ML20138G722
ML20138G722 | |
Person / Time | |
---|---|
Site: | Millstone, Seabrook ![]() |
Issue date: | 12/31/1996 |
From: | CONNECTICUT LIGHT & POWER CO. (SUBS. OF NORTHEAST |
To: | |
Shared Package | |
ML20138G692 | List: |
References | |
NUDOCS 9705060368 | |
Download: ML20138G722 (54) | |
Text
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i I Robert G. Abair Bernard ht. Fox Keith R. htarvin i Vnc President and Chief Ch.urman Vice President-Purthasmg and
! Admmistratn c Olhccr General Services Western h1assac huscus Electric Hugh C. hlacKenzie Company Presideni John T. hturo 1
Vice President-Retad hiarkcung John H. Forsgren Bruce D. Kenyon Exccutnc Vice President and Presideni-Nudcar Group John J. Roman Chief Fmantial othccr Vice President and Controller Bernard hl. Fox Executnc Yne President and Chairman Frank P Sabatino ChicI Financial Ofhter Var President-Wholesale Wilham T. Frain,Jr hiaikcong Cheryl W Gnst President and Chici Senior Vnc President and Operatmg Oliner Roger C. Zaklukiewic:
CincI Adnunistiatnc Officer Pubhc Servac Comnany of Vice President-New flampshire Transmission and Disinhunon i
Francis L Kmney Scnior Vnc Picsident-
! Cheryl W Gnse Deborah L. Canyock Govonmental Allans Senior Vac Picsident and Assistant Connoller-Chnf Adnunistrainc Othc" hianagement Iniormation and Robert P Wax Budgciing Systems John B. Keane S'"'".' \." I'd'"b#'Y '
and Gent ral Counscl Vice Presideni and Ticasurct Lori A. hlabler Assistant Controller-Bruce D. Kenyon David H. Boguslawikt Accounung Servacs l President-Ntnicai Gioup Vac President-Energy Dchvery Hugh C. hiacK,en:ic hiichael J. htahoney l Rxhard R Carella Presalent Assistant Controller-Vice President-Central Region R R anon
! Ronald G. Chevalier Theresa H. Allsop l Vac Presalent-Fossil /flydro Assistant Secretary Engmcenng and Operations hlark A.Joyse Barry liberman Assistant Secretary Vice Presideni-Corporate and Lnvironrnental Afl.urs Robert C. Aronson Assistant Treasurci-John B. Keane Treasury Operanons Vnc President and Treasurcr David R. hicHale Robert J. Kost Assistani Treasurcr-Finante Vac Presaleni-Westcrn Region Kerry J. Kuhlman Yac Presalent-Easicrn Region Tsin tun e 2& VNi
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1996 Annual Report The Connecticut Light and Power Company and Subsidiaries ;
Index ,
Contents Page I
l Censolidated Balance Sheets................................. 2-3 I Censolidated Statements of Income........................... 4 Censolidated Statements of Cash Flows....................... 5 Censolidated Statements of Common Stockholder's Equity...... 6 l l Notes to Consolidated Financial Statements.................. 7 Rsport of Independent Public Accountants.................... 37 1
M2nagement's Discussion and Analysis of Financial Condition and Results of Operations....................... 38 ;
Salected Financial Data..................................... 50 Statements of Quarterly Financial Data...................... 50 Statistics.................................................. 51 Preferred Stockholder and Bondholder Information............ Back Cover i
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THE CONNECTICUT LIGHT AND POWER COMPANY AED SUBSIDIARIES CONSOLIDATED BALANCE SHEETS At December 31, 1996 1995 (Thousands of Dollars) >
ASSETS l
Utility Plant, at original cost:
Electric................................................ $ 6,283,736 $ 6,147,961 Less: Accumulated provision for depreciation ( No t e 1 F ) . . . . . . . . . . . . . . . . . . . . . . . . . 2,665,519 2,418,557 3,618,217 3,729,404 !
Construction work in progress........................... 95,873 103,026 Nuclear fuel, net....................................... 133,050 138,203 Total net utility plant........... .................., 3,847,140 3,970,633 ,
i Other Property and Investments' Nuclear decommissioning trusts, at market............... 296,960 238,023
- Investments in regional nuclear generating companies, at equity (Note 1E)......................... 56,925 54,624 Other, at cost........ .. ................. ......... . 16,565 16,241 370,450 308,888 Current Assets:
Cash........ ........................................... 404 337 Notes receivable from affiliated companies............... 109,050 .
Receivables, less accumulated provision for l uncollectible accounts of $13,240,000 in 1996 and $10,567,000 in 1995................................ 226,112 231,574 l Accounts receivable from affiliated companies.... ...... 3,481 3,069 Taxes receivable........ ............................. 40,134 -
Accrued utility revenues ............................. 78,451 91,157 Fuel, materials, and sup; i ies, at average cost.......... 79,937 68,482 Recoverable energy costs, net--current portion.......... 25,436 78,108 Prepayments and other................................... 63,344 42,894 j
626,349 515,621 Deferred Charges:
Regulatory assets (Note 1H). ........................... 1,370,781 1,225,280 '
Unamortized debt expense................................ 17,033 14,977 l Other............................. ..................... 12,283 10,232 1,400,097 1,250,489 i
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l Total Assets........................................ $ 6,244,036 $ 6,045,631 l The accompanying notes are an integral part of these financial statements. J 2 l i
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THE COMECTICUT LIGHT AND POWER COMPAffY AND SUBSIDIARIES COffSOLIDATED BALANCE SHEETS At December 31, 1996 1995 (Thousands of Dollars)
CAPITALIZATION AND LIABILITIES Capitalization: !
Common stock--$10 par value. Authorized 24,500,000 shares; outstanding 12,222,930 shares in 1996 and 1995.. ....... . ... . . . $ 122,229 $ 122,229 Capital surplus, paid in,. ........ .. . . .. . 639,657 637.981 Ratained earnings. ........ ... . . ... ........ . 551,410 785,476 Total common stockholder's equity.. . . ... . 1,313,296 1,545,686 Cumulative preferred stock--
$50 par value authorized 9,000,000 shares; outstanding 5,424,000 shares in 1996 and 1995
$35 par value authorized 8,000,000 sharec; outstanding no shares in 1996 and 1995 Not subject to mandatory redemption.................... 116,200 116,200 Subject to mandatory redemption........................ 155,000 155,000 >
Long-term debt........................................... 1,834,405 1,812,646 Total capitalization........................... 3,418,901 3,629,532 ;
Minority Interest in Consolidated Subsidia ry (Note 13 ) . . . . . . . . . . . . . . . . . . . . ...... ........ 100,000 100,000 Obligations Under Capital Leases (Note 2).... ....... ... 143,347 108,408 Current Liabilities:
Notes payable to banks.......................... ....... -
41,500 Notes payable to affiliated company... ..... .... .. .. -
10,250 Long-term debt--current portion.. ....................... 204,116 9,372 Obligations under capital leases--current portion (Note 2)................ . ..... ... . ....... 12,361 63,856 Accounts payable. . ............. ............ .. ..... 160,945 110,798 Accounts payable to affiliated companies... .... .. . 78,481 44,677 Accrued taxes............... . ...... .... ......... 28,707 52,268 Accrued interest. . . ....... .......... .. ... ... .. 31,513 30,854 Nuclear compliance (Note 11B).. .. .................. . 50,500 -
Other. . .
... .. ..... ... ... ......... ............ 34,433 20,027 601,056 383,602 Deferred Credits:
Accumulated deferred income taxes (Note 1I)............. 1,365,641 1,486,873 Accumulated deferred investment tax credits............. 135,080 142,447 Deferred contractual obligations (Note 3)............... 305,627 65,847 Other............................................... ... 174,384 128,922 1,980,732 1,824,089 Commitments and Contingencies (Note 11)
Total Capitalization and Liabilities.. ........ $ 6,244,036 $ 6,045,631 The accompanying notes are an integral part of these financial statements.
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THE CONNECTICUT LIGHT AND POWER COMPAW AMD SUBSIDIARIES ,
CONSOLIDATED STATEMENTS OF INCOME i
- For the Years Ended December 31, 1996 1995 1994
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(Thousands of Dollars)
Operating Revenues... .. . . ... ................. $2,397,46C $2,387,069 $2,328,052 i
Operating Expenses:
Operation -- l Fuel, purchased and net interchange power.. .. 830,924 608,600 568,394 !
other. .... .............. ........... ... . 778,329 614,382 593,851 .
I Mai.itenance., ........................... .... . 300,005 192,607 207,003 .
t Depreciation.. .................................. 247,109 242,496 231,155 !
Amortization of regulatory assets, net........ .. 57,432 54,217 77,384 Federal and state income taxes (Note 8)... . . (20,174) 178,346 190,249 Taxes other than income taxes............... .... 174,062 172,395 173,068 .
Total operating expenses............ ..... 2,367,687 2,063,043 2,041,104 Operating Income. . ................. ...... . ... 29,773 324,026 286,948 Other Income:
Deferred nuclear plants return--other funds...... 1,268 4,683 13,373 Equity.in earnings of regional nuclear generating companies............. .. .. ...... 6,619 6,545 7,453 ,
Other, net.. . .. .................... .......... 19,442 9,902 5,136 Minority interest in income of subsidiary (Note 13)... ....................... (9,300) (8,732) -
Income taxes. .......... ........ ............... 160 (2,978) 4,248
........... ........... ........... r Other income, net.......................... 18,189 9,420 30,210 >
l Tncore before intere charges.......... . 47,962 333,446 317,158 j l
Interest Charges:
Interest on long-term debt....................... 127,198 124,350 119,927 ,
Other interest....... ........................... 1,147 5,596 6,378 f Deferred nuclear plants return--borrowed funds... (146) ( 1, 7.'. 6 ) (7,435) (l t
Interest charges, net. ........ ........... 128,199 128,230 118,870 }
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Net (Loss) Income..... ............................ $ (80,237) $ 205,216 $ 198,288 l l ........... ........... ........... ,
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THE CONNECTICUT LIGHT AND FOWER COMPANY AND SUBSIDIARIES CCDTSOLIDATED STATEMENTS OF CASH FIDWS For the Years Ended Dec;mber 31, 1996 1995 1994 (Thousands of Dollars)
Operating Activities:
Net ( Loss ) Income . . . . . . . . . . . . . . . . . . . . . . . ........... ........ $ (80,237) $ 205,216 $ 198,288 I Adjustments to reconcile to net cash from operating activities:
Depreciation. ................... ........................ 247,109 242,496 231,155 D2ferred income taxes and investment tax credits, net..... (60,773) 49,520 37,664 ,
D2ferred nuclear plants return, net of amortization....... 7,746 95,559 82,651 Daferred demand-side-management costs, net of amortization 26,941 (937) (4,691) f t
Recoverable energy costs, net of amortization............. (35,567) (16,169) 3,975 '
D2ferred cogeneration costs, not of amortization.......... 25,957 (55,341) (36,821)
Nuclear compliance, net (Note 11B)........................ 50,500 - -
D2ferred nuclear refuelin Other sources of cash....g outage, net of amortization . . 45,643 (20,712) (4,653)
................................. 75,552 86,956 47,791 Other uses of cash................................. ...... (23,862) (53,745) (4,697) l Changes in working capital:
Receivables and accrued utility revenues.......... ....... (22,378) (33,032) 45,386 i Fuel, materials and supplies......... ............ ...... (11,455) (4,479) (3,756)
Accounts payable..................... ... ............ ... 83,951 9,605 (24,167)
Accrued taxes.. ............................... .. . ... (23,561) 25,855 (9,726)
Other working capital (excludes cash) . . . . . . . . . . . . . . . . . . . (5,385) (1,869) (18,403)
Mat cash flows from operating activities......... .......... . 300,181 528,923 539,996 Financing Activities:
Issuance of long-term debt....................... .. .... 222,000 -
535,000 Issuance of Monthly Income Preferred Securities........... ............ . .. . -
100,000 -
Net (decrease) increase in short-term debt....... . . .. . (51,750) (127,000) 82,500 Reacquisitions and retirements of I q -term debt.... ...... (14,329) (10,866) (774,020) i Reacquisitions and retirements of preferred stock..... . .
(125,000) -
Cash dividends on preferred stock. ... . .... .. .. . ... (15,221) (21,185) (23,895)
Cash dividends on common stock. ...... ............... .. .. (138,608) (164,154) (159,388)
Net cash flows from (used for) financing activities... ....... 2,092 (348,205) (339,803)
Investment Activities:
Investment in plant: j Electric utilit Nuclear fuel...y...........................................
plant.. ................................. (140,086) (131,858) (149,889) l 553 (1,543) (20,905)
Net cash flows used for investments in plant....... ........ (139,533) (133,401) (170,794)
Investment in NU system money pool................... ...... (109,050) - -
Investment in nuclear dec h ssioning trusts................ (50,998) (47,826) '28,129)
Othar investment activities, net............................ (2,625) 581 (1,565)
Net cash flows used for investmerts............... ........ .. (302,206) (180,646) (200,488)
Net Increase (Decrease) In Cash For The Period.... ........ .. 67 72 (295)
Cash - beginning of period.......... ......... .............. 337 265 560 Cash - and of period..................................... .... $ 404 $ 337 $ 265 Supplemental Cash Flow Information:
Cash paid during the year for: l Interest, net of amounts capitalized............. .... . ... $ 114,458 $ 117,074 $ 115,120 '
Incone taxes . . . . . . . . ... .... . .................... . ... . $ 77,790 $ 137,706 $ 161,513 Increase in obligations:
Niantic Bay Fuel Trust and other capital leases. .... .. ... $ 2,855 $ 33,537 $ 52,353 The acconpanying notes are an integral part of these financial statements.
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l THE COLTECTICUT LIGHT AND POWER COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDER'S EQUITY l
Capitil Retained l Common Surplus, Earnings i i
I Stock Paid In (a) Total l (Thousands of Dollars) l l
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Balance at January 1, 1994.......... $122,229 $630,271 $ 750,719 $1,503,219 Net income for 1994............. 198,288 198,288 i Cash dividends on preferred i stock...... . ...... .... .. . (23,895) (23,895)
Cash dividends on common stock.. (159,388) (159,388)
Capital stock expenses, net..... 1,846 1,846 Balance at December 31, 1994... .. . 122,229 632,117 765,724 1,520,070 '
l Net income for 1995............. 205,216 205,216 Cash dividends on preferred stock......................... (21,185) (21,185)
Cash dividends on common stock.. (164,154) (164,154) 1 Loss on the retirement of I
preferred stock............... (125) (125)
Capital stock expenses, net..... 5,864 5,864 Balance at December 31, 1995........ 122,229 637,981 785,476 1,545,686 Net loss for 1996............... (80,237) (80,237)
Cash dividends on preferred stock......................... (15,221) (15,221)
Cash dividends on common stock.. (138,608) (138,608) l Capital stock expenses, net..... 1,676 1,676 i Balance at December 31, 1996. .... $122,229 $639,657 $ 551,410 $1,313,296 1
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l (a) The company has dividend restrictions imposed by its long-term debt agreements.
At December 31, 1996, these restrictions totaled approximately $540 million. ;
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The accompanying notes are an integral part of these financial statements.
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Tha Connscticut Light and Power Company and Subsidiaries NOTES TO CCNSOLIDATED FINANCIAL STATEMENTS
- 1. SUMMAMY OF SIGNIFICANT ACCOUNTING POLICIES A. About The Connecticut Light and Power Company The Connecticut Light and Power Company and Subsidiaries (the CL&P), Western Massachusetts Electric Company company or Service (WMECO), Holyoke Water Power Company (HWP), Public (PSNH), and North Atlantic Energy Company of New Hampshire Corporation (NAEC) are the operating subsidiaries comprising the Northeast Utilities system (the system) and are wholly owned by Northeast Utilities (NU).
The system furnishes retail electric service in Connecticut, New Hampshire, and western Massachusetts through CL&P, PSNH, WMECO, and HWP. A fifth subsidiary, NAEC, sells all of its capacity to PSNH. In addition to its retail service, the system furnishes firm and other wholesale electric services to various municipalities and other utilities. The system serves about 30 percent of New England's electric needs and is one of the 20 largest electric utility systems in the country as measured by revenues.
Other wholly owned subsidiaries of NU provide support services for the system companies and in some cases, for other New England utilities. Northeast Utilities Service Company (NUSCO)
' provides centralized accounting, administrative, information resources, engineering, financial, legal, operational, planning, purchasing, and other services to the system companies.
Northeast Nuclear Energy Company (NNECO) acts as agent for the system companies in operating the Millstone nuclear generating facilities. North Atlantic Energy Service Corporation (NAESCO) acts as agent for CL&P and NAEC and has operational responsibilities for the Seabrook nuclear generating facility.
B. Presentation The consolidated financial statements of CL&P include the accounts of all wholly owned subsidiaries. Significant intercompany transactions have been eliminated in consolidation.
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reportiag period. Actual results could differ from those estimates.
Certain reclassifications of prior years' data have been made to conform with the current year's presentation.
I All transactions among affiliated companies are on a recovery of I' cost basis which may include amounts representing a return on equity, and are subject to approval by various federal and state j regulatory agencies. ;
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Tha Conn:cticut Light and Power Company and Subsidicrien NOTES TO CONSOLIDATED FINANCIAL STATEMSNTS C. Public Utility Regulation NU is registered with the Securities and Exchange Commission (SEC)
CompanyasAct a holding of 1935company under the Public Utility Holding including the company,(1935 Act), and it and its subsidiaries, Act. are subject to the provisions of the 1935 and otherArrangements among the system companies, outside agencies utilities covering interconnections, interchange of electric power and sales of utility property are suoject to Legulation and/or by the Federal Energy Regulatory Commission (FERC) the SEC. The company is subject to further regulation for rates, accounting and other matters by the FERC and/or the Connecticut Department of Public Utility Control (DPUC).
D. New Accounting Standards The Financial Accounting Standards Board (FASB) has issued Statement of Financial Accounting Standards (SFAS) 121, "Accoun ting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of,"
accounting which established standards for evaluating and recording impairment. asset The company adopted SFAS 121 as of See Note 1H, " Summary of Significant Accounting Policies January 1, 1996.
Regulatory Accounting and Assets" for further information on the regulatory impacts of the company's adoption of SFAS 121.
See Note 10, " Sale of Customer Receivables," and Note 11C,
" Commitments and Contingencies-Environmental Matters," for information on newly issued accounting and reporting standards related to those specific areas.
E. Investments and Jointly Owned Electric Utility Plant Regional Nuclear Generating Companies: CL&P owns common stock of four regional nuclear generating companies companies). (Yankee The Yankee companies, with the company's ownership interests are:
Connecticut Yankee Atomic Power Company (a) (CY) .. 34.5%
Yankee Atomic Electric Company (a) (YAEC) ......... 24.5 Maine Yankee Atomic Power Company (MY) ............ 12.0 Vermont Yankee Nuclear Power Corporation (VY) ..... 9.5 (a) YAEC's and CY's nuclear power plants were shut down permanently on February 26, 1992 and December 4, 1996, respectively.
CL&P's investments in the Yankee companies are accounted for on the equity basis due to the company's ability to exercise significant influence over their operating and financial policies.
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Tha Conn:cticut Light and Powar Company and Subsid!.arios NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CL&P's investments in the Yankee companies at December 31, 1996 are:
(Thousands of Dollars)
Connecticut Yankee Atomic Power Company ..... $36,954 5,854 Yankee Atomic Electric Company............... 8,956 Maine Yankee Atomic Power Company............
Vermont Yankee Nuclear Power Corporation..... 5.161
$56,925 The electricity produced by MY and VY is committed substantially on the basis of ownership interests and is billed pursuant to contractual agreements. Under ownership agreements with the companies, CL&P may be asked to provide direct or Yankee indirect financial support for one or more of the companies.
For more information on these agreements, see Note 11F,
" Commitments and Contingencies -
Long-Term Contractual Arrangements." For more information on the Yankee companies, see Note 3, " Nuclear Decommissioning" and Note 11B, " Commitments and Contingencies-Nuclear Performance."
Millstone 1: CL&P has an 81.0 percent joint ownership interest in Millstone 1, a 660-megawatt (MW) nuclear generating unit. As of December 31, 1996 and 1995, plant-in-service included approximately $384.5 million and $372.6 million, respectively, and the accumulated provision for depreciation included approximately $159.4 million and $148.4 million, respectively, for CL&P's share of Millstone 1. CL&P's share of Millstone 1 expenses is included in the corresponding operating expenses on the accompanying Consolidated Statements of Income.
Millstone 2: CL&P has an 81.0 percent joint ownership interest in Millstone 2, an 870-MW nuclear generating unit. As of December 31, 1996 and 1995, plant-in-service included approximately $690.4 million and $684.5 million, respectively, and the accumulated provision for depreciation included approximately $224.1 million and $198.5 million, respectively, for CL&P's share of Millstone 2. CL&P's share of Millstone 2 expenses is included in the corresponding operating expenses on the accompanying Consolidated Statements of Income.
Millstone 3: CL&P has a 52.93 percent joint ownership interest in Millstone 3, a 1,154-MW nuclear generating unit. As of December 31, 1996 and 1995, plant-in-service included approximately $1.9 billion, and the accumulated provision for depreciation included approximately $504.1 million and $455.1 million, respectively, for CL&P's share of Millstone 3. CL&P's share of Millstone 3 expenses is included in the corresponding operating expenses on the accompanying Consolidated Statements of Income.
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The Conn:cticut Light and Power Company and subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For more information regarding the Millstone units, 11B, " Commitments and Contingencies-Nuclear Performance. see " Note Seabrock 1: CL&P has a 4.06 percent joint ownership interest in Seabrook 1, a 1,148-MW nuclear generating unit.
31, 1996 and 1995, plant-in-service included As of December approximately
$173.7 million and $173.3 million, respectively, and the accumulated provision for depreciation included approximately
$29.7 million and $24.8 million, respectively, for CL&P's share of Seabrook 1. CL&P's share of Seabrook 1 expenses is included in the corresponding operating expenses on the accompanying Consolidated Statements of Income.
F. Depreciation The provision for depreciation is calculated using the straight-line method based on estimated remaining lives of depreciable utility plant-in-service, adjusted for salvage value and removal costs, as approved by the appropriate regulatory agency. Except for major facilities, depreciation rates are applied to the average plant-in-service during the period. Major facilities are depreciated from the time they are placed in service. When plant is retired from service, the original cost of plant, ,
including costs of removal, less salvage, is charged to the accumulated provision for depreciation. The depreciation rates for the several classes of electric plant-in-service are equivalent to a composite rate of 4.0 percent in 1996 and 1995, and 3.9 percent in 1994. See Note 3, " Nuclear Decommissioning,"
for information on nuclear plant decommissioning.
CL&P's nonnuclear generating facilities have limited service lives. Plant may be retired in place or dismantled based upon expected future needs, the economics of the closure and environmental concerns. The costs of closure and removal are incremental costs and, for financial reporting purposes, are accrued over the life of the asset as part of depreciation. At December 31, 1996, the accumulated provision for depreciation included approximately $43 million accrued for the cost of removal, net of salvage for nonnuclear generation property.
G. Revenues Other than revenues under fixed-rate agreements negotiated with certain wholesale, industrial and commercial customers and limited pilot retail access programs, utility revenues are based on authorized rates applied to each customer's use of electricity. In general, rates can be changed only through a formal proceeding before the appropriate regulatory commission.
At the end of each accounting period, CL&P accrues an estimate for the amount of energy delivered but unbilled.
H. Regulatory Accounting and Assets The accounting policies of CL&P and the accompanying consolidated financial statements conform to generally accepted accounting principles applicable to rate regulated enterprises and reflect the effects of the ratemaking process in accordance with SFAS 71, " Accounting for the Effacts of Certain Types of 10
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! Tha Connncticut Light and Powar Company and Subsidiarios l
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j NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
} Regulation." Assuming a cost-of-service based regulatory i structure, regulators may permit incurred costs, normally j i treated as expenses, to be deferred and recovered through future t i revenues. Through their actions, regulators may also reduce or j eliminate the value of an asset, or create a liability. If any j portion of the company's operations were no longer subject to '
4 the provisions of SFAS 71, as a~ result of a change in the cost- :
l of-service based regulatory structure or the effects of ;
- competition, the company would be required to write off related '
} regulatory assetc and liabilities. The company continues to I l believe that its use of regulatory accounting remains ;
! appropriate.
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i SFAS 121 requires the evaluation of long-lived assets, including ,
j regulatory assets, for impairment when certain events occur or 1 when conditions exist that indicate the carrying amounts of '
- assets may not be recoverable. SFAS 121 requires that any long- )
4 lived assets which are no longer ' probable of recovery through future revenues be revalued based on estimated future cash l flows. If the revaluation is less than the book value of the asset, an impairment loss would be charged to earnings. The implementation of SFAS 121 did not have a material impact on the company's financial position or results of operations as of December 31, 1996. Management continues to believe that it is probable that the company will recover its investments in long-lived assets through future revenues. This conclusion may change in the future as competitive factors influence wholesale and retail pricing in the electric utility industry or if the cost-of-service based regulatory structure were to change.
The components of CL&P's regulatory assets are as follows:
At December 31. 1996 1995 (Thousanda of Dollars)
Income taxes, net (Note II) .......... $ 753,390 $ 863,521 Recoverable energy costs, net (Note 1J) ...................... 97,900 9,662 Deferred demand side management costs (Note 1K) .................... 90,129 117,070 Cogeneration costs (Note 1L) ......... 66,205 92,162 Unrecovered contractual obligations (Note 3) ............... 300,627 65,847 Other................................ 62.530 77.018 l
$1.370.781 $1.225.280 l For more information on the company's regulatory environment and l the potential impacts of restructuring, see Note 11A, i
" Commitments and Contingencies-Restructuring" and Management's l Discussion and Analysis of Financial Condition and Results of Operations (MD&A).
11 1
i Ths conn::cticut Light and Powar Comp::ny cnd Subsidicrico l l
HOTES TO CONSOLIDATED FINANCIAL STATEMENTS !
l I. Income Taxes i The tax effect of temporary differences (differences between the I periods in which transactions affect income in the financial statements and the periods in which they affect the determination of taxable income) is accounted for in accordance with the ratamaking treatment of the applicable regulatory commissions,. The adoption of SFAS 109, " Accounting for Income l Taxes," in 1993 increased the company's net deferred tax 1 obligation,. As it is probable that the increase in deferred tax liabilitien will be recovered from customers through rates, CL&P established a regulatory asset. See Note 8, " Income Tax Expensc" for the components of income tax expense.
The tax effect of temporary differences, including timing differences accrued under previously approved accounting standards, which give rise to the accumulated deferred tax obligation is as follows:
At December 31, 1996 1995 (Thousands of Dollars)
Accelerated depreciation and other plant-related differences............ $1,032,857 $1,074,242 Regulatory assets income tax gross up............................. 313,420 347,673 Other.................................. 19,364 64,958 S1.365,641 $1,486,873 J. Recoverable Energy Costs Under the Energy Policy Act of 1992 (Energy Act), CL&P is assessed for its proportionate share of the costs of decontaminating and decommissioning uranium enrichment plants owned by the United States Department of Energy (D&D assessment). The Energy Act requires that regulators treat D&D assessments as a reasonable and necessary current cost of fuel, to be fully recovered in rates, like any other fuel cost. CL&P is currently recovering these costs through rates. As of December 31, 1996, the company's total D&D deferrals were approximately $49.2 million.
During 1996, retail electric rates included a fuel adjustment clause (FAC) under which fossil fuel prices above or below base-rate levels are charged or credited to customers. In addition, CL&P also utilized a generation utilization adjustment clause (GUAC), which deferred the effect on fuel costs caused by variations from a specified composite nuclear generation capacity factor embedded in base rates.
At December 31, 1996, CL&P's net recoverable energy costs, excluding current net recoverable energy costs, were approximately $97.9 million, which includes the D&D assessment.
12
Th3 Connncticut Light and Powar Company and Subsidiaries i NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ]
i For additional information, see Note 11B, " Commitments and Contingencies - Nuclear Performance." ,
On October 8, 1996, the DPUC issued an order establishing an Energy Adjustment Clause (EAC) effective January 1, 1997. The
. EAC will replace CL&P's existing FAC and GUAC. For further
) information regarding the EAC, see the MD&A.
l K. Demand Side Management (DSM)
CL&P's DSM ' costs are recovered in base rates through a Conservation Adjustment Mechanism (CAM). The $90.1 million of l costs on CL&P's books as of December 31, 1996, will be fully
- recovered by 2000. During November, 1996, CL&P filed its 1997 DSM program and forecasted CAM for 1997 with the DPUC. The j filing proposes expenditures of $36 million in 1997, with 3 recovery over 1.9 years and a zero CAM rate, t
- L. Cogeneration Costs Beginning on July 1, 1996, the deferred cogeneration balance of i approximately $86 million is being amortized over a five year '
period. An additional $9 million of amortization will be l applied to the deferred balance in 1997, as required under a settlement agreement which CL&P reached with the DPUC. CL&P will continue to apply any savings associated with the
- renegotiation of a certain contract with a cogeneration facility
] to the deferred balance. Under current expectations, CL&P i expects complete amortization of the deferred balance by December 31, 1998.
, M. Spent Nuclear Fuel Disposal Costs
! Under the Nuclear Waste Policy Act of 1982, CL&P must pay the l l United States Department of Energy (DOE) for the disposal of j spent nuclear fuel and high-level radioactive waste. Fees for l l nuclear fuel burned on or after April 7, 1983 are billed j currently to customers and paid to the DOE on a quarterly basis.
For nuclear fuel used to generate electricity prior to April 7, l 4
1983 (prior-period fuel), payment must be made prior to the first delivery of spent fuel to the DOE. The DOE was originally scheduled to begin accepting delivery of spent fuel in 1998.
1 However, delays in identifying a permanent storage site have l continually postponed plans for the DOE's long-term storage and disposal site. The DOE's current estimate for an available site i is 2010.
- Until such payment is made, the outstanding balance will continue to accrue interest at the three-month Treasury Bill Yield Rate. At December 31, 1996, fees due to the DOE for the disposal of prior-period fuel were approximately $158.0 million, including interest costs of $91.5 million. As of December 31, 1996, all fees had been collected through rates.
j N. Fuel Price Management
. The company utilizes fuel-price managemea instruments to manage well defined fuel price risks. Amounts receivable or payable under fuel-price management instruments are recognized in income 13
Tho Connscticut Light end Power Company and Subsidiarios NOTES TO CONSOLIDATED FINANCIAL STATEMENTS when realized. Any material unrealized gains or losses on fuel-price management instruments will be deferred until realized.
For further information, see Note 12, " Fuel Price Management."
- 2. LEASES CL&P and WMECO finance up to $450 million of nuclear fuel for Millstone 1 and 2 and their respective shares of the nuclear fuel for Millstone 3 under the Niantic Bay Fuel Trust (NBFT) capital lease agreement. CL&P and WMECO make quarterly lease payments for the cost of nuclear fuel consumed in the reactors, based on a units-of-production method at rates which reflect estimated kilowatt-hours of energy provided, plus financing costs associated with the fuel in the reactors. Upon permanent discharge from the reactors, ownership of the nuclear fuel transfers to CL&P and WMECO.
CL&P has also entered into lease agreements, some of which are capital leases, for the use of data processing and office equipment, vehicles, gas turbines, nuclear control room simulators and office space. The provisions of these lease agreements generally provide for renewal options. The following rental payments have been charged to expense:
Year Canital Leases Ooeratina Leases 1996............. $17,993,000 $22,032,000 1995............. 56,307,000 23,793,000 1994............. 60,975,000 24,192,000 Interest included in capital lease rental payments was $10,144,000 in 1996, $10,587,000 in 1995, and $10,228,000 in 1994.
Substantially all of the capital lease rental payments were made pursuant to the nuclear fuel lease agreement. Future minimum lease payments under the nuclear fuel capital lease cannot be reasonably estimated on an annual basis due to variations in the usage of nuclear fuel.
14
Ths Connrcticut Light and Powar Company and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTO Future minimum rental payments, excluding annual nuclear fuel lease payments and executory costs, such as property maintenance, under taxes, state long-term use taxes, insurance and noncancelable leases, as of December 31, 1996 are:
Capital Leases Operatina Leaseg Year (Thousands of Dollars)
$ 2,800 $26,100 1997................ 21,500 1998................ 2,900 2,900 19,900 1999................ 18,800 2000................ 2,900 3,000 13,700 2001................ 46,400 66,400 After 2001..........
Future minimum lease $146,400 payments.......... 80,900 Less amount representing interest......... 61,900 Present value of future minimum lease payments for other than nuclear fuel...... 19,000 Present value of future nuclear fuel lease payments.......... 136,800 Total............... $155,800 It is possible that certain operating lease payments relatedSee to NUSCO leases will be accelerated from future years into 1997.
Note 11G, "The Rocky River Realty Company -
Obligations" for additional information.
- 3. NUCLEAR DECOMMISSIONING CL&P's nuclear power plants have service lives that are expected to end during the years 2010 through 2026. Upon retirement, these units must be decommissioned. Decommissioning studies prepared in 1996 concluded that complete and immediate dismantlement at retirement continues to be the most viable and economic method of decommissioning the three Millstone units and Seabrook 1.
Decommissioning studies are reviewed and updated periodically to reflect changes in decommissioning requirements, costs, technology and inflation.
The estimated cost of decommissioning CL&P's ownership share of Millstone 1 and 2, in year-end 1996 dollars, is $316.0 million and
$279.0 million, respectively. CL&P's ownership share of the estimated cost of decommissioning Millstone 3 and Seabrook 1 in year-end 1996 dollars, is $244.9 million and $18.3 million, respectively. The Millstone units and Seabrook i decommissioning 15
Th3 Connncticut Light and Power Company and Subsidiarios NOTES TO CONSOLIDATED FINANCIAL STATEMENTS costs rates. will Nuclear be increased annually by their respective escalation expected decommissioning costs are accrued over the service life of the units and are included in depreciation expense on the Consolidated Statements of Income.
Nuclear decommissioning
$30.5 million costs amounted to $37.8 million in 1996, in 1995, and $25.6 million in 1994.
decommissioning, as a cost of Nuclear removal, is included in the accumulated provision for depreciation on the Consolidated Balance Sheets. At December 31, 1996 reserve for decommissioning amoun,ted the balance to $329.1inmillion.
the accumulated CL&P has established external decommissioning trusts through a trustee 1, 2, for its portion of the costs of decommissioning Millstone and 3.
CL&P's portion of the cost of decommissioning Seabrook 1 is paid to an independent decommissioning financing fund managed by the state of New Hampshire. Funding of the estimated decommissioning costs assume levelized collections for the Millstone units and escalated collections for Seabrook 1 and 1 after-tax earnings on the Millstone and Seabrook decommissioning funds of 5.8 percent and 6.5 percent, respectively.
As of December 31, 1996, CL&P has collected, through rates, $240.8 million toward the future decommissioning costs of its share of the Millstone units, of which $209.1 million has been transferred to external decommissioning trusts. As of December 31, 1996, CL&P l has paid approximately $2.4 million into Seabrook l's decommissioning financing fund. Earnings on the decommissioning
{
trusts and financing fund increase the decommissioning trust balance and the accumulated l reserve for decommissioning. -
Unrealized gains and losses associated with the decommissioning trusts and financing fund also impact the balance of the trusts and financing fund and the accumulated reserve for decommissioning. I Changes in requirements or technology, the timing of funding or dismantling, or adoption of a decommissioning method other than immediate dismantlement would change decommissioning cost estimates and the amounts required to be recovered. CL&P attempts to recover sufficient amounts through its allowed rates to cover its expected decommissioning costs. Only the portion of currently estimated total decommissioning costs that has been accepted by regulatory agencies is reflected in CL&P's rates. Based on present
- estimates and assuming its nuclear units operate to the end of their respective license periods, CL&P expects that the decommissioning trusts and financing fund will be substantially t funded when the units are retired from service.
MY and VY: Each Yankee company owns a single nuclear generating unit. MY and VY have service lives that are expected to end in l i 2008 and 2012, respectively. The estimated cost, in year-end 1996 '
dollars, of decommissioning CL&P's ownership share of units owned
- and operated by MY and VY are $44.3 million and $34.8 million, respectively. Under the terms of the contracts with the Yankee companies, the shareholders-sponsors are responsible for their proportionate share of the operating costs of each unit, including l 16 l
. - . . - ~.
Tha Connscticut Light and Powcr Company and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS decommissioning. The nuclear decommissioning costs of the Yankee companies are included as part of the cost of power purchased by CL&P.
CY and YAEC: On December 4, 1996, the board of directors of CY voted unanimously to cease permanently the production of power at ;
its nuclear plant. The system companies relied on CY for approximately three percent of their capacity.
CY has u'ndertaken a number of regulatory filings intended to implement the decommissioning and the recovery of remaining assets of CY. During late December, 1996, CY filed an amendment to its power contracts to clarify the obligations of its purchasing utilities following the decision to cease power production. At December 31, 1996, the estimated obligation, including decommissioning, amounted to $762.8 million of which CL&P's share was approximately $263.2 million.
YAEC is in the process of decommissioning its nuclear facility. At December 31, 1996, the estimated remaining costs, including decommissioning, amounted to $173.3 million of which CL&P's share was approximately $42.5 million.
Management expects that CL&P will continue to be allowed to recover these costs from its customers. Accordingly, CL&P has recognized these costs as regulatory assets, with corresponding obligations, on its Consolidated Balance Sheets.
Proposed Accounting: The staff of the SEC has questioned certain of the current accounting practices of the electric utility ,
industry, including the company, regarding the recognition, 1 measurement and classification of decommissioning costs for )
nuclear generating units in the financial statements. In response to these questions, FASB agreed to review the accounting for removal costs, including decommissioning, and issued a proposed -
statement entitled " Accounting for Liabilities Related to Closure l or Removal of Long-Lived Assets," in February, 1996. If current electric utility industry accounting practices for decommissioning are changed in accordance with the proposed statement: (1) annual provisions for decommissioning could increase, (2) the estimated cost for decommissioning could be recorded as a liability with an '
offset to plant rather than as part of accumulated depreciation, and (3) trust fund income from the external decommissioning trusts 1 could be reported as investment income rather than as a reduction to decommissioning expense.
l l
l 17
1 Tha Conn:cticut Light and Power Company cnd Subsidiarica l NOTES TO CONSOLIDATED FINANCIAL STATEMENTS I
- 4. SHORT-TERM DEBT l Limits: The amount of short-term borrowings that may be incurred by CL&P is subject to periodic approval by either the SEC under the 1935 Act or by its state regulator. In addition, the charter of CL&P contains provisions restricting the amount of short-term debt borrowings. Under the SEC and/or charter restrictions, the company was authorized, as of January 1, 1997, to incur short-term borrowings up to a maximum of $375 million.
Credit Agreements: In November, 1996, NU entered into a three-year revolving credit agreement (New Credit Agreement) with a group of 12 banks. Under the terms of the New Credit Agreement, NU, CL&P and WHECO will be able to borrow up to $150 million,
$313.75 million, and $150 million, respectively. The overall limit for all of the borrowing system companies under the entire New Credit Agreement is $313.75 million. The system companies are obligated to pay a facility fee of .30 percent per annum of each bank's total commitment under the new credit facility which will expire November 21, 1999. At December 31, 1996, there were $27.5 million in borrowings under this agreement, all of which were borrowed by other system companies.
Access to the New Credit Agreement is contingent upon certain financial tests being met. NU is currently renegotiating these restrictions so that the financial impacts of the current nuclear outages do not impact the ability to access these facilities.
Through February 21, 1997, CL&P and WMECO have satisfied all financial covenants required under their respective borrowing facilities, but NU needed and obtained a limited waiver of an interest coverage covenant that had to be satisfied for NU to borrow under the New Credit Agreement. NU, CL&P, and WMECO are currently maintaining their access to the Now Credit Agreement under an interim written arrangement, under which NU agreed not to borrow more than $27.5 million against the facility.
In addition to the New Credit Agreement, NU, CL&p, WMECO, HWP, NNECO and The Rocky River Realty Company (RRR) have various revolving credit lines through separate bilateral credit agreements. Under the remaining three-year portion of the facility, four banks maintain commitments to the respective system companies totaling $56.25 million. NU, CL&P and WMECO may borrow up to the aggregate $56.25 million, whereas HWP, NNECO and RRR may borrow up to their short-term debt limit of $5 million, $50 million and $22 million, respectively. Under the terms of the agreement, the system companies are obligated to pay a facility fee of .15 percent per annum of each bank's total commitment under the three-year portion of the facility. These commitments will expire December 3, 1998. At December 31, 1996 and 1995, there were $11.3 million and $42.5 million in borrowings, respectively, under the facility, of which CL&P had no borrowings in 1996 and
$10 million in borrowings in 1995.
Under both credit facilities above, the company may borrow funds on a short-term revolving basis under the remaining portion of its 18
Ths Connscticut Light and Power Company and Subsidiarios NOTES TO CONSOLIDATED FINANCIAL STATEMENTS agreement, using either fixed-rate loans or standby loans. Fixed
, rates are set using competitive bidding. Standby loans are based upon several alternative variable rates.
The weighted average annual interest rate on CL&P's notes payable to banks outstanding at December 31, 1995 was 6.0 percent.
Maturities of CL&P's short-term debt obligations are for periods of three months or less.
l' Money Pool: Certain subsidiaries of NU, including CL&P, are members of the Northeast Utilities System Money Pool (Pool). The
! Pool provides a more efficient use of the cash resources of the system, and reduces outside short-term borrowings. NUSCO administers the Pool as agent for the member companies. Short-term borrowing needs of the member companies are first met with available funds of other member companies, including funds borrowed by NU parent. NU parent may lend to the Pool but may not borrow. Funds may be withdrawn from or repaid to the Pool at any time without prior notice. Investing and borrowing subsidiaries receive or pay interest based on the average daily Federal Funds borrowings based on loans from NU parent bear rate. However, interest at NU parent's cost and must be repaid based upon the terms of NU parent's original borrowing. At December 31, 1996, CL&P had no borrowings outstanding from the Pool. At December 31, 1995, CL&P had $10.3 million of borrowings outstanding from the
} Pool. The interest rate on borrowings from the Pool on December 31, 1996 and 1995 were 6.3 percent and 4.7 percent, respectively.
For further information on short-term debt see the MD&A.
1 19 i
Tha Connscticut Light and Power Company and Sub2idiarica NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
]
- 5. PREFERRED STOCK NOT SUBJECT TO NANDATORY REDENPTION Details of preferred stock not subject to mandatory redemption are:
December 31, Shares 1996 Outstanding Redemption December 31, December 31.
Descriotion Price 1996 1996 1995 1994 (Thousands of Dollars)
$1.90 Series of 1947 $52.50 163,912 $ 8,196 $ 8,196 $ 8,196 :
$2.00 Series of 1947 54.00 336,088 16,804 16,804 16,804 l
$2.04 Series of 1949 52.00 100,000 5,000 5,000 5,000 ,
$2.06 Series E of 1954 51.00 200,000 10,000 10,000 10,000 ,
$2.09 Series F of 1955 51.00 100,000 5,000 5,000 5,000
$2.20 Series of 1949 52.50 200,000 10,000 10,000 10,000
$3.24 Series G of 1968 51.84 300,000 15,000 15,000 15,000 l 3.90% Series of 1949 50.50 160,000 8,000 8,000 8,000 l 4.50% Series of 1956 50.75 104,000 5,200 5,200 5,200 ,
4.50% Series of 1963 50.50 160,000 8,000 8,000 8,000 l 4.96% Series of 1958 50.50 100,000 5,000 5,000 5,000 i 5.28% Series of 1967 51.43 200,000 10,000 10,000 10,000 i 6.56% Series of 1968 51.44 200,000 10,000 10,000 10,000 1989 Adjustable Rate DARTS........ - - - -
50,000 Total preferred stock not subject to mandatory redemption $116.200 $116,200 $166,200 All or any part of each outstanding series of such preferred stock l may be redeemed by the company at any time at established redemption prices plus accrued dividend to the date of redemption, i
I 4
i 20
Tho Connscticut Light and Powar Company and Subsidiarios NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- 6. PREFERRED STOCK SUBJECT TO MANDATORY REDEMPTION Details of preferred stock subject to mandatory redemption are:
December 31, Shares 1996 Outstanding Redemption December 31, December 31.
Descriotion Price
- 1996 1996 1995 1994 (Thousands of Dollars) 9.00% Series of 1989 - -
$ 75,000 ,
7.23% Series of 1992 $52.41 1,500,000 75,000 75,000 75,000 :
5.30% Series of 1993 $51.00 1,600,000 80.000 80.000 80.000
$155,000 $155.000 $230,000 -
l Less preferred stock to be redeemed within one year.... - -
3,750 Total preferred stock subject to mandatory redemption......... $155,000 $155,000 $226,250
- Each of these series is subject to certain refunding limitations for the first five years after they were issued. Redemption prices reduce in future years.
The following table details redemption and sinking fund activity for l preferred stock subject to mandatory redemption: J Minimum Annual Sinking-Fund Shares Reaccuired Series Recuirement 1996 1995 1994 (Thousand of Dollars) 9.00% Series of 1989 $- -
3,000,000 -
7.23% Series of 1992 (1) 3,750 - - -
5.30% Series of 1993 (2) 16,000 - - -
(1) Sinking fund requirements commence September 1, 1998.
(2) Sinking fund requirements commence October 1, 1999.
The minimum sinking-fund provisions of the series subject to mandatory redemption, for the years 1998 through 2001, aggregate approximately $3.8 million in 1998, and $19.8 million in 1999, 2000 and 2001. There were no minimum sinking-fund provisions in ;
1997. In case of default on sinking-fund payments or the payment of dividends, no payments may be made on any junior stock by way of dividends or otherwise (other than in shares of junior stock) so long as the default continues. If the company is in arrears in the payment of dividends on any outstanding shares of preferred stock, the company would be prohibited from redemption or purchase of less than all of the preferred stock outstanding. All or part of each of the series named above may be redeemed by the company 21
Tha Conn:cticut Light cnd Pow r Company and Subsidiorios NOTES TO CONSOLIDATED FINANCIAL STATEMENTS at any time at established redemption prices plus accrued
, dividends to the date of redemption, subject to certain refunding limitations.
- 7. LONG-TERM DEBT Details of long-term debt outstanding are:
December 31.
1996 1995 (Thousands of Dollars)
First Mortgage Bonds:
7 5/8% Series UU due 1997............. $ 193,288 $ 197,245 6 1/2% Series T due 1998............. 20,000 20,000 '
7 1/4% Series VV due 1999............. 99,000 100,000 I 5 1/2% Series A due 1999............. 140,000 140,000 I 5 3/4% Series XX due 2000............. 200,000 200,000 i 7 7/8% Series A due 2001............. 160,000 -
6 1/8% Series B due 2004............. 140,000 140,000 7 3/8% Series TT due 2019............. 20,000 20,000 ;
7 1/2% Series YY due 2023............. 100,000 100,000 1 8 1/2% Series C due 2024............. 115,000 115,000 7 7/8% Series D due 2024............. 140,000 140,000 7 3/8% Series ZZ due 2025............. 125.000 125.000 Total First Mortgage Bonds...... 1,452,288 1,297,245 Pollution Control Notes: I Variable rate, due 2016-2022.......... 46,400 46,400 l Tax exempt, due 2028-2031............. 377,500 315,500 l Fees and interest due for spent fuel disposal costs (Note 1M)......... 157,968 149,978 I Other................................... 10,915 20,286 Less amounts due within one year........ 204,116 9,372 Unamortized premium and discount, net... (6.550) (7.391)
Long-term debt, net................... $1.834,405 $1.812,646 Long-term debt and cash sinking-fund requirements on debt outstanding at December 31, 1996 for the years 1997 through 2001 are approximately $204.1 million, $20.0 million, $239.0 million,
$200.0 million, and $160.0 million, respectively. In addition, there are annual one-percent sinking- and improvement-fund requirements, currently amounting to $14.5 million for 1997, $12.6 million for 1998, $12.4 million for 1999, $10.0 million for 2000, and $8.0 million for 2001. Such sinking- and improvement-fund requirements may be satisfied by the deposit of cash or bonds or by certification of property additions.
All or any part of each outstanding series of first mortgage bonds may be redeemed by the company at any time at established redemption prices plus accrued interest to the date of redemption, except certain series which are subject to certain refunding limitations during their respective initial five-year redemption periods.
22
1 Tha Connscticut Light and Power Company and Subsidiarios l NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Essentially all of the company's utility plant is subject to the lien of its first mortgage bond indenture. As of December 31,. i 1996 and 1995, the company has secured $315.5 million of pollution I control notes with second mortgage liens on Millstone 1, junior to l the lien of its first mortgage bond indenture. The average effective interest rate on the variable-rate pollution control notes ranged from 3.4 percent to 3.6 percent for 1996 and from 3.8 percent to 4.0 percent for 1995.
On January 23, 1997, the letter of credit associated with CL&P's l
$62 million tax-exempt PCRBs, issued on May 21, 1996, was replaced with a bond insurance and liquidity facility secured by First Mortgage Bonds. The bonds were originally backed by a five-year letter of credit and secured by a second mortgage on CL&P's interest in Millstone 1. i
- 8. INCOME TAI EXPENSE j The components of the federal and state income tax provisions charged to operations are-1 For the Years Ended December 31, 1996 1995 1994 l (Thousands of Dollars) ;
Current income taxes:
Federal..................... $ 30,650 $ 93,906 $108,371 State....................... 9.789 37.898 39.966 Total current............. 40,439 131.804 148,337 Deferred income taxes, net:
Federal..................... (38,680) 52,075 44,130 State...................... (14,726) 5,085 842 Total deferred............ (53,406) 57,160 45,022 Investment tax credits, net.. (7.367) (7.640) (7.358)
Total income tax expense.. $(20,334) $181,324 $186,001 The components of total income tax expense are classified as follows:
Income taxes charged to operating expenses.......... $(20,174) $178,346 $190,249 Other income taxes............ (160) 2,978 (4.248)
Total income tax expense...... $(20,334) $181,324 $186,001 23
Th3 Connscticut Light and Powsr Compnny and Subsidiarios NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Deferred income taxes are comprised of the tax effects of temporary differences as follows:
For the Years Ended December 31, 1996 1995 1994 (Thousands of Dollars)
Depreciation, leased nuclear fuel, settlement credits and disposal costs................ $ 3,981 $44,278 $ 38,874 Energy adjustment clauses....... (1,654) 23,302 14,465 Demand-side management.......... (17,099) 1,310 203 Nuclear plant deferrals......... (18,861) (8,055) (20,452)
Bond redemptions................ (1,789) (2,255) 6,826 Contrac;ual settlements......... 2,513 (9,496) 109 Nuclear compliance reserves..... (21,131) - -
Other.. ........................ 634 8,076 4,997 Deferred income taxes, net...... $(53,406) $57,160 S 45,022 A reconciliation between income tax expense and the expected tax expense at the applicable statutory rate is as follows:
For the Years Ended December 31, 1996 1995 1994 (Thousands of Dollars)
Expected federal income tax at 35 percent of pretax income... $(35,931) $135,289 $134,501 Tax effect of differences:
State income taxes, net of federal benefit............. (3,209) 27,939 26,526 Depreciation.................. 21,313 23,517 18,602 Deferred nuclear plants return (444) (1,639) (4,681)
Amortization of regulatory assets .......... 8,601 20,218 19,755 Property tax.................. -
(159) 5,286 Investment tax credit amortization................ (7,367) (7,640) (7,358)
Adjustment for prior years' taxes....................... -
(10,442) (2,706)
Other, net.................... (3,297) (5,759) (3,924)
Total income tax expense........ S(20,334) $181,324 $186,001
- 9. EMPLOYEE BENEFITS A. Pension Benefits The company participates in a uniform noncontributory defined benefit retirement plan covering all regular system employees. Benefits are based on years of service and the employees' highest eligible compensation during 60 consecutive months of employment. The company's direct portion of the system's pension income, part of which was credited to utility plant, approximated $8.8 million in 1996,
$10.4 million in 1995 and $2.3 million in 1994. The 24
Tha Connscticut Light cnd Powsr Company and Subsidiarico NOTES TO CONSOLIDATED FINANCIAL STATEMENTS company's pension costs for 1996, 1995, and 1994 included approximately $2.8 million, $0.1 million, and $4.8 _ L11 ion, respectively, related to workforce reduction programs.
Currently, the company funds annually an amount at least equal to that which will satisfy the requirements of the Employee Retirement Income Security Act and the Internal !
Revenue Code. Pension costs are determined using market-related values of pension assets. Pension assets are invested primarily in domestic and international equity securities and bonds.
The components of net pension cost for CL&P are:
For the Years Ended December 31. 1996 1995 1994 (Thousands of Dollars)
Service cost.................. $ 11,896 $ 7,543 $ 13,072 Interest cost................. 37,226 37,110 36,103 Return on plan assets......... (103,248) (138,582) 1,020 Net amortization.............. 45.300 83.516 (52.536) l Net pension income............ $ (8.826) $(10.413) $ (2.341)
For calculating pension cost, the following assumptions were used:
For the Years Ended December 31, 1996 1995 1994 Discount rate................. 7.50% 8.25% 7.75%
Expected long-term rate of return.............. 8.75 8.50 8.50 Compensation / progression rate........................ 4.75 5.00 4.75 l
25
The Conn cticut Light and Powsr Compard and Subsidicries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The following table represents the plan's funded status reconciled to the Consolidated Balance Sheets:
At December 31. 1996 1995 (Thousands of Dollars)
Accumulated benefit obligation, including vested benefits at December 31, 1996 and 1995 of
$405,340,000 and $404,540,000, respectively...................... $434.473 $432,987 Prcjected benefit obligation........ $514,989 $515,121 Market value of plan assets......... 736.448 668.929 Market value in excess of projected benefit obligation................ 221,459 153,808 Unrecognized transition amount...... (7,365) (8,285)
Unrecognized prior service costs.... 3,818 1,293 Unrecognized net gain............... (198.088) (135.817)
Prepaid pension asset............... $ 19,824 $ 10.999 The following actuarial assumptions were used in calculating the plan's year-end funded status:
At December 31. 1996 1995 Discount rate....................... 7.75% 7.50%
Compensation / progression rate....... 4.75 4.75 B. Postratirement Benefits Other Than Pensions The company provides certain health care benefits, primarily medical and dental, and life insurance benefits through a benefit plan to retired employees (referred to as SFAS 106 benefits). These benefits are available ,for employees retiring from the company who have met specified service requirements. For current employees and certain retirees, the total SFAS 106 benefit is limited to two times the 1993 per-retiree health care costs. The LTNS 106 obligation has been calculated based on this assumption. CL&P's direct portion of SFAS 106 benefits, part of which were deferred or charged to utility plant, approximated $17.9 million in 1996, $20.7 million in 1995 and $22.3 million in 1994.
During 1996 and 1995, the company funded SFAS 106 postretirement costs through external trusts. The company is funding, on an annual basis, amounts that have been rate-recovered and which also are tax deductible under the Internal Revenue Code. The trust assets are invested primarily in equity securities and bonds.
26
l Tha Connscticut Light and Powar Company.and Subsidiarien NOTES TO CONSOLIDATED FINANCIAL STATEMENTS j The components of health care and life insurance cost are: l l
For the Years Ended December 31, 1996 1995 1994 !
(Thousands of Dollars) i Service cost.................... $ 2,270 $ 2,248 $ 2,371 Interest cost................... !
10,211 11,510 12,157 Return on plan assets........... (2,904) (1,015) 2 ,
Amortization of unrecognized !
transition obligation......... 7,344 7,344 7,344 '
Other amortization, net......... 956 602 430 Net health care and life insurance costs............... $17,877 1226ggg $22.304 For calculating SFAS 106 benefit costs, the following ,
assumptior,a were used: i For the Years Ended December 31, 1996 1995 1994 l Discount rate................... 7.50% 8.00% 7.75% !
Long-term rate of return - !
Health assets, net of tax..... 5.25 5.00 5.00 l Life assets................... 8.75 8.50 8.50 l The following table represents the plan's funded status i reconciled to the Consolidated Balance Sheets:
i At December 31, 1996 1995 :
(Thousands of Dollars) !
Accumulated postretirement '
benefit obligation of: :
Retirees.......................... $109,299 $126,624 l Fully eligible active employees... 165 198 ;
Active employees not eligible to retire....................... 27,913 '29.798 l Total accumulated postretirement benefit obligation............... 137,377 156,620 ;
Market value of plan assets........ 38,783 11.378 Accumulated postretirement benefit .
obligation in excess of l plan assets...................... (98,594) (145,242) 1 Unrecognized transition amount..... 117,506 124,850 (
Unrecognized net (gain)/ loss....... (18,912) 1,260 Accrued postretirement benefit liability........................ $ 0 $(19.132) t 27
The Connecticut Light and Power Company and Subsidiarico NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The following actuarial assumptions were used in calculating the plan's year-end funded status:
At December 31, 1996 1995 Discount rate...................... 7.75% 7.50%
Health care cost trend rate (a) .... 7.23 8.40 (a) The annual growth in per capita cost of covered health care benefits was assumed to decrease to 4.91 percent by 2001.
The effect of increasing the assumed health care cost trend rate by one percentage point in each year would increase the accumulated rtretirement benefit obligation as of December 31, ~ 5, by $7.6 million and the aggregate of the service an interest cost components of net periodic postretirement benefit cost for the year then ended by
$600,000. The trust holding the health plan assets is subject ,
to federal income taxes at a 39.6 percent tax rate. CL&P is I currently recovering SFAS 106 costs.
- 10. SALE OF CUSTOMER RECEIVABLES CL&P has entered into an agreement to sell up to $200 million of eligible customer billed and unbilled accounts receivable. The eligible receivables are sold with limited recourse. The agreement was entered into during July, 1996 and will expire in five years.
The company has retained collection responsibilities for receivables which have been sold under the agreement. The agreement provides for a loss reserve determined by a formula which reflects credit exposure. As of February 21, 1997, CL&P has sold approximately $10 million of their accounts receivable under this agreement.
The FASB issued SFAS 125, " Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities," in June, j 1996. SFAS 125 became effective on January 1, 1997, and establishes, in part, criteria for concluding whether a transfer of financial assets in exchange for consideration should be accounted for as a sale or as a secured borrowing. CL&P is in the process of restructuring its receivables program to comply with the requirements of SFAS 125. Management believes that the adoption of SFAS 125 will not have a material impact on the company's financial position or results of operations.
- 11. COMMITMENTS AND CONTINGENCIES A. Restructuring Althodgh CL&P continues to operate under cost-of-service based regulation, various restructuring initiatives in its jurisdiction have created uncertainty with respect to future rates and the recovery of strandable investments and certain future costs such as purchase power obligations. Strandable 28
Tha Connacticut Light and Power Company and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS investments are regulatory assets or other assets that would not be economical in a competitive environment. Management is unable to predict the ultimate outcome of restructuring initiatives; however, it believes that it is entitled to full recovery of its prudently incurred costs, including regulatory assets and strandable investments based on the general nature of public utility cost of service regulation. For further i information on restructuring, see the MD&A.
B. Nuclear Performance !
Millstone: The three Millstone units are managed by NNECO.
Millstone 1, 2, and 3 have been out of service since ;
November 4, 1995, February 21, 1996 and March 30, 1996, j respectively, and are on the Nuclear Regulatory Commission's i (NRC) watch list. The company has restructured its nuclear j organization and is currently implementing comprehensive plans !
to restart the units.
According to the plans, each unit's recovery team will be working towards restart of its respective unit on a parallel basis with the other two units. Based upon management's current plans, it is estimated that one of the units will be ready for restart in the third quarter of 1997 with the other two units being ready for restart during the fourth quarter of ,
1997 and the first quarter of 1998, respectively. ]
The NRC has also issued two orders affecting the Millstone j' units on the subjects of independent corrective action verification and employee concerns. Independent third parties have been retained by NNECO and are awaiting NRC approval.
Prior to and following notification to the NRC that the units l are ready to resume operations, the NRC staff will conduct j extensive reviews and inspections and, prior to such j notification, independent corrective action verification teams ;
will also inspect each unit. The units will not be allowed to l restart without an affirmative vote of the NRC commissioners i following completion of these reviews and inspections.
Management cannot estimate when the NRC will allow any of the units to restart, but hopes to have at least one unit operating in the second half of 1997.
The company is currently incurring substantial costs, including replacement power costs, while the three Millstone units are not operating. Management does not expect to recover a substantial portion of these costs. CL&P expensed approximately $143 million of incremental nonfuel nuclear operation and maintenance costs (O&M) in 1996, including a reserve of $50 million against 1997 expenditures. Management estimates CL&P will expense approximately $309 million of nonfuel O&M costs in 1997.
As discussed above, management cannot predict when the NRC will allow any of the Millstone units to return to service and thus cannot estimate the total replacement power costs the companies 29
l Tha conn:cticut Light cnd Power Comp:ny and Subsidiarice NOTES TO CONSOLIDATED FINANCIAL STATEMENTS i will ultimately incur. Replacement power costs for CL&P are j expected to average approximately $30 million per month during 1997 while all three Millstone units remain out of service.
Management believes the system has sufficient resources to fund the restoration of the Millstone units to service under its present timetable.
MY: The system companies rely on MY for approximately two percent of their capacity. The MY nuclear generating plant has been limited to operating at 90 percent of capacity since early 1996, pending the resolution of issues related to investigations initiated by the NRC, and on December 6, 1996, was taken off line to resolve cable-separation and associated issues. The NRC has notified MY that the NRC staff has placed the MY plant on its watch list. Returning the plant to service will require NRC approval. Management cannot predict when MY's plant will be allowed to return to service and expects there will be substantial costs associated with the NRC's actions that cannot be accurately estimated at this time.
Potential Litigation: The non-NU owners of Millstone 3 have been paying their share of the monthly costs for Millstone 3 since the unit went out of service in March, 1996, but have reserved their rights to contest whether the NU system companies have any responsibility for the additional costs the non-NU owners have borne as a result of the current outage. No formal claims have been made, but management believes that it is possible that some or all of the non-NU owners will assert liability on the part of the NU system. CL&P and WMECO, through NNECO as agent, operate Millstone 3 at cost, and without profit, under a Sharing Agreement that obligates them to utilize good utility operating practice and requires the joint owners to share the risk of employee negligence and other risks pro rata in accordance with their ownership shares. The Sharing Agreement provides that CL&P and WMECO would only be liable for damages to the non-NU owners for a deliberate breach of the Sharing Agreement. At December 31, 1996, the costs related to this potential litigation were estimated to be $10.5 million for incremental O&M costs and between $32 million and
$40 million for replacement power costs. These costs are likely to increase as long as Millstone 3 remains out of service. NU will vigorously contest such suits if they are brought.
C. Environmental Matters CL&P is subject to regulation by federal, state and local authorities with respect to air and water quality, the handling and disposal of toxic substances and hazardous and solid wastes, and the handling and use of chemical products. CL&P j has an active environmental auditing and training program and '
believes that it is in substantial compliance with current environmental laws and regulations. ]
Environmental requirements could hinder the construction of new generating units, transmission and distribution lines, 30
(
Tha Conn 2cticut Light and Power Company and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS substations, and other facilities. Changing environmental requirements could also require extensive and costly modifications to CL&P's existing generating units and transmission and distribution systems, and could raise operating costs significantly. As a result, CL&P may incur significant additional environmental costs, greater than amounts included in cost of removal and other reserves, in connection with the generation and transmission of electricity and the storage, transportation and disposal of by-products and wastes. CL&P may also encounter significantly increased costs to remedy the environmental effects of prior waste handling activities. The cumulative long-term cost impact of increasingly stringent environmental requirements cannot accurately be estimated.
CL&P has recorded a liability based upon currently available information for what it believes are its estimated environmental remediation costs for waste disposal sites. In
~
most cases, additional future environmental cleanup costs are not reasonably estimable due to a number of factors, including the unknown magnitude of possible contamination, the appropriate remediation methods, the possible effects of future legislation or regulation and the possible effects of technological changes. At December 31, 1996, the net liability recorded by CL&P for its estimated environmental remediation costs, excluding any possible insurance recoveries or recoveries from third parties, amounted to approximately $7.5 million, which management has determined to be the most probable amount within the range of $7.5 million to $14.0 million.
CL&P cannot estimate the potential liability for future claims, including environmental remediation costs, that may be brought against it. However, considering known facts, existing laws and regulatory practices, management does not believe the matters disclosed above will have a material effect on CL&P's financial position or future results of operations.
On October 10, 1996, the American Institute of Certified Public Accountants issued Statement of Position 96-1, " Environmental Remediation Liabilities" (SOP). The principal objective of the SOP is to improve the manner in which existing authoritative accounting literature is applied by entities to specific situations of recognizing, measuring and disclosing environmental remediation liabilities. The SOP became effective January 1, 1997. The company believes that the adoption of this SOP will not have a material impact on the company's financial position or results of operations.
31
- t
Tha Conn:cticut Light and Powar Company and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS D. Nuclear Insurance Contingencies Under certain circumstances, in the event of a nuclear incident at one of the nuclear facilities covered by the fedoral government's third-party liability indemnification program, the company could be assessed in proportion to its ownership interest in each nuclear unit up to $75.5 million, not to exceed
$10.0 million per nuclear unit in any one year. Based on its ownership interest in Millstone 1, 2, and 3 and in Seabrook 1, CL&P's maximum liability, including any additional potential assessments, would be $173.6 million per incident. In addition, through power purchase contracts with MY, VY and CY, CL&P would be responsible for up to an addicional $44.4 million per incident. Payments for CL&P's ownership interest in nuclear generating facilities would be limited to a maximum of $27.5 million per incident per year.
Insurance has been purchased to cover the primary cost of repair, replacement or decontamination of utility property resulting from insured occurrences. CL&P is subject to retroactive assessments if losses exceed the accumulated funds available to the insurer. The maximum potential assessment against CL&P with respect to losses arising during the current policy year is approximately $10.4 million under the primary property insurance program.
Insurance has been purchased to cover certain extra costs incurred in obtaining replacement power during prolonged accidental outages and the excess cost of repair, replacement, or decontamination or premature decommissioning of utility property resulting from insured occurrences. CL&P is subject to retroactive assessments if losses exceed the accumulated funds available to the insurer. The maximum potential assessments against the company with respect to losses arising during current policy years are approximately $9 million under the replacement power policies and $20.4 million under the excess property damage, decontamination and decommissioning policies.
The cost of a nuclear incident could exceed available insurance proceeds.
Insurance has been purchased aggregating $200 million on a industry basis for coverage of worker claims. All participating reactor operators insured under this coverage are subject to retrospective assessments of $3 million per reactor. The maximum potential assessment against CL&P with respect to losses arising during the current policy period is approximately $8.9 million.
E. Construction Program The construction program is subject to periodic review and revision by management. CL&P currently forecasts construction expenditures of approximately $842 million for the years 1997-2001, including $165 million for 1997. In addition, the company estimates that nuclear fuel requirements, including nuclear fuel financed through the NBFT, will be approximately $238.4 million for the years 1997-2001, including $12.2 million for 1997. See 32
Tha Conn:cticut Light and Power Company and Subsidiarica NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 2, " Leases," for additional information about the financing of nuclear fuel.
F. Long-Term Contractual Arrangements Yankee Companies: CL&P, along with PSNH and WMECO, relies on MY and VY for approximately three percent of their capacity under long-term contracts. Under the terms of their agreements, the system companies pay their ownership (or entitlement) shares of costs,, which include depreciation, O&M expenses, taxes, the estimated cost of decommissioning and a return on invested capital. These costs are recorded as purchased power expense and recovered through the company's rates. CL&P's total cost of purchases under contracts with the Yankee companies, excluding YAEC, amounted to $96.4 million in 1996, $105.8 million in 1995, and $102.1 million in 1994. See Note 1E, " Summary of Significant Accounting Policies-Investments and Jointly Owned Electric Utility Plant," and Note 3, " Nuclear Decommissioning,"
for more information on the Yankee companies.
Nonutility Generators: CL&P has entered into various arrangements for the purchase of capacity and energy from nonutility generators. These arrangements have terms from 10 to 30 years, currently expiring in the years 2001 through 2027, and requires the company to purchase energy at specified prices or formula rates. For the 12 months ended December 31, 1996, approximately 13 percent of system electricity requirements was ,
met by nonutility generators. CL&P's total cost of purchases '
under these arrangements amounted to $279.5 million in 1996,
$282.2 million in 1995, and $277.4 million in 1994. These costs are eventually recovered through the company's rates.
Hydro-Quebec: Along with other New England utilities, CL&P, PSNH, WMECO, and HWP have entered into agreements to support transmission and terminal facilities to import electricity from the Hydro-Quebec system in Canada. CL&P is obligated to pay, over a 30-year period ending in 2020, its proportionate share of the annual O&M and capital costs of these facilities.
The estimated annual costs of CL&P's significant long-term contractual arrangements are as follows:
1997 1998 1999 2000 2001 (Millions of Dollars)
MY and VY......... $ 39.0 $ 33.1 $ 39.1 $ 38.9 $ 36.4 Nonutility generators...... 274.0 281.0 291.0 291.0 294.0 Hydro-Quebec...... 19.4 18.8 18.2 17.9 17.3 33
- Th2 Conn
- cticut Light and Power Company and Subsidicrica NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1 G. The Rocky River Realty Company - Obligations RRR provides real estate support services which includes the leasing of property and facilities used by system companies.
RRR is the obligor under financing arrangements for certain system facilities. Under those financing arrangements, the holders of notes for $38,4 million would be entitled to request that RRR repurchase the notes if any major subsidiary of NU (as i defined by the notes) has debt ratings below investment grade as
, of any year-end during the term of the financing. The notes are
, secured by real estate leases between RRR as lessor and NUSCO as j lessee. The leases provide for the acceleration of rent equal to RRR's note obligations if RRR is unable to repay the obligation. The operating companies, primarily CL&P, WMECO and PSNH may be billed by NUSCO for their proportionate share of the
} accelerated lease obligations if the rateholders request j repurchase of the notes. MU has guaranteed the notes. ;
Based on the terms of the notes, PSNH and NAEC will be defined as major subsidiaries of NU, effective as of the end of 1996, and both PSNH's and NAEC's debt ratings were below investment grade. Accordingly, under the terms of the RRR financing !
arrangements, the holders may elect to require RRR to repurchase i the notes at par. If the noteholders make such an election, RRR has the option to refinance the notes with an institutional investor. However, it is possible that RRR may be required to j
- repurchase the notes. As of February 21, 1997, the holders had !
not made such an election. RRR plans to engage in discussions )
with the noteholders regarding this issue. Management does not expect the resolution to have a material impact on its financial !
condition.
- 12. FUEL PRICE MANAGEMENT The company utilizes various financial instruments to manage well-defined fuel price risks. The company does not use these instruments for trading purposes.
CL&P uses fuel-price management instruments with financial institutions to hedge against some of the fuel-price risk created by long-term negotiated energy contracts. These agreements minimize exposure associated with rising fuel prices and effectively fix a portion of CL&P's cost of fuel for these negotiated energy contracts. Under the agreements, CL&P exchanges monthly payments I based on the differential between a fixed and variable price for the ;
associated fuel. As of December 31, 1996, CL&P had outstanding <
agreements with a total notional value of approximately $228.8 i million, and a positive mark-to-market position of approximately i
$1.1 million.
These agreements have been made with various financial institutions, each of which is rated "A" or better by Standard & Poor's rating l group. CL&P is exposed to credit risk on fuel-price management 1 instruments if the counterparties fail to perform their obligations.
However, management anticipates that the counterparties will be able to fully satisfy their obligations under the agreements.
34
Tha Connscticut Light and Power Company and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- 13. MINORITY INTEREST IN CONSOLIDATED SUB8IDIARY In January 1995, CL&P Capital LP (CL&P LP is a suosidiary of CL&P) i issued $100 million of cumulative 9.3 percent Monthly Income i Preferred Securities (MIPS), Series A. CL&P has the sole ownership .
interest in CL&P LP, as a general partner, and is the guarantor of the MIPS securities. Subsequent to the MIPS issuance, CL&P LP i loaned the proceeds of the MIPS issuance, along with CL&P's $3.1 l million capital contribution, back to CL&P in the form of an unsecured debenture. CL&P consolidates CL&P LP for financial reporting purposes. Upon consolidation, the unsecured debenture is eliminated, and the MIPS securities are accounted for as minority interests.
- 14. FAIR VALUE OF FINANCIAL INSTRUMENTS The following methods and assumptions were used to estimate the fair value of each of the following financial instruments-l Cash and nuclear decommissioning trusts: The carrying amounts i approximate fair value.
SFAS 115, " Accounting for Certain Investments in Debt and Equity Securities," requires investments in debt and equity securities to be presented at fair value. As a result of this requirement, the investments held in the company's nuclear decommissioning trusts were adjusted to market by approximately $22.3 million as of December 31, 1996 and by approximately $14.4 million as of December 31, 1995, with corresponding offsets to the accumulated provision for depreciation. The amounts adjusted in 1996 and 1995, represent cumulative gross unrealized holding gains. The cumulative gross unrealized holding losses were immaterial for both 1996 and 1995.
Preferred stock and long-term debt: The fair value of CL&P's fixed rate securities is based upon the quoted market price for those i issues or similar issues. Adjustable rate securities are assumed to have a fair value equal to their carrying value.
35
- - . - . . - - - . - - - - . . _ _ . - - . _ - _ _ _ ~ . _ - _ . - - -. .
Tha Connscticut Light and Powar Company cnd Subsidicries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1 The carrying amounts of CL&P's financial instruments and the i estimated fair values are as follows:
l Carrying Fair At December 31, 1996 Amount Value (Thousands of Dollars)
Preferred stock not subject to mandatory redemption................ $ 116,200 $ 111,845 Preferred stock subject to '
mandatory redemption................... 155,000 120,900 Long-term debt -
First Mortgage Bonds................... 1,452,288 1,410,665 Other long-term debt................... 592,783 592,783 MIPS..................................... 100,000 108,520 Carrying Fair At December 31, 1995 Amount Value (Thousands of Dollars)
Preferred stock not subject to mandatory redemption................ $ 116,200 $ 82,448 Preferred stock subject to mandatory redemption............... ... 155,000 157,575 Long-term debt -
First Mortgage Bonds................... 1,297,245 1,329,549 Other long-term debt................... 532,164 532,164 MIPS..................................... 100,000 108,520 The fair values shown above have been reported to meet disclosure requirements and do not purport to represent the amounts at which those obligations would be settled.
36
j i Tho C:nnOcticut Light and P0w0r C:sp;ny cnd Cubsidinrico REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors i of The Connecticut Light and Power Company: )
- We have audited the accompanying consolidated balance sheets of The Connecticut Light and Power Company (a Connecticut corporation and a wholly owned subsidiary of Northeast Utilities) and subsidiaries as of December 31, 1996 and 1995, and the related consolidated statements of income, common stockholder's equity and cash flows for each of the three years in the period onded December 31, 1996. These financial statements are the responsibility of the Company's management. Our responsibility
, is to express an opinion on these financial statements based on our audits.
1 We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An 4
audit includes examining, on a test basis, evidence supporting the amounts and discloeures in the financial statements. An audit also includes assessing the accounting principles used and j i significant estimates made by management, as well as evaluating '
j the overall financial statement presentation. We believe that j our audits provide a reasonable basis for our opinion.
i In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of The Connecticut Light and Power Company and subsidiaries as of December 31, 1996 and 1995, and the results of their operations i
and their cash flows for each of the three years in the period ended December 31, 1996, in conformity with generally accepted accounting principles.
4
/s/ ARTHUR ANDERSEN LLP j ARTHUR ANDERSEN LLP Hartford, Connecticut February 21, 1997 37
l The Connecticut Light and Power Company l
MANAGEMENT'S DISCUSSION AND ANALYSIS OF l FINANCIAL CONDITION AND RESULTS OF OPERATIONS l
This section contains management's assessment of CL&P's (the company) financial condition and the principal factors having an impact on the j results of operations. The company is a wholly-owned subsidiary of '
Northeast Utilities (NU). This discussion should be read in conjunction with the company's consolidated financial statements and I footnotes.
l FINANCIAL CONDITION Earnings Overview ,
CL&P faced an extremely difficult year in 1996 as a result of the !
prolonged outages at the three Millstone units (Millstone) These ,
outages resulted in significantly increased expenditures for replacement power and work undertaken at Millstone, which resulted in a net loss for CL&P in 1996. In 1997, while all three units are out of service, CL&P expects to continue operating at a loss. The combination of higher expenditures and the uncertainty surrounding when the units will return to service made it necessary to ensure that access to adequate cash levels would be available for the duration of the outages. Management took various actions during 1996 to address NU's nuclear program and liquidity issues; however, 1997 will continue to be a serious challenge in these areas.
CL&P faces future uncertainty with the rapidly moving trend toward industry restructuring. While restructuring had little direct impact on 1996 financial results, it creates an environment of significant uncertainty and financial risk for the coming years. As discussed in further detail in " Restructuring," the financial treatment that strandable investments will be accorded will impact CL&P's ability to compete in a restructured environment.
CL&P had a net loss of approximately $80 million in 1996, compared to net income of approximately $205 million in 1995. The 1996 loss was primarily due to costs related to the ongoing outages at Millstone which totaled approximately $400 million and reduced CL&P's 1996 earnings by approximately $232 million. These costs included replacement power, higher 1996 Millstone operation and maintenance costs, a reserve recognized in 1996 for 1997 expenditures to return the Millstone units to service and costs associated with ensuring adequate generating capacity. In addition, 1996 earnings decreased due to the impact of CL&P's approved rate settlement agreement, higher recognition of cogeneration costs and higher nonnuclear operation and maintenance costs. These decreases were partially offset by higher retail sales and lower recognition of Millstone 3 phase-in costs.
Retail kilowatt-hour sales increased by 1.8 percent in 1996 as a result of modest economic growth. In 1997, management expects that the Connecticut economy will continue to experience modest economic growth.
38
Millstone Outages CL&P has an 81 percent ownership interest in Millstone 1 and 2 and a 52.93 percent ownership interest in Millstone 3. Millstone 1, 2 and 3 have been out of service since November 4, 1995, February 21, 1996, and March 30, 1996, respectively.
Subsequent to its January 31, 1996, announcement that Millstone had been placed on its watch list, the Nuclear Regulatory Commission (NRC) has stated that the units cannot return to service until independent, third-party verification teams have reviewed the actions taken to improve the design, configuration and employee concerns issues that prompted the NRC to place the units on its watch list. Upon successful completion of these reviews, the NRC must approve the restart of each unit through a formal commission vote.
Management took several key steps toward improving NU's nuclear program during 1996 and will continue to place a high priority on its recovery in 1997. The NU Board of Trustees formed a committee in April, 1996, to provide high-level oversight of the safety and effectiveness of NU's nuclear operations, progress toward resolving open NRC issues and progress in resolving employee, community and customer concerns. In September, 1906, Bruce D. Kenyon was appointed President and Chief Executive Officer of Northeast Nuclear Energy Company (NNECO), a wholly-owned subsidiary of NU that operates Millstone, and retired Admiral David M. Goebel was selected to serve as Vice President for Nuclear Oversight. In early 1997, Neil S. Carns was selected to serve as Senior Vice President and Chief Nuclear Officer to oversee Millstone operations. Shortly after his arrival, Mr. Kenyon unveiled a reorganization of NU's nuclear organization that includes executives loaned from unaffiliated utility companies. The new organization is intended to establish direct accountability for l performance at each of the nuclear units that the NU system operates and includes a recovery team for each Millstone unit.
l Under the new nuclear organization, each unit's recovery team will be working toward restart of its respective unit simultaneously with the other two units. Management estimates that one of the units will be ready for NNECO to request the NRC's approval for restart in the third quarter of 1997, with the second and third units ready in the fourth quarter of 1997 and the first quarter of 1998, respectively.
Subsequent to NNECO's request to restart any of the units, the NRC will require a period of time to assess the results of the reviews performed by the NRC and the independent third-party teams. Management cannot estimate when the NRC will allow any of the units to restart, however, it hopes to have at least one unit operating in the second half of 1997. A period of time will be required subsequent to restart for each unit to return to operating at full power.
Higher costs related to the Millstone outages will continue throughout 1997. Monthly replacement power costs for CL&P are projected to average approximately $30 million in 1997, while all three Millstone units remain out of service. Replacement power costs for the Millstone units expensed in 1996 were $216 million, which was a substantial portion of the total 1996 replacement power costs. CL&P will continue to expense its replacement power costs in 1997. Nonfuel operation and 39 l
(
maintenance costs for CL&P's share of Millstone to be expensed in 1997 are estimated to be $309 million. A total of $322 million was expensed in 1996 for nonfuel operation and maintenance costs for Millstone, including $93 million for incremental costs related to the outages and
$50 million reserved for future costs. Nonfuel operation and maintenance costs have been, and will continue to be, absorbed through CL&P's current rates.
Although CL&P is not precluded from seeking rate recoveries in the future, management has committed not to seek rate recovery for the portion of these costs attributable to failure to meet industry standards in operating Millstone. In light of that commitment, CL&P will not seek rate recovery for a substantial portion of these costs.
Management does not currently intend to request any such recoveries until after the Millstone units begin returning to service; therefore, it is unlikely that any additional revenues from any permitted recovery of these costs will be available to contribute to funding the recovery efforts while the units are out of service.
Under its present planning assumptions, management believes CL&P has sufficient funds to restore the Millstone units to service and purchase replacement power. See " Rate Matters" for further information on the recovery of outage-related costs. See " Liquidity and Capital Resources" for further information regarding CL&P's liquidity.
As a result of the nuclear situation, a number of civil lawsuits and criminal investigations have been initiated, including litigation by NU's shareholders. In addition, there is the potential for claims by the non-NU owners of Millstone 3 for the costs associated with the current outage. To date, no reserves have been established for existing or potential litigation. See the " Notes to Financial Statements" Note 11B, for further information on litigation.
Capacity During 1996 and continuing into 1997, CL&P took measures to improve its capacity position including obtaining additional generating capacity, improving the availability of its generating units and improving its transmission capability. During 1996, CL&P spent approximately $60 million to ensure adequate generating capacity, of which $42 million was expensed. CL&P anticipates spending approximately $47 million for additional capacity-related costs in 1997, of which $27 million is expected to be expensed.
Assuming normal weather conditions and generating unit availability, management expects that CL&P will have sufficient capacity to meet peak load demands even if Millstone is not operational at any time through the summer of 1997. If there are high levels of unplanned outages at other units in New England, or if any transmission lines used to import power from other states are unavailable, at times of peak load demand, CL&P and the other New England utilities may have to resort to operating procedures designed to reduce customer demand.
Uncertainties associated with having suff,uient capacity through the summer of 1997 include: a Seabrook refueling outage scheduled for 49 days beginning on May 10, 1997; the availability of Maine Yankee, which was put on the NRC's watch list in January, 1997, and is currently not expected to return to service earlier than late summer 1997; and the timing of the repairs to the Long Island Cable, which is 40
i capable of providing as much as 300 megawatts of transmission cepability.
Sne the " Notes to Financial Statements" Note 11B, for further information on Maine Yankee.
Liquidity and Capital Resources During 1996, CL&P took various actions to ensure that it will have cccess to adequate cash resources, at reasonable cost. CL&P issued two bonds totaling $222 million, one of which was issued in anticipation of the maturity of approximately $193 million of bonds in April, 1997.
CL&P established a facility under which it may sell up to $200 million of its billed and unbilled accounts receivable. As of February 21, 1997, $10 million had been sold using this facility. Additionally, NU, I CL&P and Western Massachusetts Electric Company (WMECO) entered into a
- l nsw $313 million three-year revolving credit agreement (the New Credit Agreement). Under the New Credit Agreement, NU has a contractual short-term borrowing limit of $150 million, CL&P has a limit of $313 million and WMECO has a limit of $150 million. The overall limit for all borrowers is $313 million.
Management believes that the borrowing facilities that are currently in place provide the system companies with adequate access to the funds needed to bring Millstone back to service if the units begin operating close to the currently envisioned schedules, and if the l other assumptions on which management has based its planning do not change substantially.
Some of the borrowing facilities contain financial covenants that must ba satisfied before borrowings can be made and for outstanding borrowings to remain outstanding. Through February 21, 1997, CL&P and WMECO have satisfied all financial covenants required under their respective borrowing facilities, but NU needed and obtained a limited waiver of an interest coverage covenant that had to be satisfied for NU to borrow under the New Credit Agreement.
NU, CL&P and WMECO are currently maintaining their access to the New Credit Agreement under a written arrangement, which expires March 28, 1997, unless extended by mutual consent, under which NU agreed not to borrow more than $27 million against the facility for a period of time. In addition, NU agreed to enter into an interim written arrangement whereby NU, CL&P and WMECO will seek. regulatory approval for certain amendments in order to maintain access to the New Credit Agreement through its maturity date. It is anticipated that these amendments will include (i) CL&P and WMECO providing lenders first mortgage bonds as collateral for specified periods and subject to specified terms for releasing the collateral, (ii) revised financial covenants that are consistent with NU's, CL&P's and WMECO's current financial forecasts and (iii) an upfront payment to the lenders in order to maintain commitments under the New Credit Agreement.
The holders of $38 million of notes issued by NU's real estate company (Rocky River Realty Company or RRR) are entitled to require that RRR l purchase the notes because, as of December 31, 1996, Public Service l
Company of New Hampshire and North Atlantic Energy Corporation were rated below investment grade; these notes are guaranteed by NU. NU is currently engaged in discussions with the noteholders regarding this 41 l
issue. See the " Notes to Financial Statements" Note 11G, for further information on these notes.
During 1"96, Standard & Poor's Ratings Group (S&P) and Moody's Investors Service (Moody's) downgraded all non-New Hampshire NU system securitica at least once, and in some cases twice, as a direct result of the Millstone outages. As of December 31, 1996, the CL&P and WMECO first mortgage bonds were the only securities on the NU system rated at investment grade. S&P and Moody's are reviewing all NU system securities for further downgrades. These actions will adversely affect the availability and cost of funds for the NU system companies.
Cash provided from operations decreased by approximately $229 million in 1996, primarily due to higher cash operating costs related to the Millstone outages and costs associated with ensuring adequate generating capacity, partially offset by higher retail sales and lower income tax payments. Cash flows from operations were also impacted by a sharp increase in the level of accounts payable principally caused by costs related to a severe December storm and costs associated with the Millstone outages that had not been paid by year end. Net cash used for financing activities decreased by approximately $350 million in 1996, primarily due to higher long-term debt issuances, lower repayment of short term debt and lower common dividend payments. Cash I used for investments increased by approximately $122 million in 1996, !
primarily due to an increase in investments under the NU system Money Pool.
l If the return to service of one or more of the Millstone units is delayed substantially, or if the needed waivers or modifications discussed above are not forthcoming on reasonable terms, or if some borrowing facilities become unavailable because of difficulties in meeting borrowing conditions, or if the system encounters additional significant costs or other significant deviations from management's current assumptions, the currently available borrowing facilities could be insufficient to meet all of the system's cash requirements.
In those circumstances, management would take actions to reduce costs and cash outflows and would attempt to take other actions to obtain i additional sources of funds. The availability of these funds would be !'
dependent upon the general market conditions and the NU system's credit and financial condition at the time.
See the " Notes to Financial Statements" Note 11E, 7 and 11F, for information on construction, long-term debt funding and long-term contractual requirements.
Restructuring The movement toward electric industry restructuring continues to gain momentum nationally as well as within Connecticut. Factors that are driving the move toward restructuring, in the Northeast in particular, include legislative and regulatory actions and relatively high electricity prices. These actions will impact the way that CL&P has historically conducted its business. Although CL&P continues to operate under cost-of-service based regulation, various restructuring initiatives in Connecticut have created uncertainty with respect to future rates and the recovery of strandable investments. Strandable investments are regulatory assets or other assets that would not be economical in a competitive environment. CL&P has exposure to l l
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strandable investments for its investment in high-priced nuclear generating plants, state mandated purchased power arrangements that are priced above the market and significant regulatory assets that represent costs deferred by state regulators for future recovery.
CL&P's exposure to strandable investments and purchased power obligations exceed its shareholder's equity. CL&P's ability to compete in a restructured environment would be negatively affected unless CL&P was able to recover substantially all of these past investments and commitments.
In December, 1996, the legislative task force on electric utility industry restructuring issued its final report. Although the report included several legislative recommendations, the task force members did not reach a consensus on a restructuring proposal. The legislative members of the task force submitted a restructuring proposal which includes two alternatives: one for retail ccmpetition pilots available to 10 percent of the load in each rate class by January 1, 1998, and a second for full retail competition beginning January 1,
, 1998, unless CL&P has effected 10 percent rate reductions for all rate classes by that date. This proposal, among others, will be considered in developing restructuring legislation in 1997.
In response to the ongoing efforts in Connecticut to restructure the electric utility industry, CL&P has developed a restructuring proposal that calls for reduced rates for all Connecticut customers as soon as January, 1998; the initiation of a retail choice pilot program as soon as July, 1998; phasing-in all customers to retail choice over four years beginning in 2000; full recovery of strandable investments through rate reduction bonds; and retaining ownership of generating facilities. Management believes that it is entitled to full recovery of its prudently incurred costs, including regulatory assets and other strandable investments, based on the general nature of public utility industry cost-of-service based regulation.
Potential Accounting Impacts CL&P follows accounting principles in accordance with Statement of Financial Accounting Standards (SFAS) 71, " Accounting for the Effects of Certain Types of Regulation," that allows the economic effects of rate regulation to be reflected. Under these principles, regulators may permit incurred costs for certain events or transactions, which would be treated as expenses by nonregulated enterprises, to be deferred as regulatory assets and recovered through revenues at a later date.
If future competition or regulatory actions cause any portion of its operations to no longer be subject to SFAS 71, CL&P would no longer be able to recognize regulatory assets and liabilities for that portion of its business unless these costs would be recoverable by a portion of the business remaining on cost-of-service based regulation. Under its current regulatory environment, management believes that CL&P's use.of SFAS 71 remains appropriate.
If events create uncertainty about the recoverability of any of CL&P's remaining long-lived assets, CL&P would be required to determine the fair value of its long-lived assets, including regulatory assets, in accordance with SFAS 121, " Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." The 43
implementation of SFAS 121 did not have a material impact on the company's financial position or results of operations as of December 31, 1996. Management believes it is probable that CL&P will recover its investments in long-lived assets through future revenues.
This conclusion may change in the future as competitive factors influence wholesale and retail pricing in the electric utility industry or if the cost-of-service based regulatory structure were to change.
See the " Notes to Financial Statements" Note 1H, for further information on regulatory accounting.
Competition In addition to legislative and regulatory actions, competition in the electric utility industry continues to grow at a rapid pace as a result of technological advances; relatively high electricity prices in certain regions of the country, including New England; surplus generating capacity; and the increased availability of natural gas.
Competitive forces in the electric utility industry have already caused some customers to choose alternative energy suppliers or relocate outside of the CL&P's territory. In response, CL&P is preparing for a competitive environment by expanding previously established programs and developing new ways to fortify its relationships with existing customers and attract new customers, both within and outside its service territory.
During 1996, CL&P continued to negotiate long-term power supply arrangements with certain large commercial and industrial retail customers that require an incentive to locate or expand their operations within CL&P's service territory, are considering leaving or reducing operations in the service territory, are facing short-term financial problems, or are considering generating their own electricity. Approximately 10 percent of CL&P's commercial and industrial retail revenues were under negotiated rate agreements at the end of 1996. These negotiated rate reductions amounted to approximately $19 million in 1996 and 1995. These activities are expected to continue in 1997.
During 1996, the NU system devoted significantly more resources to its Retail Marketing Organization, whose primary mission is to provide value added energy solutions to customers. Training was emphasized for its 170 new employees, the majority of whom are account executives charged with developing tailored solutions for the NU system's customers and positioning NU as a valuable partner for the future. The ability of these account executives to obtain an intimate '
understanding of customers' needs and concerns and provide value added energy solutions will play a key role in the NU system's ability to effectively compete in the future.
NU subsidiaries competed actively in two pilot retail access programs that were initiated in New England in 1996. In New Hampshire, approximately 14,500 customers are participating in a two-year statewide pilot program. NU subsidiaries introduced three energy and service product offerings under different brand names and competed against 35 other energy suppliers. In addition to exposing the NU system to a competitive environment, these pilots have enabled the NU system to develop relationships with customers outside of its service 44 ,
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territory and to secure energy contracts with major commercial customers.
Revenue erosion from traditional retail electric sales may be significant after restructuring. While margins on retail electric sales are likely to be thin, utilities can compete successfully if they are allowed to recover their strandable investments. During 1997 and beyond, the NU system will continue to participate in state sanctioned retail access programs; invest in new unregulated businesses; develop new energy-related products and services; and pursue strategic alliances with companies in various energy-related fields, including fuel supply and management, power quality, energy efficiency and load management services. Strategic alliances will allow NU subsidiaries to enter markets that provide access to new product lines and technologies that complement the NU system's current products and services.
Rate Matters In July, 1996, the Department of Public Utility Control (DPUC) approved a rate settlement agreement with CL&P (the Settlement). Under the Settlement, CL&P froze base rates until at least December 31, 1997, accelerated the amortization of regulatory assets by $73 million in 1996 and between $54 million and $68 million in 1997, and extended the depreciable lives of transmission and distribution assets by ten ;
years. Additionally, the Settlement terminated all pending litigation, i as of March 31, 1996, among the parties that could potentially affect '
CL&P's rates. The Settlement does not impact costs incurred subsequent to March 31, 1996, that are associated with the Millstone outages. The Settlement reduced 1996 earnings by approximately $35 million. The impact on 1997 earnings is not expected to be significant.
In October, 1996, the DPUC issued a final order establishing an Energy Adjustment Clause (EAC), which replaced both CL&P's fossil-fuel adjustment clause and its generation utilization adjustment clause (GUAC). The EAC, which is designed to calculate the difference between actual fuel costs and fuel costs collected through base rates, took effect on January 1, 1997. The order includes an incentive mechanism which disallows recovery of the first $9 million of actual fuel costs in excess of base rate levels, but permits CL&P to retain the first $9 million in actual fuel costs below base rate levels.
In January, 1997, the DPUC notified CL&P that it intends to conduct its prudence review of nuclear cost issues in multiple phases, beginning immediately. The first phase, covering the period April 1 through June 30, 1996, has already begun. CL&P will not be permitted to collect any replacement power costs associated with the current nuclear outages prior to the completion of the DPUC's prudence reviews. Management does not expect to seek recovery of a substantial portion of these costs.
Nuclear Decommissioning CL&P has a 34.5 percent ownership interest in the Connecticut Yankee nuclear generating facility (CY or the plant). On December 4, 1996, the CY Board of Directors voted unanimously to cease permanently the production of power at the plant. The decision to retire CY from commercial operation was based on an economic analysis of the costs of operating it compared to the costs of closing it and incurring 45
replacement power costs over the remaining period of the plant's operating license, which expires in 2007. The economic analysis showed j that closing the plant and incurring replacement power costs produced substantial savings.
CY has undertaken a number of regulatory filings intended to implement the decommissioning. In late December, 1996, CY filed an amendment to its power contracts with the Federal Energy Regulatory Commission l (FERC) to clarify the obligations of its purchasing utilities following the decision to cease power production. At December 31, 1996, CL&P's share of these obligations was approximately $263 million, including the cost of decommissioning and the recovery of existing assets. Management expects that CL&P will continue to be allowed to recover such FERC-approved costs from its customers.
Accordingly, CL&P has recognized its share of the estimated costs as a regulatory asset, with a corresponding obligation, on its Balance Sheets.
CL&P's estimated cost to decommission its shares of Millstone 1, 2 and 3 and Seabrook is approximately $858 million in year end 1996 dollars.
These costs are being recognized over the lives of the respective units with a portion being currently recovered through rates. As of l December 31, 1996, the market value of the contributions already made to the decommissioning trusts, including their investment returns, was approximately $297 million.
See the " Notes to Financial Statements" Note 3, for further information on nuclear decommissioning, including CL&P's share of costs to decommission the regional nuclear generating units.
Environmental Matters CL&P is potentially liable for environmental cleanup costs at a number of sites inside and outside its service territory. To date, the future estimated environmental remediation liability has not been material with respect to the earnings or financial position of CL&P. At December 31, 1996, CL&P had recorded an environmental reserve of approximately $7 million, the most probable amount as required by SFAS 5, " Accounting for Contingencies."
See the " Notes to Financial Statements" Note 11C, for further information on environmental matters.
Risk Management Instruments CL&P uses fuel-price management instruments to reduce a portion of the fuel-price risk associated with certain of its long-term negotiated energy contracts. These instruments are not used for trading purposes.
The differential paid or received as fuel prices change is recognized in income when realized. As of December 31, 1996, CL&P had outstanding fuel-price management instruments with a total notional value of approximately $229 million. The settlement amounts associated with the instruments reduced fuel expense by approximately $7.5 million for CL&P during 1996. CL&P's fuel-price management instruments seek to minimize exposure associated with rising fuel prices and effectively fix the cost of fuel and profitability of certain of its long-term negotiated contract sales.
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. . . - -- .-.- - -.-...-.- . . ~ . - . - . - . - -. . - - . . - - . _ . _ . .
f Se the ' " Notes to Financial Statements" Note 12, for further information on fuel-price management instruments. ;
RESULTS OF OPERATIONS l Income Statement Variances (Millions of Dollars) >
1996 over/(under) 1995 over/(under) 1995 1994 I Amount Percent Amount Percent l l Operating revenues $10 -% $59 3%
Fuel, purchased and net interchange power 222 37 40 7 I Other operation 164 27 21 4 :
Maintenance 107 56 (14) (7) !
Drpreciation 5 2 11 5 l Amortization of regulatory i assets, net 3 6 (23) (30)
Federal and state income taxes (202) (a) (5) (3)
Dnferred nuclear plants return :
(other and borrowed funds) (5) (78) (14) (69) !
Other, net 9 (a) (4) (77) ;
Minority interest in income of subsidiary 1 7 9 100 '
Nat income (285) (a) 7 4 l
(a) Percent greater than 100 l I
Operating Revenues 1 Total operating revenues increased in 1996, primarily due to higher retail sales and regulatory decisions, partially offset by lower fuel recoveries and lower wholesale revenues. Retail sales increased 1.8 parcent ($29 million) primarily due to modest economic growth in 1996.
Rsgulatory decisions increased revenues by $15 million primarily due to the mid-1995 retail rate increase, partially offset by 1996 reserves for over-recoveries of demand side management costs. Fuel recoveries decreased $24 million primarily due to lower average fossil fuel prices. Wholesale revenues decreased $18 million primarily due to higher recognition in 1995 of lump-sum payments for tihe termination of n long-term contract and capacity sales contracts that expired in 1995.
Total operating revenues increased in 1995, primarily due to regulatory decisions and higher fuel recoveries, partially offset by lower retail sales and wholesale revenues. Revenues related to regulatory decisions increased $61 million primarily due to the effects of the mid-1994 and 1995 retail rate increases and higher recoveries for demand side management costs. Fuel and purchased power cost recoveries increased $25 million primarily due to higher energy 47
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costs and the recovery of GUAC costs. Wholesale revenues decreased $16 million primarily due to capacity sales contracts that expired in !
1994. I Fuel, Purchased and Net Interchange Power Fuel, purchased and net interchange power expense increased in 1996, primarily due to replacement power due to the nuclear outages and the l 1996 write-off of GUAC balances under the Settlement, partially offset !
by lower nuclear generation and the timing of the recognition of costs l under the company's fuel clauses. l Fuel, purchased and net interchange power expense increased in 1995, primarily due to higher fossil generation and higher priced outside energy purchases from other utilities.
Other Operation and Maintenance Other operation and maintenance expenses increased in 1996, primarily due to higher costs associated with the Millstone outages ($143 million, including $50 million reserved for future costs) and 1996 costs to ensure adequate generating capacity ($39 million). In addition, these costs reflect higher storm and reliability expenditures, higher recognition of conservation expenses and higher marketing costs.
Other operation and maintenance expenses increased in 1995, primarily due to higher recognition of conservation expense, higher recognition of postretirement benefit costs and higher capacity charges from the regional nuclear generating units, partially offset by higher reserves for excess / obsolete inventory in 1994 and lower maintenance costs at the fossil units.
Depreciation Higher plant balances and higher decommissioning levels in 1996, were partially offset by longer depreciable lives of transmission and
. distribution assets under the Settlement. Depreciation increased in 1995, primarily due to higher plant balances and higher decommissioning levels.
Amortization of Regulatory Assets, Net Amortization of regulatory assets, net increased in 1996, primarily due to lower cogeneration deferrals and the accelerated amortization of regulatory assets as a result of the Settlement, partially effset by the completion of the Millstone 3 phase-in amortization in 1995.
Amortization of regulatory assets, net decreased in 1995, primarily due to higher cogeneration deferrals in 1995 and the completion during 1994 of the amortization of a 1993 cogeneration buyout, partially offset by higher 1995 amortization of Millstone 3 and Seabrook 1 phase-in costs.
Federal and State Income Taxes Federal and state income taxes decreased in 1996, primarily due to lower book taxable income, partially offset by 1995 tax benefits from a favorable tax ruling.
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Federal and state income taxes decreased in 1995, primarily due to tax ,
benefits from a favorable tax ruling, partially offset by higher book l taxable income.
Deferred Nuclear Plants Return Although the change in 1996 was not significant, deferred nuclear plants return decreased in 1995, primarily due to the completion of the Millstone 3 phase-in in 1995.
Other, Not Other, net increased in 1996, primarily due to higher income on temporary cash investments in 1996.
Other, net decreased in 1995, primarily due to the 1993 property tax cccounting change an ordered in the 1993 CL&P rate decision. The allocation of this change to customers occurred in 1994 and cuortization began in 1995.
Minority Interest in Income of subsidiary Although the change in 1996 was not significant, minority interest in income of subsidiary increased in 1995, primarily due to the issuance of Monthly Income Preferred Securities in 1995. See the " Notes to Financial Statements" Note 13, for further information on these securities.
l 49
- Ths Connecticut Light and Power Company and Subsidiaries i
I")
E. ELECTED FINANCIAL DATA 1996 1995 1994 1993 1992 (Thousands of Dollars)
< Opercting Revenues............. $2,397,460 $2,387,069 $2,328,052 $2,366,050 $2,316,451 Opercting Income.............. 29,773 324,026 286,948 241,655 288,088 Nst (Loss) Income............. (80,237) 205,216 198,288 191,449(b) 206,714 Ccch Dividends on Common Stock................ 138,608 164,154 159,388 160,365 164,277
! Total Assets.................. 6,244,036 6,045,631 6,217,457 6,397,405 5,582,831 Long-Term Debt (c)............ 2,038,521 1,822,018 1,823,690 2,057,280 2,087,936 4
Proferred Stock Not Subject to Mandatory 4 Redemption.................. 116,200 116,200 166,200 166,200 231,196 Preferred Stock i Subject to Mandatory R:d:mption(C)............... 155,000 155,000 230,000 230,000 200,000 Obligations Under C pital Leases (c) ........... 155,708 172,264 175,969 177,418 197,404
$JATEMENTS OF OUARTERLY FINANCIAL DATA (Unaudited)
Ouarter Ended ("I 1996 March 31 June 30 September 30 December 31 I S659,355 $542,999 $599,505 S 595,601 Operating Revenues........
Operating Income (Loss) ... S 59,977 S 15,197 S 593 $ (45,994)
S 32,851 $f10,700) S(26,938) $ (75,450)
N t Income (Loss).........
1995
$601.194 $525,147 S638,392 $ 622,336 Opercting Revenues.........
S 96,191 S 65,867 $ 88,012 S 73,956 Opercting Income...........
S 65,877 $ 38,089 $ 60,462 S 40,788 N t Income.................
(C) Reclassifications of prior data have been made to conform with the current presentation.
(b) Includes the cumulative offeet of change in accounting for municipal property tax expense, which increased earnings for common shares by $47.7 million.
(C) Includes portion due within one year.
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The Connecticut Light and Power Company and Subsidiaries STATISTICS Gross Electric Average Utility Plant Annual December 31, Use Per Electric (Thousands of kWh Sales Residential Customers Employees Dollars) (Millions) Customer (kWh) (Averace) (December 31) <
1996 $6,512,659 26,043 8,639 1,099,340 2,194 1995 6,389,190 26,366 8,506(a) 1,094,527 2,270 1994 6,327,967 26,975 8,775 1,086,400 2,587 1993 6,214,401 26,107 8,519 1,078,925 2,676 1992 6,100,682 25,809 8,501 1,075,425 3,028 (a) Effective January 1, 1996, the amounts shown reflect billed and unbilled sales. 1995 has been restated to reflect this change.
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IIU ( 0% %I < IIt l'I IIt.III A%D POWER COMPANY First and Refunding biortgage Bonds Trustcc and Interest Paying Agent Bankers Trust Company, Corporate Trust ;
i and Agency Group PO. Box 318, Church Street Station New York, New York 10008-0318 l
Preferred Stoch Transfer Agent, Dividend Disbursing Agent and Registrar )
Northeast Utilities Service Company Shareholder Services PO. Box 5006 Hartford, Connecticut 06102-5006 l 1997 Dividend Payment Dates 5.28%,5.30%. $3.24 Series January 1. April 1. July 1, and October 1 4.50% (1956),4.96%,6.56 %
$1.90, $2.00, $2 04, $2.06, $2.09, and $2.20 Series February 1, hiay 1, August 1, and November 1 3.90%,4.50% (1963),7.23% Series h1 arch 1, June 1, September 1, and December 1 hionthly Income Preferred Securitics 9.30% Cumulative hionthly Income Preferred Securities l (h11PS), Series A 1997 Payment Dates January 31, Fcbruary 28, h1 arch 31, April 30, June 2, June 30, July 31, September 2, September 30, October 31, December 1, December 31 I
Address Gcncral Correspondence in Carc of: l Northeast Utilities Service Company j Investor Relations Department PO. Dox 270 l Hartford, Connecticut 06141-0270 Telephone: (860) 665-5000 ;
umummmmmmmmme Data contained in this Annual Rcron ar Submitted far the sole purpose of prending infon.. ion to 107 Selden Sirect present secanty holders about the Company Berlin, Connecticut 06037-1616 i