEltTIFIED PUllLIC ACCOUNTANTS I
The Board of Directors PtmuC SERVICE CO1WMY OF NEw IIAhWSHIRE We have examined the balance sheet of Public Service Company of New Hampshire as of Decem.
ber 31,1978 and the related statements of earnings, retained earnings, other paid-in capital and changes in financial position for each of the five years in the period then ended. Our examinations were made in accordance with generally accepted auditing standards, and accordingly included such tests of the accounting records and such other auditing procedures as we concidred necessary in the circumstances.
In our opinion, the aforementioned financial statements present fairly the financial position of Public Service Company of New Hampshire at Deecmber 31, 1978 and the results of its operations and the changes in its financial position for each of the five years in the period then ended, in con-formity with generally accepted accounting principles applied on a consistent basis.
PEAT, SIARWICK, 31!TCl!EU, & CO, Boston, 5f assachusetts February 16,1979, except as to Note 8, which is as of March 5,1979 90009183 6
0 A
e
{.i 35
f PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE l
BALANCE SIIEET ASSETS October 31, December 31, 1979 1978 t
(Unaudited)
Utility Plant, at Original Cost (Note 1):
Electric Plant
$519,737
$507,711 Less Accumulated Provision for Depreciation 146,723 134,373 373,014 373,338 l
Unfinished Construction (Principally Nuclear Generating Projects)
]
(Note 8) 484,626 346,382 Net Utility Plant 857,640 719,720 Investments (Note 1):
Nuclear Generating Companies 9,622 9,529 Real Estate Subsidiary 3,951 4,472 Other, at Cost 184 184 Total Investments 13,757 14,185 Current Assets:
Cash (Note 3) 2,259 1,879 l
Temporary C 16 vent igp Cost Approximating Market 1,500 1
Accounts Rec.n b e 27,731 27,588 Unbilled Revenue, Estimated (Ncte 1) 21,024 18,057 Fuel, Materials and Supplies, at Cost 27,321 20,743 Prepayments 577 3,330 I
Total Current Assets 81,012 71,597 Other Assets:
Miscellaneous Properties 251 314 Deferred Debits 8,312 5,359 Unamortized Debt Expense 963 926 Total Other Assets 9,526 6,599
$961,935
$812,101 See accompanying Notes to Financial Statements.
900091.84 36
1 PUI1LIC SEltVICE COMPANY OF NEW ILulPSIUltE l
BALANCE SIIEET CAPITALIZATION AND LIABILITIES October 31 Decernl,cr 31, Capitalization:
1979 1978 Common Stock Equity:
( U"""di'*d )
(Thousands of Dollars)
Common Stock-$5 Par Value (Note 4)
Authorized: 18,000,000 Shares Outstanding: 13,932,200 Shares (1978 -- 9,786,969)
$ 69,661
$ 48,935 Other Paid-in Capital 166,20.3 108,232 Retained Earnings (Note 6) 69,337 71,140
(
Total Conunon Stock Equity 305,200 228,307 I
Preferred Stock (Note 4) 52,543 53,562 Preferred Stock - Redeemable (Note 5) 60,000 30,000 Long. Term Debt-Net (Note 7) 319,813 287,252 Total Capitalization 737,556 599,121 Current Liabilities:
Notes Payable-Banks (Note 3) 73,100 85,325 Long-Term Debt to be Retired Within One Year (Note 7) 27,096 5,231 l
Accounts Payable (Note 3) 45,747 68,035 Dividends Payable 9,R0f Acerued Taxes 4,423 12,349 Accrued Interest 6,019 0,215 j
Other 1,749 1,145 Total Current Liabilities 167,940 178,300 Deferred Credits:
Accumulated Deferred Investment Tax Credits (Note 1) 28.081 12,488 Accumulated Deferred Tares on Income (Note 1) 27,873 21,716 Other 485 476 Total Deferred Credits 56,439 34,680 Commitments and Contingencies (Note 8)
$961,935
$S12,101 See accompanying Notes to Financial Statements.
M#fSfW 90009185 37
PUBLIC SERVICE COMPANY OF NEW IIANPSIIIRE STATEMENT OF ILETAINED EARP.INGS Top Months j
Ended Year Ended December 31, October 31, 1979 1978 1977 1976 1975 1974 (Unaudited) tihousands of Dollars)
Balance at 11eginning of Period
$ 71,140
$58,725
$56,084
$51,936
$45,070
$40,613 Net income 33,407 36,507 21,722 20,995 20,608 16,300 104,547 95,232 77,806 72,931 65,878 56,913 Deduct :
Dividends Declared:
Preferred Stock, at Required Annual Rates 7,966 6,394 4,925 4,854 3,416 3,379 l
Common Stock "7,244 17,60s 14,156 11.993 10,526 8,464 Total Dividends 35,210 24,093 19,081 16,847 13,942 11,843 Balance at End of Period (Note 6)
$ 69,337
$71,140
$58,725
$56,084
$51,936
$45,070 STATEMENT OF OTIIElt PAIDIN CAPITAL Ten :nonths Ended Year Ended December 31, 1
October 31, 1979 1978 1977 1976 1975 1974 l
(Unaudited)
(Thousands of Dollars) 11alance at Beginning of Period
$104,232
$ 90,409
$70,821
$54,411
$53,102
$38,348 Excess of Proceeds over the Par Value on j
the Issuance of Common Stock:
Sold - 1,650,000 Shares in 1974, 1,000,000 Shares in 1976, 1,"00,000 Shares in 1977, 1,321,284 Shares in 1978 and 4,100,736 Shares in 1979 58,449 17,461 18,961 15,781 (24) 14,665 Conversions-5.50% Convertible Pre-ferred 8tock, 3,632 Shares in 1974, 97,545 Shares in 1975, 35,000 Shares in 1976, 37,092 Shares in 1977, 21,171 Shares in 1978 ancl 44,504 l
Sharea in 1979 796 407 751 739 2,061 89 Preferred 8tock Issuance Expenses (1,275)
(45)
(124)
(110)
(728)
Balanco at End of Period
$166,202
$108,232
$90,409
$70,f1
$54,411
$53,102 See accompanying Notes e Financial Statements.
90009186 M_w.
as l
i
'1
l I
PUllLIC SEltVICE COMPANY OF NEW IIAMPSlllllE STATEMENT OF CIIANGES IN FINANCIAL POSITION l
Twelve Months
[
En ed Year Ended December 31, 1979 1978 1977 1976 1975 1974 (Unaudited)
(Thousands of Dollars)
From Operations:
Net Income
$ 39,708
$ 36,507
$ 21,722
$ 20,995
$ 20,808
$ 16,300 Principal Non-Cash Charges (Credits) to Income:
Depreciation 15,369 14,752 14,117 13,791 13,522 11,624 Allowance for Equity Funds Used During Construction (13,601)
(7,828)
(6,093)
(3,205)
(1,573)
(1,785)
Deferred Taxes and Investment l
Credit Adjustments 23,075 7,024 5,610 2,517 6,400 4,136 Total from Operations 64,5T1 50,455 35,356 34,098 39,157 30,275 Prom Outside Bources:
Bale of Iong Term Bonds and Notes 60,000 60,000 25,000 15,000 22,300 45,000 Rale of Preferred Stock 30,000 18,000 15,000 Salo of Common Stock 79,579 24,309 25,092 20,870 23,022 Change in Short Term Borrowing 19,475 30,212 55,113 (28,400)
(20,880)
Advance Payments from Joint Project Participants 10,629 1
Total from Outside Bources 199,682 114,521 123,205 35,870 8,900 47,142 Decreano in Working Capital 33,510 44,939 5,1E Total
$264 "33
$19s,486
$158,561
$114,907
$ 53,157
$ 77,417 Application of Funds:
Property Additions
$210,836
$173,539
$114,310
$ 70,252
$ 38,313
$ 46,926 Allowance for Equity Funds Used During Construction (13,601)
(7,828)
(6,093)
(3,205)
(1,573)
(1,785)
Dividends 35,210 24,092 19,081 16,847 13,942 11,843 Reduction of Long Term Debt 2,758 5.947 9,271 29,517 947 882 Increase in Working Capital 23,766 20,378 19,528 Other Applications - Net 5,264 2,736 1,614 1,496 1,528 23 Total
$264.233
$198,4 56
$ 158,561
$114,907 8 53,157
$ 77,417 Increase (Deerense) in Working Capi-tal Other Than Short Term Debt:
Cash and Cash Investments
$ 1,167
$ (3,050)
$ (442)
$ (2,467)
$ 1,370
$ 1,625 o
Receivables 5,334 5,596 2,195 (1,157)
(3,414) 10,481 Inventories 8,171 3,707 (3,020) 2,564 3,696 6,814 Long Term Debt to be Retired Within One Year 1,771 3,397 20,332 (28,911) 95 25 Accounts Payable (4,024)
(33,125)
(1,520)
(13,338)
(6,344)
(5,053)
Dividends Payable (3,038)
Accrued Taxes 10,867 (11,470) 3,090 (1,054)
(2,220)
(270)
Other 3,518 1,435 (257)
(576) 1,717 5,906 Total Increase (Decrease) In Working Capital Other Than Short. Term Debt
$ 23,766
$ (33,510)
$ 20,378
$ (44,939)
$ (5,100)
$ 19,528 y,
amogan%ng Now to Mnancial Rawnh a
90009187
NOTES TO FINANCIAL STNIDIENTS (Information related to period e,ub3etguent to Decernber 31,1978 is unaudited) 1.
SUMMARY
OF ACCOUNTING POUCim Regulations and Operations: The Company is subject, as to rates, ae-unting and other matters, to the regulatory authority of the New IIampshire Publie Utilities Conunission (NIIPUC), the Federal Energy Itegulatory Commission (FEI(C) and, to a lesser extent, the public utilities conunissions in other New England states where the Company does business.
Investme nts: The Company follows the equity method of accounting for its investments in nuclear generating companies and in its wholly-owned real estate subsidiary. The Company's invest-ment in this subsidiary is principally in the forta of advances. The Company's investments in nuclear generating companies are:
(
Ownernhip October 31, Devernher 31, Company Percent 1979 1978 (Thousands of Dollars)
Yankee Atomic Electric Company 77E
$ 1,480
$1,443 Connecticut Yankee Atomic Power Company 57L 2,435 2,335 3faine Yankee Atomic Power Company 5ff 3,372 3,427 Vermont Yankee Nuclear Power Corporation 47E 2,335 2,324 49,622
$9,529 in the case of each of the nuclear generating companies, pursuant to provisions of purchased power contracts which are regulated by the FEl(C, the Company is entitled to its ownership percent of total plant output and is obligated to pay a similar share of each company's operating expenses and return on invested capital. Approximately 10.99F and 10.57E of the Company's total energy re<1uire-ments were furnished by these companies in 1978 and 1977, respectively.
Utility Plant: Provision for depreciation of utility plant is computed on a straight line method at rates based on estimated service lives and salvage values of the several classes of property. The depreciation provisions were equivalent to overall effective rates ranging from 3.119F to 3.1970 of depreciable property for the five years ended December 31,1978. The rate for 1978 was 3.19?E.
Staintenance and repairs of property are charged to nmintenance expense. Iteplacements and betterments are charged to utility plant. At the time properties are retired, the cost of property retired phis costs of removal less salvage are charged to the accumulated provision for depreciation.
Operating Rrrnous: Itevenues are based on billing rates authorized by applicable federal and state regulatory commissions which are applied to customers' consumption of electricity. The Com-pany records estimated unhilled revenue, inchidine amounts to be billed under a retail fuel adjust-ment clause, at the end of accounting periods.
Incomc Ta.rcs: The tax effect of differences between pretax income in the financial statements and income subject to tax, which are the result of timing differences, are accounted for as prescribed by and in accordance with the ratemaking policies of the NIIPl'C. Accordingly, provisions for de-ferred income taxes are recognized only for specitled timing differences. Tax reductions attributable l
l 90009188 4o p o00?
NOTES TO FINANCIAL STATEMENTS - Continued (Infor: nation related to periods subsequent to Decernber 31,1978 is unaudited) 1, St401ARY OF AccouNnNo Poucus-Continued to other timing differences are flowed through to net income as reductions of income tax exper c.
See Noto 2.
Investment tax credits earned are deferred and amortized to income over the lives of the related properties.
itiloteance for Funds Used During Construction: Allowance for funds used during construc-tion is the estimated cost, during the period of construction, of equity funds and borrowed funds used for construction purposes which are not recovered from customers through revenues, See Note D to Statement of Earnings.
Pension Plan: The Company has a non-contributory pension plan covering all full time em-playees who have met a minimum service requirement, The Company's policy is to fund current pension costs accrued, Pension plan costs were as follows: 1974 - $1,320,000,1975 - $1,650,000,1976
- $1,850,400,1977 - $2,112,000,1978 - $2,400,000 and the twelve months ended October 31,1979 -
$2,744,000, At December 31,1978, vested benefits under the plan exceeded the market value of the plan's assets by approximately $5,296,000. At that date, the total unfunded past service liability was approximately $4,943,000.
E'arnings Per Share: Earnings per share are based on the average number of common shares outstanding, after recognition of preferred dividend requirements.
2.
INCOME TAXL9 i
The components of income tax expense are as follows:
Twelve Months E ed Year Ended December 31, 1979 1978 1977 1976 1975 1974 (Thousands of Dollars)
Federal:
Operating income
$ (10,370) *
$10,166
$ 1497
$ 5,S15
$ 2,038
$ (1,342) i Other Income and Deductions 292 (46)
(113)
(96) 159 (2,333)
(10,078) 10,100 1,184 5,719 2,197 (3,675)
State, Included in Operating Income 2,649 2,468 1,492 1,407 1,440 947 Total Current Income Taxes (7,389) 12,588 2,676 7,126 3.677 (2,688)
Deferred Federal:
Operating Income 7,746 5,527 3,882 1,709 2,183 3,754 Other Income and Deductions 3
(8) 0 2
79 Deferred State:
Operating Income 199 93 3
(37) 60 278 Total Deferred Income Taxes 7,94%
5,612 3,R85 1,678 2,245 4,111 Inventment Tax Credit Adjustment 16,173' 1,412 1,725 839 4,155 25 Tgal Income Taxes
$ 16,732
$19,612
$8 46
$ 9,643
$10,077
$ 1,448
'Duringlfk9, t a hy made elections under certain provisions of the Internal Revenue Code which resulted in the availability of approximately $9,500,000 of additional investment tax credita l
l 41 90009189
NOTES TO FINANCIAL STATDIENTS - Continued (Inforruation related to periods subsequent to Decernher 31,1978 is unaudited) 2.
INCoMn TAXES - Continued for 1978 and prior years. Approximately $1,100,000 of such amount relates to a recently formed stock ownership plan for Company employees which does not affect net income but does result in additional funds for the Company from issuance of additional shares of the Company's comnwn stock. The remaining $8Aho,000 does not affect net income but has reduced the amount of income taxes paid by the Company for 1978 by apptuximately $6,900,000 and resulted in a claim for refund of taxes paid in years prior to 1978 of approximately $1,500,000.
The Company estimates that investment tax credits of approximately $18,700,000 will be gen.
erated for 1979. There are limitations on the amounts of such credits which can be used, however, ami based on these limitations the Company estimates that approximately $9,700,000 of the credits will be recognized for financial statement purposes. The Company estimates that only $4,600,000 of such credits will be used for income tax purposes in 1979 with the balance available for use on subsequent years' returns through 1986.
In accordance with the requirements of the NIIPUC, provisions for deferred income taxes are recognized only for the following timing differences:
Twelve Months Ended Year Ended December 31, October 31, 1979 1978 1977 1976 1975 1974 I
(Thousar.ds of Dollars)
A portion of Deprecintion and Amortizatior of Plant Facitities*
$ 855
$ 558
$ 895
$ bl5
$ 948
$ 904 Accrued and Unl4ilhwl Fuel Adjustment Charges 2,149 1,049 36 (417) 669 3,128 The Interest Component of Allowanco for Funda Used During Construction (See Note D to Statement of Enrnings) 8,641 3,713 2,954 1,274 626 Investment Tax Credit Uwd to Reduce Deferred Taxes (3,700)
Other 3
(b) 6 2
7D
$ 7,94 5
$5,610
$3,95
$1,67s
$2,245
$4,111
)
' Current income ta.s reductions attributable to (1) the tax depreciation permitted under the Class Life Al)ll System of the 1971 llevenue Act in excess of the tax depreciation permitted under the Guideline Lives provisions of the 1969 llevenue Act and (2) the amortization of certain pollution control facilities over five year periods.
90009190 42 t
NOTES TO FINANCI AL STATDIENTS - Continued (Information related to periods oub equent to Decernber 31,1978 is unaudited)
I 1
INCoS!E TAXr.S - Continued The principal reasons for the difference between the total tax expense and the amount calculated by applying the Federal income tax rate to income before tax are as follows:
Twalve Months Ended Year Ended Decemt,er 31, October 31, 1979 1978 1977 1976 1975 1974 (Thousands of Dollars)
Income liefore Income Tax
$56,440
$30,119
$30,00s
$30,638
$30,h5
$ 17,74 'l l'ederal Htatutory 1tute (1979 Approx.)
40.317%
4W 45 %
45 %
4S%
44 %
Exported Tax Expenw 20,158 26,937 14,404 14,706 14,825 8,519 Increasen (Iteductions) in Taxes Itenulting f rom :
Interent and Overhend Charged to Con-(
struction and Expensed for Tax Pur-poses (7,231)
(4,544)
(3,377)
(1,859)
(979)
(2,109)
Excess of Tax Over Book Depreciation (1,716)
(2,65 )
(2,315)
(2,773)
(3,019)
(3,924)
State Taxes Net of 13 deral Income e
Tax Benefits 1,550 1,332 777 710 600 058 Unbilled Revenues (577)
(629)
(200)
(181)
(457)
(501)
Other Deductions, each less than 5%
of Expected Tax Expense (1,402)
(1,219)
(1,000)
(902)
(1,093)
(1,195)
Total tncome Taxes
$ 16,732
$19412
$ 8,2's6
$ 9,643
$ 10,077
$ 1,418 3.
Coaf rENSATING U AnANCIM AND SHORT-TI:nu UORRoWINGN l
The Company uses borrowings from banks as an interim method of financing construction of new facilities. At December 31,1978, the Company had a revolving credit agreement which permitted the Company to borrow up to $95,000,000 through April 30,1979 and also had line of credit agreements which aggregated $5,350,000. See " Problems Facing the Company -Immediate Financing Program" for information concerning an extension of and increase in the revolving credit agreement. The Company pays commitment fees on the revolving credit agreement and maintains compensating balances for ecrtain line of credit agreements. The effective cost of horrowing under the revolving credit agreement, including fees and assuming the available credit is fully utilized, is 1169F of the prime interest rate of a specified bank. Compensating balances amounted to $305,000 at December 31,1978 and October 31,1979.
The average interest rate on short-term borrowings at December 31,1978 and October 31,1979 was
[
12.649 and 16.149, respectively.1)uring 1978, maximum short-term borrowings were $88,112,500; the average amount outstanding (based on month end balances) was $66,911,458; and the weighted average interest rate was 11.369 computed with commitment fees included in interest expense. Dur-I ing the twelve months ended October 31,1979, maximum short-term horrowings were $114,100,000; the average amount outstanding was $83,052,083, and the weighted average interest rate was 14.32(ic.
At December 31,1978, accounts payable included deferred payments to vendors of approximately
$7,500,000. Such deferrals, with interest, i.cre paid in,lanuary,1979. At October 31,1979, accounts payable included advance payments aggregating $10,000,000 from other Seabrook participants against their present' ownership. interests in the project. These advances were to be credited against amounts payable by fluhh(l nr'Sipants commencing in,lanuary,1950, and are seenred by the Company's i
interest in nuclear fuel for the Seabrook project.
90009191
I NOTES TO FINANCIAL STATE 31ENTS - Continued (Inforruation related to periods subsequent to Decernber 31,1978 is unaudited) l 4.
Panwnen STOCK The Articles of Agreement authorize the Company to issue 1,350,000 shares of Preferred Stock,
$100 Par Valuo and 5,000,000 shares of Preferred Stock, $25 Par Value. The dividends of all series outstanding are cumulative.
Preferred Stock outstanding is as follows:
October 31, December 31, Dividend Par Value Sharce Outst inding 1979 1978 (Thousand of Dollars) 3.35 %
$100 102,000
$10,200
$10,200 4.50 %
$100 75,000 7,500 7,500 5.50 %
$100 48,432 (1978 - 58,022) 4,843 5,862 7.92 %
$100 150,000 15,000 15,000 11.00 %
$ 25 600,000 15,000 15,000 Total Preferred Stock
$52,543
$53,562 During the five years and ten months ended October 31,1979, the Company issued (in October 1975) $15,000,000,11% Dividend Series Preferred Stock.
General redemption prices of preferred stocks are: 3.3596 Series $100.00, 4.509 Series $102.00, 5.50Sc' Series $100.00,7.929 Series $105.94 and 11% Series $27.75.
At October 31, 1979 there were reserved for issuance upon conversion of the 48,432 shares of i
Convertible Preferred Stock,5.50% Dividend Series, 214,585 shares of Common Stock based upon the I
conversion price of $22.57 per share (the Convertible Preferred Stock being taken at its par value of
$100 per share).
5.
Paciunen stock -ItnonrN AnU:
lledeemable Preferred Stock outstanding is as follows:
October 31, December 31 Disidend Par Value Sharen Outatanding 1979 1978 (Thou ands of Dollars) 7.64%
$100 120,000
$12,000
$12,000 9.00 %
$100 180,000 18,000 18,000 11.24 %
$ 25 1,200,000 (1978-None) 30.000 Total Preferred Stock - Redeemable
$60.000
$30.000 Redeemahle preferred stocks issued during the five years and ten months ended October 31,1979 were $18,000,000, 09 Dividend Series in October 1977 and $30,000,000,11.249 Dividend Series in 31ay,1979.
Sinking Fund provisions require the Company to redeem all shares at par on the basis of 4,800 shares annually beginning in 1984 for the 7.649 series,10,800 shares annually beginning in 1982 for the 9Fe series and 60,000 shares annually beginning in 1985 for the 11.249 series. The annual Sinking Fund requirements are as follows: 1979 t hrough 1991 - none,1982 - $1,080,000.1983 -
$1,080,000 and 1984 - $1,500,000. Subject to certain refunding limitations, }{edeemable Preferred Stocks are redeemable for other than Sinking Funds at redemption prices of $10q.12, $109.00 and
$27.81 for the 7.049,9.00% and 11.24 ri series, respectively.
]e{90009 90009'92
I 1
l NOTES TO FINANCIAL STATEMENTS - Continued (Infortnation related to periods nub,equent to December 31,1978 is unaudited) 6.
DtvloExo RosinicTrox Pursuant to terms of the General and R(funding Mortgage Indenture, dividends may not be paid on the Common Stock in excess of Net income accumulated after January 1,1978 less the aggregate l
amount of all dividends paid or declared an the Preferred Stock of the Company during such period plus $32,000,000 At December 31,1978, and at October 31,1979 Retained Earnings of $44,415,000 and $42,612,000, respectively, were not subject to dividend restriction.
7.
Loxo-Trau Dear
"'"'N9 31, Decejg77,
31 i
(Thousands of Dollare)
First 3Iortgage Bonds:
Series E-3 9, Due 1979
$ 3,356 Series II-3%9, Due 1984 10,483 10,483 Series I - 3%96, Due 1986 6,972 7,04 7 Series M - 4%9E, Due 1992 21,952 22,149 Series N-6%96, Due 1996 15,847 15,910 Series 0- 6%9, Due 1997 14,086 14,173 Series P-7%9E, Due 1998 14,242 14,277 Series Q - 9 9, Due 2000 19,168 19,206 Series R - 75' 9, Due 2002 19,398 19,455 s
Series S-9 9, Due 2004 19,628 19,778 Series T - 12%9E, Due 1981 24,719 25,000 Series U-10a'i9E, Due 1985 15,000 15,000 Series V-9%9, Due 2006 15,000 15,000 Series W - 10%96, Due 1993 10,000*
10,000*
Series X - 12 9, Due 1999 9,302' 215,797 210,834 Less-Deposited with Trustee of the General and Itefunding Mort-gage Indenture as additional security for General and Re-l funding Bonds 19,302' 10,000' I
Total First Mortgage Bonds 196,495 200,834 General and Refunding Mortgage Bonds:
Series A - 10!(9, Due 1993 60,000 60,000 Series B - 12 9, Due 1999 60,000 Promissory Note, tDue January 3,1980 with interest at 1169 of a specific bank's prime rate plus 0.259 25,000 25,000 l
Pollution Control Revenue Bonds:
l 8%9, Due December 1979 1,500 1,500 l
9 9, Due December 1984 5,800 5,800 l,
Total Long-Term Debt 348,795 293,134 Less: Long-Term Debt To Be Retired Within One Year 27,096 5,231 Unamortized Premium and Discount 1,586 651 29,982 5,882 Long-Term Debt - Net
$319,s13
$287,252 tT', inaturity of this Note has been extended to January 5,1981.
?
000?
90009193
, t ] k' - l \\.
- /s
_2_______.__.___
NOTES TO FINANCIAL STATE 51ENTS - Continued (Information related to periods euh equent to Decernher 31,1978 in unaudited) 7.
LONo-TnnM Dent - Continued The annual Sinking Fund requirements with respect to First Ertgage Honds, which may be met by the payment of cash or bonds or, up to one half of their amounts, by the certification of mlditional property, are as follows: 1979 - $2,213,241,1980 -- $2,403,241,1981 - $2,636,318,1982 - $2,052,984, 1983 - $2,052,984 and 1984 - $2,052,984. Annual Sinking Fund requirements with respect to Gen-eral and Itefunding Ertgage Honds during the five years through 1994 are $5,4GO,(KX) payable in cash in 1983 and 1944.
1,ong-term debt maturities, excluding the aforementioned Sinking Fund requirements, are as follows: 1979 - $4,856,000,1980 - None,1981 - H9,719,000,1982 - No,c,1983 - None and 1984 -
$ 16,283,000.
1 Under the terms of the First 5fortgage Indenture and the General and Itefunding Ertgage Indenture, substantially all utility property of the Company is subject to the liens thereof.
8.
COM MrrMENTS AND CONTINGnNCUB The Company (both as sole and a.s joint owner of facilities) and the nuclear generating companies in which the Company has investments, in common with other electric utilities, are subject to present and developing regulations with regard to air and water quality, nuelcar plant licensing and safety, land use and other environmental matters by various Fed < ral, state and local authorities. It is pos-sible that compliance with such regulations may require additional capital expenditures and increased j
operating costs not now determinable in amount.
If the Company's construction program is not reduced as described in the next paragraph, con-f struction program expemlitures are forecast to be $195,700,000 for 1979, $215,700.000 for 1990 and
$696,200,000 for 1981 through 1985 (excluding allowance for funds used during constructionL These estimates included $158,700,000, $178,500,000 and $412,700,000, respectively, for the Company's inter-est in a nuclear generating station under construction in Seabrook, New llampshire, and $5.300,000 1
$7,000,(KK) and $63,700,000, respectively, for the Company's interests in other nuclear generating units owned on a tenancy-in-common basis with other New i:ngland utilities. The Company's ownership interevs and its share of total expenditures inchaled in l'nfinished Construction for the jointly-owned nuclear facilities in w hich it is participating are as follows:
Owner hip October 31, December 31 Percent 1979 1978 (Thou anda of Dollar )
Seabrook #1 and #2 50.0000 9
$434,200
$307,800 j
Pilgrim c2 3.4700 11,600 9,600 j
Millstone #3 3.6910 26,200 21,200
)
$472,000
$338,600 1
On March 3,1979, the Company's Board of Directors directed management to proceed to sell all of the Company's Pilgrim #2 and Millstone #3 ownership interests and to reduce its ownership inter-90009194
NOTES TO FINANCIAL STATEMENTS - Continued (Information related to period subsequent to Decernber 31,1978 is unaudited) 8.
COntarrrMENTS AND CONTINGFNCD;S - Continued est in the Seabrook nuclear plant by offering P2% to other Seabrook participants. Through October 31, 1979, subject to receipt of requisite regulatory approvals, other utilities have committed to ac-quire only 14.765037c of the plant. See " Problems Facing the Company-Iteduction of Construction Program" for a description of the proposed arrangements for the reduction of the Companyh intensts.
See " Problems Facing the Company - Immediate Financing Program" and " Construction Program" for the efreet of such agreements on the Company's financing plans for 1980 and sul*quent years.
Construction of the Seabrook project has required numerous approvals and permits from various state and Federal regulatory agencies. The process of obtaining these approvals and permits has been long and complex, has been consistently opposed by a number of intervening groups, has included demonstrations at the Seabrook site and has been plagued by lengthy delays which have resulted in greatly increased costs for the project. One court appeal from Federal reguhitory approvals is pending and further appeals are possible. The Company is unable to predict what effect financing problems or further administrative or court decisions relating to Nuclear Itegulatory Commission or Environ-mental Protection Agency actions may have on the Company's ability to complete the project or on the cost of the project.
9.
UNat mTm Rm ACDHWT COST INFORM ATION The replacement cost data described h this note has been compiled in response to regulations promulgated by the Securities and Exchange Commission and represents, in the opinion of manage-ment, reasonable estimates of replacement costs given the guidelines of the regulations. Ilowever, imprecisions exist and subjective judgments have been made in the estimating process. Also, certain income effects which might result inmi the replacement of productive capacity are not required to be described by the regulations and have not been evaluated, including the impact of replacement on capital costs and taxes. Furthermore, the regulations do not call for a description of all factors which may result from inflation, including the impact of long term debt outstanding in a time of inflation and these have not been evaluated or included in the replaecment cost data presented.
Consequently, in the opinion of management this note is of limited usefulness in the evaluation of the impact of inflation on the financial position or results of operations of the Company. Furthermore, the disclosure of this replaecment cost data should not be construed as a plan to replace existing productive capacity, and the actual replacement of productive capacity may not take the form implied by the techniques used to develop the estimates. Finally, the replacement cost data presented in this note should not be taken to be management's estimate of the current value of existing prop-erty, plant and equipment.
The Company's operating costs and the recovery of its investment in utility property are signifi-cantly affected by inflation and the current and expected inore stringent environmental regulations.
I(eplacing existing utility property with equivalent productive capacity will require substantially greater dollars of capital investment than was required to construet or acquire the property originally; but replacernent cost is not normally considered in the rate making process, since only the historical cost of utility property is normally included in the rate base upon which the Company is allowed to earn *a fair, rate > gf return. IIowever, the cost of replacement property, when existing productive capacity is actually replaced, is expected to be included in the rate base.
l
,C,
,t-90009195
i l
NOTES TO FINANCIAL STATEMENTS -Continued 1
(Information related to periodis sub,equent to December 31,1978 is unaudited) 9.
UNAUDirED REPlactatEnT Cost INFORhf ATION - Continued The computed replacement cost of the Company's productive capacity, depreciated replacement cost and related depreciatian expense and corresponding historical cost data are presented below for December 31,1978 ami 1977:
December 31,1978 Decemlier 31,1977
{
Estimated Estimated j
Heplace.
Heplace.
l llistorical ment llistorical ment Cost Cost Cost Cost Utility Plant:
(Thousands of Dollars)
Plant in Servico Subject to Replacement Cost Disclosure
$493,080
$1,452,671
$472,510
$1,345,446 Construction Work in Progress 346,382 346,382 196,825 190,825 Other Property, at Ilistorical Costs 14,631 14,631 14,558 14,558 Total 854,093 1,813,684 683,893 1,556,829 Accumulated Provision for Depreciation 134,373 435,985 122,364 381,292 Net Utility Plant
$719,720
$1,377,699
$561,529
$1,175,537 Depreciation Expense
$ 15,417
$ 45,479
$ 14,731
$ 42,163 Generating Plants: Fuel generation replacement costs were estimated on the basis of current construction cost per megawatt at December 31,1978 and 1977 developed by engineering studies and upplied to essentially the generation mix at the end of each year. Ilydro generation replacement costs were calculated using the IIandy-Whitman Index.
Transmission and Distribution Plant: IIigh voltage transmission line replacement costs were computed based on engineering studies which determined the cost per mile of line at the end of each year. The replacement costs of certain transmission substations were computed based on costs and technology at the end of each year. The replacement costs of the remainder of transmission facilities along with the replacement costs of all distribution plant were calculated using the Handy Whitman Index.
General Plant: Estimated replacement costs of buildings were developed by applying the estimated cost per square foot at the end of each year to the then present facilities. Estimsted re-placement costs for all other general plant were developed by applying unit prices or the appropriate Wholesale Price Index at the end of each year. Other property consists primarily of land and land rights.
Restree For Depreciation: Related accumulated depreciation based on replacement costs was developed by applying the same percentage relationship that existed between depreciable plant and accumulated depreciation by functional groups on an historical cost basis at December 31,1977 and 1978 to the current replacement costs of the same groups.
Depreciation Erpense: Depreciation expense for the replaecment costs of utility plant was developed by applying the actual average rates and methods by functional groups in use to the average of beginning and year end balances of depreciable replacement costs.
90009196 48 pt?000V
)
DESCIIIPTION OF TIIE HONDS The Series P llomls will nmture on January 13,2000 and will he issued moler and secured by a General and itefunding 31ortgage Indenture dated as of August 15,1978 and a Second Supplemental Indenture to he dated as of January 15,1980 (the "G&R Indenture") between the Company and New Eng!and 3ferchants National Bank, as Trustee. The lien of the G&R Indenture is subject to the prior lien of C e Company's First 31ortgage (see "Securny and Priority" below).
Interest on the Series C Honds will accrue from the date of their initial issue and will be payable semi-annually on cech January 15 and July 15 to hold, cs of record on the preceding January 1 or July 1, respectively. Principr' and interest will be payable at the principa: corporate trust office of the Trustee in Boston, Massachuetts, and at an otlice of Manufacturers IIanover Trust l
Company, Paying Agent, in New i ork City The Series C Bonds will be issued only in fully registered form without coupons in denominations of $1,000 or multiples thereof. No service charge will he made for any transfer or exchange of Series (' Honds.
The brief summar: herein of certain provisions of the G&R Indenture is merely an outline and does not purport to he complete. It uses terms defined in the GkIt Indenture and is qualified in its entirety by reference to the G&R Indenture which is an exhibit to the registration statement. Where references are made to the Company's First 31ortgage Indenture dated as of January 1,1943 and supplements thereto (the "First 31ortgage"), such references are qualified in their entirety by refer-enee to the Fiist Mortgage, which is an exhibit to the registration statement.
Redernption Series C Bonds will he redeemable at the option of the Company as a who!e or in part at any time prior to maturity, on at least 30 days' notice given as provided in the G&R Indenture, at the gt neral redemption prices shown in the table below, expr(ssed as percentages of the principal amount; proeide d. houw r,r, that neither the Series U Donds nor any portion thereof shall be redeemed prior to January 15,19*5, if such redemption is for the purpose or in anticipation of refunWng sneh Honds, or any portion thereof, through the use, lirectly or indirectly, of funds borrowed by the Company at an effective interest cost to the Company (computed in accordance with generally accepted financial practice) of less than 9 per annum, and the Series C Bonds will alsa be redeemahle for the sink-ing fund on Janc y 15,1990, or any January 15 thereafter (and at any time prior to maturity through the applieution of certain release, insurance, eminent domain, and replacement fund moneys and certain other moneys required to be deposited with and held h the Trustee, as a whole or in e
part) on like notice, at the principal anmunt thereof, together in each case with accrued and unpaid interest to the redemption date.
If redeemed at any time in the re pective twehe-snonth period beginning January l~, in each of the following yearn General General lledemption itedemption Year Price Year Price 1980 1990 1981 1991 19'2 1992 19s3 1993 1984 1994 f
1985 1995 l
1936 1996 1947 1997 1968 1994 1989 M. e 0 0 0 0 1996 90009197 a
W k
All outstanding G&R Ilouds, including the Series C llonds, may also be redeemed in whole but not in part on at least 30 dayF' notice at the option of the Company, by issuance in exchange there-i.,
for of an equal aggregate principal amount of First 31ortgage Ilonds; and the Company covenants that, if the First 3fortgage is amended to permit the issuance of First 3fortgage Ponds against un-lie nsed or disconnected property additions, it will so redeem all outstanding G&R llonds by exchange of First 31ortgage Bonds. The First 31ortgne llorels exchanged for the G< Bonds shall hear inter-4' est at the same rate, shall have the same maturity, interest payment dates and redemption prices, l
shall be so dated that no gain or loss in interest shall result from the exch,nge, and shall be entitled to the benefits of the same sinking funds (except as the First 3fortgage may otherwisi require) and 4
the same dividend limitations and the same restrictions on the right of redeciption, shall be entitled to the benefits of the sune replacement fund or maintenance and renewal covenant.
Sinking Fund The G< Indenture requires that the Company shall on or before January 15,1990 and each January 15 thereafter, up to and including January 15, 1999, deposit with the Trustee the sum of o
$2,250/ko, payable in ca.sh or an equivalent principal amount of Series (' Bonds. The Company may, at its option, pay to the Trustee prior to any sinking fund date t.s an additional sinking fund y
payment an amount payable in eash or in Series C Bonds not exceeding the amount of the inandatory sinking fund payment; the right to make such additional sinking fund payment in any year shall not be cumulative.
sf.
Heplacement Fund So long as any First 31ongage Honds remain outstanding, the Company will comply with the
\\
requirements of the maintenance and renewal covenant under the First 5fortgage, as described below.
When said requirements cease, the Company will be obligated under the G&R Indenture to pay to the Trustee as a replacemen' fund 21,.j9 of the average of its investment in depreciable property on the last day of each month of the previous calendar year. The replacement fund requirement may be satisfied by cash, GiR Honds of any series, or Available Amount of Additional Property. Additional property evidenced under either the maintenance and rinewal covenant of the First 3fortgage or the replacement fund under the G& R Indenture may be used to offset certain retiiements in computing As ailable Net Additional Property.
s.,
/
31aintenance and Henewal Covenant The First alortgage contains a specific maintenance and renewal covenant providing that the Company will, during each calendar year, in the aegregate expend for, or allocate Additional Prop-erty to, or deposit in cash with the Trustee on account of maintenance, repairs, renewals and replace-ments, a total of not less than if$ of the gross operating revenues (after deduction of the aggregate cost of electrie energy, gas aml steam purchased for reside) during such period from the physical properties. other than lea. sed properties, covered by the First 31ortgage and used for the Primary Purposes of th. Company's ilusiness. Expenditures, deposits and allocations from insurance and eminent domain proceedings and c(rtain other sources may not be included.
90009198 L
Security and Priority The Serim C Bonds will be secured by the G< indenture equally and ratably with G< Ihmds of other series by a mortgage lien on substantially all the pn>perties and franchises owned by the Com-pany at the time of the execution and delivery of the Second Supplemental Indenture and on substan-tially all property and franchises submquently acquired by the Company, except real property ir 3faine and 5fassachusetts equired after the filing of the Second Supplemental Indenture and before the filinte of a further supplernental indenture specifically subjecting such after acquired property to such lit n; subject, however, to the payment of the Trustee's charges, to the lien of the First 3 fort.
gage, to oens on after-acquired property existing at the Fme of acquisition or created in connection with the purchase thereof not exceeding 60% of the Cost or Fair Value, whichever is lem, to certain exceptions set forth in the descriptions of properties in the G&ll Indenture and in the deeds referred to in such descriptions, nrul to Permitted Liens. Certain types of property are excepted frorn the lien of the G&R Indenture, including, among others: fuel, nuclear cores arul materials; all gas, oil, and other mineral properties and personal property related thereto; supplies; cash; securities; contracts; ami accounts receivable, While the principal currently operating generating stations, dams, and substations are on land owned by the Company, ;he principal transmission lines are numtly on lands of others pursuant to ensement rights. Ownership of generating stationa now under construction is hehl ir undivided joint ownership with other utility participants.
No debt may ht created by the Company ranking prior to or on a parity with the Series C Bonds with respect to the security provided by the G&R indenture, except additional G&R Bonds issued in the manner stunmarized below, First 31ortgage Bonds pledged with the Trustee under the G&R Inden-ture, obligations support A by additions and enlargen.ents to property already subject to certain types of prior liens (none of which currently exists), and purchase money obligations existing or created in connection with the acquisition of after-acquired property not to exceed 609 of its cost or value.
'. rior liens and purchase money obligations, other than First 3fortgage Bonds, shall not exceed 2W of the sum of all outstanding G&R Bonds and obligations (other than Pledged Bonds) representing liens prior to the G&R Indenture.
G&R Bonds are further secured by First 5fortgage Bonds which the Company is obligated to is. sue and pledge with the G&R Trustee. Upon any application to issue G&R Bonds (including the Series P Bonds) or certain other actions, the Pompany is required to deposit as a ph dee with the G&R Trustee First 31ortgage Bonds (" Pledged Bonds") in the maxinnnn amount then issuable, sub-jeet to the Cona nfs option not to so issue and deposit a limited amount of First Stortgage Bonds ot he rwise issuabic. The Pledged Bonds are secured, together with all First 3fortgage Bonds now issued and outstanding under the First Afortgage, by a direct first mortgace lien on substantially all the property of the Pompany, and after-acquired property to the extent permitted by law, subject only to excepted property aml Pennitted Encumbrances. Under the First 3fortgage, additional First 31ortgage Bonds may he issued against the retirement at maturity of a like amount of First Afortgage Bonds or against 609 of the Net Amount of Ad litional Property; however, in the G&R Indenture the t'ompany has covenanted not to issue First 31ortgage Bonds except for pledging with the G&R Trustee. The Corrpany has also covenanted in the G&R Indenture not to permit certain modifications to the First 31ortgage which could reduce the amounts of First SIortgage Bonds issuable in the future, for the purpose of pledging under the GXR Indenture. The Pledgni Bonds are nontransferable.
In 1978, when $60,000,000 of G&R Bonds, Scries A, were issued, the Company deposited
$10,000,000 of Pledged Bonds; in September,1979, when $60,000,000 of G&R Bonds, Series B, were 51 90009199
issued, the Company deposited $9,'102,000 of Pledged Itonds. The rompany intends to issue no y/
additional 14 edged Honds upon the issuance of the Series P Honds. Becauw of provisions in the First brigage which limit the availability of property additions to support issuance of additional bonds (see " Financing - Ertgage Itorals"), there can be no assurance that the deposit of shnificant amounts of Pledged Bonds will occur when subsequent series of G&H Bonds are issued. The umpany does not pay interest on the Pledged Bonds. The principal benefit to holders of G&R Bonds provided by the Pledged Honds will be that, in the event of a reorganization or insolvency of the Pompan."
the allocation to the holders of G&R Bonds may be increased by reason of their participation in the
'ien of the First Ertgage through the Pledeed Honds. Upon the retirement of all non-pledged Ft.tt Ertgage Honds (in 2006, or earlier if such First Ertgage Bonds are called for redemption), the First brtgage will be discharged and the C&R Bonds will become first mortgage bonds.
l'nder the Atomic Energy Act, neither the Trustee nr any other transferee of the Company's property may operate a nuclear generating station without authorization from the Nuclear Regulatory
( 'o nunissio n.
Helea e and Sub titution of Property The UKR Indenture provides that subject to various limitations property may le released from the lien thereof on a side or other disposition upon the deposit with the Trustee of cash, purchase money obJ.; stions or Additional Property equal to the Fair Value of the property released.
s Additional G< llond-A<hlitional G&R Bonds of any si ries may be issued as follows ( A) against 60% of the Available Net Additional Property, (B) to refund a like amount of First Ertgage Bonds of any series which are not then Funded (U) to refund a like anmunt of heads which are not then Funded originally issued under a mortgage Uhe lien of which is prior to the lien of the G&H Indenture) existing on
~
praperty at or immediately
-ior to the time of acquisition by the Company of such property, (D) to refund a like amount of G&H Honds of any series which are not then Funded, and (E) against the deposit of money. Eney so deposited may be withdrawn in runounts equal to the principal amount of G&R Honds otherwise issuable against Acailable Net Additional Property or to refund bonds.
p When issuing G&ll Bonds against Aoditional Property or the deposit of money, the Company must denmnstrate that Net Earnings (not including any AFUDC in excess of 109 of Net Operating Ib venues but including revenues subject to refund unhsa there has been issued a final decision, which has not been stayed, of a regulatory commission or a court nedering a refund of such revenues) for any 12 consecutive calendar months within the precaling M calendar months are at least twice the annual interest charges on all G&R Honds outstanding and appDed for and on all equal or prior lien irnichtedness (excluding Pledged Bonds). Except in certain instances, no e arnings test is required in connection with the refunding of a like amount of bonds.
The Series (' Ilonds will be issued neainst Coq of Availah!c Net Additional Property. As of October 31, 1979, the Available Net Additional Property against which G&R Uonds m!ght be issued (based on property additions through July 31,1979) was $219.397,642, which will be reduced to
$ 169,397,642 after giving effect to issuance of Series C Honds The eetual earnings coverage ratm under the (i&H Indenture is 2.3G for the twelve months ended October 31, 1979. The pro forma earnings coverage ratio is 2M after giving effect to the issuance of the Series C Bonds at an assumed j
annual interest rate of 149.
52 90009200
<i t < u te
^
w i
Dividend Restriction So long as any of the Series G Bonds are ontstanding, the Company may not declare or pay any dividend (other than dividends payable solely in shares of common stock), or make any other distri-hntion on, or purchase, any shares of its common stock at any time outstanding (other than by new conunon stock financing), if after such action the amount of such dividends, distributions, and pur-chases (at cr+t) subsequent to December 31, 1977, would exceed its Net Income subsequent thereto, less the amount of all dividends paid or declared on its prefermi stock, plus $32,000,000.
Modification of the G&R Indenture The G&R Indenture may be modified with the consent of the holders of 66M of the G&R Bonds at the time outstanding (or, if one or more but less than all the series of G&R Bonds would be ma-terially adversely affected,662W of the total bonds of the one or more series so affected). No such rnodification shall (a) affect the payment of principal, premium, and interest on any G&R Honds, or ertend the i.utturity or time of payment, without the consent of the hoh" of the G&R Bond affected, W reduce the above specified percentages of G&R Bondholders, or (,
permit the creation by the
- ,mpany of any lien not otherwiae permitted ranking prior to or on a parity with the lien of the G&R Indenture. No mmlification may be made which would conflict with the Trust Indenture Act of 1939 as ther. in effnet. The Trustee is not obligated to execute a supplemental indenture which would affect its own rights, duties, or immunities under the G&R Indenture.
The Tru* tee If the Trustee acquires any conflicting interest it shall either eliminate it or resign. There are limitations on the rights of the Trustee in respect of certain payments and property received by the Trustee within four months prior to default. The Trustee may become the owner or pledgee of G&R Honds as freely as if it were not the Trustee.
The holders of a mejarity in principal amount of the G&R Bonds outstanding may require the Trustee to take certain action, except when forbidden by law or when the Trustee in goml faith shall by its responsible ofiloers determine that such action would involve the Trustee in personal liability or wouhl be unjustly prejudicial to the other G&R Bondholders.
Default.
The following are termed eventa of default: (a) failure to pay principal, premium or sinking fund installment when due: (b) failure for 5 days to pay interest; (c) failur for 30 days to pay any rep!acement oriacalogous,funtliustallment; (d) default under the First Ertgage or certain other mortgaecs; (e) failure' fN D0' /lkys after notice from the Trustee to perform any other covenant or agreement; and (f) certain events of bankruptcy, insolvency, or reorganization. The Trustee may withhohl notice to the G&R Hondhohlers of any default, except default in the payment of principal, inter st, or any sinking, replacement, or analogous fund installment, if its responsible officers in good faith determine that withholding such notice is in the interrsts of the G&R Bondholders.
E5idence to be Furni hed Tru ree Evidence is reouired periodically as to the absence of default in connection with certain annual sinking and replacement fund requirements and as to compliance with certain other terms of the G&R I ndent u re. Further, prior to issuance of additional G&It Bonds, release of property, withdrawal of cash, and various other actions under the G&R Indenture, evidence as to the absence of default and as to compliance with certain terms of the G&R Indenture is required.
.33 90009201
LEGAL OPINIONS The validity of the Series U Ibnds will be passed upon for the Company by Ralph II. Wood,
-+
Esquire, Vice President and General Counsel of the Company, and by 31essrs. Itopes & Gray, Boston, Stas.sachusetts, and for the Underwriters by 3fessrs. Choate, Hall & Stewart, Boston, 3f assa-chusetts, both of which firms, as to the organization and existence of the Company, approvals of state commissions and legal conclusions affected by the laws of New Ilampshire, Vermont, Maine and (tonnecticut, may rely upon Ralph II. Wuid. Ralph II. Wood owns, jointly with his wife,300 shares of the Company's Conunon Stock, and also has rights to approximately 140 additional shares of t'ommon Stock under the Company's Employee Stock Ownership Plan.
EXPEftTS The firmncial statements included herein so far as they pertair. to each of the five years in the period ended 1)ecember 31,1978 have been so included in reliance upon the report of Peat,31arwick, Slitchell & Co., independent certified public accountants, and upon the authority of said firm as
< xperts in accounting and auditing.
Ralph II. Wood, Esquire, Vice President and General Counsel of the Company, has reviewed the staternents made herein as to matters of law and legal conclusions under the subcaptions " Joint Projects", "Seabrook Nucicar Project", "llegulation", " Hates - New liarnpshire Hetail", " Hates -
< )t her ', "l'uel Supply", " Environmental 31atters", " Employees, Salaries and Wages" and "Municipali-1 ties and ( bperatises" under the caption " Business", and under the caption " Description of the i
Ibnds" Mes.srs. Hopes & Gray have reviewed the statements made herein as to matters of law and legal conclusions under the subcaptions " Mortgage lionds" and " Preferred Stock" under the caption "Finan"ing", umb r the subcaptions "New England Power Pool" and "Seabrook Nuclear Project" under the caption "ltusiness", under the caption " Description of the Bonds" and ee ;eerning the jurisdiction of FEld ' the Ni:U and the Massachusetts Department of Public l'tilities under the caption "Husiness - Hegulation." Such statements are included on the authority of such person and lirin as ex perts.
90009202
)
T,4
UNI)I'l(WI(ITING Tin-nanies of the several Urniern riters and tia-respect ive principal aniounts of Series C llornis which they have severally agreed to leurchase frorn the Conipany, subject to the terrns and conditions specified in the Underviriting Agreenient filed as an exhibit to the Registration Staternent, are as follows:
Principal Principal Nanne Arnount Nurne Arnount Ki ! der, Peaboily A Co. Incor porat e 1 Illyth Eastnatu l'aine Wel.her lucorpurnh,1 1
Total
$3n,000,oon The Underwriting Agreernent provides that the several Underwriters are required to take and d
pay for all of the Series (' llonds offered hereby if any are taken. The oblientions of the Under-writers are subject to certain coralitions lire cedt ut.
The ('ornpany has bei n advised by Kid.!ce, Peabody & Co. Incorporated arnl lilyth Eastrnan Paine Webber Incorporateil, as I!epresentatives of the seu ral Underw riters, that the Urnk rwriters propose to offer t he Scries (' lionds to the public initially at the offering price set forth on the cover page of t his Prospectus arnt to certain dealers at such price less a concession of not in exet ss of 9,
arnt that the Underwriters anel such ch alers inay reallow a discount of not in excess of 9 to other di ale rs. The public offering price and the concessions and discounts to dealers inay be changed by t he Representatives.
90009203
No dealer, salesman or any other person has been authorized to give any information or to make any representations other than those con-tained in this Prospectus and, if given or made, such information or representations must not be
$30,000,000 relied upon as having been authorized by the Company or the Underwriters. This Prospectus does not constitute an offer to sell, or a solicita.
LJ PUBLIC SEAVICE t,on of an offer to buy, any of these securities by i
any Underwriter in any jurhdiction to any per-Canpanyof NewHampshire son to whom it is unlawful to make such offer or solicitation in such jurisdiction. The delisery of this Prospectus does not imply that the informa-tion herein is correct as of any time subsequent to its date.
General and Refunding Mortgage Bonds Series C
% due 2000 TmE OF CONTENTS The Company 2
Prospwtus Summary 3
l'roblems Pacing the Company 4
Industry Protdems 8
Use of Proceexia 9
Construction Program 9
Financing 12 PitOSPECTUS Capitalization 14 Statement of Earnings 15 h!anagement's 1)iscussion and Analysis of the Statement of Earnings 18 Operating statistics 20 Ilusiness 21 Power supply and Propertien 21 New England Power Pool 21 Kidder 9 Peabody & Co.
u nt Pro;mt.
p Benbrook Nuclear I,roject 3
llegulation
- '5 Incorporated I!aten-New ilampshire itetail N'ers;yll"'
s"O Blyth Eastman Paine Webber Nationa Energy Policy 30 Incorporated er Environmental hf attern 30 Employeen, Salaries and Wages 32 Voluntary Wage and Price Guidelinen 33 hfunicipalitien and Cooperatives 33 Accountant n' Iteturt 35 Financial Statemer ta 36 Description of The lionda 49
. January
,1980 l
Legnl Opinions, 54 E x pert s 54 Underwriting 55 E09000V 90009204
E..
t
/>=lol PUBLIC SEPJ.' ICE CC::PANY OF NE* Ed."PSH:F.E F.equest fer Rate Incr2ase Applica:ica for authority :0 altar e::istin; :- --
1 emergency circumstances.
n
. 00..
44 o
Appearances:
for the Cc=pany, Mar:in vress, _s:;;re, - r : : -: ;.-
l' Esquire and Philip Ayers, Esquire; for the Legislative.:;_;;
- nsuncri l'
i' Council, Willia: Shaine, Esquire and Gerald Lynch, Es:uire; i:r :: muni::
U j Action Program, Gerald Eaton, Esquire; for the U S Air ? cree and Genera _
si l'j Services Administration, Captain Jeffersen M. Shaffner, Esquire.
ji
. 00..
,8 l
REPORT jj on November 27, 1979, the Public Service Cce:an. cf Sc. Marcshire.
illl an electric utility ecmpany, filed an application or au:hcri:y to al:er ex;s:
e.
y ing rates on account of emergenc:. circumstances to produce an annual increa3
'i
' cf. revenues of 5.5% in the a: cunt of $11,970,591 cr 7.5. over the presen:
'l base revenues ec=puted in accordance with Tariff No. 22 but ex:lusive :f the et p fuel adjustment charge.
The application is filed pursuant c RSA 75:9, a
.i ti
. or in the alternative RSA 378:27 or 29.
I l On November 29, 1979 the Commission issued an Order cf Notice
' !! providing for a public hearing on this applica:icn to be held en Oc:c ber 11, t"
1979 and for publication of said notice.
The ac: ice was du;;. published and i
d the hearings were held on December 11, 12, 13, and l',
1979.
q The Company presented testimeny frc Rober: J. Harrisen,*. ice Pres;.
and Chief Financial Officer of the Ccepany, Wiliis: O. Har:y,. ice Presiden:
and the Head of the Public Utilitics Departmen: cf " organ Guaran. Trus:
Company and Eugene W. Meyers, Vice President of the Kidder Peiredy Ccrpany, li, Hanover Square, New York, New York.
H.
The Commission requested che tes:inen;. cf Jonathan 2. McIne of :he t
First National Bank cf Besten and Philip H. McLaughlin of Shremut -::icnal h Bank of Boston.
90009205
9 The Legislative ":ili:. Consurers' Ccuncil 'hcreinai:er --
t
'; LUCC) presented :estimony cf Professer J. Peter 'Til.iarsen :f :ar:::u:'
o F
College.
I 1
1
..i Varicus members of the public and representa:ives of cen:umer h
1 groups gave cral er written statements te the Cenmissier.
il I
li i
h I. ?csition ef the Par:ies
- l A.
?csition of Public Service Company 1
1 i,
Public Service Ccepany (hereinafter referred to as :he Cem;any or
..o a
- ' PSNH) centends that without an increase in the basic rates i will nc ler.ger i,
I l
' i. be able to sell long ter securities nor will it be able to finance 1:s con-
)
1 i
I j
struction or its day-to-day cperations.
~his inabili:'. to ree: 1:s cblirations
.I l
I h is cited as confrenting PSSH with it=ediate and substantial : nan::a-l,i I
disaster both as to the completion of Seabrook and the continuatien of ?SNH as :
i i
l, '1 i
i il a corporate en:ity.
I I
I i'l PSNH in its memorandum states that it has carried i:s burder
,i i
- ! under both RSA 275
- 9 (energency) and RSA 375:27 and 29 (tempcrarv The i,
i e' Company cites the Commissica s attentien to Petitlen or Pu.,:.: service re-
.N....n.
i i.
i d 549 (1951) and Concord Elec:ric DR 74-1 (197') for supper: of its con:entien l
'. i n
i t
D that under either RSA 375:9 or 27, an inability to finance i:s capi:a1 a
i I
L requirements is a su:ficient ground for relief.
I l
PSNH relies upon evidence submitted in this proceedin; fr-
"e j
i j proposi:icn tha: it has made a socd faith effor: :o reduce its c air dcnsnds.
ij The Ccapany charges tha: the failure te reduce :hese cas'r demancs ::..::
I ll r
j be laid at the Conpanv's deerstep giver. the appeals :sken b;. c:her par:ies
{
H,. to this proceeding.
The preblems :he Cenpany faces are delineated in their =cn:randu:
,1 i
i i! as follows:
(a) the need to raise S290 tillict by December 3:, 1951, (b i
L 90009206 f
I a
J
_3_
the term loan is up for renewal. (c) access to :he shcr:-ter-credi: m:r%e:
H has been cur: ailed, (d) connen s:cck access is.ini:cd, (e) ;cneral and 4ll refunding bonds are not a possibility at this time, cr.d 'f) enly ' s e
i 11
!! amounts of creferred s:ock ceuld be issued.
h.
1 i
i I
i PSNH contends that alternatives:o:ne surcncree are no: :essible er n.
i I
an adequate replacenen: for rate relief. The Ccmpany indicates that regult: cry,
- l. '
approvals which reduce PSSH cunership in Seabrcok :o 25'; will nc: scive
't i
e II the problen since 2S% is the level that is manageable by the Cem;c-).
0:her l
l l
alternatives such as shutting down cens: rue:icn c: altering the (C.eduled-i
'l completion dates are also rejected by the Cc=pany as being bor t3sinst the public interest and of little value in solv $ng inadequa:e cash flew.
The l
Company cencludes that only through a surenarse can :nese prec.e:s cegin ::
l' b
j be resolved.
h PSNH takes exception to the contention that the reques:ed rate
,i h relief is a departure from ces: cf service principles.
Supper:ing :his ll i
"I l
' position, the Cc=pany cites, that cost of service includes no: only a i
i i
,: utility's cost of operation but also its cost of capi:al.
That further, :his !
13 p cost of capital is not to be determined solely in terms of re: urn en c cun:s
'h ji invested in plant actually in service.
r il i
l' The Companv finds solace and support fer its cor.:en:icns as to cost d
o i
ll of service principles in LUCC witness '::llianscr 's testiren..
If Prcfesser i
h '.Jilliamson finds a 4.2 to c.2% increase necessary undar a narr:w concept cf l
I cost of service, the Ccmpany contends its 5.51 is clearly jus:ified.
o lj Finally, the Cc=pany centends that while 1: has suini::cd a varie:.
1i.
li, of proposed rate structures to the Ce:missien, it believes its cricinci f _in.c '
i P to be the strongest. However, the Company will cceep: the ccthed thc n
d Commission finds appropriate.
4
]
90009207 s
li I
se I
i 8
1 B.
Position of LUCC l,
2he LUCC obje::s to the Cc:pany's applica:i:r and se:s ::r:'.- _
number of arguments fer the censidere:ior. Of the Cermissicr-t The firs: argument is :ha: the application ciscussed ecs:a :ha:
h are associated wi:h the Company's uncomple:ed construc:icn a: Ecabreak, and i
si i
?
are, thus irrevelant to the establishment of ra:es whether : hey be in: erit, l
u C
temporary, energency or otherwise.
LUCC :skes :he pesi: ion :ha: he level h
a i:' of rates and charges to be assessed by PSSH may not be based en an.
.anner en i
I 4
I I'
the cost of construction werk in progress; ner may the level of ra:es and
.i i
l i charges be based upcn any costs associated with constructica werk i: said
,o l I' construction work is not conoleted.
To do so would violate :he isn.zuac.e of e
a I
h RSA 378:20-a.
i 1,
f' I,
The second argument advanced by the LUCC is tha: Emergene:. rates n
i should be denied because it is unlikelv, that PSSH will be able :o subs:antiate 'i an increase of 5.5% over their curren: levels of revenues in the hearines l
l concerning rate relief requested by PSSR. This contentien basi:cilv alletes i
'i
- ) that PSSH can not meet the burden of proof necessary c justify a rate increase'.
I
,l of any kind in light of the fact that they canno shew tha: the? Can main: sin I,
their presen: level of revenues, In this centext the LUCC also suggests i
j that :he Commission should not grant the Ccapany's request to fully normalize j
.I.
its income tax accoun:s.
i l
o The third contention of the LUCC is tha: there :s nc testimerv that I l
i l
the requested increase will avert the crisis.
L*JCC se:s f er:h :'. :: i: would i
i i
i
\\
\\
be an abuse of discretion :o grant an increase.eitheu: ev:dence cf a per anent l 1'
t.!! financing package designed to allew PSSH :o cen::nue cens:ru::::n :: : e a b :: c.<
I t
l l_
on schedule, at its current level of ewners'.:ip.
i,
'l Generally, the LUCC alleges that the Company has nc: pleaded a "l
i
', factual basis for the granting of emergency Tate relief and if suer rc ief
.I
,' were granted a bond should be required to pro:ec: residen:ial censurcrs.
I I
i l'
90009208
~)-
.I l 1
C. Positi'.n of Ccamuni:. Ac: ion Prograr j
~us e
s
\\
v C........ a. ). nC.an.
p.o..c..
( Cr. p /
. 2 e :-
...u..
ae.o....
Ao g
..v..
.. e....-
c........
.a t.t c n s
.co.
.u..e Cn_..~....
s.c.a..
.s e....
i, e..i..;,.
. m
. cena,s..
a.
.o
.....e
..a 7.e I
' ceeding.
The first ccacern expressef by CA? is f :he C ::issier finds tha:
'l
!i an energency exis s, the Ccamissi:n should nc: allcw a rate incre se without a
,i e
l
,',i concomi tant effor: b; Publi: Service Co can CAF vices the addi:icns of i
l.'
5
[personnelforpurposesofconstrue:ionmonitcringandthepossibic.
c:
t
'I increasec c,vicenes to s ac..eno.,cers as unreascnas e 1., censurers are asked
'l..3; to pay higher rates to relieve an energency.
i 0.e 1
,l the second contention put forth by CAP is that Public Servi:e has I
e ysimplynot carried its burden of proof pursuant to RSA 378:c.
In addi:ica, I.,
I.d CAP alleges that the emergency, if 1: exists, relates direc:ly to financing i
'i i
I 3 construction costs, generating cash for construe:1:n and preventing defaul
.n on lending agreements for construction.
Therefore, CAP contends tha: this r.
expense of construction financin-is directiv, prchibited from being passed on l
s
,ll l to the ratepayer by RSA 373:30-a.
3
'l I
The third cencern expressed by CAP is that the Cctaissien mus I
i i first determine if there is a crisis of suf ficient severitv te warran: relief i
i
, and then determine the extent of the relief.
Pe:ition of Public Service I
Ccmpanv, 97 N.H. 5;9 (1951) - Blandin opinien.
CAP alleges tha: even if I
It there is an emergency, the emergency rate reques eill no: cure the :inancial difficulties faced bv
. the Cc pan'.
CA? alleges that :hcre is a signi:ic n:
probability tha: man. of the Company's plans will ne bear frui:i r in 1930, thus worsening the emer enc'.
A eng those cited by CAP are:
(1) sa'c of the e
,I i
. Vermont facilities; (2) tne approva. c: :ne ::vestiture bv othe.
.u......rv i,
i O bodies; (3) the refusal of the various banks to provide assurances :ha: :he i
I!
I.
i
!! loans will be renewed or extended; (4) the nuclear fuel agreement u._1 occur; I
.i and (5) that a reneg::iation of the uni: sale of power frc ':erri c:c 11 w ll l
be succassful.
t 90009209
(
1
_o_
l C u.,
c:,..s
., he
.c ct. h a..
.,.,..s e...
m...
.o
.e c.c.....e of their cwn.
!! these people cre faced :: par: w; ;.- a ;cr:ic-cf their limited resources, CA? centends tha: there is nr assurcnce tha: :he : ;;nt I
I t
will succeed in remaining s:able during 1950, cr tha: there wcn't :e :ur:her i
n requests.
i il CAP's fourth centention is tha: :e:p::ar" rctes canne: he gr n:ed
'.; because of the failure :o adequately infer the public :ha: :e:pcrary rates I
would be addressed.
I 4
3' CAP's final concern is that if the Cc mission ignores CAF's l
l
.j other concerns an: finds an emergency, the za:es granted shoul; be applied I
n on a per kilowat: hour basis.
e, I
il i'
el II. Statutory Concerns i
1 A.
Temporary Rates l
4 The Commission has in this proceeding provided adequa:
I 2 n:: ice :o the' l
s
- y. public of an immediate rate increase rec,uest.
A hearing was scheduled and I
j' notice cf said. nearing was properly publishec.
.ne acecuacy c:. t.ne n:::ce anc -
. i the awareness of the public concerning the matters before the Cc miesien have {
been clearly demonstrated by the number cf people who have presente their I
i l
views both orally and in writing to the Cc:missien.
l Temporary rates have traditienall'. pr ected a utility's ripr: :o a
I a reasonable return during the pendency cf a ;rc:eeding.
Consumers 2 c i
protected through the notice and hearing provisiens and ?.5A 375:;;
- ich
{
allcw for a bond to secure repay cat :o ::.2
- streers Of the u
- 1.;;
in :.e i
event that temporary rates prove to be hicher : hen wha: is alic.ed in tr.e I
n-pe rma ne n t rate c.ec:s en.
i o
The Commission in Cen:Ord Elec:ric 2R 74-1 (1971) all:we: c :er;cra r;.
i, Il i, increase in rates where it found that Conccrd Ele::ric was una'le :: do crs
'l 3
4
,' l.
n 4
90009210 E
i
-1 I
permanent financing.
Similar concerns were e:: pressed ir Publi: 5 - -i ce Cem an. C-R 6061 (1974).
Therefore, by pas: C: missier pre:eder: RSA 175:17 t.
j is a mechanism whereby a utility can eb:ain an increase in ra:es :::vided i:
I i
N l
q can demonstrate that access to the permanen: capital marke:s is being influencep e,,
I t'
4 b.v the inability of the utility to earn a reasonable re: urn.
I n
1 t
-l i
i i
3.
Emerr_ency Ra:es i
(
j; RSA 375:9, the emergency rate sta:ute, has als: been re:egnized as l
J 'a vehicle wherebv i
t.
- a utility after demenstra:ing a lack of avenues to the l
permanent rinancing car,n,ets can receive an increase in rates, h.
i e unt.an:
Telephone and Telecraph v.
State 95 N.H. 59 (19'9) Pe:ition of Public Service 1
.j Compant 97 N.H. 549 (1951).
In both the New Englanc iet. cecisien and the Elandin epini:n in I
i I
Public Service the inability to finance generally, inability to pay presen:
bank loans and/or issue common stock have been recognized as sufficien:
,i grounds by the Supreme Court for the finding of an emergency.
The ::enisen 4
f oP nion in Public Service does no differ as to the reccaniticr of wha:
i b
i' l factors result in a rate increase being granted prior to c =pletion of a I
pe rmanen t rate order.
Rather, the focus of the Renison opinien is the statutory mechanism.
Since ; hat decision, the Supreme Cour: has clearly l
I i
i stated that the Cenmission is no: :o substi:ute form over subs:ance. ;Jc:
i i.
i-
- v. PSSH III S.H.
(1979).
5.~ nile :ne issue eersus sub-i
.l
- ) stance was a question of methodolcgy in that proceeding, the censidera:icns
] supporting : hat decision are equally appli:able to the cues:icr cf which statute is appropriate.
I q
p The Ccmmission does not believe that an emer;en::. reqmes: ;ursuan:
to RSA 378:9 loses its character as ar emergency, simpl:. because :he na::er I
i l
is se: for public hearing.
Commissien policy is to a; ways have a hearing i
because this is the onl:, way the Commissien can be assured of cal:n:ing the c
90009211
.l-r a
I
_e_
I t
i interests of the censumers and the u:ilit:.
Therefore, the Cennission adop:ed :he pesi:icn :hc: :his ::::ee ing t
o to RSn. sic:9 anc. n 5:,. e::.ner inc;e c.ua,ly er ir c:rjur.::icn.
~
is pursuan:
3.-
/
i.
C.
Burden of Froof I
i n.
I I.
RSA 375:5 s:a:es that when ans u:ili:~ seeks :he benefi: :i an.
l 4
i l'.! order of the Cc mission to charge and collet:
I d
rates in excess :f
'.c ra:es y presently being charged, :he burden of proving the necessi::. cf :he in
'! is clearly en the utili:3 t
i.
i t
jj In an emergency rate relief situa.tien, there is a heav; burden l
I q upon the utility seeking relief to allege and establish the existence cf f
i Ho
- , circumstances which would warrent departure fror the nernal ratemakine process.
Re Potomac Electric Power Co., 9 ?UR 4th 363 (1975).
'.shile the H
burden of establishing the need fer rate relief is always upcn :he s
l i,
I ap'plicant in a rate proceeding, that burden bears more heavily upon :he l.
il
,,i applicant in a request for extraordinary relief.
Re Arkansas Power i Lich:
l y
_Co., 10 PUR 4 th 474 (1975).
l.
l 6
Since the Cc mission does no: have the benefit of a ccmole:e
{
independent analysis by its staf f on the financial pos:ure of the u:i i:
,j i
l l
y, i
the evidence submitted by an applicant ic:
i erergency ra:e relief ::s: clea rl;. i l
and convincingly demonstrate that a situa:icn exists which warrants an exercise of the Commissien's emergency p: vers.
4 i
Re Arthur Mutual Telerhene Co.,;
o i Case No. 73-562-4 (1973).
i' l-III.Commissien Analysis The testimony of Mr. Meyer of F.idder Fe bedy is concise cnd the point.
This Company is foreclosed frer permanent fir.cncing if cddi:icnal o
bt revenues are not fcrthcoming.
If permanent financing is nc avc _ar.e, :ne i
'l h
I 90009212 1
[
l
i
+
1 l
I.
i
.. e
_o_
l.
." commercial bankers have no reasen to either renew er ex:end shor: tar.
j t.
{
t financial arrangements.
I: :na occurs tr.is
- pan. wi.1 no: be able to l
l f
l' i
meet its bills which veuld effe::ively sic; the cens:ru: ien cf Seabrcok.
i h.
I i
,i H Further:cre, :here is at leas: a s:reng liklih::d tha: Public Service i
. i.
j I
h Company itself would fleunder on the shoals of inscivency absen; ra:e re::e:.
I pl I
1 O,
Staff Exhibit #$ does sho-tha: this Ccepany is earnin; a rate i
I
,i i
i
. of return in excess of that allowed by :he Cennission in the las: rate case l
i i
h i
decision DR 77-19.
If the financial circumstances involving this Cc pany i-i
'l had remained the same, Staff Exhibi: us would presen a significen: barrier j
to rate relief. However, the circumstances,. involving :his C:= pan. have t
i i
changed. First, at the time the Company was last before :he Cctaission the i
i
'i prime interest rate was below 10%; now it is at 15k%.
Second, during the l
i
'l I
1 I
h last proceeding the economy as a whole was on a relative upward swing.
)
e
.i i, I
Today, all of us are in the' throes of a recession.
Third, be:veen the last 1
i
.f filing by this Company and this emergency rate filing, an incident occurred I
.i at the Three Mile Island Station.
In the after=a:h cf this incident the
'I
~
d financial markets have reac:ed somewhat less positively than in the past.
.i.
i,
'; While hopefully the events in Caracas this past week will begin to swing i
n i
.: the pendulum in the opposite direction, certainly the inciden: did add risk 1
i l
I i
!! to those utilities constructing nuclear plants.
l i
i u
i l
e Four:.n, tne stock marke:
.nas r.ad a steady ccwnwar: s.;:e.
.n;s i
i i
l h overall market cendition, a sympt:m of the recession and :he higP interes:
I l
i rates, has had a particularly chilling effect en stocks cf c:ilities.
These I
1 I
[
l with major construe:lon programs er heavy reliance upcc o;. were hi: the l!
'l hardest.
PSNH is in the unfor:unate posi:icn of cualifying under bo:h.
j i
..8 1
6 1
Fifth, the Company has main:ained and correctly, we be ;cve, that i
J I
,I he Seabrook is a valuable proj ect.
The New England utilities who firs: recuested '
l.
i.
<l f
I 90009213 I
l.
i partions cf Seabreck and then backed off previced an cddi:icn;1
'c-r-*--
I
- " a *... e.d * '.. e.. h e "m e...p a.v.
o r *. '.. d c. v"-....'..c.'.-..
...............:.,.4s,.
.s i
fac;cr to which inves: ors and bankers resc.end.
Cbvicusle. if :P.e.:::cn. :s i
- perceived as having to be wary of its fellcw b rethren in the indur
- ry, this I
I I too causes risk.
Mr. Meyer's indicatica that he believed ru:_ : :ervice was the I
, 1 i
[ utility with the greatest risk may be : rue.
E: wever, what is clear is the
! I correctness of our statement in DR 79-107 where the C:: ission indicated :ha:
I both the overall rate of return s.d the return en ccamen ec.uity is higher thcn,
l our findinas in DR 77-49.
LUCC witness Williansen> Cc pan.ci: ness ':e.er and !
s I.
.! Harrison all maintained that the cost of ccamen equity fer ?SNH was higher j
than 14%.
Certainly the 15.3% at this point in :ime is reasenable.
Applying the facts in this proceeding to the tests se: for:h by I
the Surreme Court, it is clear that the Ccepan.v qualifies for emergency l assis:ance. As in Petition _o_f Public Service, (1951) infra Public Service
- Company is again f aced with an inability to sell cc
- en s
- o:k, 05 ':.H.
551.
As in 1951, Public Service Co:canv g
i
- must, assuming the dives:ure l
completed in 1980, raise extraordinary amounts cf addi:10nci capital.
is not l
l This factor was another one relied upon by the Supreme Cour: in de:ernining i
I an emergency existed.4n 1o31.
o,,e
- 5....n.
a: page a;.3
-.:ina. 27, a;ain as in
.l i
1951 a loan is coming due tha: test be renewed or ex: ended :o p y it: pas:
- l censtru
- : ion and to pay for further expansion cf services.
t I
ine evicence of LUCC witness Jilliamson 212 indicates
'.a: at
.I i
n least some f orm of permanen: rate relief is necessary.
'T.ile Pr:fesser
?
i l
i Williamson did not address his belief as to the emergcnc-si:uc:ic-and 7
f i.
i I,
hat relief if anv was needed.
l' d
His reccamenda:icn of a 1.2.1 :o 6.2'.
w l
li permanent increase does not differ markedly frc: the acticn the Ccanissicn jtakestoday.
l i
l 90009214 i
/7 i
1 1
i i
-11_
1 The testineny of Mr. Harrisen tege:her with eur own extensive i
I investigation in:o what is cccuring in o:her jurisdictiens. leads us :
l a
cenclude tha: ?SSH has made everv at:em:
(
0 to inn.lemen: :he dives:ure in
.; the nest expedi:ious fashion pessible.
If they had no: been held up by i
i
- people such as the Massachusetts in:ervencrs there is a str:n; likliheed
.)
'l
!i that the action :aken today night not have been necessarv.
o I
I Upon a review of all the evidence in this proceeding 1: is clear I
i.
I that PSNH has sus:ained its heavy burden and that our action conferns to the i
tests set forth by the New Hampshire Supreme Court.
Obvicusly, this revieu
! canno: address all the concerns raised by each party :c the proceedin;.
L However, the full investigation in situations such as these is lef: :o the et Q hearings en the permanen increase. The $11,970,00 revenue request is approved.
D. Bond.
The Co mission pursuan: to RSA 378:30 will require a bond to be posted.
I
-i i
IV. Allecatiens Concerning C'.i!? and RSA 375: 20a 4
i p
Parties to the proceeding have set forth the prepesiticn tha: the I
o ll Company's request is nothing more than C'.JI? by another name.
In addition, I some of these parties contend that RSA 375:30a precludes any ten:icn of any 4
i project under constructien.
Because these par:ies have persisted wi:h these 4 positions, the Commission finds it necessary te provide the fellevine:
i If RSA 378:30-a was not in existence, the Co par'. woulc be entitled l to a rate base nearly double the rate base submitted in :his pre: ceding.
(-
P
?j Assuming the.came 14% return on equity all:wed in OR 77 '9 :he Cerpany would i! be enti: led to approximately Sc3,706,:67 ef addi:ional revenue this year.
I H
l i This ccmpares to the approximate $11,970,000 granted by this epinien cnd
,; the approximately $18,500,000 asked in the per.anent rate in: ease request.
o
'l 90009215 i,
1 1
,: ll i
- Clearly neither this Ccnmission nor PSSH is sidestepping the effe
- - cf RSA 375:30-a.
l The formula used by the Ccrmissien in DE 79-107 vill a;cin be q cited as an a: tempt to explain rate:aking.
i s
j R = E * (V-d)r
{i
'i a = Overal revenues required 1
l
- =- xpenses i
V = Rate Base 4
d = Depreciation i '
- l r = Overall return S
l l
'l il Under either the CWI? or no CW:P scenario, expenses and depreciatien,
y
'l can be assumed to be treated in the same fashicn.
Consequen:1y, :he differences
.9 are rate base and return.
Obviously, many of the concerns of the 15.37. at this early stage of the proceeding would nc: be ignored in a sinilar proceeding I
without RSA 378:30 (a).
The dif f erences, if any, on return on equi:y are the !
i iji proper subject for experts.
Debt costs and preferred s:ock costs : hat have
.I
'l been the subject of hearings by this Cet ission would no: be addressed b)
,o the caliber of witnesses such as Harrison and Williamscn, since these portions of the rate of return are rarely, if ever, in dispute, i
This leaves a rate base under CW:? based rates on a Sev Hampshire jurisdictional basis of $648,522,763 as opposed to the re:uested ncn-CWI?
1 i
rate base (on a jurisdictional basis) cf $325,722,740.
i i
As to the suggestion that RSA 378:30-a is designed :o elenina:e consideration of construction from all elenents cf rateraking, it. expenses, 16 q return, and rate base is untenable.
ll The bill reads as follcus:
o" 90009216 i
l,a i
i 1
- l i
[
.. ~ - _,.. - -.,.
1.
Cos:s of Cons: rue:icn %crk :n Frecress I:::1_ : r l From ?. ate Ease. Amend R5A 37f by inser:ing af:ct sec:::r 2C the following new section:
i 375:30-a Public Utili:v Ra:e Scse: Exc l u s i e n.s.
t ur.ic utilit;. rates or charges shall not in any manner be basci en the cost of cens:ruction work in pregress.
At no :ime shall i
any rates or charges be based upon any ces:s associe:ed.zi:h f
CCnstruC ion ork if said Cons:TuC: ion work is no: Cer:le:Ed.
l All costs of construction werk in progress, including, bu:
I lir.ited to, any costs associa:ed with cons:ructine, c-T.ing, not g
maintainine or financing construction work in prceress, shall
~
H not be included in a utili:v's rate base nor be alicwed as an M
expense for rate making purposes until, and not before, said l'
construction project is actually providing service to consumers.
I-2.
Ef f ec tive Date.
This act shall :ake effect upcn its
!I 1
passage.
(Emphasis supplied).
l i <
o i
t
,l The statute as well as the titld of the statute clearly indica:es t i'
- that the legislature was intending to exclude CWI? fre ra
- e base.
t
,I f
V.
Commensurate Jurisdiction Returns and Divesture l
d The Commission urges the Company to proceed in a reasonably q
h expeditious canner to seek equality of rates frca cus:cters in oth.cr
,i I
jurisdictions serviced by the Ccepany and a: the same time to centinue tc i
l
.{ strive toward a successful conclusien of the planned divesture.
l
'l
- I f
o le
'l I
1
}l!
90009217 l
-1 e
,i I
'i I
l l
I lI l
il l
i e
!p'.
i i I
. )
I i
I
.i
-1;_
o
.a t
I iJ _Emercency Measures - PSNH t
1 CA? AND LUCC are ccncerned tha: if censumers are :a. vin.: hither g
rates because of an emergency resulting fre lack cf cash f1cw then it is l
H..
i
[ only fair and reasonable to require similar sacrifices by :he u: 11:' and
'ih: its stockholders.
Bo:h ask for a curtailmen; in expenses and CA? has i'l' l
l! particular concerns about a possible dividend increase.
I i.
6
'l i
p Eoth of these parties want the Commission to evaluate :he expenses il
" of the Company and it is suggested tha: the Cermission i pese eitner a : a:
i i;
i G
': percentage redue:1on to expenses or in the alternative disallow cer:ain s,.
ji expenditures such as the expenditure associated with :he Electric ? wer il
'l j
Research Institute.
I e
i the questions raised by CAP and L"CC relate to the me:heds and 4
.1 practices of the utility and its canagement.
These are legit ste inquires II i: that must be censidered before reaching a decision in the permanen: rate h request.
However, the Supreme Court has clearly ir.dicated that "etergency I.
l';; relief does not depend upon the answers to these ques: ions bu: upcn the c
I! needs of the company..." New Entland Telechone and Telecraoh Co j;
,. 5:ste
!! 95 N.H. 58, 62 (1943).
j I
j While there is no s:stutory or case law which requires a limita: ion j on expense, the question of increased dividends may well have been addressed
- ,' in part by the New Hampshire Supreme Court in
- he ':ew Encland Tele:rene and N
t Telecraph Co.
o
-- decision.
In that decisicn, the Ccur: feund : hat a nreper 1
i I
+1;; return for common equity was required te be found befcre es:ablishin; t
4 1
1
!j permanent rates. The court then stated the following:
1 i
I "Until such permanent ra:es con be es:ablished, O
stockholders must expec: to share the burden i
i of abnormal costs withou; transferring the whole l
l-jj to the public under the guise of emergency rc1:ef "
l H.
95 N.H. at p. 63.
el I
i i
I 90009218 mh 0
However, the Commission agrees wit'- '::. Harrisen :ha: the Cottission lacks :he authority to dictate the dividend pc_' icy ei this t,
Company or any c:her c:= pan) (Trcnscrip; i-45).
The Cct;cn) and ;;s investmen: bankers mus; decide what is necesscry for the c:
cr and pre-1 ferred stock of the cc:pany to be attractive ::
4 inves: ors.
i Bate Oesien h,
i t
j Because of the expedited na:ure of be:h :e:perarv and energency
,1 L proceedings, rates must be established wi:hout l
in depth allocations of jcosts.
The allocations chosen by the Commission t
I in these types of pro-ceedings do not I,
necessarily control when fixing permanent rates. Egg _Eng-q l'
land Telephone and Telecraph Co. v. State 55 :;.H. 515 oS A. 2d 114 l
l l' _
i (1949).
Consequently, parties to the proceeding have the right
,1 l
.I to challenge :he
]cos: allocations made by the Cc= mission in hearings to be held on the permanent rate request.
The Commission, in adopting the increased rate level sought by I
i the Company is faced with substantial porblems of increasin2 com-l
, plexity.
Yesterday's solutions are not always applicable where (1) a l
4
!. unit is being bulit with a cost many times the size of the Company's i
H existing investment, (2) the fuel type of the new plan: is more desirable
(
l because of inflationary and national interest problems associa:cd with l
the fuel type tha: is presently being used, and (3) ecnserva:icn is new a I
national policy.
The Commission has at e p:ed to implement a three prcnged approach to reducing the oil dependence of utilities within our jurisdic:icn, Firs:,
t 4 the Commission endorsed ano; n
t centinues to endorse the cons:ructicn i
- ne I!
nuclear facility at Seabrook.
Second, the Ce r.ission has ini:icted an I investigation into the feasibility of converting oil fired stations to l
- l e,i d
90009219
.l
4 i
coal.
Third, the Cc missien hae, :hrough its decisien en ra:es f:r sma..
' energy producers, attempted to increase substantially :he :::un: ef '.ydro-power in the State and possibly nake i: mere likely : hat other al:ernate j energy forms will also increase.
In addition, :he Commissien has launched h
I lh an investiga ica into whether or not the Cettissicn shculd recuire greater i
n amounts of hydre-power genera:1on on the Connec:icut River :c be used wi:hin i'
i the State.
Today, the Commission adds a fourth prong; namely, to take :he rate l
j' structure more conservation oriented a: leas: un:11 either the other fuel 1
,' i types begin to have a greater percentage of. PSNH's mix or un:11 :he oil crisis y lessens in impact.
At the present time any increased usage by any censumer in this Sta:e
- y 1.
will be satisfied by a greater use of.cil fired generating stations.
This will be especially true if the NRC carries through on its order to begin closing some of New England's nuclear plants for safe:y checks and for
' safety related equipment additions.
Consequently, the initial ra:e structure submitted by the Company will not be accep:ed for purposes of this proceeding.
Instead, the Commission will allow :he following increases :o the following customer classes and service charges.
It should be notec tha l; the full S11,970,591 is being allowed but because cf the $1.32 fuel adjustment charge as opposed to the tes year average fuel adjus: en: charge of S1,33
- - the overall percentage is lower.
(4.95%).
The Ccmmission will spread the emergency surcharge as shown on the a:: ached repor: of proposed ra:e changes.
OI The proposed change is to be placed on a per kilowat: hour basis within each h customer class of service.
The Company will use the a: cunt of kilows:: h:urs il o
N for each class of service that it used in :he calculations it submi :ed :o il
- ! the Commission.
The Commission will make two devia: ions from this everall l'ij rule.
The controled water heating subclass for the general service ra:e C o
i 40 90009220
il i'
will not have any increase appi:2d :o i:s kilows:: hour usec;c.
T..is los:
.l '-
i i
.' ; revenue is to be reccvered or, s oer kilowct: hour : asis iro ::her rc:2 C i.
1 I
I customers.
.ne seconc cevia:i:n is that no increase w 1 be cyp. e: :o tr.e si i
h l
ll high-pressure sodium outdoor ligh:s. Agcin, this small revenue.1:ss is to l
.-ij be recovered from c:her KL custeners en a per kilowat: hour basis.
Our crd.e:
i l:.
j will issue a: ordingly.
to be effective as of Dece:ber 28, 1979.
l BI Ils'-
.n..-.-.
, ~..
co-I, Cr. air:ca I.
i, Cencurring:
11
't December 21, 1979 i!
.i i.
Li: Francis J. Riordan
, Commissioner I
h
,e i'e!
jl Malcolm J. Stevenson
, Commissioner I
I i
1 L..
90009221 I
i f.
i l
8 I
I
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- i
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4 8
i
.6 t
l' i'
i l
I l'
I l
l.i I'I l.
l i
i I
l 6 '1 n
o o.
i i
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ei i
1
.~... u.
V.:. : V.. -... -
- r s....
w.......
1i I
L'* II, ",- ?
Pu:'ie 5 e :i: e C::.:z-.
f ::ev M::. 5 -. re
- . r-Sepplemen: :;o. 7
~n.....r
+.
o Based on Accual Sales :c :;ev Mc. psnire Cus:Orers for the Twelve M n:hs Peri:d Inding.May 21, 1979w
.= a. e.--
7"..'..
n'. e. u,, '.- l
?_*.d_-.ad
. _'_' :. / =_... -
- .-..-*"."...a.<_=
ss s c.'
>..-... - c. e '
o'*
- c.
....c e.-.
. = ~.. -...
Se: tite C'.a..: e +
Ou s t e.:er s!
ates a
=2:es I
A. :2::
4 i
l Residen:ial I
i e
y4.,
7...eg3,
- c nec c
l Ra:e D =
S105'171503
' OE'52'60
~~'34c A:*'7 3*'S e'
- ^
l p
.\\
i General
'I Service Increase 30,379 S40,474,739 S41,573,712 51,C55,973 2.71 l Ra:e G Prir.ary General
.n:rease 1,195 i
Service S46'420'020 Ra:e CV,,
S49,570,525 53,150,505 6.7E l
Trans=issien l
General
$41,296,582 S44,511,454 53,2.'2,902 7.7 In,rease 9
Se rvi c e Rate -'R**
s..
5 i
Outdoor L 'i had--
""6 Inc r e a s e 13,8147-
$6,298,297
$ 6, 5 6.,, 0 m.
.e. A.,., v.>
i..,e e
Service i
-n a. e..,.
v.
i l
i Service C*"a 6es' e~i,~ '
ime
' Increase r.a:es D 6 C si,342,275 5894,E50 2 0 D. O.' '
g i
I i i t
, l i
I I
l TCC.U.S Increase 270,05.'.
I i
S240,110,566
.o.o,,c.0,E7'
.c.'.. t., v,
- c..'
'4.a' i
,c l
I I
j 2cv ':: esses, de:resses ant. ne: c..r.r.ge s is eser rz e :..s t et:3h:., se,.x2.e;;f,
... e. a...'.d. a '..' e.
.w f
i (See reverse side for
.e e
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90009222
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DT.79-187 r
PUBLIC 52?XICC CC!?AW OF
~It* WF.?SBIRE
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3 *f. 9 62 In consideration of a report issued De:ceber 21, 1979, which iu 2de a cart hereof; it is ORDERED, thac :he Fublic Service Csepany of New Ha=; shire be, and hereby is, allowed e:tergency rate relief in the amount of Sll,970,59), to becor.e effective with all billings issued on or af ter Dece=ber 2G,1979 and to continue until pernanent rates are ordered under this docke:; and it is FURTHER ORDERED. that said ravenue be gained by increasing service charges and applying a surcharge co each kilovart-hour of energy sold, with
- he en:cptions noted vi:hin the report; and it is FUET6E.R Or.DIRED, that surenarges for each class be :alculated acceeding :: :ne Repcrt of Proposed Rate Change a:: ached to the aforerentioned Re,cr:; and it is FURTutR 07.DERED
- hat the resulting rates be docuranted by Iiling Supplement No. '/ :o the Public Service Cc:May of I;ew 'tianps;. ire's tariff 1.".d.? L* ; ::o. 22 - Elec:ricity; ar.3 it is TURTHER ORDEF.C. that public ner. ice be given according 1.o tariff Filing Rule 27. said notice to su=narice Eupple=en: No. 7.
' y order of the Public Utilities Cannission of New Ratsshire thic d
twenty-sixth day of Dece= der, 1979.
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Executive Dire.ttor and Secretary 90009223 4
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