Text

Massachusetts Municipal Wholesale Electric Co 1985 Annual Rept. W/One Oversize Encl
	ML20206J067
Person / Time
Site:	Millstone, Pilgrim, Seabrook, 05000000
Issue date:	12/31/1985
From:	Huehmer H, King F; MASSACHUSETTS MUNICIPAL WHOLESALE ELECTRIC CO.
To:	;
Shared Package
ML20206H943	List: ML20206H948; ML20206H960; ML20206H979; ML20206J033; ML20206J040; ML20206J046; ML20206J052; ML20206J057; ML20206J067;
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_ ' - - m?mymwwn [p' ',bleiof Contents . 1 Ta y v> Tsgh Aj ,n A Letter from the President and Chairman...... 2 The Seeds of Solidarity....................... 4 The Yearin Review; A Letter from the General Manager........... 18 Treasurer's Statement....................... 23 Auditors' Report............................ 25 Financial Statements........................ 26 Notes to Financial Statements................ 29 1 l I

mg p----.me mmmmmmw--em-m _r g?. i .m ,-. 3 3-nymyggg y m y m q g nity, cooperation, and joint action are the quarter century, public power systems in Massachu-mainstays of public power, enabling consumer-owned setts have executed a plan based on these same electric systems nationwide to draw on the experience basic strategies - unity, cooperation and continual and foresight of each other in order to achieve support. The collective efforts of Massachusetts specific goals. municipal electric systems have resulted in significant Throughout the years, public power proponents benefits for consumers, and the drive to reinforce have worked together to overcome economic, politi-and expand those benefits persists. cal and regulatory restraints inhibiting the flow of The municipal systems for decades were mostly low-cost, reliable power to consumers. There have wholesale customers of investor-owned utilities with been many important victories along the way, no control over the source or cost of their power. In providing the fuel for continued growth and the 1960s, they began exploring ways to develop development. their own, more economical power supplies. This The task of preserving and enhancing the benefits assertion of independence and commitment to of public power requires constant vigilance. In 1985, keeping costs as low as possible led to the founding national public power issues included public of the Massachusetts Municipal Wholesale Electric preterence in hydroelectric project relicensing, equal Company (MMWEC) in 1969. access to transmission facilities and proposed tax The unmapped road to becoming independent reform legislation. On these and other issues, the utilities with independent power supplies demanded interests of public power consumers are being pro-careful navigation and planning. There have been tected through a nationwide joint-action effort tran-many challenges to MMWEC initiatives over the years, scending past campaigns. but the municipal systems have won themselves a In a quest for independence spanning nearly a position of prominence in a region dominated by }

3 private utilities. the MMWEC power supply program begin commer-One important milestone for MMWEC came in cial operation, MMWEC will be working to ensure 1973 when the municipals won the right to jointly that its members have what it takes to guarantee the finance power projects with individual issues of tax-health of public power in Massachusetts into the exempt revenue bonds. Another milestone - the 21 st Century. This work will include careful planning most important in MMWEC's early development - and assessment of alternative power supply options, has provided the theme for this year's Annual Report. including conservation. In addition, a strong emphasis Ten years ago, in December 1975, legislation must and will be placed on managing available leading to the establishment of MMWEC as a public resources efficiently. corporation was enacted. This legislation empowered MMWEC is moving into 1986 with strong support MMWEC to issue tax-exempt bonds, acquire joint from its members for a program that registered several ownership interests in power plants, sign contracts major accomplishments in 1985. These accomplish-for power and build its own generating resources. ments, which will be explained by MMWEC's General On the occasion of MMWEC's 10th Anniversary Manager later in the report, involve Seabrook, Mill-as a public corporation, this report provides a glimpse stone, hydroelectric preference power, trash-to-energy, of the significant events that brought the company to Stony Brook and other initiatives. where it is today. A common feature throughout But the reason MMWEC is working, and the reason MMWEC's development has been the enduring it will excel in years to come, is rooted in the sound commitment to supplying the most economic power guidance and consistent support provided by the available through cooperative, responsible joint action. MMWEC members. In 1986, as the major baseload components of / Horst Huehmer, Chairman of the Board l Francis H. King, President

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l I l l s i l l gether, under the MMWEC banner,34 Massachusetts municipal electric systems have developed an organization that manages $1.3 billion in long-term debt for several major power projects and provides a variety of professional utility services. Creating such a program became the goal of a group of municipal systems in the 1960's when they realized the need for change in order to best serve their customers. Many things were happening that affected the cost of electricity, and most of the municipals, being at the mercy of their wholesale sup-pliers, found themselves unable to control rapidly escalating power costs. The movement toward an independent municipal power sup-ply began as the municipals started looking for ways to secure j their futures, it was a difficult time to be undertaking such an effort, as sweeping changes in the oil industry, the economy and regula-tion were producinga numberof crises forelectric utilities.Through these crises, however, the municipals have carefully executed their plan forindependence and demonstrated the effectiveness ofjoint action. In a way,it has been like leaming to walk, step by step, with each step increasingly confident and firm. The first few steps were not easy, but the municipals have kept the sense of purpose and per-spective necessary for long-term success. It is difficult to pinpoint the exact date and place that the MMWEC concept was envisioned and work on developing the agency began. It was more a gradual process of building on suc-cessive victories. For the purpose at hand, let's begin the MMWEC story with an event that started the pot boiling - The Great Northeast Blackout of November 9,196s.

6 Blackout Fallout The Massachusetts municipal systems were deter-mined to have their say. Their ability to bring about When the entire Northeast was plunged into change first surfaced in 1964, when the Shrewsbury darkness, the need for a more reliable supply of Case (See Sidebar) established municipals as utilities electricity vaulted to top priority. rather than general service customers of the IOUs, In the numerous reports and studies that followed resulting in improved contract rights. the blackout, it was agreed that the best way to avoid With this taste of victory, they went on to another such catastrophe was to institute improved,

- # sh the Power Planning Committee of the regional operating procedures, capable of isolating Municipal Electric Association of Massachusetts power outages to keep them from spreading.

(MEAM) to begin planning an independent power At the same time, New England consumers were Supply. Preliminary plans included joint ownership paying considerably more than the national average '#'E" 8"""#""E "" "E for electricity, and forecasters were projecting annual Proposed and representation at the NEPOOL talks, increases in demand of 7 and 8 percent. These both of which were being denied. statistics resulted in a plan to build and interconnect A constant ally of the municipal systems was the large, jointly owned generating stations that could Northeast Public Power Association (NEPPA), which satisfy the regions's future power requirements at a was working primarily on NEPOOL-related matters reasonable cost. The plan, dubbed the Big Eleven through its New England Pool Coordinating Commit-Power Loop, was developed by New England's tee. The committee, chaired by James E. Baker, investor-owned utilities (IOUs). man ger f the Shrewsbury Electric Light Depart-To accomplish all this work, the IOU's envisioned ment, included representatives of public power from creation of an agency to plan and coordinate all the Massachusetts, Vermont, New Hampshire and Maine. region's generation and transmission facilities. This agenev would become the New England Power Pool (NEPOOL). The New England On the sidelines of this momentous activity, the Power Erchange (NEPEX) municipal systems of Massachusetts were being ignored. They were barred from participation in these discussions, which were about the municipals' future as much as anything else. New England's public power systems had their own ideas about economic power supplies and regional organization. Their plans for power supply ] included development by the federal government of .p ~ the Dickey-Lincoln School hydroelectric project in Maine. The Dickey-Lincoln project was viewed as a j-way to substantially reduce the average cost of power 3 l in New England and provide the incentive for the J LOU's to keep their rates competitive. ['[##'(({"""' C'"" , y,,,gy Importing surplus power from Canada was another Electric Exhange (CONVEX) option being pursued by public power,in addition

Rhode Island-Eastern to implementation of an ambitious plan, called Afassachuserts-Vermont Yankee-Dixie, to build large, coal-fired generating

"^'"## plants at the mouths of coal mines in the Appala-f chians and transmit the power to New England and $o"n*t,0f7,#'," nre other areas along the East Coast.

Thnshr Msbury Casl 2 i b s i: 1

i joint Action initiatives It quickly became apparent that there was only one way for the municipal systems to secure their i

rights. Beginning in 1967, they entered a long period of litigation on many power supply issues, primarily before the Federal Power Commission (FPC), the When fames'Ei8aker became manager of the Securities and Exchange Commission (5:C) and the Shrewsbury Electric light Depa'rtment'in 19S8, he Nuclear Regulatory Commission. h brought with him a rebellious idea about mun-The municipals intervened in FPC Proceedings icipalpower supply. on the NEPOOL Agreement, and with support from At the time, Shrewsbury was purchasing power NEPPA won the right to participate in NEPOOL at a general service rate from Massachusetts Elec : negotiations. ? tric Co., a retail distributor; which was purchasing There were interventions in the FPC hydro licens-the powerit sold to Shrewsbury from New England : i ~ Ibwer Company (NEPCO), a wholesale distributor, ing cases of the Northfield Mountain and Bear Swamp Baker and the Shrewsbury light Commission - puruped storage units. In a U.S. Court of Appeals decision stemming from the Northfield Mountain set out to change this long-standing arrangeme.1t, which had the Shrewsbury municipalpaying more case, the court recognized the merit of allegations of an industry boycott against the municipals' part..iopa-for electricity than some large industrial users. As the manager of a utility in existence since 1908, _ tion in planning and pooling activities. Baker believed Shrewsbury deserve'd a better deal. In a separate appeal by the municipals, the same , He began pushing for climination of the mid-court reversed an SEC decision on IOU financing ' dieman-Massachuse*ts Electric Co.-in an effort plans for the Vermont and Maine Yankee nuclear to acquire power directly from NEPCO at a lower, units for failure to grant a hearing on the municipals' i-wholesale rate. Unable to make anyprogres~s at the j boycott allegations. The decision stalled capitaliza- ' locallevel, Shrewsbury took its case to the federal - tion of the Yankee companies and formation of a Ibwer Commission (FPCl in 1960. i huge IOU holding company - Eastem Electric Energy 'In a lengthy battle against a major utility, the ~ System - that would have brought New England Shrewsbury municipal emerged victorious in 1964. Electric System, Boston Edison Co. and Eastern The FPC decision, upheld on appeal to the U.S. Utilities Associates together. The court cited Court of Appeals, established municipal systems ~ concern over anti-trust and anti-ccmpetitive activities s utilities in their own right, entitled to purchase. power directly from whblesale suppliers. in its decision' In addition to establishing this new contracting These and other..tiatives. which together were mi right, the Shrewsbury Case is significant because it: building a base of power for the municipals, were demonst'ated the ' potential for change.In thel r being funded and managed by MEAM and NEPPA. itructure and organization of municipal utilities. Several of the municipal systems contributed heavily ; _ Enthused by his victory, Baker went on to to both organizations. Baker, working to extend his become a key figure in the creation of MMWEC, ~ success in the Shrewsbury Case, was the public-serving'as chairman of the company's board ofe r system representative at NEPOOL talks. As the issues directors from its inception in 1969 until 1983. became more complex and the workload increased, His dedication to improving the position _ of' the need for an independent agency to represent ' Public power also won him a term as president of' the municipals' interests became apparent. the American Public Power Association'in 1982 d"d 7983-MMWEC, the municipals' joint action agency, was incorporated in 1969 as a private company While hundreds of peopic have contributed t e em Pment of a S&ure future for puMc managed by a public trust, which included members power in Massachusetts, Jim Baker and the: of the MEAM Executive Comm.ttee. The company's i Shrewsbury Case have to be credited with Icading the way.

i

8 first president was Francis H. King, who still holds that post today. King, a dedicated proponent of public power, was manager of the Holyoke Gas and ' i, Electric Department. j Over the next few years, the litigation, the NEPOOL negotiations and the effort to develop an ~ s independent municipal power supply continued. ( In 1970, an Interim New England Power Exchange Agreement was approved so that work could begin on the centralized dispatching of power plants in New England. The NEPOOL Agreement itself was l signed in 1971, but it was still lacking several major provisions needed to ensure effective municipal par-ticipation in the pool. Francis H. King As public power systems pressed their position at g = = - - ~' q the ongoing NEPOOL negotiations, they also were [ g

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taking advantage of new opportunities. l-d t in 1971, several Massachusetts municipals exer-3 l cised their new-found right to obtain life-of-unit contracts in specific generating units. The first such contracts were for power from the Vermont and (. Maine Yankee nuclear units. Also in 1971, several municipals and public systems in Maine and New Hampshire entered an agreement to purchase power from a New Brunswick hydroelectric unit. Finally, in 1973, the Agreement Setting Out Supplemental NEPOOL Understandings was signed.

t granted public systems the right to joint ownership Robert feragen in the large generating units being developed and the responsibility for providing the region with up to 800 megawatts of NEPOOL-planned capacity. The Developing A Plan responsibility of planning and developing this public A lot was at stake in 1974. The municipals had power supply would fall to MMWEC.

worked their way into the big league, and now they Also in 1973, Chapter 164A of the General Laws had to prove their worthiness. of Massachusetts was enacted, providing municipal Distribution had been the primary business of electric systems with the right to participate in municipal electric systems until now, and they had a NEPOOL, the right to purchase shares in NEPOOL-lot to learn about issuing bonds, forecasting demand planned units, and the right to issue tax-exempt and power supply planning and development. As electric revenue bonds to finance such purchases. MMWEC assumed these new responsibilities for its There would be savings from capacity ownership, members, the move to independence took on new i and savings through low-cost, tax-exempt financings, dimensions. all of which would flow to municipal system Robert Feragen, who had been managing NEPPA consumers, since 1971, became MMWEC's first general manager With their purpose now more clearly defined, in June 1974. A staff engineer was hired, and a team MMWEC and its members were on their way. of engineering and financial consultants was retained. l

Through MMWEC,22 systems commissioned a study of municipal power supply requirements. The Wholesale Power Purchases vs. Independent Supply study, conducted by R.W. Beck & Associates, recom. Then and Now mended construction of a major generating station 1973 by the municipals and acquisition of ownership shares in some of the large nuclear units being pro-posed in New England. Independent Based on the study, a comprehensive municipal power supply program was developed. The search for a site to build the municipals' power plant was urchases undertaken, and MMWEC made the first offer of joint ownership in the proposed Stony Brook plant to all consumer-owned systems in New England late in 1974. In the spring of 1975, Stony Brook was designated a poot-planned generating plant by the 1984 NEPOOL Executive Committee, giving it official status as part of the regional electric supply system. This represented a major step toward establishing an independent municipal power supply. rchases MMWEC also began investigating joint ownership in a number of nuclear projects sponsored by the region's IOUs. Guided by MMWEC,15 systems Independe requested and received Massachusetts Department of Public Utilities (DPU) approval for Chapter 164A ownership in four units - Millstone No. 3, Pilgrim No. 2 and Seabrook Nos.1 and 2. In its decision, Wholesale powerpurchases represented 84.5 percent of the DPU confirmed the need for nuclear energy in AfAfwtc members powersupplyin 1975. By 1984, through Massachusetts, citing the energy crisis and the state's AfAfwfC efforts to establish an independent public power supply, the members' reliance on wholesale purchases had heavy reliance on foss.l fuel for power generat. ion. i been cut to 37.B percent. When the Seabrook and Afslistone In September 1974,13 systems returned to the Unit No. 3 projects are brought on line, members will be m n cl sert their gual of power supply independence. ) DPU with a request for $26.1 million in financing authority for joint ownership in Millstone No. 3. Upon DPU approval, these municipals exercised secured a $2.5 million line of credit. their Chapter 164A bonding authority and in January These contracts represented the municipals' first 1975 purchased a 3.2 percent share in the Millstone major financial commitment to MMWEC, with the project. Around the same time, several municipal corporation serving as a catalyst in developing the systems also issued bonds forjoint ownership in relationship between MMWEC and its members. New Haven Harbor No.1, an oil-fired unit in MMWEC carried out all the functions of the corpora-Connecticut. tion, which eventually became part of MMWEC. Seed money for MMWEC's power supply devel-MMWEC also negotiated for the bulk purchase opment services, including Stony Brook feasibility of surplus capacity offered through NEPOOL at this studies, was raised through the Massachusetts time, providing the members with the opportunity Municipal Power Development Corporation. The for substantial power cost savings and a way to corporation contracted with the 25 municipals par-begin reducing their dependence on traditional ticipating in the MMWEC program in 1975 and suppliers.

[)espite these sta ( esses, there w as still a major 18: [{ impediment to MMWEL bet oming a f ull-sers it e. joint action agenn. While MMWEL prosided the municipals with the mans uti!its and financial g} sersit es thes required. the agen( s was not empowered to bus or financ e new (apacit) on g behalt at its members Eac h ssstem had to (ondut t ~ c its ow n financ ing with indisidual issues of resenue \\ ~ bonds After only two s cars it was obsious that this s system sielded duplic ated efforts and untimeh and ~ (ostly delas s, resulting in missed opportunities. p for this reason. the munic ipals in 1975 rallied 3 behind House Bill 61" an a( t making MMWEC a /, pubin c orporation with the authonts to issue tax-exempt resenue bonds to financ e ele (tri( pow er projec ts and t. intrac t with its members for the out-I put of sut h projects. HB 61" was actuaNs an alternatise - supported bs then-Gosernor Mic hael S. Dukakis - to establish-ing a statewide pubin power authorits. A grassroots mosement to gain pubin (ontrol oser rising power (osts was gathering support, and the Dukakis pro-a posal to expand MMWE(3 powers ottered a way to I boost pubin power in the state without diminishing the influence at existing pnsate utilities. i \\ L pon passage. the bih betame ( hapter 775 of the Acts of 1975. signed into law on December 17 of that year. Dukakis c alled the bill "a signific ant victory for public power." Indeed. it is one of the most important esents in the 100 sears of public power in Massac husetts. g fv g xww ~ d*' h[,

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12 _ _ p? MMWEC - The Public Corporation The inauguration of MMWEC as a public corpo-t ration was celebrated May 27,1976 at the Stony Brook Energy Center, a 471-acre site in Ludlow where MMWEC's Stony Brook plant would be built. S MMWEC offices were housed in old military buildings g on the site, part of a former U.S. Strategic Air Com-C "A 'g 'jf: i ~ mand base leased by MMWEC at the tima. The occasion marked a point of transition for i MMWEC. The rights of municipal systems had been WW "4 upheld, and the vehicle to fully exercise those rights i had been established. The goal now was to imple-l ment an economic power supply program that l contained a diversified mix of generating projects reflecting the special needs and characteristics of the MMWEC members. Afassathusetts Gov. AfochaelS Dukakis,Icft andat the podium below, offers his uen s on a new era for public ptmer in klassa-M thusetts as key note speaker at hf \\fWEC inauguration ceremonies on Afav27,1976. MA The snauguration of h1AfWEC as a public corporation culmun-ated many years of effort by Afassathusetts municipal elet tric sys-tems seeking to estabInsh an independent public power supply. r - -I M ' s 1 (HICOPLE - ' " " " ' - ~ '. W MMWIC HINGH44 BEtWONI ilRilCI6 \\ F lin 9-l q- "". "I,,,pf a 7 L..J. d MMWEC r~ uuMom svsiim M ' 'Ylmsm% ud sum =n al-- ,u - .m s.,, .s) f ' [ 7 g"j ',,,g, L pra ,5 -., m %p Q hd ?I f? ,.ki $? ~ 1 g this - u 9 y y 4-t ~ ,i, m I d X _f j Y .2 4,: 4 s ~ ,,s n p .) v. t":qis j 3 ), .a_ A h s-i

3 -2 -= 13 This would be accomplished under supervision many years of successful operation. d of the MMWEC Board of Directors, consisting of While planning and financing future resources -y seven member managers or commissioners elected were the major thrust of the MMWEC program, Q by the MMWEC membership and two gubematorial MMWEC was also guiding member systems into the appointees. NEPOOL operation, monitoring their current power By the end of July 1976,25 MMWEC members needs, assisting in billing and arranging short-term L u had entered Power Sales Agreements for all the contracts to maximize the benefits of the pool. y capacity in a 772-megawatt power supply program. MMWEC continues to represent its members on ] In August, the DPU approved MMWEC borrowings every major NEPOOL committee and many task 3 of $355 million for the nuclear baseload portion of forces to assure that their position is heard. the program. Early in 1977, the department approved in addition, MMWEC initiated and marshaled the j $290 million in borrowing for the fossil-fueled Stony municipals' effort to obtain low-cost, hydroelectric d Brook plant and MMW EC's share of Wyman Unit power from the Niagara Project in New York. The j No. 4, an oil-fired plant in Maine. agency also began investigating the purchase of T With Power Sales Agreements finalized and DPU power from a proposed nuclear unit in New Bruns-e ;ll approval obtained, MMWEC issued its first long-term wick, and later became the municipals' S bonds, $75 million worth, in September 1976. The representative in regionwide negotiations for hydro-g bonds were rated A1 by Moody's investors Service electric power from Quebec. and AA by Standard and Poor's Corporation, reflect-Flexibility has been the key to maintaining a E ing the members' sound financial position and their viable power supply program through the drastic 5-. changes that have occurred in the utility industry. _-g = For example, MMWEC undertook a series of detailed y AfAf WEC Bondissues studies on alternative energy resources when rising g ooltars in Millions costs, changing regulations and shrinking forecasts of j 200-demand led to cancellation of several proposed 780-nuclear units in the MMWEC power supply program. 160-In 1977, MMWEC contracted with Acres Ameri-re can, Inc. to conduct an extensive study of potential 720-p hydro sites in Massachusetts. In 1979, the MMWEC ~ Board of Directors announced its commitment to

=5 spend up to $50 million for development of hydro-d 80-

= electric power, and subsequently authorized -] 60- $5 million in funding for a renewable energy resource d 4 development program. 5 20-MMWEC eventually decided not to pursue its o-proposed hydroelectric projects due to poor eco-i

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nomics and site-specific environmental concems, 2 Bond Series issue but the search for economic, attemative power 3 resources never ended. These alternatives, such as E resource recovery and cogeneration plants, conser-vation, and load manapement, are now an important g part of the MMWEC power supply program. J In its first decade as a public corporation, there have been many significant milestones for MMWEC. In addition to those already mentioned, they include: 4a .Z

14 "A f ..%;w a w . =.. a5-( -Purchase of the Stony Brook site from the Westover 9 b, 6 p;.:.4,,4 . ; s.. gy!,e, Metropolitan Development Corporation in 1977. ,J F .e 2 ~ 1 y. }.:, .' '. lW 't s;. Qf Q ,7..M y,%, i > %.tf.)ti Q::.4f* r

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= m 3, >. :- 'm' .. p' g'J'; : - A e, ~ y: u wy 3 ' i E -' -Commercial operation of W.F. Wyman Unit No. 4 in M 3c p 1978, bringing 22 megawatts of power, at cost, to the 12 5,mr MMWEC members that own part of the project through f .e s. - MMWEC. g;- 4 .+ an _3 - _n. =g=-- N w TM.. . v.vAs -M w.. 1 ..-I -Execution of a contract in 1980 for 100 megawatts .5

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4 -Commercial operation in 1981 of the 341-megawatt = Stony Brook Intermediate Project, the first major 3 generating station in New England built by and for Q 4 I! municipal systems. At this point, most MMWEC mem-k l# . [ bers ended their reliance on wholesale power M M ;d.l.,- m ....;~ '- purchases from private utilities. Stony Brook consis-g ~'I ~... %.Q<.,3.. tently ranks amongthe most efficient combined-cycle Q i .e .. ~ plants in the world. -N v- -~,,x )' - 4 g,,,j - [ -Completion in 1982 of modifications enabling two p Stony Brook Intermediate Project combustion tur-g r~/ ' ri bines to burn natural gas as well as No. 2 oil. g e r.-- I' bl - ~ - _. w q dM 2

15 e '. ' _ ./ .y = _.'}. if %,.';' -r c, y. l':^J -Completion of the 170-megawatt Stony Brook Peak-S \\- D ing Project, also in 1982, bringing the entire Stony Brook project into being on schedule and under

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,y J/ budget. c,. 9.%.,. ~ ::: : Q -Approval by 32 MMWEC members in 1982 of ~ documents necessary to participate in the Hydro-Quebec Phase I project. $ L,d. x-~m i 2 Mm,. -Completion in 1983 of an in-house review of the Seabrook project, resulting in recommendations that have led to more joint-owner control over the project e. and a decision to reduce the level of work on UN: No. 2 in order to concentrate on the timely completion of Unit No.1.

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,.(, ~M - :- '{4e : T-... eq y%? 4*% ge. ..g. ;c.. q...,.,;.. .. s 4 f4' t iss -The receipt in 1985 of inexpensive hydroelectric ' (' power from the Niagara Project in New York after a ' [' decade-long struggle to secure Massachusetts muni-cipal systems' right to the power. Municipal systems i s

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u ,~ . fa could save up to $185 million over the next 10 years as a result of this allocation.

l 16 These are just a few of the turning points in the-Special Membership and Project Participant meetings, MMWEC program, which has grown and changed meetings with individual systems and frequent with the needs of the MMWEC members. MMWEC updates provided in the MMWEC Current news-staff has grown from eight in 1976 to about 150 today, letter, written reports, telephone conversations and including a staff of about 45 that operates and main-other correspondence. In addition, members receive tains the Stony Brook plant. the minutes of all board and committee meetings There are now 34 MMWEC members, compared and a monthly " Highlights" report on operations. to 28 in 19-'6. One other public utility, the Pascoag, There are opportunities at several levels for mem-R.I. Fire District, is an MMWEC Service Participant, bers to participate in development of the MMWEC entitling the district to the MMWEC utility services it program. The five standing coramittees of the Board has contracted for. In addition, seven municipal of Directors, all staffed by representatives of utilities in Vermont, three electric cooperatives (two member systems, are one source of new policies in Vermont and one in Maine), and a Vermont-based and procedures. New directions also have come from private utility are MMWEC Project Participants, recommendations made at Special Membership meaning they have signed Power Sales Agreements Meetings. for at least one MMWEC-sponsored power supply With the demand for power increasing again, and project. utility regulators embracing alternative energy tech-MMWEC has issued a total of $1.327 billion in nologies, there are new challenges on the horizon. long-term bonds to finance its power supply As much as big, expensive power plants were part of program,in addition to the October 1985 issue of the future two decades ago, shaping demand and $120 million in short-term bond anticipation notes developing smaller, alternative resources are part of to finance the Seabrook project. the future now. MMWEC has also used a variety of short-term These less traditional methods of matching electric financing vehicles through the years, such as the line supply and demand are being incorporated into the of credit with which it funds power contracts and MMWEC power supply program, but the focus of short-term power purchases. The company's reliance the program remains the same. The final objective, on short-term credit is being reduced, however, as under any circumstances, is to acquire the most reli-evidenced by the decision in 1984 to not extend a able and economic power available for each system $30 million line of credit for Stony Brook oil by working in a cooperative and responsible manner purchases. Working capital funds are now used for with the MMWEC members. oil purchases. The strength of MMWEC exists in its members' Another important aspect of the MMWEC pro-commitment to preserving and enhancing the rights gram from the beginning has been communication. of public power. MMWEC was founded upon that Keeping the membership informed about all phases commitment, and by working together over the past of the program has enabled MMWEC to fully develop ten years, the members have built a solid program and exercise the strengths found in unity and co-that will serve them well in the future. operation. Members are kept iriformed through

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11. Ifolden klunicipal Light Department

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19 n looking back on 1985, there are a number of reasons for MMWEC and its members to feel a sense of pride and accomplishment. Before getting into specifics, I would like to extend a hearty congratulations to the MMWEC member electric systems for demonstrating the flexibility and fortitude essential to success in an increasingly complex industry. The amount of time, effort and knowledge required to remain competitive is far greater than what it was in the past, and the MMWEC member light com-missioners and managers have risen to the task. For starters, the two major projects in the MMWEC power sup-ply still under construction - Seabrook and Millstone -- made dynamic strides toward completion during the year. MMWEC raised enough moneyin 1985 to fund its ownership in both projects through commercial operation. In July, all 40 Massachusetts municipal systems received a tremendous boost when inexpensive hydroelectric power from New York's Niagara Project began flowing into the state. MMWEC fought for 11 years to secure this preference power allocation for the Bay State's municipal systems. Now, under an agreement with the Massachusetts Department of Public Utilities (DPU), MMWEC is also managing distribution of the powerwithin the state. Late in 198s, MMWEC went back to court in defense of the allocation, which could result in savings of $18s million for municipal system consumers over the next 10 years. MMWEC brought another new energy source into its power supply in 1985, finalizing a 20-year contract for power from an operating resource recovery plant in Lawrence, MA. This " trash-to-energy" plant contract adds a new dimension to an already diverse and reliable mix of resources. MMWEC's involvement with resource recovery comes at a relatively early stage, as the plants are becoming increasingly popular as a future source of electricity that

20 also will ease landfill capacity problems. This partic-to control load growth and conserve energy. ular agreement has provided members with a long-An ongoing success for the company has been term, alternative energy resource in addition to the Weekly Studies Program, which monitors mem-helping with solid waste disposal problems in bers' power needs and resources on a daily basis to member communities. ensure that power costs are kept as low as possible. In addition, MMWEC in July 1985 completed the Power cost savings from the program topped $3 million first phase of a project that has doubled the natural in 1985 alone, gas generating capability of the Stony Brook Inter-The year had its difficulties with respect to mediate Project, providing project participants obtaining regulatory approval for Seabrook project (mostly MMWEC members) with substantial power financing, as discussed in MMWEC's 1985 Quarterly cost savings. Two Intermediate Project turbines can Reports. But in a steady drive toward power supply now burn natural gas simultaneously, and the third independence, the overwhelming majority of turbine is being converted to burn natural gas as a MMWEC members rallied to support a short-term reliability measure. The value of Stony Brook to par-bridge financing, enabling MMWEC to satisfy its ticipating MMWEC members and the region is increas-Seabrook obligations in 1986. ing. The plant provided more than 21 percent of SeabrOOk financing participating members' energy requirements in 1985. On October 18,1985 MMWEC raised $120 million By providing members with a vehicle for par-with the sale of short-term bond anticipation notes ticipation in the Hydro-Quebec Phase ll project in (BANS) to satisfy the company's Seabrook-related 1985, MMWEC has reserved long-term municipal obligations. MMWEC owns 11.59 percent of the rights to the use of the new Phase 11 transmission Seabrook project on behalf of 28 MMWEC members facilities in New England. Acquisition of rights to and eight out-of-state utilities. regional transmission facilities is one of the MMWEC About half of the money is being used to pay members' long-range goals and objectives, holding MMWEC' share of remaining Seabrook Unit No.1 the potential for significant savings in transmission construction costs. The other half is being used to costs. fund a portion of the interest costs on outstanding Reports from the credit rating agencies ended on Seabrook debt in 1986. The remaining Seabrook a positive note in 1985 when Standard & Poor's interest costs for 1986 are being billed to MMWEC's Corporation in December changed from negative t Seabrook Project Participants. positive the implications of its CreditWatch on The 1986 interest billings represent the first part MMWEC's debt rating of BB. In its action, Standard of a three-year phase-in plan that enables MMWEC & Poor's sited MMWEC's $120 million October 1985 Seabrook Participants to gradually phase the debt financing and plans to commence billing a portion service on MMWEC bonds issued for Seabrook into of its interest costs in 1986. their rate bases. In this way, the participants are able in yet another area, the MMWEC members will to shelter their customers from unacceptable rate realize approximately $20 million in savings as a increases. result of bond repurchases made in 1985 by MMWEC. On February 10,1986, MMWEC filed a com-These savings will be spread over the life of bonds prehensive financial plan with the DPU outlining the issued for five different power supply projects, re-company's ratepayer protection and financing plans. ducing debt service requirements for members. in its filing, MMWEC has requested DPU approval There also has been significant progress made on to issue $164.5 million in long-term bonds. A por-implementation of the MMWEC Load Management tion of the bond proceeds would be used to retire and Conservation Plan. MMWEC in 1985 filled a full-the $120 million in 364-day bond anticipation notes time staff position dedicated to implementing the issued by MMWEC in October 1985. plan, which is showing members economical ways About $40 million of the financing request is for

the continued funding of interest costs in the event The MMWEC Board of Directors has authorized that commercial operation of Seabrook is delayed the reimbursement of legal expenses incurred by beyond 1986. If Seabrook achieves commercial MMWEC Seabrook Participants in defense of the operation late in 1986 as planned, issuance of these validity of the PSAs in the Groton and Vermont bonds would not be necessary, actions. Approval of the request is necessary to restore The only MMWEC Seabrook Participant to chal-MMWEC to a position of financial stability in order lenge the validity of the Seabrook PSAs is the Hull to reduce past and future financing costs. Not only Municipal Lighting Plant, which has contracted with would approval help contain the cost of the reques-MMWEC for about 0.1 percent of the project's ted Seabrook financing, but it would also enhance output. the opportunity for MMWEC to refund a large por-Hull filed a complaint with Plymouth Superior tion of its existing debt at a significantly reduced Court on January 23,1986 seeking to have its Seab-interest rate should such refunding authority be rook PSAs invalidated. The Hull municipal entered obtained from the DPU. default under two of its four Seabrook PSAs when it Testimony submitted by MMWEC clearly estab-withheld payment on 1986 billings for interest on lishes the need for Seabrook and the need for MMWEC's Seabrook debt. financing authority to ensure the future health of On March 5 the Superior Court approved two public power in Massachusetts. MMWEC has sub-motions filed by MMWEC in the case. A motion for mitted a schedule for hearings on the request that a preliminary injunction requiring Hull to pay its calls for a DPU decision by August 1,1986. share of Seabrook costs to MMWEC pending resolu-tion of the complaint was approved,in addition to a Challenges to the motion to stay the legal proceedings and move the Power Sales Agreemenis complaint to arbitration, as stipulated in the PSAs. Three legal challenges to the validity of MMWEC Hull appealed the Superior Court ruling, which was UP eld by the Massachusetts Appeals Court on h Power Sales Agreements (PSAs) for the Seabrook project have been filed. Only one is from an MMWEC March 21. In addition to denying Hull motions seek-Seabrook Project Participant. ing relief from the arbitration and payment orders, PSAs are the vehicle for participation in power the Appeals Court also denied a Hull motion to stay supply projects offered by MMWEC. Under the the March 5 decision. agreements, participants agree to pay their share of in accordance with the court orders, Hull on project costs in return for a share of the project March 26 made payment of its outstanding MMWEC output. bills, curing the system's default. The process of in January 1985, a group of ratepayers in Groton, selecting an arbitrator to hear Hull's complaint also MA filed a lawsuit seeking to have the Seabrook PSAs is under way. between MMWEC and the Groton Electric Light MMWEC is vigorously defending the PSAs in the Department (GELD) invalidated. Defending the valid-Groton, Vermont and Hull actions, which were still ity of the agreements are MMWEC, GELD, the Groton in the preliminary stage as of March 1986. Based on Light Commission and the Town of Groton. the opinion of Bond Counsel and other legal coun-In October 1985, the Vermont Public Service sel, MMWEC believes that the ultimate resolution of Department filed an action challenging the validity these actions will not materially effect MMWEC's of the Seabrook PSAs between MMWEC and several financial position. consumer-owned utilities in Vermont. The Public Seabrook Project Status Service Department is Vermont's consumer advo-Seabrook Station Project Manager William B. cate agency - not to be confused with the Vermont Derrickson is calling 1985 a banner year for the Public Service Board, which regulates utilities, project.

22 Despite funding restrictions, construction of Unit for May 1986, although the project may be on line No.1 continued on schedule for commercial opera-before then if all goes well. At the end of 1985, the tion in October 1986, bringing the project to project was 99 percent complete. 95 percent complete by the end of 1985. [.ooldgig Ahead The plant generated its first electricity in Novem-A top priority in 1986 will be to receive DPU ber during the hot functional test, which was approval of MMWEC's long-term Seabrook financing completed along with eight other milestones during plan. There also will be considerable effort devoted the year on or chead of schedule. to bringing the Millstone and Seabrook projects into A new cost and schedule estimate issued in July the MMWEC power supply in an orderly manner, put the total cost for Unit No.1 at $4.56 billion. The which will involve the phase-out of existing interim new estimate even showed a slight reduction from power supply contracts. estimates of a year earlier, reflecting the steady Even with these two important projects on line, progress and stability that have come to the project. however, there is a need for additional capacity An important goal for 1986 is to receive approval among MMWEC members in the 1990s. There are from the Nuclear Regulatory Commission of the no major power plants scheduled to come on line in Seabrook Station off-site Emergency Response Plan. this time frame, so MMWEC will have to concen-The plan must be approved before a full-power trate on acquiring power from less traditional sour-operating license is issued. A special team of ces and developing ways to use what power is Seabrook staff and consultants has been organized available as efficiently as possible. to help secure expeditious approval of the plan at all Over the past 10 years there have been dozens levels, and Derrickson is confident that licensing of new MMWEC projects and programs that repre-requirements can be met. sent the ongoing accomplishments of public power Millstone Unit No. 3 Status through joint action. MMWEC members have realized MMWEC's 4.8 percent share in Millstone Unit many millions of dollars in savings as a result of No. 3 was funded through completion with the Feb-these efforts, which often were overshadowed by ruary 1985 issue of $61.5 million in long-term bonds. MMWEC's involvement in the Seabrook project. Northeast Utilities, the project's lead owner, Once Seabrook is complete and operating, the estimates that total project costs will be below its focus will be on enhancing the exceptional program financial planning estimate of $3.85 billion. MMWEC already in place and developing new ways for has sufficient bond proceeds on hand to fund its MMWEC to better serve its members, and for mem-share of the $3.85 billion estimate plus a substantial bers to better serve their customers. contingency. MMWEC's accomplishments in 1985 are evidence The Millstone No. 3 hot functional test was of its members' aggressive pursuit of alternative completed early in November 1985, and all fuel was energy resources and dedication to acquiring the loaded into the Unit No. 3 reactor by December 10. most economical power available for their cus-The Nuclear Regulatory Commission unanimously tomers. As MMWEC embarks on its second decade approved a full-power operating license for the pro-as a public corporation, it takes with it nearly 100 ject on January 29,1986, and operational testing is years of its members' experience and commitment in process. to public power in Massachusetts. Commercial operation of Unit No. 3 is scheduled JE8 Richard K. Byrne, General Manager

wwmm-~mmm-mwny E__!Statemente eTreasurer's 23 During 1985, MMWEC continued to implement These two bond issues, combined with the $120 sound financial policies to improve its financial million of 1985 Series A Bond Anticipation Notes strength and independence. The term loan for oil (BANS) issued in October, provided the funds inventory was paid down by $3 million to a balance necessary to complete the construction and interest of $8.4 million, and the power purchase line of funding requirements for Nuclear Project Nos. 3 and credit was reduced from $12 million to $9 million. 4 and Project No. 6. These financings culminated As a result of project participant advances and direc-MMWEC's financing requirements for all projects tion to retain funds from projects, MMWEC raised currently under construction. $12.3 million in working capital for fuel and power A comprehensive financial plan that includes the purchases by year end 1985. These actions reflect a issuance of long-term debt to retire the BANS and long-term strategy to reduce MMWEC's working accomplish refundings to take out the high-coupon capital borrowing requirements. In addition, project bonds from previous bond issues is awaiting Massa-participants unanimously elected to use certain chusetts Department of Public Utilities approval. excess project funds to repurchase bonds. MMWEC This plan provides for reduced borrowings and bond repurchases totalled $6.2 million in 1985 and amelioration of revenue requirement impacts on the $24.7 million in 1984, bringing about a reduction in participants' ratepayers. MMWEC implemented the debt service over the life of these bonds of $20 first part of its comprehensive financial plan in 1986 million and $76.5 million, respectivelv. by billing a portion of the debt service due on MMWEC collected approximately $154 million in certain projects under construction in MMWEC's revenues in 1985, which is about the same as 1984 power supply program. The percentage of the total revenues. This was due to reduced operation of debt service billed on projects still under construc-MMWEC's Stony Brook Intermediate Unit resulting tion will approximate 15 percent in 1986. Following from construction work that has doubled the plant's the completion and resulting operation of Millstone natural gas-fueled generating capability. A concerted Unit No. 3 and Seabrook Unit No.1 in 1986, debt effort to contain administrative and general expenses service billing will increase to 84 percent in 1987, during 1985 resulted in actual expenses being with full debt service billing implemented by January substantially below budget and at a level similar 1988. This carefully planned billing structure allows to 1984 costs, for the cost of the new generating facilities to be in February, MMWEC successfully issued $61.5 gradually incorporated into the rate bases of the million of 1985 Series A bonds to complete the con-project participants. struction and interest funding requirements for MMWEC bonds outperformed the strong tax-exempt MMWEC's Nuclear Project No. 3 ownership in the market during 1985. Progress on the Seabrook Millstone Unit No. 3 plant. The $53.2 million of project during 1985, MMWEC's long-term power 1985 Series B bonds issued at the same time pro-supply planning and financial planning efforts, and vided interest funding for MMWEC's Project No. 6. the Commonwealth's strong economy all contributed

24 to the improved perception of MMWEC by the ended December 31,1985 and 1984 are included financial community, as a separate section of the Annual Report. The Board of Directors continued the appoint-ment of Arthur Andersen & Company as independent { certified public accountants. The auditor's opinion and MMWEC's financial statements for the years George E. Leary, Treasurer BONDS ISSUED Principal Amount Net Interest issue (in thousands) Sale Date Cost (%) 1976 Series A $ 75,000 8/26/76 7.2 1977 Series A 177,370 7/27/77 6.4 1977 Series B 83,500 12/7/77 6.1 1978 Series A 75,000 9/13/78 6.8 1979 Series A 150,000 8/16/79 7.0 1980 Series A 112,000 8/6/80 10.2 1981 Series A 100,000 5/28/81 12.3 1981 Series B 100,000 8/6/81 13.4 1982 Series A 115,000 4/16/82 13.4 1982 Series B 130,000 10/15/82 10.2 1984 Series A 95,000 1/11/84 11.0 1985 Series A 61,500 2/6/85 13.5 1985 Series B 53,200 2/6/85 13.5 LONG-TERM FINANCING DATA (In Thousands] Approximate Estimated Capability Bonds Bonds Additional Project Description (MW) Issued Outstanding Bonds" Stony Brook Intermediate 311.3 $177,000 $170,865 Stony Brook Peaking Project 170.0 85,000 63,905 Wyman Project 22.7 9,400 8,150 Nuclear Mix No.1* 20.3 180,200 178,560 Nuclear Project No. 3 36.8 183,100 182,170 Nuclear Project No. 4 49.8 220,100 219,630 33,300 Nuclear Project No. 5 12.6 75,000 74,910 Nuclear Project No. 6 69.0 378,200 378,200 131,200 The cancellation of Pilgrim Unit No. 2 included in Nuclear Mix No.1 has reduced the financing requirements for Nuclear Mix No.1 to an amount less than the amount previously issued. Proceeds remaining after completion of the project will be used to retire bonds issued for the Project. On October 18,1985, MMWEC issued $120 million of 1985 Series A Revenue Bond Anticipa-tion Notes (1985 BANS) at an annual interest rate of 16.4*/., to fund MMWEC's share of Seabrook construction costs for its Nuclear Project No. 4 and Project No. 6 and to fund a portion of the 1986 interest on Project No. 6 debt outstanding. The 1985 BANS mature on October 17,1986. MMWEC contemplates paying the 1985 BANS from the proceeds of long-term Bonds or notes. MMWEC's Bonds or notes maturing in more than one year must be approved by the DPU. In February 1986, MMWEC filed a new petition with the DPU requesting financing authority to issue long-term bonds in the amounts noted above in order to retire the BANS. MMWEC may issue Bonds or notes maturing within one year without DPU approval.

Auditors' Report 25 To the Board of Directors of MASSACHUSETTS MUNICIPAL WHOLESALE ELECTRIC COMPANY: We have examined the balance sheet of MASSACHUSETTS MUNICIPAL WHOLESALE ELECTRIC COMPANY (a Massachusetts public corporation) as of December 31,1985 and 1984, and the related state-ments of operations and changes in financial position for the years then ended. Our examinations were made in accordance with generally accepted auditing standards and, accordingly, included such tests of the accounting records and such other auditing procedures as we considered necessary in the circumstances. In our opinion, the financial statements referred to above present fairly the financial position of Massachusetts Municipal Wholesale Electric Company as of December 31,1985 and 1984, and the results of its operations and the changes in its financial position for the years then ended, in conformity with generally accepted accounting principles applied on a consistent basis. Q L r % + G. March 12,1986 Boston, Massachusetts

Massachusetts Municipal Wholesale Electric Company Balance Sheet December 31,1985 and 1984 26 (In Thousands) 1985 1984 ASSETS Electric Plant in Service $ 209,540 $ 206,997 Accumulated Depreciation (Note 3) (32,743) (24,238) 176,797 182,759 Under Construction (Notes 2 and 6) 655,863 511,336 Total Electric Plant 832,660 694,095 Special Funds (Notes 2 and 4) 407,218 328,464 Current Assets Cash and Temporary Investments 9,593 6,853 Accounts Receivable 4,204 5,800 l Unbilled Revenues (Note 2) 7,405 7,419 inventories (Note 2) 4,504 5,129 Prepaid Expenses 626 763 26,332 25,964 Total Special Funds and Current Assets 433,550 354,428 Deferred Charges Amounts Recoverable in the Future Under Terms of the Power Sales Agreements (Notes 2 and 5) 118,902 125,396 Unamortized Debt Discount and Expenses 45,580 36,082 Other 799 1,243 165,281 162,721 $1,431,491 $1,211,244 LIABILITIES Long-Term Debt (Note 4) Bonds $1,270,295 $1,167,870 Notes t 5,542 8,433 1,275,837 1,176,303 Notes Payable - 1985 BANS (Note 4) 120,000 Other Current Liabilities Current Maturities of Long-Term Debt 8,986 9,61 6 Notes Payable (Note 4) 769 1,906 Accounts Payable 19,237 15,971 Accrued Expenses 6,662 7,448 35,654 34,941 Total Notes Payable and Other Current Liabilities 155,654 34,941 Commitments and Contingencies (Notes 6 and 8) $1,431,491 $1,211,244 The accompanying notes are an integral part of these financial statements.

Massachusetts Municipal Wholesale Electric Company Statement of Operations For the Years Ended December 31,1985 and 1984 (In Thousands) 1985 1984 Revenues: Electric Sales for Resale $150,055 $161,286 Service Revenues 3,830 2,194 Interest income 44,982 46,522 Total Revenues and Interest income $198,867 $210,002 Operating and Service Expenses: Fuel Used in Electric Generation $33,044 $41,200 Purchased Power 81,152 87,932 Other Operating 6,663 5,900 Maintenance 3,148 2,481 Depreciation (Note 3) 8,332 8,143 Taxes Other Than income 1,619 1,473 133,958 147,129 Interest Expense: Interest Charges 147,581 110,021 Interest Charged to Projects During Construction (Note 2) (70,404) (49,457) 57,177 60,564 Total Operating Costs and Interest Expense 191,135 207,693 Loss on Cancelled Units - net (Note 5) (637) 65,156 (Gain) on Retirement of Debt (Notes 4 and 5) (1,170) (7,503) (1,807) 57,653 Amounts Recoverable in the Future Under Terms of the Power Sales Agreements (includes $3.045 million refunded in 1985 to Project Participants in cancelled Projects) (Notes 2 and 5) 9,539 (55,344) $198,867 $ 210,002 i The accompanying notes are an integral part of these financial statements.

Massachusetts Municipal Wholesale Electric Company Statement of Changes in Financial Position For The Years Ended December 31,1985 and 1984 20 (In Thousands) 1985 1984 Sources of Funds: Intemal Sources: Revenues and Income $ 198,867 $ 210,002 Expenses (198,867) (210,002) Charges Not involving Funds: Depreciation (Note 3) 8,332 8,143 Amortization (Note 2) 2,391 1,225 10,723 9,368 External Sources: Bond Proceeds 114,700 95,000 Note Proceeds 4,567 114,700 99,567 Total Sources of Funds 125,423 108,935 Uses of Funds: Additions to Plant and Construction Work in Progress 147,070 58,334 increase (Decrease) in Amounts Recoverable in the Future Under Terms of the Power Sales Agreements (Notes 2 and 5) (6,494) 55,344 Note Repayments 2,891 Bond Redemptions 12,275 30,110 Increase in Debt Discount 11,889 4,758 Decrease in Other Deferred Charges (444) (21 5) Other (173) (117) 167,014 148,214 Decrease in Working Capital, including Notes Payable and Special Funds $ (41,591) $ (39,279) Change in Working Capital Consists of: Increase (Decrease) in Special Funds $ 78,754 $ (35,153) Increase (Decrease) in Current Assets - Cash and Temporary Investments 2,740 813 Accounts Receivable (1,596) (271) Unbilled Revenues (14) (965) Inventories (625) (1,251) Prepaid Expenses (137) 254 79,122 (36,573) (Increase) in Notes Payable - 1985 BANS (120,000) (Increase) Decrease in Other Current Liabilities - Current Maturities of Long-Term Debt 630 (5,531) Notes Payable 1,137 1,768 Accounts Payable (3,266) (2,561) I Accrued Expenses 786 3,61 8 ( (120,713) (2,706) $ (41,591) $ (39,279) l The accompanying notes are an integral part of these financial statements.

MASSACHUSETTS MUNICIPAL WHOLESALE ELECTRIC COMPANY Notes To Financial Statements December 31,1985 and 1984 (1) MASSACHUSETTS MUNICIPAL WHOLESALE ELECTRIC COMPANY (MMWEC) MMWEC is a political subdivision of the Commonwealth of Massachusetts, authorized to issue revenue bonds which may be secured by Power Sales Agreements with its members and other electric systems to finance the construction and ownership of electric power facilities. A Massachusetts municipal electric department authorized by majority vote of the city's or town's governing body may become a member by applying for admission to MMWEC and agreeing to comply with the terms and conditions of membership as outlined within the MMWEC By-Laws. As of December 31,1985, thirty-four Massachusetts municipalities had received votes of their respective city councils or town meetings authorizing membership by their respective municipal electric systems. Power Supply System MMWEC is obtaining power supply capacity by acquiring interests in various generating units from investor-owned utilities and the operation of its own electric generating facilities (Projects). See Note 6 for a discussion of MMWEC's construction program and commitments related to these facilities. In addition, MMWEC contracts for power for resale to its members. Advances MMWEC is authorized to assess each member to provide working capital. Advances may be returned to the members upon approval by MMWECi Board of Directors or the dis-solution of MMWEC. The Board of Directors has authorized working capital advances of up to $2,000,000 from Project Construction Funds in addition to amounts assessed members. At December 31,1985 and 1984, advances amounted to $750,000 and $1,250,000, respectively. These inter-fund advances have been eliminated for primary financial statement reporting purposes. (2) SIGNIFICANT ACCOUNTING POLICIES Certain amounts presented in the prior year's financial statements have been reclassified for the purpose of consistency. Interest Charged to Projects During Construction MMWEC capitalizes interest as an element of the cost of electric plant and other pro-perty during the period it is under construction. A corresponding amount is reflected as a reduction of interest expense. The amount of interest capitalized is based on the cost of debt, including amortization of debt discount and expenses, related to each Project, net of invest-ment gains and losses and income dervied from unexpended Project funds. Special Funds Proceeds from the sales of Revenue Bonds or Bond Anticipation Notes are deposited with Trustees to be invested until they are required for construction or debt service payments. Certain other funds are placed with depositories and are invested by MMWEC. As provided in MMWEC's General Bond Resolution, investments are limited to direct obligations of, or obligations the principal of and interest on which are unconditionally guaranteed by the United States, Federal government agency securities, bank time deposits subject to certain restrictions and certain repurchase agreements secured by the foregoing securities. The investments are carried at cost, adjusted for amortization of premium or discount. Unbilled Revenues MMWEC bills its members for costs incurred in providing services and purchased power obtained on their behalf under terms of the Service Agreement and the Power Sales Agreements. Revenues are recorded in the accounts as the expenses are incurred. Amounts which are not yet billed are included in Unbilled Revenues on the Balance Sheet. Inventories fuel oil inventory is accounted for by the average cost method. Spare parts inventory is recorded at cost. At December 31,1985, fuel oil inventory was valued at $ 2.3 million and spare parts inventory amounted to $2.2 million.

MASSACHUSETTS MUNICIPAL WHOLESALE ELECTRIC COMPANY Notes To Financial Statements December 31,1985 and 1984 (2) SIGNIFICANT ACCOUNTING POLICIES, continued Amounts Recoserable in the Future Under Terms of the Power Sales Agreements Under the terms of the Power Sales Agreements with Project Participants, revenues include billings to Project Participants for debt principal and interest payments in the period in which they are due. For financial reporting purposes, MMWEC recognizes currently the dep-reciation and amortization expense of assets financed by bond principal. The differences bet-ween current expenses and amounts billed currently under terms of the Power Sales Agreements are deferred to the future periods in which these amounts will be recovered through revenues. Other items deferred in this manner include net costs associated with can-celled or abandoned construction projects. The 1985 charges to this account include $3.045 million refunded to Project Participants in cancelled Projects.See Note 5 (Unit Cancellations) for further details regarding these refunds. (3) DEPRECIATION Electric plant in service is depreciated using the straight-line method. The aggregate annual provisions for depreciation for 1985 and 1984 averaged 4% of the original cost of dep-reciable property. (4) DEBT Power Supply System Revenue Bonds To finance construction of ownership interests in electric generating projects, MMWEC issues Power Supply System Revenue Bonds (Bonds).The Bonds are secured by a ptedge of the revenues derived by MMWEC, under the terms of Power Sales Agreements, from the ownership and operation of the Projects in its power supply system. Pursuant to the Power Sales Agreements with the Project Participants, each Project Participant is obligated to pay its share of the actual costs relating to the generating units planned or under construction. The Project Participants' obligations are not contingent upon the completion or operational status of the units. The Bonds consist of Serial and Term Bonds and are comprised of the following issues, which are subject to optional redemption approximately ten years after the issue date, at 103% of the principal amount, descending periodically thereafter to 100%. December 31, 1985 1984 issue Net Interest Cost (Dollars in Thousands) 1976 Series A 7.2% $ 66,135 $ 67,500 1977 Series A 6.4% 172,445 174,255 1977 Series B 6.1% 83,500 83,500 1970 Series A 6.8% 65,500 66,485 1979 Series A 7.0% 144,520 147,340 1980 Series A 10.2% 90,250 95,515 1981 Series A 12.3% 100,000 100,000 1981 Series B 13.4% 100,000 100,000 1982 Series A 13.4% 115,000 115,000 1982 Series B 10.2% 129,340 130,000 1984 Series A 11.0% 95,000 95,000 1985 Series A 13.5% 61,500 1985 Series B 13.5% 53,200 1,276,390 1,174,595 Less: Current Maturities (6,095) (6,725) Total Power Supply System Revenue Bonds $1,270,295 $1,167,870 The aggregate annual principal payments due on the Bonds in the next five years are as follows:1986 - $6,095,000;1987 - $8,015,000:1988 - $11,190,000;1989 - $13,975,000 and 1990 - $16,490,000.

MASSACHUSETTS MUNICIPAL WHOLESALE ELECTRIC COMPANY Notes To Financial Statements December 31,1985 and 1984 31 (4) DEBT, continued Power Supply System Revenue Bonds, continued MMWEC financings, other than obligations maturing within one year, require Mass-achusetts Department of Public Utilities (DPU) approval. The long-term estimated financing required for MMWEC's Nuclear Project No. 4 and Project No. 6 currently exceeds the amount approved by the DPU. On October 18,1985, MMWEC issued $120 million of 1985 Series A Revenue Bond Anticipation Notes (1985 BANS) at an annual interest rate of 16.4%, payable monthly, to fund MMWEC's share of Seabrook construction costs for its Nuclear Project No. 4 and Project No. 6, to fund interest on the 1985 BANS and to fund a portion of the 1986 interest on Project No. 6 debt outstanding. The 1985 BANS mature on October 17,1986. MMWEC contemplates pay-ing the 1985 BANS from the proceeds of long-term Bonds or notes. MMWEC's Bonds or notes l maturing in more than one year must be approved by the DPU and there can be no assurance that it will give the requisite approval. MMWEC may issue bonds maturing within one year without D PU approval. lf MMWEC were to issue one-year Bonds,it would be required to com-j mence billing Project Participants, upon issue, for the principal and interest in twelve monthly installments. MMWEC's ability to issue bonds in the future to refund the 1985 BANS would i also depend upon market conditions, the status of the Seabrook project and other factors.See Note 6 (Construction and Financing-Seabrook Station) and Note 8 (Commitments and 1 Contingencies-Power Sales Agreements). 7 At the time of issuance of the 1985 BANS, the following developments occurred:

A bill was submitted to the Massachusetts legidature, for acceptance as late filed in 1985, which would restrict MMWEC's abilig to issue indebtedness maturing in not more than one year without DPU approval to $20 million in any 365-day period. The bill was not approved but it has been refiled for the 1986 legislative session. No prediction can be made as to whether or not the proposed legista-tion will be enacted. If the legislation is enacted, it could interfere with MMWEC's ability to issue notes or short-term bonds to refund the 1985 BANS in the absence of DPU approval.
The Maine Public Utilities Commission (MPUC) has commenced an inves-tigation of the continued involvement of Eastem Maine Electric Cooperative l

(EMEC) in the Seabrook project through its participation in MMWEC's Project l No. 6, with particular reference to whether MMWEC's issue of the 1985 BANS may subject EMEC's ratepayers to unnecessarily high costs for which they should not be charged. The MPUC regulates EMEC's electric rates. Bond and 1985 BANS proceeds, funds on hand and investment camings are sufficient to complete Nuclear Project No. 3 and to satisfy cash flow and interest requirements on Nuclear Mix No.1 and Nuclear Projects Nos. 4 and 5 and Project No. 6 through the estimated comple-tion date of November 1986, on Seabrook Unit No.1. The issuance of additonal debt, its timing and size, is dependent upon regulatory approval, construction cash flow requirements and financial market conditions prevailing at the time. Net Revenue Available for Debt Service in accordance with the provisions of MMWEC's General Bond Resolution, MMWEC covenants to the bond holders that it shall fix, revise and collect rates, tolls, rents and other fees and charges, sufficient to produce revenues to pay all operating and maintenance expenses and principal of, premium,if any,and the interest on the Bonds and to pay all other obligations ~ inst its revenue. Revenues, which include applicable interest eamings from investments, aga are required to equal l.10 times the annual debt service, for each contract year ending June 30, after deduction of operating and maintenance expenses and exclusive of depreciation.

MASSACHUSETTS MUNICIPAL WHOLESALE ELECTRIC COMPANY Notes To Financial Statements December 31,1985 and 1984 32 (4) DEBT, continued Net Revenue Available for Debt Service, continued for the contract years ended June 30,1985 and 1984, MMWEC met the Bond Resolution debt service coverage requirements for the applicable MMWEC Projects. Contract Year Ended June 30, 1985 1984 Debt Service Coverage: Revenues $66,326,000 $65,708,000 Other Billings 676,000 686,000 Reserve and Contingency Fund Billings 2,555,000 2,549,000 Total 69,557,000 68,943,000 Deduct-Operating and Maintenance Expenses 41,450,000 40,907,000 Available Revenues Net of Expenses $28,107,000 $28,036,000 Debt Service Requirement $ 25,552,006 $25,487,000 Coverage (110% Required) 110% 110% Notes Payable MMWEC maintained with a group of banks a $30,000,000 revolving line of credit to be used to finance fuel oil for the Stony Brook Projects. MMWEC's Board of Directors voted on June 21,1984, not to extend the line of credit beyond July 1,1984, and exercised its option in the agreement to convert it to a term loan. This conversion allows MMWEC to pay off the remaining balance over a four year period in equal monthly principal installments amounting to $ 2,891,000 peryear, plus interest at 70% of the lead bank's prime rate, beginning December 1984. Under this line of credit, MMWEC had outstanding balances of $8,433,000 and $11,324,000 as of December 31,1985 and 1984 respectively. Borrowings under the agreement are secured by fuel oil inventory and are payable from revenues derived by MMWEC from fuel charges under the Power Sales Agreements for the Stony Brook Projects. MMWEC decreased its $14,000,000 revolving line of credit to $12,000,000 in October 1984 and s.ubsequently to $9,000,000 in October 1985. This line of credit is used to tem-porarily finance certain power purchases made by MMWEC for resale under power purchase contracts. oarrowings are secured by the corresponding receivables. MMWEC placed, and the lead bank approved, a request to extend the agreement to January 9,198/ at the level of $9 million. The balances outstanding on December 31,1985 and 1984 were $769,000 and $1,906,000, respectively. Borrowings under the $9,000,000 line are at a rate of 75% of the bank's prime rate plus a commitment fee of % of 1% per annum on the unused portion of the line based upon the average daily principal amount of the loan outstanding. (5) UNIT CANCELLATIONS MMWEC's investment in Seabrook Station included equivalent participation in Units Nos.1 and 2. Continued construction of Seabrook Unit No. 2 by the present joint owners is unlikely. Although not officially cancelled, MMWEC's $65,500,000 investment in Seabrook Unit No. 2 was charged as a Loss on Cancelled Units in 1984 and deferred as an Amount Recoverable in the Future Under Terms of the Power Sales Agreements. The generatingunits in MMWEC's Nuclear Mix No. 2 Project (N EP Nos.1 and 2 and Mon-tague Nos.1 and 2 sponsored by New England Power Company and Northeast Utilities, res-pectively) were cancelled. The $10,060,000 of bonds issued for that Project were subsequently redeemed, at a gain totalling $3,558,000, with remaining Project funds. On March 15,1984, the Board of Directors of Central Maine Power Company, the lead owner cf the Sears Island Coal Unit No.1, voted to cancel that unit effective April 19,1984. Costs incurred by MMWEC relating to the Sears Island Project through December 31,1984 amounted to $974,000. These costs are recorded as Amounts Recoverable in the future Under Terms of the Power Sales Agreements. MMWEC issued $9,500,000 of bonds for the Sears Island Project. With a portion of the remaining Project funds, MMWEC retired

MASSACHUSETTS MUNICIPAL WHOLESALE ELECTRIC COMPANY Notes To Financial Statements December 31,1985 and 1984 (5) UNIT CANCELLATIONS, continued $8,515,000 of these bonds at a gain of $3,332,000 during 1984. The remaining $985,000 of bonds outstanding were redeemed at par on January 2,1985. The excess of gains over accumulated amounts recoverable in the future forany Project are credited to the Project Participants in accordance with their interests in the Project. In the cases of Nuclear Mix No. 2 and Sears Island, excess amounts of $582,000 and $2,463,000, respectively, were refunded to Project Participants in 1985. MMWEC's Nuclear Mix No.1 Project is comprised of ownership interests in the Millstone No. 3, Seabrook Nos.1 and 2 and Pilgrim No. 2 units. On October 22,1981,the Bos-ton Edison Company cancelled the' Pilgrim No. 2 Unit. MMWEC's costs associated with the Unit,which aggregated $49,717,000 and $52,122,000 as of December 31,1985 and 1984, res-pectively, were deferred and will be recovered under the terms of the Power Sales Agreements. (6) CONSTRUCTION AND FINANCING A substantial portion of MMWEC's construction and financing program is attributable to its ownership interests in Millstone Unit No. 3 in Waterford, Connecticut and Seabrook Station in Seabrook, New Hampshire. Millstone Unit No. 3 Millstone Unit No. 3, of which MMWEC has a 4.8% ownership interest,is being construc-ted by Northeast Utilities. As of December 31,1985, Northeast Utilities estimates Unit No. 3 to be 99% complete and in operation by May 1986. The Nuclear Regulatory Commission has issued a full power operating license for the unit. Seabrook Station Seabrook Station is being constructed by New Hampshire Yankee (N H Yankee), current-ly a division of Public Service Company of New Hampshire (PSNH). MMWEC has an 11.6% ownership interest in the project, whose lead owner is PSNH with a 35.6% interest. The Sea-brook project has experienced numerous delays due to regulatory, legal and other problems resulting in significant increases in cost estimates and delays in the projected commercial operation date. N H Yankee estimates that as of December 31,1985, Seabrook Unit No.1 was 95% complete and scheduled for commercial operation in October 1986. As a result of suc-cessfully completing the milestones of cold-hydro and hot functional testing performed dur-ing the latter half of 1985, construction of Seabrook Unit No.1 is nearly complete. In anticipation of receipt of a license to operate the plant, construction management and joint owners are developing plans relative to commercial operation,ir,cluding fuel loading and start-up. Application for an operatin g license has been filed and a schedule for review has been set. A part of the licensing procedures involves the approval of an Emergency Response Plan and a test of the plan must be held before approval. MMWEC cannot predict what impact the test of the Emergency Response Plan and review schedule will have on the timeliness of receipt of an operating license. Construction of Unit No. 2 has been discontinued. On April 18,1985,the New Hampshire Public Utilities Commission (NHPUC) issued an order approving a request of PSNH to prefinance its share of estimated Seabrook Unit 1 con-struction costs. The approval was subject to the condition that PSN H not issue securities until all Seabrook Unit 1 joint owners had received regulatory authorization to finance their respec-tive ownership shares or that there was reasonable assurance that each participant would finance its share to fulfill contractual commitments to pay on a timely basis its share of Sea-brook Unit 1 construction costs.The NHPUC's order also prohibited PSN H, until further order of the N HPUC, from funding the project at a level greater than its share of $5 million per week. On September 13,1985, the NH PUC issued an order lifting both of the conditions retroactive to September 1,1985. However, an August 1,1985 order of the New Hampshire Supreme Court, which stated that all orders of the NHPUC in connection with PSNH's financing ap-plication would be stayed pending the completion of intervenors' appeals of the NHPUC's order of April 18,1985, appeals of additional orders or further order of the court, operated to stay the N H PUC's September 13 order. On September 18,1985, the court authorized PSN H,

MASSACHUSETTS MUNICIPAL WHOLESALE ELECTRIC COMPANY Notes To Financial Statements December 31,1985 and 1984 34 (6) CONSTRUCTION AND FINANCING, continued Seabrook Station, continued retroactive to September 1,1985, and through December 31,1985, to increase its cash con-tributions to the level authorized by thejoint owners, provided PSNH's expenditures do not exceed $32.9 million.The court's stay of the September 13 order remained in effect in all other respects. On September 20,1985, the joint owners voted to increase construction funding to $10 million per week effective September 1,1985. On January 14,1986, the Seabrook joint owners voted to provide supplemental con-struction funding for the month of February in the amount of approximately $19 million. This funding would take place at such time as the Supreme Court removed the limitations on PSNH's funding of Seabrook construction. On January 31,1986, PSNH received Supreme Court approval to issue a proposed $345 million of bonds to finance its share of future Seabrook-related costs.This action enabled full project construction spending of $8 million to $12 million per week to continue. PSN H completed its Seabrook construction financing with the sale of $325 million of securities late in February 1986. Regulators in three of the New England states have acted unfavorably to the continued participation of utilities in their states in the Seabrook project. The Maine Public Utility Com-mission (MPUC) ordered Maine utilities to disengage from the Seabrook project and to write-off a portion of their investment in the project. The Vermont Public Service Board (VPSB) has also ordered Vermont utilities, including Vermont Participants in MMWEC's Projects, to take all reasonable action to disengage from the Sebrook project. In Massachusetts, the Depart-ment of Public Utilities (DPU) on April 4,1985 denied the request of Massachusetts investor-owned utilities for financing authority to complete Seabrook Unit 1 unless they agreed to arrangements that would effectively shift the risk of further investment in Seabrook from the ratepayers to their stockholders. In the case of MMWEC, since it has no stockholders to whom to shift the risk,its request for financing authority was denied outright by the DPU. In reaching its decision, the DPU expressly left to the utilities the decision whether to continue their par-ticipation in Seabrook. In reaction to the DPU order, Moody's investor Services suspended MMWEC's "Ba" bond rating and Standard & Poor's, Inc.placed MMWEC's "BB" bond rating on CreditWatch "with negative implications." According to Moody's, the DPU order created a high degree of uncertair ty with regard to the likely completion of Seabrook. The DPU order was appealed to the Massachusetts Supreme Judicial Court (SJC). The SJC upheld the order. MMWEC then petitioned the DPU for approval to issue Bonds to pay a portion of the interest on outstanding Bonds prior to completion of Seabrook Unit 1 in order to permit a phase-in of ] rate increases and for three to five year bond anticipation notes for construction costs that i would be payable only if Seabrook Unit 1 commences commercial operation, and long-term Bonds to refund those notes after commercial operation. While the DPU was reviewing this long-term financing case, MMWEC issued $120 million of 1985 BANS as a means of bridging the financing gap until regulatory approval of a long-term financing plan is received. (See Note 4 (Debt) for further details on the 1985 BANS.) Subsequently, Standard & Poor's,Inc changed MMWEC's CreditWatch status to "with positive implications." On December 20,1985, the DPU issued an order to close MMWEC's petition as it then stood and encouraged MMWEC to file a new, more direct case.The DPU found that it would be in the best interest of all parties to have a clearly circumscribed case so that all parties can start fresh with a new, clear docket and know that everyone is working from the same information. MMWEC filed its new case in Feb-ruary 1986. One of the otherMassachusetts utilities, Fitchburg Gas & Electric (.086% ownership share of the Seabrook project), has ceased making Seabrook construction payments beginning on l May 15,1985. Advance payments have been made by five other joint owners to cover the shortfall.(For further details regarding Fitchburg, see discussions on Eastern Utilities Associates later in this note.) On May 3,1985, the Vermont Public Service Board (VPSB) ordered the Vermont par-ticipants to attempt to sell their ownership shares in Seabrook Unit 1 and take all" reasonable l and feasible steps" to cancel the project. More recently, the VPSB left to the management of Central Vermont Public Service Corporation, the principal Vermont participant, the decision as to whether to keep or sell their interest in the Seabrook project.

MASSACHUSETT5 MUNICIPAL WHOLESALE ELECTRIC COMPANY Notes To Financial Statements December 31,1985 and 1984 (6) CONSTRUCTION AND FINANCING, continued Seabrook Station, continued in orders issued in December 1984 and January 1985, the MPUC instructed Centr 31 Maine Power Company (CMP), Bangor Hydro-Electric Company (BHE) and Maine Public Service Company (MPS), owners of 6%,2.2%, and 1.5% interests in Seabrook, respectively, to pursue disengagement from the Seabrook project. As the result of a stipulation agreed to by CMP, the MPUC staff and the Maine Public Advocate relating to recovery of costs through rates, ccsts which may not be recovered, costs subject to prudence review and other rate con-siderations, the MPUC, in July 1985, faund that further participation by CMP is neither unreasonable nor inconsistent with the public interest. Proceedings were continued to permit ongoing negotiations by BHE and MPS with MPUC staff and the Maine Public Advocate with the goal of reaching similar agreements as the CMP stipulation referred to above. In October 1985, the MPUC accepted a settlement agreement in a BH E rate case, such settlement being similar to that approved in the CMP case. Eastern Utilities Associates (EUA), a Massachusetts investor-owned electric utility hold-ing company, has reached a tentative agreement to purchase the shares of Seabrook owned by the three utilities in Maine, one in Vermont (Central Vermont Public Service Corp.) and one in Massachusetts (Fitchburg Gas & Electric). Final sales are conditioned upon receipt of all necessary regulatory approvals. Further information regarding other contingencies relative to the Seabrook project is presented in Note 8 (Commitments and Contingencies). The cost estimates and completion dates for Seabrook Unit No.1 and Millstone Unit. No. 3 listed on the following table are based on the latest information available from the lead participant, adjusted by MMWEC and its Consultin g Engineer to reflect various considerations for power supply and financial planning purposes. For these purposes, MMWEC is utilizing a commercial operation date of November 1986 and a total cash ccst to complete from January 1,1986 of $405 million for Seabrook Unit No.1. Proposed (Dollars in Thousands) MMWEC Costs to Total Unit (Lead Participant) - Capability December 31, Estimated Estimated Completion Date (MW) 1985 1984 MMWEC Cost Nuclear Mix No.1 (See Note 5) Millstone Unit No. 3 (Northeast Utilities) - May 1986 18.4 $ 48,308 $ 37,718 $ 58,458 Seabrook Unit No.1 (Public Service Co. of NH/NH Yanked - November 1986 1.9 5,576 4,553 6,036 20.3 $ 53,884 $ 42,271 5 64,494 Nuclear Project No. 3 Millstone Unit No. 3 (Northeast Utilities) - May 1986 36.8 $122,629 5 94,289 $146,642 Nudear Project No. 4 Seabrook Unit No.1 (Public Service Co. of NH/NH Yankee)- November 1986 49.8 $165,048 $131,750 $204,867 Nuclear Project No. 5 Seabrook Unit No.1 (Public Service Co. of NH/NH Yankee)- November 1986 12.6 $ 43,521 $ 34,739 $ 54,608 Project No. 6 Seabrook Unit No.1 (Public Service Co.of NH/NH Yankee)- November 1986 69.0 $270,781 $208,287 $ 363,461 Total 188.5 $655,863 $511,336 $834,072

MASSACHUSETTS MUNICIPAL WHOLESALE ELECTRIC COMPANY Notes To Financial Statements December 31,1985 and 1984 (7) RETIREMENT PLAN Retirement benefits, through December 31,1985, were provided to MMWEC's eligible employees through its participation in the Retirement and Security Program sponsored by the National Rural Electric Cooperative Association (NRECA). It is MMWEC's policy to fund all accrued benefits. Pension costs were $275,500 for 1985 and $281,800 for 1984. Effective January 1,1986, MMWEC has stopped making pension contributions to the NRECA group plan and has adopted its own defined benefit pension plan to be administered by an insurance company. The new plan is equivalent to the NRECA plan in regards to the defined benefits to be provided. Actuarial studies project future pension costs to be consistent with 1985. (8) COMMITMENTS AND CONTINGENCIES Power Purchases MMWEC has entered into a contract with the New Brunswick Electric Power Commis-sion (N BEPC) for the purchase of 100 MW of capacity from the Point Lepreau nuclear unit. The contract became effective in February 1983, the unit's in-service date, and is effective through October 1987, with options for extensions. MMWEC has exercised one option, extending the contract through October 1988. MMWEC has made arrangements to purchase varying amounts of capacity and energy from three New England oil fired units effective November 1,1984. These entitlements vary seasonally from a high of 93 MW in the winter to a low of 36 MW in the summer for a period of two years. The contract payment provisions require MMWEC to pay in all events certain fixed, operation, maintenance and other charges relating to the units. The future fixed minimum payments as estimated by MMWEC for its planning purposes are as follows:1986-$36,000,000; 1987-$36,000,000; and 1988-$30,000,000. MMWEC has entered into corresponding agreements, with its members and one other utility, to resell the power. MMWEC entered into agreements for participation in the interconnection between New England utilities and the Hydro-Quebec electric system near Sherbrooke, Quebec (Phase 1). New England Electric Transmission Corporation (NEET) and Vermont Electric Transmission Company (VETCO) are constructing the New England portion of the interconnection at an estimated cost of $170 million, of which 3.65% or $6.2 million is MMWEC's share. Completion of construction of Phase I is scheduled for July 1986 at which time monthly billings will com-mence. According to recent estimates, the project is on schedu!e to meet this date. MMWEC hasalsoenteredintosimilaragreementsfortheexpansionof the Hydro-Quebecinterconnec-tion (Phase ll). Completion of Phase ll is intially scheduled for 1991 at a total estimated cost of $600 million, of which approximately.75% or $4.5 million is MMWEC's share. Power Sales Agreements in January 1985 certain residents of the Town of Groton brought suit against the Town of Groton Municipal Light Department, the Town of Groton and MMWEC, challenging the validity of the Nuclear Mix No.1, Nuclear Projects Nos. 3,4 and 5 and Project No. 6 PowerSales Agreements. A motion filed by the three defendants to dismiss the case was denied. In October 1985 the Vermont Department of Public :,ervice brought an action against the Vermont Participants in MMWEC's Project No. 6 and MMWEC, challenging the validity of the Power Sales Agreements of those Participants for Project No. 6, among other things. Motions to dismiss and for summaryjudgement have been filed and heard. The motions have been taken under advisement by the court. Vermont Electric Cooperative, a defendant in the suit, has taken the position that its Project No. 6 Power Sales Agreement is not valid. The Village of Stowe Water and Light Department, which is not a Participant in MMWEC's Project No. 6 l but purchased a portion of the project capability of the Village of Morrisville Water and Light Department, which is a Participant in MMWEC's Project No. 6, intervened as a plaintiff in the l Vermont Public Service Department's proceeding seeking an injunction to allow Stowe to

MASSACHUSETTS MUNICIPAL WHOLESALE ELECTRIC COMPANY Notes To Financial Statements December 31,1985 and 1984 37 (8) COMMITMENTS AND CONTINGENCIES, continued Power Sales Agreements, continued cease making payments to Morrisville for bills presented to Stowe for Seabrook-related costs. A judge in the case denied the requested injunction and further ordered that, until the matter of the validity of the Power Sales Agreement is decided upon, Stowe must continue its payments to Morrisville. Subsequently, on January 9,1986, MMWEC petitioned the U.S. Dis-trict Court for the District of Massachusetts, Western Division, for a declaration that the Power Sales Agreement with Stowe for MMWEC's oil and gas fired Stony Brook Intermediate Unit, of which Stowe's project capability is 1.83%,is valid and binding. On January 23,1986, Hull Municipal Lighting Plant filed suit against MMWEC seeking a declaration, that its Power Sales Agreements relating to the Seabrook project were invalid, an injunction against MMWEC collecting any amounts from Hull under the agreements, and monetary damages. The suit alleges, among other things, various misrep-resentations, breaches and imprudencies by MMWEC. Hull failed to make payments for Nuclear Project No. 4 and Project No. 6, aggregating $38,543 per month,beginning January 1986 and has paid the amounts for Nuclear Mix No.1 under protest. On March 5,1986, a Massachusetts Superior Court granted MMWEC's motions to stay the legal proceedings and compel arbitration of the suit and for a preliminary injunction requiring Hull to continue to pay its share of monthly power costs as required by the Power Sales Agreements. Subsequently, a single justice of the Massachusetts Appeals Court denied Hull's petition for relief from the orders of the Superior Court. Hull then made payment to MMWEC, under protest, of monthly power costs due through March 1986. A notice of appeal from the order for a preliminary injunction was filed by Hullin the Superior Court. Hull has presented to MMWEC terms under which it would sell its share of the Seabrook project to any interested party, but there can be no assurance that the terms upon which Hull would be willing to sell would be acceptable to a potential purchaser. On January 9,1986, the Peabody Municipal Light Board voted to have the Peabody Municipal Light Commission hire legal counsel with expertise in utility law to examine the course of events between MMWEC and the Peabody Municipal Light Plant regarding the Seabrook project and to determine its options, and the positive and negative implications of those options as regards Peabody's Seabrook project involvement through MMWEC's Nuclear Mix No.1, Nuclear Projects Nos. 4 and 5 and Project No. 6. It was also voted that Peabody's payments for Nuclear Projects No. 4 and Project No. 6 forJanuary 1986, and all sub-sequent payments for Nuclear Projects Nos. 4 and 5 and Project No. 6 be paid under protest. Eastem Maine Electric Cooperative and Vermont Electric Cooperative, Participants with 3.62% and 7.25%, respectively, of MMWEC's Project No. 6,are also paying their shares of Project No. l 6 monthly costs under protest. Based on the opinions of Bond Cousel and other legal cour el, discussions with such counsel and other considerations, Management believes the ultimate resolution of the actions described above will not have a material adverse effect on the financial position of MMWEC. Additional information regarding commitments and contingencies relative to MMWEC's debt and involvement in nuclear projects is discussed in Note 4 (Debt) and Note 6 (Construction and Financing). (9) SUPPLEMENTARY INFORMATION TO DISCLOSE THE EFFECTS OF CHANGING PRICES (UNAUDITED) The following supplementary information has been prepared in accordance with the Statement of Financial Accounting Standards (SFAS) No. 33 (as amended by SFAS No. 82) for the purpose of providing certain information about the effect of changing prices. it should be viewed as an estimate of the approximate effect of inflation, rather than as a precise measure. Current cost amounts, restated in average 1985 dollars, as measured by the Consumer

MASSACHUSETTS MUNICIPAL WHOLESALE ELECTRIC COMPANY Notes To Financial Statements December 31,1985 and 1984 l 38 (9) SUPPLEMENTARY INFORMATION TO DISCLOSE THE EFFECTS OF CHANGING PRICES (UNAUDITED), continued Price index for All Urban Consumers (CPI-U), reflect the changes in specific prices of plant from the date the plant was acquired to the present. The current cost of electric generating and transmission plant and construction work in progress is determined primarily by indexing plant by the Handy-Whitman index of Public Utility Construction Costs.Since the utility plant is not expected to be replaced precisely in kind, current cost does not represent the replacement cost of MMWEC's productive capacity. Fuel inventories and the cost of fossil fuel used in generation have not been restated from their historical cost in nominal dollars. Under provisions of the Power Sales Agreements, revenues are limited to the recovery of fuel at actual cost. For this reason fuel inventories are effectively monetary assets. Depreciation is determined by multiplying MMWEC's historical cost depreciation by the appropriate index conversion factors. Under the MMWEC Power Sales Agreements which govem its billing procedures, only the principal maturities of debt relating to the historical cost of the utility property are recover-able. Therefore, the amount of plant stated in terms of current cost that exceeds the historical cost of plant has been adjusted down to its net recoverable costs. During a period of inflation, holders of monetary assets suffer an unrealized loss of general purchasing power while holders of monetary liabilities, such as MMWEC, experience an unrealized 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 prop-erty, plant, and equipment. Since the recovery of utility plant is limited to amounts based on historical costs, the holding gains on debt are in effect realized by MMWEC's members. Statement of Operations Adjusted for Changing Prices For the Year Ended December 31,1985 (Dollars in Thousands) Coventional Current Cost Historical Average 1985 Cost Dollars Revenues and interest income $198,867 $198,867 Fuel Used in Electric Generation $ 33,044 $ 33,014 Purchased Power 81,152 81,152 Other Operations and Maintenance 9,811 9,811 Depreciation 8,332 10,839 Taxes Other Than income 1,619 1,619 Interest Expense 57,177 57,177 Loss on Cancelled Units - net (637) (637) Cain on Extinguishment of Debt (1,170) (1,170) Less-Amounts Recoverable in Future 9,539 7,032 $198,867 $198,867 Unrealized Gain from Decline in Purcahsing Power of Net Amounts Owed $ 27,965 Reduction to Net Recoverable Amount $ 3,507 l l Specific Prices of Plant and Construction Work in Progress Held During the Year increased by $10,592 which was Less than the Increase Caused by inflation by $ 21,978 1

MASSACHUSETTS MUNICIPAL WHOLESALE ELECTRIC COMPANY Notes To Financial Statements December 31,1985 and 1984 (9) SUPPLEMENTARY INFORMATION TO DISCLOSE THE EFFECTS OF CHANGING PRICES (UNAUDITED), continued Five Year Comparison of Selected Supplementary Financial Data Adjusted to Average 1985 Dollars (Except Historical Amounts) for the Effects of Changing Price (Dollars in Thousands) Year Ended December 31, 1985 1984 1983 1982 1981 Revenues and Interest income i Historical $198,867 $210,002 $188,351 $163,836 $ 82,083 Adjusted for inflation $198,867 $217,499 $203,386 $182,010 $ 97,098 Net Property, Plant and Equipment, including Construction Work in Progress Before Write-down to Net Recoverable Amount: Historical $832,660 $694,095 $644,022 $515,863 $399,766 Adjusted for inflation $983,538 $847,711 $806,343 $671,667 $ 543,001 Adjusted for Specific Price Changes $946,541 $824,836 $790,430 $656,982 $533,102 General Information Unrealized Cain from Decline in Purchasing Power of Net Amounts Owed $ 27,965 $ 26,693 $ 23,091 $ 18,519 $ 35,798 Average Rate of Inflation (based on CPI-U) 3.6% 4.3% 3.2% 6.1% 10.4%

_.-.,-,_m__ I MMWEC Board of Directors h " and Corporate. Officers y i.4. _ ; 4.,_ _.#.._ ___ L j L_- - .,.uain ~. m',.. q MMWEC is governed by a nine-member y board of directors. Seven directors are MMWEC-d 7 member managers or commissioners elected by the membership and two directors are appoin-ted by the Governor of Massachusetts. The MMWEC Corporation has six officers, including the Chairman of the Board. MMWEC's presi-dent, Francis H. King,is pictured on page 8. i Pictured here are members of the MMWEC Board of Directors, including (top row, left to right) Neil E. Murray, Holden Manager; Curtis J. l Lanciani, Littleton Manager; William J. Wallace, _] l Wakefield Manager; George E. Leary, MMWEC Treasurer and Holyoke Manager; (center) 4_ Caroline Stouffer, Gubematorial Appointee to the Board;(bottom row,left to right) John H. i{' ] Crooker, Reading Commissioner; Horst Huehmer, ,7 ~~ MMWEC Chairman and Hudson Manager; and Michael Madore, Danvers Manager. The second E' Gubernatorial Appointee to the Board, Leonard Wagner, was not available for the photograph. ~ MMWEC Corporate Officers include (left to right) Richard K. Byrne, General Manager and f, Secretary; Walter Gaebler ll, Assistant Treasurer; Maurice J. Ferriter, General Counsel and Assis-tant Secretary; and Thomas E. McHugh, Deputy General Manager and Assistant Secretary. p.);

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b i,ix, The 148i \\l\\tWEC Annual Report nas produc ed by the tu>n can be obtained, free of < harge, by u nting to the Publoc Pubik Altarts Ottac ol the \\tassac husetts hfunnipal Whole-Aftairs Office, Afassachusetts hfunicipal Wholesale Elet tnt sale Elet tric Comp 1ny. Company, P. O. Box 426, Ludlow klA 01056. AII rc< guests for Copies of this report and supplemental financialinforma-informatoon about ht\\lWIC should be direc ted to this offn e.

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Scabrook efforts focus on rat: pay:r pr:t:ction There were a number of devebpments related to the Sea-mgot hnal t: nets on August 7. MMW t C obrected to this s< hesfule, tum of the interest on MMWIC's Sedwook debt at tte time of twook progett durmg the hrst quater. As the project nears com-utmg the need for an earher deciuon in order to complete the this report. As a result, VEC is in default under its contrat with pletion and commercial operation, MMWEC is continuing its long-term finarwing requwed to retire the BANS m Oc tober. MMWEC to purt hase atxiut 0.4 per< ent of the protect's output. effort to contain costs and twmg Seatwook Unit No.1 on hne as if timely DPU approvd of MMWEC's request is not received, Vf C made its Janumy payment under protest. quickly as posseble in order to mmimize the impst on raepayers there me altematwes. The attemauves, however, would pro-VIC has taken the poutum the its Seatwook contrar1 with in MMWEC rnember communities. bably be more expenuve. MMWE C's fwwrx ing plan presents the MMWEC is not vahd. VIC offuials, however, have sed they best way to restore MMWEC to a poutum of hsuruial st4nhty, intend to make every effort to honor thew lawful contratud I"'"'I"E contan present and future power costs and ensure the of,ligatums to MMWEC, but that cash flow problems have pre-On Februmy 10,1986, MMWEC fded a comprehenuve, kmg-continued growth and development of pubik power in vented them from making timety payment on MMWEC hilling. term financmg plan with the Massahusetts Department of Massa husetts. MMWEC is workmg with VEC to resolve this situatum. Public Utdities (DPU). In its filing, MMWEC requested DPU For the se reasons, MMWE C wdl be working ditsgently to see The MMWEC Bond of Dwectors has voted to reimburse the approval to issue $164.5 milhon in long-term, tax-exempt that the plan is implemented. legal expenses of SeatmxA Partuspants that are vigeously revenue bonds. defendmg the vahdity of the contrats m the Groton and Ver. Most of the bond proceeds would be used to retwe $120 Litigation mont legal as tions. MMWE C wdl contmue to provide a vigorous mdhon in short-term bond antiopation notes (RANS) issued by On Janumy 23,1986, the Hull Munu spd Lighting Plant filed a defense of the vdidity of the contra <ts in di of these pro-MMWEC in Octoter 1985. Prcx eeds of the BANS issue are being complamt in Plymouth Superuw Coust seeking to have the con-ceedings. Based on the opinion of Bond Counsel and other legd used to fund MMWEC** share of remanmg Seabrook construc-tracts it signed with MMWEC for partkipatum m the Seatsook counsel, descusuons with such counsel and other (on-tion costs and a portum of the 1986 interest costs on MMWEC's project ovahdated. The comptant alleges, among other thmgs-Siderations, MMWEC beheves that the uitwnate resolution of outstanding Seabrook debt. vanous misrepresentatons, breuhes and imprudenoes bY these actions will not have a matenally adverse effect on Approximately $40 mdhon of the finarning request is for the MMWEC. MMWEC's fmaruial poution. continued fundingof mterest and other costs in 1987 af commer-The Hull municipd withheld paymens on 1986 bdhngs fo' af very effort has twen male to provede the latest informaron cial operation of Seabrook is delayed. If Seabrook at hieves com-interest on MMWEC's Seatmook debt. and as a result entered ,,th resperi to httgatw n ibwever, thew utuarsons are subre t to meraal operation late in 1986, as currently planned, issuance of default under two of its four Seabrook ccetruts with MMWEC. < hange in onjer toobran updated snk smatw;n, please conta t the , these bors a mr!d not be necessary. huh has contracted with MMWEC for about one-tenth of 1 per-MMWIC PuMc Affars Offa e ) { MMWECs new finarweg request is the heart of a com-cent of the Seabrook protect's output. prehensive finanung plan structured to keep power costs as low On Mac h 5, the Superior Court granted an MMWEC motion Project Status as posuble for municipal electnc system ratepayers. for a prehmmmy inluextion requinng Hun to pay its current shme Dunng Apnt, Seabrook Unit No.1 reached 98 percent com-Another cntical cornponent of the plan mvolves the phase in of Seabrook costs pendmg resolution of the mater. A second pletion with commercid operatum stix possible on October 31, of costs for the Seahrook project. MMWEC began bdhng a por-MMWEC motion to stay the legal pro (cedings and move the 1986. Seabrook Station began receivog nuclear fuel in Februmy. tbn of the interest due on its outstandmg Seabrook debt in complant to arbitration, as stipulated in the contracts, also The fuel is scheduled for loadmginto the Unit No.1 rem 1or core Janumy 198h The bdlings enable MMWEC's Seabrook Par-was granted. thrs summer, with low-power testeg sc.heduled to commence tkipants to begm phasing project costs into their rates. In adde A Hun appeal of the Supenor Court ruling was upheld by a shortly thereafter. tion, by billing a portion of the interest costs now, MMWEC is single justice of the Massachusetts Appeals Court on March 21. A full-power operating licerne from the Nuclear Regulatory seducing its totd borrowing requwements for the project. In icrordanc e with the court orders. Hull on March 26 made pay-Commrssion must be obtaned before the project can begm Under this carefully planned billing structure, bdlings for debt ment on its outstandmg MMWEC bills, cunng the system's commercul operatum. Before thes hcense is issued, the Sea-service on MMWEC bonds issued for Seabrook wiX gradually default. Hull has appealed the order granting a prehminary brook Ernergency Response Plan must be approved. The plan mcrease over the next three years, resulting in average annud injurstion requinng these payments to the full Appeds Court, outlines the steps to be taken to protect people withm a 10 mde increases in reveaue requirements for MMWEC's Member Par-and enty in Apnl filed a demand far arbitration of its complant rad.us of the plant in the event of an accident. ticipants of between 4 percent and 5 percent. Participant bdlmgs with the Amencan Arbetratum Auxiation. New Hampshwe officials have submitted the plan for fedad will stabdise after the phase-in penod, as bdlmg of full debt ser-There me two other court chdienges to the contracts signed approval and a test of the plan has teen conducted in the 17 vice on MMWEC bonds is planned for 1988. Average annual by MMWEC's Seabrook Partaapants. effected New Hampshwe communit.es. erwreases in revenue requirements for Member Particioants are A group of ratepayers m Croton, MA fded a lawsuit in january Massachusetts offKuls have sad they wiu not submit the protected to be between 2.5 percent and 3 percent from 1988 1985 seeking to have the contracts between MMWEC and the plan for federal approval uniess the project agrees to shut the to 1993. Cruton Electnc Light Department (CELD) involving nudear plant down between July 4 and Labor Day untd adequate shelter A thwd part of the financial plan mvolves the refinancing of capabdity invalidated. Defendogthe vahdity of the contruts me can be provided for summer bexhgoers. Ihe seacoast ad m ent i high-interest honds issued for the Seabrook and Mdistone Unit MMWEC, CELD, the Croton Light Commission and the Town to Seabrook Station is a popula summer resort mea. and Massa-No. 3 projects. Savings realized through refinancing would sub-of Croton. chusetts officials say they are concemed about protecting the stantiady reduce debt service requwements, resultmg in lower Also, the Vermont Pubhc Servue Depatment in October beach population if there is an accident. There are un Massa-power costs for Participants. The refinancings could reduce 198S ided an action c.hallengmg the Seabrook contruts between chusetts communities withm the emergency plannog area. aggregate Partiapant rate levels by between 1.5 percent and MMWEC and several consumer-owr.ed utdities in Vermont. In med Apni, Seatwook's joint Owners were reywwing the 2 percent. Both the Croton and Vermont proceedmgs are in the pre-Massachusetts proposal MMWEC owns 11.59 percent of Sea-Late in the first quater, MMWEC answered aF n Nunately heanng stages. brook Station. 150 information requests from intervenors in its DPU fmancing One of the Vermont utihtses, the Vermont Dettnc Coopera-case. The DPU suggested a schedule for the case cathng for the fd-tive,Inc. (VEO had not pad its February and M.rc.h bdis for a por-

APP ances. This project,which is glso sponsored by four of the Millst:n2 Unit Na 3 goes ermm:rci::1 li state's investor-owned utilities, will help establish the kind of Millstone Unit No. 3 began commercial operation ahead of reliable regional data base needed to implement effective and schedule on April 23,1986. The Millstone unit is an important economic load management and conservation programs. Five part of the MMWEC power supply, with commercial operation MMWEC members in February won a $25,000 grant from the of the unit representing a major milestone on the road to power American Public Power Association's Demonstration of Energy-supply independence for Massachusetts municipal electric Efficient Developments Program to help fund the monitoring systems. project. MMWEC has committed $40,000 to the project. Twenty-seven MMWEC members have contracted to purchase This emphasis on load management, conservation and alter-the output from MMWEC's 4.8 percent ownership share in the natives will continue as MMWEC strives to ensure that its mem-project. The MMWEC share represents about 55 megawatts. bers have an adequate, reliable and economic supply of energy Millstone Unit No. 3 received its full-power operatinglicense for the future, on January 29 and Northeast Utilities, the project's lead owner, conducted operational tests of the unit during the first quarter. The project was scheduled for commercial operation in May PLUS Program fosters 1986' understanding and support load management, conservation MMWEC launched its Promoting Legislative Understanding and Support (PLUS) Program early in the fi st quarter of 1986 in and alternat.ives tak.ing hold response to action taken at a Special MMWEC Membership MMWEC initiatives in the areas of load management, conser-Meeting last fall. vation and alternative energy resources expanded considerably At a meeting last October, the membership approved a new during the first quarter. strategic objective for MMWEC. The objective is to foster an Members in January began receiving power from an operat-understanding and awareness of the benefits of public power ing resource recovery (trash-to-energy) plant in Lawrence, MA among legislators and the public. under a 20-year contract that also provides participating com-The Board of Directors voted last December to hire a consul-munities with a discount on trash disposal fees. tant to help develop a program structured around the new objec-Also in January, the Board of Directors authorized the expen-tive, and a committee was formed to oversee the development diture of up to $100,000 to hire a consultant to investigate and of goals, objectives and tactics for the PLUS Program, make recommendations on the feasibility of developing renew-This committee, the PLUS Review Committee, is composed able energy resources. The investigation willinclude, but not be primarily of municipal light department managers and com-limited to, refuse-fueled generating facilities. missioners. Support for the committee is provided by MMWEC In addition, MMWEC is preparing a standard offer contract for staff, the Northeast Public Power Association, the office of cogenerators and small power producers that will enable the MMWEC's general counsel and the consultant. membership to add power from these sources to their resource The PLUS Program plan involves a long-term effort to ensure mix. The contract offer, with a price based on the average that MMWEC and its programs are fully understood at the state avoided cost of participating systems,is expected to be made and local levels. This will be done by educating key audiences during the second quarter of 1986. about the many accomplishments and benefits of public pow er MMWEC has initiated a number of " showcase" projects to and developing a network of advocates throughout the state. bolster load management and conservation efforts. The projects The value of this program has already been demonstnted cover such areas as commercial audits, residential weatheriza-with the organization of an information campaign with respect to tion, commercial lighting, televised energy education programs H.R. 3838, the House version of the Tax Reform Act of 1985. and the bulk purchase of load control and conservation equip-MMWEC's concems over certain tax-exempt financing pro-ment and materials. These and other projects are structured to visions of the bill have been conveyed to members of Congress demonstrate the economics and efficiency of various load through personal visits and more than 1,000 letters from public management and conservation strategies.With tNs documenta-power representatives. tion, members will be able to choose the strategies most approp-The PLUS Program has sponsored two workshops entitled riate for their systems. "Becoming an Effective Legislatne Liaison," which provided In a related effort, MMWEC is near completion of a report on MMWEC member managers and commissioners with informa-no-cost and low-cost load management and conservation tion on how to establish effective relationships with legi>laton. options, detailing how to im plement 14 different projects at little In months to come, as different aspects of the program are or no cost. implemented, the results of PLUS Program activities will begin to MMWEC and five of its members also became participants in surface. Public and legislative understanding and support w ill be a research project involving the detailed monitoring of applian-valuable assets as MMWEC continues to refine its prograr i to ces in 50 homes throughout Massachusetts. The monitoring will ensure that members are receiving the most economical puer determine how much and when electricity is used by the available.

.c ~ MASSACHUSETTS MUNICIPAL WHOLESALE ELCCTRIC COMPANY Statement of Operations March 31,1986 and 1985 (Unaudited) (Dollars in 1housands) Three Months Ended Twehe Months Ended March 31, March 31, 1986 1985 1986 1985 Revenues: Electric Sales for Resale. $ 38,262 $ 40,231 $148,087 $159.678 9,174 813 12,191 2,580 Service Resenues. 9,614 9,763 44,833 44.691 Interest income Total Revenues and tnterest 1nceme $ 57,050 $ 50,807 $205,111 $ 206.949 Operating and Service Expenses. Fuel Used in Electric Generaticn... $ 11,139 $ 11,550 $ 32,633 $ 42,282 Purchased Power. 20,478 22,074 79,555 85,534 Other Operating. 1,732 1,297 7,099 5,840 532 582 3,099 2.474 Maintenance.. Depreciation.. 2,051 2,060 8,323 8,*62 392 437 1,573 1,543 Taxes Other Than income... 36,324 38,000 132,282 145,835 Interest Expense: Interest Charges. 37,381 29,387 135,576 112,108 Interest Charged to Projects During Construction...... (27,494) (19,152) (78,746) (53.899) 9,887 10,235 56,830 58,209 Total Operating Costs and Interest Expense. j6 21_1 48,235 189,112 204.044 W on Cancelled Units - ne' 4 18 1652) 66.113 (1,169) (7,469) (Gain) on Retirement of Debt. 18 (1,821) 58,644 4 Amounts (Recoverable) Payable in the Future Under Terms of the Power Sales Agr'eements...... 10,835 2,554 17,820 (55,739) $ 57,050 5 50.807 $205,111 $ 206.949 Notes to Financial Statements The accompanying unaudited financial statements should be read in conjunction with the MMWEC 1985 Annual Financial Statements. Certain amounts presented in the prior reporting period's financial statements have been reclassified for purposes of consistency. Ii

Trustee and Paying Agents Bond Fund Trustee ContinentalIllinois Bank and Trust Company of Chicago, Illinois Paying Agents ContinentalIllinois Bank and 1 rust Citibank, NA., New York, New York Shawmut Bank of Boston, NA., Company of Chicago, Illinois 1976 Series A Bonds Boston, Massachusetts 1976 Series A Bonds 1977 Series A Bonds 1978 Series A Bonds 1977 Series A Bonds 1977 Series B Bonds 1979 Series A Bonds 1977 Series B Bonds 1978 Series A Bonds 1980 Series A Bonds 1978 Series A Bonds 1979 Series A Bonds 1981 Series A Bonds 1979 Series A Bonds 1980 Series A Bonds 1981 Series B Bonds 1980 Series A Bonds 1981 Series A Bonds 1982 Series A Bonds 1981 Series A Bonds 1981 Series B Bonds 1982 Series B Bonds 1981 Series B Bonds 1982 Series A Bonds 1985 Series A Bond Anticipation 1982 Series A Bonds 1982 Series B Bond; Notes 1982 Series B Bonds Bank of New England, NA., 1984 Series A Bonds Boston, Massachusetts 1985 Series A Bonds 1985 Series B Bonds 1976 Series A Bonds l 1977 Series A Bonds 1977 Series B Bonds l Acknowiedgements Page 14 W.F. Myman Project photo courtesy of Central Page 15 Ilydro-Quebec photo cc>urtesy of New England Maine Ebwer Company. Ibwer (bol. Page 14 lbintiepreau CeneratingStation controlroom Page 15 Niagara Project photo courtesy of New York photo courtesy of New Brunswick Electric Tbwer Authority. Ibwer Commission. y a -j ai%- d .c 3 3v MtJ / yp: >s y; t* W,' v$# ,r p i

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