ML20196B785

Forwards 1987 Annual Repts for Joint Owners of Plant

ML20196B785
Person / Time
Site:	Seabrook
Issue date:	06/23/1988
From:	George Thomas PUBLIC SERVICE CO. OF NEW HAMPSHIRE
To:	NRC OFFICE OF ADMINISTRATION & RESOURCES MANAGEMENT (ARM)
Shared Package
ML20196B791	List: ML20196B785 ML20196B814 ML20196B821 ML20196B834 ML20196B841 ML20196B851 ML20196B874 ML20196B902
References
NYN-88088, NUDOCS 8806300374
Download: ML20196B785 (34)

Text

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T George S. Thomas Vice President Nuclear Production NYN-88088 Pub 5c Service of New Hampshire June 23, 1988 Ntw Hampshire Yankee Division United States Nuclear Regulatory Commission Washington, DC 20555 Attention:

Document Control Desk

Reference:

Facility Operating License NPF-56, Construction Permit CPPR-136, Docket Nos. 50-443 and 50-444

Subject:

Submittal of 1987 Annual Financial Reports Dear Sir Pursuant to 10CFR50.71(b), enclosed is one copy of the 1987 Annual Financial Report for each of the Seabrook Station Joint Owners identified in Attachment A.

In cases where the Joint Owner is a subsidiary, the Consolidated Annual Financial Report of the parent corporation is provided.

If you need additional information or copies of these reports, please contact Mr. A. L. Legendre, Jr. at (603) 474-9574, extension 2373.

Very truly yours, p.

gj George. Thomas Attachments cc:

Mr. William T. Russell Regional Administrator United States Nuclear Regulatory Commission t.

Region I l

425 Allendale Road King of Prussia, PA 19406 Mr. Antone Cerne l

l NRC Senior Resident Inspector l

Seabrook Station Seabrook, NH 03874

$Q

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1 8806300374 880623 PDR ADOCK 05000443 I

DCD P.O. Box 300. Seabrook, NH 03874. Telephone (603) 474 9574 E

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ATTACW4ENT A Seabrook Station Joint Owners Public Service company of1New Hampshire United Illuminating Company EUA Power Corporation (See Note 3)

Maseachusetts Municipal Wholesale Electric Company New England Power Company Connecticut Light and Power Company (See Note 1)

Canal Electric Company (See Note 2)

Montaup Electric Company (See Note 3)

New Hampshire Electric Cooperativc, Inc.

Vermont Electric Generation and Transmission Cooperative Taunton Municipal Lighting Plant Hudson Light and Power Department Notes:

1.

Annual Report for the parent company Northeast Utilities provided for Connecticut Light and Power Company.

2.

Annual Report for the parent company Commonwealth Energy System provided for Canal Electric Comapny.

3.

Annual Report for the parent company Eastern Utilities Associates provided for Montaup Electric Company and EAU Power Corporation.

L

l ANNUAL REPORT 1987 PENHI

s a

flighlights of 1987 Change s

Since 1987 1986 1986 Operating Revenues

$ 549,108,000 $ 505,190,000 8.7%

Opetating Expenses

$ 450,960,000 $ 421,302,000 7.0%

Weighted Average Common Shares 37,194,226 37,193,896 (Loss) Per Common Share (Average)

(14.16)

(6.44)

Gross investment in Utility Plant

$2,754,461,000 $2,769,033,000 (0.5)%

Construction Expenditures

$ 295,874,000 $ 367,688,000 (19.5)%

Prime Megawatt-Hours Sold 6,444,036 6,632,567 (2.8)%

Number of Customers (Average) 258,619 342,414 4.7%

Annual KWH Per Residential Customer 7,181 7,119 0.9%

Description of Business Public Service of New Hampshire is the largest electric utility in New flampshire, supplying electricity to approximately three-quarters of the state's one million residents.

The Company distributes and sells electricity at retail in approximately 200 citics and towns in the state and also sells electricity at wholesale to other utilities. On January 28,1988, the Company filed a voluntary petition for protection under CI' apter i1 of the United States Bankruptcy Code. The Company is now operating its business as a debtor-in-possession.

Contents I letter to Shareowners 3 Management's Discussion and Ana's 7 Financial Statements 25 Report ofIndependent Cenified Public Accountants 27 Directors and Officers 28 Servi.e Territory Map 29 Shareowner Information k - __

April 18,1988

Dear Shareowner:

Public Service of New Hampshire's Chapter 11 PSNH has chosen The Rrst Boston Corporation bankruptcy filing on January 28 signaled the end of

("Rrst Boston"), a major investment banking firm, as one era and the beginning of another for the Com-its financial advisor. Rrst Boston is uniqaely qualified pany and its investors. With that filing, the Company to render the financial advisory services required entered a period of uncertainty regarding the ultimate during PSNH's Chapter 11 case. The firm has been shape of its future. In return, it gained much-needed involved in over 30 bankruptcles and out-of-court protection from creditors, restructurings in the past five years. Rrst Boston also benefits from its past experience -in 1984 when When we announced our three-part plan for fi-PSNH experienced its first major financial crisis -in nancial recovery last August, one part of the plan working with management on the analysis of options asked the New Hampshire Public Utilities Commis-regarding its cash flow problems and the completion sion ("NHPUC") to transfer to the New Hampshire of Seabrook.

Supreme Court a question regarding the constitution-ality of the anti-CWIP law as it applied to PSNH. On After a thorough search, PSNH has chosen Stut-January 26, the New Hampshire Supreme Court man, Treister & Glatt Professional Corporation issued its decision on that legal question. It ruled that

("Stutman") as its bankruptcy counsel. The Los the anti-CWIP law is constitutional in our case.

Angeles-based firm, which specializes in corporate re-Further, the Court stated clearly in its unanimous organization, bankruptcy and insolvency law, is a na-decision that it believed the anti-CWIP law did not tionalleader in its fleid. Stutman's present and grant the NHPUC the power to grant the 15 percent former clients include numerous large public compa-emergency rate rehef we were seeking in order to nies which have successfully emerged from Chapter facilitate a reorganization plan outside of bankruptcy.

11 proceedings. Your management has chosen in effect, the Court's decision eliminated the basis for Stutman because of its demonstrated track record in any version of the reorganization plan we had developing solutions within Chapter 11 that avert described in a December filing with the Securities and costly and lengthy litigation, thus completing the Exchange Commission.

reorganization process as quickly as is feasible.

Given the Court's stark ruling and the anxiety of Until May 27, PSNH has the exclusive right to a number of PSNH creditors, the Company was left propose a financial reorganization plan to the bank-i l

with limited choices, among which were: a voluntary mptcy court. Later this month the Company intends Chapter 11 bankruptcy filing, the risk of an involun-to ille a motion for extension of this exclusivity tary filing by creditors, and attachment of the period. The Company and its advisors believe that Company's property by debenture trustees, which this extension would provide much-needed time to would increase the risk of an involuntary filing. We negotiate a plan of financial reorganizution that is ac-opted to file voluntarily because we believed a volun-ceptable to all parties, including shareowners. In the tary filing gave the Company more control over its weeks and months ahead, we will be working with destiny, and the opportun!ty to maximize value for investors and others, in a consensual process, to the investors.

develop a plan designed to resolve the Company's problems in a manner that is acceptable to key This bankruptcy filing is monumental since no parties.

other investor-owned public utility has sought bank-t_

ruptcy protection from its creditors in over 50 years.

Toward this end, both the New England Electric l

There are many procedural and legalissues that have System and Northeast Utilities (the two largest electric yet to be sorted out, as well as unanswered questions utilities in New England) have publicly expressed an i

about the Company's future. Amidst all of these un-Interest in purchasing PSNH's operating assets; l

certainties, I cannot predict hr you the timing or neither has expressed interest in acquiring the other details of the outcome of PSNH's bankmptcy Company's 35.6 percent ownership interest in the proceedings. However, your management already Seabrook project. We welcome these overtures, and has made progress in addressing the problems that when these companies submit actual proposals, each confront us. I would like to outline these areas of plan will receive our careful consideration. A friendly progress for you, acquisition by one of these neighboring utilities or some other entity might play a major role in the 1

financial reorganization of PSNH. However, with much-needed power from this plant will add further discussions still at a very preliminary stage, it is too value where there is, right now, a lot of uncertainty.

earlo to know if this will be the case. And there could, in iact, be overtures from other companies as The threat of bankruptcy that has been haunting well All such opportunities will be considered as part Public Service of New Hampshire for so long has now of an orderly process being developed by PSNH and become a reality. With that fact behind us, we will First Boston.

use this period of protection from creditors to care-fully review all opportun'tus for improving the Meanwhile, PSNH is moving ahead in the devel-Company's financial standing. Our goal during this oprnent of alternative financial reorganization plans, period is very clear: to formulate a financial reorganl-which would not involve an acquisition of any portion zation plan that is acceptable to key parties, maxi-of the Company's assets. Involved here could be the mizes value and enables us to emerge as quickly as split-up of the Company into one or more companies possible from Chapter 11.

with a potential for a change in the rate making authority from the NHPUC to the Federal Energy Regulatory Commission. The imperative is to adopt Sincerely, a plan which secures the highest value for PSNH investors.

In 1987, PSNH reported losses of $14.16 per Robert J. Harrison share. The 1987 losses primarily were assce'ated President and with certain accounting changes and the Company's Chief Executive Officer investment in Seabrook Unit 1. (in 1986 PSNH had recognized signifinnt losses associated with its invest-ment in Seabrook Umt 2, as well as Pilgrim Unit 2.)

In brief, because of continuing uncertainty associated with the Company's investment in the project, it was no longer appropriate to use regulated accounting standards which assumed full and timely recovery of the costs of Seabrook Unit 1. Not only were signifi-cant wYite-offs taken, but also a $212 million reserve was established to provide for future estimated pre-operational Seabrook expenses. These adjustments alone translated into a net loss of $591 million in 1987, or Just under $16 per share.

Prinw Sa'es to Ultirnate Custorners S'"

it is ironic that the Company has reported losses of this magnitude while our operating results reveal a

~

healthy and growing core business. PSNH's operat-5~

~

ing results for the year were excellent. The n Residential Company's operating revenues increased 8.7 percent U

to $549,108,000, and operating income was up

]1"d"t*l 17.0 percent to $98,148,000. This growth reflects

~

3' the vibrant economy in our service area and a contin-ued influx of new customers into our franchise area.

g cornnwrcial 2-a j

Prime sales to ultimate customers totaled 5.9 million megawatt-hours in 1987, a 6.1 percent increase over sales during the previous year.

The strength of our franchise will be a significant i,,3 3,y 3,n 3,,

factor as we move forward in negotiating a financial i

reorganization of the Company that maximizes your PsNHssoleigrouhhes veraged 5 2%overthe return. Despite the financial problems, PSNH has a p.,t fue v,:.rs ms grM redects a he ! thy l

Valuable Core business: providing electricity to New core Insbess thet wd be a synifk nt factor as Hampshire, one of the fastest and most steadily the cornp ny n-formrd in financial reor-9'"l "' ' " ' " " " ' ' ' " " ' ' ' * ' " ' " "

growing energy markets in the nation. And if and when Seabrook goes into commercial operation, the 2

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Capital Requirements and Liquidity Bankruptcy Filing. On January 28,1988, the Company filed a voluntary petition for protection under Chapter 11 of the United States Bankruptcy Code. The Company is now operating its business as a debtor-trw possession. The Company filed for protection under the Bankruptcy Code because the cash generated by the Company's operations was insufficient to satisfy its capital requirements and to pay interest as it came due on the Company's outstanding indebtedness. The Company was unable to consummate exchange offers with its debtholders designed to reduce its debt service obligations. The New Hampshire Public Utilities Commission

("NHPUC") did not act on the Company's request for an emergency rate increase based on the Seabrook Plant because the New Hampshire Supreme Court determined that New Hampshire's anti-CWIP law prohibits such a rate increase prior to operation of the Plant. The Company concluded that the bankruptcy filing was necessary to avoid attachments of its property by certain debtholder representatives and to avoid the filing of an involuntary bankruptcy petition.

Cash Flow Problems. The Company ceased paying Interest on its unsecured debt in October 1987 and ceased paying interest on the remainder of its debt on January 28,1988, the date of the filing of the petition in bankruptcy. The Company has filed a motion with the Bankruptcy Court to permit, during the pendency of the bankruptcy proceedings at least until February 1989, payment of principal and interest on the First Mortgage Bonds, the General and Refunr.ng Mortgage Bonds and debt secured by any such bonds. If the Bankruptcy Court determines that holders of Third Mortgage Bonds are also entitled during pendency of the bankruptcy proceedings to receive payments of interest, the Company anticipates that its cash flow wouki by early 1989 become inadequate to make such payment and to pay all of the Company's remaining ongoing expenditures. These expenditures include monthly payments for the Company's approximately 35% share of expenditures for the Seabrook Plant, the Company's capital expenditures for maintaining and adding to its other plants and facilities, purchases of power including payments to s:nall power producers, payment of taxes periodically owed to the State of New Hampshire and local cities and towns, and other normal operating costs and expenses, indeed, even without payment of Interest onThird Mortgage Bonds during the bankruptcy proceedings, in the absence of rate increases, the Company's cash flow may be inadequate at times to make all of these other expenditures.

Any financing for the purpose cf raising funds to make necessary capital expenditures, supplementing inadequate cash flow, or otherwise, and the granting of any tien on Company assets to secure financing during the bankruptcy proceedings would require approval of the Bankruptcy Court and possibly other regulatory bodies. Any such financing and lien would likely be opposed by some of the Company's creditors. The Company believes that it will be difficult to achieve any substantial amount of such financing.

The Company ceased paying dividends on shares of its Common and Preferred Stock in 1984 and until the dividend arrearages with respect to shares of the Preferred Stock are cured, the holders thereof will continue to have the right to elect a majority of the Company's Board of Directors, a righ; which they have exercised since 1985.

If a reorganization can be achieved, it is anticipated that any reorganization plan filed and confirmed in the bankruptcy case might result in substantial alteration cr elimination of some or all of the current rights of the holders of shares of Common and Preferred Stock.

Reorganization Plan. Until May 27,1988 (and thereafter to the extent the Bankruptcy Court extends said date) the Company has the exclusive right in the bankruptcy proceedings to propose a reorganization plan. The Company is attempting to develop such a p!an. It is believed that some level of rate increases will be essential to develop and implement a successful plan. The plan could involve a sale of the Company or certain of its assets or a split-up of the Company and its assets into two or more companies. In the latter case, this could result in a change in rate regulation from the NHPUC to the Federal Energy Regulatory Commission.

Any plan may involve substantial restructuring of the Company's debt and equity with the Company's existing equity and unsecured debtholders likely to receive securities having substantially different rights and values.

Confirmation of any reorganization plan is likely to require a substantial period of time during which the Company will remain under the jurisdiction of the Umkruptcy Court. It is not possible at this time to predict the nature of r

3

any such plan, the amount of recovery achieved by the Company's debt and equity holders, the likeliheed of the plan's acceptance by the Company's creditors and equity hokiers or its approval by the Bankruptcy Court and any other regulatory bodies having jurisdiction, or the length of time it will take to implement such a plan.

Both the New England Electric System and Northeast Utilities have publicly expressed an interest in the acquisition of certain of the Company's assets, neither has expressed interest in acquiring the Company's current interest in the Seabrook Plant. Preliminary discussions with both entitles have begun but the Company is unable to predict when or whether any arrangement satisfactory to the Company, its creditors and its stockholders couki be rcached with either entity. Any such arrangement would also be subject to the approval of the Bankruptcy Court.

The Company continues to believe that the Seabrook Plant is a needed energy source for the New England region. The Company also believes that successful operation of the Seabrook Plant and its reflection in rates are necessary eleme nts to maximize recovery for the Company's security holders. The Company will there fore continue to fund its share of Plant expenditures unless ordered by the Bankruptcy Court to reduce or cease such funding.

It is anticipated that the continued funding of the Seabrook Plant vill be opposed by certain of the Company's creditors.

The Company has very substantial non-Seabrook capital requirements to satisfy if it is to provide adequate service to its fast growing service area. The Company's non-Seabrook construction program for the five-year period 1988-1992 is currently estimated to be approximately $314,100,000 and its share of the pre-operational testing and other Seabrook Plant capital additions is estimated to aggregate $178,700,000, based on an operation date for the Seabrcok Plant of January 1,1990, which has been assumed for financial planning purposes. The Company cannot predict when, l' at all, the Plant will commence operation. The following tacle sets forth the Company's estimated capital expenditures for the period:

Non-Seabrook Seabrook lotal 1988

$ 46,600,000

$ 70,800,000

$117,400,000 1989 58,300,000 71,500,000 129,800,000 1990 64,800,000 9,900,000 74,700,000 1991 79,200,000 12,900,000 92,100,000 1992 65,200,000 13,600,000 78,800,000 Total 3314,100,000 f178.700,000

$492,800,000 I

It is possible that additional expenditures may be required to meet regulatory and environmental require-ments at the Seabrook Plant and the Company's other generating facilities. The estimated Seabrook expendi-tures for 1988 and 1989 were expensed in 1987. See Note 3 of Notes to Financial Statements.

Results of Operations The accompanying financial statements have been prepared in confomalty with principles of accounting applicable to a going concern. Since January 28,1988 the Company has been operating as a debtor-in-possession i

under the protection of the Bankruptcy Court. The Company will endeavor to develop a plan of reorganization which will enable the Company to emerge from bankruptcy on a financially viable basis, but any such reorganization will almost cedainly result in significant adjustments to the financial statements.

Operating revenues increased 8.7% for 1987 and decreased 2.8% in 1986 and 1.1% in 1985. The increase f r 1987 was due to a 4.7% base rate increase effcctive January,1987 and a substantialincrease in the Company's energy cost recovery revenues commencing on July 1,1987 offset by a 2.8% decrease in prime megawatt-hour sales. The decrease in revenues for 1986 and 1985 was principally due to lower energy cost recovery revenues, as prime megawatt-hour sales increased 2.8% in 1986 and 4.7% in 1985.

The d(crease in prime megawatt-hour sales for 1987 and the smaller increase for 1986 reflect the loss, effective October 1,1986, of two of the Company's wholesale customers, which previously accounted for 12%

4

of the Company's total annual prime sales and approximately 8% of its total annual revenu2s from prime sales.

However, megawatt hour sales to retail customers increased 6.1% for 1987, due mainly to a 4.7% increase in the average number of retail customers served by the Company. Continued growth in megawatt-hour sales will be dependent on the rate of economic growth in New Hampshire, weather, the competition from other energy sources and suppliers, and the price of electricity.

On June 29,1987, the NHPUC ordered that the Company was entitled to approximateh $20.5 mit! Ion of the $58.9 miilion (14%) rate increase orig:nally requested in May,1986. The NHPUC determined that the Company's cost of common equity was 15% (the Company had requested 19%) and fixed ar overall rate of return at 14.94%.- The NHPUC ordered refunds of amounts collected under bond amounting to approximately $21 million, which were paid in November.

The aggregate of fuel and purchased and interchanged power expense, on which energy cost recovery revenues are based, increased 1.6% for 1987 and decreased 12.2% for 1986 and 4.1% for 1985. Other operating expenses, i

except income taxes, increased 21.0% for 1987,11.0% for 1986 and 16.7% for 1985, resulting malnh from increases in the costs needed to support the growth in the number of customers served as well as increases in maintenance, depreciation, property taxes and insurance.

The Company had overall provisions for income tax recoveries of $72.9 million, $30.2 million and $18.9 miluon for 1987,1986 and 1985 respectively. Effective tax rates varied significantly from year to year (see Note 7 of Notes to Financial Statements). All of the amounts for 1987 and 1986 represent non-cash reductions in acct.mulated deferred lncome tt.

s associated with financial statement provisions for losses on generating projects.

Interest on Long-Term Debt and Other Interest for 1987 increased 7.1%. Such charges increased 16.5% for 1986 and 41.8% for 1985. These increases reflect the issuance of debt totaling $100 million in May 1987, $325 milhon in February 1986 and $425 million in December 1984.

In mid-1987, it became apparent to management that a significant restructuring of the Company's j

capitalization wouki be necessary because cash generated by operations was insufficient to satisfy its capital l

requirements and to pay interest on the Company's indebtedness, and access to further borrowing was simply not available. The Company's financial difficulties are directly related to the magnitude of its investment la the Seab-rook Plant and to the Com pany's inability to base its rates upon the cost of this project prior toits operation (currenth assumed to be January 1,1990 for financial planning purposes). The Company determined that, should the Seabrook Plant be permitted to become operational, political and competitive pressures would not permit the Company to recover the recorded cost of its investment in accordance with traditional utility rate making practices.

Accordingly, the Company changed its method of accounting for its investment in the Seabrook Plant to eliminate AFUDC from cap:talized costs and to recognize capitalized interest and associated income tax eifects. This change in method of accounting effectively restates the cost basis of the Seabrook Plant to eliminate the previoush assumed effects of regulation. Management be!Ieves the Company's other plant assets should not be similarly adjusted because the Company's rates are based on recovering their recorded costs through the rate making process.

5 The effect of the change in method of accounting for the Seabrook Plant, effective January 1,1987, was to inerease the 1987 pretax loss be fore the cumulative effect of change in Seabrook Plant accounting by $51.3 million.

However, income tax benefits (in the form of reductions in accumulated deferred taxes on income which were established in recognizing the cumulative effect of the change in Seabrook Plant accounting) of $71.0 million, associated with 1987 losses from operations, resulted in an overall net decrease in the 1987 loss before the cumulative effect of the change in Seabrook Plant accounting of $19.7 million (or $0.53 per share).

The adjustment of $398.7 million (including a provision for deferred taxes on income of $98.1 million) to apply the new method retroactively was recorded as a reduction in 1987 income.

Construction of Unit 2 of the Seabrook Plant was stopped in 1984. In 1986 the Company recognized a loss of $333.5 million when the Seabrook Joint Owners voted to relinquish to the Nuclear Regulatory Commission the construction permit for Unit 2 and initiated a program for the disposition of equipment having a net salvage value.

Accordingh, reference herein to the Seabrook Plant refers to Unit 1 only.

5

For the reasons described above, management has also determined that further cost capitalization in connection with the Seabrook Plant would not be prudent and that it should therefore cease capitalization effective January 1,1988. Accord!ngly, a loss of $212.0 rnillion was recognized in 1987 associated with estimated remaining costs to be incurred prior to an assumed operating date of January 1,1990. The loss provision of $212.0 million included Interest of $70 million relating principally to interest on secured debt. It does not include a provision for interest on unsecured debt after January 28,1988. See Note 1 of Notes to Financial Statements and the note at the bottom of the Statements of Earnings.

In 1987 the Company also expensed $3.6 million of its investment in Millstone Unit 3 as a result of an order from the NHPUC based on prudency audits completed for another regulator in the State of Connecticut. The Crimpany also expensed regulatory assets of $26.4 million primarily related to previously deferred rate case expenses and the cost of converting a generating facility to burn oil er coal. In addition, the Company expensed

$6.1 million of accumulated costs for the unconsummated exchange offer.

Inflation continues to affect Company operations, since under existing regulatory practice the investment in utility plant has been recovered at historical cost but replaced, as necessary, at current cost. In the case of the Seabrook Plant and other plants constructed over many years, the rates necessary to recover accumulated inflation and carrying costs may be in excess of what the customers for that power can pay. Thus something less than h!storical cost may be recovered. The ef fects of inflation on othe; expenses are generally recovered through energy cost recovery mechanisms or rate filings, as necessary.

6

PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE STATEMENTS OF EARNINGS For the Year Ended December 31.

193 2 12Bb 19.8h (thousands of Dollars Except Per Share Amounts)

Operating Revenues (Note 4)

Residential

$214,227 $188,875 $182,846 Industrial 150,437 131,303 137,103 Other -

184,444 185,012 199,791 Total Operating Revenues 549,108 505,190 519,740 Operating Expenses Operation Fuel 123,571 122,457 134,673 Purchased and Interchanged Power 97,571 95,187 113,136 Other Operating Expenses 97,180 66,915 61,501 Maintenance 37,236 39,704 33,269 Depreciation 31,396 29,795 25,660 Taxes on Income (Note 7) 35,601 43,108 46,107 Other Taxes, Principally Property Taxes 28,405 24,136 24,221 Total Operating Expenses 450.960 421,302 438,567 Operating income 98,148 83,888 81,173 Other Income and Deductions Allowance for Equity Funds Used During Construction (Notes 2 and 4) 1,183 124,697 116,228 Taxes on income (Note 7)

?.08,478 73,320 65,054 Equity in Earnings of Affiliated Companies 1.423 2,722 3,148 Interest and Dividends 5,666 11,649 15,380 Losses on Generating Projects (Note 3)

(241,452)* (348,521)

Other - Net (5,299)

(5,207)

(5,124)

Total Other Income and Deductions (130.001) (141,340) 194,686 income (Loss) Before Interest Charges (31,853)

(57,452) 275,859 Interest Charges Interest on Long-Term Debt 210,409 206,400 171,989 Other Interest 14,950 4,091 8,699 Capitalized Interest (Notes 2 and 4)

(169,068)

Allowance for Borrowed Funds Used During Construction (Notes 2 and 4)

(1,108)

(69,578)

(59,571)

Net Interest Charges 55,183 140,913 121,117 income (Loss) Before Cumulative Effect of Change In p

Seabrook Plant Accounting (Note 2)

(87,036) (198,365) 154,742 Cumulative Effect of Change In Seabrook Plant Accounting (Note 2)

(398,651)

Net income (Los3)

(485,687) (198,365) 154,742 Preferred Dividend Requirements 40,980 40,981 40,981 Earnings (Loss) Available for Common Stock

$(526,667) $(239,346) $113,761 Weighted Average Cc,mmon and Common Equivalent Shares (000's) 37,194 37,194 48,128 Earrings (Loss) Per Common and Common Equivalent Share (Note 4)

Before Cumulative Effect (3.44) $

(6.44) $

2.50 Cumulative Effect of Change In Seabrook Plant Accounting (Note 2)

(10.72)

- {T5b Net income (Loss)

$ (14.13) 5 (6.44)

Proferma (Note 2)

(3.44) $

(4.47) $

0.34

' Note: The provision for Losses on Generating Projects does not include an amount for unsecured interest ater January 28, 1988. The Company does not intend to accrue unsecured interest af ter that date. That interest would have inermed theprouston by $273 million and increased the loss per comrnon and common equimlent share by $6.58. See Note 5 See accompanying Notes to Financial Statements

PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE BALANCE SHEETS ASSETS l

Dmmberli, 1987 19&6 (Thousands of Dollars) l Utility Plant at Original Cost '

l Electric Plant

$ 941,092

$ 894,744 Less: Accumulated Provision for Depreciation 291.201 266.490 649,891 628,254.

Unfinished Construction:

Seabrook (Notes 2 and 3) 1,794,823 1,862,469 Other 18.546 11 E2_0 Total Unfinished Construction 1,813,369 1.874.289 Net Utility Plant 2.463.260 2.502.543 Investments Nuclear Generating Companies 11,590 11,712 Real Estate Subsidian 8,340 7,997 Other, at Cost 182 176 Totallnvestments 20.112 19.885 Current Assets Cash and Temporary Investments 19,378 62,541 Accounts Receivable (Net of Allowance of $935 and $925 in 1987 and 1986, respectively) 46,674 34,534 Unbilled Revenue 15,750 14,359 Fuel, Materials and Supplies, at Cost 20,643 23,837 Prepaid Fuel Costs 7,711 Other 13.274 7.383 TotalCurrent Assets 123.430 142,654 Other Assets Special Deposits 702 7,641 Other 31.887 35.12J TotalOther Assets 32583 42.762

$2.639.391

$_2.707.844 See accompanying Notes to Financial Statements 8

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PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE BALANCE SilEETS CAPITALIZATION AND LIABILITIES

DecemWrl, 1987 1986 (Thousands of Dollars) j Capitalization (See separate statements)

Common Stock Equity

$ 240,777

$ 763,867 Preferred Stock With Mandatory Redemption Requirements 384,248 357,649 Without Mandatory Redemption Requirements 48,696 48,701 Long-Term Debt - Net 540 488

_1172,535 Total Capitalization 1,214,609 2,542,802 Current Liabilities Debt and Accrued Interest in Default (Notes 5 and 8) 1,028,638 Long-Term Debt to be Retired Within One Year 6,599 24,495 Preferred Stock Redemption Due Currently 33,550 22,740 Estimated Future Seabrook Expenditures (Note 3) 212,000 Accounts Payable 15,038 27,023 Accrued Pension Costs 16,633 5,148 Accrued Taxes 2,161 5,543 Accrued Interest, Net of Amounts in Default 23,634 39,311 Estimated Cance!!ation Costs for Seabrook Unit 2 13,329 13,960 Other 9AQZ 6.91 4 Total Curren* Llabilities 1,360,589 145,154 Deferred Credits Accumulated Deferred Investment Tax Credits (Note 7) 17,817 17,083 Accumulated Deferred Taxes on income (Note 7) 44,240 722 Other 2,136 2 083 Total Deferred Credits 64,193 19,888 Commitments and Contingencies (Notes 1 and 6)

$2,639,391

$2,707,844 b

See accompanying Notes to Financial Statements 9

PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE STATEMENTS OF CAPITALIZATION December 31.

1932 12Sf2 (Thousands of Dollars)

Common Stock Equity Common Stock - $5 Par Value (a)

Authorized - 60,000,000 Shares Outstanding - 37,194,226 Shares in 1987 and 37,193,896 in 1986

$185,971 $185,969 Other Paid-In Capital 436,221 436,218 Retained Earnings (Deficit)(b)

(381,415) 141,680 Total Common Stock Equity

_240,777 763,867 Cumulative Preferred Stock Par Value $100 Per Share - Authorized 1,350,000 baares

- Outstanding 615,360 Shares Par Value $25 Per Share - Authorized 14,000,000 Shares

- Outstanding 10,400,000 Shares Shares Dividend Par ValueOutstandino Call Price With Mandatory Redemption Requirements (b & c) 7.64%

$100 120,000

$104.08 15,553 14,636 9.00 100 158,400 104.50 21,364 19,939 11.24 25 1,200,000 27.11 43,067 39,694 17.00 25 1,200,000 28.19 49,762 44,663 15.00 25 1,200,000 27.81 47,438 42,937 15.44 25 2,400,000 27.90 95,898 86,634 13.00 25 1,400,000 28.25 52,631 48,081 13.80 25 2,400,000 28.45 92,085 83,805 417,798 380,389 Less: Preferred Stock Redemption Due Currently (33,550)

(22,740) 384,248 357,649 I

Without Mandatory Redemption Requirements (b) 3.35%

$100 102,000

$100.00 10,200 10,200 4.50 100 75,000 102.00 7,500 7,500 5.50(Convertible) 100 9,960 100.00 996 1,001 7.92 100 150,000 101.98 15,000 15,000 11,00 25 600,000 26.25 15.000 15.000 48,696 48,701 Total Cumulative Preferred Stock - Net

$432,944 $406,350 See accompanying Notes to Rnancial Statements and to Statements of Capitalization 10

PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE L

STATEMENTS OF CAPITALIZATION December 31.

1982 193f2 (Thousands of Dollars)

Long-Term Debt - Net First Mortgage Bonds Series Rate Maturity M

45/8%

1992 20,805 $

20,905 N

61/8 1996 15,069 15,069 O

61/4 1997 13,381 13,462 P

71/8 1998 13,491 13,543 Q

9 2000 18,262 18,274 R

75/8 2002 18,381 18,381 S

9 2004 18,719 18,725 V

91/8 2006 14,296 14,304 W

10 1/8-1993 9,658' 9,658' X

12 1999 9,126' 9,126' Y

18 1989 24,135' 24,135' Z

Variable 1991 10,080' 10,080' 185,403 185,662 Less: First Mortgage Bonds (*) P: edged as Security for General and Refunding Mortgage Bonds (52,999)

(52,999)

Total First Mor ge Bonds 132,4D4 132,663 General and Refundin tortgage Bonds A

10 1/8%

1993 32,700 38,160 B

12 1999 60,000 60,000 C

14 1/2 2000 30,000 30,000 D

17 1990 23,000 23,000 E

18 1989 50,000 50,000 H

Variable 1991 112,500" 112,500" Less: General and Refunding Mortgage Bonds (") Pledged as Security for Nuclear Fuel Ob ation, Eurodollar Term Loan and Promissory Note ue 1991 (112,500)

(112,500)

Third Mortgage Bonds A

13 3/4%

1996 225,000 225,000 B

10 1/2 2016 100,000"' 100,000*"

Less: Third Mortgage Bonds (*") Pledged as Security for Pol'ation Control Revenue Bonds (1,000)

(1,000)

Nuclear Fuel Obligation, due 1991 (Note 5) 4,000

,000 Eurodollar Term Loan, due 1991 (Note 5) 45,000 45,000 Prominobontrol Revenue BondsNote due 1991 (Note 5) 22,500 22,500 Pollution 121/4-13 3/4%1988-2003 (Note 5) 20,000 20,000 Debentures (Note 5) 15 3/4%

1988 75,000 75,000 14 3/8 1991 100,000 100,000 15 2003 100,000 100,000 17 1/2 2004 425,000 425,000

]

Promissory Ncte, Due 1988 (Note 5) 18,437 18,437 Total Long-Term Debt 1,504,041 1,509,760 Less:Long-Term Debt to be Retired Within One Year (6,599)

(24,495)

Long-Term Debt in Default (Note 5)

(850,937)

Unamortized Premium and Discount (105,617)

(112,680)

Long-Term Debt - Net 540,888 1,372,585 Total Capitalization

$1,214,609 $2,542,802 See accompanying Notes to Financial Statements and to Statements of Capitalization 11

PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE NOTES TO STATEMENTS OF CAPITALIZATION (a)in December 1984 the Company issued 18,375,000 warrants allowing the holders to purchase a share of Common Stock at an exercise price of $5.00 per share. The Warrants expire in 1991, (b) Since April 1984, the Company has omitted dividends on shares of its Common and Preferred Stocks and since May 1984 has made no required tinking fund payments on shares of its Preferred Stocks. The Preferred Stock dividends are cumulative and the Articles of Agreement of the Company require that the dividends on shares of Preferred Stock be paid before any dividends on shares of Common Stock can be paid. The NHPUC has imposed a condition that the Company may not pay dividends on shares of Preferred and Common Stock until authorized to do so by further NHPUC order. In view of the filing by the Company for protection under the Bankruptcy Code the Companycannot predict whether any payments willbe made except ultimately as part of a plan of reorganization for the Company.

If and when dividnds payable on shares of Preferred Stock are in arrears in an amount equal to four full quarterly dividends, the holders of shares of Preferred Stock have the right to elect a majority of the Board of Directors. Since February 15,1985, the Company has failed to pay in excess of four fullquarterly dividends on shares of Preferred Stock and the holders of the Preferred Stock, voting as a class, have elected a majority of the Board of Directors of the Company at the annual meetings held since then. Holders of the Preferred Stock will retain this right during the Bankruptcy process until altered or eliminated under a plan of reorganization for the Company.

The table below indicates *be amounte sf dividends in arrears at December 31,1987:

Dividend Balg Shares Egr Share T.nial With Mandatory Redemption Requirements:

(Classified in Preferred Stock) 7.64 %

120,000

$29.605 $ 3,552,600 9.00 158,400 34.875 5,524,200 11.24 1,200,000 10.889 13,066,500 17.00 1,200,000 16.469 19,762,500 15.00 1,200,000 14.531 17,437,500 4

15.44 2,400,000 14.958 35,898,000 13.00 1,400,000 12.594 17,631,250 13.80 2,400,000 13.369 32,085,000

)

$144,957,550 Without Mandatory Redemption Requirements:

(Classified in Retained Earnings) 3.35%

102,000

$12.981 $

1,324,087 4.50 75,000 17,438 1,307,813 5.50 (Convertible) 9,960 21.313 212,273 7.92 150,000 30.690 4,603,500 11.00 600,000 10.656 6,393,750

$ 13,841,423 (c) The annual Sinking Fund requirements for Preferred Stock with mandatory redemption requirements are as folicws: 1988 and arrearages - $33,550,000; 1989 - $13,810,000; 1990 - $13,810,000; 1991 -

$ 13,810,000, and 1992 - $ 13,810,000. No Preferred Stock sinking fund payments have been made since May 1984.

See accompanying Notes to Financial Statements 12

/

PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE STATEMENTS OF CIIANGES IN FINANCIAL POSITION For the Year Ended December 31.

1987 1986 1985 Source of Funds (Thousands of Dollars)

From Operations income (Loss) Before Cumulative Effect of Change in Seabrook Plant Accounting

$ (87,036) $(198,365) $ 154,742 Principal Non-Cash Charges (Credits) to income Depreciation 31,396 29,795 25,660 Amortization of Bond Premium, Discount and Expense 7,666 27,827 2,823 Allowance for Equity Funds Used Durlag Coristruction (1,183) (124,697) (116.228)

Deferred Taxes and Investment Credit Adjustments (69,591)

(30,212)

(13,857)

Losses on Generating Projects 29,452 333,521 Total from Operations (89,296) 37,869 53,140 From Outside Sources increase in Long-Term Debt 18,437 281,065 130,936 Change in Short-Term Borrowings 100,000 (145,485)

Total from Outside Sources 118,437 281065 ' TIE 549)

Decrease in Working Capital 283,722 257,869 Total

$_312,863 $ 318,934 $ 296,46U Application of Funds Property Additions

$ 295,874 $ 367,688 $ 361,950 Allowance for Equity Funds Used During Constmction (1,1831 0 24,697) (116,228)

Reduction of Long-Term Debt 6,260 24,701 42,972 Reduct'on of Preferred Stock 10,815 9,060 6,072 Increase in Wo '

, Capital 29,103 Special Depe (6,939) 3,683 1,527 Other Appl'

- Net 8,036 9,396 167 Tv-t

$ 312,863 $ 318,934 $ 296,460 Increase (Decrease) in Working Capital Other Than Short-Term Borrowings and Debt in Default (Note 5)

Cash and Temporary Investments

$ (43,163) $ 44,768 $(244,483)

Receivables 12,140 (12,039)

(448)

Inventories (3,194)

(1,810)

(2,664)

Accrued Interest in Default (77,701)

Long-Term Debt to be Retired Within One Year 17,896 18,268 (22,333)

Estimated Fuure Seabrook Expenditures (212,000)

Preferrcd Stock Redemption Due Currently (10,810)

(9,060)

(6,060)

Accounts Payable 11,985 8,336 (3,248)

Accrued Taxes 3,382 (1,313) 3,729 Accrued Interest, Net of Amount in Default 15,677 (2,242) 2,315 Estimated Cancellation Costs for Seabrook Unit 2 631 (13,960)

Other 1,435 (1,845) 15,323 Total fi253J22) $ 29,103 $i257J69)

Composition of Property Additions:

Jointly-Owned Nuclear Facilities

$ 221,721 $ 311,401 $ 299,269 Nttlear Fuel 12,716 10,525 19,445 Other 61,437 45,762 ~ 43,236 Total

$_195,8N $Y67,6BB $ 361,956 See accompanying Notes to Financial Statements 13

PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE STATEMENTS OF CilANGES IN COMMON STOCK EQUITY For The Three Years Ended December 31,1987 Other Retained Amount at Pald-in Eainings Sbates Par Value Caplial (Deficit)

Iotal (Thousands of Dollars)

Balance - December 31,1984 37,191.067 $185,955 $436,320 $ 29.2_852 $ 915,127 Add (Deduct)

Net income 154,742 154,742 issuance of Common Stock 829 4

5 9

issuance Cost of Warrants (106)

(106)

Balance - December 31,1985 37,191,896 $185,959 $436,219 $ 447,594 $1,069,772 Add (Deduct)

Net Loss (198,365)

(198,365)

Reclassification to Preferred Stock of cumulative dividends in arrears for Preferred Stock with mandatory redemption requirements (107,549)

(107,549)

Issuance of Cornmon Stock 2,000 10 (1) 9 Balance - December 31,1986 37,193,896 $185,969 $436,218 $ 141,680 $ 763,867 Add (Deduct)

Net Loss (485,687)

(485,687)

Issuance of Common Stock 330 2

3 5

Dividend requirements for Preferred Stock with mandatory redemption requirements (37,408)

(37,408)

Balance - December 31,1987 37,194,226 $185,971 $436,221 $(381,415) $ 240,777 1

See accompanying Notes to Fine.ncial Statements 14

PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE NOTES TO FINANCIAL STATEMENTS

1. Proceedings Under Chapter 11 On January 28,1988, the Company filed a voluntary petition for protection under Chapter 11 of the United States Bankruptcy Code. The Company h now operating its business as a debtor-in-possession. The Company filed for protection under the Bankruptcy Code because the cash generated by the Company's operations was insufficient to satisfy its capital requirements and to pay interest as it came due on the Company's outstanding indebtedness. The Company was unable to consummate exchange offers with its debtholdera designed to reduce its debt service obligations. The New Hampshire Public Utilities Corr. mission ("NHPUC") did not act on the Company's request for an emergency rate increase based on the Seabrook Plant because the New Hampshire Supreme Court determined that New Hampshire's anti-CWlP law prohibits such a rate increase prior to operation of the Plant. The Company concluded that the bankruptcy filing was necessary to avoid attachments of its property by certain debtholder representatives and to avoid the filing of an involuntary bankruptcy petition.

The Company ceased paying interest on its unsecured debt in October 1987 and ceased paying interest on the remainder ofits debt on January 28,1988, the date of the filing of the petition in bankruptcy. The Company has filed a motion with the Bankruptcy Court to permit, during the pendency of the bankruptcy proceedings at least until February 1989, payment of principal and interest on the First Mortgage Bonds, the General and Refunding Mortgage Bonds and debt secured by any such bonds. If the Bankruptco Cmrt d4termines that holders of Third Mortgage Bonds are also entitled during pendency of the bankruptcy prom dings weceive payments of interest, the Company anticipates that its cash flow would by early 1989 beconw inadequste to make such payment and to pay all of the Company's remaining ongoing expenditures. These expenditures include monthly payments for the Company's approximately 35% share of expenditures foi the Seabrook P: ant, the Company's capital expenditures for maintaining and adding to y, pla: 1 vd socilities. purci.ases of powar including payments to small power producers, payment of taxas M - acally owed to the State of New,.ampshire and local cities and towns, and other normal operating cost-penses. Indeed, even without payment of interest on Third Mortgage Bonds during the bankruptc,

. Jings, in the absence of rate increases, the Company's cash flow may be inadequate at times to make all of these other expcaditures.

The accompanying financial statements have been prepared in conformity with principles of accounting applicable to a going concem. The Company is being operated as a going concern under the protection of the Bankruptcy Court. The Company will endeavor to develop a plan of reorganization which will enable the Company to emerge from bankruptcy on a financially viable basis, but any such reorganization will almost certainly result in significant adjustments to the financial statements.

Both the New England Electric System and Northeast Utilities have publicly expressed an interest in the t.cquisition of certain of the Company's assets; neither has expressed interest in acquiring the Company's current interest in the Seabrook Plant. Preliminary discussions with both entitles have begun but the Company is unable to predict when or whether any arrangenient satisfactory to the Company, its creditors and its stockholders could be reached with either entity. Any such arrangement would also be subject to the approval of the Bankruptcy Court and other regulatory bodies having jurisdiction.

2. Change in Seabrook Plant Accounting The Company's financialdifficulties are directly related to the magnitude of its investment in the Seabrook Plant and to the Company's inability to ba se its rates upon the cost of this project prior to its operation (currently assumed to be January 1,1990 for financial planning purposes). The Company determined that, should the Seabrook Plant be permitted to become operational, politicaland competitive pressures would not permit the Company to recover the recorded cost of its investment in accordance with traditional utility rate making practices. Accordingly, the Company changed its method of accounting for its investment in the Seabrook Plant to eliminste AFUDC from capitalized costs and to recognize capitalized interest and associated income tax effects. This change in method of accounting effectively restates the cost basis of the Seabrook Plant to eliminate the previously assumed effects 15

PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE NOTES TO FINANCIAL STATEMENTS (Continued) of regulation. Management believes the Company's other plant assets should not be similarly adjusted because the Company's rates are based on recovering their recorded costs thrcogh the rate making process.

The effect of the change in method of accounting for the Seabrook Plant, effective January 1,1987, was to inctease the 1987 pretax loss before the cumulative effect of change in Seabrook Plant accounting by $51.3 million.

Hcwever, income tax benefits (in the form of reductions in accumulated deferred taxes on income which were established in recognizing the cumulative effect of the change in Seabrook Plant accounting) of $71.0 million, associated with 1987 losses from operations, resulted in an overall net decreate in the 1987 loss before the cumulative effect of the change in Seabrook Plant accounting of $19.7 million (or $0.53 per share).

I The adjustment of $398.7 million(including a provision for deferred taxes on income I $98.1 million)to apply the new method retroactively was recorded z.s a reduction in 1987 income.

Proforma amounts adjusted for retroactive application of the change in method of Seabrook Plant accounting are as follows:

1931 M

1935 Proforma (Thousands of Dollars Except Per Share Amounts)

Net Income (Loss)

$ (87,036)

$(125,343)

$57,444 Earnings (Loss) Available for Common Stock

$(128,016)

$(166,324)

$16,463 Earnings (Loss) Per Common and Common Equivalent Share (3.44)

$ (4.47)

$ 0.34 Actual

$ (14.16)

$ (6.44)

$ 2.50 Proforma Net income (Loss) for 1986 and 1985 are reconciled to amounts reported in the Statements of Eamings as follows:

19Bf2 1985 (Thousands of Dollars)

Net Income (loss), as reported

$(198,365)

$154,742 Capitalized interest 144,634 118,011 Allowance for funds used during construction (182,277)

(161,024)

Adjustment of Seabrook Unit 2 cancellation 34 886 1

(201,122) 111,729 Net tax effects 75,779

. (54,285)

Proforma Net income (Loss)

$(125,343)

$ 57,444 Changes in the Unfinished Constmction account for the Seabrook Plant during 1987 are summarized as follows:

(Thousands of Dollars)

Balance December 31,1986

$1,862,469 Additions under regulatory accounting 284,237 1987 change in Seebrook Plant accounting Reversal of allowance for funds used during construction (220,356)

Capitalized interest 169,068 Prior years effect of change in Seabrook Plant accounting Reversal of allowance for funds used during construction (760,761)

Capitalized interest 460,166 Balance December 31,1987

$1,794,823 16

PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE NOTES TO FINANCIAL STATEMENTS (Continued)

3. Losses on Generating Pro}ects.

The components of losses on generating projects are as follows:

1281 123f2 1285 Seabrook Plant Unit 2 Plant costs

$318,513 Estimated cancellation costs (468) 15,000 Pilgrim Plant - Unit 2 15,008 Seabrook Plant Unit 1 Estimated future expenditures 212,000 Millstone Unit 3 3,557 Regulatory assets 26,363 Total

$241,452

$348,521 Construction of Unit 2 of the Seabrook Plant was stopped in 1984. In 1986 the Company recognized a loss of $333.5 million when the Seabrook Joint Owners voted to relinquish to the NRC the construction permit for Unit 2 and initiated a program for the disposition of equipment having a net salvage value. Accordingly, reference herein to the Seabiook Plant refers to Unit 1 only.

As described in Note 2, in 1987 the Company changed its method of accounting for the Seabrook Plant to eliminate the effects of regulation. For the reasons described therein, management has also de ermined that further cost capitalization in connection with the Seabrook Plant would not be prudent and that it sh< uld therefore cease capitalization effective January 1,1988. Accordingly, a loss of $212.0 million was recognized in 1987 associated with estimated remaining costs to be incurred prior to an assumed operating date of January 1,1990. The loss provision of $212.0 million includes interest of $70 million relating principally to interest on sevired debt. It does not include a provision for interest on unsecured debt after January 26,1988. See Note 1 and the r.ote at the bottom of the State.nents of Eamings.

In 1987 the Company also expensed $3.6 million of its investment in Millstone Unit 3 as a resuit of an order from the NHPUC based on prudency audits completed for another regulator 'n the State of Connect: cut. The Company also expensed regulatory assets of $26 4 million primarily related to previously defened rate case expenses and the cost of converting a generating facility to burn oil or coal. In addition, the Company expensed

$6.1 million of accumulated costs for the unconsummated exchange offer.

The amounts above do not include any provision for additional impairment of the Seabrook Plant due to market conditions or the reorganization of the Company, as the variables needed to calculate such additionalimpairment are not estimatable at this time.

4. Summary of Accounting Policies Regulation. During the pendency of bankruptcy proceedings the Company and its properties are subject to the Jurisdiction of the Bankruptcy Court. Subject to the foregoing, the Company is subject, as to rates, accounting and other matters, to the regulatory authority of the NHPUC, the Federal Energy Regulatory Commission and, to a lesser extent, the public utilities commissions in other New England states where the Company does business.

Investments. The Company follows the equity method of accounting for its investments in nuclear generating companies and a wholly-owned real estate Subsidiary. The Company owns four to seven percent of each of four New England nuclear generating companies and, pursuant to purchased power contracts, is entitled to its ownership percent of total plant output and is obligated to pay a similar share of operating expenses and returns on invested capital. Approximately 6.9%,7.5%, and 8.8% of the Company's totalenergy requirements were fumished by these companies in 1987,1986, and 1985, respectively.

17

1 PUBLIC SERVICF COMPANY OF NEW HAMPSHIRE NOTES TO FINANCIAL STATEMENIS (Continued)

Utility P: ant. Provision for depreciation of utility plant is computed on a straight-line method at rates based on estimated service lives and salvage values of the several classes of property. The depreciation provisions were equivalent to overall effective rates of 3.56%,3.90%, and 3.93% of depreciable property for 1987,1986, and 1985, respectively.

Maintenance and repairs of property are charged to maintenance expense. Replacements and betterments are charged to utility plant. At the time properties are retired, the cost of property retired plus costs of removal less salvage are charged to the accumulated provision for depreciation.

Operating Revenues. Revenues are based on billing rates, authorized by applicable regulatory commissions, which are applied to customers' consumption of electricity. These rates include estimates of the cost of energy incurred by the Company in the generation or purchase of electricity. To the extent that energy cost estimates dif fer from actual costs incurred, the dif ferences are de ferred and refunded or charged to customers through periodic rate adjustments. The Company records an estimate of revenue for service rendered but not billed.

A bonded rate incr,ase of 14% was effected January 1,1987. On June 29,1987 the NHPUC approved a 4.7% rate increase in lieu of the requested 14% bonded rate increase. Refunds were paid in November 1987.

Allowance for Funds Used During Constmetion (AFUDC), AFUDC is the estimated cost, during the period of construction, of funds invested in the construction program which is not recovered from customers through current revenues. Such aHowance is not realized in cash currently but under the rate making process the amount of the aHowance is expected to be recovered in cash over the service life of the plant in the form of increased revenue couected as a result of higher plant costs. The Company capitalized AFUDC at net-of-tax annual rates of 11.7% for 1986 and 12.1% for 1985. In 1987, the Company changed its method of accounting for its investment in the Seabrook Plant to eliminate AFUDC from capitalized costs and to recognize capitalized interest and associated income tax effects. (See Note 2).

Capitalized Interest. As described in Note 2, the Company adjusted the cost basis of its investment in the Seabrook Plarit to eliminate AFUDC and to substitute therefor ca pitalized inte rest, which is the secounting treatme nt used by non regulated enterprises. Totalinterest expense, less the estimated amount applicable to regulated operations, has been aHocated to the Seabrook Plant in the proportion that it represents of total construction work in progress.

Earnings Per Common and Common Equivalent Share. In 1987 and 1986 the loss per common share was calculated by dividing earnings available for common stock by the weighted average number of shares of common stock outstanding. Earnings per common and common equivalent share was calculated in 1985 by adjusting earnings available for common stock for the (1) reduction in interest expense that would result from the appilcation of the proceeds from the assumed exercise of 18,372,999 common stock purchase warrants, at an exercise price of $5 per share,in excess of those proceeds used to repurchase 20% of the Company's outstanding shares of common stock, to the reduction of outstanding long-term debt and (11) the resulting change in AFUDC.

The resulting earnings available for common stock was then divided by the weighted average number of common stock outstanding and common stock assumed to be outstanding upon the exercise of warrants and assemed repurchases of common stock.

18

PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE y

NOTES TO FINANCIAL STATEMENTS (Continued)

5. Defaults on Debt Securities Since October 13,1987 the Company has suspended the payment of interest on its Debentures, short term Floating Rate Notes and a Promissory Note Due 1988. The table below Indicates the debt securities which were subject to payment or cross <fefaults at December 31,1987:

Accrued Princloal Interest Intal (Thousands of Dollars) 15% Debentures, Due 2003

$100,000

$ 9,375 $ 109,375 171/2% Debentures, Due 2004 425,000 52,682 477,682 121/4 - 13 3/4% Pollution Control Revenue Bonds Due 1988 - 2003 20,000 1,546 21,546 15 3/4% Debentures, Due 1988 75,000 2,953 77,953 14 3/8% Debentures, Due 1991 100,000 5,990 105,990 Nuclear Fuel Obligation, Due 1991 45,000 45,000 Eurodollar Term Loan, Due 1991 45,000 45,000 Pmmissory Note, Due 1991 22,500 22,500 Floating Rate Notes, Due 1988 100,000 4,834 104,834 Promissory Note, Due 1988 18.437 3_21 18,758 Total

$950,937

$ 77,701 $1,028,638 Of the debt in default, $850,937,000 was reclassified from long term debt to current liabilities resulting in a significant reduction in working capital at December 31,1987, In the 1987 Statement of Changes in Financial Position the funds provided by the decrease in working capital have been eliminated because payments, if any, of such debt are subject to the approval by the Bankruptcy Court of a reorganization plan (see Note 1) and such exclusion provides more relevant funds flow Information for 1987. Accrued interest on debt in default, current maturities of long-term debt, preferred stock redemption due currently and other prepetition obligations of the Company have been included as components of working capitalin 1987 to enhance the comparability of the Statements of Changes in Financial Position for all years presented.

6. Commitments and Contingencies The Company is the principal owner (about 35.6%) of a nuclear-fueled steam-electric generating plant located in Seabrook, New Hampshire. Seabrook Unit I was completed in 1986 and at that time the Nuclear Regulatory Commission ("NRC") granted a 40-year opereting license subject to certain corxiitions.

At December 31,1987, the Cnmpany's investment in the Seabrook Plant was approximately $1.8 billion representing 68% of the Company's total assets. Because of the New Hampshire anti-CWIP Statute, no part of the Company's investment in the Seabrook Plant has been reflected in the Company's rates to date. While it is uncertain when, if at all, the Seabrook Plant will commence operation, the Company has assumed for its current financial forecast purposes a date of January 1,1990. Effective December 31,1987 the Company ceased capitalization of Seabrook costs and recorded a reserve for future expenditures. See Note 3.

Although the Seabrook Plant is complete and ready for operation, the NRC's current regulations will not permit full power operation until radiological emergency response plans are approved and in place for cities and towns within a ten-mile radius of the Plant. This area includes 17 towns in New Hampshire and six in Massachusetts.

The process of developing such plans has become widely politicized. A New Hampshire plan was submitted by the State of New Hampshire and is under review by federal agencies The Joint Owners of the Seabrook Plant have been attempting to complete the process by seeking NRC approval of a plan prepared without the cooperation 19

PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE NOTES TO FINANCIAL STATEMENTS (Continued) of Massachusetts authorities, who refuse to participate. Continued opposition at the regulatory level and through court appeals is likely, Because of the uncertainties arising out of the politicizing of the process of obta:alng NRC approval of the Plant's operation, it is not possible to predict when or if operation willin fact occur.

The Company continues to believe that the Seabrook Plant is a needed energy source for the New England region. The Company also believes that successful operation of the Seabrook Plant and its reflection in rates is a necessary element to maximize recovery for the Company's security holders. The Company will therefore, as long as resources are available, continue to fund its share of Plant expenditures unless ordered by the Bankruptcy Court to reduce or cease such funding. It is anticipatea that the continued funding of the Seabrook Plant may be opposed by certain of the Company's creditors.

The Company has very substantial non-Seabrook capital requirements to satisfy if it is to provide adequate serv-Ice to its fast growing service area. The Company's non-Seabrook construction program for the five-year period 1988-19921s currently estimated to be approximately $314,100,000 and its share of the pre-operational testing and other Plant capital additions is estimated to aggregate $178,700,000, based on an operation date for the Seabrook Plant of Janua ry 1,1990, which ha s been assumed for financial planning purposes. The Company cannot predict when, if at all, the Plant will commence operation.

7. Income Taxes The components of Income Tax Expense (Benefit) are as follows:

1931 126fz 1985 (Thousands of Dollars) included in Operating Expenses Current-Federal

$ 25,342

$ 32,064

$ 31,444

-State (1,314) 1,602 1,525 24.028 33,666 32,969 Deferred Federal 10,839 9,953 13,607 Investment Tax Credit Adjustments 734 (511)

(469)

$ 35,601

$ 43,108

$ 46,107 included in Other income and Deductions Current-Federal

$ (26,706)

$(32,064)

$(36,348)

Current-State (608)

(1,603)

(1,522)

Deferred-Federal (81,164)

_(39,6_53)

_(27J84)

$(108,478)

$(73,32_0)

$(65,054) i Totallncome Tax Expense (Benefit)-Federal

$ (70,955)

$(30,211)

$(18,950)

-State (1,922)

(1) 3

$ (72,877) f(30,212)

$(18,947)

At December 31,1987 the Company has, for tax purposes, a net operating loss carnjforward of approximately

$500 million expiring between the years 2000 and 2002. Investment tax credits utilized are deferred and amortized to income over the lives of the related properties. At December 31,1987 the Company had investment tax credit canyforwards of $65.0 million which expire between 1994 and 2001. As described in Note 1, the Company has filed for protection under Chapter 11 of the United States Bankruptcy Code. A reorganization of the Company under Chapter 11 may severely limit the usage of net operating loss and investment tax credit canyforwards and they may expire unused.

20

PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE NOTES TO FINANCIAL STATEMENTS (Continued)

The tax ef fect of differences between pre tax income in the financial statements and lncome subject to tax, which are :he result of timing differences, are accounted for as prescribed by and in accordance with the rate making policies of the NHPUC except for the Company's investment in the Seabrook Plant, Accordingly, provisions for deferred income taxes are recognized for all timing dif ferences speelfled by the NHPUC and, as a result of the change in method of Seabrook Plant accounting discussed in Note 2, for all timing differences associated with the Seabrook Plant. Taxes attributable to other timing differences are flowed through to net income as adjustments to income tax expense. As of December 31,1987 the Company had not provided cumulative deferred. taxes of approximately $36,000,000 relating to various tax deductions which had been flowed through. The principal timing difference which has been flowed through is the excess of tax over book depreciation for assets placed in service before 1971. Provisions for deferred income taxes are summarized as follows:

M M

M (Thousands of Dollars)

Provision for Future Seabrook Expenditures

$(84,800)

Capitalized Interest 66,709 Normalized Timing Differences Relating to Plant 13,310 13,742 9,425 Deferred Fuel Costs 2,332 (1,530) 5,257 Excess of Tax over Book Unused Net Operating Loss Canyfonvard (51,201)

(45,245)

(24,733)

Rate Differential on Book Net Operating Loss Used (9,131)

Other (7,544) 3,333 J3J26)

$(70,325)

$(29,700)

$(13,577)

The principal reasons for the differences between total Mcome tax expense and the amount calculated by applying the federal income tax rate (40% for 1987 and 46% for 1986 and 1985) to income before income tax and the cumulative effect of change in Seabrook Plant accounting are as follows:

M 136 M

(fhousarvise!Dolla':s)

Income (Loss) Before Income Tax and the Cumulative Effect of Change in Seabrook Plant Accounting

$(159,913)

$(228,577)

$ 135,795 Expected Tax Expense

$ (63,965)

$(105,145)

$ 62,466 Increase (Reductions) in Taxes Resulting From AFUDC Equity (473)

(57,361)

(53,465)

Net-of Tax Method of Recording AFUDC (443)

(32,006)

(27,403)

Reversal of AFUDC on Cancelled Nuclear Projects 49,395 Difference Between Book and Tax Depreciation-Not Normalized 2,882 3,018 2,343 Other Deductions and Adjustments (1,747)

(1,660)

(2,888)

Unused Book Net Operatirg Loss 113,547 Additional Book Net Operating Loss Carryback Benefit (9,131)

Tetal Income Tax Expense (Benefit)

$ (72,877)

$ (30,212) f(18,947)

In December 1987, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 96 "Accounting for income Taxes", Adopti<.n of this statement, which is effective for fiscal years beginning on or after December 15,1988, will require the Company to change from the deferred method to the liability method of accounting ior income taxes. The liability method accounts for deferred Income taxes by applying enacted statutory rates in effect at the balance sheet date to differences between the book basis and the tax basis of assets and liabilities. The Company plans to adopt this statement in 1989 on a prospective basis. At this date 21

=_ -_ ____

PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE NOTES TO FINANCIAL STATEMENTS (Continued)

8. Short Term Borrowings Shc.rt-term debt outstanding at December 31,1987, other than those amounts classified as current through default, consists of $100,000,000 principal amount of unsecured floating rate promissory notes due May 1,1988.

There was no short-term debt outstanding at December 31,1986 and 1985.

Information regarding short-term borrowings is as follows:

1282 lESf2 12.8.5 (Thousands of Dollars)

Maximum Short-Term Borrowings

$100,000

$70,000

$145,000 Average Amount Outstanding

$ 61,096

$ 6,137

$ 83,048 Average Interest Rate (Including Fees)

At Year End 21.85%

During the Year 21.85%

18.31%'

13.41%

• Does not include commission and prepayment premium aggregating $2,800,000.

9. Postemployment Benefits Pension Plan. The Company has a defined non-contributory pension benefit plan covering substantially all of its employees. The benefits are based on vears of service and the employee's compensation during the highest consecutive five years of eamings of the last ten years of employment. The Company's policy is to fund the minimum amount required. Costs were $6,368,000(excluding the cost of the early retirement program described below), $5,148,000 and $5,343,000 in 1987,1986 and 1985, respectively. Contributions are intended to provide for benefits attributed to service to date and for benefits expected to be earned in future years.

The assets of the plan primarily include United States Govemment Bonds, other bonds which are of investment grade, and stocks of publicly traded companies.

There were two changes to the pension plan in 1987. Effective August 1,1987, the vesting requirement was reduced from ten to five years of employment. Also in 1987, an early retirement incentive program was offered as part of the Company's cost cutting efforts. Employees who had attained age 55 and had completed twenty years of service by August 1,1987 were eligible to elect by August 31,1987 to retire as of September 16,1987. Employees electing to retire pursuant to the plan received an addition of five years to both age and length of service in determining pension benefits, and a temporary monthly supplement of $550. Employees in certain positions have been retained for a period up to six months. The cost of this program, $5,116,000, was recognized tr.1987.

Net pension cost for fiscal year 1987 included the following components:

(Thousands of Dollars)

Service Cost for Benefits Eamed During the Year

$ 5,244 Interest Cost on Projected Benefit Obligation 8,142 Actual Retum on Plan Assets (4,630)

Net Amortization and Deferral (2.388)

Net Periodic Pension Cost 5 6,368 i

22

PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE o

NOTES TO FINANCIAL STATEMENTS (Continued)

The following table sets forth the plan's funded states :

December 31, January 1, 1987 1987 (Thousands of Dollars)

Actuarial Present Value of Benefit Obligations:

Accumulated Benefit Obligation, including Vested Benefits of $74,422 at December 31,1987 and

$61,436 at January 1,1987

$ 79,817

$ 66,512 Additional Benefits Related to Future Compensation Levels 39,566

_ 37,040 Projected Benefit Obligation for Service Rendered to Date 119,383 103,552 Assets Available for Benefits 90,249 89,071 Projected Benefit Obligation in Excess of Plan Assets 29,134 14,481 Unrecognized Net Transition Obligation 8,812 9,333 Unrecognized Net (Gain) or Loss from Past Experience Different From that Assumed and Effects of Changes in Assumptions 3,689 Accmed Pension Costs

$ 16,633

$ 5,148 The weighted-average discount rate and rate of increase in future compensation levels used in determining the actuarial present value of the projected bene fit obligation were 8 percent and 6 percent, respectively. The assumed investment rate of r turn was 8.5 percent.

Health and Life Insurance. The Company provides certain health and life insurance benefits for employees.

SubstantiaHy au of the Company's employees may become eligible to continue those benefits if they reach retirement age while working for the Company. Those benefits are provided or administered through insurance companies whose premiums or charges are based on the benefits paid during the year. The Company recognizes the cost of providing those benefits by expensing the annualinsurance premiums, which were approximately $1,260,000 and $1,200,000 for retired employees in 1987 and 1986, respectively.

10. Leases The Company has a leasing agreement for a portion of the nuclear fuel for the Seabrook Plant. This agteement has been capitalized for financial reporting purposes. Additionally, the Company leases certain property from a whouy-owned real estate subsidlary.

Rentals charged to expense in 1987,1986 and 1985 were $4,814,000, $4,772,000 and $4,332,000 respectively, including rentals to the wholly-owned real estate subsidiary of $1,170,000 in ' 047, At December 31, 1987, estimated future minimum lease payments for non-cancellable operating leases were as foHows:

1988

$ 6,561,000 1989 5,642,000 1990 4,713,000 1991 3,948,000 1992 3,398,000 Thereafter 24,697,000

$48.959.000 23

PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE NOTES TO FINANCIAL STATEMENTS (Continued) 11, Unaudited Quarterly information The following quarterly information is unatxtited, and, in the opinion of management, is n fair summary of restdts of operations for such periods. The 1987 quarterly information has been restated to reflect the eff the change in Seabrook Plant accounting. Variations between quarters reflect the seasonalnature of the Co

business, Three Skutin Erxissi Darmtwr 31.

Septemte 30,

,Ane 30, Starth 31, 1232 M

12fl M

12fl M

12f2 M

(Thcmeuvxis except Per Share amomts)

Operating Rewnues

$146,347 $119,636 $135,442 $111,723 $114,099 $116fA0 $153,220 $157,191 25,734 22,649 24,655 14,735 16,109 16.(E6 31/IX) 30A06 Operating income Losses on Generating Projects (241,452) 5,000 (353,521)

Net income (Loss)

(202,449) 43,725 35,892 32.687 18,615 (322,160) (337,735) 47,383 Cumulathe Effect of Change in

- (399,651)

Seabrook P. ant accounting Preferred Drddend Requirements 10,245 10.246 10,245 10.245 10,245 10,245 10.245 10,245 Eamings (Loss) Available for Common Stock (212,694) 33,479 25,637 22.442 8,370 (332,405) (347,980) 37,139 Weighted Average Comnnn and Common Equivalent Shares 37,194 49,128 49,123 48.123 48,128 37,1M 37,1 %

49,12S Eamings (Loss) Per Share

$ (5.72) $ 0 72

$ 0 58

$ 0 49

0. 2 *. $ (8 93) $ (9 36) $ 078 Net income (Loss)

(202,449) 17,710 30,892 7,907 18,615 (170,938) 60,916 19,978 Prolorma Amountt Eamings (Loss) Per Share (5 72) 0.16 0 58 (0 06) 0.21 (4 87) 1.05 0 20 See Notes 2 and 3 for a discussion on the change in Seabrook Plant accounting and losses on generating projects.

24

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS The Beard of Directors Pu%c Seruce Company of New Hampshire:

We have examined the balance sheets and statements of capitalization of Public Service Company of New Hampshire as of December 31,1987 and 1986 and the related statements of eamings, changes in financial position and changes in common stock equity for each of the years in the three-year period ended December 3 t,1987.

Our examinations were made in accerdance with generally accepted auditing standards and, accordingly, inckided such tests of the accounting records and such other auditing procedures as we considered necessary in the circumstances.

As more fully discussed in Note 1, on January 28,1988 the Company filed a voluntanj petition for protection under Chapter 11 of the United States Bankruptcy Code. The Company's filing was a result of inwfff-fent cash generated by the Company's operations to satisfy its capital requirements and to pay ;nterest as it came due on the Company's outstanding indebtedness. The Company is now operating its business as a debtor-in-possession and will participate in developing a plan of reorganization, which must be a pproved by the Bankruptcy Ccurt, designed to permit the Company to settle prepetition liabilities. In our report dated February 12,1987 on the Comparr/s 1986 and 1985 financial statements, we reported that the Company had a substantialinvestment in Seabrook Unit 1 and that achieving commercial operation of the unit and obtaining adequate rate increases upon its commercial operation were necessary for the Company to maintain its financial viability. The accompanying financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might result from the foregoing matters, in our opinion, subject to the effects on the financial statements of such adjustments as might have been regulred if the outcome of the matters about the recoverability and classification of recorded asset amounts and the amounts and classification of liabilities referred to ln the preceding paragraph been known, the aforementioned financial statements present fairly the financial position of Public Service Company of New Hampshire at December 31,1987 and 1986 and the results of its operations and changes in its financial position for each of the years in the three-year period ended December 31,1987, in conformity with generally accepted accounting principles which, except for the change, with which we concur,in the method of accounting forits investment in the Seabrook Plant as described in Note 2 to the financial statements, have been app!!ed on a consistent basis.

j PEAT MARWICK MAIN & CO.

Boston, Mas %chusetts February 26,1988 25

Selected Financial Data 1981 15td6 1985 1214 1223 (Thousands of Douars Exept Per Share Amounts and Ratlos)

Operethe Rewnues

$ 549,108 $ 505,190 $ 519,740 $ 525,585 $ 463,484 Fuel and Purchased Power Expense 221,142 217,644 247,809 258,316 234,971 Opereeng income 98,148 83,888 81,173 87.244 68,150 Total AFUDC 2,291 194,275 175,799 144,033 137,347 169,068

+

Capitallied Interest (241,452)

(348,521)

Loews on Generating Projects Income (toes) Before Cumulauve Effect of Change in Seabrook Plant Accountog (87,036)

(198,365) 154,742 156,%0 151,658 Per Share:

Eamings (toss) Before Cumuleuve Effect of Change in Seabrook Pinnt Accountbg (3.44)

(6.44) 2.50 3.07 3.49 0.53 2.12 DMdends Proforma Amounts?

Net inconw (Loss)

(87,036)

(125,343) 57,444 70.470 58,443 Eamings (Loss) Per Share (3.44) $

(4.47) $

0.34 $

0.78 $

0.75 Shares of Common and Common Stock Equivalents outstanding (Average) 37,194 37,194 48,128 37,920 34,026 Unfinished Construction

$ 1,813,369 $ 1,874,289 $ 1,989,164 $ 1,691,455 $ 1,398,134 Total Assets 2,639,391 2,707,844 2,662,384 2,565,283 2,085,783 Long-Term Debt 540,888 1,372,585 1,089,922 999,601 726,777 Debt and Accrued Interest in Default 1,028,638 -

Preferred Stock with Mandatory Redemption Requirements 417,798 380,389 272,840 272,140 272,840 Total capitalization 1,214,609 2,542,802 2,467,555 2,228A61 1,811,408

- $ 145,485 $

Short Term Debt

' Adjusted for retroacuve application of the change in method of Seabrook Plant accounting. See Note 2 of Notes to Financial 3tatements.

Operating Statistics Customer Data (Awrage)

Total Customers 358,619 342,414 322,656 309,464 298,078 KWH Per Residential Customer 7,181 7,119 6,989 7,067 6,944 Cents Per KWMReindential 9.51 815 9.24 9.78 9.13 S

Prinw Sales (Thousands of MWH)

Residential 2,253 2,135 1,978 1,917 1,819 Industrial 2,224 2,099 2,046 1,920 1,818 Commercial and Other 1,967 2.399 2,425 2,322 2,169 Total Prinw sales 5T43 6AD

'OT9 6 139 5305 Generating Capability MW Coal 647 622 622 465 465 OG 564 595 595 749 743 Hviro 69 69 69 65 65 Nuclear 131 131 98 98 98 Peak Load Net MW 1,343 1,375 1,320 1,202 1,220 Common Stock Market Prices 1232 1916 l

u w

u w

f First Quarter..

93/8 81/8 11 3/8 8 Second Quarter..

83/8 45/8 11 3/8 73/4 1

l Third Quarter..

61/4 33/8 10 73/4 Fourth Quarter..

41/8 21/4 91/2 73/8 26

4 Directuo Hilary P. Clevelind Robert J. H:rrison ~

John T, Schiffman Lecturer President and Chief &ecutlte Partner Colby Sawyer College Officer of the Company Smith, Batchelder & Rugg New London, NH Manchester, NH Lebanon, NH George A. Don, Jr.

Fred B. Roedel William M. Scranton President President & Founder bianagement Consultant Dorr Fabrics, Inc.

Chalet Susse International, Inc.

Keene, NH Newport, NH WIlton NH Edward M. Shapiro

. John C. Duffett Philip B. Ryan Self-employed hecutive Vice President and VIce President Manchester, NH Chlef Operating Officer of the The Bigelow Company Inc.

Company Manchester, NH William C. Tallman Manchester, NH Former Chairman of the William J. Scharffenber Philip S. Dunlap President and Chlef &ger Company ecutive Manchester, NH President Treasurer Officer N.H. Automatic Equipment Wheeling-Pittsburgh Steel Hugh C. Tuttle Corporation Corporation Treasurer Concord, NH Wheeling, W. Va.

Tuttle Market Gardens, Inc.

Dover, NH r

Officers Robert J. Harrison, 56 (31)

Georhe Branscombe,40 (8)

Frederick R. Plett 41 (21)

President and Chiel hecutIve Vice resident and Treasurer Assistant to the resident i

Officer Ted C. Felgenbaum, 37 (2)

John J. Lampron, 44 (16)

John C. Duflett, 60 (34)

Vice President-Assistant Vice President i

Decutive Vice President and New Hampshire Yankee Division Chief Operating Officer Robert G. Ouellette,56 (36)"

Wi!!!am T. Frain, Jr., 46 (23)

Comptroller Charles E. Bayless,45 (7)

Vice President Financial Vice President Bruce W. Wiggett, 41 (13)'"

Warren A. Harvey,62 (40)"

Comptroller D. Pierre G. Cameron, Jr.,

Vice President 54(7)

Russell A. Winslow,53 (26) i Vice President and General Ralph S. Johnson,44 (19)

Secretary Counsel Vice President Kathlyne M. Davis,34 (11) t Jchn P. Edwards,46 (2)

Earl G. Legacy,55 (28)""

Assistant Treasurer l

Vice President for Public Vice President Affairs O. May Jones, 32 (10)

James L. Nevins,53 (20)

Assistant Secretary William B. Derrickson,47 (3r Vice President Senior Vice President-Dennis D. Race,39 Assutant Treasurer (6)

Nuclear Energy Robert A. Parks,42 (19) l Vice President Roy G. Larbour, 60 (24)"

Kevern R. Joyce, 41 (5)""

i Vice Prc,ldent George S. Thomas, 45 (7)

Assistant Comptroller Vice President-Nuclear Production Paul E. Ramsey, 34 (12 Assistant Comptroller )

l Divizional Edward A. Brown,58 (3)

Oflicer President and Chief Decutive i

Officer New Hampshire

\\

innkee Divlslon Resigned effective 1/1/88 Retired effective 3/31/88 Promoted from Assistant Comptroller effective 4/1/88 Elected effective 4/1/88

_() Denotes age and years of service l

f f

n 27

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.[..

MASSACHUSETTS I

1 28

Shareowner Information Annual Meeting of Shareowners Common Stock Ownership All shareowners are invited to attend As of December 31,1987, there were the Annual Meeting to be held on 44,870 record owners of shares of the Monday, June 27,1988, at 9:30 a.m.

Company's Common Stock.

at the Sheraton-Tara Hotel Ballroom, Nashua, NH (Route 3-Everett Turn-Shareowner Inquiries pike, Exit 1 to Tara Blwl.). During the meeting there will be an opportunity to Shareowner inquiries regarding change discuss matters of Interest pertaining to of address, stock transfer require-the Company ments, lost or stolen certificates, or i

other account information should be Annual Report en Form 10-K directed to the Transfer Agent as follows:

For those who wish, the Company will fumish, without charge, to each The First National Bank of Boston shareowner who makes a request, a Shareholder Services Division copy of the Company's 1987 Annual P.0, Box 644 Report on Form 10-K as filed with the Boston, MA 02102 Securities and Exchange Commission.

Requests should be directed to George Transfer Agents l

Branscombe, Vice President and i

Treasurer, Public Service of New The First National Bank of Boston f

Hampshire, P.O. Box 330, Manch-100 Federal Street ester, NH 03105 Boston, MA 02110 l

Annual Report Manufacturers Hanover Trust Com-pany The 1987 Annual Report has been 4 New York Plaza approved by the Board of Directors.

New York, NY 10015 Shareowners who have questions con-ceming the Annual Report or the Registrars Company should direct their requests in writing to Russell A. Winslow, Sec-The First National Bank of Boston retary, Public Service of New Hamp-100 Federal Street shire, P.O. Box 330, Manchester, NH Boston, MA 02110 03105 Morgan Shareholder Services Trust f

Stock Exchange Listing Company 30 West Broadway Shares of the $5 par value Common New York, NY 10015 Stock and $25 par value Preferred Stock ara listed on the New York Stock Exchange. Shares of the $5 par value Common Stock and wanants to purchase shares of the Company's Common Stock are listed on the Pacific Stock Exchange. The Company's symbol on both exchanges is PNH.

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W US os go PAID Public Service of New Hampshire Manchestar, NH 03103 1000 Elm Street, Box 330 Permit #338 Manchester, NH 03105 (603) 669 4000 i

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