ML20205L094
| ML20205L094 | |
| Person / Time | |
|---|---|
| Site: | Seabrook  |
| Issue date: | 12/31/1985 |
| From: | Eichorn J EASTERN UTILITIES ASSOCIATES |
| To: | |
| Shared Package | |
| ML20205L098 | List: |
| References | |
| NUDOCS 8604030100 | |
| Download: ML20205L094 (109) | |
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[' Legend E Blackstone Valley Electric Service' Area E Eastern Edison Service Area E Montaup Electric Wholesale Territory Table of Contents 1 Highlights and EUA System Proble On The Cover -
3 Letter to Shareholders EUA has "The R ght Mix" of people and resources 5 EUA System - The Right Mix to meet the growing needs of customers. Helping 13 Review of Operations . young people to understand electricity, and to put 21 Selected Consolidated Financial Data safety first is one example of our commitment to go 22 Management's Discussion and Analysis beyond providing electric service.
24 Consol; dated Financial Statements 28 Notes to Consolidated Financial Statements <
34 Quarterly Financial and Common Share Information .
34 Supplementary Financial Statement Information 36 Consolidated Operating Statistics 38 Dividend Reinvestment and Common Share Purchase Plan l _ _ . _ _ _ _ . _ _ _ _
Highlight 0 t ,
1985 1984 % Change Financial Data teolta s in thousands)
Operating Revenues . . . . . . . . . . . . . . . . . . . . . . . . $333,510 $ 361,325 - 7.7 Operating income . . . . . . . . . . . . .......... .48,072 46,767 - + 2.8 Consolidated Net income. . . . . . . . . . . . .. 29,770 30,053 - 0.9 Net Utility Plant. . . . . . . . . . . . . . ........ ... 599,130 543,246 +10.3 Cash Construction Expenditures. ...... .... 54,406 73,159 - 25.6 Internally Generated Funds . . . . . . . . . . . .... 27,501 40,858 -32.7
, Return on Average Common Equity . . . . . . . . . 14.99o 16.5 % ' - 9.7 p;
Cornmon Share Data v Earnings per Average Common Share . . . . . . . . 52.67 $2.85 - 6.3 0 Dividends Paid per Share . . .. . .... .... $2.03 $1.91 + 6.3 Average Common Shares Outstanding . . . . . . 11,156,941 10,562,324 + 5.6 Book Value per Share (Year End) . . . . . . . . . . . $18.30 $17.59 + 4.0 h1arket Price (Year End) . . . . . . . . . . . . . . . . $25.88 ~ $18.00 - +43.8 Operating Data Total Electric Sales (mwh) . . . . ..... . . 4,509,000 4,303,000 + 4.8
~ System Requirements (mwh) .. . . ....... 3,827,000 3,815,000 + 0.2 System Peak Demand. (mw) . . . . . . . . . . . . . 738 716 + 3.1 System Reserve h1argin (At Peak) . . . . . . . . . . 18.9% 19.5% - - 3.1 System Load Factor. ... ............ .. 59.1% 60.6 % - 2.5 Customers (Year End) . . . . . . . . . . ..... 238,898 235,053 ' + 1.6 Employees (Year End) . . ... .... .. 1,104 1,075 + 2.7 e
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EUA System Profile p Eastern Utilities Associates is a public utility erations accounted for 100% of operating reve-I holding company with three electric operating nues. Approximately 161,000 of our customers subsidiaries which are principally engaged in - are in hiassachusetts and 78,000 are in Rhode the generation, purchase, transmission, distribu- Islanc' About 76% of total consolidated operat-E tion and sale of electric energy to 239,000 cus- ing revenues are regulated by the Federal En-tomers covering an area of about 540 square ergy Regulatory Commission.
miles. Our retail electric companies are Eastern Eastern Utilities Associates also owns Edison Company operating in southeastern EUA Service Corporation. EUA Service pro-Afassachusetts and Blackstone Valley Electric vides, at cost, various accounting, financial, en-Company operating in northern Rhode Island. gineering, planning, data processing and other hiontaup Electric Company supplies electricity services for the Association and its Subsidiaries.
at wholesale to Eastern Edison, Blackstone and . Together the companies are known as the EUA three unaffiliated utilities for resale. Electric op- System.
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"Today, ELIA is among the healthiest of the 16 Seabrook joint owners."
1 Bus. ness Week - August 5,1985 -
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" Eastern Litilities Associates seems to be run by people who look for opportunities." ,
Merrill-Lynch - October,1985 i
"Ifsuccessful, the strategy could substantially increase profits down the road."
Value Line, Inc. - December 27,1985
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"The winners, of course, will be the custoniers of Eastern Litilities."
How England Business - September 16,1985 "The Eastern Litilities agreement is a good dealfor Seabrook, for Eastern, andfor New England."
Worcester Telegram - July 27,1985
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hf0 John F. G. Eichorn, Jr., Chairman of the Board i l
To Our Shareholder:
Nineteen eighty-five was an exciting and value, and another very encouraging sign of the productive year for EUA. increased value of your investment.
Increased customer usage and the ad- Institutions have taken a more active dition of new customers offset the effects of a interest in EUA. Over the past few years, insti-minor economic retraction, and somewhat tutional ownership of our common stock has milder than normal weather. The net result of increased from 2% to over 25"o. We are very these factors was a gain of total kilowatt-hour much encouraged by this high level of interest.
sales, including sales to other utilities and We have succeeded in transforming the wholesale customers. Company from a rather loose conglomerate of As a result of additional shares out- individual companies into a unified and effec-standing, earnings per share declined to $2.67, tive corporate system. Our more highly inte-compaad to $2.85 last year. Consolidated net grated corporate structure has enabled us to income of $29.8 million, was slightly less than become a far more effective voice in meeting the last year's record $30.1 million. needs and expectations of our customers. It has We were pleased to be able to increase also enhanced our role among neighboring util-your annual dividend from $1.94 to $1.u6 per ities with whom we work in concert to improve share. This was the fourth consecutive year of the energy situation in the Northeast.
dividend increases, maintaining a trend which EUA has also assumed a leadership role is one of management's prime objectives. in the nuclear field by offering to purchase the As a result of EUA's growing stature Seabrook Station interests of three electric utili-among electric utilities in the United States, ties in Maine, one in Vermont, and one in investment interest has blossomed. One indica- Massachusetts. The acquisitions, amounting to tion is that EUA stock closed the year at $25% 12. loo of the project, will be owned by our new per share. This price amounts to 14100 of book subsidiary, EUA Power Corporation, to be 3
formed in N w H;mpshire. These shares will successfully completing their hot-functional be in addition to Montaup's current 2.9% own- tests during the year. These tests, which allow crship. The combined total would make the virtually full plant operation prior to the load-EUA System the third largest owner of the ing of nuclear fuel, conclusively demonstrated plant. the operationalintegrity of each unit. In January Our primary objective in making the 1986, the Nuclear Regulatory Commission offers was to assure the completion and opera- granted a full power operating license for tion of the Seabrook Unit, in which we have Millstone.
already invested $118 million. After a long se- Nuclear power, however, is not the only ries of delays and cost overruns,'the project was method of electric generation of interest to seriously threatened with cancellation. We felt EUA. We have also joined with other utilities in that,in the interest not only of EUA sharehold- the formation of Ocean State Power. This con-ers and customers but of all electricity consum- sortium will utilize Canadian natural gas, under ers throughout New England, the project must long-term contract, to generate electricity at a be completed. Its cancellation would be a tre- 460 megawatt plant in Burrillville, Rhode Is-mendous loss for investors, ratepayers, and tax- land, composed of two 230mw gas-fired units.
payers alike. It would also leave the region shy EUA plans to own 20% of the facility, and will of the adequate and reliable supply of electricity be responsible for its operation.
so necessary for sustained economic growth. Our reduction of dependence on im-We have applied to the Federal Energy ported oil over' the last decade, through con-Regulatory Commission, the Securities and Ex- verting units to burn coal and the additional change Commission, and various state Commis- utilization of nuclear power, has greatly im-sions for permission to form a subsidiary in proved our energy mix, and our financial stabil-New Hampshire to own the respective portions ity. In 1982, we relied on oil for 78% of our of Seabrook now held by the Maine, Vermont, generation. Today we are only 40% dependent and Massachusetts utilities. The new company, upon oil, with 34% coal, and 26% nuclear. We EUA Power Corporation, willinitially make the are approaching our goal of nearly equal divi-power available to other New England utilities sion among coal, oil and nuclear, which we on a wholesale basis. expect to achieve by the end of 1987.
The reascn for the formation of this new During the year, our employees contin-subsidiary is two-fold. First, it will enable us to ued striving to provide the best electric service establish a highly debt-leveraged company, possible to the nearly quarter-million customers thereby minimizing any effects of further pro- we serve. The success of EUA, in any endeavor, ject delays on our shareholders, and offering the is more attributable to their efforts than to any promise of a handsome return if the transac- other group. For their dedication, management tions are successfully consummated. Secondly, is most grateful and appreciative.
it will isolate our own retail and wholesale in summation, let me say that 1985 has ratepayers from any negative effect should the been a pivotal year for EUA in many ways. We plant be further delayed. feel we have met both the oppportunities and Of course, we are optimistic about the the problems of the past effectively and dili- I successful completion of the plant and the ac- gently. As the challenges multiply in the future, quisition of the new Seabrook shares. Even if so will the opportunities. We intend to see that the transactions do not materialize, however, your Company is poised to meet whatever the we are extremely pleased that we were able to future holds for the benefit of our owners and take up the challenge. When the plant does go customers alike.
on line, EUA shareholders and employees alike Sincerely, can take justifiable pride in the achievement.-
They will have played a pivotal role in its gdg"7 completiori. /
Seabrook Unit 1 and Millstone Unit 3 John F. G. Eichorn, Jr.
both achieved significant milestones in 1985 by Chairman of the Board n -
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Skills training, as in the use of these personal computers, improves the productivity of EUA personnel.
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l l Professional customer service: Determining electrical needs at a construction site in Fall River, Massachu-l setts (lett). Dedicating the rehab;1itated 89-year-old 8VE hydroelectric station in Pawtucket, Rhode Island:
Yesterday's energy to serve today's needs (above).
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o ustomer Service. One of the best in- to all parts o. .ie community - especially to l
dicators of EUA's dedication to service school children. Safety and energy-related is in the hundreds of day-to-day con- courses have been in the schools in EUA's tacts between customers and members of the service territory for years. In 1985 entirely new Customer Service and Consumer Service De- curriculum materials were added for secondary partments. People come to us seeking advice on schools. Our " Stay Clear, Stay Alive" and electric appliances, asking for information that " Electrical Safety from A to Zap" programs ,
will help them concerve energy, about bills, or have reached more than 900o of the school I asking to have power turned on or off. EUA's children in our service area. ;
trained and professional employees strive to The overall population is addressed !
render prompt and courteous service - knowing through Speakers Club activity with civic, insti-that small services are the best appreciated, tutional and business groups, and through vari-because they are personal. ous meetings and roundtable discussions with l EUA's educational programs reach out community leaders. I i
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Hydroelectric power from James Bay in Quebec-a clean, new source of energy to help meet New England's future needs.
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L S uclear Power. Besides being clean, proposed acquisitions of nuclear power from Ngj safe and economical, nuclear power Seabrook.
d reduces our dependence on costly, for-atural Sources. Harnessing nature's eign oil. EUA was 76 00 dependent on oil in 1982. p By the end of 1985 our fuel mix had become If W power - the sun, water and wind - and ,
3400 coal, 260 0 nuclear, and only 40'o oil. This converting it to electricity provides vast new fuel allocation came about primarily be- energy potential for mankind. In many ways, cause EUA converted its Montaup generation such utilization of natural forces offers great plant from oil to coal in 1984, and because EL' A advan ta ges. Taken in the aggregate, they re-has increased its component of nuclear genera- present virtually unlimited supplies of energy.
tion. The System has interests in seven nuclear They require no fuel, and they are largely non-plants, including Seabrook and Millstone. polluting.
EUA's commitment to the right mix of generat- There are. however, some drawbacks to ing sources continues - with interest in hydroe- the employment of natural energy resources lectricity, gas-fired turbines, and with newly which inhibit their broad-scale utilization. Solar 1
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53Z:w. .- m Monitoring air quality at the Yankee Atomic Electric Ensuring the purity of ground water at Montaup's plant in Rowe, Massachusetts, the nation's oldest coal-fired station in Somerset, Massachusetts.
operating nuclear plant.
power, for example, is much more practical in project will begin by delivering 690 mw of sunbelt states than in the Northeast. Further- power to New England in 1986. The second more, capital costs on solar systems are often phase, scheduled for 1990, will provide an addi-prohibitive. Hydroelectric power often involves tional 1,310 mw. EUA's share of the total will be the damming of rivers, altering the ecosystem 28mw in 1986, and an additional 54mw in 1990, and diverting trade routes. or a total of 40a of New England's share.
In spite of these drawbacks, however, EUA is committed to utilizing so-called " renew. Blend of Old and New. It is com-able" energy sources wherever it can be of monly known as Yankee ingenuity -
benefit to our customers. the uncommon ability to take what lies With a consortium of other New. En- before you and fashion it to your particular gland utilities, EUA has contracted with Hydro need. In 1985, EUA reached back in time as Quebec to bring 2,000 megawatts (mw) of elec. Blackstone Valley Electric renovated and re-tricity from Canada's immense hydroelectric opened its Pawtucket Hydro Station. The 89 project at James Bay. The first phase of this year-old structure is the fifth-oldest power plant 9
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i Tandem crews speed installation and ensure safety on major feeder lines (above). Technological advances !
expand EUA's engineering capabilities with computer. assisted design systems (right).
in America, and sits downriver from where or the Yankee Atomic nuclear power plant in America's Industrial Revolution began in 1793. which EUA owns an interest. Yankee Atomic in There, once again, water spins turbines and Rowe, Massachusetts is the oldest operating generates electricity, providing enough electric- nuclear power plant in the country, and has run /
ity to serve approximately 1,300 homes. Ingenu- for twenty-five years without any adverse ef-ity thrives. fects on the environment. The plant has gener-Hydroelectricity represents a clean, reli- ated 25 billion kilowatt-hours of electricity, and l saved the equivalent of 40 million barrels of oil.
able source of energy, and a further effort to '
reduce dependence on foreign sources far re- ;
moved from our borders. igh Technology. EUA's engineering l The calance between nature and man is expertise was enhanced in 1985 with I to be respected. EUA carefully weighs the envi- the acquisition of two new computer- I ronmental impact of all :;eneration and trans- assisted drafting and designing systems. Work mission projects. This is true, whether it be can now be done much more quickly, more EUA's own Montaup generation plant which effectively, and in infinitely more variations.
was converted to a clean-burning coal system. This latter capability is vital to engineers who
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EUA's stability and growth provide the right mix for the investment needs of retired people, many of whom are among the System's 22,000 shareowners.
must be able to investigate any number of g;1 he Owners of EUA. Who owns EUA?
"what-if" situations when working on a design More than 11 million shares of our com project. With the new systems, EUA personnel d
u mon stock are in the hands of 22,000 can prepare many scenarios of how a project people. Seventy-hve percent of these share-could work - and then pick the best method holders own less than 300 shares - while only based on reliability, cost, time of construction, four per(ent own more than 1,000 shares. This and practicality. represents a mixture of interests: both the per-Changing times. Changing ways. All son whose livelihood depends on rearket in-things change. At EUA, change is directed to- vestments, and the person who depends on ward improvement. Employees in all depart- EU A for a supplemental source of secure in-ments are offered training and educational come. There are shareholders in all 50 states, programs - ranging from computer literacy, to Canada and other countries. Private sharehold-cable splicing and on-the-job safety. Not on!v ers make up about two-thirds of the owners of do employees become more knowledgeable and EUA stock - with the rest being institutions, more productive, but they also gain a height hospitals and pension tunds.
ened sense of professionalism. There is some- So thousands of people with a multitude thing about being able to do a job better that of interests share in EU A's success: EUA,a makes a person feel more conhdent - and more company with the right mix.
eager to do better things with the time at hand.
12
Review of Operation]
l 4
/
Market price of Common Shares reaches 15 year high.
Connnon Dividends increasedforfourth consecutive year.
New Subsidiary proposed for additional Seabrook ownership.
Construction expenditures continue to decline.
Energy mix continues to be diversified.
Price ofelectricity declines.
?'^f LT
Institutional investors proximately 76% of our System's E Nat Incems. Dividsnd crnin;;s,Dividsndacnd also showed much greater inter- revenues are regulated by FERC.
Increassd; Market est in our shares during 1985. By hiontaup commenced billing a Price Higher. Consolidated Net year-end, institutional holdings $17.6 million rate increase in June Income for 1985 of $29.8 million represented approximately 25% of 1985 on a subject-to-refund basis.
was slightly less than the record all shares outstanding. This increase incluued $172 mil-
$30.1 million of 1984. Eamings Our retail subsidiary lion of Construction Work ' /ro-per common share declined from companies, Blackstone Valley gress in rate base, and a return on
$2.85 per share to $2.67 per share, Electric Company, in Rhode Is- equity cf 16.75%.
primarily because of an addi- land, and Eastern Edison Com- In early December 1985, tional 595,000 average number of hiontaup filed a $27.4 million rate common shares outstanding. increase application with FERC.
For the fourth consecu- Earnings and Dividends hiontaup requested that the in-tive year, we met our stated goal creased rates be implemented co-of providing regular dividend in- incident with the commercial creases. Our quarterly dividend slo _ operation date of the hiillstone was increased from 48.5 cents per Unit 3 nuclear plant, which is share to 51.5 cents, effective with scheduled for Afay 1986. The the Afay 1985 dividend. 22s $27.4 million increase represents Considerable investor in- a 12% increase in hiontaup's terest has developed in the com- rates. However, this increase will mon shares of EUA. This interest, 12 50__._ be somewhat offset by hiontaup's when combined with a strong se- ability to reduce its use of higher-curities market, resulted in a sig- cost oil generation. Our custom-nificant improvement in . the # ers will also benefit from gener-market value of EUA shares. At ally lower costs of f. ssil fuel used the end of 1985, the closmg mar- m generating electricity.
ket price of EUA's common o We are confident that shares was $25%, and the shares when lower fossil fuel costs are had traded as high as $26% earlier s1 n a s4 as factored in, the effects on retail l in the year. The 1985 year-end a Earning. customers of Afontaup's 12% rate price of $25% was approximately e Dividends increase will be reduced to ap-141% of year-end book value. For the fourth consecutive year, proximately 3.4%.
dividends were increased. Shareholders continued their high level of participation in Market to Book Value pany,in hiassachusetts, were able our Dividend Reinvestment and to avoid seeking higher retail Common Share Purchase Plan in rates during 1985. However, it 1985 and provided $7.4 million of now appears that Blackstone will new common equity. An addi-be required to seek rate relief tio.nal $2.0 million was obtained 120 early in 1986; if approved, the from our Employees' Savings and i new rates would become effective Employees' Share Ownership late in the year. By the time new Plans.
'~
rates go into effect,it will be more No additional permanent than three years since Black- capital was required during 1985.
M stone's last increase. However, by year-end hiontaup Eastern Edison may also had incurred $25.4 million in be required to seek higher rates short-term bank loans to meet a l ao because of the deterioration in its portion of its capital require-level of earnings. Eastern imple. ments. hiost of this short-term
- debt is expected to be repaid with mented a nominal rate increase in January 1984. internally generated cash by the
" " " " ** end of 1986.
The rates of hiontaup significant improvement in mar- Electric Company, our generation Successful completion of ket value continued during 1985. and transmission subsidiary, are our proposed EUA Power Corpo-regulated by the Federal Energy ration Seabrook acquisition plans Regulatory Commission (FERC). will require the issuance of non-hiany security analysts rate FERC recourse debt to finance a signifi-as the most responsive regulatory cant portion of the acquisition. I body in the United States. Ap-l 14-
Although it will not be 1986 are expected to help reverse mary goal was to bring about the necessary to raise any additional this trend. prompt completion of the Sea-permanent capital during 1986, Residential sales were up brook Unit 1. We viewed the ac-we will be looking at various op- slightly less than one percent. quisitions as a major component portunities to refinance existing hiilder than normal weather dur- in accomplishing that primary high cost issues of subsidiary ing the year retarded this growth goal, but also realized that a company debt and, depending on somewhat. In addition, a decline properly structured acquisition in the cost of alternative fuels has plan presented an opportunity to spawned increased competition enhance the return to our share-Internally Generated Funds in the energy market. holders. Since certain risks had to be taken in order to take advan-tage of the opportunity, the chal-rios, rice of Electricity De-lenge became and continues to be clines. The average cost a balancing of the risks and re-of electricity sold to EUA's wards of the transaction. We be-4s customers m 1985 dechned more lieve that we have accomplished than 10% , driven by lower fuel a favorable balance, and are vig-prices. This is the first time in orously pursuing the completion so eight years that there has been a of the acquisition plan.
reduction in the average cost of In order to protect our ex-electricity on our System. During isting customers from any risks l 1s the same period, the Censumer '
associated with this undertaking, Price Index rose 3.8%, according we concluded that a new subsidi-to the U.S. Bureau of Labor ary should be established *o as-o Statistics. sume these rkks. The new subsidiary, called EUA Power si s2 sa s4 as UA Power Corpora-Corporation, will be established tion. In Juh N , W A commencing in toss we expect n New Hampshire, where the nn n hat it had to meet virtually all of our cash .
Seabrook project is located.
signed letters of intent to purchase construction requirements with To further shift the risks
- ' "#I I"'""I' '" #
internally generated funds. away from our existing customers nuclear power project from three and shareholders, a highly lever-
" " '" ^ "' # " " * ' " "'
the status of current tax laws, the aged capitalization is anticipated.
issuance of additional tax exempt This results in an 80% debt com-nounced that it had also entered ponent of the capitalization into negotiations to purchase the which will be made up of high Se brook ownership of Fitchburg risk, non-recourse notes. Inves .
Sales Gas and Electric Light Company, a Move Upward. Sales of tors in these securities will as-K ilowatt hour electricity moved upward hiassachusetts utility. Collectively, the proposed acquisitions amount sume the majority of risks associated with further delay or 4.8%, largely due to short-term t .1 f the Seabrook project.:
sales to other utilities. Sales to our even cancellation of Seabrook own retail customers registered a P"P * " 9 "'
Unit 1. Should Seabrook Unit 1 tions drew national attention not be completed or not enter more modest gain of slightly less C"" '" #"U' than one percent. A bright spot commercial operation, the outside c unted purcaase price, and sev- investors would stand te lose during 1985 was growth in the eralinn v tive financing and rate commercial sector, which out- their investment. The proposed making techniques proposed as paced all other categories. Sales notes will carry .a high interest part of the acquisition. One na- rate, will have a five to ten year of electritity to commercial cus-tomers rose five percent over ti n ly r c gnized investment maturity, but will IN callable at
"" C """"" ***
1984, accounting for 36% of the par at the end of three years.
System's retail business.
S "
'"'"".I"8 S P"C"I# I'"" * ~ Based on current estimates, the vestment withet the proposed maximum amount of debt re-Industrial sales were off 2.6% from 1984. The overall slow-acquisiti n, but with the pro- quired to be sold would be $180 P #C9" "" '"
down in the level of business ac- be even bn. million.
g hter.,,PNC tivity noted nationally and in The equity required for
"#"#""E "
- New England also affected EUA's . the acquisition will be provided industrial base. A strengthening to the new subsidiary by Eastern of the dollar and improved eco- P"E '9" " "' P'i' nomic conditions forecast for
'15
Utilities Associates. Approxi- In summary, EUA and its 1986. Phase One calls for annual mately 20% of the capitalization proposed subsidiary, EUA Power deliveries of three billion kilo-will be equity, with up to $45 Corporation, are undertaking an watt-hours per year to membera million being provided by EUA. innovative acquisition plan. It of the New England Power Pool.
will enable us to acquire up to an EUA's share will approximate 150 additional 140 megawatts of Sea- million kilowatt-hours.
Return on Average Common brook nuclear generating capacity Complex contractual, Equity at approximately 25% of the cost regulatory and technical matters, expected to be incurred by the concerning Phase Two deliveries is4% other Seabrook participants. of Canadian power and construc-This accquisition plan tion of a long extension of the has drawn national attention to transmission link to hiassachu-tis EUA because of its innovative setts, were addressed during and entrepreneurial nature. We 1985. Under Phase Two, annual are working diligently to bring deliveries of an additional seven e.o about a successful completion of billion kilowatt-hours will be j the plan, because we feel it is a scheduled, starting in 1990. EUA's l real opportunity to enhance the share is approximately 350 mil-l ts value of the shareholders' invest- lion kilowatt-hours per year. i ment in EUA. Hydro Quebec will help j diversify EUA's energy base, and o illstone Achieves further reduce our reliance on for-Criticality. Comple- eign oil.
si a2 83 e4 as tion of the 1,150 mega-tre remain committed to provid. watt hlillstone Unit 3 took a giant cean State Power.
Ing a reasonable return to our step forward in January 1986, EUA has joined a con-shareholders. when its initial fission reaction sortium of other utilities was achieved. Or. January 29, and private investors interested in These equity funds will also be at 1986, the Nuclear Regulatory building, financing and operating risk if Seabrook Unit 1 is not com. Commission voted unanimously a gas-l ired combined-cycle e'ec-pleted or does not reach commer. to approve a full power operating tric power plant in Rhode Island.
cial operation. Probably the most license. Based on these actions, This proposed dual-unit plant, to innovative and unconventional Northeast Utilities, the principal be owned by Ocean State Power, I aspect of this entire transaction is owner of hiillstone Unit 3,is opti- would be fueled by natural gas EUA's equity investment. Tradi. mistic that commercial operation imported from Canada under tionally, equity investments take by hlay 1986, is achievable. long-term contract.
the form of common equity, or h1 ntaup has a four percent (46 Commercial operation of common stock, whose cost fluctu. megawatt) ownership interest in the first 230 megawatt unit is ates with changing fmancial and hiillstone. Expenclitures to date scheduled for 1989. EUA is con-economic conditions. In order to indicate that total costs for the sidering both an equity position Project should be less than the and a long-term purchase power assure a consistent high level re-turn on its equity investment, official estimate of $3.9 billion. arrangement for 50 megawatts EUA will acquire preferred stock fr m the initial unit. Neighboring from EUA Power. The preferred ydro Quebec. Con. electric utilities in New England struction of Phase One of are expected to contract for the stock will have a flxed 25% divi _
the new Canadian - New balance of the output.
dend rate. It is anticipated that the 25% retum will be available to England direct current transmis-l EUA for a period of twelve years. sion line is well ahead of sched- onstruction. As hiill-Rate regulation of EUA ule. Starting at the Canadian stone Unit 3, and Sea-border, its route extends across brook Unit I near Power Corporation will be by the the Northeastern section of Ver. completion, EUA's total construc-Federal Energy Regulatory Com.
mission. It is anticipated that mont and terminates at a 690mw tion expenses were down from
. EUA Power will have the option direct current terminal facility to- $95.2 million to $78.2 million in cated in Littleton, New 1985. Projects related to generation of selling its power at cost, in. amounted to $58.1 million, sub-ciuding the 25% return on equity, Hampshire.
initial deliveries of Cana- stantially less than last year's $78.2 or at market levels. If the market dian hydroelectric power are e3- million. Afontaup Electric Com-is at a level higher than cost, the Pected to commence by mid- pany, the System's generation and additional compensation will in-cre .se the equity return. "d"S*IS'I " 5"DSIdid'Y' 'P'"'
l i
1 '
l
g_ ,,,,,,,, g, ,
20 percent of the facility, and will be responsible for its operation.
The System is also con-
,,m sidering co-generation, waste in-cmeration, and other generating alternatives. We shall spare no go effort in exploring every avenue; old or new, common or complex, in our endeavor to bring our cus-tomers adequate, reliable, and en-so vironmentally compatible power j
at the lowest po(sible cost.
30 Strategy.
EUA's average cost of a G eneration fuel declined dramati-cally during 1985, and the System 7s is n 7s 7s ao si a2 as se es achieved an unprecedented bal-ance of energy sources. Falling oil EUA system construction esponditures continued to decline in 1985 prices, more favorable coal terms, from their 1983 peak. increased coal generation and re-turn of the Pilgrim nuclear unit i $31.0 million and $19.7 million for interest in relatively small shares combined to lower the System's its respective shares of hiillstone of several plants. By the end of fuel cost from 3.6 to 2.6 cents per and Seabrook. 1986, EUA will have interests in kilowatt-hour. This trend is ex-Expenditures for voltage seven operating nuclear plants. pected to continue through 1986 conversion, and related improve- We are not, however, because of hiillstone Unit 3's
- ments of the transmission and confining our generation to the scheduled operational date of
! distribution system, amounted to three primary sources. Beginning hiay 1,1986, and initial delivenes
$18.8 million, an increase of $1.8 in 1986, we will begin to receive of hydroelectric power from Ca-million over the previous year. approximately 28 megawatts nada shortly thereafter.
Commercial operation of (mw) of Canadian hydroelectric both hiillstone and Seabrook, power from Hydro Quebec. An scheduled for 1986, will signifi- additional 54mw of Canadian system capahitityiPeak cantly reduce construction ex- power will be available to us with
- penditures this year. the completion of Hydro Quebec, Phase II, in 1990. IM "9""*
road-Based Genera. Blackstone Valley Elec-tion. EUA continues to tric, EUA's retail subsidiary in B follow its strategyRhode of opti- Island, reached back into S i mizing its fuel mix to avoid aberra- the past to rehabilitate and reacti-tions caused by major fluctuations vate an 89 year-old hydroelectric 500 in the price or availability of any station in Pawtucket. While small ,
one energy source. During 1985, by today's standards, the plant our generation from oil was will generate enough electricity to serve up to 1,300 homes, saving 8 slightly less than 40%, approxi.
mately 34% coal, and 26% nuclear. the energy equivalent of 10,000 Thus, we are approaching our goal barrels of oil annually.
of approximately one-third of our Progress is also being 0 generation from each major ther- made on the establishment of at sa es l mal source. Ocean State Power. Under the Although our commit. plan, EUA, in conjunction with - Total system capability ment to nuclear is increasing sub- other New England utilities, a neserve Margin stantially, we have continued to would build a 460mw plant, com- a Interim Unit sales minimize the risk of any one pro- posed of two 230mw gas-fired, 3 EUA system peak longed shut-down, by having an combined-cycle units, in EUA we expect our reserve margin to System territory in Burrillville, remain stable through the early Rhode Island. EUA plans to own 1990's.
m
!17; a,
" Community Leader Roun+
tables" were conducted to inform opinion leaders and encourage their support.
Educational Senices and 3.s22 m.n Speakers Club programs, con-3.su mwh_ ducted by employees, were ex-panded during the year. We are especially gratified by the fact that over 90% of all elementary school children in our area have been exposed to EUA-sponsored electric safety programs. Our own linemen have conducted the clas-ses, assisting teachers in teaching basic principles of electricity,-and instilling a healthy respect for its power.
- o. A continuing dialogue
.with educators was maintained a2 85 " during the year by a Teachers mwh - megawatt hours Advisory Panel, and through the D Hydro use of the Educational Senices D Nuclear Catalogue. By adapting programs Ocoal to their needs, we find teachers D oli much more receptive to using we remain committed to balancing our total energy mix. materials we provide. The ex-change of ideas, in turn, increases EUA's fuel diversity pro- and control of transmission of their understanding of energy-re-gram reached new heights during electricity to its customers. Data lated issues vital to them as well l 1985 when oil-produced energy links were completed during the as to us.
accounted for less than 40% of year with Rhode Island, Eastern Membership in the vol-System energy requirements. Alassachusetts and Vermont En- unteer Speakers Club increased Coal-fired electricity provided ergy Control (REN1VEC), one of 33%, to 65 members, in 1985. We 34% of System needs, while nu- the major control centers of the are very pleased to have such a clear energy and a small amount New England Power Pool. large and enthusiastic group of of hydro satisfied the remaining The data-link between employees willing to inform, and 26%. The impending availability REMVEC and EUA will further be informed by, the many people of Millstone Unit 3, Seabrook enhance reliability by increasing they reach. The memlers serve Unit I and Hydro Quebec power the speed and accuracy of infor- not only as good-will ambassa-in 1986 will further enhan e our mation transfer on generation dors, but also as effective "ba- i fuel diversity. and transmission parameters. rometers" of public opinion by This information, in turn, enables being alert to concerns expressed Cus- operators to make system correc- by their audiences.
tomer and Community tions to forestall overloading and Year in Review:
Relations. Customer minimize voltage deficiencies. torm Emergency oriented programs were ex- Efforts to keep commu- Plans. Hurricane Glo-panded and improved through- nity leaders abreast of major de- '
ria inflicted some of its j out the year. velopments in our industry heaviest damage on EUA System 1 Computer assisted design continued throughout the year. Companies. Eastern Edison's and engineering systems will be- Since an adequate supply of elec- Brockton division was particu-come fully operational in 1986. tricity is vital to virtually all busi- larly hard hit by Gloria's devas-EUA now has one of the most ness, cultural and family life, tating winds. With 94% of its technologically advanced systems issues that affect our business af- customers without electricity, in-in the country for the monitoring fect all segments of society. c'uding hundreds of individual l services, recovery was a long and arduous process.
i 18.
l
A prolonged period of mpicymsnt. The total cnsgsmsnt App int-spring-like weather immediately number of employees in msnts. John F. G:
following the hurricane, made the EUA System rose to Eichorn, Jr. was elected people understandably intolerant 1,104, up from 1,075 at the end of chairman, and Donald G. Pardus, of the complex process of restora- 1984. This modest increase has president of the Association at tion. Although customers and been occasioned by the rising de- the December 1985 board meet-employees alike had their pa- mand for more diversified techni- ing. Both mer, will retain their tience strained to the limit, most cal skills. respective positions as chief exec-people were very understanding Slightly less than 20% of utive officer and chief financial and supportive. EUA System employees are rep- officer.
Mr. Eichorn joined EUA in 1970, and became president income / Expense Dollar and chief executive officer in 1972. Mr. Pardus joined EUA in i 1979, as vice president and chief l Income financial officer, and was elected l so.se Residennal executive vice president in 1984.
These two management changes reflect EUA's continuing is.se industria, philosophy of strengthening the organization, and broadening the 14.se other Electnc UhHues base of responsibility. Mr. Pardus' appointment is in recognition of a.se o* his significant contributions to EUA's improving financial pic-ture, and to expand his operating experience.
Expense 3s.0c Fuel 16.5e Other Operanon and Maintenance 13.4e Purchase Power 12.3c interest and Preferred DMdends 9.8e Taxes 4.7c Depreciabonand Amortzanon 83c Earrungs Even though they decreased over10% in 1985 Fuel and Purchased Power remain as our largest expense items.
The result has Lwn an resented by union bargaining improved storm emergency plan, units. One union local represent-and better communications with ing employees in the Fall River community officials in Brockton division of Eastern Edison signed and surrounding towns. The new a 22-month contract in August, storm plan will enable us not which will expire in June 1987.
only to deal with a major hurri- The other union group is cur-cane more effectively, but should rently operating under a 42-also improve recovery time from month contract, scheduled to ex-smaller outages. pire in March 1987.
t19-
f Financial Informition .
' 21 Selected Consolidated Financial Data 22 Management's Discussion and Analysis
- - 24 Consolidated Financial Statements 28 Notes to Consolidated Financial Statements
'- 34 Quarterly Financial and Common Share Information 34 Supplementary Financial Statement Information
.36 Consolidated Operating Statistics .
f m
-b
Selected Consolidated Fin:nci:1 Ccto Years Ended December 31, 1985 1984 1983 1982 1981 (in Thousands Except Common Shares ans' 1 Per Share Amounts)
- Income Statement Data:
' Operating Revenues . ... $333,510 $361,325 $302,450 $288,417 $297,931 Operating Income . . . . . . 48,072 46,767 36,537 31,296 28,834 Consolidated Net Income. . . . 29,770 30,053 25,364 16,941 12,437 Balance Sheet Data:
Plant in Service . . . . . . . . 407,497 394,107 374,132 358,599 348,255 Construction Work in Progress . 335,130 283,216 249J00 ._172,05Z J09,348 Gross Utility Plant . . . . 742,627 677,323 623,832 530,656 457,603 -
Accumulated Depreciation . . . _ 143,497
_13.4,0_77 _1_25,568 _117,396 _110,163 Net Utility Plant. . . _599,130 543,246 _498,264 _413,260 _347A40 Total Assets . . . . . . .. . .. 714,436 _661,471 _ 585,135 _489,25_9 _426,821_
Capitalization: ~
l Long-Term Debt. ......... .. 285,491 288,876 256,398 199,850 188,464 Redeemable Preferred Stock . . . . . 31,457 33,240 34,155 34,457 19,906 Non-Redeemable Preferred Stock 15,0~9 15,079 15,079 15,079 15,079 Common Equity . .. .... . _208,211 191,619 _172,3_27 _140,973 _ 109,8_75 Total Capitalization . .. _540,238 _528,814 _477,959 390,35_9 _ 333,324 Short-Term Debt . . .... .. _ 25,373 0 0 0 _ 27,100 Common Stock Data:
Earnings per Average Common Sha re . . . . . . . . . . . . . . .... .. 2.67 2.85 2.80 2.25 2.03 Average Number of Shares Out-standing . . . . . . . . ... ..... 11,156,941 10,562,324 9,062,810 7,519,381 6,123,334 Return on Average Common .
Eq uity . . . . . . . . . . . . . . 14.95o 16.5*o 16.2*o 13.5 % 12.1%
Market Price - High . . . . 26% 18 18% 14% 12%
- Low . . . . . . . 16% 12% 13% 11 10%
- Year End . . . . 25 % 18- 14 % 14 % 11%
Cash Dividends Paid per Share 2.03 1.91 ~ 1.79 1.70 1.60 r
i
- 21:
Management'a Disc ~,csion cnd Azclyria of Fin ncti Condition cnd Rmit3 cf Oper;tiln3 Overview -
Consolidated Net income for 1985 decreased 0.9% . what milder weather experienced during 1985 com-from 1984 while 1984 increased 18.5% over 1983. pared to 1984.
Earnings per average common share of $2.67 in 1985 The table . below sets forth the percent decreased 6.3% from 1984, while 1984 increased 1.8% changes in kwh sales by class of customers for the over 1983. These changes in eamings per share are . last two years:
significantly influenced by the increases in the num-Increase (Decrease) ber of average common shares outstanding of 5.6% From Prior Years and 16.5%, respectively. 19ss 1984 The EUA System remains committed to Residential . 0.6% 0.6%
maintaining a sound financial position. The financial Commercial 5.0 0.9 outlook of EUA is reflected in the dramatic increase Industrial. . . .
(2.7) 5.7 in the market price of EUA common shares exper- Wholesale . (3.5) 2.6 lenced during 1985. From a year end 1984 closing Unit Contracts . . 40.8 . 3.8 price of $18, the price of EUA common shares stead. Other . .
(7.8) 4.2
- ily climbed, by over 43%, to $257e by year end 1985. Consolidated . . 4.8% 2.4%
Also, reflective of the continued' improvement in
- EUA's continued financial health was the fact that - Expenses for the fourth consecutive year, we increased our The EUA System's most significant expense items dividend to shareholders. continue to be Fuel and Purchased Power costs,
, which comprised about 60.9% and 66.2% of total Operating Revenues operating expenses for 1985 and 1984, respectively.
The table below sets forth estimates of the factors Fuel expense for 1985 decreased $38.5 million or which caused Operating Revenues to change during 23.5% from 1984, reflecting principally lower fuel the last two years: c sts as a result of expensive oil generation being .
replaced by lower cost nuclear generation with the l I"g*]fDg) return to service of a nuclear facility which had been
($ in millions) 19ss 1934 out of service during most of 1984. The increase of O rating Revenue change attrib- $36.3 million in 1984 over 1983 reflected the higher net generation requirements of the System in 1984.
Recovery of Fuel Costs $(46.0) $32.5 Purchased Power-Demand costs increased $4.3 mil-
, Effect of Rate Increases . 10.2 18.1 lion in both 1985 and 1984, respectively, over prior Kwh Sales. , .o . .7 3.6 periods as a result of increases in operating costs at Unit Contracts . . .
_7.3 _4.7 several nuclear generating units in which the System Total . $(27.8)
~ ~'
$38.9
~-
has ownership interests or unit contracts. Other op-eration expense increased each year primarily as a The revenues attributable to fuel costs are msult of the effects of inflation on labor, materials the result of the timely recovery of such costs and other costs. In addition, in 1984, the increase in through the operation of adjustment clauses. maintenance expenses reflect mcreased costs related The estimated effect of rate increases for the t the burning of coal at the Somerset plant.
periods shown, reflect the billing of higher wholesale All w nce F r Funds Used During Con-rates of $10.2 in 1985 and wholesale and retail rates structi n -( AFUDC) represents a non-cash element of $16.4 million and $1.7 million, respectively, in f income. AFUDC increased $1.7 million in 1985 39g4 over 1984 primarily as a result of an increase in the Kilowatt-hour sales for 1985 continued to base to which the AFUDC rate is applied and an improve over 1984. The increase is primarily the increase in the composite AFUDC rate from 14.25%
result of new short-term unit contract sales in 1985. to 14.50%. AFUDC decreased $2.3 million in 1984 EUA System's primary sales were up less than 1% in fr m 1983, primarily as a result of the inclusion in 1985 over 1984 and reflect a slowdown in the growth of the economy. of our service territory and some-r
rate base of increased amounts of construction woric Fin:ncirl Con'iti n in progress (CWIP), thereby reducing the base to The EUA System's need for permanent capital is which the AFUDC rate is applied and due to the primarily related to the construction of facilities re-discontinuance during 1984 of accruing AFUDC on quired to meet the needs of its existing customers our investment in the Seabrook No. 2 nuclear unit - and to meet the future requirements of these custom-on .which construction was terminated in March ers as well as new customers. For 1985,1984 and 1984. 1983, the EUA System's cash construction expendi-Increases in total interest expense are reflec- tures (excluding AFUDC) were $54.4 million, $73.2 tive of the System's need to borrow funds to meet million and $78.9 milhon, respectively.
those cash requirements, principally for of its con- The System expects cash construction ex-struction program which cannot be met with inter- penditures to decrease to about $43.2 million in 1986 nally generated funds. and to continue to decline for the next several years.
Increases in long-term debt interest since As is customary in the utility industry, cash 1983 reflect higher interest rates on new securities construction requirements not met with intemally issued to refinance maturing issues having lower generated funds are obtained through short-term interest rates. (See Statement of Capitalization for bon , wings which are ultimately funded with per-details). Other Interest Expense increased $1.5 mil- manent capital. In 1985, internally generated funds lion over 1984 and decreased $1.6 million in 1984 amounted to $27.5 million, or 50.5% of the cash from 1983 in part as a result of increases and de- construction requirements. The remaining cash con-creases, respectively, in the levels of short-term struction requirements were funded with proceeds borrowings. from a previously completed hnancing or with short-Although inflation has subsided somewhat it term bank borrowings. In 1984 and 1983, the EUA continues to have an impact on the operation of our System was able to generate 55.8% and 34.5% respec-System. At the Federal level, wholesale rate-making tively, of its cash construction requirements with practices permit a forward looking test period which internally generated funds, with the balance coming enables us to anticipate inflationary increases. The from short-term borrowings. The System expects
+raditional use of a historical test period for retail that in 1986 it will be able to internally generate all rate-making purposes at the state level does not of its cash construction requirements.
provide us this oportunity. See " Supplementary In- Permanent hnancing during 1985 consisted formation to Disclose the Effects of Changing Prices" solely of the issuance of 483,585 common shares on page 34 for further financial information regard- ($9.4 million) through EUA System's Dividend Re-ing the effects of inflation using measurement bases investment and Employee Share Ownership Plans.
~ developed by the Financial Accounting Standards There were no permanent securities issued during Board. 1985.
Report of Management The management of Eastern Utilities Associates is conducts reviews to maintain the effectiveness of responsible for the consolidated financial statements internal control procedures.
and related information included in this annual re- Coopers & Lybrand, the System's certified port. The financial statements are prepared in accor- public accountants, is engaged to examine and ex-dance with generally accepted accounting principles press their opinion on our financial statements. Their applicable to rate-regulated utilities and include examination includes a review of internal controls to amounts based on the best estimates and judge- the extent required by generally accepted auditing ments of management giving appropriate considera- standards, tion to materiality. Financial information included The Audit Committee of the Board of Trust-elsewhere in the annual report is consistent with the ces which consists solely of outside Trustees, meets financial statements. with management, internal auditors and Coopers &
The EUA System maintains an accounting Lybrand to discuss auditing, internal controls and system and related system of internal controls which financial reporting matters. The internal auditors and are designed to provide reasonable assurance as to Coopers & Lybrand have free access to the Audit the reliability of financial records and the protection Committee without management present.
of assets. The System's staff of internal auditors 23
Consolidated income Ctatement Years Ended December 31, 1985 1984 1983 (In Thousands Except Numbers of Shares and Per Share Amounts)
Operating Revenues . .. . . . .. .. .. . .. . $333,510 $361,325 $302,450
' Operating Expenses:
. Fuel.... ... . .... ... ... .. ... . . . . 125,716 164,258 -127,898 Purchased Power-Demand . . .. .. . .. . 48,237 43,902 39,560 Other Operation. . . . . . .. .... .... . .. 48,710 45,639 43,107 ,
Maintenance . . . . .. ... . , . .. . . . 10,771 10,764 7,609 i f
Depreciation and Amortization . . . . . . . .. .. ... ... 16,752 14,953 14,571 Taxes - Other Than Income .. . .. . 13,719 13,700 12,950 Income and Deferred Taxes. . . ... . ... 21,533 21,342 20,218 Total Operating Expenses . . . . . . . 285,438 314,558 265,913 Operating Income . . . . . . . . . .. 48,072 46,767 36,537 Equity in Earnings of Nuclear Generating Companies . 1,657 1,428 1,331 Allowance for Other Funds Used During Construction. . 11,694 11,536 12,684 Other Income - Net .. .... . ... .. . .. . . 303 1,117 751 Income Before Interest Charges . . ... .. 61,726 _ 60,848 51,303 Interest Charges:
Interest on Long-Term Debt . . .. . . .. . 35,757 34,470 29,148 Other Interest Expense . . ., . . 2,635 1,106 2,691 Allowance for Borrowed Funds Used During Construction .
'(Credit) . . . . . . . . . .... .. ... _(1_2.092) _(10,516) _(11,713)
Net Interest Charges . .. .. . ... _ 26,300 25,060 20,126 Income After Interest Charges .. . ... .. 35,426 35,788 31,177 Preferred Dividends of Subsidiaries. . . . 5,656 5,735 5,813 Consolidated Net income . ... . .. .. . . . $ 29,770 $ 30,053- $ 25,364
= = - ==
Average Common Shares Outstand.ing. . . . ....... . 11,156,941 10,56,2,324 9,062,810 Consolidated Earnings Per Average Common Share. . . . 52.67 $2.85 $2.80 Dividends Per Common Share . . . . . .. $2.03 $1.91 $1.79
== w
Consolidated Retained Earnings Statement Years Ended December 31, 1985 1984 1983 (ln Thousands)
Consolidated Retained Eamings Beginning of Year . . . $49,727 $39,731 $30,396 29,770 30,053 25,364 Consolidated Net income . .. . . .. . . . .
I Total . . . . . . . . .... ... . . .. .. 79,497 69,784 55,760 Dividends Paid - EUA Common Shares . . . .. . . . 22,554 20,057 16,029 Consolidated Retained Earnings - End of Year. . . . . . $56,943 $49,727 $39,731 The accompanying notes are an integral part of the financial statements.
l y...,
- S4
u
Consolidated Ctatement of Ch"nge3 in Financial Position Years Ended December 21. (In Thousands) 1985 1984 1983 Source of Funds Internally Generated:
Income After Interest Charges .... . $35,426 $ 35,788 $ 31,177 l Principal Non-Cash Charges (Credits) to income:
Depreciation . . . . . 13,650 12,653 11,618 Amortization . . . . . 3,970 3,103 3,450 ;
Deferred Taxes . . ; 6,263 14,521 10,056 l Investment Tax Credits, Net . .. . . . 3,558 5,835 7,635 Equity in Undistributed Eamings of Nuclear Generating Companies . ..
(304) (13) (753)
Allowance for Funds Used During Construction (23,786) _ (22,05_2 ) . _(24,397)
Funds from Operations.. . . 38,777 49,835 38 786 Proceeds from Oil Conservation Adjustment 16,934 16,815 10 314 Less: Dividends Declared:
EUA' Common Dividends . . (22,554) (20,057) (16,')29)
Subsidiary Prefened Dividends .. . _ (5,6_56) _ (5235) . (5/13)
Internally Generated Funds. . _27,501 40,858 27,259 External Sources:
Proceeds from Sale of Common Shares . . . 9,377 9,443 22,239 Proceeds from Sale of Long-Term Debt - Net . 750 66,081 61,019 Inccease in Short-Term Debt. 25,373 Other - Net. .. ... .. . . 421 3,602 5,14_0 Funds from External Sources. 35,921 79,1.26 _8_8)9_8 Total Source of Funds. . $63,422 $119,984
$115456 Application of Funds Construction Expenditures. . . . .. . $78,192 5 95,211 $103,309
. Less: Allowance for Funds Used During Construction . (23,7_86) _(_22,052) _(24,397)
Cash Construction Expenditures . . 54,406 73,159 78,912 Retirement of Long. Term Debt. . 1,125 36,925 13,996 Retirement of Preferred Stock. . . . 1,800 310 300 (Decrease) Increase in Working Capital. . . (8,764) 39 14,663 Other Applications - Net. . . .
2 14,855 _ 9,551 _ 7,7_85 Total Application of Funds $.63,422 $119,984 $115,656 Changes in Components of Working Capital
- Cash and Temporc.ry Cash Investments. $ 824 $ 4,741 $ 264 Accounts Receivable . .. . (3,520) 4,767 10,107 Materials and Supplies . . . (2,945) (1,059) 3,884 Other Current Assets . .. 621 e.35 117 Accounts Payable . . . 1,35'? (5,856) 5,711 Accrued Taxes . .. .. . (1,223) 2.572 (3,690)
Other Current Liabilities . _ (3,873) _ (5,561 ) _(1,'730)
(Decrease) Increase la Working Capital. l $(8J64) $ _ 39_
$ 14,663
- (hcluding Short-Term Debt, Current Deferred Tom .nd KedermaNe Preferred Stock Sinkung Fund Repirement)
The accompanymg notes are an integral part of the financial statements.
'28'
Consolidated Balance Sheet December 31, (In Thousands) 1985 1984 Assets Utility Plautt an.1 Other Investments:
Utility Plant In Service $407,497 $394,107 Less Accumulated Provision for Depreciation . _143,497 _134,077 Net Utility Plant in Service . 264.000 260,030 Construction Work in Progress. 335,130 283,216 Net Utility Plant 599,130 543,246 Nonutility Property - Net 8R6 892 Investments in Nuclear Generating Companies . 9,457 9,152 Other Investments (at cost) _ _ _100 _ _69 Total Utility Plant and Other Investments . 609,573 553,359 Current Assets:
Cash and Temporary Cash Investments. 6,129 5,305 Accounts Receivable:
Customers, Less Allowance for Doubtful Accounts of $611,700 and $635,600, respectively 34,005 34,187 Accrued Unbilled Revenues 7,799 11,859 Other , 1,682 960 Materials and Supplies (at average cost):
Fue1. 8,131 11,600 Plant Materials and Openting Supplies . 6,417 5,893 Other Current Assets _.1 <4 4 4 _
S23 Total Current Assets . 65,607 J0,627 Deferred Debits:
Unamortized Debt Expense . 5,579 5,853 Extraordinary Property Lo<ses (Note 1) . 16,153 25,294 Other Deferred Debits (Note 1) . _l_7,524 6,338 Total Deferred Debits . 39,256 3Mn5 Total Assets $714,436 $n61,471 Liabilities and Capitalization Capitali:ation:
Common Equity. $208,211 $191,619 Non-Redeemable Preferred Stock of Subsidiaries. 15.079 15,079 Redeemable Preferred Stock of Subsidii..;es - Net. 31,457 33,240 Long. Term Debt - Net _285,491 288,876 Total Capitahration . 540,238 528,811 Current L.iabilitir:.
Nom Payable - Banks . 25.373 Long. Term Debt Due Within One Year . 4,125 1,125 Accounts Payable 24,659 26,011 Redeemable Preferred Stock Sinking Fund Requirement 897 856 Customer Deposits 1,958 1,837 Taxes Accrued 5,881 4,659 Deferred Taxes . 3,830 3,046 Interest Accrued . 10,032 9,982 Other Current Liabilities 8,531 .4,828 Total Current Liabilities . 85,286 52,344 Deferred Credits:
Unamortized Investment Credit . 30.647 27,089 Other Deferred Cred;ts . 148 951 Total Deferred Credits 30,795 28,010 Accumulated Deferred Taxes SR,117 52,273 Commitments and Contingencies (Note !)
Total llabi5 ties and Capitahiation $714,436 $661,471 The aaomraying notes are an integral rart of the finanaal statements.
26
Consolidated Statement of Capitalization December 31, (Dollar Amounts in Thousands) 1985 1984 Eastern Utilities Associates:
Common Shares:
$5 par value, authorized 16,000,000 shares, outstanding /
11,376,471 shares in 1985 and 10,892,886 shares in 1964 . $ 56,882 - S 54,464 Other Paid-In Capital. .. . , , , 96,305 89,345 Common Shares Expense . . . . (1,919) (1,917)
Retained Earnings. . . . _56,943 491727 Total Common Equity . .. . . 208,211 38.5_% _191,619 36.2 %
Preferred Stock of Subsidiaries:
~
Non. Redeemable Preferred: .
Blackstone 4.25%, $100Valley Electric par value 35,000Companybares s (1) 3,500 3,500 5.60%,$100 par value 25,000 shares (1) 2,500 2,500 Premium . . . . . . 129 129 Eastern Edison Company:
4.64%, $100 par value 60,000 shares (1) 6,000 6,000 8.32%, $100 par value 30,000 shares (1) 3,000 3,000 Expense, Net of Premium . .
_ (50) _ (50)
_150_79 1 _ 2.8 _15,0N _ 2.9 Redeemable Preferred:
Eastern Edison Company:
13.25%, $100 par value 150,000 shares (1) 15,000 15,000 13.60%, $100 par value (2) 3,890 4,490 15.48%, $100 par value (3) 13.800 15,000 Expense, Net of Premium . . . . . . . . . . . . . . . . . (310) (327)
Sinking Fund Requirement Due Within One Year. _ (923) _ __ _ _(923) ._
_31 1457 5.8 33,240 _6.3 Lo.ag-Term Debt:
Eastern Utilities Associates:
Senior Notes 10%% due 1999. . . 20,250 21,375 EUA Service Corporation:
Notes Payable (Various Maturities at Money Market rates) 2,750 2,000 Blackstone Valley Electric Company:
First Mortgage Bo .d..
30,000 33,000 14%'- due 1995 (Serief A) . . . . . . . . . . . . ,
6,500 5,500
'v'ariable Rate Demand Ponds due 2014 (4)
Eastern Edison Company:
First Mortgage and Collateral Trust Bonds:
4%% due 1987 . . ... . ... 3,000 3,000 10,000 10,000 13.9% due 1987 (second series) .
11,000 11,000 13.9% due 1987 (third series) . 19,000 19,000 14.2% due 1988 (second series) .
4%% due 1988 . . 3,000 3,000 14%% due 1990 . .. ,
15,000 15,000 17%% due 1991 . . 30,000 30.000 16h% due 1992 24,000 24,000 4%% due 1993 5,000 5,000 7,000 7,000 l 6%% due 1997 . .
8%% due 1999 5,000 5,000 77 % due 2002 .
8,000 8.000 8%% due 2003 10,000 10,000 12%% due 2013 . . .. .
40,000 40.000 Pollution Control Revenue Bonds:
10%% due 2008 , .
40,000 40 000 Unamortized Premium. , 116 126 289,616 290 001 Less Portion Due Within One Year. __ 4,125 . _ _
_ _ 1,125 _ _ _
Total . . .
285,491 _529 288,876 54 6 Total Capitalization $540,238 100.0 % $528,814 100.0 %
(1) Authori:ed and Out. standing.
(2) Authorized 60.000 shares. Outstanding 38.900 shares ist 1985 and 44.900 shares in 1984.
(3) Authori:ed 150.000 shares. Outstandsng 138.000 shares on 1985 and 150000 shares on 1984.
(4) Weighted average unterest rate u.as 5.4% for 1985 and 6 8% for 1984 The accompanying notes are art integral part of the finanaal statements.
E1,
.a
Note 3 T3 Consolidated Fin:nci t Ctat: ment]
Deceml>rr 31.1935,198L and 1933
( A) Summary of Significant Accounting Policies:
General: Eastern Utilities Associates (EUA) and FUA Provisions for depreciation, on a consoli-( . Service Corporation (Service) are subject to the dated basis, were equivalent to a composite rate of jurisdiction of the Securities and Exchange Commis- approximately 3.4% in 1985 and 3.2% in 1984 and sion under the Public Utility Holding Company Act 1983 based on the average depreciable property bal-of 1935, and Service's accounts are maintained under ances at the beginning and end of each year.
the system of accounts prescribed by that Act. The Operating Reeenues: Revenues are based on accounting policies and practices of the retail subsid- billing rates authorized by applicable Federal and iaries, namely, Blackstone Valley Electric Company state regulatory commissions. The retail subsidiaries (Blackstone) and Eastern Edison Company (Eastern follow the policy of accruing the estimated amount Edison), and of Montaup Electric Company of unbilled base rate revenues for electricity pro-(Montaup) are sub;ect to regulation by the Federal vided at the end of the month to more closely match Energy Regulatory Commission (FERC) and the costs and revenues. In addition they also record the respective state regulatory commissions with respect difference between fuel costs incurred and fuel costs to their rates and accounting. The retail subsidiaries billed.
and Montaup conform with generally accepted ac- Federal Inconte Taxes: The general policy of counting principles, as applied in the case of regu- EUA and its subsidiaries with respect to accounting lated public utilities, and conform with the for Federal income taxes is to reflect in income the accounting requirements and rate-making practices estimated amount of taxes currently payable and to j of the regulatory authority having jurisdiction. provide for deferred taxes on certain items subject to Principles of Consolidation: The consolidated timing differences to the extent permitted by the financial statements include the accounts of EUA various regulatory commissions. See Note B for de-and its subsidiaries (Blackstone, Eastern Edison, tails of major deferred tax items.
Montaup and Service). All material intercompany As permitted by the regulatory commissions balances and transactions have been eliminated in it is the policy of the subsidiaries to defer the annual consolidation. investment tax credits and to amortize these credits Nuclear Generating Contpanies: Montaup fol- over the productive lives of the related assets.
lows the equity method of accounting for its invest- Allowance for funds Used During Construc-ments in four regional nuclear generating tion: Allowance for funds used during construction companies. Montaup's investments in these compa- ( AFUDC) (a non-cash item) is dehned in the appli-nies range from 2.50 to 4.50 percent. Montaup is cable regulatory system of accounts as "the net cost entitled to electricity produced from these facilities during the period of construction of borrowed funds based on its ownership interests and is billed pursu- used for construction purposes and a reasonable rate ant to contractual agreements which are approved upon other funds when so used."
by FERC. The combined rate used in calculating Utility Plant: Utility plant is stated at original AFUDC was 14.50% in 1985,14.25% in 1984 and cost. The cost of additions to utility plant includes 1983. In accordance with rate orders. Eastern Edison contracted work, direct labor and material, allocat- and Montaup provide deferred income taxes on the able overhead, allowance for funds used during con- borrowed funds component of AFUDC.
struction and indirect charges for engineering and supervision. '
/ T ~ bepreciation of Utility Plant: For hnancial statement purposes, depreciation is computed on the straight-line method based on estimated useful lives of the various classes of property.
28
(')) Income and Deferred Tczes:
Components of income and deferred tax expense for the years 1985,1984 and 1983 are as follows:
1985 1984 1983 (fu Thousands)
Federah Current .. . ...... .... .. . $10,079 $ 140 $ 725 Deferred .. . . . ...... .. . 5,675 13,187 9,070 investment Tax Credit, Net . . . . .. ... .. 3,558 5,835 8,163 19,312 19,162 17,958 State:
Current .. .. .. . . ... .. . 1,633 846 1,274 Deferred . .. . ... . . . ... .. 588 1,334 - 986 2,221 2,180 2,260 Charged to Operations. .. . . . .. 21,533 21,342 20,218 tharged to Other Income . .. . . . ... .. 228 455 417 Total . . . . . . . . .. . . . $21,761 $21,797 $20,635
=== =
Federal tax expense was less than the amounts computed by applying Federal income tax statutory rates to book income subject to tax for the following reasons:
1985 1984 1983 (in Thousands)
Federal Income Tax Computed at Statutory Rates. $25,522 $26,054 $23,196 (Decreases) Increases in Tax From:
Equity Component of AFUDC . . . ... (5,379) (5,307) (5,835)
Excess Tax Depreciation. . . . . 1,054 1,067 1,326 Other . . . .. .. . . (1,729) (2,297) (330)
Federal Income Tax Expense. . . . . .$19,468 $19,517 $g,307 The provision for deferred taxes resulting from timing differences is comprised of the following:
1985 1984 1983 (in Thousands)
Excess Tax Depreciation. . ... . $2,033 $ 1,758 $ 2,076 Estimated Unbilled Revenue.. . . .. 691 (173) 704 Unbilled Fuel Costs .. . . (1,037) (741). 1,347 Debt Component of AFUDC . . . . . .. 5,280 4,817 5,078 Abandonment Losses . . (1.993) 6,562 (847)
Capitalized Overheads . .. .. 321 1,022 757 Effect of State and Local Taxes .. . 588 1,334 986 Other - Net . .. . .. .. . .. 380 (58) (45)
Total . . . . . . $6,263 $14,521 $10,056
= . . = = = = =
The tax effect of the cumulative amount of has nc+ been recorded because the regulatory pro-timing differences at December 31, 1985 for which cess is expected to allow such amounts to be recov-deferred Federal income taxes have not been pro- ered from customers when the taxes are ultimately vided, is approximately $16.2 million. This amount payable.
m h & ,<
sa
(3) Capital Ctock:
The changes in the number of common shares out- during the years ended December 31,1985,1984 and standing and the increases in other paid-in capital - 1983 were as follows (dollars in thousands):
Number of common Shares issued Dividend Increase in increase Reinvestment Common in Other and Employee Public Shares Paid-In Year Plans Sales Total At Par Capital 1985...... . .. . .. . . .. 483,585 -
483,585 $2,418 $6,959 1984.. ..... ... .... 700,582 -
700,582 3,502 5,940 1983. ... . . ... ... 403,313 1,000,000 1,403,313 7,017 15,223 l
In the event of involuntary liquidation the_ duced premiums in subsequent years.
non-redeemable preferred stock of Blackstone and Under the terms and provisions of the issues l Eastern Edison is entitled to $100 per share. In the of preferred stock of Blackstone and Eastern Edison, event of voluntary liquidation, or if redeemed at the certain restrictions are placed upon the payment of option of those companies, the non-redeemable pre- dividends on common stock by each company. At ferred stock is entitled to: Blackstone's 4.25% issue, December 31,1985 and 1984 the respe-tive capitali-
$104.40; Blackstonei 5.60% issue, $103.82; Eastern zation ratios were in excess of the minimum which Editon's 4.64% issue, $102.98; Eastern Edison's 8.32% would make these restrictions effective.
issue, $105.62, prior to October 1,1988 and at re-j (D) Redeemable Preferred Stock:
Eastern Edison's 13.60%,15.48% and 13.25% pre- stock have the right to exercise such option.
- 'ferred Stock issues are entitled to mandatory sinking In the event of involuntary liquidation the l funds suffkient to redeem 3,000, 6,000 and 7,500 redeemable preferred stock of Eastern Edison is enti-shares, respectively, during each twelve-month pe- tied to $100 per share. In the event of voluntary riod, coramencing
- October 1,1980 in the case of the liquidation, or if redeemed at the option of Eastern 13.60% issue, October 1,1985 in the case of the Edison, the 13.60% and 15.48% issues of i deemable
- 15.48% issue and January 31,1989 in the case of the preferred stock are entitled to $111.42 and $113.11, i: 13.25% issue. The redemption price for each issue is respectively, prior to October 1,1990; the 13.25%
equal to the initial public offering price ($104.615, issue is entitled to $111.52 prior to January 31,1987.
$101.50 and $100, respectively) plus accrued divi- The redemption premium reduces in subsequent dends. Eastern Edison also has the noncumulative years.
! option of redeeming an additional 3,000, 6,000 and The aggregate amount of redeemable pre-4 7,500 shares, respectively, during each period at such ferred stock sinking fund requirements for each of price. In the case of the 13.25% issue, if Eastern the five years following 1985 are: $923,000 in 1986, Edison does not exercise its option of rede'cinig an 1987,1988 and $1,673,000 in 1989 and 1990.
- additional 7,500 shares the bolders of that preferred (E) Retained Earnings
- \ '
I Under the provisions of EUA's Senior Note Agree.
! ments, Retained Earnings in the arrount of
$49,464,983 as of December 31,19f 3Nere un-
- restricted as to the payment of cash dividends on EUA Common Shares.
L (F) Long-Term Debt:
Under terms of the Indentures securing their various sions of their respective indentures by certifying to bond issues the retail *ubsidiaries are required to the Trustee availabic property additions."
. deposit annually with their respective Trustee cash The varioes first mortga,;c bond issues of the
- _ in an amount equal to
- 1% of the aggregate principal retail subsidiaries are secured by substantially all of
! amount of bonds previously authenticated and de- their utility plant. In addition, Eastern Edison's
- livered, in the case of Eastern Edison and 2.25% tf bonds are collateralized by securities of Montaup in
- the average gross investment in depreciable prrp- the principal amount of $3no,303,862.
j erty, in the case of Blackstone. Blackstone's Variable Rate Demand Bonds
- The retail subsidiaries have satisfied sinking are collateralized by an irrevocable letter of credit i fund requirements for 1985 under alternate provi- which expires on December 1,1989. The letter of r
r!
sg
- s .w l
credit permits entensions on an annual basis upon term debt for each of the five years following 1985 mutual agreement of the bank and Blackstone. are. - $4.125,090 in 1986, $28,125,000 in 1987, The aggregate amount of EUA System cash - $26,125,000 in'1988, $4,125,000 in 1989 and sinking fund requirements and maturities for long- $19,125,000 in 1990.
(G) Lines of Credit:
EUA System companies had unused short-term in accordance with informal agreements with the lines of credit with various banks of approximately various banks, commitment fees are required to
- $24,900,000 at December 31,1965. maintain the liner of credit.
(H) Jointly-Owned Facilities:
At December 31,1985, hiontaup owned the follow-ing interests in jointly-owned electric generating fa-cilities (dollars in thousands): Net Construction Percent Plant in Accumulated Plant in Work in Unit Owned Service . Depreciation Service Prc.gress Canal No. 2 . . . 50.00% 564,575 $22,402 $42,173 $ 97 Wyman No. 4. . . . .. 1.96 3,980 836 3,144 Seabrook No.1. . . . 2.90 62 11 51 118,024 hiillstone No. 3 . . . . 4.01 164,091
. The foregoing amounts represent hiontaup's See Note I for information with respect to interest in each facility excluding nuclear fuel in the_ recent developments affecting the Seabrook project, case of Seabrook and hiillstone of $9.0 million and including the termination of construction on the
$8.0 million, respectively. Financing for any such Seabrook No 2 nuclear generating unit.
interest is provided by hiontaup. Afontaup's share cf related operating and maintenance expenses is in-
.cluded in its corresponding operating expenses.
(I) Commitments and Contingencies:
Pensions: The EUA System companies participate in The assumed rate of retum used in deter-a pension plan covering substantially all of their mining the actuarial present value of the accumu-employees. The total pension expense charged to lated plan benents was 9.0% for 1985 and 8.0% for operations, which includes amortization of past ser- 1984.
vice costs over 20 years, amounted to approximately Certain health care benefits are pmvided to
$383,000, $1,461,000 and $1,408,000 for the years substantially all retired employees. The cost of these ended 1985,1984 and 1983, respectively. The de- benefits, which amounted to approximately $524,000 crease m pension expense for 1985 is principally due in 1985, is charged to expense when paid.
to a change in the actuarially assumed rate of retum. Long-Term Purchased Power Contracts: The The EUA System companies make annual contribu- EUA System is committed under long-term pur-tions to the plan equal to the amounts accrued for chased power contracts, expiring on various dates pension expense. The accumulated plan benefits and :hrough the year 2007, to pay demand charges plan net assets for the Employees' Retirement Plan whether or not energy is received. Under terms in of Easterr Utilities Associates and its Subsidiary effect at Decemter 31, 1985, the aggregate annual Companies are presented below, minimum commitments for such contracts is approx-imately $52,000,000 for each year through 1987, I 19
$49,000,000 in 1988,1989 and 1990 and will aggre-(In Thaunds) gate $714,000,000 for years after 1990. In addition, Actuarial Present the EU.\ System is required to pay additional Value of amounts depending on the actual amount of energy Accumulated received under such contracts. The demand costs Plan Benehts: associated with these contracts are reflected as Pur-Vested . . $32,107 $30,800 chased Power-Demand on the Consolidated Income Nonvested . . 828 1,862 Statement.
. $32,935 $32,662 Construction: The EUA System's construc-h1arket Value of Net i tion program is estimated at $56,200,000 for the year 7
Assets Available for Benefits . $51,500 $46,995 w
J
_ 1986 and $138,000,000 for the years 1986 through plans submitted by the State of New liampshire and 1990 (including allowance for funds used during the delay in the submission of plans for six Massa-construction). chusetts towns has the potential of delaying the Storm Restoratien: In 1985 the EUA Systers October 31, 1986 planned commercial operatun incurred significant expenditures relating to the res- date. Montaup cannot predict what effect such a toration of service following flurricane Gloria. Such delay would have on the total cost of the unit.
costs, amounting to epproximately $5,000,000 hase Montaup also has a 2.90% ownership inter-been deferred and management antic' pates that it est in the Seabrook Unit 2 nuclear generating unit. In - -
will ultimately recover such costs through rates. Ariy Afarch 1984, the Seabrook joint Owners voted to halt recoveries will be subject to determinations made by construction on the unit. In Montaup's opinion, this the governing regulatory authorities. action has effectively cancelled the Unit. As of De-Seabrook: Montaup has a 2.90% ownership cember 31, 1985, Montaup had incurred approxi-
[ interest in the 1150 megawatt Seabrook No. I ru- mately $17,100,000 of costs (including Al UDC) in r clear generating unit being constructed in Seabrook, connection with Seabrook Unit 2. An independent
[ New Hampshire. All of the necessary state and study, reviewed and accepted by Montaup in 1985, Federal regulatory approvals for the construction of indicated that approximately $3.4 million of indirect l
the unit have been obtained, but further appeals are costs previously attributed to Seabrook Unit 2 were possible. more appropriately chargeable to Seabrook Unit 1.
[ The Seabrook No. I unit has experienced Accordingly, Montaup transferred such costs in 1985.
E substantial cost increases due to, among other Montaup has received an accounting order from the - u
- things, outside intervention in various proceedings, FERC staff permitting it to record the costs of the o design changes, revisions of Nuclear Regulatory abandoned project as an extraordinary property loss
^ Commission (NRC) regulations, extraordinarily and to amortire these costs, net of related tax sav-high interest rates, inflation and construction delays. ings. In addition, in December 1984, FERC approved, b effective June 6,1985, and on a subject to-refund The largest participant in the unit is Public Service Company of New liampshire (PSNil) which owas basis, Montaup's $17.6 million rate iecrease request ~
a 35.6% ownership interest. On March t,1984, PSNH which was filed in November 1984. This bling in-h announced that the estimated cost of Seabrook Unit cluded Montaup's request for recovery, over a ten . 1 I would increase by $1.5 billion, over its November year period, of all of its costs associated with Sea-h 1982 estimate, to $4.5 billion and its estimated in- brook Unit 2, including those referred to above. In l service date would be delayed until October 1986. accordance with FERC practice, recovery of F In mid-April 1984, PSNH announced that it Montaup's investment will not include any retum on
[. was experiencing a severe liquidity crisis and ceased the unamortized portion of such costs. Certain par-
, payment of its share of Seabrook construction costs. ties have intervened in Montaup's ra:e proceeding E As a result of this action, activity at the Seabrook before FERC and are contesting Montaup's recovery a project was significantly reduced until early July of its investment in Seabrook Umt 2.
1984 when PSNH obtained additional financing. The recovery of Montaup's investment .
[ Funding of expenditures was increased to a level Seabrook Unit I and Seabrook Unit 2 through rates averaging $4 million per week at that time, to $5 will be subject to final aporoval by FERC as part of
- million a week in early December 1984, and to $10 rate proceedings and the prudence of a portion of b
million a week in September 1985. Currently there such investment could be at issue. Montaup contin-s are no funding limitations. ues to believe that its expenditures on these units .-
- As part of a plan to assure completion of were prudent, and that FERC will continue to permit Seabrook Unit I the two largest participants have the recovery over time of prudent costs through G been required to develop a hnancing plan for assur- rates. Montaup cannot predict the outcome of rate j ing that sufficient funds will be available to pay for proceedings involving its Seabrook investments; p their proportionate shares of the unit. however, it believes that the amount of any potential g if, due to regulatory actior., financial difficul- disallowance of recovery of the expenditures would L ties or any other reason, one or more of the other not, under current generally accepted accounting
- Seabrook Joint Owners should be unable or unwill- principles, have a substantial adverse effect on the ing to felfill their contractual commitment to pa e on System's common equity.
a timely basis their share of Seabrook Unit I con- In December 1985; however, the Financial i
struction costs, completion of the unit could be Accounting Standards Board (FASB) issued an ex-jeopardized. posure draft that would, if enacted in its present
& Consideration by the NRC of emergency form, significantly change generally accepted ac-
~
response and evacuation plans submitted by state counting principles for regulated enterprises, includ- ..
authonties for municipalities located within ten ing Montaup. Among other things, the exposure /
L miles of the Seabrook plant is a prerequisite to the draft proposes revised accour/ing requirements for issuance of the required operating license. The schedule announced by the NRC for hearings on the F
r 32
=
b hIV' . -.
plant abandonments and regulatory disallowantes of risk-tolerant investors. The remaining 20% will be completed plant costs. If the FASB exposure draft is invested by EUA.
implemented in its current form, it would require A number of risks of varying degrees are that,in the event of a plant abandonment where no associated with the acquishion plan. These include return was authorized on the unamortized property the risk of non-completion of Seabrook Unit I con-loss balance, those unamortized amounts would be struction or the inability of Seabrook to obtain a full recorded at a discounted value and the effect of such power operating license. Additional risks would be discounting would be charged to income. Also, po- posed if EUA Power Corporation were unable to sell tential disallowances of recovery of investments in its power from Seabrook Unit 1 and was forced to completed plants would require an .immediate absorb the operating costs associated with the Unit charge to income equal to the amount of such disal- and the carrying charges on its outstanding debt lowance. Such potential charges to income could be capital.
material to the results of operations or retained Ret enues Subject to Refund: At December earnings of the System in the year of the write-off. 31, 1985, approximately $54,500,000 of hiontaup's 1 Numerous utilities, including the System as well as revenue collected since November 1981 is subject to other parties, are opposing the FASB exposure draft. possible refund. Of that amount approximately EUA Power Corporation: EUA has signed $15,400,000, $15,400,000 and $10,800,000 relates to various agreements with four Seabrook Participants 1985,1984 and 1983, respectively hiontaup believes and is negotiating with a fifth, for the acquisition, at that any amounts which may ultimately be refunded a substantial discount, of their ownership interests in will not have a material effect on the financial the Seabrook Project. These interests aggregate ap- statements.
proximately 140 mw or 12.1% of the Project. It is Guaranters: hiontaup, as one of the stock-anticipated that completion of the acquisition could holders of each of three regional nuclear generating take place by June 30,1986. companies, has guaranteed its pro rata share of Subject to various regulatory approvals, cbligations of those companies as follows: 2.5% of a EUA has formed a new subsidiary company called $40,000,000 nuclear fuel financing of Vermont Yan-EUA power Corporation to undertake these acquisi- kee Nuclear Power Coryptio . 4.5% of a tion plans. EUA Power Corporation expects that 80% $25,000,000 bank line of crtdn and el a $50,000,000 of the capital necessary to finance the acquisitions debenture issue of Connuticut Yankee Atomic and complete construction of the acquired portion of Power Company; and 4.0% of a $50,000,000 nuclear Seabrook Unit I will come from the sale of un- fuel hnancing of hiaine Yankee Aton;ic Power secured, non-collateralized, non-guaranteed Notes to Company.
Auditors' Report To the Trustees and Shareholders of Eastern Utilities Associatest We have examined the consolidated balance sheets in our opinion, the 1985 and 1984 hnancial and consolidated statements of capitalization of statements referred to above present fairly the con-Eastern Utilities Associates and subsidiaries as of solidated hnancial position of Eastern Utilities Asso-December 31,1945 and 1984, and the related consoli- ciates and sut,sidiaries as of December 31,1985 and dated statements of income, retained earnings and 1984 and the consolidated results of their operations changes in financial position for the years then en- and changes in their hnancial position for the years ded. Our examinations were made in accordance then ended, in conformity with generally accepted with generally accepted auditing standards and, ac- accounting principles applied on a consistent basis.
cordingly, included such tests of the accounting records and such other auditing procedures as we considered necessary in the circumstances. The fi- N dvM "
nancial statements of Eastern Utilities Associates and subsidiaries for the year ended December 31, 1983 Boston, Niassachusetts were examined by other auditors, whose report, N1 arch 3,1986 dated h1 arch 2,1984, expressed an unqualihed opin-ion on those statements.
33
Guarterly Financial and Common Share Information (tinaudited)
Th2us- ' J' Eamings income Consol- per After idated Average Common Share Operating Operating Interest Net Common Dividends Market Price Revenues __jncome Charges income Share Paid liigh I.ow For the quarters ended 1985:
December 31 $84,338 $12,321 $ 8.681 $7,318 $0.65 $0.515 26s 20h September 30. $83,107 $13.890 $10,032 $8,602 $0.77 $0.515 23 % 18%
june 30 . . . $76,588 $ 9,177 $ 6.330 $4,900 $0.44 $0.515 23 % 18%
March 31 . $89,477 $12,683 $10,379 $8,949 $0.82 $0.485 18% 16%
For the quarters ended 1984-December 31 $87,977 $11,533 $8,709 $7,277 $0.67 $0.485 18 12%
September 30. . . $88,591 $12,548 $9,831 $8,397 $0.79 $0.485 15% 13 %
June 30 . . . $90,281 $10,284 $7,465 $6,031 $0.58 $0.485 13 % 13 March 31 .. $94,477 $12,403 l $9,783 $8,347 $0.81 $0.455 14% 14 The common shares of Eastern Utshties Assessates are listed on the New Yort Sto<k Euhange under the sister symbol "lLIN' The affretimate number of Common Shareholders of record on Tchruarv 1.IW6rras21J00.
I l
Cupplementary Information To Disclose The Effects of Changing Prices (Unaudited)
The following supplementary information is sup- limits the recovery of fuel and purchased power plied in accordance with the requirements of the costs through the operation of adjustment clauses.
Statement of Financial Accounting Standards No. 33 As prescribed in Financial Accounting Stan-(as amended) to provide certain information about dard No. 33, income taxes were not adjusted.
the effects of changing prices. It should be viewed as Under the rate-making practkes prescribed an estimate of the approximate effect of inflation by the regulatory commissions to which the System rather than a precise measure. companies are subject, only the historical cost of Current cost amounts, as measured by the . plant is presently recoverable in rates as deprecia-liandy Whitman Index of Public Utility Construc- tion. The excess cost of plant that exceeds historical tion Costs, reflect changes in specific prices of plant cost is not presently recoverable in rates as deprecia-from the date the plant was acquired to the present. tion and is reflected as a reduction to net recoverable Since utility plant would not be replaced precisely in cost. The gain from the decline in purchasing vower kind, current cost does not represent the replacement of net amounts owed is primarily attributable 'o the j cost of the System's productive capacity. substantial amount of debt which has been used to Depreciation was computed by applying the finance property, plant, and equipment. Sinca the current depreciation rates to the respective indexed depreciation on this plant is limited to the recovery plant amounts. of historical costs, the System companies do not Fuel inventories the cost of fuel used in have the opportunity to realize a holding gain on generation and purchased power for resale have not debt and are limited to recovery only of the embed-been restated from their historical cost. Regulation ded cost of debt capital.
[34[
Consolidated Ctatement of income Adju;ted for Ch:nging Prisco For the year ended December 31,1CC5 Current (Thousands of Dollars}
Cost Effect on the following if utility plant adjustments are made:
Depreciation, as adjusted . .. .. .. .. . . .. . $39,036 income After Interest Charges, as adjusted . . . . .. .... . . . . $10,039 Increase in Specific Prices of Utility Plant Held During the Year * . .. . . .. . ... . .. $31,331 Adjustment to Net Recoverable Cost . . . . . . 11,362 Effect of increases in General Price Level . . . . ..... . . . . . . (38,375)
Excess of increase in General Price Level Over increase in Specific Prices After Adjustment to Net Recoverable Cost . . .. .. . . . .. . . . . . (4,318)
Gain From Decline in Purchasing Power of .
Net Amounts Owed .. . . .. . . . _18,100 Net . . . . .. . . . .... . . . . .. .
$13,782
- At December 31.1985, the current cost of net utihty plant tras $1.073.975 tchile historical cost or net cost recoverable through depreciation te.as
$599.130.
Five Year Summary of Selected Financial Data Adjusted for the Effects of Changing Prices Years Ended Dewmber 31, 1985 1984 1983 1982 1981 (in Thousands of Average 1985 Dollars)
Operating Revenues. . $333,510 $376,165 $327,099 $321,956 $353,028 Current Cost Information:
Income (Loss) After Interest Charges * . 10,039 11,081 10,414 (562) (3,178)
Income (Los') Per Common Share After Preferred Dividend Requirements * . 0.39 0.51 0.51 (0.60) (1.15)
Excess Of Increase In General Price Level Over increase In Specific Prices After Adjustment To Net Recoverable Cost (4,318) (5,199) f5.067) (7,991) 5,881 Net Assets at Year-End At Net Recoverable Cost . . 254,747 247,136 239,618 210,262 166,100 General Information:
Gain from Decline In Purchasing Power Of Net Amonats Owed t h.100 17,986 9,671 8,896 19,731 Cash Dividends Paid Per Com-mon Share . 2.03 1.97 1.94 1.90 1.90 Market Price Per Common Share At Year End. . 25.88 18.54 16.09 15.77 13.48 Average Consumer Price Index . 322.2 312.0 298.4 28's '. 272.4
- Before Adjustment to Net Recoverable Cost.
,.'"]
!35i u
Consolidated Oper; ting Ctati tica Years Ended December 31, 1985 1984 1983 1982 1981 1980 1975 Energy Generated and Purchased (millions of kwh):
Generated
- by Somerset Station. 1,316 1,180 1,123 738 940 1,041 1,164 -
- by Nuclear Units . 1,065 458 1,019 861 869 733 480
-by Jointly-Owned Units . 1,595 1,507 1,724 1,632 1,784 1,746 153
-by Life of the Unit Contracts 697 814 452 706 675 757 1,246 Interchange with NEPOOL . (387) (136) (285) (49) (240) (263) 200 Purchased Power- Unit Power. 223 480 168 161 _ _ 240 319 236
. Total Generated and Purchased _ _ 4,509 4,303 4,201
. _ - - - _ _4.049 _ _4,268 _ _ .4,333 3
_ ,479 Operating Revenues (thousands):
Residential . , . . $110,682 5121,t23 $104,101 $ 97,161 $ 94,217 $ 79,357 $50,535 Commercial . . 98,826 105,310 99,225 83,519 E2,515 67,377 3o,478 Industrial , 66,707 75,850 58,901 56,468 60,486 48,931 26,021 Other Electric Utilities. 15,779 23,909 16,212 18,289 22,770 18,183 10,151 Other _ 8,990 9,396 13,463 10,761 9,081 _ _7,886 , _5,912 Total Primary Sales Revenues 300,984 336,088 281,402 266,198 269,069 221,734 129,097 Unit Contracts. . _32,526 _ 25,237 _ 20,548 22,219 28,862 22,908 2,118 ;
1 Total Operating Revenues $333,510 $361,325 $302,450 $288,417 $297,931 $244,642 $131,215
.l Energy Sales (millions of Lwh): l Residential . 1,212 1,205 1,197 1,137 1.122 1,149 1,073 1 Commercial . . 1,169 1,113 1,103 1,044 1,055 1,058 848
' Industrial , 833 856 810 772 841 848 726 Other Electric Utilities. , 382 396 386 365 431 420 396 Other 29 30 34 36 38 42 45 Total Primary Sales . 3,625 3,600 3,530 3,354 3,487 3,517 3,088 Losses and Ccmpany Use 197 215 201 206 196 230 248 Total System Requirements . 3,822 3,815 3,731 3,560 3,683 3,747 3,336 Unit Contracts. 687 488 470 489 585 586 143 Total Energy Sales . 4,509 _ _4,303 4,201 _ 4,049 4_,268 4,333 3,479 Number of Customers:
Residential . 214,454 211,622 209,678 207,702 205,894 204,221 195,207 Commercial . 23,161 22,177 21,605 21.133 20,732 20,380 20,813 Industrial . 1,238 - 1,209 1,189 1,210 1,213 1,219 1,594 Other Electric Utilities. ~15 16 12 18 14 17 14
-Other . 30 29 31 31 34 30 234 Total Customers . 238,898 235,053 232,515 230,094 227,887 225,867 217,862 Average Revenue per Residential Customer ($) 516 575 496 468 458 389 259 Average Use per Residential Cus-tomer(kwh) . 5,582 5,694 5,708 5,474 5,449 _ _ 5,626 5A97 Average Revenue per kwh:
Residential . 9.13e ' 10.09e 8.70c 8.55c 8.40c 6.91c 4.71e Commercial . 8.45c 9.46e 8.09e 7.99c 7.82e 6.37c 4.30s Industrial . 8.01c 8.86a 7.27c 7.31c 7.20e 5.77c 3.58e ,
1 l
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- 31 s.- u
_ ~ _ _ . _
consolidated operating Ctatistics - Gener:1 Years Ended December 31. 19M 1984 1983 1982 1981 _ 1980 1975 Capitali:ation (thousands): .
$263300 $266,500 $226,219 $165,950 $155,%4 $125,182 $88,321 Bonds (Net) .
Other long-Term Debt _ 21,991 22,376 30<179 , 33,900 _32,500 __37,500 Total long-Term Debt . . 285,491 288.876 256398 199,8 % 188,464 162,682 88321 Preferred Stock 46,536 48,319 49,234 49,536 34.985 - 35,278 21.000 Common Equity . _208,211 191,619 172_,327 _140,973 _109,875 95,424 55J83 Total Capitalization. $540,238 $528,814 $477,959 $390,359 $333324 $293,384 $165,104 Commn Share Data:
Earnings per Average Common Share ($) 2.67 2.85 2.80 2.25 2.03 1.63 1.% <
Dividends per Share ($) . 2.03 1.91 1.79 1.70 1.60 1.60 .130 Payout (%) . . 76.0 67.0 63.9 75.6 78.8 98.2 76 3 Average Common Shares Outstand.
ing .
11,156,941 10.562324 9,062,810 7,519,381 6,1233 34 5,525 320 2,939.945 Total Common Shares Outstanding 11376,471 10 S92,886 10,192,304 8,788.991 6.664,560 5.583,634 3,094,945 Book Value per Share ($) . 18.30 1739 16.91 16.04 16.49 17.09 18.02 Percent Earned On Avera;;e Com-mon Equity (%). 14.9 163 16 2 13.5 12.1 9.5 10.8 Market Prices ($):
I- High . 26's 18 18% 14 % 12% 13% 16 Low . 1tAs 12% 137. 11 10% 10% 8%
Year End . 237. 18 14?. 14 % 11% 11% 14%
Afiscellaneous ($ in thousands):
Total Construction Expenditures ($) 78,192 95,211 103,309 77,096 54,436 34,939 25,828 Cash Construction Expenditures ($) 54.406 73,159 78,912 61,236 41,745 25.024 20,873 Internally Generated Funds as a % of Cash Construction (%) 50.5 55.8 34.5 20.7 22.5 -43 20.9 Installed Capability - MW . 987 931 931 927 927 940 806 less: Unit Contract Sales - MW . 110 75 75 70 80 88 25 System Capability - MW 877 856 856 357 847 852 781 System Peak Demand - MW. .738 716 700 680 661 695 614 Reserve Margin (%) . . 18.9 19.5 22 3 26.0 28.1 22.7 27.1 System lead Factor (%) 59.1 60.6 60.8 59.8 63.6 61 3 62.0 Sources of Energy (%): ,
Nuclem , 26.2 10.9 23.8 22.2 20.6 17.0 22.0 Coal. . 34.1 293 163
. Oil . 39.7 59.8 59.9 77.8 79.4 83.0 78.0 Cost of Fuel (Mills Per kwh):
Nuclear . 7.0 8.9 63 63- 5.4 4.9 3.0 Coal . 23.7 27.8 21.6 Oil . 41.2 43.6 41.5 41.5 47.0 353 19 3 All Fuels Combined 263 36.1 30.7 34.1 39 0 30.8 16.0 4
7, ,
i-
Dividsnd Reinvestment and Common Sharo Purchase Plan A Dividend Reinvestment and Common Share Complete details regarding the Plan may be Purchase Plan is available to all registered share- obtained by writing:
holders and System company employees. William F. O'Connor, Secretary Participants in the Pian are given a Sao dis- Eastern Utilities Associates count on shares purchased with reinvasted divi- Post Office Box 2333 dends. Participants may also make additional cash Poston, MA 02107 payments as frequently as once a month to purchase additional shares with no discount. Optional cash Transfer Aaent payments are limited to a maximum of $5,000 per The First Natioind M c' hton calendar quarter and must be received no later than Post Office Box 644 the 5th day preceding the Investment Date to be Boston, MA 02102 invested in that month. (Common and Preferred Shares)
The Investment Date for all shares pur-chased under the Plan is the dividend payment date sand Trustee for the months in which dividends are payable. For State Street Bank and Trust Company each month in which a dividend is not payable the 225 Franklin Street Investment Date is the 15th of such month. The price Boston, MA 02110 of shares purchased is based on the average closing (Bonds of all series) price of EUA shares for the five trading days preced-ing each investment date.
System Companies Eastern Utilities Associates The name Eastern Utilities Associates is the designation EUA Service Corporation of the Trustees for the time being under a Declaration of Montaup Electric Company Trust dated April 2,1928, as amended, and all persons One Liberty Square dealing with Eastern Utilities Associates must look Post Office Box 2333 solely to the trust property for the enforcement of any Boston, MA 02107 claims against Eastern Utilities Associates as neither (617) 357-9590 the Trustees, Officers nor Shareholders assume any John F. G. Eichorn, Jr., Chairman personal liability for obligations entered into on behalf of Eastern Utilities Associates.
Eastern Edison Company 110 Mulberry Street Annual Meeting Brockton, MA 02403 The 1986 Annual Shareholders Meeting will be held (617) 580-1213 on Tuesday, April 22,1986 at 10 a.m. in the Board Allan K. Hamer, President Room on the 33rd Floor at State Street Bank and Trust Comp :ny, 225 Franklin Street, Boston, Blackstone Valley Electric Company Massachusetts.
Washington Highway Lincoln, El 02865 (401) 333-1400 William R. Bisson, President 38
Trustees Oliver F. Ames (P) Wesley W. Maiple, Jr. (F)
Director, Fiduciary Trust Company, and Professor of Business Administration, Northeastern private trustee, Boston, Afassachuset:s liniversity Boston, Afassachusrtts John E. Conway (C, F) Donald G. Pardus Chai.ma t, Jack Conway & Co., Inc. President, Chief Financial Of4cer Hanove~, Afassachusetts and Treasurer of the Association Robert 1. Dexter (P) Margaret M. Stapleton (A F)
Chairrean, Abington Afutual Fire Second Vice President, John Hancock Insurance Company, Abington, Atutual Life Insurance Company, ,
hfassachusetts Boston, Afassachusetts John F. G. Eichorn, Jr. D. Reid Weedon, Jr. ( A)
Chairman and Chief Executive OfBcer benior Vice P~esident Arthur D. Little, Inc.
of the Association Cambridge, A h ssachusetts Peter B. Freeman (C, P)
Corporate Director and Trustee, A-Indicates memlwr of Audit Lommitter Providence, Rhode Island C-Indicates member of Compensation and
= Nathan H. Garrick, Jr. ( A, C) "#*'"'U"# #"""""
E ge,,,e, bindiates membn of Hnana Conuninu
( P-Indicates member of Pension Trust Commater Robert E. Maguire Executive Vice President of the Association Association Officers John F. G. Eichorn, Jr. .; ,. 7 , s y y- - l 1.
Chairman and e. -
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Chief Executive Of5cer '.
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Arthur A. Hatch %D , $ ~ [. . d
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William F. O'Connor .-
Secretary Association in December. He will ret.ain the position ~
of Chief Finanicial Officer.
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Attachment 9 0 < -
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F (1) t AGREEMENT OF PURCHASE AND SALE Agreement of Purchase and Sale made as of this 19th day of February, 1986 by and between Central Vermont Public Service Corporation, a Vermont corporation (" Seller"), and Eastern Utilities Associates, a Massachusetts trust with transferable shares ("EUA").
WHEREAS, Seller owns a 1.59096% undivided joint ownership interest in the Seabrook Project under the Seabrook Agreement; and WHEREAS, by letter of July.24, 1985, EUA has offered to purchase through a new subsidiary, EUA Power Corporation, a New Hampshire corporation (" Purchaser"), to be wholly-own0d by EUA, Seller's aforesaid ownership interest on terms and condi-tions to be set forth herein; and WHEREAS, EUA and Seller both believe that a purchase and sei? of Seller's ownership share on the terms and conditions contained herein are in their best interests.
NOW, THEREFORE, in consideration of the premises and of the mutual covenants set forth herein and for other good and valu-able consideration, receipt of which is hereby acknowledged, Seller and EUA, on behalf of itself and Purchaser, hereby agree as follows, EUA hereby undertaking for itself only such obliga-tions as are specifically designated herein as obligations of EUA.
4 F (1)
SECTION 1: DEFINITIONS.
I As used herein:
"Seabrook Project" shall mean the nuclear power faci-
~
1.1.
lities located in Seabrook, New Hampshire, including Seabrook Unit No. I and Seabrook Unit No. 2, and all nuclear fuel, real estate, personal property, contracts, rights, licenses, choses and intangibles connected therewith.
1.2. " Seller's ownership Share" shall mean all of Seller's 1.59096% undivided ownership interest and rights in the Seabrook Project and in the Transmission Support Agreement, including the right to sell tax-exempt securities relating to the Seabrook Project, and all of Seller's interest and rights in resolutions previously adopted authorizing the sale of such tax-exempt securities as spe ifically identified on the Schedule annexed hereto, but specifically excluding therefrom all prior sales of such securities by Seller.
1.3. "Seabrook Agreement" shall mean the Agreement for
-Joint Ownership, Construction and Operation of New Hampshire Nuclear Units, dated as of May 1, 1973, as amended from time to t^me to Closing.
1.4. " Owners" shall mean all of the entities which jointly own undivided interests in all of the Seabrook-Project. '
1.5.
" Final Order" shall mean an order which has become final by expiration of the period for appeal or for rehearing l or reconsideration, with no appeal or motion for rehearing or reconsideration having been filed; or if any appeal or motion l
l i
, - _ _ - . . . . - - _ - ~ - . - - - - - , - _
~ ._.
F (1)
. for rehearing or reconsideration has been filed, when such appeal is not permitted by applicable-law, or such appeal or motion has been denied, dismissed or determined.
1.6. " Transmission Support Agreement" shall mean the Transmission Support Agreement among Owners, dated M'ay 1, 1973, as. amended from time to time to Closing.
SECTION 2: CLOSING: CONSIDERATION: DOCUMENTATION.
t 2.1. At the Closing, as defined in Section 2.5, Seller shall sell, assign, transfer, deliver and convey to Purchaser, without warranty of any kind, on an "as is, where is" basis, all of Seller's right, title and interest in and to Seller's Ownership Share, free and clear of all material liens, security interests, charges and encumbrances and all claims for unpaid taxes (except for such liens, security interests and encum-brances existing on the interests of all of the Owners in the Seabrook Project), excluding expressly therefrom only Seller ~'s 1
causes of action, if any, existing at the time of Closing against parties to contracts and agreements relating to the Seabrook Project, including, without limitation, Owners, but not including EUA and EUA's subsidiaries.
2.2. At the Closing, Purchaser shall make the following .
payments to Seller:
(i) $9,300,000, of which $5,156,000 shall be allo-cated for construction costs incurred by seller with respect to Seabrook Unit No. 1 for the peri-od January 1, 1985 through May 31, 1985 and
$4,144,000 shall be allocated for Seller's nucle-ar fuel expenditures accrued prior to June 1, 1985;
~ ___. _ _ _
E (1)
(ii) the payments required by Section 4 below; and (iii) $4,400,000.
With respect to payments under Sections 2.2(ii) and 2.2(iii) above, each party hereto, irrespective of any other provision of this Agreement, may make such regulatory accounting and tax allocation as it shall deem appropriate.
2.3. At and after the Closing, Purchaser shall assume, pay,
. perform and discharge all of Seller's contractual obligations in respect of the Seabrook Project including, without limita-tion, contractual obligations under the Seabrook Agreement, the Transmission Supp' ort Agreement, and any resolutions of the owners or other agreements among the Owners relating to the Seabrook Agreement, regardless of when such obligations were incurred by Seller. Purchaser's obligations under this Section 2.3 specifically exclude all judgments, damages and awards against Seller arising out of litigation with respect to the Seabrook Project filed prior to the date hereof even though such judgments, damages or awards are entered hereafter.
2.4. Such sale, assignment, transfer, delivery and conveyance of Seller's ownership Share and assumption by Purchaser of obligations under the aforesaid contracts and 1 agreements shall be evidenced by such bi'ls of sale, instru-ments of assignment and assumption, deeds of conveyance and other documents executed, acknowledged and sealed by seller or by Purchaser, as the case may be, and delivered by one to the other, as may be reasonably requested by the party receiving
)
., F (1) such documents and instruments consistent with the terms of this Agreement, so as to vest fully in Purchaser the Ownership Share thereby acquired and to evidence that Purchaser has assumed obligations with respect thereto.
2.5. The Closing (" Closing") shall take place within 30 days after the satisfaction (or waiver by Seller or Purchaser, as the case may be) of each of the conditions set forth in Sections 5 and 6 of this Agreement, or upon such earlier date as Seller and Purchaser may hereafter agree upon in writing, it being the intention of Seller and Purchaser to proceed to Closing as expeditiously as.possible.
2.6. Unless the parties hereto shall otherwise mutually agree, all payments un' der this Agreement shall be made in cash or immediately available funds.
?
SECTION 3: OBLIGATIONS OF SELLER PENDING CLOSING.
3.1. Until the closing Date, seller, to the best of its financial ability, and unless specifically ordered not to do so by an agency, authority or court, state or federal, of compe-l tent jurisdiction, will make in a timely manner, in full, all payments due from Seller for its share of Seabrook Unit No. 1.
3.2. Until the Closing Date, Seller, at all meetings of Owners of the Seabrook Project, will vote with the majority of l 1
Owners on all proposals regarding construction funding of Seabrook Unit No. 1; provided, however, that Seller shall not !
be required to vote in favor of any proposals regarding con-
.- - - - _~ .
.~ , l F (1) b struction funding if Seller in the proper-exercise of its busi-ness judgment would consider such vote to be imprudent in terms of its then existing financial circumstances, in which event Seller will abstain from voting.
CECTION 4: OBLIGATIONS OF PURCHASER AT OR SUBSEQUENT TO CLOSING.
4.1. At the Closing Purchaser will:
i (a) Reimburse Seller for all cash payments made by Seller for costs hilled to Seller and incurred by Seller during the period June 1, 1985 through the closing Date, relating to Seller's interest in Seabrook Unit No. 1, including federal and/or state taxes incurred by seller.during said period occasioned by capitalization of Seller's carrying costs, whether or not such taxes have yet been paid by Seller and for payments made by Seller under the Transmission Support Agreement; and (b) Pay carrying charges to Seller at the rate of 12.8% per annum, compounded semi-annually, on January 1 and July 1, calculated (i) for the period June 1, 1985 to the Closing Date on the
, aforesaid payment of $9,300,000; (ii) for the periods from the respective dates of such pay-ments to the Closing Date, on all cash payments made or to be made by Seller that are to be E
reimbursed pursuant to Section 4.1(a) above; and (iii) upon amounts payable pursuant to Section 4.2 below for'the respective periods from the end i
of the months referred to in Section 4.2 below to
- the Closing Date.
4.2. For the period subsequent to October 31, 1985, Purchaser will pay to Seller, in addition to the payments pro-vided for in Se'ction 4.1 above:
(a) $300,000 per month for each of the months of November and December, 1985; and (b) $700,000 per month, for each of the months of January, February and March, 1986, prorated, if necessary, to the Closing Date, if the Closin'g takes place prior to March 31, 1986.
, , - - . . , - - - . . - , . - . . , , . - , . , . , . . - - . , . . _ . . , - , - - _ - - , , .,. . . . - . , , - , . . ~ - . - - .
n - -
F (.1)
The amounts, if any, payable by Purchaser to Seller provided for in Sections 4.2(a) and 4.2(b) shall be reduced on a dollar for dollar basis for all payments made or to be made by Purchaser to Seller for taxes incurred by Seller as set forth
.in Section 4.1(a) above.
4.3. Payments under this Section 4 shall be determined on the basis of financial information then available to Purchaser and Seller at the time such payments are to be made and shall be adjusted as soon as possible thereafter upon additional financial information becoming available which enables Purchaser and Seller to make a final determination of the amounts to be paid hereunder.
SECTION 5: CONDITIONS TO PURCHASER'S OBLIGATIONS.
Purchaser's obligation to consummate the purchase and sale of Seller's Ownership Share as herein provided shall be subject to such Ownership share being free and cl' ear as set forth in Section 2.1 above and to the fulfillment of each of the follow-ing conditions, unless expressly waived in writing by either EUA or Purchaser, at or prior to the Closing:
(a) Approvals of this Agreement by the Trustees of EUA, the Board of Directors of. Purchaser and the Board of Directors of Seller, each duly certified by a recording officer of each.
(b) Issuance of separate final orders of each of (i) the Securities and Exchange Commission, (ii) the New Hampshire Public Utilities Commission, (iii) the Federal Energy Regulatory Commission, (iv) the Vermont Public Service Board ("VPSB") and (v) the
F (1)
Nuclear Regulatory Commission, authorizing',
to the extent necessary under statutes-and regulations defining the authority and re-quirements of such Commissions and Board, respectively, the organization of Purchaser, the acquisition of. Purchaser by EUA, the cap-italization of Purchaser, the issue and sale
.of Purchaser's securities, the purchase and sale contemplated herein, the rate treatment-proposed by Purchaser and such other matters as EUA and Purchaser may reasonably deem to be necessary or appropriate, all upon such terms and conditions as EUA and Purchaser reasonably may deem to be satisfactory.
.. (c) Written waivers or releases, by all parties to the Seabrook Agreement, of~all provisions thereof purporting to limit the purchase and sale contemplated herein without the consent of one of more such parties, including, with-out limitation, Paragraph 23 of the Seabrook Agreement, in a manner satisfactory to EUA i and Purchaser,.or. written consents obtained '
for such' provisions as are not so waived o'r released, such waivers, releases and consents to be on terms and conditions reasonably sat-isfactory to EUA and Purchaser.
(d) Written waivers, releases or apprcvals by holders or trustees for holders of securities of EUA, Purchaser or any other subsidiary of EUA, of provisions, if any, prohibiting or
' restricting action necessary to the consumma-tion of the purchase and sale contemplated herein, such waivers, releases and' approvals to be on terms and conditions reasonably sat-isfactory to EUA and Purchaser.
(e) Obtaining for Purchaser of financing on terms satisfactory to EUA, sufficient to make the purchase of Seller's Ownership Share.
(f) Receipt by EUA and Purchaser of an opinion of Donald L. Rushford, Esq. and Ransmeier and Spellman, as counsel for the Seller, dated the date of Closing, in form and substance satisfactory to Purchaser and EUA and their counsel and substantially in the form previously submitted by EUA to such counsel for review.
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F (1)
!~.
SECTION 6 CONDITIONS TO SELLER'S OBLIGATIONS.
Seller's obligations to consummate the purchase and sale of Seller's ownership Share as herein contemplated shall be subject to the fulfillment of each of the following conditions, unless waived in writing by Seller, at or prior to the Closing:
(a) Approvals of this Agreement by the Trustees of EUA, the Board of Directors of Purchaser and the Board of Directors of Seller, each duly certified by a recording officer of each.
(b) Issuance by-the VPSB of a final order approving appropriate rate treatment, on terms satisfactory to Seller in its-sole discretion, with regard to its investment in Seabrook Unit No. 1 and Seabrook Unit No. 2.
(c) Issuance of the separate' final orders of t.he VPSB, the NRC, and the New Hampshire Public Utili-ties Commission referred to in Section 5 (b) above, ;
1 on terms and conditions reasonably satisfactory to Seller.
i (d) The conditions specified in Section 5(c) above, on terms and conditions reasonably sat-isfactory to Seller.
(e) Receipt by Seller, not more than 60 days after
)
the execution of this Agreement, from all ;
Owners of written releases, effective as of the closing, of Seller from all contractual obligations of Seller under the Seabrook i l
Agreement, the Transmission Support Agreement, and any resolutions of the Owners or other l i
agreements among the Owners relating to the !
Seabrook Agreement, regardless of when any such liabilities or obligations may have been incurred or accrued.
(f) Approval by all of the Owners, not more than 60 days after the execution of this Agreement, of a resolution releasing Seller, effective as of the Closing, from all of its liabilities and obligations under the Agreements e.nd resolutions referred to in Section 6 (e) above, regardless of when any such liabilities or obligations may have been incurred or accrued.
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s !
F (1)
(g) wa ivers, releases, consents or approvals by the Trustee under Seller's First Mortgage Bond Indenture and all lenders to Seller or holders I of Seller's recurities, which are required to consummate the contemplated purchase and sale, upon terms t.nd conditions' satisfactory to Sel-ler.
(h) Receipt by Seller of opinions of Devine,.
Millimet, Stahl & Branch, Professional Association, and Gaston Snow & Ely Bartlett, each dated the date of the closing, each in form and substance satisfactory to seller and its counsel and substantially in.the form previously submitted by EUA to Seller's counsel for his review.
SECTION 7: REPRESENTATIONS AND WARRANTIES.
7.1 Seller hereby represents and warrants to EUA and Purchaser: ;
9 (a) Seller is a corporation duly organized and 3
validly existing in good standing under the laws of the State of Vermont, and, subject to necessary regulatory or governmental ~ approvals or authorizations, has adequate corporate pow-er to effect the purchase and s'le a contem-plated herein and to carry out its obligations under this Agreement.
(b) Seller has full right, power and authority to execute and deliver this Agreement, and all corporate. action of-the Seller necessary for the execution and delivery of this Agreement has been duly taken.
(c) Seller does not know of any material lien, security interest, encumbrance or charge on i.ts ownership Share created by Seller, except for the lien of Seller's first mortgage bond indenture.
(d) The execution and delivery of this Agreement
! by Seller and, upon satisfaction'of the condi-tions' contained herein, the performance of its obligations hereunder do not violate any agreement to which Seller is a party or by which it may be bound.
i t
_, . _ . . . = ..
F (1) t e ,
7.2. EUA hereby represents and warrants to Seller:
(a) Purchaser is a corporation, duly organized and validly existing in good standing under the laws of the State of New Hampshire, and has adequate corporate power to purchase and own seller's ownership Share and to carry out its obligations under this Agreement.
(b) EUA is a trust with transferable shares organized under the laws of The Commonwealth of Massachusetts, and has full right, power and authority to execute and deliver this Agreement, and to perform _its obligations i
under this Agreement, and all corporate action of EUA necessary for the execution and deliv-ery of this Agreement has been duly taken.
(c) The execution and deliver i by EUA and by Purchaser, and,y of this uponAgreement satisfac-tion of the conditions contained herein, the performance by EUA of its obligations, and.the performance by Purchaser of its obligations
' -hereunder, do not and will not violate any agreement to which EUA or Purchaser is a-party or by which it may be bound.
t SECTION 8: BEST EFFORTS OBLIGATIONS.
8.1. EUA acknowledges that-it is committed to use its best 4
efforts, and Pur~ chaser, upon becoming a party hereto, will use
-its best efforts, to obtain or cause to be obtained as promptly as reasonably.possible all approvals, releases, waivers and
~
consents which, by the terms hereof, are required or appropri-
. ate in order to satisfy the conditions precedent to consumana-tion of the purchase and sale herein contemplated, and EUA
, hereby represents that it has so used its best efforts to the date hereof and represents, warrants and agrees that it will continue to do so until Closing or termination of this Agreement.
4 i-
_ _ _ _ . __ _ _ _ _ _ _ _ _ . . ~ . _ _ _ . _ _ . - _ - _ - _ . _ _ _ _ _ _ _ _ . _ _ . _ . _ _
F (1) 8.2. Seller makes to EUA and Purchaser the same acknowledg-ment, warranty, representation and agreement to use its best efforts as EUA and Purchaser make to Seller in Section 8.1 above, provided, however, that:
Seller's'best efforts to ob-tain approval from the Vermont Public Service Board shall not require Seller at any time to challenge the operations con-ducted by the current management of the Seabrook Project, including, without limitation, current management's estimates for construction and completion of Seabrook Unit No. 1.
SECTION 9: TERMINATION.
If the Closing does not occur by June 30, 1986 and EUA and Purchaser (or EUA) and Seller, respectively, shall not have irrevocably waived all conditions which have not been fulfilled by such date, under Sections 6 and 7, as to which eac has the power hereunder to so waive, then Seller or Purchaser (or EUA) may terminate this Agreement by giving written notice to such effect to Seller or to EUA, and Purchaser as the case may be, not l'ater than 5:00 P.M. on July 15, 1986.
SECTION 10: SEPARATE AND DISTINCT SINGLE AGREEMENT.
This Agreement'is a separate and distinct agreement, enforceable in accordance with its specific terms and is not I dependent in any way upon consummation of a purchase or purchases by Purchaser of Ownership Shares in the Seabrook Project from Bangor Hydro-Electric Company, Central Maine Power l
\
~
F (1)
Company or Maine Public Service Company. EUA has submitted to Seller copies of Agreements of Purchkse and Sale which it has '
executed or-proposes to execute with each of the aforesaid utility companies, and Seller, after review thereof, agrees that the terms and conditions contained in each are no more favorable than the terms and conditions contained herein, or consents to the omission from this Agreement of any provision of any such other Agreement or Agreements not included herein.
SECTION 11: CONSTRUCTION: ENT" AGREEMENT; PURCHASER AS PARTY.
11.1. This Agreement shall be ca.u,. c id and enforced in accordance with the laws of The Commons 'th of Massachusetts.
11.2. This Agreement constitutes the entire agreement between the parties with respect to the purchase and sale of Seller's Ownership Share and supersedes all previous understandings and agreements, written or oral, with respect thereto, including the letter agreement between EUA and Seller dated July 24, 1985.
11.3. Upon issue by the Securities and Exhange Commission of a final order authorizing issue of Purchaser's stock so that Purchaser becomes a wholly-owned subsidiary of EUA, Purchaser forthwith will become a party to this Agreement by the execu-tion and delivery of a separate document to such effect.
f
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F (1)
SECTION 12: NOTICES.
Any notice, request, instruction or other document to be given hereunder by Purchaser, Seller or EUA shall be in writing and delivered personally or sent by registered or certified mail, postage prepaid, if to Purchaser, addressed to John F.G.
.Eichorn, Jr., President, EUA Power Corporation, P.O. Box 2333, Boston, Massachusetts 02107; if.to. Seller addressed to James E.
Griffin,-President, 77 Grove Street, Rutland, VT 05701; and if to EUA, addressed to Donald G. Pardus, President, Eastern Utilities Associates, P.O. Box 2333, Boston, Massachusetts 02107; or to such other persons or addresses as may be desig-nated hereafter in writing by the party to receive such notice.
SECTION 13: EASTERN UTILITIES ASSOCIATES.
The name Eastern Utilities Associates ("EUA") is the desig-nation of the Trustees for the time being under a Declaration of Trust dated April 2, 1928, as amended. All persons dealing with EUA must look solely to the trust property for the enforcement of any claims against EUA, as neither the Trustees, officers or shareholders assume any personal liability for ob-ligations. entered into on behalf of EUA.
IN WITNESS WHEREOF, Central Vermont Public Service Corporation and Eastern Utilities Associates have caused these presents to be executed and their respective seals to be i
l
__== - . _ . . _-
F (1) affixed, each by their respective officers thereunto duly authorized as of the date first written above.
CENTRAL VERMONT PUBLIC SERVICE CORPORATION Attest: $ h. IhAb By l AA 44 - i 1 Se etary gs>eem gq EASTERN UTILITIES ASSOCIATES Attest: mrJ Sy & .]:$ -
/sec'retary w _ 2_- ~ -
President 4
f- . Attachment 10 i
% . F
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AGREEMENT OF PURCHASE AND SALE l
i Agreement of Purchase and Sale made this 19th day of F.ebruary, 1986 by and between Central Maine Power Company, a Maine corporation (" Seller"), and Eastern Utilities Associates, a Massachusetts trust with transferable shares ("EUA").
WHEREAS, Seller owns a 6.04178% undivided joint ownership interest in the Seabrook Project under the Seabrook Agreement; and ~
WHEREAS, by letter of July 31, 1985, EUA reached an Agreement in Principle with SelleN to purchase through a new subsidiary, EUA Power Corporation, a New Hampshire corporation
(" Purchaser"), to be wholly-owned by EUA, Seller's aforesaid ownership interest on terms and ccad2tions to be set forth herein.
NOW, THEREFORE, in consideration of the premises and of the mutual covenants set forth herein and for other good and valu-able consideration, receipt of which is hereby acknowledged, Selle,r; and EUA, on behalf of itself and Purchaser, hereby agree as fbilows, EUA hereby undertaking for itself only such obliga-tions as are specifically designated herein as obligations of EUA. .
-e f
SECTION 1: DEFINITIONS.
As used herein:
1.1. "Seabrook Project" shall mean the nuclear power' faci-lities located in Seabrook, New Hampshire, including Seabrook Unit No. I and Seabrook Unit No. 2, and all nuclear fuel, real -
estate, personal properry, contracts, rights, licenses, choses and intangibles connected therewith.
1.2. " Seller's Ownership Share" shall mean all of Seller's 6.04178% undivided ownership interest and rights in the Seabrook Project and in the Transmission Support Agreement, including the right to sell tax-exempt securities relating to the Seabrook Project, and all of Seller's interest and ' rights in resolutions previously adopted authorizing the sale of such tax-exempt securities as specifically identified on the Schedule annexed hereto.
1.3. "Seabrook Agreement" shall mean the Agreement for Joint Ownership, Construction and Operauion of New Hampshire Nuclear Units, dated as of May 1, 1973, as amended from time to time to Closing.
1.4. " Owners" shall mean all of the entities which jointly own undivided interests in all of the Seabrook Project.
~
1.5. " Final Order" shall mean an order which has become final by expiration of the period for appeal or for rehearing or reconsideration, with no appeal or motion for rehearing or reconsideration having been filed; or if any appeal or motion for rehearing or reconsideration has been filed, when such
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0 E
appeal is not permitted by epplicable law or such appeal or motion has been denied, dismissed or detsrmined.
l.c. " Transmission Support Agreement" shall mean the Transmission Support Agreement among the Owners, dated May 1, !
1973, as amended from time to time to Closing.
4 SECTION 2: CLOSING: CONSIDERATION: DOCUMENTATION.
2.1. At the Closing, as defined in Section 2.5, Seller shall sell, assign, transfer, deliver and convey to Purchaser, without warranty of any kind, on an "as is,'where is" basis, all of Seller's.right, title and interest in and to Seller's ownership ~ Share, free and clear of all material liens, security interests, charges and encumbrances and all claims for unpaid taxes (except for such liens, security interests and encum-brances existing on'the interests of all of the Owners in the
'Seabrook Project), excluding expressly therefrom only Seller's causes of action, if any, existing at the time of closing against parties to contracts and agreements relating to the Seabrook Project, including, without limitation, Owners, but not including EUA and EUA's subsidaries.
2.2. At the Closing, Purchaser shall make the following payments to Se~11er:
(i) $35,000,000, of which $19,164,000 shall be allo-
' cated for construction costs incurred by Seller with' respect to Seabrook Unit No. 1, for the period January 1, 1985 through May 31, 1985 and
$15,836,000 shall be allocated for Seller's nu-clear fuel expendituras accrued-prior to June 1, 1985; -
E t I (ii) the payments required by Section 4 below; and (iii) '816,500,000.
With respect to payments under Sections 2.2(11) and 2.2(iii)
~
above, each party hereto, irrespective of any other provisions of this Agreement, may make such regulatory, accounting and tax allocations as it shall deem appropriate.
2.3. At and after the Closing, Purchaser.shall assume, pay, perform and discharge all of Seller's contractual obligations in respect of the Seabrook Project, including without limita- ,
tion, contractual obligations under che Seabrook Agreement, the Transmission support Agreement, and any resolutions of the Owners or other agreements among the Owners relating to the Seabrook Agreement, regardless of when such obligations were incurred by Seller. Purchaser's obligations under this section 2.3 specifically exclude (i) all judgmentc, damages and '
awards against Seller arising out of litigation with respect to the Seabrook Project filed prior to the date hereof even though such judgments, damages or awards are entered hereafter; and (ii) Seller's obligations on $8,500,000 of oucstanding:pollu-tion control notes referred to in Sectian 6(g) below.
2.4. Such sale, assignment, transfer, delivery and conveyance of seller's Ownership Share and assumption by-Purchaser of obligations under the aforesaid contracts and agreements shall be evidenced by such bills of sale, instru-ments of assignment and assumption, deeds of conveyance and other documents executed, acknowledged and sealed by Seller or
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E by Purchaser, as the' case may be,land delivered by one to the other, as may be' reasonably requested by the party receiving j such. documents and instruments, so as to vest fully in
. Purchaser the Ownership Share thereby acquired and to evidence that Purchacer has assumed obligations with respect thereto.
2.5. The Closing (" Closing") shall take place within 30 days after the satisfaction (or waiver by Seller or l Purchaser, as the case may be) of each of the conditions set l forth in Sections 5 and 6 of this Agreement, or upon such earlier date as Seller and Purchaser may hereafter agree upon in writing, it being the intention of Seller and Purchaser to proceed to closing as expeditiously as possible.
2.6. All payments under this Agreement shall be made in
! cash or immediately available funds, or by one or more promis-I sory notes secured by a purchase money mortgage or otherwise, as the parties hereto may' agree.
SECTION 3: OBLIGATIONS OF SELLER PENDING CLOSING.
i 3.1. Until the Closing Date, seller, to the best of its financial ability, and unless specifically ordered not to do so by an agency, authority or court, state or federal, of compe-tent jurisdiction, will make in a timely manner, in full, all t
p.ayments due from Seller for its share of Seabrook Unit No. 1.
3.2.
Until the Closing Date, Seller, at all meetings of owners of the Seabrook Project, will vote with the majority of i
Owners on all proposals regarding construccion funding of
-S-
. E Seabrook Unit No. 1; provided, however, that Seller shall not
.be required to vote in favor of any proposals regarding con- i struction funding if seller in the proper exercise of its busi-ness judgment would consider such vote to be imprudent in terms of its then existing financial circumstances, in which event Seller will abstain from voting.
SECTION 4: OBLIGATIONS OF PURCHASER AT OR SUBSEQUENT TO CLOSING.
4.1. At the Closing Purchaser will:
(a) Reimburse Seller for all cash payments made by Seller for costs billed to seller and incurred by 4
Seller during the period June 1, 1985 through the Closing Date, relating to Seller's interest in Seabrook Unit No. 1, including federal and/or state taxes incurred by seller during said period occasioned by capitalization of. Seller's carrying costs, whether or not
! such taxes have yet been paid by Seller and for payments made by Seller under the Transmission Support Agreement: and (b) Pay carrying charges to Sellerfat the rate of 12.8% per annum, compounded semi-annually on January 1 and July 1, calculated (i) for the pericd June 1, 1985 to the Closing Date on the aforesaid payment of $35,000,000; (ii) for the periods from the respective dates of such pay-ments to the Closing Date, on all cash payments made or to be made by Seller that are to be reimbursed pursuant to Section 4.1(a) above; and (iii) upon amounts payable pursuant to Section 4.2 below for the respective periods from the end of the months referred to in said Section 4.2 to'the Closing Date.
4.2. For the period subsequent to October 31, 1985, Purchaser will pay to seller, in addition to the payments pro-vided for in Section 4.1 above:
(a) $1,000,000 per month for each of the months of November and December, 1985; and
. E 4
(b) $2,500,000 per month, for each of the months of January,. February and March, 1986, procated, if necessary, to the Closing Date, if the Closing takes place prior to March 31, 1986.
The amounts, if any, payable by Purchaser to Seller provided for in Sections 4.2(a) and 4.2(b) shall be reduced on a dollar for dollar basis for all payments made or to be made by Purchaser to Seller for taxes incurred by Seller as set forth in Section 4.1(a) above.
4.3.
Payments'under this Section 4 made at the Closing shall be in immediately available funds, or as otherwise agreed upon by the parties hereto, the amounts thereof determined on the basis of financial information then available to Purchaser and Seller, and shall be adjusted as soon as possible here-after upon additional financial information becoming available which enables Purchaser and Seller to make a final determin-ation of the amounts to be paid hereunder.
SECTION 5: CONDITIONS TO PURCHASER'S OBLIGATIONS.
Purchaser's obligation to consummate the purchase and sale of Seller's Ownership Share as herein provided shall be subject to such Ownership share being free and clear as set forth in Section 2.1 above and to the fulfillment of each of the follow-ing conditions, unless expressly waived in writing by either EUA or Furchaser, at or prior to the Closing:
(a) Approvals of this Agreement by the Trustees of EUA, the Bcard of Directors of Put'haser and the Board of Di;ettors of Seller, each duly certified by a tacording officer of each.
E (b) . Issuance of separate final orders of each of (1). the Securities and Exchange Commission,
('ii) the New Hampshire Public Utilities commission, (iii) the Federal Energy Regulatory Commission, (iv) the Maine Public Utilities Commission ("MPUC") and (v) the Nuclear Regulatory Commission, authorizing, to the extent necessary under statutes and regulations defining the authority and re-quirements of such Commissions respectively, the organization of Purchaser, the acquisi-tion of Purchaser by EUA, the capitalization of Purchaser, the issue and sale of Purchaser's securities, the purchase and sale contemplated herein, the rate treatment pro-posed tar Purchaser and such other matters as EUA and Purchaser may reasonably deem to be necessary or appropriate, all upon such terms and conditions aa EUA and Purchaser reason-ably may deem to be satisfactory.
(c) Written waivers or releases, by all parties to the Seabrook Agreement, of all provisions thereof purporting to limit the purchase and sale contemplated herein without the consent of one or more such parties, including, with-out limitation, Paragraph 23 of the Seabrook Agreement, in a manner satisfactory to EUA and Purchaser, or written consents obtained for such provisions as are not so waived or released, such waivers, releases and consents to be on terms and conditions reasonably cat-isfactory to EUA and Purchaser.
(d) Written waivers, releases or approvals by holders or trustees for holders of securities of EUA, Purchaser or any other subsidiary of EUA, of provisions, if any, prohibiting or restricting action necessary to the consumma-tion of the purchase and sale ~ contemplated herein, such waivers, releases and approvals to be on terms and conditions reasonably sat-
'isfactory to EUA and Purchaser.
(e) Obtaining for Purchaser of financing on terms satisfactory to EUA, sufficient to make the purchase of Seller's Ownership Share.
(f) Receipt by EUA and Purchaser of opinions of Pierce, Atwood, Scribner, Allen, Smith &
Lancaster, and of Ransmeier & Spellman, as
-. _-2--.- .,,,,. _. . , _ , . , - - . _ _ _ , , _ _ . _ - _ , - _ . _ -. , , .m.,,,,y- -_3, y-.y. _ _ - . - , _ - -
,y --- -
E counsel for the Seller, dated the date of the Closing, each in form and substance satisfac-tory to Purchaser and EUA and their counsel.
SECTION 6: CONDITIONS TO SELLER'S OBLIGATIONS.
Seller's obligations to consummate the purchase and sale of Seller's Ownership Share as herein contemplated shall be subject to the fulfillment of each of the following conditions, unless waived in writing by seller, at or prior to the Closing.
(a) Approvals of this Agreement by the Trustees of EUA, the Board of Directors of Purchaser and the Beard of Directors of Seller, each duly certified by a recording officer of each.
(b) Issuance by the MPUC of a final order approving the purchase and sale contemplated herein upon such terms and conditions as seller reasonably may deem to be satisfactory' and providing among other things, and without limitation (i) that said Commission's Orders in Docket No.84-120 entered on May 31, 1985 and June 3, 1985 remain in full force and effect, and (ii) that the consideration payable to Seller hereunder shall be allocated irrespective of allocations.otherwise provided in this Agreement for regulatory and rate '
making purposes in accordance with Seller's rate making request to the MPUC witn respect to the transaction contemplated herein; and that the rate-making treatment of the consid-eration payable to seller hereunder will pro-duce no further write-offs or other adverse income statement impact other than those relating to the recapture of investment tax credits.
(c) Issuance of the separate final orders of the Securities and Exchange Commission and the New Hampshire Public Utilities Commission referred to in Section 5(b) above, on terms and condi-tions reasonably satisfactory to Seller.
(d) The conditions specified in Section 5(c) above, on terms and conditions reasonably sat-isfactory to seller.
-9
I E
9 (e) Receipt by Seller, not more than 60 days after the execution of this Agreement, fecm all Owners of written _ releases, effective as of I the Closing, of seller from all contractual obligations of seller under the Seabrook ,
Agreement, the Transmission Support Agreement, l and any resolutions of the Owners or other agreements among the Owners relating to the Seabrook Agreement, regardless of when any such liabilities or obligations may have been incurred or accrued.
(f) Approval by all of the owners, not more than 60 days after the execution of this Agreement, of a resolution releasing Seller, effective as of the Closing, from all of its liabilities and obligations under the Agreements and resolutions referred to in Section 6(e) above, regardless of when any such liabilities or obligations may have been incurred or-accrued. ,
l (g) Seller shall not be required, as a result of 1
the transactions contemplated herein, to retire any of its outstanding bonds or other obligations, (other than bonds-equal to the cash consideration received hereunder and refunding of seller's obligations with respect to $8,500,000 of pollution control facility notes).
(h) The trustee under Seller's First Mortgage Indenture shall not advise that the sale by Seller as herein contemplated results in a reduction of the bondable additions account under said Indenture.
(i) Waivers, releases, consents-or approvals by all lenders to seller or holders of Seller's securities, which are required to consummate the contemplated purchase and sale, upon terms and conditions satisfactory to Seller.
(j) Receipt by Seller of opinions of Devine, Millimet, Stahl & Branch, Professional Association, and Gaston Snow & Ely Bartlett, each dated the date of the Closing, each in form and substance satisfactory to seller and i its counsel.
i
l .
SECTION 7: REPRESENTATIONS AND WARRANTIES.
7.1. Seller hereby represents and warrants to EUA and Purchaser:
(a) Seller is a corporation duly organized and validly existing in good standing under-the laws of the State of Maine, and, subject to any necessary regulatory or governmental approvals or authorization, has adequate cor-porate power to effect the purchase and sale contemplated'herein and to carry out itr obli-gations under this Agreement.
, (b) Seller has full right, power and authority to execute and deliver this Agreement, and all corporate action of the Seller necessary for the execution and delivery of this Agreement has been duly taken.
I (c) Seller does not know of any material lien, security interest,. encumbrance or charge on its Ownership Share created by Seller except for the liens under its First Mortgage and General and Refunding Mortgage.
(d) The execution and delivery of this Agreement by seller and, upon satisfaction of the condi-tions contained herein, the performance of its obligations hareunder do not violate any agreement to which Seller is a party or by whicn it may be bound.
7.2. EUA hereby represents and warrants to Seller:
(a) Purchaser is a corporation, duly organized and 4
validly existing in good standing under the laws of the State of New Hampshire, and has adequate corporate power to purchase and own Seller's Ownership Share and to carry out its
. obligations under this Agreement.
(b) EUA is a trust with transferable shares organized under the laws of The Commonwealth.
of Massachuetts and has full right, power and authority to execute and deliver this Agreement and to perform its obligations under this Agreement, and all corporate action of EUA necessary for the execution and delivery of this Agreeraent has 'been duly taken.
F (c) The execution and delivery cc this Agreement by EUA and by Purchaser, ar.d, upon satisfac-tion of conditions contaired herein, the per-formance by EUA of its ob.igations, and the performance by Purchaser of its obligations hereunder, do not and will not violate any agreement to which EUA or Purchaser is a party or by which it may be bound.
SECTION 8: BEST EFFORTS OBLIGATIONS.
8.1. EUA acknowledges that it is committed to use its best efforts, and Purchaser, upon becoming a party hereto, will use its best efforts, to obtain or cat'se to be obtained as promptly as reasonably possible all approvals, releases, waivers and consents which, by the terms hereof, are required or appropri-ate in order to satisfy the conditions precedent to consumma-tion of the purchase and sale herein contemplated, and EUA herecy represents that it has so used its best efforts to the date hereof and represents, warrants and agrees that it will continue to do so until closing or termination of this Agreement.
8.2.
Seller makes to EUA and Purchaser the same acknowledg-ment, warranty, representation and agreement to use its best efforts as EUA and Purchaser make to Seller in Section 8.1 above, provided, however, that (i) Seller's best efforts to obtain approvals from the MPUC shall not require Seller at any time to challenge the operations conducted by the current man-agement of the Seabrook Project, including, without limitation, current management's estimates for construction and completion
F of Seabrook Unit No. 1; (11) Seller shall have no obligation to commence litigation in order to obtain the consent or approval of the trustee of its First Mortgage Indenture to the consumma-tion of the purchase and sale contemplated herein or to waive the condition referred to in Section 6(h); and (iii) Seller shall not be required to retire any of its outstanding bonds or other obligations, except as specifically stated in Section 6(g) above.
SECTION 9: TERMINATION.
if the Closing does not occur by June 30, 1986 and Purchaser (or EUA) and Seller, respectively, shall not have irrevocably waived all conditions which have not been fulfilled by such date under Sections 6 and 7 as to which each has the power hereunder to so waive, then Seller or Purchaser (or EUA) may terminate this Agreement by giving written notice to such effect to Seller or to EUA and Purchaser, as the case may be, not later than 5:00 P.M. on July 15, 1986.
SECTION 10: SEPARATE AND DISTINCT SINGLE AGREEMENT.
This. Agreement is a separate and distinct agreement, enforceable in accordance with its specific terms and is not dependent in any way upon consummation of.a purchase or purchases by Purchaser of Ownership Shares in the Seabrook Project of Bangor Hydro-Electric Company, Maine Public Service Company or Central Vermont Public Service Corporation. EUA has
E
' submitted to Seller copies of Agreements of Purchase and Sale
(" Agreement" or (" Agreements") which it has executed or pro-i- t poses to execute with each of the aforesaid utility companies, and Seller, after review thereof, either agrees'that the terms and conditions contained'in each are'no more favorable than the terms and conditions contained herein, or consents to the omission from this Agreement of any provision of any such- other E
Agreement or Agreements not included herein.
(
SECTION 11: CONSTRUCTION: ENTIRE AGREEMENT; PURCHASER AS PARTY.
11.1. This Agreement shall be construed and 6nforced in accordance with the laws of The Commonwealth of Massachusetts.
- 11.2. This Agreement constitutes the entire agreement between the parties with respect to the purchass and sale of Seller's Ownership Share and supersedes all previous understandings and agreements, written or oral, with respect l
thereto, including the Agreement in Principle between EUA and L Seller dated July 31, 1485.
11.3. Upon issue by the Securities and Exchange Commission of a final order authorizing issue of Purchaser's stock so that l Purchaser becomes a wholly-owned subsidiary of EUA, Purchascr i
forthwith will become a party to this Agreement by the execu-tion and delivery of a separate document to such effect.
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n ;
l i
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- E SECTION 12: NOTICES.
Any notice, request, instruction or other document to be given hereunder by Purchaser: Seller or EUA shall be in writing and delivered personally or sent by registered or' certified mail, postage prepaid, if to the Purchaser, addressed to John F.G. Eichorn, Jr., President, EUA Power Corporation, P.O.
Box 2333, Boston, Massachusetts 02107; if to Seller, addressed to John W. Rowe, President, Central Maine Power Company, Edison Drive, Augusta, Maine 04336; and if to EUA, addressed to Donald G. Pardus, President, Eastern Utilities Associates, P.O.
Box 2333, Boston, Massachusetts 02107; or to such other persons
-or addresses as may be designated hereafter in writing by the party to receive such notice.
SECTION 13: EASTERN UTILITIES ASSOCIATES.
The name Eastern Utilities Associates ("EUA") is the desig-nation of the Trustees for the time being under a Declarction of Trust dated April 2, 1928, as amended. All persons dealing with EUA must look solely to the_ trust property for the enforcement of any claims against EUA, as neither the Trustees, officers or shareholders assume any personal liability for ob-ligations entered into on behalf of EUA.
IN WITNESS WHEREOF, Central Maine Power Company and Eastern i Utilities As93ciates have caused these presents to be executed 1
)
i
r- -
o
~
E and their respective seals to be affixed, each by their respec-tive officers thereunto duly authorized, as of the date first written above.
CENTRAL MAINE POWER COMPANY Q
Attest:
9et:re tary T By
// IO' Prerident
,' /
EASTERN UTILITIES ASSOCIATES Attest: er By M M ,-
pdr'6(ary President t
e
z.E2h6iDiat 11 6
, E AGREEMENT OF PURCHASE AND SALE Agreement of Purchase and Sale made this 19th day of February, 1986 by and between Bangor Hydro-Electric Company,.a Maine corporation (" Seller"), and Eastern Utilities Associates, a Massachusetts trust with transferable shares ("EUA").
WHEREA3, Seller owns a 2.17391% undivided joint ownership interest in the Seabrcok Project under the Seabrook Agreement; and WHEREAS, by letter of July 24, 1985,'EUA has offered to purchase through a new subsidiary, EUA Power Corporation, a New Hampshire corporation (" Purchaser"), to be wholly-owned by EUA, Seller's aforesaid ownership interest on terms and contfitions to be' set forth herein.
NOW, THEP.EFORE, in consideration of the premises and of the mutual covenants set forth herein and for oths: good and valu-able consideration, receipt of which is hereby teknowledged, Seller and EUA, on behalf of itself and Purchaser, hereby agree as follows, EUA hereby undertaking for itself only such obliga-tions as are specifically designated herein as obligations of EUA.
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J SECTION 1: DEFINITIONS.
As used.herein:
1.1.
"Seabrook Project" shall nean the nuclear power f aci-lities located in Seabrook, New Hampshire, including Seabrook Unit No. 1 and Seabrook Unit No. 2, and all nuclear ~ fuel, real estate, personal property, contracts, rights, licenses, choses and intangibles connected therewith, t "
1.2. ' Seller's Ownership Share" shall mean all of seller's 2.17391% undivided ownership interest and rights in the Seabrook Project and in the Transmission Support Agreement, including the right to sell tax-exempt securities relating to the Seabrook Project, and all of Seller's interest and : rights in resolutions previously adopted authorizing the sale of such tax-exempt securities as specifically identified on the j Schedule. annexed hereto.
1.3. "Seabrook Agreement" shall mean the Agreement for Joint Ownership, Construction and Operation of New Hampshire Nuclear Units, dated as of May 1, 1973, as amended from time to time to closing. '
1.4.
" Owners" shall mean all of the entities which jointly own undivided interests in all of the Seabrook Project.
1.5.
" Final Order" shall mean an order which has become final by expiration of the period for appeal or for rehearing i
or reconsideration, with no appeal or motion for rehearing or reconsideration having been filed: or if any appeal or motion for rehearing or reconsideration has been filed, when such 1
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E appeal is not permitted by applicable law, or such appeal or motion has been denied, dismissed or determined.
1.6. " Transmission Support Agreement" shall mean the I Transmission Support Agreement among the Owners, dated May 1, i
1973, as amended from time to time to Closing.
SECTION 2: CLOSING: CONSIDERATION: DOCUMENTATION.
2.1. At the closing, as defined in Section 2.5, Seller shall sell, assign, transfer, deliver and convey to Purchaser, without warranty of any kind, on an "as is, where is" basis, all of seller's right, title and interest in and to Seller's Ownership Share, free and clear of all material liens, security interests, charges and encumbrances and all claims for unpaid taxes (except for such liens, security interests and encum-l brances existing on the interests of all of the Owners in the Seabrook Project), excluding expressly therefrom only Seller's causes of action, if any, existing at the time of closing against parties to contracts and agreements relating to the Seabrook Project, including, without limitation, Owners, but i not including EUA and EUA's subsidiaries.
2.2. At the Closing, Purchaser shall make the following payments to Seller:
(i) 512,600,000, of which $6,600,000 shall be allo-cated for construction costs incurred by Seller with respect to 3eabrook Unit No. 1 for the peri-od January.1, 1985 through May 31, 1985 and
' $6,000,000 shall be allocated for Seller's nucle-ar fuel expenditures accrued prior to June 1, 1985;
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(ii) the payments required by Section 4 below; and
. (iii) 86.000,000.
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j With respect to payments under Section 2.2(11) and.2.2(iii)
'above, each party hereto, irrespective of any other provision of this Agreement may make such regulatory, accounting and tax
' allocations as it shall deem appropriate.
2.3.
At and after the Closing, Purchaser shall. assume, pay, perform and discharge all of Seller's contractual obligations in respect of the Seabrook Project, including, without limita-tion, contractual obligations under the Seabrook Agreement, the Transmission Support Agreement, and any resolutions of the owners or other agreements among the owners relating to the Seabrook Agreement, regardless of when such obligations were incurred by Seller. Purchaser's obligations under this Section 2.3 specifically exclude all judgments, damages and awards against Seller arising out of litigation with respect to tho'Seabrook Project filed prior to the date hereof even though such judgments, damages or awards are entered hereafter.
l 2.4. Such sale, assignment, transfer, delivery and
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conveyance of Seller's ownership Share and assumption by l Purchaser of obligations under the aforesaid contracts and agreements shall be evidenced by such bills of sale, instru-t ments of assignment and assumption, deeds of conveyance and '
other documents executed, acknowledged and sealed by Seller or by Purchaser, as the case may be, and delivered by one to the other, as may be reasonably requested by the party receiving i
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I such docummuts and instruments, so as to vest fully in Purchaser the Ownership Share thereby acquired and to evidence that Purchaser has assumed obligations with respect thereto.
2.5. The Closing (" Closing") shall take place within 30 days after the satisfaction (or waiver by Seller or Purchaser, as the case may be) of each of the conditions set forth in Sections 6 and 7 of this Agreement, or upon such earlier date as Seller and Purchaser may hereafter agree upon in writing, it being the intention of Seller and Purchaser to proceed to Closing as expeditiously as possible.
2.6. t Unless the parties hereto shall otherwise mutually agree, all payments under this Agreement shall be made in cash or immediately available funds.
4 SECTION 3: OBLIGATIONS OF SELLER PERDING CLOSING.
3.1. Until the. Closing Date, Seller, to the best of its i
financial ability, and unless specifically ordered not to do so by an agency, authority or court, state or federal, of compe-tent jurisdiction, will make in a timely manner, in full, all payments due from Seller for its share of Seabrook Unit No. 1.
3.2.
Until the Closing Date, Seller, at all meetings of Owners of the Seabrook Project, will vote with the majority of Owners en all proposals regarding construction funding of Seabrook Unit No. 1; provided, however, that Seller shall not be required to vote in favor of any proposals regarding con- !
struction funding if Seller in the proper exercise of its busi-l l
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E ness judgment would consider such vote to be imprudent in terms of its then existing financial circumstances, in which event Seller will. abstain from voting.
SECTION 4: OBLIGATIONS OF PURCHASER AT OR SUBSEQUENT TO CLOSING.
4.1. At the Closing Purchaser will:
(a) Reimburse Seller for all cash payments made by Seller for costs billed to Seller and incurred by Seller during the period June 1, 1985 through the Closing Date, relating to seller's interest in Seabrook Unit No. 1, including federal and/or state taxes incurred by seller during said period
- occasioned by capitalization of seller's carrying costs, whether or not such taxes have yet been paid by seller, and for payments made by seller under the Transmissten Support Agreement; and (b) Pay carrying charges to Seller at the rate of
- 12.8% p.or annum, compounded semi-annually, on January 1, and July 1, calculated (i) for the period June 1, 1985 to the Closing Date on the aforesaid payment of $12,600,000: (ii) for the periods from the respective dates of such pay-monts to the Closing Date, on all cash payments made or to be made by Seller that are to be reimbursed pursuant to Section 4.1(a) above; and (iii) upon amounts payable pursuant to Section 4.2 below for the respective periods from the end below to of thethe Closing months referred to in Section 4.2 Date.
4.2. For the period subsequent to October 31, 1985, Purchaser will pay to Seller, in addition to the payments pro-vided for in Section 4.1'above:
', (a) 8360,000 per month for each of the months of November and December, 1985; and i l
(b) $899,000 per month, for each of the months of January, February and March, 1986 (procated, if necessary, to'the Closing Date, if the closing takes place prior to March 31, 1986).
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E The amounts, if any, payable by Purchaser to Seller provided 1 for in Sections 4.2(a) and 4.2(b) shall be reduced on a dollar for dollar basis for all payments made or to be made by Purchaser to Seller for taxes incurred by Seller as set forth in Section 4.1(a) above.
4.3. Payments under this Section 4 shall be determined on
- the basis of financial information then available to Purchaser and Seller at the time such payments are to be made and shall be adjusted as soon as possible thereafter upon additional financial information becoming available which enables Purchaser and Seller to make a final determination of the amounts to be paid hereunder.
SECTION 5: CONDITIONS TO PURCHASER *S OBLIGATIONS.
Purchaser's obligation to consummate the purchase and sale of seller's ownership Share as herein provided shall be. subject to such ownership share being free and clear as set forth in Section 2.1 above and to the fulfillment of each of the follow-ing conditions, unless expressly waived in writing by either i
EUA or Purchaser, at or prior to the Closing:
(a) Approvals of this Agreement by the Trustees of EUA, the Board of Directors of Purchaser and the Board of Directors of Seller, each duly certified by a recording officer of each.
(b) Issuance of separate final orders of each of (i) the Securities and Exchange Commission, l
([i) the New Hampshire Public Utilities Commission, (iii) the Federal Energy Regulatory Commission, (iv) the Maine Public Utilities Commission ("MPUC"), and (v) the
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Nuclear Regulatory Commission, authorizing, to the extent necessary under statutes and regulations defining the authority and re-quirements of such Commissions, respectively, the organization of Purchaser, the acquisi-tion of Purchaser by EUA, the capitalization of Purchaser, the issue and sale of Purchaser's securities, the purchase and sale contemplated herein, the rate treatment pro-posed by Purchaser and such othec matters is EUA and Purchaser may reasonably deem to be necessary or appropriate, all upon such terms and conditions as EUA and Purchaser reason-ably may deem to be satisfactory.
(c) Written waivers or releases, by all parties to the Seabrook Agreement, of all provisions thereof purporting.to limit the purchase and sale contemplated herein without the consent of one or more such parties, including,.with-out limitation, Paragraph 23 of the Seabrook Agreement', in a manner satisfactory to EUA and Purchaser, or written consents obtained for such provisions as are not so waived or released, such waivers, releases and consents to be on terms and conditions reasonably sat-isfactory to EUA and Purchaser.
(d) Written waivers, releases or approvals by holders or trustees for holders of securities of EUA, Purchaser or any other subsidiary of EUA, of provisions, if any, prohibiting or restricting action necessary to thv consumma-tion of the purchase and sale contemplated herein, such waivers, releases and approvals to be on terms and conditions reasonably sat-isfactory to EUA and Purchaser.
(e) Obtaining for Purchaser of financing on terms satisfactory to EUA, sufficient to make the
- purchase of Seller's ownership Share.
(f) Receipt by EUA and Purchaser of opinions of Robert S. Briggs, Esq. and Ransmeier and Spellman, as counsel for the Seller, each dated the date of the closing, and each in form and substance satisfactory to Purchaser and EUA and their counsel.
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SECTION 6: CONDITIONS TO SELLER'S OBLIGATIONS. !
i seller's obligations to consummate the purchase and sale of Seller's ownership Share as herein contemplated shall be 1 subject to the fulfillment of each of'the following conditions, l unless waived in writing by Seller, at or prior to the Closing:
(a) Approvals of this Agreement by the Trustees of EUA, the Board of Directors of Purchaser and the Board of Directors of Seller, each duly certified by a recording officer of each.
(b) Issuance of a final order or orders by the
.MPUC approving the sale of Seller's Ownership Interest without the im burdensome conditions, position of undue or in Seller's opinion, and which provides Seller with reasonable assurance that consummation of the purchase and sale provided herein will cause no further write-offs or other adverse income statement impact, other than recapture of investment tax i credits, if any.
(c) Issuance by the Federal Energy Regulatory Commission of a final order approving appro-priate rate treatment, ou terms satisfactory to seller in its sole discretion, with regard to its investment Seabrook Unit No. in2.Seabrook Unit No. 1 and (d) Issuance of a final order by MPUC approving appropriate rate treatment, on terms satisfac-tory to Seller, with regard to its unrecovered investment Unit No. 2. in Seacrook Unit No. 1 and Seabrook (e) Issuance of the separate final orders of the Securities and Exchange Commission and the New Hampshire Public Utilities Commission referred to in Section 5(b) above, on terms and condi-l tions reasonably satisfactory to seller.
(f) The conditions specified in Section 5(c) t above, on terms and conditions reasonably sat-isfactory to Seller.
(g) Receipt by Seller, not more than 60 days after
! the execution of this Agreement, from all l
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E Owners of written releases, effective as of i the closing, of seller from all contractual obligations of Seller under the Seabrook l
Agreement, the Transmission Support Agreement, and any resolutions of the Owners or other agreements among the Owners relating to the Seabrook Agreement, regardless of when any such liabilities or obligations may have been incurred or accrued.
(h) Approval by all of the Owners, not more than 60 days after the execution of this Agreement, of a resolution releasing Seller, effective as of the closing, from all of its liabilities and obligations under the Agreements and resolutions referred to in Section 6(g) above, regardless of when any such liabilities or obligations may have been incurred or accrued.
(i) Waivers, releases, consents or approvals by the trustee under Seller's first mortgage bond indenture and all lenders to seller or holders of Seller's securities, which are required to consummate the contemplated purchase and sale,
' upon terms and conditions satisfactory to Seller.
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(j) Receipt by Seller of opinions of Devine, Millimet, Stahl.& Branch, Professional Association, and Gaston Snow & Ely Bartlett, each dated the date of the Closing, each in form and substance satisfactory to Seller and its counsel.
j SECTION 7: REPRESENTATIONS AND WARRANTIES.
7.1. Seller hereby represents and warrants to EUA and Purchaser:
(a) Seller is a corporation duly organized and validly existing in good standing under the laws of the State of Maine, and subject to necessary regulatory or governmental approvals or authorizations, hus~ adequate corporate pow-er to effect the purchase and sale contem-plated herein and to carry out its obligations under this Agreement.
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. E (b) Seller has full right, power and authority to execute and deliver this Agreement, and all
'. corporate action of the Seller necessary for the execution and delivery of this Agreement has been duly taken. i I
(c) Seller does not know of'any material-lien, i
security interest, encumbrance or charge on
. its ownership Share created by Seller, except !
1 for the lien of Seller's first mortgage bond indenture.
(d) The execution and delivery of this Agreement by Seller and, upon satisfaction of the condi-i tions contained herein, the performance of its
- obligations hereunder do not violate any agreement which it may to bewhich bound.Seller is a party or by 7.2. EUA hereby represents and warrants to seller:
(a) Purchaser is a corporation, duly organized and i validly existing in good standing under the laws of the State of New Hampshire, and has adequate corporate power to purchase and own Seller's ownership Share and to carry out its obligations under this Agreement.
(b) EUA is a trust with transferable shares organized under the laws of The Commonwealth of Massachusetts, and has full right, power
- and authority to execute and deliver this Agreement, and to perform its obligations under this Agreement, and all corporate action of EUA necessary for the execution and deliv-ery of this Agreement has been duly taken.
(c) The execution and delivery of this Agreement by EUA and by Purchaser and, upon satisfaction of the conditions contained herein, the per-formance by EUA of its obligations, and the performance by Purchaser of its obligations hereunder, do not and will not violate any agreement to which EUA or Purchaser is a party or by which it may be bound.
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SECTION 8: BEST EFFORTS OBLIGATIONS.
8.1. EUA acknowledges that it is committed to use its best efforts, and Purchaser, upon becoming a party hereto, will use its best efforts, to obtain or cause to be obtained as promptly as reasonably possible all approvals, releases, waivers and consents which, by the terme hereof, are required or appropri-ate in order to satisfy the conditions precedent to consumma-tion of the purchase and sale herein contemplated, and EUA hereby represents that it has so used its best efforts to the date hereof and represents, warrants and agrees that it will continue to do so until Closing or termination of this !
Agreement.
8.2.
Seller makes to EUA and Purchaser the same acknowledg-ment, warranty, representation and agreement to use its best efforts as EUA and Purchaser make to Seller in Section 8.1 above, provided, however, that Seller's best efforts to obtain approvals from the MP'.TC shall not require Seller at any time to challenge the operations conducted by the current management of the Seabrook Project, including, without limitation, current management's estimates for construction and completion of Seabrook Unit No: 1.
SECTION 9: TERMINATION.
If the Closing does not occur by June 30, 1986 and EUA and Purchaser (or EUA) and Seller, respectively, shall not have irrevocably waived all conditions which htve not been fulfilled i
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{ by such date, under Sections 6 and 7 as to which each has the power hereunder to so waive, then Seller or Purchaser (or EUA) may terminate this-Agreement by giving written notice to such l l
effect to Seller or to EUA and Purchaser, as the case may be, 1 l
not later than 5:00 P.M. on July 15, 1986.
SECTION 10: SEPARATE AND DISTINCT SINGLE AGREEMENT. !
j This Agreement is a separate and distinct agreement, enforceable in accordance with its specific terms and is not dependent in any way upon consummation of a purchase or I
purchases by Purchaser of Ownership Shares in the Seabrook Project of Central Maine Power Company, Maine Public Service Company or Central Vermont Public Service Corporation. EUA has submitted to seller copies of Agreements of Purchase and Sale
(" Agreement" or " Agreements") which it has executed or proposes to execute with each of the.aforesaid utility companies, and seller after review thereof, either agrees that the terms and conditions contained in each are no more favorable than the terms and conditions contained herein, or consents to the emis-sion from this Agreement of any provision of any such other Agreement or Agreements not included herein.
l SECTION 11:
CONSTRUCTION: ENTIRE AGREEMENT: PURCHASER AS PARTY.
11.1. This Agreement shall be construed and enforced in I l
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accordance with the laws of The Commonwealth of Massachu: etts. l
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d 11.2. This Agreement constitutes the entire agreement between the parties with. respect to the purchase and sale.of Seller's ownership Share and supersedes all previous-understandings and agreements, written or oral, with respect thereto, including the letter agreement between EUA and Seller dated July 24, 1985.
11.3. Upon issue by the Securities and Exchange Commission I I
of a final order authorizing issue of Purchaser's stock so that Purchaser becomes a wholly-owned subsidiary of EUA, Purchaser forthwith will become a party to this Agreement'by the execu-tion and delivery of a separate document to such effect.
Section 12: NOTICES. -
Any notice, request, instruction or other document to be given hereunder.by. Purchaser, Seller or EUA shall be in writing and delivered personally or.sent by registered or certified mail, postage prepaid, if to Purchaser, addressed to John F.G.
Eichorn, Jr., President, EUA Power Corporation, P.O. Box 2333, Boston,. Massachusetts 02107; if'to Seller, addressed to Thomas A. Greenquist, President, Bangor Hydro-Electric Company, 33 State Street, Bangor, Maine 04401; and if to EUA, addressed to Donald G. Pardus, President, Eastern Utilities Associates,
-P.O.- Box 2333, Boston, Massachusetts 02107; or to such other persons or addresses as may be designated hereafter in writing by the party to receive such notice.
- E SECTIOli 13
- EASTERN UTILITIES ASSOCIATES.
The name Eastern Utilities Associates ("EUA") is the desig-nation of the Trustees for the time being under a Declaration of Trust dated April 2, 1928, as amended. All persons dealing with EUA must look solely to the trust property for the enforcement of any claims against EUA, as neither the Trustees, officers or shareholders assume any personal liability for ob-ligations entered into on behalf of EUA.
IN WITNESS WHEREOF, Bangor Hydro-Electric Company and Eastern Utilities Associates have caused these presents to be executed and their respective seals to be affixed, each by their respective officers thereunto duly authorized as of the date first written above.
BANGOR HYDRO-ELECTRIC COMPANY-Attest: de,2 ' bump By [ /##t' M Secretary _ / Frosident g EASTERN UTILITIES ASSOCIATES Attest: M By l p erdtary President I
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. Attachment 12 ERIE Eastem Utilities Associates ore te.% sao,e a o so. nsa acsre vmu,a. s me-February 19, 1986 Maine Public Service Company 209 State Street P. O. Box 1209 Presque Isle, ME 04769 Attention: G. Melvin Hovey, President and Chief Executive Officer Re: Seabrook Units
Dear Sirs:
This letter is a memorandum of understanding between Maine Public Service Company ("MPSCo") and Eas-term Utilities Associates ("EUA") for the purchase by a new subsidiary of EUA, EUA Power Corporation (" Purchaser"),
of all of MPSCo's ownership share of the Seabrook Project, including Seabrook Unit No. 1, Seabrook Unit No. 2 and nu-clear fuel (the "MPSCo Share") , under the Agreement for Joint Ownership, Construction and Operation of New Hamp-shire Nuclear Units dated as of May 1, 1973, as amended (the " Joint Ownership Agreement" or "JOA") , on the fol-lowing terms and conditions.
- 1. EUA shall acquire all of the issued and out-standing stock of Purchaser, a corporation organized under the laws of the State of New Hampshire, having cor-porate powers, and capitalized, to carry out the actions contemplated by this memorandum.
- 2. Promptly after, and subject to, the execution of a definitive Agreement of Purchase and Sale referred to below and after all of the EUA conditions specified here-in have been satisfied (or waived by EUA or Purchaser) and the MPSCo conditions specified herein have been satis-fied (or waived by MPSCo), MPSCo shall transfer and con-vey the MPSCo Share to Purchaser for the price and upon the other terms set forth in the Summary of Principal Terms attached hereto as Exhibit A.
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- 3. Purchaser's obligation to make the foregoing purchase shall be subject (except to the extent waived by Purchaser) to the following conditions:
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(a) Approval of said purchase and sale by the Trustees'of EUA and by the Board of Directors of Purchaser, and by the Board of Directors of MPSCo.
(b) Issuance of final orders of approval, from which no appeal can be taken, by all regula-tory and governmental agencies having jurisdiction over any of the transactions contemplated herein, including the rate treatments contemplated by EUA for Purchaser by the Federal Energy Regulatory Commission ("FERC").
(c) Satisfactory waiver of, or compliance with, all rights of first refusal of parties to the Joint Ownership Agreement and any other provi-sions of the Joint Ownership Agreement or require-ments of the Joint Owners affecting the transactions contemplated herein.
(d) The obtaining of any requisite consents, waivers or approvals of security holders or trus-tees for security holders, upon terms and conditions satisfactory to EUA with respect to action to be taken by MPSCo, by EUA and by Purchaser as contem-plated herein.
(e) The obtaining by Purchaser of financing, on terms satisfactory to it, necessary for the car-rying out of the transactions contemplated herein.
(f) Receipt by Purchaser of a satisfactory opinion or opinions of counsel for MPSCo with re-spect to corporate authority, the sufficiency of regulatory orders,'the title to the interests to be conveyed, and other customary matters.
- 4. MPSCo's obligation to make the foregoing sale and transfer shall be subject (except to the extent waived by MPSCo) to the following conditions:
(a) Approval of said sale and transfer by the Board of Directors of MPSCo.
(b) The obtaining by MPSCo of Maine Public Utilities Commission ("MPUC") approval of appropriate rate treatment on terms satisfactory to MPSCo with regard to its unrecovered investment in Seabrook Unit No. 1.
(c) The obtaining by MPSCo of FERC approval of appropriate rate treatment, on terms satisfactory to MPSCo, with regara to its unrecovered investment in.
Seabrook Unit No. 1 and Seabrook Unit No. 2.
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(d) The obtaining by MPSCO of MPUC approval of the sale and transfer of the MPSCo Share without undue or burdensome conditions.
.(e) The obtaining from all the other Joint Owners of the Seabrook Project of releases of MPSCO from all present and_ future obligations under the JOA at the time-of closing.
(f) The obtaining of an appropriate release, on terms satisfactory to MPSCo, of MPSCo's interest in Seabrook Unit No. 1 and Seabrook Unit No. 2 which is pledged to Continental Illinois National Bank & Trust Company of Chicago, as Trustee under In-denture of Mortgage and Dead of Trust dated as of October 1, 1945, as amended.
(g) The obtaining of an appropriate release, on terms satisractory to MPSCo, of MPSCo's interest in Seabrook is pledged toUnit theNo.
J. 1Henry and Seabrook Unit No. 2 which Schroeder Bank and Trust Com-pany as Trustee under Indenture of Second Mortgage and Deed of Trust dated as of October 1, 1985.
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(h) The obtaining of consents, waivers or ap-provals, satisfactory to MPSCo, of any of its se-curity holders (including bank lenders) of the sale or transfer contemplated herein.
(i) Receipt by MPSCo of a satisfactory opinion or opinions of counsel for the Purchaser with re-spect to corporate authority, the sufficiency of regulatory orders and other customary matters.
(j) The obtaining by MPSCo of a stipulation of dismissal signed by MPSCo, the Staff of the MPUC, and the Of fice of the Public Advocate of the Commis-sion's Investigation in MPUC Docket No. 85-92 and approval of that stipulation by the MPUC.
This memorandum of understanding is not intended to operate as a final or binding agreement between EUA and MPSCo but is instead intended merely to set forth the inten-tions of the parties with respect to the subject matter ,
hereof, and supersedes the letter of July 24, 1985 between the parties hereto. The obligations of EUA and MPSCo outlined in this memorandum of understanding are expressly subject to the negotiation, execution and delivery of a definitive Agree-ment of Purchase and Sale subrtantially embodying the terms and conditions set forth herein and in Exhibit A hereto, not later than June 30, 1986.
"i The name Eastern Utilities Associates is the designation of the Trustees for the time being under a Declaration of Trust dated April 2, 1928, as amended.
All persons dealing with EUA must look solely to the trust property for the enforcement of any claims against EUA as neither the Trustees, officers nor shareholders assume any personal liability for obligations entered into on behalf of EUA.
Please indicate your agreement by signing a copy of this letter in the space ~provided below and re-turning it to the undersigned.
Very truly yours, EASTERN UTILITIES ASSOCIATES By Donald G. Pardus, President Md d Accepted as of the date of this letter.
MAINE PUBLIC SERVICE COMPANY By '_ .(t],.
G.'Melvin KoVey, esident 4
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! kl EXHIBIT A
SUMMARY
OF PRINCIPAL TERMS Acquirer: A corporation (" Purchaser") ,
incorporated in the State of New Hampshire and a wholly-owned subsidiary of Eastern Utilitiew Associates ("EUA").
Assets to be Acquired: All of MPSco's 1.46056% owner-ship share in the Seabrook Pro-ject Units No.1 and No. 2, in-cluding nuclear fuel (the "MSPCo Share").
Price: $12.5 million, plus other pay-ments and interest as stated be-low, payable in full in cash at the time (the " Closing") the Purchaser acquires title to the MPSCo Share.
Obligations of MPSCo: A. MPSCo will, to the best of its financial ability, continue to make full payments in a timely manner for the MPSCo Share of Sea-brook's construction.
B. At all Seabrook Joint Owners' meetings MPSCo will vote with the majority on all proposals regard-ing construction funding, or if unable to do so because of finan-cial inability, will abstain.
C. MPSCo will use its best efforts to obtain necessary approvals of regulatory agencies.
Obligations of A. At the closing, Purchaser Purchaser: will:
(i) Reimburse MPSCo for all payments made by MPSCo for the MPSCo Share of Seabrook Unit No. 1 construction costs from June 1, 1985 through the date of the closing;
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(ii) Pay MPSCo carrying charges at the rate of 12.8%
per annum:
(a) on $8.5 million, for the period from June 1,-1985 through the date of the Closing (b) on all payments made by MPSCo under A.
(i) above; and (c) on all payments to be made by Purchaser un-der A. (iii) below, from the dates of Purchaser incurring the obligation to pay through the date of the closing; .
(iii) Pay MPSCo (a) $250,000 per month-for the months of November and December 1985; and (b) $625,000 per month for the first three months of 1986 (prorated to the time of closing, if the Closing takes place prior to March 31, 1986); and B. No carrying charges will be paid on S4 million of the aforesaid $12.5 million price.
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. . Attachraent 13 y .
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N STATE OF VERMONT PUBLIC SERVICE BOARD Docket No. 5045 In re: Central Vermont Public Service)
Corporation's sale of its joint )
ownership-interest in the seabrook )
nucJear power plant )
Order Entered: 12/4/85
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Central Vermont Public Service Corporation (Central Verr.ont or~the Company) has'a 1.6 percent joint ownership interest in'the scabrook nuclear generating project now under conetruction in Seabrook, New Ncmpshire. Sometize after the entry of our Order of Hay 3, 1985 in Docket 4701, in which we cirected the Vermont participants in that project to take all practicable steps to disengage therefrom, CentrcJ Vermont announced that it had reached a provisional agreement with Eastern Utilities Associates, Inc. (EUA), a Massachusette holding company, by which EUA would purchase Central Vermont's interest for approximately fifteen percent Ibf the amount of
(- Central Vermont's inventment in the project. On August 2,
- 1985, Central Vermont initiated this proceeding, filing a
- petition for a declaratory ruling that its proposed sale
" constitute [s] a prudent means of disengagement within the meaning of the ...May 3, Order in Docket No. 4701" and that,
! under the terms of that Order and Vermont utility law,
" Central Vermont is entitled to recover from its ratepayers
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i the full amount of the Central Vermont prudent investment in Eeobrook Unit I that Js not recovered by the scle to EUA, including rate-base treatment of the unamortized portion of
! its prudent investment, not of tax benefits'." The' Company further requested any other rulings that may be appropriate.
II.
I a A.
By arranging for a sale of its interest, Central
' Vermont has made a good faith effort to comply with our May 3 .
Order in Docket 4701. At the time the order was issued, it i
was far from clear that a sale could be arranged on any terms. Most observers, it is fair to say, would have considered the probability of selling an interest in the plant I-for any consideration in excess of an agreement to assume future payment obligations as being between remote and non-existont. Judged in that light and the status of the.
- plant in May, 1985, the recovery of even a small percentage of ll some costs represents a significant achievement.
- i We would have had little hesitancy in saying last
( Hay that the terms secured by Central Vermont constituted a
- j. prudent means of disengagement. In the seven months since we 1
!. Assued our order, however, Seabrook construction and the efforts of the joint owners have not been static.
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L Construction has been financed and continued at the project; costs of completion may no longer be the same; the costs of alternative sources of supply may have changed; and the U
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availability of capital and the terms upon which it is offered m=y be dJfferent. We do not now have before ce the moet current information with respect to there end a host of other factors which must be considered in judging whether completion or the sale to EUA~1s the best course of action. In the context of contested casos, the investigatory powers held by f an agency such as the Public Service Board are cumbersome and alow. The resources available to CVPSC would enable it to .
j have all of the pertinent information. It is for this reason, among others, that the function of the Board is to regulate,
! not to manage; and for the reasons indicated above, the quection of whether or not Central Vermont should proceed with f the sale -- is one which at this stage properly lies with the management of Central Vermont. Only Central Vermont's rantterent vill be in a position to know all of the facta and circonnott.nces, when a final commitment is made. Only the Con.pany, therefore, can judge whether a particular course of
! action is prudent at t.be time it is undertaken. The most we ;
can say about the matter is that no reason has been shown that
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would cause us to disapprove the proposal.
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f There may be still more changes by the time the Company j must make a final decision to close the sale.
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-4 With respect to the recovery of CentrtJ. Vermont's Prudent investment, including rate-base treatment of any unamortired balance, we consider the question to bo premature. It is a ratemaking issue and properly should be addressed in a rate case. We would at this time observe only I that judicial precedent, in this jurisdiction and elsewhere, is less than clear as to how the issue should be resolved.
There are, on the one hand, cases which appear to hold that .
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rate-base treatment must be accorded to all utility investments unless they are " excessive or unwarranted or incurred in bad faith," a.4, Lt.cmv rnaiend_Tel- and T C Cn., 116 Vt. 480, 501 (1951) (but, query, what is encompassed within the term, excessive?). On the other hand, are cases ruch ec J.n. re cor ral..Yr.mont .Enb.JJc_Er.ryice.. Corr , 14 4 Vt.
46, 58 (1984), stating that "Economjc ricks ero port of the utility business, and even the risk of economic catastrophe
-$ may properly be assigned to the owners of a utility company rather than to its consumers," and In_re central vermont pub 11c_Scr2Jce corp., 116 Vt. 206, 216 (1950), stating that "a fair return to investors is not necessarily fair to -
consumers." There is also the cuestion of the "used and -
, c useful" test and its applicability to a facility which may yet il produce electricity but at a cost which may be more than 4 double that of available alternatives.
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The Cor.ipany's tectiniony and br itf s roJ sed one vital issue as to which we do think it is entitled to a definitive ruling at this tinee, and that is whether the Company's shareholdere will be treated any differently for selling its seabrook interest rather than staying in the project. In the
. context of ratemaking, the question is whether the same treatment will be accorded to Central Vermont's investment whether or not the interest is sold. The Company points out that if full rate-base treatment is to be accorded to an 1nvestaient which is held through completion of the facility, but less favorable treatment would be accorded to the investment if the Company's interest is sold even though the ,
economic loss might be the same, then the Company would be forced to stay with its investaient to the very end, even if doing so were disadvantageoun to its ratepayers. The logic of that proposition is beyond dispute. The Company can, therofore, be assured that whatever ratemaking treatment is accorded to its Saabrook investment, should the Company's interest be sold, will not be less favorable to the Company and its investors than the treatment which the investment will receive if no sale takes place.
III.
The Company has made inconsistent statements regarding its intended course of action upon the disposition of this case. It has said, on the one hand, that it considers
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.a ruling consistent with its request regarding full rate-base treatment of its Seabrook investment to be an Jndispensable precondition to consummation of the sale to EUA. In the event that we decline to grant the rulings specifically requested, Central Vermont has asserted that it "will continue . ..
lits] ownership interest and explore other ways cf complying with the Board's order dated May 3, 1985' (in Docket No.
4701J." Webb, pf. at 11. On the other hand, it has said that j d it will consummate the sale "if regulatory treatment does not ' ,
penalize its shareholders for selling rather than remaining
- involved." Bower, pf. at 4.
As we have earlier stated, it is the prerogative of the management of Central Vermont to decide how to proceed.
.We note, however, that the Company has come to the conclusion that, regardicas of any st affic ruling made in Docket No.
4701, "the prefercble course le to effect a sale." Webb, pf.
at 8. It appears to us that, hhving been advised that the I
regulatory standard will be equality of treatment, a decision not to sell could not logically be based upon uncertainty as to what particular ratemaking treatment will be received.
ORDER IT IS HEREBY ORDERED, ADJUDGED AND DECREED by the ll '
Public Service Board of the State of Vermont thats g
! The petition of Central Vermont Public service j - .
1 Corporation for a declaratory ruling is denied except to the extent consistent with the opinion herein.
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DATED at M;ntp311or, Vermont, thio 4th diy of December , 1985. !
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) PUBLIC SERVICE g Rosalyn L. Hunneman)) BOARD
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OF VERMONT e
s/ William E. Markerow))
l ls 3 OFFICE OF Tile CLERK e,
.; FILED: December 4, 1985 ATTEST: s/ Susan M. Hu_dson :
Clerk of the Boar'd :
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SIPAQaTf: OPINION OF CHATRMAN MCCARREN:
CAilCURRING_I1LEART AND DISEENTIQIg The mcjority opinion rules that CVPSC's investoent in Seabrook will be treated the same regardless of whether CVPSC sells or retains its intorest. The niajority opinion also decJeres that the sale as proposed complies with our May 3, 1985, order in Docket No. 4701. I agree with the
, conclusion of the majority opinion that the circumstances existing at the time the evidence was taken in Docket No.
i 4701, and upon which the May 3, 1985, decision was based, may I
have changed significantly. It is possible that the proposed sale is not now the best alternative. The evidence necessary for us to decide that issue is simply not before us, but the
! facts needed to decide the best course of action today are presumeh3y known to CVPSC. I therefore agree that it is best
- to Jeeve the decision to the Coripany.
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- I agree with the majority opinion, as far as it goes. I view as particularly important the decision to treat I
the Company's investment the same whether it sells or retains its investment. Our regulatory treatment must not create a 1 -
disincentive for sale or abandonment of a project when such action is appropriate. I joln in the majority opinion escept for its refusal to respond to the Company's request for a ,
1 declaratory ruling that all prudently incurred costs are par an fully recoverable. I believe that this issue should be addrecsed now. As not out below I conclude that where the Board has an opportunity to analyzo fully the issue of imprudency, as it hos for Seabrook in the rate proceeding
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currently before us, all of the costs which are found to be :
prudent should receive full recovery. Obviously that theoretical conclusion does not leply any conclusion about the l factual question of whether any costs were, or were not, prudent.
The issue posed by the declaratory relief request is
- the appropriate ratemaking treatment for an apparent economic Joss which is expected to result from CVPSC's investment in seabrook. It appears that regardless of whether CVPSC's
- entire interest in both Units 1 and II (including fuel) is sold to EUA, is cancelled (CVPSC is trer. ting Unit II as if it were cancelled), or is maintained while Unit I is completed, there will be an economic loss. Cancellation or sale will clearly define the loss. The economic loss on completion wouJd be harder to measure. Sorte locc voeJd most likely exit,t l given the total construction costo, cotrpered to market
- alternatives. It is the expectation of the loss that has created the controversy.2 .
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, In cases in which there is no opportunity for a full evaluation of the prudence of a utility's expenditures, then the question of whether economic losces should be shared in any part by the company's stockholderts can 8 only be based upon the facts of the particular case, j including an analysis of whether or not returns to
, i stockholders included a premium to compensate for the risk that such a sharing of losses, not shown to have
'. : been the result of imprudence, had been requireil by regulatory authority.
l 2 The expected gross loss from the sale at the tinie of
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the hearing, including debt and equity AFUDC is
$55,739,063, and the after-tax loss,is estimated at
$34,425,000 Williamson pf. at 2j tr. 9/18/85 at 202.
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CVP8C seeks a declaratory ruling that, upon a showing that the incurrence of this economic Joss was not the result of its mismanagement or imprudence, it will be given fuJ1. recovery. That is, it asserts, if the Company can show that it acted reasonably, given the information it had or should have had, ratepayers should bear all the economic loss.
i CVPSC argues that we must allow full recovery because we require the benefits, or cost savings, of
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investment decisions that turn out well to flow to ratepayers. It argues that,it is neither fair nor efficient for decisions which turn out well to go unrewarded and ones that turn out badly to be penall ed. It contends that all .
investments made to provide service must be recovered unless .
they are imprudent (that is, the result of negligence or enrecsoncble management decisions).
The DPS does not specifically reject this notion, but claims that CVPSC's shareholders may already have been I compensated for the risk of a disallowance, or non-recovery, of any economote loss through the return they have received.
Dr. J. Peter Williamson testified that whether there has been t compensation through the ra'te of return is a question of fact l
! and that it is virtually impossible to quantify.3 L
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3 Dr. Richard A. Bower testified that investors in .
Central Vermont common stock had not assumed the risk associated conditions.ging economic with chan technical, political and Dr. Williamson testified that
. investors may be compensated for these risks, but that i the compensation should match the risks, and that it vov1d be unfair to have risk without any compensation.
Tr. 9/18/85 at 220-222.
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j williamson pf. at 14-15; tr. 9/18/85 at 199, 217.
CVPSC, in turn, states that the real ircue it. the regulatory environment created for future investment. It argues that we cannot change the rule of fu]1 recovery now for l
l past investments but can only change it prospectively. Any f policy of sharing of risk between ratepayer ond shareholder l must be declared in advance and must allow for returns that i .
i are commensurate with the risk. It argues that, at the time e'
j; this plant was undertaken, Board policy and Vermont law required full recovery of prudent costs, regardless of the economic loss.
As pointed out in the majority opinion, the law in Vermont is not clear on the required regulatory treatment for 1 ;
! an economic loss. Decisians of the Supreme Court can be cited 4
in sup;crt of more than ene outcore.
I agree with the testimony of Dr. Williamson that Central Vermont's shareh)1ders have been compensated for sore
< of the riskiness associated with the Seabrook investment through the return they have received since the commencement of the project. It is not cicar, and indeed it is probably not possible by empirical a'nalysis, to determine precisely 5
which risks have been co.npensated.4 The Seabrook project is q risky because of the fin.incial Instability of PSNH, and the
( potential for NRC changet, as well as the possibility that .
this Board would make a disallowances however the market does 1
4 Tr. 9/18/85 at 241, I46-247, 278.'
not distinguish between a disallowance for imprudent costs or 4
a regr.rtd shering of prudently incurred economic losses.
Our decision in In re central Yarmont R.uhlic.5srvica 8
Corn-, PSB Docket No. 4634, with respect to Pilgrim II, and the decision in In re central StIsmalf.uhlic tery. ice carn.,
PSB Docket No. 4496/4504, with respect to Montague, held that the costs of these abandoned projects be shared between ratepayers and shareholders. The Board concluded, based on
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t,he evidence presented in thane nroceedinen, that shareholders i
had already been compensated for the risk of such a '
4 i disallowance. Imprudency was not an issue. These decisions were bcsed on the facts presented, and did not arise out of a full prudency proceeding.
With respect to seabrook we have before us the costs of Unit II in Docket 5030. It is likely that, when CVFSC i
1:esks recovery of Seabrook I costs in its next rate filing, oc will revicw evidence sufficiently to decide the issue of the it prudency of the investment and the oversight of the project.
He will therefore be in a position to make a definitive i .
decision on the level of disallowance for imprudency. I believe that whatever amounts are determined to be prudent j
should be granted full recovery.
[ The Maine Department of Public Utilities was faced i j i with the same issue in In re centIALUnina.P.nh11e service ca. , .
a 67 PUR 4th 101 (Me. P.U.C. 1985). This decision held that all l Seabrook project costa of Central Maine Public Servjce Company found to be prudentJy incurred would be accorded full
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recovery. Prior to this decision the policy of the Naine Departa?ent of Public Utilities (Haine DPU) had been to allocate the costs of an abandoned project,.where no Imprudence was evident, between shareholders and ratepayers.
f In this decision the Maine DPU distinguished its~
i previous decisions on the basis that it had before it, unlike i
in the prior cases, sufficient evidence to reach a decision on Imprudency and that the size of the Seabrook investment was .
[ substantially larger. The Maine DPD stated, in part, !
The commission's canceled plant policy in the four prior cases was t'allored to the relatively small size of the investment and the scop of the prudence review conducted. In each of the four cases there was only limited inquiry into the utility's decision-making process and even less inquiry into the reasonableness of the actual amounts esponded.
No imprudence was specifically found. Thus, in part the esercise of the commission's discretion served as a proxy for a more extensive prudence investigation and took into account other factors such as the financial condition of the utility and its customers.
Id., at 114.
This is a far different conclusion from saying that -
all economic losses, no matter how large or burdensome, under all circumstances should always be allowed full recovery.
What it says is when the fa' cts of the seabrook project are i
, presented we will have sufficient evidence to determine
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, imprudence. Imprudent costs will not be allowed while CVPSC's l prudent costs should be accorded full recovery.
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f Dated at Montpelier, Vermont, this 4th day of .
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pecen.ber, 1985.
m/V. f.p_ulum Wearren _
V. Louise McCarren, Chairman I OFFICE OF THE CLERK FILED: De*cember 4, 1985 ;
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D ATTEST: s/ Susan M. Hudson
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,. g gggyJ OPINTON OF RnAnn 61EllBEILMARECROW I agree that r6temaking is not part of Docket Ho.
5045. I agree that to sell or retain is a managerent decision. I therefore join the opinion in this case. There are several other issues as to which'I wish to express my -
views.
i First, implicit in Central Vermont's request is that the Board will end up managing the Company. I do not care to
( rule on the pre-prudence of every new electric pole. j i ~
second, I do not believe the Board should change the
- j. investment climate retroactively. The financial risks should be allocated consistently between such successful ventures as Vermont Yankee and Merrimack or the economically submarginal McNeil or Seabrook. Parenthetically, I hope Seabrook is completed because Now England needs the power and the ,
incrementa] costs are most acceptable.
Under no circumstances should the Board make any
! retroactive alteration in this allocation. Even if the law -
permitted it, to do so would be extremely poor public policy.
Were investors in public utility stocks to be told that the
, rules of the game could be' changed in mid-stream, they would thereafter either demand very high returns or would put their 4
i, money elsewhere. The result would be unreasonably high rates O or a declining level of service and reliability, or both.
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. Equitable treatment of inventors, in other words, is nat a policy designed primarily to benefit that group. True, j it may provide them with short-run protection, but beyond the
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_. 3s _ j short-run, they will protect themselves. -
In the long-run, the o ,
principa3 beneficiaries will be the ratepayers. .
Third, any financial effect stemming from scabrook chould be absorbed as quickly as possible. We ought not to
' tolerate any gimmickry, accounting or. regulatory, which would
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disguise or defer the effects of whatever final disposition is !
made. Speed is of the essence, for nothing slows the
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investment process so much as uncertainty (e.g., the current l l tax bill before Congress). We have to go forward and get on with the job of securing and maintaining a reliable supply of ,
i electricity at reasonable prices, '
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Dated at Montpelier, Vermont, this 4th day of '
December, 1985.
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. t g William E. Markerow William E. Markcrow, Board Member Orr1CE OF THE CLERK FILED: December 4, 1985
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ATTEST: s/ Susan M. Hudson _
Clerk of the Board i
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