ML20206J057

Central Vermont Public Svc Corp 1985 Annual Rept. Related Info Encl

ML20206J057
Person / Time
Site:	05000000, Seabrook
Issue date:	12/31/1985
From:	Jeffery Griffin, Keyser F CENTRAL VERMONT PUBLIC SERVICE CORP.
To:
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ML20206H943	List: ML20206H948 ML20206H960 ML20206H979 ML20206J033 ML20206J040 ML20206J046 ML20206J052 ML20206J057 ML20206J067
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NUDOCS 8606260394
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Profile Central Vermont Public Service Corpo-

• Afontr'*l ration is the largest electric utility in CANADA Vermont. We serve 114,000 customers in Vermont and an additional 9,000cus-f'd ct 6 stE tomersin New Hampshire.Ourgeneral

' 78' "h office is in Rutland, Vermont. We have offices and operations facilities in 14 n locations. dJg Ibrtiana Continued growthin our service ter-f sii er 'a n y ntory results from an increasing popula-p 3 tion and the broadly diverse activities of our customers. They are engaged in light F stanchester %of] and heavy manufacturing, agriculture,

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the forest and mineralindustries, educa-Albany. stA tion, and many tourism enterprises. Ver- , go, niont continues to be a four-season .spnngriera magnet for tourists from allover the United States and manycountries. g'. Itartford Fifty-six years after we began to pro-vide electrical service to Vermonters, we remain ready to meet the challenges of our vibrant and growingservice ter-W ritory.Our powersourcesinclude nuclear that has served us reliably for Ki CentralVermont Public decades, as wellas coaland hydro " V1 Service Corp. generating facilities. We also obtain powerfrom adjacent Canada, where Connecticutvallev ElectncCo.Inc. ' abundant sources of hydroelectricity F we been developed. Form 10-K Please write Olga G. Laird, corporate secretary, for information about Central Vermont Public Service Corporation. The address is 77 Grove Street, Rutland, Vermont 05701. Telephone (802) 773-2711. Upon request, Mrs. Laird will send you a copyof the Form 10-K AnnualReport to the Securities and Exchange Commission. Cur: AnearlyItbruary morning view to the east from Killing-ton Peak, Sherburne, Vermont. The Killington skiareais the largestin the East.

Centents Letter to Shareholders. 2 Earnings, Return toInvestors. 4 Seabrook Unit i.. .5 Rate Case Activity. 6 Sales, Revenues & Expenses. 7 Construction. 8 Financing Requirements. .9 PbwerSupply... .10 Energy Management and Conservation. .12 Customer Relations. .12 Management's Discussion . 15 Selected FinancialData.. 17 FinancialStatements. .18 HistoricalStatistics. .32 Officers .34 Directors .35 ShareholderInformation . 36 CompanyInformation. .Inside Back Cover Highlights 1985 1984 % Change Financial (dears mthousands) Revenues $169,104 $155,637 + 8.7 Net income $ 23,607 $ 21,707 + 8.8 Earnings Available for Common S 21,583 $ 19,640 + 9.9 Construction Expenditures $ 38,473 $ 34,440 + 11.7 Net Utility Plant $290,817 $248,904 + 16.8 TotalCapitalization $297,466 $266,203 + 11.7 Average Numberof Sharesof Common Stock Outstanding 6,373,347 6,164,662 + 3.4 Debt / Percent of Total Capitalization 45.4 % 44.0 % + 3.2 Return on Average Common Equity 16.1 % 16.2 % .6 Per Share of Common Stock EarningsPer AverageCommon Share $ 3.39 5 3.19 + 6.3 I Dividends Paid $ 1.90 $ 1.83 + 3.8 Book Value(Year-End) $21.50 $20.09 + 7.0 Operating Retail Electric Sales (MWH)* 2,004,057 1,934,637 + 3.6 System Peak Demand (KW) 420,238 410,344 + 2.4 System Load Factor 64.0 % 63.5 % + .8 Degree Days (Rutland, Vermont) 6,912 7,341 - 5.8 1 Customers 123,324 120,339 + 2.5 Employees 628 588 + 6.8

• Indudmg energy from the New York Power Authonty I

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l I l a up and ales and revenues increased. Re-earlier decision and stated, "Only the tail energy sales rose 3 6 percent, slightly company. therefore. can judge w hether a ahead of ourlong-term projections All particular course of action is prudent at customer categories continued the steady the time it is undertakenJ grow th patterns of the past few years, re-In lanuary 1986 I astern Utilities Associ-flecting rt cord Vermont employment ates increased its orfer for our share by 54 4 les els in 1455. milhon and extended the closing deadline i Theincrea ed sales and two Vermont to June 30,14Sn. By N1 arch the EUA offer i rate mereases contributed to record totaled 524 million. w hich included the revenues. A 3.2 percent Vermont retail rate original base prite of 54 3 million, plus 510 intrease took effect on January L A tem-million for plant and fuel in addition to porary surc harge of 8.7 percent f or in-transmission support pay ments and car-creased power costs during an extended rying costs since June 1985. outage at the Vermont Yankee nuclear Atter intensis ely studying our options power plant took effect on August L regarding Seabrook Unit I we decided in y During the third quarter w e established Ntarth lusotosellourshareof theproject a 53 million reserve while the PSB con-to Eastern Utihties Associates. Declining I ducted extensive hearings regarding the world energy prh es. lower-cost alterna-treatment of Unit 2 at Seabrook, which tis es and the implications and costs to our effec twelv has been canceled. On hbru-customers and shareholders of a delav in 1 ~ i ary 1s, len. t he PSB disallow ed recovery commercial operation were key factors in of S4 million of the 54 4 million invested in our decision. We expect to close on the ~ Seabrook Unit 2 despite an opinion that sale before June 3d 19S6. The company U the company had acted prudentiv in had 574 million invested in Unit 1 as of James E. Grif fin and E Ray Keper, Jr. entering into the contract. We belies e the December 31,1985. We will file with the PSB did not substantiate a disallowance of PSB in April 14Sn to recover the balance of this magnitude in the order. The company our ms estment, beginning in 1987. Letter to Shareholders and the Vermont Public Service Depart-ment each has appealed the decision to In 1%5 your company experienced sig-the Vermont Supreme Court. New Power Source Acquired; niticant and positive results highlighted h Nbruarv 18,19sn, PSB decision Another Protected by continued record-setting financial per-granted us an SS percent rate increase, ef_ In September 1985, after a record con-fectwe N1 arch 1,1986, resulting in 511 struction pace, we began to receive 68 I*""" Earnings per share reached 53.3{ repre-M on in additional annual revenue. The megawatts of I fydro-Quebec hydro power enting a 6 3 percent increase. It u as the rder allow ed inclusion in base rates of f rom James Bay in northern Canada via a tif th straight year the company earned the 545 3 million of our 572.2 million invest. transmission line and converter station at rate of return allowed by the Vermon; nient in the Niillstone nuclear power liighgate, Vermont, near the Canadian Pubhc 5ervice Board and reached a higher border. Our affiliate Vermont Electric h earnings plateau. months in 1486 that the plant is expected Pow er Company supervised project engi-During the year we added a new Lana-to be in commercial operation. The bal. neering and construction. dian power source w ith a transmission ance,52n.9 million, will go into rate base in This new source of energy, which initially connection in northw e3 tern Vermont from 14S7..\\hllstone has a full power operating calls for B0 megawatts over a 10-year con-1i> d ro-Quebec and we protected our cus-license. has run at 50 percent of capacitv. tract, results from a cooperative effort by tomers existinglow-cost New Tork power and is expected to reach full power bv slav state and utility of ficials. Timely comple- ~ supply from a regulatory challenge. 198n. Our share is 20 megawatts. ~ ~ tion permitted flow of Canaciian power as In 1%, for the lith straight year, we the Vermont Yankee nuclear plant began paid a higher dividend. The annual rate an extended outage for repairs and for 1485 was 51 uR how es er, we did not in Seabrook I refueling. crease the dividend in the fourth quarter, in Ntav luS5 the PSB ordered us to at-Earlv in 1985 we helped develop legisla-as has been our practice in recent years. tempt to disengage from Seabrook and tion to appoint the State of Vermont as awaiting final determination et the status our options included the sale of our 16 sales agent, in our place, for low-cost of our Seabrook L nit 1 investment. The percent interest to Eastern Utilities Associ-Niagara and St. Lawrence Project power market price of our common stock moved ates a Boston-based utility holding com-pany. Later in 1985 the FSB. recognizing progress toward completion, revised it3

from the New York Power Authority. The thetrainingof high schoolstudent New Officers, Director Vermont legislature passed the bill and the energy-auditors, earned us an award from - We also strengthened ourmanagement governor immediately signed it into law. .the governor of Vermont and the secretary group during theyear. Thomas C. Webb We took this action when the Federal

• of the U.S. Department of Energy.

joined us as executive vice president-Energy Regulatory Commission ruled that finance and administration. In March 1986 beginning July 1,1985, investor-owned he was named chief operating officer. Mr. utilities would not be permitted to deliver The Future WebbcamefromCentralMainePower this power to Wrmont consumers. Nineteen eighty-six will be a transitional Company and is also our chief financial year, during which the pending sale of officer. Seabrook Unit I could reduce earnings Other new officers elected during the Employee Productivity and Efficiency - below thehigh performanceof recent year were StevenJ. Allenby, assistant vice Tomaintainand furtherimprove years. It is our goal to protect the dividend president-corporate planning; Russell E. employee productivity and efficiency, we took several steps during 1985. We began a jobevaluationand salarystudy and Earnings Per Cornrnon Share developeda human resources plan rg {3;j %.m designed to improve overall effectiveness sn and efficiency of human resource ser-R - - - - - h sm vices, including training and develop-w dh ment, benefits,performanceap raisals sN +2 " ,w and career planning. We forme employee "y- ~ ' - - - ~ - - - ~ - ^ ~ ~ - - ~- % advisory groups for direct feedback on a variety of customer-oriented policies and 2

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h programs in their formative stages. With a

J employee participation, we also initiated j- _ _ - _ ---_ - -- _. - -_ [ the process for developing a new strategic management plan and began construction ggggggg;ygg;ngg;ggyyggg%p y e a u o of a new headquarters complex forour largest district, Rutland, which con-level and make a successful transition Ayer, assistant vice president-division solidates all district personnel in a single from the yea rs of heavy capital outlay to a operations, and Roslyn D. Beaupre, assis-facility. period of reduced capital expenditures tant treasurer. Assistant Treasurer Warren with renewed earningsand dividend L. Stevens retired in September after 36 growth. years with CV. Csntinuing the Partnership Welook forward tocarryingout our We are pleased to announce that Robert With Our Customers Seabrook strategy and concluding the sale D. Stout, president and chief executive of-Obtaining the views and responding to to EUA beforeJune 30,1986. ficer of Southwestern Vermont Medical the interests of our customers is an impor-Construction expenditure levels will Center in Bennington, was elected to our tant part of the way we do business. Dur-dropin1986by about40percentfroma board of directors. ing 1985 your president met with several 1985 level of $33 million to $19 million and hundred community leaders at breakfast we expect them to remain in the S19-529 meetings throughout the state. Our pres-million range during the next five years. ent and future power supply was a major We have no plans for additional significant focus of these meetings. In addition, we new generating plants in the remainder of conducted workshops and discussion this decade. Our recent generating project g* meetings with customersin fourcom-additions have now become or soon will munities, as part of ourCommunity be a portion of our rate base. We do plan to James E. Griffin Energy Education Program, a id covered build several transmission lines, service President & Chief EwcutiwOfficer appropriate energy-saving measures for centers and administration buildings. their towns. These activities were in addi-Our service territorycontinuedits tion to our on-going discussions with cus-strong, diversified growth of recent years. tomers via our speakers bureau and cus-The outlook for the economy of our ser-tomer service employees in our 13 district vice territory includes continued high offices. levels of employrnent, supported by the - F. Ray Keyser,Jr. We were especially gratified when one diverse nature of the industrial and com- - Chairrnanof theBoard of our conservation programs, involving mercial activity in Vermont. In this annual - report we offer a look at some of these suc-cessful customers and their endeavors. D

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.m., ; .;g; wgk : c .9 7 The farm of Alan and Pat flowe i Earnings and Return to Investors increased. even though we did not raise in Tunbridge, \\ermont, is the dividend rate during the \\ ear. In lus5 representatise of the many fine e earned 16.1 percent on common d d d 'nd pn od Mio y'wntt d a dairy f arms we are proud to call { equity in 19s5. It}r a record earn- . g g,;g 56 p'm W W m n-Ings per share level et 53.34, an increase our c ustomers. ings. Our continuint; goal is to int rease of 6.3 'ercent os er the 1984 level ot d3.19 b.. ca rnint;s a nc. dividend s consistentls. to f.or the titth straight year. n e earned at 4 compensate our on ners fairlv. I.ive \\ ears l least 16 percent on common equitv, our ouwmmon M divid[.nd e allosvable level. [1.4lt Oser the past five rears dividends in 148, we paid dividends of 51.40 per t paid have increased at an as erage annual i share, compared to tl S3 in 1984. It w as rate of h.3 percent. l the lith consecutis e vear dividends paid l Common Stock Data Tear-E nd 1%5 1954 l arrnne, As ailaNe tor t, rmon % i o m 521,353 eldn11 I arn mas Pershare 5 3.39 ? 11" Dn idend-Pa:d Per share 5 1.90 v i s1 aVOut Ratle 3h"o P Book Value Per share 521.;0 ?2a W m i Pn<c<12 Tli 521 ~. 51T Return on Atcrace ( omr en I <pnts 16.1"o in 2 '.

Se: brook Unit 1 In March 1986, after intensive study, we decided to sell our 1.6 percent interest in Seabrook Unit 1 to Eastern Utilities Associates, a Boston-based utility holding company. We expect to close on the sale before June 30,1986. Terms of the sal s will not give us the full amount of our investment but we will file with the Vermont Public Service Board to recover the remainder. Declining world energy prices, less costly alternatives, as well as cividenas rer Common Share { implications and costs to our customers % r... and shareholders of a possible delay in y y commercial operation were key factors m y u+ ourdecision. ~ ~ - - ~- ~ - - ~ u" -~_ h The PSBin May1985 ordered us to at- [' un tempt to disengage from Seabrook. Dur-1^L-- { ue ing1985 we studied the economic and power supply implications of continuing pi our ownership. By July we had obtained mi, -- Q y y an offer from EUA. In Decemberthe PSB g 7mg revised its earh,er order and left the deci-sionof whetherto sellup to us. In January 1986, EUA increased its of-Return on Average Common Equity Januaryofferextended the closing Q ferforoursharebyS4.4 million.The h im 3a 33 33 33 deadline to June 30,1986, and eliminated j' f an earlier stipulation that wepay an amount up to $1 million in the event Unit H-2 is formally canceled. By March 1986 the n / EUA offer totaled $24 million, which in-12 p cluded the original base price of $9.3 m/ 6 n million, plus $10 million for plant and w fuelin addition to transmission support tc

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• N * 'N payments and carrying costs since June 1985.

As of December 1985 we had $74 mil-tion invested in Unit 1. In its December decision thePSB stated thatit would treat the recovery of our investment the same whether we sell or keep our share. The February 1986 PSB order regarding Unit 2, however, brings into question whetherwe can recoverallof our pru-d;nt costs.Thecompanyand theVer-mont Department of Public Service each has appealed the February decision to th: Vermont SupremeCourt. E3

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~c s J. +,I ,9 /. 't ,i g o u 4 / / o.- Qf,%: ?hyf _tf (.[ . q' 3 Q J&~ 4 m Q_- ~ ja krq i At dusk, a memberof the kill-Rate Case Activitv tional annual revenue. The rate order ington kki Area snowmaking mportant mst E-N gn N sMa crew adjusts nozzle on one of 12 pertent,59 million increase in rn]uNat n n u ne a the areaN trails. T he Killington rates u ent into effect lanuarv l, '

• dCT "b"d I"'i"'I"" I" snow making sy stem pros ides 1%5. the result or a negotiated settie-rates of 5413 million of our 572.2 million c os erage on more than % miles ment w ith the \\'ermont Department of of trails. Killington, the I ast s investment in the.\\lillstone n uclear i

by the \\'ermont l'ublic Sertice lloard. pourr plant. That amount relates to the sr tha a o sk r in the world. On lebruary 18,195h. the PSli granted eight months in 1486 that the plant is ex-us an S.S percent rate increase etiective pected to be in commercial operation. The $2n.4 million balance n'ill be in-f \\ larch 1, resulting in $11 million in addi- ] cluded in rate base in 1957.. lillstone has \\ I a f ull pou er operating license, has run at 0 percent of capacity, and is expected to I

reach fullpower by May1986. Second, power plant, took effect on August 1. In we were permitted to recover over four all, revenues increased by 8.7 percent years $3.4 million of our $9.4 million in-and $13.5 million. vestment in Seabrook Unit 2. Third, the All customer categories co ntinued the PSB allowed a 16 percent rate of return steady growth pattern of the past few on equity. years.The numberofindustrialcus-Also provided for was continuation of tomers increased 5.4 percent; commer-the surcharge forreplacement power cial customers,4.9 percent, and residen-during the extended outage of the Ver-tial customers,2.3 percent. Vermont mont Yankee nuclear plant at a level of employment expanded to a record high 8.7 percent.The plant shut downin September 1985 for replacement of pipes RetailSales in the water recirculation system. It is ex-Mwn a.

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% % change pected to return to service in June 1986. r,om'84 From's4 We have collected a surcharge of 8.7 per-Residentiar 884,042 44.1 3.3 64.862 44.1 10.8 cent on bills rendered after August 1, commercial 226,499 11.3 8.4 20,152 13.7 17.5 1985.We expect to recoverthe full Industrial 782,483 39.0 2.9 52,266 35.5 14.4 amount of replacement powercosts by Putilic Authority 111,033 5.6 1.6 9.867 6.7 10.5 1987. Total Retail 2,004,057 100.0 3.6 147,147 100.0 12.9 Even with the 1985 and 1986 increases, mg enegy fmm the New York Pow er Authority ourrates remain among thelowestin New England-levelin 1985 while the unemployment j rate dropped to 4.8 percent, the lowest in Sales, Revenues and Expenses 16 years. Another factor in the strong performance was the continued steady, Gin 1985, with energy sales, revenues rowthin ourservicearea continued four-seasoninfluxof vacationers, Purchased power remained the largest and customer levels all reaching record share of our expenses, at 49 percent of highs. Energy sales to ultimate custom-operating revenues. Conversion from bi-ers, which excludes sales to other utili-monthly to monthly billing was com-ties, rose by 3.6 percent, which is slightly pleted and contributed to an increase in ahead of ourlong-term projections. Total firm energy sales increased by 3.3 per-cent.Thelevelwould havebeen some-what higherhad we not experienced a year of mild weather. Degree days were eight percent below normal and six per-cent below the1984 level. Revenues also reached new highs as a result of the increased sales and two rate increases. A 5.2 percent Vermont retail rate increase took effect on January 1, 1985, and a temporary surcharge of 8.7 percent, to pay for replacement power during an extended repair and refueling ~ outage at the Vermont Yankee nuclear 9

l 1 other operation expenses which was casting system. Income tax expense in-partially offset by improved cash flow creased as a result of greater earnings. and collections. Providing our customers We see continued moderate expansion with a 30-day bill rather than a 60-day bill of theeconomyof ourserviceterritoryin has improved customer service by facili-1986 and are forecasting 2.4 percent over-tating budgeting and permitting prompt all growth in electricity sales. The com-information on energy consumption and pany will experience an expense increase conservation measures. During the year with the operation of the Highgate, Ver-the company purchased severallarge mont, transmission connection which software packages for automation of went into operation in September 19S5, accounting, human resources and pur-and with the expected commercial oper-chasing procedures and a financial fore-ationin hlay 19S6 of the hiillstone 3 nuclear power plant. Construction Requirements k he bulk of our Seabrook and hiill- { I< - I stone nuclear power plant construc-S tion expenditures are behind us. The .i ' ~ j d j ..s i level of our construction expenditures (excluding allowance for funds during I construction) will drop in 1986 by about i. ) 4 40 percent from $33 million to $19 I million. We expect this level to remain at g about $19-to-$29 million for the next five g g .}4 years, as shownin the accompanying 'i' table. \\- =4 \\ The direction of our construction ex-penditures over the next five years will shift away from generating plants. We 4 have no plans for additional significant d new generation plants in the remainder of this decade. Our plans include several transmission lines, local distribution _S-facilities and several service centers and administrative facilities. Our recent generation project additions have now become or, we expect, soon will be a por-l A guide is wound onto a graph-tion of our rate base. ite Western Series Orvis fly rod at the Orvis Rod Shop in Man-chester, Vermont. Orvis is the Estimated Construction Program l nation's oldest catalog com-(s m mamu pany. It was established in 1856. 19S6 1987 1988 1989 1990 Excl. AFDC 18.8 19.7 23.5 28.6 26.9 incl. AFDC 31.0 19.9 23.7 28.8 27.1 1 i

l Financing Requirements Dconstuction expenditures, we con-uring the1982-1985 period of heavy l Totalcapitalization i tinued our policy of maintaining finan- " ~ " i cial flexibility. In January of 1985 we sold u E_ l $15 million of first mortgage bonds, $10 a million of which were at the rate of 12.85 percent and $5 million were at the rate of s ~ ~ ~, _ _. _... 12.675 percent. In December we sold $5 n million of tax-exempt pollution control bonds with a variable interest rate, ad-justed monthly. Continued participation e u o 9 e in our Dividend Reinvestment Plan raised an additional 53.7 million. In early 1986, we sold an additional 512 capitalization Ratios million of preferred stock at a 9.75 per-cent dividend rate, and, with the deci-sion to sellSeabrook Unit 1, we do not anticipate the need to sell additional u 1 =. c al erf r a ce ndcapital n structure remain within the range of our long-term financial objectives. These in-M o u clude maintaining a common equity ratio of at least 45 percent, interest coverage ratios of at least 3.5 times in-Debt terest, and financing as required to ehmmate all short-term debt at least once _ [.' l{4 l{ yj 5] 'j3ll Preferred Equity a year. s, s2, v, s:n s:3 : s:32 At the end of1985, common stock a^ 'n N comm quity equity represented 46.8 percent of total capitalization; preferred stock equity 3es m u6 un iw i., a represented 7.8 percent, and long-term + s e 4 s debt constituted 45.4 percent. Our in-terest coverage continued at a satisfac-torylevelof 3.6 times. Times 60 Interest Earned waacwmm-w 3 s, 3-38-15, 3b 33 / n /

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CVPS Power Supply (h!egawatts!WinterIbwer Itriod) l l ) Required Capacity g ',,,,(Load Grtm th of 2.1% yr.) pf Ibtential Additions

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' Ibol Purchase w wimwm e us l G NEPOOL Phase 2 kf [1] AdditionalHighgate(1987) p'"*v M Ontario Hydro Addition me ib i E Independent Power Producers h r :. i> l Planned Additions DI ~ hiillstone 11120.\\1W(1986) 4x NEPOOL Phase 1(14S6) K !i I r r, E Existing Sources I w t V. b', q y am [1 !i l b i im r, {j j {.- IN V: t3 i + M 89 un 91 42 93 94 9-97 9x 99 m b,' i .,,m.- ~,,,.q..,,,,_, u-... ..n. n s a +w,. ...w w + u _2 ,+, n-. , a ;m, ag_,,., a PowerSupply taking energy management and conser-vationinto account. We have enough i hree categon.es of sources make up i capacity now (see megawatt scale at left i the present and future power supply of chart), but to assure a reliable future picture at CentralVermont: supply we must make some additions.

1. Existing Sources (those already m.

Moreover, we expect to lose some ex-use)' isting.,ources over these years. The New

2. Planned Additions (thoseforwhich we have contracts).

York Power Authority hydro power. supply available to our customers will i

3. Potential Additions (inthelong-

d... h m. thenext10yearsbecauseof a iminis range plans).

decreasing allocation. Our contract for The accompanying chart shows our 4 megawatts from the Merrimackcoal 3 power sources to the year 2000.Our i power plan ners forecast an increase in plantin New Hampsh. ire willexpirein i 3993' demand averaging 2.1 percent per year, In 1983, our sources of power by type of generation were as follows: nuclear,45 q ?qh

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r EnergyManagement other expert energy management spe-r and Conservation cialists. e Seal-Up. Our new residential audits Tghileobtainingpowersourcesis a andlow, terestloans programbegan m m F V bigpartof ourjob,alsoimportant July 198a aimed at conserving heat and is maximizingthe efficientuseof m ney efficiently and economically by I. available power because our strategies Providing free and low-cost audits and L includecontrolofbothcapacityand bargam-pnced loans. CV customer ser-energy growth. Effective energy man-vices engineers perform commercial and agement andconservationandreduc-industrialaudits fora nominalfee. I tionof growthinbothpeakdemand and Load management plays abig rolem, i holding costs down. Seasonal rates form thefoundationofenergymanagement y 1 W andconservationatCVbecausethey }' U.S. Energy SecretaryJohn Herrm.gton U reflect the true cost of electricity at the i. presented CV a National Award for Energy W time it is used and send our customers Innovation from the U.S. Department of p an appropriate price signal for the time l Energvin Washington. d of year and use. Other important load p managementtechniquesinclude: i EXTETHN2 E EEE THE!Crr 5, c t onti e -d e tric heat rates, which gives us control of 52 energyconsumptionwillreducethe megawatts. 4 i need for expensive capital additions. m Storage Heat. A totalof 662. l^ Avarietyof energy management and customers utilize storage heat, which j conservation programs have been devel-puts 21 megawatts ofload under control. l oped with the assistance of our custom. . " Ripple" electronic control from CV ersunderthegeneraltheme,"CVMOU, of 7,500 water heaters, which gives us the Partners in Energy Conservation," and ability to control another 22.5 megawatts include: when the need arises. e Operation Peak Alert. During winter. m WaterHeatersonTimers. Atotalof - c hours of heavy electricity use we appeal ' 24,500 electric water heaters is controlled . to our customers to defer unnecessary by time clocks, permitting control of 73.5 t useof appliances.Theircooperation megawatts. Theseload management techniques, helps us hold demand down.. taken together, put about 170 megawatts e WaterHeaterInsulationJackets. + Sales toourcustomers haveexceeded of ourload undercontrol. i 17,000 jackets. Each jacket saves 700 kilowatt hoursperyear.Nearly12 Customer Relations million kilowatt-hours are now being conserved by these jackets on an annual .T econtinued toseektheviewsof 4 basis. ourcustomersandinvolve themin i a CommunityEnergyEducation Pro. energy programs during 1985, and recent. grams.Ourpartnerships with commu. surveys showed they accorded us a high nity organizations around the state. degree of favorability in return. This ap-involve citizen task forces in the develop 1 Proachhelps todeterminecustomer ment of plans for increasing energy effi- - needs and develop the required services,

It also helps us to maintain a favorable ciency at the locallevel. They feature

-. environment in which to do business. workshops organized by our community 1-partner organizations and led by CV and Aneducationprogramwhichturned : high school students into energy sleuths 1 - received awards in 1985 from both the i

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H MY. C .. fl b .'.Q - w, m), f,.y 16 g' -w d .$*(f g, t4 ,.,,I t@ - C4 i ~- u4 ,a 3 4 ,'ef r, J - Lsi AL_ l governor of Vermont and the secretary of Also in the classroom, more than 3,700 At the candy counterin tne ser-I energy of the United States. children entered our second annual mont country store, weston, l The projectinvolved the training of poster contest, called "How I Can Niake j'"d tjn ' ' ' 'h oa r l five high schoolstudents as energy N1y Home Energy-Efficient l' Winners n Founded in 1946 as the first auditors to assist in an audit of their received bicycles, cameras, cash, and gift revived rural country store in schoolwhich could save up to 500,000 certificates to local restaurants and toy the L'nited states, the Vermont kilowatt hours per year. Governor stores. country storeis a mecca for N1adeleme A1. Kunin told CV the pro- "Open planning" was imtiated and it Vi'I' " ""Y '" d gram "can be shared and potentially included meetings with representatives $;",(;,','

' "d rca[alo transferred, increasing the impact of of seven towns and two planning com-featuringmanyof theold-fash-energy conservation and renewable missions with an eye toward reinforcing ioned products foundinthis energy programsin Vermont and else-the electrical system serving an area of famous emporium,is mailed to where." U.S. Energy Secretary John Her-our service territory with the least possi, m rethaneightmillionper-rington presented CV a National Award ble adverse environmental and economic s ns each year.

for Energy Innovation from the U.S. impact. Department of Energyin Washington. We plan to extend this effort to 10 addi-tionalschools during 1986.

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Management's Discussion and Analysis of Financial Condition and Results of Operations The Company's operating results in recent years reflect a pat-Since the mid.1970's the growth in MWIi sales has been tern of moderate sales growth, continuing inflationary pressure modest. The Company's present long-range forecast indicates an on costs and the effect of periodic rate increases. In each of the average annual growth in energy sales of 2.4% and an average an-past five years the return on average common stock equity has ex-nual growth in capacity requirements of 2.1% over the next 10 ceeded 16% Contributing to results in recent years are periodic years. The following table shows the percentage increase in retail retail rate increases as well as moderating increases in power sales and the sources of increased operating revenues for each of supply costs and favorable operating experience of the Vermont the last six years (dollars in thousands): Yankee nuclear plant. Although we have earned our allowed rate of return for the past five years, future earnings performance is 1985* 1984 1983 1982 1981 1980 dependent upon the Company's ability to continue to obtain Gnm thin retail adequate rate increases to recover anticipated higher costs, par-Anvil sales 3.6% 4.5% 3.1% .3% 2.5% 4.1% ticularly those related to major investments in generation and R nu wt """" transmission projects. The operating results for 1985 reflect the ,,d establishment of a $3.000,000 reserve related to the Seabrook Unit AnvH sales S 5,097 5 5,606 5 3,58o 5 394 5 2,549 5 3,259 2 nuclear project, which decreased net income by $1,748,000 after Increased retail rates 11,728 4.117 3,560 9,M9 18,382 7,010 income tax or 27 cents per common share. See Notes to Consoli-Changein wholesale dated Financial Statements for additional information on the Sea-and other revenues (1,943) 1,905 3.200 6.881 5,673 2,281 brook nuclear project. Net increase over prioryear $14,882 $11,628 510,34o 516,324 526,604 512,550 Operating Revenues ' "d"d'"3N"* le' Operating revenues and MWil sales for the year ended De-Substantial increases in operating revenues have been neces-cember 31,1985 were as follows (dollars in thousands): sary in recent years to cover continued growth in the cost of pur-chased power and other operating expenses and to provide an Revenues % Inc. (Dec.) N1WH % Inc. (Dec.) adequate return on investment to stockholders. This growth in Residential 5 55,918 (4.5) 683,999 (20.1) revenue results principally from Vermont retail rate increases of Commercial 20,152 17.5 226,499 8.4 5.2% effective January 1,1985,4.0% effective October 1,1983, Industrial 52.266 14.4 782,483 2.9 12.37% effective May'1,1982,19.62% effective January l,1981, and j Other 9,866 10.5 111,033 2 severalincreases in 1980 aggregating 16.1E Also, on August 1, j Totalretail 138,203 6.0 1.804,014 (6.8) 1985, the Company began billing a temporary surcharge of 8.7% l Resale 20,575 (9.6) %0,390 (5.2) to recover the 1985 portion of replacement energy costs Other 10,326 303.7 1 associated with a 40-week Vermont Yankee shutdown which I Total $169,104 8.7 2,364,404 B) began on September 21,1985. Vermont Yankee, which usually provides one-third to one-half of the electricity needs of the Com-l Effective July 1,1985, energy formerly purchased by the Com. pany's customers, will be ou t of service until lateJune 1986 for pany from the New York Power Authority (NYPA) is now being replacement of pipes in the reactor water circulation system. sold by the State of Vermont (State) directly to residential con. Retail rate adjustments also have been achieved in New flamp-J sumers in the Company's service territory. Included in other shire, which represents about 6% of sales, and rate adjustments i operating revenues were fees totaling $7,529,000 received from to firm wholesale customers, representing approximately 8% of the State for delivery of such energy, billing and collection service sales, have been received from the FERC. I under a service contract. If the sales of NYPA power by the State Year-to-year fluctuation s in retail MWil sales are affected by were combined with sales by the Company, operating revenues cold weather patterns because many of our customers use elec-and MWii sales for the year ended Decem'ber 31,1985 would be tricity for heating. In 1982, sales were also affected by the as follows(dollarsin' thousands): emnomic slowdown experienced in Vermont and throughout the i nation. Over the past six years, retail MWil sales have increased Revenues % Inc. (Dec.) MWH % Inc. (Dec.) at an average annual rate of 3.0% reflecting continued energy j Residential 5 64,862 10.8 884,M2 3.3 mnm 6 n h urcustomers.Themostrecentyearsareshow-i Commercial 20,152 17.5 226,499 8.4 ing an acceleration in the growth pattern being experienced by Industrial 52,266 14.4 782,483 2.9 the Company. 4 Other 9.867 10.5 111.033 ,1.6 1 Total retail 147,147 12.9 2,004,057 3.6 l Resale 20,575 (9.6) 560,390 (5.2) l Other 2,797 9.3 Total 5170,519 9.6 2,564,447 1.5 --~ t in w

Management's Discussion (continued) Operating Expenses Two new generating facilities of the Company went into com-mercial Peration during 1984. A 2.2 megawatt hydroelectric gen-Costs of purchased power are costs for capacity available to the erating station located in East Barnet began producm, g power m Company and costs for energy received. These two components September. Also, the Companyis a 20 percent jomt owner m, the of our purchased power costs for the past six years were as 50 megawatt Joseph C. McNeil wood-fired station located in Bur-follows(dollarsinthousands): lington, Vermont. This generatmg unit went into commercial operationin June 1984. 1985 1984 1983 1982 1981 1980 Production and transmission expenses for 1983 mcreased by Purchased $1,914,000 principally due to increases in generation at the Joseph Capacity $44,153 544.858 543.921 535,817 530,686 522.873 C. McNeil and East Barnet generating plants and to higher Energy 38,838 35,263 35,04e 29,027 29,551 24,791 transmission costs. Maintenance expenses rose in 1984 due to Total $82,991 580.121 $78,968 564.844 560.237 547.664 higher maintenance expenditures for the Company's hydroelec-tric production facilities and for transmission and distribution Capacity costs, which accelerated dramatically in 1981,1982 lines. Beginning in 1982 other operation expenses include ap-and 1983, have remained relatively constant for the last three proximately $822,000 to amortize over a 10-year period costs years. Energy costs are directly related to the variable prices for related to the canceled Pilgrim *2 nuclear generating unit. Other ' l, nuclear fuel and coal and,'more important, to the proportion income (expenses), net in the Statement of Income includes ex-oi of the Company's purchased energy that comes from each of penses of 52,999,000 in 1982 and income of $543,000 in 1983, these fuel sources, with oil being significantly more expensive $505,000 in 1984, and $462,000 in 1985 related to this abandoned i than nuclear fuel. The long-term trend for energy costs has con-project. tinued upward formany years. The Vermont Yankee nuclear plant had no scheduled shut-down for refueling in 1982 and no major unscheduled outages Cost of Money during that year. The Vermont Yankee plant, which provides Interest expense on long-term debt has increased steadily in re-about one-third to one-half of the Company's system power, was cent years as a result ofissuance of First Mortgage Bonds at out of service for normal refueling during the second quarter of higher interest rates than the average interest rates prevailing on 1983 and the third quarter of 1984, and on September 21,1985 the the Company's outstanding long-term debt, as follows: plant was shut down for a 40-week period for replacement of pipes in the reactor water circulation system. Purchased energy Series Interest Rate Amount Date ofIssue costs are greater during each of these shutdowns due to the Z 10%% $ 4,250,000 September 1979 higher cost of replacement energy sources. The 1983 shutdown Z 10%% $10,750,000 January 1980 included an extended outage for pipe repairs, which increased AA 15%% 515,000,000 June 1981 energy costs during that period. BB 12%% $20,000,000 August 1983 The units of energy purchased by the Company grew by 6.4%, CC 12.675 % $ 5,000,000 January 1985 7.3% 12.5%,1.4% and 4.7% for the years 1980 through 1984, DD 12.85 % 510,000,000 January 1985 respectively, and decreased 6.7% for the 1985 period. The per-centages of the Company's total power output from certain long-On April 27,1982, the Company sold 750,000 shares of addi-term commitments and Company owned generating units were tional common stock with net proceeds of $12,200,000. On as follows: November 1,1983, the Company sold 600,000 shares of additional common stock with net proceeds of $10,800,000. These sales YearEnded December 31 resulted in a 24% and 11% increase, respectively, in the number Source of Energy 1985 1984 1983 1982 1981 1980 of shares of common stock outstanding. The proceeds from these Nucleargeneratingcompanies 45 % 44 % 42 % 57 % 45 % 39 % sales were used to repay short-term debt outstanding incurred NYPA-hydro 8 15 16 16 18 19 for the Company's ongoing construction program and the PSNH-coal 11 12 10 7 8 11 balance was invested in temporary investments until used to help Company-owned hydro 7 7 8 7 9 7 finance planned construction. The Company issued $5,800,000 in Joint ownershipunits 3 2 1 1 1 1 tax-exempt revenue bonds, to finance the East Barnet Hydroelec-Other sources 26 20 23 12 19 23 tric project in December 1983, in December 1984 issued $5,500,000 100 % 100 % 100 % 100 % 100 % 100 % in tax-exempt revenue bonds to finance, in part, the Seabrook project and in December 1985 issued an additional $5,000,000 in During 1982 the Company received a larger-than-usual portion tax-exempt revenue bonds to finance, in part, the Millstone proj-of its energy from nuclear generating companies, because of the ect. On Ibbruary 19,1986, the Company sold 120,000 shares of absence of a refueling shutdown for the Vermont Yankee plant, additional preferred stock, $100 par value, with net proceeds of and a lower portion from miscellaneous sources, principally oil. $12,000,000. Note 8 to the Consolidated Financial Statements con-1 fired plants. Energy purchased from nuclear and other generat. tains information on the Company's short-term borrowing ar-ing plants in excess of amounts needed to meet the load require. rangements, available lines of credit and commercial paper ments of Company customers is resold to other utilities in New financing. England. = ~

Construction Program and Financing Requirements Allowance for Funds During Construction The Company is participating, as a joint owner, with other elec. Allowance for funds used during construction ( AFDC) is the tric utilities in the construction of two nuclear generating projects cost, during the period of construction, of funds used to finance and is also participating in the construction and operation of two construction projects. While AFDC represents a non-cash credit major transmission interconnect projects to bring power from to earnings currently, existing rate-making practices allow the Canada. The transmission interconnection at Highgate, Vermont Company to recover these costs in the future, in cash, through commenced commercial operation in September 1985. Under rates charged to customers over the usefullife of the projects. The agreements with the other utilities the Company is obligated to allowance for equity funds and borrowed funds used during con-provide funds to finance these projects as described in Note 10 to struction has continued to grow in recent years due to the contin-the Consolidated Financial Statements. These projects constitute uing increase in the Company's construction work in progress for a major portion of the Company's construction program during future nuclear generating plants, particularly the Millstone and the next few years. The progra.m also includes additional fu nds Seabrook units. AFDC in 1985 was $14,671,000. The AFDC rates for construction of other generation, transmission, distribution used by the Company range from 11.15% in 1980 to 12.80% in and general facilities within the Company's service territory. 1985. The Millstone nuclear unit is scheduled to go into commer-Funds generated from operations (net income adjusted for cial service during the second quarter of 1986 and Seabrook Unit non-cash charges and credits to income), less dividends 1 is scheduled for commercial operation during the fourth declared, resulted in internally generated funds of $10,253,000, quarter of1986. $17,174,000, $14,991,000, $11,170,000, $15,815,000 and $19,937,000 for the years 1980 through 1985, respectively. This represented 66% 81%',45% 30%,46% and 52% of construction and plant expend. Inflation and Changing Prices tures in each of the years 1980 through 1985, respectively. Inflation continues to have a significant impact on virtually In order to provide funds for the Company's continuing con-every aspect of our business, including operating expenses, con-struction program and other business purposes, funds must be struction expenditures and cost of monev. obtained by issuing long-term debt and equity securities, as Note 11 to the Consolidated Financial Statements contains cer-necessary. To accomplish these financings, the Company must tain information about the effects of changing prices on the receive adequate and timely rate increases. Short-term bortcw-historical financial information of the Company. The information ings, used to provide funds for the interim period, generMiy are is considered to be experimental and provides'only an approxi-paid when long-term debt or equity securities are issued. mation of the effects ofinflation on the Company's operations. Selected Financial Data (dollars m thousands evept amounts per share) 1985 1984 1983 1982 1981 1980 Ibr the year: Operating revenues $169,104 $155,637 $144,009 $133,663 $117,339 $ 90,735 Net income $ 23,607 $ 21,707 $ 18,254 $ 16,210 $ 13,866 $ 8,902 Earnings available forcommon stock $ 21,583 $ 19,640 $ 16,009 $ 13,807 $ 11,370 $ 6,804 Return on average common stock equity 16.1 a 16.2 % 16.1 % 16.1 % 16.4 % 10.5 % Earnings per share of common stock $3.39 $3.19 $2.94 $2.84 $2.80 $1.72 Cash dividends declared per share of common stock $1.90 $1.83 $1.72 $1.62 $1.48 $1.40 Book value per share of common stock $21.50 $20.09 $18.92 $17.81 $17.77 $16.59 Total funds from operations $ 34,026 $ 29,090 $ 22,661 $ 24,944 $ 25,654 $ 17,874 Dividends declared $ 14,089 $ 13,275 $ 11,491 $ 9,953 $ 8,480 $ 7,619 Construction and plant expenditures S 38,473 $ 34,440 $ 36,871 $ 33,338 $ 21,145 $ 15,573 Total funds from operations less dividends, as a percentage of construction and plant expenditures 51.8 % 45.9% 30.3 % 45.0 % 81.2 % 65.9 % At end of year: Construction workin progress $151,600 $123,383 $119,414 $ 83,753 $ 56,446 $ 48,572 Long-term obligations $139,624 $123,079 $120,977 $ 99,679 $ 98,384 $ 84,796 Totalcapitalization $297,466 $266,203 $254,938 $209,769 $188,862 $169,433 Totalassets $374,492 $330,071 $296,462 $251,012 $233,831 $211,195

Consolidated Statement ofIncome and Retained Earnings 1 (dollars m thouunds ewept amounts per share) Year Ended December 31 1985 1984 1983 1982 1981 1980 OPERATING REVENUES $169,104 $155,637 $144,009 $133,663 $117,339 $90,735 l OPERATING EXPENSES Operation Purchased power 82,991 80,121 78,968 64,844 60,237 47,6M Production and transmission 12,131 10,217 8,168 7,795 7,577 6,507 Other operation 19,953 19,691 17,601 16,790 13,672 11,937 hiaintenance 8,271 7,868 6,797 6,900 5,863 4,380 Depreciation 5,917 4,916 4,426 4,147 3,805 3,664 Other taxes, principally praperty taxes 5,804 5,783 5,330 5,085 4,764 4,347 Tases onincome(Note 9) 13,687 10,242 7,618 10,699 7,369 2,712 Totaloperating expenses 148,754 138,838 128,908 116,260 103,287 81,211 OPERATINGINCOh1E 20,350 16,799 15,101 17,403 14,052 9,524 OTHERINCOh!E ANDDEDUCTIONS Equity in earnings of companies not consolidated 3,446 2,761 2,908 2,541 2,669 2,219 Allowance for equity funds during construction 9,499 8,236 6,608 3,577 2,577 2,495 Otherincome(expenses), net (679) 2,574 1,791 (1,478) 1,391 394 Benefit (provision) for income taxes (Note 9) 239 (1,154) (1,083) 705 (799) (329) TOTALOPERATING AND OTHERINCOh1E 32,855 29,216 25,325 22,748 19,890 14,303 INTERESTEXPENSE Interest onlong-term debt 13,659 11,707 9,890 8,950 7,612 6,376 Otherinterest 761 284 931 386 1,441 729 Allowance for borrowed funds during construction (5,172) (4,482) (3,750) (2,798) (3,029) (1,704) Netinterest expense 9,248 7.509 7,071 6.538 6,024 5,401 NETINCOh!E 23,607 21,707 18,254 16,210 13,866 8,902 RETAINED EARNINGS, JANUARY 1 50,601 42,169 35,406 29,149 23,763 22,480 74,208 63,876 53,660 45,359 37,629 31,382 CASH DIVIDENDS DECLARED Preferred stock 2,024 2,067 2,245 2,403 2,4% 2,098 Common stock 12,%5 11,208 9,246 7,550 5,984 5,521 Totaldividends 14,089 13,275 11,491 9,953 8,480 7,619 RETAINED EARNINGS, DECEh1BER31 5 60,119 $ 50,601 $ 42,169 $ 35,406 $ 29,149 $23,763 EARNINGS AVAILABLE FOR COhthiON STOCK $ 21,583 $ 19,640 $ 16,009 $ 13,807 $ 11,370 $ 6,804 Average shares of common stock outstanding 6,373,347 6,164,662 5,443,318 4,854,777 4,056,351 3, % 2,755 EARNINGS PER SHAREOFCOhihiON STOCK $3.39 $3.19 $2.94 $2.84 $2.80 $1.72 DIVIDENDS PER SH ARE OF COhlhiON STOCK $1.90 $1.83 $1.72 $1.62 $1.48 $1.40 The accompanying notes are an integral part of these fmancial statements. O ~a

Ccusolidated Balance Sheet (dollarsin thouunds) December 31 1985 1984 ASSETS UTILITY PLANT, at originalcost $189,373 5171,207 Less accumulated depreciation 50,156 45,686 139,217 125,521 Construction work in progress (Note 2) 151,600 123,383 Net utility plant 290,817 248,904 INVESTMENTS IN AFFILI ATES, at equity (Note 3) 25,781 25,756 NONUTILITY PROPERTY, less accumulated depreciation 4,021 4,103 CURRENTASSETS Ca:h 1,614 1,877 Temporary investments, at cost which approximates market 2,630 1,332 Accounts receivable, less allowance for uncollectible accounts ($598 in 1985 and$675in1984) 14,481 12,680 Unbilled revenue 7,883 7,900 Materials and supplies, at average cost 3,139 2,952 Prepayments 2,227 1,971 Othercurrent assets 5,650 3,845 Totalcurrent assets 37,624 32,557 TERMINATED PROJECTS (Note 4) 9,429 13,262 OTHER DEFERRED CHARGES 6,820 5,489 $374,492 $330,071 CAPITALIZATION AND LIABILITIES CAPITALIZATION Common stock, 56 par value, authorized 14,000,000 shares; outstanding 6,474,069 shares in 1985 and 6,272,565 shares in 1984 (Note 5) $ 38,845 $ 37,635 Other paid-in capital (Note 5) 40,227 37,795 Retained earnings (Note 5) 60,119 50,601 Totalcommon stock equity 139,191 126,031 Preferred and preference stock (Note 5) 15,151 15,151 Preferred stock with sinking fund requirements (Note 5) 6,400 8,000 Long-term debt (Note 6) 133,224 115,079 293,966 264,261 CURRENT LIABILITIES Notes payable-banks 11,100 5,700 Commercialpaper 5,000 Current portion of preferred stock and long-term debt 3,500 1,942 Accountspayable 6,579 4,519 Accounts payable-affiliates 9,100 5,452 Accrued interest 2,293 2,073 Accrued income taxes 1,220 1,711 Othercurrentliabilities 5,531 5,763 Totalcurrentliabilities 39,323 32,160 DEFERREDINCOMETAXES(Note 9) 23,854 19,253 DEFERRED INVESTMENT TAX CREDITS (Note 9) 16,126 13,175 DEFERRED CREDITS AND MISCELLANEOUS RESERVES 1,223 1,222 COMMITMENTS AND CONTINGENCIES (Notes 2,3 and 10) $374,492 $330,071 The accompanying notes are an integral part of these financial statements.

Censolidated Statement of Changes in Financial Pbsition (dollars m thousands) Year Ended December 31 1985 1984 1983 1982 1981 1980 SOURCEOF FUNDS Funds from operations Net income $23,607 $21,707 $18,254 $16,210 $13,866 $ 8,902 Principal non-cash charges (credits) to income Depreciation 5,917 4,916 4,426 4,147 3,805 3,664 Deferred income taxes and investment tax credits 7,552 8,570 4,871 (3,153) 9,074 7,436 Allowance for equity funds during construction (9,499) (8,236) (6,608) (3,577) (2,577) (2,495) Dividends received more (less) than equity income (34) (82) (613) (264) (329) 141 Amortization of deferred powercosts 2,497 1,285 1,420 3,000 5,058 2,441 Amortizationof terminatedprojects 599 552 512 4,214 264 105 Other, net 3,387 378 399 4,367 (3,507) (2,320) Totalfunds from operations 34,026 29,090 22,661 24,944 25,654 17,874 Less Dividends declared 14,089 13,275 11,491 9,953 8,480 7,619 Retirementof preferred stock 1,290 1,340 670 670 1,M0 Retirement oflong-term debt 1,942 4,557 828 1,603 2,265 2,538 Other uses, net 5,317 (328) 4,322 (867) (1,129) 6,464 21,348 18,7% 17,981 11,359 10,286 17,%1 Changes in other working capital items Accounts receivable (1,801) (476) 181 1,074 (1,644) (4,005) Unbilled revenue 17 (266) 4,759 839 (6,182) (637) Temporarycash investments (1,298) 7,398 (8,730) Cash and other current assets (1,985) (1,742) (2,995) 2,104 3,158 (5,495) Accounts payable 5,708 (717) 1,405 (1,176) (2,316) 7,146 i Accrued income taxes (491) 611 (3,572) 3,513 557 392 Othercurrentliabilities 1,546 (100) 4,814 (189) (258) (138) 1,6% 4,708 (4,138) 6,165 (6,685) (2,737) Netavailable from internalsources 14,374 15,0(M 542 19,750 8,683 (2,824) Funds from outside sources Long-term debt 20,045 5,500 26,359 2,793 15,862 10,750 Preferred stock 8,000 Common stock 3,654 3,236 14,370 14,195 1,100 847 Changein short-term debt 400 10,700 (4,400) (3,400) (4,500) (1,200) Totalfunds from outside sources 24,099 19,436 36,329 13,588 12,462 18,397 $38,473 $34,440 $36,871 $33,338 $21,145 $15,573 FUNDS USED FORCONSTRUCTION Electric utility plantadditions $47,972 $42,676 $43,479 $36,915 $23,722 $18,068 Less allowance for equity funds during construction 9,499 8,236 6,608 3,577 2,577 2,495 $38,473 $34,440 $36,871 $33,338 $21,145 $15,573 The accompanying notes are an integral part of these fmancial statements.

Notes to Consolidated Financial Statements g A Note l-Summary of significant accounting policies: 2 CONSOLIDATION:Theconsolidatedfinancialstatementsincludetheaccountsof theCompanyand j its wholly owned subsidiaries. 4 The Company follows the equity method of accounting for its investments in affiliates. See Note 3. REGULATION: The Company is subject to regulation by the Vermont Public Service Board (PSB), the Federal Energy Regulatory Commission (FERC) and, to a lesser extent, the public utilities commissions 1 in other New England states where the Company does business, with respect to rates charged for ser-vice, accounting and other matters. The Company's accounting policies generally reflect the rate-mak-ingandregulatorypoliciesof theseauthorities. 3 REVENUES: Estimated unbilled revenues are recorded at the end of accounting periods. 7 MAINTENANCE: Maintenance and repairs are charged to maintenance expense and include replace-ments ofless than retirement units of property. Replacements of retirement units and betterments are f charged to utility plant, and the book cost of units retired plus the cost of removal thereof, less salcage, i are charged to accumulated provision for depreciation. 3 DEPRECIATION: The Company uses the straight-line method of depreciation. Total depreciation

I expense was between 3.49% and 3.86% of the cost of depreciable utility plant for the years 1980 through i

1985. INCOME TAXES: Deferred income taxes are provided to recognize the income tax effect of reporting A certain transactions in different years for income tax and financial reporting purposes in accordance with the rate-making policies of the respective state regulatory authorities. See Note 9. Investment tax credits realized are deferred and amortized to income over the lives of the related properties. ALLOWANCE FOR FUNDS DURING CONSTRUCTION: Allowance for funds used during construc-tion (AFDC)is the cost, during the period of construction, of debt and equity funds used to finance construction projects. The Company capitalizes AFDC as a part of the cost of major utility plant projects except to the extent that costs applicable to such construction work in progress have been included in rate base in connection with rate-making proceedings. AFDC represents a current non-cash credit to earnings which is expected to be recovered over the life of the property. The AFDC rates used by the Company were 11.15%,11.89%,12.05%,12.22%,12.76% and 12.80% for the years 1980 through 1985. DEFERRED CHARGES: Certain costs are deferred and amortized in accordance with rate-making [ policies of regulatory authorities. See Note 4. During regular Vemtont Yankee refueling shutdowns the increased costs attributable to replacement energy purchased from NEPOOL are deferred and amor-tized to expense over the estimated period until the next regularly scheduled refueling shutdown. The unamortized deferred replacement energy costs have been included in rate base in recent retail rate j cases. RECLASSIFICATIONS: Certain reclassifications have been made to prior year Consolidated Financial Statements to conform with the 1985 presentation. Note 2-Seabrook project: At December 31,1985, the Company's investment in Seabrook Unit I was $74,043,000. This invest-ment and the estimate of additional funds needed to complete construction of the unit represent a ma-3 jor commitment for the Company. This project has been under way since 1973, with Public Service Company of New Hampshire (PSNH) as lead owner. During the spring of 1984, the Joint Owners modified the Joint Ownership Agreement to permit, subject to necessary regulatory approval, the transfer of responsibility for completion of construction and operational control of the Seabrook project from PSNH to a new entity, New Hampshire Yankee, which is currently a division of PSNH and is = structured to be ultimately independent of PSNH. These changes have reduced the influence which m PSNH, as a 35% owner, has over the project. 5 The Seabrook project has been subjected to delays and cost increases. One result of these delays 9 has been the effective cancellation of Unit 2, with respect to which no construction activities have oc-n curred since September 1983 other than those activities necessary to maintain and protect the assets. 1 Seabrook Unit 2 is now included under Terminated projects. See Note 4. j Unit 1 is expected to be completed by October 1986. Operation of the facility is dependent upon ob-i taining a Nuclear Regulatory Commission (NRC) operating license and the proceedings relating to that g license have been delayed because of delays with respect to the emergency response plans for the site. While management believes that the Seabrook Unit 1 project will be completed and placed in service, og the Company cannot predict the impact on the project of further delays and future proceedings before regulatory agencies or cou rts affecting the project or its several owners. E E -a 2 Ea

On May 3,1985, the PSB issued an Order in which it directed the Company to of fer its interests in the project for sale. On July 24,1985, the Company signed a letter of intent with Eastern Utilities Associ-ates (EUA), a Boston based electric utility, to sell the Company's entire ownership share in the Seabrook project to EUA. Based on the letter of intent and subsequent negotiations u nder which the original pur-chase price has been increased, EUA would pay $16.4 million to the Company plus reimbursement of all costs paid by the Company for Unit 1 and transmission support payments from June 1,1985 ($4,459,000 at December 31,1985) and would assume the Company's share of all remaining costs of completion. See Note 10. The Company would continue monthly payments to the project until the closing with EUA but its expenditures, as described above, afterJune 1,1985 would be reimbursed by EUA with interest. A contract reflecting the increased purchase price was executed by EUA and by the Company on February 24,1986. A closing with EUA is subject to approval by the Company's Board of Directors, the EUA Board of Directors, the PSB, the FERC, the NRC and other approvals and conditions. The Company cannot predict whether all of these approvals will be obtained. By order dated December 4,1985, the PSB declined to find that the proposed sale of the Company's Seabrook interests was consistent with its earlier order and instead left the decision whether to sell or not with the Company's management. Based on its analysis, the Company intends to seek approvals necessary for the sale of its Seabrook interest in light of the availability of economic alternative power sources. If the Seabrook project is sold to EUA under the terms described above, approximately $53,000,000 of the Company's recorded investment will not be realized through the sale proceeds. The Company will request the PSB for a; proval to recover its remaining investment in future rates charged to customers. In its opinion dated December 4,1985, the PSB said that the Company's investment in Seabrook Unit I will be given the same treatment whether it sells or stays in the project. Whether or not the Company sells its interest in the Seabrook project, management believes that it is probable that the PSB will disallow recovery of some portion of its investment in the project. Management is unable to reasonably estimate the amount that may not be recovered but believes that the amount of the loss may be material to its financial position and results of operations. In Dece nber 1985, the Financial Accounting Standards Board issued an Exposure Draft en-titled " Regulated Enterprises - Accounting for Phase-in Plans, Abandonments, and Disallowances of Plant Costs." The proposed accounting would require loss recognition for any future Unit 1 disallow-ances, whether or not the unit was sold. Further, the proposal would require for abandoned projects additional loss recognition for discounting, using the most recently allowed overall rate of return, for any recoverable amounts on which the Company is not granted a return. If adopted, the proposal would be effective in 1987 and would require either retroactive application to prior financial statements or cumulative adjustment for the accounting change in 1987 financial statements. N:te 3-Investments in affiliates: The Company accounts for investments in the following companies by the equity method (dollars in thousands): December 31 Ownership 1985 1984 Nucleargeneratingcompanies: Vermont Yankee Nuclear Ibwer Corporation 31.3 % $18,567 $18,536 Connecticut Yankee Atomic lbwerCompany 2.0% 1,778 1,774 Maine Yankee AtomiclbwerCompany 2.0% 1,338 1,M8 Yankee Atomic Electric Company 3.5% 747 747 22,430 22,405 Otheraffiliate: Vermont Electric Ibwer Company, Inc. 57.2 % 3,351 3.351 525,781 $25,756 Each sponsor of the nuclear generating companies is obligated to pay an amount equal to its emitle-ment percentage of fuel, operating expenses (including decommissioning expenses) and cost of capeal and is entitled to a similar share of the power output of the plants. The Company is obligated to provide its entitlement percentage of the capital requirements of Vermont Yankee and Maine Yankee and has a similar, but limited obligation to Connecticut Yankee. U]

e Summarized financial information for Vermont Yankee Nuclear Power Corporation is as follows (dollarsin thousands): December 31 Earnings 1985 1984 1983 Operating revenues $118,868 $117,009 $113,070 Net income applicable to common stock 5 7,894 $ 5,9M $ 5,861 Company's equityin netincome $ 2,470 $ 1,866 $ 1,8M Investment 1%5 1984 Total assets, principally utility plant $342,308 $321,088 Less: Preferred stock 11,683 11,683 Long-term debt 74,457 59,328 Other liabilities and deferred credits 1 %,217 190,235 Net assets $ 59,951 $ 59.842 Company'sequityin net assets $ 18,567 $ 18,536 Included in Vermont Yankee's revenues shown above are sales to the Company (reflected as pur-chased power in the accompanying Consolidated Statement of Income) of $34,270,000, 535,447,000 and $36,028,000 for1983 tnrough 1985. Vermont Yankee has entered into a financial arrangement with a bank to borrow up to $40,000,000 of which $5,100,000 was outstanding at December 31,1985. The Company has guaranteed its propor-tionate share of obligations under this arrangement. Vermont Electric Power Company, Inc. (Wico) owns and operates a transmission system in Vermont over which bulk power is delivered to all electric utilities in the State. Velco has entered into transmis-sion agreements with the State of Vermont and the electric utilities and under their terms bills all costs, including amortization of its debt and a fixed return on equity, to the State and others using the system. These contracts enable Velco to finance its facilities primarily through the sale of first mortgage bonds. Included in Velco's revenues shown below are transmission services to the Company (reflected as pro-duction and transmission in the accompanying Consolidated Statement of Income) amounting to $4,815,000, 54,692,000 and $5,467,000 for 1983 through 1985. Velco operates pursuant to the terms of an Operating Agreement with the Company and two other major distribution companies in Vermont. Although the Company owns 57.2% of Velco's outstanding common stock, the Operating Agreement effectively restricts the Company's control and therefore Velco's financial statements have not been consolidated. The Operating Agreement is effective through June 1986 and may be extended by agreement of Velco's stockholders. Summarized financial informa-tion for Velco is as follows (dollars in thousands): December 31 Earnings 1985 1984 1%3 Transmission revenues $14,582 $12,823 $12,038 Operatingexpenses 8,809 7,367 7,575 Operatingincome 5,773 5,456 4,463 Otherincome 160 277 167 Totaloperatingand otherincome 5,933 5,733 4,630 Netinterest expense 5,474 5,275 4,210 Netincome $ 459 $ 458 5 420 Company's equityin netincome $ 256 $ 257 $ 240 Investment 1985 1984 Net utilityplant $60,073 $59,404 Current assets 17,126 12,100 Otherassets 286 332 Totalassets 77,485 71,836 Less: First mortgage bonds 45,197 47,340 Currentliabilities 24,125 17,165 Otherliabilities 2,287 1,472 Netassets $ 5,876 $ 5,859 Company's equityin netassets $ 3,351 $ 3,351 b

Note 4-Terminated projects: At December 31,1985, the Company's share of costs incurred for the Seabrook Unit 2 project was $9,396,000. This unit has been effectively canceled. In September 1985, the Company recorded a reserve of $3,000,000 as its estimate of the probable minimum loss of its investment in this project. The effect of providing this reserve was to decrease 1985 net income by $1,748,000 or 27c per share. A PSB rate order dated February 18,1986 allows recovery of 55,354,000 over a four-year period, without a return on the recoverable amount during the recovery period, and requires shareholders to absorb the remainder. This rate order has been appealed by the Department of Public Service. The Company intends to peti-tion the PSB for reconsideration of this treatment of Seabrook Unit 2 and other aspects of that order and I intends to appeal to the Vermont Supreme Court. If the PSB's rate treatment is sustained, the result would be an additional after-tax loss of approximately $250,000 or 4c per share. A 1982 PSB rate order allows recovery of costs of certain abandoned projects, including the $7,687,000 incurred for the Pilgrim #2 nuclear generating unit. The PSB allowed the recovery of these costs over a ten-year period, without a return on the unrecovered cost during the recovery period. Be-ginning in 1982, approximately 5822,000 related to this project has been amortized to operating ex-penses each year. The PSB decision required, in effect, the shareholders to absorb some of the cost of this canceled project. Accordingly, the Company recorded this cost ($2,999,000) as a charge to Other in-come (expenses), net in the 1982 Consolidated Statement of Income. The investment is recorded at its discounted present value of $2,910,000 at Dece nber 31,1985. Note 5-Capitalstock: Cumulative preferred and preference stock outstanding were as follows (dollars in thousands): December 31 1985 1984 Preferred stock, $100 par value, authorized 500,000 shares Outstanding: 4.15 % Series;37,856 shares 5 3,786 $ 3,786 4.65 % Series;10,000 shares 1,000 1,000 4.75 % Series;17,682 shares 1,768 1,768 5.375% Series;15,000 shares 1,500 1,500 12.75 % Series;80,000 shares 8,000 8,000 Preferred stock, $25 par value, authorized 1,000,000 shares Outstanding: 9.00% Series; 280,000 shares 7,000 7,000 Second preferred stock, $50 par value, authorized 7,993 shares Outstanding: 5.44% Convertible Series A; 1,946 shares 97 97 Preference stock, $1 par value, authorized 1,000,000 shares Outstanding-none 23,151 23,151 j Lesscurrent portion 1,600 Total cumulative preferred and preference stock $21,551 $23,151 The second preferred stock currently is convertible into common stock at $13.91 per share. As of December 31,1985, 6,994 shares of common stock were reserved for conversion. In 1985, no shares of second preferred stock were converted into shares of common stock. Commencing in 1986 the 12.75% series preferred stock is redeemable at par through a mandatory sinking fund in the amount of $1,600,000 per annum and, at its option, the Company may redeem at par an additional 51,600,000 per annum, not to exceed 52,400,000 through 1989. Changes in other paid-in capital were as follews (dollars in thousands): YearEnded December 31 1985 1984 1983 Conversion of second preferred stock to common stock 5 5 5 15 Excess of proceeds over par value from sales of common stock (201,504 shares in 1985, 224,151 shares in 1984 and 802,525 shares in 1983) 2,444 1,891 9,556 Amortization of capital stock expense related to the 13.50% and 12.75% series preferred stock 11 22 47 Common stockissuanceexpenses (23) (77) (204) $2,432 $1,841 $9,414 The indentures relating to long-term debt and the Articles of Association contain certain restric-tions on the payment of cash dividends on capital stock. Under the most restrictive of such provisions, approximately $50,000,000 of retained earnings was not subject to dividend restriction at December 31, 1985. U l l

Note 6-Long-term debt: A summary of long-term debt follows (dollars in thousands): December 31 1985 1984 First Mortgage Bonds 5 % Series L, due 1987 861 866 5% % Series M, due 1995 4,455 4,480 6%. % Series N, due 1996 4,525 4,550 7% % Series 0, due 1992 1,820 1,830 8% % Series P, due 1999 3,000 3,000 10 % Series Q, due 1999 2,000 2,000 8% % Series R, due 2001 3,000 3,000 8% % Series S, due 2003 5,000 5,000 11% % Series T, due 1990 3,750 4,125 s, 9% % Series Y, due 2003 9,000 9,500 10% % Series Z, due 2004 14,400 15,000 15% % Series AA,due 1996 15,000 15,000 12% % Series BB, due 1998 20,000 20,000 12.675% Series CC, due 1991 5,000 12.85 % Series DD,due 1997 10,000 Debentures 4% %,due 1987 2,790 2,880 7 %,due 1993 7,400 7,600 10% %,due 1995 2,730 2,800 Vermont Industrial Development Authority Bonds 12% %,due 2011 4,093 4,048 Variable, due 2013(7.05% at December 31,1985) 5,800 5,800 New Hampshire Industrial Development Authority Bonds 9 %,due 2009 5,500 5,500 Connecticut Development Authority Bonds Variable, due 2015(6.55% at December 31,1985) 5,000 Other 42 135,124 117,021 Lesscurrent portion 1,900 1,942 Totallong-term debt $133,224 $115,079 Based on issues outstanding at December 31,1985, the aggregate amount oflong-term debt maturi-ties and sinking fund requirements (exclusive of the amount that may be satisfied by property addi-tions) are approximately S1,900,000, $6,861,000,53,305,000,55,305,000 and 59,680,000 for the years 1986 through 1990, respectively. Substantially all property and plant is subject to liens under the First Mort-gage Bonds. i NoteJ. Retirement benefits: The Company has a non-contributory trusteed pension plan covering all regular employees and follows the consistent practice of currently funding all costs accrued. Total pension costs amounted to $1,038,000, 51,125,000, $1,301,000, 51,252,000, $1,146,000 and $1,033,000 for the years 1980 through 1985, including amortization of the unfunded actuarialliability over a thirty-year period beginning January 1, 1976. A comparison of accuethted plari benefits and plan net assets is presented below (dollars in thousands): January 1 1985 1984 Actuarial present value of accumulated plan benefits %sted $11,594 $10,160 Nonvested 619 1,273 $12,213 $11,433 Net assets available forbenefits $16,646 $14,309 Effective January 1,1985 the plan was revised to upgrade benefits and to also adopt the projected unit credit actuarial cost method. The assumed rate of return used in determining the actuarial present value of accumulated plan benefits was 6.5% for 1984 and 8.0% for 1985. The changes in plan benefits, El

the actuarial method and the rate of return assumption caused a net reduction in 1985 pension cost of nearly $100,000 and also caused a reduction of approximately $600,000 in the actuarial present value of accumulated plan benefits. The Financial Accounting Standards Board has issued new standards on accounting for pension ex-pense and disclosure requirements, which must be implemented by 1987. Based on a prehminary review, under existing conditions the Company expects that the new standards, when adopted, will not have a material impact on either financial position or results of operations. In addition to providing pension benefits, the Company provides certain health care and life in-surance benefits for retired employees. All full-time employees may become eligible for those benefits it they reach retirement age while working for the Company. The Company recognizes the cost of pro-viding these benefits as they are paid. These costs were $128,000 and $199,000 for the years 1984 and 1985, respectively. Note 8-Short-term debt:The Company uses bank loans and issues commercial paper to finance temporarily its construction program and for other corporate purposes. As of December 31,1985, the Company had annual bank lines of credit, which are normally renewed, expiring at various times in 1986, to support its bank loans and commercial paper, with varying compensating balance requirements. These range generally from maintenance of as erage compensating balances equal to zero to 5% of credit lines available plus, in the case of bank loans, additional balances equal to zero to 5% of outstanding borrowings. The following summarizes comparable information for 1983 through 1985 relative to bank lines of credit, outstanding short-term debt and interest rates (dollars in thousands): 1985 1984 1983 Totallines of credit at year-end $22,900 $22,900 $21,600 Unusedlines of credit at year-end $11,800 $12,200 $21,600 Averageinterest rate at year-end Notes payable-banks 10.29 % 9.63 % Commercialpaper 8.85 % Totalshort-term borrowings 10.29 % 9.27 % Averageinterestrate for theyear Notes payable-banks 8.91 % 9.% % 9.47 % Commercialpaper 8.81% 9.26 % 9.56 % Totalshort-term borrowings 8.89 % 9.66 % 9.54 % Average amount outstanding d uring the year Notes payable-banks 5 1,186 5 1,013 $ 1,394 Commercialpaper $ 318 $ 729 5 4,149 Totalshort-term borrowings $ 1,504 $ 1,742 5 5,543 j Maximum amount outstanding at any month-end Notes payable-banks $11,100 $ 5,700 $ 4,600 Commercialpaper 5 7,400 $17,300 Totalshort-term borrowings $11,100 $12,000 $18,800 b

i Note 9-Income taxes:The components of income tax expense are as follows (dollars in thousands): Year Ended December 31 1985 1984 1983 1982 1981 1980 Taxes on operatingincome: Federal-current S 3,501 $ 1,109 $ 1,951 5 9,772 $(1,806) $(4,302) Rderal-deferred 4,788 5,252 1,472 (3,994) 6,524 5,387 Investmentcredit, net 3,161 2,258 2,%2 3,M0 1,586 1,228 State-current 1,391 656 1,006 2,268 1 (481) State-deferred 846 %7 227 (687) 1,064 880 13,687 10,242 7,618 10,699 7,369 2,712 Taws on otherincome: Rderal-current 849 855 689 686 652 230 Rderal-deferred (864) 220 293 (1,306) 14 (3) Imestment credit, net (209) (133) (61) 7 30 65 State-current 154 169 114 122 100 38 State-deferred (169) 43 48 (214) 3 (1) (239) 1,154 1,083 (705) 799 329 Totalincome taxes $13,448 $11,3% $ 8,701 $ 9,994 5 8,168 5 3,041 Items which resulted in deferred income tax expense are as follows (dollars in thousands): YearEnded December 31 1985 1984 1983 1982 1981 1980 Allowance for bonowed funds duringconstruction $ 2,567 $ 2,236 $ 1,866 $ 1,393 $ 1,503 $ 848 Additionaldepreciation for tax purposes 2,561 1,003 645 430 149 Terminated projects (1,588) 2,978 (163) (1,679) 2,773 Deferred power costs (170) 224 (449) (1,494) (1,164) 2,946 Unbilled revenue (12) 1% (41) (4,863) 4,200 2,035 Other 1,243 (115) 182 12 144 434 Total $ 4,601 5 6,482 5 2,040 $(6,201) $ 7,605 $ 6,263 1 As of December 31,1985, deferred taxes have not been recorded on approximately $30,000,000, resulting from the cumulative effect of various timing differences. Of this amount approximately $24,000,000 relates to plant placed in service prior to 1981. In conformity with the allowed rate-making treatment, amortization of these plant related timing differences previously flowed through to ratepayers began in 1981 and the deferred taxes related to these timing differences will be provided ratably, as they are billed in rates, over a period extending through 2010. The principal reasons for the differences between the totalincome tax expense and the amount calculated by applying the statutory Ibderal income tax rate to income before tax are as follows (dollars in thousands): ) 1 War Ended December 31 1985 1984 1983 1982 1981 1980 Incomebeforeincome tax $37,055 $33,103 526,955 $26,204 $22,034 $11,943 Rderal statutory rate 46 % 46 % 46 % 46 % 46 % 46 % Computed " expected

• tax expense

$17,045 $15,227 $12,399 $12,054 $10,135 $ 5,494 Increases (reductions)in taxes resulting from: Allowance forequityfunds duringconstruction (4,370) (3,788) (3,(MO) (1,645) (1,184) (1,148) - Dividend receiwdcredit (1,347) (1,080) (1,137) (994) (951) (901) Additionaldepreciationfor tax purposes (17) (215) (299) (375) (533) (597) Deferred taxeson plant presiously on flow through" 763. 24 13 9 9 Stateincome taxes net of Rderaltaxbenefit 1,200 991 753 804 631 235 Investment credit amortization 013) (245) (161) (135) (111) (81) Other 487 482 173 276 174 39 Totalincometaxes $13,448 $11,3%. $ 8,701 $ 9,994 5 8,168 $ 3,041 b

Note 10 - Commitments and contingencies: The Company's power supply is acquired from a variety of sources including its own generating units, jointly owned units, long-term contracts and short-term purchases from a variety of sources. Through its investments in nuclear generating companies the Company is entitled to receive power from the nuclear units. See Note 3 for a discussion of the Company's obligations related to its investment m nuclear generating companies. For many years the Company purchased hydroelectric power generated by the New York Power Authority (NYPA), under contracts which expired June 1985. Effective July 1,1985, energy formerly purchased by the Company from NYPA is now being sold by the State of Vermont (State) directly to residential consumers in the Company's service territory. The Company also purchases power from a coal-fired generating plant owned by Public Service Company of New Hampshire (PSNH) under a thirty-year contract which expires April 30,1998. Under this contract the Company is obligated to make capacity payments which amounted to approximately $2,586,000, $2,254,000 and $2,793,000 for 1983 through 1985. These capacity payments will vary over the contract period primarily due to changes in PSNH's netinvestment. The Company's ownership interest and its share c,f amounts invested at year-end in the jointly owned generating facilities in which it is participating are as follows (dollars in thousands): MW December 31 Ownership Entitlement 1985 1984 Plantinservice: Wyman #4 1.77690 % 11 $ 3,243 $ 3,217 Joseph C.McNeil 20.00000 % 10 14,346 14,144 17,589 17,361 Accumulated depreciation 1,144 574 16,445 16,787 Underconstruction: Millstone 93 1.73030 % 20 72,198 56,862 Seabrook #1 1.59096 % 18 74,043 60,077 146,241 116,939 Net utility plant $162,686 $133,726 Wyman F4, an oil-fired generating plant, commenced commercial operation in December 1978, and the Joseph C. McNeil wood-fired generating plant, commenced commercial operation in June 1984. The Company's share of operating expenses for these two plants is included in the corresponding operating accounts on the Consolidated Statement of Income. The Millstone project is scheduled for completion in May 1986 and the Seabrook project is scheduled for completion during the fourth quarter of 1986. See Note 2 for recent developments concerning the Seabrook project. It is estimated that the Company will expend approximately $31,000,000 for construction in 19% (in-cluding AFDC and present commitments for nuclear fuel) of which S4,900,000 relates to Millstone and $13,000,000 to Seabrook Unit 1. In addition, the Company is obligated to provide funds in a future period estimated at approximately $1,300,000 as its joint ownership share of the costs related to the cancellation of Seabrook Unit 2. Vermont Yankee shut down for pipe repairs commencing in September 1985 and replacement energy during that shutdown is substantially more costly than energy from Vermont Yankee. The shut-down is currently estimated to be forty weeks. Replacement power is being received from the transmis-sion interconnect at Highgate, which was placed in service in September 1985, and from short-term purchases from other utilities. The Company does not have a purchase power recovery clause to enable exact recovery of this higher energy cost. As a result, effective August 1,1985, the PSB allowed the Com-pany to bill a temporary surcharge of 8.7% for recovery of the incremental energy cost of the 1985 shut-down. The Company is also participating with other electric utilities in the construction of two major Canadian transmission interconnect projects. As of December 31,1985, the Company has invested 1 S11,800,000 as its 45.45% share of the Highgate joint-ownership facility in northwestern Vermont, which went into operation in the fall of 1985. Also, the Company is obligated to make an equity investment of up to a maximum of $5,800,000 in Velco relative to the Phase I Hydro-Quebec transmission interconnec-tion facilities being constructed in northeastern Vermont, which are expected to be completed by late 1986. In addition to this equity commitment, the Company is obligated under a support agreement to pay its 4.54% share of Phase I Hydro-Quebec operating and capital costs over a ten-year recovery period. The estimated construction cost of Phase Iis $170,000,000. The Company has also entered into preliminary non-binding support agreements which are subject to regulatory approvals that are accept-able to the Company for 5.5097% of Phase II Hydro-Quebec transmission facilities. Major construction D L

activity for Phase II is expected in the years 1987 through 1990 with a total est'imated cost of $585,000,000. The Company is subject, like other electric utilities, to evolving standards administered by rederal, state and local authorities relating to the quality of the environment. These standards affect the siting of generating facilities, air and water quality, nuclear plant licensing and safety and other environmental factors. While these standards have had some impact upon the Company's past operations as a distribution company, the Company anticipates that they will continue to have a significant impact upon the capital costs and construction schedules of the new generating facilities in which the Com-panyis participating. Minimum rentalcommitments of the Company under non-cancelable leases as of December 31, 1985, are not material. Total rental expense entering into the determination of net income, consisting principally of vehicle and equipment rentals, was approximately $1,571,000, $1,733,000, $1,924,000, $1,837,000, $1,811,000 and $1,947,000 respectively, for the years 1980 through 1985. Note 11 - Unaudited information concerning the effects of inflation:The following information is supplied for the purpose of providing certain information about the effects of inflation. It should be viewed as an esti-mate of the approximate effect of changing prices, rather than as a precise measure. A statement ofin-come adjusted for changes in specific prices (current cost) as measared by the Handy-Whitman index of Public Utility Construction Costs follows (dollars in thousands): Year Ended December 31,1985 Conventional Adjusted Historical forChangesin Cost Specific Prices Operatingrevenues $169,104 $169,104 Operatingexpenses Operation and maintenance 123,346 123,346 Depreciation 5,917 15,470 Other taxes, principally property taxes 5,8N 5,8M Taxesonincome 13,687 13,687 Totaloperatingexpenses 148,754 158,307 Operatingincome 20,350 10,797 j Otherincome and deductions, net 12,505 12,505 i I Interest expense, net (9,248) (9,248) Net income (excluding reduction to net recoverable cost) $ 23,607 $ 14,054' Gain from decline in purchasing power of net amounts owed S 5,643 Reduction to netrecoverablecost (4,951) l 692 l 1 Increase in specific prices (current cost) of property, plant and equipment ] held during year" $ 19,8% ] Effect of increase in general price level 15,298 Increase in specific price level over increase in general prices 5 4,600

• Including the reduction to net recowrable cost, net income would have been 59,103.

"At December 31,1985, the current cost of utility plant net of accumulated depreciation was estimated to be approximately $442,039 as compared with the net utility plant recoverable through depreciation of $290,817. In preparing the above data, historical costs of only property, plant and equipment, comprising ex-isting plant in service, plant held for future use and construction work in progress, and the related depreciation were adjusted. The resulting adjusted data for property, plant and equipment are not in-1 dicative of the current value of existing property, plant and equipment nor of the Company's future capital requirements. The actual replacement of existing property, plant and equipment will take place over many years and not necessarily in the same manner as the presently existing assets. i Accumulated provisions for depreciation under the method described above was determined by calculating the ratio of historical accumulated depreciation to historical depreciable property by year of acquisition and applying the resultant ratio to estimated current cost of property, plant and equipment. j The current year's provision for depreciation was determined by applying the Company's depreciation j rate to the restated depreciable plant base at the beginning of the year. The effects of inflation are not recognized for income tax or rate-making purposes. Under the rate-making prescribed by the regulatory commissions to which the Company is subject, only the historical y cost of property, plant and equipment is recoverable in revenues as depreciation. Therefore, the excess ] I

of the cost of plant stated in terms of current cost over the historical cost of plant is not presently recoverable in rates as depreciation and is reflected as a reduction to net recoverable cost. While the rate-making process gives no recognition to the current cost of replacing property, plant and equip-ment, based on past practices, the Company believes it will be allowed to earn on the increased cost of its net investment when replacement of facilities actually occurs. During a period of inflation, holders of monetary assets suffer a loss of general purchasing power while holders of monetary liabilities experience a gain. The gain from the decline in purchasing power of net amounts owed is primarily attributable to the substantial amount of debt which has been used to finance property, plant and equipment. Since the depreciation of the utility plant is limited to the recovery of historical costs, the Come ny does not have the opportunity to realize gain on debt and is limited to recovery only of the embec. Most of debt capital. Therefore to have the Statement of In-come adjusted for Changing Prices pr. erly reflect the economics of rate regulation, the gain from the decline in purchasing power of net amt.nts owed should be offset by the reduction of net property, plant and equipment. A six-year comparison of selected supplementary financial data adjusted for the effects of changing prices stated in average 1985 dollars follows (dollars in thousands except amounts per share): Year Ended December 31 1%5 1984 1%3 1%2 1981 1980 Operatingrevenues $169,104 $161,190 $155,495 $148,%7 $138,791 $118,455 Currentcostinformation Netincome(exdudingreduction to net recoverable cost) $ 14,054 $ 13,321 $ 11,053 $ 9,743 $ 8,592 $ 3,979 Earnings pershareof common stock (exdudingreduction to net recoverablecost) $1.89 $1.81 $1.59 $1.46 $1.40 $.31 Increase (decrease)in specific priceleveloverincreasein generalprices $ 4,600 $ (5,918) $ (8,186) $ 14,457 $(19,564) $(13,156) Net assets at year-end at net recoverablecost $151,890 $144,180 $137,729 $119,660 $100,957 $101,876 Generalinformation Gain from declinein purchasing powerofnetamountsowed $ 5,643 $ 5,191 5 4,478 5 4,494 $ 10,201 $ 13,432 Cash dividends dedared per common share $1.90 $1.90 $1.86 $1.81 $1.75 $1.83 Market price percommon share at year-end $21.88 $17.74 $16.88 $18.18 $15.53 $14.07 Averageconsumerpriceindex 322.2 311.1 298.4 289.1 272.4 246.8 Note 12 - Unaudited quarterly financial information:The following qu arterly financial information is unaudited and in the opinion of management includes all adjustments (consisting only of normal recurring accruals) necessary for a fair statement of results of operations for such periods. The Company defers approxi-mately 55% of the incremental revenues resulting from higher rates charged to retail consumers during January through April and amortizes these deferred revenues evenly over the months of May through November. Variations between quarters reflect the seasonal nature of the Company's business (dollars in thousands except amounts per share): Quarter Ended March June September December I.983 Operatingrevenues $49,M0 $37,812 $37,993 $44,079 Operatingincome $ 9,083 $ 4,873 $3,3% $ 2,998 Netincome $10,081 $ 6,027 $ 3,100 $ 4,399 Earnings per shareof common stock $1.52 5.87 5.41 5.60 I I.%4 Operatingrevenues $46,702 $36,227 $34,331 $38,377 Operatingincome $ 7,831 $ 3,728 $ 1,721 $ 3,519 Netincome $ 9,254 $ 4,878 $ 2,847 $ 4,728 Earnings per shareof common stock $1.43 $.71 S.38 $.68 D

Responsibility for Financial Statements Responsibility for the integrity and objectivity of the financialinformation presented in this Annual Report rests with the management of Central Vermont Public Service Corporation. The accompanying financial statements have been prepared in conformity with generally accepted accounting principles, applying certain estimates and judgments as required. The Company maintains an accounting system and related controls directed towards the safeguarding of assets and the reliability of financial information. An integral part of such controls is an internal audit program designed to monitor compliance with the Company's policies and procedures. Arthur Andersen & Co., independent public accountants, are retained to examine the Company's consolidated financial statements. Their accompanying report is based on their examination conducted in accordance with generally accepted auditing standards, including a review of internal accounting controls and tests of accou nting procedures and records. The Audit Committee of the Board of Directors is composed solely of outside directors, and is responsible for recommending to the Board of Directors the selection of the independent accounting firm to be retained for the coming year. The Audit Committee meets periodically and privately with the independent accountants, with our internal auditors, as well as with Company management, to review accounting, auditing, internal accounting controls and financial reporting matters. THEODOREW.MILLSPAUGH ControllerandChief AcountingOfficer THOMAS C.WEBB ExecutiveVice Presidentand Chief 0peratingOfficer y Report of Independent Public Accountants TotheBoardofDirectorsof Central Vermont Public Service Corporation: We have examined the consolidated balance sheet of Central Vermont Public Service Corporation and its wholly-owned subsidiaries as of December 31,1985, and the related consolidated statements of income and retained earnings and changes in financial position for the year then ended. Our examination was made in accordance with generally accepted auditing standards and, accordingly, included such tests of the accounting records and such other auditing procedures as we considered necessary in the circumstances. The financial statements presented for the years ended December 31, 1984, and prior were examined by other auditors whose report thereon dated &bruary 15,1985, expressed an unqualified opinion on those statements. As more fully described in Note 2, the Company plans to sell its interest in the Seabrook project. Recovery of the Company's investment of approximately $53 million remaining after completion of the sale will be subject to regulatory approval. It is not possible to estimate what portion, if any, of the Company's investment may not be recovered. In our opinion, subject to the effects on the 1985 financial statements of such adjustments, if any, as might have been required if the outcome were now known of the uncertainties referred to in the preceding paragraph, the financial statements referred to above present fairly the financial position of Central Vermont Public Service Corporation and its wholly-owned subsidiaries as of December 31, 1985, and the results of their operations and the changes in their financial position for the year then ended, in conformity with generally accepted accounting principles applied on a basis consistent with thatof theprecedingyear. ARTHURANDERSEN&CO. Boston, Massachusetts Rbruary24,1986 EO

\\ Historical Statistics 1980-1985 1985 1984 1983 1982 1981 1980 COMMON STOCK DATA: Earnings per average common share $ 3.39 $ 3.19 $ 2.94 $ 2.84 $ 2.80 $ 1.72 Dividends paidpershare $ 1.90 S 1.83 S 1.72 S 1.62 $ 1.48 5 1.40 Bookvalueper share (yearend) $21.50 $20.09 $18.92 $17.81 517.77 $16.59 Return on a erage common equity 16.1 % 16.2 % 16.1 % 16.1 % 16.4 % 10.5 % Dividendpayoutratio 56 % 57 % 59 % 57 % 53 % 81 % AFDCearnings/ share $ 2.30 $ 2.06 5 1.90 S 1.31 5 1.38 5 1.06 Earnings available for common (000's) $21,583 $19,640 516,009 513,807 511,370 56,804 Dividend cashcoverage 1.7 x 1.8 x 1.6 x 1.1 x 3.1 x 2.5 x MARKETPRICE RANGE PER SHARE High 22% 17% 19% 17 13% 12% Low 16% 10% 14 % 11% 9% 9% Yearend 21% 17% 15% 16% 13 % 10% Market price as a percent of book value (year end) 102 % 85 % 83 % 92 % 74 % 65 % Price earnings ratio 6.5 5.4 5.3 5.7 4.7 6.3 Average number of common shares outstanding 6,373,347 6,164,622 5,443,318 4,854,777 4,056,351 3, % 2,755 Totalcommon shares outstanding 6,474,069 6,272,565 6,(M7,786 5,243,309 4,107,348 4,005,568 CAPITALIZATION DATA (000's): Common stockequity $139,191 $126,031 $114,410 $ 93,406 $ 72,993 $ 66,467 Non-redeemable preferred 15,151 15,151 15,160 15,186 15,212 15,236 Redeemablepreferred 8,000 8,000 9,290 10,630 11,300 11,970 Long-term debt 135,124 117,021 116,078 90,547 89,357 75,760 Totalcapitalization $297,466 $266,203 $254,938 $209,769 $188,862 5169,433 Short-term debt $ 11,100 5 10,700 S 4,400 $ 7,800 $ 12,300 CAPITALIZATIONRATIOS: Common stock equity 46.8 % 47.3 % 44.9 % 44.5 % 38.6 % 39.2 % Non-redeemable preferred 5.1% 5.7% 6.0% 7.2% 8.1% 9.0% Redeemablepreferred 2.7% 3.0% 3.6% 5.1% 6.0% 7.1% Long-term debt 45.4 % 44.0 % 45.5 % 43.2 % 47.3 % 44.7 % OTHERFINANCIALDATA: Net utility plant (000's) $290,817 $248,904 5220,040 $181,059 $149,197 $139,144 Totalassets(000's) $374,492 5330,071 5296,462 5251,012 $233,834 $211,195 Construction expenditures (000's) $ 38,473 $ 34,440 $ 36,871 $ 33,338 5 21,145 $ 15,573 Internallygenerated fundsas %of constructionreq.(Exd. AFDC) 44.3% 37.8 % 22.4 % 39.9 % 78.1 % 61.7 % Timesinterest earned: Beforeincome taxes 3.6 x 3.8 x 3.5 x 3.8 x 3.4 x 2.7x Afterincome taxes 2.6 x 2.8 x 2.7 x 2.7x 2.5 x 2.3 x Timesinterestearned and preferred dividendearned: Afterincome taxes 2.3 x 2.4 x 2.2 x 2.2 x 2.0 x 1.7 x Embedded cost oflong-term debt (yearend) 10.40 % 10.21 % 10.21 % 9.73 % 9.67 % 8.39 % Embeddedcostof preferred stock (year end) 8.74 % 8.74 % 8.99 % 9.22 % 9.32% 9.71% a

1985 1984 1983 1982 1981 1980 OPERATING DATA: ELECTRIC REVENUES (000's) Residential $ 64,862(I) $ 58,565 5 53,530 $ 51,662 $ 49,310 $ 40,657 Commercialand industrial 72,418 62,831 58,458 53,589 47,413 36,449 Public authority 9,867 8,925 8,611 8,201 7,286 5,971 Electric utilities -firm 6,191 8,143 7,360 5,151 4,819 5,237 Electric utilities-short-term 14,384 14,615 13,584 13,080 6,552 710 Other operating 2,797 2,558 2,466 1,980 1,959 1,711 TOTAL $170,519 $155,637 $144,009 $133,663 $117,339 $ 90,735 TOTAL (Excluding short-term) $156,135 $141,022 $130,425 $120,583 $110,787 $ 90,025 ELECTRIC SALESMWH Residential 884,042(I) 856,029 810,489 799,624 785,725 754,241 Commercialand industrial 1,008,982 969,319 933,439 888,729 897,356 885,248 Public authority 111,033 109,289 107,485 108,000 107,036 106,757 Electric utilities -firm 227,775 226,685 211,549 176,017 161,606 143,741 Electric utilities-short-term 332,615 364,295 333,610 360,197 160,619 22,588 TOTAL 2,564,447 2,525,617 2,396,572 2,332,567 2,112,342 1,912,575 TOTAL (Excluding short-term) 2,231,832 2,161,322 2,062,962 1,972,370 1,951,723 1,889,987 Annualpercentagechange-(Excluding short-term) 3.3% 4.8% 4.6% 1.1% 3.2% 5.1% III Including energy from the New York Power Authority CUSTOMERS (end of year) Residential 108,427 106,033 104,374 102,303 101,377 98,910 Commercialandindustrial 12,737 12,142 11,221 10,908 10,902 10,624 Public authority 2,148 2,150 2,122 2,130 2,183 2,172 Electric utilities 12 14 14 13 13 14 TOTALCUSTOMERS 123,324 120,339 117,731 115,354 114,475 111,720 Annualpercentage change 2.5% 2.2% 2.1% .8% 2.5% 1.6% Average KWH use per residential customer 8,233 8,124 7,858 7,880 7,866 7,704 Average revenue per residential customer $604.09 $555.80 $519.02 $509.17 $493.68 $415.26 Average revenue per KWH (cents) Residential 7.34 6.84 6.61 6.46 6.28 5.39 Commercial 8.90 8.21 7.86 7.47 7.41 6.31 Industrial 6.68 6.01 5.83 5.64 4.75 3.58 SOURCES OFENERGY BY PERCENTAGE Hydro 21.8 % 22.2 % 23.7 % 22.9 % 29.7 % 28.5 % Nuclear 44.8 % 44.3 % 42.5 % 56.8 % 45.4% 39.0 % Coal 19.6 % 20.6 % 18.6 % 15.9% 14.6 % 10.7 % Oil 11.6 % 11.5 % 15.2 % 4.4% 10.3 % 21.8 % Wood 2.2% 1.4% System capability (MW)(peak) 462 460 464 448 477 450 Reserve margin (peak) 10 % 12 % 20 % 14 % 21 % 23 % System peak (MW) 420 410 388 392 395 365 lead factor 64.0 % 63.5 % 64.1 % 60.8 % 59.9 % 62.9 % Numberofemployees 628 588 585 585 583 574 El

Officers 1 James E. Griffin Thomas C. Webb (58) 1959 President and (51) 1985 Esecutive Chief EwcutiveOffker Vice President and Chief OperatingOtficer ) ~ v m o a ThomasJ. Hurcomb Donald L. Rushford Jonathan W. Booraem Theodore W. Millspaugh (48) 1967 Vice President - (55) 19'2 Vice President and (47) 1%9 Treasurer (49# 1971 Controller Esternal Affairs C,eneralCounsel 3 Darrow R. McLeod Olga G. Laird Steven J. Allenby RussellE. Ayer (60) 1950 Vice President - (38) 1965 Secretary (31) 1980 Assistant (39119"2 Assistant Engineenng and Operations Vke President - Vke President - Corporate Planning. Rates Division Operations and financial Analysis Clifford E.Giffin Roslyn D. Beaupre John A.Ritsher (57)1946 Assistant (28) 1980' Assistant Treasurer (53) 1%9 Assistant Secn tary Vice President - System Operations

Board of Directors from /cft: Gordon P. Mills, Robert P. Bliss, Jr., Robert D. Stout, Preston Leete Smith, James E. Critfin, F. Ray Keysec Jr., Frederic 11. Bertrand, Fred W. Yeadon, Jr., Luther F. flackett, Frances C. Ilutner Frederic H. Bertrand Frances C.Hutner Robert D. Stout (49/1984 Presidentand (Co 1980 Frances ilutner (5911985 President and Chief Chief 0peratingOfiker, Associates t Econoniic ExecutweOfficer, National 1 ife Insurance Co., Consultants), and President, Southwestern Vermont Montpeber, Vermont '3) Pnnceton Research Forum. Medwal Center, Bennington, Pnnceton, New Jersey Qit3) Vermont (2) Robert P. Bliss, Jr. <62) 19"3 President, Bob Bhss, F. Ray Keyser, Jr. Fred W. Yeadon, Jr. bd, St Albans. Vermont (53# 1930 Chairmanof the (61119"4 Chairmanof the (Insurance Industry Board. Central Vermont Board, First Vermont Bank Consultants)(!!(4) Pubhc Serne Corporation, and Trust Company, Chairrr.an Kewer.Crowley. James E. Griffin Banse. and facev. Inc. Brattleboro, Vermont (l>(3)m (53A 19*2 President and Chief ILaw yers), Rutland. Vermont Executne Otfrer, Central (IH4d5) Vermont Public Servke Corporation <fd3naus, Gordon P. Mills I4911950 Chairman, ElfV-Luther F. Hackett weidmann industnes. Inc.. (r) AfemtvrofExecutrty (52) 19N President,Ifadett, St Johnsbury, Vermont Committce Vahne a MacDonald. Inc. (Manufacturerof Electric (2) Afcm!vrofAuddCommittee Burhngton, Vermont TransformerInsulation) (3) AfcmlvrelCompenwtion (Insurance)(11Q)(5) 01(3H5) Commrttee Preston Leete Smith (4) AlemirrofNommatmg Commrtice (55) 19"7 President and Chief (5) AfemfyroftongRange Ewcutive Of ficer, S-K-l ud., Ibita 5tudy Committer c o Kilhngton Ski Area, Kilhngton, Vermont (Ski Business)(1)(3#5) r-

ShareholderInformation

2. Central Vermont began to issue divi-On August 1,1985,our Shareholder dend checks directly for the common Services Department assumed in-house stock and all classes of preferred stock.

responsibility for several functions

3. CentralVermont began to admin-formerly performed by the First National ister the Dividend Reinvestment and Bankof Boston:

Common StockPurchase Plan.

1. Central Vermont became the Record-The First National Bank of Boston con-keeping Transfer Agent for the common tinued to serve as our co-transfer agent stock and all classes of preferred stock.

and registrar responsible for the transfer of stock certificates presented to the ank 1%rcentage of Shareholder Participation in Dividend Reinvestment and [y We are now able to provide sharehold-Common Stock Purchase Plan r-t; ers with varied and more personalized ' services. These include handling all in-v 2t2' 2*9 [ ! quiries and mailing of dividend checks

s ms

and quarterly financial reports in-house.

r P We nowalso maintain allpertinent tm n shareholderrecords. g m m R Please direct any questions that relate to shareholder records, dividend pay-9- ments, reinvestment of dividends and + y y a y a g7.777 -- ,7 7- , optional cash payments to our Share-holder Services Department, Central Vermont Public Service Corporation,77 Grove Street, Rutland, Vermont 05701. Common Stock Prices and Dividends Tel. (802) 773-2711. Anyquestions about transfer of cer-1984 High low Dividends!VrShare tificate shares should be directed to the 1st quarter 16% 13 % .4 2ndquarter 14 % 10% .45 First National Bank of Boston, P.O. Box 3rd quarter 157A 1 314 E @,hggWm&ms31 4thquarter 17% 14% .475 1985 Dividend Reinvestment Plan 1st quarter 18 % 16% .475 We continue to offera Dividend 2nd quarter 20% 17 .475 Reinvestment Plan for preferred and 3rdquarter 21% 18 % .475 common stockholders. The plan permits 4thquarter 22 % 19 % .475 cashinvestment of up to $20,000an-nually, including safekeeping of securi-Distribution of Common Shareholdings ties, at no cost to shareholders. Divi-Record Date December 31,1985 dends reinvested through the Dividend ShareholderAccounts Shares Reinvestment Plan after December 31, N mber %ofTotal Shares Number %ofTotal 1985, are nolongersubject to the tax [3 3y 3 [ 99 Ig 28 deferralprovisions of theInternal 1,269 8.4 500-999 784,511 12.2 Revenue Code.Tolearn more about the 689 4.6 1000 + over 3,911,975 60.4 Dividend Reinvestment Plan, please 14,999 100.0 6,474,069 100.0 write or phone our Shareholder Services Department. O

i C;mpanyInformation CentralVermont PublicService Cor-poration common stock is traded on the New YorkStockExchange.Oursymbol is CV. We welcomeinquiries fromin-dividuals and members of the financial community. Please direct your inquiries toJonathan Booraem, treasurer. Our telephone numberis(802)732711. AnnualMeeting The annual meeting of shareholders is scheduled for Tuesday, May 6,1986, at The HolidayInnin Rutland, Vermont, on Route 7, south. Notice of the meeting, proxystatement and proxy have been mailed to holders of common stock with this annualreport. Transfer Agent and Registrar The First NationalBank of Boston, Boston, Massachusetts 02102 for Com-mon Stock and allseries of Preferred Stock. Please Note We have prepared this report for the information of security holders, ana-lysts, company personnel, customers and other interested persons. It is not transmitted in connection with the sale of anysecurity. I

) l I I l )

==. CORPOF% TION 77 Grove Street Rutland, Vermont 05701 ~

r twonWecbs $wdka, and &Nkss, rit%& USDA. REA This dete argt he eseed to degernenne yoner operating resetas ( Form Approsed and ftnenedef edfaseffest. Yease response as reensred OM8 No. 94 72 pol T r1 (FRf eOs at ana s and in not eenfidentang. Espirme S/31/e1 ' OPERATING REPORT - FINANCIAL SORROWER DESIGNATIOff R.EA USE ONLY Vermont 12 Hampshire-MONTH ENDING INSTRUCTIONS. su6mit en artetnel and thine cepene to RzA. ror daraued soutmettons. m RzA sost.s. December 31, 1985 CE RTIFIC ATION 3 J-ss'e hereby certify that the entries in this report are in accordance with the accounts and other records of the stem and reflect the status of the system to the ,of oasr benoededge and belief.., y h, ~.? n.._$..5.. )g$.f '. .j @?' &rt., L ' Q h ~ + g~ ~. @; - January 16, 1986~ g A f r f SIGNATU RE, ($ OFFICE MANAGER,OR ACCOUNTANT '[h w c OATE %) b 4 ~ *k 1 "SaGNKTURE OF M ANAGE R C OATE d SECTION A. STATEMENT OF OPERATIONS ITEM THIS MONTH 4.AST YEAR THt$ YEAR BUDGET (el I6l tel (d)

1. Electrec Energy Revenues.

6 700 594 8 092 447 8 892 317 597 972

2. Income From Leesed Property. Net.

3. Other Opwering Revenue and encome 625 2 125 3 500 300 4 Tctal Oper. Revenues & Petronage Capital (1 tarv si.

6 701 219 8 094 572 8 895 817 598 272

5. Operation Expense. Production. Excluding Fuoi 19 583 4 500 6 413

6. Operation Excense. Production. Fuel

7. Operation Empense. Other Power $upply 6 176 474 6 123 845 6 682 674 631 347 252 804 424 748 278 846 33 573

8. Operation Expense. Transmission

9. Operation Empense Distnbution.

.g.

10. Operation Eaponse. Consumer AccountsdQ.,.

1 069 1 134 1 200 79

11. Operation Empense. Consumer Serwce & inform.

12. Operetton Empense. Sales.

{'r..

13. Operation Espense. Administrative & Genwet 11A AAR 147 052 81 160 15 258

14. Tctal Operation Expense (s thru 13J.

6 547 015 6 716 562 7 050 580 686 670

15. Maintenance Expense. Production

.h. Q 875 12 400 1 515 6 225

16. Maintenance Expense. Transmission.

17. Maintenance Expense. Distrubution.. $T'I.".; C-F ' + * ^

unL. .K MD' / n k'"

18. Maintenance Expense Genersi Ptent.

m 9 UD 38 625 1 515

19. Total Maintenance Expense (Js show fer M.'

e e

20. oopreciation & Amortisetton Expensed 35 666 M 270 038 327 942 43 365 niiions.

9 148 358 66 414 29 671 fi: Interest on Long-Tem oebt. . '. '.rf. 2 256 420 3 356 151 3 800 216 310 899

23. interes Charg d to construction. Credit.

( 2 215 856 ) ( 2 597 903 1 1 2 466 486 ) ( 460 270 )

24. Other interest Expense 77 652 209 112 72 349

( 9 349 )

25. Other Deductions.

50 20

26. Tctal Cost of Electric Service (14 + 19 enrv 25).

6 700 956 8 112 411 8 889 641 602 501

27. Operating Mar,ne rs. 2ss 261 (17 841) 6 176 (4 229 )

2e. Int:reet income 5 617 26 417 2 400 4 545

29. Allowence for Funds Used During Construction.

30. Other Nonoperating income. Net

31. Generation & Transmession Capital Credits

32. Other Capital Credits & Petronage Dividends.

18 278 42 719 18_278

33. Extraordinary items

34. N*t Patronene Capital or Mareens (21 thru 331 24 178 51 295 26 854 116 ITEM Mills /kVUti (optional t/se by sorroevers l

35. Electric Energy Revenue Per kWh Sold W

36. Total Operation & Maintenance Expense Per kWh Sold.

37. Tetal Cost of Electric Service Per kWh Sold

38. Purchased Power Cost Per kWh i

RE A FORM 12a (Rev. 12 84; PAGE 1 OF 2

( usoA.REA BORHOWER DESIGNATION

• EA USE ONLY Vermont 12 Hampshire OPERATING REPORT FINANCIAL MONTH ENDING December 31, 1985 SECTION 8. BALANCE SHEET ASSETS AND OTHER DESITS LIABILITIES AND OTHER CREDITS

1. Total Utgity Plant in Service.

21 867

27. Memtyerth ps, kQ

2. Construction Work.n Progreu 47 610 782

28. Patronage Caostat

3. Tctal Utdity Plant ii + 38..k '...

47 632 649 J. Ausgned and Ausgnable 3Q 177

4. Accum.Provreson for Deprecateon & Amort.

157 670

b. Retired This w n.

s. Net unlity Pi.nt vi. c.

47 474 979

c. Retered Prior ws

.c.

6. Non4Jtdety Property. Net

d. Net Patros. age C.aoital 10 217

7. Invest. m Assoc. Org.. Patronage Capitas

_____60 996 29 Operating Margins - Prior Years

8. Invest. in Assoc. Org. Other Gere,at Funds j 177 30 Operating Margins. Current Year 91 2Q5

9. Invest. in Assoc. Org. Other. Non-Gen. Fu as.

31 Nonoperating Martns n

10. Other Investments

32. Other Mar 9ns and Equit es 10

11. Special Funos

33. Totai Margins & Eouities e.'?

• Dd thru JJi 31 922

12. Totu Other Property & Investments vai tem t is.

79 173 34 Long Term Debt. REA. 14 472 286

13. Cash General Funds.

.20 477

35. Lon9. Term Debt - Other.

27 348 380

14. Cash Construction Funds. Trustee.

_175 457

36. Totas Long Term Debt rJl + J31 h1 RPn (JM

15. Soecial Deposits

37. Notes Payante 5 268 179

16. Temocrary investments i

17. Notes Receivable. Net

__, 34 Q42

38. Accounts Payable 4 591 477

39. Tases Accrued 165

18. Accounts Receivable Net 1_119 081

40. Interest Accrued.

958 067

19. Furi Stock

20. M:tirials and Suppi.es Other

41. Other Current & Accrued L atxtities.

42. Total Current & Accrued Liatutit es eJr thru 4tr 10 817 889

21. Pr payments.

_..._.. 3 L127

43. owerred crediis.

22. Ornst Current and Accrued Anets 44 Operating Reserves

23. Tct:J Current and Accrued Assets eiJ #4n. JJA

___1 384 085

45. Accumulated Deferred locome Tames

23. Unamortized Deot Disc.& Emiraord. Prop. Losses 3 264 679

46. Total Liabdit+s and Other Credits

25. Oihrr Deterred 0 oit

~ 517 161 ..u. u. nihm n, 52 720 076

26. Tetal Assets & Otmer Debits t 5 - t1 1J J s J u 92 720 076 SECTION C. NOTES TO FINANCIAL STATEMENTS THE SPACE BELON is 840v sCE D FO a..r*V A TAP.1 W 'E5 W E bee k OIN., t %

• sN ANCi r.L S T A M*.ir r f C ONT Ae NEC N f-els R EPOft T.

i IIV A DD4710%A L SP.t CE t$ \\k L bl U t %E M V.t n. t t I sIIe & T o . Jp

1. ' k D.

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1. 4..

M u -. *g, g# y g'.s g'_ Mk + .g y ?! af r er 8

• A 6 N d '.1 12a r l!. - 4 J 1 l' PAGE 2 OF 2

_m__ USDA-REA 80RRONEA DESIGNATION Thee data an 6ss 6e used to deterenetne your operosins . Forne Aarrowed reeug s and nonc6es assunt6on. Your responee U OM 't Pto. 0613 0081 OPERATING REPORT - SALES OF ELECTRICITY '"*'"'8" "*' Wrmont 12 Hampshire YEAR ENDING REA USE ONLY INSTRUCTIONS - s.6 mis en ordsener end tone copies so as4. For deasssed snet,=cesons. mzA KOM-3. December 31, 19 85 PURCHASER NO.OF ASSRML PEAK IdlLLS PURCHASERS DEMAND (kW) m WLLED W M WLLED W PER kWWi 44 468 tes id) tel ifD

1. SALES TO ULTIMATE CONSUMERS (Tessas only for thee ##ema.)

SALES FOR RESALE, REGULAR SALES TO REA SORRf35ES(IS (Lies separessey) '?<- 2. '...h... Ahk

jg'$'$.<

+^E 0

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,,c:.y.

11- /.:.: !!id$5 f5+;ip? 4 3*i. ' MEtis'- A 12.

1. #355?

w$.h.h!h8X30s$ Y. 13. .. as: *::!q:is' !' 3: MM fh 3 y^ 3

u(.w,- ::se 13.

7. 3, '

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5

30. TOTAL REGULAR SALES TO REA BORROWERS (seas e* atese 3 semu ses R EL) FORM 12tB tase.1844) 3,

-^ - - - - " - " PAGE 1 O D .J

usca. cla eORROWER des 4GNATION YEAR ENDING REA USE ONLY L OPERATING REPORT - SALES OF ELECTRICI."Y ~ Varmont 12 Hampshiro December 31, 1985 M. ,T, Q assR a:LLEO Ist AnsOuwt slLLED ($1 PURCHASER PE re ths < tr> SALES FOR RESALE - MCIAL SALES TO REA BORROUWERS (Last esposeasty) ,.;.3, & cu > ;4 ao, ca. V2rmont Electric Cooperative, Inc., Vermont 7 , h 'j. '., -, f;' 29,286 85,866.4 4,386,252 51.08 42. l ~ ~ ', - g 5 c ~ ,><^, [l ' 46. . 8,. e' - ~~ 0,7, ',':,a. as. c7 ,t ,3,: l '< ' : 4e. 3 ae. ~, . ~ so, n ',,, si. TOTAL srEc AL SALES TO REA BORROWERS (som of esse de mas ses 1 29,286 85,866.4 4,386,252 51.08

52. TOTAL SALES TO REA SORROuWERS tsum etam se + sas 1

29,286 85,866.4 4,386,252 51.08 SALES poR RESALE TO OTHER THAN REA SORROWWERS (Last osammassy) j!!gsdi$]ii$; gji40

53. North Attleboro Electirc Department s[.1 4,200 27,913 5 1.149,789 41.19 fl>3;lpifi 11.970 66,069 6 2,556,406 38.69 54.

Ccnnecticut Light & Power 56. ?;.;. 54. 57. 58. R 50. ~ .y=,;; "e:.:.:..hj g-f. g da::q .'f^.:: ~1:? .s g1, ".c ":.:., @?

^'?";

:.'3!8h

.:g '^ g3, {

0 ' -

'g 9 S4. [ N. 's GB. .7 N. $,.4. N. l! ( !:hE 70-ili 73. .:::x::: 72. h[ n. } 74 s.; N

75. TOTAL SALES TO OTHER THAN REA SORROWERS (seen of shoes ss shses 74) 2 16.I70 93.983.1 3.706.I95 39.43 7s. TOTAL SALES FOR RESALE (seien orasnee as + rs) 3 43.070 179.847.5 8.092.447 45.00

! 77. TOTAL SALES (s== etatese s

• 781 1

41.070 179.847.5 8.092.447 45.00 aca voam 12i, rue ss-se PAGE 2 OF 2 LL

USDA - REA SORROWER DESIGNATION nh date uom se uord to determine your operating Form Approved resul1e end inancial tatuation. Your rearonne is 0173 Ns, t572 0017 OPERATING REPORT - "*"'*d

1. " * ""# "d * ""' '*"#d**'"

SOURCES AND DISTRIBUTION OF ENERGY vermont 12 Hampshire INSTRUCTIONS - submit en ordninst and four eeries to REA. For detailed enetrwrione. *** REA EOM-3. REA USE ONLY ANNUAL NET ENERGY AVERAGE SOURCE OF ENERGY PEAK RECEIVED BY COST (3) COST NAMEPLATE p CAPACITY DEMAND (hWI SYSTEM (MWhl IMais/kWh) Yef (d (e) (t) (n) gap ikh GENERATED IN OWN PLANTS (Desadas on Forme J2d. e. f. and g)

1. FOSSIL STEAM

2. NUCLEAR

3. HvDRO 4000 3.317.6 965.271 290.95

4. INTERNAL COMSUSTION AND OTHER

5. TOTAL IN OWN PLANTS (s== of unes s #4m os 4000 I 3.317.6

) 965e271 290.95 PuRCHASEo POWER (Lee esen e,uerse,emeesyJ CODE ' - - ~ ~ 0-Vermont Electric Power comoany - Merrimack 2 19ng 11_R9A_4 ?RA A77 ?L_ng 7. - Vt. Yankee 4561 33;33n_L 1,3kg,1 (s i 3A ig 8. - Nennn1 F ennnrnv 2.196.6 201.189 92.60 9. State of Vermont - Hydro-Quebec thru Highgate Converter 4025 6.855.2 222.102 32.40 11 Northeast Utilities Gas Turbines 17215 250.9 141.456 563.79 11. Central Vermont Public Service Corporation 16000 119.998.3 3.864.688 12.21 12. 13. I S. 15. 16. 17. i 18. Il 20.

21. TOTAL POWER PURCHASED (som et sense a snm 20)

]76,q2q,q 6,067,77g gg,g7 INTERCHANGED POWER

22. RECEIVED INTO SYSTEM (Gress)

Q

23. DELIVERED OUT OF SYSTEM (Groes)

24. NET INTERCHANGE (L&ne 22 madams 231 TRANENSBION FOR OR SY OTHERS - lWHEELINel

25. RECElvED INTO SYSTEM

28. DELIVERED OUT OF SYSTEM

27. NET ENERGY WHEELED (Lene 28 meanse 2sJ

28. TOTAL ENERGY AVAILASLE FOR SALE (s== of unes s e si e 2d a 27)

]7q,847,q 'j g;; lly g

29. TETAL SALES (Fems sat -line 77)

]7q,847,q g:;P jlgj!..,:.Mesj jp .o. g 7hi

30. ENERGY FURNISHED TO OTHERS WITHOUT CHARGE

31. ENERGY USED BY SORROWER (Emesuding Station Ues)

.n_

• M

,g " : ".',f s - +

32. TOTAL ENERGY ACCOUNTED FOR (s mo of adnee 28 snm 231 17q_8 d_q N ((M h

33. ENERGY LOSSES -mWh (Lane 28 andame 32)

N < i. ph

34. ENERGY LOSSES -PERCENTAGE (Line J3

• Dae 2a X #00)

.n_ % i@@ 5 ed3$$k :;his:ig s REA FORM 12c (Res. JS-s<l) (Q

\\ usoA.msA flbde dode ese to used as doesrentes year openedas rumsde reme Appresed i and tIsessmedel effinseless. Year response is roeuted (F uJ.C. oN5 #e.08T20037 008 et one.1 and an emot e==_^ ^_ __ Esperes S/31/01 ^ ^ ^ SonnoWEn EssoNATioN REA USE ONLY OPERATING REPORT - HYDRO PLANT vermont 12 Hampshire Pt. ANT North Hartland Hydro Plant A DING INSTRUCTIONS. submit en ortssnel and four cordes to AzA. ru seeeaed in.emenen e a A son.s. December 31, 19 85 SECTION A. HYDRO GENERATING UNITS OPERATING NOURS GROSS LINE UNIT NO* SIZE (kWI our or sanvict GENERATION (MMil IN samvics oN srANoGY no-seneeuies unscneouses te its (e) te te m rn to 1. I 4000 1446 2166 "48 12 2. G 902 P.F. 4 745.190 3. 4. s. 4. TOTAL 7. Station Servce (MWhl 8 A48 T NYDRAULIC OATA ITEM _ tw maximum res Minimum ,,,g,,,,,,,,,,g 4.716.000

n. soot utsvarion <ct.

G 7 423 l s. s w n son, ion

s. Ta:L ance stavarion ici.:

O 358 352.5 ) s or cro. a t, b 1.22% ,,,,,3,,tteo O vas O No (4) SECTION 8. LABOR REPORT SECTION C. FACTORS & MAXIMUM DEMAND E,' Q U ITEM VALuE Tes VALUE ITM0 VALUE ND 1. No. Etno. FuH Time 5. Maint. Ment Peyroit (St 1. Lead Factor (W 73.34 (iac.sueerintendents .o. S. ovier Asseune 2. Mont Peeter (W 82.0% 2. No. Eme. Pert Time ] Rent Reyrell (W 3. Ruaanasment Capacity Factor (W W 82.0% 3. Totes Emo.. Hrs.wstes in 7. TOTAL 4. 15 Min.oruss Mesimum Demand (kW) 4. oon. ment Peyron asi si;>. to meat Perran (W 852.39 s. inmenies are Men. oomend ahwi 448o SECTION D. COST OF NET ENERGY GENERATED I LjNg l ACCOUNT AMOUNT (W MILLS / NET kWh ION EXPENSE No. l see. <e ess 1. oowooon.sueen,s.on ens Enginewin, I s38 8.s21.70 lasF4isn esa i 2. witw forP or I eS 3. Mydraulic Emooness l 537 1.109.41 4 Eie inc E=oen I su 1.101.89 s. Mi.e.ieneous Hydrovii. Po== cenwetion Esseness - l sm 6.848.06 8. Rente l 548 M idW M f in' i 7. OPERATION EXPENSES ti anm s; 'M ]c_qS1.08 8. Mesntenance, supervision and Enesneerins l 941 ^ )N l ( N 9. Maintenance of Structures l 942 hg,g..,., .{j j, i 10. Maintenance of Reservo.rs, Doms and Waterways l 943 f I 11. Mesntenance of Electne ment l 544 9.R74.7R $I 3%@hjjihhM 12. Maintenance of MisceHeneous Hydraulic ment 946 MAINTENANCE EXPENSES (s anm 13 ,,, h 14. TOTAL PRODUCTION EXPENSES (F e f 37 ,29.457.86 r ts. onorecietion desJ 111.115.00 W I is. Te== l est 148.195.46 il 3 17. int.eet l 437 617.455.07 $$M id 1s. insurance l seosas.sts 16.467.94 W6 iwm M i 19. TOTAL PIXED COSTS (18 #Am 18) ~MT 914.811.47 20. POWER Cost (14 e ses Gw-#'Y 065.271.11 ,(EMARKs finetuding unnheduled ousneses "No te : 5tation 5ervice Furcriasea wnen uni t is not rurning. U1 Raadj ing governor pumps and fine tuning mlCro-processor. @ Unknown - C.O.E. stored flood No generation on - C.O.E. releasing stored flood waters. @ Vt. 12 has no payroll waters. 3 thoug a few staf f people from Vt. 7 are partially salaried by Vt. 12. There is a contract 1 w. m...,,.. s, .rr. n a snear

? ' ) ) ATTACHMENT TO REA FORM 12e with New England Power Company for operations and maintenance services for the site, gth3r contractor costs are included in the costs listed in Section D. Q/ Unit is rated at 4000 KW, 9P.F. - We operate at a P.F. of 1.0 and 100% load for poo.1 cudits. ~ h 9

) usca m the dem.et e. =ed e. sermh.e -, er.a.e muO Ti' TAT'#fe7*. U p*"'"tTllL*en"*** Fem Aggmed 7,Me sJIA'r d. OPERATING REPORT - ANNUAL SUPPLEMENT 8 RR WER ESIGNATI N REA USE W Vermont I2 Hampshire INSTRUCTIONS - Submit en ortsmal and / bur copies t. YEAR ENDING REA. For detailed inatmetions. see REA EON. J. OtCtrt1ber 31. 1985 i SECTION A. UTILITY PLANT SALANCE ADJUSTMENTS ITEM SEGINNING ADDITIONS RETIREMENTS AND SALANCE OF YEAR TRANSFERS END OP YEAR ta) 46) teJ IdJ teJ

1. Total intangitne Plant (301 thm J 0JJ.

I9.667 I9.667

2. Totas Steam Production Plant (Jto thru JJs>.

3. Tctal Nuclear Production Plant (J20 thm 323A

4. Total Hydro Production Plant (JJO thru 338).

5. Tctal Other Production Plant (340 thru J4sJ.

6. Tctal Production Pfent (2 thm JJ.

7. Land and Land Rights (330)

8. Structures and improvements tJJ2)

9. Station Equipment (JJJJ

10. Other Transmission Pfant (Js4 thru Jsp>

11. Tctal Transmession Plant t7 thru 10) 1

12. Land and Land Rights (Js0J f

13. Structures and improvements tJes)

14. Station Emipment (Js2J.

15. Other Destribution Plant (Js3 thru JTJJ I6. Tctal Distnbution Plant (if thru is)

17. Tctal General Mant t3s9 thru J99J

]2.971 2.I99 I2.971 2.I99

18. Electric Plant in Service it

• s + li + is + 17J 32.640 2.199 12.973 21.866

19. Electnc Plant Purchased or Sold (102).

20. Electnc Plant Leased to Others (J04J.

21. Electric Plant Held for Future Use (Jos;.

22. Completed Construction Not Onesified (f osJ.

23. Acquisition Adjustments (Ald)

24. Other Utility Plant fits) i

25. Nucteer Fuel Assemblies (120.1 thru 120.4J l.162.819 127.140 1.490.159

26. Tatas Utdity Ptant in Service ass thm 23J.

1.195.459 129.G19 12.971 1.512.025

27. Construction Work in Proeress flor) 19.059.169 7.108.964 47.710 46.120.621 2s_ Total utility Plant its + 27s kn ?Ch A?R 7 htA Cnt An AAt k7 6t? AhR SECTION 8. ACCUMULATED PROVISION FOR DEPRECIATION AND AA00RTl2ATION UTILITY PLANT

~ COM. BALANCE ANNUAL RETlREMENTS ADJUSTMENTS BALANCE [ ACCRUALS ENO OF YEAR ITEM g NET AGE TRANS ERS re) 16J teJ 14) to) in

1. Dept. of Steam Prod. Plant (Jos.1).

2. Dept. of Nucteer Prod. Plant (los.21

3. Dept. of Hydraulic Prod. Plant flos.JJ 133.335 133.335

4. Dept. of Other Prod. Plant flos.4)

5. Depr. of Transmession Plant tios.JJ.

24.335 24.335

6. Depr. of Distribution Plent (108.8J.

7. Dept. of Generne Pieni slos.ri.

4.945 341 5,289.

8. R:tirement Work in Progrees #104.8)

,g

9. Total Dept, for Elec. Plant in Servtl.a ' '

E 4,948 ' -dN@MisaMM.IverW I57.670

10. Depr. of Plant Leesed to Others flopJ

11. Dept. of Plant Held for Future Usetita l

12. Amort.of Elec. Ptant in Service ifiJJ

13. Amort, of Leased Plant (112J

14. Amort,of Pfant Hofd for Future (113)

15. Amort. of Acquisition Adi,fils)

16. Dept. & Amort. Other Ptant (llfJ

17. Amort.of Nucteer Fuel (720.JJ 4548~

~ 15'870Ti 5.289 157.670

18. Trt1 Pmv.for Dept. & Amort. (9 1 TJ

~ e ,.--.,.,----,-.3

T ) V s USDA REA SORROWER DESIGNATION REA USE ONLY Vermont 12 Hampshire OPERATING REPORT - ANNUAL SUPPLEMENT YEAR ENDING December 31. 1985 SECTION 8. ACCUMULATED PROVISION FOR DEPRECIATION AND AMORTIZATION UTILITY PLANT (Cimtim ed)

19. Amount of Annual Accrual Charged to Expense 20. Amount of Annual Accruel Charged to Other

21. Book Cost of Property Retired

^ * * " " " $ 7,684 $158,011

22. Removal Cost of Property Retired

23. Salvage Material from Property Retired

24. Renewel and Replacement Cost SECTION C. NONUTILITY PROPERTY N/A BALANCE AOJUSTMENTS SALANCE ADWTIONS RETIREMENTS AND TRANSFEM END OF YEAR ITEM SEGINNING OP YEAR tas (b) tel Idb ter

1. NONUTILITY PROPERTY (1218.

i

2. PROVISION FOR DEPR. & AMORT. (122J.

SECTION D. DEMAND AND ENERGY AT POWER SOURCES p,0 L ENERGY OUTPUT MONTH PEAK DEMAND OAY OF WEEK DAY OF MONTH HOUR OF DAY TYPE OF READING (MWh) (%) (MW) fas ibl tes idl feb if) 101 33,A 15,696.0 6 2. 8._

1. JANUARY.

2. FEBRUARY

_33,6, I6.16k.G 65.5 _

3. MARCH.

11_ L,_ I4,546.5 ..56 dL, i

4. APRIL.

kt_A 1G.521.k 62 L s.MAY. ii_1 14.00.LD.__ _50d_.

6. JUNE tg 1 14,109.1 G1.1

7. JULY

}tq_A 15,401.3 52 3. S. AUGUST hh_] 16.198.1 49.4

9. SEPTEMBER,

h1_1 l4.988.2 46.8 10.OCTOSER. th_A Ik 784.9 G2 9

11. NOVEMBER.

El_A IG,171.1 49.0 12.DECEM8ER tA n 12,046.4 45.0

13. ANNUAL PEAK

[L 1 "l ANNUAL TOTAL 179_847 G 46.6 s hEMARKS SECTION E. DEMAND AND ENERGY AT DELIVERY POINTS DELIVERED TO REA SORROWERS DELIVERED TO OTHERS TOTAL DELIVERED MONTH DEMAND ENERGY LOAD DEMAND ENERGY DEMAND ENERGY LOAO (MW) (MWh) FACT. N (MW) (MWh) (MW) (MWh) FACT. N tal (bl fel (d) (el if) Ig) los) l

1. JANUARY.

9q_q g_ql4_4 50.1 8.1 6.181.6 11.6 15.696.0 62.8

2. FEBRUARY 9A_A 11_n99 3 q3_7 7

9,147,9 31.6 16,164.5 65.5 i

3. MARCH.

SC_A q ;n3.h _7 gh A g_g]3 7 11.6 14,948.4 98,2

4. APRIL.

SC_1 A;473_q AL _85 6,qhq.4 11.6 14.521.1 62.1

5. MAY.

94.1 6 840.C 16.6 12 7.161.6 17.1 14.004.1 50.7

8. JUNE Sh,6 -=_3;AA1 j 39.0 13 5 9,247.4___ __38.1 15.109.2 G1.1

7. JULY Sh A g,hn7_A 94-5

__15 9;993 7 39 6 1%401 1 G2 1

8. AUGUST SA.6- % 975 7 - 23.A 15-5 11 999_3 44.1 16,198.0 49.4

9. SEPTEMBER,

SR_A C 17C 1 9C.t th C 4 A11_1 41.1 14.488.2 46.7

10. OCTOBER.

9C_A E'lbb-Q 19_k 19 A'6hn 17.6 145784.9 G2.9

11. NOVEMBER,

29.i 6.'218.4 28.5 12.1 8.'954.8 41.6 15.171.2 49.0

12. DECEMBER 27.7 6.496.1 11.5 8.1 E.561.1 16.0 12.056.4 45.0 1

13. PEAK OR TUTAL 29.3 85.864.4 15.5 93.983.2 44.1 179.847.5 REMARKS REA FORM 12h taee, s g.s 4; PAGE 2 OF 4

=

7 u;oA.caA SORROWEA DESIGNATION REA USE ONLY Vermont 12 Hampshire OPERATING REPORT - y,,,,,o,,g ANNUAL SUPPLEMENT Dccember 31. 1985 SECTION F. CASH AND INVESTMENTS FORM OR TYPE MATURITY REA USE CURRENT E ^ OF INVESTMENT DATE ONLY SALANCE UT N D lT Y tal (b) tel (d!

1. INVEST. IN ASSOCIATED ORG.. PATRONAGE CAP.(1212)

(a) NRUCFC Year ended May 31. 1984 18.278 D) NRUCFC Year ended May 31 1985 42.718 (c)

2. INVEST.lN ASSOCIATED ORG..OTHER (12122 + J2123)

(?) NRUCFC CTC 17.167 ni NRUCFC Membership 1.000 (c) NRECA Membership 10 (d)

3. OTHER INVESTMENTS il24)

M (b) (c) l (4 4 (f) (a)

4. SPECIAL FUNDS (125 thm 128)

(il (b) ' d':4d M5#i M;;d,s:.g:q ~M,a:;i NM

5. CASH. GENERAL IN ALL DEPOSITORIES & WORIGNG FUNOS Mi.:

m.i ::igi:i>d;i:.qg::i:g::!w., .:.:a. - j s 3:4: (*) Specify Number of Depositor 6es I t:31.s + 138) 's' { 20.477 [:.gi gi::iiiEg! g {i

6. CASH. CONSTRUCTION FUND. TRUSTEE f131.2)

'i!N$

• N$$aiY

dk:r!iN 'hh d - ss j 7 ;, ge;7 x -

s,s s s '. SPECIAL DEPOSITS (134J (9 (D)

d. TEMPORARY INVESTMENTS (138) tal Merchants Bank - Johnson Money Market Fund 34.942 (of 1

(c) (5) til

9. TOTAL tsum of unee i thm 8; 310.049 SECTION G. MATERIAL AND SUPPLIES INVENTORY N/A BALANCE PURCHASED EA I

LEED & SOLD ITEM BEG. OF YEAR & SALVAGEO END OF YEAR tat ebt te) (dl

1. COAL.

2. OTHER FUEL

3. PIODUCTION PLANT PARTS AND SUPPLIES

4. STATION TRANSFORMERS AND EQUIPMENT.

5. LINE MATERIALS AND SUPPLIES

6. OTHER MATERIALS AND SUPPLIES.

7. TOTAL (sum or unes a thm s)

CIE A FORM 12h ( N ey. 12 84) PAGE 3 OF 4 t

) )) ~ usoA -nEA BORROWER DESIGNATION REA USE ONLY Varmnnr 17 HamnthIre OPERATING REPORT - ANNUAL SUPPLEMENT YEAR ENDING December 31,19 gc; SECTION H. LONG TERM DEST.OTHER AND DEST SERVICE REQUIREMENTS PAYEE LOAN BALANCE INTEREST PRINCIPAL TOTAL END OP YEAR PAYMENTS PAYMENTS PAYMENTS (List separately by Payee) tel (bl leb (d) 1-Federal Financino Bank 27.148.180 1.922.910 1.922.930 2. 3. 4. s. i

6. TOTAL tsum orsinen s ten, ss l

SECTION 1. ANNUAL MEETING AND BOARD DATA l _ Dats of Last Annuai Meeting

2. Total Number of Elgtdo Voters

3. Wes Quorum Present?

4. Number of Members Voting by ProNY or Most 4-30-85 7

YES [] NO 3

5. Number of Members Present at

6. Total Number of Board.'/...e.

7. Annual Cost of Directors' Fees and

8. Does Manager Howe Written Ccmous?

j Maeting Expenses I 7 $15,051 N O NO SECTION J. MAN-HOUR AND PAYROLL STATISTICS I. PAUMBER OF FULL TIME EMPLOYEES 4*

4. PAYROLL EXPENSED 7.323

,2._MAff HOURS WORKED. REGULAR TIME 818

5. PAYROLL CAPITALIZED 2.561 3 M AN HOURS WORKFD - OVERTIME

6. PAYROLL OTHER 4.004 SECTION K. LONG TERM LEASES (Ifadditiornalspace is needed, use separate sheet.)

List MELov ALL RESTRICTED PROPERTY NELD UNDER LONG TERN ** LEASE tif NONE, onese NONE.) pgNTAL NAME OF LESSOR TYPE OF PROPERTY THIS YEAR 1 2 3.

4. TOTA,L e"Mt:.%TiLICTED PROPERTY" means eil properties other then entomobnee, trenehe, trenere, treetore. Other eehiclee (including without limitetton airsreft ered shersen office, gerege end werwhouse spete end oft 1re equipment (including without limientien computere).

Lib \\t> T!;RM" meene loosee having unospired terms of neore then it monthe (tenring into errount lemme of renset et the option of the leenor, whether

• n ot.uo k leeeen have been renewedt.

I SECTION L NOTES IF ADUl180NAL SPACE IS NEEDED, USE SEPARATE SHEET. SiE A FORM 12h (R ev.12.g 4) paM A M A

a g) ) n ' ~ USDA.REA The does ape be assed to deermidne yo.,r openalmg Fome Apposed n,sa. d om an.u na,ano ro n.Po e n, oane so.Os12.ees7 OPERATING REPORT - BORROWER DESIGNATION REA USE ONLY LINES AND STATIONS Vermont 12 Hampshire YEAR ENOING INSTRUCTIONS submit en origines and foest coPiss to MA. Dectmber 31,198$ For defeaed inetmetions. ese REA EOnt. 3. SECTION A. EXPENSE AND COSTS ACCOUNT LINES STATIONS ITEW NUMSER (a) (b) TRANSMISSION OPERATION S60 1. SUPERv1SION AND ENGINEERING. Yi$$ MEN 54sE6NINiiD$N SGI 2. LCAO DISPATCHING S42 MEiSN

• 3.

STATION EXPENSES 563 s' , jg;gg],,, " 4. OVERHEAD LINE EXPENSES !UNT 1ENIN 564 S. UNDERGROUNO LINE EXPENSES. 500. 566 6. MISCELLANEOUS EXPENSES 's \\ s 500. 7. SUBTOTAL (1 thm sJ. 424,248 W e' j 565 4. TRANSMISSION OF ELECTRICITY SY OTHERS 567 9. KENTS

• '"x<O'",

M 424,748 10. TOTAL TRANSMISSION OPERATION (T tam 8) TRAN940S$10N MAINTENANCE S48 11. SUPERVISION AND ENGINEERING j!Nky';;{l@';ij0.fih S49 12. STRUCTU R ES. 570 [' N$$$i!$5Nsd 13. STATION EQUIPMENT. @!%.hij..!%fQ'f]$S S71 14. cvERHEAO LINES bs!'IN5N 5$$!!N$ 572 !S. UNOERGROUND LINES 14. MISCELLANEQUS TRANSMIS$lON PLANT. 573 . Q:@ij{d[j $gl:!(:gggg%p 17 TOTAL TRANSMIS6 ION MAINTENANCE (21 thm 18) N ? Mi$!$i*5 424.748 18. TOTAL TRANSMISSION EXPENSE (20 + 17) SSO thru S89 19. DISTRIBUTION EXPENSE - OPERATION........ 20. DISTRIBUTION EXPENSE - MAINTENANCE S90 thru $94 21. TOTAL OlSTRIBUTION EXPENSE (19 + 20) d 5p4j't ",$,"' 3 y 424.748 6' 22. TOTAL OPERATION AND MAINTENANCE (As + 21). FIXED COSTS 403.5 2I(. 3 3 $ 23. OEPRECIATION - TRANSMISSION. I 403.6 25. OIPRECIATION - DISTRIBUTION. 400 25. TAXES - TR ANSMISSION. 408 24. TAXES - OISTRIBUTION. 427 27. INTEREST - TRANSMIS$lON. 427 20. INTEREST - OlSTRIBUTION 924.925.924 29. INSURANCE - TRANSMIS$10N 924.929.926 30. INSURANCE - DISTRISlJTION 4k4_O81 l g;;;:*.f,.

.,Ng

g$E 31 TOTAL TRANSMISSION (18 + 23 + Ss + 27 + 29)

I N:c *i !!!!?; sit 32. TOTAL DISTRIBUTION (21 + 24 + 28 + 28 + 30) dij::p$'E,i$E$Mdi!!51 i!5i .js:i ..s:s":ge at ' "D 15$!?MNii:is" hhg nAt 33. TOTAL LINES AND STATIONS (31 + J2) SECTION 8. FACILITIES IN SERVICE SECTION C. LABOR AND MATERIAL

SUMMARY

TRANSMISSION LINES SUSSTATIONS

1. NUMSER OF EMPLOYEES VOLTAGE (kV)

MILES TYPE CAPACITY (WA) ITEM

LINES, STATIOps I-

9. STEPUP AT GEN.

2. OPER. L ASOR ERATING PLANTS

3. MAINT. LASOR 2.

3-

4. OPER. MATERIAL

10. TRANSMtSSION 0-S. MAINT. MATERI AL SECTION D. OUTAGES S.

11. OBSTRIBUTION

4. TOTAL (s ens s)

1. TOTAL

7. DISTR. LINES

12. TOTAL

2. AVG. NO. OISTR. CONS. SERVEO 8.TOTALrs + 1)

(8 th m #1)

3. avg. NO. HOU RS OUT PE R CONS.

KEA FORM 12i (J2 84)

&C C0f f l r I uSOA E7A / [ Thb dets indi he seeYoan PEA to ewesene your porwi Appre,eg lineneaal estinatioon. reconee as twouared OME No. 0613 0086 (T U S C 901 et one 0 ene, en not con (seeneset Esonree 10/31/06 FINANCIAL AND STATISTICAL REPORT SORROWER DESIGNATION Ve rrnon t 7 Orleans INSTCUCTIONS - Subrmt en ongenat and four copees to REA. Round all MONTH ENDING REA USE OffLY amounn to nearest doliar. See REA EO M.2. DeCef-be r 3I, I985 W CERTIFICATION We hereby certify that the entries in tnis report are in accordance with the accounts and other records of the system and reflect the status of the systern to the best of our krtowledg and belief. y u => n n g,,: n.- n a 3 -T LP'<: )o : r bs 11. <i <( ~ slGNATu83E OF C" ICE Y ANAGER C A ACCOUNTANr - DArE I (? %ACJ //w/st ~ / sic'. A ru A E os' V AN AGE 4 OATE PART A. STATEMENT OF OPERATIONS YEAR.TODATE THIS VONTH ITEM AST YEAR T*t'S V E AR i 9UDGET I w, o :ro ne cacitai 3.443.287 4.146.211 4.7o8.760 t n47 717 . caerai.na aevenue ans a

2. n tr e,= auction E. cense o

2. coste.,purenasea o..,

3.764.666 4.679.461 .93o 74n -Ile gfA o

4. r,ansmiu.on E=ceni.

419.808 404.8Cn 411 A10 % 7Pn S. Distntut.on Encense. Oceration. 327.0~6 291.2n7 108_S1n 17;k70

6. o.itrieut:2n E.s nse. va,n:er ance 02.104 349_7n?

M7.CAn 34 eA9

cani mer Ace nnts e.ce i.

461.613 466.019 4sI_74n

)_111

4. custo-se se...ce aas -': atio% E= cense 27.718 7I 641 i

?4 1In 1I 114 L sees Ence se l.064 1.71n i I_1An 110

o. Armin.strative ena cenerai E ceni.

817.488 7c2.168 741_7en Le 401 roev oseration a va.mena,ce E oe se tz tera to 6.321.627 7.nto.886 A_44c.qhn 11e,_77A .:. cere:ciat.on ana Amort.aation Essense i 682.670 717.44n I M ~ hm di'onn

2. Ta: Eae. se. prooert>

178.c06 716.004 I M n ? ') 43 33n 4 ta= Encease otner 12I.887 I I11.440 176.4kn in 141 .s..at:rtit on t.one rerm c ot. I 685.714 7;8.176 767_2nn 74_LAI

6 nttrist C*argec to Coast'.ct

3n. Cresit I

I I i 6 I I 6.150 47.870 6.000 q_nA9 ? atirist E scense - Otaer

3. OtPer O cuctions.

2.I77 la nR7 7 CCn 1 4 C f. .e. rotas cast or ciectree se,..ce sit 'inru tai 7.999.076 8.891lin7 In 177.57n ? !. c ~Q

s. c trensse casitas s onerating varvni tt m.nui ts 444.211 499.1n6

-1 074 61n 7rl vr a it. Non oxrating Margins.,teresi. 200.161 ?71.R66 177 nnn r.-

2. Assow:nce for 8runas usea Ounng construction r3. Non operating Mars.ns - otner 9.774 Io.741 C_non

- S _ n 71 !s. Coneratstn ana Transm.siion cacetsi credits

5. Otn:r Croital Credits anc patroaage Oswicenas 25.500 74.641

?n nnn n .6. Estra:rainary items a troaase cae.tv or vi,rs tro inru 26) 675.648 77I.81R -R77_A10 711_77R 9 s PART 8. DATA ON TRANSMISSION AND DISTRIBUTION PLANT YE A R.TO-D ATE YEAR.TO-DATE ITEM LAST YEAR THIS YEAR ITEM LAST YEAR THIS YEAR ta) 16b tet 166

1. New services Connected S. Mines Transmiss6cn

4. Meies Distribution -

. g g, g,g I7 29 0'*rhad I377 7 13FA n

3. Yet:s servces in Place 11.566 II.40q unaergrouno gg.7 o,

7

a. im sere.ces

s. retai vi.e Ener,a.o EscluJr SusonalJ 001

• • .1 4 85
• 6
• 71 1519.4 1537.I

'E 4 Form 7 eMer. i;t m PAGE I OF 7 PAGE5

' 6 \\ s } SOR OWER DESIGNS p USDA. sw A Vermont 7 Orleans FINANCIAL AND STATISTICAL REPORT heONTH ENDING REA m opgLY INSTRUCYlONS. See RCA EOaa.a. December 31, 1985 PART C. BALANCE SHEET ASSETS AND OTHER DEBITS LIABILITIES AND OTHER CRED4TS j

1. totar utia.ts piant in 5ervice.

74.C77.10Q

26. Yempersnios qq LLn n ' 6.' 4 21

2. Construction norm an progress 708.791

27. 8atronage Cao.tas C

7

3. 7 2tsa utility piant (1 2) 26.236.]92

24. Operating Margins. Prior vom.

- 720,764

4. Accum prov.sion for Dooreciateon and Arnort 7.I49.870

29. Coerating Margias Current voar 771.858 I9.090.282

! 30. Non Ooerating varsins. o32.99I

5. Nit utenty plant (3 - 4.

4. Nonutmty procerty. Net 42.9C2 I 31. Otner Margins and icuities 0,798 48.999 I 32. Total Margins & E3witnes (26 thru 31).

6.I41,744

7. lavest. in Assoc. Org.. Patronage Capital..

8. sa. cst. in Assoc. Org..Otner.Cenerai Funds 778.677

' JJ. s.ong-Term Osot AEA (Net). Ik.922.492

9. '9.est. in Assoc.Org..Otner.Nongeneral Funos (payments.unaconea 3 3

966.k19

34. Long Term Dent. Otner (Net) 2.164.502

10. Otate investraents

11. 5:eciet Fur as 11.1A6 (payments.vaaooaea s i

1L Tctai Otner procerty & Investments (6 tnru 111. l.468.440 _ 35. Tatai Long-Term Oeot 133 + J4). I6.686 C94 I

6. Notes pavanie 944.000 89.149 3

13. Casm. Genera Fonds

14. 04sn. construction Fwnds T*witee J7. Accounts paramie I 384.791

15. 5:ecial Decosits I 77C

38. Consumers Oeoosits.

I26.Q]6

16. Temocrary enwestments.

44_706

39. Otner Cwerent & Accruea Liaouities 406.462

17. *.ates Aeceivanie Net 117.I84

40. Total Current & Accruso Llasilities (36 teru 39).

2.k62.I3I 23.873

18. Accounts Aeceivsole Not Sales of Eriergy.

10I 767

41. Deferrea credits

19. Accounts Receivaste. Net Otner.

7.716.A47

42. wsceisaneous Ooorating Reserves.

20. *.'ateriais & Suontees Electric and Otner.

67G 761

43. Tota Liaointies & Otner Cred6ts 132 35 +

21 8 eoav-ents 77.786 40 taru 22) 74 11h 707

22. 2t ercurreat & Acce.ea Assets.

ESTIMATED CONTRIBUTIONS.IN AIDOFCONSTRUCTION

23. ' stat Current & Accrueo Assets (13 tnru 22) 1.704.716 Salance 8eginning of Year

24. Ca tereo Deoits I.041 76h Arnounts Receivec Tmts veer (Net) r 25

• 4: Assets 4 otaer oeoiti es.12 - 23 + 24) 7C 11h 7n7 TOTAL ContrtDutions.4n. Aid.Of. Construction.

PART D. NOTES TO FINANCIAL STATEMENTS THE SPACE BELOW is PROVIDED FOR IMPORTANT NOTES REGARDING THE FINANCIAL STATEMENT CONTAINED IN THIS REPORT. (17 ADDirlONAL SPACE IS.%EEDED. USE SEPARATE SHEET.J (1) Deferred Debits r The Cooperative is regulated under Title 30 Vermont Statutes Annotated. The Deferred Debits include charges which are deferred for rate making . purposes under order of the Vermont Public Service Board and amortized over a period of three to five years. l l REA F.3rrn 7 , R ee. 3 2.dJJ PAGE 2 0F 7 PAGES l

A usca. atta 80R OwEP DES TION FINANCIAL AND STATISTICAL REPORT YEAR ENDING AEA USE oNLY l sensinucTioess s nsa sonsa December 31.1985 ll PART E. CHANGES IN UTILITY PLANT l ' L^ N*'" oFYEAlll E S ADOITIONS RE TIR EMENTS 8ALANCE END oF VEAR TiCN ITEM g l e x M .1 e

i. Laao ro Lano R e tiiseo.

157.731 ~ 2.976 160.707 l

2. Structurei and amorovem Sil l

3. Set.on sowomeni os2>

1.164.417 5.412 1 1.169.829 3.0 l

4. Poin. To.ori. ano r. turn o64>.

7.136.029 589.641 5.071 i 7.720 599 I

5. overnsee coeoxteri va o~en osi 4.392.246 481.757 6.106 4.867.897 I

I

s. Undergrouna conowt a661.

13.697 I 13.697 }'

7. undesrour.o Conouctor s oe cn oenl 922.234 87.901 1.024 1._0_09.111 I'

2.883.372 208.328 I 752 LOj0,948 I s L.ne Trr oorm ei ossi i

9. Services i3696 1.823.522 161.876 i

10.138 1, h 260 l ~ io vetuimo; 676.026 I 46.571 4.635 771.962 I it. saitanat.oa an consumer Pre-inisn n 594.075 55.817 15.371 634.521 I v 2. Leasea Procerty cri C.rurw'i P r um 4372$ l l l

13. Strat L.ci.a, o73 25.309 t 25.309 3.0 l i4. SusToTAL. o.ir.out.on o taro i3>.

19.788.658 1.640.279 43.097 21.385.840 AM.; is. Lano ana Lano R. ant > <3es>. 53.608 I 53.608 4*

16. Structurn and improvement. o906 1.011.258 1.243 I

1.012.501 2.0 l 17 on.ce rura ture & Eowoment o91) 300.612 16.628 i 2.199 ___J15.041 9.6 I is. Transoortit,oa Eo.omeni tas23. 404.978 60.748 ' 26.140 439.586 8.0 l 19 Stocu. Y seas. Snoo. Garage ano l Ltoccatorv Ecuioraent f 393. 394. 395) 174.069 5.188 179.257 10.0 I ro. rower. operma Eawomei o9e) 123.348 1 123.348 10.0l

21. coma,un. cation Eau.omeat o9n 117.477 2.403 119,880 10.0 l

22. w..ceiianeow tou.omeni n9e 71.775 2.568 1.405 I

72.938 10.0 l l

23. oiner TangeWe Property (399i _ i -

i EJ

24. SusToTAL. Geeersi Piani tis enru 23) 2.257.125 88.778 29.74ft 2.316.159 2;NN

25. incanaimn ooi. 302. 303 1.548 1.548 7M

26. Land ana Lano Regnti. Roadi and Trzis t350. 35si.

55.755 55.755 b=:

27. Structure, and 6morovement 1352) l 4

2s. Stat.on Ecu.on,ent i3533 16.016 ! i 16,016 2.6 l

29. To. aaa re turn ano Pain ano i

Fen os4. 355 607.901 80 607.981 2.6 n ov-neao coneuciari a oev.cmassi. 317.767 i 1 317.767 2.6 I

31. Underground C+ wsuit (357).

I l

32. Undergrou c Corductor & ce.xm (358) l I

l a

33. Su8 TOTAL. Transmiss.on Pt.nt lj 997.519 a,-

(26 thru 328. 997.439 80

34. Pvtecteon Plant Steam ato 3t68

35. Productson Piant. Nuclear a320 325).

18. Production Piant Hydro 133o.'338)

37. p%,ction Piant other (340 346)

• i. An oeur very awa nce. iosionii4.tisi 858.144 6tio.821

- 640.631 826.334 N. SW,TC&TAL (14*24+25+33+34 esu 38) 23.902.914 2.337.958 731.472 25.527.400 ^ k h. + - b .o conii,uct.on wo,t en Progreis po7) 606.103 102.650 708.753 4 ,y m b*h 4i. TOTAL UTILITY PLANT o9 4o) 24.509.017 2.440.608 713.472 l 26,236,153 lM l TEA Form 1 R ev. I 83)

e t y USDA. K E A 80RmOWER DESIG.' TION Vermont 7 Orleans FINANCIAL AND STATISTICAL REPORT YEAR ENotNG nEA usa oNov Instructions - S.sllA EOws. December 31, 19 85 PART F. ANALYSl$ OF ACCUMULATED PROVISION FOR DEPRECIATION - TOTAL ELECTRIC PLANT I TR M GENERAL PLANT OTHER PLANT ITEM PLANT w a s, <<o ,ao I

i. saianc. s..nn.ng av vur.

5.254.567 981.420 314.091 136,874

r. Amtions. o.or.c.ai.on Accroais enare.a to:

a. O,wiaison E no.ns..

624.137 58.286 24.488 10.529 43.809

e. ciuring Accounis ana Qin.,s

c. suoiota la. el 624.137-102.095 24.488 -

10.529

2. un. mant Retir m.nisi

4. mant R.ticea.

101.988 32.138

m. a.mo ai costs 54.976

c. suototai ca. ol 156.964 32.138-

s. mus sai.a;.a vater.ais 14.117 2.600

s. rOrAt (2c. ac. ai.

481.110 I 72.557 24.488 10.529

6. O:ner Aasustments. oeo : or creoit

- 111.124 I 1.158 -

7. cenc. Ena o,vu,it.s.si.

5.602.753 1.057.135 338.579 147,403 PART G. MATERIALS AND SUPPLIES ' L^ PURCHASED SALVAGED USED t.NETA SOLD ADJUSTMENT ITEM OF Y EN AR !.} IM tcp Ida tel ifb (g)

1. Ei.ct r.c

<LL nR3 6LR 418 17.244 717.674 824 (227) 491.020 246.802 (909) 133.907

2. Otare it ss - iss 130,174 741.444

3. actio or in..ntory Turno..r - Eintric

4. in..niory - Ei.cir c as p',c.nt or Toiai Utia.ty piant item ta + @ =

i.qq i,.m. i.. pa,t E x t oo = 1.87 PART H. SERVICE INTERRUPTIONS AVERAGE HOURS PER CONSUMER SY CAUSE TOTAL ITEM POWER SUPPLIER EXTREME STORM PREARRANGED ALL OTHERS (.)

1. 6)

(c) fd) (e)

i. pru.nt var

.800 3.605 4.180 2.904 11.489

2. ri

.vu, A..ra 1.714 4.967 3.601 3.978 14.261 PART l. EMPLOYEE HOUR AND PAYROLL STATISTICS

1. Numoer of Fun Time Ermoeov s no

4. Payroll. Eno.ns.d 750.241

2. Emrioy

. Hours work.a. Regular Tim. 177_481

5. Payroil. Caettatia.a 36k.698

3. EmJioy

. Hours Work.d. O..rtime 7_114

6. Payroll. Other 4$9,88Q PART J.

PATRONAGE CAPITAL PART K. DUE FROM CONSUMERS THIS YEAR CUMULATIVE FOR ELECTRIC SERVICE ITEM 49 4bl

1. O'neral R.tirem.nt

t. AMOUNT OUE OVER Go DAYS S 6,438.34

2. son.a.

a.t.,.,n.nt s 1

3. Te te. R.tir m.nts (1 2)

2. AMOUNT WRITTEN OFF DUR NG YEAR hk 7,b77,Rh7

. f atronag. Capital As 4gned ( gg

s. retrona cassian Amenani.

^# 3,ALC LC7 PART L. kWh PURCHASED AND TOTAL COST REA USE ONLY AWRAdf INCLUDED IN TOTAL COST NAME OF SUP* LIER SUPP IER kWh PURCHASED TOTAL COST pg g FU L8 1. 3. SEE ATTACHtD 5CHtUULL 3. s.YOTAL RE A Form 7 (Rev. 12 83) PAGE 4 OF 7 FAGE5 i ~ )

) ) Vermont 7 Orleans December 31, 1985 Part L : KWH Purchased and Total cost Ncme of Supplier KWH Produced Total Costs Cost / KWH Other Charges *

1. Central Vermont 61,534 61,534 i

2. Citizens Utilities 22,781 22,781

3. Grcen Mtn. Power 10,066,947 569,305 5.66 93,854

4. Small Producers 691,162 53,439 7.73

5. Stcte Of Vermont 28,626,360 119,601 _

0.42

6. VEG & T 80,494,480 3,774,192 4.69 Other Expenses-Power 51,754 51,754 i

Vt. Yankee Downtime 26,856 26,856 Total 119,878,949 4,679,462 3.90 256,779

• Included in total costs.

1 I i

i k USDA.AEA F 80RROWER DESIGNS BN Varmont 7 Orlerns FINANCIAL AND STATISTICAL REPORT YEAR ENDING REA USE ONLY INSvauciloNS. $ AEA E oM.2. OeCember 31.19 85 PART M. LONG-TERM LEASES,lf addirimtal space is enreded, use separate sheet.) LIST BELOW ALL " RESTRICTED PROPERTY"** HELD UNDER "LONG. TERM" LEASE. fl/ none, state "NONE") RENTAL NAME OF LESSOR TYPE OF PROPERTY THis YEAR 1. Nnrw 2. 3.TorAL ee " RESTRICTED PROPERTY" means all propertses other than automobiles trucks. tr.sier.. treetore. other sekseles eencluding nesthout 8smatation asrsr.ft End shapel, office, garnee and warehouse space and office eqasspment Isneludang wathout limitation computerso. "t.ONG. TERM" meana leases having untspered terms of mare than 12 months e takanc sotto account terms of rental at the optson of the lessor. whether or not such leases have been erneweds. PART N. ANNUAL MEETING AND BOARD DATA

1. Cate of Last Ann as Ve. ting

2. rotal Nw-o.r o' Y. ao.rs J. Nume.r of Memoers Present at

4. Was Quorum pr sent?

q_7 g q iqA go Q vEs O No raia. Amount o.r

3. Numo., oe Memo.. =. c~, s.*

3. ir,.gn.on s.i.

!... s I,. s.

.. w. c--., s 319 312 313 315 111 lil

• Cj3v'A or s * "'w s a 486.493 626.613 545.9531 481.209 418.012 179.065

. a-a 52.472 66.082 58.061 52.083 11.867 29.576

. ~. c-25 25 25 25 25 25

• $*5h2v"Il'...s.

1.439.617 1.798.621 1.413.180 1.196.109 1.076.751 1.006.574

1. c a-73.519 93.245 77.133 77 qqR 44.960 42.721

. ~.. c~, s.a I8 18 I8 18 18 18

• Ifl'.,s; ret.na lu..* sa.

14.325 14.325 14.325 14.174 14.125 14.125 t,9n,, g ca-a 2.166 2.166 2.165 ? 1AA i. *. c--.a s. 26 26 26 ~ 7 1AA ?.166 76 26 26 f[f.c A["n !..es=. 14.935 17.175 15.305 I? 444 13 164 12.115 s' a-a 1.754 1.980 1.791 1 Eng 1 lin 1.079 l.. =. c -., s.n.e

• un~,R:--

... s.. e..,,,,. .. =. co -., s.,,. .... s.. .. a,. to TOTAL No. Coesumers thnes 1. 94 10.637 10.632 10.637 10,644 10.652 10.682

11. TOTAL kWh sold (hnes in 90) 9.656.012 11.285.036 9.726.849 9.014.633 8.303.626 7.116.991

12. TOTAL Revenue Rece,ved From s.les of Electric Energy U.nes tc 9c) 956,005 1.094.883 968.918 953.886 614.146 569.608 is other flectric Revenue 27,229 1.505 2.530 2.076 7.340 2.241 14 kWh Own use is. TOTAL kwn rucch :

12,029,740 14.115.013 11.542.419 11.540.277 9.475.459 8.510.674

18. TOTAL kWh Generated

17. con omrch n.no Genernen 355,583 512.397 434.208 114.800 A28 044 157 244

18. Interch.nge kWh Net

19. Pe.k. sum All kW Input (Metered) 29,195 C Conc,oent 2 Nonco nc,oen, 28.579 28,532 25.560 22.073 19.141 T E'1 Form 7, Rev

t. s3 PAGE 6 OF 7PAGES

b a usoA. 7 80RROb j DESIGNATION FINANCIAL AND STATISTICAL. REPORT yg[g""g7o"Ja 7 ""'"""" Ru m - ^ December 31, 1985 insTauenoNS. See REA EOM-e. PART R. POWER REQUIREMENTS DATak BASE (Continued) s-ISEE PRECEDING PAGE 6 OF REA FORM 7 FOR HEADINCf, OF LINE ITEM NUMBERS BELOW.1 Mi h JULY AUGUST SEPTEMBER OCTOBER NOVEMHER DECEM8ER TOTAL NUM8ER a.,,,,,,,,,,y, a. 9.726 9,779 9.807 9.849 9.866 9.929 s 1. b. 11.149.825 5,472,865 q.444.409 4.474.181 6.265.128 9.055.585 87.147.635 c. 417.155 538,683 411,476 411,733 592.831 869.898 7.873.640' 610 609 608 Ang 601 600 m4WMsiW9W 2. b. 160 80 400 1.160 150 615.520 619.220 c. 24 16 11 37c 23 57.460 h /ll-/3 62.017 3. b. i c. m. 114 114 317 3?n 122 126 4 b. 147.601 1o6.718 1Ao no? 16L 7RR 401.176 600.789 5.437.511 e. tn_?RG 16 nic 'tc cER 16.618 56.1181 918.111 ~ it 171 a. 74 ?q '25 " 25 25 29 b ef-5. 5 Agl.16I 6n1 444 857.781 806.911 1.029.077 1.116.502 11.198.441 c. 40.704 17.167 42.791 44.165 97.086 78.611 705.919 r. ig Ig 18 18 18 18-em ' G7n wn+ < '6. h. Ih_t?q 1h;375 14.125 14.125 14.125 14.125 171.900 c. ? 77o ? 770 2.779 2.774 7.774 2.774 10.871 ~ 2d '26 26 26 26 26 i aiNN ' RM SE s 7. 5 15.205 3.775 6.045 10.045 11.015 17.920' 151.415 c. 885 580 750 1.065 1.100 1.886 15.701 e eggw.ommm s. b. c. ';ees % :a gggy 9. b. e. I,'c,fkhilj9 ' spp$ii ne IMP;W*i 10, in vio 10,771 10,801 10,843 10,858 w 10,924 s,?? 5 - ;&k_.~ n. 17 CRn 67o 6,491,718 6,712,652 6,674,612 7,722',871 11,420,641 106,926i122 12. 491,834 615,236 616,864 615,629 690,637 1,066,994 9,206,462 "~ 123,900 4,768 2,594' 3,273 3,215 980 181,561 H-A::f -- 8.006.737 7,931,780 8.257.310 8.031.520 9.181.884 10.162.939 !!B.811.752 t o. 361.906 408,331 499,346 646,700 865.583 531,689 5,710,831 19. 17,879 17,537 18.233 19.419 22.271 24.777 273.196 'E A Form 7 (Rev. 12 8JJ P AGE 7 OF 7 PAGES

l 0 O FINANCIAL STATEMENTS AND O AUDITORS' REPORT TAUNTON MUNICIPAL LIGHTING PLANT I December 31, 1985 i i I O 4 jo j i so l ^ 4 i i i I f iO f I !O i i i i O f a [~ l !0-i

4 CONTENTS Page AUDITORS' REPORT 3 FINANCIAL STATEMENTS o BALANCE SHEET 4 STATEMENT OF EARNINGS 5 STATEMENT OF SURPLUS 6 STATEMENT OF CHANGES IN FINANCIAL POSITION 7 NOTES TO FINANCIAL STATEMENTS 8 C) SUPPLEMENTAL INFORMATION AUDITORS' REPORT ON SUPPLEMENTAL INFORMATION 13 UTILITY PLANT 14

)(3 OPERATING EXPENSES 16 d)

+ 'O 'O !O 4 !O

Exchange Place 53 State Street O Boston MA 02109 617 723 7900 0 GrantThomton S Q Accountants and Management Consultants Member firm Grant ihornton international Municipal Light Commission of the City of Taunton O Taunton, Massachusetts We have examined the balance sheet of Taunton Municipal Lighting Plant (a department of the City of Taunton) as of December 31,

1985, and the related statements of

.O earnings, surplus and changes in financial position for the year then ended. Our examination was made in accordance with generally accepted auditing standards

and, accordingly, included such tests of the accounting records and such other auditing procedures as we considered necessary in the circumstances.

O As discussed in note F, Taunton Municipal Lighting Plant records pension expense based on a formula determined by the Town;

whereas, generally accepted accounting principles require the use of actuarial methods in determining annual pension expense.

In our opinion, except for the effect on the financial statements of the accounting policy discussed in the second paragraph, the financial statements referred to above present fairly the financial position of Taunton Municipal Lighting Plant at December 31, 1985, and the results of its operations O and changes in its financial position for the year then ended, in conformity with generally accepted accounting principles applied on a basis consistent with that of the preceding year. 10 Boston, Massachusetts March 25, 1986

O

'O

l I ( II Taunton Municipal Lighting Plant BALANCE SHEET .C December 31, 1985 ASSETS UTILITY PLANT - AT COST Plant in service $59,358,367 Less accumulated depreciation (note A2) 30,095,229 f Net utility plant in service $29,263,138 !O Construction work in progress (note D) 3,868,385 i j Total utility plant 33,131,523 Ia l DEPRECIATION FUND (note A2) j Cash and cash equivalents 6,356,799 i i CURRENT ASSETS !O Cash (note E) 3,767,256 Customer deposits (note E) Principal fund 233,458 Interest fund 47,735 Accounts receivable 3,686,949 C Less allowance for doubtful receivables 519,477 3,167,472 Materials and supplies inventory (note A4) 2,292,238 Prepaid assets 210,005 Total current assets 9,718,164 $49,206,486 The accompanying notes are an integral part of this statement. 7 4 Ct\\

LIABILITIES AND SURPLUS SURPLUS Appropriated surplus Loans repayment $11,657,000 Construction repayment 32,434 11,689,434 Unappropriated surplus 10,345,927 Total surplus $22,035,361 LONG-TERM DEBT (note C) Bonds payable 21,527,356 Less current maturities 410,000 Total long-term debt 21,117,356 CURRENT LIABILITIES Accounts payable 3,402,296 Customer deposits 233,458 Current maturities of long-term debt 410,000 Accrued liabilities Interest 710,454 Compensated absences 1,168,891 Payroll 128,670 Total current liabilities 6,053,769 COMMITMENTS (note D) g(( Mb CARD $49,20s,486 Also Avaunbh On Aperture Card g % w SC4-0/ f

O Taunton Municipal Lighting Plant STATEMENT OF EARNINGS A) Year ended December 31, 1985 Operating revenues Sales of electricity O Commercial and industrial $15,639,474 t Residentic1 10,212,061 Sales for resale (note D) 11,681,900 Municipal 1,749,555 $39,282,990 Other operating revenues 71,061 Total operating revenues 39,354,051 Operating expenses Power production 27,458,753 Transmission and distribution 1,356,482 (3 Customer accounts 821,125 Administrative and general 4,422,521 Depreciation (note A2) 2,281,909 Total operating expenses 36,340,790 () Earnings from operations 3,013,261 Other income (expense) Interest income 352,988 Interest expense on bonds (1,681,190) Other 0 99,010 Total other income (expense) (1,229,192) NET EARNINGS BEFORE PROVISION FOR PAYMENT IN LIEU OF TAXES 1,784,069 O Provision for payment to the City of Taunton in lieu of taxes (note B) 1,115,000 FXCESS NET EARNINGS AFTER PAYMENT TO CITY OF TAUNTOH 669,069 O

O The accompanying notes are an integral part of this statement.

C)

O Taunton Municipal Lighting Plant STATEMENT OF SURPLUS O Year ended December 31, 1985 Appropriated Surplus O Loans construction unappropriated Repayment Repayment Surplus Balance at January 1, 1985 $11,132,000 $32,434 $10,201,858 ADD OR (DEDUCT) O Transfer from unappro-priated surplus of bond payments during year 525,000 (525,000) Excess net earnings after payment to City of () Taunton 669,069 Balance at December 31, 1985 $11,657,000 $32,434 $10,345,927 O O O o 0 The accompanying notes are an integral part of this statement. () 6

1 C) Taunton Municipal Lighting Plant STATEMENT OF CHANGES IN FINANCIAL POSITION O Year ended December 31, 1985 Sources of working capital From operations I) Net earnings before payment in lieu of taxes $1,784,069 Charges (credits) to earnings not using (providing) working capital Depreciation of utility plant (note A2) 2,281,909 Amortization of bond premium (3,354) O Funds from operations before payment in lieu of taxes 4,062,624 Provision for payment to City in lieu of taxes (note B) 1,115,000 Net working capital provided from operations 2,947,624 Applications of working capital Current maturities of long-term debt (note C) 410,000 Utility plant additions - net 2,138,171 Increase in depreciation fund 1,331,566 O Total applications of working capital 3,879,737 (DECREASE) IN WORKING CAPITAL (932,113) Working capital at January 1, 1985 4,596,508 !O Working capital at December 31, 1985 $3,664,395 Changes in components of working capital Increase (decrease) in current assets Cash $2,531,012 .O Customer deposits 62,664 ) Accounts receivable - net (2,255,602) Inventory (669,782) Prepaid assets 181,733 (149,975) ' () (Increase) decrease in current liabilities Accounts payable (738,973) Customer deposits (49,850) Current maturities of long-term debt 115,000 Accrued liabilities (108,315) (782,138)

O (DECREASE) IN WORKING CAPITAL

$ (932,113) The accompanying notes are an integral part of this statement. O _ ~ -.

g Taunton Municipal Lighting Plant NOTES TO FINANCIAL STATEMENTS O December 31, 1985 NOTE A -

SUMMARY

OF SIGNIFICANT ACCOUNTING POLICIES O A summary of Taunton Municipal Lighting Plant's ("the Plant's") significant accounting policies consistently applied in the preparation of the accompanying financial statements follows. 1. Rates O Rates charged by the Plant are not subject to the approval of regulatory agencies. Pursuant to state

laws, rates must be such that the resulting net earnings before payment to the city, less bond payments, do not exceed 8%

of the cost of utility plant. During 1985, the Plant's earnings, less bond payments, amounted to 1.9% of utility ' O plant. 2. Depreciation Pursuant to state laws, depreciation is calculated as a percentage of depreciable property at January 1. ' O Depreciation was computed at 4% of the cost of depreciable property for 1985 and 1984. The amount transferred from the operating fund to the depreciation fund during the year was $4,621,909. C) Depreciation fund cash is used in accordance with state laws for replacements and additions to the electric plant in service. l 3. Pension Plan O Substantially all employees of the Plant are covered by a contributory pension plan administered by the City of Taunton in conformity with State Retirement Board requirements. In

addition, the Lighting Plant has a

separate Employees Retirement Trust for the financing of future pension payments. At December 31,

1985, the C)

Retirement Trust had net assets cf approximately l S4,007,493. The Plant contributed approximately S2,021,562 for pensions in 1985, which included $1,050,000 to the separate Retirement Trust. 4. Inventory 10 Materials and supplies inventory is carried at

cost, principally on the average cost and first-in, first-out methods.

I , 0 8

.O Taunton Municipal Lighting Plant NOTES TO FINANCIAL STATEMENTS - CONTINUED Q December 31, 1985 NOTE B - CONTRIBUTION TO THE CITY OF TAUNTON IN LIEU OF TAXES ,0 By vote of the Municipal Light Commission, the Plant contributed $1,115,000 in 1985 to the City of Taunton in lieu of taxes. All contributions to the City are voted by the Municipal Light Commission and are voluntary. O NOTE C - LONG-TERM DEBT Long-term debt at December 31, 1985, is comprised of the following: Electric loan, Act of 1969 Interest rate - various rates from

O 7% to 8.5% dated February 1, 1976.

Interest payable February 1 and August 1. Due serially from February 1, 1977 to February 1, 2006 $21,460,000 Unamortized premium 67,356 21,527,356 Less current maturities 410,000 Total long-term debt $21,117,356 O Annual maturities of long-term debt are: 7% - 8.5% Bonds

O 1986 410,000 i

1987 445,000 1988 480,000 1989 520,000 1990 565,000 1991-2006 19,040,000

O B nd prenium 67,356

$21,527,356 o !jo 9

O Taunton Municipal Lighting Plant NOTES TO FINANCIAL STATEMENTS - CONTINUED O December 31, 1985 NOTE D - COMMITMENTS O Interconnection Agreement The City of Taunton, acting by vote of its Municipal Lighting Plant Commission, has entered into an agreement with Montaup Electric Company ("Montaup"), dated July 31, 1970, as amended, concerning interconnection of electrical operations, purchase and O sale of kilowatt

capacity, and construction by Taunton of a generating unit of approximately 110 megawatt capability.

The agreement is for a period of twelve years following the commencement of operations of Unit No. 9 on December 1, 1975. Under the interconnection agreement, the City agrees to sell and Montaup agrees to purchase all capacity of Unit No. 9 not O utilized by the City with a maximum not to exceed 95 megawatts in the first year of operation and on a declining scale in subsequent years. The Plant credited to sales for resale $9,790,886 of capacity and energy charges billed to Montaup Electric Company in 1985 for its share of power under the interconnection agreement. This agreement includes a provision O that Taunton will purchase 8.2163% of the capacity and associated energy from Montaup's Somerset No. 6 generating unit for the period November 1, 1978 through October 31, 1984, and 1.7123% of the capacity and associated energy from the Canal No. 2 i generating unit, 50% of which is owned by Montaup, for the period November 1, 1978 through October 31, 1982. The agreement for 1 O capacity and associated energy purchases from Canal No. 2 has been extended through October 31, 1987. Entitlements The Plant is a joint owner of the Seabrook Units 1 and 2 nuclear O generating station located in Seabrook, New Hampshire. The lead participant in the project is Public Service Company of New Hampahire (PSNH). The Plant's ownership share is .10034%. Expenditures of $3,458,740 through December 31,

1985, are included in the construction work in progress account.

Several participants in the Seabrook Units have been successful in O effectively cancelling Unit 2. The Plant in dnable to predict whether any action will be ordered by the New Hampshire Public Utilities Commission or what effect such action, or any financing difficulties of PSNH or any other participant, may have on the cost of completion of Unit 1. O It is estimated that Unit 1 will be completed in April, 1987. The Plant's latest estimates put its share of the cost to complete Unit 1 at approximately $570,000. O 19

O Taunton Municipal Lighting Plant NOTES TO FINANCIAL STATEMENTS - CONTINUED O December 31, 1985 NOTE E - C ASH O Municipal Lighting Plant cash is in the custody of the City of Taunton Treasurer and is commingled with other city funds. The City maintains the cash in interest bearing accounts and credits the interest earned each year to the Plant's account. O NOTE F - DEPARTURE FROM GENERALLY ACCEPTED ACCOUNTING PRINCIPLES Pension expense is not recorded in accordance with generally accepted accounting principles which require, as a minimum, an annual provision equal to the total of normal costs of present employees under the plan, an amount equivalent to interest on any .O unfunded prior service costs, and a provision for vested benefits. Instead, the Plant 's pension expense is based on the current year contributions to the city 's retirement fund and the Plant's Retirement Trust. The contribution to the City's retirement fund is based on the projected benefits to be paid during th e year, ,O while the contribution to the Retirement Trust is a straight-line funding of $350,000 per year for ten years. Due to the availability of funds, the Plant contributed $1,050,000 to the Retirement Trust in 198 5. The effect on the accompanying financial statements of this 'O departure from generally accepted accounting principles has not been determined. 'O .O .O i

O 11

9 3 O O SUPPLEMENTAL INFORMATION O O O O O

O O

D 3 AUDITORS' REPORT ON SUPPLEMENTAL INFORMATION Taunton Municipal Lighting Plant O Our examination was made for the purpose of forming an opinion on the basic financial statements taken as a whole of Taunton Municipal Lighting Plant for the year ended O December 31, 1985, which is presented in the preceding section of this report. The supplemental information presented hereinafter is presented for purposes of additional analysis O and is not a required part of the basic financial statements. Such information has been subjected to the audit procedures applied in the examination of the basic financial statements O and, in our opinion, except for the effect on the schedule of operating expenses of not determining pension expenses by using actuarial methods as explained in the second paragraph of our O report on page 3, is fairly stated in all material respects in relation to the basic financial statements taken as a whole, hYkN W nv Boston, Massachusetts March 25, 1986 O O

I Taunton Municipal Lighting Plant UTILITY PLANT Year ended December 31, 1985 C Balance January 1, 1985 Utility plant in service Steam production plant Land and land rights 245,509 Structures and improvements 6,674,042 Boiler plant equipment 15,293,498 Turbo-generator units 13,886,966 Accessory electric equipment 2,565,814 Miscellaneous power plant equipment 430,422 Total steam production plant 39,096,251 Other production plant Fuel holders, producers and accecsories 507,964 Generators 83,407 Accessory electric equipment 402,423 Total other production plant 993,794 Transmission plant Land and land rights 217,807 Clearing land and rights of way 28,901 Structures and improvements 129,489 Station equipment 2,336,535 Towers and fixtures 859,446 Poles and fixtures 304,605 Overhead conductors and devices 309,322 Underground conduit 3,104 Underground conductors 6,113 Total transmission plant 4,195,322 Distribution plant I. Land and land rights 151,686 Structures and improvements 106,141 Station equipment 1,692,618 Poles, towers and fixtures 2,077,800 Overhead conductors and devices 2,014,007 Underground conduit 1,421,232 Underground conductors and devices 1,510,391 Line transformers 1,231,787 Services 301,425 Meters 1,065,635 Street lighting and signal system 671,549

C Total distribution plant 12,244,271 Forward 56,529,638 i

{ 14

Accumulated Net Book Balance Depreciation Value December 31, December 31, December 31, Additions Retirements 1985 1985 1985 i 3,915 249,424 249,424 225,660 6,899,702 $ 3,871,120 3,028,582 378,594 15,672,092 7,614,015 8,058,077 92,431 13,979,397 5,513,673 8,465,724 30,000 2,595,814 1,842,176 753,638 42,495 472,917 138,594 334,323 773,095 39,869,346 18,979,578 20,889,768 507,964 176,973 330,991 83,407 29,005 54,402 402,423 140,647 261,776 993,794 346,625 647,169 217,807 217,807 28,901 28,901 129,489 34,371 95,118 18,920 2,355,455 643,924 1,711,531 859,446 295,447 563,999 304,605 89,922 214,683 309,322 81,000 228,322 3,104 874 2,230 6,113 1,364 4,749 18,920 4,214,242 1,146,902 3,067,340 151,686 151,686 106,141 100,612 5,529 3,935 1,696,553 1,546,944 149,609 74,357 2,152,157 1,850,097 302,060 80,190 2,094,197 1,052,360 1,041,837 46,647 1,467,879 1,148,050 319,829 63,959 1,574,350 990,514 583,836 244,724 1,476,511 812,398 664,113 18,899 320,324 95,098 225,226 65,777 1,131,412 763,078 368,334 54,759 726,308 390,612 335,696 i 653,247 lII 12,897,518 8,749,763 4,147,755 APEftM 1,445,262 pg 57,974,900 29,222,868 28,752,032 & Avdlable on S(,0621,02f1po 2 j Aperture Card j

t / I 8 Taunton Municipal Lighting Plant UTILITY PLANT - CONTINUED 1 Year ended December 31, 1985 Balance January 1, 1985 Forwarded $56,529,638 General plant Land and land rights 35,691 Structures and improvements 281,965 Office furniture and equipment 150,474 Transportation equipment 570,043 Stores equipment 1,740 Tools, shop and garage equipment 13,093 Laboratory equipment 14,888 Power operated equipment 27,271 Communication equipment 86,858 Miscellaneous equipment 15,649 a Total general plant _1,197,672 Less contribution in aid of construction (64,986) Total utility plant in service 57,662,324 Construction work in progress 3,437,120 $61,099,444 i \\ l l l t. s 15 -w+ v-~ ~ m --v

Accumulated Net Book Balance Depreciation Value December 31, December 31, December 31, Additions Retirements 1985 1985 1985 $1,445,262 $57,974,900 $29,222,868 $28,752,032 35,691 35,691 119,343 401,308 253,806 147,502 37,750 188,224 71,509 116,715 42,633 9,675 603,001 456,085 146,916 5,376 7,116 1,740 5,376 6,800 19,893 13,093 6,800 14,888 12,068 2,800 27,271 18,388 8,883 86,858 31,403 55,455 48,554 64,203 14,249 49,954 260,456 9,675 1,448,453 872,361 576,092 (64,986) (64,986) 1,705,718 9,675 59,358,367 30,095,229 29,263,138 431,265 3,868,385 3,868,385 $2,136,983 $9,675 $63,226,752 $30,095,229 $33,131,523 D APER M CARD Anne Avdlable 0 = ' Aperture Card %cx,uo3W-os

O Taunton Municipal Lighting Plant OPERATING EXPENSES O Year ended December 31, 1985 POWER PRODUCTION EXPENSES Operation () Supervision and engineering 335,976 Fuel 12,789,994 Labor and expenses 1,069,607 $14,195,577 Maintenance Supervision and engineering 89,030 Structures 141,079 O soiler plant 631,264 Electric plant 373,923 Miscellaneous 15,304 1,250,600 Purchased power 12,012,576 Total power production expenses 27,458,753 O TRANSMISSION AND DISTRIBUTION EXPENSES Operation Supervision and engineering 203,375 Labor 156,252 () Supplies and expenses 8,419 Meter expenses 94,558 Customer installation 9,005 Street lighting and signal systems 23,314 Miscellaneous 106,931 601,854 Maintenance () Lines - electric 566,411 Street lighting and signal systems 64,501 Meters 13,408 Structures and equipment 9,022 Line transformers 17,620 Station equipment 71,760 C) Miscellaneous 11,906 754,628 Total transmission and distribution expenses 1,356,482 Forward 28,815,235 O O () 16

O Taunton Municipal Lighting Plant OPERATING EXPENSES - CONTINUED O Year ended December 31, 1985 Forwarded $28,815,235 () CUSTOMER ACCOUNTS EXPENSES Operation Meter reading labor and expenses 120,241 Accounting and collecting expenses -546,066 Unco 11ectible accounts 42,000 Advertining expense 112,818 .O j Tocal customer accounts expenses 821,125 ADMINISTRATIVE AND GENERAL EXPENSES Operation Administrative and general salaries 301,601

(3 Office supplies and expenses 139,269 Outside services employed 153,025 Property insurance 151,652 In juries and damages 215,939 Employee pensions and benefits 3,088,324 Miscellaneous general expenses 218,557

C)

Transportation expences 56,334 Regulatory commission expense 27,848 4,352,549 Maintenance General plant 69,972 '3 Total administrative and general expenses 4,422,521 DEPRECIATION EXPENSE 2,281,901 $36,340,750* 0

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fy() N Q')Yl 4 %b yl f m. ' i' P 'T r, ~- - g! (, *, ' D .;. ], )/ / () ' Legend fcj g' \\s ' E Blackstone Vetley Electric Service Area <f E Eastern Edisori Service Area E Montaup Electric Wholesale Territory Table of Contents l I Highhghts and EUA System Proide ( ht the Cerer - 3 l( tier to Shareholders EUA has "The Right Mix" of people and resoort es 5 EUA Svstem - 1ne Rigot Mix to meet the growing needs of customers. I felping 13 Review of Operations young peeple to understand electricity, and to put 21 $clected Consolidated Financial Data safety tirst is one example of our commitment to go 22 Mana ement's thscussion and Analysis beyond providing electric service. s 24 Consohdated linani;al Statements 2S Notes to Consohdated Financial Statements 34 Quarteriv Finantial and Common Share Information 34 Supplementary l'inar;tial Staterrent Informat'en 36 Consolidated Operating St 3tistics 38 Dividend Reinvestment and Comn.co Share l'urt basi i lan i i

Hi;hli;ht3 1985 1984 % Change Financial Data van.m in twwas; 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 14.900 16.500 - 9.7 Comnion Share Data Earnings per Average Common Share $2.67 $2.85 - 6.3 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 Alargin ( At Peak) 18.900 19.58o - 3.1 System Load Factor. 59.100 60.69a - 2.5 Customers (Year End) 238,898 235,053 + 1.6 Employees (Year End) 1,104 1,075 + 2.7 EUA System Profile Eastern Utilities Associates is a public utility erations accounted for 1000o of operating reve-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-Island. About 769' of total consolidated operat-o 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-hiassachusetts and Blackstone Valley Electric vides, at cost, various accounting, financial, en-Company operating in northern Rhode Island. gineering, planning, data processing and other N1ontaup 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. bO M s 4WP'

"Tbday, ELIA is aniong the healthiest of the 16 Seabrook joint owners." Business Week - August 5,1985 " Eastern Lltilities Associates seems to be run by people who look for opportunities." Merrill-Lynch - October,1985 "If successful, the strategy could substantially increase profits doloH the road." Value Line, Inc. - December 27,1985 "The winners, of course, will be the customers of Eastern Litilities." New England Business - September 1G,1985 "The Eastern Lltilities agreement is a good dealfor Seabrook, for Eastern, andfor New England." Worcester Telegram - July 27,1985 ymz

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9:f.i; n c , -- w - + '/ f w e9 ' y gs,7 ', 4 j m g-s John F. G. Eichorn, Jr., Chairman of the Board ) l l i l To Our Shareholder: l l 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%. 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 l 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-compared 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 $2.06 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 i tion is that EUA stock closed the year at $25% 12.1% of the project, will be owned by our new per share. This price amounts to 141% of book subsidiary, EUA Power Corporation, to be 3:

i formed in New Hampshire. These shares will successfully completing their hot-functional be in addition to hiontaup's current 2.9% own-tests during the year. These tests, which allow ership. 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 l plant. the operational integrity of each unit. In January Our primary objective in making the 1986, the Nuclear Regulatory Commission - i offers was to assure the completion and opera-granted a full power operating license for tion of the Seabrook Unit, in which we have hiillstone. 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 i 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. I 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. j so necessary for sustained economic growth. Our reduction of dependence on im-i We have applied to the Federal Energy ported oil over the last decade, through con-j Regulatory Commission, the Securities and Ex-verting units to burn coal and the additional I change Commission, and various state Commis-utilization of nuclear power, has greatly im-l 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 hiaine, Vermont, generation. Today we are only 40% dependent and hiassachusetts utilities. The new company, upon oil, with 34% coal, and 26% nuclear. We EUA Power Corporation, will initially 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 reason 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, i ject delays on our shareholders, and offering the is more attributable to their efforts than to any j promise of a handsome return if the transac-other group. For their dedication, management l tions are successfully consummated. Secondly, is most grateful and appreciative. j it will isolate our own retail and wholesale In summation,let me say that 1985 has i 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-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 j 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 l take up the challenge. When the plant does go customers alike. on liae, EUA shareholders and employees alike Sincerely, l can take justifiable pride in the achievement. They will have played a pivotal role in its gg g completion. Seabrook Unit 1 and hiillstone Unit 3 John F. G. Eichorn, Jr. both achieved significant milestones in 1985 by Chairman of the Board

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.,., [.,. - j, ; # Professional customer service: Datermining electrical needs at a construction site in Fall River, Massachu-y 4 setts (left). Dedicating the rehabilitated 89-year-old BVE hydroelectric station in Pawtucket, Rhode Island: Yesterday's energy to serve today's needs (above). a 3 s 1a N ] One of the best m - to all parts of the community - especiallt to C ustomer Service. dicators of EL A s dedication to service school children. Safety and energy-related is in the hundreds of dav-to-dav con-cou rses have been in the schools in E L' A s tacts between customers and me.abers of the service territory for vears. In 1985 entirelv new Customer Service and Consumer Service E e-curriculum materials were added for secondarv J f partments. People come to us seeking advice on schools. Our Stav Clear, Stav Alive' and electric appliances, asking for information that ' Electrical Safety from A to Zap" programs j will help them conserve energy, about bills. or have reached more than 90% of the school (q asking to has e power turned on or off. EL' A s children in our service area. j trained and profes,ional emplovees strive to The overall population is addressed Ew render prompt and courteous service - knowing through Speakers Club activity with civic. insti-1 that small services are the best appreciated tutional and business groups. and through vari-f because thev are personal ous neetmgs and roundtable discussions with ^ E L' A s educational programs reach out community leaders -} 7

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m - 49j ,g %..';j~~ A3 f., y :;.,y, f,.., -Q. ik ' ' : J. . 7,.~ ; b:,.. ; q. . :. < g. ', -._ jy 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 m project will begin bv 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-proMNtive. ilvdroelectric power often involves tional 1.310 mw. EL A s share of the total will be the damming of rivers. altering the ecostsum 28mw in 1986, and an additional 54mw in 1990, and diverting trade routes. or a total of 4oo of New Englandi share. In spite of these drawbacks. however. EL' A is committed to utilinng so called ren ew - Blend of Old and New. It is t om - able' energy sou rt es wherever it can be or monly known as T ankee ingenuity - beneht to our customers. the uncommon ability,o take what lies With a consortium of other New En-before vou and fashion it to vour particular gland utilities, EU A has contracted with ilvdro neeJ. In 1985. EU A reached back in time as Quebec to bring 2.000 megawatts (mu ) ot elec Blackstone Vallev Electric renovated and re-tricity from Canadas immense hydroelectnc opened its Pawtucket Ih dro Station The 89 proiect at lames Bav The tu t phase of this vear old structure is the hfth-oldest power plant 9

-t M 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 y 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 able source of energy, and a further effort to saved the equivalent of 40 million barrels of oil. l reduce dependence on foreign sources far re-moved from our borders. Igh Technology. EUA's engineering The balance 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-ronmental impact of all generation and trans-assisted drafting and designing systems. Work i 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 .to-

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yy3_. e: y y i ' ' ' \\ ? , y,, ~ x: . g.., _y,. '.. :.' n (.: m 3 .4 n i Q,, : 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 he aNe n' un est u; ate at n u m ber of y he Owners of EUA. M ha im ns I L.\\ ' u ha' a snuaNns u hen u orkme on a design 4 \\1 ore than 11 nulhon shares of our i om pr()lt4 i U lth tht' ni u ss stems Il \\ tw rminnel d st(u k are in t ht-hands (it 22 t44) miin (an prepare mans s( enarios of hou a proie( t people sesents tn e pertent of these share ouki w ork and then ph k the hea method holders ow n iew than W shares w hile onk ( based (TD rt dla hlllt \\ ( (1st t m t. i)t ( tinstrut tkm t()ur pt'rt t'n t (in n m(irt. than 1 (hk) sh a rt% I his i and prat th allt\\ re prt 'st> n t s a ml\\ ture ()I In tt' rests ht,th t hi> pt r I t hangme nmes t hanging wass -\\ ! I son w hose hs'hhood depends on market m h a n gi' \\t IL\\ ihanceis diristi'd <> st~tme'nts and the pt > rsi >n u hti di' pends t hln ds (m t ward im p r(M t>mt'n' I mplo\\ ets all dt' pat t I L \\ f(ir a supplemental w(>Ur( q-(it stq ure in in rn t'n t s a rt' () lit'rt'd tralninR and edil( <t'kinal ( timt-T heti' are sharehtdders in all %) states pit)Rrams Tanging tri m ( tim pli t t 't Ilitlat \\ tti ( anada and (>thil i titin t t iiN l'ris a ti' sha ri'h(dd i ahle sp} hind afhi (in 'he 1(*h sa ttd\\ \\te ()nl\\ Prs makt' up aht'U t t h (> t hirds (if the (m ners (it ( d() t'm pl(4 tatN htq (im t> m(Trt' k n(in lt'dpi'ahlt' and I L \\ st(n k w it h t hi' rt%t bi'i n g institutitins Mk)Tt' pt(hilh fl\\ t' hllt the\\ alm) gain J he Ight htispitals and w'nsitin tunds t t'n t d st'n st' tit prt it ewi t in a lls m l helt' 1s s im t' Ni t hiitisa nds (it ptulpli w ith a m tiltit udt' thing ahtiut ht'ing abli' t() d(' a ltih ht'?'t1 that tit Init'rt%!s shart-111 l'[ \\ s slit ( t% l [.\\ a m a kes a person feel more s onthient and more c ompan; w ith the right mn t'a gt T t(i dti ht'Itt r thine-u i h t ht' timi at Inint! s a 12 l;

Fleview of Operations Market price of Common Shares reaches 15 year high. Connnon Dividends increasedforfourth consecutive year. 1 New Subsidiary proposed for additional Seabrook ownership. Construction expenditures continue to decline. Energy mix continues to be diversified. Pr!ce of electricily declines. 1 13

Institutional investors proximately 76% of our System's j E arnings,Dividandsand Nat income. Dividsnd also showed much greater inter-revenues are regulated by FERC. Increased; 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 included $172 mil- $30.1 million of 1984. Earnings Our retail subsidiary lion of Construction Work In Pro-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 of 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 Me 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 sao 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 Atay 1985 dividend. 2.2s_ $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, i so 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 15 ers will also benefit from gener-market value of EUA shares. At ally lower costs of fossil fuel used the end of 1985, the closing mar-in generating electricity. ket price of EUA's common 0 We are confident that shares was $25%, and the shares when lower fossil fuel costs are had traded as high as $26% earlier si 82 sa e4 as factored in, the effects on retail in the year. The 1985 year-end a Earnings customers of Afontaup's 12% rate price of $25% was approximately a olvidends 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 Atassachusetts, 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 15 % now appears that Blackstone will new common equity. An addi-be required to seek rate relief tional $2.0 million was obtained 120 _. _ ____ _ _ early in 1986; if approved, the from our Employees' Savings and 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. 60_. _. _ stone's last increase. However, by year-end hfontaup Eastern Edison may also had incurred $25.4 million in 3o'- be required to seek higher rates short-term bank loans to meet a because of the deterioration in its Portion of its capital require-level of earnings. Eastern imple- 'ments. hiost of this short-term mented a nominal rate increase in debt is expected to be repaid with January 1984. internally generated cash by the The rates of hiontaup end of 1986. significant improvement in mar-Electric Company, our generation Successful completion of ket value continued during ig85. 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-Niany security analysts rate FERC recourse debt to finance a signifi-as the most responsive regulatory cant portion of the acquisition. body in the United States. Ap- [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 Milder 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-rice of Electricity De-rm _ chnes.1 he average cost lenge became and continues to be a balancing of the risks and re-of electncity sold to EUA s wards of the transaction. We be-45_ _ ___ _ ___ _ customers in 1985 declined more lieve that we have accomplished than 10*o, driven by lower fuel a favorable balance, and are vig-prices. This is the first time in orously pursuing the completion 3a _ ___ eight years that there has been a of the acquisition plan. reduction in the average cost of in order to protect our ex-l electricity on our System. During sting customers from any risks is __ the same period, the Consumer associated with this undertaking, Price Index rose 3.88o, according we concluded that a new subsidi-to the U.S. Bureau of Labor ary should be established to as-o Statistics. sume these risks. The new subsidiary, called EUA Power UA Power Corpora-si s2 sa s.: as Corporation, will be established tion. In July 1985, EUA Commencing in 1988 we expect m New Hampshire, where the nn n d t had Seabrook project is located. to meet virtually all of our cash I"""' 'M" "T"' P" To further shift the risks construction requirements with internany generated funds. away from our existing customers nuclear power project from three and shareholders, a highly lever-the status of current tax laws, the "' '" Y I"" ^ " aged capitalization is anticipated. ^"~ issuance of additional tax exempt This results in an 80*o debt com-n unced that it had aho entered securities. ponent of the capitalization mto negotiations to purchase the which will be made up of high Seabrmk ownership of Fitchburg risk, non recourse notes. Inves-K ilowatt-hour Sales ^ Move Upward. Sales of Cff#

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tors in these securities will as-electricity moved upward sume the majority of nsks the pmposed acquisitions imount i 4.88, largely due to short-term associated with further delay or o to 12.la of the Seabrook project. sales to other utilities. Sales to our even cancellation of Seabrook The proposed acquisi-Unit 1. Should Seabrook Unit I own retail customers registered a more modest gain of slightly less n t be completed or not enter aus of the s b tantiall - than one percent. A bright spot commercial operation, the outside cented purchase price, and sev-during 1985 was growth in the investors would stand to lose "'"' " E # " " commercial sector, which out-their investment. The proposed making techniques proposed as paced all other categories. Sales g P#"

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" " " ~ of electricity to commercial cus-rate, will have a five to ten year U "' E" tomers rose five percent over maturity, but will be callable at 1984, accounting for 36ao of the par at the end of three years. "E 'P"'" " " ' " ' #" '"'"". het the pmposed System's retail business. Based on current estimates, the wstnwnt wi Industrial sales were off maximum amount of debt re-acqu sition, but with the pro-2.6*o from 1984. The overall slow-quired to be sold would be $180 posed acquisition prospects coul1 down in the level of business ac-million. be even brighter. tivity noted nationally and.in The equity required for in evaluating the benefits New England also affected EUA s the acquisition wdl be provided and risks associated with the mdustrial base. A strengthening to the new subsidiary by Eastern pmp acquisitions, our pri-of the dollar and improved eco-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 members 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 ts a 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 h1assachu-ps 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 s.o about a successful completion of billion kilowatt-hours will be the plan, because we feel it is a scheduled, starting in 1990. EUA's real opportunity to enhance the share is approximately 350 mil-4.5 value of the shareholders' invest-tion kilowatt-hours per year. ment in EUA. Hydro Quebec will help diversify EUA's energy base, and o illstone Achieves further reduce our reliance on for-Criticality. Comple-eign oil. si 82 83 84 as tion of the 1,150 mega-we remain committed to provid. watt N1illstone 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. On 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-fired, combined-cycle elec-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, aspect of this entire transaction is owner of hiillstone Unit 3,is opti-would be fueled by natural gas EUA's equity investment. Trad, 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 h1ontaup 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 financial and hiillstone. Expenditures to date scheduled for 1989. EUA is con-economic conditions. In order to indicate that total costs for the sidering both an equity position assure a consistent high level re. project should be less than the and a long-term purchase power turn on its equity investment, official estimate of $3.9 billion. arrangement for 50 megawatts EUA will acquire preferred stock from the initial unit. Neighboring from EUA Power. The preferred ydro Quebec. Con-electric utilities in New England stock will have a fixed 25% div. struction of Phase One of are expected to contract for the dend rate. It is anticipated that the new Canadian - New balance of the output. the 25% return will be available to England direct current transmis-EUA for a period of twelve years. sion line is well ahead of sched-onstruction. As h1ill-Rate regulation of EUA ule. Starting at the Canadian stone Unit 3, and Sea-Power Corporation will be by the border, its route extends across brook Unit 1 near Federal Energy Regulatory Com. the Northeastern section of Ver-completion, EUA's total construc-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 of selling its power at cost, in. cated in Littleton, New 1985. Projects related to generation cluding the 25% return on equity, Hampshire, amounted to $58.1 million, sub-or at market levels. If the market initial deliveries of Cana-stantially less than last year's $78.2 is at a level higher than cost, the dian hydroelectric power are ex. million. h1ontaup Electric Com-additional compensation will in. pected to commence by mid-pany, the System's generation and crease the equity return. transmission subsidiary, spent is

20 percent of the facility, and will centtructs:n Expenfitures be responsible for its operation. The System is also con-sidering co-generation, waste in-cineration, and other generating alternatives. We shall spare no effort in exploring every avenue; old or new, common or complex, in our endeavor to bring our cus-tomers adequate, reliable, and en-vironmentally compatible power at the lowest possible cost. 30 G eneration Strategy. EUA's average cost of fuel declined dramati-cally during 1985, and the System achieved an unprecedented bal-7s 7s 77 7s 7s so at s2 sa 84 as ance of energy sources. Falling oil EUA system construction expenditures 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 $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 Alillstone 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 N1ay 1,1986, and initial deliveries $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 htillstone and Seabrook, power from Hydro Quebec. An scheduled for 1986, will signifi-additional 54mw of Canadian system capability / Peak cantly reduce construction ex-power will be available to us with penditures this year. the completion of Hydro Quebec, Phase 11, in 1990. tem agawatts road-Based Genera-Blackstone Valley Elec-B tion. EUA continues to tric, EUA's retail subsidiary in i follow its strategy of opti-Rhode Island, reached back into 72 mizing its fuel mix to avoid aberra-the past to rehabilitate and reacti-tions caused by major fluctuations vate an 89 year-old hydroelectric in the price or availability of any station in Pawtucket. While small 5" one energy source. During 1985, by today's standards, the plant will generate enough electricity to our generation from oil was slightly less than 40%, approxi. serve up to 1,300 homes, saving 250 mately 34% coal, and 26% nuclear. the energy equivalent of 10,000 Thus, we are approaching our goal barrels of oil annually. j l of approximately one-third of our Progress is also being 0 l generation from each major ther-made on the establishment of k mal source. Ocean State Power. Under the 8' 85 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, a EUA system Peak longed shut-down, by having an combined-cycle units, in EUA we expect our reserve marsin to System territory in Burrillville, remain stable through the early Rhode Island. EUA plans to own 1990's. $17

Community Leader Round-Ensrgy Mix tables" were conducted to inform opinion leaders and encourage as,__ ______.~~ - ~~ - -- - their support. Educational Services and 3.s22n=h _ _ _. _ _ _ _ _ Speakers Club programs, con-3.sm n=n _ _ _ _ _ _ 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 e2 as during the year by a Teachers mwh - megawatt hours Advisory Panel, and through the a Hydro use of the Educational Services a Nuclear Catalogue. By adapting programs acoal to their needs, we find teachers a oil 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 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. Massachusetts and Vermont En-unteer Speakers Club increased Coal-hred electricity provided ergy Control (REMVEC), 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 l of hydro satisfied the remaining The data-link between employees willing to inform, and 26%. The impending availability REMVEC and EUA will forther be informed by, the many people of Millstone Unit 3, Seabrook enhance reliability by increasing they reach. The members serve Unit 1 and flydro Quebec power the speed and accuracy of infor-not only as good-will ambassa-in 1986 will further enhance our mation transfer on generation dors, but also as effective "ba-fuel diversity. and transmission para meters. rometers" of public opinion by This information, in turn, enables being alert to concerns expressed l Year in Review: Cus-operators to make system correc-by their audiences. I tomer and Community tions to forestall overloading and 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 mal de-ria inflicted some of its out the year. velopments in our ir 'ry heaviest damage on EUA System Computer assisted d(sign continued throughout the a r. Companies. Eastern Edison's and engineering systems will be-Since an adequate supply or i lec-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, cluding hundreds of individual services, recovery was a long and arduous process. .to~ i

A prolonged period of mpicyment. The total anagsmant Appsint-spring-like weather immediately number of employees in m snts. 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 diversihed techni-ing. Both men will retain their tience strained to the limit, most cat skills. respective positions as chief exec-people were very understanding Slightly less than 20ao 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 1979, as vice president and chief income financial officer, and was elected 30;se_ M uaL _ _________ _.. _ _ _ _ _ _ _ _ executive vice president in 1984. These two management 27_.5c _ _Commerew changes reflect EUA,s continuing is.s_e estrw philosophy of strengthening the organization, and broadening the 14.5c Omer_ Electric Utmties -... _.. _ _. _ _ _ _ base of responsibility. Mr. Pardus' see ome' his significant contributions to EUA's improving financial pic-ture, and to expand his operating experience. Expense 35.0c. Fue.l- - -. - 16.5c_ _Other Operatron and Maintenance,_ 13.4c _ _Pu_rchase Power _ _ 12.3c _ interest and Preferred Dividends 9.ac _ _ Taxes 4.7c _ Depreciation and Amortizatx)n 8.3c _ ___Eamings _ Even though they decreased over 10% in 1985, Fuel and Purchased Power remain as our largest expense items. l l The result has been an resented by union bargammg 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-t smaller outages. pire in March 1987. r.- '19' v

Fin ncin.1 Inf:rm ti:n 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 .a

Oclected Ocnsclidcted Fin:nni:1 Cr.ta Years Ended December 31, 1985 1984 1983 1982 1981 (Irt Thousands Except Common Shares and 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: 407,497 394,107 374,132 358,599 348,255 Plant in Service...... Construction Work in Progress. _335,130 _283,216 _249,700 _172,057 _109,348 Gross Utility Plant. 742,627 677,323 623,832 530,656 457,603 Accumulated Depreciation... _143,497 _134,077 _125,568 _ 117,396 , 110,163 Net Utility Plant. _599,130 __543,246 _498,264 _413,260 _347,440 Total Assets... _ 714,436 _661,471 _585,135 _489,259 426,821 Capitalization: Long-Term Debt.......... 285,491 288,876 256,398 199,850 183,464 Redeemable Preferred Stock.... 31,457 33,240 34,155 34,457 19,906 Non-Redeemable Preferred Stock 15,079 15,079 15,079 15,079 15,079 Common Equity. _208,21_1 _191,619 172,327 _140M73 _109,875 Total Capitalization. _540,238 _528,814 _4E959 _390,359 _333,32_4 Short-Term Debt _ 25,373 0 0 0 __27A00 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 Equity......... 14.9 % 16.5% 16.2% 13.5 % 12.1% Market Price - High.. 26% 18 18% 14 % 12W - 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 m, iti

M:nn;crnant'o Discu: irn cnd Antlytis cf Fincncist C:nditi:n cnd Rscults cf Cp;rcti:ns 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 earnings per share are last two years signincantly influenced by the increases in the num-Increase toecrease) ber of average common shares outstanding of 5.6% From Prior Years and 16.5%, respectively. 1985 1984 The EUA System remains committed to Residential 0.6% 0.6% l maintaining a sound fmancial 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 ienced 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 Consolidated 4.8% 2.4% ily climbed, by over 43%, to $25% by year end 1985. 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: costs as a result of expensive oil generation being replaced by lower cost nuclear generation with the '"[,'['J"p,Mg return to service of a nuclear facility which had been f 5 in mnmo 19ss 1984 out of service during most of 1984. The increase of Operating Revenue change attrib- $36.3 million in 1984 over 1983 reflected the higher utable to: net generation requirements of the System m. 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. .7 36 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) $58.9 has ownership interests or unit contracts. Other op-eration expense increased each year primarily as a The revenues attributable to fuel costs are result 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 increased costs related The estimated effect of rate increases for the to the burning of coal at the Somerset plant. periods shown, retlect the billing of higher wholesale All wance For Funds Used During Con-rates of $10.2 in 1985 and wholesale and retail rates struction ( AFUDC) represents a non-cash element of $16.4 million and $1.7 million, respectively, in of inc me. AFUDC increased $1.7 million in 1985 1984. 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 from 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-ist.

rate base of increased amounts of construction work ' Fin nci:1 Condition 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 million, 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 internally issued to refinance maturing issues having lower generated funds are obtained through short-term interest rates. (S'e Statement of Capitalization for borrowings 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'o 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 financing 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 55.84o and 34.59o 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 traditional 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 financing 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 intemal auditors .23 1

Consolidned Inc:me Ctat: ment 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 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 20,218 285,438 314,558 265,913 Total Operating Expenses 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).. _(12,092) _(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 $ _30,0_53 $._25464 Average Common Shares Outstanding. 11,156,941 10,562,324 9,062,810 Consolidated Earnings Per Average Commen Share. $_2 67 $2.85 $2 80 Dividends Per Common Share.. $2.03 $L91 $1.79 Consolidated Retained Earnings Statement Years Ended December 31, 1985 1984 1983 (In Thousands) Consolidated Retained Earnings - Beginning of Year $49,727 $39,731 $30,396 Consolidated Net income 29,770 30,053 25,364 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 accompanysng notes are art irtregral part of the funancsal statements. +.n JMi

_s

Consolidated Ctatement of Changea in Financial Position Years Ended December 31, (In Thousands) 1985 1984 1983 Source of Funds Internally Generated: Income After Interest Charges $35,426 $ 35,788 $ 31,177 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 Investment Tax Credits, Net. 3,558 5,835 7,635 Equity in Undistributed Earnings of Nuclear Generating Companies (304) (13) (753) Allowance for Funds Used During Construction (23,786) _(22,052) _(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) (16,029) Subsidiary Preferred Dividends _(5,656) _(5,735) _{5,813) Internally Generated Funds. 27,501 40,858 _ 27,25_8 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 Increase in Short-Term Debt.. 25,373 Other - Net.. 421 3,602 5,14_0 Funds from External Sources. 35,921 79,126 __88,398 Total Source of Funds. $63,422 $119,984 $115,656 Application of Funds Construction Expenditures.. $78,192 $ 95,211 $103,309 L ss: Allowance for Funds Used During Construction (23,78_6) _(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.. _14,855 9,551 _ _ 7,785 Total Application of Funds $63,422 $119,984 $115,656 Changes in Components of Working Capital

• Cash and Temporary 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. 621 435 117 Accounts Payable. 1,352 (5,856) 5,711 Accrued Taxes.. (1,223) 2,572 (3,690) Other Current Liabilities _(3,8_73) _(5,561) _(1,730) (Decrease) Increase in Working Capital.... $(8,764) 39 $_14 663 1

• (Etcluding Short. Term Debt Current Deferred Tates and Redeemable Preferrel Stock Sinking Fund Requirement)

The accompanyung notes are art integral part of the pnancial statements

Consolidated Balanca Sheet December 31, (tn Thousands) 1985 1984 Assets Utility Plant and Other investments: Utility Plant i In Service $407,497 $394,107 I 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 l Nonutility Property - Net 886 892 Investments in Nuclear Generating Companies. 9,457 9,152 Other Investments (at cost) 100 _69 Total Utility Plant and Other Investments. _609J73 _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): Fuel. 8,131 11,600 Plant Materials and Operating Supplies. 6,417 5.893 Other Current Assets ___1 444 823 1 Total Current Assets. 65,607 70.627 Deferred Debits: Unamortized Debt Expense. 5,579 5,853 Extraordinary Property Losses (Note 1). 16,153 25,294 Other Deferred Debits (Note 1). _17J24 6 3_38 1 Total Deferred Debits. _ 39,256 37,485 Total Assets $714,436 $661,471

. _

Liabilities and Capitalization Capitalization: $208,211 $191,619 Common Equity. .I Non-Redeemable Preferred Stock of Subsidiaries. 15,079 15,079 Redeemable Preferred Stock of Subsidiaries - Net. 31,457 33,240 Long-Term Debt - Net. 285,491 _2_88,876 Total Capitalization. _540 238 528 814 1 1 Current Liabilities: 1 Notes Payable - Banks. 25,373 l 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 1,938 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 Credits. 148 951 Total Deferred Credits _30J95 _ 28,040 Accumulated Deferred Taxes 58,117 52,273 Commitments and Contingencies (Note 1) Total Liabilities and Capitalization $714,436 $66y7_1 The accompanying notes are an integral p2rt of the fnancial statements. 5 ,38i

Consolidated Ctatement 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 1984 5 56,882 $ 54,464 Other Paid-In Capital. 96,305 89,345 Common Shares Expense. (1,919) (1,917) Retained Eamings. 56,943 49,727 Total Common Equity. 208,211 38.5% 191,619 36.2% Preferred Stxk of Subsidiaries: Non-Redeemable Preferred: Blackstone Valley Electric Company: 4.25%, $100 par value 35,000 shares (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 (50) Expense, Net of Premium. _ (50) 15,079 2.9 15,079 2.8 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) 31,457 5.8 33,240 6.3 Long-Terrn Debt: Eastem 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 Bonds: 14%% due 1995 (Series A).......... 30,000 10,000 Variable Rate Demand Bonds due 2014 (4) 6,500 6,500 Eastern Edison Company: First Mortgage and Collateral Trust Bonds: 3,000 3,000 4%% due 1987. 13.9% due 1987 (second series). 10,000 10,000 13.9% due 1987 (third series). 11,000 11,000 14.2% due 1988 (second series). 19,000 19,000 4%% due 1988 3,000 3,(X)0 14%% due 1990 15,000 15,000 17%% due 1991 30,000 30,000 16%% due 1992 24,000 24,000 4%% due 1993 5,000 5,000 6%% due 1997 7,000 7,000 8%% due 1999 5,000 5,000 7%% due 2002 8,000 8,000 8%% due 2003 10,000 10,000 40,000 40,000 12%% due 2013. 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. _285,491 523 288,8_76 54.6 Total Capitalization $540,238 100.0 % $528,814 100.0 % (1) Authori:ed and outstanding. (2) Authsri:ed 60.000 shares. Outstanding 38.900 shares on 1985 and 44.900 shares un 1984. (3) Authori:ed 150.000 shares. Outstandsng 138.000 shares in 1985 and 150,000 shares in 1984 (4) Weighted average interest rate teas 5.4% for 1985 and 6.8% for 1984. The accompanying notes are an untegral part of the financial statements. r 21; m 2

Not3 Ta Comolidated Armnci:1 Ctat: ment 3 D@ct 31.1985,19K nd 1983 ( A) Summary of Significant - Accounting Policies: Ccneral: Eastern Utilities Associates (EUA) and EUA Provisions for depreciation, on a consoli-Service Corporation (Service) art subject to the dated basis, were equivalent to a composite rate of jurisdiction of the Securities and Exchange Commis-approximatelv 3.4% in 1985 and 3.2% in 1984 and sion under the Public Utility lloidii.g Company Act 1983 based on th" awrage Jerreciable property bal-of 1935, and Service's accounts are maintained under ances at the beginnmg and end of each year. the system of accounts prescribed by that Act. The Oprating Revesues: Revenues are based on accounting policies and practicas of the retail subsid-billing rates authorized by applicable Federal and iaries, ramely, Blackstone Valley Electric Company state regulatory commissicas. The retdl subsidiaries (Black 3 tora 1 and Eastern Edison Company (Eastern follow the poljcy of accruing the estimated amount Edison), and of Montaup Electric Company of unhiled bas? rate revenues for electricity pro-(Montaup) are subject to regulation by the Federal vided at the end df the month to more closely match Energy Regulatory Commiss;cn (FERC) and the costs and revenues. In addition they also record the ] respective state regulatory commissions with re pect difference between fuel costs incurred and fuel costs to their rates and accoanting. The retail subsidiaries billed and Montaup conform with generally accepted ac-fed +ral Income Tares: The general policy of counting principles, as applieJ in the case of regu-EUA and its subsidiaries with respect to accounting . lated public utilities, and cer. form with the for Federa' income taxes is to reflect in income the accounting requirements and. rate-making practices esticaa*ed amount of taxes currently payable and to of the regulatory authority bring jurisdiction. provide for deferred taxes on certain items subject to Principles of Con <olihti,m: The consolidated timias differonces to the extent permitted by the financial statements include the accounts of EUA various regulatcry commissions. See Note B for de-and its subsidianes (Blackstone, Eastern Edison, tails of major deferred tax items. Montaup and Service). All material intercompany As permhted by the regulatory commissions balances and transactions have been eliminated in it ir tiie policy of the subsidiaries to defer the annual consohdation. investment tax credits and to amortize these credits Nuclear Generating Companies: Montaup fo!- over the productive lives of the related assets. lows the equity method of accounting for its inveit-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 n9n-cash item) is defmed 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 iacilities during the period of construction of borrowed funds based on its ownership interests and is billed pursu-used for constrt.ction purposes and a reasonable rate ant to contractual agreements wNch 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 anordance 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-bcrrowed funds component of AFUDC. struction and indirect (i arges for engineering and supervision. Depreciation of Utility Plant: For financial statement purposes,' depreciation is computed on the straight-line method based on estimated useful lives of the various classes of property. l l e e b -?S

(C) Income and Deferred Tcx Os Components of income and deferred tax expense for the years 1985,1984 and 1983 are as follows: (in Thessands) 1985 1984 1983 Federal: 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 1,274 588 1,334 986 Deferred.. 2,221 2,180 2,260 Charged to Operations.... 21,533 21,342 20,218 Charged 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: (In Thcusands) 19AS 1984 1983 Federal Income Tax Cornputed at Statutory Rates. $25,522 $26,054 $23,196 (Decreases) Increases in Tax From: Equity Component of AFUDC. (5,379) (5,307) (5,835) 1,054 1,067 1,326 Excess Tax Depreciation. (1,729) (2,297) (380) Other. Federal Income Tax Expense. $19,468 $19,517 $18,3_07 The provision for deferred taxes resulting from timing differences is comprised of the following: (in Thousands) 1985 1484 1983 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 1,817 5,078 (1,993) 6,562 (847) Abandonment Losses. Capitalized Overheads.... 321 1,022 757 588 1,334 986 Effect of State and Local Taxes Other - Net.. 380 (58) (45) Total... $6,263 $14,521 $10,056 The tax effect of the cumulative amount of has not 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. i SS u

(O) Ocpit:1 Clock: 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): Numh r of Common Sharcs issucJ Dividend increase in increase Reinvestment Common in Other and Employee Public Shares Paid-in lear Plans Sales Total At Par Capital 1985. 483,585 483,5S5 $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 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 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 respective capitali- $104.40; Blackstone's 5.60% issue, $103.82; Eastern ration ratios were in excess of the minimum which Edison'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-(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 funds sufficient 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, commencing: October 1,1980 in the case of the liquidation, or if redeemed at the option of Eastern 13.60% issue, October 1,1983 in the case of the Edison, the 13.60% and 15.48% issues of redeemable 15.48% issue and January 31,1989 in the case of the preferred stock are entitled to $111.42 and $113.11, 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-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: 5923,000 in 1986, Edison does not exercise its option of redeeming an 1987,1988 and $1,673,000 in 1989 and 1990. additional 7,500 shares the holders of that preferred (E) Retained Earnings: Under the provisions of EUA's Senict Note Agree-ments, Retained Earnings in the amount of $49,464,983 as of December 31, 1985 were un-restricted as to the payment of cash dividends on EUA Common Shares. (F) Long Term Debt: Under terms of the Indentures securing their various sions of their respective Indentures by certifying to bond issues the retail subsidiaries are required to the Trustee "available property additions." deposit annually with their respective Trustee cash The various first mortgage 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% of bonds are collateralized by securities of Montaup in the average gross investment in depreciable prop-the principal amount of $300,303,862. 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 1983 under alternate provi-which expires on December 1,1989. The letter of j

credit permits extensions on an annual basis upon term debt for each of the five years following 1985 mutual agreement of the bank and Blackstone. are: $4,125,000 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-tenn in accordance with informal agreements with the lines of credit with various banks nf approximately various banks, commitment fees are required to $24,900,000 at December 31,1985. maintain the lines of credit. (H) Jointly-Owned Facilities: At December 31,1985, Montaup 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 Progress Canal No. 2 50.00% $64,575 $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 Millstone No. 3 4.01 164,091 The foregoing amounts represent Montaup'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 Millstone of 59.0 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 Montaup. Montaup's share of 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 return 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 benefits 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 provided 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 in pension expense for 1985 is principally due in 1985, is charged to expense when paid. to a change in the actuarially assumed rate of return. Long-Terrn 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 through 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 Eastern Utilities Associates and its Subsidiary effect at December 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, January 1 January 1 (in Thousands) l'98h 1984 $49,000,000 in 1988,1989 and 1990 and will aggre-gate $714,000,000 for years after 1990. In addition, Actuarial Present the EUA 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 Benefits: associated with these contracts are reflected as Pur-Vested $32,107 $30,800 chased Power-Demand on the Consolidated income Nonvested. _ 828 _ 1,8.62 Statement. $3.2,935 $32,662 Construction: The EUA System's construc-Market Value of Net tion program is estimated at $56,200,000 for the year Assets Available for Benefits... $51,500 $46,995 m u

1986 and $138,000,000 for the years 1986 through plans submitted by the State of New Hampshire and 1990 (including allowance for funds used during the delay in the submission of plans for six h1assa-construction). chusetts towns has the potential of delaying the Storm Restoration: In 1985 the EUA System October 31, 1986 planned commercial operation incurred significant expenditures relating to the res-date. Montaup cannot predict what effect such a toration of service following Hurricane Gloria. Such delay would have on the total cost of the unit. costs, amounting to approximately $5,000,000 have hiontaup also has a 2.90% ownership inter-been deferred and management anticipates that it est in the Seabrook Unit 2 nuclear generating unit. In will ultimately recover such costs through rates. Any h1 arch 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 2.90ao ownership cember 31, 1985, Montaup had incurred approxi-interest in the 1150 megawatt Seabrook No. I nu-mately $17,100,000 of costs (including AFUDC) in 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 hiontaup in 1985, Federal regulatory approvals for the construction of indicated that approximately $5.4 million of indirect the unit have been obtained, but further appeals are costs previously attributed to Seabrook Unit 2 were possible. more appropriately chargeable ta Seabrook Unit 1. The Seabrook No. I unit has experienced Accordingly, Montaup transferred such costs in 1985. substantial cost increases due to, among other Montaup has received an accounting order from the things, outside intervention in various proceedings, FERC staff permitting it to record the costs of the design changes, revisions of Nuclear Regulatory abandoned project as an extraordinary property loss Commission (NRC) regulations, extraordinarily and to amortize these costs, net of related tax sav-high interest rates, inflation and construction delays. ings. In addition, in December 1984, FERC approved, The largest participant in the unit is Public Service effective June 6,1985, and on a subject-to-refund Company of New Hampshire (PSNH) which owns basis, Montaup's $17.6 million rate increase request a 35.6*o ownership interest. On March 1,1984, PSNH which was filed in November 1984. This filing in-announced that the estimated cost of Seabrook Unit cluded Montaup's request for recovery, over a ten 1 would increase by $1.5 billion, over its November year period, of all of its costs associated with Sea-1982 estimate, to $4.5 billion and its estimated in-brook Unit 2, including those referred to above. In service date would be delayed until October 1986. accordance with FERC practice, recovery of In mid-April 1984, PSNH announced that it Montaup's investment will not include any return on was experiencing a severe hquidity 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 rate proceeding As a result of this action, activity at the Seabrook before FERC and are contesting Montaup's recovery project was significantly reduced until early July of its investment in Seabrook Unit 2. 1984 when PSNH obtained additional financing. The recovery of Montaup's investment in Funding of expenditures was increased to a level Seabrook Unit 1 and Seabrook Unit 2 through rates averaging $4 million per week at that time, to $5 will be subject to final approval by FERC as part of million a week in early December 1984, and to $10 rate proceedings and the prudence of a portion of million a week in September 1995. Currently there such investment could be at issue. Montaup contin-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 been required to develop a financing plan for assur-rates. Montaup cannot predict the outcome of rate ing that sufficient funds will be available to pay for proceedings involving its Seabrook investments; their proportionate shares of the unit. however,it believes that the amount of any potential If, due to regulatory action, financial difficul-disallowance of recovery of the expenditures would 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 fulfill their contractual commitment to pay on System's common equity. a timely basis their share of Seabrook Unit 1 con-In December 1985; however, the Financial 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-authorities for municipalities located within ten ing Montaup. Among other things, the exposure miles of the Seabrook plant is a prerequisite to the draft proposes revised accounting requirements for issuance of the required operating license. The schedule announced by the NRC for hearings on the 132 ,a e

plant abandonments and regulatory disallowances 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 acquisition plan. These include return was authorized on the unamortized property the risk of non-completion of Seabrook Unit 1 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 I 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 towance. Such potential charges to income could be capital. material to the results of operations Or retained Revenues Subject to Refund: At December i earnings of the System in the year of the write-off. 31, 1985, approximately $54,500,000 of Montaup's 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. Montaup 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 i l the Seabrook Project. These interests aggregate ap-statements. proximately 140 mw or 12.1% of the Project. It is Guarantees: Montaup, 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, obligations 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 Corporation: 4.5% of a tion plans. EUA Power Corporation expects that 80% $25,000,000 bank line of credit and of a $50,000,000 of the capital necessary to finance the acquisitions debenture issue of Connecticut 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 financing of Maine Yankee Atomic Power secured, non-collateralized, non-guaranteed Notes to Company. Auditors' Report I j To the Trustees and Shareholders of Eastern ] Utiiities Associates: We have examined the consolidated balance sheets in our opinion, the 1985 and 1984 financial and consolidated statements of capitalization of statements referred to above present fairly the con-Eastern Utilities Associates and subsidiaries as of solidated financial position of Eastern Utilities Asso-December 31,1985 and 1984, and the related consoli-ciates and subsidiaries 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 financial 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-hxw nancial statements of Eastern Utilities Associates and subsidiaries for the year ended December 31, 1983 Boston, Massachusetts were examined by other auditors, whose report, March 3,1986 dated March 2,1984, expressed an unqualified opin-ion on those statements. rwW

Ouarterly Firncist cnd Common Ch re 17. formation (Unaudited) Thousands Earnings income Consol-per After idated Average Common Share Operating Operating Interest Net Common Dividends htarket Price Revenues income Charges Income Share Paid High Low For the quarters ended 1985: December 31 $84,338 $12,321 $ 8,684 $7,318 $0.65 $0.515 26Ts 20% September 30. $83,107 $13,800 $10,032 $8.602 $0.77 $0.515 23 % 18h June 30. $76,558 $ 9,177 $ 6,330 $4,900 $0.44 $0.515 23 % 18% Nfarch 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 $S,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 $0.483 13 % 13 N! arch 31 $94,477 $12,403 $9,783 $8.347 $0.81 $0.455 147. 14 The commen shares of Dstern Utihties Associates are listed on the Nere York Stod bchange under the tscher symbol EUA" The approximate number of Common Shareho!Jers of resord on February L 1986 tras 2L800. Supplementary 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 Fmancial 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 practices prescribed an estimate of the approximate effect of inflation by the regulatory commissiorm 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-Handy-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 brecisely in cost. The gain from the decline in purchasing power kind, current cost does not represent the replacement of net amounts owed is primarily attributable to the 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. Since 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. .4 I ~ - - - - ,..e

Consolid ted Ctit: melt cf income Adju2ted for Chin;in] Pri200 For the y;cr cnded Dec mber 31,1C85 Current Cost (Thousands of Dollars) 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 War * $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 l Net Amounts Owed _18,100 Net. $13,782

• At December 31,1985. the current cost of net utility plant icas $1.073.975 while historical cost er net cost recoverable through depreciation was

$599.00 Five Year Summary of Selected Financial Data Adjusted for the Effects of Changing Prices 1983 1984 1983 1982 1981 Years Ended Decernber 31, (In Thousands of Average 1985 Dollars) Operating Revenues. $333,510 $376,1_65 $327,099 $321,956 $353,028 Current Cost Infortnation: Income (Loss) After Interest Charges

• 10,039 11,081 10,414 (562)

(3,178) Income (Loss) 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) (5,067) (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 Amounts Owed 18,100 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. 322.2 312.0 298.4 289.1 272.4

• Before Adjustment to Net Recoverable Cost.

& ne !ssi e i.

r Consolidated Oper; ting Ctati2tica Years Ended December 31, 1985 1934 1983 1982 1981 1980 1975 l Energy Generated and Purchased j (millions of Lxh): 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 Itil 240 319 236 Total Generated and Purchased 4,509 4,303 4,201 4,049 4.268 4,333 _ 3d79 Operating Revenues (thousands): Residential. $110,682 5121,623 $104.101 5 97,101 5 94,217 5 79,357 $50,535 Commercial. 98,826 105,310 89,225 83,519 82,515 67,377 36,478 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 300,984 336,088 281,902 266,198 269,069 221,734 129,097 Unit Contracts. 32,526 25,237 20,548 22,219 28,862 22,908 2,118 Total Operating Revenues $333,510 $3_61,325 $302,450 $288,417 $297,931 $244_.642 $131,215 Energy Sales (millions of Lwh): Residential 1 1,212 1,205 1,197 1,137 1,122 1,149 1,073 Commercial. 1,169 1,113 1,103 1,044 1,055 1,058 848 Industrial. 833 856 810 772 841 848 726 Other Electric Utilities. 382 396 386 365 431 420 396 Other 29 30 34 36 38 42 45 Total Primary Sales, 3,625 3,600 3,530 3,354 3,487 3,517 3,088 Losses and Company Use 197 215 201 206 196 230 248 Total System Requirements. 3,822 3,815 3,731 3,560 3,683 3,747 3,336 Unit Contracts. 687 488 470 489 585 586 143 Total Energy Sales. 4,509 4,303 4,201 4,049 4,268 4,333 3,479 Number of Customers: Residential. 214,454 211,622 209,678 207,702 205,894 204,221 195,207 Commercial. 23,161 22,177 21,605 21,133 20,732 20,380 20,813 Industrial. 1,238 1,209 1,189 1,210 1,213 1,219 1,594 Other Electric Utilities. 15 16 12 18 14 17 14 Other 30 29 31 31 34 30 234 Total Customers. _238,898 _235,053 _232,515 _230,094 _227,887 _225,867 217,862 Average Revenue per Residential Customer ($) 5_16 575 496 468 458 389 259 Average Use per Residential Cus-tomer(kwh). _ 5,582 _ 5,694 _ 5208 5,474 5,449 5,626 5,497 Average Revenue per kwh: Residential. 9.13e 10.09c 8.70c 8.55c 8.40c 6.91c 4.71c Commercial. 8.45c 9.46c 8.09c 7.99c 7.82c 6.37c 4.30c Industrial. 8.01c 8.86c 7.27c 7.31c 7.20c 5.77c 3.58c

q gma

Consolidated Oper; ting Ctati: tics-Gener;l Years Ended December 31, 1985 1984 1983 1982 1981 1980 1975 Capitali:ation (thousands): Bonds (Net). $263,500 $266,500 $226,219 $165,950 $155,904 $125,182 $88321 Other Long-Term Debt _ 21,491 __22,376 _ 30,179 33,900 32.500 37,500 Tota 11eng-Term Debt, 285.491 288,876 256,398 199,850 188,464 162,682 88,321 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 _1_09/ 75 _95,424 _ 55,783 Total Capitalization. $540,238 $528,_814 5477,959 $390,359 $333,324 $293,384 $1_65,104 Common Share Data: Earnings per Average Common Share ($) 2.67 2.85 2.80 2.25 2.03 1A3 1.96 Dividends per Share ($). 2.03 1 91 1.79 1.70 1.60 1.60 1.50 Payout (%). 76.0 t>7.0 63.9 75.6 78.8 98.2 76.5 Average Common Shares Outstand-ing 11,156,941 10,5623 24 9,062,810 7,519,381 6,123,334 5,525,320 2.939,945 Total Common Shares Outstanding 11,376,471 10,892,886 10,192,304 8,788,991 6,664,560 5,583,634 3.094,945 Book Value per Share ($). 1830 17.59 16.91 16.04 16.49 17.09 18.02 Percent Earned On Average Com-mon Equity (* ). 14.9 16.5 16.2 13.5 12.1 9.5 10.8 Market Prices ($): High. 26?s 18 181 14Vs 12% 13 % 16 Low 165 12% 137 11 10% 10% 8% Year End. 257s 18 14?e 14% 111s 11% 14 % Miscellanens ($ in thousands): Total Construction Espenditures ($) 78,192 95,211 103 309 77,046 54,436 34,939 25,828 Cash Construction Espenditures ($) 54,406 73,159 78,912 61,236 41,745 25.024 20,873 Intern. illy Generated Funds as a % of Cash Construction (%) 50.5 55.8 34.5 20.7 22.5 4.5 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. 877 856 856 857 847 852 781 System Peak Demand - MW. 738 716 700 680 661 695 614 Reserve Margm (%). 18.9 19.5 223 26.0 28.1 22.7 27.1 System Load Factor (%) 59.1 60.6 60.8 59.8 63.6 61.5 62.0 Sources of Energy (*e): Nuclear. 26.2 10,9 23.8 22.2 20.6 17.0 22.0 Coal. 34.1 29 3 163 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 6.5 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 19.5 All Fuels Combined. 263 36.1 30.7 34.1 39.0 30.8 16.0 mm

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r [ividend C inv0ctm:nt cn2 C:mmon Chiro Purchrse PI:n 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 Plan are given a Sao dis-Eastern Utilities Associates count on shares purchased with reinvested divi-Post Office Box 2333 dends. Participants may also make additional cash Boston, h1A 02107 payments as frequently as once a month to purchase additional shares with no discount. Optional cash Transfer Agent payments are limited to a maximum of $5,000 per The First National Bank of Boston calendar quarter and must be received no later than Post Office Box 644 the 5th day preceding the Investment Date to be Boston, h1A 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 Bond 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, h1A 02110 of shares purchased is based on the average closing (Bonds of all series) price of EUA shares for the five trading days preccd-ing each investment date. System Companies i l 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, h1A 02107 claims against Eastern Utilities Associates as neither (617) 357-9590 the Trustees, Offcers 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 hiulberry Street Annual Meeting Brockton, h1A 02403 The 1986 Annual Shareholders hieeting 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 Company 225 Franklin Street, Boston, Blackstone Valley Electric Company h1assachusetts. ', Washington Highway Lincoln, RI 02865 (401) 333-1400 William R. Bisson, President Ise!

Trustaes Oliver F. Ames (P) Wesley W. hlarple, Jr. (F) Director, Fiduciary Trust Company, and Professor of Business AJnunistration, Northeastern private trustee, Boston, Atassachusetts liniversity. Boston, Afassachusetts John E. Conway (C, F) Donald G. Pardus Chairman, Jack Conway & Co., Inc. President, Chief Financial Ofcer Hanover, Afassachusetts and Treasurer of the Associati. n Robert I. Dexter (P) htargaret M. Stapleton ( A, F) Chairman. Abington Atutual Fire Second Vice President, John Hancock Insurance Company. Abington, Aiutual Life insurance Company. Atassachusetts Boston, Afassachusetts John F. G. Eichorn, Jr. D. Reid Weedon, Jr. (A) Chairman and Chief Executive Ofcer Senior Vice President, Arthur D. Little, Inc. of the Association Cambridge, Atassachusetts Peter B. Freeman (C, P) Corporate Director and Trustee, A-Indicates member of Audit Committee Providence, Rhode Island C-indicates member cf Compensation and ' #"U"'N"# Nathan H. Garrick Jr. ( A, C) r ' " #5" "'" b" '! h "'"" '* * "U"" Retired P-Indicates member of Pension Trust Committee Robert E. Maguire Executire Vice President of the l Association l i I t 1 t i 1 l i 4 Association Officers John F. G. Eichorn, Jr. Chairman and Chief Executive Officer Donald G. Pardus President Chief Financial Ofcer and Treasurer Robert E. Maguire Executive Vice President 3 Arthur A. Hatch 1 Vice President p"I 1 Robert P. Tassman ',m Vice President {_ Richard M. Burns Comptroller William F. O'Connor Donald G. Pardus was elected President of the Secretary Association in December. He will retain the position ~ of Chief Finanicial Officer. i -}}